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Home My WebLink AboutAgenda Packet - April 26, 2004 - CC AZUSA LIGHT l WATER AGENDA REGULAR MEETING OF AZUSA UTILITY BOARD AND AZUSA CITY COUNCIL AZUSA LIGHT &WATER MONDAY, APRIL 26, 2004 729 N.AZUSA AVENUE 6:30 PM AZUSA, CA 91702 AZUSA UTILITY BOARD DIANE CHAGNON CHAIRPERSON DICK STANFORD DAVE HARDISON VICE CHAIRPERSON BOARD MEMBER CRISTINA C. MADRID IOSEPH R. ROCHA BOARD MEMBER BOARD MEMBER 6:30 p.m. - Convene to Regular Meeting of the Azusa Utility Board and Azusa City Council • Call to Order • Pledge to the Flag • Roll Call I. CLOSED SESSION A. CONFERENCE WITH LEGAL COUNSEL -ANTICIPATED LITIGATION Government Code Section 54956.9(c) One Potential Case 11. PUBLIC PARTICIPATION (Person/Group shaff be"owed to speak without interruption up to five (5)minutes maximum time, subject to compliance with applicable meeting rules. Questions to the speaker or responses to the speaker's questions or comments, shall be handled after the speaker has completed his/her comments. Public Particlpation wfl/be limited to sixty(60)minutes time.) 001 The Consent Calendar adopting the printed recommended action will be enacted with one vote. ifStaff or Councilmembers wish to address any item on the Consent Calendar individua&, it will be considered under SPECL4L CALL ITEMS. 111. CONSENT CALENDAR A. Minutes. Recommend a ion: Approve minutes of regular meeting of March 22, 2004, as written. III-A. Mlnutes\UB Minutes--March 22.dt B. Policy Governing Transfers from Utility to the City. Recommendation: Approve the following resolutions: 1. RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA, CALIFORNIA, ESTABLISHING A POLICY CONCERNING THE OBLIGATIONS OF THE CITY'S ELECTRIC UTILITY OPERATIONS TO COVER GENERAL FUND SUPPORT SERVICE COSTS AND OTHERWISE PAY ITS FAIR SHARE OF CAPITAL IMPROVEMENT COSTS FOR INFRASTRUCTURE IMPACTED BY UTILITY OPERATIONS. 2. RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA, CALIFORNIA, ESTABLISHING A POLICY CONCERNINiG THE OBLIGATIONS OF THE CITY'S WATER UTILITY OPERATIONS TO COVER GENERAL FUND SUPPORT SERVICE COSTS AND OTHERWISE PAY ITS FAIR SHARE OF CAPITAL IMPROVEMENT COSTS FOR INFRASTRUCTURE IMPACTED BY UTILITY OPERATIONS. III-B.Transfer Porry Resos.doc C. Request for Proposals for Third Party Processing of Mail-in Utility Payments. Recommendation: Authorize development and release of a Request For Proposals for a third-party vendor to process mail-in utility payments. III{, Lockbox.DOC D. Amendment to Basic Chemical Solutions, I.I.C. Blanket Purchase Order. Recommendation: Approve amendment to(blanket purchase order #410814 from $40,000 to $60,000, a net increase of $20,000, to enable purchase of liquid chlorine. IFA-6 I UZU III-D. Blk PO for Bask Chem DOC 2 0012 E. Amendment to AppleOne Inc. Purchase Order. Recommendation: Approve amendment to purchase order #007191 from $10,000 to $21,000, a net increase of $11,000, to pay for temporary receptionist services. III-E AppleOne PO.DOC F. Renovation Specifications for Electric Yard at 1020 W. Tenth St. Recommendation: Approve renovation specifications and authorize City Clerk to advertise for bids. III-G. Elec Yard Bid Specs.DOC G. Capital Improvement IProiect W-185 Notice of Completion. Recommendation: Accept Notice of Completion for Project W-185 and direct City Clerk's Office to execute same and have recorded at Office of the Los Angels County Recorder. WE I III-F. NoC-Da Ron Wash Crossing W-18`. IV. SCHEDULED ITEMS A. Casa Azusa, 129 W. 91" Street and 153 W. 9r"Street. Recommendation: In considering water refund settlement with Casa Azusa Homeowner's Association: (1) exclude the period of September 2000 through December 2002 from settlement consideration due to accurate meter tests; (2) require one full year going forward of billing history after new meters are installed at 129 W. 9th Street and 153 W. 9th Street before determining if a billing adjustment is warranted for period of January 2003 through December 2003; and (3) if an adjustment is warranted, pay interest on the adjustment amount at an annual rate of 3%. M N1 Eli IV-A. Casa Azusa Dispute.DOC B. Contract with Duke Energy Merchant America LLC for Purchase of (15) Megawatts. Recommendation: Authorize the Mayor to execute agreements with Duke Energy Merchant America, LLC, for the purchase of fifteen (15) megawatts of summer electric capacity commencing May 2008 through October 2014. IV-B.Long Term Power Procurerrent.c 3 003 V. STAFF REPORTS/COMMIUNICATIONS A. Monthly Legislative and Regulatory Update V-A. Legislative Update.ppt B. Monthly Power Resources Update E V-B. Ploy Power Resources Update.pr C. Monthly Kirkwall Substation Project Update mmiz V-C. KvkwaO Project Update.ppt D. Southern California Edison's Rate Reduction Proposal E. Award from California Iunicipal Utilities Association to Azusa Light A Water for Drought Resistant Plant Program (DRiP) Program VI. DIRECTORS' COMMENTS VII. ADJOURNMENT A. Adjournment. %n compliance with the Americans with Disabilities Act, ifyou need special assistance to participate in a city meeting please contact,the City Clerk at 626-si2-5129. Notification three (3) worla'ng days prior to the meeting or time when special services are needed oil/assist staff in assuring that reasonable arrangements can be made to provide access to the meeting" 4 004 • �• �oe.:,yz U � °�uFORr`P, CITY OF AZUSA MINUTES OF THE REGULAR MEETING OF THE AZUSA UTILITY BOARD/CITY COUNCIL MONDAY, MARCH 22, 2004 - 6:30 P.M. The Utility Board Members of the City of Azusa met in regular session,at the above date and time in the Azusa Light and Water Department Conference Room, located at 729 N. Azusa Avenue, Azusa, California. Chairperson Chagnon called the meeting to order. Call to Order ROLL CALL Roll Call PRESENT: BOARD MEMBERS: HARDISON,STANFORD, ROCHA,CHAGNON,MADRID ABSENT: BOARD MEMBERS: 'NONE ALSO PRESENT: Also Present City Attorney Ferre, Director of Utilities Hsu, Assistant to the Utilities Director Kalscheuer, City Manager Cole,Assistant City Manager Person,Assistant Director of Resource Management Tang, Deputy City Manager Gutierrez, Administrative Technician Yang, Senior Electric Engineer Langit, Assistant Director of Electric Operations Ramirez, Deputy City Clerk Toscano. Public Participation Pub Part Mr.John Zeller,representing a Condominium Association located at 129 W.9th Street,addressed J. Zeller the Board Members presenting a problem with water meter readings for the complex. He Comments detailed the issue stating that the meter has not been working/reading properly since 2002, and a calibration test was taken and the problem was corrected as of January 2004. He requested that a settlement be approved utilizing a method of measuring the amount through a mechanism of going back three years and comparing use of water to what was used during that time. He then stated the total settlement amount he has figured out is $15,233. Question and answer session ensued between Mr. Zeller, Staff and Board Members. It was Discussion consensus that the matter be agendized for the April 26" meeting, which will provide time for Agendize review and consideration. 4/26/04 005 Mr. Art Morales addressed the Board Members suggesting that the Utility Board meetings be A. Morales broadcast on Cable Television and also that someone monitor the programs that are on cable to Comments ensure they are running properly. The CONSENT CALENDAR consisting of Items 11- A through 11-H, were approved by motion of Consent Cal Board Member Stanford, seconded by Board Member Madrid and unanimously carried. Board Approved Member Rocha abstained from item II-A, the minutes of the last meeting as he was not present at that meeting. A. The Minutes of the regular meeting of February 23, 2004, were approved as written. Min Appvd B. Approval was given to authorize staff to prepare letters to thank the San Gabriel Valley Ltrs of thanks Municipal Water District (SGVMWD) and Upper San Gabriel Valley Municipal Water District to SGVMWD (USGVMWD) for their contributions to the Low Flow Toilet Replacement Program, and and authorization was given to the Utility Board Chairperson to sign the letters. USGVMWD C. Approval was given to the revised and renegotiated condition of sale of the property located Revised Con at 617 North Azusa Avenue from Azusa Light and Water to the Azusa Redevelopment Of Sale 617 Agency. N. Azusa D. The Consent to Assign Water Supply Agreement between the City and Miller Brewing Wtr Supply Company to Miller Breweries West Limited Partnership, dated February 26, 2002, was Agmt Miller approved and the City Manager was authorized to execute the consent of assignment. Breweries E. Notice of Completion for Project W-184, Gladstone Street Waterline Relining Project was Notice of approved and authorization was given to the City Clerk to have same recorded at the Office Comp Prjt of the County Recorder. W-184 F. Approval was given to add $10,000 to the contract of Kennedy/Jenks Consultants for Water Add to agmt Treatment Plant Pilot Study. Kennedy/Jenk G. Authorization was given to amend the blanket purchase order to Osmose,Inc.for wood pole Inc Blanket inspection, treatment and repairs from $100,000 to $175,000, a net increase of$75,000. P.O. Osmose H. The Joint Use Agreement by City of Azusa to Grant Easement to Southern California Edison joint Use Company, for the purpose of relocating overhead Telecommunication Facilities to Agmt w/Edsn Underground within Parkside Azusa It, Tract No. 52992,was approved subject to final Legal Res. 04-C27 Counsel approval. The following Resolution was adopted and entitled: A RESOLUTION OF Releasing a THE CITY COUNCIL OF THE CITY OF AZUSA RELEASING A CERTAIN GRANT OF EASEMENT. Grant of Esmt Special Call Items - None Special Call Scheduled Items Sched Items Discussion was held regarding Policy Governing Transfers from Utility to the City. Chairperson Allocation Chagnon expressed concern as the policy is silent on wholesale sales and possible transfers to the To Utility of general fund. No changes were made. She also expressed concern regarding Section 1.D.i of the City Support proposed resolutions establishing policies to cover General Fund support Service costs and the Service Costs language "not be limited to", noting that there isn't a connection/nexus to the Electric/Water Utility. After additional discussion, Director of Utilities Hsu proposed the following language: "General Fund for all costs for city support services directly provided to the Electric Utility". It was consensus of the Board Members that the item be amended and placed on the next Utility Board Consent Calendar for approval. 03/22/04 PAGE TWO 006 Staff Reports/Communications Staff Rpts Director of Utilities Hsu presented a report on Legislative and Regulatory Updates, but, Dir of Util specifically, focused on AB 3005 (Calderon) regarding Renewable Energy,which would mandate Opposition to municipal electric utilities to buy renewable resources. He noted that the California Municipal AB 3005 Utilities Association has sent a letter to oppose this bill, and he detailed the issues of concern and suggested that staff prepare a letter to state legislators opposing this mandate. Moved by Chairperson Chagnon,seconded by Board Member Hardison and unanimously carried that letters opposing AB 3005 be sent to State Assemblyman Ed Chavez and State Senator Gloria Romero with copies to SCPPA. Assistant Director of Resource Management Tang addressed the Board Members providing an Monthly Pwr update on Resource Planning stating that an RFP for long term resources was issued on March 1, Resources twelve bids were received from four suppliers on March 10"',they are evaluating them at this time Update and will make a recommendation to the Board at the April Utility Board meeting. The FY 2003-94 2nd Quarter Work Plan Update from the Water Division was presented and no 2"d Qtr Work questions were asked. Chairperson Chagnon suggested that next time the report be in the MAP Plan Update format, with timelines, dates and measurable items. Senior Electric Engineer Langit addressed the Board Members providing a status report of the Sr Elect Engr Kirkwall Substation Project stating that the project construction is almost complete, the voltage Rpt on and the equipment will be energized by April. During the first week of April they will move the first Kirkwall Stn load pickup for Azusa. It was consensus of the Board Members to schedule the dedication of the facility for Saturday,April 17, 2004, at 1 l a.m. Director of Utilities Hsu announced the 2004 National Conference of American Public Power Dir of Util Association on June 19d' through June 23`d. If anyone is interested in attending they should Comments contact Administrative Technician Yang. National Conference Director's Comments Dir Com Moved by Board Member Stanford, seconded by Board Member Rocha and unanimously carried Appt Chair that Diane Chagnon be appointed as Chairperson for 2004-05. Chagnon Moved by Board Member Hardison,seconded by Board Member Rocha and unanimously carried Appt Vice that Dick Stanford be appointed as Vice Chairperson for 2004-05. Chair Stanford It was consensus of Councilmembers to adjourn. Adjourn TIME OF ADJOURNMENT: 7:17 P.M. SECRETARY NEXT RESOLUTION NO. 04-C28. 03/22/04 PAGE THREE 007 M1L w A" , 5A L-ONL A" , MRf FA CONSENT CALENDAR TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD AND AZUSA CITY COUNCIL FROM: JOSEPH F. HSU, DIRECTOR OF UTILITIES DATE: APRIL 26, 2004 SUBJECT: POLICY GOVERNORING TRANSFERS FROM UTILITY TO THE CITY RECOMMENDATION It is recommended that the Azusa Utility Board/City Council approve the following resolutions: A. RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA, CALIFORNIA, ESTABLISHING A POLICY CONCERNING THE OBLIGATIONS OF THE CITY'S ELECTRIC UTILITY OPERATIONS TO COVER GENERAL FUND SUPPORT SERVICE COSTS AND OTHERWISE PAY ITS FAIR SHARE OF CAPITAL IMPROVEMENT COSTS FOR INFRASTRUCTURE IMPACTED BY UTILITY OPERATIONS. B. RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA, CALIFORNIA, ESTABLISHING A POLICY CONCERNING THE OBLIGATIONS OF THE CITY'S WATER UTILITY OPERATIONS TO COVER GENERAL FUND SUPPORT SERVICE COSTS AND OTHERWISE PAY ITS FAIR SHARE OF CAPITAL IMPROVEMENT COSTS FOR INFRASTRUCTURE IMPACTED BY UTILITY OPERATIONS. BACKGROUND On March 22, 2004, the Azusa Utility Board/City Council directed that the attached resolutions be placed on the Consent Calendar portion of the April Utility Board Agenda for approval. The resolutions are the outcome of work performed during these past several months to establish a fiscally sound policy with respect to transfers from the Utilities to the City. Generally, the purpose of the resolutions is to respect existing long-term financing agreements for Utility capital improvement projects, create a fair and transparent basis for the transfers—including a legally defensible basis for the transfers, and provide staff with a reasonably predictable way of forecasting costs and revenues so the Utility department and City staff know what to expect when preparing the budget from year to year. dds. r Historically, the City has transferred funds from the Electric Utility in four main ways: (1) Franchise Fees; (2) In-Lieu Fees; (3) Support Services Allocation; and (4) Interest Income. To formally establish a transfer policy for the Electric Utility in each of these areas and address other requests of the Utility Board, the attached resolution has been prepared, which will: A. Set franchise fee at 2% of retail sales B. Set In-Lieu fee at 8%of retail sales C. Establish an annual procedure to be followed during budget process to determine City General Fund support service cost allocation to the Electric Utility D. Allow for quarterly transfers of interest income from Electric Fund reserves to the City during next fiscal year, then annually thereafter E. Allow City Manager and Director of Utilities to jointly recommend additional transfers to the City Council In regards to the Water Utility, transfers have been made to the City in a historically similar fashion to that of the Electric Utility. To formally establish a policy for Water Fund transfers to the City, a second resolution has been prepared and is attached, which will: A. Set franchise fee at 2% of retail sales B. Establish a water right lease based on acre feet owned by City (excluding Azusa Valley Water Company's water rights) multiplied by weighted cost per acre foot of replacement water as determined by the Water Utility C. Establish an annual procedure to be followed during budget process to determine City General Fund support service cost allocation to the Water Utility D. Allow for quarterly transfers of interest income from Water Fund reserves to the City during next fiscal year, then annually thereafter E. Allow City Manager and Director of Utilities to jointly recommend additional transfers to the City Council FISCAL IMPACT Since a proposed budget has not been completed for fiscal year 2004-05, we cannot fully assess the fiscal impact of this policy on the City for next year. However, using this methodology based on fiscal year 2003-04 numbers, and basing it on adjustments identified to date, would result in an increased allocation of about $100,000, subject to final refinements. Prepared by: Cary Kalscheuer, Assistant to the Director of Utilities Attachments: �l electric water resolutbn.doc resolutbn.doc 009 RESOLUTION NO. 04- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA, CALIFORNIA, ESTABLISHING A POLICY CONCERNING THE OBLIGATIONS OF THE CITY'S ELECTRIC UTILITY OPERATIONS TO COVER GENERAL FUND SUPPORT SERVICE COSTS AND OTHERWISE PAY ITS FAIR SHARE OF CAPITAL IMPROVEMENT COSTS FOR INFRASTRUCTURE IMPACTED BY UTILITY OPERATIONS WHEREAS, the City Council of the City of Azusa serving as the City's Utility Board met on February 23, 2004, to discuss the City's General Fund support services costs related to the City's various utility operations; and WHEREAS, the City Council desires that the General Fund fully recover all direct and indirect support service costs and any and all other "franchise fees" or allocations authorized by law; and WHEREAS, the City Council desires that the methodology to allocate support service costs be consistent with the City's guiding principles that the allocations be administratively simple, fair, transparent and predictable; and WHEREAS, the City Council has determined that a combination of statutory franchise fees, an in-lieu property franchise fee applicable to the electric utility ("Electric Utility'), interest income sharing with the General Fund and direct support service cost allocation reimbursements are consistent with the City's guiding principles; and WHEREAS, in August 2003 the City has entered into Series B and C Installment Sales Agreements ("Agreements") with the Financing Authority for Resource Efficiency of California ("FARECal") in connection with the issuances of Series B and C Certificate of Participation for the Electric Utility; and WHEREAS, the Agreements established flow of revenue covenants in the use of Electric Utility's GROSS REVENUES as such term is defined in the Agreements; and WHEREAS, the electric fund transfers to the General Fund contemplated herein further incorporate by reference the principles outlined in the flow of revenue covenants of the Agreements; NOW THEREFORE, THE CITY COUNCIL DOES HEREBY RESOLVE AS FOLLOWS: SECTION 1. The City Council hereby authorizes the following allocation transfers from the Electric Utility Fund to the General Fund: 010 A. In accordance with the California Public Utilities Code provisions related to the establishment of franchise fees by general law cities, the Electric Utility shall pay a franchise fee of two (2) percent on retail electric sales to the General Fund. Such franchise fees shall be considered as Operation and Maintenance Expenses as such term is defined in the Agreements. B. Because the Electric Utility operations do not otherwise incur operating costs related to the payment of property and other taxes like that of a private utility operation, the use of property that would otherwise be available to private users subject to such property and other taxes is a direct loss of revenue to the City's General Fund. As Electric Utility rates are exempt from the provisions of Proposition 218 the City Council finds that it is reasonable and fair that the Electric Utility pay an in-lieu fee of up to eight (8) percent on retail electric sales to the General Fund. Such in-lieu fees shall not be considered as Operation and Maintenance Expenses as such term is defined in the Agreements. C. For Fiscal Year 2004-05, the Electric Utility shall contribute interest earned on those Electric Utility reserve funds on a quarterly basis. As the Electric Utility operations impacts the City's infrastructure and capital improvements the Electric Utility shall contribute to a capital improvement fund established by Ordinance of the City Council. The capital improvement fund shall be used solely to finance those capital improvement items that are impacted by the Electric Utility operation. The Electric Utility shall contribute to this fund from interest earned on those Electric Utility reserve funds that are invested. For Fiscal Year 2005-06, and each year thereafter, the contribution to the,capital improvement fund shall be made within sixty (60) days of the close of each Fiscal Year, provided, however, that such contribution shall not exceed the Electric Utility's net positive income for the Fiscal Year that has closed; if the Electric Utility does not have a positive net income, then the Electric Utility shall have no obligation to contribute the interest earnings to the capital improvement fund. Such interest transfer shall not be considered as Operation and Maintenance Expenses as such term is defined in the Agreements. D. In accordance with common practices related to direct cost recovery and court decisions, the Electric Utility shall reimburse the General Fund for all costs