06-27-2018 HUCM Special MeetingMINUTES
Special Meeting — Hutchinson Utilities Commission
Wednesday, June 27, 2018
Call to order — 3:45 p.m.
Mayor Gary Forcier 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: Steve Cook, Mary Christensen, Chad Czmowski, Matt Jaunich, City
Administrator, Jared Martig, and Angie Radke.
The purpose of the special meeting is to have further discussions on the Cost of Service
(COS) Study.
Matt Jaunich, City Administrator, reviewed the purpose of meeting and handed it over to
Jeremy Carter, General Manager.
Jeremy Carter, General Manger, presented before the Council. Mr. Carter reviewed the
COS Study and the Commissioners goals to be achieved. This process started a year
ago, looking at HUC's basic classifications and costs to run the utilities. HUC brought in
Dan Kashbohm from Utility Financial Solutions to take an unbiased look at the utilities
cost structure and revenue requirements. There are five objectives of the COS study 1)
Validate if HUC is in good financial position over the next five years. 2) What are HUC's
revenue requirements for 2018; is HUC generating a proper Rate of Return (ROR). 3)
Identify cross -subsidies that may exist between rate classes; is each class picking up
their fair share 4) Received recommendations on rate adjustments needed to meet
targeted revenue requirements and 5) Identify the appropriate monthly customer charge
for each customer class; what is the cost break down from minimum system requirement,
meter staff and customer service to maintain the line. GM Carter spoke about the Cost
and Rate Components. There are Distribution Costs and Power Supply Costs. Within
Distribution Costs are Minimum System Requirements and Demand Costs. Within Power
Supply Costs, there are Transmission and Commodities. HUC is stable and does not
need to raise rates; however, a restructure is recommended to properly align the rate
components with the cost components. The goals of HUC are to 1) Keep HUC Revenue
Neutral 2) Better align the rate components with cost components; by creating better
revenue stability and ensuring each customer is paying their fair share of a minimum
system. 3) Start balancing out customer class subsidies; this can be accomplished by
the recommended glide paths. Commission decided to a 6-year glide path for the Electric
Division and a 9-year glide path for the Natural Gas Division and 4) Continue to monitor
HUC's rates and rate structures more frequently; this will be accomplished by continuing
rate structure changes every few years.
Council members raised questions about the effect of the citizen's bills. GM Carter noted
the fixed charge is increasing but the subsequent energy charge is decreasing to balance
out a customer's bill. In addition, some of the citizen analysis did not include the demand
charge, which is a component of the monthly fixed charge for the larger customers.
Council Member Cook mentioned debt coverage.
GM Carter stated that HUC wants to be conservative, but is not worried about debt
coverage in the next couple of years on the Gas Division side because of a potential
project that may or may not happen. From the Rate of Return industry standpoint, for
Natural Gas and Electric we want to achieve 5-7%; we are above that rate of return on
the Natural Gas side but not Electric side. When the organization is looked at as a whole,
the Rate of Return is met. HUC does not foresee replacing a couple of major assets in
town, units 1 & 9 account for a large portion of depreciation that may not be applicable
for the community of Hutchinson in the long-term future. HUC is able to maximize assets
and generate revenue. HUC has many different revenues coming in.
Discussions were held about industry changes and renewables. GM Carter noted that
with technology advancing it is becoming better every day.
Council members raised questions about the fixed charges. Is there a goal, if the fixed
charge goes up and becomes the predominate cost will this hurt fixed income customers.
GM Carter noted a goal for the COS would be to grow to a rate of $14.00, or even if the
COS would move into the 20-25% range. Around the area, Staff is seeing a range of 40-
50%. Commissioners and Staff talked about low-income residents wanting renewables,
this should not discourage renewables. The Commissioners and Staff understand the
concerns; however, the majority of a customer's bill will still be related to energy usage.
Increasing rates is not the goal out of the COS Study; HUC wants to move towards
creating more equitability between classes and balancing the revenue components with
the cost components.
Commissioner Mark Girard left the meeting at 4:33pm.
Council Member Cook pointed out that there has not been a rate increase since 2006.
John Webster attended the meeting at 4:35pm.
Mayor Gary Forcier inquired if HUC tracks power outages.
GM Carter stated that Staff tracks the number of outages along with the duration of the
outage. HUC received national recognition for achieving exceptional electric reliability in
2017 from the American Public Power Association (APPA). APPA is a trade group that
represents more than 2,000 not -for profit, community -owned electric utilities.
GM Carter asked for additional thoughts or concerns.
City Administrator Matt Jaunich looked to the Mayor and Council and added per our city
charter the only act to be taken is to veto if chosen, the council does not have to take
acceptance.
Council Member Cook would like to officially take action and show the support for the
Commission.
Motion by Czmowski, second by Christensen, to adjourn at 4:43 p.m. Motion carried
unanimously.
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ATTEST:
Monty M w, President