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Town of Reading
Meeting Minutes
Board - Committee - Commission - Council:
RMLD Citizens Advisory Board
Date: 2017-04-12 Time: 6:30 PM
Building: Reading Municipal Light Building
Address: 230 Ash Street
Purpose: General Business
Attendees: Members - Present:
1}}F44 E 2
loll OCT 30 A -155 1
Location: Winfred Spurr Audio Visual Room
Session: Open Session
Version: Final
Mr. George Hooper, Chair (Wilmington); Mr. Dennis Kelley, Secretary
(Wilmington); Mr. Neil Cohen (Reading); Mr. Jason Small (North Reading)
Members - Not Present:
Others Present:
Mr. Hamid Jaffari; Ms. Joyce Mulvaney, Ms. Jane Parenteau; Ms. Kathleen
Rybak; Mr. Mayhew Seavey, PLM Electric Power Engineering
Minutes Respectfully Submitted By: Mr. Dennis Kelley, Secretary _ /,
Topics of Discussion:
1. Call Meeting to Order - G. Hooper, Chair
Chair Hooper called the meeting of the Citizens' Advisory Board to order at
6:30 PM and noted that the meeting was being audio recorded.
2. Approval of Minutes - G. Hooper, Chair
Materials: Draft Minutes from the March 1, 2017 meeting.
Mr. Kelley made a motion that the Citizens' Advisory Board approve the Minutes of the
March 1, 2017, meeting as written, seconded by Mr. Cohen. Hearing no further
discussion, Motion carried 4:0:0 (4 in favor, 0 opposed, 0 absent).
FY18 Operating Budget - H. Jaffari, Director of Engineering and Operations and
J. Parenteau, Director of Integrated Resources Division (IRD)
Materials: FY18 Operating Budget dated March 31, 2017
Ms. Parenteau began the Operating Budget presentation with a review of the Actual and
Projected Fixed and Semi -Variable Costs spreadsheet (page 11 of Agenda packet),
noting that RMLD is a highly -fixed utility. The spreadsheet provides a high-level
overview of RMLD fixed costs (82.680/a of budget), which for the most part we have no
control versus the remaining semi -variable costs (at 17.32% of budget).
Ms. Parenteau reviewed the Schedule of Revenues and Expenses (page 10 of Agenda
packet). As a municipal light department, RMLD can earn 8% maximum return on
investment (ROI) of net plant value. Fuel charges, and purchased power capacity and
transmission are pass-throughs to the customers and RMLD does not calculate this into
a return. Base revenue is what the RMLD utilizes to run the Department and earn that
ROI. Fiscal Year 2017 budgeted Base Revenue was $25.5m, and we are on target with
a projection of $25.4m (based on 8 -months actuals). We estimate an increase of $lm
Page 1 1
to Base Revenue (from FY17 to FY18) to meet budgeted expenses. This can be earned"
one of two ways, either with an increase in sales or a rate increase. Over the last five
to 10 years, RMLD sales have been flat to decreasing due to a combination of factors
(environmental, the economy, efficiency measures, etc.). With no significant
commercial grown anticipated, RMLD is assuming flat sales from FY17 to FY18.
Therefore, the $1m would need to be achieved through a rate increase. Mr. Mayhew
Seavey, Principal with PLM Electric Power Engineering, was present to review the
results of the recent Cost of Service Study and to present alternative rate design
scenarios.
Ms. Parenteau continued with a review of the Operating Revenues. Forfeited discount
represents the customer that do not take advantage of discounts offered and this is
recognized as revenue. The Energy Conservation program is a pass-through. What the
RMLD collects (on customer billing) is kept in a separate account to fund those projects,
so that there is no cross -subsidization into any other expenses. The NYPA credit is a
contra -revenue account. The NYPA credit is the result of some NYPA power that .was
negotiated with the New York Power Authority that only residential customers are
entitled to get. The total of the fuel charge plus the NYPA revenue should equate to the
fuel expense being a pass-through.
Mr. Jaffari reviewed the Operations and Maintenance Expenses, noting that this year we
are showing the FERC accounting numbers (first column). In FY18, in accordance with
FERC accounting practices, RMLD is moving capital 'expense" labor (labor to take
things down) involved with capital work from the Operational and Maintenance Budget
and moving it to the Capital Budget. Therefore, there were additional shifts in the labor
expense from the Operations and Maintenance to Capital.
