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Thursday, September 21, 2017

September 26, 2017 Board Meeting Information

SEPTEMBER 26, 2017

TO: Members of Glasgow Electric Plant Board
FROM: William J. Ray, PE
DATE: 9/21/2017
SUBJECT: Board Meeting Information
September has been a curiously mild one relative to weather in Glasgow, but certainly a violent one for our peers in Texas and Florida. As this is written I am most concerned with our peak predictions for September under the alterations we made to the Variable Pricing (formerly infotricity) rate. We agreed to limit ourselves to four days per month and to not bill anyone for CPD outside of the bandwidth of our predictions. That is an assumption of considerable new risk, and right now, this month has been really difficult to predict. So far this month, we have made only two predictions, and the one peak that is on the record was more than 10 mW below a normal September peak load for Glasgow. We still believe that September will produce at least a definitive day before the end of the month that will allow us and our customers to have confidence that the peak hour will occur that day.
Mainly, September has been spent dealing with numbers in order to meet the timeline we accepted to implement needed rate studies and adjustments prior to the October 1 TVA wholesale change. During the meeting, I will present what results are possible from our rate study and make recommendations. I also hope to find some time to talk about other matters that are essential to the EPB mission.
October 1 FCA
📷As we continue the second year of our new retail rates, October 1 will bring us another nice decrease in overall power cost, due to a decrease in the FCA. The October FCA will be, perhaps, the very lowest it has been in several years. Temperatures for August were mild with cooling degree days that were 11% lower than normal. Nuclear generation was 3% lower than forecasted due to an outage at Watts Bar Unit 2. More gas generation was used due to lower than forecasted natural gas prices. The October 2017 FCA is going to decrease to 1.707 cents per kWh, which will bring about a 0.2% wholesale kWh cost decrease. On October 1 the energy component of our retail rates will be adjusted to reflect this decrease to the wholesale cost of energy.
Rate Review and Rate Changes
The most difficult part of this meeting will be reviewing our rates and recommending slight retail rate changes, made necessary by the October 1 TVA wholesale rate change, and your July decision to alter some aspects of the coincident demand charge associated with our Variable Rate. We are prepared to present information relative to the change to the risk adder to coincident peak demand kW and to the incorporation of the TVA wholesale rate change. However, the time available to perform the full analysis of the effectiveness of our retail rates has been very short, and we request additional time in order to ensure correct and proper analysis for your final review.
Since the set of Variable Rates (RS, TGSA2, and TGSA3) is simply based upon passing the wholesale rate from TVA directly through to the retail customers, while collecting our fixed costs through a fixed customer charge, there is little reason to conduct a full review of those rates, but we are doing so anyway. The customer charge is the only real variable, and we are committed to conducting a full review of customer charges in order to implement the tiered charge recommended by the Advisory Council. That will be under construction over the next few months.
That leaves us with the “Fixed Rates” (TRS and TGSA1) to fully review for effectiveness and fairness. You will have plenty of opportunities to ask questions and make suggestions on how you think these rates might be improved upon.
When we discuss the change needed in the pricing of a kW of Coincident Peak Demand, which is only applicable to the Variable Rates, I will walk you through the risk we must finance in order to comply with the recommendation of the Advisory Council. The former Infotricity Rates and the structure of them was a perfect match of retail billing and wholesale costs. However, the Advisory Council requested that we limit our predicted peaks to a maximum of four per month, with a maximum of six hours on each peak day. Since Mother Nature is not always cooperative with this recommendation, we risk missing the actual peak hour. If we miss the actual peak under the modified Variable Rate, we do not collect enough revenue from our customers to pay TVA for the actual peak hour. The difference between what we collect and what TVA bills us for, is the risk that we must cover with a rate adjustment. Hopefully, the slides I have prepared for the meeting will help everyone better understand the problem and our recommended solution.
