on cost drivers for each utility and options for new rate structures

Transcription

1 1 OVERVIEW The City of Penticton is undertaking a review of rates for the electric, water and sanitary sewer utilities to ensure that each utility is financially sustainable and can continue to provide reliable service to customers. The purpose of these meetings is to: 1. Provide a summary of initial results to date to Penticton residents, including information on cost drivers for each utility and options for new rate structures 2. Obtain feedback and answer questions Comments and perspectives shared by stakeholders will be used to review and revise the preliminary results. Please feel free to review the material provided and fill out a comment form.

2 2 ALL UTILITIES - ADMINISTRATION FEE Communications Corporate Administration Accounting Purchasing Revenue Collection Finance Info Technology ADMINISTRATION FEE Human Resources Land Management Fleet In the past Administration Fees were based on Utility Revenue. It is proposed to base Administration Fees on resources need to support Utility Operations and Utility Billing Facilities Current Admin Fee Electrical $2,231,338 Water $ 457,314 Sewer $ 373,581 Proposed Admin Fee Electrical $1,280,281 Water $ 844,525 Sewer $ 793,156

3 3 ELECTRIC UTILITY DIVIDEND PAYMENT DIVIDEND PAYMENT to Citizens / Shareholder to BUILD Proposed changes would reduce Dividend Payments to 7% to be in line with Typical Private Electrical Utilities Current Dividend Pmt. Electrical $3,052,000 Proposed Dividend Pmt. Electrical $2,860,000

4 4 SANITARY SEWER RATES The City is proposing to change its sewer rate structure from the existing fixture charge and sewer levy to a fixed charge and variable charge. The variable portion of the proposed sanitary sewer charge will be based on water use adjusted for irrigation demands. This will better track costs between types of customers over time. The frequency of sewer billing could also change from the current once year structure to quarterly or monthly sewer bills.

5 5 INSTITUTIONAL ELECTRICITY RATES The City has looked at the possibility of lower electricity rates for institutional customers such as schools. Typically where these types of rates are offered, the rates are not justified based on costs, but rather other policy considerations. Any lowering in the institutional rate would have to be offset by an increase to other rates to remain revenue neutral. Preliminary study results suggest commercial customers (including institutional customers) should receive lower than average rate increases. This should help manage electricity costs for these customers without a special lower rate.

6 6 STUDY OVERVIEW Developing new rate proposals involves four steps: 1. Developing the revenue requirement for each utility based on the City s operating budgets and capital budgets 2. Preparing a cost of service study that examines the costs to serve each type of customer (residential, commercial, industrial) 3. Reviewing rates and rate structures in other municipalities to provide an indication of Penticton s competitiveness with other jurisdictions 4. Developing rate proposals that achieve a reasonable balance between factors such as measured cost of service, competitiveness, ease of administration and gradualism in rate changes.

7 7 INITIAL UTILITY RATE OPTIONS Development of Initial Rate Scenarios Two initial rate scenarios have been provided for discussion. Other options are possible and can be developed following feedback from stakeholders. All scenarios target recovering the full revenue requirement of the utility and phasing in changes to administrative overhead costs of each class by Other assumptions in each scenario are set out in the table below. Debt Reserve Balance Revenue Targets Scenario 1 No Debt No new debt, capital projects funded in cash each year Maintain at least minimum reserve balances each year Rates recover full costs of each customer class by 2019 Scenario 2 50% of the Capital Costs funded by Debt 50% of capital projects funded with debt in most years, up to 80% for very high capital spending in the water utility in 2017 Maintain at least minimum reserve balances each year. Rates recover full costs of each customer class by 2019

8 8 ELECTRIC UTILITY REVENUE REQUIREMENT City of Penticton, Electricity Utility Revenue Requirement for Revenue Requirement (00) $50,000 $40,000 $30,000 $20,000 $10,000 What are the cost components in the total revenue requirement ( Average)? - 73% Power Purchase Costs - 10% Capital Costs - 8% Transfers to Reserves - 5% Operations and Maintenance Expense - 4% Administrative Costs $ Budget Forecast Revised Forecast What are the major capital projects? - Carmi Substation over $7 million [2017] - Westminster Sub 12KV Upgrade $1.8 million []

9 9 ELECTRIC UTILITY REVENUE REQUIREMENT Revenue Requirement Observations - Cash funding capital projects leads to spikes in rates when large capital projects are constructed. - Borrowing would reduce the rate increase impact to the customer, but more borrowing may not be sustainable in the long term. - The City would have to borrow an additional $11.6 million between and 2019 to fund 50% of the capital plan % Required Annual Rate Increase 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% % % 0.00% 24.49% ($ % ( -$ % ($ % ($1.4 Without Borrowing With Borrowing

