Loading...
2014-04-02 Electric Rate Committee MinutesMINUTES OF THE SPECIAL AD HOC ADVISORY COMMITTEE ON ELECTRIC RATES MEETING HELD APRIL 2, 2014, IN THE COUNCIL CHAMBER OF CITY HALL LOCATED AT 4305 SANTA FE AVENUE, VERNON, CALIFORNIA ________________________________________________ MEMBERS PRESENT: Greg Longstreet, Robert Gutterman, Martin Perez, Stan Stosel, and Mark Whitworth MEMBERS ABSENT: Peter Corselli Chairperson Longstreet called the meeting to order at 8:04 a.m. Member Whitworth led the flag salute. Chairperson Longstreet confirmed that there are no changes to the agenda. PUBLIC COMMENT Chairperson Longstreet 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 Stosel and seconded by Gutterman, that the Minutes of December 4, 2013, be received and filed. Motion carried, 5-0. INFORMATIONAL ITEMS – NO ACTION REQUIRED 1. Electric Rate Study Presentation – Crossborder Analysis L&P Staff will provide updates on the current and future status of the City of Vernon’s electric rates and conditions which impact anticipated adjustments. Director of Light and Power Carlos Fandino reported on the procurement of Crossborder to conduct the study on the electrical rates. Fandino advised that the study considers all factors, and noted that the study provides estimates for potential rate increases. A rate increase for fiscal year 2015 is being proposed. Ad Hoc Advisory Committee on Electric Rates April 2, 2014 Special Meeting Minutes Page 2 of 8 Member Gutterman inquired whether there were any new assumptions that were included in the study. In response, Fandino advised that the voltage discount provided to certain high load users is now included in the study. In order to be fiscally responsible, everything had to be considered. Electric Resources Planning & Development Manager Abraham Alemu further explained that all revenues and expenses were incorporated into the study. Chairperson Longstreet noted that the revenue was at a decrease and inquired on the load usage. In response, Alemu advised that historically, rate increase calculations had a 1.5% escalator in the forecast, but advised that the load has remained flat; the City is not assuming that there will be any additional load growth. Fandino reported that per the Crossborder study, an increase of 6.3% is recommended for fiscal year 2015. Chairperson Longstreet recalled that a lower rate increase had been previously discussed, and additionally questioned the increase in expenses while revenue was down. In response, Fandino explained the effects of natural gas costs. Chairperson Longstreet advised that there had been indications that the City was doing well and would be in good standing for 2015; however, he is concerned that there is the need for an additional large electrical rate increase. Fandino explained that the City has taken the position of a low load growth. Chairperson Longstreet recommended that the City take a more realistic approach as the City cannot continue to place the burden on the businesses as it will not promote any growth. Alemu explained that the 6.3% is what the study recommends. As the presentation continues, the picture will change. Fandino further explained that what Crossborder is recommending is not what the City is recommending. Ad Hoc Advisory Committee on Electric Rates April 2, 2014 Special Meeting Minutes Page 3 of 8 Member Stosel inquired on the significance of 2017. In response, Fandino explained that the power purchasing tolling agreement capacity payment increase; an approximately $19 million difference. Member Gutterman question how the City was going to fund the additional expense. In response, Fandino advised that moderate electrical rate increases will be necessary. Additionally, staff is engaging in a financial analysis for potential restructuring. Nothing has been finalized; the City is aware that it is something that needs to be reviewed. In response to Member Stosel, Fandino advised that in 2023, the natural gas bonds will be paid off. Member Gutterman inquired whether the City was on budget to have a reserve of $4 million. In response, Fandino explained that staff is reviewing whether certain capital projects can be deferred, but advised that the department will have a balanced budget. Fandino presented on the projected revenue and expenses for fiscal year 2015. Chairperson Longstreet confirmed figures for 2014, and inquired why revenue is projected to decrease $5 million for fiscal year 2015. Fandino explained that the study considers the recovery of the voltage discount for 66kv customers and the interruptible service rates. Chairperson Longstreet inquired what changed from 2014 to 2015 fiscal years. In response, Fandino advised that the rate stabilization fund was used to cover some expenses in 2014. Alemu further explained that the voltage discount was not considered in previous studies. Chairperson Longstreet stated that it appears that approximately $6-8 million in voltage discounts is being pushed back onto the general users, and that the City is not using the rate stabilization/reserve funds to