HomeMy WebLinkAboutLC_072413 Light Commissioner Minutes
July 24,2013
Prese O' V l dairman; Olivier Kozlowski, Vice Chairman; Jess Aptowitz, Clerk;;
Dou g Anlir, , William Ross, To wn Manager; Gary Babin, Director; Tracey
Whela j itttprcii2g Octtli
Vice-Chairman Kozlowski called the meeting to order and stated that the meeting is broadcasting
live on Mansfield Cable Access and this broadcast will be available at various times for viewing.
None
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Motion: To approve the MMED minutes from May 29, 2013 (Annino/Moran) PASSES 4:0
Mr. Dentino was not present at this portion of the meeting.
1' N
Footprint Power Plant-Director Babin stated that the Town had been approached by MMWEC,
the Town's wholesale power supplier, to participate in a project to purchase a portion of the
capacity of a new Salem Harbor Station. Salem Harbor Station is currently a coal fired plant on the
North Shore that will be closed in May 2014 and a new plant is proposed on the same site.
MMWEC is looking for a commitment from the Town to participate in a feasibility study that they
are proposing to its members for a total cost of$50,000,which would then be shared on a pro rata
basis by the systems that sign on to participate.
Mr. Ross explained to the Board that this project is being proposed by a private group, Footprint
Power,who plan to remove the existing coal fired station and all of the facilities associated with it.
Footprint Power would then develop a 640 megawatt (MW) combined cycle gas turbine plant.
Footprint Power has offered MMWEC 145 megawatts or 21.5% of the project and MMWEC is
approaching its members to determine their interest. MMWEC estimates MMED's long term
power supply need is 9.8 MW,or 6.7%of MMWEC's project entitlement. Mr.Ross stated that the
total cost of the project is about $800 million, the MMWEC share would be $172 million and
MMED's share would be approximately $11,524,000 plus interest.
Chairman Dentin arrived at this portion of the meeting.
Mr. Ross explained one of the advantages of the project is its location in the ISO New England
Northeast Massachusetts(NEMA) load zone, which is considered a constrained area and in need
of generation capacity in order to provide stability to the grid. As a result,Mr. Ross stated that for
the first five years of operation there would be a monthly payment of$15 per kW per month,which
Light Commission Meeting July 24,2013
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would cover about two-thirds of the debt service for the first five years, then revert to a market
based rate,which would be somewhat lower.
In addition,because of the efficiency of these newer units it is anticipated that they would be
on-line a great deal supplying power in that area. Mr.Ross also noted that there is no need to build
transmission because of existing facilities for the current plant.
Mr. Ross stated that one of the key questions is how Footprint Power is handling the hazardous
waste clean-up of the site. He said it appears Footprint will form a separate corporation to do the
clean-up and utilize other resources,including money from the sale of their share of the plant,to do
the clean-up and development of that area. Mr. Ross noted that the city of Salem is strongly in
favor of this project as well as the Massachusetts DPU and are trying to move quickly in order to
have the project online in 2016, which Mr. Ross felt was a short time frame for a project of this
size. Mr. Ross explained to the Board that MMWEC is asking if the Town would participate in a
feasibility study only,not a commitment to purchase power or a portion of the plant,which would
cost about between$4,000 and$5,000.
Mr. Ross explained that the risk is that the construction is scheduled to begin in January 2014 and
if the project is not in service by June 1, 2016, the project owners may be subject to significant
penalties for not having the capacity available. Mr. Ross noted that before the Town would enter
into any agreements there would need to be assurances that there would be no loss of revenue to
the Town if the project did not start on time. At this point, additional risks are that the project still
needs a firm gas contract;that the Town is unsure of hazardous waste remediation and the money
required to perform it; and the fast track for commitment with only preliminary information.
Mr. Ross explained that the potential benefit associated with the project is to add additional
capacity at a reasonable price. The Town believes the project can move forward because the State
and City of Salem want it to happen and that it will have up to a 70% to 80% run factor. The
project is extremely important to Salem because they receive significant tax revenue from the
existing plant, which will end when the existing plant is retired, and because they want to see
waterfront development in the area Mr. Ross believed it was worth the $4,000 to $5,000 for the
Town to become involved in the feasibility study and that when further information is received to
bring that back to the Board. Mr. Ross prefers to have the study completed then bring the results
back to the Board for guidance and direction.
Mr. Babin stated the nature of the arrangement that MMWEC is ultimately looking for is for the
Town to enter into a Power Sales Agreement,which is similar to the entitlements the Town has at
the Stony Brook units, Seabrook and Millstone. Mr. Babin noted that once you enter into a PPA
you are financially obligated to support your share of the cost and there are step-up provisions if a
party defaults on the agreement. MMWEC was only recently approached by Footprint Power,
primarily because they can offer tax free financing,which helps out Footprint. Mr. Babin noted
that MMWEC would be looking for a financial commitment through a PSA by the end of
September.
