That high-pitched wail hovering above the city’s horizon over the past few weeks could have been the collective gasps of Cleveland Utilities customers opening their power bills from January, but CU accountants have now added a “Yikes!” of their own.
As forewarned by CU controller Marshall Stinnett last month, the local utility’s mailbox has received an expected midwinter greeting; that is, the latest billing from TVA for purchased power.
In the vernacular of a familiar phrase, “Read ’em and weep.” The 7-digit number wasn’t just an eye-opener. It was the second biggest eye-opener in Cleveland Utilities history: $8,376,542.
For some perspective, the December purchased power bill from TVA totaled $6,573,425.
“... Cleveland Utilities received its second largest power bill in company history during the month of January,” Stinnett told members of the Cleveland Board of Public Utilities in a recent formal session. “The bill included our largest usage and demand to date.”
That’s the bad news. But it could have been worse because TVA’s wholesale rates charged to partnering power distributors like Cleveland Utilities are actually lower in the winter as compared to summer charges.
“The difference [in the January billing] was offset by the lower wholesale energy rate charged by TVA during the winter months, as compared to the summer rate charged by TVA, which on average is approximately 5 percent higher than winter months,” Stinnett acknowledged.
Although it raised eyebrows and strained checkbooks — for CU customers and for CU — it came as no surprise to the local utility controller. Stinnett warned board members back in early February that it was coming. The cause, he explained, would be the increased number of “degree days.”
As explained previously, a “degree day” is a utility industry term used to describe extreme temperatures for any given day — either “hot” or “cold” — and how much additional heating or cooling will be needed by area residents to keep their homes or businesses comfortable. It is based on a formula whose calculations determine expected peaks in electric demand — whether from increased use of heating in the winter or from air conditioning in the summer.
Hot summer days and their cold winter counterparts can create “degree days,” and both mean increased power demand from CU customers which translates into higher electric bills.
January’s cold, cold days and colder, colder nights bumped up the number of degree days, meaning that big bills were expected from TVA, a regional power producer that incurred record demands from its partner distributors like CU that were responding to record demands from residential and commercial customers.
Back on Feb. 4, Stinnett delivered the omen to CU board members, “Similar to our customers, this increase in the number of heating [degree] days [in January] will cause an increase in the wholesale demand charge that is part of our monthly electric bill from TVA. We must continue to operate efficiently and effectively, as CU’s January power bill from TVA stands to be our largest one to date [in the current fiscal year].”
But no one’s to blame other than the cantankerous fellow known to most as Old Man Winter.
Of course, the increased power demand by CU customers translated into additional income for CU which is what allowed the local utility to pay its bill to TVA.
“During the month of January, the Electric Division exceeded projected sales revenue, operating margin and net income,” Stinnett said. “The main driver of this was the increased usage driven by the extreme temperatures, compounded by an increase in the percentage of unbilled revenues as it’s compared to total electric sales revenue.”
CU’s recently increased income is only putting a dent in projected electric sales that have fallen below budget forecasts for most of Fiscal Year 2014, which is now entering its ninth month.
“It must be stressed that the January results only bring the [Electric Division] back in line with budgeted results for FY 2014,” Stinnett pointed out. “It must be noted that the division has operated at an amount less than budget for five of the seven months in FY 2014.”
He repeated the same caution he made a month ago.
“The utility must continue to operate efficiently and effectively to continue this trend of reaching budgeted results for the remainder of this fiscal year,” Stinnett said.
In breaking down the Electric Division numbers for January, the controller reported the cost of purchased power from TVA increased from 80.3 percent [as a percentage of retail sales] during January to 81.8 percent. In other words, of the revenue received by Cleveland Utilities from its own electricity-using customers, almost 82 percent of the amount was paid back to TVA for purchased power.
“This increase was driven solely by the increased demand charge that Cleveland Utilities was charged by TVA because of the record-setting demand that was experienced during the month,” Stinnett explained.
It can be likened to Bradley County workers who get a raise, but who then face inflationary costs like higher grocery and gasoline prices, among others. On one end there’s more revenue, but on the other there are higher expenses.
CU’s total electric revenue for January totaled $10,293,521, but purchased power from TVA offset it by $8,376,542. This resulted in an operating margin of $1,917,069. This is compared to a budgeted margin of $1,455,404 for January. Other revenue sources contributed $126,337, Stinnett said.
For the month, CU recorded 30,367 customers in its Electric Division.
Operating expenses for the month were $1,407,055, compared to a budgeted operating expense of $1,422,164. This resulted in a $15,109 “benefit over budget,” Stinnett explained.
The month’s net income was $636,351, compared to a budgeted net income of $168,351.
“This brings the division to a combined net income of $880,748 for the year to date,” the controller cited. “This is compared to a budgeted net income of $579,332 for the same period ended. We can also compare this to the previous year which recorded a $718,902 net income during the same period of July through January.”
While demand for electricity was up in January, it was down for water.
For the month, the CU Water Division sold 201,799,500 gallons of water, compared to 213,189,750 in January 2013. This resulted in water sales revenue of $955,903, compared to a budgeted amount of $967,911. Other revenue sources added $85,461 for the month.
In January, CU recorded 30,502 water customers.
Operating expenses for the month were $1,100,856 compared to a budgeted amount of $1,088,869.
“The division recorded an operating loss of $59,492 for the month of January, with an operating income of $473,449 for the year to date,” Stinnett said. “Actual net losses for the month exceeded budget by $24,828. The resulting year-to-date numbers are compared to a budgeted operating income of $550,028.”
Total division revenue for January was $885,042, compared to a budgeted amount of $912,880. This was the result of wastewater revenue of $831,679 and other revenue of $53,363.
Total division expenses for the month were $835,523, compared to a budgeted amount of $874,901.
The division treated 141,230,250 gallons of wastewater over the month, representing a decrease of 5.6 percent over January 2013.
For the month, the Wastewater Division recorded 18,122 customers.
“The Wastewater Division continued to exceed budgeted numbers for FY 2014,” Stinnett said. “For the month of January, operating income was $49,519 compared to a budgeted amount of $37,979. This was an increase of $11,540 over budget.”
Year-to-date earnings in the division now total $649,554. This is compared to a budgeted amount of $255,936 over the same period, Stinnett said.