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HomeMy WebLinkAboutmin light comm 050707 ..." RECEIVED ( Mansfield Municipal Electric Department Minutes of Light Commissioners Meeting May 7, 2007 j~: ~- D ~t~. 0 j~ L t t ' r 07JUN27 PH 3:22 I',AN tELO MASSACHUSETTS Present: Chairman Michael McCue; Vice Chairman Lou Amoruso; Clerk George Dentino; Commissioner Ann Baldwin; 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 followed by the Pledge of Allegiance. Motion: To approve the minutes of April 9, 2007 (Amoruso/Baldwin) Passes 5/0 Director's Report PPCA Reduction - Director Babin announced that the PPCA was decreased from 5.25 cents to 5.00 cents effective with the May billing. (' Cost of Service Analysis - Each Board member received a copy of MMED' s Cost of Service Analysis for calendar year 2006. Mayhew Seavey, MMED's rate consultant, made a presentation to the Board of the results. Mr. Seavey explained that his goal was to make certain the model is allocating costs correctly so that he could understand how current rates are performing. The results for Calendar Year 2006 based on information from the DTE report were that the overall rate of return was 7.4% before payment in-lieu-of-taxes and net income was $2.6 million. The results also show that individual class rates of return are uneven. Mr. Seavey believes that he will be coming back to the Board to recommend that they vote to unbundle the bills. Mr. Seavey said the next step will be to take the FY08 budget numbers and put them in the model to see what the overall return would be. He would then come back to the Board with a recommendation and 3 sets of sample rates; the first rate design would produce a uniform rate of return across all classes; the second rate design would adjust all classes up or down by the same percentage; and the third rate design would make MMED's rates uniformly competitive with surrounding utilities. Director Babin stated that he believes rates are the most important area the Board must consider in their role as Light Commissioners. He also pointed out that with current data available through the SCADA system, MMED can fine tune the analysis. Chairman McCue asked if the Board decides to proceed, does that mean they are agreeing to unbundle the bills. He pointed out that Mr. Seavey previously told the Board that he will be r making that suggestion. 11 ...- r Mr. Seavey answered no and explained that MMED could still present the customer with the same type of bundled bill it now uses. He said MMED would do better tracking things with the unbundled bill but the customer's bill would not have to look any different from the bill they receive now. Director Babin stated that he was looking for direction from the Board and stressed that there was a sense of urgency because he was looking to put an FY08 budget in place. Chairman McCue asked what kind of time frame there was. Mr. Seavey answered that he needs 3-4 weeks to develop proposed rate designs if given the notice to proceed. Vice Chairman Amoruso questioned the drop in commercial sales in FY06. Director Babin responded by saying there was an overlap between customers qualified as commercial accounts and those qualified as low-tension accounts. In FY06 the staff went through the commercial customers account by account and reallocated some commercial accounts to low- tension accounts. Vice Chairman Amoruso pointed out, though, that there was not an increase in low-tension equal to the decrease in commercial and said that it worried him. He also didn't think weather had varied that much. r Director Babin said if MMED is not recovering sufficient revenue from the rates then that points to a problem. This would mean that the rate is not producing enough revenue to sustain the non-purchased power components of the rate, which is where the rate of return is derived from. He explained that is why the study was being done. MMED's FY08 budget submittal produced only a 1.5% rate of return when he believed the figure should be an approximate 6% rate of return. Despite the fact that an Investor Owned Utility (IOU) unbundled bill is confusing, Director Babin said he hopes to create better rate transparency with an unbundled bill. He said that he wanted direction from the Board on this matter. Mr. Seavey added that MMED is at a point where purchased power costs are so high that decreased sales might actually lower rates because the incremental cost of going out to buy power on the market might be more expensive than the power MMED has already purchased. He believed reduced sales may not be as bad as it seems. Vice Chairman Amoruso said that he doesn't want to harm the Light Department and that the Board should keep in mind the new substation. He noted that MMED doesn't need to be producing low net income with the substation coming. Clerk Dentino said that in the past, the PILOT had been originally set at $300,000 and was $480,000 only if MMED made their 8% profit. He pointed out that MMED did not make the 8% profit. Town Manager D' Agostino answered that the $480,000 became a fixed number because the FINCOM wanted certainty in the revenue stream for budget planning purposes. If the Board changed the $480,000 then they'd put the Town's budget out of