Cleveland Utilities accountants have closed the books on Fiscal Year 2013 with this verdict: Mother Nature has been no lady, at least, when it comes to the company’s projected revenue.
An unprecedented amount of rainfall since January has curbed customers’ needs for CU water and a milder summer has softened the load on area HVAC and air conditioning systems. Translated into utility terms, it means fewer gallons of water and less kilowatt hours were needed to keep local households comfortable.
It’s a good scenario for customers, but bad tidings for the public utility that — like everyone else — is trying to make ends meet and to keep all the bills paid.
“The weather, and particularly the amount of rain we have experienced since the beginning of this calendar year, has taken its toll on the volumes in Fiscal Year 2013,” CU Senior Vice President and CFO Ken Webb told members of the Cleveland Board of Public Utilities during a recent monthly session.
As of Monday, Sept. 2, the Cleveland Filter Plant had recorded 59.88 inches of rainfall in 2013. This is already about 10 inches above 2012’s full-year total of 49.85 inches. According to Craig T. Mullinax, vice president of the CU Water Division, 2013 rainfall is on pace to hit 79.84 inches, which would be 25.70 inches above normal.
Webb reported that compared to the [sales] volumes that had been forecast in CU’s budget, actual sales were down in all three categories. In its Electric Division, CU attained only 97.4 percent of projections. In the Water Division, sales were only 95.7 percent of forecast, and in the Wastewater Division sales were at 99.5 percent.
“These lower than anticipated volumes translate into lower than anticipated revenue dollars, which if not offset by lower than anticipated expenses, produce net incomes lower than budgeted,” Webb, who takes the helm as CU’s new president and CEO on Oct. 1, explained.
Webb will succeed Tom Wheeler to the CU presidency. Wheeler is retiring after a 42-year career with the local utility.
The incoming CEO provided a detailed performance analysis of all three CU divisions during his report to the board.
Actual revenue for the fiscal year was $94,910,780 from the sale of electricity and miscellaneous revenue sources added another $1,507,158. This adds up to a total Electric Division revenue for the year of $96,417,938.
From this division revenue, CU paid TVA some $79,304,189 for purchased power. This left a margin between power sales and power cost of $15,606,591, Webb said.
“This was slightly over $1 million less than budgeted for the year with the results passing directly through to the bottom line,” he explained. “Operating expenses were slightly under budget, creating a bottom line net income in electric of $1,185,055 for the year.”
He said this was well under the budgeted net income of $1,947,533.
“Fortunately, this was projected to occur when the Fiscal Year 2014 budget was prepared earlier this year so the less-than-desired results are disappointing, but are not a surprise,” Webb stressed.
The Electric Division ended the fiscal year with 29,937 customers, an increase of 264 over June 2012. The average year-to-date price per kwh was 8.85 cents which was unchanged from Fiscal Year 2012.
Total YTD revenue in the Water Division was $12,753,974. This fell short of both the projected amount and the revenue total in Fiscal Year 2012, Webb said. Irrigation sales (sprinkler systems) alone fell short of the budgeted amount by more than $213,000, he added.
“Fortunately, and we cannot always depend on this happening, the expenses for the year of $12,292,788 were about $617,000 less than expected, resulting in the net income of $461,186 being better than projected,” he noted. “However, this was considerably less than the FY 2012 results.”
Webb further advised, “This did not come as a surprise as the actual net income of $461,000 was only $24,000 short of what was projected during the preparation of the Fiscal Year 2014 budget.”
The Water Division ended the year with 30,167 customers and an average retail price of water at $4.30 per 1,000 gallons.
At 99.5 percent, the sewer division came closer to meeting volume expectations than its electric and water divisional counterparts, Webb pointed out.
Revenues in the Wastewater Division totaled $10,336,159 for the year with expenses coming in at $10,151,234. This left a net income of $184,925.
“The sewer results were negatively impacted by two year-end adjustments,” Webb explained. “The first one was a $194,842 charge to increase the balance in the accrual account for bio-solids waiting to be processed at the wastewater plant. This accrual has been difficult to monitor recently as a result of the inability to process bio-solids during the installation of the new centrifuge.”
He added, “The estimated year-end inventory of biosolids waiting to be processed turned out greater than expected, resulting in the need for the additional accrual. That process has now returned to normal operations.”
Webb said the second adjustment of $138,638 occurred in the accrual of the cost associated with the requirements of Governmental Accounting Standards Board Statement No. 45. GASB 45 deals with accruing the cost of providing certain post-retirement benefits, he noted. This cost is allocated between the Electric, Water and Wastewater divisions based on the full-time equivalent employee count in the next year’s budget.
The FY 2014 budget equivalent employee allocation differed from the 2013 number due to the SCOPE 10 sewer rehabilitation program. Subsequently, the adjustment was needed to reallocate 2013 costs between the Electric, Water and Wastewater divisions, he said.
“Although the resulting net income was considerably less than expected, both in the original 2013 budget and the projected amount when the 2014 budget was prepared, sewer did end the year in positive territory.”
The Wastewater Division ended the fiscal year with 17,963 customers.