11-15-2016 HUCMMINUTES
Special Meeting — Hutchinson Utilities Commission
Tuesday, November 15, 2016
Call to order — 7:00 a.m.
President Luhring called the meeting to order. Members present: President Donna
Luhring; Vice President Monty Morrow; Secretary Mark Girard; Commissioner Anthony
Hanson; Commissioner Robert Wendorff; General Manager Jeremy Carter.
Others present: Jared Martig, Randy Blake, Dave Hunstad, John Webster, Dan Lang
and Brenda Ewing.
The purpose of the special meeting was to discuss the 2017 preliminary budget and the
non-union performance pay/evaluation system.
Brenda Ewing presented the performance pay narrative for non-union employees,
explaining HUC's existing performance pay system, along with a comparison to the City
of Hutchinson's and other utility performance evaluation processes. The
recommendation was to change the job evaluation process for non-union employees to
be more goals and objectives based versus competencies and to continue with the
same performance ratings similar to those already established except with changing the
"Meets Job Requirements" label to "Solid Performer". It was recommended the current
job evaluation system be used for the 2016 reviews. For 2017 and beyond, the
recommendation is to use a newly established performance system and establish the
framework and goals based criteria for the new system. This includes training and
education. (Narrative attached.)
Additionally, based on the pay grid previously approved by the commission a
recommendation was made that any employees who fall outside their perspective pay
range be afforded a lump sum payment based on their performance review score
versus it being added to their base wage. This will ensure the continual integrity of the
pay range system.
The proposed pay grid has a 35% pay range with minimum, lower middle, mid -point
market, upper middle and maximum ranges, which allows for more flexibility for the
reviewer. It was recommended to the commission a 3% adjustment be made to the pay
grid in 2017 based on industry literature and data collected from other organizations.
The new performance pay system moving forward would separate the relationship
between union contract increases and performance pay for non-union employees. The
new grid will be reviewed every year to make adjustments, as needed, in order to stay
market competitive and to maintain internal pay equity within the organization. .
7:28 a.m. — at this time Vice President Morrow arrived.
GM Carter presented the preliminary 2017 budget, explaining that overall there were no
significant changes from the 2016 budget other than an increase in power and
transmission costs. (Presentation attached.)
7:43 — at this time John Webster arrived.
After discussion, the Board requested GM Carter add power cost adjustments as a
separate line item in the final 2017 budget. GM Carter will make the suggested change
and present the final 2017 budget for approval in December's regular commission
meeting.
The Board thanked the entire HUC staff for their efforts in controlling costs.
There being no further business, a motion was made by Vice President Morrow,
seconded by Commissioner Wendorff to adjourn the meeting at 8:25 a.m. Motion was
unanimously carried.
ark Girard, Secretary
ATTEST:
Donna Luhring, resident
HUC Performance Pay Consideration — November 2016
The requirements of a successful pay for performance system include:
1. A culture that supports pay for performance;
2. Effective and fair supervisors;
3. A rigorous performance evaluation system;
4. Adequate funding;
5. A system of checks and balances to ensure fairness;
6. Appropriate training for supervisors and employees; and
7. Ongoing system evaluation.
The current HUC non-union Performance Pay System consists of the following:
The performance appraisal process is the application of performance standards to past
performance. In appraising an employee, these are the basic levels of performance:
5 — Outstanding — Performance is exceptional in all areas and is recognizable as being far
superior to others.
4 — Exceeds Job Requirements — Results clearly exceed most positions requirements.
Performance is of high quality and is achieved on a consistent basis.
3 — Meets Job Requirements — Competent and dependable level of performance. Meets
performance standards of the job.
2 — Needs Improvement — Performance is deficient in certain area(s). Improvement is necessary.
1— Unsatisfactory — Results are generally unacceptable and require immediate improvement.
