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HomeMy WebLinkAboutEnergy Board - Minutes - 02/10/2022 ENERGY BOARD February 10, 2022 – 5:30 pm Remote – Zoom ROLL CALL Board Members Present: Bill Becker, Jeremy Giovando, Alan Braslau, Steve Tenbrink, Dan Gould, Marge Moore, Sidra Aghabibian, Emilio Ramirez Board Members Absent: John Fassler OTHERS PRESENT Staff Members Present: Marisa Olivas, Adam Bromley, Cyril Vidergar, John Phelan, Theresa Connor, Lance Smith, Chad Crager, Travis Storin, Molly Reeves, Amanda Newton, Carolyn Conant, Cody Snowdon, Councilmember Tricia Canonico Members of the Public: Eric Sutherland, Thomas Loran, Rick Coen MEETING CALLED TO ORDER Chairperson Tenbrink called the meeting to order at 5:30 pm. ANNOUNCEMENTS & AGENDA CHANGES None PUBLIC COMMENT Eric Sutherland commented regarding the Connexion agenda item, presented later in the meeting. Mr. Sutherland shared his beliefs that Connexion has been a public policy failure due to lack of transparency and departmental mistakes. Mr. Sutherland wondered if the $143 million budget for Connexion’s buildout has been “kicked back” to City officials. Mr. Sutherland believes the revenue estimate is unattainable and will not happen for 2022. Therefore, Mr. Sutherland, worries higher electric rates will be implemented to fund Connexion’s financial needs. APPROVAL OF MINUTES In preparation for the meeting, board members submitted amendments via email for the January 13, 2022, minutes. The minutes were approved as amended. EXECUTIVE DIRECTOR’S UPDATE Theresa Connor, Interim Utilities Executive Director (Attachments available upon request) Ms. Connor announced that Kendall Minor has accepted the Utilities Executive Director position. Mr. Minor has most recently served as the Director and Vice President of Construction for Cherry Street Renewable in Atlanta, Georgia. Prior to that, he spent over a decade as the Utilities’ Portfolio Leader for Georgia Power Company, where he began his career in 2007. Mr. Minor has a Bachelor of Science in Civil Engineering and Master of Science in Civil Engineering from the University of Alabama at Birmingham. Mr. Minor’s first day will be February 22, 2022. Ms. Connor reminded the Board of the structural study to better align the Utilities service area, which was ENERGY BOARD REGULAR MEETING done in 2020. It was decided to keep a consolidated Utility under one Executive Director, but one major change is the implementation of a One Water Director position (currently open for applications). Water originally had two Deputy Director positions split between Water Resources and Treatment (formerly Carol Webb), and Water Engineering and Field Services (Theresa Connor prior to current interim role). Ms. Connor believes this will help balance the workload. Ms. Connor said the Customer Connections Deputy Director position has been interviewed and should have a candidate announcement soon. The L&P Deputy Director posting date is to be determined, but it will be done like the Customer Connections Deputy Director recruitment. Ms. Connor shared that John Phelan has been given a special assignment to broaden his view on policy issues and review L&P Policy. On a personal note, Ms. Connor said it was an honor to serve as Interim Executive Director of Utilities. She believes there has been good progress made in the organization to stabilize things and address issues. Ms. Connor said that the dedication of the organization and the professionalism, to keep operations running is amazing and should be acknowledged. Ms. Connor provided an update of Covid-19 impacts to the organization. The Omicron variant brought outbreaks to both the Utilities Administration Building and the Utility Service Center. The Customer Service Counter was closed temporarily due to positive cases and exposures. At the height of Omicron, in mid-January, L&P had 20 staff members out and was considered in outbreak status. Currently, all departmental areas are back to the normal staffing levels and the Customer Service Counter is open. Chairperson Tenbrink expressed his thanks on behalf of the Board to Ms. Connor for being Interim Executive Director. Board Member Braslau also extended his thanks and asked if Ms. Connor was planning on applying for the Water Deputy Director position. Ms. Connor said she is considering it, but she is first going to take an “active recovery” and take time to decompress in Florida. Solar Policy Planning John Phelan, Energy Services Senior Manager Mr. Phelan expressed his thanks to Ms. Connor. Mr. Phelan shared the two initiatives at the front of his new role to address policy include solar and beneficial electrification. These initiatives will look at codes, rate, and interconnection standards or electric design standards and seeking consistency and aligning with long term goals as well as maintain financial sustainability. Mr. Phelan said he has an internal working group, and they intend to bring forward, likely at a Council Work Session, their plans. Mr. Phelan said current policies were driven by an early adopter phase, but they are beyond that point and intend to create a financially sustainable and scalable solar business model. Mr. Phelan would like to see Council focus their priorities in this area. Mr. Phelan said, of course, they will want to get