6/13/2013 2 CI TY OF COLUMBI A WATER & LI GHT DEPARTMENT COST OF SERVI CE & ELECTRI C UNBUNDLI NG STUDY
EXECUTI VE SUMMARY - I NTRODUCTI ON
I NTRODUCTI ON
This report was prepared to provide the City of Columbia electric utility with a long- term financial plan and an electric cost of service and unbundling rate study. The specific purposes of the financial plan and rate study are identified below:
1) Det er mi ne El ec t r i c Depar t me nt s r evenue r equi r eme nt s f or c al endar year 2012. The Electric Departments revenue requirements were projected for the period from 2012 2016 and included adjustments for the following: a. Changes in fuel cost and purchased power costs. b. Capital improvements currently underway and scheduled over the next five years. The City of Columbia electric utility provided capital improvement information for 2011 2016.
2) I dent i f y c r oss- subsi di es t hat may exi st be t ween r at e c l asse s. Cross- subsidies exist when certain customer classes subsidize the electric costs of other customers. The rate study determined if cross-subsidies exist and practical ways to reduce the subsidies.
3) Rec ommend r at e adj ust me nt s needed t o meet t ar get ed r eve nue r equi r ement s. The primary purpose of a rate study is to identify appropriate revenue requirements and the rate adjustments needed to meet targeted revenue requirements. The report includes a long-term rate track for the City of Columbia electric utility to help ensure the financial stability of the utility in future years.
4) Unbundl ed el ec t r i c r at es. The cost of providing electricity to customers consists of a number of components, including power generation, distribution, customer services, transmission, and payment in lieu of tax. Electric unbundling identifies the cost of each component to assist the utility in preparing for electric restructuring, understanding its cost structure and developing special rate forms for customers such as net metering rates, standby rates, and time of use rates.
5) I dent i f y t he appr opr i at e mont hl y c ust omer c har ge f or eac h c ust omer c l as s. The monthly customer charge consists of fixed costs to serve customers that do not vary based on the amount of electricity used.
The City of Columbia electric utility retained Utility Financial Solutions to review the above items and make recommendations on the appropriate course of action. This report includes results of the long-term financial plan, electric cost of service and unbundling study.
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EXECUTI VE SUMMARY- I NTRODUCTI ON
The Executive Summary Section of this report is structured in the following manner:
A) Executive Summary 1) Utility Revenue Requirements for 2012 2) Cost of Service Summary 3) Unbundled Electric Rates 4) Recommended Rate Adjustment B) Functionalization of Utility Revenue Requirements C) Unbundling Process 1) Distribution Cost Breakdown 2) Customer-Related Cost Breakdown 3) Unbundled Distribution Rates for Major Customer Classes 4) Power Supply Cost Summary 5) Combined Cost Summary D) Significant Assumptions Used in Analysis E) Summary of Recommendations F) Compilation Report
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EXECUTI VE SUMMARY PROJECTED REVENUE, EXPENSES AND NET I NCOME
PART ONE - UTI LI TY REVENUE REQUI REMENTS FOR 2011
To determine revenue requirements, the revenues and expenses for the period from FYE 2008 FYE 2010 and YTD 2011 were analyzed with adjustments made to actual expenses to reflect anticipated changes in operating expenses. Detailed descriptions of the methodology are included in the section Summary of Significant Assumptions.
Without rate adjustments an operating loss of $(606,391) is projected for 2012, the loss increases in 2016 to ($4.5) million. Cash generated from operations is not sufficient to support projected maintenance and system improvements. To help ensure reliable electric services to customers is maintained future rate adjustments are anticipated.
Tabl e One Fi nanc i al Pr oj ec t i on Wi t ho ut Rat e Adj ust ment s
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EXECUTI VE SUMMARY PROJECTED CASH FLOW
Cash Reser ves and Bal anc es
To help ensure timely completion of capital improvements, fund annual expenses and to help ensure funds exist if large unexpected expenditures occur, a cash reserve policy should be established. The determination of cash reserves considers a number of factors listed below:
Timing differences between when expenses are incurred and revenues received from customers Variability in monthly expenses Risk of changes in power supply costs Investment in assets Annual debt service Capital improvement program
The minimum recommended cash reserve for 2012 is $40 million and increases to $45 million in 2016 (please see detailed assumptions on page 8). For 2012, the projected cash reserve is $40.3 million and decreases to $18.5 million in 2016.
Tabl e Two Pr oj ec t ed Cash Bal anc e vs Mi ni mum Cas h Re ser ve s Cal c ul at i o n Wi t hout Rat e Adj ust me nt s
Projected Cash Flows Projected 2012 Projected 2013 Projected 2014 Projected 2015 Projected 2016 Add Net Income (4,904,618) $ (5,523,309) $ (6,335,256) $ (8,515,241) $ (9,213,995) $ Add Back Depreciation Expense 9,933,534 10,152,416 10,378,965 10,946,800 11,947,652 Subtract Debt Principal 2,433,443 2,226,096 3,025,914 3,162,967 4,894,569 Add Bond Sale Proceeds 0 0 0 44,925,000 0 Funds transf erred to the water f und Cash Available f rom Operations 2,595,473 $ 2,403,011 $ 1,017,795 $ 44,193,591 $ (2,160,912) $ Estimated Annual Capital Additions 5,660,000 6,330,000 6,080,000 25,025,000 29,800,000 Net Cash From Operations (3,064,527) $ (3,926,989) $ (5,062,205) $ 19,168,591 $ (31,960,912) $ Beginning Cash Balance 43,322,000 40,257,473 36,330,484 31,268,279 50,436,870 Ending Cash Balance 40,257,473 $ 36,330,484 $ 31,268,279 $ 50,436,870 $ 18,475,959 $ Total Cash Available 40,257,473 36,330,484 31,268,279 50,436,870 18,475,959 Recommended Minimum 39,948,619 40,909,057 41,887,956 43,818,104 44,934,613
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EXECUTI VE SUMMARY COST OF SERVI CE SUMMARY RESULTS
COST OF SERVI CE SUMMARY RESULTS
A cost of service study was completed to determine the cost of providing service to each class of customers and to assist in design of electric rates for customers. A cost of service study consists of the following general steps:
1) Determine utility revenue requirement for 2012 2) Classify utility expenses into common cost pools 3) Allocate costs to customer classes based on the classes contribution to utility expenses 4) Compare revenues received from each class to the cost of service
The cost of service summary is included in the table below which compares the projected cost to serve each class with the revenue received from each class. The % change column is the rate adjustment necessary to meet cost of service requirements.
