HomeMy WebLinkAbout15 Electric and Water Rate Designenda Item #
ACTION
To: Board of Directors
From: Jeremy Popov
Date: June 01, 2016
Subject: Electric and Water Utility Rate Design - Schedule a Public Hearing
1. WHY THIS MATTER IS BEFORE THE BOARD
The purpose of this workshop is to present an update of the Electric and Water Utility
rate study performed by the District's outside consultant and to review the process for
potential adoption of revised rates and fees.
2. HISTORY
Over the last several years the District has contracted with Shawn Koorn, of HDR
Engineering, to review the District's cost of service and to provide recommendations
for Electric and Water Utility rates. In 2010 HDR Engineering completed an electric
rate structure review for both residential and commercial customers including
presentation of the current structure and alternative structures. In 2013 HDR
Engineering completed a comprehensive rate study for the Water Utility, and the
Board thereafter adopted increases of 3% annually for FY14 and FY15. In 2015 the
District contracted with HDR Engineering to again review the Water Utility and
consider the increased costs associated with meeting the State drought regulations
mandate which included acceleration of District pipeline replacements and ensuring
that the District maintained a minimum $5 million reserve (reserve goal is $7M). In
August 2015 the Board adopted Ordinance 2015-01 which increased Water Utility
rates by 6% in FY16 and 5% in FY17, and a 3% maximum increase per year
thereafter through FY20. Water Utility rates were updated in accordance with
Proposition 218 requirements.
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During the FY16/17 budget adoption process, staff presented the 10-year Financial
Master Plan (FMP) which informed the Board of the need to consider an Electric Utility
rate increase in order to address increased cost of service requirements, to fund
capital projects including the electric meter replacement program (currently in pilot
)hase), and to increase reserves to meet District targets.
Reserve replenishments are necessary following increased emphasis in capital
improvements that began in FY15 and will continue through FY17. The District's
planned utilization of reserves included the Donner Lake substation rebuild, SCADA
enhancements, and procurement of a spare Truckee substation transformer. For
FY16 through FY17 the District is also investing in the electric meter replacement
project. The electric meter infrastructure, including both hardware and software, is
nearing end of useful life. The electric meter replacement project scope includes new
meter installations throughout the service territory and electronic data collection and
transmission units. The new meter technology offers exciting customer service
enhancements as well as improved outage management capabilities.
The FMP as reviewed during the budget process did not assume a rate change until
FY18, at which point a 4% rate increase was assumed for FY18 and FY19 and 3%
increase for each year thereafter. The Board directed staff to evaluate an alternative
of starting the rate increase one year earlier in order to minimize overall impact to
customers by instead providing a less than inflationary annual rate increase. A
nominal rate increase in FY17 allows the District to meet reserve goals a year sooner
by FY24).
The District contracted with HDR Engineering in March 2016 to consider the Electric
Utility cost of service and recommend an update to rates to meet revenue
requirements. The District also contracted with HDR Engineering to review two minor
Water Utility rate/fee considerations, specifically the need to create a rate for fire
suppression only service and a fee for water hauler service (potable water truck fill up
service).
3. NEW INFORMATION
The District contracted HDR Engineering to review and present a summary of the
Electric Utility rate increase required to accomplish the District's goals and to present
rate design for a fire suppression only rate and water hauler fee for the Water Utility.
Tonight, Shawn Koorn of HDR Engineering will present the summary. Attachment 1 is
a draft of the presentation.
Important highlights of the rate study include:
• Electric Utility: An emphasis for the Electric Utility rate design for FY17 and
thereafter is to prepare the District for upcoming technological advancement
and industry change. Distributed renewable generation and demand side
storage advancements are promising technologies that also present challenges
to distribution utilities, specifically the need to ensure that fixed infrastructure
maintenance and operations costs are adequately covered even in the scenario
of decreased consumption. The District intends to pro -actively prepare and
ensure rate structure mitigates these challenges in a planned approach such
that the change has the least annual financial impact to customers. To
accomplish this, the majority of the rate increase proposed is applied to the
customer charge (fixed amount) rather than an adjustment to enerqv charge
per kilowatt hour. A sample of the customer base, including low income, senior
housing, and general averages were evaluated to ensure that the proposed
increases did not disproportionately affect any particular segment of the
population. Average fiscal impact to a residential customer bill is provided in
Attachment 1. The medium commercial rate was evaluated and adjusted
further in order to better align the small, medium, and large commercial rates.
• Water Utility fire suppression rate: Development of a cost based rate to
recover the cost of providing fire suppression only service to customers who do
not also receive potable water service. During the rate study process it was
determined that the cost to ratepayers to implement a rate change in a manner
compliant with Proposition 218 exceeds the annual revenue received from the
very few active accounts, and as a result, staff recommends the item be held in
abeyance until the next complete Water Utility rate study requiring compliance
with Proposition 218.
• Water Utility water hauler fee: Development of a cost based water rate or fee
for customers who require the ability to temporarily connect to an existing
District connection (such as a fire hydrant) to fill customer owned and operated
water transportation equipment. Because this rate is not an incident of real
property and is not a mandatory fee (as customers may chose an alternative
supplier), and because the rate is intended to be for temporary use, this fee is
not subject to Proposition 218.
Direction from the Board is requested, and if the Board adopts new rates for future
years (excluding the fire suppression rate) the following schedules would be
implemented:
Water Utility water hauler rate update:
• Schedule a public hearing for the proposed rates -June 1, 2016 (tonight);
• Hold a public hearing regarding proposed rates - July 205 2016;
• Subject to public hearing, approve proposed rates - July 20, 2016, and
• Rates would be effective 60 days after Board approval
Electric Utility rate update:
• Schedule a public hearing for the proposed rates -June 1, 2016 (tonight);
• Hold a public hearing regarding proposed rates -July 20, 2016;
• Subject to public hearing, approve proposed rates - July 20, 2016; and
• Rates would be effective the first bill printed after January 1st of each year.
Staff recommends implementation of rate changes as defined in Attachment 1 in order
to ensure that annual rate changes are held near the level of inflation and to adopt
proposed rates for the next three years so that customers will have more certainty of
future rates.
4. FISCAL IMPACT
This action is part of the overall rate design process that may affect the District's
spending for the next three years.
5. RECOMMENDATION
1) Receive this report and schedule a public hearing on July 20, 2016 for the
proposed changes to the Electric Utility rates; and
2) Receive this report and schedule a public hearing on July 20, 2016 for the
proposed addition of the Water Utility water hauler fee.
Jeremy Popov
Administrative Services Manager
Michael D. Holley
General Manager