HomeMy WebLinkAbout2017-0320 Study Session PACKET
CITY OF
ASHLAND
CITY COUNCIL STUDY SESSION
AGENDA
Monday, March 20, 2017
Siskiyou Room, 51 Winburn Way
5:30 p.m,.
1. Public Input (15 minutes maximum)
11. Look Ahead review
III. Discussion of Electric rate design
IV. Discussion of Team Ashland
Immediately following the Study Session, the Council will hold an Executive Session
regarding real property transaction pursuant to ORS 192.660(2)(e)
In compliance with the Americans with Disabilities Act, if you need special assistance to participate in this
meeting, please contact the City Administrator's office at (541) 488-6002 (TTY phone number 1-800-735-
2900). Notification 72 hours prior to the meeting will enable the City to make reasonable arrangements to
ensure accessibility to the meeting (28 CFR 35.102-35.104 ADA Title 1).
I
COUNCIL MEETINGS ARE BROADCAST LIVE ON CHANNEL 9. STARTING APRIL 15. 2014,
CHARTER CABLE WILL BROADCAST MEETINGS ON CHANNEL 180 OR Is 1.
VISIT THE CITY OF ASHLAND'S WEB SITE AT WWW.ASHLAND.OR.US
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Council Study Session
March 20, 2017
Title: Discussion of Electric Rate Design
Item Type: Presentation and Request for Direction
Requested by Council? Yes
From: Mark Holden, director of IT and electric utility
holdenm@ashland.or.us
Discussion Questions:
• Does the recommended rate design maintain a safe and reliable electric distribution
system for the citizens of Ashland?
• Is -the recommended rate design fair and equitable?
• Does the recommended charge and rate design provide a sustainable rate system based on
the Electric Cost of Service Study and Financial Projection (COS - October, 2016)?
Resource Requirements:
The rate design provides the funding for the safe and reliable operations of the electric utility.
Suggested Next Steps:
Staff recommends the COS based Rate Design for future charges and rates. Staff recommends
the developed class specific charges and rates be used as the basis for future charges and rates.
Implementation of the Rate Design will phase in the COS recommendations.
Staff is seeking guidance from Council on this point:
• Shall staff move forward with the rate design as presented/discussed and bring these rates
forward for approval at a future Council business meeting?
Policies, Plans and Goals Supported:
Council Goals Supported:
22.1 Prepare for the impact of climate change on the community
Administrative Goals Supported:
29. Promote conservation as a long-term strategy to protect the environment and public
utility needs.
40. Ensure on-going fiscal ability to provide desired and required services at an
acceptable level.
51. Develop fee/rate structure that is consistent with adopted master plans and studies.
Plans/Studies Supported:
Electric System Ten -Year Planning Study (2014)
Electric Cost of Service Study and Financial Projection (October, 2016)
Page 1 of 3 CITY OF
oASHLAND
Background and Additional Information:
The most recent electric rate increase was on July 1, 2015. The Rate Design recommended rates
are anticipated to be effective on July 1, 2017.
The COS identified the cost to serve each class of customer and provided a model to ensure these
costs are recovered through equitable charge and rate structures (i.e. all classes carry their fair
share). Taken together the Electric System Ten Year Planning Study, COS and the Rate Design
provide direction and support for near and long term operation of the Electric Department.
At the October 31, 2016 Council Study Session council directed an electric rate design be
performed based on the Electric Cost of Service Study and Financial Projection (COS - October
2016) presented at the study session. The COS is the basis for the presented Rate Design.
Rate Design implements the approved Cost of Service Model
1. Rate Adjustments: Rate adjustments are necessary for the long-term reliability and long-
term health of the electric system. Rate adjustments are needed to ensure no class of
customer is unintentionally burdened with costs beyond those needed to support their
usage. The COS analysis of the costs and cost drivers reveals the need to change rate
design to equitably recover these costs. In addition, the cost of service based rate design
provides the flexibility and fairness to develop future rates dealing with innovations in
electric service (e.g. efficiency, demand response, distributed energy resources) without
unfairly shifting costs to unrelated classes.
2. Cost of Service: Many municipal electric utilities, electric cooperatives, and public utility
districts are operating or moving toward a cost of service rate design model. Investor
Owned Utilities (e.g., Pacific Corp, Portland General) operate under the cost of service
rate design model.
The recommended COS based Rate Design:
o Identifies and unbundles costs
o Allots costs to appropriate rate classes
o Builds a financial model of the Utility based on cost of service
o Creates the charges and rates
o Encourages conservation efforts by decoupling required
operational revenue from the effects of encouraging lower
consumption
The cost of service rate design model uses the Electric Department's costs and assigns
these costs to the class of customer benefiting from the costs. The cost of service rate
design model provides the flexibility, accuracy, fairness, and financial stability needed to
operate in an evolving integrated utility environment.
3. Cross-Subsidies: When examined on a cost basis, the current rate structure contains
inequities between customer classes. The cost of service model identifies costs, identifies
the classes benefiting from those costs, and assigns the cost to these rate classes. The
existing classes are not fully aligned with the COS results. However, the COS analysis
Pace 2 of 3 CITY OF
ASHLAND
shows the current rates are, on average, within 9.5% of the desired goal. Over time, the
recommended Rate Design implements the COS without large swings in customer rates
(please see below: Table 1: Proposed Rate Changes).
4. Customer Charge: Customer charges (Ashland's current Basic Charge) are adjusted to
cover the actual cost to serve each class of customer. Rate Design adjustments are meant
to eliminate subsidies among classes of customers.
As conservation continues to emerge as a higher priority, an industry trend is to fund
conservation through a fixed monthly customer charge. Including conservation in the
fixed charge provides stable funding for conservation efforts and reduces the need to
adjust electric rates as the investment in conservation is adjusted up or down. The fixed
rate decouples conservation funding from the variability (most often weather related) of
electric consumption and could help provide stable funding for the developing Climate
and Energy Action Plan (CEAP).
Staff has completed the cost of service rate design. Subject to guidance from the Council, the
recommended rate design will be brought back to the Council for approval in May, 2017.
Implementation of the rates, once reviewed and approved by the Council, is anticipated for July
1, 2017.
The COS and Rate Design provide the Electric Department with a methodology and road map to
accomplish an equitable rate structure where customer classes contribute their fair share. In
addition, the COS and Rate Design provide for the long-term safety, reliability and financial
health of the electric utility.
A summary of rate adjustments (charges + rates) proposed in the Rate Design:
Table 1: Proposed Rate Changes
Rate Adjustments by FY 2018 2019 2020
Increase % 6.90 4.32 2.90
Recommended (net - charges and rates)
(from Rate Design page 3)
Please see the attached City of Ashland Rate Design for detailed
individual rate information.
Notes to Table 1: The rate increase percentage is not a broad application of the single increase
percentage across all customer classes. Rather, the rate increase percentage represents the net effect
of the class-specific rate design rates. Since the COS identified revenue for some classes of customers
are above and others below the identified cost of service, rates change an average of 6.9% in FY2018
(range 6.9% ± 2%) and 4.32%, 2.90% in the following years.
