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HomeMy WebLinkAboutMinutes 06/14/1993UTILITY ADVISORY COMMITTEE Port Angeles, Washington June 14, 1993 Call to Order: Vice Chairman Hunt called the meeting to order at 3:05 p.m. II. Roll Call: Members Present: Gary Braun, Jim Hailett (arrived at 4:40 p.m.), Thomas Hunt, Joe Michalczik, and Richard Wight. Members Absent: None. Staff Present: J. Pomeranz, C. Knutson, K. Godbey, B. Titus, B. Collins, J. Pittis, S. McLain, G. Leaf, S. Hursh, R. Ellsworth, G. Kenworthy, B. Jones, and C. Hagar. III. Approval of Minutes: Councihnan Wight moved to approve the minutes of the May 17, 1993, meeting as written. The motion was seconded by Joe Michalczik and carried unanimously. IV. Discussion Items: A. Cost of Service Study Analysis B. Review of City Light Memberships and Metering Costs for Mills The Committee felt that these two items were interchangeably tied together, so they will be discussed back and forth as necessary. Joe Michalczik introduced Stan Hicks, Nick Schaefer, Gary Capouch and Dean Reed from ITT Rayonier and Daishowa. Gary Capouch and Nick Schaefer, of ITT, requested time to give a brief presentation to the Committee before discussion began. The Committee agreed to this. Gary Capouch thanked the Committee for allowing them the time to express several concerns they have regarding some issues involved in the electrical rate making process. He also thanked Staff for their cooperation and information as they have analyzed the Cost of Service Study. -1- Utility Advisory Committee June 14, 1993 Mr. Capouch of ITT pointed out that due to the soft markets, they have to compete harder for the sales. The companies that will survive are the companies that retain their competitive edge. Both mills must reduce their costs in order to keep their edge. During their review process, they became concerned over allocated costs in five main arms. They are: 1.) Allocation of the BPA metering costs; 2.) Computed peak demand; 3.) Power management costs and allocation; 4.) Administrative services allocation; and 5.) Some details with the reserve fund. He thanked the Committee for its consideration and help in resolving these matters. He then introduced Nick Schaefer. Nick Schaefer went into detail on the five concerns. He distributed a hand out which showed City Light Power System and used the overhead projector to explain the diagram. There are four BPA meters, two go directly to the mills, without using any City equipment, and two go the City for residential and commemial power. The mills pay for the two meters that they have, but they are also being charged for a third meter, which the City uses for their other customers. The mills feel this is unfair, as they do not use this meter. They would like to be credited for $14,000.00 per year, which they feel is what they are being billed for this third meter. Mr. Schaefer then went on to discuss computed peak demand. At this time, the mills get a credit on their bills for an adjustment on the demand billing. They would like to maintain that credit in their rates, and there has been discussion about removing that credit. He then distributed a hand out on this, and used the overhead projector to explain peak demand and billing demand. One of the alternatives discussed was billing based on what the costs are. They would be satisfied with that as an alternative to the credit for demand billing. Mr. Schaefer also wished to discuss allocation of administrative services costs and allocation of power management and labor costs. One item common to both of these allocations items is something that was instituted this year in the allocation formula, called weighted customer factor. This is shown on page 10 of the long packet provided by the Light Department. Mr. Schaefer pointed out that there is a 100:1 ratio for the industrial users. He does not know why it is weighted so heavily on the industrial users. The mills would like to go back to the former formula and use the customer factor to allocate costs and not the weighted one. Mr. Schaefer also wanted to discuss page 32 of the same packet, direct labor allocation. The total direct labor costs is $283,000. The Industrial Class allocation of this cost is $106,000.00, for 37% of the direct labor. Being there is a direct pass through of Bonneville Energy into the plant, why are they billed this 37%? The mills feel 10% of something less than that would be more accurate. -2- Utility Advisory Committee June 14, 1993 The final issue to be considered is the elimination of the Industrial Class from any benefits of the interest earnings on the Reserve Fund. They have been part of the Reserve Fund in the past, and Staff has put a study together saying the Industrial Class is actually breaking even or has lost money. They would like to see what has happened to the other customers during that same period of time. Mr. Schaefer would like to see a complete study to be able to see what has happened in total to the Reserves, and see what the proportional relationship is, because it doesn't seem right that the Reserve would be affected solely by the industrial class in that manner. They feel if they helped to build the fund, then they would like to he part of the interest allocation. Mr. Schaefer thanked the Committee for its time. Councilman Wight asked for clarification of a point. If the Reserve Fund ever normalizes, then the Industrial users would not like to participate in the maintenance of Reserves? Mr. Schaefer said this was correct. City Light Director explained the Cost of Service Analysis. Expenses are split into three categories. They are either related to demand costs, energy costs, or customer costs. Both revenues and expenses need to be further split in that certain revenues and expenses are received and incurred from each