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HomeMy WebLinkAboutTR-88-86 �% re TOWN OF NEWCASTLE REPORT Fit ,� �4 1`' e # Res. /. u By-Law # �c� � t � MEETING: General Purpose & Administration Committee IATE: NOVEMBER 17, 1986 REPORT #: 1R._s$-26 FILE #: SUB,JECT: AMALGAMATION OF ELECTRICAL DISTRIBUTION SYSTEM WITHIN THE TOWN OF NEWCASTLE RECOMMENDATIONS: It is respectfully recommended that the General Purpose and Administration Committee recommend to Council the following: 1 . That report TR-88-86 be received; and 2. That no action be taken at this time with respect to the almalgamation of the electrical distribution system within the Town of Newcastle; and 3. That the matter be reviewed again in three years in accordance with Provincial legislation, (Bill 123) ; the Durham Municipal Hydro Electric Service Act, 1979. BACKGROUND & COMMENT At the Council Meeting of December 16, 1985, Resolution #C-656-85 was approved which directed Staff to review the feasibility of the Newcastle Hydro-Electric Commission assuming the responsibility of the distribution of electric power over the whole of the Municipality. . . .2 General Purpose and Administration Committee Page 2 TR-88-86 Subsequent discussions with the Newcastle Hydro-Electric Commission Manager revealed that staff lacked the expertise in this area to do a proper review and that this type of study would be undertaken by Ontario Hydro. In July of 1986, staff requested that Ontario Hydro undertake a preliminary study to determine whether or not it is financially feasible for the Newcastle Hydro-Electric Commission to take over the Ontario Hydro distribution assets in the Town of Newcastle. Attached you will find a copy of the Utility Re-structuring Study prepared by Ontario Hydro and received in September of this year. The basic principle behind this preliminary study is to provide a first cut analysis of the financial impact on the customers, current and rural , if the Newcastle Hydro-Electric Commission were to expand their service to cover all of the Town of Newcastle. The fundamental criteria used in evaluating the feasibility of re-structuring must be one of benefit to the customers, current and rural . Customers should see a long term benefit, from re-structuring i .e. lower long term rates and improved service. Study Results From the estimates and assumptions used and from the required revenue to be recovered, the existing Newcastle H.E.C. residential customers would experience an overall average rate increase of 13.9% in 1987 as a direct result of the service area expanding to cover all of the Town of Newcastle. This increase includes the tentatively proposed 1987 increase to utilities wholesale rates of 4.6%. The existing Ontario Hydro rural residential customers would see a 4.8% increase in 1987 due to re-structuring. This increase is equal to the proposed increase to Ontario Hydro's Rural wholesale rates. Therefore, this preliminary study indicates that rural customers would be indifferent to re-structuring from a rate standpoint. i .e. no decrease in rates realized but rather an increase of 4.8%. .. .3 General Purpose and Administration Committee Page 3 TR-88-86 Financial Expenses The payment for approximately 9.5 million dollars of transferred assets is assumed to be made over 25 years, at an annual interest rate of 10% (current market rates) . Ontario Hydro will provide a long term, thirty year loan to Utilities, but Ontario Hydro's current interest rate is at 13% and is not seen as a viable alternative. Also, the Ministry of Municipal Affairs have advised staff that the current debt carrying capacity for the Town of Newcastle is approximately eleven million