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HomeMy WebLinkAbout2017-03-12 RMLD Payment to the Town of Reading Subcommittee Minutes N OFr? Town of Reading `^ a Meeting Minutes = f IE D 4 � y TOW C "E�� sag.rxwnQ°� R E A s N -r NIA. Board - Committee - Commission - Council: Payment To The TowR�$n f Reading Sub-4 Committee Date: 2017-03-12 Time: 5:30 PM Building: Reading Municipal Light Building Location: Winfred Spurr Audio Visual Room Address: 230 Ash Street Session: Open Session Purpose: General Business Version: Final Attendees: Members - Present: Philip B. Pacino, Chair, RMLD Board of Commissioners John Stempeck, Commissioner, RMLD Board of Commissioners George Hooper, Chair, Citizens' Advisory Board Neil Cohen, Member, Citizens' Advisory Board Dan Ensminger, Secretary, Reading Board of Selectmen Members - Not Present: Others Present: RMLD Board of Commisisoners: David Hennessy, Vice Chair Tom O'Rourke, Commissioner Dave Talbot, Commissioner Town of Reading Board of Selectmen: John Arena, Chairman Barry Berman, Vice Chair Town of Reading Finance Committee: Vanessa Alvarado, Member RMLD Staff: Coleen O'Brien, General Manager Tracy Schultz, Executive Assistant Public: Chris Pollart, KP Law, PC Minutes Respectfully Submitted By: Philip B. Pacino, Secretary Pro Tem Topics of Discussion: Call Meeting to Order Chair Pacino called the meeting to order and explained that discussion would be limited to members of the Sub-Committee,with Ms. O'Brien, Ms. Markiewicz, and Attorney Pollart providing technical information as needed. Review of Prior Discussions Chair Pacino held up a chart showing RMLD's quick response to the storm-related outages on March 8.2018. 2,000 customers were out, and the Department's response should be Page 1 1 Review of Prior Discussions complimented. Chair Pacino then stated that a White Paper has been shared with the Board of Selectmen, and since the last Sub-Committee meeting there has been a Board Meeting, Return to Town of Reading Discussion Ms. O'Brien began the presentation with a review of the laws that govern the RMP. In 1990, special legislation authorized RMLD to move payments to all four towns, from below the line to above the line, at two percent of net plant. RMLD is the only municipal that has special legislation that makes these payments an expense obligation as a cost of production above the line.The same legislation did not preclude below the line voluntary PILOTS from being made from unappropriated earned surplus. However, the Department of Public Utilities and the Massachusetts Supreme Judicial Court have both stated that municipal light plants are not tax- collecting devices and therefore have no legal obligations to make payments in lieu of taxes (PILOT). Ms. O'Brien then highlighted the benefits of the Twenty-Year Agreement. Economies of scale through bulk power purchase load shaping through the blending of customer classes across the service territory for cost savings. Ms. O'Brien then stated RMLD is a financially secure and conservative organization. As a utility, RMLD should have operating cash for two to three months of operating expenses. Ms. O'Brien explained that sales are projected to decline at the rate of one percent a year and the service territory is considered at this time,with only small pockets of potential economic growth. Ms. O'Brien continued, explaining that in 2013 RMLD assessed its system and found significant deficiencies in maintenance and infrastructure. A GIS data collection subsequently unveiled more issues. A preliminary study by an economist indicates that RMLD should utilize an $8 million capital