HomeMy WebLinkAboutA002 - Council Action Form dated April 21, 2015 ITEM # 4
DATE: 04-21-15
COUNCIL ACTION FORM
SUBJECT: TIME-OF-USE (TOU) INDUSTRIAL ELECTRIC RATE
BACKGROUND:
Electric Services is responsible for providing electricity to the majority of the City's residents and
to parts of Iowa State University on a wholesale and retail level. As an electric utility, the Ames
Municipal Electric System (AMES)strives to provide reliable and secure service to its customers
at the best possible price.
AMES traditionally establishes ongoing operating plans using a "supply-side management"
philosophy. Not only does the electric utility need to meet ever-changing energy needs on a
minute by minute basis, but it is required by the Midcontinent Independent System Operator to
meet the hourly maximum peak demand requirement plus a 7-10% margin of reserve.
As demand has continued to grow through the years, the City's energy and capacity needs
were met through multi-year power-supply contracts and through construction of new
generation. New generation is expensive to build and affects the rates paid by AMES
customers. The City's last base generating unit was installed in 1982 and the last peaking
generating unit in 2006. Based on projected load growth, the 2007 Capital Improvement Plan
(CIP) included plans for additional peaking generation capacity to be installed in 2012.
In 2007 the City Council also embarked on a progressive approach to keep rates stable by
delaying the need to expand generation capacity by initiating a demand-side-management
(DSM)program. Through incentives and rebates,the AMES began to help customer accelerate
the replacement of older, less efficient equipment, appliances,and lights with new ones that use
less energy.As a result of these programs, it is estimated that the City's projected peak demand
has been reduced by over 15,000 kilowatts, and 25,000,000 kilowatt hours of energy has been
saved. More importantly, the success of the DSM program has eliminated the need for the next
generating unit originally outlined in the 2007 CIP with its associated large capital expenditure.
While the City's DSM program remains effective in slowing electric demand growth,a new peak
of 130.6 megawatts was set in July, 2012, and came close again in August 2013 with a peak
load of 130.2 megawatts. The maximum demand in 2014 would again have been close to the
130 megawatt-or-greater level had it not been for a cool summer and process changes by the
utility's largest customer. Because of this increasing peak load,the current CIP again includes a
project to add additional generation capacity in the 2019/20 time frame to meet expected
demand growth.
To develop the next phase of DSM, one must first look at the relationship between the City's
cost of supply and the customer's usage. Ignoring the cost of the wires and poles to deliver the
electricity, there are two things a utility must have —energy and capacity.
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Energy
The AMES must have the exact amount of energy required by its customers every moment of
every day. This is provided through AMES owned generation and through purchases from the
electric "grid". Energy from City-owned generation is produced at a reasonably stable and
nearly fixed cost. However, the price of energy from the grid changes hourly in the"day ahead"
market and every five minutes in the"real time" market. Much of the City's energy is purchased
from the market because the market is oftentimes cheaper.Ames customers are insulated from
these wholesale price swings through the development of an "average" retail rate, a rate that
does not differ with the time of the day.
Developing an average rate is a very good practice for the typical homeowner or business
because it stabilizes their bills. However,for our largest customers that can vary their production
schedules and adjust their energy consumption, having different rates throughout the day could
reshape their production schedule. Lower cost energy could be used by the customer to reduce
their cost of production if they are willing to move some production to late evenings and
weekends.
There are predictable and measurable pricing patterns in the energy market. On average,
energy prices are higher Monday through Friday between the hours of 8:00 am and 8:00 pm
and are lower from 8:00 pm to 8:00 am, as well as all day on weekends and holidays. This
makes intuitive sense since more energy in used during daylight hours on work days than at
other hours. More energy required means more generators running, and typically this means
higher costs.
