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Resolution No. 2015-001RESOLUTION NO. 2015-01 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF VERNON ADOPTING A REVISED NEW TRANSMISSION REVENUE REQUIREMENT FOR 2015 IN ACCORDANCE WITH VERNON'S TRANSMISSION OWNER TARIFF AND PROVIDING FOR TARIFF SHEET CHANGES TO IMPLEMENT THE ADJUSTMENT WHEREAS, the City of Vernon ("City") is a chartered municipal corporation of the State of California that owns and operates a system for the generation, purchase, transmission, distribution and sale of electric capacity and energy; and WHEREAS, on October 7, 2014, the City Council of the City of Vernon adopted Resolution No. 2014-60 adopting a new transmission revenue requirement for 2015 in accordance with Vernon's transmission owner tariff and providing for tariff sheet changes to implement the adjustment; and WHEREAS, by memorandum dated January 6, 2015, the Director of Gas & Electric has recommended the approval of a revised new Transmission Revenue Requirement (TRR) associated with Vernon's High Voltage Entitlements ("TRR Report") to be effective on January 1, 2015, to establish the City's new revised Transmission Revenue Requirement (TRR) and Appendix I to the TO Tariff implementing the revised new TRR; and WHEREAS, on January 6,2015, the City Council held a Public Hearing in which the City Council took evidence from and those other persons in attendance who wished to be heard on the calculation of the City's new TRR under the City's amended TO Tariff; and WHEREAS, the revised TRR for 2015 is shown in the amended Appendix I to the TO Tariff, a copy of which is attached hereto as Exhibit A and made a part hereof; and WHEREAS, the Gas & Electric Department has prepared a Report, dated January 6, 2015, with exhibits, a copy of which is attached hereto as Exhibit B and made a part hereof; and WHEREAS, the Gas & Electric Department has recommended the City adopt the revised TRR shown in the amended Appendix I to the TO Tariff, attached as Exhibit A, to be effective on January 1, 2015; and WHEREAS, the City Council has heard and considered all evidence, written and oral, presented in consideration of the establishment of the City's new TRR under the amended TO Tariff. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF VERNON AS FOLLOWS: SECTION 1: The City Council of the City of Vernon hereby finds and determines that the above recitals are true and correct. SECTION 2: The City Council of the City of Vernon hereby further finds and determines that all persons have had the opportunity to be heard or to file written comments to the proposed adoption of the City's revised TRR to be effective January 1, 2015. SECTION 3: The City Council of the City of Vernon hereby declares that: (a) any determination made pursuant to this Resolution regarding the validity or reasonableness of any portion of any TRR or TO Tariff shall apply only prospectively from the date of this Resolution; and (b) in no way shall this Resolution affect the City Council's adoption or determination of any previous TRR or TO Tariff. SECTION 4: The City Council of the City of Vernon hereby approves, pursuant to the TO Tariff and to be effective on January 1, 2015, the establishment of the City's new TRR and Appendix I to the TO - 2 - Tariff implementing the new TRR, as described in the Gas & Electric Report dated on or about January 6, 2015. SECTION 5: The City Council of the City of Vernon hereby authorizes outside counsel to submit the City's revised TRR, the amended Appendix I to the Vernon TO Tariff, and supporting documentation, such as the Report, and this City Council Resolution approving the new TRR, to FERC on behalf of the City of Vernon. SECTION 6: The City Clerk, or Deputy City Clerk, of the City of Vernon shall certify to the passage, approval and adoption of this resolution, and the City Clerk, or Deputy City Clerk, of the City of Vernon shall cause this resolution and the City Clerk's, or Deputy City Clerk's, certification to be entered in the File of Resolutions of the Council of this City. APPROVED AND ADOPTED this 6th day of January, 2015. ATTEST: Ana Barcia Cam/ Deputy City Clerk APPROVED AS TO FORM: I ✓Li� Katharine Mapes, Es . Spiegel & McDiarmid, LLP Special Counsel to City Name: W. Michael McCormick Title: Mayor - 3 - STATE OF CALIFORNIA ) ) ss COUNTY OF LOS ANGELES ) I Ana Barailt -y- / Deputy City Clerk of the City of Vernon, do hereby certify that the foregoing Resolution, being Resolution No. 2015-01, was duly passed, approved and adopted by the City Council of the City of Vernon at a regular meeting of the City Council duly held on Tuesday, January 6, 2015, and thereafter was duly signed by the Mayor or Mayor Pro-Tem of the City of Vernon. Executed this '+ day of January, 2015, at Vernon, California. (SEAL) - 4 - A arc pity-C/ Deputy City Clerk EXHIBIT A EXHIBIT - A APPENDIX I Revised Transmission Revenue Requirement and TRBAA The Vernon Base Transmission Revenue Requirement is $2,482,1512,310,907 and is comprised of the following components: Base TRR costs not subject to ETC Adjustment Clause: $498,480 ETC Adjustment Clause: Forecast SCE ETC Costs: $1,989,120 Balance of Difference between prior year Forecast and Actual SCE ETC Costs: ($4,440169,709) Interest on Difference between prior year Forecast and Actual SCE ETC Costs: ($ 0966) The ETC Adjustment Clause is: The projected SCE ETC Cost for the next calendar year, plus the true -up (positive or negative) of the prior October through September SCE ETC Cost with interest calculated pursuant to 18 C.F.R. § 35.19a. The ETC Adjustment Clause will be recalculated annually and filed with the Commission with a proposed