City Utilities of Springfield's recent move to refund $8.6 million to its electric ratepayers was largely driven by plummeting natural gas prices and a mild summer, according to the public utility's director of pricing.
Every six months, CU compares actual fuel costs to its effective electric rates to determine if the rates are too high or too low - a process known as "truing up" - said Ray Ross, director of pricing.
"It is not an unusual occurrence and is, in fact, an appropriate activity to true up because ... energy prices change literally minute to minute," said Floyd Gilzow, director of public affairs for the Missouri Public Utilities Alliance.
During the most recent six-month period ending in August, CU's rates were much higher than fuel costs, resulting in an $8.6 million overcollection from customers. That's the highest overcollection balance in five years, according to figures provided by CU.
Consequently, Ross said, the Board of Public Utilities approved a cost adjustment last month that dropped electric rates to 0.0041 dollars per kilowatt-hour across the board, compared to 0.0145 dollars per kilowatt-hour a year ago. The reduction, which takes effect this month and will stay in place through March, essentially functions as a refund.
"It's applied directly to the cost per kilowatt-hour, and it's applied uniformly to every single kilowatt-hour we sell," Ross said, noting that a fuel-adjustment clause approved by Springfield City Council in the early 1980s is still used today.
"This ... clause does exactly what it's supposed to do, which is it drives your rates down if your rates have been too high," he added.
Electric rates are set during the annual budgeting process, but the rates only represent CU's best estimate based on fuel costs at the time and seasonal expectations, Ross explained.
"We project what fuel costs are going to be ... and fundamental to that is how much energy our customers are going to require," Ross said. "When you project such a thing, we know one thing to be true: You will obviously be wrong."
Ross said the sizeable overcollection in recent months was the product of two anomalies: steadily dipping natural gas prices and an unusually cool summer.
"Basically, what happened was an incredible decline in natural gas prices that started in July of 2008," he said. "Natural gas prices are really big drivers of the cost of energy for City Utilities. Even though we use coal as our primary source of generation for our customers, when we have to go into the market and purchase additional energy (on) a peak day, what basically drives that pricing for energy ... is the price of natural gas."
Natural gas electric power prices soared to $12.50 per thousand cubic feet in June 2008, compared to $4.61 per thousand cubic feet this June, according to the U.S. Energy Information Administration. And prices tumbled again last week, when the EIA reported that natural gas stored in the continental U.S. had reached a record capacity of 3.6 trillion cubic feet.
Historically, CU's rates have been higher than actual fuel costs, officials said, with CU overcollecting 54 percent of the time during the past decade.
Undercollections peaked in August 2006, when the fund was $9.4 million below CU's costs, prompting the utility to adjust electric rates upward.
Over the next six months, CU officials expect the low fuel costs to continue. Ross said they should be the lowest since December 2005, when CU's overcollection balance hit $7.3 million.
That's especially good news for commercial customers, who have yet to see the savings. Paul Mueller Co. CEO Matt Detelich said his management team is continually looking for ways to bring the Springfield-based stainless steel manufacturer's seven-figure monthly utility bill down, but hasn't calculated the impact of CU's most recent rate adjustment.
"We could use any help we could get right now," Detelich said, noting that the plant's energy usage levels already are down due to reduced production.
[[In-content Ad]]
