Smart grid technology isn’t just enabling improvements in system operations; it’s also making possible a revolution in rate structures that allow electric cooperatives to more equitably recover costs.

CORE Electric Cooperative, based in Sedalia, Colorado, is taking advantage of Advanced Metering Infrastructure (AMI) to implement a three-part rate structure that bills members based not just on their total electricity use, but on demand—how much power they draw with peak use.

CORE Electric’s new rate structure incorporates a service fee, a kilowatt-hour charge and a peak hour of consumption or “demand” charge, which means members receive bills that more accurately reflect the real cost of their service.

“The three-part rate is something we’ve known for a long time would be fairer and more equitable,” says David Stowe, a rate analyst at CORE Electric who has been working on rate issues for 25 years.

For most of their history, power utilities relied on rate structures reflecting the limits of meters that tallied a member's overall energy consumption in the month, but weren’t able to monitor and track demand, which is the rate of consumption during each hour throughout the month. AMI has changed the equation, particularly as its cost has fallen.

“Now that you’ve got technology like AMI that can track usage, you can design rates that really cover costs,” says Allison Hamilton, NRECA’s director for markets and rates.

CORE Electric has nearly 170,000 meters along Colorado’s Front Range. It wasn’t cost-effective to meter demand for any but the largest C&I customers until the co-op completed an AMI build-out early this year, Stowe says. Before its new rate structure, 91% of CORE Electric’s cost recovery was based on kWh charges, he says, while meeting demand actually accounted for two-thirds of costs.

The new rate structure also benefits from being more straightforward, eliminating a confusing load factor adjustment used to recoup some demand costs. It was coupled with an extensive education campaign by CORE Electric to explain the new approach.

Once members saw the rationale for the change, Stowe says, “the response has generally been very favorable.”