The chart below represents the average market cost, paid by the City for on-peak energy
(Monday-Friday, 8:00 am to 8:00 pm) and off-peak energy (all other hours) on a month by
month basis for the past several years. Moving usage to off-peak hours reduces the energy cost
to the City. This would also benefit the customer if a rate was developed which passes on some
or all of the savings.
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Day Ahead Average Purchased Energy Prices
S70.00
S60.0o
j q
[ JF .
$40.00
S30.00 �,. ---• _yam/ ;
'A
e
$10.0a
S0.00
Jain Feb Mar Apr May Jun Jul Aug Sep OCf Nov Dec
i
2012 Dn Peak —*—2011011 Peak 2014 On Peak 2015 On Peak
3 --a—2016 On Peak 2017 On Peak 2012 Off Peak — rt —2013 Off Peak
Capacity
The AMES must have enough capacity to meet that one hour in any year when customer
energy demand reaches its hourly maximum peak, plus a marginal amount above peak demand
for system reliability. This is a requirement of all utilities, so that if any generating unit is down
there surplus generation will exist to cover the requirements at any given moment.The AMES is
at a point where growth in peak demand will soon required the acquisition of additional capacity.
The old supply-side management style would to simply say build more capacity. However, if the
City can work with its largest customers and encourage reduction in demand by lowering
production while other AMES customers are peaking, a win-win scenario can be achieved.
When does the City peak? The graph below is the hour-by-hour demand of the City for each
peak day from 2006 to 2014. The Y axis represents the electric demand of all customers
supplied by the City measures in megawatt hours. The X axis lists the 24 hours in a day.
Standard language in the utility industry is to talk in terms of"hour ending"or HE.Therefore, HE
11 represents the time from 10:00 am to 11:00 am. With the exception of 2008 and 2009,when
storms interrupted the peak,the critical City Peak window has been from HE 16 (4 pm)to HE 19
(7 pm). Reducing demand during these hours would delay the need for the next generator and
would save both the City and its customer's money.
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Summer Peak Day Load Curves (2006-2014)
150
140
130
120 f
� 110
f
100 .
E 90
W so
70
Z
60
50
O O O O O O O O O ►- ►- 1-• h` ►-` M f-' ►-' i^' ►-' N N N N N
1-A N W A lJt 01 V W tp O F` N W 4 0 01 V W t0 O J.A N W P
-+--200G 2007 2008 -+-2009 -+-2010
In order to reduce or control peaks and to delay the need for added capacity, many larger
utilities across the country modify their electric rate designs. The City does this today on a very
limited basis.AMES electric rates are different between the summer season and the rest of the
year. This is done in part because Ames is a summer peaking utility and energy is more
expensive when air conditioning is needed.
Through new rate design incentives, the AMES could encourage customers to reduce
consumption during the peaking window of 4:00 pm to 7:00 pm. A major impact could be made
immediately by using such a rate design to encourage large industrial users to shift production
from on-peak to off-peak hours. The utility and the community would benefit when large electric
users are encouraged to reduce their demand during peak hours of a day and peak days of a
year.
A Time-of-Use (TOU) Rate is a pricing strategy whereby AMES would vary the price of
electricity depending on the time-of-day it is delivered to the customer. Prices encourage the
customer to use electricity during times of low demand and discourage use during the peak
times of the day. Time-of-Use pricing could allow AMES to better control costs and mitigate any
negative system impacts related to times of peak demand.
In its January 16, 2015 packets,the City Council received a letter from Amcor dated January 6,
2015 encouraging the development of a TOU rate. A copy of the letter is attached. Having done
extensive exploration and analysis of potential TOU rates, staff is now recommending that a
pilot program be implemented for the City's Industrial Rate customers using a TOU-based rate.
The Industrial Rate customers include Amcor, 3M, Danfoss, and the College of Veterinary
Medicine. Use of the TOU would not be mandated for any customer, but would be optional.
