JOINT UTILITIES COMMISSION / FINANCE COMMISSION MINUTES Wednesday, June 17, :00 a.m. City Hall, Council Chambers, Vero Beach, Florida

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1 JOINT UTILITIES COMMISSION / FINANCE COMMISSION MINUTES Wednesday, June 17, :00 a.m. City Hall, Council Chambers, Vero Beach, Florida PRESENT: Utilities Commission: Chairman, Lee Everett; Vice Chairman, Dick Chapman (via telephone) Members: Don Hawkins, Robert Blumstein, Malcolm Roach, Aime Arsenault, and Non-Voting Members, Jane Burton and Tom Cadden Finance Commission: Vice Chairman, David Parker; Members: Warren Winchester, William Heran, Dan Snellings, Eric Swenson and Alternate Member, William Teston Also Present: Director of Electric Utilities, R. B. Sloan; Water and Sewer Director, Rob Bolton and Deputy City Clerk, Sherri Philo Excused Absence - Finance Commission - Pilar Turner Unexcused Absence Finance Commission Tom Nason Excused Absences Utilities Commission Herbert Whittall and Jason Fykes 1. CALL TO ORDER Today s meeting was called to order at 10:00 a.m. 2. PRESENTATION ON ELECTRIC AND WATER & SEWER REVENUE REQUIREMENT Mr. R. B. Sloan, Director of Electric Utilities, explained to the Commission members that they would first receive a presentation on the electric side and then a presentation on the water and sewer side. He stated that the presentations given at today s meeting would also be given to the City Council at a Special Call meeting on June 22 nd. Following the input they receive from these two meetings, they would then hold another series of meetings in about a month on the cost of service and rate allocations. All meetings will include public input. He reported that they would follow those meetings up with two Town Hall meetings. Electric Mr. Sloan gave a Power Point presentation on the Electric Utility Revenue Requirements Power Supply Cost, Power Plant Operational, Power Plant Financial, Internal Cost System Characteristics and Internal Cost Operational (on file in the City Clerk s office). He then asked the consultants to discuss the revenue requirements. Mr. Henry Thomas, Principal of Public Resources Management Group, Inc., explained that they broke the study down into two phases. The first phase is to look at the overall system needs. The second phase is once they receive feedback and decide on the overall plan they would then 1 06/17/09 Joint Utilities/Finance Commission

2 apply cost of service techniques to look at how that needs to equate to rate designs and how it will affect consumers. He pointed out that the rate recovery process method that the City uses includes two components. One is the base rate, which recovers cost of internal operations as well as a portion of the power costs. The second is a power cost adjustment feature that allows increasing or decreasing in power costs to be passed through directly. The City has not increased the base rate since There have been changes in the power cost adjustment, but the base rate revenue that the City depends on for its internal operations has not been increased. Mr. Teston said it was stated that the base rate has not increased since He asked what about the power adjustment cost. Mr. Thomas said the power adjustment cost has changed quite often. He said that they just had one very large increase in June. Mr. Teston asked will those rates remain in the foreseeable future. Mr. Thomas explained that the rates they are at today will remain throughout the rest of this year. Once the City enters into the OUC contract they anticipate the power cost rates to decline significantly. He then gave a Power Point presentation (on file in the City Clerk s office) on Existing Conditions FY 2009, Changes in Historical Operating Results and Benchmarks Historical Operating Margin, Changes in Historical Operating Results and Benchmarks - Net Income, Changes in Historical Operating Results and Benchmarks - Days of Cash, Changes in Historical Operating Results and Benchmarks Coverage and Study Objectives. Mr. Teston said the electric company has a business model that is set up with its finances, costs and infrastructure. He asked if anyone looked at the overall business model to determine if the cost structure and revenue structure could be more affective with a different business model. Mr. Everett said they know where the operating costs are, they know where the savings are and they are looking at these things constantly. Mr. Thomas said that there is a major change in the business model, which is where they are purchasing the power from. He said that by going from FMPA to OUC they will see significant declines in the power costs that will get passed on through BPCA. He said that when they began this process they revised the capital plan down several times as they looked at the system as to what they could defer to help hold rates down and what is necessary. They feel that what they are presenting is the necessary costs on the internal side. As far as how they recover the costs in the relationship between the rates and the cost structure, there may be some things they could do with the rate structure that could give some relief, which he would show later on in his Power Point presentation. 2 06/17/09 Joint Utilities/Finance Commission

