1 00:00:00,000 --> 00:00:07,720 Okay, it's nine o'clock, so it's called to order the Monday, July 8th Public Utilities 2 00:00:07,720 --> 00:00:08,720 Board Meeting. 3 00:00:08,720 --> 00:00:14,580 I'd like to suggest that since the item that's in the closed meeting is not on the agenda 4 00:00:14,580 --> 00:00:20,040 later that we move that to the last item and then we can just, we can adjourn into the 5 00:00:20,040 --> 00:00:21,040 closed meeting. 6 00:00:21,040 --> 00:00:26,040 So the first item is the work session, receive a report and hold a discussion and give staff 7 00:00:26,040 --> 00:00:32,960 direction regarding the Denton Municipal Electric budget and capital improvements. 8 00:00:32,960 --> 00:00:42,480 Good morning, Madam Chair, board members, city manager Terry Nolte, assistant general 9 00:00:42,480 --> 00:00:43,480 manager DME. 10 00:00:43,480 --> 00:00:47,960 We're going to go over our budget today. 11 00:00:47,960 --> 00:00:52,480 I'm going to skip over a lot of the bullet points on the presentation that you've got. 12 00:00:52,480 --> 00:00:56,260 If you have any questions, please stop me and ask me. 13 00:00:56,260 --> 00:00:58,320 Just going to hit some highlights here. 14 00:00:58,320 --> 00:01:04,640 For accomplishments, I guess the ones that we're most proud of is our, the second bullet 15 00:01:04,640 --> 00:01:08,880 down, the excellence and reliability award from the APPA. 16 00:01:08,880 --> 00:01:15,400 Only 25% of utilities, municipal utilities in the U.S. receive this honor and it's a 17 00:01:15,400 --> 00:01:30,160 measure of reliability, sustainability, and customer service. 18 00:01:30,160 --> 00:01:36,680 We did also complete another of the largest power purchase agreements as part of the renewable 19 00:01:36,680 --> 00:01:47,120 Denton plan, 150 megawatt PPA, a fixed price solar energy during the year. 20 00:01:47,120 --> 00:01:53,640 On the street light program, we've patrolled street lights on two occasions. 21 00:01:53,640 --> 00:02:00,820 The first time we had about 600 lights we found out and have worked towards repairing. 22 00:02:00,820 --> 00:02:07,400 We just completed a second one and now we're down to 200. 23 00:02:07,400 --> 00:02:15,400 The Denton energy center, the last unit, completed its warranty repairs in May of this year, 24 00:02:15,400 --> 00:02:22,600 unit five, and so now we're into a steady state post startup operation. 25 00:02:22,600 --> 00:02:27,160 There are still some outstanding warranty issues on the control side that we're working 26 00:02:27,160 --> 00:02:37,120 on but we feel like we've turned the corner on that. 27 00:02:37,120 --> 00:02:41,600 For the rest of the year, we are working on our hedge plan development. 28 00:02:41,600 --> 00:02:46,640 This is one of the recommendations from the Deloitte study. 29 00:02:46,640 --> 00:02:54,360 We've passed a new risk management policy and as part of that policy, we'll be developing 30 00:02:54,360 --> 00:03:01,600 this hedge plan which is really the next step in the maturity of the energy management office 31 00:03:01,600 --> 00:03:10,200 and once implemented, it will help stabilize revenues, the ECA component of the rates, 32 00:03:10,200 --> 00:03:17,800 and it will help us to more effectively measure and report the risk to you and to city council. 33 00:03:17,800 --> 00:03:21,760 The ETRM system is the energy trading risk management system. 34 00:03:21,760 --> 00:03:26,320 It is another one of the recommendations that Deloitte had. 35 00:03:26,320 --> 00:03:29,700 We are in the selection process for this system. 36 00:03:29,700 --> 00:03:37,400 It's an essential component of our hedging program as we move forward. 37 00:03:37,400 --> 00:03:43,440 The texting capabilities, we're in the final testing of texting capabilities for customers 38 00:03:43,440 --> 00:03:54,080 to keep them informed of outages, time to restoration, and information that they will find valuable. 39 00:03:54,080 --> 00:04:01,520 For the next fiscal year, our objectives are to enhance our energy programs. 40 00:04:01,520 --> 00:04:17,520 We're looking to add lawn equipment incentives for electric lawn equipment, lawn service equipment. 41 00:04:17,520 --> 00:04:23,720 We also have -- we continue to see strong interest in the solar rooftop installation. 42 00:04:23,720 --> 00:04:32,040 We have over two megawatts of solar installed now throughout the city in rooftops. 43 00:04:32,040 --> 00:04:38,040 Gibbons Creek will be a focus of our efforts in the next fiscal year as we try to get a 44 00:04:38,040 --> 00:04:44,560 better handle on the costs and risks associated with the shutdown of the Gibbons Creek facility. 45 00:04:44,560 --> 00:04:51,240 There are a number of landfills and ash ponds that require remediation. 46 00:04:51,240 --> 00:04:54,760 The plant site is on the blocks to be sold. 47 00:04:54,760 --> 00:05:01,240 The revenues from the sale of the plant are intended to offset the decommissioning costs 48 00:05:01,240 --> 00:05:08,600 that we anticipate will be faced by the TMPA members. 49 00:05:08,600 --> 00:05:16,800 And then new LED lights will be initiating the start of our new LED street light program. 50 00:05:16,800 --> 00:05:22,200 Those lights will have controls that will automatically notify the control center when 51 00:05:22,200 --> 00:05:25,680 they're out so we can get out there and repair them very quickly. 52 00:05:25,680 --> 00:05:32,080 And they take about 80% less energy to fuel those. 53 00:05:32,080 --> 00:05:38,680 And then on the renewable energy front, we hope to ink our last deals to achieve the 54 00:05:38,680 --> 00:05:59,440 100% renewable program, renewable dent program, inside of this fiscal year. 55 00:05:59,440 --> 00:06:06,680 So this year, the new management has taken a look at the process, the budgeting process, 56 00:06:06,680 --> 00:06:13,680 and we decided to examine the process to ensure more accurate forecasts and methodologies. 57 00:06:13,680 --> 00:06:20,600 A number of changes were made to ensure that the results were objective, unbiased, and 58 00:06:20,600 --> 00:06:27,840 the potential outcomes were properly quantified and documented for consistency in years to 59 00:06:27,840 --> 00:06:28,840 come. 60 00:06:28,840 --> 00:06:35,080 The process identified a number of gaps associated with the DME's forward forecasting approach. 61 00:06:35,080 --> 00:06:43,360 We've made some changes, reviewed those changes with industry experts, got a passing grade 62 00:06:43,360 --> 00:06:51,960 from them, and we've attached a summary of their assessment, which supports the methodology 63 00:06:51,960 --> 00:06:54,240 that we used. 64 00:06:54,240 --> 00:06:58,720 We'll continue to improve our forecasting methodology in the coming year as we look 65 00:06:58,720 --> 00:07:05,600 to enhance our modeling capabilities with some stochastics and neural network models 66 00:07:05,600 --> 00:07:12,360 that will better predict the variability of output from our renewable energy resources 67 00:07:12,360 --> 00:07:15,280 and the variable demand that we have. 68 00:07:15,280 --> 00:07:22,400 Better modeling will result in a better sensitivity analysis as we move forward. 69 00:07:22,400 --> 00:07:33,440 We'll talk about some of the budget impacts. 70 00:07:33,440 --> 00:07:40,120 So changing markets, regulations, weather, forecasts, and that's what defines the electric 71 00:07:40,120 --> 00:07:46,160 utility business, and each of these factors have a significant impact on the financial 72 00:07:46,160 --> 00:07:48,720 performance of DME. 73 00:07:48,720 --> 00:07:53,960 The budget that we're proposing is based upon what staff and management consider the 74 00:07:53,960 --> 00:07:57,960 most probable set of inputs and likely outcomes. 75 00:07:57,960 --> 00:08:04,900 However, many of the variables that we have to forecast to define likely revenue streams 76 00:08:04,900 --> 00:08:08,080 and expenses are beyond our control. 77 00:08:08,080 --> 00:08:14,120 This slide provides the high-level review of some of the most important ones. 78 00:08:14,120 --> 00:08:18,480 Each year we present a five-year forecast with the next fiscal year having the highest 79 00:08:18,480 --> 00:08:21,440 confidence level. 80 00:08:21,440 --> 00:08:25,960 The budget you'll see identifies the need for additional revenues. 