Electric Cost of Service and Rate Design Study
City of Azusa, California
Azusa Light & Water Project No. 98925
3/16/2018
Electric Cost of Service and Rate Design Study
prepared for
City of Azusa, California Azusa Light & Water
Azusa, California
Project No. 98925
3/16/2018
prepared by
Burns & McDonnell Engineering Company, Inc. Azusa, California
COPYRIGHT © 2018 BURNS & McDONNELL ENGINEERING COMPANY, INC.
9400 Ward Parkway • Kansas City, MO 64114-3319 Tel: 816 333-9400 • Fax: 816 333-3690 • www.burnsmcd.com
March 16, 2018
Mr. Yarek Lehr
Acting Director of Utilities
Azusa Light & Water
729 N. Azusa Avenue
Azusa, California 91702
Re: Report on the 2017 Electric Cost of Service and Rate Design Study
Dear Mr. Lehr:
Burns & McDonnell is pleased to present this report on the Electric Cost of Service and Rate Design
Study (the Study) completed on behalf of the City of Azusa, California (the City) for the Azusa Light &
Water (AL&W).
This report presents the results of the Study, including proposed retail electric rate modifications. The
report also provides an explanation of the analyses performed to develop the five-year financial forecast,
the test year revenue requirement, and the allocated, unbundled cost-of-service for each of AL&W’s
electric rate classifications. It describes, in detail, the data, assumptions, and methodology used in
completing the Study. The report also provides Burns & McDonnell’s recommendations for AL&W for
retail electric rates.
Throughout each phase of the Study, Burns & McDonnell worked closely with AL&W staff to gather the
utility staff’s opinions and input. We greatly appreciate the opportunity to work with the City, AL&W
and its staff. We specifically wish to thank you, Yarek, for your guidance and input throughout the Study
process. Please contact us with any questions or comments you may have regarding this report.
Sincerely,
Burns & McDonnell
Ted J. Kelly Sara Ruckman
Senior Project Manager Project Analyst
TJK/sr
Electric Cost of Service and Rate Design Study Table of Contents
TOC-1 Burns & McDonnell
TABLE OF CONTENTS
Page No.
1.0 EXECUTIVE SUMMARY ................................................................................... 1-1 1.1 Overview .............................................................................................................. 1-1 1.2 Study Scope ......................................................................................................... 1-1 1.3 Revenue Requirements Analysis ......................................................................... 1-1
1.4 Cost-of-Service Analysis ..................................................................................... 1-2 1.5 Rate Analysis ....................................................................................................... 1-3 1.6 Recommendations ................................................................................................ 1-4
2.0 INTRODUCTION ............................................................................................... 2-1 2.1 Overview .............................................................................................................. 2-1
2.1.1 Current Rate Classifications ................................................................. 2-1 2.2 Study Scope ......................................................................................................... 2-1
2.3 Method of Analysis .............................................................................................. 2-2
3.0 REVENUE REQUIREMENTS ANALYSIS ........................................................ 3-1 3.1 Overview .............................................................................................................. 3-1
3.1.1 Customer Accounts ............................................................................... 3-1 3.1.2 Energy Requirements ............................................................................ 3-1
3.1.3 Peak Demand ........................................................................................ 3-2 3.2 Financial Forecast ................................................................................................ 3-2
3.2.1 Operating Revenues .............................................................................. 3-3 3.2.2 Operating Expenses .............................................................................. 3-3
3.2.3 Capital Improvement Expenditures ...................................................... 3-5 3.2.4 Debt Service .......................................................................................... 3-5
3.2.5 Projected Cash Flow ............................................................................. 3-6 3.2.6 Projected Revenue Requirements ......................................................... 3-8
4.0 COST-OF-SERVICE ANALYSIS ...................................................................... 4-1 4.1 Overview .............................................................................................................. 4-1 4.2 Revenue Requirement Unbundling ...................................................................... 4-1
4.2.1 Functionalization................................................................................... 4-1
4.2.2 Revenue Requirement Classification .................................................... 4-2 4.2.3 Revenue Requirement Allocation ......................................................... 4-2
4.3 Cost-of-Service Summary .................................................................................... 4-6
5.0 RATE ANALYSIS .............................................................................................. 5-1 5.1 Overview .............................................................................................................. 5-1
5.1.1 Rate Analysis Objectives ...................................................................... 5-1 5.2 Rate Classifications .............................................................................................. 5-1
5.2.1 Existing Rate Schedules ........................................................................ 5-2 5.2.2 Proposed Rate Schedules ...................................................................... 5-6
Electric Cost of Service and Rate Design Study Table of Contents
TOC-2 Burns & McDonnell
6.0 SUMMARY & RECOMMENDATIONS .............................................................. 6-1 6.1 Summary .............................................................................................................. 6-1
6.2 Recommendations ................................................................................................ 6-1
Electric Cost of Service and Rate Design Study Table of Contents
TOC-3 Burns & McDonnell
LIST OF TABLES
Page No.
Table 1-1: Test Year Base Rate Revenue Requirement........................................................... 1-2 Table 1-2: Cost-of-Service Summary ...................................................................................... 1-3 Table 1-3: Current Rate Classes and Structures ...................................................................... 1-3 Table 3-1: Projected Customer Accounts ................................................................................ 3-1
Table 3-2: Projected Energy Sales ........................................................................................... 3-2 Table 3-3: Projected System Load ........................................................................................... 3-2 Table 3-4: Projected Base Rate Revenue at Current Rates ...................................................... 3-3 Table 3-5: Purchased Power Expenses .................................................................................... 3-4 Table 3-6: Projected O&M Expenses ...................................................................................... 3-4
Table 3-7: Projected Capital Improvements ............................................................................ 3-5 Table 3-8: Projected Debt Obligations .................................................................................... 3-6
Table 3-9: Base Rate Revenues ............................................................................................... 3-7 Table 3-10: Cash Flow ............................................................................................................... 3-8
Table 3-12: Projected Revenue Requirements ........................................................................... 3-9 Table 4-1: Revenue Requirement Unbundled Assignment Summary ..................................... 4-3 Table 4-2: Allocation Factors by Type .................................................................................... 4-4
Table 4-3: Functional Cost Allocation Summary .................................................................... 4-6 Table 4-4: Cost-of-Service Summary ...................................................................................... 4-7
Table 5-1: Current Rate Classes and Structures ...................................................................... 5-2 Table 5-2: Existing Residential Service Electric Rates ........................................................... 5-3 Table 5-3: Existing Small Business Electric Rates .................................................................. 5-3
Table 5-4: Existing Medium Business Electric Rates ............................................................. 5-3
Table 5-5: Existing Large Business TOU Electric Rates ........................................................ 5-4 Table 5-6: Existing Municipal Accounts Electric Rates .......................................................... 5-4 Table 5-7: Existing Street Lighting and Outdoor Lighting Electric Rates .............................. 5-5
Table 5-8: Proposed Residential Service Electric Rates .......................................................... 5-6 Table 5-9: Proposed Small Business Electric Rates ................................................................ 5-6 Table 5-10: Proposed Medium Business Electric Rates ............................................................ 5-7
Table 5-11: Proposed Large Business TOU Electric Rates ....................................................... 5-7
Electric Cost of Service and Rate Design Study List of Abbreviations
i Burns & McDonnell
LIST OF ABBREVIATIONS
Abbreviation Term/Phrase/Name
AMI Advanced Metering Infrastructure
Burns & McDonnell Burns & McDonnell Engineering Company, Inc.
CIP Capital Improvement Plan
City City of Azusa, California
FARECAL Financing Authority for Resource Efficiency of California
FY Fiscal Year
kW kilowatt
kWh kilowatt-hour
AL&W Azusa Light & Water
MW megawatt
MWh megawatt-hour
NEM Net Energy Metering
O&M Operating & Maintenance Expense
Study Electric Cost of Service and Rate Design Study
TOU Time-of-Use
WH/SH Water and/or Space Heat
Electric Cost of Service and Rate Design Study List of Abbreviations
ii Burns & McDonnell
STATEMENT OF LIMITATIONS
In preparation of the Electric Cost of Service and Rate Design Study (the Study), Burns & McDonnell has
relied upon information obtained from the City of Azusa, California (the City) WEB portal and provided
by the electric division of Azusa Light & Water (AL&W). The information included various analyses,
computer-generated information and reports, audited financial reports, and other financial and statistical
information, as well as other documents such as operating budgets and current retail electric rate
schedules. In addition, input to key assumptions regarding expected future levels of revenue, sales, and
expenditures was provided by AL&W staff to Burns & McDonnell. While Burns & McDonnell has no
reason to believe that the information provided, and upon which Burns & McDonnell has relied, is
inaccurate or incomplete in any material respect, Burns & McDonnell has not independently verified such
information and cannot guarantee its accuracy or completeness.
Estimates and projections prepared by Burns & McDonnell relating to performance and costs are based
on Burns & McDonnell’s experience, qualifications, and judgment as a professional consultant. Since
Burns & McDonnell has no control over weather, cost and availability of labor, material and equipment,
labor productivity, contractors’ procedures and methods, unavoidable delays, economic conditions,
government regulations and laws (including interpretation thereof), competitive bidding, and market
conditions or other factors affecting such estimates or projections, Burns & McDonnell does not
guarantee the accuracy of its estimates or predictions.
For this report, Burns & McDonnell utilized unaudited actuals for fiscal year (FY) 2017 since the audit is
not yet available.
Revision History
Revision Issue Date Author Reviewer Description
0 8-Nov-2017 Kelly Ruckman Initial Draft
1 4-Jan-2018 Judy Tran Initial Draft Edits
1 14-Feb-2018 Yarek Lehr Initial Draft Edits
2 13-Mar-2018 Kelly Ruckman Final Draft
1.0 – EXECUTIVE SUMMARY
Electric Cost of Service and Rate Design Study Executive Summary
1-1 Burns & McDonnell
1.0 EXECUTIVE SUMMARY
1.1 Overview
To evaluate the adequacy of revenue requirements and to develop recommendations for a financial plan
and prepare appropriate rate adjustments and design, Azusa Light & Water (AL&W) retained Burns &
McDonnell to prepare a comprehensive Electric Cost of Service and Rate Design Study (the Study). This
report provides a review and the results of the Study, which included a revenue requirements analysis, a
cost-of-service analysis, and the development of electric rate modification recommendations. The Study
provides the basis for updated electric rates and develops updated unbundled rates for customer service,
power supply and power delivery. The report describes the development of the five-year financial forecast
used to illustrate the financial effects of new customers and load on the system.
