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HomeMy WebLinkAboutmin light comm 061807 ... r Mansfield Municipal Electric Department Minutes of Light Commissioners Meeting June 18,2007 d F~ECEI \lED C1 FlJl~<:: nl:-r: I('F ' ., -. 07 JUL /8 PH 4: 03 .'1>'J'1::. ;, ': ,':' It'" L' 0 . . I ~" "..) j . Present: Chairman David McCarter; Vice Chairman George Dentino; Clt1~ ~ ~1iJ S Commissioner Lou Amoruso; Commissioner Sandra Levine; Director Gary Babin; Engineer Ann Langille; Engineer Chris Cox; Financial Assistant Jacqueline Lee and Town Manager John D' Agostino Chairman McCarter welcomed Commissioner Levine to her first Light Commissioners meeting since being elected to the Board. 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 May 7, 2007 (Amoruso/Baldwin) Passes 4/0/1 (Levine abstained) r Vice Chairman Dentino questioned the section of the May 7 minutes which stated that the PILOT, which had originally been set at $300,000 plus $180,000 if MMED made their 8% profit, had become a fixed number. He asked when the vote was taken to make it a fixed amount. Town Manager D'Agostino said the FINCOMM had expressed concern about this prior to Mr. Dentino joining the Board and they had requested that it become a fixed amount. Director Babin stated that every year since he's joined MMED the Board has voted it as a fixed amount. Vice Chairman Dentino requested a copy of the minutes that show when this vote was taken. Director's Report Cost of Service Study and Rate Design - Director Babin reminded the Board that they had previously elected not to approve the FY08 budget because of concerns about the low rate of return that budget included. Mayhew Seavey from PLM was then asked to perform a cost of service study and rate design. Mr. Seavey was present in order to make a presentation of the cost of service portion of that study to the Board this evening. Director Babin stated that he was looking for guidance from the Board at tonight's meeting. Mr. Seavey stated that he had built a model of the FY08 budget and the results were an overall rate of return of 4.5%. Vice Chairman Dentino questioned the figure of 4.6% on the 2006 Historic Test Year Cost of Service Study as to whether that included the PILOT or the cost of purchased power. Mr. Seavey responded that neither the PILOT nor purchased power expenses were included in that rate of return calculation. He explained that the PILOT was taken as a below the line expense. ,-- Mr. Seavey stated that he's recommending MMED unbundle the purchased power cost from the base rate. He also suggests a separate Municipal rate for large Municipal accounts that earns the same rate of return as the average of all other customers. The third recommendation he made is to develop a replacement tariff to MMED's present interruptible rate in consultation with the only customer on that rate. - r Vice Chairman Dentino asked if Mr. Seavey had calculated a rate of return figure after the PILOT had been taken into consideration. Mr. Seavey answered that he did not since the PILOT is not an expense and that the target 8% profit figure is exclusive of the PILOT. Town Manager D' Agostino wondered if including the PILOT was advantageous. Mr. Seavey replied that it would not be advantageous because you would be reducing the amount of net income. Mr. Seavey stated that he was proposing an unbundled rate design to the Board. The first component of the unbundled bill would be the Customer Charge, which recovers all costs of metering, customer service and billing. The Distribution Charge component recovers all other costs of owning and operating the system, as well as collecting a profit, from which the PILOT is paid. It recovers the costs of operating the system through use of a demand charge or energy charge, or both. The third component of the unbundled rate design would be the Generation Charge. This recovers all transmission expenses and purchased power costs. The design of the Generation Charge is that it remains fixed for six months at a time based on forecasted costs and kilowatt- hour sales. The charge forecasted for the next six months would also be used to reconcile the first six month charge for actual costs and energy sales. The Generation Charge represents approximately 80% of the customer's cost and it would replace the PPCA that is currently part of the customer's bill. r Chairman McCarter asked if the Board decided to go with the unbundled bill, would they have to hold a rate hearing. Mr. Seavey answered yes. Mr. Seavey then reviewed a timeline for how the Generation Charge would be calculated. In June 2007 the generation charge would be set based on forecasted power costs and energy sales. In December 2007 there would be a reconciliation of June 2007 through November 2007, after which there would be an adjustment up or down for the following six month period. This process would then be repeated every six months. Mr. Seavey referred to a typical bill comparison showing the present rate vs. the proposed unbundled rate. He explained that the Distribution Charge on the unbundled bill represents all operating costs, with the exception of customer service and metering. It gives the customer more information about the costs of running the system. The Generation Charge enables them to see that they're actually paying for purchased power, not for the running ofMMED. Mr. Seavey pointed out that with the unbundled bill the incentive for prompt payment decreases because the discount is less than what it would be if the bill remained bundled. Vice Chairman Dentino commented that the customer will be unhappy when they see their prompt payment discount has been cut in half. Mr. Seavey then reminded everyone that there will in fact be a