Minutes Finance Committee Colorado Springs Utilities Board July 29, 2015, 8:00 a.m. 12:00 p.m. Cabin Creek Conference Room 6 th Floor, Plaza of the Rockies South Tower, 121 S. Tejon Committee Members Present: Don Knight, Andy Pico, Larry Bagley, and Helen Collins Staff Members Present: Jerry Forte, Sherri Newell Wilkinson, Bill Cherrier, Eric Tharp, Tyler Allison, Dave Padgett, Carl Cruz, Dave Grossman, John Romero, Scott Shewey, Sonya Thieme, Thane LeBarre, Susan Presti, Kirk Olds, Melanie Jollett, Tristan Gearhart, Dan Norton, Wayne Vanderschuere, Angelia Mora, Kenny Romero, Situ Ramaswamy, Mark Murphy, Kathleen Solano, Eileen Verosko, Sally Barber City Financial Auditor, Rick Griffith, City Attorney s Office - Colorado Springs Utilities Division Chief; David Beckett, Senior Attorney; and Ken Burgess, Chief Counsel - Rates & Regulatory The meeting convened at 8:10 a.m. Review of Meeting Minutes The minutes from the Finance Committee meeting on June 24, 2015 were reviewed for posting. Water Tank Assessment/Replacement Mr. Kirk Olds, Water Services Engineering Manager and Ms. Melanie Jollett, Water Services Project Engineer presented a comparison between actual and best practice maintenance as a result of their potable water storage tank study. Mr. Olds gave background on the water tank statistics. He stated that the service life of a well maintained water tank is 100 years, but can be extended further with best practices. The average age of Colorado Springs Utilities tanks is 35 years. He stated that for the case study they reviewed three tanks that have required premature rehabilitation or premature replacement, those being Little Mesa, Ellicott, and Widefield (FVA). Mr. Olds explained that when budget cuts were required, Operation and Maintenance (O&M), including that of tanks, was deferred. He stated that on average for the three tanks, rehabilitation or replacement has occurred at 43% of the design life. He then discussed the corrosion and damage occurring at the three water tanks. Mr. Olds responded to Committee Member Bagley s question of whether environmental conditions are contributing to the damage. Mr. Olds stated that the projected cost of replacement for Little Mesa is $5 million.
Mr. Olds showed the comparison of lifecycle costs for Little Mesa using three scenarios of assumptions, those being ideal (best practice historical and projected), actual and projected best practice, and actual and projected historical. He explained that the original cost of the tank is not included in the analysis, but replacement costs are included. He also explained the cost savings moving forward if practices are changed Committee Chair Knight stated that he would like to know what was spent in O&M on the tanks over the last 50 years. He recommended using the O&M records with best practices to see what would have been saved if best practices were used. Mr. Bill Cherrier, Chief Planning and Finance Officer, stated that historical records are sporadic; and best practices to extend the life of the water tanks. Mr. Olds showed the same comparisons for Ellicott and FVA water tanks, and explained the lifecycle savings by changing behavior and using best practices. He explained that this same thinking can be applied to the total asset base, and if best practices are used overall, it will amount to a much greater savings to infrastructure O&M. Mr. Olds explained that the water tanks got to the condition they are in because of lack of budget for routine O&M and resources for cathodic protection. Because these were deferred, we will pay later and we will pay more. The lack of cathodic protection for the steel tanks was discussed. Mr. Olds stated that they are hoping that over the course of the next ten years, investments can be made to provide fully functioning cathodic protection. Mr. Wayne Vanderschuere, Planning, Engineering and Resource Management General Manager told the Committee that there is a separate presentation on cathodic protection if they are interested. Mr. Tyler Allison, Interim Chief Water Services Officer, stated that this issue is not just isolated to Colorado Springs Utilities; it is an issue facing the entire utilities industry. Mr. Olds discussed implications of continuing with the historical practice of O&M by doing only what funding will allow, which will result in the highest lifecycle cost; and shifting to industry best practice by prioritizing/increasing O&M funding for the lowest lifecycle cost. Deferring budget for routine O&M to keep rates low Improvement to infrastructure over next five to ten years before moving on to new capital projects to stay ahead of the game o Strategic direction from the Utilities Board on internal investments Lack of cathodic protection 5-Year Service Business Plans include best practices Electric Integrated Resource Plan (EIRP) options help inform the 5-Year Service Business Plan Cheaper technology Page 2 of 7