investment per year plan. Ms. O'Brien presented a list of municipal utilities. RMLD pays 539 percent higher than the average for just below the line voluntary Pilot for Reading, and more than 856 percent higher than the average when you combine the below the line with the above the line payments as a total PILOT. Voluntary below the line PILOT payments are increasing and represent more than 39 percent of operating income. When combined with the above the line, it adds up to 60.6 percent of operating income. The convergence of the below the line payment with the current track for reduction in revenue is an issue which the RMLD must act, study, and strategize going forward. Chair Pacino then presented RMLD's proposal, which was to advance the Town of Reading up to one year of a below the line PILOT payment at low interest for five years This would be subject to discussion, analysis, written contract terms and a payment schedule. RMLD would offer three years of a flat payment with a two-and-a-half percent increase per year, or CPI, whichever is greater. This would have a ceiling of five percent and would commence in FY18. RMLD would offer three years of an additional 0.5 percent below the line payment to all four towns based on the above the line two percent net plant, commencing in FY 18. A formal study will be performed in CY19 addressing the voluntary PILOT payments to the Town of Reading as an integral part of a comprehensive study that evaluates the long-term revenue, financial plan, and projections of the RMLD. Chair Pacino opened the floor for Sub-Committee discussion. Mr. Stempeck stated that it comes to $100,000 a year for the three years, for each Town. During this time, RMLD can study the payments. There has been no economic development to offset the effects of energy conservation on the bottom line. RMLD's costs are fixed. RMLD has an economy of scope when purchasing power for four towns. Page 12 Return to Town of Reading Discussion Mr. Hooper stated that he has concerns about capital. RMLD's reliability is important. There is potential new growth in Wilmington that is aided by lower rates. Mr. Hooper stated that he is not looking forward to any increases or anything that would jeopardize the sustainability of the RMLD. Mr. Ensminger stated that a formal vote on the proposal by the Board of Commissioners would be helpful because then it becomes an official offer from RMLD. Chair Pacino stated any vote that the Commission takes will be subject to approval of the offer by the CAB, under the terms of the Twenty-Year Agreement. Mr. Ensminger made a motion, seconded by Mr. Stempeck, to approve the Sub-Committee minutes of September 17,2017,with two corrections. Motion Carried: 5:0:0 The next meeting date was discussed. Wednesday, March 21,2018 was decided on. Adjournment Mr. Hooper made a motion, seconded by Mr. Cohen, to adjourn. Motion Carried: 5:0:0 A true co o eSub-Committee on the Payment to the Town of Reading minutes, as appy v d majority of the Committee. P/ip acino,Secretary Pro Tem Sub- mmittee on the Payment to the Town of Reading Page 1 3 i RMLID voluntary below the . line PILOT payment to the' Town of Reading March 12, 2018 RMLD - Governing Law w The RMLD is a Municipal Light Plant (MLP) Quasi commercial entity subject to regulation and oversight by the Department of Public Utilities w Rates are governed by MGL Chapter 164 S 58 and must be cost based w Can earn up to a maximum of 8% of net plant. See DPU 85-121 w Special Legislation from 1990 authorized RMLD to move from below the line to above the line, certain voluntary PILOT payments to all four towns at 2% of