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HomeMy WebLinkAboutmin light commission 07/19/06 (' tlt,!{ ~fftlVED 0 Mansfield Municipal Electric Department" ': ;' r;,'ICS OFF Irr.: Minutes of Light Commissioners MeetfJ:&SEP 20 '.," July 19, 2006 PM 2: 23 MA~~~NSfIELD Present: Chairman Michael McCue; Vice Chairman Louis P. ~~'1o~S€I~lIS 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 8:40 PM. Motion: To approve the minutes of June 21, 2006 (McCarter/Amoruso) Passes 4/0 Director's Report Financial Statements for May 2006 - Director Babin reported on MMED's financial statements for May 2006, the next to the last month in the fiscal year. He stated that energy sales continue to be down and that MMED will end up with only about half of the growth that had been originally projected. He said that energy sales are up only 1.5% year-to-date versus a 3% projection. Director Babin commented that this is a real indication that energy sales are almost completely driven by weather. (' Director Babin stated there is a new line item on the balance sheet. The Calpine Rate Stabilization Fund, which represents the $9.2 million cash settlement which MMED received from Calpine for its breach of contract, will be listed as an asset on the balance sheet. As of 5/31/06, this fund had a balance of $9,231,080, which included accrued interest. Director Babin also explained that the MMWEC Reserve Trust Fund had been drawn down monthly, before the Calpine settlement was received, by the difference between the Calpine contract and the Dominion contract so that there would be no impact on the rates. The intent is to reimburse the Reserve Trust Fund that was drawn down from the Calpine Rate Stabilization Fund and restore the Reserve Trust Fund to its original level. This means the $9.2 million Calpine fund will be reduced by $737,000 for money borrowed from the MMWEC Reserve Trust Fund through May. Director Babin noted that MMED's cash position is still at a marginal level. Free cash through May is at $1,394,165, slightly less than the targeted amount of $1.5 million to cover 90 days operating expenses (excluding purchased power). Net income year-to-date is about the same as last year. Clerk Dentino questioned the change in the percentage of revenue from sales of electricity. He commented that 10.8% seems like an awful large amount and wondered if that was the result of increasing the PPCA twice. He asked what the percent had been in previous years when the PPCA was relatively stable, and at one time that it actually went down from 3.65 r (' cents to 2.65 cents. Director Babin responded by saying before he came to MMED the price of natural gas, which correlates directly to the price of power, was very low and purchased power costs on the spot market were cheap. That is why the Calpine contract prices were so low when the contract was executed in 2001. Director Babin said that when he arrived at MMED in May 2004, he was forced to raise the PPCA to 3.65 cents because MMED had been undercollecting its purchased power costs due to the rising cost of natural gas. More recently,. he explained that MMED had estimated the base cost of power for 2005 at 5.1 cents and after the reconciliation for actual costs, the cost was actually 5.23 cents. This occurred despite twice raising the PPCA during the second half of2005 by 0.5 cents each time to try to compensate for the skyrocketing cost of fossil fuel and power pnces. Director Babin said that the PPCA needs to be estimated annually based on a projection of power supply costs. He explained by saying that in December of each year, purchased power costs are estimated for the following year and at the end of the year MMED figures out how the estimate compares to actual costs. Periodic adjustments may be made during the year depending on how the cost of power fluctuates and how much revenue has been collected toward those costs. Clerk Dentino commented that the PPCA should be an adjustment, not a projection or a guess. He proposed that you can make the projection anything you want and then back into the number. (' Clerk Dentino also questioned what accounted for Customer Accounts expenses going up 102.2%. Director Babin answered that bad debt write offs in July 2005 accounted for a portion of the costs while reallocation of labor costs during MMED's budgeting process accounted for another portion. An example of this would be the reallocation of meter reading costs. Clerk Dentino asked how lack of collections ends up under Customer Accounts expense. Clerk Dentino also wondered why it didn't come under accounts receivable as it's a liability. Director Babin responded by saying bad debt falls under the DTE's Uniform System of Accounts for Electric Companies Customer Accounts expense under Account 904 _ Uncollectible Accounts. Its categorization on the Profit and Loss Statement is under this account 904 and it is reflected on the Balance Sheet under the line item Reserve for Uncollectible Accounts. Clerk Dentino wondered what accounted for the 104.2% increase in Administrative and General expenses. Director Babin said that all benefits are now classified under Account 926 - Employee Benefits (insurance, retirement, health insurance, etc.) as part of the 60% overhead rate calculation. He said that the 60% rate was based on previous year's actual costs but that the overhead rate was increased to 75% for the FY07 budget based on actual figures for CY05. Under Current & Accrued Assets, the guaranteed deposits increased by $98,000 which was questioned by Clerk Dentino. Director Babin said that MMED was directed by the Board to collect