off-set the costs. Additionally there is a short fall, so a rate increase of 5-6% is being proposed. Ad Hoc Advisory Committee on Electric Rates April 2, 2014 Special Meeting Minutes Page 4 of 8 Fandino explained that that is not accurate and that there are funds in the rate stabilization account that will be used. Chairperson Longstreet sought clarification on how much of the rate stabilization fund was used in fiscal year 2014. Fandino advised that the figure would be provided in the next portion of the presentation. Fandino presented on the 6.3% electrical rate adjustment recommended by the Crossborder rate study. However, Fandino advised that staff is recommending a 5% electric rate increase. The difference will be made up through the rate stabilization fund or through the reduction of capital expenditures. He explained that the revenue is needed to match the debt service coverage. Member Perez commented that the City cannot continue to place the burden on the electric users. Fandino reported on staff’s efforts to maximize the rate stabilization fund, and explained the need to cover the bond debt service coverage. He reported that an estimated $4.5 million what used from the rate stabilization fund in fiscal year 2014. Chairperson Longstreet recalls that forecasted rate increases for fiscal year 2015 were approximately 2%. In response to Chairperson Longstreet’s request, Alemu reported on the various electrical rate increases and adder costs. However, Alemu explained that rate increases have been targeted to address the needs of 2017. Chairperson Longstreet suggested refinancing. Fandino cautioned that refinancing would come at a cost per the contractual agreement. Discussions have been held with the owner. Staff is reviewing the possibilities. In response to Member Stosel, Fandino reported that the contract was negotiated in 2008. Chairperson Longstreet sought clarification on where the benefit of the sale was observed. In response, Fandino advised that the City has a power plant from which it receives its capacity and Ad Hoc Advisory Committee on Electric Rates April 2, 2014 Special Meeting Minutes Page 5 of 8 energy. Fandino explained that the goal was to refinance by 2017; the money from the sale was used to pay other debt. Member Stosel inquired whether it is cost effective to refinance now. In response, Member Gutterman explained that the City is locked into the higher rates with the swap agreement. Chairperson Longstreet recalls that the financial plan that was presented approximately one year ago forecasted sustained small electric rate increases around approximately 2% for fiscal years 2015 to 2016. Fandino clarified that the City had projected an electric rate increase of approximately 4-5% for fiscal year 2015. The proposed is in line with what was projected. Chairperson Longstreet stated that he was not prepared to see this type of proposed electric rate increase. Member Gutterman advised that the issue is that the Crossborder study is just the preamble. It is just one piece of the financial analysis. The City’s historical financial decisions, current finances versus the budget, and the City’s electrical rates compared to competitors all must be considered. The study only addresses one component, not the entire picture. Chairperson Longstreet agreed that only a small portion of what should be considered is being presented. He directed staff to provide the information at the next meeting. Member Gutterman encouraged the review of the various discounts being provided. He explained that a variable could result different projections that the Committee can then review and asses. Alemu clarified that the consultant went through the exercise of reviewing the information with the discounts and without discounts. Alemu further explained and reported on the City’s efforts to balance the expenses and not further deviate from projected rate increases. Chairperson Longstreet sought a clear comparison of how the City compares to other utility providers. He further encouraged the City to find creative financial solutions and plan for the future ahead. The City should not continue to increase the burden to the businesses when there is so much unknown. Ad Hoc Advisory Committee on Electric Rates April 2, 2014 Special Meeting Minutes Page 6 of 8 Fandino reasoned that electric rate increases now would prevent the need for drastic rate increases in the future. Chairperson Longstreet recommended that the City restructure finances and develop solutions so there is not a need for drastic rate increases to the businesses; and additionally, work toward growing the base consumption in the meantime. Fandino advised that these alternatives are being discussed and considered, but the intent is to address the financial need through the rate increases. Chairperson Longstreet argued that the Vernon businesses are paying more than what was projected. Member Stosel added that the revenues and expenses are not adding up. In response, Fandino explained the information. Chairperson Longstreet advised that he was