by Steve Peterson
Tim Miller, manager financial analysis and rates division of Missouri River Energy Services (MRES) recently gave Hawarden City Council an update regarding the city’s energy use.
Western Area Power Administration (WAPA) offers fixed allocation of power, currently at 72 percent of power requirements. MRES provides all needs above WAPA allocation, Miller said during his May 11 city council meeting talk.
This year will be the third straight year with a decline in energy use, with causes being weather and changes in business usage.
A cost-of-service method would mean a decrease for residential users of 3.5 percent; small commercial, 14.1 percent; large commercial, 2.2 percent; interdepartmental, an increase of 83.8 percent and street lights, an increase of 57.1 percent.
Miller suggested a two-step rate change, first, modify the rate classes; then, eliminate seasonal rates and eliminate the interdepartmental rate; both changes would be revenue neutral for the utility; many customers would see small annual decreases, he said. The city council has yet to discuss these, but may in the future, Public Works Director Tom Kane said.
Large commercial class would be billed for demand, include non-residential customer-meters with peak demand of 40 kW or more; median of over 60 other utilities is 35 kW; 11 meters are not currently billed for demand and would be moved to the large commercial class; eliminate the interruptible class.
“Proposed rate changes are based on the costs of providing service to customers within each class. The utility should remain financially strong and cash reserves should steadily grow and retail rates would reflect the changes in wholesale power costs,” Miller’s report said.
Some key definitions include:
Peak Demand (kW) is the maximum rate of power delivery, measured in a defined time period such as 30 minutes, expressed in 1,000 watt units.
Energy (kwh) is power multiplied by time. Usage of ten 100-watt light bulbs equals one kwh.
Load Factor is the average demand divided by peak demand. Higher load factor indicates more consistent use of power and the distribution system. Typical higher load factors may be grocery stores, medical facilities, manufacturing plants with multiple shifts, for examples. Typically lower load factors are homes, schools, grain elevators, plants with one shift or intermittent equipment.
Projected Hawarden operating results are, key assumptions, expenses, 56 percent of total utility costs. A history of rate increases shows in 2003 it was 1.45 cents per kwh; in Jan., 2010, 3.32 cents per kwh, 13.3 percent increase. About half of the costs are drought-related, about $360,000 a year to Hawarden, 15 percent of revenues.
No overall increases are assumed from 2012 through 2015.
MRES had stable power rates from 1990 to 2006. From 2007-2009, there was an increase totaling 40 percent, or 5.5 cents per kwh. No increase is projected for 2010 or 2011, with a favorable decision by the Surface Transportation Board and lower purchased power costs. Seasonal demand rates will be phased in over three years from 2011 through 2013, and reflect MRES capacity costs, which are higher in the summer. Load management should be encouraged.
From June through August, 2011 demand was $19.25, for December-February, $16.25, March through May and September through November, $13.25, $26.50 energy cost for 2011-2015.
In FY, 2011-2012, Hawarden budgeted for a 3 percent increase in other operating expenses, and depreciation on underground lines over $80,000 a year; non-operating expenses and debt service, study assumes $4.5 million of debt will be issued in the second half of 2011; refund remaining 2004 debt of $1.6 million and finance $2.7 million of overhead to underground conversions. Debt services payments will be similar to current payments.
Transfers to other city funds, projections to annual amounts from 2011 to 2015: $178,750 to the general fund ($208,000 in 2011); $12,500 to the community betterment fund; $10,000 to the public works building replacement fund, about 8 percent of operating revenues. In addition, current discounted interdepartmental service is $110,000 a year, or 4.3 percent of revenues.
Capital expenditures are: total of $3.15 million over the study period; $2.7 million for conversions; $450,000 for other routine items; the 2010 engineering study recommended $10.9 million of improvements, of which $8.2 million will take place after 2015.
In historical and projected net income, after a loss in 2007, it has-will showed a net income profit of $215,000; $273,000; $345,000; $365,000; $293,000; $270,000; $266,000; $257,000, from 2008-2015. Reserves will reach a minimum level in 2015.
The reserves bring flexibility, allowing the utility to absorb higher than budgeted expenses or improvements in the short-term. The recommended minimum reserve level is $1.5 million, or 58 percent of proposed revenues in 2015. The MRES study of 64 area utilities shows a median operating reserve of 52 percent, or $520,000, or three months of operating expenses.
This is important due to the possibility of: storm damage; major transformer or other equipment failure; bankruptcy, closing of a large customer; higher than expected other operating expenses and distribution improvements which may occur after 2015.