Marshall Stinnett, CU’s incoming controller whose hiring was announced last month by new president and CEO Ken Webb, delivered the welcomed report during a recent formal session of the Cleveland Board of Public Utilities.
The favorable numbers come on the heels of several months worth of drooping sales by the local utility whose negative impact was compounded by, in some cases, increased costs.
Board members will get an updated look at sales volumes when the governing body meets again Tuesday, Jan. 7.
During October, CU’s cost of purchased power from TVA, as a percentage of retail sales, decreased to 82.2 percent as compared to 87.2 percent in September, Stinnett said.
“This is more in line with expectations, as 83.3 percent was budgeted for the month of October,” he explained. “This decrease was driven by a more consistent temperature range for the month of October as compared to September, thus resulting in a lower wholesale demand charge from TVA.”
Stinnett said CU’s recent profit margins have been aided also by a stabilizing of “degree days,” which is a utility industry technical term used by heating and cooling engineers that helps to relate each day’s temperatures to level of demand for fuel to heat or to cool buildings.
According to one definition of the terminology as explained by the National Weather Service, “Heating and cooling degree days can be used to relate how much more or less you might spend on heating or air conditioning if you move from one part of the country to another. Of course, you'd have to take into account how well insulated your new home will be in comparison to your old one and the different costs of electricity, gas or heating oil. You could also use records of past heating degree days to see if the money you've spent on insulation, or a newer furnace or air conditioner is paying off. To do this, you'd also need records of past energy use.”
The terms, refered to inside the industry as “heating degree days” and “cooling degree days,” are based on formulas that Stinnett took into account in his report to the utility board.
“To calculate the heating or cooling degree days for a particular day, find the day’s average temperature by adding the day’s high and low temperatures and dividing by two,” he explained. “If the number is above or below 65, there are heating and cooling degree days for that day. The number of heating and cooling degree days is determined based on the difference between the average temperature for each day and 65 degrees.”
For example, he explained, if a day’s high is 90 and its low is 70, the day’s average temperature is 80. Using the formula, this would result in 15 cooling days (80 minus 65 = 15). This serves as an indicator of how much air conditioning might be needed to adequately cool an interior.
To average utility customers, the concept of “degree days” might be complicated, but the bottom line is that the fewer “degree days” experienced by a utility directly translates into less sales because of lessening need for heating or air conditioning.
In Fiscal Year 2013, Cleveland Utilities reported 1,451 degree days (meaning more Electric Division revenue due to increased use of air conditioning or heating), but in FY 2014 the number was only 1,287 degree days for a decrease of 164 degree days, Stinnett said.
The drop in degree days would partially explain CU’s dropping revenue, he added.
“These decreased heating and cooling degree days have helped to cause the under budget revenue numbers that the [Electric] division has experienced thus far,” Stinnett explained. “However, the number of heating and cooling degree days has begun to come back in line with the previous year. With this change, the actual results have begun to come back in line with budgeted amounts.”
Of the significance of degree days, he stressed, “This will be extremely important as we continue into the winter months of FY 2014.”
Revenue for October was $6,449,676, which was offset by purchased power costs of $5,207,159. This resulted in an operating margin of $1,142,517, Stinnett said. A margin of $1,212,989 was budgeted for October.
Other revenue sources contributed $128,141. He said the Electric Division revenue numbers were driven by a customer base of 30,175, an increase of 99 from September.
Operating expenses in October were $1,344,819, compared to the budgeted operating expense of $1,421,754. He said this resulted in a $76,935 benefit over budget.
“The net loss for the month was $74,161,” Stinnett noted. “This is compared to a budgeted net loss of $86,383. This brings the division to a combined net loss of $254,633 for the year to date. This is compared to a budgeted net income of $622,224 for the same period ended [last year].”
Although the division’s numbers remain down, Stinnett said they’re showing a positive trend upward.
“Although the Electric Division continued to operate at a net loss for the month of October, it must be mentioned that the actual results of October did exceed that of budget,” he said. “This is an important step in the right direction as winter months descend over the valley.”
Stinnett added, “As we look forward into the November results, the colder temperatures that we have experienced at the end of the month of November will help to drive the profit margin in the right direction. We will continue to monitor the effect that these demand charges will have on the bottom line profitability of the division during the winter months.”
In October, the division sold 242,983,500 gallons of water, compared to 239,413,500 for the same month in 2012. This resulted in water sales revenue of $1,067,785, compared to a budgeted amount of $1,099,393.
Stinnett said other revenue sources added $82,872 for the month. The division reported 30,432 customers in October.
Operating expenses for the month totaled $1,046,793, compared to a budgeted amount of $1,107,097.
“The Water Division has continued to control costs and to beat projected expenses for the month,” Stinnett offered. “As a continued trend, the division exceeded budgeted operating income of $90,310, with an operating income of $103,864 for October.”
He said this represented a $13,554 increase over budget. Year to date, the operating income is $521,528, compared to a budgeted amount of $659,430.
Total revenue in October was $937,423, compared to a budgeted amount of $925,657. For the month, revenue was $833,524 and “other revenue” added $103,899.
Total division expenses for the month were $829,885, compared to budget projections of $874,444.
The division pumped 152,979,000 gallons of wastewater in October, representing a decrease of 5 percent compared to October 2012.
For the month, the Wastewater Division recorded 18,008 customers.
“For the fourth straight month, the Wastewater Division continued to beat budgeted numbers for FY 2014,” Stinnett noted. “For the month, operating income was $107,538, compared to a budgeted amount of $51,213.”
The controller said this was an increase of $56,325, or 109.9 percent over budget.
“This brings the year to date earnings to a total of $454,100,” he said. “This is compared to a budgeted amount of $159,320 over the same period.”