the Board’s input and plan to add their agenda items to the Board’s 2022 Planning Calendar. Mr. Phelan said that he will collect any specific requests from the Board and will take a comprehensive look at each. He asks that these requests be sent in a combined email/request, rather than trickling in. QUARTERLY FINANCIAL REPORT (Packet Item Only) Lance Smith, Director, Financial Planning & Assets No questions or discussion. CONNEXION FUNDING NEEDS Chad Crager, Broadband Executive Director ENERGY BOARD REGULAR MEETING Travis Storin, Chief Financial Officer Molly Reeves, Manager, Financial Planning & Assets Lance Smith, Director, Financial Planning & Assets (Attachments available upon request) Mr. Crager introduced himself and Ms. Reeves and explained how Connexion’s funding needs are partly a result of the design-build contract, which made exact cost estimates hard to pinpoint. Mr. Crager reviewed and compared the 2017 business plan assumptions versus current project estimates (current estimates through 2024). A major difference reflected in the comparison was the original assumption of vacant conduit availability from Light & Power (L&P), which was thought to be 72% availability but after L&P proofed (checked) the conduit availability was closer to 48%. This created an increased need for boring, the most expensive aspect of the build (a zero-dollar assumption for premise boring to a current $8.5 million estimate). Installation costs to the contractor, OnTrac, were assumed to be $592 per install, but current project estimates are closer to $705 per install. Mr. Crager explained the take rate estimates for residential (28% by end of 2022) and commercial (45% by end of 2022) were expected to meet full absorption by Q4 2022. Those take rates are now projected to be 35% (residential by end of 2022) and 28% (commercial by end of 2024), with the full absorption in Q4 of 2024. Work on Multiple Dwelling Units (MDUs) requires property-owner-approval and pushes the timeline for commercial take rates back more than residential. Mr. Crager believes that Connexion will accede the new take rates, as the city is currently at 31% take rate. Chairperson Tenbrink asked if the 35% take rate reflected current installations or all of Fort Collins. Mr. Crager replied that the take rates are based on all of Fort Collins. Capital project spending updates showed the total capital budget estimate at $143 million, a raise from the 2017 assumption of $117 million. The total capital budget estimate included the network build (primarily Atlantic Engineering Group “AEG”), installations (OnTrac and boring), equipment/all other, and a contingency appropriation from September 2021. Mr. Crager noted that about $4 million of the network build’s new estimate is based on new development, which Connexion is partnering with L&P and paying L&P to place Connexion infrastructure, including vacant conduit to avoid ripping up new sod when residents move in. Mr. Crager shared that $6 million has been redeployed from the Operating Budget, making current available funding $123 million. To go forward and reach the new $143 million estimate, Connexion has a $20 million funding request. The Board was reminded that the bond originally approved Connexion for $150 million, so the funding request falls within the bond approval amount. Ms. Reeves reviewed the financing options that Connexion has considered the four options for funding were displayed alongside each options’ pros and. The first discussed was borrowing from L&P Reserves, a low-cost and readily available capital option with a con of impacting potential opportunity cost for L&P. This is the option that Connexion is purposing as a first choice, but other options listed were: borrow from L&P Reserves, then deferred bonding offering (package with L&P in 2023-2024 budget); deferred bond offering only (package with L&P in 2023-2024 budget); or 2022 dedicated Connexion bond offering only. Speaking the consideration of borrowing from L&P, it was noted that L&P and Connexion are legally a single “Electric and Telecommunications” enterprise, but staff maintains separate sets of books for management and purposes of transparency. Additionally, Ms. Reeves purposed that Connexion would pay interest [ a revolving interest rate – based on interest at the time] on L&P Reserves used and would pay the higher of current actual investment earning rate or 10-year AA-bond rates ensuring L&P rate ENERGY BOARD REGULAR MEETING payers receive at least the rate they would have on investment earning for their excess reserves. Ms. Reeves reviewed L&P Rates looking to 2031 and explained that most of the retail rate increases are due to Platte River Power Authority’s (Platte River) wholesale rate increase. L&P reserve position is around $42 million available at the end of 2021. A major consideration when deciding the best option was the impact to L&P’s overall debt position, and L&P’s debt cover ratio shows the ability to pay back debt. Key takeaways for the purposed borrowing structure are the draw down as needed to meet cash requirements, payback with all excess available cash from Connexion operations, and interest will be computed on outstanding carrying balance. If option one is approved the first draw would be required in Q2 of 2022 (May/June) with a