Utility Rates - Our First Episode!

Tim Jarrell is our guest for the first-ever episode of Watt's New and talks about the planning and strategy of what goes into utility rates. Tim has been the Vice President of Power Supply and Planning for Cobb EMC since 2013. His team is responsible for power supply planning and management, rates, distributed energy resource strategy, and strategic planning.

Transcript

This is Watt’s New, a series of conversations about what’s new in the energy space. Hosted by Cobb EMC, one of the nation’s largest electric membership cooperatives based in Marietta, GA, a suburb of Atlanta. Now here’s Watt’s New. 

Mike Codichini: Welcome to Watt’s New! This is our first-ever episode of our podcast. My name is Mike Codichini. I am the Director of Member and Public Relations at Cobb EMC. And we set up this podcast to talk about universal topics in the energy business and have a conversation about what’s new and exciting and any ideas we can share. Tim Jarrell is our first guest, and we are going to dive into everything you need to know about rates in the utility business. 

Tim’s team is responsible for power supply management, rates, distributed energy resource strategy, and strategic planning. He’s spent 25+ years in the energy business and has a degree in marketing management from Florida State, with graduate work in organizational management, accounting, and business administration. Tim, welcome to our first-ever episode of Watt’s New.

Tim Jarrell: Happy to be here, Mike. Appreciate it.

Mike: And if you could, talk about your responsibilities, and what’s involved with power supply planning for an electric company.

Tim: Sure. So, I’ve been in the energy sector now for 30 years, working with power contracts, rates, information systems, risk management, and other areas. So, my role today is VP of Power Supply, Rates, and DER. It’s really to make sure that Cobb EMC and its members have an adequate power supply for the future. And that’s many, many years to come, and making sure we do that in a diversified resource and lowest cost manner. What does this all mean? It simply means we need to have enough adequate power supply to meet our current short-term and long-term needs, making sure that when that switch is flipped, the lights come on. What goes into that? Well, a lot goes into that. You gotta figure out what you need long-term power supply contracts, from building – working with our GNT, Oglethorpe Power, working with the other EMCs, maybe on some renewable energy projects. Just figuring out the lowest cost solution for the long-term power supply needs for Cobb EMC and its members.

Mike: You mentioned DER, which is Distributed Energy Resources. Tell me about that.

Tim: Yes, so the old-school traditional utility model is larger energy resources, big utility plants whether it’s coal, nuclear, natural gas, dams for hydro. DER is more local resources, such as solar on homes, with or without battery storage, that don’t require as much transmission as resources serving the load directly. We have some members that have rooftop solar. We have members that have rooftop solar and battery storage. We have some members that have battery storage only. All of these can provide value to the member. The cooperative’s resources all work together to help reduce the peak demand of the system, which in turn, shortens what we have- or lessens what we have to build in the long-term, as far as resources, or buying resources to meet the future needs of our members.

Mike: What goes into deciding on rates for an electric company or an energy company?

Tim: It’s a tricky solution trying to figure out rates because you always want to balance what it costs to serve, which includes all the expenses and cost of generation and everything that serves a member. You also don’t want to have rates that are unfair or too high, so it’s always a balancing act, and a little bit of an art and science. One thing that goes into it is really supply and demand, the balance between availability of energy and the demand for it is probably the most significant role and the highest cost of going into rates. High demand, especially during extreme weather conditions, can drive up prices. The cost to build and purchase capacity and energy can impact prices, and if the capacity is scarce, like we are seeing in today’s market, that price is going to be very expensive. Fortunately for Cobb EMC members, we’ve got very adequate capacity well into the future. Then you have the fuel cost, you have the cost of natural gas, coal, oil, nuclear, hydro, all the things that go into producing electricity. Then you got your infrastructure. You’ve got to have your buildings maintaining and operating power plants and the electricity grid to get the power from the generation station to the home and businesses. All of these costs are factored into the rates as well. Then you got the price of regulations. The government likes to put regulations on electricity. These can have an impact from environmental regulations, but also can have an impact on the operational cost and even energy prices. Then you’ve got the weather. We never know when extreme weather is going to occur, but when it does, it can be very expensive to repair and rebuild systems. That cost has to go into rates as well. And, like we talked about, transmission distribution costs. Getting it from the generation station all the way to members’ homes and businesses. So those are your key components of what goes into rates.

Mike: Now, what is the main driver of increasing electric rates?