deposits and a deposit policy was instituted in order to reduce the amount of bad debt write offs. He explained that previously the auditors had told MMED that the $275,000 reserve for uncollectibles was too much bad debt to be carrying, so after it was written off the r (' deposit policy was instituted. Clerk Dentino wondered why it wouldn't be an accrued liability. Director Babin said that it is, as MMED owes it back to the customer. Financial Impact of ISO Decision Regarding Canal Generating Station _ Director Babin reminded the Board about the lengthy discussion at the last Light Commissioners meeting regarding Cape Cod and the black-out they experienced last year. At the time, the Canal Generating Plant was not being dispatched because the cheapest units to run get dispatched first. Now, however, Canal has to be dispatched due to a RMR (Reliability Must Run) agreement which has been instituted by ISO New England. The impact on MMED will be approximately $1.9 million annually, which means MMED will have to increase the PPCA from 4.65 to 5.5 cents, as of September 1. If this PPCA increase were not implemented, MMED projects it would undercollect purchased power costs by $1.581 million in FY07. Commissioner McCarter inquired if there would be any litigation. Director Babin answered that he was attending a meeting the next day, along with eight other municipals from MMWEC who have been affected. He said, however, there is no litigation at this point. He added that National Grid and NSTAR are also affected by this, and that NSTAR should actually be paying the whole cost since they requested the Canal Unit designation, but that they persuaded the ISO the cost should be socialized among all SEMA utilities. (' Clerk Dentino asked what they used as a barometer to allocate costs and how they arrived at $1.9 million as Mansfield's share. Director Babin said they looked at Mansfield's peak demand of 52 megawatts, which represented 1.63% of the total ofthe Southeast Mass. Region (SEMA), and 1.63% of the estimated $117 million cost is allocated to Mansfield, or $1.9 million. Clerk Dentino asked how they arrived at the cost of $117 million. Director Babin answered it is an estimated cost based on analysis from ConEdison Energy. Clerk Dentino questioned whether the number was a normal load or a peak load. Director Babin responded by explaining it was not a calculation based on load but a plant output issue. He said it's a fairly complicated engineering analysis, which takes the cost of the energy output of the plant and multiplies it by the difference between what the locational marginal price is at the Canal location versus the cost to operate the plant. Vice Chairman Amoruso inquired as to what caused the original problem that resulted in the blackout on the Cape. Director Babin said he did not know and that it was an ISO issue. Vice Chairman Amoruso commented that MMED was paying for NStar's incompetence and that instead of "how can we fix this", it's "how can we spread the costs". Mansfield Municipal Electric Department Credit Rating- Director Babin explained that MMED receives a separate and distinct credit rating from that of the Town because it operates as a separate entity and needs to show credit worthiness in order to enter into power supply contracts. He stated that MMED's credit rating from Standard and Poor's is A stable. Last r year when MMED entered into the Dominion contract, the rating needed to be updated as the last rating was done in 2001 when the Calpine contract was executed. (' Commissioner McCarter asked how MMED compares to other utilities. Director Babin answered that MMED compares favorably and has a pretty stable operating environment. The energy MMED purchases is going to serve it's own customers. Clerk Dentino wondered whether this was a qualified rating, not an investment grade rating. Director Babin stated that there is a disclaimer in Standard and Poor's report that the rating is not for the purposes of issuing debt. Vice Chairman Amoruso added that because there are no stockholders, MMED is not being rated in terms of stock, but simply for worthiness of receiving credit. Clerk Dentino questioned whether PPCA increases require a public hearing, while pointing out that it has never been done before. Director Babin said that he has researched that issue and found that in the minutes from the Light Commissioners meeting from February 2002, the Board approved rate changes in the tariffs and the PPCA calculation tariff is a part of the rates approved. Clerk Dentino wondered if there should be some kind of notification procedure in order to do a rate increase. Director Babin said that PPCA changes are not a rate increase, but rather a flow through mechanism for recuperating purchased power costs. But Clerk Dentino stated that Director Babin was, in fact, changing the rate. Director Babin reiterated that the rates were approved on February 4,2002 by the Board and he was implementing an approved rate. (' Commissioner McCarter said he has asked before and never gotten an answer as to why the Board doesn't get to vote on a change in the PPCA. Director Babin reiterated that the Board did vote the tariff detailing the PPCA tariff calculation in February 2002. He added that MMED follows the tariff, which is very specific. Commissioner McCarter said it has bothered him as to why the Board doesn't make it a policy so that any change in the PPCA has to be voted on by the Board. Clerk Dentino added that he believes it's supposed to be done like that anyway. In response, Director Babin read minutes from the February 2002 Board meeting