electric rates workshop: cost of service analysis and rate proposals

Pasadena Water and Power

Electric Rates Workshop:Cost of Service Analysis and

Rate Proposals


2

Agenda

• Introduction• Review of Rate Structure and Proposed

Adjustments• Customer Bill Impact• Mitigation Strategies and Alternatives• Rate Comparison to Other Utilities• Cost of Service Analysis


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INTRODUCTION3 Year Rate Proposal: 2.7%, 2.4%, 2.2%


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Project Timeline

Date Action Notes

May 2012 – May 2013 ECOS analysis By Burns & McDonnell

June 2013Burns & McDonnell Report completed

June – September 2013Staff update of ECOS model

November 2013 ECOS discussion with MSC

December 2013 -January 2014

Staff review and update of data and ECOS model

Actual FY 2013 financial results and 2014 budget

January 28, 2014Updated discussion with MSC

March 31, 2014 City Council Workshop

May 2014 Set Public Hearing date

June 2014 Public Hearing and rate approval

July 1, 2014 Rate adjustment effective date


5

Purpose of Analysis and Rate Proposal

Rate study last performed in 2002

Proposition 26 – requires that all rates and charges be cost-based

Changes in City Council goals for renewable energy, other programs

Changes in utility industry – distributed generation, electric vehicles

Ensure fiscal responsibility and viability of electric utility

Ensure rates are fair for all customers


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REVIEW OF RATE STRUCTURE AND PROPOSED ADJUSTMENTS


Electric Rate Structure

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Major Cost DriversDistribution and Customer Charges:• Call center, billing, customer

service• Distribution system operations

and maintenance• Debt service• PAYGO for capital investmentEnergy Services Charge:• Debt Service for GT5 project• Renewable energy premiums• Cap and trade program• Market gas and energy purchases

Transmission Services Charge:• Operations, maintenance and

portion of capital costs for transmission assets

Public Benefits Charge:• Rebate programs• Assistance programs

Pass-through component: adjusted in accordance with provisions of Light and Power Rate Ordinance to offset changes in the cost of energy, transmission and public benefit programsRequires Council approval


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Revenue From Each Rate Component


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Alignment with City Goals

Maintain fiscal responsibility & stability• Cost Based Rates• Maintain Fiscal Health• Support City Programs

Ensure Public Safety• Distribution Master Plan• Responsible Capital Investment

Improve, Maintain & Enhance Infrastructure• Prudent Operations &

Maintenance• Regulatory Compliance

Support & Promote Quality of Life & Economy• Accurate Meter Reads• Reliable Service


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Number of Full Time Equivalent employees:Distribution Operations & Maintenance FTE: 97.2Distribution Capital FTE: 74.3Customer FTE: 32.3Administrative FTE: 39.0Total FTE 242.8

Distribution and Customer Charges


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Distribution and Customer ChargesRate Design/Modification

Current Proposed

D

C

D&C

Existing change in D&C by TierUsage Charge %

0-250 $6.02 251-350 $12.32 $6.30 105%351-450 $24.94 $12.61 102%451-550 $35.97 $11.03 44%551-650 $45.43 $9.46 26%651-750 $56.47 $11.03 24%751-1000 $67.50 $11.03 20%1001> $89.57 $22.07 33%

$

kWhkWh

• Existing Distribution and Customer Charge rate structure does not meet cost of service practice

• PWP’s proposed recommendation provides more balanced impact among customer groups

$7.76

1.5¢/kWh

11.65¢/kWh

350 750

8.5¢/kWh$


12

Proposed Rate Adjustments:Distribution and Customer Charges


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Formula Rate Adjustments for FY2015- Energy and Public Benefits Charge


Power Supply FTE: 52

14

Energy Charge (Adjusted by formula)


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PBC FTE: 7.25

PBC Charge (Adjusted by formula)


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Combined Projected Rate Adjustments

8.3% 2.4% 2.2%

Future adjustments to energy, transmission and PBC rates are uncertain:• Market costs for

energy and gas• Renewable energy

goals and costs• Results of IRP update• Transmission projects

and costs• Efficiency and rebate

program goals


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Additional Rate Considerations

Time of Use

Adjust the time-of-use (“TOU”) pricing periods:

Winter hours

Summer hours

Holidays and weekends are off peak hours

Electric Vehicle

Establish electric vehicle rates for single-family residential customers and multifamily residential customers.

On-peak and off-peak rates shall be based on the price of market energy during the period.

Feed-in- Tariff

Minimum of 100 kW to 1 MW renewable energy distributed generation.

Incentivize customers to locate their CEC certified facilities at high load concentration areas within the distribution system.

Contracts for up to 20 years.

Economic Developmen

t Rider

Available to new and existing customers adding a minimum of 100 kW to the system load.

Customer must qualify for the City’s Economic Development Program.

Eligible commercial customers will have two discount options.


