HomeMy WebLinkAboutA001 - Council Action Form dated Jun 27, 2006 ITEM # 3aq,
DATE June 27, 2006
COUNCIL ACTION FORM
SUBJECT: ELECTRIC UTILITY RATE CHANGES
BACKGROUND:
As discussed during the FY 05/06 and FY 06/07 budget presentations, the Ames
Municipal Electrical Utility FY 06/07 Budget includes a 3.5% revenue increase.
The revenue increase was recommended to meet the electric utility fund balance
target of $10.1 million and begin a series of small rate increases to help fund the
upcoming project to replace power generation. The recommended rate increase
to generate the additional revenue is the same as discussed during budget
hearings and is an across-the-board increase with no change to our current rate
structure. Changes in the rate structure will likely result in shifting of costs
between classes of electric customers. Changes in total revenue can be much
more difficult to forecast with a new rate structure, therefore we do not recommend
making changes in the rate structure without extensive study and review with the
Council and customers. As the time for the project to replace power generation
approaches and better information is available on the new cost structure for the
electric utility, we will perform an extensive cost-of-service study and prepare
alternative rate structures and analysis of impact on customers. Prior to preparing
rate structure alternatives, staff will work with EUORAB and the City Council to
determine policy guidelines for the utility rate structure. Rate structure changes
should be analyzed extensively and reviewed to ensure that Council policy
guidelines are met.
This moderate rate increase is the first implemented since 1979. It is important
that a rate increase be implemented at the beginning of the 06/07 fiscal year to
allow the electric utility to fund planned capital improvements and maintain
adequate fund balances. City staff has reviewed rates and financial plans with
EUORAB and they have recommended a rate increase of up to 5%.
Attached is a schedule of current rates and proposed changes. We have also
attached sample utility bill schedules to demonstrate the impact of the rate change
and a copy of the information provided to Council on fund balance and revenue
requirements to fund the electric utility.
Staff also conducted a comprehensive review of all sections of the electric utility
rate ordinance. At a later meeting, we will be recommending several technical
administrative changes to the ordinance to help make the ordinance more closely
reflect the current electric utility environment. We have modified one section of the
rate ordinance that allows combining meter readings at certain service locations
where this procedure is determined to be in the best interest of the City. This
change will allow the City to better serve large customers such as Ball Plastics.
Please note that the proposed rate increase will only provide funding for items
currently budgeted for FY 06/07. Any new programs that may be proposed as part
of the Demand Side Management Study will either need to be funded through
savings, reductions to other expenditures, or additional rate increases. Increased
costs for capital improvement projects such as the 161 kV tie line project may
require additional increases in the future.
The proposed rate increase will be made effective for bills mailed on or after
August 1, 2006. The rate increase was planned for July 1, 2006 but was delayed
to allow further analysis of issues related to our coal supply.
ALTERNATIVES:
1. Approve the proposed changes to the Electric Utility Rate ordinance to increase
overall revenue to the electric utility by 3.5% and maintain the current rate
structure.
2. Refer Electric Utility Rate ordinance back to staff with direction to develop an
alternative rate structure that is expected to generate a 3.5% revenue increase.
This alternative will delay implementation of a rate increase, and will likely result in
not achieving the electric utility fund balance target unless other changes are
made to the budget to reduce expenditures.
3. Refer Electric Utility Rate ordinance back to staff with direction to develop a
rate structure to generate a revenue increase in an amount greater than 3.5%.
4. Do not make a rate increase at this time. This alternative will require extensive
changes to the electric utility budget since a 3.5% revenue increase was included
in the adopted budget.
MANAGER'S RECOMMENDED ACTION:
It is the recommendation of the City Manager that the City Council adopt
Alternative #1, approving the proposed changes to the Electric Utility Rate
ordinance to increase overall revenue to the electric utility by 3.5% and maintain
the current rate structure.
