Good morning, let's call to order the Public Utilities Board meeting of December 10, 2018.
First item, I'd like to move the closed meeting to the end of the agenda that will give the
staff ability to get out of here and not hold up their time.
So the first item of business will be the work session to receive a report and hold
a discussion regarding the phase two of the 2018 Denton Municipal Energy Risk Management Policy, that's a mouthful.
>> Thank you, Chair Parker, Public Utility Board, happy holidays.
>> Hey, it's that time of year again.
So here today to talk about the energy risk management policy, our phase two update.
You may recall we were here last spring and really made a large step forward in our risk management policy.
We went from a document that was composed back in 2014, learned a lot of lessons,
there'd been a lot of changes in our staffing, power supply portfolio.
And we updated it to 2018 conditions, but we didn't touch on everything.
We left some work for a little bit later, and we're here today with a phase two update,
which will, you may recall Deloitte had a lot of recommendations.
And we're going to talk about the additional inclusions we made in the risk management policy for Deloitte.
We also worked hand in hand with enterprise risk consultants, you may remember them.
They had been here before the PUB several times, and they were very helpful to us.
And we also had some gray boxes that were in that phase one update that we said, hey, we're going to be doing this in phase two, so we're back to report on that.
Just like last time, I'm going to introduce our risk management expert, Phil DiPastina.
Phil put this presentation together.
You may recall he's got like 25 years of experience in risk management for electric utilities,
first saw the risk management for what at the time was the largest electric utility in the United States, and worked for Aircott.
He's been in the front office, the back office, the middle office, and today he's our middle office.
So he's sort of the traffic cop, making sure that we do the right things with respect to risk management.
So, Phil, if you want to come up, I see your tie is better looking than mine, so I think I'll turn this over to you.
>> Thank you, George.
>> Okay.
>> Hello, my name's Philip DiPastina, and as George said,
I'm going to go over the main changes that we're proposing to make in this risk policy.
George has mentioned at a high level where these things come from.
I'm going to go into more detail.
So one of the things we're trying to do in this version
is to be more quantitative in our
measurement of how well the EMO is doing.
And so we're proposing a few metrics to reflect that.
One is the reduction of risk, which is the exposure to market price volatility.
The second is a comparison of actual costs that we incur to a market index,
which we're proposing to use the ERCOT day ahead price as our
target to try to meet or beat, plus a small hedging premium.
And the comparison of DME's average rates to those of other Texas municipalities.
Another change we're proposing is to kind of beef up the responsibilities of the risk
management committee, which is going to provide governance and oversight for this program.
In addition to that, and we can go into more details if you have questions,
but also go into more of the responsibilities of the
different groups that are involved with this program that we call the front, middle, and back offices.
The front offices are the people that are actually doing the day to day decisions to buy and sell and to interact with ERCOT.
My role is the middle office, which is kind of the oversight of the program.
And to ensure that everything is in compliance with the current policy.
And then we have a back office function, which coordinates the accounting and
settlements and coordinates with the city finance department.
In addition to that, we're proposing some more risk controls
over the models that the EMO uses to make their day to day business decisions.
And then we're adding a description of what are all these risks that we're trying to manage.
Most of the time we just talk about price risk, which is how vulnerable we are to fluctuations in the market prices.
But we also have volume risk, which is associated with the variability of renewable energy producers.
Commodity risk, which is a possibility that the people we're buying and
selling power with won't actually deliver or pay for the power.
Credit risk, model risk, and regulatory risk.
As I said earlier, we're trying to be a little more quantitative in how we measure all this stuff.
And so we're proposing a kind of a target of $15 million for
how much we're willing to pay to try to manage risk.
And we're going to use some metrics that are called at risk metrics.
But they are a little complicated, but
they generally try to take historical information on prices.
And price correlations and volatility, and consolidated into a single number.
And we're going to use that to compare to this $15 million threshold.
And then if market conditions
become more volatile, and it looks like we're going to have to spend more than about $15 million over a rolling 12 month period.
And we'd go to the risk committee and explain the situation to them and get their input.
And if we went over 125% of that target, we'd actually come back to you and
the city council and explain what's going on with the market.
And our plans to try to either manage that and
reduce the risk, or accept it and move forward.
Additionally, there's a concept called open position.
Which is kind of the vulnerability we are to the market prices.
The difference between, in ERCOT, the rules are set up so
that you essentially take all the generation you have and sell it to ERCOT.
And then turn around and buy all the energy you need to serve your load from ERCOT.
And so those two generation load costs kind of net out.
And the difference is what you're exposed to on the market.
And sometimes we have more resources than we have load in some hours.
And in some hours we have less resources than we have load.
And so that's called our open position.
And we're going to try to manage that.
And as we get closer and closer to our delivery period, the idea would be that we'd be more in balance.
With our loads and our resources, so that we'd be less vulnerable to market changes and swings.
Another section we're adding to this version of the policy or
we're proposing to add is congestion management strategy.
And what that is, is the way ERCOT works is we get paid for
the power that we generate at the specific points of our generation, and those are called nodes.
But we pay for energy at kind of an average North Texas
kind of number that's called the North Load Zone.
And those numbers aren't always exactly the same.
Usually they are, but sometimes they're not.
When the wires get kind of full, then the prices disconnect.
And so that's called congestion.
And ERCOT has a program to offer financial
hedging instruments called CRRs or congestion revenue requirements.
And point to point obligations.
And these financial instruments are meant to help manage that the risk,
the prices where the power is produced and where we buy the power are a little different.
