HomeMy WebLinkAbout8.4 Utility Restructuring Rpt
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CITY CLERK
File # [Z][Q][2][(j-I2J[(l]
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AGENDA STATEMENT
CITY COUNCIL MEETING DATE: December 2, 1997
SUBJECT:
Informational Report on Utility Restructuring
Report Prepared by: Richard Ambrose, City Manager
EXHllUTS ATTACHED: 1) Glossary of Tenns
2) Power Costs for City Accounts
RECOMMENDATION: l1~ceive Report
FINANCIAL STATEMENT:
None at this time.
DESCRIPTION: AB 1890, a comprehensive electric industry restructuring act, was
passed by the California Legislature in August of 1996. This bill endorses the concept that the generation
of electricity should become a competitive business, and that monopoly utility transmission and distribution
_mctions should'be separated from competitive generation functions'. Initially, access to the open market
~as to be phased so that a limited number of aggregators and customers would be approved each year;
however, the CPUC later determined that any customer can sign up with a new power supplier as of
January 1, 1998. AB 1890 further provides that current electric tariff rates will remain frozen until January
1,2002. The exception to this 'is that residential and small commercial (less than 20 kwH usage per year)
customers will experience a 10% rate reduction on January 1, 1998.
Restructuring (also called "deregulation") has created a whole list of new terms and acronyms. Please see
the glossary, Exhibit 1, for an explanation of the terms and acronyms that will be used in this report.
The simplest explanation of restructuring or deregulation is that it will create a situation similar to that
which exists with telephone service; Le., a customer can choose one of many available long-distance phone
service companies and would likewise be able to choose one of many potential electric suppliers. The
theory is that these suppliers will be offering competitive rates and the consumer will save money.
The cost of power includes the cost of generation, transmission, distribution, and special services. Under
AB 1890, transmission and distribution will remain regulated, while generation will become a competitive
business. A "Power Exchange," called the "PX," is required to be established as a market clearing forum
to help establish a visible market price. PG&E and the other IOU's (Investor-Owned Utilities) such as
SoCalEdisbn will be required to sell their generated power through the px. Other generators such as
independent power producers or municipal utilities may either go through the PX or sell power directly to
fltail customers. An Independent System Operator (ISO) will be created to develop standards to ensure'
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the reliability of the power transmission grid, and will therefore be responsible for making sure that
customers have a reliable power supply. The ISO will be monitored by both State and Federal "oversight" .
boards.
The cost of power to the consumer breaks down roughly as 30% for generation and special services, 40%
for transmission and distribution, and 30% for CTC's (Competitive Transition Costs). Under AB 1890,
the allowance for CTC's (see glossary) will remain in effect until the end of the Year 2001. It has been
commented, unofficially, that the IOU's may ask the CPUC to extend the allowance for CTC's past 2001.
The potential for reduction in electric rates lies within the 30% portion for generation, since this is the area
that is being deregulated. At this point in time, however, the amount that can be saved is unclear. Staff
has been approached by a couple of aggregators, including ABAG and Enron, and it is expected that others
will surface as time goes on. The deregulation of electricity creates the following options for City
consideration. .-
1. Become a Municipal Utility
This would involve acquiring the distribution facilities, similar to the acquisition of the street lighting
system, and becoming the "default" commodity supplier for the community. In other words, a user who
did not actively select another supplier would automatically obtain power from the City. As a practical
matter, this option is probably not a good one for Dublin. The initial cost of the system would be in the
millions of dollars, and much of the distribution system in Dublin is over 30 years old and would need to be
replaced or extensively maintained. This would put the City in the position of responsibility for seeing that
power is delivered to the customers and could also put the City at risk because of the extreme liability .
associated with high voltage electrical systems. It would require hiring a considerable staff (or contracting
with a firm that would provide staft), from management to utility maintenance workers, and purchase of
vehicles and equipment. The City would have control of how funds are spent for delivery of power to
itself and the residents and businesses but it seems that the cost might outweigh the benefit. If the City
Council were interested in this option, the City would need to secure an outside consulting service to
perform an in-depth study.
