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HomeMy WebLinkAboutmin light commission 05/04/05 ri St !ELD MASSACHUSETTS Present: Chairman Roger Achille; Vice Chairman Louis P. Amoruso; Clerk Bernie Dolan; Commissioner Steve MacCaffrie; Director Gary Babin; Engineer Ann Langille; Engineer Chris Cox; Line Foreman Gary D' Ambra; Financial Assistant Jacqueline Lee and Manager John D' Agostino Mansfield Municipal Electric Department Minutes of Light Commissioners Meeting May 4, 2005 y;' t. 'I'" ,,:~ ~.,.. VS OFF ICE 05 JUN I 4 lioN 9: 21; r Light Commissioners Meeting The meeting was called to order at 7 :30, followed by the Pledge of Allegiance. MMED Operating Budget - July 2005 to June 2006 - Chairman Achille stated that the purpose of the meeting was to review and approve the Mansfield Municipal Electric Department (MMED) Operating Budget for FY06 - July 2005 to June 2006. Director Babin added that this was the first twelve month MMED budget coincidental with the Town's fiscal year. He said he would provide a brief overview and review the components of the budget. r He began by stating the four primary objectives of MMED. First and foremost is to establish a safe working environment for its employees. The second objective is to ensure both long term and short term system reliability. The third objective is to provide competitive rates. The last objective is to provide financial benefits to the Town of Mansfield in a manner consistent with sound financial management of the utility. Director Babin stated that MMED staffwas seeking approval from the Board for a budget of $24,747,908. He explained that purchased power was the largest component of MMED's operating budget request, comprising 77.4% of the total, or $19,164,198. The first main component of purchased power expense is MMWEC. As a participant in MMWEC projects, MMED is required to pay fixed costs associated with the plants as well as the operating costs. The second component is the energy purchase contract with Calpine. Under the terms of the contract, MMED purchases a fixed amount of energy at a fixed price each month. The third component of purchased power is spot market energy purchases. MMED can be either a buyer or seller in this market, depending on the balance between actual loads and entitlements on an hourly basis. The cost of transmission expenses, which is the cost of moving power from the generating station to the Mansfield service territory, has been increasing each year. It represents 4.5% of the Operating Budget request, at $1,119,186. Deregulation has had a major impact on the rising costs of transmission expenses. Distribution expenses make up 5.2% of the Operating Budget, at a cost of $1,279,290. The bulk of the expenses in this category are labor related field work. r (' Customer Account expenses are those costs associated with the billing and collection of revenues. The bulk of the expenses are labor for the Business Manager and the four Financial Assistants. The budget request for Customer Accounts is $630,212, which represents 2.5% of the FY06 Operating Budget request. Administrative and General expenses comprise 4.4% of the Operating Budget, at $1,100,958. This covers management salaries, office supplies, insurance, attorneys, engineering consultants, as well as the costs for maintaining vehicles and other miscellaneous expenses. Depreciation expense of $1,454,064 represents 5.9% of the proposed Operating Budget. It is required by M.G.L Chapter 164, Section 57 that MMED put money aside for the renewal and refurbishment of the physical plant through the depreciation fund. This ensures that municipal light plants will have the money to invest in the upkeep of the plant. Net income is projected to be $1,483,554, which is 4.83% of gross plant. Municipallight departments are allowed to earn an 8% return on gross plant, in accordance with Massachusetts Department of Telecommunication and Energy (MDTE) regulations. Net income will supplement the depreciation fund in order to provide the funding mechanism for renewal of the plant. The other use for net income is to support the Payment in Lieu of Taxes (PILOT) made to the Town. It is budgeted that MMED will make a $480,000 PILOT to the town in FY06. (' Another facet of the budget is the use of a 60% overhead factor applied to straight time labor costs, which is used to recover the cost of employee benefits. Use of the 60% overhead factor is a mechanism to spread the true costs of performing a job to specific cost centers. Director Babin projects load growth to be 3%. He believes this to be a realistic figure based on prior years growth rates. Director Babin also projects rates to remain stable. MMED raised the Purchased Power Cost Adjustment (PPCA) in October 2004 and expects that it will remain stable through FY06. Commissioner MacCaffrie asked if the rates and PPCA could remain the same given the volatile oil market right now. Director Babin explained that MMED works off power supply projections from MMWEC, as they have more sophisticated methods to do the analysis. He said that he contacted them when MMED was switching to a fiscal year coincident with the Town and requested an updated projection. He also confirmed that MMWEC's projections did take into consideration the volatile oil prices. Commissioner MacCaffrie then asked when MMED's next major power supply contract would have to be executed. Director Babin answered that the next major increment in power supply will be in 2009. The Calpine contract expires in December of 2008 and MMED will need to replace this contract. (' ~ ~ r MMED has already established a rate stabilization fund at MMWEC and it is expected that MMED will start drawing down the fund in 2009. Since the new contract beginning in 2009 will be at a significantly higher rate than the current Calpine contract, MMED will continue to build the rate stabilization fund and then utilize that fund to help offset the increased costs of the new contract. Director Babin also explained that MMED's debt service will start to be reduced gradually as well. One example is the Stony Brook Peaking Plant, for which MMED now pays approximately $450,000 a year in debt service, which goes away later this year. Preliminary discussions have begun to determine what MMED will do in 2009 and that strategy will be explained to the Board at a future meeting. Jim Lazarra from the FINCOMM was also in attendance. He explained to the Board that he, along with Jack Goldberg and Andy Gazzolo, worked with Director Babin so that they could better understand the budget, and so that they could assist Director Babin to better present the budget to the Board in a format that would be easier to understand. Mr. Lazarra said this was an evolving document and that in the future FINCOMM would work with MMED to improve this work in progress. Mr. Lazarra stated that the FINCOMM didn't disagree with the presentation of this budget but were still discussing a couple of issues with Director Babin. The first was the allocation of fixed costs in the capital budget. The other issue is depreciation schedules related to depreciation of capital purchases. Mr. Lazarra also thought it was important to (' note while Calpine is 25% of MMED's energy supply, it represents only 10% of MMED's power supply costs. Overall, Mr. Lazarra indicated that he thought the budget was certainly a well done document, which showed much hard work, and was far more transparent than prior MMED budgets. Chairman Achille thanked Mr. Lazarra for the FINCOMM's input. Motion: To approve MMED's Operating Budget for July 2005 to June 2006 (MacCaffrie/Dolan) Passes 4/0 Adjournment Motion: To adjourn the Light Commissioner's meeting at 7:45 PM Passes 4/0 q (fft (-- Die Approval S ('