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HomeMy WebLinkAboutmin light commission 10/12/05 , ~ . ~. L~ Ff-: rr:E r Mansfield Municipal Electric Department Minutes of Light Commissioners MeetiD~,,",,, 1-: October 12, 2005 1_: J f;U J 1 I 2:09 r" :."~ " lr i j J ~, '.'.. (. '. '.~... (,.\'.1... i ! (.":'-E:-..r "I" S (f"'\ ''-, n'l> ", 1 ,).)' Present: Vice Chairman Louis P. Amoruso; Clerk David McCarte~; 't~ominissioner Michael McCue; Commissioner Roger Achille; Director Gary Babin; Engineer Ann Langille; Engineer Chris Cox; Line Foreman Gary D' Ambra; Financial Assistant Jacqueline Lee and Manager John D' Agostino Light Commissioner Meeting The meeting was called to order at 7:35. Motion: To approve the minutes from September 14, 2005 (Amoruso/McCarter) Passes 3/0 (McCue abstains) Director's Report MMED 2004 Audit - The MMED audit performed by Nelson, Adam and Dickson for the period January 1, 2004 through December 31, 2004 was presented to the Board by auditors Kevin McConnell and Lisa Dickson. Mr. McConnell began by explaining there were three parts to the audit report: the independent r auditor's report, the management's discussion & analysis and the financial statements themselves with footnotes and supplementary schedules. The independent auditor's report stated that MMED's 2003 audit was performed by a different firm than the current one and that the 2003 audit expressed an unqualified opinion on MMED's 2003 financial statements. Mr. McConnell explained that an unqualified opinion meant it was a clean opinion with no exceptions. The independent auditor's report also states that Nelson, Adam & Dickson, having no deviations to note, also express an unqualified opinion regarding MMED's 2004 financial statements. Mr. McConnell then highlighted general areas of the financial statements, beginning with an overview of the balance sheet. He stated net assets increased a little over $1,000,000 from prior year. Net income was $1.9 million compared to $1.4 million the prior year. There was an overall increase in net income due to an increase in revenue combined with a decrease in purchased power costs. There were additions of approximately $3.2 million to Utility Plant in 2004, a large portion of which was attributable to the Gilbert Street Substation expansion. r Clerk McCarter questioned the auditors as to whether they believed MMED's PILOT to be acceptable within accounting standards. Ms. Dickson responded by explaining their task was not to judge whether the PILOT level set by the Town is appropriate, but only to make sure the financial statements are fairly represented. Vice Chairman Amoruso then asked if the percentage of the PILOT was typical or atypical. Ms. Dickson reiterated that she couldn't say, and noted that some PILOT payments are formula based and some are not. Commissioner McCue asked the auditors how frequently they saw PILOTS coming from r ,. other municipal light plants. Ms. Dickson answered that every municipal light plant they ( audit makes a PILOT payment. Director Babin added that MMED's cash payment is approximately 2.5% of total operating revenue, while in some towns, such as Taunton and Wellesley, the PILOT payment is approximately 5% of operating revenues. He feels that MMED is within the right range of most municipal light plants. Clerk McCarter again questioned the auditors regarding the PILOT, and whether they felt the PILOT was being allocated correctly. Ms. Dickson repeated that she didn't feel qualified to answer that. Mr. McConnell then reviewed the supplementary information on page 17 of the audit report. He said that the depreciation expense of almost $4 million was based on 5% of the prior year assets. He explained that the regulatory amount is normally set at 3%, but MMED got express permission from the DTE to use a 5% rate. Current and accrued assets increased by $685,000, primarily due to: a $300,000 increase in operating cash, a $325,000 increase in accounts receivable and a $100,000 increase in materials and supplies. The final item on the asset side of the balance sheet was the rate stabilization fund held with MMWEC. This increased by $77,000, reflecting interest earned over the year. Mr. McConnell also pointed out that net assets increased $1 million over prior year. Current and accrued liabilities increased by $800,000, about $750,000 of which was accounts payable. r- Approximately $400,000 of that amount was the last few warrants of 2004 which had not been processed before December 31. Mr. McConnell also stated that other liabilities increased by $77,000 due to the rate stabilization reserve. Commissioner McCue asked if there was a limit to the amount of money which could be held in the rate stabilization fund. Mr. McConnell answered that it was whatever amount the Board was comfortable with. Director Babin said that MMED elected not to make a deposit to the fund in 2004 because of the cash drain over the last year to pay for the Gilbert Street Substation, for which MMED had not borrowed. He also commented that rate stabilization money is earmarked by law to go back to the customer. Mr. McConnell reviewed the Statement of Revenues & Net Assets. He reported there was a $63,000 decrease in revenues from sales of electricity, due to the combination of an increase in kilowatthour sales and a decrease in the PPCA in 2004. Other