Mr. Jaffari reviewed the various departments/categories, which each include regular
and overtime labor (less capital portion), and department expenses such as vehicles,
training, etc. Of note, Supervision and Engineering includes three new positions. Line
General includes dead -time (including employee time off), along with the overtime for
the operational side. Street Lighting (585) represents routine patrolling of the
streetlights, and Maintenance of Street Lights (596) is the actual repair of the street
light assembly. These have been separate lines items, but we plan to combine them
next year. Mr. Jaffari noted that the LED replacement program (a Capital Project) is
going very well. We have replaced almost 2/3 of the streetlights. Mr. Kelly asked
(based on the 2/3 completed) if there has been any early failure of the lights? Thus far
(per Mr. Jaffari), there have not been any failures. However, it is new technology.
Chair Hooper noted, that we could expect that streetlight expense to go down with the
installation of the LED lights. Maintenance of the Lines UG has gone up due to some
challenges in this area. There are old subdivisions that should have been maintained,
and they are now,experiencing troubles. We have started a program to upgrade and
address those failures to hopefully prevent any further failure. The overall increase to
Operations and Maintenance Expense is 1.74%, which is modest and appropriate.
Moving to General and Administration Expenses, which includes labor (regular and
overtime) as well as department expenses, Mr. Jaffari noted that union contracts have
been ratified, and the retroactive increases have impacted the labor expense. Of note,
Customer Collections includes the new hires for IT billing. Administrative and General
Salaries is down due to attrition. Office Supplies includes credit card fees associated
with customer payments (per FERC regulations). Outside Services includes legal fees
and consulting fees. Maintenance of General Plant (including software, website, GPS,
SCADA system, engineering software, etc.) is up, which reflects improved automation
efficiencies. The total for Maintenance Expenses reflects an overall increase of 3.7%.
Mr. Jaffari continued with review of Other Operating Expenses, which shows an overall
increase of approximately 5%. Operating Income (revenue minus expense) is up
3.5%. Mr. Jaffari then reviewed the Non -Operating Revenues (Expenses). Overall, the
Page 1 2
total Non -Operating Revenues (Expenses) is up by 0.73%. Net Income is up by 4.56%,
and the Return on Revenue (or ROI) overall is 7.75%, which is slightly below the 8%
allowed.
4. Proposed Rate Adjustment - J. Parenteau, Director of Integrated Resources and
M. Seavey, Principal, PLM
Presentation Slides: Electric Rate Design Scenarios (dated April 12, 2017)
Mr. Mayhew Seavey was present to review the results of the Cost of Service (COS)
Study and to present alternate rate scenarios. The Cost of Service Model (prepared for
FY16) was updated to prove that the model was correctly generating revenues and
comparing them to expenses. Assumptions used for the COS model are outlined on
Slide 2. Mr. Seavey noted that the municipal street lights rate is a flow-through of
certain expenses as spelled out in Chapter 164 and cannot be adjusted. The results
(Slide 3) show the rate of return that each customer class earns, and an overall rate of
return at 7.9%. As illustrated, the rates of return vary widely between classes, but
they are still in the same range that they were in three years ago, and are within the
range of other Massachusetts municipal utilities. Mr. Seavey noted that over the years
he has done rate designs for about three-quarters of the municipal utilities in
Massachusetts and they are all fairly similar; you have a low or slightly negative rate of
return on residential rates, and a fairly high rate on commercial, lower on industrial.
Mr. Seavey then reviewed Slides 5 and 6 - Issues of Subsidies in RMLD's Rates.
Subsidies are inevitable in retail electric rates. Rates seldom if ever reflect the actual
cost of providing service to every customer. The cost of energy varies every hour of
the day all year long and yet you are charging customers a rate that varies at most
twice a day over the course of the entire year. Capacity and transmission costs are
based on demand during the peak hour (every year for capacity or every month for
transmission). Most customers don't pay a demand charge - they are paying a flat,
cents per kilowatt hour charge. With all those costs, you have one group of customers
who ends up subsidizing another because they happen to have a peak demand during
that one peak hour or they happen to not have much demand during those hours. The
customers that do pay a demand charge are paying a demand charge based on their
highest demand during the month, not what their demand is during that peak hour.
