Aquila Missouri Electric Operations – Steam customers
Employee Information / Q&As
Missouri Steam Rate Increase Approved
February 28, 2006
Today the Missouri Public Service Commission (MPSC) approved a rate increase for the seven industrial customers that purchase steam from Aquila in St. Joseph, Mo. The new rates will be effective on March 6, 2006.
Aquila originally filed for a $5 million, or 44.3 percent net increase for the steam customers. The increase is needed to recover costs related to growth in customer demand, the higher costs of natural gas and coal used to generate steam to serve customers and the elimination of previous subsidies that were originally paid by electric customers.
The approved increase in base rates totals $4.5 million, or 37.5 percent, and will include a sharing of fuel costs through a quarterly Cost Adjustment Rider. Key points to the agreement include:
- Base rate increase with a quarterly cost adjustment rider.
The new steam rates include a base increase of $4.5 million, or 37.5 percent. It includes a fuel cost for steam production set at $3.005/million BTU. If the fuel cost goes above or below that rate, Aquila will pass on 80 percent of the increase or decrease to customers.
- Moratorium on cost increases.
The settlement establishes a moratorium on any new base rate increases until Jan. 1, 2007.
- Growing demand and fuel costs are pushing rates higher.
Since the last steam rate increase, new industries have come to St. Joseph and others have expanded, increasing the demand for steam. Industrial steam is produced from Aquila’s Lake Road generating facilities, Boilers 1 through 5. Boilers 1 through 4 are gas-fired, and Boiler 5 can burn either gas or coal. Since the energy costs associated with Lake Road Boiler 5 are the lowest of the five units available for steam production, industrial steam is delivered from that boiler whenever possible. As demand for steam energy escalates, the percentage of the steam load that must be met through the other boilers has likewise increased. Because of the high cost of natural gas in comparison to coal, Aquila’s system average fuel costs used to produce industrial steam have risen. In addition, the cost of fuel, both gas and coal, has continued to rise dramatically since Aquila’s last rate adjustment in 2004.
- Elimination of subsidy pushes costs onto customers.
Prior to the acquisition of the former St. Joseph Light and Power Company, a subsidy from electric customers was routinely built into the steam rates. The theory behind this subsidy was that low steam rates attracted industrial customers to the St. Joseph area and brought with them economic benefit to the community. Moreover, industrial customers contributed to a higher load factor on the electric system, which, in turn, helped reduce electric rates.Therefore, a subsidy from electric to steam customers was considered acceptable. The subsidy increased electric rates and decreased steam rates by the same amount.In Aquila’s 2003 rate filing, the subsidy was not approved in electric rates. Therefore, this rate increase includes the dollars associated with the previous subsidy in the rates for the steam customers who are receiving the service.
- Steam rate is still among the cheapest in the Midwest.
Even with the rate increase, Aquila’s steam rate remains among the lowest in the Midwest.A 2005 survey by We Energies, a subsidiary of Wisconsin Energy Corporation, showed that Aquila’s current steam costs are by far the lowest in 12 Midwest cities. While the rate for St. Joseph customers will remain below $9 per Mbs, rates in Omaha exceed $12, and they top $18 in Cleveland, OH and Detroit, MI.
Question & Answer Guide
(for employee use in responding to inquiries)
- Why is the company raising its rates?
The steam rate increase reflects growth in customer demand, the higher costs of natural gas and coal used to generate steam to serve customers and the elimination of previous subsidies that were originally paid by electric customers.The rate increase reflects costs associated with providing utility service to Missouri customers and is NOT affected by the company’s current repositioning plan.
- How much will my bill go up?
While bills vary based on customer usage, the average increase will be about 37.5 percent for the seven industrial customers in St. Joseph.
- Whose rates are going up?
Aquila’s industrial steam customers in St. Joseph are Ag Processing, Omnium, Nestle Purina PetCare, Silgan Containers, Triumph Foods, Lowes and Albaugh Chemical.
- When will these changes be effective?
The new rates will be effective on March 6, 2006.
- How will customers be notified of the increase when it is approved?
A news release will be issued, and customers will receive a bill message on the first bill with the increase.
- How much is included in the base rate for fuel costs?
The settlement sets the base fuel cost for steam production at $3.005/ million Btu. If the fuel cost goes above or below that rate, Aquila will pass on 80 percent of the increase or decrease to customers.
- Since Aquila has agreed to a moratorium on Missouri steam rate increases until January 1, 2007, will the company file another increase at that time?
Aquila continually assesses operating costs to determine when rate changes are needed.Once the company files for a rate change, the MPSC has 11 months to make a decision.
- How much of this increase is profit for Aquila?
The proposed increases include earnings to provide a return to the shareholders who provide the capital that enables us to invest in infrastructure to serve customers. After the increases, Aquila’s earnings would equate to less than 10 cents for every dollar of revenue from steam customers.
- Is this increase to pay off Aquila’s debt from its non-regulated energy trading business?
No. This increase is to recover Aquila’s cost for steam system improvements and increased operating expenses since the last rate increase. None of the rate increase is related to the company’s current financial condition or Aquila’s exit from its nonregulated energy-trading operations. Utility customers are not responsible for costs associated with Aquila’s financial condition or those from the non-regulated energy trading operations.
- When was Aquila’s last Missouri steam rate increase?
Aquila’s last steam rate increase was $1.3 million, or 18.77 percent, in April 2004.
- Can’t Aquila reduce costs to help offset such increases?
Although Aquila exercises disciplined, prudent cost control over its operations, pressures from higher fuel costs, for example, require an increase in rates.
- How do your rates compare to other regional providers?
Even with the rate increase, Aquila’s steam rate remains among the lowest in the Midwest. A 2005 survey by We Energies, a subsidiary of Wisconsin Energy Corporation, showed that Aquila’s current steam costs are by far the lowest in 12 Midwest cities. While the rate of St. Joseph customers will remain below $9 per Mbs, rates in Omaha exceed $12, and they top $18 in Cleveland, Ohio and Detroit, Mich.
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