Attachments:
City of Ashland Rate Design, March 14, 2017
Council Communication, "Presentation on Electric Cost of Service Study", October 31, 2016
Electric Cost of Service Study and Financial Projection, October, 2016
Page3of3 CITY OF
ASHLAND
City of Ashland
Rate Design
3/14/2017
Utility Financial Solutions, LLC
185 Sun Meadow Court
Holland, MI USA 49424
(616) 393-9722
Fax (616) 393-9721
Email: mbeauchamp@ufsweb.com
Submitted Respectfully by:
Mark Beauchamp, CPA, CMA, MBA
President, Utility Financial Solutions
AD S
Utilih, Financial Sidatwits. LLC
City of Ashland
Rate Design
Table of Contents
Page
Rate Design Summary 3
Proposed Residential Single-Phase Rates 4
Proposed Seasonal Residential Single Rates 6
Proposed Commercial Single/Telecomm Rates 7
Proposed Outdoor Lighting Rates 8
Proposed Commercial Service Three Phase Rates 9
Proposed Govt/Muni Single Phase Rates 10
Proposed Govt/Muni Three Phase Rates 11
Proposed Governmental Large Service Rates 12
2 ~S
City of Ashland
Rate Design
Rate Design Summary
Projected Projected Projected
Projected Revenues Under Revenues Under Revenues Under
Revenues Under Proposed Rates Proposed Rates Proposed Rates Change Change Change
Customer Class Current Rates Year 1 Year 2 Year 3 Year 1 % Year 2 % Year 3 %
Residential Single-Phase $ 7,410,275 $ 7,967,778 $ 8,329,088 $ 8,597,320 7.52% 4.53% 3.22%
Seasonal Residential Single 60,785 66,195 69,196 71,425 8.90% 4.53% 3.22%
Commercial Single/Telecomm 1,788,904 1,914,127 1,996,434 2,051,336 7.00% 4.30% 2.75%
Outdoor Lighting 19,703 21,061 21,848 22,489 6.90% 3.75% 2.90%
Commercial Service Three Phase 3,168,263 3,358,358 3,492,693 3,580,010 6.00% 4.00% 2.50%
Govt/Muni Single Phase 222,773 242,597 257,883 267,940 8.90% 6.30% 3.90%
Govt/Muni Three Phase 917,686 968,159 1,004,465 1,027,065 5.50% 3.75% 2.25%
Governmental Large Service 878,093 926,259 960,993 982,616 5.50% 3.75% 2.25%
Totals $ 14,466,481 $ 15,464,534 $ 16,132,599 $ 16,600,201 6.90% 4.32% 2.90%
Electric Rate Design 3 of 12 tlfis
City of Ashland
Rate Design
Residential Single-Phase
Rates Current Year 1 Year 2 Year 3
Monthly Facilities Charge:
All Customers $ 9.62 $ 11.00 $ 12.50 $ 14.00
Energy Charge:
Block 1 (0 - 500 kWh) $ 0.06563 $ 0.07011 $ 0.07216 $ 0.07313
Block 2 (501 - 5,000 kWh) $ 0.08073 $ 0.08521 $ 0.08726 $ 0.08823
Block 3 (Excess) $ 0.08073 $ 0.12000 $ 0.12500 $ 0.12750
Revenue from Rate $ 7,410,275 $ 7,967,778 $ 8,329,088 $ 8,597,320
Change from Previous 7.5% 4.5% 3.2%
Change by Monthly kWh Usage
12.0%
10.0
8.0%
6.0
4.0%
2.0
0.0
250 500 750 1000 1250 1500 1750 2000 2250 2500
Year 1 -Year 2 Year 3
Change by Monthly kWh Usage
$14.00
$12.00
$10.00
$ 8.00
$ 6.00
$4.00
$2.00
250 500 750 1000 1250 1500 1750 2000 2250 2500
--Year 1 -Year 2 Year 3
Electric Rate Design 4 of 12
City of Ashland
Rate Design
Residential Single-Phase
Rate Change Effect by Usage
Usage Year 1 Year 2 Year 3
250 9.6% 7.0% 5.7%
500 8.5% 5.5% 4.1%
750 7.6% 4.5% 3.2%
1000 7.1% 4.0% 2.7%
1250 6.8% 3.7% 2.4%
1500 6.6% 3.5% 2.2%
1750 6.4% 3.3% 2.0%
2000 6:3% 3.2% 1.9%
2250 6.2% 3.1% 1.8%
2500 6.2% 3.1% 1.8%
Rate Change Effect by Usage
Usage Year 1 Year 2 Year 3
250 $ 2.50 $ 2.01 $ 1.74
500 $ 3.62 $ 2.52 $ 1.98
750 $ 4.74 $ 3.03 $ 2.23
1000 $ 5.86 $ 3.54 $ 2.47
1250 $ 6.99 $ 4.05 $ 2.71
1500 $ 8.11 $ 4.57 $ 2.95
1750 $ 9.23 $ 5.08 $ 3.19
2000 $ 10.35 $ 5.59 $ 3.43
2250 $ 11.47 $ 6.10 $ 3.68
2500 $ 12.59 $ 6.61 $ 3.92
Electric Rate Design 5 of 12 IFS
City of Ashland
Rate Design
Seasonal Residential Single
Rates Current Year 1 Year 2 Year 3
Monthly Facilities Charge:
All Customers $ 9.62 $ 11.00 $ 12.50 $ 14.00
Energy Charge:
Block 1 (0 - 600 kWh) $ 0.07293 $ 0.07927 $ 0.08209 $ 0.08381
Block 2 (601 - 5,000 kWh) $ 0.08062 $ 0.08696 $ 0.08978 $ 0.09150
Block 3 (Excess) $ 0.08062 $ 0.12000 $ 0.12500 $ 0.12750
Revenue from Rate $ 60,785 $ 66,195 $ 69,196 $ 71,425
Change from Previous 8.9% 4.5% 3.2%
Change by Monthly kWh Usage
12.0%
10.0%
8.0%
6.0
4.0
2.0%
0.0% 4
250 500 750 1000 1250 1500 1750 2000 2250 2500
- ,Year 1 ---Year 2 Year 3
Change by Monthly kWh Usage
$20.00
$18.00
$16.00
$14.00
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
250 500 750 1000 1250 1500 1750 2000 2250 2500
-Year 1 -Year 2 Year 3
Electric Rate Design 6 of 12t;,,c, F;nand,l 5.11ur;.tifts. «c
City of Ashland
Rate Design
Commercial Single/Telecomm
Rates Current Year 1 Year 2 Year 3
Monthly Facilities Charge:
30kw or Less/Power Supply $ 17.23 $ 18.50 $ 21.00 $ 23.00
Over 30kW $ 64.67 $ 64.67 $ 64.67 $ 64.67
Energy Charge:
Block 1 (0 - 3,000 kWh) $ 0.07804 $ 0.08340 $ 0.08550 $ 0.08648
Block 2 (3001 - 20,000 kWh) $ 0.07829 $ 0.08365 $ 0.08575 $ 0.08673
Block 3 (Excess) $ 0.07866 $ 0.08402 $ 0.08612 $ 0.08710
Demand Charge
Block 1 (0 - 15 kW) $ - $ - $ - $ -
Block 2 (Excess) $ 4.12 $ 4.75 $ 5.50 $ 6.25
Power Cost Adjustment:
All Energy $ - $ - $ - $ -
Revenue from Rate $ 1,788,904 $ 1,914,127 $ 1,996,434 $ 2,051,336
Change from Previous 7.0% 4.3% 2.8%
Change by Monthly kWh Usage
9.0%
8.0
7.0
6.0
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
250 750 1250 1750 2250 2750 3250 3750 4250 4750
Year 1 Year 2 Year 3
Change by Monthly kWh Usage
$30.00
$ 25.00
$ 20.00
$15.00
$10.00
$5.00
250 750 1250 1750 2250 2750 3250 3750 4250 4750
Year 1 -Year 2 Year 3
Electric Rate Design 7 of 12
City of Ashland
Rate Design
Outdoor Lighting
Current Rates Current Year 1 Year 2 Year 3
Monthly Light Charge:
Lamp
HPS 5800 Non Res $ 21.69 $ 23.15 $ 23.80 $ 24.50
HPS 22000 Non Res $ 31.31 $ 33.40 $ 34.65 $ 35.65
HPS 50000 Non Res $ 50.08 $ 53.55 $ 55.55 $ 57.15
HPS 5800 Res $ 16.68 $ 17.85 $ 18.60 $ 19.15
HIPS 22000 Res $ 24.09 $ 25.70 $ 26.50 $ 27.25
HPS 50000 Res $ 38.53 $ 41.20 $ 42.75 $ 44.00
Wood Pole $ 1.89 $ 2.00 $ 2.10 $ 2.15
Revenues from Current Rates $ 19,703 $ 21,061 $ 21,848 $ 22,489
Change from Previous 6.89% 3.74% 2.93%
Electric Rate Design 8 of 12
Utility finanial k.lutio-, LLC
City of Ashland
Rate Design
Commercial Service Three Phase
Rates Current Year 1 Year 2 Year 3
Monthly Facilities Charge:
30kw or Less $ 34.47 $ 37.00 $ 40.00 $ 45.00
Over 30kW $ 112.10 $ 112.10 $ 112.10 $ 112.10
Energy Charge:
Block 1 (0 - 3,000 kWh) $ 0.07145 $ 0.07514 $ 0.07706 $ 0.07754
Block 2 (3001 - 17,000 kWh) $ 0.07193 $ 0.07562 $ 0.07754 $ 0.07802
Block 3 (Excess) $ 0.07212 $ 0.07581 $ 0.07773 $ 0.07821
Demand Charge
Block 1 (0 - 15 kW) $ - $ - $ - $ -
Block 2 (Excess) $ 4.12 $ 4.75 $ 5.50 $ 6.25
Power Cost Adjustment:
All Energy $ - $ - $ - $ -
Revenue from Rate $ 3,168,263 $ 3,358,358 $ 3,492,693 $ 3,580,010
Change from Previous 6.0% 4.0% 2.5%
Change by Load Factor 27.5kW Demand
7.0%
6.0%
J
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
25%(, 30% 3s% 40% 459/. 50% 55% 60% 65% 70%
Year 1 --Year 2 Year 3
Electric Rate Design 9 of 12
City of Ashland
Rate Design
Govt/Muni Single Phase
Rates Current Year 1 Year 2 Year 3
Monthly Facilities Charge:
30kw or Less/Power Supply $ 17.23 $ 18.50 $ 21.00 $ 23.00
Over 30kW $ 64.67 $ 64.67 $ 64.67 $ 64.67
Energy Charge:
Block 1 (0 - 3,000 kWh) $ 0.09437 $ 0.09371 $ 0.09562 $ 0.09538
Block 2 (3001 - 20,000 kWh) $ 0.07077 $ 0.08871 $ 0.09562 $ 0.10038
Block 3 (Excess) $ 0.06632 $ 0.08871 $ 0.09562 $ 0.10038
Demand Charge
Block 1 (0 - 15 kW) $ - $ - $ - $ -
Block 2 (Excess) $ 4.19 $ 4.75 $ 5.50 $ 6.25
Revenue from Rate $ 222,773 $ 242,597 $ 257,883 $ 267,940
Change from Previous 8.9% 6.3% 3.9%
Change by Monthly kWh Usage
12.0%
10.0
8.0
6.0%
4.0
2.0% O
0.0
250 600 950 1300 1650 2000 2350 2700 3050 3400
-Year l -Year 2 Year 3
Electric Rate Design 10 of 12
City of Ashland
Rate Design
Govt/Muni Three Phase
Rates Current Year 1 Year 2 Year 3
Monthly Facilities Charge:
30kw or Less $ 34.47 $ 37.00 $ 40.00 $ 45.00
Over 30kW $ 112.10 $ 112.10 $ 112.10 $ 112.10
Energy Charge:
Block 1 (0 - 3,000 kWh) $ 0.10082 $ 0.10433 $ 0.10433 $ 0.10433
Block 2 (3001 - 20,000 kWh) $ 0.07645 $ 0.07996 $ 0.07996 $ 0.07996
Block 3 (Excess) $ 0.07166 $ 0.07517 $ 0.07803 $ 0.07837
Demand Charge
Block 1 (0 - 15 kW) $ - $ - $ - $ -
Block 2 (Excess) $ 4.19 $ 4.75 $ 5.50 $ 6.25
Power Cost Adjustment:
All Energy $ - $ - $ - $ -
Revenue from Rate $ 917,686 $ 968,159 $ 1,004,465 $ 1,027,065
Change from Previous 5.50% 3.75% 2.25%
Change by Load Factor 27.5kW Demand
6.0%
m
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
1551.; 20% 25% 30% 35% 40% 45% 50% 55% 60%
-Year 1 -Year 2 Year 3
Electric Rate Design 11 of 12
City of Ashland
Rate Design
Governmental Large Service
Rates Current Year 1 Year 2 Year 3
Monthly Facilities Charge:
Monthly Charge $ 2,639.36 $ 2,639.36 $ 2,639.36 $ 2,639.36
Energy Charge:
All Energy $ 0.05766 $ 0.05912 $ 0.05963 $ 0.05902
Demand Charge
All Demand $ 4.92 $ 6.00 $ 7.00 $ 8.00
Power Cost Adjustment:
All Energy $ - $ - $ - $ -
Revenue from Rate $ 878,093 $ 926,259 $ 960,993 $ 982,616
Change from Previous 5.49% 3.75% 2.25%
Change by Load Factor
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
30% 35% 40% 45% 50% 55% 60% 65% 70% 75%
Year 1 --Year 2 Year 3
Electric Rate Design 12 of 12
CITY OF
ASHLAND
Council Communication
October 31, 2016 Study Session
Presentation on Electric Cost of Service Study
FROM:
Mark Holden, director of IT and electric utility, mark.holden(a ashland.or.us
SUMMARY
This is a Study Session to receive and review the results of the Electric Cost of Service and Financial
Projection (COS) for the City's Electric Department. This communication provides background for
the presentation.
A cost of service study evaluates how a utility's costs are allocated across different customer classes to
determine whether those costs are accurately reflected in rates. The COS recommends a series of rate
changes over a five-year period. Staff is requesting guidance to move forward with a rate design using
the cost of service model developed in the COS and, subject to future rate review and approval by the
Council, implementation of the rates developed as a result of the COS based rate design process.
COUNCIL GOALS SUPPORTED:
22. Prepare for the impact of climate change on the community
BACKGROUND AND POLICY IMPLICATIONS:
In compliance with Council direction of May 5, 2015 a COS was performed prior to requesting future
rate changes. The COS focuses on the long term financial viability and stability of the Electric Utility.
The COS provides guidance to the Electric Department in evaluating and recommending charges and
rates.
The COS identifies the cost to serve each class of customer and provides a model to ensure these costs
are recovered through equitable charge and rate structures (i.e. all classes carry their fair share). Taken
together with the Department's Ten Year Capital Plan, the COS provides support for near and long
term operation of the Electric Department.
The City last performed a cost of service study in Fall 2013. The city, through the RFP process,
contracted with Utility Financial Solutions, LLC, to perform the current COS. The COS began in July,
2016 and was completed in October, 2016.
Summary of Results
• Charge and rate adjustments are needed to reach and maintain long term financial stability
• The cost of service model is recommended as the basis for charge and rate decisions
o Unbundles (decouples) cost structures - unbundling costs is a process of identify costs
which do not change ("fixed costs") and are not directly related to the consumption
(variable) of electricity. The COS assigns unbundled costs to the appropriate customer
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CITY OF
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class fixed charge (Ashland's Basic Fee). Unbundling can ensure the long term safe and
reliable operation of the distribution system/utility independent of the variable quantity
(or source) of electricity sold.
o Equitably assign costs - identifies and assigns the cost to serve customer classes and
assigns costs appropriately
o Encourages Conservation
■ By uncoupling the Utility's fixed costs from consumptive (usage) rates the
Utility need not raise consumptive rates to continue to recover fixed charges as
actual consumption flattens/declines (conservation). In addition, the conserving
customer will see the direct and motivational benefit of lower consumptive bill
charges resulting from the customer's conservation efforts.
• Cross-subsidies exist in the current rate structures. Some classes are above the identified cost
of service; some classes are below the identified cost of service. The COS ensures each class is
paying their share.
• The Customer Charge (Ashland's Basic Charge) is proposed to be based on the cost of service
for each class of customer. Conservation charges (fixed) are unbundled from
usage/consumption and combined with the Customer Charge.
Discussion of Results
1. Rate Adjustments: Rate adjustments are necessary for the long term reliability and long term
health of the electric system. Rate adjustments are needed to ensure no class of customer is
unintentionally burdened with costs beyond those needed to support their usage. A detailed
analysis of the costs and cost drivers reveals the need to adjust rates to equitably recover these
costs. In addition, the cost of service model provides the flexibility and fairness to develop
rates when dealing with innovations in electric service (e.g. efficiency, demand response,
distributed energy resources) without unfairly shifting costs to unrelated classes or future
generations.
2. Cost of Service: Many municipal electric utilities, electric cooperatives, and Public Utility
Districts are operating or moving toward a cost of service model. Investor Owned Utilities
(e.g., Pacific Corp, Portland General) operate under the cost of service model.
The cost of service model:
o Identifies and unbundles costs
o Identifies rate classes
o Distributes costs to appropriate rate class
o Builds a financial model of the Utility based on cost of service
o Provides a basis for developing charges and rates
o Encourages conservation efforts by decoupling required operational
revenue from the effects of encouraging lower consumption
The cost of service model developed in the COS analyzes the Electric Department's costs and
assigns these costs to the class of customer benefiting from the costs. The cost of service model
provides the flexibility, accuracy, fairness, and financial stability needed to operate in an
evolving integrated utility environment.
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CITY OF
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3. Cross-Subsidies: When examined on a cost basis, the current rate structure contains inequities
between classes. The cost of service model identifies costs, identifies the classes benefiting
from those costs, and assigns the cost to these rate classes. The existing classes are not fully
aligned with the COS results. However, the COS analysis shows the current rates are, on
average, within 9.5% of the desired goal. Over time, the rates can be brought in line with the
cost of service model without large swings in customer rates (please see below: Table 1:
Proposed Rate Changes).
4. Customer Charge: Customer charges (Ashland's current Basic Charge) are adjusted to cover
the actual cost to serve each class of customer. Adjustments are meant to eliminate subsidies
among classes of customers.
