MINUTES OF LINCOLN ELECTRIC SYSTEM ADMINISTRATIVE BOARD

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 L...
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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

‐ 4 -

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