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HomeMy WebLinkAboutmin of light comm 03242008 Mansfield Municipal Electric Department Minutes of Light Commissioners Meeting March 24, 2008 RECEIVED ,,' f" I ,- <, !J;~ n F F ' lL~:r,t\:) LICE ZOUB IIPR I b A CJ; 20 Present: Chairman David McCarter; Commissioner Lou Amoruso; Commissioner f~Mdm::-' E: L 0 Levine; Director Gary Babin; Engineer Chris Cox; Staff Accountant Ken ThOlbi;btl;(;~itte! t C T T'~ Foreman Gary D'Ambra; Financial Assistant Jacqueline Lee and Town Manager John " W D' Agostino Light Commissioners Meeting The meeting was called to order at 7:08 PM followed by the Pledge of Allegiance. Motion: To approve the minutes of the March 3, 2008 Light Commissioners meeting (Amoruso/Levine) Passes 3/0 Power Supply Contract - Director Babin told the Board that MMED needs to replace the Dominion power supply contract which expires in December 2008. He stated that he hoped to receive authorization from the Board this evening to move forward with this process. Director Babin said he had sent an information package with a detailed description and background ofthis process to the Board members homes on March 13. Mayhew Seavey of PLM, MMED's power supply consultant, reviewed the four power supply options which are available to MMED. He said MMED's first option is to procure power by purchasing "firm energy" at a fixed price. This is similar to the Dominion contract. The second option is a heat rate contract which allows you to put off locking in a gas price until a later date. That gas price then determines the energy price. Some examples of how this might work are waiting until the month the energy is to be delivered before locking in a gas price or locking in a gas price any month between the time the contract is signed and the energy is delivered. This gives you the opportunity of not locking in during a period when the gas price is high. Mr. Seavey explained that you weren't buying energy in a heat rate contract; you were buying an index price tied to the price of gas. The third and fourth options involve buying a portion of an output of a generator which means you commit to the capital and operating costs for the life of the generator. MMED's third option is to be a purchaser of the output of a unit while the fourth option is being a joint owner of a generating unit. These options can be used as a bridge until a longer term situation is found. Commissioner Levine questioned whether the Taunton project would be a replacement for the power MMED would lose as a result of ending their membership with MMWEC. Mr. Seavey clarified that MMED would not be losing any power by ending its membership in MMWEC. MMED will still have its power supply contract obligations to fulfill. Director Babin told the Board that MMED solicited non-binding indicative prices for the heat rate contract that day, which Mr. Seavey would be presenting this evening. Mr. Seavey then gave a presentation ofMMED Analysis of Indicative Prices. Mr. Seavey explained that the purpose of the solicitation was to replace the Dominion contract. It was also needed to cover the load exposed to unhedged spot market prices for energy. MMED also needed to replace energy from Stony Brook in winter when natural gas is not available. Mr. Seavey then addressed the quantity of energy being purchased. He said the purchase represents only 17% of Mansfield's requirements annually. He also said it targets the peak load months of winter and summer. Mr. Seavey then gave a summary of indicative prices received. He said that responses were received from six suppliers; Constellation, Dominion, Integrys Energy, FPL Energy, Morgan Stanley and JP Morgan. A five year term was requested, which no one refused. Two of them, Dominion and JP Morgan, offered only fixed pricing. Option lA of Mr. Seavey's presentation was Firm Energy-Fixed Price. He said that Integrys offered the lowest prices although they were only 1.0% lower than JP Morgan. Option IB was the Heat Rate Indexed Prices. Constellation was the lowest, only 0.5% lower than Morgan Stanley. Integrys came in at third, only 0.9% higher than Constellation. FPL Energy came in at fourth. Commissioner Levine questioned whether there was collusion between the parties involved. Mr. Seavey answered no, that competitors do not talk to each other as that would be against the law but all have a very good idea where the market is at. In summary, Mr. Seavey said that fixed prices are high compared with the averages ofthe last four years. Right now, the lowest cost heat rate is 1.1 % lower than the fixed prices. He recommended pursuing a five year heat rate contract with a heat rate no more than 2% higher than Constellation's indicative price. Director Babin said that he wanted the Board to give authorization to the MMED staff to be able to enter into a contract within a certain range of costs. Commissioner Amoruso asked why Mr. Seavey was recommending a heat rate variable contract vs. a fixed price. Mr. Seavey answered that you have a 50% probability of the fixed rate price