Red, Blue, & Green: September 25, 2018, EPB Board Meeting

September has been another calm month for the EPB team. The weather has been quite normal and non-violent. As this is written, we’ve only had to issue a peak demand prediction on two days, and those predictions were accurate, so we are looking good for September relative to peak predictions. We hope this will continue through the balance of the month.

The task of making decisions about reorganizing the team in the face of numerous retirements continues. So far, the folks we have given new responsibilities as a result of these changes, are doing a great job and making big improvements. I am optimistic that this result will continue, but that is not to say that we are not missing the team members who have left. We’ve got several more departures coming in the next few months, so this project will continue through 2019.

The big agenda item this month continues to be our retail rates, and how we need to change them to reflect our real costs. Our agreement with the Advisory Council last year dictates an annual review of our rate effectiveness, and that task is ongoing. The matter reaches peak complexity this month as we will discuss the upcoming TVA wholesale rate change, and how we need to accommodate that along with the other changes we face. As has been the case lately, the meeting might be a bit long.

October 1 FCA

As we move toward the completion of the third year of our retail rate re-designs, October 1 will bring us an 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 October will see us getting an increase, due to the temperatures being higher than predictions, and due to the greater than anticipated power purchases from neighbors during August. The October 2018 FCA is going to increase, to 1.836 cents per kWh. As usual, I am attaching the narrative on the FCA from the TVA portal. On October 1, the energy component of our retail rates will be adjusted to reflect this increase to the wholesale cost of energy.

Old City Dump Property

A decade ago, when we were looking for a site for our second TVA delivery point, we thought the site of the old city dump would be perfect. The City agreed and transferred the property to us. We then engaged an engineering firm to do an analysis of the site. The analysis uncovered environmental issues that were far worse than we anticipated, so we built East Glasgow Primary Substation nearby, on a piece of property we acquired from a private owner.

Though we ultimately didn’t use the property, we still wound up owning it, and all of the issues attendant thereto. We really haven’t done anything with, or even really thought about the property for many years, until we got a call about it a couple of weeks ago. It seems that the Commonwealth has engaged an engineering firm to study old trash dump properties like this because there are monies available to clean up some of these sites. The engineering firm is tasked with considering the many properties and making recommendations to the Commonwealth regarding which sites might best make use of the available funds. We certainly want to cooperate with this effort, because if we can get the site remediated with grant funds, we might well find a use for the site in the future.

Attached to this narrative is a copy of an agreement which would simply grant access to the site for the engineering firm to study it. We have already given them copies of the site environmental analysis we had done a decade ago, and, in the interest of time, I have already executed the access agreement. At the meeting I will ask you to ratify my previous execution of the agreement.

Default TVA Approved Retail Rates for October 1

As if this whole retail rate matter were not complex enough, and since TVA’s wholesale rate change for October 1 does not align with our time line for recommending a change to our retail rates, we need to implement TVA stipulated retail rates to accommodate only the TVA wholesale change, this month. The changes to our tariffs are very minor, only enough to cover the TVA 1.5% increase and a couple of other procedural changes, but you need to officially approve them, so we can get the billing system ready for October 1.

I am sorry this is so complex, but TVA is in charge of this, and they will also be in charge of considering the combined retail rates that we are likely to propose after your consideration of them later in the meeting. This extra step is really just the result of TVA’s implementation of their wholesale rate changes a couple of months before they can address our proposed local changes to retail rates. I am attaching the tariff sheets proposed for October 1 to this narrative. I don’t want to clog up the meeting PowerPoint presentation with another set of tariffs for you to review.

Rate Design Discussion for FY 2019

This month we will examine all six of our rate tariffs, in great detail, in the hope of arriving at concrete proposals you are comfortable in submitting to TVA for final approval. This action is a result of our first full review of rate effectiveness since 2015, when we designed and implemented the infotricity rate structure. Last month we examined four tariffs in detail, and you gave me directions on how to structure the proposed changes for your review this month. This month, we’ll examine the results of the directions you gave me; and discuss any further modifications you might want me to investigate. Of course, we have a total of six tariffs (seven counting Outdoor Lighting), and we will have to grind our way through all of them this month, but I think you will find the analysis we’ve completed very interesting. I hope that I can present it all in a clear fashion so that you are comfortable with making these important decisions.

I will not go over all of the rate design slides, unless you want me to do so, but we will spend time discussing the variables that are being solved relative to the equation for our needed retail rate change for later this year. I also look forward to hashing out the issues relative to volumetric rates and the remaining volumetric components of our retail rate offerings. We decided in 2015 that EPB must move completely away from volumetric rates, due to steadily declining sales and the inherent unfairness in the way volumetric rates fail to accurately charge all customers in direct proportion to the costs generated by all customers. We’ve suffered some setbacks in the goal of becoming totally non-volumetric, but the risk of continuing to have a volumetric component to our rates is still there. At the meeting, if you choose to examine them, we will have updated examples of how our present rates, which include a volumetric element, can fail to properly collect revenue to cover fixed costs appropriately for the varying levels of energy consumption within each rate class.

Remember, TVA has informed us that the crush of LPCs who will also be making changes to their retail rates, has eclipsed their capability to consider 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 after this month’s meeting. 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 complex matter with you at the meeting.

Reports

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. We also narrowly missed August’s peak as well. From October 2017 through August 2018, we have collected $96,599 to fund that account. Missed peak predictions have cost us $76,777 during that period, so we have a positive fund balance of about $19,821 at the end of August. June and July cost us a lot of what we had accumulated, but the very narrow miss in August, combined with high demand for the month, puts us in good position to end the year very close to where we had projected. 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. One very interesting development is a set of recommendations from Reed Public Relations, a firm we have engaged to advise us on brand management and marketing initiatives, as a part of my consideration of how to replace the departing Shelia Hogue, who has been the lynch-pin of our administrative and marketing work for the last several years. I’ll have an updated chart at the meeting and we can discuss this.

Conclusion

Please let me know if you have any questions before the meeting.

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September 25, 2018, EPB Board Meeting

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