Action Items Provide an infrastructure plan in the 5-Year Business Plan 2016 Budget 3 rd Draft Administrative and General (A&G) Review Mr. Cherrier reviewed A&G expenditures and A&G O&M expenditures, giving a breakdown between labor and non-labor. He stated that they have been able to keep labor O&M relatively flat over the last few years. He presented the proposed 2016 budget numbers by division for A&G, and then gave a breakdown of common capital between energy services, water services, and customer and corporate service division. Mr. Cherrier reviewed the Planning and Finance Division overview for 2016 discussing treasury and finance which includes banking fees and legal costs; and enterprise risk management which includes increased insurance premiums due to the Drake Power Plant fire, and increased costs to strengthen the insurance portfolio. Non-direct allocation measures Common capital o Energy Services and Water Services is primarily new vehicles Insurance premiums increase did not go up based on 2015 budget, but did go up based on 2014 actuals - about an $800,000 increase o $20 million in claims paid out o Liability insurance increased o What, if anything, is discretionary o Policy decisions made because they are fiscal year, not calendar year o Taking calculated risks Ms. Sherri Newell Wilkinson, Chief Strategy and External Affairs Officer, reviewed the 2016 overview for the Strategy and External Affairs Division covering corporate governance and strategic planning which included consultation and facilitation; government and corporate affairs which included coordinating regional, state and federal legislative policy issues; and community relations which included local business memberships, COPE agencies fee for service, and a potential change to community investment as discussed in the Strategic Planning Committee. Committee Member Pico, who is also a member of the Strategic Planning Committee, discussed the recommendation from the Strategic Planning Committee to reinstate Community Focus Fund grants and sponsorships of community vitality and non-profit projects and events which were eliminated a few years ago. He also commented that he would like to see a stipulation added that this be applied only to sponsorships or grants that are utilities related. Ms. Newell Wilkinson reviewed the presentation that was given at the Strategic Planning Committee meeting regarding the potential change to the Community Investment Fund. Page 3 of 7
Additional information given to the Finance Committee was a printout of comparison city utilities community investment, potential 2016 business memberships, and business membership dues explaining their operational purpose in relation to Colorado Springs Utilities. Comparison cities community investments and how they rate with JD Power Community Investment Fund should not be added to the budget as it is only a recommendation from the Strategic Planning Committee o Committee Chair Knight suggested the item be tabled it until midyear so we know where we stand financially o Appropriate funds now, but stipulate date of use o Should be a separate policy discussion o Bring Strategic Planning Committee s recommendation to the Utilities Board with the Finance Committee s recommendation not to pursue Colorado Springs Utilities Lobbyists Local business memberships o Separate from political action o Included in community investment policy Membership dues o Membership renewals vary by organization and come due at various times Partnership agreements o Colorado Springs Technology Incubator has changed its name and mission, and has not requested funding from Colorado Springs Utilities Action Items Bring Strategic Planning Committee recommendation for the proposed change to the Community Investment Fund to the Utilities Board in August with the Finance Committee recommendation not to pursue Remove the amount from the draft budget that is being presented to the Utilities Board If the Colorado Springs Technology Incubator requests funding for 2016, the Utilities Board would review its new mission and alignment with the Colorado Springs Utilities in the funding review process Mr. John Romero, Energy Acquisitions, Engineering and Planning General Manager, reviewed Demand Side Management (DSM) and Renewable Energy Incentives for 2016. He also reviewed the Energy Vision put in place in 2010, and stated that the 2016 DSM budget was based on this direction. Mr. Romero reviewed 2016 DSM expenses for electric which included rebates for energy efficiency and renewable energy, the monitoring and tracking software which Page 4 of 7