particular rate class, so it is broken down and identified. Over a period of time you can say these are the revenues derived from a certain rate class with existing rates, and these are the expenses that would be incurred from a rate class based on projected expenses over the rate period. This provides a revenue forecast that says for each rate class, this is the amount of money that we are under recovering, that expenses are exceeding revenues. When it is time to move forward to the rate study, you're bringing in other issues like reserves. All the Cost of Service Study tells you is that to get to a break even point, this is what we estimate our costs to be, and this is what existing rates will bring in, this is the amount of money we need in addition, or to raise rates by, in order to break even. We take the information from the Cost of Service Study and move over to the rate arena and use the issues of what kind of margins do we want to have, do we want to increase reserves, do we want to decrease reserves and use some of the money currently in reserves to offset costs, and how do we want to allocate those monies to the various rate classes. The City has been meeting with the industrial users for about four months. They have been trying to resolve these issues. Bonneville is going to increase their rates in October, regardless of what we do or don't do. We cannot afford to miss that time frame. It looks like it will be between a 14% and 20% increase. We need to have new rates in place that reflect that we are losing money. With the notification requirements that the City has, the Council needs to adopt the new rates in August. Before we can adopt rates we need to come to some understanding on the cost of services numbers that determine what the revenue requirement is for the various rate classes. We originally had this -3- Utility Advisory Committee June 14, 1993 scheduled for last month' s meeting to have time to get feedback from the UAC as to how to address certain issues so that when we move into the rate study phase, we can take that into account and produce actual rate schedules that would apply to each of the rate classes. If possible, the Light Department would like to get resolution on how to deal with the areas of concern at tonight's meeting. Director Titus requested that UAC give direction to Staff as to how to deal with the issues when they move on to actually coming up with the rates. Scott McLain then distributed diagrams on metering. Director Titus gave a brief history of the metering. If Bonneville were to deal with us today, there would be one circuit for the City for all its customers, which would include the two mills. The City would then have its own switching station, since a meter would still be needed for each of the mills, and breakers and disconnects for each of the mills in order to provide them with service. In 1981 Bonneville estimated the value of metering equipment, the switch gear and the breakers at $156,000. Instead of charging us for that, as well as maintenance costs, since they are responsible for maintaining, upgrading and otherwise making sure the equipment operates, they came up with a formula that derived a monthly charge for the meters and breaker equipment for the mills, of $2323 per month, which was to amortize the cost of $156,000. There has been at least one upgrade of the equipment since that time. These costs are built into their rates. Director Titus agreed with Mr. Schaefer that once you leave the metering issue, the City has no plant costs associated with providing service to either of the mills. They own all their substation facilities, transmission lines, etc. That has nothing to do with metering. The facilities that are owned by City Light, transmission and distribution systems, substation, etc., none of those costs are allocated to the mills. The cheapest alternative is to make use of the metering that was already existing. Councilman Wight asked if the problem was that Bonneville Power passes on metering and switching costs to all City customers as part of the KWH and demand charges for power, including the power that is delivered to the mills. Then BPA says they didn't really need four meters, now they have to charge so much per month for the extra two meters, over and above what they charge for power and demand rate. Councilman Wight pointed out that they should be giving the City a credit for the extra meters. Director Titus explained that every customer is paying 100% of their own meter costs and is paying a fraction of the cost of the metering that is built into the Bonneville rates, and it is the same for the mills. They pay for the meters twice, just like the other customers do. Joe Michalczik offered the suggestion of phasing in the metering charge over a period of years with a couple of rate changes or whatever. The residential and commercial users are not having to pay the metering charge at the 69KV level, the industrial users are -4- Utility Advisory Committee June 14, 1993 paying the charge plus help pay theirs, because that charge would account for about 60% of the power sales at Bonneville. In short, the industrial users are paying for 60% of meters one and two and 100% for meters three and four. They would like to see these costs reduced and over a period of time make sure the allocations are correct. He would like the City to look at things and see if there is another way the costs can be shared. It was suggested that metering costs be reviewed with Bonneville, and see if they would possibly wave the $14,000 per year cost for the mills. Further discussion on the metering costs ensued. Councilman Wight pointed out that the $14,000 figure is just a guess. We have no way of knowing what the metering costs actually are because they are buried in the BPA rates. Committee went on to