1.2 Study Scope
This cost-of-service and rate analysis was conducted to address the ongoing changes taking place in the
electric industry. AL&W’s directive was to conduct a study that, when completed, meets the following
goals:
• Provide a five-year financial forecast
• Allocate costs to customer classes following industry guidelines
• Prepare revisions or recommendations to current rates, as needed
• Prepare and provide a financial forecast and rate analysis model for future use by AL&W
1.3 Revenue Requirements Analysis
The first phase of the Study completed for AL&W was the determination of the test year net revenue
requirement. This net revenue requirement was used as the basis for the subsequent phases of the project,
namely the cost-of-service and rate analyses. In order to calculate the test year net revenue requirement, a
five-year financial forecast was developed to project the results from the electric operations of AL&W.
The financial forecast is modeled on a fiscal year (FY) basis of July 1 through June 30.
Following the development of the financial forecast, a comparison of annual revenue and revenue
requirements was completed to determine whether sufficient revenue would be available to cover
projected operating and capital expenditures or if revenue adjustments would be required. Based on the
analysis completed and specific discussion regarding rates, Burns & McDonnell recommends AL&W
take no action to raise additional revenue over and above monies generated by current rates. AL&W is
Electric Cost of Service and Rate Design Study Executive Summary
1-2 Burns & McDonnell
maintaining adequate operating income and operating fund cash balances, meeting debt service coverage
requirements, and generating sufficient rate base returns.
A test year FY 2018 rate revenue and revenue requirement comparison is presented in Table 1-1. The
revenue requirement is equal to the annual cost-of-service minus other revenue. The annual cost-of-
service consists of total operating expenses, non-operating expenses, transfers, capital improvement plan
(CIP), debt service, and net change in operating reserves. The total test year FY 2018 rate revenue
requirement was calculated to be $33.2 million. AL&W desires to maintain a revenue-to-cost ratio of at
least 1.0. For the test year and beyond this minimum requirement is being met.
Table 1-1: Test Year Base Rate Revenue Requirement
1.4 Cost-of-Service Analysis
The development of the cost-of-service analysis followed the revenue requirements analysis. The cost-of-
service analysis included the assignment, or unbundling, of the various costs included in the test year
2018 revenue requirement to AL&W’s functional services. These unbundled cost components of the
revenue requirement were then allocated to the various electric rate classifications to determine cost
recovery requirements. The results of the cost-of-service analysis and the allocation of the test year
revenue requirement to AL&W’s rate classes are summarized in Table 1-2. The results are expressed in
both dollars and ¢/kWh.
Unaudited Actuals Test Year
Fiscal Year July 1 - June 30 2017 2018 2019 2020 2021
Annual Revenue Requirement ($)
Power Supply Expenses 23,408,509$ 18,568,317$ 18,396,300$ 19,347,000$ 20,348,000$
Nonoperating Expenses (FF, PILOT, Transfers, Int. Exp) 4,077,320$ 4,495,375$ 4,630,200$ 4,265,260$ 4,316,300$
Transfers out - Other (Fund 33 to Fund 31) 2,587,217$ 2,807,870$ 2,892,100$ 2,978,900$ 3,068,300$
Transfer to PCA Stabilization Account -$ 2,892,900$ 3,416,063$ 2,442,463$ 1,417,523$
Operating Expenses 7,677,207$ 8,934,301$ 9,931,600$ 9,478,800$ 9,763,200$
Capital Improvement Plan (Cash Financed) 500,000$ 2,965,000$ 5,100,000$ 2,850,000$ 1,100,000$
Debt Service 850,912$ 952,689$ 945,644$ 946,419$ 944,331$
Net Change in Operating Reserves 6,366,951$ 955,843$ (4,477,459)$ (1,429,340)$ (31,288)$
Cost of Service 45,468,117$ 42,572,296$ 40,834,448$ 40,879,501$ 40,926,366$
Less Other Revenues & Income
Misc. Billing Revenue 1,298,587$ 1,448,628$ 1,448,628$ 1,448,628$ 1,448,628$
Sales to Public Authorities (Major Only) 1,376,120$ 1,376,120$ 1,376,120$ 1,376,120$ 1,376,120$
Sales for Resale 4,017,473$ 3,479,486$ 2,000,000$ 2,000,000$ 2,000,000$
Other Operating Revenues 1,113,825$ 1,113,825$ 1,113,825$ 1,113,825$ 1,113,825$
Nonoperating Revenues 818,811$ 818,803$ 818,803$ 818,803$ 818,803$
Power Cost Adjustment Revenues 3,910,300$ 1,185,134$ 698,472$ 514,525$ 321,990$
Interfund Transfers -$ -$ -$ -$ -$
Total Other Revenues & Income 12,535,115$ 9,421,996$ 7,455,848$ 7,271,901$ 7,079,366$
Net Revenue Requirements 32,933,002$ 33,150,300$ 33,378,600$ 33,607,600$ 33,847,000$
Electric Cost of Service and Rate Design Study Executive Summary
1-3 Burns & McDonnell
Table 1-2: Cost-of-Service Summary
The lines labeled ‘Difference’ in Table 1-2 indicate the extent to which the projected annual revenues
generated from the current rates for each class would either exceed or fall short of the corresponding
revenue requirement. The table shows some cross subsidization between the rate classes, but not to a
significant degree.
1.5 Rate Analysis
The final phase of the Study completed for AL&W was the rate analysis. As previously discussed, the
financial forecast indicated that AL&W is on sound financial footing and the periodic rate adjustment
approach employed to date should sufficiently support the financial health of the utility moving forward.
Minimal base rate adjustments are recommended for the utility such as increasing the customer charge, or
fixed portion of the rate, and decreasing the energy portion of the rate. A summary of the rate schedule
components for each classification is provided below.
Table 1-3: Current Rate Classes and Structures
Total
System
Small
business (G-1)
Medium
business (G-2)
Large business
(T.O.U.)
Street Lights
(SL-1, SL-2,
SL-3)
Outdoor
Lights (SL-2,
OL)
Municipal
Accounts
(MS)
Residential
(D, WH/SH)
Comparison of Revenues ($)
Energy Sales - kWh 269,123,473 20,564,666 54,928,246 90,769,909 37,605 94,012 11,992,834 90,736,200
Revenue Requirement 33,150,300$ 2,659,428$ 6,175,517$ 9,214,196$ 10,300$ 17,300$ 1,444,820$ 13,628,739$
Revenue Generated By Existing Rates 33,150,300$ 3,111,000$ 6,950,300$ 10,145,800$ 10,300$ 17,300$ 1,342,500$ 11,573,100$
Difference -$ (451,572)$ (774,783)$ (931,604)$ -$ -$ 102,320$ 2,055,639$
Revenue Adjustment Required 0.00% -14.52% -11.15% -9.18% 0.00% 0.00% 7.62% 17.76%
Comparison of Revenues ($/kWh)
Revenue Requirement 0.1287$ 0.1351$ 0.1174$ 0.1060$ 0.2861$ 0.1922$ 0.1258$ 0.1569$
Revenue Generated By Existing Rates 0.1287$ 0.1580$ 0.1322$ 0.1168$ 0.2861$ 0.1922$ 0.1169$ 0.1332$
Difference -$ (0.0229)$ (0.0147)$ (0.0107)$ -$ -$ 0.0089$ 0.0237$
Revenue Adjustment Required 0.00% -14.52% -11.15% -9.18% 0.00% 0.00% 7.62% 17.76%
Basic/Cust
Charge
Energy Usage
ChargeDemand Charge
Minimum Monthly
Charge
Small Business (G-1) X X
Medium Business (G-2) X X X
Large Busienss (GL) X X X
Large Business (TOU + D) X X X
Street Lights (SL-1) X
Street Lights & Outdoor Lights (SL-2) X
Street Lights Customer Owned (SL-3) X
Outdoor Lights (OL) X
Municipal Accounts (MS) X X
Residential (D) X X
Residential (WH/SH) X X
Electric Cost of Service and Rate Design Study Executive Summary
1-4 Burns & McDonnell
1.6 Recommendations
Burns & McDonnell recommends a number of actions be taken by AL&W based on the analyses
conducted during the Study. The Study recommendations are presented herein.
• Based on the analysis completed and specific discussion regarding rates, Burns & McDonnell
recommends AL&W take no action to raise additional revenue over and above monies generated
by current rates.
• Burns & McDonnell recommends adjustments be made to rate structures by increasing the fixed
charge portion of the rate and lowering the energy charge portion of the rate. These adjustments
are revenue neutral for the system.
• AL&W should consider reassessing the PCA to more closely reflect reductions in power supply
costs. One approach may be to reassess the PCA base rate and adjust it if significantly different
than one currently used.
• AL&W should consider implementing the recommended time of use (TOU) seasonal rate
adjustments to more accurately reflect time-based power supply costs incurred by the system.
• AL&W may consider devising a modified TOU rate, and offer it as an option, whereby energy
component of the rate would be closely linked to the ISO wholesale energy prices in the Los
Angeles Basin.
• Burns & McDonnell recommends consideration of additional rate options once the advanced
metering infrastructure (AMI) program is completed and AL&W has a minimum of one year’s
worth of usage data on the system.
• AL&W should continue to monitor their financial position and revisit a rate analysis in three to
five years; or after the AMI system has been in place for at least one year.
AL&W should monitor its financial position, including adequacy of cost recovery and cash balances on
an on-going basis to help ensure the utility continues to meet its financial requirements. Burns &
McDonnell recommends the reexamination of the utility’s financial plan, costs-of-service, and electric
rates at most every five years.
2.0 – INTRODUCTION
Electric Cost of Service and Rate Design Study Introduction
2-1 Burns & McDonnell
2.0 INTRODUCTION
2.1 Overview
Azusa Light & Water (AL&W) is a municipally owned and operated electric utility established by the
City of Azusa, California (the City). AL&W provides retail electric services to consumers within the City
and the surrounding areas. The utility presently serves over 16,500 electric customers in its service
territory.
