MINUTES OF LINCOLN ELECTRIC SYSTEM ADMINISTRATIVE BOARD
Minutes of regular meeting held at 8:00 a.m., Friday, September 16, 2016, at the offices of Lincoln Electric System, 1040 O Street, Lincoln, Nebraska. Board Members Present:
Jerry Hudgins, Ann Bleed, Dan Harshman, Layne Sup, Leidy Anderson, Sarah Peetz, Vicki Huff, Libby Raetz, W. Don Nelson
Board Members Absent:
None
LES Staff Present:
Kevin Wailes, Shelley Sahling-Zart, Laura Kapustka, Jason Fortik, Dan Pudenz, Lisa Hale, Trish Owen, Paul Crist, Lacy Stockdale, Emily Koenig, Amber Tate, Julie Yuhas, Steve Bartunek, Marc Shkolnick, David Auman, Shari Tretheway, Brooke Rogers, Scott Benson, Tiffany Mousel, Melissa Palmer
Others Present:
Doug Bantam, Scott Hofeling, John Muhle, John Atkeison
News Media Present:
Nick Bergin, Lincoln Journal Star
Chair Jerry Hudgins called the meeting to order at approximately Call to Order 8:00 a.m. He noted that LES conducts its meetings in compliance with the Nebraska Open Meetings Act, and noted that copies of the Act are located near the entrance to the Board room. Chair Hudgins asked for approval of the minutes of the meeting of Approval of August 19, 2016. Ann Bleed moved their approval. Leidy Minutes Anderson seconded the motion. The vote for approval of the minutes was: Aye:
Hudgins, Bleed, Harshman, Sup, Anderson, Peetz, Huff, Raetz, Nelson
Nay:
None
Absent:
None
Steve Bartunek, Night Service Technician, Energy Delivery, was Introduction and recognized by the Board for 40 years of service to LES. Recognition of Staff Ann Bleed, Chair of the Operations & Power Supply Committee, Operations & reported on Committee discussion which included the Power Supply following: 1) an overview of the proposed virtual net metering Committee program; 2) the proposed 2017 budget and rate structure; 3) status of the 2017 Sustainable Energy Program (SEP); and 4) an update regarding District Energy Corporation (DEC). Dan Harshman, Chair of the Budget & Rates Committee, reported on Budget & Rates Committee discussion which included the following: 1) the Committee second quarter generation revenue and cost report; 2) the 2016 mid-year capital review; 3) review of 2017 power costs and 2017 budget and rates; 4) an overview of communication plans for the 2017 budget and rate adjustment; 5) virtual net metering; and 6) an update regarding DEC and NUCorp. Scott Benson, Manager, Resource & Transmission Planning, Power Supply, presented the Board with an introduction of the virtual net metering program. (Exhibit I) Under the proposed methodology, customers will be able to purchase a portion of the community solar project’s output for the remaining life of the contract (initially about 20 years). The pricing will be based on LES’ present value cost per panel, including administrative program costs. The billing system will reflect output as an energy credit (kWh) against consumption, virtually representing them as a traditional net-metering customer. Benson noted that for a limited time, existing SunShares participants will get to count all previous contributions towards virtual net-metering enrollment fees. Program finalization and announcement of program details is slated for Fall 2016, with program commencement set for January 1, 2017. LES Resolution 2016-10 authorizes the LES CEO and staff to proceed to develop the virtual net metering program, with the final program being reviewed and approved by the Board Budget & Rates Committee prior to implementation. (Exhibit II) Ann Bleed moved approval of LES Resolution 2016-10. Vicki Huff seconded the motion. The vote to approve LES Resolution 2016-10 was:
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Community Solar Virtual Net Metering Concept
LES Resolution 2016-10 Virtual Net Metering Program
Aye:
Hudgins, Bleed, Harshman, Sup, Anderson, Peetz, Huff, Raetz, Nelson
Nay:
None
Absent:
None
Laura Kapustka, Vice President of Financial Services and CFO, 2017 Proposed proposed a 2017 total budget authorization of $352.4 million. Budget Overview (Exhibit III) The total proposed budget requires a system-wide average rate adjustment of 3%. The rate adjustment is primarily due to increases in net power costs, which are related to decreased wholesale market revenues, driven by low natural gas prices. LES recently refinanced approximately $120 million in revenue bonds which resulted in a net present value savings of $19 million. This refunding, combined with internal cost management measures, helped to significantly lower the rate adjustment. Kapustka also noted LES continues its restructuring of electric rates to properly allocate the fixed charges and variable energy charges associated with supplying power to customers. As part of this process, LES is proposing to segment the facilities charge for the residential rate class into three levels based on average monthly electric usage. This allocation provides a more equitable distribution of fixed facility-rated costs between high- and low-use customers. The restructuring applies only to residential, heating service and general service rate classes. A public meeting on the proposed 2017 budget will be held on October 6, 2016, at 7:00 p.m. The LES Administrative Board will take action on the proposed budget at its Board meeting on October 21, 2016. Tiffany Mousel, Specialist, Community Outreach, Communications & Corporate Records, presented the Board with the results from the 2016 LES/IBEW Community Giving Campaign. (Exhibit IV) Employee contributions totaled $78,028. Fiftynine percent of LES employees contributed to this year’s campaign, including 43% IBEW participation. Mousel thanked LES employees and the Community Services Committee members for making the 2016 campaign a success.