was deferred from 2015, the Home Energy Assistance program, and other educational programs. He also reviewed the 2016 natural gas DSM expenses which included rebates for energy efficiency, rebates for renewable energy, and educational programs. Mr. Romero discussed the 2015 year-end projection for electric and natural gas showing how they stand based on the 2015 approved budget and the 2015 6+6 forecast. He also reviewed the month by month 2015 year-end forecast for electric and natural gas. Mr. Romero presented the proposed 2016 budget numbers for DSM and Renewable Incentives showing increase or decrease from the 2015 approved budget. He showed the current progression of the Energy Vision ten percent reduction in energy use by the year 2020, and stated that they are slightly ahead of schedule in meeting the DSM goal. Mr. Romero discussed the cost of electric DSM and Renewable Energy showing the target incremental cost, incremental actual cost, cumulative actuals, and cumulative forecast through 2020. He reviewed DSM and Renewable incentives by budget amount and by energy savings, and he discussed several DSM scenarios for the EIRP. Mr. Romero presented the staff recommendation for the 2016 Electric DSM budget of $5.67 million. DSM forecasted budget going forward will be using actual data Effects of DSM once EIRP is completed DSM funds are service specific Review of rebates that are offered o Not giving rebates for an item that is over fifty percent of the energy market offering o The incentive to make a change sooner rather than later o Electric rebate capped at fifty percent of the project cost Action Items Review of rebates offered Break 10:15 a.m. 10:25 a.m. Mr. Carl Cruz, Chief Customer and Corporate Services Officer, felt it was important to review the current status of Information Technology (IT) before going into the overview of the Customer and Corporate Services Division proposed 2016 budget. Mr. Cruz stated that the issue of IT has been deferred for quite some time and is now at a critical stage. He highlighted key issues happening with IT going over applications, the end-user devices and support, and the infrastructure. Page 5 of 7
Mr. Cruz discussed the current state of technology, the risks involved, and what is needed to catch up to keep the IT portfolio current. He gave examples of increases in consultant and maintenance fees. He also covered cyber security showing the increase in the average number of denies in a month, the average cost of a breach, and the increasing number of breaches from 2013 to 2015. Mr. Cruz discussed key accomplishments in 2015 for the Customer and Corporate Services Division, and also key initiatives for 2016. Mr. Cruz presented the proposed 2016 total O&M; and reviewed non-labor O&M expenditures, the budget drivers for non-labor O&M, and capital expenditures. Mr. Cruz discussed the top 2016 capital projects, most of which were IT. Affordable Care Act impact to benefits o Redesign o Incentives to lower the cost Regular base pay increase o Fifty position reduction o City will not be proposing wage increases Colorado Springs Utilities budget is more labor intensive than the City s budget o Pay Raises - merited, promotion, market value o Double the amount of retirements in the first part of year, than all of last year o If we don t move forward, may have a majority of people below market value o Highly compensated people being eligible for raises o Loss of skilled people due to recruitment from other utilities Don t want to be a training ground for someone else Driver to move to Office365 o More cost efficient o City is moving to Office365 o Better unified communication Capital expenditures o Small ticket items removed from the budget for the last three years Communications budget smaller than the last ten years o Moving more toward digital media and away from paper o Customer s need for communication Committee Chair Knight departed 11:30 a.m. Action Items Provide data on loss of employees recruited by other utilities Page 6 of 7
Provide proposed rate increases and impact to rate payers Provide a multi-year plan for IT, specifically because of cyber security, and put at a higher priority Budget Workshop: Recommended Agenda No discussion. Allocation Methodology 2015 Review Move to August agenda. Budget/Rate Case Calendar Move to August agenda. Monthly Financial Forecast 6+6 (to show $10M cut for 2015) Mr. Cherrier discussed weather and its effect on the forecast. A list of adjustments was included in the forecast. Plan of Finance Update Mr. Cherrier reviewed the bond signature process, and Bond Counsel s review. Everything else is the execution of the bonds. Put signature authority into a box so that they work within the boundaries Charter change took away just the requirement of the mayor s signature Risk Management Committee Report Review No discussion. Report updates were handed out at the end of the meeting. Economic Development Briefing No discussion. Adjournment The meeting adjourned at 11:50 p.m. Next Meeting Wednesday, August 26, 2015, 9:00 a.m. 11:30 a.m. Page 7 of 7