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HomeMy WebLinkAboutmin light commission 09/18/06 () n I r I 4 fif~EIVtD Mansfield Municipal Electric Department ,.' . f,~ ,1( S OFF ICE Minutes of Light Commissioners Meeting 06 OCT I 9 A . September 18, 2006 ~H II: S2 NANSfl MASSACHU~LD Present: Chairman Michael McCue; Vice Chairman Louis P. Amoruso; clerfTJ~rge Dentino; Commissioner David McCarter; Director Gary Babin; Engineer Ann Langille; Engineer Chris Cox; Financial Assistant Jacqueline Lee and Town Manager John D' Agostino Light Commissioner Meeting The meeting was called to order at 7:30 PM. Motion: To approve the minutes of July 19,2006 (Amoruso/Dentino) Passes 4/0 Director's Report Final Capital and Operating Budget Financial Results for FY06 - Director Babin said the Light Department will be presenting a true-up of both the FY06 Capital Budget, and the FY06 Operating Budget at this meeting. Director Babin explained that several projects budgeted for FY06 could not be completed within FY06 for a variety of reasons. Certain projects that require Verizon to set poles for the work were not completed because of Verizon. A new bucket truck that was purchased in FY06 was not received until FY07 and paid for at that time. Two additional projects were deferred awaiting the Town's wireless study. Money had been allocated to purchase Gilbert St. land from NEES but due to NEES's inaction, remained unspent at the end of FY06. Finally, an unfinished portion of the School St. conduit project was also deferred. Director Babin stated that this meant the original FY06 capital budget amount, which was approved for $2,251,147, would be revised to $1,643,178 for the purposes of measuring actual expenditures versus budgeted expenditures. The actual capital expenditures in FY06 were $1,717,244, which means MMED was over budget by $74,066. Engineer Langille reviewed some of the FY06 capital projects such as installation of overhead spacer cable on Tremont Street; the School Street Bridge project and pole replacements. She stated that MMED did well completing what were defined as "planned projects", such as the three projects related to the Industrial Park which were planned, predictable and on budget. She added that there was one group of projects that was not predictable because the planned time frame for completion was dependant on customer's schedules, which was not always accurate. Overall, she said those projects which were predictable were also controllable and therefore, turned out as planned. Clerk Dentino asked why the cost of the High Street paving project was 50% higher than the estimate. Engineer Langille answered that the amount of asphalt that was needed was underestimated. Director Babin added there were very strict grading requirements for the ., n paving, based on the plan submitted by the engineer who surveyed the lot, which increased costs and that there was also more clean fill required than was estimated. He also explained that the budget for this project was prepared in October 2005 but the work was actually done in May 2006. He added that the cost of fuel as it relates to the cost of asphalt was also a factor. It was noted that actual costs versus the estimate will be provided at the next meeting. Clerk Dentino inquired as to whether money has been put aside for the East Mansfield Substation. Director Babin ,answered that no money has been put aside for that project. Clerk Dentino recalled a five year plan where money was supposed to have been put aside for that purpose. Director Babin indicated that he was unaware of such a fund and that there was no line item on the balance sheet for financing this project, except the depreciation fund, since he had arrived at MMED. He also reiterated that MMED has struggled to maintain a minimum $1.5 million in free cash on the balance sheet and that with all of the pressure on rates, setting several million dollars aside to fund a substation was not practical at this time. Commissioner McCarter asked if there was a particular site chosen, for the substation. Director Babin answered that the staff has a particular site in mind which would be MMED' s preference but there are difficulties because it's a residential area. Several other sites are also being considered. Chairman McCue said he would put this on the agenda for the next meeting and would like MMED to give a synopsis of where the project now stands for the people at home. r Commissioner McCarter questioned what happens with the old trucks when new trucks are purchased. Director Babin answered that MMED requires the bidder to take the old truck as part of the bid package and MMED receives credit from the bidder to offset the cost of the new truck. He added that usually the old trucks are hard to get rid of and this is probably the most efficient way to do it. Director Babin then reviewed the FY06 Operating Budget. The operating budget was $25,621,334 for FY06 while the actual expense was $26,531,597, resulting in MMED being over budget by $910,263. The reason for expenses exceeding the budget was that purchased power costs, which comprised 79% of actual expenses, were $1,020,216 more than budgeted. Director Babin pointed out that Distribution costs were under budget by $93,360 due to MMED requiring less overtime than was budgeted. He explained that Customer Accounts was over budget primarily because of the settlement ofMMED's Professional Union contract where large lump sum payments were distributed to unit members, which included retroactive payments back to July 1, 2004. He added that meter