Report on 2016 LES/IBEW Community Giving Campaign
The Monthly Power Supply Report was distributed to the Board and Monthly Power staff was available to answer questions. (Exhibit V) Supply Report
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The next regular meeting of the LES Administrative Board is Next Meeting scheduled for Friday, October 21, 2016, at 9:30 a.m. There being no further business before the Board, Jerry Hudgins Adjournment declared the meeting adjourned at approximately 9:00 a.m.
Dan Harshman, Secretary
BY: S/Lacy Stockdale Lacy Stockdale Assistant Secretary
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Exhibit I
Virtual Net Metering Program High Level Introduction
Scott Benson Manager, Resource & Transmission Planning September 16, 2016
1
Proposed LES Methodology Customers purchase a portion of community solar project’s output for remaining life of the contract, initially about 20 years. Pricing based on LES’ present value cost per panel, including administrative program costs.
Community Solar Project
Billing system reflects output as an energy credit (kWh) against consumption, virtually representing them as a traditional net-metering customer. Customers use the program as a hedge against potentially rising electricity rates, the same as traditional net-metering customers. For a limited time, existing SunShares participants will get to count all previous contributions towards virtual net-metering enrollment fees.
2
LES Position
Traditional Net-Metering
Virtual Net-Metering
Displaced LES Sales
Solar Production Offsets Full Retail Rate
Solar Production Offsets Full Retail Rate
Customer Installer Initial Construction
Customer LES One-Time Enrollment
~ $3.00/W *
< $3.00/W
Upfront Payments
* After LES capacity payment
3
Customer Position
Traditional Net-Metering
Virtual Net-Metering
Displaced LES Sales
Solar Production offsets Full Retail Rate
Solar Production offsets Full Retail Rate
Customer Installer Initial Construction
Customer LES One-Time Enrollment
~ $3.00/W *
< $3.00/W
Upfront Payments
* After LES capacity payment
4
Preliminary Program Timeline September 16, 2016 LES Board approves resolution to pursue program. Fall, 2016 Finalize and announce program details; begin enrolling participants. January 1, 2017 Program commences.
5
Exhibit II
LES RESOLUTION 2016-10
WHEREAS, the Lincoln Electric System (LES) Administrative Board previously adopted LES Resolution 2014-09, authorizing the development of a community solar program, now known as LES SunShares, recognizing that not all customers have the financial resources or an appropriate site to support a solar installation; WHEREAS, under the SunShares program, LES contracted for the largest and first utility-scale solar installation in the State of Nebraska, allowing customers to support this community solar project through a voluntary monthly contribution on their electric bill; WHEREAS, LES sees an opportunity to further utilize the community solar project to gain experience with other customer-focused solar programs while at the same time expanding customer participation; WHEREAS, LES has also received feedback from customers looking for a more direct and vested interest in the community solar project; WHEREAS, LES staff has reviewed the concept for a virtual net-metering program, allowing customers to receive a credit on their electric bill in an amount that correlates to their level of investment and the facility output; WHEREAS, LES staff has presented a virtual net-metering concept to the Board Operations & Power Supply Committee and Budget & Rates Committee, both of which recommend proceeding to finalize a virtual net-metering program; NOW, THEREFORE, BE IT RESOLVED that the LES Administrative Board authorizes the LES Administrator and CEO and staff to finalize a virtual net-metering program in accordance with relevant laws, prudent business practices, risk mitigation considerations, and consideration for the impacts to both participants and non-participants. BE IT FURTHER RESOLVED that the LES Administrative Board authorizes staff to structure the program in a manner that provides currently enrolled SunShares participants the option, for a limited timeframe, to redirect their total SunShares contributions to date towards enrollment in the new virtual net-metering program.
BE IT FURTHER RESOLVED that the final program shall be reviewed with and approved by the Board Budget & Rates Committee prior to implementation.