To reevaluate the adequacy of revenue requirements and to develop a financial plan, AL&W retained
Burns & McDonnell to prepare a comprehensive Electric Cost of Service and Rate Design Study (the
Study). This report provides a review and the results of the Study, which included a revenue requirements
analysis, a cost-of-service analysis, and the development of electric rate modification recommendations.
The report describes the development of the five-year financial forecast used to illustrate the financial
effects of new customers and load on the system.
2.1.1 Current Rate Classifications
AL&W customers are charged based on their service application, overall monthly kilowatt-hour (kWh)
energy consumption, and/or kilowatt (kW) demand characteristics. AL&W serves the following customer
classes:
• Small Business – Schedule G-1
• Medium Business – Schedule G-2
• Large Business – Schedule GL
• Large Business – Schedule Time-of-Use (TOU)
• Street Lights – Schedule SL-1, SL-2, SL-3
• Outdoor Lights – Schedule SL-2, OL
• Municipal Accounts – Schedule MS
• Residential – Schedule D, Water and/or Space Heat (WH/SH)
2.2 Study Scope
This cost-of-service and rate analysis was conducted primarily to address changes in the Azusa supply
portfolio and operations resulting from ISO markets/requirements and the ongoing changes and impacts
of renewable energy and climate change regulatory policies taking place in the electric industry. AL&W
directive was to conduct a study that, when completed, meets the following goals:
Electric Cost of Service and Rate Design Study Introduction
2-2 Burns & McDonnell
• Provide a five-year financial forecast
• Allocate costs to customer classes following industry guidelines
• Prepare recommendations for revision of current rates, if and as needed
• Prepare and provide a financial forecast and rate analysis model for future use by AL&W
2.3 Method of Analysis
The Study completed by Burns & McDonnell consisted of three phases. The first phase was the
development of a financial plan. The financial plan, and the resulting test year net revenue requirement
used in the subsequent phases of the Study, was developed based on a five-year financial forecast of
AL&W’s revenues and expenses. The financial forecast includes projections of known changes in annual
costs such as power cost projections and is based on information provided by AL&W. Other categories of
expenses were forecasted using historical trends or assumed annual rates of inflation. The forecast results
for FY 2018 were used as the test year net revenue requirement from which the cost-of-service analysis
was based. Section 3.0 of this report describes the development of the five-year financial forecast and net
revenue requirement.
The second phase of this Study consisted of the cost-of-service analysis which included the assignment,
or unbundling, of the various costs and margins included in the test year revenue requirement to AL&W’s
functional services (e.g. power supply, distribution, customer service, etc.). These unbundled cost
components of the test year revenue requirement were then allocated to the various electric rate
classifications. The resulting allocated cost-of-service for each rate classification was compared to the
adjusted annual revenues for each class in the FY 2018 test year to assess the projected cost recovery
provided by the existing retail rates. These steps and the corresponding results are explained in Section
4.0 of this report.
The results of the financial forecast and cost-of-service analysis provided a basis for the third phase which
was the development of recommendations pertaining to electric service rates to be considered by AL&W.
Section 5.0 of this report discusses the implications of the financial plan and cost-of-service results on
AL&W’s current electric rates and describes the proposed modifications to those retail rates.
Section 6.0 summarizes the results of the Study and Burns & McDonnell’s recommendations for AL&W
moving forward.
Throughout this report, references are made to various tables that detail specific aspects of the analyses
completed.
3.0 – REVENUE REQUIREMENTS ANALYSIS
Electric Cost of Service and Rate Design Study Revenue Requirements Analysis
3-1 Burns & McDonnell
3.0 REVENUE REQUIREMENTS ANALYSIS
3.1 Overview
The first phase of the Study completed for AL&W was the determination of the test year net revenue
requirement. This net revenue requirement was used as the basis for the subsequent phases of the project,
namely the cost-of-service and rate analyses. In order to calculate the test year net revenue requirement, a
five-year financial forecast was developed to project the results from the electric operations of AL&W.
3.1.1 Customer Accounts
Table 3-1 presents the projected numbers of electric customer accounts for AL&W from FY 2018 to FY
2021. Over the past few years, AL&W has experienced moderate growth in customer accounts.
Table 3-1: Projected Customer Accounts
3.1.2 Energy Requirements
For the analysis, AL&W provided historical actuals, by class, through FY 2017. The energy sales
projections assume relatively unchanged use of kWh per customer, with customer count increasing at a
rate slightly below one percent on average. As presented in Table 3-2, annual energy sales total
225,975,406 kWh in FY 2017 and are projected to increase to 263,018,182 kWh in FY 2021. Projected
energy sales include all municipal energy requirements.
CUSTOMERS
Small business (G-1) 1,332 1,353 1,375 1,397 1,419
Medium business (G-2) 278 278 278 278 278
Large business (T.O.U.) 34 34 34 34 34
Street Lights (SL-1, SL-2, SL-3) 65 54 45 37 31
Outdoor Lights (SL-2, OL) 42 46 50 55 60
Municipal Accounts (MS) 137 147 158 169 181
Total Commercial 1,888 1,912 1,940 1,970 2,003
Residential (D, WH/SH) 14,667 14,765 14,863 14,963 15,063
Total Customers 16,555 16,677 16,803 16,933 17,066
Electric Cost of Service and Rate Design Study Revenue Requirements Analysis
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Table 3-2: Projected Energy Sales
Forecast energy requirements were calculated assuming a system loss factor of 4.27 percent from FY
2018 through FY 2021, which is equal to the average system loss factor from FY 2015 to FY 2017. As
presented in Table 3-3, annual AL&W energy purchases are projected to increase from 267,387,041 kWh
in FY 2017 to 274,743,791 kWh in FY 2021.
3.1.3 Peak Demand
The basis for projecting annual system peak demands from FY 2018 through FY 2021 were determined
by dividing the total annual energy requirement by the annual system load factor multiplied by 8760.
Table 3-3 summarizes the annual system peak demand for each year of the analysis.
Table 3-3: Projected System Load
3.2 Financial Forecast
The financial forecast was developed to estimate AL&W’s annual revenue requirements and included
projections of annual operating revenues, operating expenses, net non-operating income, and the resulting
net income, as well as projections of plant investment, debt service, and other cash flows from FY 2017
Unaudited Actuals
Fiscal Year July 1 - June 30 2017 2018 2019 2020 2021
ENERGY SALES (kWh)
Small business (G-1) 19,381,913 19,687,000 20,008,000 20,328,000 20,648,000
Medium business (G-2) 52,584,411 52,584,000 52,584,000 52,584,000 52,584,000
Large business (T.O.U.) 86,896,074 86,896,000 86,896,000 86,896,000 86,896,000
Street Lights (SL-1, SL-2, SL-3) 43,301 36,000 30,000 25,000 21,000
Outdoor Lights (SL-2, OL) 82,464 90,000 98,000 108,000 118,000
Municipal Accounts (MS) 10,699,604 11,481,000 12,340,000 13,199,000 14,136,000
Total Commercial 169,687,767 170,774,000 171,956,000 173,140,000 174,403,000
Residential (D, WH/SH) 86,287,639 86,863,730 87,443,667 88,027,475 88,615,182
Total Energy Sales (kWh) 255,975,406 257,637,730 259,399,667 261,167,475 263,018,182
Forecast
Unaudited Actuals
Fiscal Year July 1 - June 30 2017 2018 2019 2020 2021
Energy Sales and Supply
Billed Energy Sales (kWh) [1] 255,975,406 257,637,730 259,399,667 261,167,475 263,018,182
Line Losses, Electric Dept, Street Lighting (kWh) 11,411,635 11,485,743 11,564,292 11,643,102 11,725,609
Total Energy Requirement (kWh) 267,387,041 269,123,473 270,963,958 272,810,578 274,743,791
Purchased Power (kWh) [2] 267,387,041 269,123,473 270,963,958 272,810,578 274,743,791
Sales (%) 95.73% 95.73% 95.73% 95.73% 95.73%
Line Losses, Electric Dept, Street Lighting (%) 4.27% 4.27% 4.27% 4.27% 4.27%
Total Requirements (%) 100.00% 100.00% 100.00% 100.00% 100.00%
Average System Billing Demand (MW) 65.3 65.8 66.2 66.7 67.1
System Load Factor (%) [4] 46.75% 46.71% 46.71% 46.71% 46.71%
Forecast
Electric Cost of Service and Rate Design Study Revenue Requirements Analysis
3-3 Burns & McDonnell
and forecast FY 2018 through FY 2021. The forecast considered annual levels of internally generated
funds from operations and AL&W’s projected capital expenditure requirements. These estimates are
typically used to forecast the need for additional funds through retail rate adjustments, transfers from
reserves, and/or external capital financing.
The projections developed were summarized in a cash flow statement. The annual revenue requirements
were determined from this financial statement. The basis of the projections and the assumptions used in
the development of each component of the forecast are described herein.
3.2.1 Operating Revenues
3.2.1.1 Base Rate Revenues
Burns & McDonnell projected annual base rate revenues from current rates based on the average revenue
per kWh for each class and annual billing determinants from the projected energy sales. Table 3-4
presents projected base rate revenue for each year of the analysis period.
