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07-26-2006 HUCM Regular Meeting July 26, 2006 Members present: Vice President Donald Walser; Secretary David Wetterling; Commissioner Steven Cook; Commissioner Dwight Bordson; General Manager Michael Kumm; Attorney Marc Sebora. Member absent: President Craig Lenz Vice President Walser called the meeting to order at 3:00 pm. Commissioner Cook made a motion to approve the minutes of the June 28, 2006, Regular Meeting with the following changes: second page, ninth paragraph, second sentence - changed 'And he' to 'Commissioner Cook'; and third page, third paragraph, second sentence - changed 'meeting' to 'hearing,' Secretary Wetterling seconded the motion and it passed unanimously. General Manager Kumm reported that we have not yet received the high medical claim that we are expecting to come in, nor have we received the $30,000 adjustment yet for the medical fund. Commissioner Bordson asked about the payment to Micro Motion Inc. This is security for one of the Town Border Stations. He asked about the payment to C3-llex LLC. This is an upgrade to the software. And he asked about the payment to Fisher Controls Int'l LLC. This is training for the gas department Vice President Walser asked about the payment to Minneapolis Consulting Group - Purchased Power Expense. General Manager Kumm will check into this and will e-mail Vice President Walser. And he asked if we could get quotes on our refuse service to get a comparison on costs, before our contract expires with Waste Management. Secretary Wetterling asked about the two payments to Missouri Basin Muncipal - Dues. These are dues for two different months. Commissioner Cook asked if we could check into requiring employees to have direct deposit of their payroll checks, to prevent the loss of a payroll check. Commissioner Cook had questions on inventory items. It was explained that sometimes several items are purchased through Purchase Orders and are then listed in the payables as 'inventory', while some items (things that are needed immediately at a job site) are purchased locally and are then item ized as to what they actually are. Secretary Wetterling made a motion to ratify the payment of bills in the amount of $3,306,083.12 (detailed listing in payable book). Commissioner Bordson seconded the motion and it passed unanimously. General Manager Kumm explained the financial statements/budget year-to-date. The check to Sib-Ren-Fair will be issued sometime next week. We will be receiving a check from Utilities Plus. Last week, HUC netted between $45,000 - $50,000 in one day of generation. Between 3:00 and 4:00 today, we netted between $10,000 - $15,000 an hour in generation. Vice President Walser asked about the $100,000 restricted funds in the medical insurance fund. General Manager Kumm expressed his understanding from a previous meeting that we were going to wait and see how the rest of year progressed, but the auditors did suggest dissolving it if we're not going to use it. General Manager Kumm explained that we could go out for quotes at any time for medical insurance coverage. Because the City of Hutchinson would be impacted if we stopped our self insurance plan, General Manager Kumm will meet with Ken Merrill and report back to the board on the practicability of getting quotes. Secretary Wetterling made a motion to approve the financial statements/budget year-to- date. Commissioner Bordson seconded the motion and it passed unanimously. General Manager Kumm presented the Employee Support and Staffing - Section 5 - Strategic Management Process. Staff has completed all items except for implementation of common cost reallocation. This will be in the 2007 budget. Because certain critical job positions are hard to fill, Commissioner Bordson discussed the possibility of grooming our own employees for different positions within the organization. By offering reimbursable training we plan for replacements from within the organization to fill positions as they become available. Commissioner Walser asked for an updated organizational chart. Interviews are scheduled in the next couple of weeks for two vacant positions; an update will be placed in the Commissioner's mail. Commissioner Cook asked for a graph to better understand the comparison of gas against the benchmarks. General Manager Kumm explained that benchmarks are difficult to find for gas utilities. He further explained that the objective was to true-up the costs between the gas division and the electric division. There were problems with the way expenses were allocated and it needs to be fixed. For some reason the allocations had changed in 2001 and 