Loading...
HomeMy WebLinkAboutmin light commission 05/24/06 . . {' Mansfield Municipal Electric Department Minutes of Light Commissioners Meeting May 24, 2006 RECEWEO ~J cLrR~.!; OFF lCE 06 JUN 23 AM II: 26 MANSFIELD MASSACHUSETTS Present: Vice Chairman Louis P. Amoruso; Clerk George Dentino; Commissioner David McCarter; Director Gary Babin; Engineer Ann Langille; Line Foreman Gary D' Ambra; Business Manager Laurie Anderson; Staff Accountant Ken Thomson and Town Manager John D' Agostino Light Commissioner Meeting The meeting was called to order at 8:00 PM. Motion: To approve and release the minutes of Executive Session from March 30, 2006 (McCarter/Amoruso) Passes 2/0/1 Dentino Abstains Motion: To approve the minutes from April 12, 2006 (McCarter/Amoruso) Passes 2/0/1 Dentino Abstains Director's Report {' Director Babin introduced Ken Thomson, who joined the Electric Department on Monday, May 22, in the newly formed position of Staff Accountant. Director Babin informed the Board that Mr. Thomson has significant experience with utilities having worked for Eastern Utilities and National Grid. He stated that Mr. Thomson was a positive addition to the staff and a Mansfield resident. Financial Statements for March 2006 - Director Babin presented MMED's financial statements for March 2006. He reported that FY06 net income year-to-date is about the same as FY05, off 3% from the same period in FY05. Energy sales have increased 2.4% year-to-date, 0.6% below budget projections due to unseasonably warm winter weather. Director Babin also brought to the Board's attention a new line item on the Profit and Loss Statement. This item is titled Rate Stabilization Revenue and represents a drawdown of the rate stabilization reserve to reflect the difference in cost between the Calpine contract and the Dominion contract, which replaced it. The drawdown flows through the Profit and Loss statement to properly illustrate the zero impact on retail rates of the use of rate stabilization monies. Vice Chairman Amoruso asked if there could be a running total available. Director Babin commented that there would also be a new line item on the Balance Sheet to reflect the balance remaining in the Calpine Rate stabilization fund. In addition to the current line item titled MMWEC Reserve Trust Account there will be a line item entitled Calpine Rate Stabilization. Clerk Dentino asked about the Calpine settlement. Direct Babin stated that that would be covered on the next agenda item. (' Calpine Contract Settlement - Director Babin reported that a settlement for the Calpine contract termination from December 2005 has been reached. The total settlement amount is $9,394,330. This is comprised of $9.2 million in cash that was received May 1 st and deposited into an interest , ' r bearing account with MMWEC as well as $194,330 for energy, which was received in the month of December 2005 and which, under the terms of its contract with Calpine, MMED did not have to pay and which was put toward the settlement. Director Babin said this money would be used on a monthly basis to make up the difference between the cost of the Calpine contract and the cost of power for the Dominion contract, which replaced it. This means that the Calpine contract termination will have a zero impact on retail rates. MMED's exposure at the time of the contract termination in the then-current energy market was calculated, based on the Dominion contract, at $9.55 million. The settlement amount of $9.4 million means that MMED received 98.4% of the money it was due to the contract termination, a shortfall of only $155,000. Director Babin commented that there were several factors that made this settlement very beneficial: MMED received the money very quickly, only four months after bankruptcy; MMED was able to get favorable interest rates from MMWEC for the deposit of funds - 4.5% for 2006, an estimated 5.3% for 2007 and 5.75% for 2008; the funds were available so quickly that the money could be used immediately to flow through rates, requiring no type of increases in rates due to cash flow issues; and finally that it avoided going to litigation to receive the money, which in the long run would cost far more than the $155,000 shortfall, would guarantee no additional funds would be won and would delay actual receipt of the money. {' Director Babin said the total amount in the Calpine escrow fund should be drawn down by the end of 2008. Commissioner McCarter asked if the new Dominion contract includes the same escrow account protection that the Calpine contract had. Director Babin stated that it was his understanding that it did but that the requirement for an escrow fund only takes effect if and when Dominion's bond rating falls below investment grade. Vice Chairman Amoruso questioned if the money with MMWEC is relatively safe. Director Babin responded that it is in very low risk investments such as treasury notes. Clerk Dentino questioned why the money was placed with MMWEC instead of in a rate stabilization account. Director Babin responded that the money is actually a rate stabilization fund and that by placing it with MMWEC, MMED receives favorable interest rates, which increase the value of the settlement. He stated that a separate reserve trust fund was set up several years ago by MMED in the aftermath of deregulation, referred to on MMED's balance sheet as "MMWEC Reserve Trust Account". The theory behind it was that it accrual of such a fund would allow municipal light plants to be more competitive once the IOU rates fell when the transition charges for the IOU's ended. At the beginning of 2006, the balance in this reserve trust fund was approximately $3.1 million. Director Babin pointed out that deregulation has not gone like it was planned and that it has been a disaster for IOU ratepayers since rates are higher than ever but produced good results for IOUs. (' The MMWEC Reserve Trust