being higher than if you wait to exercise the heat rate contract. Mr. Seavey noted that he is currently managing fourteen heat rate contracts. Commissioner Amoruso questioned whether there would be any problems, with storms, etc., with the Florida Power & Light getting the energy to MMED. Mr. Seavey explained that the electricity is not coming from Florida but that it is actually coming from ISO New England. It is the financial strength of the entity which is the issue, not the physical delivery of the electricity. Commissioner Amoruso inquired as to splitting the contract, half fixed and half variable. Mr. Seavey replied that yes, it can be split into two contracts. Chairman McCarter asked if MMED could sell this contract if they saw something better down the road. Mr. Seavey answered yes. Director Babin stated that the reason they're here now, which is nine months prior to termination of the Dominion contract, is so MMED has the time to implement Mr. Seavey's strategy with respect to hedging gas prices. Director Babin said he wants to get the Board's approval to move forward with a heat rate contract so that the staff can go out to get final pnces. Motion: To authorize the Mansfield Municipal Electric Department Manager and Director to execute a power purchase agreement for a term of not more than five years, substantially similar in form to the agreements that the Board has received herein, for a heat rate contract with a heat rate not more than 2% higher than Constellation's indicative price effective today. (Amoruso/Levine) Passes 3/0 Director Babin offered to come back to the next Selectmen's meeting to again explain the contract issue as two of the Board members were not in attendance this evening. The Board thanked him for his offer but said it wouldn't be necessary. Generation Charge for April through June 2008 - Director Babin distributed a hand-out to the Board regarding the Generation Charge to be implemented for April through June 2008. He reiterated that MMED's billing had been unbundled since January 2008. He stated that the bill now has a Generation Charge, which is set quarterly, and represents what MMED pays to purchase the power. During the months of January through March 2008, MMED estimated the Generation Charge at 10.34 cents to purchase one kilowatt hour of energy. He explained that prior to setting the second quarter Generation Charge, MMED had to true-up what they had forecasted in January and February versus the actual cost. The Generation Charge for those two months undercollected actual costs by $447,640 due to; increased costs for Canal; an unscheduled outage on Seabrook which forced MMED to purchase replacement energy and higher than normal LMP prices due to increased energy costs. This true-up is part of the process to determine what the new Generation Charge will be for the months of April through June. Director Babin noted that you would not normally see a lot of hot or cold weather during the months of April, May and June. Based on the forward market projections and truing up January and February, MMED was looking at an increase in the Generation Charge of approximately 2.25 cents, to 12.59 cents. Commissioner Amoruso questioned the fluctuation. Mr. Seavey suggested that in the future, MMED should consider accruing an allowance to account for these types of fluctuations. Chairman McCarter questioned using the Rate Stabilization Fund. Director Babin said it could be considered but you would still take the money out of operating cash. He stated that MMED does have a statutory obligation to collect all of its production costs. FY09 Operating Budget Supplemental Information - Director Babin stated that the Board had been seeking more detailed information in regards to MMED' s FY09 operating budget when they approved it on March 3. MMED Staff Accountant Ken Thomson had prepared more schedules and was on hand to answer any questions that the Board had. The first page was a tracking schedule oflabor and expenses for FY09. The second schedule was only labor while the third was only expenses. The fourth schedule was an employee benefit analysis for calculating the overhead rate applied to labor. A column for FY07 actual was also added for purposes of comparison with the FY08 and FY09 budgeted amounts. Chairman McCarter stated that he hoped this information would be included with future budgets. He said he appreciated receiving the information as he liked to see the trends and be able to compare. Commissioner Levine inquired as to the $111,350 for office supplies. Director Babin said the reason for that number is that office supplies had been under budgeted in FY08. Staff Accountant Thomson added that computer project support and telephone expenses come under office supplies. Commissioner Levine asked about the rent that MMED pays. Staff Accountant Thomson answered that it was condo fees. Director Babin explained that MMED owns 4 condo units in its building and belongs to a condo association which assesses fees for maintenance of the building. Commissioner Levine wondered what