Mr. Annino asked if the entire site was to be developed to which Mr. Ross reported yes. Mr.
Annino was surprised given the size of the site and asked if Footprint Power was developing the
entire site. Mr. Babin noted that Footprint Power has bought the site but stated it is to their
advantage to seek joint partners to share in that financing. Mr.Annino's concern is the difference
between development project and the power plant project;there are two different entities involved.
Light Commission Meeting July 24,2013
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Mr.Annino wondered if there was any background information or research provided to which Mr.
Ross stated only what had already been given to the Board, which was that the site has been
acquired,and base work completed (site clean-up, adequate gas supply with turbine placement).
Mr. Annino questioned what the feasibility study will encompass. Mr. Ross believed the study
would be for the power plant only and would focus on whether this project works financially, as
they believe it will, as well as the cost per kWh. Mr. Babin further noted that MMWEC is
conducting an ongoing negotiation in order to protect the MMWEC participants interests.
Mr. Moran asked if the Town is drawing power from this plant now and, secondly, with regard to
the Seabrook and Stony Brook obligations, since that debt will be retired in future years how
would this overlap. He also asked how this project fits in with the recommendations from the
Seavey Cost of Service Study. Mr. Babin said that MMED is not involved with the existing plant
and that the debt service on the existing projects for Seabrook and Millstone runs out in 2017.
With respect to the Seavey Study, Mr. Babin stated that this project has not been considered
because this study is confidential to MMWEC and its members at this point. Mr. Moran then
asked if there is a possibility of making a fundamental change in the assumptions that the Town
has in the current study Seavey did on the rates and could it have a significant impact. Mr. Ross
answered that the Town will not know that information until the feasibility study is completed.
Mr. Kozlowski asked if the Town does not participate in the feasibility study does that mean the
Town is out of the project, to which Mr. Ross stated yes. Mr. Kozlowski asked for further
clarification regarding the Town's commitment if we agree to the study and will the results of the
study be completed before the September deadline date to sign on. Mr. Ross and Mr. Babin both
stated that by committing to the feasibility study the Town is not committing to the project and that
the results of the study will be available prior to that September deadline date. Mr. Babin felt that
this discussion is what will establish the parameters of what MMWEC paticipants will be looking
for from the feasibility study. Mr. Ross further stated that the Town would receive credit for the
power generated and compared it to a"paperless transaction". Mr.Babin stated the key concept is
the site location because the NEMA load zone is a constrained zone,for which the ISO is willing to
pay a premium.
Mr. Aptowitz isn't concerned with the $4,000 to $5,000 but was wary on how can the feasibility
study be completed in such a short period of time. Mr.Aptowitz stated,with all due respect to the
citizens of Salem, that Mansfield should not have to contribute to the revitalization of the
waterfront of Salem. Mr.Aptowitz would like to focus only on the cost for the power plant and the
breakdown of those numbers associated with the plant. Mr. Kozlowski furthered Mr. Aptowitz's
point by stated that the Town should not be held accountable for the clean-up portion of the site as
well.
Chairman Dentino sees the project as a joint ownership between MMWEC and Footprint Power,
where MMED does not become a true participant other than having a percentage of MMWEC's
share. Chairman Dentino felt that until the Town has a true list of who is participating in the
project there is really no basis for cost,as it is pro rata based. Mr.Ross stated he did have that same
question for the Executive Director of MMWEC, who stated that MMWEC would have to adjust
allocations,take less out of the plant or possibly sell shares to non-members once participants sign
on and the list is finalized. Mr. Babin reported that 19 of the 21 MMWEC members expressed
interest but was unsure whether that interest would translate into action.
Light Commission Meeting July 24,2013
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Secondly, Chairman Dentino noted with Footprint being the partner to MMWEC,and according to
the information provided, Footprint has already agreed to work with the city of Salem on the
development of the waterfront and on everything outside the power plant. This is concerning to
Chairman Dentino as it puts MMWEC in"no man's land". Mr. Babin stated that this is all still in
negotiation.
Mr. Ross reported that Footprint Power will be forming a separate LLC for the development of the
waterfront area and that it would probably be financed from their profits from selling power.
Chairman Dentino noted there are a lot of questions. Chairman Dentino said that Footprint Power
will receive the majority of the profit and that MMED is just a tail end to MMWEC's portion and
questioned if MMED would be better suited as a tail end to Footprint Power. Mr. Ross felt that as
an MMWEC participant the Town would be better protected than if it partnered with Footprint.