At the end of the discussion, I will be asking you to approve new tariffs for each of our retail electric rate classes, due to the Variable Rate change and the TVA wholesale change. We will need to revisit rates again in the coming months as we complete our analysis and as we work to incorporate the tiered customer charge as recommended by the Advisory Council (we expect the promised $5 customer charge reduction to the lowest tier of energy users to be incorporated into this process.)
Proposed Letter to City Regarding Agreement Proposed by Danny Basil
Ever since the City Council meeting on September 11,Jeff Herbert, Counsel for the Glasgow EPB, John David Cole, Counsel for the Board, and Danny Basil have been working to accommodate the request of the City Council for a Formal Agreement. I have been contacted by Counsel to assist on occasion in this process. This is a complicated matter because TVA is undeniably the regulator of all EPB electric rates. The agreement suggested at the City Council meeting would have had rate language in it that TVA simply would not allow to happen without many weeks of work and discussion with their Office of General Counsel. Since it was apparent that the City Council would prefer to move forward with this more expeditiously, counsel chose this option to handle the matter.
At the meeting the proposed letter will be presented for your review, comments and any action you deem appropriate.
Progress on Advisory Council Recommendations
Since you all have already been provided a summary of the findings and recommendations of the Council, I won’t repeat all here in their entirety, but will use shorter summary terms for each item. The information presented here will be repeated and expounded upon at the meeting for your consideration.
1. Tiered Customer Charge Based Upon Usage. This is the toughest one of the recommendations for us to make progress on, but we did discuss it enough to target a $5 reduction in the customer charge for the lowest usage “tier,” as recommended by the Advisory Council. I’m afraid that this decision has been misinterpreted by some as a promise to lower all customer charges by $5. The Council asked for a tiered customer charge with reduction for the lower kWh usage customers. That is the job we are working on as directed to my team at the August Board meeting. Additionally, TVA is going to start charging us a new wholesale customer charge, and since our present rate architecture collects all of the money we need to operate the grid from the customer charge, the base customer charge will have to cover this new expense. That is not even recognizing the possible $400,000 annual cost increase that Kentucky Retirement might saddle us with. A $5 credit would soften those increases and provide the gradualism, as we slowly reduce that credit over the next few years, but that credit will have to be funded by an increase somewhere else. Please remember, the EPB is a non-profit corporation which does not have the financial resources to simply reduce any charge without offsetting that reduction with an increase to another charge to balance the ledger. Our team will continue to develop the specifics of this recommendation and update you monthly on our progress with the goal to accomplish same as quickly as possible.
2. Revisions to Infotricity Rate. The requested revisions have already been implemented, effective August 1. The council asked us to limit our peak predictions to a maximum of 4 days per month. Accepting that recommendation causes us to move away from the technically elegant architecture of the former infotricity rate, wherein everyone pays their pro-rata share of the monthly peak hour, no matter when it occurs. The new limitations we accepted create risk of paying TVA for a peak hour which is not properly predicted and shared among all customers. That risk is monetary and we must create a fund balance to use when those missed predictions occur, because TVA must be paid regardless of the accuracy of our predictions. At this month’s meeting we will have information available to demonstrate the likely cost of missed predictions and the needed kW markup to fund this change.
3. Alternative Rate Considerations. This is one of the most unusual recommendations from the Council. The suggestion here is that we poll our customers (we assume just those actually using the Alternative Rate - TRS and TGSA1) to ascertain their interest in modifying the rate to introduce time-of-use elements to the rate. This feels odd because everyone we know that went to the Alternative Rate, did so because they sought the solace and simplicity of an old-style kWh rate with fixed kWh charges. We are still scratching our head about how to approach this, but, when we can be afforded a little time, we will get this done.
4. Improvement to RoundUp Product. The recommendation here was quite simple. We were asked to modify the product such that anyone interested in participating could choose a fixed amount to be automatically added to their monthly bill and then donated to Community Relief. The objective here seems to have been to gather more funds for the use of Community Relief, by increasing the amount donated by a participant beyond the sub-one dollar amount achieved by simple rounding up of the bill to the next highest even dollar. We found that the software could easily be adapted to do this and we have already accomplished this change. We still need to create marketing to better inform the customers of this change, and that is in process.