And so we're adding a section to the risk policy that explains what our strategy is to manage that and how it works.
Another new element to the risk policy is that we're going to ask our
energy training group to develop plans for the next three years.
And review those with the risk committee at the beginning of each year.
And then as we go throughout the year when we meet, which is about quarterly,
we'll ask them to return and report on their progress at either meeting the hedging targets that they've set.
Or explaining where they are in meeting those targets.
And if things need to be changed, then we'll discuss that too.
And there's some miscellaneous changes you'll see in this policy.
Organizational charts have been updated and job titles revised.
A little additional detail has been added to the types of transaction types that are approved for
use by the EMO, as well as a checklist for
adding new products to make sure that the benefits,
the risks, and all the policy issues have been addressed before we actually do something new.
Finally, there's a few things that were mentioned in our consultant
reports that really don't fit into the policy itself.
Once this second draft is updated, we'll need to update our
operating procedures to be consistent with that.
And operating procedures are just more detailed than what you see in the risk policy itself.
The risk committee has asked us to develop an executive dashboard so
that when they see what's going on, it's in a standard form and
it's consolidated so they can quickly understand how things are going.
And in a similar vein,
we're going to be developing some consistent,
thankfully simple templates to report to you guys and to the council on the EMO activities.
Our consultants have recommended that we provide periodic ongoing
training to the BUB and the city council on market fundamentals and commodity training.
And we've talked about that and we'll probably be bringing in some outside consultants to do that once or twice a year as needed.
And then we've also received recommendations that we need to do a little more cross training and
knowledge sharing within the EMO and the different groups that make this program work together.
So that we can better cover each other when there's somebody out or
we all understand how we're trying to do the best job we can in each of our areas.
In the package that you received today in addition to the risk policy,
the draft that we're proposing, there's
implementation tasks status report that has all the recommendations
that the Deloitte made back in December 2017 for
improving the risk program as well as a few items that were mentioned in the AIS report back then.
And these gray box items,
which were flagged in the current risk policy as items that were still under development.
So that status report is there for you to see how we're doing.
And as George mentioned, we've accomplished or
we're proposing to accomplish almost all of the recommendations that have been mentioned in this update.
We've also included a red line version so you can see what's being proposed to change from the current version.
And a memo from enterprise risk consultants that comments on how the program's doing.
So I think, George, do you want to finish off here?
>> I think to summarize, George Morrow, general manager of DME.
The goal that we're reaching for is this increased transparency and
oversight of our risk management activities or energy procurement work.
Fixing whatever needed to be enhanced from, that was pointed out to us in the past by ERC and Deloitte.
We very much appreciate their input and comments.
But also to recognize that this is a living document.
We're going to be back at least annually to the PUBN city council.
We want to take it continually up another notch.
We want to add additional clarity, quantification, as Philip mentioned.
And one of the things we're looking forward to is procurement of what's called an energy trading risk management system, ETRM.
That was one of the core recommendations out of Deloitte.
In fact, so we're getting ready to put out an RFP to procure that model.
The model will be very valuable to us.
It'll allow us to do additional analyses in a convenient, rigorous fashion about risk.
And allows us to share data across that back office, middle office, and front office.
So everybody working from the same deck of cards, so to speak.
Versus manual handoffs or everybody inputting their data.
It's just a smart technological improvement.
So we'll be back to you at some point over the coming months with our recommendation for an ATM procurement.
And lastly, so today's a work session.
Just wanted to introduce the subject, get any initial comments you might have.
Also, we'll be back in the next month or so based on what we hear from the city council and
from you with an approval item or to approve this actual document.
So that will be the next step.
There's another bite at the apple, so to speak.
So comments and questions, if any.
>> Questions, Brendan.
>> I have a question regarding the customer risk tolerance component.
It says that we'll initially assume a CRT of one cent per kilowatt of load.
And estimates around $15 million.
Did we come about that dollar amount based on historical assumption of risk or?
>> Yeah, so we did some surveying outside of our operation.
Philip recalls from his history with a number of different agencies, also whatever's available out there.
And 10% seemed to be a target that had been accepted and promoted by a lot of different utilities.
So for us, we're annual revenue per year, just a round number, about $150 million.
You mentioned the cents per kilowatt hour for residential, average about 10 cents.
So this is about a penny of the 10 cents.
So it sort of gives us a range to work between before we get really, really excited.
Now we still might get excited if we're a little bit out of bounds and still within that amount.
But that's kind of the trigger where we want to make sure we have
done our best to control the risk that got us to that point.
Many times, things are out of our control.
It's not something bad that we did.
That's one thing I like to talk about on the risk side.
It's not that, hey, we did anything or the EMO did anything.
It's that the world changed.
The market changed.
Like we talked last summer, remember that we had a lot of power plants retiring and
we're seeing the same thing this winter.
So the summertime, the prices, whoa, they open up quite a ways.
And that increases the risk for all the agencies, not just for DME.
But we want to make sure that we have a plan and we do something about that when it does happen.
And if it gets too far out of bounds, and we'll be coming back to you just to say,
here's what happened, here's what's going on this summer, or this month, or this year.
And here's the actions we're proposing to take or have taken.
>> Just as a follow up to that.
So do you expect that we'll spend $15 million mitigating risk in a year?
Or that's just a budget cap that we may need more and
we'll come to PUB and alert the risk committee?
I mean, do you expect that we're going to spend $15 million every year mitigating risk?
>> No, we don't expect to spend that money.
