TVA and HU Rate Actions September 2018
TVA Rate Actions 2
3 TVA Rate Change Key Components TVA implements a fixed grid access charge for local power companies on their monthly power bill based on rolling 5 year historical energy volumes (similar to an availability charge). Reduction of energy rates by $0.005/kWh to offset the fixed component. TVA puts in place default retail rates to send price signals to address reduced consumption and distributed generation (solar, onsite generators, etc.). The default rates would flip our current residential rate structure from inclining block to declining block. Minor cost-based changes hydro credit re-alignment, fuel cost changes. Rate structure changes are passed on by TVA as regulator and are not subject to Council Approval but must be signed by the Mayor (power contract amendment).
4 TVA Rate Action Summary 1. Huntsville Utilities submitted a rate change election form requesting to defer the TVA rate change implementation until October 1, 2019. 2. City Council approved the rate change power contract amendment prior to October 1, 2018 to avoid the default TVA retail rates and defer the rate change. 3. Huntsville Utilities, TVA and City Council must agree upon a retail rate action prior to October 1, 2019. TVA has not stipulated that the retail rate action must be declining block. Our plan is to make adjustments to our current rate structure. Huntsville Utilities is one of only four local power companies in the Valley to have an inclining block rate structure for residential customers. 4. In addition to the rate change, TVA is going to implement a 1.5% rate increase effective October 1, 2018.
Huntsville Utilities Rate Action 5
6 Why Is A Rate Increase Needed? TVA requires that we take some action prior to October 1, 2019 to avoid default rates. Supply and material costs have increased steadily over time. Electric system maintenance and improvements are required to ensure reliable service and meet the needs of our growing community. Technological advancements that will enable us to better serve our customers have resulted in Huntsville Utilities undertaking some of the largest capital projects in our history.
7 Costs Continue to Rise Here are examples of items we purchase to keep the system operating and how the costs have changed from 2010 through 2018. We have limited control over these costs. 2010 2018 $ Increase % Change % Per Year 75 Concrete Pole $3,090 $3,590 $500 16.2% 2.03% 2,000 Reel of Cable $4,060 $5,800 $1,740 42.9% 5.36% Bucket Truck $167,500 $240,000 $72,500 43.3% 5.41% Capacitor Bank $4,401 $6,265 $1,864 42.4% 5.30%
8 Managing the Financial Position Progress comes at a cost (amounts shown will be incurred in the next 5 years): New Construction Projects - $39,234,000 Fiber - $36,500,000 AMI - $31,745,000 Infrastructure repairs and maintenance - $21,240,000 Transformers - $10,300,000 And standard operating costs must continue to be covered: Purchased power - $2,189,000,000 Employee expenses - $236,609,000 Tax Equivalents - $63,971,000 Bond debt service - $32,137,000
Only 15% of Electric Revenue Stays at HU 9
10 2019 Strategic Plan Mission Vision Values Organizational Goals Focus Areas Community Demonstrate Prudent Stewardship Workforce Performance Customer Satisfaction Strengthen Trust in Huntsville Utilities Deliver Excellent Customer Experiences Do What s Right Respect our Customers System Reliability Get Better Everyday Develop Engaged and Effective Employees Financial Stability Organizational Excellence
11 Award-Winning Reliability HU was awarded the highest available ranking in the Reliable Public Provider Program (RP3) from the American Public Power Association. RP3 recognizes utilities that demonstrate high proficiency in reliability, safety, work force development and system improvement. No other utility in Alabama has achieved Diamond status. January 18, 2018 saw the highest demand on record (1,451 MW). Out of roughly 178,000 electric customers, approximately 220 were impacted by outages that morning (0.1%). The average customer had power 99.9993% of the time during that 3 day peak event.
