Paducah Power rate study ramping up

Paducah Parks & Recreation employees work to take down Christmas lights in Noble Park on Monday. Paducah Power’s annual Christmas In The Park fundraiser set a record with $50,947 raised this year, while the canned goods drive was down, as expected, due to COVID-19 concerns and the cancellation of the school challenge.

The Paducah Power System board is more than half way through its internal review process which will ultimately result in new electric rates for the municipal utility effective July 1, 2021.

The board conducted its fifth of eight planned rate workshops Monday, led by Doug Handley, PPS director of finance, power supply and rates.

Topics so far have included a general discussion of rate design, the use of incentives, billing issues and options, and Monday’s discussion rate schedules.

The workshops will run through April. At that time staff will propose a final rate design to the board. The workshop presentations are archived on the PPS website, paducahpower.com.

“I’m happy with where we are in the process,” said Dave Carroll, PPS general manager. “The details dealing with the actual numbers are yet to come. I think it’s going to be interesting once we get to the cost allocation portion which should be in the coming 30-60 days.”

Paducah Power’s last rate study was done in 2013. That study, done by an outside consultant, resulted in two rate increases in 2014 and one in 2015.

“That was the recommendation to do three separate rate actions in (approximately) an 18-month period,” said Carroll, adding “this time it will be one.”

The rate review is being done internally since Handley previously served as a consultant, providing expertise to different utilities, Carroll said.

“You have fixed costs and you have variable costs. The fixed costs are pretty well known,” Carroll said. So the question is, “How do you structure a rate to recover the fixed cost and the variable costs. There are different ways you can do that.”

The goal will be to find a balance “between the two (fixed and variable), keeping it (rate structure) simple enough that customers are able to follow it, to understand it, but yet collect the costs as efficiently as you can. It also minimizes any fluctuations in the power cost adjustment (to recover the difference between the actual power costs and the amount of power cost in rates).”

There is an “art” to the process as well, the general manager said.

“Just because you go through the allocation methodology, if your results vary too significantly from your existing rates, the board could not to move to a 100% cost allocation method,” he said. “They could move towards that direction but maybe not go all the way if it causes too much disruption between the rate classes.”

Carroll said it’s too soon anticipate how the present rates could change.

“I don’t have a preconceived notion. Historically I think there are customer classes that subsidize other customer classes,” he said. “That’s true with pretty much all utilities.

“I do know that overall, the revenue will need to increase because our financials have shown that we’re not collecting enough through the base rate to pay our costs.”

One idea that has been discussed in the workshops is the impact electric cars could have in the future.

“It (use of electric cars) is not widespread, but I think that is coming in the next decade to maybe 20 years,” Carroll said. “And, that could be really beneficial for the rates because we’re ‘long’ on capacity. So the more energy we use the more the overall cost goes down or is reduced.

“The good thing about electric cars is that most people charge their cars at night. That’s when you really have an abundance of energy,” he said.

At night when people are sleeping and most businesses are not open, “you’ve got all this extra generating capacity that’s not really being used. so if you can use that energy it drives our cost down because your fixed costs didn’t change.”

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