Council hears suggestions for modernization of city utilities

The City of Milford recently heard a presentation by the Shpigler Group regarding modernization of city utilities

At a recent meeting, Milford City Council heard a presentation from the Shpigler Group, a strategy management consulting service, about options available to modernize city utilities. The report focused on electric and water services.

“We engaged with them back in April to evaluate the current state of electric utility and also parts of the Public Works, specific to water and customer service. More on the operation side, the intent being to kind of focus on what we can do to kind of leverage some of our existing systems, what efficiencies we could, maybe garner from adopting some newer technologies,” Tony Chipola, Electric Director, said. “And what are some more options performing a cost benefit analysis to see where it may make sense for us to kind of continue to push towards a more modernized system.”

David Shpigler explained to council that his company had been performing this type of analysis for over 23 years, working with 300 different utilities across the company to help them understand better ways to manage their utilities and distribution. Sphigler Group looked at various ways to utilize technology where it would be cost effective and provide benefits not only to the city but also to consumers.

“So, Conservation Voltage (CVR) is viewed as a somewhat painless, or a relatively pain free approach to being able to reduce usage not having to jump through the system voltage during peak periods. So, you may drop voltage from, say, 24 volts down to 16 volts. It drops the wholesale demand, maybe from 4 PM to 6PM, reduces the wholesale demand. And then at 6 PM you go back up, only doing that during days when you risk a hot summer day and everyone’s running pool pumps and air conditioners and whatnot,” Shpigler said. “So, on days like that, you will engage in CVR. The other thing we looked at where there were some opportunities for utilize data associated you have an advanced metering system. It generates a lot of data, but to some extent, one of the things we came across there are a lot of manual processes in utility operations that are still engaged upon, and the goal is to leverage the data and to be able to automate processes and be able to generate benefits that come out of that data to be labeled process reengineering and asset management are two different areas that could combine and enable us to create some efficiencies and leverage a lot of the data that comes out of out of system operations.”

Another area where Shpigler felt the city could benefit is adding prepaid metering as a customer benefit. Currently, in the city, customers use a certain number of kilowatts or gallons of water and pay after the fact. With prepaid metering, those who may have financial challenges could break down their bill so that they prepay during months when their usage is lower to cover the cost of higher months.

“We’ve looked at a couple of areas around how we could make more reliable management, or a much more aggressive what’s known as FLISR which stands for Fault Location, Isolation, Service Recovery. FLISR, when there’s an outage like a storm comes through and let’s say some, some lines go down, it would allow you to do some remote switching and back feed customers that might otherwise have to suffer for a longer outage until all of the infrastructure is restored. FLISR allows you to do some restoration in advance and get customers up sooner,” Sphigler said. “So, we looked at a an outage. Management gives dispatching support and information about outages and then heads out to fix it, which is a much more aggressive and more expensive approach. When we looked at that, there is enough value, there’s more benefit than cost, which is good, and so we think that there’s something there.”

Shpigler explained that the city of Milford has a reliable system with indices that demonstrate system reliability is  very strong.

“So this is not an area that is a must have or something that’s sort of a burning platform issue. It’s something that would benefit the community and is worth pursuing, perhaps probably not as urgently as, for example, like CVR, which is just tremendous value right off the top, right off the top,” Shpigler said. “And the other area that we looked at is AMI replacement on the water side. The water AMI system has a number of issues. It’s aging. It’s got a number of failed meters, and that situation is only getting worse. So, one of the things that that we would consider suggesting, is also looking to replace the metering system on the water side, and that would generate benefits in terms of operational benefits, but also some so called soft benefits in terms of just system reliability and just not having to take care of that system as it has been so far.”

Shpigler continued, stating that all of this sounded wonderful and that these options were great opportunities for the city, but there was additional work that would need to be done. One of the suggestions was a shared approach in integrating technology with current systems. By doing so, it would provide a smoother transition to the newer technology. In addition, cost must be factored in before the city moves forward with the new technology. According to statistics provided by Sphigler, the overall addition of new technology could create a $7.4 million value with an investment return of more than 44 percent. The project is expected to achieve full payback in the 6^th year of operation.

