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01-31-2018 HUCMMINUTES Regular Meeting — Hutchinson Utilities Commission Wednesday, January 31, 2018 Call to order — 3:00 p.m. President Morrow called the meeting to order at 3:00 p.m. Members present: President Monty Morrow; Vice President Anthony Hanson; Secretary Mark Girard; Commissioner Robert Wendorff; Commissioner Don Martinez; Others present: General Manager Jeremy Carter; Attorney Marc Sebora. Conflict of Interest Commissioner Hanson declared a conflict of interest in voting on agenda item 2f - Designate Depositories for Utility Funds as he is an employee of Citizens Bank & Trust and agenda item 3- Ratify Payment, as he is 50% owner on AM2K Properties. Secretary Girard also declared a conflict of interest in voting on agenda item 2f, as he is a director for Citizens Bank & Trust. 2. Commission Reorganization President Morrow called for the annual Commission reorganization. a. A motion was made by Commissioner Hanson, seconded by Commissioner Martinez to re-elect Monty Morrow to the position of president. Motion was unanimously carried. b. A motion was made by Commissioner Martinez, seconded by Commissioner Wendorff to elect Anthony Hanson to the position of vice president. Motion was unanimously carried. c. A motion was made by Commissioner Hanson, seconded by Commissioner Girard to appoint Robert Wendorff as secretary. Motion was unanimously carried. d. A motion was made by President Morrow, seconded by Commissioner Martinez to appoint Marc Sebora as legal counsel. Motion was unanimously carried. e. A motion was made by Commissioner Hanson, seconded by Commissioner Martinez to appoint Angie Radke as recording secretary. Motion was unanimously carried. A motion was made by Commissioner Wendorff, seconded by Commissioner Martinez, to designate Citizens Bank & Trust, Wells Fargo Bank, Wells Fargo Advisors, Home State Bank, Morgan Stanley and Cetera Investment Services as depositories for utility funds. Motion was unanimously carried. 3. Approve Consent Agenda a. Approve Minutes b. Ratify Payment of Bills A motion was made by Commissioner Martinez, seconded by Commissioner Wendorff to approve the Consent Agenda. Motion was unanimously carried. 4. Approve Financial Statements Mr. Martig presented the financial statements. Mr. Martig noted the Net Profit for Dec 2017 decreased by $520K from Dec 2016. This is due to the additional gas costs over the final three days of Dec, which caused a fuel cost adjustment of $879K. HUC charged customers $433K while HUC absorbed the remaining, which will be collected in the form of less credits, issued in 2018. GM Carter stated for Electric Division, consumption tracked consistent throughout the year. Natural Gas Division tracked pretty consistent except for the month of December. GM Carter reviewed the additional graphs that Mr. Lang included on Load Duration Curve, Historical market, gas and HUC Energy pricing and HUC's load profile. . These give a good pictorial of the data being collected even though they are not reported on every month. After discussion, a motion was made by Commissioner Girard, seconded by Commissioner Hanson to approve the financial statements. Motion was unanimously carried. 5. Open Forum 6. Communication a. City Administrator — Matt Jaunich i. For the year, August was a bad month for us with the aquatic center. ii. The City has two big projects this year 1) 2nd Avenue Bridge to start in June and 2) Century project. b. Divisions i. Dan Lange, Engineering Services Manager- Losing System Controller today. Will be having interviews next month. ii. Randy Blake, Production Manager- Had a mandatory pre-bid contractor project meeting yesterday at plant 1 facility. This was a good turn out and included local and Minneapolis contractors. Cooling Tower Project is coming up, will be going out for bids to keep moving and will be looking to have a special meeting. Finished up unit 8- exciter project. Maintenance Mechanic position is posted. iii. John Webster, Natural Gas Division Manager- last Friday a gas marketer placed a large quantity of gas on our pipeline and will pull out the month of February; they are using our piping as storage. Gas Welder position is posted iv. Jared Martig, Financial Manger- Auditors are here. Will be looking for a meeting in March possibly April. v. Dave Hunstad, Electric Transmission/Distribution Manager- Transformer Inspections are being done out in the field. c. Brenda Ewing, Human Resources — Nothing to report. 2 d. Legal — Attorney Marc Sebora- Nothing to report. e. General Manager — Jeremy Carter i. Working on Year-end. ii. Legislative meetings are coming up the week of February 20. iii. Trying to keep Heartland Corn moving forward, hoping to accomplish in the near future. Met with the new CEO- Gary. Had good conversations on what to expect now and future for long-term use on our pipeline. 7. Policies a. Review Policies i. Administration of Personnel Policies & Procedures ii. Savings Clause iii. Equal Employment Opportunity iv. Identity Theft- Red Flag Program v. Minnesota Government Data Practices Act & Public Records Request No changes were recommended at this time. b. Approve Changes - None 8. Unfinished Business a. Update on Pack Gas Discussions GM Carter stated staff would be following up at the end of week with the attorney to move the settlement forward. 