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10-11-2016 ERMU MIN ELK RIVER MUNICIPAL UTILITIES REGULAR MEETING OF THE UTILITIES COMMISSION HELD AT UTILITIES CONFERENCE ROOM October 11,2016 Members Present: John Dietz,Chair;Al Nadeau,Vice Chair; and Daryl Thompson,Trustee ERMU Staff Present: Troy Adams, General Manager; Theresa Slominski,Finance and Office Manager; Mark Fuchs,Electric Superintendent; Eric Volk,Water Superintendent; Mike O'Neill,Technical Services Superintendent; Tom Sagstetter, Conservation&Key Accounts Manager; Michelle Canterbury,Executive Administrative Assistant; Tom Geiser,Assistant Electric Superintendent; Jennie Nelson,Customer Service Manager; Dick Wagner,Locator/Mapping Technician Others Present: Tony Belden,AWWA Section Chair;Jim Sadler,AWWA Past Section Chair; Bert Tracy,AWWA Awards Committee Co-Chair;Carol Blommel-Johnson, AWWA Awards Committee Co-Chair 1.0 CALL MEETING TO ORDER John Dietz called the October 11,2016 meeting to order at 3:30 p.m. 1.1 Pledge of Allegiance The Pledge of Allegiance was recited. 1.2 Consider Utilities Agenda John Dietz requested to add agenda item 6.1a,ERMU Commission Appointment to immediately follow 6.1, Staff Updates. Daryl Thompson moved to approve the amended October 11,2016 Utilities agenda. Al Nadeau seconded the motion. Motion carried 3-0. 1.3 Recognition of Employee Achievement Eric Volk announced that Dave Ninow recently received the MN American Water Works Association(AWWA)Operator's Meritorious Service Award. Dave was recognized for his achievement at the AWWA Annual Conference held in Duluth,MN. Representatives from the Page 1 Regular Meeting of the Elk River Municipal Utilities Commission October 11,2016 AWWA were in attendance to formally present Dave with his plaque.After learning more about the award and why Dave was chosen as the recipient,the Commission congratulated him on his achievement. 2.0 CONSENT AGENDA(Approved By One Motion) On the financials,John Dietz commented on the 14%increase in administrative and general expenses over the previous year,and directed staff to do an analysis on what the contributing factors may be. Theresa Slominski shared that we received our purchase power bill for the month of September and that our usage was 10kW less than we projected; so our purchase power came in at 1.7 million while we budgeted for 2.7 million. This will reflect a significant change in the budget and is the flip side of what we saw with the June financials;this was a more positive swing than we had hoped for. Al Nadeau moved to approve the Consent Agenda as follows: 2.1 September Check Register 2.2 September 9,2016 Regular Meeting Minutes 2.3 Financial Statements 2.4 Resolution Awarding the Issuance and Sale of$9,755,000 Electric Revenue Bonds 2.5 Resolution Awarding the Sale of$1,370,000 Electric Revenue Refunding Bonds Daryl Thompson seconded the motion. Motion carried 3-0. 3.0 OPEN FORUM Dick Wagner said the several years ago the Wage and Benefit Committee(WBC)was comprised of a representative from each department and now that it has transitioned to management only,both he and some of his fellow employees are concerned that they no longer have a voice with one of Commissioners regarding their benefits.Dick voiced that they would like to see getting something like that back;whether it's having the opportunity to meet with a Commissioner a couple times a year,or going back to having department representatives on the W&BC. Troy Adams provided further background on why we had gone from a selection of office,field, and management reviewing insurance and other benefits to the W&BC. The W&BC was created to still be a sounding board but without being in violation of any labor laws. When we initially set up the W&BC meetings they were open and we had employees that attended. Troy suggested that we could open up a W&BC once a year to allow employees the opportunity to voice their opinions directly without having to go through management. After discussion the Commission was in favor keeping the Committee how it is currently set up; employees would have the opportunity to attend an open W&BC to voice their opinion on wages and benefits,and the W&BC would review and would report to the Commission with Page 2 Regular Meeting of the Elk River Municipal Utilities Commission October 11,2016 findings or recommendations. There was discussion on the scheduling of the upcoming W&BC meetings. Staff will provide a staff update on what was discussed and will inform employees of the next open W&BC meeting once a firm time and date has been set. 4.0 OLD BUSINESS 4.1 Performance Metrics Evaluation Update At last month's meeting, Theresa Slominski presented a list of suggested changes and the proposed means in which they could be measured. After discussing them one by one,the changes identified having the most potential where: changing the water metric from Water Quality Standards having 15 points, to breaking it out into three separate metrics worth 5 points each, and adding a Line Loss below 5% and a Water Loss below 10%. Theresa presented a revised score card with the suggested options for consideration, and suggested points distribution. Theresa stated that since the last meeting there has been discussion among staff regarding the water loss percentage of 10%. Theresa explained that although 10% is an industry standard, it's a measurement that takes into consideration estimates of unmetered water use to arrive at the 10%mark. She noted that the measurement tracked in our audited financials does not take into account the estimated unmetered usage, only the metered use which is averaging 11.60%. In an effort