S/Jerry Hudgins Chair
Adopted: September 16, 2016
Exhibit III
2017 Proposed Budget & Rates Administrative Board September 16, 2016
Laura Kapustka – Vice President & Chief Financial Officer 1
2017 Budget Assumptions Financial Targets & Other Assumptions Financial Metric
Target
Comments
Debt Service Coverage
2.0X (Minimum)
Targeting 50% cash funding of routine capital costs
Debt to Equity Ratio
60%
With continued progress to align with LES Peer Group
Fixed Charge Coverage
1.55
With continued alignment with LES Peer Group
Days Cash on Hand
Minimum of 74 days in any month
Rate Stabilization Fund (RSF)
$28.5M
Budget Inputs Retail Energy Sales
3,203 GWh
Energy Sales are budgeted 44 GWh/1.4% less than the 2016 Budget.
Demand
749 MW
Demand is forecasted 5 MW/0.7% greater than the 2016 Budget.
Financings
No long-term financings are planned for 2017. Continued low interest rates could provide an opportunity to refund existing bonds at lower rates.
2
2017 Proposed Budget 2016
2017
Change
$237.4 million
$264.0 million
$26.6 million
Capital Budget
$80.0 million
$88.4 million
$8.4 million
Total Budget
$317.4 million
$352.4 million
$35.0 million
Operating Budget (Net of Wholesale Revenue)
3
2017 Budget – Capital Budget Major Programs/Projects
2017 Budget
Laramie River Station
$22.5M
LES Operations Center
$19.9M
SE Lincoln Reliability Program
$11.2M
Duct Installation Program
$4.2M
Underground Rebuilds
$4.1M
*2017 Budget includes indirect costs in each category.
4
2017 Budget – Operating Budget $300
Net of Wholesale Revenues - $ in Millions $264.0
$250
$200
$237.4
Net Power Cost $102.1
Net Power Cost $123.1
Net Power Cost is budgeted to increase $21M from 2017
$150 PILOT, $12.7
$100
Depreciation$49.9
PILOT, $12.9
Depreciation increased $2.1M due to plant additions.
Depreciation $52.0
Transmission, $10.7
Transmission, $15.5
O&M and A&G $62.0
O&M and A&G $60.5
2016 Budget
2017 Budget
Transmission increased $4.8M due to increased SPP Transmission costs.
$50
$0
O&M and A&G decreased $1.5M due primarily to the reduction in the Sustainable Energy Program.
5
2017 Proposed Budget and Rate Adjustment 2017 Increase/ (Decrease)
Rate Adjustment Factors Transmission Expense & Power Cost (net of Wholesale Revenue) Debt Service & Coverage Reduction (2016 bond refinancing) Reduced Retail Sales
$ 25.8 M ($17.0 M) $ 1.9 M
Other Miscellaneous Changes
($ 0.3 M)
Total Additional 2017 Revenue Required
$ 10.4 M
Rate Mitigation: Use of Rate Stabilization Funds
($2.9 M)
Resulting Revenue Requirement to meet system requirements: 3% System Average Rate Adjustment
$ 7.5 M
6
2017 Net Power Costs Budget Budget Category
2016 Budget
2017 Budget
Power Purchased
$93.0M
$87.6M
Power Produced
$70.5M
$75.3M
Wholesale Revenue
$61.4M
$39.8M
Total Net Power Cost
$102.1M
$123.1M
7
2017 Power Costs Model – Natural Gas Price Assumptions Looked at 4 potential sources for Henry Hub pricing (June, 2016): • Consultant • CME Group • New York Mercantile Exchange (NYMEX) • US Energy Information Administration’s (EIA) Short Term Energy Outlook (STEO) 4.0
Selected EIA’s forecast as it is largely most conservative… then reduced it by 15%.
($/MMBtu)
3.5
3.0
2.5
2.0
1.5 Jan
Feb Consultant
Mar
Apr CME Group
May
Jun EIA
Jul NYMEX
Aug
Sep 2016 Actual
Oct
Nov
Dec
Leveraging the “expert’s” knowledge in developing a natural gas forecast, while at the same time acknowledging that recent forecasts from these same “experts” have routinely been too high.
2016 Budget
8
Lincoln Day-Ahead LMP Comparison 30
($/MWh)
25
20
15
10 Jan
Feb
Mar
Apr
2016 Budget
May
Jun
Jul
2017 Budget
Aug
Sep
Oct
Nov
Dec
2016 Actual
9
Cost of Service Comparison (3% System Average Adjustment) 2017 Proposed Rate Increase
Cost of Service
3.5%
97.0%
Small General Service
1.3%
102.4%
Heating Service
0.1%
104.5%
General Service - Demand
0.0%
106.0%
Total General Service
1.4%
104.6%
Large Light and Power (LLP)
3.6%
102.1%
Large Power Contract (LPC)
5.5%
99.2%
Total LLP & LPC
4.0%
101.4%
Total Retail System
3.0%
100.0%
Residential General Service
LLP and LPC
10
Rate Restructuring: Why?