for City support services directly provided to the Electric Utility in accordance with the following two-step process: i. Step 1: A determination shall be made as to the total amount of all General Fund costs associated with general City support services that are provided to all City departments. (General City support services shall include, but not be limited to, those departments like the City Administration, City Clerk's Office, Finance Department, Human Oil Resources, and Information Technology). The total amount of General Fund costs associated with these general City support service departments shall be made during the budget preparation process for the subsequent Fiscal Year. ii. Step 2: The percentage share of the Utility Department's full time equivalent (FTE) employees shall be determined as a percent of the total FTE employees for all departments of the City of Azusa. The General Fund support services cost determined in Step 1 shall then be multiplied by the Utility Department's FTE percentage share to determine the support services cost allocation to the Utility Department. The Electric Utility's share of this amount shall be thirty- five (35) percent of the allocation. Such cost reimbursements to the General Fund for all direct City support service shall be considered as Operation and Maintenance Expenses as such term is defined in the Agreements. E. Because the Electric Utility may from time to time generate net positive income above the Electric Utility's needs for financial reserves, capital improvement programs, market risk management, and the transfers to the General Fund described above, the City Council finds that additional contributions from the Electric Utility to the General Fund may be reasonable and fair. Within sixty (60) days after the audited annual financial statements for the Electric Utility become available the City Council may adopt, upon a joint recommendation by the City Manager and the Director of Utilities, additional transfers from the Electric Utility to the General Fund. Any additional transfers pursuant to this section shall be contributed to the capital improvement fund and shall be used solely to finance those capital improvement items that are impacted by the Electric Utility operation. Such additional transfer shall not be considered as Operation and Maintenance Expenses as such term is defined in the Agreements. SECTION 2. This Resolution shall take effect upon its adoption by the City Council. PASSED, APPROVED AND ADOPTED this 26th day of April, 2004. Cristina C. Madrid, Mayor ATTEST: Vera Mendoza, City Clerk 012 APPROVED AS TO FORM: By: Best Best & Krieger LLP City Attorney I HEREBY CERTIFY that the foregoing Resolution No. 04- was duly adopted by the City Council of the City of Azusa, at a regular meeting thereof, held on the 26th day of April, 2004 by the following vote of the Board. AYES: COUNCILMEMBERS: NOES: COUNCILMEMBERS: ABSENT: COUNCILMEMBERS: Vera Mendoza, City Clerk 013 RESOLUTION NO. 04- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA, CALIFORNIA, ESTABLISHING A POLICY CONCERNING THE OBLIGATIONS OF THE CITY'S WATER UTILITY OPERATIONS TO COVER GENERAL FUND SUPPORT SERVICE COSTS AND OTHERWISE PAY ITS FAIR SHARE OF CAPITAL IMPROVEMENT COSTS FOR INFRASTRUCTURE IMPACTED BY UTILITY OPERATIONS. WHEREAS, the City Council of the City of Azusa serving as the City's Utility Board met on February 23, 2004, to discuss the City's General Fund support services costs related to the City's various utility operations; and WHEREAS, the City Council desires that the General Fund fully recover all direct and indirect support service costs and any and all other "franchise fees" or allocations authorized by law; and WHEREAS, the City Council desires that the methodology to allocate support service costs be consistent with the City's guiding principles that the allocations be administratively simple, fair, transparent and predictable; and WHEREAS, the City Council has determined that a combination of statutory franchise fees applicable to the water utility ("Water Utility"), compensation to the City for the use of City's water rights, interest income sharing with the General Fund and direct support service cost allocation reimbursements are consistent with the City s guiding principles; and WHEREAS, in August 2003 the City has entered into Series A Installment Sales Agreements ("Agreement") with the Financing Authority for Resource Efficiency of California ("FARECal") in connection with the issuance of Series A Certificate of Participation for the Water Utility; and WHEREAS, the Agreement established flow of revenue covenants in the use of Water Utility's GROSS REVENUES as such term is defined in the Agreement; and WHEREAS, the water fund transfers to the General Fund contemplated herein further incorporate by reference the principles outlined in the flow of revenue covenants of the Agreement, NOW THEREFORE, THE CITY COUNCIL DOES HEREBY RESOLVE AS FOLLOWS: SECTION 1. The City Council hereby authorizes the following allocation transfers from the Water Utility fund to the General Fund: 01 4 A. In accordance with the California Public Utilities Code provisions related to the establishment of franchise fees by general law cities, the Water Utility shall pay a franchise fee of two (2) percent on retail water sales to the General Fund. Such franchise fees shall be considered as Operation and Maintenance Expenses as such term is defined in the Agreement. B. As the custodian of City's water rights in the provision of water services, the Water Utility shall compensate the City for the use of City's water rights, inclusive of Azusa Agricultural Water Company's water rights owned by the City, but exclusive of the former Azusa Valley Water Company's water rights owned by the City. Such annual compensation shall be determined by multiplying the City's total acre feet of water rights by the weighted average cost per acre foot of replacement water as determined by the Utility. Such compensation shall be considered as Operation and Maintenance Expenses as such term is defined in the Agreement. C. For Fiscal Year 2004-05, the Water Utility shall contribute interest earned on those Water Utility reserve funds on a quarterly basis. As the Water Utility operations impacts the City's infrastructure and capital improvements the Water Utility shall contribute to a capital improvement fund established by Ordinance of the City Council. The capital improvement fund shall be used solely to finance those capital improvement items that are impacted by the Water Utility operation. The Water Utility shall contribute to this fund from interest earned on those Water Utility reserve funds that are invested. For Fiscal Year 2005-06, and each year thereafter, the contribution to the capital improvement fund shall be made within sixty (60) days of the close of each Fiscal Year, provided, however, that such contribution shall not exceed the Water Utility's net positive income for the Fiscal Year that has closed; if the Water Utility does not have a positive net income, then the Water Utility shall have no obligation to contribute the interest earnings to the capital improvement fund. Such interest transfer shall not be considered as Operation and Maintenance Expenses as such term is defined in the Agreements. D. In accordance with common practices related to direct cost recovery and court decisions, the Water Utility shall reimburse the General Fund for all costs for City support services directly provided to the Water Utility in accordance with the following two-step process: L Step 1: A determination shall be made as to the total amount of all General Fund costs associated with general City support services that are provided to all City departments. (General City support services shall include, but not be limited to, those departments like the City Administration, City Clerk's Office, Finance Department, Human Resources, and Information Technology). The total amount of General Fund costs associated with these general City support service 015 departments shall be made during the budget preparation process for the subsequent Fiscal Year. ii. Step 2: The percentage share of the Utility Department's full time equivalent (FTE) employees shall be determined as a percent of the total FTE employees for all departments of the City of Azusa. The General Fund support services cost determined in Step 1 shall then be multiplied by Utility Department's FTE percentage share to determine the support services cost allocation to the Utility Department. The Water Utility's share of this amount shall be sixty-five (65) percent of the allocation. Such cost reimbursements to the General Fund for all direct City support service shall be considered as Operation and Maintenance Expenses as such term is defined in the Agreements. E. Because the Water Utility may from time to time generate net positive income above the Water Utility's needs for financial reserves, capital improvement programs, transfers to the General Fund described above, the City Council finds that additional contributions from the Water Utility to the General Fund may be reasonable and fair. Within sixty (60) days after the audited annual financial statements for the Water Utility become available the City Council may adopt, upon a joint recommendation by the City Manager and the Director of Utilities, additional transfers from the Water Utility to the General Fund. Any additional transfers pursuant to this section shall be contributed to the capital improvement fund and shall be used solely to finance those capital improvement items that are impacted by the Water Utility operation. Such additional transfer shall not be considered as Operation and Maintenance Expenses as such term is defined in the Agreements. SECTION 2. This Resolution shall take effect upon its adoption by the City Council. PASSED, APPROVED AND ADOPTED this 26th day of April, 2004. Cristina C. Madrid, Mayor ATTEST: Vera Mendoza, City Clerk 016 APPROVED AS TO FORM: By: Best Best & Krieger LLP City Attorney I HEREBY CERTIFY that the foregoing Resolution No. 04- was duly adopted by the City Council of the City of Azusa, at a regular meeting thereof, held on the 26th day of April, 2004 by the following vote of the Board. AYES: COUNCILMEMBERS: NOES: COUNCILMEMBERS: ABSENT: COUNCILMEMBERS: Vera Mendoza, City Clerk 017 MMA LIGNT R AUTFS CONSENT CALENDAR TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD AND AZUSA CIN COUNCIL FROM: JOSEPH F. HSU, DIRECTOR OF UTILITIES Ar �ei LJ DATE: APRIL 26, 2004 SUBJECT: DEVELOPMENT AND RELEASE OF A REQUEST FOR PROPOSALS FOR A THIRD PARTY TO PROCESS MAIL-IN UTILITY PAYMENTS (UTILITY LOCK BOX SERVICE) RECOMMENDATION It is recommended that the Azusa Utility Board/City Council authorize development and release of a Request For Proposals for a third-party vendor to process mail-in utility payments. BACKGROUND Azusa Light &Water receives and processes 160,600 mail-in payments each year. Each envelope must be opened, the bill stub and payment removed and matched, and the stubs and checks balanced and batched. They are then run through a duplo machine that updates the payments on the customer's utility account. The checks are also run through an endorsing machine before sending to the bank for deposit. Our cost for in-house processing is approximately $50,000 per year. We have had three service calls on the duplo machine since 1996 and in the future we will face equipment replacement. In our ongoing interest to save money and improve service, Azusa Light &Water would like to determine if outside vendors can provide this service at a lower cost. If that is possible, we will redirect our resources to customer contact activities. This would compensate for the loss of a Customer Service Representative that occurred when we created the Customer Service Lead position. Of course, if using a third-party vendor is not cost-effective, we will terminate this study. FISCAL IMPACT None. Prepared by: Karen Vanca, Assistant Director Customer Care &Solutions 018 ;7ro A7USA LIGHT R '6'0.TfR CONSENT CALENDAR TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD AND AZUSA CITY COUNCIL / FROM: JOSEPH F. HSU, DIRECTOR OF UTILITIES /dT DATE: April 26, 2004 SUBJECT: ADDITION OF $20,000 TO THE BLANKET PURCHASE ORDER OF BASIC CHEMICAL SUPPLIES COMPANY RECOMMENDATION It is recommended that the Utility Board/City Council approve the addition of $20,000 to the blanket purchase order of Basic Chemical Supplies Company. BACKGROUND Basic Chemical Supplies Company is the Water Division's supplier of chemicals for the treatment plant and wells. In order to decrease the potential health hazard to the surrounding neighborhoods from a chlorine gas release due to accident, natural disaster, or act of terrorism, the production crew recently changed the mode of disinfection from chlorine gas to liquid chlorine (sodium hypochlorite) for the wells and treatment plant. Because the use of liquid chlorine is somewhat more expensive than the use of gas chlorine, the addition of $20,000 will allow the purchase of treatment chemicals to the end of the fiscal year. FISCAL IMPACT The fiscal impact of this payment is $50,000 to be funded from the approved Operations and Maintenance budget for 2003-2004. Prepared by: Chet Anderson, Assistant Director- Water Operations 019 AZUSA i r.ur x aeorr CONSENT CALENDAR TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD AND AZUSA CITY COUNCIL FROM: JOSEPH F. HSU, DIRECTOR OF UTILITIES /67 Jul DATE: APRIL 26, 2004 SUBJECT: APPROVAL OF ADDITIONAL $11,000 TO PURCHASE ORDER TO APPLEONE INC. FOR TEMPORARY RECEPTIONIST SERVICES RECOMMENDATION It is recommended that the Utility Board/City Council authorize staff to amend Purchase Order Number 007191 to AppleOne Inc. for temporary receptionist services from $10,000 to $21 ,000, a net increase of $1 1 ,000. BACKGROUND When Utility Administrative Services Supervisor retired at the end of December 2003, the Utility Administrative Technician was placed in an acting position of Administrative Services Supervisor and a temporary receptionist was hired from AppleOne Inc. to assist with general administrative duties. Instead of holding competitive recruitment for Administrative Services Supervisor, staff pursued a reclassification of Administrative Technician to Administrative Analyst, and we intend to drop the Administrative Services Supervisor position from next year's budget. Also, we are budgeting for an Office Specialist II position instead of an Administrative Technician position next year. These changes are expected to save about $28,500 per year. Although the reclassification was recently approved by the City Council, additional time is needed to go through the recruitment process for an Office Specialist 11, and so we are seeking to extend the temporary receptionist services from AppleOne Inc, which requires an amendment to the purchase order. FISCAL IMPACT Funds are available from salary savings designated in this year's budget for Administrative Technician in account number 31-40-711-712-6003; $11,000 will be transferred from this account to contract services &fees account number 31-40-711-921-6499 to cover additional purchase order amount. Prepared by: Cary Kalscheuer, Assistant to the Director of Utilities 020, t • 70 i . a SA CONSENT CALENDAR TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD AND AZUSA CITY COUNCIL FROM: JOSEPH F. HSU, DIRECTOR OF UTILITIES ,dT /. Jrw DATE: APRIL 26, 2004 SUBJECT: NOTICE OF COMPLETION - CAPITAL IMPROVEMENT PROJECT W-185, BIG DALTON WASH CROSSING, 12-INCH WATERLINE RECOMMENDATION It is recommended that the Utility Board/City Council accept Project W-185, and direct the City Clerk's Office to execute the Notice of Completion and also have the same recorded at Office of the Los Angeles County Recorder. BACKGROUND The Water Division designed a water main called the Big Dalton Wash Crossing, to carry water across Big Dalton Wash at Gladstone Street. Engineered Plumbing's bid for the construction of the project was accepted by Board action May 21, 2003. Construction was delayed due to scheduling conflicts, however, was recently completed. FISCAL IMPACT There is no fiscal impact of approving Notice of Completion beyond what has been previously approved. Prepared by: Chet F. Anderson, P.E., Assistant Director, Water Operations Kw Water Project W-185.pdf 021 1. RECORDING REQUESTED BY - AND WHEN RECORDED MAIL TO: NAME STREET ADDRESS CITY,STATE 6 ZIP CODE L I SPACE ABOVE THIS LINE FOR RECORDER'S USE 9 NOTICE OF COMPLETION Notice pursuant to Civil Code Section 3093, must be filed within 10 days after completion. (See reverse side for Complete requirements.) Notice is hereby given that: 1. The undersigned is owner or corporate officer of the owner of the interest or estate stated below in the property hereinafter described: 2. The full name of the owner is CITY OF AZUSA 3. The full address of the owner is 213 E. Foothill Blvd. , Azusa, CA 91702-9500 4. The nature of the interest or estate of the owner is: In fee. (IF OTHER THAN FEE,STRKE"IN FEE"AND INSERT,FOR EXAMPLE,"PURCHASER UNDER COMPACT OF PURCHASE," OR LESSEE") 5. The full names and full addresses of all persons, if any, who hold title with the undersigned as joint tenants or as tenants in common are: NAMES ADDRESSES 6. The full names and full addresses of the predecessors in interest of the undersigned, if the property was transferred subsequent to the commencement of the work or improvements herein referred to: NAMES ADDRESSES 7. A work of improvement on the property hereinafter described was completed on April 26, 2004 The work done was: Water Project W-185. 8.The name of the contractor,if any,for suchworkof improvementwas Engineered Plumbing Inc (IF NO CONTRACTOR FOR WORK OF IMPROVEMENT AS A WHOLE,INSERT"NONE") (DATE OF CONTRACTI 9. The property on which said work of improvement was completed is in the City of Azusa Countyof LOS Angeles ,Stateof CA ,and is described as follows: 12—inch waterline across Big Dalton Wash 10. The street address of said property is NONE IIF NO STREET ADDRESS HAS BEEN OFFICIALLY ASSIGNED, INSERT"NONE".) Dated: April 26, 2004 (SIGNATURE OF OWNER OR CORPORATE OFFICER OF OWNER NAMED IN PARAGRAPH 2 OR HIS AGENTf VERIFICATION I,the undersigned, say: I am the the declarant of the foregoing notice of completion; ("PRESIDENT OF","MANAGER OF , ARTNER OF","OWNER OF ,ETC.) I have read said notice of completion and know the contents thereof;the same is true of my own knowledge. I declare under penalty of perjury that the foregoing is true and correct. Executed on -, at (CITY) (STATEI IIS. (PERSONAL SIGNATURE OF THE INOWIDUAL WHO IS SWEARING THAT THE CONTENTS OF THE NOTICE OF COMPLETION ARE TRUE.) II,IIIIIIIIII IIII IIIIII IIII III WOLCOTTS FORM 1114-Rev.694 lance Gess 3A1 II NOTICE OF COMPLETION 7 67775 39114 s�, 2 01994 WOLCOTTS FORMS.INC. (See reverse side for additional Information) G DO NOT RECORD REQUIREMENTS AS TO NOTICE OF COMPLETION Notice of completion must be filed for record WITHIN 10 DAYS after the completion of the work of improvement (to be computed exclusive of the day of completion) as provided in Civil Code Section 3093. The "owner" who must file for record a notice of completion of a building or other work of improvement means the owner (or his successor in-interest at the date the notice is filed) on whose behalf the work was done, though his ownership is less than the fee title. For example, if A is the owner in fee, and B, lessee under a lease, causes a building to be constructed, then B, or whoever has succeeded to his interest at the date the notice is filed, must file the notice. If the ownership is in two or more persons as joint tenants or tenants in common, the notice may be signed by any one of the co-owners (in fact, the foregoing form is designed for giving of the notice by only one cotenant), but the names and addresses of the other co-owners must be stated in paragraph 5 of the form. Note that any Notice of Completion signed by a successor in interest shall recite the names and addresses of his transferor or transferors. In paragraphs 3, 5 and 6, the full address called for should include street number, city, county and state. As to}paragraphs 7 and 8, this form should be used only where the notice of completion covers the work of improvement as a whole. If the notice is to be given only of completion of a particular contract, where the work of improvement is made pursuant to two or more original contracts, then this form must be modified as follows: (1) Strike the words "A work of improvement" from paragraph 7 and insert a general statement of the kind of work done or materials furnished pursuant to such contract (e.g., "The foundation for the improvements"); (2) Insert the name of the contractor under the particular contract in paragraph 8. In paragraph 8 of the notice, insert the name of the contractor for the work of improvement as a whole. No contractor's name need be given if there is no general contractor, e.g. on so-called "owner-builder jobs." In paragraph 9, insert the full, legal description, not merely a street address or tax description. Refer to deed or policy of title insurance. If the space provided for description is not sufficient, a rider may be attached. In paragraph 10, show the street address, if any, assigned to the property by any competent public or governmental authority. Bet ore you use this form,fill in all blanks,and make whatever changes are appropriate and necessary to your particular transaction. Consult a lawyer if you doubt the form's fitness for your purpose and wee. Wolcotts makes no representation or sarranty, express or implied, with respect to the merchantability or fitness of this form for an intended use or purpose. 