2. Become an A22re2ator
The City could become an aggregator and go into the power business, buying and reselling power to
residents, businesses, and potentially other jurisdictions. This would require either hiring additional staff
or contracting with a firm with expertise in the field to deal with buying power on the open market and
then taking over meter reading and billing. This may mean that the City would have to either acquire the
meters at individual locations or require customers to pay for them.PG&E would continue to own the
existing distribution facilities and provide the distribution service, and the City could decide whether to
take over any new facilities or have PG&E continue to assume responsibility. The benefit to this option
may be the ability to provide service to the community at a lower cost. Consulting services would also be
required to perform an in-depth study for this option.
3. Join With An A22re2ator or "Power Pool"
The City could join with an aggregator such as the ABAG Power Pool. Approximately two months ago, .
Staff met with the ABAG representative, who indicated that the expected savings would be in the 3% to
4% range (off the total 'bill) on both metered and unmetered power. It was commented, however, this
savings is not guaranteed, particularly with respect to the unmetered service, which affects street lighting
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and some irrigation. The total cost ofunmetered service is in the neighborhood of$75,000 per year, or
.about 25% of the City's total usage (see Exhibit 2). The ABAG representative indicated that a rate analyst
had not yet been hired to develop the rate structure for the unmetered accounts. Just as a point of
information, unmetered service rates are developed by calculating the average amount of time of usage
(e.g., 10 hours a day for street lighting) and the power used per unit (100 watts, 200 watts, etc.).
It was also indicated that the "time of use" service which saves several thousand dollars per year on the
Civic Center power, Dublin Sports Grounds lighting, and Kolb Park tennis court lighting, may not be
available through ABAG, at least in the beginning. Another cost associated with changing suppliers, which
may be true for any potential aggregator, is replacement of electric meters for some rate schedules at a cost
of$500 to $1,500 per meter. Again according to ABAG's representative, the E-19 and A-I0 meters
would probably need to be replaced, which would involve at least three meters. If the City were to decide
to return to PG&E or join with another aggregator, the meter cost may have to be paid again.
Staff did perform an analysis of current PG&E bills, deducting the percentages of savings that were quoted
by ABAG; however, when the loss of time- of-use rates and the cost of meters was figured in, the savings
for the first year amounted to less than $100.
Another issue with the ABAG pool is that the City would be required to pay the cost ofa month's electric
service in advance. The average cost per month is about $24,000 depending on time of year. This would
ultimately even out over time, but would create an additional month's expense for the first year.
_The initial September 30th deadline to join the ABAG group has passed; however, it will be possible to
oin at a later date, probably a year from now, if time proves this to be a good option. In the meantime, the
City is being approached by other aggregators, and Staff needs to carefully investigate their claims before
making any recommendations to the City Council.
4. Buvin2 Options (Other Than PG&E) for City Facilities Onlv
There are actually two options here. The first is to buy power generation at the market price through the
Power Exchange and continue to pay PG&E for the unbundled services of transmission and distribution.
This is called "virtual direct access." Staff has been advised that the City would need to acquire meters
that measure power on an hourly basis in order to pursue this option, as the price of power fluctuates on an
hourly basis. The billing would come through PG&E but would be shown as separate amounts for each
component. The initial drawback to this option wO,uld be the cost of the meters, and the savings would
depend on the market price for power generation. PG&E's estimate at this time is about 2.5~ per kwH,
which appears to be slightly better than the cost currently being paid through PG&E. Again; the cost of
power generation is only 30% of the total bill, which means that on rates which are currently 10~ per kwH,
the cost of power generation would be about 3.3~ per kwH, and the savings would be O.8~. The City pays
a number of different rates, and. the market price of power will fluctuate; so a detailed analysis would be
needed to determine the actual savings achieved with this option.
