City Council Agenda Report
Meeting Date: June 6, 2023
From: Todd Dusenberry, General Manager of Public Utilities Department: Public Utilities
Submitted by: Adriana Ramos, Administrative Analyst
Subject
Electric Rate Schedules
Recommendation
Adopt Resolution No. 2023-13 Amending Electric Rate Schedule Nos. CS (Customer Service Fee), D (Domestic Service), GS-1 (General Service), GS-2 (General Service), LS-1 (LightingStreet and Highway Utility-Owned System), LS-2 (Lighting-Street and Highway Customer-Owned Installation), OL-1 (Outdoor Area Lighting Service), PA-1 (Power-Agricultural and Pumping Connected Load Basis), PA-2 (Power-Agricultural and Pumping Demand Basis), PA-TOU (Power-Agricultural and Pumping Time-of-Use), TC-1 (Traffic Control Service), TOU GS-1 (General Service), TOU GS-2 (General Service), TOU PA-1 (Power-Agricultural and Pumping Connected Load Basis), TOU-D (Domestic Service), TOU-G (General Service-Large), TOU-V (General Service-Large), and TOU-Vt (General Service-Large) regarding electrical rates to be charged for electrical energy distributed and supplied by the City within its boundaries.
Background
The pace of change in the utility market is accelerating, including business development for new customers, loss of customers, supply chain issues, higher energy, natural gas, and construction costs, procurement of renewable energy, climate change, and regulatory and legislative mandates, which have all had a direct impact on the Vernon Public Utilities (VPU)’s Fiscal Year (FY) 2023-24 Operating and Capital Budgets. Navigating the challenges of long-term growth, resource planning, maintaining customer satisfaction and reliability while managing the significant amount of data to drive decision making is critical to the continued success of VPU and is critical to ensuring the viability of our customers.
As discussed during the FY 2023-24 budget workshops, internal staff meetings, customer meetings, and with representatives from Moody’s and S&P Global Ratings, VPU is transitioning over the next several years from its existing customer base that has been in Vernon for an average of thirty-five years. During FY 2022-23, VPU is forecasting lower revenues due to the loss and diminished operations of a few key customers. VPU also expects the loss of another major customer in calendar year 2024. With the transition to more green commerce operations in the City, VPU estimates a potential minimum load growth of 150 megawatts (MW) with the full build-out of projects within a five to ten-year period. By FY 2024-25, VPU estimates new load growth of 21.5 MW, which is higher than the current load loss of its top customers.
Based on the above factors, VPU’s FY 2023-24 Budget includes a proposed five percent (5%) electric rate increase. The budget also incorporates a minimal increase in electric load, as well as higher energy, natural gas, and construction costs. For example, costs for critical operating equipment, materials, and supplies, such as transformers and chlorine are up 62% and 103%, respectively, since 2020. The rate adjustment does not fully recover the loss of revenue from VPU’s top customers in FY 2022-23 and FY 2023-24. During the FY 2023-24 budget process, VPU was able to defer and eliminate more than $10 million in operating and capital costs without impacting vital infrastructure investments to continue to provide reliable service to customers.
Even with the proposed 5% rate adjustment, VPU’s revenues are flat at $184 million when compared to the FY 2022-23 revenue forecast. Considering the situation at hand, VPU’s electric rates are 10% lower than Southern California Edison. When compared to neighboring publicly owned utilities like Burbank Water and Power and Glendale Water and Power, VPU is lower by 13% and 26%, respectively. Future information about the proposed electric rate increase was sent out by U.S. postal service and email to every Vernon customer.
As part of the FY 2023-24 budget process, VPU staff engaged in multiple outreach meetings regarding VPU’s financial and operating plans, which included communication about the utility’s Electric Cost of Service (COS) Analysis and Rate Design Study (Study), as well as solicitation of customer feedback regarding the state of the utility. Furthermore, city and VPU staff held a Joint Special Business and Industry Commission/Green Vernon Commission meeting and hosted a Business Breakfast on April 25, 2023 and May 3, 2023, respectively. On May 25, 2023, a public notice of the proposed Adoption of the Resolution Amending Electric Rate Schedules was published in the Los Angeles Wave (Huntington Park Bulletin).
