Pre-Meeting Q & A from the Board - May 1, 2018
The following questions have been posed by Commissioners prior to the scheduled Board Meeting on May 1, 2018. Staff responses are included below, and are sorted by Agenda topic.
Preliminary Residential Electric Pricing Committee Findings (ACKERMAN)
In the past when this type of committee has been convened, the board received an actual report and committee findings at the conclusion of the process. Was such a report produced in this instance, and did we receive it earlier? Your memo is highly summarized and contains a consolidation of what appear to be both committee findings and staff observations. Absent a formal report on the committee process, how can the board learn more about the work and findings of the committee itself to help guide our future pricing decisions? The Ad Hoc pricing committee was convened to give informed and contextual advice to staff, and was not intended for a direct recommendation to the Board. Therefore, the report to the Board was developed as a background memorandum from staff. Staff did prepare a summary of the input and results of the Ad Hoc Committee, and that summary was provided to the Board in August 2017.
The staff background references a figure of $28 dollars per month for customer-related costs of service. Can you provide us with a breakdown of the $28 by function, cost category, or major FERC classification per the COSA? In 2016, EWEB updated its Cost of Service (COS) methodology to align with current industry standards. This process established an allocation of costs to Production, Transmission Demand, Transmission Energy, Distribution Demand, Distribution Energy, and Distribution Customer functional areas. For the purposes of the customer advisory committee we included the Distribution related costs, with the exception of the Distribution Demand. Based on the current (2018 COSA) the Distribution Customer and the Distribution Energy costs are $22.63 and $2.76, respectively. Because we're billed CILT on total revenue we've applied the CILT costs to all of the individual units for a CILT basic charge items of $1.90. The detail of the individual FERC classifications can be provided in more detail upon request. The COS analysis is available for further review at Commissioners request.
Electric and Water 2018 Capital True Up and Budget Amendment (PRICE, FAHEY, DAMEWOOD)
Grid Edge Project - Type 2, (Carryover, Note 12): Does this shift mean that we are just moving funds that weren't spent in 2017 into the 2018 budget and then increasing costs by $100,000? What is the driving factor that increased the costs between 2017 and 2018? The project was originally planned in 2017 for an estimated $1.2 million, but change in direction in procurement and discussions with the school Districts pushed the project into 2018. Actual equipment and contract pricing is the basis of the $100k increase. EWEB will get approximately $300k in grant funding to help offset some of the project costs.
Predicted Year End Reserve balance (Revised Estimate): If we are dipping into reserves to handle these adjustments, where will that funding come from? Will we have to wait until next year to restore the fund? As part of agenda item #10, Reserve Fund Status and Transfers/Use of Reserves, Management is recommending that the Board fund the revised capital plan and restore the Electric Capital Reserves to target by transferring funds from Working Cash to the Capital Improvement Reserve.
Since many of these changes are Carry Over from 2017 deferrals to future years, what is the net expense increase for the Electricity and Water sides for 2018? The net impact on the 2018 Capital budgets will be an increase of approximately $4.2 million in Electric, and a decrease of $900,000 in Water.
Please show where "Water Capital Budget Summary The 2018 Water Utility Capital Budget is being decreased by $907,000." is summarized in the "Water Capital Improvement Plan: 2018-2027 -- DRAFT - Mid-Year True Up". Attached is the Water Capital Budget Summary that has the accurate revision to show a reduction of $907,000, compared to the previous version showing a reduction of $1.057 million. The Board run will be updated accordingly.