Tabl e Thr ee Cost of Ser vi c e Summar y
Cost of Service Projected Revenues % Change Residential Service 32,109,810 30,836,129 4% Residential Service Space Heating 13,641,728 12,077,224 13% Residential Heat Pump 3,643,308 3,150,584 16% Small General Service 10,262,319 8,565,505 20% Small General Service Space Heating 2,146,851 1,800,544 19% Small General Service High Efficiency Heat Pumps 89,482 72,905 23% Street Lighting 1,507,697 1,390,694 8% Small General Service Optional Demand 199,718 179,569 11% Large General Service 32,561,148 31,001,774 5% Interruptible Service 173,475 161,087 8% Industrial Service 20,062,686 19,434,232 3% Total 116,398,223 108,670,248 7.1% Customer Class
The study indicates that a 7.1% increase would be needed to meet cost of service for 2012.
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EXECUTI VE SUMMARY DEVELOPMENT OF RECOMMENDED RATE TRACK
Devel opment of Recommended Rate Track
When evaluating rates to charge customers, three factors must be considered:
1. Debt Coverage Ratio 2. Minimum Cash Reserves 3. Optimal Net Income
Each of these factors is discussed below:
1. Debt Cover age Rat i o - Debt coverage ratios are mandated by bond covenants. To help ensure bond rating are improved or maintained a number of factors need to be considered including cash reserve policies, power cost recovery methods, risk of power supply, competitiveness of electric rates and the ability of the Electric Department to meet or exceed the covenants established in the bond ordinance. The covenant requires cash generated from operations exceed 1.20 times the debt payments. The target established in the study is a minimum ration of 1.40, the 0.20 factor helps ensure convents are exceeded when changes in sales occur due to weather, loss of major customers or other unforeseen events. The table below is the projected coverage ratios without rate adjustments. The Electric Department is projected to fall below requirements in 2014, without rate relief.
Tabl e Four Debt Cover age Rat i o
Debt Coverage Ratio Projected 2012 Projected 2013 Projected 2014 Projected 2015 Projected 2016 Add Net Income (4,904,618) $ (5,523,309) $ (6,335,256) $ (8,515,241) $ (9,213,995) $ Add Depreciation Expense 9,933,534 10,152,416 10,378,965 10,946,800 11,947,652 Add Interest Expense 5,748,229 5,922,145 5,770,107 6,419,826 6,274,259 Cash Available f or Debt Service 10,777,145 $ 10,551,252 $ 9,813,816 $ 8,851,384 $ 9,007,916 $ Debt Principal and Interest 8,181,672 $ 8,148,241 $ 8,796,021 $ 9,582,793 $ 11,168,828 $ Projected Debt Coverage Ratio (Covenants) 1.32 1.29 1.12 0.92 0.81 Minimum Debt Coverage Ratio 1.40 1.40 1.40 1.40 1.40
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EXECUTI VE SUMMARY DEVELOPMENT OF RECOMMENDED RATE TRACK
2. Minimum Cash Reserve Cash reserves are established to ensure funds are available to meet capital improvement needs or emergency expenditures. Cash reserve policies and guidelines are often established by utilities to maintain appropriate cash reserves to help ensure:
1. Cash exists for timely payment of bills 2. The short term and long term financial health of the Utility in maintained 3. Stable rates for customers 4. Cash exists to fund unanticipated cost contingencies and capital improvement programs
In recent years the compounded impacts of power supply cost uncertainties, a sluggish economy, volatile energy prices, and rising capital improvement costs have posed challenges to maintaining stable retail rates and reserves. It is important for utilities to maintain the financial flexibility to help smooth rate increases and stagger retail rate adjustments for customers of the utility. Minimum cash reserve guidelines should be set to allow reserves to float up or down above the minimum guidelines. The decision to hold more money than the established minimum cash guidelines should be based on the assessments of uncertainties and other financial policies such as:
o The financial risk facing the utilities o Rate setting policies o Variability in power costs o Debt policies o Future capital improvements needed by utility o Line Extension policies
The adequacy of the guidelines may be reviewed internally each year, and if appropriate, revised guidelines may be recommended. The minimum recommended cash reserve for 2012 is $39.9 million and increases to $44.9 million in 2016. For 2012, the projected cash reserve is $40.2 million and decreases to $18.4 million in 2016. The table below is the calculation of the minimum level of cash reserves identified in this report.
