Loading...
The URL can be used to link to this page
Your browser does not support the video tag.
Home
My WebLink
About
System Review And Cost Allocation Study Galena Electric Utility 1993
RW. BECK AND ASSOCIATES, INC. 2522 Arctic Boulevard, Suite 210 m Anchorage, Alaska 99503-2516 m USA Telephone (907) 272-6225 m Fax (907) 276-1751 WS-3908-AA1-CA May 10, 1993 Mr. Chris Hladick, City Manager City of Galena Post Office Box 149 Galena, Alaska 99741 Dear Chris: In accordance with the terms of our agreement, enclosed is our report which summarizes our review of the City's electric utility and our cost-of-service study. We hope that this report will provide the necessary documentation in reaching an equitable agreement with the Air Force. We appreciate the assistance that you and your staff provided during our review Respectfully submitted, Rubbcek and Yssocirtes, tre, Austin, TX = Boston, MA Columbus, NE @ Denver, CO a Indianapolis, IN = Irvine, CA = Minneapolis, MN Nashville, TN # Orlando, FL = Phoenix, AZ = Sacramento, CA m San Jose, CA @ Seattle, WA Galena System Review City of Galena, Alaska Table of Contents ES Executive Summary Introduction and Purpose of Report...............++ ES-1 Operating Costs ..........seececeeeeees ES-2 Revenue Requirements... ES-2 Cost-of-Service Analysis.. ES-3 SUMMARY: ss scecessecesescaceseesevavesstseceqessevesssrcsesasorsesees ES-4 I Introduction OV CIVIC W a osexsecsestexveneseasesspursvessesszsesevserscscusenssnn J Air Force Project 1 Purpose of Study ... . 3 Limitations of Report..........ceceeesceeseeseeeseeeseees 4 0 Utility Operations Recent Operating Results ..............ssssssssesseeseeeees 5 GEU Facilities General Description of Power Plant.............. 5 General Description of Distribution System.. 7 Operating and Maintenance Costs | Remote Operation............000 . 13 System Improvements . 15 Revised FY 93 Budget........ . 16 Comparison to Alaskan Utilities . . 16 Allocated Administration Costs ...........:sscssessee 20 mm Cost of Service Analysis General Overview ......... eee seeesseseeeseeeeseeeseeseesees 23 Generating Requirements . 24 Revenue Requirements. 26 Adequacy of Revenues. . 27 Cost AllOCation..........ccseceeseeccscseeesseeeessecseeeeeeees 28 Sensitivity Analysis High Air Force Load... .seeessessesceseesseeeees 29 No Air Force Load... eseseesseesesesseeeeeeees 30 IV Deficit Reduction... cecsseeeeeceeeeseeceeeeeeeees 32 EXECUTIVE SUMMARY INTRODUCTION AND PURPOSE OF REPORT In May 1988, the City of Galena was awarded a contract by the United States Air Force to provide up to 1,700 kilowatts of capacity and associated energy over a 20-year period to the Galena Air Station. The City’s proposal was based in part on expanding their existing powerhouse and installing additional generating units to that which already were being used. A new transmission line from the powerhouse to the Air Station was included as part of the project. As work began on the project, it soon became evident that new facilities would cost sig- nificantly more than expected and that the new generating units would not operate as efficiently as specified in the contract. In order to complete construction, the City raised additional capital by issuing $2.9 million of revenue bonds through the Alaska Energy Authority. A $1.6 million loan already obtained from the State of Alaska was converted to a grant. On March 18, 1991, the City began to deliver power to the Air Station. However in May of that year, the City experienced major equipment failures, and deliveries to the Air Force could not be made on a reliable basis. Reliable deliveries finally began in September 1991. Although the City has been able to deliver to the Air Station without any curtailments in deliveries for approximately 17 months now, the facilities have not been able to operate in an unmanned mode as originally envisioned. Therefore, operating costs have been signifi- cantly higher than expected. Since capital, operating, and fuel consumption of the electrical generating system are higher than that anticipated when the City submitted its proposal to the Air Force, the City maintains that the revenues produced under the Air Force contract are less than the cost of providing service to the Air Station. Since the City is unwilling, and perhaps unable, to pass these excess costs on to its other customers, it claims that it may soon enter default on its revenue bonds without some sort of relief. Consequently, it has sought contractual relief from the Air Force and monetary relief from the Energy Authority. Before the Energy Authority is willing to seek appropriations for the City, it must be assured that the City is operating and maintaining its electric utility in a reasonable manner and that the Air Force is paying its share of the costs. This report summarizes our review of the City's operations of its electric utility and presents the results of our cost-of-service analysis which allocates the utility's costs to each customer class. Galena System Review Page ES-1 OPERATING COSTS Our review of the utility's operations has found that, given the inability of the equipment to operate in an unmanned mode, the current staff level is comparable to other utilities with similar generation and who are responsible for performing their own maintenance. Certain system enhancements exist that could allow the facilities to operate in an unmanned mode, but this would eliminate only one, possibly, two positions. However, there are certain risks inherent to unmanned operations that must be considered. These risks include the length of time to get back on-line during outages, the possibility of fires burning unde- tected for a period of time, and others. The terms of the contract between the City and the Air Force increases the importance of remaining on line since the contract specifies outage factors of no more than 8.76 hours per year or two hours per month. In addition to labor costs, the City’s non-fuel operating budget for the fiscal year ending June 30, 1993, was also reviewed for reasonableness. Certain components were felt to be somewhat high, and these were adjusted downward. However the City has not set aside funds for performing scheduled minor and major overhauls in the future, and it was felt that such a reserve fund is prudent. This amount, approximately $75,100 per year, would ensure that funds were on hand to perform required maintenance and would also eliminate the large fluctuations in cash requirements during a particular year when maintenance was required. On a net basis, the non-fuel operating budget was increased by approximately $20,000. REVENUE REQUIREMENTS In order to perform the cost-of-service study, we estimated the electric utility's total reve- nue requirements over the three-year period ending June 30, 1996. The basis for this estimate was the City’s fiscal year 1993 budget as adjusted by R. W. Beck. To that, cer- tain other adjustments were made including: 1. Deposits for an oil spill reserve fund required by the Department of Environ- mental Conservation were included and based on funding the total requirement over a period of five years. 2. Deposits to a bond reserve fund required by the bond indenture were included based on three equal payments. 3. Costs of performing system upgrades required for safety reasons were included during the first two years of the three-year period. Galena System Review Page ES-2 4. The analysis was performed using lower Air Force sales than that assumed in the City's budget. Therefore, spare parts, consumables, fuel, and other variable costs were reduced accordingly. COST-OF-SERVICE ANALYSIS The estimated revenue requirements were then allocated to the Air Force and to the City’s other electric customers based on industry-accepted allocation procedures. The results, provided in the following table, show that both the Air Force and the City's other cus- tomers are paying less than their share of costs. Table ES-1 GALENA SYSTEM REVIEW Cost of Service Summary - Existing Rates Total Air Force System City Total Fuel O&M = Capital Revenues $5,518,720 $2,325,000 $3,193,720 $1,191,978 $1,537,309 $464,433 Revenue Requirements _ 6,303,150 2,560,044 3,743,107 1,262,457 1,731,500 749,150 Margin: Dollars ($784,430) ($235,044) ($549,387) ($70,479) ($194,191) ($284,717) Percent (14.2%) (10.1%) (17.2%) (5.9%) (12.6%) (61.3%) If both customer classes were to pay rates based on full cost-of-service, Air Force rates need to be increased by an average of 17.2 percent and the other customers’ rates need to be increased by 10.1 percent. Should the Air Force not pay its share of costs and absent any other form of rate relief, the electric rates of the non-Air Force customers would have to be increased by 34 percent in order to eliminate the revenue shortfall. The results described above are based, in part, on the Air Station reducing its operations in Galena and taking only the minimum energy amounts specified in the contract. Two other cases were run using alternative energy requirements of the Air Station. The first assumed no reduction in operations with energy requirements comparable to present levels. The second case assumed that the Air Station would close at the end of fiscal year 1994 and the Air Force would terminate the contract. The results of these two cases are shown in Table ES-2. Galena System Review Page ES-3 Table ES-2 GALENA SYSTEM REVIEW Cost of Service Summary - Existing Rates Total Air Force System City Total Fuel O&M = Capital High Air Force Load: Revenues $6,286,158 $2,325,000 $3,961,158 $1,959,416 $1,537,309 $464,433 Rev. Reqmnts. 1.186.029 2.514.701 4,671,327 2.075.272 1.835.908 760.147 Margin: Dollars ($899,871) ($189,701) (S710,169) ($115,856) ($298,599) ($295,714) Percent (14.3%) (8.2%) (17.9%) (5.9%) (19.4%) (63.7%) No Air Force Load: Revenues!) $3,677,326 Rev. Reqmnts. 3.642.887 Margin: Dollars $34,439 (1) Includes revenues from the Air Force during FY 94 but none thereafter. Also includes an estimated $323,187 of bond-related funds remaining after bonds are paid off. SUMMARY At this time, the City appears to be operating its utility with staff levels commensurate with its operations. Other operating costs are in the range to be expected but do not pro- vide for adequate reserve funds. Therefore, the overall costs appear to be somewhat low. The cost-of-service analysis shows that current rates provide for revenues less than those required and both the City's ratepayers and the Air Force are paying less than their respec- tive share of costs. As a percentage of revenues collected, the Air Force's contribution to the utility's shortfall in revenues is greater than the other ratepayers. Should the Air Force not increase its payment to the City, the other ratepayers would be faced with rate increases of at least 34 percent absent other forms of relief. Galena System Review Page ES-4 I. INTRODUCTION OVERVIEW The City of Galena (the "City" or "Galena") is located on the Yukon River approximately 280 miles west of Fairbanks. Originally incorporated as a fourth-class city in 1971, it incorporated as a first-class city two years later in 1973. Galena serves as the location of a refuge office for the United States Fish and Wildlife Service and, during the summer, the base of operations for the federal Bureau of Land Management smoke jumpers. Addi- tionally, the Air Force has established a base of operations for two F-15 interceptor jets in Galena. The population of the City is approximately 528 people plus an additional 305 military personnel are stationed at the Air Station. Transportation to and from the City is limited to boat traffic on the Yukon River and scheduled and other flights from the airport. At this time, several air carriers provide scheduled passenger and cargo service to Galena, including Larry's Flying Service, Tanana Air, MarkAir, and Northern Air Cargo. A limited road system exists within the City and extends to an abandoned White Alice facility approximately ten miles southeast of town. The City owns and operates two Enterprise Fund utilities, the Public Utilities and the Electric Utility ("GEU"). The Public Utilities provides water and sewer service to the area tesidents and businesses as well as road and facility maintenance. GEU provides electric service to the area residents and businesses and waste heat to the local school. Electrical generation and waste heat are provided for from the GEU's own diesel generators and distribution facilities. AIR FORCE PROJECT Historically, the Air Force met its electrical power requirements through the use of its own generating equipment. However, this equipment was nearing the end of its useful life; and in December 1986, the Air Force issued a Request for Proposals to parties interested in supplying power to the Air Station. The Request for Proposal specified that the success- ful proposer would provide up to 1,700 kilowatts of capacity and a minimum energy delivery of 390,000 kilowatt-hours per month. A very high reliability criteria was speci- fied such that the availability factor must be no less than 8,751.24 hours per 8,760 hours (one year). Furthermore, outages could not total any greater than two hours in any one calendar month. Outages greater than those specified in the Request for Proposal would result in monetary damage payments by the contractor to the Air Force. Galena System Review Pagel —~- Payments by the Air Force to the successful proposer were to be based on three compo- nents. These included: 1. A constant monthly payment for 20 years. In theory, this payment was to reimburse the successful bidder for the capital costs of the new generating facilities amortized over the life of the contract. 