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HomeMy WebLinkAboutLIGHTCOMM MIN04012009 Mansfield Municipal Electric Department Minutes of Light Commissioners Meeting Aprill, 2009 VED ,( <,< ll'-j F ~I: 1 C E '\. .~. ~, ~,. ,~r'" 1'\ ,_ '. LeU) l '1 f-\ 0,: ~ q Present: Chairman Ann Baldwin; Vice Chairman Jess Apotowitz; Clerk Kev~n ,Moran; Commissioner George Dentino; Director Gary Babin; Engineer Chris, Cox; Staff Accountant Ken Thomson; Line Foreman Gary D'Ambra; Financial Assistant Nancy Olson; and Town Manager John D' Agostino. Arriving late was Commissioner Sandra Levine Light Commissioners Meeting The meeting was called to order at 7:05 PM followed by the Pledge of Allegiance. , Chairman Baldwin opened the meeting stating that the first hour and a half of tonight's meeting will be an MMED meeting for the proposed FYIO Capital and FYIO Operating budgets. After that the Board would adjourn into a regular Selectmen meeting. She then turned the meeting over to Director Babin. FYIO Capital Budget - Director Babin indicated that two budgets would be discussed; the proposed FYI0 Capital budget and the proposed FYlO Operating Budget. He reminded the Board that the FYI0 Capital budget was originally presented to the Board on February 9th. At that time, the Board decided to defer voting on it until MMED presented the FY 1 0 Operating Budget. Since that time the MMED Director has worked extensively with Jim Lazzara of the Finance Committee. Director Babin presented a brief overview of the Capital Budget. The FY09 capital budget was $1,871.44. The Proposed FYI0 budget is $1,575.946. This budget is scaled back by $300,000 from last year's budget due to the economy. The amount of billable work for FYIO is significantly lower than in FY09. He said that in past years, MMED had done quite a bit of underground conduit work which required the use of a contactor. MMED has not allocated any underground cable work for FYI0. This reduced labor costs from $541,000 to $526,000 and reduced material costs from $1,129,000 to $789,000. One vehicle was requested for the FYI0 capital budget, a bucket truck budgeted at $175,000. This estimate was based this on prior experience and Gary D' Ambra has done research on this. Weare looking to replace the material handler. The material handler allows a lineman to go up in the bucket where he also has a winch to enable him to pick up the transformer and position it on the pole as he is working with it; as opposed to having to use two trucks. The unit MMED proposes replacing has 47,000 miles and 13,000 hours of operation. To give a basis for comparison the 13,000 hours is about 1,640 days of 8 hour days which is about 8 or 9 years of day to day use for this vehicle. MMED is also doing a lot of overhead work to upgrade circuits. Director Babin added that this Capital budget is exclusive of the cost to install the proposed substation in East Mansfield Director Babin indicated that he also sent to the Board the 5 year plan; broken down into proposed separate 5 year plans for Operating and Capital budgets. He then referred to the Capital plan. It is broken out into a couple of different ways. The capital budget was shown with the ongoing capital requirements for FYI0 to be $1,625,000. The original Capital requirements then increase about $100,000 per year after that. Director Babin said the East Mansfield Substation is budgeted at about $7.1 million. The bulk of the expenditures will occur in FYl1 which is when MMED plans to put the station in service. $6.3 million ofthe $7.1 million is projected to be spent in FY11. Also included was a line item called Advanced Metering Infrastructure (AMI) at $1 million per year for two years. It is now being called Smart Grid. Director Babin said Smart Grid has come up in the stimulus package that President Obama is presenting and also at the state level. The idea is to design smart meters that allow two way communication. This encourages more real time-of-use metering so you can adjust pricing of demand on the system. This also allows control of customer devices. He added that the MMED staff put forth a summary in June 2008 on this item. Since that time it is becoming to be a requirement at the state and federal levels. Director Babin indicated that MMED has budgeted for a new bucket truck. MMED projects two pick up trucks for FYll and another bucket truck in FYI2. Overall, MMED staff has projected a capital budget of $2,300,000 for FYI0, $9,065,000 for FYll, $3,320,000 for FYI2, $1,925,000 for FY13 and $2,025,000 for FYI4. He noted that the Depreciation expense is also listed in the 5 year summary. The Depreciation Expense is the actual amount of money set aside over the course of a year and deposited into a segregated account specifically for capital improvement projects. Capital projects are funded from depreciation except for the Substation, which will be paid from borrowing. He added that MMED is currently working with the Finance Committee to formalize the borrowing plan. Jim Lazzara presented his opinion of the FYI0 Operating and Capital budgets and the Five Year Plan. He stated that he was glad that the five year plan was more specific than an earlier version. He stated that the important thing to keep in mind moving forward is that there is a reduction shown in the Capital budget, whose labor costs are shifted