Type 2 - Advanced Meter Infrastructure (Emergent Priority, Note 8): My recollection was that the Board adopted a plan to replace meters as they reached their useful life, which didn't require more funding than what was already budgeted to replace through normal roll out. I don't understand why our recent change toward Opt-Out is leading to a need for a $962,000 increase in the electric budget and a $600,000 increase in the water budget. My understanding was that we chose that strategy so that we could undertake the replacement with our current staff with the replacement budget already outlined. In October 2017, staff presented the Board with three AMI deployment rate options for replacing EWEB's 154,000 meters (93,000 Electric, 61,000 water); normal replacement rate (approximately 14 year for Electric meters, 24 years for Water), 8 year replacement rate, and 5 year replacement rate. The Board directed staff to move toward the 8 year deployment rate to help achieve AMI benefits faster, and to keep the project costs within the 10 year Capital plan. The cost in materials (meters and related equipment) is the same over eight years, regardless of an opt-in or opt-out approach. However, using an opt-out approach requires EWEB to capitalize the labor and overhead associated with the deployment, as the utility is replacing meters based on new benefits. An eight year deployment is achievable with current staff in the Electric Utility, but may require some additional staffing adjustments within water operations.
When considering Opt-Out for AMI, I don't recall discussing the cost implications in any detail associated with an eight-year deployment. What deployment schedule was previously assumed, and how do the currently projected eight-year "opt-in" costs compare with what was previously included in the 10-year capital plan? See response to previous question also. In October 2017 staff presented to the Board three meter replacement options under Opt-In scenario. Using Electric meters, each option included approximately $10 million in total Electric meter costs as noted in the backgrounder.
Electric Options summary:
a. Current pace: 14 years as an O&M project. 7,000 meters at $900k /year.
b. 8 year pace: 12,000 meters at $1.3 million/year. (costs include meters only)
c. 5 year pace: 19,000 and $2.1 million/ year. (costs include meters only)
Water Options:
a. Current pace: 24 years plus as an O&M project. 2700 meters at $300k /year.
b. 8 year pace: 7,600 meters at $1.2 million/year. (costs include meters only)
c. 5 year pace: 12,000 and $1.8 million/ year. (costs include meters only)
Can any required funding increase be offset through re-prioritization of future capital work, or will it result in a need for increased overall funding for the 10-year capital plan? How will the "accelerated" deployment impact our long-term financial plan, and will it affect our rate projections and/or capital reserve requirements? With changes to the Electric Master Plan, Alternative Water Source(s), and other projects, the metering impact is only a small part of the overall 10-Year Capital Improvement Plans (CIP) and Long-Term Financial Plans (LTFP). The complete context will be presented to the Board in July for discussion and guidance.
What is the current "all-in" cost estimate for the AMI project, including investments to date and for future deployment? From 2010 through 2017, EWEB spent approximately $10.5 million on AMI and metering related services and activities. The current project started in May 2015 when EWEB executed a contract with Sensus. Cost to implement the advanced metering project (including meter Data Management System, communication infrastructure and other capital expenditures) from May 2015 through December 2017 is $5.4 million, of which $840,000 is internal labor. The $5.4 million total through December 2017 does not include meter purchases. Meter purchases through December 2017 totaled $1.7 million. Prior to May 2015, EWEB spent approximately $1 million for the advanced metering pilot project, mostly for consulting services. Final costs estimates are being prepared for the July CIP discussion, pending final policy and process decisions.
Reserve Fund Status and Transfers/Use of Reserves (FAHEY)
Given 2018 year-end cash balance and anticipated potential opportunities for a pay-down of PERS liability, I would have expected a higher transfer to the PERS reserves. What was your basis for determining how much to leave above target in Working Cash for various other contingencies? The proposed pension transfer is based on the budget and actual difference as required by Financial Policy. After the required transfers, the combined Electric and Water pension reserves total $21 million. The most recently calculated transition liability was $26 million. Since the actual PERS liability is unknown, Management is recommending leaving excess funds in working cash instead of guessing at a higher pension reserve transfer amount. In November, Management is scheduled to make a recommendation regarding using pension reserves/working cash to mitigate PERS risks.