dollars and with the two mega-projects that we are now considering, which will require a debenture issue of approximately 5.5 million dollars coupled with the 9.5 million for the acquisition of assets from Ontario Hydro would certainly exceed the quota established by the Ontario Municipal Board and, in all probability our request would be denied. On reviewing this study and the discussions with the Newcastle Hydro-Electric Commission representatives it is staff's opinion that the Town not proceed with this matter at this time. In addition, a copy of a letter from the Newcastle Hydro-Electric Commission is attached, stating that they have entertained a motion that they are opposed of the taking over of the rural system from Ontario Hydro at this time and that this aspect be reviewed again in three years hence in accordance with Provincial Bill #123. The reason behind this action, is that from the information available there would not be a substantial savings for either party should they procede with such an undertaking at this time. Respectfully submitted, J.R. Blanchard, Treasurer. J RB G� ENCLOS: � Newcastle Hydro-Electric Commission P.O. Box 130 Bowmanville, Ontario H. Partner, Chairman l_1 C 3K9 R.L. Stevens,Vice-Chairman W.M. Morrison, Member M.J. Watson- Manager I.A. Hamilton, Member Telephone (416)623-4451-2 J.P. Winters, Mayor or 623-4625 September 17, 1986. Corporation of the Town of Newcastle, 40 Temperance Street, Bowmanville, Ontario. L1C 3A6 Attention: Mr. John Blanchard, Treasurer Dear Sir: Subject: Amalgamation of Electrical Distribution System Within the Town of Newcastle This is to advise you that the Newcastle Hydro-Electric Commission have enacted a motion whereby they are opposing the take over of the rural system of Ontario Hydro at this time and that this aspect be re- viewed again three years hence in accordance with Provincial Bill #123 . The reason behind this action, is that from the information avail- able, there would not be a substantial savings for either party should they proceed with such an undertaking at this time. Yours very truly, __ Xle H. Partner, Chairman, Newcastle Hydro-Electric Commission. HP/mw c.c. - M.J. Watson, Manager - J. Pattrick, Office Supervisor I sVeR9 �s. 1 SEp ` 701111fJ Or f16VGASI'LE FINANC[: N E W C A S T L E H Y D R O - E L E C T R I C C 0 M M I S 6 I 0 N U T I L I T Y R E S T R U C T U R I N (3 S T U D Y J U L Y , 1 9 8 6 P R E P A R E D B Y 0 N T A R I 0 H Y D R 0 j .�-�: �,d��,�1��3,��� - ':!�11t� �.���►i�.�i11 .1��1���i�� '�:�;lliF�� old LIl �3�e INTRODUCTION 1 In July of 19869 the Town of Newcastle requested that Ontario Hydro undertake a preliminary study to determine whether or not it is finan.cial-ly feasible for the Newcastle H.E.C. to take over the Ontario Hydro distribution assets in the Town of Newcastle. This study was made in accordance with Provincial Legislation, (Bill 123) "The Durham Municipal Hydro-Electric Service Act, 1979" 9 which requires a review of the distribution and supply of power within the Town of Newcastle at least once in every three years. If the Council of the Town of Newcastle were in flavour of restructuring after analyzing this preliminary study, a detailed study should be carried out, after which the Council must determine by resolution whether or not it is financially feasible to extend the Hydro utility operation to the municipal boundary. The expansion is subject to Ontario Hydra's approval . 1 L// (�) THE 8TUDY Z A summary of the results of this preliminary study is attached. The basic principle behind this preliminary study is to provide a first cut analysis of the financial impact on the customers, current and rural , if Newcastle H.E.C. 