Account was initially used early in 2006 to offset the difference between the Calpine and Dominion contracts in anticipation of the Calpine settlement. Now that the Calpine settlement has been received, the Calpine fund will reimburse the MMWEC Reserve Trust Account for what was withdrawn to mitigate the impact of the increased cost of the Dominion , . '- {' {' contract for the first part of the year. This will restore the MMWEC Reserve Trust Account to its original balance before it was used to mitigate the cost of the Dominion contract. Clerk Dentino stated that the settlement amount was greater than he expected but he was not happy that the Calpine contract was terminated because 3.8 cents per kWh was a sweet deal. He believes that the settlement actually cost MMED $300,000 per month until MMED received the settlement. Manager D' Agostino stated that MMED elected to terminate the contract and went after the escrow because it was much safer to err on the side of certainty, enter into a replacement contract with Dominion to establish the amount of damages and make a claim. Calpine could have rejected MMED's contract at any time in the US Bankruptcy court. He pointed out that this approach has resulted in zero rate impact for MMED's customers. Director Babin also pointed out that MMED ratepayers were not shortchanged as a result of this settlement but rather were made whole since the $300,000 each month that Clerk Dentino cited was actually part of the $9,200,000 cash settlement amount. Commissioner McCarter inquired who the attorney was that handled MMED's case. Director Babin responded that Rubin and Rudman handled the case and had advised MMED that other municipals had similar lawsuits against bankrupt power suppliers but because they were unsecured creditors in the bankruptcy, unlike MMED as a secured creditor, that those utilities received only 10-40 cents on the dollar for their claims. Clerk Dentino inquired whether or not Calpine is still producing energy. Director Babin responded that Calpine is still running some plants but he had, in fact, read an article in today's newspaper that US Bankcorp is suing Calpine for $365 million because Calpine had rejected 2 contracts to operate energy plants in Rhode Island for them. The bank currently holds the title to the generating plants. After much discussion, Director Babin stressed that he wanted everyone to clearly understand that MMED did not lose $300,000 per month due to Calpine contract termination, that MMED's ratepayers were made whole in this settlement and that this is an extremely important point to understand. FY06 Capital Budget Status Report - Director Babin invited Engineer Ann Langille to join him at the table to present the FY06 Capital Budget Status Report. Engineer Langille informed the Board that the Capital Budget figures were through the end of April and that there are 2 months left in the fiscal year. She explained that MMED has also looked at the purchasing commitments have been made but which have not been booked through April and included those figures in the summary of costs. r Engineer Langille wanted everyone to understand that the level of detail provided to the Board represents a huge effort on part of the entire staff. In summary, MMED has spent or committed $1.6 million of the $2.25 million budget. Commissioner McCarter inquired whether the costs shown as over budget and under budget by project should be considered on an individual basis or as part of the budget as a whole. Engineer Langille stated that the budget is taken as a whole and that some projects were developed or moved up from future budgets to take the place of other work that could not be completed in FY06 for reasons beyond MMED's control, such as Verizon pole sets required but not completed. r Commissioner McCarter requested that if MMED's expects to be over budget for the fiscal year, that the staff come to the Board and make them aware of it because he does not want to find out after the fact. When questioned about the status of the proposed East Mansfield Substation, Director Babin informed the Board that an RFP for the East Mansfield Substation Feasibility Study would be ready to be issued in the next few months. Clerk Dentino inquired about the amount of money that has been set aside for this project. Director Babin indicated that money had not been set aside for this project to date and that MMED would have to borrow money for this project. Vice Chairman Amoruso and Commissioner McCarter remembered that the project was discussed in the past and that there was talk about the intent to put money aside to finance the project. Director Babin stressed that free cash as reflected on the balance sheet was barely sufficient to maintain the minimum cash balance of $1.5 million required for prudent financial operation of MMED. He further stated that MMED was still recuperating financially from construction of the Gilbert Street substation, for which MMED had not borrowed and which cost over $7 million. Finally, he pointed out that there is tremendous pressure to keep rates down so he did not see how a fund could be accrued without affecting rates. {' Clerk Dentino inquired about the land on Gilbert Street that MMED budgeted to purchase in FY06. Director Babin stated that MMED is still actively pursuing the purchase and he indicated that MMED had done what it could but that National Grid has been extremely slow to respond and that the ball is in National Grid's court. Director Babin said that Town Counsel had become involved to try to move this project along. Director Babin stated that another alternative to the purchase would be to obtain an easement from National Grid for the land but since it lies within the substation's fence he would prefer to purchase the land outright. Engineer Langille stated that the School Street underground conduit project has been deferred to FY07 