Small hikes in business from July 1, 2012, through December are being reported in the Electric and Wastewater divisions; however, the Water Division is lagging behind by almost 3 percent, according to a report by Ken Webb, CU senior vice president and chief financial officer.
Webb’s six-month update, which he presented recently to members of the Cleveland Board of Public Utilities instead of the traditional one-month report for December, showed a 1.4 percent sales volume increase in the Electric Division, a 2.9 percent drop in the Water Division and a one-tenth of 1 percent hike in the Wastewater Division.
“One-half of Fiscal Year 2013 is complete now that we have closed the books on December,” Webb explained.
For the year’s first six months, Electric sold 546,896,783 kilowatt-hours of electricity to some 29,779 customers. This represents a 1.4 percent increase over the same period from the previous fiscal year.
“Of particular significance is the fact that industrial volume has increased almost 2 percent,” Webb said. “The average retail price per kilowatt-hour [during the six months] has been 9 cents.”
Electric sales revenue totaled $49,360,047 and purchased power [from TVA] cost stood at $41,623,488, leaving a margin of $7,736,559. For the period, purchased power cost absorbed 84.3 percent of sales. Webb had budgeted for an 83.5 percent absorption which is less than a 1 percent difference. The dollar impact stood at a negative $246,800.
“Purchased power costs can fluctuate as the result of many variables including the makeup of the customer base and weather, including the frequency and timing of changes in the weather,” Webb said.
The Electric Division picked up an additional $740,769 in revenue.
Operating expenses for the first six months totaled $7,889,778, leaving net income of $587,550. Expenses included $1,734,695 in depreciation expense.
“Depreciation expense is a monthly writeoff of the investment in plant and facilities,” Webb explained. “The total current investment in plant on the Electric ledger is $117,248,516.”
Other than wholesale power costs, depreciation is the largest single category of expense in the Electric Division, he said.
“In summary, the six-month net income in Electric is less than budgeted and less than at the same time in Fiscal Year 2012,” Webb pointed out. “The difference [is] in the percentage of revenue being paid to TVA for wholesale power. We will continue to monitor this and take an in-depth look at it in our budgeting process for 2014. The process has already begun.”
In a related development, Webb told board members the residential retail electric rate paid to TVA from Jan. 13 to Feb. 13 will drop from 9.082-cents per kwh to 8.781. This is the third consecutive retail rate drop since Dec. 12. The last increase came when the Nov. 12 rate of 8.945 went up to 9.317 on Dec. 12.
For the fiscal year’s first six months, the Water Division sold 1,476,888,750 gallons of water. Webb pointed out this is 97.1 percent of the volume sold for the same period in Fiscal Year 2012, or, a 2.9 percent decrease.
Seven of CU’s nine customer classifications recorded business drops. During the period, the average retail price paid by all classes of customers combined was $4.19 per 1,000 gallons.
“This is slightly less than the budgeted $4.27 per 1,000 gallons,” he noted. “I expect this number to move closer to the budgeted amount as we go through the second half of the fiscal year.”
Traditionally, CU sells less water volume in the colder winter months. Water sales normally peak in the hotter and drier months of late spring and summer.
Revenue for the fiscal year’s first half in the Water Division totaled $6,739,708, which is slightly less than the budgeted amount and the same amount as this time last year. Expenses totaled $6,163,687, leaving a net operating income of $576,021.
Depreciation expense in Water for the period was $1,002,187 with a plant and facility investment of $76,143,132.
“Depreciation expense in Water is also the second highest operating expense,” Webb cited. “Water purchased for resale is the largest expense.”
In addition to its own water filtration capacity, CU also purchases water for resale from the Hiwassee Utilities Commission, Eastside Utility District and Savannah Valley Utility District.
As of December, the Water Division was providing service to 30,088 customers, reflecting a 1.3 percent increase in the customer count over December 2011.
“Historically, during the third quarter of the fiscal year the demand for water has fallen off slightly and not regained much until the April-through-June months,” Webb said. “The net income currently being reflected in water will probably see a decrease from December forward to the fourth quarter.”
The Sewer Division volume for the fiscal year’s first half totaled 950,672,250 gallons, representing a one-tenth of 1 percent increase over the same period the year before. As of December, the division was recording 17,804 customers. Also during the period, the price per 1,000 gallons averaged $5.13.
“This is less than the projected $5.23, but as the next six months occur I expect this also to move closer to the budgeted amount,” Webb said.
Total division revenue for the period was $5,270,307, compared to expenses of $4,800,523. This leaves a net operating income of $469,784.
“Depreciation is by far the largest operating expense in sewer,” he stressed. “It is $1,520,857 through December. The total plant and facility investment in sewer is $107,473,248, making it almost as large as the total investment in the Electric [Division].”
Like in the Water Division, Webb projects sewer will see some net loss months from now until closer to the end of the current fiscal year in June 2013.
“The net operating income mark of $469,784 should provide the reserve for the negative months we will probably experience,” he said.
Prior to closing his report, Webb stressed to board members the importance, and the impact, of depreciation costs to the total Cleveland Utilities system.
“I have mentioned in all three of the divisions’ reports the amount of depreciation that has been recorded for the first six months of Fiscal Year 2013,” he said. “These are sizable amounts and it is important that rates be structured in such a way that this expense is recovered.”
Webb added, “Not doing so would create a situation where funds are not available for the replacement of such facilities when it is necessary to do so for reliability and safety issues, and to extend services when required by system growth.”