OPD5 Raises Base Rate

By VERNON ROBISON

The Progress

The Overton Power District (OPD5) Board of Directors voted to raise the base rate on customer power bills by 8 percent across all rate classes at a meeting held on Thursday, June 16 in Mesquite. The rate increase will go into effect on October 1 of this year.

The increase will not apply to ‘per kilowatt’ energy usage rates at this time. Rather the 8 percent increase will only apply to the base rate which is targeted to cover the cost of general overhead and operating expenses of the district including payroll, vehicles, buildings and more.

It was estimated that last week’s action will increase the average residential power bill by about $2.40 per month. Larger commercial customers will see the monthly base rate increasing as high as $5.66 per month.

The increase still falls far short of recommendations made in a detailed rate study done for the district in 2018 by National Rural Utilities Cooperative Finance Corporation (CFC). At that time, the CFC recommendations were to raise residential base rates from the current $30 to $48 per month. The study also urged an increase for large commercial customers from the current $70.78 to around $1000 per month.

During the opening public comment period, Mesquite resident Gary Elgort encouraged the board to be aggressive about bringing the base rate more in line with CFC recommendations. He said it would be a big mistake to just make an incremental rate increase. Such an approach simply continues the inequity of forcing residential customers to pay for the growth of the large commercial sector, Elgort said.

“I would hope that you would look at the suggestions that (CFC) made and take the delta between where you are and where they say; and maybe take 20 percent of that gap and add it on to everyone,” Elgort said. “That will start to put the bills where they belong. Don’t short-change yourself because it is just going to come around and bite you in the end.”

During a presentation on the subject, OPD5 General Manager Mendis Cooper explained that the district has been able to stave off such major increases by keeping expenses low and running on a tight operational budget. In addition, the district’s current energy contract with power brokerage Morgan Stanley, was locked in back in 2016. That was when natural gas prices and other energy costs were at a 20-year low. These factors have allowed the district to keep rates relatively low, Cooper said.

Cooper showed a spreadsheet comparing the OPD5 base rate to that of other electric utilities in the region, including three different states. It showed that the district’s base charge was in line with the other entities.

“You can see that our base charge is higher than some but it is lower than others,” Cooper said. “But what I also want to point out is that the base charge has a big effect on what you charge per kilowatt hour for power. Because if you are not collecting the fixed costs in the base charge, then you are forced to collect it through a variable tool which is kilowatt hour sales.”

Over the past couple of years, the district has seen a distinct increase in its fixed costs, Cooper said. So it may be time to adjust the base rate to keep up with some of those costs, he said.

Cooper expressed concern about the optics in imposing a drastic increase to the base rate at the current time. That is because, by an advantageous anomaly in the district’s current power contract, the cost of power is actually set to decrease temporarily within the next 18 months or so.

The Morgan Stanley contract included a buy-back agreement of the district’s previous contract. The brokerage agreed to buy out the old contract if OPD5 agreed to buy 2.1 million megawatt hours of power at a certain price that came at a slight premium at the time of the contract. Once that obligation was fulfilled, though, the rate would drop for the remainder of power purchased throughout the rest of the contract term. That threshold is expected to be reached in about a year from now, Cooper said.

“So in about a year from now, we are going to see our price for power come down from $50 to $44 per megawatt-hour,” Cooper said. “That is pretty good in this current environment.”
“So with that said, I just hate to raise the base charge too much when next year our rates are going to go down,” Cooper said. “That may not make a lot of sense to people.”

Even so, the Morgan Stanley contract only extends out to the end of 2024, Cooper explained. And all indicators are pointing to a much higher renewal rate.
“When we signed that contract, the cost of natural gas was at about $2.50 per thermal unit,” Cooper has said. “Just to compare: a couple of weeks ago, natural gas prices peaked at about $9. That trend in the market is very concerning.”

Mendis emphasized that significant rate increases are coming. It is just a question of the timing of when to start implementing them, he said.
“At some point there is going to be a jump,” Cooper told the board. “So is it going to be that you want to do that jump now? Or do you want to wait and do it all in 2024. That is for you guys to decide.”

In the board’s May meeting, Mesquite board member Mike Young suggested that the board consider raising the base rate by about $1 per month for residential customers. This would at least cover the cost of additional positions being added to the OPD5 staff, he said.

But given Cooper’s presentation at last week’s meeting, board members were concerned that this may not be enough of an increase.
“Everything we are doing is costing us significantly more,” said Board Chairwoman Judy Metz. “We know we are heading for increases with the new contract. But even now, the supplies and staffing that are coming in are not filling in at what was originally planned.”

Young suggested a slightly different approach where, instead of a dollar amount increase, the board consider making a percentage increase across the board. Since the current rate of inflation has been estimated at around 8 percent, he suggested tying the base rate increase to that percentage as well.
Board members were in general agreement with this concept.

Young made a motion to raise the base rate by 8 percent across all rate classes effective October 1, 2022. The motion was adopted with a unanimous vote of the board.

In the final public comment, Elgort expressed disappointment with the action. He commended the board for taking action, but said that it was not nearly enough.
“You hired a corporation to do a study for you and you have basically ignored it,” Elgort said. “Now it is residential customers who are still picking up the bill. Please start looking at putting the charges where they belong!”