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NK Rate Study Finds $70K Shortfall

May 16, 2013

NEW KNOXVILLE — New Knoxville village council heard the results of an electric rate study Wednesday that showed an 8 percent overall difference between what the city is collecting and the overall costs of providing electric.

The study, presented by John Courtney of Courtney and Associates, suggested a $1.91 increase on the flat rate for residential customers inside city limits, plus an approximate 1 cent increase on the cost per kwh, all through 2014 to 2016.

For residential customers, the average usage in the village is 825 kwh, so an adjustment of approximately a penny would increase the cost to an average customer by $8.25 before adding the increased base rate.

That 825 kwh usage can be lower or higher depending on what heater a customer has and to what extent they air condition, Courtney said.

Customers outside the corporate limits would see a similar increase, though their rates are already higher.

Those numbers, said Courtney, came from calculating the cost per month to provide energy for residential, commercial and industrial customers, and comparing it to what customers are currently paying for power, then projecting the actual costs associated with maintaining service.

Actually the recommendation is for a gradual increase in cost, compared to what the rates for residential customers would actually need to be in the long run, he said.

While the 8 percent increase is an average that factors in the industrial and commercial customers, residential customers are the most expensive to serve, and are paying about 12 percent below what will eventually be needed.

“We project it will cost more than they’re currently charging to provide the service,” said Courtney. “If they continue the same rates, the fund balance would decrease by about $70,000 per year.”

The study aimed to balance revenue from the service with the cost of the service. If the change were not gradually implemented the cost to customers would increase by about $15 he said.

“They’re not going to be able to get there overnight because that’s a big effect on small customers,” he said.

While serving residential customers is more expensive in terms of meter reading and billing, he said that cost is relatively small compared to the cost passed to customers to cover the power itself and the infrastructure and getting the power from St. Marys to New Knoxville, and when it’s in New Knoxville to the customer. Those costs include the wages of people who maintain the systems and the cost of materials.

The number of customers were assumed in the study to stay the same over the next few years.

There is a per kilowatt hour tax, but that tax is set at the state level and simply passed on to the customer, so it was not factored into the rate study.

This rate study is the first full cost-of-service calculation done in approximately 10 years, Courtney said.

Councilors took the study under advisement. If they decide to take action on the proposed increase, there will be three public hearings prior to passing the new rates.

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