discuss Computed Peak Demand. Director Titus provided background on this. Customer demand over a 24 hour period, fluctuates. It peaks in the morning at about 9 a.m., at noon, and again during the dinner hour. It goes lowest in the middle of the night. The mills are operating on a 24 hour period. They have some fluctuation during the day, but not as much as the other customers. City Light was looking at the feasibility of a Supervisory Control and Data Acquisition (SCADA) System, where you get real time information. The mills felt SCADA costs them more money than the benefits they received. It was agreed to eliminate any SCADA charges from the mills allocation of costs. City Light handed out a chart entitled Industrial Transmission Rate Option Comparison. Gary Leaf of City Light explained this chart, and pointed out that the City is giving the Industrial Users the best bargain possible for their electrical rates. Councilman Wight wondered if between the metering capabilities of the City and the mills, could some operating scenarios be arrived at that would save the industrial users as well as the City, some money. It was agreed upon by the IT representatives and the UAC Committee to use the mill coincidental demand for billing purposes. They will use BPA plus taxes for this purpose. The Committee returned to discussion of Allocation of Metering Costs. Again, the Industrial User representatives expressed their belief that they are paying for equivalent metering costs which are one-half again as high as they ought to be. Nick Schaefer once more pointed out that the Industrial users were the only ones paying for the 69KV meters. Director Titus attempted once again to explain about the metering costs and how everyone must pay a portion of them. BPA has been requested to look into this cost to see if the plant portion of that cost hasn't already been paid, then it would be more appropriate to have that cost reduced to reflect just the ongoing O and M associated with it. -5- Utility Advisory Committee June 14, 1993 Thomas Hunt moved to stay with the status quo for now, but to make adjustments as things come up from discussions with Bonneville. Councilman Wight felt the City should get Bonneville to say "forget that extra charge". It made sense at the time, but not any more. The City will attempt to get Bonneville to write off the $28,000 charge for the extra meters. Councilman Braun seconded the motion. Further discussion ensued. Joe Michalczik felt that somewhere along the line UAC had to make a decision and the status quo was not a decision. The problem is not resolved by status quo. Thomas Hunt pointed out that in his motion he requested further BPA negotiations to hopefully lower the amount. Mr. Michalczik does not feel this is the answer. Further discussion followed regarding the status quo and fair distribution of costs between residential/commerciai customers and IT users. A vote was taken on the motion, which carried 4 - 1, with Joe Michalczik voting in opposition. The Committee moved on to discuss weighted customer factor. Gary Leaf explained how the weighted customer number was derived. The weighted factor of 100 came from an EES study. It means that a large industrial customer has a weighted cost equal to about 100 residential customers. The weighted customer factor replaces a purchase power cost allocation factor which allocated much more in costs to the IT rate class. Discussion followed. The mills feel that they are, again, being charged more than a fair amount for services received. The Committee considered labor allocation. Director Titus pointed out that the labor costs indicated on the page in question, $106,000, are just power management costs and Morse Creek. Any savings on the cost of power are going to be allocated out and the IT rate class picks up a good portion of it, because they are directly benefiting from those areas by working to keep rates as low as possible. The Morse Creek labor item is the cost of a maintenance technician. Since the IT users are getting output from the facility, the City is allocating the cost on an energy basis. From that standpoint, the City feels the 37.8% is a reasonable allocation of the power management division and the Morse Creek technician. Morse Creek will be looked at again, and memberships and meetings will also be looked at. A letter has gone out to NWPPA asking them to change the process of their dues formulae to take into account more than power sales, which is currently what their formula is based on. There is little than can be done to reduce this number. -6- Utility Advisory Committee June 14, 1993 Committee discussed the Reserve Fund issue. Some of the Reserves will be used to decrease the impact of the Bonneville increase. The Reserve Fund is at about $4M right now. In 1982, City Light was in the hole and had to borrow from the General Fund to function. Interest earned on the Reserves is put back as revenues against rate classes. The rate study done did not take any interest and apply it to the IT rate class. The IT users feel they are entitled to have a share of the interest applied to their class. Further discussion ensued regarding the Reserve Funds and their distribution. Joe Michalczik moved that the Reserve Fund be left as is and the interest be removed from the Cost of Service Study for all rate payers and a policy be established by City Council regarding interest. Councilman Braun seconded the motion, which carried unanimously. Councilman Wight moved to accept the Cost of Service Study as presented with the exception of the items that have been changed earlier in the agenda. Thomas Hunt seconded the motion, which carried unanimously. C. Annexation Policy City Engineer Kenworthy reviewed the annexation proceedings. The question before the Committee is, when an annexation is