City Council Special Meeting

January 15, 2013 The Bastrop City Council met in Special Utility Workshop Meeting on Tuesday, January 15, 2013 at 6:15 p.m. at the Bastrop City Hall Council Chambers, 1311 Chestnut Street, Bastrop, Texas. Members present were Mayor Terry Orr and Council Members Joe Beal, Willie DeLaRosa, Ken Kesselus, Kay Garcia McAnally and Dock Jackson. A. CALL TO ORDER At 6:15 p.m., Mayor Terry Orr called the meeting to order with all members present. B. UTILITY WORKSHOP SESSION – THE BASTROP CITY COUNCIL WILL CONVENE INTO A UTILITY WORKSHOP SESSION TO: 1. REVIEW AND DISCUSSION REGARDING A PRESENTATION BY SCHNEIDER ENGINEERING TO PURCHASE A CERTAIN PERCENTAGE OF THE CITY WHOLESALE POWER SUPPLY THROUGH POWER SUPPLY AGGREGATION GROUP. 2. DISCUSS AND EVALUATE ALL MATTERS RELATED TO THE CITY’S UTILITIES, SPECIFICALLY CURRENT AND FUTURE PROVISION OF WATER/WASTEWATER AND ELECTRIC SERVICE TO THE CITIZENS OF THE CITY AND IN THE EXTRATERRITORIAL JURISDICTION, INCLUDING BUT NOT LIMITED TO THE PROTECTION AND PRESERVATION OF FUTURE WATER AND ELECTRIC SOURCES, OPERATIONS, COMPETITIVE MATTERS, POTENTIAL UPGRADES, PLANNING AND THE RESOLUTION OF UTILITY ISSUES, AS THEY ARISE. Mayor Orr stated Council Member Kesselus has been a man of persistence in talking to him and the Council in paying more attention to utility matters. Mayor Orr stated that attached to the Agenda is a write-up developed by Council Member Kesselus and Council Member Beal that is well-worth discussing. Mayor Orr stated he met with the City Manager, Mr. Beal and Mr. Kesselus to review the write-up and he thinks there are things in there that are common interest of other Council Members, Mayor Orr stated some items require considerable funding and some items take some thought and consideration and letting ideas develop to some extent. Mayor stated he was glad the Council was starting this process, Mayor Orr stated that at the March 9, 2013 Council Retreat the Council can follow-up about funding and see where the City stands in all of the funds, where the Council wants the City to be in five (5) years and how they are going to get there. Mayor Orr stated the Council will specifically be having budget meetings to examine the budget in detail. Mayor Orr stated he anticipates the March 9th Retreat will look at the longer range of things, Ken Kesselus stated the Council will be talking about long-range funding a level and bigger picture issues and funding. Mr. Kesselus stated the Council will be following their design for evaluation of the City Manager, Mike Talbot, what the Council wants him to do, almost a business type plan. City Manager, Mike Talbot stated it would help him to know what the Council Members priorities are in order to start the process, Willie DeLaRosa stated in 2009 when he was on the City Council a major goal was that the enterprise funds, Water & Wastewater Funds and the Bastrop Power and Light Fund become self-sufficient and also the General Fund be self-sufficient. Mr. DeLaRosa stated he has concerns about the General Fund. At 6:17 p.m., Mayor Orr convened the Bastrop City Council into a Utility Workshop Session to discuss: 1. Review and discussion regarding a Presentation by Schneider Engineering to purchase a certain percentage of the City Wholesale Power Supply through Power Supply Aggregation Group. City Manager, Mike Talbot stated since there is a timing issue involved with participation in the Power Supply Aggregation Group he thought the first Council Special Utility Workshop was an excellent opportunity for the Group to do a presentation to the Council. Mr. Talbot stated currently under the City’s contract with LCRA, the City has an option to purchase some power from another provider. Mr. Talbot stated he has been in discussion with Steve Moffitt of Schneider Engineering regarding this and Mr. Moffitt is here tonight to give the Council an overview. Mr. Talbot stated there are some trigger dates and the Council will have to make some decisions if that is something the City wants to do. Mr. Talbot stated Mr. Moffitt is going to do a presentation on the City’s option to purchase power from another provider. Steve Moffitt, a Principal with the firm of Schneider Engineering, Ltd. addressed the Council. Mr. Moffitt stated there are a number of proprietary issues that he will be careful not to step into. Mr. Moffitt stated Schneider Engineering, Ltd. is a full service consulting and engineering firm serving municipally owned utilities and cooperatives in the state of Texas for over 20 years. Mr. Moffitt stated they have offices located in Boerne and College Station. Mr. Moffitt stated their areas of expertise include: distribution and transmission engineering, system planning, power supply/resource