Results - The results of the exempt (non-union) employee's evaluation will normally have the
following effect on his/her salary per the following Merit Increase Guide:
0 to 1.0 — 0%
1.1 to 1.99 — Straight 1% increase
2.0 to 2.75 — -1% of Union % increase
2.76 to 3.5 — Union % increase
3.51 to 4.25 — +1% of Union % increase
4.26 to 5.0 — +2% of Union % increase
Historically, and with the past two union contracts, the union increase has been calculated at
3% for the purposes of the exempt/non-union employee performance increases. Most
exempt/non-union employees have realized a 3% - 5% performance increase to their base wage
dependent upon their actual appraisal score.
For informational and comparison purposes, the current City of Hutchinson Performance Pay
System consists of the following:
The performance appraisal process is the application of performance standards to past
performance. In appraising an employee, these are the basic levels of performance:
5 - Outstanding - Performance is exceptional in all areas and is recognizable as being far
superior to others.
4 — Exceeds Job Requirements - Results clearly exceed most positions requirements.
Performance is of high quality and is achieved on a consistent basis.
3 — Meets Job Requirements - Competent and dependable level of performance. Meets
performance standards of the job.
2 - Needs Improvement - Performance is deficient in certain area(s). Improvement is necessary.
1- Unsatisfactory - Results are generally unacceptable and require immediate improvement.
Results
The results of the employee's evaluation will normally have the following effect on his/her
salary per the following Merit Increase Guide:
Merit Increase Guide for Open Salary Ranges
Achievement Level
0 to 1.1 to 2.0 to 2.76 to 3.51 to 4.26 to
1_0 1.99 2.75 3_5 4.25 5_0
Compa-Ratio*
80.0-84.9
0%
0%
4%
5%
6%
7%
85.0-89.9
0%
0%
4%
5%
6%
7%
90.0-94.9
0%
0%
3%
4%
5%
6%
95.0-99.9
0%
0%
2%
3%
4%
5%
100.0 —104.9
0%
0%
0%
2%
3%
4%
105.0 —109.9
0%
0%
0%
1%
2%
3%
110.0 —115.0
0%
0%
0%
0%
2%
3%
*Compo -ratio refers to the location of the individual in the range relative to the market.
The City of Hutchinson is in the process of completing a job evaluation and compensation plan
project. The performance pay system that has been recommended for consideration by the City
is as follows:
Performance evaluations should refer to the degree that goals are met. The job evaluation refers to
knowledge, skills, and abilities which are part of the employee development, not performance.
Merit increases are awarded to employees based on the proposed merit guide chart for the year.
The chart is designed to reward strong performers for their job growth and accelerate their pay to
reach the competitive level faster.
Merit Guide Chart Exampl
Pay Level Within Grade
Performance Rating
Minimum
Lower Middle
Midpoint
(Competetive
Market)
Upper
Middle
Maximum
Outstanding Performer (5)
6-7%
5-6%
4-5%
3-4%
Lump Sum
Exceed Expectations (4)
5-6%
4-5%
3-4%
2-3%
Lump Sum
Solid Performer (3)
4-5%
3-4%
2.5-3%
1.5-2%
Lump Sum
Need Improvement (2)
0-2%
0%
0%
0%
0%
Unsatisfactory (1)
0%
0%
0%
0%
0%
Other Utilities in the HUC Market Group
Other utilities that have been identified as part of the market comparison for Hutchinson
Utilities were contacted to inquire if they utilize a performance pay system, and, if so, what the
system entails. The limited information received from this group includes the following
information:
Marshall Public Utility (MMU)
MMU doesn't have a performance adjustment mechanism as part of their wage and salary
administration policy. They do annual (December) employee evaluations and an employee's
movement up the pay grade (11 grades) steps (13 steps) is tied to the annual performance
evaluation. When an employee is at the top step of the pay grade, if they have at least a
satisfactory annual evaluation, they are eligible for a merit adjustment. The merit adjustment,
while not impacting the wage rate, does impact the gross take home pay. It can be 2% or 4%
and is paid in lump sum in January each year.
The merit pay mechanism, basically serves as a tool to pay higher than the 100% maximum 13th
step.
Rochester Public Utility (RPU)
Rating Level Merit Rate Adjustment
Successful Performance Step or 1.0% to 2.0%
Needs Improvement No step - no merit adjustment
Unsatisfactory No step - no merit adjustment
The merit rate adjustment is in addition to a COLA increase which for 2017 will be 2.75°/x.