net plant. Above the line PILOT payments are an expense obligation as a cost of production. The same Special Legislation did not preclude voluntary below the line PILOTS from being made from unappropriated earned surplus. DPU and SJC state that MLPs are not tax collecting devices and they have no legal obligation to make payments of in lieu of taxes (PILOT) . .The 20 Year Agreement Benefits w The RMLD is a municipal light plant with a multi-town service territory Ability to capture potential economies of scale through bulk power purchase Ability to capture economies of scope by leveraging a.fixed cost operation whose services are spread across multiple towns Load shaping through the blending of customer classes across the service territory for cost savings... meaning more usage over a longer period of time from commercial industrial areas blended over residential usage RMLD - Financials and Operation The RMLD is a financially secure and conservative organization Utility financial standards as supported by the auditor; the RMLD should have approximately operating cash of 2-3 months of operating expenses. The RMLD pays its accounts payable at approximately $7M - $1 OM per month. A combination of the operating fund, the rate stabilization fund and the reserve fuel fund, would help support some major catastrophic events such as the loss of the largest customers, and critical system infrastructure failures, with the exception of the loss of-a main substation. Capital infrastructure is funded by the annual 3% depreciation expense (regulated by the DPU) in addition to a transfer of operating funds to the construction fund. Long term strategic system planning forms the basis for short, medium and long term capital outlay. Revenue Decline Sales are projected to continue to decline at a rate of-1 % per year. Decline can be attributed to the installation of energy efficiency measures by the customer, predominately commercial as the greatest impact - A 2.5MW natural gas fired unit and a soon-to-be 5MW battery storage unit will help mitigate costs associated with peak energy pricing. New revenue seeking programs such as electrical vehicle charging stations, etc. have been promoted, but penetration has been slow by the consumer. Heat pump conversions and other avenues are being evaluated. The service territory is considered fairly saturated with only.several-viable pockets within each service town. FY 2008-2017 kWh Sales 730,000,000 720,000,000 -- - - - 710,000,000 700,000,000 - - --- - _ U ............. 690,000,000 3 680,000,000 670,000,000 660,000,000 650,000,000 -- -- - - _ 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Year RMLD -- CapitalOutlay, In 2013 the RMLD assessed its system and found significant deficiencies in . maintenance and infrastructure. A formal Reliability Study was performed by Booth and Associates. The Study called for a GIS system infrastructure collection, -an outage management system, a work order and asset management system. The GIS data collection unveiled failure rates of assets at a magnitude beyond the original projection increasing the capital. outlay.. Based on a preliminary study by economist at Jacobs, and based on the GIS data, including age, and condition, and for the size of the RMLD service territory, the RMLD should utilize a $8M capital investment per year-plan. The RMLD in its strategic planning increased its rate of return from 5 to 7.75 of net plant for a short term to increase the construction fund to avoid bonding and to target the 6 year capital outlay plan. Estimated Annual - Caital. Invpestment Needs $20 $18 O $16 Cu $14 Average Useful Life -- _ Z of Assets=30 years .