81 00:08:25,960 --> 00:08:31,440 It has a high reliance on the use of reserve funds in this fiscal year and next fiscal 82 00:08:31,440 --> 00:08:37,960 year, and with the exception of weather, the factors on this list really have a potential 83 00:08:37,960 --> 00:08:41,720 impact on our budgets in years two through five. 84 00:08:41,720 --> 00:08:46,960 So as we go through those, just to touch on a few of them, the decommissioning costs of 85 00:08:46,960 --> 00:08:55,440 TNPA, we have currently $22 million budgeted. 86 00:08:55,440 --> 00:09:00,240 We think that could come in less than or could come in higher than $22 million. 87 00:09:00,240 --> 00:09:06,920 The status of that is that the engineers have looked at the cost of decommissioning. 88 00:09:06,920 --> 00:09:15,480 Those plans have not been forwarded to the environmental people in TCEQ in Austin. 89 00:09:15,480 --> 00:09:25,080 Until they approve the plans, we won't know the final number. 90 00:09:25,080 --> 00:09:29,600 Positive cash flows from the TNPA site, to the extent we sell the site and can offset 91 00:09:29,600 --> 00:09:33,580 some of that $22 million, it will impact our budget. 92 00:09:33,580 --> 00:09:40,700 We currently have only expenses budgeted, no revenues for the sale of property. 93 00:09:40,700 --> 00:09:45,800 Our T cost recovery we anticipate will go down over time. 94 00:09:45,800 --> 00:09:49,880 Currently we're earning about 28% return on our investment. 95 00:09:49,880 --> 00:09:58,580 We expect that to move down to around 13% in the next three years. 96 00:09:58,580 --> 00:10:05,840 If that rate stays higher, for a longer period of time, it's worth about $2 million per year 97 00:10:05,840 --> 00:10:09,240 for each percent. 98 00:10:09,240 --> 00:10:16,640 Of course, summer temperatures, lower than normal summer temperatures as we've been experiencing, 99 00:10:16,640 --> 00:10:19,240 results in lower revenues for the deck. 100 00:10:19,240 --> 00:10:26,440 It also results in lower expenses on the purchase side for load. 101 00:10:26,440 --> 00:10:30,120 Because of our hedging program, we'd like to see higher temperatures and higher prices 102 00:10:30,120 --> 00:10:33,000 so that we can generate more revenues from the deck. 103 00:10:33,000 --> 00:10:38,920 We'll talk a little bit more about the deck forecast as we move forward. 104 00:10:38,920 --> 00:10:44,360 The last one on the positive is increased power price volatility and capacity. 105 00:10:44,360 --> 00:10:52,920 As you all have been informed, the reserve margins in the ERCOT market are very thin. 106 00:10:52,920 --> 00:10:57,040 To the extent that we have any major outages of generating units, we could see volatility 107 00:10:57,040 --> 00:10:58,540 increase. 108 00:10:58,540 --> 00:11:02,960 Volatility increases are good for the deck revenues as long as the units are available, 109 00:11:02,960 --> 00:11:08,680 which we anticipate they would be, and that would generate a lot more revenue and impact 110 00:11:08,680 --> 00:11:12,160 our budget positively. 111 00:11:12,160 --> 00:11:16,020 On the negative side, we could see higher forced outage rates. 112 00:11:16,020 --> 00:11:18,160 They are mechanical pieces of equipment. 113 00:11:18,160 --> 00:11:22,880 They are subject to breakdown, and although they're relatively new, there are unfreeze 114 00:11:22,880 --> 00:11:30,280 seen things that could crop up. 115 00:11:30,280 --> 00:11:35,040 The objectives of this presentation, I think you're going to take this one or are we going 116 00:11:35,040 --> 00:11:36,040 to the next one? 117 00:11:36,040 --> 00:11:37,040 Okay. 118 00:11:37,040 --> 00:11:44,120 With that, I'm going to turn it over to David. 119 00:11:44,120 --> 00:11:45,120 Good morning, board. 120 00:11:45,120 --> 00:11:46,600 My name is David Gaines. 121 00:11:46,600 --> 00:11:47,600 I'm the director of finance. 122 00:11:47,600 --> 00:11:51,520 I'm going to take over a few of these slides as we move forward talking through the financials, 123 00:11:51,520 --> 00:11:57,360 but definitely we have Terry and other DME staff here to answer specific questions. 124 00:11:57,360 --> 00:12:02,600 To start with, outline the pieces we want to hit on in this financial presentation. 125 00:12:02,600 --> 00:12:03,720 Talk through our assumptions. 126 00:12:03,720 --> 00:12:08,760 We really want to hit on a couple pieces concerning our debt service, purchase power, and how 127 00:12:08,760 --> 00:12:13,560 that affects our ECA rate, which really are some of the pivotal points in the budget for 128 00:12:13,560 --> 00:12:14,560 the next year. 129 00:12:14,560 --> 00:12:21,260 Then talk through the rate options, CIP, and touch on the TCOS that Terry mentioned previously. 130 00:12:21,260 --> 00:12:26,160 Just a step back as far as the process of how we got here, you know, obviously the budget 131 00:12:26,160 --> 00:12:29,800 has been delayed a couple months from what we've previously done into the other utilities 132 00:12:29,800 --> 00:12:33,200 that have already come to the board, and I think you saw a lot of the reasons in what 133 00:12:33,200 --> 00:12:37,080 Terry just presented, a lot of the variables that have been changing, and I think you'll 134 00:12:37,080 --> 00:12:41,000 see those in the slides to come, but it's definitely been a moving target, and it's 135 00:12:41,000 --> 00:12:44,040 taken a lot of work to get to this point, and I think you'll see that there's some 136 00:12:44,040 --> 00:12:48,560 significant decisions that we can have in the DME budget, which really are impacted 137 00:12:48,560 --> 00:12:52,760 by all of these. 138 00:12:52,760 --> 00:12:57,760 So here are the assumptions that we've included in our forecast for all of our scenarios, 139 00:12:57,760 --> 00:13:02,880 and what we really expect for next year in the budget, which 3% increase in projected 140 00:13:02,880 --> 00:13:07,620 demand, just strictly demand for next year, have a 3% increase. 141 00:13:07,620 --> 00:13:11,700 We are projected to continue the suspension of TCRF. 142 00:13:11,700 --> 00:13:16,120 We are currently planning to debt fund our entire CIP next year. 143 00:13:16,120 --> 00:13:22,880 This year we did have some revenue-funded CIP on the CIP side, looking to debt fund 144 00:13:22,880 --> 00:13:25,980 all of our CIP next year and in the out years of our forecast. 145 00:13:25,980 --> 00:13:30,640 We have no supplemental requests for new asks in the budget for next year, and we do have 146 00:13:30,640 --> 00:13:35,240 these two new solar resources with Laundry and Blue Belt II. 147 00:13:35,240 --> 00:13:41,460 The options for consideration, which you'll see on the slides to come, are rate stabilization. 148 00:13:41,460 --> 00:13:46,960 We are anticipating, if we kept everything stable, a significant rate increase on the 149 00:13:46,960 --> 00:13:48,040 ECA side. 150 00:13:48,040 --> 00:13:52,500 So we want to bring to you options on how can we keep that ECA rate stable, and then 151 00:13:52,500 --> 00:13:56,220 the second piece is that second bullet there, and really that comes down to how do we want 152 00:13:56,220 --> 00:14:01,080 to use our reserves, whether it's this year or in future years, to keep our rates stable 153 00:14:01,080 --> 00:14:02,080 and to plan for the future. 154 00:14:02,080 --> 00:14:06,320 So those are the pieces that we'll hit on in the coming slides. 155 00:14:06,320 --> 00:14:11,120 Here's some of those major budget variables, and I think Terry hit on a lot of these. 156 00:14:11,120 --> 00:14:16,200 We budget our debt revenues conservatively in the out years. 157 00:14:16,200 --> 00:14:20,640 We haven't got a full year of seeing how the debt runs yet, so we're still trying to understand 158 00:14:20,640 --> 00:14:25,400 how the debt corresponds to the market, but definitely in our future years, when you see 159 00:14:25,400 --> 00:14:31,720 our debt pro forma, have really stuck to conservative projections on what those revenues could be. 160 00:14:31,720 --> 00:14:38,360 We have a major variable as we talk through purchase powers, our renewable energy resource, 161 00:14:38,360 --> 00:14:43,120 the wind resources, and the faster renewable buildup, which you'll see as we get to the 162 00:14:43,120 --> 00:14:44,880 purchase powers slides. 