to remove any estimations, Theresa suggested setting the bar at a higher percentage and benchmarking it against the appropriate industry standard. Theresa and Eric Volk presented the average percentages based on the Key Performance Indicator(KPI) library and suggested the Commission set the Water Loss criteria at 12%. With the introduction of the new Water Loss and Line Loss items worth 10 points, a redistribution of points was suggested to bring the total percentage back down to 100%. For the Customer Satisfaction sub-category goal; staff suggested it be increased from 85% to 90%. There was discussion on how we measure customer satisfaction. In order to increase the Margins/Net Profit sub-percentage from 15 to 20, John Dietz recommended lowering the Customer Satisfaction sub-percentage from 10 to 5. The Commission was in consensus. John Dietz asked for further clarification on why our attorney recommended not using a physical fitness criterion in our metrics. Staff responded. Al Nadeau made a motion to approve the revised Performance Metrics Incentive Compensation Score Card with the breakdown of Water Quality Standards,the 5% Line Loss, the 12% Water Loss, and with an increased Margins/Net Profits sub- percentage from 15 to 20, and a decreased Customer Satisfaction sub-percentage from 10 to 5 to take effect January 1,2017. Daryl Thompson seconded the motion. Motion carried 3-0. Page 3 Regular Meeting of the Elk River Municipal Utilities Commission October 11,2016 4.2 Wage & Benefits Committee Update—Health Insurance The Wage& Benefits Committee(W&BC) had met just prior to the Commission meeting. John Dietz distributed a recap of the 2017 Health Insurance Options that he had compiled and went over the information. The W&BC recommendation was the last option; the Aware Gold plan with a decrease in coverage to 80% after deductible, and the HSA plan with no change in coverage from 2016. The W&BC also recommended approval of a health insurance opt-out program of$300 per month; contingent upon legal counsel approval. John explained that this would be on a trial basis for 2017 to be reevaluated during next year's insurance renewal to determine if it's something we want to continue to offer. John went over some of the benefits of the HSA plan including the dollar amounts the company contributes towards the deductibles on the first of the year. He also made note that a relatively small amount would need to come out of an employee's pocket before meeting the deductible at which time everything would be covered at 100%. There was discussion. During discussion of the recommended renewal option, Troy Adams noted that the 13.3% was the overall increase to the company, and that the employees on the HSA would see a 19%increase in premiums, while the employees on the Aware Gold would see a 6.9% increase in premiums. John Dietz said that is not the way he understood it, and asked if there was a way to blend it so that all employees would see a 13.3% increase. There was discussion. Dick Wagner, who is currently on the Aware Gold plan, questioned why he should have to help cover part of the other plans increased premiums when he would also be experiencing additional expense due to a reduction of benefits. After further discussion, Commission consensus was to approve the renewal option with the 19%premium increase to the HSA plan, and the 6.9%premium increase to the Aware Gold plan. Al Nadeau made a motion to approve the insurance option that offers our current Aware Gold Plan with a decrease in coverage to 80% after deductible,the HSA Plan with no changes in coverage from 2016, and to approve a health insurance opt-out program of$300 per month for a one year trial period. Daryl Thompson seconded the motion. Motion carried 3-0. 4.3 Sale of Security Accounts and Security Alarm Inventory Mike O'Neill stated that on September 30, 2016 Elk River Municipal Utilities (ERMU) closed on the sale of the security accounts and security alarm inventory with Wright Hennepin(WH) Security for a purchase price of$347,251.96. Mike wanted the Commission to know that a lot of hard work went into making this come to fruition, and gave kudos to all who were involved. In the end it's a win-win for both companies. With the sale, ERMU has been able to establish a relationship with WH that otherwise may not have taken place. There was discussion on the timing of the sale of the business line and Page 4 Regular Meeting of the Elk River Municipal Utilities Commission October 11,2016 the benefit of doing it when we did. The Commission complimented staff of a job well done. Troy Adams shared that in order to address the safeguarding and maintenance of the customer and service data that was part of the sale, our attorney has recommended a Data Safekeeping and Access Agreement between ERMU and WH. Staff distributed a draft of the Agreement and requested Commission approval of the draft and authorization to finalize and execute the Agreement to the satisfaction of the Chair, General Manager and Commission Attorney. Daryl Thompson made a motion to approve the draft of the Data Safekeeping and Access Agreement between Elk River Municipal Utilities and Wright-Hennepin Cooperative Electric Association, and authorize the General Manager to finalize and execute the Agreement to the satisfaction of the Chair, General Manager and Commission Attorney. Al Nadeau seconded the motion. Motion carried 3-0. 