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HomeMy WebLinkAboutmin light comm 032607 Mansfield Municipal Electric Department ' ~f~~!~ED Minutes of Light Commissioners Meeting . .... I' ri~: ,) - :.. !.- - March 26, 2007 0'7 APR II PI1 2: 16 Present: Vice Chairman Louis P. Amoruso; Clerk George Dentino; C~~~TS McCarter; Commissioner Ann Baldwin; Director Gary Babin; Staff Accountant Ken Thomson; Line Foreman Gary D' Ambra; Engineer Chris Cox; Business Manager Laurie Anderson; Town Manager John D' Agostino; FinCom Jack Goldberg; FinCom Jim Lazzara and FinCom Jess Aptowitz. Light Commissioner Meeting The meeting was called to order at 7:35 PM after the Pledge of Allegiance FY07 Operating Budget Update Director Babin introduced Staff Accountant Ken Thomson and stated that they would begin by presenting an FY07 Operating Budget Update. The FY07 Budget covers July 2006-June 2007. The line items on the chart included with the packets are costs through February 2007 except for Purchase Power and Transmission costs, which are cost figures through January 2007 because the February bill from MMWEC had not been received when this summary was prepared. Purchase Power expenses were budgeted at $14.9 million and actual is $14.97 million. The $69K difference is 0.5% over budget. Transmission Expenses were budgeted at $872K and came in at $558K, or $315K under budget. Distribution Expenses were budgeted at $925K and came in at $850K, or $75K below budget. Customer Accounts Expenses were budgeted at $466K and came in at $486K. This is mainly due to a timing issue. MMED accrues for bad debt on a monthly basis but writes off bad debt only once per year. MMED has a budget of $40K for bad debt but wrote off$45k in January and that will be the total for the year. Total Administrative and General Expenses were budgeted at $655K and came in at $440K. This equates to 2/3 of the budget being expended. Again this is due to timing. MMED anticipates bills in FY07 for the engineering services for the East Mansfield feasibility study $60K, $15K for the audit and there are additional legal expenses to be realized later this fiscal year. A few specific items to point out include Account 587 has zero budget but actual expenses of $21.7K. This is due to a special meter verification project that MMED undertook after the budget was prepared to verify the meters are recording correctly and that optimal size of metering equipment was being used. If the metering equipment is too large it does not properly register consumption. Account 905 Miscellaneous Customer Accounts Expenses has a zero budget but actual expenses of $38.4K. This is due to the fact that the budget was done before MMED rebuilt the chart of accounts. Residential Conservation Services and Customer Newsletter charges were budgeted in Account 930 but reclassified to Account 905 under the new chart of accounts. Clerk Dentino noted that if you combine Accounts 930 and 905 then we are $7K over budget. Commissioner McCarter asked if staff if it felt we would meet our projections overall. Director Babin responded that yes, he feels good about where we are. Purchased Power drives everything and he believes that we are pretty well on target. Director Babin informed the Board that one thing that can affect the budget is that MMED has 2 line employees out on Worker's Comp and one vacant position. Since MMED is short staffed Line Forman Gary D' Ambra is concentrating mainly on Capital and Billable Projects, which could affect the operating budget. Clerk Dentino asked why North Attleborough has lowered their PPCA 4 times this year and Long Island Power Supply lowered their's 12.2% due to lower fossil fuel costs. Direct Babin responded by saying that he was actually going to announce this evening that effective April 1 st MMED would be lowering our PPCA by $0.0025. The price of gas has affected locational marginal prices under the model that the ISO uses but that has been offset by the Canal charges, which were under collected by $700K. This is due to the fact that the Canal charges were retroactive to January 2006 and MMED only began collecting these charges through the PPCA in September 2006. Clerk Dentino asked why we were not lowering the PPCA because of the settlement on the Canal issue. Director Babin stated that they are still waiting for a decision on the settlement, which has not been finalized, and that this was discussed during an Executive Session and should not be discussed at this time in open session as it is pending litigation. Vice Chairman Amoruso asked the Finance Committee members if they had any questions on the FY07 Operating Budget Update and they responded that they did not. FY08 Operating Budget Director Babin stated that the total FY08 Operating Budget was being proposed at $30.5 million. The assumptions for this budget include the PPCA rate decrease of $0.0025 staying in place through FY08 and that an extremely conservative load growth rate of 1.9% had been used. Purchased Power costs are estimated at $24.8 million for the year and with the Calpine Rate Stabilization draw down of $3.158 million, the FY08 request for purchased power is $21.7 million or 72% of the total budget. The Canal charges for FY08 are projected at $1.3 million or 6% of the power supply budget. In December 2006, ISO-NE also added an additional charge for Location Installed