HomeMy WebLinkAboutAgenda Report - November 16, 2005 K-02AGEMOA ITEM
4DCTTY OF LODI
COUNCIL COMMUNICATION
TM
AGENDA TITLE: Adopt resoltction es"Wishino (Market Cost Adjustments to be of eadve
December 2, 2005 (EUD)
MEETING DATE: November 16, 2006
PREPARED BY: Mberlm Electric Uta ty Director
RECOMMENDED ACTION: That the City Council adopt a resolution establishing Market Cost
Adjustments 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 Shirtslseve Session. This review
demonstrated that:
• Purchased power expenses had increased by 29% over the prior years cost of power;
• 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 Marie 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. 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 Cost
Adjustment through resolution, and directed staff to modify the originally recommended Market Cost
Adjustment to reflect:
1. The recommended MCA for the 11 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 ufility.
On November 2, 2005 City Council approved the second reading of Ordinance 1765, which will eliminate
the Market Cost Adjustment, which has been in effect since 2002, and which further provides that all
APPROVED: "-Z210�
Blair K16g, City Manager
Adopt revokOw 9@ftbftWg Mrsd Cost A01b be e(feefte December 2, 2005 JNUD)
Novernb46, 21105
Page 2 of 3
future Market Cost Adjustments will be implemented by Resolution. Council also received a presentation
and materials that previewed the new Market Cost Adjustment (MCA) table reg0ired to reflect the policy
preferences expressed by City Council on October 19, 2005, along with two alternative proposals
presented by staff.
After deliberation, the City Council expressed Its policy preference that staff develop a set of Market Cost
Adjustments that reflects the following:
• The MCA for the 11 classes be set at 50% of level recommended by staff on October 19,'2005;
• The reduction in revenues arising from the 50% MCA level established for the 11 class be
recovered in the following manner:
o Up to $500,000 is to be collected from the residential EA class provided that the group of
customers receiving no Increase under Council's October 19, 2005 expressed policy
preference would see no more than a 10% increase in their bills; and
o The remaining shortage (approximately $1,000,000) is to be collected by identifying other
savings throughout the city or other revenue sources and presented to Council as part of
the mid year budget adjustment process.
Issue:
The Market Cost Adjustment reflecting the policy preferences expressed by City Council at its last
meeting, and described above, is attached. For the residential class, the previous winter/summer split
was redacted to a winter MCA that will be applied to residential customer bills to reflect the fad that the
long -terra rate structure will be put in place before the summer MCA would be applicable. A row table,
showing the effect of these MCA modifications on an annualized basis on the average customer in each
class is attached.
Next Steps:
As described at the lag counci meeting, the next two activities to address the long-term financial
condition of the Electric Utility include the cost of service study/ "rate true up" and the risk management
prOgrem-
Cost of Ag AMY
The cook of service study will form the basis for updating the qty's overall rale structure~. This updating
has previou* been referred to as "trukV up" the rates_ The primary goal of the update is to bring the
base rains unto alignment with actual 0008 and redistribute the amount of revenue that is recovered
through the base rate as opposed to through the Market Cost Adjustment. A second goal will be to review
and realfirm or modify historical policy preferences regarding the application of discounted rates. The
third and final goal will be to design a rate structure to implement the Council's policy preferences,
including any transitional features should those be necessary.
Risk Ntenaglatortrt eMram
The risk marwgswreent program, which constitutes the final phase of addressing Lodi Electric's long-term
financial condition, we:
• lderttify standardized reports that will be provided to city council that are necessary to ensure
overnight of the electric utility;
• Establish the frequency, method and individual responsible for preparation and transmission of the
standardized reports;
• Establish procurement strategies:
o Recommended amounts of energy to procure on an advance basis vs. the spot market;
o Recommended amounts of energy to procure through contract vs. ownership;
a Recommended term lengths for procurement conbv ts; and
o Authorization limit$, checks and balances associated with procurement authorizations.
• Reoommendations for implementing the risk management program.
Adopt r errbli M" Mrrtwt Cort Adl&wb ft to be oftcdve Member 2, 2006 ieUal
Movanber'46, =5
Prge 3 of 3
FISCAL IMPACT: The fiscal impact of this action will be to reduce the imbalalnce 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
jR enue" accourrt.
ea R. Krueger, Finance Director
Vj!Mtf
Interim Electric Utility Director
DDASt
Attachments (4)
cc: CityAMorney
Finafte Mdor
Attachment 1
MARKET COST ADJUSTMENT BILLING FACTOR
The Market Cost Adjustment Billing Factor by designated rate schedule,
in cents per kilowatt-hour, shall be shown in the Section.
Certain classes may have a tiered MCABF by level of monthly consumption.
