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HomeMy WebLinkAboutmin 08-02-83357 }~INUTES OF THE MEETING OF THE CITY COUNCIL OF THE CITY OF UKIAH - AUGUST 2, 1983 The City Council met in an Energy Big Picture Study Session on August 3, 1983 commencing at 9:00 a.m. Councilmembers present: Feibusch, Dickens, Hickey, Myers, Kelley. Staff present: Payne, Brosig, Harris, Roper, Tillotson, Melvin. Also present: Roger Fontes, NCPA; Paul Sherman, R. W. Beck; Marsha Eisenberg, Merrill-Lynch; Homer Schaaf, Brown & Wood. Maurice Roper, Electric Engineer, presented a historical background and graphs depicting load growth projection, power supply projects and projected power costs. In answer to a question regarding substantiation of the statement that Ukiah benefited in excess of $1 million dollars since 1968 from services provided by NCPA, Roy Brosig, Finance Director, stated that it could be substantiated. He pointed out that the City has received $300,000 in rate refunds because of the negotiations with PG&E that occurred in 1976-77. The City Manager pointed out that just recently a rate settlement was reached with PG&E that will make a substantial difference. Mr. Fontes stated that during the last three years, beside the direct PG&E refund, NCPA has purchased bulk power at a savings from Turlock Irrigation District surplus power and from WAPA. He added that one of the things NCPA does for all member cities and the main reason it was created was a method of pooling municipal power resources in order to protect municipal power rights. NCPA Geothermal Pro~ect #1 (commonly known as RFL) Mr. Roper stated this project did not work out and has since been sold to Santa Clara. The City is no longer involved in this project. Councilmember Feibusch asked what had happened to the drilling tower and Mr. Fontes stated that the rig is owned by the Development Fund, cost $3.8 million to build, is worth approximately $5 million and is in temporary storage in Middletown. Councilmember Feibusch asked if the investment in the rig is interest bearing. Mr. Fontes stated that it was. NCPA Geothermal Project #2 (commonly known as Shell II) Councilmember Feibusch pointed out the total cost of the project is stated to be $i00 million and asked why Council was asked to approve $125 million in bonds? Mr. Fontes stated that a City ordinance did approve $300 million, breaking down into $125 and $175 million, but only as a public defining of the scope of the project and included not only Shell 2 but possible refunding, construction of a third facility and debt service. He further pointed out that the plant cost is $100 million. Ms. Eisenberg spoke to the reason for refunding and refinancing and stated that in order to finance Project 3 more economically, the DOE loan and their claim on steam would have to be eliminated; in addition, interest rates are lower now than they were when the bonds were originally financed and money can be saved through refunding. Mayor Kelley questioned the conditions placed on the DOE loan. Mr. Fontes stated that Shell 2 was the first power plant that DOE had been involved in and conditions were placed on the development of the field for protection. Councilmember Feibusch referred to the default of $2.5 billion of ~unicipal bonds by Washington Public Supply System and asked what the marketability of public municipal bonds was? Ms. Eisenberg felt there was no question that people will have market access to municipal bonds. Mr. Fontes stated that in California the Joint Powers Act under which NCPA operates through the Secretary of State has much more protection and that the debt that NCPA is issuing is legal and does not run the risk that the State of Washington utilities did. City Council Minutes August 2, 1983 Page 1 358 Councilmember Feibusch stated that the cost of delivering power to Ukiah will be 40-45 mills and asked if that included the 10% wheeling charge? Mr. Fontes stated that figure did include the wheeling charge. NCPA Geothermal Project #3 (commonly known as Shell III) Councilmember Feibusch asked why SAI was dropped and Gibbs and Hill substituted? Mr. Fontes stated that SAI was not dropped as competitive bids were received and Gibbs and Hill presented a lower bid. Councilmember Feibusch asked the relationship of the cost of Shell 3 to Shell 2? Mr. Fontes stated that Shell 3 is slightly more expensive than Shell 2 because of the escalation of materials, payment of part of the steam collection system that is in the contract with Shell on the property and bond reserves. Councilmember Feibusch questioned figures used for the total estimated cost of the plant and related facilities. Mr. Roper stated the figure for bond reserve and financing expense of $39,091,000 should be $36,091,000. Councilmember Dickens referred to the wet year cycle and expressed concern regarding whether NCPA will continue to be competitive and if this project, at a higher cost, is worth investing the City's money in? Mr. Fontes stated that we are coming out of a historical low in PG&E fuel adjustment and if in the future there were similar flood years in a row, PG&E's basic energy fuel rate would still be going up dramatically. Councilmember Dickens referred to a lawsuit whereby utilities would be allowed to pass off some of their costs in developing projects. Mr. Fontes stated that FERC, which regulates wholesale rates, made