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HomeMy WebLinkAboutLC_05_06_2015Mansfield Electric Light Commission Minutes May 6, 2015 ED z, Doug Present: JessA"tO p ()5#4jWlivier Kozlowski, Vice Chair; Frank DelVecch*o, Clerk R Annino; Creon eorge-Dentino; William Ross, Town Manager and Gary Babin, MMED Director -..A- 0 #00 ^ ChairmanAptowitz called the meeting to order. The Chairman reminded everyone the meeting is being broadcast live and taped for future broadcast on Mansfield Cable. Motion: To approve the Light Commission Minutes for March 11, 2015 (Annino/Kozlowski) PASSES 5:0 3. Citizen Comments Scott Feeley, 49 Fruit Street, thanked the Commission for all its hard work as Light Commissioners as well as Board of Selectmen. 114. Director's Report a. Review, Discussion and Request for Approval of FY16 Operating Budget - Mr. Babin began by highlighting a few items in the FY 16 Operating Budget: FY 16 Net Income for MIMED is projected at $877,278 with a Rate of Return of 1.71%. Mr. Babin would like to focus on three topics this evening.- Electric Rates, Load Growth and Net Income. Electric Rates - Mr. Babin reported rates have been stable referencing a good winter in terms of maintain lower rates relative to other utilities around Ma nsfield. Mr. Babin noted that National Grid raised rates 39% and INSTAR raised rates 28% for the winter, whereas MIMED had a reduction of 8% through the Generation Charge. MMED actually had the lowest rates in Massachusetts for two rate classifications in the month of February. Energy Sales - Mr. Babin noted this is an area of concern as energy usage had declined by 9.8% over the past five years, with the biggest impact felt in the HT customer category (large customers that take energy at high voltage). Mr. Babin reported HT customer sales have dropped by 2/3 over a five year period and this is primarily due to the closings of ADM, Smurfit Stone as well as Murata. Mr. Babin felt that declining sales is an industry Wide trend due to energy efficiencies, which is further exacerbated by customers installing solar energy systems. Net Income - Mr. Babin reported that the net income trend since FYI I has gone from about $2.6 million to the FY projected net in -come of $877,278. M -t I . . Babin. explained that one factor impacting this is de Y * depreciation, where until F13 there was a depreciation expense of about $1.6 million. Because the construction of Bird Road Sub -Station was such a large asset once it went into rate base, this increased depreciation expense by about $600,000 and this directly impacted net income. Referencing the 2013 Cost of Service Study performed by PLM, Director Babin said Light Commission Meeting May 6, 2015 Page I of 5 the budgeted net income forecast for FY16 is almost 41% lower than the FY16 projected net income in the cost of service study. Mr. Babin also noted the following: • The Generation Charge has stabilized over the past few years and is consistently under 10 cents per kWh, which puts the Department in a very competitive position. • Purchased power expenses are about $.15 million, which constitutes 57% of the budget. This is the amount the Department pays to MMWEC for the projects it participates in contractually as well as to NextEra. MMWEC projects supply about 54% of MMED's energy. The NextEra contract provides 26% of MMED's energy with the remaining 20% purchased off of spot market. • Transmission is continuing a trend of increasing costs and constitutes 16% of the budget. Over the last 10 years transmission costs have increased 214%. In the last five years transmission costs are still increasing despite the fact MMED is purchasing less energy. • ISO New England pricing continues to increase. ISO New England makes fixed payments to generators annually. Prices are set five years ahead of time and provide a financial incentive to entice investors to invest in generation, similar to what MMED saw when considering the Salem Harbor Plant. He also noted it is hard to get ahead when there is always a new regulation or cost structure being implemented. • Controllable expenses (Distribution, Customer Accounts and Administrative and General) are projecting to increase by 0.lo overall for the FY16 budget from FY 15. This is due to 91/ labor cost increases. Distribution costs will decrease by $37,000 and customer accounts will increase about $34,000. Mr. Dentino noted there have been a lot