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CUSTOMER IMPACT


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Residential Customers - Consumption Distribution


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Rate Impact on Residential Customers


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Residential Customer: 200kWhMonthly Electric Bill Impact

Account Summary

Proposed Bill200 kWh

Service Detail

Current Bill 200 kWh

Service Detail

Cust & Dist Charge $ 6.02

Energy Charge

200 kwh @ 0.09323 $18.65

Transmission Charge

200 kwh @0.00821 $1.64

Total $26.31

Account Summary

Electric Service $26.31

Public Benefits Charge $1.15

Total $27.46

Customer Charge $7.76

Distribution Charge $3.00

Energy Charge

200 kwh @ 0.10006 $20.01

Transmission Charge

200 kwh @0.00821 $1.64

Total $32.41



Total $33.78

(Monthly Summer Bill Excluding Tax and

Surcharges)

$6.32


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Account Summary

Proposed Bill300 kWh

Service Detail

Current Bill 300 kWh

Service Detail

Cust & Dist Charge $12.32

Energy Charge

300 kwh @ 0.09323 $27.97

Transmission Charge

300 kwh @0.00821 $2.46

Total $42.75

Account Summary



Total $44.47



Energy Charge

300 kwh @ 0.10006 $30.02

Transmission Charge

300 kwh @0.00821 $2.46

Total $44.74



Total $46.80


Surcharges)

$2.33


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Account Summary

Proposed Bill700 KWH

Service Detail

Current Bill 700 KWH

Service Detail

Cust & Dist Charge $56.47

Energy Charge

700 kwh @ 0.09323 $65.26

Transmission Charge

700 kwh @0.00821 $5.75

Total $127.48

Account Summary



Total $131.50



Energy Charge

700 kwh @ 0.10006 $70.04

Transmission Charge

700 kwh @0.00821 $5.75

Total $129.58



Total $134.38

$2.88(Monthly Summer Bill

Excluding Tax and Surcharges)


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Small Commercial Customer Monthly Electric Bill Impact

Account Summary

Proposed Bill2,000 KWH

Service Detail

Current Bill 2,000 KWH

Service Detail



Energy Charge

2,000 kwh @ 0.09151 $183.02

Transmission Charge

2,000 kwh @0.00821 $16.42

Total $303.10

Account Summary



Total $314.58



Energy Charge

2,000 kwh @ 0.09821 $196.42

Transmission Charge

2,000 kwh @0.00821 $16.42

Total $324.57



Total $338.29

$23.71(Monthly Summer Bill

Excluding Tax and Surcharges)


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Large Commercial Customer Monthly Electric Bill Impact

Account Summary

Proposed Bill50,000 KWH; 150 KW

Service Detail

Current Bill 50,000 KWH; 150 KW

Service Detail


Distribution Charge $1,633.50

Energy Charge

50,000 kwh @ 0.09588 $4,794.00

Transmission Charge

50,000 kwh @0.00821 $410.50

Total $6,898.22

Account Summary

Electric Service $6,898.22


Total $7,185.22


Distribution Charge $2,031.10

Energy Charge

50,000 kwh @ 0.10290 $5,145.00

Transmission Charge

50,000 kwh @0.00821 $410.50

Total $7,606.87

Electric Service $7,606.87


Total $7,949.90

$764.68


Surcharges)


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Customer Assistance Programs

Name of Programs

BenefitsNo. of

Accounts

Average Monthly Usage (kWh)

0 - 100 101 - 200 201 - 300 301 - 400 401 - 500 501 - 600 601 - 700 701 - 1000>

1000

Basic$7.50

credit/month (after taxes)

3,568 123 641 941 741 442 282 138 191 69

Cares

$7.50 credit/month

(after taxes) and Public Benefits Charge Credit

514 23 93 120 90 65 38 33 34 18

Cares Plus

$7.50 credit/month(after taxes) and

PBC Credit and Utility User Tax

1,788 111 369 425 266 189 143 100 130 55

Medical

Equipment Based $7.50 credit/month (after taxes)

55 1 2 5 4 7 9 8 11 8

Total No. of Accounts 5,925 258 1,105 1,491 1,101 703 472 279 366 150


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RATE IMPACT MITIGATION AND ALTERNATIVES

Electric Cost of Service Study


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Rate Mitigation Actions

Energy $9 million from 2011 FERC settlemento Provides equity funding for GT5 repowering project

Increased efficiency of GT5 repowering projecto Efficiencies effective beginning FY 2016

Transmission Apply any settlement funds from Los Angeles for overchargeso Approved by City Council in October 2013

Managed Costs • Careful management of vacancies and workforce size• Maximum lifecycle for vehicles and equipment• Refunding opportunities for outstanding bonds• Restrict travel and training for maximum benefit


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Rate Option Impacts

Description FY15 FY16 FY17 FY18 Proposed System Average Rate per kWh 16.15¢ 17.12¢ 18.03¢ 18.03¢

Reduce the Renewable Portfolio Standard from 40% to 33%

($ in million)

40% RPS 27% 30% 32% 35%

33% RPS 27% 28% 31% 32% Change in ¢

per kWh n/a (0.035¢) (0.027¢) (0.053¢)