12 Significant Improvements to Customer Care Changed the billing & payment cycle to include mailing a separate Final Notice to customers and eliminating the need for a customer to request a payment extension. Request for New Service can be made online with 3 rd Party Consumer Credit Check allowing us to reduce deposits for approximately 50% of customer applying online Registration Kiosk installed at the Main Office to improve efficiency and reduce customer wait time by 90 seconds. Continue to improve the customer experience through training, post transaction survey and call monitoring program Improved Call Center Performance, answering 85.7% of call in less than 60 seconds Implemented Virtual Hold, September 2016 Call Escalation Process Implemented in September 2016 CHAT coming in Fall 2018 Call Abandon Rate down from 16.1% in 2015 to 1.3% in 2017 Expanded payment options for all customers 51 WU Bill Pay Locations with extended hours Self-Service Payment Kiosk (3 are 24/7) Pay-By-Text and Recurring Credit/Debit Card Payments now offered Annually, more than 10,000 Agency Grants processed for a total of $2.6 million dollars in customer assistance
13 Helping Those Most In Need Huntsville Extreme Energy Makeover Huntsville Utilities invested $26,000 on the writing of a grant for the purpose of improving the homes of low income residents The winning of this grant resulted in being awarded TVA funding totaling $12,040,000 In Madison County we upgraded over 1,138 limited income owned homes This grant took place over a 26 month period from late 2015 through FY 2017 Huntsville Home Uplift Program This is a two year partnership with TVA and Huntsville Housing Authority TVA and HHA are providing $500,000 each year for the next two years 146 homes upgraded in FY18 totaling $620,000 and expect over 100 more homes next year These programs are an effort to develop a sustainable approach to better the lives of limited income Huntsville Utility customers
14 Promoting Energy Efficiency in Our Community New Homes Program 1,364 homes certified to State of Alabama Energy Code during the past calendar year Home Energy Survey Program 523 homes surveyed in the past calendar year. $119,735 in customer rebates paid through TVA funds. Operation Green Team Foundation 31 upgrades totaling $110,000 made to homes of low income residents
15 Residential Utility Bill Comparison $400.00 $379.34 $350.00 $300.00 $259.63 $267.01 $286.19 $291.26 $294.31 $295.84 $306.27 $311.38 $250.00 $223.60 $200.00 $150.00 $100.00 $50.00 $- Source: MLGW 2018 Utility Bill Comparisons for Selected Cities (Only Electric, Water and Gas estimates used)
Louisiana Washington HU 2016 Idaho Arkansas North Dakota Oklahoma Kentucky Tennessee Oregon Nebraska Utah Montana North Carolina Texas Mississippi Missouri Wyoming West Virginia Virginia South Dakota Georgia Florida Indiana Nevada Colorado Ohio Arizona Iowa Alabama Illinois South Carolina New Mexico Minnesota Kansas Delaware Maryland Pennsylvania Wisconsin Michigan New Jersey Maine Vermont New York California Rhode Island Massachusetts New Hampshire Connecticut Alaska Hawaii 16 Average Price of Electricity ( per kwh) for All States 30.00 29.50 25.00 20.00 15.00 10.00 9.51 9.68 10.65 12.61 5.00 - Source: The Tennessean (USA Today, 24/7 Wall Street) based on 2016 EIA information.
17 Availability Increases vs Usage Increases Availability Charge designed to recognize that customers have the benefit of utility service even if they don t use it (service is available upon demand) Ideally should recover fixed costs Stable source of revenue with limited weather impacts With TVA moving to fixed component, becomes more critical for cost recovery Usage Charges for customer consumption (demand and energy) Ideally should be a pass through, but realistically is very difficult to achieve Riskier option, because of the volatility of weather and declining usage patterns there are higher upsides and lower downsides Structure (single, inclining, declining) plays a key role with efficiency and bill predictability
18 Residential Electric Availability Charge $45.00 $30.00 Average $17.73 $15.00 $9.17 $0.00 Based on TVA information, Huntsville Utilities currently has the 5 th lowest availability charge out of 154 utilities.