Table 3-4: Projected Base Rate Revenue at Current Rates
3.2.2 Operating Expenses
3.2.2.1 Power Supply Expense
Purchased power cost projections were developed based on projected energy and distribution costs
provided by AL&W. Table 3-5 presents an annual forecast of purchased power expenses. The cost of
purchased power for FY 2017 was based on unaudited actuals provided by AL&W and was projected for
each of the subsequent years in the forecast. The cost of purchased power is estimated to decrease from
$23.1 million in FY 2017 to $20.3 million in FY 2019. The primary reason for this drop in Purchased
Unaudited Actuals
Fiscal Year July 1 - June 30 2017 2018 2019 2020 2021
BILLED REVENUES ($)
Small business (G-1) 3,061,227$ 3,111,000$ 3,161,700$ 3,212,200$ 3,262,800$
Medium business (G-2) 6,950,329$ 6,950,300$ 6,950,300$ 6,950,300$ 6,950,300$
Large business (T.O.U.) 10,145,766$ 10,145,800$ 10,145,800$ 10,145,800$ 10,145,800$
Street Lights (SL-1, SL-2, SL-3) 12,369$ 10,300$ 8,600$ 7,100$ 6,000$
Outdoor Lights (SL-2, OL) 15,837$ 17,300$ 18,800$ 20,700$ 22,700$
Municipal Accounts (MS) 1,251,142$ 1,342,500$ 1,443,000$ 1,543,400$ 1,653,000$
Total Commercial 21,436,671$ 21,577,200$ 21,728,200$ 21,879,500$ 22,040,600$
Residential (D, WH/SH) 11,496,331$ 11,573,100$ 11,650,400$ 11,728,100$ 11,806,400$
Total Billed Revenue ($) 32,933,002$ 33,150,300$ 33,378,600$ 33,607,600$ 33,847,000$
Forecast
Electric Cost of Service and Rate Design Study Revenue Requirements Analysis
3-4 Burns & McDonnell
Power cost is the retirement of the San Juan resource as part of the power supply portfolio and replacing it
with a lower cost resources.
Table 3-5: Purchased Power Expenses
3.2.2.2 Operation and Maintenance Expense
In addition to purchased power expenses, the AL&W electric utility incurs operating and maintenance
expenses (O&M) from its distribution and general plant, maintenance work, customer accounts, and
administrative operations. Including purchased power, O&M expenses for FY 2017 are estimated to be
$31.1 million, and future O&M expenses are projected to range from $27.5 million in FY 2018 to $30.1
million in FY 2021 as illustrated in Table 3-6.
Table 3-6: Projected O&M Expenses
Unaudited Actuals
Fiscal Year July 1 - June 30 2017 2018 2019 2020 2021
Purchased Power Expense
Total Energy Cost ($) 23,329,856$ 17,459,287$ 16,319,840$ 16,319,840$ 16,319,840$
Total Resource Energy (kWh) 267,387,041 269,123,473 270,963,958 272,810,578 274,743,791
Total Energy Cost ($/kWh) 0.0873$ 0.0649$ 0.0602$ 0.0626$ 0.0651$
Escalation (%) 4.0% 4.0%
Energy Cost ($) 23,329,900$ 17,459,300$ 16,319,800$ 17,088,300$ 17,897,800$
Total Transmission Cost ($) 3,353,558$ 4,018,411$ 3,506,411$ 3,506,411$ 3,506,411$
Total Transmission Energy (kWh) 267,387,041 269,123,473 270,963,958 272,810,578 274,743,791
Total Transmission Cost ($/kWh) 0.0125$ 0.0149$ 0.0129$ 0.0135$ 0.0140$
Escalation (%) 4.0% 4.0%
Transmission Cost ($) 3,353,600$ 4,018,400$ 3,506,400$ 3,671,500$ 3,845,400$
Total Purchase Power Expense ($) 26,683,500$ 21,477,700$ 19,826,200$ 20,759,800$ 21,743,200$
Scheduling, System Control and Dispatching Services. 433,641$ 570,103$ 570,100$ 587,200$ 604,800$
RESALE (Excess wholesale+ Balancing/optimization) (4,017,473)$ (3,479,486)$ (2,000,000)$ (2,000,000)$ (2,000,000)$
Total Purchase Power Expense ($) 23,099,668$ 18,568,317$ 18,396,300$ 19,347,000$ 20,348,000$
Total Purchase Power Expense ($/kWh) 0.0864$ 0.0690$ 0.0679$ 0.0709$ 0.0741$
Forecast
Unaudited Actuals
Fiscal Year July 1 - June 30 2017 2018 2019 2020 2021
Operating Expense Summary ($)
DISTRIBUTION PLANT EXPENSES ($) 890,000$ 890,000$ 916,700$ 944,400$ 972,800$
GENERAL PLANT EXPENSES ($) 357,849$ -$ -$ -$ -$
POWER SUPPLY EXPENSES ($) 23,099,668$ 18,568,317$ 19,125,400$ 19,347,000$ 20,348,000$
DISTRIBUTION EXPENSES (MAINTENANCE) ($) 3,503,932$ 3,975,790$ 4,095,100$ 4,217,900$ 4,344,400$
DISTRIBUTION EXPENSES (OPERATION) ($) 31,615$ 40,565$ 41,900$ 43,200$ 44,500$
DISTRIBUTION EXPENSES (MAINTENANCE) ($) 418,241$ 418,241$ 430,800$ 443,700$ 457,000$
CUSTOMER ACCOUNT EXPENSES ($) 2,780,162$ 3,605,455$ 3,713,600$ 3,825,100$ 3,939,900$
ADMINISTRATIVE AND GENERAL EXPENSES ($) 4,250$ 4,250$ 4,400$ 4,500$ 4,600$
Total Operating Expenses ($) 31,085,716 27,502,618$ 28,327,900 28,825,800 30,111,200
Forecast
Electric Cost of Service and Rate Design Study Revenue Requirements Analysis
3-5 Burns & McDonnell
3.2.3 Capital Improvement Expenditures
A forecast of capital expenditures for the electric system was developed by AL&W. The capital
expenditures forecast was incorporated into the financial model and utilized to determine the forecasted
annual plant in service and depreciation expense. AL&W funds its capital expenditures through a
combination of cash financing, debt financing and operating fund transfers. The largest of these capital
expenditures is the advanced metering infrastructure (AMI) upgrades, and substation facility
improvements. The electric system’s total estimated cost for the AMI project is $6.3 million in the next 3
years, and the estimated cost for the substation improvements totals to $5.1 million for FY 2018 through
FY 2021. Table 3-7 presents a summary of projected capital improvements for the forecast period.
Table 3-7: Projected Capital Improvements
3.2.4 Debt Service
Currently the electric utility pays annual payments on two series of revenue bonds, with one issued by the
Financing Authority for Resource Efficiency of California (FARECal) and the other issued by the City.
The bonds were issued to finance the acquisition, construction and installation of certain capital
improvement projects for the City of Azusa’s electric system. The projections of outstanding debt service
obligations from FY 2018 through FY 2021 are based on debt service schedules provided by AL&W.
Table 3-8 presents annual projections of outstanding debt service obligations of the electric utility.
Unaudited Actuals
Fiscal Year July 1 - June 30 2017 2018 2019 2020 2021
Capital Improvements ($)
Department Equipment
AMI 500,000$ 2,500,000$ 2,500,000$ 750,000$ -$
Underground Electric Line Replacements & Line Extensions -$ 100,000$ 600,000$ 100,000$ 100,000$
Electric Substations Facility Improvements -$ 100,000$ 2,000,000$ 2,000,000$ 1,000,000$
Todd & 10th Street Electric Line Extension and Equipment -$ 150,000$ -$ -$ -$
LED Street Lights Fixture Retrofit -$ 115,000$ -$ -$ -$
Total Capital Improvements ($) 500,000$ 2,965,000$ 5,100,000$ 2,850,000$ 1,100,000$
Revenue Financed Capital Improvements 500,000$ 2,965,000$ 5,100,000$ 2,850,000$ 1,100,000$
Debt Financed Capital Improvements -$ -$ -$ -$ -$
[1] Capital improvements for 2018 through 2021 are based on a 5 year capital plan provided by Azusa
Forecast
Electric Cost of Service and Rate Design Study Revenue Requirements Analysis
3-6 Burns & McDonnell
Table 3-8: Projected Debt Obligations
3.2.5 Projected Cash Flow
The projection of cash flow for each year provided the basis for determining if the revenue generated
from operations sufficiently covered costs. Ultimately, the cash flow was used to establish AL&W test
year rate revenue requirement for FY 2018.
Annual base rate revenues were projected using the average retail rate revenue for each class and annual
billing determinants from the load forecast. Annual base rate revenues from base or customer charges,
energy usage charges, and demand charges were generated from the following classes: Small Business,
Medium Business, Large Business, Street Lights, Outdoor Lights, Municipal Accounts, and Residential
Service. In total, base rate revenues are projected to total $33.2 million in FY 2018 and reach $33.8
million in FY 2021 as seen in Table 3-9.
Other types of electric revenues include revenue from sales to public authorities, power cost adjustments,
sales for resale, miscellaneous billing revenues and other operating and non-operating revenues. Adding
all these sources of revenues together with revenue from retail sales produced total revenues in FY 2017
of $45.5 million. Total revenues are projected to decrease to $40.9 million by 2021. This decrease,
starting in FY 2018, can mainly be attributed to lower overall power supply costs after the completion of
San Juan divestiture in December and replacement with lower cost forward contracts. This is shown in
Table 3-10.
Electric expenses were projected for each year of the financial forecast. Expenses include purchased
power expenses, allocations to Fund 31 for customer related services, transfers to the PCA stabilization
account (including the stabilization requirement) and operating and maintenance expenses. Franchise
Fees, Payments in Lieu of Taxes (PILOT), and interest expense are included in non-operating expenses.
Expenses are projected to increase from $37.7 million in FY 2017 to $38.9 million in FY 2021.
Unaudited Actuals
Fiscal Year July 1 - June 30 2017 2018 2019 2020 2021
Outstanding Debt ($)
Principal Outstanding - Beg. Bal. 6,600,000$ 5,950,000$ 5,170,000$ 4,375,000$ 3,555,000$
Principal -$ 780,000$ 795,000$ 820,000$ 845,000$
Sinking Fund 650,000$ -$ -$ -$ -$
Interest 25,344$ 3,621$ -$ -$ -$
Total Payment 675,344$ 783,621$ 795,000$ 820,000$ 845,000$
Debt Issue Cost Amort-Outstanding Debt -$ -$ -$ -$ -$
Principal Outstanding - End. Bal. 5,950,000$ 5,170,000$ 4,375,000$ 3,555,000$ 2,710,000$
Forecast
Electric Cost of Service and Rate Design Study Revenue Requirements Analysis
3-7 Burns & McDonnell
Net income before capital infrastructure plan (CIP) and debt service was $7.7 million in FY 2017, and
decreases to $2.0 million by FY 2021. This decrease is a result of the drop in total revenues while total
expenses increase slightly. After CIP and debt service are accounted for, cash and cash reserves remain at
a healthy level of $29.6 million in FY 2017 and $24.6 million in FY 2021. After deducting the $12.6
million minimum reserve requirement, unrestricted funds were at $17.0 million in FY 2017 and $12.0 in
FY 2021.
