Commission recap 5/12/2020: Budget impacts mild, so far, from COVID-19
Budget impacts from COVID-19 mild, so far
A strong financial position, better-than-expected wholesale energy prices, and debt reduction and re-funding work completed earlier this year combine to minimize, for now, the effects of the COVID-19 pandemic on Grant PUD finances to date, commissioners heard Tuesday.
A high degree of uncertainty remains about effects into the future, cautioned Senior Manager of Financial Planning and Analysis John Mertlich.
Grant PUD estimates an "unrealized financial impact" of the $3.3 million through late April in wages and other costs of employees who had to leave their regular duties to focus on COVID-related tasks and projects. That total is expected to end the year at $9.6 million, Mertlich said.
Grant PUD staff will continue to monitor conditions and adjust forecasts over time as more data from local, state and national sources and the local industrial community, become available.
Key financial metrics, including debt-service coverage, liquid cash, debt to net plant ratio and retail operation ratio continue to forecast above their targets for the interim or long term.
A revenue decline through year-end, based on January through March results and future expectations, is driven mostly by a forecasted 365-gigawatt hour decrease in retail energy sales to industrial and other large customers whose demand has declined during state's social-distancing order and closure of non-essential businesses.
Grant PUD will be able to offset that expected $12.5 million revenue decline by taking that unused local demand and selling the energy on the wholesale market.
Good energy prices locked in with Grant PUD's wholesale customers last year, together with stronger-than-expected wholesale market prices, are forecast to increase budgeted wholesale revenues this year by $8.8 million.
Work by the Grant PUD Financial Team in January to optimize cash and refinance or pay down debt amid favorable market conditions is expected to reduce the budgeted interest and debt expense by $2.2 million this year.
First-quarter financials result in reduced budget forecast
Grant PUD's $267.7 budget for 2020 is forecast to decrease by $5.7 million, after first-quarter financial results released Tuesday reflect savings, delays or postponement of key capital projects.
Capital expenditures budgeted at $140.7 million ($105.2 million excluding labor) are now expected to total $129.1 million ($97.9 million excluding labor) by year end. The biggest driver is an $18.1 million reduction in the expected cost this year for work on a new, more seismic-resistant right bank at Priest Rapids Dam. The bid on the work came in $11 million below the Grant PUD engineer's estimate and part of the work was moved to 2021.
Other capital projects, including turbine/generator work at Priest Rapids Dam, upgrades at the Royal City Substation, and expected improvements to Grant PUD buildings saw bids come in lower or changes to scope or timelines.
Expansion of the fiber-optic network is forecast to increase by $2.4 million from the original $13.3 million budgeted as crews work to complete work unfinished in 2019 and begin design work for expansion slated for 2021.
Operations and maintenance expenditures are forecast to end the year $5.9 million above the budgeted $127 million. Operations and maintenance typically increases when capital expenditures decline, as employees are reassigned from delayed or rescheduled capital projects.
-Heard continued discussion on the cost of service study (COSS) for the utility's wholesale transmission service. The study provides a proposed rate that transmission customers – large load transmission customers (115kV -230kV) and small load transmission customers (Sub-115kV) would be charged for wholesale power delivery across Grant PUD's electric system.
A key cost component of the study is the proposed 9.8% "return on equity" within the transmission rate.
Grant PUD Economist Bob Brill told commissioners that using a return on equity ensures stable and predictable transmission rates in the future, by providing Grant with necessary funds for system improvements and to make future investments in the transmission system. In addition, the return on equity will compensate Grant's retail customers for funding past investments in transmission facilities.
During his presentation, Brill compared Grant PUD's proposed transmission rates with other similar regional electric utilities. His comparison shows that Grant PUD's proposed transmission rates would be slightly higher than most of the other utilities but appears to in the zone of reasonableness.
The higher proposed transmission rate can be partially attributed to the smaller customer density in Grant County compared to other utilities that operate a transmission system, which results in fewer customers sharing in the electric system costs.
During Tuesday's meeting representatives from the Bonneville Power Administration, Federal Bureau of Reclamation and the East Columbia Basin Irrigation District all voiced their continued objection they've had on Grant PUD's proposed calculation for return on equity within the study. The groups asked for an opportunity to meet with commissioners at a future date to discuss their concerns in further detail.
