1995 OCT 05 CC PACKETAGENDA
EL SEGUNDO CITY COUNCIL
COUNCIL CHAMBERS - 350 Main Street
The City Council, with certain statutory exceptions, can only take action upon properly posted and listed agenda
items
The Public can participate in the discussion of any item listed on the Agenda To facilitate your presentation,
please place a check mark of beside each item you would like to address on the Agenda provided by the City
Clerk, preferably PRIOR to the start of the meeting Any other item not listed on the Agenda that is within the
jurisdiction of the City Council may be directly addressed during Public Communications
Before speaking to the City Council, please come to the podium and give Your name and address and the
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City Manager's Office at least six days prior to the City Council Meeting (by 2 00 p in the prior Tuesday) The
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In compliance with the Amen m with DisabWtles Act, If you need special assist n e to participate in tide meeting, please contact Qty
Clerk, 607 -2208 NotifieWon 48 horns pdorto the meeting wall enable the City to make reasonable anangements in ¢more accessibility to
this meeting
ADJOURNED REGULAR MEETING OF THE
EL SEGUNDO CITY COUNCIL
THURSDAY, OCTOBER 5, 1995 - 7:00 P.M.
CALL TO ORDER
PLEDGE OF ALLEGIANCE -
ROLL CALL
PUBLIC COMMUNICATIONS - (Related to City Business Only - 5 minute limit per person,
30 minute limit total)
A. SPECIAL ORDERS OF BUSINESS -
1 Discussion(Workshop on the concepts of purchasing power at lower cost and
the merits of Joining the Southern California Cities Consortium to participate in
cost reduction measures being proposed through their Joint Powers Agreement
Recommendation - Discussion and possible action.
PUBLIC COMMUNICATIONS - (Related to City Business Only - 5 minute limit)
ADJOURNMENT
POSTED
DATE 9s
TIME -
NAME
mb 10 -05 -95 ag
RECEIVED
1.61995
Southern Ca/ifomia Edison Company CIN MANQJRx OFF)"
P O BOX 204
606 MAPLE AVENUE
TORRANOE. CALIFORNIA 90603
ROBERT L. JENSEN 70t[PI NO
sffeW LU Offm (310)703.9302
September 12, 1995
RE: EDISON AND COALITION SUBMIT MEMORANDUM
OF UNDERSTANDING TO CPUC
PLEASE CONTACT ME IF YOU HAVE ANY QUESTIONS REGARDING THE
ENCLOSED OR WISH TO COMMENT OR DISCUSS THE INFORMATION
CONTAINED IN THE RELEASE.
/cP
Enclosure
EDISON AND COALITION SUBMIT MEMORANDUM
OF UNDERSTANDING TO CPUC
SAN FRANCISCO, Calif., September 11, 1995 --,Southern California Edison and
a coalition of independent power producers and customers including the
California Manufacturers Association (CMA) jointly announced today they have
reached a consensus in the restructuring of the electric utility industry into a
competitive marketplace.
Terms of the consensus are contained in a Memorandum of Understanding
(MOU) submitted to the California Public Utilities Commission (CPUC) today.
As a joint recommendation to the CPUC, the MOU outlines implementation
details that are based on a statement of principles for electric utility
restructuring announced August 11, 1995.
John Fielder, SCEO's vice president for Regulatory Policy and Affairs, said the
MOU provides for the simultaneous beginning of a power exchange and
phased -in direct access by January 1, 1998. "We believe that the MOU allows
for an orderly transition to a competitive marketplace. Customers will be able
to choose a market mechanism that best suits their needs while maintaining
the reliability of California's electric system and allowing for small customers
to benefit from the exchange. It is a consensus, not any one party's wish list.
It is time now to move forward," he said.
William Campbell, president of the 'CMA, said the proposed arrangement
provides value for everyone. "Under this MOU, customers in California now
have an absolute date they can look forward to the introduction of a
competitive electric marketplace," he said. "If enacted by the CPUC, California
will be the first to provide all its citizens choice of electric services beginning
in 1998 and phased in through 2003."
According to the MOU:
• An independent system operator will control the scheduling and
dispatch of all electricity on the state's power grid.
• A separate independent power exchange will manage an economic
auction to balance electricity supply and demand. The auction will
provide a visible market clearing price.
• Physical direct access will be phased in over a five -year schedule,
allowing for individual contracts and aggregation of smaller
customers.
• A non - bypassable competitive transition charge will be collected to
pay for past regulatory commitments.
• California's social and environmental public policy programs will be
funded through a separate charge during the transition period. The
parties emphasized their continued support for funding these
programs.
Edison and the coalition members who signed the MOU pledge to support the
proposal and to work for its efficient implementation. The signators include:
California Manufacturers Association, California Large Energy Consumers
Association, Southern California Edison Company and Independent Energy
Producers.
Edison reiterated its goal to reduce system -wide rates by 25 percent by the
year 2000, in inflation - adjusted dollars. The parties expressed strong
appreciation for the leadership shown by the Governor's Office and key
legislators in their effort to achieve consensus and praised the CPUC members
for their pioneering work on the issue. The CPUC has scheduled public
hearings on the proposal on September 13 and 14, with a final decision on
restructuring the electric utility industry expected in October.
MEMORANDUM
August 29, 1995
TO: Fellow City Council Members
FR: Liam Weston
RE- JPA for electric power and other services
Background
The Southern California Cities Consortium (SCCC) is an organization formed by nine area cities
to reduce the costs of providing municipal services through combined bargaining and purchasing
power. The SCCC has been an active participant in the ongoing debate before the PUC
regarding the introduction of competition into areas currently monopolized by Southern
California Edison (SCE). At the rate of 12 centslkwh, local area manufacturers are unable to
compete with companies purchasing power at significantly lower rates in other parts of the
country.
Issue
A number of large employers in El Segundo have informed me they do not support SCE's
"poolco" proposal for privatizing the power but instead support Commissioner Knight's
alternative of purchasing power direct from private sources. The SCCC also supports Knight's
alternative proposal because they believe it will reduce the cost of their energy bills significantly.
In any event, threats of an initiative and court action have indicated that whatever the PUC
finally decides this issue will continue to be a controversy in our service area. Thus, it would
be remiss of our City Council not to study the issue more fully and advocate the position we
believe is in our City's best interest.
My request is the City Council consider the two items listed below at either the regular meeting
or schedule a special study session to invite a full presentation from both SCE and the SCCC.
1. I propose the City Council discuss the various proposals and decide to take a
position. Hughes and other large contributors to our local economy already
support the concept of purchasing power direct at a lower cost.
2. Decide whether the City should join the SCCC and participate in the innovative
cost reduction measures being proposed through the JPA.
Enclosed is the transcript of comments made to the PUC by SCCC's Chairman and also the
standard legal agreement cities must sign to join the SCCC for review and discussion.
FYI: El Segundo (to my surprise) is listed on the SCCC letterhead as a "Supporting City."
