City Utilities outlines $378 million budget

City Utilities' General Mana-ger Robert Roundtree has launched his firm's $378 million proposed budget into what he says is "a sea of changes."

"The utility business is one complicated by sophisticated engineering solutions, complex environmental challenges, in-creasing customer expectations and significant changes by federal and state regulators," Roundtree wrote in the preface to the preliminary draft of the 2002 budget, which is being studied for the rest of the month.

With water rate increases under public discussion, the preliminary budget draft for the entire utility organization water, electricity, gas, transit and telecommunication will be the topic of a noon Aug. 21 study session between City Council and the CU board. At 7 p.m., a public hearing on the budget will be held in the C. Frank Knox Board Room at CU, 301 E. Central, followed by another joint study session to address questions raised at the hearing.

The key issues facing CU in its budget preparations were the stabilization of natural gas prices and the ongoing volatility of the wholesale power markets, according to the budget document.

No base-price increases for electric or gas customers are in the budget, but as presented, it figures into its revenue receipts a 7 percent across-the-board water rate hike. An alternate water rate approach is on council's table one that's a small increase for all users with a larger assessment for high seasonal users.

Anticipated revenues to fund the budget are about $328 million, so expenditures will outpace revenue by about $49 million. But Elaine McDonald, CU chief financial officer, said the combined utility isn't short of cash. Those funds already are available in the form of bond monies related to the city/county/CU trunked radio project and the McCartney Generating Station.

"The balance will be provided from funds which have been previously set aside for future projects," Roundtree said basically, the combined utilities' savings accounts, McDon-ald said.

Although the water utility is financially separate from the other utility services, CU pools all its funds for investment purposes, and necessary draws can be made to fund the utilities' budgets, she said. But the draws for the waterworks will deplete its revenues so that it will go into the red by 2003, according to the waterworks' independent auditors, KPMG.

For the combined utilities:

Overall joint expenditures as presented tally $25 million more than last year's budget. Of that increase, about $15 million represents natural gas.

CU doesn't expect natural gas prices to be as elevated as they were last December about $10 per 100 thermal units, up from $2 in the spring of 2000. The forecast for natural gas prices is nearly 17 percent less than last year's prices.

Another $2.9 million of the $25 million proposed budget increase is related to the new purchased power agreement with Kansas City Power and Light. Through that agreement, which went into effect June 1, CU can buy 51 megawatts of electricity each day through May 2013 at what Roundtree called "very favorable fuel costs."

CFO McDonald explained that at peak times, customers demand a 700 megawatt capacity. "We have to have enough capacity to meet the very highest demand at the very hottest hour," McDonald said. Because Kansas City Power and Light is closer to coal fields and uses more coal, it can generate its electricity at less cost than CU can. If CU doesn't need the extra power it has the right to buy, it can sell the excess energy and make a profit, she said.

The energy from Kansas City Power and Light is just one of the many power sources for the utility, McDonald said. While CU buys electricity from outside sources to ensure its supply for peak time, the utility doesn't want to be dependent on those outside sources for all its power.

To that end, CU has continued to increase its electricity generation capacity. So the largest capital expense for 2002 $13.2 million is to finish construction of the McCartney Generating Station, expected to be operational in May 2002. Its total cost should be $53 million.

All told, the utility wants to spend about $72 million for capital projects. Another $160 million is projected for noncapital costs, such as fuel.

Fuel costs are calculated to be about $35.5 million for coal and another $15 million for natural gas to generate electricity, $23 million for power purchased from outside sources, $20,000 for other electric fuels, and $72 million for gas for resale to customers.

Here is the total expenditure breakdown for the combined utilities:

Power generation: $37.9 million.

Generation fuels and purchased power: $73.6 million.

Gas for resale: $72.4 million.

Electric transmission and distribution: $15.5 million.

Gas transmission and distribution: $7.2 million.

Water source of supply: $2.7 million.

Water treatment: $4.9 million.

Water distribution: $6.1 million.

Transit: $3.3 million.

Facilities: $4.7 million.

Vehicles and equipment: $2.8 million.

Telecommunications: $17.2 million.

Information technology: $13.2 million.

Human resources: $31.6 million.

Materials management: $2 million.

Finance: $3.35 million.

Technical services: $2.1 million.

Administrative support: $6.8 million.

Customer support: $9.5 million.

Debt service: $24.6 million.

Competition/industry re-structuring: $660,000.

The net income for the public utility electric, gas, transit and telecommunications is expected to be $9.5 million, about $4.5 million less than last year's budget, according to Roundtree. He attributes the decrease to the extra power purchased from Kansas City Power and Light and the cost to overhaul the steam turbine generator at the Southwest Power Station.

Waterworks will bring in about $3.6 million if council approves the 7 percent increase, but that's still about $700,000 less revenue than last year.

Operating expenses continue to increase, as do the costs for pumping raw water from Stockton Lake, according to Roundtree. Inflation and the required payments in lieu of taxes to the city also reduce the net income of the water utility, he added.

Here is the revenue breakdown:

Electric: $160 million.

Gas: $97.9 million.

Water: $25.5 million.

Transit (and subsidies): $2.2 million.

Telecommunication: $833,000

Interest, financing, capital related billings, other receipts: $18.7 million.

Non-utility receipts (sewer receipts collected for the city, sales tax for state): $25,701,295.