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Agenda Packet - June 28, 2010 - UB
F AZUSA IIG NT R A'ATFR AGENDA REGULAR MEETING OF AZUSA UTILITY BOARD AZUSA LIGHT & WATER JUNE 28, 2010 729 N. AZUSA AVENUE 6:30 P.M. AZUSA, CA 91702 AZUSA UTILITY BOARD ROBERT GONZALES CHAIRPERSON KEITH HANKS JOSEPH R. ROCHA VICE CHAIRPERSON BOARD MEMBER URIEL E. MACIAS ANGEL CARRILLO BOARD MEMBER BOARD MEMBER 6:30 P.M. Convene to Regular Meeting of the Azusa Utility Board • Call to Order • Pledge to the Flag • Roll Call A. PUBLIC PARTICIPATION 1. (Person/Group shall be allowed to speak without interruption up to five (5) minutes maximum time, subject to compliance with applicable meeting rules. Questions to the speaker or responses to the speaker's questions or comments shall be handled after the speaker has completed his/her comments. Public Participation will be limited to sixty (60) minutes time.) 1 001 B. UTILITIES DIRECTOR COMMENTS C. UTILITY BOARD MEMBER COMMENTS D. CONSENT CALENDAR The Consent Calendar adopting the printed recommended action 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. 1. Minutes. Recommendation: Approve minutes of regular meeting on April 26, 2010 as written. Apr UB Min.pdf 2. Project LD2010-2 Notice of Completion (NOC). Recommendation: (1) Find that Perry C. Thomas Company has completed Project LD2010-2, furnish and install underground electric substructures on Lark Ellen Avenue; (2) approve the NOC and authorize the Mayor to execute document; and (3) direct City Clerk's Office to record same at the Los Angeles County Recorder Office. 9- NOC-LD 2010-2.pdf NOC-LD 2010-2-Form pdf 3. Used Oil Payment Program Participation. Recommendation: Approve the following resolution: A RESOLUTION OF THE CITY COUNCIL AND UTILITY BOARD OF THE CITY OF AZUSA, CALIFORNIA, APPROVING PARTICIPATION IN USED OIL PAYMENT PROGRAM ADMINISTERED BY THE CALIFORNIA DEPARTMENT OF RESOURCES RECYCLING AND RECOVERY. UOPP Rpt.pdf UOPP Reso.pdf 4. R.T. Lawrence,Corporation Contract Extension and Purchase Order Amendment. Recommendation: (1) Extend the R.T. Lawrence, Corporation contract for two years until October 31, 2012 per extension option of Professional Services Agreement for third-party payment processing signed on November 1, 2007; and (2) amend contract purchase order to add $60,000 to cover this period. RT Lawrence Cont Ext.pdf 2 002 E. SCHEDULED ITEMS 1. Water Service Agreement with Rancho Vasquez. Recommendation: Approve the water service agreement with Rancho Vasquez and authorize the City Manager to execute said agreement. 1411- 19: Vasquez Water Vasquez WS Service Rpt.pdf Agmt.pdf 2. Electric Fund Financial Review and Recommendation. Recommendation: Approve the following resolution: A RESOLUTION OF THE CITY COUNCIL AND UTILITY BOARD OF THE CITY OF AZUSA, CALIFORNIA, REPLACING ELECTRIC RATE SCHEDULE "FCA-SJ FUEL COST ADJUSTMENT —SAN JUAN RESOURCE"WITH "PCA—POWER COST ADJUSTMENT" SCHEDULE." Dec19- L1141- Fund Fin Review PCA Resolution.pdf PCA Rule.pdf Consultant Rpt.pdf Report.pdf 3. Economic Development Rate Incentives Pilot Program. Recommendation: Approve the following resolution: A RESOLUTION OF THE CITY COUNCIL AND UTILITY BOARD OF THE CITY OF AZUSA, CALIFORNIA, APPROVING ELECTRIC RATE SCHEDULE "EDR - ECONOMIC DEVELOPMENT RATE" INCENTIVES FOR QUALIFIED COMMERCIAL AND INDUSTRIAL ELECTRIC CUSTOMERS. Econ Dev Econ Dev EDR Schedule.pdf Sch-Rpt.pdf Sch-Reso.pdf F. STAFF REPORTS/COMMUNICATIONS 1. Replacement Water Cost Adjustment Factor(RWCAF) RWCAF-Wtr Rt Lease.pdf 3 003 G. ADJOURNMENT 1. Adjournment. "In compliance with the Americans with Disabilities Act,if you need special assistance to participate in a city meeting,please contact the City Clerk at 626-812-5229. Notification three (3) working days prior to the meeting or time when special services are needed will assist staff in assuring that reasonable arrangements can be made to provide access to the meeting." "In compliance with Government Code Section 54957.5, agenda materials are available for inspection by members of the public at the following locations: Azusa City Clerk's Office-213 E. Foothill Boulevard, Azusa City Library-729 N.Dalton Avenue, and Azusa Light&Water-729 N.Azusa Avenue,Azusa CA." 4 004 D 1,0 : N .�,*";":1:x4-1. -'14.,'.'!" �R .;. � ` .� $2.a f:y'?c...fi3 .si3x?..'7•,. i 7 ." ^ ' .: a a.§. ;v�r .« .: 3 ir' z rj.�rr » . Tk .. A..�';p- P • .., .f .'� c� .+t� ..,� > 3?sti"`; "`"t �lia ..,3' -+ .d'4."_ ,_ra s v. '..e�', _ „ � ; ' ' a, . ,•..x a. .Jr-:.- t ._-:-.v.,. .,._ SC. � 7IJS A. UC'MT d 'd'ATER CITY OF AZUSA MINUTES OF THE REGULAR MEETING OF THE AZUSA UTILITY BOARD/CITY COUNCIL MONDAY, APRIL 26, 2010 — 6:33 P.M. The Utility Board/City Council of the City of Azusa met in regular session, at the above date and time, at the Azusa Light and Water Conference Room, located at 729 N. Azusa Avenue, Azusa, California. Chairman Macias called the meeting to order. Call to Order ROLL CALL Roll Call PRESENT: BOARD MEMBERS: GONZALES, CARRILLO, HANKS, ROCHA ABSENT: BOARD MEMBERS: MACIAS (entered meeting at 6:37 p.m.) ALSO PRESENT: Also Present City Attorney Carvalho, City Manager Delach, Director of Utilities Morrow, Assistant to the Director of Utilities Kalscheuer, Assistant City Manager Makshanoff, Director of Customer Care and Solutions Vanca, Assistant Director of Water Operations Anderson, Business Development/Public Benefits Coordinator Reid, Captain Momot, Interim Assistant Director of Electric Operations Kjar, Assistant Economic and Community Director McNamara, City Clerk Mendoza, Deputy City Clerk Toscano. ELECTION OF OFFICERS Election of Officers Moved by Board Member Carrillo, seconded by Board Member Hanks and unanimously* carried to appoint Gonzales Chair Board Member Robert Gonzales as Utility Board Chairperson. Moved by Board Member Carrillo, seconded by Board Member Rocha and unanimously* carried to appoint Hanks Vice Board Member Hanks as Vice Chairperson of the Utility Board. Chair Board Member Rocha referred to Excerpts from Ordinance 01-03, Meeting location, and asked if the Board Board Member Members were still interested in having meetings in other locations throughout the city; they advised that they Rocha would like to keep that option open. The Attorney Carvalho advised that this means that they have the option Meetings in to do so, but do not have to have the meetings in other locations. Other locations PUBLIC PARTICIPATION Pub Part None. None 005 UTILITIES DIRECTOR COMMENTS Dir Comments Director of Utilities Morrow talked about a proposal for a power cost adjustment for the Utility;he advised that he may come back to the June, 2010, meeting with such a proposal. UTILITY BOARD MEMBER COMMENTS Brd Mbr Cmts Board Member Macias thanked Director of Public Works Haes, City Manager Delach and Assistant City Macias Manager Makshanoff for following up on the cameras on 5th and Lee Place. Comment The CONSENT CALENDAR consisting of Items E-1 through E-8, was approved by motion of Board Consent Cal Member Hanks,seconded by Board Member Carrillo and unanimously carried,with the exception of items E- Appvd,E6&8 6&E-8,which were considered under the Special Call portion of the Agenda. Spec Call 1. The minutes of the regular meeting of March 22, 2010, were approved. Minutes 2. Approval was given for the addition of 55 calendar days to time of completion for Project WV-263 Water Add time Main Cement Mortar Lining Project,and approval was given on the Notice of Completion. Mortar Lining 3. Approval was given for the South Coast Air Quality Management District(AQMD)Local Government AQMD Match Match Program Contract No. ML08030 to secure $25,000 grant for clean transportation vehicles and Program offset purchase cost of aerial truck in Electric Division. 4. Approval was given for extension of previously adopted annual program target of 0.89%for fiscal years CaIEERAM 2011-2020 as prescribed in AB 2021 Cost Effective Energy Conservation Targets and defined in Table Extend Pgrm 13 of the CaIEERAM report. 5. Professional Services Agreement was approved for Rubber Glove Training by Skills Incorporated in Rubber Glove amount not to exceed$30,000. Training 6. SPECIAL CALL ITEM. Spec Call 7. Approval was given to terminate agreement with BankSery and approve five-year agreement with EPX as Agmt w/EPX merchant processor for electronic automated clearing house(ACH)payment transactions related to online Terminate billing and payment. BankSery 8. SPECIAL CALL ITEM. Spec Call SPECIAL CALL ITEMS Special Call Items Lengthy discussion was held regarding items E-6,2010 Refuse Rate Adjustment and Public Hearing Notice Discussion and item E-8 resolution modifying the Light & Water Rules and Regulations to address master meter delinquent accounts. Moved by Board Member Hanks,seconded by Board Member Macias and carried by roll call to approve to set Pub Hrg for public hearing for 2010 Refuse Rate Adjustment,for June 21,2010 and mailing of public notice to property 2010 Refuse owners. Board Member Rocha voted no. Rate Adjust Board Member Carrillo offered a Resolution, as amended,entitled: A RESOLUTION OF THE AZUSA UTILITY BOARD/CITY COUNCIL OF THE CITY OF AZUSA, Res. 10-C24 AMENDING THE AZUSA LIGHT & WATER RULES AND REGULATIONS GOVERNING THE Amend L&W ELECTRIC AND WATER SERVICE SUPPLIES BY AZUSA LIGHT&WATER. (Amended to note"bill Rules&Regs landlord for service fee".) Resolution will modify Light&Water Rules and Regulations to address master meter delinquent accounts as required by Senate Bill 120. 04/26/10 PAGE TWO 006 Moved by Board Member Carrillo, seconded by Board Member Rocha to waive further reading and adopt. Resolution passed and adopted by the following vote of the Board Members: AYES: BOARD MEMBERS: GONZALES,CARRILLO, MACIAS, HANKS, ROCHA NOES: BOARD MEMBERS: NONE ABSENT: BOARD MEMBERS: NONE Sched Items SCHEDULED ITEMS Lodi Energy Center Environmental Findings and Project Agreements. Lodi Agmts Director of Utilities Morrow presented the proposed Lodi energy Center Environmental findings and project G. Morrow agreements, detailed the project and responded to questions posed by the Board Members. Comments Board Member Hanks offered a Resolution entitled: RESOLUTION OF THE CITY COUNCIL AND UTILITY BOARD OF THE CITY OF AZUSA MAKING Res. 10-C25 FINDINGS AS A RESPONSIBLE AGENCY UNDER CEQA; APPROVING THE LODI ENERGY Lodi Agmts CENTER POWER SALES AGREEMENT AND THE PROJECT MANAGEMENT AND OPERATION &Authorizing AGREEMENT AND AUTHORIZING THE MAYOR TO EXECUTE THEM ON BEHALF OF THE Representation AGENCY;AND AUTHORIZING THE UTILITIES DIRECTOR TO DESIGNATE REPRESENTATIVES TO THE LODI ENERGY CENTER PROJECT PARTICIPANT COMMITTEE. Moved by Board Member Hanks, seconded by Board Member Macias to waive further reading and adopt. Resolution passed and adopted by the following vote of the Board Members: AYES: BOARD MEMBERS: GONZALES,CARRILLO, MACIAS,HANKS, ROCHA NOES: BOARD MEMBERS: NONE ABSENT: BOARD MEMBERS: NONE Adoption of Legislative Positions. Moved by Board Member Carrillo,seconded by Board Member Hanks and unanimously carried to adopt the Legislation following:a)Oppose position on AB 155(Mendoza),Municipal Bankruptcy;b)Oppose position on HR1521 Positions (Lofgren), The Cell Tax Fairness Act of 2009; and c) Support position on HR4812 (Miller), Local Jobs of Adopted America Act; and the Mayor was authorized to sign position letters to be sent to bill authors and others as appropriate. It was consensus of Board Members that the next scheduled Utility Board Meeting of May 24, 2010, be May 24th UB canceled and that any business that may arise be discussed or placed on the regular City Council meeting of Mtg canceled May 17, 2010. Moved by Board Member Carrillo, seconded by Board Member Hanks and unanimously carried to adjourn. Adjourn TIME OF ADJOURNMENT: 7:36 P.M. SECRETARY NEXT RESOLUTION NO. 10-C26. 