2. A monthly operations and maintenance payment for the life of the contract. This component was to include estimated operating and maintenance costs as well as administrative costs, profits, and other costs that the bidder wanted to include. The component was to increase on an annual basis at the same rate of increase as the Consumer Price Index in Anchorage once power was first delivered. 3. An energy charge based on actual cost of fuel. This component was to be establishing by specifying a generating efficiency (in BTU per kilowatt-hour) in the proposal. Should the generating units be more efficient than originally bid, then the proposer would accrue the benefits. Conversely, if the units were less efficient than bid, the proposer would not recover all of its fuel costs. In March 1987, the City submitted a proposal to the Air Force based, in part, on expand- ing its existing generating powerhouse and installing generating units additional to those which were already being used. A new transmission line from the powerhouse to the Air Station was included as part of the project. Several proposals were received by the Air Force; and after evaluation, the Air Force awarded a contract to the City in July 1987. This award was protested by a competing proposer, however, and the Notice to Proceed was not issued until nearly a year later in May 1988. Two loans totaling $1.6 million were provided to the City by the Alaska Energy Authority, and a water and sewer grant was reappropriated to the upgrade project. However as work progressed, it soon became apparent that the project would cost more than originally anticipated and that the project might not operate as efficiently as expected. Elements to these discoveries included: 1. Initial soils investigations revealed that the City's existing powerhouse could not be expanded as planned unless freeze piles were used in the foundation. The time allowed in the Air Force contract for initial delivery of power was not sufficient to accommodate such a foundation change, and the project scope was changed to constructing a new, stand-alone powerhouse at a nearby site. 2. Due to the delay in receiving the Notice to Proceed from the Air Force, the resulting relocation of the project site, and other factors, the construction costs Galena System Review Page 2 increased from an initial budget of $2 million to a final construction cost of approximately $6 million. 3. An independent review performed by Frank Moolin & Associates, Inc., in April 1989 for the City found that the fuel consumption specified in the Air Force contract was significantly less than that which would probably be achieved with the new generating units. Therefore, fuel costs would not be fully recovered. In order to complete construction of the upgrade to their electrical generation and distri- bution facilities, the City raised additional capital by issuing $2.9 million of revenue bonds through the Energy Authority. The repayments of the original $1.6 million loans were forgiven. On March 18, 1991, the City began to deliver power to the Air Station, and the Air Force began to make payments as provided for in its contract with the City. However in May of that year, the City experienced major equipment failures; and deliveries to the Air Force could not be made on a reliable basis. Reliable deliveries finally began in September 1991. Although the City has been able to deliver to the Air Station without any curtailments in deliveries for approximately 17 months now, the facilities have not been able to operate in an unmanned mode as originally envisioned. Therefore, operating costs have been signifi- cantly higher than expected. PURPOSE OF STUDY Since capital, operating, and fuel consumption of the electrical generating system are higher than that anticipated when the City submitted its proposal to the Air Force, the City maintains that the revenues produced under the Air Force contract are less than the cost of providing service to the Air Station. Since the City is unwilling, and perhaps unable, to pass these excess costs on to its other customers, it claims that it may soon enter default on its revenue bonds without some sort of relief. Consequently, it has sought contractual telief from the Air Force and monetary relief from the Energy Authority. Before the Energy Authority is willing to seek appropriations for the City, it must be assured that the City is operating and maintaining its electric utility in a reasonable manner and that the Air Force is paying its share of the costs. This report summarizes our review of the City's operations of its electric utility and presents the results of our cost-of-service analysis which allocates the utility's costs to each customer class. Galena System Review Page 3 LIMITATIONS OF REPORT Due to budgetary constraints, it was not possible to send personnel to the City for a first- hand review of the system facilities, and we have had to rely on a video and other reports. Therefore, it may not have been possible to identify all the safety or other problems that might exist that would require capital expenditures not already identified in the revenue Tequirements. Galena System Review Page 4 Il. UTILITY OPERATIONS RECENT OPERATING RESULTS Table 1 on the following page provides the audited operating results of Galena’s electric utility for the fiscal years ended June 30, 1988 through 1992, and the current fiscal year’s budget. As seen in the table, the utility experienced a significant increase in costs once the plant expansion was completed in March 1991 and sales to the Air Force began. At the same time, however, costs per kilowatt-hour of energy sold has decreased. The overall increase in operating costs and decrease in costs per unit of sales are what one would normally expect to see with the addition of a single, large customer such as the Air Force. However these relative changes are not, in themselves, an indication that present budgets are reasonable. Therefore, we have reviewed the utility's operations and made certain estimates as to proper staffing levels for a utility such as Galena's taking into account its location, size, and the stringent requirements of the Air Force contract. Fur- thermore, we have obtained operating data for other electric utilities located throughout the state and provided them for comparison. The following discussion summarizes these findings. GEU FACILITIES GENERAL DESCRIPTION OF POWER PLANT The Galena power plant consists of six gen-sets housed in a single 50' by 90' building. Five of the gen-sets have rated design output capacities of 850 kilowatts, and the remain- ing unit has an output capacity of 500 kilowatts. The electric generators are Newage Stamford units. The primary power drives are five Mitsubishi S16N diesels, operating at a nominal 1,200 rpm, and a single Mitsubishi S6N diesel nominally operating at 1,800 rpm. Engine cooling is accomplished with a glycol/water system, with four air-cooled radiators external to the building. Engine jacket water waste heat is used to heat the facility fuel tanks and piping and to heat water for subsequent heating of City offices and schools. Diesel No. 2 is used as the primary fuel, which is stored in four tanks (two 265,000-gallon vertical tanks and two 65,000-gallon horizontal bullet tanks) adjacent to the power plant building. Additionally, a 550-gallon day tank is located in the power plant building. Delivery of fuel is via barge service. Galena System Review Page 5S Operating Revenues Operating Expenses Personnel: Salaries & Benefits Allocated Administration(1) Subtotal Power plant parts and supplies Fuel Repair and Maintenance Amortization of Bond Discount Administration(2) Total Operating Expenses Non-operating Revenues (Expenses) Total Expenses Net Income before Transfers Transfers(3) Net Income (Loss) Energy Sales Selected Statistics: Cents/kWh Salaries/Benefits Total Operating (Non-fuel) Allocated Administration Table 1 GALENA SYSTEM REVIEW Historical Operating Results 1988 «1989 1990199 1992 1983 798,233 63,477 60.854 124,331 77,355 183,922 93,803 0 35,241 514,652 4,809) 569,461 228,772 87.903 140,869 788,150 61,556 42,396 103,952 186,060 205,349 24,541 0 44.608 564,510 (41.957) 606,467 181,683 50,000 131,683 751,757 136,575, 23.507 162,082 24,959 247,402 15,182 0 35,949 485,574 5.667) 521,241 230,516 299.250 (68,734) 2,386,474 5.7 20.3 1.1 (1) Amount of General Fund costs allocated to the Electric Utility. (2) Administration costs directly allocated to the Electric Utility. Includes insurance, communications, professional services, office supplies, and other related expenditures. (3) Transfer of Electric Utility funds to other City functions. In 1991 and 1992, amounts shown are equal to revenues received from the school district from waste heat sales. N/A - Data not available. Galena System Review 1,049,323 1,612,475 195,227 258,126 38.874 100.699 234,101 358,825 36,056 63,257 507,855 797,675 40,990 66,172 0 10372 45.905 164,591 864,907 1,460,892 (33,922) (205,495) 898,829 1,666,387 150,494 (53,912) 50.250 51.250 100,244 (105,162) 3,862,328 8,432,048 5.1 3.1 22.4 173 1.0 1.2 Budget) N/A 340,965 81.079 422,044 61,000 871,248 77,000 10,372 165.000 1,606,664 (40.000) 1,646,664 N/A N/A N/A 9,700,000 35 16.6 0.8 Page6 Two distribution systems are serviced by the power plant - the City and the Air Force. Total generation and sales during the fiscal year ended June 30, 1992, were approximately 9.4 million kilowatt-hours and 8.4 million kilowatt-hours, respectively. The station use and losses represented by these figures are within the range experienced by comparable utilities in Alaska. Peak loads during fiscal year 1992 ranged from 1,200 kilowatts to 1,900 kilowatts. The Air Force accounted for approximately 75 percent of this load, although this is expected to decrease due to an anticipated reduction in operations at the Air Station. The power plant provides baseload for the City and the Air Force, thus 24-hour operation is required. Typically one or two units are running, with the third added during peak load periods. Three operator shifts are used. Power plant generator staff has consisted of four operators, one mechanic and one manager once the new facilities were completed. The facility initiated operation in the spring of 1991. Several operational problems have occurred since start-up: e Engine crankshafts have failed and been replaced. ¢ Cooling system failure and radiators had to be replaced. e Generators have failed and all units have been replaced (September 1991) with modifications to enhance reliability. ¢ For stable operation, the generator maximum load has been derated from the design nominal 850 kilowatts to less than 700 kilowatts as a practice. ¢ Frequent leakage has occurred from head gaskets, with subsequent retorqueing or replacement of gaskets, resulting in higher than normal maintenance. However, given that the total capacity of the power plant is about 4,200 kilowatts (5 x 750 + 450) and the maximum peak demand is less than 2,000 kilowatts, excess capacity exists to compensate for downtime of individual units to provide for normal reli- ability plus that required by the City's contract with the Air Force. In February 1993, a relay coordination study was performed by Neubauer Engineering and Technical Services ("Neubauer") to assist in resolving electrical stability problems with generation. The Neubauer report identified significant distribution system deficiencies that have led to total system outages. GENERAL DESCRIPTION OF THE DISTRIBUTION SYSTEM Galena's distribution system consists of two feeders, one at 4,160 volts serving the City, and the other at 24,940 volts