Wednesday, June 20, 2018
June 2018 EPB Board Meeting
3:13 PM | 
Posted by
Billy Ray |
TENTATIVE AGENDA
GLASGOW ELECTRIC PLANT BOARD
JUNE 26, 2018, 6:00 pm
1. MINUTES OF PREVIOUS MEETING
2. ANALYTICS REPORT FOR MONTH OF MAY
3. REPORT ON JULY 2018 FCA
4. CONSIDER BI-ANNUAL WRITE OFFS
5. RECONCILE 2018 BUDGET AND CONSIDER 2019 BUDGET FOR SUBMISSION TO STATE
6. REPORT ON RATE DESIGN FUNDAMENTALS AND UPCOMING RATE CHANGE PROCESS
7. CONSIDER RULES AND REGULATIONS CHANGE
8. COMPREHENSIVE CUSTOMER SERVICE REVIEW INPUT
9. NEW / OLD BUSINESS / REPORTS
A. CPD CHARGE STATUS
B. SAFETY REPORT
C. EPB TEAM MASTER PLAN CHANGES
10 ADJOURN
MEMORANDUM
TO: Members of Glasgow
Electric Plant Board
FROM: William J. Ray, PE
DATE: 6/21/2018
SUBJECT: Board Meeting Information
Preamble
June has been a relatively calm month,
but it has also had its share of difficulty. The extremely hot weather,
personnel retirement/transition issues, and difficult issues relative to rate
transition have all been frustrations this month. I’ve presented our lessons
learned relative to non-volumetric rate design to a couple of seminars, and
there is great interest in the LPC community. We’ve been hammering away at our
plans for the electric retail rate change that will be necessary for the fall,
including the implementation of the TVA rate change that you considered last
month. As I’ve said before, you will see rate matters on the agenda each month
for the remainder of the year.
We’ve got a couple of issues relative to
bad debts and our need to get proper deposits/security from customers before
setting up accounts for them, that will dominate the agenda. These matters are
always of importance to us as a business. The meeting might be a bit long, so
try to grab a snack before you arrive. Now, let’s move on to this month’s
agenda!
July 1 FCA
As we continue the third
year of our new retail rate designs, July 1 will bring us a very small 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 July will see us getting
a small increase, due to the record May heat and the increased fuel
expenditures to meet that demand. The July 2018 FCA is going to increase very
slightly, to 1.892 cents per kWh, and that increase, when blended with our
other wholesale costs, will bring about a roughly .1% 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 July 1, the energy component of our retail
rates will be adjusted to reflect this increase to the wholesale cost of
energy.
Bi-Annual
Bad Debt Consideration
Twice a year we ask you to consider moving the un-collectible accounts
for the last six months, into the written-off column, from an accounting
perspective. This does not mean that we are giving up on collecting these
amounts. It just means that these accounts will no longer clog up our system by
being treated as active accounts.
As you will see in the attached listing of proposed accounts to be
written off, these accounts present a very significant annual expense of about
$110,000. This being on the agenda for June also gives us the chance to
consider the bigger issue of bad debt, and the need for more security to
protect the EPB customers who live up to their obligation to pay for what they
use, from having to shoulder this cost. This expense is completely without
value to most of our customers, as it does not finance additional equipment or
manpower that may provide enhanced reliability of our services. To the
contrary, this expense, and the overhead costs associated with pursuing payment
of these debts, puts upward pressure on the rates paid by all EPB customers,
while taking manpower away which could otherwise be used to make happy
customers.
It is in this context that we have a proposed change to our Rules and
Regulations later in the agenda for this meeting. However, at the meeting I
will recommend that you allow us to classify the attached list of accounts and
amounts as written off, even though we will continue to vigorously pursue
collection of these amounts.
2018 Budget
and 2017 Budget Reconciliation
A few years ago, the Kentucky Legislature passed a
law that was designed to reign in and hold accountable the many small political
boards, commissions and non-profits in the state. Municipal corporations, like
EPB, got caught in that net as well. Shortly thereafter, the Kentucky
Department of Local Government (the agency assigned this new regulatory role)
decided that they could not possibly provide the very extensive oversight
suggested by the law, so they modified their requirements considerably,
especially the ones applicable to Glasgow EPB.
One of the requirements that remains is that we
submit an annual budget using their format, and that we always modify the
budget before the end of a fiscal year such that no budget categories finish the
year in the red. To that end, at the meeting we will present proposed budget
amendments for FY 2018 and we will present a recommended budget for FY 2019,
using their budget template.
It is likely this can be accomplished relatively quickly
to remain within compliance as dictated by the law. Copies of the various
required exhibits will be available at the meeting.