VPU’s last electric COS Analysis and Study was completed in 2018 and included a five-year rate study and financial plan. Accordingly, on April 2, 2019, City Council adopted Resolution No. 2019- 07 amending the electric rates for FYs 2019 through 2023. In accordance with Resolution No. 2019-07, VPU recommended a four-step rate adjustment as follows: (i) a 0.8% electric rate increase effective July 1, 2019, (ii) a 1.9% electric rate increase effective July 1, 2020, (iii) a 4% electric rate increase effective July 1, 2021, and (iv) a 4 % rate increase effective July 1, 2022.
On April 4, 2023, City Council approved a Services Agreement with NewGen Strategies & Solutions, LLC (NewGen) to conduct a new Study and to provide Rate Adjustment Recommendations. This forthcoming analysis will offer the best strategic approach to determine the appropriate rates and services to address stakeholder needs and ensure that only the costs to operate the utility are built into VPU’s rates. Moreover, the approach to this Study is to incorporate VPU’s data, market information, and community input to provide an integrated view designed to allow VPU to make long-term financial, operational, and procurement decisions.
Completion of the Study will confirm that VPU adheres to industry standard. Surrounding public utilities are also in the process of similar Cost of Service and rate design studies. Furthermore, because of this Study, VPU will have the financial model necessary to respond to market changes that impact its customers. One of the anticipated outcomes of this Study is to enable VPU to continue to provide competitive and stable rates to its customers. VPU expects to present the Study to City Council by August 2023. The Study with NewGen consists of the following:
· System Level Load Forecast
· Cost of Service Analysis/Revenue Requirements
· Rate Design
· Financial Reserves Policy
· Financial Forecast Model
While the study is in process, VPU recommends a proposed 5% electric rate increase effective July 1, 2023 be applied to all Commercial rate classes of electric customers; CS (Customer Service Fee), D (Domestic Service), GS-1 (General Service), GS-2 (General Service), LS-1 (Lighting-Street and Highway Utility-Owned System), LS-2 (Lighting-Street and Highway Customer-Owned Installation), OL-1 (Outdoor Area Lighting Service), PA-1 (Power-Agricultural and Pumping Connected Load Basis), PA-2 (Power-Agricultural and Pumping Demand Basis), PA-TOU (Power-Agricultural and Pumping Time-of-Use), TC-1 (Traffic Control Service), TOU GS-1 (General Service), TOU GS-2 (General Service), TOU PA-1 (Power-Agricultural and Pumping Connected Load Basis), TOU-D (Domestic Service), TOU-G (General Service-Large), TOU-V (General Service-Large), and TOU-Vt (General Service-Large).
In accordance with Vernon Municipal Code (VMC) Section 13.26.020, “any change in rates to be charged and collected for energy supplied by the Vernon electric system from and after July 29, 1982, shall be set by resolution of the City Council.” Therefore, VPU staff is seeking to amend the Electric Rate Schedule Nos. CS (Customer Service Fee), D (Domestic Service), GS-1 (General Service), GS-2 (General Service), LS-1 (Lighting-Street and Highway Utility-Owned System), LS-2 (Lighting-Street and Highway Customer-Owned Installation), OL-1 (Outdoor Area Lighting Service), PA-1 (Power-Agricultural and Pumping Connected Load Basis), PA-2 (PowerAgricultural and Pumping Demand Basis), PA-TOU (Power-Agricultural and Pumping Time-ofUse), TC-1 (Traffic Control Service), TOU GS-1 (General Service), TOU GS-2 (General Service), TOU PA-1 (Power-Agricultural and Pumping Connected Load Basis), TOU-D (Domestic Service), TOU-G (General Service-Large), TOU-V (General Service-Large), and TOU-Vt (General Service-Large) regarding electrical rates to be charged for electrical energy distributed and supplied by the City within its boundaries.
The proposed resolution has been reviewed and approved by the City Attorney’s Office. If approved, the proposed rate increase will become effective on July 1, 2023. Electric rate schedules can be found on the City’s website in the Public Utilities section under Rate & Fees tab.
Fiscal Impact
The recommended 5% electric rate adjustment has been included by VPU in the proposed FY 2023-24 Budget, Account Number 055-450-575-450010, Sale of Electricity.
Attachments
1. Resolution No. 2023-13
2. Public Notice
3. Revised Electric Rate Schedules (Redline)