The second option is to contract with a full-service vendor such as Enron, in which case their staff would
purchase the power from the Power Exchange and would bill the City for the power, as well as the .
Aansmisskm and distribution costs incurred from PG&E. In this case, the City would receive one bill, and
~e savings would depend on the type of contract that was entered into. A longer term contract would
undoubtedly carry a better rate, and the rates could be fixed or variable or a combination of both. Staff
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anticipates receiving inquiries from these alternate suppliers and will evaluate them to see if there is a
benefit to contracting with one of them. .
5. Remain with PG&E
The City could remain with PG&E, at least for a period of time, until some of the alternate suppliers have a
track record and actual costs become more definite. Staff feels that the City would not lose any money by
doing this, since the rates are frozen. As noted in the first paragraph of this report, AB 1890 required that
PG&E give a 10% discount on some rates beginning January 1. This reduction includes residential and
small commercial customers (less than 20 kwH usage per year). Some of the City's accounts fall into this
category, but only the smaller A-I and A-6 rate accounts such as irrigation, which amount to
approximately $20,000 per year (see Exhibit 2). The larger p~wer users such as the Civic Center,
Shannon Center, Swim Center, traffic signals, and street lightirig will remain at current rates. According to
PG&E's representative, the 10% discount will be a "true 10%"'offthe bill and not just off a portion ofthe
cost. On that basis, the City can expect to experience approximately a $2,000 per year reduction in electric
cost beginning January 1, 1998.
Once the treeze is lifted, it is assumed that PG&E will also be operating in a competitive market and
therefore making an effort t9 keep its customers, both through rates and service.
Past Experience - Core Gas Transport Proeram
As a point of historical information, the City signed up for the gas core transport program when gas was .
deregulated in 1992. The City's gas supplier at the time was Access Energy, who was later acquired by
Enron Capital and Trade., At the time of the initial agreement, the City was quoted potential savings in the
neighborhoodof3%, with the guarantee that the City would not have to pay any more than the charge
would be through PG&E. During the first two years, the City did realize a few hundred dollars savings;
however, for the past several years, Enron has had to issue credits. During this past year, the City paid out
about $4,000 more than would have been paid to PG&E. Enron explains this by stating that gas market
prices in California are very high. Again, Enron does credit this amount back to the City, but no benefit is
being received. Staff is in the process of looking into other options for gas service in the hope of again
achieving some savings.
Recommendation
Because of potentially having to replace meters and incur other costs or changes, as well as the past
experience with the gas core transport program, it seems prudent to take a wait-and-see attitude and
continue to talk with potential suppliers as well as PG&E: Staff anticipates being approached by a number
of suppliers and being able to carefully weigh the alternatives before making any further recommendations.
At this point in time, Staff recommends not changing electric suppliers on January 1st but waiting at least
through an initial "shakedown" period to see if rates are reduced, if rates remain about the same, or if costs
actually become higher.
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GLOSSARY OF TERMS - UTILITY RESTRUCTURING
Aggregators: Generators or brokers who gather together a group of customers to create
a "load" in order to buy power in bulk and thereby make a profit on the sale.
CPUC: California Public Utilities Commission. This body sets policy and rates for the
Investor-Owned Utilities.
CTe's: Competitive Transition Costs, recovery of which will help to repay IOU's for capital
., costs incurred in the construction of generating plants (see also "Stranded Investments"). The
CPUC is allowing the inclusion of CTC's in the cost of power for the transition period that ends
at the close of the Year 2001.
Distribution: Carrying power via lower-voltage (4 - 44 kV) lines from the transmission
system to local transformers and ultimately to the retail customer.
FERC: Federal Energy Regulatory Commission. This body has jurisdiction over
wholesale electric sales, transmission and anti-competitive effects of market power or
dominance by large players.
.Generation:
eactor.