As conservation continues to emerge as a higher priority for many utilities, an industry trend is
to fiend conservation through a fixed monthly customer charge. A fixed conservation charge
provides stable funding for conservation efforts and reduces the need to adjust electric rates as
the investment in conservation is adjusted up or down. The fixed rate decouples conservation
funding from the variability (most often weather related) of electric consumption and could
provide stable funding for the forthcoming Climate and Energy Action Plan (CEAP).
Staff has completed the cost of service portion of the COS. Subject to Council guidance, a rate design
and implementation schedule will be completed by late December, 2016. Implementation of the cost
of service based rates, once reviewed and approved by the Council, is anticipated for July 1, 2017.
FISCAL IMPLICATIONS:
The COS provides the Electric Department with a methodology and road map to accomplish an
equitable rate structure where customer classes contribute their fair share and provides for the long
term safety, reliability and financial health of the electric system.
A summary of rate adjustments recommended in the COS are:
Table 1: Proposed Rate Changes
Rate Adjustments by FY 2018 2019 2020 2021 2022
Increase % 6.90 2.75 2.75 2.75 2.75
Recommended
(COS page 7, Table 6 and page 18, Table 15)
Notes to Table 1: The rate increase percentage is not a broad application of the single increase
percentage across all customer classes. Rather, the rate increase percentage represents the net effect of
the class-specific cost of service rates. Since COS revenue for some classes of customers are above
and others below the identified cost of service, rates will change an average of 6.9% in FY2018 (range
6.9% ± 2%) and 2.75% in the following years.
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CITY OF
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STAFF RECOMMENDATION AND REQUESTED ACTION:
Staff recommends the COS as the basis for future charges and rates. Staff recommends the
development of interim, class specific charges and rates to gradually implement (phase in) the COS
recommendations.
Staff is seeking guidance from Council on these points:
• Should staff move forward and design charges and rates using the results of the COS (cost of
service model)?
• Should subsidies in the Government and Municipal customer classes be
maintained/increased/decreased/expanded?
• Shall staff plan for a phased implementation of the rates developed as a result of the COS (one,
two, or three-year phase in)?
SUGGESTED MOTION:
N/A
ATTACHMENTS:
Summary Report, CITY OF ASHLAND ELECTRIC DEPARTMENT, "Electric Cost of Service Study
and Financial Projection", October 2016
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ILVI
77
Summary ae rt
CITY 0 AN EL TRIC
DEPA N
Electric Cost of Service Study and Fina ill- a ion
October 2016
i
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Utility Financial Solutions, LLO
Specializing ian Cost of Service,
Rate Design, and financial Analysis
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1
Utility Financial Solutions, LLC
October 2016
Mark Holden
Director of Electric Utility, Telecom and IT
City of Ashland Electric Department
90 N. Mountain Ave
Ashland OR
Dear Mr Holden;
We are pleased to present the Summary Report for the electric cost of service study and financial
projection for the City of Ashland Electric Department (Ashland). This report was prepared to provide
Ashland with a comprehensive examination of its existing rate structure by an outside party.
The specific purposes of this rate study are:
• Determine electric utility's revenue requirements for fiscal year 2018
• Identify cross-subsidies that may exist between rate classes
• Recommend rate adjustments needed to meet targeted revenue requirements
• Identify the appropriate monthly customer charge for each customer class
This report includes results of the electric cost of service study and financial projection and
recommendations on future rate designs.
This report is intended for information and use by the utility and management for the purposes stated
above and is not intended to be used by anyone except the specified parties.
Sincerely,
zxz
Utility Financial Solutions, LLC
Mark Beauchamp
CPA, MBA, CMA
185 Sun Meadow Ct
Holland, MI 49424
III Contents
Utility Financial Solutions, LLC
TABLE OF CONTENTS
1. Introduction ............................................................................................................................................3
2. Cost of Service Summary ........................................................................................................................4
Utility Rate Process ...................................................................................................................................................4
Utility Revenue Requirements ..................................................................................................................................4
Projected Cash Flow .................................................................................................................................................5
Minimum Cash Reserve ............................................................................................................................................5
Debt Coverage Ratio 6
Rate of Return ...........................................................................................................................................................6
Recommended Rate Track ........................................................................................................................................7
Cost of Service Summary Results ..............................................................................................................................7
Cost of Service Results 8
Distribution Costs .....................................................................................................................................................9
Power Supply Costs .................................................................................................................................................10
Combined Cost Summary .......................................................................................................................................10
3. Functionalization of Costs .....................................................................................................................11
Transmission ....................................11
Distribution .............................................................................................................................................................12
12
Distribution Customer Types
Customer-Related Services .....................................................................................................................................12
Administrative Services .....12
System Losses .........................................................................................................................................................13
4. Unbundling Process ..............................................................................................................................14
Distribution Breakdown ..........................................................................................................................................14
Customer-Related Cost Breakdown ........................................................................................................................15
Power Supply Cost Breakdown ...............................................................................................................................15
5. Significant Assumptions ........................................................................................................................16
Forecasted Operating Expenses .............................................................................................................................16
Load Data ................................................................................................................................................................16
Annual Projection Assumptions ..............................................................................................................................16
City of Ashland Electric Department
Cost of Service & Electric Unbundling Study Page 1
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System Loss Factors ................................................................................................................................................17
Revenue Forecast .17
6. Recommendations and Additional Information ...................................................................................18
Accountant's Compilation Report
LIST OF FIGURES
Figure 1- Breakdown of Distribution Costs ................................................................................................14
Figure 2 - Breakdown of Customer Costs ....................................................................................................15
LIST OF TABLES
Table 1- Financial Statements (without rate adjustments) ..........................................................................4
Table 2 - Projected Cash Flows (without rate adjustments) .........................................................................5
Table 3 - Minimum Cash Reserves (without rate adjustments) ....................................................................5
Table 4 - Projected Debt Coverage Ratios (without rate adjustments) ........................................................6
Table 5 - Rate of Return Calculation .............................................................................................................7
Table 6 - Recommended Revenue Adjustments ...........................................................................................7
Table 7 - Cost of Service Summary ................................................................................................................8
Table 8 - Average Cost per kWh vs. Average Revenue per kWh ...................................................................8
Table 9 - Distribution Costs by Customer Class (COS) ...................................................................................9
Table 10 - Power Supply Costs by Customer Class ......................................................................................10
Table 11- Total Costs by Customer Class ....................................................................................................10
Table 12 - Breakdown of Ashland Cost Structure .......................................................................................14
Table 13 - Projected Operating Expenses for 2018- 2022 ..........................................................................16
Table 14 - Projection Annual Escalation Factors 2018- 2022 .....................................................................17
Table 15 - Recommended Rate Adjustments 2018- 2022 ..........................................................................18
Table 16 - Cost of Service Summary Results ...............................................................................................18
Table 17 - Customer Charge Comparison ...................................................................................................19
City of Ashland Electric Department
Cost of Service & Electric Unbundling Study Page 2
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1. Introduction
This report was prepared to provide the City of Ashland Electric Department (Ashland) with an electric
cost of service study and financial projection and a comprehensive examination of its existing rate
structure by an outside party. The specific purposes of the study are identified below:
1) Determine electric utility's revenue requirements for fiscal year 2018. Ashland's revenue
requirements were projected for the period from 2018 - 2022 and included adjustments for
the following:
a. Projected power costs
b. Capital improvement plan projected over next five years
2) Identify cross-subsidies that may exist between rate classes. Cross-subsidies exist when
certain customer classes subsidize the electric costs of other customers. The rate study
identifies if cross-subsidies exist and practical ways to reduce the subsidies. The cost of service
study was completed using 2018 projected revenues and expenses. The financial projections
are for the period from 2018 - 2022.
3) Recommend rate adjustments needed to meet targeted revenue requirements. The primary
purpose of this 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 Ashland to help ensure the financial stability of the utility in future years.
4) Unbundled electric rates. The cost of providing electricity to customers consists of a number
of components, including power generation, distribution, customer services, transmission, and
transfers to the general fund. Electric unbundling identifies the cost of each component to aid
the utility understanding of its cost structure.
5) Identify the appropriate monthly customer charge for each customer class. The monthly
customer charge consists of fixed costs to service customers that do not vary based on the
amount of electricity used.
City of Ashland Electric Department
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2. Cost of Service Summary
Utility Rate Process
Ashland retained Utility Financial Solutions to review utility rates and cost of service and make
recommendations on the appropriate course of action. This report includes results of the electric cost of
service and unbundling study and recommendations on future rate designs.
Utility Revenue Requirements
To determine revenue requirements, the revenues and expenses for Fiscal Years 2014, 2015 and 2016,
2017 budget were analyzed, with adjustments made to reflect projected operating characteristics. The
projected financial statements are for cost of service purposes only.