COUNCIL ACTION:
Residential Current Proposed % Increase
Service Charge $3.50 $3.65 4.29%
Summer
First 400 kWh $0.0770 $0.0797 per kWh 3.51%
Next 600 kWh $0.0730 $0.0756 per kWh 3.56%
Over 1,000 kWh $0.0670 $0.0693 per kWh 3.43%
Winter
First 400 kWh $0.0680 $0.0704 per kWh 3.53%
Next 600 kWh $0.0570 $0.0590 per kWh 3.51%
Over 1,000 kWh $0.0540 $0.0559 per kWh 3.52%
minimum charge per billing period $3.50 $3.65 4.29%
General Power Current Proposed
Service Charge $5.00 $5.20 4.00%
Summer
First 2,000 kWh $0.0820 $0.0849 per kWh 3.54%
Next 5,000 kWh $0.0700 $0.0725 per kWh 3.57%
Over 7,000 kWh $0.0680 $0.0704 per kWh 3.53%
Winter
First 2,000 kWh $0.0640 $0.0662 per kWh 3.44%
Next 5,000 kWh $0.0530 $0.0549 per kWh 3.58%
Over 7,000 kWh $0.0510 $0.0528 per kWh 3.53%
minimum charge per billing period $5.00 $5.20 4.00%
Large Power Current Proposed
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er Vice vi iai yc $4v.v^v $4 1.40 3.50%
Summer
First 50 kW of billing demand $4.25 $4.399 per kW 3.51%
Next 100 kW of billing demand $3.85 $3.985 per kW 3.51%
Over 150 kW of billing demand $3.45 $3.571 per kW 3.51%
First 200 hours of billing demand $0.0550 $0.0569 per kWh 3.45%
Next 200 hours of billing demand $0.0380 $0.0393 per kWh 3.42%
Over 400 hours of billing demand $0.0350 $0.0362 per kWh 3.43%
Winter
First 50 kW of billing demand $3.05 $3.157 per kW 3.51%
Next 100 kW of billing demand $2.65 $2.743 per kW 3.51%
Over 150 kW of billing demand $2.25 $2.329 per kW 3.51%
First 200 hours of billing demand $0.0470 $0.0486 per kWh 3.40%
Next 200 hours of billing demand $0.0370 $0.0383 per kWh 3.51%
Over 400 hours of billing demand $0.0330 $0.0342 per kWh 3.64%
Industrial Current Proposed
Service Charge $100.00 $103.50 3.50%
Summer
Billing Demand $3.45 $3.571 per kW 3.51%
First 200 hours of billing demand $0.0490 $0.0507 per kWh 3.47%
Next 200 hours of billing demand $0.0330 $0.0342 per kWh 3.64%
Over 400 hours of billing demand $0.0310 $0.0321 per kWh 3.55%
Winter
Billing Demand $2.25 $2.329 per kW 3.51%
First 200 hours of billing demand 0.042 $0.0435 per kWh 3.57%
Next 200 hours of billing demand 0.032 $0.0331 per kWh 3.44%
Over 400 hours of billing demand 0.029 $0.0300 per kWh 3.45%
Security Lights Current Proposed
1000 Watt- Mercury Vapor $20.80 $21.55 3.61%
700 Watt- Mercury Vapor $15.15 $15.70 3.63%
400 Watt- Mercury Vapor $9.50 $9.85 3.68%
400 Watt- Mercury Vapor- Ornamental $11.50 $11.90 3.48%
250 Watt- Mercury Vapor $6.80 $7.05 3.68%
250 Watt- Mercury Vapor- Ornamental $10.10 $10.45 3.47%
175 Watt- Mercury Vapor $5.55 $5.75 3.60%
175 Watt- Mercury Vapor- Ornamental $7.55 $7.85 3.97%
400 Watt- High Pressure Sodium $10.25 $10.65 3.90%
400 Watt- High Pressure Sodium-Ornamental $11.50 $11.90 3.48%
360 Watt- High Pressure Sodium $9.70 $10.05 3.61%
360 Watt- High Pressure Sodium-Ornamental $10.95 $11.35 3.65%
250 Watt- High Pressure Sodium $7.40 $7.70 4.05%
