I made a promise to BWL chief Peter Lark this morning during his visit to the LSJ, so see below a list that Lark had generated on BWL’s cost-cutting measures. (All I did to it was change it from all caps to lower case.) Take a look. If you have questions, forward them to me. I'll try to get the answers and post them to the blog.
“backdrop:
board approved budget called for the following rate increases:
electric: 4%; water: 7%; steam 9%
due to economic tough times, management is requesting 2.5% across the board,
note: board requires a 6.2% r.o.a. (our net income). even with the 2.5% increase, our net income will be -0-. to meet the 6.2% figure, we need net income of $32 million
rate comparison:
vs our chief competitor (consumers energy) their rates are 30.85% higher (@500 kwh/mos)
the other large utility in the state’s (edison) rates are even higher
the average psc regulated utility’s rates are 11.52¢/kwh, the average co-op utility is 12.90¢/kwh, our rate is 8.91¢ @ 500 kwh and 8.3¢ @ 750 kwh.
why do we need a rate increase?
1. sales are down markedly this fiscal year ( july-nov ’07-’08)
— residential : 267 million kwhs vs 247
— commercial: 530 million kwhs vs 523
— industrial: 201 million kwhs vs 188
(this is due to weather/economy)
2. future sales erosion due to gm:
— 2 shifts to 1
— gm loss in january alone:
— 300k for steam
— 35k for water
1.2m for electric
3. coal cost:
2008: $11.56/ton
2009: $14.00/ton (earlier bids are at $18/ton)
we use 2 million tons of coal in a year ($28 million/yr)
4. natural gas prices are $4.00/mcf (thousand cubic feet)
— means we get less for our wholesale sales
5. db plan balance is no longer 125% funded
6. retiree health care costs (veba) are paid from a trust that’s value is diminishing, necessitating additional contributions of 6.5 million ( $3 million increased cost) ($3 million can’t borrow from db as planned)
what are other utilities doing about it?
—ceco: 16.4% residential rate increase requested
—deco: 4.6% increase granted the day before
christmas; just filed for a 10.9% residential increase = 15.5%
deco’s 4.6% increase = $3.74 per month for
the average customer
deco’s 10.9% increase equals another $11.13/month that equals $14.87 vs $1.74 @ 750 kwh or $1.23 @ 500 kwh
what are we doing about it?
· asking for a 2.5% rate increase
· eliminated 3 managers positions
· combined various work areas
· created a motor pool
· eliminated virtually all travel
· reduced hiring (730 vs 735) (budgeted at 770)
· ask all managers to reduce cost in their area by 10%
· reduced executive pay 5 percent
· increased co-payments for health care
other savings:
· reduced drug costs by $2.2 million/yr
· consolidated 401 & 457 plans: $400k/yr
· reduced cell phones: $32k/yr
· changed call center hours: $131k/yr
· changed purchasing practices in fleet & our purchasing area: $1.7m/yr
· changed power pole inventory, saved $70k
· saved $120k through grant funding for training
· coal: reduced bid from $18/ton to $14/ton
· coal: $52m over 2years (edison)
· asplundh: saved $525k over 3 yrs (this is a firm we’ve contracted with to do tree trimming)
10% of our hours are o/t