Table 3-9: Base Rate Revenues
Unaudited Actuals
Fiscal Year July 1 - June 30 2017 2018 2019 2020 2021
System Operations ($) ($) ($) ($) ($)
Annual Energy Sales (kWh) 255,975,406 257,637,730 259,399,667 261,167,475 263,018,182
Average Electric Rate ($/kWh) 0.1701$ 0.1577$ 0.1500$ 0.1491$ 0.1483$
Base Rate Revenues
Commercial Electric Sales 21,436,671$ 21,577,200$ 21,728,200$ 21,879,500$ 22,040,600$
Residential Electric Sales 11,496,331$ 11,573,100$ 11,650,400$ 11,728,100$ 11,806,400$
Revenue from Retail Sales - Existing Rates 32,933,002$ 33,150,300$ 33,378,600$ 33,607,600$ 33,847,000$
Forecast
Electric Cost of Service and Rate Design Study Revenue Requirements Analysis
3-8 Burns & McDonnell
Table 3-10: Cash Flow
3.2.6 Projected Revenue Requirements
A summary of the test year FY 2018 rate revenue requirement is presented in Table 3-11. The annual
cost-of-service consists of total operating expenses, non-operating expenses, transfers, CIP, debt service,
and net change in operating reserves. Based on the revenue requirements analysis completed and specific
discussion regarding rate revenues and requirements, Burns & McDonnell recommends AL&W take no
action to raise additional revenue over and above monies generated by current rates and to go forward
with the approved PCA Stabilization Plan adjustments.
Unaudited Actuals
Fiscal Year July 1 - June 30 2017 2018 2019 2020 2021
System Operations ($) ($) ($) ($) ($)
Beginning Balance - Cash & Cash Reserves 23,229,032 29,595,983 30,551,827 26,074,368 24,645,027
Revenues:
Commercial Electric Sales 21,436,671 21,577,200 21,728,200 21,879,500 22,040,600
Residential Electric Sales 11,496,331 11,573,100 11,650,400 11,728,100 11,806,400
Sales to Public Authorities (Major Only) 1,376,120 1,376,120 1,376,120 1,376,120 1,376,120
Power Cost Adjustment Revenues 3,910,300 1,185,134 698,472 514,525 321,990
Revenue from Retail Sales - Existing Rates 38,219,421 35,711,554 35,453,192 35,498,245 35,545,110
Sales for Resale 4,017,473 3,479,486 2,000,000 2,000,000 2,000,000
Misc. Billing Revenue 1,298,587 1,448,628 1,448,628 1,448,628 1,448,628
Total Electric Sales Revenues 43,535,481 40,639,668 38,901,820 38,946,873 38,993,738
Other Operating Revenues 1,113,825 1,113,825 1,113,825 1,113,825 1,113,825
Nonoperating Revenues 818,811 818,803 818,803 818,803 818,803
Total Revenues 45,468,117 42,572,296 40,834,448 40,879,501 40,926,366
Expenses:
Power Supply Expenses 23,408,509 18,568,317 18,396,300 19,347,000 20,348,000
Nonoperating Expenses (FF, PILOT, Transfers, Int. Exp) 4,077,320 4,495,375 4,630,200 4,265,260 4,316,300
Transfers out - Other (Fund 33 to Fund 31) 2,587,217 2,807,870 2,892,100 2,978,900 3,068,300
Transfer to PCA Stabilization Account - 2,892,900 3,416,063 2,442,463 1,417,523
Operating Expenses 7,677,207 8,934,301 9,931,600 9,478,800 9,763,200
Subtotal Expenses 37,750,253 37,698,763 39,266,263 38,512,423 38,913,323
Net Income/(Expense) Before CIP & Debt Service 7,717,864 4,873,533 1,568,185 2,367,078 2,013,043
Plant Capital Expenditures (Cash Financed) 500,000 2,965,000 5,100,000 2,850,000 1,100,000
Annual Debt Service 850,912 952,689 945,644 946,419 944,331
Subtotal Capital Improvements and Debt Service 1,350,912 3,917,689 6,045,644 3,796,419 2,044,331
Net Increase/Decrease in Cash & Reserves 6,366,951 955,843 (4,477,459) (1,429,340) (31,288)
Ending Balance - Cash & Cash Reserves 29,595,983 30,551,827 26,074,368 24,645,027 24,613,739
Minimum Reserve Requirement 12,600,000 12,600,000 12,600,000 12,600,000 12,600,000
Unrestricted Funds 16,995,983 17,951,827 13,474,368 12,045,027 12,013,739
Debt Service Coverage
Net Revenues Available for Debt Service 7,717,864 4,873,533 1,568,185 2,367,078 2,013,043
Debt Service 850,912 952,689 945,644 946,419 944,331
Reserves Available for Debt Service
Net Revenues and Reserves Available for Debt Service 7,717,864 4,873,533 1,568,185 2,367,078 2,013,043
Debt Service Coverage Based on Net Operating Revenues & Reserves 9.07 5.12 1.66 2.50 2.13
Forecast
Electric Cost of Service and Rate Design Study Revenue Requirements Analysis
3-9 Burns & McDonnell
Table 3-11: Projected Revenue Requirements
Unaudited Actuals Test Year
Fiscal Year July 1 - June 30 2017 2018 2019 2020 2021
Annual Revenue Requirement ($)
Power Supply Expenses 23,408,509$ 18,568,317$ 18,396,300$ 19,347,000$ 20,348,000$
Nonoperating Expenses (FF, PILOT, Transfers, Int. Exp) 4,077,320$ 4,495,375$ 4,630,200$ 4,265,260$ 4,316,300$
Transfers out - Other (Fund 33 to Fund 31) 2,587,217$ 2,807,870$ 2,892,100$ 2,978,900$ 3,068,300$
Transfer to PCA Stabilization Account -$ 2,892,900$ 3,416,063$ 2,442,463$ 1,417,523$
Operating Expenses 7,677,207$ 8,934,301$ 9,931,600$ 9,478,800$ 9,763,200$
Capital Improvement Plan (Cash Financed) 500,000$ 2,965,000$ 5,100,000$ 2,850,000$ 1,100,000$
Debt Service 850,912$ 952,689$ 945,644$ 946,419$ 944,331$
Net Change in Operating Reserves 6,366,951$ 955,843$ (4,477,459)$ (1,429,340)$ (31,288)$
Cost of Service 45,468,117$ 42,572,296$ 40,834,448$ 40,879,501$ 40,926,366$
Less Other Revenues & Income
Misc. Billing Revenue 1,298,587$ 1,448,628$ 1,448,628$ 1,448,628$ 1,448,628$
Sales to Public Authorities (Major Only) 1,376,120$ 1,376,120$ 1,376,120$ 1,376,120$ 1,376,120$
Sales for Resale 4,017,473$ 3,479,486$ 2,000,000$ 2,000,000$ 2,000,000$
Other Operating Revenues 1,113,825$ 1,113,825$ 1,113,825$ 1,113,825$ 1,113,825$
Nonoperating Revenues 818,811$ 818,803$ 818,803$ 818,803$ 818,803$
Power Cost Adjustment Revenues 3,910,300$ 1,185,134$ 698,472$ 514,525$ 321,990$
Interfund Transfers -$ -$ -$ -$ -$
Total Other Revenues & Income 12,535,115$ 9,421,996$ 7,455,848$ 7,271,901$ 7,079,366$
Net Revenue Requirements 32,933,002$ 33,150,300$ 33,378,600$ 33,607,600$ 33,847,000$
4.0 – COST-OF-SERVICE ANALYSIS
Electric Cost of Service and Rate Design Study Cost-of-Service Analysis
4-1 Burns & McDonnell
4.0 COST-OF-SERVICE ANALYSIS
4.1 Overview
The second phase of this Study was the development of the cost-of-service analysis. The test year revenue
requirement for FY 2018 developed from the financial forecast, described in Section 3.0 of this report,
was used as the basis for the cost-of-service analysis. Section 4.0 explains the basis of the
functionalization, classification and allocation efforts of the cost-of-service analysis. Tables showing the
assignment of the test year revenue requirement among functional services, as well as the development of
allocation factors and the allocation of the test year revenue requirement to AL&W’s rate classifications,
are presented in the following subsections.
4.2 Revenue Requirement Unbundling
The first step in the development of the cost-of-service analysis was the unbundling of the various
components of the test year revenue requirement by functional utility service. To a certain degree, the
electric service AL&W provides its customers is sold as a bundled product. However, this bundled
product involves the provision of multiple functional services. Utilities such as AL&W have a need to
unbundle the costs of providing the component services making up this bundled product. AL&W will
benefit from this separation of costs and providing its services at a functional level. New information,
provided by the AMI system currently being deployed, will aid AL&W in the overall management of its
costs and in the communication of service costs with its customers. The unbundling of AL&W’s costs
also allows separate pricing of individual services to be easily implemented if desired.
4.2.1 Functionalization
Four functional services were identified while analyzing AL&W’s three cost categories: Power
Production, Power Delivery, and Customer Services. Each cost category and its subordinate functional
services are summarized below.
• Power Production
o Demand – kW
o Energy – kWh
• Power Delivery
o Distribution – DIST
• Customer Service – CUST
Electric Cost of Service and Rate Design Study Cost-of-Service Analysis
4-2 Burns & McDonnell
4.2.2 Revenue Requirement Classification
The test year cost for each component of the revenue requirement was assigned to one or more of the
unbundled services. The unbundled assignment of each amount was based on the utilization of specific
data to estimate the portions of each item attributable to the various functional services. The amount for
each item was assigned using one of the following approaches:
• Direct Assignment – to one or more specific functional services due to the nature of the
account/element. For example, customer records and collection expenses under the Customer
Accounts cost category were assigned to the CUST functional service due to the nature of these
positions which are typically customer service or support oriented.
• Percentage Utilization – based on estimated level of activities within the account/element, costs
were assigned to multiple functional service categories.
• Composite Ratio Assignment – involves the assignment of costs based on the ratio of costs by
functional service, whose percentage allocations have already been established, to the associated
functional services for the test year. For example, interest income was assigned to functional
services based on the percentage distribution of all other system costs.