effective date of January 1 of each year. The TRBAA is a positive $12,458 for calendar year 2015. Vernon's Gross Load, consistent with its TRR, used by the ISO to develop the Transmission Access Charge is 1,181,728 MWhs. All of Vernon's transmission facilities and Entitlements placed under the ISO's Operational Control are High Voltage Facilities as defined by the ISO Tariff. The TRBAA will be recalculated annually consistent with the ISO Tariff approved by the Vernon City Council, and provided to the ISO. APPENDIX I (Revised) Transmission Revenue Requirement and TRBAA The Vernon Base Transmission Revenue Requirement is $2,310,907 and is comprised of the following components: Base TRR costs not subject to ETC Adjustment Clause: $498,480 ETC Adjustment Clause: Forecast SCE ETC Costs: $1,989,120 Balance of Difference between prior year Forecast and Actual SCE ETC Costs: ($169,709) Interest on Difference between prior year Forecast and Actual SCE ETC Costs: ($6,984) The ETC Adjustment Clause is: The projected SCE ETC Cost for the next calendar year, plus the true -up (positive or negative) of the prior October through September SCE ETC Cost with interest calculated pursuant to 18 C.F.R. § 35.19a. The ETC Adjustment Clause will be recalculated annually and filed with the Commission with a proposed effective date of January 1 of each year. The TRBAA is a positive $12,458 for calendar year 2015 Vernon's Gross Load, consistent with its TRR, used by the ISO to develop the Transmission Access Charge is 1,181,728 MWhs. All of Vernon's transmission facilities and Entitlements placed under the ISO's Operational Control are High Voltage Facilities as defined by the ISO Tariff. The TRBAA will be recalculated annually consistent with the ISO Tariff approved by the Vernon City Council, and provided to the ISO. EXHIBIT B EXHIBIT- B CITY OF VERNON GAS AND ELECTRIC DEPARTMENT REPORT REGARDING THE ESTABLISHMENT OF A REVISED NEW TRANSMISSION REVENUE REQUIREMENT ASSOCIATED WITH VERNON'S HIGH VOLTAGE ENTITLEMENTS January 6, 2015 The City of Vernon ("Vernon" or "City") is a Scheduling Coordinator and a Participating Transmission Owner ("PTO") in the California Independent System Operator Corporation ("ISO"). To participate in the ISO, PTOs are required to turn over administrative control of their transmission facilities and entitlements to the ISO. In return, the ISO collects revenues for each PTO pursuant to calculations that reflect the expenses and capital costs incurred by each PTO to provide transmission services. These calculations are known as Transmission Revenue Requirements ("TRRs"). The relationship between PTOs and the ISO is governed by a Transmission Control Agreement ("TCA"), which sets forth specific duties and obligations of all PTOs. The TCA requires all PTOs to file a Transmission Owner Tariff ("TO Tariff') and TRR with the Federal Energy Regulatory Commission ("FERC"). The TCA further requires all PTOs to file any changes in their TRRs with FERC. Each PTO must also include in its TO Tariff its Gross Load which the ISO uses to calculate its grid -wide Transmission Access Charge ("TAC") rates, and which is related to the City's ability to recover its full TRR. On October 7, 2014, the City Council approved the City's TRR associated with Vernon's high voltage entitlements to be effective January 1, 2015. Outside counsel submitted the City's TRR, the amended Appendix I to the Vernon TO Tariff, and supporting documentation such as the TRR Report, to the FERC on behalf of the City of Vernon. Subsequent to the filing, an accounting error relating to the treatment of the beginning balance and refunds the City received from SCE was discovered. Estimates of the net impact of correcting the error showed that the City of Vernon might overcollect rates under the TRR as filed. TRR Report 2015 (Revised) Page 2 of 6 After the City notified the FERC of the accounting error, the FERC ordered the City to correct the error and resubmit by January 1.5, 2015. In order to do so, the City has modified the template by which it trues -up predicted revenues from SCE against actuals. As a result, the City's 2015 beginning balance was adjusted upward by $26,966.28 and the actual payment to SCE was reduced by $192,235.69. The net change from the City's TRR that was approved by Council on October 7, 2014 is a reduction of $171,244.48. After approval by Council, the City will submit both its revised template and its revised TRR to FERC on January 15, 2015. TRANSMISSION REVENUE REQUIREMENT At present, the City's high voltage transmission assets consist of three long-term contracts (known as "existing transmission contracts" or "ETCs") which provide the City with dedicated access to high voltage transmission facilities owned by other entities. Specifically, the City has contractual entitlements to utilize transmission assets pursuant to one long-term transmission contract with the Los Angeles Department of Water and Power ("LADWP") and two long-term transmission contracts with Southern California Edison ("SCE"). The ETCs with SCE consist of one (the "SCE Victorville-Lugo ETC" described in SCE's FERC Rate Schedule 360) providing 11 MW of transmission capacity along the path between the Victorville- Lugo midpoint and the point of interconnection with the City's internal transmission system (the "City Gate"), and one (the "SCE Mead ETC" described in SCE's FERC Rate Schedule 207) providing 26 MW of transmission capacity along the path between the Mead 230 substation and the City Gate. The costs of these ETCs make up the majority of the costs recovered through the City's TRR. Until recently, for each of the ETCs, the City paid the owner of the