2018-122 DME Rate Sensitivity AnalysisDate: September 7, 2018 Report No. 2018-122
INFORMAL STAFF REPORT
TO MAYOR AND CITY COUNCIL
SUBJECT: Denton Municipal Electric Base Rate Sensitivity Analysis
EXECUTIVE SUMMARY: The City Council requested information on the cost impact of
lowering Residential base rates and offsetting the resulting revenue decrease with an increase to Commercial base rates.
BACKGROUND: The electric base rates are set annually with Public Utility Board (PUB) input and approval by City Council. The base rates are reviewed by staff during the annual
budget process. In addition, a “cost of service” study is completed by an outside entity every four to five years on the electric rates.
DISCUSSION: Below is a table showing the base rate sensitivity analysis.
If Residential base rates were reduced 1%, this would result in a revenue reduction of $424,000 and would reduce the average Residential customer’s bill by about $11.58 annually. Two options available to offset this revenue reduction are as follows:
1. Commercial base rates (this includes General Service Small and General Service Medium rate classes) could be increased by 2.4% ($424,000). This results in the average Commercial customer’s bill increasing approximately $23.85 annually. 2. Commercial and Industrial base rates could be increased 1% each, resulting in a total
revenue increase of about $399,000. This would cause Commercial customer’s bill to increase approximately $9.94 annually and an Industrial customer’s bill to increase approximately $6.34 annually.
Electric Base Rate Sensitivity Analysis
Rate Percentage Amount
Annual Amount
Per Customer
Base Rate Residential -1.0% $ (424,000) $ (11.58)
Base Rate Commercial 2.4% $ 424,000 $ 23.85
Base Rate Commercial 1.0% $ 177,000 $ 9.94
Base Rate Industrial 1.0% $ 222,000 $ 6.34
Base Rate Comm & Ind 1.0% $ 399,000 $ 16.28
Date: September 7, 2018 Report No. 2018-122
Attached are three graphs that compare the Fiscal Year 16-17 actual MWhs, Meters and
Revenues by Class. These graphs illustrate that DME has a greater proportion of Residential
meters, 88% of all meters, which use 38% of MWhs and provide 43% of Rate Revenue. Historically, and as confirmed by the preliminary results of the 2018 Cost-of-Service study,
residential electric rates are subsidized by about 10%. This had been a common practice
throughout the electric industry in the past, however, electric utilities are reducing/eliminating rate subsidies for residential customers from a fairness/equity standpoint and in recognition that many commercial/industrial customers are electric rate “sensitive”.
ATTACHMENT(S):
FY 16-17 Electric MWh and Meter by Class Comparison
FY 16-17 Electric Revenue and MWh by Class Comparison
FY 16-17 Electric Revenue and Meters by Class Comparison
STAFF CONTACT:
George Morrow, Denton Municipal Electric General Manager
555,350
38.31%
295,856
20.41%
582,670
40.20%
15,708
1.08%
FY 16-17 Electric MWh by Class
Residential Commercial Industrial Other
45,922
88.46%
5,294
10.20%
139
0.27%
560
1.08%
FY 16-17 Electric Meters by Class
Residential Commercial Industrial Other
FY 16-17 Electric MWh and Meters by Class
Residential Commercial Industrial Other Total
MWh by Class 555,350 295,856 582,670 15,708 1,449,584
Meters by Class 45,922 5,294 139 560 51,915