WPPI Energy
The WPPI merit system rewards those individuals that do more than just the minimum for their
job. In 2016, they implemented a base pay increase of 1.5% employees could earn $0-$1,735
depending if they did not meet expectation or exceeded in every category. For consistency,
they evaluate all employees on the same metrics but do hold the management team to higher
standards and have greater expectations. They are proposing a slight change to the program
moving forward with fewer performance competencies and there will be more points earned on
the goals section.
The merit system for WPPI is as follows:
• Each year, the Commission will look to approve a base wage increase and then set aside
separate funds to be used for merit pay that would not adjust a person's base wage and be
treated as a lump sum payment.
• Everyone would be able to earn the same amount of merit pay regardless of what position
they hold and how much they currently make.
• Employees would not be eligible for merit pay during their orientation period.
• The merit pay would establish meeting expectations = $250 and each exceeding
expectations $135. For example, 6 meeting expectations - $1,060.
• If a person received a "not meeting expectations" in any category, they would not be
eligible for merit pay in that year. Meeting expectations is what we hired our employees to
do and is what we expect them to do.
• The program would remain consistent for 3 years (2016 is year 3) and in the future look to
develop how the merit could be calculated by putting more emphasis and weight on
meeting and exceeding goals and objectives. For example, weight the merit for goals at
50%, competencies 30% and behavior at 20%.
• All managers will complete performance evaluations based on the timetable identified and
merit pay would be paid out at the beginning of the following year.
2017 HUC Performance Pay Recommendation
It is the recommendation to continue with performance ratings similar to those already established
and the proposed pay for performance guide.
5 - Outstanding
4 — Exceeds Job Requirements
3 — Solid Performer (change from "Meets Job Requirements")
2 - Needs Improvement
1- Unsatisfactory
Definitions for each rating level will be revised/refined and established for 2017 and beyond.
. = .• ''+.: -tii`
r..y -,::i. Via- �a•!,
a.oL-1-'.�' _
�� .. ''!:'•
MinimumT:1:ower..M'id
.Middle;:`
Performance Rating
Market-
Outstanding (4.1- 5)'
6-7%
5-6%
4-5%
3-4%
Lump Sum
Exceeds. Expectations (3:1- 4)
5-6%
4-5%
3-49,o'
2-3% Lump Sum
Solid Performer (2.1- 3)
4-5%
3-4%
2.5-3%
1.5-2% Lump Sum
Needs Improvement (1.1- 2)
0-2%
0%
0%
0% 09/0
Unsatisfactory (0 - 1)
0%
01Y0
0%
09/0 0%
100-108.75%
108.76-117.5%
117.6-126.5%
126.6-135% 135% of
of Minimum
of Minimum
of Minimum
of Minimum Minimum
As was noted at the beginning of this narrative, a successful pay for performance system includes:
A culture that supports pay for performance; This has been established per the HUC's past
pay for performance structure.
Effective and fair supervisors; As this system affects only non-union employees, the only
two supervisors who will be completing performance evaluations are the General
Manager and the Finance Manager. With only two individuals involved, consistency and
fairness should not be an issue.
3. A rigorous performance evaluation system; The current performance appraisal software
has the capabilities to accommodate a sophisticated goal and objective based evaluation
system. The system allows for weighting goals versus performance competencies and also
allows for weighting the individual goals and objectives.
4. Adequate funding; HUC has supported the current pay for performance with adequate
funding and this is expected to continue to ensure the organization's ability to remain
market competitive and to attract and retain quality employees.
5. A system of checks and balances to ensure fairness; See #2 above. In addition, there is
oversight by Human Resources who administers the performance evaluation system and
regular policy review by the HUC Commission.
6. Appropriate training for supervisors and employees; and Training will be provided to the
General Manager and Finance Manager, as needed.
7. Ongoing system evaluation. See #5 above.
�ptCHtMg��
o Hutchinson Utilities Commission
UTI L 171Es
2017 Preliminary Budget Review
Tuesday, November 15th, 2016
7:00 a.m.
