A Follow-up to PEC Santa Letter, on Rate Adjustments

It is my understanding that the PEC is planning to conduct a cost of service study in the near future. Very close attention should be paid to that effort to ensure that costs are allocated fairly to each rate class

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From Merle L. Moden

A discussion of PEC electric rates and whether or not subsidies are or are not to be provided is premature. First, the cost of service for each major cost component must be determined on a fair and even-handed basis, then those costs are spread among the various rates classes on the basis of cost causation. Then, and only then, should a discussion commence regarding any preferential rates.

I suspect that the current meter charge (also referred to as a customer charge) is not justifiable on a cost basis. It is my understanding that the PEC is planning to conduct a cost of service study in the near future. Very close attention should be paid to that effort to ensure that costs are allocated fairly to each rate class.

Since PEC does not generate any of its own power, it begs the question whether conventional cost determination processes should be applied to determine rates for the PEC members for costs of generation. If LCRA rates paid by the PEC are flat and have no demand charges, then a flat charge per kilowatt hour would be a justifiable on a cost basis. Within this context, however, it is clearly within the authority of the PEC Board to set rates that encourage conservation and discourage wasteful consumption, i.e., lower rates for low consumption and higher rates for higher consumption.

It is important to be vigilant about the cost of service study planned by the PEC, especially in determining costs of generation. Commonly-used cost of service models advanced by consulting firms who represent almost exclusively industrial ratepayers produce results for generation costs that are tantamount to fraud. The fraud occurs when generation costs are bundled, that is, the capital and operating costs of all generators are lumped together, and not examined on the basis of each generators' costs and utilization. The result of this is that generation costs are not allocated on a cost causation basis.