Nearly every year since I have been on the Board we have ended with substantial positive cash results at year-end. Now, our reserves are fully funded, and our rates and financial outlook are fairly stable. Is there a point at which we might determine that our rates are somewhat higher than they need to be, and how would we know when/if we are reaching that point? The Rate of Return metric is a gauge that helps determine if/when we are at a point where prices should be and is one of several financial metrics tracked to ensure the financial viability of implementing strategic priorities. Over the last several years, the approved budgets have included deposits to reserves. The Electric Utility's budgeted reserve deposits have primarily been due to maintaining the targeted debt service coverage metric in the face of declining wholesale revenues. Since 2015, the Board has strategically used $70 million of Electric reserves to reduce debt, improving debt related metrics and reducing required rate actions. While cash reserves and the rate of return metric are strong, the Electric Utility continues to be challenged with high debt costs compared to revenue and assets.
The Water Utility's budgeted deposits were a result of utilizing a rate smoothing strategy to avoid a substantial rate increase when construction on a second filtration plant began.
Management is strategically reviewing infrastructure replacement, use of reserves, and the need for future debt issuance in an effort to optimize all of the Utilities' financial metrics and assets.
Customer Service Policy Proposed Revisions and Discussion (FAHEY)
4.3 Meter Inaccuracies and Tests: Does staff propose that we stop charging the testing fee upfront and instead only charge the testing fee if it turns out that meter is accurate? Yes
Are meters removed as a standard practice to review accuracy when this kind of dispute arises? Yes, the meters are brought back and tested in the shop. Given the increased number of meter replacements, the possibility of installing a smart meter as part of the implementation plan for a customer who has requested a formal appeal is higher. We want to assure customers that our policy is to retain meters until the appeal is settled.
Is there a difference in how these types of disputes are handled for analog meters vs. advanced meters? No, all electric meter disputes are handled through the Appeals process.
Annual Review of Strategic Plan (FAHEY/PRICE)
How will we know if we have succeeded at making the utility easier to work with and have gained more customer confidence? We will rely on both anecdotal and direct customer responses. In some cases, we will interact directly with customer classes that often use EWEB's processes (e.g. meetings with Developers). In other cases, we will track the success of activities or other metrics that support this strategic objective. For example, Customer Operations metrics are being tracked which provide visibility into customer hold times and dropped calls. EWEB is implementing a post-call contact center transactional survey this month. Later this year contact center hours will be expanded. As an example of activity-based process improvements helping EWEB be "easier to work with", see the attached Distribution Services process improvement summary.
Quarterly Strategic and Operational Report (FAHEY, ACKERMAN, DAMEWOOD)
Electric Debt as a % of NBV: It appears we are not within target on this metric. Is that a correct interpretation of the data? If so, what is the driving factor there and what are the risks of being outside of that target range? Yes, that is a correct interpretation. The main driving factor is the timing of borrowing relative to the pace of utility plant placed in service. When money is borrowed for future projects the leverage ratio will increase because the borrowed funds have not yet been used for utility plant in service. If debt levels are too high, the utility could become over-leveraged relative to its asset base and revenue producing capability. Becoming too highly leveraged could negatively impact future bond ratings and increase debt costs.
When do we anticipate we will return to the target level? To attain the target, debt must be reduced by $20 million, plant in service increased by $30 million, or some combination of the two. There is currently $20 million in Construction Work in Process and $32 million in preliminary surveys for Carmen-Smith work. Achieving the metric will be dependent on when this work is placed in service and future bond issuances. With the Electric Utility's aging infrastructure and leverage position, this financial metric is a challenge to achieve. Management is strategically reviewing use of reserves and infrastructure replacement in an effort to optimize all of the Electric Utility's financial metrics and assets.
