04-09-2018 HUCM Special MeetingMINUTES
Special Meeting — Hutchinson Utilities Commission
Monday, April 9, 2018
Call to order — 4:00 p.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 Manger Jeremy Carter; Attorney Marc
Sebora
Others present: Jared Martig, and Angie Radke.
The purpose of the special meeting is to have further discussions on the Cost of Service
(COS) Study and the British Petroleum (BP) Prepay Program.
GM Carter started the meeting with discussions on the COS study. This process first
started back in June 2017, now the next step is for the Commission to review if there is a
glide path to move the different classifications more towards equitability relative to the
Cost of Service numbers. The main point from the previous meeting, do not create
additional revenue but move classifications towards equitability. There are three cost
components to look at and consideration on collecting revenue based on the cost
components. 1) what are the fixed costs to maintain a minimum system, 2) additional
(charges) costs for customers that have unique requirements and 3) supply of power.
Both divisions do not need to follow the same glide path.
GM Carter presented the different glide paths (Attached). Methodology is the same
between both divisions. The three glide path options are 6 -year, 9 -year and 12 -year with
varying +/- bandwidths for both the Electric division and Gas division. These scenarios
are based on staying revenue neutral. In addition, as part of the analysis there is a sample
bill of each scenario based on the average usage in each classification.
GM Carter informed the Commission that this is just starting HUC down the path, not
saying this cannot change. The path could change based on HUC's financial situation.
HUC Staff and Commission can revisit this and make appropriate changes by either
accelerating or slowing down the glide path. Mr. Kasbohm does not have a concern with
HUC's financial situation. HUC has a good handle on its financials and will continue to
monitor to see if appropriate changes are needed. These are minimal changes/impacts
and it is best to make these changes when there are no issues and the organization is in
a sound financial position. Taking a proactive approach is better than reacting.
After reviewing both the Electric and Gas division scenarios, GM Carter stated that having
each division stand on its own and not supporting the other is part of a good business
strategy to limit the risk or exposure that one division can no longer support the other.
Mr. Kasbohm recommends a 6 -year glide path for the Electric division and a 9-10 year
glide path for the Gas division. There is not a huge necessity to speed up the glide path
for the Gas division. Once there is a consensus from the Commission, Mr. Kasbohm will
create a more in-depth rate design structure for each class with varying impacts by usage
for the Commission to review and have further discussion.
GM Carter also showed the Commission a general estimate of the revenue loss on the
Natural Gas division if HUC starts to move the various classifications down a particular
glide path without adjusting the transportation contracts for HTI & 3M that were just
recently approved.
After much discussion, the Commission would like to look at a 6 -year path for the Electric
division and a 9 -year path for the Gas division.
GM Carter will follow up with Mr. Kasbohm.
GM Carter presented an overview of the BP Prepay Program (Attached). British
Petroleum Energy Company (BPEC) provides gas supplies to Public Energy Authority of
Kentucky (PEAK) for up to 30 years. PEAK issues a series of tax-exempt bonds to
finance the purchase of gas from BPEC. A Trustee is involved with the funds from the
bond sale. BPEC assigns its receivables to PEAK to secure payments under the bonds
if the buyers default under a receivable purchase agreement. PEAK sells gas to
governmental entity "Buyers" under a "Gas Supply Contract"
GM Carter reviewed the stipulations. 1) HUC must use gas in line with the Internal
Revenue Service's rules governing qualified uses of gas under pay transactions. HUC
does not have any issues with this. 2) To change the price from a floating, index price,
BP will enter into a swap agreement with Buyer under International Swaps and
Derivatives Association contract.
GM Carter reviewed the Benefits. 1) HUC would purchase gas at an index price, less a
discount that PEAK and BP determine. The minimum discount is $.20/Dth, but the actual
discount can vary during the term of the contract. 2) PEAK receives a $.05/MMBtu
Administrative Fee. 3) 57% of retail volumes ($90k -100k savings). This excludes
Generation, 3M, HTI, UNG, and City of Brownton. HUC would most likely pass these
savings on to the customers. This is a decent gas supply savings for HUC with little risk.
With this Prepay Program, GM Carter stated a couple of concerns. 1) Automatic
Termination- if the Prepaid Agreement between BPEC and PEAK terminates at any time,
then the Gas Supply Agreement between PEAK and HUC would also terminate. HUC
would not have a say. 2) Restrictions on Financing Activities. This HUC needs to clarify.
Jared Martig left meeting at 5:13pm
After much discussion, President Morrow stated that the Staff and the Commission have
to review this topic more before Mid -May.
There being no further business, a motion by Commissioner Martinez, second by
Commissioner Wendorff to adjourn the meeting at 5:18 p.m. Motion was unanimously
carried.
ATTEST: AIAA L'_�
Monty orrow, President