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HomeMy WebLinkAboutAgenda Packet - January 23, 2006 - UBAGENDA REGULAR MEETING OF AZUSA UTILITY BOARD AND AZUSA CITY COUNCIL AZUSA LIGHT & WATER 729 N. AZUSA AVENUE AZUSA, CA 91702 AZUSA UTILITY BOARD DIANE CHAGNON CHAIRPERSON DAVE HARDISON VICE CHAIRPERSON KEITH HANKS BOARD MEMBER AZUSA UGHT t'NAiIR MONDAY, JANUARY 23, 2006 6:30 PM JOSEPH R. ROCHA BOARD MEMBER ANGEL A. CARRILLO 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 A. PUBLIC PARTICIPATION (Person/Group shall be allowed to speak without interruption up to rive (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 Partidpadon will be limited to sixty (60) minutes time.) Consent Calendar Note. Adopting the printed recommended actlon will be enacted with one vote; if Staff or Councilmembers wish to address any item on the Consent Calendar individually, it will be considered under SPECIAL CALL ITEMS. o Q.y B. CONSENT CALENDAR Minutes. Recommendation: Approve minutes of regular meeting of December 19, 2005 as written. E B-1. UB Minutes. doc 2. Professional Services Contract with Wren and Associates. Recommendation: Approve Professional Services Contract with Wren and Associates for inspection services of electric conduit and facility installations for Rosedale Subdivision Project by Azusa Land Partners in estimated amount of $30,000. E B-2. Inspection Services Contract. DC 3. Replacement Guaranty Agreement with PPM Energy. Recommendation: Authorize Mayor to execute Replacement Guaranty Agreement between City of Azusa and PPM Energy for windpower power purchase agreement. B-3. Guaranty Agreement.doc 4. ^areement to Remove and Salvage Four Circuit Breakers at Azusa Substation. Recommendation: (1) Declare as surplus the four damaged circuit breakers removed from Azusa Substation, and authorize staff to dispose of same; (2) authorize staff to execute agreement for equipment removal and salvage, subject to review and approval by City Attorney. E B4. Disposal of Surplus Property.doc C. SCHEDULED ITEMS Assignment of Duke Energy's Wholesale Power Obligations. Recommendation: Authorize Mayor to (a) execute Assignment, Consent, and Novation Agreement among DEMA, UBS AG and City of Azusa; and (b) execute confirmation letter upon approval by Federal Energy Regulatory Commission for the transfer of power contract from DEMA to UBS AG. C-1. Duke Energy Assignment.doc 002 E. DIRECTORS' COMMENTS F. CLOSED SESSION G. CONFERENCE WITH LEGAL COUNSEL - ANTICIPATED LITIGATION Government Code Section 54956.9(b)(3)(C) Claim by PG&E, Southern California Edison, San Diego Gas & Electric, California Electricity Oversight Board Adjournment. "%n compliance with the Americans with Disabilities Act, If you need special assistance to participate In a city meeting, please contact the City Clerk at 616-8/2-5229. NotlBcation three (3) working days prior to the meeting or time when special services are needed wi// assist staff in assuring that reasonable arrangements can be made to provide access to the meeting." ME 2. Utilities Department Reserve Policies. Recommendation: (1) Deliberate and approve recommended reserve policies for electric and water utilities; and (2) authorize staff to prepare a resolution for adoption of same at the February 2006 Utility Board Meeting. C-2. Reserve Polkes.doc D. STAFF REPORTS/COMMUNICATIONS Customer Service Information System Implementation Update Eli D -t. S&S CIS Update.doc 2. August and December 2006 Utility Board Meeting Schedule (verbal) 3. Legislative and Regulatory Report NO Lai D-3. LEGISLATIVE UPDATE. ppt 4. Energy Policy Act of 2005 E D-4. ENERGY POLICY ACT OF 2005. ppt 5. Monthly Power Resources Update E P5. Power Resources Moy Upda 6. American Public Power Association Revenue per Kilowatt Hour Survey D6. APPA Revenue Per Kwh Survey. pdf 7. Update on AB 939 and discussions with Athens Services (verbal) 8. Update on Water Treatment Plant Engineering and Design (verbal) 3 003 8-1. CITY OF AZUSA MINUTES OF THE SPECIALIREGULAR MEETING OF THE AZUSA UTILITY BOARD/CITY COUNCIL MONDAY, DECEMBER 19, 2005 - 9:51 P.M. The Utility Board Members of the City of Azusa met in special session, at the above date and time in the Azusa Auditorium located at 213 East Foothill Boulevard, California. Chairperson Chagnon called the meeting to order. Call to Order ROLL CALL Roll Call PRESENT: BOARDMEMBERS: HARDISON, CARRILLO, ROCHA, HANKS, CHAGNON ABSENT: BOARDMEMBERS: NONE ALSO PRESENT: Also Present City Attorney Martinez, Director of Utilities Hsu, Assistant to the Utilities Director Kalscheuer, Manager Delach, Assistant City Manager Person, Economic Development Director Coleman, Interim Chief of Police Garcia, Economic Development Specialist Ruiz, Public Information Officer Quiroz, City Clerk Mendoza, Deputy City Clerk Toscano. The CONSENT CALENDAR consisting of items B-1 through B-7 was approved by motion of Board Consent Cal. Member Hanks, seconded by Board Member Hardison unanimously carried. Approved 1. The Minutes of the regular meeting of November 28, 2005, were approved as written. Min appvd 2. Approval was given for additional payment of $10,670 to Wren &Associates for extra time Add'I pay - spent on their contract to inspect Project W-196, Water Main Replacement Project. ment Wren 3. Approval was given for a Professional Services contract with Wren & Associates in an Professional estimated amount of $30,000 for inspection services on Rosedale Subdivision Project Svs Contract Waterline and Facility Installations. Wren Rosedle 4. The Notice of Completion for Project W-196, Water Main Replacement on Fifth Street, Notice of Azusa Avenue, and Cerritos Avenue has been accepted as complete and the City Clerk's Comp Wtr Office is directed to execute Notice of Completion for J.A. Salazar Construction &Supply Main Project corporation and same recorded at the Office of Los Angeles County Recorder. W-196 005 The customer owned solar or wind distributed generation and net metering program was Net Metering approved and staff was authorized to implement the program in a timely manner; the Program Director of Utilities or his designee was authorized to execute the Net Metering Agreement. Approved 6. Authorization was given for a Request for Proposals (RFP) to retain a qualified financial RFP Advisor advisor to guide the City through the process of obtaining outside funding for anew Water New Wtr Treatment Plant. Treatment Pit Authorization was given to the Mayor to execute an electronic data service subscription Agmt w/e- agreement with e -Signal for one year starting April 1, 2006 for $873 per month and Signal authorization was given to staff to terminate services with Moneyline Telerate upon expiration of contract on March 31, 2006. Staff Reports/Communications Staff Rpts Director of Utilities Hsu addressed the Board Members presenting the Environmental Stewardship Environmental Certificate Award received from PPM Energy, the company which the City purchased 6 Stewardship megawatts of Wind Energy; the company recognized Azusa's Environmental Stewardship. Certificate Monthly Power Resources Update was presented and no discussion was held. The Work Plan Update FY 2005-2006 2"' Quarter was presented and no discussion was held. Director of Utilities Hsu provided background information on the reason for the Quarterly San Juan Fuel Cost Adjustment. On July 26, 2004, the Utility Board approved a fuel cost adjustment mechanism for San Juan power plant. This mechanism is intended to credit customers with cost savings that are realized when our power plant operates reliably and replacement power cost are avoided and conversely, allow the Utility to increase revenues to recover a portion of our replacement power costs when the San Juan resource experiences outages. Public Participation Pwr Res Work Plan San Juan Fuel Cost Adjust. Pub Part Mr. Art Morales addressed Board Members with concerns regarding meeting being held early A. Morales and lack of time to read the agenda items; he stated Utility Board items have not been available Comments in the past. Chairperson Chagnon responded noting that Agenda and Special Meeting notices Chagnon were all posted in a timely manner and that the City Clerk's office is aware of complying with the Responded Brown Act. Closed Sess CLOSED SESSION The Utility Board Members recessed to Closed Session at 10:05 p.m. to discuss the following: Conf w/legal CONFERENCE WITH LEGAL COUNSEL — ANTICIPATED LITIGATION Gov, Code Sec. 54956.9 Counsel (b) (3) (C). Claim by PG&E, Southern California Edison, San Diego Gas 8_ Electric, California Claim Electricity Oversight Board. The Utility Board Members reconvened at 10:20 p.m. and there was No Reports no reportable action. It was consensus of Utility Board Members to adjourn TIME OF ADJOURNMENT: 10:21P.M. SECRETARY Next Resolution No. 06-C1. 12/19/05 PAGE TWO Adjourn CONSENT CALENDAR TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD AND AZUSA CITY COUNCIL FROM: JOSEPH F. HSU, DIRECTOR OF UTILITIES DATE: JANUARY 23, 2006 JV' SUBJECT: PROFESSIONAL SERVICES CONTRACT WITH WREN & ASSOCIATES TO PERFORM INSPECTION SERVICES ON ELECTRIC CONDUIT & FACILITY INSTALLATION BY AZUSA LAND PARTNERS FOR THE ROSEDALE SUBDIVISION PROJECT RECOMMENDATION It is recommended that the Utility Board/City Council approve a Professional Services Contract in the estimated amount of $30,000 to Wren & Associates to provide inspection services on the Rosedale Subdivision Project Electric Conduit and Facility installations. BACKGROUND Construction on the Backbone Electric Infrastructure for Rosedale will be awarded by Azusa Land Partners and will require inspection by an Electric Division contract inspector. Wren & Associates has done past projects for the Water Division, and at $62 per hour is more cost effective than other consultants that the Electric Division has asked for prices. For comparison: Hampton Tedder Electric Co., Inc, $124.75/hour; and Herman Weissker Inc., $93.53/hour. FISCAL IMPACT The fiscal impact of this inspection services contract is nominally $30,000 to be funded from the Capital Improvement Budget Account 33-80-000-730/73006C-7130 approved by the Utility Board for Fiscal Year 2005-2006. However, actual fiscal impact will be minimal due to reimbursement of inspection costs by Azusa Land Partners. Prepared by: David Ramirez, Assistant Director Electric Operations 007 R 8-3. fe AZUSA CONSENT CALENDAR TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD AND AZUSA CITY COUNCIL FROM: JOSEPH F. HSU, DIRECTOR OF UTILITIES J DATE: JANUARY 23, 2006 �' SUBJECT: REPLACEMENT GUARANTY AGREEMENT FOR THE WINDPOWER POWER PURCHASE AGREEMENT RECOMMENDATION It is recommended that the Utility Board/City Council authorize the Mayor to execute the Replacement Guaranty Agreement for the windpower power purchase agreement between the City and PPM Energy. BACKGROUND The City entered into a twenty-year Power Purchase Agreement (PPA) for windpower from PPM Energy in September 2003. PPM Energy is a wholly owned subsidiary of ScottishPower. As part of the PPA, PPM Energy provided a financial guaranty backed by another ScottishPower's subsidiary, PacifiCorp. Recently, ScottishPower announced that it is selling PacifiCorp subsidiary to MidAmerican. Upon obtaining the necessary regulatory approvals which are expected, PacifiCorp will cease to be a ScottishPower subsidiary and thus will no longer provide any financial guaranties to any ScottishPower's subsidiaries. In order to continue to provide the necessary financial guaranties pursuant to the PPA, PPM Energy proposes to replace PacifiCorp by Scottish Power Finance (US), Inc. as the guarantor for the PPA. The Replacement Guaranty Agreement memorializes the replacement. Staff has reviewed the Replacement Guaranty Agreement and has found it to be acceptable as it replaces PacifiCorp by another company of similar financial strength as guarantor. FISCAL IMPACT This replacement of guarantor for the PPM Energy's PPA is fiscally neutral to the Light Fund. Prepared by: Bob Tang, Assistant Director of Resource Management T Guaranty Agreennt.pdf REPLACEMENT GUARANTY AGREEMENT (CITY OF AZUSA WIND PPA) This GUARANTY AGREEMENT (the "Guaranty") is made as of the 12th day of December, 2005, by SCOTTISH POWER FINANCE (US), INC., a corporation duly organized and existing under the laws of the State of Delaware, U.S.A., with its head office situated at 1125 NW Couch Street, Suite 700, Portland, Oregon 97209, U.S.A., (herein called "Guarantor"), for the benefit of CITY OF AZUSA, a municipal corporation duly created and existing under the laws of the State of California (herein called "Beneficiary"). (Guarantor and Beneficiary are individually referred to herein as a "Party" and collectively as the "Parties.") RECITALS: WHEREAS, PPM Energy, Inc. ("PPM"), a subsidiary of Guarantor, has rights to the electric energy output and associated environmental attributes of a wind turbine electrical generation facility with an expected installed capacity of 145.8 MW to be constructed on a site located in Solano County, California (the "Project"); and WHEREAS, PPM desires to sell, and Beneficiary desires to purchase electric energy equal to the metered output of an undivided six (6) MW share of the installed capacity of the Project or of an Alternate Project (as defined in the Contract referred to below), along with any and all Environmental Attributes associated with such metered output; and WHEREAS, to that end, the PPM and the Beneficiary have entered into that certain Long -Term Power Purchase Agreement (Wind Power) dated as of Aueust 11, 2003 (the "Contract'); and WHEREAS, the Contract requires that PPM cause to be provided a guarantee of PPM's payment under the Contract, and Guarantor is willing to enter into this Guaranty to satisfy the conditions of the Contract. NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, the Parties hereto agree as follows: I. Except as expressly provided herein to the contrary, Guarantor hereby unconditionally and irrevocably guarantees to Beneficiary that in the event of PPM failing in any respect to perform its payment obligations under the Contract, subject to any cure period, Guarantor shall immediately upon first demand in writing by Beneficiary perform or take such steps as are necessary to achieve performance of PPM's payment obligations and shall indemnify and keep indemnified Beneficiary against any and all losses, damages, claims, costs, charges, and expenses howsoever arising from the said failure to the extent of PPM's payment obligations under the Contract. Notwithstanding any provision herein to the contrary, in no event shall Guarantor's aggregate liability hereunder exceed three hundred thousand dollars (US$300,000). 2. The liability of Guarantor hereunder shall not be reduced or discharged by any alteration in the relationship between Beneficiary and PPM which has been consented to by PPM in writing (with or without the knowledge or consent of Guarantor), or by any forbearance or I'nn)nd2- 533104.2 00i499'-00001 "1 indulgence by Beneficiary towards PPM or Guarantor whether as to payment, time, performance, or otherwise. 3. Guarantor agrees to make any payment due hereunder upon first written demand without set-off or counterclaim and without any legal formality such as protest or notice being necessary, and waives all privileges or rights which it may have as a guarantor, including any right to require Beneficiary to claim payment or to exhaust remedies against PPM or any other person. 