Therefore, the rates are inexact. There are additional inherent subsidies because the
cost of providing distribution service to any customer depends largely on the voltage
that the customer is being served at, and where the customer is located on the system.
Until something changes (in technology, etc.) this will continue. Mr. Seavey then
discussed the political considerations that get reflected in the rate design.
Mr. Seavey reviewed both cross -class and intra -class subsidies that are addressed
within the rate design (Slide 7). Mr. Seavey noted renewable generation (solar net
metering) subsidies are becoming increasingly more sensitive for municipal utilities.
There is a lot of attention being paid to reducing or eliminating these subsidies.
Intra -class subsidies are where one group .of customers within a customer class are
subsidizing others. In particular, the demand charges that customers are paying do not
reflect the actual cost of distribution, capacity and transmission. Capacity and
transmission, have been going up much faster than other costs over the last few years.
Customers who use a lot of kilowatt hours relative to the maximum demand that they
put on the system are paying more than their share of those capacity and transmission
costs because they are paying through a kilowatt hour charge rather than a demand
charge. Getting those demand charges accurately reflected in the rates has the added
disadvantage that it doesn't provide a current price signal to customers to provide an
incentive to control their demand during peak periods. We are trying to find ways that
we can send that signal to the customers to cut their demand during peak periods.
Page 1 3
Mr. Seavey reviewed three different rate design scenarios to address cross -class
subsidies (Slide 8), all of which would produce the same overall revenue: (1) rates that
uniformly increase rates by 4% (what RMLD has usually done in the past); (2) rates
that will produce an 8% rate of return from each class; and (3) a refinement -
designing residential rates that will at least breakeven and then have the other classes
be equal.
Slides 9-14 displays in rough terms what happens under each scenario. Scenario 1
(Slides 9-10) is a 4% across the board increase in the base rates. We end up with an
increase in the total bill of about 1% (capacity and transmission, and fuel, etc. are the
same). The only thing that that is really increasing are the distribution costs. The rate
impact is pretty uniform for all classes., Mr. Seavey reviewed how these rates
compared with National Grid's current rates (as of April 1St of this year). All of the rates
are competitive (in all scenarios) and so competitiveness is not a huge factor.
Scenario 2 (Slide 11-12) equalizes the rates of return so that each class earns an 8%
rate of return. Mr. Seavey reviewed the impact of this scenario on each class. This
would result in a significant shift in revenues between residential, commercial and
industrial.
Scenario 3 (Slides 13-14) is more moderate. The residential rate of return goes to zero
(breakeven). No body, except the Residential TOU, is looking at any change in their bill
greater than 4%. The rule of thumb in retail rate -making is that customers don't notice
a change of less than 10% and a change of less than 5% is truly in the level of noise.
Mr. Seavey then presented information relative to Intra -Class Subsidies looking solely
at industrial class as an example. (slides 15-19). Currently, purchase power, capacity
and transmission costs (PPCTC) are being recovered through a flat cents -per -kilowatt-
hour charge that is the same for all customers. With the present rate, the total
demand charge varies between $7.48 and $8.94 per kw for classes that pay a demand
charge. In FY18, forward capacity and transmission costs (combined) are estimated at
just under $16 per kilowatt. The $8 isn't recovering anywhere near the full cost of
capacity and transmission, never mind the distribution cost. The $7-8 accurately
reflects distribution cost, but you need to add another $16 (bringing it to $23-24) per
kw to actually reflect the cost of demand. As noted earlier, high load factor customers
(those using a lot of kilowatt hours relative to their peak demand) are paying more
than their share of the capacity and transmission costs. Slide 16 includes a graph that
shows how this plays out with current customers. There is a direct linear correlation
between the number of hours that a customer is using its demand every month and
what percentage of his demand costs is going to subsidize someone else or being
subsidized by someone else.
The proposed approach to eliminate or reduce these subsidies (slide 17) would include
a demand charge that reflects the combined cost of capacity and transmission, and
then recover the rest of the cost through an energy charge. We will not shift revenues
from one class to another. We are just going to look at, if those three classes had paid
the approximate $0.055 cents, this is how much revenue we would have collected - lets
convert that into a demand charge and collect anything else through a kilowatt hour
charge; the impact will be this many dollars to half the customers and a reduction to
the other half of the customers. Two-thirds of customers are going to see an increase,
although only five of those customers would see an increase greater than 10%.
