Blog Archive

Friday, January 19, 2018

January 23, 2018 Board Meeting

JANUARY 23, 2018










We begin another year with much the same intensity that we’ve maintained over the last two years. Though it would be nice to settle in for a bit and give our newer board members more time to learn more about our work, that peaceful period just isn’t in the cards right now. This month we have been battling Mother Nature, and changes to our cable television lineup, right along with our work to accomplish the terms of our agreement with the Advisory Council and the City Council, and all of these tasks have been quite difficult.

We are doing the annual review of the effectiveness of our retail electric rates and working to present them to you, along with recommendations on how to also achieve the $5 reduction to some Customer Charges, at this meeting. While it would be nice to wait for D.T. Froedge to arrive before we delve into that, the schedule, if we are to accomplish this by April, is unforgiving. We need to go over this in January, present actual, fleshed out, rate designs in February for your approval, and then get a number of TVA required tasks completed before April 1. There is no slack time in the schedule.

The meeting might be a bit long, depending on the level of questions that you have about my rate presentation, so try to grab a snack before you arrive. Now, let’s move on to this month’s agenda!

February 1 FCA
As we continue the third year of our new retail rate designs, February 1 will bring us a small increase in overall power cost due to a small increase in the FCA. Since energy sales have been off slightly (that will change dramatically when January is accounted for), compared to what TVA anticipated, and hydro generation was considerably lower than anticipated, fuel costs were a bit higher, and that is the root cause of the smallish FCA increase. The February 2018 FCA is going to increase about 0.5% to 1.844 cents per kWh. As usual, I am attaching the narrative on the FCA from the TVA portal. On February 1, the energy component of our retail rates will be adjusted to reflect this increase to the wholesale cost of energy.
Report on iPay Matters

The product delivers these benefits to the customers, and EPB benefits as well. The progress we have made of the last couple of years in reducing our bad debts written off is largely attributed to the iPay product reducing our exposure. However, weather events like what we have experienced this month, threaten to decrease the benefits we are getting from the creation of the iPay product.

We will discuss this more fully at the meeting, but issues have arisen due to the very nature of the pre-pay product. According to the rules we set forth for the product, the customer accepts full responsibility for monitoring their credit balance on their account. They accept the terms which include automatic termination of the services covered by their iPay account, whenever the balance in the account falls below zero. Obviously, this is the nature of pre-pay, and it is the only way that EPB can hope to protect its fiscal status when there is no deposit held with respect to an account. If one is on pre-pay, and they do not pre-pay to purchase their services, then the services are terminated.

The severe weather has brought many surprises to many of the iPay users. First, their energy usage has been dramatically higher, requiring more money deposited to the accounts to maintain a positive balance. Next, even though we strongly advise customers not to do so, many come by nearly every day to place a small amount of money on their account. When road conditions are such that these daily visits become impossible, they are faced with a negative balance on their account, which, by our rules and their agreement, results in service termination. If the weather is frigid, those terminations could have many negative results to health and property.

Though we have stepped in many times over the last two weeks to keep services active, even though the customers have agreed to automatic termination, we are breaking our own policies and exposing our other customers to new bad debt risk. While we understand that one side of this problem is a simple monetary one, we also recognize that the other side of the issue deals with health and welfare of many customers. There is no clear proper response to the conditions that have developed this winter. We can discuss this further during the meeting.   

Programming Committee Member Replacements
The terms of Terrell Alexander and Beverly Vance expire at the end of January. Terrell is finishing his first full term. Beverly was appointed to fill the unexpired term of Janice Crenshaw, so she hasn’t served two full terms yet. The board has been limiting these appointments to two full terms, so you have some options, and, of course, the two full terms limitation is one previous boards have created and can be modified. Both of these folks have been great members of the committee, but you should be pondering their replacement, or reappointment now.

Retail Rate Effectiveness and the Path to the $5 Customer Charge Reduction
The only recommendations of the Advisory Council, empaneled last year to come up with recommended changes to EPB’s policies and retail rates, which have not been addressed are on the agenda this month. We finally have sufficient data to complete the first annual recommended analysis of our retail rates. We are also now able to make recommendations on how to implement the requested $5 reduction to the Customer Charge for low kWh usage residential customers. The discussion of these two matters will be somewhat lengthy and detailed.

I will start the discussion by giving everyone a refresher course on retail electric rate design, and the forces acting upon Glasgow that led the board to approve our sweeping rate changes two years ago. I have new graphics that should help refresh the experienced board members and help the newer members catch up on what transpired.

After the refresher, we will move into the review of the effectiveness of the existing retail rates. This will satisfy one of the Advisory Council recommendations and it will also provide a good foundation for recommended adjustments to our rates that should be before you at the February meeting.

Finally, we will use the refresher course and the presentation on existing rate effectiveness, to open the discussion on methods that might be used to produce the $5 Customer Charge reduction. This is the last outstanding Advisory Council recommendation that we have yet to address, and it is one of the toughest. Since we are a not-for-profit municipal corporation, we cannot simply finance a benefit, that will cost about $30,000 per month, by reducing dividends to stock holders. Rather, we will have to harvest that $30,000 per month from somewhere else to be able to provide the $5 reduction to all residential customers.

So, the tough question before you will be the decision on where to collect the revenue necessary to provide that benefit. Should we raise some rates to commercial and industrial customers and use that to provide benefits to the residential customers? Should we, instead, adjust residential energy rates so as to collect an average of $5 more from each customer so that money can be used to reduce the Customer Charge?

The third part of the presentation will attempt to allow you to see the impacts of these options, so you can render a decision on which route you feel is best for us to pursue. My team will have a lot of work to do after your decision, as we will need TVA approval, and I will have to present our recommendation to the City Council as well. We want to get all of this done such that we can make whatever changes you deem necessary for implementation on April 1. That means every day will count throughout the upcoming months.

Progress on Advisory Council Recommendations
This seems a bit redundant since many of the paragraphs above already deal with this subject, but just to keep our consistency on including this in our discussion until all items are completed, here it is. 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. As discussed extensively above, we are about to address this item.

2.         Revisions to Variable 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.

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. Still, we agreed to pursue each of the recommendations, so we sent out first class mail survey to about 1,500 folks on the alternative rate. We got the forms back from 14 customers. Most of those responses asked for the alternative, or “flat” rate, to be altered by adding a time-of-use element to the rate. As a result of this response, I believe we can count this recommendation as satisfied and that the rate design, as it stands, is preferable to an overwhelming majority of those using it.

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. This month we will have a presentation on rate effectiveness based upon data from 2017 consumption and billing.

            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.

Insurance Package Rate Stabilization Offer
We have been buying our Workers’ Compensation and General Liability insurance coverage from Kentucky League of Cities for several years. Every so often we have solicited competitive bids for our coverage, but we have never gotten a competing offer that was attractive compared to the coverage and the service we get from KLC (they are represented locally by Pedigo-Lessenberry).

Recently they made an offer to effectively freeze our rates until 2020 if we enter into an agreement with them to stay with them for two more years. We are inclined to recommend that we accept this offer. The down side would be that if you decided to direct me to write specs and solicit competitive bids again, we would not be able to do that until 2020. I look forward to your thoughts on this matter at the meeting.


Well, that ought to be more than enough to set your head to spinning for this month. Let me know if you have any questions before the meeting.