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FORMED:
FACT SHEET
Joint Powers Agreement
of the
Southern California Cities Consortium
March 8, 1995
PURPOSE: To.. improve the quality or reduce the costs of
providing municipal services, including electrical,
gas and water services through combined bargaining
and purchasing.
GOVERNING Each member designates its representative on the
BODY: Board of Directors (and an altemate) The Board
consists of one Director from each member city
LEADERSHIP: Annually the Board selects from among its members
individuals to serve as Chair and Vice -Chair of the
Agency.
VOTING: Each Director may cast one vote. A Director must be
physically present at the meeting of the Board to cast
a vote. In the absence of the Director, a city's
alternate is deemed to be a Director.
MEETINGS: Regular meetings are held monthly.
AGENCY Debts, liabilities and obligations of the Agency shall
OBLIGATIONS: not be the debts, liabilities or obligations of any Cities,
except, as such City may formally approve by specific
action of its legislative body or by execution of a
Project Contract
PROJECT Consistent with the purpose of the Agency, the Board
CONTRACT: may approve Agency projects. Any two or more
Cities may participate in any Project by executing a
contract between the Agency and each participating
City (Project Contract). Each Project Contract shall
provide the manner by which Project costs are to be
shared by participating Cities.
Saithen Cahlaseo Will hill Pasrers Cusutiaa
BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE
STATE OF CALIFORNIA
Order Instituting Rulemaking on the ) R. 94-04 -031
Commission's Proposed Policies )
Governing Restructuring California's )
Electric Services Industry and )
Reforming Regulation )
Order Instituting Investigation on the ) I. 94-04 -032
Commission's Proposed Policies )
Governing Restructuring California's )
Electric Services Industry and )
Reforming Regulation )
COMMENTS OF THE
SOUTHERN CALIFORNIA CITIES JOINT POWERS CONSORTIUM
ON THE
COMMISSION'S PROPOSED POLICY DECISION AND ALTERNATIVE
DR. JAMES D. BOULGARIDES
Chairman, Southern California Cities
Joint Powers Consortium
c/o City of Culver City
9770 Culver Boulevard
Culver City, CA 90232 -0507
(310) 253 -6000
Dated: July 24, 1995
TABLE OF COMMENTS
INTRODUCTION................................................... ..............................3
I THE NEED FOR ELECTRIC REFORM ........ ..............................4
II. COMMISSIONER KNIGHTS ALTERNATIVE SHOULD
BE ADOPTED .............................................. ..............................5
A. Direct Access to Generation Resources ...........................5
B. Separate Utility Generation Assets from Transmission
and Distribution ................................... ..............................6
C. Allow Load Aggregation to Benefit Small Users ................6
D. Limit Stranded Costs .......................... ..............................7
E. Protect the Environment ...................... ..............................8
F. Improve the California Economy ......... ..............................8
III. THE TIME TO ACT IS NOW - DIRECT ACCESS IS THE
CORRECT APPROACH ................................ ..............................9
FAI
BEFORE THE
PUBLIC UTILITIES COMMISSION
OF THE
STATE OF CALIFORNIA
Order Instituting Rulemaking on the ) R. 94 -04 -031
Commission's Proposed Policies )
Governing Restructuring California's )
Electric Services Industry and )
Reforming Regulation )
Order Instituting Investigation on the ) I. 94 -04 -032
Commission's Proposed Policies )
Governing Restructuring California's )
Electric Services Industry and )
Reforming Regulation )
COMMENTS OF THE
SOUTHERN CALIFORNIA CITIES JOINT POWERS CONSORTIUM
ON THE
COMMISSION'S PROPOSED POLICY DECISION AND ALTERNATIVE
The following Comments of the Southern California Cities Joint Powers
Consortium ( "Consortium ") are provided in response to the California Public
Utilities Commission's ( "Commission ") order issued on May 24, 1995 soliciting
comments on the Commission's proposed policy decision ( "Proposed Decision"),
and aRemative ( "Alternative Proposal "), for the restructuring of California's
electric services industry.
The Consortium is comprised of Southern California cities (Carson, Culver
City, Gardena, Hawthorne, Inglewood, Lawndale, Lomita, Redondo Beach and
West Hollywood) who joined together to obtain the benefits of combined
purchases of electricity. The Consortium member cities, representing
approximately one -half million citizens, want to buy bulk power in the wholesale
market at rates much lower than the rates now being charged by the serving
utility, Southern California Edison Company ( "Edison"). The objectives of the
Consortium are simple. We want to see an open electricity market in California
that will permit us to use bilateral contracts to purchase power for the residents
and businesses in our communities. We expect to use the existing transmission
and distribution systems to wheel our power at fair rates. We support the
enactment of a regulatory and legislative framework that will allow all
Californians to benefit from a competitive electric services industry.
Consortium member cities and their residents and business pay over
$500 million per year to Edison for electricity at rates averaging 12 cents/kwh.
We have attempted to negotiate more favorable terms with Edison with no
success. Comprehensive reform of California's electric industry is needed to
drive down our excessive rates Once the benefits of a truly competitive market
are realized, the dollars saved can be used in our cities to pay for other essential
services such as education and community safety (police and fire). To our
residents and businesses, these savings will translate into more jobs, enhanced
competitiveness, and higher disposable income. The need for reform is great
and the time to act is now.
All of the Consortium's goals can be achieved under the framework
outlined in the Alternative Proposal and we urge the Commission to adopt it. We
urge the Commission to focus more on the fundamental question of how to
deliver lower rates to the millions of utility customers in California, and less on
the issue of how to render harmless those who are responsible for electricity
rates which are among the highest in the country. Of all of the options before the
Commission, only full, direct access, with buyers given the right to enter into
bilateral contracts, will create a sustainable, competitive electric market.
The Consortium believes the following reforms are essential elements of a
restructured electric services industry.
Our analysis of the Poolco proposal is that it well serves the needs of
Edison and other utilities who support it but offers no real advantage to
ratepayers. Poolco merely delays the onset of true competition to allow Edison
and others to refinance their uneconomic plants at ratepayer expense, while
denying their customers billions in savings which would be realized through the
Alternative Proposal. Poolco will create an unnecessary layer between buyers
and sellers, and enhances the prospect for future collapse of the regulatory
construct similar to the one which led us here Consortium members want direct
access to generators and the competitive benefits that a market -based system
will deliver.
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Separation or spin -off of utility generation assets is required to
mitigate excessive utility market power and eliminate the potential for cross-
subsidies between the unregulated (generation) and regulated (transmission and
distribution) businesses. Competition will replace the need for regulation of
generation assets in a fully competitive electricity market. So long as
transmission and distribution services are protected from competition they
require regulatory oversight.
The Consortium believes the benefits of competition can be delivered to
all customers, large and small, if the Commission adopts a policy permitting
aggregation. Our members want the option to provide aggregation services for
their residents and business. In addition, the Consortium members want to
increase their purchasing power by aggregating the loads of member cities.