The manner in which each component was assigned to the functional services varied based on the nature
of the item. Burns & McDonnell developed the proposed unbundling of the components of the FY 2018
revenue requirement based on its understanding of the types of associated costs. A summary of the
assignment of each detailed component of the test year revenue requirement is shown in Table 4-1.
In Table 4-1, the assignment of the components of the test year revenue requirement for FY 2018 shows
that $16.7 million, or 50.33 percent, of AL&W’s test year revenue requirement was related to the power
supply energy – kWh functional service.
4.2.3 Revenue Requirement Allocation
Following the unbundling of the various components of the test year revenue requirement to the
functional utility services, the unbundled test year revenue requirement was allocated to AL&W’s retail
rate classifications. These allocations were developed to reflect the relative impact each rate class will
have on the level of each component of the test year revenue requirement.
Electric Cost of Service and Rate Design Study Cost-of-Service Analysis
4-3 Burns & McDonnell
Table 4-1: Revenue Requirement Unbundled Assignment Summary
AL&W currently bills its retail electric customers based on rate schedules that became effective in July
2017. The test year revenue requirement was allocated based to these categorizations. The test year FY
2018 rate classifications examined for the cost-of-service analysis are as follows:
• Small Business – Schedule G-1
• Medium Business – Schedule G-2
• Large Business – Schedule GL, TOU
• Street Lights – Schedule SL-1, SL-2, SL-3
• Outdoor Lights – Schedule SL-2, OL
• Municipal Accounts – Schedule MS
• Residential – Schedule D, WH/SH
4.2.3.1 Allocation Factors
Burns & McDonnell utilized billing history data and projections of future sales and loads to develop a
series of allocation factors. The allocation factors were developed based on billing determinants,
estimates of the contributions of each rate classification to AL&W’s total annual system energy
requirements, average monthly coincident system peak demand, and average monthly non-coincident
system peak demand. In addition, the total number of customers in each rate category was determined.
Test Year
2018 kW kWh DIST CUST
TOTAL O&M EXPENSE 31,997,993$ 4,720,975$ 18,166,632$ 4,929,198$ 4,181,188$
Cost of Service Ratio 14.75% 56.77% 15.40% 13.07%
OTHER REVENUE REQUIREMENTS
Debt Service 952,689$ 238,172$ -$ 666,882$ 47,634$
Transfers out - Other (Fund 33 to Fund 31) 2,807,870$ 701,968$ -$ 1,965,509$ 140,394$
Interfund Transfers Out - Surplus Fund -$ -$ -$ -$ -$
Transfer to PCA Stabilization Account 2,892,900$ 426,818$ 1,642,423$ 445,643$ 378,016$
Plant Capital Expenditures (Cash Financed) 2,965,000$ 437,455$ 1,683,358$ 456,750$ 387,437$
Net Change in Operating Reserves 955,843$ 141,025$ 542,673$ 147,245$ 124,900$
Total Other Revenue Requirements 10,574,303$ 1,945,438$ 3,868,454$ 3,682,029$ 1,078,382$
Cost of Service 42,572,296$ 6,666,413$ 22,035,086$ 8,611,227$ 5,259,569$
Cost of Service Ratio 15.66% 51.76% 20.23% 12.35%
OTHER OPERATING REVENUES
Misc. Billing Revenue (Fees (1,448,628)$ (213,730)$ (822,448)$ (223,157)$ (189,293)$
Other Sales to Public Authorities (Major Only) (1,376,120)$ (203,032)$ (781,282)$ (211,987)$ (179,818)$
Sales for Resale (3,479,486)$ (513,362)$ (1,975,453)$ (536,005)$ (454,665)$
Other Revenues (1,113,825)$ (164,333)$ (632,366)$ (171,582)$ (145,544)$
Power Cost Adjustment Revenues (1,185,134)$ (174,854)$ (672,851)$ (182,566)$ (154,862)$
Miscellaneous Revenues (Fees, Reimb., Collections) (554,703)$ (81,841)$ (314,929)$ (85,450)$ (72,483)$
Interest revenue (264,100)$ (38,965)$ (149,941)$ (40,684)$ (34,510)$
Interfund Transfers -$ -$ -$ -$ -$
Total Other Revenues (9,421,996)$ (1,390,119)$ (5,349,271)$ (1,451,431)$ (1,231,175)$
Net Revenue Requirements 33,150,300$ 5,276,294$ 16,685,815$ 7,159,796$ 4,028,394$
15.92% 50.33% 21.60% 12.15%
UNBUNDLED COSTS
Description
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4-4 Burns & McDonnell
Ratios were calculated of each class’s contribution for each statistic to the corresponding total. These
ratios were used as cost allocation factors to allocate each unbundled component of the test year revenue
requirement to the rate classes. These allocation factors are presented in Table 4-2 and the basis for their
development are provided in the following sections.
Table 4-2: Allocation Factors by Type
4.2.3.1.1 Energy Allocation
An energy allocation factor was developed for use in the apportionment of all energy-related expenses.
Based on the billing data provided, energy sales to each of AL&W’s rate classes were determined. The
energy sales for each class were factored up to the system level. System losses were assumed to occur
between three voltage levels, from power supply to transmission, from transmission voltage to primary
distribution voltage, and from primary distribution voltage to secondary distribution voltage. All customer
classes receive service at secondary distribution voltage levels, so for the analysis, each class shared
proportionally equal losses based on energy sales. The ratios of the resulting estimated contributions of
each class to the total system energy requirements represented the energy allocation factor.
4.2.3.1.2 Demand Allocation
The determination of system demand contributions for each rate class was more complex than the
development of the energy allocation factors for two reasons. First, the normal operation of an electric
utility does not require maintaining the same amount of demand-related data as it does energy-related
data. Therefore, there was not an equal amount of data from which to base the analysis. The second
reason is that there are a variety of methodologies that may be used in allocating the demand costs of an
electric utility. Ideally, hourly demand meters and load profile information would be available for all
AL&W customers from which accurate coincident and non-coincident peak demand data could be
Total
System
Small business (G-
1)
Medium business
(G-2)
Large business
(T.O.U.)
Street Lights (SL-
1, SL-2, SL-3)
Outdoor Lights
(SL-2, OL)
Municipal
Accounts (MS)
Residential (D,
WH/SH)
Energy Allocations
Total Energy Requirement 269,123,473 20,564,666 54,928,246 90,769,909 37,605 94,012 11,992,834 90,736,200
Energy Allocation Factor 1.000 0.076 0.204 0.337 0.000 0.000 0.045 0.337
Demand Allocations
Contribution to Coincident Peak 65,768 6,010 15,224 18,239 0 0 3,856 22,440
Coincident Peak Alloc. Factor 1.000 0.091 0.231 0.277 0.000 0.000 0.059 0.341
Contribution to Non-Coin. Peak 56,114 4,515 11,612 16,447 9 21 2,794 20,716
System NCP Allocation Factor 1.000 0.080 0.207 0.293 0.000 0.000 0.050 0.369
Customer Allocation
Number of Customers 16,677 1,353 278 34 54 46 147 14,765
Unweighted Customer Allocation Factor 1.000 0.081 0.017 0.002 0.003 0.003 0.009 0.885
Relative Weight 1.0 1.0 3.0 0.5 1.0 1.0 1.0
Weighted No. of Customers 16,718 1,353 278 102 27 46 147 14,765
Weighted Customer Allocation Factor 1.000 0.081 0.017 0.006 0.002 0.003 0.009 0.883
Electric Cost of Service and Rate Design Study Cost-of-Service Analysis
4-5 Burns & McDonnell
obtained. If data is compiled from a statistically valid sample of each classification, load profile results
obtained from each sample could be analyzed and applied to entire classes in the future. In the future,
once the AMI installations are complete, data will be available for all customers.
Burns & McDonnell refined proxy load research data to develop representative coincident peak and non-
coincident peak load data for each of AL&W’s customer classes. Since the test year system peak is
expected to occur in the afternoon hours of the summer season, it was assumed that the Street Lighting
classes would have no load on the system at that time and, therefore, would not contribute to the system
coincident peak demand.
For each class, maximum demands were estimated based on load factors from the proxy load data
available to Burns & McDonnell from a comparable electric utility in Southern California. The load
factors were applied to the corresponding test year energy sales for each class to determine the average
non-coincident peak for each class. Ratios of each class’s non-coincident peak demands to the total for all
classes were calculated. These ratios represented the factors to be used in allocating the system demand
costs among the various rate classes.
4.2.3.1.3 Customer Allocation
Customer allocation factors were developed to allocate the costs of metering, billing, call center, and
other administrative costs to the various rate classifications. Customer allocation factors were based on
relative weighting of the number of customers included in each rate class served by AL&W. Relative
weights were estimated to reflect differences in the effort required and the cost incurred to provide
customer services to customers in the different rate classes.
4.2.3.2 Cost Allocation
Each component item of the test year revenue requirement, which was classified and assigned to the
various functional utility services, was allocated to the appropriate customer rate classifications using the
corresponding allocation factors. The allocated amounts were summarized for each rate class. Table 4-3
presents a summary of the allocation of the net revenue requirement to the rate classifications by the
unbundled functional services. The total amounts in Table 4-3 for each unbundled service within each
component of the test year revenue requirement were carried forward from Table 4-1.
Electric Cost of Service and Rate Design Study Cost-of-Service Analysis
4-6 Burns & McDonnell
Table 4-3: Functional Cost Allocation Summary
4.3 Cost-of-Service Summary
The results of the cost-of-service analysis and the allocation of the test year revenue requirement to
AL&W’s rate classes are presented in Table 4-4. The results are broken out into energy-related costs,
expressed in both dollars and cents per kWh; peak demand-related costs, expressed in both dollars and
cents per kW of system power supply billing demand per month; distribution-related costs, expressed in
both dollars and dollars per kW of system power supply billing demand per month; and customer-related
costs, expressed in dollars per customer per month. The total cost-of-service is expressed in both dollars
and cents per kWh.
