The Hutchinson Utilities Commission thinks it may be time to adjust its rates.
HUC met Wednesday to discuss possible scenarios after a Cost of Service study was done this past year and presented to the commission in January. These studies are typically done every three to five years.
“The basis behind the study is, it looks at what it costs to run a utility, the fixed costs and variable costs, and they look at the rate classes we have, and based on those: are the rates appropriate for what it costs to run the business, and are they equitable?” HUC general manager Jeremy Carter said. “Is each class picking up their fair share of the cost of the utility?”
The study used three metrics to measure the financial health of the electric and gas utilities:
1. Debt coverage ratio: Does HUC have enough cash to have proper debt coverage?
2. Minimum cash reserves: Is there enough money coming in to pay bills and maintain its infrastructure?
3. Target operating income: Is HUC getting a desired rate of return of about 5 to 5.5 percent?
According to the study, HUC meets the first two of those three benchmarks as it has good debt coverage ratio and is still cash positive on a yearly basis. As for a desired rate of return, HUC currently falls short of that metric, but Carter said that is not cause for major concern because it is meeting the other two.
“The cost of service number is one benchmark they look at,” he said. “If we went solely on that one, we would need to adjust our rates up 9.6 percent (in the electric division). But the other two metrics are in good shape.”
That means even though HUC often shows a loss of income on the electric side, it is still bringing in enough cash to cover operations and replace infrastructure.
The same holds true on the gas side. If HUC wanted to get to the cost of service basis, it would have to reduce its residential and commercial classes, and one of its larger industrial customers. It would also have to increase its other two large industrial customers.
One of the reasons for the shortfall is because rates haven’t been raised in more than a decade.
Although there’s no need for drastic changes at the moment, the company that did the study, Utility Financial Solutions, recommended that now is a good time to gradually implement small changes. Over time, those changes would move the customer classes closer to the 5- to 5.5-percent rate of return the study suggests.
Along with those changes, the commission looked at adjusting rates to make the customer classes more equitable, and at shifting its overall bill away a little from being generated predominantly by variable energy rates and more toward higher fixed charges to cover more of the minimum fixed costs.
HUC looked at a few proposed scenarios on the electric and gas sides of the utility to see how changes would affect the residential customer class, its largest customer base. Here’s what they looked like:
- On the electric side, customers currently pay monthly a fixed $6.50 charge on top of a usage rate of $0.0872 per kilowatt hour. A proposed $2 raise in the fixed charge and a reduction in the usage rate to $0.08443 per kWh would amount to an impact of less than $1 for the majority of customers.
- Another scenario that proposes a $2 raise in the fixed charge and 2-percent raise in the usage rate, bringing it to $0.0864 per kWh, would amount to an impact between $1.80 and $1.20 for most customers.
- On the gas side of the bill, customers again currently pay per month a $6.50 fixed charge and a usage rate of $9.08 per thousand cubic feet. A proposed $2 raise in the fixed charge and reduction in the usage rate to $8.7913 per thousand cubic feet would impact most customers between 56 cents and a savings of 60 cents.
- The final scenario looked at was a $2 raise in the fixed charge and a 2-percent increase in the usage rate, bringing it to $8.9677 per MCF, would amount to an impact of about $1.21 per customer.
At the end of the meeting, commissioners were asked to consider what action, if any, was desired and be prepared to discuss the issue more at its regular monthly meeting Wednesday, Feb. 28.
If the commission goes through with one of the proposed plans, some customers would see incremental increases while others would see incremental decreases.
Carter said the most important thing to remember during the process is that while the commission is looking at shifting rates and balancing out the customer classes, it is not looking to generate additional revenue.
“These scenarios we’re looking at are revenue neutral to Hutchinson Utilities, meaning what we anticipated generating for revenue in 2018 is the same amount of revenue we’re looking to generate, even if we change the rate structure,” he said.