rate Increase. r With respect to the PILOT, Director Babin pointed out that if an investor owned utility (IOU) served the town that they would pay taxes based on the value of their plant times the tax rate. MMED pays a PILOT to the Town in lieu of paying taxes on the value of the plant and that it ,"-'" also receives services, such as payment processing by the Treasurer's Office so that a lockbox is not needed by MMED. Vice Chairman Dentino stated that he does not agree with the comparison of MMED with the investor owned utilities (IOU's). He suggested comparing MMED to the North Attleboro Municipal Electric Company or another municipal. Director Babin responded by saying that once a year he presents a comparison of municipal light department rates and he would get one for Vice Chairman Dentino. Mr. Seavey added that he preferred using an IOU as a basis of comparison because it is a regulated entity and the rates they use must be justified to the DTE. A municipal electric department is unregulated and comparison of rates with a regulated entity provides a better relative basis of comparison. He also advised that you shouldn't just compare yourself to another municipal because they may have a completely different power supply portfolio which drives their rates. Mr. Seavey then reviewed the three rate design options to achieve a target rate of return. The first option is a Uniform Rate of Return Option. Use of this option would result in a 9% rate increase for the residential class and a 6.5% decrease for the commercial class in order to achieve a 4.9% rate of return. Scenario 2 is the Uniform Competitiveness Option which would result in a 6% increase for the residential class, a 5% decrease for the industrial class and an 18% decrease for the municipal class. This would achieve an overall rate of return of 4.8%. r The third scenario is the Uniform Rate Impact Option which would include a 0.5% increase for all classes with a zero rate of return for the residential class. Chairman McCarter inquired as to what Director Babin was looking for the Board to do that evening. Director Babin said he needed a consensus on the unbundled rate and a direction for the rate design. Commissioner Levine commented that if the Board decided to go with the option that decreased the municipal rate, how would you encourage town departments, such as the schools, not to be wasteful. For example, how would you keep someone from leaving a room and not turning the light out. She then questioned whether the job of energy auditing is just common sense. Mr. Seavey responded that you need people who are well trained in thinking that way. Vice Chairman Dentino commented that Scenario 1 puts the entire burden on the residents. He said that Scenario 2 means a 6% jump on residential rates, where again the residents foot almost the entire bill. With Scenario 3 everyone's bill would go up 0.5% and Vice Chairman Dentino wanted to know what the rate of return would be on Scenario 3. Mr. Seavey answered it would be approximately 5%. r- Commissioner Amoruso said that he saw no benefit to unbundling the bills so why change them. He also believed that a 5% rate of return was too little, as MMED has always tried to set a goal of 8%. He said that he would like to see approximately a $400,000 decrease on the municipal side, which is half of what they're being charged now, while the remaining classes move up appropriately, in order to get the rate of return he believes MMED should get. He also believed .. -.- ,.- the figure of $400,000 is about the same as the difference between the Town's budget and the state's budget. Mr. Seavey responded by saying MMED would actually lose money on the municipal class by doing it that way, which would not be permitted by Chapter 164. Clerk Baldwin agreed with Commissioner Amoruso. She didn't see how unbundling the bill would work for MMED. She commented that MMED would lose money if customers were no longer paying on time because of the decrease in the prompt payment discount. Commissioner Amoruso also commented on the Generation Charge being fixed for six months at a time and believed that might cause a cash flow problem which he pointed out is not what MMED needs. Vice Chairman Dentino said the Board members were taking off their Light Commissioner hats and putting on their municipal hats. He said the $400,000 was an example of this and then added that MMED is not supposed to generate money to balance the municipal side budget. The Light Commissioners are there to represent the best interest of the Light Department and the ratepayers. He stated that this is why some municipals have separate Light Commissions. Motion: To change MMED's bills to an unbundled rate design (DentinolLevine seconds for discussion only) r Vice Chairman Dentino believes that unbundling is in the best interests of the ratepayers once they get used to it. Chairman McCarter said it is more prudent to go to an unbundled rate. He believes it is more responsible and does not involve as much guesswork. He also commented that there was too much politics with the PPCA. Mr. Seavey then stated that the cash flow remains the same. He pointed out that with the bundled rate, however, it is more difficult to account for the cost of purchased power. Vice Chairman Dentino then amended his original motion. Motion: If MMED does make a change to an unbundled rate, that the Generation Charge remain fixed for 3 month increments only rather than the suggested 6 month increments. (Dentino/Amoruso) Passes 4/1 (Levine against) A vote was then taken on the original motion. Motion: To change MMED's bills to an unbundled rate design (DentinolLevine) Passes 3/2 (Amoruso and Baldwin against) Another motion was then put forth by Commissioner Amoruso. Motion: To set a goal for MMED of a 7% rate of return with no more than a 1 % increase of the residential rate (Amoruso/Baldwin) Fails 2/3 (Dentino, Amoruso and Levine against) ,.