AL&W’s rate revenue requirement of $33.2 million and the total projected system sales of 269,123 MWh
translates to an average cost of 12.87¢/kWh. Table 4-4 also shows the net requirement of providing
service to each class. For example, the cost allocated to the Residential Service rate class in FY 2018
totals $13.6 million. Based on the total energy sales from Residential Service customers of 90,736 MWh,
the base rate requirement to provide service to the Residential Service customer class is 15.69¢/kWh.
Table 4-4 includes a Revenue Comparison that compares the net revenue requirement to the projected
revenue that would be generated by current rates. This analysis indicates the extent to which the test year
revenues generated from existing rates for each class would either exceed or fall short of the
corresponding revenue requirement. The results show the current conditions of how revenues are
generated in comparison to how costs are incurred among classes. For example, the Residential class is
receiving the largest subsidy under current rates. Conversely, the Small Business class is recovering more
cost than it has been allocated, and therefore, is subsidizing more cost than any other class. Since AL&W
wants to continue providing low cost rates to the Residential class, no changes to current rates are
recommended to mitigate this slight subsidization.
Electric Cost of Service and Rate Design Study Cost-of-Service Analysis
4-7 Burns & McDonnell
Table 4-4: Cost-of-Service Summary
Total
System
Small
business (G-1)
Medium
business (G-2)
Large business
(T.O.U.)
Street Lights
(SL-1, SL-2,
SL-3)
Outdoor
Lights (SL-2,
OL)
Municipal
Accounts
(MS)
Residential
(D, WH/SH)
Summary of Cost of Service
Energy Cost:
Energy Sales (kWh) 257,637,730 19,687,000 52,584,000 86,896,000 36,000 90,000 11,481,000 86,863,730
Total Cost 16,685,815$ 1,275,022$ 3,405,584$ 5,627,788$ 2,332$ 5,829$ 743,563$ 5,625,698$
Dollars/kWh 0.06476 0.06476 0.06476 0.06476 0.06476 0.06476 0.06476 0.06476
Demand Cost (Peak):
Contribution Coincident Peak (kW) 65,768 6,010 15,224 18,239 0 0 3,856 22,440
Total Cost 5,276,294$ 482,192$ 1,221,318$ 1,463,231$ -$ -$ 309,323$ 1,800,231$
$/kW-mo 6.69 6.69 6.69 6.69 0.00 0.00 6.69 6.69
Demand Cost (Distribution):
Contribution Non-Coincident Peak (kW) 56,114 4,515 11,612 16,447 9 21 2,794 20,716
Total Cost 7,159,796$ 576,031$ 1,481,594$ 2,098,595$ 1,095$ 2,739$ 356,495$ 2,643,248$
$/kW-mo 10.63 10.63 10.63 10.63 10.63 10.63 10.63 10.63
Demand Cost (Total):
Contribution Non-Coincident Peak (kW) 56,114 4,515 11,612 16,447 9 21 2,794 20,716
Total Cost 12,436,090$ 1,058,222$ 2,702,912$ 3,561,826$ 1,095$ 2,739$ 665,818$ 4,443,478$
$/kW-mo 18.47 19.53 19.40 18.05 10.63 10.63 19.86 17.87
Customer Service Cost:
Number of Customers 16,677 1,353 278 34 54 46 147 14,765
Total Cost 4,028,394$ 326,022$ 66,988$ 24,578$ 6,506$ 11,084$ 35,422$ 3,557,794$
$/Customer/Month 20.13 20.08 20.08 60.24 10.04 20.08 20.08 20.08
Revenue Requirement Before Adjustments33,150,300$ 2,659,266$ 6,175,483$ 9,214,192$ 9,933$ 19,652$ 1,444,802$ 13,626,971$
Lighting Adjustment -$ 162$ 33$ 4$ 367$ (2,352)$ 18$ 1,768$
Total Revenue Requirement ($) 33,150,300$ 2,659,428$ 6,175,517$ 9,214,196$ 10,300$ 17,300$ 1,444,820$ 13,628,739$
Total Revenue Requirement ($/kWh) 0.1287 0.1351 0.1174 0.1060 0.2861 0.1922 0.1258 0.1569
Total
System
Small
business (G-1)
Medium
business (G-2)
Large business
(T.O.U.)
Street Lights
(SL-1, SL-2,
SL-3)
Outdoor
Lights (SL-2,
OL)
Municipal
Accounts
(MS)
Residential
(D, WH/SH)
Comparison of Revenues ($)
Energy Sales - kWh 269,123,473 20,564,666 54,928,246 90,769,909 37,605 94,012 11,992,834 90,736,200
Revenue Requirement 33,150,300$ 2,659,428$ 6,175,517$ 9,214,196$ 10,300$ 17,300$ 1,444,820$ 13,628,739$
Revenue Generated By Existing Rates 33,150,300$ 3,111,000$ 6,950,300$ 10,145,800$ 10,300$ 17,300$ 1,342,500$ 11,573,100$
Difference -$ (451,572)$ (774,783)$ (931,604)$ -$ -$ 102,320$ 2,055,639$
Revenue Adjustment 0.00% -14.52% -11.15% -9.18% 0.00% 0.00% 7.62% 17.76%
Comparison of Revenues ($/kWh)
Revenue Requirement 0.1287$ 0.1351$ 0.1174$ 0.1060$ 0.2861$ 0.1922$ 0.1258$ 0.1569$
Revenue Generated By Existing Rates 0.1287$ 0.1580$ 0.1322$ 0.1168$ 0.2861$ 0.1922$ 0.1169$ 0.1332$
Difference -$ (0.0229)$ (0.0147)$ (0.0107)$ -$ -$ 0.0089$ 0.0237$
Revenue Adjustment 0.00% -14.52% -11.15% -9.18% 0.00% 0.00% 7.62% 17.76%
5.0 – RATE ANALYSIS
Electric Cost of Service and Rate Design Study Rate Analysis
5-1 Burns & McDonnell
5.0 RATE ANALYSIS
5.1 Overview
The third and final phase of the Study completed for AL&W was the rate analysis. The cost-of-service
analysis described in Section 4.0 of this report served as one input into the rate analysis and rate
recommendations. Input from AL&W was also taken into consideration in the development of the
recommendations. As discussed in Section 3.0 of this report, the financial forecast indicated that AL&W
is on sound financial footing and the periodic rate adjustment approach employed to date should
sufficiently support the financial health of the utility moving forward. While no overall rate revenue
adjustments are recommended for the utility, a discussion of the rates for each classification is presented
below.
5.1.1 Rate Analysis Objectives
The rate recommendations submitted to AL&W for consideration and adoption were developed in order
to continue to meet the following electric utility rate criteria for service provided by municipally owned
utilities:
• Electric rates should be based on a policy which calls for the lowest possible price consistent with
meeting customer energy requirements, efficient and reliable operations, and sufficient cost
recovery by AL&W to provide service.
• Electric rates should be simple and understandable.
• Electric rates should be equitable among classes of customers and individuals within classes,
taking into consideration the cost-of-service analysis.
• Electric rates should be designed to encourage the most efficient use of power and discourage
unnecessary or wasteful use of electricity.
• Electric rates should comply with the applicable orders and requirements of local and state
regulatory authorities that have jurisdiction.
5.2 Rate Classifications
AL&W customers are charged based on their service application, overall monthly kWh energy
consumption, and/or kW demand characteristics. AL&W serves the following customer classes:
• Small Business – Schedule G-1
• Medium Business – Schedule G-2
• Large Business – Schedule GL, TOU
Electric Cost of Service and Rate Design Study Rate Analysis
5-2 Burns & McDonnell
• Street Lights – Schedule SL-1, SL-2, SL-3
• Outdoor Lights – Schedule SL-2, OL
• Municipal Accounts – Schedule MS
• Residential – Schedule D, WH/SH
AL&W also offers a Net Energy Metering tariff. The Net Energy Metering program offers eligible
renewable energy generators compensation for net surplus energy injected into the system. No adjustment
to the net energy metering tariff is proposed at this time.
5.2.1 Existing Rate Schedules
Table 5-1 summarizes the current classes and associated charges.
Table 5-1: Current Rate Classes and Structures
Residential Service customers are billed a monthly basic charge on a $/month basis for electric service.
Residential Service customers are not billed an unbundled monthly demand charge.
Small and Medium Business customers are billed a monthly customer charge on a $/month basis for
electric service. Energy usage is billed on an inclining block basis based on the deviation of current
customer usage from a baseline. Small Business customers are not billed an unbundled monthly demand
charge, while Medium Business customers are. The large Business non-TOU rate is similar to the
Medium Business rate with the exception of the minimum charge and power factor adjustment.
Electric Cost of Service and Rate Design Study Rate Analysis
5-3 Burns & McDonnell
Table 5-2: Existing Residential Service Electric Rates
Table 5-3: Existing Small Business Electric Rates
Table 5-4: Existing Medium Business Electric Rates
Large Business TOU customers are billed a monthly customer charge on a $/month basis for electric
service. Energy usage is billed on a TOU basis with varying rates during peak, mid-peak, and off-peak
time periods, and include power factor adjustment charges. Billing demand is calculated on a TOU basis
with varying rates during peak, mid-peak and off-peak time periods.
Municipal Account customers are billed a monthly basic charge on a $/month basis for electric service.
Energy usage is billed on a flat $/kWh rate, and are not billed an unbundled monthly demand charge.
Residential (D) Summer Rates Winter Rates
Customer Charge ($/month) 3.81$ 3.81$
Energy Charge (kWh)
First 250 kWh 0.1160$ 0.1160$
All excess kWh 0.1487$ 0.1487$
Residential (WH/SH) Summer Rates Winter Rates
Customer Charge ($/month) 3.81$ 3.81$
Energy Charge (kWh)
First 250 kWh 0.1160$ 0.1160$
Allowance for water heating, per month 250 kWh 0.1160$ 0.1160$
Allowance for water heating, per month 550 kWh 0.1160$ 0.1160$
All excess kWh 0.1487$ 0.1487$
Small Business (G-1) Summer Rates Winter Rates
Customer Charge ($/month) 6.96$ 6.96$
Energy Charge (kWh)
0 - 500 0.1740$ 0.1740$
500 + 0.1426$ 0.1426$
Medium Business (G-2) Summer Rates Winter Rates
Customer Charge ($/month) -$ -$
Demand Charge
First 20 KW or less -$ -$
Additional KW of demand 8.39$ 8.39$
Energy Charge (kWh)
0 - 500 0.1748$ 0.1748$
500 - 4,500 0.1539$ 0.1539$
4,500 + 0.0950$ 0.0950$
Minimum Monthly Charge (if bill does not exceed) 167.81$ 167.81$
Electric Cost of Service and Rate Design Study Rate Analysis
5-4 Burns & McDonnell
AL&W offers Metered and Non-Metered Street Lighting, and Outdoor Lighting Service to individual
customers and the City where it is economically feasible to serve. Customers are billed monthly for
lighting service on either a $/lamp/mo. plus ¢/kWh energy basis or simply a $/lamp/mo. basis if
unmetered. In some cases, a Customer Service charge is applied to the bill on a $/month basis.