planning, rates and financial services and advanced metering infrastructure. Mr. Moffitt stated Schneider Engineering had procured contracts for a diverse array of terms and products and they are skilled at project managing the procurement process. Mr. Schneider then provided a market overview: 1995 – Public Utility Commission/Texas Legislature deregulates the wholesale power marked; 2000 – Public Utility Commission/Texas Legislature deregulates the retail market; 2010 – ERCOT converts market from zonal market to nodal market; and 2012 – In an effort to solve potential shortage of generation supply, ERCOT raises price ceiling in the market. Mr. Moffitt called the Council’s attention to Page 6 of the presentation handout showing the ERCOT Zonal Market and the ERCOT Nodal Market. Mr. Moffitt stated generation portfolio in the state of Texas is comprised largely of natural gas. Mr. Moffitt stated energy costs are highly sensitive to the price of natural gas because so much of the state’s generation fleet is fueled by natural gas. Mr. Moffitt stated other costs associated with electricity are: Ancillary services – services necessary to support the transmission of electric power from seller to buyer; Transmission costs – regulated by the Public Utility Commission of Texas; and ERCOT fees – fees charged by ERCOT to maintain grid reliability and operate the market. Mr. Moffitt stated suppliers in the Texas market at categorized into several main categories: Public Power Entities are Municipally Owned Utilities (MOU) like CPS Energy with excess power to sell off system; Investor Owned Utilities such as AEP Energy Partners, Luminant Energy are vertically integrated utilities with generation; Power Brokers and Trading Houses such as J.P. Morgan, EDF Trading buy and sell power but have limited physical generation assets; and Generation and Transmission Utilities such as LCRA, Brazos Electric Cooperative, Golden Spread Electric Cooperative own generation and transmission to serve their members/customers. Mr. Moffitt stated Schneider Engineering was approached in 2010 by several clients who are wholesale customers of LCRA about purchasing power from the market. Mr. Moffitt stated Section 3.6 of LCRA’s Wholesale Power Agreement permits customers to purchase up to 35% of their load on the wholesale market. Mr. Moffitt stated in 2011, four (4) utilities elected to pursue this option: Brady, Cuero, Fredericksburg and Lockhart. Mr. Moffitt stated Schneider Engineering developed the Power Supply Aggregation Group (PSAG) to manage the procurement and contract process on behalf of the four utilities. Mr. Moffitt stated since 2011, the current PSAG group has been under contract with a supplier to contract pricing below LCRA costs, helping to lower overall wholesale costs to the utilities. Mr. Moffitt stated Schneider Engineering continues to provide opportunities for more entities to participate in the PSAG. Mr. Moffitt stated annual opportunities for participation are each February and currently for Fiscal Year 2013-2014, they are in discussion with three (3) more entities about possible participation in the group. Mr. Moffitt reviewed market information and the impact on PSAG. Mr. Moffitt stated there is uncertainty in the Market: 1) ERCOT: concerns with resource adequacy – increased market caps and considering restructuring market, and 2) LCRA: concerns with loss of load – one third of LCRA load leaving system in 2016, LCRA currently in disputes with nine (9) members who did not sign long term contract extension, and Resolution to disputes is uncertain. Mr. Moffitt stated participation in PSAG can provide opportunity to diversify and manage risks associated with uncertainty. Mr. Moffitt stated it also hedges against price increases. Mr. Moffitt stated load release (PSAG) participation requires notification by February 28th for initial participation and a utility can take 10% load release at this time. Mr. Moffitt stated subsequent increases require two years notice to LCRA. Mr. Moffitt stated wholesale market is very active for municipally owned utilities and a large number of suppliers have interest in serving even small increments of load. Mr. Moffitt stated market prices remain very attractive for considering the option to diversify portfolio. Mr. Moffitt stated the next steps are: 1) Determine whether load release can help Bastrop provide portfolio diversity and better risk management for customers; 2) If yes – determine future levels of participation in load release; and 3) If Bastrop decides to participate: procure contract with competitive wholesale supplier, submit load release contract to Council for approval, and provide notice to LCRA by February 28th. Discussion was held among Council, Mr. Talbot and Mr. Moffitt. Council Member Joe Beal stated to review a cost comparison the Council would have to do that in executive session and then they could look at the cost the City is paying LCRA and what the City would pay Schneider Engineering. Mayor Orr asked if the Council wanted the City Manager to move forward in some fashion or where does the Council want to go from here. It was the consensus of Council that the Council discuss the proprietary information in executive session at the next Council Meeting. 