2005 AGN NOV 01 I14 - Laserfiche WebLink

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ITEM #14 CITY OF COLTON AGENDA REPORT FOR COUNCIL MEETING OF NOVEMBER 01, 2005 TO: Honorable Mayor and Council Members FROM: Jeannette Olko, Electric Utility General Manager SUBJECT: Request to Set Public Hearing for Electric Rate Increase DATE: October 24, 2005 BACKGROUND: On January 18, 2005, the City Council approved the award of a contract to Navigant Consulting, Inc. to perform a cost-of-service/rate design study for the electric utility. The purpose of the study was to determine if the existing rate structure was appropriate given the current cost structure, and to recommend new rates, if necessary, that are equitable, fair, nondiscriminatory, based on the cost of providing service, produce sufficient revenues to meet revenue requirements, and provide overall rate stability for the utility. DISCUSSI ONIANALYSIS: A joint workshop with the City Council was held on September 13, 2005, that offered a short course on electric utility revenue requirements and developing electric rates, and presented the results of the cost -of -service study. The results show that the current rate structure does not allow the electric utility to fully recover its revenue requirement; in fact, the electric utility is projected to under -collect its revenue requirement by $2.66 million for fiscal year 2005-2006. No customer class (residential, commercial, or industrial) is paying their fully allocated net revenue requirement from a cost causation perspective. Therefore an average 8.35% electric rate increase was recommended to collect the $2.66 million shortfall. If the recommended increase is not approved, there are a number of potential consequences to consider: (1) increased risk of degradation of system reliability; (2) reduced service levels; (3) increase in the number of forced outages at Agua Mansa Power Plant; (4) no operating reserves to fund necessary repairs in the case of a system emergency; (5) downgrading of electric utility bond rating. It was also discussed that while the utility continues to cut operating expenses as much as possible, because power costs continue to rise coupled with the fact that these costs account for over 50% of the utility's budget, the rate increase is necessary. With the proposed rate increase, Colton Electric Utility rates are still below Southern California Edison's rates. Southern California Edison has recently asked for an additional 8% increase to their rates because of rising natural gas prices. This 8% increase is in addition to the 3% increase it asked for earlier this year, and it did not rule out further increases if the price ofnatural gas continues to climb. The rate developed for residential customers took into consideration concerns expressed during the workshop regarding low-income residential customers. There is no change proposed for the first 250 kWh of consumption. Any consumption over the initial 250 kWh is being increased