of increases with regards to rates, referencing National Grid, and asked what the Department has for a plan to minimize expenses, specifically asking about assistance from MMWEC. Mr. Babin noted in large part MMWEC manages the wholesale power portfolio for the Department, bringing forward opportunities to purchase energy on a regular basis which allows the Town to get a better price. Mr. Babin said that with respect to expenses he felt the Department has been pretty stringent and that transmission and generation costs are the driving force behind the big cost variations. Mr. Dentino asked about rates. Mr. Babin explained the Department gets monthly snapshots of various sizes of residential customers (250 kWh, 500 kWh , 750 kWh - which is the typical size MMED customer - and I NO kWh). Mr. Babin noted in the month of February MMED was the lowest of 47 utilities in the State for residential 250 kWh and 500 kWh sales, whereas National Grid and NStar were more than twice MMED's cost. Mr. Babin also reported that for commercial customers for the month of March, MMED was in the top ten for lowest rates for every class of customer except one. Mr. Babin noted the Department is quite happy with its competitive rate position. Mr. Dentino asked for the status for the purchase of power from the Cape where the Town had to pay for reliability. Mr. Babin noted that was an ISO New England issue where due to a significant Light Commission Meeting May 6, 2015 Page 2 of 5 outage on the Cape, ISO implemented a "reliability must run" designation to a plant on the Cape Cod Canal where the Town paid about $5.4 million over a three year eriod (ending in FY09) for P that reliability, which was ultimately solved with transmission improvements. In terms of power through solar panels, Mr. Dentino asked if panels are owned by MMED or privately owned, to which Mr. Babin explained there are 13 installations currently (4 commercial and 9 residential) which total 1,100 kW of solar capacity in Town and by comparison the summer peak demand is about 50,000 kW, resulting is a small overall percentage due to solar but this still has an impact. Finally, Mr. Dentino asked where the Branch Street solar project stood to which Mr. Ross noted there have been a few additional meetings with the developers and the development agreement is currently with developers and their attorneys for review. Mr. Ross noted it is going slowly but felt at this time there is no reason to rush. Mr. Dentino asked if there was a final agreement between the developers and neighbors. Mr. Ross explained the next step would be once an agreement is reached between the Town and the developers it would then be shared with the neighbors but did state that essentially all neighbor's concerns were addressed. Mr. DelVecchio, with regards to the net income, noted in FY 12 and FY 14 there were rebates but none in FY 13. He asked if Mr. Babin saw rebates of this magnitude moving forward to which Mr. Babin noted he and Mr. Ross had spoken about this and agreed it would not be good timing. Mr. DelVecchio asked if the Cost of Service Study included depreciation to which Mr. Babin noted it did and the study was looked at two different depreciation rates: 3% and 5%. Mr. DelVecchio asked what the implications of the study are considering budgeted net income is 41% below projection. Mr. Babin stated there are a few impacts on operating cash. Cash balances are currently in a strong position but the impact is not fully felt because: 1) MMED currently has $9.5 million in operating cash. He stated that the Department wants to keep $7 million as a minimum. 2) MMED has $3.5 million in the depreciation fund. He noted that MMED is looking at a significant capital plan which projects expenditures over the next 5 years at $15 million. Mr. Ross explained it means looking at some of the costs that the Department knows are coming that are not in its control and felt the day will come that rates will need to be adjusted. The Department will need to keep careful watch and many of the expenses are difficult to control as they involve purchasing power and transmission service which make up $19 million of a $23 million budget. Mr. DelVecchio asked with regards to the significant loss of HT customers if the addition of Future Foam would help. Mr. Babin felt it is hard to tell right now what their load will be but it will pick up some of the losses. Mr. Babin