3 Mr. Everett explained that one big problem they have is that they are going from one power supplier to another and the cost structure in that transition is abrupt. They have to decide if the rate structure needs to be abruptly changed or if they could feather in the unexpected costs from FMPA at the end of their contract so customers don t get jolted before they get a reduction in costs. Mr. Snellings said it was stated earlier in today s meeting that there was an $11 million dollar difference between 2007 and 2008 and a $5 million dollar decrease in revenues. He asked are they trying to recoup this year an 11 million dollar deficit or a 5 million dollar deficit. Mr. Thomas said that both of those numbers occurred in They are not trying to make up what was lost in They are however trying to raise the rate to the 2009 cost level so they don t experience similar losses. He then continued with his Power Point presentation. He went over the Study Tasks, Customer Growth and Revenue Assumptions, Projected Customer Growth and Sales, Revenue at Existing Rates, Projected Total Operating Expenses, Projected City Operating Expenses, Major Capital Projects, Capital Improvement Program Funding, Debt Service Assumptions, Other Revenue Requirements, Other Revenue Requirements, Adequacy of Existing Rates, Study Considerations, Summary of Estimated Rate Increases, Adequacy of Proposed Revenues, Projected Cash Balances and Conclusion - Recommendation. Mr. Winchester recommended if possible, a smoothing over the first six months of the year He felt that was the most appropriate way to handle both the expected decrease in cost and to recoup the cost that they have to recoup anyway. Mr. Thomas said that they have used one point two million dollars in 2010 to help smooth. Mr. Winchester said it was clear that Units one, three and four do have value. He asked if the City has done a study on the cost to bring those units up to speed so they could be used in a combined cycle or replace them with efficient generators in order to take care of their future in a better way. Mr. Sloan said there have been some previous studies. He felt that they needed to wait and see what the market does before they do any work on the units. He reported that FMPA gave their remaining customers notice that their cost is going to go up as a result of the City exiting their contract. That tells him that the City has not seen the full benefits of those units coming back to them. Mr. Winchester asked Mr. Sloan if there was no question in his mind that Units one, three and four do add value to the system. 3 06/17/09 Joint Utilities/Finance Commission

4 Mr. Sloan felt that has been demonstrated. Mr. Snellings asked Mr. Thomas has he done any rate studies for any other cities in Indian River County and if so, how does the City of Vero Beach stack up with them. Mr. Thomas said the water and sewer rates were more comparable. In this area, the only municipal system the City of Vero Beach competes with for rates is Ft. Pierce. Mr. Murray Hamilton, Jr., Rate Consultant for Public Resources Management Group, Inc., reported that Ft. Pierce Utility rates were higher than the City of Vero Beach Utility rates. Mr. Heran felt that they did an excellent job on the study, but was amazed that they got through the entire presentation without any reference to Florida Power and Light (FP&L). He asked was there a reason that they did not discuss how the City of Vero Beach utility rates compare to FP&L. Mr. Thomas explained that at this point of the study they were looking at what the system needs are. They were not designing rates at this time. He stated that they would have rate comparisons with FP&L as well as other systems in the State at their next meeting. At this time, Mr. Everett asked if there was anyone from the public who would like to speak to limit their comments to four minutes. Mr. Chapman (attending via telephone) hung up at 11:59 a.m. Dr. Stephen Faherty, 2120 Captains Walk, read part of a prepared statement regarding electric utilities. He stated that he would continue his prepared statement on water and sewer after that presentation (please see attached). Mr. Bennett Baher (spelling may be incorrect), Grand Harbor, stated that he was one of the slaves, as quoted in the Press Journal, who is paying slightly higher rates without a voice. He reported that the other half of Grand Harbor was being served by FP&L, so he has seen FP&L s quality of service. He reported that he has had 17 brownouts in the last 12 months, which has caused him to lose two ranges and two computers. His neighbors who are served by FP&L have not had any brownouts. He did not see how the City could not know what Units one, two and four costs to operate. It was his opinion that the City needed to shut down their utilities. Ms. Lee Regan was happy to see that the City is going to consider and probably lower the tax on out of City residents. But, on one hand they say they are going to lower the tax and on the other 4 06/17/09 Joint Utilities/Finance Commission