Tabl e Fi ve - Mi ni mum Cash Re ser ve Tar get Compar ed t o Pr oj ec t ed Reser ves
6/13/2013 9 Percent Allocated Projected 2012 Projected 2013 Projected 2014 Projected 2015 Projected 2016 Operation & Maintenance Less Depreciation Expense 20% 6,144,747 $ 6,327,199 $ 6,453,792 $ 6,742,981 $ 6,905,627 $ Pow er Costs 13% 10,916,527 11,244,023 11,581,344 11,928,784 12,286,648 Historical Rate Base 2% 5,692,124 5,818,724 5,940,324 6,440,824 7,036,824 Current Portion of Debt Service Reserve 50% 4,074,121 4,398,011 4,791,396 5,584,414 5,584,414 Next Years Capital Improvements - Net of bond proceeds 15% 2,186,850 2,186,850 2,186,850 2,186,850 2,186,850 Five Year Capital Improvements - Net of bond proceeds 15% 10,934,250 10,934,250 10,934,250 10,934,250 10,934,250 Minimum Cash Reserve Levels 39,948,619 $ 40,909,057 $ 41,887,956 $ 43,818,104 $ 44,934,613 $ Projected Cash Reserves 40,257,473 $ 36,330,484 $ 31,268,279 $ 50,436,870 $ 18,475,959 $
CI TY OF COLUMBI A WATER & LI GHT DEPARTMENT COST OF SERVI CE & ELECTRI C UNBUNDLI NG STUDY
EXECUTI VE SUMMARY RECOMMENDED RATE TRACK
3. Opt i mal Oper at i ng I nc ome Tar get s - The optimal target for setting rates is the establishment of a target operating Income. The operating income is set at a level for the Electric Department to breakeven considering operating income is used for the following purposes:
a. Funding of Interest Expense on the outstanding principal on debt b. Funding asset replacements considering the annual inflationary increase in the cost to replace the assets.
The target established for 2012 is $7.1 million and increases to $8.8 million in 2016. The projected operating loss for 2012 is ($606,391), and the loss increases to ($4.5) million by 2016.
Tabl e Si x - Opt i mal Oper at i ng I nc o me Tar get s Compar ed t o Pr oj ec t ed Wi t hout Rat e Adj ust ment s
Percent Allocated Projected 2012 Projected 2013 Projected 2014 Projected 2015 Projected 2016 Outstanding Principal on Debt 4.7% 5,748,229 5,649,760 5,515,911 5,376,000 5,159,493 System Equity 7.0% 1,373,355 1,277,576 1,201,193 2,235,663 3,600,478 Target Operating Income 7,121,584 $ 6,927,336 $ 6,717,104 $ 7,611,663 $ 8,759,971 $ Projected Operating Income (606,391) $ (987,882) $ (1,871,274) $ (3,298,182) $ (4,523,697) $ Rate of Return in % 4.7% 4.6% 4.6% 4.8% 5.0%
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EXECUTI VE SUMMARY RECOMMENDED RATE TRACK
RECOMMENDED RATE TRACK
Table Seven is the recommended rate track to achieve targets established in the study and minimize rate impacts to customers of the City of Columbia electric utility. We recommend a 2.2% 2012 - 2016 as identified in Table Seven below.
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EXECUTI VE SUMMARY ELECTRI C UNBUNDLI NG
DI STRI BUTI ON RATES
Separation of distribution rates is necessary to identify the customer charge for customers and to ensure the Utility is recovering its operational costs. Distribution rates include the following costs:
1) Operation and maintenance of distribution & transmission system 2) Payment in Lieu of Tax 3) Customer service 4) Customer accounting 5) Meter reading 6) Billing 7) Meter operation & maintenance 8) Administrative expenses
The distribution rates consist of two components:
1) Monthly customer charge to recover the costs of meter reading, billing, customer service, and a portion of maintenance and operations of the distribution system. 2) Distribution rate based on billing parameter, (kW or kWh) to recover the cost to operate and maintain the distribution system. The table below identifies the cost based distribution rates for customer classes.
The cost of service study distribution rates by customer are listed below. These are the results of the study for distribution only rates and are not the recommended rate design.
Tabl e Ni ne Di s t r i but i o n Rat e s by Cus t o mer
Customer Class Monthly Customer Charge Distribution Rate Billing Basis Residential Service 14.40 0.017 kWh Residential Service Space Heating 14.40 0.020 kWh Residential Heat Pump 14.40 0.020 kWh Small General Service 23.70 0.020 kWh Small General Service Space Heating 23.70 0.017 kWh Small General Service High Efficiency Heat Pumps 23.70 0.019 kWh Street Lighting 1.13 0.095 kWh Small General Service Optional Demand 29.94 5.08 KW Large General Service 45.00 4.49 KW Interruptible Service 128.91 4.31 KW Industrial Service 325.23 4.43 KW
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EXECUTI VE SUMMARY ELECTRI C UNBUNDLI NG
Delivery of electricity consists of many components that bring electricity from the power supply facilities to the communities and eventually into customer facilities. The facilities consist of four major components: transmission, distribution, customer- related services, and administration. Following are general descriptions of each of these facilities and the sub-breakdowns within each category.
Tr ansmi ssi o n
The transmission system is comprised of four types of subsystems that operate together:
1) Backbone and inter-tie transmission facilities are the network of high voltage facilities through which a utilitys major production sources are integrated. 2) Generation set-up facilities are the substations through which power is transformed from a utilitys generation voltages to its various transmission voltages. 3) Sub-transmission plant consists of lower voltage facilities to transfer electric energy from convenient points on a utilitys backbone system to its distribution system. 4) Radial transmission facilities are those that are not networked with other transmission lines but are used to serve specific loads directly.