noted the staggering decline in HT load, where since 2010 there has been a 660/a loss of sales, mostly due to the closing of ADM. Mr. Annino felt the loss of HT customers to be alae-ning and asked how the Department is planning to make -up for the loss. Mr. Babin felt vacancies in commercial establishments are tough to overcome. He felt the Department can look at expenses but perhaps to also look at raising rates as it has been seven years and cost of service studies only go so far in projecting expenses and that seven years of expenses are catching up with MMED. Mr. Annino noted the Commission is sensitive to raising rates but will try to make every effort to keep consumers at least solvent. Mr. Annino asked how the Department can look towards trying other ways to make up for that energy loss in the future and if other cornmunities with municipal light plants are feeling the same trend towards declining power use across the country. Mr. Bab -in noted it is consistent across the industry, especially in the Southwest due to the high rate of solar energy installations there. Mr. Ross felt it to be a challenge as the heavy energy using companies are not in a favorable position in the Northeast because the base rates are so high compared to the rest of the country. Light Commission Meeting May 6, 2015 Page 3 of 5 Chairman Aptowitz overall is pleased with the results and noted that although the rate of return and net income have gone down the Department is still profitable with $13 million in cash and some of the lowest rates in the State. The Chairman is concerned about the shrinking business as it impacts covering fixed costs and with less sales some customers will need to pay more. The Chairman would like to see a monthly or quarterly budget that shows cash flow. Motion: To accept the FY16 operating budget as presented (Kozlowski/UelVeeehio} PASSES 5:0 b. Review,. Discussion and Request for Approval of IFY16 Capital Work Plan - Mr. Babin reported the capital budget request is $2.5 million and broken down into four major categories: • One Time Projects: proposing upgrade on wire on Tremont Street to increase line capacity ($82,000), underground circuit extension from Bird Road to Cate Springs ($691,000), Otis and School Street moving circuits underground to reduce exposure ($342,000). • Recurring Projects: preventative maintenance capital work in sub -divisions (installing conduit), extending underground project from Bird Road to School Street broken into five pieces. The portion in front of the schools will be first up over summer to coordinate with Safe Routes to School project, remote meters (5-,600 installed with 4,000 left), replace 60 poles due to deterioration below ground • Reimbursable Customer Projects: similar to Firestone or mall type properties where the Department expends approximately 1,000 man hours per year to extend service. The Department's labor is paid by the developer. • Vehicles: two vehicle replacements 1) replace 2001 aerial lift with material handling unit, which is capable of lifting transformers, original vehicle is 15 years old which is normal time for replacement, new vehicle is $250,000 and 2) purchase of a pick-up truck where two vehicle will be retired; a 2000 Ranger 4x4 with 100,000 miles and 2003 Ford F250 used by the General Foreman, then as a standby vehicle and now used primarily for plowing. The cost of a new vehicle is $40,000 Chairman Aptowitz asked if vehicle expenditures go through CIP to which Mr. Ross explained only large vehicles are reviewed. Going forward Chairman Aptowitz would like CIP to have a look at all vehicles. Mr. Ross agreed, especially where the vehicles are kept for lengthy periods. Mr. Dentino asked if the conduit installation project was part of the Bird Road Substation, which Mr. Babin explained it was. Motion: To accept the FYI 6 Capital Work Plan (K.ozlowski/DelVecchio) PASSES 5:0 c. Review and Discussion of MMWEC's Residential and Commercial Rate Comparisons Summarized earlier. Light Commission Meeting May 6, 2015 Page 4 of 5 5. Comments From Commissioners None. 1 6w 1 Any Items Not Anticipated By The Chairman 48 Hours Prior To This Meeting I None. 7. Adjourn To adjourn Board of Selectmen's Meeting at 8:10 PM (DelVecchlo/Dentino) PASSES 5:0 Signature of Clerk /tdw Date of Approval Includes: East Mansfield Substation Manhole and Conduit Project Map Light Commission Meeting May 6, 2015 Page 5 of 5