and strongly reflect in the Operating budget. He indicated that the Finance Committee has reviewed the plans and is comfortable with both of the proposed budgets. , Director Babin ended his presentation and asked the Board if they had any questions. Commissioner Dentino questioned the purchasing of new office equipment for $25,000. He states that he believes this is for office renovations, which he has questioned in the past. Director Babin explained that a larger office was made for the Business Manager and a conference area was added to that office to benefit Customer Service personnel to speak to customers privately, if needed. Director Babin also noted that the Customer Service personnel needed more work space, which was accomplished by removing the wall and utilizing what was then vacant space. Commisioner Dentino noted that there are other offices that are more cramped than the Light Department. He asked for the actual cost of these renovations; for the Architeral Designer, materials, labor, equipment, furniture, etc. Gary Babin indicated he would get that information but stated that the project was completed within the budget, which Commissioner Dentino disputed. Chairman Baldwin asked for clarification. Director Babin explained that this was work approved in FY07 and completed. She asked if Director Babin could get that information for Commissioner Dentino. Director Babin indicated he would do so. Commissioner Dentino also had questions regarding the purchasing of a Bucket Truck. He felt that "idling" is not the same as driving, therefore, not as strenuous on the truck. He also mentioned was another truck was projected for replacing in 2 years in the Five Year Plan. Commissioner Dentino stated that the Fire Department does not replace their vehicles as often. Commissioner Dentino further stated that two cars were recently replaced with less than 80,000 miles. Gary Babin corrected Commissioner Dentino and stated that one of those vehicles was replaced because it was involved in an accident in 2005 and totaled. He added that the other driver was issued the citation in the accident. Commissioner Aptowitz questioned if it would possible to look at the replacement of the bucket truck in 6 months due to the economy, despite the fact that it is a one year lead time. Director Babin stated that the staff felt it was necessary to plan this replacement as it is a 14 year old truck. Commissioner Moran cautioned that one consideration in waiting to order the Bucket Truck was that he did not want MMED to be caught like the Fire Department who had to purchase two trucks at the same time. Chairman Baldwin stated that the Fire Department got a better deal by ordering two trucks at the same time. She questioned if that would be an option for the Light Department. , Director Babin stated that each of these trucks is custom built individually and it takes 9 months to a year to build to MMED's specification. That is another reason why they are so costly. Chairman Baldwin asked Line Foreman D'Ambra if he thought it would hurt to wait six months before considering the request. Line Foreman D'Ambra stated that you can always wait but MMED is trying to stay ahead on a planned replacement schedule. He indicated that currently MMED has a 3 year old truck sidelined with hydraulic problems that is past warranty. MMED is now using a spare truck that is 14 years old as a front line truck. He added that he felt it is wise to spend money when there is the need. Commissioner Dentino believes that a truck being 10 to 15 years old does not mean it has to be replaced. Also, he would like to see us hold onto a truck instead of trading it in. He doesn't believe the money we receive as a trade in is enough. He would rather utilize the equipment to the fullest. Director Babin pointed out that this is exactly what MMED has done; kept a spare vehicle available that is now being used because of breakdown. Director Babin stated that he feels that waiting for equipment to break is not the best way to do it. He said he believes in planned manintenance and replacement and he questioned how MMED could work with broken equipment. Commissioner Dentino reiterated his position about using equipment to the fullest. Line Foreman D'Ambra then mentioned again the fact that MMED has a 3 year old truck that has hydraulic problems that are not covered under the warranty. This was totally unexpected and the vehicle is not usable due to the nature of the problem. Initial estimates from the vendor is $90,000 to fix it. Line Foreman D'Ambra stressed that it is better to proactive and do routine maintenance. Commissioner Dentino moved on to labor costs. He stated that labor cost is $35 an hour with 80% overhead in the budget. He feels this is real indicator of cost over and above. He stated that the $35 is really $60 per hour and that is all in benefits. Gary Babin pointed out that an 80% overhead is actually low for the utility industry where markups of well over 100% are common. He felt the 80% markup is relevant even though if it is for employee benefits but also covers other items. Commissioner Aptowitz questioned that in the FYI0 budget there is nothing for the East Mansfield Substation. He questioned how MMED is going to pay for the easement with National Grid and asked the status ofthat issue. Director Babin indicated that