Ms. Sherri Newell Wilkinson, Strategy and External Affairs Officer, called roll.

Transcription

1 MINUTES Colorado Springs Utilities Board Wednesday, August 19, 2015 Blue River Board Room 5th Floor, Plaza of the Rockies South Tower 121 S. Tejon Street Utilities Board Members Present: Chair Andy Pico, Vice Chair Tom Strand, Board Members Merv Bennett, Keith King, Jill Gaebler, Helen Collins, Don Knight, and Bill Murray Board Member Excused: Larry Bagley Staff Members Present: Jerry Forte, Sherri Newell Wilkinson, Eric Tharp, Bill Cherrier, Carl Cruz, Dave Padgett, John Fredell, John Romero, Katie Hardman, Wayne Vanderschuere, Melissa Kellione, Dave Gossman, Sonya Thieme, Susan Presti, Kim Mutchler, Eileen Verosko, Rick Griffith, Division Chief-Utilities Division, City Attorneys Office, Ken Burgess, Chief Counsel Rates & Regulatory, and Denny Nester, City Auditor 1. Call to Order Chair Pico called the Utilities Board meeting to order at 1:03 p.m. Ms. Sherri Newell Wilkinson, Strategy and External Affairs Officer, called roll. 2. Minutes Chair Pico asked for approval of the minutes for the July 22 Utilities Board meeting. Board Member Bennett moved to approve the July 22, 2015 Utilities Board meeting minutes, and Board Member Knight seconded the motion. The motion carried by unanimous vote. 3. Recognition No recognition. 4. Customer Comments No comments. 5. Monitoring Reports A. Treatment of Staff (EL 3) Reviewing Committee: Personnel No discussion. 1

2 B. Asset Protection (EL 4) Reviewing Committee: Finance No discussion. C. Financial Condition and Activities (EL 7) Reviewing Committee: Finance Mr. Jerry Forte, Colorado Springs Utilities CEO, responded to Board Member Knight s question of whether Colorado Springs Utilities was successful in obtaining a grant from the Department of Local Affairs to assist in the construction of a natural gas fueling station, stating notification has been received for approval of the grant which amounted to just over $400,000. D. Water Rights Protection (EL 10) Reviewing Committee: Strategic Planning No discussion. E. Enterprise Risk Management (EL 11) Reviewing Committee: Finance No discussion. F. CEO Performance Plan Results (B 6) Reviewing Committee: Personnel No discussion. G. Contracts Over $500,000 (EL 8) Reviewing Committee: Finance Board Member Knight asked for a correction of the reviewing committee listed on the monitoring report. Ms. Newell Wilkinson stated it would be corrected on the monitoring report. H. Chief Executive Officer s Communication (EL 8) Communication and Support to the Board Mr. Forte presented three updates. First, he assured everyone that the spill on the Animas River does not affect Colorado Springs water and that our water is safe to drink. Second, Mr. Forte announced an evening public meeting scheduled for Wednesday, August 26 from 6 p.m. to 8 p.m. to receive public input on the work being done with the Governance Process and Governance Structure Review. The meeting will be held at the City Administration Building, Room 102. Third, Mr. Forte presented an update on the sink hole on Chestnut, and Colorado Springs Utilities interface with the City Public Works in its repair. He stated that close coordination is being done with the City due to the extensive utilities infrastructure in and around the sink hole. He presented pictures and diagrams 2