reading costs also contributed to this account being over budget. A&G costs were under budget because of the reclassification of the Chief Financial Officer position to a Staff Accountant position. MMED also went eleven months of the fiscal year without filling the Staff Accountant position, again because of the time required for negotiation of the contract which finalized the creation of the new position. r Director Babin stated that there was a significant cost savings on the newsletter when MMED changed from a monthly format to a quarterly format. The annual cost for the monthly newsletter was $53,000 while the annual cost for the quarterly format was $28,000, a savings - .... , (I of approximately $25,000. He added that there has been no negative feedback regarding the change in format. Another major savings for MMED for FY06 was that custodial expenses were reduced by 80%, from approximately $29,500 annually to $5,770 annually when MMED hired a new cleaning contractor. Director Babin also stated that a 60% overhead on labor was budgeted but the overhead rate actually came in at 80%. He noted that the 60% figure was MMED's first attempt at establishing an overhead rate to apply to straight time labor. This impacted the operating budget by $221,000. He also indicated that the FY07 overhead rate was budgeted at 75%. Finally, a 17% overhead factor for material, which covers the Procurement Clerk's salary plus the expenses attributable to the entire inventory operation, had a $50,000 impact on the budget for material costs because no money had been budgeted for a material overhead. Clerk Dentino questioned the fact that the MMED newsletter, the Live Wire, is utilized approximately 90% by the Town; for example by the Council on Aging, the town calendar, etc. He asked Director Babin if he had a problem with the fact that the Light Dept. pays the entire cost of the newsletter. Director Babin said he did not have a problem with that and believed that MMED was supplying a public service to the Town, not incurring an expense that had no justification. r". Update on Canal Generating Unit Settlement Discussions- Director Babin reiterated that it is difficult to justify the logic behind the additional costs being assessed to MMED for the Canal Generating Station issue. He stated that as a result of this cost assessment, the PPCA was increased by 0.85 cents with the September billing. He informed the Board that he has sent letters regarding this issue to Kevin Kirby of the ISO New England, the Massachusetts Department of Telecommunications and Energy (DTE), Senators Kennedy and Kerry and Mansfield's Congressional Representative Barney Frank. Director Babin indicated that one of Barney Frank's aides had contacted him and will be writing a letter to FERC on MMED's behalf. He added that MMED is pursuing this issue through MMWEC and utilizing their counsel to argue on MMED's behalf. Director Babin did receive a response from Kevin Kirby of the ISO that was included in the Board package. Vice Chairman Amoruso commented that the letter was "bureaucratic bologna". Director Babin said he has not heard from the DTE. Clerk Dentino said he was impressed with Director Babin's letter. He also inquired about the Southwest Connecticut issue. He believed that due to the ISO, there was the same charge for transmission down there as incurred by MMED for Canal. Director Babin explained there is not a lot of generation in that area and that their issue and cost burden are more of a result of "congestion charges". MMED Energy Growth in FY06 and New Peak Demand Record - Director Babin stated that energy sales for FY06 increased by 1.6%, which is 1.9% less than was projected. He r ...... r" noted that FY06 energy sales were actually up by 5.4% through December 2005, which only goes to prove that weather is the most significant factor affecting energy sales. MMED twice established a new system peak demand record this past summer. On July 18, 2006 a new system peak demand of 53.9MW was established and on August 2, 2006 another new peak record occurred with a demand of 55.5MW. Prior to this, the MMED system peak demand had been established on July 27, 2005 at 52.5 MW. This means that the overall increase in system peak demand from 2005 to 2006 is 5.8%. Director Babin commented that the system has held up extremely well. MMED Annual Safety Luncheon- The annual luncheon will be held on FridaY1 October 20, 2006 at 11 :30 AM at the Mansfield Council on Aging. The topics that will be covered include energy conservation and electric safety. There will be an Energy New England representative present to discuss conservation issues as well as a speaker to address electric safety. Seniors will also be reminded about appliance rebates. Old and New Business- Clerk Dentino questioned the account that had $11,000 of deposit money. Director Babin explained there were deposits from several years ago in that account and that once this was discovered, the money was given back to the customers. ~, Clerk Dentino also asked if a customer passed away, how their family would know they had put down a security deposit for electric service. Director Babin said that once MMED became aware that the account was being closed and taken out of that customer's name, MMED would seek out the individual's family and try to determine where the money should go. In all likelihood, it would go to their estate. Clerk Dentino also wondered what could be done about the streetlights in the center of Town. He stated that previously, it was decided to remove every other pole for