The 100,000 or so DEMCO customers will see their monthly bills increase more than 4 percent starting April 1 for a year; then they will start receiving refunds for a year.
It’s part of a unique proposal, approved by the state Public Service Commission, aimed at moderating an expected jump customers will see in their monthly electric bills beginning in April 2014.
“We’re trying to minimize the impact on the customer,” said John Vranic, DEMCO chief operating officer and general manager. “Instead of having a steep step, we will transition the customer into it.”
Vranic said Dixie Electric Membership Corp., better known as DEMCO, is coming to the end of a decade-long contract that locked in the price of power and kept monthly bills low. None of the 10 power suppliers vying for a new contract would duplicate those terms.
“All good rides have got to end,” Vranic said.
Usually, the PSC would wait until the new contract begins before allowing an increase in the monthly electricity rates.
PSC Commissioner Jimmy Field, of Baton Rouge, made the motion, which was approved last week in a 4-1 vote, allowing DEMCO to collect a surcharge before the new, more expensive, contract goes into effect.
“It’s not a great idea,” Field said. “It’s really not. But they felt like it would help. I told them as long as the customer is made whole, then I felt like we could let them do that, truthfully, because they are a very well-run co-op.”
Headquartered in Greenwell Springs, DEMCO reports having 100,377 customers in Ascension, East Baton Rouge, Livingston, St. Helena, Tangipahoa and both Feliciana parishes.
Called the “Rate Moderation Proposal,” the plan would add a surcharge on the monthly utility bills for DEMCO customers. Basically, a customer buying 1,000 kilowatt hours per month would pay a $3 surcharge from April 1 to the end of 2013, according to the PSC order allowing DEMCO to begin collecting the surcharge. The surcharge would then increase to $4 for the same amount of electricity used until March 31, 2014.
For instance, a DEMCO customer using 1,000 kWh paid $80.04 in October, according to the PSC. The surcharge would have increased that amount to $83.04. An Entergy Gulf States Louisiana customer in the Baton Rouge area paid $84.85 for the same amount of electricity in October. The PSC calculates that the typical residential customer uses about 1,400 kWh per month.
The surcharge money will go into a fund from which DEMCO would start refunding customers in April 2014, when the new power contract starts, the PSC order says. The customer using 1,000 kWh would have $3.50 credited to their now more expensive monthly bills until the end of the year. Then the refunds would drop to $2.22 per month for 1,000 kWh bought through March 2015, according to the order.
If any money remains in the fund, it would cleared out with a final refund to customers, the order states.
Without the “Rate Moderation Proposal,” a customer having a 1,000 kWh monthly energy usage would see their monthly bills increase $12 to $13, according to a heavily redacted PSC analysis.
Companies like Entergy are owned by shareholders who expect a return on equity for their investment. Cooperatives, like DEMCO, are not-for-profits owned by their customers, but charge to cover their costs for purchasing and delivering electricity.
Philip M. Hayet, the utility rate expert hired by the PSC, testified that the real issue about the surcharge is whether the company or the customer is better situated to decide how to adjust to the higher monthly payments required by the new contract. “Either way, customers are going to have to pay higher costs for the new contract, and this matter simply boils down to a question of timing,” testified Hayet, of Roswell, Ga.
Hayet backed the new 10-year contract.
DEMCO agreed to buy power from Cleco Corp., based in Pineville, because the price was lower and the power supplier would more easily allow DEMCO to add new customers, said Vranic, DEMCO’s chief operating officer.
Vranic said DEMCO hopes to be positioned to sell electricity to new customers in the fast developing Livingston and Ascension parishes. Under PSC rules, if two companies are within 300 feet of newly built and unserved developments, then the customer can choose.
Also, Cleco’s newer plants and more diverse fuel supply could lower the possibility of increased costs if utilities are required to improve their infrastructure to address environmental standards. L.G. Lindsly, a consultant hired by DEMCO, testified that “Cleco contract has greater certainty of rate levels over the term as it provides for certain environmental compliance costs in its base rates. …”
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