's service area were to be expanded to cover all of the Town of Newcastle. This study attempts to determine the consolidated costs incurred by the "restructured" Newcastle H.E.C. when supplying the customers within its municipal boundary. Once these costs are determined along with the required working capital level , the appropriate revenue requirement to keep the utility functioning is- determined. An operating forecast for 1987 and 1988 has been prepared, see Appendix A. After this step has been reached, the process is similar in structure to the annual rate setting studies with which Newcastle H.E.C. and Ontario Hydro have been involved. Basic similiarities area i)current rates are applied to the prior years (estimated rural and town) consolidated statistics, and the revenue which may be realized by the use of these rates is determined. D rates are adjusted, within Ontario Hydro guidelines where possible, to achieve the revenue requirement determined by the utility costs and working capital level , see Appendix B. 3) typical bills are calculated using the proposed rates to determine the impact on the customers and on the generic customer classifications, see Appendix C. The fundamental criteria used in evaluating the feasibilty of restructuring must be one of benefit to the customers, current and rural . Customers should see a long term benefit from restructuring, is. lower long term rates and improved service. i STUDY RESULTS Q From the estimates and assumptions used, and from the required revenue to be recovered, the existing Newcastle N.E.C. residential customers -would experience an overall average rate increase of 15.9% in 1987 as a direct result of the service area expanding to cover all of the Town of Newcastle. This increase includes the tentatively proposed 1987 increase to utilities' wholesale rates of 4.6%. The existing Ontario Hydro - Rural residential customers would see a 4.9% increase in 1987 due to restructuring. This increase is equal to the proposed increase to Ontario Hydro's rural wholesale rates. Therefore, this preliminary study indicates that rural customers would be indifferent to restructuring from a rates standpoint. The level of service most likely will decline for a few years following restructuring.. The great need to upgrade lines in the Western portion of the Town will require far more resources (employees and equipment) than has been included in this study. The study has not included additional field staff or inventory necessary to continue this upgrading program , as the bulk of the work will be completed in a 3 to S years. The current service center could not accommodate the neccessary staff or equipment required to maintain the current level of service to the "restructured" customer. It has been assumed that a surplus line truck would be purchased. The rate increases in subsequent years would be in the range of 4 - 7% and would depend strongly on the wholesale rates. The operating forecast is shown i.n Appendix A. The restructuring is assumed to occur on January 11 1981 in order to show the direct impact to customers in the upcoming year. 4 The "target" working capital level for 1987 is chosen as 15%. Operlting below this level is not advisable and a level in the range of 16 to 20% is preferred. Newcastle H.E.C. has worked around the 15% level in recent years. While this report indicates financial effects of restructuring, a more detailed analysis may be appropriate before a. final decision s is made to proceed. While we feel that the numbers are representative of what would happen upon restructuring, cost elements and certian statistical elements have been estimated based on particular