Local governments should be granted aggregator status without triggering the
need to register with the Federal Energy Regulatory Commission as a power
marketer.
0
The Consortium would go farther than the Knight Alternative Proposal in
the distribution of stranded costs, reversing the percentage burden from 90/10
ratepayer to investor to 10/90 ratepayer to investor. We believe this is
appropriate for the following reasons:
1 Ratepayers have already bome the burden of those
investments in the excessive rates they have been charged over
the years
2. Ratepayers did not participate in the decisions to make
those investments.
3 The investment decisions were made by Investor -Owned
Utility (IOU) management in order to, in effect, "comer" the energy
market and keep out competition.
4. Investors were guaranteed their 11 -13% profits over the
years based upon those excessive investments. Ratepayers did
not share in these profits.
5. These stranded investments represent poor management
decisions which are the fault of IOU management and not the
overburdened ratepayer.
6. IOU top managers were awarded bonuses over the years
based upon the bloated dollar value of the investments for which
they were responsible.
it
7 IOU managers and investors were actually rewarded for
mismanagement over the years by receiving high salaries and
bonuses on the one hand and guaranteed profits on the other, all
based on the excessive investments.
8. The guaranteed investor profits of 11 -13 %, averaging 12%
per year are similar to the World War II cost -plus contracts which
had negative incentives for society. The more you spend, the more
you make.
9. The only justification the Consortium can see for
recommending the 10% cost bearing by consumers for stranded
investments is out of concern for the environment.
• - y 1- 1 • 1 11 - 1
The Consortium is committed to a continued effort to protect the
environment. It is proposed that all energy users bear the burden equally. This
can be done by placing a surcharge on every kilowatt of energy used in
California, in effect at the "wellhead." This surcharge should apply whether the
energy is generated in California or brought in at wholesale from out of state at
the California border. We must stay committed to the protection of our
environment for the benefit of future generations.
11 • • - 1 - I 7 rl" • 1 • 11
Monopolistic practices have been a burden on the California economy.
Energy drives our economy. In an open, competitive market which allows
I]
bilateral contracts, the costs of electricity must fall at least below the national
average. This will once again make California competitive with other states and
support business development
The CPUC should consider the plight of the small consumer who has for
too long been denied a true voice and champion in the field of energy
rulemaking Commissioner Knight's Alternative Proposal comes closest to
demonstrating such consideration. Hopefully, your decision in this proceeding
will reflect your recognition and consideration of the small consumer's needs.
Poolco is another form of monopoly which will keep electricity costs
artificially high by protecting the inefficient producers which dominate the energy
supply in California. It will take courage and foresight to make the right decision.
Poolco is a token move to protect the IOU'S and bury their mistakes of the past
in future charges to California's electric users. This is the time for heroic action
by the Commission. We cannot afford tokenism in the form of Poolco but must
opt for true competition. The opportunity to return upward of $4 Billion per year
into the California economy will be a great stimulus to the economy of our great
State. Lower electric costs mean more jobs in California.
The Consortium urges the Commission to reject Poolco and other similar
proposals as self- serving and wrong- minded concepts. California's long -term
interests will be served by rejecting efforts to delay competition and move
forward with the implementation of direct access and bilateral contracts for all
0
utility customers. Your actions can save Californians billions of dollars per year
by facilitating the rapid introduction of open and fair competition in our electric
services industry.
July 24, 1995
Respectfully submitted,
Southern California Cities
Joint Powers Consortium
sy: 2
Dr. James D. oulgaride
Chairman
10
R. 94 -04 -031 and I. 94 -04 -032
I hereby certify that I have this day caused the Comments of
the Southern California Cities Joint Powers Consortium on the
Commission's Proposed Policy Decision and Alternative to be
served, by mail, upon all appearances on the official service list for
R. 94 -04 -031 and I. 94 -04 -032 pursuant to the Commission's Rules
of Practice and Procedure,
Dated at Los Angeles, California this 24th day of July, 1995.
Execution Copy
As of 3/8/95
JOINT POWERS AGREEMENT
SOUTHERN CALIFORNIA CTTTES CONSORTIUM
AGREEMENT
This Agreement ( "Agreement "), is made and entered into pursuant to Section 6500
et s_g , of the Government Code, as amended from time to time ( "Act "), and other
applicable laws, by and between the following public entities
WITNESSETH.
The parties hereto agree as follows
Section 1 Recitals This Agreement is made and entered into with respect to
the following facts
(a) That each member city ( "City") is located on the Westside and in the South
Bay area of the County of Los Angeles, and
(b) That each City has determined by and through its legislative body to enter
into an agreement to create a separate public entity pursuant to the
provisions of the Act of the purposes set forth herein and desires that such
separate public entity have the powers provided herein in connection with
such purpose, and
(c) That the legislative body of each of the Cities has independently determined
by resolution that the public interest, convemence and necessity require the
execution of this Agreement by and on behalf of the said City
Section 2 Creation of Separate Legal Entity It is the intention of the Cities
to create, by means of this Agreement, a separate legal entity within the meaning of
Section 6503 5 of the Act Accordingly, there is hereby created a separate legal entity
which shall exercise its powers in accordance with the provisions of the Act, as herein
provided, other applicable laws and this Agreement (hereinafter "Agency ")
Section 3 Name The name of the Agency shall be "Southern California
Cities Consortium"
Section 4 Purpose of Agency The purpose of the creation of the Agency is
to provide an additional means for the Cities to improve the quality or reduce the costs of
providing municipal services, including electrical, gas and water services, of all member
_2.
Cities, or any combination thereof Such means include, but are not limited to, combined
bargaining and buying power of member Cities in all areas of purchasing, monitoring and
promoting legislative actions which could or would promote or advance said powers, any
powers set forth in this Agreement, and any programs, projects or actions approved or
authorized from time to time by the governing body of the Agency ( "Board of Directors"
or "Board ")
Section 5 Creation of Board of Directors There is hereby created a Board of
Directors which shall conduct the affairs of the Agency The Board of Directors shall
consist of one (1) director from each City ( "Director ") The legislative body of each of the
Cities shall designate its Director and alternate Directors, which mayinclude elected
officials
Section 6 Board of Directors Functions
(a) Voting Except as expressly otherwise provided in this Section 6, each
Director on the Board shall be entitled to cast one (1) vote on any matters
pending before the Board A Director must be physically present at the
meeting of the Board to cast a vote
(b) Participation of Alternate Directors An alternate Director of a City may
participate in the proceedings of the Board only in the absence of such
City's regular Director Such alternate Director shall be deemed to be a
Director for all purposes under this Agreement.