Creation or "manufacture" of power by, means of water, steam, or nuclear
ISO: Independent System Operator - a complex power grid and management system
required by AS 1890 to be set up to control transmission access and system operations.
IOU:
Investor-Owned Utility (e.g., PG&E or Southern California Edison)
kwH:
usage.
Kilowatt Hours (1,000 watts per hour) - the unit of measure applied to electric
Load:
Amount of electricity needed at a given time.
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Publicly Owned Utility: A local government or district which delivers power. Approximately
36 of these exist in California at the present time.
PX: Power Exchange - an electricity commodities exchange required by AS 1890 to be
set up as a market clearing forum to help establish a visible market price for electricity.
Retail Wheeling: Ability of generation suppliers or brokers to sell directly to retail customers,
utilizing regulated transmission lines and the distribution services of existing utility companies.
~tranded Costs or Investments: These are investments that utilities have in power
~Iants and other facilities that will become "stranded" by restructuring. These investments
theoretically cannot be recovered by the utilities in an open and competitive market.
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Transmission: Carrying power via high voltage (115 - 500 kV) lines from the generating .
plant to the local distribution system.
Unbundled Rates:
and other services.
Separate line-item charges for generation, transmission, distribution,
Unbundled Services: Means that customers can select different companies to provide
generation, transmission, distribution, a~d other services.
Wholesale Wheeling:
customers.
Selling generated electricity to wholesale buyers for resale to retail
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RECENT GAS AND ELECTRIC EXPENDITURES
19915-96 1996-87 1997-98
ACCOUNT DESCRIPTION ACTUAL ACTUAL BUDGET COMMENTS
001-1050 BUILDING MANAGEMENT $114,263 $114.585 $115.000 Time-of-Use RatelES19V - metered)
2QS..2040 SIGNALS (TRAFFIC SFTY FUND) $18,787 $22,506 $26,150 TC-1 (metered)
206-2040 SIGNALS (GAS TAX) $26,939 $19,888 $28,650 TC-1 (metered)
712-2040 SIGNALS (SRRSP ASSESSMENT) $2,367 $2,289 $2,310 TC-1 (metered)
TOTAL SIGNALS: $48,093 $44,683 $57,110
710-2040 STREET LlGHilNG (ASSESS. DIST.) $168,281 $59,520 $71,590 Unmetered service
001-2060 FIRESTATlON $0 $0 $11,000 A-10 metered)
001-3050 STREET LOSCP (GA $1,672 $1,648 $1,700 Mostly A-1 unmetered\
711-3050 STREET LDSCP (STAGECOACH AD) $314 $322 $320 fMostly A-1 unmeteredf
713-3050 STREET LOSCP (DOUGHERTY AD) $1,206 $1,165 $1,200 fMostly A-1 un metered)
716-3050 STREET LOSCP (SANTA RITA AD) $0 $0 $300 fMostly A-1 unmetered)
TOTAL STREET LDSCP: $3,192 $3,135 $3,520
001-8012 HERITAGE CENTER $839 $1,132 $1,320 A-1 metered
001-8020 PARK MAINTENANCE ORR. & LGHTS) $15,386 $18,704 $19,700 A-1 unmetered irria. Time of use for lighting
001-8050/8100 SHANNON & SWIM CTR (COMBINED) $53,188 $52.515 $55,490 A-10 metered
TOTAL POWER (GAS & ELEC.) $403,242 $294,274 $334,730
DEDUCT FOR GAS: ($39,025) ($39,018) ($40,041)
TOTAL ESTIMATED ELEe. $364,217 $255,256 $294,689
. ESTIMATED UNMETERED: $174,473 $65,655 $78,110
ESTIMATED METERED: $189,744 $189,601 $216,579
(NOTE Tl-IAT STREET LIGHT ACaUISTlON OCCURRED
LATE IN FY 199$-96, REDUCING THE STREET LIGHT
EXPENDITURE FOR THE FOLLOWING 2 YEARS)
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