operating revenue, which is mostly jobbing, increased by $67,000. ",-- Mr. McConnell then reviewed the supplementary information on page 19 of the audit report. Operating and maintenance expenses decreased approximately $750,000. Total purchase power expense decreased $860,000, the bulk of which was fuel charges which decreased $900,000. Distribution expenses increased by $85,000. The bulk of this change was because operation labor increased $120,000. Approximately $80,000 of the distribution operation labor increase was due to MMED's engineers being reclassified during 2004 from transmission to distribution expenses. r "I ( Mr. McConnell said that customer accounts decreased by $89,000, largely due to the uncollectible accounts. A&G expense increased $117,000, primarily because employee pension & benefits increased by $157,000. The representatives from Nelson, Adam and Dickson, along with Director Babin, then addressed the issues highlighted in the auditor's management letter. Ms. Dickson said the first area they noted was jobbing. Jobbing revenues were not being recorded when billed; rather MMED was waiting until the payment was received before booking the receivable. The auditor's recommendation was to keep a detailed jobbing receivable list, record revenues when billed and reconcile them with general ledger on a monthly basis. Director Babin responded by letting the Board know that MMED has been handling jobbing in this manner for the past six months, once the issue was brought to the MMED staff's attention. The other issue Ms. Dickson noted was payroll. She explained that the auditors pull a sample of timesheets and do spot testing for completion and accuracy. They found some time sheets with incomplete data regarding dates and hours worked, as well as no authorized signatures of approval on a few timesheets. The auditor's recommendation was that MMED be more diligent in how they complete their time sheets. Director Babin stated that a policy has been written and implemented which requires a supervisor's signature on the timecard. If one of the three authorized supervisors is out, another supervisor signs in their absence, and when that supervisor returns to work, they verify the time cards. r As a followup to the recommendations made by the 2003 auditor, Goulet, Salvidio & Associates, the management letter recommendations from that audit were then addressed. The first issue was that cash accounts were not being reconciled with the Town on a regular basis. Ms. Dickson stated it was very important that this be done on a regular basis, as the Town acts as the bank for MMED's cash. Director Babin responded that MMED now does a monthly true-up of every account and reconciles every month with the Town Accountant. Another issue was that property and equipment retirements were not being tracked. Director Babin commented that this issue was very tricky. He stated that MMED needs a record of when the equipment was put in, and that type of record does not now exist. Currently, MMED is developing a physical inventory on a pole by pole basis. Also, along with the need to track additions and retirements, is the need to train staff so that they properly fill out paperwork. Director Babin said the department is working on this process. Ms. Dickson added that MMED also needs to be able to make an educated guess as to the age of equipment when it is retired. Commissioner McCue asked if light departments are subject to the requirements of GAS BY. Ms. Dickson said yes, that light departments had always kept track of these figures, as required by DTE, unlike the Town. ",-- The next issue to be addressed was accounts receivable and the fact that closed accounts made up such a large balance. It was recommended by the prior auditor that AIR be reconciled on a monthly basis, followed up and then written off with Board approval. Ms. Dickson stated when her firm came to MMED for the 2004 audit, the reserve for uncollectible accounts was $300,000. She understood that an effort was being made to collect the money. She also ( commented that the prior auditor noted that MMED had stopped taking deposits. Director Babin stated that at the Board's direction, MMED has instituted a deposit procedure this past summer and have also instituted a collections policy. He added that the department has always been aggressive about shut off on active customer accounts for non-payment. He stated that, in his opinion, this has been very successful in minimizing bad debt. Ms. Dickson commented on what she called a basic bookkeeping issue; that MMED did not track inventory in the general ledger. She said it was an issue brought up by the prior auditors but that Nelson, Adam & Dickson had noticed it too. Monthly adjustments were being prepared but not posted on the balance sheet. Director Babin explained that MMED had been reflecting the same dollar value for inventory during the entire year. He stated that once he became aware of this fact, he directed the MMED staff to use the figure from the last day of the month and that the balance sheet now reflects the actual level of inventory. The auditors also brought up the issue that some of the payroll change notices on file at MMED did not have the Town Manager's signature. Clerk McCarter questioned whether the Town Accountant requires payroll change notices to have Town Manager