023 �r AZUSA r.ur x•nere CONSENT CALENDAR TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD AND AZUSA CITY COUNCIL FROM: JOSEPH F. HSU, DIRECTOR OF UTILITIES RT DATE: APRIL 26, 2004 SUBJECT: APPROVAL OF SPECIFICATIONS FOR THE RENOVATION OF THE ELECTRIC YARD AT 1020 W. TENTH STREET RECOMMENDATION It is recommended that the Utility Board/City Council approve the specifications for the renovations to the electric yard at 1020 W. Tenth Street and authorize the City Clerk to advertise for bids. BACKGROUND In March of 2003, with the approval of the Utility Board/City Council, Azusa Light & Water purchased the former Metro Steel Building located at 1020 W. Tenth Street, as the site for the new electric operations yard. In June, our project architect Mr. Henry Woo started to work on renovating the interior of the building to meet the utilities needs and the City building codes. In February 2004, the building elevations were submitted to the City Planning Division for review. And on March 26, 2004, plans and drawings were submitted to the Building Division for plan check. The corrections received during plan check have been made on the final specifications and drawings. The largest correction to the plans came from the Fire Department's requirement of a sprinkler system in the building. Copies of the completed drawings and specifications are available for review at City Clerk's Office at 213 E. Foothill Blvd., and upstairs receptionist area of the Light and Water Office at 729 N. Azusa Avenue. FISCAL IMPACT The increase in cost to renovate the building is budgeted in this years capital improvement budget in amount of $725 000, under project 73001 G. Prepared by: D. Ramirez, Assistant Director — Electric Operations 024 UNWORN AZUSA .1-1 i WATER AGENDA ITEM TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD AND AZUSA CITY COUNCIL FROM: JOSEPH F. HSU, DIRECTOR OF UTILITIES RTA Jrl DATE: APRIL 26, 2004 SUBJECT: AUTHORIZATION TO ENTER INTO CONTRACTS WITH DUKE ENERGY MERCHANT AMERICA, LLC (DEMA) FOR THE PURCHASE OF FIFTEEN (15) MEGAWATTS OF SUMMER ELECTRIC CAPACITY RECOMMENDATION It is recommended that the City Council/Utility Board authorize the Mayor to execute the agreements with Duke Energy Merchant America, LLC ("DEMA") for the purchase of fifteen (15) megawatts of summer electric capacity commencing May 2008 through October 2014. BACKGROUND: Earlier this year, staff began a comprehensive review of City's long term power resource needs in view of the expiration of the existing summer peaking resource contract in 2007 and City's growing summer electric load. As part of this evaluation, the staff identified the need for at least fifteen megawatts of electric capacity and the associated energy to continue to reliably serve the City's summer load. Upon this finding, staff commenced a planning process to meet the identified need. This process consisted of: 1. Survey of the power market for suitable power products 2. Preliminary analysis of market survey results and reporting of the findings to Utility Board in February 2004 - 3. Issuance of a formal Request for Proposal (RFP) on March 1, 2004 4. Evaluation of the proposals by staff and the independent consultant, Henwood Energy Services 5. Final analysis and recommendation for Utility Board's consideration A detailed summary of the planning process is attached as Exhibit A, and the comprehensive report of the planning process is attached as Exhibit B. As a result of this process, staff is recommending the procurement of summer capacity 023 product from DEMA as fully described below. A. SUMMARY OF THE DEMA AGREEMENT Source: DEMA will provide the contracted summer electric capacity from electric generation plants it owns in the Western US. DEMA currently owns more than 2,000 MW of electric generating capacity in California and Arizona. Quantity: 15 MW of electric capacity for the summer months; the City has the right but not the obligation to dispatch the electric energy on a daily basis under the contract. Delivery: Energy delivery is firm into Southern California market hub. Term: 7 years, commencing May 2008 through October 2014. The delivery will be for summer season only (May through October). Price: Fixed price for monthly capacity of $7.18/kW-month, and an additional energy charge based on a heat rate of 10,000 Btu per kWh and the prevailing natural gas price at the time of energy delivery. B. ECONOMICS OF THE RESOURCE Based on Henwood's evaluations and confirmed by staff's own analysis, the DEMA's summer capacity product is the most cost effective resource when compared to the other viable options: 1. The fixed priced of firm energy products is consistently higher in cost, up to 40% higher. Firm energy product has the additional drawback that requires us to receive energy when we do not need it, potentially causing the City to sell the excess power at a loss. 2. The self-built base load or peaking resource options are not cost effective as it requires us incur fixed costs for the entire year even though there is no need for the power during non-summer months. 3. The power products with contract duration longer than 7 years have costs substantially higher than the DEMA's product, up to 40% higher. Given the above, staff believes the DEMA's summer capacity product is the best resource option due to: (a) it is below the cost of comparable self-built options, (b) it provides the operational flexibility of generating energy when needed and economical to do so, and (c) it provides the planning stability for a reasonable duration without foreclosing City's ability to consider other resource options in the foreseeable future. FISCAL IMPACT This summer capacity agreement is expected to cost $646,200 per year in capacity payments and additional energy costs if energy is actually dispatched at City's discretion. Funds will be budgeted in the future fiscal years, commencing FY 07-08 to pay for the cost of the contract. Prepared by: Bob Tang, Assistant Director Resource Management 029 Attachments: Exhibit A--LT Exhiblt B--LT Res Duke MSA Cover Duke MSA Confirm Resource Proc.ppt ProcRpt.pdf Sheet.pdf Letter.pdf 030 ExhibitA CITY OF AZUSA LONG TERM RESOURCE PRQr By Bob Tang April 26, 2004 031 Objectives: 1 . Procure summer peaking resources (May through October) commencing 2008 to replace expiring contracts 2. Procure sufficient planning reserves to satisfy State's resource adequacy requirement 2 032 Process: 1. Received indicative proposals in January, 2004 2. Prepared a detailed analysis of the indicative proposals, and presented the findings to Utility Board in February 2004 3. Issued a formal Request for Proposal (RFP) on March 1 , 2004 4. Engaged Henwood Energy Services to independently evaluate the proposals 5. Analyzed the results and making recommendations for Utility Board's consideration 3 033 Evaluation of the Proposals: 1 . RFP was sent to eight potential suppliers, six suppliers responded with proposals. A total of fifteen proposals were received 2. Henwood conducted both deterministic and stochastic runs of the proposals, and included two self-built cases at staff's request 3. Concurrently, staff conducted in-house economic analysis of the same proposals for comparison purposes 4 034 Results: a. Self-built base load or peaking resource options are economically viable in the 2008-2020 timeframe if we assume high performance from the plants (93% plus annual availability and no additional life-cycle capital investments to the plants) b. Tolling and daily call options from one of the suppliers are economically comparable to self-built options outlined in (a) in the 2008-2020 timeframe C. Fixed price options from all suppliers are at least 25% higher in costs to options in (a) and (b) d. Locking in resources now will reduce the volatility in our resource procurement budgets substantially under options in (a) and (b) e. Shorter planning horizon, i.e. 2008-2014 instead of 2080-2020 will significantly improve the economics of options under (b) vs. options under (a). 5 035 Preliminary Conclusions: a. It is unlikely that we do much better than "cost based self-built' alternatives at this time, i.e., there is no clear below-cost bargains out there for us to take advantage if our planning horizon is 2008-2020 b. It is likely that we can do better under options in (b) above vs. "cost- based self-built' options in (a) above, if we are willing to shorten our planning horizon to 2008-2014, i.e., going out 10 years instead of 15 years. There are some below-cost bargains out there in the medium terms (10 years out). C. It is highly likely that we will have to take some selective price volatility risks in terms of natural gas prices under any circumstances to make our long term planning economically viable. Fixed price alternatives are just too pricey at this time. d. There is no right or wrong answers in this process, all depend on our comfort level and our perspective and objectives in the future. Henwood would not opine which options it would choose 6 036 Strategy Setting ( 1 ) : Given the above, staff evaluated the following two procurement strategies: ❑ Option 1: Procure summer reserve capacity at this time and procure summer firm energy at a later date ❑ Option 2: Procure summer firm energy at this time and procure summer reserve capacity at a later date We used the following criteria to evaluate the above strategies: r Criteria 1: Procure resources that are clearly below the cost of an equivalent "self-built cost based"option r Criteria 2: Once criteria 1 is satisfied, procure resources that are less liquid in the marketplace first. This criteria is sensible in that if the resources are hard to find in the marketplace, then once we find them and they are below cost-based alternatives, then itis reasonable to make the procurement 0000/ 7 037 2 Strategy Setting (2) : The analysis of the two options yielded the following conclusions: • Conclusion 1: The best summer daily call option product at$7.18/kw-month for the period of 2008-2014 is below the cost of self-built combustion turbine, and thus is worth pursuing • Conclusion 2: The summer firm energy proposals as embodied in the fixed price, tolling options, and self-built combined cycle options have implied heat rate substantially above the historical spot market heat rate. • Conclusion 3: The option of lock-in reserve capacity now and firm energy later is much more likely to be the lower cost option than lock-in firm energy now and reserve capacity later. 8 033 RECOMMENDED PROCUREMENT STRATEGY: ✓ Recommendation 1 : Enter negotiation to procure the best daily call option product from the RFP submittals for the period of 2008 through 2014. ✓ Recommendation 2: Procure summer firm energy products opportunistically in shorter time horizons, i.e., one to three-year timeframe to capture implied heat rates that are lower than the implied heat rate of cost based alternatives. In the future, if the opportunity presents itself in terms of long term firm energy products with implied heat rates approaching the spot market implied heat rate of less than 11,000 MMBTu/MWh, then at that time go long on firm energy products. ❖ Staff is seeking the approval of Recommendation 1 from the Utility Board at this time 9 039 EXHIBIT B CITY OF AZUSA LONG TERM RESOURCE PROCUREMENT REPORT APRIL 26, 2004 040 CITY OF AZUSA LONG TERM RESOURCE PROCUREMENT STRATEGY BACKGROUND: The staff initiated the planning of long term resource procurement in mid January 2004. The planning is intended to procure sufficient resources to achieve two objectives: (1) Procure sufficient summer peaking resources(May through October) commencing 2008 to replace expiring summer contracts (2) Procure sufficient planning reserves to meet the State's resource adequacy requirement which is anticipated to become effective in the 2008 timeframe PROCESS: In order to carry out the planning the following activities were undertaken: (1) Received various indicative proposals from potential suppliers in mid January to early February timeframe (2) Prepared a detailed analysis based on-the indicative proposals attached herein as Attachment A (3) Presented the analysis at the Utility Board meeting in February 2004 attached herein as Attachment B (4) Prepared and issued a Request for Proposal (RFP)on March 1, 2004 attached herein as Attachment C (5) Engaged Henwood Energy Services to independently evaluate the proposals. Henwood's report is attached herein as Attachment D (6) Analyzed the results and prepare recommendations for management's assessment and further action EVALUATION OF THE PROPOSALS: The RFP was sent to eight potential suppliers, five suppliers responded with proposals. A total of fifteen proposals were received from the five suppliers. Staff, with the assistance of Flenwood, pre-screens the proposals to five proposals for further evaluation. The remaining ten proposals were not evaluated due to clearly losing out to the five proposals selected for evaluation. 041 Henwood ran both deterministic and stochastic runs of the five proposals and also included two additional cases at staff's request, these two cases are self-built combined cycle generation and self-built combustion turbine. i I Concurrently, staff also conducted"home-made" economic analysis of the same five i proposals along with the self-built options for the purposes of comparing with Henwood's assessment. The results of the analysis are summarized below: a. Self-built base load or peaking resource options are economically viable in the 2008-2020 timeframe if we assume high performance fiom the plants (93% plus annual availability and no additional life-cycle capital investments to the plants) b. Tolling and daily call options from one of the suppliers are economically comparable to self-built options outlined in (a)in the 2008-2020 timeframe c. Fixed price options from all suppliers are at least 25%higher in costs to options in (a) and (b) d. Locking in resources now will reduce the volatility in our resource procurement budgets substantially under options in (a) and(b) e. Shorter planning horizon, i.e. 2008-2014 instead of 2080-2020 will significantly improve the economics of options under(b) vs. options under(a). Preliminary conclusions are: a. It is unlikely that we do much better than "cost based sell=built" alternatives at this time, i.e.,there is no clear below-cost bargains out there for us to take advantage if our planning horizon is 2008-2020 b. It is likely that we can do better under options in (b)above vs. "cost-based self- built"options in (a) above, if we are willing to shorten our planning horizon to 2008-2014, i.e., going out 10 years instead of 15 years. There are some below- cost bargains out there in the medium terms(10 years out). c. It is highly likely that we will have to take some selective price volatility risks in terms of natural gas prices under any circumstances to make our long term planning economically viable. Fixed price alternatives arc just too pricey at this time. d. There is no right or wrong answers in this process, all depend on our comfort level and our perspective and objectives in the future. Henwood would not opine which options it would choose 0'4 z STRATEGY SETTING PROCESS: Given the above assessment,staff considered the following strategic options to proceed and used the following criteria to determine the desirability of each option. 1 Options: Option 1: Procure summer reserve capacity at this time and procure summer firm energy at a later date Option 2: Procure summer firm energy at this time and procure summer reserve capacity at a later date Criteria: Criteria 1: Procure resources that are clearly below the cost of an equivalent"self- built cost based" option Criteria 2: Once criteria l is satisfied, procure resources that are less liquid in the marketplace first.This criteria is sensible in that if the resources are hard to find in the marketplace, then once we find them and they are below cost-based alternatives, then it is reasonable to make the procurement The following compares the economics of the two options: Option 1: Buy short term energy and lock in the capacity product Total gas price market HR Vol. 15 MW Cost $3.0 11.0 37,080 $1,223,640 $4.0 11.0 37,080 $1,631,520 $4.5 11.0 37,080 $1,835,460 $5.0 11.0 37,080 $2,039,400 $5.5 11.0 37,080 $2,243,340 $6.0 11.0 37,080 $2,447,280 $1,937,430 Option 2: Buy short term capacity and lock in the energy product Total gas price HR Vol. 15 MW Cost $3.0 16.9 37,080 $1,879,956 $4.0 14.6 37,080 $2,165,472 043 $4.5 13.8 37,080 $2,302,668 $5.0 13.1 37,080 $2,428,740 $5.5 12.6 37,080 $2,569,644 $6.0 12.2 37,080 $2,714,256 $2,366,631 In the above calculations, it is assumed that short term market has the implied market heat rate of I 1 MMQTu/MWh for the months of May through October. This market heat rate is the historical market]teat for Southern California for the summer periods of 2002 and 2003.The heat rate under Option 2 is implied heat rate of the best firm energy proposal from the RFP process including the self-built options. As can be seen from the above that Option 2 is about $360,000 per year more expensive than option I. In other words, if Option 2 is chosen,then the cost of reserve capacity that we will need to procure will necessarily be 5360,000 per year cheaper than the option I reserve capacity cost to be comparable to Option 1. Since the best reserve capacity proposal (daily call proposal) is about $6.9/kw-month for the period of 2008 through 2014, then a reduction of$360,000 per year will translate to a reserve capacity price of$2.9/kv.-month for the summer months for Option 2 to be economically equivalent to option 1.This is a very unlikely proposition, since S6.9/kw- month for daily call option is already below the cost of a self-built combustion turbine, thus it is highly unlikely that we can obtain consistently a reserve capacity at$2.9/kw- month in the future. Something really very dramatic has to happen to obtain such result. Thus, we conclude as follows: Conclusion I: The best summer daily call option product at$6.9/kw-month for the period of 2008-2014 is below the cost of self-built combustion turbine, and thus is worth pursuing Conclusion 2: The summer firm energy proposals as embodied in the fixed price, tolling options, and self-built combined cycle options have implied heat rate substantially above the historical spot market heat rate. Conclusion 3: The option of lock-in reserve capacity now and firm energy later is much more likely to be the lower cost option than lock-in firm energy now and reserve capacity later. 044 RECOMMENDED PROCUREMENT STRATEGY: I Recommendation 1: Enter negotiation to procure the best daily call option product from the RFP submittals for the period of 2008 through 2014. Recommendation 2: Procure summer firm enerey products opportunistically in shorter time horizons, i.e., one to three-vear timeframe to capture implied heat rates that are lower than the implied heat rate of cost based alternatives. In the future, if the opportunity presents itself in terms of long term firm energy products with implied heat rates approaching the spot market implied heat rate of less than 11,000 MMBTu/MWh, then at that time go long on firm energy products. 045 I Attachment A 046 0A .mss .r.......<s.. s:.�,—. �,•. _ - csq^.C.'o Is- ':9'� i:�t .. ,:h: '�X" '"+.:r.':._Y.<�=....t,,°•ice._, AL LISA ECONOMIC EVALUATION OF LONG TERM POWER RESOURCES PUBLIC VERSION Introduction- The Power Resource Division of the Azusa Light and Water has embarked on the determination of the desirability to enter into long term power purchase contracts to meet the need of City's electric consumption. The study period is initially the summer months of May through October, commencing May 2008 through October, 2020.The study period is chosen due to the expiration of Vendor B Energy's four-year summer peaking contract by 2008, thus creating the need for the City to consider additional summer peaking resources. Staff solicited informal indicative pricing proposals from three potential vendors (Vendor A , Vendor B, and Vendor C. Proposals received formed the basis of this economic evaluation study. Power Product Description: The following definitions are used for the power products: 1. Fixed Price Product It is a product which the buyer is obligated to take and pay for a known quantity of energy for the on-peak hours (6X16) at known fixed prices. The pricing is usually structured as S/MWh charge. 2. Tolling Product It is a product which the buyer is obligated to take and pay for a known quantity of energy for the on-peak hours (6X16). The pricing of the tolling product is structured as $Ygcw-month charge for the amount of MW of capacity PLUS a charge for energy based on an agreed upon beat rate multiplied by a natural gas index. The buyer would pay a capacity charge plus the associated energy charge based on a heat rate and the prevailing gas prices at the time of delivery. 