4.4 Electric Service Territory Update—Connexus Energy In March of 2015, ERMU and Connexus Energy executed an electric service territory transfer agreement which included provisions to transfer approximately 12 square miles of service territory and 2,000 customers over a five year period. Tom Sagstetter shared that on September 20, 2016 we began the transfer of the second area identified in the agreement. The physical transfer, which took approximately 10 minutes, included 199 residential and commercial accounts. Tom noted that over 60% of the customers in Area 2 were commercial and that many of those had unique metering and account settings that presented some challenges when converting them to ERMU customer information software and rate programs. Troy Adams presented a map that identified the Electric Service Territory Transfer Areas and made note of how large the area was that we acquired in just one calendar year. Troy pointed out that no one has ever negotiated a deal this big in the State of Minnesota, and to have it go as successfully as it has is unheard of. He gave praise to all of the employees for the significant amount of hard work they have put in to help ensure the successful transfer of the first two areas. Troy went over the maps and the timeline in acquiring the other seven areas. There was discussion. Troy stated that with consensus from the Commission, staff will move forward with formally noticing Connexus for Areas 3 and 4 and will file for the Area 2 boundary change with the Minnesota Public Utilities Commission. The Commission was in consensus. The Commission recessed at 4:47 p.m. in order to meet the Climate Smart Municipals German Delegation, and then reconvened at 5:00 p.m. 4.5 Electric Service Territory Update—Wright Hennepin Electric Cooperative Tom Sagstetter shared that approximately ten years ago Wright-Hennepin Electric Cooperative Association(WH) installed distribution facilities to serve a development that Page 5 Regular Meeting of the Elk River Municipal Utilities Commission October 11,2016 was in ERMU service territory. At that time the issue was acknowledged by WH and both parties verbally agreed to identify a territory swap rather than remove the installed facilities. Tom explained that the economic recession delayed any swap because nothing was being platted along our service territory boundary until just recently when the plat was approved for the Villas of Otsego. ERMU and WH have been is discussions and have verbally agreed to allow WH to serve the existing seven residential lots in Mississippi Cove, that are currently in ERMU defined territory, in exchange for ERMU providing electric service to eleven patio home sites that are currently platted to be built in the Wild Flowers Meadows development called the Villas in Otsego. Maps with the proposed territory lines were presented. Staff requested approval to move forward with the filing to the Minnesota Public Utilities Commission(MPUC)to change the defined service territory boundary for each development to reflect the outlined changes. Daryl Thompson made a motion to move forward with the MPUC filing to change the defined service territory boundary change. Al Nadeau seconded the motion. Motion carried 3-0. 5.0 NEW BUSINESS 5.1 RFP Auditing Firm The City of Elk River,the Elk River Fire Relief, and Elk River Municipal Utilities recently solicited proposals for auditing services for 2016 through 2020. Through the combined RFP process there were three firms that responded: Redpath& Company (R), CliftonLarsonAllen(CLA), and Abdo, Eick and Meyers(AEM). All three were competent firms that submitted qualifying proposals and interviewed well. Theresa stated that due to the fact that Redpath& Company had no utility experience, they would not be a viable option. Theresa presented a summary of the pricing from the three firms. Although the City and Fire Relief has chosen to contract with CLA for the next five years, Theresa recommended that ERMU continue to contract with AEM. Theresa explained the rationale for keeping the current auditors which was largely dependent on the current transactions we're invested in, which our current auditors have been very involved in helping us plan for the implementation of these transactions and the financial reporting of them. John Dietz stated that he had asked the City Administrator if it would make any difference if the city and ERMU have two different auditing firms; to which he responded that he didn't anticipate any issues. John said that his main concern is that we're leaving approximately $18,000 on the table, and before he would feel comfortable voting for it he would like to see where we're going to reduce other line items to come up with the amount to offset the additional expense. John reached out to the other Commissioners to see if they were in agreement. After discussion, Commission consensus was to table this item until next month's Commission meeting. The Commission directed staff to determine where the line item reduction would come from to cover the $18,000, and to bring that back for consideration. It was noted that $18,000 was the total increase for the five year term; Page 6 Regular Meeting of the Elk River Municipal Utilities Commission October 11,2016 therefore an annual reduction of approximately $3,500 is what would be needed. 