5 hand they seem to be bringing it back by raising the base rate. She would like them to consider an incentive plan for people to conserve their electricity. Mr. Everett asked the Committee members if they would like to take a break at this time. He stated that he would need to excuse himself from the rest of the meeting or they could schedule the presentation for water and sewer on another day. Mr. Cadden suggested that they schedule another meeting. Mr. Sloan asked the Commission members to take a break and then come back today to hear the presentation on water and sewer. After a brief discussion, the Commission members agreed to take a 15-minute break and Mr. Roach, Mr. Everett and Mr. Arsenault excused themselves from the remainder of today s meeting. The meeting was called back to order at 12:30 p.m. Water and Sewer Mr. Rob Bolton, Water and Sewer Director, gave a Power Point presentation on Divisions of Water and Sewer Department, Wastewater Treatment Cost Centers, Water Treatment Cost Centers, Reuse Cost Centers, Water and Sewer Department Ten Year Capital Projects Gravity Sewer, Water and sewer Department Ten Year Capital Projects Water Treatment, Water and sewer Department Ten Year Capital Projects Water Distribution, Water and sewer Department Ten Year Capital Projects Reuse, Water and sewer Department Ten Year Capital Projects Administration, Water and sewer Department Ten Year Capital Projects - Lift Stations, Water and sewer Department Ten Year Capital Projects Meter Maintenance, Pine Avenue Lift Station No. 11, Piper Drive, Laurel Drive Water Main Replacement, Recent Changes in Operating Expenses and Sales Electric Cost, Water Treatment Chemical Price Increases, Water and Sewer Department Personnel Changes, Average Monthly Billed Consumption, and Operating Costs (on file in the City Clerk s office). Mr. Thomas reported that they have had rate adjustments on the water, wastewater side of the utilities. However, he would recommend to Council that as they move forward that they do more frequent, smaller increases because they are in worse financial condition than the electric. He then gave a Power Point presentation on Existing Conditions FY 2009, Changes in Historical Operating Results and Benchmarks Historical Operating Margin, Changes in Historical Operating Results and Benchmarks Net Income, Changes in Historical Operating Results and Benchmarks Days of Cash, Changes in Historical Operating Results and Benchmarks 5 06/17/09 Joint Utilities/Finance Commission

6 Coverage, Study Objectives, Study Tasks, Customer Growth and Revenue Assumptions, Projected Customer Growth and Sales, Revenue at Debt Service Assumptions, Other Revenue Requirements, Adequacy of Existing Rates Combined Water and Wastewater Systems, Adequacy of Existing Water Rates Water System, Adequacy of Existing Wastewater Rates Wastewater System, Study Considerations, Summary of Estimated Rates Increases, Residential Water Comparison of Neighboring Utilities Utilizing 6,000 Gallons a Month, Residential Wastewater Comparison of Neighboring Utilities Utilizing 6,000 Gallons a Month, Residential Combined Comparison of Neighboring Utilities Utilizing 6,000 Gallons a Month, Residential Water Comparison of Neighboring Utilities Utilizing 50,000 Gallons a Month, Residential Wastewater Comparison of Neighboring Utilities Utilizing 50,000 Gallons a Month, Residential Combined Comparison of Neighboring Utilities Utilizing 50,000 Gallons a Month, Adequacy of Proposed Revenues Combined Water and Wastewater Systems, Adequacy of Proposed Water Revenues Water System, Adequacy of Proposed Wastewater Revenues Wastewater System and Projected Cash Balances. Mr. Blumstein would like to see conservation incentives for people who have solar panels, etc. 3. PUBLIC COMMENTS Dr. Stephen Faherty read his prepared statement regarding water and sewer (please see attached). Mr. Parker asked that they consider doing a study of selling the plant and going to FP&L. Mr. Sloan said that studies have been done in the past on selling the utilities system and in every case something occurred and it was decided not to do it. He said that aspect was placed in the RFP as something that could be proposed but no one who submitted proposed it. Mr. Parker felt that the Finance Commission should have been involved in this process from the beginning. Mr. Winchester explained to the Commission members that if they had concerns they could address them with the City Council as a private citizen and not as a member of the Commission. 4. ADJOURNMENT Today s meeting adjourned at 2:07 p.m. /sp 6 06/17/09 Joint Utilities/Finance Commission