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HomeMy WebLinkAboutmin light commission 06/21/06 .,1 {' 'ri.... Mansfield Municipal Electric Department ' I Minutes of Light Commissioners Meeting 06 JUL 20 AM 10: 21 June 21, 2006 RECEWEO ~l CI FRKS OFF ICE MANSFIELD MASSACHUSETTS Present: Chairman Michael McCue; Vice Chairman Louis P. Amoruso; Clerk George Dentino; Commissioner David McCarter; 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 :25 PM. Motion: To approve the minutes of April 26, 2006 (Dentino/McCarter)) Passes 2/0/2 (McCue and Dentino abstain) Motion: To approve the minutes of May 24, 2006 (McCarter/Amoruso) Passes 3/0/1 (McCue abstains) Director's Report ("' Financial Statements for April 2006 - Director Babin stated that the net operating income year-to-date is $2.2 million, which is virtually the same as last year. Free cash is at $1.5 million, which is the recommended minimum. Director Babin said he does have concerns with energy sales as the year-to-date figures are up by only 1.3%. After the first six months of the fiscal year sales were up 5.5% but have dropped dramatically since then. This is all indicative of the weather and because of the warm winter, the growth rate has diminished. Unless energy sales increase significantly in May and June, MMED's growth rate will come in at less than projected figures. Director Babin announced that beginning with May's financial statements, there will be a new line item on the balance sheet showing the amount of the Calpine rate stabilization fund as well. Internal Services Charges for FY06 - Director Babin reviewed MMED's internal service charges for FY06. MMED will pay the Town of Mansfield a total $1,098,348 in FY06, a 3.5% increase over the FY05 figure of $1,061,506. He said that the total amount of actual charges for FY06 is $618,348 plus the Pll.,OT of $480,000 which make up the total of $1,098,348. He also explained that the actual figure for FY06 was 0.7% below budget and that for FY05 the actual charges were 2.3% below budget. Director Babin also noted that the internal services payment for FY05 included a credit of $11,000 to MMED for the cost of Light Plant Manager D'Agostino's car, which was purchased under the MMED's capital budget. When this reimbursement is taken into account, (' the actual increase in cash paid by MMED for FY06 relative to FY05 reflected an increase in charges of 2.4%. (' Director Babin noted that the increases from FY05 to FY06 were driven primarily by increased health care costs, unemployment, Medicare, property insurance and MIS charges. Cost reductions from the prior year occurred in retirement costs and GIS services. Commissioner McCarter questioned why the cost of the unemployment had almost doubled. Director Babin answered that the Light Dept. pays actual unemployment compensation costs and that one employee had collected the maximum unemployment benefit in 2005. Clerk Dentino asked for an explanation of the $11,000 reimbursement for the Light Dept. Manager's car. Director Babin said the cost of the car was $22,000 and the Town Manager put through a reimbursement on the internal services summary for half of the cost in FY05. Town Manager D' Agostino said that the Board decided to have the Town reimburse the Light Dept. for 50% of the cost of the car, as the Light Dept. was originally paying the cost in full. ("' Clerk Dentino said his understanding was that the Light Dept. was paying for the car because there was no money on the municipal side. He also said he doesn't remember any such vote being taken at a Light Commissioner's meeting. Town Manager D'Agostino answered that a vote may have been taken at a Selectmen's meeting and offered the possibility of going back to the minutes to find the vote. Clerk Dentino wondered whether half of Town Manager D' Agostino's travel was for Light Dept. business. Town Manager D' Agostino responded the issue wasn't travel time, but rather time spent on Light Dept. business. Clerk Dentino noted that in the internal services charges, there are charges to the Light Department for services such as accounting which are supposed to be covered under the Pll..OT. Director Babin answered that it is his understanding that those costs are included in the PILOT. Clerk Dentino asked if there was a breakdown of the costs so the actual cost to the ratepayer is known. He stated that there should not just be a lump sum but that line items should be shown. Town Manager D' Agostino said the Pll..OT used to be broken down like that but not anymore. He added that all other entetprise accounts, except for the Light Department, are broken down. Clerk Dentino commented that the others don't pay a Pll..OT. Town Manager D' Agostino said that by statute, water and sewer cannot be asked to pay a Pll..OT. Director Babin elaborated by saying that under the statutes, a Pll..OT for the Light Dept. is made at the discretion of the Board from unappropriated earned sUtplus. He gave the example of a lockbox as an alternative to using the Town for processing bill payments. In his opinion, it is a good value for the Light Dept. to pay the Town for this service as part of the Pll..OT. Clerk Dentino stated that if the Light Department paid $160,000 to the Town for these services and that if the cost of the lockbox is $18,000, he failed to see how this was a good deal. He suggested looking at manhours and looking to see who is doing what. Director Babin responded by clarifying that he didn't say the lockbox was the way to go but merely mentioned it as an alternative. (' yo ,,-- {' Town Manager D' Agostino said that at one time a percentage of gross earnings by the plant was used to calculate the Pll..OT payment but that the FINCOMM prefers a fixed number, currently $480,000, to assure predictability in budgeting. Chairman McCue said he was not suggesting rethinking the methodology but would like an idea of how many hours are spent by the Town Accountant, etc. on behalf of MMED. Clerk Dentino said he would also like to know what the PILOT sum is made up of and believes it should be based on actual charges. He said that surrounding communities with municipal light departments have PILOT amounts which are a lot less than MMED' s. Director Babin disagreed with that and believes MMED to be in the middle of the pack. He will come back to the Board at the next meeting with a summary of this