Auburn Electric Seeks Temporary Suspension of Ratchet Demand Charges for Customers
By Chris Schweitzer, General Manager, Auburn Electric
On Tuesday, the City Council approved on first reading a request from Auburn Electric to temporarily suspend the ratchet demand charge for demand customers for a six-month period. A public hearing and second reading will take place May 5. If approved at the second reading, then Auburn Electric will request approval of the temporary suspension from the Indiana Utility Regulatory Commission (IURC), the state regulatory governing body.
Why Auburn Electric is Requesting the Suspension
Many of Auburn Electric’s commercial and industrial customers have been significantly impacted by Governor Holcomb’s Executive Order, as well as the federal guidelines placing “non-essential” businesses on hiatus during the COVID-19 pandemic. After thorough analysis and discussions with various stakeholders and professional advisors, we have determined that temporary suspension of the demand ratchet charge is an appropriate response.
Understanding Demand Ratchet
At its core, demand ratchet is a normalization technique. It reduces the risk associated with serving customers who may have large swings in their actual demand for electricity on a monthly basis. Typically, ratchets are imposed upon industrial and commercial customers who are connected to the system with large power requirements. A large amount of investment in infrastructure may be dedicated solely to these customers—which means a significant decline in their demand could negatively impact the utility’s ability to recover the fixed costs of providing power to these facilities.
Demand ratchet is a necessary tool for electric utilities charged with providing reliable service to demand customers. In a typical year, the ratchet clause takes effect for a handful of our demand customers. Today, however, in the wake of the COVID-19 pandemic, many of our demand customers are expected to be impacted.
Ratchet clauses do not account for an economic situation like the one caused by the COVID-19 pandemic. As a result, it’s unduly harming our demand customers in an already financially challenging environment. The suspension is not relief assistance—it is a reasonable request and a prudent action in the wake of this unprecedented time.
Auburn Electric’s Demand Ratchet Level
For Auburn Electric, the demand ratchet is set at 60%. This means that the customer’s demand billing portion will not be lower than 60% of the highest kVA (kilo-volt-ampere) monthly usage set during the previous 11 months.
Auburn Electric is requesting that IURC approve the temporary suspension for April through September. We are also requesting that when the ratchet is reinstated, the look-back period reset begins with October 2020 consumption. This will allow demand customers to begin rebuilding their demand history without having the negative impact of a ratchet that looks back to normal consumption prior to the downturn.
Finally, Auburn Electric will not seek to recover the revenues offset due to implementation of a ratchet suspension currently or in future filings before IURC.
The Auburn Electric Analysis
To understand the impact of the demand ratchet clause during this time, Auburn Electric conducted an analysis of our commercial and industrial demand customers. The analysis examined the average demand ratchet revenue billed for April through September for 2017, 2018 and 2019. This helped determine what the expected revenue impact associated with a suspension of the demand ratchet would have been under normal operations in 2020. We also analyzed the impact to total revenues, assuming an impact on usage for the residential and commercial customers created by adherence to COVID-19 guidelines and requirements.
The Right Thing to Do
Our leadership, along with the support of Mayor Ley and the Common Council, believe that the six-month demand ratchet suspension period will allow our demand customers to get back to normal operations on the other side of the COVID-19 pandemic. It is a measure that makes sense as we strive to support our demand clients as they ramp up operations in the months to come.