Customers that are looking at decreases are looking at decreases of more than 5%
because you see a lot of customers with high load factors that are using a lot of
kilowatt hours - they are not seeing a big decrease in percentage in their bill.
Mr. Seavey opened the discussion to questions. Mr. Kelley noted that over the past
three years there have been increases (approximately 4% annually), and questioned
the overall impact of these increases to customers over the last three years. Ms.
Page 14
Parenteau responded that the previous philosophy was to whittle away at the rate of
return until you were not earning a rate of return and then you had a very large
(double digit) increase in order to recover that money. That provides less money for
capital projects and to put back into the system. When Ms. O'Brien joined RMLD, the
plan was to put in place small, more palatable increases, rather than waiting three
years and requesting a 10-12% or 15% increase. RMLD has put a lot of maintenance
programs in place; we've had a lot of catching up to do. As staff has been reporting,
capacity and transmission costs are going up significantly and this is the year that it is
going to hit. Power supply (80% of an average bill) is going up approximately 3.5%
overall. We are trying to manage those rate increases so that we don't have huge
spikes. That's the philosophy Ms. O'Brien has implemented since she came to RMLD in
2013. There were no additional questions.
Mr. Seavey began review of Renewable Generation (or solar net metering) rates (Slide
20). RMLD losses on average 30% of the distribution revenues that would be collected
from solar customers because they are buying fewer kilowatt hours. However, those
customers, are not using 30% less distribution service. They still have the same
demand when the sun isn't shining that they had before, and when they export
electricity out onto the grid they are using the RMLD distribution system. RMLD
provides a service, and the customer isn't paying for it which is the basic problem.
There are currently not a huge number of solar customers, but it is a concern over time
that this could be an issue. There is a public perception issue that customers are not
paying their fair share. Mr. Seavey then reviewed (Slide 21) a typical residential solar
customer's load shape (over a 24-hour period). The area depicted in red' is where
RMLD is losing distribution revenue. Slide 22 shows a graph which depicts that the
more solar electricity that's actually used behind the meter (not exported out to the
system) the more the customer is avoiding distribution costs, and the more it's costing
RMLD per kilowatt hour of installed solar capacity. The average loss ($3.16) actually
reflects only half of the customers. With quite a few customers, RMLD is losing more
than $3.
Mr. Kelley asked about solar customers that use time -of -use. Ms. Parenteau noted that
approximately 5-10% of the 80 solar customers are on time -of -use metering.
Customers have no concept of the value of the subsidizations for distribution charges,
which makes it difficult for customers to determine break-even on their investment.
RMLD is still a back-up system for that solar. Short of having these values for the
subsidizations, more people may invest with that same mind -set. If the light
department was to restructure the net metering so that we collect a demand
component to recover those costs, customers would then be aware of the costs when
making their investments. It is important that our rates are reflective of the actual
charges to limit subsidization.
Mr. Seavey then reviewed Slide 23 which outlines three approaches to address the
Renewable Generation Subsidy. (1) a fixed charge every month (per installed kw) for
distribution service recovery. (2) meter those customers with a demand meter rather
than just a kilowatt-hour meter. (3) separate the solar generator from the house meter
and have two separate meters. This is often used just for commercial scale (anything
over 100kw).
Mr. Seavey noted that it is important, in light of the improvements in the economies of
battery storage, to address this now. If a customer wants to completely avoid paying
RMLD for distribution, they need to disconnect from your system. Solar developers
provide an economic analysis to customers. RMLD does not know what payback a
customer has been led to expect from the solar installation, which may or may not
reflect RMLD's actual rate structure. It is a matter of political sensitivity to change a
rate for existing customers. For that reason, some utilities will grandfather existing
customers when they change net metering rates; there is an implied contract - there
Page 1 5
S ,
is a rate schedule that is not going to suddenly change and destroy the value of their
investment. Mr. Seavey concluded his presentation.
Chair Hooper noted that it was a lot of information, and suggested that it may be
valuable for the RMLD to share some of this information at the selectmen meetings so
that they get a better understanding of how the rates are developed.