4. The obligations of Guarantor hereunder shall continue in full force and effect after expiration or termination of the Contract until all PPM's payment obligations and liabilities under the Contract have been fully discharged. 5. This Guaranty and the undertakings herein contained shall he binding upon the successors and assigns of Guarantor and shall extend to and inure for the benefit of the successors or permitted assignees of Beneficiary. Beneficiary may assign, charge, or transfer all or any of its right, title and interest in this Guaranty upon such terms as Beneficiary may think fit to any agent for and on behalf of any syndicate of banks and financial institutions providing credit and guaranty facilities to Beneficiary in connection with the Contract and to any permitted assignee of Beneficiary's rights and responsibilities under the Contract. No person other than Beneficiary or such permitted assignees as described above is intended as a beneficiary of this Guaranty nor shall any such person have any rights hereunder. Guarantor may not assign or otherwise transfer any of its rights or obligations hereunder. G. Notwithstanding anything to the contrary above, in the event of any claim under this Guaranty, Guarantor shall be entitled to assert any defense, set-off or counterclaim that Beneficiary could assert had such claim been made directly against any person under the Contract except defenses based upon (i) lack of authority of PPM to enter into and/or perform its j obligations under the Contract or (ii) any insolvency, bankruptcy, reorganization, arrangement, composition, liquidation, dissolution or similar proceeding with respect to PPM. 7. In the event there is any dispute under the Contract that relates to a sum being claimed under this Guaranty, which dispute is submitted to arbitration or judicial resolution, the obligations under this Guaranty shall be suspended pending the outcome of such arbitration or judicial resolution and Guarantor further agrees that any award resulting from such arbitration or judicial resolution shall be conclusive and binding on it for purposes of determining its obligation under this Guaranty. S. This Guaranty shall be governed by and construed in accordance with the laws of the State of California, provided that any provision of such law invalidating any provision of this Guaranty or modifying the intent of the Parties as expressed in the terms of this Guaranty shall not apply. 9. Conditions to Effectiveness; Termination of Prior Guaranty. This Guaranty shall not be effective until countersigned by Creditor in the space indicated below. This Guaranty is delivered in replacement of guaranty dated as of August 11. 2003, issued by PacifiCorp Holdings, Inc., a Delaware corporation, in favor of Creditor (the "Original Guaranty"). By its PDWW2-4541 IW 2 W588924XK)01 010 7 countersignature to this Guaranty, the Creditor acknowledges and agrees that the Original Guaranty is terminated as of the date of the Guaranty and has no further force or effect. IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their respective authorized representatives as of the date first written above. SCOTTISH 'OWER FINtNCE (US), INC. Name: Kevin E. Devlin Title: Assistant Treasurer Acknowledged and agreed: City of Azusa, a California municipal corporation By:— Name: Title: Yunlnd2 •-454;104.2 0058992-W001 Oil I rnr .� r: urA7USA v CONSENT CALENDAR TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD AND AZUSA CITY COUNCIL FROM: JOSEPH F. HSU, DIRECTOR OF UTILITIES� DATE: JANUARY 23, 2006 �1' SUBJECT: DISPOSAL OF SURPLUS PROPERTY RELATED TO THE DAMAGED 4-12W . CIRCUIT BREAKERS AT AZUSA SUBSTATION RECOMMENDATION It is recommended that the Utility Board/City Council: 1) Declare as surplus the 4 damaged circuit breakers which were removed from the Azusa Substation, and authorize staff to dispose the damaged breakers; and 2) Authorize staff to execute agreement for equipment removal and salvage, subject to ' review and approval by City Attorney. BACKGROUND Last July and September 2005, a total of 4 circuit breakers at Azusa Substation were damaged and were subsequently replaced with brand new equipment. Three of the damaged breakers are beyond repair while one circuit breaker could be refurbished. However, Azusa Light & Water does not intend to re -use any refurbished breaker at the substation. As part of an on- going insurance claim adjustment and settlement on the damages at the substation, these 4 circuit breakers would need to be salvaged and proceeds, if any, will be used to offset the loss. FISCAL IMPACT There is no fiscal impact to declaring as surplus the damaged circuit breakers. Salvage value, if any, will be used to offset loss when insurance claim is settled. Prepared by: F. Langit, Senior Electrical Engineer CB Disposal Agreement. pdf 012 RESERVATION OF RIGHTS, NON -WAIVER AGREEMENT AND AGREEMENT FOR THE REMOVAL AND SALE OF STOCK/SALVAGE Insured: Independent Cities — City of Azusa Stock/Property: 4 blown breakers Location of Stock/Property: Azusa, CA Insurance Company: Lexington Date of Loss: 7/21/2005,9/5/2005 DRAFT AIG Claim No.: 683-079192, 683-079985 1. Stock/Prooerty: The above -designated salvage may have been damaged by fire, water, smoke or other casualty, and the Insured has submitted an insurance claim concerning damage to this Stock/Property: It is to the benefit of all who may have interest in the Stock/Property that it be handled with as little delay as possible and without waiting for the insurance claim to be finalized and/or without waiting to determine the parties respective interests, rights, or liabilities in respect to this Stock/Property. 2. Salvaee of Stock Property: American International Recovery is hereby authorized to take possession of the Stock/Property and to take the appropriate steps to sell and/or salvage the Stock/Property in whatever manner it deems appropriate, in its sole discretion. The net proceeds from this sale and/or salvage, less all costs and expenses (including labor costs) incurred in connection with the removal, handling, maintenance, sale and/or salvage of the Stock/Property will be held in Trust until the loss is completely adjusted by the insurance company and upon the final adjustment will then be turned over to such party(ies) as may be entitled to receive those proceeds. 3. Warrantv and Ownership: The Insured and/or party who submitted the above captioned insurance claim warrants that it is the legal owner of the Stock/Property and hereby agrees to hold American International Recovery, Inc. and the insurance company harmless from any liability and/or costs (including attorney fees) incurred by American International recovery, Inc. as a result of any other party claiming an ownership interest in the Stock/Property or the rights to the proceeds. 4. Non -Waiver Agreement: It is understood and agreed that any action taken by the above identified insurer or American Internationat Recovery. Inc. or any agents or employee handling the salvage. investigating the claim or ascertaining the amount or value of the salvage and loss or damage which allegedly occurred on or about 7!21/2005 & 9/5/2005 should not waive or im-alidate arry of the terms and conditions of the policy of insurance and shall not waive or invalidate any rights of any of the parties to this agreement. The intent of this agreement is to preserve the rights of all parties hereto, and to permit investigation of the cause of loss. the unestigation of all aspects of the claim mid ascertahmtent of sound valine and value of salvage and without regard to the liability of the insurer. 5. Reservation of Rights: The insurer and American International Recovery, Inc. specifically reserve all of the rights at law or otherwise. Date: 1/122006 AMERICAN INTERNATIONAL RECOVERY, INC. INSURED By: By: Title: Title: AIG ADJUSTER Title: IM AGENDA ITEM TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD AND AZUSA CITY COUNCIL FROM: JOSEPH F. HSU, DIRECTOR OF UTILITIE� AW DATE: JANUARY 23, 2006 SUBJECT: ASSIGNMENTOF DUKE ENERGY'S WHOLESALE POWER OBLIGATIONS I;T��L�Pfiif�`►1J�lrL�L It is recommended that the Utility Board/City Council authorize the Mayor to (a) execute the Assignment, Consent, and Novation Agreement (ACN Agreement) among DEMA, UBS AG, and the City; and (b) execute the Confirmation Letter upon the approval by the Federal Energy Regulatory Commission (FERC) of the transfer of power contract from DEMA to UBS AG. i'.�Ti ;ti];iiIFLL►� Duke Energy is in the process of exiting wholesale power merchant business. Duke's exit will Impact two of the existing power . contracts between Duke Subsidiaries and the City. In October, staff obtained the authority from the Board to negotiate with Duke to unwind the transactions and preserve the values of the transactions for the City. Over the last two months, staff has actively negotiated with Duke and potential counterparties that might assume the contracts from Duke. We have concluded the negotiations of contract transfer for one of the contracts and are seeking Utility Board's approval at this time. Specifically, the medium term summer power contract commencing from summer 2008 through summer 2014 will be transferred from DEMA, a wholly owned subsidiary of Duke Energy, to UBS AG upon the execution of the ACN Agreement. This transfer is in the City's interest for the following reasons: i. Duke Energy is aggressively exiting the wholesale merchant business shedding assets and contracts. It Is in the City's interest to deal with counterparties interested in the power business as opposed to counterparties that no longer care about the business; 2. UBS AG, a Swiss bank, is a very strong financial institution which is fully capable to perform financially and is committed to the wholesale business. Thus UBS AG Is a suitable counterparty for assuming this transaction; and 3. The terms and conditions of the existing power contract will remain the same upon assignment, with no financial impacts to the City and thus keep the City financially 014 indifferent to the assignment. For the reasons stated above, staff recommends the approval of the ACN Agreement among DEMA, UBS AG, and the City at this time. Procedurally, upon the execution of the ACN Agreement by parties, DEMA and UBS AG will file with FERC seeking regulatory approval for contract assignment. Upon FERC's approval of the assignment, UBS and the City will execute the Confirmation Letter attached to the ACN Agreement as Schedule C to finalize the assignment. FISCAL IMPACT This contract assignment is fiscally neutral to the Light Fund. Prepared by: Bob Tang, Assistant Director of Resource Management Attachments: 015 Assgnnnt Schedule B.pdf Schedule C.doc Agrmt.doc 015 7 SCHEDULE B r�sOO S 3 r 7cyJso653CQ MASTER POWER PURCHASE AND SALE AGREEMENT CONFIRMATION LETTER This confirmation letter shall confirm the Transaction agreed to on _ between the City of'Azusa, California ("Party A") and Duke Energy Marketing America, LLC ("DEMA") ("Party B") regarding the sale/purchase of the Product under the terms and conditions as follows: Seller: Duke Energy Marketing_ America LLC Buyer: CityofAzusa Product: [] Into Seller's Daily Choice [x] Firm (LD) [] Firm (No Force Majeure) [J System Firm (Specify System: ) [) Unit Firm (Specify Unit(s): 1 [] Other' [] Transmission Contingency (If 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: DEMA will make available and AZUSA will have the right, but not the obligation to call upon up to 15 MW of On -peak energy on a day -a -head basis during Saturday, including NERC Holidays for each month associated with the Product and each year of the Contract Term Delivery Point: DEMA will deliver, and AZUSA will take energy deliveries at the Mead 230kV substation Contract Price: AZUSA will pay DEMA a monthly Capacity Price of $7.18 per kW month plus a variable Energy Rate for each MWh of energy received under this IM Capacit Price: During the Contract Term, AZUSA shall pay DEMA each month a capacity payment of $107,700. Energy Rate: The Energy Rate ($/MWh) 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 $.02 per dth/delivered. Contract Heat Rate: The Contract Heat Rate will be 10,000 Btu per kWh. There will be no adjustments to the Contract Heat Rate during the Term. Variable O & M - The Variable O & M Rate will be $3.50 per MWh. There will be no adjustments to the Variable O & M 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 sum of the "Daily Variable Energy Amount' for each day during such month The Daily Variable Energy Amount for each day shall equal the nroduct of (a) the Energy Rate for such day, and (b) the quantityof energy (in MWh) delivered during such day Other Charges: Delivery Period: Contract Term will begin on May 1 2008 and continue through October 31, 2014. AZUSA will have the right to call on energy during the months of May through 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 of the 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. The Energy shall be scheduled and tagged, pursuant to WECC tagging policies 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 017 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 BEI 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. The City of AzV %---c-41ifomia By r Name: Cristina C. Madrid Title: Mayor Phone No: Fax: Duke Energy arketing America By: Name: C. Gre o r Title: Group VP Energy Marketing Phone No: (713) 989-1817 Fax: (713)989-1818 20_ The City of Azusa, California 729 Azusa Avenue Azusa, CA 91702 Fax No. 626-334-3163 CONFIRMATION LETTER Deal No. UBS Energy LLC Acting as agent for UBS AG, London Branch Floor 10-N 677 Washington Blvd. Stamford, CT 06901 Phone: (203)719-3000 Fax: (203) 719-5091 Final This letter shall confirm the agreement reached between The City of Azusa, California ("AZUSA") and UBS AG, London Branch ("UBS") regarding the sale of WSPP Service Schedule C Energy under the terms and conditions that follow. This confirmation letter replaces and supersedes in its entirety that certain Master Power Purchase and Sale Agreement Confirmation Letter between Duke Energy Marketing Americas, LLC ("DEMA") and AZUSA, a copy of which is attached hereto as Annex A. Seller: UBS AG, London Branch Buyer: The City of Azusa, California Term: May 1, 2008 through October 31, 2014. Hour Ending ("HE") 0700 through HE 2200 (16 Hours each day), Monday through Saturday, including NERC Holidays; Pacific Prevailing Time ('TPT"). Azusa will have the right to call on energy during the months of May through October of each year of the Term (the "Delivery Months"). Product: WSPP Service Schedule C Price: AZUSA will pay UBS a monthly Capacity Price of $7.18 per kW -month plus a variable Energy rate for each MWh of energy received under this confirmation letter. The Capacity Price will be fixed for the Term and the Energy Rate will be calculated based on a Gas Index. Capacity Price: During the Term, AZUSA shall pay UBS a capacity payment of $107,700 for each calendar month during the Tenn. Energy Rate: The Energy Rate ($/MWh) 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 MMBw as listed in the Midpoint column of the section marked "Other" (SoCal gas) in Plaits Gas Daily in the "Daily Price Survey" table for the applicable calendar day on which the Product is to be delivered by UBS to AZUSA plus $.02 per MMBtu delivered. Contract Heat Rate: The Contract Heat Rate will be 10,000 Btu per kWh. There will be no adjustments to the Contract Heat Rate during the Term. Variable O&M: The Variable O&M Rate will be $3.50 per MWh. There will be no adjustments to the Variable O&M during the Term. UBS Energy LLC acting as agent for UBS AG, London Branch 019 Final Deal No. Energy Price: In addition to the capacity payment, AZUSA shall pay to UBS for each month of the Term an energy payment. The energy payment will be equal to the sum of the "Daily Variable Energy Amount" for each day during such month. The Daily Variable Energy Amount for each day shall equal the product of (a) the Energy Rate for such day, and (b) the quantity of energy (in MWh) delivered during such day. Quantity: UBS will make available and AZUSA will have the right, but not the obligation, to call upon up to 15 MW of On -peak energy on a day -ahead basis during each of the Delivery Months of the Term. "On -Peak Hours" will be Hours Ending 0700 through Hour Ending 2200 PPT (16 Hours each day), Monday through Saturday, including NERC Holidays, for each Delivery Month associated with the Product during each year of the Term. Delivery Point: UBS will deliver, and AZUSA will take energy deliveries at the Mead 230kV substation. Special 1. Day -ahead callable energy: AZUSA shall notify UBS by 06:00 A.M. PPT of the last Conditions: 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. UBS shall confirm with AZUSA each day's energy schedule by 11:00 A.M. PPT. The Energy shall be scheduled and tagged, pursuant to WECC tagging policies and procedures. AZUSA shall not call on energy in increments of less than 5 MW (i.e. 5, 10 or 15 MW). This amount would be held constant 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. If AZUSA chooses to exercise its option to receive the Product during the On -Peak Hours for a given day during a Delivery Month in the Term, AZUSA must schedule and receive the Product in the amount for which the option was exercised each and every of the 16 - On -Peak Hours for which this option was exercised. 