March 23, 2022

Sangre de Cristo Electric Association Board Meeting 

Notes by Tom Plant - Comments on proceedings are in italics

The March 23rd board meeting was largely uneventful and no major decisions were made. However, we were able to get some information from the board regarding the cost of services study and the upcoming election. Through the comments of the CEO, we were able to get some insight into the posture of the utility and its perspectives on rate structuring, renewables and energy efficiency. 

Membership Advisory Panel

During the public comment period, we discovered that the executive committee has discussed the proposal from AVCSEF Vice-Chairman Rich Shoemaker regarding the Membership Advisory Panel. This is an essential component of allowing for membership input into the decisions of the SDCEA board – and therefore, the direction of the utility. While the board didn’t commit to any action on the MAP, it is being discussed and we hope there will be some communication with AVCESF regarding the path forward on creating a MAP. So far, multiple discussions with board members have yielded no firm commitments. 

Upcoming Election Procedures

AVCSEF Treasurer Sue Greiner asked for clarification on the election processes and discovered five important items: 

1. All members, regardless of the district in which they reside, will be eligible to vote for the two board seats up for election this year (Fremont county and Custer county) 

2. All businesses MUST designate a representative to vote on their behalf in the upcoming election. There was no clarification on whether or not businesses who do not designate a voter will be eligible to vote, but the utility is viewing the legislation that was passed last year (HB21-1131) on rural coop processes to include business members and therefore needing a designated person who will sign the ballot in order to be counted. This is a critical step for businesses to be enfranchised in the upcoming election. 

3. An individual may vote as many times as they are represented as a customer in SDCEA territory – therefore, if you own two businesses in two locations with two meters, and you live in SDCEA territory, you may vote three times – one for each of your business locations and once for your residence. If you live out of state or outside of the SDCEA territory, but own a property in the SDCEA territory, you may vote on behalf of that property regardless of your residence.

4. Election votes are due by June 2 and will be certified by June 6 with the annual meeting on June 9. 

5. There is no in person voting, it’s all mail-in.

Cost of Service Study

The utility is going back to the consultant (PSE) who prepared the cost of service study. Under questioning by Steve Reese, the CEO (Paul Erickson) indicated that the consultant was not given any direction at all regarding their cost of service study and that it was a “purely scientific” determination of costs (AVCSEF found numerous errors in the PSE study). Erickson indicated that it was the utility’s intention to make cost causers pay more for their service, so they wanted to determine who those “cost causers” were. However, this is determined through rate classes – that is breaking out specific customers into classes and then determining how that class contributes to rates – so net meter customers were divided out into a separate class from “general residential” or “general commercial”. Second home owners were broken out into another class. Rural and urban customers were not broken out into separate classes. Therefore, we have to assume the consultant was given some kind of direction, but Paul Erickson insists they were not given any direction. AVCSEF board member Sandy Long requested that PSE put together a video explaining their process for developing a cost of service study and the CEO indicated that a video has been made, is currently being edited by Tristate and will be released when it has been edited to the approval of the CEO and the board. 

Rate Making Assumptions

There were a number of statements by CEO Paul Erickson that point to the utility’s posture when considering rate making: 

1. After clearly stating that PSE was given “No Instruction” he said if there were any instructions, for example, he would tell them with respect to second home owners, “don’t be afraid to upload all the carrying costs of the customer in the monthly service availability charge”. This seems to be why they suggested such a dramatic increase in monthly charges. 

2. Erickson believes that the utility can’t put fixed charges in the volumetric rate (the charge each customer pays for each kWh they purchase) Erickson says “we can’t volumetrically collect our carrying costs because we have no volume sales. Therefore the monthly charge has to be front loaded. If any guidance was given to PSE that was it”.

So, it appears that the commitment to high service availability charges (monthly fixed charges) as opposed to embedding those costs in the rates is coming directly from the CEO because he believes the utility has no other choice. In fact, the utility has many other choices. 

SDCEA Rates

It was disappointing to see the CEO double down on his approach when faced with the data demonstrating that SDCEA customers pay the highest rates in the state.  It was perhaps more disappointing to see the board members fail to challenge Erickson on his litany of excuses. In the face of the utility’s continued failure to control rates for their customers, Erickson has stated his commitment to stick with the utility’s policy of punishing those who use less electricity through high monthly fixed service charges. 

Tristate

Director Charlie Abel is the designated Tristate board member from SDCEA. Most of the discussion was around the annual meeting that Tristate is having at the beginning of April. There was a brief mention of “FERC challenges”. Adams county district court case – judge dismissed 3 of 8 claims. There are some surviving claims. There was no discussion of the actual substance of the challenge to Tristate. 

Renewables

There was some discussion of renewables. The CEO said that “politics has set back Renewable Energy it didn’t promote it, because politics didn’t consider the utility system. We’d be further ahead today if politicians didn’t stick their noses in with tax incentives.” 

