HomeMy Public PortalAbout02-22-1993 •
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PROCEEDINGS OF THE COMMON COUNCIL OF THE
CITY OF RICHMOND.INDIANA.SERVING AS A BOARD
IN CHARGE OF THE OPERATION OF THE RICHMOND POWER& LIGHT PLANT
MONDAY.FEBRUARY 22.1993
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1 The Common Council of the City of Richmond, Indiana, serving as a Board in charge of the operations of the
2 Richmond Power & Light Plant met in regular session at 7 p.m. Monday, February 22, 1993, in the RP & L
3 Service Building in said City. Chairperson Brookbank presided with the following Councilmembers in attendance:
4 Elstro, Lundy, Donat, McBride, Parker, Allen, Dickman and Hutton. The following business was had to-wit:
5
6 APPROVAL OF MINUTES OF FEBRUARY 1.1993
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8 Councilmember Allen moved to approve the minutes of the previous meeting as prepared, seconded by
9 Councilmember McBride and on unanimous voice vote the motion was carried.
10
11 APPROVAL OF BILLS. INVESTMENTS AND TRANSFERS
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13 Upon recommendation of the Finance Committee,Councilmember McBride moved to approve the following bills
14 for payment,seconded by Councilmember Allen and by unanimous voice vote the motion carried.
15
16 Bills Already Paid •
17 Payroll and Deductions 426,604.61
18
19 -
20 Investments Purchased From:
21 Cash Operating Fund 1,500,000.00
22 Bond Sinking Fund
23 ' Utility Bond Reserve Fund
24 Depreciation Reserve Fund 2,392,272.00
25 Insurance Reserve Fund 183,555.33
26 Consumer Deposit Fund
27 Cash Reserve Fund
28 Group Insurance Fund
29
30 Total Investments 4,075,827.33
31
32
33 Transfer to City in Lieu of Taxes;
34
35 Transfer from Cash Operating Fund to;
36 Payroll Deduction Fund
37
38
39 Transfers from Depreciation Reserve to:
40 Cash Operating Fund
41
42 Transfers from Consumer Deposit to: •
43 Cash Operating Fund
44 •
45 Transfers from Utility Bond Reserve Fund to;
46 Bond Sinking Fund
47
48 Transfers from Cash Operating ;
49 Interest and Bond Principal
50 Bond Sinking Fund
51 Cash Reserve Fund
52 Utility Bond Sinking Fund
53 • Depreciation Reserve Fund
54 Insurance Reserve Fund -
55 Consumer Deposit Fund
56
57 Interest and Bond Principal
58
59 End of Month Petty Cash
60 Revenue Bonds
61 Interest Coupons Redeemed
62 - Bond Coupons
63 Miscellaneous Bills Already Paid 1,319,616.16
64 Total prepaid invoices 5,822,048.10
65 Total Bills Not Paid 700,697.56
Grand Total 6,522,745.66
RP&L Minutes Cont'd
February 22, 1993
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1 REMARKS BY CHAIRPERSON
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3 None were made
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5 UNFINISHED BUSINESS
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7 General Manager Irving Huffman expressed concern over the payment of bills, noting the change of meeting
8 place and time to the first and fourth Monday of the month. Chairperson Brookbank said she had hoped the bills
9 would be brought to the City Building on the third Monday as they are on the first Monday for the finance
10 committee to look over and approve. After discussion as to how the bills could be done under the new
11 arrangement, Councilmember Allen noted that it had been only on a trial period and suggested that
12 Councilmembers rethink the issue. Councilmember McBride said it would simplify the review of the bills to meet
13 twice a month as in the past. He moved to continue to meet the first and third Mondays as an RP& L Board in the
14 Council chambers prior to each Council meeting and continue to meet the fourth Monday at RP & L, second by
15 Councilmember Lundy and carried by a unanimous voice vote.
16
17 Dale Norris, RP & L's power production manager, reported that all Councilmembers had been sent a letter
18 concerning the Continuous Emissions Monitoring System. He said Phase II should be running by the middle of
19 1994. It takes 155 days to be certified and if January 1, 1995 is a target date that would allow time to correct any
20 problems. He requested permission from the Board to employ Black and Veach engineering group to help with
21 specifications, bids,construction start up and testing. He said they know RP&L's generating station since they've
22 worked with them in the past. He said this is something all Phase I and Phase II grants have to do and the need is
23 to move quickly to engage Black and Veach since RP & L doesn't have the staff, adding that under the Clean Air
24 Act that when you make mistakes they make you pay for them making it costly. Norris assured Councilmembers
25 that Black and Veach are more than qualified to do the work. Councilmember McBride moved to approve the
26 hiring of Black&Veach,second by Councilmember Elstro and carried by a unanimous voice vote.
