American Oil and Gas Reporter - June 2016 - 104

ConventionCoverage: Kansas Independent Oil & Gas Association
in rates over the next three-five years. Customers are unable to absorb the continuous
electric rate increases. We are marginal
producers in Kansas, and must plan for
low costs and low oil prices to be able to
operate in the long run. The utilities are a
significant player in our profitability."
Meeting The Utilities
Beren said in meetings with the utilities
and co-operatives he requested they design

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separate rates for oil customers, similar
to what was offered to irrigation customers.
He said he sought five win/win attributes
as part of the rate design:
* A rider that adjusts rates for loads of
40 kilowatt-hours per barrel of oil or greater
(Beren said Berexco had shut down a
$10,000 a month electric account in a Sunflower co-op district that most likely could
have run longer if the co-op had a rate in
effect for economically at-risk loads.);
* A low oil-price rider that would
motivate oil producers to keep loads
active for their most marginal loads during
periods of low commodity prices;
* A rate that is fair for base-load/highload factor accounts with 20 kw demand
or greater and greater than a 50 percent
load factor;
* An economic development rider,
including cost-sharing of upfront installation costs, to motivate oil customers to
add new load or return shutdown load
more quickly; and
* A load control rate with reasonable
shutdown periods.
Beren explained that while oil field
load did not cause coincident peaks, it
could help lower them if a rate was designed to properly incentivize oil customers
to shut down load during peak demand
periods. Such a rate is offered to irrigation
customers.
Beren said he also was concerned that
oil customers were not represented on
the boards of Kansas utilities. Utilities
require customers to live in their districts
to be eligible to serve on their boards,
but most oil operators don't live in districts
where they have production, which precludes them from utility boards. Beren
said he had requested the utilities adapt
their bylaws to allow out-of-district members to be eligible for board nomination.
According to his study of nine Sunflower and Midwest utility areas, Beren
said oil customers would pay less if they
had the special irrigation rates charged
by the utilities. "While oil customers understand the importance of irrigation load
to rural Kansas, oil load should pay less
than irrigation load because of the lower
wholesale costs associated with base
loads," he argued. "It raises a question of
fairness when many of the utility board
members in western Kansas are members
from the agricultural community."
While numbers are not listed to verify
this, Beren said his internal studies showed
that oil load was at least as great, if not
greater, than agriculture load in western

104 THE AMERICAN OIL & GAS REPORTER

Kansas because of the seasonal nature of
irrigation.
Electric Market Trends
Beren said there were three trends in
the electric markets affecting Kansas consumers today:
* Changes in the way electricity is
bought and dispatched;
* Introduction of open markets by
power wheeling; and
* Expansion of wind power generation.
Kansas is part of the Southwest Power
Pool, one of nine regional electric reliability
councils across the country, he said. Before
March 2014, Kansas customers received
power from generation assets owned by a
utility serving their area. Now, electricity
is fungible, and utilities and co-operatives
across the 14-state region purchase it
through a day-ahead energy market, often
at lower prices than those charged by
their own legacy assets.
"In the Southwest Power Pool, electricity
is handled in Little Rock, Ar. Electric
utilities tell the power pool dispatcher how
much load they have available, and at what
cost," Beren detailed. "The dispatcher
figures out how much demand there is
across the pool, matches supply and demand,
and determines which utilities should
operate the next day and at what cost. This
development has opened tremendous opportunities for lower costs in the region."
Power wheeling provides electric customers with choices by giving them access
to different electricity providers, Beren
said. "Many states have moved to open
competition, and customer groups in
Kansas are lobbying legislators to evolve
toward free power markets. Many examples exist where open markets have led
to lower consumer electric bills."
Kansas ranks sixth for installed wind
capacity in the country with 2,145 turbines,
and has seen more than $5 billion invested
in wind-related projects. On top of its
zero fuel costs, wind generation takes
advantage of government tax credits,
which allows its energy to be dispatched
into the market at very low prices. "Time
will tell whether this lower cost source
of power will reduce energy bills for
Kansas customers," Beren said.
While Beren did not have many immediate examples to point to for lower
costs, he said he was hopeful continued
dialogue with utilities eventually would
lead to fair and lower costs for Kansas
oil and gas customers.
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American Oil and Gas Reporter - June 2016

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