assumptions, and may be refined. Summary of Average Rate Impacts Caused by Restructuring % Working Capital 15% Overall Residential general % change in utility customers 15.6% 15.9% 15.6% % change -in area customers 2.6% 4.8% - 0.4% Probable Impacts due to Proposed Wholesale Rate Increases for 1987 Overall % change in utility customers 4.6% % change in area customers 4.8% Net Overall Changes to Residential Customers solely due to Restructuring Net M of Cust. % change in utility customers 11.3% 4993 % change in area customers 0.0% 5138 ASSUMPTIONS. ESTIMATES AND BASIS OF CALCULATIONS 5 As this study is a first cut analysis of financial impacts on the customers of the proposed restructured Newcastle H.E.C. there are numerous estimates and assumptions incorporated into it. The greatest variance is present in the estimates for the rural portion of the restructured utility. As the municipal boundary of the Town of Newcastle includes only one-third of the Ontario Hydro Rural "Lakeshore" Area it has been difficult to allocate with any great accuracy the incurred costs or the obtained revenues. The present and forecasted years of the study contain the following estimates and assumptions: LOAD Q LOAD FACTOR Estimated 1985 demands (KW) for the Newcastle-Rural and Newcastle H.E.C. were combined at 95% coincidence, then escalated at a 5% growth rate per year for each year until 1989. Newcastle H.E.C. (1985) average KW 25,294. 1 KW total KW.H 154,2409541.0 KW.H load factor 69.6%. Newcastle-Rural (1985) average KW 22,490.4 KW total KW.H 12794699260.0 KW.H load factor 64.7% 10 year historical average for former Bowmanville Area. 6 Newcastle-Restructured(1983) average KW 46,660.0 KW A 93% coincidence) total KW.H 281 ,709,801.0 KW.H load factor 68.9% Therefore, power costing loadsi 469660.0 KW for 1985 48,993.0 KW for 1986 51 ,443.0 KW for 1987 54,015.0 KW for 1988 56,715.0 KW for 1989 SERVICE REVENUE The 1987 service revenue figure is set to cover costs and achieve the target level of working capital . The value for other revenue is 2.9% of service revenue which is taken from analysis on historical data obtain from Newcastle H.E.C. financial statements. POWER COST The 1987 cost per kw is taken from Ontario Hydro (O.E.B. ) predictions. The 1988 and 1989 forecasted values are escalated by 4.0% to simulate the tentatively proposed rate increases. 7 CONTROLLABLE EXPENSES A 1984 base value of 4114.08 per customer was obtained by taking the mean of the controllable expenses of all the municipal electric utilities. This value was chosen as a conservative figure. This base value was escalated at 5% per year to a 1987 figure of $131.20 per customer, along with 4137.76 and 4144.65 for 1988 and 1989 respectively. CAPITAL EXPENDITURES & DEPRECIATION The 1984 value for electrical plant for the expanded utility $12,203,707 was taken as the sum of Newcastle H.E.C. 's electrical plant value estimated at 45,309,707 and the estimated value, after subtracting retail equity, of Ontario Hydro's transferred assets of $69896,000. Newcastle H.E.C. 's increase in electrical plant (actual plus forecast) from 1984 to 1986 was approximately 7.7% per year , and Ontario Hydro's Rural . assets in the Town of Newcastle increased for the same period at 15% per year. The increase in capital for the rural assets should be treated as an investment towards current and future customer requirements near the Oshawa boundary. Therefore, this trend should be maintained to secure adequate service to those customers. Newcastle H.E.C. 