City Council Work Session - Minutes

Mon., May. 23, 2016

Mayor Drotzmann called the work session meeting to order at 6:03 pm. Present were Councilors Myers, Primmer, Hardin, Beas-Fitzgerald, Gutierrez, Kirwan, Smith, and Davis. Staff members in attendance were City Manager Byron Smith, City Attorney Gary Luisi, Assistant City Manager Mark Morgan, Chief Edmiston, Bill Schmittle, Ron Sivey, Nate Rivera, and Lilly Alarcon-Strong. News media present were Michael Kane from NE Oregon Now and Jade McDowell of the East Oregonian (arrived at 6:07pm.)

Electric Rate Discussion

City Manager Smith stated last year the Council adopted an 11% increase, at that time City staff informed the Council that the HES discussion would need to be brought back to the Council this year again. City Manager Smith stated HES Superintendent Nate Rivera will give an overview of the history and recommendations needed going forward.

HES Superintendent Nate Rivera stated HES is a Consumer Owned, Non-Profit Electric Municipality distribution utility, that services approximately 63% of the area of Hermiston. HES is served from two Umatilla Electric Cooperative substations, one at the Butte Substation and the other at the Feedville Substation, and two sections of HES are served off metered UEC distribution lines. Mr. Rivera stated three feeders are maxed out during the summer and winter months so it is very difficult to use other feeders if and when the electricity goes out or other changes need to be made. There are also several sections of underground utility that have a history of frequent outages.

Mr. Rivera displayed a 5 year HES graph that showed HES has an average of 99.96 in reliability but the percentage has been fluctuating downward. In 2015, an HES customer would have an average of 2 outages for an average of less than 2 hours each which is a little better than UEC. Unfortunately, HES has no way of knowing when and where outages occur until customers call and let us know. And that is why it is imperative that HES continues its construction work plan that will address the major/minor issues currently limiting HES reliability, develop a growth plan for Hermiston’s Industrial Site, and implement tools that will assist HES’s ability to provide better outage management. The budget will need a systematic approach to replace and improve transformers, vegetation management, meters, sectionalizing, capacitors, pole replacements, miscellaneous plant additions, and security/street lights.

Mr. Rivera stated for the last two years HES has been working with UEC to partner on a new substation called Hermiston East that would also add three meters and connect to the existing system to free up some capacity issues at the other substations. This project should be completed this year.

The 2017 project would be to convert HES to Advanced Metering Infrastructure. Which will allow HES to be more responsive in identifying and responding to outages, will provide cost savings in daily operations, will addresses customer requests for more detailed usage information on high usage complaints, and will allow HES to provide customer-owners with additional payment options like pre-pay.

Councilor Kirwan asked what last year’s rate increase went towards.

Mr. Rivera stated last year’s rate increase was to offset the costs from using the reserves and savings to pay for daily operating costs. This increase would be for needed/special projects mentioned above and to keep up with BPA’s rate increase as well. To offset costs and implement these projects, HES needed a 20% increase, but HES was able to break it down and be able to implement smaller increases to have less of an impact on customers. It is also important to remember HES did not have an increase for 12 years.

Mr. Rivera stated HES goals are to be reliable, stable, and predictable,. The cost of service analysis results show in FY 2014-15 HES used $956,878 from cash to offset rate increases, in FY 2015-16, HES used $600,000 from reserves to offset a larger rate increase, and in FY 2016-17, HES is projected to have a 11% ($884,000) deficit in retail rate revenue. If HES restructures its existing debt in FY 2016-17, HES would have an interest only payment of $380,000 - $415,000; saving between $450,000 - $425,000, reducing HES’s Budget deficit to approximately $450,000, and will have budgeted half of the $1.0M needed for Hermiston East.

Councilor Kirwan asked what the percentage of increase the customer could expect to see.

Mr. Rivera stated the increase would be about 1.4% to 1.5% if restructured effective August 2016. Mr. Rivera stated the Council would need to consider whether or not to do a Bond Restructure for a number of years, potential rate adjustments in 2016-17, 2017-18 or a combination of both. Mr. Rivera stated he and the City Manager feel it would be less of a burden to customers, especially the elderly and disabled, to incorporate increases in small increments.

Mr. Rivera stated all electric providers will be raising rates, but it is important to note that HES is very competitive as it is the lowest utility provider in the City. Mr. Rivera stated depending on what direction the Council would like to take, he will be returning to the Council in June with more information so the Council can make a decision at that point.

After some discussion Mayor Drotzmann stated the City cannot continue to use the City’s savings to pay for these services and capital improvement projects. BPA has consistently increased costs to the City , and unfortunately, the City needs to offset these costs by passing this increase to the customer so that it can be sustainable and feels like the Bond Refinance would be best suited to save the customers $2.5 million. 

Mr. Rivera stated the City does not want to make money on these services; being rate stable is the priority, and to do that HES must charge residents what the City’s actual costs are.

The Council agreed it would be best to implement smaller increments and prepare for BPA’s next increase while improving capital needs.

Mayor Drotzmann ended the work session at 6:57 pm. The Councilor took a short break before the regular City Council meeting convened at 7:00 pm.