Operation of the transmission system also consists of providing certain services that ensures a stable supply of power. These services are typically referred to as ancillary services. The Federal Energy Regulatory Commission (FERC) has defined six ancillary service charges for the use of transmission facilities and consist of the following:
Anc i l l ar y Ser vi c e Char ges: Regulation and Frequency Response Service Energy Imbalance Charges Operating Reserves Spinning Operating Reserves Supplemental Power losses from use of transmission system
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EXECUTI VE SUMMARY ELECTRI C UNBUNDLI NG
Di s t r i but i o n Syst em
The distribution facilities connect the customer with the transmission grid to provide the customer with access to the electrical power that has been generated and transmitted. The distribution plant includes substations, primary and secondary conductors, poles, and transformers.
Subst at i o ns typically separate the distribution plant from the transmission system. The substation power transformer reduces the voltage to a level that is more practical to install throughout the service territory.
The Distribution system provides primary circuits with voltages of 13.8 kV. Secondary circuits are 480 volts and less.
Di s t r i but i o n Cust omer Types
Sub-transmission customers are served directly from the substation feeder and bypass both the secondary and primary distribution lines. The charges for this type of customer should reflect the cost of the substation and not include the cost of primary or secondary line charges.
Primary customers are typically referred to as customers who own and maintain their own transformers. The rates for these customers should reflect the cost of substations and the cost of primary distribution lines and not include the cost of secondary line extensions.
Secondary customers have the services provided by the utilities directly into their facilities. The utility provides the customer with the transformer and the connection on the customers facilities.
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EXECUTI VE SUMMARY ELECTRI C UNBUNDLI NG
Cus t omer - Rel at ed Ser vi c es
Certain administrative-type services are necessary to ensure customers are provided service connections and disconnections in a timely manner and the facilities are in place to read meters and bill for customer usages. These services typically consist of the following components:
1) Customer Services The cost of providing personnel to assist customers with questions and dispatch personnel to connect and disconnect meters. 2) Billing and Collections The cost of billing and collections personnel, postage, and supplies. 3) Meter Reading The cost of reading customer meters. 4) Meter Operation and Maintenance The cost of installing and maintaining customer meters.
Admi ni st r at i ve Ser vi c es
These costs are sometimes referred to as overhead costs and relate to functions that cannot be directly attributed to any service. These costs are spread to the other services through an allocator such as labor, expenses, or total rate base. These costs may consist of administrative expenses, property insurance, and wages for higher- level management of the utility.
Sys t em Losse s
As energy moves through each component of the transmission and distribution system, some of the power is lost and cannot be sold to customers. Losses vary based on time of day and season. Typically, as system usage increases or ambient temperature increases, the percentages of losses that occur also increase.
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EXECUTI VE SUMMARY ELECTRI C UNBUNDLI NG
The cost of power supply, distribution, and customer services are identified as part of the unbundling process and are the first step in determining unbundled charges to customers. The total revenue requirements of $116.4 million are separated into the three categories and are identified in the graph below.
The City of Columbia electric utility is projected to expend 78% of its total costs toward power supply from purchased power costs. Distribution-related costs are 18% and customer service amounts to 4%. These components are broken down into each of the subcomponents and are identified in the following sections.
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EXECUTI VE SUMMARY ELECTRI C UNBUNDLI NG
DI STRI BUTI ON BREAKDOWN
As stated earlier, distribution rates consist of a number of different components and total distribution-related costs of $21.3 million for FY 2012 are broken down into the main components of transmission, substations, transformers, and distribution lines.
Gr aph Two Br eakdo wn of Di st r i but i on Cost s
Each cost component is allocated to customer groups based on certain factors established in the study. These factors are based on the efficiency of each customer class and the time of day or the season the electricity is used. Other factors are also considered, such as the length of line extensions to reach certain customer classes. A complete list of allocators is included in the detailed section of this report.
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EXECUTI VE SUMMARY ELECTRI C UNBUNDLI NG
Cus t omer - Rel at ed Cost Br eakdo wn
Total expenses for customer-related cost are $4.9 for FY 2012 and broken down into the following components:
Each component is broken down by customer class and the breakdown is included in the detailed analysis of this report.
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EXECUTI VE SUMMARY ELECTRI C UNBUNDLI NG
POWER SUPPLY RATES
Tables A and B below identifies average cost of providing power supply to customers of the City of Columbia electric utility overall and by season.
Tabl e Ten A - Power Suppl y Cos t by Cus t omer Cl ass
Customer Class Demand Billing Basis Energy Billing Basis Residential Service 0.035 kWh 0.050 kWh Residential Service Space Heating 0.032 kWh 0.051 kWh Residential Heat Pump 0.032 kWh 0.051 kWh Small General Service 0.039 kWh 0.050 kWh Small General Service Space Heating 0.035 kWh 0.051 kWh Small General Service High Efficiency Heat Pumps 0.038 kWh 0.050 kWh Street Lighting 0.000 kWh 0.050 kWh Small General Service Optional Demand 11.31 kW 0.050 kWh Large General Service 10.14 kW 0.050 kWh Interruptible Service 2.70 kW 0.050 kWh Industrial Service 10.34 kW 0.048 kWh Current Rates
Tabl e Ten B - Power Suppl y Cos t by Cus t omer Cl ass by Season
The cost of service study breaks power supply costs into four seasons to identify periods of time when power supply costs change. The table below identifies power supply costs for demand related expenses and energy related costs. Months for each season are listed below the table.