�ZCHINSO,y
0 2017 Summary Budget Information
�T/LIT 1 ES
Combined Divisions
Revenues: $39,938,549
Expenses: $39,647,537
Net Profit: $291,012
Electric Division
Revenues: $26,725,771
Expenses: $28,640,313
Net Loss: $1,914,542
o Gas Division
Revenues: $13,212,777
r. Expenses: $11,007,223
n Net Profit: $2,205,554
ZGHIHSO,,
*6 -
Electric Division Revenue Budget Highlights
2017 Retail Customer Sales - $24,085,461
Residential sales — $51105,571 (1.5% Inc.)
Small general sales — $1,613,269 (2.0% Inc.)
13 Large general sales — $7,175,398 (1.4% Inc.)
Industrial sales — $1010431839 (4.5% Dec.)
Street Lighting - $147,384
Net Reduction in retail customer sales (~$259,000) (1.06% Dec.)
Sales for Resales - $2,310,110
Increase of — $402,000 over 2016 budget
Increase in capacity sales - $329,000
Est. increase in energy contract sales - $73,000
Other Revenues - $330,200
Additional customer charges - $280,200
Interest Earnings - $50,000
Electric Division Revenues
2017 ELECTRIC BUDGETED REVENUES
Other Interest
Sales for Revenue, Earnings, Residential,
Resale, $280,200, $50,000,0% $5,105,571 ,
$2,310,110, 1 % 19%
9%
Small
Street General,
Lighting, / $1,613,269 ,
$147,384, 6%
0 °/n
Industrial,
$10,043,839,
38%
2016 ELECTRIC BUDGETED REVENUES
3eneral,
5,398,
'%
Industrial,
$10,511,135 ,
39%
rge
General,
$7,076,630,
27%
Other
Revenue,
Sales for
$280,200,
Interest
Residential,
Resale,
1 %
Earnings,
$5,030,722
$1,907,820, 7%
$57,500,0 %`
/
,
19%
Street
Lighting,
\ I /
/
Small
General,
$144,535 , _--
$1,581,216 ,
10/
I6%
3eneral,
5,398,
'%
Industrial,
$10,511,135 ,
39%
rge
General,
$7,076,630,
27%
300,000,000
250,000,000
200,000,000
150,000,000
100,000,000
50,000,000
Electric Consumption History
Onnunl KWHR'c Sold by Clncc
2008 2009 2010 2011 2012 2013 2014 2015 2016 ProjYE Bud
(Thru 2016 2017
Oct.)
■ Small General Service 0 Residential Large General Service 0 Industrial M, Total
Electric Division Expense Budget Highlights
JIVES
Continued reduction in staffing levels
Overall reduction in personnel costs of ~$72,000
Benefit Premiums
Health Ins — ~ 13% dec., LTD, Basic Life & AD & D — slight decrease
Dental 0% increase
PILOT — $681,816 (2.75%)
Decrease in Pilot expense of $72,653
GRE/MISO Transmission Expense — (Inc. $675,000)
GRE Zonal Rate Change — $5.26/kW (2017), $4.68/kW (2016)
Projected decrease in network load
Increased MISO transmission costs
MRES Baseload Contract Expense — (Inc. of $459,390)
MISO Capacity Costs - $99,072
3% energy rate increase - $207,122
Demand Cost increase - $1541800
Ancillary Service Credits/Dues/Rate Adder — ($1,604)
2018 HUC budget forecast — increase of another $400K
~ 3% cost increase
Additional Operating Expenses
0 BS & A Conversion - $1021738
0 Tree Clearing Services (69KV/1 1 5KV Lines) - $50,000
13 2017 Rate Study - $30,000
- $450K, 2 mill rate increase or
Electric Division Expenses
2017 ELECTRIC BUDGETED EXPENSES 2016 ELECTRIC BUDGETED EXPENSES
Pilot/Rdway
Depreciation, Lighting,
$829,200 ,
$2,800,000, 3%
10%
Transmission,
$2,550,000,
9%
Purchased
Power,
$14,208,043 ,
50%
CIP Program,
$31410001
Operating
1 %
Materials,
$383,782,
1%
Operating
Expenses,
-$926,651 ,
Expenses,
3%
Personnel
Costs,
$4,727,137,
16%
Fuel/Chem.