Ms. Parenteau noted that because the budget assumes certain revenue requirements,
the operating budget, capital budget, and any proposed rate increase are presented as
a package. The rate information presented here is preliminary and will be presented
to the BOCs for their feedback. Staff will then fine tune the recommendation and
return to the CAB with specific rate information. Ms. Parenteau noted that the
operating and capital budget could be voted at this meeting with the assumption that
the operating revenue will be collected in some way or shape through a rate filing in
June for a July effective date.
Mr. Small made a motion that the Citizens' Advisory Board recommend to the RMLD
Board of Commissioners the Fiscal Year 2018 Operating Budget with a Net Income of
$4,114,622 as presented, seconded by Mr. Cohen. Hearing no further discussion,
Motion carried 4:0:0 (4 in favor, 0 opposed, 0 absent).
Mr. Small made a motion that the Citizens' Advisory, Board recommend to the RMLD
Board of Commissioners the Fiscal Year 2018 Capital Budget in the amount of
$7,685,715 as presented on April 5, 2017. Any significant changes are to be
submitted to the CAB for review and recommendation, seconded by Mr. Cohen.
Hearing no further discussion, Motion carried 4:0:0 (4 in favor, 0 opposed, 0
absent).
5. Public Comment - G. Hooper, Chair
Chair Hooper noted that there was no public present. Mr. Kelley suggested the CAB
consider voting a new Vice Chair to fill the vacant position. This will be added to the
Agenda for an upcoming meeting. Mr. Kelley asked about the upcoming solar facility
tour and questioned why it had not been scheduled for one of the RMLD facilities
(RMLD generation). Ms. Parenteau noted that the solar facilities are similar other
than the size. To accommodate safety and ease of access to the roof, the tour was
scheduled for the Teradyne facility. The tour is scheduled for May 16th.
6. Next Meeting - G. Hooper, Chair
The next meeting of the CAB was scheduled for Wednesday, May 3rd.
7. Adjournment - G. Hooper, Chair
Mr. Kelley made a motion to adjourn the Citizens' Advisory Board meeting, seconded
by Mr. Cohen. Hearing no further discussion, Motion carried 4:0:0 (4 in favor, 0
opposed, 0 absent).
The Citizens' Advisory Board Meeting adjourned at 7:47 PM.
As approved October 25, 2017.
Page 1 6
Electric Rate Design Scenarios
A Presentation to the
Reading Municipal Lig-ht Department
April 12., 20-17
PLMElectric Power Engineering
FY18 Cost of Service
Assumptions,
O Used FY16 cost of service model as the base
OO Sales kept flat at of 672 million kWh
O O&M from RMLD FY18 budget
O Plant increased to $79 million
O Customer and distribution charges increased by 4%
O Municipal street lights billed at $0.13861
April 12, 2017 PLM Electric Power Engineering
FY18 Cost of Service
Results
40
35
FY18
Residential
30%
25
Lighting
10%
5%
0%
Test Year
Residential
Time -of -Use
School
Commercial
Industrial
Coo
Municipal
Private Area
DESCRIPTION
Total
A
A-2
SCH
C
I
COOP
Street
Lights
TOTAL ANNUAL REVENUES
97 811 030 39,143,692
662,010
2 097 137
29 323 754 j
25 670 440
465143,
2144,0561
104,798!
TOTALANNUAL IXPENSES
91 551,366 40,233 432,
1-
729 846
1 792,054
—
24,326 487;
23,479 9.65
374 057
513 102;
102,424
RETURN (NET INCOME)
6,259,664 1,089,740:,
67,836,
305,083
4,997,267
2,190,4761
91,087,
169,046;
2,3741
TOTAL NET PLANT JUN 30
79 119,000 46-622,268i
704 232 l
_
271 407
18 123 155 � 16,177,1391
_
264,85 1
1 695 890)
260, 058
--
RATE OF RETURN
Y- - - 7 9 � 27
_ ,
96
- -_1 __.
240,
4T
276;
rt
13.5;
34.4
._.