5.2 2017 Budget: Water and Electric Expenses Theresa Slominski presented the first cut of the 2017 Water and Electric Expense Budget and noted that the expense budget will change as the complete 2017 budget is assembled and the finalized wholesale power costs are reflected. Wholesale power costs, as well as revenue and rate increases for 2017 will be presented in November. Water Department Expense Budget- The 2017 forecast for water expenses reflected a 7.83% increase over the current year budget. Eric Volk shared that he had decided to include a few notable expenses here instead of the Capital Budget. Theresa provided further explanation on the rationale behind including the notable expenses here versus the Capital Budget. Most notable were an increase in Maintenance of Wells where $100,000 was included for additional expenses, Maintenance of Water Mains for leak detection and repairs, and software licensing. Electric Department Expense Budget—The 2017 forecast for electric expenses reflected a 2.18% increase over the current year budget. The wholesale power costs which make up between 70-75%of the operating budget were not included as staff is still waiting for final numbers. Although early estimates have come in at a 1.88% increase in power cost, staff is anticipating closer to 2.5%. John Dietz had a few questions on the line items that had been noted. Staff responded. 5.3 2017 Utilities Fee Schedule Troy Adams presented the 2017 Fee Schedule to the Commission. There were just four adjustments to the schedule from 2016 to 2017. A fee for photocopies was also added to accommodate for data requests. Staff recommended the Commission approve the 2017 Utilities Fee Schedule for adoption into ordinance by the City Council. John Dietz had a few questions. Staff responded. Daryl Thompson made a motion to approve the 2016 Fee Schedule. Al Nadeau seconded the motion. Motion carried 3-0. 5.4 Commercial All Electric with Ground Source Heat Pump Tariff Tom Sagstetter shared that during the Area 2 service territory transfer, staff identified a commercial customer class that was not represented in ERMU's existing commercial tariffs and load management rates. In an effort to help accommodate the special circumstances for existing customers on this Connexus rate, staff has developed a new Commercial All Electric with Ground Source Heat Pump Tariff. The tariff was designed for customers that have made a commitment to operate their facility as efficiently as possible using only electric energy for all of their requirements. Tom went over the benefits to ERMU of Page 7 Regular Meeting of the Elk River Municipal Utilities Commission October 11,2016 having customers on this program which included: increasing system load factor, increased energy use in the colder months, and more predictable energy consumption throughout the year. Tom presented the tariff and went over the rates and explained that although the margin is a little tight it can be corrected over time. The Commission had a few questions. Staff responded. Al Nadeau made a motion to approve the proposed Elk River Municipal Utilities Commercial All Electric with Ground Source Heat Pump Tariff for all existing and future customers effective September 20,2016. Daryl Thompson seconded the motion. Motion carried 3-0. 6.0 OTHER BUSINESS 6.1 Staff Updates Troy Adams stated that staff recently had the opportunity to speak with a consultant regarding how we file our Attachment 0 relating to our transmission investment. Troy shared that the opportunities have changed since we originally set that up and that by doing some additional paperwork we should have the opportunity to receive a substantial amount of money back on an annual basis. Troy provided further details on the timeline and how we could maximize the financial returns. Theresa Slominski noted in her staff report that we would be conducting our last round of shutoffs October 11 before the Cold Weather Rule comes into play for the time period October 15 through April 15. The Commission inquired as to how that went and had a question on the police squad car that was located outside of our entrance the day of shutoffs. Staff responded. John Dietz reiterated the Commission's appreciation for all the hard work her staff put in to facilitate the seamless transfer of the security department. Tom Sagstetter stated that he had nothing official,but things were looking good for the electric vehicle charging grant;more to come next month. John Dietz had a few questions on the holiday lighting contest. Staff shared that they would be pre judging all of the participants to narrow it down to a more reasonable amount that the Commission would be doing the final judging of. In addition,some type of signage will be used to help identify the homes that are participating. 6.1a ERMU Commissioner Appointment—Now that the legislation has been approved to expand the Utilities Commission from three to five members a decision will need to be made on the makeup of the forthcoming appointments. As the legislation provides a provision for up to two City Council Members to be appointed to the Commission,John Dietz requested direction from the Council on what their desired makeup would be. John shared that Councilmember Matt Westgaard expressed an interest in serving on the Commission and that the City Council concurred to allow two Councilmembers to serve on the Utilities Commission. John stated that Page 8 Regular Meeting of the Elk River Municipal Utilities Commission October 11,2016 the city will be advertising for the other open position which will be filled by someone from the general public. 6.2 Set Date for Next Meeting The next regularly scheduled Commission meeting will be cancelled due to a scheduling conflict,and a special meeting will be held on November 15,2016. 6.3 Adiourn Regular Meeting Daryl Thompson moved to adjourn the regular meeting of the Elk River Municipal Utilities Commission at 5:43 p.m. Al Nadeau seconded the motion. Motion carried 3-0. Minutes prepared by Michelle Canterbury. J(01 J. ietz Chair,E Co 's Tina Allard City Clerk Page 9 Regular Meeting of the Elk River Municipal Utilities Commission October 11,2016