2002 and we don't know why, but it needs to be changed back to similarly how it was. General Manager Kumm presented requisition 002003 for approval. This is a budgeted item and it's already been completed. It's our portion of the bill, with Glencoe paying the other half and installing the breaker. Glencoe went out for quotes and this is a one-time payment for us. Secretary Wetterling made a motion to approve Requisition #002003 for Breaker Inspection, Relay Setting and Testing for McLeod Sub 115 Kv Line to Glencoe, from Great River Energy for $37,909.45. Commissioner Cook seconded the motion and it passed unanimously. General Manager Kumm presented Fixed Asset Capitalization Policy for review. Our auditors suggested we have a policy regarding assets and is being presented at this time for commissioner input with approval at the August Commissioners meeting. Commissioner Bordson made a request that when this has been awarded approval, to attach it to the purchasing policy as it relates to the authorized $5,000 purchasing limit to the General Manager. Commissioner Cook asked for a change of verbiage from 'motor and parts' to 'machine parts' . Commissioner Bordson made a motion to adopt the Fixed Asset Capitalization Policy, add it to the Purchasing Policy, and include the requested verbiage change. Secretary Wetterling seconded the motion and it passed unanimously. General Manager Kumm presented the Capacity Contract with SMMPA for approval. There is only one item left to iron out in the contract but that won't prevent the deal from happening. We are asking for authorization to proceed with the negotiations to execute this agreement. Secretary Wetterling made a motion to approve authorization for staff to proceed with the Capacity Contract with SMMPA. Commissioner Bordson seconded the motion and it passed unanimously. General Manager Kumm explained that the Proposed 2007 CIP Programs that was included in the packets is informational only. Jon Guthmiller, Energy Conservation Administrator, will give a presentation at the August Commissioners meeting. General Manager Kumm has an analysis for the Big Stone II Project available for Commissioners to review. General Manager Kumm reported that the basic analysis for wind energy has been completed and is available in his office. On August 1, 2006, a company is coming here to speak to us on renewable energy. President Lenz will be present for that meeting. On August 2, 2006, MMUA will have a conference on renewable energy. Division Reports Electric - Steve Lancaster . Staying ahead of the Highway 7 project . We broke an 18" sanitary sewer line (not in use) while directional boring - did not hold anyone up. . We are generating quite a bit. . Four candidates for lineman position; 11 candidates for operator position Gas None Business None Legal Update None Vice President Walser will be unable to attend the August Commissioners meeting. Old Business Commissioner Cook inquired about the recent break-ins of our facilities. General Manager Kumm reported that the person was caught on video and the police are conducting an investigation. New Business None Commissioner Cook made a motion to adjourn at 4:30 pm. Secretary Wetterling seconded the motion and it passed unanimously. David Wetterling, Secretary ATTEST Craig Lenz, President 0-3- Regular Meeting July 26, 2006 Members present: Vice President Donald Walser; Secretary David Wettering; Commissioner Steven Cook; Commissioner Dwight Bordson; General Manager Michael Kumm; Attorney Marc Sebora. Member absent: President Craig Lenz Vice President Walser called the meeting to order at 3:00 pm. Commissioner Cook made a motion to approve the minutes of the June 28, 2006, Regular Meeting with the following changes: second page, ninth paragraph, second sentence - changed `And he' to `Commissioner Cook' third page, third paragraph, second sentence - changed `meeting' to `hearing,' Secretary Wetterling seconded the motion and it passed unanimously. General Manager Kumm reported that we have not yet received the high medical claim that we are expecting to come in, nor have we received the $30,000 adjustment yet for the medical fund. Commissioner Bordson asked about the payment to Micro Motion Inc. This is security for one of the Town Border Stations. He asked about the payment to C3 -I1ex LLC. This is an upgrade to the software. And he asked about the payment to Fisher Controls Int'I LLC. This is training for the gas department Vice President Walser asked about the payment to Minneapolis Consulting Group - Purchased Power Expense. General Manager Kumm will check into this and will e-mail Vice President Walser. And he asked if