Reduce Energy Efficiency and Solar Goals to keep programs at

current levels

Proposed .7% .1% .1% n/a

Alternative .1% .1% .1% n/a Change in ¢

per kWh (.0897¢) 0 0 n/a

4 year phase in of Distribution & Customer rates*

*Impact of extended phase-in period will result in higher rates and revenues due to cumulative effect

Proposed % Option

2.7% 2.2%

2.4% 2.2%

2.2% 2.2%

n/a 2.2%

Proposed $ Option

$4.5 Million $3.7 Million



$0 $4.0 Million

$ Impact ($800K) ($1.0 Million) ($1.2 Million) $4.0 Million ¢ per kWh (0.070¢) (0.088¢) (0.106¢) 0.357¢

Reduce capital investments for distribution and automation projects

To be determined - Limited pay-go capability would increase reliance on debt or drawdown of reserves

Implement Distribution and Customer charge adjustments on October 1 instead of July 1 ($1.1 Million) ($1.0 Million) ($1.0 Million) n/a


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Rate Adjustment History

Electric Rate Adjustments since 2005

Rate Component When Last Adjusted

Rate Action

Transmission Services Charge

July 2006 Reduced approximately 0.3¢ per kWh

Public Benefits Charge July 2008 Increased by approximately 0.3¢ per kWh

Energy Charge (PCA) October 2010 Increased by 0.5¢ per kWh

Distribution and Customer Charge

July 2012 Increased by approximately 0.3¢ per kWh


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ELECTRIC RATE COMPARISON TO OTHER UTILITIES

PWP’s Proposed Rates Remain Comparable to Neighboring Utilities


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Bill Comparisons for Residential Customers

Darkest shade indicates higher comparative bill at given level of usage. For example, at 200 kWh/month, Riverside is the highest and Burbank is the lowest. PWP will be mid-range in comparative bills except at the 400 and 500 kWh levels of consumption.


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Next Steps

Date Action ItemMarch 2014 City Council Workshop

April 2014 Customer education and feedback, City Council field reps, district meetings, public library event, Chamber of Commerce, large customer groups, social media postings, media updates

April 2014 MSC Action Item – rate proposal and recommendation to set public hearing

April 2014 City Council – set public hearing dateApril - May 2014 City Council Action Item – Consider rate

proposalJuly 2014 Rate action effective


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COST OF SERVICE ANALYSIS

Electric Cost of Service Study


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Key Inputs to ECOS

Financial

Adopted FY 2014 Operating BudgetAnnual Revenue Requirements:Based on forecasted cost escalations and known changes in annual costsCapital Improvements:Capital expenditures based on adopted FY 2014 Capital BudgetDebt Service:Based on principal and interest payments on currently outstanding revenue bonds and projections of debt service General Fund Transfer:Annual transfer of 9% (included in rate of return requirement)Rate Base Return Requirement:A rate base calculated by adding the net utility plant in service and construction work in progress to a working capital allowance of 60 cash days of operations and maintenance expenses, and subtracting capital contributions

Operational

Sales Growth: Energy sales are forecast as flat (unchanged) during seven year financial forecastCustomer Growth :Modest projected growth of <1% for each class; historical average relationship between energy sales and number of customers expected to continue in the futureSystem Load:Based on projected annual energy sales with distribution loss of about 5% (typical industry average for utilities with similar energy resources)Load Shape and Peak Demand:Forecast of customer classification-specific energy sales and peak demand are based on 3-years historical data for FY 2009 - 2012 and budget year projections for FY 2013

Pasadena Water and PowerBreakdown of cost-of-service

Labor/Burden $30.4

Services and Supplies, Internal Services, and Other Operating Costs

$19.2

Energy Costs $93.6

Transmission Costs $26.0

Public Benefits programs $7.8

Depreciation and Amortization

$18.9

Debt Service $19.5

General Fund Transfer $16.5

Total cost-of-service $231.9

Non-rate Revenues

Wholesale Sales $11.4

Climate Change Revenues $6.1

PTO Transmission Revenues

$14.3

Investment Earnings and Other Non-operating Revenues

$8.2

Total Non-rate Revenues $40.0

Revenue Requirements (in million $)

Total Cost-of-Service

$231.9

Less: Non-rate Revenues

- 40.0

Revenue Requirements $191.9

Revenues required

from electric rates.

Burns & McDonnell Report (FY13 Based):Cost of Service $224.0Non-rate Revenues $37.3Revenue Requirement $186.7 36

Cost of Service Summary (in $millions)


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Cost of Service Process


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Financial Performance


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Prioritization of Rate Components

Distribution and Customer Rates and Demand Ratchet

Pay-go

Rate of Return and General Fund Transfer

Higher Lower

Economic Development

Green Power Premium

Distributed Generation & Net Metering (FIT)

Demand Response

Time of Use and Electric Vehicle rates

Debt Service Coverage

PBC

electric rates workshop: cost of service analysis and rate proposals

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