X1,901,501 ,
7%
Depreciation, Pilot/RdwayLighting,
$2,700,000 $899,004,
10% 3%
Transmission,
$1,875,000
7%
Purchased
Power,
$13,875,028 ,
50%
CIP Program,
$320,000,
1 %
Operating
Materials,
$347,950,
1%
Operating
Expenses,
$789,713,
3%
Personnel
Costs,
$4,798,888 ,
j 18%
Fuel/Chem.
$1,988,770,
7%
10
ZCH1//q�y
20-17 Electric Division Preliminary Budget
DTII IT1Es
ELECTRIC DIVISION
Dollar
% change
YEAR
2014 Actual
2015 Actual
2016 Budget
2017 Budget
Inc/(Decr.)
2016/2017
REVENUES:
Residential
5,162,073
5,080,964
5,030,722
5,105,571
74,849
1.49%
Small General
1,612,427
1,621,751
1,581,216
1,613,269
32,053
2.03`"/
Large General
7,175,480
7,141,340
7,076,630
7,175,398
98,768
1.40%
Industrial
11,001,396
11,399,155
10,511,135
10,043,839
(467,296)
-4.45%
Street Lighting
139,532
146,931
144,535
147,384
2,849
1.97%
Sales for Resale
678,293
1,114,918
1,907,820
2,310,110
402,290
21.094/
Other .Retire-uer
404,386
426,973
280,200
280,200
-
0.00%
Interest Earnings
14,861
15,978
57,500
50,000
(7,500)
-13.04%
TOTAL REVENUES: 26,188,448 26,948,010 26,589,758 26,725,771 136,013 0.51%
EXPENSES:
Personnel Costs
4,495,713
4,588,701
4,798,888
4,727,137
(71,751)
-1.5%
Purchased Power
13,850,238
14,706,630
13,875,028
14,208,043
333,015
2.4%
Transmission
1,512,071
1,785,988
1,875,000
2,550,000
675,000
36.00%
Generator Fuel/Chemicals
1,328,850
841,038
1,341,604
1,249,801
(91,803)
-6.84%
Depreciation
2,744,769
2,816,301
2,700,000
2,800,000
100,000
3.70%
Transfers (ElectriclCity)
1,823,897
1,026,224
1,401,635
1,333,516
(68,119)
-4.86%
Operating Expense
1,877,247
1,716,653
1,571,585
1,746,330
174,745
11.12%
Debt Interest
40,532
35,196
30,613
25,488
(5,126)
-16.74%
TOTAL EXPENSES: 27,673,317 27,516,732 27,594,353 28,640,313 1,045,961 3.79%
NET PROFIT/(LOSS) $ (1,484,869) $ (568,722) $ (1,004,595) $ (1,914,542) (909,948) 90.58%
p�)) Gas Division Revenue Budget Highlights
UflT t
❑ Retail Customer Sales - $8,357,151
a Residential sales —
a Commercial sales -
Net Decrease in
$4,474,618
- $3,882,533
retail customer sales ($254,872)
❑ Contract Sales (3M & HTI) - $3,200,440
u Decrease in revenue from contract customers ($378,203)
❑ Other Revenues - $1,655,186
New Ulm Transportation Fees - $734,878
a Electric Division Transportation Fees - $651,700
Bond Premium - $185,608
a Interest Income - $50,000
Brownton operation/maintenance revenue - $33,000
Gas Division Revenues
2017 GAS BUDGETED REVENUES
Electric
Transfer,
New Ulm, $651,700,
$734,878, 5%
6%
Industrial, \
$3,200,440 ,
,U
Comm
$3,882,533 ,
29%
Other
Revenues,
Interest
$33,000,
Earnings,
0%
$50,000,
0%
Bond
_
Premium,
$185,608,
2%
Residential,
$4,474,618 ,
34%
2016 GAS BUDGETED REVENUES
Indu-= -A
$3,57
2E
Commer
$4,023,501 ,
29%
New Ulm, Electric Other
$730,636, Transfer, Revenues,
5% $647,166, $27,000,
5%� F0%
Interest
Earnings,
_
$57,500,
1%
Bond
Premium,
$185,608,
1%
idential,
$4,588,522 ,
33%
Gas Consumption History
1,800,000 Annual MCF's Sold by Class
1,600,000
1,400,000
1,200,000
1,000,000
800,000
400,000
200,000
C:
2008 2009 2010 2011 2012 2013 2014
Commercial a Residential Industrial sTotal
2015
2016 Proj 2016 Bud 2017
(Thru
Oct.)