Table 1 is the projected financial statement for the Electric Department from 2018-2022. The 2018 rate
of return calculation established an operating income target of $514k (See Table 5).
Operating income for 2018 is projected at $(861)k and increases to $(1.9)M in 2022. Operating income
is one target that helps to determine if rate adjustments are needed. The following pages review cash
flow and other factors which can be important indicators.
Table 1- Financial Statements (without rate adjustments)
Description Projected 2018 Projected 2019 Projected 2020 Projected 2021 Projected 2022
Operating Revenues:
Electric Sales
Intergovernmental 184,500 189,113 193,840 198,686 203,653
Charges for Services 14,466,358 14,498,322 14,529,240 14,553,779 14,578,179
Other Charges for Services Revenue (not rates) 260,350 266,859 273,530 280,368 287,378
Miscellaneous 111,788 112,035 112,273 112,463 112,652
Total Operating Revenues $ 15,022,996 $ 15,066,327 $ 15,108,884 $ 15,145,297 $ 15,181,862
Operating Expenses:
Purchases
Electric - Supply $ 6,886,756 $ 6,901,972 $ 7,055,024 $ 7,349,618 $ 7,361,940
Electric - Transmission 957,477 957,477 976,626 1,015,691 1,015,691
Total Power Supply Expense $ 7,844,232 $ 7,859,449 $ 8,031,651 $ 8,365,309 $ 8,377,631
Distribution
Electric - Distribution $ 3,500,018 $ 3,587,519 $ 3,677,207 $ 3,769,137 $ 3,863,365
Total Distribution Expense $ 3,500,018 $ 3,587,519 $ 3,677,207 $ 3,769,137 $ 3,863,365
Other Operating Expenses (Revenues)
Admin - Conservation $ 739,153 $ 757,631 $ 776,572 $ 795,987 $ 815,886
Electric - Supply (non BPA) 97,990 100,440 102,951 105,525 108,163
Franchise Fee 1,472,671 1,476,518 1,480,277 1,483,415 1,486,556
Allocations
Central Service - Power Supply (non BPA) 385,060 394,687 404,554 414,668 425,034
Central Service - Distribution 857,095 878,522 900,485 922,997 946,072
Use of Facilities Charge - Distribution 133,250 136,581 139,996 143,496 147,083
Technology Debt- Distribution 541,300 541,300 541,300 541,300 541,300
Depreciation Expense 313,406 325,406 349,406 373,406 397,406
Total Other Operating Expenses $ 4,539,924 $ 4,611,085 $ 4,695,541 $ 4,780,793 $ 4,867,500
Total Operating Expenses $ 15,884,175 $ 16,058,053 $ 16,404,398 $ 16,915,239 $ 17,108,497
Operating Income $ (861,179) $ (991,725) $ (1,295,515) $ (1,769,941) $ (1,926,635)
City of Ashland Electric Department
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Projected Cash Flow
Table 2 is the projected cash flow for 2018-2022, including projections of capital improvements as
provided by Ashland. Changes in the capital improvement plan can greatly affect the cash balance and
recommended minimum cash reserve target. The cash balance for 2018 is projected at $163k and
$(6.85)M in 2022. The recommended minimum cash reserve level for 2018 is $31VI and $3.25M for 2022.
Table 2 - Projected Cash Flows (without rate adjustments)
Description Projected 2018 Projected 2019 Projected 2020 Projected 2021 Projected 2022
Projected Cash Flows
Net Income $ (855,886) $ (991,861) $ (1,296,193) $ (1,770,349) $ (1,926,770)
Depreciation Expense/Amortization 313,406 325,406 349,406 373,406 397,406
Subtract Debt Principal (21,714) (21,714) (21,714) (21,714) (21,714)
Cash Available from Operations $ (564,194) $ (688,170) $ (968,502) $ (1,418,657) $ (1,551,079)
Estimated Annual Capital Additions 576,050 600,000 600,000 600,000 600,000
Net Cash From Operations $ (1,140,244) $ (1,288,170) $ (1,568,502) $ (2,018,657) $ (2,151,079)
Beginning Cash Balance $ 1,303,054 $ 162,810 $ (1,125,360) $ (2,693,862) $ (4,712,519)
Ending Cash Balance $ 162,810 $ (1,125,360) $ (2,693,862) $ (4,712,519) $ (6,863,598)
Total Cash Available $ 162,810 $ (1,125,360) $ (2,693,862) $ (4,712,519) $ (6,863,598)
Recommended Minimum $ 3,037,822 $ 3,080,294 $ 3,137,714 $ 3,215,368 $ 3,232,382
Minimum Cash Reserve
Table 3 details the minimum level of cash reserves required to help ensure timely replacement of assets
and to provide financial stability of the utility. The methodology used to establish this target is based on
certain assumptions related to a percentage of operating expense, historical investment, capital
improvements, and debt service to be kept in cash reserves. Based on these assumptions, Ashland should
maintain a minimum of $31VI in cash reserves for 2018 and $3.25M in 2022.
Table 3 - Minimum Cash Reserves (without rate adjustments)
Description Projected 2018 Projected 2019 Projected 2020 Projected 2021 Projected 2022
Minimum Cash Reserve Allocation
Operation & Maintenance Less Depreciation Expense 12.3% 12.3% 12.3% 12.3% 12.3%
Purchase Power Expense 12.3% 12.3% 12.3% 12.3% 12.3%
Historical Rate Base 3% 3% 3% 3% 3%
Current Portion of Debt Service Payment 100% 100% 100% 100% 100%
Five Year Capital Improvements - Net of bond proceeds 20% 20% 20% 20% 20%
Calculated Minimum Cash Level
Operation & Maintenance Less Depreciation Expense $ 952,587 $ 970,668 $ 989,179 $ 1,008,065 $ 1,027,413
Purchase Power Expense 964,841 966,712 987,893 1,028,933 1,030,449
Historical Rate Base 502,521 520,521 538,521 556,521 574,521
Current Portion of Debt Service Reserve 22,664 22,393 22,121 21,850 -
Five Year Capital Improvements - Net of bond proceeds 595,210 600,000 600,000 600,000 600,000
Minimum Cash Reserve Levels $ 3,037,822 $ 3,080,294 $ 3,137,714 $ 3,215,368 $ 3,232,382
Projected Cash Reserves $ 162,810 $ (1,125,360) $ (2,693,862) $ (4,712,519) $ (6,863,598)
Projected cash balances fall below the recommended minimums during the projection period.
City of Ashland Electric Department
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Debt Coverage Ratio
As Ashland has no bond debt and minimal other debt this section is included for educational purposes
only so readers can be informed if considering debt. Debt coverage ratio can be ignored from the point
of view of a current target.
Table 4 is the projected debt coverage ratios with capital additions as provided by Ashland. The coverage
required in bond ordinances is typically 1.15 -1.20, however the minimum recommended debt coverage
ratio is established at 1.35 - 1.40 for projection purposes a 0.20 premium to ordinance. Maintaining a
higher debt coverage ratio is good business practice and helps to achieve the following:
• Helps to ensure adequate funds are available to meet debt service payments in years when sales
are low due to temperature fluctuations.
• Obtain higher bond rating, if revenue bonds are sold in the future, to lower interest cost.
Table 4 - Projected Debt Coverage Ratios (without rate adjustments)
Description Projected 2018 Projected 2019 Projected 2020 Projected 2021 Projected 2022
Fixed Cost Coverage Ratio
Cash Available =or Debt Service $ (541,258) $ (665,506) $ (946,109) $ (1,396,536) $ (1,529,229)
Off System Debt - - - -
Total Available $ (541,258) $ (665,506) $ (946,109) $ (1,396,536) $ (1,529,229)
Debt Service I ncluding Off System Debt $ 22,936 $ 22,664 $ 22,393 $ 22,121 $ 21,850
Fixed Costs Coverage Ratio (23.60) (29.36) (42.25) (63.13) (69.99)
Minimum Fixed Costs Coverage Ratio 1.4 1.4 1.4 1.4 1.4
Debt coverage is adequate for the projection period without changes in rates as the debt is minimal and
not subject to ordinances or coverage covenants.
Rate of Return
The optimal target for setting rates is the establishment of a target operating income to help ensure the
following:
A. Funding of the inflationary increase on the assets invested in the system. The inflation on the
replacement of assets invested in the utility should be recouped through the Operating Income.
B. Funding of depreciation expense.
C. Adequate rate of return on investment to help ensure current customers are paying their fair share
of the use of the infrastructure and not deferring the charge to future generations.
D. Funding of interest expense on the outstanding principal on debt. Interest expense is below the
operating income line and needs to be recouped through the operating income balance.
