In a recent gathering of the Cleveland Board of Public Utilities, Stinnett pointed to the direct cause for the lessened TVA wholesale billing: milder temperatures. When spring warmth flows into the Tennessee Valley, CU faces fewer “degree days,” and that means customers don’t rely as much on heaters and/or air conditioning in order to keep their homes comfortable.
Fewer degree days actually mean less retail revenue for CU from its retail customers; however, it also means CU is paying less to TVA for purchased power at wholesale costs.
“During the month of March, the Electric Division exceeded budgeted revenues, operating margin and net income,” Stinnett told board members in his monthly report. “The main driver of this was the decreased demand charge billed by TVA during the month of March. This was driven by a smoother [electric power] demand across the month.”
He added, “This is related to a more consistent temperature range ... as compared to February.”
Paying less to TVA for reduced power demand is the good news for CU. But billing its own retail customers for their reduced power use is the bad news because it’s less revenue for the local utility.
The domino effect prompted a seasonal caution from Stinnett.
“As we look forward to the month of April, we must be cognizant of the margin received during the transition months and the coming summer months,” the controller stated. “A steady margin will help the division to meet budgeted results for FY 2014.”
A mild spring when residential customers and businesses don’t need as much interior heating or cooling actually works against CU’s finances. The arrival of summer, when hot temperatures send customers to their thermostats for more air conditioning, returns CU to a steadier revenue flow.
In March, CU’s cost of purchased power from TVA as a percentage of retail sales decreased to 79.5 percent compared to 84.7 percent in February. The decrease in demand was not unexpected. The seasonal transition is traditionally built into the CU budget forecast. But it doesn’t make paying the utility’s monthly bills to its own vendors any easier. It simply means CU was expecting the seasonal revenue shortfall.
“As we look forward to the month of April, the number of degree days during the month of March will exceed that of April [because of warming temperatures],” Stinnett said. “This is driven by the springlike temperatures that we have begun to experience across the area.”
He repeated his budget warning.
“As we reach these transition months, it is imperative that we continue to monitor the margin received across all electric revenue sales,” Stinnett said.
The CU board will receive financial updates from Stinnett for the month of April in a formal session scheduled Thursday at 3 p.m. in the Tom Wheeler Training Center.
In March, electric sales revenue (that is, the amount CU customers are paying for power use) totaled $8,097,210. For the same period, CU paid TVA $6,436,420 for purchased power.
“This resulted in an operating margin of $1,660,790,” the controller explained. The budgeted, or forecast, margin was $1,255,373. Other revenue sources in the Electric Division contributed $142,400.
For March, the Electric Division recorded 30,445 customers.
The division’s operating expenses for March were $1,382,501, compared to a budgeted forecast of $1,422,705. This resulted in a $40,204 “benefit over budget.” In other words, CU paid out less in bills than it thought it would for the month.
Net income for the month was $420,689, and this compared favorably to a budgeted forecast which had expected a $42,732 loss.
“This brings the division to a combined net income of $1,191,389 for the year to date,” Stinnett said. “This is compared to a budgeted net income of $671,915 for the same period. We can also compare this to the previous year which recorded a $1,061,507 net income during the same period.”
In March, the division sold 194,165,250 gallons of water, compared to 181,716,000 gallons for the same month in 2013. This resulted in water sales revenue for the month of $926,573, compared to a budgeted forecast of $893,027. Other revenue sources added $93,571 for March.
The Water Division recorded 30,481 customers in March.
Operating expenses for the month totaled $1,063,960, compared to the budgeted forecast of $1,066,679.
Figuring that expenses exceeded sales revenue meant that the Water Division finished March with an operating loss of $43,816. The division’s year-to-date operating income is $479,562.
Although the division operated at a loss in March, it was actually less than the budgeted forecast by $50,219.
Total division revenue for the month was $857,224, compared to a budgeted forecast of $903,741.
“This was a result of wastewater revenue of $793,815 and other revenue of $63,409,” Stinnett said.
Total division expenses for the month were $832,004, compared to a budgeted amount of $873,032.
“The division billed for 133,704,000 gallons of wastewater during the month,” Stinnett noted. “This is an increase of 4.6 percent over March 2013.”
For March, the Water Division’s customer base totaled 18,093.
“The Wastewater Division missed budgeted numbers for the month ... but by a very small margin,” the controller pointed out. “For the month of March, operating income was $25,220 compared to a budgeted amount of $30,709. This was a decrease of $5,489 over budget.”
In the sewer division, year-to-date earnings totaled $754,180, and this compares favorably to the budgeted forecast of $299,738.