3. Transmission: UBS is responsible for all transmission arrangements and costs for delivery of the Product to the Delivery Point. AZUSA is responsible for all transmission arrangements and costs for receipt of the Product at and beyond the Delivery Point. 4. AZUSA agrees that regularly scheduled payments of the Capacity Price and the Energy Price under this confirmation letter are, and until the termination of the transaction evidenced by this confirmation letter pursuant to the terms hereof and of the Agreement shall remain, payable solely out of or from operating revenues of the City of Azusa Light and Water Department. AZUSA covenants and agrees that it will ensure that regularly scheduled payments of the Capacity Price and the Energy Price hereunder are operating and maintenance expenses, which are payable at all times prior to debt service. Scheduling: UBS Real Time Operations: 1-866-868-5083 Scheduling to be completed in accordance with WECC guidelines. This confirmation letter is being provided pursuant to and in accordance with the Western Systems Power Pool Agreement ("Agreement"), as amended periodically with FERC approval, and as amended by the Parties from time to time. Terms used but not defined herein shall have the meanings ascribed to them in the Agreement. This confirmation letter is being entered into in connection with (i) the Contract Sale Agreement dated , 2006 between DEMA and UBS and (ii) the Assignment, Consent and Novation Agreement, dated , 2006 among DEMA, UBS and AZUSA. UBS and AZUSA agree that as between UBS and AZUSA, this confirmation letter replaces and supersedes in its entirety that certain Master Power Purchase and Sale Agreement Confirmation Letter between Duke Energy Marketing Americas, LLC ("DEMA") and AZUSA, a copy of which is attached hereto as Annex A UBS Energy LLC acting as agent for UBS AG, London Branch 020 Final Deal No. Please confirm that the terms stated herein accurately reflect the agreement reached on _, 2006 between you and UBS AG, London Branch by returning an executed copy of this letter by facsimile. to UBS AG, London Branch at (203) 719-5091. Your response should reflect the appropriate party in your organization who has the authority to enter into this transaction. If you have any questions please call (203) 719-7629. The City of Azusa, California UBS AG, London Branch By: UBS Energy LLC, as agent By: By: <<SignatureGoesHereu Name: Name: «Signature>> Title: Title: <<SignatureTitle>> By: <<SignatureGoesHere_2>> Name: <SignerName_2» Title: <<SignerTitle_2» UBS Energy LLC acting as agent for UBS AG, London Branch 021 SCHEDULE C Draft 101006 ASSIGNMENT, CONSENT AND NOVATION AGREEMENT This Assignment, Consent and Novation Agreement dated the (jday of January; 2006 (the "Agreement")- AMONG: Agreement"). AMONG: DUKE ENERGY MARKETING AMERICA, LLC, a limited liability company organized under the laws of Delaware (the "Assignor") - and - UBS AG, a bank organized under the laws of Switzerland (the "Assignee") -and- THE CITY OF AZUSA, CALIFORNIA, a California municipality (the "Counterparty"). WHEREAS the Assignor and the Counterparty are parties to an EEI Master Power Purchase and Sale Agreement , described in Schedule "A" attached hereto (the "DEMA Master Agreement") and to that Confirmation Letter entered into pursuant to the DEMA Master Agreement, a copy of which is attached as Schedule `B" hereto (such transaction being hereinafter referred to as the "Individual Transaction"); AND WHEREAS the Assignor has agreed to assignment by novation to the Assignee, and the Assignee has agreed to accept the assignment by novation, of all of the remaining rights, liabilities, duties and obligations of the Assignor under and in respect of the Individual Transaction but, for certainty, the Assignor will not otherwise novate to the Assignee the DEMA Master Agreement itself, nor any other transaction(s) that may be outstanding pursuant to the terms of the DEMA Master Agreement or any of its rights, title, estate or interest therein; AND WHEREAS according to that certain Contract Sale Agreement between the Assignor and the Assignee dated as of Ianuary _; 72006 (the "CSA"), the Assignor will assign by novation to Assignee all of Assignor's remaining rights, liabilities, duties and obligations with respect to the Individual Transaction (the "Closing"), subject to the satisfaction of certain conditions precedent, which conditions precedent include, without limitation, (1) obtaining prior approval of the assignment from Assignor to Assignee from the Federal Energy Regulatory Commission under Section 203 of the Federal Power Act ("FERC 203 Approval"), and (2) satisfaction of all legal, credit and collateral requirements between Assignor and Counterparty; AND WHEREAS the Counterparty is willing to consent to such assignment by novation and to recognize and accept the Assignee as its counterparty with respect to the Assumed Rights and Liabilities under the Individual Transaction in the place and stead of the Assignor pursuant to the terms of this Agreement; AND WHEREAS the Assignee and the Counterparty have agreed that: (i) the Individual Transaction shall be and is deemed to be severed from the DEMA Master Agreement, and the Counterparty and Assignee shall enter into new transactions between them having commercial terms substantially similar to those of Individual Transaction (a "New Master Confirmation" and identified on 022 Schedule "C" hereto) and made subject to and form part of the Western Systems Power Pool Agreement, as amended periodically with FERC approval, and as amended by the Parties from time to time, including pursuant to the Master Confirmation Agreement under the Western Systems Power Pool Agreementdated as of July 30, 2002, between the Assignee and the Counterparty (the "New Master Agreement"); (the New Master Confirmation is hereinafter also sometimes referred to as the "New Transaction"); NOW THEREFORE, for good and valuable consideration (receipt and sufficiency of which are hereby acknowledged), the parties hereto mutually covenant and agree as follows: Novation. The Assignor hereby assigns by novation to the Assignee: (i) effective as of and from 12:01 a.m. (Pacific prevailing time) on the first day of the calendar month following the calendar month in which the Assignor has given to the Counterparty written notice (with a copy to Assignee) that (a) FERC 203 Approval has been obtained, (b) all legal, credit and collateral requirements between Assignor and Counterparty have been satisfied and (b) all other conditions precedent set forth in the CSA have been fulfilled or waived by Buyer, provided that such notice is received by the Counterparty on a day not later than six (6) days prior to the end of a calendar month; or (ii) if notice of the Closing is received by the Counterparty on a day which is less than six (6) days prior to the end of a calendar month, effective as and from 12:01 a.m. (Pacific prevailing time) on the fust day of the second calendar month after the Counterparty receives notice of the occurrence of the Closing (in either case, the "Novation Effective Time"), its entire right, title, estate and interest in and to, and its rights, liabilities, duties and obligations under, the Individual Transaction except for the Assignor Excluded Liabilities, for the Assignee's sole use and benefit absolutely, except as otherwise specifically provided herein and in the CSA. 2. Acceptance by Assignee. The Assignee hereby accepts the aforesaid Individual Transaction effective as of and from the Novation Effective Time for the Individual Transaction, and covenants and agrees with the Assignor and the Counterparty that from and after the Novation Effective Time it will be bound by, observe and perform, carry out and fulfill all covenants and agreements, duties and obligations required to be observed and performed by the Assignor under the terms of the Individual Transaction arising from and after the Novation Effective Time, except to the extent any such rights, liabilities, duties or obligations arise from or relate to acts, omissions or events occurring or conditions existing prior to the Novation Effective Time (collectively, the "Assumed Rights and Liabilities"). For the avoidance of any doubt, the parties agree that the Assumed Rights and Liabilities shall not include any obligations that are not explicitly set forth in the New Master Confirmation and/or the New Master Agreement notwithstanding anything contained in the DEMA Master Agreement or the Individual Transaction to the contrary. All liabilities, duties or obligations other than the Assumed Rights and Liabilities (the "Assignor Excluded Liabilities"), including, but not limited to, those liabilities, duties or obligations relating to, resulting from, or arising out of any breach of contract or any other actual or alleged failure of Assignor to perform any obligation, in each case arising out of, or relating to the Individual Transaction or the performance thereof prior and up to the Novation Effective Time, shall be the sole obligation and responsibility of the Assignor, and Assignee does not assume and shall not discharge, perform or be responsible in any way for any Assignor Excluded Liabilities. 3. Acceptance by Counterparty Effective as of and from the Novation Effective Time, the Counterparty hereby consents to assignment by novation of the Individual Transaction and accepts the Assignee as the party to benefit from and perform the Assumed Rights and Liabilities under the Individual Transaction pursuant to the terms and conditions of the New Transaction and the terms and conditions of the New Master Agreement, as applicable, and the Counterparty agrees that it shall not have the right to make any claim against the Assignee (including by way of set-off, book -out or termination of the Individual Transaction) as a consequence of or relating to Paget 023 any Assignor Excluded Liabilities, including without limitation, (i) any default, breach or non-performance attributable to the Assignor under the Individual Transaction, the DEMA Master Agreement or any other transaction entered into pursuant to the DEMA Master Agreement which default, breach or non-performance arises or has arisen from or with respect to duties, obligations and/or liabilities that accrued prior to the Novation Effective Time; and (ii) the observance and performance of the covenants, representations and agreements under the Individual Transaction, the DEMA Master Agreement or any other transaction entered into pursuant to the DEMA Master Agreement prior to the Novation Effective Date. 4. Release. (a) Effective as of and from the Novation Effective Time, the Counterparty hereby releases and forever discharges the Assignor from further obligations to the Counterparty, with respect to the Assumed Rights and Liabilities and of and from any and all liability as a consequence of or relating to all manner of action and actions, cause or causes of action, suits, debts, dues, sums of money, claims and demands whatsoever at law or in equity arising out of, or which are in any way related to the Individual Transaction with respect to the Assumed Rights and Liabilities after and including the Novation Effective Time; provided that, for certainty, the foregoing shall not release or discharge the Assignor in respect of the settlement, payment or performance of any liabilities or obligations relating to the Assignor Excluded Liabilities, including without limitation, those (i) arising or accruing prior to the Novation Effective Time but which have not been settled, paid or performed as of the Novation Effective Time; or (ii) due and payable or due to be performed after the Novation Effective Time, but which accrued with respect to or otherwise related to a calculation period or delivery period (however defined) ending prior to the Novation Effective Time, and all such Assignor Excluded Liabilities shall be paid or performed by, and shall be the sole obligation and responsibility of, the Assignor in accordance with the terms of the Individual Transaction. (b) Effective as of and from the Novation Effective Time, the Assignor hereby releases and forever discharges the Counterparty from further obligations to the Assignor with respect to the Individual Transaction and of and from any and all liability as a consequence of or relating to all manner of action and actions, cause or causes of action, suits, debts, dues, sums of money, claims and demands whatsoever at law or in equity, arising out of or which are in any way related to, the Individual Transaction after and including the Novation Effective Time; provided that, for certainty, the foregoing shall not release or discharge the Counterparty in respect of the settlement, payment or performance of any liabilities or obligations: (i) arising or accruing prior to the Novation Effective Date but which have not been settled, paid or performed as of the. Novation Effective Date; or (ii) due and payable or due to be performed after the Novation Effective Date, but which accrued with respect to or otherwise related to a calculation period or delivery period (however defined) ending prior to the Novation Effective Date (for avoidance of doubt, (i) and (ii) collectively constitute the "Counterparty Excluded Liabilities"), and all such Counterparty Excluded Liabilities shall be paid or performed by the Counterparty in accordance with the terms of the Individual Transaction. (c) In respect of each New Transaction, the Counterparty and the Assignee each undertake liabilities and obligations towards the other and acquire rights against each other identical in their terms to the Individual Transaction except as agreed to between the Counterparty and Assignee and as set forth in each New Master Confirmation (and, for the avoidance of doubt, as if the Assignee were the Assignor and with the Counterparty remaining the Counterparty), save for any rights, liabilities, duties or obligations of the Counterparty Page 024 with respect to any Counterparty Excluded Liabilities or the Assignor with respect to any Assignor Excluded Liabilities. 