City Reexamines Electric Rates

by GalionLive • January 26, 2012 • News & Views • 1 Comment

NOTE: The lengthy City Council Finance Committee meeting on Thursday was quite long and full of open dialogue. GalionLive will present our coverage of the meeting in two installments — first looking at the presentation by the City’s electric rate consultants, and then looking at the engaging conversation which occurred after that presentation was finished.

The room was full on Thursday morning as the Finance Committee of Galion City Council conducted its long-anticipated review of the City’s proposed electric rate increase. And, while there was no resolution of that issue, it is evident that it will be some time before that increase will be enacted — if ever.

The meeting followed a brief, eight-minute session of the Galion Financial Planning and Supervision Commission, which is assigned the duty of overseeing the City’s finances during its fiscal emergency recovery. The Commission, as expected, approved the rollover of some 1,160,000 in debt, as well as new debt for the purchase of a new dump truck/plow and SCADA upgrade previously authorized by City Council. The total debt, including the two latter items, will be $1,442,000. As noted by State Auditor representative Belinda Miller, the interest rate will be going down at least 1.5% on the current indebtedness.

The Finance Committee meeting, which lasted for the next hour and 50 minutes, had two components. First, a representative from Sawvel and Associates, the City’s electric rate consultant, shared an exhaustive review of the numbers and methodology behind their proposed set of electric rate increases. The remainder of the meeting focused largely on the issue of whether or not the current electric rates should subsidize the cost of operation of other City departments, as well as the competitiveness of Galion‘s utility rates.

As it turns out, that question prompted enough debate and questions for the Committee to set out to find a new set of answers.

The Cost of Service and Rate Study review was presented by Don Gruenemeyer, President of Sawvel and Associates. After handing out a 26 page presentation, Grudemeyer began by restating the purposes of the study conducted at the City’s request:

First, to develop rates which fairly and equitably allocate costs to each rate class.
Second, to include power supply and local costs in the base electric rate.
Third, to design rates which are competitive with neighboring utility companies and communities

The overall goal, he continued, was “…to ensure that the customer charge is comparable to other communities but also to cover costs.”

The study assumed that the rate stabilization adder — down from 8% but still at 4% — would be completely removed for 2012. The overall approach was to prepare a cost of service analysis using revenue requirements for 2011, to review the existing rate structure, to determine proposed rate adjustments, and to make customer bill comparisons with other utility companies.

According to the materials provided, the 2011 revenue requirements for providing Galion electrical service were $12,397,745. That amount includes some $2,401,067 which goes to the Line Department, $262,033 for billing and collection services, and $8,008,577 for the actual cost to purchase power.

The next few minutes were spent with a review of the projected future power supply costs, together with a chart showing how Sawvel used rate levelization methodology to provide a more level set of utility revenue needs. Without rate levelization, Gruenemeyer relayed, there would be a need to do wide rate increases and decreases on a yearly basis. Levelization, he said, “achieves rate stability and predictability.” In response to a question from Councilman Walter Keib, and echoed by some among those gathered, Gruenemeyer explained how the retirement of debt from the now-closed Gorsuch Power Plant was factored into the projected costs and levelization proposal.

Each rate classification was then considered, with a comparison made of the revenue from that classification and the cost of providing that service. These differences were what prompted the proposed rate increases and decreases:

Residential

Projected 2011 Energy Sales — 47,441,139 kilowatt hours
Total Base Rate — $5,503,739
Cost of Service — $5,641,545
Difference — $137,806 (2.5%)

Commercial

Projected 2011 Energy Sales — 3,039,898 kilowatt hours
Total Base Rate — $343,797
Cost of Service — $359,414
Difference — $15,617 (4.5%)

Power

Projected 2011 Energy Sales — 9,006,538 kilowatt hours
Total Base Rate — $1,110,576
Cost of Service — $1,149,171
Difference — $38,595 (3.5%)

Large Power

Projected 2011 Energy Sales — 47,362,707 kilowatt hours
Total Base Rate — $5,192,936
Cost of Service — $5,181,021
Difference — ($11,915) (0.2%)

Security Lighting

Projected 2011 Energy Sales — 619,332 kilowatt hours
Total Base Rate — $49,674
Cost of Service — $66,593
Difference — $16,919 (34.1%)

The following should be noted:

This study includes a Commercial rate classification (usually smaller businesses and offices) which was not previously in place. Previously, Gruenemeyer explained, commercial was “mashed in” with residential, and adding this class would ensure “that each is paying their fair share.”
Only the Power rate classification has revenue which meets costs.
The total system costs $197,032 more to operate than it generates in revenue, according to the figures presented. This includes an important assumption which will be discussed in detail in the second part of our coverage.
The cost of providing electrical service jumped some $300,000 between 2011 and 2012, and there was also an additional $300,000 in debt servicing cost.
Under Sawvel’s proposal, the rates for Residential, Commercial, Power, and Security Lighting would see increases, while Large Power would see a slight decrease.

Gruenemeyer ended by comparing the cost of the new rates, including increases, with those of Ohio Edison and Ohio Power (AEP). That chart follows:

Rate Class	Usage	Existing Rates	Proposed Rates	Ohio Edison - Average	Ohio Power (AEP) - Average
Residential	700 kilowatt hours	84	87	88	90
Commercial	1000 kilowatt hours	118	124	165	122
Power	13,688 kilowatt hours	1803	1888	1764	1871
Large Power	209,208 kilowatt hours	23624	23510	19752	20588

PHOTO: Galion Financial Planning and Supervision Committee meeting/GalionLive photo