19 Commercial Availability Charges $50.00 $40.00 $30.00 $20.00 $10.00 $0.00 $400.00 $350.00 $300.00 $250.00 $200.00 $150.00 $100.00 $50.00 $0.00 $11.70 Small Commercial Customer Charge $55.35 Average $23.40 Medium Commercial Customer Charge Average $89.98
20 Commercial Availability Charges $1,600.00 Large Commercial Customer Charge $1,400.00 $1,200.00 $1,000.00 $800.00 $600.00 $400.00 Average $309.35 $200.00 $158.15 $0.00
21 Comparison of Rate Classes Sales Revenue Customers 1% 40% 51% 88% 12% 8% Residential Small Commercial Large Commercial & Industrial Public Street & Highway Lighting Residential All Others
Meters Employees 22 Meters Per Employee 700,000 660 700 600,000 588 600 500,000 505 506 500 400,000 400 300,000 296,789 307,865 310,914 315,742 319,263 324,753 329,416 334,710 300 200,000 200 100,000 100-2010 2011 2012 2013 2014 2015 2016 2017 Total Meters Employees Total Meters Per Employee -
23 Staffing Comparison to Peers CHATTANOOGA EPB 592 CHATTANOOGA EPB 307 HUNTSVILLE UTILITIES 663 MEMPHIS LGW 374 NASHVILLE ELECTRIC SERVICE 924 GROUP AVERAGE 414 KNOXVILLE UTILITIES BOARD 1,000 NASHVILLE ELECTRIC SERVICE 430 GROUP AVERAGE 1,172 KNOXVILLE UTILITIES BOARD 452 MEMPHIS LGW 2,679 HUNTSVILLE UTILITIES 506 TOTAL EMPLOYEES - 500 1,000 1,500 2,000 2,500 3,000 METERS/EMPLOYEE - 100 200 300 400 500 600 Note: Nashville Electric Service provides only electric service. Chattanooga EPB provides electric service and has a fiber network. Knoxville Utilities Board and Memphis Light Gas & Water are multi-service utility providers.
24 Utility Distribution per Employee MEMPHIS LGW 5.90 NASHVILLE ELECTRIC SERVICE 6.27 GROUP AVERAGE 10.15 KNOXVILLE UTILITIES BOARD 10.39 CHATTANOOGA EPB 13.42 HUNTSVILLE UTILITIES 14.74 DISTRIBUTION LINES/EMPLOYEES - 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 Note: Nashville Electric Service provides only electric service. Chattanooga EPB provides electric service and has a fiber network. Knoxville Utilities Board and Memphis Light Gas & Water are multi-service utility providers.
25 Prior Council Feedback on Rates Any rate increase should be spread across all rate classes Increases should be in both availability and usage charges Consideration given to impacts on fixed and low income ratepayers Retain multiple usage tiers to support conservation
26 Proposed HU Rate Action To maintain financial stability and avoid system-critical sacrifices, we plan on bringing the following three options to City Council for an electric rate action to be effective January 1, 2019: Option 1: A 2.5% increase in FY19 that would increase availability for residential and commercial customers along with demand increases to medium and large commercial customers and an energy increase to outdoor lighting. A 2.0% increase would follow in FY21 that follows a similar format. Option 2: This would see five consecutive annual increases beginning in FY19 to residential and commercial availability and would keep the demand and energy increases to commercial and outdoor lighting customers as detailed above. This increase equates to 0.8% for residential customers each year. Large commercial and industrial customers have higher increases in FY19 and FY20 in a similar fashion as with Option 1. Option 3: This approach combines the rate tiers for residential usage to eliminate availability increases in FY19 and FY20 for those rate classes. Smaller residential availability increases occur in FY21 through FY23. Commercial and industrial customers and outdoor lighting customers would see increases similar to the other two options. This increases revenue from residential customers by 1.3% in FY19 and FY20 and 0.6% for FY21-23. However, impacts to customers vary based on usage.