Mr. Babin stated that MMWEC is the entity that has the bonding authority for this project.
Chairman Dentino is concerned with the timing of the process, particularly backup information
regarding assessments for each participant. The Chairman felt there should have been more
information. Mr. Moran stated that the Town will not get these details unless it participates in the
feasibility study and if the Town decided to opt out of the study then it will not have the
opportunity to review the study and decide to be a part of the project or not. Mr.Babin noted that
the process being considered by the Board is to determine who is interested in the project. Mr.
Ross noted he has many of the same concerns as Chairman Dentino but felt it was worth the$4,000
to $5,000 to find out.
Motion: That William Ross,Manager of Mansfield Municipal Electric Department,be authorized
to proceed with the initial feasibility study,not to exceed $5,000, of MMWEC Special Project
2013A Footprint Power Salem Harbor Project and that any further commitment to actually
participate in the construction of the project or purchase power from the project will require
additional review and action specifically approving participation by the Board of the Mansfield
Municipal Electric Department. (Moran/Annino) PASSES 5:0
Mr. Babin reported he will relay the Board's concerns to MMWEC on what they would like to see
in the feasibility study. Mr. Babin will also inquire as to when and how the assessment will be
received.
Cost of Service Study - Mr. Babin then referred to the final report for the 2013 Cost of Service
Study included in the Board package. This study, performed by Mayhew Seavey of PLM Electric
Power Engineering, includes a summary of historical and projected rates of returns for different
customer classes. Mr. Babin has summarized the report as follows:
1. The current rate design structure that went into effect in January 2008 has performed largely
as expected in terms of producing the target rate of return of 6%.
2. The Board has elected to keep the current rate structure in place. This is expected to produce
between$2.5 and $2.7 million in Net Income for the period from FY13 through FY17.
3. While the nominal amount of Net income will remain the same,the rate of return will decline
to approximately 5% because the amount of plant in service, on which the rate of return is
calculated, has increased approximately $7 million in the last year due to the addition of the
Bird Road Substation.
Light Commission Meeting July 24,2013
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4. The current depreciation rate of 5% will continue in effect because of the need to support
MMED's aggressive capital improvement plan. Between use of annual Net Income, existing
operating cash reserves and the depreciation fund,this will generate sufficient cash to support a
capital program estimated at$14.5 million through FY17.
5.There is no planned use at this time for MMED's Rate Stabilization Fund of$1.65 million on
deposit with MMWEC. This provides a comfortable contingency fund to address unexpected
changes in power supply costs or for other unanticipated circumstances.
6. The Board has elected to maintain the current rates of return on the commercial classes of
customers at between 8.2%and 9.2%because of the adverse impact on residential customers of
lowering commercial rates of return to the 5%range. Competitiveness issues were raised in the
study for those commercial customers relative to National Grid rates.
7. An analysis of the economics of the Net Metering tariff has shown that there has not been an
adverse financial impact from the installation of approximately 1.1 MW of solar energy
generation in Mansfield, primarily because of the institution of a Net Metering Surcharge on
those customers with solar facilities.
8. Based on the Net Metering economics, the study recommends increasing the allowable
percentage of installed solar capacity from 2% (1.1 MW) to 4% (2.2 MW) of MMED's
historical peak demand(55.5 MW). This would only be permitted provided the installation did
not have a negative impact on the stability and quality of services provided by the MMED
electric system.
9. The Generation Charge will begin to decline in 2014 due to the NextEra contract going into
full effect and again in 2017 due to the precipitous decline in MMWEC debt associated with the
Power Sales Agreements for generation plants in which MMED maintains an interest.
Mr.Moran would like to begin the process of increasing the allowable percentage of solar installed
capacity as he felt there was interest in doing so and the study shows that the Town can support a
higher percentage. He would like to see the net metering tariff changed to do so. Mr. Moran also
asked that once the Footprint Power feasibility study is complete can the Board look to see if any
of the assumptions in the Seavey study are going to be affected by that. There may be a need to
adjust this due to the Salem Harbor Project.
Chairman Dentino felt MMED was doing a great job holding the rates where they are and not
having any increases. However,he felt the Board could start taking a look at the commercial rates
to see if there is room at possibly lessening them.
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None
Light Commission Meeting July 24,2013
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Motion: To adjourn the MMED Light Commissioner's meeting 7:01pm (Annino/Kozlowski)
PASSES 5:0
7,-/7-fy
Sit ature o Clerk Date of Approval
/Tracey Whalen
Light Commission Meeting July 24,2013
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