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HomeMy WebLinkAboutmin light commission 11/20/06 ... r Mansfield Municipal Electric Department Minutes of Light Commissioners Meeting November 20, 2006 RtCtlVtD r; t~ r:: i'f S [} C" F 'C F 07JAN23 Pl1l:S7 Present: Chairman Michael McCue; Vice Chairman Louis P. Amorus<t1 clli1Jti~o~~IbT~ino; Commissioner David McCarter; Commissioner Ann Baldwin; Director 'trJ;,~m?~; l!ngmeer Chris Cox; Financial Assistant Jacqueline Lee and Town Manager John D' Agostino Light Commissioner Meeting The meeting was called to order at 8:55 PM. Electric Rate Design Presentation by Mayhew Seavey - Director Babin began by reminding everyone that at the September 18, 2006 Light Commissioners meeting there was a discussion about the PPCA, how it works and the fact that it had been increased. There was also a discussion at that meeting about how the underlying rates might be too low and the PPCA was being used to compensate for that. As a result, Mr. Seavey was asked to partake in this meeting and make a presentation regarding rates. Director Babin said that Mayhew Seavey of PLM would present an overview on electric rate design as well as a discussion of bundled rates, which is what MMED currently uses, versus an unbundled rate. Director Babin also explained that Mr. Seavey's Power Point presentation would be shown directly to those at home, as had been suggested by Commissioner Baldwin. r Mr. Seavey spoke about how electricity is a single product but is priced differently to different groups of customer classes. He explained that the basic objective of rate design is that the rate needs to be adequate to sufficiently cover expenses and provide net income. The measure for this is the overall rate of return. Another objective of rate design is that the rate should be fair; the measure ofthis is the class rate of return. A third objective is that the rate be competitive, the measure of this is typical bill comparisons. Another objective of rate design is stability, which can be measured by monthly adjustments. There should also be clarity, the measure of clarity being that you know what it is when you see it. Mr. Seavey explained the three basic factors of cost allocation. The first factor is customer cost allocation, examples of which are metering, billing and customer accounts. The second factor is demand allocation, examples of which are transformers and lines. The third basic factor is energy allocation, which is purchased energy and fuel charges. He then explained that the Historic Test Year Cost of Service Study allocates costs to each customer class then compares the actual revenues to the expenses to determine the rates of return for each customer class. The Proforma Test Year Cost of Service Study uses forecast data in place of historic data and is used to determine the impact of changes in rate design. Mr. Seavey talked about developing rate designs which produce adequate revenue to cover operating expenses plus fund capital improvements and the PILOT. The rate design should also send clear and correct price signals to the customers. ( Policy considerations for the Board were then discussed. The Board must consider which of three rate objectives that they wish to be achieved by a rate design: the first objective is whether ( the rate design should produce uniform rates of return by class: the second is whether the rate design should produce competitive rates for all customer classes; the third objective is whether the rate design should produce a uniform percentage change for each customer class. Each objective produces a different rate design which has a different impact on each customer class. Balancing these three objectives is the policy decision the Board must make in directing staff to produce a rate design. Mr. Seavey then discussed developing specific types of rate designs. He stated that MMED currently has bundled rates. This design includes a customer charge, base energy charge, base demand charge, where applicable, and the purchased power cost adjustment charge (PPCA). An unbundled rate design is more detailed than the bundled rate design. There is a customer charge which covers the costs of metering, billing and customer service. There is a distribution charge covering depreciation expense, interest expense, administrative and general expense and distribution operating & maintenance expense. A transmission charge recovers all of the costs associated with transmission of electricity. The generation charge recovers all of the cost of purchased power. The last charge is an energy conservation charge to support the costs of customer programs for load management and conservation. It was also noted that the distribution charge is the one rate component that recovers any net income the utility may make and that all other costs are straight pass-thoughs with no profit built m. r Director Babin stated that there were two major points he wanted to make to the Board. The first point is that with unbundled rates everything is far more transparent, which makes the rate more comparable with investor-owned utilities on a line-by-line basis. The second point is that determining the rate setting mechanism is a Board policy issue. Director Babin wants the Board to understand that there are different ways of approaching rate design. The Board could direct that MMED staff along with Mr. Seavey take a look at the rates and that the Board must determine whether the rate design should produce uniform rates of return, competitive rates for all customer classes or uniform percentage change for each customer class. Chairman McCue asked Mr. Seavey if moving to unbundled rates would mean a change in cost for the customer. Mr. Seavey responded there would be no significant change in cost and unbundling would also make the rate more understandable. Commissioner McCarter inquired as to whether it would mean more work each month for the billing person or whether it would possibly mean another administrative position. Mr. Seavey answered that it would not impose an additional burden and that creating an unbundled rate is a one-time job which is completed once the new rates are put into effect. Vice Chairman Amoruso wondered if the bill was unbundled, would MMED's bill look like NSTAR's bill. He noted that the format of such a bill would not be in favor of the customer understanding it and believed it would create more questions. He also wondered if every time a change was necessary, would MMED have to go to the DTE? Director Babin responded that MMED would true up power costs every six months and that would be the only change in the rate, similar to what MMED is