Board of Aldermen - workshop

This session is called to order.

We will follow the agenda as printed. The first item on the agenda this morning is a presentation on the Electric Department projects and rate structure by our honorable director of the Utilities Department, Mr. Kemp. The floor is yours. We'll hear from you. Thank you.

Thank you, Vice Mayor. Good morning. Good morning.

Yes, sir. Yes, sir. You're so welcome.

I want to go through our electric budget today and also talk about our rate strategy that we're bringing forward for a recommendation. and really want to spend just a little time and hope that we'll understand the kind of the lie behind the program that's going on. This is kind of some of the topics that I want to cover today. As always, if there's questions along the way, please stop me. I'd be happy to talk or take a quick dive into any of those. As we get started, Vice Mayor, I'd like to take everybody back to 2016. Yes, sir. 2016, and the reason why I'm bringing that back is that was the last time we had a real electric grid increase. Nick Fitzgerald had just taken over the quarterback for Mississippi State after Jack Prescott had graduated. The iPhone 7 had just been released. Alderman Skinner, the World Series champs that year with the Chicago Cubs, first time in 108 years. Amazon had just released the the Alexa, and that was the most famous movie of the year. So a lot has changed in that time period, and I'm just trying to give everybody a mile post about kind of where we were then and what has happened since then. So this is an overview of the existing electric budget. The board considered that as part of the overall budget. But I just wanted to get some highlights and changes, the primary changes from that. It was recommended to have a 2% rate increase, which generated around $650,000 in revenue. Some of the major changes were, of course, the mandated PERS from the state that went up. We were fortunate that we got a million-dollar Department of Energy grant, but it does require about a $450,000 match. So essentially, I'll talk about what we plan to do with that funding or what's required to do with that funding for the grid resiliency project. We also had some inflation adjustments components of our contract for our Broadway SNS line. And then we also are recommending to do a replacement of our service truck. Truck 54 is our main service vehicle that we use almost every day, all hours of the day. And even despite all of that, with the increase, we're still showing a $375,000 base. So looking forward, what we have talked about and really the need for a rate increase has existed for a couple of years. So in lieu of doing a large single increase, what we are proposing is to do smaller incremental increases over the next three years, which would extend through this long term, and doing a 2% for the next three years, for these next three fiscal years. Again, it's been 10 years since the last one. And a major piece of this, the story on this, is really the increased O&M. I know everybody has seen that and felt that, whether it be when you're doing maintenance on your vehicle or buying groceries at the store or doing any type of construction. We've certainly seen it on the electric department as well. So this will set us up well, I think, to execute our capital improvement plan, which we have updated. And I'll share with the board our priorities for that coming over the next 45 years. Like I said, the main story of this is looking back about what operational maintenance costs have done for the last, really, five to ten years. So what graph you have here is these blue bars are the capital projects that we have invested in over the period of time. As you can see, starting in 2023, we had zero capital improvement projects simply because we didn't have the budget to do it.

Did TVA do a rate increase? I know they do rate increases along that period. Did they do it in 22?

They did. The last two rate increases were in 2021. 3 and 24. Maybe off a year. Maybe 24 and 25. 24 and 25. And they went up generally around 4.5 to 5%.

And that's why the revenues show more coming in. Because it looks like we should have done this in 22.

We did. And there was also something else that occurred if you look at previous revenues on the budget is there was a big fuel cost spike. when there was a, due to the Ukraine invasion, natural gas prices spiked dramatically, and that was passed on through fuel costs, which also showed up in revenues, but it also, it was essentially a pass-through because we had to pay a higher rate for power costs. This orange line up here is what our O&M has done over that last same time period. So as you can see, as O&M has gone up, it has eroded away our net revenue, which is this green line. So we're actually going into the negative from the fiscal year we're currently in about the end. And then that also has eroded all of our net revenue. This shows our our average O&M cost per customer. So if you take your overall O&M cost for the system divided by the number of customers you have, this is what it looks like. We track this every year. This is going back to 2012. You can see these increases, pretty dramatic, 76% increase in 10 years, almost a 50% increase in five years. This dashed line up here is the average of the majority of the LPCs. LPCs are local power companies. So these would be our brother and sister companies. And how we stack up against that, you can see we're a bit under that average. This shows it a little bit different in how we stack up in the overall O&M cost per customer. The average is around $40 and we're at $31. I think that there's two main reasons for that. One is we have a very dense system. So we have a very large number of customers per mile alone. It's a lot different than a rural system where you may have a long line and only have a half a dozen customers. The other thing I think it tells is We run a very lean organization. There's not a lot of extra that we're doing that we have on O&M. So that's something we're really proud of. You certainly don't want to be the lowest. That means you're probably not fully supporting and spending on O&M. And you certainly want to be below the average. So I'm really happy with where we are right now. Part of the story on that is the cost of materials. Vice Mayor, I'm sorry.