Water Rate of Return: I am guessing that we have an upper limit on that target to recognize that we have a fiduciary obligation to keep rates low for our customers and this is a sign that we could be overcharging. One Quarter is not enough data to show to analyze whether or not we are responsibly using citizen dollars, how has this metric tracked over the last three years? The upper limit of the target range is 7% and based on industry benchmarks. The February 2018 rate reduction as a result of removing the 2014 alternative water source rate should help move this metric toward the target range. The rate of return for the last three years has been declining:
- 12/31/17 - 9%
- 12/31/16 - 10%
- 12/31/15 - 11%
Blackstart Assessment - Lower McKenzie River projects: I am surprised that black start features aren't required to be regularly tested. Does FERC have any resiliency requirements around black start? Will all of our facilities be tested for black start capabilities? The ability to black start our generation units (start them without grid support) isn't required by FERC or NERC. NERC does designate black start resources for grid protection and support, but our units just aren't that vital to the overall grid. In our case, it is entirely our choice whether to have black start capabilities and whether to test those capabilities. EWEB is doing this assessment at Leaburg for our own resiliency purposes. Our Carmen and Trail Bridge power plants can also black start. The Walterville and Stone Creek plants cannot and we don't plan to modify them to add that capability. Once we determine system needs we may develop a plan and schedule for periodic testing that supports our resiliency efforts.
Presently, Leaburg is not configured for blackstart, even though it is capable and will require several changes. During the last upgrades to these projects, we did not intend to operate the units as black start generators, so the black start functions were not enabled and tested.
Has the Carmen plant outage scheduled to begin in April 2018 started? Yes, the Carmen power plant was taken offline in mid-April, and the power tunnel was closed and dewatered. Last week the power tunnel and turbines were inspected for upcoming work. This week the Carmen Powerhouse will be turned over to our general contractor, Wildish, for the initiation of turbine shutoff valve (TSV) replacement work. That work is expected to last until October.
"Write-offs through February totaled $40,000, compared to $xx total in 2017" - What was the 2017 total for that same time period? For the same time period, the 2017 write-offs were $4,000. After the December 2016 ice storm, collection efforts were suspended for a couple of months due to the high volume of estimated bills. The 2018 budget for uncollectible accounts is $480,000.
Monthly AMI Meter Report: How are meters being selected to be switched out before the full AMI communication plan has been implemented? Until all policies, processes, and communications are initiated, Smart Meters are being deployed using the opt-in model. Priority has been given to meters that mitigate safety risk for staff and customers with many meters (e.g., City of Eugene, school districts). There are approximately 1,800 unfilled opt-in requests.
"The small procurement threshold was breached in the Water Division by splitting an order between two purchase orders." What was the size of these purchase orders? Why were they split? There were two purchase orders involved, one for approximately $9,000 and one for approximately $4,500. These purchase orders were for the purchase of three chlorine analyzers which cost approximately $4,500 each. Two analyzers were associated with improvements to replace aging equipment at the College Hill Reservoir and one was associated with improvements at the City View 800 Pump Station. The improvements at these two sites are budgeted under different subprojects. As such, separate work orders and associated purchase orders were set up for each site so the costs could be allocated correctly. Because the chlorine analyzers were identical and procured from the same vendor, they should have been procured under one purchase order under different procurement procedures. Staff have been trained on the correct procedures to prevent this from occurring in the future.
Consent Calendar
CONTRACTS
Habitat Contracting (MCCANN)
EWEB is dewatering Leaburg to allow for de-energizing the Carmen/BPA line. If our R/W upriver is being vacated, why do we need to pay $39/hr to manage vegetation on an inactive transmission line right of way for 5 years? We are de-energizing all of our upriver facilities this weekend in order to allow BPA to connect EWEB's new Holden Creek Substation to the BPA 115kV transmission line that crosses Hwy 126 at the Holden Creek site. This connection will allow EWEB to decommission and abandon (likely late 2019 or 2020) EWEB's 69kV transmission lines from Leaburg to Springfield. This outage will last a total of 10 hours. This work will not affect the Carmen-Smith 115kV transmission line, other than the 10 hour outage. Further upriver, EWEB will continue to wheel power generated at Carmen-Smith across our transmission line from Carmen to the Cougar Tap, and then on the BPA 115kV transmission line from Cougar Tap to Thurston Substation. The contract before the Board is for vegetation management along the 19-mile long Carmen transmission line between the C-S project and Cougar Tap. It covers the requirements for vegetation management imposed by the Carmen-Smith Settlement Agreement and FERC license, specifically protecting threatened and endangered plant species, Forest Service species of concern and culturally significant plant species identified by Native American Tribes who have signed the Settlement Agreement. It also requires protection of cultural resource sites in accordance with our Historic Properties Management Plan for Carmen-Smith, and the management of invasive plant species in accordance with USDA Forest Service protocols.