MMED has allocated $250,000 for the easement and that MMED is pushing very hard with National Grid to get that agreement done. Commissioner Moran noted that there were less reimbursable projects because of economy and that MMED will be working more on the recurring projects. If MMED ." were brought into a two year snag and running deep into the recurring projects, he asked how that affects the rest of the plan. Director Babin stated that MMED had about 900 man hours in reimbursable projects in FY09. For FYlO MMED has 250 billable hours budgeted. MMED has had to absorb the non-billable labor cost either in the Operating or the Capital budget. He said MMED has scaled back the Capital budget for FYI0 and, as a result, a total of 400 man hours was shifted to the Operating budget. This was discussed extensively with the FinCom and it does have a dollar impact. It ends up being a cost shifting mechanism. In addition, once the East Mansfield substation is built, there will be a lot of capital work involved for MMED employees. Commissioner Levine then asked a question about whether MMED has a firm price with National Grid. Director Babin indicated that MMED has retained and is currently working with an appraiser to determine the price of the property. Commissioner Levine questioned what happened with the original easement price of $100,000 to $150,000. Director Babin indicated that while that was Grid's initial estimate, it was never officially committed to paper. As a result, their appraisal raised the price and MMED is moving forward with the easement document and trying to determine a price. Chairman Baldwin asked if the Board was ready to vote on the Capital Budget. After much discussion, it was decided to wait to hear the presentation of the FYIO Operating Budget and vote on the two budgets at the same time. Director Babin then presented the FYI0 Operating Budget. He stated that the Operating Budget is designed to fund the ongoing maintenance of the system and to pay for the cost for the procurement and transmission of electricity. He noted that those last two components of the budget are beyond MMED's control. MMED must pay what ISO is billing for the power as determined by the market, although MMED has contracts to offset some of these costs. He pointed out that the Transmission cost component is dramatically increasing. Director Babin said that the controllable expenses within MMED's budget are; (1) Distribution, (2) Customer Accounts and (3) Administrative and General. The FY09 approved budgeted was $32,010,674. The FYlO budget amount is $31,766,866 which represents a $243,809 decrease. The amount of energy to be sold is projected to increase 1 %. Mayhew Seavey originally projected a 2% increase annually in energy sales when he performed his planning study a few years ago but with the economy, we are only projecting a 1 % increase. Director Babin indicated that based on projected revenues and anticipated operating expenses MMED forecasts a Net Income $2,295,733 in FYlO. This is a 5.89% rate of return and is consistent with the Board's 6% rate of return target based on the cost of service study and the new rates put into effect in 2008. .. Director Babin noted that the Generator Charge comprises about 75% of the customer's bill. Calendar year quarterly Generation Charge charges for CY08 started at 10.34 cents for the first quarter, increased to 12.18 cents, increased again to 13.23 and then decreased to 12.74 cents. For the first quarter ofCY09, the Generation Charge was 12.67 cents but has decreased dramatically to 9.95 cents in the second quarter. Power costs have come down due to fossil fuel prices being down, which reduced the fate to almost 3 cents in the second quarter. Canal Station costs were $2.3 million to MMED customers in Calendaf yeaf 2008. This was on top of payment of $1.6 million in Calendar year 2007. These costs represented 9% of MMED's total power supply budget in CY08 and added 1 cent per kWh to customer bills. Litigation to reduce Canal charges continues. The Generation Charge based on current forward pricing for FYI0 is projected at 10.20 cents for the first quarter, 10.72 cents for the second quarter, 11.46 cents fOf the third quarter and 10.12 cents for the last quarter with the weighted average being 10.57 cents. Director Babin pointed out that the cost of transmission services in this budget is up dramatically from prior years. For FYlO, MMED has budgeted $2,424,100. This is a 47% increase over FY09. Transmission costs fepresent 7.5% of the Operating Budget. Further. Projections for FYl1 call for another 50% increase in the cost of transmission. Controllable expenses are those expenses that can be used to implement cost reductions. These expenses are: (1) Distribution, (2) Customer Accounts and (3) Administrative and General. In keeping with the Board's goal to reduce operating expenses for FYI0 MMED has identified the following expenses that can be reduced compared to FY09 and which produce a significant impact on the budget: tree trimming reduced by $70,000; legal expenses reduced by $50,000; Collection expenses decreased $20,000 because MMED changed credit card vendors; newsletter production cost reduced by $30,000. This assumes reintroducing a streamlined newsletter at a reduced cost with direct mailing as a bill stuffer. In addition, Director Babin