01-0799R

RESOLUTION ESTABLISHING A REVISED RATE STRUCTURE FOR DULUTH STEAM DISTRICT NO. 1.

BY COUNCILOR ECKENBERG:

        RESOLVED, that effective with the meter readings on or after January 1, 2002, all customers of the Duluth steam utility division #1 of the public works and utilities department, gas division, whose steam supply is measured by meter, shall be charged for such steam in accordance with the following formula for establishing costs established by this resolution as follows:
                Energy charge:  variable monthly operating cost ÷ (system total monthly steam sold Mlbs.) x (Mlbs. purchased during the month);
                Capacity charge:  annual budgeted fixed costs ÷ previous year Mlbs. sold = average;
                Previous year steam purchased Mlbs.:

0 - 999
1,000 - 4,999
5,000 - 9,999
10,000 - 14,999 Average
15,000 - 24,999
25,000 - 39,999
over - 40,000

                The capacity charge is to be calculated annually for each customer and shall be payable in 12 equal monthly installments.



STATEMENT OF PURPOSE:  This resolution changes the method for billing for steam consumed from the Duluth steam utility division #1 from a tariff rate to a two-part rate structure. To assure funding of fixed and variable production costs requires a two-part rate structure rather than the current block type which is based solely on the Mlbs. (thousand pounds) of steam sold per month.

A capacity charge is necessary to assure adequate revenues to fund fixed costs independently of monthly steam sales. The capacity charge is calculated at the end of each year for the following year based on the fixed cost budget for the following year and steam sales for the prior year. The capacity charge is calculated annually for each customer and is payable in twelve monthly installments. Each customer shares proportionately in the budgeted fixed costs for the year in the ratio that its most recent calendar year steam purchases bears to the total Mlbs. steam sales during the period. The formula for calculating the average capacity charge is:

Budgeted fixed costs

Prior year steam sales = average.

Costs decrease as volume increases and increase with smaller volumes. The capacity charge is adjusted from the average per the following consumption table:

Annual steam purchased capacity rate per Mlbs.

0 - 999
1,000 - 4,999
5,000 - 9,999
10,000 - 14,999 Average rate
15,000 - 24,999
25,000 - 39,999
over - 40,000.

An energy charge is necessary to recover those costs that vary with steam production for sale. The energy charge is based on the variable production costs that vary with steam plant output including the following costs: fuel, electricity, water, chemicals, ash handling and refuse disposal.

The formula for calculating the monthly energy charge is:

Variable monthly production costs

System total monthly steam sales Mlbs. x Mlbs. purchased during the month.

This charge is necessitated because the current rate structure does not adequately fund operating costs when there is fluctuating warm weather and cost instability. The change in rates structure authorized in this resolution has been approved by the board of directors of the Duluth steam cooperative association. Meter and fuel adjustment charges would be eliminated under this billing method.