And it's just a, it just gives you, let's take the football field analogy.
If we watch some football games this weekend, we have the sidelines.
So those are our goal posts, our sidelines, our guidelines.
We want to stay within the field, plus or minus.
But, and it's not actually, yeah, so we're not expecting that.
We have no prediction for that.
Our prediction is our budget that we have right now.
So we've set rates.
We want to keep within those rates.
But recognizing that power supply is a moving target sometime, and we just wanted to.
So this is our first attempt, and I'm not sure that we wouldn't come back and
refine that some more as we continue our dialogue with the PUB and the city council.
>> So then it's not going to be a budget item.
You're not going to add this to your budget somewhere or pull it from somewhere else?
>> Totally correct.
At this point, there's no intention to do that.
We're not expecting to spend that $15 million.
>> Okay.
>> For us, it's just a red flag that forces us to do some things.
>> Is it the ceiling above, say where we budget 80 million for power supply and
it's the 15 above that, is that the ceiling, that's the target?
>> Yes.
>> Okay. >> So that would be it.
>> And then the 125 comes after that, which.
>> 25 comes after that.
>> The whole market is falling apart at that point.
It's not just us.
>> It's not just us.
It's things we couldn't predict or manage.
It's not under our control, a lot of what happens out there in the market.
But as I mentioned to the risk management committee, we talked to them recently about
the same document, is we don't wait for 15 million impact to happen before we,
okay, we better do something.
No, we're on it every day.
>> Right. >> We're watching this 24 hours a day,
basically, we have people that watch everything that's going on.
And we'll have dealt with it long before we hit that target.
>> I have a question.
So is the 15 million the hedge or
are there market hedges that you're talking about when you speak of hedging against risk?
>> I think the chair hit it on the head.
So what we're talking about, that 15 million,
that would be additional cost of power supply, because everything sort of bundles and rolls together into power supply.
It's the cost of all of our resources that we have under contract.
It's our debt and energy center.
It's special buys that we may, hedge buys that we may have made on top of that to kind of close the open positions that Philip talked about.
So that all kind of gets rolled together into the, and so it's that.
It's that pool of cost getting increasing by $15 million.
>> From our expectation, from the budget that you've approved and you've seen.
>> So, if I understand that right, 15 million is if all hedges don't work and the market goes totally crazy.
>> I think that's exactly right.
So based on everything that we-
>> It's just an insurance policy, again, so we don't get caught blindsided.
>> Right, I think it's a hard concept to get your arms around.
We had a lot of discussion also with the risk management committee.
We'll probably have a lot of discussion at the city council level.
It's just the, hey, you're out of bounds.
You've hit the boundary of the playing field, and come tell us what you're doing.
And what I mentioned to the risk management committee, we'll be before them well.
Before that, nothing's going to happen in a day, probably.
We'll see things evolve and change, just like we're starting to see things evolve and change for the expectations of next summer.
And it just forces all of us to think about how we're managing our risk and do we need to do some other things.
I don't know if that explains it.
>> And it may not be that, I mean, we're probably going to have to spend that because the market conditions say that.
It's just that we're going to be that much more transparent about what is happening.
Is that part of this?
I think that's a wonderful statement about what that means and what we would do.
Yes, so I'll leave it right there.
>> I do have one more question.
Go ahead, Brendan.
>> So you brought up the Denton Energy Center.
>> Yes, I did.
>> So if, let's just say for instance, we know the Denton Energy Center is going to lose money.
And we're going to need more money to keep it operational.
Does that mean we'll pull money from this fund to keep it operational?
Or to pay for maintenance or something if indeed the maintenance is not being covered by the money that it's making?
>> So the fixed cost of power plants, for instance, and the fixed cost for
our resources that we've contracted for the different renewables, those are in the budget.
And those will be in our budget, so that each year we have enough money to take care of all of our financial requirements with respect to all of our resources.
So this is more of the operating side of the equation.
This is the hour to hour, day to day, month to month.
So for the Denton Energy Center, it's the variable cost of operating that power plant,
which in a lot of the market conditions that we're seeing, if you're just looking at the energy part,
it is a very, very positive hedge in insurance policy.
Fixed parts already kind of dealt with through the budget, so this is just the operating piece of it.
>> Sure, I understand that the fixed parts are in it, but the Denton Energy Center takes
these same risks that we're talking about by producing energy and selling it on the market, correct?
>> Correct, but what's nice about the Denton Energy Center is we tell the market what the price is of the Denton Energy Center.
We will not run if we are not going to make money.
So every time we start it up, we know that the market conditions are such that we're going to make a little bit or a lot, depending on what the conditions are.
So that's on the operating side, because we know what our efficiency is.
We know what our fuel cost is, and we can say, okay, we've got to get that amount when we sell this, and otherwise it doesn't operate.
>> Are you certain about that?
>> I mean, because what you just said is that we'll make money every time we turn that on, and I don't think that's true.
>> On an operational standpoint, I'm ignoring, I started the conversation with you that the fixed costs are over someplace else.
>> And I understand that, I understand that.
>> Well, why would we run the deck if it's not going to-
>> I thought Urquhart told us when to turn it on.
>> But Urquhart will only tell us to run it when it's positive from an economic standpoint for us.
>> So it's taking no risk.
>> Right, right, we set a price, and we bid the deck in.
If it meets or exceeds that price, we run the deck.
If the price is lower, we're not competitive, and the deck doesn't run.
So the worst case scenario, you would only break even.
That's the worst case scenario.