's 1984 depreciation was at 4% of plant value, therefore this was extended to the restructured utility and it 's 1987 plant value of $16,353, 148 representing a depreciation of $661 ,403. Depreciation for 1988 and 1989 was taken as the previous year 's _depreciation plus 4% of the current year 's capital expenditure. e FINANCIAL EXPENSES Financial expense (interest portion of debt repayment) for the existing Newcastle H.E.C. is forecasted to continue for short term. The payment for the approximately f9.5 million dollars of transferred assets is assumed to be made over 25 years, at an annual interest rate of 10.0% (current market rates) . Ontario Hydro will provide a long term ( 30 year ) loan to utilities but Ontario Hydra's current interest rate is at 13% (current imbedded cost of debt) and was not seen as a viable alternative. CONTRIBUTED CAPITAL Contributed capital is a highly volatile figure. Newcastle N.E.C. has experienced a range of $13,500 to #94,700 per year in the recent past. The figure used for restructured Newcastle H.E.C. for 1987 was $2089900 which represents an increase of greater than 200% over 1985. This large increase attempts to represent the known subdivision development outside the current Newcastle service area and contributions which would be made to the utility. These figures are highly variable and are used with a low confidence level attached to them. DEBT RETIREMENT Debt retirement for the existing Newcastle H.E.C. was assumed to continue. The principle portion of the transferred assets for an amortization period of 20 years or less would increase the financial burden, therefore a 25 year loan was used. 9 WORKING CAPITAL AS PERCENT OF NET EXPENSES The appropriate value of working capital for a utility varies with the cash flow and inventory characteristics of the utility. When working capital includes unbilled revenue, working capital as a. percent of net expenses could be expected to lie between 109. and 25%. Newcastle H.E.C. 's figure is presently in the vicinity of 15%. For this preliminary analysis, the service revenue was adjusted to produce a particular level of working capital of 15% for 1987 only. The reported working capital of a recently expanded utility could be viewed as being overstated because the "cash" portion of reported residential revenue is low. This is due to the timing of cash flows, from "new" residential customers to the utility and from the utility to Ontario Hydro; there is a delay in the cash received by the utility but no delay for the cash transmitted to Ontario Hydro for the power purchased. The greater the utility expands due to restructuring, the larger this cash shortfall will be. Newcastle's initial shortfall would be equal to between 1 and 1.5 month's of ex-Ontario Hydro residential revenue. The restructured utility may be hard pressed or "cash poor" initially. For this reasons, and other reasons, the utility may consider borrowing for one to two years to cover this cash shortfall . For each of the forecasted years, working capital equals the prior year 's working capital plus the current year 's source of funds less application of funds. The 1986 working capital is the. existing Newcastle H.E.C. 's forecasted working capital. A P P E N D I X A operating forecast vi ) NEWCASTLE HEC -EXPANDED BOUNDARIES - ALTERNATIVE NO. 1 % OF NET EXPENSES 15.0% 1986 1997 LOAD (kW)= 248?6 51443 CONTROLLABLE COSTS PER CUSTOMER= t121 11:1 CAPITAL EXPENDITURES PER CUSTOMER= Elva t16'l forecasted I-----------------------restructured-------------------1 (per iuly .16th) 11186 1981 1988 199? ?990 _. Lllk, tkla- 443 34,j,3 5•:,715 5,3.51512 L]AD SE,;biCE FEicNUE; 7;1,12 p -tFVICE a.EvENUE 3i6._4S 16.'°U.!'!'!! 1?,t2-4,315t 21,042,"02 1THER It '.CjUE 118?,867 JtL.l a 5611,'33 612,3,33 h53, T,)TaL F:EYE.1 1UE 7,180,1415 13,862,150 20,:22,123 21,658.6±,0 23,1115,361 COST .DEMAN0 1per 0) 129.36 .315.60 .ENERGI loer e(ii 114,+11 111.39 .SHARED (per k:W) 0,5? 