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Electric Services staff has worked with Amcor, the City's largest Industrial Rate customer, to
develop a TOU rate that Amcor is willing to be subject to through a pilot period. The basic
components are shown in the following table:
Billing Component Existing Industrial Rate Proposed Industrial TOU
Optional Rate
Customer Charge $150/month $250/month
Demand Charge $10/kVA (summer months) or $10/kVA (summer months) or
$7.50/kVA (winter months) $7.50/kVA (winter months)
times the highest 15 minute times the highest 15 peak
peak demand measured in the demand measured in the
month. month between the hours of
4:00 pm to 7:00 pm, Monday
through Thursday.
Energy Charge $0.0619/kilowatt-hour for all $0.0619/kilowatt-hour for all
energy energy measured Monday-
Friday from 8:00 am to 8:00
pm, and energy consumed
during all other hours up to
the customer's peak demand.
$0.04/kilowatt-hour for all
energy consumed during off-
peak hours in excess of the
customer's peak demand.
Energy Cost Adjustment Applies to all energy Applies to all energy.
Interruption N/A Customer must curtail load for
up to 4 hours with a 6 hour
notice; up to 3 times per
month
The following estimated revenue impacts would occur with implementation of this rate.
Assuming there is a 5,000 kW peak reduction as a result of the rate, the utility's corresponding
revenue would decrease by$500,000. This loss of revenue could be offset in a combination of
two ways. First, as a form of demand side management, some or all of the lost revenue could
be credited toward the existing DSM budget. The current Council approved DSM budget for FY
15/16 is $1,000,000. Second, the reduction of the City's peak would delay the need for new
generation and a large capital expenditure. If the reduction delayed a$25,000,000 expenditure,
that would equate to roughly a $390,000 annual avoided cost.
The proposed TOU rate would capture the necessary ideals outlined above in the following
ways:
Basing customers demand charges on their contribution to the City's peak will encourage
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load reduction during the critical 4:00 pm to 7:00 pm window.
Offering lower off-peak rates will encourage shifting energy consumption from on peak
periods to late night, early morning and weekend periods.
Additional City-triggered interruption periods would give the City the flexibility to reduce peak
outside of the typical high demand window.
The proposed rate addition would not alter existing Municipal Code Chapter 28, Section 28:107,
Industrial Electric Rates and Charges, but would add an optional TOU rate to the Code. It is
intended that this rate addition be optional and only be offered to Industrial Rate customers
within Electric Services' service territory. Advanced metering and individual billing calculations
are required, which currently limit the ability to cost effectively apply this to smaller customers at
this time. The Optional Time-Of-Use Industrial Electric Rate would be offered for 15 months, so
it can be evaluated for system and revenue impacts and for utility and customer efficacy. The
rate would expire after the 2016 summer billing season. The pilot period would thus extend
through two summer seasons. Should the Optional Time-Of-Use Industrial Electric Rate be
deemed beneficial after that time, staff would approach Council seeking authority to make this a
permanent part of the Municipal Code.
Attached is the draft ordinance section reflecting the Optional Time-Of-Use (TOU) Rate in red,
together with the existing Industrial Rate, Section 28.107 in black.
ALTERNATIVES:
1. Approve the proposed changes to Municipal Code Chapter 28, adding Section 28:108,
Optional Time-Of-Use (TOU) Industrial Electric Rate and Charges for a 15-month trial
period.
2. Refer the electric utility rate ordinance back to staff with direction to develop an alternative
rate structure. Depending on the complexity of the desired rate structure, this action would
likely delay implementation of a Time-Of-Use (TOU) rate to 2016 and result in not having a
rate induced method for assisting in the control of electric demand for this year's summer
peak season.
3. Do not approve the addition of a TOU rate into the Municipal Code at this time.
MANAGER'S RECOMMENDED ACTION:
The City's electric utility does an excellent job in meeting the electric needs of its customersand
tempering rate increases. Through demand side management programs, customers are
encouraged to use less electricity by replacing older equipment with more energy efficient
equipment.
