02-14-2018 HUCM Special MeetingMINUTES
Special Meeting — Hutchinson Utilities Commission
Wednesday, February 14, 2018
Call to order — 8:30 a.m.
President Morrow called the meeting to order. Members present: President Monty
Morrow; Vice President Anthony Hanson; Secretary Robert Wendorff; Commissioner
Mark Girard; Commissioner Don Martinez; General Manager Jeremy Carter; Attorney
Marc Sebora
Others present: Dan Lange, Dave Hunstad, Jared Martig and Angie Radke.
The purpose of the special meeting is to have further discussion on the Cost of Service
(COS) Study.
President Morrow recapped that we had previously met on the COS study last month and
now before us we have additional information and summarization of different residential
customer scenarios available.
GM Carter communicated that this process started 8 months ago, looking at RUC's basic
classifications and costs to run the utilities. This study's intent is to provide an unbiased
look at the utilities cost structure and revenue requirements. HUC has had past COS
studies done over the last decade and half. Dan Kasbohm from Utility Financial Solutions,
LLC (UFS) has put together different residential rate scenarios to give the commission
and idea on how one particular classification would be impacted based on varying
parameters and energy consumption levels. When a company is in a good financial
situation, such as HUC, that is the time to look at the appropriate rate structures and
equity between classes. This provides a proactive approach to maintaining integrity
between classes and ensure appropriate revenue requirement metrics are being
achieved. Presented before the Board is a look at different residential options, which
include different energy rates and incrementally moving towards a higher fixed charge to
cover the minimum fixed charges of Hutchinson Utilities. HUC is not looking to generate
additional revenue but is considering changing the rate schedule. HUC wants to stay
Revenue Neutral.
GM Carter reviewed the Electric Division Scenarios. The first table shows the cost of
service per class, what the projected revenue is and the percent change. This table also
shows removing 9.6% overall from the equation so HUC can stay revenue neutral. Right
now smaller customers are not paying proportionally their fair share of the costs to run
the utilities while larger customers are paying more. The second table shows staying
revenue neutral but balancing out the classifications by +/- 2% bandwidth on each rate
class. This starts shifting the classes towards more equitability based on the COS
service. HUC typically does 5 -year financial projections, however Mr. Kasbohm
recommends only a 3 -year rate track for consideration and approval. Even though HUC
has a lot of contracts locked up, there are too many variables within the industry and
Legislation that can change the financial forecasts for years 4 and 5.
Commissioner Girard inquired if that means having another rate study.
GM Carter explained it is recommended to look at this on a periodic basis every 3 to 5
years. However now HUC has a good benchmark and can continue to monitor things on
a monthly and yearly basis if a different rate path is considered.
Commissioner Girard asked if there are gaps from last study.
GM Carter informed the Board the trend was similar. However when we look at our peer
group studies we are significantly lower on the small user rates and within peer groups
with the larger customers.
Commission Martinez inquired if there is a balance between classes in our peer group.
GM Carter informed the Board there is the intent by the peer group to have a narrower
gap and better balance between classes. Generally speaking, municipally owned utilities
try to create as much equity as possible between classes. However, Municipals generally
favor the residential side some while Investor owned utilities favor the industrial
customers. Municipals try to create equity- try to be impartial; and try to view all
customers the same. This is why HUC also has a demand charge to cover those
incremental higher costs associated with select customers.
Commissioner Hanson noted our bandwidth of classes are wider than most since we have
not changed our rate in the last 10-12 years.
GM Carter added the longer we wait the larger the gap gets between the classifications
and the more concern there is when things change.
GM Carter continued to discuss the tables and pointed out the ,third table shows a +/-1 %
change.
GM Carter explained another scenario available is having a $2 customer charge with a
zero percent adjustment; this reduces the energy charge to stay revenue neutral. The
table shows the general impact of customers based on usage. This scenario shows
customers are paying more through a fixed charge. HUC has about 6258 customers; the
usage(kwh) breakout per customer is as follows; up to 250kw hours-14% of residents fall
into class, 250-500kwh/23%, 500-750kwh/25%, 750-1 000kwh/1 8%, 1000-1250kwh/10%,
over 1250kwh/10%. The majority of customers fall between the range of 250-1000kwh
which is 65-67%. This scenario is a 1.30 increase to a 70-cent decrease, which are not
significant changes.
GM Carter continued with the last scenario for the Electric Division. This scenario starts
to realign the classes with a $2 customer charge and 2% adjustment. This is a reduction
on the energy charge from the current rate but picks up revenue through a higher fixed
charge. This scenario looks to restructure fixed charges while starting to balance classes.
With the majority of customers falling between the range of 500-1000kwh this is an
increase of $1.20-$1.60 per month for majority of residential customers. With an increase
of $2 there is still a large portion of the bill that the customers can control.
GM Carter reviewed the Natural Gas Division Scenarios. The three tables show different
scenarios with a +/-2%, +/-l%, and +/-9%. GM Carter continued to summarize the
monthly customer bill impacts on the average usage of 6.9 MCF. HUC has about 5100
customers; the usage (MCF) breakout per customer is as follows; Less than or equal to
3mcf/15%, 3-5mcf/31 %, 5-7mcf/28%, 7-9mcf/13%, 9-11 mcf/6%, 11-13mcf/2%, 13-
15mcf/4%. The majority of customers fall between the range of 4-9mcf. Some customers
will see a small impact while other customers will see a decrease.
GM Carter explained another scenario available is restructuring the rate schedule with a
2% adjustment. These are not significant bill changes.
GM Carter mentioned at the last commission meeting, President Morrow asked staff to
re-look at the 5 year CIP and if there were any other projects coming up to be aware of
that were not part of the COS study that those get taken into consideration.. HUC is
looking to replace the SCADA system, which will be about $300K-$400K. The current
system is not supported anymore because the vendor is out of business. This is a huge
component of HUC's business operations because the SCADA system runs all our
systems. This conversion would be done over a 3-4 year rollout period. Mr. Blake is also
looking to replace the tank farms downtown in 2020, which would be about $100k. HUC
does not foresee any other projects coming up in the transmission or distribution areas
unless some major developments take place.
After more discussion, GM Carter recommended to have a follow up discussion at the
Commission meeting on February 28. If the Board could give more direction on what they
are looking to do by moving from variable to fixed costs, or reclassification; further
analysis on all rate classes and appropriate glide path timeframes can be modeled for
future review and discussion.
There being no further business, a motion was made by Commissioner Martinez,
seconded by Commissioner Girard to adjourn the meeting at 9:50am Motion was
unanimously carried.
ATTEST:
Monty I orrow, President
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