(c) Quorum A quorum of the Board shall consist of not less than a majority
of all Directors
(d) Committees As needed, the Board may create permanent or ad hoc
advisory committees, to give advice to the Board on such matters as may
be referred to such committee by the Board Each such committee shall
remain in existence until it is dissolved by the Board Qualified persons,
which may include Directors, shall be appointed to such committees by the
Board and each such appointee shall serve at the pleasure of the Board
(e) Actions Actions taken by the Board shall be by not less than a majority
affirmative votes of the Directors attending the meeting of the Board,
unless by a provision of this Agreement, the Bylaws or applicable laws, a
higher number of votes is required to carry a particular motion
(f) Project Votes Voting regarding any matter relating to a Project (as
defined in Section 20) shall be as provided in a Project contract between
the Agency and the participating Cities
-3-
Section 7, Common Powers The Agency shall have, and exercise the
following powers.
(a) All of those powers available to joint powers entities pursuant to the Act,
other applicable laws and this Agreement, and
(b) All implied powers necessary to perform its purposes, and
(c) The power to enter into agreements as may be necessary for any legal
purpose of the Agency
Such powers shall be exercised in the manner provided in Section 6509 of the Government
Code, subject only to the restrictions in the manner of exercising such powers as are
imposed upon the City of Culver City in the exercise of similar powers
Section 8 Duties of the Board The Board shall be deemed, for all purposes,
the policy making body of the Agency All of the powers of the Agency, except as may be
expressly delegated to others pursuant to the provisions of this Agreement or resolutions
of the Board or by other specific authorization of the Board, shall be exercised by and
through the Board
The Board shall exercise its power only in a manner consistent with the provisions
of the Act, other applicable laws and this Agreement
Section 9 Roberts Rules of Order The substance of Roberts Rules of Order
shall apply to proceedings of the Board, except as may otherwise be provided in this
Agreement, the Bylaws, resolutions of the Board or applicable laws
Section 10 Meetings of Board The Board shall by resolution establish the
dates and times of regular meetings of the Board The location of each such meeting shall
be as directed by the Board. All meetings of the Board shall be held subject to the
provisions of the laws of the State of California requiring notice of meetings of public
bodies to be given in the manner provided in such laws
Section 11 Election of Chair and Vice -Chair Except as otherwise provided in
this Section 11, annually at its first regular meeting of each calendar year the Board shall
select one of its Directors to hold the position of Chair of the Agency and a second
Director of the Board to hold the position of Vice -Chair of the Agency The Chair shall
be the chairperson of the Board and shall conduct all meetings of the Board and perform
such other duties and functions as required of such person by this Agreement, the Board
and the Bylaws The Vice -Chair shall serve as Chair in the absence of the Chair and shall
perform such duties as may be required by this Agreement, the Board and the Bylaws
The first organizational meeting of the Board shall be within 30 days following the
execution of this Agreement by at least five Cities At such organizational meeting, the
-q-
Board shall elect the Chair of the Board and the Vice -Chair of the Board, for terms
expiring on the date of the first regular meeting of the Board held in the following calendar
year
If there is a vacancy, for any reason, in the position of Chair or Vice - Chair, the
Board shall forthwith conduct an election and fill such vacancy for the unexpired term of
such prior incumbent
The Chair, the Vice- Chair, the Treasurer and the Auditor, to the extent such
officers' duties and responsibilities pursuant to the Act require, are designated as the public
officers or persons who have charge of, handle, or have access to any property of the
Agency, and each such officer shall file an official bond with the Board in the amount of
$100,000
Section 12 Designation of Treasurer and Auditor The Board shall designate
or contract with a qualified person to act as the Treasurer for the Agency and a qualified
person to act as the Auditor of the Agency No person who is a Director or alternate
Director of the Board shall be eligible to hold the position of Treasurer or Auditor The
compensation, if any, of the persons holding the offices of Treasurer and Auditor shall be
as set by the Board
Section 13 Duties of Treasurer and Auditor
(a) Treasurer The person holding the position of Treasurer of the Agency
shall have charge of all funds to which the Agency is entitled The
Treasurer shall perform such other duties as may be imposed by applicable
laws, including those duties described in Section 6505 and Section 6505 5
of the Government Code, the Bylaws and such duties as may be required
by the Board. There shall be strict accountability of all funds and reporting
of all receipts and disbursements of the Agency
(b) Auditor. The Agency's Auditor shall perform such auditing functions as
may be required by the Act, the Bylaws, applicable laws, or tins
Agreement
Section 14 Designation of Other Officers and Employees The Board may
employ, upon such terms as it deems appropriate, such other officers or employees as it
deems appropriate and necessary to conduct the affairs of the Agency The Board may
appoint a qualified person to serve in the position of General Manager of the Agency The
General Manager shall perform such duties as may be imposed upon that person by this
Agreement, the Bylaws, other applicable laws, and resolutions of the Board No person
shall be eligible to hold office as an officer or employee of this Agency while such person
is an employee or officer of an organization doing business with this Agency No person
shall be eligible to be an employee of this Agency within two years following a term of
office as an elected or appointed official of a member City
WE
Section 15 Obligation of Agency The debts, liabilities and obligations of the
Agency shall not be the debts, liabilities or obligations of any of the Cities No City shall
be responsible, directly or indirectly, for any obligation, debt or liability of the Agency,
except as such City may formally approve by specific action of its legislative body or by
execution of a Project Contract (as provided in Section 20) and as otherwise provided by
Section 895 2 of the Government Code, as amended from time to tune, regarding
negligent or wrongful acts or omissions occurring in the performance of this Agreement
Section 16 Control and Investment of Agency Funds The Board shall adopt
from time to time a policy for the control and investment of its funds and shall require
strict compliance with such policy The policy shall comply, in all respects, with all
provisions of applicable laws and shall be transmitted annually to each City
Section 17 Term The Agency created pursuant to this Agreement shall
continue in existence until such time as this Agreement is terminated, provided however,
this Agreement cannot be terminated unless all indebtedness of the Authority is paid in full
or adequate provisions have been made for such payment as determined by the Board
This Agreement may not be terminated except by an affirmative vote of two- thirds of the
Directors of the Board
Section 18 Application of Laws to Agency Functions The Agency shall
comply with all applicable laws in the conduct of its affairs, including, but not limited to,
the Ralph M Brown Act (Section 54950 et sec, of the Government Code, as amended
from time to time)
Section 19 Withdrawal New Parties to the Agreement
(a) Withdrawal from Agency Any City may withdraw from this Agency upon
the following conditions (i) by filing with the Board at a regular or special
meeting a certified copy of a resolution of its legislative body expressing its
desire to so withdraw, and (ii) if the Agency, prior to the filing of such
resolution, shall have incurred any obligation payable from contributions,
payments or advances, which obligations mature after the date of such
filing, the withdrawing City shall have paid, or made arrangements
satisfactory to the Board to pay, to the Agency the withdrawing City's pro
rata portion of such obligation Upon compliance with the preceding
provisions of this Section 19 (a), the withdrawing City shall no longer be
considered a member City for any reason under this Agreement and its
rights and obligations under this Agreement shall terminate Withdrawal by
a City shall not affect the remaining Cities nor shall it affect any other
obligation of the withdrawing City under any contract between such City