which delivers power to the local air base. The City feeder is served directly from the generation bus and operates as a 4.16 / 2.4 kV ground wye four- Galena System Review Page7 wire system. Two air switches subdivide the feeder into the Lauden Loop branch which proceeds up to the FAA and Vortex facilities, and the downtown branch which includes the old town and new town areas. The construction of the City feeder is primarily wood pole and crossarm, however there is one section of underground cable serving the Old Town area. The Air Station feeder operates at 24.9 / 14.4 kV ground wye and originates from a pair of 1,000 kVA 4.16 kV - 24.9 Grd Y / 14.4 kV three phase step-up transformers. The feeder is wood pole with wood crossarm construction and parallels or overbuilds the City feeder for the first 25 spans before proceeding on to the Air Force power plant. The line terminates at a pair of 1,000 kVA 24.9 / 4.16 kV step-down transformers. OPERATING AND MAINTENANCE COSTS Part of our task is to review the City's operating and maintenance budget, to determine its reasonableness, and to make adjustments where necessary. Accordingly, we have devel- oped a budget for operating a similar size generating facility using labor and material rates appropriate for Galena. Elements assessed as part of the annual operating and mainte- nance costs included: A. Fuel Consumption B. Routine Maintenance C. Major Power Plant Overhaul D. Operating Staff E. Major Storm Reserve Each of these is discussed in the following paragraphs. Specific budget components and the overall budget are then compared to the City's budget. Fuel Consumption. Fuel efficiency will vary depending on how a particular generating unit is loaded, its age, and other factors. Although it takes increasing amounts of fuel to increase output from a particular generating unit, the incremental amount of fuel used decreases as output is increased. This relationship between fuel consumption and generat- ing output can be plotted on a graph and is commonly referred to as a heat curve. Detailed load profiles were not available from the City nor were heat curves from the equipment supplier. Therefore, historical fuel consumption was used as the basis to derive the expected fuel usage for future loads. Historical fuel consumption was derived from the daily plant production sheets. Monthly energy production from the power plant was divided by measured fuel usage, and the fuel efficiencies ranged from 13.8 to 18 kilowatt- hours (generation) per gallon for the fiscal year ended June 30, 1992. Galena System Review Page8& In the City's FY 92 APUC Electric Utility PCE Form, a slightly lower fuel efficiency of 13.3 kilowatt-hours per gallon is shown for the same period. The City has informed us that this is due to the fact that they had to use two relatively old stand-by generators dur- ing the unscheduled outages of the new units. For purposes of this report, we have assumed that these older units will not be required in the future and have based our analy- sis and revenue requirements on 14.5 kilowatt-hours per gallon. Routine Maintenance. Engine-specific maintenance logs have been maintained by the City. During the first year of operation, regular maintenance was performed frequently and included filter replacement, oil changes, cleaning and minor adjustments. The engines have also experienced frequent leakage from head gaskets, requiring retorqueing of the heads and/or head gasket replacement. Other components (regulators, water pumps and seals, air starter) have also been replaced. This maintenance is performed by the existing staff. R. W. Beck estimates that material costs for regular maintenance of the power plants will be $45,000 annually based on the historical practice at the power plant and normal diesel operating maintenance requirements. This includes $32,000 for lube oil consumption, $7,000 for parts and tools, and $6,000 for other consumables. The City has estimated the maintenance cost for vehicles and other fixed assets to be $36,600 per year. This amount appears reasonable and appropriate for the facility. Major Power Plant Overhauls. Manufacturer-recommended overhaul schedules for S16N were not obtained in time for this study. However we have determined that the expected overhaul schedule, based on operator comments and standard diesel operation, is about 8,000 hours for a top-end overhaul and twice that for a major overhaul. This is less than the typical expected maintenance practice of 10,000 to 12,000 hours for a top-end over- haul. Engine No. 3 is currently undergoing a top-end overhaul after approximately 7,200 hours of operation. Engines No. 1 and No. 2 have approximately the same amount of hours and will likely need an overhaul next year. Engines No. 4 and No. 5, although with fewer hours (approximately 5,300 and 6,500, respectively) will probably also need top-end over- hauls within the next year. Parts for top-end overhauls are estimated to be about $5,000 delivered to Galena, based on discussions with City staff and R. W. Beck's knowledge of similar engines. Labor is assumed to be performed by staff, including head machining work. However a skilled machinist must perform this work, and it is unknown whether or not existing staff can properly perform such overhauls. The City should, therefore, evaluate the option of retaining a spare set of heads while shipping the worn heads to a machine shop for machining. This may increase the reliability of the engine. Galena System Review Page9 Major overhauls are assumed to occur at twice the schedule for top-end overhauls. This projects that in two years, at current usage patterns, at least three engines will require overhaul. The operations staff needs to devise an approach to stagger the usage such that the overhauls can be planned and performed uniformly throughout the year and without interruption to the power plant. Estimated costs for major overhauls are $40,000 each, including parts and additional con- tract labor to perform the overhaul, beyond power plant staff. This cost is based on R. W. Beck staff experience with major overhauls on similar units. Reserve fund requirements are based on the schedule of three top-end overhauls in each of the next two years (with uniformly staggered maintenance) and major overhauls projected for the succeeding two years. These anticipated expenditures, using a 3.5% reinvestment rate, equate to a reserve fund requirement of approximately $68,300 per year, based on current operations and maintenance trends. Operating Staff. The composition of the City's staff operating the electric utility is shown on the following table. Table 2 GALENA SYSTEM REVIEW Present Utility Staff Number Position Title of Staff Interim Manger 1 Power Plant Operators 4 Mechanic 1 Groundsman 1 Lineman _0- Total 7 Based on our review of data, the Project operates 24 hours per day, seven days per week, 12 months per year. Operator responsibilities are to operate and provide maintenance assistance, as required, based on a three-shift per day schedule. As the power plant also Tepresents the main electric department yard, area personnel are at this facility on a con- tinual basis. It was assumed that scheduled maintenance is performed during the day shift on idle equipment tagged out from operation. During the evening and night shift, it was also assumed no more than one operator is available to handle operating responsibilities, such as the scheduling of a change in load. The City currently plans to add one lineman in mid-May on a seasonal basis. We under- stand this person's primary duties will be to maintain plant electrical and distribution systems. Galena System Review Page 10 Based on the above information, R. W. Beck believes that the historical and currently planned staff addition for a total of 7 1/3 GEU personnel represents the minimum level of coverage given the equipment's current method of operation. Given the inability for the power plant to be put in automatic control, one operator per shift is required to closely monitor the units. With the addition of another operator to cover days off, vacation and sick leave, four operators are required. One chief maintenance mechanic and electrician is required to perform emergency repairs and regular maintenance. The electrician and mechanic will also require journeymen-level assistance during maintenance activity. The grounds man and an operator, as available, would be used for this purpose. Additionally, a manager or supervisor is required to provide direction, coordinate administrative func- tions, set schedules, and monitor facility performance. It may be possible, however, to allocate a portion of the manager's time to other City duties. The City's current staffing level of 7 1/3 is comparable to other utilities with similar gen- eration who are responsible for performing their own maintenance. Similar utilities which operate in remote locations, such as in the Virgin and Caribbean Islands, typically have higher staff to equipment ratios. For example, we know of one utility which operates up to four diesel generation sites and has 31 employees in the operation and maintenance department. While a direct comparison cannot be made as every location has specific regional effects, we believe that the Galena facility is not overstaffed given their need to operate and maintain both the generation department and electrical distribution system equipment. In the event the plant electrical deficiencies are resolved and the facility is capable of automatic unattended operation, we believe that it is reasonable to reduce staff by one, possibly two, operators, primarily from the swing and night shifts. By "automatic opera- tion," we mean that the units are capable of automatically shedding or increasing load, sharing load, or are capable of adjusting the voltage levels of electricity produced to serve the Air Force and City loads. (A more detailed discussion on the subject of required hardware modifications is provided later in this report.) By reducing staff from four to two operators, it may be necessary to change the operator shifts from the current eight- hour shift rotation to four 12-hour shifts to allow for greater day shift coverage in the peak demand hours of the day. At night, the generators would be in automatic control and would only need attention to respond to alarm and shutdown conditions. R. W. Beck does not know if night-time loads vary significantly to render such operation a risk to maintaining the high reliability requirements. It is possible to reduce the number of operators to zero if the facility were started, loaded, monitored, and shut down from a remote location. However, given the facility's current location at the center of the generation department's operations, it is highly unlikely the need for remoting exists. In addition, the facility would have to be redesigned to accept remote operation and may not be appropriate given the cold winter extremes at Galena and the reliability requirements of the contract with the Air Force. For example, a two- Galena System Review Page 11 hour delay in restarting a unit due to a remote operation malfunction may impact deliveries to the Air Force and cause the liquidated damage clauses to be activated. Therefore, to add/resolve the capability to automatically start or stop a unit from a remote location (say, from another centrally-located City building) would not ultimately result in any further reduction of staff. This mode of operation would not necessarily reduce an operator's job tresponsibilities nor reduce the amount of time an operator should be at the facility. If sales to the Air Force decrease as expected, we have assumed they will drop uniformly across the peak load period of the day. In this case, a certain minimum number of units will still be required to be operating to serve the load and maintain availability. The need to keep a day shift operator would not be reduced. While the maintenance intervals could be extended out in time because of possibly less hours on each machine, a minimum maintenance staff already exists. Therefore, reduced Air Force loads are not likely to result in reduced staffing. In summary, the current and planned staff level is adequate, given the Facility's current operating characteristics. It is possible to reduce staff by one or two operators in the event automatic operation capabilities are developed. However, we would recommend that staff reductions occur only after automatic operation is well proven and that one operator at a time be eliminated. We believe that remoting the equipment operation will not result in a change in staff levels at this