It’s very hard to understand what Erickson is talking about here and what constitutes “politics”. If he’s talking about state legislation, it has been widely demonstrated that renewable portfolio standards are responsible for widespread adoption of large scale renewables.  NREL found that 58% of all non hydro renewables built between 1998 and 2014 were directly due to renewable portfolio standards. Furthermore, the tax incentives for renewables are similar to tax incentives that have been offered for other emerging technologies – such as Production Tax Credits for unconventional sources such as hydraulic fracturing of gas or coal bed methane, or REIT financing for other fossil investments (that were until very recently forbidden for renewable investments). The idea that utilities, rather than legislators would have been a better instigator of renewable deployment is laughable – virtually every initialization of renewable portfolio standards has been opposed by utilities. In fact, multiple legislative attempts in Colorado to establish a renewable portfolio standard were thwarted by Xcel energy and other utilities who opposed the requirement. It wasn’t until a citizens initiative in 2004 established a 10% by 2015 standard passed that the law went into effect and Xcel energy campaigned aggressively against that initiative. In 2004, they insisted that 10% was too high and would increase the cost of electricity by 25¢/kWh. Today, they have 33% renewables and the cost of electricity is about 11¢/kWh (with a $5.60 monthly service charge, in contrast to SDCEA’s $31). Today, Xcel is promoting 66% renewables by 2030.

 The board then started talking about nuclear: There are some people working on small nuclear reactors, but it’s still cost prohibitive. To which, the CEO replied: the reason it hasn’t gone scaleable so far is all the costs of permitting and regulation, you may as well go big. 

This is not the case. Small Modular Nuclear Reactors (SMRs) are being tested in Idaho and so far, the results are promising, but it is still a very new technology and must be fully vetted before commercialization. Much of the value of an SMR is the containment of waste for disposal, centralized manufacturing of units, and the value of distributed generation as opposed to the old utility model of large central station generators. Kemmerer Wyoming was chosen as the first test site for Nuscale’s small Natrium reactor (smaller than a large central plant, but larger than the modular reactors). Erickson reflects his bias toward large central scale generation – however, this antiquated utility model has been shown to be less efficient. Furthermore anyone who has observed the experience of building large nuclear reactors recently would disagree with his statement that small nuclear reactors cost too much because of permitting and regulation, so you may as well build a big reactor. 

Capital Credit Allocation

• This reflects the number after the $400k we returned to the customers last November or December. These margins and numbers are very good. We saw higher than normal sales all the way through May last year, our expenses were a little lower last year because some positions were open. Unfortunately, this winter hasn’t been like last winter from a sales perspective. 

• Erickson: I have a stack of work orders for new homes. I know they are second homes. “Growth covers a multitude of sins” we haven’t raised rates in 5 years. That growth is covering our increases in costs. I know It’s second home growth, but growth none the less. 

The CEO’s statement here reflects his perspective on low energy users. He sees those who use less energy from the grid as being cost causers because they aren’t paying the same as high energy users. He sees each customer as being equally responsible for the fixed costs of the entire grid. Most modern utilities see a greater responsibility for paying for the infrastructure costs of the grid in those who use more electricity – this is the opposite perspective than that of the SDCEA CEO. This is why he sees solar producers as shifting costs onto other customers – because they purchase less electricity from the utility. This is why he sees solar customers as similar to second home owners – because they are using less electricity. The same could be true of those who live in smaller homes or have invested in energy efficiency – because they use less electricity, he sees them as pushing costs onto other users. 

The board needs to revisit this orthodoxy and determine whether they truly want to be a utility that disincentivizes low energy usage whether through self generation or energy efficiency. So far, there is no indication that the board is fully considering the impact of this approach and whether or not it aligns with the priorities and interests of their membership. 

Charitable Giving Budget

• We have a couple of requests, sponsorship for tomato wars from BV Rotary. 

• Much of the presentation from staff was unintelligible.

• Custer county is requesting SDCEA contribute – they’re focused on workforce housing. 

• Voted to continue membership at the $250 general membership level.

• Voted to authorize donation to the BV Rotary Tomato War. Someone voted no, but I couldn’t tell who.

Operation Roundup

There were some people who removed themselves from the program because of the proposed rate increase. 

Charitable Giving

This is the first year we’ve bumped up against our quarterly budget. We can’t entirely explain why, we had so many people on the board meeting when we discussed this, so maybe there is an increased awareness.

Matching grant is a program administered through CCCF, funded through SDCEA power of change (formerly operation round up). Money is put in donor advised fund. As a member you can choose to make a contribution to an organization providing service within the service territory. Member can make a donation and identify an organization then the coop can choose to match that through the power of change program.  

Change in Policy

• Voted to make no changes to the vacancy procedure

• Policy C3/C4 – updating to reflect how pre-pay program works, don’t require security deposits for pre-pay program. With pre-pay, once it runs out, the power just shuts off. 