100
09'
---
-- -
-
40
35
30%
25
20%
15%
10%
5%
0%
Overall Residential RefrdMial School Commercial Industrial coop t Private
-5%
Tim=Use i t Lights
-10%
-15
April 12, 2017 PLM' Electric Power Engineering
FY18 Cost of Service
Results
O Overall rate of return 7,9%
O Class rates of return vary from minus 10% to plus 28%
O Rates. of return are comparable. to the FY 13 cost of
service study
O Relative rates of return are within the range seen from
other Massachusetts municipal utilities.
April 12, 2017 PLM Electric Power Engineering
Issue of Subsidies in RMLD's Rates
Subsidies are inevitable in retail electric rates
® Rates can seldom reflect the actual cost of service to
every customer
• Energy costs vary hourly
• Energy rates reflect at most two groups of hours, on -peak and off-peak
• Capacity and transmission costs are set based on demand
during the peak hour of every year (capacity) or month
(transmission)
• Most customers do not even pay a demand charge
• Those that do typically pay a rate based on the customer's peak, not
their demand during the regional. peak hour
• Distribution costs vary depending on where a customer is
Located on the distribution system
•. Rates are based on the average cost of the entire network
April 12, 2017 PLM Electric Power Engineering
Issue of Subsidies, in RMLD's -Rates
Political considerations are reflected in rate levels
® Residential customers are favored by both municipal
and private utilities
• Residents of municipal systems usually elect the Municipal Light
Board members
The Attorney General often represents the residential customers of
private utilities in rate cases, putting downward pressure on
residential rates
• Large customers are -more sensitive to competitive
price pressure and are more able to move their
operations to shop for lower electricity prices
• Municipal utilities also tend to view large customers as employers
for residents and therefore require less net income from them
April 12, 2017 PLM Electric Power Engineering
Two. Types of Subsidies to Address in
Rate Design
® Cross -Class Subsidies
• Residential rates do not even recover expenses
• Commercial and Industrial rates produce all of the net income and
subsidize- the residential customers
Renewable Generation rates do not recover much of the cost of
providing distribution service to customers who take service under
those rates
• Intra -Class Subsidies
• Demand charges do not. reflect the actual cost of distribution,
capacity and transmission expenses, all of which are demand -
related
• High -load factor customers subsidize low -load factor customers
• Has the added disadvantage of not providing adequate incentive to
customers to control demand during peak periods
April 12, 2017 PLM Electric Power Engineering
Alternative Rate Design Scenarios
To Address Cross -Class Subsidies
All scenarios were designed to -produce an overall 8%
rate of return
I. Design rates that.will provide an equal percent
increase to all classes of customer
2. Design all rates to produce the same rate of return,
approximately 8%
3. Design residential rates that produce a 0%
return, with all other rate classes producing
return -equal to each other
April 12, 2017 PLM Electric Power Engineering
rate of
rates of
Scenario 1:
Equal -Percentage Increase
Rate of Revenue Change RMLD vs.
_-. ___.., Competitiveness with NGrid
_ .._ _ .._. ,_ -----____._. _- _ _ .._.- _
..__-_...._ .-______.. _._.__. -60% -50% -40% -30% -20% -10%
Return NGrid
Residential
-3.0%
Residential Time -of -Use
-10.0%
School
23.4%
Commercial
27.0%
Industrial
15.1%
Coop
33.8%
TOTALS
7.9%
0%
$533
1.4%
-22.1%
6
1.0%
-53.1%
20
1.0%
-15.8%
320
1.1%
-13.1%
131
0.5%
-53.9%
present
■proposed
5
1 1.2%
-10.6%
1,016
1.1% 1
-32.597/o
Rate of Return
-20% -10% 0% 10% 20%
Rate Impact
30% 40% -20% -10% 0%
i
Residential
Residentidl Time -of -Use
I
School
Commercial
Industrial
Coop
PLM, Electric Power Engineering
April 12, 2017
10% 20%
i
Scenario 1:
Equal- Percentage Increase
• Overall revenue increase is $1 million
• All,classes base rates increased by 4 %
• Net bill increase averages 1%
• Rates of return remain uneven
• Residential rates lose $1.3 million in net income
• Commercial and Industrial customers pay over $7 million
April 12, 2017 PLM Electric Power Engineering
Scenario 2:
Equal Rates of Return
Rate of Return
-20% -10% 0% 10% 20% 30%
Competitiveness with NGrid
-60% -50% -40% -30% -20% -10%
0%
Rate Impact
-20% -10% 0% 10%
20
April 12, 2017
PLM Electric Power Engineering
Rate of
Revenue Change
RMLD vs.
