HomeMy WebLinkAboutA001 - Council Action Form dated May 10, 2016 ITEM # 49
DATE: 05-10-16
COUNCIL ACTION FORM
SUBJECT: REVISIONS TO ELECTRIC ENERGY COST ADJUSTMENT (ECA)
BACKGROUND:
Section 28, Division 1 of the City of Ames Municipal Code covers the general conditions for
electric rates and charges. Section 28.102, titled Energy Cost Adjustment reflects the
method used to adjust rates caused by fluctuations in the fuel cost. This section is
necessary to avoid constant changes to the City Electric rates.
The existing language was originally included in the Municipal Code in 1985 and was last
modified November 12, 2012. The current language functioned well when the City
purchased coal, because coal was contracted to the City on a "delivered basis", meaning
that all delivery costs were included in the base fuel cost. The transition to natural gas
results in daily price volatility for this fuel and its delivery which now requires a
change in how the Energy Cost Adjustment is calculated. In order to correctly
account for the fluctuations in natural gas and its separated delivery costs, the
language of Section 28.102 must be updated to account for this change.
It is worth noting that the ECA is a "look back" calculation, meaning that the adjustment is
calculated using costs that were charged during the previous 12 months. By adopting this
revision to the ordinance, the ECA will be updated going forward. To properly calculate the
ECA, all costs for natural gas and its delivery incurred to date, will be captured in the new
ECA calculation.
In addition, since the time the ECA was first adopted, other cost variables have been
included in the ECA calculation such as transmission credits, the cost of wind energy, and
energy market purchases and sales. The proposed Code revision does not change the
overall rate methodology, but updates the language to align with current and planned future
operating conditions.
As previously report to Council, the natural gas conversion is expected lead to fuel costs
that are higher than coal and result in an increased ECA of around 4% higher than the
current rate. This higher cost of natural gas is offset by improved ability to purchase power
off the grid when prices are favorable, and lower long-term capital costs related to air
quality making the conversion the best long-term option for our customers.
ALTERNATIVES:
1. Approve first passage of the revision to the Electric Rate Ordinance by deleting
Section 28.102 in its entirety and replacing it with the attached language.
2. Deny the revision and begin work on an Electric Rate increase.
MANAGER'S RECOMMENDED ACTION:
The Energy Cost Adjustment is the preferred method to capture certain variable costs that
are difficult to project in rates. Without the ability to adjust to the every changing energy
market, rate making will be more difficult and will likely lead to more over and under
collecting of revenue.
Therefore, it is the recommendation of the City Manager that City Council adopt Alternative
No. 1, thereby approving first passage of the revision to the Electric Rate Ordinance.
It should be noted that, during budget hearings, the staff emphasized that while
there will be no electric rate increase in FY 2016/17, because of the increased cost
for natural gas, customers might see up to a 4% increase with their electric bills due
to a higher ECA.
The current Section language is in red and the proposed language is in blue. Staff is proposing striking all of the
existing langue in the Section(in the red str-ike-t4rough)and replacing it with new language found in blue below.
Sec. 28.102. ENERGY C.0ST A D n STAIENT BILLING (ENERGY UNIT RATE, ENERGY COST
ADJUSTMENT,& ENERGY RATE ADJUSTMENT).
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deereast-}n the 3Y2r bEi665t 0 t lc mcr�i urr�t'1 l2ctr-iE
the diffiefenee between the base fuel eost and the average fuel oost of the pr-erceding month. The base fuel oost is
$0.0495 per-kilowatt hour. The average fiiel cost shall be detefrnined by Multiplying the unit fuel oost i
previous month tii:Hes the quantity of fuel used in the twelve(i 2) month pefied pr-ior to the previous month div
by the actual kilowatt houf sales during the same period.
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The net monthly billing based on rates will be increased or decreased according to the Energy Unit Rate
and Energy Cost adjustment, calculated as of the prior month. For purposes of this section, the
following definitions apply:
"Energy Unit Rate" means the portion of the retail electric rates that produces revenue to offset
fuel and electrical energy related expenses. The Energy Unit Rate for all retail rate schedules shall be
$0.0495 per kilowatt-hour(kWh).
"Energy Cost Adjustment (ECA)" means the amount the customer's billed energy charges are
adjusted to compensate for variations in the cost of energy to the Ames Municipal Electric System.The
ECA shall be adjusted monthly for variations in the utility's net cost of energy associated with electrical
energy purchases/sales,transmission expenses/revenues, and adjustments; fuel purchases/sales,
delivery expenses, and adjustments; and fuel waste disposal expenses/revenues and adjustments. The
ECA shall be determined by multiplying the customer's billed energy consumption (kWh) times the
Energy Rate Adjustment ($/kWh).
"Energy Rate Adjustment" means the Energy Unit Rate ($/kWh) subtracted from the quotient of
the Utility's net cost of energy ($), as defined in the ECA, invoiced for the prior twelve-month period
divided by the total retail energy (kWh) sales for the corresponding twelve-month period.
(Ord. No. 2921,Sec. 2, 4-9-85;Ord. No. 2975, Sec. 1, 5-19-87;Ord. No. 2977,Sec. 1, 6-9-87;Ord. No. 3199, Sec. 1, 9-
24-92;Ord. No. 4130, 11-27-12)