1).00 .TOTAL !per k.Wj 243,114 254.X,3 ._,. 218.42 291.:5 .COST 6,073,1311+ 13,11'?l. 2 7 14,378,645 15,192,067 17,344.421 OF'EFi1T1NG E;;P•ENSE= .FEWER 'r_RCNaSEii 5,q['0,140 5,1'?2,1167 17,:12,421 CONTROLLABLE 632,664 1,574,55' :,6•_7 117 1,763,412 71.551 ,DEPRECIATION 25_.i:c_ 1161.4!)5 145,`,:8? 83.3.?18 726,18? .SNOT N -C-!TNT N.C. 115,61111 3,J5C1 116,77411 21_) ?,61311 ,TOTAL 7 '?1'7.7114 ;5,3.9,yc1 16,753,3'_8 18,310. 7 20,',33,;,92 3-OURCE OF FUNG3 FETiR'd 131 521 3.562.4633 3,469.425 •3,3.116.:5.5 ,� ... . f- _ �, _�. ., .1 --.•i lit - !a.YL L Es .'f`t?! 0ry(yi.. E.tF',-T.�, ,5$). 9.4.' i': 914 _ �! „t ItiANL 'L E.F.-JI-ER ,NET INCLINE 113,029 _.611,111111 2,527,673 _,407,203 2,24:,83; PERCENT OF REVENUE 2.U."s 13.9% 12,51 11.14 9.7'r: .NET GEFREC•N 246,451 653,049 736,313 824,756 ;17,1:6 .NEW OEBENTURE3 4 0 .CONTRIBUT. CAP'l 166,664 208,?00 219',:,45 230.312 ::41.328 .TOTAL 556,944 3,473,051 3,483,631 3,462,281 3,402.750 AFPLICATION OF FUNDS .DEBT RETIR'T-PAST 13,319 13,139 13,139 13,139 13,139 .DEBT RETIR'T-7,A. 0 93.819 103,435 114,037 125,1126 .DEBT RETIR T-OTHER 0 0 0 0 tj .,DEBT RETIR T-TOTAL 13,319 106,?53 116,574 121,176 138,865 .EXPENDITURES 584,491 2,004.334 2,104,551 2,209,778 2,320,261 .TOTAL 597,810 2,111,292 2,221,125 2,336,954 2,459,132 WORKING CAPITAL (Dec. 31) .TOTAL 816,943 29345,174 3,607,880 4,733,207 5,676,825 .'r'. OF NET EXPENSE 12.01 15.01 21.31 25.7% 28.3% .NET EXPENSE 6.790,135 15,618,000 16,958,291 13,426,631 20,035,439 CUSTOMERS 5,620 12,002 A P P E N D I X 8 rate study for restructured utility I v� Study 4 RATE ADJUSTMENT SUMMARY 01-Jan-87 UTILITY: NEWCASTLE GENERAL RATES AND STATISTICS SIZE/N0. BILLED ENERGY OR DEMAND RATES .PRESENT PROPOSED PRES. PROP. ----------------------------------------------------------------------------------- RESIDENTIAL CLASS MINIMUM BILLS 979 41097 0 4.20 4.70 KWH-FIRST BLOCK 250 28806337 0 7.80 9.20 KWH-BALANCE BLOCK 122282793 0 4.48 5.15 F.R.W.H. X 510hours 0 0 25.20 28.90 OTHER X 360HOURS 470 0 17.40 19.90 -------------- -------------- TOTAL RESIDENTIAL 151130697 151130697 GENERAL CLASS KW-BALANCE BLOCK 171667 0 3.47 4.30 KW-TRANSF. ALLNCE. 154955 0 0.45 0.45 KWH-MIN. BILLS 739 92750 0 4.20 4.70 KW-MIN. BILLS 34742 0 0.45 0.55 KWH-FIRST BLOCK 250 4773447 0 7.80 9.20 KWH-SECOND BLOCK 12250 51723952 0 4.82 5.55 KWH-THIRD BLOCK 1305000 0 0 0.00 0.00 KWH-BALANCE BLOCK 63793800 0 3.43 3.83 -------------- -------------- SUB-TOTAL 120383949 120383949 .NT./LARGE USER KW-BALANCE BLOCK 0 0 0.00 0.00 KW-TRANSF, ALLOWANCE. 0 0 0.00 0.00 KWH-BALANCE BLOCK 0 0 0.00 0.00 -------------- -------------- SUB-TOTAL 120383949 120383949 MISCELLANEOUS-kWh 0 0 KW-F.R.W.H. X 510HOURS 0 0 25.20 28.90 -------------- -------------- TOTAL GENERAL 120383949 120383949 STREET LIGHTING Q W) 1732 6025 0 15.82 18.10 SENTINEL LIGHTS QW) 57 939 0 17.40 19.91 -------------- -------------- UTILITY TOTAL 274021506 274021506 -------------- -------------- -------------- -------------- Study # 4 RATE ADJUSTMENT SUMMARY O1-Jan-87 UTILITY: NEWCASTLE REVENUE CALCULATIONS STATS FOR 1985 CALCULATED NET REVENUE DIFFERENCE PRESENT RATES PROPOSED RATES AMOUNT PERCENT --------------------------------------------------------------------------------------------------- RESIDENTIAL CLASS MINIMUM BILLS $4,112 $4,601 $490 11.9 KWH-FIRST BLOCK $2,246,894 $2,650,183 $403,289 17.9 KWH-BALANCE BLOCK $5,478,269 $6,300,009 1821,740 15.0 F.R.W.H. $0 $0 $0 NA OTHER $8,178 $9,353 $1,175 14.4 -------------- -------------- -------------- '`1TAL RESIDENTIAL $7,737,453 $8,964,147 $1,226,694 15.9 GENERAL CLASS KW-BALANCE BLOCK $595,684 $738,340 $142,655 23.9 KW-TRANSF. ALLNCE. 