Table 5-5: Existing Large Business TOU Electric Rates
Table 5-6: Existing Municipal Accounts Electric Rates
Large Business (TOU + D) Summer Rates Winter Rates
Customer Charge ($/month) 42.15$ 42.15$
Demand Charge
All kW of Max Demand, per kW (non-time related) 4.50$ 4.50$
On-Peak 7.51$ -$
Mid-Peak 1.31$ 1.03$
Off-Peak -$ -$
Energy Charge (kWh)
On-Peak 0.1546$ -$
Mid-Peak 0.1044$ 0.1194$
Off-Peak 0.0703$ 0.0703$
Municipal Accounts (MS) Summer Rates Winter Rates
Customer Charge ($/month) 7.09$ 7.09$
Energy Charge (kWh) 0.1157$ 0.1157$
Electric Cost of Service and Rate Design Study Rate Analysis
5-5 Burns & McDonnell
Table 5-7: Existing Street Lighting and Outdoor Lighting Electric Rates
Street Lights (SL-1) Avg kWh per Month Per Lamp per Month
Incandescent
4,000 Lumen (300W) 104 5.32$
Mercury Vapor 60 15.74$
7,000 Lumen (175W) 86 20.32$
11,000 Lumen (250W) 138 27.84$
20,000 Lumen (400W)
High-Pressure Sodium
9,500 (100W) 35 14.26$
9,500 Lumen (2-100W) 70 32.11$
14,000 Lumen (150W - 14') 52 24.30$
14,000 Lumen (150W - 28') 52 29.00$
22,000 Lumen (220W) 76 19.83$
22,500 Lumen (250W) 86 21.22$
Outdoor Lights (SL-2) Summer Rates Winter Rates
Customer Charge ($/month) 3.84$ 3.84$
Energy Charge (kWh) 0.1102$ 0.1102$
Avg kWh per Month Per Lamp per Month
Incandescent
4,000 Lumen (300W) 104 5.32$
Mercury Vapor 60 15.74$
7,000 Lumen (175W) 86 20.32$
11,000 Lumen (250W) 138 27.84$
20,000 Lumen (400W)
High-Pressure Sodium
9,500 (100W) 35 14.26$
22,000 Lumen (220W) 76 19.83$
22,500 Lumen (250W) 86 21.22$
Outdoor Lights (SL-3) Avg kWh per Month Per Lamp per Month
High-Pressure Sodium
9,500 (100W) 35 14.26$
22,500 Lumen (250W) 86 21.22$
Outdoor Lights (OL) Existing Pole New Pole
Mercury Vapor 16.01$ 19.91$
7,000 Lumen (175W) 29.23$ 33.12$
20,000 Lumen (400W)
High-Pressure Sodium
9,500 (100W) 14.26$ 18.15$
22,500 Lumen (250W) 20.19$ 24.09$
Electric Cost of Service and Rate Design Study Rate Analysis
5-6 Burns & McDonnell
5.2.2 Proposed Rate Schedules
As previously discussed, the financial forecast indicated that AL&W is on sound financial footing and the
periodic rate adjustment approach employed to date should sufficiently support the financial health of the
utility moving forward. Burns & McDonnell recommends AL&W take no action to raise additional
revenue over and above monies generated by current rates. AL&W is maintaining adequate operating
income and operating fund cash balances, meeting debt service coverage requirements, and generating
sufficient rate base returns. However, Burns & McDonnell does recommend that minimal base rate
adjustments be made, such that the fixed charge portion of residential and commercial rates are increased,
and the variable, or energy, portion of the rate is decreased. These adjustments would keep rates revenue
neutral. An increase in solar customers on the system and the increase in customers participating in net
energy metering (NEM), fixed costs incurred by AL&W will not be sufficiently recovered under the
existing rate structures. Increasing the fixed portion of the rates will help AL&W recover these fixed costs
and maintain adequate levels of income from base rates. On average, customers will not see an increase in
their monthly bills. Street Lighting, Outdoor Lighting and Municipal Account rates are recommended to
remain the same.
Table 5-8: Proposed Residential Service Electric Rates
Table 5-9: Proposed Small Business Electric Rates
Residential (D) Summer Rates Winter Rates
Customer Charge ($/month) 5.80$ 5.80$
Energy Charge (kWh)
First 250 kWh 0.1091$ 0.1091$
All excess kWh 0.1487$ 0.1487$
Residential (WH/SH)
Customer Charge ($/month) 5.80$ 5.80$
Energy Charge (kWh)
First 250 kWh 0.1091$ 0.1091$
Allowance for water heating, per month 250 kWh 0.1091$ 0.1091$
Allowance for water heating, per month 550 kWh 0.1091$ 0.1091$
All excess kWh 0.1487$ 0.1487$
Small Business (G-1) Summer Rates Winter Rates
Customer Charge ($/month) 10.00$ 10.00$
Energy Charge (kWh)
0 - 500 0.1650$ 0.1650$
500 + 0.1430$ 0.1430$
Electric Cost of Service and Rate Design Study Rate Analysis
5-7 Burns & McDonnell
Table 5-10: Proposed Medium Business Electric Rates
Table 5-11: Proposed Large Business TOU Electric Rates
Medium Business (G-2) Summer Rates Winter Rates
Customer Charge ($/month) -$ -$
Demand Charge
First 20 KW or less -$ -$
Additional KW of demand 9.75$ 9.75$
Energy Charge (kWh)
0 - 500 0.1689$ 0.17$
500 - 4,500 0.1498$ 0.15$
4,500 + 0.0950$ 0.10$
Minimum Monthly Charge (if bill does not exceed) 167.81$ 167.81$
Large Business (TOU + D) Summer Rates Winter Rates
Customer Charge ($/month) 42.15$ 42.15$
Demand Charge
All kW of Max Demand, per kW (non-time related) 4.50$ 4.50$
On-Peak 7.51$ -$
Mid-Peak 1.31$ 1.03$
Off-Peak -$ -$
Energy Charge (kWh)
On-Peak 0.1546$ -$
Mid-Peak 0.1044$ 0.1194$
Off-Peak 0.0703$ 0.0703$
6.0 – SUMMARY & RECOMMENDATIONS
6.0 SUMMARY & RECOMMENDATIONS
6.1 Summary
This report described the approach and assumptions used to complete the Electric Cost of Service and
Rate Design Study. The following is a summary of the results of the Study and Burns & McDonnell’s
recommendations for AL&W.
The first phase of the Study completed for AL&W determined the test year net revenue requirement. In
order to determine the test year net revenue requirement, a five-year financial forecast was developed to
estimate the results from the electric operations of AL&W. Following the development of the financial
forecast, a comparison of annual revenue and revenue requirements was completed to determine whether
sufficient revenue would be available to cover projected operating and capital expenditures or if revenue
adjustments would be required. This phase of the Study showed that AL&W is maintaining adequate
operating income and operating fund cash balances, meeting debt service coverage requirements, and
generating sufficient rate base returns.
The development of the cost-of-service analysis followed the revenue requirements analysis. The cost-of-
service analysis included the assignment, or unbundling, of the various costs included in the test year
2018 revenue requirement to AL&W’s functional services. These unbundled cost components of the
revenue requirement were then allocated to the various electric rate classifications to determine cost
recovery requirements. The results of the cost-of-service analysis indicated some cross subsidization
between the rate classes.
The final phase of the Study was the rate analysis. As previously discussed, the financial forecast
indicated that AL&W is on sound financial footing and the periodic rate adjustment approach employed
to date should sufficiently support the financial health of the utility moving forward. Based on sufficient
financial results and rate design constraints, moderate base rate adjustments are recommended while
mainlining revenue neutrality among existing and proposed rates.
6.2 Recommendations
Burns & McDonnell recommends a number of actions be taken by AL&W based on the analyses
conducted during the Study. The Study recommendations are presented herein.
• Based on the analysis completed and specific discussion regarding rates, Burns & McDonnell
recommends AL&W take no action to raise additional revenue over and above monies generated
by current rates.
• Burns & McDonnell recommends adjustments be made to rate structures by increasing the fixed
charge portion of the rate and lowering the energy charge portion of the rate. These adjustments
are revenue neutral for the system.
• AL&W should consider reassessing the PCA to more closely reflect reductions in power supply
costs. One approach may be to reassess the PCA base rate and adjust it if significantly different
than one currently used.
• AL&W should consider implementing the recommended time of use (TOU) seasonal rate
adjustments to more accurately reflect time-based power supply costs incurred by the system.
• AL&W may consider devising a modified TOU rate, and offer it as an option, whereby energy
component of the rate would be closely linked to the ISO wholesale energy prices in the Los
Angeles Basin.
• Burns & McDonnell recommends consideration of additional rate options once the advanced
metering infrastructure (AMI) program is completed and AL&W has a minimum of one year’s
worth of usage data on the system.
• AL&W should continue to monitor their financial position and revisit a rate analysis in three to
five years; or after the AMI system has been in place for at least one year.
The City should monitor the financial position of AL&W, including adequacy of cost recovery and cash
balances on an on-going basis to help ensure the utility continues to meet its financial requirements.
Burns & McDonnell recommends the reexamination of the utility’s financial plan, costs-of-service, and
electric rates at most every five years. Reexamination of financial position and rates may have to be
contemplated sooner or on more frequent bases when major capital infrastructure projects are
contemplated and/or endeavored.
Burns & McDonnell World Headquarters 9400 Ward Parkway
Kansas City, MO 64114 O 816-333-9400 F 816-333-3690
www.burnsmcd.com