indicated the new budget reduces bill printing services by $7,500. Relative to cost increases contained in the budget, the new budget absorbs a contractual increase of 3% for all collective bargaining units; reclassification of appliance rebates from non-operating cost to operating costs has a cost impact of $55,000; an additional half-day of labor during the year will be a $5,000 increase; consulting engineering costs are projected to increase $25,000 due to building East Mansfield Substation. These consulting costs will eventually be capitalized once the station is constructed. Director Babin pointed out that training expense in FY09 was $20,000. In FYI0 MMED is proposing $12,000 for training. Only the bare minimum training that is required has been included: $3,000 for year 3 of NEPP A Substation school; year 3 of an Apprentice Lineman Certificate school. The NEPP A training is held in Pascoag, Rhode Island and a centralized training facility and represents the out of state travel component of the budget. $4,000 is budgeted for line worker in-house safety training by NEPP A throughout the , year to comply with training guidelines required under OSHA 1910-269, $1,200 for mandatory certificate training for operating personnel to work on MMED's facilities near the MBTA/Amtrak lines, $1,500 for annual CPR certification training, $1,000 for Advanced Lineman training and $1,300 for any unanticipated but required training which arises during the year. Director Babin pointed to the Labor summary on page 17 of the budget that shows MMED's FYI0 Budget Request - Man-hour Summary. This summary is a break down of the man hour allocation for capital and operating work by employee projected for FYI0. This FYlO budgeted labor cost does not include the estimated 36 man hours for each line worker that is allocated to billable work. That labor item is billed directly to the customer. The costs associated with paying for all employee benefits are tracked and allocated across the board on a prorated basis to all of the various operating and capital accounts where straight time labor is expended. These costs are allocated through the application of an 80% overhead markup on labor. MMED also applies a 15% stores expense to all material drawn out of inventory. Jim Lazzara gave his brief overview of the FYI0 Operating budget. In reviewing the Five Year plan, the biggest item he noted is the transmission cost projected out at a rapidly increasing rate. He noted that the Five Year plan ties out with the FYI 0 operating budget. He stated that he reviewed everything with Director Babin and that the Finance Committee is comfortable with the final product. Chairman Baldwin asked if the Finance Committee agrees with the FYI0 Operating and Capital Budget at this point and the Five Year Plan. Mr. Lazarra indicated that they were. Chairman Baldwin then asked the Board if they had any more questions. Commissioner Moran asked if MMED anticipated increasing bad debt. Director Babin indicated that he did expect an increase due to this economy. He said that in going through the audit the receivables were up. The auditors recommended increasing the bad debit expense proportionally. Director Babin emphasized that the staff done everything it can in the collection process of commercial accounts and has achieved success in implementing the Board policy. Commissioner Aptowitz asked that with regard to bad debt if the department had enough in reserve to account for increased Chapter 11 filings. Accountant Thomson said that the auditors had increased the bad debt allowance at the end of FY08 and the staff was comfortable with it. Accountant Thomson also indicated that if account receivables increase, then MMED will make necessary adjustments in conjunction with the auditors. Commissioner Aptowitz asked that going forward he would like to see the budget present the impact of bad debt to the rate payer in the line items, at least the subtotals. Similar to the tax bill, each line item telling the average rate payer what he is paying each month. Commissioner Aptowitz suggested that if MMED receives a bankruptcy notice that - MMED immediately write off that amount while continuing to pursue the debt and if it is collected bring it on the books as income. Commissioner Dentino questioned Transportation cost in the budget and Accountant Thomson explained that this includes vehicle repair, gasoline, tires, maintenance and Insurance. Commissioner Dentino then asked about Administration and General Salaries noting that FY08 actual to FY09 budget increased 2.5% but for FY09 to FYI0 there was only a 1.4% increase. Director Babin stated that under that line item, Accountant Thomson was to receive a contractual 3% salary increase but that he had not budgeted a salary increase for himself in FYI O. Chairman Baldwin questioned if the Board had any more questions. She then thanked Director Babin for not putting in for a salary increase in FYlO as the Board appreciated that gesture. Motion: To accept the FYIO Operating Budget as presented (Baldwin/Aptowitz). Passes 5/0. Motion: To accept the FYlO Capital Budget as presented (Baldwin/Aptowitz). Passes 5/0. Motion: To adjourn the Light Commissioners meeting at 8:25 (Aptowitz/Baldwin). Passes 5/0 Respectfully submitted: Nancy Olson 4/17/09 lL~ (I f / 01 Date of Approval Signature of Clerk