| Background: |
BPA and the City of Ashland entered into a new 10-year
power sale contract on Oct 2001. The first rate period of that contract covered
October 2001 through September 2006. Because BPA subscribed to provide more
Federal power than the Federal base system produces, they had to go out and
acquire market power to fulfill their contract obligations. Last year because
of the drought, the amount of power they had to purchase to augment the output
of the federal system was much higher than in normal water year. Also because
of California's energy woes, the West Coast energy markets were pricing market
power at unprecedented rates.
BPA has the base rate they charge utilities for power but also has
three different Cost Recovery Adjustment Clauses (CRAC) that they can use
to collect additional revenue if needed. The Load Based CRAC (LBCRAC) is
specifically used to cover BPA's augmentation costs for acquiring market
power to meet their loads. Last year during the budget process BPA was warning
customers that the LBCRAC was probably going to be in the range of 100% to
250%, unless the region was able to act collectively to reduce regional power
demands and limit the amount of market power that BPA needed to purchase.
BPA then began a series of actions in which they paid for load reduction,
or got voluntary load reduction agreements from their utility customers.
Ashland agreed to voluntarily take actions that would help reduce power purchases
from BPA. Many of these actions were successful and in July BPA announced
that the LBCRAC would be 46% for the period October 2001 through March
2002.
The city, not knowing the actual LBCRAC last year during the budget
process, raised rates on July 1, 2001. This rate increase was a 10% basic
rate increase and an additional 10% in the form of a "BPA Surcharge." The
surcharge idea surfaced during last year's budget process as a way to deal
with BPA wholesale rate increases without creating extra general fund revenue
via the electric user's tax. During the budget process it was noted that
staff expected to return with an additional increase in October 2001, when
the LBCRAC was known. In October 2001, with full knowledge of the LBCRAC
of 46%, staff recommended that no additional rate increase was needed. This
turned out to be the case because the city accomplished the following
steps:
-
Implemented a preliminary rate increase (10%) in July to allow a reserve
to build to offset some of the increase in wholesale power in October.
-
Incorporated a separate 10% surcharge in July not included in franchise
and user tax calculations.
-
Encouraged conservation and ensured heightened public awareness to
higher costs.
-
Set aside an additional $350,000 for conservation, rate relief and
"green power" programs.
-
Increased efforts to help citizens minimize their power consumption
on a long-term basis.
-
Expanded the low-income assistance program for paying electric
bills.
Combining the lower wholesale power cost adjustment with successful
efforts in Steps 1,2, and 3 above, the city minimized the need for a second
round of increases last year. The LBCRAC for the second 6 month period (March
2002-Sept 2002) was announced at 41%. BPA is also projecting that it will
probably drop to 35-40% for the 6-month period of Oct 2002 to March 2003.
However, BPA's second cost recovery adjustment clause, the financial based
one, (FBCRAC) is predicted to trigger for the full 12-month period of October
2002 to October 2003. They are predicting that it will be in the neighborhood
of an additional 10%. The FBCRAC is not determined by BPA's augmentation
costs but by BPA's accumulated net revenue. It can trigger independent of
the LBCRAC and the single largest influence is BPA's seasonal surplus power
sales revenue. Here again, it is not known what the LBCRAC and FBCRAC numbers
will be in October 2002, so staff is recommending an increase of 6% in the
basic rate and an additional 6% increase in the surcharge on July 1, 2002.
Staff can then analyze the actual numbers and if necessary return to the
council for an adjustment in October.
Also in March 2002, staff discussed with the council the need to revise
the rate design for commercial classes CO1 and C03 by changing the declining
blocks and going to increasing block rates. This will give commercial customers
appropriate conservation price signals and bring them in line with our
residential rates. This change would, as much as possible, be revenue neutral
for this customer class.
Staff intends to return to the council on May 21, with an electric
rate resolution which will implement this rate design change and also incorporate
a 6% basic rate increase and additional 6% surcharge increase for all customer
classes. |
