Board of Commissioners Meetings

City of Henderson, Kentucky NOTICE OF WORK SESSION Tuesday, April 19, 2022 April 14, 2022 Commissioner Robert N. Pruitt, Sr. Commissioner Bradley S. Staton Commissioner Rodney Thomas Commissioner Austin P. Vowels Dear Board Members: The regular work session is scheduled for 3:00 p.m. on Tuesday, April 19, 2022, in the 3rd Floor Assembly Room of the Municipal Center. The lone item on the agenda for review is as follows: AGENDA 1. Roll Call 2. HLI to Discuss Juneteenth Celebration 3. Discussion of PILOT Payments with Henderson Municipal Gas (HMG) 4. Adjournment Respectfully, ______________________________ Steve Austin, Mayor A copy of the foregoing notice received and service thereof waived this 19th day of April, 2022. __________________________________ Commissioner Robert N. Pruitt, Sr. __________________________________ Commissioner Bradley S. Staton __________________________________ Commissioner Rodney Thomas __________________________________ Commissioner Austin P. Vowels  City Commission Memorandum 22-82 April 12, 2022 TO: Mayor Steve Austin and the Board of Commissioners FROM: William L. “Buzzy” Newman, Jr., City Manager SUBJECT: Work Session Agenda The regular April work session is scheduled to begin at 3:00 p.m. on Tuesday, April 19, 2022, in the 3rd Floor Assembly Room of the Municipal Center. The items on the agenda for review will be: Juneteenth Celebration HLI will discuss plans for a Juneteenth Celebration. PILOT Payments with Henderson Municipal Gas Tim Clayton, Gas System Director, will be in attendance for discussion. c: Tim Clayton  HMG PILOT Presentation 4-19-22 Tim Clayton Gas System Director  Revenue based PILOT • A pilot payment based on overall operating revenue is not a good solution for HMG. 1) HMG revenue is dependent on first of the month index pricing for natural gas. a. Natural gas costs are passed through to the customer with no mark-up. b. Pricing has ranged from $1.37 to $6.17 in the last 5 years. c. Pricing has been as high as $13+ in 2005 and $12+ in 2008. d. HMG total revenue is not a function of the performance of the utility. e. Higher revenue is typically driven by higher gas prices. f. Large Industrial sales customers have a significant effect on total revenue mostly due to the pass-through cost of natural gas. a. International Paper is $3.5M of our total revenue. b. Pratt Industries would add $10M to our revenue. • Gross Margin is a function of sales volumes, number of customers, and payments from PEAK. • This chart shows that gross margin has been steadily increasing and is not related to total revenue. • Total revenue is mostly a function of how high or low gas prices are at a given time. HMG Revenue - Natural Gas Costs = Gross Margin $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 - $0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Revenue Natural Gas Gross Margin  Gross Margin PILOT Proposal Total Gas Revenue (minus) Pass Through Gas Costs = Gross Margin Examples of how the PILOT would be calculated under this Gross Margin PILOT proposal. 2019 2020 2021 Gas Sales $14,815,764 $11,619,202 $13,422,335 PEAK Return $321,496 $570,831 $828,416 Natural Gas $10,280,365 $7,178,038 $8,742,656 Gross Margin $4,967,960 $5,073,772 $5,585,506 HMG PILOT $794,873.60 $811,803.52 $893,680.96  Gross Margin PILOT • There are many advantages to the proposal. 1) First of month index price has no bearing at all on the PILOT payment. 2) If HMG adds customers or volumes, the City will always benefit in increased PILOT payment. 3) The PILOT payment would increase approximately $100,000 with the addition of Pratt Paper as a sales customer from HMG margin and PEAK pre-paid revenue. 4) Any additional customer PEAK takes on, such as Memphis Light, Gas, & Water, will result in increased payments to HMG, and subsequent increase in PILOT payments to the city. 5) Taking on HMPL peaking units would result in an increased PILOT payment. 6) Any rate structure change or increase in industrial rates would result in increased sales margins and increased PILOT payments. • Negatives for city. 1) A bad sales year (mild winter) for HMG would result in lower PILOT payment.  Residential Rate Changes • Reduction of the Monthly Customer Charge from $12.50 to $11.50. • Reduction of the residential margin rate from $2.60 to $2.40. • These changes will save HMG’s residential customers $200,000 per year. • Saves the average residential customer $3-4 per month during the 5 heating months (November – March) and $1-2 during the other months. CITY OF HENDERSO , KENTUCKY NATURAL GAS RATES AND CHARGES Section I. Residential Sales Sen-ice Applicable for serv~ce to any Resid!ential customer focat.ed! within the city limits of or adjia cent to certain areas: directly served by the City of Henderson: L M :o nthly Cl!ls.tome.- Charrge: A Monthly Customer Charge of $12-50 11.50 s:hrul be assess:edl each month_ Beginning On: 2. Rate: per 1,000 cubic feet, plus the ddiv ered cost of gas:. ~ $2.40 2022 The Rate shaJl be based on a heat content of 1.,06 7 Btu· s per cubic feet and adjusted mo.:rrthly as established by Texas: Gas Trarnsmission (Boardwalk Pipeline Partners. LP) for the consumption month at the city delivery porn.ts:.  