04/26/10 PAGE THREE 007 : e AZ USA r.ur ti :arrr CONSENT CALENDAR TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE USA UTILITY BOARD FROM: GEORGE F. MORROW, DIRECTOR OF UTILITIES DATE: JUNE 28, 2010 SUBJECT: NOTICE OF COMPLETION FOR PROJECT NO. LD2010-2—FURNISH AND INSTALL UNDERGROUND ELECTRIC SUBSTRUCTURES ON LARK ELLEN AVENUE JUST SOUTH OF GLADSTONE STREET. RECOMMENDATION It is recommended that the Utility Board: 1. Find that Perry C. Thomas Construction, Duarte, CA, has completed Project LD2010-2; 2. Approve the Notice of Completion and authorize the Mayor to execute the document on behalf of the City; and 3. Direct the City Clerk to submit said Notice of Completion to the Office of the County Recorder of Los Angeles County for recording within ten days of the Utility Board approval, as required by Section 3093 of the California Civil Code. BACKGROUND Project LD2010-2, furnish and install underground electric substructure on Lark Ellen Avenue just south of Gladstone Street, was awarded to Perry C. Thomas by the Utility Board on February 22, 2010 in a total amount of $95,016.90. The project was a part of the improvement on the reliability of the overall electric distribution system. This project relocated a portion of overhead electric feeder to underground. This project started on March 29, 2010 and was completed on April 29, 2010 according to plan LD2010-2 and drawing ED2010-2. FISCAL IMPACT The project was completed under budget with a total construction cost of$70,879.90. Prepared by: Hien K. Vuong—Electrical Engineer Attachment: Notice of Completion 008 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: NAME Azusa City Clerk STREET ADDRESS 213 E.Foothill Blvd. CITY,STATE& Azusa,CA 91702 ZIP CODE L NOTICE OF COMPLETION Notice pursuant to Civil Code Section 3093,must be filed within 10 days after completion.(See reverse side for Complete requirements.) Notice is hereby given that: 1. The undersigned is owner or corporate officer of the owner of the interest or estate stated below in the property hereinafter described: 2. The full name of the owner is The City of Azusa 3. The full address of the owner is 213 E.Foothill Blvd.,Azusa,CA 91702 4. The nature of the interest or estate of the owner is:In fee. (IF OTHER THAN FEE,STRIKE IN FEE AND INSERT,FOR EXAMPLE,PURCHASER UNDER CONTRACT OF PURCHASE,OR LESSEE) 5. The full names and full addresses of all persons,if any,who hold title with the undersigned as joint tenants or as tenants in common are: NAMES ADDRESSES None 6. The full names and full addresses of the predecessors in interest of the undersigned,if the property was transferred subsequent to the commencement of the work or improvements herein referred to: NAMES ADDRESSES None 7. A work of improvement on the property hereinafter described was completed on April 29th,2010 . The work done was: Furnish and Install Underground Electric Substructures According to Specification LD 2010-2 and drawing ED2010-2 8. The name of the contractor,if any,for such work of improvement was Perry C.Thomas Construction,Inc. February 25,2010 (IF NO CONTRACTOR FOR WORK OF IMPROVEMENT AS A WHOLE,INSERT NONE) (DATE OF CONTRACT) 9. The property on which said work of improvement was completed is in the City of Azusa,County of Los Angeles,and State of CA;and is described as follows: Furnish and Install Underground Electric Substructures on Lark Ellen as According to Specification LD 2010-2 and Drawing 2010-2 10. The street address of said property is Lark Ellen Avenue Just South of Gladstone Street Joseph R. Rocha, Mayor Dated: (SIGNATURE OF OWNER OR CORPORATE OFFICER OF OWNER NAMED IN PARAGRAPH 2 OR HIS AGENT) VERIFICATION I,the undersigned,say:I am the person who signed the foregoing notice. I have read said notice of completion and know its contents,and the facts stated therein are true of my own knowledge. I declare under penalty of perjury that the foregoing is true and correct. Executed at Azusa,California,this day of ,2010 • (SIGNATURE) 009 v • . P AZUSA aur a r arrr CONSENT CALENDAR TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD FROM: GEORGE F. MORROW, DIRECTOR OF UTILITIES DATE: JUNE 28, 2010 SUBJECT: RESOLUTION APPROVING PARTICIPATION IN THE CALIFORNIA DEPARTMENT OF RESOURCES RECYCLING AND RECOVERY USED OIL PAYMENT PROGRAM RECOMMENDATION It is recommended that the Utility Board adopt a resolution approving the City's participation in the California Department of Resources Recycling and Recovery (CalRecycle) Used Oil Payment Program (OPP). BACKGROUND In compliance with the California Oil Recycling Enhancement Act since its inception in 1991, the City of Azusa continues to maintain a year-round used oil recycling program, which is administered by a consultant, Huls Environmental, and funded by a used oil recycling block grant from CalRecyle (formerly California Integrated Waste Management Board). The program being carried out in Azusa consists of the City supplying used oil drain pans to participating used oil collection centers, which currently includes Dick's Auto Supply, Firestone, Jiffy Lube, Kragen Auto Parts, and Y Tires, and advertising to promote drop off of used oil at these centers. For FY 2008-2009, the City reported that the centers collected 6,627 gallons of used oil and 754 used filters. About 500 residents picked up free containers during this period. In October 2009, Governor Arnold Schwarzenegger signed SB 546 into law which made significant changes to the program effective January 1, 2010. Changes include the following: • Program name change from Used Oil Block Grant Program to Used Oil Payment Program (OPP) • Incentives paid to certified collection centers for eligible used lubricating oil collected from the public have been increased from $0.16 to $0.40 per gallon, and these amounts are made available to the public that drop off oil upon request. 010 Used Oil Payment Program June 28, 2010 Page 2 • Certification period has increased from 2 to 4 years for collection centers that are recertified • Encourages expenditure of 10% of funds towards used filter recycling • Single payment in April or October (if eligible), 24 month term, and no tracking of interest (saves administrative staff time) The City receives over $12,000 funding annually except for FY 09-10 when funds dropped significantly by 35% due to state budget cuts. To receive funds for the upcoming fiscal year, Azusa must submit an application by June 30. Due to program name change, a new resolution must also be submitted which identifies the job titles of staff authorized and empowered to execute in the name of the City of Azusa all documents, including but not limited to, applications, agreements, annual reports including expenditure reports and amendments necessary to secure said payments to support OPP and will be in effect until rescinded. Annual reporting requirements in August remain the same. FISCAL IMPACT The City of Azusa will be eligible to receive an estimate of$12,400 in revenue to fund program for FY 2010-2011. Prepared by: Cary Kalscheuer, Assistant to the Director of Utilities Liza Cawte, Sr. Administrative Technician Attachment: OPP 1 Resolution 011 RESOLUTION NO. 10-C38 A RESOLUTION OF THE AZUSA CITY COUNCIL AND UTILITY BOARD OF THE CITY OF AZUSA, CALIFORNIA, APPROVING PARTICIPATION IN USED OIL PAYMENT PROGRAM ADMINISTERED BY THE CALIFORNIA DEPARTMENT OF RESOURCES RECYCLING AND RECOVERY. WHEREAS, Public Resources Code sections 48690 et seq. authorize the Department of Resources Recycling and Recovery (CalRecycle), formerly known as the California Integrated Waste Management Board, to make payments to qualifying jurisdictions for implementation of their used oil programs as required by PRC § 48690 et seq.; and WHEREAS, in furtherance of this authority CalRecycle is required to establish procedures governing the administration of the Used Oil Payment Program; and WHEREAS, CalRecycle's procedures for administering the Used Oil Payment Program require, among other things, an applicant's governing body to declare by resolution certain authorizations related to the administration of the Used Oil Payment Program. NOW, THEREFORE, BE IT RESOLVED that the City of Azusa authorizes the submittal of a Used Oil Payment Program application to CalRecycle; and BE IT FURTHER RESOLVED that the Assistant to the Director of Utilities or his/her designee, is hereby authorized and empowered to execute in the name of the City of Azusa all documents, including but not limited to, applications, agreements, annual reports including expenditure reports and amendments necessary to secure said payments to support our Used Oil Collection Program; and BE IT FURTHER RESOLVED that this authorization is effective upon adoption and shall extend until rescinded by the City of Azusa. PASSED, APPROVED AND ADOPTED this 28th day of June, 2010. fit-4-1‘ /1"4A1/1 Joseph R. Rocha Mayor ATTEST: Vera Mendoza City Clerk STATE OF CALIFORNIA ) COUNTY OF LOS ANGELES ) ss. CITY OF AZUSA ) I HEREBY CERTIFY that the foregoing Resolution no. 10-C38 was duly adopted by the City Council/Utility Board at a regular meeting of the Azusa Utility Board on the 28th day of June, 2010,by the following vote of the Council: AYES: COUNCILMEMBERS: GONZALES, CARRILLO, MACIAS, HANKS, ROCHA NOES: COUNCILMEMBERS: NONE ABSENT: COUNCILMEMBERS: NONE Vera Mendoza City Clerk CITY OF AZUSA PROFESSIONAL SERVICES AGREEMENT 1. PARTIES AND DATE. This Agreement is made and entered into this 31st day of August 2009 by and between the City of Azusa,a municipal organization organized under the laws of the State of California with its principal place of business at 213 East Foothill Blvd., Azusa, CA 91702 ("City") and Huls Environmental Management,LLC,a California Corporation,with its principal place of business at 1074 Parkview Drive #105, Covina, California 91724 ("Consultant"). City and Consultant are sometimes individually referred to as Party and collectively as Parties. 2. RECITALS. 