The next step in energy conservation and peak usage control is specialized rates that more
closely align wholesale costs and retail consumption. A pilot study using a combination of
Time-of-Use rates together with a customer Interruption feature will allow staff to determine the
benefits and costs for both the individual customer using the rate and for all electric customers
served by the City.
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Normally staff does not ask the City Council to vote on an ordinance change at the night of a
workshop. However, swift action is needed in order for the ordinance to be in place and for
industrial customers who choose the TOU rate option to make necessary advance
arrangements prior to this summer's peaking season.Therefore, City Council is being asked to
approve this ordinance on first reading on April 21 st, and to approve the ordinance on second
and third readings on April 28tn
Therefore, it is the recommendation of the City Manager that the City Council adopt Alternative
No. 1 as stated above.
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Sec. 28.107. INDUSTRIAL ELECTRIC RATES AND CHARGES.
(1) Availability: The Industrial Electric Rates and Charges shall be mandatory for any non-residential
customer whose metered demand at any time exceeds 2,500 kVA.If at any time,a non-residential customer's metered
demand exceeds 2,500 kVA,all consumption for the billing period in which that occurs,and for the next succeeding
eleven billing periods,shall be charged at the Industrial Rates and Charges.
(Ord. No. 4130, 11-27-12)
(2) Rate Per Billing Period: For each monthly billing period,an Industrial customer shall be charged:
(a) the Service Charge of one hundred fifty dollars($150.00);
(b) the Demand Charge and the Energy Charge for the energy consumption during the billing
period as follows:
(i) for bills mailed on or between July 1 and October 31 (summer period):
1) the Demand Billing Rate of$10.00 per kVA,and
2) the Energy Billing Rate of$0.0619 per kWh,
(ii) for bills mailed on or between November 1 and June 30(winter period):
1) the Demand Billing Rate of$7.50 per kVA,and
2) the Energy Billing Rate of$0.0619 per kWh;
(Ord. No. 3955, 05-27-08; Ord 3987, 05-12-09; Ord. No. 4130, 11-27-12)
(c) the applicable Energy Cost Adjustment(ECA)per Sec. 28.102.
(Ord. No. 4130, 11-27-12)
(3) Billing Demand:The Billing Demand shall be the greater of:
(a) The peak fifteen(15)minute demand measured during the current monthly billing period,
or
(b) Seventy-five percent(75%)of the peak demand measured during the most recent four months
of the summer period;or
(c) Sixty percent(60%)of the peak demand measured during the last eleven billing periods;or
(d) 2,500 kVA after discounts.
(Ord.No. 4130, 11-27-12)
(4) Minimum Bill: The minimum monthly bill shall be the Service Charge plus the current Demand
Charge plus the Energy Charge for and the Energy Cost Adjustment for 600,000 kWh.
(5) RESERVED
(6) Service Facilities: The Ames Municipal Electric System shall furnish as a standard installation,
facilities adequate to supply service at a single point of delivery to a normal load equal to the maximum 15-minute
demand of the customer. Each standard installation shall include,where necessary,one standard transformer capable of
supplying the demand and energy requirements of the service.
(7) Excess Facility Charge: In the event service facilities in addition to, or different from, a standard
installation are requested by the customer,or are required to serve the customer's load,the Ames Municipal Electric
System shall furnish,install,and maintain such facilities subject to the following considerations:
(a) The type, extent, and location of such service facilities shall be determined by agreement
between the Ames Municipal Electric System and the customer.
(b) Such service facilities shall be the property of the Ames Municipal Electric System.
(c) The customer shall pay a monthly rental charge on those facilities in excess of the facilities
included in a standard installation.
(d) If the optional or nonstandard facilities are used for other customers also,the rental payable by
the customer shall be that portion of the total rental which is reasonably assignable to the customer.