No, no, sorry. You take your time.

This shows some of the primary items that we use almost on a daily basis to build and maintain and rebuild our electric system. And you can see these are common items. This is the increase that's occurred since 2022. So in a four to five year period, you can see the cost of these normal materials have gone up anywhere from 45 to almost 70%. This is the 750 cable. This is underground cable. You can see it has quite a bit of metallic material inside of it, which is dry. Anything with metallic components, transformers, all of those are seeing a much more dramatic increase. due to some of the tariffs and some of the other short supply of materials. But this piece of cable has gone up 70% in cost over the last four years. That's just one example. This is showing it just a little bit different. This is our O&M in the blue bars, and you can see how it's going up by year. Essentially, we're buying the exact same amount of materials. There's been really no difference in how we're maintaining and operating the system. It's going up, and then our net income in the orange is going down even into the . So you might say, how can we cut some of our O&M expenses? If we wanted to try to balance the budget, what could we do? And the first and really one of the only ways we could do in short of cutting staff is to cut some of our right-of-way training contracts. This is a little bit of a story on, you can see this was happening in COVID. We had two right away crews here. We lost one of the crews during COVID. We got them back in 2023. And so this is the amount that we spend per year in right away training. We have a third party SNS line who does a great job for us. And this orange dash line is our outages, or you could equate it to our reliability. We had an ice storm here in 2021. That was the reason for the spike. But if you look at the overall trend line, we're actually reducing those outages. And a primary direct correlation between reliability and outages is your right-of-way trend. So I just caution the board, if you want to try to get it budget neutral, this would have to be one of the casualties. But in return, you're going to sacrifice your reliability and your level of service that you provide to the customers. So one of the things that I wanted the board to kind of look at from an overall system standpoint is looking at the health of the system. So one of the main key indicators on the dashboard that we want is the health of the system. The vitality of the system is how much are you investing in the system versus how bold it is or how much is it appreciating now. So for every single asset or every single component, whether it be a pole, a transformer, a conductor, even substation equipment, everything has a serviceable line. and you can only expect to get so many years out of that asset. Once it reaches that full lifetime, you are depreciating it fully out. So if you want to look at a timeline of how a system looks over time, you look at the amount that you're investing versus the depreciation that's coming out. So that's one of the things that we look at and want to bring before the board. You can see everything in green is where we have a net we're investing more than is appreciated vice mayor you remember those time periods in 2021 is when that new substation southwest was starting to hit our books yes sir that's why we have a large investment during those time periods but since then and since we have no capital investment projects, you can see how we've gone into the negative. So in other words, our system is getting older. Things are appreciating out more than they're investing in. And that's reflected there in the red bars by severity, even getting down to being a net $2 million in 2023. This is looking at it a little bit different, but the same concept is the reinvestment ratio. So in general, you should try to walk the day around at one, if not a little bit higher on reinvestment ratio, just to maintain the current level of your system where you're at right now. And you can see the trend for the last four years is we're not getting that far. That's okay probably for a year or two. But long-term, that's going to cause you some problems. And I don't want to compare, but I will, is that is very much so what we're seeing on the water and sewer side. Because we've been running into the red for a long period of time, and now we're having to play a huge catch-up game on that. Again, I think we're okay where we are right now, but that is the need, that is part of the story of why we're bringing forward the need for a rate increase to get us back to the level we're in. So the two main ways that we invest in our system is through capital projects. Those are typically done by a contractor. Those could be projects similar to what's going on with the NSU transmission relocation. It could be a contractor comes in and does the substation upgrades. The other way is through capitalized materials. These are the poles, the transformers, the conductors, crossforms that we have that we purchase that our crews install. And so when we do that, we add that all to the value of our plant value. And so those are the two ways that you're investing into the system, and those are reflected here on the graph, with the blue being the capital projects and the yellow being the capitalized materials. The capitalized materials you can see has trended up in the last few years. Again, the main story is primarily due to OEM costs, the cost of all those materials. And the depreciation line there is in green. If you add those two items together and accumulate those, those are as shown in blue, which again reflects the amount of adjustment in the system less than depreciation. I'll stop there, see if anybody has any questions about that. Hopefully that was clear. And then, you know, what do we hope to do? What are we recommending to do? Do you have a copy of your packet of the capital improvement plan? And I'm not going to go through every single one of these line by line. I'm happy to do that later on, Vice Mayor, with anybody if you want to go through and go through each project. I'm happy to do that. But I wanted to give just a high level on our main priorities that are reflected in that. For us, this is a general roadmap. It is not a super detailed plan for exactly how each wire is going to be connected. But it kind of gives us our overall priorities and strategy.

