HomeMy WebLinkAboutA- 4 Staff Report Electric Rates PUBLIC HEARING
TO: HONORABLE MAYOR AND MEMBERS OF AZUSA CITY COUNCIL
FROM: JOSEPH F. HSU, DIRECTOR OF UTILITIES
VIA: RICK COLE, CITY MANAGER
DATE: JUNE 16, 2003
SUBJECT: APPROVAL OF ELECTRIC RETAIL RATE ADJUSTMENT OF 10% COMMENCING JULY 1,
2003
RECOMMENDATION
It is recommended that the City Council conduct a public hearing and approve the proposed 10%
electric retail rate adjustment to be effective July 1, 2003. It is further recommended that the City
Council rescind the one cent per kWh fuel cost adjustment surcharge as of July 1, 2003. These
simultaneous steps will result in a total savings to electric customers of about $65,000 in the coming
year.
BACKGROUND
The City of Azusa’s electric utility has maintained stable, affordable and competitive retail electric
rates in the past fifteen years with only two retail rate adjustments throughout the period. The most
recent retail rate adjustment occurred in September 2002 whereby the retail rates were increased by
5% across all customer classes. Further, although the City has established an automatic fuel cost
adjustment (FCA) clause in the late 1980’s to deflect any unanticipated power procurement costs
due to the volatile electricity market, the FCA clause has not been used until recently (August 2001)
to deflect the costs associated with the City’s San Juan Unit 3 generation outage in the summer,
2001.
However, several factors identified through the electric utility strategic planning process will result in
the need for additional base electric revenue requirement in the near future. These factors are:
A) Major electric system capital improvements which will need to be undertaken shortly to
ensure the continued delivery of reliable electric service to existing and future Azusa’s
electric customers.
B) Compliance of State mandates in renewable energy procurement.
C) Increased operating and maintenance costs due to general cost escalation.
It is determined that a 10% increase in retail rates will provide sufficient revenue support for the
anticipated cost increases caused by the factors listed above.
However, the factors contributing to the imposition of the automatic fuel cost adjustment have
subsided and thus the imposition of FCA recovery is no longer justified at this time. Currently, the
electric utility derives about 10% of revenues from FCA.
In summary, the effect of a combined (1) 10% retail rate increase; and (2) the rescission of the FCA
surcharge will result in no electric cost increases to most of Azusa’s customers compared to current
costs for electric services. Further, the proposed rate adjustment will not result in net revenue
increases for Azusa’s electric utility.
FISCAL IMPACT
The proposed 10% electric rate increase will result in a base electric revenue increase of
approximately $2.2 million in fiscal year 03-04. The proposed rescission of fuel cost adjustment will
result in a reduction of revenue collection under fuel cost adjustment of approximately $2.27 million
in fiscal year 03-04. Thus the combined effect of these two adjustments is neutral to the electric
utility finances. The general fund is expected to receive additional contribution of 10% from the
incremental base revenue increase of $2.2 million or about $220,000/year from these adjustments.
Prepared by: Bob Tang, Assistant Director Resource Management
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