HomeMy WebLinkAboutMemo - Mail Packet - 11/3/2020 - Memorandum From Randy Reuscher And Lance Smith Re: 2021 Electric Utility Rate Increase
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222 Laporte Ave.
PO Box 580
Fort Collins, CO 80522-0580
970.212.2900
V/TDD: 711
utilities@fcgov.com
fcgov.com/utilities
M E M O R A N D U M
DATE: October 29, 2020
TO: Mayor Troxell and Councilmembers
FROM: Randy Reuscher, Lead Analyst, Utility Rates
Lance Smith, Utilities Strategic Finance Director
THROUGH: Darin Atteberry, City Manager
Theresa Connor, Interim Utilities Executive Director
RE: 2021 Electric Utility Rate Increase
Bottom Line: Staff is presenting an ordinance to Council on November 4 proposing a 3.0%
increase to electric utility rates, with slight variations by rate class related to recent model
updates. The Energy Board supported the increase at the September 10 meeting. A second
meeting occurred with the Energy Board on October 8 regarding how the increase should be
applied to each of the distribution rate components. The ordinance being brought forward
November 4 applies the distribution increase evenly to all distribution components.
Background: Staff presented the 2021 City Manager’s Recommended Budget and the
associated 3.0% electric rate increase to the Energy Board in September. There was support for
the rate increase with a discussion about applying the rate increase flat across all rate classes as it
has been done in years when the electric cost of service study is not updated or making the rate
increase reflect the updated cost of service by rate class. The Energy Board indicated their
support for the staff recommendation of rate class specific adjustments to minimize one rate class
subsidizing another rate class. There were further questions around how the distribution portion
of the rate increase would be applied to the fixed and variable distribution charges which led to
more discussion at the October Energy Board meeting. There was no action requested from the
Board at this meeting, but the takeaway from that discussion was the Energy Board may want to
provide a memo to the Mayor and City Council with their support regarding how the distribution
portion should be allocated.
Subsequently an email from Susan McFaddin, an Energy Board member, was sent to
Councilwoman Pignataro. The email suggested that a formula was being used to allocate costs
between the rate components, which she stated, “is not consistent with the City’s climate goals”.
No such formula is being used or recommended, rather staff was providing the Board with the
current proportions the residential rate class is charged by component to recover distribution
costs.
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While some may believe a higher tier charge would further promote energy conservation, the
data does not support it. Fort Collins Utilities implemented a tiered rate structure in 2012 based
on this assumption. After several years, no correlation was established between tiered rates and
energy reduction within Fort Collins, or amongst other utilities across the country. At that time,
Council directed a very deliberate pilot study be administered to determine if we could provide a
more direct and equitable price signal to our customers through a time-of-day (TOD) rate
structure. The results were presented at the July 11, 2017 City Council Work Session. The pilot study
showed a statistically significant reduction in energy use and coincident peak use in the TOD rate
structure, as compared to the previous tiered rate structure. Additionally, no additional conservation
was measured by adding the “tier” charge to the TOD rate structure.
It should be noted that Fort Collins electric customers saw a smaller wholesale ra te increase than
neighboring communities in part because of the reduction in the city’s contribution to the Platte River
Power Authority’s coincident peak.
How will the rate increase be applied to the residential rate class?
There are three rate components where distribution costs are recovered for a residential
customer: a fixed charge, a distribution energy charge (on-peak & off-peak), and an energy tier
charge that applies only to the amount of energy used above 700 kWh (for gas-heated homes, not
all-electric homes). The allocation of costs between the rate components is driven by previous
City Council direction, including affordability related to the base fixed charge and the initial
decision in 2017 to collect the residential rate class’s contribution of the Energy Services
expenses in the tier component. Subsequent rate increases have applied the residential
distribution components of the rate increase evenly across these three components. The result of
those increases has been that approximately 30% of the distribution charges are collected
through the base fixed charge, 60% through the distribution energy charge and the remaining
10% through the tier charge currently.
The Rate Ordinance being presented for your consideration on November 4 applies the
residential distribution components evenly across the three components.
Alternative allocations of the residential distribution components were considered with three
scenarios presented to the Energy Board in October. Those scenarios are summarized in the table
below:
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Please see the attached draft minutes of the Energy Board discussion from earlier this month.
Why is staff recommending varying the rate increase by rate class?
The electric cost-of-service (COS) model is updated every two years. Rate class adjustments are
driven by many factors, including rate class consumption, growth in customer counts, load
factors, and the peak demands put on the distribution system. Recent model updates show
slightly larger impacts for small to mid-sized commercial classes, and slightly less for
residential, industrial, and substation customers. While all rate class variations are within 1%, up
or down, from the 3% baseline, foregoing these adjustments in 2021 would delay changes until
the next model update in 2022 for 2023 rates. This may drive more significant variances in future
updates by not passing these adjustments through to customers in this rate update cycle.
What has the impact been from COVID-19 on a customer’s ability to pay their utility bill?