Return
NGrid
M
($000)
N
M
Residential
8.1%
$5,001
13.1%
-13.1%
Residential Time -of -Use
8.0%
132
20.3%
-44.1%
School
8.2%
(170)
-8.3%
-23.5%
Commercial
8.2%
(3,033)
-10.6%
-23.2%
Industrial
8.5%
(920)
-3.6%
-55.8%
Coop
7.6%
(63)
-13.9%
-24.0%
TOTALS
7.8%
$947
1.0%
-32.6%
Rate of Return
-20% -10% 0% 10% 20% 30%
Competitiveness with NGrid
-60% -50% -40% -30% -20% -10%
0%
Rate Impact
-20% -10% 0% 10%
20
April 12, 2017
PLM Electric Power Engineering
Scenario 2:
Equal - Rates of Return
• Overall revenue increase is $1 million
• Each class produces an 8% return on equity
• Average rate increase is 1%
• Residential increase is 13% or $5 million
• Commercial reduction is 11% or $3 million
• Industrial reduction is 4% or $1 million
April 12, 2017 PLM Electric Power Engineering
Scenario 3:
Residential Classes 0% Rate of Return
All Others Equal Rates of Return
QiJ
Rate of Return
-20% -10% 0% 10% 20% 30%
I
Competitiveness with NGrid
-6070 -50% -40% -30% -20% -10% 0%
-20%
Rate Impact
-10% 0% 10% 20%
i
Residential
Residentidl Time -of -Use
Lommerciai Commer
Industrial Industrial
Coop Coop
April 12, 2017 PLM Electric Power Engineering
Rate of
Revenue Change
RMLDvs.
Return
NGrid
($000)
N
(%)
N
Residential
-0.1%
$1,691
4.4%
-19.8%
Residential Time -of -Use
-0.1%
75
11.6%
-48.2%
School
19.1%
(33)
-1.6%
-18.0%
Commercial
20.3%
(880)
-3.1%
-16.7%
Industrial
15.1%
131
0.5%
-53.9%
Coop
33.8%
5
1.2%
-10.6%
TOTALS
7.9%
$990
1.0%
-32.6%
Rate of Return
-20% -10% 0% 10% 20% 30%
I
Competitiveness with NGrid
-6070 -50% -40% -30% -20% -10% 0%
-20%
Rate Impact
-10% 0% 10% 20%
i
Residential
Residentidl Time -of -Use
Lommerciai Commer
Industrial Industrial
Coop Coop
April 12, 2017 PLM Electric Power Engineering
Scenario 3:
Residential Classes 0% Rate of Return
All Others Equal Rates of Return
• Overall revenue increase is $1 million
• Average rate increase is 1%
• Residential increase is 4% or $1.7 million
• Commercial reduction is 3% or $0.9 million
• Industrial increase is 0.5% or $130 thousand
April 12, 2017 PLM Electric Power Engineering
VA
Alternative Rate Design Scenarios
To Ad -dress Intra -Class -Subsidies
• Present rate charges a demand charge only for
distribution service to Commercial, Industrial and
School customers
• Rate varies between $7.48 and $8.94 per kW
• In FY18 Forward Capacity and Transmission costs will
total almost $16 per kW
• All capacity and transmission costs are recovered
through a flat cents per kWh charge that is the same
for all customers
• Customers who use a lot of kWh relative to their
peak demand (high load factor) are paying more
than their. share of capacity and transmission costs
April 12, 2017 PLM Electric Power Engineering
Industrial Rate - Subsidization of
Capacity and Transmission Cost
100%
T 80%
V)
60%
O
U
c
40%
E
V)
CU 20%
L
L..
