Friday, August 24, 2018
August 28, 2018 EPB Meeting
8:02 AM | 
Posted by
Billy Ray |
TENTATIVE AGENDA
GLASGOW ELECTRIC PLANT BOARD
AUGUST 28, 2018, 6:00 PM
1. MINUTES OF PREVIOUS MEETING
2. ANALYTICS REPORT FOR MONTH OF JULY
3. REPORT ON SEPTEMBER 2018 FCA
4. CONSIDER CMTS UPGRADE
5. REPORT ON RATE DESIGN FUNDAMENTALS AND UPCOMING RATE CHANGE PROCESS
6. CONSIDER ETHICS/FRAUD POLICY
7. NEW / OLD BUSINESS / REPORTS
A. CPD CHARGE STATUS
B. EPB TEAM MASTER PLAN CHANGES
8. ADJOURN
MEMORANDUM
TO: Members of Glasgow
Electric Plant Board
FROM: William J. Ray, PE
DATE: 8/24/2018
SUBJECT: Board Meeting Information
Preamble
August has been a relatively calm month,
but for the frustration with making peak predictions – a very new science that
is far from easy. Still, we are looking good for August relative to peak predictions,
at least that is the case as this narrative is written.
The biggest difficulty this month has
been the harsh reality of the beginning of the exodus of so many key members of
the EPB team. We’ve said goodbye to Bill Anderson and Eric Bruton through
retirements, and Timmy Matthews due to an unexpected illness this month. The
coming months will result in many more departures. We are lucky to have
talented new folks to step into these roles, and those team members will bring
exciting levels of innovation to our mission, but seeing our old friends depart
still results in a great deal of melancholy. This is just another problem we
must deal with, and we are working hard to come up with new people ahead of the
departures, and we will continue that work.
The big agenda item this month continues
to be our retail rates, and how we need to change them to reflect our real
costs, the cost of the upcoming TVA wholesale rate change, and other changes we
face. As is the case lately, the meeting might be a bit long.
September 1
FCA
As we continue the third year of our retail
rate re-designs, September 1 will bring us a sizable drop in overall power cost
due to a decrease in the FCA. The FCA calculation always trails actual TVA fuel
expenditures by a couple of months, so September will see us getting a decrease,
due to the temperatures being right on predictions, and due to the ample cheap
hydro power available from the above-average rainfall this summer. The September
2018 FCA is going to decrease, to 1.668 cents per kWh. As usual, I am attaching
the narrative on the FCA from the TVA portal. On September 1, the energy
component of our retail rates will be adjusted to reflect this decrease to the
wholesale cost of energy.
CMTS Upgrade
The Cable Modem Termination System (CMTS) is the engine for our whole
internet access via cable modem business. This is the financial cornerstone to
the EPB balance sheet these days, as it produces more net income than even the
electric power business. It is the successful and growing internet access
business that allows us to provide the lowest cost cable television products in
the United States. I say all of this to underscore the importance of this
business and the need to keep its quality second to none.
We have traditionally found ways to increase the speed of our internet
access products each Christmas, and we believe that tradition should continue.
Increasing the speed of the cable modems, often requires upgrades to the CMTS
to facilitate higher speed offerings. We last issued debt to finance a major
CMTS replacement/upgrade in 2015. At that time, we purchased a complete new
CMTS and put most of our customers on the new core device, while using the
newly freed up older generation CMTS for a the remainder of the customers. This
approach is a classic redundancy philosophy, similar to the way we operate the
electric grid. Using redundant devices assures that a major equipment failure
would not bring the whole network to its knees, since the other CMTS would,
presumably, survive. That process allowed us to successfully upgrade internet
speeds in three more annual reconfigurations.
We are now facing the end of life for the older generation CMTS and it
seems the best move at present would be to purchase new cards and capacity for
the new CMTS. Once upgraded we can move all internet customers to it, and we
will be in a position to upgrade the speeds of our internet products by around
Christmas.