and the Agency A withdrawing City shall not be entitled to the return of
any funds or other assets belonging to the Agency
-6-
(b) New Parties New parties may be admitted to the Agency upon an
affirmative vote of not less than a majority of the Directors of the Board
attending the meeting, provided that such proposed new party is a public
entity whose jurisdiction lies within, and/or immediately adjacent to, the
boundaries of the County of Los Angeles Admission to membership shall
be subject to such terms and conditions as the Board may deem appropriate
or as set forth in the Bylaws
Section 20 Projects Established by Board Consistent with the purpose of the
Agency as set forth in Section 4, the Board may approve any activity, program or other
undertaking as a project of the Agency ( "Project "). Any two or more Cities may
participate in any Project by executing a contract between the Agency and each
participating City ( "Project Contract ") Each Project Contract shall provide, among other
things, the manner by which Project costs shall be paid and each participating City's
obligation to make payments with respect to such Project costs
Section 21 Contributions, Payments. Advances and Use of Public Funds and
PropeM The Cities shall, in accordance with applicable law, make such contributions,
payments and advances to the Agency as are approved from time to time by the Board and
subject to the provisions of Section 15 of this Agreement
Any City which fails to make or pay when due any required contribution, payment
or advance to the Authority, may have its rights under this Agreement terminated and may
be excluded from participation in the Agency Any such City shall continue to be liable for
its obligations under any contract with the Agency and for any unpaid contribution,
payment or advance approved by the Board prior to such City's exclusion and not objected
to by such City by written notice to the Agency within thirty (30) days after such approval
The Agency shall be empowered to utilize for its purposes, public and/or private
funds, property and other resources received from the Cities and/or from other sources
Subject to the approval of the Board, each City shall participate in the funding of the
Agency in such a manner as the Board shall prescribe, subject to the provisions of Section
15 of this Agreement Where applicable, and authorized by resolution, the Board may
permit one or more of the Cities to provide in kind services, in lieu of devoting cash to the
funding of the Agency's activities
Section 22 Issuance of Bonds The Board shall be permitted to issue bonds or
other evidence of indebtedness pursuant to the provisions of the Act and/or any other
applicable laws Notwithstanding the provisions of Section 15 of this Agreement to the
contrary, a City that is a party to this Agreement may, in such manner as is permitted by
applicable laws, guarantee or otherwise financially participate with the Agency in issuing
bonds or other evidence of indebtedness only if such guarantee or other financial
participation is expressly approved by that City's governing body
-7-
Section 23 Disposition of Assets Upon termination of this Agreement, after
the payment of all obligations of the Agency, any assets remaining shall be distributed to
the then member Cities in the manner determined by the Board in accordance with this
Agreement, the Act and other applicable laws
Section 24 Liability Insurance Except as otherwise determined by the Board,
any liability insurance obtained for the Agency shall name each of the Cities as additional
insureds
Section 25 Amendment Subject to any requirements of law, including Section
6573 of the Government Code, as amended from time to time, this Agreement may be
amended at anytime with the written consent of all of the then parties hereto The
withdrawal, exclusion or addition of new parties to this Agreement shall not constitute an
amendment or modification of this Agreement for purposes of this Section 25
Section 26 Administrative Costs It is the intent of the signatory to share
administrative costs of the Agency, equitably, based on the percentage of each City's
population to the total combined population of all member Cities
Section 27 Council Approval Required For Obligation of Funds
Notwithstanding the provisions of Sections 19(a), 21, 22, and 26 of this Agreement, no
member City shall be obligated to pay or reimburse any contributions, payments,
advances, administrative costs, or debts incurred by the Agency or any of its member
Cities unless prior approval of such payment or reimbursement is given by the City
Council of the Member City
Section 28 Effective Date The effective date of this Agreement shall be the
date upon which at least five (5) Cities have executed and delivered this Agreement. This
Agreement may be executed in any number of counterparts All such counterparts shall be
deemed to be originals and shall together constitute but one and the same instrument
That the members of this Agency have caused this Agreement to be executed on
their behalf, respectively, as follows
ATTEST
City Clerk
DATE OF EXECUTION.
CITY OF
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Mayor
ATTEST
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DATE OF EXECUTION
ATTEST.
City Clerk
DATE OF EXECUTION-
ATTEST
City Clerk
DATE OF EXECUTION
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DATE OF EXECUTION
ATTEST
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CITY OF
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CITY OF
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N
CITY OF EL SEGUNDO
WORKSHOP FOR CITY COUNCIL MEMBERS
OCTOBER 5, 1995
A year and a half ago the California Public
Utilities Commission (P.U.C) issued a proposal to
bring competition to the electric utility industry.
Ever since, California has been at the forefront of
the national debate to change the way electric
utilities are structured.
All electric utilities -- to one degree or another --
are now dealing with the new realities of moving
from a regulated to a more market - driven
environment. The development of healthy,
competitive energy markets should benefit
California's economy and all its electricity
consumers. We, at Edison, welcome this new era --
and are playing a leading role in the process of
restructuring our industry to protect the interests of
our customers, shareholders and employees.
Today, the message from you -- our customers --
is loud and clear: You want more choices in your
electricity supply, more service options, and more
competitive prices. Responding to those needs in
the complex regulatory environment here in
California is clearly one of our biggest challenges.
Let me summarize some key elements in the
unfolding story of the restructuring of the industry.
We at Edison have three central goals.
• First, we want to provide all customers -- large
and small -- with more choices and the benefits
of a competitive marketplace.
• Second, we believe past commitments approved
by the California Public Utilities Commission
must be honored through cost recovery of
prudent investments. This is commonly referred
to as the "stranded cost" issue and includes both
energy contracts and shareholder commitments
made in good faith.
• And, third, we believe reforms should offer all
electricity
suppliers
a fair
opportunity to
compete in
the electric
market
of the future.
Everything we have supported in the continuing
debate on restructuring has centered on those three
principles; and, recent developments are very
encouraging -- a consensus is beginning to emerge.
Edison
appreciates the
opportunity
tonight to
share with
you information
on where this
consensus
is leading us and to provide some comments on the
interest South Bay cities have shown regarding their
place in the future competitive electrical market. 2
First, I would like to introduce Bob Kendall,
Edison's Manager of Industry Policy Coordination,
who will discuss the current status of the
restructuring debate.
(KENDALL'S REMARKS)
Mr. Kendall told you that implementation of a
restructured electric industry is several years away.
El Segundo has time to explore the issues that are
important to your place in a competitive electrical
market. I will discuss some of these issues with you
tonight.
The Consortium has been at nine members for
some time now. The cities that have most recently
considered the Consortium have all decided not to
join. Compton, South Gate and Long Beach.
The City of Long Beach, Edison's largest
municipal customer, recently held a restructure
review similar to the one we are having here. The
council concurred with an August 22 city staff report
that concluded: "Any long -term decision regarding
supply aggregation should be delayed until the
regulatory outcome of restructuring has been
substantially determined." We think this makes
good sense as do the other recommendations in this
Executive Summary of Long Beach staff s some 250
page report. I would like to provide the summary
for your consideration.
