10-02-2014 HUCMMINUTES
Special Meeting — Hutchinson Utilities Commission
Thursday, October 2, 2014
Call to order — 7:00 a.m.
President Hanson called the meeting to order. Members present: President Anthony
Hanson; Vice President Monty Morrow; Commissioner Mark Girard; Commissioner
Donna Luhring; General Manager Jeremy Carter; and Attorney Marc Sebora.
Member Absent: Commissioner Dwight Bordson.
1. Discussion on Industrial Class Electric Rate Reduction
GM Carter presented 7 industrial rate scenarios for discussion with Scenario 1
being the best and Scenario 7 being the worst case scenario in regard to the
financial impact to Hutchinson Utilities Commission. The two most viable options
for Hutchinson Utilities would be Scenarios 4 and 5.
Scenario 1— No industrial rate reduction and industries maintain status quo.
Scenario 2 — Industrial rate reduction. This scenario was made based on the
assumption that HUC would have the ability to renegotiate the long-term 25
megawatt base load contract with Missouri River Energy Services (MRES) down to
19 megawatts and/or reallocate the 6 megawatts of excess power to new or
existing customers at the current rate. However, in talking with MRES, HUC found
out renegotiating the contract is not feasible and no current contract to sell the 6
megawatts of power is currently in place.
Scenario 3 - No industrial rate reduction. Industrial class self -generation occurs.
This scenario was made based on the assumption that HUC would have the ability
to renegotiate the contract with MRES reducing the 25 megawatt base load to 19
megawatts which would reduce capacity sales or MRES purchasing the excess 6
megawatts (lost from industrial class self -generation) back from HUC. However,
after talking with MRES, HUC found out renegotiating the contract or selling back
the power is not feasible. HUC would be responsible for finding alternative options
to sell the excess power previously sold by HUC.
This scenario includes an estimated $200,000 increase in natural gas revenues, a
back-up charge to the customer of approximately $225,000 and a loss in capacity
sales on the electric side of approximately $200,000, if the contract was
renegotiated to 19 megawatts.
Scenario 4 - No industrial rate reduction. Industrial class self -generation occurs at
6 megawatts of power. GM Carter explained in order for this scenario to come out
close to Scenario 5, HUC would need to sell the excess 6 megawatts of power
around the clock at approximately $43 per megawatt to the market or other
utilities/businesses through some type of contract structure. Due to the current soft
market, this is not a realistic option at this time.
As in Scenario 3, this scenario includes an estimated $200,000 increase in natural
gas revenues and a back-up charge to the customer of approximately $225,000.
Scenario 5 — Industrial rate reduction phased in over 3 years to result in a 10
percent less rate per kilowatt hour in 2017.
Scenario 6 - Industrial rate reduction all in one year. This would result in HUC
losing $1 million in cash flow in one year.
Scenario 7 — No industrial rate reduction. Industrial class self -generation occurs,
with HUC having no ability to renegotiate the MRES contract or find an alternative
option to sell the excess 6 megawatts of power (lost to self -generation). As in
Scenario 3, this scenario includes an estimated $200,000 increase in natural gas
revenues and a back-up charge to the customer of approximately $225,000.
GM Carter pointed out that it would be in HUC's best interest to sell the 6
megawatts of excess power on the market or to other utilities/businesses than to
absorb a large portion of the power within HUC's own customer base. By doing so,
this would continue to allow HUC greater opportunity to control HUC's overall
"blended" cost of power by hedging market prices and/or self -generating based on
the economic climate at that time.
GM Carter concluded out of the scenarios presented, the best option for HUC
would fall somewhere between Scenario 4 and Scenario 5. President Hanson and
GM Carter recapped why the other scenarios were not in HUC's best interest at
this time.
Commissioner Girard said the lack of options now to sell the excess power was the
reason he favored the phased -in reduction.
President Hanson explained GM Carter and Attorney Sebora distributed a draft
resolution to the Board which proposed implementing a 10 percent rate reduction
for the existing electric industrial class phased in over a 3 year period.
The current industrial class rate of .0675 cents per kilowatt hour would fall to .0653
cents January 1, 2015, then .0631 cents January 1, 2016, and .0610 cents
January 1, 2017. The resolution changes the energy rate, not the billing structure
or the demand charges.
Vice President Morrow said short-term, this is something HUC needs to do to
protect the business and nothing is "set in stone" by taking the action, with neither
side making a commitment.
After discussion, a motion was made by Commissioner Luhring, seconded by
Secretary Girard to approve the resolution as presented to make the proposed
changes to the industrial class electric rate. Motion unanimously carried.
(Resolution #1011 attached.)
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Attorney Sebora explained the City Council, under the city's charter, has 30 days
following Hutchinson Utilities' official notice of the rate change to decide if it wants
to veto the change.
There being no further business, a motion was made by Secretary Girard, seconded by
Vice President Morrow to adjourn the meeting at 7:50 a.m. Motion was unanimously
carried.
ATTEST:
Ant ony Hanso , President
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Mark Girard, Secretary
Resolution No. 1011.
A RESOLUTION CHANGING THE HUTCHINSON UTILITIES COMMISSION
INDUSTRIAL CLASS ELECTRIC RATE
Be It Resolved by the Hutchinson Utilities Commission:
That the current electric rate of .0675 cents per kWh paid by customers of the Hutchinson Utilities
Commission industrial class be changed as follows:
1. Effective January 1, 2015, customers in the industrial class shall pay an electric rate of .0653
cents per kWh.
2. Effective January 1, 2016, customers in the industrial class shall pay an electric rate of .0631
cents per kWh.
3. Effective January 1, 2017, customers in the industrial class shall pay an electric rate of .0610
cents per kWh.
AND BE IT FURTHER RESOLVED, that the General Manager of the Hutchinson Utilities Commission,
Jeremy J Carter, shall provide notice of these rate changes to the City Council of the City of Hutchinson.
Adopted by the Hutchinson Utilities Commission this o,? day of
t0kly k r , 2014
Hutchinson Utilities Commission
Anthony -Hanson, President
Attest:
Mark Girard, Secretary