,�,ACHINyg
0 Gas Division Expense Budget Highlights
�TlL171ES
❑ Benefit Premiums
13 Health Ins — ~ 13% dec., LTD, Basic Life & AD & D — slight decrease
o Dental 0% increase
Retail customer gas purchases — $4,102,910
Decrease in purchases of $58,988
Contracted customers gas purchases — $2.,679r314
Decrease in purchases of $373,543
PILOT —$367,131(2.75%)
Decrease in expense of $39,121
Additional Operating Expenses
BS & A Conversion - $56,786
2017 Rate Study - $10,000
a,`;'¢ Gas Division Expenses
2017 GAS BUDGETED EXPENSES
Depreciation
$1,008,000 ,
Debt 9%
Interest,
$735,100,
7%
Pilot, Operating
$367,131 , Expenses,
3% $419,255, Operating
4% Materials,
$276,913,
2%
Personnel
Costs,
$1,278,092 ,
r 12%
CIP
)gram,
0,509 ,
1%
2016 GAS BUDGETED EXPENSES
Pilot, Operating
Depreciation $406,252, Expenses,
0
$400,950 ,
$1,056,000 , 4% 3
Operating
Debt Interest, 9% Materials,
$781,500,
$242,050 ,
7% 2%
Personnel
Costs,
$1,259,800 ,
11%
Purchased Purchased
Gas, Gas,
$6,782,224 , $7,214,755 ,
62% 63%
IP Program,
$138,955,
1%
REVENUES:
Residential
Commercial
Contracted 1
NU TransRoi
Electric Divi
Other Revej
Interest Ear,
YEAR
ial
Transfer
TOTAL REVENUES:
EXPENSES:
2017 Gas Division Preliminary Budget
GAS DIVISION
2014 Actual 2015 Actual 2016 Budget
4,706,389
3,731,066
1,341,770
4,588,522
3,853,504
3,081,815
1.5%
4,023,501
6,066,290
3,110,620
7,214,755
3,578,643
808,575
776,164
Depreciation
730,636
700,000
641,833
1,008,000
647,166
244,212
269,932
605,176
212,608
14,860
15,978
(39,121)
57,500
Operating EiWense
660,168
588,908
781,955
16, 393, 830
11, 627.408
13.838.576
2017 Budget
4,4741618
3,882,533
3,200,440
734,878
651,700
218.608
50, 000
13,212,777
Dollar
Inc/(Decr.)
(113,904)
(140, 968)
(378,203)
4,242
4,534
6,000
(7,500)
(625,799)
% change
2016/2017
-2.49%
-3.50%
-10.57%
0.58%
0.70%
2.82%
-13.04%
-4.52%
Personnel Costs
1,274,037
1,341,770
1,259,800
1,278,092
18,291
1.5%
Purchased Gas
10,460,268
5,988,821
7,214,755
6,782,224
(432,531)
-6.0%
Depreciation
1,002,804
1,008,133
1,056,000
1,008,000
(48,000)
-4.55%
Transfers (City)
605,176
206,980
406,252
367,131
(39,121)
-9.63%
Operating EiWense
660,168
588,908
781,955
836,676
54,721
7.00%
Debt Interest
864,000
821,833
781,500
735,100
(46,400)
-5.94%
TOTAL EXPENSES: 14,866,452 9,956,446 111-500,263 111007,223 (493,039) -4.29°%
NET PROFIT/(LOSS) $ 1,527,378 $ 1,670,962 $ 203381314 $ 2,2051554 (132,760)
Hutchinson Utilities Commission
Questions?