UPDATES TO CHAPTER 28, ELECTRIC RATE MODIFICATIONS
Electric utilities periodically conduct cost-of-service and rate design studies to help make long-term financial plans, promote efficient use of resources, and provide fair and equitable rates for customers. Ames Electric Services completed a cost-of-service study in 2024. At the June 18, 2024, City Council/EUORAB Workshop, Mark Beauchamp from Utility Financial Solutions (UFS) presented results from the cost-of-service study and recommended a series of 1.5% increase, each of the next 5 years, to Electric rates across the board beginning in 2025. The Electric Utility Operations Review and Advisory Board (EUORAB) met on June 20, 2024, to discuss the cost-of-service study and rate increases at the direction of the City Council.
The first of these 1.5% rate increases was adopted by Council with an effective date of November 1, 2025. It is now time to implement the second of these yearly increases, but with some modification resulting from a change in project cost information for electric new plant addition.
In June 2026, Electric staff presented to Council an updated cost for the Ames Municipal Energy Center (AMEC). The cost-of-service study performed by UFS in 2024 was based on a project estimate of $84 million. Since this time, the engineering firm working on the project, Sargent & Lundy, has updated the project estimate to $192 Million.
The City's financial advisor, PFM, was asked to review the impacts of this new project cost, on Electric's debt coverage ratio and rates. PFM's recommendation was to increase rates by 2.5% instead of the original 1.5% for the next 18 years. Increases in the later years are subject to change once a final AMEC cost is determined and load growth in taken into account.
Based on the results of the study, the PFM analysis, and EUORAB's continued review, EUORAB recommended that a 2.5% rate increase be adopted to go into effect following the 2026 summer season. This increase is to be applied to monthly customer service charges, demand rates if applicable, and energy rates. It should be noted that the revenues reflected in the FY 2026/27 budget only reflect the implementation of the smaller 1.5% electric rate increase proposed in June 2024.
PROPOSED CHANGES TO CUSTOMER SERVICE CHARGE. DEMAND CHARGE, AND ENERGY CHARGE:
The Customer Service Charge is a fixed monthly amount charged to each customer, regardless of how much energy is used. The Customer Service Charge covers the cost of customer class-specific infrastructure (like a service drop and meter), a portion of the distribution system needed to serve the customer, meter reading, and billing. EUORAB has recommended raising the Customer Service Charge for Residential, Small Commercial, Commercial and Industrial customers by 2.5%.
The Demand Charge is a rate charged to Commercial & Industrial customers and is multiplied by the 15 minute "peak" consumption by the customer in a given month. There is both a summer season rate and a winter season rate. EUORAB has recommended raising the Demand Charge for Commercial and Industrial customers by 2.5%.
The Energy Charge is a rate charged to all customers and is multiplied by the total electric consumption in a given month. For Residential and Small Commercial there is both a summer season rate and a winter season rate. Commercial and Industrial customers have a constant year-long rate. EUORAB has recommended raising the Energy Charges for all customers by 2.5%.
At this time, EUORAB is not recommending any changes to the new Time-of-Use rates created at the end of 2024, and only is being used by 186 customers at this time. UFS has been asked to review these later this year, as well as review of the Energy Cost Adjustment formula currently in effect.
- Direct the City Attorney to draft changes to Chapter 28 of the Municipal Code to implement the increases to the customer service, demand, and energy charges as described above, and return the draft ordinance for consideration by the City Council.
- Do not direct the City Attorney to draft changes to Chapter 28 of the Municipal Code
Adopting the proposed changes will better align existing rates with the cost-of-service study results, which were subsequently updated by PFM, following the increase to the AMEC project costs. Therefore, it is the recommendation of the City Manager that the City Council adopt Alternative 1, as described above.