163 00:14:44,880 --> 00:14:50,000 And then as Terry also mentioned, the decommissioning, the TNPA decommissioning, we have that. 164 00:14:50,000 --> 00:14:54,560 The cost associated from TNPA in our budget right now for what decommissioning would be 165 00:14:54,560 --> 00:14:58,600 over the next five years, they've given us dollar amounts that we've included in our 166 00:14:58,600 --> 00:15:01,160 budget to contribute to that decommissioning. 167 00:15:01,160 --> 00:15:05,040 That's definitely, as Terry mentioned, a variable that's out there that could change the budget 168 00:15:05,040 --> 00:15:09,400 in the out years if they sell, if they do get proceeds from a sale, it would negate 169 00:15:09,400 --> 00:15:13,640 some of those costs, but those costs would also fluctuate in the out years on what the 170 00:15:13,640 --> 00:15:18,560 actual decommissioning will be. 171 00:15:18,560 --> 00:15:23,840 So we want to touch first on our debt service for DME. 172 00:15:23,840 --> 00:15:28,240 We had a change to this '18-'19 budget for our debt service. 173 00:15:28,240 --> 00:15:33,640 What we anticipate to spend this year in debt service is going to be about $9 to $10 million 174 00:15:33,640 --> 00:15:40,240 higher than we budgeted, and that's driven entirely by our first principal debt service 175 00:15:40,240 --> 00:15:41,240 payment. 176 00:15:41,240 --> 00:15:45,160 And we've made interest payments up to this point on the deck. 177 00:15:45,160 --> 00:15:50,880 We have our first principal payment in December of this year, December of 2019. 178 00:15:50,880 --> 00:15:58,480 As with our other recent bond issuances, we had planned on making that payment in December 179 00:15:58,480 --> 00:16:03,160 and having that realized in the '19-'20 budget, that entire amount, which you can see there 180 00:16:03,160 --> 00:16:12,600 about the entire principal amount of the $6 million plus the larger interest amount. 181 00:16:12,600 --> 00:16:18,200 The bond language for this revenue bond is written differently than our other recent 182 00:16:18,200 --> 00:16:23,160 issuances, where instead of just making the payment in December in our bond confidence, 183 00:16:23,160 --> 00:16:28,520 it's required that we make a monthly transfer to our debt service fund in anticipation of 184 00:16:28,520 --> 00:16:29,920 the December payment. 185 00:16:29,920 --> 00:16:35,760 So what that does from a budget perspective is we get hit in '18-'19 for expenses we 186 00:16:35,760 --> 00:16:38,280 anticipated in '19-'20. 187 00:16:38,280 --> 00:16:47,200 So up until October 1st, up until September, we're now making that transfer, and the net 188 00:16:47,200 --> 00:16:54,480 impact of that is our '18-'19 budget is $9.8 million more in expenses transferred over 189 00:16:54,480 --> 00:16:56,800 to the debt service fund this fiscal year. 190 00:16:56,800 --> 00:17:00,720 It doesn't change, you know, when you take a big-picture view of our debt, of our debt 191 00:17:00,720 --> 00:17:04,480 service, what we're going to pay on the debt revenue bond, does not change our total amount 192 00:17:04,480 --> 00:17:08,020 that we're going to pay, but it does have an impact on this this year, and even as you 193 00:17:08,020 --> 00:17:13,000 look at a five-year window, it has that impact because you don't really realize that savings 194 00:17:13,000 --> 00:17:16,440 until the very end of the debt payoff. 195 00:17:16,440 --> 00:17:20,760 So that is a reality that we have to deal with this fiscal year, and I think as we talk 196 00:17:20,760 --> 00:17:26,960 to the ECA, that's where we have-- it really impacts the ECA rate. 197 00:17:26,960 --> 00:17:31,880 As far as budget appropriations, we're still within our debt-- for DME, our total debt 198 00:17:31,880 --> 00:17:37,400 service appropriations because we had originally-- our debt appropriations, we had originally 199 00:17:37,400 --> 00:17:43,520 planned to pay off the $28.6 million remaining on our TMPA scrubber debt. 200 00:17:43,520 --> 00:17:48,320 A few months ago, we stepped back when we were gearing up to make that the payoff of 201 00:17:48,320 --> 00:17:53,440 that debt, and decided to hold off on it, knowing that we had so many variables, and 202 00:17:53,440 --> 00:17:57,400 to take that large of a drawdown from our fund balance didn't seem appropriate, knowing 203 00:17:57,400 --> 00:18:01,520 that there are so many different piece-- moving targets, I think we're happy with that decision 204 00:18:01,520 --> 00:18:05,360 now that we've decided to hold off on that because it gives us these options that we'll 205 00:18:05,360 --> 00:18:09,760 talk about in the coming slides on what we can do with our reserves. 206 00:18:09,760 --> 00:18:13,040 We've also used this opportunity in the next couple months. 207 00:18:13,040 --> 00:18:18,880 We're going to be issuing debt citywide, and with interest rates being so significantly 208 00:18:18,880 --> 00:18:23,800 lower now than they've been in recent years, we have an opportunity to refinance that debt. 209 00:18:23,800 --> 00:18:29,440 So ultimately, we're going to, with the refinancing, save about $2 million on the remaining debt 210 00:18:29,440 --> 00:18:32,520 service for that TMPA scrubber debt as well. 211 00:18:32,520 --> 00:18:41,800 So that's given us that opportunity in the future to have a better impact on our forecast. 212 00:18:41,800 --> 00:18:47,440 The other large variable that impacts our ECA rate is purchase power. 213 00:18:47,440 --> 00:18:54,360 We are anticipating, in this fiscal year, in '18-'19, a $6.4 million increase in our 214 00:18:54,360 --> 00:18:56,960 estimated purchase power expenses. 215 00:18:56,960 --> 00:19:03,440 $4.2 million of that is incremental power supply costs from not operating Givens Creek 216 00:19:03,440 --> 00:19:05,400 in the summer of 2019. 217 00:19:05,400 --> 00:19:10,960 The budget, when it was developed last year, a lot of the assumptions within the budget 218 00:19:10,960 --> 00:19:13,120 still had that piece operating. 219 00:19:13,120 --> 00:19:18,080 So by not operating that, that's the increase associated that we're going to experience 220 00:19:18,080 --> 00:19:19,920 this summer now. 221 00:19:19,920 --> 00:19:25,200 And then also, we have $2.2 million in other incremental cost increase from market movement. 222 00:19:25,200 --> 00:19:30,360 I think this goes back to what Terry mentioned of really taking a different approach to how 223 00:19:30,360 --> 00:19:35,200 we budget purchase power and how we anticipate it, which we think is a better, more thorough 224 00:19:35,200 --> 00:19:39,080 way to look at our purchase power and meet our expectations. 225 00:19:39,080 --> 00:19:43,160 It has an impact on the out years as you see in '19-'20 with an increase, but it also impacts 226 00:19:43,160 --> 00:19:46,560 what we think we'll spend this year in '18-'19. 227 00:19:46,560 --> 00:19:50,680 So this $6.4 combined with that debt service increase is what you're going to see is that 228 00:19:50,680 --> 00:19:55,440 impact on what we have to have for an ECA rate this year and next year. 229 00:19:55,440 --> 00:20:02,640 In '19-'20, we again anticipate an additional $2.2 million increase in our purchase power 230 00:20:02,640 --> 00:20:07,880 based on our contracts, our market, and the demand associated with those. 231 00:20:07,880 --> 00:20:12,960 But then starting in '21-'24 of our forecast, we do see those, that purchase power amount 232 00:20:12,960 --> 00:20:20,840 start to decrease in the future years. 233 00:20:20,840 --> 00:20:26,160 So I mentioned ECA rate, the energy cost adjustment rate a lot, and I just wanted to just use 234 00:20:26,160 --> 00:20:30,240 this opportunity to step back and talk about what those are as we consider the alternatives 235 00:20:30,240 --> 00:20:31,240 moving forward. 236 00:20:31,240 --> 00:20:37,120 The ECA rate is really meant to, high level is meant to fluctuate with what are the actual 237 00:20:37,120 --> 00:20:39,000 costs to provide the energy. 