I'll wait until you hit point number two or three.

Yes, ma'am. The first one is our pole replacement plan. And I'll talk a little bit about that in the next slide. They talk about why it's a top priority. how we think we can achieve that. Part of that is going to be completed by the grant that we just received. The second is voltage regulation and our voltage substation. This is the only substation that we do not have any voltage regulation. So how the voltage comes in from TVA, we essentially have to carry that through or reflect that into our distribution system. causes some problems if you can't stabilize or manipulate that voltage to a level that you want it to, specifically for the end-use customer, that it might have some sensitivity with their appliances and some of the other equipment that they're using the power for. So installing voltage regulation is really something we need to do, not only for our own substation, but also for the end-use customer. But it comes at a high price. It's about $1.2 million. And it is about a two or three year lead time for some of that equipment.

So when we were talking, when we had the crypto facility that was looking at us, one of the things that came with the additional money that that might have generated for the electric department was to use that for things like this voltage regulation.

It could have been. These would be one-time expenses.

And does it come with a cost savings on the other end?

You can potentially use it for some cost savings when you manipulate the voltage and do essentially what they call some DER behind the meter. So you can actually manipulate the voltage and lower your power bill. Is this nominal?

Just a couple percentage or something.

But again, if you If you compare that with what our total power bill is. Yes, it's monthly.

Is there not a safety? Is there not, just because our guys don't know what's coming into the substation, is there not something, I would think, safety regulation?

So there is a, in our power contract with TVA, you have to have it within a threshold. And they deliver that. A lot of times what is delivered at that station is going to be on the high side. So it's usually a little bit higher. When we convey that into the end-use customer, we're required to have it between a plus or minus 5% or so. And there are times when it can exceed that, which can cause some problems. This station serves kind of the center in the east part of the city, and we have had some regular issues and complaints over there, specifically with some of the electric, what are the HVAC systems, the PACs, the... Not mini-splits. Mini-splits. The mini-splits that are made by foreign, like Mitsubishi and some of those, These are very, very sensitive.

That might be what's wrong with mine on Greensboro. Straighten out and think about it. Okay. Good to know.

So, yeah, that is, and Mr. Jones can take a deep dive into voltage regulation if you'd like to after the work session. Is it today? Yeah.

You did. You did.

We want to continue to invest in our substations. They are the main hub, the main backbone of the system. And it is just like a maintainer call. We have to continue to invest in that. The smart grid technology really is a big umbrella and the main things we want to do on that is have a full system scale that we have better awareness for the whole system. That is going to be partially funded by the grant as well. And once we have that backbone in place, we can then make our grid smarter by installing an extending fiber to put in smart devices in the system that can operate automatically. We also have a good number of some of our large equipment that is in need of replacement in the upcoming years, and I'll talk a little bit about that strategy. And a continued replacement of the LED, of the old lights in the city's LED. I've been working with Mr. Williams. We're going to strategically go through and replace around 500 fixtures per year with what we're proposing. So let me talk a little bit about the pole replacement plan. This is one of our top priorities. And the reason why is because we now have awareness and knowledge about substandard poles in the system. We did an inspection. We broke it up into a three-year process. The third, the north half, then the middle, then the south. We did an inspection on 7,700 poles and found 856 that needed some type of maintenance, rehabilitation, or replacement. Since that time, we've replaced over 100, so we're about 12 to 15% complete. That goes back over the last year, year and a half. We've been doing all of this with in-house labor. But we do have dedicated about $1.2 million of the $1.45 million to coal replacements, and that will start in 2027. So we feel like we'll make a lot of headway to do that with an outside contractor, plus continue to do our in-house staff. And we feel pretty confident that we can get all of these completed. And I really want to say a six to eight year time frame, maybe even shorter.