5. Annual Rate Review. The recommendation was that we conduct an annual review of the effectiveness of all retail rates, and recommend changes based upon that review. This is a great suggestion that is already on-going, in fact we are reporting on that review this month.
6. Expand Education Initiatives. This recommendation is the one which surprised us the most. The Council recommended that we use multiple media outlets and create a speaker bureau which would allow us to provide energy usage and savings advice to a wide variety of meetings and groups throughout Glasgow. Honestly, we felt we were already doing that, and, a lot of the feedback we have been getting has been negative as many folks feel they do not need to be educated. However, since we accepted this recommendation, and since you instructed me to redouble our efforts to educate our customers, we are on the case. We have already conducted, two full blown educational sessions lead by Jeff Christian, a former director from Oak Ridge National Laboratory, and someone considered to be an expert in the energy efficiency field. The event was heavily advertised with special arrangements for transportation via city bus and individual transport for those with transportation needs. Mr. Christian did a fantastic job speaking at the two forums on August 31, however, less than 30 total customers attended. Other educational efforts will continue.
2017 - 2025 Staffing Analysis
When time has allowed, I’ve been working on a new project that really deserves my attention...and yours. Although I haven’t had time to create a detailed set of graphics to represent the problem, I will be showing you a crude diagram at the meeting. That picture will show how various factors, not the least of which is the lack of trust in the Kentucky Legislature’s willingness to properly address the under-funding of the CERS retirement plan that we are legally required to participate in, may result in the retirement of 20 members of our 48 member EPB team over the next six years. That is a very conservative estimate. Many of the projected retirements might come a lot sooner if the legislature appears headed toward forcing employees to wait for their 65th birthday to retire.
This is a crisis, and it is going to require a lot of attention, and additional funding, over the next several years to solve. Beginning with this crude report, I will provide updates monthly on this vital issue. This will have to be a part of all of our discussions regarding rates and budgets. This exodus will take away team members with a cumulative 500 years of experience at operating Glasgow’s grid and the EPB’s business. I hope you realize how sobering that is and how sweeping the implications for the future of our community are should we not do this correctly.
SET Project.
The research portion of the project is going nicely and we are actively engaged in the preparations of the final report.
Kiosk/Night Drop Issues.
IT IS OPEN FOR BUSINESS AND IT IS BEING USED! Since it’s been in operation, it has handled 1,017 transactions and taken in a total of $35,072.61. Within the last month, it has handled 840 transactions totaling $30,893, with $13,000 of that being cash transactions and the balance credit/debit cards. When we see cars lined up, even before we open, we’re still being proactive and going out, attempting to move some of that traffic over to the kiosk. It seems like this is going to be a valuable improvement for our customers.
Post Harvey/Irma/Maria Operations.
The damage done to our nation’s electric grid by these two storms is immense, and we are already feeling the impact here. The poles, conductors, insulators, transformers, and other bits of line hardware are already becoming nearly impossible to get from our normal suppliers. The nation’s inventory of these goods is flowing toward Texas and Florida, leaving us to live off of the hardware we have in stock in our warehouse and on our trucks. This reality has resulted in our employing a strategy of hunkering down and trying to do grid maintenance work that is more labor intensive and requires less hardware. We want to conserve our inventory to allow us to respond to emergencies here in Glasgow, so our major line reconstruction efforts will go on hold until line hardware manufacturing and delivery recovers from the present crisis.
The only real damage we have seen from either of these storms locally has been lightning arrester failures after the 8.5" rain event. Those devices regularly cycle from 500 degrees and up (when they are discharging a lighting strike) down to ambient air temperature when they are on standby. These heat cycles cause breakdown of the rubber gasket material that separates their internal varistor elements from the insulating exterior. When large scale rain events occur, that compromised gasket material allows moisture into the varistor internals, and they explode. We’ve had a couple of those failures, and one of them caused an outage to our Dana Substation in the wee hours of the morning. Otherwise, we have escaped from these storms unscathed.