(8) Primary service:Customers who take service at primary voltage shall be granted discounts to demand
and energy as follows:
(a) 1-1/2%of the billing demand and measured energy where metering is on the high voltage side
of utility-owned transformers.
(b) 5%of the billing demand and 1-1/2%of the measured energy where metering is on the high
voltage side of customer-owned transformers.
(c) A minimum Billing Demand after discount shall be 2,500 kVA
(Ord. No. 4130, 11-27-12)
(d) Voltages below 8,000/13,800 Y nominal are considered secondary voltage.
(9) Conditions: The Industrial Rate shall be subject to the following specific conditions.
(a) the general condition in section 28.101 (1),(2)and(5)and
(b) the following specific conditions:
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(i) The customer's total usage on a single premise shall determine whether the customer
qualifies for service under this rate structure.In no event will the customer be billed on more than one rate.A premise
is defined as the main building of a commercial or industrial establishment,and shall include the outlying or adjacent
buildings used by the same provided the use of service in the outlying buildings is supplemental and similar to the
service used in the main building.
(ii) Fluctuating loads.If use of energy is intermittent or subject to violent fluctuation,
the Ames Municipal Electric System may add to the 15-minute measured demand an amount equal to 65%of the rated
capacity in kVA of the apparatus which causes such fluctuations.
Sec. 28.108. OP'i'IONAI."I'IINII:-OE-USI,: (YOU) INDUSTRIAL ELEC"fRIC RATE, AND CHARGES.
(1) Availability: The IndLi;tl'lal Timc-of-Use (TOU) Electric Rate shall be volruntary for any non-
residential customer whose metered demand at anv time exceed,2,500 kVA. Service under this rate schedule is billed
on a Time-of-Usc(t�OL )basis as provided undo these rules establislic(I by Hectric Services. The Optional Timc-of-
Use IndIl,u'ial Iaectric Rate is an ahernaiivc to, and at the customer'., discretion replaces Section 28.107 (1)
Availability. CU;tQnlcrS opting Ior inclusion on the Optional Time-of-Usc(TOU)Industrial Electric Rate are required
to remain on the rite for a period no Tess than 1\y'Ck e con,ccutive calendar months.
(or-d. ,A'u. 4/l)'O. l 1-27-1 21
(2) Intent: Electric Servicc,is a sununer peaking electric utility,and as such,the cost to del ivcr electricity
is generally most expensive and detrimental to generation and distribution systems during hours of greatest dcniand.
The uti litV,and the community ofAnics,henetit when large electric users are encouraged to reduce their demand during
lhcse times. A Tinic-of-Use(TOU)Rate is a pricing strategy vv hereby Ilectric Services nlav vary the price ol'electricity
depending on the time-of-day it is dcli\u'cd to the customer. prices encotrragc the customer to use electricity daring
times of low demand and discourage use during the peak times of the day. Time-ol-Use(TOU)pricing allows Electric
Services to better control costs and mitigate any negative system impacts related to times of peak demand.
(3) Definitions:
(a) Time-of-Use(TOIJ):A specifically identifiable period oftime during a tvcnty-four hour day
used for establishing a pricing strategy aimed at reducing the overall demand for electricity.
(b) Peak: The greatest fifteen (15) minute demand for electricity measured during the current
billing period.
(c) Billing Demand: Highest metered kilovolt-amp (kVA) electric use, in a billing period
measured betwccn the hours of31)m and 7 pm Monday thr011011 Thin-Sday,overthe billing, period. Ifhowever,a higher
kVA electric Ilse is set during a required Interruption (See Section 28.108 (5))this will result in a Billing Demand set.
outside of the Monday -Thursday evindow.
(d) Holidays: Federally observed I lolidays.
(c) On-Peak Energy: 1?Iccu•icity, measured in kilowatt hours, used Monday through Friday
between the hours ol,y:00 am and 8:00 pm.
