HomeMy WebLinkAbout09112023 City Council Work Session Packet - Electric Utility Rate Study City
Work Packet
Topic : Electric Utility Rate Study
Mike Hubbard with the Financial Engineering Company will
be presenting information to the City Council and public.
Monday, September 11, 2023
City Council Chambers Beginning at 5:30 p.m.
All public is invited to attend.
City of Seward
PO Box 167 -rh
Seward, Alaska 99664
X(arb Sher&
August 8, 2023
Kris Peck, City Clerk
City of Seward
Re: September 11 Work Session
Mr. Clerk,
Please consider this my written request as required by Seward City Code 2.10.030 (a)(2) for a
Work Session on September 11, 2023, at 5:30 pm, for the following item:
Electric Utility Rate Study
Please note that Mike Hubbard with the Financial Engineering Company will be presenting
information to the City Council and public.
Thank you,
Stephen Sowell
Assistant City Manager
City of Seward, Alaska
www.ciiyofseward.us
0-907-224-4066
C-907-362-4062
F-907-224-4038
Ow
NOTICE
CITY COUNCIL WORK SESSION
NOTICE IS HEREBY GIVEN that the Seward Council will conduct a
work session on the following item of business:
WORK SESSION
Monday, September 11, 2023 at 5:30 p.m.
City Council Chambers
Topic: Electric Utility Rate Study
The work session will commence in the Seward City Council Chambers
located in City Hall at 410 Adams Street, Seward. All interested persons
are invited to attend the meetings.
Published in the Seward Journal: Wednesday, September 6, 2023
POSTED: Wednesday, September 6,2023
City Hall bulletin board
U.S. Post Office
Harbormaster's Building
Seward Community Library&Museum
Cost of Service/Rate Study
Seward Electric System
September 11, 2023
the Financial Engineering Company
1
Tonight's Agenda
• Terms
• Why and how of Cost of Service Studies
• Analysis
• Scenarios Investigated
• Assumptions
• Results
• Considerations
• Options/Recommendations
A Few Terms
• Peak Demand
• Highest rate of power usage during the
month of the system for a customer
• Typically measured over a 15-minute period
• Units (kW, MW)
• Class Coincident Peak »aa`_ em Load
• Peak of rate class at time of system monthly Load 59ngle Rate Class
peak
0
0
• Class Non-Coincident Peak
• Peak demand of customer class during the = ClassCP
Class NCP-
month
3
Base Rates and COPA
• Base Rates
• Customer charge ($/month), energy charge ($/kWh), demand charge ($/kW-mo)
• Rate implemented to collect for system costs except fuel and purchased power
• Changed through action of governing body
• If utility is rate regulated, modifications of base rates must be approved by RCA
• Cost of Power Adjustment (COPA) ($/kwh)
• Rate charged to collect for fuel and purchased power costs
• Changes automatically on set schedule (monthly, quarterly, etc.)
• Sometimes based on projected costs and sales with end of period true-up
• Sometimes based on actual and billed following period
• SES purchases all power from Chugach
• Chugach charges SES Base Rates plus its own COPA
• SES then includes all Chugach charges in the SES COPA
• Base Rates are the rates being investigated
Why Are Cost of Service Studies Performed ?
• Rate classes have differing usage patterns that influence utility
investment in infrastructure
• If the rate is the same for all classes, the differing utility investments
per rate class are not recognized
• Simply put, cost of service studies are performed to ensure that the
"cost causer" is the "cost payer"
• Without rates being set to cost of service, investment decisions by
customers may or may not be in their best interests or the best
interests of other ratepayers
How Are They Performed ?
• Expenses are dependent on several factors
• Recognizing this, National Association of Regulatory Commissioners
developed a manual that sets forth the methodology used
throughout the industry (NARUC Manual)
• NARUC Manual required if rate regulated by Regulatory Commission
of Alaska
• Even though Seward is not rate regulated, methodologies set forth in
NARUC Manual used in for this study
• Not an exact science
Billing Determinants
Revenue
Requirements Functionalixe Dependent On Typical Costs Classify Allocate Rate Design
i .............................................................................