the decision that would allow a utility to put construction work in progress in the rate base. He pointed out that PUC policy only allows this to occur when a project comes on line and only to retail customers. Mr. Sherman stated the agreement with PG&E now is that those costs will not be passed on to NCPA through 1985. Councilmember Dickens asked what basis is used for projections? Mr. Fontes stated that in 1983-85, it is the actual rates which are in the interconnection agreement. Past that, there is a revenue projection method to determine PG&E rates. Mayor Kelley referred to Shell 3 which would cost 50 mils in 1986-87. Mr. Roper stated that PG&E's rate is now 47 mils. Mr. Schaaf pointed out that that figure is with the depressed oil costs. RECESS: 10:06 a.m. - RECONVENE: 10:17 a.m. Geyser Transmission Facilities Mr. Fontes stated that there has been criticism regarding no transmission lines provided out of the Geysers. It was felt, at the time, it would not be cost effective and their consultants could not justify the expense. He further stated that during recent negotiations, PG&E stated that they will no longer build transmission lines. With the knowledge of PG&E's rates, it was calculated that it would be cost effective to develop NCPA's own transmission lines out of the Geysers. PG&E is now developing a second line out of the Geysers and due to the terms of the interconnection agreement, NCPA has an option to negotiate for a purchase right in the second line for Shell 2. Mayor Kelley asked whether it would be cost effective to build the lines or is it the only viable option? Mr. Fontes stated that both are true since NCPA cannot control PG&E's demands at the bargaining table. Councilmember Dickens asked what monies would be received from Shell 2 before the City is asked to generate money for transmission lines? Mr. Fontes stated that NCPA is about ready to finance the Geyser's project and all previous cash advanced would be refunded and all future work on the project will come out of the bonding. City Manager stated the City has invested $6,000 and once permanent financing is obtained, the City will receive that amount back. City Council Minutes August 2, 1983 Page 2 359 Councilmember Dickens asked what is involved in preparation before a project can proceed? Mr. Fontes stated there are cost sharing agreements among the cities and litigation costs are not included but are a general charge shared by all NCPA members. Mr. Roper referred to Exhibit 1, Director of Finance memo of June 29, 1983, which shows the City's investment and the expected refund. Councilmember Feibusch stated it is unknown what the City's costs will be for Shell 3. Mr. Fontes stated that either the City will buy transmission from PG&E or NCPA and it is expected that NCPA will continue to pay a 10% adder for delivery. Mayor Kelley referred to the Geyser/Lakeville transmission line and asked who would be involved in this project. Mr. Fontes stated that this line is the second PG&E line and would involve NCPA, SMUD, MID and Santa Clara. Scheduling And Dispatch Center Mr. Roper stated that there are now four agencies involved to share transmission costs. NCPA Dispatch Center Financing Plan Councilmember Feibusch referred to the cost of acquisition and construction of the dispatch center and asked if this would require a rate increase? Mr. Fontes stated that the Geysers Transmission project participants are providing the security for the loan for the transmission lines and for the dispatch center. City Manager stated the costs will be spread internally in NCPA on an accounting basis and will be accounted for as overhead. Administrative And Headquarters Building Mr. Fontes stated it is NCPA's plan to finance the headquarters building out of Shell 3 bond issue. It is felt that by providing NCPA's own facility that it will prove to be the lowest cost alternative. It is planned to lease part of the building space to others. He pointed out that NCPA now pays $160,000 a year in rent. He added that there will be 16 dispatch center employees and 19 home office staff. City Manager felt there was a concern that a 35,000 square foot headquarters building is too large for the existing staff but it must be recognized that NCPA is constructing this size of a building to meet future needs. Combustion Turbine Peaking Study Mr. Roper stated that Ukiah is one of the cities that adds to the peaking power which is very expensive. One solution is the peaking turbine to shave peaks. He further added that this matter will be before the Council shortly. Councilmember Feibusch asked where this would be located and if it would be oil fired? Mr. Fontes stated the location has not been determined as yet and it will be gas fueled. Calaveras Hydroelectric Project Mr. Fontes presented to Council the history of this project. The litigation has involved PG&E, NCPA and Friends of the River. A District Court decision is expected shortly. Mayor Kelley asked what Ukiah's share, $80,000, was for? Mr. Fontes stated it was for bringing the project to FERC, some preliminary design work, permits through FERC, cost for lawyers, payments to the Calaveras County Water District in administrative costs. Councilmember Feibusch was of the opinion that Ukiah had withdrawn from this project. Councilmember Hickey stated that Ukiah had only lowered its percentage of