369,1301 ($69,730) $0 0.0 KWH-MIN. BILLS 43,104 $3,473 $370 11.9 KW-MIN. BILLS $15,634 $19,108 $3,474 22.2 KWH-FIRST BLOCK $372,329 $439,157 $66,828 17.9 KWH-SECOND BLOCK $2,493,094 $2,871,7t4 $378,619 15.2 KWH-THIRD BLOCK $0 $0 $0 NA KWH-BALANCE BLOCK. $2,188,127 $2,444,323 $256,196 11.7 -------------- -------------- -------------- SUB-TOTAL $5,598,243 $6,446,385 $8489142 15.2 INT./LARGE USER KW-BALANCE BLOCK $0 $0 $0 NA KW-TRANSF. ALLNCE. $0 $0 $0 NA KWH-BALANCE BLOCK $0 $0 $0 NA -------------- -------------- -------------- SUB-TOTAL $0 $0 $0 NA MISCELLANEOUS KW-F.R.W.H. $0 $0 $0 NA -------------- -------------- -------------- TOTAL GENERAL $5,598,243 $6,446,385 $848,142 15.2 STREET LIGHTING $27,400 $31,349 $3,949 14.4 SENTINEL LIGHTS $992 $1,135 $143 14.4 -------------- -------------- -------------- UTILITY TOTAL $13,364,088 $15,443,016 $2,078,928 15.6 Study 4 0 P E R A T I N 6 F 0 R E C A 5 T 01-Jan-87 UTILITY: NEWCASTLE 1 AT EXISTING RATES } 1985 1986 1981 1988 ` LOADS KW LOCAL GEN./PURCH. POWER COSTING 25,294 24,896 51,443 54,015 LOAD FACTOR 69.6 69.6 68.9 68,9 REVENUE TOTAL SERVICE / KW 274,53 280.79 280.79 280,79 . TOTAL SERVICE 6,942,344 6,990,548 14,444,680 15,166,812 OTHER 185,962 189,867 559,120 598,818 TOTAL 7,128,306 7,180,415 15,003,800 15,765,690 POWER COST ^EMAND 124.44 129.36 135.60 141,72 0GY 109.75 114.58 118.89 '124.99 TOTAL 234.74 243.94 254,49 266.71 DEMAND-ENERGY COST 6,073,130 13,091,729 14,406,341 SPECIFIC FAC.-LN 15,432 17,610 0 0 SPECIFIC FAC.-ST 0 0 0 0 OTHER 0 0 0 0 OPERATING EXPENSES POWER PURCHASED 5,958,634 6,090,740 13,091,729 14,406,341 LOCAL GENERATION 0 0 0 0 CONTROLLABLE EXPENSE 590,486 682,602 1,574,662 1,637,649 DEPRECIATION 229,604 252,062 661,405 745,587 AMORTIZATN-CONT.CAP. 61236 5,611 81356 8,774 TOTAL 6,772,488 7,019,793 15,319,440 16,780,803 SOURCE OF FUNDS 7 TURN 355,818 160,622 (315,640) (1,015,113) rINANCIAL EXPENSE 16,792 16,792 951,368 941,752 EXTRAORDINARY ITEMS (+/-) (200,375) 0 0 0 NET INCOME 539,401 143,830 (1,267,008) (1,956,865) X OF REVENUE 7.6 2.0 -8.4 -12.4 NET DEPRECIATION 223,368 246,451 653,049 736,813 DEBENTURES - LOANS 0 0 0 0 CONTRIBUTED CAPITAL 94,730 166,664 208,900 219,345 OTHER 1+!-) 21,748 0 0 0 TOTAL 879,247 556,945 (405,059) (11000,701) APPLICATION OF FUNDS DEBT RETIREMENT 13,319 13,319 106,958 116,574 EXPENDITURES 939,593 584,491 2,004,334 29104,551 OTHER 3 0 0 0 TOTAL 952,915 597,810 21111,292 21221,115 WORKING CAPITAL DEC. 31 EXCLUDING INVENTORY 784,947 744,082 (11172,269) (41994,101) INVENTORY 239,526 239,526 239,526 239,526 TOTAL 1,024,473 983,608 (11532,743) (41754,575) X NET EXPENSE 15.6 14.5 -9.8 -28.0 NET EXPENSE 6,565,912 61790,14 15,617,759 16,985,742 i I Study 4 0 P E R A T I N 6 FORECAST 01-Jan-81 UTILITY: NEWCASTLE ( MONTHS AT PROPOSED RATES ) 1905 1986 1987 1988 - LOADS KW LOCAL GEN./PURCH. 0 0 0 POWER COSTING 24,896 51,443 54,015 LOAD FACTOR 69.6 68.9 68.9 REVENUE TOTAL SERVICE / KN 362.98 280.79 356.13 362.98. TOTAL SERVICE 6,990,548 18,320,396 19606365 OTHER 189,967 559,120 598818 TOTAL 7,180,415 18,879,516 20205183 POWER COST DEMAND 129.36 135,60 141.72 iER6Y 114.58 118,89 '124.99 TOTAL 243.94 254.49 266.71 DEMAND-ENERGY COST 6,073,130 13,091,729 14,406,341 SPECIFIC FAC.-LN 17,610 0 0 SPECIFIC FAC.