System Peak depreciation,Interest on Debt, Coincident Peak
Generation Maintenance
Sales Fuel Energy
Allocated to
Budgeting Transmission System Peak Depreciation,Interest, Coincident Peak Each Rate Class Based on results of
Maintenance
Process Based on Rate COSS but take into
❑istribtion Number of Customers/ Depreciation,Interest, Non Coincident Peak Class' account goals of
Non-Coincident Peak Maintenance Customers Contribution to governing body
Classifier
Customer Accts Number of Customers Meter reading billing Customers
AdminjOther Labor,Plant in Service,Other Labor,Insurance,Other Labor/Other
Analysis
• Scenarios Investigated
• Assumptions
• Loads
• Revenue Requirements
• Adequacy of Exiting Rates
• Overall
• How close to cost of service
Scenarios Investigated
• Scenario 1 - Retain the utility and make necessary improvements
• Assumes staff additions and increase in existing staff salaries
• Includes several major capital improvements over the next several years
• Scenario 2 — Sell the utility
• Does not include the additional staffing or capital improvements
• Regulatory approval would take approximately a year if purchasing utility is
rate regulated
o
Loads
• Small rebound from
pandemic years
• 2021 and 2022 essentially
the same
• Analysis based on 2022 =o
sales
.aeid-ml .-11 G..,.I��. .H— . G..-/sp Cohn« .- Zhl
10
2022 2023 Adjustment 2023 2024 2025 2026
Budget Budget
Revenue Transmission Ops
Labor and Benefits 49,078 78,600 78,600 138,521 141,984 145,534
Other 826,700 512,500 - 512,500 220,090 225,592 231,232
Subtotal 875,778 591,100 - 591,100 358,611 367,576 376,766
Requirements °istribution°&M
Labor and Benefits 69,268 81,745 81,745 144,064 147,665 151,357
Other 33,825 30,000 - 30,000 32,710 33,528 34,366
Subtotal 103,093 111,745 - 111,745 176,774 181,193 185,723
Wholesale Power Costs 5,922,950 6,101,000 (6,101,000) - - - -
Work Orders
Labor and Benefits 229,684 108,050 - 108,050 190,422 195,183 200,063
Other (105,025) - - - (53,825) (55,171) (56,550)
Subtotal 124,659 108,050 - 108,050 136,597 140,012 143,512
General Operations
Labor and Benefits 1,728,560 1,314,716 - 1,314,716 2,316,997 2,374,921 2,434,294
Gen Fund Admin Fee 1,005,612 1,035,780 - 1,035,780 1,035,780 1,035,780 1,035,780
PI LT - - 1,000,000 1,000,000 1,025,000 1,050,625 1,076,891
Major Repair/Repl Fund - - - - 500,000 512,500 525,313
Depreciation 2,560,132 1,585,000 - 1,550,591 1,839,582 1,934,631 1,714,826
Other 2,115,881 1,688,550 (185,000) 1,503,550 1,714,562 1,755,955 1,798,383
Subtotal 7,410,185 5,624,046 815,000 6,404,637 8,431,920 8,664,412 8,585,487
Administration
Labor and Benefits 415,129 354,996 - 354,996 625,629 641,270 657,302
Scenario 2- Utility Sale Other 462,665 161,950 161,950 181,363 184,868 188,460
tal 877,794 516,946 - 516,946 806,992 826,138 845,762
Debt Servi
Interest Expense 154,450 586,700 - 586,700 579,700 722,525 702,789
Principal Payments 19,000 200,000 (200,000) - - - -
Other 20,903 25,403 - 23,916 23,916 23,916 23,916
Subtotal 19 812,103 (200,000) 610,616 603,616 746,441 726,705