doing now with the PPCA. r" ( .1"""' r Clerk Dentino commented that with the unbundled bill you get six months of estimates then recovery of actual costs and that right now, MMED has this capability with the PPCA. He also added that the PPCA should be changed monthly. He said that the unbundled bill has more line items so there would be more items to adjust instead of one lump sum amount. Mr. Seavey agreed there is a little more accounting with the unbundled bill and that it is busier. He believed, however, that the PPCA did not call for monthly adjustments because his understanding was that the Tariff did not read that way. Clerk Dentino disagreed, saying that the Tariff and the DTE regulations do read that way. Clerk Dentino inquired as to who would now decide what changes would be made if the bill was to be unbundled. Director Babin explained that the only component of the rate that would change in the unbundled bill would be purchased power, which is what MMED does now by having a PPCA. With an unbundled bill, however, the costs are more transparent: the actual cost of power is shown as a full charge and not as a base energy charge with a PPCA. He then answered Clerk Dentino by saying there's no autonomy or discretionary power at the staff level to set the rate in the Light Department. The cost of power and corresponding PPCA used is simply a mathematical calculation. Clerk Dentino commented that the PPCA is supposed to be raised when purchased power costs go up and lowered when purchased power costs go down. Director Babin responded by saying the PPCA is estimated and then it is then followed up with a true-up based on actual charges. Clerk Dentino said that at the last meeting, at which he was not present, Director Babin and Mr. Seavey stated that when the price of fuel goes up, the price of electricity goes up too. Director Babin said he does not recall making that specific statement. Clerk Dentino added that when MMED' s PPCA was raised, other municipals lowered their PPCA. He said that in New England, energy costs went down 38%, and that the PPCA's for the North Attleboro Light Department, as well as National Grid and NST AR were also lowered. He stated that MMED' s PPCA has gone up four times since Director Babin was hired. Director Babin said that PPCA increases were not attributable to him personally but that it was the result of a mathematical calculation which indicated that actual purchased power costs were being under-recovered or projected purchased power costs would be under-recovered by the rates then in effect. Clerk Dentino stated that the PPCA was raised in October 2004, August 2005, November 2005 and October 2006, and the latter three raises were attributed to the cost of fossil fuel. He noted that when spot prices of gas were at an all time low, however, there was no reduction in the PPCA. He commented that we only adjust up when energy prices go up but when energy prices go down we make no downward adjustments. He added that approximately 80% of MMED's purchased power costs were fixed while only 20% was in the open market. Director Babin noted that the October PPCA increase was solely to collect increased costs associated with the Canal Generating Station RMR status, which the Board had discussed for several months. Director Babin said that Mr. Dentino's explanation was an oversimplification of the facts and that when a power bill comes in, MMED is responsible to pay that bill and has a fiduciary responsibility specifically cited in the statutes to make sure the cost ofthat power is recovered. Further, Director Babin added that the ISO New England system is an increasingly complicated network with over 1,000 points being monitored and prices at each of those points changing on r an hourly basis. The 80% of power costs cited by Mr. Dentino is not fixed but rather dictated by the hourly prices at each of these points. In addition, there are other charges besides the pure cost of the power, such as the $1.9 million in annual charges that MMED is being billed for the Canal RMR status, which the ISO assesses. Clerk Dentino stated that Mr. Babin had stated at a prior Board meeting that one of the reasons that the PPCA was raised is that reserves were down and free cash was down, and commented that the PPCA is not supposed to be used to bring reserves up, free cash up, capital up and depreciation up, it is only to be used to adjust for purchased power costs. Vice Chairman Amoruso noted that if these were down, then this would occur if purchased power was being undercollected. Director Babin noted that this affects free cash. Clerk Dentino said this should be done through the rate and the PPCA should be used to cover the cost of purchased power only. Mr. Seavey commented that the PPCA is used exactly for the purpose of recovering the cost of purchased power and has not been used to collect additional monies outside of the cost of power. Mr. Seavey mentioned that MMED's auditors noted that the use of the PPCA has been properly implemented and reconciled and never raised a concern. Mr. Seavey also noted that there have been no comments from the auditors suggesting that anything was inappropriate in collection of purchased power costs. Clerk Dentino responded that auditors would not be looking for that. Director Babin said that the staffs job is to pay bills, then recover the costs ofthose bills through rates, which are derived from mathematical calculations. Director Babin then added that questioning the proper performance of these duties becomes an issue of personal integrity. He said we pay our bills and do the math to recover costs accordingly each month. r Chairman McCue stated that Clerk Dentino had made his point clear and that Director Babin had answered his questions. Town Manager D' Agostino stated that he and Director Babin were looking for the Board to decide whether MMED's bill should be unbundled. His opinion was that unbundled rates were the way to go as he was tired of this line of questioning and this would allow people to see everything broken down on the bill. Chairman McCue answered that he was not prepared to hear a motion until the next meeting. He also stated that he wanted it to go on record that he was happy with the Light Department's performance. Vice Chairman Amoruso voiced his concern about no provision in the rates to pay for the cost of supplying power for the east side of Town. Director Babin said that he did not wish to address that particular subject this evening but that it would be addressed at the next meeting. Adjournment Motion: To adjourn the Light Commissioner's meeting at 10:10 Passes 4/0 r ,Iz.z/or Date of Approval -"