As improvements are made to the system, the optimal operating income target will increase unless annual
depreciation expense is greater than yearly capital improvements. The revenue requirements for the
study are set on the utility basis. Table 5 identifies the utility basis target established for 2018 is $514k
and increases to $594k in 2022.
City of Ashland Electric Department
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Table 5 - Rate of Return Calculation
Description Projected 2018 Projected 2019 Projected 2020 Projected 2021 Projected 2022
Target Operating Income Determinants
Net Book Value/Working Capital $ 7,398,546 $ 7,673,140 $ 7,923,734 $ 8,150,329 $ 8,352,923
Outstanding Principal on Debt 86,857 65,143 43,429 21,714 -
System Equity $ 7,311,689 $ 7,607,997 $ 7,880,306 $ 8,128,614 $ 8,352,923
Target Operating Income Allocation
Interest on Debt 1.41% 1.46% 1.56% 1.87% 0.00%
System Equity 7.02% 7.01% 7.02% 7.06% 7.11%
Target Operating Income
Interest on Debt $ 1,221 $ 950 $ 679 $ 407 $ 136
System Equity $ 513,175 $ 533,305 $ 553,421 $ 573,539 $ 593,671
Target Operating Income $ 514,397 $ 534,255 $ 554,100 $ 573,946 $ 593,807
Projected Operating Income $ (861,179) $ (991,725) $ (1,295,515) $ (1,769,941) $ (1,926,635)
Rate of Return in % 7.0% 7.0% 7.0% 7.0% 7.1%
Recommended Rate Track
The study identifies increasing current revenues in 2018, and increase annually thereafter to maintain
debt coverage ratios and minimum cash targets. Table 6 is a summary of the financial results detailing
the recommended revenue adjustments required to meet target operating income.
Table 6 - Recommended Revenue Adjustments
Projected Adjusted Target
Fiscal Rate Projected Projected Operating Operating Projected Cash Recommended
Year Adjustments Expenses Revenues Income Income Balances Minimum Cash
2018 6.130% $ 15,983,993 $ 16,021,174 $ 37,181 $ 514,397 $ 1,061,170 $ 3,050,128
2019 2.75% 167200,713 16,496,007 295,294 534,255 1,064,512 3,097,882
2020 2.75% 161591,249 16,983,654 392,404 554,100 1,189,252 3,160,751
2021 2.75% 171147,575 17,478,199 330,623 573,946 1,277,106 3,244,012
2022 2.75% 17,387,713 17,986,935 599,222 593,807 1,658,269 3,266,806
Cost of Service 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 test year 2018
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 as Table 7 which compares the projected cost to serve each class
with the revenue received from each class. The change" column is the revenue adjustment necessary
City of Ashland Electric Department
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to meet projected cost of service requirements. The cost of service summary uses the current rates
including any adjustment factors.
Table 7 - Cost of Service Summary
Projected
Customer Class Cost of Service Revenues % Change
Residential Single-Phase $ 8,343,058 $ 7,410,275 12.6%
Seasonal Residential Single 75,378 60,785 24.0%
Telecommunications 73,981 68,342 8.3%
Outdoor Lighting 19,156 19,703 -2.8%
Commercial Service Single Phase 1,907,280 1,720,561 10.9%
Commercial Service Three Phase 3,333,918 3,168,263 5.2%
Governmental Service Single Phase 132,089 100,297 31.7%
Governmental Service Three Phase 475,225 438,354 8.4%
Municipal Service Single Phase 151,481 122,475 23.7%
Municipal Service Three Phase 440,310 479,332 -8.1%
Governmental Large Service 890,057 877,970 1.4%
Total $ 15,841,934 $ 14,466,358 9.5%
Cost of Service Results
Table 8 shows the average cost of service per kWh and compares the cost to the average revenue per
kWh for each customer class.
Table 8 - Average Cost per kWh vs. Average Revenue per kWh
Cost of Projected
Service Revenues
Customer Class $/kWh $/kWh
Residential Single-Phase $ 0.0965 $ 0.0857
Seasonal Residential Single 0.1066 0.0859
Telecommunications 0.1185 0.1095
Outdoor Lighting 0.0960 0.0988
Commercial Service Single Phase 0.1060 0.0957
Commercial Service Three Phase 0.0897 0.0852
Governmental Service Single Phas, 0.1345 0.1021
Governmental Service Three Phas, 0.1052 0.0971
Municipal Service Single Phase 0.1361 0.1100
Municipal Service Three Phase 0.0795 0.0865
Governmental Large Service 0.0762 0.0752
Cost differences result from usage patterns of customers and how each class of customer used facilities
based on load data provided by Ashland.
City of Ashland Electric Department
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Distribution Costs
Separation of distribution costs help identify distribution charges for each customer class and the fixed
monthly customer charge. Distribution charge includes the following costs:
• Operation and maintenance of distribution & transmission system
• Contributions to general fund
• Customer service
• Customer accounting
• Meter reading
• Billing
• Meter operation & maintenance
• Administrative expenses
The distribution charges consist of two components:
• Monthly customer charge to recover the costs of meter reading, billing, customer service, and
a portion of maintenance and operations of the distribution system.
• Distribution rate based on billing parameter, (kW or kWh) to recover the cost to operate and
maintain the distribution system. Table 9 identifies the cost-based distribution rates for
customer classes.
Table 9 - Distribution Costs by Customer Class (COS)
Monthly Customer
Customer Class Charge Distribution Rate Billing Basis
Residential Single-Phase $ 14.09 $ 0.0296 kWh
Seasonal Residential Single 16.50 0.0418 kWh
Telecommunications 19.45 0.0330 kWh
Commercial Service Single Phase 43.46 11.45 kW
Commercial Service Three Phase 103.90 10.35 kW
Governmental Service Single Phase 51.68 10.16 kW
Governmental Service Three Phase 155.98 11.19 kW
Municipal Service Single Phase 58.97 12.75 kW
Municipal Service Three Phase 127.75 10.64 kW
Governmental Large Service 1,635.79 11.17 kW
City of Ashland Electric Department
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Power Supply Costs
Table 10 identifies the average cost of providing power supply to customers of Ashland.
Table 10 - Power Supply Costs by Customer Class
Customer Class Demand Billing Basis Energy Billing Basis
Residential Single-Phase $ 0.0077 kWh $ 0.0392 kWh
Seasonal Residential Single 0.0100 kWh 0.0391 kWh
Telecommunications 0.0109 kWh 0.0394 kWh
Commercial Service Single Phase 2.80 KW 0.0393 kWh
Commercial Service Three Phase 2.51 KW 0.0394 kWh
Governmental Service Single Phase 3.14 KW 0.0394 kWh
Governmental Service Three Phase 3.39 KW 0.0394 kWh
Municipal Service Single Phase 3.29 KW 0.0392 kWh
Municipal Service Three Phase 3.38 KW 0.0394 kWh
Governmental Large Service 2.79 KW 0.0385 kWh
Combined Cost Summary
Table 11 identifies the cost of service rates for each customer class. Charging these rates would directly
match the cost of providing service to customers identified in this study.
Table 11- Total Costs by Customer Class
COS COS
Current Average Customer COS Monthly Conservation Customer
Customer Class Charge Charge Charge Charge
Residential 'Single-Phase $ 9.62 $ 14.09 $ 3.21 $ 10.87
Seasonal Residential Single 9.62 16.50 5.60 10.89
Telecommunications 17.23 19.45 3.49 15.96
Commercial Service Single Phase 20.29 43.46 7.81 35.65
Commercial Service Three Phase 49.95 103.90 36.07 67.83
Governmental Service Single Pha< 17.23 51.68 18.00 33.68
Governmental Service Three Pha< 101.01 155.98 87.73 68.25
Municipal Service Single Phase 18.79 58.97 8.37 50.60
Municipal Service Three Phase 54.72 127.75 59.73 68.02
Governmental Large Service 2,639.36 1,635.79 1,413.90 221.89
City of Ashland Electric Department
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3. Functionalization of Costs
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.
Transmission
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 utility's major production sources are integrated.
2) Generation set-up facilities are the substations through which power is transformed from a
utility's generation voltages to its various
transmission voltages. Terminology of Cost of Service
3) Sub-transmission plant consists of lower
voltage facilities to transfer electric energy FUNCTIONALIZATION -Cost data arranged
by functional category (e.g. power supply,
from convenient points on a utility's transmission, distribution
backbone system to its distribution system.