and stated that he thinks the Board is doing what's consistent with the tariff that they approved and with what's been done in the past. Town Manager D' Agostino stated he thinks the Board could set a policy but that previous Boards purposely have not voted PPCA rate increases because of other considerations. Commissioner McCarter stated that the Board members are the ones accountable to the ratepayers and feels the Board should have a say. Clerk Dentino wondered why they should bother to set a policy when DTE regulations must specifically tell you what you have to do to increase the rate. Vice Chairman Amoruso commented that the DTE has long allowed implementation of the PPCA in this way. Town Manager D' Agostino said he would look into it and make a recommendation. Director Babin said he would seek a legal opinion that cites case law in order to come to a final detemination. (' Pilot Payment Summary by Massachusetts Light Departments- Director Babin stated that at the last Light Commissioners meeting the subject of the PILOT (payment-in-lieu-of-taxes) .. - (' that MMED makes to the Town was discussed. MMED's PILOT is currently $480,000. Director Babin explained that if, for example, NST AR was in Mansfield, they'd be paying taxes on their property but since MMED is a municipal entity, MMED makes a payment in lieu of being assessed a tax. He believes that the best way to compare PILOTS is by percentage. of operating revenue because the actual cash payment of the PILOT depends on the size of the utility. He stated that MMED ranks 13th out of 30 utilities measured in the 2003 survey, the last year for which data is available. This places MMED in the middle ofthe pack and is, in his opinion, a reasonable level. Clerk Dentino inquired as to whether benefits and internal charges are included in the figures because MMED paid $600,000 to $700,000 on top of the PILOT. He asked what Taunton's $2,625,000 payment entails. Director Babin explained that Taunton's payment is a physical cash payment. Services that you get for the PILOT vary from town to town. For example, Wellesley pays a $1 million PILOT to the town but also pays $100,000 for MIS services. An example Director Babin gave for services MMED gets for its PILOT payment is that the Treasurer's Office processes bill payments for MMED. (' Clerk Dentino stated that the lock box MMED was previously asking for would have cost approximately $18,000, but instead, MMED is charged $160,000 for those services by the Town. He also commented that ifMMED was a business in Town, they'd make their PILOT payment and the Town wouldn't keep going back for more money, as the town does for internal services. Vice Chairman Amoruso was not in agreement, saying that the Town does receive taxes from the Industrial Park and those businesses are also sent bills for electric and water service. Director Babin also pointed out that the Town pays for many items during the course of the year, such as health insurance and retirement, for which MMED reimburses the Town for its share for its employees through the internal services payment. Old Business Clerk Dentino inquired as to the line item breakdown of internal charges in the PILOT which Director Babin, at the last meeting, said he would provide. Director Babin believed that the line item breakdown for the internal services charges had been included in the prior months information packet sent to the Board. At the last Light Commissioners meeting, Clerk Dentino inquired as to whether there had been a vote taken by the Board for reimbursing the Light Department $11,000 for half of the cost of Town Manager D'Agostino's car. In response, Town Manager D'Agostino read the minutes of the November 10, 2004 meeting at which there had been discussion about having the Light Department purchase the car for him and for the Town to reimburse half ofthat cost. He said there was no vote taken regarding the reimbursement but said he thought it was appropriate for the Light Department to pay half and the Town to pay half. He added that the manager of the Town is also the manager of the Light Department. (' Director Babin stated that MMED and the Town are in the process of going to a single audit function but that MMED's previous auditors have been engaged to help MMED close out FY06. He also clarified that under the single audit process, there will be 2 reports generated, r. r \ (' r , ~ one for the Town and one for the Light Department. Clerk Dentino asked if there was another municipal that has one auditor for both the Town and the Light Department. Director Babin answered that Wellesley, Reading and Concord do. Clerk Dentino commented that only 3 have one auditor while 36 don't. He believes municipals would not want to have just one auditor because of the autonomy of the Light Department which should be a total, separate entity from the Municipal side and believes most Towns feel this way. New Business Engineer Ann Langille spoke about how well the system has been doing' during the summer heat. In 2005, at the end of July, the system peak demand was 52.4 megawatts while this summer's peak demand, which happened to be the day before, was 53.9 megawatts. This is an increase of 1.5 megawatts or 2.8%. Engineer Langille added that ADM had been asked the day before to switch to generation, which they did. She reiterated that the system did really well, as it always has in the heat, and is in good shape. She does not anticipate any problems meeting demand for the rest of the summer. Adjournment Motion: To adjourn the Light Commissioner's meeting at 9:00 Passes 4/0 Date of Approval III r: .