maximum estimate need of $20.5 million by December of 2024 and payback completed by January 2029. This brings the interest incurred to $3.2 million. Mr. Crager and Ms. Reeves are recommending option one as they had done last week to City Council Finance. They are in the process of drafting an ordinance for Council to support borrowing L&P Reserves for the March 2022 Council Meeting. Vice Chairperson Becker feels it is not the Energy Board’s position to debate the merits and challenges of Connexion. He expressed heartache to pull from reserves and reminded the group of L&P’s history of low reserves that had to be built up in the past. Mr. Becker feels that Connexion funding is an inappropriate use of L&P Reserves, and there are too many unknowns. Board Member Braslau noted that he does not associate himself with the public comments made earlier in the meeting, but he is critical of how “we” (Connexion) has got here. Mr. Braslau is not sure to believe that there will not be an impact on L&P when in fact it already has impacted L&P. Mr. Braslau understand that some of L&P’s issues are not entirely Connexion’s making, but the financial assumptions, that are now proving to be shortcomings, were made known prior. With finances changing over time, Mr. Braslau believes that the proposed interest rate is insufficient to pay back L&P and noted that there is not a proposal for future funding of the opportunity costs. Mr. Braslau shared that he wants Connexion to be successful and he is glad there has been more transparency from the department. Mr. Braslau also noted that he believes the lagging take rate is due to marketing failures of Connexion. Mr. Braslau does not feel he has enough information to fully support the funding request. Board Member Giovando wondered what the largest risk is to the proposed need for funding and asked if there are plans to mitigate the risk. Mr. Crager responded that the biggest risk is not getting to all the premises, which will impact the take rate for revenue. Mr. Crager acknowledged Connexion’s past issues, of which several have been addressed and fixed. Mr. Crager is looking forward to getting the construction done (expected to be complete by the end of 2022). Board member Moore asked what the exposures are to L&P if less funds are available in the reserves. Mr. Smith answered that there is a risk to L&P rate payers that will need to be kept in mind when discussing opportunity costs [opportunity costs are investment opportunities that could make the community better, i.e., investing in land for a new substation]. Mr. Smith added that there are not service level metrics and weights to quantify what the investment opportunity cost is. Mr. Smith shared that in November he presented to Council Finance Committee an exhaustive list of capital investments, which showed with modest rate increases could be achieved within 10 years. Since November, revenues came in $7 million over budget on the operating side and $3 million over budget on the development side. On the expense side, the overall operating costs were below budget around $7 million. This adds up to about $20 million that was unanticipated when Mr. Smith presented to Finance Council in November. ENERGY BOARD REGULAR MEETING Mr. Becker asked Mr. Smith to clarify if the reserves cover unexpected items (i.e., major substation fire). Mr. Smith explained that while this is correct, there is a minimum reserve that is intended to cover such items. Connexion’s funding request would not draw down L&P reserves completely, and it should be kept in mind that Connexion is not asking for the money tomorrow but over time as needed. Mr. Tenbrink agrees with the others’ concerns, and he shared his experience while living in Tacoma. Tacoma struggled since they could not offer services beyond what Comcast was able to provide. As a Connexion customer the past year, Mr. Tenbrink is pleased with the quality. Mr. Tenbrink said considering the last two years, with the pandemic, has shown how critical network capabilities are for people. Mr. Tenbrink noted the importance of supporting Connexion while also not hurting L&P’s ability to fund needed projects. Mr. Becker and Mr. Giovando asked what L&P’s thoughts were regarding the funding request and if it has changed L&P’s plans. Mr. Bromley answered that this does not change the plans that L&P has. Mr. Bromley shared that with L&P Capital Improvement Plan (CIP), which provides a 10-year plan of project expenses, they were able to hand the CIP to Mr. Smith for financial forecasting and modeling. Mr. Smith’s forecast has shown that L&P’s plans do not have to change due to Connexion’s funding request. Ms. Moore asked if the repayment period would change if the take rate fell short. Ms. Reeves shared that they ran a break-even bond payback period, dropping the take rate a couple percentage points, and in that case, everything including the $20 million borrowed would not be paid back until 2042, like the original bond. Mr. Crager noted that one of the presentation slides list the sensitivities to speak to Ms. Moore’s question. Additionally, Mr. Crager spoke to the importance of Connexion’s ability to provide the upload speeds required for remote work and school. Connexion’s pricing will not raise and will continue to offer a $60 a