2.1 Consultant. Consultant desires to perform and assume responsibility for the provision of certain professional services required by the City on the terms and conditions set forth in this Agreement. Consultant represents that it is experienced in providing used oil recycling services to public clients, is licensed in the State of California, and is familiar with the plans of City. 2.2 Project. City desires to engage Consultant to render such services for the Used Oil Block Grant project (Project) as set forth in this Agreement. 3. TERMS. 3.1 Scope of Services and Term. 3.1.1 General Scope of Services. Consultant promises and agrees to furnish to the City all labor,materials,tools,equipment,services,and incidental and customary work necessary to fully and adequately supply the professional consulting services necessary for the Project ("Services"). The Services are more particularly described in Exhibit "A" attached hereto and incorporated herein by reference. All Services shall be subject to,and performed in accordance with, this Agreement,the exhibits attached hereto and incorporated herein by reference,and all applicable local, state and federal laws, rules and regulations. 3.1.2 Term. The term of this Agreement shall be from the date first set forth herein to August 15, 2010, unless earlier terminated as provided herein. Consultant shall complete the Services within the term of this Agreement, and shall meet any other established schedules and R V PU B\NGS\544364 '� deadlines. 3.2 Responsibilities of Consultant. 3.2.1 Control and Payment of Subordinates;Independent Contractor. The Services shall be performed by Consultant or under its supervision. Consultant will determine the means, methods and details of performing the Services subject to the requirements of this Agreement. City retains Consultant on an independent contractor basis and not as an employee. Consultant retains the right to perform similar or different services for others during the term of this Agreement. Any additional personnel performing the Services under this Agreement on behalf of Consultant shall also not be employees of City and shall at all times be under Consultant's exclusive direction and control. Consultant shall pay all wages, salaries, and other amounts due such personnel in connection with their performance of Services under this Agreement and as required by law. Consultant shall be responsible for all reports and obligations respecting such additional personnel, including, but not limited to: social security taxes, income tax withholding, unemployment insurance, disability insurance, and workers' compensation insurance. 3.2.2 Schedule of Services. Consultant shall perform the Services expeditiously, within the term of this Agreement, and in accordance with the Schedule of Services set forth in Exhibit"B" attached hereto and incorporated herein by reference. Consultant represents that it has the professional and technical personnel required to perform the Services in conformance with such conditions. In order to facilitate Consultant's conformance with the Schedule,City shall respond to Consultant's submittals in a timely manner. Upon request of City,Consultant shall provide a more detailed schedule of anticipated performance to meet the Schedule of Services. 3.2.3 Conformance to Applicable Requirements. All work prepared by Consultant shall be subject to the approval of City. 3.2.4 Substitution of Key Personnel. Consultant has represented to City that certain key personnel will perform and coordinate the Services under this Agreement. Should one or more of such personnel become unavailable, Consultant may substitute other personnel of at least equal competence upon written approval of City. In the event that City and Consultant cannot agree as to the substitution of key personnel, City shall be entitled to terminate this Agreement for cause. As discussed below,any personnel who fail or refuse to perform the Services in a manner acceptable to the City, or who are determined by the City to be uncooperative, incompetent, a threat to the adequate or timely completion of the Project or a threat to the safety of persons or property,shall be promptly removed from the Project by the Consultant at the request of the City. The key personnel for performance of this Agreement are as follows: Ms. Sandy Costandi, Sr. Associate Consultant, and Ms. Amelia Liman, Business Manager. 3.2.5 City's Representative. The City hereby designates Cary Kalscheuer,Assistant to the Director of Utilities, or his designee, to act as its representative for the performance of this Agreement(City's Representative). City's Representative shall have the power to act on behalf of the City for all purposes under this Contract. Consultant shall not accept direction or orders from RVPUB\NGS\544364 2 the City for all purposes under this Contract. Consultant shall not accept direction or orders from any person other than the City's Representative or his or her designee. 3.2.6 Consultant's Representative. Consultant hereby designates Sandy Costandi, Senior Associate Consultant,or her designee,to act as its representative for the performance of this Agreement(Consultant's Representative). Consultant's Representative shall have full authority to represent and act on behalf of the Consultant for all purposes under this Agreement. The Consultant's Representative shall supervise and direct the Services,using his best skill and attention, and shall be responsible for all means, methods,techniques, sequences and procedures and for the satisfactory coordination of all portions of the Services under this Agreement. 3.2.7 Coordination of Services. Consultant agrees to work closely with City staff in the performance of Services and shall be available to City's staff, consultants and other staff at all reasonable times. 3.2.8 Standard of Care; Performance of Employees. Consultant shall perform all Services under this Agreement in a skillful and competent manner, consistent with the standards generally recognized as being employed by professionals in the same discipline in the State of California. Consultant represents and maintains that it is skilled in the professional calling necessary to perform the Services. Consultant warrants that all employees and subcontractors shall have sufficient skill and experience to perform the Services assigned to them. Finally, Consultant represents that it, its employees and subcontractors have all licenses, permits, qualifications and approvals of whatever nature that are legally required to perform the Services, including a City Business License, and that such licenses and approvals shall be maintained throughout the term of this Agreement. As provided for in the indemnification provisions of this Agreement, Consultant shall perform, at its own cost and expense and without reimbursement from the City, any services necessary to correct errors or omissions which are caused by the Consultant's failure to comply with the standard of care provided for herein. Any employee of the Consultant or its sub-consultants who is determined by the City to be uncooperative, incompetent, a threat to the adequate or timely completion of the Project,a threat to the safety of persons or property,or any employee who fails or refuses to perform the Services in a manner acceptable to the City,shall be promptly removed from the Project by the Consultant and shall not be re-employed to perform any of the Services or to work on the Project. 3.2.9 Laws, Regulations and State Requirements. 3.2.9.1 Laws and Regulations. Consultant shall keep itself fully informed of and in compliance with all local, state and federal laws, rules and regulations in any manner affecting the performance of the Project or the Services, including all Cal/OSHA requirements,and shall give all notices required by law. Consultant shall be liable for all violations of such laws and regulations in connection with Services. If the Consultant performs any work knowing it to be contrary to such laws,rules and regulations and without giving written notice to the City,Consultant shall be solely responsible for all costs arising therefrom. Consultant shall defend, RVPUB\NGS\544364 3 indemnify and hold City, its officials, directors, officers, employees and agents free and harmless, pursuant to the indemnification provisions of this Agreement,from any claim or liability arising out of any failure or alleged failure to comply with such laws, rules or regulations. 3.2.9.2 Agreement between the City and the California Integrated Waste Management Board. Consultant agrees to comply with all the requirements set forth by the California Integrated Waste Management Board for administration of the California Used Oil Block Grant Program, including any changes in these requirements during the term of this Agreement. 3.2.10 Insurance. 3.2.10.1 Time for Compliance. Consultant shall not commence Work under this Agreement until it has provided evidence satisfactory to the City that it has secured all insurance required under this section. In addition, Consultant shall not allow any subcontractor to commence work on any subcontract until it has provided evidence satisfactory to the City that the subcontractor has secured all insurance required under this section. 3.2.10.2 Minimum Requirements. Consultant shall, at its expense, procure and maintain for the duration of the Agreement insurance against claims for injuries to persons or damages to property which may arise from or in connection with the performance of the Agreement by the Consultant,its agents,representatives,employees or subcontractors. Consultant shall also require all of its subcontractors to procure and maintain the same insurance for the duration of the Agreement. Such insurance shall meet at least the following minimum levels of coverage: (A) Minimum Scope of Insurance. Coverage shall be at least as broad as the latest version of the following: (1)General Liability: Insurance Services Office Commercial General Liability coverage (occurrence form CG 0001); (2) Automobile Liability: Insurance Services Office Business Auto Coverage form number CA 0001, code 1 (any auto); and (3) Workers'Compensation and Employer's Liability:Workers' Compensation insurance as required by the State of California and Employer's Liability Insurance. (B) Minimum Limits of Insurance. Consultant shall maintain limits no less than: (1) General Liability: $1,000,000 per occurrence for bodily injury, personal injury and property damage. If Commercial General Liability Insurance or other form with general aggregate limit is used, either the general aggregate limit shall apply separately to this Agreement/location or the general aggregate limit shall be twice the required occurrence limit; (2) Automobile Liability: $1,000,000 per accident for bodily injury and property damage; and (3) Workers'Compensation and Employer's Liability:Workers'Compensation limits as required by the Labor Code of the State of California. Employer's Liability limits of$1,000,000 per accident for bodily injury or disease. 