Loading...
2021-105 Update to DME's Electric Service Standards Line Extension PolicyDate: December 3, 2021 Report No. 2021-105 INFORMAL STAFF REPORT TO MAYOR AND CITY COUNCIL SUBJECT: Update to DME’s Electric Service Standards and Line Extension Policy BACKGROUND: The current version of the Electric Service Standards (“ESS”) has been in effect since 2014 and includes code, materials, and construction standards for electric distribution service; as well as Line Extension Policy (“LEP”) related to the determination of aid-in-construction (AIC) costs associated with the provision of electric service to new developments. Within the current document, AIC requirements are not well organized and often ambiguous as to what is required of DME vs. the customer or developer. This has made it difficult for developers to plan for, and estimate, their AIC because the AIC cost is often not known until the project is designed by DME. The LEP included with the current ESS uses a distance method to provide credit to new customers for line extensions. The method does not provide a cap or significant limitations on the type of construction used. As a result, existing ratepayers have assumed (subsidized) a significant share of the burden to extend services to new customers. This burden is not equitable with the expected rate of return from a customer, and only relies on the distances needed to extend facilities. In order to address the subsidy of the current ESS, DME contracted with Schneider Engineering to assist in researching industry standards and writing new documentation and polices which are equitable, easy to understand, and consistent with other electric utilities. As a result of this effort, DME has revised its current ESS and separated the line extension and customer aid-in-construction requirements into a stand-alone document called the LEP. Regulatory code, technical requirements, and instructions relating to the provision of electric service have been consolidated into the revised ESS. The revised ESS will be updated periodically as needed to comply with changes to the National Electric Safety Code, National Electric Code, Denton Development Code, and other Engineering standards. DISCUSSION: Line extensions to serve new developments represent a significant portion of the work DME accomplishes on a regular basis. All new development, and many service upgrades, require some degree of extension of DME facilities. The division of responsibility for the cost of these extensions has previously been defined in the ESS. The division of responsibilities is now placed in the LEP. A comparison of the two are listed below. Line extensions per the current Electric Service Standards  Up to 300 feet of primary conductor extension and 100 feet of secondary conductor in single and multi-certified service areas at no cost to any new customer. Date: December 3, 2021 Report No. 2021-105  Developers/customers are responsible for all civil work but DME provides conduit for underground service. Single and multi-certified areas refer to Public Utility Commission of Texas defined areas that may be served only by DME (single-certified) and areas that may be served by DME and other providers (multi-certified). A map of these areas is included as Attachment 1. The equipment needed to serve customers depends greatly on their load and the configuration of the existing DME infrastructure. DME knows, historically, the cost to extend 300 feet of primary and 100 feet of secondary can range from $10,000 to more the $100,000. Line extensions per the new Line Extension Policy:  Developers/customers will be responsible for all line extension costs to the new/existing service location within single certified service areas. As an economic development inducement, DME will provide a limited credit to new/existing services based upon the projected return on investment for competitive, multi- certification service areas.  Developers are responsible for all civil work, including providing conduit. Developers/customer will be responsible for all costs above the credit provided after achieving the threshold return on investment. DME, a jurisdictional monopoly in its single-service territory with strong demand for new services, designed the new LEP to place the responsibility for the full cost of a line extension on the customer and/or developer. This revised approach is consistent with other jurisdictional monopoly electric service providers and avoids any cross subsidy from existing customers. However, in multi-certified areas, where DME competes with CoServ and Oncor for customers, the new LEP provides a credit up to the targeted rate of return in order to be competitive in providing service in those areas. Customer Aid-in-Construction in comparison with other utilities To provide a degree of Utility Best Practice knowledge, research was completed on like Municipally Owned electric utilities such as Austin Energy, and our service territory competitors, CoServ Electric and Oncor. Customer AIC fees are standard in the electric utility industry. New customers are generally expected to pay some