>> So we'll tell Urquhart, as Todd said, here's the price for the deck.
Here's what it cost us to run for the next hour, and they will not trigger that to run.
And we will not run it even on our own if it's not going to make some money for that period.
That doesn't, that's just-
>> Or at least break even.
>> Yeah, we're hoping to do slightly more, but yeah, at least break even.
>> Okay.
>> Good questions.
>> And I'm glad you said that, because yeah, that was my understanding too,
was that we might lose money if ERCOT told us that we had to run the plant.
So I think that's something that really needs to be repeated over and over again.
We're not going to lose money on the deck.
>> I think they just mean on the production and selling component.
>> Right. >> I don't think they mean on the rest of it.
>> We don't.
>> Because it can still lose plenty of money.
>> You're right, and if things got so dire that they forced us to run the plant, there's no question that would be a very positive thing for the deck.
And they have, ERCOT does have the ability to wave and
mitigate the TCEQ permit requirements if you ever got in that kind of emergency situation.
But if that ever happened, my guess is the market would be so high that you'd make a lot of money in that perspective.
But the deck represents no financial risk when it runs.
If our accounting is proper and we've bid in the proper rate, which we have.
And so at worst case scenario, we just break even.
But I think the other point that's out there, and there's a lot of misconception, is could they force us to exceed our permit?
My question is, if we got into a dire circumstance, they could.
But at that point, the market's going to be very high.
>> Yeah, so the objective when we operate is to make some money.
>> Sure. >> On a production side that you mentioned, and that offsets the fixed cost.
So that's a contribution to fixed.
And that's our objective, to make as much additional revenue
of our operating cost that it can offset as much as possible of the fixed expenses.
>> I have one more question on a previous slide.
>> Okay. >> Let me get to it.
Talking about the training of the council and the PUB, is that going to be like a joint working session?
>> It could be, I haven't thought about that, but that might actually be a good way to do it.
We could have a joint session, I'm thinking bringing in a third party might be the best way.
And then we would have just training that kind of builds on itself
to talk about a lot of these concepts that we're discussing today about how the market works,
how trading works, how hedging works, and hedging, energy's a commodity.
So it's like the commodity market, so yeah, does that sound okay?
>> Yep, yeah, I'm just curious.
>> Okay, so we'll try to get that, we get this approved.
We'll try to get that kicked off early this next calendar year.
>> Other questions?
>> Thank you. >> Thank you.
Next item, receive a report, hold a discussion, and
provide staff direction regarding the solid waste department's building materials recovery and rubble process.
>> Good morning board members, my name is Ethan Cox, I'm the director of solid waste.
Pleasure to be with you this morning.
So to refresh everyone's memory, I think we do have some new board members here today.
Last summer, the solid waste department had a solid waste consulting group named Blue Ridge Services come in and
kind of provide a 30,000 foot overview of what's working, what isn't.
Our department has a number of different operations and programs that we've put forth for the community.
And they kind of gave us some feedback on some of that.
In some cases, their recommendations were you need to step away from this operation.
But in almost all cases, there were some opportunities for improvement.
And so whenever we delivered this to the PUB and the council in the summer,
the council's recommendation was we appreciate the 30,000 foot view of this from the consultant.
We'd like staff to take a bit of a deeper dive and do some more analysis.
So this is the first in a series of these types of discussions that we're going to be having with the board and the council over the next few months.
As such, I wanted to kind of lay out what we're trying to do with these.
So on this slide, we have a definition for what a business case analysis is.
Typically, that's cost benefit analysis.
It does have some risk associated with that, that you're going to be looking at.
For a program, proposed investment plan of action.
For what we're going to be doing, a lot of this is just looking at programs that are currently on the ground and
not only looking at what the program purpose and objective is, but how are we succeeding in meeting those objectives.
There will be a financial analysis associated with these, as well as the risk assessment.
And at the conclusion, we'll provide both the board and the council with our conclusions and recommendations.
Similarly, we also want to provide some definitions.
Some of these operations are pretty well known.
Others, there may be some misperceptions about that.
So for today's discussion, some of the definitions that we think are important is when we talk about rubble,
really what we're talking about is waste fragments of stone, brick, concrete, or asphalt.
Our operation has accepted that from a lot of contractors and larger commercial haulers for a number of years.
Similarly, building materials can include brick, concrete, and other materials as well, like glass, drywall, metals, insulation, lumber.
I have metals highlighted here in a different font, because that's typically about the only material that you can actually recycle.
Now, you can process a lot of those other materials and reuse them, but you're not really recycling them into a new product.
And so with that, we also have our diversion definition here, which we think is pretty important to understand what is actually being diverted away from the landfill.
So we do not count stored and stockpiled materials diverted until it leaves our side.
And so for our definitions and for the figures that you'll see, diversion means there's no chance of that going in the landfill.
We've sold it and moved it off to be recycled or for some other use.
Some of the purpose and objectives we'll talk about today.
For years, the solid waste department's objective, a lot of cities look at zero waste and trying to achieve that, and typically zero waste means if you're diverting about 80%.
Our goal for the last several years has been to divert 40%.
We're not as close as we thought we were, simply because when you adjust that definition of diversion, not counting stored and stockpiled materials, a lot of that does kind of come away.
So we're typically diverting about 15 to 20%, depending on where the market sits right now.
The purpose of these operations for rubble processing, you know, this is one of those operations that we could typically be competing with some folks in private industry.