EA
Tier kWh cents per kWh
1 0-50 2.60
2 51-300 2.90
3 301-400 4.10
4 401-508 4.90
5 509-600 4.90
6 601-781 6.50
7 782-900 13.20
8 901-1,171 17.60
9 >1,171 19.00
EE
Tier kWh cents per kWh
1 0-50 1.75
2 51-300 1.75
3 301-600 3.25
4 601-900 4.90
5 901-952 5.75
6 953-1,237 5.75
7 1,238-1,903 7.10
8 1,904-2,855 13.00
9 >2,855 20.00
ED
Tier kWh cents per kWh
1 0-50 1.40
2 51-300 1.40
3 301-400 2.60
4 401-508 2.60
5 509-600 2.60
6 601-781 8.00
7 782-900 12.00
8 901-1,171 12.80
9 >1,171 15.20
EF
Tier kWh cents per kWh
1 0-50 1.40
2 51-300 1.40
3 301-600 2.60
4 601-900 3.92
5 901-952 4.60
6 953-1,237 4.60
7 1,238-1,903 5.68
8 1,904-2,855 10.40
9 >2,855 16.00
Class Type cents per kWh
ES All 0.94
EM All 6.98
EL All 1.00
Commercial/industrial
Class Type cents per kWh
G1 All 4.09
G2 All 4.83
G3 All 4.46
G4 All 3.36
G5 All 2.80
11 <4,000 kW 3.12
11 >4,000 kW 2.50
effective MCA for 11 < 4000 kw is 1.56
Attachment 2
Effect of Interim MCA on Average Customer Bill
System 1 25,633 1 453,117,023
Number of
Customers
Lodi Annual Kwhr
Average
Consumption
10/19/2005
Increase in Avg
Bill
11/2/2005
Increase in Avg
Bill
EUD Proposal
11/2/2005
Increase in Avg
Bill
As Modified
Equivalent
Residential Units
EA
19,128
134,010,453
584
$11.09
$15.30
$13.15
EE
610
3,550,200
485
$13.63
$13.63
$13.63
ED Share
1,731
9,658,833
465
$5.35
$5.35
$5.35
EM Domestic
490
2,634,762
448
$31.32
$31.32
$31.32
Residential
21,959
149,854,248
G1
3,032
42,511,770
1,168
$13.32
$13.32
$13.32
2
G2
395
108,902,370
22,975
$480.18
$480.18
$480.18
39
G3 Small
8
13,092,777
136,383
$3,586.88
$3,586.88
$3,586.88
234
G4 Medium Industrial
8
21,224,562
221,089
$3,493.21
$3,493.21
$3,493.21
379
Dusk to Dawn
96
414
-
$0.00
$0.00
$0.00
0
City ES
122
8,068,421
5,511
$0.00
$0.00
$0.00
0
Commercial
3,661
193,800,314
G5
4
11,119,420
231,655
$3,474.82
$3,474.82
$3,474.82
1-1 General Mills
1
36,643,139
3,053,595
$76,034.51
$76,034.51
$76,034.51
Contract Medium
3
4,980,041
138,334
$5,256.71
$5,256.71
$5,256.71
Contract Large
5
56,719,861
945,331
$21,553.55
$21,553.55
$21,553.55
Industrial
1 131
109,462,461
System 1 25,633 1 453,117,023
Attachment 3
Comparison of Average Rates, Average Bills and Average Monthly Increases based on Councils expressed preferences versus the original EUD proposal
System 1 25,633 453,117,023
Number of
Customers
Lodi Annual
KWh
Average
Consumption
Current
Avg Rate Avg Bill
10/19/2005
Avg Rate Avg Bill
11/2/2005
Avg Rate Avg Bill
10/19/2005 11/2/2005
Avg Monthly Avg Monthly
Increase Increase
Equivalent
Residential Units
EA
19,128
134,010,453
584
0.14651
$ 85.53
0.1655
$ 96.62
0.1690
$ 98.68
$ 11.09
$ 13.15
EE
610
3,550,200
485
0.12971
$ 62.90
0.1578
$ 76.53
0.1578
$ 76.53
$ 13.63
$ 13.63
ED Share
1,731
9,658,833
465
0.08421
$ 39.15
0.0957
$ 44.50
0.0957
$ 44.50
$ 5.35
$ 5.35
EM Domestic
490
2,634,762
448
0.07921
$ 35.49
0.1491
$ 66.81
0.1491
$ 66.81
$ 31.32
$ 31.32
Residential
21,9591
149,854,248
G1
3,032
42,511,770
1,168
0.1545 $ 180.52
0.1659
$ 193.84
0.1659
$ 193.84
$ 13.32
$ 13.32
2
G2
395
108,902,370
22,975
0.1287 $ 2,956.91
0.1496
$ 3,437.09
0.1496
$ 3,437.09
$ 480.18
$ 480.18
39
G3 Small
8
13,092,777
136,383
0.1172 $ 15,984.10
0.1435
$ 19,570.97
0.1435
$ 19,570.97
$ 3,586.88
$ 3,586.88
234
G4 Medium Industrial
8