There was a significant increase in past due balances once the Governor issued Executive Order
No. 2020-098 “Providing Relief to Public Utility Customers affected by COVID-19”. This trend
has continued through the summer and into the fall as subsequent executive orders have extended
this order. With the anticipation that the latest extension, Executive Order No. 2020-211,
expiring November 5, Fort Collins Utilities has been engaging customers with outstanding past
due balances. Please see the separate memo in this packet re: “Resuming Utility Disconnects on
November 13.”
Attachment 1 – DRAFT Minutes of the October 8 Energy Board discussion
Component 2020 2021 % increase $ difference
Monthly Base (with PILOT)8.00$ 10.12$ 26%2.12$
Component 2020 2021 % increase $ difference
Distribution kWh (with PILOT)0.0271$ 0.0304$ 12%0.0033$
Component 2020 2021 % increase $ difference
Over 700 Tier Charge (with PILOT)0.0229$ 0.0374$ 63%0.0145$
Entire increase in Monthly Base Charge
Entire increase in Distribution Energy Charge
Entire increase in Tier Charge
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ENERGY BOARD
REGULAR MEETING – ABRIDGED FOR 2021 RATES & FEES UPDATE
October 8, 2020 – 5:30 pm
Remote – Zoom Meeting
|
ROLL CALL
Board Members Present: Amanda Shores. Jeremy Giovando, Bill Becker, Dan Gould, Alan Braslau,
Marge Moore, Steve Tenbrink, Sue McFaddin, John Fassler
Board Members Absent:
OTHERS PRESENT
Staff Members Present: John Phelan, Christie Fredrickson, Randy Reuscher, Aaron Iverson, Elizabeth
Blythe, Brian Tholl, Becky Hutchinson, Lance Smith, Tim McCollough, Rhonda Gatzke, Theresa Connor,
Leland Keller
Platte River Power Authority: Wade Hancock, Alyssa Clemsen-Roberts, Trista Fugate
Members of the Public: Rich Stave, Nick Michell
2021 RATES & FEES UPDATE
Randy Reuscher, Lead Analyst, Utility Rates
This is a follow up presentation to Mr. Reuscher’s update at the Board’s September meeting, per their
request to learn more about the individual rate components. The Energy Board voted to support the
proposed 3% electric rate increase for 2021, and the Board requested additional information regarding
how the increase would be allocated to the individual component charges.
Mr. Reuscher displayed a graph with an $8 fixed charge, as well as $12, $16, and $20 fixed charge.
Ultimately, by collecting all distribution charges through the fixed charge, it would be close to $28 with
recent increases, which is not what the Utility wants. The graph is trying to represent is that with in
increased fixed charge, the variable charge would be lowered and that would impact customers differently
depending on their consumption throughout the month.
Mr. Reuscher showed several increase scenarios: an increase to all distribution components evenly, as
well as putting the entire increase into a single component (base charge, distribution energy charge, or
tier charge). Currently, most of the revenue is collected through the distribution energy charge, about
60%. 30% of the revenue comes from the base charge and 10% comes from the tier charge.
In 2021, Platte River is shifting slightly from Energy costs to Demand costs, and the distribution cost is the
majority increase. Each year will impact the rate classes differently because they use the components
differently. Board member McFaddin asked which of the components is fixed and which are variable. Mr.
Reuscher said there are fixed and variable costs in each of them.
Board member Becker said it still feels like the rates don’t reflect the Utility’s costs. We have an
opportunity to shift the balance and it doesn’t feel like the Utility is taking advantage of that. Boar d
member Tenbrink said he agrees with Mr. Becker. He also wondered what type of homes the low-use
customers live in, apartments or single-family homes? Mr. Reuscher said he is not sure of the individual
breakout, but on average over the year, about two-thirds of the Utility’s customers are under the threshold
and the other third are in the higher tier. Mr. Phelan added that usage and dwelling type is not as clear cut
as you might think, so it is difficult to make a broad generalization about usage.
Board member Braslau said it would be helpful to have a discussion with Councilmember Ross Cunniff
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ENERGY BOARD
REGULAR MEETING – ABRIDGED FOR 2021 RATES & FEES UPDATE
because he has always opposed raising the fixed charge and have a stronger variable charge to incite
people to conserve energy.
Board member McFaddin said Our Climate Future is about social equity and reducing greenhouse gas
emissions, so to align with OCF it would make sense to put the increase into the Energy Efficiency Tier
because it incentivizes people who use a lot of energy to use less. She believes t his should be the
Board’s recommendation. Mr. Reuscher said staff has found little correlation between income and energy
consumption. Ms. McFaddin said we need to put greater distance between the tiers to incentivize people
to stop using energy. Board m ember Fassler reiterated that it is not about small apartments or homes;
there are many instances of people in large homes with low-energy use, but unless there is a large
incentive to lower energy use, a customer may not be motivated.
Board members wondered if it makes sense to have a lower rate during the nighttime hours to incentivize
charging their electric vehicles, or preheat their water heaters, etc., overnight.
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