(HAND OVER COPIES)
Edison looks forward to the opportunity to
compete with anyone in the power business. We
believe the City will find Edison to be the
competitive choice after restructuring occurs in
1997. In addition, during the one- or two -year
interval, we would like to work with you to
determine a prudent path to maximize your benefits
during the transition period.
Edison wants to continue to be your energy
manager after restructuring. We will provide your
city with real direction and concrete benefits as the
city and its citizen transition to purchasing
electricity in a competitive marketplace. As part of
the process, we will provide counsel on the costs,
risks and benefits of aggregation in light of the
economic playing field that is being developed in the
restructuring process.
We believe it would be prudent for El Segundo to
delay any decision on joining the Consortium. This
0
delay would allow the city to gain a greater
understanding of the direction in which the PUC is
headed, which we should know by year end. The
delay also would provide us time to complete new
rate initiatives which could include the development
of special municipal rate proposals.
The Consortium has approached the issue of
restructuring and forming a JPA without really
knowing what the economic playing field will look
like after restructuring occurs and without
evaluating the risks, costs and benefits of
aggregation. The Consortium has not demonstrated
a realistic game plan to take your city into
restructuring. Edison does have a realistic
transition plan, and we want to begin today to help
the city make a knowing and realistic transition to
restructuring.
I want to be clear that Edison is not against
cities aggregating electric load after restructuring,
including forming JPA's to do so. The aggregation of
load will play an important part in the transition to
restructuring, and the participation in a JPA may be
an important option that the city would want to
exercise.
5
However, competition brings risks which must be
rationally evaluated. Whether a city should be
involved in aggregation and who they join with
involves dealing with some important economic and
social issues; including issues of customer choice
and whether a city should get involved in a highly -
competitive and complex business. These decisions
should only be made after a thorough analysis of the
costs, risks, and benefits have been made, including
understanding the economic playing field.
The Consortium's approach to restructuring is
based on two fundamental premises. First, "bigger is
better." The second premise eliminates customer
choice through the substitution of a city monopoly
for Edison's existing monopoly.
We believe when restructuring is completed,
customer choice will be required, by both the CPUC
and state legislature. Therefore, cities will not be
able to substitute one monopoly for another. We
also believe the "bigger is better" premise needs to be
evaluated in light of: 1) the cost of becoming bigger;
2) the risk of participating in a competitive
marketplace; and 3) the loss of local control.
As Bob Kendall stated, the size and complexity
of the deregulation process, will require it be staged
to allow for new infrastructure systems to be put in
2
place to create a competitive marketplace. This
infrastructure includes installation of millions of
special meters throughout the state.
Edison recommends the city take a number of
fundamental steps before making this decision to
join the JPA or any other Consortium. These steps
should include:
First, you need to make a decision on the
customer choice issue. Is El Segundo for or against
customer choice? I can't imagine this city not
allowing its citizens and businesses to have the
choice of their electric supplier after restructuring.
The Consortium believes the city should make this
decision not only for its city accounts, but also for
everyone in El Segundo.
I suggest it is vital customer choice be
maintained under any aggregation process.
Therefore, purchasing from a city aggregator should
be just one customer option among others.
If cities band together without providing
customer choice, they would be locking their
citizens into a government monopoly -- in effect
trading one monopoly for another and adding an
extra layer of transaction costs. This action leads to
a real paradox. If the city decides to aggregate all of
7
the electric use within its borders, it can take two
forms. It can be voluntary, where citizens can opt in
or out, or it can be involuntary where they are
denied choice. Here is the dilemma: If the JPA or
city aggregation is voluntary, it stands to lose the
Hughes' and Mattels' and other customers to
competing suppliers -- driving the cost up for the
remaining customers, or do you raise taxes? If
participation is involuntary, the operation is a
monopoly, and customers may be worse off than
they were when the whole thing started.
A second item to consider -- in evaluating any
savings proposal made by the broad range of energy
brokers and managers seeking the city's business, is
that the economic playing field has not yet been
defined, and as the city of Long Beach concluded, no
one can make a prudent economic decision until it
is.
Third, make sure you are comparing apples with
apples when evaluating proposals. There is a
tendency for brokers and managers to compare
generation costs with the total cost to deliver the
power today. As Mr. Kendall showed, the cost for
transmission, distribution, public policy and
transition costs will be set through regulation and
will have to be added to the generation costs. In
addition, the generation marketplace will be very
0
competitive. Firms like PG &E, SDG &E, LADWP, and
Arizona Public Service will want to sell you power.
Edison will be very competitive as well when its
generation costs will no longer be regulated. We
recommend the city waits to get a clear view of the
competition and their prices.
Fourth, understand the costs, risks and benefits
of getting into the aggregation business. To
aggregate will require the installation of special
metering and telecommunication equipment.
Edison is presently developing a program to help
city and county governments investigate the costs,
risks, and benefits of aggregation. As part of this
program, Edison is also proposing to the PUC some
experimental aggregation rates. In addition, we are
working on other rate proposals for municipal
governments and expect to reach some decisions
relatively soon. I encourage you to allow Edison to
perform an evaluation on your city's potential to be
an aggregator and to not make a decision of joining
the Consortium until you understand the impacts of
aggregation and have had a chance to review Edison
rate proposals.
41
08/23/95 14.41 FLY 310 981 8289 SO CAL.EDISON ++4 SO BAY DISTRICT
-= CITY OF LONG BEACH
GAS DEPARTMENT
2.00 EAST SPRING STREET • LONG BEACH. CALIFORNIA 908062185
JOHN H. W4IJAMS
GENERAL MANAGER
August 22, 1995
HONORABLE MAYOR AND CITY COUNCIL
City of Long Beach
California
SUBJECT: Restructurina of the Electric Industry
COST: Undetermined
fa002/009
• 13101570.20=
FAX 13 101 $70.20=
Steps FAX 13101 570.2 _
It is -recommended that City Council receive and file this
communication from the General Manager of the Gas Department and
the Director of Public Works in response to Councilman Clark's
request of May 9, 1995 for a report on the restructuring of the
electric industry in California and the potential impact upon the
City.
BACKGROUND
In California, as across the nation, the electric industry has
traditionally been a vertically integrated industry with the
regulated electric utilities controlling the three major
components involved in electric service: generation (commodity) ,
transmission, and distribution. The electric industry is very
capital intensive, relying heavily on borrowing to finance its
major facilities and passing these costs through to the
ratepayers. While the national average cost for electric power
is about 7.0 cents per kilowatt hour (kWh), the average cost in
California is currently about 50% greater at 10.3 cents per kWh.