Table of Power Supply Rates by Season Customer Class Demand Energy Demand Energy Demand Energy Demand Energy Residential Service 0.0456 $ 0.0414 $ 0.0260 $ 0.0506 $ 0.0377 $ 0.0553 $ 0.0358 $ 0.0495 $ Residential Service Space Heating 0.0456 0.0414 0.0260 0.0506 0.0508 0.0553 0.0222 0.0495 Residential Heat Pump 0.0456 0.0414 0.0260 0.0506 0.0507 0.0553 0.0404 0.0495 Small General Service 0.0654 0.0418 0.0189 0.0502 0.0499 0.0553 0.0533 0.0501 Small General Service Space Heating 0.0654 0.0418 0.0189 0.0502 0.0552 0.0553 0.0551 0.0501 Small General Service High Efficiency Heat Pumps 0.0654 0.0418 0.0324 0.0509 0.0505 0.0553 0.0535 0.0501 Special Outdoor Lighting 0.0000 0.0406 0.0000 0.0492 0.0000 0.0537 0.0000 0.0484 Small General Service Optional Demand 19.79 0.0412 7.53 0.0498 8.30 0.0544 13.08 0.0491 Large General Service 17.81 0.0414 6.77 0.0501 7.43 0.0548 11.85 0.0493 Interruptible Service 4.95 0.0411 1.88 0.0498 2.00 0.0544 3.47 0.0489 Industrial Service 18.80 0.0412 7.15 0.0499 7.91 0.0546 12.37 0.0491 Intermediate - 4 Intermediate - 2 Summer Winter
Seaso ns: Summer July, August Winter December, January, February, March Intermediate 4 April, May, October, November Intermediate 2 June, September
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EXECUTI VE SUMMARY ELECTRI C UNBUNDLI NG
COMBI NED COST SUMMARY
Table Eleven A & B identifies cost of service rates for each customer class broken down by monthly customer charges, demand charge and energy charge. The rates listed below are cost of service rates and not the rate design recommended for customers. The rate design will move charges closer to cost of service over-time to minimize the rate impacts on customers.
Tabl e El e ven A Cur r ent Mont hl y Cus t o mer Char ge c ompar ed wi t h Cost of Ser vi c e Cust omer Char ges
Customer Class Current Monthly Customer Charges Cost of Services Customer Charge Residential Service 7.20 $ 14.40 $ Residential Service Space Heating 7.20 14.40 Residential Heat Pump 7.20 14.40 Small General Service 7.20 23.70 Small General Service Space Heating 7.20 23.70 Small General Service High Efficiency Heat Pumps 7.20 23.70 Street Lighting 1.13 Small General Service Optional Demand 7.20 29.94 Large General Service 7.20 45.00 Interruptible Service 55.00 128.91 Industrial Service 325.23
Tabl e El eve n B Co st of Ser vi c e De mand & Ener gy Rat e s by Cus t omer Cl as s
6/13/2013 20 Customer Class Demand Charge per kW Energy Charge per kWh Residential Service 0.101 Residential Service Space Heating 0.103 Residential Heat Pump 0.102 Small General Service 0.109 Small General Service Space Heating 0.103 Small General Service High Efficiency Heat Pumps 0.107 Street Lighting 0.145 Small General Service Optional Demand 16.40 0.050 Large General Service 14.64 0.050 Interruptible Service 7.01 0.050 Industrial Service 14.77 0.048
CI TY OF COLUMBI A WATER & LI GHT DEPARTMENT COST OF SERVI CE & ELECTRI C UNBUNDLI NG STUDY
EXECUTI VE SUMMARY SI GNI FI CANT ASSUMPTI ONS
This section outlines the procedures used to develop the cost of service and unbundling study for the City of Columbia electric utility related significant assumptions.
For ec ast ed Oper at i ng Expenses
Forecasted expenses were based on actual 2008 - 2010 actual costs adjusted for power supply costs and inflation. The table below is a summary of Operating Expenses for 2008 - 2016.
Load data is one of the most critical components of a cost of service study. Information from the billing statistics combined with information from City of Columbia and internal statistics provided by large customers was used to determine the usage patterns of each customer class.
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EXECUTI VE SUMMARY - SI GNI FI CANT ASSUMPTI ONS
KWh Sales Forecast
The kWh sales projected for 2012 is 1.2 billion kWh's. The study assumed sales would increase by 1% for 2012 & 2013 and 2% for 2014 2016.
Customer Class Summer Winter Inter 4 Inter 2 Total 2012 2012 2012 2012 2012 Residential Service 71,496,584 77,931,792 66,977,227 53,759,318 270,164,921 Residential Service Space Heating 17,985,792 56,870,988 27,234,970 14,987,099 117,078,850 Residential Heat Pump 5,153,095 15,133,636 7,909,695 4,361,869 32,558,294 Small General Service 17,756,991 27,476,047 23,002,116 14,664,260 82,899,413 Small General Service Space Heating 3,050,168 7,806,152 4,763,186 2,647,184 18,266,689 Small General Service High Efficiency Heat Pumps 149,630 279,107 192,313 120,561 741,612 Special Outdoor Lighting 1,549,015 3,098,030 3,098,030 1,549,015 9,294,091 Small General Service Optional Demand 474,657 749,360 800,462 438,573 2,463,053 Large General Service 74,965,531 111,812,602 108,991,438 64,312,116 360,081,687 Interruptible Service 302,003 597,925 621,479 323,953 1,845,361 Industrial Service 53,898,425 75,648,212 81,098,099 49,273,098 259,917,835 Total 246,781,890 377,403,852 324,689,016 206,437,046 1,155,311,806
Sys t em Loss Fac t or s
Losses occurring from the transmission and distribution of electricity can vary from year to year depending upon weather and system loading. Peak summer losses were estimated based on system losses during each time period.