- $12 $10 c I , $8 — $s Average Useful Life ' c of Assets=40 0 d E $a — — Uj $z SD 0 10 15 20 25 30 35 40 45 50 Average Age of RIVILD Infrastructure 2 of Net Plant, above the Iine PILOT payments to -all four towns 2013-2017 North Reading L 'nnfield' Wilmington Total4 Towns Reading 2013 _287 132.00 [$-_253,834.00_ [$_88 936.00_ I$ _7_67,132 00 L$_ —� _-__ _ __. Imo^—NET PLANT UTILITY($69,851692 00 [ I 27.DISTRIBUTION,$ 1_397 034 KWH SALES _ _142,052218E _125,578_270+—_ _--�43,998,847_ ._ _— _379,520,5411 - 691149,876' KWOFiOTALSALES 20.553%[z_ —_ 18_169%__— - 6.366%[� _-- -54.911%[ H% 100.000%. 2014[$ _ 287,368.00_ ,'$ _253,16400 I$ _91,1.12.00 _ $ 765,863.00 �$_.1,397,507.00 - _ - - _-__ - ---- - - - --_- NET PLANT UTILITY`$69,875 363,00 2%DISTRIBUTION$ 1,397 507.00 _ _ . : . KWH SALES!---.---- _143 225,697 ____ _126 177,717 , _ 45,410 596[ _ 381 708,768s _ y_ 696,522,778 - KWH%OF TOTAL SALES i 20.5637.• 18.115; 6.520%' ^54.802%1 100.000% 2015$ 288,256.00 $ 254,610.18 - $ 90,330.06 $ 760,752,55 $ - 1 393,949 00 NET PLANT UTILITY $69,697,353.00 — � 2%DISTRIBUTION 1,393,947.00IF KWH SALES - 141;114;831, 124,643,049,F—" 44,220,762 372;423,010 682,401 652 KWH%OF TOTAL SALES 20:679% 18.265% 6.4809t 54.575% 100.000%, . - - - - 2016.$ _ __291 901.00 _ :$ 256089.00 _91,389._00. _ ;$ .767,367.00_ _:$ . 1,406,746_.0Q NET PLANT UTILITY,$70,337,310.00 2%DISTRIBUTIONL$ 1.406 746,00 - _ KWH SALES' _ 143,716,794,_ . _ _ ._1,26,085,135 44,995,350! __ 377,81 1,.691 692 608 970; KWH%OF TOTAL SALES 20.750% 18,_204%,_ 6 497%, 54.549% 100.000% __7 *V - �__�T 2017[$ 298 673.00 — [$ X266 071.00 T }[$�95 345.00 _�_____,[$ 799,451 00 NET PLANT UTILITY[$ :2 977 009 00 - % 2%DISTRIBUTION[$ 1 4,59 540 00 g KWH SALES ^1--138 206,363[__¢--x^123 120;767 f - 44 119 595y '369i935,097[-T- _— T 675,381,822' KWH%OFTOTAL SALES[ 20.463%L18.230%[,- _t _ 6.533%[ 54_774%[,—�_ __ 100.000%,.' , Town Payments of Municipal Electric ' utilities Based on a study performed on annual town PILOT payments from area Mass Municipal Electric Utilities, on a total and unit cost basis, RMLD pays 539% higher than the average for just the below the line voluntary, PILOT for Reading, and more than 856% higher than the average when you combine the below the line with the above the line town payments as-a total PILOT. L Rowley --- - - -- - i-$30,074 -- -- - ----- I $0.0007------ - - Groton $32,000 $0.0005 Merrimac $34,122 $0.0013 Sterling $100,000 $0.0017 Town Payments $142,496 $0.0014 ; Hudson � Municipal Shrewsbury $237,569 $0.0008 of Holden ' $270,000 ! $0.0008 N. Attleboro $300,000 $0.0014 Electric- Utilities Ipswich $326,727 _$0.0029 2016 study data Concord $465,000 $0.0028 Hingham --- - -------------:-$500,000--- ---- ---- � $0.0025- -— -- - ------------. Westfield $500,000 $0.0013 - - -- - - - - - - - - Belmont ' $650,000 $0.0052 Holyoke $675,000 $0.0030 --- -- - -- - - -- - --- - - Middleboro 1 $702,593 $0.0027 Littleton $760,000 $0.0026 -;-0.0028 --- ------_------ __--- . _. Danvers $800,616 Wakefield $825,000 $0.0044 -- - -- -- - --- - - - -- Braintree $1,000,000 . $0.0042 Reading - All Town $3,764,394 $0.0055 payments History of voluntary below the line PILOT Payments to the Town of Reading Since 1998 inflated at CPI, which fluctuates Calendar Year CPI % Change Year Paid Payment 1997 _ 167.900 1998 171.100 2.26% FY99 $ 1,560,414 . 1999 176.000 2.50% FY00 $ 1,595,680 2000 183.600 4.32% FY01 $ 1,635,572 . 2001 191.500 4.30% FY02 $ 1,706,229 2002 196.500 2.61% FY03 $ 1,779,597 2003 203.900 3.77% FY04 , $ 1,826,062 2004 209.500 2.75% FY05 $ 1,894,829 2005 216.400 3.29% FY06 $ 1,946,870 2006 223.100 3.10% FY07 $ 2,010,991 2007 227.409 1.90% FY08 $ 2,073,332 2008 235.370 3.50% FY09 $ 2,1 12,725 2009 233.778 -0.68% FY 10 $ . 