5. Further Assurances. The Assignor agrees that it shall, from time to time and at all times hereafter, execute such further assurances and do all such acts and things as may be reasonably required for the purpose of vesting in the Assignee the rights and obligations of the Assignor in the Individual Transaction. 6. Indemnity. Subject to any other agreements between the Assignee and the Assignor: (a) the Assignee shall be liable for and shall indemnify and save harmless the Assignor, its affiliates, its and their successors and permitted assigns, and all of their respective stockholders, directors, officers, employees, agents and representatives (collectively, the "Assignor Indemnified Parties") from and against all losses, costs, expenses and damages suffered or incurred by the Assignor Indemnified Parties (including any legal or other expenses reasonably incurred in connection therewith) as a result of any and all actions, suits, complaints, demands or causes of action whatsoever arising from or in respect of the Individual Transaction in respect of the actions or inactions of the Assignee occurring from and after the Novation Effective Time (including with respect to the inaccuracy of any representation or warranty of Assignee set forth in this Agreement or in the CSA); and (b) the Assignor shall be liable for and shall indemnify and save harmless the Assignee, its affiliates, its and their successors and permitted assigns, and all of their respective stockholders, directors, officers, employees, agents and representatives (collectively, the "Assignee Indemnified Parties") from and against all losses, costs, expenses and damages suffered or incurred by the Assignee Indemnified Parties (including any legal or other expenses reasonably incurred in connection therewith) as a result of any and all actions, suits, complaints, demands or causes of action whatsoever arising from or in respect of the Individual Transaction in respect of the actions or inactions of the Assignor occurring prior to the Novation Effective Time as well as any of Assignor's actions or inactions with respect to duties, obligations and/or liabilities that accrued prior to the Novation Effective Time (including with respect to the inaccuracy of any representation or warranty of Assignor set forth in this Agreement or in the CSA). After the Closing, notice of any assertion by any Assignee Indemnified Party that Assignor is liable to any Assignee Indemnified Party in connection with the transactions contemplated hereby, including this Section 6, must be made by Assignee in writing and must be given to Assignor on or prior to the three-month anniversary of the Closing Date. After the Closing, notice of any assertion by any Assignor Indemnified Party that Assignee is liable to any Assignor Indemnified Party in connection with the transactions contemplated hereby, including this Section 6, must be made by Assignor in writing and must be given to Assignee on or prior to the three-month anniversary of the Closing Date. The notice provided hereunder shall state the facts known to the asserting Party that give rise to such notice in sufficient detail to allow the other Party to evaluate the assertion. The maximum amount of losses, costs, expenses and damages for which any of the Assignee Indemnified Parties or the Assignor Indemnified Parties is entitled to indemnification or other compensation under this Agreement or is otherwise entitled to receive from a Party in connection with or with respect to the transactions contemplated in this Agreement shall not exceed the Purchase Price (as defined in the CSA) and shall be reduced by any corresponding (i) tax benefit recognized or (ii) insurance proceeds received. Confirmation Under New Master Agreement. Subject to the rights, liabilities, duties and obligations of the Assignor, Assignee and Counterparty as set forth in this Agreement, effective immediately as of the Novation Effective Time, the Assignee and the Counterparty agree that the Individual Transaction, for all purposes whatsoever, is and is deemed to be subject to, form part of, and confirmed pursuant to the terms and conditions of the New Master Agreement on the same basis as if the Individual Transaction between the Assignor and the Counterparty under the DEMA Master Agreement had, with effect from and after the Novation Effective Time, been Page 025 entered into between the Assignee and the Counterparty under the New Master Agreement; provided that, effective as of the Novation Effective Time, the existing Individual Transaction under the DEMA Master Agreement shall be replaced by the New Master Confirmation under the New Master Agreement between Assignee and the Counterparty and such Individual Transaction shall be of no further force and effect. Assignee and Counterparty shall execute and deliver the New Master Confirmation on or prior to the Novation Effective Time. Counterparty acknowledges and agrees that the Individual Transaction (as replaced by the New Master Confirmation) shall be subject to the collateral requirements, if any, set forth in the New Master Agreement. 8. No Novation of DEMA Master Agreement. The Assignor and the Counterparty confirm and agree that neither the DEMA Master Agreement nor any right, title, estate or interest therein or any obligation thereunder (other than the Individual Transaction) are novated to the Assignee and such DEMA Master Agreement, other than the Individual Transaction, remains in full force and effect between the Assignor and the Counterparty, unaffected by this Agreement. 9. Address for Notices. The address for the Assignee for notices under the Individual Transaction shall be as set forth in the New Master Agreement, and the address for the Assignee for purposes of receiving any notice under this Section 9 shall be: UBS AG 677 Washington Blvd. Stamford, Connecticut 06901 Attn: Energy Legal Department Telecopier No.: (203) 719-5627 Payment Instructions for Assignee: UBS AG, London Branch Energy Operations Financial UBS AG, Stamford Branch ABA Routing No.: 026007993 Acct No.: 101 WA257621-000 The address for the Counterparty for purposes of receiving any notice under this Section 9 shall be: The City of Azusa, CalifomiaAzusa Light and Water c/o Director of Utilities 729 N. Azusa Ave. P.O. Box 9500 Azusa, CA 91702-9500 ATTN: Mr. Bob Tang The address for the Assignor for purposes of receiving any notice under this Section 9 shall be: Pages 026 Duke Energy Marketing America, LLC 5400 Westminster Court Houston, Texas 77056-5310 Facsimile No.: (713) 627-6544 Attention: Contract Administration 10. Enurement. This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. 11. Counterpart Execution. This Agreement may be executed in separate counterparts and delivered by facsimile, each of which when so executed and delivered shall constitute the one and the same original document. 12. Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York, without giving effect to principles of conflicts of laws (except for Section 5-1401 and 5-1402 of the General Obligations Laws). 13. Representations, Warranties and Covenants. (a) Assignor hereby represents and warrants to each of the other Parties hereto that as of the date hereof and as of the Novation Effective Time, (i) its novation of its right, title and interest in and to the Individual Transaction is free and clear of any liens, charges, pledges, options, mortgages, deeds of trust, security interests, restrictions (whether on voting, sale, Assignment, disposition, or otherwise), easements, whether imposed by law, agreement, understanding, or otherwise ("Encumbrance") whatsoever, and (ii) it has the power and authority to effect the sale, novation and Assignment of the Individual Transaction and to execute, deliver and perform its obligations under this Agreement, . (b) Assignee hereby: represents and warrants to each of the other parties hereto that as of the date hereof and as of the Novation Effective Time: (i) it has the power and authority to accept the sale, novation and assignment of the Assumed Rights and Liabilities in respect of the New Transaction and to execute, deliver and perform its obligations under this Agreement and the Assumed Rights and Liabilities with respect to the New Transaction; and (ii) agrees to be bound by the terms of each New Transaction and to perform all of the Assumed Rights and Liabilities thereunder in accordance with the terms thereof and of the New Master Agreement, as applicable. (c) Counterparty hereby: (i) consents to the foregoing sale, novation and assignment to Assignee; and (ii) agrees to be bound by the terms of each New Transaction and to perform all of the obligations thereunder in accordance with the terms thereof and of the New Master Agreement, as applicable. (d) Counterparty hereby represents and warrants to each of the other parties hereto that as of the date hereof and as of the Novation Effective Time it has the power and authority to execute, deliver and perform its obligations under this Agreement. (e) Each of Counterparty and Assignor hereby represents and warrants to Assignee (solely with respect to itself) that as of the date hereof and as of the Novation Effective Time (subject to the rights and obligations of Counterparty and Assignor in regard to Assignor Excluded Liabilities): (i) Schedule B sets forth a true, correct and complete copy of the Individual Transaction, (ii) it has the power and authority to execute, deliver and perform its obligations under the Individual Transaction and the Individual Transaction was duly Page 027 R and validly executed and delivered by it and constitutes the legal, valid and binding obligation of the Counterparty and Assignor, respectively, enforceable against it in accordance with its terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)), (iii) the Individual Transaction includes all of the terms and conditions of and pertaining to the transactions as in effect as of the Novation Effective Time, (iv) none of the Individual Transaction or the transactions evidenced thereby have been terminated by either party thereto and the Individual Transaction continues to be in full force and effect, (v) it has not entered into any amendments, modifications, waivers, assignments, transfers to or with respect to such terms and conditions, whether oral or written, express or implied (through course of dealing or otherwise), (vi) no breach or default by it (or event or condition that, with notice or lapse of time or both would reasonably be expected to constitute a breach or default) exists thereunder with respect to it, and (vii) to its knowledge, no breach or default by the other party thereto or other remedy triggering event (or event or condition that, with notice or lapse of time or both would reasonably be expected to constitute a breach, default or other remedy triggering event) exists thereunder with respect to the other party. (f) Each party hereto represents to the others that as of the date hereof and as of the Novation Effective Time: (i) this Agreement and, as to Counterparty and Assignee, the New Transaction, do not and will not violate or conflict with its charter or by-laws (or comparable constitutive documents), any statute, law, rule, regulation or ordinance, or any judgment, order, consent order, stipulated agreement, writ, injunction, or decree of, any court, governmental agency or Independent System Operator applicable to it or any agreement to which it is a party or by which it or any of its property is bound; (ii) no consent, license, approval or authorization of, or other action by, or any notice, registration, declaration or filing with, any court or administrative or governmental body or any other person or entity, except for the consent evidenced by this Agreement and such as have been obtained (or will be obtained prior to the Novation Effective Time) is necessary in connection with the execution, delivery and performance by such party of this Agreement or, in the case of Assignee (with respect to the Assumed Rights and Liabilities) and Counterparty, the performance of the New Transaction, (iii) its obligations hereunder and, as to Counterparty and Assignee, under the New Transaction are legal, valid and binding on it, and enforceable in accordance with their terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)); and (iv) the person signing this Agreement for such party is an officer, director, and/or partner of such party and is authorized and duly empowered to do so. 14. Notification of the Closing Date and Novation Effective Date. Assignee hereby agrees to provide Counterparty with written notice (which may be given by fax), at the address or fax number specified herein, on or before the third (3rd) business day after the Closing, that the Closing has occurred and such notice shall specify the Novation Effective Time. 15. Contingency. In the event that the Closing with respect to the Individual Transaction does not occur for any reason within ninety (90) days of the date of this Agreement, unless changed by the mutual consent of Counterparty, Assignor and Assignee, this Agreement shall terminate as of that date with respect to the Individual Transaction, and in the event of such termination and with respect Page 7 ME to the Individual Transaction, (i) this Agreement shall be null and void and of no force and effect, (ii) the Assignor's interests in the Individual Transaction shall not be assigned to the Assignee, (iii) any credit support posted by the Assignee or the Counterparty for the benefit of the other party with respect to the Individual Transaction shall automatically terminate and be of no force and effect (and any guaranty shall be returned to the entity providing such), and (iv) the Assignee and the Counterparty shall have no further obligations to each other with respect to this Agreement or the Individual Transaction. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] .6,o 029 F1 THIS AGREEMENT executed effective as of the day and year fust above written. ASSIGNOR: DUKE ENERGY MARKETING AMERICA, LLC By: Name: Title: ASSIGNEE: UBS AG By: UBS Energy LLC, as agent By: Name: Title: By: Name: Title: COUNTERPARTY: THE CITY OF AZUSA, CALIFORNIA By: Name: Title: Page 9 03( SCHEDULE A DEMA Master Agreement Master Power Purchase and Sale Agreement between DEMA and Counterparty dated April 26, 2004 SCHEDULEB Individual Transaction EXISTING CONFIRMATION TO BE ATTACHED SCHEDULE C New Master Confirmation to be attached 031 )\ AZUSA AGENDA ITEM TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD AND AZUSA CITY COUNCIL FROM: JOSEPH F. HSU, DIRECTOR OF UTILITIES�y DATE: JANUARY 23, 2006 �� W SUBJECT: UTILITIES DEPARTMENT RESERVE POLICIES RECOMMENDATION It is recommended that the Azusa Utility Board/City Council (1) deliberate and approve the attached reserve recommendations for the electric and water utilities; and (2) authorize staff to prepare a resolution for adoption of same at the February 2006 Utility Board meeting. BACKGROUND The Utilities Department has made improvements in recent years in the area of financial planning and budgeting and would like to continue this trend by updating its reserve policies, which were adopted in 2001 and consist of the following: I . Separate and distinct operating reserve funds for both its electric and water systems set at amounts equal to 45 days of Its operating costs; 2. Capital reserve fund in the amount of $1,000,000, funded 50% electric and 500/0 water; and 3. Stranded Investment Reserve for Electric fund in an amount of $8,750,000 to cover above market purchased power costs. Newly proposed reserve policies are set forth in the attached documents and are summarized here: Reserve Policy Type. ' ,, Electric, .