27
28 Milligan asked to have the opportunity to review the contract. McBride rephrased the motion, adding that it was
29 subject to the approval of the City Attorney, second by Parker and carried by a unanimous voice vote.
30
31 Huffman said there was a tremendous amount of concern in the industry about the continuous emission
32 monitoring, calling it a delicate area. He pointed out that if you lose your monitoring system, you lose your plant.
33 The concern is that instead of operating the most efficient plant, he said, which is the way it's going now, is that it
34 will load the plant according to environmental concerns which means the efficiency is going to go out the window.
35 Huffman said he brought the subject up because when the cost goes up,the customer pays.
36
37 Huffman reported to the Board on the presentation made to the Finance Advisory Committee, noting there are
38 some items members are going to have to vote on in the future. He said RP & L was notified in a letter that the
39 committee was reviewing all revenues and expenses relevant to the City of Richmond's budget and would be
40 meeting with department heads and other government entities to gather information. RP & L was asked to attend
41 a meeting set for February 17 and respond to several items which included such things as the fee structure
42 utilized for the payment to the City in lieu of taxes, pension benefit obligation and.the accrual of each year end
43 financial statement of 1991 and 1992.
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45 Huffman went over the prepared statements, giving the past history of RP & L, noting that the utility had made
46 payments in lieu of taxes to the City. He said the public service commission issued a show cause order why
47 Richmond Power & Light's rates should not be lowered to reflect what they figured were excessive payments to
48 the city at that time. He added that the commission's attitude over the years has been that the ratepayer should
49 not subsidize the taxpayer nor should the taxpayer subsidize the ratepayer.-At that time, Huffman said, RP & L
50 was able to show the commission that it was planning to install its Unit No. 2 and would need those revenues to
51 pay the'debt service for the new unit. Later, Huffman said, the utility was able to get a local representative to
52 sponsor a bill to permit a profit to be transferred to the City. During the past rate case, Huffman said,RP& L was
53 able to negotiate a rate settlement between the consumer's council and the industrial customers which was
54 approved by the commission.As a result of its past transfers, Huffman said, these were not an issue in the rate
55 case. He said the facility was only permitted to use$544,816 as the permissible payment in lieu of taxes and was
56 able to keep the $1,650,000 transfer from becoming an issue in the case: He added that now it is his
57 understanding that the commission has been contacted about money transferred and this was done without RP&
58 L's knowledge and he would have to speculate that transfer money will once again become an issue with the
59 commission..He noted that contacts of this nature make RP & L's job more difficult and it was his feeling that this
60 should not be permitted without the facility's knowledge ahead of:time. He added that RP& L have a relationship it
61 has to maintain with the commission.-' '-
62
63 He reminded the Board:to keep in mind that it determines how much will be transferred to the City, and as a word
64 of caution, noted that the commission is watching as to how much the ratepayer is subsidizing the taxpayer so the
65 commission is looking over its'shoulder at this time. .
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RP&L Minutes Cont'd
February 22, 1993
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1 the formula was changed back to $1,500,000. Councilmember Elstro said the amount has been up and down but
2 made a big jump 10 years.ago. Huffman said that has been the Board's decision and it is his job to exercise
3 caution to see that when the payments are getting high that you do not get feed back from the commission. He
4 has to be concerned that RP & L isn't going_to_be called in and have a show cause order. It's not just the
5 commission,'he said, but also the public counselor who plays probably the most major role. You not only have a
6 counselor but a full staff of accountants and engineers all hired by the state and all taking the public's view.
7 Councilmember Dickman asked Herschel Philpot"what the range of rate of return the commission said it would _
8 allow and Philpot answered 6 1/2 to 8 1/2 percent of return on investments.