3.2.10.3 Professional Liability. Consultant shall procure and maintain, and require its sub-consultants to procure and maintain, for a period of five (5) years following RVPUB\NGS\544364 4 completion of the Project, errors and omissions liability insurance appropriate to their profession. Such insurance shall be in an amount not less than $1,000,000 per claim, and shall be endorsed to include contractual liability. 3.2.10.4 Insurance Endorsements. The insurance policies shall contain the following provisions,or Consultant shall provide endorsements on forms supplied or approved by the City to add the following provisions to the insurance policies: (A) General Liability. The general liability policy shall be endorsed to state that: (1)the City,its directors,officials,officers,employees,agents and volunteers shall be covered as additional insured with respect to the Work or operations performed by or on behalf of the Consultant,including materials,parts or equipment furnished in connection with such work; and (2) the insurance coverage shall be primary insurance as respects the City, its directors, officials,officers,employees,agents and volunteers,or if excess,shall stand in an unbroken chain of coverage excess of the Consultant's scheduled underlying coverage. Any insurance or self-insurance maintained by the City, its directors, officials, officers, employees, agents and volunteers shall be excess of the Consultant's insurance and shall not be called upon to contribute with it in any way. (B) Automobile Liability. The automobile liability policy shall be endorsed to state that: (1)the City, its directors, officials, officers, employees, agents and volunteers shall be covered as additional insureds with respect to the ownership, operation, maintenance, use, loading or unloading of any auto owned, leased, hired or borrowed by the Consultant or for which the Consultant is responsible; and (2) the insurance coverage shall be primary insurance as respects the City, its directors, officials, officers, employees, agents and volunteers, or if excess, shall stand in an unbroken chain of coverage excess of the Consultant's scheduled underlying coverage. Any insurance or self-insurance maintained by the City, its directors, officials, officers, employees, agents and volunteers shall be excess of the Consultant's insurance and shall not be called upon to contribute with it in any way. (C) Workers' Compensation and Employers Liability Coverage. The insurer shall agree to waive all rights of subrogation against the City, its directors, officials,officers,employees,agents and volunteers for losses paid under the terms of the insurance policy which arise from work performed by the Consultant. (D) All Coverages. Each insurance policy required by this Agreement shall be endorsed to state that: (A)coverage shall not be suspended,voided,reduced or canceled except after thirty(30)days prior written notice by certified mail,return receipt requested, has been given to the City; and (B) any failure to comply with reporting or other provisions of the policies, including breaches of warranties, shall not affect coverage provided to the City, its directors, officials, officers, employees, agents and volunteers. 3.2.10.5 Separation of Insureds;No Special Limitations. All insurance required by this Section shall contain standard separation of insureds provisions. In addition, such RVPUB\NGS\544364 5 insurance shall not contain any special limitations on the scope of protection afforded to the City,its directors, officials, officers, employees, agents and volunteers. 3.2.10.6 Deductibles and Self-Insurance Retentions. Any deductibles or self-insured retentions must be declared to and approved by the City. Consultant shall guarantee that, at the option of the City, either: (1) the insurer shall reduce or eliminate such deductibles or self-insured retentions as respects the City, its directors, officials, officers, employees, agents and volunteers; or (2) the Consultant shall procure a bond guaranteeing payment of losses and related investigation costs, claims and administrative and defense expenses. 3.2.10.7 Acceptability of Insurers. Insurance is to be placed with insurers with a current A.M. Best's rating no less than A:VIII,licensed to do business in California, and satisfactory to the City. 3.2.10.8 Verification of Coverage. Consultant shall furnish City with original certificates of insurance and endorsements effecting coverage required by this Agreement on forms satisfactory to the City. The certificates and endorsements for each insurance policy shall be signed by a person authorized by that insurer to bind coverage on its behalf, and shall be on forms provided by the City if requested. All certificates and endorsements must be received and approved by the City before work commences. The City reserves the right to require complete,certified copies of all required insurance policies, at any time. 3.2.11 Safety. Consultant shall execute and maintain its work so as to avoid injury or damage to any person or property. In carrying out its Services,the Consultant shall at all times be in compliance with all applicable local,state and federal laws,rules and regulations,and shall exercise all necessary precautions for the safety of employees appropriate to the nature of the work and the conditions under which the work is to be performed. Safety precautions as applicable shall include, but shall not be limited to: (A) adequate life protection and life saving equipment and procedures; (B)instructions in accident prevention for all employees and subcontractors,such as safe walkways, scaffolds, fall protection ladders, bridges, gang planks, confined space procedures, trenching and shoring, equipment and other safety devices, equipment and wearing apparel as are necessary or lawfully required to prevent accidents or injuries; and (C) adequate facilities for the proper inspection and maintenance of all safety measures. 3.3 Fees and Payments. 3.3.1 Compensation. Consultant shall receive compensation,including authorized reimbursements, for all Services rendered under this Agreement at the rates set forth in Exhibit "C" attached hereto and incorporated herein by reference. The total compensation shall not exceed Four Thousand Seven Hundred Fifty Dollars($4,750)without written approval of City's City Manager or Assistant to the Director of Utilities. Extra Work may be authorized, as described below, and if authorized, will be compensated at the rates and manner set forth in this Agreement. RVPUB\NGS\544364 6 3.3.2 Payment of Compensation. Consultant shall submit to City a monthly itemized statement which indicates work completed and hours of Services rendered by Consultant. The statement shall describe the amount of Services and supplies provided since the initial commencement date,or since the start of the subsequent billing periods,as appropriate,through the date of the statement. City shall,within 45 days of receiving such statement,review the statement and pay all approved charges thereon. 3.3.3 Reimbursement for Expenses. Consultant shall not be reimbursed for any expenses unless authorized in writing by City. 3.3.4 Extra Work. At any time during the term of this Agreement,City may request that Consultant perform Extra Work. As used herein, "Extra Work" means any work which is determined by City to be necessary for the proper completion of the Project,but which the parties did not reasonably anticipate would be necessary at the execution of this Agreement. Consultant shall not perform, nor be compensated for, Extra Work without written authorization from City's Representative. 3.4 Accounting Records. 3.4.1 Maintenance and Inspection. Consultant shall maintain complete and accurate records with respect to all costs and expenses incurred under this Agreement. All such records shall be clearly identifiable. Consultant shall allow a representative of City during normal business hours to examine, audit, and make transcripts or copies of such records and any other documents created pursuant to this Agreement. Consultant shall allow inspection of all work, data, documents, proceedings, and activities related to the Agreement for a period of three(3)years from the date of final payment under this Agreement. 3.5 General Provisions. 3.5.1 Termination of Agreement. 3.5.1.1 Grounds for Termination. City may, by written notice to Consultant, terminate the whole or any part of this Agreement at any time and without cause by giving written notice to Consultant of such termination,and specifying the effective date thereof,at least seven (7) days before the effective date of such termination. Upon termination, Consultant shall be compensated only for those services which have been adequately rendered to City, and Consultant shall be entitled to no further compensation. Consultant may not terminate this Agreement except for cause. 3.5.1.2 Effect of Termination. If this Agreement is terminated as provided herein, City may require Consultant to provide all finished or unfinished Documents and Data and other information of any kind prepared by Consultant in connection with the performance of Services under this Agreement. Consultant shall be required to provide such document and other RVPUB\NGS\544364 7 information within fifteen (15) days of the request. 3.5.1.3 Additional Services. In the event this Agreement is terminated in whole or in part as provided herein, City may procure,upon such terms and in such manner as it may determine appropriate, services similar to those terminated. 3.5.2 Delivery of Notices. All notices permitted or required under this Agreement shall be given to the respective parties at the following address, or at such other address as the respective parties may provide in writing for this purpose: Consultant: Sandy Costandi, Senior Associate Consultant Huls Environmental Management, LLC P.O. Box#4519 Covina, CA 91723-4519 Telephone(626) 332-7514 City: Cary Kalscheuer, Asst. to the Director of Utilities City of Azusa P.O. Box 9500 Azusa, CA 91702-9500 Telephone (626) 812-5174 Such notice shall be deemed made when personally delivered or when mailed, forty-eight(48)hours after deposit in the U.S. Mail,first class postage prepaid and addressed to the party at its applicable address. Actual notice shall be deemed adequate notice on the date actual notice occurred, regardless of the method of service. 3.5.3 Ownership of Materials and Confidentiality. 