= "Water Operating Reserve 60 days / $6.5 million 60 days / $3.7 million Capital Reserve $2.5 million $12.5 million Contingency Reserve $8 million 0 Net Short Procurement $1 million NIA Total $17.5 million $16.2 million Existing Cash Reserve` $19.5 million $16.5 million VEnUnencumbered Reserves $2 million $300,000 ` Existin cash reserves reflect the adjusted financial re ort for FY 2003-2004. 032 Explanations for the above reserve amounts are set forth in attached Discussion Paper and will be presented at the Utility Board meeting. FISCAL IMPACT Since the Utilities Department currently has positive unencumbered balance sufficient to cover the proposed policy for both electric and water utilities, the adoption of a reserve policy is not likely to affect consumer rates. Prepared by: Joseph F. Hsu, Director of Utilities Bob Tang, Assistant Director of Resource Management Cary Kalscheuer, Assistant to the Director of Utilities Attachments: 1. Existing reserve policies T Existing Reserve Policies. pdf 2. Proposed reserve policies a Proposed Reserve Polkies.doc 3. Comparison Overheads _ Corrparison. pps 033 4 Navigant" CCINSVLTING, INC. -- - - - July 19, 2001 Joseph F. Hsu Utillity Director City of Azusa Light and Water Department 729 N. Azusa Avenue Azusa, CA 91702-9500 Subject: Prudent and Appropriate Fund Reserve Levels for Electric and Water Systems Dear Joe: Navigant Consulting, Inc. (NQ, is pleased to transmit its report, Determination of Prudent and Appropriate Fund Reserve Levels for Electric and Water Systems, to the City of Azusa Light and Water Department (AL&W). The purpose of the assignment was to recommend formal fund reserve policies for the consideration of the City of Azusa. NO appreciates the opportunity to work with AL&W on this assignment. Should you or other members of your staff have any questions or desire additional information, please feel free to contact either Kabirr Faal or me at 818-2440117, or via e-mail at kabirr faal@rrniinc.com or ron stassi@rrniinc.com. . Sincerely, �11 Ronald V. Stassi Principal Enclosure Navigant Consulting, Inc. • 225 W. Broadway, Suite 400 • Glendale, CA 91204-1331 • tel: 818.244-0117 • fax: 818-242-0480 034 DETERMINATION OF PRUDENT AND APPROPRIATE FUND RESERVE LEVELS FOR ELECTRIC AND WATER SYSTEMS FOR CITY OF AZUSA PURPOSE To determine prudent and appropriate levels of cash reserves that should be maintained by the Azusa Light and Water Department (AL&W). BACKGROUND In Azusa, the costs of operating and maintaining its electrical and water systems are supported by their respective retail rates. Historically, these costs have had some degree of predictability, however, in recent times price volatility as a result of power scarcity, natural gas price increases and environmental compliance issues have created periods of price instability. Such effects have been most notable in energy markets over the past few years as city councils and utility boards have struggled with rate setting decisions that relate to maintaining the financial health of their utilities. Those utilities such as AL&W that have strong cash positions or conservative fiscal policies have been able to continue to deliver customer services without the need for extensive budget cutting or rate increases. AL&W's rates have been able to support the operations and expansion of its electric and water systems during the volatile electric energy market of the past few years without the need to curtail services or operate its systems in a manner that could jeopardize public safety. To a large extent, this ability resulted from having a sound rate structure and sufficient cash reserves. AL&W recognizes that the maintaining of cash reserves is prudent. Also, since the establishment of reserves is often viewed as a policy issue, the determination of appropriate reserve levels is best decided by its City Council. For that reason, it has undertaken this study to develop criteria so that it can make an informed recommendation to the City Council as to the levels and types or reserves needed to maintain the fiscal health of its water and electric systems. STUDY APPROACH The process used to develop the recommendations found in this report included: Consideration of the contingencies — and probabilities of those contingencies - that could be faced by AL&W A review of the types of reserves that are common in the electric and water utility industries A limited survey of the practices employed by comparably sized and somewhat larger local municipal utilities 035 • Drawing on the knowledge, experience and expertise of Navigant Consulting, Inc. (NCI) • Discussions with AL&W staff. For purposes of this report, general references to fund reserves apply to both electric and water functions, unless otherwise noted. The focus of their study is not on those reserve balances associated with the issuance of bonds, but rather on those more commonly set- aside by businesses for general or particular purposes. It is also important to note that this study is not designed to determine the adequacy of revenues generated from utility billings to support reserve funds. It is presented on a revenue -neutral basis; does not endeavor to increase utility rates or revenues. ANALYSIS Reserves are highly liquid assets that are set aside or have their use restricted by business organizations to provide emergency funds to address operating contingencies or related issues. Factors that guide the types and sizes of these reserves vary from organization to organization and business to business. Both business and governmental organizations that are well managed generally maintain cash reserves in amounts appropriate for the risks associated with their line of work. The size of the reserve is generally based upon an assessment of specific contingencies that might require the use of fund reserves and the probability of such events occurring. Reserves are often classified in the following manner: Operating Reserves Most utilities maintain Operating Reserves in one form or another. The amount or level of reserves is generally based upon providing "coverage' of expenses over a number of days. Typically, Operating Reserves are sized to cover 30-60 days expenses. Operating Reserves represent the most common form of cash reserves in place in the utility industry. Capital Reserves A second type of reserve that is often encountered among capital intensive businesses is Capital Reserves. Irrespective of whether they are governmental or investor-owned, utilities by their very nature are highly capital intensive. That is, a lot of high cost infrastructure is necessary for a utility to function properly. As a result utilities often issue bonds to finance a "plant" that will last for many years. As well, Capital Reserve Funds are often set up to fund the emergency replacement of expensive capital equipment. For example, one local utility has established a capital reserve fund at an amount sufficient to fund the replacement of a failure of a turbine -generator, its largest system contingency. Capital Reserves that are called upon to fund large capital projects are generally replenished from subsequent bond issues or rate revenue. 036 General Reserves General Reserves are often established as a "catch all" to address either a wide range of contingencies or undefined contingencies. Because they are not created with specific intent, they are often subject to criticism particularly when funded with ratepayer dollars. It is not recommended that AL&W consider establishing General Reserves. Special/Specific Reserves Reserves are often created and designated for specific purposes. For example many California municipal electric utilities have temporarily established reserves to ensure their competitiveness in the restructured electric utility environment. These reserves tend to be labeled "Stranded Investment Funds," "Competitiveness Funds," "Rate Stabilization Reserves," or other similar titles which are somewhat descriptive of their purpose. Bond Reserves Issuers of debt are often required to maintain a bond reserve fund equal to six months interest obligation. This requirement is generally formalized in the form of a bond resolution associated with the borrowing. (This report and analysis does not address any existing or anticipated external reserve requirements associated with or required by bond covenants or resolutions imposed upon AL&W or the City of Azusa.) DISCUSSION Operating Reserves are well suited for addressing contingencies that may arise from utility operations. They are generally established by formal policy throughout the utility industry. Restricted cash reserves set equal to 30 to 45 days operating costs are typical in the industry. Many southern California utilities have historically conducted business with only operating reserves and such additional cash reserves as might be required under bond covenants. Capital reserves are often appropriate for large power and water facilities. For example, AL&W has funded its share of capital reserves associated with its participation in the Palo Verde Nuclear Generating Station. Beyond the requirement to fund its share of capital reserves for joint power facilities, no need has been noted for AL&W to establish capital reserves for additional power supply. There are, however, capital need contingencies associated with its on-site infrastructure for both electric and water facilities. Often, these funds are established in a pooled fashion. For instance, in the case of AL&W, the electric and water systems could both be contributors to the fund, and under the situation where one system found it necessary to use those funds, it would have the obligation for refunding. The establishment of a Special Reserve Fund to ensure that AL&W remains competitive during the period that the restructuring of the electric utility industry is experiencing some "growing pains" warrants discussion. Power price volatility has exceeded what anyone could have predicted and likely will continue for another few years. It was just a 037 few years ago that experts agreed that today's purchased power would cost about half what it now costs. To the contrary, until recently power costs have been at levels much higher than today; levels that none of the experts had projected as even remotely possible. In light of the fact that power markets still have not stabilized, it is appropriate that a special reserve to ensure AL&W's competitiveness over the long run be established. And, just like several years ago when electrical restructuring was in its infancy, it is not wise for any of us to pretend to have knowledge of what future power costs might be. Thus, the level at which to set the amount of such a reserve, as well as the period of time over which it should be maintained, becomes subjective. Still, the basis for setting it remains the same. That is, the contingency risk, as well as its probability, needs to be given consideration. The methodology selected was to consider that future upward price volatility would be of concern during the next approximate four-year period, and the time over which such price volatility could occur can be expected to last for two -years. Further, it is assumed that this price volatility could cause power costs to increase by 20% on average over this two-year period. With these parameters and assuming electric sales to continue at about current levels, a Stranded Investment Reserve of $8,750,000 is indicated. This should be maintained for the next four-year period, after which the funds can be considered for redistribution to ratepayers or directed toward other electric utility purposes. COMPARISON WITH LOCAL PRACTICES The attached limited survey, Appendix A, illustrates how each of five similar sized or larger California municipalities (all members of the Southern California Public Power Authority) address fund reserves. It is noteworthy that few have formal council policies that address the requirement for and level of cash reserves, but all maintain operating reserves to some degree. For those utilities that have council directed policies with respect to operating reserves, the levels range from 30 to 45.6 days. (The 45.6 -day period results from a policy requiring that operating reserves be set at 1/8'" of annual expenses.) Operating reserves in the electric and water industry are typically found to be in the 30 to 45 day range, although 15 -day and 60 -day levels are sometimes encountered. Another survey finding was the existence of cash reserves that have been created to address competition within the electric utility industry. Four of the five surveyed utilities were found to have council approved actions that provide for additional cash reserves for bringing fixed power supply costs to projected market levels. RECOMMENDATIONS It is recommended that AL&W establish separate and distinct operating reserve funds for both its electric and water systems set at amounts equal to 45 days of its operating costs in FY 2000. Establishing operating reserves at this level is consistent with both local and nationwide utility practices. Also, both its electric and water systems exhibit a direct.nexus between their business risks/ operational needs and the purpose served by an operating reserve. 