we could get quotes on our refuse service to get a comparison on costs, before our contract expires with Waste Management. Secretary Wetterling asked about the two payments to Missouri Basin Muncipal - Dues. These are dues for two different months. Commissioner Cook asked if we could check into requiring employees to have direct deposit of their payroll checks, to prevent the loss of a payroll check. Commissioner Cook had questions on inventory items. It was explained that sometimes several items are purchased through Purchase Orders and are then listed in the payables as 'inventory', while some items (things that are needed immediately at a job site) are purchased locally and are then itemized as to what they actually are. Secretary Wettering made a motion to ratify the payment of bills in the amount of $3,306,083.12 (detailed listing in payable book). Commissioner Bordson seconded the motion and it passed unanimously. General Manager Kumm explained the financial statements /budget year -to -date. The check to Sib -Ren -Fair will be issued sometime next week. We will be receiving a check from Utilities Plus. Last week, HUC netted between $45,000 - $50,000 in one day of generation. Between 3:00 and 4:00 today, we netted between $10,000 - $15,000 an hour in generation. Vice President Walser asked about the $100,000 restricted funds in the medical insurance fund. General Manager Kumm expressed his understanding from a previous meeting that we were going to wait and see how the rest of year progressed, but the auditors did suggest dissolving it if we're not going to use it. General Manager Kumm explained that we could go out for quotes at any time for medical insurance coverage. Because the City of Hutchinson would be impacted if we stopped our self insurance plan, General Manager Kumm will meet with Ken Merrill and report back to the board on the practicability of getting quotes. Secretary Wetterling made a motion to approve the financial statements /budget year -to- date. Commissioner Bordson seconded the motion and it passed unanimously. General Manager Kumm presented the Employee Support and Staffing - Section 5 - Strategic Management Process. Staff has completed all items except for implementation of common cost reallocation. This will be in the 2007 budget. Because certain critical job positions are hard to fill, Commissioner Bordson discussed the possibility of grooming our , own employees for different positions within the organization. By offering reimbursable training we plan for replacements from within the organization to fill positions as they become available. Commissioner Walser asked for an updated organizational chart. Interviews are scheduled in the next couple of weeks for two vacant positions; an update will be placed in the Commissioner's mail. Commissioner Cook asked for a graph to better understand the comparison of gas against the benchmarks. General Manager Kumm explained that benchmarks are difficult to find for gas utilities. He further explained that the objective was to true -up the costs between the gas division and the electric division. There were problems with the way expenses were allocated and it needs to be fixed. For some reason the allocations had changed in 2001 and 2002 and we don't know why, but it needs to be changed back to similarly how it was. General Manager Kumm presented requisition 002003 for approval. This is a budgeted item and it's already been completed. It's our portion of the bill, with Glencoe paying the other half and installing the breaker. Glencoe went out for quotes and this is a one -time 0� payment for us. Secretary Wetterling made a motion to approve Requisition #002003 for Breaker Inspection, Relay Setting and Testing for McLeod Sub 115 Kv Line to Glencoe, from Great River Energy for $37,909.45. Commissioner Cook seconded the motion and it passed unanimously. General Manager Kumm presented Fixed Asset Capitalization Policy for review. Our auditors suggested we have a policy regarding assets and is being presented at this time for commissioner input with approval at the August Commissioners meeting. Commissioner Bordson made a request that when this has been awarded approval, to attach it to the purchasing policy as it relates to the authorized $5,000 purchasing limit to the General Manager. Commissioner Cook asked for a change of verbiage from 'motor and parts' to `machine parts'. Commissioner Bordson made a motion to adopt the Fixed Asset Capitalization Policy, add it to the Purchasing Policy, and include the requested verbiage change. Secretary Wetterling seconded the motion and it passed unanimously. General Manager Kumm presented the