Comprehensive Cost-of-Service & Rate Design Study - Dover, Del.
Location: Dover, Del.
Client: Dover Electric Department
Burns & McDonnell completed a comprehensive electric revenue requirement, cost-of-service and rate design study for the Dover Electric Department. A five-year financial forecast was developed to estimate Dover’s annual revenue requirement and included projections of annual revenues, expenses and the resulting net margins, as well as projections of cash flows, over a five-year period. The forecast included consideration of annual levels of internally generated funds from operations and Dover’s projected capital expenditure requirements. These estimates were used to forecast Dover’s need for additional funds through retail rate adjustments, external capital financing, and/or transfers from reserves.
The annual revenue requirement developed from the forecast was used as the basis for the cost-of-service analysis. Five functional services were provided by Dover to its utility customers. Each component of the annual revenue requirement including operating expense, net income, net non-operating margins, and other revenue was assigned to one or more of these functional services. The annual revenue requirement was further allocated to Dover’s retail rate classifications. These allocations were developed to reflect the relative impact each rate class has had on the level of each component of the annual revenue requirement. Dover had over 25 rate schedules. The definitions of these rate classifications were evaluated and many were combined, such that only seven separate classes remained.
Proposed rates were developed consistent with Dover’s rate objectives. The proposed rate design for each class generally followed the existing rate structure and was developed to achieve a balance between the objectives to provide full recovery of the costs of providing service, to base the retail rates on the allocated cost-of-service, and to minimize the impacts of rate changes on individual groups of customers. Comparison of monthly bills calculated for varying levels of consumption based on the existing rates and the proposed rates were developed. As part of the rate design process, consideration was given to comparisons of monthly bills based on the proposed Dover rates with the current rates of neighboring utilities. The proposed rate design also included a new methodology for calculating the annual power cost adjustment rate (PCA).
Burns & McDonnell is currently updating the cost-of-service analysis and rate study to incorporate changes associated with a new power supply agreement including a significant increase to the overall cost.
- Revenue requirements
- Rate design study