“As we look forward to the month of January (TVA billing), the number of degree days during the month of January 2014 far exceeded that of January 2013,” Marshall Stinnett, CU controller, told members of the Cleveland Board of Public Utilities in a recent formal gathering.
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 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 as well as higher electric bills.
Of January’s increase in degree days, Stinnett stressed, “This is to be expected due to the extreme winter temperatures we have experienced over the past month.”
He added, “Similar to our customers, this increase in the number of heating [degree] days 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.”
Using a chart in his financial report, Stinnett showed that CU in January 2014 faced 972 “degree days” based on the formula. By comparison, a much milder period in January 2013 netted only 634 “degree days.” Using the same math, CU in FY 2014 (a period stretching from July 1, 2013 through Jan. 31, 2014) recorded 3,456 degree days compared to 3,145 for the same period in FY 2013 (July 1, 2012 through Jan. 31, 2013).
When degree days are up, customers pay higher retail utility bills to CU and CU pays a larger wholesale bill to TVA.
Stinnett said the TVA bill for January, as of the board meeting, was due any time.
But his most recent financial report covered December’s sales volumes and it involved all three major CU divisions — Electric, Water and Wastewater.
Overall, it was a positive report that continued CU’s sales rebound that started in November.
“The month of December continued to regain ground compared to the Fiscal Year 2014 budget,” Stinnett said. “During the month of December, the cost of purchased power [from TVA] as a percentage of retail sales decreased to 80.3 percent as compared to 81.6 percent for the month of November.”
He told board members, “This continued decrease in purchased power expense as a percentage of electric revenues helped the [Electric] division to exceed budgeted operating margin and net income for the first time during FY 2014.” He credited the improvement to a consistent temperature range in December and other factors.
Also in December, CU revenue totaled $8,190,029, which was offset by purchased power of $6,573,425, Stinnett explained. This resulted in an operating margin of $1,616,604. This is compared to a budgeted margin of $1,240,422. Stinnett said other revenue sources contributed $110,134.
In December, CU recorded an Electric Division customer base of 30,096.
Operating expenses for the division tallied $1,318,370, compared to a budgeted operating expense of $1,421,404. Stinnett called this a $103,034 “benefit over budget.”
Electric Division income for the month was $408,368, compared to a budgeted net loss of $57,164.
“This brings the division to a combined net income of $244,398 for the year to date,” the controller cited. “This is compared to a budgeted net income of $411,024 for the same period ended. We can also compare this to the previous year which recorded a $587,552 net income during the same period of July through December 2012.”
Some of the numbers may mean more to accountants and financial professionals whose job it is to project and monitor them.
But here’s the bottom line, as described by Stinnett in terminology more familiar to laymen.
“During the month of December, the Electric Division exceeded projected sales revenue, operating margin and net income,” Stinnett said. “The main driver of this was the decrease in the percentage of purchased power expense as it relates to total electric revenue.”
The key word in his favorable Electric Division update was “exceeded.”
But the controller’s January warning resurfaced.
“The month of January will be competely different from that of December, as we experienced multiple days of frigid temperatures,” he cautioned. “These variances will be reflected in the purchased power expense for January.”
In December, the division sold 196,819,500 gallons of water, compared to 219,731,250 gallons in November. However, water sales revenue was actually up, from the projected $902,096 to $941,771. A water rate increase, which took effect last fall, is a contributing factor.
Other Water Division revenue sources added $81,236 for the month. For the month, the CU Water Division recorded 30,337 customers.
Operating expenses for December were $1,031,382, compared to a budgeted amount of $1,048,631.
“As a continued trend, the division exceeded budgeted operating loss of $66,110, with an operating loss of $8,375 for the month of December,” Stinnett said. “This was an increase of $57,735 over budget. The resulting year-to-date numbers are an operating income of $532,941, compared to a budgeted operating income of $584,693.”
Total division revenue for the month was $850,823, compared to a budgeted amount of $889,704. This was the result of wastewater revenue of $793,488 and other revenue of $57,335, Stinnett said.
Total division expenses for the month were $765,130, compared to a budgeted amount of $867,094.
The Wastewater Division treated 133,255,500 gallons of wastewater over the month. This is an increase of 1.3 percent over December 2012.
For December, the division recorded 17,952 sewer customers.
“For the sixth straight month, the Wastewater Division continued to exceed budgeted numbers for FY 2014,” Stinnett noted. “For the month of December, operating income was $85,693, compared to a budgeted amount of $22,610. This was an increase of $63,083 over budget.”
The division’s year-to-date earnings totaled $600,037, compared to a budgeted amount of $217,957 over the same period for the previous fiscal year.