CLASSIFICATION -Assignment of
4) Radial transmission facilities are those that functionalized costs to cost components
are not networked with other transmission (e.g. demand, energy and customer
lines but are used to serve specific loads related).
directly. ALLOCATION - Allocating classified costs to
Operation of the transmission system also consists of each class of service based on each class's
providing certain services that ensure a stable supply contribution to that specific cost
of power. These services are typically referred to as component.
ancillary services. The Federal Energy Regulatory DEMAND COSTS - Costs that vary with the
Commission (FERC) has defined six ancillary service maximum or peak usage. Measured in
charges for the use of transmission facilities. For kilowatts (kW)
Ashland, these charges will be passed-through charges ENERGY COSTS - Costs that vary over an
by the control area operator. Ancillary services consist extended period of time. Measured in
of the following: kilowatt-hours (kWh)
• Mandatory Ancillary Service Charges: CUSTOMER COSTS - Costs that vary with
the number of customers on the system,
Reactive Supply and Voltage Control e.g. metering costs.
Regulation and Frequency Response
DIRECT ASSIGNMENT-Costs identified as
Service
Energy Imbalance Charges belonging to a specific customer or group
Operating Reserves Spinning of customers.
Operating Reserves Supplemental
Reactive Power Supply
City of Ashland Electric Department
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Power losses from use of transmission system
Distribution
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 line transformers that are jointly used and in
the public right-of-way.
Substations typically separate the distribution plant from the transmission system. The substation power
transformer "'steps down" the voltage to a level that is more practical to install on and under city streets.
Distribution circuits are divided into primary and secondary voltages with the primary voltages usually
ranging between 35 kV and 4 kV and the secondary below 4 kV.
Distribution Customer 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 have purchased, owned, and maintained
their own transformers that convert the voltage to the secondary voltage level. 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.
Customer-Related Services
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:
• Customer Services - The cost of providing personnel to assist customers with questions and
dispatch personnel to connect and disconnect meters.
• Billing and Collections-The cost of billing and collections personnel, postage, and supplies.
• Meter Reading -The cost of reading customers' meters.
• Meter Operation and Maintenance -The cost of installing and maintaining customer meters.
Administrative Services
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 City administrative expenses, property insurance,
and wages for higher level management of the utility.
City of Ashland Electric Department
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System Losses
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.
These losses are recovered from distribution customers through an analysis of the peak losses that occur
in the system. The average system losses and unaccounted for energy for Ashland are approximately
4.1%. (Typical municipal system losses are approximately 5.4%)
City of Ashland Electric Department
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4. Unbundling Process
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 $15.85M are separated into four categories identified in Table 12.
Table 12 - Breakdown of Ashland Cost Structure
Utility Costs
Power Supply $ 7,844,232
Distribution $ 4,406,582
Franchise Fee $ 1,472,671
Customer $ 2,118,448
$ 15,841,934
Ashland is projected to expend 49% of its total costs toward power supply. Distribution related costs are
28%; franchise fee is 10% and customer service 13%. These components are broken down into each of
the subcomponents and are identified in the following sections.
Distribution Breakdown
Distribution rates consist of a number of different components. Total distribution-related costs of 4.4M
for 2018 are broken down into the main components including substations, transformers, and distribution
lines. Figure 1 shows the breakdown of distribution components identified in the study.
Figure 1- Breakdown of Distribution Costs
Distribution Costs
Substations
27%
Distribution Lines
Transformers 56%
5%
Technology Debt
- Distribution
12%
Each of these components 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
City of Ashland Electric Department
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the electricity is used. Other factors are also considered, such as the length of line extensions to reach
certain customer classes.
Customer-Related Cost Breakdown
Ashland total expenses for customer-related costs are $2.12M for 2018. The cost is broken down
into the components identified in Figure 2.
Figure 2 - Breakdown of Customer Costs
Customer Costs
Services
6% Meter O&M
12%
Conservation
35% Meter Reading
16%
Customer PV
Service/Billing
31%
Power Supply Cost Breakdown
Power supply costs for 2018 were made up of purchased power expenses.
City of Ashland Electric Department
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5. Significant Assumptions
This section outlines the procedures used to develop the cost of service and unbundling study for Ashland
and the related significant assumptions.
Forecasted Operating Expenses
Forecasted expenses were based on 2014, 2015 and 2016, 2017 budget adjusted for power supply costs
and inflation. The table below is a summary of the expenses used in the analysis; the projected operating
expenses include an adjustment for any city contributions.
Table 13 - Projected Operating Expenses for 2018- 2022
Description Projected 2018 Projected 2019 Projected 2020 Projected 2021 Projected 2022
Operating Expenses:
Purchases
Electric - Supply $ 6,886,756 $ 6,901,972 $ 7,055,024 $ 7,349,618 $ 7,361,940
Electric - Transmission 957,477 957,477 976,626 1,015,691 1,015,691
Total Power Supply Expense $ 7,844,232 $ 7,859,449 $ 8,031,651 $ 8,365,309 $ 8,377,631
Distribution
Electric - Distribution $ 3,500,018 $ 3,587,519 $ 3,677,207 $ 3,769,137 $ 3,863,365
Total Distribution Expense $ 3,500,018 $ 3,587,519 $ 3,677,207 $ 3,769,137 $ 3,863,365
Other Operating; Expenses (Revenues)
Admin - Conservation $ 739,153 $ 757,631 $ 776,572 $ 795,987 $ 815,886
Electric - Supply (non BPA) 97,990 100,440 102,951 105,525 108,163
Franchise Fee 1,472,671 1,476,518 1,480,277 1,483,415 1,486,556
Allocations
Central Service - Power Supply (non BPA) 385,060 394,687 404,554 414,668 425,034
Central Service - Distribution 857,095 878,522 900,485 922,997 946,072
Use of Facilities Charge - Distribution 133,250 136,581 139,996 143,496 147,083
Technology Debt - Distribution 541,300 541,300 541,300 541,300 541,300
Depreciation Expense 313,406 325,406 349,406 373,406 397,406
Total Other Operating Expenses $ 4,539,924 $ 4,611,085 $ 4,695,541 $ 4,780,793 $ 4,867,500
Total Operating Expenses $ 15,884,175 $ 16,058,053 $ 16,404,398 $ 16,915,239 $ 17,108,497
Operating Income $ (861,179) $ (991,725) $ (1,295,515) $ (1,769,941) $ (1,926,635)
Power supply costs from 2018 - 2022 are based on Ashland's current charges adjusted for system growth
factors and inflation.
Load Data
Load data is one of the most critical components of a cost of service study. Information from the billing
statistics were used to determine the usage patterns of each customer class after reconciling revenues
with financial statements to ensure a good basis for development of the study.
Annual Projection Assumptions
The kWh sales forecast is based on FY2016 actual adjusted for 0.0625% growth. Table 14 details growth,
inflation of expenses, changes in purchase power costs and interest earned on investments.
City of Ashland Electric Department
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Table 14 - Projection Annual Escalation Factors 2018- 2022
Purchase Purchase
Fiscal Power Power Investment
Year Inflation Growth Change Transmission Income
2018 2.5% 0.2% 6.0% 4.0% 0.5%
2019 2.5% 0.2% 0.0% 0.0% 0.5%
2020 2.5% 0.2% 2.0% 2.0% 0.5%
2021 2.5% 0.2% 4.0% 4.0% 0.5%
2022 2.5% 0.2% 0.0% 0.0% 0.5%
System Loss Factors
Losses occurring from the transmission and distribution of electricity can vary from year to year depending
upon weather and system loading.
Revenue Forecast
The revenue forecast was based on FY2016 usages adjusted for growth rate assumptions.
City of Ashland Electric Department
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6. Recommendations and Additional Information
We recommend that the utility move toward cost of service for each customer class.
The study indicates rate adjustments are needed to meet minimum cash and operating income targets.
To ensure the utility meets financial targets and remains financially stable, the rate track identified in
should be considered:
Table 15 - Recommended Rate Adjustments 2018- 2022
Projected Adjusted Target
Fiscal Rate Projected Projected Operating Operating Projected Cash Recommended
Year Adjustments Expenses Revenues Income Income Balances Minimum Cash
2018 6.90% $ 15,983,993 $ 16,021,174 $ 37,181 $ 514,397 $ 1,061,170 $ 3,050,128
2019 2.75% 16,200,713 16,496,007 295,294 534,255 1,064,512 3,097,882
2020 2.75% 161591,249 16,983,654 392,404 554,100 1,189,252 3,160,751
2021 2.75% 17,147,575 17,478,199 330,623 573,946 1,277,106 3,244,012
2022 2.75% 17,387,713 17,986,935 599,222 593,807 1,658,269 3,266,806
The cost of service study identified some customer classes are subsidizing other customer classes. We
recommend Ashland moves toward cost of service using a bandwidth of plus or minus 2%. Using the 6.9%
rate adjustment, this would result in no customer class given a rate increase greater than 8.9% and the
lowest increase would be 4.9%. Table 16 identifies the cost of service charges compared with the
projected current revenues for each class. Classes that indicate a lower % change than the total
percentage change are providing subsidy to other customer classes, conversely customer classes with a
higher % change than the total percentage are receiving subsidy.
