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2013-05-23 ERC MinutesMINUTES OF THE SPECIAL ADVISORY COMMITTEE ON ELECTRIC RATES MEETING HELD MAY 23, 2013, IN THE COUNCIL CHAMBER OF CITY HALL LOCATED AT 4305 SANTA FE AVENUE, VERNON, CALIFORNIA ________________________________________________ MEMBERS PRESENT: Greg N. Longstreet, Peter Corselli, Mark Whitworth, and Martin Perez MEMBERS ABSENT: Stan Stosel and Robert Gutterman Chairperson Longstreet called the meeting to order at 8:05 a.m. and led the flag salute. PUBLIC COMMENT Interim City Clerk Dana Reed announced that this was time allotted for public comment and inquired whether anyone in the audience wished to address the Committee. No one responded. MINUTES It was moved by Corselli and seconded by Whitworth to received and filed the Minutes of the Regular December 5, 2012, meeting. Motion carried, 4-0. For the record, Director of Light & Power Carlos Fandino clarified that the first compliance period for the renewable portfolio standards (“RPS”) ends on December 31, 2013. Also, the Air Resource Board is the agency that will be developing the penalties for RPS non-compliance, not the California Energy Commission (“CEC”). This information was presented incorrectly at the previous meeting, and therefore incorrectly captured in the December 5, 2012, Minutes. INFORMATIONAL ITEMS 1. Pursuant to Resolution No. 2012-98, approved on June 19, 2012, a rate increase of 2% that will take effect on July 1, 2013. This item is for informational purposes only; no additional action is required. Director of Light & Power Carlos Fandino announced that there are no additional recommendations for electric rate increases for the next fiscal year. The department will be engaging the Ad Hoc Advisory Committee on Electric Rates May 23, 2013 Special Meeting Minutes Page 2 of 7 services of Mike Bell to provide an update on rate comparisons, tentatively scheduled for the September 2013 Committee meeting. The Department will also be engaging Crossborder to perform a rate study and report back to the Committee in December 2013. 2. Pursuant to Resolution No. 2011-184, approved on November 15, 2011, the City of Vernon approved the Renewable Portfolio Standard (“RPS”) pass-through to comply with SBX1-2 and AB32 Greenhouse Gas (“GHG”). Subsequently, City Council Resolution No. 2012-97, approved June 19, 2012, allowed the City of Vernon to use a fixed amount of AB1890 moneys to offset a portion of the cost of the pass-through to customers. This is to notify the Advisory Committee that the City will be enacting the pass-through effective July 1, 2013. The change will be reflected on the customers’ August billings. This item is for informational purposes only; no additional action is required. Director of Light & Power Carlos Fandino presented on the RPS and GHG pass-through (“adder”). The total adder cost to the businesses is approximately $6.6 million; this reflects a reduction in cost through the use of AB1890 funds and bio- methane. Previous anticipated costs were much greater. Fandino reported that the California Energy Commission (“CEC”) is allowing and acknowledging the use of bio-methane gas under the Bucket 1 RPS requirements. No cost has been passed on to the customers to date; once the Malburg Generating Station power plant is certified, the costs will be passed on through the adder. Fandino explained the GHG costs advising that the City purchases GHG credits at an auction market; the cost of which is off-set by revenue from freely allocated GHG credits by the Air Resource Board (“ARB”). For the first few years, this cost is heavily subsidized; however, the credits will diminish from year to year. Electric Resources Planning and Development Manager Abraham Alemu explained the auction process. He noted that to minimize costs, the middle man has been eliminated and the auctions are handled by staff. Ad Hoc Advisory Committee on Electric Rates May 23, 2013 Special Meeting Minutes Page 3 of 7 In response to Member Perez, Fandino advised that the adder costs are not fixed as there are many factors to consider. In response to Perez’ concerns on how the adder would be affected if there was a power plant outage, Fandino advised that an unscheduled outage of that scale is not anticipated but that the Department has contingency plans should it occur. As a result of an unforeseeable power plant outage, if the RPS requirements are not met, a case would be presented to ARB to avoid being penalized. He further clarified that if there is a power plant outage, the damages would need to be assessed. If the outage is short, then there is no significant effect. However, for example, a six month outage would have a great