-ST 0 0 0 OTHER 0 0 0 OPERATING EXPENSES POWER PURCHASED 6,090,740 13,091,129 14,406,341 LOCAL GENERATION 0 0 0 CONTROLLABLE EXPENSE 682,602 1,574,662 1,637,649 DEPRECIATION 252,062 661,405 745,5B7 AMORTIIATN-CONT.CAP. 5,611 81356 01774 TOTAL 7,019,793 15,319,440 16,780,803 SOURCE OF FUNDS "7TURN 160,622 31560,076 3,424,380 . iNANCIAL EXPENSE 16,792 951,368 941,752 EXTRAORDINARY ITEMS 0 0 0 NET INCOME 143,830 21608,708 2,482,628 X OF REVENUE 2.0 13.8 12.3 NET DEPRECIATION 246,451 653,049 736,813 DEBENTURES - LOANS 0 0 0 CONTRIBUTED CAPITAL 166,664 208,900 219,345 OTHER 0 0 0 TOTAL 556,945 3,470,657 31438,786 APPLICATION OF FUNDS DEBT RETIREMENT 13,319 106,958 116,574 EXPENDITURES 584,491 2,004,334 2,104,551 OTHER 0 0 0 TOTAL 597,810 21111,292 29221,125 WORKING CAPITAL DEC. 31 EXCLUDING INVENTORY 744,082 21103,446 31321,107 INVENTORY 239,526 239,526 239,526 TOTAL 983,608 2,342,972 3,560,633 % NET EXPENSE 14.5 15.0 . 21.0 NET EXPENSE 61790,134 15,617,759 16,985,742 I Study 4 RATE OF RETURN U1-Jan-87 UTILITY: NEWCASTLE I AT EXISTING RATES ) 1985 1986 1987 1988 RETURN 355,818 160,622 (315,640) (11015,113) RATE BASE TOTAL PLANT 51117,063 6,301,554 17,886,748 19,991,299 ACCUM. DEPRECIATION 21059,486 2,311,548 31438,092 4,183,679 CONTRIBUTED CAPITAL 187,029 353,693 562,593 781,938 AMORTIIATN-CONT.CAP, 15,776 21,387 29,743 38,517 YEAR-END ASSET BASE 3,486,324 3,657,700 13,915,806 15,064,199 AVERAGE ASSET BASE 2,693,162 3,572,012 13,915,806 14,490,003 WORKING CPTL. ALLWNC 984,887 1,018,520 2,342,664 2,547,861 RATE BASE 3,618,049 4,590,532 16,258,470 17,037,864 ^TE OF RETURN 9.7 3.5 -1.9 -6.0 Study 4 RATE OF RETURN 01-Jan-87 UTILITY: NEWCASTLE 1 AT PROPOSED RATES ) 1985 1986 1987 1988 RETURN 355,818 160,622 3,560,076 31424,380 RATE BASE TOTAL PLANT 5,717,063 6,301,554 17,886,748 19,991,299 ACCUM. DEPRECIATION 2,059,486 2,311,548 3,438,092 4,183,679 ,ONTIBUTED CAPITAL 187,029 353,693 562,593 781,938 AMORTIZATN-CONT.CAP. 15,776 21,387 29,743 38,517 YEAR-END ASSET BASE 3,486,324 3,657,700 13,915,006 15,064,199 AVERAGE ASSET BASE 2,693,162 3,572,012 13,915,806 149490,003 WORKING CPTL. ALLWNC 984,BB7 1,018,520 21342,664 2,547,861 RATE BASE 3,678,049 41590,532 16,258,470 17,037,864 RATE OF RETURN 9.7 3.5 21.9 20.1 j Study 4 KEY I N 0 1 C A T 0 R 5 01-Jan-87 CURRENT PROPOSED ----------------- RATE Of RETURN: 3.5 21.9 X RATE BASE WORKING CAPITAL: 14.5 15.0 X NET EXPENSE X RATE INCREASES BY CLASS ------------------------- RESIDENTIAL: 15.9 X GENERAL SERVICE (< 5000 KW l: 15.2 X INT./LRG. USER: NA X UTILITY TOTAL: 15.6 X A P P E N D I X C comparative bills for original Newcastle customers i I Study 1 4 -v% (� COMPARISON OF MONTHLY BILLS - RESIDENTIAL 01-Jan-87 -�- `- PROPOSED CONSUMPTION (current) (proposed) COST CHANGE CHANGE c/kw.h X $ MINIMUM BILL $4.20 14.70 - - 11.90% $0.50 - 250 $19.50 $23.00 9.20 17.95% $3.50 500 $30.70 132.38 6.48 5.477, $1.68 750 $41.90 145,26 6.03 8.02X $3.36 1,000 153.10 $58.14 5.81 9.49X $5.04 1,250 $64,30 $71.02 5,68 10.45% $6,72 1,500 $75,50 183.90 5.59 11,137 $8.40 2,000 $97.90 $109.66 5.48 12.01% $11.76 3,000 $142,70 $161,18 5.37 12.95% $18.48 COMPARISON OF MONTHLY BILLS - GENERAL SERVICE PROPOSED LOAD CONSUMPTION (current) (proposed) COST CHANGE KW KW.H c/kw.h X 2.5 500 $31.55 $36,88 7.38 16,89% 10 1,000 $55.65 $64.64 6,46 16.15% 2,000 $103.85 $120,16 6.01 15.71X 31000 $152.05 $175.68 5.86 15.54% 25 2,500 $127.95 $147.92 5.92 15.61% 5,000 $24B.45 $286,72 5,73 15,40% 7,500 $368,95 $425.52 5.67 15.33X 50 10,000 $489.45 1564.32 5.64 15.30% 15,000 $695,70 $798,91 5.33 14.84X 20,000 $867.20 $990.49 4,95 14.22% 100 20,000 $1,040.70 $1,205.54 6.03, 15.847 30,000 $1,383.70 $1,588.70 5,30 14,82% 40,000 $1,726,70 $1,971.86 4.93 14.20% 500 150,000 $6,887.70 $7,907.02 5.27 14.80% 200,000 $8,602.70 $9,822.82 4.91 14.18% 250,000 $10,317.70 $11,738,62 4.70 13,771 1,000 300,000 $13,767.70 $15,804,92 5.27 14.80% 400,000 $17,197.70 $19,636.52 4.91 14.18% 500,000 $20,627.70 $23,468.12 4.69 13.77% 5,000 1,500,000 $68,807.70 $72,921.15 4.B6 5,98% 2,000,000 $85,957.70 $90,071,15 4.50 4.79% 2,500,000 $103,107.70 $107,221,15 4.29 3.99%