transmission facilities a fixed rate which was specific to the transmission path provided under each ETC. TRR Report 2015 (Revised) Page 3 of 6 On August 1, 2008, SCE proposed to increase its TRR and associated rates in FERC Docket No. ER08-1343-000. In a related filing submitted in FERC Docket No. ER08-1353-000, SCE proposed to transition both of its ETCs with Vernon from their current, fixed "path -specific" rates to a so-called "postage stamp" rate methodology which reflects the blended rate which SCE charges the ISO pursuant to its own TRRs for the actual usage of all of SCE's transmission facilities by customers of the ISO (the "HVECAC Rate"). The HVECAC Rate that SCE proposed in its TO Tariff is derived from SCE's TRR and, therefore, will change each time SCE amends its TRR. On September 30, 2008, FERC accepted, subject to refund and hearing and settlement procedures, SCE's proposed revisions to its TO Tariff to transition the negotiated path -specific rates set forth in the SCE Victorville-Lugo ETC and the SCE Mead ETC to the uniform HVECAC Rate, and thus the City's costs under those ETCs will vary proportionately with any changes in SCE's TRR. The City reached a settlement agreement (the "SCE Settlement") with SCE to amend the SCE Victorville-Lugo ETC and the SCE Mead ETC to fully transition the path -specific rates set forth in those ETCs to SCE's HVECAC Rate after a phase -in period that began on August 1, 2009, during which the City's path -specific rates in those ETCs have been gradually stepped -up under incrementally increasing fixed rates (the "Phase -In Rates") until the path -specific rates are equal to the HVECAC Rate as of January 1, 2013. FERC approved the SCE Settlement pursuant to an order issued September 11, 2009, 128 FERC ¶ 61, 237 (2009), in FERC Docket Nos. ER08-1343-000, ER08-1353-000, ER09-187-000, ER09-187-001, EL09-19- 000, and ER09-446-000 ("SCE Settlement Order"). On behalf of the City, The Brattle Group, an experienced utilities consulting firm, developed a TRR tracking mechanism clause for the City's TRR ("ETC Adjustment Clause"), which allows the City's TRR to be adjusted annually, effective January 1 of each year, to reflect changes in the City's transmission expenses associated with any changes implemented by SCE in the HVECAC Rate associated with the SCE TRR Report 2015 (Revised) Page 4 of 6 Victorville-Lugo ETC and the SCE Mead ETC. On the basis of The Brattle Group's analysis and evidence from City staff, which was considered during a public meeting of the City Council held on July 13, 2009, the City, on July 15, 2009 ("July 15 FERC Filing"), filed with FERC the proposed (i) revisions to its TO Tariff proposing the City's stated TRRs for each of the years 2010 to 2012, which dollar amounts were also included in the SCE Settlement ("TO Tariff Revisions') and (ii) the ETC Adjustment Clause tracking mechanism. The July 15 FERC Filing acknowledged that, to the extent that the SCE Settlement was accepted, because the stated Phase -In Rates would be fixed, the ETC Adjustment Clause for the term of the Phase -In Rates would be zero. FERC approved the City's July 15 FERC Filing, including the TO Tariff Revisions, the City's proposed calculations of the TRR for years 2010 to 2012, and the City's request to utilize an ETC Adjustment Clause, in an order issued September 11, 2009, 128 FERC ¶ 61,235 (2009), in FERC Docket No. EL09-64-000 ("TO Tariff Order"). The City is required under the TO Tariff Order to submit annual filings each year with FERC reflecting annual modifications to the base TRR of the City. CALCULATION OF THE ETC ADJUSTMENT CLAUSE Section 5.3 of the Vernon TO Tariff identifies the items to be reflected in the ETC Adjustment. The ETC Adjustment Clause shall be calculated as: ETC Adjustment = ETCCF+ ETCCT+ I. ETCCF = The forecast of SCE ETC Cost for the following calendar year ETCCT = The balance representing the prior period difference between the projected cost of the SCE ETCs ("SCE ETC Cost") and the actual cost. TRR Report 2015 (Revised) Page 5 of 6 I = The interest balance for the ETC, which shall be calculated using the interest rate pursuant to Section 35.19(a) of FERC's regulations under the Federal Power Act (18 C.F.R. 35.19(a)). Interest shall be calculated based on the average ETC true -up balance each month, compounded quarterly. A summary of the elements of the Vernon ETC Adjustment Clause proposed to be effective January 1, 2015 is shown in Exhibit 1. The ETC Adjustment Clause to be effective for the twelve months starting January 1, 2015 is $1,812,427. The ETCCF Component The ETCCF component stands for the forecast of SCE ETC costs for the following calendar year, in this case 2015. These forecast SCE ETC costs reflect 2015 rates from Southern California Edison Company's draft FERC Filing, posted on its website pursuant to its formula rate protocols (approved in FERC Docket No. ER11-3697). That filing is scheduled to be made at FERC, in its final form, on December 1, 2014; Vernon will true up any differences in its SCE ETC costs when it makes its 2016 TRR filing. The ETCCF for 2015 SCE ETC costs are projected to be $1,989,120 as shown in line 8 of Exhibit 1. The ETCCT Component ETCCT represents a balance that reflects the difference between prior year forecast and actual SCE ETC costs The prior period in this case is the twelve-month period starting October 1, 2013 and ending September 30, 2014. A summary of the determination of the September 30, 2014 balance in the ETC Adjustment Clause is shown in Exhibit 1. The ETCCT component reflects 1) the previously projected 2013 SCE ETC costs of $157,990 per month, for the months October through December 