RESOLVED, that the establishment of steam consumption categories and service factors related thereto for Duluth Steam District No. 1 as shown on Public Document No. ____________, a copy of which is on file in the office of the city clerk, are hereby approved.

     RESOLVED FURTHER, that the capacity charges attributable to each such consumption category as shown on Public Document No. ____________, a copy of which is on file in the office of the city clerk, are hereby approved.

     RESOLVED FURTHER, that the cost of steam per one thousand pounds of steam consumed by each customer of the district for each customer calculated in accordance with the formula shown on said Public Document No. ____________ is hereby approved.

STATEMENT OF PURPOSE:  The purpose of this resolution is to approve the creation of five new categories of steam customers based on the introduction of SMDC onto the system and to establish charges based on present costs and consumption figures.

It has long been recognized that the costs of providing steam to various customers on the system varies widely and in an inverse manner to the quantity of steam each customer consumes. That is to say, that while the cost of the steam itself to each customer was the same per thousand pounds of steam (“Mlbs”) consumed, other costs of the system could not fairly be so divided. For example, the costs of maintenance and service required by a small user did not go down proportionately with the reduced consumption and so the costs/Mlbs of providing those services to such a small user were higher per Mlbs than such services provided to a larger user. Similarly, office costs such as billing, collection and general administration will not be directly proportional to consumption.

Therefore, the district has charged customers on two bases: first is a straight factor based on cost of the steam consumed by that customer (total cost of steam produced for heating purposes / the total Mlbs of steam sold X each customer’s actual consumption); the second is that customer’s fair share of all other costs which is based on their group consumption category and that group’s service factor as well as their consumption. The total of the two constitutes their monthly cost of steam.

Previously, the district had just seven consumption categories with customers assigned a group based on their prior year’s consumption. Categories 1 though 6 were the same as those shown on the attached public document; Category 7 was simply 40,000 and above. With the introduction of SMDC onto the system with their estimated annual consumption of 115,000 Mlbs, it was necessary to extend the consumption category list to include several categories of additional users. While some of these categories may not have any users attributable to them this year, it is necessary to create them to maintain the statistical integrity of the system; and hopefully in future years there will be users in these categories also.

The capacity charge for each group is determined by multiplying the estimated service factor judged applicable to each capacity group by the percentage volume of steam sold in the prior year, converting that to a percentage by dividing each group service factor by the total of all service factors, making a mathematical adjustment and then applying that adjusted factor against the total projected non-allocated costs and applying that number to each customer’s consumption rate.

The total of the consumption charge for each month and 1/12 of the capacity charge equals the customer’s monthly bill.