Agendas and Minutes

City Council (View All)

Study Session

Monday, December 16, 2013

Monday, December 16, 2013
Siskiyou Room, 51 Winburn Way

Mayor Stromberg called the meeting to order at 5:29 p.m. in the Siskiyou Room. 
Councilor Morris, Voisin, Rosenthal, Slattery, and Marsh were present.  Councilor Lemhouse arrived at 6:16 p.m.
Councilor Slattery and Councilor Marsh proposed deferring the discussion on the Cost of Service Study for the Electric Utility and having the Budget Committee review and provide input during the off year of the biennium budget.  Council comments included one that did not support the suggestion, two comments that did and two that were neutral on the matter.  City Administrator Dave Kanner noted implementation would occur 2015 and there was time for discussion 2014.
Mayor Stromberg moved Agenda Item #3 Discussion of request to donate fire pumper to Guanajuato to Agenda Item #2 with Council consent.
1.     Look Ahead review
City Administrator Dave Kanner reviewed items on the Look Ahead. 
2.     Discussion of request to donate fire pumper to Guanajuato
Fire Chief John Karns explained the Ashland Fire and Rescue Department would purchase two new fire engines in March or April 2014.  The purchases provided an opportunity to donate a fire engine to Guanajuato.  Previously, the Fire department donated a 1991 fire engine to Guanajuato in 2005.  The trading price for the older fire engine was $10,000 and $35,000 for the newer one.  The older one fit Guanajuato’s needs better but required pump certification that would cost $2,500 to bring it up to standards.  There were three ways to liquidate fire equipment, through trade, donation, or send out for bids.  Details to move the vehicle from Ashland to El Paso TX were not in place at this time.  The City funded shipping costs in 2005.  Shipping would cost approximately $3,000.  Driving the vehicle to El Paso would cost approximately the same.
Council was concerned donating a unit that was not reliable.  Chief Karns clarified Guanajuato was skilled with engine work and the 1991 donation currently was their first line engine.  Council suggested giving Guanajuato half the money received in trade for them to buy a truck that might work better.
Council supported donating the fire engine but thought Guanajuato should cover shipping costs. Chief Karns would contact Guanajuato with the proposal and provide a deadline for a response.
3.         Presentation of cost of service and rate design study for electric utility  
Electric/IT Director Mark Holden explained Electric Utilities used Cost of Service (COS) studies to establish need, fairness, and equity of cost for each customer class.  COS studies also ensured rates and charges represented actual costs from customers.  The COS established rates and charges and along with the Ten Year Capital Plan provided a master plan for the Electric Utility.  If Council approved the COS model presented, staff would move forward on rate design. 
President of Utility Financial Solutions (UFS) Mark Beauchamp explained Council needed to provide direction on three items, approval of the 5.3% rate increase and the subsequent four-year rate track, a 1%-2% leeway to move classes closer to COS,  and raising the monthly customer charge overtime to match what the COS proposed.
He went on to give a presentation on COS results that included:

  • First Target UFS performed a Cost of Service Study, Five-year financial Projection and rate design
  • Three key financial targets:
  • Operating Income
UFS used three targets to assess the financial integrity of a utility.  One, they established a target operating income that ensured the City fully funded replacement costs of the infrastructure.  UFS determined operating income using a methodology called Utility Basis.  There were two ways to determine revenue requirements. One was a Cash Basis method that consisted of adding operating maintenance costs, service payments, and capital replacement.  The second method was Utility Basis that used operating maintenance costs, depreciation, and rate of return to cover interest expense and inflation.
  • Cash Reserves
The second target was Cash Reserves.  The minimal level of cash reserves included repair and replacement.  They looked at risk factors and Ashland was low risk. 
  • Debt Ratio
The third target was Debt Ratio and Ashland currently had a low debt coverage ratio. 
  • Five-year proposed rate track
The minimal level of debt coverage ratio was 1.4%.  Revenue bonds usually had a debt coverage requirement of 1.2% or 1.5%.  The second target was minimum cash reserve levels.  The City needed a minimum level of $2,200,000.  The target operating income was approximately $500,000.  UFS used these targets to develop a rate track by trying to keep the utility financially stable with rate adjustments less than 5% yearly.  UFS proposed a series of  increases at 3% or slightly above.  Projected rate adjustments included inflation, Bonneville Power Administration (BPA) increases, and Tier 2.
Councilor Lemhouse arrived at 6:16 p.m.
  • COS Results by Rate Class
The table indicated increases before and after the 5.3% rate increase.  The utility needed a 4.5% increase and UFS proposed 3.5%.  The goal was getting all customer classes within 10% of their cost providing service.  The City did not have a rate class that was excessively out of line.  If Council approved the 3.5% increase, they would need to provide a 1%-2% leeway for staff to move customer classes closer to COS. 
Mr. Beauchamp clarified government and municipal in the tables.  Government was any other public entity not a municipality.  Rate issues in the electric industry related to metering capabilities.  The most inaccurate way to bill customers was through kilowatt-hours.  Meters depended on weather.  Technology now had the ability to identify hourly use that would help set better price signals in the future.
  • Minimum Cash Reserve
Mr. Beauchamp explained the need to have enough cash in reserve to fund working capital.  The City’s infrastructure was aging and more susceptible to a catastrophic event.   Because of that, UFS factored 3% of the City’s investment in assets to ensure the City had enough cash in reserves to fund capital improvements and could provide reliable service.  Ashland had the cheapest electric rates in the country.
  • COS Results by Rate Class
The Monthly Customer Charge was designed to recover costs that did not vary based on consumption.  The portion of distribution system was determined using the minimal system analysis based on the theory of what it would cost to build a distribution infrastructure where every customer consumed one-kilowatt hour of electricity.  Mr. Beauchamp confirmed each bill had a fixed portion with a minimum attribute of the distribution system.  The rest of the fixed costs of the distribution system were prorated by usage in other sections of the bill.
  • Funding conservation program

Mr. Beauchamp explained it was common to recover conservation charges through the monthly customer charges because it was a fixed source of funding. The City had $600,000 conservation costs to recover and UFS thought it was appropriate to add it to the monthly customer charge for an increase from $11.50 to $13.84 in monthly customer charges for Residential Single Phase.
The current basic charge for Residential Single Phase was $8.45 in monthly charges.  The COS would increase that amount to $13.84.  UFS recommended increasing the monthly customer charge $1.50 each year for minimum impact on customers.  The increase in monthly customer charge would affect low use customers.  Mr. Beauchamp clarified low use customers were not low-income customers who tended to consume higher amounts of energy than average customers did.  The increase in the monthly customer charge actually benefited low-income users. 
Mr. Beauchamp explained projections were close for years 2-3 and typically wrong but by year five because there were too many variables.  Mr. Holden noted COS studies usually occurred every five years, this was the first for the City in 12 years.   
Mr. Kanner and Management Analyst Adam Hanks would bring in a suggestion to the next Study Session that could remove Conservation Department from the Electric Department.
Council majority did not think the Budget Committee needed to review the COS study and supported moving forward with the model, projected rate adjustments, the 1%-2% leeway to move classes closer to COS and raising the monthly customer charges $1.50 each year to meet the increase.
4.     Discussion of ordinance updates: City Council Rules (Chapter 2.04), Boards and Commissions Rules and Procedures (Chapter 2.10), and Miscellaneous Chapters (2.18 and 2.28) (continued from December 2 study session)
Delayed due to time constraints.
Meeting adjourned at 7:03 p.m.
Respectfully submitted,                                
Dana Smith
Assistant to the City Recorder

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