Rate Design
Fundamentals and the TVA Wholesale Changes
While I will not go over all of the rate design slides,
unless you want me to do so, we will spend some time discussing the variables
that are being solved relative to the equation for our needed retail rate
change for later this year. The elements of the rate change we will recommend
to you later in the year include:
·
Increased fixed costs due to three-year lapse since last design of retail rates.
·
CERS increased cost, which will not be as large as we feared thanks to the
Kentucky Legislature overriding Gov. Bevin’s veto of a bill which allows the
CERS agencies to limit their annual contribution increases to a much smaller
amount.
·
TVA wholesale rate
change, as we have already
discussed. The main issue here is how we account for the wholesale changes in
our retail rates.
·
Implementation of
gradualism, in
our process of removing delivery charge markup to kWh and moving the remaining
fixed cost revenue collection to the Customer Charge, as we initially
envisioned. There are also considerations about the optional fixed rates we
created in 2016 that need to be addressed.
·
Additional personnel
cost, as
we have discussed, to recognize the cost of hiring and training new personnel
to replace numerous upcoming retirements.
·
Capital projects, and the Board’s vision
of how aggressively EPB needs to move in upgrading the resiliency of the EPB
grid.
This month we will
mainly be discussing the increased fixed costs we are experiencing since we
designed our variable rates in 2015. While it would be pretty simple to just
adjust the customer charge to reflect updated costs, there are other
complicating factors.
As we discussed last
month, TVA is establishing a new rate mechanism. In short, they want to start
collecting some of their revenue through a fixed charge (they are calling it
the Grid Access Charge) while reducing their kWh charges, resulting in a
net zero effective rate increase. The TVA Board approved this plan at their May
board meeting, and now it is up to each LPC (Local Power Company) to decide how
to pass this new wholesale architecture along to consumers, so that has to be
incorporated in our plans.
At this meeting I will continue
the process of reviewing the mathematics relative to these issues. My team is
working closely with TVA to make sure that our calculations, and our upcoming
recommendations to you, are in line with what TVA feels they can approve. This
process will likely continue through September when we should be ready to
present recommended changes to each of our tariffs for your consideration.
TVA has informed us
that the crush of LPCs who will also be making changes to their retail rates,
has eclipsed their capability to approve them for October 1 implementation, so
our change will likely need to fall on November 1 or December 1. We’ll just
have to see how the design and approval process goes for the next few months. After
this year, we will need to conduct this review annually in July and August, such
that we get into a pattern of retail rate adjustments each October, in line
with the TVA wholesale adjustments.
I look forward to
discussing this at the meeting.
Rules and
Regulations Change Relative to Deposits/Security
As discussed above, we’ve had an unusual amount of problems of late
relative to securing proper deposits (or other security) relative to new
commercial accounts. Some of the problems come from customers who just do not
think they represent a risk to EPB and should not be asked to provide security.
Other problems might be related to the language in our Rules and Regulations
that could possibly be clearer on the distinctions between residential deposits
and the security necessary to protect EPB customers from larger losses
associated with commercial accounts. It is the latter that we feel you should
consider addressing.
Working with TVA’s regulatory staff, we drafted the following suggested
changes to our Rules relative to deposits (underscored words are to be
inserted, while stricken through words are to be deleted:
2. SERVICE
DEPOSIT -
A deposit, or suitable security guarantee, approximately equal to
twice the estimated average monthly bill, shall be required of any Customer before service
is supplied. Deposits are based on several factors and may vary with the class
of customer being served and the financial risk to EPB attendant thereto.
However, the amount of the deposit for Residential Customers only, may be
reduced based upon the results of a credit check on the customer/customers
wishing to establish an account.
For Residential Customers – Deposit requirement will be based on
such factors as credit rating, credit history, and/or old balances owed to EPB
from previous accounts left unpaid by Customer or resident. Customers applying
for residential services will be subject to an online credit check when
applying for service, providing one of three results:
- Excellent credit will require no deposit.
- Average credit will require a deposit equal to a one-month average electric bill.
- Poor credit or no available credit history will require a deposit equal to a two-month average electric bill.
- Excellent credit will require no deposit.
- Average credit will require a deposit equal to a one-month average electric bill.
- Poor credit or no available credit history will require a deposit equal to a two-month average electric bill.
For Commercial and Industrial Customers – Deposit requirement will
be based on such factors as demand and energy load projections, previous
business history and/or billing history for similar businesses. Deposit
amounts shall be determined by EPB so as to provide security equal to the EPB’s
estimate of two-month cost of electric service to a business based upon any and
all data available to EPB for its use in establishing the risk to EPB, and its
customers, resulting from non-payment of amounts billed to the account.