Revenue For ec ast
The revenue forecast was based on 2010 usages adjusted for the following: A) Annual growth rate assumption as stated above B) Changes in purchased power costs C) Customer rates implemented in 2011
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EXECUTI VE SUMMARY - SI GNI FI CANT ASSUMPTI ONS
Capi t al I mpr oveme nt Pr ogr am
The capital improvement program was provided by the City of Columbia electric utility as listed below:
Year Projected Capital Improvement 2011 47,350,000 $ 2012 5,660,000 2013 6,330,000 2014 6,080,000 2015 25,025,000 2016 29,800,000
6/13/2013 23 CI TY OF COLUMBI A WATER & LI GHT DEPARTMENT COST OF SERVI CE & ELECTRI C UNBUNDLI NG STUDY
EXECUTI VE SUMMARY - RECOMMENDATI ONS
1. Below is a long-term rate track based on anticipated power supply costs and capital improvements between 2012 and 2016. The rate track indicates a 2.2% rate adjustment may be needed to maintain bond coverage ratios, cash balances to remain above minimum cash reserve levels and to move toward operating income targets over the projection period. It is recommended the projection be reviewed as part of the annual budget process.
2. The cost of service study identified some customer classes are paying above cost of service and some below cost of service. To minimize impacts on customers and move toward cost of service results it is recommended rates be designed using a bandwidth of 2%. This results in customer class rate adjustments that would vary between 0.2% and 4.2%. The table below summarizes the results of the cost of service study.
Cost of Service Projected Revenues % Change Residential Service 32,108,740 30,836,129 4% Residential Service Space Heating 13,640,948 12,077,224 13% Residential Heat Pump 3,643,101 3,150,584 16% Small General Service 10,262,044 8,565,505 20% Small General Service Space Heating 2,146,773 1,800,544 19% Small General Service High Efficiency Heat Pumps 93,468 72,905 28% Special Outdoor Lighting 1,507,697 1,390,694 8% Small General Service Optional Demand 199,714 179,569 11% Large General Service 32,560,117 31,001,774 5% Interruptible Service 173,471 161,087 8% Industrial Service 20,062,149 19,434,232 3% Total 116,398,223 108,670,248 7.1% Customer Class
6/13/2013 24 CI TY OF COLUMBI A WATER & LI GHT DEPARTMENT COST OF SERVI CE & ELECTRI C UNBUNDLI NG STUDY
EXECUTI VE SUMMARY - RECOMMENDATI ONS
3. The City of Columbia electric utility should consider adopting a cash reserve policy based on the formula below. The formula below considers the utilitys working capital requirements, investment in system assets, annual debt service payments, and the future capital improvement program.
Percent Allocated Projected 2012 Projected 2013 Projected 2014 Projected 2015 Projected 2016 Operation & Maintenance Less Depreciation Expense 20% 6,144,747 $ 6,400,697 $ 6,567,486 $ 6,900,084 $ 7,109,154 $ Pow er Costs 13% 10,916,527 11,244,023 11,581,344 11,928,784 12,286,648 Historical Rate Base 2% 5,692,124 5,818,724 5,940,324 6,440,824 7,036,824 Current Portion of Debt Service Reserve 50% 4,074,121 4,398,011 4,791,396 5,584,414 5,584,414 Next Years Capital Improvements - Net of bond proceeds 15% 2,186,850 2,186,850 2,186,850 2,186,850 2,186,850 Five Year Capital Improvements - Net of bond proceeds 15% 10,934,250 10,934,250 10,934,250 10,934,250 10,934,250 Minimum Cash Reserve Levels 39,948,619 $ 40,982,555 $ 42,001,650 $ 43,975,206 $ 45,138,139 $
4. The City of Columbia should consider adjusting customer charges to move toward cost of service results as part of future rate adjustments. The table below compares the current monthly customer charge with cost of service results:
Customer Class Current Monthly Customer Charges Cost of Services Customer Charge Residential Service 7.20 $ 14.40 $ Residential Service Space Heating 7.20 14.40 Residential Heat Pump 7.20 14.40 Small General Service 7.20 23.70 Small General Service Space Heating 7.20 23.70 Small General Service High Efficiency Heat Pumps 7.20 23.70 Street Lighting 1.13 Small General Service Optional Demand 7.20 29.94 Large General Service 7.20 45.00 Interruptible Service 55.00 128.91 Industrial Service 325.23
6/13/2013 25 Utility Financial Solutions 185 Sun Meadow Ct. Holland, MI 49424 Phone: 616-393-9722 Fax: 616-393-9721
ACCOUNTANTS' COMPILATION REPORT
City of Columbia electric utility Board of Directors
The accompanying forecasted statements of revenues and expenses of the City of Columbia electric utility were compiled for the year ending September 30, 2012 in accordance with guidelines established by the American Institute of Certified Public Accountants.
The purpose of this report is to assist management in forecasting revenue requirements and determining the cost to service each customer class. This report should not be used for any other purpose.
A compilation is limited to presenting, in the form of a forecast; information represented by management and does not include evaluation of support for any assumptions used in projecting revenue requirements. We have not audited the forecast and, accordingly, do not express an opinion or any other form of assurance on the statements or assumptions accompanying this report.
Differences between forecasted and actual results will occur since some assumptions may not materialize and events and circumstances may occur that were not anticipated. Some of these variations may be material. Utility Financial Solutions has no responsibility to update this report after the date of this report.
