HomeMy WebLinkAboutAgenda Report - November 2, 2005 L-01bAGENDA ITEM L7 1 iD
CITY OF LODI
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AGENDA TITLE: After Second Reading of Ordinance 1765, Approve Relsolution Establishing
Market Cost AcQuatment(s) to be effective December 2, 2005 (EUD)
MEETING DATE: November 2, 2005
PREPARED BY: Interim Electric Utility Director
RECOMMENDED ACTION: After Second Reading of Ordinance 1765, Approve Resolution
Establishing Market Cost Adjustment(s) to be effective December 2,
2005.
BACKGROUND INFORMATION: On October 18, 2005, the financial status of the Electric Utility was
reviewed with the City Council at a Shirtsleeve Session. This review
demonstrated that:
• Purchased power expenses had increased by 29% over the prior year;
• The utility had been operating in a deficit condition (expenses exceeding revenues) since FY03,
relying on fund balances (savings) to make up for the difference between revenues and expenses;
• Operating expenses would exceed revenues by $9.2 million and all remaining fund balances (savings
accounts) available to the electric utility would be eliminated during the current fiscal year if a Market
Cost Adjustment to rates was not put in place; and
• Delays in implementing the Market Cost Adjustment would cause the electric utility to incur losses of
approximately $800,000 per month that would need to be made up through higher increases to all
customers of approximately 1.2% per month for each month of delay in implementing the MCA.
On October 19, 2005, the City Council was presented with the financial information described above for a
second time, along with information that set out the Market Cost Adjustment for each class of customer
and an assessment of the effect of the recommended Market Cost Adjustment on the average customer
within each rate class (See attached summary, Table 1). As part of the October 19, 2005 council
meeting, the City Council also received feedback from the public, including the large industrial customers
slated to receive the largest increases, that the magnitude of the increase was too large, and the timing
of the increase with such short notice significantly and adversely impacted their budgeting and planning
processes.
After hearing from staff and the public, and deliberating on staff and public comments, the City Council
approved the first reading of Ordinance 1765, which would allow implementation of a Market Coat
Adjustment through resolution, and directed staff to modify the originally recommended Market Cost
Adjustment to reflect:
1. The recommended MCA for the li rate class should be reduced by 50%; and
2. No customers should receive a decrease in their bill as a result of the Market Cost Adjustment to
reflect the principle that the entire community would help to solve the financial problem facing the
electric utility.
APPROVED:
r King, City Manager
After Second Rending of Ordinance 1766, Approve Resolution Establishing Market Cost
Adjustment(*) to be effective December 1, 2005 (EUD)
Page 2 of 2
November 2, 2005
Issue:
Staff is working on a new Market Cost Adjustment (MCA) table to reflect the policy direction expressed by
City Council on October 19, 2005; this new table (and associated Resolution) will be distributed in
advance of the November 2 Council meeting. For the residential class, the previous winter/summer spit
has been reduced to a winter MCA that will be applied to residential customer bills such that the end
result is that no customer will see a decrease in billing as a result of the MCA and to reflect the fact that
the long term rate structure will be put in place before the summer MCA would be applicable. For the
industrial class (11 customers) the recommended MCA has been reduced by 50%. The new table will
show the effect of these MCA modifications on an annualized basis on the average customer in each
class.
Longer term, the 11 customers have agreed to fund a study that will quantify the economic benefits of
industry in Lodi, such that the City Council can make an informed policy decision that incorporates the
economic benefits of industry when the Council is asked to approve the long-term rate structure for
industrial customers in Lodi towards the end of December.
FISCAL WPACT: The fiscal impact of this action will be to reduce the imbalance between revenues
and expenses as described in the body of this staff report.
FUNDING: Increased sales revenue associated with this action flow to the "Electric Operating
Revenue" accounts.
r
es R. Krueger, Finance 6irector
LA.,
Nfid D ham
Int rim Electric Utility Director
DD/1st
Attachment
cc: Citi Attorney
Finance Director