3 showing the infrastructure and explained what work Colorado Springs Utilities is doing. Mr. Forte explained safety around the sink hole. He reviewed the type of utility structures that were affected by the sink hole, and temporary utilities installed to service customers. He stated that to maintain reliability for our customers for the long-term over this area, they may have to come back and install some overhead lines. Chair Pico questioned if there was an effort to sell water to California. Mr. Wayne Vanderschuere responded explaining that selling water to California is not the correct term. He stated that Colorado Springs Utilities presented a proposal to provide 2,000 acre feet of water from the Homestake Reservoir to the Colorado River Basin Commission to assist in a pilot program titled the System Conservation Pilot program which is geared at helping keep Lake Powell stay above minimum power pool levels. He stated that he has heard unofficially that Colorado Springs Utilities was turned down, but has not received any official notification. 6. Regional Business Alliance (RBA) Partnership Agreement Amendment Mr. Dirk Draper, CEO of RBA discussed the partnership with Colorado Springs Utilities, and how this support helps RBA complete its mission. He discussed the work that has been done with Colorado Springs Utilities staff in preparing the proposed changes to the current partnership agreement, and how these changes will provide both clarity and certainty on both sides. Mr. Al Wenstrand, RBA Chief Business Development Officer reviewed changes to the agreement. He discussed the cleanup language in the existing contract. He stated that the proposed changes do not lessen the deliverables addressed in the agreement. He then discussed the various deliverables that needed to be addressed. He assured the Utilities Board that the intent of the original agreement remains whole with the inclusion of the proposed amendments. One item that was unintentionally omitted was how the Utilities Board would like to receive updates from the RBA, and he requested direction from them. Mr. Bill Cherrier, Chief Planning and Finance Officer responded to Board Member Gaebler s question if there was any comment from staff on the proposed changes, stating staff has worked very close with the RBA on the agreement, as well as the proposed amendments and they believe this will create a more workable agreement, allowing them to work more closely with the RBA and report out on activities. Board Member Gaebler asked for clarification on the focus moving away from economic development and more toward marketing. Mr. Cherrier and Mr. Wenstrand both responded, explaining that with this change in focus they expect to see more economic development as an end result. 3

4 Mr. Cherrier responded to Vice Chair Strand s question of how they determine the RBA is meeting standards of the agreement when some of the deliverables and performance measures have been removed, stating that they are trying to be more result focused rather than task focused. He stated that the quarterly reports will show what the activities are; and measuring success will be done through the metrics they are reporting out on. Board Member Bennett spoke on the helpfulness of the evolution of this agreement, and the work done to make it better considering last year was the first year for the agreement. Board Member Knight commented that he is hoping to see better measurements that are realistic, but will support the amendments with the knowledge that a new agreement will be done next year. Mr. Cherrier and Mr. Wenstrand gave him further clarification on the marketing focus. Mr. Cherrier stated that the marketing is not just going to be placing ads saying come to Colorado Spring; it will incorporate a lot more. Mr. Wenstrand discussed how their marketing efforts will be focused on target industries that are Utilities centric. Board Member Knight discussed the possibility of merging the partnership agreement between the City and RBA, with Colorado Springs Utilities an entity of the City. Mr. Draper stated that could be something they would consider doing for Board Member Bennett moved to approve the proposed amendments to the RBA Partnership Agreement. Board Member Gaebler seconded the motion. Clarification was discussed regarding the quarterly reporting by the RBA to the Utilities Board. The Utilities Board directed that they would like to have quarterly updates as a presentation at the Utilities Board meeting, and that monthly updates should be given to staff. The motion passed 7-1, with Board Member Collins opposing. 7. Finance Committee Draft Budget Discussion Mr. Forte explained that the first draft of the 2016 budget is being presented a month earlier than is traditionally done. He expressed his gratitude to all who have put so much work into the planning. He discussed the challenges and successes of major capital programs over the past decade; the reductions in staff, with fifty more positions to reduce; and the complexity of regulations. Mr. Forte stated that this budget is proposed to be $110 million less than last year s budget. He was happy to announce that water will be coming out of the pipe on the Southern Delivery System (SDS) after 20 years of planning and building. He discussed 4