“A couple of thoughts, the CVR, at the end of the day, you’re trying to accomplish the same thing. You’re trying to be able to reduce your demand charges. You’re doing it in a different way from a customer perspective, CVR is a passive approach, whereas demand response is an active approach. With a demand response, you’re asking a particular set of customers to change behaviors in a particular way. With CVR, it’s pretty much invisible to them,” Shpigler said. “So the CVR event gets called by the utility, the voltage is dropped for, let’s say, two hours, and then it goes back on. Customers are unlikely to ever know that anything happened, because everything, from their perspective, continues to run as normal. It’s kind of, if I use a kind of an analogy, if your doctor tells you that you need to lose weight, the question is, should you exercise, or should you diet? And the answer is probably both. They’re both going to help to get the end goal, which is to help you lose weight. They’re just going to do it in different ways. CVR and demand response are complementary in terms of, they’re trying to get the same effect, but they do it in different ways.”

As for the AMI replacement, Shpigler stated that it was the most expensive at $1.6 million in cost, but the long term value may outweigh the higher costs.

“There’s a subset of meters that are particularly problematic so if we could just carve those out and replace those, it would offer a potential benefit. We looked at a leak sensing system, on the water distribution system, and then a water quality analysis management platform as well, and then on the central operations that affect both electric and water,” Shpigler said. “You look at asset management, prepay and process re-engineering.”

There are signs that the water meter system is starting to deteriorate with a cluster of meters that are unreadable, so replacing that system despite the cost makes sense as the AMI technology could be added at the same time. Sphigler also suggested a leak detection system. Councilman Jason James pointed out that the city already had a system that detected leaks. Shpigler explained that the first step was to develop a task force to push forward and determine the specific technical requirements for the system design. Requests for Proposals would then be created, and vendors chosen from those submissions. The pre-deployment activities could be completed in just nine months.

“With this information. I don’t know when we’re due for another cost of service study on electric and water, but this information could be integrated into that study and then all users, across the board, large, small in between, because then we do categorize them somewhat in that cost of service study, we know each profile, this could dictate to us whether we could avoid future increases or maybe even reduction, we could peg our costs for at least three years out,” Councilman James said. “We probably wouldn’t want to go for five. But this would definitely help know what our cost to the user, our bill to the user, would be for the next three years or so.”

Lou Vitola, Finance Director, agreed with Councilman James.

“And one thing I’d like to point out, at the time we revisit electric there will be updated O&M projections and updated CIP data, including some of this that will be able to be factored in, and that way, savings that we get from something like the CVR would be shared across the customer classes as anticipated and based on their load,” Vitola said. “So that it’s not a situation where rates are artificially high, and we have savings that we then have to adjudicate after the fact. If we get this into the O&M data soon enough, it can be done on the front end based on expectations.”

City Manager Mark Whitfield explained that the city was going through a rate study for electric, water and sewer.

“Believe it or not, it’s almost been five years since we passed the last electric rate. We do  the study every three years and we just did that last year, so it’ll be within the next two years,” Whitfield said. “And one thing I would add, I would applaud any efforts to integrate the findings of the study as part of the upcoming rate studies, because I think there’s a tremendous amount of value in doing that.”

Shpigler provided an example of how important these studies were in utilities.

“And I’ll give you a perfect example of that. We’re currently working on a project with a water system in Nevada that well, we actually developed the rate study and a system modernization analysis, and we came to an interesting conclusion where this is a small community was losing about $2 million because a number of their customers are flat rate customers, and they had not realized what the economic impact of that was. And we quantified how much water was being distributed on basically a free basis, and needing to kind of address that issue,” Shpigler said. “And the conclusion was, when we looked at it, you can either raise rates 10% on your residential customers and 20% of your commercial and industrial customers, or if you modernize the systems, we did the math and said, “Actually, it’ll pay for itself, and you don’t have to raise rates at all. So, a lot of times there are, because the results in this business case, and just a note on that project, the economic justification was strong, but not anywhere near as strong as 44.6% IRR that we saw here. The results here are so strong that there is a good chance that the benefits are going to outstrip the cost soon enough that it would not require rate increase and actually could stem future rate increases in the future.”