Other Operating Expenses(Revenu (65,275) (63,719) (64,497) (64,497) (64,497)
Non-Operating Expenses(Revenue (49,100) (117,5 - (117,541) (104,191) (104,191) (104,191)
Target Margin - 500,000 500000 500000 500000
Revenue Requirements 15,394,437 13,683,730 (5,486,000) 8,661,834 10,845,823 11,257,085 11,195,267
Scenario 1- Utility Retention Revenue Requirements Before Margin 51161,834 ,
Adequacy of
Existing Rates
2023 2024 2025 2026
• Scenario 1 (Keep Utility) Residential 2,152,422 2,152,422 2,152,422 2,152,422
Small Gen Svc 1,258,836 1,258,836 1,258,836 1,258,836
• Rate increase of Harbor 220,052 220,052 220,052 220,052
$0.064/kWh right away Large Gen Svc 2,536,001 2,536,001 2,536,001 2,536,001
• Additional increase of Industrial 1,057,671 1,097,053 1,136,532 1,136,532
Lights 77,106 77,106 77,106 77,106
$0.007/kWh following Total 7,302,086 7,341,469 7,380,948 7,380,948
year
• Scenario 2 (Sell Utility) Revenue Requirements 8,661,834 10,845,823 11,257,085 11,195,267
• Requires rate increase of Surplus(Deficiency) (1,359,747) (3,504,354) (3,876,137) (3,814,319)
$0.025/kWh (approval Required Increase($/kWh)
of sale will take up to a From Existing Rates 0.025 0 064 0.071 0.069
year) From Previous Year 0.025 0 039 0.007 (0.001)
Cost of - - Scenario (2024)
Street
Residential Sm Gen Svc Boat Harbor Lg Gen Sic Industrial Total
Lights
Allocated Cost of Service
Energy $ 2,023 $ 1,121 $ 240 $ 2,471 $ 1,205 $ 9 $ 7,070
Demand 1,711,587 1,300,286 262,820 3,585,408 1,694,802 19,397 8,574,300
Customer 1,642,467 451,847 21,854 62,396 2,371 4,725 2,185,661
Direct - - 34,936 - - 43,855 78,792
Total $ 3,356,078 $ 1,753,254 $ 319,851 $ 3,650,275 $ 1,698,378 $ 67,986 $ 10,845,823
Revenues From Existing Rates
Customer $ 553,097 $ 290,685 $ 14,059 $ 41,974 $ 3,600 $ $ 903,415
Energy 1,599,325 968,151 205,992 1,042,473 400,296 4,216,237
Demand - - - 1,451,554 693,157 - 2,144,710
Street/Yard Lights - - - - - 77,106 77,106
Total $ 2,152,422 $ 1,258,836 $ 220,052 $ 2,536,001 $ 1,097,053 $ 77,106 $ 7,341,469
Surplus(Deficiency) $(1,203,656) $ (494,419) $ (99,800) $(1,114,274) $ (601,325) $ 9,120 $ (3,504,354)
Required Adjustment
Percentage 55.9% 39.3% 45.4% 43.9% 54.8% -11.8% 47.7%
S/kWh 0.077 0.057 0.023 0.058 0.064 0.000 0.064
13
Cost of Service — Scenario 2
Street
Resideutial Sm Gen Svc Boat Harbor Lg Gen Svc Industrial Total
Lights
Allocated Cost of Service
Energy $ 900 $ 499 $ 107 $ 1,099 $ 536 $ 4 $ 3,146
Demand 1,378,650 1,051,085 210,030 2,901,208 1,370,620 15,502 6,927,095
Customer 1,264,985 348,001 16,831 48,019 1,824 3,639 1,683,298
Direct 18,255 30,040 48,295
Total $ 2,644,535 $ 1,399,584 $ 245,223 $ 2,950,325 $ 1,372,980 $ 49,185 $ 8,661,834
Revenues From Existing Rates
Customer $ 553,097 $ 290,685 $ 14,059 $ 41,974 $ 3,600 $ - $ 903,415
Energy 1,599,325 968,151 205,992 1,042,473 391,501 4,207,441
Demand - - - 1,451,554 662,570 2,114,124
Street/Yard Lights - - - - - 77,106 77,106
Total $ 2,152,422 $ 1,258,836 $ 220,052 $ 2,536,001 $ 1,057,671 $ 77,106 $ 7,302,086
Surplus(Deficiency) $ (492,114) $ (140,749) $ (25,171) $ (414,325) $ (315,309) $ 27,921 $ (1,359,747)
