Blog Archive

Friday, February 23, 2018

February 27, 2018 Board Meeting





TENTATIVE AGENDA
GLASGOW ELECTRIC PLANT BOARD 
FEBRUARY 27, 2018, 6:00 PM

0.5 SWEAR IN NEW BOARD MEMBER


1. MINUTES OF PREVIOUS MEETING


2. ANALYTICS REPORT FOR MONTH OF JANUARY

3. REPORT ON MARCH 2018 FCA


4. REPORT ON RATE DESIGN FUNDAMENTALS 


5. CONSIDER FULL REPORT ON 2017 RETAIL RATE EFFECTIVENESS


6. CONSIDER RS AND TRS RATE CHANGES TO ACCOMPLISH $5        CUSTOMER CHARGE REDUCTION


7. NEW/OLD BUSINESS

A. RESPONSES TO AUDIT RFP - TURNED OVER TO CITY
8. ADJOURN



MEMORANDUM
                                                                                                                  
                                                                                               
                                                                                     
TO:                       Members of Glasgow Electric Plant Board                 
                                                                                               
FROM:                  William J. Ray, PE                 
                                                                                               
DATE:                  2/22/2018    
                                                                                                                  
SUBJECT:            Board Meeting Information                                          


                                     
Preamble
February is the shortest month of the year, but it finds us trying to accomplish a staggering array of objectives. We completed an expedited application for PEER certification at the behest of the Kentucky Energy and Environment Cabinet (we are waiting to hear on that application’s success), we completed the promised analysis of all of our retail rates (you’ll see all of that at the meeting), and we worked with TVA to get approval for the promised $5 customer charge reduction for the residential customers. That is a lot for one month, especially February!

We will welcome D.T. Froedge to the board this month. I will be prepared to do another rate design review, if anyone wants to hear it again. If not, we will jump straight into the many slides it is going to take to display the findings of our 2016 and 2017 rate effectiveness reviews. When this is done, and when you deal with our recommendations for the $5 customer charge reduction, our list of promises to the Advisory Council and the Glasgow City Council will be complete.

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!



March 1 FCA
As we continue the third year of our new retail rate designs, March 1 will bring us a large increase in overall power cost due to an increase in the FCA. The FCA calculation always trails actual TVA fuel expenditures by a couple of months, so March will see us all paying for the extra fuel TVA had to purchase to cover the demands of the extremely cold weather. The March 2018 FCA is going to increase to 2.175 cents per kWh, and that increase, when blended with our other wholesale costs, will bring about a roughly 4% increase in overall energy costs to us and our customers. As usual, I am attaching the narrative on the FCA from the TVA portal. On March 1, the energy component of our retail rates will be adjusted to reflect this decrease to the wholesale cost of energy.
         
Rate Design Fundamentals

Since we recorded that meeting and gave D.T. access to the recording, you all may feel it unnecessary to spend time on that material again. I am fine with that, but I will be prepared to delve back into the subject if anyone thinks it worthwhile.

Retail Rate Effectiveness
At the meeting we will present our findings on the effectiveness of our electric power retail rates for the last year. It is very clear that this sort of review needs to be conducted annually. We found some issues that have now existed for two years, simply because we didn’t get the chance to conduct the review after 2016 ended. We were consumed with the attacks on us, and the need to defend ourselves, during much of 2017, and that relegated the rate review to a lower priority. To complicate matters more, the board acted to create and offer an optional rate which created a new volumetric variable into the equation. As a result, two years elapsed before we got to accomplish the review.

It is not fair to ask board members to become rate design experts, so the presentations we will have at the meeting will not be highly technical. Rather, we will use graphics to illustrate the bottom line findings relative to each of our retail rates. This will still take a considerable number of slides, because we have six retail rates (not counting the outdoor lighting tariff) to review.

I will not be asking you to take action on curing the deficiencies we found in the analysis, yet. We still need to understand what the Kentucky Legislature’s pension reform decisions will do to our need for revenue, along with TVA’s decision on wholesale rates to become effective in October. Action on updating the rates in a way that will produce more revenue will have to come later in the year, when more of the variables are known. However, I do want you to see the kind of changes that will be necessary later in the year as you approach the decision that will be in front of you at the meeting – dealing with the last element of our agreement with the Advisory Council and the City Council – that of reducing the residential customer charge by $5. It is clear that you need to weigh these issues together so that everyone understands the likely flow of rate changes which will occur in 2018 if we are to meet our promises and respond to our fiscal realities.

The $5 Customer Charge Reduction
Last month we thoroughly discussed the tough question of where to collect the revenue necessary to provide the $5 per month customer charge reduction benefit promised in our agreement with the City Council. This month I will present an actual tariff, approved by TVA, to accomplish the directive you gave me at the January meeting.

After considering all of the options, you directed me to create, and seek TVA approval, for a tariff change to our RS and TRS rates, that would collect the revenue necessary to fund the reduction, from the same class of customers that will get the benefit. The vehicle we have chosen to accomplish that task is to increase the kWh adder for delivery by an amount sufficient to collect $5 more through the kWh charge from the average consumer in the RS and TRS residential rate customers. Copies of the first pages of the proposed tariff sheets, showing the proposed changes, are included at the end of this narrative.

The good things about this solution are that it collects the revenue from the same class that enjoys the benefit, so no cross-class subsidy is required, and very low kWh usage customers will pay in less than $5 but still get the full $5 reduction in customer charge.

The unattractive elements of this solution include the fact that this move adds even more volumetric risk to our rates (the very thing we recognized as a danger and took steps to eliminate) and, for customers who use higher levels of kWh, they will pay more in additional kWh cost than the $5 customer charge reduction that they will receive.

These good and bad elements of this decision seem to be necessary for us to finally accomplish each of the elements of the agreements we reached last year. We will discuss the details of this at the meeting, but if you implement the recommendation, everything is in place to effectuate this change on April 1.

To meet the new Kentucky law regarding municipal utilities, I will need to deliver a written report on the rate change to the City on the day after our meeting. Further, I will need to appear at the next meeting of the Glasgow City Council to give a verbal report on the rate change, although the council will not have the power to approve or disapprove of the change.
 

Reports
The Finance Committee of the City of Glasgow asked us to solicit proposals, using our usual RFP process, for an independent audit of Glasgow EPB for the next three fiscal years. We issued the RFP and got proposals from Alexander, Thompson, Arnold and from Carr, Riggs & Ingram. We forwarded those proposals to Brad Groce, the committee chair, and are awaiting their decision on the chosen firm.


Conclusion
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.








































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