3.5.3.1 Documents &Data; Licensing of Intellectual Property. This Agreement creates a non-exclusive and perpetual license for City to copy, use, modify, reuse, or sublicense any and all copyrights, designs, and other intellectual property embodied in plans, specifications,studies,drawings,estimates,and other documents or works of authorship fixed in any tangible medium of expression,including but not limited to,physical drawings or data magnetically or otherwise recorded on computer diskettes, which are prepared or caused to be prepared by Consultant under this Agreement(Documents&Data). Consultant shall require all subcontractors to agree in writing that City is granted a non-exclusive and perpetual license for any Documents&Data the subcontractor prepares under this Agreement. Consultant represents and warrants that Consultant has the legal right to license any and all Documents & Data. Consultant makes no such representation and warranty in regard to Documents & Data which were prepared by design professionals other than Consultant or provided to Consultant by the City. City shall not be limited in any way in its use of the Documents and Data at any time,provided that any such use not within RVPUB\NGS\544364 8 the purposes intended by this Agreement shall be at City's sole risk. 3.5.3.2 Confidentiality. All ideas,memoranda,specifications,plans, procedures,drawings,descriptions,computer program data,input record data,written information, and other Documents and Data either created by or provided to Consultant in connection with the performance of this Agreement shall be held confidential by Consultant. Such materials shall not, without the prior written consent of City, be used by Consultant for any purposes other than the performance of the Services. Nor shall such materials be disclosed to any person or entity not connected with the performance of the Services or the Project. Nothing furnished to Consultant which is otherwise known to Consultant or is generally known,or has become known,to the related industry shall be deemed confidential. Consultant shall not use City's name or insignia,photographs of the Project,or any publicity pertaining to the Services or the Project in any magazine,trade paper, newspaper,television or radio production or other similar medium without the prior written consent of City. 3.5.4 Cooperation;Further Acts. The Parties shall fully cooperate with one another, and shall take any additional acts or sign any additional documents as may be necessary,appropriate or convenient to attain the purposes of this Agreement. 3.5.5 Attorney's Fees. If either party commences an action against the other party, either legal, administrative or otherwise, arising out of or in connection with this Agreement, the prevailing party in such litigation shall be entitled to have and recover from the losing party reason- able attorney's fees and all other costs of such action. 3.5.6 Indemnification. Consultant shall defend, indemnify and hold the City, its officials, officers, employees, volunteers and agents free and harmless from any and all claims, demands, causes of action, costs, expenses, liability, loss, damage or injury, in law or equity, to property or persons,including wrongful death,in any manner arising out of or incident to any alleged acts, omissions or willful misconduct of Consultant, its officials, officers, employees, agents, consultants and contractors arising out of or in connection with the performance of the Services,the Project or this Agreement, including without limitation the payment of all consequential damages and attorneys fees and other related costs and expenses.Consultant shall defend,at Consultant's own cost, expense and risk, any and all such aforesaid suits, actions or other legal proceedings of every kind that may be brought or instituted against City,its directors,officials,officers,employees,agents or volunteers. Consultant shall pay and satisfy any judgment,award or decree that may be rendered against City or its directors, officials, officers, employees, agents or volunteers, in any such suit, action or other legal proceeding. Consultant shall reimburse City and its directors,officials,officers, employees, agents and/or volunteers, for any and all legal expenses and costs incurred by each of them in connection therewith or in enforcing the indemnity herein provided. Consultant's obligation to indemnify shall not be restricted to insurance proceeds,if any,received by the City,its directors, officials, officers, employees, agents or volunteers. 3.5.7 Entire Agreement. This Agreement contains the entire Agreement of the RVPUB\NGS\544364 9 parties with respect to the subject matter hereof, and supersedes all prior negotiations, understandings or agreements. This Agreement may only be modified by a writing signed by both parties. 3.5.8 Governing Law. This Agreement shall be governed by the laws of the State of California. Venue shall be in Los Angeles County. 3.5.9 Time of Essence. Time is of the essence for each and every provision of this Agreement. 3.5.10 City's Right to Employ Other Consultants. City reserves right to employ other consultants in connection with this Project. 3.5.11 Successors and Assigns. This Agreement shall be binding on the successors and assigns of the parties. 3.5.12 Assignment or Transfer. Consultant shall not assign,hypothecate,or transfer, either directly or by operation of law,this Agreement or any interest herein without the prior written consent of the City. Any attempt to do so shall be null and void,and any assignees,hypothecates or transferees shall acquire no right or interest by reason of such attempted assignment,hypothecation or transfer. 3.5.13 Construction; References; Captions. Since the Parties or their agents have participated fully in the preparation of this Agreement, the language of this Agreement shall be construed simply, according to its fair meaning, and not strictly for or against any Party. Any term referencing time,days or period for performance shall be deemed calendar days and not work days. All references to Consultant include all personnel, employees, agents, and subcontractors of Consultant, except as otherwise specified in this Agreement. All references to City include its elected officials, officers, employees, agents, and volunteers except as otherwise specified in this Agreement. The captions of the various articles and paragraphs are for convenience and ease of reference only, and do not define, limit, augment, or describe the scope, content, or intent of this Agreement. 3.5.14 Amendment;Modification. No supplement,modification,or amendment of this Agreement shall be binding unless executed in writing and signed by both Parties. 3.5.15 Waiver. No waiver of any default shall constitute a waiver of any other default or breach,whether of the same or other covenant or condition. No waiver,benefit,privilege, or service voluntarily given or performed by a Party shall give the other Party any contractual rights by custom, estoppel, or otherwise. 3.5.16 No Third Party Beneficiaries. There are no intended third party beneficiaries of any right or obligation assumed by the Parties. RVPUB\NGS\544364 1 0 3.5.17 Invalidity; Severability. If any portion of this Agreement is declared invalid, illegal, or otherwise unenforceable by a court of competent jurisdiction, the remaining provisions shall continue in full force and effect. 3.5.18 Prohibited Interests. Consultant maintains and warrants that it has not employed nor retained any company or person,other than a bona fide employee working solely for Consultant,to solicit or secure this Agreement. Further,Consultant warrants that it has not paid nor has it agreed to pay any company or person, other than a bona fide employee working solely for Consultant, any fee, commission,percentage,brokerage fee, gift or other consideration contingent upon or resulting from the award or making of this Agreement. For breach or violation of this warranty, City shall have the right to rescind this Agreement without liability. For the term of this Agreement,no member,officer or employee of City,during the term of his or her service with City, shall have any direct interest in this Agreement,or obtain any present or anticipated material benefit arising therefrom. 3.5.19 Equal Opportunity Employment. Consultant represents that it is an equal opportunity employer and it shall not discriminate against any subcontractor,employee or applicant for employment because of race,religion,color,national origin,handicap,ancestry,sex or age. Such non-discrimination shall include, but not be limited to, all activities related to initial employment, upgrading, demotion, transfer, recruitment or recruitment advertising, layoff or termination. Consultant shall also comply with all relevant provisions of City's Minority Business Enterprise program, Affirmative Action Plan or other related programs or guidelines currently in effect or hereinafter enacted. 3.5.20 Labor Certification. By its signature hereunder,Consultant certifies that it is aware of the provisions of Section 3700 of the California Labor Code which require every employer to be insured against liability for Worker's Compensation or to undertake self-insurance in accordance with the provisions of that Code, and agrees to comply with such provisions before commencing the performance of the Services. 3.5.21 Authority to Enter Agreement. Consultant has all requisite power and authority to conduct its business and to execute, deliver, and perform the Agreement. Each Party warrants that the individuals who have signed this Agreement have the legal power, right, and authority to make this Agreement and bind each respective Party. 3.5.22 Counterparts. This Agreement may be signed in counterparts,each of which shall constitute an original. 3.6 Subcontracting. 