2. Discuss and evaluate any and all matters related to the City’s utilities, specifically current and future provision of water/wastewater and electric service to the citizens of the City and in the extraterritorial jurisdiction, including but not limited to the protection and preservation of future water and electric sources, operations, competitive matters, potential upgrades, planning and the resolution of utility issues, as they arise. Mayor Orr called the Council’s attention to the attachment included in the Agenda packet. Mayor Orr stated Mr. Kesselus and Mr. Beal had developed this and they would lead the discussion. Ken Kesselus stated he and Mr. Beal thought this was something that would jumpstart the Council on what they we are calling a vision – things we have talked about in executive session, things that have come up in the water and utility committee meetings. Mr. Kesselus stated one of the things that did not get put on this list is: Ensure our supply of electricity. Mr. Kesselus stated they tried to break the list down into areas that made sense. Mr. Kesselus stated the first item on the list is “Basic Operating Values”. Joe Beal stated as they reviewed these values with Mr. Talbot, his point is this is what we are doing to date. Mr. Beal stated if the Council wants to have discussion on this they could do so. Council briefly discussed Item No. 1, items a through c. Mr. Kesselus called the Council’s attention to Item No. 2 on the attachment. Discussion was held among Council and Mr. Talbot on Item No. 2 “Initiatives”, items a, b and c. Mr. Kesselus addressed Item d. Mr. Kesselus stated the only way to give Mr. Talbot a promotion is to take some stuff off of his plate. Mr. Kesselus asked how the Council could do that and pay for it. Mr. Kesselus stated the Council could find someone to hire as an executive level administrator and pay two-thirds of that salary out of the Enterprise Fund and one-third out of the General Fund. Council Member Kay Garcia McAnally stated this idea kind of came from her and she would like to withdraw the specifics of that suggestion. Ms. McAnally stated she believes it should be up to Mr. Talbot to tell the Council the specifics of what he needs. Ms. McAnally stated Mr. Talbot’s pure undivided attention is essential to the City’s utilities. Mayor Orr stated this has a budgetary implication of probably about $150,000, that being salary and benefits, not $50,000. Mayor Orr stated it is going to cost some money. Council Member Willie DeLaRosa stated the Mayor brought up a good discussion for the City Manager’s salary. Mr. DeLaRosa stated that discussion should be held in executive session. Council Member Joe Beal stated that clearly the City Manager is closer to the level of services in this City. Mr. Beal stated the purpose of putting this item on for discussion tonight is to make sure we have staff to watch utility system. Mr. Beal stated the City has been through the water supply almost cratering, and probably if we had more capability at the executive level we could have been more in front of it. Mr. Beal stated his opinion is he believes that Mr. Talbot needs help and thinks it is appropriate for Council to go get some help. Mr. Beal stated this was put on for discussion to see if there was consensus of Council that Mr. Talbot needs a high level of support. Ms. Garcia McAnally asked Mr. Talbot if he thought this was important. City Manager, Mike Talbot stated he would identify where the needs are in the City, there may be more than one position throughout the City. Mr. Talbot stated this maybe a staging/structuring issue. Mr. Talbot stated his job is to analyze and develop a structure to address the concern the Council has. Council Member Dock Jackson stated he sees that the good thing is the quality of staff that the City has, very efficient and they do a great job with what they have. Mr. Jackson stated imagine if the City did not have the staff that we have. Mr. Jackson stated the Council should look to Mr. Talbot and see what he needs. Mr. Jackson stated when the City Manager’s evaluation is conducted by the Council this would dovetail into that. Mr. Jackson stated more than utilities determines that. Mayor Orr stated the Council’s next