238 00:20:39,000 --> 00:20:43,560 That number is going to fluctuate obviously year to year based on market and other contracts 239 00:20:43,560 --> 00:20:45,440 and different variables as we've seen. 240 00:20:45,440 --> 00:20:49,680 And so we look at that ECA rate as one that is meant to fluctuate with the market, whereas 241 00:20:49,680 --> 00:20:54,120 base rates are intended to be more stable and they have a lot of those fixed costs from 242 00:20:54,120 --> 00:20:59,040 personnel to O&M and all of these other costs that we've shown here that are included in 243 00:20:59,040 --> 00:21:02,880 the budget, whereas ECA includes purchase power. 244 00:21:02,880 --> 00:21:09,440 Our policy and our ECA policy, we have planned to pay for our deck operating costs, our debt 245 00:21:09,440 --> 00:21:16,120 service with the ECA, so those three pieces right there obviously have increased this 246 00:21:16,120 --> 00:21:19,140 fiscal year and are going to increase next fiscal year. 247 00:21:19,140 --> 00:21:25,680 So that's why we're seeing a higher ECA rate based strictly on what the costs are this 248 00:21:25,680 --> 00:21:31,400 year and next fiscal year. 249 00:21:31,400 --> 00:21:34,320 So here's our current rate recovery at a high level. 250 00:21:34,320 --> 00:21:35,320 We've highlighted the -- 251 00:21:35,320 --> 00:21:36,320 Sorry. 252 00:21:36,320 --> 00:21:37,320 Back up to the last slide. 253 00:21:37,320 --> 00:21:38,320 Yep. 254 00:21:38,320 --> 00:21:43,320 The ECA rate, I know what it is, it's very cost effective. 255 00:21:43,320 --> 00:21:44,320 Right. 256 00:21:44,320 --> 00:21:51,320 Why do we continue to include the debt service in the ECA? 257 00:21:51,320 --> 00:21:52,320 You know that's a -- 258 00:21:52,320 --> 00:21:53,320 Could you get closer to the microphone, Billy? 259 00:21:53,320 --> 00:21:54,320 Oh, sorry. 260 00:21:54,320 --> 00:22:01,080 Why do we continue to include the debt service in our ECA rate? 261 00:22:01,080 --> 00:22:07,080 You know, that's a great question and it was part of the policy that was enacted in advance 262 00:22:07,080 --> 00:22:12,600 of the deck was to say we want all debt costs to be part of the ECA and the theory behind 263 00:22:12,600 --> 00:22:18,480 that is the deck is providing energy, so any cost that we drive toward the deck would be 264 00:22:18,480 --> 00:22:23,120 an energy cost and also the cost that we have for the deck should lower what we have to 265 00:22:23,120 --> 00:22:25,400 pay on the energy side through purchase power. 266 00:22:25,400 --> 00:22:28,920 So it's definitely a policy discussion that we can have. 267 00:22:28,920 --> 00:22:33,120 If we want to, you know, we can kind of alter the way that we calculate the ECA if we want 268 00:22:33,120 --> 00:22:37,120 to have that discussion of taking debt service out in the future, but this is the way that 269 00:22:37,120 --> 00:22:39,360 we calculate it right now. 270 00:22:39,360 --> 00:22:40,360 Okay. 271 00:22:40,360 --> 00:22:41,360 Yeah. 272 00:22:41,360 --> 00:22:47,880 I think in the past, and it's been a few years, I was on this board a long time ago, but we 273 00:22:47,880 --> 00:22:55,680 didn't put those -- of course we didn't have the deck either, but it was about energy cost. 274 00:22:55,680 --> 00:22:56,680 Right. 275 00:22:56,680 --> 00:23:01,160 Debt service, I mean, is that energy cost? 276 00:23:01,160 --> 00:23:05,280 I think it's just how we define it because obviously the debt service is a fixed cost 277 00:23:05,280 --> 00:23:09,400 where it's not going to fluctuate with the energy, so that would be the argument to take 278 00:23:09,400 --> 00:23:13,720 it out where the argument to keep it in would be it's a cost that you have to provide the 279 00:23:13,720 --> 00:23:18,560 energy and I think -- I assume that was a rationale for including it in the first place. 280 00:23:18,560 --> 00:23:19,560 I don't know. 281 00:23:19,560 --> 00:23:24,680 I always thought of it as -- it was -- the ECA was the adjustment that it was predicted 282 00:23:24,680 --> 00:23:31,680 on the cost of energy that natural gas, fuel, whatever we were -- coal at the time. 283 00:23:31,680 --> 00:23:32,680 Right. 284 00:23:32,680 --> 00:23:33,680 You know? 285 00:23:33,680 --> 00:23:34,680 So okay. 286 00:23:34,680 --> 00:23:35,680 I think it's a good conversation to have. 287 00:23:35,680 --> 00:23:36,680 We don't have to have it today. 288 00:23:36,680 --> 00:23:37,680 Yeah. 289 00:23:37,680 --> 00:23:42,600 Well, I just say we've had this debate internally as well, and I think the issue is the deck 290 00:23:42,600 --> 00:23:45,480 is an -- it is a purchased power hedge. 291 00:23:45,480 --> 00:23:51,560 You wouldn't have a debt without the deck, and you can break it up. 292 00:23:51,560 --> 00:23:52,560 It's not going to move the needle. 293 00:23:52,560 --> 00:23:55,880 You're still going to end up with a rate at the end of the day on the base adjustment 294 00:23:55,880 --> 00:23:56,880 in the ECA. 295 00:23:56,880 --> 00:24:00,480 It's all going to come out through the wash the same, but you just don't have that debt 296 00:24:00,480 --> 00:24:06,400 service without the deck and that hedging without the debt service, so you can't untangle 297 00:24:06,400 --> 00:24:07,400 them. 298 00:24:07,400 --> 00:24:11,680 Theoretically, though, we sell the energy into the grid and not necessarily to ourselves, 299 00:24:11,680 --> 00:24:12,680 although we do own the deck. 300 00:24:12,680 --> 00:24:14,680 Don't get me wrong. 301 00:24:14,680 --> 00:24:20,560 The way we've been asked to present the budget with pro forma on the deck itself, I think 302 00:24:20,560 --> 00:24:25,000 what our concern is that everything be consistent, that it not look like we're trying to move 303 00:24:25,000 --> 00:24:30,040 certain costs into the base rate while cherry picking what goes in the ECA, and it's just 304 00:24:30,040 --> 00:24:35,320 -- again, it's going to end up at the end of the day in one rate. 305 00:24:35,320 --> 00:24:38,860 It may change the base versus the ECA, but the rate's going to be what the rate needs 306 00:24:38,860 --> 00:24:39,860 to be. 307 00:24:39,860 --> 00:24:40,860 I hear you. 308 00:24:40,860 --> 00:24:47,920 I just always thought the ECA was the over and above, and the debt that the city owes 309 00:24:47,920 --> 00:24:50,960 is the debt that the city owes. 310 00:24:50,960 --> 00:24:55,720 Granted, I'm saying now that it fluctuates, apparently, because it depends on the bond 311 00:24:55,720 --> 00:24:57,520 and what's going on. 312 00:24:57,520 --> 00:24:58,520 Okay. 313 00:24:58,520 --> 00:25:06,680 I'd like not to drop this -- I'll drop it today, but just continue that conversation. 314 00:25:06,680 --> 00:25:07,680 That's fine. 315 00:25:07,680 --> 00:25:08,680 Okay. 316 00:25:08,680 --> 00:25:16,040 So I wanted to paint a picture of what we look at, what we're looking at for this estimate 317 00:25:16,040 --> 00:25:18,920 and for our proposed budget in the future years. 318 00:25:18,920 --> 00:25:20,060 This is not our proposed budget. 319 00:25:20,060 --> 00:25:23,720 This is what over and under recovery would have. 320 00:25:23,720 --> 00:25:28,560 We kept our current rates out into the future, our current ECA rate shown there and our current 321 00:25:28,560 --> 00:25:30,640 base rate out into the future years. 322 00:25:30,640 --> 00:25:34,520 I think what you can see is, obviously, on the ECA side, we continue to under recover 323 00:25:34,520 --> 00:25:41,200 in the out years, and then overall, together with some over recovery to some extent, on 324 00:25:41,200 --> 00:25:46,600 the base rate side, you can see our total under recovery for the estimate, for our proposed 325 00:25:46,600 --> 00:25:52,840 2020 in the out years, if we kept rates stable for the entirety of this forecast. 326 00:25:52,840 --> 00:25:57,240 Really, this is just meant to paint that picture of here's what would happen if we kept rates 327 00:25:57,240 --> 00:26:01,560 stable, and then we'll start talking through what are our options to avoid scenarios like 328 00:26:01,560 --> 00:26:05,240 this. 329 00:26:05,240 --> 00:26:10,360 So if we just kept our status quo, these are the options that we have moving forward. 