WINDOM ELECTRIC UTILITY: RATE STUDY Tim Miller Manager, Financial Analysis & Rates Missouri River Energy Services December 30, 2015
Study Highlights 2 Proposed overall rate increases 3.5% in 2016, 2017, & 2018 Percentage impacts vary by customer and class Reasons for increases Reduced income due to beef plant closing Normal inflationary increases for local costs Capital expenditures Proposed rate details Increase customer charges Commercial and Industrial class changes Increase municipal and street lights rates to reflect costs of service Windom rates below other utility medians
Electric Definitions 3 Peak Demand (kw) maximum rate of power delivery, measured in a defined time period such as 30 minutes, expressed in 1,000 watt units. Energy (kwh) power multiplied by time. Usage of ten 100-watt light bulbs for one hour equals one kwh. One megawatt-hour (MWh) = 1,000 kwh. Load Factor average demand divided by peak demand. Higher load factor indicates more consistent use of power and the distribution system. Typically Higher Load Factors Grocery stores, medical facilities, businesses w/ multiple shifts. Typically Lower Load Factors Homes, schools, grain elevators, businesses with one shift or intermittent equipment. Customers billed for demand and energy higher load factor results in lower total cost per kwh
Electric Definitions (continued) 4 Single Phase Customer is served by one voltage source. Used by most residential and smaller commercial customers. Three Phase Customer is served by three voltage source. Generally used by commercial and industrial customers with larger loads and/or large motors.
Historical and Forecasted Energy Requirements - Megawatt-hours (MWh) MWh 5 80,000 75,000 70,000 65,000 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000-2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 MWh 72,838 72,336 74,543 72,323 70,547 73,471 73,389 71,657 70,035 71,064 67,800 57,200 57,372 57,544 57,716
Forecasted Energy by Source- Megawatt-hours (MWh) 6 MWh 80,000 75,000 70,000 65,000 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2015 2016 2017 2018 2019 Local Production 15 15 15 15 15 Other 7,071 (135) 143 315 487 WPPI 3,700 3,700 3,700 3,700 3,700 Xcel Energy 11,120 7,620 7,620 7,620 7,620 NC2 9,400 9,400 9,400 9,400 9,400 WAPA 36,494 36,600 36,494 36,494 36,494
Energy Consumption by Class 7 PROJECTED 2016 ENERGY CONSUMPTION 2% 1% Residential 35% Residential Heat Commercial 46% Industrial 1% Municipal 15% Street Lights
Windom - Cost Breakdown 8 7% 4% Purchased Power / Transmission 10% Capital Expenditures Salaries & Benefits 14% 65% Other Operating Expenses Transfers
Purchased Power Supply - WAPA 9 WAPA Rates: Rates stable since 2010 No increases assumed through 2019 Drought costs Currently 35% of total rate Cost to Windom customers $413,000 in 2016, or 8.2% of metered sales
Historical and Projected Power & Transmission Costs - Cents per kwh 10 Year WAPA Nebraska City 2 Xcel Energy 5 x 16 Contract Xcel Energy TOD 2011 3.2 4.2 N/A 2.7 (& NSP 55) WPPI ITC Transmission Total Cost Per kwh N/A 1.5 5.2 2015 3.2 4.1 6.7 4.5 6.0 1.9 6.0 2016 3.2 4.1 4.6 4.6 6.1 1.9 6.0 2017 3.2 4.2 4.6 4.7 6.2 2.0 6.1 2018 3.2 4.2 4.6 4.8 6.3 2.0 6.1 2019 3.2 4.3 4.6 4.9 6.4 2.0 6.2
Other Operating Expenses/Capital Expenditures 11 Other Operating Expenses Based on operating budgets for 2015-2019 Inflationary increases of 3% per year with a few adjustments Capital Expenditures Total of $4.1 million from 2015 to 2019 Includes substation project of $2 million Assumes all funded by revenues and reserves Amounts Due from Other Funds Total of $1.54 million at end of 2014, mostly telecom Study assumed entire amount would be available if needed
Transfers and Discounted Cost Service Percentage of Operating Revenues 12 7% 6% 5% 4% 3% 2% 1% 0% Windom - Proposed 2018 Investor- Owned National Median Windom - Current Rates APPA Municipal National Median 68 Area Utilities - Median Transfers 3.8% 4.2% 4.6% 5.5% 6.0%
Historical & Projected Income (Loss) 13 Thousands of Dollars $400 $350 $300 $250 $200 $150 $100 $50 $0 ($50) ($100) ($150) ($200) ($250) ($300) 2011 2012 2013 2014 2015 2016 2017 2018 2019 Current $341 $266 $258 $189 $100 $(163) $(257) $(224) $(249) Proposed $(12) $39 $228 $207
Historical & Projected Cash Reserves Thousands of Dollars 14 $7,000 $6,500 $6,000 $5,500 $5,000 $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Current 2,117 2,419 3,122 3,552 4,153 4,791 5,181 5,331 5,666 5,725 4,908 3,256 3,121 2,961 Proposed 5,060 3,702 4,019 4,315
Cash Reserves Percentage of Operating Revenues 15 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 68 Area Utilities - Windom - 2006- Windom - 2019 Windom - 2014 Median 2014 Average Proposed Reserves 52.0% 72.0% 78.0% 97.0%
