Ad Hoc Committee Meeting
September 25, 2007
Attendees:
Douglas Athas, Chairman
Larry Jeffus, Committee Member
Laura Perkins Cox, Committee Member
Rick Williams, Committee Member
1. Chairman Douglas Athas called the Meeting to order at 5:30 p.m.
2. Approval of the minutes from September 11, 2007 as amended.
Motion made to approve the Minutes by Laura Perkins Cox, Second made by Rick Williams. The motion was approved.
3. Chairperson Douglas Athas said tonight’s meeting objective was to obtain input from an industry expert. Ray Schwertner invited and introduced Mark Zion of the Texas Public Power Association (TPPA) located in Austin.
Mark explained that the purpose of TPPA is to support and assist the 72 municipally (munis) owned generation service providers in Texas with state and countrywide utility issues. Through TPPA, the munis have a greater affect and participation in legislative and regulatory issues than they would individually.
Munis are value based with low rates, community value, local control, responsive and recognized for quality service. Munis make up 15% of the service in the state, followed by 15% from cooperatives and 70% by investor owned companies such as TXU Oncor.
In Texas, 7 of the 72 munis have a fully autonomous or independent utility board. 6 of these are the 10 largest munis in the state equaling 62% of the muni meters served.
According to an American Public Power Association (APPA) survey, 40% of the utility boards nationwide are independent. As a system increases in size, two thirds of these systems have independent utility boards. The reasons for going to an independent board are due to complex business decisions, the gravity of those decisions, and the need to stay competitive. Seven years ago, the universal language of Senate Bill 7 allowed cities in Texas to establish utility boards for their local municipal utility.
The pros for an independent utility board are as follows:
Complex industry requires ability to operate efficiently and with nimbleness to react to business opportunities.
Experienced business board members manage the utility allowing for continuity, stability, familiarity to the business and proactivity.
Board members are free from the politics of election.
Board members deal only with utility issues.
City Council members have many, more issues to deal with.
The cons for an independent utility board are as follows:
A balance must be established between City Council and the Utility Board.
City Council must establish accountability for the Utility Board.
Below are some examples as to why munis choose an independent utility board structure.
San Antonio’s CPS Energy was able to establish and keep low rates for its customers. Their independent board is made up of four citizen trustees and the Mayor as “ex officio”. City Council plays an important role by appointing/approving the trustees. The trustees make suggestions to City Council for board appointments. A board offered stability. The transfer of funds to the City is 14% of its revenue. The issue of funds transfer is an issue that has to be resolved between the Board and the City as a charter item. The utility is run as a business.
New Braunfels has no generation; however, NBU is active in TPPA Their Utility Board is similar to San Antonio’s board. It handles all business decisions. Eminent domain issues go to City Council.
Kerrville has no generation but has a governing Utility Board because it had an uncertain utility system and market. They needed to be reliable, responsive to the market and maintain low rates.
Bryan Texas Utilities ( BTU) sets aside 6% for funds transfer.
Lubbock has the newest independent board. The utility was in financial trouble due to city government interference during a very competitive market. With dual certification, there must be nimble governance. The city utility is back on track.
City of Greenville’s autonomous Utility Board was created at the request of citizens as a solution to deterioration of electric service resulting in good service with reasonable rates.
Questions for /comments from Mark Zion:
Do cities have problems with fund transfers?
It is the exception to the rule that cities get in trouble with fund transfers from the utility.
Bryan: An audit by Deloitte &Touche revealed barriers to their utility business; in response, a management utility board was established.
Staff is responsive to an autonomous board’s requests. Board members are only reimbursed for related business expenses. Board members are accountable to the City through the ordinance or charter which establishes the board as well as state guidelines under Legislation 1115 and 1115A. The public sector demands accountability. City Council can recall board appointments. Board members are financial business leaders who are not involved in politics or elections.
How is political governance different from a business operation?
The public can give the Board input on an item. The Board also gets input from the Staff. The Board can accommodate interaction with the public.
Utility boards are created based on the needs of the particular city.
GP&L is an asset and of value to the community.
Chairman Athas thanked Mark Zion for his time and for the valuable material he presented. He thanked Ray Schwertner for inviting Mark.
Ray Schwertner was asked to send to the COG committee members an electronic copy of the matrix that staff had assembled on various structures for Utility Boards.
Two speakers, Dan Wilkerson, City of Bryan, and Dr. Jerry Ransom, will talk about their experience with utility boards.
Chairman Athas asked Ray Schwertner for his thoughts on GP&L and its business activity: A utility needs to respond in a fast market with expertise for a successful future in the new world that is coming. GP&L has not done the zonal market and now the Nodal market is coming with lots of challenges. It would be a big commitment for City Council with 2-year terms to be able to react quickly on business opportunities without utility or financial expertise.
Ad Hoc Committee members want to see consistency, stability, accountability in the operation of a utility board.
At the end of October, this committee may request that a more detailed study is required. Meanwhile the committee will meet again October 9th, 2007 but will not meet October 23, 2007.
4. Adjourned
Chairman Athas adjourned the meeting at 7:01 P.M.
Submitted by: Carol Bentzlin on 9/27/07
Approved by: Douglas Athas on 10/9/07