- Excellent credit will require no deposit.
- Average credit will require a deposit equal to one-month average electric bill.
- Poor credit or no available credit history will require a deposit equal to a two-month average electric bill.
EPB may, at its option, return deposit to a the Residential Customer after one year or at any time EPB deems appropriate, otherwise,
Residential deposits will be held until account is terminated. Deposits shall earn annual non-compounded interest at a rate, adjusted
annually, to equal the published rate on the first business Monday each year on
One Year U.S. Treasury Obligations. Interest will continue to accrue and is
prorated if Customer leaves after anniversary date. Interest will be credited
annually to the account on December 31. However, upon demand by the Customer,
interest which has accrued through the anniversary date of deposit will be paid
at any time during the following year. Deposits may be returned based on
excellent payment history of twelve (12) months; otherwise, entire deposit will
be held as security. The Customer’s deposit balance, including earned interest,
is subject to review by the Customer and the EPB.
Commercial
Customer Deposits will be held until account is
terminated. Interest will accrue until that time. The EPB may require any
Customer to increase their deposit if the Customer becomes delinquent, if their
credit report indicates greater risk to EPB, or if inflation or increased use
of service has caused the deposit to be less than adequate to provide proper
security for EPB. Alternatively, should actual energy usage reveal that a Commercial
Customer’s Deposit is greater than needed to provide EPB the two-month’s bill
security level required, Customer may request, and EPB may grant, a reduction
in the required deposit and a corresponding alteration of the power contract
between EPB and said Commercial Customer, including a refund of the amount held
in excess of that which is determined to be necessary.
We can discuss this fully at the meeting, but this general direction will
be my recommendation (and that recommendation has already been tentatively
approved by TVA). Pay particular attention to the highlighted word in the first
sentence. Deciding whether you want “shall” there or, alternatively “may” will
determine whether you want my team to have any flexibility on this matter or
not.
Comprehensive
Customer Service Policy
This item is on the agenda just because I said it would be here last
month. You will recall that I submitted a proposed Customer Service Policy
document and asked you to review it. If you have comments or suggested changes,
please let me know about them at the meeting. I want to get this policy
document ready to publish as soon as possible.
Reports
Safety Report. I will review our latest Workers Comp modifications at the meeting. We
were really doing well and our W/C cost was decreasing each year, but the last
fiscal year included a couple of expensive accidents that will cost us. I’ll
have more detail at the meeting.
CPD Charge Reserve Fund
Status. Last year, when we agreed to limit peak prediction
days to four per month, while stipulating that customers will only pay for
their demand which is coincident with the highest system peak hour during one
of our predicted hours, we were forced to establish a kW demand markup over the
TVA wholesale cost, to accumulate funds to use when TVA bills us for a peak
which is higher than one we are billing our customers for. We knew we would
make some mistakes and miss some peak hours, and that has come to pass.
So far, the projected cost of mistakes, and the actual cost of mistakes,
have aligned well. From October 2017 through April 2018, we have collected
$55,704 to fund that account. Missed peak predictions have cost us $48,765
during that period, so we have a positive fund balance of about $7000 at the
end of April. I will keep you posted regularly as this fund moves toward a full
year of experience.
EPB Team Staffing
Master Plan. I want to review the situation with
retirements/resignations and our long-term staffing plan with you. It has been
a few months since we discussed this, and things have gotten a bit worse since
our last review. A couple of retirements of critical staff members have been
moved closer, and a surprise resignation happened, so our hiring plan has been
moved forward as well. I’ll have an updated chart at the meeting.
EPB Version 4.0. Inspired by the process of PEER certification, I’ve challenged the team
to make steady progress toward the 4th iteration of Glasgow EPB. The
first version of our utility encompassed the totally analog format that existed
from 1962 until 1988, when we became an electric power and cable television
utility. Version 2 (electric/cable television) lasted until 1996 when we added
internet to our offerings and began to transform the broadband network to
support a wide variety of services as well as all electric power telemetry. We
entered Version 3 when we implemented cost-based electric rates that are
designed to make the local grid sustainable.
Looking forward to Version 4.0, we will be using everything we learned
and implemented since 1962 to transform the resiliency and reliability of our
services. We can now support truly rare and advanced technology that will begin
to make our grid smart and self-healing. We are ready to begin the process of
installing technology that will recognize fault conditions on our grid, and
isolate those faults to a small area, while redirecting power to the un-faulted
line sections so as to maintain service to more customers, during and after
grid damaging events. This new version of EPB will not arrive quickly. Rather,
it is a direction that might well take the next decade to fully implement, but
I am excited about sharing these new concepts and potential direction with you
at the meeting.
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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