0%
U
M
CL
U -20%
O
a)
W
-40%
c
a,
u
L
-60%
-80%
Percent
Load Factor (hours use of demand)
IN
100,000
80,000
60,000
O
U
C
40,000
N
w
E
c 20,000
c�
ca
Y
c _
T
U
a (20,000)
fa
U
fa
(40,000)
c
o (60,000)
c
O
E (80,000)
(100,000)
Dollars per Year
April 12, 2017 PLM Electric Power Engineering
Load Factor (hours use of demand)
Ix
Proposed. Approach to Reducing or
Eliminating this Subsidy
• Create a separate Purchase Power Capacity and
Transmission Charge (PPCTC)rfor demand -billed
customers
• A demand component that reflects the combined cost of
Forward Capacity and Regional Network transmission
charges
• An energy component that recovers- the remaining revenues
that the PPCTC charges to all other customers, would have
recovered
® No shift of revenues from one class to another, only
from high load factor customers to low load. factor
customers.
April 12, 2017 PLM Electric Power Engineering
Impact'of Shifting ,Capacity and
Transmission Costs- to Demand Charge
Percent
45.0% 1. ...... 80,000
40.0%
• _.. - 60,000
Ln
In
�. 35.0%
0 40,000
Ln U
0 30.0%
c
0
V) 20,000
25.0% . .. .-....._ -
E
c
� i m
20.0%-
c
15.070 f - - _r _.... .... _ T (20,000)
U
i Q
Q 10.0% u
fO — (40,000)
U �p
4— 7
v 5.0% c
oq co
co o (60,000)
ami 0.0%
CL 200 400 800 E (80,000)
-5.0% co
-10.0% 1 (100,000)
Load Factor (hours use of demand)
Dollars per. Year
April 12, 2017 PLM Electric Power Engineering
Load Factor (hours use of demand)
)0
Impact of Shifting Capacity and
Transmission Costs to Demand Charge
• Two thirds of Industrial Customers would see an
increase in their cost of electricity
• Only five customers would see an increase greater
than 10%
® None of the decreases would be greater than 5%
• Customers seeing decreases are high load factor customers
using a lot of kWh
• Customers seeing increases tend to be smaller, low load
factor customers using fewer kWh
April 12, 2017 . PLM Electric Power Engineering
Subsidization Under Present
Renewable Generation Rate
• Present rate allows customer to avoid paying a distribution
charge for all kWh that are produced by their solar generator
and consumed on the customer's premises
The percentage of distribution charges avoided varies with the size
of the solar installation but averages over 30% of total distribution
revenue lost per customer
• RMLD loses an average of $3.16 per installed kW of solar
capacity each month in distribution revenue
Total monthly subsidy is -estimated at $1,800 across approximately
80 customers, an average subsidy of $2.2 per customer.
This is mitigated by the fact that payment for energy exported by
the solar customer is at the Fuel Charge, which is less than the
avoided energy, capacity and transmission value of the solar
generation
April 12, 2017 PLM Electric Power Engineering
How a Solar Customer Looks
to RMLD Metering
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
April 12, 2017 PLM Electric 'Power Engineering
Lost Revenue vs Solar'Utilization
"9.00 -
8.00
CO The more of the solar energy a:customer exports to •
00
V) RM LD the less revenue RMLD loses. •
v solar installations that are under -sized relative to the •
0 6.00 customer's load-have�a proportionately greater-
Ul
negative impact on net income. •
0 5.00 ------
4.00
- 4.00
J
3.00
0
c �
2.00
1.00 �. • f
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Percentage of Solar kWh Used Behind the Meter
April 12, 2017 PLM Electric Power Engineering
Options for Reducing the Renewable
Generation Subsidy
• Add a Distribution Recovery. Charge of $x.xx per kW of installed sc
capacity each month to recover the lost distribution revenue
This is not ideal since, as the previous graph shows, the actual lost revenue per
varies widely from one customer to another.
Simple to administer with existing metering and billing system
This approach has been adopted by many public power systems
• Install demand meters on all customers with renewable generation and
bill their distribution service on a demand rather than energy basis
• Solar generation does not significantly reduce the maximum demand that a customer
places .on the distribution system
Requires new and more expensive metering and billing solutions
• Separate the metering and billing of distribution service and renewable
generation supply
Bill the customer for 100% of the electricity consumed on the customer's premises at
the normal retail rate
• Credit the customer for 100% of the energy generated by the facility at a Renewable
Generation Buyback tariff rate
Most complete and accurate way of eliminating the subsidy
• Requires new and more complicated metering and billing solutions
April 12, 2017 PLM Electric Power Engineering
Questions-
April
12, 2017 PLM Electric Power Engineering