presented by someone other than a developer, who should pay the costs of the annexation? People who are annexing want an accurate estimate as to what it will cost them to come into the City. In order to develop this estimate, the City would have to lay out roads and sewer lines, do surveys, and expend considerable monies to answer these questions. Once this is developed, and the City has spent the money, the people can vote not to come into the City, and the City is left holding the bag. There are underlying issues related to services that are already in place, such as PUD and City Light for electrical services. Water Comprehensive Plan issues fall into this area as well. The City has not developed the agreement to date with PUD on what happens to water service. If an area is annexed that is currently served by PUD for water, who is going to retain that service? Does it stay PUD? Does it become the City? These issues are also on tonight's agenda. In the past annexation costs have been absorbed by the City. Mayor Hallett felt the proponent of the annexation should pay the costs. Attorney Knutson pointed out that the problem is that if you have a single developer, you can say that that proponent must pay the costs, as opposed to the Lappier annexation, which is 50+ acres along Golf Course Road. This area is already developed. This annexation is being requested by a few home owners. A lot of other home owners will be coming in as part of this annexation. They do not know what the cost of annexation will be, and they need to be told, as it will be -7- Utility Advisory Committee June 14, 1993 a factor in determining whether this annexation will go ahead. Mayor Hallett felt that possible annexees should be told that they have to pay a pro rata share of the exploration of annexation feasibility. Councilman Wight felt there should be a fiscal policy regarding these types of matters, from which the City can deviate as needed with individual projects. There are going to be some annexations the City might benefit from and others which might be seen as significantly onerous to the City. Director Pittis pointed out that there are three basic types of annexation: 1) single party that approaches the City for annexation; 2) multiple parties which approach the City for annexation, usually to solve a problem, such as septic tanks that aren't working. He was not able to state the third, which is City proposed annexation. Mayor Hallett offered the opinion that the City should develop a uniform policy. All classes should be treated the same way. He pointed out that any time you have a group where the majority says they wish to annex, those who do not wish to annex still have to assume the indebtedness. Steve Hursh pointed out that this particular group is being told they have to pay the City $50,000, so the City can pay for the PUD's electric facility. In the past, there hasn't been any cost sharing other than perhaps an LID to fix a street, that's why this annexation is different. Attorney Knutson informed the Committee that the most difficult question involved in this annexation refers to the agreement with the PUD. The Light utility has to pay the PUD for facilities that are already there. The light utility is suggesting that the people being annexed pay for those costs. The question is, how do we force them to pay for it? Dean Reed, a resident of the proposed annexation area under discussion, requested an explanation of the City' s agreement with PUD. Director Titus explained that there is an RCW that says the City must pay for facilities acquired from another utility; and if the City acquires those facilities they must give five years notice of taking over the facilities or pay lost margins to the utility the City acquires the facility from. The Light Dept. has come up with a formula to arrive at the figure that must be paid to PUD. Input on this has been requested from Municipal Research. The Lappier annexation has been continued to August by the Planning Commission. This item will go back on the UAC agenda for July. Hopefully, the City will have heard from Municipal Research by then and the Committee will have had some time to come up with possible solutions to this problem, as our current annexation fees do not come close to covering the costs incurred. -8- Utility Advisory Committee June 14, 1993 D. Waste Water Bond Issue - Informational Due to the late hour, Director Godbey deferred this item to a future meeting. E. Water Comprehensive Plan Policy Issues Director Pittis introduced Don Wright from CH2M Hill. There is also a water comprehensive plan currently underway with the PUD. The issue that comes to play with this is the same as the issue with City Light facilities and the Urban Growth Area. Instructions are needed from UAC and ultimately through Council. If the City annexes an area currently served by another utility, does the City want to have that be City water service? Should it be totally city services; if so, we need to proceed in that direction. The standards for City and County are different at this point, and if the City had to respond to a fire in a county controlled area, we would have to use adapters in order to hook up to the fire hydrants. This could cause problems down the line. It was decided by the Committee that the City must set up level of service standards for itself. If something is annexed to the City, the City will provide services to it, and in this statement is imbedded the statement that it will be at the City's level of service. F. Environmental Waste System Contract Due to the lateness of the hour, this will be returned on a future agenda. Next Meeting: The next meeting of the Utility Advisory Committee will be held on Monday, June 28, 1993, at 4:30 p.m. VI. Adjournment: The meeting was adjourned at 7:30 p.m. Deputy City Clerk -9-