3.6.1 Prior Approval Required. Consultant shall not subcontract any portion of the work required by this Agreement,except as expressly stated herein,without prior written approval of RVPUB\NGS\544364 11 CITY OF AZUSA HULS ENVIRONMENTAL MANAGEMENT,LLC By: :141°. By: J• es M. sh• off Sandy Costandi I terim Director of Utilities Senior Associate Consultant Attest: City Clerk Approved as to Form: -kkui R. Ctivviat. Best Best&Krieger LLP City Attorney RVPUB\NGS\544364 12 CITY OF AZUSA HULS ENVIRONMENTAL MANAGEMENT, LLC By: By: James Makshanoff Sandy Costandi Interim Director of Utilities Senior Associate Consultant Attest: City Clerk Approved as to Form: Best Best & Krieger LLP City Attorney RVPUB\NGS\544364 12 EXHIBIT"A" SCOPE OF SERVICES HULS ENVIRONMENTAL MANAGEMENT, LLC AZUSA USED OIL RECYCLING PROGRAM Huls Environmental Management, LLC ("Consultant") shall manage and implement the following tasks under the City of Azusa's ("City's") Used Oil Block Grant Program as administered by the California Integrated Waste Management Board ("CIWMB") for the period of August 31, 2009 through August 15, 2010: The following are Recommended Used Oil Program for FY 2009-2010 (see attached letter dated August 17, 2009) Continuation of Drain Container Distribution Program • Consultant will continue to contact each of the City's certified collection centers to obtain information on oil/filter collection and container inventory on a monthly basis. The information will be tabulated for inclusion into CIWMB annual reports, and City quarterly reports. Additionally, technical assistance with re-certification, reimbursement claims, and illegal drop-off will be offered to center operators regularly. • Orders will be placed with the drain container vendor based on the needs of the collection centers. Consultant will monitor the supply of containers being reserved by the vendor under Azusa's purchase order,and will arrange for shipment of the containers directly to the centers as needed. Site Visits • Consultant will conduct the annual certified collection center site visits and submit the appropriate forms to the CIWMB. Upon completion of the site visits, Consultant will conduct follow-up activities, such as requests for signs or other CIWMB materials, as needed. Public Education • Consultant will assist in implementation of public education campaign including program advertisement in a local newspaper and/or transit shelter poster. Reports • Consultant will prepare quarterly progress reports for the City. The reports will provide a summary of oil collection, filter collection, and container distribution. All reports will be submitted by the 20th day following the end of each quarter. A-1 • Consultant will prepare annual report due to the CIWMB in a timely manner. FY 2009-2010 report will be submitted during this contract period and is due on August 15. All reports will be submitted to the City for review at least 15 days prior to CIWMB due dates. City Responsibilities City shall carry out the following tasks for the period of August 31, 2009 through August 15, 2010: 1. Issue purchase order(s)for drain pans. 2. Process all payments for drain pans, including delivery costs. 3. Approve any printed materials and promotional materials and pay for these items. 4. Publicize the locations of the collection centers, annually, and through monthly newspaper ads. 5. Execute all Annual Reports and submit them to the CIWMB. 6. Prepare and submit all grant payment requests to the CIWMB and all grant applications and forms as may be required by the CIWMB as part o the grant application process. A-2 �' , , ,n, fills Ervi vonei'tictl Box 4519 P.O.Covina, ("91723 4aha ewteht� LLC (626)332-7514 Fax: (626)332-7504 August 17, 2009 Cary Kalscheuer Azusa Light&Water 729 North Azusa Avenue Azusa, CA 91702 SUBJECT: ONE YEAR EXTENTION OF CONTRACT& REVISED USED OIL PROGRAM Dear Mr. Kalscheuer, Since 2001, Huls Environmental Management (Huls Environmental) has been implementing the City of Azusa's (City) used motor oil recycling grant program. Our most recent three year contract with the City took effect in September 2006, and expired on August 15, 2009. Based on information provided by the California Integrated Waste Management Board, significant changes to the used motor oil recycling grant program are expected for FY 09/10. At this time, block grant funding amounts for FY 09/10 and beyond are not known, but are expected to experience a 40% to 50% reduction. Additional changes are also expected due to the elimination of the six member Integrated Waste Management Board. For these reasons, the City is considering a one year extension of its contract with Huls Environmental in lieu of a new three contract with so many unknowns. In this letter, we examine the City's existing used oil grant program and associated costs. We then recommend a revised program that costs less in anticipation of the upcoming grant reduction. Available Funding Available funding as of July 1, 2009 is as follows: $ 73.23 left in 13th cycle interest $12,426.00 14th cycle grant amount $ 6,200.00 estimated 151b.cycle grant amount assuming a 50% reduction $18,699.23 Total Existing Used Oil Program, Annual The City's basic used oil program consists of the purchase of approximately 550 drain containers, container distribution by the certified centers, bi-monthly newspaper ads in the Azusa Herald, collection center site visits, technical assistance to centers, quarterly progress reports, an annual grant report, and grant management. The total cost of the City's basic program is approximately$13,150 annually, and is broken down on the following page: $ 5,500.00 purchase of 550 drain containers $ 1,600.00 bi-monthly ads in the Azusa Herald $ 4,750.00 Huls Environmental $ 1,300.00 City cost $13,150.00 Total Available funds would allow implementation of the basic program without change for FY 09/10. However we recommend spending less in 09/10, and allowing more funding to rollover into future fiscal years. We also recommend a more varied public education effort that targets more audiences. Recommended Used Oil Program for FY 09/10 Container Distribution - Since inception of the container distribution program around 2001, a significant number of drain containers have been distributed to DlYers. Eleven purchases have been made from GEO Plastics, totaling approximately 4,000 containers. It can be assumed that at this point the City has successfully saturated the Azusa community with re-usable drain containers. Although center operators do believe all containers are being distributed to Azusa residents, it is likely that containers are now being requested for friends and relatives that may reside outside the City. Based on the annual expenditures listed above, the purchase of containers is the greatest expense. We recommend that for FY 09/10, the City purchase only 200 containers, which would cost approximately $1,800. We can request that center operators only distribute containers to DlYers with the greatest need. Or we can make container distribution a seasonal event. Reducing the number of containers purchased would save approximately $3,700. Public Education -We also recommend reducing the number of advertisements published in the Azusa Herald. Residents that read the Azusa Herald are reminded of the used oil program via 25 ads each year, however, all other reading audiences have not been targeting in recent times. Please note that the Azusa Herald discontinued door-to-door delivery several years ago. Copies of the Herald must be obtained from newspaper racks, or received as part of a paid subscription with the Tribune. It would be beneficial to the community if some of the funding designated for the Azusa Herald was diverted to another local newspaper, perhaps the Azusa Community News. The Azusa Community News is mailed to all residential addresses each month, free of charge. One or more ads can be considered for publication in the Azusa Community News as part of April's Clean and Green campaign. Ad size and frequency can be determined at a later date, depending on the newspaper's rates. Monthly ads in the Azusa Herald, one or more ads in the Azusa Community News, and mailing of the waste haulers annual Recycling Guide should deliver the used oil message to more DlYers than the City's existing public education efforts. The City may also consider another round of bus shelter ads, as was done in November 2007. A continued presence during community events, and communications with residents, is also important to the success of any recycling program. Consultant Cost - Huls Environmental requests a not-to-exceed fee of $4,750 for FY 09/10. This is greatly reduced from the annual $7,920 awarded by our most recent contract with the City. We offer the City this reduced pricing in an effort to continue this important program in light of upcoming grant reductions. Huls Environmental will continue to administer the container distribution program, contact the certified centers monthly, offer technical assistance to the centers, prepare quarterly progress reports for the City, prepare the block grant annual report Page 2 for the CIWMB, perform collection center site visits, and assist with implementation of the public education campaign. Summary - The total cost of the recommended FY 09/10 program is approximately $9,450, and is broken down as follows: $1,800.00 purchase of 200 drain containers $1,600.00 ads in the Azusa Herald and Azusa Community News, possible bus shelter ads $4,750.00 Huls Environmental $1,300.00 City cost $9,450.00 Total Huls Environmental would be pleased to continue its service to the City of Azusa, without delay. We appreciate your consideration of this proposal for a one year contract extension. If you have any questions, or require further information, please feel free to contact me at 626-332-7514. Sincerely, Sandy Costandi Huls Environmental Management, LLC Page 3 EXHIBIT"B" SCHEDULE OF SERVICES HULS ENVIRONMENTAL MANAGEMENT, LLC AZUSA USED OIL RECYCLING PROGRAM 1. Consultant will contact each collection center monthly to obtain required information on drain pan inventory, pans distributed, gallons recovered, and filters recovered. Place orders with the drain container vendor based on the needs of the collection centers. 2. Conduct annual certified collection center site visits. 3. Consultant will assist in implementation of public education campaign including program advertisement in a local newspaper and/or transit shelter poster. 4. Consultant will provide a quarterly report of progress to City by the 20th day following each quarter's end. Submit FY 09-10 annual report to the City at least 15 days prior to the due date established by the CIWMB. C-1 EXHIBIT"C" COMPENSATION The total cost of grant management from August 31, 2009 to August 15, 2010 is $4750. Consultant Fee: Senior Associate Consultant (SAC) $110/hr C-2 ACORD CERTIFICATE OF LIABILITY INSURANCE DATE(MM/DD/YYYY) ‘Il..�.--.