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Friday, October 20, 2017

October 24, 2017 EPB Board Meeting

OCTOBER 24, 2017

6:00 PM














TO:                       Members of Glasgow Electric Plant Board                 
FROM:                  William J. Ray, PE                 
DATE:                  10/19/2017  
SUBJECT:            Board Meeting Information                                          

October has been an unusually warm month, relative to weather in Glasgow, which put us back in a summer mode as we looked for the peak day/hour. As this is written I am quite confident that we have already successfully predicted the peak hour for October, doing so easily within the four days we allotted ourselves under the altered rate schedule. So far this month, we have made only three predictions, and the one peak that is on the record, occurred on one of those days.  

Otherwise, October has been spent dealing with numbers as we continue to study the effectiveness of the TRS and TGSA1 rates, as well as considering various configurations of rates that would allow the $5 customer charge reduction for some customers. We’re also working on our plans for internet service speed upgrades at year end. During the meeting, I will present what results are possible from our rate study for your review . I also hope to find some time to talk about other matters that are essential to the EPB mission.

November 1 FCA
As we continue the second year of our new retail rates, November 1 will bring us another increase in overall power cost, due to an increase in the FCA. The November FCA will be higher than the last few months, but still 9% lower than the average for the last three November periods. Even though September temperatures were mild, TVA energy sales were slightly higher than normal, which contributed to higher fuel costs. Nuclear generation was higher than forecasted due to Watts Bar Unit 2 availability. More gas generation was used due to forced outages and hydro generation was 17% lower than anticipated due to dry weather. The November 2017 FCA is going to increase to 1.864 cents per kWh, which will bring about a 2.2% wholesale kWh cost increase. On November 1 the energy component of our retail rates will be adjusted to reflect this increase to the wholesale cost of energy.

Independent Audit Report
The professionals with Carr, Riggs & Ingram will be with us this month to deliver their report on the annual audit of our finances, procedures, and controls. This report is based on facts gleaned from having a team of licensed accounting professionals review all of our financial records over the last year. After your review, this report will be presented to the City in an upcoming meeting wherein I will report on the year’s EPB activities. The report will also be posted for all to see on our website. The report will be delivered by one of the firm’s partners, Lanny White, and you are encouraged to ask any questions of him that concern you about EPB’s financial operations.

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 our progress with 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.

Vehicle Replacement Bids
A few weeks ago, one of our vehicles was severely damaged by an oncoming car that turned in front of Bill Anderson. Thankfully, Bill wasn’t hurt, but the vehicle was totaled. The damaged unit was a small SUV that is used by several departments for a variety of purposes. We considered replacing it with an electric vehicle, just so we could start gaining experience with them, but the likely price differential caused us to pause on that idea.

Instead, we wrote specs for a standard vehicle and solicited bids, which were opened and read aloud on October 16. Here is what we got:

Gillie Hyde
2018 Ford Escape
Gillie Hyde
2018 Ford Edge
Gillie Hyde
2018 Ford Explorer
Bailey Gibson
2018 Buick Encore
Bailey Gibson
2018 GMC Terrain
Goodman Chevrolet
2018 Chevrolet Trax

With vehicles like this it is always tough to figure out just which one presents the best value per dollar spent, since the vehicles are not identical. That is certainly the case with this one as the Ford Escape and the Chevrolet Trax are within $300 of each other

TVA Contract Amendment
Over the last year TVA’s regulatory folks have taken a great interest in the way the LPCs, like Glasgow, rent space on their poles to other utilities. We call this arrangement “joint-use” and it is an old and successful formula that allows streets to only have to accommodate one set of poles with several different sets of conductors on those poles. It is economical fiscally and reduces clutter in front of our homes and businesses.

Though tried and true, TVA feels the need to make sure all LPCs are consistent with the way they conduct joint-use arrangements with other utilities. At the meeting you will be asked to consider an amendment to the power contract between Glasgow EPB and TVA, which clarifies TVA’s regulation of joint-use agreements and our acceptance of same. A copy of the proposed amendment is included in your board package and will be available at the meeting.

2017 - 2025 Staffing Analysis
When time has allowed, I’ve been working on a new project that really deserves my attention...and yours. As shown at the last meeting, the report will outline 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 conservative estimate. Many of the projected retirements might come a lot sooner depending upon the legislature’s actions in the coming months.

This is a matter of great concern, and it is going to require a lot of attention, and additional funding, over the next several years to solve. I will provide updates monthly on this vital issue, which 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.

One opportunity that will come from this process will be to change the exceedingly flat architecture of the EPB organizational structure. Over the years, in the interest of lower operating costs, I have maintained an organizational configuration that resulted in nine staff members reporting directly to me. While economical, that is too many direct reports for one Superintendent. One of my first moves as we look at the retirements in 2018, will be to begin to combine departments and reduce the number of staff-level folks. We’ll discuss that in more detail in December as we look at a salary budget for 2018, because some of these changes need to begin to happen immediately.


            SET Project.
            The research portion of the project is going nicely and we are actively engaged in the preparations of the final report, which is due in a couple of weeks. One issue that remains is how we are going to handle controlling the SET hardware post-project. The Virtual Peaker software that we use to manipulate the devices is not free. We are meeting in the near future withTVA and TVPPA in hopes of partnering with them to further develop VP such that it gives feedback to the customers who are enjoying the benefits of the VP control of their devices. We will report next month on the outcome of that meeting. Our theory is that, once people have a better understanding of what VP is doing for them and how much money they are saving, we will be better able to market the service as a fee based offering.

            Kiosk/Night Drop Issues.
            IT IS OPEN FOR BUSINESS AND IT IS BEING USED! Since it’s been in operation, it has handled 1,956 transactions and taken in a total of $68,419. Within the last month, it has handled 1,048 transactions totaling $38,002 so it is growing in popularity very quickly. 

            Retransmission Consent/Cable Rates Issue.
Every three years we are faced with “negotiating” terms with the television broadcast stations that we carry on our cable service. 2017 is one of those years and we have until December 31 to decide which stations we can carry based upon their asking price for retransmission rights.

This is a very complicated transaction. The stations in Bowling Green are in our Dominant Market Area (DMA) and they have been granted outrageous powers by the FCC and our Congress. WBKO and WNKY can force us to either buy their ABC, CBS, NBC and Fox programming, or not have it at all. That’s right, we cannot even decline their asking price and buy the programming elsewhere. The laws say we buy it from them, or we do without.

As we have come to expect, both WBKO and WNKY are demanding substantial rate increases for the 2018-2020 contract period. The Cable Television Programming Committee is considering a very tough decision relative to the increases demanded by the stations within our DMA and the other stations we normally carry from Louisville and Nashville. It is pretty simple, but still daunting. If we keep all of the broadcast stations we have right now and combine their rate increases with the increases already in place for the dozens of other programmers in our various cable tiers, our programming costs will increase by nearly $11 per month per subscriber. Of course, we would have to pass that along to all customers. If we drop all broadcast stations except for those representing the major networks in Bowling Green, our increase will be $3.50 per month per subscriber. Neither option is attractive.

The amount of money Glasgow already sends to broadcast stations is staggering. This year we will pay right at $1 million to the five broadcast stations we pay for now. With the increases they are all asking for, if we kept all five we would pay out $5 million over the next three years to those five businesses. Even if we drop the Louisville and Nashville stations, we will be sending WBKO and WNKY over $1 million per year over the next three years for network programming and local news programming that can only be described as less than what we are accustomed to from the Nashville and Louisville stations.

You will face the Programming Committee’s recommendations in the November and December meetings, and whatever they recommend, this is going to be tough for our customers to be happy with.