Capacity Contract with SMMPA for approval. There is only one item left to iron out in the contract but that won't prevent the deal from happening. We are asking for authorization to proceed with the negotiations to execute this agreement. Secretary Wetterling made a motion to approve authorization for staff to proceed with the Capacity Contract with SMMPA. Commissioner Bordson seconded the motion and it passed unanimously. General Manager Kumm explained that the Proposed 2007 CIP Programs that was included in the packets is informational only. Jon Guthmiller, Energy Conservation Administrator, will give a presentation at the August Commissioners meeting. General Manager Kumm has an analysis for the Big Stone 11 Project available for Commissioners to review. General Manager Kumm reported that the basic analysis for wind energy has been completed and is available in his office. On August 1, 2006, a company is coming here to speak to us on renewable energy. President Lenz will be present for that meeting. On August 2, 2006, MMUA will have a conference on renewable energy. Division Reports Electric - Steve Lancaster • Staying ahead of the Highway 7 project • We broke an 18" sanitary sewer line (not in use) while directional boring - did not hold anyone up. 0 • We are generating quite a bit. • Four candidates for lineman position; 11 candidates for operator position Gas None Business None Legal Update None Vice President Walser will be unable to attend the August Commissioners meeting. Old Business Commissioner Cook inquired about the recent break -ins of our facilities. General Manager Kumm reported that the person was caught on video and the police are conducting an investigation. New Business None Commissioner Cook made a motion to adjourn at 4:30 pm. seconded the motion and it passed unanimously. ATT David W Wetterling Secretary 2 Ix O IL z O V ui w O !�!A @� G O U _W H J_ H M z O Z U O O N 0 a M 6 z O 0 W O U W C') J FI — Z(p� U) N 0 00 OD U�U) LO tn z = z N N C (' M C7 U O O X 2N2n Li 0 a 0 0 ao 0 � o � M W M WW �cnco p z o i° (� 2 T N W Nr N W o ch =>Com W Y c r� C9 v- W a. cL. m .Q Q- :3 CO 0000v O O O rn M rn xL �U H � N U - w CO H q CD 00 w N p r- N a. 0 0 W , 111 1-' w U in � T C m O -8 Z o m n w Q HUTCHINSON UTILITIES COMMISSION FIXED ASSET CAPITALIZATION POLICY The Hutchinson Utilities Commission (HUC) will regard fixed assets as capitalized when all of the following criteria are met: (1) Assets purchased, built or leased have useful lives of one year or more. (2) The cost of the asset (including installation) is $5,000 or more. Multiple assets whose cost is less than $5,000 but the aggregate requestor total is $5,000 or more are capitalized. (3) The cost of repairing or renovating the asset is $5,000 or more and prolongs the life of the asset. HUC will regard the purchase of software programs as fixed assets subject to the above capitalization policy, and will amortize over an estimated useful life of 3 years. Costs associated with software maintenance and customer support are considered expenditures and will not be capitalized. Other Considerations: (1) REPAIR is an expenditure that keeps the property in ordinary efficient operating condition. The cost of the repair does not add to the value or prolong the life of the asset. All repair expenditures are charged to the appropriate department and fund. (2) IMPROVEMENTS are expenditures for additions, alterations and renovations that appreciably prolong the life of the asset, materially increase its value or adapt it to a different use. Improvements of the nature are capitalized. Examples of Repairs vs. Improvements Repairs = Expenditures All items -life less than one year All items under $5,000 Property maintenance, wall repair Replacement of machine parts to keep Machine in normal operating condition Property restoration (rebuilding) for Normal operations Existing building repairs Replacement of small sections of wiring, Pipes or light fixtures Patching walls, minor repair of floors, Painting, etc. Patching driveways Cleaning drapery, carpet, furniture Improvements = Capitalized Assets Life of more than one year All items $5,000 or more Property rebuilding Replacement of machine parts that prolong the useful life Property restoration for something different or better. Building regulation conformity Major replacement of wiring, lighting, pipes or sewer Installation of floor, wall, roof, wall - covering, etc New driveway or major repair New drapery, carpets, furniture Depreciation Method — Straight Line over the following useful lives: Buildings 40 -60 years Transmission Plant (Electric) 20 -35 years Distribution Plant (Electric) 20 -35 