City looks to make electric bills simpler, easier to understand

There’s a reason not everyone’s an accountant. Accounting is hard. It’s not for the faint of heart. Accounting is complicated. It’s often confusing to those who haven’t studied accounting. Accountants are exacting. They sweat the details, even the smallest ones that most would dismiss as irrelevant.

So it’s not surprising that when accountants do their thing, laymen have no idea how to decipher and interpret the calculations.

For those who utilize Sallisaw utilities, the perplexing computations are faced each month in the form of an electric bill or a water/wastewater bill.

But city staff and the Sallisaw Municipal Authority (SMA) are committed to simplifying that recurring bewilderment.

That’s why for a full afternoon last week, JoLynn Rains, utility rate consultant for the city, convened city staff and the SMA board for what, to the layman, was a master’s class in cost accounting — a sweeping and comprehensive dissection of how the city currently computes utility rates, and how the resulting bill can be easier to understand in the future by utility customers.

Monthly calculations used in generating monthly electric bills have included common, yet confounding acronyms such as CPBA, which stands for Cost of Power Base Adjustment and PCA (Power Cost Adjustment).

The CPBA was implemented in October 2021, and is a portion of the average cost of power included in the energy charge and the other charge-through to fully recover the cost of power.

“It’s been working great, but it’s complicated to explain to the citizens,” Rains said of the CPBA. “It’s been recommended that the CPBA be replaced with a PCA pass-through. So the PCA calculations will be used to fully recover the cost of GRDA PCA that is charged to the city monthly.”

Simplify billing

Eliminating the CPBA from the calculations is intended to simplify customer billing, hopefully making it easier for customers to understand. The Grand River Dam Authority (GRDA), where the city gets its power, will still receive payment for the power it generates, but the city’s bills will be simplified.

“It makes it easier for us to explain and, hopefully, make it easier for the customer to understand as well,” Sallisaw City Manager told the SMA board. “We’re using this as an opportunity to get rid of the CPBA and pull it through like most other municipal utilities do, and just have one pass-through, that’s the PCA. It’s calculated every month, based on what the announced PCA is and our loss factor, so it’s a simple, very simple calculation. We’re getting rid of the CPBA. We’re just going to have the PCA, and it’ll be a 100% GRDA pass-through.”

In short, what GRDA charges Sallisaw, the city will, in turn, pass that charge along to customers using an easier-tounderstand bill. Rains then itemized the charges included in customer billing.

“There is a customer charge of $14.94,” Rains explained to the SMA board. “That is a fixed flat fee for customer service that each residential customer pays every month regardless of how much electricity they use or not.”

After that, the number of kilowatt hours used by each customer is calculated at 10.4 cents per kilowatt hour.

“Then your current rates have a CPBA applied, the cost of power base adjustment. What that is, is it’s a mechanism to ensure the full cost recovery of GRDA power. And it has, since it’s been implemented, fully recovered the cost of power. However, it’s more complicated than what we’re recommending now with just passing through the power cost adjustment,” Rains told the SMA board.

She then assured the board that calculations by the city’s financial staff are a result of reliable data.

“If this is the one takeaway that you go home with today,” she told the SMA board, “the city of Sallisaw has some of the best customer and usage data. It is clear, it is concise, and it is very usable data. It’s in the top 10% of any of the cities, municipalities or countries that I’ve worked for. So you have a lot to be proud of in your staff and the way that they keep the data that’s really important to the city.”

Increases planned

While the city monitors both GRDA and customer charges, those charges are forecast to increase during the next several years.

It was last November that Dan Sullivan, president/CEO of the GRDA, told the SMA that Oklahoma’s largest public power utility plans to increase the rates it charges Sallisaw equal to 18% during the next five years, and Rains warned that GRDA’s purchased power cost is going to change during the next four years, “and even after that.” Those inflated rates will be passed along to Sallisaw customers, as will that familiar power cost adjustment (PCA) as a pass-through from GRDA.

“People always want to know, ‘Why are utility rates increasing?’ It’s a fair question, because they are increasing,” Rains said. “You’ve seen it with your investorowned utilities here in Oklahoma. You’ve seen it with your neighbors increasing their rates, because the cost of business is going up. We know it, we see it when we go to the grocery store. The cost of everything is going up. There are environmental and other regulations that have to be met. There are a lot of renewable energy mandates that are having to be met. And it’s not optional for utilities, whether it’s GRDA or whether it’s the municipal utilities, we have to acknowledge and pay for those. They’re expensive. They’re not going away anytime soon,” Rains said.