month, no-contract, plan for internet services. Regarding Connexion’s marketing plan, Mr. Crager said they have not focused on marketing so far to avoid pushing a product that could not be delivered on at the time, but there is an amazing marketing plan in place through Old Town Media Board Member Ramirez wondered how the original projections, which did not meet Connexion’s goals, are different from the current cost assumptions. Board Member Gould shared his surprise of how light the presentation was on speaking to L&P concerns. Mr. Gould shares Mr. Becker’s concern, and he is at a juncture of conservatism for L&P and keeping a good funding level for L&P. Ms. Moore asked Mr. Smith what his consideration is for a fully funded L&P Reserve. Mr. Smith said he was suggesting that there is $20 million of unanticipated funds in L&P Reserves. Mr. Smit explained that the difference between something like HOA reserve use and the electric utility is the balance of using reserves and using debt. There will be an L&P debt issuance of about $40M over the next ten years. Considering the plans to make $178 million worth of capital improvements, the vast majority will be paid through existing rates or on-going development fees. Mr. Smith confirmed that the reserve level would be considered “good” as it is certainly above the minimum reserve required. Mr. Smith reminded the Board that to finance Connexion initially, L&P revenues were issued. It could put L&P at risk to not use their revenues to pay the debt service, essentially communicating to the bond market that the City is not doing what they said they would do. Mr. Tenbrink asked if L&P was planning on using Connexion network. Mr. Bromley answered that L&P is overhauling a section of the AMI backend system to utilize fiber instead of wireless routing and using the ENERGY BOARD REGULAR MEETING same backhaul of fiber for distributed automation. Mr. Phelan added that Energy Services is also using fiber for water heater speed and responsiveness. Ms. Connor commented on Mr. Smith’s work to mature Utilities’ financing, in addition to the work put in by L&P’s department directors towards CIP planning. Board member Moore moved for the Energy Board to support the proposal to borrow from L&P Reserves to support Connexion’s funding needs. Board Member Giovando seconded the motion. Discussion: Mr. Braslau said there is a significant need to have L&P support Connexion but believes the Board does not have enough information to recommend the best approach. Mr. Giovando said he has the same sentiments and with his time on the Board he has learned to trust Mr. Smith. Mr. Giovando said that if Mr. Smith is behind then he is willing to support the funding request. Ms. Moore agrees and appreciates that the presentation showed the various options. Mr. Becker shared that he still disagrees from the point of view of an Energy Board member, because of the risks at hand for L&P. Vote on the motion: It passed, 6 in favor-1 opposed-1 abstention Vice Chairperson Becker proposed for the Energy Board to express its concern via a letter to City Council, through Chairperson Tenbrink, notwithstanding the Board’s support for this budget matter, regarding the risks such a decision could have on the Energy Board and L&P, in addition to potential risks to the Energy Policy in support of Our Climate Future. Board Member Braslau seconded the motion. Vote on the motion: It passed unanimously, 8-0 EPIC LOAN CAPITAL AGREEMENTS John Phelan, Energy Services Senior Manager Carolyn Conant, Project Manager, Utilities Customer Connections Amanda Newton, Senior Analyst, Treasury (Attachments available upon request) Mr. Phelan explained the agenda item is a proposal to renew two third-party capital agreements for Epic Home Loans. Specifically, the ask of the Energy Board is for a vote in support of the purposed third-party capital agreement renewals to the electric utility enterprise board for approval [City Council]. Epic Homes is a comprehensive model for improving single family homes of all types, and one component of Epic Homes is the loan program. Epic Home Loans are available for customers facing a financial barrier. It is served as a utility bill, also known as “on bill financing,” structured through a balance of a variety of capital sources (both internal and external). Epic Homes helps customers achieve more efficient, comfortable, and healthy living for homeowners and renters alike. Epic Homes uses an integrated approach to meet energy efficiency, comfort, health, and resilience. Mr. Phelan reviewed a chart of the comprehensive portfolio for single-family home performance with Epic Homes. He identified the target audience as customers in owner-occupied or renter-occupied properties. ENERGY BOARD REGULAR MEETING The chart also showed the various components and partnerships key to the Epic Home program. While showing program result data, Mr. Phelan pointed out that since 2010 over 4,600 home energy projects have been completed and nearly $5 million issued in Epic Loans. Mr. Phelan provided background of Epic Loans on-bill financing which started in 2013 strictly with L&P Reserve funds and was paused in 2017 with a restart in 2018 with the Bloomberg Mayors Challenge. The Epic Loans vision is a revolving loan fund, which support residential