REPORT TO COUNCIL
SUBJECT
Title
Action on Resolution Amending Rate Schedules for Electric Service for All Classes of Customers, Effective January 1, 2019
Report
BACKGROUND
The City of Santa Clara’s Electric Utility, Silicon Valley Power (SVP), is proposing a rate increase of 2% for all classes of customers, effective January 1, 2019 (Bill Cycle 680). SVP’s approved budget, approved by Council on June 12, 2018, for the 2018/19 fiscal year assumed a 2% rate increase effective January 2019.
Electric Utility staff first discussed the proposed increase with the City Council during the fiscal year 2019 budget process in June. In addition, Electric Utility staff have reached out to the Energy Task Force (large customers), Chamber of Commerce representatives, school districts, numerous individual customers, and media representatives. Staff also has provided information via social media: Nextdoor, Twitter and Facebook.
DISCUSSION
The proposed rate increase is needed to cover the increased cost of generating and delivering power to SVP customers, including transmission access charges that apply to all electric energy that SVP receives via the PG&E transmission system and gas transmission charges for delivering fuel to SVP’s gas-fired power plants. PG&E’s electric transmission rates have increased over 350% in the past 10 years and natural gas delivery charges more than doubled over the past 5 years. Continuing upgrades to SVP substations and distribution feeders are required to maintain SVP’s high service reliability. Other factors include the cost to acquire additional renewable resources, low interest rates that have eroded interest income from SVP’s cash reserves, the return to drought conditions, and the need to maintain SVP’s cash reserve funds in order to maintain SVP’s current A+/AA- bond ratings. Partially offsetting these cost uplifts have been revenues from selling renewable energy credits and greenhouse gas allowances that are not needed in the near term to achieve the City Council’s sustainability policy objectives for SVP.
The proposed increase also reflects a strategy to increase rates gradually. Rates were increased by 2% in 2016 and by 3% in 2017. There was no rate increase in 2018 due to a high water year with significant hydroelectric power available. The intent has been, and continues to be, focused on relatively small and predictable increases that customers, both large and small, can plan for. At the same time, for customers who have difficulty absorbing these increases, SVP continues to offer assistance to low-income customers and energy conservation programs and rebates to help customers reduce their electricity usage.
As noted above, one purpose of the rate increase strategy is to maintain SVP’s long term bond ratings. In 2018, SVP’s bond rating was raised to AA- with a stable outlook by Fitch Ratings (Fitch) and affirmed A+ with a revised outlook to stable by Standard & Poor’s (S&P). This increase in ratings was partly based on SVP maintaining sufficient operating cash flow to cover debt service, replenishing the Rate Stabilization Fund to $120 million by the end of Fiscal Year 2017/18, and the willingness of City Council to adjust rates as necessary. SVP staff believes that this is a prudent balancing of rate increases and the need to maintain cash reserves in order to support current credit ratings.
Staff proposes that rates and charges for all classes of customers be increased on a uniform percentage basis because the underlying cost increases reflected in this rate increase proposal are incurred on behalf of all classes of existing customers. The cost of hooking up new customers is recovered separately in connection fees that SVP charges to each new customer and to existing customers with new loads subject to load increase fees.
For an average residential electric customer (averaging 409 kilowatt hours per month in FY17-18), the customer’s electric bill will increase by $1.00 per month, or 2%. Residential bills for higher or lower usage levels will be proportionately larger or smaller.
With the proposed increase, SVP will continue to have the lowest system average rates in California (for utilities with more than 9,000 customers), and SVP’s rates will remain significantly below PG&E’s current rates:
SVP Proposed Rates Below
Current (3-1-18) PG&E Rates
Residential 47%
Small Commercial 23%
Large Commercial 38%
Small Industrial 29%
Large Industrial 24%
With the proposed rate increase, SVP rates will be sufficient to produce the revenue needed to cover SVP’s costs for purchasing and producing power, receiving that power, upgrading and operating SVP’s distribution system, and maintaining SVP’s cash reserve fund. This increase meets the overarching City objective that its enterprise funds remain fiscally sound. Santa Clara will continue to have the lowest municipal utility and system average electric rates in California for utilities of its size.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(b)(5) in that it is a governmental organizational or administrative activity that will not result in direct or indirect changes in the environment.
FISCAL IMPACT
The rate increase is anticipated to generate, on an annualized basis, approximately $4 million in Fiscal Year 2018/19 and an additional $9 million annually in Fiscal Year 2019/20 and thereafter.
COORDINATION
This report was coordinated with the Finance Department and City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov> or at the public information desk at any City of Santa Clara public library.
In addition, Electric Utility staff have reached out to the Energy Task Force (large customers), Chamber of Commerce representatives, school districts, numerous individual customers, and media representatives. Staff also has provided information via social media: Nextdoor, Twitter and Facebook.
RECOMMENDATION
Recommendation
Adopt a Resolution of the City of Santa Clara Amending Rate Schedules for Electric Services for All Classes of Customers effective January 1, 2019.
Staff
Reviewed by: John C. Roukema, Chief Electric Utility Officer
Approved by: Deanna J. Santana, City Manager
ATTACHMENTS
1. Resolution Amending Rate Schedules for Electric Services for all Class of Customers
2. Rate Schedules to be Effective January 1, 2019