effect. In response to Vice Chairperson Corselli, Fandino advised that the adder will be reflected starting on the August bill. In response to Chairperson Longstreet, Fandino reported that the adder will be a varying cost rather than a fixed cost. In response to Chairperson Longstreet and Vice Chairperson Corselli, Alemu explained that the GHG will fluctuate based on the results of the auctions which occur four times per year. He further reiterated that an outage lasting a few days will have no significant effect as the City will have time to make up the difference during the three-year compliance periods. In response to Chairperson Longstreet, Fandino provided examples of the adder cost for large, medium, and small utility users. He noted that the cost will remain relatively steady with some fluctuation. In response to Vice Chairperson Corselli’s inquiry on seasonal fluctuations, Alemu explained that the fluctuation will depend on cash obligations and the available GHG credits. In response to Chairperson Longstreet, Fandino reported that ARB will be monitoring compliance and will be responsible for imposing and enforcing fines. The penalties and fines have not yet been defined. It is an open liability. Fandino reported that other utilities are purchasing geothermal, solar wind, and bio-methane to meet the RPS mandates. The majority of the utilities are not fully subscribed to the RPS requirements and neither is Vernon. Ad Hoc Advisory Committee on Electric Rates May 23, 2013 Special Meeting Minutes Page 4 of 7 In response to Chairperson Longstreet, Fandino advised that in order to account for the RPS costs, other cities are increasing their rates. Fandino confirmed for Member Perez that no utility has paid fines associated with RPS. Alemu explained that December 31, 2013, is the end of the first compliance period. The CEC will be requesting data from the utilities and reporting its findings to ARB. If the City is found to be non-compliant, the issue can be mitigated. The process and penalties are still unknown. Chairperson Longstreet opined that with the uncertainty, the recent utility rate increases and adder could be for nothing. In response, Fandino advised that there is an inherent risk. The City is taking steps to ensure its due diligence to comply with the law. City Administration cannot disregard SBX1-2. Chairperson Longstreet stated that all the costs are being passed down to the customers. Fandino advised the City has been absorbing the RPS costs since 2011. Longstreet sought clarification on what the rate increases paid for. In response, Fandino explained that the rate increases were used to pay for bond indentures and other department expenses. The Department has significantly decreased the forecasted adder costs from $14 million to $6.6 million. Alemu further explained that only some bio-methane has flown through the power plant. Staff worked with the CEC and legislature to get the bio-methane contracts approved for Bucket 1 RPS requirements. The City had to wait until said contracts were approved. Chairperson Longstreet sought confirmation that the costs can remain steady. In response, Fandino confirmed that for the next fiscal year, cost would stay stable. Staff will continue to work on keeping costs down. However, staff has no control over the GHG cost. Fandino noted that the Governor has indicated goals of 40% RPS by 2020; potentially mandated on a federal level. Fandino cannot guarantee that cost will stay the same. Member and City Administrator Mark Whitworth noted that the wind project is a viable, potential, long-term project. There is good opportunity to reduce obligations with successes. Ad Hoc Advisory Committee on Electric Rates May 23, 2013 Special Meeting Minutes Page 5 of 7 Fandino advised that the 10-year bio-methane contracts will be a bridge until there can be a long-term sustainable project. In response to Chairperson Longstreet, Fandino confirmed that the RPS mandates are the biggest issue for the Department. RPS costs have been identified in the rate study which has a modest load increase. A 4-3% rate increases is estimated up through 2017 to cover cost other than the RPS adder, before the utility rates level off. Chairperson Longstreet stated that the City of Vernon is no longer advantages due to the rate increases. The City needs to contain costs and stop rate increases. This is the businesses’ primary frustration. Fandino reported on external factors affecting costs. He advised that Michael Bell should be able to provide clarity to how Vernon compares to other utilities. He noted Governor Brown’s interest in increasing the 33% RPS by 2020 to 40%. Chairperson Longstreet realizes that the City inherited