Director
City Manager
COUNCIL REPORT
DATE:
TO:
FROM:
RE:
December 10, 2012
Chuck Lowen, Acting City Manager
Mitch Moroziuk, Director of Operations
2013 Electrical Rates Correction
File No: 1820-01
STAFF RECOMMENDATION:
THAT Council receive this report that corrects the amount used for the FortisBC Cost of Service
Adjustment in the 2013 electrical rate calculations;
AND THAT the City of Penticton Electric Rates be revised to reflect:



The 1.60% FortisBC Cost of Service Adjustment increase;
The 4.20% FortisBC Revenue Requirement increase; and
The 1.28% increase to cover revenue loss from modeled numbers vs. actual numbers.
AND that the following three alternatives be considered in the rate setting process:
Alternative 1 – Apply the two FortisBC increases (5.80%) at the Wholesale Power Purchase
Level and the Revenue Loss increase (1.28%) at the Retail Power Sale level for a Total
increase of 6.18%.
Alternative 2 - Apply the two FortisBC increases (5.80%) at the Retail Power Sale Level and the
Revenue Loss increase (1.28%) at the Retail Power Sale level for a Total increase of 7.87%.
Alternative 3 - Apply an average of the FortisBC increases from Alternative 1 and 2 and the
Revenue Loss increase (1.28%) at the Retail Power Sale level for a Total increase of 7.03%.
AND THAT that the following schedule for the rate setting process be utilized:





December 10, 2012 – Introduction of the proposed rates
December 17, 2012 – Public input session
January 7, 2013 – First 3 Readings of an amending Bylaw to the Fees and Charges
Bylaw
January 21, 2013 – Adoption of the amending Bylaw to the Fees and Charges Bylaw
February 1, 2013 – New electrical rates take effect
AND FURTHER THAT notification advising the public of the public input session on December
17, 2012 be advertised in both local papers.
Page 1 of 9
FINANCIAL IMPLICATIONS:
The increase in rates is required to cover the cost increases from FortisBC and to maintain the
existing level of dividend from the electric utility to fund capital and operating expenses. The
amount of the dividend will vary depending on the Alternative selected by Council.
The impact of the three alternatives on the rate payer are estimated as follows:
Current
Average
Monthly Fee
After 10%
Discount
R a te D e scription
Residential Customer
Commercial Customer
Industrial Customer
$
$
$
Estimated
Estimated
Estimated
Monthly Fee Monthly Fee Monthly Fee
Alternative 1 Alternative 2 Alternative 3
(6.18%) After (7.87%) After (7.03%) After
10% Discount 10% Discount 10% Discount
93.42 $
564.33 $
18,600.88 $
99.19 $
599.23 $
19,751.20 $
100.77 $
608.74 $
20,064.68 $
99.98
603.98
19,907.94
The projected status of the Electrical Reserve is as follows:
Ele ctric Fund R e se rve s
2013
2014
953,000 $
2,380,000 -$
967,000 $
1,486,000 $
Ele ctric Ca pita l
Ele ctric Surplus
$
$
T OT AL
$ 3,333,000 -$
519,000
2015
982,000 $
774,000 $
$ 1,756,000
Sugge ste d
Minimum
R e se rve
Ba la nce
2016
2017
997,000 $
2,882,000 $
1,012,000 $
6,451,000 $
$ 3,879,000
$ 7,463,000
500,000
2,600,000
$ 3,100,000
STRATEGIC PRIORITY OBJECTIVE:
N/A
BACKGROUND:
On December 3, 2012 Council Passed Resolution 1007/2012, see Attachment “B”. This
Resolution put in place the process and Alternatives that Council were going to consider when
setting electrical rates for 2013. One element of the rate increase was the Cost of Service
Adjustment, COSA. This was brought forward at 1.00%. Staff have discovered that the 1.00%
number was incorrect and it should have been 1.60%.
This change has now been accounted for and this report presents the updated information. The
impact to the rate payer caused by this change is small. On a monthly basis, after the 10%
discount the average difference from what presented in the December 3, 2012 report to this one
is as follows:
Residential Customers
Commercial Customers
Industrial Customers
$
0.54
$
3.27
$1,207.79
2012 12 10 2013 Electrical Rate Increases
Page 2 of 9
The City Website and the Advertisements have been adjusted to present the updated
information.
The Electric Department does an annual comparison of electric charges between the following
service providers: Penticton, Kelowna, Summerland, Grand Forks, Nelson, FortisBC and BC
Hydro, for three customer classes: Residential, Commercial and Primary (Industrial). The
following figures illustrate the total cost to a customer depending on the number of kilowatt
hours of power used.
For
residential
customers
electricity
charges
were
the
highest in Kelowna and
FortisBC.
The
lowest
power
charges were in BC
Hydro or Nelson.
Penticton
middle.
is
in
the
The highest and lowest
provider
vary
depending
on
the
amount
of
power
consumed.
The graphs illustrate
the inclining block rate
structure
used
by
Summerland, BC Hydro
and FortisBC.
2012 12 10 2013 Electrical Rate Increases
Page 3 of 9
For
commercial
customers
electricity
charges
were
the
highest in Grand Forks
and
Summerland
depending
on
the
amount
of
power
consumed.
The lowest charges
were in BC Hydro.
Penticton is in
middle to top third.
the
On the primary power
side rates were highest
in Nelson.
The lowest charges
were in BC Hydro.
Penticton was again in
the middle of the pack.
2012 12 10 2013 Electrical Rate Increases
Page 4 of 9
As we move forward into 2013 there are several rate increases that must be accounted for.
First are the increases mandated by the British Columbia Utility Commission that have been
granted to FortisBC.
In addition to the above there is also an adjustment that should be made to address modeling
shortfalls. Staff have completed an extensive review of modeled electrical revenues and actual
electrical revenues and determined that modeled revenues exceed actual by 1.28%. A closer
review of this has indicated that the model assumes that revenue will come from each customer
in each month for a full month. A review of actual month to month revenues reveals that there
are months in which some customers contribute lower or no revenue at all. This causes the
actual revenue stream to be lower than budgeted.
The rate increase amounts are summarized as follows:
FortisBC Cost of Service Adjustment
- 1.60%
FortisBC Revenue Requirements G159-12 - 4.20%
Model Revenue Loss
- 1.28%
Rate Increase Alternatives:
Alternative 1 – Apply the mandated BCUC increases (5.80%) at the Wholesale Power Purchase
Level and the Revenue Loss increase (1.28%) at the Retail Power Sale level for a Total
increase of 6.18%.
Alte rna tive 1
BCUC Increases at the WHOLESALE level
Model Revenue Loss at the RETAIL level
TOTAL to be applied to the RETAIL rate
TOTAL 2012 Revenue after Discount
% Increase AFTER Discount
% Increase BEFORE Discount
$
$
1,375,852
411,983
$
$
1,787,835
32,121,917
5.57%
6.18%
Alternative 2 - Apply the BCUC mandated increases (5.80%) at the Retail Power Sale Level and
the Revenue Loss increase (1.28%) at the Retail Power Sale level for a Total increase of
7.87%.
Alte rna tive 2
BCUC Increases at the RETAIL level
Model Revenue Loss at the RETAIL level
TOTAL to be applied to the RETAIL rate
TOTAL 2012 Revenue after Discount
% Increase AFTER Discount
% Increase BEFORE Discount
$
$
1,863,071
411,983
$
$
2,275,054
32,121,917
7.08%
7.87%
2012 12 10 2013 Electrical Rate Increases
Page 5 of 9
Alternative 3 - Apply an average of the FortisBC increases from Alternative 1 and 2 and the
Revenue Loss increase (1.28%) at the Retail Power Sale level for a Total increase of 7.03%.
Alte rna tive 3
BCUC Increases at the average of the WHOLESALE AND RETAIL level $
Model Revenue Loss at the RETAIL level
$
TOTAL to be applied to the RETAIL rate
TOTAL 2012 Revenue after Discount
% Increase AFTER Discount
% Increase BEFORE Discount
$
$
1,619,462
411,983
2,031,445
32,121,917
6.32%
7.03%
Staff also reviewed and considered implementation of an inclining block rate structure for
residential electrical rates as part of the 2013 rate setting review. The review indicated that it
will be necessary to split residential rate class 10 into three new rate classes. The first would be
for Single Family Residential Customers using less than the median or average power use. The
second would be for Single Family Residential Customers using more than the median or
average power use. The last would be for Multi-Family Residential Customers. It will also be
necessary to work with the billing software contractor to make the required changes to the
software. It is anticipated that these processes will take a few months and as such the inclining
residential block rate structure will be brought back to Council later in the year for consideration.
As mandated in Electrical Utility Rates Policy, see Attachment “A”, there must be a public
consultation process as part of any adjustment to electrical rates. The following process if
proposed:





