Ozark Electric attempts to explain demand charge in after-hours meetings

The Ozark Electric Cooperative (OEC) held three after-hours meetings at their offices in Willard, Mt. Vernon and Clever on June 17, June 18 and June 20, respectively.

Explaining how the Co-op pays for power
The purpose of these meetings was to explain the purpose of the kilowatt demand charge that took effect on April 1, and that was done partly by explaining what the Co-op pays for power usage. During the meetings, Tori Morris, the Co-op’s chief financial officer, explained how the Co-op is billed by their power supplier, KAMO Power.
“Our demand is calculated once a year,” she said at the meeting in Mt. Vernon. “So KAMO, who we purchase power from, they give us billing determinants once a year. “We pay a peak demand, a base demand and then a kilowatt hour charge. The peak demand and the base demand, like I said …  get set once a year. We get those rates in October and then those (go into effect) January 1. So once that's going to affect, we pay that for the entire year.”
Morris also said temperature affects how peak demand is determined.
“Our peak demand is based upon the six hottest and coldest days,” she said. “So, the three coldest days, and the three hottest days, we average those six together to figure out what our peak demand will be.”
Additionally, the base peak demand, she said, was determined by the sum of each of the Co-op’s substations peak kilowatt demand for each month, added together and then divided by 12 to determine the Co-op’s base peak demand. The base peak demand would be subtracted from the average demand of the three hottest and three coldest days of the year, with the difference being the peak demand.

The impact of peak demand
In her presentation, Morris said that the base peak demand for 2024 is 120,538 kW, and the average of the three hottest and three coldest days last year was 156,523 kW. The difference, she said, is 35,985 kW, and that is the Co-op’s peak demand for the year. Between base peak and peak demand, is costing the Co-op $1.42 million per month in peak charges which are being paid to KAMO. For April of 2024, she said, the Co-op paid KAMO of total of $2,828,900, which included the $1.42 million in peak charges, $1.4 million for 35,963,183 kilowatt hours used and a fixed charge of $8,900.
Morris also said that the Co-op is currently receiving $1.3 million per month for the kilowatt demand charge, which comes out to $15.6 million per year, but paying over $17 million per year for peak charges, a difference of over $1.4 million per year.
“So, the point here is our demand charge is not fully recovering us enough to pay our peak charges,” she said.

Attendees have questions
The demand charge on the Co-op member’s monthly bills is determined by their highest kilowatt demand in a 15-minute block of time during the month, for which members pay $3.75 per kilowatt. One of the meeting’s attendees asked why their demand charge was determined that way while the Co-op’s peak demand was based on the six hottest and coldest days of the year.
“Because that is the way our commercial accounts have always been,” a board member replied, “so we put that across the board.”
The attendee replied that if she made a mistake while trying to level her demand, it would increase her bill.
“One slip up,” she said, “and there goes $60 for the month.”
Another woman at the meeting claimed that the new demand charge was unfairly targeting poor people.
“Is it legal, sir, to have a charge that unfairly targets the poorest people in the county?” she asked. “Because those are the people that can't afford to upgrade their appliances.”
A legal representative for the Co-op told her that it was.
“I can tell you the rate structure is legal and actually very common and becoming more common,” he said.

Oehlschlager said demand charge creates a more fair way to bill members for power usage
Patrick Oehlschlager, the general manager and CEO of the Co-op, said that while the rate change was going to be hard for some members, it was also necessary.
“I don't have a silver bullet that creates a rate design that doesn't put undue stress on someone to make the bill,” he said. “But this Co-op has to continue to provide service to its membership. There's two ways to fund the Co-op: through rate collection or going to the bank.”
Oehlschlager added that the Co-op currently pays $10 million in interest and principals for loans on which it owes. He also said that more borrowing would not be a wise way to meet the Co-op’s financial obligations.
“When we look at the future and what we're seeing right now,” he said, “I don't like the idea of being heavy on borrowing and putting the larger burden on the membership now and into the future for what we would do to pay it.”
During the meeting, another member asked Oehlschlager why they simply didn’t raise their bills to $0.12 per kilowatt hour for power consumption per month, which she said would have given her more control over her bill. Oehlschlager said that it was to make certain that members didn’t pay more than their share of the cost.
“What we did before is the people that were (using) six and seven kilowatt (were) paying that overinflated kilowatt hour to subsidize folks that were (using) 20-24 kilowatt. Now knowing that, on principle, I don't feel right making everybody have to pay (more for kilowatt-hour) to subsidize somebody that (uses more kilowatts).”

Members express opinions on demand charge
The Mt. Vernon meeting continued as a question-and-answer session for a total of two hours. Afterwards, Crystal Collins, one of the Co-op members in attendance at the meeting in Mt. Vernon, said her greatest frustration was with how the changes to the rate structure were communicated.
“(It was) the lack of transparency about what was happening, and why it was happening and how it was figured,” she said. “So, I know it was communicated in a myriad of ways, but I don't think that it was necessarily communicated in the most common fashion. And I think that a lot of the consumers probably missed those notifications just because the avenues that were taken. I think if there had been more transparency up front, there would have been a lot less distress for us and disgruntledness from us.”
Larry Brown was another member who attended the meeting and said that he was also frustrated with his bill.
“We had worked so hard to bring our usage down,” he said, “and yet it cost us more for what we use. So yeah, we were upset … (because) we would use 1100 kilowatts-hours less in a three-month period, but our bill was $75 higher.”
After attending the meeting, Brown said he had a better understanding of why the Co-op’s board made the rate change, but said he was still against the demand charge being determined by a 15-minute block of time.
“I think there is a better way of going about it,” he said.

Oehlschlager explains demand charge
In response to a media inquiry following the meeting, Oehlschlager explained what the demand charge was.
“Residential kilowatt demand refers to the amount of electrical power in kilowatts that a residential property requires at a specific moment in time,” he said. “It represents the maximum amount of power that a household consumes simultaneously, typically measured over a short interval (e.g., 15 minutes) or during peak usage. This demand is distinct from energy consumption, which is measured in kilowatt-hours and reflects the total amount of electricity used over a period. Utilities use residential kW demand to determine infrastructure needs, such as sizing transformers and distribution lines, and to calculate electricity bills for residential customers, often incorporating demand charges based on the highest level of demand during a billing period.”
Additionally, Oehlschlager said that the new demand charge isn’t really new.
“OEC has always been billed for our member’s kilowatt hour and kilowatt demand,” he said. “We now have the technology to allow for each member to pay for their home’s requirement from us in kilowatt hours and in kilowatt demand. This billing method allows for fairness and freedom for our members. Secondly, with the impending closures of carbon producing generation plants and nothing as reliable to replace it, the grid is going to be facing extreme challenges. With growing demand and decreasing generation, we need to lower our demand for power or blackouts will be more common for Missourians.”
Oehlschlager also addressed the board’s reasoning for adding a demand charge to member’s bill instead of simply raising the cost for power consumption to $0.12 per kilowatt hour.
“A higher kilowatt-hour rate that does not address the growing concern and growing demand on the grid and its power producers,” he said. “A time of use rate or demand collection period (on peak or off peak) which can shift demand instead of shed it.”
Finally, Oehlschlager said the board would monitor how the members were being billed and make changes as needed.
“The board will continue to study our system load trends as they do every year,” he said. “If adjustment to this rate in the future or movement to other rate designs are deemed necessary, the board will act accordingly, as has been the case for 87 years.”