Utility sales show gains
by RICK NORTON Associate Editor
Jan 13, 2014 | 638 views | 0 0 comments | 11 11 recommendations | email to a friend | print
Marshall Stinnett
Marshall Stinnett

Autumn’s arrival brought lower temperatures in November and an increase in the number of Cleveland households turning on the heat — both of which helped the Cleveland Utilities Electric Division emerge from a worsening doldrum of low sales and decreased revenue.

If the trend continues, CU’s sales should show marked improvement — at least, in the Electric Division — for December and January, especially with the impact on local thermostats of last week’s record-breaking polar vortex whose frigid cold kept local residents inside and close to the furnace.

In the meantime, CU’s other key divisions — Water and Wastewater — continued to show encouraging sales volume for November. However, based on seasonal trends and historical data, water sales will be expected to subside as the Southeast plunges into its colder and wetter months. Water sales traditionally rebound beginning in the spring and throughout the hot months of summer.

But for now, CU sales are taking a needed trend upward, according to Marshall Stinnett, CU controller, who made his monthly financial report during a recent session of the Cleveland Board of Public Utilities.

He credited the gain to an increase in the number of “degree days,” a utility industry term that he introduced to the utility board in detail in its December session. Essentially, the fewer “degree days” experienced by a utility directly translates into less sales because of lessening need by customers for heating or air conditioning.

A “degree day” is based on a formula in which 65 is the key number. Adding a day’s high temperature and its low temperature, and then dividing by two, and then calculating that number’s variance from 65 will determine the number of “degree days” faced by a utility.

For example, in the winter, if a day’s high is 48 and its low is 20, the total would be 68. Dividing by two will net 34. Subtracting 34 from 65 will net 31, and this represents the number of “heating degree days.” In the summer season, a high temperature of 90 and a low of 70 on any given day would add up to 160. Dividing by two would bring the number to 80. Subtracting 65 from 80 would net 15 “cooling degree days.”

To utility customers, it’s a little confusing but to insiders like heating and cooling engineers, and to a utility’s accountants, it’s a key tool for determining projected costs for providing necessary heating and cooling to a customer base, both residential and commercial. It is also a tool for calculating projected budgets.

According to Stinnett, a primary cause of CU’s drooping revenue in Fiscal Year 2013 was an accompanying drop in the number of degree days, both in the summer and winter seasons. Milder year-round climates, like unseasonably cool summers and surprisingly warm winters, are directly linked to fewer degree days. This is because it means a lessening need by utility customers for inside air conditioning or heating, which translates to less revenue for utility companies like CU.

To support his claim, Stinnett pointed to a comparison of degree days. In December 2013, CU charted 663 degree days compared to 551 in December 2012. In November 2013, the number of degree days was 534, compared to 509 in November 2012.

Electric Division

In November, CU’s fiscal rebound gained momentum and it came partially because the local utility’s cost of purchased power to TVA, as a percentage of retail sales, continued to drop, Stinnett explained. For the month, CU’s cost to TVA decreased to 81.6 percent, compared to 82.2 percent in October.

“This continued decrease in purchased power expense as a percentage of electric revenue helped the division to exceed budgeted operation margin for the first time during FY 2014,” Stinnett said. “This decrease was driven by a continued consistent temperature range for the month of November, thus resulting in a lower wholesale demand charge from TVA.”

Alluding to degree days, Stinnett said the number of kilowatt-hours (kWh) sold is a factor. During November 2012, CU sold 78,635,487 kWhs, compared to 79,099,768 that were sold in November 2013.

“This is an increase of almost 500,000 kWh sold,” he said. “As we look forward to the month of December, we have seen an increase of 112 degree days from 2012 to 2013. With that said, we can look at the aggregate picture of the first six months of each fiscal year.”

He added, “During the first six months of FY 2013, we saw 2,511 degree days. This is compared to 2,484 degree days during FY 2014 during the same period of July through December.”

In November, Electric Division revenue came in at $7,075,432, which was offset by purchased power from TVA of $5,777,905. This resulted in an operating margin of $1,297,527, compared to a budgeted margin of $1,148,533 for the month. Other revenue sources contributed $113,985.

CU’s Electric Division recorded 30,008 customers in November.

Operating expenses for the month were $1,320,855, compared to budgeted operating expenses of $1,421,579. This resulted in a $100,724 gain over budget.

The month’s net income was $90,657, compared to a budgeted net loss of $154,037. This brought the division to a combined net loss of $163,977 for the year to date.

“This is compared to a budgeted net income of $468,187 for the same period ended,” Stinnett noted. “We can also compare this to the previous year which recorded a $662,342 net income during the same period of July through November 2012.”

Overall in November, the Electric Division exceeded projected operating margin and net income.

“The main cause of both was the decrease in percentage of purchase power expense as it relates to total electric revenue,” Stinnett said. “We have seen these percentages move in correlation with the weather we are experiencing during the month.”

He added, “We must continue to evaluate how these fluctuations will affect the relationship between revenue and operating margin.”

Water Division

In November, the division sold 219,731,250 gallons of water, as compared to 205,281,000 gallons in November 2012. This resulted in water sales revenue for the month of $1,000,724, compared to a budgeted amount of $974,601. Other revenue sources added an additional $88,245 for the month.

The Water Division recorded 30,277 customers in November.

Operating expenses for the month were $1,069,183, compared to a budgeted amount of $1,070,117.

“As a continued trend, the division exceeded budgeted operating loss of $8,627, with an operating income of $19,786 for the month,” Stinnett said. “This was an increase of $28,413 over budget. The resulting year to date numbers are an operating income of $541,316, compared to a budgeted operating income of $650,803.”

Wastewater Division

Total division revenue for the month was $875,801, compared to a budgeted amount of $906,567. This was the result of wastewater revenue of $819,009 and other revenue of $56,792. Total division expenses for the month were $815,563, compared to a budgeted amount of $870,540.

In November, the division treated 146,949,000 gallons of wastewater, representing an increase of 4.9 percent over November 2012.

The Wastewater Division recorded 17,912 customers in November.

“For the fifth straight month, the Wastewater Division continued to exceed budgeted numbers for FY 2014,” Stinnett cited. “For the month of November, operating income was $60,238 compared to a budgeted amount of $36,027. This was an increase of $24,211, or 67.2 percent over budget.”

The division’s year-to-date earnings totaled $514,343, compared to a budgeted amount of $195,347 over the same period.