years Building Improvement 15 -30 years Transmission Plant (Gas) 10 -45 years Distribution Plant (Gas) 10 -45 years Generation Plant 10 -30 years General Plant 10 years Vehicles 3 -5 years Office Equipment 3 -5 years Computer Equipment 3 -5 years COUNTER PROPOSAL 7/24/06 HUC Proposal to for Capacity and Indexed Energy This is a proposal for Capacity and Energy from Hutchinson Utilities (HUC) to the Southern Minnesota Municipal Power Agency Q. This proposal is intended to lead to negotiation of a contract for sale. HUC invites questions and/or counter proposals. HUC understands will be joining the Midwest Independent Transmission System operator (MISO) in April 2006, and looks forward to working with to arrive at a contract effective under MISO rules and regulations. Product: Unit Participation Power Interchange Service: Schedule Q, MAPP Product A (located on page 34) of the Mid - Continent Energy Marketers Association (MEMA) Tariff effective December 02, 2003. Capacity and Energy is from HUC Generating Plant. HUC may also provide energy from the market at price to be agreed upon at time of scheduling. Unit: GRE.HUTGREI Capacity Amount: 20 Megawatts (MW), or 20,000 kilowatts (kW), without reserves. Term: To be either the Calendar years, Jan 01, 2008 through Dec 31, 2012, or 60 consecutive months coinciding with the FTR planning year. [To be determined based on discussions with MISO. We are still trying to get this question resolved with MISO. Our first choice is a January 1 start date, assuming we can receive an FTR allocation consistent with that same time frame.] HUC is willing to have a shorter term if necessary to accommodate the MISO FTR planning year. Pricing: The Price would consist of 2 components: a capacity charge in US Dollars per kilowatt -month ($/kW -mo) and an energy charge in US Dollars per megawatt -hour ($ /MW -hr). Capacity Charge: $2.35 per kW- month. Over the entire term of 60 months this would be a total capacity charge of $2.35 x 20,000 kW x 60 mo = $2,820,000. — Energy Charge: HUC proposes the Energy Charge would contain 2 per megawatt -hour components: an Indexed Energy Component and a Fixed Energy Component. The charge for energy for each megawatt -hour would be calculated as follows: Energy Charge per MW -hr = Indexed Energy Component + Fixed Energy Component Where: Indexed Energy Component = (Northern- Ventura Daily Index Price in $/MMBtu + $0.01 / MMBtu) x 11.0 MMBTU /MW- hr Fixed Energy Component = $5.00 / MW -hr Confidential 7/19/06 Page 1 of 2 Delivery Point: The point of delivery will be the Hutchinson unit #1, MISO CP Node designated as "GRE.HUTGREI ". Scheduling: Minimum run time required is 4 hours. Delivered amount shall be 20 MW, or lesser amounts in increments of 5 MWs as mutually agreed upon between the parties. Energy may be scheduled at any time with at least a four hour advance notice. SMMPA has the right to cancel an existing schedule with at least a four hour notice prior to the beginning of the schedule. Other schedule changes can be made subject to mutual agreement between the parties. Schedules will be in the form of a MISO Financial Bilateral Schedule, or FinSched which transfers the financial responsibility for energy between the parties or other similar instrument in the event of change in the MISO transaction options. SMMPA will specify either Day -Ahead or Real -Time LMP for FinSched settlement if scheduled for day -head prior to Day -Ahead Market closing. All other FinScheds will be subject to Real -Time LMP for settlement. Transmission and MISO charees: SMMPA will be responsible for transmission costs related to evaluation and approval of the transaction, and MISO and/or MAPP transmission charges from GRE.HUTGREL If there are problems with MISO deliverability tests, i.e. getting the capacity approved as resource from GRE.HUTGREI, HUC and will attempt to negotiate delivery to another point, and HUC will assist with commercially reasonable efforts to get regulatory transaction approvals. It is understood that SMMPA will be responsible for delivery charges to the agreed upon delivery point. Conditions Precedent: This Agreement shall be conditional upon receiving the approval of this transaction as Accredited Capacity with MAPP. will be responsible for submitting all necessary documentation for accreditation. In addition, this Agreement shall be conditional upon MISO's approval for to designate this resource as either a network resource or a local capacity resource. Both HUC and shall make commercially reasonable efforts to secure the necessary approvals, including providing information as required to the other party. Confidential 7/19/06 Page 2 of 2