21,224,562
221,089
0.1074 $ 23,744.98
0.1232
$ 27,238.19
0.1232
$ 27,238.19
$ 3,493.21
$ 3,493.21
379
Dusk to Dawn
96
414
$
City ES
122
8,068,421
5,511
0.0944 $ 520.26
Commercial
3,661
193,800,314
G5
4
11,119,420
231,655
0.0991
$ 22,956.97
0.1141 $ 26,431.79
0.1141
$ 26,431.79
$ 3,474.82
$ 3,474.82
1-1 General Mills
1
36,643,139
3,053,595
0.0642
$196,040.79
0.0891 $272,075.31
0.0891
$272,075.31
$ 76,034.51
$ 76,034.51
Contract Medium
3
4,980,041
138,334
0.0852
$ 11,786.10
0.1232 $ 17,042.81
0.1232
$ 17,042.81
$ 5,256.71
$ 5,256.71
Contract Large
5
56,719,861
945,331
0.0621
$ 58,705.06
0.0849 $ 80,258.60
0.0849
$ 80,258.60
$ 21,553.55
$ 21,553.55
Industrial
13
109,462,461
System 1 25,633 453,117,023
Attachment 4
Summary of revenue changes and overall rate impacts associated with MCA increase
System 1 $ 53,714,229 1 453,117,0231 $ 0.1185 1 $ 0.1395 1 17.67%1 $ 63,207,115
Lodi
Current
Revenue
Lodi
Energy
KWh
Current Lodi
Average Rate
$/kwh
Proposed
Lodi Avg Rate
$/kwhr
%
Change
Revenue
at
Proposed Rate
EA
$
19,637,674
134,010,453
$
0.1465
$
0.1690
15.33%
$
22,648,948
EE
$
460,503
3,550,200
$
0.1297
$
0.1578
21.68%
$
560,347
ED Share
$
813,324
9,658,833
$
0.0842
$
0.0957
13.65%
$
924,337
EM Domestic
$
208,802
2,634,762
$
0.0792
$
0.1491
88.09%
$
392,735
Residential
$
21,120,303
149,854,248
$
0.1409
$
0.1637
16.13%
$
24,526,367
G1
$
6,568,419
42,511,770
$
0.1545
$
0.1659
7.39%
$
7,054,106
G2
$
14,016,962
108,902,370
$
0.1287
$
0.1496
16.23%
$
16,291,675
G3 Small
$
1,534,402
13,092,777
$
0.1172
$
0.1435
22.47%
$
1,879,240
G4 Medium Industrial
$
2,280,317
21,224,562
$
0.1074
$
0.1232
14.69%
$
2,615,360
Dusk to Dawn
$
34,228
414
NA
NA
$
37,651
City ES
$
761,616
8,068,421
$
0.0944
NA
NA
$
837,778
Commercial
$
25,195,944
193,800,314
$
0.1300
$
0.1482
13.97%
$
28,715,810
G5
$
1,101,384
11,119,420
$
0.0991
$
0.1141
15.15%
$
1,268,226
1-1 General Mills
$
2,351,642
36,643,139
$
0.0642
$
0.0891
38.85%
$
3,265,270
Contract Medium
$
424,520
4,980,041
$
0.0852
$
0.1232
44.55%
$
613,657
Contract Large
$
3,520,437
56,719,861
$
0.0621
$
0.0849
36.85%
$
4,817,785
Industrial
$
7,397,983
109,462,461
$
0.0676
$
0.0910
34.70%
$
9,964,939
System 1 $ 53,714,229 1 453,117,0231 $ 0.1185 1 $ 0.1395 1 17.67%1 $ 63,207,115
RESOLUTION NO. 2005-247
A RESOLUTION OF THE LODI CITY COUNCIL
IMPLEMENTING AND ADJUSTING THE MARKET
COST ADJUSTMENT FOR ELECTRIC RATES
WHEREAS, the Council of the City of Lodi finds as follows:
1. The City of Lodi provides electricity to its citizens through the Lodi Electric Utility
Department;
2. The City charges customers of this utility a charge to fund the on-going operation
and maintenance of the electric supply;
3. Wholesale electric costs have experienced severe volatility in the 2005-06 budget
year and price volatility is expected to continue into the 2006-07 budget year;
4. The net cost for the cost increases in the 2005-06 budget year has to date been
borne by the Electric Utility Department's reserves and will, if left unchecked,
ultimately leave the account in a significant deficit;
5. The Lodi Municipal Code authorizes the City Council to impose by resolution a
Market Cost Adjustment to address cost spikes in the wholesale electric market
(Lodi Municipal Code Section 13.20.175).