250 Watt- High Pressure Sodium- Ornamental $10.50 $10.90 3.81%
200 Watt- .High Pressure Sodium $7.20 $7.45 3.47%
200 Watt- High Pressure Sodium -Ornamental $10.50 $10.90 3.81%
150 Watt- High Pressure Sodium $6.20 $6.45 4.03%
150 Watt- High Pressure Sodium- Ornamental $8.20 $8.50 3.66%
100 Watt- High Pressure Sodium $5.00 $5.20 4.00%
100 Watt- High Pressure Sodium - Ornamental $6.80 $7.05 3.68%
70 Watt-High Pressure Sodium $4.35 $4.50 3.45%
70 Watt- High Pressure Sodium-Ornamental $6.25 $6.50 4.00%
City of Ames Utilities Rate Samples
FY 06/07 Proposed Rates
Reflects ECA of$0.0091/kWh
Increase Electric Rate MINIMUM USE CUSTOMER
Electric Storm
Electric/Water Use Summer Water Water Sewer Total
100 kWh and 100 cf $ 12.11 $ 2.25 $ 8.69 $ 7.60 $ 30.65
FY 06/07 Rate Increase $ 0.42 $ - $ 0.42
Totals $ 12.53 $ 2.25 $ 8.69 $ 7.60 $ 31.07
% Impact on Electric Bill 3.47% % Impact on Total Bill 1.37%
Increase Electric Rate MEDIAN USE CUSTOMER
Electric Storm
Electric/Water Use Summer Water Water Sewer Total
600 kWh and 600 cf $ 54.36 $ 2.25 $ 15.64 $ 15.35 $ 87.60
FY 06/07 Rate Increase $ 1.75 $ 1.75
Totals $ 56.11 $ 2.25 $ 15.64 $ 15.35 $ 89.35
% Impact on Electric Bill 3.22% % Impact on Total Bill 2.00%
Increase Electric Rate LARGER RESIDENTIAL CUSTOMER
Electric Storm
Electric/Water Use Summer Water Water Sewer Total
nnn i �nih r nnn c $ 87 2v $ 2.25 $ 21.20 $ 21.55 $ 132.2v
,vvv r<v v i i ai iu i,vvv c
FY 06/07 Rate Increase $ 2.79 $ 2.79
Totals $ 89.99 $ 2.25 $ 21.20 $ 21.55 $ 134.99
% Impact on Electric Bill 3.20% % Impact on Total Bill 2.11%I
Increase Electric Rate LARGER COMMERCIAL CUSTOMER
Electric Storm
Electric/Water Use Summer Water Water Sewer Total
320,480 kWh/ 10,013 cf $ 18,516.45 $ 2.25 $ 197.58 $ 161.25 $ 18,877.53
FY 06/07 Rate Increase $ 537.60 $ 537.60
Totals $ 19,054.05 $ 2.25 $ 197.58 $ 161.25 $ 19,415.13
% Impact on Electric Bill 2.90% % Impact on Total Bill 2.85%
Duane Pitcher
City of Ames Finance Director
March 2, 2005
Ames Municipal Electric Service
Future Fund Balance,Electrical Service Rates and Replacement of Base Load
Background
The base electrical power load generation plant equipment at the City of Ames electrical
utility is aging and is very likely to require replacement in the next eight to ten years.
This large capital improvement will require either funding with cash balances, future
funding through the issuance of debt, or some combination of the two. The timing and
cost of the base load generation has not yet been determined and considerable data
gathering and analysis will be required over the next two to three years as plans are made
for this large capital improvement project. Early cost estimates for the base load
generation project are around $160,000,000. A part of this planning for this project will
include a capital funding and rate analysis to prepare a funding program for the project.