outside services were used by MMED. Staff Accountant Thomson said that this category consisted of legal fees and outside engineering. Director Babin added that it also included the cost of Mr. Seavey's services as well as the auditors. Commissioner Levine questioned the amounts on employees sick, vacation and personal time. Director Babin explained that a 40 hour employee listed on the spreadsheet is paid for 2080 hours, although they only actually work approximately 1700-1800 hours, and that the grand total also includes payment for the sick, vacation, personal time, etc. Director Babin told the Board that although Vice Chairman Dentino was not at this evening's meeting, he had spoken to him earlier in the day. Vice Chairman Dentino was requesting specific personnel information in regards to the budget. Director Babin said he had found a spreadsheet with this information after his conversation with Vice Chairman Dentino. He distributed a copy of the spreadsheet to each of the Board members and believed it answered the questions Mr. Dentino had asked. Department of Public Utilities Annual Report- Director Babin told the Board that MMED is required to complete a calendar year statistical summary report for the Massachusetts Department of Public Utilities (DPU). As MMED is no longer on a fiscal year coinciding with the calendar year since changing to the same fiscal year as that of the Town, the numbers included in this report are not audited financial numbers. Director Babin said that in the past, this has been an issue but he told the Board that the numbers in this report are not required by the DPU to be audited numbers. Director Babin also told the Board that MMED had requested an extension for submission of the report in order to obtain the required signatures of the Board members. The report is usually due on March 15 but the extension was granted. Commissioner Levine inquired as to whether things that had been shown as large adjustments within the report had been inappropriately classified previously. Director Babin clarified that they had not been classified correctly. Staff Accountant Thomson said there were no detailed fixed asset accounts when he came to MMED. He found that assets had been categorized incorrectly and explained that he was just transferring them from one category to another. Commissioner Levine asked what the category of special funds was. Staff Accountant Thomson said that it was the MMWEC Reserve Trust plus the Calpine Rate Stabilization Fund. Commissioner Levine inquired as to the Unappropriated Earned Surplus. Director Babin explained that it was the equity of the plant. Motion: To approve the MMED CY07 Annual Report for the Massachusetts Department of Public Utilities (DPU) (Amoruso/Levine) Passes 3/0 Budget Billing Plan Information- Director Babin suggested to the Board that they defer the discussion about the budget billing to the next meeting as Vice Chairman Dentino was not in attendance this evening. Director Babin stated that Vice Chairman Dentino was the Commissioner who had questions about it at the previous meeting. Chairman McCarter agreed to defer the item. Director Babin told the Board there was also a piece of information in their packet regarding the Mansfield High School Robotics team. He thought the information would be of interest to the Board even though the MHS team is not competing in the competition shown in the brochure. Old and New Business Director Babin told the Board that he was aware that the Ford 500 automobile (Car 9) that had been purchased for the MMED staff had been brought up for discussion a few times during Selectmen's meetings. As he had never been asked directly about it, Director Babin wanted to raise the subject to correct any misinformation or misunderstanding regarding the use of that vehicle. He distributed an information sheet explaining the background information on the vehicle and included a detailed explanation of the use of the vehicle since its purchase. He explained that while it had been stated that the car was primarily used twice daily for trips between MMED and the Town Hall, there were several other trips made by the engineering staff and other employees to various meetings and training seminars. By his calculation, only 15% of the mileage on the vehicle was related to the Town Hall trips while the remaining 85% of the mileage had been used for the other purposes described on the sheet. He also mentioned that MMED staff using town vehicles instead of their own vehicles, which had been the past practice, removed an element of liability the employees and the Town may incur when traveling on town business. Since Commissioner Levine will be unable to attend the April 14 Light Commissioners meeting, Director Babin said he would review the information with her regarding the PLM study that would be presented at that meeting. Motion: To adjourn the Light Commissioners meeting at 9:27 (Levine) Passes 3/0 Respectfully submitted: Jacqueline Lee 4/14/08 ~pa I # "'"f/ ~~~ Signature of Clerk C.{. L -h ~ () e (' k i-//?//oK Dafe of Approval