but that MMED had reallocated that time to the planned pole replacement project. The Board inquired about the Route 106 project and Line Foreman D' Ambra responded that due to a fatality of a Verizon worker and 10 days of rain the project had just began again on Monday, May 22. He stated that he was in attendance at a recent meeting regarding the project and that Verizon's game plan is for their work to be completed by June 30. He also reminded the Board that this is a reimbursable project from the State for any work that MMED performs. Vice Chairman Amoruso inquired about the School Street Bridge project. Line Foreman D' Ambra stated that there are two shut downs scheduled for June 8 and 9 to complete the work. The shut downs can only occur between the hours of lAM and 4AM due to limitations imposed by working over the Amtrak railroad lines. He also pointed out that this is a State reimbursable project with a deadline of June 30. Engineer Langille stated that the Bristol Arms project has also been held up due to weather but should be completed by the end of June. {' ... ,. " r Retail Rate Comparison - Director Babin presented a Commercial and Residential Rate Comparison for the month of March 2006. The source of the data is from MMWEC, who compiles this information on a yearly basis. Relative to Mansfield's rates for the period of March 2005, MMED's rates increased by an average of about 9% due to two PPCA increases; ~ cent on August 1 and ~ cent on November 1,2005. By way of comparison, the other 42 electric utilities in Massachusetts increased rates by an average of 30% over the same one year period. This means that in March 2005, 75% of the 42 utilities in Massachusetts had rates lower than Mansfield. In March 2006, however, only 40% have rates lower than Mansfield. This had the impact of significantly improving MMED's relative status of rates in the comparison. This was a result ofMMED having a good power supply mix. Director Babin stated that in 7 of the 8 categories measured, MMED's rate is lower than the state average and exceeds 10% lower than the state average for the largest 4 commercial rate classes. Director Babin said that when MMED's rates are compared to NStar and National Grid, National Grid's rates in the 4 largest industrial rates National Grid are at least 54% higher than MMED's. NStar's rates for the same 4 commercial classes are between 88% and 91 % higher than MMED, which is indicative of the failure of deregulation in Massachusetts to provide better rates for its ratepayers. Since National Grid and NStar surround Mansfield, Director Babin said that this is a relevant comparison. (' This distinct rate advantage that MMED holds makes it extremly attractive for industry to locate in Mansfield, especially energy intensive customers. Clerk Dentino said he does not believe that MMED should compare itself to the investor owned utilities. Hi indicated it is an unfair comparison because they play by a different set of rules. Clerk Dentino went on to say that MMED has had 3 PPCA increases over the last 2 years and that since 50% of our power comes from Seabrook, 25% comes from Calpine (and now Dominion) and 25% comes from Stony Brook that 75% of our energy is not subject to fossil fuel increases, which is the reason the ratepayers were told were the reason for the three PPCA increases. Director Babin stated that in a previous meeting that Commissioner McCarter had asked for a breakdown of fuel sources that supply MMED's energy. For the time period July 2006-June 2007 the breakdown is as follows: 33% nuclear (Seabrook and Millstone); 7.4% Stony Brook (combined gas and oil); 2.6% hydroelectric energy from The Power Authority of the State of New York; 25% Dominion (mix of resources) and 32% from ISO New England (mix of resources). Vice Chairman Amoruso said that the rates in effect in Mansfield made locating businesses here attractive and that he appreciated the fact that rates in this community were lower. Commissioner McCarter also indicated he believed that is fair to compare ourselves to both the IODs and municipals. (' '" . . , r Director Babin went on to say that the comparisons of MMED's rates to those of the IOUs was a valid comparison because the bottom line to rate payers is cost and he estimated that MMED residential rate payers paid less than 90% of the state's remaining rate payers, which includes rate payers oflOUs. That, he said, is the true measure. Director Babin went on to distribute an exhibit indicating the nature of how the PPCA worked. He stated that the PPCA is an estimate of what power costs will be during the course of the year. The graph he distributed showed the predicted cost of power on a monthly bar chart and how fixing the PPCA in order to provide stable rates either overcollects or undercollects in a particular month but is designed to zero out at the end of the year. He also indicated that cost predictability is the preference of customers, especially industrial customers, for the purposes of budgeting energy costs. Director Babin stated that MMED undercollected purchased power costs in CY05 by $291,962. Because net income was 6.6% for the year, however, this meant that other components of the rates had more than made up for the shortfall in collecting purchased power costs and that no adjustment to the PPCA was necessary since the net income target was met. Old and New Business - Director Babin, Vice Chairman Amoruso, Clerk Dentino, and Town Manager D' Agostino stated individually that they did not have any new or old business. Commissioner McCarter stated that he did not have any new business and that his old business was addressed earlier in the meeting with Director Babin's presentation of the generation mix. r Adjournment Motion: To adjourn the Light Commissioner's meeting at 9:25PM (McCarterlDentino) Passes 3/0 by: Laurie M. Anderson 6/21/06 d,J \\10 Date of Approval r 11 II