To evaluate the adequacy of cost recovery, Owensboro Municipal Utilities (OMU) retained Burns & McDonnell to prepare its 2014 Electric System Cost-of-Service and Rate Design Study. Included in the study were financial planning, cost-of-service analysis and rate design. The results of the study were presented to the utility board and to the city council. The study provided the basis for updated electric rates and also developed updated unbundled rates for customer service, power supply and power delivery. We have prepared similar studies for OMU on three other occasions.
OMU required the study address a number of financial issues. The major objectives accomplished included:
Completion of a financial forecast model review and adjustment to the forecast, as necessary.
Determination of the revenue requirements using current and forecasted financial assumptions developed in collaboration with OMU management.
Update of the cost-of-service model developed in previous studies and linking to the revised financial forecast model.
Completion of the cost-of-service analysis and provision of results from the cost allocation methodology.
Allocation of costs across and within the existing rate classes in an equitable manner and evaluation of the results.
Evaluation and development of cost-based rate designs that reflect the cost-of-service methodology with respect to: ease of administration and revenue stability; provision of appropriate price signals to effectively communicate the price of energy and demand; provide transparency of power supply costs and market sales net benefit (cost).
Development of detailed rate revenue and billing module to test impacts of proposed rates on OMU financials and typical bills. Integrate this module into the overall financial forecast and cost of service model.
Development of competitive cost-based retail rates for residential, commercial and industrial customer accounts compared with nearby electric utilities.
Before this study, our team completed updates to the water and electric system financial planning models. This project required a complete restructuring of the electric system forecasting models. We worked with OMU staff in the restructuring process so that the models would be in a format consistent with other OMU financial information. Our team trained OMU staff on using the model and how to make future adjustments.