Estimating Unbilled Revenues

1. Estimating Unbilled Revenues • Joni Davis, OPPD • Mindy Willis, OUC

2. Learning Outcomes • Understand reasons for accruing unbilled revenues • Understand two methodologies

3. Unbilled Revenues - Definition • Revenues applicable to electric energy consumed but not yet billed to the customer

4. Accounting Basis • Revenue Recognition • Matching Principle • Asset Recognition • Materiality

5. Advantages • Fair presentation of assets, revenues and cents per kWh • Facilitates identification of billing issues and/or metering issues

6. OPPD Unbilled Energy and Revenue Estimation Theory and Methodology

7. Disadvantages • Difficult to estimate and validate as accurate • Budgeting issues

8. Unbilled Energy - Definition • Unbilled energy is an estimate of the portion of net system requirements (NSR) consumed by retail customers in the calendar month, but not yet billed. • Unbilled calculations reconcile billed data (on meter read schedules) to net system requirements (on a calendar schedule).

9. Meter Read Schedules • Each month OPPD reads its meters in one of 20 cycles. • Each cycle has roughly the same number of meters. • One cycle is read each workday. • Energy is billed on the meter read date.

10. Cycle 1: 12/31/2003 – 1/29/2004 Cycle 2: 1/02/2004 – 1/30/2004 Cycle 3: 1/05/2004 – 2/02/2004 Cycle 4: 1/06/2004 – 2/03/2004 Cycle 5: 1/07/2004 – 2/04/2004 Cycle 6: 1/08/2004 – 2/05/2004 Cycle 7: 1/09/2004 – 2/06/2004 Cycle 8: 1/12/2004 – 2/09/2004 Cycle 9: 1/13/2004 – 2/10/2004 Cycle 10: 1/14/2004 – 2/11/2004 Cycle 11: 1/15/2004 – 2/12/2004 Cycle 12: 1/16/2004 – 2/13/2004 Cycle 13: 1/19/2004 – 2/17/2004 Cycle 14: 1/20/2004 – 2/18/2004 Cycle 15: 1/21/2004 – 2/19/2004 Cycle 16: 1/22/2004 – 2/20/2004 Cycle 17: 1/23/2004 – 2/23/2004 Cycle 18: 1/26/2004 – 2/24/2004 Cycle 19: 1/27/2004 – 2/25/2004 Cycle 20: 1/28/2004 – 2/26/2004 Meter Read Cycles Note how each cycle contains days in January. Note how cycles one and two contain no days in February Note how no cycles contain the dates 2/27 – 2/29 (which are in February’s NSR.

11. FEBRUARY UNBILLED EXAMPLE

12. Cycle 1: 12/31/2003 – 1/29/2004 Cycle 2: 1/02/2004 – 1/30/2004 Cycle 3: 1/05/2004 – 2/02/2004 Cycle 4: 1/06/2004 – 2/03/2004 Cycle 5: 1/07/2004 – 2/04/2004 Cycle 6: 1/08/2004 – 2/05/2004 Cycle 7: 1/09/2004 – 2/06/2004 Cycle 8: 1/12/2004 – 2/09/2004 Cycle 9: 1/13/2004 – 2/10/2004 Cycle 10: 1/14/2004 – 2/11/2004 Cycle 11: 1/15/2004 – 2/12/2004 Cycle 12: 1/16/2004 – 2/13/2004 Cycle 13: 1/19/2004 – 2/17/2004 Cycle 14: 1/20/2004 – 2/18/2004 Cycle 15: 1/21/2004 – 2/19/2004 Cycle 16: 1/22/2004 – 2/20/2004 Cycle 17: 1/23/2004 – 2/23/2004 Cycle 18: 1/26/2004 – 2/24/2004 Cycle 19: 1/27/2004 – 2/25/2004 Cycle 20: 1/28/2004 – 2/26/2004 Weather PatternsExample: February - four-days of below zero temperatures Streak 1: 2/2 – 2/5: Streak 2: 2/11 – 2/14: Streak 3: 2/25 – 2/28: Most billed in February, very little unbilled About half in February’s billed and half in unbilled Virtually none billed in February, almost all unbilled

13. Unbilled Energy Calculation Step 1 • Group Monthly billed kWh by • Rate Class (Residential, Commercial, Industrial, Lighting) • Meter Read Cycle • There are 80 groups (4 classes x 20 cycles)

14. Unbilled Energy Calculation Step 2 • For Each Group (class and cycle) • Determine system load or NSR for each day in the cycle Cycle 10 – get NSR for each day in the cycle

15. Unbilled Energy Calculation Step 3 • For Each Group (class and cycle) • Estimate the percentage of NSR before and after the first of the month 60% 40%

16. Unbilled Energy Calculation Step 4 • For Each Group (class and cycle) • Apply the percentages to the billed energy Example: Cycle 10 for one customer class: Total Billed Energy = 1,000 MWH Estimated Billed Energy before beginning of month = 600 MWH (1,000 MWH * 60%) Estimated Billed Energy after the start of the month = 400 MWH (1,000 MWH * 40%)

17. Unbilled Energy Calculation Step 5 • Sum all groups’ billed energy allocated before the first of the month. This is the estimated billed energy consumed in the previous month. February’s Billed Energy allocated to January’s NSR

18. Unbilled Energy Calculation Step 6 • Sum all groups’ billed energy allocated after the first of the month. This is the estimated billed energy consumed in the current month. February’s Billed Energy allocated to February’s NSR

19. Unbilled Energy Calculation Step 7 • Sum the daily system loads after the first of the month. This is the current month’s NSR. February’s Net System Requirements

20. Unbilled Energy Calculation Step 8 • Reduce the NSR by an estimated percentage for system losses.

21. Unbilled Energy Calculation Step 9 • Subtract the billed energy consumed in the current month from the NSR less load losses. This is unbilled energy. February’s Unbilled Energy = February’s NSR less February’s billed energy allocated to February’s NSR

22. Unbilled Energy Example (GWH) February Billed = 730 Allocated to Jan = 443 Allocated to Feb = 287 Feb NSR (less loss) = 707 February Unbilled = 420

23. Unbilled Revenue Calculation Step 1 • Allocate total unbilled energy to each rate class. • Determine contribution by class based on the ratio of billed energy consumed in the previous month. • Apply this ratio to the current month’s total unbilled energy.

24. Unbilled Revenue Calculation Step 2 • For each rate class • Calculate the $/MWH for all billed energy in the current month. • Adjust the $/MWH if needed for any rate changes – including seasonal rate changes (fractionalization).

25. Unbilled Revenue Calculation Step 3 • Apply the actual billed $/MWH to the allocated unbilled energy by class.

26. Unbilled Revenue Calculation Step 4 • The sum of the revenue for all classes is the asset “unbilled revenue.” • The change in asset from the previous month is the impact on earnings.

27. Summary Calculation

28. Questions