And a lot of construction outfits, they do their own rubble processing and they reuse that material because they are efficient at it and they find a good use for it.
So for us, getting into this type of business is to sort and process the rubble and in order to move it off the site, we have to sell it as an aggregate material.
There is some operational benefit to us using that material on site, but again, that's reuse, that's not necessarily diversion.
Building materials recovery, the purpose there is to sort, recover, and divert construction waste that would typically be land filled.
Essentially, when you're diverting that, you're either reusing or recycling, like I mentioned with metals.
Some of the participants, our customers here, like I mentioned a second ago, it's typically private contractors, commercial operators, but it's also city departments as well.
We have a streets operation, we do construction projects, and so they're definitely a customer of ours.
Operations for us, this will make a little bit of sense when we get to the budget in a moment, the BMR and mining operation were co-mingled.
And so last year, if you'll recall, we shuttered our landfill mining operation.
So when you look at the budget figures, kind of keep that in mind, that it was both the BMR and the mining operation together.
In terms of program performance, again, we evaluate that based on diversion.
Diversion is accounted for by weight.
So over the last five years, when the BMR and the rubble processing was up and running,
we accepted about 300,000 tons of rubble, of that we only diverted about 9%.
From a BMR perspective, much less tonnage, but again, the diversion was right around 10%, and again, that's mostly metals.
So when we talk about diversion, for the rubble, that means it was sold and moved off site.
We do have some significant stockpiles on our site that I'll talk about in just a moment.
We've gone through a series of audits, both internally and externally.
We've also surveyed some of our stockpiles out there, and currently we're unable to account for about 140,000 tons.
And so the assumption is, is we either use that for road base, which again, is not diverted, or it was used in some other capital project that we can't account for.
There's also the potential that it may have left the site without being weighed.
But typically, we've kind of locked down those lanes to make sure that everything entering and exiting the site is being weighed moving forward.
Some of the challenges that we're dealing with and why that diversion rate is so low, particularly for rubble, the source material is very contaminated.
I'll show you some photos here in a moment of what that looks like.
There's also a limited market for recovered materials.
And so when you're looking at lumber, we would love to be able to process the lumber and sell that as wood chips.
But a lot of cases that has paint, has treated material, and so there's a very limited and very narrow market for that.
So really what you're looking at, your best bet is to reuse that material if you can.
As it relates to rubble, like I mentioned, we are competing with private industries, so other processing firms are much more efficient.
That's their primary business, and they have very strict standards for contamination, which we'll talk about in just a moment.
From a financial standpoint, over here on the left, this is historical income and loss.
We provided this to the PBE and the council back in the summer.
So from a strict cash flow standpoint, we're losing to the tune of about a million dollars a year on these operations, rubble and BMR combined.
Recent budget activity, this is where we talked a little bit earlier about separating mining from the BMR.
Probably the best figure to kind of get an idea of what it cost to actually run both of these operations as is,
year fiscal year 16, 17 actual, about $3.4 million.
For this budget year, we brought that down to about $2.7.
Some of the changes that were made, we removed 10 FTEs that were previously assigned to the mining operation.
We've also reduced temporary labor expense, pretty much site wide, but associated with this, about $268,000.
One of the things I'll point out is both of these operations are heavily dependent on heavy equipment.
And so we have a lot of stranded debt service right now.
As we start moving into the out years, if we step away from these operations,
you're probably going to see about $1.2 million come off of that fiscal year 17 or fiscal year 18, 19 budget.
And so that draw down does take place over the next five years if we decide to move away from these operations.
Refresher of the council direction we received on June 26, so I mentioned Blue Ridge earlier.
They provided recommendations on both of these for BMR that simply felt that the financial losses,
the expensive equipment, and the inefficiencies associated with that operation didn't make sense in their expertise.
Likewise, with the in house rubble processing, there is some use for that material on our site.
Like I said, we do construct temporary roads and tipping pads.
So essentially, their recommendation was to use your rates and/or policy to regulate the volumes you have coming in.
Some of the stuff that the city departments have, that's perfect.
We just got to make sure we have some really strict contamination guidelines there.
Council direction at the time essentially was to bring these results and
analysis back to the committee on the environment, the public utilities board, and the council.
In the meantime, it was to temporarily convert the BMR into a public disposal area, as we call it the PDA.
Also relocate recycling drop off, I'll show you a little bit more about that on the next slide.
And then also to temporarily suspend rubble processing operations.
So, last few months, what we've really tried to do is really pilot,
is there a more efficient way that we can do this a safer way?
Something that actually serves our citizens as opposed to commercial haulers and folks that may not necessarily live or work here.
First thing that we did was convert the BMR to the public disposal area.
I'll talk about the numbers in a moment, I want to walk through the images first.
Lower left hand corner, that's kind of a good snapshot of how the BMR would typically work.
You'd have commercial haulers drop a lot of their loads on the ground.
We'd have loaders, skid steers, heavy equipment that would kind of move that into position for
either an excavator or some type of material handler to put that on a conveyor.
And then you'd have a team of personnel up here kind of sorting by hand some fine materials.
A couple of challenges with that, it's very dust intensive.
Dust is a consideration for us out at the landfill.
It's also a little bit of a risk in terms of safety.
You got a lot of sharps, a lot of things in there that you have to protect those folks that are on those lines.
So all in all, kind of a really inefficient operation.
What we've done is we've converted that to the public disposal, as you can see here.
We're using less than half the amount of equipment, less than half the amount of staff.
What we feel like is we have a much safer operation, so this little gentleman right here.