This higher cost impaired California's economy by placing the
state in a competitive disadvantage in retaining existing
business and attracting new business.
on April 20, 1994, the California Public Utilities Commission
(CPUC)issued a proposal, commonly referred to as the "Blue Book',
expressing its intention to deregulate the electric industry in
California. The primary goals of the restructuring were to reduce
the cost of electric services to the benefit of all customers,
preserve electric system reliability, and to provide for economic
development. Subsequently, on May 24, 1995, the CPUC issued a
more detailed proposal supported by a 3- 1-majority of the
commissioners and an alternate policy by the dissenting
commissioner. The majority proposal advocates a 'wholesale
pooling' approach while the minority proposal promotes a 'direct
access' strategy, both of which are described in greater detail
later in this report.
08/23/95 19 41 FAX 310 981 8289 SO-CAL EDISON 444 SO BAY DISTRICT Z003/009
HONORABLE MAYOR AND CITY COUNCIL
August 22, 1995
Page 2
Prior to issuing a final policy decision, the CPUC is conducting
state-wide forums for interested parties to discuss the merits
and deficiencies of the two proposals. To date, these discussions
have not produced a single consensus among the major parties
involved. The ultimate' outcome of these policy discussions is not
expected any time in the near future. Until the CPUC finalizes
its policy, the numerous electric restructuring bills currently
pending in the State Senate and Assembly will remain on hold.
With many variables still unknown, a cautious approach is
strongly recommended, for the City. Similar to what was
experienced in the deregulation of the natural gas industry
during the 1980's, the most prudent strategy for the City will be
to defer any long -term decisions or commitments until final
policies and regulations have been established. Only then can the
full implications of any action by the City be properly evaluated,
risks minimized, and policies set.
This report delineates the principal components of the two major
restructuring proposals, the impact of electric restructuring on
the City of Long Beach, and recommendations as to how best to
position the City to minimize negative revenue impacts and to
maximize potential benefits.
Proposals for Restructuring
Wholesale Proposal (CPUC majority) - The wholesale concept,
commonly referred to as POOLCO or the Western Power Exchange,
would create an independent pool operator which would buy the
cheapest electricity available from any generating source - a
traditional utility generator, an independent power company, or
an out -of -state utility or generator - on a wholesale market,
where prices could change as often as every 30 minutes. The
pooling would begin in January 1997. All utilities would be
required to purchase generation resources from the pool at a
uniform market clearing price. Utilities would continue to
distribute electricity to all end -users under the CPUC's rate -
setting jurisdiction. After two years, provided all
jurisdictional, cost, and market issues were resolved, all
consumers would then be able to purchase electricity directly
from specific generators of their own choosing.
The wholesale concept, in various forms, is supported by a
majority of the CPUC commissioners, Southern California Edison
(Edison), San Diego Gas G Electric, and Los Angeles Department of
Water and Power.
08/23/95 14.42 Fk3 310 981 8289 SO CkL EDISON 4++ SO BAY DISTRICT 0004/009
HONORABLE HAYOR AND CITY COUNCIL
August 22, 1995
Page 3
Direct Access_ Proposal (CPUC minority) - The direct access
proposal would allow customers ranging from residents to
industrial users the choice to buy electric power directly from
independent generators on the open market with no power pool in
between the customer and the generator. Such customers must also
contract for transmission capacity. Regulated utilities such as
Edison would continue to distribute the power to customers but
would no longer be generators of power as they would be required
to divest their power plants.
The direct access concept, again in various forms, is supported
by CPUC Commissioner Knight, Pacific Gas 6 Electric, independent
power generators, and large industrial power customer coalitions.
The California Municipal Utilities Association (CMUA) has
supported the CPUC's restructuring through the development of a
wholesale electricity market. The CMUA's objective is to obtain
non - discriminatory access to the transmission systems. However,
its support is dependent upon participation in wholesale pools or
direct access being voluntary and not mandated.
Prior to the CPUC implementing any new policy, several major
issues and numerous critical details must be resolved. The most
significant of these will be the allocation of the stranded fixed
asset casts of the utilities. stranded costs are typically
defined as 'the amount by which the net book value of an asset
exceeds its market value'. It is estimated that the stranded
costs of the three major investor -owned electric utilities in
California will be as high as $32 billion. Customers should
expect to incur stranded capacity transition costs over a minimum
of the next 10 years. There is no guarantee that savings due to
competitive commodity prices will exceed these stranded costs.
Another pivotal issue is the clarification of the regulatory
jurisdiction between the CPUC and the Federal Energy Regulatory
Commission (FERC) . Currently, the FERC,has jurisdiction over the
transmission of electricity in interstate commerce and over
.wholesale" energy sold by one electric generator to any other
electric generating entity. The CPUC has jurisdiction over the
sale and distribution of electricity between the utility and the
consumers. As the proposed restructuring models all entail major
changes in the buying and selling of generation, any program the
CPUC wishes to implement must first be approved by FERC.
08/23/95 14 :42 FAX 310 981 8289 SO CAL. EDISON — SO BAY DISTRICT e005/009
HONORABLE MAYOR AND CITY COUNCIL
August 22, 1995
Page 4
otential Impact _upon the City of L�on_2_Beach
In 1994, the City's General Fund received almost $24 million from
utility user's tax and about $4 million from franchise fees
collected by Edison calculated on Edison's sales revenue within
the City. As competition increases and if retail electric prices
decline as expected, the City's General Fund revenue received from
Edison will decrease accordingly.
Eventually, Edison will be billing some of its customers for only
the transmission and distribution functions but not for the
generation function. • Customers will pay directly to their
independent generators (with whom the City has no franchise
agreements) for the generation portion. With the partial
elimination of the generation portion from Edison's revenue base,
the revenue received by the City's General Fund may be further
reduced unless collection of like revenue is accomplished in
another manner. An accurate estimate of the decrease in City
revenue cannot be completed until the regulatory process has been
finalized.
Franchise and utility user tax revenue will further decline if
customers bypass Edison by locating power generation facilities
on their own property (i.e., co- generators and fuel cells) . Power
generated at the customer's site would reduce or eliminate the
electric services the customer would require off the Edison
system, thereby reducing further Edison's sales base in Long
Beach. It is uncertain if the resulting restructuring of the
electric industry will make such self- generation an attractive
economic option or not.
The residents and businesses in Long Beach will be impacted to
varying degrees by any resulting restructuring. If the direct
access concept prevails, the financial benefits will be gained
primarily by the larger customers who will be able to contract
with independent generators on a larger scale for a better price.
Under this scenario, residential customers could actually incur
an initial rate increase depending upon how stranded costs are
allocated among different customer classes. If the wholesale
concept is approved, the potential financial benefits will
initially be extended more evenly to all customers, residential
and commercial /industrial alike.
The City's own accounts have peak consumption in excess of 32
megawatts of electricity at a cost of about $14 million annually.
As a large consumer, the City may be able to reduce its own direct
electrical costs as a result of restructuring if competition
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HONORABLE MAYOR AND CITY COUNCIL
August 22, 1995
Page 5
reduces the commodity price as expected. The actual level of the
City's savings, if any, will be dependent upon the outcome of the
regulatory process.
