HomeMy WebLinkAboutA002 - Council Action Form dated May 22, 2012 G
ITEM # 26
DATE: 05-22-12
COUNCIL ACTION FORM
SUBJECT: ELECTRIC UTILITYRATE ORDINANCE CHANGES
BACKGROUND:
In February 2011, City Council approved a contract for an Electric Services cost-of-service
study and electric rate design study to SAIC Energy, Environmental & Infrastructure LLC.
Using utility cost principles and financial and customer data provided by City staff, SAIC
conducted a study to identify the costs of services provided by the City of Ames Electric
Utility. After completion of the cost-of-service study, the consultant worked with staff to
design cost-based electric rates based on allocated costs. A draft report was presented to
the EUORAB on November 1, 2011, and the final report and proposed rate structure were
presented at a special joint meeting of the City Council and EUORAB in December 2011.
Summary of Results of the Rate Study
• Cost by customer class was relatively close to revenue by customer class so the
new rate structure does not include significant re-allocation between classes of
customers.
• Costs of certain cost components of the rate did not match associated revenue and
the proposed rate structure reflects better matching of these costs. Most notable
are the base billing charges and demand charges, which are both increased in the
proposed rate structure.
• Declining block rates did not match cost of service and have been eliminated in the
proposed rate structure and replaced with flat rates for all customer classes.
However, for residential and small commercial classes, summer and winter rate
differentials still apply.
• The base electric rates did not reflect the current cost of energy and have been
increased in the proposed rate structure. The additional cost of energy in the
current rate structure was reflected in the Energy Cost Adjustment (ECA) rate
component. As energy costs are better reflected in base rates, the ECA is lowered,
resulting in no net change in revenue.
City Council voted unanimously to receive and file the study. At that time, staff indicated
that the rate ordinance implementing these changes would be to Council in spring 2012 for
approval. Following Council's adoption of the rate ordinance on first reading, staff will be
work on a process of customer notification and feedback on the new rate structure with
planned implementation no earlier than November 1, 2012.
1
The adopted FY 2012/13 Budget did not include an electric rate increase, so the proposed
rate structure is revenue neutral. As discussed during review of the study, the impact of
the new structure on customer groups will vary based on the cost of services utilized.
In general, the proposed cost based rates reflect increased customer charges for all
classes, and increased demand charges with decreased energy charges for those rate
classes with a separate demand charge. Below is a summary of changes in the proposed
rate ordinance by class of customer:
Residential:
• The monthly customer charge was increased from $5.25 to $8.00.
• The proposed summer energy rate will be the same as the current summer energy
rate ($.0866/kWh), plus the estimated ECA rate of $.03/kWh.
• The proposed winter three-block energy rate will be simplified to a single energy
rate of $.0966/kWh (including ECA) for the eight winter months. The proposed
winter rate will be slightly lower than the average of the current winter rates.
• Overall, revenues generated by the residential class from this new rate will be
virtually the same. However, individual customers may see changes in their monthly
bills.
Small Commercial (General Power):
• The monthly customer charge was increased from $6.30 to $15.00.
• The three-block energy rates for each season were simplified to a single energy rate
for each season (winter rate will be $.0948/kWh and summer rate will be
$.1148/kWh, both including the current ECA).
• Overall, revenues generated by the small commercial class from this new rate will
be virtually the same. However, individual customers may see changes in their
monthly bills.
Commercial (Large Power):
• The monthly customer charge was increased from $48.00 to $150.00.
• The three-block energy rates for each season were simplified to a single energy rate
for the year. The proposed energy rate for this class of$.0619/kWh (including the
current ECA) is lower than the average of the current energy rates.
• The demand charge in the proposed rates will change from three blocks to one
block in both the summer and the winter; and the billing determinant will change
2
4
from kilowatt (kW) to kilovolt amp (kVA), which is a more appropriate measure for
demand on the system.
• The proposed summer demand rates will increase to $10.30/kVA from an average
of$4.52/kW, while proposed winter demand rates will increase to $7.70/kVA from
an average of $3.11/kW. Total demand revenues will be higher than at current
rates.
• The overall revenues generated by the large power class from this new rate will be
virtually the same. Again, however, individual customers may see changes in their
monthly bills.
Industrial:
• The monthly customer charge was increased from $118.00 to $150.00.
• As with the Large Power class, the three-block energy rates for each season were
simplified to a single energy rate for the year, and the billing determinant will change
from kilowatt (kW) to kilovolt amp (kVA).
• The three-block energy rates for each season will be simplified to a single energy
rate for the year of$.0619/kWh, including the current ECA. This rate is lower than
the average of the current energy rates.
• The proposed summer demand rate will increase to $10.00/kVA from $4.05/kW,
while the proposed winter demand rate will increase to $7.50/kVA from an average
of $2.641/kW. Total demand revenues will be higher than at current rates.
• The overall revenue generated by the industrial class from this new rate will be
virtually the same. Again, individual customers may see changes in their monthly
bills.
ALTERNATIVES:
1. Approve the proposed revenue neutral Electric Rate Ordinance on first reading and
delay the second and third readings of the ordinance to allow time to implement a
customer notification process and to solicit feedback from customers.
2. Approve the proposed Electric Rate Ordinance on first reading, and direct staff to
move ahead with second and third readings at the next two Council meetings.
3. Refer the electric utility rate ordinance back to staff with direction to develop an
alternative rate structure. This alternative would likely require some additional work
with the consultant to ensure any newly proposed structure will generate adequate
revenue.
3
MANAGER'S RECOMMENDED ACTION:
Since this is the first significant change in the electric rate structure in several years,
customer notification and education on the impact of the changes will be an important part
of the implementation process. Because of this, it is recommended that the Council
support Alternative #1, thereby approving the first reading of the proposed rate structure
and delaying the second and third readings to allow staff time to provide information to
customers on the new rates and to solicit customer feedback for the Council.
After initial Council approval of the revised rate structure, staff will take several steps to
notify customers of the changes and to gather their input. The notification and feedback
process will include articles in the City Side Newsletter, City Cable Channel programs, a
Rotary Club presentation, discussions with the Ames Chamber and Main Street Cultural
District, and one-on-one meetings with our largest customers. With an implementation
date planned no earlier than November 1, there will be time to pursue several methods of
providing rate change information to customers, and then to report back to Council and
review customer feedback and discuss options for possible adjustments to the proposed
rates, if needed, prior to final approval of the rate ordinance.
4
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