a financial burden due to its predecessors, but encourages staff to maintain Vernon as a low costs provider in Los Angeles and California. Vice Chairperson Corselli advised on decreasing solar energy costs and questioned the lack of City use. In response, Fandino explained that there is insufficient rooftop space to accommodate. Additionally, the aging infrastructure of the buildings is a concern. As technology advances and the panels become smaller and are able generate more power, the City can revisit their use in the future. Solar energy can also be an option on the wind land in Tehachapi. In response to Member Whitworth’s request, Finance Director William Fox reported that based on the current debt, businesses can expect to see relief in approximately 9 years. Staff is continuously reviewing debt and doing everything it can to keep internal costs down. Some cost increases are out of the City’s control. Fox explained that the adder will be a fluctuating based on actual costs rather than a true-up at the end of the year. Chairperson Longstreet inquired on the methods that will be used to communicate the enactment of the adder. In response, Fandino Ad Hoc Advisory Committee on Electric Rates May 23, 2013 Special Meeting Minutes Page 6 of 7 advised that a notice attached to the invoice will be distributed. The information will also be available online. Chairperson Longstreet recommended that as part of the notice, a brief explanation on the RPS and a highlight of the tough decisions the Department has made should be included. The businesses need to see that sacrifices have been made by both sides. In response, Fox reported that it is staff’s intention to include the information as part of the notice. Member Perez stated that in the past and as a platform against AB46, City of Vernon was described as cost advantages to businesses, specifically due to low utility costs. He commended the City for trying to contain costs, but urged to further contain expenses to continue having this advantage and retain business and jobs in Vernon. Fandino advised that it is the City’s goal. The City wants businesses to flourish in Vernon and is doing everything in its power to make sure it happens. 3. Pursuant to Resolution No. 2013-46, approved on April 16, 2013, the City of Vernon approved the Economic Development Rate Tariff to attract new customer load and encourage energy load expansion among existing customers within the City boundaries by offering a rate reduction of up to 20%. This item is for information purposes only; no action is required. Director of Light & Power Carlos Fandino reported on the Economic Development Rate Tariff (“EDRT”). He advised that there is a 100 kilowatt threshold for load expansion or new customer load in order to qualify for up to 20% reduction in rate. Member and City Administrator Mark Whitworth advised that he had directed Fandino to work with businesses on load expansion. He reported on various potential site developments. The City’s desire is to increase load usage and build out the entire City. In response to Vice Chairperson Corselli, Electric Resources Planning and Development Manager Abraham Alemu reported that the load consumption is slightly lower than anticipated but that the information presented today takes all into account. Ad Hoc Advisory Committee on Electric Rates May 23, 2013 Special Meeting Minutes Page 7 of 7 Chairperson Longstreet requested that during the September meeting, an updated rate comparison study conducted by Mike Bell, the Cross Border study, and load usage data over the last twelve months be presented. In response to Chairperson Longstreet, Fandino advised that for budget purposes, only two megawatts of load increase were projected. Fandino reported on the potential new gas development tariff wherein Vernon will absorb much of the initial cost. The gas utility can be used to provide businesses some relief. Chairperson Longstreet suggested that the proposed gas utility tariff be promoted as it can offset some of the electric rate costs. Vice Chairperson Corselli expressed his concerns that the Economic Development Rate Tariff was not vetted out through the Advisory Committee. Chairperson Longstreet noted that although the details were not discussed, the idea was. Finance Director William Fox clarified that as ideas come up, presenting it to the Advisory Committee will be part of the process. It is important to get the Committees’ input. With no further business, at 9:06 a.m., it was moved by Whitworth and seconded by Perez, to adjourn the meeting. Motion carried, 4-0. ________________________ Greg Longstreet Chairperson ATTEST: ______________________________ Dana Reed Interim City Clerk