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City Light Rate Design-Review

Presentation to Review PanelJanuary 2013

Today’s Presentation

Policy Framework for City Light Rates

Rate Design – 2013 Rates

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Resolution 31351 (May 2012)

General Policy Framework Covers rate setting, rate design and marginal cost

allocation

Some objectives may conflict—balance needed

Efficient use of resources—appropriate shares of costs

Predictability from year to year

Public involvement—information and participation

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Resolution 31351 Rate Design Policies

Encourage efficient use of power supply and distribution resources (rates based on marginal cost)

Higher rates for higher consumption (blocks of energy)

Residential 1st block of energy-essential needs, priced below average cost of service

No declining demand charges

Time-of-use rates where feasible

Low-income rates lower by at least 50%

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Resolution 31351Limitations

Does not cover every aspect of cost allocation and rate setting

Other guidelines: Historical decisions by Council Seattle Municipal Code Suburban franchise agreements

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Overview of Rate Design

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Review of Basic Energy Terms Watt: a measurement of the rate of electricity use Kilowatt (kW): standard unit of electric power = 1,000

watts, a short-term measure of maximum demand Kilowatt-hour (kWh): a measure of the flow of electricity

over an hour--10 100-watt lights on for 1 hour = 1 kWh

Example: Flow of Energy

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10

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1 2 3 4 5 6 7 8

Time

kW

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Review of Basic Rate Schedule Terms Energy charge: a charge per kWh.

Demand charge (aka “capacity charge”): a charge per peak (“instanteous” or “maximum”) kW.

Base service charge (aka “customer charge”): a charge that is billed whether any electricity is used or not. Applies to SCL residential classes.

Minimum charge: a charge that is billed only if the amount billed for energy use is less than this amount. Like BSC but applies to SCL non-residential classes.

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Residential Rate Design: Translating Council Policy Guidance to Rates Second block rate should “reflect”

marginal cost of energy to the customer

First block rate should be below average cost of service

BSC should equal 50% of marginal customer cost (recovery of billing/account/meter reading costs)

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Residential Rate Design:Inputs for 2013 City Rates

Annual kWh load (MWh) 2,483,852

First block load (MWh) 1,229,639

Second block load (MWh) 1,254,213

# Meters (City + suburbs) 369,234

MC of customer service (City + suburbs)

$42.3M

Revenue Requirement $208.9M

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Residential Rate DesignCity Rates, 2013

Goal: Balance 3 rate elements to meet policy goals & revenue requirement

Step 1: Base Service Charge50% MC Cust Svc x $42.3M = $21.2M $21.2M/369,234 meters/365 = $.1570/dayCity BSC Revenue = $17.4M (302,936 meters)

Step 2: 2nd block rate2012 rate + 6.8% + block differential = $.1071[Note: MC ~ $.1052/kWh]$.1071 x 2nd block kWh = $134.3M Revenue

Step 3: 1st block rateRev Req $208.9M-BSC $17.4M-2nd block

$134.3M) /1st block kWh = $0.0466

2nd block rate $.1071/kWh

1st block rate $.0466/kWh

BSC $.1570/day

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Residential Rates: Structure Two energy blocks

Low-cost first block of kWh (10/day Summer, 16/day Winter) Higher-cost second block of kWh

Base service charge (BSC)

2013 Residential-City Rates

1st block per kWh $0.0466

2nd block per kWh $0.1071

BSC/day $0.1570

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Low-Income Residential Rates Same structure as regular Residential

(1st & 2nd block energy charges, BSC)

Set at 40% of average Residential rate by jurisdiction

Adjusted 2nd block:1st block relationship to encourage energy conservation

------------------------------------------------No. low-income customers: 14,000+ (4%)Rate subsidy 2013: $9.3M

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Minimum Charge Example Calculation Small General Service, 2013

Marginal Costs

Customer Service Cost 4,108,434$ Forecast No. of Meters 43,326 No. of days 365 Minimum bill/day 0.26$

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Small General Service (< 50 kW/month):

Structure, Policy and Rate Design

Translating Policy into Rates: Min. charge = 50% of MC of customer service No BSC allows more $ in energy charge (closer to MC)

Math: Revenue Requirement $ / forecast kWh = ¢/kWh $72.6 M / 1,014,087,866 kWh = $0.0716

Structure 2013 Rates

Flat energy rate/kWh $0.0716

Minimum charge/day $0.26

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Peak Demand Charges - Policy Medium, Large, High Demand GS