information. Commissioner McCarter questioned why the MIS and GIS services are not part of the PILOT and why they are treated differently. Town Manager D' Agostino answered that he'd like to get back to doing it based on actual costs. He said he wants the charges itemized and not as part of the Pll..OT. Commissioner McCarter wondered if they went that route, if they'd find the Pll..OT amount should be a lot less than $480,000. Town Manager D' Agostino said that would be correct. Discussion of Impact of ISO Decision Regarding Canal Generating Plant - Director Babin explained that a new charge has been assessed to MMED by the ISO New England. The result of this action is that all utilities in the Southeast Massachusetts Load Zone (SEMA) will be assessed an annual charge of $117 million based on their percentage of peak load in (' SEMA. MMED's peak load represents 1.63% of the SEMA load and the estimated charges to be assessed to Mansfield are $1.9 million. The reason for this charge originated with a large blackout experienced on Cape Cod last year as a result of the failure of both transmission lines feeding the Cape. NSTAR went to the ISO and said that they need better reliability for the Cape. Specifically, they asked that the Canal Generating Plant be granted Reliability Must Run (RMR) status, as opposed to being dispatched based on the economics of running the plant. Doing so would require an estimated $117 million annual payment to Mirant, owner of the Canal Generation power plant. Having Canal run even though it was not economically dispatched would ensure better reliability on the Cape, argued NSTAR. Canal was not in operation as it had not been dispatched to run when the outage occurred. This cost would typically be assessed to NST AR as the utility that requested the RMR status to increase their system reliability but NST AR successfully argued to the ISO that the charge should be socialized among all utilities in SEMA as a general reliability concern. The ISO justified move by saying this is what needs to be done to ensure better reliability on the Cape and provide better reliability in SEMA. The ISO, created by the Federal Energy Regulatory Commission (FERC), has been delegated unilateral authority to institute such charges as overseer of the New England power supply system, noted Director Babin. ("' r Director Babin estimates the annual impact on MMED to be $1,907,000. He explained this cost will flow through the PPCA and is estimated to increase the PPCA by 0.85 cents beginning October 1. If no increase in the PPCA is implemented, MMED will undercollect purchased power expenses for FY07 by $1.5 million. He also said MMED may have to start collecting even earlier or increase the level of the PPCA if the assessment is made retroactive to January 2006. The actual charges started being billed in mid-April 2006. Clerk Dentino asked if there were any plans to litigate this. His suggestion was use of an escrow account for the money MMED would have to pay and not to pay the ISO if this issue were to go into litigation. Director Babin stated that MMED has to operate by ISO rules and that while there is no active litigation at this point; everyone affected by this issue is discussing what course of action to take. While settlement is a possibility, this issue in all likelihood will be appealed and litigated at the FERC. One downside said Director Babin is that FERC empowers the ISO with wide ranging authority and decision-making and very few of the ISO's decisions have been overturned on appeal. (' Chairman McCue asked if there were any consequences ifMMED didn't pay. Director Babin stated that MMED really has no alternative but to pay the charges as assessed subject to refund if the matter is litigated. Chairman McCue asked if there were any other options besides raising the PPCA. Director Babin said the rate stabilization money could be utilized but that since this will be an annual charge, such use would not be recommended by the staff as an appropriate expenditure of rate stabilization monies. Director Babin stated that in essence, MMED ratepayers will be assessed almost 1 cent per kWh to ensure the reliability of Cape Cod. The impact of this charge on residential customers will be to raise the typical 500 kWh bill from $60 to $65. Old Business Director Babin wanted to clarify some questions that had been raised at the May meeting regarding the Calpine contract and the Dominion contract. At the May meeting, Director Babin was asked if the new contract with Dominion contained the same escrow account protection that the Calpine contract had. Director Babin stated he had researched this issue and that MMED's protection under the Dominion contract is actually better than it was under the Calpine contract. With the Dominion agreement, the same terms apply to funding an escrow account upon loss of an investment grade rating but that the escrow funds would be directly under MMED's control, as opposed to posting the escrow monies to an escrow agent, who would require both parties to sign off for release on any funds under the agreement. Should MMED determine that a breach of contract has occurred, MMED can claim the money and deposit it to their accounts, notify Dominion why it has done so and the burden would be on Dominion to prove that MMED should return the money. ("' Clerk Dentino asked if there were any stipulations once Dominion's credit rating falls. Director Babin answered that the trigger mechanism is only if Dominion's credit rating falls Ii! a:.. . . r below investment grade. They would then have to start posting payments to the escrow fund in an amount equal to the difference between the contractual costs of the power MMED has purchased versus the market cost for that same power. Clerk Dentino asked if anything in the contract required MMED to put up collateral. Director Babin couldn't find anything in the contract but said he would report back about that at the next meeting. New Business Director Babin stated that in the Board packets was information regarding the NEPP A conference to be held in Plymouth, Massachusetts from August 20 until August 23,2006. He asked that if anyone was interested in attending, to please let him know and he would get their registration in order. Adjournment Motion: To adjourn the Light Commissioner's meeting at 9:10 Passes 4/0 (' --.Jl,~\ O~ Date of Approval r If: II"