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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 ???