Ad Hoc Committee
October 9, 2007
Attendees:
Douglas Athas, Chairman
Laura Perkins Cox, Committee Member
Rick Williams, Committee Member
UAB Members:
Lowell Hyatt
Billy Thompson
Staff:
Ray Schwertner
Glen Smith
Carol Bentzlin
Brad Neighbor
Guest Speakers:
Dan Wilkerson, City of Bryan
David McCalla, City of Greenville, TPPA
Dr. Jerry Ransom and Tom Darte, both formerly with the City of Greenville
1. Chairman Douglas Athas called the Meeting to order at 5:32 p.m.
2. Approval of the minutes from September 25, 2007 as amended.
Motion made to approve the Minutes by Rick Williams; Second by Laura Perkins Cox. The motion was approved.
3. Chairman Athas asked the two other committee members if the committee could meet under Robert’s Rules of Order for small groups simplifying the procedures; they agreed.
4. Chairperson Douglas Athas introduced the guest speakers. They were here to give the committee insight into how the cities of Greenville and Bryan developed their independent utility boards.
5. Dr. Jerry Ransom of Greenville was an original member of the Greenville Study Group that developed an autonomous, electric advisory board. He was also a member of the TMPA board and an engineer.
Dr. Ransom gave a history of Greenville’s electric department. It was the first municipal electric company in Texas founded in 1871. In 1961 a tie line connected Greenville with Garland for emergency purposes. The Texas Municipal Power Pool (TMPP) was formed in 1963 with Bryan, Greenville, Garland and Denton. In 1975, the Texas Municipal Power Association (TMPA) was formed.
The City of Greenville got into financial trouble in the mid 80s. The City Council run electric department had very high residential electric rates and no reliability. A Fortune 500 company threatened to leave and Greenville lost another large company because of the poor electric service. Rates were set by City Council, there were no property taxes, service was unreliable and the electric system was a liability.
In September 1986, a 15-member board made up of business and financial professionals and citizens reviewed the utility issues.
After 18 months of study, this committee recommended that the electric utility required a governing board to run the utility as a business, outside of politics, with a limit on fund transfers and treated as a franchise. The citizens voted to accept the new utility structure and to change the ordinance so that the board could set rates, issue bonds, limit transfer of funds to 4% (3% for fund transfer and 1% tax as a private business) and control eminent domain. City Council selects and appoints the utility board members.
Initially the budget was strained and there was tension between the board and City Council over costs, resource allocation, and service problems. For this reason the committee recommends that more time be taken on implementation of the utility board plan.
Today Greenville’s electric utility business is a great success story. They have competitive rates, a professional board of very good people who are not interested in running for office and a professional city staff.
For a time, the utility overpaid for city services, although some resource pooling is needed. A detailed allocation study developed some formulas that work well for the shared costs and services between city departments. The formula ended arguments between the utility board and City Council. Some services are subcontracted because it is more economic. The utility is audited by outside consultants as a utility.
Dr. Ransom left his meeting notes for the committee.
6. Dan Wilkerson from the City of Bryan was introduced. He has been with that city for 29 years, 23 years as Electric Director and 6 years as General Manager.
Mr. Wilkerson had three points he wanted to stress: 1. Study 2. Ordinance and 3. Why would a city want an autonomous utility board?
MACRO International Inc. did a study for Bryan outlining 5 models for a utility board.
A financial study of the City of Bryan by Deloitte Touch was done and revealed several things: City Council should be a “policy making body”; the Utility Board should be an “operating board”. The financial books need to be closed monthly as any business; this allows staff to access the status of the business and make adjustments where needed. Cities close their books once a year; the results are delayed too long. Some services can be outsourced. Maintenance can then be scheduled around crew schedules so work time is not lost. Bond ratings are best for a city with an autonomous board.
Bryan Texas Utilities (BTU) needed a semi-autonomous board.
City Council limited some of the board’s duties and retained some powers. Fund Transfers are held to 7%. The board sets rates, bonds and eminent domain.
Bryan had some of the same challenges that Garland and GP&L have.
Dispute resolution process was setup between the utility board and the City Council and this is an important item to put in the ordinance.
Financial system was transitioned over to the FERC system of accounting which closed the books monthly and does capitalization monthly.
Monthly closure allows the utility to market itself.
Bryan uses the same software as ERCOT.
Two sets of accounts are kept, one for ERCOT and one for operating the business (FERC and Fund-based).
FERC reporting is easy because the utility board uses the Code of Federal Regulation guidelines.
AMI or automated distribution is also utilized.
BTU makes up 65% of the COB’s revenues.
BTU is a sub-ledger of the City of Bryan with 7% of fund transfers, recommended by RW Beck.
The city departments share HR, City Attorney, and a few other services.
Some services were autonomous such as MIS and Finance.
Reimbursements are made to shared departments.
When the right people are appointed to the board, there is more oversight on the electric utility’s business.
The city is a very diverse business. Dan recommends an autonomous or semi-autonomous electric utility board. Garland Power & Light (GP&L) is not broken but there are opportunities to perform better.
Chairman Athas asked Ray Schwertner for his thoughts on how well GP&L operates its’ business activity:
GP&L Director meets every week with the City Manager.
GP&L is not on track financially.
A business board works best for better financial soundness and planning.
GP&L makes up 65% of the City’s revenue.
The books are closed once a year and financial figures take several months to process. This is a disadvantage for GP&L’s business development. It makes it difficult to plan and market GP&L’s services.
Dan Wilkerson recommends that the allocation of costs and transfer fund formula be defined initially to prevent conflict between the board and City Council.
The utility business is a very complex and complicated business with more and more regulatory agencies.
The committee will meet again October 23, 2007, at 5:30 p.m. The UAB members will be invited to discuss and dialogue on the UAB structure. Committee members were asked to their recommendations for City Council to Ray Schwertner prior to the next committee meeting.
7. Adjourned
Chairman Athas adjourned the meeting at 6:45 p.m.
Submitted by: Carol Bentzlin on 10/10/07
Approved by: Douglas Athas on 10/23/07