Electric Utility Reserve Fund Balance
The reserve fund balance policies for electric utilities vary greatly depending upon
volatility of revenue and expenses, ability to access other funding sources, and ability to
quickly adjust customer utility rates. The policy of the Ames Municipal Electric Service
has been to have adequate fund balance to meet operational cash flow needs, meet
financial contingencies, and fund regular capital improvements. A financial advisor is
currently working with the City to refine fund balance requirements for upcoming bond
issues and cash requirements for the large upcoming projects.
The revenue stream for Ames Municipal Electric Service does not vary as greatly as
some utilities due to a good mix of industrial and residential customers. Monthly revenue
at the winter low point is about 15% below the annual monthly average, with summer
peaks about 25% above the annual monthly average. Recommended fund balance
reserve is as follows:
Working Capital $5,600,000
Energy Replacement Contingency 3,500,000
Storm Contingency 1,000,000
Total $10,100,000
Working Capital
This amount represents twenty percent of operating expenses and is
approximately two months' average revenue. This amount provides working cash
for utility operations and small contingencies.
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Energy Replacement Contingency
This amount represents the estimated cost to purchase replacement power for one
month due to an extended generation casualty.
Storm Contingency
This amount represents the estimated cost of repairs to the distribution system due
to a major ice storm.
Cash for funding the Capital Improvements Plan is in addition to the reserve fund
balance. The fund balance required both for reserve and funding of the Capital
Improvements Plan is reviewed every year as part of the City of Ames budget process.
Ames Municipal Electric Service Past Policy on Rates and Fund Balance
When the Ames Municipal Electric Service issued debt to fund the last major electric
base load generation upgrade in the late 70s and early 80s, electric rates were increased
by 45% over three years to fund the debt repayment and operational costs. Since then,
electric utility rates have remained steady. The policy for rate setting has been to provide
adequate funding for both current operation of the electric utility and to fund regular
capital improvement on a long-term basis. This has been successful and resulted in
steady utility rates and a fluctuating fund balance depending upon the level of capital
improvement projects in a given year.
Over the next five years, it is expected that funding operations and regular capital
improvements at the current electric utility rates will continue. A cash flow analysis of
the current CIP (FY 2005-10) indicates that the electric utility can continue to meet
requirements for both the reserve fund balance and the planned capital improvements
other than the replacement of base load generation capacity which will require issuance
of debt.
Base Load Replacement Project and Fund Balances
Though the Ames Municipal Electric Service expects that current utility rates are likely
to be adequate to fund regular operations, the City Council may want to consider
beginning a series of modest electric utility rate increases specifically to fund the base
load replacement project. We recommend that the additional funds generated by the rate
increases be set aside solely to fund the capital project to replace base electric load
generation capacity. A series of modest rate increases over time would reduce utility rate
increases required to fund debt service. In one possible scenario, I looked at two options:
1. No rate increases and a $160,000,000 base load replacement project in FY
12/13 funded only by debt.
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2. A series of four 3.5% rate increases in FY 06/07,FY 08/09, FY 10/11, and FY
11/12 and a $160,000,000 base load replacement project in FY 12/13 funded
by a combination of debt and additional revenue generated by the rate
increases.
Under the first option above, a 29.5% utility rate increase would be required in FY 12/13
to fund the debt service for the base load replacement project. Under the second option,
the combination of already higher rates and a reduced debt requirement could lower the
utility rate increase required in FY 12/13 to 8.25%.
Other uses for the additional funds, such as peak reduction and energy alternatives,
should be evaluated on their own merit and be funded only if they provide a positive
financial impact by reducing capital costs.
This is one of many possible scenarios and the timing and cost of the project may vary
greatly as more study is completed on this project. It is important to begin early if the
strategy of a series of more modest rate increases is chosen. The funding program and
projections could be refined as data about the cost and time of the base load generation
project is acquired.
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