2013 and projected 2014 SCE ETC costs of $140,230 per month, for the months January through September 2014, 2) actual 2013 SCE ETC costs of $ $139,860 average per month, for the months October through TRR Report 2015 (Revised) Page 6 of 6 December 2013 and $145,780 average per month, for the months January through September 2014, and 3) refunds received by the City —all elements as reflected on Line No. 8, 15, and 16 of Exhibit 1. The net of these elements produce the under (or over) collection figures reflected in Line 17of Exhibit 1. The ending balance is the sum of the beginning balance on October 1 and the (over)/under collection — both elements as reflected on Line 1 and 17 of Exhibit 1. The cumulative monthly balances are carried forward from month to month and the ETCCT component on September 30, 2014 of negative $169,709 is shown in line 19 of Exhibit 1. The I (Interest) Component The Interest component reflects interest on the difference between prior year forecast and actual SCE ETC costs. The monthly interest carrying costs are calculated using the 18 C.F.R. § 35.19(a) interest rates and calculation method. These interest rates are published by FERC and reflect the prime rate values published in the Federal Reserve Bank's "Selected Interest Rates." Interest is calculated monthly on the average cumulative monthly balance and is compounded quarterly. The interest component is negative $6,984, as shown in Lines 20-24 of Exhibit 1. RECOMMENDATIONS 1. Approve the establishment of the City's revised new TRR for 2015 and revised Appendix I to the TO Tariff. 2. Authorize outside counsel to submit the City's TRR, ETC Adjustment Clause amount, the revised Appendix I to the TO Tariff, and this City Council Resolution approving the TRR and ETC Adjustment Clause amount to FERC on behalf of the City of Vernon. EXHIBIT - 1 i 7, A 41 s d O 8 $� ^ st Siq - yy g�q - eA x 7 k.a Fµ i M1 F _ � a 8 :YMMM 9�IMYYY 13j3 :� i d6 b'�_J :Es TRANSMITTAL COMMUNICATION CITY CLERK'S OFFICE INTEROFFICE MEMORANDUM DATE: January 7, 2015 TO: Carlos Fandino, Director of Gas & Electric FROM: Deborah Juarez, Records Management Assistant RE: Resolution No. 2015-01— A Resolution of the City Council of the City of Vernon Adopting a Revised New Transmission Revenue Requirement for 2015 in Accordance with Vernon's Transmission Owner Tariff and Providing for Tariff Sheet Changes to Implement the Adjustment Transmitted herewith is a certified copy of Resolution No. 2015-01 referenced above, for your transmittal, which was approved by City Council minute order on January 6, 2015. Please ensure that a copy of the transmittal communication is sent to my attention for the file. Thank you. Enclosure c: Abraham Alemu Resolution No. 2015-01 CERTIFICATE STATE OF CALIFORNIA ) ) ss COUNTY OF LOS ANGELES) I, Ana Barcia, Deputy City Clerk of the City of Vernon, County of Los Angeles, State of California, hereby certify that the attached is a full and complete copv of: RESOLUTION NO. 2015-01 - A Resolution of the City Council of the City of Vernon Adopting a Revised New Transmission Revenue Requirement for 2015 in Accordance with Vernon's Transmission Owner Tariff and Providing for Tariff Sheet Changes to Implement the Adjustment IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official Seal of the City of Vernon, County of Los Angeles, State of California, on this `4 day of January 2015. SEAL: Ana Bartria Deputy City Clerk STAFF REPORT NOTICE OF PUBLIC HEARING The City of Vernon will conduct a Public Hearing which you may attend. PLACE: Vernon City Hall City Council Chambers 4305 Santa Fe Avenue Vernon, CA 90058 DATE AND TIME: Tuesday, January 6, 2015, at 9:00 a.m., or as soon thereafter as the matter may be heard PURPOSES: To consider evidence to establish Vernon's revised new Existing Transmission Contract Adjustment for its high voltage (over 200 kV) transmission entitlements (all located outside the City) pursuant to Vernon's Transmission Owner Tariff. Any interested person may attend and may make an oral presentation to the City Council at the time of the hearing, or may present written comments prior to the hearing. If you challenge the approval of the establishment of Vernon's revised new Existing Transmission Contract Adjustment, or any provision thereof in court, you may be limited to raising only those issues you or someone else raised at the hearing described in this notice or in written correspondence delivered to the City of Vernon at, or prior to, the meeting. Information may be obtained by contacting the office of the City Clerk at the above address. The hearing may be continued or adjourned to a stated time and place without further notice of a public hearing. Dated: December 22, 2014 Carlos R. Fandino, Jr. Director of Vernon Gas & Electric RECEIVED RECEIVE® IV DEC 2 3 2014 DEC S 0 2014 CITY ADMINISTRATION CITY CLERK'S OFFICE STAFF REPORT Mw VERNON GAS & ELECTRIC DEPARTMENT DATE: January 6, 2015 TO: Honorable Mayor and City Council FROM: Carlos Fandino, Director of Vernon Gas & Electric C RE: Establishment of a Revised New Transmission Revenue Requirement (TRR) Associated with Vernon's High Voltage Entitlements ("TRR Report") Recommendation It is recommended that the City Council conduct a Public Hearing and: 1. Find that the approvals requested in this staff report are exempt under the California Environmental Quality Act (CEQA) in accordance with Section 15061(b)(3), the general rule that CEQA only applies to projects that may have an effect on the environment; and 2. Approve the attached Resolution to thereby: a. Approve, pursuant to the Transmission Owner Tariff, and to be effective on January 1, 2015, the establishment