05/09/1996 (2)
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FRC
Fiscal Review Committee Minutes
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FISCAL REVIEW COMMITTEE
CITY OF CLEARWATER
May 9, 1996
Present:
John Rich
Janet MacNutt
Daniel Moran
Daniel Fleck
Carol Warren
Tina Wilson
Chuck Warrington
Jim Lewin
Bob Bublitz
Gwen Legters
Member
Member
Member
Member
Member
Budget Director
Managing Director, Clearwater Gas System
Assistant Director, Clearwater Gas System
Controller, Clearwater Gas System
Board Reporter
Budget Director Tina Wilson opened the meeting at 8:00 a.m. at City Hall. In
order to provide continuity for research, the items listed were not necessarily
discussed in that order.
Ms. Wilson stated the Fiscal Review Committee has been newly created and
will function similar to a Budget Advisory Committee. This committee may meet as
often as 2 or 3 times per month. Today's topic is review of Mr. Warrington's
presentation of CGS (Clearwater Gas System). Members are free to ask questions
'during the presentation. Information from this meeting will be forwarded to the
\~:." Commission. A frecommendation may be presente? to the Commission regarding
strategic plans 0 various entities reviewed at all Fiscal Review Committee meetings.
Ms. Wilson noted the Sunshine Law states committee members must discuss issues
only at official meetings.
, Ms. Wilson introduced City Manager Deptula. Ms. Deptula gave a brief
overview of her background. She said the FRC will be helpful in scrutinizing
budgets, determining the long term financial health of the City, and planning of
strategies, principles and philosophies needed in the City. Long range vision is
necessary to assure the stability of government. She noted Ms. Wilson ;s always
hard at work and has a bright future with the City.
Discussion ensued regarding CGS rates and operations. CGS is an enterprise
fund, which is a propriety fund or business., Making a profit and providing a quality
service to citizens is CGS' objective. Five years ago, the Commission reviewed the
gas system and its performance was very poor. Staff was asked to obtain
proposals for selling the business. An RFP was developed and 10 to 12 responses
were reviewed. Employee benefits and other areas were also reviewed. CGS
management problems were discovered, but it was decided not to sell the business
due to its potential profitability. Mr. Warrington was hired to manage the system
and make eGS profitable.
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Chuck Warrington, Managing Director of CGS, introduced Mr. Jim Lewin,
CGS Director of Marketing & Planning, and CGS Controller, Bob Bublitz. Mr. Bublitz
gave an overview of the business. CGS has been in business since 1923 as a
mFRC05a.96
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manufactured gas plant facility on Myrtle Avenue. Manufactured gas was produced
through a chemical process involving coal. When gas lines were available in Florida
in 1959, CGS tapped into the natural gas pipeline. The City's previous finance
director evaluated the system, arriving at a net value of CGS at $24 million.
Consultants at R. W. Beck determined CGS was worth more than $14 million, and if
managed properly, could become profitable.
Mr. Warrington joined CGS in February of 1992, at which time he embarked
upon reorganization of CGS. He presented slides, handouts and a notebook
scrutinizing rates and revenues. CGS' original service area included central PineUas
County, Oldsmar and Tarpon Springs. In 1993, the strategic plan expanded into
Pasco County. People's Gas filed objections against CGS with the PSC (Public
Service Commission). The PSC determined eGS was better able to provide service
to the Pasco area than People's Gas. The pse limited CGS to a boundary almost to
US 41 in southwest Pasco County and up to State Road 52. eGS was granted
Holiday, New Port Richey, Port Richey, and the area east of Little Road to the
Saranova site. A new transmission pipeline built by Florida Gas Transmission lies in
the area and eGS has three service points off the line.
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When the system is down, all pilot lights must be turned off, and eGS must
go to individual homeowners and businesses to restore service. In 1 990, this
occurred and it took eGS 2 days to restore service in the Clearwater Beach area.
Should St. Petersburg lateral experience damage, the capability of connecting to the
northeast corner as a backup will enable CGS to feed gas into the north end of the
system. People's Gas has all territory to the east and north of State Road 52. They
are building a line from Hudson Road down the highway to intersect with CGS.
They have informed the Pasco County Commission they would only serve residential
loads in that area with propane. People's Gas does not allow customers with less
than a half million therms a year to utilize interruptible rates. CGS allows customers
with 100,000 therms to take advantage of interruptible rates. Interruptible means
should CGS reach peak load, customers on interruptible rates may be asked to use
an alternate source of energy for a specific period of time. Summer and winter flow
rates were discussed. The PSC regulates maximum flow rates, which is why
interruptible customers are important. eGS sells both natural and propane gas, and
is a full service company, selling appliances and serving residential and commercial
accounts. CGS' total service territory to date is 252 square miles, with 500 miles
of main pipelines sel'ving thirteen municipal areas and 13,000 customers. It was
noted the City receives $3.2 million per year in transfer payments from CGS. Over
50% of sales revenues are obtained from customers outside the City. The business
is very competitive. Rates are not established by the PSC, but by the City
Commission. The PSC regulates safety and territorial boundaries.