Okay. The wood replacing wood poles. I've noticed like in the areas that we've been replacing wood poles and going with concrete, it's like one concrete pole for every five wood poles. i don't i'm sure they can carry more power but have we looked at doing that in areas like instead of going back with going back with concrete where it makes sense because long term the replacement cost and we have looked in certain areas we have we did that on um willisville street we replaced the majority of those wooden concrete those are in high travel areas that are susceptible to getting hit by vehicles or trucks or trailers

Primarily the whole spacing is dictated by conductor strength. You know, the span. If you increase that span too far, the conductor's going to sag. We also think in very dense urban environments is Especially where the houses are close together, you have to get off of the distribution system through a transformer to a service line. So those poles provide that, I guess, way to branch off. And if you spread them out too far, you're going to have to come back with a secondary pole anyway to serve the house. So, but we did eliminate a couple, three poles, I believe, on Wilson Street by doing some consolidation. And that is certainly something we would love to do if it makes sense.

Where it makes sense, just over time, just what it costs on maintaining it.

And you can see from the previous slide, a concrete pole is about three times as much as a wood pole. And we're certainly trying to do those in places where we don't want to have to come back to those in our lifetime. So that's the pole replacement. The fleet replacement plan, we have quite a number of vehicles that are getting a little bit old. You can see these are all just the bucket trucks and the digger trucks. So these are our main workforces that allow our crews to do the repairs, construction, and replacements. You can see over on the right hand side, generally we would like to start ordering a piece of equipment about 15 years after its life starts because it's going to be a two to three year time frame to get a new bucket truck or a new material handler in based on the lead times for the equipment. You can see those highlighted red that we're actually a little bit behind schedule. We've not done anything with those right now, so we need to kind of catch up. We have been proactively maintaining those and trying to extend the life of those assets, but we're recommending in year one to replace truck 54 And you can see it has the highest number of miles. And you might say, well, it's only a 2015. It's not ready for a replacement. And the main reason why is due to maintenance costs. We've looked and identified all the costs for each piece of equipment. And you can see truck 54 is down here. We're spending almost $25,000 a year just at maintenance. That's not operation. And it just continually stays in the shop. It is, again, our main truck that is rolling out of the garage every single day, including on outages and weekends. So that's our general plan that's reflected in the capital improvement plan. You can see the years in place. So how does this look like for the customer when we talk about that? So again, our last rate increase a few weeks ago, what we're recommending is a 2% across all rate classes. But most folks would be most concerned with how it impacts residential. That looks like a $2 base rate or customer charge increase and $1,000 of a penny on the kilowatt hour charge. So the lion's share will be reflected in the base. What that looks like is it generates around $650,000 a year. Customer charge comes up at $2. And you can see this graph here on this table about what the bill impacts will be based on the amount of kilowatt hours each customer has. Our average residential customer is 841 kilowatt hours, which translates to $2.08 per hour. So these are some comparisons, just how we're doing, where we are versus other meetings. You can see we're a bit lower than all the other municipals in Mississippi, a bit lower than the other co-ops in Mississippi. because every system is different. The co-ops are obviously a lot more rural, a lot more spread out, but I also wanted to compare with the same bill, which is 1,200 kilowatt hours, what that looks like for full county because there's a lot of residential customers in the city that are full county residents versus stock utilities, electric customers, and you can see that difference there. It's about $50. So in summary, again, it's been a while since we had a real rate increase, but there's a significant need there. We're proposing to sequence this over an extended period of time instead of doing a single large chunk. It's going to be on average around $2 per one per residential customer, and it really helps us set the stage on adequately our capital improvement plan for the next three to five years. Our ultimate goal with everything is to have the best performing electric system that we can to provide the best service that we can for customers. And I feel like that's just what our position is. So with that in mind, I'm happy to take any additional questions.