Wildish Construction Company (DAMEWOOD)
Does the $187,000 contract for the Crenshaw 800 Pump Station cover the entire cost of the new pump? If 95% of the cost is supposed to be paid by the developer, then is our net cost only 5% of this amount? The total project cost for the Crenshaw 800 Pump Station will be approximately $600,000, including EWEB overhead, of which EWEB will pay about 5% ($30,000). The remaining cost will be paid by the Development(s) that are requiring the pump station to be built. This contract is for the installation of the pre-purchased pump station including a concrete base and retaining wall, site grading, and the connecting pipelines.
RESOLUTIONS
Resolution No. 1808, Conveyance of Park Property to City of Eugene (LAWSON)
Regarding the access easements onto the property to the south of the HQ building, will this now require EWEB to reconstruct access gates and security fencing to secure our facilities? How will we control who comes into the area & when? Also can you show me on the conveyance deed where it says specifically no overnight camping? I believe it may fall under item #2 of the 2-25-14 Agreement between EWEB & City of Eugene. Before we convey the "park property" to the City, we will review and encumber the property ensuring EWEB's (and future HQ occupants' and/or owner's) interests are maintained, including easements, access, etc. We want to ensure we have access to the water intake for emergency purposes, and can maintain the HQ property through the park as needed. As part of the Riverfront surplus sale (16 acres), a temporary access easement was recorded for ingress/egress for HQ until permanent access to the south is created. At some point, EWEB will need to construct a fence along the southern line between the backup generator and park fence, and potentially a new "driveway/gate" depending on the permanent HQ access location. Additionally, an agreement was signed as part of closing called Agency Development Policies, which states under "Restricted Uses" that Agency shall "restrict uses, permanent or temporary, of the Agency property to those that support the redevelopment of the Agency property and those consistent with city codes and/or the Riverfront Master Plan" (which does not allow any temporary housing or camping). We can modify these rules as needed. This agreement also covers noise, security, access, etc, and can be provided if you're interested in it.
OTHER
Replacement of EWEB Open Access Transmission Tariff (OATT); Approval of Transmission Operations and Transmission Services policy (ACKERMAN)
Is all of this new policy language or is it simply an adaptation of language already contained in EWEB's existing OATT and related contracts? With the exception of the change from offering both a firm and non-firm service, the majority of the language in the updated policy is an adaptation of that which was already in place.
Who are our present transmission service customers, and do we anticipate having more in the future, and how much annual revenue is associated with these services? EWEB currently has three transmission customers; U of O, PGE, and SUB. Total revenues for the related transmission rate codes in 2017 was approximately $300,000.
Am I correct that the reason we are doing all of this is because we are not FERC jurisdictional, and our previous approach of adopting the OATT pro forma tariff is no longer practical? Yes, that is correct.
Will this require new contracts with our existing transmission customers? We will work to amend our existing Agreements once the new language is adopted. This is the intent behind the "adopted" date of 5/2/2018, and the "effective" date of 6/1/2018.
Correspondence
Annual Rate Adjustment for Dark Fiber Lease Pricing (FAHEY/PRICE)
"Pursuant to past Board action, EWEB's three Dark Fiber rates will automatically be adjusted on April 1, 2018 per the City of Portland CPI" - Please remind me why these rates are tied to Portland's CPI? Does Eugene not have a standard CPI that could be used? Portland Oregon metro area is the nearest geographic area with published CPI from the US Department of Labor: Bureau of Labor Statistics.