Table 16 - Cost of Service Summary Results
Projected
Customer Class Cost of Service Revenues % Change
Residential Single-Phase $ 8,343,058 $ 7,410,275 12.6%
Seasonal Residential Single 75,378 60,785 24.0%
Telecommunications 73,981 68,342 8.3%
Outdoor Lighting 19,156 19,703 -2.8%
Commercial Service Single Phase 1,907,280 1,720,561 10.9%
Commercial Service Three Phase 3,333,918 3,168,263 5.2%
Governmental Service Single Phase 132,089 100,297 31.7%
Governmental Service Three Phase 475,225 438,354 8.4%
Municipal Service Single Phase 151,481 122,475 23.7%
Municipal Service Three Phase 440,310 479,332 -8.1%
Governmental Large Service 890,057 877,970 1.4%
Total $ 15,841,934 $ 14,466,358 9.5%
City of Ashland Electric Department
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Ashland may consider movements in the customer charges to move toward cost of service based customer
charges to help ensure fixed distribution charges are collected in the customer charge. Table 17 compares
the total cost: of service monthly customer charges with the current charges. By charging cost of service
rates for the monthly charge Ashland reduces it risk associated with power usage fluctuations due to
weather etc.
Table 17 - Customer Charge Comparison
Current Average Customer COS Monthly
Customer Class Charge Charge
Residential Single-Phase $ 9.62 $ 14.09
Seasonal Residential Single 9.62 16.50
Telecommunications 17.23 19.45
Commercial Service Single Phase 20.29 43.46
Commercial Service Three Phase 49.95 103.90
Governmental Service Single Pha! 17.23 51.68
Governmental Service Three Pha 101.01 155.98
Municipal Service Single Phase 18.79 58.97
Municipal Service Three Phase 54.72 127.75
Governmental Large Service 2,639.36 1,635.79
City of Ashland Electric Department
Cost of Service & Electric Unbundling Study Page 19
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185 Sun Meadow Ct.
Holland, MI 49424
Phone: 616-393-9722
Fax: 616-393-9721
Accountant's Compilation Report
Governing Body
City of Ashland Electric Department
The accompanying forecasted statements of revenues and expenses of the City of Ashland Electric
Department (utility) were compiled for the year ending December 31, 2018 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 the governing body and management 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
October 2016
Council Study Session
March 20, 2017'
Title: Team Ashland
Item Type: Informational
Requested by Council? No
From: John Karns Interim City Administrator
John.karns@ashland.or.us
Discussion Questions:
Does Council have questions regarding the proposed Team Ashland program?
Resource Requirements:
The cost for the program will be minimal. The program will provide T-shirts for the members
and some of the sessions will have refreshments provided. There will be staff time involved, and
perhaps some overtime incurred, depending on the time or day of the week for the presentations.
The Mayor and Council will be asked to participate during the first team meeting and are invited
to attend the last meeting (graduation).
Sug1jested Next Steps:
Staff will proceed with promoting the program and soliciting applications. The Mayor, Council
and previously identified community stakeholders will identify participants in the Team Ashland
program. Staff will begin developing and scheduling the agenda for the program. Staff
recommends starting the program at the beginning of the next fiscal year.
Policies, Plans and Goals Supported:
2. Promote effective citizen communication and engagement
2.1 Engage community in conversations about core services, desired service levels, and
funding mechanisms
2.3f Expand and promote those tools that are most effective, meaningful, and efficient for the
public to use for understanding an issue (fact gathering), enabling, participation, providing
avenues for input to Council and being made aware of decisions made.
BackLyround and Additional Information:
Team Ashland is a program intended to educate and inform residents about their local
government representatives, departments and programs; community associations; and current
community issues. The Program is designed to create an environment that would nurture and
encourage leadership, participation and responsibility by the City's citizenry. The vision of
Team Ashland is to develop and maintain an informed, energetic and diversified resource for
community leadership.
Page Iof2 CITY OF
ASHLAND
Through an application process, 18 residents (selected by; the Mayor (2), City Council (2 each),
Ashland School District (1), Southern Oregon University (1), Oregon Shakespeare Festival (1),
and Asante Ashland Community Hospital (1)) will form Team Ashland. Over a period of five
months Team Ashland members will meet on approximately eight occasions (evenings and
weekends) and actively participate in a variety of tours, presentations and demonstrations.
As residents are educated through the Team Ashland program, the positive results will benefit
the entire community as Alumni continue to seek out opportunities to participate and assist
existing civic and community organizations and agencies as well as City of Ashland
commissions and committees. The long-term benefits will embody an ever-expanding network
and resource of community leaders, as well as assist in building a stronger bridge of mutual trust
and respect between the community and its government.
Attachments:
Team Ashland promotional flyer
Page 2of2 CITY OF
ASHLAND
amA h an
F1 TQ s I d
Team Ashland is being developed to educate and inform residents about their local government
representatives, departments and programs; community associations; and current community issues.
The Program is designed to create an environment that would nurture and encourage leadership,
participation and responsibility by the City's citizenry. The vision of Team Ashland is to develop and
maintain an informed, energetic and diversified resource for community leadership.
Through an application process, 18 residents (selected by the Mayor (2), City Council (2 each), Ashland
School District (1), Southern Oregon University (1), Oregon Shakespeare Festival (1), and Asante
Ashland Community Hospital (1)) will form Team Ashland. Over a period of five months Team Ashland
members meet on approximately eight occasions (evenings and weekends) and actively participate in a
variety of tours, presentations and demonstrations. Highlights of the program include:
• Lectures by City officials and representatives (Mayor and City Councilmembers, City Administrator,
City attorney, City Department Heads from Community Development, Police Department, Fire
Department, Administrative Services, Information Technology/AFN, Public Works, Parks and
Recreation, the Municipal Court, and Electric departments); as well as community, and local
business leaders
• Open dialogue with City officials, City representatives and community/business leaders in order to
enable and offer participants an understanding of issues, opportunities and challenges facing the
City
• Presentations and interactive demonstrations
• Walking and driving tours of City facilities
• Informal gatherings (for networking between Team members, City officials and representatives, and
community/business leaders)
• Recognition and graduation program for current Team members
Objectives
• To build a resource of involved citizens for future commissions, committees, programs and projects
for the benefit of the Ashland community.
• To develop, nurture and utilize leadership potential within the community.
• To familiarize residents with all aspects of government, business, and service industries.
• To involve residents in community activities, projects and endeavors.
As residents are educated through the Team Ashland program, the positive results will benefit the entire
community as Alumni continue to seek out opportunities to participate and assist existing civic and
community organizations and agencies. The long-term benefits will embody an ever-expanding network
and resource of community leaders, as well as assist in building a stronger bridge of mutual trust and
respect between the community and its government.
- Team Ashland
2017 APPLICATION Date:
Name
Address (no P.O. Box)
Email
Daytime phone
Evening phone
Fax
How long have you lived in Ashland
Occupation
List community service within Ashland over the last five years
Why would you like to participate in Team Ashland?
How did you hear about Team Ashland?
Please send applications to:
Applications are due no later than:
n n dj
1!: -1 Team Ashlan
SCHEDULE
July 00 - Orientation with Mayor Stromberg, City Councilors, City Administrator
July 00 - Public Works
August 00 -Administrative Services and Community Development
August 00 - Police Department and Municipal Court
September 00 - Fire Department
September 00 - IT/AFN/Electric Department
October 00 Parks and Recreation
October 00 - Program Conclusion and Graduation
Team Ashla-n'
Frequently Asked Questions
FAQ - How many people are there on Team Ashland?
Answer: Through an application process, 18 residents are selected to participate. The City Council and
community stakeholders select team members. Approximately eight "sessions" occur from approximately July
through October
FAQ - Where can I get more information about Team Ashland?
Answer: A description about Team Ashland can be found on the City's website Team Ashland. If you have
additional questions, please email: diana.shiplet@ashland.or.us
FAQ - What criteria are used to select members for Team Ashland?
Answer: Each applicant must submit an application, and ONLY residents are allowed to participate in Team
Ashland. Being an Ashland resident is the only requirement for participation.
FAQ - How many meetings are there in the Team Ashland program?
Answer: Team Ashland participants are asked to attend eight sessions (Monday - Thursday weeknights and/or
weekend days) over a period of approximately five months). Each class/session is approximately 3 hours. The last
session includes a "graduation" ceremony.