time. It should be noted that various levels of training and certification are required by state law for those working for a utility. At this time, some of the utility's staff may not meet the required standards, and this should be addressed right away. Furthermore, warranties of generation equipment may be invalid if the mechanic is not certified. Major Storm Reserve. In addition to accumulated funds for major overhauls of power plant equipment, there should be a reserve fund for distribution system emergency con- struction. The reserve fund would help provide for the reconstruction of portions of the distribution system due to major damage of poles, lines and equipment due to events such as major storms. The City's 1993 maintenance and operation budget does not appear to have an allocation for reserve funds. Consideration should be given to the accumulation of an emergency construction reserve fund by providing yearly allocations over a few-year period. After a few years if the reserve fund is not used, the accumulated fund can be rolled forward. It is difficult to quantify the amount required, especially without a closer inspection of the facilities and current insurance coverages which might provide for part of the requirements. Annual deposits to such a fund were not included in the development of the revenue requirements or rates. Galena System Review Page 12 REMOTE OPERATION Existing Equipment. The generating core of the Power Production system at Galena is comprised of six Mitsubishi engine generator sets. The three-phase, 4,160-volt alternating generators are each solidly grounded and are Wye wound. The voltage control regulators have not been identified at this time. The engines are equipped with automatic synchro- nizers and speed controllers. A Square-D "SyMax" Programmable Logic Controller (PLC), which is capable of load sharing and automatic synchronization, is installed but has apparently never been successfully used due to faulty equipment. Load sharing and start/stop operation is manually performed by the operator. The generation bus is entirely 4,160 volt with two main feeds. One feed is to the City at 4,160 volt (4160GrdY/2400) and the other is connected to the local air base which delivers power at 24,940 volts (24.9GrdY/14.4kV). A substation which serves the 24.9GrdY/14.4 kV transmission line to the Galena Air Force Station consists of two, three-phase 4,160 V/24.9 V step-up transformers connected to the main 4,160 volt bus via an underground cable. Switch gear and generating equipment are protected by the follow- ing devices and or breakers: Generator overcurrent protection or Device 51-27R Generator underfrequency protection Device 81U Reverse power protection Device 32R "Limited" undervoltage protection Device 27 eoeee It should be noted that Neubauer study stated that Device 27 and Device 32R have clearly been identified not of “utility grade" and are, therefore, not consistent with acceptable power industry standards. Current Operation. Although the plant was engineered and constructed with equipment which was intended to allow for fully automated control, the facility has not demonstrated the capability of automatic, isochronous kVA load sharing, where the units are able to stop, start and sequence automatically. It is our understanding that the units can now be individually started and synchronized automatically and may be operated in "droop" mode, or with one unit selected "isochronous" or constant frequency, with this lead unit requiring manual adjustment of the speed when the load changes. When a unit is brought on- or off-line, it is not "soft-loaded" or unloaded and can cause considerable system perturba- tion, depending upon the current load. Review of Remote/Automatic Start and Load-sharing System Requirements. The data available to us with regard to original concept is limited. It was also determined by the Neubauer study that the "As Built and Modified" documentation is inaccurate and lacking. Galena System Review Page 13 Review of the limited available data indicates that the switchgear was originally intended to be fully automatic and capable of automatic synchronization and load sharing. There is no apparent reason why load sharing and soft-loading cannot be achieved based on our limited review. For automatic, isochronous, reactive (kVA) load-sharing operation where an operator would initiate stopping and starting of units and the units would then ramp up and down smoothly, the Facility does not appear to require much new equipment. An in- depth design review would be required to be performed up front, and the review should include system protection and relay coordination (as discussed in the Neubauer report). The apparent lack of as-built documentation will no doubt increase this effort and addi- tional work may be necessary as a result of the design review. The attached estimate assumes existing equipment is operational and adequate. To bring the power plant to the point where units can be automatically started, stopped and sequenced in response to changing loads is harder to quantify. At the best, it would be a matter of upgrading or reprogramming the PLC and adding some additional input and output devices. The following estimate is based on mostly reprogramming and assumes the system was reviewed in detail up front. Galena Diesel Generating Facility Cost Estimate for Load Share Upgrade Install six Woodward AGLC (Auto Gen Load Control) at $2,000 ea. x Engineering Review of overall electric systems Bly : Additional Estimate for Automatic Sequencing Reprogramming of PLC, hardware modifications $30,000 The sophistification of the other controls must also be considered since the HVAC system, fire suppression system, and other controls are not fully automated and may need to be upgraded as well. However, with the above modifications made to the facility, the rec- ommendations of the Neubauer report implemented to the extent deemed necessary, and the system fully operational in the automatic mode, it may be possible to reduce one to two operating staff positions. Based on the data provided by the City, we have estimated that an operator's annual salary is approximately $45,000 inclusive of benefits. We would, therefore, recommend the City consider the costs, benefits, risks, and merits of automatic and/or remote operation as a means to assist in keeping annual operating costs down. Galena System Review Page 14 One risk noted in the Neubauer study included an increased chance of not meeting the Air Force reliability requirements merely because there is a higher reliance on automatic operation failure and the resulting time required to restart units. However, we understand that load management software can be used to virtually eliminate this risk and allow the facility to be unmanned, if desired. One particular cost that should be considered is any increased insurance premiums due to unmanned operations. SYSTEM IMPROVEMENTS Reviews of the City's electrical generation and distribution system indicate that improve- ments to the system should be performed in order to assure the reliable operation of the system in the future. The Neubauer study identifies necessary important improvements for both protective system upgrades and system enhancements. After reviewing the study report, R. W. Beck concurs with the need for the majority of the recommended improve- ments and with the urgency of implementing the higher priority improvements. Protection system upgrades required, some of which are urgently needed, include the con- version of the generators to resistance grounding and the installation of additional protec- tive relaying for each generator to provide more sensitive and yet more reliable protection for the generator alternators. Protective relaying improvements would involve better over/under voltage relays, alternator differential protection, stator temperature protection, over/under frequency relaying, and loss-of-field protection. Neubauer has estimated that the necessary work will cost $128,450 in present 1993 dollars. System enhancements that should also be considered include the isolation of the genera- tion system from distribution ground faults on the City feeder by the installation of a delta - wye connected transformer, and improvements to surge protection and voltage regula- tion. Based on Neubauer's cost estimate data, the recommended improvements, in addition to the $128,450 previously described, would cost approximately $146,500 to in- stall. This estimate is based on the ability of completing certain lesser-cost alternatives than total replacement of the step-up transformer identified in the Neubauer study. In order to provide for the protection system upgrades and system enhancements on a well-engineered and orderly basis, a few of the key recommendations should be enacted as soon as possible with the remaining improvements performed over the next two years. Funding of portions of the work from additional capital sources may be desired so that limited operations and maintenance funds are not sacrificed. Galena System Review Page 15 REVISED FY 93 BUDGET The City has provided us with their FY 93 budget for GEU. This budget, provided in detail in Appendix 1 to this report and summarized in Table 3, is based on energy sales of 9,700,000 kilowatt-hours and generating requirements of approximately 10,800,000 kilo- watt-hours. In order to facilitate our review of this budget, we have re-categorized certain budget line items to categories found elsewhere in the utility industry. Based on the dis- cussions provided in the previous sections, we have made certain modifications to the City's budget by reducing some components and adding to others. Overall, the adjusted operating budget is higher than the City’s. Table 3 GALENA SYSTEM REVIEW FY 93 Operating Budget - Non Fuel City Adjusted Description Budget Budget Direct staff salaries and benefits $314,005 $314,000 Misc./overhead/administration 307,257 310,000 Normal Planned Maintenance Generation 92,500 55,000 Distribution 16,500 16,500 Spare Parts/Consumables/Supplies 72,000 72,000 Vehicle/fixed assets maintenance 36,600 36,600 Major Overhaul Reserve & Contingency: Equipment Repair 20,000 0 Top-/Bottom-end Overhaul(1) 0 68,300 Contingency(2) 0 6.800 Total $858,862 $879,200 (1) Estimated annual contribution required to perform a top-end overhaul at 8,000 hours of service and a bottom-end overhaul at 16,000 hours of service of each unit. (2) Assumed to be 10% of overhaul reserve. COMPARISON TO ALASKAN UTILITIES Comparison of a particular electric utility's operating results with other utilities is fairly subjective since utilities can vary in numerous ways. Such differences can include loca- tion, the type of utility (7.e., municipal, private, or cooperative), the amount of peak and energy sales, the number of generating units in operation, number of customers, number of customers per mile of distribution, and other factors. Since no two utilities are alike, comparison shows only expected ranges for a particular utility to fall into, not an exact point. Galena System Review Page 16 Total costs of operation were also compared to other Alaskan electric utilities. Table 4 and Figure 1 provide the most recent annual operating data available from the Alaska Public Utilities Commission ("APUC") for 15 utilities with sales around that amount incurred by the GEU. In order to make the comparison between these utilities and GEU as consistent as possible, the following adjustments were made for the comparison. 1. Fuel was not included since delivered costs can vary significantly throughout the state. 2. Depreciation was also excluded since some utilities could have obtained operating facilities through grants while others may have had to issue debt or obtain loans. 3. Interest on debt, trustee fees, and other related expenses were excluded for the same reason as 2. above. 