Required Adjustment
Percentage 22.9% 11.2% 11.4% 16.3% 29.8% -36.2% 18.6%
$1kWh 0.031 0.016 0.006 0.022 0.034 0.000 0.025
14
Considerations
• $1 million in revenue requirements equates to $0.018/kWh
• Target margin of $500,000 used in analysis
• Need to have rates based on some margin to provide for capital
improvements and unforeseen costs
• Payment In Lieu of Taxes (PILT)
• Is the $1 million used in the analysis reasonable (if lowered, City would have
to make up the difference from other sources)
• Administrative Fee
• Is the $1,035,780 budgeted amount reasonable (as with PILT, City would have
to make up the difference from other sources)
Options — Scenario 1
• Option 1: Increase all rates by $0.055/kWh followed by $0.016/kWh
increase beginning of 2025
• Results in all revenue requirements met but with no margins
• NOT Recommended
• Option 2: Increase all rates by $0.059/kWh followed by $0.012/kWh
beginning of 2025
• Results in margins of approximately $235,000
• Option 3: Increase all by $0.064/kWh
• Residential rate class moves to within 94 percent of cost of service
• Option 4: Implement rate increases that move each class closer to cost of
service while attempting to lessen the large increase to Residential
• See following table
Options — Scenario 1 (continued)
• Rate adjustment should be implemented as soon as possible
• During 2024, investigate whether adjustments to the PILT and
Administrative Fee are warranted
• Rate adjustment at beginning of 2025 would be reflective of those
investigations
Boat Harbor Street
Option Residential Sm Gen Svc (28 meters) Lights Lg Gen Svc Industrial Total
Scenario 1-Utility Retention
1.1 Increase all by$0.055/kWh
Increase($/kWh) $ 0.055 $ 0.055 $ 0.055 $ 0.055 $ 0.055 $ 0.055
Added Revenues $ 864,170 $ 419,020 $ 102,716 $ 1,055,618 $ 514,876 $ 3,723 $ 3,020,123
SES Margins $ 15,769
Avg Monthly increase $ 34.53 $ 69.57 $ 308.46 $ 1,112.35 $ 14,302.11 $ 51.71
Percent of Cost of Service 90% 99% 101% 98% 95%
1.2 Increase all by$0.059/kWh
Increase($/kWh) $ 0.059 $ 0.059 $ 0.059 $ 0.059 $ 0.059 $ 0.059
Added Revenues $ 927,018 $ 513,858 $ 110,186 $ 1,132,390 $ 552,321 $ 3,994 $ 3,239,768
SES Margins
Avg Monthly Increase $ 37.04 $ 74.63 $ 330.89 $ 1,193.25 $ 15,342.26 $ 55.47
Percent of Cost of Service 92% 101% 103% 100% 97%
1.3 Increase all by$0.064/kWh
Increase($/kWh) $ 0.064 $ 0.064 $ 0.064 $ 0.064 $ 0.064 $ 0.064
Added Revenues $ 1,005,579 $ 557,405 $ 119,524 $ 1,228,356 $ 599,128 $ 4,333 $ 3,514,325
SES Margins $ 509,971
Avg Monthly Increase $ 40 18 $ 80.96 $ 358.93 $ 1,294.37 $ 16,642.45 $ 60.18
Percent of Cost of Service 94% 104% 106% 103% 100%
1.4 Move to Cost of Service
Increase($/kWh) S 0.065 $ 0.060 S 0.050 $ 0.055 S 0.060 $ 0.060
Added Revenues $ 1,021,291 $ 522,568 $ 93,378 $ 1,055,618 $ 561,683 $ 4,062 $ 3,258,600
SES Margins $ 254,246
Avg Monthly Increase $ 40.81 $ 75.90 $ 280.42 $ 1,112.35 $ 15,602.30 $ 56.41
Percent of Cost of Service 95M 102% 98% 98% 98%
18
Options — Scenario 2
• It is recommended that the required $0.025/kWh increase be