27 Five Year Rate Strategy Option 1 FY18 Rate FY19 Rate FY20 Rate FY21 Rate FY22 Rate FY23 Rate FY19 Increase FY21 Increase Residential Availability $ 9.17 $ 12.18 $ 12.18 $ 14.56 $ 14.56 $ 14.56 $ 3.01 $ 2.38 Small Commercial Availability $ 11.70 $ 15.98 $ 15.98 $ 19.35 $ 19.35 $ 19.35 $ 4.28 $ 3.37 Medium Commercial Availability $ 55.35 $ 60.35 $ 60.35 $ 65.35 $ 65.35 $ 65.35 $ 5.00 $ 5.00 Large Commercial Availability $ 158.15 $ 168.15 $ 168.15 $ 178.15 $ 178.15 $ 178.15 $ 10.00 $ 10.00 FY19 FY21 Residential Usage 0-1,400 kwh (per kwh) $ 0.09395 $ 0.09395 $ 0.09395 $ 0.09395 $ 0.09395 $ 0.09395 $ - $ - Residential Usage Additional kwh (per kwh) $ 0.10231 $ 0.10231 $ 0.10231 $ 0.10231 $ 0.10231 $ 0.10231 $ - $ - FY19 FY21 Medium Commercial Demand (per kw) $ 12.78 $ 14.13 $ 14.13 $ 15.18 $ 15.18 $ 15.18 $ 1.35 $ 1.05 Large Commercial Demand Tier 1 (per kw) $ 13.10 $ 14.16 $ 14.16 $ 14.99 $ 14.99 $ 14.99 $ 1.06 $ 0.83 Large Commercial Demand Tier 2 (per kw) $ 12.92 $ 13.98 $ 13.98 $ 14.81 $ 14.81 $ 14.81 $ 1.06 $ 0.83 Outdoor Lighting (per kwh) $ 0.07150 $ 0.07353 $ 0.07353 $ 0.07488 $ 0.07488 $ 0.07488 $ 0.00203 $ 0.00135 FY19 FY20 FY21 FY22 FY23 Total Increase Additional Revenue from Prior Year $ 9,156,573 $ 3,439,338 $ 9,935,047 $ 699,086 $ 707,512 $ 23,937,556 Residential Classes $ 4,797,122 $ 1,946,791 $ 5,335,273 $ 565,513 $ 572,338 $ 13,217,037 All Other Classes $ 4,359,451 $ 1,492,547 $ 4,599,774 $ 133,573 $ 135,174 $ 10,720,519
28 Five Year Rate Strategy Option 2 FY18 Rate FY19 Rate FY20 Rate FY21 Rate FY22 Rate FY23 Rate Annual Increase Residential Availability $ 9.17 $ 10.17 $ 11.17 $ 12.17 $ 13.17 $ 14.17 $ 1.00 Small Commercial Availability $ 11.70 $ 12.98 $ 14.26 $ 15.54 $ 16.82 $ 18.10 $ 1.28 Medium Commercial Availability $ 55.35 $ 61.39 $ 67.43 $ 73.47 $ 79.51 $ 85.55 $ 6.04 Large Commercial Availability $ 158.15 $ 175.40 $ 192.65 $ 209.90 $ 227.15 $ 244.40 $ 17.25 FY19 - FY23 Residential Usage 0-1,400 kwh (per kwh) $ 0.09395 $ 0.09395 $ 0.09395 $ 0.09395 $ 0.09395 $ 0.09395 $ - Residential Usage Additional kwh (per kwh) $ 0.10231 $ 0.10231 $ 0.10231 $ 0.10231 $ 0.10231 $ 0.10231 $ - FY19 FY20 Medium Commercial Demand (per kw) $ 12.78 $ 14.13 $ 15.18 $ 15.18 $ 15.18 $ 15.18 $ 1.35 $ 1.05 Large Commercial Demand Tier 1 (per kw) $ 13.10 $ 14.16 $ 14.99 $ 14.99 $ 14.99 $ 14.99 $ 1.06 $ 0.83 Large Commercial Demand Tier 2 (per kw) $ 12.92 $ 13.98 $ 14.81 $ 14.81 $ 14.81 $ 14.81 $ 1.06 $ 0.83 Outdoor Lighting (per kwh) $ 0.07150 $ 0.07353 $ 0.07488 $ 0.07488 $ 0.07488 $ 0.07488 $ 0.00203 $ 0.00135 FY19 FY20 FY21 FY22 FY23 Total Increase Additional Revenue from Prior Year $ 5,694,085 $ 8,263,274 $ 3,134,220 $ 3,218,128 $ 3,303,887 $ 23,613,594 Residential Classes $ 1,811,118 $ 2,905,800 $ 2,493,270 $ 2,559,981 $ 2,628,164 $ 12,398,333 All Other Classes $ 3,882,967 $ 5,357,474 $ 640,950 $ 658,147 $ 675,723 $ 11,215,261
29 Five Year Rate Strategy Option 3 Increases FY18 Rate FY19 Rate FY20 Rate FY21 Rate FY22 Rate FY23 Rate FY19 - FY20 FY21 - FY23 Residential Availability $ 9.17 $ 9.17 $ 9.17 $ 9.92 $ 10.67 $ 11.42 $ - $ 0.75 Small Commercial Availability $ 11.70 $ 12.98 $ 14.26 $ 15.54 $ 16.82 $ 18.10 $ 1.28 $ 1.28 Medium Commercial Availability $ 55.35 $ 61.39 $ 67.43 $ 73.47 $ 79.51 $ 85.55 $ 6.04 $ 6.04 Large Commercial Availability $ 158.15 $ 175.40 $ 192.65 $ 209.90 $ 227.15 $ 244.40 $ 17.25 $ 17.25 FY19 FY20 Residential Usage 0-1,400 kwh (per kwh) $ 0.09395 $ 0.09604 $ 0.09813 $ 0.09813 $ 0.09813 $ 0.09813 $ 0.00209 $ 0.00209 Residential Usage Additional kwh (per kwh) $ 0.10231 $ 0.10022 $ 0.09813 $ 0.09813 $ 0.09813 $ 0.09813 $ (0.00209) $ (0.00209) FY19 FY21 Medium Commercial Demand (per kw) $ 12.78 $ 14.13 $ 14.13 $ 15.18 $ 15.18 $ 15.18 $ 1.35 $ 1.05 Large Commercial Demand Tier 1 (per kw) $ 13.10 $ 14.16 $ 14.16 $ 14.99 $ 14.99 $ 14.99 $ 1.06 $ 0.83 Large Commercial Demand Tier 2 (per kw) $ 12.92 $ 13.98 $ 13.98 $ 14.81 $ 14.81 $ 14.81 $ 1.06 $ 0.83 Outdoor Lighting (per kwh) $ 0.07150 $ 0.07353 $ 0.07353 $ 0.07488 $ 0.07488 $ 0.07488 $ 0.00203 $ 0.00135 FY19 FY20 FY21 FY22 FY23 Total Increase Additional Revenue $ 6,275,249 $ 5,875,958 $ 6,081,851 $ 2,634,754 $ 2,703,852 $ 23,571,664 Residential Classes $ 2,392,291 $ 4,033,205 $ 1,926,198 $ 1,976,611 $ 2,028,132 $ 12,356,437 All Other Classes $ 3,882,958 $ 1,842,753 $ 4,155,653 $ 658,143 $ 675,720 $ 11,215,227
30 Electric Bill Comparison with Alabama Power $200.00 $180.00 $160.00 $140.00 $120.00 $100.00 $80.00 $60.00 $40.00 $20.00 $0.00 $136.41 Huntsville Utilities - Current $167.60 Alabama Power - Current $153.10 Bill calculations based on 1,342 kwh using August 2018 rates. $141.41 Huntsville Utilities - October 2022 Alabama Power is part of the Southern Company and does not have a power contract with TVA. Alabama Power waives the $14.50 availability fee for certain low income qualifying customers. At the end of the 5 years of HU rate increases and with the Alabama Power bill including tax savings passed on as a result of the Federal Tax Cuts and Jobs Act, the Alabama Power bill would still be $26.19 more than Huntsville Utilities bill for the same month assuming they don t raise their rates. October 2022 projected bill amount is exclusive of any TVA rate increases or fuel adjustments.
31 What If a Rate Increase is Not Approved? If TVA, City Council and Huntsville Utilities have not agreed upon some form of rate modification by October 1, 2019, then the default TVA rates go into effect. Bond ratings on debt issued by Huntsville Utilities (and potentially the City of Huntsville) face potential negative rate actions from S&P and Moody s for failure to meet financial projections. Without additional funding, the current five year capital improvement plan and operating budgets are not sustainable. Specific projects are at risk which directly impact reliability.
32 Priorities At Risk Without Funding Substation and Distribution Improvements Six substation upgrades and two transmission tie circuits are in jeopardy without proper funding. Economic Development Financial stability allows HU to partner in Huntsville s growth. Technology Innovation In recent years, Huntsville Utilities has implemented a number of technology-based improvements, providing better customer service and operational efficiencies. Such efforts require ongoing investment in resources, training, and support. AMI In addition to sunk costs associated with the work already completed, there would likely be contractual penalties that must be paid to the contractor. Work may have to be rebid at a potentially higher cost. Fiber Much like AMI, a good deal of work has already been performed. More importantly, there are contractual timeline requirements with Google that must be met.
33 Proposed Timeline Electric Board Approval August 29, 2018 City Council Introduction 27 TVA Approval Process Begins City Council Vote 11 Local Rate Action Effective January 1, 2019 29 30 Employee Meetings 18-20 Public Meeting 26 04 Council Work Session 20 22 24 26 28 30 02 04 06 08 10 12 14 16 18 20 September October
34 Huntsville Utilities Rate Action Summary Huntsville Utilities has a robust electric system that provides a better quality of life for our community Operate reliable systems 24/7/365 Costs are well-managed and compare favorably to peers TVA s strategic pricing plan is guiding our path Monthly residential availability charges will go up $1 each year for five years $12 additional each year regardless of weather Commercial customers will see an increase in availability and demand charges