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HomeMy WebLinkAboutFINCOMminutes06282012 Town of Mansfield Finance Committee RECEIVED Minutes of June 28, 2012 Yr� rf�YIN CI_I;-RKS OFFICE Present: Liz Christo, Michael O'Brien, Steve Schoonveld, Walter Wilk, WilliniiRa,11wfiVkar, John Stanbrook, Town Accountant, Gary Babin, Director MMED ANSFIELD CH Absent: Jim Bazinet r. , �fh ¢.1SE , T , Call to order: Chairman Wilk called the meeting to order at 7:30. Minutes of June 14,2012 The Town Manager's executive secretary, Deb Herbert, will take the Finance Committee minutes starting meeting July 15, 2012. The cost is within the budget of the Finance Committee. Ms. Herbert will come to the meetings and do minutes during the day. June 14, 2012 meeting minutes will be reviewed on July 15, 2012 meeting. Discussion of the operations of MMED—Pilot—Gary Babin, Director MMED Mr. Babin presented the MMED organizational structure. MMED has a Board of Light Commissioners, the Board of Selectmen serve as the Board of Light Commissioners. They are the policy making body for the MMED, set rates and appoint the MMED Manager. The Commissioners hold statutory authorit to approve the MMED budget but the budget does not require Town Meeting approval. y The current Manager of the Light Department is Town Manager William Ross. The manager has broad statutory authority over the operation. He oversees all employees and is required to present the budget to the Board of Commissioners. The responsibilities are very similar to Town Manager responsibilities but related to Light Department. William Ross, at his request and as a condition of his hiring, wanted to be Light Department Manager. It is an area of interest for him and an area he has extensive experience in from past jobs. Mr. Ross estimated that 10-15% of his time is spent on MMED business. He receives a stipend of$10,000 and that is part of the MMED budget. Gary Babin is the MMED Director and has had the position for eight years. He is responsible for the da to day operations of the MMED and represents MMED at all industry forums. The MMED Director y along with the Manager negotiates with the three MMED bargaining units (contracts just executed; increase 7/1/12 of 1.5% and 7/1/13 of 2.0% in addition to steps and lanes; employees accepted changes in health insurance). The following positions report to the Manager: The Plant Accountant is responsible for managing assets and all accounting. The Business Manager is responsible for customer service, credit and collections, accounts payable and billing. 1 The Operations p bons Line Superintendent oversees seven linemen. They are responsible for the general -- maintenance of electric system and all capital improvements. The Meter Foreman oversees two meter readers. They are responsible for installing and maintaining meters. There is an ongoing project to convert all the meters to radio read meters which will take several years and all the work will be done by MMED. The Station Operators oversee the Gilbert St. station and will oversee the new Bird Rd. station. They also coordinate switching with National Grid and ensure compliance with the NE regional control procedures. The Procurement Clerk is responsible for all purchasing and inventory. The MMED Manager and Director negotiate the purchase power agreements. 60 % of power from MMWEC which was created under MGL in 1960's and it represents all municipal utilities. Another contract with Constellation Energy which renews in two years and is gas indexed so not favorable. This contract covers 20%of needs, used during peak periods, 7 month contract for summer and winter. The balance of power is purchased off open market on an hour to hour basis and will execute a few short term contracts based on need. MMED entered into a contract with Sun Edison for a solar facility on landfill, still in the process of -- finalizing land lease. Agreement is for 5.5 cents per KWH which is less than off the grid and this price is fixed for twenty years. Other parties interested in putting solar on larger buildings and would need to enter into power agreements with MMED. MMED will need to adjust rates to cover cost of running the system even if MMED loses some of the KWH it sells to these businesses. There was concern that these installations might be threat financially but aren't with the rate adjustments that have been made. MMED is investigating getting software to map the system to model the impact of solar installations. The new Bird Rd. substation is funded through depreciation funds and operating cash. At this time the feeling is that the rate of return is appropriate. Rate of return based on net income as a percent of gross plant and service and right now is about$37M. By statute, allowed to earn up to 8% of gross plant, V2 goes back into plant through capital additions, some to PILOT and operating cash. Last rate review was in 2008, 6%rate of return. MMED is in the process of doing a rate study and set the rates for the next five year period. The rate is set by class and there are three classes: residential, small commercial, and large commercial. Depreciation fund, established by statute, receives budgeted transfers regularly for the renewal and replacement of facilities. The statute requires a minimum of 3% gross plant per year to be transferred into this account with a maximum of 5%. 