| The City of Ashland has a 10-year sales contract with the Bonneville
Power Administration that runs from 2001-2011. The first rate period of that
contract is a 5-year period that runs from 2001through 2006. Prior to this
rate period, BPA had utilized 2-year rate periods, but they proposed a 5-year
rate period to try and give utilities a more stable planning period.
Instead of raising their rates for the entire 5-year period, utilities urged
BPA to set their rates at the lowest possible level and then adjust them
as conditions warranted. To accomplish this, BPA developed in our Power Sales
Contract, the Cost Recovery Adjustment Clause (CRAC) that could be implemented
if the need for more revenue were to arise. There are 3 (CRAC) that can be
implemented if the need for more revenue were to arise. They are: The Load
Based (LB), The Financial Based (FB), and The Safety Net (SN).
When the rate period started in October 2001, the City was immediately hit
with a BPA Load Based Cost Recovery Adjustment Clause (LBCRAC) that added
a 46% wholesale increase to the first six months of the federal fiscal year
(Oct. 1 to Mar. 30). This increase was caused because BPA had requests for
more power than was available from the NW Hydro System. Therefore, they had
to make market purchases to acquire enough energy to meet their commitments.
This caused severe financial strain on BPA. Part of the problem was caused
by the drought encountered in 2001, which severely limited the amount of
power available from The Federal Hydro System, and compounded by the purchase
of power during a period of the highest market prices ever recorded because
of the California/West Coast Energy Crisis. Cost Recovery Adjustment Clauses
have been triggered in every rate period of the current 5-year rate period.
They have ranged from a low 40.8% to a high 47% for April 2004.
When it became clear that the City's wholesale power bills were going to
increase because of the CRAC's, the City decided that merely adding the cost
to our electric rates was not the best option, therefore, the BPA surcharge
concept was developed to deal specifically with this issue. The surcharge
is added to the customer's bills independent from our other rates and is
not subject to the 25% Electric User Tax or Franchise Fees that go directly
into the City's General Fund.
The BPA surcharge began on July 1, 2001 and started at 10% or $.00385/kWh.
The rate has increased twice, and currently sits at 20.8% or $.00801/kWh.
BPA has decided to set the SN CRAC at 0% for the rate period and this rate
decrease was implemented on October 1, 2004.
BPA's stated reasons for reducing the rates were based on the $200 million
settlement with the Investor Owned Utilities, $100 million of which occurs
in this rate period, cost reductions and higher secondary revenue from power
sales. The Council should understand that BPA's reductions now could increase
the probability of higher rates for wholesale power next year. But our
methodology for charging the surcharge is based upon changes to wholesale
power costs from BPA and it is set up to allow us to easily adjust it and
pass increases or decreases through to the citizens as conditions warrant.
Therefore, because BPA is lowering our costs, staff feels this reduction
should be passed on just like the increases that were previously imposed.
BPA has been working with Ashland and has applied the new rates to last year's
electric loads. This analysis shows that we should have savings over last
year's power bill of about $130,000.
A 12% reduction in the BPA surcharge to 18.45% would result in a decrease
in surcharge revenue of about $150,000 on an annual basis. This would translate
to a $1.08 reduction on the total utility bill for a residential customer
using 1200 kWh's in a month.
The estimated impact of the decrease at this time of the fiscal year is
approximately $100,000 less in wholesale power costs and an equivalent reduction
in revenues to June 30, 2005. The impacts of these two are expected to offset
each other and have little or no affect on the Electric Fund ending fund
balance for FY 2004-05. Currently, the fund balance for the Electric Fund
is slightly above the target in that preliminary calculations for the end
of FY 2003-04 shows a larger carryover ($ 1.7 versus $1.4 million) into the
new year than projected and budgeted. |
