It has been reported that the City of Tallahassee electric department has been in the midst of a “rate study” over the last several weeks. The purpose of this study is to determine if the COT needs to increase base electric rates, the non-fuel part of your electric bill, to cover operational expenses over the next five years.
The base rate portion of the electric bill covers expenses like salaries, benefits, debt service, and funds the $22 million transfer to the general fund.
Now comes the news that a base rate increase is indeed on the horizon. Reese Goad, director of Utility and Business Customer Service stated that the electric utility revenue deficiency is “sizable.” This means “new revenue” from a rate increase or from the reserve fund will be needed to balance the electric utility fund.
Tallahassee Reports recently published an article that showed total electric rates were trending downward due to the decrease in the cost of natural gas. While the trend was downward, the COT was still tied for the highest rates in the state among the other municipalities that generated their own electricity.
The chart below shows the trend of base rates for Tallahassee since 2005 is headed in the upward direction. Base rates have increased approximately 39% since October, 2005. During this period the CPI, a measure of inflation, has increased approximately 12%. This means that COT base rates have increased at a rate equal to three times the CPI rate over the last five years.
CHANGE IN COT BASE RATES SINCE 2005
|October 1, 2005||October 1, 2006||October 1, 2007||October 1, 2008||October 1, 2009||October 1, 2010||Total Change|
|Base Rate (1000 kwh)||$47.11||$58.02||$61.48||$64.80||$64.80||$65.51||39.06%|
|Base Rate % Increase||N/A||23.16%||5.96%||5.40%||0.00%||1.10%|
What is the source of this increase? Tallahassee Reports compared expenditures in 2005 and those in the budget in 2011 to determine what functions were responsible for the increase in base rates. The comparison yielded three areas that increased at rates that exceeded the 12% inflation rate.
First, debt service and maintenance expense increased a combined total of $12 million from 2005 to 2010. Based on budget projections, this category is due to increase by $18 million from 2010 to 2011. That would be a total increase from 2005 of $30 million which is approximately a 75% increase from the 2005 level.
Second, personnel services, which include salaries and employee benefits, increased from $18.2 million in 2005 to $23.7 million in 2011 for 291 employees. This is a 25% increase.
And third, unclassified supplies and services are scheduled to be $10.5 million in 2011. This is an increase of approximately $4 million from the 2005 amount of $6.2 million. This is a 70% increase over 2005 levels.
During this period of time, sales of electricity have remained relatively flat and average annual usage per customer has been below 2005 levels for each year from 2006 through 2010.