1. City of Lebanon, Missouri Electric Department
Results of the Cost of Service Study
June 1, 2017
Presented by Craig Woycheese, CPA
Senior Rate Analyst

2. Revenue Requirement
The municipal electric department must generate enough revenues to recover the following costs in order to maintain its equity position.
Operating expenses – cost of power, operations, maintenance, customer service, administration, and replacement costs
Cost of debt – interest expense on debt to finance plant
Capital improvements
6/1/2017

3. Notes on Revenue and Expense Projections
Test year data represents historic financial data for twelve (12) months ending December 31, 2016.
Adjustments to the test year financial data represent dollar adjustments to the historic data based on the fiscal year 2016/2017 budget with the exception of customer billings, PILOT, depreciation, and purchased power.
Customer billings are based on test year consumption and test year ending electric rates.
PILOT is based on 5% of customer billings.
Purchase power is based on test year purchases and estimated rates provided by MPUA.
Depreciation is based on estimated gross plant and the Electric Department’s depreciation rates.
Pro forma year one represents the test year adjusted for budget considerations noted above.
6/1/2017

4. Revenue and Expense Projections
Model
Year 1
Year 2
Year 3
Inflation
12/31/2016
Adjustments
12/31/2017
12/31/2018
12/31/2019
Rate
Item
Test Year
to Test Year
Pro Forma
Revenues
1.00%
Customer Billings
$24,016,105
$657,344
$24,673,449
$24,920,184
$25,169,386
0.00%
Other Revenue
$459,137
-$138,137
$321,000
Total Revenue
$24,475,243
$519,207
$24,994,449
$25,241,184
$25,490,386
Expenses
0.64%
Wholesale Power
$20,462,298
$19,746
$20,482,044
$20,612,380
$20,743,546
2.00%
Employee-Related
$1,372,864
$218,756
$1,591,620
$1,623,452
$1,655,921
Other Operating Expenses
$430,506
$144,256
$574,762
$586,257
$597,982
5% of Customer Billings
$1,200,805
$32,868
$1,233,672
$1,246,009
$1,258,469
4.00%
Depreciation
$49,014
$776,149
$825,163
$858,170
$892,497
Other Non-Operating Expenses
-$268,086
$268,086 $0
Total Expenses
$23,247,401
$1,459,861
$24,707,262
$24,926,269
$25,148,415
Operating Margin
$1,227,842
-$940,654
$287,188
$314,915
$341,970
6/1/2017

5. Revenue and Expense Projections
Model
Year 4
Year 5
Year 6
Year 7
Year 8
Inflation
12/31/2020
12/31/2021
12/31/2022
12/31/2023
12/31/2024
Rate
Item
Pro Forma
Revenues
1.00%
Customer Billings
$25,421,080
$25,675,290
$25,932,043
$26,191,364
$26,453,277
0.00%
Other Revenue
$321,000
Total Revenue
$25,742,080
$25,996,290
$26,253,043
$26,512,364
$26,774,277
Expenses
0.64%
Wholesale Power
$20,875,546
$21,008,386
$21,142,071
$21,276,608
$21,412,000
2.00%
Employee-Related
$1,689,040
$1,722,821
$1,757,277
$1,792,423
$1,828,271
Other Operating Expenses
$609,942
$622,141
$634,584
$647,275
$660,221
5% of Customer Billings
$1,271,054
$1,283,765
$1,296,602
$1,309,568
$1,322,664
4.00%
Depreciation
$928,197
$965,325
$1,003,937
$1,044,095
$1,085,859
Other Non-Operating Expenses $0
Total Expenses
$25,373,778
$25,602,436
$25,834,472
$26,069,969
$26,309,015
Operating Margin
$368,301
$393,854
$418,571
$442,395
$465,263
6/1/2017

6. Revenue and Expense Projections
Model
Year 9
Year 10
Year 11
Year 12
Year 13
Inflation
12/31/2025
12/31/2026
12/31/2027
12/31/2028
12/31/2029
Rate
Item
Pro Forma
Revenues
1.00%
Customer Billings
$26,717,810
$26,984,988
$27,254,838
$27,527,387
$27,802,660
0.00%
Other Revenue
$321,000
Total Revenue
$27,038,810
$27,305,988
$27,575,838
$27,848,387
$28,123,660
Expenses
0.64%
Wholesale Power
$21,548,254
$21,685,375
$21,823,368
$21,962,240
$22,101,995
2.00%
Employee-Related
$1,864,837
$1,902,133
$1,940,176
$1,978,979
$2,018,559
Other Operating Expenses
$673,425
$686,894
$700,632
$714,644
$728,937
5% of Customer Billings
$1,335,891
$1,349,249
$1,362,742
$1,376,369
$1,390,133
4.00%
Depreciation
$1,129,293
$1,174,465
$1,221,443
$1,270,301
$1,321,113
Other Non-Operating Expenses $0
Total Expenses
$26,551,699
$26,798,116
$27,048,361
$27,302,534
$27,560,737
Operating Margin
$487,111
$507,872
$527,477
$545,853
$562,923
6/1/2017