(I') Off-Peak Base Energy:Electricity,reasured in kilowatt IlorlrS,used Monday through Friday
between the horn•;of�:00 pm and 8:00 am, and all day Saturday.Srmday and Holidays.%t to the established monthly
Billing Demand.
(g) Off-Peak Time-of-Use Energy: Elcctricity. measured in kilowatt hours, used Monday
through Friday between the how-;of ti:00 pm and N:00 ant. and all day Saturday,Sunday and Holidays, in excess of the
established monthly Billing Demand
(h) Summer period: Bills mailed on or betvbeen July 1 and October 31.
(i) Winter period: Bills mailed on or between Novcmber I and .lunc 30.
(j) Energy Cost Adjustiuent(ECA):The Energy Cost Adjustment(,I-CA)is a billing component
that allo\as the utility to reflect tuctuations in the cost of fuel frn' the power plant without fi•equcntly changing the
standard energy chargrs. The E('A is ,imply the difference bct\%cen actual fuel costs for the past twelve months and
the base Ilicl cost added to cyery metered 1:ilo\v,itt-hour(I<Wh).
(d) Rate Per Billing Period: For each monthly billing,period,an Industrial customer participating in the
Optional Time-of-Use (TOU) Electric Rate shall be charged:
(a) the Service Charge of two hundred filly dollars ($250.00):
(b) the Demand Charge and the Laicrgy Char
gc for the energy consumption during the billing
period as follow,:
(i) for billy mailed on or between July 1 and October 31 (summer period):
1) the Billing Demand times the billing rate of$10.00 per kVA, and
2) the On Peak, Energy times the billing nite of$0.0619 per kWh,
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3) the Off Peal:, Base Enemy times the billing rate ofS0.0619 per kWh,
4) the Off Peak,'1'ime-of-Use Energy times thebiIIing rate ofS0.04 perkWh,
(ii) for On-Peak hills mailed on or between November I and,lone 30 (winter period):
I) the Billing Demand times the billing rate of 57.50 per 1<y A.and
2) the On Peal:, Energy times the hilling rate ol'S0.0011) per kWh,
3) the Off Peak, Base Fnergy times the billing rate of S().0619 per kWh,
4) the Off Peak,"I'ime-ol'-Use Fliergy times the billing roc of S0.04 per kWh,
(Orel. No. ti 055, t) -27-O,1. Or/ 3 9R7, 05-1_7-09; Ord. Nu. 4130, 11-27-12)
(c) the applicable Energy Cost Adjustment(E('A) per Sec. 28.102, and
(Ord. No. 41.30, 11-27-1 2)
(d) any applicable bill impacts of Section 28.107 ('3) Billing Demand, (4) Minimum 13111, (6)
Service Facilities, (7) Excess Facilities, (8) Primary Service, and (9)Conditions.
(5) Interruptible Option: For each summer monthly billing period.an Industrial customer participating in
the Optional Tune-of-Usc( R)t_i) Electric hate may. at Flectric Services' discretion,
(a) on dt least a 6 hour notice,be required to reduce demand to that equal to,the previous Billing
Demand two months prior nt anv time Monday at 8:00 am thorough Saturday before S:I)0 pm,
(i) the actual demand during the interruption period will be used a,the Billing Demand
for the month if it is higher than the highest metered kilowlt-amp (INA) electric use, in a hilling month measwred
hClwCen the hours of"Pill ',1nc1 7 pm Monday through Thursday, over the billing period.
(h) the duration of the interruption will be up to 4 hours in length
(c) maximum number of occurrences per month (3)
(6) Noncompliance Penalty: Ifat any time during participation in the Optional Timc-of-Use (TOU)
Electric Rate the customer's On-Peak demand exceeds One hulldred thirty(130)percent of their ninety (90)day
rollim,�iverage peak, the customer vv ill be charged a penalty of S5 per INA on the current billing;period's billing
demand.
(7) '['his ordinance shall remain in effect until September 1, 2016,on which date it is repealed in its
cnliretY.
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