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Home My WebLink About02032020 City Council Electric Presentation ELECTRIC DEPARTMENT WORK SESSION FEBRUARY 3, 2020 The year 2020 is going to be filled with so many puns about perfect vision. I can see it now. REQUESTED TOPICS • Meter Exchange Update and Demand Metering • Reexamine the 2017 Rate Study • Review of Current Rate Structure and Explain Bills • Timeline for Repairs and Funding Sources for 2020 and 2021 • Sale of the Electric Utility • Contract regarding company and job duties regarding Power Factor • Heat Pump Rebates METER EXCHANGE AND DEMAND METERING METER EXCHANGE HIGHLIGHTS • 5,000 meters from Kodiak Electric for free (Seward paid for shipping; mostly residential meters) • With an estimated savings of $250k for the rate payers F ,i City purchased additional meters under res 2018-01 1 � �� i i its iViron apmv iidrv,e ,%/i '' • Radio Frequency — Not 'smart meters' P AM 240Y � " Hired National Metering to exchange most of the meters • Reduced annual cost for meter reading appx. $bOk/yr 2,681 meters on our system • 2681 meters changed out DEMAND METER HIGHLIGHTS Demand Meters transmit Kilowatts (kW), Kilowatt-Hours (kWh) and Power Factor (P f) Demand Meters have 3 radio transmitters �/ � �� Demand Meters appx. 2X the cost of non-demand meters Tariff says over 25 kW — Large General Service Kodiak iEI#Vtr h'Mara✓/% oiir a • Demand Meter Policy ' %�� • Accounts changed based on historical data and analysis uu ui RATE STUDIES • Cost-of-Service study to ensure rate fairness • To verify that we are not charging too much or too little • Only enough $$ to cover expenses, repairs INFORMATION and future capital needs ABOUT RATE • Seward is not economically regulated by the STUDIES RCA (home ruled city); All other Railbelt utilities are regulated and add a charge of $0.000593/kWh to each bill. • Other utilities may change rates up to 4X/year with RCA approval � .THE PROCESS: Projecting the amount of customer months, (COST-OF-SERVICE STUDY, FINANCIAL energy sales, and demand sales. (Billing ENGINEERING COMPANY, DEC2014) determinants) "ALTHOUGH NOT AN EXACT SCIENCE, 2• Projecting the utility's revenue STANDARD INDUSTRY PRACTICES HAVE BEEN requirements. (Revenue Requirements ESTABLISHED TO HELP Analysis) ENSURE THAT RATES ARE NOT ARBITRARY OR CAPRICIOUS TOWARD 3• Allocating the revenue requirements to ANY ONE OR MORE RATE CLASSES. IN VERY each rate class. (Cost of Service Analysis) GENERAL TERMS, THE ANALYSIS IS PERFORMED 4. Designing rates that will recover each rate IN A MULTI-STEP PROCESS. THESE STEPS class' allocated cost of service. (Rate ARE": Design) 2015 RATE STUDY "Cost-of-service studies are not an exact science. As described in Section II of this report, revenue requirements are classified as energy related, demand related, customer related, a combination thereof, or directly assigned to a rate group. Once the classification is completed, the costs are then allocated to each rate group based on estimates of each rate group's contribution to the classifier. The NARUC Manual was established to set forth guidelines in classifying the various revenue requirements, but the manual acknowledges that local factors must dictate during the classification process. During the allocation process, factors that represent each rate group's contribution to total energy sales and the total number of meters can readily be developed. But contributions to coincident and non-coincident demands are not so straightforward and must be estimated. All in all, the results should not be taken as exact numbers but rather guidance on whether rates are set too high or too low." 2015 RATE STUDY Recommendations Based on the analysis, findings, and summary above, the following recommendations are made with respect to the SES electric rates. 1 ) Maintain the previously-approved CPI rate increases for 2015 with the possible exception of the Small General Service class. 2) Consider abandoning the automatic annual CPI rate adjustments in 2016 and instead basing adjustments on budgets and revenue requirements. The City Council must, however, be willing to set rates appropriately to ensure the financial health of SES. 3) If seasonal rates are desired, the rates should be implemented prior to the higher-rate season to help ensure adequate cash flows. 