He's helping direct our residents and businesses.
These are not always big commercial haulers.
We're really focused on someone cleaned out their garage.
Let's not have them go to the landfill and jockey for position with a big haul truck.
Let's get them into the public disposal area, have them a nice clean experience.
So that's really what he's doing here is making sure that the right folks are using this, that everyone's backing up in their lanes.
And then this is kind of the snapshot on the backside.
Again, we have a gentleman back here that's making sure that everyone's clear of the heavy equipment as he's pushing that material out.
Also, what we're asking residents to do is if they have metals and things that are easily diverted, so go ahead and set that off.
We have bins that you can't necessarily see here in this picture, but there's a separate area for appliances, electronics, a lot of that.
So there's self-separation going on, and then also our staff is here.
So this gentleman, probably go grab some of the cardboard and things like that to try to get that out of there if we can.
All in all, we've cut down about half of the cost, and that's not including the debt service that will roll off.
But we're still diverting about 85% of the material that we were previously.
The commodity revenue is down, but that's just kind of part and parcel of where the market is right now with recycling in general, but metals were also impacted a little bit.
We feel like we've got a much cleaner, safer, more beneficial operation through the PDA.
It's working really well, and our staff's done a really nice job implementing it.
One of the other things that was not necessarily tied directly to this, but we wanted to try to clean it up if we could.
We have a number of recycling drop off areas in the city.
This one was notorious for illegal dumping and contamination.
This was right at the entrance of our facility, so essentially I think what would happen is someone would roll up,
either were closed or they didn't like the price they got at the gate, so we got to take it for free out at the recycling drop off.
So this is open access, there's video camera monitoring, but we really didn't have much enforcement going on.
We're doing a good job diverting cardboard, because you can see with these containers, their slats really can't fit much in there besides flattened cardboard.
Single stream diversion, which is your mixed recyclables, that's where we were really having a hard time.
And so all of this right here is what we call contamination.
We did a couple of material audits with our partners, Pratt, and they looked at it and said it's not worth sorting.
So all of them went to the landfill, which is really unfortunate because you do have folks that are using these containers responsibly.
So what we did is we moved this right next door to the public disposal area.
As you can see, much cleaner, more organized, staff's on site to help the customer.
Cardboard diversion remains high.
We were able to increase our single stream diversion to 80% versus the less than 1% we were getting before.
So again, a much better result as moving this behind the gate.
So the remaining challenges we have mostly are related to the rubble processing.
We estimate based on surveys and quotes from vendors that would help us out with this that we have about $1.5 million worth of stockpiles that need to be processed.
Of that, we talked about contamination earlier.
You can see this is fairly clean in spots, but you also have a lot of soil in here.
This is almost entirely soil.
You also have some materials up here that look like waste.
The problem with soil is if it's not tested, we may not be able to divert it and use it on site.
It may be classified as waste product.
And so whenever we go through this and separate this material, we need to determine is this soil we can reuse for cover or is this soil we actually need to landfill.
What that would mean is if we don't process any of this, we move all this into landfill, we've lost about $3.3 million of potential airspace.
Processing, we feel confident that we could recover about $664,000 of that, that's that 20% recoverable material.
The challenge is there is a limited resale market, and if we can't move it off site, then we'll typically reuse it for our operations.
If we do process, we do have $180,000 in avoided costs because we do need that for our operations.
What I would say is this is still upside down financially, but the biggest issue is the stockpiles are in the way of future landfill cell development, so we're going to have to move it anyhow.
We might as well process it and try to get some use out of it if we can.
So options and recommendations, option one is to discontinue the acceptance of rubble for commercial entities.
We would implement quality standards for material from city departments, that's less than 5% contamination.
We'll also sort and process the existing stockpiles over the next five years.
Like we said, that is an expense to some plants, we would meter that out to occur over about a five year period.
And then also we would recommend eliminating the BMR and continue with the public disposal and recycling drop off areas that we've created.
Option two would be to reinstate these operations as they were.
The associated operational cost capital investments would come back into the budget.
We would need most likely a budget amendment to increase to about $680,000 to that $2.7 million you saw earlier.
Anytime you have a operation out there that is under recovering on a financial basis, there is a subsidization that takes place.
Some of that happens at the gate, some of that does get meted out to the residents and the businesses.
So right now at that $2.7 million budget, current monthly costs to our residents range from 39 cents to 77 cents a month.
Commercial, much wider swing, that's because the costs vary according to container size.
Keep in mind traditionally, in the past, these are operations that businesses and residents weren't getting much benefit out of.
As we talked about drawing down on your debt service, you do see about a 42 to 56% reduction, depending on the rate class.
We believe if we play our cards right from a rate setting standpoint at the gate, we can eliminate the vast majority of that subsidization.
Option two, if we were to go that route, would negate the year over year cost reductions and it would actually increase your monthly cost.
Adding that $700,000 back in, this is what you'd be looking at in terms of subsidization.
Talking to the committee on the environment, there are some environmental impacts here.
Namely for option one, we're reducing about 20 pieces of heavy equipment.
So that reduces our diesel consumption by about 19,000 gallons a year.
And then you also have your emissions that would be reduced as well.
Other factors like we talked about is the reduction of dust at the BMR and rubble processing.
You also have less waste going into the landfill if we don't accept some of this material at all.
But that also reduces your greenhouse gas emissions from the landfill operation.
When we talked about this with the committee and the environment, their recommendation was to pursue option one.