balance. Clerk Dentino questioned how the distribution charges get unbundled. Mr. Seavey responded r by saying the distribution rate is salaries, plant operations, services, etc., and has nothing to do WI! _._ ." r with purchased power. He believed Clerk Dentino was confusing distribution with transmission. Clerk Dentino felt that Investor Owned Utilities (IOU's) should not be used as comparison to MMED but rather, the comparison should be to other municipals only as IOU's rates are out of sight. He believed the IOU's should not be used as a benchmark for comparing MMED's rates. Director Babin responded by saying 90% of the electric customers in the state are serviced by IOU's while only 10% of the customers are municipal. He pointed out that this 90% of the state is paying more than MMED customers are and that it is a relevant comparison. Clerk Dentino believed MMED should not be compared to the high-end IOU's. He would like to see MMED striving to be back in the bottom third of the municipals. Clerk Dentino inquired about the option of the green power rate. Mr. Seavey explained that it was renewable energy sources such as solar and wind which a customer could choose knowing that they would be required to pay a higher rate for the green power option. Motion: To approve the second phase of the Cost of Service Analysis Study. (Amoruso/Baldwin) Passes 5/0 r Financial Statements - March 2007 - Director Babin presented MMED's financial statements for March 2007. Net income year-to-date through February was $2,525,254. The Calpine Rate Stabilization Fund had a balance of $5,159,947 as of the end of February. MMED's free cash position through March 2007 was $2,576,093. Energy sales were down for the year and purchased power costs were up 7.5%. MMED's depreciation fund balance is $2,874,672. Trending Analysis for MMED Operating Budget- Director Babin reviewed a trending analysis of MMED revenues and expenditures for CY02-CY06 versus FY 2008 budget that the Board had requested and had been sent to their homes. He stated that he believed it was indicative of what has happened with MMED. The rate of return was good over the last few years and net income was strong as well. Clerk Dentino questioned the fluctuation of A&G (which includes legal expenses). Director Babin explained he believes it is due to reallocation of benefits which are also included in A&G. Chairman McCue asked Director Babin for a breakdown of A&G. Depreciation Fund History 2004 to Present- Director Babin reviewed a summary of activity for MMED's depreciation fund from 2004 through March 2007. He stated that in March 2006, MMED started accruing depreciation cash to begin supporting the cost of the new substation in order to minimize the borrowing that will be required. He pointed out, however, that depreciation money was not just being used for the substation, and it also had to support a portion ofMMED's entire capital program. r III .1.. . . r Clerk Dentino asked about the July 2004 withdrawal of $1.2 million, as well as the July 2005 withdrawal of $900,000. Director Babin stated that as he has said before, funding the Gilbert St. Substation construction with cash, and not by borrowing, severely impacted MMED's cash position. He explained that the depreciation fund drawdown was needed to replenish cash that had been used to fund the substation construction. He also noted that MMED should carry a minimum of three months worth of operating expenses in cash in the event it is needed to support emergencies, such as ice storms. Director Babin said the $1.2 million was for costs associated with the Gilbert St. Substation. The $900,000 was put into cash, replenishing cash because of capitalization expenditures. He said this was not a blind transfer just because MMED needed money. He noted that October 2005 was when the last payment was made on Gilbert St. Substation. Clerk Dentino also asked about the January 2006 $500,000 withdrawal. Director Babin answered that it was to fund capital projects and replenish the cash account for money that had been used to support capital work. Clerk Dentino stated that there should be justification of every dollar of depreciation that is put into cash and requested a breakdown of the $500,000. Old and New Business (' Director Babin acknowledged Chairman Michael McCue for the great job he has done as a Chairman of the Light Commissioners as this was his last Light Commissioners meeting. Director Babin thanked him for all the work he has done for the Light Department over the years and presented him with a MMED cap. Town Manager D' Agostino distributed copies of the preliminary draft of the FY06 MMED audit. He also thanked Commissioner McCue, as well as his family, for his service to the Town. Vice Chairman Amoruso thanked Mr. McCue and his wife Amy. Clerk Dentino stated that Mr. McCue had served the community well and appreciated what he had done. Commissioner McCarter stated that he had said his piece about Mr. McCue's contributions to the Town at the previous Wednesday's Selectmen meeting. Adjournment Motion: To adjourn the Light Commissioner's meeting at 9:27 Passes 5/0 Respectfully submitted: Jacqueline Lee 6/18/07 .~ -~/7(.U -/7PnJ(~D Signature of Ie {Q/;fi07 Date of pproval r \ D...