330 00:26:10,360 --> 00:26:14,120 The first one really isn't an option, more just to paint the picture again of where we 331 00:26:14,120 --> 00:26:17,600 sit and what choices we have in front of us. 332 00:26:17,600 --> 00:26:20,920 If we kept everything stable when we said, oh, the base rates are going to stay where 333 00:26:20,920 --> 00:26:27,760 they are, the ECA rates are going to fluctuate as needed to cover this, the '18-'19 increase 334 00:26:27,760 --> 00:26:34,600 and the '19-'20 increase, we would see a 25% increase to the total residential rate. 335 00:26:34,600 --> 00:26:38,720 Obviously, as we talk through, we have significant reserves right now. 336 00:26:38,720 --> 00:26:41,120 We don't see this as a viable option. 337 00:26:41,120 --> 00:26:44,160 This is more just to say here's a status quo if we did nothing. 338 00:26:44,160 --> 00:26:50,560 So here's our plans and what we want to present to the board and to council for options moving 339 00:26:50,560 --> 00:26:53,560 forward to not have that large increase. 340 00:26:53,560 --> 00:26:58,160 One is what we're calling a phased approach, which would be to utilize 44.2 million of 341 00:26:58,160 --> 00:27:05,260 our total reserves and essentially just shift those over to help us negate the large increase 342 00:27:05,260 --> 00:27:09,400 in ECA in '18-'19 and '19-'20. 343 00:27:09,400 --> 00:27:17,300 We would ask for a proposed 1.5% increase in the ECA next fiscal year to cover some 344 00:27:17,300 --> 00:27:23,640 of that increase and not cover it all by moving the reserves over two years and then move 345 00:27:23,640 --> 00:27:24,640 forward. 346 00:27:24,640 --> 00:27:28,420 That's why we're calling this one the phased approach, whereas the no increase approach 347 00:27:28,420 --> 00:27:33,760 would say we're going to keep both our base rate and ECA rate stable next year. 348 00:27:33,760 --> 00:27:39,640 We have a total rate that's the same as '18-'19 and just utilize reserves over these two years 349 00:27:39,640 --> 00:27:43,280 entirely to keep that rate stable. 350 00:27:43,280 --> 00:27:49,280 But know that in 2021 we'll need a 3% rate increase, whereas in our phased approach we 351 00:27:49,280 --> 00:27:55,880 think we can do a 1.5% increase in '19-'20 and then a 1.5% increase in 2021. 352 00:27:55,880 --> 00:28:00,920 And the excess reserves coming from us not paying off that bond in part? 353 00:28:00,920 --> 00:28:01,920 Correct. 354 00:28:01,920 --> 00:28:05,760 So as we head into the '18-'19 budget, we knew that -- and you'll see our reserves 355 00:28:05,760 --> 00:28:06,760 are significant. 356 00:28:06,760 --> 00:28:09,760 We knew we had this large amount of reserves and we were trying to -- we definitely didn't 357 00:28:09,760 --> 00:28:12,800 want to just sit on our reserves and one of the options was we pay off the debt. 358 00:28:12,800 --> 00:28:17,380 By not paying off the debt, we've kept this reserve and now it gives us these options 359 00:28:17,380 --> 00:28:25,600 to deal with the ECA balance over '18-'19 and '19-'20. 360 00:28:25,600 --> 00:28:28,800 So here are the options just in numbers. 361 00:28:28,800 --> 00:28:33,200 You can see our projected fund balance at the end of '18-'19, $55 million. 362 00:28:33,200 --> 00:28:38,200 If we just kept the status quo, we would end up with about a $90 million fund balance because 363 00:28:38,200 --> 00:28:44,200 the ECA would cover itself and then the base rates would continue to contribute to that 364 00:28:44,200 --> 00:28:45,240 fund balance. 365 00:28:45,240 --> 00:28:49,520 So we do not want to do the status quo, want to emphasize that. 366 00:28:49,520 --> 00:28:51,280 So we've, you know, Xed out that status quo. 367 00:28:51,280 --> 00:28:56,400 That is not our recommendation moving forward, but you can see on this phased approach and 368 00:28:56,400 --> 00:29:01,360 the no increase approach that increase in the total rate, that 1.5% increase in the 369 00:29:01,360 --> 00:29:05,720 total rate between the no increase and phased approach next fiscal year and then you can 370 00:29:05,720 --> 00:29:11,040 see that our fund balance is utilized slightly more in the no increase approach, but we are 371 00:29:11,040 --> 00:29:16,920 still in both scenarios by -- despite drawing down that significant amount of reserves over 372 00:29:16,920 --> 00:29:22,280 to the ECA, we have a fund balance that's still, you know, well above our minimum reserve 373 00:29:22,280 --> 00:29:27,320 or our minimum reserve kind of fluctuates around $40 million, and these scenarios we 374 00:29:27,320 --> 00:29:30,320 still anticipate being around $50 million in our reserve. 375 00:29:30,320 --> 00:29:34,880 So it's not a situation where we're drawing our reserves down so much that we're under 376 00:29:34,880 --> 00:29:36,520 our minimum reserve balance. 377 00:29:36,520 --> 00:29:39,960 I just want to make sure I understand the no increase approach. 378 00:29:39,960 --> 00:29:45,040 So we wouldn't have an increase this year, but we'd have to have a much larger increase 379 00:29:45,040 --> 00:29:46,040 in subsequent years. 380 00:29:46,040 --> 00:29:52,720 So in our current forecast in 2021, we would need a 3% increase in 2021. 381 00:29:52,720 --> 00:29:58,000 I think our recommendation would be for the phased approach where we just do one and a 382 00:29:58,000 --> 00:30:02,920 half this year, one and a half the following year, and I think what that also does is as 383 00:30:02,920 --> 00:30:08,680 we -- there's so many variables out there from the decommissioning cost to TCOS to all 384 00:30:08,680 --> 00:30:11,520 the other variables we've talked through. 385 00:30:11,520 --> 00:30:16,720 So by doing the -- we can do the no increase approach, but it does put us behind the -- say 386 00:30:16,720 --> 00:30:20,920 one of those variables goes poorly and we have to make it up even more, maybe that 3% 387 00:30:20,920 --> 00:30:23,160 becomes higher to 5% or so. 388 00:30:23,160 --> 00:30:27,520 So by doing the one and a half now puts us in a better spot to deal with any variables 389 00:30:27,520 --> 00:30:28,520 in 2021. 390 00:30:28,520 --> 00:30:33,160 I always prefer smaller, little than a -- 391 00:30:33,160 --> 00:30:34,160 Yeah. 392 00:30:34,160 --> 00:30:35,160 Right. 393 00:30:35,160 --> 00:30:36,160 Right. 394 00:30:36,160 --> 00:30:42,840 One and a half percent, one time you mentioned a total rate increase or is it an ECA rate? 395 00:30:42,840 --> 00:30:47,040 It's an ECA -- just on the ECA rate, it just -- the impact would be, you know, on the total 396 00:30:47,040 --> 00:30:54,640 rate, but it would just be on the ECA specifically, no change to the base rates next year. 397 00:30:54,640 --> 00:30:58,960 So as we go forward, the phased approach is our recommendation, and as we show the rest 398 00:30:58,960 --> 00:31:03,640 of these numbers, really focused on the phased approach, but want to show you what the no 399 00:31:03,640 --> 00:31:08,060 increase approach would be. 400 00:31:08,060 --> 00:31:11,640 Here's just average monthly bill, what that would look like with that phased approach 401 00:31:11,640 --> 00:31:13,000 of the one and a half percent. 402 00:31:13,000 --> 00:31:19,160 So you can see, you know, going up slightly in '19-'20 and then again in 2021 where the 403 00:31:19,160 --> 00:31:24,680 no increase approach, you just get that same hit in 2021, you end up in the same place, 404 00:31:24,680 --> 00:31:30,840 just not phased to get there. 405 00:31:30,840 --> 00:31:36,120 And here you can see just the distribution on our out years of our rate between our base 406 00:31:36,120 --> 00:31:38,360 rate and our ECA. 407 00:31:38,360 --> 00:31:43,440 One thing that you'll see in 2022, we actually are projecting right now in our forecast a 408 00:31:43,440 --> 00:31:46,080 decrease in the base rate. 409 00:31:46,080 --> 00:31:53,160 As the ECA rate, you know, grows over these years, our fund balance continue and the base 410 00:31:53,160 --> 00:31:59,700 rates continue to over recover, we start building up that fund balance to a large number again. 411 00:31:59,700 --> 00:32:04,460 So for this forecast, we've said, we think in 2022, we can at least project for this 412 00:32:04,460 --> 00:32:09,720 forecast a base rate decline so that we're not continuing to just increase our reserves 413 00:32:09,720 --> 00:32:11,560 for the out years. 414 00:32:11,560 --> 00:32:18,920 This is a chart that we show every budget year just to say here's where we are versus 415 00:32:18,920 --> 00:32:22,680 other providers. 