- 10/30/2008 PRODUCER THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION Samaritan Insurance & Financial Services ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER.THIS CERTIFICATE DOES NOT AMEND,EXTEND OR 599 S Barranca Ave Ste 204 ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. Covina, CA 91723 p. 626-332-0385 f. 626-332-0396 CA lic#0053420 INSURERS AFFORDING COVERAGE NAIC# INSURED INSURER A: Hartford Casualty Insurance Company Huls Environmental Management INSURER B: United Financial Casualty Company 1074 Parkview Dr Ste 105 INSURER C: Ace Property&Casualty Insurance Company Covina, CA 91724 INSURER D: 1 INSURER E: COVERAGES THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED.NOTWITHSTANDING ANY REQUIREMENT,TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN,THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS,EXCLUSIONS AND CONDITIONS OF SUCH POLICIES.AGGREGATE LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. IN SR AMYL POLICY EI+ECTIVE POLICY EXPIRATION LTR INSRD TYPE OF INSURANCE POUCY NUMBER DATE(MM/DD/YY) DATE(MM/DD/YY) LIMITS A X GENERAL LIABILITY 72 SBA RB3587 DX 10/18/2008 10/18/2009 EACH OCCURRENCE $ 1,000,000 NZ COMMERCIAL GENERAL LIABILITY DAMAGETO RENTED 300,000 PREMISES(Ea occurence) $ El CLAIMS MADE El OCCUR MED EXP(Any one person) $ W,000 ] PERSONAL 8 ADV INJURY $ 1,000,000 • GENERAL AGGREGATE $ 2,000,000 GEN'L AGGREGATE LIMIT APPLIES PER: PRODUCTS-COMP/OP AGG $ 'L,000,000 7 POLICY n PROJECT n LOC B X AUTOMOBILE LIABILITY 03732019 10/21/2008 10/21/2009 COMBINED SINGLE LIMIT $ 1,000,000.00 ANY AUTO (Ea accident) ALL OWNED AUTOS BODILY INJURY NZ SCHEDULED AUTOS (Per person) $ HIRED AUTOS BODILY INJURY NON-OWNED AUTOS (Per accident) $ PROPERTY DAMAGE $ —1 (Per accident) GARAGE LIABILITY AUTO ONLY-EA ACCIDENT $ ANY AUTOOTHER THAN EA ACC $ - 7 AUTO ONLY: AGG $ EXCESS/UMBRELLA LIABILITY EACH OCCURRENCE $ OCCUR 0 CLAIMS MADE AGGREGATE $ $ DEDUCTIBLE $ 7 RETENTION $ $ c WORKERS COMPENSATION AND C45144227 09/01/2008 09/01/2009 TORY LIMITS n ER H- EMPLOYERS'LIABILITY - ANY PROPRIETOR/PARTNER/EXECUTIVE E.L.EACH ACCIDENT $ 1,000,000.00 OFFICER/MEMBER EXCLUDED? E.L.DISEASE-EA EMPLOYEE $ 1,000,000.00 If yes,describe under 1,000,000.00 SPECIAL PROVISIONS below E.L.DISEASE-POLICY LIMIT $ OTHER DESCRIPTION OF OPERATIONS/LOCATIONS/VEHIC_ES!EXCLUSIONS ADDED BY ENDORSEMENT/SPECIAL PROVISIONS CERTIFICATE HOLDER CANCELLATION SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION City of Azusa DATE THEREOF,THE ISSUING INSURER WILL ENDEAVOR TO MAIL 10 DAYS WRITTEN Attn: Cary Kalscheuer 729 N Azusa Ave NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT,BUT FAILURE TO DO SO SHALL Azusa, CA 91702 IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE INSURER,ITS AGENTS OR REPRESENTATIVES. AUTHORIZED REPRESE ATI J ` I ACORD 25(2001/08) ©ACORD CORPORATION 1988 belm qi. AZUS.A LIGHT R "XATFR CONSENT CALENDAR TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD FROM: GEORGE F. MORROW, DIRECTOR OF UTILITIE' DATE: JUNE 28, 2010 SUBJECT: APPROVAL OF EXTENSION OF R.T. LAWRENCE CONTRACT PURCHASE ORDER AND AMENDMENT OF PURCHASE ORDER AMOUNT FOR THIRD- PARTY PAYMENT PROCESSING RECOMMENDATION It is recommended that the Azusa Utility Board: (1) Extend the R. T. Lawrence, Corp. third-party payment processing contract purchase order for two years until October 31, 2012, as per the extension option contained in the Professional Services Agreement dated November 1, 2007; and (2) Amend the contract purchase order to add $60,000 to cover this period. BACKGROUND Prior to September 2004, processing mail-in payments was a manual back office operation that involved receiving and processing over 160,000 mail-in payments each year. At that time the operation cost about $57,200 annually to perform in-house. In an effort to save money, the Utility Board approved the outsourcing of this activity in September 2004. The initial contract expired in 2007, and a new Request For Proposals (RFP) was initiated to solicit proposals from qualified lockbox vendors that perform mail-in payment processing. Staff again recommended selecting the lowest bidder, R. T. Lawrence Corp. for a three-year contract with an optional two-year extension. Processing mail-in payments is a time-consuming function and is a worthwhile back office operation to continue outsourcing. With the heavy workload in the morning, outsourcing allows a Customer Service Representative to spend more time answering customer calls and assisting walk-in customers during the morning hours. 014 Extend the R.T.Lawrence Contract Purchase Order and Amend the Purchase Order Amount June 28,2010 Page 2 R. T. Lawrence's performance under this contract has been excellent. Staff does not believe that efficiency and/or cost savings would result from rebidding this arrangement and is recommending that the contract extension option in the current contract be exercised to continue services for two additional years. FISCAL IMPACT Monthly charges may vary slightly based on the number of transactions processed. Total cost is not to exceed $60,000 for the additional two years ending October 31, 2012. Funds are budgeted for this service in Account 31-40-711-903-6493 for services this fiscal year. Prepared by: Karen Vanca, Assistant Director Customer Care & Solutions 015 *LIZAUS.r Zd 'o.'ATER SCHEDULED ITEM TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD FROM: GEORGE F. MORROW, DIRECTOR OF UTILITIES DATE: JUNE 28, 2010 SUBJECT: APPROVAL OF WATER SERVICE AGREEMENT WITH RANCHO VASQUEZ RECOMMENDATION It is recommended that the Azusa Utility Board approve of attached Water Services Agreement with Rancho Vasquez and authorize the City Manager to execute the agreement. BACKGROUND Rancho Vasquez is an avocado growing concern located on Ranch Road in north Azusa. The Rancho had been receiving water from the Covina Irrigating Company (CICO) canal which runs through the Rancho property. The Rancho was allowed to take water from the Canal using four shares of Azusa Agricultural Company stock that Rancho purchased from the City of Azusa. CICO has now diverted the water flow in the Canal south of the Pasadena Powerhouse on Ranch Road into a 42-inch diameter water pipeline that carries the Canal water underground to the CICO water treatment plant in the City of Covina. The result of CICO's diversion of the Canal water to the 42-inch pipeline is that Rancho Vasquez has lost its water source from the Canal. Rancho Vasquez and Azusa Light & Water have negotiated an agreement whereby Rancho Vasquez may receive water from the Azusa Domestic Water System for use in irrigating its avocado crops subject to certain conditions. The attached Agreement presented for approval by the utility Board delineates those conditions of use between the City of Azusa and Rancho Vasquez. FISCAL IMPACT There is no fiscal impact as a result of this Agreement. Rancho Vasquez agrees to pay all service installation costs and pay for use of water for irrigation at a rate similar to the Azusa Greens Golf Course. Prepared by: Chet Anderson, Assistant Director- Water Operations 016 WATER SERVICE AGREEMENT THIS WATER SERVICE AGREEMENT(AGREEMENT) is made and entered into by and between the CITY OF AZUSA, a municipal corporation (CITY) and RANCHO VASQUEZ LLC,a California Limited Liability Corporation(RANCHO)as of 2010. WHEREAS, the CITY provides water service through its water system to residents within the CITY's service area;and WHEREAS, RANCHO conducts an agricultural business for the growing of avocados on certain property located within the service area of the CITY water system and adjacent to 1720 Ranch Road in Azusa,CA;and WHEREAS, RANCHO is currently receiving non-potable water service from AZUSA AGRICULTURAL WATER COMPANY (AZUSA AG) via the COVINA IRRIGATION WATER COMPANY'S(CICO)water canal. CICO intends to divert the water from the water canal into an underground pipeline which would curtail RANCHO'S access to the water from the canal;and WHEREAS,RANCHO is currently entitled to divert surface water from the CICO water canal by virtue of a temporary entitlement granted by temporary ownership of four (4)shares of AZUSA AG sold to VASQUEZ by the CITY and which,by the terms of a separate Sales Agreement,will be resold to the CITY by VASQUEZ at the time that the canal water flow is diverted into the underground pipeline by CICO;and WHEREAS,RANCHO desires to connect to the CITY water system to use water from the CITY system to irrigate RANCHO'S avocado groves at the time that CICO canal water is no longer available;and WHEREAS, the CITY agrees to provide water service from the CITY water system to RANCHO subject to the CITY's applicable rules and regulations for water service and certain conditions delineated herein;and WHEREAS, by entering into this AGREEMENT, RANCHO represents and warrants that it has conducted any and all due diligence it deems necessary,in its sole discretion,to determine whether the quality and quantity of the water contemplated by this AGREEMENT will be sufficient for its agricultural operations as contemplated under this AGREEMENT. The CITY makes no representations or warranties regarding whether the quality or quantity of water provided pursuant to the water service contemplated by this AGREEMENT will be sufficient for RANCHO's agricultural operations. ;and WHEREAS, RANCHO represents to the CITY that RANCHO will be fully responsible for payment of all costs associated with the installation of a metered 017 Rancho Vasquez Water Agreement connection to the CITY water system and for compliance with any and all other facilities, connection and payment obligations applicable to the initiation and provision of water service as contemplated under this Agreement.; NOW, THEREFORE, in consideration of the aforementioned and of the benefits which will accrue to the parties hereto, it is understood and agreed to by and between the parties hereto as follows: ARTICLE 1 — DEFINITIONS AZUSA AG. Azusa Agricultural Water Company - A wholly owned subsidiary of City and member of SGRWC AF: Acre-foot — 43,560 cubic feet CUBIC FOOT: Unit of measure- 8.34 gallons CCF: Unit of measure used by City to meter water flow — One hundred cubic feet CA-CSLB California Contractors State License Board- Governing State agency for licensed contractors CANAL: Water conveyance canal owned and operated by CICO and SGRWC CICO: Covina Irrigating Company CITY: City of Azusa CITY SYSTEM: The domestic water system owned and operated by the City of Azusa DPH: California Department of Public Health LICENSED CONTRACTOR; Contractor holding license issued by CA-CSLB RANCHO: Rancho Vasquez LLC 018 -2- SGRWC: San Gabriel River Water Committee and its member entities VASQUEZ: Arthur M. Sr., Arthur M. Jr., and Geraldine C. WATER SHORTAGE: CITY SYSTEM wide or localized supply of water inadequate to serve all water customers without water use restrictions as determined in City's sole judgment. ARTICLE 2 - RESPONSIBILITIES OF RANCHO AND VASQUEZ 2.1 RANCHO shall cause to be installed a 3-inch water service on Ranch Road at a location to be determined by the CITY near the entrance to Rancho Vasquez. RANCHO shall pay all costs associated with the installation of a 3-inch water service according to AZUSA standards, and comply with all other rules and regulations and requirements for connection and initiation of service including, but not limited to, 3-inch meter, 3-inch backflow preventer, meter vault and inspection by CITY employees. RANCHO's selection of a Contractor to do the installation, as contemplated herein, shall be subject to the prior approval of CITY. RANCHO's contractor shall be licensed by the State of California as a Class-A General Contractor or a C-34 Licensed Specialty Contractor. Said Contractor shall be bonded and shall provide a Proof of Insurance Certificate naming the City of Azusa as an additional insured. 2.2 RANCHO shall pay the CITY'S standard water tariff as the CITY designates, from time to time, for the type of service contemplated by this AGREEMENT and the standard monthly meter charge associated with a 3-inch meter service. The rates and charges for water service shall be subject to change, from time to time, as determined within the authority of the CITY. RANCHO shall be subject to applicable payment, collection and enforcement provisions which apply to the rates, fees and charges for the water service provided to RANCHO. . 