implemented across the board (to all rate classes)
• Reductions in the target margin should NOT be considered since
approval process of utility sale will take up to a year
Boat Harbor Street
Option Residential Sm Gen Svc (28 meters) Lights Lg Gen Svc Industrial Total
Scenario 2-Utility Sale
2.1 Increase all by$/kWh
increase($/kWh) $ 0.025 $ 0.025 $ 0.025 $ 0.025 $ 0.025 S 0.025
Added Revenues $ 392,804 $ 217,737 $ 46,689 $ 479,826 $ 234,035 $ 1,692 $ 1,372,783
SES Margins $ 552,418
Avg Monthly Increase $ 15.70 $ 31.62 $ 140.21 $ 505.61 $ 6,500.96 $ 23.51
Percent of Cost of Service 96% 106% 109% 102% 94%
20
Monthly Impact on Residential Customers
Scenario 1: Retain Utility Scenario 2: Sell Utility
Existing Rates
Average (Monthly Option 1.1
Option 1.2 Option 1.3 Option 1.4 Option 2.1
kWh/month Charge) (Not Recommended)
Monthly Monthly Monthly Monthly Monthly
Increase Increase Increase Increase Increase
Charge Charge Charge Charge Charge
Summer 571
Customer Charge $ 22.10 $ 22.10 $ - $ 22.10 $ - $ 22.10 $ - $ 22.10 $ - $ 22.10 $ -
Energy 69.49 100.90 31.41 103.18 33.69 106.03 36.54 106.61 37.12 83.77 14.28
COPA 60.24 60.24 - 60.24 - 60.24 - 60.24 - 60.24 -
Total $ 151.83 $ 18324 $ 31.41 $ 185.52 $ 33.69 $ 18838 $ 36.54 $ 188.95 $ 37.12 $ 166.11 $ 1428
Percent Increase(Total Bill) 21% 22% 24% 24% 9%
Winter 685
Customer Charge $ 22.10 $ 22.10 S - $ 22.10 $ - $ 22.10 $ - $ 22.10 $ - S 22.10 $ -
Energy 58.29 95.97 31.68 98.71 40.42 102.13 43.84 102.82 44.53 75.42 17.13
COPA 7227 7227 - 7227 - 7227 - 7227 - 7227 -
Total $ 152.66 $ 190.34 $ 37.68 $ 193.08 $ 40.42 $ 196.50 $ 43.94 $ 197.19 $ 44.53 $ 169.79 $ 17.13
Percent Increase(Total Bill) 25% 26% 29% 29% 11%
Annual 628
Customer Charge $ 22.10 $ 22.10 $ - $ 22.10 $ - $ 22.10 $ - $ 22.10 $ - $ 22.10 $ -
Energy 63.89 98.43 34.54 100.94 37.05 104.08 40.19 104.71 40.82 79.59 15.70
COPA 66.25 66.25 - 66.25 - 66.25 - 66.25 - 66.25 -
Total $ 152.25 $ 186.19 $ 34.54 $ 189.30 $ 37.05 $ 192.44 $ 40.19 $ 193.07 $ 40.82 $ 167.95 $ 15.70
Percent Increase(Total Bill) 23% 24% 26% 21% l0%
COPA equal to that recovered by SES on July 1,2023 Chugach has filed for a rate increase,and the projected increase to SES would be approximately 6.5%.
21
Summary
• Analysis shows Residential and Industrial farthest from allocated cost of
service
• If utility is retained
• A series of rate increases must be implemented that total approximately
$0.071/kWh by the beginning of 2025
• This equates to an increase of$44.59/month for the average Residential customer
• Increases might be mitigated by reducing PILT or Administrative Fee (although any
reductions would have to be made up from other sources)
• If the utility is sold
• Rates still need to be increased by $0.025/kWh
• This equates to an increase of$15.70/month for the average Residential customer
• Approval process can take up to a year
• Presumably the capital improvements included in Scenario 1 ("Retain Utility") would
have to be performed by the acquiring utility (not included in the analysis)
??? Questions /
t
Comments ???