Loading...
HomeMy WebLinkAboutMin 03-29-99MINUTES OF THE UKIAH CITY COUNCIL Special Meeting Monday, March 29, 1999 The Ukiah City Council met at a Special Meeting on March 29, 1999, the notice for which had been legally noticed and posted, at 5:00 p.m. in the Civic Center Council Chambers, 300 Seminary Avenue, Ukiah, California. Roll was taken and the following Councilmembers were present: Councilmembers Libby, Baldwin, Kelly, and Mayor Mastin. Councilmember Ashiku arrived at 5:30 p.m. Staff present: Customer Service Supervisor Archibald, Public Utilities Director Barnes, Electric Supervisor Bartolomei, Finance Director Elton, Assistant City Manager Flad, Risk Manager/Budget Officer Harris, City Manager Horsley, Administrative Analyst Weselsky, Electrical Engineer Technician Yoast, and City Clerk Ulvila. 2. PLEDGE OF ALLE(~IANCE Councilmember Kelly led the Pledge of Allegiance. 3. ELECTRIC DEREGULATION WORKSHOP Public Utilities Director Barnes advised that the purpose of the workshop is to provide Council with a review of the requirements of Assembly Bill 1890 (AB 1890) relative to municipal utilities, give the City Council an opportunity to discuss information and possible strategies that will assist in formulating a decision concerning open access, and to study the impact of various rate strategies that could influence that decision. AB 1890 Major Provisions for Municipal Utilities Include: 1. AB 1890 mandates the collection of a Public Benefits Charge that will be collected through the 2002 budget year. It is mandated to collect a charge of approximately 2.8% of revenues to equal the spending required of the Investor Owned Utilities (IOUs) for renewable energy programs. The City has elected to participate in the Low Income Assistance Program. 2. The City of Ukiah, under provisions of AB 1890, has an opportunity to participate, but is not mandated to offer open access to its customers. This decision must be made based on a public hearing by July 1, 1999. Should the City decide to open its market area, phase-in of customer classes must begin by January 1, 2000, and all customer classes must be phased in by December 31, 2010. 3. AB 1890 mandates that there be yearly notification on bills of the amount of General Fund transfers. A condition of AB 1890 required that residential and small commercial customers of the IOUs be granted a 10% rate reduction in 1998 and another 10% reduction in 2002. In addition, AB 1890 allows the IOUs to recover those investments in generation that would become uneconomical under open market pricing, through a Competition Transition Charge (CTC). The CTC would be recovered from all customers of the IOUs through a non-bypassable charge on their electric bill. Public Utilities Director Barnes discussed forecasted rates versus market rates and where the rates would be after deregulation. He advised that there is no requirement for collecting the CTC prior to 2002. 5:30 p.m. - Councilmember Ashiku arrived at the meeting. Public Utilities Director Barnes discussed options under consideration and listed the benefits and risks regarding each option. Option 1: Open the service area to competition in July 1, 2000, and collect state-allowed CTC. Staff concluded that the risks of opening the service area to competition are significant. The required reduction in operating expenditures probably could not be achieved and maintain the economic viability of the electric utility. Option 2: Open service area to competition as quickly as economically possible. Staff's conclusion of this Option is that even with the banking of savings, additional reductions would be required to offset lost revenues as larger customers choose a different service provider. Although this option is obtainable, the risks are significant. March 29, 1999 Page 1 of 3 Option 3: Option 4: Do nothing now and consider opening service area to competition when rates are at market and competition is better defined. Staff concluded that risks would be significantly reduced, however, market rates would not be achieved until 2019. Achieve market rates as quickly as possible and do not open the service area to competition. Because of the present economic situation of the electric utility and the relative uncertainty of the deregulated market, it would appear that this option significantly reduces risks to the City while achieving the best long term benefits for the City's customers. Staff felt that this option meets these requirements. It was Staff's opinion that the economic risks to the City are significant given the City's current revenue requirements and that the facts clearly demonstrate that not opening the City's service area and achieving the lowest possible rate as quickly as possible would be in the long term best interest of the City and its customers. Mr. Barnes identified 10 customers with the highest probability of changing service providers, with an estimated revenue loss of $2,585,329, or 20.5% of total revenues. The Rate Component Summary included in the Staff Report was discussed by Staff and Council. He discussed the City's current rate structure and its relationship to the expected market cost of energy that could be available to the City's customers should they have the ability to change energy providers. The City of Ukiah's current rate structure is based on actual cost incurred by the City. The rate is composed of three items: 1) Generation- Transmission, 2) Distribution, and 3) Indirect Expenses. The current cost to provide electrical power to the City's customers over all rate classes is $. 1256 per Kwh. Revenues produced by this rate is $12,590,900. Annual expenses represents $10,584,331 plus $2,000,295 annually for debt payment related to the Lake Mendocino Hydro Project, which results in a total expense of $12,584,626. He discussed the Rate Component Summary. The primary reduction in expense will come through the restructuring of generation and transmission project debt. Staff has been making a continuing effort over the past five years to completely refund the City's generation projects during this time of Iow interest rates, to achieve reduced debt service payments. All projects including the City's transmission has been refunded, resulting in an annual saving to the City of approximately $1,500,000. He reported that the City's Electric Department has been evaluating its annual budget and making any possible reductions in operations and maintenance costs that will assist the City to reach its goal of providing safe, reliable energy at the lowest possible rates to its customers, as quickly as possible. Even with the reduction in rates due to the savings in generation and transmission costs, projections show multiple options for achieving competitiveness in the future utility market. Discussion followed between Council and Staff regarding various aspects of the report. When queried by Mayor Mastin as to the amount of rate increase necessary to get to market value by the year 2002, Director Barnes estimated an additional $.05 per Kwh. Public Utilities Director Barnes advised that there is a strong movement on the federal level to mandate deregulation and noted that the American Public Power Association represents municipalities and has a strong lobby currently underway in Washington, D.C. How this will affect California is not known. The City should strive to be in a position to comply with any future open access requirements. The reissuance of bonds was also discussed due to the loss of tax free bonding for municipalities. It was his opinion that the City should move to become competitive as quickly as possible, even if it does not open its markets in January of 2000. City Manager Horsley noted that one of the benefits to the City's system is that it is 95% green power. When the debt is paid off, the citizens of Ukiah will own the power plants. Public Utilities Director Barnes discussed enhancing the steam field at the geothermal plant to capture steam. He noted that the steam field is deteriorating over a period of time. March 29, 1999 Page 2 of 3 Council recommended that the public be provided with as much information as possible concerning this matter. Discussion followed conceming obtaining the services of the City's consultant to provide a presentation to the public. The use, and eventual abandonment, of fossil fuels was discussed. The release flow at the hydroelectric plant at Lake Mendocino was discussed. It was noted that in the year 2002 there will most likely be a big push to lower electrical rates. The restructuring of Northern California Power Association's (NCPA) debt was discussed. Consensus of Council was to provide information to the general public and that the Public Hearing be held sometime in May 1999. 4. ADJOURNMENT There being no further business the meeting was adjourned at 6:18 p.m. Marie Ulvila, City Clerk March 29, 1999 Page 3 of 3