9. New Business a. Approval of HTI's Natural Gas Transportation Agreement- John Webster stated HTI's current agreement expires May 1, 2018. This agreement provides transportation rights to HTI on Hutchinson's facilities from May 1, 2018 through May 1, 2020. HUC has not changed the transportation rate or daily balancing fees from previous agreement. Motion by Commissioner Hanson, second by Commissioner Girard, to approve HTI's Natural Gas Transportation Agreement. Motion carried unanimously. b. Approval of 3M's Natural Gas Transportation Agreement- John Webster stated 3M's current agreement expired on January 1. This agreement provides transportation rights to 3M on Hutchinson's facilities from January 1, 2018 through January 1, 2020. HUC has not changed the transportation rate or daily balancing fees from previous agreement. Motion by Commissioner Girard, second by Commissioner Wendorff, to approve 3M's Natural Gas Transportation Agreement. Motion carried unanimously. c. Approval of 3M's Natural Gas Commodity Purchase Agreement- John Webster stated the agreement allows 3M to continue to purchase base load natural gas commodity through HUC. The agreement allows 3M to place segments of their 3 base load commodity contracts into the Commodity Prepay Purchase Program that is currently being put in place between HUC and its natural gas supplier. Motion by Commissioner Martinez, second by Commissioner Hanson, to approve 3M's Natural Gas Commodity Purchase Agreement. Motion carried unanimously. President Morrow would like to take the time to touch base on the COS study. The Board appreciates the good job and all that is done by staff. The Board is not exposed to big bumps. Thank you and nice job that we do not see that. The Board agreed. d. Approve 3M CIP Rebate- Jared Martig presented the 3M CIP Rebate. HUC staff is trying to get 3M to commit to having this done quarterly. Commissioner Girard inquired if this number has been going down. Mr. Martig and GM Carter stated that it has. It has been taking more projects to get to the same level of energy efficiency savings. (Rebate analysis attached) A motion was made by Commissioner Hanson, seconded by Commissioner Girard to approve the 3M CIP Rebate. Motion was unanimously carried. e. Discussion of PILOT Resolution President Morrow recapped there is a subcommittee made of Commissioner Girard, Commissioner Hanson, Mr. Steve Cook and Mr. Chad Czmowski. Commissioner Hanson communicated the subcommittee looked at the 2.75% contribution of HUC's operating revenue. The subcommittee found the average in this region is a 4.5% PILOT transfer. The subcommittee would like to be in line with peers and feels comfortable with a 3 -year phase in. Commissioner Hanson added the subcommittee tried to simplify the PILOT transfer by eliminating tree and street lighting. GM Carter stated the approved 2018 budget already includes year 1 of the 3 year phase-in. In addition, the COS study takes the increased PILOT into consideration as part of the analysis. . Commissioner Hanson noted specific verbiage was added to consider 1 -time requests when something comes up. Mr. Jaunich communicated the Council did review this and is comfortable with the language. Council wants what is close to its peer group and this is. GM Carter mentioned right now the split is 60-40. However, each division is now going to pay the PILOT percentage of their own operating revenue. There is also a floor and ceiling added to the PILOT resolution to protect both organizations. Mr. Morrow looked at the Board for any questions. With no further discussion a motion was made by Commissioner Hanson, seconded by Commissioner Girard to approve the PILOT Resolution. Motion was unanimously carried. f. Discussion of Cost of Service Study President Morrow communicated the Commission had time to review the COS study and now is the time to discuss our thoughts and ask further questions. 4 GM Carter summarized this is the initial step in the process. The second step would be to consider a rate track structure. It is important in this second step for the Commission to be given time to review the information give their input and make recommendations. Items for the Commission to consider 1) does the Commission want to do anything different with HUC's current rate design. If yes, what kind of a change; stay revenue neutral to the utility or generate addition revenue? If the Commission desires to stay revenue neutral to the utility without affecting the customer's bill to much this can be done by having the revenue generated restructured in a different format; have less of an energy charge and more in the fixed charge. 2) Does the Commission want to move in a direction to incrementally adjust the customer classifications towards more equitability? 3) If the commission would like to realign the energy rate and fixed charge in addition to moving the classification towards more equitability the commission should consider how much, +/- 1 % or +/- 2% bandwidth and also a glide path over a certain length of time. Commissioner Hanson inquired about time of day use and off peak pricing. GM Carter noted that the Hutchinson community customer base has fairly constant load with minimal large ups and downs. HUC is not a full -requirement utility of MIRES we buy a constant load 24/7. Because of RUC's contract structure, time of use is not as beneficial to HUC in addition to already being sized infrastructure wise according to our peak load with some room for growth. Although, there is more discussion going on in the industry about time of use pricing or seasonal pricing in the future. MIRES currently has in place as a wholesale supplier seasonal pricing for its member utilities. Commissioner Martinez inquired if the billing system could handle this. GM Carter stated additional class rates would have to be set up; this would become a more sophisticated billing system. Some communities are doing or are considering time of use rate structures, but those communities typically have more variability in loads, are purchasing their power based on more variable pricing, or are looking to reduce the peak demand on their system through energy conservation to reduce utility costs or additional infrastructure investments. After further discussion, Commission asked what the next steps are. 4:05 Mrs. Ewing left GM Carter noted if the Board would like to make a change, the Staff would recommend Mr. Dan Kasbohm to send some recommendations. Commissioner Hanson asked the staff if there is anything the Commission needs to be aware of as far as any major costs that should be factored in now to account for down the road. GM Carter stated this is something the Staff can take a relook at. President Morrow summarized by saying it does sound like we need to move forward with receiving recommendations and asked the Staff to please review any major costs that may be coming up in the future so the Commission can consider any changes that may be done. 10. Adjourn There being no further business, a motion was made by Commissioner Girard, seconded by Commissioner Martinez to adjourn the meeting at 4:20 p.m. Motion was unanimously carried. 5 -IC FF 0 Y`)'1r%r A -e -D, 0 e ATTEST Montyorrow, President