Thank you, Mr. Kim. Do any of my colleagues have any questions for Mr. Kim? Budget chair, you're recognized. Thank you.

you noted at the beginning that your budget you have three hundred seventy five thousand dollar deficit right now with your budget with it with this rate increase included and I'm assuming that because you can operate it but you can't have a budget that's not balanced that you're having to take that from ending cash funds and that's not a sustainable path forward so so without the right increase 650,000 you'd be taking a million or so out of your ending cash reserves which just hastens the using up all of all of the cash reserves that you've built up it's just not it is simply not sustainable so I like the incremental approach I think it does give people a chance to sort of build it into their budget and that sort of thing

i'm a little bit afraid that it might not be quite enough but but we will accept your guidance on that and i just want to say you mentioned earlier that you thought we would be fine we are not going to be fine we need to do a rate increase we do i mean we need to do a rate increase i know you're saying you'll be fine rocking on like this but you're not yeah yeah and we should have done it in 2022 because if you go back and look that is where it took a turn for the worst it should have been looked at back

If I could just add one more comment. Sure. We looked at that and we're around $7 million with our general reserve right now. The rule of thumb is you want about two months for the power bills. And that's, we're actually a little bit under that at this point. So we need to, we do, in my recommendation, we do need to take some action. Otherwise, we're going to be in a

sure sure you don't want to you don't want to be spending that money down that there's a reason there's a recommendation for that level and we are in luckily we are in the position to where we can act on the front end not like what we had to do with water and sewer when it just got to where we didn't have a choice so this is us being somewhat proactive

If there are no additional comments, anyone else have any comments? If there are none, Mr. Kemp, thank you. We greatly appreciate you. Thank you very much. The next item on our agenda for the work session is a discussion of the agenda item for the September 15, 2026 meeting of the Board of Auditors for the City of Starkville. I will turn to that rather quickly. Mr. Attorney, Mr. Mayor, I was asked out of the minutes, so we already have consent on those.

Yes, sir.

Consent. Okay. Public hearings. There's been plenty of discussion on public hearings. Any questions? The first one up is a chronic nuisance property ordinance. Any questions about that? If not, we'll roll to the next one. The Leisure Entertainment District. Any questions on that? down to mayor's business attorney. That's an easement. You'll have to explain this. I want to have a question about the easement there and I want to have a question about the item A under mayor's business. You can brief me. Just hit it real quick. It's just allowing Southwire use of city property to help with the expansion.

Just a little strip. Nothing more.

Can we put that on consent?

Consent.

Consent. okay board business items item number one budget chair you look like you recognize on those two items A and B the first one is money that was originally budgeted to pay the Starkville Area Arts Council which has dissolved and there's fifty two hundred and fifty dollars left in that budget amount for fiscal year twenty six like to reclassify that to the theater for a grant match that they are applying for.

Any objection to go on consent? Consent. and I'm going to share the next item we will not put that on consent but go ahead if you want to speak to that no information is in the back we did budget that we did approve that as part of this budget okay airport any questions about the airport if not consent down to engineering item number one any questions if not consent I have number two. Any questions? Not consent.

Consent.

I have number three. Any questions? Not consent.

I just want to ask a question. This is to help you in marketing. Okay. No.

He's a recently retired employee. Okay. And so he's looking at helping us 30 hours a week. And so this is a stopgap measure. It's a pool of propositions. It's been advertised and posted. Okay. And so we're able to do that.

Consent. Consent. Okay. The Finance Administration will pass the claims docket. Number two, any objection to consent for financial statements?

Consent.

Item three, an objection to consent?

Consent.

Item four, an objection to consent?

Consent.

Item five, an objection to consent? Human resources, an objection to number one of the consent? Consent. Item number two, an objection to consent? Consent.

Consent.

Item number three, an objection to consent.

Consent.

Number four, an objection to consent. Consent. Five, an objection to consent.

Consent.

Number six, an objection to consent.

Consent.

Number seven, an objection to consent.

Consent.

Number eight, parks, an objection to consent. Number one, parks, an objection to consent. Consent. Police department, item, only item, an objection to consent. Consent. Code enforcement in objection to consent.

Consent.

We'll leave. Yes, sir.

Consent. But Rake Street has been taken care of, but we'll discuss it in the meeting. Okay. Yes, sir.

Yes, sir. Yes, sir. Yes, sir. Thank you, sir. Sanitation, we'll leave that one. I'll consent. But any questions on I-1 under sanitation?

Can we go ahead and put number one? Yeah, number one.

Okay. Any questions on that? If not, we'll move on to number two. We'll leave that out of consent. Number two, in objection to consent? Consent. Utility Department, I don't want objection to consent. Consent. Number two, we just heard from the director, we'll leave that out of consent. That concludes our going over the agenda for the upcoming board meeting. That completes our agenda, and this work session stands adjourned. Thank you, everyone.

Have a great weekend.