5 the testing of the emission control project this fall at Drake, and the emission control project at Nixon. Mr. Forte stated that good work has been done, is being done, and will continue to be done. Next month he will bring more of the story behind the building of the 2016 budget. Mr. Bill Cherrier, Chief Planning and Financial Officer, gave the initial budget presentation. He discussed hurdles coming into play in 2016, and how the Finance Committee and staff have worked to get through them. Mr. Cherrier reviewed the total sources of funds, which is down as a result of the completion of a majority of capital projects. In reviewing revenue by service, he noted that the 2015 forecast is down from the 2015 approved budget; and the key driver is the significant reduction of water revenue and reduction in fuel costs. He stated that the proposed 2016 appropriation is down from the previous year, primarily due to capital and fuel costs. Mr. Cherrier reviewed non-fuel operations and maintenance (O&M) expenses, and capital expenditures. He explained that in the non-fuel O&M area controllable costs are limited, and staff has done a good job in making reductions while revenue is down. He stated that staff has a good prioritization process for managing these expenses. He explained the reduction in capital expenses over the last two years as Colorado Springs Utilities has been completing some major capital projects; and stated they expect another significant drop in He discussed how the labor reductions have allowed for the reduction in the non-fuel O&M. Mr. Cherrier reviewed key initiatives for all services - Electric Service included the Electric Integrated Resource Plan (EIRP), emissions compliance, additional renewables, North American Electric Reliability (NERC) compliance, and increased emphasis on safety. Gas Service key initiatives included the Compressed Natural Gas (CNG) fueling station, the Distribution Integrity Management Program (DIMP), and adding a gas safety representative to build/enhance safety programs. Water Service key initiatives included compliance with legal and regulatory requirements, rehabilitating/replacing an aging infrastructure, and the SDS Integration Plan. Wastewater key initiatives included complying with new wastewater treatment nutrient regulations, and rehabilitating/replacing an aging infrastructure. Customer Corporate Services (CSS) key initiatives included enhancing the customer contact center platform, new Office365 capabilities for unified communication, upgrades to core enterprise applications, addressing backlogs in Information Technology (IT) infrastructure lifecycle maintenance, cyber risk identification, enterprise succession planning and leader development, and enhanced digital and mobile communications. Mr. Cherrier reviewed and discussed financial costs for key capital projects in each of the services. 5

6 In reviewing the Adjusted Debt Service Coverage (ADSC), Mr. Cherrier explained that it is lower due to decreased sales. He stated that the Debt Ratio today is under sixty percent, which is where they want it to be and what the credit rating agencies want to see. He explained that Days Cash on Hand has stayed fairly consistent over the last several years, and the ultimate goal is to target 150 Days Cash on Hand. He explained that when water revenue is reviewed, they will potentially be proposing a Rate Stability Fund which will help with building the Days Cash on Hand. Mr. Cherrier presented some of the highlights in the Preliminary Rate Review for Electric, Natural Gas, and Water; and showed how the potential increases/decreases will affect residential, commercial and industrial bills. Board Member and Finance Committee Chair Knight explained the detailed review process of the 2016 budget that was done in the Finance Committee with staff; and stated that the final review will be presented to the Utilities Board in September. Board Member Knight presented the Finance Committee recommended changes for discussion. The Finance Committee had no recommended changes for Energy Services. Water Services has two areas that are different from last year. He stated that the nonpotable water rate was frozen in 2009, and is no longer holding its own with cost of service. Mr. Knight explained that the proposed increase will not completely recover cost of service; it is just a first step. He explained that staff is working on options, but has not brought them to Finance Committee yet. Board Member Murray suggested that it would be helpful to include what the affect is, and who it affects as part of the Finance Committee recommendation for the nonpotable rate increase. Board Member Knight responded stating that the proposed rate increase for non-potable users is six percent. Mr. Cherrier stated that they would be able to bring back the data they are requesting without revealing customer information. Chair Pico responded to Board Member King s question as to how much of the water and non-potable water increase relates to the lack of irrigation this year, stating it is zero; the increase is only about cost of service assumed in an average year. Board Member Knight responded to Board Member Murray s question about the absolute cost of delivery of non-potable water, stating that would be information that would need to be supplied at a later date. Chair Pico stated that a true cost of service study will be done next year. Board Member Knight also explained that there is $1 million unallocated in the water budget, and gave a list potential areas or combination of areas where it could be 6