of the City's new revised Transmission Revenue Requirement (TRR) and Appendix I to the TO Tariff implementing the revised new TRR, as described in the Gas & Electric TRR Report dated on or about January 6, 2015; and b. Authorize outside counsel to submit the City's TRR, the amended Appendix I to the Vernon TO Tariff, and supporting documentation such as the revised TRR Report, to the Federal Energy Regulatory Commission (FERC) on behalf of the City of Vernon. Background The City of Vernon ("Vernon" or "City") is a Scheduling Coordinator and a Participating Transmission Owner ("PTO") in the California Independent System Operator Corporation ("ISO"). To participate in the ISO, PTOs are required to turn over administrative control of their transmission facilities and entitlements to the ISO. In return, the ISO collects revenues for each PTO pursuant to calculations that reflect the expenses and capital costs incurred by each PTO to provide transmission services. These calculations are known as Transmission Revenue Requirements ("TRRs"). The relationship between PTOs and the ISO is governed by a Transmission Control Agreement ("TCA"), which sets forth specific duties and obligations of all PTOs. The TCA requires all PTOs to file a Transmission Owner Tariff ("TO Tariff") and TRR with the Federal Energy Regulatory Commission ("FERC"). The TCA further requires all PTOs to file any changes in their TRRs with FERC. Each PTO must also include in its TO Tariff its Gross Load which the ISO uses to calculate its grid -wide Transmission Access Charge ("TAC") rates, and which is related to the City's ability to recover its full TRR. TRANSMISSION REVENUE REQUIREMENT At present, the City's high voltage transmission assets consist of three long-term contracts (known as "existing transmission contracts" or "ETCs") which provide the City with dedicated access to high voltage transmission facilities owned by other entities. Specifically, the City has contractual entitlements to utilize transmission assets pursuant to one long-term transmission contract with the Los Angeles Department of Water and Power ("LADWP") and two long-term transmission contracts with Southern California Edison ("SCE"). The ETCs with SCE consist of one (the "SCE Victorville-Lugo ETC" described in SCE's FERC Rate Schedule 360) providing 11 MW of transmission capacity along the path between the Victorville-Lugo midpoint and the point of interconnection with the City's internal transmission system (the "City Gate"), and one (the "SCE Mead ETC" described in SCE's FERC Rate Schedule 207) providing 26 MW of transmission capacity along the path between the Mead 230 substation and the City Gate. The costs of these ETCs make up the majority of the costs recovered through the City's TRR. Until recently, for each of the ETCs, the City paid the owner of the transmission facilities a fixed rate which was specific to the transmission path provided under each ETC. The attached revised TRR Report supports the establishment of a new TRR associated with Vernon's high voltage entitlements. A revision to the TRR Report originally approved by the City Council on October 7, 2014 is required to correct an accounting error relating to the treatment of 2015's beginning balance and refunds the City received from SCE. After the City notified the FERC of the accounting error, the FERC ordered the City to make the required corrections and re -file by January 15, 2015. The City has corrected the error and modified the true -up template accordingly. As a result, the beginning balance was adjusted up by $26,966.28 and the actual payment to SCE was reduced by $192,235.69. The net change from the City's TRR that was approved by Council on October 7, 2014 is a reduction of $171,244.48. Fiscal Imuact The cost of Existing Transmission Service Contracts (ETC) incurred by the City will be recovered. Attachments RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF VERNON ADOPTING A REVISED NEW TRANSMISSION REVENUE REQUIREMENT FOR 2015 IN ACCORDANCE WITH VERNON'S TRANSMISSION OWNER TARIFF AND PROVIDING FOR TARIFF SHEET CHANGES TO IMPLEMENT THE ADJUSTMENT WHEREAS, the City of Vernon ("City") is a chartered municipal corporation of the State of California that owns and operates a system for the generation, purchase, transmission, distribution and sale of electric capacity and energy; and WHEREAS, on October 7, 2014, the City Council of the City of Vernon adopted Resolution No. 2014-60 adopting a new transmission revenue requirement for 2015 in accordance with Vernon's transmission owner tariff and providing for tariff sheet changes to implement the adjustment; and WHEREAS, by memorandum dated January 6, 2015, the Director of Gas & Electric has recommended the approval of a revised new Transmission Revenue Requirement (TRR) associated with Vernon's High Voltage Entitlements ("TRR Report") to be effective on January 1, 2015, to establish the City's new revised Transmission Revenue Requirement (TRR) and Appendix I to the TO Tariff implementing the revised new TRR; and WHEREAS, on January 6,2015, the City Council held a Public Hearing in which the City Council took evidence from and those other persons in attendance who wished to be heard on the calculation of the City's new TRR under the City's amended TO Tariff; and WHEREAS, the revised TRR for 2015 is shown in the amended Appendix I to the TO Tariff, a copy of which is attached hereto as Exhibit A and made a part hereof. WHEREAS, the Gas & Electric Department has prepared a Report, dated January 6, 2015, with exhibits, a copy of which is attached hereto as Exhibit B and made a part hereof; and WHEREAS, the Gas & Electric Department has recommended the City adopt the revised TRR shown in the amended Appendix I to the TO Tariff, attached as Exhibit A, to be effective on January 1, 2015; and WHEREAS, the City Council has heard and considered all evidence, written and oral, presented in consideration of the establishment of the City's new TRR under the amended TO Tariff. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF VERNON AS FOLLOWS: SECTION 1: The City Council of the City of Vernon hereby finds and determines that the above recitals are true and correct. SECTION 2: The City Council of the City of Vernon hereby further finds and determines that all persons have had the opportunity to be heard or to file written comments to the proposed adoption of the City's revised TRR to be effective January 1, 2015. SECTION 3: The City Council of the City of Vernon hereby declares that: (a) any determination made pursuant to this Resolution regarding the validity or reasonableness of any portion of any TRR or TO Tariff shall apply only prospectively from the date of this Resolution; and (b) in no way shall this Resolution affect the City Council's adoption or determination of any previous TRR or TO Tariff. SECTION 4: The City Council of the City of Vernon hereby approves, pursuant to the TO Tariff and to be effective on January 1, 2015, the establishment of the City's new TRR and Appendix I to the TO - 2 - Tariff implementing the new TRR, as described in the Gas & Electric Report dated on or about January 6, 2015. SECTION 5: The City Council of the City of Vernon hereby authorizes outside counsel to submit the City's revised TRR, the amended Appendix I to the Vernon TO Tariff, and supporting documentation, such as the Report, and this City Council Resolution approving the new TRR, to FERC on behalf of the City of Vernon. SECTION 6: The City Clerk, or Deputy City Clerk, of the City of Vernon shall certify to the passage, approval and adoption of this resolution, and the City Clerk, or Deputy City Clerk, of the City of Vernon shall cause this resolution and the City Clerk's, or Deputy City Clerk's, certification to be entered in the File of Resolutions of the Council of this City. APPROVED AND ADOPTED this 6th day of January, 2015. ATTEST: City Clerk / Deputy City Clerk APPROVED AS TO FORM: Katharine Mapes, Es Spiegel & MCDiarmid, LLP Special Counsel to City Name: Title: - 3 - STATE OF CALIFORNIA ) ) ss COUNTY OF LOS ANGELES ) I, , City Clerk / Deputy City Clerk of the City of Vernon, do hereby certify that the foregoing Resolution, being Resolution No. , was duly passed, approved and adopted by the City Council of the City of Vernon at a regular meeting of the City Council duly held on Tuesday, January 6, 2015, and thereafter was duly signed by the Mayor or Mayor Pro-Tem of the City of Vernon. Executed this day of January, 2015, at Vernon, California. (SEAL) - 4 - City Clerk / Deputy City Clerk EXHIBIT - A APPENDIX I Revised Transmission Revenue Requirement and TRBAA The Vernon Base Transmission Revenue Requirement is $2,AQ���12,310,907 and is comprised of the following components: Base TRR costs not subject to ETC Adjustment Clause: $498,480 ETC Adjustment Clause: Forecast SCE ETC Costs: $1,989,120 Balance of Difference between prior year Forecast and Actual SCE ETC Costs: ($4,44®169,709) Interest on Difference between prior year Forecast and Actual SCE ETC Costs: ($"W6.984) The ETC Adjustment Clause is: The projected SCE ETC Cost for the next calendar year, plus the true -up (positive or negative) of the prior October through September SCE ETC Cost with interest calculated pursuant to 18 C.F.R. § 35.19a. The ETC Adjustment Clause will be recalculated annually and filed with the Commission with a proposed effective date of January 1 of each year. The TRBAA is a positive $12,458 for calendar year 2015. Vernon's Gross Load, consistent with its TRR, used by the ISO to develop the Transmission Access Charge is 1,181,728 MWhs. All of Vernon's transmission facilities and Entitlements placed under the ISO's Operational Control are High Voltage Facilities as defined by the ISO Tariff. The TRBAA will be recalculated annually consistent with the ISO Tariff approved by the Vernon City Council, and provided to the ISO. APPENDIX I (Revised) Transmission Revenue Requirement and TRBAA The Vernon Base Transmission Revenue Requirement is $2,310,907 and is comprised of the following components: Base TRR costs not subject to ETC Adjustment Clause: $498,480 ETC Adjustment Clause: Forecast SCE ETC Costs: $1,989,120 Balance of Difference between prior year Forecast and Actual SCE ETC Costs: ($169,709) Interest on Difference between prior year Forecast and Actual SCE ETC Costs: ($6,984) The ETC Adjustment Clause is: The projected SCE ETC Cost for the next calendar year, plus the true -up (positive or negative) of the prior October through September SCE ETC Cost with interest calculated pursuant to 18 C.F.R. § 35.19a. The ETC Adjustment Clause will be recalculated annually and filed with the Commission with a proposed effective date of January 1 of each year. The TRBAA is a positive $12,458 for calendar year 2015. Vernon's Gross Load, consistent with its TRR, used by the ISO to develop the Transmission Access Charge is 1,181,728 MWhs. All of Vernon's transmission facilities and Entitlements placed under the ISO's Operational Control are High Voltage Facilities as defined by the ISO Tariff. The TRBAA will be recalculated annually consistent with the ISO Tariff approved by the Vernon City Council, and provided to the ISO. EXHIBIT - B CITY OF VERNON GAS AND ELECTRIC DEPARTMENT REPORT REGARDING THE ESTABLISHMENT OF A REVISED NEW TRANSMISSION REVENUE REQUIREMENT