3. Option Product It is a product which the buyer has the right but not the obligation to take a known quantity of energy for the on-peak hours(6X16). The pricing of the option product is structured as $/kw- a47 month charge for the amount of MW of option capacity and if option is exercised (usually on a daily basis) then a charge for energy based on an agreed upon heat rate multiplied by a natural gas index is also assessed. The buyer would pay a capacity charge plus the associated energy charge(if daily option is exercised) based on a heat rate and the prevailing gas prices at the time of delivery_ Product Considered: The following products were considered in the economic evaluation process: A. Self-Built Combined Cycle(CC)Base Toad Generation Based on the California Energy Commission data,the CC generation has the following cost profile: Annual Fixed Cost: S90/kw-year Variable O&M: S2/MWh Heat Rate: 7.1 MWh/MMBTu Availability: Assume 95%annual availability for the study B. Self-Built Simple Cycle Combustion Turbine(CT) Peaking Generation Based on the California Energy Commission data,the CT generation has the following cost profile: Annual Fixed Cost: $80/kw-year Variable O&M: S10/MWh Heat Rate: 9.3 MWh/MMBTu Availability: Assume 6x16 summer dispatch for the study C. Vendor A Proposals Vendor A provided various proposals summarized as follow: C1. Fixed Price.Products S63.25/MWh for 6x16 summer peaking product commencing 2008 through 2020, Southern California delivery(SP 15) $54.75/MWh for 6x16 summer peaking product commencing 2008 through 2020, Palo Verde delivery (PV) C2. Option Product 048 $8.4/kw-month for capacity and $62/MWh for energy if daily option is exercised for 6X16 summer peaking option product commencing 2008 through 2020, Southern California delivery (SP 15) $7.6/kw-month for capacity and $53/MWh for energy if daily option is exercised for 6X 16 summer peaking option product commencing 2008 through 2020, Palo Verde delivery(PV) D. Vendor B Proposals Vendor B provided various proposals summarized as follow: Dl. Fixed Price Products S61.67/MWh for CY 08-10, $65.43/MWh for CY 11-14, $70.62/MWh for CY 14-20 for 6x16 summer peaking product, Southern California delivery (SP15) $55.68/MWh for CY 08-10, $59.61/MWh for CY 11-14, $65.33/MWh for CY 14-20 for 6x16 summer peaking product, Palo Verde delivery (PV) i D2. Option Product $6.00/kw-month for CY 08-10, $6.83/kw-month for CY 11-14, and $7.49/kw-month for CY 15- 20 for capacity and energy charge based on a heat rate of 10 MWh/MMBTu and using SoCal border daily natural gas plus $3.5/NM for variable O&M charge, Southern California delivery (SP15). Option exercised on a daily basis to take the energy. $4.34/kw-month for CY 08-10, $5.16/kw-montb for CY 11-14, and $5.93/kw-month for CY 15- 20 for capacity and energy charge based on a heat rate of 10 MWh/MMBTu and using SoCal border daily natural gas plus $3.5/MWh for variable O&M charge, Palo Verde delivery (PV). Option exercised on a daily basis to take the energy. D3. Tolling Product $8.85/kw-month for CY 08-10, $10.14/kw-month for CY 11-14,and $11.21/kw-month for CY 15-20 for capacity and energy charge based on a heat rate of 7.5 MWh/MMBTu and using SoCal border daily natural gas plus $3.58AWh for variable O&M charge, Southern California delivery (SP]5).Energy is must take on 6x]6 basis. $5.91/kw-month for CY 08-10, $7.11/kw-month for CY 11-14, and $8.29/kw-month for CY 15- 20 for capacity and energy charge based on a heat rate of 7.5 MWh/MMBTu and using SoCal border daily natural gas plus $3.5/MWh for variable O&M charge,Palo Verde(PV). Energy is must take on 6x 16 basis. E. Vendor C Proposal 049 Vendor C only provided one proposal,which is a combination of fixed price and option product as follows: Fixed price 6X16 summer peaking product at$62.00/M Wh for CY 08-10, and for CY I1-20 an option product with capacity reservation charge of$15/MWh and energy dispatch charge based on 10 MWh/MMBTu heat rate and daily SoCal border natural gas price. Option exercised on a daily basis to take the energy. Economic Evaluation Methodolo2V: To ensure consistent comparisons of the proposals above,the following methodology is used: 1. For self-built combined cycle generation option, it is assumed that the annual fixed cost is recovered in the six surnmer months only. Due to the high efficiency of the CC generation it is further assumed that the generation will be dispatched in the winter months to make some money which is then modeled to offset the annual fixed cost of the generation. 2. For self-built simple cycle generation option, it is assumed that the annual fixed cost is recovered in the six summer months only. Due to the low efficiency of the CT generation it is further assumed that the generation will not be dispatched in the winter months. Thus there is no contribution to fixed cost recovery in the winter months. 3. Two set of comparisons are prepared. One for proposals with Southern California delivery point, and one for Palo Verde delivery point. 4. For each of the products,a life cycle(CY 08-20)net present value(NPV) dollar amount is determined based on a 15-MW summer 6X16 peaking power dispatch. The NPV dollar amount for each of the products represents the total cost incurred in NPV for 15 MW of 6x16 peaking power. 5. Since various proposals are dependent on the price of natural gas at SoCal border, the NPV dollar amount for each of the products is determined as a function of the gas price. For this study, the gas prices used are $3/MMBTu (low gas price scenario), $4/MMBTu, $4.5/MMBTu, $5/MMBTu (likely gas price scenarios), and$5.5/MMBTu, $6/MMBTu (high gas price scenarios). The detailed NPV dollar amounts are summarized in the attached graphs and tables, Graph 1 and Table 1 — Comparison for Southern California Delivery Point, and Graph 2 and Table 2 — Comparison for Palo Verde Delivery Point. Discussions of the Results: The following preliminary conclusions can be derived from the Graphs: Southern California Delivery Point: 050 1. The self-built simple cycle CT generation is the worst option under all gas price scenarios if economic consideration is the sole criteria. This fact explains why there is no merchant "pecker" plant being built anywhere, and the bias of the load serving entities to build combined cycle base load plant instead. This option is eliminated due to its high overall cost. 2. The fixed price products offered by Vendor A and Vendor B are better options only in high gas price scenarios,i.e., gas prices at $5.5/MMBTu to$6/MMBTu range for the period of CY 08-20. The historical gas prices have hovered between $3 to $4/MMBTu however in recent two ears the rices have consistently been above $4.5/N MBTu ho , �P Y tc... . To take fixed rice due to various well known factors(weather, depleting reserves e ) P products at present time, one has to be of persuasion of believing high gas prices(higher I than $5.5/MMBTu) will last consistently and indefinitely for the next 15 to 20 years. i 3. Vendor A option product is too expensive, and thus will be eliminated from further consideration. 4. Vendor B option product is consistently of higher cost than Vendor C's option product. Further,Vendor B option product is only better than self-built CC generation option in low gas price scenario, gas at$3/MMBTu), a fairly aggressive assumption for the next 15 to 20 years.Thus Vendor B option product is of questionable value,unless heavily discounted from the present indicative prices. 5. Vendor B tolling product is consistently of slightly higher cost than Vendor C's option product. Further, Vendor B tolling product is only better than self-built CC generation option in low gas price scenario, gas at$3/MMBTu), a fairly aggressive assumption for the next 15 to 20 years. Thus Vendor B tolling product is perhaps of questionable value, unless discounted from the present indicative prices. The rationale here is: why one would lock in purchasing fixed amount of energy as in tolling if the economics of option product is better than the tolling option. In option product, one has the "option"NOT TO TAKE the energy if a cheaper source of energy is available, whereas in tolling option, one does not have such"optionality". 6. Vendor C option product is better than the self-built CC generation option under a wide range of gas prices(from low gas price scenario to likely gas price scenarios). The self- built CC generation option is better only in high gas price scenarios(above $5.5/MMBTu) and only marginally. Given that self-built generation has the inherent operational risks (a high availability factor of 95%annual factor was assumed, which may not be sustained over the life cycle of the CC generation) and unkno xm replacement cost in the life cycle, it appears that from risk standpoint,the Vendor C option product is a better bet. Palo Verde Delivery Point: 051 I I. General observations outlined above under Southern California Delivery Point also apply to Palo Verde Delivery Point. 2. The cost for the same product at PV is substantially lower than at SP 15. The average cost i mark-up for SP15 delivery vs. PV delivery is about $5/MWh throughout the life cycle of the products(CY 08-20). This fact is somewhat surprising in that one has to believe that the persistent price spread of more than $5/NM between SP15 and PV which has been occurring for the past twelve months WILL PERSIST INDEFINITELY for the next 15 to j 20 years without any.improvement(building of new transmission lines between the two hubs to enable the import of cheaper power from PV to SP 15 will narrow the spread). j This finding indicates that the market is perhaps placing a pessimistic view in terms of significant improvements in transmission access due to much higher hurdles to site transmission projects than generation projects. So even with substantial economic j incentives to build new transmission lines,but the hurdles are so great that may force market participant to consider higher cost option that are more realistic. Conclusion: I An economic assessment of various indicative proposals was analyzed along with self-built CC and CT generation products. The preliminary assessment indicates that a summer option product with low capacity reservation charge and a reasonable beat rate(10 MWh/MMBTu)provides the best bang for the buck under a wide range of gas prices. The analysis also shows that a self-built CC base load generation product is the next best option if one believes that such generation can be maintained at high availability throughout its life cycle and the plant replacement costs are kept to a minimum. It is further determined the persistent price spread between SP15 and PV is expected to continue for extended period of time based on the indicative prices. Thus when deciding where to source summer peaking power;one has to take into account the"deliverability" of such power to the summ g p , P load centers. I 052 TML6, SP15 NPV TABLE CY M20 rm IOOOC) Sag sae Vardpt Vq B9Atl am GAS B F4e0 Vendw VenOpr A Fb90 V9rnb Vpdm OOlion Oolbn V.dw PRICE Prke BTaholBO.II nCOa 30 7 M 320 BSB 20 Me 3245 09 533,41M $20,114 3n.1441 329 539 I 319.GG7 340 >0 4 1 IBC323.M 21170 310 500 9 a 35 a 941 , ]191 1587 I'W, 1 205 2J 918 Su 7 2B 751 20 411 25 891 d&I 326,0V 28 W5.M2 7912 20,275 $30512 42T,5981 W.M4 S26,74Q $8.0 577.042 $29,799 11 33ZS73 375,891 1333,464 329,068 328.808 $39.071 $28.180 NPV Graph 1 -SP15 510.000 - s3e,a9G S3&000 SJ7,po9 s35.o99 UXON 0 uz.o99 .. . - n'. mum S, CL ua.1w5 - MOW - - _ uaaa9 - 32],800 s22.eW -- _ 321.008 , .. s+a.9Go $3.0 $4.0 $4.5 $5.0 $5.5 $6.0 Gas Price -G-V9 BF4e0 Prke -k Ven0a10 TOMS -•--1 VONVOOPe9n �VONWAFkad Me -+-VW AOptin f —V,mdarCOpibl -4L-SaKBAd Optl 'tCC)�SODMC W(CnI Vendw COPlbn -_-_-_ p� P TAKE 2 PV NPV TABLE CY 00.20(In 1000b) VOMO, Vendw B MAO Vencor B Vendw 0 A fled Vendor AS PRICE Price TUOIn O tion I Price AO Uon 3.0 $23.571 17.397 10 545 0 731 54.0 $23 571 20 414 2 ON0 29 731 S 23 571 21 907 24 2 230 29 731- 50 2]571 Sz]490 26 22 236 29 731 5.5 $2]571 2501] 2822230 29731 $6.0 $23.571 $20.536 $30. 22.230 U9.731 NPV Graph 2 - PV 3.0 --------- _....... - 00. _._ ... .._.—._ ... ,.. .,... ... ...... ......_._—. . 330A00 -- – $29.000 .... _ $20.000 — I W $27.000 . . .X" - • •.ya'.Iiy'si •'��y:':,kl C $24,000 - Z $21.000' -.• .•;M $20.000 $19.000 – ••._ .. _..— 519,000 .. $17.000 . $3.0 $4.0 $4.5 $5.0 $5.5 $6.0 Gas Price -- - — VeMwBFltedRke — .::VeMwOTaAlrg %-- VeMwBOpticn 'VirdiAFhceOPrke –� Wf AOPIIon Q LA .F%.r s�w t�ao.J.l.fiYfre.Sore,u:.Y.vk�u.Y.+ 7T'k Ir Sy y�4. ,�q t iL�n 1c vWi'Sd^�r Power I ry Itry Y��lt`M1'e''% Resource Procurement h r Presented by Bob Tang February 23, 2004 iS•�jN� A . - i,i-.;rf Issue Statement _g .. . = t„`''” ■ To plan for power resources commencing calendar year 2008 to meet City's electric 4i , u consumption ......7 r� A ry t Issues to be Considered APF ' ■ Why Now? e>. } ■ How Much to Procure? ■ What Are Our Options? � - ■ Where Do We Go From Here? [fG Err:drydi«�fl7r:� - W i-sem• t 'i;l � 1 Whv Now 9 P4Ay ■ The regulatory environment is becoming a bit clear and certain . ..,;rv . .-a ■ Return to cost-based retail regulatory regime a ■ Wholesale market is returning to normal providing some planning stability 5. . k ■ Plan before the Investor Owned Utilities (IOUs) start long term procurement crowding out the small market participants a i�iiti3 : ;�a5! P»� iAjat.�i s How Much to Procure? .. p" NO:. YP Two Types of Power Resources: Y A. Summer Peaking Power The expiration of summer peaking power contract with Duke Energy by the end of 2007 will create the Ik* need of 15 MW of summer peaking power f}7r a+ commencing calendar year 2008. B. Planning Reserve f # The State wide power resource adequacy requirement may further require the City to procure between 15% to 17% of planning power reserves above and beyond City's peak consumption. What Are Our Options? lid . .,•:�c.. a 4h i ' ss Generally there are three options: A. Build our own power plants Pros: 1. Control of our own destiny r z 2. Operational flexibility f. Cons: 1 . Economy of scale may make it infeasible 2. "All eggs in one basket' syndrome 3. Operational hassle and headache -: r• :. B. Participate in joint power projects <>3 : Pros: 1. Somewhat in control of our own destiny 2. Some operational flexibility Cons: 1. Minority owner may not have a lot of say in plant operation 2. Subject to plant owners efficiency in running the plant f}h�i C. Contract with third parties Pros: 1 . No hassle. Transfers all operational risks to the seller 2. Some operational flexibility Cons: 1. Subject to the creditworthiness of the seller. If seller gets into financial problems then the contract may be at risk. 0 rn z _ Indicative Prices for Long Term TMs: Summer Peaking Resource ;a Five options: 4 A. Self-build or participate in a base load highly efficient combined cycled natural gas fired power plant (Self-build Option CC) B. Self-build or participate in a simple cycle natural gas fired peaking power plant (Self-build Option C7),f < c. Purchase fixed priced summer peaking power (Fixed Price) D. Purchase power capacity and buy natural gas to generate energy virtual ownership of an efficient peaking resource) ea•4x• .. at ( Tolling) E. Purchase power capacity and dispatch energy only if it is economical to do so (virtual ownership of reasonably efficient peaking resource) (Option) Q Y} Indicative Prices for Long Term Summer Peaking Resource .f 4 u� w ? NPV Graph SP1 5 ;�.'.7k.•`� 14•r-� $41.000 frM ff $40.000 $39,000 -- `•`'.:�i''.%.;';«+j,�i $39,000 - $37.000 - `':�'Y".`rut)nVt7 $30.000 $36,000 .�`'i•":7'...?J" �vf/ $33.000 `r..i1jE f��t✓:r6�,P� {] $32.000 - _' W 4�ii'.•:•.: , $31.000 'v4 $30,000 •'.'_' ri ' SiYy„'�f�f„�.• 1 V $29,000 _f� $28.000 :. (i r',n•,.y�'".t $27.000 f..,...,1: $20.000 .... .. .. ..... .... .....� .. .. .. $26.000 $24.000 SIM $23,000 $22,000 -- - -- '� $21,000 $20,000 $19,000 $3.0 $4-0 $4.5 $5.0 $5.5 $6-0 Gas Price I _Vendor B Fixed Price —O—Vendor B Tolling a Vendor B Option , I -••)K.-.Vendor A Fixed Price —VentlorA Option --F- Vendor Option ' :—Solt Build Option(CC) —a--•Self Build Option(CT Vendor C Option y Indicative Prices for Long Term Summer Peakin//''��'' Resource �.. "' k,.> NPV Graph PV $32,000 $31,000 ..�n.i�, $30.000 1'Jhi 5 $28.000 iii L4:il'hll $27.000 .. $28.000 $25.000 $24.000 :.:. :..:'..1 $23.000 i.':rzc::r7 r-ps $22.000 $21,000 $20.000 ---_..___—'-- $19.000 - ---- -'- $18.000 —.. ---'-- -•---•._-- $17,000 $3.0 $4.0 $4.5 $5.0 $5.5 $6.0 Gas Price L:Vendor B Fixed Price Vendor B Tolling —X Vendor B Option --)K-- Vendor Fixed Price Vendor A Option C3 .b;m ' kk�c}��y�r s• a K mp: Preliminary Findings : .:�:,��•„� C '7kitASl�a'S2la�i85,. Tf,�1:u� 1 . Self-Build Option CT cannot be made fk' economical . i0i s : 2. Fixed price contract is economical only if gas price is very high . =r : Tolling product is of marginal value. -,, }, 4. Self-build Option CC is economical if gas price remains high. 5. Option contract may prove economical under wide range of gas prices. 6. Power outside of California is cheaper reflecting transmission constraints. 0 r. ,J ufii E r , Preliminary C onclusion ra. The virtual ownership of a reasonably efficient peaking resource appears to provide the best bang for the buck. t:; kik F5q' ter yy •,:44 :ag, r� CD Q . xn , U P ;. Where Do We Go From Here? A. Received indicative proposals from market participants in late January and early February d B. Conducted detailed economic analysis of the trC. ; K. , a` options and summarized the findings in a report !f. :i f ;I attached hereto zLr'S C. Updated Utility Board in February r' i. NP w D. Engage independent consultant to validate our economic assessment and provide additional market perspective (due diligence review) in March E. Provide final recommendation to Utility Board in April F. Enter into long term contractual arrangement in May 0 Attachment C 068 ^^ The City of Azusa AZUSA i.I n• i HArCX Por Q�elnr OUR CITY OF AZUSA, CALIFOBUNIA REQUEST FOR PROPOSAL Introduction: The City of Azusa("Azusa"), California is issuing this Request for Proposal ("RFP')to seek long term electric power supply for the summer season as defined below to serve its retail load for the period commencing May 1, 2008 through October 31, 2020. Requested Electric Power Supply: Quantity: 15 MW of firm energy and the associated capacity Delivery Period: HE07 through HE22 Monday through Saturday excluding NERC Holidays for the months of May through October hereinafter referred to as "Summer Season", commencing May 1, 2008 and continuing through October 31, 2020. Delivery Point(s): SPI 5 (first preference)or Palo Verde(second preference) TMes of Acceptable Product: 1. Fixed priced standard 6x16 on-peak product, quoted in $/MWh. 2. Tolling arrangements with a fixed priced monthly reservation charge in$/kW- month or in $/MlVh of firm energy reserved PLUS an energy charge tied to a fixed heat rate in MMBTu/MWh and a transparent gas price index. 3. Daily option arrangement with a fixed priced monthly reservation charge in $/kW-month or in $/MWh of firm energy reserved and if the daily option is exercised, an additional energy charge tied to a fixed heat rate in MMBTu/TvM and a transparent gas price index or a fixed energy charge in $/MNvh. 4. Any combination of the above, e.g.,the proposer may submit a fixed priced product for the first five years of the term and a tolling product for the remaining the term. Minimum Information Required: The proposer must submit the following information for its proposal to be considered: 729 N. Azusa Avenue P.O. Box 9500 Azusa, California 91702 626/812-5208 (phone) 626/334-3163 (fax) utilities@azusa.ca.gov(e-rnaiO 0ss 1. Company name 2. Company contact person information 3. A copy of the most recent audited financial statement of the company or the entity that will provide the credit support for the company 4. Entity that will provide the credit support for the company. Please specify the S&P, and Moody's credit rating(if available) of the entity that will provide the credit support 5. The product(s)being offered. The proposer may submit multiple products,each offering will be independently evaluated by Azusa unless specified otherwise by the proposer 6. The proposer should specify in reasonable detail any allowable flexibilities Azusa will have in managing the natural gas price risks associated with proposals where energy price is indexed to gas price 7. Any deviations to the requested electric power supply and/or the types of acceptable products must be clearly specified, e.g., (a)the proposer may propose to shorten or extend the Delivery Period, (b)the proposer may propose alternate pricing arrangements etc.... 8. A brief description of proposer's internal approval process for the proposed transaction Optional Information: 1. A form of agreement for the proposed transaction 2. Supplemental product offerings, e.g.,proposer may propose to provide load following capability, ancillary service capability to the basic product. Supplemental product offerings MUST be separately priced Tentative Evaluation Timeline: 1. Issuance of this RFP on March 1, 2004 2. Proposals due by 5:00 pm on March 10, 2004 3. Update of RFP process to Azusa's Utility Board on March 22, 2004 4. Contract negotiations during the month of April, 2004 5. Second update to Azusa's Utility Board on April 26, 2004 070 6. Finalize contractual negotiations in May;2004 7. Azusa seeks its Utility Board approval on May 24, 2004 8. Contract execution by the end of May, 2004.. Submittal deadline and Azusa's contact information: The proposal package containing the minimum information required as specified above must be received no later than 5:00 pm, Wednesday, March 10,2004. The proposer can mail, e-mail, and/or fax the proposal by the deadline: Mail: City of Azusa Light and Water Department 729 N. Azusa Ave. P.O. Box 9500 Azusa, CA 91702 . Attn: Assistant Director of Resource Management E-Mail: btang(a ci.azusa.ca.us oz bob.tan g(aazusalw.com Fax: (626)334-3163 It is proposer's sole responsibility to ensure timely delivery of its proposal package by the deadline. Azusa expressly disclaims any responsibility in delivery problems due to mail, e-mail, and/or fax problems. Questions regarding this RFP can be directed to Bob Tang, Assistant Director of Resource Management, at(626)812-5214 or e-mail at btangPci.azusa.ca.us, or at bob.tang(a).azusalw.com. This RFP is issued by Joseph F. Hsu Director of Utilities Azusa Light &Water 071 /WHenwood RFP RESPONSE EVALUATION FOR THE CITY OF AZUSA DRAFTREPORT q March 18, 2004 Prepared by: Henwood Energy Services, Inc. 2379 Gateway Oaks Drive, Suite 100 Sacramento, CA 95833 (916) 569-0985 http://www.henwoodenerqV.co 073 The opinions expressed in this Report are based on Henwood Energy Services, Enc.'s ('Henwood)judgment and analysis of key factors expected to affect the outcomes of future power markets. However, the actual operation and results of power markets may differ from those projected herein. Henwood makes no warranties, express or implied (including without limitation any warranties of merchantability or fitness for a particular purpose),as to this Report or other deliverables or associated services. Specifically but without limitation, Henwood makes no warranty or guarantee regarding the accuracy of any forecasts, estimates, or analyses, or that such work products will be accepted by any legal or regulatory body. r i i 074 PROPRIETARY AND CONFIDENTIAL RFP EVALUATION FOR CITY OF AZUSA—DRAFT REPORT TABLE OF CONTENTS Section Page 1 INTRODUCTION 1-1 2 EXECUTIVE SUMMARY 2-1 3 STUDY RESULTS 3-1 3.1 Selected Portfolios 3-1 3.2 Comparative Evaluation of Portfolios 3-2 4 MODELING APPROACH 4-1 4.1 Modeling Methodology And Market Representation 4-1 5 SIMULATION INPUT ASSUMPTIONS 5-11 5.1 Natural Gas Prices 5-1 52 Energy Markel Clearing Prices 5-1 5.3 rmstimated Volatility and Mean Reversion Rates 5-2 5-4 Resources 5-3 List of Tables Table 3.1 Expected Cost versus Risk 3-3 Table 3-2 Relative Ranking of Cases Based on Indicated Measures 3.4 Table 5-1 Estimated Daily Volatility and Mean Reversion for Load and Natural Gas 5-3 Table 5.2 Existing Resource Assumptions i List of Figures Figure 2-1 Expected Cost versus Risk Plot 2-2 Figure 3-1 Representation of the City of Azusa Portfolios 3-2 Figure 3-2 Expected Cast versus Risk Plot 34 Figure 3-3 Expected Cost vs.Risk with Pato Verde Delivery 3-6 Figure 4-1 RISKSYM Stochastic Markel Modeling Process 4-2 ; Figure 5-1 Gas Burner Tip Prices($1mm5TU) 5-1 Figure 5-2 Monthly Energy Market Clearing Prices 5-2 92004 Henwood Energy Services, Inc. March 18.20114 I i 0 75 PROPRIETARY AND CONFIDENTIAL RFP EVALUATION FOR CITY OF AZUSA—DRAFT REPORT 1 INTRODUCTION Henwood was requested by the City of Azusa to assist it in performing an evaluation of responses to its RFP for power. In addition,the City of Azusa requested Henwood to also evaluate two ownership alternatives for future power supplies. This brief report summarizes Henwood's results from,and the approach and methodology to,those analyses. This report also provides information on the most significant market assumptions used, such as forecast market clearing prices,natural gas prices,contractual and generating plant operating parameters and estimated volatilities for stochastic parameters. 