“What we see are larger increases starting in fiscal year 2025, from $14.94 to $16.81, a 12.5% increase. The next year it will be a 7% increase, and then 4%, 4% for the energy charge.”

Rains explained that GRDA has conducted its own cost of service study, and looked at how to minimize the impact on its customers while also meeting their revenue requirements to run their utility.

“They wanted to adjust the delivery charges. They wanted to increase the basic charges, or the monthly charges, the meter charge, and then they wanted to adjust the capacity and energy to recover any remaining needed dollars,” Rains explained.

“In 2027, GRDA expects to update their cost of service, and at that time, we’ll see where our tariff stands. Right now the basic charges per meter where energy is delivered is $500 per meter. And then it’s gonna go up to $600, then $700, $800. Their costs have increased.

“But then their capacity costs, or their dollars per kilowatt for every kilowatt used, is going to go from $7.38 to $7.45, $8.08 and $8.74. That’s a total increase of demand for the capacity of 18% over four years. So, yes, it’s a 4% average cost increase, but these components that they are billing are increasing at different rates, and that’s what the city is going to be paying. The delivery demand is going up by 12% starting in probably October 2024, that’s fiscal year 25. That’s increasing by 12%. Then you look at the energy on-peak and off-peak costs, and you can see that over the next four years, they’re not changing at all. I think that’s great. It’s great because the energy costs are expected to stay the same, but the demand costs are what is going to be driving the rate increases even to an average of that 4% of the average cost,” Rains said.

“This is an average cost of power 3.5 cents going up to 3.6 cents to 3.7 cents to 3.9 cents. That doesn’t sound like a lot of money. But when you figure every kilowatt hour that the city of Sallisaw purchases from GRDA and then sells to its customers, then we’re in the $7 million, $8 million.

“So there’s a lot that’s going to happen in the years after the new rate is being put into effect. It’s important to keep that in mind, because the rate increases that we’re looking at now from GRDA are not the last ones,” Rains predicted.

Checking the numbers

Rains then assured the board that the city staff checks and double-checks expenditures and what it costs to provide service to customers.

“Every year, there’s $400,000 for electric system improvements,” she said. “This maintains and improves the electric system. When we first started doing the cost of service, and we went back through the rate recommendations and all the details, the electric system improvements was $500,000. It is one of the things that staff evaluated, reevaluated, talked to themselves and each other about, and we decreased that by $100,000 annually. What I’m saying to you is that what you are seeing is not the first iteration of the information on the cost of service. This has already been gone through once very carefully with a fine-tooth comb, and some adjustments have been made to decrease the revenue requirements where they felt it could be done.”

Rains then provided historical numbers for the board’s review, emphasizing the impact of PCA.

“If you look in fiscal year 2022, the city paid $7.6 million for electricity. The cost of energy and demand was $4 million, and the PCA cost was $3.6 million. You can see in fiscal year 23, the cost of power increased to $8.5 million. Why? They haven’t changed their base rates. It’s that power cost adjustment where we see the difference in the costs. That’s also what you see is the difference in your total cost of power and your monthly bills,” Rains said.

“The good thing about this is we still have a couple of months to tweak our cost of service,” Skelton interjected, “and GRDA still has some time to tweak their cost of service as well. The last presentation we saw, their cost of service was probably about 90-95% finalized. We’re going to continue to tweak this. We may come up with some different scenarios that helps lessen the burden on this.

“As far as GRDA goes, they’ve got regulatory issues that they have to deal with. GRDA also has to maintain lakes. They have to maintain their generation assets. The Southwest Power Pool is pressing them for updating transmission lines and things of that nature, which costs money. GRDA can do that, but they have to do the same thing we’re doing and pass that cost to us as well.

I think as a customer group, I think we’re pretty comfortable with GRDA where they’re at and how they’re spending money and things of that nature,” Skelton told the SMA board.

Rains was likewise pragmatic. “GRDA is somewhat in a situation having not increased their base rates for so long that they are way behind their cost of service. That’s why now they’re seeing the large numbers of increase to cover their costs. It’s not unlike OG&E. It’s not like some of your neighbor cooperatives who are having to increase their rates. It really is what the electric utility is seeing across the board,” Rains concluded.