7. Revenue and Expense Projections
Model
Year 14
Year 15
Year 16
Year 17
Year 18
Inflation
12/31/2030
12/31/2031
12/31/2032
12/31/2033
12/31/2034
Rate
Item
Pro Forma
Revenues
1.00%
Customer Billings
$28,080,687
$28,361,494
$28,645,109
$28,931,560
$29,220,875
0.00%
Other Revenue
$321,000
Total Revenue
$28,401,687
$28,682,494
$28,966,109
$29,252,560
$29,541,875
Expenses
0.64%
Wholesale Power
$22,242,640
$22,384,179
$22,526,619
$22,669,966
$22,814,225
2.00%
Employee-Related
$2,058,930
$2,100,109
$2,142,111
$2,184,953
$2,228,652
Other Operating Expenses
$743,516
$758,386
$773,554
$789,025
$804,806
5% of Customer Billings
$1,404,034
$1,418,075
$1,432,255
$1,446,578
$1,461,044
4.00%
Depreciation
$1,373,958
$1,428,916
$1,486,073
$1,545,516
$1,607,336
Other Non-Operating Expenses $0
Total Expenses
$27,823,078
$28,089,665
$28,360,613
$28,636,038
$28,916,063
Operating Margin
$578,609
$592,829
$605,496
$616,522
$625,813
6/1/2017

8. Revenue and Expense Projections
Model
Year 19
Year 20
Inflation
12/31/2035
12/31/2036
Rate
Item
Pro Forma
Revenues
1.00%
Customer Billings
$29,513,084
$29,808,215
0.00%
Other Revenue
$321,000
Total Revenue
$29,834,084
$30,129,215
Expenses
0.64%
Wholesale Power
$22,959,402
$23,105,502
2.00%
Employee-Related
$2,273,225
$2,318,690
Other Operating Expenses
$820,902
$837,320
5% of Customer Billings
$1,475,654
$1,490,411
4.00%
Depreciation
$1,671,630
$1,738,495
Other Non-Operating Expenses $0
Total Expenses
$29,200,813
$29,490,418
Operating Margin
$633,272
$638,797
6/1/2017

9. Capital Improvement Plan
Description
2017
2018
2019
2020
2021
Total
General Distribution Projects
$960,000
$4,800,000
General Transmission Projects
$240,000
$1,200,000
Total Projects #
$6,000,000
# Does not include 161 kV substation and transmission project.
Based on four percent inflation on gross plant.
6/1/2017

10. Cash Flow Projection Description 2017 2018 2019 2020 2021
Operating Margin #
$287,188
$314,915
$341,970
$368,301
$393,854
Add: Depreciation Expense
$825,163
$858,170
$892,497
$928,197
$965,325
Cash from Operations
$1,112,351
$1,173,085
$1,234,467
$1,296,498
$1,359,178
Less:
Capital Expenses
$1,200,000
Principal Payments $0
Change in Cash Position
-$87,649
-$26,915
$34,467
$96,498
$159,178
Beginning Cash and Short-Term Investments
$9,932,830
$9,845,182
$9,818,267
$9,852,734
$9,949,232
Ending Cash and Short-Term Investments
$10,108,410
# Assumes annual one percent rate adjustments and normal inflation on operating expenses.
Includes cash and short-term investment accounts 1000, 1015, and 1020.
6/1/2017

11. Minimum Cash Reserve Five Risk Factors to Consider % Risk to Allocate
Amount
O&M Expenses (less Power Costs and Depreciation)
12.3%
$ 418,207
Power Costs
13.1%
2,677,921
Historic Investments in Assets
2.0%
582,037
Annual Debt Payment
0.0%
Total Five-Year Capital Plan
20.0%
1,200,000
Total of Five Risk Factors
$4,878,165
6/1/2017

12. Rate Base and Rate of Return
I. Rate Base
Account
Amount
Utility Plant in Service
$29,101,831
Plus: Construction Work in Progress $0
Total
Less: Accumulated Depreciation
$14,550,915
Net Plant
Cash Working Capital:
30 days of Wholesale Power 30 /
365 *
$20,482,044 =
$1,683,456
45 days of Other Expenses 45
$3,400,054
$419,185
Total Rate Base
$16,653,556
II. Rate of Return
Operating
Rate of
Year
Margin
Return
Pro Forma Year
12/31/2017
$287,188
1.7%
6/1/2017