416 00:32:22,680 --> 00:32:28,400 So you can see here's our 2019 rate, here's what that no increase approach rate would 417 00:32:28,400 --> 00:32:32,160 be obviously the same and then our phased approach where we're still, you know, right 418 00:32:32,160 --> 00:32:39,640 in the middle or slightly to the top or the upper end of these comparison cities or entities 419 00:32:39,640 --> 00:32:43,080 and then if we kept that status quo, we just let the ECA rate go and we have that large 420 00:32:43,080 --> 00:32:51,600 increase, we would be down here at the bottom on that comparison. 421 00:32:51,600 --> 00:32:57,060 So a lot of numbers here, just our pro forma on that phased rate, a couple that we want 422 00:32:57,060 --> 00:33:02,880 to point out, you can see our fund balance in the ending next year at $50 million and 423 00:33:02,880 --> 00:33:08,600 then starting to go up over the next couple of years, 54, around $54 million and then 424 00:33:08,600 --> 00:33:15,120 after we have that base rate decline, it drops but it also drops because as we'll talk about 425 00:33:15,120 --> 00:33:19,640 later on our T cost and as Terry mentioned earlier, right now we're getting a large return 426 00:33:19,640 --> 00:33:24,900 on all of our T cost out of transmission assets whereas we are anticipating at some point 427 00:33:24,900 --> 00:33:28,960 over the next couple of years that will be reevaluated and that, you know, 28% will come 428 00:33:28,960 --> 00:33:34,400 down to-- right now for this model, we have in those out years, it dropping to 13% just 429 00:33:34,400 --> 00:33:38,440 as kind of a guess of where it might end up but that does have an impact on these out 430 00:33:38,440 --> 00:33:43,720 years in the model of that less revenue. 431 00:33:43,720 --> 00:33:48,320 You can also see the revenue funded capital where we're not-- we had, you know, focused 432 00:33:48,320 --> 00:33:53,760 on some revenue funded capital CIP projects this fiscal year, our plan in the future years 433 00:33:53,760 --> 00:33:56,840 is to debt fund those capital projects. 434 00:33:56,840 --> 00:34:05,520 So here's-- I wanna put this in here as just a breakdown of our total purchase power and 435 00:34:05,520 --> 00:34:11,640 this is before that debt revenue that we get to-- that offsets our purchase power just what 436 00:34:11,640 --> 00:34:17,240 that total purchase power looks like and I wanna point out, you can see here our TMPA 437 00:34:17,240 --> 00:34:22,040 amount that's included in purchase power, the $4.3 million, $2.8 million of that is 438 00:34:22,040 --> 00:34:26,880 for decommissioning cost, that's again part of that-- the schedule that TMPA has given 439 00:34:26,880 --> 00:34:32,480 us of 20, $22 million over the next five years that we'll be paying toward decommissioning 440 00:34:32,480 --> 00:34:33,480 cost. 441 00:34:33,480 --> 00:34:37,320 That number is gonna-- it varies through the year so it fluctuates from 2 million and then 442 00:34:37,320 --> 00:34:41,000 in a year or two, it's 8 million so it just kind of-- it goes up and down with the years, 443 00:34:41,000 --> 00:34:45,360 those are shown in our forecast but the first cost that we'll have next fiscal year is at 444 00:34:45,360 --> 00:34:57,480 $2.8 million and here's again on those ECA expenses as we talk through, here's our energy 445 00:34:57,480 --> 00:35:03,640 cost that are in the ECA that have always been the ECA that 44.96 and then you can see 446 00:35:03,640 --> 00:35:08,640 those deck expenses and the deck fuel that makes up the rest of our ECA that we have 447 00:35:08,640 --> 00:35:14,440 to recover with that rate. 448 00:35:14,440 --> 00:35:18,760 Just some dollars ago in this-- obviously I'll tidy the budget book that was presented 449 00:35:18,760 --> 00:35:24,640 to the board where you can see the base rates continuing to increase until we have that 450 00:35:24,640 --> 00:35:31,480 rate reduction with demand and then our ECA rates following accordingly to the plan that 451 00:35:31,480 --> 00:35:37,800 we laid out and we have a deck forecast later but you can see that we really have budget 452 00:35:37,800 --> 00:35:43,840 conservatively on the usage of the deck, that is definitely one that will continue to change 453 00:35:43,840 --> 00:35:48,740 in the next couple of years as we get more information on the deck but we want to stay 454 00:35:48,740 --> 00:35:52,720 as conservative as possible with those estimates. 455 00:35:52,720 --> 00:35:57,680 You can also see if you see that dip in the other revenue from 52 million to 34 million 456 00:35:57,680 --> 00:36:05,000 that has a few different impacts but obviously a large one is that TCOS, that TCOS piece. 457 00:36:05,000 --> 00:36:10,640 On the expense side, you know, everything is essentially in line on the admin and the 458 00:36:10,640 --> 00:36:15,920 power supply side and then the energy center will show later in a different breakout but 459 00:36:15,920 --> 00:36:23,800 you can see those expenses in the out years as well. 460 00:36:23,800 --> 00:36:29,200 So here's a breakdown at a high level of RCIP and definitely if you have any questions on 461 00:36:29,200 --> 00:36:31,160 anything in specific, we can get into those. 462 00:36:31,160 --> 00:36:32,940 We've just shown this at a high level here. 463 00:36:32,940 --> 00:36:36,960 We have all of the details as well if you have any questions. 464 00:36:36,960 --> 00:36:41,720 You can see we have increased the RCIP for distribution next year. 465 00:36:41,720 --> 00:36:46,560 This was another piece of that step, trying to take a step back and look at why we budgeted, 466 00:36:46,560 --> 00:36:51,600 what we budgeted last year, what was the methodology and a piece that came from that was that we 467 00:36:51,600 --> 00:36:57,640 really needed more dollars in RCIP devoted to distribution and so you can see that reflected 468 00:36:57,640 --> 00:37:05,080 here and in the out years and then on transmission as well obviously these assets in these next 469 00:37:05,080 --> 00:37:09,480 year and the following year are going to have that high rate of return with the transmission 470 00:37:09,480 --> 00:37:17,800 on the TCOS and in the out years it will be a little bit different. 471 00:37:17,800 --> 00:37:18,800 There's a lot to this slide. 472 00:37:18,800 --> 00:37:23,520 I think the easiest way to look at it is just what-- with each of-- on this-- when we look 473 00:37:23,520 --> 00:37:29,160 at our CIP for transmission, what essentially is our return on investment for what we paid 474 00:37:29,160 --> 00:37:33,500 towards transmission, all the debt cost that goes with those-- with that transmission. 475 00:37:33,500 --> 00:37:39,440 So over the life of each asset that we buy, what is our total expense over 30 years and 476 00:37:39,440 --> 00:37:45,920 then what is our total revenue as you can see in 2019, total expense on this 7.5 million 477 00:37:45,920 --> 00:37:54,080 in transmission CIP is 12.76 but because of our large rate of return right now, we anticipate 478 00:37:54,080 --> 00:37:57,240 to get 19.16 in TCOS revenue. 479 00:37:57,240 --> 00:38:03,560 So over 30 years with that rate of return, we end up in the positive of 6.39. 480 00:38:03,560 --> 00:38:09,200 That continues obviously throughout the-- throughout the forecast, we are getting a return on all 481 00:38:09,200 --> 00:38:13,080 of those transmission asset investments but it does change in the out years with a different 482 00:38:13,080 --> 00:38:22,400 rate of return used. 483 00:38:22,400 --> 00:38:28,560 For the position summary, we're not-- not anticipating too much new in the DME budget 484 00:38:28,560 --> 00:38:30,320 from a position perspective. 485 00:38:30,320 --> 00:38:37,040 We are increasing the proposed budget by two FTEs and these are really two plan operators 486 00:38:37,040 --> 00:38:39,320 that will work out at the deck. 487 00:38:39,320 --> 00:38:43,640 The deck, if you look at this current budget, we are having significant amount of overtime 488 00:38:43,640 --> 00:38:47,880 just to meet all of the hours that need-- that are needed for the deck to operate. 