Tim: The most expensive expense for any electricity company, whether or not it is a cooperative, a municipality, or an investment utility, is the cost of the capacity and the cost of the energy. Capacity basically represents the facilities that generate the power, whether it’s coal, whether it’s hydro, whether it’s nuclear, whether it’s natural gas, and that’s where the most expensive costs are. Those facilities have been around for a long time, so you’re building these, and there are a lot of fixed costs associated with them. That fixed cost has to be covered over a period of time. But, you also have the equipment to maintain it, the labor, the fuel, the supply to these facilities, outages can be expensive, and then if you do have to build new capacity, it’s a lot more expensive to build that today than it was in the years past. That’s really your main driver behind the electric rates. That’s the biggest cost that goes into rates. 

Mike: You mentioned weather earlier, so I’m assuming the rates do vary by region as well, right?

Tim: So the U.S. has a very interesting electric grid because you’ve got a lot of different regions that have different electricity suppliers. Some are competitive; some are not competitive. Georgia is not a deregulated electric market, so by every utility, meaning IOU, co-op, we’ve got our areas we serve. We come up with our own rates in some areas of the country. It’s very competitive where we’re competing with each other. If a utility doesn’t have a diverse energy portfolio to meet those demand, whether that’s regulated or deregulated, the prices can get very high. Fortunately, in the southeast, and especially in our service area, our rates stay pretty stable, and they don’t really ebb and flow very much to what the market to what the market conditions are because we’ve done a very good job of locking those long-term contracts and having a very diversified portfolio.

Mike: Members of Cobb EMC have not only enjoyed low rates, but the lowest rates in the state of Georgia. How is this possible?

Tim: That’s a great question. We’ve done a lot of good things to look out for our members. One of those being a very diversified resource mix of physical generation facilities that we subscribe to throughout GNT, which is Oglethorpe Power. We also have negotiated power supply contracts long-term that have some very competitive pricing to them and give us the capacity and energy that we need. Secondly, we’ve got a gas company that does very well, and when the gas company does very well, those profits come back to Cobb EMC in support of the cost of operations to serve our members, which in turn helps maintain stable rates for our members and keeps high reliability. Also, we have some of the highest reliability in the nation for our members so they can enjoy. Thirdly, we have programs in place that our members can participate in for energy efficiency. We have rates through our lifestyle rates program for our members to enjoy, where they pick a rate that ties to how they use power and that has some benefits to reduce our peak demand. And while expenses do go up for equipment, power, cost, labor, etc. Cobb EMC really works to keep any rising cost at a minimum, which also goes into keeping our rates low.

Mike: I know many utilities, including Cobb EMC, have rate plans that customers can choose from. How should customers pick their rate plans?

Tim: We have a lifestyle rate plan. It’s designed to allow members to select a rate plan that works best for them on how they use power. It’s a snapshot in time, and when they decide how they want to use power, they have to determine, “Am I going to use power this way for months or a year?” and decide what rate might be best for them. But we have a rate that just about meets every possible way to use power if you. If you want to use a lot less during peak hours, there’s a rate plan called the Smart Choice, and you can save money on your bill if you can conserve during those times. If you want some free kilowatt hours at night by using less during peak in the day and using more at night, there’s a plan called the NiteFlex. That works very well for just being energy efficient but also for EV charging, and then if there’s a plan that you just want simple, that it’s the same price for every kilowatt hour you use, we’ve got a plan called the fixed rate. On our website, you can play around with the different rate structures and figure out which one would be best for you. 

Mike: Looking ahead, what do you see as challenges in planning a power supply strategy?

Tim: This is probably the most interesting time to be in the energy sector that I’ve ever been in my 30 years in the sector. There’s a lot of new emerging tech technologies. We’re seeing capacities being very scarce. We’re seeing a lot more renewable energy playing into the mix. I expect we’ll see these emerging technologies take more shape, whether it’s more battery storage or seeing utilities go solar. We still have some supply chain disruptions out there, but maybe that’s improving some, and that will continue to improve. We’re starting to see investments in resources, such as combined cycle facilities and combustion turbine facilities. The regulatory environment is kind of confusing, so we’ll see how that plays out in the next few years what type of regulations on different types of resources will be out there, and then you have DER. We talked about solar on homes, we talked about solar on battery storage at home, and I think will continue to see that. I think for us and Cobb EMC, having the lowest rates in Georgia makes it a little bit more challenging for members to have a business case to do that. But I think if you put battery storage with solar attached to the home, maybe it’s a stronger business case, and that’s something in the future that Cobb EMC will work with its members on using that battery storage during peak times to reduce the demand. It’s a win-win for both the members and the EMC. I think we’ll see more programs like that. I think we’ll see more managed charging programs. Right now, we’re doing a pilot program for our members, and it’s going pretty well, so I think we’ll see a lot of interesting things in the future that will be a win-win for the members and Cobb EMC that will help us keep rates low.

Mike: Tim, thank you for joining us.

Tim: Absolutely, my pleasure, thank you.