7 applied. The recommendation would be to include it as a baseline item, but not to allocate until August Board Member Bennett voiced his concern about applying an absolute date for allocation. Board Member Knight stated that each item listed has a valid need, and each has different triggers. Mr. Cherrier stated they will be looking to the Utilities Board to determine which item will bring the best return on investment. Board Member Knight presented a breakdown for the proposed 2016 Economic Development funding. He noted the change of replacing the Moody s Analytics contract to provide economic forecasting data with a contract with the Southern Colorado Economic Forum, which is local and has a cost savings of $5,000. Mr. Cherrier responded to Board Member Knight s question of whether 2016 funding has been discussed with the RBA, stating that no funding discussions have occurred yet as they have been focusing on the 2015 agreement update. Board Member Bennett suggested that these discussions with the RBA occur before they finalize the 2016 budget. Mr. Cherrier clarified for Board Member Murray the marketing approach being taken with the RBA, and wants to be clear that they do not equate marketing to advertising. Board Member Knight stated that Rocky Mountain Innovation Partners is the new name for Colorado Springs Technology Incubator, and their mission has changed. No request or review of funding has come from them yet, so a place holder has been put in the budget for them. Board Member Knight reviewed the Community Investment fund and gave some history prior to 2014, the direction from the Utilities Board in to do away with funding for charities in 2014, and staff s desire to reinstate the funding. Board Member and Strategic Planning Committee Chair Gaebler spoke on the Strategic Planning Committee s recommendation for reinstating the funding, and clarified that it was brought to them by staff, they did not direct staff to include it in the budget. She stated that she honors their desire to be a corporate citizen in the community. She also stated that the Strategic Planning Committee sent their recommendation to Finance Committee. Board Member Knight stated that Finance Committee s recommendation is to delay the decision until August of 2016 when they will have a better indication of financial performance, and then include in a supplemental appropriation if City Council approves. Mr. Cherrier responded to Board Member King s question on Days Cash on Hand, stating it is combined for all services for reporting, but each service has Days Cash on Hand that is tracked. He also explained that the total measurement for Days Cash on Hand tells them how long Colorado Springs Utilities can operate in unusual circumstances with no new revenue coming in. 7

8 Board Member King asked Mr. Cherrier to respond to a presentation City Council heard about a week ago in which they were told that there was an excess of $20 million in utility revenue that could be transferred to the City. Mr. Cherrier stated that there really is no excess, and that the reserve of 125 Days Cash on Hand should be built up ideally to 150 days to be prepared for unpredictable events. He stated that the report was the judgment of someone who did not have intimate knowledge of the operations of the Utilities. He stated that he would follow up with an actual amount for what 125 Days Cash on Hand represents, but estimated it to be about $200 million plus. Break 3:05 p.m. 3:20 p.m. Mr. Cherrier responded to Vice Chair Strand s question on the how the potential rate increase will affect customers who don t use natural gas, stating that it would be about two to three percent. Mr. Cherrier responded to Vice Chair Strand s question on the dollar value for capital projects that have been deferred, stating he did not have a number and explained how what he called planned future funding is being worked into more robust Five Year Service Business Plans to have minimal changes to rates. He also stated that there is not a big backlog of these unfunded capital projects. Mr. Cherrier responded to Vice Chair Strand s question of whether getting less than fifty percent of Debt Ratio is achievable, stating it could be, but we need to stay conscious of the rates needed to achieve it, as it would cause a major impact to the rates. He explained that fifty-five percent is very healthy. Mr. Cherrier responded to Vice Chair Strand s question on the increase in Labor and Benefits from 2014 to 2015, explaining that it was about a two percent increase. He explained that many of the reductions were through labor reductions, and that healthcare costs are going up for everyone across the county. Mr. Forte explained that if you removed the labor reductions that were made, it would increase the budget numbers by $20 to $25 million. He added how going to a consumer-based and wellness-based approach to healthcare places Colorado Springs Utilities below the national average. Mr. Cherrier also explained that healthcare management for Colorado Springs Utilities has been very cost-effective. Ms. Melissa Kellione, Human Resources General Manager responded to Board Member King s question of the dissimilarities between Colorado Springs Utilities and the City healthcare, stating that in 2006 they adopted a consumer-directed healthcare approach. She explained that the City is starting to look at similar consumer-directed approaches. She discussed a study that was done that recommended not combining plans, as it would not be a benefit. Board Member King felt it would be beneficial to see the differences, and Ms. Kellione stated that she would supply the information to the Utilities Board. 8