This report is intended for information and use by management and the Board of Directors for the purposes stated above. This report is not intended to be used by anyone except the specified parties.
UTILITY FINANCIAL SOLUTIONS
Mark Beauchamp, CPA, CMA, MBA Holland, MI September 14, 2011
6/13/2013 26 Appendix Fee Study
The following appendix summarizes the analysis completed by Utility Financial Solutions to determine the cost of providing specific services to customers of the City of Columbias electric utility. The following steps were followed to complete the analysis:
Steps to Complete Analysis
1. Surveyed utility personnel to identify the time and expenses for performing specific services 2. Calculated current fees using standard costing methods 3. Applied administration and overhead rates 4. Reviewed fees with management 5. Recommended changes to existing fee schedule
Recommendations
UFS recommends adoption of the proposed fees to reflect the current cost of rendering services. The fees used are for specific services rendered, and will not affect all users of the system on a regular basis. We recommend adopting the fees as proposed.
6/13/2013 27 Columbia Water & Light Fee Schedule COS - 2011 Summar y !"#$%&" (#)$%*"* +,! +-##"./ 0"" (#)1)2"* 0"" ("#&"./ 3.&45"& 6)/"2 Service Initiation Fee 5.34 $ 6.00 $ 6.00 $ 0% Transfer Fee 5.43 $ 4.00 $ 5.50 $ 38% Residential: Electric connection or disconnection fee during work hours 41.36 $ 15.00 $ 40.00 $ 167% Residential: Electric reconnection fee outside of regular working hours 527.55 $ 30.00 $ 130.00 $ 333% Plan to move this rate up over next 4 yrs Commercial: Electric connection or disconnection fee during work hours 182.94 $ 15.00 $ 50.00 $ 233% Plan to move this rate up over next 4 yrs Commercial: Electric reconnection fee outside of regular working hours 1,639.06 $ 30.00 $ 410.00 $ 1267% Plan to move this rate up over next 4 yrs Residential: Temporary Removal & Replacement of Service Drop during work hours 558.55 $ n/a 560.00 $ new fee Residential: Temporary Removal & Replacement of Service Drop outside of regular work hours 1,190.16 $ n/a 1,200.00 $ new fee Commercial: Temporary Removal & Replacement of Service Drop during work hours 558.55 $ n/a 560.00 $ new fee Total COS is for both removal and replacement of service drop being done during normal working hours Commercial: Temporary Removal & Replacement of Service Drop outside of regular work hours 3,286.94 $ n/a 3,300.00 $ new fee Total COS is for both removal and replacement of service drop being done in two separate trips outside normal hours Meter Test Charge (Residential meter test) 136.74 $ n/a 140.00 $ new fee (Waived if meter fails test) Returned Check or Bank Draft Charge 39.39 $ n/a 29.99 $ new fee Bank charges are between $24.00 & $42.00 Late Fee for reminder notices 1.25 $ n/a 1.25 $ new fee To be applied to bill as a late fee
6/13/2013 28
Columbia Water & Light Fee Schedule COS - 2011 Cost Detail C D E F G H I J K L M # persons pay band (Low - High) Benefits as a % Average time w/ travel (Hours) Overtime rate Call out rate Call-out Minimumtime req's (Hours) TransferFee 1 $ 16.24 40% 0.20 $ - (b)Transfer fee. All customers requesting transfers of services to a new location Service InitiationFee 1 16.24 $ 40% 0.20 $ - (a)Service initiation fee. Each new customer shall be charged a service initiation fee Returned CheckorBankDraft Charge 1 16.24 $ 40% 0.20 - $ $X/ returned ck avg. 7 cks/mo New Fee Proposed MeterTest Charge (Residential metertest) 2 37.86 $ 42% 1.00 - $ Pick-Up 5.00 New Fee Proposed Residential Disconnectionfee 2 34.08 $ 42% 0.33 150% 150% 3.00 - $ Pick-Up 5.00 Residential: (1)Electricdisconnectionfee fornonpayment Residential Reconnectionfee 2 34.08 $ 42% 0.33 150% 150% 3.00 - $ Pick-Up 5.00 Residential: (2)Electricreconnectionfee Commercial Disconnectionfee 3 70.65 $ 42% 0.50 150% 150% 3.00 - $ Small Bucket 5.00 Commercial: (1)Electricdisconnectionfee fornonpayment Commercial Reconnectionfee 3 70.65 $ 42% 1.00 150% 150% 3.00 - $ Small Bucket 5.00 Commercial: (1)Electricreconnectionfee Residential: TemporaryRemoval &Replacement of Service Drop during workhours 3 70.65 $ 42% 1.50 150% 150% 3.00 - $ Small Bucket 5.00 New Fee Proposed Commercial: TemporaryRemoval &Replacement of Service Drop during workhours 3 70.65 $ 42% 1.50 150% 150% 3.00 - $ Small Bucket 5.00 New Fee Proposed VEHICLE COST BREAKDOWN: Pickup Truck Service Truck Small Bucket Truck Large Bucket Truck Backhoe * Cost pervehicle perhour 8.50 $ n/a 15.00 $ 27.00 $ 32.00 $ Labor Material costs Vehicle type (see types below) Average mileage per service call assuming thisisonlydone on regularhours Average bank charges assuming thisisonlydone on regularhours no vehicle required assuming thisisonlydone on regularhours no vehicle required assuming thisisonlydone on regularhours no vehicle required