2,186,670 2010 237.446 1.57% FYI 1 $ 2,171,880 2011 243.881 2.70% FY 12 $ 2,205,957 2012 247.733 1.58% FY13 $ 2,265,427 2013 251.139 1.38% FY 14 $ 2,301,221 2014 255.185 1.61% FY 15 _ $ 2,332,863 2015 256.716 0.60% FY16 $ 2,370,445 2016 260.496 1.47% FYI $ 2,384,668 2017 _267.003 2.51% FY18 $ 2,419,770 FY 19 $ 2,480,506 Average 2.357 History of voluntary below the line payments to the Town of Reading Since 1998 inflated at a flat 2.50 (approximate average) Calendar Year CPI % Change Year Paid Payment 1997 167.900 1998 171.100 2.50% FY99 $ 1,560,414 1999 176.000 2.50% FY00 $ 1,599,424 2000 183.600 2.50% FY01 $ 1,639,410 2001 191.500 2.50% FY02 $ 1,680,395 2002 196.500 2.50% FY03 $ 1,722,405 2003 203.900 2.50% FY04 $ 1,765,465 2004 209.500 2.50% FY05 $ 1,809,602 2005 216.400 2.50%' FY06 $ 1,854,842 2006 223.100 2.50% FY07 $ 1,901,213 2007 227.409 2.50% FY08 $ 1,948,743 2008 235.370 2.50% FY09 $ 1,997,462 2009 233.778 2.50% FY10 $ 2,047,398 2010 237.446 2.50% FYI $ 2,098,583 2011 243.881 2.50% FY 12 $ 2,151,048 2012 247.733 2.50% FY 13 $ 2,204,824 2013 251.139 2.50% FY 14 $ 2,259,945 2014 255.185 2.50% FY15 $ 2,316,443 2015 256.716 2.50% FY16 $ 2,374,354 2016 260.496 2.50% FYI 7 $ 2,433,713 2017 267.003 2.50% FY 18 $ 2,494,556 FY 19 $ 2,556,920 Difference Calendar Year Actual Payment Payment at 2.5% A 1998 $ 1,560,414.00 $ 1,560,414.00 $ - 1999 $ 1,595,680.00 $ 1,599,424.00 $ (3,744.00) 2000 $ 1,635,572.00 $ 1,639,410.00 $ (3,838.00) 2001 $ 1,706,229.00 $ 1,680,395.00 $ 25,834.00 2002 $ 1,779,597.00 $ 1,722,405.00 $ 57,192.00 2003 $ 1,826,062.00 $ 1,765,465.00 $ 60,597.00 2004 $ 1,894,829.00 $ 1,809,602.00 $ 85,227.00 2005 $ 1,946,870.00 $ 1,854,842.00 $ 92,028.00 2006 $ 2,010,991.00 $ 1,901,213.00 $ 109,778.00 2007 $ 2,073,332.00 $ 1,948,743.00 $ 124,589.00 2008 $ 2,112,725.00 $ 1,997,462.00 $ 115,263.00 2009 $ 2,186,670.00 $ 2,047,398.00 $ 139,272.00 2010 $ 2,171,880.00 $ 2,098,583.00 $ 73,297.00 2011 $ 2,205,957.00 $ 2,151,048.00 $ 54,909.00 2012 $ 2,265,427.00 $ 2,204,824.00 $ 60,603.00 2013 $ 2,301,221.00 $ 2,259,945.00 $ 41,276.00 2014 $ 2,332,863.00 $ 2,316,443.00 $ 16,420.00 2015 $ 2,370,445.00 $ 2,374,354.00 $ (3,909.00) 2016 $ 2,384,668.00 $ 2,433,713.00 $ (49,045.00) 2017 $ 2,419,770.00 $ 2,494,556.00 $ (74,786.00) 2018 $ 2,480,506.00 $ 2,556,920.00 $ (76,414.00) $ 43,261,708.00 $ 42,417,159.00 $ 844,549.00 RMLD Operations Summary w Revenues are declining due to reduced energy usage, energy efficiency measures, adjustable frequency drives, batteries, etc. Expenses are increasing such as labor, electric system equipment, etc. w RMLD operating revenue is quickly converging with PILOT payments. w Plant value is increasing at a fairly steady pace from 2014 to. 2024-and then should level off, to bring the system into balance for loading, capacity, safety code construction, and to achieve a proactive cyclic maintenance plan; approximately $8 million per year is earmarked long term for capital outlay. w Voluntary below the line PILOT payments are increasing and represent more than 390 of operating income. Combined with the above the line, the total payments made represent 60.60 of operating income. w The convergence of the below the line payment with the current track for reduction in revenue is an issue in which the RMLD must take action to study and strategize going forward. J RMLID Financial Trend - Revenue/Sales Decreasing , Costs Increasing Energy Sales and Inflation- Adjusted Revenues Decreasing Labor, Component, Reading Payment Costs Increasing —Energy Sales —Inflation-Adjusted Revenue -Costs FY 2018 FORECASTED kWh SALES 668,775,921 OPERATING REVENUE.