Marginal Cost of: Transformers – 100% Service drops – 100% Transformer losses – 50% Remaining distribution*

Non-network – 10% Network – 5%

*In-service area transmission, substations, wires, meters

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Peak Demand Charge Example Calculation

Medium General Service-Nonnetwork, 2013

Marginal Costs

Transformers 4,437,296$ 100% 4,437,296$ Service Drop 697,870 100% 697,870 ISA Transmission 10,208,966 10% 1,020,897 Substations 6,922,594 10% 692,259 Wires 37,748,632 10% 3,774,863 Meters 185,236 10% 18,524 50% Transformer Losses 241,977 241,977 Total Dist for Demand Charge 10,883,686$ Annual Billing kW 5,097,804 Demand Charge/kW 2.13$

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Medium General Service Rate Design:MGS-City, Inputs for 2013 Rates

Annual kWh load 1,612,580,914

Annual kW of peak demand 4,319,940

Revenue Requirement $100.5M

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Medium General Service: City(50 kW – 999 kW/month): Structure &

Policy

Translating Policy into Rates: Min. charge = 50% of MC of customer service Demand charges incorporate more MC of distribution

Math: Demand: $2.13 x 4,319,940 = $9.2M Rev Req $100.5M - $9.2M = $91.3M Rev Req Energy Energy charge: $91.3M/1,612,580,914 kWh = $.0566

Structure 2013 Rates

Flat energy rate/kWh $0.0566

Flat demand rate/kW $2.13

Minimum charge/day $0.62

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Large and HD General Service Translating Policy into Rates:

Min. charge = 50% of MC of customer service

Peak kW rate: See Demand Charge slide

Off-peak kW rate = Transformer ownership discount rate

Peak/offpeak kWh rate differential: Peak/offpeak MC energy

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Off-Peak Demand Charge = Transformer Ownership Discount

$ in thousands 2013

Capital Cost for Transformers $7,135

Inflation factor (2011=1.0) x 1.040

Inflated Capital Cost $7,418

Effective Tax Rate = 10.9550% x 1.10955

Total Capital Cost with Taxes $8,231

Annualization Factor = 0.05102 x 0.05102

Annualized Capital Cost $420

Percent capital cost subject to O&M = 88% x 88%

Capital Cost Subject to O&M $371

O&M % of Annual Capital Cost = 5.11% x 5.11%

Annualized O&M Cost $19

Total = Annualized Capital Cost + Annualized O&M Cost $439

Total Annual Billing kW 1,903,627

Transformer Discount ($/kW) $0.23

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Large General Service Rate Design:

LGS-City, Inputs for 2013 Rates

Annual kWh load 788,787,927

Peak 486,452,338

Offpeak 302,335,589

Annual kW of demand 1,934,459

Peak 1,913,958

Offpeak 20,501

Revenue Requirement $48.1M

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Large GS-City: Math, 2013

Rate kW Revenue ($M)Peak kW Revenue 1.52$ 1,913,958 2.9$ Offpeak kW Revenue 0.23$ 20,501 0.005$ Revenue from kW Rates 2.9$

Total Revenue Req. 48.1$ Less Revenue from kW Rates 2.9$ Rev Req from kWh Rates 45.2$

kWhOffpeak kWh Rate: A. Rev Req from kWh Rates 45.2$ Divided by: 1.5 x Peak kWh 729,678,507 Plus Offpeak kWh 302,335,589 B. Total Divisor 1,032,014,096 Offpeak kWh Rate (A/B) 0.0438$

Peak kWh Rate: 1.5 x Offpeak kWh Rate 0.0657$

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Large (1,000-9,999 kW/month) and High Demand General Service (10,000+ kW/month)

Structure LGS City 2013 Rates

Peak energy charge/kWh $0.0657

Off-peak energy charge/kWh $0.0438

Peak demand charge/kW $1.52

Off-peak demand charge/kW $0.23

Minimum charge/day $16.39

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How LGS-City Rates x kW/kWh =

LGS-City Revenue Requirement

Rate kW/kWh Revenue ($M)Peak kW Revenue 1.52$ 1,913,958 2.9$ Offpeak kW Revenue 0.23$ 20,501 0.005$ Revenue from kW Rates 2.9$

Peak kWh Revenue 0.0657$ 486,452,338 32.0$ Offpeak kWh Revenue 0.0438$ 302,335,589 13.2$ Revenue from kWh Rates 45.2$

Total Revenue Requirement 48.1$