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20110623 Regular City Council Meeting - MinutesMINUTES OF THE SPECIAL CITY COUNCIL - LIGHT & POWER MEETING OF THE CITY OF VERNON HELD JUNE 23, 2011, IN THE COUNCIL CHAMBERS OF THE CITY HALL LOCATED AT 4305 SANTA FE AVENUE, VERNON, CALIFORNIA MEMBERS PRESENT: Gonzales, Davis, McCormick, Maisano, Newmire MEMBERS ABSENT: None The meeting was called to order at 8:04 a.m. by Mayor Gonzales. The City Clerk announced that there were no changes to the agenda. The City Clerk announced that this was the time allotted for public comment. The Mayor inquired whether anyone in the audience wished to address the City Council. No one responded. PUBLIC HEARINGS At 8:07 a.m., it was moved by Davis and seconded by McCormick, to open the public hearing to consider the adoption of a resolution for the proposed increase to Vernon's retail electric rates. Motion carried, 5-0. Carlos Fandino, Director of Light & Power, advised that the Department engaged the community and business owners and formed an electric rate advisory committee. Fandino advised that the purpose of the meeting was to present a proposal for an electric rate increase to the City Council. Fandino summarized the study conducted by Crossborder Energy which determined that the City needed an electric rate increase. Fandino advised that the City had not conducted a rate increase for the previous 18 months and that the advisory committee had met four times, with the Light & Power Department opening up its financial records to the public. Fandino advised that the rate study was finalized in May 2011. The study covered the years 2011 through 2020, but the focus of the rate increase is for the fiscal year 2012. The study also addressed the department's needs over the next 10 years in order to stabilize and remain competitive. Fandino advised that the electric rates should reflect the City's costs, be efficient, and remain competitive. The rates should be transparent; the department has provided its current financials, and its future plans and goals. Fandino explained that the projections for fiscal year 2012 include approximately $118,957.640 in revenues, and $141,109,203 in expenses, thereby leaving a $22,151,590 deficit. Fandino advised that the department's rate stabilization fund can be used to offset a portion of the shortfall, and that the fund has approximately $23 million. Crossborder Energy's recommendation is to use $3.3 million of the fund and increase the electric rates by 16% for the fiscal year 2012. Fandino listed some of the factors contributing to the electric rate increase including the cost of compliance with the State' mandated renewable portfolio standard (RPS) and greenhouse gas allowance regulations. Fandino explained that .the City is required to return back to 1990 greenhouse gas emission levels Special City Council - Light & Power Department Minutes June 23, 2011 and that the projected cost is estimated at $8.3 million. Also, cash reserves and different cash projects had been used in the past to subsidize some of these costs and not increase rates. Fandino reported that the City had entered into a bond for pre- paid gas in order to hedge its position in the market, but that the margin is now in the negative. The gas market is currently selling at approximately $4.00, and the City is locked in at $7.50, thereby taking a loss on the hedge. Fandino advised that meeting the State mandated RPS will cost the City approximately $11 to $20 million. The City is currently looking at bio-fuel in order to help off -set some of these costs in the future. Fandino reported that for 2011 the California Independent System Operator (CAISO) had increased transmission access charges by 64.420. Fandino advised that Vernon's electrical rates are lower than Southern California Edison (SCE) and the Los Angeles Department of Water and Power (LADWP). Fandino reported that SCE is expected to conduct a 120-8 rate increase over the next 2 years. LADWP's Ron Nichols is in the process of creating an advisory committee, similar to Vernon's. Further, it's anticipated that by 2014, LADWP's electric rates will increase by 16.20-o and that water rates are also expected to increase. Fandino explained that even after the proposed rate increases, the City's electrical rates will remain competitive against SCE and LADWP. Fandino warned that if cash reserves are used, it will limit the City's ability to deal with emergency situations. Fandino referenced a major truck -hit -pole incident that occurred on 55th Street, as an example to these types of incidents. Fandino also advised that the City incurs material costs to improve capital projects in order to meet customer demands. In response to many of the businesses emails and concerns, Fandino advised that the factors contributing to the rate increase are state wide, and will be affecting everyone. Mayor Gonzales added that in the past the State would provide utilities with funds to off -set some of the costs, but not anymore. Fandino advised that Robert Gutterman of the Electric Rates Advisory Committee was given all of the department's financials dating back to 2007. The Advisory Committee recommended the following: an 80-o electric rate increase on July 1, 2011;.an 8% electric rate increase on January 1, 2012; and a 5% electric rate increase on July 1, 2012 Fandino advised that originally, $3.3 million was scheduled to be used from the rate stabilization fund, but more will be needed to subsidize the shortfall. A 50-. electric