13. 6/1/2017

14. Cost of Service Analysis
Cost of Service Analysis – an analysis of electric system’s costs, revenue and margin requirements, and fairness issues by analyzing these items by rate class.
A cost of service analysis is generally reviewed and prepared to reflect changing loads and evolving cost structure.
Updated cost of service studies are generally considered appropriate using a 5 year cycle.
Rate updates are done periodically in “non cost of service years” to give consideration to changes in wholesale power costs.
6/1/2017

15. Allocation of Rate Base to Rate Classes
Customer Related:
Minimum plant to serve customer class
Includes span of primary, pole, transformer, meter, and secondary
Allocated to rate classes in proportion to customers on system
Backbone Related:
Remaining plant required to support the peak demand needs of the customers
Allocated based on peak demands of the customer classes
Rate Classes
6/1/2017

16. Allocation of Expenses to Rate Classes
Customer
Metering expense
Customer service expense
Portion of other operating expenses based on customer plant
Allocated in proportion to customers by rate class
Purchased
Demand
Demand expense portion of the cost of purchased power
Allocated based on rate class coincident demand
Purchased
Energy
Energy expense portion of the cost of purchased power
Allocated in proportion to kWh purchases by rate class
Backbone
Remaining expenses after customer and purchased power
Allocated based on peak demands of the customer classes
Rate Classes
6/1/2017

17. Cost of Service Summary – Existing Rates and Pro Forma Year 1 Operating Expenses
Residential
Comm. 1
Comm. 2
Comm. Ind.
Industrial 1
Industrial 2
City Use
Lighting
Total
Revenue - Sales
$7,825,365
$2,175,803
$3,569,522
$2,847,997
$2,233,581
$5,366,697
$614,557
$39,928
$24,673,449
Revenue - Other
$259,279
$45,099
$8,460
$1,375
$358
$171
$6,258 $0
$321,000
Total Revenue
$8,084,644
$2,220,902
$3,577,982
$2,849,371
$2,233,939
$5,366,868
$620,815
$24,994,449
Distribution Expenses:
Customer-Related
$1,271,590
$341,667
$93,634
$44,036
$21,431
$22,552
$65,601
$24,494
$1,885,004
Demand-Related
$745,803
$213,824
$338,797
$280,665
$203,345
$507,220
$68,472
$1,833
$2,359,959
Total Distribution Expenses
$2,017,393
$555,491
$432,431
$324,701
$224,776
$529,771
$134,073
$26,327
$4,244,963
Wholesale Power Expenses:
$1,992,975
$571,435
$905,324
$749,991
$543,344
$1,355,194
$182,945
$6,301,207
Energy-Related
$4,254,937
$1,120,863
$1,996,475
$1,640,751
$1,261,944
$3,407,951
$458,992
$19,179
$14,161,091
Total Wholesale Power Expenses
$6,247,912
$1,692,298
$2,901,799
$2,390,741
$1,805,288
$4,763,145
$641,937
$20,462,298
Operating Margin
($180,660)
($26,887)
$243,752
$133,929
$203,875
$73,952
($155,195)
($5,578)
$287,188
Rate Base:
$4,144,999
$1,180,119
$326,659
$155,798
$76,672
$80,513
$228,587
$126,003
$6,319,351
$3,265,853
$936,329
$1,483,585
$1,229,025
$890,442
$2,221,104
$299,838
$8,029
$10,334,205
Total Rate Base
$7,410,852
$2,116,448
$1,810,245
$1,384,823
$967,115
$2,301,617
$528,425
$134,032
$16,653,556
Rate of Return on Rate Base
-2.4%
-1.3%
13.5%
9.7%
21.1%
3.2%
-29.4%
-4.2%
1.7%
6/1/2017