2 MMED Budget Items: Purchased Power Power Expenses (MMWEC; Constellation; open market) Power market follows natural gas pricing so as gas cost decreases this expense decreases. Transmission Cost tripled in last five years due to expanding transmission in NE to create flexibility due to challenge of building a new power plant and the increase of renewable energy. Payment to ISO New England Distribution Operation and maintenance of the system (poles, wires, meters, underground cables, transformers) Customer Service Billing; collections; meter reading; general customer service Admin and General Administrative staff and professional services; benefits; Manager stipend Depreciation Accrued monthly form operating cash to depreciation fund Discount and other Early payment of bill discount expense Misc credits Flush of funds, capital reserve built in MMWEC and if moneys returned to surplus Increase to surplus Increase in the equity of the plant Rate of Return Based on operating income PILOT (Payment In Lieu Of Taxes) MMED is thel3th or 14th biggest municipal light plant in Massachusetts. The PILOT designed to mimic what a utility would pay in town in taxes. Benchmark is net plant value with current tax rate. MMED has both regulatory and GAAP financials. MMED is in the process of conducting a rate study with the goal of reassessing the rate with all the changes, like the new substation coming on line. There are three rates by class of customer, residential is the lowest. Board of Selectmen would like to look at commercial rates. The rate must ensure enough funds to meet the needs of the operation and renewal. MMED owns all their land except for the easement in perpetuity for Bird Road substation. Current adopted PILOT is $485K, $480 K to general fund and $5K to Mansfield High School Robotics. The Board of Selectmen is looking to FY2014 and wondering if the PILOT should be adjusted. New commercial tax rate will be set in October. DPU gives broad discretion to the board to establish a PILOT and can be a very political issue because of the latitude. Mr. Babin feels the current amount is reasonable. BOS does not want to tax though the meter and does not want to create instability in the fund in the future. Fixed PILOT amount versus variable is the preference of Mr. Ross. Anticipate lower -- rates, due to major debt retiring and funds in rate stabilization. 3 Plant value changes due to increase in infrastructure in the system. For example, over time MMED will be building six feeder lines form the new substation so that if one station down, they anticipate large investment as lines are runs across town. Anticipate that on June 30, 2012 there will be seven million in cash which is 90 days of cash on hand. Previously, MMED was building up this fund to pay for substation and was able to pay it all. For retiree health care, MMED paying the full required amount and it is held in trust. Separate fund but under the treasurer of the fund. Pension liability is part of the Town's number. Will this be included in the rate study? Increasing payment of unfunded liability to more then recommended contribution was not discussed. Unsure how Bristol County would handle this as they handle pensions. Audits will be in October. MMED has had no management letter in five years. William Ross feels it is a well-managed utility. Staffing level 2/3 the size of what most utilities this size usually are, Gary Babin felt it was lean personal wise. Other business Motion: To pay 2013 Annual Dues in the amount of$268.00 to the Association of Town Finance Committees (O'Brien/Schoonveld) Roll call vote: Wilk aye, Schoonveld aye, Christo aye, O'Brien aye 4:0 passes Association of Town Finance Committees Annual Meeting is on October 20, 2012 and is covered by the Finance Committee budget. Transfers need to be approved by Finance Committee before July 15th, which is the last date per MGL to transfer monies. In addition, the Board of Selectmen need to approve the transfers. The next meetings are July 12 and August 23 at 7:30. Walter Wilk requested an updated list of capital improvement requests from the Town Manager. William Ross updated the Finance Committee regarding the reserve funds allocated for a new phone system. The consultant may not have a contract in place by July 1 so there will not be enough information to make a payment. Most likely the consultant will be paid and then the balance of the $60K will fall to free cash. No funding source in FY13. Motion: To adjourn meeting at 9:OOpm (Schoonveld/Wilk) Roll call vote: Wilk aye, Schoonveld aye, Christo aye, O'Brien aye 4:0 passes ck,j,er: vb 4