With a couple of additional pieces of direction is to try to explore some local partnerships to divert the building materials, i.e. brick.
We have Acme Brick here on site.
Again, this is not a recycle opportunity, but it may be a reuse opportunity for them.
We can also consider rate changes to encourage either material sorting.
Or if it's something where we don't really necessarily want to accept construction and demolition waste in landfill,
we can use our rates to encourage folks to go elsewhere.
So with that, I'll stand for questions and I'll back up to get in the PUB's direction.
>> Questions?
I guess one question that I have is when you say encourage them to go elsewhere, is there an elsewhere for them to go?
>> There is, I mean, we are a regional facility, but there are other regional facilities in the area.
Rubble processing is a great example is there's concrete processors all around our area.
And so whenever we put a temporary hold on that, what would happen?
Commercial operator come up, we don't accept that right now.
Here's your list of options and we haven't had much pushback as it relates to that.
And construction and demolition is something that we would have to take a closer look.
I know Fort Worth runs a C and D only landfill, and so there are some opportunities there, but it may be a bit more of a drive.
And I think probably the biggest thing that I would say on that is if that's something we want to explore, we can go back and do some more analysis.
We also want to circle back with the PB and the council to have kind of a rate discussion, a rate strategy discussion as well, and we can provide that there too.
>> I guess my only concern was just that you'd see more dumping as a, you know.
>> That is one of the risks of it.
>> Yeah. >> It is.
>> Okay.
>> Do we have a way of monitoring that risk?
>> Illegal dumping?
>> Yeah.
>> Not a great one.
I think that's something we would need to take back and take a look at.
I know for the sites that we manage, we have a pretty good handle on it.
But we probably need to visit with other city departments, code enforcement, etc.
To figure out, where are you seeing this occur?
And if we make a change from a rate standpoint, does that move the needle one way or the other?
And I haven't done a lot of research on this, but typically that's why most cities provide bulky item collection and things like that.
Because if we don't do the right thing by our residents, you have a situation like we had with our recycling drop off.
>> Other questions?
Go ahead, Brandon.
>> That's okay, that's okay, I don't ask other times.
>> So do you need direction from us as to which option?
>> Certainly, we're going to be talking to council tomorrow and we'll include your recommendation in that discussion.
>> So, what do you feel?
>> It seems like option one is sort of a no-brainer, I don't know.
>> Yes.
>> But we don't want to go back to our citizens and say we're going to raise your rates for something that's not paying off.
>> Something they're not benefiting from either.
>> They're not benefiting from that operation.
>> That's my feeling, option one.
>> Yeah, option one with the caveat that, I don't know, we might have to beef up some security to or
take a look at if dumping is increasing, maybe finding a way to resolve that issue.
>> Okay, so with rebel processing,
if we couldn't account for 140,000 tons and
let's just say they were diverted, that would have represented a 60% diversion, if that's what happened to it.
So we haven't actually run the rebel processing operation in a responsible manner at any point.
>> I would agree with that.
So you're asking us to make a recommendation on suspending or
canceling a project that at one point we saw benefit to,
then we mismanaged it and now you're asking us to recommend closing it.
And I have some trouble with that because one, where did 140,000 tons go?
And so that seems, I have a hard time recommending stopping something
other than just saying, well how come you can't just manage it properly?
>> Right.
>> So you want to spitball where you think the 140,000 tons went?
>> Well, like I said, our assumption is that it either went into one of our capital projects used on site.
There's kind of a stone wall as you drive down the hill and you see bordering the landfill.
Some staff said that that's where some of the material went.
But the other possibility is it did go into road base or tipping pads.
The third possibility to your point is it could have left the site.
Now, if it did leave the site, that wouldn't mean it's diverted, but it didn't cross our scales.
And so at this point, we've pretty much hit a dead end with trying to track down what happened to that material.
And our assumption is that whatever happened to it, the diversion rate is probably close to what it is now,
if it's anything similar to the material that we've processed previously.
So I know that's not great information, but that's the best that we've been able to do with all of our research.
>> During fiscal year 2012 through fiscal year 2017,
did we have a different definition of diversion?
>> I'm not sure what the definition was.
What I will say is there were various materials.
Let me use lumber as an example to where that was being counted as a diverted material.
But what was actually happening is it was being processed and
then put into the liquid disposal operation to kind of be a bulking agent.
All that ended up in the landfill.
And so by our definition, that's not diversion.
>> No, it's not.
>> I agree.
>> That's reuse, but it's ultimately going straight into the landfill.
I think when you look at some of the rubble is if it's not leaving the site,
it eventually finds its way into the landfill somehow.
What that means, you can break this material down to make it compact better.
Most of these materials are already pretty dense and there's limited upside gain for
going to that level of processing just to bury it.
Compactors and some of the material or machinery we use on the site does a pretty good job of compacting that on its own.
>> Just had a, looking into the future, I was just curious if suddenly there's like this huge run on rubble and
we could make lots of money off of it, how long would it take to re-instate a kind of rubble recovery operation?
>> It would really depend on how we want to implement that.
So if we were to bring in an outside contractor to process, you can turn that up pretty quickly.
I mean, essentially, you're looking at procurement time on that.
If we wanted to do it in-house, we'd be sourcing several pieces of heavy equipment.
So it'd typically be longer than a six month period, maybe a year, we'd probably get it up and running.
>> By which time the rubble market may be dropping, so.
>> And that's the challenge of making a capital investment for five to ten years and you're subject to the market fluctuations.