energy conservation purposes and to reduce the amount of lighting along North Main Street. A lot of work was done but the project was never completed and now he thinks it looks slipshod. He asked what could be done to rectify the situation. Commissioner McCarter said he believed some poles were still there because residents and business owners had asked if they could be left there. Possibly, it was a safety issue. Director Babin said he will follow up on this. Chairman McCue said that he would speak to Line Foreman D' Ambra. Clerk Dentino referred to MMED's fall Live Wire publication and questioned the Mansfield Electric rates comparisons to National Grid. He believes MMED's rates have pole-vaulted over the IOU's, as there have been four PPCA increases in the last two and a half years. He stated that the cost of fossil fuel has always been the justification for the PPCA increases but then he pointed out that the cost per barrel of fossil fuel has gone down from $80 to $62. He also pointed out that the cost of natural gas has been coming down and wondered when MMED's PPCA would also come down. r Director Babin believed that this view was an oversimplification of the issue. He said that when he came to MMED in May 2004, the PPCA was 2.65 cents per kWh and when he determined that MMED was undercollecting purchased power costs, it was raised to 3.65 (\ (' r .' cents per kWh in October 2004. In August 2005, it was raised from 3.65 cents to 4.15 cents per kWh and then again in November 2005 to 4.65 cents per kWh because ofthe skyrocketing cost of fossil fuel. The most recent hike to 5.50 cents per kWh in September 2006 was because of the Canal issue. Director Babin indicated that he had prepared an analysis entitled "Projected Cash Position Impact of 4.65 Cent PPCA versus 5.5 Cent PPCA" specifically relating to the Canal issue. He explained that based on the assumption that free cash levels for September 2006 through June 2007 were the same as for the same period the prior year (which was accurate for purposes of the comparison based on monthly free cash levels from the remaining months of 2005 and 2006), the analysis showed if the PPCA were not raised to 5.5 cents in September, by November 2006 free cash would have been diminished well below the recommended minimum level. Further, Director Babin indicated that free cash would go negative in January 2007 and by June 2007, free cash would be a negative $800,000 with a 4.65 cent PPCA. Clerk Dentino stated that you can't budget the PPCA. Director Babin answered that by projecting power supply costs, as MMED did with the FY06 budget that was discussed earlier in the evening, you are actually budgeting the PPCA. He said that it is the staffs responsibility to forecast costs to make sure there is enough revenue collected to cover those costs. Director Babin also added that if MMED's free cash position were to go negative, it would destroy MMED's balance sheet. In this case, MMED's credit rating would also be severely impacted because there would not be a minimum level of free cash to fund operations and subsequently, MMED would not be able to enter into power supply contracts as it would have a below investment grade credit rating. Commissioner McCarter asked if the PPCA has ever been reduced before. Town Manager D' Agostino answered that it had. Director Babin said it had not since he had been with MMED. Town Manager D'Agostino suggested having Mayhew Seavey come in and explain why and how the concept of the PPCA works. Commissioner McCarter also commented that the Board members were sent a letter stating that the Board does not have the authority to approve an increase in the PPCA and that it troubled him. Clerk Dentino commented that you can't back into the formula for the PPCA and that you can't project out several months. He said that Director Babin admitted to raising the PPCA when purchased power costs went down. Director Babin said he doesn't believe he ever made that statement. Clerk Dentino replied that in the audit report it says that. Chairman McCue stated that he doesn't want anyone thinking the Light Department or the Light Commissioners are doing something they're not allowed to do. Commissioner McCarter inquired as to whether the underlying rate was high enough and wondered whether it was correct to be using the PPCA to make up for it. Director Babin commented that is one way to look at it. Vice Chairman Amoruso said he is worried about significant projects such as the new substation and believes there is a need to look at all factors. He thinks that maybe we're not doing the right thing with the PPCA. Commissioner McCarter suggested another rate . ~ , , r . , . (' r" (" analysis. Director Babin will discuss the situation with Mayhew Seavey and see if Mr. Seavey can possibly attend the next Light Commissioners meeting. Old Business Director Babin said that at a previous Light Commissioners meeting Clerk Dentino had asked about installing flashing lights at the Rails to Trails crossing. Director Babin answered that MMED had nearly all the material to do the project and that it would be completed in the next couple of weeks. Chairman McCue announced that the Light Commissioners will be returning to their original meeting night of Monday, rather than meeting on Wednesdays at the Selectmen's meeting. The next meeting is scheduled for Monday, October 16. Adjournment Motion: To adjourn the Light Commissioner's meeting at 9:00 Passes 4/0 Respectfully submitted: Jacqueline Lee 10/16/06 ~C?~ Signature of Clerk <>Lc..'h':::f cl~~k- IO/tt/EJb Date of Approval -