Capacity (LICAP). Originally, the ISO was looking to provide $5 billion over 5 years to generators in order to stimulate construction due to lack of investment in this area. Since there was a huge uproar in the utility business over this proposal, the ISO scaled it back to $2.5 to $3 billion over the same period. This will account for $1.3 million in MMED's FY08 budget, or a 22% increase in charges over FY07. Transmission costs are estimated at $1.7 million and Distribution Charges are estimated at $1.456 million or 5% of the total budget for FY08. Customer Accounts Expenses are budgeted at $792K. This includes Customer Services, bad debt and Operating and Maintenance charges. MMED projects bad debt to be about $70K in FY08 due to a large commercial customer who has gone bankrupt. MMED staffhas pursued many avenues to collect on this account, including court, but MMED will be unable to collect this debt. r T .~ MMED also sets aside an amount equal to 5% of gross plant into a depreciation fund to invest into capital. MMED has allocated $1.75 million to depreciation expense in FY08. MMED also offers an early payment discount of 10% if the customer pays within 15 days of the bill. Early payment discounts account for an estimated $1.6 million in expenses for FY08. MMED's target rate of return for FY08 is $501,755, or 1.43%. Director Babin reminded the group that several months ago Mayhew Seavey discussed extensively with the Board the concept of unbundling bills. This would create a lot of transparency. MMED as a staff believes an unbundled rate design is a much more transparent rate structure and would recommend to the Board that MMED staff solicit a proposal for a cost of serve study to evaluate unbundling of the retail rates and to develop a new rate design. Vice Chair Amoruso asked the Finance Committee for an overview of their experience reviewing the FY08 budget. Director Babin stated that he received good feedback from the Finance Committee and apologized for not discussing the cost of service study and. rate design with them. Finance Committee Subcommittee members Jack Goldberg and Jim Lazarra stated that after reviewing the FY08 Budget they made suggestions regarding a few minor changes to the presentation and had concern over the small rate of return. They stated that they were not alarmed due to the extremely conservative load growth assumption and the end result seemed much more favorable. They did state that this might be a good time to approach the topic of the PILOT because the current formula was put into place 5 years ago and was meant to be reviewed after 5 years. Clerk Dentino stated that the PILOT figure in the budget of $480K is flawed because it is actually a base of $300K and 10% of profits, which with these numbers is more like $50K. Town Manager D' Agostino stated that they tried the percentage approach for a while but they need a stable number they could budget around. He also commented that this really speaks to not only looking at the PILOT but what is driving the 1.43% rate of return. Clerk Dentino stated that prior to 2003, the PILOT payment was zooming towards the $lM mark and that's why the new formula was developed. He also stated that we should look at the rate of return and wonder why expenses or revenue are so far out of line. Director Babin stated that weather is the main driver for energy sales. Clerk Dentino stated that weather is not as much of a factor as degree days and the degree days are not far off but there has been a tremendous increase in Purchase power Cost and legal fees. Town Manager D' Agostino stated that in his opinion the current rates do not capture the entire cost of doing business. Director Babin stated that unbundled bills are the most simplified method of presentation. He stated that Purchase Power and Transmission cost are passed directly through to the customers. The Distribution cost is where MMED would make net income. He used the following example: If our distribution costs are 1.5 cents per kWh and MMED wanted a 6% rate of return, 230 million kWh of sales charged at a distribution charge of 2.4 cents per kWh would provide a very predictable net income. Swings in sales would also result in moderate changes in the net income but on a less volatile basis. Clerk Dentino asked why MMED's sets aside 5% of gross plant for depreciation but the DTE allows only 3%. Director Babin stated that 5% is allowed by DTE upon written request. He informed that Board that MMED had made a request for the 5% rate for at least 20 years, according to audited financial statements. The Finance Committee stated that this money is used to fund capital projects. They also stated that 5% assumes 20 year life and they are looking at life expectancy of facilities more closely. Director Babin commented that Staff Accountant Thomson is working on an extensive fixed asset project and is looking at assigning more accurate, economic useful lives to MMED's assets. Clerk Dentino questioned the cost of benefits. Director Babin stated that MMED applies an 80% overhead rate to all straight time hours. The 80% covers benefits including MMED's share of health care, pension, education and training, holiday, vacation, sick, personal days, and clothing and boot allowances. The cost of maintaining MMED's facilities are also included on a prorated basis. Jim Lazarra stated that