Submitted By: Marie Brooks
presenter
Presentation By: Doug Peebles
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Department: Electric Utility
STAFF RECOMMENDATION (Motion Ready):
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Adopt Resolution 2022-36 amending the Electric Power Cost Adjustment Rate for monthly electric energy billing effective June 1, 2022
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OCALA’S RELEVANT STRATEGIC GOALS:
Fiscally Sustainable
PROOF OF PUBLICATION:
N/A
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BACKGROUND:
The Power Cost Adjustment (PCA) rate is the mechanism by which the positive and negative fluctuations in the cost of power are passed to the customer. Power costs and sales are reviewed monthly to project over or under collections for the year. While the PCA can be adjusted as often as monthly, the recent practice has been to make few adjustments in an effort to maintain stable rates to customers.
Energy prices have risen considerably over the last year causing nationwide pricing pressures on utilities and consumers. The City’s most recent increase to the PCA rate went into effect February 1, 2022. At that time, FMPA’s average gas price was $5.65 per mmBtu. As of May 2nd, natural gas prices have increased to $8.75 mmBtu and prices are predicted to continue increasing in the short term. According to FMPA’s projections, energy prices could remain high for the foreseeable future.
Prior to the February 2022 PCA rate increase, the last increase was August 1, 2017. Since July 2018, the PCA rate has experienced numerous reductions. The last reduction went into effect October 1, 2019 and those levels have been maintained with the exception of a two-month suspension in fiscal year 2020 due to the pandemic and declining economic conditions.
Typically, the major factors contributing to fuel costs are natural gas prices and weather. Today, there are many economic factors driving market fuel costs and creating volatile rates. While fuel costs steadily increased, the City’s PCA rate has remained relatively low by utilizing the Rate Stabilization Reserves (RSR) to absorb price increases to minimize customer impact. Fiscal Years 2020 and 2021 experienced under collections of approximately $3.5 million and $5.5 million respectively. In addition to the February 1, 2022 PCA increase, $8 million was transferred from the Electric Reserve for Contingencies to absorb under collections due to energy cost increases and maintain compliance with the RSR. Policy sets the targeted rate stabilization reserve funding at a minimum of 15% of projected fuel costs and a maximum of 25%.
FINDINGS AND CONCLUSIONS:
On May 11, 2022, staff participated in a rate workshop at which FMPA projected heightened fuel costs will continue through FY22. Fuel prices have more than doubled in the last year, and supply chain constraints are delaying or causing cancellation of renewable energy projects. The FMPA rate forecast indicates the City’s total fuel cost could exceed $155.6 million which is approximately $54 million over the budgeted amount for FY2022.
As of April 2022, the rate stabilization reserve balance is $20,945,945 or only 13.4% of the projected fuel cost of $155.6 million. Projected collections at the current PCA rate of $0.028 per kWh will result in an estimated under collection of approximately $49 million for the fiscal year ending 2022.
Staff has remained vigilant in evaluating fuel cost volatility. With the current outlook, projected fuel costs and projected under collections, staff recommends increasing the PCA rate by $0.028 to $0.056 per kWh effective June 1, 2022. The proposed increase will mitigate the impact of the current projected under collection of $49 million. At the rate of $0.056 with projected fuel cost of over $155 million, an under collection of approximately $34.6 million will occur at fiscal year-end 2022. If approved, this rate increase would result in a $28 or 21% increase to the average 1,000 kWh residential customer.
FISCAL IMPACT:
An increase to the PCA rate will increase customer collections and minimize the impact of projected increases in fuel costs. The Rate Stabilization Reserve does not have adequate funds to support the estimated fuel cost increase, the PCA under collection and maintain established policy limits.
PROCUREMENT REVIEW:
N/A
LEGAL REVIEW:
N/A
ALTERNATIVE:
Amend or Table for further discussion and guidance
SUPPORT MATERIALS:
• Electric Fee Schedule
• PCA Rate History 2012 to 2022
RESOLUTION 2022-36
A RESOLUTION SETTING THE ELECTRIC BULK POWER COST ADJUSTMENT RATE FOR MONTHLY ELECTRIC ENERGY BILLING EFFECTIVE JUNE 1, 2022
WHEREAS, City of Ocala, Florida, provides that a power cost adjustment (PCA) shall be added to the monthly rate per kilowatt hour (kWh) of each filed rate schedule; and
WHEREAS, City of Ocala, Florida, sets forth the method of calculating the power cost adjustment, stated in cost per kilowatt hour; and
WHEREAS, based on the factors that impact the City’s purchased power costs and projected expenses for the upcoming fiscal year, an adjustment in the PCA rate is recommended.
NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF OCALA, FLORIDA, in regular session duly assembled as follows:
The power cost adjustment is increased to $0.056 per kWh for bills released on or after June 1, 2022 unless modified by action of Council according to Section 70-641, Code of Ordinance, City of Ocala, Florida, as reflected in the revised Schedule A.
This resolution adopted this ______ day of ______________________, 2022.
ATTEST: CITY OF OCALA
By:_________________________________ By:__________________________________
Angel B. Jacobs Ire Bethea, Sr.
City Clerk President, Ocala City Council
Approved as to form and legality:
By: _________________________________
Robert W. Batsel, Jr.
City Attorney