December 10, 2012 – Introduction of the proposed rates
December 17, 2012 – Public input session
January 7, 2013 – First 3 Readings of an amending Bylaw to the Fees and Charges
Bylaw
January 21, 2013 – Adoption of the amending Bylaw to the Fees and Charges Bylaw
February 1, 2013 – New electrical rates take effect
ANALYSIS
All of the alternatives increase Penticton electric rates by differing degrees and with a different
rational. Alternative 1 applies the FortisBC increase at the Wholesale Power Purchase level.
Alternative 2 applies the FortisBC increase at the Retail Power Sale level. Alternative 3 uses an
average of the two. In all cases the increase to account for modeling revenue loss is applied to
the Retail Power Sale level.
2012 12 10 2013 Electrical Rate Increases
Page 6 of 9
The impact to the average electric utility customer is estimated as follows:
R a te D e scription
Residential Customer
Commercial Customer
Industrial Customer
Monthly R a te Monthly R a te Montly R a te
Impa ct of
Impa ct of
Impa ct of
Alte rna tive 1 Alte rna tive 2 Alte rna tive 3
$
$
$
5.78 $
34.90 $
1,150.32 $
7.35 $
44.41 $
1,463.80 $
6.56
39.65
1,307.06
In addition to the monthly rate impact to the customer Council should also consider the
following:

In 2013 an on bill loan program will be launched to help customers of residential owner
occupied dwellings finance home improvements to reduce electrical costs.

In 2013 and 2014 there will be a significant electrical capital project, the Westminster
Substation upgrade that has a large cost and impact on the Electric Utility Reserves.

In 2014 and 2015 the Electric Utility Reserve is projected to be significantly lower than
the minimum suggested balance of $3,100,000.
For the preceding three reasons Council may want to consider a higher increase to provide
additional funds to offset some of these impacts.
The proposed schedule for rate increases is in accordance with the Electric Utility Rates Policy.
ALTERNATE RECOMMENDATIONS:
1. Send the matter back to staff for further work.
ATTACHMENTS:
Attachment “A” – Electric Utility Rates Policy
Attachment “B” - December 3, 2012 Council Resolution
Respectfully submitted,
Mitch Moroziuk P.Eng. MBA
Director of Operations
2012 12 10 2013 Electrical Rate Increases
Page 7 of 9
Attachment “A”
CITY OF PENTICTON POLICY
TITLE: Electrical Utility Rates Policy
Section:
Effective Date: January 2007
Originator: Dan Albas/John Vassilaki
Council Res:
Page: 1
Replacing:
Approval:
Council Date:
PREAMBLE
Whereas, the City of Penticton Electrical Utility is not required by the BC Utilities
Commission nor subject to its auspices and consultative processes in regard to
electrical rate changes.
Furthermore, it becomes incumbent on City Council and staff to promote transparency
and preserve the public trust in regard to consultation and rate changes.
It is the rightful role of city elected officials and staff to inform and consult with citizens
as to precise nature and impact of any proposed City of Penticton Electrical Utility rate
changes.
POLICY
That all proposed City of Penticton Electrical Utility Rate increases reports must include
true costing by clearly presenting the City’s wholesale costs and general retail increases
from Fortis BC. In addition, within the report staff will present examples from the
spectrum of electrical consumers such as residential (single family), commercial (small,
medium and large), and institutional to illustrate how a rate change will affect them.
Further, city staff will ensure that such a report is posted prominently on its website in
full and available for public purview at city hall for at least 7 business days prior to a
consultative process.
This public consultative process will be advertised and conducted like a public hearing
prior to council making a decision on electrical rate changes.
2012 12 10 2013 Electrical Rate Increases
Page 8 of 9
Attachment “B” – December 3, 2012 Council Resolution
1007/2012
It was MOVED and SECONDED
THAT the City of Penticton Electric Rates be revised to reflect:



The 1.00% FortisBC Cost of Service Adjustment increase;
The 4.20% FortisBC Revenue Requirement increase; and
The 1.28% increase to cover revenue loss from modeled
numbers vs. actual numbers.
AND THAT the following three alternatives be considered in the
rate setting process:
Alternative 1 – Apply the two FortisBC increases (5.20%) at the
Wholesale Power Purchase Level and the Revenue Loss increase
(1.28%) at the Retail Power Sale level for a Total increase of
5.69%.
Alternative 2 - Apply the two FortisBC increases (5.20%) at the
Retail Power Sale Level and the Revenue Loss increase (1.28%)
at the Retail Power Sale level for a Total increase of 7.20%.
Alternative 3 - Apply an average of the FortisBC increases from
Alternative 1 and 2 and the Revenue Loss increase (1.28%) at the
Retail Power Sale level for a Total increase of 6.45%.
AND THAT that the following schedule for the rate setting process
be utilized:





December 3, 2012 – Introduction of the proposed rates
December 17, 2012 – Public input session
January 7, 2013 – First 3 Readings of an amending Bylaw
to the Fees and Charges Bylaw
January 21, 2013 – Adoption of the amending Bylaw to the
Fees and Charges Bylaw
February 1, 2013 – New electrical rates take effect
AND FURTHER THAT notification advising the public of the public
input session on December 17, 2012 be advertised in both local
papers.
2012 12 10 2013 Electrical Rate Increases
Page 9 of 9