038 It is also recommended that a capital reserve fund in the amount of $1,000,000 be established. It is recommended that it be funded 50% electric and 50% water. Both the electric and water systems, however, would have full ability to call on the entire amount for the short term financing of unplanned capital needs. It is further recommended that AL&W establish a temporary (four year) specific reserve to ensure that its off -system power resources remain competitive. AL&W has three off - system power supply contracts that have long term (over 20 years) "take -or -pay" obligations: Hoover; 4 MW; Palo Verde, 2 MW; San Juan, 30 MW. Its share of Hoover capacity and energy is expected to continue to be priced at lower than "market rates." With respect to Palo Verde, AL&W, along with other southern California project participants, has restructured its power payments in•a manner that will soon bring the project costs to market levels. Only AL&W's San Juan Unit 4 payment obligation could put it in a position of finding itself with a power supply cost that is higher than market rates. Since this power supply resource represents over 80% of AL&W's power cost obligation under long term contracts, it is recommended that a Stranded Investment Reserve be established in an amount of $8,750,000. This represents the amount of funds needed to cover a 20% increase in purchased power costs over a two year period. The establishment of this reserve at this level is also supported by the fact that AL&W electric system does not have any outstanding direct debt at this time, and therefore does not have a debt service reserve to address certain contingencies. FISCAL IMPACT Creation of a 45 -day operating reserve would require that $3,500,000 and $1,357,000 be set aside and designated as Operating Reserves for the AL&W electric and water systems, respectively. Creation of the Capital Reserve of $1,000,000 would require this additional amount be set aside. Creation of a Stranded Investment Reserve to ensure that AL&W can maintain competitive and stable electric rates would require the additional set aside in the amount of $8,750,000. Exclusive of any externally imposed bond reserve requirements, the one-time funding of these reserves would have the following impact on AL&W's current (FY2000) unallocated cash and investments at the end of the year: Cash Balances Water* Unallocated Cash Reserves, end of FY2000 4,638,443 45 Da OperatingReserves 1,357,000 =$4,944,341$12,781,4303 Capital Reserve 500,000 Stranded Investment Reserve - Residual Unallocated Cash Reserves 2,781,433 * includes Azusa Valley Water 039 APPENDIX A SELECTED FUND RESERVE PRACTICES OF CALIFORNIA MUNICIPAL UTILITIES 0 6 MUNI #1 MUNI #2 MUNI #3 MUNI #4 MUNI #5 Utility Departments Electric + H O Electric + H O Electric + H O Electric Electric + H O Formal Reserve Policy set by City Council Yes No No No Yes Co -mingled Funds No No No No No Operating Reserve? Yes, 30 days Yes, undefined Yes, undefined Yes, undefined Yes, 45.6 da s Cal2ital Reserve? No No No No No Additional Reserve Funds? Stranded Investment Stranded Investment Stranded Investment Yes (undefined) Rate Stabilization 0 6 DISCUSSION PAPER REGARDING AZUSA LIGHT AND WATER RESERVE POLICIES Background: The -City operates municipal electric and water utilities. In the course of operating the utilities as business enterprises, the Utilities Department has the need to maintain prudent cash reserves to enable the following: To provide sufficient financial liquidities to cover near term expenses (Operating Reserves) • To provide sufficient cash reserves to fund specific and emergency capital requirements (Capital Reserves) • To provide sufficient financial cushion for contingencies to avoid substantial near term rate shocks to retail customers (Contingency Reserves) There is no single "right" way to set the appropriate reserve policies. Rather reserve policies should be set that are consistent with: • Utilities' exposure to operational contingencies and the degree of impact such contingencies pose to utilities' financial bottom lines • The retail rate setting philosophy of the Utility Board, with flexibility to adjust rates as required • Alternatives to holding cash reserves Following are two discussions, one focusing on setting reserve policies for the Electric Utility, and the other focusing on reserve policies for the Water Utility. Operating and capital reserve policies are discussed, including the formulas and calculations which show how the Utilities Department arrived at the proposed policies. ELECTRIC UTILITY RESERVE DISCUSSION AND PROPOSED POLICIES: A. Operating Reserves It is recommended that the Electric Utility keep sufficient liquidity in reserves to cover 60 days of operating expenses at all times. At present time, the Electric Utility's annual gross operating expense (not netting wholesale revenues and including GF transfers as "operating" expenses) as budgeted is about $40 million and thus 60 days of operating expenses translate into about $6.5 million. -1- 041 B. Capital Reserves It is recommended that Electric Utility keep sufficient reserves to equity fund well defined capital projects that are not intended to be debt funded or only partially debt funded. At present time, the Electric Utility is planning to undertake the Utility Automatic Meter Reading (AMR) project in the next two to five years. The AMR project will require substantial capital investments that most likely will be funded through the Electric Utility's retained earnings, which are currently estimated to be $1 million. Further, the Electric Utility should review its historical intemally funded capital project expenditure level and set a Capital Reserve requirement equal to the average of the most recent three year average expenditure level. In addition, Capital Reserve should have a reasonable amount reserved for emergency repairs and replacement of major and critical equipment or apparatus within the system. As a starter, this reserve should at least be sufficient to replace one substation transformer which is estimated at $1.5 million. C. Contingency Reserves Due to the continuing volatility of the energy market and the dependence on San Juan's reliability performance it is recommended that Electric Utility keep sufficient reserves for well defined contingencies in order to maintain retail rate stability. At present time, it is recommended that the following three contingency events be considered: C.1 San Juan Power Resource Outage Contingency C.2 Electric Utility "Net Short" Power Procurement Contingency C.3 Electric Utility Legal and Regulatory Risk Contingency Each one of these contingencies is discussed in detail below. CA San Juan Outage Contingency The electric utility is heavily dependent on the output of San Juan unit #3 for power supply. Whenever the San Juan resource is forced out, the electric utility will incur unanticipated replacement power costs. Although a rate adjustment mechanism has been adopted called Fuel Cost Adjustment or FCA in case of a San Juan resource outage, the FCA does not completely immunize the electric utility against financial distress as the FCA is capped at 10% of the retail rate. Thus it is recommended that the following methodology be used to establish a CONTINGENCY RESERVE amount for the San Juan resource as follows: -2- 042 Step 1• Calculate a minimum CONTINGENCY RESERVE for San Juan as follows_ Deem a credible San Juan forced outage scenario (45 -day in the summer season which has happened before in summer 2001). Compute the San Juan replacement power cost for this scenario valued at the immediately succeeding summer power prices. Subtract from replacement power cost so determined the amount that can be recovered through the FCA. The application of the above in today's environment will yield: Total replacement power in MWhs = 45 days X 24 hours/day x 30 MW/hour = 32,400 MWhs Summer 2006 power prices = $90/MWh Total replacement power cost = 32,400 x 90 = $2,916,000 Total recoverable from FCA = $710,000/2 = $355,000 ($710,000 is the quarterly FCA cap, 45 -day FCA cap is half) Minimum Contingency Reserve = $2,916,000 -$355,000 = $2,561,000 Step 2• Calculate a maximum CONTINGENCY RESERVE for San Juan as follows: Deem a severe but credible San Juan forced outage scenario (180 -day in the summer season which can happen with 20% probability in the next twenty years based on PNM survey of underground coal mines. The severe scenario can happen if the underground mine catches fire). Compute the San Juan replacement power cost for this scenario valued at the immediately succeeding summer power prices. Subtract from replacement power cost so determined the amount that can be recovered through the FCA. The application of the above in today's environment will yield: Total replacement power in MWhs = 180 days X 24 hours/day x 30 MW/hour = 129,600 MWhs Summer 2006 power prices = $90/MWh Total replacement power cost = 129,600 x 90 = $11,664,000 Total recoverable from FCA = $710,000 x 2 = $1,420,000 ($710,000 is the quarterly FCA cap, 180 -day FCA cap is twice) Maximum Contingency Reserve = $11,664,000 - $1,420,000 = $10,244,000 -3- 043 Step 3: Determine the Appropriate Level of San Juan Contingency Reserve Determine the appropriate level of San Juan Contingency Reserve between the minimum and the maximum level based on other available alternatives to hedge the replacement power cost, e.g., if multi-year forced outage insurance products are available and the market is relatively stable then a level toward the minimum level may be appropriate. If however, multi-year forced outage insurance products are not available and the market is extremely volatile and high, then a much higher level of contingency reserve should be held. RECOMMENDATION FOR SAN JUAN CONTINGENCY RESERVE: It is recommended that a minimum and a maximum San Juan Contingency Reserve be established as discussed above and be funded initially at $8 million as the target level. The target cash reserve level should be reviewed and reevaluated annually and adjusted accordingly pursuant to methodology above. The Electric Utility will prepare a report as part of the annual review process to enable the Utility Board to make informed decision to adjust the target level of San Juan Contingency Reserve the Electric Utility should retain. C.2 Electric Utility "Net Short" Power Procurement Contingency The electric utility may have energy needs which are beyond the current level of energy supply. This is a situation referred to as a "Net Short" power resource condition. In this case, the Electric Utility needs to procure power at near term prices, which may not be supported by the current retail rates. Thus it is recommended that the following methodology be used to establish a CONTINGENCY RESERVE amount for "Net Short" Power Procurement as follows: Step 1: Calculate the Annual Net Short Requirements for the Immediately Three Years: In our case, we are almost fully covered for 2006 and 2007 from the energy requirement perspective; we are not covered from the energy requirement for summer 2008, thus: Net short 2006 = Zero Net short 2007 = Zero Net short 2008 = 24,000 MWhs (15 MW on -peak power for June through September) Choose the highest Net Short of the three years, i.e., 24,000 MWhs Step 2: Calculate the Power Cost That Can Support Net Short Procurement within Existing Revenue Structure This step can simply be accomplished by computing the average wholesale power cost of Azusa's existing resource portfolio, which is about $55/MWh. it5 Step 3 Calculate the Cost above that can be supported by Azusa's retail rate for the Net Short Procurement This can be accomplished by computing: Total Net Short procurement Cost at the Summer Prices = 24,000 MWhs x $100/MWh = $2,400,000 Cost that can supported by retail rates for Net Short = 24,000 MWhs x $55/MWh = $1,320,000 Cost not supported by existing retail rate for Net Short Procurement = 2,400,000 — 1,320,000 = $1,080,000 RECOMMENDATION FOR NET SHORT PROCUREMNT RESERVE: It is recommended that aNET SHORT PROCUREMENT RESERVE is established as discussed above and be funded initially at $1.million, as the target level. The target cash reserve level should be reviewed and re-evaluated annually and adjusted accordingly pursuant to methodology above. The Electric Utility will prepare a report as part of the annual review process to enable the Utility Board to make informed decision to adjust the target level of Net Short Procurement Reserve the Electric Utility should retain. C.3 Electric Utility Legal and Regulatory Risk Contingency There is no specific recommendation at this time for this risk as the risk to refund "overcharges" during the energy crisis has subsided significantly. SUMMARY: Staff recommends the initial Reserve targets as follows: Operating Reserve Account = $ 6,000,000 Capital Reserve Account = . $ 2,500,000 San Juan Contingency Reserve= $ 8,000,000 Net Short Procurement Reserve = $ 1,000,000 Legal and Regulatory Contingency= $ 0 Total $17;500,000 Existing Cash Reserves = $19,500,000 Unencumbered Reserves= $ 2,000.000 The target Reserve levels shall be reviewed and updated every fiscal year during the approval processes for the following fiscal year's budget. Any adjustment, including operating cost reduction and/or retail rate increase, should be considered in order to maintain the reserve level for each component as prescribed above. - 5 - 045 WATER UTILITY RESERVE DISCUSSION AND PROPOSED POLICIES: Similar to the Electric Utility, Water Utility should consider the establishment of three reserve accounts: i Operating Reserves • Capital Reserves • Contingency Reserves A. Operating Reserves It is recommended that the Water Utility keep sufficient liquidity in reserves to cover 60 days of operating expenses plus annual debt service payment at all times. At present time, the Water Utility's annual gross operating expense (including GF transfers as "operating" expenses) as budgeted is about $13,500,000 and thus 60 days of operating expenses translate into about $2.2 million. Adding the annual debt service payment of about $1.5 million will yield $3.7 million. B. Capital Reserves It is recommended that Water Utility keep sufficient reserves to equity fund well defined capital projects that are not intended to be debt funded or only partially debt funded. Further, it is recommended that Water Utility keep sufficient reserves to make a strong showing to the financial community for the anticipated water treatment plant financing The City will receive advice on this from a Financial Advisor as it begins the process of financing this new facilities, however, high reserves are generally looked at positively by the financing community. At present time, the Water Utility internally funds between $1.5 to $2.5 million per year in capital projects out of its operating revenues and is expected to continue to do so in the foreseeable future. Further for water treatment plant financing, it is expected that the Water Utility may be under pressure to affirm its bond ratings of "AA-" due to the size of the bonds, and thus keeping sufficient reserves is likely to alleviate the pressures in the rating of the bonds. RECONEWENDATION: It is recommended that CAPITAL RESERVE ACCOUNT be created and be funded with $12.5 million initially as the target reserve level ($2.5 million for internally funded capital projects and $10 million for water treatment plant financing purposes). The target cash reserve level should be reviewed and reevaluated annually and adjusted accordingly. The Water Utility will prepare a list of capital projects with sufficient details as part of the annual review process to enable the Utility Board to make informed decision to adjust !