- SALES EVENUE:SALES OF ELEC-BASE $ 26,337,621 _ SALES OF ELEC-BASE CAPACITY 24,476,160 SALES OF ELEC-BASE TRANSMISSION 13,612,815 SALES OF ELEC-FUEL _ 32,491,810 This table is from the preliminary FYI NYPA (1,200,000) FORFEITED DISCOUNTS 800,000 unapproved budget, illustrating the _ ENERGY CONSERVATION 675,000 TOTAL OPERATING REVENUE $ 97,193,406 RMLD utilizing more than its operating income by OPERATING EXPENSES: PURCHASED POWER BASE CAPACITY $ 24,476,160 over $1 .57M to cover the below the line PURCHASED POWER-BASE TRANSMISSION 13,612,815 PURCHASED POWER FUEL .31,291,810 - payment to Reading, pension & OPEB unfunded OPERATING&MAINTENANCE EXPENSE 5,941,700 7 GENERAL&ADMINISTRATIVE EXPENSE _ _ 10,361,361 liability gap(in addition to above the line liability DEPRECIATION EXPENSE 1,552,300,306,000 TOWN PAYMENTS OPEB and pension payment obligations)and � 1 TOTAL OPERATING EXPENSES _ $ 91,542,146 TOTAL OPERATING INCOME $ 5,651,260- the scheduled transfer to the ADD:OTHER NON-OPERATING REVENUE(EXPENSES) $ . 487,500 construction/capital fund. TOTAL CASH AVAILABLE FROM OPERATIONS $ 6,138,760 LESS:ROI TOWN OF READING PAYMENT (2,419,770) LESS:.5%NET PLANT-4 TOWNS .(392,447) LESS:PENSION CONTRIBUTION TRANSFER (500,000) LESS:OPEB CONTRIBUTION TRANSFER _ (500,000) LESS:CAPITAL FUNDS TRANSFER (3,900,000) TOTAL CASH BENEFIT/(DEFICIT) $. (1,573,457) CASH-OPERATING FUND $ 13,945,858 CASH-DEPRECIATION FUND $ 2,448,661 CASH-CONSTRUCTION FUND 3,900,000 TOTAL CAPITAL FUNDS $ 6,348,661 Adjusted Net Income for ROR, $ 6,138,760 NET PLANT at END of FY $ 79,119,000 Allowable87- $ 6,329,520 RATE OF RETURN 7.76% RM L D proposal NOTA BENE: THIS PROPOSAL WAS PART OF A TOWN OF READING PAYMENT SUBCOMMITTEE MEETING DISCUSSION AND WAS NOT VOTED ON BY THE SUBCOMMITTEE. PROPOSALS WOULD NEED TO BE VOTED BY THE SUBCOMMITTEE,BE RECOMMENDED BY THE SUBCOMMITTEE TO THE SELECTMEN AND RECOMMENDED BY THE SUBCOMMITTEE AND THE CAB TO THE BOARD OF COMMISSIONERS. m ADVANCE THE TOWN OF READING, UP TO ONE YEAR OF A BELOW THE LIN_ E PILOT PAYMENT AT LOW INTEREST FOR 5 YEARS. Subject to discussion, analysis, written contract of terms and payment schedule. ® THREE YEARS: FLAT PAYMENT OF 2.5% INCREASE PER YEAR, OR CPI, WHICHEVER IS GREATER, A CEILING OF 5%, commencing in FY18 m THREE YEARS: ADDITIONAL .5% BELOW THE LINE PAYMENT TO ALL 4 TOWNS BASED ON ABOVE THE LINE 2.0% NET PLANT, commencing in FYI �. FORMAL STUDY WILL BE PERFORMED IN CY2019 ADDRESSING THE VOLUNTARY PILOT PAYMENTS TO THE TOWN OF READING AS AN INTEGRAL PART OF AN COMPREHENSIVE STUDY THAT .EVALUATES THE LONG TERM REVENUE/ FINANCIAL PLAN AND PROJECTIONS OF THE RMLD Projected Impact [ Reading Above the Line $3111797 $328254 344,045 Payment f Reading Below the Line $2,444,285 $2,505,392 $2,568,027 Payment at 2.5% Increase of $24,515 Increase Compounded Increase Compounded Additional Below the Line $77,949 $82,064 $86,011 0.5% Sub-Total Reading $2;834,031 $2,915,71.0 $2,998,083 I Other Towns Above the $1 ,257,992 $1 ,272,986 $1 ;334,225 Line Payment Additional 0.5% $314,498 $318,246 $333,558 Sub-Total Other Towns $1,572,490 $1,591,232 $1,667,783 Total All Payments $4,406,521 $4,506,942 $4,665,866 % of Operating Revenue 4.53% 4.59% 4.83% NOTA BENE: THIS PROPOSAL WAS PART OF A TOWN OF READING PAYMENT SUBCOMMITTEE MEETING DISCUSSION AND WAS NOT VOTED ON BY THE SUBCOMMITTEE. PROPOSALS WOULD NEED TO .BE VOTED BY THE SUBCOMMITTEE,BE RECOMMENDED BY THE SUBCOMMITTEE TO THE SELECTMEN AND RECOMMENDED BY THE SUBCOMMITTEE AND THE CAB TO THE BOARD OF COMMISSIONERS.