9
10 City Attorney Thomas Milligan,who also serves as attorney for RP&L,pointed out that in the order from the utility
11 commissioner the payment in lieu of taxes is set up separately and is$545,816.Also, it spells out a 6 1/2 percent
12 return on investment and that is an additional sum of money at $3,026,000. He added that the payment in lieu of
13 taxes is not paid out of the reasonable return fund.That fund would be used if a facility is privately owned and the
14 amount would be what would be considered a reasonable return to its investors or owners. Milligan said the City
15 of Richmond is not receiving a payment in lieu of taxes from that. It is receiving a payment as the owner of RP& L
16 and the commission's order and the arguments are replete with those kind of references.
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18 In addition, Milligan said that amount does not come out of the$3 million figure but new investments made fo the
19 system come out of it, adding that the ruling discusses that. There was no request for any additional depreciation
20 and extensions and replacements in excess of the current plan. There was no request for revenue requirement
21 and there was a separate revenue projection.The Commission found that RP & L made no request to extend the
22 system.The 6.5 percent return is strictly a return on investment and comparable to the private sector's dividend to
23 stockholders. It is set aside for the owner as a practical matter and over the years has been RP & L's way of
24 capitalizing this plan. No projects were presented in the rate case as to anything other than to depreciation.
25 Milligan said that RP& L has adequate depreciation in reserves and they did not question that.
26 _
27 Councilmember McBride asked what the exact amount is at present in lieu of taxes. Brookbank answered that it
28 was $1,500,000. Huffman commented that the Board should take into consideration the industrial developments
29 office and small business. In addition, he said, other jobs are paid such a city attorney, city controller and
30 engineering. He added that those are all services not gifts.
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32 Huffman spoke to the next item which was the pension benefit obligation. He said RP & L had been informed that
33 the comment had been made that the facility's pension plan was grossly overfunded and information was being
34 sought as to how much money was in the pension plan. He read his remarks which included the point that the
35 retirement plan originated June 1, 1944 and Continental Insurance was the carrier. It was transferred to Banker's
36 Life of Des Moines, Iowa on September 1, 1968,which is now known as Principal Financial Group in Des Moines.
37
38 Reading from the agreement between the International Brotherhood of Electrical Workers AFL/CIO Local 1395,
39 effective October 1, 1992 through September 30, 1994, Huffman said: "During the term of this agreement, the
40 utility shall continue to contribute to the retirement plan 8 percent of the base pay of the participating plan, and
41 each participating employee shall contribute 3 percent of his base pay to the retirement plan." Huffman said from
42 the onset of the plan set up as it became more healthy and with less past service liablity the payout to employees
43 would be approved only to the extent that no additional funding would be needed. He added that, as the plan's
44 financial strength improved, it was reviewed annually to this Board and it was his responsibility to keep the
45 members informed as to the health of RP &L's retirement plan. Huffman read two items from the plan:"This plan
46 is not subject to Title 4 of the employees retirement income security act of 1974, known as ARISSA. Benefits will
47 not be insured by the pension benefit guarantee corporation and a participant's recourse will be limited to the plan
48 as such." And, "No part of the plan assets shall be paid to the employer at any time except that after the
49 satisfaction of all liabilities under the plan that any assets remaining shall be paid to the employer."
50
51 Huffman said RP & L has an agreement which must be funded and the only way to take money out of it is to
52 completely terminate it and that would be in violation of RP & L's agreement with its employees. He added that
53 the fund was set up and designed that way by an earlier Board of Directors with the idea that it didn't want a
54 future Board to be tempted to take the money from the retirement plan to fund other services. He said the
55 retirement plan is healthy and RP &L wants it to stay that way. However, he added,there is a study underway to
56 see if theplan can be liberalized to try to make a maximum pay out to the utility's retired employees.
57
58 Chairperson Brookbank asked if the pension plan was, indeed,overfunded 160 percent. Huffman responded that
59 it was not. He said, in fact, RP & L's actuaries advised the utility that it probably still has a $3,400,000
60 underfunding due to future liablities. Milligan asked on what basis that conclusion was made. Jim Daugherty said
61 he showed that report to the actuaries and talked to John Nill of the State Board of Accounts. Milligan asked who
62 was the individual in Iowa to contact and Huffman suggested that Daugherty make the contact so as not to
63 expose Bankers Life to several different entitities other than RP & L. Milligan responded that he would make the
64 contact. When Daugherty told Milligan that they would not talk to him, Milligan said as attorney for RP & L he
65 would give them the opportunity to tell him that themselves.