10 10 ELECTRIC UTILITY COST OF SERVICE RESULTS Revenue to Cost Coverage (RCC) ratio The RCC ratio measures the ratio of revenues for each type of customer to the costs to serve each customer. It is a way to determine if a customer class is paying the amount they should % RCC Ratio at Existing Rates 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% 84.5% Residential (Rate Code 10 & 15) 95.7% Commercial Industrial (Rate Code 20, 25, 30 & 35) City Accounts (Rate Code 45) 73.7% 74.1% Street Lights (Rate Code 55) 100% 74.6% Traffic Signals (Rate Code 55) RCC Ratio compared to COS Goal This ratio shows that none of the customer classes are paying their full costs & that Commercial Industrial Customers are paying more than Residential Customers.

11 11 WATER UTILITY REVENUE REQUIREMENT Revenue Requirement (00) $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 City of Penticton, Water Utility Revenue Requirement for Years Capital Cost What are the cost components in the total revenue requirement? - 58% Capital Costs - 23% Operation & Maintenance - 13% Debt Service Costs - 6% Administrative Costs $4,000 Corporate Administrative Costs $2,000 $ Budget Forecast Revised Forecast Debt Service Cost Total Operation & Maintenance Expense Note: Debt Service Costs are to pay down the borrowing for the Water Treatment Plant Expansions. What are the major capital projects? - Ridgedale Reservoir Upgrade with $2.8 million [2018] - On-site Chlorine Generation System with $1.3 million [2017] - WTP Reservoir Mixing Improvements with about $7.0 million [mostly in 2017]

12 12 WATER UTILITY REVENUE REQUIREMENT Revenue Requirement Observations - Cash funding projects leads to spikes in rates when capital projects are constructed. - Borrowing would reduce the rate increase impact to the customer, but more borrowing may not be sustainable in the long term. - The City would have to borrow $20.3 million between and 2019 to fund 50% of the capital plan in most years and up to 80% in the highest cost year % % % 80.00% 60.00% 40.00% 20.00% 0.00% % % Required Annual Rate Increase to Maintain Minimum Combined Reserve Balance 12.00% ( % ($ % ( % (-$ % (-$1.1 Without Borrowing With Borrowing

13 13 WATER UTILITY COST OF SERVICE RESULTS Revenue to Cost Coverage (RCC) ratio The RCC ratio measures the ratio of revenues for each type of customer to the costs to serve each customer. It is a way to determine if a customer class is paying the amount they should % RCC Ratio at Existing Rates 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% 56.2% 65.0% 100% 62.2% Residential Small Commercial Large Commercial/Industrial RCC Ratio compared to COS Goal This ratio shows that none of the customer classes are paying their full costs & that Commercial Industrial Customers are paying more than Residential Customers.

14 14 SANITARY SEWER UTILITY REVENUE REQUIREMENT $14,000 City of Penticton, Sewer Utility Revenue Requirement for Years Revenue Requirement (00) $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $ Budget Forecast Revised Forecast Capital Cost Corporate Administrative Costs Debt Service Cost Total Operation & Maintenance Expense What are the major capital projects? What are the cost components in the total revenue requirement? - 39% Capital Costs - 35% Operation & Maintenance - 18% Debt Service costs - 8% Corporate Administrative Note: Debt Service Costs are to pay down the borrowing for the Waste Water Treatment Plant Expansions. - Waste Water Treatment Plant Expansion and Upgrades with $3.1 million [2017/2018] - North Penticton Interceptor - Fairway Road to Treatment Plant with $2.1 million [2017]

15 15 SANITARY SEWER UTILITY REVENUE REQUIREMENT Revenue Requirement Observations - Cash funding projects leads to spikes in rates when capital projects are constructed. - Borrowing would reduce the rate increase impact to the customer, but more borrowing may not be sustainable in the long term. - The City would have to borrow $7.0 million between and 2019 to fund 50% of the capital plan. Required Annual Rate Increase to Maintain Minimum Combined Reserve Balance 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% -20.0% -40.0% 0.00% 99.28% ($ % (-$ % ( % (-.3 Without Borrowing With Borrowing

16 16 SANITARY SEWER UTILITY COST OF SERVICE RESULTS Revenue to Cost Coverage (RCC) ratio The RCC ratio measures the ratio of revenues for each customer class to the costs to serve each class. It is a way to determine if a customer class is paying the amount they should. RCC Ratio at Existing Rates 160.0% 140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 133.8% 100% 41.4% RCC Ratio compared to COS (Revenues with Sewer Levy built into Rates) Goal This ratio shows that residential customers are overpaying at current rates (including the sewer levy) while nonresidential customers are underpaying. 0.0% Residential Non-Residential