Options and Recommendations,
Utility User's Tax - with restructuring, customers will be able to
contract directly for generation services from parties other than
Edison. Edison would then bill these customers for the
transmission and distribution services only. As a result, the
revenue base on which Edison collects the City's utility user's tax
would decrease.
Currently, the City's ordinances do not address the collection of
the utility user's tax on the value of the customer -owned
electricity transmitted over Edison's system. Accordingly, the
City must jointly develop with Edison a method to collect from the
customers the utility user's tax presumably on an imputed value of
the customer -owned electricity. This action would be similar to
the manner in which the City currently collects the tax on the
imputed commodity value from natural gas customers electing to
procure their own gas supplies. RECOMXENDATION: City staff
should meet with representatives from Edison to develop a method
to collect the utility user's tax on an imputed value of the
customer -owned electricity transmitted over the Edison system in
Long Beach. After meeting with Edison, the City Attorney should
be requested to amend the City's utility user's tax ordinance to
authorize Edison to collect the tax on behalf of the City.
Franchise Fees - Public utilities Code Section 6350 authorizes
Edison to collect from its customers a surcharge on the imputed
value of their non - Edison electricity transmitted over Edison's
system. The revenue collected by Edison would then be paid to
Long Beach and other municipalities to partially offset the
reduction of franchise revenues paid.
The City's franchise with Edison provides Edison the non - exclusive
right to deliver electric services in Long Beach. Eventually,
with deregulation, other entities besides Edison may be providers
of electric services within the City. To ensure proper collection
of franchise fees, the City's ordinance regarding franchises
should eventually be amended to require all providers of electric
services within the City to operate under franchise agreements.
RECoWUMATION: Xonitor regulatory proceedings and review rate
filings to ensure that Edison implements the appropriate
surcharge collection mechanism as provided for by law. After
restructuring is further clarified, request the City Attorney to
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HONORABLE MAYOR AND CITY COUNCIL
August 22, 1995
Page 6
amend the city's franchise ordinance to require all providers of
electric services to enter into franchise agreements with the
city.
Mu_�cipalization - The option of the city to acquire from Edison
its distribution system within the City will be less attractive
as competition lowers industry profit margins. These lower
margins will greatly increase the cost recovery risk for local
agencies considering municipalization. In addition, Senate Bill
No. 1757 - Eminent Domain - now requires a public entity to prove
there is a "more necessary use" of the property, if the property
is to be put to the same use. Previously, a "resolution of
necessity' adopted by the governing body was sufficient to
conclusively establish the power of eminent domain. This
obligation to prove a 'more necessary use' would require very
lengthy and costly litigation with no assurance of a favorable
outcome for the City.
It should also be noted that future deregulation may allow
electric services providers to 'bypass' even municipal utilities,
making the option of municipalization an even more uncertain
proposition. RECOMMENDATION: Investigation into the option of
municipalizing the electric distribution system in Long Beach
should wait until such time the restructuring has been instituted
and a track record established so that a proper risk analysis can
be made with minimal assumptions.
SuDCly Acaregation - Supply aggregation would require the City
to contract with a utility or an independent power generator for
its own electric power supply and negotiate fees for use of
Edison's transmission and distribution system. The City could do
the procuring of its electric supply on its own or as part of a
joint municipal power agency such as was recently formed by the
San Francisco Bay Area consortium. Items for the City to consider
in deciding to procure its own electricity would include savings
on the open market versus Edison's alternative rate for power, the
amount of the city's share of stranded costs, access fees to
utilize Edison's transmission and distribution systems, charges
for auxiliary services (i.e., backup service and reserves) , and
the potential benefits of procuring power as member of a
consortium versus individually. RECOMMENDATION: Any long term
decision regarding supply aggregation should be delayed until the
regulatory outcome of the restructuring has been substantially
determined.
SERRF - In an effort to epcourage diversification of supply during
the energy crisis of the 19701s, electric utilities were mandated
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HONORABLE MAYOR AND CITY COUNCIL
August 22, 1995
Page 7
to purchase power from sources other than their own generating
plants. These sources, known as 'Qualifying Facilities' or QF's,
were paid a rate referred to as Standard Offer No. 4. Currently,
this rate is about double the current market price of generated
power. When demand is low, Edison must take this high priced
power even when this requires the shut down of its own
facilities.
Leased from a Joint Powers Authority of which the City is a
member, the City operates a Qualifying Facility, SERRF, a waste -
to- energy cogeneration plant. The City is contractually
obligated to sell all power generated to Edison until the year
2018. Through the end of 1998, the City is scheduled to receive
payment from Edison of approximately 13 cents per kWh. For the
remaining 20 years of the contract, the City is guaranteed a
minimum payment from Edison of 9 cents per kWh.
Under restructuring, Edison will be obligated to continue to
honor its contact with the City. However, the CPUC has directed
utilities to revisit all such contracts. Edison has recently
contacted the City to initiate negotiations regarding a contract
buyout. It is very unlikely, however, that SERRF would be able to
receive a higher rate from other buyers of its generated power
than the contracted rate with Edison. RECOXMENDATiON: As part of
the JPA, the City should conduct any negotiations with Edison with
consideration of the City's overall long -term financial interests
and the expected decrease in the price paid for generation due to
competition.
Cogeneration /Fuel Cells - Unless the City's loss of franchise and
tax revenue due to self- generation by a customer is offset by like
revenue to the City from the customer (such as increased natural
gas sales), the City has no incentive to encourage cogeneration.
However, the City should not get in the position of discouraging
cogeneration contrary to the best interests of the customers.
RECOMMENDATION: Remain neutral on supporting cogeneration unless
loss of franchise and tax revenue is compensated for by the
customer through some other means. ,
SUMMARY
It is too early in the process of the restructuring of the
electric industry to choose a definitive course of action.
However, it is safe to assume that whatever the outcome of the
process, the City's General Fund revenue from franchise fees and
utility user's tax based on Edison's sales will be negatively
impacted. It is also safe to assume that in some manner the City
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HONORABLE MAYOR AND CITY COUNCIL
August 22, 1995
Page 8
will soon be contracting on the open market for its electric
supply. Upcoming regulatory proceedings should be closely
monitored and the City should actively participate in such
proceedings whenever necessary.
Attached to this report are various overviews of recent industry
participant actions, descriptions of the various restructuring
proposals, and a legal analysis prepared by Carol Shaw of the City
Attorney's office regarding recent legislation pertaining to the
issues of electric utility condemnation and franchise fee
collection.
IT IS RECOMMENDED THAT THE CITY COUNCIL:
Receive and file this communication from the General
Manager of the Gas Department and the Director of
Public Works in response to Councilman Clark's request
of May 9, 1995 for a report on the restructuring of the
electric industry in California and the potential
impact upon the City.
Respectfully submitted,
VJoLlm. 1
hn H. Williams
neral Manager
Gas Department
JHW:CJG:RRP:cg
Attachment
Raymond T. Holland
Director
Public Works
APPROVED:
a
JAMES C. HANICLA
CITY MANAGER