before their initial meeting with the Light Department, they had figured the overhead to be more than 75% using estimates. Clerk Dentino stated that he thought the town's overhead was about 33% and Town Manager D'Agostino stated that the Town's benefit to salary ratio was between 35-40%. Commissioner McCarter stated that with the 13 line items that he was provided, he was not prepared to vote on the FY08 budget. He stated that there was no year to year comparison on which to base a decision. Director Babin then distributed an FY07 and FY08 budget comparison sheet. He apologized that it was not in the original packet but the meeting to discuss this budget was moved up two weeks and that he overlooked providing this information with the initial distribution of budget packets. Commissioner McCarter requested that MMED staff prepare exhibits with historical trends to better understand this budget. Director Babin said that could be done using DTE reports. Commissioner McCarter asked whether or not MMED was losing money and if Investor Owned Utilities offer discounts. Town Manager D' Agostino answered that IOUs do not offer discounts but most municipals including Taunton do. Director Babin stated that we are not losing money because the discount is built into the rates and helps MMED maintain cash flow. Commissioner Baldwin asked the Finance Committee is they were comfortable with the FY08 budget. Jim Lazarra stated that he was comfortable with the discussions, the changes that were made and how the costs were allocated. Vice Chair Amoruso stated that he is concerned that our rates are too low and not being adjusted to cover expenses. He's afraid that the rate payer will get slammed later when it comes time to build the East Mansfield Substation. Director Babin stated that he had discussions with the Finance Committee regarding MMED's need to borrow money to build the East Mansfield Substation. He estimates MMED will probably need $8 million to $10 million over a 2 year period. He noted that when the Gilbert Street Substation was expanded, MMED spent $7 million over 5 years and it severely affected MMED's cash flow because MMED did not borrow the money. Vice Chair Amoruso stated that he believes MMED's goal should be to come as close to 8% rate of return allowed to make sure that we maintain a fiscally responsible level. Director Babin stated that if we did not lower the PPCA by $0.0025 for FY08, MMED's rate ofretum would be 3.1 %. He believes this shows a fundamental issue with our rates. Town Manager D' Agostino asked if we could get a rate study done in time for the start of the next fiscal year. Director Babin stated that it would be tight but that the Board could approve the budget on a month to month basis if necessary. Jess Aptowitz ofthe Finance Committee asked if the base rate needed to be approved by the DTE. Director Babin responded that it did not and that he envisioned the process would go as follows: cost of service study conducted then brought to the Board; rate design prepared based on Board feedback and then presented to the Board; then a public hearing would be conducted on the proposed rates, the Board would vote on those rates and then the rates would be filed with the DTE. Clerk Dentino asked when the DTE report was due. Director Babin answered that it was due on March 15th but he had requested an extension to April 30th. He plans to bring it to the Board for approval at the next meeting. There was some discussion regarding fiscal year versus calendar year. Director Babin asked for direction regarding the budget. Commissioner McCarter stated that the budget was not broken down enough for him. Vice Chair Amoruso stated that it was not a question of whether or not we could do the budget but should we do it? The Board requested trends from 3-5 years. Jim Lazarra stated that before Director Babin, the budget was presented in a very different manner and it may be like comparing apples and oranges. Director Babin stated that his manner is more consistent with the DTE chart of accounts. He said that he would see what we could pull together using the DTE reports. The next meeting was scheduled for April 9th. Director Babin stated that he had one follow-up to the recent discussion regarding the Mansfield High School robotics donation. He had sent a formal request to the DTE asking for an advisory opinion on the matter and sent copies to the board. He also stated that he spoke to someone at the DOR regarding the Littleton decision and the gentleman told him that the Westfield decision was the relevant opinion for he was looking for. Director Babin distributed a copy of the Westfield decision and some discussion followed regarding how it applies to MMED's situation. Vice Chair Amoruso made a motion to adjourn. Clerk Dentino asked why there was another meeting without old and new business being discussed. Vice Chair Amoruso stated that this meeting was specifically for the purpose of discussing the FY08 Operating Budget and that the last meeting was specifically to discuss the Capital Budget. The meeting on April 9th will be for regular Light Department business. Director Babin stated that he will solicit a cost of service study proposal for the next meeting. Adjournment Motion: To adjourn the Light Commissioner's meeting at 9:32pm (Amoruso/McCarter)Passes 4/0 . Laurie ~erson 04/09/07