18. Cost of Service Summary – Levelized Rates of Return
Residential
Comm. 1
Comm. 2
Comm. Ind.
Industrial 1
Industrial 2
City Use
Lighting
Total
Revenue - Sales
$8,209,337
$2,260,753
$3,375,433
$2,752,059
$2,056,238
$5,355,889
$614,557
$49,183
$24,673,449
Revenue - Other
$259,279
$45,099
$8,460
$1,375
$358
$171
$6,258 $0
$321,000
Total Revenue
$8,468,617
$2,305,853
$3,383,893
$2,753,434
$2,056,596
$5,356,060
$620,815
$24,994,449
Distribution Expenses:
Customer-Related
$1,271,590
$341,667
$93,634
$44,036
$21,431
$22,552
$65,601
$24,494
$1,885,004
Demand-Related
$745,803
$213,824
$338,797
$280,665
$203,345
$507,220
$68,472
$1,833
$2,359,959
Total Distribution Expenses
$2,017,393
$555,491
$432,431
$324,701
$224,776
$529,771
$134,073
$26,327
$4,244,963
Wholesale Power Expenses:
$1,992,975
$571,435
$905,324
$749,991
$543,344
$1,355,194
$182,945
$6,301,207
Energy-Related
$4,254,937
$1,120,863
$1,996,475
$1,640,751
$1,261,944
$3,407,951
$458,992
$19,179
$14,161,091
Total Wholesale Power Expenses
$6,247,912
$1,692,298
$2,901,799
$2,390,741
$1,805,288
$4,763,145
$641,937
$20,462,298
Operating Margin
$203,312
$58,063
$49,663
$37,992
$26,532
$63,143
($155,195)
$3,677
$287,188
Rate Base:
$4,144,999
$1,180,119
$326,659
$155,798
$76,672
$80,513
$228,587
$126,003
$6,319,351
$3,265,853
$936,329
$1,483,585
$1,229,025
$890,442
$2,221,104
$299,838
$8,029
$10,334,205
Total Rate Base
$7,410,852
$2,116,448
$1,810,245
$1,384,823
$967,115
$2,301,617
$528,425
$134,032
$16,653,556
Rate of Return on Rate Base
2.7%
-29.4%
1.7%
Dollar Increase
$383,972
$84,950
($194,089)
($95,937)
($177,343)
($10,808)
$9,255
Percent Increase
4.9%
3.9%
-5.4%
-3.4%
-7.9%
-0.2%
0.0%
23.2%
6/1/2017

19. Cost of Service Summary – Unbundled Unit Costs
Rate
Residential
Comm. 1
Comm. 2
Comm. Ind.
Industrial 1
Industrial 2
City Use
Load Data:
No. of Bills
69,604
12,107
2,271
369 96 46
1,680
kW Sold (Peak Demand)
530,897
93,235
116,499
94,117
62,070
133,715
38,180
kWh Sold (Consumption)
77,510,917
20,418,431
36,369,180
29,889,060
23,696,440
63,993,600
8,361,318
Load Factor
20.00%
30.00%
42.76%
43.50%
52.30%
65.56%
Consumption Unit Analysis:
Revenue - Sales $ $ $ $ $ $ $
Revenue - Other $ $ $ $ $ $ $
Total Revenue $ $ $ $ $ $ $
Distribution Expenses:
Customer-Related $ $ $ $ $ $ $
Demand-Related $ $ $ $ $ $ $
Total Distribution Expenses $ $ $ $ $ $ $
Wholesale Power Expenses: $ $ $ $ $ $ $
Energy-Related $ $
Total Wholesale Power Expenses $ $ $ $ $ $ $
Operating Margin
($ )
($ ) $ $ $ $
($ )
Unbundled Unit Costs:
Customer Cost Per Month
$19.30
$29.90
$43.71
$126.62
$237.01
$520.43
$41.39
Average Demand Cost Per kWh $ $ $ $ $ $ $
Average Demand Cost Per kW
$5.16
$8.42
$10.68
$10.95
$12.03
$13.93
$6.59
Average Energy Cost Per kWh
Average Operating Margin Per kWh
6/1/2017

20. Monthly kWh Usage By Rate
11/21/2016

21. Residential Existing and Proposed Rates
Existing Rates
Proposed Rates
Residential
Service Availability Charge @
$0.00
/ mo.
$10.00
First 15 kWh
$0.6215
/ kWh
$0.0978
Next 85 kWh
$0.1738
Next 150 kWh
$0.1045
Next 750 kWh
$0.0902
Next 1000
$0.0803
Remaining Summer kWh
Remaining Winter kWh
$0.0671
Minimum Bill
$9.25
6/1/2017

22. Commercial 1 Existing and Proposed Rates
Existing Rates
Proposed Rates
Commercial 1: <= 25 kW and <= 10,000 kWh /Mo.
Service Availability Charge @
$0.00
/ mo.
$15.00
Summer:
First 20 kWh
$0.6215
/ kWh
$0.0978
Next 80 kWh
$0.1738
Next 150 kWh
$0.1045
Remaining kWh
$0.0957
Minimum Bill
$11.20
Winter:
First 100 kWh
$0.4972
$0.0825
$44.40
6/1/2017