And we see that all across our industry, so you really have to kind of weigh the risk out of that whenever you look at it.
>> I just want to get some clarification.
So we're just discontinuing from commercial entities, which have another alternative to go to.
So should we be competing with those other alternatives?
We should be serving our citizens, certainly, but is it our role to compete in commercial rubble?
Is that our role?
>> Well, it seems as though quite a bit of it could have been used on site.
And so that's us getting paid to take something and then not having to purchase it.
So that's not necessarily a commercial operation, is it?
>> I think the source of which you're getting it from is the commercial.
Am I understanding that correctly?
>> Yeah, most of this is coming from contractors and commercial operators.
>> Right. >> And there are other private entities that provide processing services for rubble.
>> One of the things, I think we're kind of circling back to the financial losses and you say, how did we get here?
Most of the rates that were set and applied in these cases, it was price matching.
So you can take the sum of these processors.
They'll accept them material free because they're so efficient at processing it that they will make up their money on the back end.
For us, in order to compete there, we say no charge at the gate.
Then we must make up our financial loss on the other side to sell it and move it off site.
So that's exactly what happened here is we were accepting this at a cut rate or even free in some cases.
And then we're trying to price match more efficient operators on the sales and we couldn't move the product.
We also have an inferior product that if we were to try to compete with them on a quality basis,
it's going to cost us about twice as much in terms of processing.
And so I think certainly from where we stand,
it's the POV and the council's pleasure on what we do in terms of competing or not competing.
I think from a staff perspective, what we would say is we're going to have a hard time competing on a cost basis,
on a price basis with those that do this for a living.
>> So back to direction.
I think we have three saying option one.
>> I think I'm going to just reserve my opinion.
Well, I've already made it clear.
>> All right, do you have what you need?
Okay, thank you.
All right, we're going to move the closed item to the end of the meeting.
So onto consent agenda.
Does any board member wish to pull an item?
>> I'd like to pull E.
>> Any others?
Okay, do we have a motion to approve A through D, F, and okay, A through D and F.
>> Second. >> Second.
>> All in favor?
>> Aye. >> Aye.
>> Opposed?
Okay, item E.
>> I just had a quick question on this, which can probably be handled in two sentences.
I was wondering if the roof of City Hall was subject to historic landmark rules.
Since this is an O'Neill Ford building.
>> I'm trying to answer that question.
Our facilities manager called in sick this morning, so bear with me.
No, ma'am, because it's a maintenance item, so it is not all under.
>> So it's not changing any of the visual?
>> No, ma'am, it's purely just the structural, just to make sure that it doesn't leak.
>> Yeah, it's a flat roof, so I'm assuming there's nothing visible from the street anyway.
I didn't want these neat little wood slats to be messed with, for instance, sir.
>> Actually, those are new, so they're not going to be messed with.
>> Those ones are new, yes, ma'am.
>> Okay, that was my only question.
>> Okay, do we have a motion to approve item E?
>> So moved.
>> Second?
>> Second.
>> All in favor, say aye.
>> Aye. >> Opposed?
Motion carries.
Items for individual consideration.
The first item is approval of the board minutes of November 12th, 2018.
Are there any changes or comments?
Okay, having none, we'll approve as presented.
ACM update.
>> Madam Chair, members of the board, in your packet, you have a memo from Nick Vincent to me
about the water and wastewater rate comparisons around the region.
If you have any questions, specific questions to those, Nick is here to answer those questions for you.
Along with that, you'll notice in your future agenda list the month of January is going to be pretty busy with some reports coming forward.
And we'll be bringing to you more information about the commercial recycling.
Also, the report on the performance of the Denton Energy Center as far as the financials.
And the first of a number of quarterly reports that we were bringing forward to you all about our CIP and
our projects that are happening around the community, just to keep the PUB informed of those activities and projects.
And I have nothing further to report.
>> All right, so now we can do concluding items and then close, Larry?
>> Yes, Madam. >> Okay, concluding items, are there any items any board member would wish to have put on the agenda?
>> I just, I wanted to reiterate that I wanted the dumpsters on right-of-ways,
especially on Oak Street, to be added to the discussion about the Mews buildings on square.
Or some of the solutions to the dumpsters in the Mews area could be applied to other streets.
To get the dumpsters off the sidewalks.
>> Okay, any other items?
>> I just wanted to, I actually e-mailed Mario over the last week or so about,
we got a public notification regarding, I can't remember what it was now.
But we've received also another one for the closure of Eagle between Elm and
Merrill for five months for a drainage project.
And I was just wondering if we could get some kind of in-meeting notification that those things are going to happen before the public gets notified that they're going to happen.
Just so we can help, we can actually help diffuse that a little bit if we can help explain to those people who are concerned about it.
>> We can certainly do that, it's just to get the information out to the board members and council as well.
A lot of times what we do is those press releases are sent to the council.
The day of that we send it out to the community as well, to our various media outlets, and so just in a different format.
But we can work with our public communications office to include you certainly on that distribution list.
So that way you're not seeing it when the public sees it, you see it a little bit ahead of time, just as a heads up.
>> All right, thank you.
>> Okay, so I'm looking at Larry.
We adjourn?
Okay, we need a motion to adjourn the meeting.
>> I move we adjourn our open meeting.
>> Adjourning the public meeting.
>> Yes, the public meeting, there you go.
>> Okay, Brendan motioned.
>> Approved.
>> No, no, no.
>> Lillia seconded.
All in favor say aye.
>> Aye.
>> Opposed?
Okay, go into closed session.