-... Mr. Seavey told the Board that a 4% to 5% raise in each of the other classes would be needed in order for MMED to earn the 7% rate of return. The Board then asked Mr. Seavey to come back n .... ,.- to the next meeting with rate designs using 5%, 7% and something in between, such as 6%, as potential rates of return with no more than a 1 % increase in the residential rate. MMED FY08 Budget for July to September 2007- Director Babin said he was looking for approval from the Board for the three month budget he had submitted covering July-September 2007 until the Cost of Service Study and Rate Design issues are resolved. Director Babin reminded the Board that they had not approved the original budget submittal for FY08 due to concerns over the low rate of return being projected. Motion: To approve the FY08 Operating Budget for July-September 2007 with a fixed PPCA of 5.0 cents (AmorusolDentino) Passes 5/0 Financial Results for April 2007- Director Babin stated that energy sales are down from last year due to the weather. He also reported that the balance in the Depreciation Fund is a little over $3 million as MMED is trying to build cash in anticipation of the construction of the East Mansfield substation. r Vice Chairman Dentino had concerns about not receiving the packets of information for the Light Commissioners meeting early enough so that he could review all the material. Director Babin said that all packets are in the Light Commissioners mailboxes in Town Hall prior to the close of business on Friday, which is the normally established deadline. Chairman McCarter asked if the Board could have their packets on the Wednesday night prior to the Monday night Light Commissioners meeting. Director Babin said he would attempt to do that, although he could not guarantee it, but will also try to have them delivered to the Light Commissioner's homes. It was decided at this time to hold the next Light Commissioner's meeting on Monday, July 16, 2007. FY07 Internal Service Charges - Director Babin explained that approximately 98% of the internal service charges which MMED pays are actually costs that are paid by the Town on behalf of MMED and for which MMED is reimbursing the Town. These would include health insurance, retirement and various types of other insurance. GIS and MIS are the only services for which MMED is actually reimbursing the Town for services rendered directly. Director Babin said that the FY07 charges represent a 4% increase from FY06. He also explained that MMED makes three estimated quarterly payments to the Town for these charges and then there is a true-up for the fourth quarter payment. Vice Chairman Dentino questioned the Miscellaneous Credit to Surplus for $552,710. Director Babin thinks it is a non-operating income item but will check into it. Vice Chairman Dentino also asked when MIS and GIS got back into internal charges since in 2003 it was voted the PILOT would be all inclusive, including MIS and GIS. He is going to research it. Town Manager D' Agostino said that in the last three years MIS and GIS had not been included in the PILOT as they can now be tracked more accurately when they are broken out. ,.-.. .... -.- . .. . .. r Depreciation Fund History - Director Babin indicated that he had used MMED's annual DTE reports for the information he presented to the Board regarding the Depreciation Fund. He provided an exhibit to the Board that showed that MMED has withdrawn less money from the Depreciation Fund than was spent on capital work in Calendar Years 2004 through 2006 and for 2007 year-to-date. Vice Chairman Dentino stated that you are supposed to be able to reconcile the Depreciation Fund withdrawals that go into the Cash Account with the invoices that are to be paid. He reiterated that he has asked Director Babin to provide invoices against this money. Director Babin responded by saying that when you pay an invoice for capital work, you don't pay it with money directly from the Depreciation Fund, you charge it to a capital job number. He further pointed out that when MMED incurs labor and vehicle expenses associated with capital work, you don't charge that person's timecard to a depreciation account, you charge it to a capital work order number. At the end of the year, you then add up all the work order costs and determine how much money has been spent on capital. He disagreed that you have to be able to match up invoices with what has come out of the Depreciation Fund. Vice Chairman Dentino reiterated that you should be able to reconcile capital expenses with the Depreciation Fund. ( Vice Chairman Dentino questioned whether money from the Depreciation Fund had been used to pay MMWEC bills. Director Babin answered no, that power bills were an operating expense. Vice Chairman Dentino stated that he believed it had been done. Clerk Baldwin asked why he would think that and where did he get this information that the others didn't have. Vice Chairman Dentino said the information was from a memo he received but because of current litigation he wouldn't share it. Clerk Baldwin suggested it shouldn't have been brought up then ifhe couldn't explain it. Old and New Business Commissioner Levine would like to make an appointment to talk in depth with Director Babin. She indicated she will call him. Adjournment Motion: To adjourn the Light Commissioner's meeting at 10:32 PM. (DentinolLevine) Passes 5/0 Respectfully submitted: Jacqueline Lee 7/16/07 ~t?~r. Signature of Clerk ctC'f.".f ('/.,,. k '// #, 10 ,) , , Date of Approval ,-- n ..__