2015 RATE STUDY 4) Converting Special Contract rates to Large General Service in 2016 will result in a very large rate increase to those two customers. Therefore, SES should consider alternative options. a. Establishing an Industrial rate class that may include other customers. b. Continuing with Special Contracts for an indefinite period. c. Continuing with Special Contracts as rates are transitioned over a period of several years to either Large General Service or Industrial rates. With all of these options, large rate increases may result that would place undue financial burden on the customers if implemented immediately. If so, the new rates should be eased into over a multi-year transition period. During this transition period, usage should be monitored carefully by SES to determine the impacts of the higher rates. 2015 RATE STUDY 5) Update the Cost-of-Service study toward the end of 2016 for rate adjustments to be made in 2017. At that time, Small General Service rates can be moved closer to cost of service. 6) Consider a revision to the SES Fuel Cost Adjustment by: a. Basing the rate on the expected CEA Fuel Cost Adjustment rate for the month adjusted by the assumed losses. b. Establish a balancing account that tracks over- and under-collections. c. Adjust the SES Fuel Cost Adjustment with the over- and under-collections calculated in the balancing account. 7) Consider also the inclusion of all purchased power costs in the Fuel Cost Adjustment. This would include not only CEA's own Fuel Cost Adjustment but also the costs associated with base energy, capacity, and Bradley Lake. 2017 RATE STUDY OCT 2016; FINANCIAL ENGINEERING COMPANY "When setting electric rates, a utility's goal is twofold. First and foremost is to set rates to recover adequate revenues. Second,, the utility should strive to set rates for each customer class close to the allocated cost of service. This helps to ensure that the cost causer is the cost payer." 2017 RATE STUDYCONI OCT 2016; FINANCIAL ENGINEERING COMPANY "The second goal, setting rates close to the allocated cost of service, can only be achieved through a lengthy study that requires large amounts of staff time or the expense of hiring outside consultants. For this reason, utilities typically perform these large studies on an infrequent basis and implement interim rate adjustments on an "across-the-board" basis where a I I rates are adjusted by the same percentage or by the same amount." 2017 RATE STUDYCONT. OCT 2016; FINANCIAL ENGINEERING COMPANY The revised rate to be included in the base energy rates would be computed as follows. Base Energy Rate for CEA Power = Sum of +Customer charges for the period +(CEA Energy Rate X Expected SES Sales during period)/( 1 — losses) +(CEA Demand Rate X Expected SES Demand) +Expected Bradley Lake and AVTEC credits during period Divided by the expected sales for the period 2014 COST OF SERVICE COMPARED TO 2019 MM- Cust Dem kW $ Energy kWh $ Fuel Subtotal Bradley Total Bill Total $ Sales $/kW YY (kW) (kWh) (FCA) Adi $ less (MWh) h Rate Rate $ FCA Oct- 300 11 .18 92828 0.01116 55380 185570 334078 (14645) $319433 133863 41108 0.033 14 Nov- 300 11 .18 92839 0.01116 55391 239281 387811 (14645) $373166 133885 41163 0.032 14 Oct- 300 14.43 103607 0.01439 62566 330603 497077 (16320) $480757 150154 4,348 0.035 19 Nov- 300 14.43 111587 0.01439 64507 302216 478610 (16320) $462290 160074 4,483 0.036 19 $160.00 $160.00 $140.00 $140.00 AVERAGE BILL 2014 $120.00 $120.00 VERSUS2019 $100.00 $100.00 $80.00 $80.00 / 2014 128.22 2019 133.78 60.00 / $60.00 / Difference 133.78 - 128.22 = / �. $40.00 � � $40.00 / $20.00 $20.00 $ 5 * 56 $19.60 $21.84 $19.60 $21,84 $0.00 $0.00 2014 2019 2014 2019 COPA COPA Fuel Fuel COPA $54.06 $54.78 Fuel $36.40 $36.97 Seward RT $54.56 $57.16 �ii,Energy $72.22 $74.97 Cust Chrg $19.60 $21.84 Cust Chrg $19.60 $21.84 Cust Chrg Iii,Seward RT 11111111111 COPA Cust Chrg Iii,Energy 11111111111 Fuel 2017 RATE STUDY Recommendations 1 Changes in CEA's power costs be implemented on an across-the-board basis with the base energy charge being changed by the same amount for all customer classes. 2) A balancing account can be maintained that records actual payments versus the amounts collected, and true-ups can be included in the next periods adjustment. 