489 00:38:47,880 --> 00:38:53,040 So these two FTEs really make a lot of sense to bring in to help offset that overtime and 490 00:38:53,040 --> 00:38:58,080 operate the deck effectively and we're also transferring a position from our email group 491 00:38:58,080 --> 00:39:03,280 over to the deck for engineering needs associated with the deck. 492 00:39:03,280 --> 00:39:11,560 Here's our deck pro forma and I'll just touch on this high level and then I'll hand back 493 00:39:11,560 --> 00:39:16,240 over to Terry to talk through the deck and any more specifics but you can see as we're 494 00:39:16,240 --> 00:39:23,040 estimating this year, we are estimating a, you know, a net income loss essentially is 495 00:39:23,040 --> 00:39:24,040 one way to look at it. 496 00:39:24,040 --> 00:39:26,880 I think there's a lot of different caveats to look when we can talk through the deck 497 00:39:26,880 --> 00:39:30,720 and that Terry can touch on but as far as just what is the revenue we're estimating 498 00:39:30,720 --> 00:39:35,320 for the deck and what are the-- all expenses including the deck and this deck debt service 499 00:39:35,320 --> 00:39:41,700 is now included in the estimate anticipating a 2.4 million dollar expenditures over revenue 500 00:39:41,700 --> 00:39:46,200 and then each of those out years you can see with the conservative essence we have now 501 00:39:46,200 --> 00:39:52,560 how that-- how that comes out with that really increasing that-- that income loss increasing 502 00:39:52,560 --> 00:39:56,880 each year 8.9, 10.1, 12 and through the out years. 503 00:39:56,880 --> 00:40:05,680 I'm gonna hand it over to Terry now to talk a little bit more about the deck. 504 00:40:05,680 --> 00:40:12,600 Thank you, David. Okay, I mean obviously you can see here that the deck net incomes are 505 00:40:12,600 --> 00:40:18,960 decreasing over time. This is a reflection of the current forward curve. When we value 506 00:40:18,960 --> 00:40:25,120 the deck, we basically look at what the future value of energy is that can be produced from 507 00:40:25,120 --> 00:40:36,600 the deck during these out years and if I can just-- let's see, where are those other slides? 508 00:40:36,600 --> 00:40:49,960 Yeah, I need to get to the other slide. Oh, it's on the other presentation. No, this one 509 00:40:49,960 --> 00:40:54,480 right here. Yeah, that one right here. Yep. Thank you. 510 00:40:54,480 --> 00:41:00,560 So this is the forward curve and again you can see the shape of the forward curves here 511 00:41:00,560 --> 00:41:10,160 for power. This is the power forward curve and you can see it's decreasing over time. 512 00:41:10,160 --> 00:41:17,640 What we represent here is the on-peak price which is the Monday through Friday, 7 in the 513 00:41:17,640 --> 00:41:23,560 morning to 10 o'clock at night, 11 o'clock at night and obviously all the value is on 514 00:41:23,560 --> 00:41:29,840 these peaks in the summer, July and August is where all the value is. 90% of the deck 515 00:41:29,840 --> 00:41:37,280 revenue is achieved during July, August and September. So as these peaks go down, that 516 00:41:37,280 --> 00:41:45,320 represents less revenue option-- opportunity for the deck and that's why that net income 517 00:41:45,320 --> 00:41:53,720 number continues to look bad. The gas curve on the other hand does have a slight decrease 518 00:41:53,720 --> 00:42:00,300 through 2022 and then it starts to increase and this is problematic for the deck because 519 00:42:00,300 --> 00:42:06,640 as gas prices go up and power prices go down, we're effectively squeezing the margin, the 520 00:42:06,640 --> 00:42:13,560 gross margin that can be achieved by the deck. Now, the one thing that you'll hear me say, 521 00:42:13,560 --> 00:42:18,560 these two graphs in front of you are wrong. They are forward curves just like anybody's 522 00:42:18,560 --> 00:42:25,280 projection of the stock market, they're a guess. They are the best current estimate 523 00:42:25,280 --> 00:42:30,880 of what buyers and sellers would be willing to transact there. The other point I'll make 524 00:42:30,880 --> 00:42:38,440 is that since we only have, you know, very limited amount of data on operating the deck 525 00:42:38,440 --> 00:42:48,320 during the summers, there's significant available margins inside of the day. So each day as 526 00:42:48,320 --> 00:42:54,360 we offer the deck into the marketplace, it's based upon the price for the next day. Inside 527 00:42:54,360 --> 00:43:01,720 of the day, because market prices vary every five minutes, we could see spikes and we saw 528 00:43:01,720 --> 00:43:08,800 a couple this weekend, a couple $300 prices this weekend. We ran the deck yesterday most 529 00:43:08,800 --> 00:43:15,800 of the day because of the hot weather. That was not projected in these curves. So once 530 00:43:15,800 --> 00:43:22,040 we get through this summer and we see how it performs, we will hopefully be able to 531 00:43:22,040 --> 00:43:29,960 add some more value into our forecast for the deck. This summer may not be the best 532 00:43:29,960 --> 00:43:36,840 litmus test because it's been relatively mild. We've had a lot of rain, mild temperatures, 533 00:43:36,840 --> 00:43:42,720 healthy grid, healthy generation stack, and so we haven't seen much stress on the grid. 534 00:43:42,720 --> 00:43:51,140 So you know, the deck as a resource, we're going to see some low price years, low performance 535 00:43:51,140 --> 00:43:56,440 years, and then we're going to see some really good performing years as well. And it's there 536 00:43:56,440 --> 00:44:04,040 as insurance, again, to protect the load against those high prices. So I think that's the extent 537 00:44:04,040 --> 00:44:11,880 of our presentation. I'd be glad to answer any questions that you might have. 538 00:44:11,880 --> 00:44:14,400 All right. Questions? 539 00:44:14,400 --> 00:44:20,320 We must have done a great job. 540 00:44:20,320 --> 00:44:21,320 Or we're confused. 541 00:44:21,320 --> 00:44:22,320 We're still-- 542 00:44:22,320 --> 00:44:23,320 Totally confused. 543 00:44:23,320 --> 00:44:33,600 It's a lot to process. Yes, it is. But I do prefer that phased in. I've always preferred 544 00:44:33,600 --> 00:44:47,960 that. All right. Thank you. Next. Oh, you got more? Okay. 545 00:44:47,960 --> 00:44:51,360 I know there's a lot of information there, so we can definitely bring the presentation 546 00:44:51,360 --> 00:44:54,960 back at the next PEB meeting, if you'd like, just to have any additional questions. And 547 00:44:54,960 --> 00:44:58,560 obviously, we'll be coming back soon with rate ordinances and things like that that 548 00:44:58,560 --> 00:45:01,520 will be associated with the budget. So it won't be the last time that you see the budget. 549 00:45:01,520 --> 00:45:05,560 But if you'd like, we could just at least have it on the agenda for next time to answer 550 00:45:05,560 --> 00:45:06,560 any questions. 551 00:45:06,560 --> 00:45:09,760 I think I would like that. It's a lot to digest. 552 00:45:09,760 --> 00:45:15,440 Perfect. And then there was a closed session item associated with the budget presentation. 553 00:45:15,440 --> 00:45:19,800 That was really just in case you wanted to get into the PPA discussions as an offshoot 554 00:45:19,800 --> 00:45:22,440 of the presentation. But if not, then I don't think the closed session will be in this... 555 00:45:22,440 --> 00:45:30,360 Actually, I would like that. Okay. Great. Perfect. All right. Thank you. 556 00:45:30,360 --> 00:45:39,800 Thank you. All right. Consent agenda. Does any board member wish to pull an item from 557 00:45:39,800 --> 00:45:53,120 the consent agenda? All right. Then, do I have a motion to approve items A through G? 558 00:45:53,120 --> 00:45:54,520 Second. 559 00:45:54,520 --> 00:45:58,320 All in favor, say aye. 560 00:45:58,320 --> 00:45:59,320 Aye. 561 00:45:59,320 --> 00:46:06,920 Motion carries. Items for individual consideration. The Public Utility Board's minutes of June 562 00:46:06,920 --> 00:46:16,560 24th, 2019. Were there any changes or corrections? Hearing none, they'll be approved. What's 563 00:46:16,560 --> 00:46:37,800 the right wording? ACM update. 