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A strategic plan was presented to the Commission in August of 1993 and
plans were formulated through the year 2000. Three major issues will be presented
by Mr. Warrington to the Commission: 1) strategic business plan update to the year
2002; 2) gas rate case, Phase II; and 31 process for gas revenue bond sale. eGS'
strategic plan objectives are to accelerate Pinellas County growth, expand into
Pasco County and develop new gas markets. A seven year payback must be
obtainable prior to Offering service ill an area. It was noted gas units are higher than
mFRC05a.96
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electric units due to lack of mass production and the fact that units are basically on-
site generators.
Member Rich questioned the feasibility of communities to establish their own
power plants due to deregulation. Mr. Warrington responded deregulation will allow
communities to purchase transmission, distribution and energy as bundled items
from power companies. CGS could potentially become the marketer of energy to
citizens. The power company would remain the distribution source. The Federal
Regulatory Energy Commission has not made a determination in this area. The law
currently allows customers to purchase gas from a third party marketer and
transport it through CGS pipes to customers. This process is called retail wheeling.
Currently, 10% of residents in Pinellas County can use gas. If gas lines are not
available in an area, propane may be used.
Mr. Warrington said although growth is anticipated, outsourcing will be the
key to keeping CGS personnel levels reasonable and efficient. Reducing cost per
customer from $444 to $392; increasing customers served per employee from 130
to 233; expanding main extensions to ten miles per year; and tracking existing plans
and increasing Pinellas County growth by adding 5,300 customers to bring in $3.1
million in non-fuel energy revenues are priority objectives for CGS. CGS plans to
add 117 miles of main in Pasco County, which will add 4,500 customers by the
year 2002. Over the next seven years in Pasco County, CGS will acquire $9.5
million in capital expenditures, and add $2.6 million in non-fuel revenues. Gas air
conditioning and other high tech markets are great opportunities for CGS.
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Mr. Warrington reviewed the gas rate case. Implementation began in
October of 1995. Phase I rates were recommended based on a study done by a
CPA firm, C&L (Coopers & Lybrand), and Phase II was recommended to become
effective October 1, 1996. Phase II residential rates were already codified by the
Commission in 1995 to become effective in 1996. An increase of $2.25 per therm
in residential base rates was realized in 1996. Phase /I is being corrected in two
areas. Multifamily therm rates were treated as a general service therm rate when
,initially implemented. After implementation, problems in numbers were discovered
in 1 996, and C&L found therms for commercial customers were calculated the same
as residential rates. An example given was Mission Hills. Commercial rates will be
increased slightly in 1996. A shortfall of $1.3 million in revenues has occurred in
1996. An increase of $900,000 should have been realized, according to C&L. C&L
worked with Utility Customer Service personnel to breakdown CGS' numbers for the
rate case. The numbers are flawed and it is unclear why. Another study would
cost CGS, therefore an in-house study will be done.
Member Warren suggested employing a firm with expertise in the utility area
for future studies. Mr. Warrington noted there are a number of firms who specialize
in utility studies. C&L was considered one of those companies. Previous rates
were based on the C&L study. Due to the study, CGS will have a shortfall of
$200,000 in the gas fund for 1996. Next year will improve slightly, and the
following years will show marked improvement. '
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mFRC05a.96
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Cost comparison charts were revIewed. Advance re~funding of CGS revenue
bonds were discussed. CGS owes the City approximately $2.5 million. After bonds
are sold, profits will be realized in the next few years.
Discussion ensued regarding salary increases for CGS employees. Mr.
Warrington suggested a marginal portion of pay dependent upon achievement of
goals. He discussed the sustainability of the gas system. It was noted public
regulatory agencies directly affect CGS.
Mr. Warrington noted In October of 1996, Morton Plant will receive a York
engine driven chiller unit, which is the newest class gas air conditioner marketed in
the country, and the second largest unit ever sold in the country, as well as the
largest unit in Florida. This is a very large score for CGS and encourages future gas
applications throughout the state.
Mr. Warrington gave everyone his telephone number at eGS and encouraged
members to visit the gas sales office for a tour.
The meeting adjourned at 10:24 a.m.
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Attest:
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Board Reporter ,
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mFRC05a~96
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