For non-demand customers, about 80% of the costs to serve them are fixed, however, only 12% are collected through a fixed charge
Changes from restructuring are revenue neutral to LES
11
Rate Restructuring: How? Fixed Charge
Customer Customer billing Meter reading
Variable Charge
Energy
Facilities Distribution system
Movement of these costs out of the Energy Charge began in 2016
The Energy Charge will be reduced as costs are moved out of the Energy Charge and into the Facilities Charge
Fuel
Substations Meters & Services Transformers
The proposed 2017 change does not complete the movement of the distribution and substation costs (nor other fixed costs)
Operating & Maintenance for Plants Transmission lines Generating plants
Applies only to: Residential, Heating Service and General Service Rate Classes 12
Proposed Residential Customer and Facilities Charge Levels are new in 2017
2017 Proposed 2017 Proposed Facilities Customer Charge Charge
Total
Level 1
Less than 800 kWh/month
$10.50
$5.00
$15.50
Level 2
Between 800 and 1,500 kWh/month
$14.50
$5.00
$19.50
Level 3
Greater than 1,500 kWh/month
$19.50
$5.00
$24.50
Note: The 2016 combined Customer and Facilities charge was $13.40
“Levels” are based upon an analysis of the cost to provide distribution and substation services to customers at different levels of usage
13
Typical Residential Bill Comparisons
Residential Energy Charge Summer Winter 2016 $0.0963 $0.0667 2017 $0.0956 $0.0643 ($0.0007) ($0.0024) % Change
# of Customers
Level 1 (Less than 800 kWh/month)
Level 2 (Between 800 and 1,500 kWh/month)
Level 3
Average Monthly Average Current Average Usage (kWh) Bill Proposed Bill
-0.7%
-3.6%
Percent Change
$/Month
21,198
400
$44.03
$45.39
3.1%
$1.37
23,872
600
$70.83
$71.55
1.0%
$0.72
19,273
1,000
$89.97
$94.23
4.7%
$4.27
10,386
1,450
$124.42
$127.86
2.8%
$3.44
6,777
1,700
$143.56
$151.55
5.6%
$7.98
216
4,000
$319.67
$323.43
1.2%
$3.77
(More than 1,500 kWh/month)
14
2017 Proposed Budget – Upcoming dates Dates
Action Item
September 1‐September 30
LES Bill Stuffer announcing Budget Public Meeting
September 27
LIBA
TBD
Lincoln Employers Coalition, Chamber briefing, and Rent Assistance Group
September 25 & October 2
Lincoln Journal Star Ad
October 4
Business Advisory Council budget & rates update
October 6, 7:00pm
Public Meeting on proposed 2017 Budget & Rates
October 12
Budget & Rates Committee reviews public comments
October 21
Board Meeting ‐ takes action on 2017 Budget and Rates
October 24‐November 1
Individual meetings with City Council members (as requested)
October 31, 3:00 pm
City Council first reading on budget & rates
November 21, 3:00 pm
City Council public hearing on budget & rates
December 5, 3:00 pm
City Council takes action on budget & rates
15
Exhibit IV
LES/IBEW 2016 United Way Campaign Description Total Employee Contributions
2013
2014
2015
2016
$69,724
$71,517
$78,419
$78,028*
Percent Employee Participation
59%
62%
58%
59%
Average Contribution
$246
$250
$284
$272
n/a
n/a
$225
$204
$11,467
$11,446
$9,079
$9,943
IBEW Participation
n/a
n/a
40%
43%
Non-union Participation
n/a
n/a
62%
65%
7.7%
2.6%
9.7%
-.5%
(with executives)
Average Contribution (without executives)
IBEW Contributions
Percent of change * Reached 97.5% of our $80,000 goal
1
Exhibit V
Power Supply Division
Jason Fortik September 16, 2016
Ver 20160916.1
August 2016
Monthly Actual vs. Budget [1]
[1]
[1]
[1] Estimated values from Power Supply Report Table II *Non‐Owned Asset Power does not include SPP IM Purchased **Contract Sales does not include SPP IM Revenue ***SPP Other includes Over‐Collected Losses and ARR’s/TCR
2
August 2016
Daily Temperature Range
3
August 2016
Loads
4
August 2016
Customer Energy Consumption
5
August 2016
Unit Equivalent Availability
6
August 2016
Resource Energy
7
August 2016
Peak Load Day – August 11, 2016
8
August 2016
Note: Total percentage may not add up to 100% due to rounding
9
August 2016
Energy Utilized by SPP IM Wind PPA's (68 GWh) 16% Landfill Gas (3 GWh) 1% Wind PSA's (6 GWh) 1% Rokeby (4 GWh) 1%
WAPA (27 GWh) 6%
Gentleman Station (80 GWh) 19%
Terry Bundy (35 GWh) 8%
Walter Scott (72 GWh) 17%
Sheldon Station (26 GWh) 6%
Laramie Station (106 GWh) 25%
Note: Total percentage may not add up to 100% due to rounding
10