participation. City Council Minutes August 2, 1983 Page 3 360 Western Area Power Administration (WAPA) Mr. Roper stated that 6 MW allocation has been received and the City is currently negotiating for an additional 2.9 MW allocation from Western using NCPA and City resources. He further added that some of the benefits derived from WAPA will disappear in the future and the need to pursue alternative sources through NCPA. Ron Gluckman, Ukiah Daily Journal, asked for a total estimated cost and estimated on line date. Mr. Fontes explained that since Calaveras Project has been sued, time and energy have not been spent on keeping everything current and the capital cost estimates, cost of power studies are all out of date. It is felt though that the project might cost $460,000,000 and the price of power will be around 90 mils and on line in 1988. Councilmember Dickens asked what the cost of peaking power is for PG&E now? Mr. Fontes stated it depends upon the load factor but currently it is estimated to be 15% load factor over 100 mils for base load service. Councilmember Feibusch asked how sur~ is the 2.9 MW? City Manager stated that the City is sure of it as far as Lake Mendocino is concerned because it is part of the renewable resource plan. WAPA has indicated they will give us that allocation as soon as Shell is delivering energy to us. The Council has already signed the contract for the 2.5 MW for the Lake Mendocino Project. Mayor Kelley stated that the City is receiving power from WAPA at a certain price and will it have to be repaid at some point? Mr. Roper stated it is given back at the City's option and could be paid back in off peak times. Councilmember Feibusch asked if the megawatts received from WAPA could be paid back out of Shell? Mr. Fontes stated that the City's contract does not require that the City sell Lake Mendocino energy back to WAPA, it only requires that power be sold back and Western will never know where the kilowatts are coming from as they will be delivered through NCPA. RECESS: 15 minutes Lake Mendocino Hydro Project The City Manager stated this project is on schedule and is expected to be 18 million dollars. A bond issue was passed last year for a total amount of 23 million dollars. We are estimating an interest rate of approximately 10% and are hoping for an "A" rating but do not know whether we will be successful. Part of the difficulty that we find in the City due to this kind of project, is because we have never gone to the bond market - it has been many years, particularly on the electric system. So the bond markets do not have a feel for the City of Ukiah. They are going to have to get that feel by looking at our past financial statements and that will occur in the next week. City Manager referred to Mr. Roper's memo dealing with our contract with Western which Council has recently approved and stated the City of Ukiah is the first agency under that renewable resource to get our contract signed. It was signed at 68 mils. Western is currently offering 34 mils to other agencies. Other agencies would be happy to have our contract. We are going to get $900,000 per year or $75,000 per month for the average energy output of Lake Mendocino whether it produces energy or not. It is a firming contract. What we will owe then is pure energy, not capacity. It is sort of a banking account. Councilmember Kelley asked how this will work with Sonoma County when they control the water releases. It was explained that the studies recognize this and benefits have been calculated based on historical releases. Warm Springs Dam City Manager stated that we are presently in litigation with FERC. Other agencies filed but dropped out. Sonoma County Water District was awarded the preliminary permit on the basis that they could produce more energy than City Council Minutes August 2, 1983 Page 4 361 Ukiah's project. Warm Springs is a good project - it has a renewable resource allocation associated with it from Western. Also the dam amd outlet is built to handle turbines. We have asked for a rehearing more than once after the permit was granted to Sonoma County Water. Each time it was denied. The City then filed a lawsuit. Studies from our consulting engineers (Tudor) indicate Sonoma County Water cannot generate more electric energy than the City of Ukiah. The lawsuit is proceeding before a district court. It is anticipated that a decision will be forthcoming in 3-4 months. In addition, Sonoma County Water had not filed their permit to construct. They requested additional time from FERC and Ukiah opposed and went on record saying the City was ready to construct and proceed. Then Sonoma County Water filed for a permit to construct. Our suit continues and in approximately 90 days we will either get it or the court will uphold FERC's ruling. The question was raised as to the expenditures to date on this project. It was pointed out that the expenses have been for legal and consultant fees as well as staff time, but would not exceed $30,000. Mitex Hydro Projects Maurice Roper reviewed this project stating Mitchell Energy had requested to file on five hydro sites in Mendocino County. The status is that two of the projects are not feasible and the other three could be feasible if PG&E rates increase and it was recommended that we do nothing at this time. The City Manager stated he did not feel comfortable with this