4. The amounts shown for the City's FY 93 budget have been de-escalated by the assumed annual inflation rate of 4 percent. Two additional points should be made about the City's FY 93 budget. First, it is the City's understanding that the Department of Environmental Conservation will require the City and other utilities to deposit into reserve funds for PCB and oil spills an amount based on fuel storage capacity. The City has informed us that their obligation under this require- ment is approximately $367,500 which they plan to meet over a period of several years. No such deposits are included in the FY 93 budget, and it is unknown whether or not the operating data of the other utilities includes comparable deposits. Second, the adjusted budget includes a deposit for overhaul reserves, and it is unknown whether or not other utilities in the state make such deposits. Such a deposit, however, is not considered an expense in accounting terms, and should not be included on those forms filed with the APUC. Once a major overhaul is performed, the cost is traditionally amor- tized over several years. As can be seen on Figure 1, GEU's operating costs fall within what could be expected. Such comparisons are not a complete validation of the City's budget since the utilities being compared may have operating budgets that are too low or too high. Galena System Review Page 17 Table 4 GALENA SYSTEM REVIEW Alaskan Utility Comparison - Adjusted Data Date of Energy Annual Expenses(1 ) Utility Type Data Sales (Dollars) —_ (cents/kKWh) Nome Muni 12/31/92 30,941,764 1,931,216 6.2 St. Paul Muni 6/30/92 5,039,467. =. 377,528 75 Galena -FY 92 Muni 6/30/92 8,432,000 + 652,845 77 Kotzebue Co-op 12/31/91 16,685,763 1,324,943 79 Unalakleet Co-op 12/31/91 3,285,810 = 277,107 8.4 Galena - FY 93 (City) Muni 6/30/93 9,700,000 825,823(2) 8.5 Galena - FY 93 (Adj) Muni 6/30/93 9,700,000 845,385(2) 8.7 Naknek Co-op 12/31/92 18,556,438 1,613,097 8.7 King Cove Muni 6/30/92 1,933,727 168,332 8.7 Nushagak Co-op 12/31/91 14,789,131 1,343,110 9.1 Ft. Yukon Pvt 4/30/92 2,064,063 194,155 9.4 Yakutat Co-op 6/30/92 4,837,320 523,597 10.8 McGrath Pvt 9/30/92 2,755,052 369,846 13.4 Sand Point Pvt 12/31/92 3,621,875 = 510,745 14.1 Northway Pvt 1231/91 1,398,603. 214,551 15.3 Cold Bay Pvt 12/31/91 3,179,556 = 490,287 15.4 Tanana Pvt 12/31/91 1,462,158 + = 269,329 18.4 INNEC Co-op 6/30/92 1,872,824 482,974 25.8 (1) Does not include fuel, depreciation, and debt related expenses. (2) Deflated by 4% to 1992 dollars. Galena System Review Page 18 mataay waisks DuajvD 61 280g cents/kKWh rT Figure 1 GALENA SYSTEM REVIEW Non-fuel Operating Cost Comparison Galena FY 92 Galena FY 93 8 bey . . . . t t t 10 15 20 Sales In Milllons of kWh 25 30 35 ALLOCATED ADMINISTRATION COSTS All utilities have certain administrative functions and costs that are incurred during the course of operations. These functions can include general management, payroll, billing, and other related functions. If the utility is a cooperative or private utility, these adminis- trative functions are normally conducted by in-house personnel and charged directly to utility operations. A city which owns and operates an electric utility, on the other hand, usually has these administrative functions for several different departments and allocates a portion of the incurred costs to each department. The Energy Authority has expressed concern that the City may be allocating a disproportionately large amount of these administration costs to GEU. Although the GEU's total costs are in the range to be expected as compared to other utili- ties in the state, that in itself is not a clear indication that a reasonable amount of admini- stration costs are being allocated. The City has informed us that administration costs are charged to the various departments based on a percentage of the costs that each depart- ment incurs. For example, the administration costs charged to the medical clinic are 3 percent of the total expenses incurred by the medical clinic before the allocation. GEU's costs used in determining the administration allocation are net of fuel expenses. Admini- stration allocation data is provided in the following table for the fiscal years ended June 30, 1991 and 1992. Table 5 GALENA SYSTEM REVIEW Administration Cost Allocation Fiscal Year 1991 Fiscal Year 1992 Percent Allocated Admin Percent Allocated Admin Applied) Dollars) Percent Applied) Dollars(2) Percent Medical Clinic 3% $8,394 1.5% 3% $7,903 18% Dental Clinic 3,137 0.6% 0 0.0% Mental Health Grant 4.400 0.8% 0 0.0% Mental Health Clinic 3% 4,400 0.8% 3% 5,616 1.3% Alcohol Program 4,415 0.8% 2,625 0.6% EMS 0 0.0% 0 0.0% Municipal Grants 0 0.0% 0 0.0% Paraprofessional 3% 0 0.0% 3% 7,935 18% School 0 0.0% 0 0.0% Public Works 5% 8,699 1.5% 5% 7,809 1.8% Electric Department 5% 38.874 _69% 5% 100.699 _22.7% Total Allocated $72,319 12.8% $132,587 29.8% Non Allocated 493,988 _87.2% 311.811 _70.2% Total Administration $566,307 100.0% $444,398 100.0% (1) Percent applied to departmental costs to determne the amount of administration costs allocated to that department. Percentages provided by the City. (2) Per audited financial statements. Galena System Review Page 20 The City’s auditors, Mikunda, Cottrell & Co., have informed us that villages throughout the state allocate administration costs to their various departments in a number of different ways, and a "normal" manner does not seem to exist. Because of this wide variety in allo- cation, Mikunda, Cottrell & Co. does not attest to the fairness of an allocation, although they perform their audits in accordance with generally accepted auditing standards. Such standards require that "...an audit also includes assessing the accounting principles used and significant estimates made by management...." A more precise allocation would be based on time cards and equipment usage forms filled out by administrative personnel. Other costs which cannot be charged directly, such as building rents, furniture costs, and others, could be allocated based on those amounts directly allocated. Since the City does not normally keep such records, another possible method of allocation would be to use departmental labor. Table 6, below, provides the allocated administration charge to each department for fiscal year 1992 based on this method of allocation. Table 6 GALENA SYSTEM REVIEW Administration Cost Allocation - Labor Method (Fiscal Year 1992) Departmental Allocated City Department Labor) = Percent ~=— Admin Medical Clinic $127,805 13.6% $60,468 Dental Clinic 71,652 7.6% 33,901 Mental Health Grant 90,362 9.6% 42,753 Mental Health Clinic 9,402 1.0% 4,448 Alcohol Program 43,297 4.6% 20,485 EMS 0 0.0% 0 Municipal Grants 0 0.0% 0 Paraprofessional 92,261 9.8% 43,651 School (2) 0 0.0% 0 Public Works 77,922 8.3% 36,867 Electric Department 210.067 22.4% _99.389 Subtotal $722,768 76.9% 341,962 Administration _216.509 23.1% _102.436 Total Salaries $939,277 100.0% $444,398 (1) Per audited financial statement. (2) Not included in allocation. Galena System Review Page 21 As can be seen by Tables 5 and 6, the amount of administration charged to GEU using the City's method is only slightly higher than that allocated when using departmental labor as the basis of allocation. Given the problems that the utility has incurred over the past sev- eral years, though, one would expect that the City's administration costs might be weighted towards the utility. Therefore the percentage utilized by the City for charging administration to GEU appears to be somewhat reasonable for FY 92 and probably FY 93. However, the City's method is subject to variances which could disqualify it in the future. Should labor costs shift among the various departments or GEU's operating costs change in relation to its labor costs, the percentage used by the City should be re-examined. Galena System Review Page 22 II. COST OF SERVICE ANALYSIS GENERAL OVERVIEW Cost-of-service studies are the basis for setting electric rates that a utility charges its cus- tomers. While not an exact science, these studies have been refined over the years such that industry-accepted practices exist for allocating utility costs to certain customer classes or to a single, large customer. They have been refined such that cost-of-service analyses are required with most rate filings with a state public utility commission or the Federal Energy Regulatory Commission to ensure that each customer class of a filing utility is paying its proper share of costs. The first step in carrying out a cost-of-service study is to determine the utility's revenue requirements. The revenue requirements are the funds that the utility must collect through sales in order to cover the cost of providing service. Typically, this is the sum of: 1. Operating expenses, 2. Taxes or in lieu-of-tax payments, 3. Debt service requirements and coverage requirements Telated to debt service, 4. Plant investment funded through revenues (capital expenses), 5. Non-operating expenses and revenues, and 6. Returns to shareholders. Depreciation expenses are sometimes used instead of capital expenditures and principal payments on debt. However, if the amount of depreciation funded through rates is less than the capital and principal payments, the utility may experience a cash deficit. There- fore given the City's fiscal health, we have based the cost-of-service analysis and rate determination by using the cash outlays as listed above and not depreciation. Since the utility is municipally owned, there are no returns to shareholders. The revenue requirements are normally based on some period of time which is not histori- cal. This period is commonly referred to as the "Test Period" and is typically for a period of one to three years. Galena System Review Page 23 Once the revenue requirements have been determined, the next step is to allocate these costs to the various customer classes. The general philosophy in this step is to assign each class those costs that it is responsible for causing to be incurred. Accordingly, budget line items are allocated to each customer class in varying methods depending on the type of cost. Classification of costs and methods of allocation are described below. Fixed Costs. Certain costs are considered "fixed" in nature in that they are not dependent on fluctuations in generating levels but rather the size of the entire utility system. Such costs include principal and interest payments on debt, capital expenditures, certain salaries, taxes, and certain other costs. These costs are dependent on the size of the utility system (i.e., installed genera- ting capacity, the length of the distribution system, and other factors), which in turn is dependent to a large extent on the peak demand of the customers. Accord- ingly, non-coincident and coincident peaks are typically used for allocation. Variable Costs. Some costs that an electric utility incurs are directly dependent on the amount of energy produced. Such costs, including fuel, lubrication, certain maintenance costs, and others, are classified as variable and are allocated to each customer class based on energy needs. Customer Costs. Other costs are directly related to the number of customers that a utility has. These typically include meter reading and related costs and are allo- cated based on the number of meters. The above discussion should not be considered all-inclusive as a number of other methods of allocation exist. Such factors include plant-in-service, subtotals of certain costs, and others. The methods used are dependent on the nature of the cost to be allocated, its telationship to each customer class, the availability of data, and other factors. GENERATING REQUIREMENTS Detailed estimates of future loads were beyond the scope of work contemplated for this analysis. However, some sort of estimate of future loads is required since 1.) some of the revenue requirements of the City's electric utility are based on the amount of energy sales and 2.) these estimates will also be used in allocating costs between the customer classes. Table 7 shows the energy sales recorded by the City for the past three years. As stated previously, sales to the Air Force began in March 1991, but the City experienced several prolonged outages such that uninterrupted deliveries did not begin until September 1991. Part of the Air Force sales includes certain customers near the Air Station that have been supplied power by the Air Force in the past. These customers, commonly referred to as non-DoD users, will be transferred to the City once a final agreement between the City Galena System Review Page 24 and Air Force is reached. The Air Force has informed the City that the non-DoD users average 25,000 kilowatt-hours per month. Table 7 GALENA SYSTEM REVIEW HISTORICAL ENERGY SALES (kilowatt-hours) FYoo =6FYOL = FY City 2,386,474 2,295,078 2,185,848 Air Force(1) QO 1,567,250 6,246,200 Total 2,386,474 3,862,328 8,432,048 (1) Includes sales to non-DoD users. For its planning purposes, the City has been using approximately 7.5 million kilowatt- hours for annual Air Force sales. However, recent events have indicated that this may be too large of figure. The Air Force recently announced that it would reduce operations at the Galena Air Station, and base personnel have indicated to the City that they may take only the minimum guaranteed power consumption stipulated in the contract, 390,000 kilowatt-hours per month. In their proposal to transfer