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Lodi as follows:
Section 1. Recitals. The foregoing recitals are true and correct.
Se-dion 2. Levyof Chargs. Pursuant to Section 13.20.175 of the Lodi Municipal Code,
the PAarket Cost Adjustment for electric rates is hereby implemented in the amounts shown on
Exhibit "A" attached hereto and made a part of this Resolution.
5@9tion . Eff@qtive Qate. This resolution shall take effect on December 2, 2005.
Dated: November 16, 2005
___________ ---------
I---_--_-_
I hereby certify that Resolution No. 2005-247 was passed and adopted by the City Council of
the City of Lodi in a regular meeting held November 16, 2005, by the following vote:
AYES: COUNCIL MEMBERS -- Hansen, Hitchcock, and Johnson
NOES: COUNCIL MEMBERS - Mounce and Mayor Beckman
ABSENT: COUNCIL MEMBERS - None
ABSTAIN: COUNCIL MEMBERS - None
SUSAN J. BLA KSTON
City Clerk
2005-247
Attachment 1
MARKET COST ADJUSTMENT BILLING FACTOR
The Market Cost AdjustineM Billing Factor by designated rate schedule,
in cents per Idbwatt-hour, shall be shown in the Section.
Certain classes may have a tiered MCABF by levet of monthlycornu ion.
EA
Tier kWh
1 0-502
51-3003
74.90
301-4004
401-506
5 509-600 4.90
6 601-781 6.50
7 782-900 13.20
8 901-1,171 17.60
9 >1,171 19.00
BE
Cents
TierE301-OW
1 1.75
2 1.75
3 3.25
4 4.90
5 5.75
6 5.75
7 7.10
8 5 13.00
9 20.00
ED
T1W kWh ants W kWh
1 0-50 1.40
2 51-300 1.40
3 301-400 2.30
4 401-508 2.60
5 509-600 2.60
6 601-781 8.00
7 782-900 12.00
8 901-1,171 12.80
9 x1,171 15.20
F
Tier kWh carts et kWh
1 0-50 1.40
2 51-300 1.40
3 301-600 2.60
4 601-900 3.92
5 901-952 4.60
6 953-1,237 4.60
7 1238-1903 5.68
8 1,904-2,$W 10.40
9 >2,655 16.00
Clap Type cwft per kVft
ES AN 0.94
EM AN 0.71
EL All 1.00
Correrrerd�ilntluetrtai
Cimm
Gi AN
G2 All
M4.46
G3 All
G4 All
G5 All 2.80
11 <4,000 kW 3.12
11 >4,000 kW 2.5D
effective MCA for 11 c 4000 kw is 1.56
�-a
Aftchownt 1 whngds to N"" tionw
MAMET COW ADJUSTMENT BILLING FACTOR
The M M MOM MV ,, ,
in awls per -hour, shot be shown in Om Seebon_
Certain may have a tiered MCABF by kiwl of rrrr
IFA
kWh OM1111
2.00
2 51-300 2.50
3 301 4.10
4 401-508 4.90
5 509.800 4.90
6 601-781 6.50
7 7824XC 13.20
8 901-1,171 17.80
S >1,171 19.00
Ttwor vft comb 12 Wk
1.75
2 51-3w 175
3 301 -OW 3.25
4 80100 4.90
5 901-M 5.75
6 953-1,237 5.75
7 1,238-1,PW 7.10
8 1,904-2-W5 13.00
9 >2 WS 20.00
Tbr Wo coft ow
1,40
2 51-300 1.40
3 301.400 2-80
4 401-M 2.80
5 509+600 2.80
6 801-781 8.00
7 M -W 12.00
$ 901-1171 12.80
9 >1,171 15.20
Tbr rah eaNt!
1 1.40
2 51-300 1.40
3 301.600 2.80
4 601,900 3.92
5 901-M 4.80
6 1 a7 4.60
7 1,4-311-1903 5.88
8 11904-2 855 10.40
9 >2A 16.00
pWWh
ES AN 1 0.94
EM AN
lL M 1.00
cuMe
Gi AN 4.09
G2 AN 4.83
G3 AN 4.46
G4 AN 3.38
G5 AN 2.80
11 -4,000 kW 3.12
11 1 >4,000 M 2.50
arwnum wtuA mr 17c 4uw RMI rs i .w