HomeMy WebLinkAboutA043 - Updates to Chapter 28, Electric Rate ModificationsITEM #:43
DATE:09-22-26
DEPT:ELEC
SUBJECT:
UPDATES TO CHAPTER 28, ELECTRIC RATE MODIFICATIONS
COUNCIL ACTION FORM
BACKGROUND:
Electric utilities periodically conduct cost-of-service and rate design studies to help make long-
term financial plans, promote efficient use of resources, and provide fair and equitable rates
for customers. Ames Electric Services completed a cost-of-service study in 2024. At the June
18, 2024, City Council/EUORAB Workshop, Mark Beauchamp from Utility Financial Solutions
(UFS) presented results from the cost-of-service study and recommended a series of 1.5%
increase, each of the next 5 years, to Electric rates across the board beginning in 2025. The
Electric Utility Operations Review and Advisory Board (EUORAB) met on June 20, 2024, to
discuss the cost-of-service study and rate increases at the direction of the City Council.
The first of these 1.5% rate increases was adopted by Council with an effective date of
November 1, 2025. It is now time to implement the second of these yearly increases, but with
some modification resulting from a change in project cost information for electric new plant
addition.
In June 2026, Electric staff presented to Council an updated cost for the Ames Municipal
Energy Center (AMEC). The cost-of-service study performed by UFS in 2024 was based on a
project estimate of $84 million. Since this time, the engineering firm working on the project,
Sargent & Lundy, has updated the project estimate to $192 Million.
The City's financial advisor, PFM, was asked to review the impacts of this new project
cost, on Electric's debt coverage ratio and rates. PFM's recommendation was to
increase rates by 2.5% instead of the original 1.5% for the next 18 years. Increases in
the later years are subject to change once a final AMEC cost is determined and load
growth in taken into account.
Based on the results of the study, the PFM analysis, and EUORAB's continued review,
EUORAB recommended that a 2.5% rate increase be adopted to go into effect following the
2026 summer season. This increase is to be applied to monthly customer service charges,
demand rates if applicable, and energy rates. It should be noted that the revenues reflected
in the FY 2026/27 budget only reflect the implementation of the smaller 1.5% electric rate
increase proposed in June 2024.
PROPOSED CHANGES TO CUSTOMER SERVICE CHARGE. DEMAND CHARGE, AND
ENERGY CHARGE:
T he Customer Service Charge is a fixed monthly amount charged to each customer, regardless
of how much energy is used. The Customer Service Charge covers the cost of customer class-
1
specific infrastructure (like a service drop and meter), a portion of the distribution system needed to
serve the customer, meter reading, and billing. EUORAB has recommended raising the
Customer Service Charge for Residential, Small Commercial, Commercial and Industrial
customers by 2.5%.
T he Demand Charge is a rate charged to Commercial & Industrial customers and is multiplied by
the 15 minute "peak" consumption by the customer in a given month. There is both a summer
season rate and a winter season rate. EUORAB has recommended raising the Demand Charge
for Commercial and Industrial customers by 2.5%.
T h e Energy Charge is a rate charged to all customers and is multiplied by the total electric
consumption in a given month. For Residential and Small Commercial there is both a summer
season rate and a winter season rate. Commercial and Industrial customers have a constant year-
long rate. EUORAB has recommended raising the Energy Charges for all customers by 2.5%.
At this time, EUORAB is not recommending any changes to the new Time-of-Use rates
created at the end of 2024, and only is being used by 186 customers at this time. UFS has
been asked to review these later this year, as well as review of the Energy Cost Adjustment
formula currently in effect.
ALTERNATIVES:
1. Direct the City Attorney to draft changes to Chapter 28 of the Municipal Code to implement
the increases to the customer service, demand, and energy charges as described above, and
return the draft ordinance for consideration by the City Council.
2. Do not direct the City Attorney to draft changes to Chapter 28 of the Municipal Code
CITY MANAGER'S RECOMMENDED ACTION:
Adopting the proposed changes will better align existing rates with the cost-of-service
study results, which were subsequently updated by PFM, following the increase to the
AMEC project costs. Therefore, it is the recommendation of the City Manager that the City
Council adopt Alternative 1, as described above.
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