University utility customers,

Utility rates have recently been approved for Fiscal Year 2009. Fixed utility rates for the UM utility enterprises and UM utility surcharges, and estimates of the average cost (including surcharges) of direct-purchased utilities are provided below.

The steam and electric rates are established at levels to recover all operations and maintenance costs for the generation and distribution of these utilities and to recover the costs for reserves for major repairs and replacements, debt, overhead and fuels associated with these operations.

Steam Rates used in the University budget model fluctuate from year to year because the primary rate drivers have become volatile:

• Budgets and rates are based on projected load. Steam consumption in FY08 was over-estimated, resulting in an artificially low rate.
• Projected consumption due to new space/construction was less than anticipated. In addition, energy conservation efforts in existing buildings resulted in less consumption.
• Natural gas is used to generate steam, and those prices have fluctuated in spite of our longer-term gas purchasing strategy.
• Additional capital/debt costs are being incurred for major projects (Ingalls Substation, tunnel replacement on Central and Medical Campus).

The Utility Services Enterprise (USE) purchases, manages and processes all purchased utilities. For customers, direct-purchased utilities refer to utilities that are supplied and metered by an outside utility company and distributed directly to the University customer. Surcharges are applied only to direct-purchased utilities to recover overhead and University distribution maintenance. Administrative costs for the USE include salaries and benefits, office expenses, computer hardware and software, legal services, Business and Finance department charges and MISS DIG operations.

Water/Sewer rates are increasing because of:

• Increased rates from the City of Ann Arbor
• The need to establish a reserve for major repairs and replacements for University owned piping starting on North Campus next year.

While we are able to set and maintain University utility enterprise rates and surcharges for the entire fiscal year, direct-purchased utility prices vary during the year, especially natural gas. The rates presented here are our best estimates at this time. It is important to note that these are university wide averages and your unit prices may vary significantly. For planning, the percent change in rates should be applied to your actual unit costs.

We hope that this information will allow you to plan for utility costs in the future. Please circulate this memo to appropriate individuals in your unit and contact Lisa Sheldon, 936-4219, or via e-mail (Lisa Sheldon (get address) (38.103.63.61)) with updates to the mailing list. If you would like additional information or if you have comments, please feel free to contact me.

William N. Verge, P.E.
University of Michigan, Plant Operations
Associate Director, Utilities & Plant Engineering
1110 E. Huron, Ann Arbor, MI 48104