D'Agostino's signature on them. Manager D' Agostino responded yes. Director Babin explained that MMED generates the form, keeps their copy of the payroll change notice without the Town Manager's signature for its records, then forwards the remaining copies of the form to the Town Manager for his signature. He believes the reason the auditors saw copies with no signature is because MMED and the Town Manager are physically in two different places. ~ Director Babin also indicated that he had spoken with the Town Manager's staff to make sure they return a signed copy to MMED for its records. Manager D' Agostino made the observation that the management response letter that Director Babin had distributed to the Board didn't have the inventory response item in it. He believed that was what was causing some confusion with the Board members. Director Babin noted that the Board had not received complete copies of the MMED response to the auditor's management letter for some reason and said he would send complete copies of the letter to the Board members. Manager D' Agostino commended the auditors, saying they had done an excellent job. He said management's response was timely and the staff provided information to the auditors in a timely manner. He believed the level of cooperation to be significant. Director Babin then asked the Board to accept the MMED 2004 audit. Motion: To accept the MMED 2004 audit for the period January 1, 2004 through December 31, 2004 performed by Nelson, Adam & Dickson (McCue/McCarter) Passes 4/0 ",-- Financial Statements for July and August 2005 - Director Babin presented the financial statements for July and August 2005. He indicated that on the last page of each of the statements was a new table showing energy sales in kilowatthours. He explained he wants to ... ... "..J . expand the type of information in the statements to include not only financial information but r- also information on energy sales and things ofthat nature. He reported that energy sales for July 2005 were up 9% from July 2004, reflecting a dramatic increase. Residential sales for July 2005 were up 17.5% from 2004. A comparison of budget vs. actual shows that sales for July were 6% greater than the forecast. This would indicate that MMED is still seeing tremendous load growth in Town. Energy sales through August were 7% greater than the prior year and 3.7% ahead of forecast. Director Babin reiterated he is going to try and expand the financial report to give the Board more information. Commissioner McCue asked if it would be possible to have something showing trends from month to month which would include a bottom line figure, possibly something with peaks and valleys. Director Babin said perhaps a chart of month to month sales. Clerk McCarter asked if the Board could expect to see a recommendation on the PPCA. Director Babin responded by saying this was a timely point which he planned to bring up under new business. He said that because of the steep increases in fuel prices, similar increases in power prices in the spot market had also occurred. MMED has been notified by MMWEC that spot market prices have doubled in the last three months. Director Babin has asked Mayhew Seavey, MMED's rate consultant from PLM, to take a look at the situation. Director Babin says it's too early to tell right now, but he believes there will be an increase in ~ the PPCA on November 1, 2005. He will come back to the Board in two weeks once he has the analysis. Director Babin said he is seeing a lot of rate increases among municipal utilities and expects to come to the Board to announce a rate increase for Mansfield. Old and New Business Clerk McCarter reported that the Board received a memo from School Superintendent John Moretti regarding budget projections. He said Mr. Moretti expects a 20% increase in the cost of electricity for the schools. Clerk McCarter asked Director Babin if he would please contact Mr. Moretti about the accuracy of that statement, and if he could, possibly make some recommendations to him about keeping the costs down. Commissioner McCue stated that he was under the impression that MMED did not send any help after Hurricane Katrina, although he believed it was through no fault of their own. He did mention that in the past when there were ice storms up north, MMED did send people. Line Foreman D' Ambra explained that in these cases, it was NEPP A who coordinated the efforts of the municipal light departments to respond and that MMED had not been asked to send help. Commissioner McCue also asked if MMED should send help to the New Hampshire area after the severe flooding they had experienced due to the heavy rains recently. Director Babin said that given the scope of work involved, the utility in New Hampshire that was affected, Public Service of New Hampshire, wouldn't need to call in additional utilities to help, they would simply move crews in from other parts of the state to help out. He stated ,-. ..- ... ....' .. there is an unwritten protocol that investor-owned utilities help investor-owned utilities and r municipal light plants help municipal light plants in these types of situations. r- r- Adjournment Motion: To adjourn the Light Commissioner's meeting at 8:30 Passes 4/0 Respectfully submitted: Jacqueline Lee 11/16/05 dip! J( i'-wp Sigrmture of Clerk r ., I tjlY,S Date df Approval I