ASSOCIATED WITH VERNON'S HIGH VOLTAGE ENTITLEMENTS January 6, 2015 The City of Vernon ("Vernon" or "City") is a Scheduling Coordinator and a Participating Transmission Owner ("PTO") in the California Independent System Operator Corporation ("ISO"). To participate in the ISO, PTOs are required to turn over administrative control of their transmission facilities and entitlements to the ISO. In return, the ISO collects revenues for each PTO pursuant to calculations that reflect the expenses and capital costs incurred by each PTO to provide transmission services. These calculations are known as Transmission Revenue Requirements ("TRRs"). The relationship between PTOs and the ISO is governed by a Transmission Control Agreement ("TCA"), which sets forth specific duties and obligations of all PTOs. The TCA requires all PTOs to file a Transmission Owner Tariff ("TO Tariff') and TRR with the Federal Energy Regulatory Commission ("FERC"). The TCA further requires all PTOs to file any changes in their TRRs with FERC. Each PTO must also include in its TO Tariff its Gross Load which the ISO uses to calculate its grid -wide Transmission Access Charge ("TAC") rates, and which is related to the City's ability to recover its full TRR. On October 7, 2014, the City Council approved the City's TRR associated with Vernon's high voltage entitlements to be effective January 1, 2015. Outside counsel submitted the City's TRR, the amended Appendix I to the Vernon TO Tariff, and supporting documentation such as the TRR Report, to the FERC on behalf of the City of Vernon. Subsequent to the filing, an accounting error relating to the treatment of the beginning balance and refunds the City received from SCE was discovered. Estimates of the net impact of correcting the error showed that the City of Vernon might overcollect rates under the TRR as filed. TRR Report 2015 (Revised) Page 2 of 6 After the City notified the FERC of the accounting error, the FERC ordered the City to correct the error and resubmit by January 15, 2015. In order to do so, the City has modified the template by which it trues -up predicted revenues from SCE against actuals. As a result, the City's 2015 beginning balance was adjusted upward by $26,966.28 and the actual payment to SCE was reduced by $192,235.69. The net change from the City's TRR that was approved by Council on October 7, 2014 is a reduction of $171,244.48. After approval by Council, the City will submit both its revised template and its revised TRR to FERC on January 15, 2015. TRANSMISSION REVENUE REQUIREMENT At present, the City's high voltage transmission assets consist of three long-term contracts (known as "existing transmission contracts" or "ETCs") which provide the City with dedicated access to high voltage transmission facilities owned by other entities. Specifically, the City has contractual entitlements to utilize transmission assets pursuant to one long-term transmission contract with the Los Angeles Department of Water and Power ("LADWP") and two long-term transmission contracts with Southern California Edison ("SCE"). The ETCs with SCE consist of one (the "SCE Victorville-Lugo ETC" described in SCE's FERC Rate Schedule 360) providing 11 MW of transmission capacity along the path between the Victorville- Lugo midpoint and the point of interconnection with the City's internal transmission system (the "City Gate"), and one (the "SCE Mead ETC" described in SCE's FERC Rate Schedule 207) providing 26 MW of transmission capacity along the path between the Mead 230 substation and the City Gate. The costs of these ETCs make up the majority of the costs recovered through the City's TRR. Until recently, for each of the ETCs, the City paid the owner of the transmission facilities a fixed rate which was specific to the transmission path provided under each ETC. TRR Report 2015 (Revised) Page 3 of 6 On August 1, 2008, SCE proposed to increase its TRR and associated rates in FERC Docket No. ER08-1343-000. In a related filing submitted in FERC Docket No. ER08-1353-000, SCE proposed to transition both of its ETCs with Vernon from their current, fixed "path -specific" rates to a so-called "postage stamp" rate methodology which reflects the blended rate which SCE charges the ISO pursuant to its own TRRs for the actual usage of all of SCE's transmission facilities by customers of the ISO (the "HVECAC Rate"). The HVECAC Rate that SCE proposed in its TO Tariff is derived from SCE's TRR and, therefore, will change each time SCE amends its TRR. On September 30, 2008, FERC accepted, subject to refund and hearing and settlement procedures, SCE's proposed revisions to its TO Tariff to transition the negotiated path -specific rates set forth in the SCE Victorville-Lugo ETC and the SCE Mead ETC to the uniform HVECAC Rate, and thus the City's costs under those ETCs will vary proportionately with any changes in SCE's TRR. The City reached a settlement agreement (the "SCE Settlement") with SCE to amend the SCE Victorville-Lugo ETC and the SCE Mead ETC to fully transition the path -specific rates set forth in those ETCs to SCE's HVECAC Rate after a phase -in period that began on August 1, 2009, during which the City's path -specific rates in those ETCs have been gradually stepped -up under incrementally increasing fixed rates (the "Phase -In Rates") until the path -specific rates are equal to the HVECAC Rate as of January 1, 2013. FERC approved the SCE Settlement pursuant to an order issued September 11, 2009, 128 FERC ¶ 61, 237 (2009), in FERC Docket Nos. ER08-1343-000, ER08-1353-000, ER09-187-000, ER09-187-001, EL09-19- 000, and ER09-446-000 ("SCE Settlement Order"). On behalf of the City, The Brattle Group, an