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HomeMy WebLinkAbout7 Electric Rate Increase AGENDA ITEM #7 Public Utility District m MEETING DATE: October 18, 2023 TO: Board of Directors FROM: Jared Carpenter, Electric Utility Director Michael Salmon, Chief Financial Officer SUBJECT: Consideration of the Draft Electric Utility Cost of Service Analysis Report and Schedule a Public Hearing on adoption of proposed electric rate increases, time of use rates, and power cost adjustment. APPROVED BY. Brian C. Wright, General Manager RECOMMENDATION: A. Receive this report and provide direction to staff; and B. Schedule a Public Hearing at the regularly scheduled District Board Meeting on November 1, 2023 at 6:00 PM, or as soon thereafter, for the purpose of receiving input on the adoption of an Ordinance adoption of proposed electric rate increases, new time of use rates, and power cost adjustment for the years 2024 and 2025. BACKGROUND: The District's electric retail rates are set by the Board of Directors and adopted by Ordinance. In 2016, the Board adopted Ordinance 2016-01 increasing electric rates for FY17-19. In 2019, the Board adopted Ordinance 2019-01 increasing electric rates for FY20-21 and Ordinance 2021-03 increasing rates for FY22-23. The overall average rate increase by year are summarized in the following table: Fiscal Year FY17 FY18 FY19 FY20 FY21 FY22 FY23 Increase 2% 3% 3% 2.7% 3% 8.5% 6.5% The electric rate increases for FY22-24 were based on a Cost of Service Analysis (COSA) completed in fall 2021. Since then, there have been significant changes in energy markets due in part to the impacts of western drought, high volatility in natural gas prices, high inflation, and growing consumer demand. Additionally, the District is currently evaluating its future power resource balance and an integrated resource plan (IRP). ANALYSIS AND BODY: Page 1 of 4 Page 3 of 75 In advance of the efforts to prepare the FY24-25 budget, staff anticipated the need for consultant assistance to support the District's possible establishment of the next cost of service justified electric rates starting in FY24. The Board, at its March 1, 2023 meeting, approved a contract with HDR, Inc. (HDR) to prepare a comprehensive Electric Utility COSA and retail rate design update. HDR has extensive experience in providing financial consulting services, including COSA and rate design services for many Publically Owned Utilities (POUs), including POUs of similar size to the District, across California and other western states. The purpose of the COSA and Rate Study is the adoption of cost-based and equitable electric rates that provide adequate funding for the District's operation and maintenance (O&M), capital expenditure, and reserve requirement needs over the long-term. The COSA and Rate Study process will determine the District's total revenue requirement and how the revenue requirement may best be allocated to rates over the next two years. There are three interrelated steps to the process: determining the revenue requirement, or total cost of service; allocate the revenue requirement among customer classes; and design rates to recover costs. HDR's Proposal includes the following key services to accomplish this effort: • Meet with District staff to discuss study goals and collect financial information; • Develop a projected five-year revenue requirement; • Review rate classes and identifying potential changes; • Develop cost-based rate design alternatives for each rate category; • Develop three alternative Time-of-Use (TOU) rates; • Develop a proposed method for establishing a Power Cost Adjustment (PCA) factor for retail rates to mitigate the impact to the District when the cost of market energy exceeds a threshold amount; and • Present the Cost of Service and Rate Study to the Board. While many electric utilities incorporate a TOU into their rate structures, they were not considered to be well aligned with the energy demand characteristics of the District and the metering infrastructure was not in place. Historically, the District did not have significant demand charges (based on time of day, day of the week, or season) due to the fact that the District is a winter, weekend, and holiday peaking utility and has relatively flat transmission charges. However, the 2023 `heat dome' and December freeze have demonstrated that the District is more exposed to overall western electric markets when using electricity during peak times which can have significant cost impacts. These, combined with a developing summer peak, are changing the District's costs with increased demand charges likely. TOU rates are one way to match the costs during peak usage times to the rates charged to the customer. TOU rates can also be a powerful tool to send a price signal so customers can choose to modify their usage patterns and save money. HDR has extensive experience in establishing cost-based electric rates and is highly qualified to perform this work for the District. Their project team specializes in rate and cost of service analyses full-time and has successfully completed rate studies for electric utilities nationwide, including the District. Their proposed schedule to perform the Rate Study also aligns with staff's requirement to prepare the FY24-25 Budget for Page 2 of 4 Page 4 of 75 the Board's review and consideration by November 2023. The COSA and Rate Study results will inform and be an integral component of the proposed FY24-25 Budget. Today, HDR will present the draft Electric Cost of Service Analysis and Rate Study report to the board of directors. Important highlights of the rate study include: • Analyzes rate design for FY24 and FY25; • Analyzes fixed infrastructure maintenance and operation costs proportionate to rates; • Evaluates rate increase applied to the customer charge; and • Analyzes each rate category individually and collectively to ensure adequate cost recovery. Furthermore, a public hearing regarding the proposed Electric Utility rate increases and time of use rates is requested for November 1, 2023. Below is the planned schedule milestones: • October 18, 2023 (tonight) - Schedule a public hearing for the proposed Electric Utility rate increases, new time of use rates and new purchase power adjustment factor. • October 18, 2023 (tonight) - Conduct a workshop to review the proposed Electric Utility rate increases, new time of use rates and new purchase power adjustment factor. • November 1, 2023 - Hold a public hearing regarding proposed rates; and • Consideration of an Ordinance to increase electric rates, new time of use rates and new purchase power adjustment factor for years 2024 and 2025; and • Rates would be effective with the first bill printed after January 1 st of each year beginning in 2024, as applicable GOALS AND OBJECTIVES: District Code 1 .05.020 Objectives: 1. Responsibly serve the public. 2. Provide a healthy and safe work environment for all District employees. 4. Provide reliable and high quality electric supply and distribution system to meet current and future needs. 5. Manage the District in an environmentally sound manner. 6. Manage the District in an effective, efficient and fiscally responsible manner. District Code 1 .05.030 Goals: 1. Manage for Financial Stability and Resiliency 2. Environmental Stewardship: Create a sustainable resilient environment for all our communities. 3. Engage with our customers and communities in a welcoming and transparent way to identify opportunities. 4. Take the best of private sector thinking to modernize the utility and add value to our communities. 5. Developing an inclusive culture drives organizational integration and success. Page 3 of 4 Page 5 of 75 FISCAL IMPACT: There is no fiscal impact on this item. ATTACHMENTS: None Page 4 of 4 Page 6 of 75