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HomeMy WebLinkAboutmin light commission 04/26/06 o RECEWEO Y.n\~H,1 r,~ r.Ri~C, OFf leE Mansfield Municipal Electric Department .. ' Minutes of Light Commissioners M_~UN 23 AM II: 26 April 26, 2006 ~1AHSFIELO MASSACHUSETTS Present: Vice Chairman Louis P. Amoruso; Clerk David McCarter; Commissioner Roger Achille; Director Gary Babin; Engineer Ann Langille; Engineer Chris Cox; Line Foreman Gary D' Ambra; Financial Assistant Jacqueline Lee and Town Manager John D' Agostino Light Commissioner Meeting The meeting was called to order at 8:00 PM. Director's Report MMED Fiscal Year 2007 Operating Budget for the period July 2006-June2007 - Director Babin stated that there was only one item on the agenda for the evening; presentation of the FY 2007 operating budget, which covers the period of July 2006 to June 2007, for approval by the Board. He added that MMED was now operating on a fiscal year that is the same as the Town's fiscal year and budgeting appropriately for that purpose. ('I He stated that the total budget submittal for approval is $28,797,609, which represents a 10% increase over the prior year. Purchased power is budgeted at $21,294,352, 74% of the total operating budget request. Transmission costs are budgeted at $1,314,798 and distribution costs are budgeted at $1,394,807. The cost of customer service is budgeted at $699,192, while administrative and general expenses are budgeted at $982,212. Depreciation expense is $1,522,248. Director Babin also pointed out that those customers paying their bill within 15 days receive a 10% discount on the energy charge, which is estimated to reduce projected revenue by $1,632,000. Director Babin reported that Operating Revenue is projected to be $30,125,697 (exclusive of discounts) and Net Operating Income is projected at $1,328,088. The Net Operating Income less a projected PILOT (payment in lieu of taxes) of $480,000 will yield an increase to surplus of $848,088. The rate of return is projected to be 4.22% and Director Babin explained that MMED, by law, is allowed to earn an 8% profit. r' Director Babin reviewed the key assumptions on which the budget is based. The first assumption is that retail rates remain the same for the entire budget period. He explained this is based on the best estimates available at the time the budget was prepared. He stated that purchased power is the most unpredictable component of the budget and that MMED buys approximately 20% of its energy off the open market. He further explained that Dominion supplies MMED with about 25% of its power. MMED is also a project participant through MMWEC for the Stony Brook units, which are dual fuel and capable of running on gas or oil. Director Babin said that overall, MMED's power is in large part nuclear, while some are fossil ". ,. -: (' fuels. Clerk McCarter asked for a better breakdown as to where MMED gets it's power. Director Babin stated that at the next meeting he will report back as to the breakdown of how much ofMMED's power is 1) fossil fuels, 2) nuclear energy and 3) purchased from the ISO. The second key assumption in the budget is based on an energy sales increase in of 3%. FY06 Y-T-D energy sales are currently up by 2.5% relative to FY05. Sales are less than projected for the year because of the warm winter but it is expected the increase in sales will average out to be about 3%. Director Babin then reiterated that due to Calpine's bankruptcy MMED entered into a contract to purchase power from Dominion but at a higher market price. The bankruptcy allowed MMED to make a claim on an escrow account maintained to fund the difference between the cost of the Calpine contract and the current cost of energy at the time ofthe bankruptcy, the value of which was established by the Dominion contract. Director Babin stated that there was over $10,000,000 in the escrow account in late December and that MMED calculated the actual damages to be about $9,600,000. He explained that since the contract placed MMED's exposure outside of the bankruptcy stay, MMED is able to pursue Calpine because MMED is a secured creditor. Director Babin said he is confident that MMED will get back in excess of 90% of its market exposure. (' The third and most important assumption according to Director Babin, is based on the power supply cost projections from MMWEC and the actual cost of the Dominion power, the cost of which has been offset by the rate stabilization fund which will be set up with the monies received from the Calpine settlement. He expects to receive the settlement payment from Calpine by July 1, 2006 so the rate stailization fund is reflected in the FY07 budget as a line item, and that MMED will draw down the fund so that there will be no impact on the rates. The fourth assumption upon which the budget is based is that labor will be allocated with an overhead factor of 75%. This is based on MMED's actual costs in CY05 so Director Babin believes it to be a solid number. MMED has also begun to allocate a stores expense to all material drawn out of inventory. This overhead covers the cost of the procurement clerk's salary as well as the other costs of maintaining the MMED material inventory. The budget assumes that the PILOT (payment-in-lieu-of-taxes) to the Town of Mansfield will remain at the current amount of $480,000. r There will be a 4% wage increase for all three of the MMED bargaining units effective on July 1, 2006, so the final assumption is that labor costs will increase by that amount. Clerk McCarter asked if the 4% includes all increases employees are entitled to including step increases. Director Babin replied yes, but that most employees are already at the top step. He also said that a comprehensive analysis of labor manhours was done and was included in the budget so that labor costs are estimated as closely as possible. He noted that approximately 25% of all overtime costs between June and December 2005 was emergency overtime. r Vice Chairman Amoruso inquired as to whether there was an assumed rate increase in the budget. Director Babin answered no, the budget is built upon maintaining current rates. Vice Chairman Amoruso then asked if any money was being set aside for the new' substation. Director Babin replied no, the plan is to borrow the money. Vice Chairman Amoruso stated he would rather have a smaller increase in rates now than a bigger one later and has concerns about not having anything in reserve for upcoming projects. Director Babin responded by saying MMED's cash position was very poor at the time he was hired because MMED built the Gilbert St. Substation without borrowing and MMED was still trying to recover from the effect that the construction had on free cash. He further explained that MMED's free cash position target is to have three months worth of operating expenses on hand (excluding purchased power), which is approximately $1.5 million, but that MMED has struggled to meet that benchmark. Director Babin stated that as far as rates go, MMED has always been in the middle of the pack of all the state's utilities, but currently MMED is near the lower end. He reported that NSTAR's rate is approximately 100% higher than MMED and that National Grid's rates are also higher. He said he will have a more complete analysis of rate comparisons at the next Board meeting. (' Director Babin told the Board that the MMED staff reviewed the Operating Budget for July 2006 to June 2007 with the FINCOMM. Jim Lazarra and Jack Goldberg were both on hand to give their opinions of the budget to the Board. Mr. Lazarra said they were initially concerned with the overhead rate for labor being changed from 60% to 75%. He then said that since this was the second full budget year, they did a comparative analysis and now believe 75% to be right in range. He reported that he and Mr. Goldberg were both comfortable with the comparative analysis as to whether the Light Department operates efficiently relative to whether they should subcontract some of their work. He said that subcontracting work is certainly not the preferred alternative but that you have to keep an eye on where your costs are. He stated that if the numbers weren't close the FINCOMM would have had a problem and would have had to review further documentation as to how the MMED staff came up with their costs. He ended by saying the FINCOMM is comfortable with the operating budget. Jack Goldberg also recommended approval of the budget. He said there is a need to have good control over accounting and costs. He added that this is the first time there is managing of inventory costs which adds to the precision of the budget. Clerk McCarter thanked the members of the FINCOMM for their time and said he appreciated their level of detail. Motion: To approve the Mansfield Municipal Electric Department Operating Budget for the period of July 2006 to June 2007 (Amoruso/McCarter) Passes 3/0 r, r r r Adjournment Motion: To adjourn the Light Commissioner's meeting at 8:35 Passes 3/0 .... ,., ~ hJo~ Date of Approval