17 17 ILLUSTRATIVE MONTHLY BILL COMPARISONS - RESIDENTIAL Electricity Bill Comparison for to Residential Water Bill Comparison for to Residential 2019 $136 $ $59 $ $128 $137 Scenario 1 - No Debt 2018 $49 $64 Scenario 1 - No Debt 2017 $137 $123 Scenario 2-50% Debt 2017 $43 $77 Scenario 2-50% Debt 2016 $124 $ $38 $51 Existing Rate $112 $112 Existing Rate $34 $34 $50 $100 $150 $200 $50 $100 $150 $200 Sewer Bill Comparison for to Residential Property Tax Bill Comparison for to Residential $32 $37 $30 $38 $27 $38 Sewer Levy for 2016 to 2019 Scenario 1 - No Debt - Sewer Charge Scenario 1 - No Debt - Sewer Levy $195 $193 $ $25 $29 Scenario 2-50% Debt - Sewer Charge 2016 $190 Existing Rate $32 $32 $10 $10 $10 Sewer Levy for $50 $100 $150 $200 Scenario 2-50% Debt - Sewer Levy Existing Rate $50 $100 $150 $200 $194 Parameters used in the bill calculation: - Electricity consumption at 914 kwh/month, based on the average monthly consumption for Rate Code Water usage at 30 cubic meters/month, based on the average monthly consumption for customers with meter size of 13mm/16mm/19mm (1/2 inch, 5/8 inch and 3/4 inch). - Sewer bill is based on the average monthly consumption for customers with meter size of 19mm (3/4 inch). - Property tax bill is based on the average property assessment of $314,927 for, and assumes 1% annual inflation (based on the latest 12-month average CPI change in BC from BC Stats) for 2016 to 2019.

18 18 ILLUSTRATIVE MONTHLY BILL COMPARISONS SMALL COMMERCIAL Electricity Bill Comparison for to Small Commercial Water Bill Comparison for to Small Commercial 2019 $612 $ $298 $ $646 $633 Scenario 1 - No Debt 2018 $347 $259 Scenario 1 - No Debt 2017 $682 $633 Scenario 2-50% Debt 2017 $245 $441 Scenario 2-50% Debt 2016 $658 $ $231 $311 Existing Rate $634 $634 Existing Rate $219 $219 $200 $400 $600 $800 $1,000 $1,200 $200 $400 $600 $800 $1,000 $1,200 Sewer Bill Comparison for to Small Commercial Property Tax Bill Comparison for to Small Commercial $304 $376 $276 $376 $251 $376 Sewer Levy for 2016 to 2019 Scenario 1 - No Debt - Sewer Charge Scenario 1 - No Debt - Sewer Levy $1,197 $1,185 $1, $181 $223 Scenario 2-50% Debt - Sewer Charge 2016 $1,162 Existing Rate $87 $87 $45 $45 $45 Sewer Levy for $500 $1,000 Scenario 2-50% Debt - Sewer Levy Existing Rate $200 $400 $600 $800 $1,000 $1,200 $1,181 Parameters used in the bill calculation: - Electricity consumption at 5,000 kwh, 10 kva, based on the average monthly consumption for all general service customers consuming less than 10,000 kwh per month. - Water consumption at 200 cubic meters, based on the average monthly consumption for customers with meter size of 38mm (1 and 1/2 inches). - Sewer bill is based on the average monthly consumption for customers with meter size of 25mm, 38mm, 50mm, 75mm and 100mm. - Property tax bill is based on the average property assessment of $987,745 for, and assume 1% annual inflation (based on the latest 12-month average CPI change in BC from BC Stats) for 2016 to 2019.

19 19 ILLUSTRATIVE MONTHLY BILL COMPARISONS LARGE COMMERCIAL/INDUSTRIAL Electricity Bill Comparison for to Large Commercial/Industrial Water Bill Comparison for to Large Commercial/Industrial 2019 $5,325 $5, $830 $ $5,616 $5,498 Scenario 1 - No Debt 2018 $704 $948 Scenario 1 - No Debt 2017 $5,499 $5,923 Scenario 2-50% Debt 2017 $655 $1,183 Scenario 2-50% Debt 2016 $5,708 $5, $609 $821 Existing Rate $5,500 $5,500 Existing Rate $566 $566 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 Sewer Bill Comparison for to Large Commercial/Industrial Property Tax Bill Comparison for to Large Commercial/Industrial 2019 $304 $376 Scenario 1 - No Debt - Sewer Charge 2019 $1, $276 $376 Sewer Levy for 2016 to 2019 $251 $376 Scenario 1 - No Debt - Sewer Levy $1,212 $1, $181 $223 Scenario 2-50% Debt - Sewer Charge 2016 $1,188 Existing Rate $87 $87 $45 $45 $45 Sewer Levy for $2,000 $4,000 $6,000 Scenario 2-50% Debt - Sewer Levy Existing Rate $1,199 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 Parameters used in the bill calculation: - Electricity consumption at 50,000 kwh, 100 kva, based on the average monthly consumption for all general service customers consuming more than 10,000 kwh per month. - Water consumption at 600 cubic meters, based on the average monthly consumption for customers with meter size of 50mm (2 inches). - Sewer bill is based on the average monthly consumption for customers with meter size of 25mm, 38mm, 50mm, 75mm and 100mm. - Property tax bill is based on the average property assessment of $999,303 for, and assume 1% annual inflation (based on the latest 12-month average CPI change in BC from BC Stats) for 2016 to 2019.