step would be for the Council to hear from the City Manager and how would the City fund this. Mr. Talbot stated the Council will get a complete written response to everything that was included in the paper prepared by Mr. Kesselus and Mr. Beal. Mr. Kesselus called the Council’s attention to Item No. 3.a.i. Mr. Kesselus stated for the last several years the Council has reduced the amount taken from the Bastrop Power and Light Fund and transferred to the General Fund. Mr. Kesselus stated if the City can run an electric company as efficiently as possible, but we do not have profit from people who live on the west side of the river. Mr. Kesselus stated their suggestion is in five (5) years we wean ourselves from that. Mr. Jackson stated he thought the Council was already on track in doing that. Mr. Jackson stated he believed that the intent of the Council had been to wean themselves from that transfer of funds from Bastrop Power and Light to the General Fund. Mr. Beal stated at some point in the past the Council was given a percentage of total revenue coming out of the Bastrop Power and Light Fund, and Council gave direction to wean down to a certain percentage. Mr. Beal stated then we (Council) stopped so as not to increase taxes. Mr. Beal stated the suggestion puts us on that path and takes us down to equal payments as Bluebonnet Electric Cooperative customers, so that all citizens are paying the same contribution. Mr. Beal stated the suggestion takes it down step wise, so you can manage it, maybe three (3) years, six (6) years, seven (7) years, or some kind of consistent reduction. Mr. DeLaRosa asked if it is common for a city to pay itself 3% for right-of-way. Mr. DeLaRosa stated if this is the direction the City is going, rates and taxes will go up. Discussion was held among Council. Mayor Orr asked Mr. Talbot if it is feasible to see the component of the Bastrop Power and Light income and if the Council were to follow the 3% suggestion made by Mr. Kesselus and Mr. Beal, what would be the effects on rates over the next 24 months. Mr. Kesselus called the Council’s attention to Item No. 3.a.ii. Mayor Orr stated this item would be an item for discussion at the Council’s first budget workshop. Mr. Kesselus stated that Items No. 3 and No. 4 are high level, boiler-plate items and City staff is working on this. Mr. Talbot stated that since Christmas he has had three to four discussion with Charlotte Gilpin in regard to moving up the delivery of the long-term water study. Mr. Talbot stated the schedule will be revised to reflect when the draft report will be coming out. Mr. Talbot stated the City has had several approaches of people wanted to sell the City water. Mr. Talbot stated supply and reliability is as important as cost. Mr. Kesselus stated that under Item No. 5, Mr. Talbot had reminded them that the City has a Master Plan and the Council could maybe put in some trigger points. Mr. Talbot called the Council’s attention to a large map showing the City wastewater projects for the last six years. Mr. Talbot stated 47 projects have been completed and there are 6-7 currently underway. Mr. Talbot stated a few years ago the Council had a very extensive discussion regarding wastewater and the Council had a grave concern of taking on a seven to nine million dollar project of a wastewater plan on the west side of the river. Mr. Talbot stated that is why the City is continuing extensive project work and when the customer base expands to pay for that project then the Council will consider it. Mr. Kesselus stated he appreciated the Council’s and Mr. Talbot’s patience in going through the items on the list created by him and Mr. Beal. Mr. Kesselus stated the Council can use this as a reference point of items that the Council should be working on with Mr. Talbot. Mayor Orr asked Mr. Talbot if there are any areas that he has concerns about? Mr. Talbot stated he thought they discussed good framework to start with. Mr. Talbot stated the real compelling issue is that we do not walk away from this, the items are looked at and progress reports are given. Mayor Orr stated what had not been said tonight is that if you look at all the projects that have been done and then look at the tax money, a lot of that tax money has come from the west side of the river. Mayor Orr stated there is a balance. C. THE BASTROP CITY COUNCIL WILL ADJOURN THE UTILITY WORKSHOP SESION AND RECONVENE INTO SPECIAL SESSION. At 8:53 p.m., Mayor Orr reconvened the Bastrop City Council into Special Session. D. ADJOURN. At 8:54 p.m., Willie DeLaRosa moved to adjourn. Motion was seconded by Joe Beal and carried unanimously. APPROVED: ATTEST: _________________________ ___________________________ Terry Orr, Mayor Teresa Valdez, City Secretary