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RP&L Minutes Cont't .
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February 22, 1993 ,
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1 set up under the Continental Insurance Company in 1968'with insurance and retirement as one package. As the
2 employee got closer to retirement date the retirement built up but the insurance decreased.As the salary increased
3 that level payment started escalating, but at the end, you had retirement and no insurance. The RP & L Board
4 thought that was an antiquated method and separated the two making two plans. She added that for anyone having
5 service prior to September 1, 1968, that service has been funded based upon 1.5 percent times the number of
6 years in the plan.That was done, she said, because the feeling was that the money that went into the plan at that
7 time did not all go to pension but some went to insurance. Any service since that date, because all of the money
8 went into the retirement plan, has been upgraded over time.
9
10 Councilmember Elstro asked Milligan why the information on the retirement fund was needed and Milligan
11 answered that it was for the general knowledge of the Board. He said the controller requested the information and
12 the Board is entitled to it but it was not forthcoming. He added that the City owns RP& L and as owner the City is
13 entitled to everything in terms of knowledge about the plan and there should be no problem. Councilmember Elstrc
14 said he had been a Board member for 24 years and this is the first time anyone has investigated RP&L.
15
16 Councilmember Allen said the Mayor had appointed the Citizens'Financial Advisory Commission and these people
17 had donated their time. She said they are looking at every department to see where the revenues come from and
18 where all the expenses are. Based on these findings,she said,they will make a report to the Mayor.
19
20 Councilmember Dickman asked about the percentage of non-union participants in the retirement plan. Daugherty
21 responded that 153 out of the 156 RP & L employees participate. He said if the fund is overfunded, and the union
22 contract says you must put in 8 percent, could the funding be ceased for the non-union members to bring it intc
23 line?He said the agreement not only covers people in the union,that some prefer not to be in the union for different
24 reasons.
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26 Daugherty said the actuaries are saying that on an ongoing basis,taking into consideration future service liablity up
27 to age 65 and death,the retirement fund is underfunded already by$3,400,000. Huffman added that if less money
28 is put into the plan it is going to change what is available and the actuaries are going to have to recognize that less
29 money is coming into the plan, which is not only going to affect the non-union member but the union member as
30 well. He said the plan was initially set up with the intent that it would become liberalized as it became more healthy.
31 Huffman said with the projection of money coming in, the actuaries made the recommendation,to increase the
32 benefits and the underfunding would be there but well within control. Daugherty said if you look at the current
33 funding level the $3,400,000 will be wiped out in approximately six or seven years but by that time new people wil
34 be coming in and others will be retiring. He added that everything changes and it is a difficult area to understand
35 unless you are an actuary-or are familiar with actuarial studies.
36
37 In answer to the question by Councilmember.McBride as to why RP & L employees have a separate retirement
38 plan when all other City employees are covered by PERF, Huffman said this plan is more lucrative than PERF. He
39 explained that PERF was studied initially and the recommendation was made to the Board that most utility
40 companies have private plans. He added that this plan is healthy and is designed to maximize the amount of
41 retirement income.
42
43 Councilmember Lundy commented that if nothing was wrong.with the plan why doesn't RP & L give Milligan the
44 authority.to check on.it. Huffman said he would advise the insurance carrier as to who Milligan is'but he is
45 concerned that there is quite a schooling period involved and the plan is not readily understood, even by insurance
46 people.. He suggested that.Daugherty should be present when Milligan speaks to the carrier, adding that the
47 actuaries had advised that the only true way to.find out how many excess dollars may or may not:be in the plan is
48 to do a termination.°study. He explained that when that is done everyone becomes automatically 100 percent
49 vested. - •• .
50 " .
51 Huffman asked about the status of theTCl request made by the Board. Councilmember McBride said the Board
52 had requested the Board of Works submit a proposal. Milligan said that would be on the agenda at the February 25
53 Board of Works meeting: A•brief,discussion centered around tree trimming and it was suggested a letter to that
54 effect be discussed in a separate meeting.
55 . ..
56 ADJOURNMENT
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58 There being.no-further business, on.a motion duly made,seconded, passed and carried on a unanimous voice
59 vote,the meeting was adjourned. •
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61 . . . . .
62
63
64 Jane Brookbanlc, Chairperson
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ATTEST: "
Norma Carnes, City Clerk " •