rate increase cannot be guaranteed every year. If the Tehachapi project proves to be successful, more of the rates can be subsidized. Fandino explained that with regards to the Tehachapi project, the City could either sell the land, or develop it. The City is engaging Beowulf for possible bio-fuel use. Bio fuel can be used to subsidize greenhouse gas credits and produce Page 2 of 4 Special City Council - Light & Power Department Minutes June 23, 2011 power at a lower rate. Fandino explained that these are all factors that can and will continue to effect electric rates, as well as any major catastrophes. Fandino reported that since he took over the department back in August 2010, there have been $2.5 million in savings from cutbacks. In response to Mayor Pro Tem Davis, Fandino advised that the transmission access charge will affect everyone the same, the fact that the city sold its transmission rights has no effect. In response to Councilman Newmire, Fandino advised that 750 of the natural gas must be purchased at $7.50. Natural gas is currently selling for about $4.60. It is anticipated that it will be 3 to 4 years before gas prices go above $7.50. Alemu clarified that these are projections and that $5.50 to $6.00 is what experts see in the next few years. If the price goes above $7.50, then the City of Vernon's customers can begin to see the benefits, but that is the risk with hedging. Robert Gutterman reported that he represented the Electric Rates Advisory Committee. Gutterman advised that he is an employee at Crown Poly, a large electrical user in the City of Vernon. He advised that he represented the utility's best interests and set aside his personal interests. He and the rest of the committee reviewed the information as presented by Carlos Fandino for the last six weeks. The Crossborder Energy study provided budget projections, with the goal of achieving a break even point, while still maintaining good service to the customers. Originally a 16o electric rate increase was proposed to be effective July 1, 2011. The committee brought the businesses' point of view and asked for alternatives. Businesses had requested smaller rate increases which would require greater use of the City's reserves. The businesses needed to be able to plan for the rate increases and still be able to operate profitably in order to remain in the City of Vernon. Companies would have to pass on their costs to customers. Smaller , increases were considered more desirable so that they could continue to thrive. Gutterman reported that after four meetings, and Fandino's presentation at the Chamber of Commerce, the Advisory Committee voted unanimously to recommend an 8% electric rate increase to be effective July 1, 2011, as necessary and prudent, and an additional 8% electric rate increase was recommended for January 1, 2012. The committee also understood that there may be a 50 increase for July 1, 2012, that will be voted on in the future. Gutterman thanked the City Council on behalf of the committee for creating the Electric Rates Advisory Committee. Fandino advised that it was the department's objective to create a website so that businesses are engaged and remain informed. One mechanism that is being considered is a web portal. The City's website may not be enough for businesses to stay informed. The department wants to remain open and transparent so that businesses know how they operate. Fandino commended the City Council for allowing and creating the Advisory Committee and showing the community how the City of Page 3 of 4 Special City Council Light & Power Department Minutes June 23, 2011 Vernon is changing. Fandino requested that a motion be taken on the matter. At 8:49 a.m., it was moved by McCormick and seconded by Newmire, to close the public hearing. Motion carried, 5-0. Resolution No. 2011-112 - A Resolution of the City Council of the City of Vernon Amending Rate Schedule Nos. CS, D, GS-1, GS- 2, LS-1, LS-2, OL-1, PA-1, PA-2, PA-TOU, TC-1, TOU-D, TOU-G, TOU-GS-1, TOU-GS-2, TOU-PA-1 and TOU-V Regarding Electrical Rates to be Charged for Electrical Energy Distributed and Supplied by the City Within its Boundaries It was moved by Newmire and seconded by Maisano, that Resolution No. 2011-112 be approved and adopted. Motion carried, 5-0. CONSENT CALENDAR: It was moved by McCormick and seconded by Davis, that the matters on the Consent Calendar be approved as recommended. Motion carried, 5-0. 1. Resolution No. 2011-113 - A Resolution of the City Council of the City of Vernon Authorizing the City Administrator to Execute and Effect the Recordation of a Restrictive Covenant and Environmental Restriction on City -Owned Real Property in Kern County, California ORAL REPORTS Fandino reported that in August 2010 he had advised the Council that the department would be undergoing an audit by the Western Electricity Coordinating Council ("WECC"). Fandino recognized Todd Dusenberry, Mike TenEyck, and Robin Tolmasoff, for working diligently since the process started, and reported that the department passed the audit with zero findings, thanks to their efforts. Fandino advised that the WECC has the ability to fine the City up to $1 million per day. The staff's task will be to maintain this level, and continue performing excellent work. The City Clerk announced that there were no further items on the agenda. At 8:55 a.m., it was moved by McCormick and seconded by Davis, to adjourn the meeting. Motion carried. ATT T: Willard G. Y 1 guch' City Clerk 1 ,Z ,_;_ , Hilario Gonza s Mayor Page 4 of 4