Major Cost Types and Rate Designs 16 Residential Commercial (Non-Demand) Industrial (Demand-Billed) Customer Costs Customer Charge Customer Charge Customer Charge Demand Costs Energy Rate Energy Rate Demand Rate Energy Costs Energy Rate Energy Rate Energy Rate Customer Costs Billing, meter reading and maintenance, portion of facilities costs Demand Costs Costs related to serving customer peak loads; fixed costs Energy Costs Variable costs such as fuel Bills from WAPA Demand & Energy Rates
Cost-of-Service Results 17 Allocates costs to each class; compare with revenues Customer Class Cost per kwh (cents) Revenue per kwh (cents) Cost Less Revenue Increase Residential 10.8 9.1 1.7 18.9% Commercial 10.8 9.8 1.0 10.1% Municipal 10.9 8.2 2.7 33.0% Industrial 8.9 8.6 0.3 3.2% Street Lights 10.5 8.2 2.3 27.9% Overall 9.9 8.9 1.0 10.8%
Rate Recommendations 18 Municipal usage: Bill city meters at regular rates Special street lighting rate based on costs of service Total increase of 13.9% over three years Increase monthly customer charges Reflect fixed costs of providing service Prepare for more customer distributed generation 100 area utilities average residential charge = $11.00
Industrial Class Changes 19 Change threshold from 75 kw to 50 kw Median threshold is 35 kw Eight customers move from Commercial, seven from Municipal Increase demand rate; charge single energy rate Set the primary voltage discount to 2% of demand and energy charges, including PCA Reduce the minimum billing demand from 50% to 40% in 2017 and 30% in 2018
Commercial Class Changes 20 Charge lower rate for energy usage over 8,000 kwh Implement separate customer charges for single and three phase customers Monitor demand readings for customers exceeding 5,000 kwh per month
Power Cost Adjustment (PCA) 21 Increased base factor from 4.55 cents to 5.5 cents Proposed calculation: Purchased power + Generation fuel = Total Power Costs (Total kwh purchased + Total kwh produced) x 95% = Total kwh Total Power Costs / Total kwh = Power Costs per kwh Power costs per kwh less 5.5 cent PCA base = adjustment for next billing MRES suggests providing credit if calculation indicates negative adjustment
Power Cost Adjustment Historical and Projected Annual Averages 22 $0.020 $0.018 $0.016 $0.014 $ / kwh $0.012 $0.010 $0.008 $0.006 $0.004 $0.002 $0.000 2011 2012 2013 2014 2015 2016 2017 2018 2019 Current $0.0071 $0.0071 $0.0131 $0.0112 $0.0160 $0.0163 $0.0169 $0.0175 $0.0180 Proposed $0.0085 $0.0090 $0.0096 $0.0101
Proposed Percentage Increases 23 2016 2017 2018 Total Overall Increase 3.5% 3.5% 3.5% 10.8% Residential 4.7% 4.6% 4.7% 14.7% Commercial - remaining in class 3.0% 3.0% 3.0% 9.2% Commercial - moving to Industrial 2.4% 4.5% 4.5% 11.8% Total/Overall Commercial 2.9% 3.2% 3.2% 9.6% Municipal - remaining in class 10.0% 10.7% 10.5% 34.5% Municipal - moving to Industrial 4.4% 1.3% 1.3% 7.1% Street Lighting 8.6% 8.6% 8.9% 28.3% Total Municipal with Lighting 5.7% 3.7% 3.9% 13.9% Industrial 1.7% 2.4% 2.3% 6.5%
Proposed Rates Residential, Commercial 24 Current Rates Current w/pca 2016 Proposed Rates 2016 Proposed w/pca 2016 % 2018 Proposed Rates Total % Residential: Customer Charge In City Limits Outside of City Limits Energy Charge per kwh: $3.52 10.54 0.0699 0.0859 $5.70 14.00 0.079 0.0875 4.7% $12.00 24.00 0.079 14.7% Commercial Below 50 kw Customer Charge Single Phase Three Phase Energy Charge per kwh: First 2,000 kwh Next 6,000 kwh Over 8,000 kwh 11.74 11.74 0.0807 0.0753 0.0699 0.0967 0.0913 0.0859 15.00 20.00 0.086 0.086 0.081 0.0945 0.0945 0.0895 3.0% 21.00 29.00 0.088 0.088 0.083 9.2%
25
26
27
Proposed Rates Municipal, Industrial 28 Current Rates Current w/pca 2016 Proposed Rates 2016 Proposed w/pca 2016 % 2018 Proposed Rates Total % Municipal: Customer Charge Energy Charge per kwh: $- 0.0655 0.0815 $9.00 0.076 0.0845 10.0% Move to Commercial 34.5% Industrial-50 kw or more Customer Charge Demand Charge per kw: Energy Charge per kwh: All kwh First 30,000 kwh Over 30,000 kwh - 4.87 0.0591 0.0559 0.0751 0.0719 25.00 6.95 0.060 0.0685 1.7% 45.00 13.30 0.046 6.5%
29
30
31
Proposed Rates Lighting 32 Current Rates Current w/pca 2016 Proposed Rates 2016 Proposed w/pca 2016 % 2018 Proposed Rates Street Lighting Energy Charge 0.0655 0.0815 0.080 0.0885 8.6% 0.095 28.3% Security Lighting 100 Watt HPS 400 Watt HPS 8.00 18.00 8.00 18.00 0.0% 0.0% 8.00 18.00 Total % 0.0% 0.0%
Proposed 2016 Rate Impacts 33 Residential Average at 800 kwh - $3.46 / month (4.8%) Heating customer at 2,800 kwh - $6.66 / month (2.7%) Commercial Single Phase small decrease, or increase up to 2% Three Phase increases of 2.5% to 3.6% Industrial Small decrease, or increase up to 4% (most customers) Higher load factor = lower percentage impact
Summary 34 Recommendations: 10.8% overall revenue increase over three years Impacts vary by customer and class Continue to monitor cash balances and income MRES can assist with changes as necessary Results of Recommendations: Rates closer to costs of service Rates reflect purchased power costs Competitive rates for all customers Financial position should remain strong