Commercial Rate Changes • No commercial rate changes proposed. Section II. Commercial Sales Service Applicable for ,ervioe to any CommerciaID customer focat.ed within the city limits of 01- adjacent to areas served d~ectly by the Ciity of Henderson: L Monthly Customer Charae: A Monthly Customer Charge s:hall he assessed each month as follows: A. -p to 500,000 cubic feet per year and a connected foad less than 500,000 Btu per hour: $16.00 per month B. Above 500,,000 cub:i.c feet per year or a connected foad greater than 500,000 Btu per hour $36. 7 5 per month. 2. Rate : per ].000 cubic feet, pfos the deli ·e:1-ed cost of gas: Effect~-e Date: l!]/2018 Up to 500,000 cuibic feet per month: $2.60 ext 4,500,000 cubic feet per month: $0.955 Above 5,000,000 cubiic £eet per month: $0.30 The Rate shaU be based on a.heat content of 1;067 Btu's per cubic feet andl adjusted monthly as esiablisbed by Texas Gas Trn.osm.ission @oardwalk Pipeline Partners. LP) for the consumption month at t!be citv deli.veu pomts.  Industrial Rate Changes • HMG rate structure is too low for large and mega gas users. • The current rate structure was designed for small/medium users. • Remove the 5th tier of the rate structure. • Adjust the remaining 4 tiers accordingly. • Increase small customer monthly charge from $80 to $100. • Increase large customer monthly charge from $210 to $250. • These changes have minimal effect on Industrial Customers.  Industrial Rate Changes C111Te■t 01·dinance 1. Monthly Customer Charrge: A Monthly Customer Charge shall be assessed each month as foUows: A. Up to 50,000,000 cubic feet per year: $80.00 per month B. Above 50,000,000 cubic feet per year: $110.00 per month 2. Rate: per 1,.000 cubic feet, plus the deliv,e red cost of gas: A. Service for Customer \-,rith executed Service Agreement Effective Date: 1/ /2018 Up te 500,000 cHliic feet pe:r month: ~ NeKt 4,500,000 cooic feet pee momh: $0.955 NeKt 10,000,000 cooic feet pee month: ~ N eKt 20,000,000 cooic feet p@C moll-th.: ~ ..'\.bove 35,,000,,000 rabic feet per moo.th: $0.085 Proposed 01·dinance 1. Monthly Customer Chairg,e: A Monthly Customer Charge .shaU be assessed each month as foUows: A. Up to 50,.000,000 cubic feet per year: Sl 00.00 per month B . Above 50,000,000 cubic feet per year: S250.00 per month 2. Rate: per 1,,000 cubic feet, plus the delivered cost of gas: A. Service for Customer with executed Service Agreement Effectiive Date: 2022 Up to 500,000 cubic feet per month: $2.60 ext 5,500,000 cubic feet pee month: $0.955 ext 0,000,000 cubic feet pee month: $0.30 Above Q.6, 000, 00 cubic feet per month: $0.14  Industrial Rate Changes Proposed Ordi nance 1s affect on HIMG 1s big8 Industrial Customers .. Total of %0 Incr ease Existing HIMG B,ig 8 Approx.. Yearly Total Yearly Additional !Natur al Gas of Yearly Industrial Customers Usage (IMCIF) Margin Yearly !M ar.gin Bill 2021 Gas Bills Customer #1 900i,'()00 $1777570 $557380 $375707981 155'¾ .,. . 0 Customer #2 4207000 $1367770 $28l'980 $173987446 2.,07'% Customer #3 2647000 $1147930 $21l'300 $17128, 146 1.,89% Customer #4 1807000 $1037170 $7l'860 $8027327 0 .,98'% Cu.stonier #5 1207000 $85l' 170 $7l'860 $5327147 1.,48'% Customer #6 907000 $767170 $7l'860 $4677785 1.,68'% Customer #7 787000 $727570 $7l'860 $3407579 2 ..31'% Customer #8 607000 $677170 $0 $2837263 0 .,0 0% Total 2, 112r000 $8337520 $137l' 100 $87523,674 1.,49% Proposed Ordinance's affect on HMG 1s new Industrial Customer Total of %0 Incr ease !Future (2024) Approx.. Yearly Total Yearly Additional Natur al Gas of Yearly Industrial Customer Usage (IMCIF) !M argin Yearly !M ar.gin Yearly Bill Gas B,ills Customer #1 2, 400r000 $3057070 $137l'880 $107000,000 1..38'%  Local Transportation Service Change • Transportation service should only be available for large and mega gas users. Section \ .. Local T r ansporitation Senri,c e Ap.,Pfo:ahle for service to any customer ,villi yearly gas usage meeting or exceeding 500,000 ~I CF and o\\t'Iling its o\vn. nm1Jtma] gas supp hes. For a :m inimum period of t\\re]ve ( 12) months commen.cm.g each · ovembe-1" l st, the customer may have the City pro\.-ide local transportation service across the Cify~s, gas distribution system pruvided a Namral Gas Transportation Agreement acceptable 1to the City Manag,e r is executed by tihe customer. The focal transportation r'a!tes shaU be the same rates as contained in Section Ill, Subsections ] and 2A of this ordinance, less the dehvered cost of gas com.ponent,. plus being subject to a balancing policy, shrmkage adjustrnent,, and the genentl terms and corulitions as may be contained itn the Natural Gas Tnmsportation Agreement. In addition, the ~ \\ .wll require the customer to rennburse the Ci~r- for ilie actuail cost of telemetering equipment that Vi.r1H allovv the City to monitor the custom,e r' s gas usage on a real-time basis. The ~ 1.v~ll assess, ,a n additional monthly fee of $'6,00 for administering this service.