• Currently have 82 customers on pre-pay. Paul thinks the primary reason is to avoid deposit ($250) and is surprised that with “all the bellyaching” about deposits, he thought it would be more. 

• C7 – heart of the work order process. Making some changes in the workflow. Changing security deposits from the time of construction to the time of the first bill. 

No Strategic Discussion

Director Discussion: 

Geothermal Presentation

Daley: listened to the presentation on Geothermal at Sandy Long’s invitation. Difficulty is there are some upfront costs to drill test hole for water that is at a sufficient temperature for electricity generation. They haven’t been able to come up with the seed money to prove the value of the resource. Hopefully they will get there because it would be a great resource for us to have in Chaffee County. They have picked a site, but are looking for $5M to prove the resource. Suzy: they did this 15-18 years ago, and it was very contentious with the people who lived in the area thought they would lose their hot water and were concerned about earthquakes. By moving it toward the valley might avoid some of the opposition. 

NRECA Discussion: Infrastructure investments are going to come slowly, probably first expenditures will be for EV Charging and clean energy generation. 

Volpe: following up on a class we took about cybersecurity, it would be good to get a presentation on our current level of security. Staff: There’s information we haven’t shared with the board because we don’t share it with anyone. This is something we talk about and think about every day. We have instituted some additional security measures after incidents with other cooperatives. We have increased insurance and have some backup plans to ensure we can get back up and running. 

 Reditzke: NREL says if the US goes to 90% RE we would have to double the number of high voltage transmission lines, we haven’t built much transmission in the recent past, so we would need to build a lot of transmission to meet that objective. 

The referenced NREL report was to demonstrate technical potential of achieiving 80% penetration of renewables. Their key finding was that the US can achieve 80% renewables at the same costs as today’s 20%, however it was noted that the remaining 20% drives much higher costs. 

There are different transmission requirements for different parts of the country and there are certainly restrictions on building new transmission lines particularly in the west where we have high percentages of public land.  However, most of the necessary investment in transmission infrastructure was in Texas and the Eastern interconnect as shown in this map from the study: 

Other Projects

Working with Cotopaxi school district to try and get a grant for a heat pump for the school under the BEST (Build Excellent Schools Today) Program for beneficial electrification. The school decided to go with a gas furnace. Trying to be proactive with the Colorado Energy Office to make changes on their side with their grant program. We could have filed an extension request, but the school was without heat, so they really needed a solution. 

Other Beneficial Electrification projects. Buena Vista Basecamp Hotel/Hostel, they are making units out of shipping containers and are doing all electric with heat pumps for the HVAC units. The Boulders development in BV are planning to do an all electric development with heat pumps as well. 

The board should look at what DMEA did with  a centralized ground source heat pump when putting in a new development – while the cost of GSHP is higher than an air source heat pump, when utilized by many residences, it may be able to greatly reduce costs and increase efficiency as opposed to multiple separate air source heat pumps.

There followed a discussion about air conditioning: we don’t see a lot of air conditioning. New units in johnsons village will have AC. Erickson: this is part of the problem we’ve dealt with marketing heat pumps – because you’re buying an air conditioner. We’re trying to find the business case , but you’re over buying because now you have an air conditioner in the summer when you’re probably not going to need it. Here the more compelling argument is in floor heat, or radiant heat “I’m a big Cove radiant heat guy”. We’re entering that heat pump market now and trying to get some penetration. Gerk: we’re getting more 90 degree days now. Flower: we are getting more 80 degree days now. 

It's unclear here if Erickson is talking about new construction or retrofits. A recent study from SWEEP (the Southwest Energy Efficiency Project) could be helpful to the board in understanding both the benefits of heat pumps and also their impact in reducing emissions, however it is unclear if this is of interest to the board because they have no policy regarding reducing emissions or increasing energy efficiency. 

Finance report, revenues are slightly under budget because of the warmer weather. The audio then went completely silent. 

Started up 20 minutes later

Wildfire Mitigation

Discussing wildfire mitigation program, spend close to $200k first 2 months of the year out of a budget of about $2M for the year. Discussion of meters and meter replacement. Erickson: Wildfire mitigation fee - we’re leading edge in this process….literally spending every dime on wildfire mitigation (through “Integrity Tree Services” company out of Michigan). We should have what we need to complete the mitigation – much of this was not clear in the audio in terms of the number of years.

We have 450k in deferred revenue we need to bring in. It was unclear if this was due to the wildfire mitigation efforts.

Is it fair to say anyone with a vehicle charger would be better off with a time of use rate? Yes, but right now that’s not an option. 

Do we need to think differently about sizing transformers because codes will require charging wired to the garage? Erickson: Years ago we put the right policies in place under cost causation – whoever wants that service now pays full fare for it, so we’re made whole from the beginning. “It’s tough love for people building houses”.