the non-DoD users to the City, however, the Air Force has stipulated that this minimum consumption will be reduced to 365,000 kilowatt-hours per month. For purposes of our analysis, we have assumed that future sales to consumers other than the Air Force will remain approximately the same as historical levels. For Air Force sales, we have assumed for the base case a level of sales equal to the minimum guaranteed. power consumption. The actual amounts assumed for the analysis are shown in the following table. Table 8 GALENA SYSTEM REVIEW ASSUMED ENERGY SALES (kilowatt-hours) City Sales: Existing 2,200,000 Non-DoD 300.000 Subtotal 2,500,000 Air Force 4.380.000 Total Sales 6,880,000 Galena System Review Page 25 REVENUE REQUIREMENTS Expenses in net income statements include operating expenses, interest expenses, depre- ciation, and certain other amounts. Principal payments of debt and capital expenditures are not included as expenses. However, basing revenue requirements on this method of accounting may result in a cash shortage since principal payments and capital expenditures funded from current revenues may be greater than depreciation. Therefore, revenue requirements used in our analysis are projected on a cash basis and include expenses as well as principal payments on debt and funds required for capital expenditures. Since principal payments and capital expenditures are included, depreciation and amortization of plant are not included in the projections. In developing an estimate of future revenue requirements, we have had to make certain assumptions in addition to those detailed earlier in this report. These additional assump- tions are described in the following table. Table 9 GALENA SYSTEM REVIEW Additional Assumptions General Inflation - 4% per year Fuel Data: FY 93 price - $1.1525 per gallon Escalation - 4% per year (no real escalation) Generating Efficiency - 14.5 kWh (generation) per gallon Station Use/Distribution Losses - 11.7% of sales Capital Improvements - Funded with current revenues Administration Allocation - 5% of revenue requirements (excluding fuel) ‘Wheeling Charge to Air Force for non-DoD users - 1.5 cents/kWh The City's operating budget for the fiscal year ending June 30, 1993, was used as the basis of estimating future revenue requirements. Projections for each budget component over the three-year study period were accomplished by applying either an assumed rate of inflation or a combination of inflation and load growth. Prior to these projections being made, however, certain adjustments were performed. These include: 1. Deposits for the oil spill reserve fund were included and based on funding the total requirement ($367,500) over a period of five years. 2. Deposits to the Air Force Reserve Fund were included based on three equal payments. This fund was established such that should the Air Force terminate the contract, the amount received by the City from the remaining fixed monthly payments combined with the amount in the Air Force Reserve Fund and other Galena System Review Page 26 bond funds would be sufficient to pay off the bonds. The amount left to be deposited into this fund is $124,618, although these deposits are subordinate to the electric utility's other costs. . Capital expenditures for system improvements were assumed to be funded from current revenues and therefore included with the revenue requirements. . The City's budget was based on annual energy sales of 9.7 million kilowatt- hours, or approximately 2.8 million kilowatt-hours more than assumed for the base case. Therefore, the spare parts and consumables components of the operating budget have been reduced accordingly. The schedule for top- and bottom-end overhauls would remain approximately the same, and reserve fund deposits are held the same at $68,300 per year. . Labor costs are increased at rates slightly higher than inflation to account for salary increases incurred as GEU staff completes specified training programs. Total revenue requirements are summarized in Table 10 and provided in more detail in Appendix 1 to this report. Table 10 GALENA SYSTEM REVIEW Projected Revenue Requirements Three-Year FY 94 FY 95 FY 96 Total Operating Expenses: Personnel/Benefits $334,952 $357,384 $381,413 $1,073,749 Fuel 635,263 660,674 687,101 1,983,037 Supplies 67,336 70,029 72,831 210,196 Maintenance 181,180 185,423 189,836 556,439 Allocated Administration 70,841 72,651 67,942 211,434 GEU Administrative(1) 299.823 306,975 314.415 921.214 Subtotal $1,589,395 $1,653,136 $1,713,538 $4,956,069 Debt Service 354,981 354,668 358,814 1,068,463 Air Force Reserve Fund 41,539 41,539 41,539 124,618 Capital Improvements 137,000 137,000 0 274,000 Other (Revenues) Expenses —(40.000) __(40,000) _ (40.000) __(120.000) Total Revenue Requirements $2,082,915 $2,146,343 $2,073,891 $6,303,150 (1) Includes payments to the oil spill reserve fund. ADEQUACY OF REVENUES Once the revenue requirements and billing data have been established, existing rates can be tested for adequacy or deficits. Revenues were based on the existing rate established for Galena System Review Page 27 the non-Air Force ratepayers (31.0 cents per kilowatt-hour) and the payments provided for in the City's contract with the Air Force. Based on the assumed energy requirements and the terms of the existing contract, the average Air Force rate equals 24.3 cents per kilowatt hour for the three-year period. It is common in the electric utility industry for rates to be lower for large customers such as this. As can be seen in Table 11, a revenue shortfall exists in each year of the study period. It should be noted, however, that once the Air Force Reserve and the Oil Spill Reserve Funds are fully funded, the deficits shown in the table would be reduced by $115,039 per year. Table 11 GALENA SYSTEM REVIEW Adequacy of Revenues - Existing Rates Three-Year EY94 EY95 EY96 Total Revenues: City Sales $775,000 $775,000 $775,000 $2,325,000 Air Force: Levelized Fixed Charge 154,811 154,811 154,811 464,433 O&M Charge 492,475 512,174 532,660 1,537,309 Energy Charge) —_381.853 397.114 413,011 __1,191,978 Subtotal 1,029,139 1,064,099 1,100,482 3,193,720 Total Revenues $1,804,139 $1,839,099 $1,875,482 $5,518,720 Revenue Requirements $2,082,915 $2,146,343 $2,073,891 $6,303,150 Net Surplus (Deficit) ($278,776) ($307,244) ($198,409) ($784,430) (1) Net of any payments for interest on fuel loans. COST ALLOCATION Revenue requirements were then allocated to the two customer classes based on the allo- cation methods and customer class data described earlier. In order to provide some stability to the City's electric rates, the total revenue requirements for the three-year period were used. As is typical for multi-year test periods, the allocators are based on estimates of certain factors during the first year of the test period. Details of the cost-of-service allocation are provided in Appendix 2 to this report; however, a summary is provided in Table 12. The analysis summarized in the table shows that these allocated costs, when compared to the respective revenues, are less than those required from each customer class. Galena System Review Page 28 Table 12 GALENA SYSTEM REVIEW Cost of Service Summary - Existing Rates Total Air Force System City Total Fuel O&M Capital Revenues $5,518,720 $2,325,000 $3,193,720 $1,191,978 $1,537,309 $464,433 Revenue Requirements 6,303,150 2,560,044 3,743,107 1,262,457 1,731,500 749,150 Margin: Dollars ($784,430) ($235,044) ($549,387) ($70,479) ($194,191) ($284,717) Percent (14.2%) (10.1%) (17.2%) (5.9%) (12.6%) (61.3%) SENSITIVITY ANALYSIS A number of factors can affect the overall revenue requirements of GEU, the cost alloca- tion factors, and the resulting cost of service. Such factors can include, but are not limited to, reliability of generating units, fuel efficiency and per-unit fuel costs, repairs due to natural and other causes, labor rates, cost of parts, generating requirements, and other factors. At the request of the City, we have performed our analysis using two alternative levels for generating requirements. These two cases are described below, and the results are pro- vided in Table 13. HIGH AIR FORCE LOAD In anticipation of reduced operations at the Air Station, the base case has been performed using the minimum Air Force requirements as specified in its contract with the City and adjusted for the transfer of non-DoD customers to the City. However, should operations not be reduced, the results of our analysis would be quite different. For purposes of this alternative case, we have assumed total energy sales as included in the FY 93 City budget (9.7 million kilowatt-hours per year). The revenues collected from the Air Force under this scenario are increased only by the additional fuel revenues collected by the City. The average rate paid by the Air Force is equal to approximately 18.3 cents per kilowatt-hour for the three-year period under the terms of the existing contract. Galena System Review Page 29 Two primary differences in cost allocation exist from the base case. First, the revenue requirements are greater reflecting increases in fuel usage and certain operating costs. Second, a larger share of the costs are allocated to the Air Force since they would be using a larger share of generation output. No AIR FoRcE LOAD The City has also requested us to base our analysis on the Air Station shutting down per- manently. In performing such an analysis, we have had to make certain assumptions which include: 1; The Air Station would probably not shut down immediately but probably over some period of time. We have, therefore, assumed the minimum Air Force load for FY 94 and none thereafter. Such a closure may decrease the other load requirements of the City. However for purposes of this analysis, we have assumed that these other loads remain at the same level as that assumed in the base case. The Air Force/City contract is assumed to be terminated on June 30, 1994, at which time the remaining fixed payment charges are paid by the Air Force to the City. Such funds and those in the Air Force Reserve Account and Debt Service Reserve Fund are then assumed to be used to retire debt. With less generation, the fuel tank farm could be reduced in size, and the oil spill fund requirement could be reduced accordingly. For purposes of this analysis, we have decreased the requirement by 25 percent. . The closure of the Air Station would result in the City having significant amounts of excess capacity. Revenues (or net cash outlflows) from the sale or disposal of excess units have not been included. With the reduction in the number of units, staff can be reduced to approxi- mately 2 people with maintenance contracted out. . Other operating costs and revenue requirements have been adjusted in order- of-magnitude only and should be verified if the Air Station closure becomes imminent. Galena System Review Page 30 Base Case: Revenues Rev. Reqmnts. Margin: Dollars Percent High Air Force Load: Revenues Rev. Reqmnts. Margin: Dollars Percent No Air Force Load: Revenues!) Rey. Reqmnts.