Power Supply Industrial Service Contracts

Industrial Customers - The Economic Drivers in Your Community

Industrial customers may comprise a large portion of the load and volume of your electric, gas, wastewater, and water services. They are the customers that can be economic drivers in the community. They can also be the customers that require specific services or expansion of your facilities.

For example, large electric customers may require dedicated line extensions or substation upgrades. Natural gas customers may require transport mains, dairy wastewater customers expanded treatment facilities, and water intensive manufacturers additional wells or source of supply facilities. The construction of this infrastructure may be expensive, require the issuance of debt to build and the facilities may be usable only by the customers requiring the expansions.

Negotiating an Industrial Service Agreement

It is prudent to hold negotiations with incoming large industrial customers on their needs and how the co-op/utility will meet those needs prior to providing service. The industrial customer will use these negotiations in making its locational siting of its facilities, but the co-op/utility needs to keep the interests of all ratepayers in mind.

A best-practice in this situation is to enter into an Industrial Service Agreement, that details the co-op/utility responsibility and terms for providing service.

Types of Industrial Service Agreements

The types of items in an agreement vary with the service delivered. Here are common contract points:

• Customer commitment of xxx kW of load to be served, mmBTU of gas deliveries, or gallons of wastewater treatment or water to be supplied
• Duration of expected load
• Utility supplied facilities, included specifics on infrastructure costs, debt issued, and the responsibility of the industrial customer to pay its proportionate share of the debt through its rates
• Provisions for payment of the proportionate share of debt, should the industrial customer curtail or close operations

In a co-op or utility customer rate, debt service is a fixed cost of the cost of service. So, a reduction by the customer in kW, mmBTU, or gallons will not reduce the co-op or utility's cost of providing service.

Move to the Front of the Line for Debt Repayment

Of course, if financial difficulties arise for the customer, they may declare bankruptcy. The co-op or utility will become a general creditor in a bankruptcy filing UNLESS it has negotiated an Industrial Service Agreement with the customer. In that case, move nearer the front of the line for collecting on the customer's contract commitment.

Industrial contracts provide your organization's other ratepayers with more (but not absolute) assurance that they will not be required to pay for infrastructure additions that benefit only one or a few select customers. Contracts promote equity and fairness in rate-making and lead to a cornerstone in just and reasonable customer rates.