23. Commercial 2 Existing and Proposed Rates
Existing Rates
Proposed Rates
Commercial 2: > 25 kW and <= 150 kW
Service Availability Charge @
$0.00
/ mo.
$40.00
Summer:
Demand
$8.72
/ kW
$7.30
Energy:
First kW x 200
$0.0825
/ kWh
$0.0723
Next kW x 200
$0.0737
Remaining kWh
$0.0649
Winter:
$6.30
$0.0748
$0.0671
$0.0627
Minimum Bill
$218.00
6/1/2017

24. Commercial Industrial Existing and Proposed Rates
Existing Rates
Proposed Rates
Commercial Industrial: > 150 kW and <= 500 kW
Service Availability Charge @
$0.00
/ mo.
$120.00
Summer:
Demand:
First 100 kW
$10.77
/ kW
$7.70
Next 300 kW
$9.22
Excess kW
$7.88
Energy:
First kW x 400
$0.0715
/ kWh
$0.0696
Remaining kWh
$0.0649
Winter:
Demand
$6.30
$0.0627
Minimum Bill
$1,615.00
6/1/2017

25. Industrial 1 Existing and Proposed Rates
Existing Rates
Proposed Rates
Industrial 1: > 500 kW and <= 1,500 kW
Service Availability Charge @
$0.00
/ mo.
$240.00
Demand:
First 400 kW
$9.63
/ kW
$9.05
Excess kW
$7.79
Energy:
First kW x 400
$0.0715
/ kWh
First 400 kWh/kW
$0.0696
Remaining kWh
$0.0660
Excess kWh/kW
Minimum Bill
$4,815.00
6/1/2017

26. Industrial 2 Existing and Proposed Rates
Existing Rates
Proposed Rates
Industrial 2: > 1,500 kW
Service Availability Charge @
$0.00
/ mo.
$480.00
Demand:
First 400 kW
$9.63
/ kW
Excess kW
$7.79
Energy:
First 1,400,000 kWh
$0.0715
/ kWh
$0.0676
Next 3,600,000 kWh
$0.0561
$0.0531
Remaining kWh
$0.0484
Minimum Bill
$14,445.00
6/1/2017

27. Billing Comparison Summer Rate – Residential Service
Existing
Proposed
Rate Change
kWh
Rates
Amount
Percent
$9.25
$10.00
$0.75
8.11% 15
$9.32
$11.47
$2.14
23.00%
100
$24.10
$19.78
-$4.32
-17.91%
250
$39.77
$34.45
-$5.32
-13.38%
500
$62.32
$58.90
-$3.42
-5.49%
750
$84.87
$83.35
-$1.52
-1.79%
1,000
$107.42
$107.80
$0.38
0.35%
1,250
$127.50
$127.88
0.30%
1,500
$147.57
$147.95
0.26%
2,000
$187.72
$188.10
0.20%
3,000
$268.02
$268.40
0.14%
4,000
$348.32
$348.70
0.11%
Rate
Service Availability Charge @
$0.00
First 15 kWh
$0.6215
$0.0978
Next 85 kWh
$0.1738
Next 150 kWh
$0.1045
Next 750 kWh
$0.0902
Remaining kWh
$0.0803
Minimum Bill
6/1/2017

28. Billing Comparison Winter Rate – Residential Service
Existing
Proposed
Rate Change
kWh
Rates
Amount
Percent
$9.25
$10.00
$0.75
8.1% 15
$9.32
$11.47
$2.14
23.0%
100
$24.10
$19.78
-$4.32
-17.9%
250
$39.77
$34.45
-$5.32
-13.4%
500
$62.32
$58.90
-$3.42
-5.5%
750
$84.87
$83.35
-$1.52
-1.8%
1,000
$107.42
$107.80
$0.38
0.4%
1,250
$127.50
$127.88
0.3%
1,500
$147.57
$147.95
2,000
$187.72
$188.10
0.2%
3,000
$254.82
$268.40
$13.58
5.3%
4,000
$321.92
$348.70
$26.78
8.3%
Rate
Service Availability Charge @
$0.00
First 15 kWh
$0.6215
$0.0978
Next 85 kWh
$0.1738
Next 150 kWh
$0.1045
Next 750 kWh
$0.0902
Next 1,000 kWh
$0.0803
Remaining kWh
$0.0671
Minimum Bill
6/1/2017

29. tothassociates.com CONSULTING ENGINEERS 830 EAST PRIMROSE SUITE 200
SPRINGFIELD, MISSOURI
tothassociates.com
6/1/2017