02004 He tweed Energy Services.Inc. March 18,2004 . 1-1 076 PROPRIETARY AND CONFIDENTIAL RFP EVALUATION FOR CITY OF AZUSA—DRAFT REPORT 2 EXECUTIVE SUMMARY Henwood was engaged by the City of Azusa to assist it in the evaluation of responses to its RFP for a long-term power supply. To do this analysis,Hcnwood utilized its state of the art RISKSYM stochastic analysis model that dispatched the various portfolios of resources to the City of Azusa's hourly load. Any surplus of power was sold into the SP15 day ahead spot market In situations where the load exceeded the generating resources of the portfolio,purchases of power from the SP15 market were made. A total of seven cases were studied,both in deterministic and stochastic modes for the period 2006-2020. The deterministic mode assumed no volatility to forecasts of loads, natural gas fuel prices or market clearing prices. Random forced outages of generating units were captured. In the stochastic mode,in addition to random forced outage rates of generating units,volatility in loads,natural gas prices, and market clearing prices were captured. More detail on the stochastic analyses is presented later in this report. The cases studied were,in brief. A. Base Case comprised of the City of Azusa's existing San Juan,Palo Verde, Hoover,and wind projects. B. Case A and a 15 MW ownership share in a combined cycle project. C. Case A and a 15 MW ownership share in a simple cycle project. D. Case A and a 15 MW May through October on peak block forward contract E. Case A and a 15 MW May through October on peak tolling contract F. Case A and a 15 MW May through October on peak call option contract G. Case A and a 15 MW May through October on peak block forward contract and a call option contract. Figure 2-1 below summarizes the findings of the study. While the study was not intended to provide a definitive selection of a given proposal,it does suggest that several proposals,specifically Cases G and D,were neither competitive on an MPV of expected cost basis nor on risk as measured by+1 standard deviation of cost. Henwood believes that the remaining cases warrant further investigation. Although+1 standard deviation was used as a measure of risk for this study,investigation of a+2 standard deviation measure is recommended. 02004 Henwood Energy Services,Inc. March 15,2004 2.1 077 PROPRIETARY AND CONFIDENTIAL RFP EVALUATION FOR CITY OF AZUSA-DRAFT REPORT Figure 2-1 Expected Cost versus Risk Plot NFV Cost versus NPV Risk($000 USD) sePro m c J ; i :eo i XE �•O6Pa0 � I 1 IXF X OG, a.ow eA • � I I ev000 I I eomD e sew eoxm mmo aavoo acme ..as u.w.e.. 02004 HenwOod Energy Services,Inc. March 18,2004 2-2 078 PROPRIETARY AND CONFIDENTIAL RFP EVALUATION FOR CRY OF AZUSA-DRAFT REPORT 3 STUDY RESULTS 3.1 Selected Portfolios Using the City of Amsa's historical loads,projected load growth and resources data, Henwood's modeling of the power market,and selected responses to the City of Azusa's RFP,Henwwod simulated a total of seven cases,as follows: A. Base Case—this case assumes that the City of Azusa continues to use its current "base case resources"(Hoover,San Juan,Palo Verde and Wind)and buys directly from the day ahead spot market for additional resources needed to serve its growing load. B. Base Case+Azusa-owned Combined Cycle—this case assumes that the City of Azusa uses its current base case resources and,in addition,purchases a 15 MW ownership share in a combined cycle plant. Any surpluses or deficits of power needed to serve its load are sold or bought from the day ahead spot market. C. Base Case+Azusa-owned Combustion Turbine—this case assumes that the City of Azusa uses its current base case resources and,in addition,purchases a 15 MW ownership share in a simple cycle combustion turbine plant Any surpluses or deficits of power needed to serve its load are sold or bought from the day ahead spot market D. Base Case+Supplier C,Product A—this case assumes that the City of Azusa uses its current base case resources and accepts Supplier C's product A offer of a fixed price,May-October 2008-2020,on peak(6x16)block forward contract Any surpluses or deficits of power needed to serve its load are sold or bought from the day ahead spot market E. Base Case+Supplier C,Product B—this case assumes that the City of Azusa uses its current base case resources and accepts Supplier C's product B offer of an on peak(6x16)tolling agreement,May-October 2008-2020. Any surpluses or deficits of power needed to serve its load are sold or bought from the day ahead spot market. F. Base Case+Supplier C, Product C—this case assumes that the City of Azusa uses its current base case resources and accepts Supplier C's product C offer of an on peak(6x16)call option,May-October 2008-2020. Any surpluses or deficits of power needed to serve its load are sold or bought from the day ahead spot market O. Base Case+Supplier B,Tranche A+Tranche B,Option 2—this case assumes that the City of Azusa uses its current base case resources and accepts Supplier B's offer of an on peak(6x16),May-October,fixed price block forward contract for the 2008.2010 period and an on peak(6x16),May-October,call option for the period 2011-2020. Any surpluses or deficits of power needed to serve its load are sold or bought from the day ahead spot market. 02004 Henwood Energy Services, Inc. March 18,2004 3.1 079 PROPRIETARY AND CONFIDENTIAL RFP EVALUATION FOR CITY OF AZUSA—DRAFT REPORT Cases B through G all assumed the candidate new resources had a capacity of 15 MW. For Cases B and C,the capacity from the ownership interest was available all year and at all hours. For Cases D through G,the capacity was available for May through October during on peak hours(HE0700 to HE2200). Figure 3.1,below,illustrates from a conceptual modeling perspective how the cases were simulated: Figure 3-1 Representation of the City of Azusa Portfolios Power Market Marker Purchases and Saks Customer Load Candidate New Resources -0- City of Azusa Resouttes 32 Comparative Evaluation of Portfolios RJSKSYM was used to simulate the period from January 2008 through December 2020. Both deterministic and stochastic analyses were done. The stochastic analysis was performed for 100 iterations over the simulation period. Each day of each iteration involved Monte Carlo random draws for the stochastic electricity price,loads and natural gas price processes(two daily draws for each commodity,for the short-term and long- term stochastic shocks),and a random draw for forced outage occurrence each week. Portfolio performance was measured by comparing the net present value of total system cost of each portfolio over the study period. Total system cost was defined as the total 02004 Henwood Energy Services,Inc. 12 March 18.2004 080 _ PROPRIETARY AND CONFIDENTIAL RFP EVALUATION FOR CITY OF AZUSA-DRAFT REPORT variable operating costs(fuel cost, start cost,variable O&M cost)of the base case resources plus the fixed and variable cost components of the alternative resources simulated in cases B through G plus the cost of power purchases from the day ahead spot market minus the revenue from surplus power sales to the day ahead spot market. The formula below shows the calculation: Total Cost = variable cost of the base case resources +cost of fixed and variable components of RFP responses +cost of day ahead spot market purchases -revenue from sales of surphts power to the day ahead spot market The total cost,by month and by iteration,for the period of the simulation is then discounted back to 2004 using a 3 percent discount rate. Results are then summarized by percentiles as well as the average and+] standard deviation. Table 3-1 below shows the relative"risk"and expected value of each portfolio. The relative"risk"is measured as the difference between the NPV expected value of the base case(Case A)and the NPV of +1 standard deviation of the alternative case. Table 3-1 Expected Cost versus Risk (amounts are NPV in 2004E ,,:; NPV o1 Cost(2004$) +1 Std Deviation Delta Case EXD-Cost +1 Std Dev. from Case A from Case A _ 60,728,060 73 855,938 13,127 876 13 127,878 8 62,362,914 75,327,069- 15,599,009 13,964 155 C 64 506,521 77,7T7,014 17-p-418-g-53- 13,270 493 D 70,571032 81,715,205 20,987145 11144,173 E 64.546937 76,202,204 15,474,144 11,655,267 F _ 64,847853 77066,590 16,338,530 12.218,737 G 67,451,273 79,505,846 18,777,785 12,054,513 Figure 3-2 shows a graphical representation of the results. ®2004 Henwood Energy Services, Inc. 3-3 March 18,2004 081 PROPRIETARY AND CONFIDENTIAL RFP EVALUATION FOR CITY OF AZUSA-DRAFT REPORT Figure 34 Expected Cost versus Risk Piot NPV Cast vetws NPV IUck[t000 USD) rr® R® i ♦a iGD 1 XE :F X OG i Iu «aw I am I I i i w I awe, � a.w ar From the perspective of lowest NPV of expected costs,or+1 standard deviation from the base case(Case A), or+11 standard deviation from its own expected value,the cases rank as shown in Table 3-2,below. From a risk neutral perspective,a ranking of 1 is preferred to a ranking of 2 and so forth. Table 3.2 Relative Ranking of Cases Based on Indicated Measures ay:fi. Relative Ranking Based on Measure +I Sld Dev. +I Std Dev. Case Expected From Base Cost Case From Case A 1 1 5 B 2 3. 7 LD3 5 6 7 7 4 2 2 5 'q 4 S B 3 These outcomes do not, of course tell the whole story of which case may be a better fit for the City of Azusa resource portfolio. For example,Case A,which ranks I on a lowest total system cost measure,results in a substantial exposure to market purchases and prigs. As a result,it ranks P overall in terms of the absolute magnitude Of its+1 standard deviation as shown in the column titled"+1 Std Dev From Case."On the other O20D4 HenwDod Energy Services,Ino. March 18,2DO4 3-0 082 PROPRIETARY AND CONFIDENTIAL RFP EVALUATION FOR CITY OF AZUSA—DRAFT REPORT hand,Case D which locks in long term prices for a block forward,ranks last on on expected cost basis,but ranks first in having the lowest absolute magnitude of its+1 standard deviation. Cases B and C,involving ownership in a combined cycle and combustion turbine plants, respectively,rank number 2 and 3 in terms of expected cost,but fairly high(71 and 6 )in terms of absolute magnitude of+1 standard deviation measure. Unlike the other cases, Cases B and C incur fixed carrying costs for every month of the year,not just the May through October period and,the margin the units can realize on sales of surplus power to the market are reduced outside of the May through October period. In addition, depending on the contractual arrangements of ownership,the City of Azusa may be exposed to construction and operating risk that may not be present in the nonownership cases. There are many other factors,beyond the scope of this analysis,which the City of Azusa will need to consider before selecting one or possibly none of the proposals. Clearly, Cases B,C,E and F appear most competitive with the base case(Case A),and may deserve further study. Cases G and D do not appear to be competitive with the other cases and may not warrant further study at this time. The City of Azusa also requested Henwood to provide a brief discussion of the relative merits of taking delivery of power from Supplier C at Palo Verde versus SP15. Based on Henwood's soon to be released report,"WECC Regional Outlook,Spring 2004," Henwood expects the differential in on-peak market clearing prices between Palo Verde and SP15 to be on the order of$4.00(in 20045). This differential is driven primarily by expected transmission congestion and losses. Without performing a new simulation of Cases E and F,Henwood adjusted the variable costs of the contracts upward by $4.00/M Wh and reduced the fixed costs(SAW-mn)to reflect a Palo Verde delivery point. This approximation showed that,all other things being equal,the Palo Verde delivery point resulted in an overall reduction of expected costs for those two cases. The City of Azusa will need to assess whether the delivery risk due to congestion should be hedged. Figure 3-3,below,shows a graphical representation of the relative shift in costs for Cases E and F. Case D also had a Palo Verde delivery point option,but was not re-analyzed due to the fact it was not competitive with the other offers. ®2004 Henwood Energy Services,Inc. March 18,2004 3-5 083 PROPRIETARY AND CONFIDENTIAL RFP EVALUATION FOR CITY OF AZUSA—DRAFT REPORT Figure 3.3 Expected Cost vs.Risk with Palo Verde Delivery NW Cost rectus NPV Wsk($ODD USDI rton ; I i I AtW � 1 •B wDm I I ■G t ' nD s zE y cm SF 1 I OG trot �A Ell X � n® 1 I' I n® mm .yp am nme ' o �a» ®2004 Henwood Energy Services,inn, March 18.2004 31i Oo4 PROPRIETARY AND CONFIDENTIAL RFP EVALUATION FOR CITY OF AZUSA—DRAFT REPORT 4 MODELING APPROACH 4.1 Modeling Methodology And Market Representation This section provides a brief overview of Henwood's approach in forecasting the relative cost exposure of the RFP responses as well as the ownership alternatives. For a detailed description of Henwood's databases and modeling methodology,we refer to Henwood's Spring 2004 WECC Regional outlook report[. Henwood used its RISKSYM" software to perform a stochastic simulation of the City of Azusa's loads and resources. A total of loo Monte Carlo iterations were simulated for the January 1,2008 through December 31,2020 study period,simulation time step 4. The time step 4 means that every fourth hour was simulated for the 13-year study. The stochastic Monte Carlo based analysis allows for a stochastic representation of: • City of Azusa Loads • Natural Gas Prices • Unit Outages(both forced and maintenance) • Market Clearing Prices Volatility and correlation parameters were estimated,as appropriate,for each of these parameters and utilized in the analysis.2 In the deterministic simulations,loads,market prices and fuel prices were assumed to be as forecast with no variations to daily values from Monte Carlo draws. Forced outage rates for generating stations,however,are honored. In the Monte Carlo-based simulations,loads,market prices and fuel prices are treated stochastically along with generating station forced outages. Features of the stochastic price model used in Henwood's analysis are,as follows: • A general stochastic price process capable of representing both electricity prices and natural gas prices; • An expected price forecast as an equilibrium price for each time period; • Two distinct stochastic factors for each price variable—for short-term price level and long-term growth(drift)rate shocks; • A lognormal uncertainty distribution for lectricr and natural as rice o_�d0 t"`""oc°""`ftc.7k t B� Y F.........!Y. ..._....._.. g.......... ...............: ::.. xtet:d: 1 E"ted to be released in April 2004. r For loads,market clearing prices and natural gas prices,Henwood applied previously determined volatilityand mean reversion parameters from rmmt studio of the SP I$zone in Celi£omia. Correlations for natural gas prices and market clearing prices were also iocorpor ned from those recent studies. Due to limited data on the City of Azusa's loads,corelatiom of load to market clearing prices were mot calculated. 02004 Henwood Energy Services,Inc. Match 18,2004 4-1 085 PROPRIETARY AND CONFIDENTIAL RFP EVALUATION FOR CITY OF AZUSA—DRAFT REPORT • Contemporaneous correlation of stochastic factor shocks between electricity and natural gas prices;and, odaee:t>oa emuany:} • Use of seasonal;crying volatility and cotrelation parameters to handle the.well- -............ known cyclical price patterns of energy commodities. The overall work process used to apply RISKSYM in market assessment and evaluation of assets is illustrated in the following figure. Figure 41 RISKSYM Stochastic Market Modeling Process Det*Ineufa SI 1*tlen Pmaese Reeuns • Expected Velre Pdce Foncael rhe f' • Menef Resuea •stwunt Modal -Prices fw lie toWly end F.W .FlnandseN Moddl •aenlion Leel end Summary .Fumod SGt41�+ o.•w ee• "�' • Mont Reaoaa • Sb-EWIC nef Paramelen -Reenues aad eeafe ty ry end Fuel -Vomtlry •aenlbn Leel and Summary .Moen ReWMIM 'a+..r.rop.u. Stalutks •ComAaUan arnM,ue,.*.e i I Sample price data from historical daily on-peak firm spot prices for electricity and daily spot prices for natural gas are used in the short-term parameter regressions. These data, obtained from Henwood's Market Prices database,are selected based on geographical regions that best match the physical location of the facilities or are otherwise appropriate for the facilities being analyzed. The short-term correlation parameter values were calculated as the linear correlation between the contemporaneous residuals of the electricity and natural gas price regressions for each season. These correlation values are used in the RISKSYM stochastic model to adjust the initial random draws for each variable,using Cbolesky decomposition,in order to account for their correlation of unexpected movements. Estimates of long-run drift(growth)rate volatility and the correlation of unexpected shocks in the drift rates of electricity and natural gas are difficult to develop for several 02004 Henw d Energy Services,Inc. March 18,2004 4-2 PROPRIETARY AND CONFIDENTIAL RFP EVALUATION FOR CITY OF AZUSA—DRAFT REPORT reasons. First, wholesale market prices for electricity are not available for the twenty or more years that would be necessary to statistically estimate its long-run drift volatility. Regulation of natural gas wellhead and transmission rates in past years also make available long-terra prices for natural gas less than ideal for statistical analysis. For natural gas,an annual long-term drift rate volatility of 14.51 percent was adopted from econometric analysis by Pindyck(Energy Journal, 1999)based on data for the 1970- 1996 period. This rate was adjusted to a daily rate by dividing by the square root of 365. Lacking long-term data for wholesale electricity prices,we assume the same percentage rate of volatility for electricity. This-assumption may be justified by noting that electricity is a manufactured commodity whose long-run price is largely determined by the cost of fuel. Through experimental calibration and judgment,a long-term drift correlation rate of 0.95 was assumed. This near-unity value results in electricity and natural gas prices tending to move together over any particular Monte Carlo trajectory. The discrete-time(daily time step)representation of the stochastic price model is: S.,-r+L.,—L.r++�..(L„-i—S.r•r)+Q.,E —Var{S,]/2 (1) eSE, = P:.L =0 (3) m s s (4) (5) where: n =commodity(fuel input or electricity output) I =time period of observation(day) S. =logarithm of short-run or spot price for commodity n L. =logarithm of long-run or equilibrium price for commodity n a„ =rate of mean-revcrsion in spot price for commodity n in period t p„ =expected rate of growth of equilibrium price for commodity n in period t as =volatility of spot price returns for commodity n in period f L =volatility of equilibrium price growth rate for commodity n es =normally distributed random short-term factor shocks(mean-0,SD=1) 6r =normally distributed random long-term factor shocks(mean-0,SD=I) ps.t =correlation of spot and long run price stochastic changes p!.. =correlation of spot price stochastic changes for commodities m and n -correlation of drift rate stochastic changes for commodities m and n Var =variance. 02004 Henwood Energy Services.Inc. 4-3 March 18,2004 087 PROPRIETARY AND CONFIDENTIAL RFP EVALUATION FOR CITY OF AZUSA—DRAFT REPORT For electricity,average daily log prices are used in the above model. Once the simulated average price is determined for each day,hourly spot prices for that day are scalcd up or down in(log)proportion to those for the expected daily price shape. Statistical estimation of the short-term volatility and mean-reversion parameters used ordinary least squares(OLS)regression on daily spot prices for electricity and natural gas txt�a.r� rKh iorm Ler:) at market hubs for he tar etre 'ons The short term valatili and mean-reversion.----- .. ...?y.... -.. . .. . parameters were estimated,as follows: Let p=ln(P),where P is the spot price. The continuous time(as At-4 0)short-term mcan-reversion process is: P,—P,-i =0—e')(P—R-,)+e, Or P. —P,-. =(I—e`)p+(e'-1)P.