experienced utilities consulting firm, developed a TRR tracking mechanism clause for the City's TRR ("ETC Adjustment Clause"), which allows the City's TRR to be adjusted annually, effective January 1 of each year, to reflect changes in the City's transmission expenses associated with any changes implemented by SCE in the HVECAC Rate associated with the SCE TRR Report 2015 (Revised) Page 4 of 6 Victorville-Lugo ETC and the SCE Mead ETC. On the basis of The Brattle Group's analysis and evidence from City staff, which was considered during a public meeting of the City Council held on July 13, 2009, the City, on July 15, 2009 ("July 15 FERC Filing"), filed with FERC the proposed (i) revisions to its TO Tariff proposing the City's stated TRRs for each of the years 2010 to 2012, which dollar amounts were also included in the SCE Settlement ("TO Tariff Revisions") and (ii) the ETC Adjustment Clause tracking mechanism. The July 15 FERC Filing acknowledged that, to the extent that the SCE Settlement was accepted, because the stated Phase -In Rates would be fixed, the ETC Adjustment Clause for the term of the Phase -In Rates would be zero. FERC approved the City's July 15 FERC Filing, including the TO Tariff Revisions, the City's proposed calculations of the TRR for years 2010 to 2012, and the City's request to utilize an ETC Adjustment Clause, in an order issued September 11, 2009, 128 FERC ¶ 61,235 (2009), in FERC Docket No. EL09-64-000 ("TO Tariff Order"). The City is required under the TO Tariff Order to submit annual filings each year with FERC reflecting annual modifications to the base TRR of the City. CALCULATION OF THE ETC ADJUSTMENT CLAUSE Section 5.3 of the Vernon TO Tariff identifies the items to be reflected in the ETC Adjustment. The ETC Adjustment Clause shall be calculated as: ETC Adjustment = ETCCF+ ETCCT+ I. ETCCF = The forecast of SCE ETC Cost for the following calendar year ETCCT = The balance representing the prior period difference between the projected cost of the SCE ETCs ("SCE ETC Cost") and the actual cost. TRR Report 2015 (Revised) Page 5 of 6 I = The interest balance for the ETC, which shall be calculated using the interest rate pursuant to Section 35.19(a) of FERC's regulations under the Federal Power Act (18 C.F.R. 35.19(a)). Interest shall be calculated based on the average ETC true -up balance each month, compounded quarterly. A summary of the elements of the Vernon ETC Adjustment Clause proposed to be effective January 1, 2015 is shown in Exhibit 1. The ETC Adjustment Clause to be effective for the twelve months starting January 1, 2015 is $1,812,427. The ETCCF Component The ETCCF component stands for the forecast of SCE ETC costs for the following calendar year, in this case 2015. These forecast SCE ETC costs reflect 2015 rates from Southern California Edison Company's draft FERC Filing, posted on its website pursuant to its formula rate protocols (approved in FERC Docket No. ER11-3697). That filing is scheduled to be made at FERC, in its final form, on December 1, 2014; Vernon will true up any differences in its SCE ETC costs when it makes its 2016 TRR filing. The ETCCF for 2015 SCE ETC costs are projected to be $1,989,120 as shown in line 8 of Exhibit 1. The ETCCT Component ETCCT represents a balance that reflects the difference between prior year forecast and actual SCE ETC costs The prior period in this case is the twelve-month period starting October 1, 2013 and ending September 30, 2014. A summary of the determination of the September 30, 2014 balance in the ETC Adjustment Clause is shown in Exhibit 1. The ETCCT component reflects 1) the previously projected 2013 SCE ETC costs of $157,990 per month, for the months October through December 2013 and projected 2014 SCE ETC costs of $140,230 per month, for the months January through September 2014, 2) actual 2013 SCE ETC costs of $ $139,860 average per month, for the months October through TRR Report 2015 (Revised) Page 6 of 6 December 2013 and $145,780 average per month, for the months January through September 2014, and 3) refunds received by the City —all elements as reflected on Line No. 8, 15, and 16 of Exhibit 1. The net of these elements produce the under (or over) collection figures reflected in Line 17of Exhibit 1. The ending balance is the sum of the beginning balance on October 1 and the (over)/under collection — both elements as reflected on Line 1 and 17 of Exhibit 1. The cumulative monthly balances are carried forward from month to month and the ETCCT component on September 30, 2014 of negative $169,709 is shown in line 19 of Exhibit 1. The I (Interest) Component The Interest component reflects interest on the difference between prior year forecast and actual SCE ETC costs. The monthly interest carrying costs are calculated using the 18 C.F.R. § 35.19(a) interest rates and calculation method. These interest rates are published by FERC and reflect the prime rate values published in the Federal Reserve Bank's "Selected Interest Rates." Interest is calculated monthly on the average cumulative monthly balance and is compounded quarterly. The interest component is negative $6,984, as shown in Lines 20-24 of Exhibit 1. RECOMMENDATIONS 1. Approve the establishment of the City's revised new TRR for 2015 and revised Appendix I to the TO Tariff. 2. Authorize outside counsel to submit the City's TRR, ETC Adjustment Clause amount, the revised Appendix I to the TO Tariff, and this City Council Resolution approving the TRR and ETC Adjustment Clause amount to FERC on behalf of the City of Vernon. EXHIBIT- 1 n 7 s i E} f RAF, yyi�pry dcl x' R�R gR R � � a t eat r •� 3 Ell 'es'_a_ec_ Will 1 9 9 3 _ 9 39p3p .Si kayEgg �: a as3a�: �.5