(2) Margin: Dollars Table 13 GALENA SYSTEM REVIEW Cost of Service Summary - Existing Rates Total System $5,518,720 6.303.150 ($784,430) (14.2%) $6,286,158 7.186.029 ($899,871) (14.3%) $3,677,326 3.642.887 $34,439 Air Force City Total Fuel O&M Capital $2,325,000 $3,193,720 $1,191,978 $1,537,309 $464,433 2.560.044 3.743.107 1.262.457 1.731.500 749.150 ($235,044) ($549,387) ($70,479) ($194,191) ($284,717) (10.1%) (17.2%) (5.9%) (12.6%) (61.3%) $2,325,000 $3,961,158 $1,959,416 $1,537,309 $464,433 2.514.701 4.671.327 2.075.272 1.835.908 760.147 ($189,701) ($710,169) ($115,856) ($298,599) ($295,714) (8.2%) (17.9%) (5.9%) (19.4%) (63.7%) (1) Based on City loads remaining at 2.5 million kWh per year. Closure of the Air Station may decrease these loads and revenues could be less. Includes revenues from the Air Force during FY 94 but none thereafter. Also includes an estimated $323,187 of bond-related funds remaining after bonds are paid off. (2) Preliminary estimates. Galena System Review Page 31 IV. DEFICIT REDUCTION There are several ways for the City's deficit to be reduced. These include: 1. Foregoing maintenance and other costs. This is not advocated since safety becomes an issue, and operating costs tend to be higher in the long-term. Contracting out maintenance work is probably not a cost-effective option given the labor rates paid to the City mechanic and the number of generators in use. However, should the Air Force contractually reduce demand and energy usage enough so that one or two generators can be permanently shut down, then contracting out maintenance may become a possible alternative. Implementing the improvements identified in this report that would allow for possible operator staff reductions. The costs of such improvements will add to the deficit in the short-term. Obtaining debt such that the capital expenditures on the distribution system can be amortized over a number of years. Obtaining financial assistance from the State to pay off existing debt or to pay for the capital expenditures. Increase electric rates to its consumers. However if the Air Force refuses to negotiate changes in the contract, the electric rates to the rest of the consumers would have to be increased by 34 percent to eliminate this deficit. Since each option is not necessarily mutually exclusive in that several combinations can exist, it is somewhat difficult to state how much of any option is required. Table 13 is meant to show several different alternatives that might be possible, but it should not be considered to be complete. Galena System Review Page 32 Table 14 GALENA SYSTEM REVIEW Cost of Service Summary - Existing Rates (4) G City | Air Force Three-Year ————r ae | Base | Low | BaseCaseResults | 31.0 | Contract | ($784,430) [1 | Low |Citypayallofdeficit Ss «41.5 | Contract | te eee tee [ 2b | Low | 2a with Cit g Test Se eta ee | 4a | High | AFpayCostofService | 31.0 | Cos | [40 | High | 4a with City paying rest Column 1: Case number. Column 2: Low = 4.38 million kWh/year; High = 7.2 million kWh/year. Column 3: Case Description. Column 4: City Rate in cents/kWh. Existing rate is 31.0 cents/kWh. Column 5: Contract - Air Force continues to pay on existing contractual terms. COS - Air Force pays according to Cost of Service. Column 6: Resulting deficit over study period. Galena System Review Page 33 EXHIBITS BASE CASE Air Force Load - 4.38 million kWh/yr City Load - 2.5 million kWh/yr Input Assumptions: General Inflation Operator Labor Inflation Lineman/Mechanic Labor Inf] Base Fuel Rate Real Fuel Escalation Generating Efficiency Fuel Heat Content System and Other Losses Resulting Efficiency: Non-DeD Wheeling Chg APPENDIX 1 GALENA SYSTEM REVIEW Revenue Requirements 4% 8% 5% $1.1525 per gallon 0% 9,327 BTU/AWh 135,239.7 BTU/gallon 11.7% of sales 14.5 kWh generation/gallon 13.0 kWh sales/gallon 10,418 BTU/kWh sales 1.5 cents&Wh EYS3 FY EY95 2,200,000 2,200,000 2,200,000 Q 300,000 300,000 2,200,000 2,500,000 2,500,000 500,000 4,380,000 4,380,000 9,700,000 6.880,000 6,880,000 2,200,000 2,500,000 4,380,000 6,880,000 10.01 10.02 10.03 10.04 10.05 10.06 10.07 10.08 20.01 20.02 20.03 20.04 20.05 20.06 20.07 20.08 20.09 20.10 20.11 20.12 20.13 20.14 30.00 30.01 30.02 30.03 30.04 30.05 30.06 30.07 30.08 30.09 30.10 30.11 30.12 30.13 30.14 30.15 35.00 PERSONNEL Total Personnel SUPPLIES Fuel Water Meter/Testing Street Lights Tools, Certificates Transformer Testing Supplies/Materials Building Repair Supplies (Generation Dept.) Supplies (Line Dept.) Tools (Generation Dept.) Lubrication/Waste Heat Total Supplies MAINTENANCE Vehicle Maintenance Supplies/Materials Building Repair/Maintenance Gas/Oil Generators Fixed Assets Transformer Testing/PCB Disposal Supplies (Gen Dept) Supplies (Line Dept) Tools (Gen Dept) Equip Repair/Overhaul Res. (Gen) Equipment Repair (Line Dept) Subtotal Equi MainuRepai: Employee Benefits Total Maintenance OPERATING LESS FUEL APPENDIX 1 GALENA SYSTEM REVIEW Revenue Requirements FY 93 Specific Fore Budget Adjustment Adjustment Eye ExY35 Ev 36.248 Inflation 37,698 39,206 40,774 14,789 Inflation 15,528 16,305 17,120 45,000 Inflation 47,250 49,613 52,093 148,000 Inflation 159,840 172,627 186,437 Q Inflation Q Q Q 244,037 260,316 277,750 296,425 $9,968 74.635 72.634 84.988 314,005 334,952 357,384 381,413 871,248 Sales/Infl 635,263 660,674 687,101 10,000 (4,000) Inflation 6,240 6,490 6,749 6,000 (2,400) Inflation 3,744 3,894 4,050 2,000 \ Inflation 2,080 2,163 2,250 3,000 Inflation 3,120 3,245 3,375 2,000 Inflation 2,080 2,163 2,250 3,000 Inflation 3,120 3,245 3,375 20,000 Inflation 20,800 21,632 22,497 600 Inflation 624 649 675 5,000 Inflation 5,200 5,408 5,624 12,000 Inflation 12,480 12,979 13,498 4,000 Inflation 4,160 4,326 4,499 5.000 Sales/Infl 3.688 3.836 3.282 943,843 702,599 730,703 759,932 2,500 Inflation 2,600 2,704 2,812 16,000 (6,300) Inflation 10,088 10,492 10,911 15,000 Inflation 15,600 16,224 16,873 25,000 (4,000) Inflation 21,840 22,714 23,622 26,000 (22,000) Inflation 4,160 4,326 4,499 3,500 Inflation 3,640 3,786 3,937 1,500 Inflation 1,560 1,622 1,687 500 (S00) Inflation 0 0 ° 12,000 Inflation 12,480 12,979 13,498 10,000 (5,500) Inflation 4,680 4,867 5,062 20,000 55,100 Constant 75,100 75,100 75,100 3,000 Inflation 3.120 3.245 3325 135,000 154,868 158,059 161,377 30,000 (11,900) Inflation 18,824 19,577 20,360 1200 Inflation 1488 L788 8.099 © 172,200 181,180 185,423 189,836 558,805 583,468 612,837 644,080 Three-year Total 117,678 48,953 148,956 518,905 Q 834,491 232.258 1,073,749 1,983,037 19,479 11,687 6,493 9,739 6,493 9,739 64,929 1,948 16,232 38,958 12,986 1.313 2,193,234 8,116 31,491 48,697 68,176 12,986 11,363 4,870 o 38,958 14,609 225,300 2.739 474304 58,761 23375 556,439 1,840,385 40.00 40.01 40.02 40.03 40.04 40.05 40.06 40.07 40.08 40.09 40.10 40.11 40.12 40.13 40.14 40.15 40.16 40.17 40.18 40.19 50.00 50.01 50.02 50.03 60.00 60.01 60.02 60.03 70.00 80.00 80.01 80.02 ADMINISTRATION Allocated Salary Overhead Professional Services Trustee and LOC Fees (Comm/Telephone/Fax ARECA/RAPA Expenses Bad Debt Oil Spill Reserve Insurance Continuing Education Travel/Per Diem Relocation/Moving Expense Meter Reading Allocated Labor Summer Labor Office Supplies Vehicle Storage Utilities Non-DoD Wheeling Charge Training Total Administration DEBT SERVICE Bond Redemption Other Debt Air Force Reserve Fund Total Debt Service CAPITAL IMPROVEMENTS Generation Department Line Department Other Total Capital Improvements TOTAL GROSS EXPENSES LESS REVENUE CREDITS Misc Rentals and Charges Interest Income Total Credits TOTAL REVENUE REQUIREMENT APPENDIX 1 GALENA SYSTEM REVIEW Revenue Requirements 81,079 5% rev. req. 55,000 Inflation 43,000 Direct 8,000 Inflation 3,500 Inflation 5,000 Inflation O 73,500 Direct 88,000 Inflation 45 Inflation 10,000 Inflation 4,033 (4,033) Inflation 1,400 Inflation o Inflation 0 Inflation 1,000 Inflation 0 Inflation 0 Inflation ° Sales Q Inflation 300,057 290,497 Direct 64,301 Direct Q $124,600 total Direct 354,798 ° Direct © $274,000 total Direct Q Direct 0 2,084,908 2,084,908 70,841 57,200 43,000 8,320 3,640 5,200 73,500 91,520 370,663 290,680 64,301 41.539 396,520 137,000 2 137,000 2,122,915 (10,000) 0,000) (40,000) 2,082,915 72,651 59,488 43,000 8,653 3,786 5,408 73,500 95,181 379,627 290,367 64,301 41539 396,207 137,000 137,000 2,186,345 (10,000) 0,000) (40,000) 2,146,345 67,942 61,868 43,000 382,357 294,513 64,301 400,353 eno 2,113,891 (10,000) (40,000) 2,073,891 211,434 178,556 129,000 25,972 11,363 16,232 220,500 285,689 146 32,465 0 4,545 ° 0 3,246 ° 0 13,500 2 1,132,647 875,560 192,903 1,193,081 0 274,000 Q 274,000 6,423,151 (30,000) £20,000) (120,000) 6,303,151 APPENDIX 2 GALENA SYSTEM REVIEW Cost Allocation 94-96 Test Year No. Allocation Description Reference| System | Air Force 1.01 Energy 0.00 6,880,000 4,380,000 2,500,000 1.02 Percent Responsibility 0.00 100.00% 63.66% 36.34% 2.01 Coincident Peak Demand (Est) 0.00 2,189 1,700 489 2.02 Percent Responsibility 0.00 100.00% 77.66% 22.34% 4.00 Plant Allocators 4.01 Vehicles 4.15 126,901 79,776 47,125 4.02 Buildings 4.03 Original 5.02 155,700 0 155,700 4.04 New Bldg. & Gen. Plant 2.02 2,361,247 _ 1,833,769 527,478 4.05 Total Buildings 2,516,947 1,833,769 683,178 4.06 Generators & Engines 4.07 Original 5.02 336,767 0 336,767 4.08 New Generators 2.02 1,488,612 1,156,071 332,541 4.09 Total Generators & Engines 1,825,379 1,156,071 669,308 4.10 Distribution System 4.11 Air Force 5.04 615,977 615,977 0 4.12 Other 5.02 785,972 0 785,972 4.13 Total Distribution System 1,401,949 615,977 785,972 4.14 Tank Farm 1.02 667,309 _ 424,828 242.481 4.15 Total Gross Plant 6,411,584 4,030,645 __ 2,380,939 4.16 Total Gross Plant with Vehicles 6,538,485 4,110,421 2,428,064 5.00 Direct Assignment 5.01 _ Direct Assignment 1 0.00 1.00 0.00 1.00 5.02 Percent Responsibilty 0.00 100% 0% 100% 5.03 Direct Aassignment 2 0.00 1.00 1.00 0.00 5.04 Percent Responsibilty 0.00 100% 100% 0% APPENDIX 2 GALENA SYSTEM REVIEW Cost Allocation 94-96 Test Year Non Air Force AIR FORCE No. Budget Categor; Ref. Costs Costs | Fue | O&M | Capital | PERSONNEL 10.01 Manager 117,678 4.15 43,700 73,978 73,978 10.02 Lineman 48,953 4.13 27,445, 21,509 21,509 10.03 Chief Mechanic 148,956 4.09 54,617 94,338 94,338 10.04 Operators 518,905 4.09 190,266 328,639 328,639 10.05 Groundman 0 4.15 0 0 0 10.06 Subtotal 834,491 316,027 518,464 0 518,464 0 10.07 _ Benefits 239,258 10.06 90,608 148,649 148,649 10.08 ‘Total Personnel 1,073,749 406,635 667,114 0 667,114 0 SUPPLIES 20.01 Fuel 1,983,037 1.02 720,580 1,262,457 1,262,457 20.02 Electricity 19,479 1.02 7,078 12,401 12,401 20.03 Water 11,687 1.02 4,247 7,440 7,440 20.04 = Meter/Testing 6,493 4.09 2,381 4,112 4,112 20.05 Street Lights 9,739 4.13 5,460 4,279 . 4,279 20.06 Tools, Certificates 6,493 4.15 2,411 4,082 4,082 20,07 — Transformer Testing 9,739 4.13 5,460 4,279 4,279 20.08 Supplies/Materials 64,929 4.16 24,111 40,818 40,818 20.09 Building Repair 1,948 4.05 529 1,419 1,419 20.10 Supplies Generation Dept.) 16,232 4.09 5,952 10,280 10,280 20.11 Supplies (Line Dept.) 38,958 4.13 21,841 17,117 17,117 20.12 Tools (Generation Dept.) 12,986 4.09 4,761 8,224 8,224 20.13 Lubrication/Waste Heat 11,513 1.02 4,184 7,330 7,330 20.14 Total Supplies 2,193,234 808,995 1,384,239 1,262,457 121,782 0 APPENDIX 2 GALENA SYSTEM REVIEW Cost Allocation 94-96 Test Year Non Air Force AIR FORCE Line Total . Allocated Allocated No. Budget Category System Costs Costs | Fur | o&m [| Capita | MAINTENANCE 30.00 Vehicle Maintenance 8,116 4.01 3,014 5,102 5,102 30.01 Supplies/Materials 31,491 4.16 11,694 19,797 19,797 30.02 Building Repair/Maintenance 48,697 4.05 13,218 35,479 35,479 30.03 Gas/Oil 68,176 4.01 25,317 42,859 42,859 30.04 Generators 12,986 1.02 4,719 8,267 8,267 30.05 Fixed Assets 11,363 4.15 4,220 7,143 7,143 30.06 Transformer Testing/?CB Disposal 4,870 4.13 2,730 2,140 2,140 30.07 Supplies (Gen Dept) 0 4.09 0 0 0 30.08 Supplies (Line Dept) 38,958 4.13 21,841 17,117 17,117 30.09 — Tools (Gen Dept) 14,609 4.09 5,357 9,252 9,252 30.10 Equipment Repair (Generation Dept.) 225,300 1.02 81,868 143,432 143,432 30.11 Equipment Repair (Line Dept.) 9,739 4.13 5,460 4,279 4,279 30.12 Subtotal 474,304 179,436 294,867 0 294,867 0 30.13 Equipment Maint/Repair 58,761 30.12 32,943 25,818 25,818 30.14 Employee Benefits 23,375 30.12 13,104 10,270 10,270 30.15 Total Maintenance 556,439 225,484 330,955 0 330,955 0 35.00 TOTAL OPERATING LESS FUEL 1,840,385 720,534 1,119,851 O 1,119,851 0 ADMINISTRATION 40.00 Allocated Salary Overhead 211,434 35.00 82,779 128,655 128,655 40.01 Professional Services 178,556 35.00 69,907 108,649 108,649 40.02 Trustee and LOC Fees 129,000 4.15 47,904 81,096 81,096 40.03 Comm/Telephone/Fax 25,972 35.00 10,168 15,803 15,803 40.04 ARECA/RAPA Expenses 11,363 35.00 4,449 6,914 6,914 40.05 Bad Debt 16,232 5.02 16,232 0 0 40.06 Oil Spill Reserve 220,500 1.02 80,124 140,376 140,376 40.07 Insurance 285,689 4.15 106,090 179,598 179,598 40.08 Continuing Education 146 35,00 57 89 89 40.09 Travel/Per Diem 32,465 35.00 12,710 19,754 19,754 40.10 — Relocation/Moving Expense 0 35.00 0 0 0 40.11 Meter Reading 4,545 5.02 4,545 0 0 40.12 Allocated Labor 0 35.00 0 0 0 40.13 Summer Labor 0 35.00 0 0 0 40.14 — Office Supplies 3,246 35.00 1,271 1,975 1,975 40.15 Vehicle Storage 0 4.01 0 0 0 40.16 Utilities 0 35.00 0 0 0 40.17 Non-DoD Wheeling Charge 13,500 5.02 13,500 0 0 40.18 Training 0 35.00 0 0 0 40.19 Total Administration 1,132,647 449,737 682,910 0 682,910 0 APPENDIX 2 GALENA SYSTEM REVIEW Cost Allocation 94-96 Test Year Non Air Force AIR FORCE Line Allocated Allocated Cost Components of Alloc. Costs No. Budget Categor; Costs costs [Fut [0am | Capital_| DEBT SERVICE 50.00 Bond Redemption 875,560 4.15 325,139 550,421 550,421 50.01 Other Debt 192,903 5.02 192,903 0 0 50.02 Air Force Reserve Fund 124,618 4.15 46,277 78,341 78,341 50.03 Total Debt Service 1,193,081 564,319 628,762 0 0 628,762 CAPITAL IMPROVEMENTS 60.00 Generation Department 0 4.09 0 0 0 60.01 Line Department 274,000 4.13 153,612 120,388 120,388 60.02 Other 0 5.02 0 0 0 60.03 Total Capital Improvements 274,000 153,612 120,388 0 0 120,388 70.00 TOTAL GROSS EXPENSES 6,423,151 2,608,782 3,814,369 1,262,457 1,802,761 749,150 LESS REVENUE CREDITS 80.00 Misc Rentals and Charges (30,000) 70.00 (12,185) (17,815) (17,815) 80.01 _Interest Income (90,000) 70.00 (36,554) (53,446) (53,446) 80.02 Total Credits (120,000) (48,738) (71,262) 0 (71,262) 0 TOTAL REVENUE REQUIREMENT 6,303,151 2,560,044 3,743,107 1,262,457 1,731,500 749,150 HIGH AIR FORCE LOAD Air Force Load - 7.2 million kWh/yr City Load - 2.5 million kWh/yr Input Assumptions: General Inflation Operator Labor Inflation Base Fuel Rate Real Fuel Escalation Fuel Heat Content System and Other Losses Resulting Efficiency: Non-DoD Wheeling Chg APPENDIX 1 GALENA SYSTEM REVIEW Revenue Requirements 4% 8% 5% $1.1525 per gallon 0% 9327 BTUKWh 135,239.7 BTU/gallon 11.7% of sales 14.5 kWh generation/gallon 13.0 kWh sales/galion 10,418 BTU/KWh sales 15 centskWh WS EX 2,200,000 2,200,000 2,200,000 2,500,000 9,700,000 9,700,000 Eyss 2,200,000 2,500,000 9,700,000 Fy 3s 2,200,000 © 2,500,000 9,700,000 10.01 10.02 10.03 10.04 10.05 10.06 10.07 10.08 20.01 20.02 20.03 20.04 20.05 20.06 20.07 20.08 20.09 20.10 20.11 20.12 20.13 20.14 30.00 30.01 30.02 30.03 30.04 30.05 30.06 30.07 30.08 30.09 30.10 30.11 30.12 30.13 30.14 30.15 35.00 PERSONNEL Tools, Certificates Transformer Testing Supplies/Materials Building Repair ‘Supplies (Generation Dept.) ‘Supplies (Line Dept.) Tools (Generation Dept.) Lubrication/Waste Heat Total Supplies MAINTENANCE Vehicle Maintenance Supplies/Materials Building Repair/Maintenance Fixed Assets Transformer Testing/PCB Disposal Supplies (Gen Dept) Supplies (Line Dept) Tools (Gen Dept) Equip Repair/Overhanl Res. (Gen) Equipment Repair (Line Dept.) Employee Benefits Total Maintenance OPERATING LESS FUEL APPENDIX 1 GALENA SYSTEM REVIEW Revenue Requirements FY 93 Specific Future Budget Adjustment Adjustment EY EY9s Ex96 36248 Inflation 37,698 39,206 40,774 14,789 Inflation 15,528 16,305 17,120 45,000 Inflation 47,250 49,613 52,093 148,000 Inflation 159,840 172,627 186,437 Q Inflation Q Q Q 244,037 260,316 277,750 296,425 $2,968 74.635 72.634 84.988 314,005 334,952 357,384 381,413 871,248 Sales/Infl 895,647 931,473 968,732 10,000 Inflation 10,400 10,816 11,249 6,000 Inflation 6,240 6,490 6,749 2,000 Inflation 2,080 2,163 2,250 3,000 Inflation 3,120 3,245 3,375 2,000 Inflation 2,080 2,163 2,250 3,000 Inflation 3,120 3,245 3,375 20,000 Inflation 20,800 21,632 22,497 600 Inflation 624 649 675 5,000 Inflation 5,200 5,408 5,624 12,000 Inflation 12,480 12,979 13,498 4,000 Inflation 4,160 4326 4,499 3.000 Sales/Infl 5.200 3.408 3.624 943,848 971,151 1,009,997 1,050,397 2,500 Inflation 2,600 2,704 2,812 16,000 (6,000) Inflation 10,400 10,816 11,249 15,000 Inflation 15,600 16,224 16,873 25,000 Inflation 26,000 27,040 28,122 26,000 (22,000) Inflation 4,160 4,326 4,499 3,500 Inflation 3,640 3,786 3,937 1,500 Inflation 1,560 1,622 1,687 500 (S00) Inflation 0 0 oO 12,000 Inflation 12,480 12,979 13,498 10,000 (5,500) Inflation 4,680 4,867 5,062 20,000 55,100 Constant 75,100 75,100 75,100 3.000 Inflation 3.120 3.245 3.375 135,000 159,340 162,710 166,214 30,000 3,500) Inflation 27,560 28,662 29,809 120 Inflation _ L488 1788 8,099 172,200 194,388 199,160 204,122 558,805 604,844 635,068 667,200 Three-year Total 117,678 48,953 148,956 518,905 Q 834,491 232.258 1,073,749 2,795,852 32,465 19,479 6,493 9,739 6,493 9,739 64,929 1,948 16,232 38,958 12,986 16.232 3,031,545 8,116 32,465 48,697 81,162 12,986 11,363 4,870 0 38,958 14,609 225,300 2.739 488,264 86,031 23.375 597,669 1,907,112 70.00 ADMINISTRATION Allocated Salary Overhead Professional Services Trustee and LOC Fees (Comm/Telephone/Fax ARECA/RAPA Expenses Bad Debt Oil Spill Reserve Insurance Travel/Per Diem Relocation/Moving Expense Meter Reading Allocated Labor Summer Labor Office Supplies Vehicle Storage Non-DoD Wheeling Charge Training Total Administration DEBT SERVICE Bond Redemption Other Debt Air Force Reserve Fund Total Debt Service CAPITAL IMPROVEMENTS Generation Department Line Department Other Total Capital Improvements TOTAL GROSS EXPENSES LESS REVENUE CREDITS Misc Rentals and Charges Interest Income Total Credits TOTAL REVENUE REQUIREMENT APPENDIX 1 GALENA SYSTEM REVIEW Revenue Requirements 81,079 55,000 43,000 3,500 5,000 88,000 10,000 4,033 Beccokood 290,497 64301 Q 354,798 ono°o 2,084,908 2,084,908 5% rev. req. 73,500 (4,033) $124,600 total 71,909 57,200 43,000 8,320 3,640 5,200 73,500 91,520 10,400 1,456 371,732 290,680 64,301 396,520 137,000 137,000 2,405,743 (10,000) (40,000) 2,365,743 4,500 383,513 294,513 64,301 41539 400,353 ° Q 0 2,419,798 (10,000) (40,000) 2,379,798 214,770 178,556 129,000 11363 4,545 13,500 1,135,984 875,560 192,903 1,193,081 274,000 274,000 7,306,029 (120,000) 7,186,029 APPENDIX 2 GALENA SYSTEM REVIEW Cost Allocation 94-96 Test Year No. Allocation Description Reference tem_| Air Force 1.01 Energy 0.00 9,700,000 7,200,000 2,500,000 1.02 Percent Responsibility 0.00 100.00% 74.23% 25.77% 2.01 Coincident Peak Demand (Est) 0.00 2,189 1,700 489 2.02 Percent Responsibility 0.00 100.00% 71.66% 22.34% 4.00 Plant Allocators 4.01 Vehicles 4.15 126,901 81,172 45,729 4.02 Buildings 4.03 Original 5.02 155,700 0 155,700 4.04 New Bldg. & Gen. Plant 2.02 2,361,247 _ 1,833,769 527,478 4.05 Total Buildings 2,516,947 1,833,769 683,178 4.06 Generators & Engines 4.07 Original 5.02 336,767 0 336,767 4.08 New Generators 2.02 1,488,612 1,156,071 332,541 4.09 Total Generators & Engines 1,825,379 1,156,071 669,308 4.10 Distribution System 4.11 Air Force 5.04 615,977 615,977 0 4.12 Other 5.02 785,972 0 785,972 4.13 Total Distribution System 1,401,949 615,977 785,972 4.14 Tank Farm 1.02 667,309 __ 495,322 171,987 4.15 Total Gross Plant 6,411,584 4,101,139 2,310,445 4.16 Total Gross Plant with Vehicles 6,538,485 4,182,311 2,356,174 5.00 Direct Assignment 5.01 Direct Assignment 1 0.00 1.00 0.00 1.00 5.02 Percent Responsibilty 0.00 100% 0% 100% 5.03 Direct Aassignment 2 0.00 1.00 1.00 0.00 5.04 Percent Responsibilty 0.00 100% 100% 0% APPENDIX 2 GALENA SYSTEM REVIEW Cost Allocation 94-96 Test Year Non Air Force Line Allocated Allocated No. : g g Costs Costs PERSONNEL 10.01 Manager 117,678 4.15 42,406 75,272 75,272 10.02 Lineman 48,953 4.13 27,445 21,509 21,509 10.03 Chief Mechanic 148,956 4.09 54,617 94,338 94,338 10.04 = Operators 518,905 4.09 190,266 328,639 328,639 10.05 Groundman 0 4.15 0 0 0 10.06 Subtotal 834,491 314,733 519,758 0 519,758 0 10.07 _ Benefits 239,258 10.06 90,237 149,020 149,020 10.08 Total Personnel 1,073,749 404,971 668,778 0 668,778 0 SUPPLIES 20.01 = Fuel 2,795,852 1.02 720,580 = 2,075,272 2,075,272 20.02 Electricity 32,465 1.02 8,367 24,097 24,097 20.03 Water 19,479 1.02 5,020 14,458 “14,458 20.04 = Meter/Testing 6,493 4.09 2,381 4,112 4,112 20.05 — Street Lights 9,739 4.13 5,460 4,279 4,279 20.06 = Tools, Certificates 6,493 4.15 2,340 4,153 4,153 20.07 Transformer Testing 9,739 4.13 5,460 4,279 4,279 20.08 Supplies/Materials 64,929 4.16 23,398 41,532 41,532 20.09 Building Repair 1,948 4.05 529 1,419 1,419 20.10 Supplies (Generation Dept.) 16,232 4.09 5,952 10,280 10,280 20.11 Supplies (Line Dept.) 38,958 4.13 21,841 17,117 17,117 20.12 Tools (Generation Dept.) 12,986 4.09 4,761 8,224 8,224 20.13 Lubrication/Waste Heat 16,232 1.02 4,184 | 12,049 12,049 20.14 Total Supplies 3,031,545 810,273 2,221,273 2,075,272 146,001 0 APPENDIX 2 GALENA SYSTEM REVIEW Cost Allocation 94-96 Test Year eee FORCE Non Air Force Line LiL ee! Lith) Total Allocated Cost Components of Alloc. Costs No. Budget Categor’ System Costs | o&m | Capita | MAINTENANCE 30.00 Vehicle Maintenance 8,116 4.01 2,925 5,191 5,191 30.01 Supplies/Materials 32,465 4.16 11,699 20,766 20,766 30.02 Building Repair/Maintenance 48,697 4.05 13,218 35,479 35,479 30.03 Gas/Oil 81,162 4.01 29,247 51,915 51,915 30.04 Generators 12,986 1.02 3,347 9,639 9,639 30.05 Fixed Assets 11,363 4.15 4,095 7,268 7,268 30.06 Transformer Testing/PCB Disposal 4,870 4.13 2,730 2,140 2,140 30.07 Supplies (Gen Dept) 0 4.09 0 0 0 30.08 Supplies (Line Dept) i 38,958 4.13 21,841 17,117 17,117 30.09 — Tools (Gen Dept) 14,609 4.09 5,357 9,252 9,252 30.10 Equipment Repair (Generation Dept.) 225,300 1.02 58,067 167,233 167,233 30.11 Equipment Repair (Line Dept.) 9,739 4.13 5,460 4,279 4,279 30.12 Subtotal 488,264 157,984 330,279 0 330,279 0 30.13 Equipment Maint/Repair 86,031 30.12 48,232 37,800 37,800 30.14 Employee Benefits 23,375 30.12 13,104 10,270 10,270 30.15 Total Maintenance 597,669 219,320 378,349 0 378,349 0 35.00 TOTAL OPERATING LESS FUEL 1,907,112 713,983 1,193,128 O 1,193,128 0 ADMINISTRATION 40.00 Allocated Salary Overhead i 214,770 35.00 80,406 134,365 134,365 40.01 Professional Services 178,556 35.00 66,848 111,708 111,708 40.02 Trustee and LOC Fees 129,000 4.15 46,486 82,514 82,514 40.03 Comm/Telephone/Fax 25,972 35.00 9,723 16,248 16,248 40.04 ARECA/RAPA Expenses 11,363 35.00 4,254 7,109 7,109 40.05 Bad Debt 16,232 5.02 16,232 0 0 40.06 Oil Spill Reserve 220,500 1.02 56,830 163,670 163,670 40.07 — Insurance 285,689 415 102,949 182,740 182,740 40.08 Continuing Education 146 35.00 55 91 91 40.09 — Travel/Per Diem 32,465 35.00 12,154 20,311 20,311 40.10 — Relocation/Moving Expense 0 35.00 0 0 0 40.11 Meter Reading 4,545 5.02 4,545 0 0 40.12 Allocated Labor 0 35,00 0 0 0 40.13 Summer Labor 0 35.00 0 0 0 40.14 Office Supplies 3,246 35.00 1,215 2,031 2,031 40.15 Vehicle Storage 0 4.01 0 0 0 40.16 Utilities 0 35.00 0 0 0 40.17 Non-DoD Wheeling Charge 13,500 5.02 13,500 0 0 40.18 Training 0 35.00 0 0 0 40.19 Total Administration 1,135,984 415,197 720,787 0 720,787 a 0 APPENDIX 2 GALENA SYSTEM REVIEW Cost Allocation 94-96 Test Year Non Air Force AIR FORCE Line Allocated Allocated Cost Components of Alloc. Costs No tate cous | Costs [Fuad [0am [Capital DEBT SERVICE 50.00 Bond Redemption 875,560 4.15 315,512 560,048 560,048 50.01 Other Debt 192,903 5.02 192,903 0 0 50.02 Air Force Reserve Fund 124,618 4.15 44,907 79,711 79,711 50.03 Total Debt Service 1,193,081 553,322 639,759 0 0 639,759 CAPITAL IMPROVEMENTS 60.00 Generation Department 0 4.09 0 0 0 60.01 Line Department 274,000 4.13 153,612 120,388 120,388 60.02 Other 0 5.02 0 0 0 60.03 Total Capital Improvements 274,000 153,612 120,388 0 0 120,388 70.00 TOTAL GROSS EXPENSES 7,306,029 2,556,695 4,749,334 2,075,272 1,913,915 760,147 LESS REVENUE CREDITS 80.00 Misc Rentals and Charges (30,000) 70.00 (10,498) (19,502) (19,502) 80.01 Interest Income (90,000) 70.00 (31,495) (58,505) (58,505) 80.02 Total Credits (120,000) (41,993) (78,007) 0 (78,007) 0 TOTAL REVENUE REQUIREMENT 7,186,029 2,514,701 4,671,327 2,075,272 - 1,835,908 760,147 NO AIR FORCE LOAD Air Force Load - 4.88 million kWh/yr (FY 94 only) City Load - 2.5 million kWh/yr Input Assumptions: Operator Labor Inflation ‘Lineman/Mechanic Labor Infl Base Fuel Rate Real Fuel Escalation Fuel Heat Content System and Other Losses Non-DoD Wheeling Chg Energy Sales: Non-DoD Subtotal Total APPENDIX 1 GALENA SYSTEM REVIEW Revenue Requirements 4% 8% 5% $1.1525 per gallon 0% 9,327 BTUKWh 135,239.7 BTU/gallon 11.7% of sales 14.5 kWh generation/gallon 13.0 kWh sales/gallon 10,418 BTU/AWh sales 1.5 centskWh EYS3 EY o4 2,200,000 2,200,000 Q 300,000 2,200,000 2,500,000 500,000 4,380,000 9,700,000 6,880,000 Ey9s 2,200,000 2,500,000 2,500,000 2,200,000 2,500,000 2,500,000 10.01 10.02 10.03 10.04 10.05 10.06 10.07 10.08 20.01 20.02 50.00 50.01 50.02 50.03 60.01 60.02 70.00 80.00 80.01 PERSONNEL SUPPLIES Other Supplies Total Supplies MAINTENANCE Total Maintenance ADMINISTRATION Allocated Salary Overhead Total Administration DEBT SERVICE Bond Redemption Other Debt Air Force Reserve Fund Total Debt Service CAPITAL IMPROVEMENTS Generation Department Line Department Other Total Capital Improvements TOTAL GROSS EXPENSES LESS REVENUE CREDITS Misc Rentals and Charges Interest Income Total Credits TOTAL REVENUE REQUIREMENT APPENDIX 1 GALENA SYSTEM REVIEW Revenue Requirements FY 93 Specific Future Budget Adjustment Adjustment Evo Ev25 EX% 36,248 Inflation 37,698 16,440 17,098 14,789 Inflation 15,528 16,305 17,120 45,000 Inflation 47,250 49,613 52,093 148,000 Inflation 159,840 69.984 15,583 Q Inflation 2 Q Q 244,037 260,316 152,341 161,894 $2,968 74.635 43.678 46.417 314,005 334,952 196,019 208,311 871.248 Sales/Infl 635,263 240,070 249,673 72.600 Inflation $7,366 14.340 14.913 943,848 702,629 254,410 264,586 172,200 119,580 41,081 42,184 81,079 5% rev. req. 64,766 33,686 25,257 218.978 Inflation 281.447 170971 175.425 300,057 346,213 204,657 200,682 290,497 Direct 290,680 0 0 64,301 Direct 64,301 64,301 64,301 Q Direct Q Q Q 354,798 354,981 64,301 64,301 0 Direct 50,000 © $274,000 total Direct 137,000 137,000 0 Q Direct Q Q Q 0 137,000 187,000 ° 2,084,908 1,995,355 947,468 780,064 (10,000) (10,000) (10,000) 0,000) 10,000) 40.000) (40,000) (20,000) (20,000) 2,084,908 1,955,355 927,468 760,064 Three-year Total 71,236 48,953 148,956 305,407 Q 574,552 164.730 739,282 1,125,007 26.619 1,221,626 202.845 123,709 751,552 192,903 483,583 50,000 274,000 324,000 3,722,887 (30,000) (80,000) 3,642,887