-r +E. For daily(or other discrete)time data,the above process was estimated with OLS regression as an autoregressive lag 1 period(or AR(l))equation: P, 'R_r =a+b•R-a +e, The mean reversion rate is then calculated from the AR(t)regression parameter: n=—b and the short-term volatility rate(on a daily basis)is equal to the standard error of the regression: d=s where s is the standard error of the regression. The volatility rate,then,is the residual volatility,after accounting for the mean reversion tendency,rather than total volatility. The regression intercept(a)coefficient is not needed,since it is only used in the calculation of the average price: P=—al6 02004 Henwood Energy Services,Inc. 4-4March 18,2(104 ass PROPRIETARY AND CONFIDENTIAL RFP EVALUATION FOR CRY OF AZUSA-DRAFT REPORT Four seasons(spring,summer, fall,winter)were defined with separate boundary dates for electricity and natural gas,and the regressions pooled the data for the same season across the years in the sample period. O2DD4 Henwood Energy Services,Inc. March 18,20D4 4-5 089 PROPRIETARY AND CONFIDENTIAL RFP EVALUATION FOR CITY OF AZUSA—DRAFT REPORT 5 SIMULATION INPUT ASSUMPTIONS 5.1 Natural Gas Prices Henwood's gas price forecast is based on Henry Hub futures prices and the examination Of regional prices at a number of trading hubs over recent history. The forecast of the average price at the burner tip in southern California with a band of 1 standard deviation is shown in Figure 5-1,below. Figure 5-1 Gas Burner Tip Prices($ImmBTU) Study: StochAzBas10117 Td S 9fwVG3 CQ' l C ISS WMSev 6�4 mlll°e� M41SDS 1°G l C 1 �° 1 11 1 1 r " d - ,� D,ro SDG 1•� ,®m VIDII AIS OSO QA1, MIDIS RJ]Il flD9 fLIS 6120 r�Qll4 AS.L•.rWA,0,�' -• 5.2 Energy Market Clearing Prices Forecast market clearing prices used in this study are based on Henwood's soon to be released report entitled, "WECC Regional Outlook,Spring 2DO4." Specifically,the prices are based on the Southern California(SPI 5)market clearing prices from that report. Figure 5-2 shows the ninthly expected market clearing prices by zone resulting from the stochastic analysis. 02004 Henwood Energy Services,Inc. March 18,2004 5-1 090 ' PROPRIETARY AND CONFIDENTIAL RFP EVALUATION FOR CITY OF AZUSA—DRAFT REPORT Figure S-2 Monthly Energy Market Clearing Pr}ces Study: StochAzBasIO117 xa.e�nrYsaxxaax+ca n\mnlbinbe wt mnbatl110 �� to + I J � U v IV F m �� m 10 =31l ,aom YID„ M. ,Oit1 Rm1. aIDi tlHl MIN MI. alb TL.O[xMT•'N.L'.Te.a®.ae:wi..,l:'MmA: 5.3 Estimated Volatillty and Mean Reversion Rates Henwood's stochastic analysis is based on the assumption that natural gas and market clearing price stochastic input variables follow a log-normal distribution,that loads follow a normal distribution. Henwood also accounts for mean reversion in the variables. Both volatility and mean reversion rates are estimated based on historical data using standard econometric techniques. Unit outages are also stochastic but are subject random draws corresponding to a pre-specified forced outage percentages,determined for stations individually based on historical data. As an example,Table 5-1 shows Henwood's estimates of load,natural gas and market clearing price volatility and mean reversion parameters used in this study for SP15 zone. Natural gas price and market clearing prices are also assumed to have both a short term correlation as well as a long term correlation. 02004 Harwood Energy Services. Inc. March t S,2004 5-2 091 PROPRIETARY AND CONFIDENTIAL RFP EVALUATION FOR CRY OF AZUSA—DRAFT REPORT Table 5.1 Estimated Dail Volatility and Mean Reversion for Load and Natural Gas SP15 Gas Month Daily Values SP115 Load Price SP15 MCPs Web& 0.0736 71)582 0.1395 Mar-May Mean Reversion 0.1555 0.0080 0.0894 Jun-Aug Volatility0.0726 0.0895 0.1709 Mean Reversion 0.1663 0.0378 0.1211 Sep-Nov Volatility 0.0731 0.0645 0.0878 Mean Reversion 0.1373 0.0000 0.1002 Dec-Feb Volatility 0.0660 0.0682 D.0758 Mean Reversion 0.1661 O.OD49 0.0118 5.4 Resources The base case portfolio consisted of the following resources,as shown in Table 5-2. These resources were modeled with assumptions for beat rates,fuel prices maintenance outages(scheduled or distributed),minimum up and down times,ramp rates,variable operation and maintenance costs,start costs,and emissions and emission costs. Table 5.2 Ex(st(n Resource Assumptions Resource Name Resource Type Capacity.MW San Juan Unit 3 Coal steam 30 Pato Verde Nuclear 2 Hoover HWfO 4 Wind Wind 2 The alternative cases studied all had these four units in the portfolio. 02OD4 Henwood Energy Services,Inc. March 18,2DO4 5.3 092 MASTER POWER PURCEIASF. AND SALE AGREEMENT C04TRSHEET 7'Iris,)da.srer Parver Purchase mrd Sale dgreenteul (",ifasier;Igrvement" ) is made as of Ibe I'ollo+ving date: April 26, 2004 ("Effective Date"). The Master Agreemcmr, together will] ILC exhibi(s, schedules and any written supplements hereto, t1w Party A Tariff, if any, the Puny B Tarifl', il'auy, any designated collalcral. credit support or margin agreement or similar anangemCal between the Parties and all dlansuctiuns (including any confhrnutions accepted in accunlance \Cilli Section 2.3 hU'cto) shall be rel'crred to as the "ALiccmcnt" -I'hcPartiestothis:114.rrcragroeua•nravelltefollmving: Name City ul'Azusa California(" or"Party A") Name Duke Encrgy Markeling America,LLC ("DFM A"or"Party B") All Notices: All Notices: Street: 27 9 N. Azusa Avenue Street:L4gOWestheinter Cl .. _.._. City: Azusa CA Zip: 91 70')95(1 City: Houston "Lip: 7-0:6 .__. Attn:Contract Administration Atm: Contract Administration Phone: (626)812-5214 Phone: (7)3)627-6177 Facsimile (62 0)334-3163 Facsimile: (713)627 6185 _ Duns 040371361 Duns: I 1-393-2268 — Federal Tax ID Number 95-6000-670 Federal Tax ID Number: 76-0665086 Invoices: Invoices: Attn: Assistant 1)irector of Resource Manaunxcnt Attn: Power Aceounlirf" -__-_— Phottc: _ (7131627-5400 -.-- Y11031e_(626) 812-5214 Facsimile. (713)989-0267 Facsimile: (626)334-3163 Scheduling: Scheduling: Ann: Power Scheduling Attu: Power Seheduling Phone. (626) 812-5138 Phone: (713)959-0847 ._ Facsimile: (626)334-3163 Facsimile: 1713)959-().191__ P•rvnlents: Payments: Atter: Power Accountim, Attn: puwcr Accounling_ .__ . Phone: (626)812-5211 Yhw C: (713)627-5,100 Facsimile: : (626)334-3163 Facsimile. (713)949-0267 Wirc'rransfer: Wire Transfer: BNK: Wells Fargo Bunk. City of Azusa Branch BNK:JPM Chase ---._ ABA: 1210-00248 _ -_ _. ABA:(1210 0021 _ .._.. ACCT:4950041244 ._ ACCT: 304-15-4237 .- Credit and Cullectiuns: Credit and Collections: Attn: Assistant Director of Resource Dlanaecmcnt Attn: Credit Denartnteni Phonc: (713)627-5400 .. _ Phone:)626)812-5214 Facsimile:(713)627-6187 _ Facsimile: (620)3,4-3163 _. 093 With additional Notices of an Evcut of Defaull or With additional Notices Oran liven[al'Del'au:l w Potential Event of Default to: Potential Event of Default to: Attn: City Attorney's Office Attn: Legal Derailment Phone: (909)686-1450 Phonc:L13)627-5300 Facsimile: f909) 686-308.3 - ._-.__ ._.. Pacsimite:(7131939-1605 The Parties hereby agree that the General 'Icons and Conditions are incorporated herein, and to die following provisions as provided for in the General Terns and Conditions: Party ATariff Tariff Dated Docket Number-,, ..__._,_.-___ Party B Tariff Tariff Market Mise Dated:June 5.2003 _ Docket Number ER-03- 956-000 Article Two Transaction Terms and Conditions [x]Optional prueisio»in Section 2.4. Ifoot thcckcLI,ilia ppficat;1c. Article Four Remedies for Failure [xJ Accelerated Payment of Dama�;cs.if not checked,mapphcublc. to Deliver or Receive Article Five [x] Cross Default for Party A: Events of Default; Remedies [J Party A: Cross Default Amount S I S.000,001) [J Other L•ntity:-__ Cross Default Amount 5 [] Cross Default for Party D: [] Party E: ._ Cross Default Amuumt S. [x]Other Entity: Duke Capital 1.1_C Cross Dclatlt Amount S 150,000,00 5.6 Closeout Setolf [x] Option A(Applicable if no other selection is mad c.) [ Option B- Affiliates shall have the meaning set funk its tLv Agn:enneut unless otherwise specilicd as follows: ___ [J Option C(No Setoff) Article 8 8.1 Party A Credit Prolecdow Credit and Collateral Requirements (a) Financial hilbrivation: [] Option A [x] Option B Specify: Duke Cunital I.I.0 [] Option C Specify: (b) Crcdit Assurances: 094 [] Not Applicable [x1 Applicable (c) Collateral Threshold: [x] Nut Applicable [J Applicable If applicable,complete the fullowing: Party B Collatcnl'1'lueshold: S ;provided,bwcccer,lint Pane B's Collateral 'Ihreshold shall be zero iran Event of Dcfmit or Potential Vvenl of Default with respect to Party B IMS occurred:uid S continuing. Party B Independent Amount: Party 11 Rounding Amount:S (d) Downgrade Event: f1 Not Applicable [x] Applicable If applicable, cumplc(c the following: [x] It shall be a Downgrade Event for Party B il'I'any It's Crcdil Rating falls below 81111• from SSP or Baa3 from htoods's ur it' Party B is not rated by either SSCP or Moody's [1 Other: Specify: —....__ (e) G«arontor for Party B: Duke Capital LLC Guarantee AmounC 8.2 Party B Credit Pmteclion: (a) Financial Information: [J Option A [x] Option B Spec il}•:__— [) Option C Specify: (b) Credit Assurances: [] Nut Applicable [x] Applicable (c) Collateral Threshold: [x] Not Applicable [] Applicable If applicable,complete the following: Putty A Collateral Threshold: S ._;provided,however,that Patty A's Collateral Threshold shall be zaro if an Event of Default nr Potential Event of Default with respect to Party A has occurred and is 095 continuing. Party A Independent Amount:S_ Party A Rounding Amount:S (d) Dow•agrade Event: [] Not Applicable [x] Applicable If applicable,complete the li�lluming: [x] It shall lie a Downgrade Event for Party A il'Party A's C'redil Rating falls below BB13- from SSP or tion", liroro Moody's or if Party A is not rated by either S&P or Moody's [] Other: Specify: _—,_ _ (c) Guarantor Ibr Party A: Guummue Amount: _.._ Article lU Confidentialily [x] ConfideutiaMyApplicable If not checked,inapplicable. Schedule Nl [] Party A is a Govctruuetmal Lntity ur Public Puarr System [] Party B is a Governmental Entity or Public Power System [] Add Section 3.6. If nut checked, inapplicable [] Add Section S.G. If not chocked,inapplicable Other Chonecs x See Addendum 096 IN WITNESS WHEREOF. the Panics have caused This Master Agrecnuut to be duly cXceulrd as of the dale first above+written. City of Azusa CalifuroN Duke Energy Marketing America,I.LC A- D .4I BY: < J Name: Naote: 'fide: 'ride: <7.N t it l DISCLAIMER: This Alaster Power Purchase and Sale Agreement was prepared b) a committee of representatives of Edison Electric Institute ("LEI") and National Energy Marketers Association member companies to facilitate orderly trading in and development of wholesale power markets. Neither EEI our-NE1%1 nor any member company nor any of their agents, representatives or attorneys shall be responsible for its use, or any damages resulting therefrom. By providing this Agreement EEI and NENI do not offer legal advice and all users are urged to consult their own legal counsel to ensure that their commercial Objectives will be achieved and their legal interests are adequately protected. 097 Addendum to the Master Power Purchase and Sales Agreement (EEI) Between Duke Energy Marketing America, LLC and City of Azusa,California dated April 26, 2004 The above-referenced Master Power Purchase and Sales Agreement (the "Agrcen+rnt.) between Duke Energy Marketing America. LLC ("DEMA") and City of Azusa, California shall be revised as follows: Cover Shect: The address information and related terns and conditions attached to this Addendum shall be incorporated into the Cover Shcct and the Agreement. Section 1.23: Delete the words "provided, however, that existence of the foregoing factors shall not be sufficient to conclusively or presumptively prove the existence of a Force Majeure ubsent a showing of other facts and circumstances which in the aggregate with such factors establish that a Force Majeure us defined in the first sentence hereof has occurred." Section 1.50: Delete the words "Section 2.4" and replace with "Section 2.5." 1.62: Add new section: "Collateral Interest hate" will be a per annum rate of interest equal to the Federal Funds Rate. "Federal Funds Rate" means, for any day, an interest rate per annum equal to either (A) the rate published as the Overnight Federal Funds Effective Rate that appears on the Telerate Page I 1 S for such day (or, if such day is not a Business Day, 1'101. the preceding Business Day)or(B) if such rite is not so published for any day which is u Business Day, the Federal Funds Rate as published by the Federal Reserve Bank in H.15 (519). Section 2.1: Add the following as a second paragraph: The Parties may have entered into power purchases and sales prior to the execution of this Agreennent ("Existing Transactions'), which are currently subject to an existing contact ("Existing Agreement") including, but not limited to, the WSPP Agreement, the NIAPP Restated Service Agreement, or a bilateral agreement between the Parties. Effective as of the date ol*this Agreement, these Existing Transactions shall for all purposes be Transactions heruutder and shall be subject to all the terms of this Agreement, except that (1) all service IcvcUproduct definitions; (2) the regional reliability requirements and guidelines; and (3) Force Majeure/Uncontrollable Force definitions shall have the meaning ascribed to them in the Existing Agreement in effect on the date the Transaction was entered into. Provided however, with respect to Existing Transactions subject to the WSPP Agreement, the methodology for DLMA City or Azusa L H Addrnduut rcm.utiw vmiumdx 1 098 calculating the payments for failure to deliver or receive under Sections 4.1 and 4.2 hereto shall be in accordance with Section 21.3(a) of the WSPP Agrecrnent; provided, further that the "Accelerated Payment of Damages" addressed in Sections 4.1 and 4.2 hereto shall continue to apply to such payments if such election is made on the Cover Sheet. Section 2.4: The following shall be added to Article 2.4 Additional Confirmation Teruo: "Notwithstanding the foregoing, the Panics hereto agree and acknowledge that either party may add to the Confirmation supplemental or modification tenns only for specific Product definitions not provided in the Master Agreement and that these specific provisions may be decried accepted pursuant to Article 2.3" Section 4: Add the following as Section 4.3 to the Agreement: Suspension of Performance for hailure to Deliver/Receive. Notwithstanding, and in addition to the remedies provided pursuant to Sections 4.1 and 4.2, if Seller and Buyer fails to schedule andilor deliver/receive all or part of the Product pursuant to a transaction, and such failure is not excused under the terms of the Product or by other I'arly's failure to perform, then upon two (2) Business Days prior notice, unless notice is tendered on a Thursday, then upon three (3) Business Days, and for so long as the non-performing Party fails to perfonn, the performing Party shall have the right to suspend its performance under any or all Transactions. Section 5.1: Add the following as the first sentence of Section 5.1: "Por purposes of this Article 5.1 the term "Party" shall be read to include Party and its Guarantor, as applicable." Section 5.1 (h) (ii) Delete the words "within three (3) Business Days alter written notice" and replace with "pursuant to the tarns of the Guaranty." Section 5.1: Add a new Section 5.1(i) that reads "The default by a Party under any other agreement between the Parties including but not limited to any commodity or financial derivative agreement or transaction." Section 5.2: Add the phrase, "or with respect to its Guarantor" alter the first use of the phrase. "Defaulting Party" in the second line. Section 5.3: Add the phrase "plus, at the option of the Non-Defaulting Party, any cash or other form of liquid security then in the possession of the Defaulting Party or its agent pursuant to Article Eight," after the first use of the phrase "due to the Nun-Defaulting Party" in the sixth line. Section 5.4: Add the following to the end of the paragraph: "Notwithstanding any provision to the contrary contained in this Agreement, the Non- Defaulting Party shall not be required to pay the Defaulting Party any amount under Article 5 until the Non-Defaulting Party receives confirmation satisfactory to it in its DEMA City of Azusa ELI AdJumdurn r ccccutiat v 7siw.duc 2 099 reasonable discretion that all other obligations of any kind whatsoever of the DcfaultinL-. Party to make any payments to the Noa-Defaulting Party under this Agreement or otherwise which are due and payable as of the Early Tennination Date have been fully and finally performed. Section 5.7: Add "and Return of Performance Assurance" after the word "Perlormcmce' in the title. In line 4 delete the words "any or," line 5 delete the words -'ten (10)" and replace with "lbrly- five(45)" and delete the words"with respect to any single Transaction." Add to the end of the paragraph "Upon the occurrence of an event described in '(a)' or '(b)' above the Defaulting Party shall immediately return all Pcrformancc Assurances provided by the Non-Defaulting Party pursuant to this Agreement." Section 5.8: Add new section: Calculation of Termination Payment. For the purposes of calculating a Termination Payment pursuant to Article 5 and 8, the Parties may include Settlement Amounts for any and all other transactions between them for the physical purchase and sale of power, including options, whether or not such other transactions are governed by this Master Agreement. Section 8.1 (c) and 8.2 (c) Add at the end of(lie second paragraph: "Notw•itltstanding unything herein to the contrary, for purposes of this provision, the calculation of Termination Payumeut shall exclude Costs." Section 8.1 (d): After the comma in line five, add "or fails to maintain such Performance Assurance or guaranty or other credit assurance for so long as the Downgrade Evcnt is continuing." Section 8.2 (d): After the comma in line five, add "or fails to maintain such Performance Assurance or guaranty or other credit assurance for so long as the Downgrade Event is continuing." Section 8.4: Add new section: Transfer of Interest. Transfer of interest will be made on the third (3'L') Business Day of each calendar month for the interest accrued in the previous mouth on all cash held as Performance Assurance calculated at the Collateral Interest Rate. Such interest shall be calculated conunencing on the date Performance Assurance in the form of cash is received by a Party but excluding the earlier of (i) doe date Performance Assurance in the form of cash is returned to a Party; or (ii) the date Pcrformancc Assurance in the form of cast) is applied to a Pledgor's obligations pursuant to Section 8.3. Section 10.5: Delete the words "which consent may be withheld in the exercise of its We discretion" and replace with the words "which consent shall not be unreasonably withheld." DEMA City of Azusa EF.I Addendum r cxwulio vmiun.duc 3 Section 10.13 Add new section: Arbitration and Legal Recourse. 10.13.1. Any unresolved controversy or claim arising out of or relating to this Agreement involving amounts less than 55,000,000 shall be settled by arbitration in accordance with the Rules of the American Arbitration Association to the extent not inconsistent with the rules specified herein. As to dispates that involve amounts of $5,000,000 or more, the Parties may choose to litigate or may resolve such disputes by the provisions of this Article. 10.13.2. Each Party shall choose one arbitrator within twenty (20) Business Days of either Party's written election to the other to arbitrate, and within tell (10) Business Days after both such arbitrators are chosen, such arbitrators shall choose a third arbitrator who shall act as Chair. Any arbitrator chosen shall be a disinterested party with knowledge of the industry. 10.13.3. Any arbitration hereunder shall be conducted in a location choscu by the Non- Defaulting Party. 10.13.4. The arbitrators, once chosen, shall consider any Transaction tapes or any other evidence which the arbitrators deem necessary and shall then accept scaled written resolutions of the subject dispute from each Party on a confidential basis to be submitted within twenty (20) Business Days of establishment of the arbitration panel. The written submissions shall be in a form and subject to any limitations as may be prescribed by the arbitrators. The arbitrators shall then choose only of the proposed solutions, (without modification) as the fairest solution to the dispute within ten (10) Business Days of receipt of the written submissions of both Parties. A majority vote shall govern and the decision of the arbitrators shall be final and binding. 10.13.5. Any expenses incurred in connection with hiring the arbitrators and performin the arbitration shall be shared and paid equally between the Parties. Each Party shall hear and pay its own expenses incurred by each in connection with the arbitration, unless otherwise included in a solution chosen by the arbitration panel. In the event either Party must file a court action to enforce an arbitration award under this Article, the prevailing Party shall be entitled to recover its court costs and reasonable attorney fees. 10.13.6. The existence, contents or results of any arbitration hereunder may 1101 be disclosed without the prior written consent of both Parties, except as may be required by law. Add new Section 10.14. Electronic Imaged Documents. Any document generated by the Parties with respect to this Agreement, including this Agreement, may be imaged and stored dcctronically ("Imaged Documents"). Imaged Documents may be introduced as evidence in any DEMA City or Azusa LLl Addendum r exec mien vmiomduc 4 101 proceeding as if such were original business records and neither Party shall contest the admissibility of Imaged Documents as evidence in any proceeding. Add the following wording to Schedule P: Other Products and Service Levels: The Parties may agree to use a prod uct/scrvicc level defined by a different agreement (i.e., the WSPP Agreement, the ERCOT agreement, etc.) for a particular Transaction. Unless the Parties expressly stale and agree that all the temts and conditions of such other agreement will apply to any such Transaction, the Transaction shall be subject to all the temts of this Agreement, except that (1) all service level/product definitions; (2) (lie regional reliability requirements and guidelines; and (3) Force Majeure/Uncontrollable Force deftnitions shall have the meaning ascribed to them in the different agreement in effect on the date, the Transaction was entered into. Provided, however, with respect to Transactions subject to the WSPI' Agreement, the methodology for calculating the payments for failure to deliver or receive, under Sections 4.1 and 4.2 hereto, shall be in accordance with Section 21.3(x) of the WSPP Agreement; provided, further that the "Accelerated Payment of Dania.