Bonneville currently has contractual agreements with Grant PUD to pay for power transported over Grant PUD's transmission lines. Also since 2017, the Bureau on behalf of local Irrigation Districts and the irrigators they serve, have been operating under a yearly "wheeling" agreement to transport federally generated electricity they need to power their water pumps.
Discussions and review of the study have been ongoing between Grant PUD staff and transmission stakeholders since the spring of 2019. Commissioners agreed that meeting with the stakeholders would be a valuable part of the continued process.
General Manager, Kevin Nordt said there is a lot for the commission to process and staff will work to schedule a workshop style meeting soon with the key wholesale transmission customers, PUD staff and the commission regarding the study. Adding that the timing to establish any transmission rate schedules, as well as finalizing the target percentage for return on equity, are the board's decision.
Read more on pages 44-223 in the presentation materials. A portion of the discussion was missed due to a technical glitch. Listen to a part of the discussion beginning at the start of the second commission audio file)
-Heard from Internal Audit Manager Dmitriy Turchik's review of the 2020 internal audit plan and status of five internal audits that are still in progress. These open audits include net metered system load, employee purchase cards, overtime, the Crescent Bar management contract and a follow-up on external safety assessments. Results of each of the audits are expected to be reported approximately monthly through August.
Turchik also reviewed results of a fraud investigation that resulted in Grant PUD making two payments totaling $48,574 into a fraudulent vendor account. Turchik told commissioners that the utility's Accounts Payable group received a fraudulent email request in January to change an existing vendor's banking information. As a result of the audit, Grant PUD is developing stronger policies, procedures and internal controls to better prepare Accounts Payable to ensure effective oversight and monitoring.
-Unanimously approved the modification to the calculation of the carbon content of energy consumed by the Grant PUD's retail customers.Details were shared during the April 28, 2020 commission meeting (see recap here). See full details on pages 8 to 12 of the commission packet.
-Unanimously approved a resolution implementing the Families First Coronavirus Response Act. A new, temporary federal law that requires mandatory, employee-funded, paid sick or expanded family and medical leave for specified reasons related to COVID-19. The federal pay requirement expires Dec. 31, 2020.See full details on pages 13 to 38 of the commission packet.
-Heard from Senior Manager of Power Delivery, Mike Tongue, who said Construction and Maintenance personnel have safely continued with the department's required maintenance schedules, allowing them to keep the critical electrical and fiber-optics services operational for customers during the pandemic.
Although they have been keeping up with essential projects, Tongue told commissioners that considering the number of employees and the diversity within the department, there have been challenges addressing necessary tasks.He added that the department's focus has been protecting employees from COVID-19 by following utility protocols and PPE requirements.
General Manager, Kevin Nordt complimented the group adding that they have done a phenomenal job across the department addressing COVID and still getting all the work done safely.
Tongue also updated the commission on the group's efforts to reduce the number of pole fires and tree related outages. Tongue said the data they are tracking shows improvement. However, additional analysis has shown that the way outages are classified may need to be altered. He shared the example of how a pole fire may get recorded under another category, depending on what other conditions were present at the time of the outage.
Throughout Grant County, long dry spells combined with blowing dust can lead to an excessive amount of sediment settling on the metal components of poles. A light rain can cause the dust to become electrically charged, heating up the components and potentially starting a fire on the wood pole.
Tongue noted that approximately 963 poles have had components replaced. These new components are made of polymer/plastic and reduce the likelihood of pole fires. Crews continue to work on replacing these components.
Read more on pages 20-27 in the presentation materials. Hear and see the discussion at 1:13:50 of the commission audio)
-Advised Grant PUD General Manager and CEO Kevin Nordt to seek an opinion from the state auditor's office before collecting $12,000 from a Royal City customer who was underbilled for his electricity usage for approximately 10 years.
Nordt told commissioners the underbilling resulted from a coding error in the billing software that went undetected until recently. The customer did nothing wrong and never suspected the bills received were inaccurate.
New tests and accuracy checks are in place to prevent the error from happening again, Nordt said.
Nordt and Grant PUD Chief Counsel Mitch Delabarre said state law requires public utilities to collect, even if the error is on the part of the utility.
Nordt proposed giving the customer five years to repay. The $12,000, he said, was equal to about a year's worth of electricity payments from that customer.
Commissioners, largely unhappy about charging a customer for a PUD mistake, asked Nordt to seek an opinion on the matter from the state Auditor's Office for potential options.
Hear the discussion at 10:27 on the second commission audio.