recommendation since the 18 month license period is nearing a close. City Manager stated that unless he hears to the contrary from Council, he will go into the field and conduct a preliminary investigation with other agencies to see if they are interested in pursuing these projects. In his opinion, Mitex has not performed the way it was originally indicated they would perform. Councilmember Dickens asked if there was anyone closer where there is better communication. City Manager stated there are other California cities that may be interested. Roger Fontes stated that it is clear there is not enough profit in these projects. Maurice RoPer added that Mitex has indicated that they will turn over all of their accumulated information to the City for us to proceed in whatever way we wish. Financial Capacity of the City City Manager referred to the letter from Davis Hammon & Company, C.P.A., dated 6/28/83 which was requested to determine the City's maximum bonded indebtedness and pointed out that in that letter it was stated that the City's electric utility fund would be able to service a debt of approximately $6,350,000 assuming the debt will not produce additional revenue. The letter also stated the revenue bonding capacity of the electric utility enterprise fund is virtually unlimited. Councilmember Kelley referred to No. 4 of said letter which stated it has been assumed that any additional bonds would be issued as serial bonds and retired over a 30 year amortization. Ms. Eisenberg explained the difference between serial bonds and term bonds. The goal is to obtain levelized debt service. Councilmember Kelley stated he had a problem with the $680,000 average annual cash flow from 1981 and 1982 referred to in the Davis Hammon letter. City Manager referred to the 1982 calculations and stated that is part of the money we said we would have available for the Lake Mendo project. Councilmember Feibusch referred to the Hammon letter and stated he did not know if a CPA would be qualified to determine the maximum bonded indebtedness of the City. In his opinion, this is the business of a bond counsel. Ms. Eisenberg pointed out that the City is paying the money and that is the conclusion and probably anyone of us could come to the same conclusion. RECESS - 10 minutes. City Council Minutes August 2, 1983 Page 5 362 Up front payments were discussed and agreements the City has signed in this regard. Ail the money that is fronted should be refunded out of the first financing if the project goes to construction. Phase II money is risk capital. Councilmember Kelley asked if we can decide to leave that money in the project or put it into any other funds or does it come back to us? City Manager stated that it comes back to us. Roger Fontes will check the matter of refunding. NCPA bonding capacity was discussed. Ms. Eisenberg stated that NCPA does not have any capacity that isn't granted to us by the cities. Each project has to stand alone; it must be cost effective. The Davis Hammon letter stated that as long as these two criteria are met, our bonding is unlimited. In many respects due to this authority, NCPA has this same bonding capacity. Cost Comparison City Manager referred to the current PG&E bill which was included as one of the exhibits. The total amount was $1,891,768.65. Maurice Roper stated that we have obtained benefits as a result of our pursuit of other power sources and because of our involvement and the assistance received from NCPA on matters such as Northwest power, WAPA project, etc. Agreements are filed with FERC for the TID and WAPA allocations and when approved our billing will be reduced to just the current month amount. This is a benefit our City has derived from our involvement in these matters with NCPA, WAPA. He stated the City has had difficulties for many years in obtaining wheeling power. Fontes stated WAPA and PG&E have finally gotten a wheeling contract for us to get WAPA power that we started getting in March 1982. The City Manager stated there is still one controversy the City of Ukiah has with PG&E and that has to do with Bonneville power purchase which he explained in detail. We are awaiting a settlement of this conflict. It will be a long negotiation. Mr. Roper pointed out that the Council is to be commended for instructing staff to pursue the energy goals they have. A citizens committee was appointed by the Council to study energy uses in the City and made recommendations. Mr. Roper stated it was recommended that the City continue present pursuit and involvement in electrical generation projects. The City has been working diligently to do these with help and support of Council. Councilmember Feibusch stated he has consistently voted against our participation in the power development and stated he will continue to vote against it. He stated, as his concern: "Is this country working under the principles of the free enterprise system or are we operating as a publicly owned entity." He stated he is opting for the free enterprise system and for that reason he will continue to vote against the involvement for public power. Councilmemb~r Ee;t~Ley stated "that for the rest of us, that as long as it is beneficial to the people of Ukiah we will vote for it." He expressed his thanks to those attending. ADJOURNED: 1:55 p.m. Mary Me Ivin Deputy City Clerk City Council Minutes August 2, 1983 Page 6