-Cs" addressed in Sections 4.1 and 4.2 hereto shall continue to apply to such payments if such election is made on the Cover Sheet. Additionnl Provision(s): 1) Index Transactions. If the Contract Price for a Transaction is determined by reference to a third-party information source, then the following provisions shall be applicable to such Transaction. (a) Market Disruption. If a Market Disruption Event occurs during a Determination Period, the Floating Price for the affected Trading Day(s) shall be delenmined by reference to the Floating Price specified in the Transaction for the first Trading Day thereafter on which no Market Disruption Event exists; provided, however, if the Floating Price is not so determined within three (3) Business Days after the first Trading Day on which the Market Disruption Event occurred or existed, then the Parties shall negotiate in good faith to agree on a Floating Price (or a method fix determining a Floating Price), and if the Parties have not so agreed on or before the twelfth Business Day following the first Trading Day oil which the Market Disruption Event occurred or existed, then the Floating Price shall be determined in good faith by taking the average of two dealer quotes obtained from dealers of the highest credit standing which satisfy all the criteria that the Seller applies generally at the time in deciding to offer or to make an extension of credit. "Determination Period" means each calendar month a part or all of which is within the Delivery Period of a Transaction. "Exchange" means, in respect of a Transaction, the exchange or principal trading market specified in the relevant Transaction. DEMA City of Azusa EBI Addendum r execution version dx j 14? "Floating Price" means a Contract Price specified in a Transaction that is based upon a Price Source. "Market Disruption Event" means, with respect to any Price Source, any of the following events: (a) the failure of the Price Source to announce or publish the specified Floating Price or information necessary for determining the Floating Price; (b) the failure of trading to continence or the permanent discontinuation or material suspension of trading in the relevant options contract or commodity on the Exchange or in the market,speciFled for determining a Floating Price; (c) the temporary or permanent discontinuance or unavailability of the Price Source; (d) the temporary or permanent closing of any Exchange specified for determining a Floating Price; or (c) a material change in the formula for or the method of determining the Floating Price. "Price Source" means, in respect of a Transaction, the pubtication (or such other origin of reference, including an Exchange) containing (or reporting) the specified price (or prices from which the specified price is calculated) specified in the relevant Transaction. "Trading Day" means a day in respect of which the relevant Price Source published or should have published the Floating Price. (b) Corrections to Published Prices. For purposes of determining a Floating Price for any day, if the price published or announced on a given day and used or to be used to detennine a relevant price is subsequently corrected and the correction is published or announced by the person responsible for that publication or announcement within two (2) years of the original publication or announcement, either Party may notify the other Party of(i) that correction and (ii) the amount (if any) that is payable as a result of that correction. If, not later than thirty(3 0) clays after publication or announcement of that correction, a Party gives notice that an amount is so payable, the Party that originally either received or retained such amount will, not later than three (3) Business Days after the effectiveness of that notice, pay, subject to any applicable conditions precedent, to the other Party that amount, together with interest at the Interest Rate for the period from and including the day on which payment originally was (or was not) made to but excluding the day of payment of the refund or payment resulting from that correction. 2) The terms and conditions and the rates for service specified in this Agreement shall remain in effect for the term of each Transaction hereunder. Absent the Parties' written agreement. this Agreement shall not be subject to change by application of either Party pursuant to the provisions of Section 205 or 206 of the Federal Power Act. Absent the agreement of all Parties to the proposed change,the standard of review for changes to the Agreement whether proposed by a Party, a non-party or the Federal Energy Regulatory Commission acting seta snowrle shall be the "public interest' standard of review set forth in United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332 (1956) and DI:NIA r'ityui Azusa EEI Addendum ruxccutiun vcmion.dx 6 103 Federal Power Commission v. Sierra Pacific Power Co., 350 U.S. 348 (1956) (the"Mobilo- Siena" doctrine)." UNDERSTOOD AND AGREED: DUKE ENE�RGy MARKETING AMERICA, LLC y By. t Title: Dale: CITY OF AZUSA CALIFORNIA By: Title: Date: llLNiA City ut Azu Fail Addendwo r esnutiim vusiw;Ad 7 104 MASTER POWER PURCHASE AND SALE AGREEMENT CONFIRMATION LETTER -['his confirmation letter shall confirm the Transaction agreed to on _ between the City of Azusa. California _ ("Party A") and Duke Energy Marketing America I.I.0 ("DEMA") _ ("Party 13") regarding the sale/purchase of the Product under the terms and conditions as follows: Seller: Duke Encrgy 'vlarkeling Anneric t LLC Buyer: City of Azusa Product: [J Into _. Seller's Daily Choice [s] Finn (LD) [J Finn (No Force Majcure) [] System Fimt (Specify System: ) [] Unit Firnn (Speci )y Unit(s): t [] Other [] Transmission Contingency(11-not marked, no transmission contingency) [] FT-Contract Path Contingency [] Seller [] Buyer [J FT-Delivery Point Contingency [] Seller [] Buyer [] Transmission Contingent [] Seller [] Buyer [] Other transmission contingency (Specify: ) Contract Quantity: DFMA will make available and AZUSA will have the right, but 110t the obligation to call upon up to 15 MW of On-peak energy on a day-a-head basis during each of the Delivery Months of the Contract Tenn On-Peak Hours will be I lours Ending 0700 through Hour Ending 2200 Pacific Prevailing Time (PPT) Monday through Saturday, including NERC Holidays for each month associated with the Product and each vear of the Contract Temi Delivery Point: DEMA will deliver, and AZUSA will take energy<Jcliveries at the Mead 230kV substation Contract Price: AZUSA will pay DEMA a monthly Capacity Price of S7.18 per kW month plus a variable Energy Rate for each N1w'h of energy received under this 105 Agreement. The Capacity Price will be fixed for the Contract Tcmi and the Ener will be calculated based on a Gas Index. Capacity Price: During the Contract 'Penn, AZUSA shall pay DFIvIA each month a capacity payment of$107,700. Energy Rate: The Energy Rale (SIM Wh) for each MWh delivered during the Contract Term equals the Contract Heat Rate multiplied by the Gas Index plus Variable O&M. Gas Index - The Gas Index for each day will be price in U.S. dollars per dry MMBtu as listed in the Midpoint column of the section marked "Others" (SoCal Gas) in Platts Gas Daily in the "Daily Price Survey" table for the applicable calendar day for gas flow plus 5.02 per dth/delivered. Contract Ileat Rate: The Contract Heat Rate will be 10,000 Blu per kWh. There will be no adjustments to the Contract Heal Rale during the Terns. Variable 0 & M - The Variable 0 & M Rate will be $3.50 per MWh. There will be no adjustments to the Variable 0& b7 during the Term. Energy Price: In addition to the capacity payment, AZUSA shall pay to DEMA for each month of the Contract Term an energy payment. The energy payment will be equal to the sunt of the"Daily Variable Energy Amount" for each day during such month. The Dailv Variable Energy Amount for each day shall equal the product of(a)the Energy Rate for such da-y. and (b) the quantity of enerey (in MWh) delivered Burin,such day Other Charges: None Delivery Period: Contract Term will begin on May 1, 2008 and continue through October 31. 2014. AZUSA will have the richt to call on energy during the months of Mav throuch October of each year of the Contract Term. Special Conditions: 1. Day-a-head callable energy- AZUSA shall notify DEMA by 06:00 AM PPT ofthc last common preschedule day prior to the day or days of delivery of the energy quantity that AZUSA elects to take on the following day or days. DEMA shall confirm with AZUSA each day's energy schedule by 11:00 PPT. T}re F,nergy shall be scheduled and tagged, pursuant to WECC tagging politics and procedures. AZUSA shall not call on energy in increments of less than 5 MW (ie 5, 10 or 15MW). This amount would be held constant 106 through the 16 hour period of the specific date that it was scheduled for. If scheduling two or more days,the amount could be different for each specific day. 2. Transmission: DEMA will be responsible for any transmission arrangements to deliver Firm Energy to the Delivery Point. AZUSA will be responsible for any transmission arrangements to receive the Firm Energy at the Delivery Point. 3. Uncontrollable Forces: Uncontrollable Forces shall have the same meaning as "force majeure" in Section 3.3 and related definitions in the EEI Agreement. This confirmation letter is being provided pursuant to and in accordance with the Master Power Purchase and Sale Agreement dated (the "Master Agreement") between Party A and Party B, and constitutes part of and is subject to the terms and provisions of such Master Agreement. 'terms used but not defined herein shall have the meanings ascribed to them in the Master Agreement. 'rhe City of Azusa, California Duke Energy Marketing America By: _. . .__ By: Name: Cristina C. Madrid Name: C. Grceor la r Title: Mayor Title: Group VP Encrgv Marketing Phone No: Phone No: (7 13) 989-1 81 7 Fax: Fax: (713) 989-1818 107 Sim A & W GHT tTI lIGNi R RTFR AGENDA ITEM TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD AND AZUSA CITY COUNCIL FROM: JOSEPH F. HSU, DIRECTOR OF UTILITIES DATE: APRIL 26, 2004 SUBJECT: CUSTOMER ISSUE - CASA AZUSA, 129 W. 9TH STREET AND 153 W. 9TH STREET RECOMMENDATION It is recommended that the Azusa Utility Board/City Council: (1) exclude the period of September 2000 through December 2002 from settlement consideration due to accurate meter tests; (2) require one full year going forward of billing history after new meters are installed at 129 W. 9th Street and 153 W. 9th Street before determining if a billing adjustment is warranted for period of January 2003 through December 2003; and (3) if an adjustment is warranted, require that Azusa Light &Water pay interest on the adjustment amount at an annual rate of 3%. BACKGROUND On March 22, 2004, Mr. John Zeller, a representative of Casa Azusa Condominium Association located at 129 W. 9"' Street, expressed concern to the Utility Board that the water meter for the Casa Azusa complex was operating in error and, as a result, the complex had been overcharged for water usage. He requested that a settlement be approved in the amount of $15,233. On April 14, 2004, Mr. Zeller submitted a claim against the City, which stated that the overcharges occurred during the period of September 2000 and December 2003 in the amount of $16,800, including interest. On August 31, 2000, a meter test was conducted on the compound meter at 129 W. 9th Street. The low flow meter register was recording water flow significantly lower than 100% accurate and was replaced. In the month following replacement, usage increased by over 300%. The increase was expected since all water flowing through the meter was then being recorded accurately. Therefore the period of time prior to September 2000 should not be used for comparison, since water usage increased in September 2000 due to the meter being replaced. 025 The amount of increase to expect with a new meter would be hard to determine so billing staff waited for a pattern to emerge. Usage stayed at this level, so staff determined this was normal usage and when the meter was tested, it was considered accurate and the meter register was recording usage correctly. Further, and at the customer's request, another test was conducted on July 15, 2002 and the meter was reported to be accurate and in good working condition. This indicated that the water billed from August 31 , 2000 through July 15, 2002 was for water that actually flowed through the meter and that we have test data to support the accuracy of the meter reads during this period. On January 14, 2003, another meter test was requested by the customer. The meter was found to be accurate and the test man noted that there appeared to be a leak in the customer's system because the leak indicator on the disc (low flow) register was running steadily after the meter was turned back on. Mr. Zeller, who said he was in charge of Casa Azusa, was notified of the possible leak on January 30, 2003. Other Casa Azusa occupants that were contacted recently corroborated the likelihood of a water leak. However, confirmation or documentation as to whether the property was evaluated by a plumber for a leak or if a leak was even found and fixed is not available. Test data continue to support the accuracy of the meter reads through January 14, 2003. Periodically throughout 2003 Mr. Zeller and Mr. Fox, Agent for Casa Azusa Homeowners Association, called the Light &Water offices and questioned the higher utility bills from August 2000 to current for 129 W. 9th Street. On January 22, 2004, another meter test was conducted. This time the low flow meter tested well over 100%, of actual. This was highly unusual because when water meters get old or malfunction they go slower, not faster. The apparently malfunctioning meter register was replaced. When this was done, the test man found that the register on the meter was a Neptune T-8, which came as a surprise, since our meter maintenance vendor stocks and uses only Neptune model T-10 registers. Also, pins that hold the register into the casing were missing. Coincidentally, the water usage for 129 W. 9th Street and the other Casa Azusa building at 153 W. 9th Street both showed extremely low water usage for the February, March, and April 2004 billing periods. The usage was so low, in fact, that all 12 condominium units combined at 129 W. 9th Street now record using only four times the water of a typical single family residence for the same time period. One would expect to find a 10 or 12:1 ratio, not a 4:1 ratio. To illustrate this, the typical water usage for one month for a single-family residence in Azusa is approximately 14 hundred cubic feet. Monthly usage for the 12 condominium units at 129 W. 9th Street for January, February, and March was 61, 49, and 64 hundred cubic feet respectively. Normal usage would have been between 140 to 168 hundred cubic feet per month. A similar usage pattern was found for the 16 Casa Azusa condominium units at 153 W. 9th Street the January - March usage was 92, 88, and 65 hundred cubic feet. On March 16, Karen Vanca wrote a letter to Mr. Fox, Agent for Casa Azusa Homeowners Association explaining that a discrepancy with the meter was being investigated. Also explained in the letter was that it is Azusa Light &Water's practice to have an adequate comparison period before making any billing adjustment. Because of the questions surrounding the validity of billings to 129 W. 9th Street, one year of billing history going forward would be needed. Further, it was offered, that although Azusa Light &Water doesn't normally pay interest on an adjustment, for the period of 2004 during consumption validation, we would agree to pay interest on any refund, if a refund is due. Mr. Zeller responded in a letter dated April 6 that Casa Azusa does not consider our position as being reasonable or acceptable. He attached data and graphs, requesting a refund to Casa 026 Azusa of $18,700 including interest. On April 12, Mr. Zeller sent another letter lowering his requested refund due to a calculation error on his part to $16,800, including interest at 10%. Azusa Light &Water needs additional time so the City and the customer are not short- changed. One full year of billing history using new meters at 129 W. 9th Street and 153 W. 9th Street are needed before a billing adjustment can be determined. If an adjustment is warranted, Azusa Light &Water recommends paying 3% annual interest on the adjustment amount. FISCAL IMPACT Unknown at this time. Prepared by: Karen Vanca, Assistant Director Customer Care &Solutions Chet Anderson, Assistant Director Water Division 027 MRY.10.2004 10: 19AM AZUSA L&W M0.367 P.1i6 `"' Azusa Light & Water LIGHT FAX DATE: J—//./'� 'M' ..aW 703//L".9�p COWMIY: Cicd P./e (Jd1�"GCS FAX: PHONE: FROM . sfL,Pi,, yGL+t�1 DEQ : FAX: PHONE: � 3 Total pages (Including cover) MESSAGE: If you do not receive the total number of pages,please call(626)8125171. Thank you. Transmitted by: 729 N.Azusa Avenue P.O.Box 9500 Azusa, CA 91702.9500 Faw (626)334-3163 MRY.10.2004 10:20AM AZUSA L&W N0.367 P.2i6 Casa Azusa Home Owners Association P.O. Box 1469 Temple City, CA 91780 (626) 309-9797 April 26, 2004 TO: HONORABLE CHAIRPERON AND MEMBERS OF THE AZUSA UTILITY BOARD FROM: WILLIAM FOX, Business Manager for Casa Azusa Home Owners Association SUBJECT: Refund Settlement for 129 West 9s' Street Azusa, CA 91702 Background Casa Azusa Home Owners Association is a 28-unit condominium complex located on the corner of 9s' Street an Azusa Avenue, across the street from the Ranch Market. Casa Azusa Home Owners Association was fust incorporated in 1986. These condominium units consist of 27 two-bedroom units and one three-bedroom unit. A single occupant habits many of the units; including several retirees. The complex has two water meters. One meter serves 12 units with the service address of 129 West 9s' Street. The second water meter serves the remaining 16 units with the service address of 153 West 9'� Street. Casa Azusa Home Owners Association submitted a claim to the City of Azusa to protect our legal rights over what is believed to be a meter reading error for the period of September 2000 through December 2003. This claim was filed after the inability to meet and confer with the City of Azusa staff for the purposes of resolving this matter. Mr. Zeller, as a consultant for Casa Azusa Home Owners Association, has previously submitted detailed calculations that reflect Casa Azusa Home Owners Association's position that we have been over billed. It was not until reviewing the City Staff report dated April 26, 2004 were we made aware of the recommended course of action to resolve the claim. We partially concur with City Staffs position and are hopeful that an agreement can be reached for parameters of a settlement. There are differences that we believe that need to be considered so that fair treatment occurs. Should City Staff be correct in their assertions, the final result will not have any z MRY.10.2004 10:20RM RZUSR L&W N0.367 P.3i6 financial impact for the City of Azusa by agreeing with Casa Azusa Home Owner's Association proposed settlement appfoach. Alternative Recommendation To City Staff Recommendation To Resolve The Claim • New meters are installed and that a one-year post measurement ,period be developed as a basis for settlement. • The claim period of September 2000 -- December 2003 be included in any refund due. • The refund due, if any, would also include the statutory interest rate. Discussion of City Staff's Three Point Recommendation To Arrive At Suggested Resolution City Staff Recommendation Point #1: "'...exclude the period of September 2000 through December 2002 from settlement consideration due to accurate meter tests." Casa Azusa Homeowners Association does riot believe that the meter readings were accurate during the period of September 2000 through December 2002_ The basis of this concern is as follows: . • On August 31, 2000 a meter test was conducted on the compound meter at 129 W. 9a' Street. At that time the meter was purportedly reading lower consumption than it should be. Casa Azusa Home Owners Association has submitted several months of historical data to the City of Azusa reflecting that the consumption has not significantly deviated on a month-by-month basis prior to September 2000. Historically, the usage patterns have been consistent. The change in consumption only occurred after the City's test on Ault 31 2000 along with the installation of a new meter. If in fact the City's position is correct, then why wasn't this meter problem previously discovered either by City Staff or the consultant as part of a quality control process? Is it not possible that the new meter installed was done incorrectly or the wrong model was installed, thus leading to a subsequent error? Casa Azusa Home Owners Association is not comfortable that proper technical testing protocols or field installation of the new teeter was performed on August 31, 2000. 