Consultant says Columbiana spending more per customer than it reaps
COLUMBIANA – The city needs to adjust its electric rates to reflect its cost of service, and under the current rates heavy commercial/industrial users are subsidizing other users, John T. Courtney told council Tuesday.
Courtney is a public utility consultant with Courtney and Associates and provided a run-down of the results of a rate study it has conducted over the last several months.
The study used data from the last four years and found the city is actually paying about a penny more for its power from American Municipal Power (AMP) than AMP had originally projected, and its existing service charges are below its customer-related costs.
AMP projected it would spend 6.9 cents per kilowatt hour (kwh) while it is actually paying around 8 cents, and the city is spending about $13 a month per customer for residential service while only recovering about $3, he said.
AMP projections included in his study show the city will be paying roughly 8 cents per kwh through 2017. The public service provider only charges for the cost of power while collecting a nominal fee and does not make a profit, he said.
Courtney also said the only class providing enough revenue to the city are heavy commercial/industrial users, which at $3.03 million, account for roughly 36 percent of all energy sales in the city. Residential accounts for 31 percent, at $2.79 million.
The city is spending $3.34 million to provide the service to heavy commercial/industrial users while bringing in $3.45 million, and spending $3.2 million and $2.5 million on residential and commercial users while only bringing in $3.1 million and $2.4 million.
The city does not currently charge customers for demand, he said.
The firm’s recommendations are to increase monthly service charges for all classes and establish a fixed energy charge for residential and commercial users, based on the cost of service, and replace heavy commercial/industrial rates with a new large power rate that is more in line with cost of service.
The heavy commercial/industrial rate would actually be decreased to stop the subsidizing currently going on, which at roughly four percent isn’t significant, but still needs to be modified, he said.
Residential users are currently paying a monthly service charge of $3.50 and that should be increased by about $1.50, based on 2014 revenue requirements, he said.
Commercial and large power customers are being charged $10 a month and should be paying $15 and $50 respectively.
Recommended rates for consumption were set at 9 cents per kwh for residential, 10 cents for commercial and four cents for large power users.
Courtney said Columbiana is the only client the firm has had so far that does not charge a base amount and power supply cost adjustment, the latter of which can be done by a formula.
“Virtually all of our other clients with municipal customers have that kind of rate,” he said.
The “inherent problem” with the current rate structure is that some customers are using more but being charged the same rate as those using less, he added.
Future rate adjustments should move the revenue distribution toward the cost of service, and he is “really concerned” with making sure the heavy commercial/industrial user rate is more reflective of that cost.
Courtney said the city’s existing rates and even proposed rates for all users are below those being charged by Ohio Edison, according to the tariff’s the utility company has on file.
According to the study Ohio Edison is charging residential customers $67.46 per 500 kwh used and $130.75 per 1,000 kwh.
Another recommendation is to include the recovery of the kwh tax in customers rates. The tax is required by the state and already being charged, although not reflected separately in customer bills, and City Manager Lance Willard said they are still working to get that changed for the future.
Mayor Bryan Blakeman said he likes the idea of the fixed rate and council members said they would consider the recommendations and make a determination at a future council meeting.