September’s roller-coaster temperatures that bounced up and down like a Mexican jumping bean did little to lift Cleveland Utilities’ sales volume in the Electric Division, and even led to a warning by President and CEO Ken Webb that a mild winter could further doom the utility’s bottom line.
For the month, Electric Division sales revenue dipped to $7,876,125 which was well under budget projections of $9,270,000, Webb reported late Friday during a formal gathering of the Cleveland Board of Public Utilities.
“September can be a difficult month to project, as sometimes there are days ... when neither heating nor cooling is required by customers and sales volume reflects that situation,” Webb, who was making his final financial report to the board as both utility president and chief financial officer, said.
At the recent board session, Webb introduced the utility’s new controller — Marshall Stinnett — who will begin issuing the financial updates in December.
“In addition to the reduced volume, purchased power of $6,870,997 was 87.2 percent of retail sales,” CU’s lead accountant explained. “This was 3.4 points higher than the budgeted percentage of 83.8 percent.”
The worsening bottom line has everything to do with a relatively mild summer which, if followed by an unseasonably mild winter, will make CU’s revenue picture even fuzzier, Webb suggested.
“Cleveland Utilities is billed by TVA for both demand and energy charges [so] as a result of the weather, CU can experience a situation where a high demand is established for a very short period of time,” he said. “The weather event causing the spike in demand charge does not last long enough for sufficient kilowatt-hours to be sold to offset the demand charges. This event can play havoc with the sales margin for a weather transition heating/cooling month like September.”
The division’s margin was $1,005,128 for the month and miscellaneous revenue sources added another $125,646 to the mix. Operating expenses, including depreciation of $308,047, totaled $1,322,058 which Webb described as “... well under the budgeted amount of $1,421,929.” A net loss of $191,284 was recorded in September, bringing the year-to-date net loss to $180,471.
“This is certainly not where we had hoped to be at this point in Fiscal Year 2014,” Webb said.
And that’s when he looked to the coming winter and the potential ramifications to the utility company if the traditionally cold months are as warm as the traditionally hot months last summer were cool and rainy.
“I know everyone wants a mild winter and that is completely understandable, but a winter like that could add to the already disappointing results,” Webb warned. “As a result of that possibility, we are approaching with caution and will be looking at our retail rate structure and how it reacts to our wholesale rate structure from TVA. Also, we will be reviewing projects we may be able to defer until the picture comes into better focus.”
If the dark clouds hovering over the Electric Division’s fiscal health have a silver lining, it is that Cleveland Utilities in September recorded 30,076 customers, Webb reported. This represents an increase of 382 customers from the same month a year ago.
A wetter summer than usual — at least, through much of September — spelled some of the same fiscal despair in the Water Division as the cooler temperatures created for its Electric counterpart.
“Year-to-date results in Water continue to reflect the results of the heavy rainfall we experienced earlier,” Webb said. “Volume of 752,501,250 gallons is 89 percent of the volume through the same period in Fiscal Year 2013. YTD net income of $417,661 is less than budgeted, but still within an acceptable range.”
Webb praised Water Division leaders for their efforts in controlling cost.
“The Water Division has done an extremely good job of holding the line on expenses, and although total division revenue is about $400,000 under budget, expenses are about $252,000 under budget. This helps to offset the revenue issue.”
Although those who don’t like dusty yards — especially when mulching dried autumn leaves — might differ with Webb’s perspective, the fact that September rainfall lessened and October’s numbers were practically nonexistent could help Cleveland Utilities to begin a fiscal rebound.
“Rainfall in September was only 2.7 inches and October continued to be very dry,” Webb said. “Hopefully, this will create good [water sales] results in October.”
In the utility industry, the drier the weather, the more water customers will purchase from local utility companies. Likewise, temperature extremes — whether hot or cold — will force customers to crank up or crank down their thermostats, for either heating or cooling cycles. In either case, utility companies will benefit from higher sales of kilowatt-hours and that translates into more revenue and improved sales margins.
According to a monthly report by Craig T. Mullinax, CU vice president of the Water Division, the Cleveland Filter Plant in September recorded less than three inches of rain. In October, the amount was little more than a trickle at .40 of an inch.
“We’ve hit a dry period,” Mullinax told board members at the same session. “That’s a positive for us.”
In September, Cleveland Utilities recorded 30,363 water customers.
Volume was 261,058,500 gallons which produced revenue of $1,119,991. Another $105,999 was added through other miscellaneous sources, making the total division revenue $1,225,990 for the month.
Expenses, including depreciation of $177,478, totaled $1,087,906, leaving net income for September at $138,084.
Unlike its division sisters in Electric and Water, the Wastewater Division continued to report operating results that exceeded budgeted expectations, Webb noted.
“This is occurring even with volume that is only 92 percent of the YTD volume at this time last year,” the CEO cited. “For the month of September, division revenue was $958,967, expenses were $818,508, and net income was $140,459.”
The Wastewater Division recorded 17,981 customers for the month.
YTD net income in the division is $346,562.
“This is slightly under the comparable number at September 2012, but is better than was projected in the current YTD budget,” Webb said.