9 Board Member Knight gave some insight on what has been done by the City and Colorado Springs Utilities regarding bringing wages up to market value. Board Member Knight discussed the capital project backlog and feels there is a high number of deferred maintenance projects. He stated that Finance Committee is asking what is out there, how many years will it take to catch up, and what will it do to the rates? Chair Pico noted that the impact of the potential rate increase on the customer bill is one half the rate of inflation. 8. Utilities Policy Advisory Committee (UPAC) Assignment Update Mr. Rich Kramer, UPAC Chair presented an update on progress in Phase 2 of their economic development assignment. He also commented that RBA marketing is a way of presenting data to the developers. He stated that UPAC agrees that there needs to be an interactive database for developers. Mr. Kramer presented background on the assignment and reviewed the four recommendations given for Phase 1, and progress being made in defining more detailed recommendations for Phase 2 in each of the four areas. Mr. Kramer expressed UPAC s support of allowing the limited transfer of development charge meter credit from one property to another property with the same owner. This change will be included in the 2016 rate case. Discussion occurred around what has already begun in improving the customer experience through the development review process. Mr. Kramer and Mr. Forte discussed how a management committee was formed to lead a culture change from the top down with a customer centric focus. Board Member Murray voiced his concern regarding flexibility in administrative review and approval, and the need for tight controls. Mr. Forte responded to his concerns. Mr. Kramer discussed future UPAC meeting topics including Colorado Springs Utilities economic development toolbox items, reviewing follow-up information on annexation regulations/policies, and specific policy changes to support the Phase 1 recommendations. Board Member Gaebler spoke on how impressed she is with the work done by UPAC to date, the update presentations, and particularly the interaction with the City Infill and Redevelopment Steering Committee. 9

10 Mr. Kramer discussed the great cooperation from all involved in supplying data and information they have requested. Board Member Knight voiced his concern on the specially designed tariff change recommendations for infill. Mr. Kramer stated that UPAC is aware of this concern, and Mr. David Beckett with the City Attorney s Office provides legal counsel in this area. Mr. Ken Burgess, Division Chief Rates and Regulatory for the City Attorney s Office also responded to Board Member Knight s concerns on how the proposed tariff changes would be reviewed. Mr. Kramer responded to Board Member King s question if UPAC has looked at rebates for some of the older properties in infill areas, stating they have not seen anything that would be universally applicable from a policy aspect. 9. Electric Integrated Resource Plan (EIRP) Update Mr. John Romero, Energy Acquisitions, Engineering and Planning General Manager, introduced Ms. Katie Hardman, Principal Engineer and EIRP Project Manger to give the presentation. Ms. Hardman reviewed the time schedule, and discussed how scenarios how are put into a portfolio. She explained that the portfolios are then grouped into similar and more detailed analysis until they are narrowed down to one preferred portfolio. She stated that they ran eighty-three of the eighty-five identified scenarios from which nine portfolios were created. She noted that they are currently doing a DSM study, which will have a potential effect on some of the scenarios. Ms. Hardman explained why the nine portfolios were chosen and what they contain. She noted that Portfolios H and I contain decommissioning scenarios for the Drake Power Plant; and Portfolios D and H include the UPAC Energy Vision recommendation. Ms. Hardman explained how they will narrow down the nine portfolios to one preferred portfolio looking at the metrics of cost, financial risk, carbon dioxide regulatory risk, and intangible considerations. She explained the weights that were applied to each of these metrics. Ms. Hardman stated that since the Environmental Protection Agency s Clean Power Plan has been released, it will be incorporated into the final evaluation. Ms. Hardman explained that a tenth portfolio was identified to show fifty percent renewables by 2030 and no coal. She stated that because the cost of this portfolio was so much above the other nine it could potentially skew the final scoring, so it is being left out, but the public will be able to see the details of this tenth portfolio. 10