20 20 MUNICIPALITY COMPARISON - OVERVIEW Comparison results are presented for consolidated Electricity, Water, Sewer, and Property Tax bills for average residential, commercial and industrial customers. Note: Income disparity and ability to pay should be considered when comparing the bills for customers in different provinces. The majority of BC municipalities do not generate sufficient revenues from fees to pay for the full cost of providing water and sewer services.

21 21 MUNICIPALITY COMPARISON CONSOLIDATED CUSTOMER BILLS (In Dollars) Swift Current, SK Thunder Bay, ON Regina, SK Kingston, ON St. Thomas, ON Brandon, MB Lethbridge, AB Ponoka, AB Strathmore, AB Red Deer, AB Sample Average Edmonton, AB Medicine Hat, AB Calgary, AB Grand Forks, BC Cardston, AB Fort MacLeod, AB Nelson, BC Fort McMurray, AB Crownest, AB Vernon, BC Kamloops, BC Nanaimo, BC Summerland, BC BC Average Maple Ridge, BC Penticton, BC New Westminster, BC Kelowna, BC Osoyoos, BC Langley, BC Comparison of Residential Customer Consolidated Bills $100 $200 $300 $400 $500 $600 $700 $800 $900 Monthly Property Taxes (average assessment value at $314,927) Average Monthly Electricity Bill (914 kwh/month) Average Monthly Water Bill (30 cubic meters/month) Average Monthly Sanitary Sewer Bill (fixed charges and/or volume charges)

22 22 MUNICIPALITY COMPARISON CONSOLIDATED CUSTOMER BILLS Comparison of Commercial Customer Consolidated Bills (In Dollars) Thunder Bay, ON Kingston, ON St. Thomas, ON Brandon, MB Lethbridge, AB New Westminster, BC Regina, SK Kamloops, BC Edmonton, AB Red Deer, AB Nanaimo, BC Grand Forks, BC Calgary, AB Vernon, BC Sample Average Nelson, BC Medicine Hat, AB Maple Ridge, BC Ponoka, AB BC Average Strathmore, AB Swift Current, SK Langley, BC Cardston, AB Kelowna, BC Penticton, BC Summerland, BC Fort McMurray, AB Fort MacLeod, AB Crownest, AB Osoyoos, BC $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 Monthly Property Taxes (average assessment value at $999,304) Average Monthly Water Bill (200 cubic meters/month) Average Monthly Electricity Bill (5,000 kwh/month, 10 kw) Average Monthly Sanitary Sewer Bill (fixed charges and/or volume charges)

23 23 MUNICIPALITY COMPARISON CONSOLIDATED CUSTOMER BILLS Comparison of Industrial Customer Consolidated Bills (In Dollars) St. Thomas, ON Edmonton, AB Red Deer, AB Grand Forks, BC Swift Current, SK Calgary, AB Regina, SK Nelson, BC Lethbridge, AB New Westminster, BC Ponoka, AB Sample Average Kamloops, BC Strathmore, AB Vernon, BC Penticton, BC BC Average Summerland, BC Brandon, MB Maple Ridge, BC Langley, BC Medicine Hat, AB Fort McMurray, AB Kelowna, BC Cardston, AB Fort MacLeod, AB Nanaimo, BC Osoyoos, BC Crownest, AB $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 Monthly Property Taxes (average assessment value at $987,745) Average Monthly Water Bill (600 cubic meters/month) Average Monthly Electricity Bill (50,000 kwh/month, 100 kw) Average Monthly Sanitary Sewer Bill (fixed charges and/or volume charges)

24 24 SUMMARY AND NEXT STEPS The City of Penticton is facing increased capital costs in the period from -2019, particularly for the water and sanitary sewer utilities. Options to mitigate rate increases include financing a portion of capital costs with new debt. Bill impacts of certain preliminary rate options have been prepared for discussion, other options are possible. Rate increases could be phased in over the period of 2016 to Based on feedback stakeholders, other rate options can be developed for further discussion with Council and the public. A report will be prepared for Council s review in the Fall of with rate options that could be implemented effective 2016.