3) These interim adjustments (for both CPI and CEA charges) may result in class rates straying from cost of service, and full cost-of-service analysis should be performed every three — five years. RATE COMPARISON RESIDENTIAL (600 KWH) $180.00 � A o000000 $160.00 $140.00 1 0.00 100.00 $ 80.00 $ 60.00 40.00 CEA CAL&P M MEA N COS 0HEA CVEA V uaui GVEA ui»» CVEA C RATE COMPARISON SMALL GENERAL ( 1300 KWH ) CEA ML&P MEA Seward HEA CVEA (V) GVEA CVEA (C) RATE COMPARISON LARGE GENERAL (25,000 KWH; 55 KW) ,$7,343,;43 $8,000.00 $7,000.00 $5320;83 $$5,087„43 $6,000.00 4 438 93 $5,000.00 $4215;83 ,$3,,707.08 $4,000.00 $3,000.00 $2,000.00 $1,000.00 $0.00 1 Ml&P UUUI� CEA IIIIIIII MEA ESeward 1111111111HEA iiiiii CVEA (C) CVEA (V) 0/ Transmission • Permanent Repairs Nash Road - $ 100k — 300k (depending on test results) • Clearing Mile 18 to 22 - $250k Distribution • Stoney Creek Subdivision Replacement - $ 175k Substation • Repair and Upgrade Controls Generator 6 - $250k (Res 2019-096) • Security Fencing and Ground Grid - Fort Raymond Substation $ 130k Other • Department of Transportation (DOT) Mile 17 to 25 - $300k rrviiri%% r i ' rrrrrirviii� �rviir Co COMMON MISCONCEPTIONS • Will not lower rates • Will not create better customer service • Will not increase reliability • Still have transmission related costs • Opposite of trend in lower ,48 to create smaller distribution utilities IMPACTS TO THE COMMUNITY • Increase to deferred maintenance • Depletion of sales money of the utility • No voice in utility matters — both locally and statewide • Backup generation would not be a priority • Electric department's help to the rest of the City (financial, equipment and labor related) HISTORY OF SELLING THE UTILITY • Almost purchased by Homer Electric; failed by vote of the public • Opened discussions with all Railbelt utilities early 2018 — Homer Electric (HEA), Chugach Electric (CEA), Matanuska Electric (MEA), and Golden Valley Electric (GVEA) have expressed interest in purchasing Seward Utility • HEA hired consultant to review purchase RECOMMENDATION AND COST • Hire Consultant to produce a report clarifying the positives and negatives; dependent on company and deliverables - $30k to $ 150k <<O pay S11, WHAT IS POWER FACTOR Pf AND t ,u eol - WHY IT'S IMPORTANT ReM Poev -, F) , o. Vl co s • The difference between `real' power and `reactive' ° Zin (r l) ¢rw r power; also referred to as `apparent' power ,�. war i rn f,travel Customer uses real power, but utility must supply apparent power N Tows NN NJ NonworkingPower factor closer to 1 .00, or 100%, as apparent (apparent) (reactive) power power power approaches real power and will reduce power losses • Contributes to `line loss' and expense of the utility • Added capability with new meters CALCULATION Pf = ( 1000 * P) / [ (13-) * C� * 14"1 k ) � �AF2- * Ipk) ] Where Pf is power factor P is Watts V is peak volts I is peak current WHAT THE TARIFF SAYS ABOUT POWER FACTOR VAR Change (Power Factor Adjustment): All schedules requiring demand metering will be subject to the following power factor adjustment provisions: Demand-metered customer should attempt to maintain a unity power factor. If the power factor falls below ninety percent lagging, the customer will take corrective steps to return the power factor to ninety percent or higher. Also, the following charge for billed kilowatts will apply: Monthly Billing Demand = Maximum Demand x 90% Actual Power Factor HOW TO IMPLEMENT • Analyze data collected from the billing software • Determine which customers have poor power factor (below 90% per tariff) • Notify in advance any customers with poor power factor and work with them to remedy the problem • Implement tariff CONCERNS • Surprise to customers who are unaware of the issue • Inefficiently using customers equipment and utility's infrastructure • Accelerating the deterioration of the utilities infrastructure and customers equipment • Reducing the cost to all ratepayers by lowering `line loss' SI LVERTI P • Public Relations consultant COMMUNICATIONS • Strategic communications planning • Writing and editing promotional flyers • Media relations training • Media relations message development • Create timeline for power factor implementation • Develop messaging to more easily explain power factor and it's importance IIIIII;;C�IIIIIIIr��r, I . I � IIIII ; • No current funding mechanism • Costs would need to be recovered HIGHLIGHTS • Research RUS grants and qualifications • Targeting higher income households and doesn't help lower income customers • Challenging to apply equally to in-town versus out-of-town customers • Customer financing, qualifications and application requirements must be determined