Now, that move violates our redundancy philosophy, so we need to increase
the support contract we purchase to cover disasters with the CMTS, to recognize
the new risk we will face by using only one CMTS. This will be far less
expensive than purchasing another CMTS. When we bought the new one we operate
now, the cost was $350,000. We have a proposal, through NCTC using the vendor
Motorola/Arris has assigned to all Kentucky internet providers, for new
hardware, software, and licenses that will accomplish our goals for the next
few upgrades. The cost of this solution is just over $41,000. A copy of the
materials list and pricing is attached.
At the meeting I will ask you to authorize me to issue a purchase order
to Advanced Media Technologies, finding that they are the sole source for the
components needed to plug into our existing Motorola/Arris CMTS, that their
proposed price is the best and only price we can get in Kentucky from the
vendor assigned by the manufacturer to sell these components in Kentucky. With
the order placed, we can begin our planning and marketing approaches for a
Christmas 2018 speed enhancement to our internet products.
Rate Design Discussion
for FY 2019
I will not go over all of the rate design slides, unless
you want me to do so, but 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’ll
continue the performance analysis of our present rates, and we’ll discuss the
path from where we are, over time, to reach the desired outcome of being
totally non-volumetric, with respect to the collection of our fixed cost
revenue, on our electric rate architecture.
As we discussed last
month, TVA is establishing a new rate mechanism. In short, they will start
collecting some of their revenue through a fixed charge (they are calling it
the Grid Access Charge), but there is a problem with that. They are not
actually charging us a new fixed charge! Rather, they are adding a new ½ cent
volumetric charge to our kWh purchases. Though this move results in a net zero
effect on our overall wholesale bill, it will look like a small increase to our
wholesale cost of kWh, which we pass along to our customers.
Further, we will need
to adjust the delivery adder to our kWh charge as it relates to the ratio of
fixed cost recovery vs. volumetric cost recovery, for the ratios you have
already asked me to report on. Each alteration to the customer charge, will
have a mathematical relationship to that delivery adder, and vice versa. When
you settle on the ratio you want to implement next, we will perform the
mathematics to report on how those two numbers will change.
At this meeting I will continue
the process of reviewing the mathematics relative to these issues, and how we
might proceed with recovering the damage done to our intended non-volumetric
retail rates, when we agreed to lower our Customer Charge by $5 per month and
create two new fixed charge tariffs. As we all know, this move was popular with
our critics, but the result has been the decay of our rate design, moving us
back in time. Since we made the changes in 2017, we have been moving away from the
non-volumetric rate architecture which the board found essential for the future
health of Glasgow. We will spend considerable time going over the percentage of
fixed cost collection which was planned in 2015, and how it has been altered
since then. We will have projected impacts of implementing the 60/40 and 70/30
ratios you asked me to examine. You will be asked to give us guidance on how to
proceed from that information.
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 toward the end of the year. 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 any potential retail rate adjustments each
October, in line with the TVA wholesale adjustments.
I look forward to
discussing this at the meeting.
Ethics/Fraud
Policy
We’ve kicked this proposed policy around a bit at the last couple of
meetings. I’m placing it on the agenda again for your consideration. If you
want our auditor to not criticize us this year for not having a fraud policy,
we need to adopt this, or something similar, before they complete the audit.
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. We knew we would make
some mistakes and miss some peak hours, and that has come to pass.
For most of the last year, the projected cost of mistakes, and the actual
cost of mistakes, have aligned well, but we got a bit behind by missing the
June, and July peak hours by a considerable margin. From October 2017 through July
2018, we have collected $85,888 to fund that account. Missed peak predictions
have cost us $74,643 during that period, so we have a positive fund balance of
about $11,244 at the end of July. June and July cost us a lot of what we had
accumulated, but as it stands now, assuming we have a win in August, it looks
like our guess at what misses would cost us in a year was very accurate. Hooray
for mathematics! 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. We talked
about this some last month, and I thought you might want to hear what progress
we have made since then. 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
Please let me know if
you have any questions before the meeting.
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