� 046 the target level of capital reserves the Water Utility should retain. The Water Utility will also prepare a report detailing the level of funding that might be required as part of the support services it receives from other divisions or departments of the City. C. Contingency Reserves At this time there are no specific contingencies that warrant a special reserve be established, although replacement for such things as an old water reservoir in the event of an earthquake could trigger unforeseen need for capital. SUMMARY: Staff recommends the initial Reserve targets for the Water Utility as follows: Operating Reserve Account = $ 3,700,000 Capital Reserve Account = $12,500,000 Contingency Reserves= $ 0 Total $16,200,000 Existing Cash Reserves = $16,500,000 Unencumbered Reserves= $ 300.000 The target Reserve levels shall be reviewed and updated every fiscal year during the approval processes for the following fiscal year's budget. Any adjustment, including operating cost reduction and/or retail rate increase, should be considered in order to maintain the reserve level for each component described above. -7- 047 Electric POLICIES EXISTING PROPOSED DIFFERENCE Operating Reserve 45 days / $4.9 million 60 days / $6.5 million +15 days / + $1.6 million Capital Reserve $500,000 $2.5 million +$2 million Contingency Reserve $8.75 million $8 million ($750,000) Net Short Procurement N/A $1 million +$1 million Total $14.15 million $17.5 million +$3.35 million Existing Cash Reserve* $19.5 million $19.5 million $19.5 million Unencumbered Reserves $5.35 million $2 million $-3.35 million * Existing cash reserves reflect the adjusted financial report for FY 2003-2004. Water POLICIES EXISTING PROPOSED DIFFERENCE Operating Reserve 45 days / $2.8 million 60 days / $3.7 million 60 days / +$3.7 million Capital Reserve $500,000 $12.5 million +$12 million Contingency Reserve N/A 0 0 Net Short Procurement N/A N/A N/A Total $3.3 million $16.2 million +$15.7 million Existing Cash Reserve* $16.5 million $16.5 million $16.5 million Unencumbered Reserves $13.2 million $300,000 + $12.9 million * Existing cash reserves reflect the adjusted financial report for FY 2003-2004. January 23, 2006 Honorable Supervisor Michael D. Antonovich County of Los Angeles San Gabriel Valley Office 615 E. Foothill Boulevard, Suite D San Dimas, CA 91773 RE: San Gabriel River Corridor Master Plan Dear Supervisor Antonovich On behalf of the City of Azusa I want to express the concern of our city council regarding one issue that has been considered by the San Gabriel River Corridor Master Plan. It is our understanding that a group of fly fishing enthusiasts from Orange County, called Fly Fishers Club of Orange County, has been advocating including the establishment of trout habitat downstream of San Gabriel and Morris Dams as a part of the San Gabriel River Corridor Master Plan. In order to establish trout habitat a continual flow of water from the dams would have to be provided. This would greatly impact the water supply to many cities in the San Gabriel Valley, including the City of Azusa. The City of Azusa water system, which serves 110,000 people in the communities of Azusa, Glendora, Covina, West Covina, Irwindale, and in Los Angeles County, receives a significant amount of water supplied by the San Gabriel River Water Committee (Committee of Nine), of which the City of Azusa is a longstanding member. The Committee was established by court order in 1889, and is the only entity that has the right to divert the first 135 cubic feet per second of the water from the San Gabriel River. The City of Azusa (one of two such water supply entities) also has a permit from the California Department of Health Services to use surface water from the River for treatment at its Canyon Filtration Plant. During the rainy winter months, San Gabriel River water is stored behind the dams in the San Gabriel Canyon above the City of Azusa. Historically, since the river is usually dry in the summer and early fall, water stored behind the dams is released either to supply water directly to the Committee members, or is sent to downstream spreading grounds to recharge aquifers. Any water remaining behind the dams is released by County Operations to prepare the dams for the winter rainy season. If water behind the dams is continually released year-round to provide fish habitat, it is possible that there will not be sufficient water when it is needed during the summer and fall for those cities that have been relying on this precious source for over a century. Alternate sources of water, if available at all, would be extremely expensive. Loss of the river water could significantly impact the economic and social well being of our city, as well as the other cities that Azusa serves or which receive water from the San Gabriel River Water Committee. Therefore, we strongly urge you to refuse to support the inclusion in the San Gabriel River Corridor Master Plan of the proposal of the Fly Fishers Club of Orange County, which would benefit only a few to the detriment of many. Respectfully Yours, Diane Chagnon, Mayor City of Azusa January 23, 2006 Honorable Supervisor Gloria Molina County of Los Angeles San Gabriel Valley Field Office 3400 Aerojet Avenue, Suite 240 El Monte, California 91731 RE: San Gabriel River Corridor Master Plan Dear Supervisor Molina On behalf of the City of Azusa I want to express the concern of our city council regarding one issue that has been considered by the San Gabriel River Corridor Master Plan. It is our understanding that a group of fly fishing enthusiasts from Orange County, called Fly Fishers Club of Orange County, has been advocating including the establishment of trout habitat downstream of San Gabriel and Morris Dams as a part of the San Gabriel River Corridor Master Plan. In order to establish trout habitat a continual flow of water from the dams would have to be provided. This would greatly impact the water supply to many cities in the San Gabriel Valley, including the City of Azusa. The City of Azusa water system, which serves 110,000 people in the communities of Azusa, Glendora, Covina, West Covina, Irwindale, and in Los Angeles County, receives a significant amount of water supplied by the San Gabriel River Water Committee (Committee of Nine), of which the City of Azusa is a longstanding member. The Committee was established by court order in 1889, and is the only entity that has the right to divert the first 135 cubic feet per second of the water from the San Gabriel River. The City of Azusa (one of two such water supply entities) also has a permit from the California Department of Health Services to use surface water from the River for treatment at its Canyon Filtration Plant. During the rainy winter months, San Gabriel River water is stored behind the dams in the San Gabriel Canyon above the City of Azusa. Historically, since the river is usually dry in the summer and early fall, water stored behind the dams is released either to supply water directly to the Committee members, or is sent to downstream spreading grounds to recharge aquifers. Any water remaining behind the dams is released by County Operations to prepare the dams for the winter rainy season. If water behind the dams is continually released year-round to provide fish habitat, it is possible that there will not be sufficient water when it is needed during the summer and fall for those cities that have been relying on this precious source for over a century. Alternate sources of water, if available at all, would be extremely expensive. Loss of the river water could significantly impact the economic and social well being of our city, as well as the other cities that Azusa serves or which receive water from the San Gabriel River Water Committee. Therefore, we strongly urge you to refuse to support the inclusion in the San Gabriel River Corridor Master Plan of the proposal of the Fly Fishers Club of Orange County, which would benefit only a few to the detriment of many. Respectfully Yours, Diane Chagnon, Mayor City of Azusa SAN GABRIEL RIVER WATERMASTER FOR CITY OF LONG BEACH ET AL VS SAN GABRIEL VALLEY WATER CO. ET AL CASE NO. 722647 -LOS ANGELES COUNTY WATERMASTERS January 16 2006 MAILING ADDRESS: GLENN A. BROWN 226 WEST BROADWAY RICHARD A. RHONE SUITE 400 THOMAS M. STETSON GLENDALE. CA 91204.1331 TELEPHONE: (818) 244-0117 FAX: (818) 242-0480 Donald L. Wolfe Director of Public Works P.O. Box 1460 Alhambra, Ca, 91803 Subject: San Gabriel River Master Plan — Proposal of Fly Fishers Club of Orange County Dear Mr. Wolfe During the process of the Master Planning of the San Gabriel River, three proposals of the Fly Fishers Club of Orange County have been raised. Although the proposals have had very limited support, they seem to reappear. We are writing this letter to express our concern that the Fly Fishers' proposals will have an adverse effect on the water supply to 6 million people in Los Angeles County and protest the proposals inclusion as projects in the San Gabriel River Master Plan. Water rights in the San Gabriel River watershed, including the Rio Hondo, were declared fully appropriated by the State Water Resources Control Board in 1989. Runoff from the San Gabriel River watershed is relied upon to replenish both the Main San Gabriel Basin and Central Basin, both of which have been adjudicated. In addition, the Basins are further replenished by expensive untreated imported water. Consequently, maximizing recharge of local runoff provides significant economical benefit to citizens in the easterly portion of Los Angeles County by avoiding the cost of imported water. The Fly Fishers Club has submitted three proposals, generally described below: 1. Develop hiking trails in the vicinity of Cogswell Dam. 2. Allow fishing within San Gabriel reservoir and Morris reservoir. 3. Create a live stream from Moms Dam to roughly Santa Fe Dam. The first proposal we take no exception to. However, the final two proposals have the potential to create significant problems as noted below. Fishing within Reservoirs Currently the reservoirs are operated for flood control and water conservation. The County makes releases to optimize the recharge of the conserved water so that water is supplied both -2- January 16, 2006 to the Main Basin and to the Central Basin. These releases are controlled to ensure flows reach the Central Basin. We are concerned that permitted fishing effectively will enable fishermen to control the reservoir water surface elevations and dam operations. There are numerous examples of fishing interests controlling the water operations. A recent example is Lake Silverwood on the State Water Project. The State Department of Water Resources, the owner of the facility, determined that the outlet structure needed extensive modification because of earthquake concerns. Lake Silverwood is a vital link in the State Water Project. Nevertheless the courts, at the insistence of the fishermen, would not allow the State to lower the water level to a sufficient depth to make the needed repairs. This is an example of a reservoir constructed for water supply which allowed fishing to be accommodated. Live Stream Below Monis Dam This proposal of the Fly Fishers Club will addadditional restrictions to the use of the San Gabriel River for the transport of water. We are concerned that there will be restrictions placed on having high flows in the San Gabriel River below Morris Reservoir. We anticipate that flows of a few hundred cubic feet per second magnitude may be considered dangerous by the fishermen and may affect the artificial fish habitat. We are also concerned that maintenance of a fishery will require a continuous release of water from Moms Reservoir. It is noted that the San Gabriel River from Morns Dam to Foothill Boulevard is very pervious and the maintenance of a flow to reach Foothill Boulevard above Santa Fe Dam area may require a release of 50 efs or more. This could be up to 3,000 acre-feet per month or 36,000 acre-feet per year. The cost to purchase this amount of water is about $9,000,000 per year. Instead of including these proposals from the Fly Fishers Club as projects we reiterate our previous request that the Fly Fishers Club conduct a detailed analysis of the potential impacts of their proposals, including regulatory impacts. That study should be circulated for review and comment. In the event a consensus can be developed the Waternraster would consider withdrawing its protest. In summary, the water industry in the San Gabriel River System is working very hard to provide a reliable safe water supply to over 6,000,000 residents. These efforts are becoming more difficult over time. The Orange County Fly Fishers Club proposals will further restrict the ability to provide a reliable water supply to 6 million people of Los Angeles County. Very Truly Yours Richard A. one For San Gabriel River Watermaster -3- January 16, 2006 cc: Jerry Burke Supervisor Gloria Molina Supervisor Don Knabe Carol Williams Paul E.Shoenberger Donald Berry Robb Whitaker Margaret Clark Tom Stetson Glenn A. Brown Upper San Gabriel Valley MWD J.V33720—SGRWICGRRESP/Lata—Donald Wolfc.doc I f\ i INFORMATIONAL ITEM TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD AND AZUSA CITY COUNCIL FROM: JOSEPH F. HSU, DIRECTOR OF UTILITIES DATE: JANUARY 23, 2006 SUBJECT: UPDATE ON SYSTEMS AND SOFTWARE CUSTOMER INFORMATION SYSTEM, INTERACTIVE VOICE RESPONSE SYSTEM, AND CALL RECORDING This is a report on the implementation of the new Customer Information System (CIS), which was approved by the Utility Board in June 2004 and purchased from Systems & Software (S&S). This report also provides an update on the Interactive Voice Response System, and automated Call Recording being purchased from SBS. Customer Information System The new CIS began billing customers in September. From September through November, S&S and Azusa Light & Water worked together to make various process and other improvements to the operation of the new CIS. December was the first month in which billing returned to a normal schedule and required no overtime. Some details as to the problems encountered and how they were overcome since September, including the current status of system implementation, are provided below. Data was converted over Labor Day weekend 2005 for the Customer Information System. The first day Azusa used the new system was September 6, 2005. Some processes were not set up in advance by S&S, which necessitated that they be created on an as needed basis. While general training was provided earlier in 2005, specific process training occurred after data conversion as needed. The lack of advanced preparation in the areas of training and testing by S&S resulted in system and processing errors. Many of these errors were corrected by Azusa Light & Water staff on overtime, with guidance from S&S implementation team members, to avoid billing errors. Billing for September, October, and November also required some overtime in order to complete month-end closing and reporting. No overtime was required in December. 