(17)AR 021709 Electric Rate - Laserfiche WebLink

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CITY OF COLTON AGENDA REPORT FOR CITY COUNCIL MEETING OF FEBRUARY 17, 2009 TO: Honorable Mayor and Council Members FROM: Jeannette Olko, Electric Utility General Manager SUBJECT: Review and Discussion of Proposed Electric Rate Increase DATE: February 09, 2009 ITEM #18 BACKGROUND: In January 2006, the City Council approved an increase to the electric base rate of 8.35%, the first base rate increase in over ten years. The increase allowed the Electric Utility to recover an additional $2.66 million to: (1) meet its projected FY 06-07 revenue requirement, and (2) help to stabilize its financial position, thereby allowing the utility to comply with its bond covenants and improve its bond rating. Since 2006, however, power supply costs have continued to climb due to increases in natural gas, purchased power, and transmission. In addition, the Electric Utility is faced with an infrastructure that is aging and near capacity in some areas, prompting the repair and/or replacement of facilities. Compliance with recent regulation, such as the North American Electric Reliability Corporation (NERC) Reliability Standards, requires additional capital expenditures both at the transmission and distribution level to ensure the reliability of our electric system. To improve the efficiency of the Agua Mansa Power Plant, lower the cost of generation, increase reliability, and to meet future electric demand of the community, the City Council has approved the continued development of the conversion of Agua Mansa to a combined cycle system, increasing production by an additional 15 MW. A joint workshop with the City Council and Utilities Commission was held on July 29, 2008, that provided in greater detail some of the distribution, transmission, and power supply challenges facing the utility, and the need for rate increases to meet those challenges and ensure reliability of the electric system. An updated cost of service study was recently completed to determine the net revenue requirement necessary to meet the financial and operational challenges facing the utility over the next few years. DISCUSSION/ANALYSIS: The result of the cost of service study shows that the current rate structure does not allow the electric utility to fully recover its revenue requirement; the electric utility is projected to under - collect its revenue requirement by $9.22 million. The under -collection of revenue is a result of a mix of increased costs such as power supply and transmission, reduction of a liability to the general fund, and reduced sales. System average electric rates will have to be increased by 17.45% to meet the Electric Utility's revenue requirement. This means that the $9.22 million recovery will be spread across all customer classes evenly. The current and proposed rates are attached to this report. It is not anticipated at this time that another base rate increase will be necessary through fiscal year 2011- 2012, unless significant increases in costs that are outside of the control of the Electric Utility arise. With the proposed rate increase, Colton Electric Utility rates are still below Southern California Edison's rates. Southern California Edison has been granted a base rate increase of 7.8% in 2006, 3.82% in 2007, and a 4.95% in 2008. SCE has asked for an additional 8.6% increase in 2009, 5.54% in 2010, and 6.18% in 2011. These increases do not include increases in fuel costs or other CPUC automatic adjustment mechanisms.