energy upgrades, scales to meet long-term efficiency objectives, removes financial barriers to energy upgrades with attractive rates and terms, aligns capital commitments with retail loan terms, and minimized the City and Utilities risk and administrative effort. Mr. Phelan noted that the program has had zero defaults to date. Ms. Newton explained how the City is playing a double role in the program as both a lender to Epic Loan customers and as a borrower of third-party loans. This allows the Utility to utilize its borrowing power where some customers may otherwise not be able to secure a loan for such upgrades. The management of the loan portfolio has an interest rate target of a blended cost of capital, plus administrative and risk premium (maintaining 0.75% - 1.00% buffer between blended sources cost of capital and lending rates). A consideration to keep in mind is that L&P will not have a negative impact on planned future debt offerings and there is protection of Utilities credit rating and broadband’s coverage covenants. Current capital funding sources include L&P Reserves, Bloomberg Philanthropies, Colorado Energy Office, and third-party capital which accounts for 25% of outstanding loan balance. The proposed third- party renewals are through US Bank and Vectra Bank. Ms. Newton explained that both US Bank and Vectra had provided a line of credit for the first two years, and both had options to convert outstanding balances into term loans, allowing loans to be locked at a fixed rate for longer terms. Ms. Newton shared that there is about $5.8 million secured from external lenders, providing a total of $8.2 million in funding capacity when combined with internal and grant resources. The ten-year funding source forecast showed year-over-year average forecast of $2.8 million in funding needs, of which $1.9 million would be from third-party borrowings. However, the ten-year forecast also shows that the Utility will be able to rely less on third-party loans over time with the amount in reserves and grants continuously growing. Ms. Newton shared that City staff anticipates 10% loan growth over the next two to four years and tapering off at 3% going forward. Ms. Newton explained the new terms of the loan renewals. US Bank has kept all terms and conditions unchanged, while Vectra Bank has offered a hold on the interest rate for one year (instead of two years from the original agreement). The reason for Vectra’s term change is to serve as a protection for themselves due to the rate rising environment. The Council Finance Committee recommended that City staff proceed with finalizing the agreements with both banks to bring forward to the Electric Utility Enterprise Board on March 1, 2022. Chairperson Tenbrink was curious of how many Epic Homes projects utilize the on-bill loan. Mr. Phelan answered that is probably on the order of 10% of the projects. Mr. Phelan reminded the Board that the goal is to complete projects and not issue loans, the loans are more of a tool for customers. Mr. Tenbrink asked if there are situations where a low-income family may not be able to afford the Epic Loan but need improvements. Mr. Phelan confirmed that there are programs like Weatherization Assistance Program (WAP) and the Care Program, that offer low- and no-cost efficiency upgrade services to community members. Mr. Phelan also shared that Epic Loans has credit score and customer utility bill history as the two criteria of loan approval. Board member Moore moved for the Board to support bringing the proposed third-party capital ENERGY BOARD REGULAR MEETING agreement renewals to the Electric Utility Enterprise Board for approval. Board Member Braslau seconded the motion. Discussion: None Vote on the motion: It passed unanimously, 8-0. BOARD MEMBER REPORTS None FUTURE AGENDA REVIEW There is a February 24, 2022, Work Session with the Our Climate Future (OCF) overview with Mr. Phelan and staff. Mr. Tenbrink asked Ms. Olivas to send out a link to OCF document in the upcoming weeks. Mr. Tenbrink would also like to have staff and Board Members introduction to understand everyone’s various areas of expertise. Mr. Becker agreed and felt it is an opportunity to get to know each other better. Mr. Bromley shared that Work Session does not have to be remote, but it is up to the Board if they would like the Work Session and future meetings in-person. Mr. Braslau commented that although the mask mandate is going away, there are still concerns and the group should be careful of their approach to an in-person meeting, but he is not opposed to in-person. The Board agreed to an in-person meeting and encouraged people to wear masks if they wish to. The meeting can be hybrid with both in-person and remote options. Looking at the March 10, 2022, regular meeting there are plans for a 2023/2024 Budgeting for Outcomes (BFO) Update (may be a Staff Report), Distributed Energy Resources (DER) Strategy Planning update, Building Beneficial Electrification Work Plan, and Solar Storage RFP from Platte River Power Authority. Platte River will also discuss their intention to join the Southwest Power Pool. Mr. Tenbrink and Mr. Bromley said that it would be good to review commonly acronyms and provide the Board with a list for reference. ADJOURNMENT The Energy Board adjourned at 7:49 pm.