050 Major system processes observed by Azusa Light & Water not to be working properly included those in the areas of level pay billing, deposit refunds, and producing correct bills for new customers. Problems were expected the first few months, and these were reported throughout each day by Azusa Light & Water Customer Service Representatives (CSR's) by clearly describing the problem in an e-mail to S&S and providing a customer account number and screen shot example. Each week an Open Issues list was created and items were prioritized for work that week. Daily conference calls with S&S were made to discuss the status of items on the list. This started at end of the first week and continued until January 12, 2006, when S&S requested a final list be compiled and Go Live declared. Go Live acceptance was another milestone in the project, and required sign -off and a milestone payment. S&S and Azusa Light & Water disagreed on the definition of Go Live. Azusa interpreted the contract definition to be "when processes were working;" and S&S interpreted it the same as "data conversion." This caused a delay in Azusa signing off and paying for the Go Live milestone. There is one milestone after Go Live — Final System Acceptance. Following System Acceptance, any problems AL&W encounters will be resolved by S8S's Systems Support. AL8_W was hesitant to approve the Go Live milestone since some processes were still to be tried. These included: Collection processes: • Delinquent notices • Shutoffs • Write-offs • Using the interface to our collection agency Billing adjustments: • Training • Collection processes • Where to find files for month-end reports • Refunding of deposits • Setting up new premises where there is no street address. • WebConnect access to customer account information S&S proposed a compromise to encourage Azusa to sign off the Go Live milestone. They offered to mutually agree on a list of the highest priority items that needed to be corrected before Final System Acceptance including any problems that may arise with the untried processes listed above. This should take no more than 30 days. A separate list of items to be corrected where there is a work around or are a lesser importance will be sent to System Support and corrected by mid-May. In the high priority list of pre -System Acceptance items to be corrected primarily are: • Training in how to correct various types of work order and account errors • Correcting bill print errors • Getting correct information to print on letters that notify customers of a non - sufficient fund check that needs to be covered 051 • Correcting budget (level pay) bills • Resolving HEAP payment billing issues • Establishing the ability to use separate bill messages for customers inside the city and outside the city Throughout this system implementation, highly important issues holding up business were handled right away as emergencies by S&S staff. S&S implementation personnel were very responsive, helpful, and professional. Azusa Information Systems Department has also been very involved and supportive during this implementation. We recognize our business is particularly complex and S&S now has a better understanding of this fact. They are now conducting a study to determine why this project was so difficult, how S&S can improve on future projects and how they can serve Azusa better in the future. Interactive Voice Response System The Interactive Voice Response (IVR) project is in final testing stage and planned for implementation by February 1, 2006. It will help alleviate the increase in customer calls by providing customers their account balances and due dates. In addition, the new IVR will have an added feature of granting payment extensions to customers with a good payment record. Automated Call Recording Automated Call Recording is well underway. A company representative will be in Azusa the week of January 23 to set-up the server and software and provide training. This tool will be available for use the week of January 30. Prepared by: Karen Vanca, Assistant Director Customer Care & Solutions 052 Dw,3,0 EGISLATION UPDATE RESULTS FROM 2005 053 1 SB 1 — Million Solar Roof Initiative . This bill was pulled from the Assembly floor and referred back to Assemble Utilities and Commerce Committee. This bill, in some variation, will be considered by the Legislature in 2006 054 I/ UAB 380 — Resource Adequacy . It has been signed by the Governor • It requires all load -serving entities, like Azusa, to meet a minimum reserve requirement established by WECC. L AB 1666 — CA Military Families Financial Relief Act of 2005 . Provides specified financial relief (utility bill paying and credit extension) to any National Guard or Reservist called to active duty. 656 0 t� Dow C{. NERGY POLICY ACT OF 2005 HIGHLIGHTS FOR JANUARY 2006 UTILITY BOARD MEETING 057 Title I — Energy Efficiency . Subtitle B — Energy Assistance and State Program: . Sec 121 — 126: Energy efficient assistance, incentive, and rebate programs for consumers. M': S I it Title II — Renewable Energy . Subtitle A — General Provisions: authorizes various grants and incentives for renewable energy resources. 059 Title XII - Electricity . Subtitle E — Amendment to PURPA . This subtitle applies to consumer -owned utilities, but smaller utilities with annual retail sales less than 500 million Kwh is exempted. rM a b Title XIII — Tax Incentive . Subtitle A — Electricity Infrastructure . Sec 1303 — Clean Renewable Energy Bonds — Bond holders get tax credit as opposed to an interest payment. . Sec 1332 — Incentive for new homes contractor/developer. . Sec 1333 — Incentive for improvements to existing homes . Sec 1331 — Incentive for commercial buildings Power Resources Division Monthly Report ■ Power Resource Update ■ Power Consumption Comparison ■ Wholesale Market Trend ■ Power Resource Budget Update 062 Power Resource Update • Concluded discussions with Duke and UBS, AG in "unwinding" one of Duke's contracts. The medium term summer power contract will be transferred from Duke to UBS upon Federal Energy Regulatory Commission's approval. Utility Board's approval is sought at this meeting ■ Contract negotiations for renewable energy continue through Southern California Public Power Authority (SCPPA) for landfill gas generation and with San Gabriel Valley Municipal Water District ■ Actively participated in the conceptualization and preparation of local generation procurement Request for Proposals (RFP) through SCPPA. Four of the Southern California munis are participating (Anaheim, Azusa, Banning, and Riverside) in the RFP. RFP issued on January 3rd and responses are due on January 26th ■ Led the efforts in the establishment of customer distributed solar and wind generation program. Program approved on December 19th and the first customer contract signed on January 17th ■ Continued active participation in the CAISO market redesign activities ■ Prepared discussion papers regarding utility reserve policy for management and Board consideration 063 CITY OF AZUSA ENERGY CONSUMPTION COMPARISON �ERGr CONSI.MPPONINMWH ..I _ .._.. ..._. � PERCENT _ u _ 25,E _..... J- 25A39 o3zv..... .AVG .;. _..... 25,342 ! _ 2G758 5.59% SEP 25,213 22,725 987% ..._ ,.-.. ,OCT _. ;_.._. _. 21, ,581 ._. ..... ... ,.. .... -i ! NOV 19813 19,932 065k 36 6 DEC 20328 _ 20,163 -081 h 356 JPN 20127 FEB _ 17938_ .. ..... AMA 19762 AYfi 19.519 ... ...... .... ._..... M4Y ...... _ 21,440 .._...-� .. ..... _. _. _. _. JW 21.204 ...... _ _ ,. _ _. _._... .. I .._,. ..j 1 ! TOTAL ! 258,065 137,174 -0.54% ... ... amy & AZUSA PEAK DEMAND COMPARISON 462.._..__ JUN 47.6 PEAK,DEMANID PIMW, 57.4 1.90% SEP 582 OC7 45.6 NGJ 36 6 DEC 35.7 JAN 356 .__ FEB 335 462.._..__ JUN 47.6 PEAK,DEMANID PIMW, 57.4 1.90% _..._�._._ 579_._._.. __. . % .. 549_ ._.,__ 5.655.65% 480 649% 411 1232% 362- 1,49q HE WHOLESALE ELECTRICITY SPOT MARKET PRICES IN CALIFORNIA _ .. - . .... ...AVE - RAGE i AVERAGE ..._. ... .. ,_ $4779_ ...� ------ ,FEB05 $53.80 .. $40.23. _ MAY 05 !!!� $49.30. .. .. JUN05 $53.35 .. .. i ...$30.81.._._ ... _ . - JUL 05 .. - $69.44 ... ' $4314 AUG OS _. SEP 05._ $84.09 ..$64.96 OCT 05 . -.. _ $89.57 j _ $71.27 .. .._ NOV 05... ; $6484 $55.39 _ DEC 05 I $94.47 _ $80.52 ALLPRICES W$UWH__1.. �.. ..... .... .. _... .._.... _.._.. _._.__ 065 i v ams "A wMAA December 6, 2005 MEMORANDUM L)OW 60 &V TO: Officials of Public Power Systems FROM: Paul Zummo, Research Analyst SUBJECT: 2004 Data on Revenue per Kilowatt-hour American Public Power Association 2301 M Street, N.W. Washington, D.C. 20037.1484 202/467-2900 202/467-2910 (fax) www.APPAnet.org RECEIVED DEC 19 2005 AIDSA LIGHT & WATER As an APPA member service, enclosed is a summary of average revenue per kilowatt- hour for U.S. electric utilities for calendar year 2004. The report contains: 1. Definitions of terms used by the Energy Information Administration (EIA) to report sales and revenues 2. Summary of Full Service vs. Unbundled (retail choice) Sales 3. United States averages - by type of ownership State averages (for your state) - by type of ownership Individual averages for each utility in your state Note that the report showing each utility's average revenue per kilowatt-hour covers full service sales only, so average values for states with retail choice do not include sales to customers that purchase power from alternate energy,suppliers. Revenue per kilowatt-hour was calculated by APPA from 2004 data reported by each utility to EIA on Form EIA -861. These calculations can help you compare your average rate level with other utilities in your state. In previous years the report has included calculations by customer class (residential, industrial and commercial). This year I have added an additional calculation measuring the total revenue per kilowatt-hours reported by each utility. It should be noted that the more appropriate comparison of revenue per kilowatt-hour is by customer class. If you would like an electronic version of the file for all states, or if you have any questions, contact me at (202) 467-2969 or pzummo@appanet.ore• Enclosure 067 Explanation of New Terminology for Sales and Revenue Data Changes in the electric utility industry and to the Energy Information Administration's (EIA) data collection process have resulted in some new terminology. Below is an explanation of the new terminology used by EIA for sales and revenues reported by U.S. electric utilities. Full Service Sales — (also referred to as "bundled" sales) are sales by a utility to a customer where the utility provides both the energy and the delivery service. Note that a utility can provide energy either by generating power or by purchasing wholesale power to sell to its customers. These full service sales occur in states that have not enacted retail choice as well as in retail choice states when the customer elects to remain with the standard provider for both energy and delivery service. Energy Only Sales — in retail choice states, this is the power supply portion of the customer's bill if the customer chooses a supplier that is not the standard provider for its service territory. Delivery Only Sales — in retail choice states, this is the distribution portion of the customer's bill if the customer chooses a supplier that is not the standard provider for its service' territory. (When a customer in a retail choice state elects to receive energy service from a provider other than the local utility, then the local utility providing the delivery service records the sale as a "delivery only" sale.) Unbundled Sales — the sum of the delivery only sales and the energy only sales. Since the energy service suppliers are required to report their sales to customers grouped by the state where the customers reside, unbundled sales can only be summed on a state or national level. The methodology used by the Energy Information Administration is Delivery Only Revenue + Energy Only Revenue Energy Only Sales (Mwh) Other notes on the data: In theory, the "Delivery Only" MWH sales and the "Energy Only" MWH sales should be equal in every state. However, for many states, the 2004 data reported by utilities and power marketers show large differences in the Energy Only MWH sales and the Delivery Only MWH sales. EIA has made adjustments to unbundled revenue or sales data in the states for which there were significant differences in sales reported by energy only and delivery only providers. M�6' Full Service Sales vs. Unbundled (retail choice) Sales, 2004 a' n - Residential Commercial Industrial Total Reyf.IsWh Rev/kWh Rev/kWh Rey/k�1 All U.S. Customers Full Service Sales 8.9 7.9 5.1 7.5 � Unbundled Sales 12.7 10.1 7.0 9.4 f Total: All Customers 9.0 8.2 5.3 7.6 By State California Full Service Sales 12.1 11.4 8.9 11.2 Unbundled Sales 13.8 11.7 10.7 12.0 Connecticut Full Service Sales 11.6 9.9 7.9 10.3 Unbundled Sales 11.6 9.7 7.4 9.9 1 Delaware Full Service Sales 8.8. 7.4 5.8 7.6 Unbundled Sales n/a 7.1 6.6 6.6 Illinois Full Service Sales 8.4 8.0 4.6 7.2 Unbundled Sales n/a 6.0 4.8 5.3 I Maine Full Service Sales 8.4 5.8 4.9 5.8 Unbundled Sales 12.2 10.2 6.7 9.9 jMaryland Full Service Sales 7.8 7.6 5.6 7.2 Unbundled Sales 8.8 7.3 6.5 6.9 Massachusetts Full Service Sales 11.7 11.6 8.5 11.1 Unbundled Sales 13.1 9.9 8.5 9.6 I Michigan Full Service Sales 8.3 7.7 4.9 7.0 Unbundled Sales 9.6 7.2 5.2 6.4 Montana Full Service Sales 7.9 7.6 4.5 7.0 Unbundled Sales n/a 6.0 3.8 4.2 New Hampshire Full Service Sales 12.5 11.0 10.1 11.4 j Unbundled Sales n/a 8.4 7.3 7.7 New Jersey Full Service Sales 11.3 10.2 9.0 10.6 Unbundled Sales 10.3 9.3 9.0 9.2 New York Full Service Sales 14.6 13.5 8.3 13.5 Unbundled Sales 13.4 12.3 6.1 10.6 a' n Ohio Full Service Sales industrial Bey Unbundled Sales Oregon Full Service Sales . 4.7 Unbundled Sales Pennsylvania Full Service Sales 5.7 Unbundled Sales Rhode Island Full Service Sales 4.4 Unbundled Sales Texas* (see note at bottom) Virginia Full Service Sales 9.4 Unbundled Sales Washington, DC Full Service Sales 12.6 Unbundled Sales Wasington Full Service Sales 12.2 Unbundled Sales Residential Commercial industrial Bey Total Rey�� Rev/ 8.1 RCYLUmh 7.3 4.7 6.6 10.3 9.1 5.7 8.2 7.2. 6.5 4.4 6.2 n/a 5.5 5.3 5.5 9.4 8.6 5.9 7.9 12.6 8.3 5.8 9.0 12.2 10.7 9.8 11.2 10.1 9.5 8.2 8.9 8.0 5.9 4.3 6.4 10.8 15.1 n/a 10.8 8.0 7.4 4.6 7.5 8.3 7.6 4.9 7.5 6.4 6.2 4.3 5.8 n/a n/a 4.6 4.6 Note: While Texas is a retail choice state, total sales are reported by retail electric providers, who do not differentiate between Full Service and Unbundled Sales. 070 0 Average Revenue per kWh, 2004 (in cents) United States and California Residential Commercial Industrial Total Publicly Owned 8.2 7.6 5.3 7.2 Investor -Owned 9.0 8.0 5.1 7.6 Cooperative 8.3 7.7 4.8 7.4 al'forrea Publicly Owned 10.3 9.8 8.2 9.5 Investor -Owned 12.9 12.7 9.8 12.4 Cooperative 10.3 11.6 6.8 8.8 I j California Publicly Owned Alameda Power & Telecom 12.1 12.5 - 12.3 Anaheim Public Utilities 9.8 10.3 8.3 9.1 Azusa Light & Water 11.0 11.8 9.7 10.8 Banning, City of 13.0 12.1 12.6 12.6 Biggs, City of 12.9 10.3 6.5 8.6 Burbank Water and Power 12.8 14.9 11.0 12.5 Colton, City of 12.0 13.6 8.9 11.3 Corona, City of 20.0 11.3 10.6 11.1 Escondido, City of 4.2 - - 4.2 .Glendale Water & Power 13.6 13.9 10.3 12.5 Gridley, City of 8.1 18.3 - 12.1 Healdsburg, City of 12.8 11.5 12.4 12.0 Imperial Irrigation District 10.3 10.7 11.6 10.5 Lassen Municipal Utility District 12.0 12.3 14.7 12.4 Lodi Electric Utility 14.0 13.3 7.3 11.9 Lompoc, City of 9.5 11.1 9.1 9.9 Los Angeles Department of Water 10.2 9.5 8.5 9.6 Merced Irrigation District 11.8 11.7 7.7 9.8 Modesto Irrigation District 10.5 8.7 5.5 8.4 jNeedles Department of Public Utilities 9.7 7.6 9.9 8.8 Palo Alto, City of 7.7 7.3 6.7 7.2 Pasadena Water and Power Department 11.5 10.6 10.8 Redding, City of 9.0 9.0 9.3 9.0 Riverside Public Utilities 11.6 11.4 8.3 10.3 Roseville Electric 9.2 8.3 6.4 8.0 071 072 t Residential Commercial Industrial Total Rev/kWh Sacramento Municipal Utility District Rev/kWh 9.9 Hev1kMI Rev/kWh 9.9 8.9 9.4 San Francisco, City of (Retch Hetchy) - 7.9 5.0 7.2 7.4 10.4 7.5 7.6 Santa Clara 12.5 13.2 5.9 7.7 Shasta Lake, City of 7.9 8.3 4.8 7.7 Trinity Public Utilities District 12.7 Truckee -Donner Public Utility District 12.9 12.6 - Tuolumne County Public Power 6.0 - 6.0 Turlock Irrigation District 9.9 7.9 6.6 8.0 13.1 Ukiah, City of 12.9 15.0 11.3 7.5 Vernon, City of 5.3 7.5 7.5 California 1nVe9nr-Owned Pacific Gas & Electric Go 12.6 12.9 10.7 12.5 8.4 8.1 5.5 7.7 PacifiCorp San Diego Gas &Electric Co 18.9 18.8 12.4 18.0 Sierra Pacific Power Go 10.0 10.0 8.0 9.5 Southern California Edison Co 12.1 11.8 8.5 11.5 Southern California Water Go 17.9 21.4 13.6 18.6 California (7000�rative . Anza Electric Coop Inc 14.6 15.6 13.3 14.8 PlumasSierra Rural Elec Coop 9.7 10.5 7.3 8.5 Surprise Valley Electrification Corp. 7.2 7.5 5.9 6.5 Valley Electric Assn, Inc 10.0 - 6.3 6.3 Source: U.S. Department of Energy, Energy Information Administration, Form EIA -861, 2004 data. Prepared November 2005 by the American Public Power Association, Department of Statistical Analysis. 072 t