surprised by the 5% projected rate increase. He was anticipating a calmer period. He advised that another 5% electric rate increase will not be well received by the business community. Fandino provided information from previous presentations which forecasted the 5% rate increase for fiscal year 2015. Chairperson Longstreet asked what staff is seeking from the Committee. In response, Fandino advised that staff is seeking the Committee’s support on the proposed 5% electric rate increase which would be subsidize through the rate stabilization fund and capital expense reductions. Chairperson Longstreet advised that it would be helpful to have the assumptions over time and performance presented. Member Gutterman stated that the presentation is only one piece of the puzzle. Based on previous comparison presentations, the City has lost its advantage. He reasoned that a 5% rate increase is not unreasonable if the Los Angeles Department of Water and Power (“LADWP”) is proposing a 10% rate increase. Gutterman additionally sought information on the City’s performance versus what has been budgeted, as this will provide insight on whether there are inefficiencies. Ad Hoc Advisory Committee on Electric Rates April 2, 2014 Special Meeting Minutes Page 7 of 8 Gutterman recalls that the Committee had recommended moving slowly on the Tehachapi project (Jawbone Canyon), and that the City had agreed. However, he noted that the Vernon Quarterly gives the impression that the project is moving forward. He recommended the sale of the land with a tolling agreement so that the City is able to subsidize some of the expenses, and there will be no need for additional electrical rate increases. Fandino clarified that the project is now referred to as Jawbone Canyon. This is to clarify its actual location and disassociate the City’s land from current issues in the Tehachapi area. Fandino advised that the City is doing research and looking at different options. In doing so, it is spending limited resources and collecting data. The transmission connection is a concern. Fandino noted that this year’s Crossborder study captured the voltage and interruptible service discounts as the City must find a way to recover these costs. The City must balance the amount of discount it provides to high utility users while still remaining competitive. Fandino also noted the reduction in revenue to the AB1890 fund which is used to off-set renewable portfolio standard costs. Member and City Administrator Mark Whitworth advised that the City’s financial advisor, Public Financial Management, Inc., is aware of the need to restructure debt. The City was not ready to refinance a few years go, but the City is now approaching a more stable state. In reference to the recommendation to sell the Jawbone Canyon project, there are many political issues, the City does not want to make a quick decision, but rather maximize its value. Whitworth is also interested to see how the City compares to other utility providers. Fandino explained that the comparison was not provided during this meeting because the California Energy Commission (“CEC”) had not yet approved LADWP rate increases. Once approve, accurate figures can be provided and compared. Member Gutterman requested that the information be presented during a special May meeting. If accurate information is not available, best guess for comparable rates should be provided. Gutterman also requested that more detail information be Ad Hoc Advisory Committee on Electric Rates April 2, 2014 Special Meeting Minutes Page 8 of 8 presented for fiscal year 2014. Proposed rate increases of 5%, 4%, and 3% should be considered and presented. Fandino proposed a Special meeting on May 7, 2014, in order to present on the various information the Committee requested. All were in agreement. Chairperson Longstreet additionally requested information on the revenue experienced through the rate increases thus far, and information on the rate stabilization fund. Member Gutterman understands the conservative projections, but as the economy improves, he recommended that there be some positive growth in the projections. Member Stosel advised that he would like to see information on the refinancing options. He is not in agreement with simply selling the Jawbone Canyon property as there is new technology that could be beneficial to the City. Stosel inquired on the value of the interruptible service agreement to the City. In response, Fandino explained that there is only one customer that qualifies; the agreement is a potential savings to the customer. Alemu further explained that the CEC requires the City to have resource adequacy. If the City did not have this program, the City would have to contract out for the capacity. It is beneficial to the City to have the interruptible service agreement. With no further business, at 9:26 a.m., it was moved by Whitworth and seconded by Perez, to adjourn the meeting. Motion carried, 5-0. ________________________ W. Michael McCormick Mayor ATTEST: ______________________________ Ana Barcia Deputy City Clerk