The City of Minden and SWEPCO agreed to settle the complaint that Minden filed against the company earlier this year, according to a press release issued by the city Thursday afternoon.
On November 26, 2018 Mayor Tommy Davis signed an agreement to settle the complaint filed by Minden at the Federal Energy Regulatory Commission (FERC) against SWEPCO (Docket No. EL18-122), Minden’s wholesale supplier of electricity. Minden’s City Council reviewed the proposed terms of settlement during a special meeting on November 12th and approved a resolution authorizing the Mayor to settle the matter.
Minden brought the complaint to change the terms of SWEPCO’s contract to lower the cost of electricity to the city’s residents. The changes will take effect upon approval by the FERC, expected in early 2019. When it is approved, several beneficial changes will be retroactive to January 1, 2018. Mayor Davis called the settlement “a fair and reasonable resolution of a difficult situation with Minden’s long-term contract with SWEPCO.”
The settlement accomplished several goals: changes to the methodology for calculating Minden’s rates, a significant reduction in SWEPCO’s return on equity, the right to install up to one megawatt of generation in Minden, protection against being charged for SWEPCO’s abandoned Wind Catcher Project, and improvements in how transmission is managed. SWEPCO will also pay Minden a one-time cash payment to Minden of $400,000 that will be paid within thirty days of FERC’s approval.
Some generation in Minden has the potential to lower the cost of electricity. Mayor Davis is enthusiastic about this, commenting, “The City Council intends to use these funds to install up to one MW of behind the meter generation to reduce Minden’s demands as permitted under the Revised PSA.”
Revisions to the contract methodology for calculating the cost of electricity include:
- Reduced return on equity to 10.1% from 11.1%;
- Prompt flow back of accumulated deferred income taxes;
- Use of actual tax rate instead of statutory tax rate;
- Greater share of SWEPCO’s off system sales margins;
- Other changes include Account 451 credits, depreciation rate changes; and deducting unfunded reserves from rate base.
Another change clarifies how stranded costs would be calculated if Minden terminates the contract before 2028. SWEPCO agreed to not terminate the contract unilaterally.
SWEPCO committed to perform certain transmission nomination procedures that reduce volatility of transmission charges.
The parties agreed to take a break from litigating, and each will refrain from asking FERC to approve any further changes until January 1, 2022.
The city’s settlement can produce lower electric supply costs, but the SWEPCO’s monthly invoice is based on how much electricity Minden’s customers use, especially during the one-hour period of highest usage each month from June through September. Minden’s peak demand increased 3 MW during the summer of 2018 which will be reflected during the annual true-up of 2018 costs which will occur in mid-2019. Unless all the other customers had a similar increase in peak demand, this increase will increase monthly costs to Minden. The contract revisions negotiated in the settlement, however, are expected to be close to the costs initially projected, according to Mayor Davis. Minden’s usage and SWEPCO’s costs are trued-up annually after each calendar year. Minden’s total peak load as a percentage of total customer load is a significant factor for allocating SWEPCO’s costs.
Every Minden customer can help lower SWEPCO’s monthly bill to Minden by intentionally reducing summer demands by being “energy conscious” and adopting energy efficiency measures. These include sealing air leaks, increasing insulation, and shifting appliance and water pump usage from on-peak times (late afternoon weekdays in the summer) to off-peak times (nighttime). Actions taken by and during the summer of 2019, including Minden-installed generation, could significantly change the 2020 rate calculation and reduce rates to Minden’s customers. Mayor Davis encourages the city, church, civic, and other groups to “take control,” educate Minden’s customers on how simple measures can lower costs for everyone and be attentive to how energy is used on very hot summer days. “Small changes by many individuals added together will make a big difference in costs for everyone,” the Mayor said.