11 Ms. Hardman stated that a public meeting was held on July 30 with a great turnout. She discussed feedback received from the public meeting, and stated that a fourth public meeting will be held in late September to discuss how results of the portfolios. She reviewed the next steps that include a final presentation to the Utilities Board in October. Board Member Knight voiced his concern over there being just one preferred portfolio. He requested to see the pros and cons from the top three or four portfolios for the October presentation. Ms. Hardman stated that they will provide final scoring and evaluation for all nine portfolios. Ms. Hardman responded to Chair Pico s question as to why nuclear power generation was not included in the portfolios, stating that they are not in need of the capacity generated by this type of power generation. 10. Southern Delivery System (SDS) Land Acquisition Consensual Transaction Mr. Lyman Ho, SDS Land Acquisition Manager introduced a consensual land transaction for Upper Williams Creek Reservoir. He explained that the seller is willing, and Colorado Springs Utilities is a willing buyer. He also stated that there are thirteen other parcels that are still needed. He explained the purpose for the Upper Williams Creek Reservoir for the SDS project, and the purpose for the land acquisitions in Phase 1. Mr. Ho explained that the sellers have asked Colorado Springs Utilities to consider an early acquisition, and funding is included in 2015 SDS budget. He gave details of the acquisition, and stated that relocation funding is included in the transaction, but is being handled separately. Mr. Ho requested recommendation from the Utilities Board to move forward to City Council for consideration at the formal meeting Consent Agenda on August 25. Mr. Forte discussed how the property is needed for SDS, and that the land needs to be secured now for the next decade. Board Member Knight discussed his concern on capital projects being sequenced correctly. 11. Board Member Updates Board Member Murray moved that control of City Attorneys for Colorado Springs Utilities be moved away from the City and under the control of Colorado Springs Utilities management. Vice Chair Strand seconded the motion. Board Member Knight asked Board Member Murray for better clarification of the motion. Board Member Murray responded stating that it is a matter of client/lawyer 11

12 privilege, and that Colorado Springs Utilities management should be responsible for evaluating the performance of attorneys that support Colorado Springs Utilities. Board Member Bennett stated that he is willing to look into the issue, but was not comfortable voting on it. Board Member Murray stated the point is for the lawyers to be able to present their best case for their clients, and at times there could be conflict with the City. Board Member King stated that it would be advantageous to discuss this issue with the Mayor on how it can be handled better. Board Member Gaebler commented that the attorneys should be at the table for the discussion as well. Board Member Murray stated that there is no legal requirement for the attorneys to be under the direct control of the City, and that this discussion has been going on for a number of months with no resolution. Board Member Murray agreed to withdraw his motion, and Vice Chair Strand withdrew his second. Chair Pico stated the issue would be tabled for a month so that they have a chance to work with the City Attorney s office, and then they can formally bring it up for discussion at the September Utilities Board meeting. Board Member Knight requested to see regular updates on negotiations with Pueblo, even if it means going into Executive Session. Mr. Forte responded that it would be appropriate to have an Executive Session with the Mayor and City Council and that he would work to set it up for the August 24 work session. Board Member Bennett responded to Vice Chair Strand s question of whether a formal invitation has come from Pueblo to discuss stormwater, stating that Pueblo will recommend a couple of dates once they talk with their engineers, and that he would inform City Council. 12. Summary of Board Actions Mr. Forte recapped areas of action covered during the meeting: Provide additional information on non-potable water The RBA 2016 agreement needs to be discussed before finalizing the 2016 budget Provide data on Days Cash on Hand and also include what would happen if Colorado Springs Utilities lost its credit rating Provide approved 2013 and 2014 labor amounts, not just actuals for labor and benefits Provide comparative information on Colorado Springs Utilities and City benefits In finalizing the EIRP, include pros and cons of the top three or four portfolios Work with City Council, the Mayor and City Attorney to set up an Executive Session regarding stormwater negotiations 12

13 Place an agenda item on the Utilities Board meeting September agenda regarding discussion on the location of the attorneys Provide the Utilities Board with the Wright Water report presented to Pueblo County 13. Adjournment The meeting adjourned at 5:00 p.m. 13