6/13/2013 29 Columbia Water & Light Fee Schedule COS - 2011 Ca l c u l a t i on s NOTES: MARGIN 7.0% Overhead 10.0% Overtime rate multiplier (1.5x) 50.0% Electric Benefits 42.2% Admin Benefits 39.6% Call-out mimimum time (Hours) 3.00 A Commercial: Electric connection or disconnection fee during work hours Personnel needed 3.00 Pay 70.65 Average length of time 0.50 Total Labor 105.97 Total labor and benefits 147.93 Cost of materials - Vehicle cost per trip 7.50 small bucket Overhead 15.54 Margin 11.97 Total Fee per application 182. 94 $ B Commercial: Electric reconnection fee outside of regular working hours Personnel needed 3.00 Pay (/hr) 70.65 Over-time pay (additional $/hr) 35.32 Average length of time (3hr min after hours) 3.00 Vehicle length of time 0.50 Total Labor 635.81 Total Overtime 317.90 Total labor and benefits 1,356.17 Cost of materials - Vehicle cost per trip 7.50 small bucket Overhead 168.16 Margin 107.23 Total Fee per application 1, 639. 06 $ C Transfer Fee Personnel needed 1.00 Pay 16.24 $ Average length of time 0.20 Total labor 3.25 Total labor and benefits 4.62 Cost of materials - Vehicle cost per trip - Overhead 0.46 Margin 0.36 Total Fee per application 5. 43 $ Assumpt i ons
6/13/2013 30 Columbia Water & Light Fee Schedule COS - 2011 Ca l c u l a t i on s D Commercial: Temporary Removal & Replacement of Service Drop during work hours Personnel needed 3.00 Pay 70.65 Average length of time 1.50 Total labor 317.90 Total labor and benefits 452.06 Cost of materials - Vehicle cost per trip 22.50 small bucket Overhead 47.46 Margin 36.54 Total Fee per application 558. 55 $ E Commercial: Temporary Removal & Replacement of Service Drop outside of regular work hours Personnel needed 3.00 Pay 70.65 Over-time pay (additional $/hr) 35.32 Average length of time (3hr min after hours) 6.00 3hr minimum for both removal & replacement Vehicle length of time 1.50 Total Labor 1,271.61 Total Overtime 635.81 Total labor and benefits 2,712.34 Cost of materials - Vehicle cost per trip 22.50 small bucket Overhead 337.06 Margin 215.03 Total Fee per application 3, 286. 94 $ F Resi denti al : El ectri c connecti on or di sconnecti on fee duri ng work hours Personnel needed 2.00 Pay 34.08 Average length of time 0.33 Total Labor 22.72 Total labor and benefits 32.30 Cost of materials - Vehicle cost per trip 2.83 pickup truck Overhead 3.51 Margin 2.71 Total Fee per application 41. 36 $ G Resi denti al : El ectri c reconnecti on fee outsi de of regul ar worki ng hours Personnel needed 2.00 Pay 34.08 Over-time pay (additional $/hr) 17.04 Average length of time (3hr min after hours) 3.00 Vehicle length of time 0.33 Total Labor 204.45 Total Overtime 102.23 Total labor and benefits 436.09 Cost of materials - Vehicle cost per trip 2.83 pickup truck Overhead 54.12 Margin 34.51 Total Fee per application 527. 55 $
6/13/2013 31
Columbia Water & Light Fee Schedule COS - 2011 Ca l c u l a t i on s H Residential: Temporary Removal & Replacement of Service Drop during work hours Personnel needed 3.00 Pay 70.65 Average length of time 1.50 Total labor 317.90 Total labor and benefits 452.06 Cost of materials - Vehicle cost per trip 22.50 small bucket Overhead 47.46 Margin 36.54 Total Fee per application 558. 55 $ I Residential: Temporary Removal & Replacement of Service Drop outside of regular work hours Personnel needed 3.00 Pay 70.65 Average length of time (3hr min after hours) 3.00 Total labor 635.81 Total labor and benefits 908.38 Cost of materials - Vehicle cost per trip 45.00 small bucket Overhead 158.92 Margin 77.86 Total Fee per application 1, 190. 16 $ J Returned Check or Bank Draft Charge Personnel needed 1.00 Pay 16.24 Average length of time 0.02 appx. 98 checks per month Total labor 0.33 Total labor and benefits 0.46 Average Bank Charges 33.00 Overhead 3.35 Margin 2.58 Total Fee per returned check 39. 39 $ K Meter Test Charge (Resi denti al meter test) Personnel needed 2.00 Pay 37.86 Average length of time 1.00 Total labor 75.72 Total labor and benefits 107.67 Vehicle cost per trip 8.50 Pickup truck Overhead 11.62 Margin 8.95 Total Fee per application 136. 74 $ (Wai ved i f meter fai l s test)
6/13/2013 32 Columbia Water & Light Fee Schedule COS - 2011 Ca l c u l a t i on s M Servi ce I ni ti ati on Fee Personnel needed 1.00 Pay 16.24 $ Average length of time 0.20 Total labor 3.25 Total labor and benefits 4.53 Cost of materials - Vehicle cost per trip - Overhead 0.45 Margin 0.35 Total Fee per application 5. 34 $ O Late Fee for reminder notices Personnel needed 1.00 Pay 16.24 Average length of time 0.030 30 min/day * 30 days / 500 notices Total labor 0.49 Total labor and benefits 0.68 # of notices sent before shut-off 1.00 Postage 0.44 Material Costs 1.00 paper/envelopes/address labels Overhead 0.21 Margin 0.16 Total Fee per notice 1. 25 $