or all the costs to extend facilities to their location. However, credits are sometimes given in competitive markets. These credits may be based on an allowance, a distance, or a formula. The following table provides examples of several other Texas energy providers credit policies. Date: December 3, 2021 Report No. 2021-105 Table 1 – Various Texas Energy Provider Credit Policies Based on the research, DME proposes the following LEP conditions: Single Certified Areas Within single certified areas, new customers are required to pay 100% of line extension cost. This provides for an equitable burden for new developments and DME’s existing ratepayers. It is also consistent with the policies of other municipally owned utilities, including Austin Energy and Garland Power & Light. Multi-certified Areas Within multi-certified areas, as an economic development inducement that is authorized under Texas law, credit will be given based on a formula to achieve a target return on investment and allows DME to be competitive with CoServ and Oncor. The competitive advantage is important because with any development, the chosen provider takes all or most of it. It is not easy or economical for a second provider to, after the fact, build into and serve an area already predominantly served by other utilities. Additionally, since DME infrastructure and other fixed costs are significant, with every additional customer, economies of scale reduce rate pressure. For residential developments (single-family homes) in multi-certified areas, developers will be given a credit of up to $1,400 per home. This value simplifies the estimation and planning process. The value was calculated1 as an average, per-unit cost to extend, and complete, residential subdivisions. The amount of credit given may be adjusted per the rate of return formula if the estimated return on investment is higher than the target rate. For all other residential developments as well as commercial and industrial developments in multi- certified areas, the credits given will be based on the projected electrical loads and estimated return on investment of the development. Examples of developers share of line extension costs under the new LEP can be found in Attachment 2. 1 Average of costs for 35 subdivisions completed in the DME service territory between 2015 and 2019. Fixed Distance Fixed Allowance Formulaic Customer Pays  Oncor (small loads)  Heart of Texas Coop  CoServ Electric  CPS Energy (residential)  Bartlett Electric Coop  Hamilton Electric Coop  Navasota Valley Electric Coop  United CS  Oncor (large loads)  CPS Energy (commercial)  South Plains Electric Coop  Austin Energy  Garland Power & Light  Bryan Texas Utilities Date: December 3, 2021 Report No. 2021-105 Transition plan DME will implement the new policies for all requests for extension of service to new customers or upgrading of service to existing customers beginning from the date these policies are approved by City Council. A grace period of one (1) year will be applied to all currently active and open line extension projects being managed by DME Engineering wherein they will continue to receive credit or allowance they would have received under the existing line extension policy of the current ESS. CONCLUSION: DME has revised the current Electric Service Standards to better facilitate the technical and administrative needs of the City of Denton into separate documents. A major part of the revision includes changes to the developer responsibilities associated with new the LEP. These policies have been adjusted to place the responsibility for new development upon the developer and not existing ratepayers. These new policies have been codified in the new DME Line Extension Policy. STAFF CONTACT: Jerry Fielder, P.E., Engineering Division Manager; Aaron Bennion, Engineer IV REQUESTOR: Staff Initiated, DME PARTICIPATING DEPARTMENTS: DME STAFF TIME TO COMPLETE REPORT: The project began in June 2020. Total staff and contractor time on this project exceeds 1000 hours. Date: December 3, 2021 Report No. 2021-105 Attachment 1 – Certification Map Date: December 3, 2021 Report No. 2021-105 Attachment 2 – Examples Single Certified  Single Certified Residential Development: developer pays 100% of construction costs.  Single certified Commercial or Industrial Development: developer pays 100% of construction costs. Multi-Certified  Multi-certified Residential Development: DME credits up to $1,400 per single-family home.* Developer pays any additional construction costs. (*If size of development and home indicate a higher projected return on investment, credit may be increased using formulaic approach.)  Multi-certified Apartment Complexes: DME calculates estimated load and credits up to the calculated target payback. Developer pays any additional construction costs.  Multi-certified Commercial or Industrial Development: DME calculates estimated load and credits up to the calculated target payback. Developer pays any additional construction costs. All Areas  Temporary Construction: developer pays 100% of construction costs throughout entire service area.