564 00:46:37,800 --> 00:47:00,560 Good morning, board members. On the ACM update items, you have a few items in there. Quarterly 565 00:47:00,560 --> 00:47:06,160 financial report ending March 31. That's just more of a four-year information. If there's 566 00:47:06,160 --> 00:47:09,760 any information that you would like after reviewing that, we'd be more than happy to 567 00:47:09,760 --> 00:47:29,360 get that for you. I was looking at that same report this morning. Ethan Cox, Director of 568 00:47:29,360 --> 00:47:33,320 Public Works. I need to go back and double check those tonnages to make sure we're not 569 00:47:33,320 --> 00:47:38,280 reporting net versus gross, and that's maybe some of the imbalance there. Typically look 570 00:47:38,280 --> 00:47:43,200 at those reports from our processor on a monthly basis. I did see a couple months ago that 571 00:47:43,200 --> 00:47:47,640 our gross tonnages were going down, but what that is is our contamination rates dropping. 572 00:47:47,640 --> 00:47:50,720 I need to go back and double check and make sure that we're not reporting two different 573 00:47:50,720 --> 00:47:52,080 data sets on that table. 574 00:47:52,080 --> 00:47:54,760 A drop in contamination rate is good, though. 575 00:47:54,760 --> 00:48:00,800 It is a very good thing. We're from 35% down to 25% the last month I checked. Let me double 576 00:48:00,800 --> 00:48:05,760 check on that and I'll circle back on a future ACM update with any changes. 577 00:48:05,760 --> 00:48:17,000 I was wondering what the source of revenue was for recycling. Is that just part of the 578 00:48:17,000 --> 00:48:18,320 solid waste fee? 579 00:48:18,320 --> 00:48:22,760 No, we actually have revenues that we get for the sale of commodities through the market, 580 00:48:22,760 --> 00:48:28,160 so if it's something that we sell directly through a scrap metal outfit, some of that 581 00:48:28,160 --> 00:48:33,560 comes directly in. The others is basically just a profit or revenue sharing through our 582 00:48:33,560 --> 00:48:36,080 agreement with Pratt Industries. 583 00:48:36,080 --> 00:48:39,320 It's also a portion of the fee, though. 584 00:48:39,320 --> 00:48:43,960 Really what the fee is designed to do is the collection of recyclables, so running the 585 00:48:43,960 --> 00:48:47,680 trucks up and down the street. There is some revenue coming in, but we don't count that 586 00:48:47,680 --> 00:48:54,840 as recycling revenue, per se. The recycling revenue itself comes from the commodity sales. 587 00:48:54,840 --> 00:49:00,960 So obviously if our recycling tonnage is down, we might want to get out some education, maybe 588 00:49:00,960 --> 00:49:01,960 increase that. 589 00:49:01,960 --> 00:49:06,480 Yeah, those percentages are a big shift, and so I need to go back and double check that 590 00:49:06,480 --> 00:49:08,680 and I'll bring that back to the board for you. 591 00:49:08,680 --> 00:49:09,680 All right, great. Thank you. 592 00:49:09,680 --> 00:49:17,080 I have a question. We stopped getting recyclables from other municipalities, though, right? 593 00:49:17,080 --> 00:49:23,960 Didn't we do that? Weren't we getting recyclables and charging a scale fee for those things? 594 00:49:23,960 --> 00:49:27,280 Or were those calculated? 595 00:49:27,280 --> 00:49:31,320 According to our recycling contract with Pratt Industries, we can accept or they can accept 596 00:49:31,320 --> 00:49:36,400 recyclables from other communities. We've never counted that in terms of our tonnages. 597 00:49:36,400 --> 00:49:41,560 However, we do get a $5 per ton fee for anything that they collect from other communities. 598 00:49:41,560 --> 00:49:45,800 They've scaled that back greatly. Number one, they're having a hard time moving stuff in 599 00:49:45,800 --> 00:49:50,760 the market, and other communities have contamination issues just like us, some much, much worse 600 00:49:50,760 --> 00:49:55,440 than us, and so Pratt's been very selective in who they partner with. They want to make 601 00:49:55,440 --> 00:49:58,840 sure they're getting clean materials and that they can move it in the market. 602 00:49:58,840 --> 00:50:02,040 But that wouldn't have been attributed to the decline that she's talking about. 603 00:50:02,040 --> 00:50:05,200 Not that I'm aware of. Like I said, I'll take a look at the data and make sure that's not 604 00:50:05,200 --> 00:50:06,200 the case. 605 00:50:06,200 --> 00:50:10,520 And if I remember, you had the question on the Valet pilot project? 606 00:50:10,520 --> 00:50:11,520 Me? 607 00:50:11,520 --> 00:50:23,120 No questions. Yes, that information has been provided to you. And if any additional questions 608 00:50:23,120 --> 00:50:32,240 that you might have, we'd be glad to address those. The only other two items are the future 609 00:50:32,240 --> 00:50:41,280 agenda items. I've got a list there for you. The report on the solid waste Valet collection 610 00:50:41,280 --> 00:50:49,280 was obviously provided today. The report on the DEC is actually a part of the presentation 611 00:50:49,280 --> 00:50:53,800 that was given today. It's a part of exhibit five for the DEC dashboard. So if you do have 612 00:50:53,800 --> 00:50:58,280 any questions on that, I'd be glad to get answers for you. 613 00:50:58,280 --> 00:51:05,600 And then we have a pending item on recycling. And we also have an item pending, item one 614 00:51:05,600 --> 00:51:12,280 reviewing the changing the time for the PUB meeting to 9 a.m. for both meetings instead 615 00:51:12,280 --> 00:51:19,200 of a 9 a.m. and a 6 p.m. So we'll work on getting that scheduled going on to the future 616 00:51:19,200 --> 00:51:26,400 agenda items. We did review the electric budget today. So that one's been taken care of. We've 617 00:51:26,400 --> 00:51:33,020 got two upcoming sessions that are going to be heavily focused on the budgets and rates. 618 00:51:33,020 --> 00:51:41,080 So the July 22nd, we'll be looking at the rate ordinances, which will basically be your 619 00:51:41,080 --> 00:51:46,600 first opportunity to see the rate schedules and kind of what those are looking like based 620 00:51:46,600 --> 00:51:53,520 on discussions that we've had with the budget. And then on August 12th, we will actually 621 00:51:53,520 --> 00:51:59,440 be, if all goes as planned, we'll be bringing forward the utility rate ordinances for water, 622 00:51:59,440 --> 00:52:04,480 wastewater, customer service and solid waste for a recommendation for the board. And that 623 00:52:04,480 --> 00:52:11,160 is all I have. Okay. Concluding items, then any board member 624 00:52:11,160 --> 00:52:16,760 wishes to have something brought put on the agenda in the future? 625 00:52:16,760 --> 00:52:22,200 I don't want to put anything on the agenda, but I just wanted to make an announcement. 626 00:52:22,200 --> 00:52:27,320 I've had a really good time working with all you guys, but immediately following the closed 627 00:52:27,320 --> 00:52:32,440 item that we're having, this will be my last meeting. But I have had a great time. It's 628 00:52:32,440 --> 00:52:36,720 been almost four years. Worked with some of y'all a short period of time, some of y'all 629 00:52:36,720 --> 00:52:40,680 longer, but got some other things that I want to experiment with and I don't feel like I'll 630 00:52:40,680 --> 00:52:46,000 be able to meet the attendance requirements. And so this will be my last meeting. 631 00:52:46,000 --> 00:52:47,000 All right. I'll miss you. 632 00:52:47,000 --> 00:52:50,040 So thanks a lot. Thanks y'all for working with me, teaching me all kinds of stuff about 633 00:52:50,040 --> 00:53:02,880 electricity. I appreciate it. You can take my share. But thank you very much. 634 00:53:02,880 --> 00:53:09,400 And I'm always not sure how I do this, Larry. So do we adjourn and then go into closed session? 635 00:53:09,400 --> 00:53:12,080 Okay. So do we have a motion to adjourn to go into- 636 00:53:12,080 --> 00:53:17,560 I'll make sure we adjourn one last time. All right. Do we have a second? 637 00:53:17,560 --> 00:53:19,760 I'll second. All in favor, aye. 638 00:53:19,760 --> 00:53:26,160 Aye. Now I do have to read what the closed meeting is about, correct? Okay. Deliberations 639 00:53:26,160 --> 00:53:32,500 regarding certain public power utilities competitive matters under Texas governmental code section 640 00:53:32,500 --> 00:53:41,080 551.086 to deliberate and discuss competitive information regarding the public power operational 641 00:53:41,080 --> 00:53:46,960 and financial matters pertaining to the purchases and risks of wholesale energy supply and pertaining 642 00:53:46,960 --> 00:53:48,500 to the proposed electric budget.