2 MAY.10.2004 10:20AM AZUSR L&W N0.367 P.4i6 • It seems unfair for the City of Azusa to place sole reliance on a consultant testing for the periods of September 2000 through December 2002. This is due to the fact an error was discovered on January 22, 2004 just as Cas Azusa Home Owners Association had been saying since 2003. The City of Azusa 'd agree with the Casa Azusa Hoene Owner Association position and has gone n record by incorporating January 2003 — December 2003 into a settlement✓ Casa Azusa Home Owner Association believes that the error existed since August 31, 2000, the time of the initial testing and new meter installation. Casa Azusa Home Owners Association believes the error would have gone undetected had it not been .or Mr. Zeller's efforts. It was not until an inspection requested by Mr. Zeller, which was performed on January 22, 2004 was the error discovered. The results of this January 22, 2004 inspection reflected that there was indeed a malfunction. This can be substantiated by the City Staff Report as follows: "On January 22, 2004 another meter test was conducted This time the law flow meter tested well over 100%, of actual. This was highly unusual because when water teeters get old or malfunction they go slower, not faster. The apparently malfunctioning meter register was replaced.. When this was done, the test man found that the register on the meter was a Neptune T-$ which came as a surprise, since our meter maintenance vendor stocks and uses only Neptune model T-10 registers. Also, pins that hold the register into the casing were missing. " Casa Azusa's Position on City Staff Recommendation Point ##1• If the City Staff position is correct that the meter tests were accurate and that consumption indeed was higher, then there would be no financial harm to the City of Azusa by allowing Casa Azusa Home Owner's Association to include the periods of September 2000.through December 2002 in any settlement calculation. The City Staff s position would be confirmed, while not barring Casa Azusa Homeowners' Association's request. City Staff Recommendation Point #2: 1°...require one full year going forward of billing history after new meters are installed at 129 W. 91h Street and 1.53 W. 90' Street before determining if a billing adjustment is warranted, for period of January 2003 through December 2003;" Casa Azusa's Position on City Staff Recommendation Point #2• Casa Azusa Home Owners Association agrees with City Staff s one-year measurement of consumption prior to finalizing any refund that may be due. Casa Azusa Home Owners Association 3 MRY. i0.2ee4 ie:21RM RZUSR L&W M0.367 P.5i6 agrees that new meters should be installed. It is being requested that an independent party prior to installation test such meters for accuracy. City Staff Recommendation Point #3; `...if an adjustment is warranted, require that Azusa Light and Water pay interest on the adjustment amount at an annual rate of 3%." Casa Azusa's Position on City Staff Recommendation Point #3: Casa Azusa Home Owners Association is requesting that the settlement amount, if any, would be computed on the basis of the statutory legal interest rate in effect during the claim period. The 3% rate may be lower or higher than the statutory interest rate. Concerns Noted in Review City Staff Report that Merit Comment • The staff report suggests that the water consumption for the complex is now low when in comparison to a single-family home. Ratios were cited in the staff report with possible expected results. This expected outcome may or may not necessarily hold true for Casa Azusa Home Owners Association. This is due to the fact one or possibly two people occupy many of our residences. There is also very little landscaping at the complex. A more reflective comparison would be to benchmark the consumption results to other similar condominium complexes to help form a better reference point. The true consumption will be determined by accurate readings of the new meters as City Staff recommends. Anything other than actual measurement could be considered as being speculation. • The City Staff report suggests the possibility of leakage on Casa Azusa Home Owner's Association's side of the meter as a possible reason for higher usage during the period of September 2000 — December 2003. To the best of Casa Azusa Home Owner's Association knowledge, this leakage issue was posed to three individuals. These individuals were William Fox, John Zeller and Roberta Rubio. All three of persons informed City Staff, to their knowledge, no leakage existed or currently exists on Casa Azusa's side of the meter. However, despite these assertions of three persons directly involved and who have first hand knowledge, the City Staff report indicates, "Other Casa Azusa residents that were contacted recently corroborated the likelihood of a water leak". It is not clear why after receiving assertions from three directly involved people there was further inquiry performed and such information from unnamed persons received apparently greater emphasis than those involved in the claim. Furthermore, the 4 MRY. 10.2004 10:21RM AZUSR L&W N0.367 P.6i6 names of these persons have not been included in the City Staff report. Casa Azusa Houle Owners Association certifies that there were not any plumbing bills or sprinkler repair bills during the period of September 2000 — December 2003 where leakage repairs were made. Casa Azusa Home Owners Association does not believe there has been or is there currently any leakage on our side of the meter. Conclusion Casa Azusa Home Owners Association is requesting that the terms of the settlement to resolve the claim be worked on by the Business Manager, William Fox, and City Staff. The basis of the settlement would include the following elements. • New meters are installed at both service addresses and that a one-year post measurement period be developed as a basis for settlement for the 129 West 9`" Street meter. • The claim period of September 2000 — December 2003 be included in any refund due. • The refund due, if any, would also include the statutory interest rate. 5 Am Legislative Update Prepared by Bob Tang April 26, 2004 108 Senate Bill 772 — Bowen (Non-Bypassable Charges) A. Establishes a non-bypassable dedicated rate component (DRC) payable by ratepayers to assist Pacific Gas & Electric (PG&E) to emerge from the bankruptcy B. Unfairly treats ALL PG&E customers the same, including new customers whom may be served by munis in the future through traditional "Greenfield" municipal annexation activities C. CMUA attempted to fashion amendments which carve out exemptions for legitimate "Greenfield" municipal annexed customers D. Final version of the bill which passed the Senate committee only provided very limited exemption (50 MW) to such customers E. The latest version of bill deferred broader exemptions to CPUC F. The City continues to work closely with CMUA in the CPUC proceedings to carve out exemptions to legitimate municipal annexed customers 2 109 H... _. ._. ._ _. .. . .._ _ . . ^.w Assembly Bill 2499 — Horton (Non- Bypassable Charges and Local Control) A. Mandates that "new municipal' utilities formed on or after January 1, 2001 submit power resource plans by July 1, 2005 to California Energy Commission for approval, and further submit updated plans every three years B. The bill further establishes non-bypassable charges that Investor Owned Utilities (IOUs) customers must pay to be served by munis, including Greenfield municipally annexed customers c. The bill would usurp the local control that munis currently have in resource planning D. The City sent letters to Senator Romero and Assemblyman Chavez opposing the bill 3 110 Senate Bill 1478 — Sher (Renewable Energy Procurement) A. Original version mandates ALL California electric utilities (including munis) to procure 20% of their power resources by year 2010 with stringent procurement guidelines, e.g., competitive bidding, follow rather draconian guidelines to be established by CEC and CPUC. B. The IOUs are threatening to withdraw their support to the bill if the mums are excluded from it. 4 111 City of Azusa AZUSA ` 0 a wAT es F.,q„asny of Lift April 26, 2004 The Honorable Gloria Romero California State Senate State Capitol, Room 5051 Sacramento, CA 95814 SUBJECT: SB 1478—OPPOSE PUBLIC UTILITIES INCLUSION Dear Senator Romero, We understand the major purpose of SB 1478 (Sher) is to allow investor owned utilities (IOUs) to obtain renewable energy trading credits in order to meet the renewable energy goals. We support such flexibility. SB 1478 also increases the renewables portfolio standard (RPS) goal from 20% in 2017 to 20% in 2010 which may be difficult for any utility to meet without substantial rate increases. When SB 1478 was introduced it included a section similar to AB 3005 mandating RPS standards on publicly owned utilities, however, we now understand that when Senator Sher presented the bill he immediately tools out the mandate on municipal utilities but did so along with a speech indicating that this "controversial" issue would be dealt with in the Assembly Utilities Committee chaired by Assembly Member Sarah Reyes. PG&E actually moved their position from support to opposition based on the amendment which removed municipal utilities from the RPS requirement. Sempra supported the bill but indicated their opposition to having municipal utilities removed from the bill. Given the continued interest by the IOUs and others to have municipal utilities added back into SB 1478, we are seeking your support in insuring that our local elected officials can continue to manage our resource needs. The amendments proposed by the IOUs would actually subject Azusa to requirements that we do not have. IOUs are not required to add renewables if they do not need new resources nor to spend any more than their current public benefits charge to subsidize renewables. Neither of those provisions are included.in the IOU's proposed language. Subjecting municipal utilities to State regulation would be unprecedented and would duplicate governance at the local level. To be sure, Azusa is not opposed to the State's commitment to renewable energy and our actions speak for themselves: 1. In March 2003, Azusa established a Renewable Portfolio Standard (RPS) that in many aspects exceeded the requirements of the current law (SB 1078) which applies to the IOUs. For example, SB 1078 does not require or mandate the IOUs to raise retail rates to fulfill SB 1078 mandate but Azusa has indeed raised its retail rates in June 2003 in order to support renewable resource procurement. Further, SB 1078 does not require the IOUs to spend more money than their Public Benefit Charge can support in fulfillment of SB 1078 but Azusa Light& Water 729 N.Azusa Avenue P. 0. Box 9500 Azusa, California 91702 626/812-5208 (phone) 6261334-3163 (fax) www.azusalTv.com (web) information®azusalw.corn (e-mail) 112 Page 2 SUBJECT: SB 1478 April 26, 2004 Azusa's RPS has no such restriction. In fact, we are committing resources to both energy efficiency and renewable energy procurement above and beyond those required by the current laws. 2. In August 2003, Azusa entered into a 20-year contract to procure 6 megawatt of output from the newly constructed High Winds Project located in Solano County, California. This purchase combined with Azusa's existing hydro resources is providing more than 10% of Azusa's retail consumption, substantially exceeding SB 1078 requirements and the procurement activities of the IOUs to date. It is also worthy to note that Azusa was instrumental in banding the Southern California Public Power Authority (SCPPA) procurement consortium together in the High Winds Project contracting process, when it became apparent that the supplier (PPM Energy) was balking in contracting with the SCPPA cities for seemingly small quantities of power from High Winds Project, Azusa stepped up to the plate and doubled its procurement. This action by Azusa played a vital role in getting both SCPPA renewable energy program and the High Winds Project to an auspicious start. 3. In late 2003, Azusa held serious discussions with a California geothermal resource developer for geothermal energy located in Imperial County, California. The discussions were ultimately unsuccessful due to developer's insistence that Azusa contract substantially more than Azusa's needs, the minimum amount suggested by the developer was more than 20% of Azusa's retail consumption. 4. Earlier this year, Azusa held preliminary discussions with a solar energy developer for output from a proposed solar power plant in the vicinity of the City of Victorville. The discussions ultimately proved fruitless due to developer's preference to deal with much larger entities. The above actions by Azusa Light &Water highlight both our commitment to renewable energy and real difficulties faced by small entities such as Azusa in fulfilling such commitments. Some members of the State Legislature seem to be having difficulty acknowledging our past actions as well as the challenges we face. We therefore appreciate all efforts you can exert to communicate our track record and protect our continued local control. The "one-size-fits-all" public policy toward renewable energy is not warranted and not supported by Azusa. Sincerely, Cristina Cruz-Madrid Diane Chagnon Mayor Utility Board Chairperson 113 Page 3 SUBJECT: SB 1478 April 26, 2004 cc Azusa Utility Board Members Diane Chagnon, Chairperson Dick Stanford, Vice Chairperson Cristina Cruz-Madrid, Board Member Joe Rocha, Board Member David Hardison, Board Member Robert Person, interim City Manager Bill Carnahan, Executive Director, Southern California Public Power Authority Jerry Jordan, Executive Director, California Municipal Utilities Association Byron Sher, California State Senator 1 � � i )34* i -r AZUSA uma a WemH f t Azusa Utility Board Meeting R r April 26, 2004 AZUSA IIGXT 9 W�TEH { 115 L Power Resources Division Monthly Report • Status of Projects • Power Consumption Comparison • Wholesale Market Trend • Power Resource Budget Update 116 Status of Proiects ; • Resource Planning • Finalized San Juan scheduled maintenance preparation. Procured 70% of replacement power ahead of the delivery and the remaining 30%of power is being procured on a daily basis • Substantially completed the resource portfolio planning for the month of June, 2004. Planning for the month of May and summer season ; • Completed the evaluation of the proposals from long term resource Request for Proposal (RFP).Completed preliminary negotiations with counterparty,with the best proposal. Separate agenda item for Utility Board's consideration and approval • Continued the preparation of FERC dockets involving the City: (1) Edison's Wholesale Distribution Access Tariff (WDAT), hearing at FERC to commence on April 19th, and (2) Kirkwall Substation Agreements • San .Tuan Update: � A — Visited the San Juan power plant on April 14th — Public Services Company of New Mexico (PNM) is doing a lot of work during this scheduled outage — Whole sections of combustion chamber walls (eight-story tall) are being placed — Whole sections of platen superheater tubing (three-story tall) are being replaced — Total staffing level for this outage is 500 people plus — Staff is positively impressed that needed repairs and upgrades are being addressed by PNM, and should increase the reliability of unit 3 in the coming months t l i 117 CRY OF A21JSA ENERGY CONSUMPTION COMPARISON ENEMY NIJSLMPIICN IN MWH � ..,.PERCENT , _. -.. MONTH -. FY 02-00 ... FV 03-041') CHANGE Jll 2357626,154 1091% I ( s% .. AUG "_ . . 22.A2 ..__ - . SEP .. 23047 _. 24.354 ._ ". 567% ..... ._. OCT DEC 18784 1 20,207 757°h .. JP1J FEB 17294, ...-_ 18,875.., 19280._.... __...- 21336,.. -_.. 1067°k ..._.- MAV_....._ ._._-_...__ 20011 ____. JUN 20,310 TOTAL 241831_ 200.304....- .__ 393% - New Ngts have been set for each moreYy retail sale CITY OF AZUSA PEAK DEMAND COMPARISON _ _ PERCENT MONTH _ FY02-03 J FY03-04 CHANGE _ JUL 520 557 AUG _ 484 - 576 1943h .,_,., , 541 ...._ _ 59.1 929h 1 ,q OCT 440 5322098% _ NOV36.8 531h DEC344 35.1 222/ _JAN 365 _ 346 514% a FEB 335 659% 402 ..j 439 9.39%, - " _ MAY _ 503 JUN 470 PEAK DEMAND PIMW -- � Surpassing all time.high for peak of 58.1 MW established on September 1 1998 118 ........... ----------------------- WHOLESALE ELECTRICITY SPOT MARKET PRICES IN CALIFORNIA' _.A_YgRA�GE AVERAGE MONTH ON PEAK PRICE OFF PEAK PRICE FEB 03 $54.02 $42.41 --------- - - -WAR 03 $40.50 APR03 $30.40 mlki-03------ $44.49 $21.44 JL $50.59 $27.39 JUL 03 $H.69 U6.44- AUG 03 $51.02 $36.87 S&03 $43.95 $33.75 OCT 03 $45.17 $30.22 NOV-0.3. .. $36.97 V9.36 DEC 03 $43.7.7 m.3q- ' JAN.04 i $45.21 w.4-3- FEB 04 $42.75 V6.66 MAR 1041- 119 Power Resource Cost Accounting r FY '03-'04 f� (zl P) (el MgJTM LCONTHACTS I'URCNARES TE R �COSTSI� SERVICE CAOSTB5P TCH NGICC6T5 COBTS REVENIIESECI]S15 �- JUL031N 823058174 1,789298721 26184996 2110272 33,886.40 2g9,B17.54 (1553.54890) 1376260.64 M/G 03� 891,35411 - X1,46198139 2686)7 7 2 �-�-� 1652339 ... _ 3629].96 2774,033.9] ....P.40).]W8fi) 136).12611 SEP 03 901.62129- 764B1540 � 2672W62 11,008.80 33213.05 2058.664.28 (85192]25) 1206.73).03 OCT 031 973,40096 1265$43.3] 263,015.15 13,91].15 _91$2].84 2,547p 12.2] (1,03),]0983) 1,509.702A4 NOV031 1927894.98 i 676,680.91 _218,560.42 _ 10.688.6D 24,481.64 2958.312.53 (633945.]7) 2224366]6 DECOV1 969y5996 I.OT06.89 219,024.68 13.3]1.61 25,114.13 2262,6P.57 (917,155A8) 1,44552201 JAN 04 972Ai89fi 82D 19900 21883333 104748] _ 2741888 2M864364 (82945181) 1225191.03 FEBO4e 96791696 54591]30( 51847723 2000000 2488D15 2A7519164 (69126900) 130392264 !AWN 9712909fi 80948664 19.620812 206000D 2488D15 2A21885871825.IC400) 11987018] A➢fi 04 — _. .— _.. _ D o0 o.Do JUN 00 04 ... _ 0. 4 SO JUN 0404 — �— —.— �.—.-- 0.00{ 000 TOTAL 59579,08]80 59,160336.4fi 52,430.43/23 E13]88322_j 52611697.40 92187),439211_ (E68415S98B) 512.935579.33 (N Forme month of July2003,SanJ an Unit d3 Raplawme 1Los1Gl»bu Bwiap nb mE265.70230, ( (B) For Me mordn 00bber2003,8 Jan Uml RumplReplacement-up maemun00um0eampunssb52fi850]IB ICI Formbmonul eiNaem0er20035CPPA5an Juan annualWeupcoahl 5960315. IDI Fur Na momh of 0acamber2003,Ben Juan Unll Y3 Repl cement Loll Ouem uniloWe9e emwn¢mS341,09981 _ Ona-mnammM m Ne CABO ma"tW me cNemolledae uansmkslon revenue requirem I(MR)8u0OJenuaqMrwgh Ocmber 2003 per THReeele [ g ement (1)— INCLUDES SCPPALONG TERMCONTR] TS _ j2) INILUDES8IL SHORTTEflMPU ROHM-ES M==R=HE=D G=NG M=6 LOAD BALWCING PURPOSES j 13) INCLUDES/1L SNCRTTERMMIDLONGTR SNISSIONCONTRACT LC5T5 _ (4) COSTS CHARGED BY C&P NIAIN DEPENDENT SYSTEM OPE"TOR FOR SYSTEM RELIRBILfTYFUNCTIONS ( (5)_ INCLUDMOMTSFOBSCHEDU INNGMIDDIBPATCI INGOFELECFRICRY I (6) SUMOF(1)THROUGH(5) EXCESS PTO q♦ (7) M ESME REVENUES DERIVED FROM SALES OF BENEFITS (0). DIFFERENCE OF(5)MO 1 �0 i i i Kirkwall Substation Project Monthly Status Report April 26, 2004 i r 4 t r C 121 �� I �auL��INIiI$#tlxvu "; I � azo.-.zaro- Engineering & Construction Update I ■ Black & Veatch Construction Inc. (BVC" will remobilize from March 22 to April 9 in order to complete remaining work inside Edison's switchyard area. Work includes , pulling high voltage 66kV underground cables from Edison's switchyard and connect to Azusa's transformers. Also, testing of Azusa's substation equipment will be i P erformed in preparation for energizing main switchgear. Field personnel will be given a short training on the safe operation of new station equipment including a practice run on the switching procedure to test and energize newly, installed electrical equipment. i. ■ Edison's linemen installed 2 sets of 66kV overhead transmission line along Gladstone Street between Kirkwall Substation and Azusa Avenue. Also completed the installation of 4 circuit breakers and metering equipment at Edison's switchyard. , Testing of Edison's switchyard equipment will be performed during the week of March 22nd in preparation for energizing substation on April 2004 operating date. Relocate and installed underground existing 12kV overhead power line in front of substation except the remainder 66kV transmission lines and right of way. • Coordinated and finalized with Edison the switching program to energize and test ' Kirkwall Substation and prepare for test load pickup by first week of April. ? ■ Started making arrangements for simple project dedication to be held in mid-April, before final commissioning of completed substation project. a i yw !I R r s r E 3 123 F Contract Negotiation Update ■ Edison filed unexecuted Kirkwall Substation Agreements with the Federal Energy Regulatory Commission ("FERC") on March 22th. The filing enables the timely energization of the Substation. ■ The City filed intervention and protest to Edison's filing on April 12th, outlining the remaining unresolved issues ■ The metering issue using California Independent System Operator (CAISO) certified meters remains outstanding. Staff continues to negotiate with the CAISO and Edison to resolve remaining issues 4 124 i i C ( f Funds and Expenditures Update I SUMMARY 1 KI ALL S( STAT N FLPD FAOC� SB`il6 B SB`il C i CATEGORY TAX-IXB TAXABLE BONBFAOC®S $5,470.000 $8.525.000 D®T SERVK£ RE^.aBiVEFIFIIJ®10% -5546,000 -5652,500 1BONG 54,923.000 55,862.500 TOTATAL ISSUANCE CASTS -52oo,686 -$196,898 BO! AF ISSUANCE COSTS 54,622.214 55,665.802 TOTAL CRAWNNTL -53,501.389 -$5.62B.035 ) AVAILABLE80NOFAOCES6 S1,220.825 546.666 t KIR ALL S(ASTATON TOTAL COST RXM CO (A) OONLRACTAN BRUNG %OF COMR4Cf AMOUYT TO GATE BLACK S VBATCN 59,200 59,200 100.00% SCE 540.000 540,000 100.00% W VIGAM 54.400 54.400 100.00% LAI AO'UIBTON S620,000 S620.000 100.00% TOTAL(A) $663.600 ST73.6C0 100.00% ON-GOING CO5i(� BLACKS VEATp-I 51.086,000 52.618,163 88.08% j SCE 55.826,000 55,828,000 100.00% Ii F£T£8 SONS INC $481.450 $481.450 100.00% I TOTAL(B) 59.163.450 58.805623 95.99% NST(A).(B) $9.946,050 59.569,223 96.30% VfILITY INCURREDCOST(C) "A $35.862 WA ( TOTAL W T(A) (B)♦(C) $9.615,094 ri I i i E 5 125