2.3 RANCHO hereby agrees to comply with all current and future water efficiency and use restrictions promulgated by the CITY. 2.4 Since the water service provided by this AGREEMENT involves the provision of potable water for what is commonly a non-potable use, RANCHO hereby acknowledges and agrees as follows: (a) the use of potable domestic treated water for a nonpotable water use is not the highest use of said water; (b) during a CITY SYSTEM WATER SHORTAGE, the CITY'S non-irrigation water customers will be given priority to receive water service before RANCHO receives water for irrigation of their crops; and (c) the potable water delivered for non-potable use will not be diverted for use as drinking water or other household 019 -3- domestic uses including lawn and landscape irrigation either for RANCHO or any other party; (d) the service provided under this AGREEMENT shall be subject to applicable rules and regulations regarding conservation, water use efficiency, and water quality as may be imposed from time to time; and (e) the service provided under this AGREEMENT may be changed from potable water to non- potable or recycled water sources if the CITY determines in the future, within its authority,to impose such requirements. 2.5 During the term of this AGREEMENT, VASQUEZ shall release, relinquish, and waive future claims of any water rights in the Main San Gabriel Basin and the San Gabriel River and waive future claims for San Gabriel River water against the CITY and SGRWC of which CITY is a 43%member. RANCHO does hereby release, agree not to sue, and forever discharge the CITY from any and all claims for bodily injury, property damage, demands, costs, expenses, causes of action and liability for damage of whatsoever kind and character which may arise in connection with the application, connection and initiation of service as contemplated under this Agreement and in connection with the Main San Gabriel Basin and San Gabriel River as described herein RANCHO acknowledges that it has read these provisions and understands their meaning and agree to each of its terms. RANCHO hereby acknowledges that it has consulted with legal counsel, or had an opportunity to consult with legal counsel, regarding the provisions of California Civil Code section 1542, which provides as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." RANCHO hereby acknowledges that it may sustain damages, losses, costs or expenses which are presently unknown and unsuspected, and such damages, losses, costs or expenses which may be sustained may also give rise to additional damages, losses, costs or expenses in the future. Nevertheless, RANCHO hereby acknowledges that this waiver/release has been agreed upon in light of that situation and hereby expressly waives any and all rights which it may have under California Civil Code section 1542, or under any statute or common law or equitable principal of similar effect. ARTICLE 3-RESPONSIBILITIES OF CITY 3.1 CITY will provide water service to RANCHO at the subject property through the CITY SYSTEM, as set forth in this AGREEMENT, pursuant to the rules, regulations, rates and charges as determined within the CITY's authority from time to time. For example, and not by way of limitation, as of the date of this AGREEMENT, said service will be comprised of treated domestic water delivered to RANCHO from the CITY SYSTEM to serve RANCHO'S non-potable water requirements and the price charged for the water will be at the current Golf Course Irrigation tariff rate until such time as the City adopts an 020 -4- Irrigation/Farming rate or any other rate applicable to Rancho's water usage as determined by the City from time to time. 3.2 Upon satisfaction by RANCHO of applicable CITY requirements for connection, the CITY will approve and accept a 3-inch connection to its water main in Ranch Road to serve RANCHO with domestic treated water from the CITY SYSTEM for non-potable use to irrigate RANCHO'S avocado grove. CITY will have the right to inspect the installation of the 3-inch service as it is installed by RANCHO'S licensed Contractor. 3.3 CITY will read the service meter for RANCHO'S 3-inch water service on a monthly basis, and will bill RANCHO on a monthly basis. The City's customer service and billing polices shall apply. 3.4 CITY will be responsible for maintenance of the portion of the RANCHO 3-inch water service from the water main in Ranch Road to the downstream side of the 3-inch meter, inclusive of the 3-inch meter, but exclusive of damage caused by RANCHO or VASQUEZ to the meter or METER connecting valves. 3.5 In addition to the authority of the CITY as set forth herein to require changes in the type and manner of water service, the CITY reserves the right to serve RANCHO untreated surface water in lieu of domestic treated water if CITY determines in the future that the delivery of surface water in lieu of domestic water is both feasible and cost effective. Unless such service is requested by Rancho, the City shall be responsible for the costs of any such untreated water connection to Rancho. Rancho shall cooperate fully with the City in this regard and shall provide easements to the CITY at no cost on Rancho property. ARTICLE 4 - TERM OF AGREEMENT 4.1 This AGREEMENT shall become effective on the date of execution by the parties. The initiation of service as contemplated under this AGREEMENT shall be conditioned upon the full performance of the Sales Agreement, satisfaction of the conditions set forth in this AGREEMENT, and the termination of access to CICO canal water as set forth herein. 4.2 The term of this AGREEMENT shall continue until RANCHO ceases production of avocadoes from its grove. In addition, this AGREEMENT is subject to termination in the event of termination of service pursuant to the applicable rules and regulations including, but not limited to, the failure of RANCHO to pay for water service. If either party believes that the other party has failed to perform any obligation of that party in accordance with the terms of this AGREEMENT ("Default"), the party alleging the Default shall provide written notice ("Default Notice") to the other party, setting forth the nature of the alleged Default. The party claimed to be in Default shall have: (a) with respect to a Default involving -5- 021 the payment of money, ten (10) days after its receipt of the Default Notice to completely cure such Default unless said payment is subject to the CITY's billing policies in which case said requirements will apply, and (b) with respect to any other type of Default, thirty (30) days from the receipt of the Default Notice to completely cure such Default or, if such Default cannot reasonably be cured within such thirty (30) day period, to commence the cure of such Default within the thirty (30) day period and diligently prosecute the cure to completion thereafter. If the party alleged to be in Default fails to cure, or to commence to cure (if applicable), as provided herein, the party alleging the Default may exercise such rights and remedies as provided for under this Agreement and applicable law including for example, and not by way of limitation, termination of this Agreement.. 4.3 This AGREEMENT applies only to the use of potable water for non-potable uses within the legal boundaries of Rancho Vasquez extant at the time of execution of this Agreement. Use of potable water for a non-potable or potable use outside the current legal boundaries of Rancho Vasquez shall be impermissible without the express written consent of the City of Azusa. ARTICLE 5 - CAPTIONS All titles and headings are provided for the purpose of reference and convenience and shall not affect the meaning of this AGREEMENT. ARTICLE 6 - MODIFICATIONS This AGREEMENT may be modified only by the mutual written consent both Parties. ARTICLE 7 - SUCCESSORS AND ASSIGNS Neither RANCHO nor VASQUEZ may assign any rights or delegate any duties hereunder without the prior written consent of the CITY, which consent may be granted or withheld in the CITY's discretion. The right to use CITY SYSTEM water for irrigation purposes shall not run with the land, nor shall this AGREEMENT run with the land. ARTICLE 8 - ENTIRE AGREEMENT This AGREEMENT is intended by the Parties hereto as a final, complete, and exclusive expression of their agreement regarding the subject matter herein, and supersedes any and all other agreements, either oral or in writing between the Parties with respect to the subject matter of this AGREEMENT, and no other agreement, statement, or promise relating to the subject matter of the AGREEMENT which is not contained herein shall be valid and binding. Nothing in this AGREEMENT shall obligate the CITY to deviate from Q22 -6- its normal operations. If any part of this AGREEMENT is contrary to law or becomes contrary to law, the remainder of the AGREEMENT shall remain valid and enforceable. ARTICLE 9-CHOICE OF LAW AND VENUE This AGREEMENT shall be governed by and interpreted in accordance with the laws of the State of California.The Parties agree to submit to the jurisdiction and venue of the Superior Court of the State of California, County of Los Angeles,for all purposes. ARTICLE 10 -NOTICES All notices shall be made in writing and may be given by personal delivery, by mail (including overnight delivery services)or by facsimile. Until revised in writing by a Party, such notices sent by mail should be sent to the designated contact person for each party and addressed as follows: RANCHO: CITY: Mr.Arthur M.Vasquez Sr. Mr.Chet F. Anderson, P.E. 1720 Ranch Road City of Azusa Light and Water Department Azusa, CA 91702-1331 Assistant Director of Utilities—Water Operations (909)576-2923 729 North Azusa Avenue Azusa, CA 91702 (626)334-3163 FAX (626)812-5209 ARTICLE 11 - NECESSARY AUTHORIZATIONS Each Party represents that it has the necessary legal authority to enter into this AGREEMENT, and that this AGREEMENT, when executed by duly authorized representatives of said Party, represents a valid, binding and enforceable legal obligation of said Party. Each individual affixing a signature to this AGREEMENT represents and warrants that he or she has been duly authorized to execute this AGREEMENT on behalf of the Party he or she represents, and that by signing the AGREEMENT on behalf of the Party he or she represents, a valid, binding and enforceable legal obligation of said Party. ARTICLE 12-INCORPORATION OF RECITALS The recitals set forth above are incorporated herein as an operative part of this AGREEMENT. 023 -7- IN WITNESS THEREOF, the parties hereto have executed this AGREEMENT by and through their respected duly authorized officers as of the last day written below: CITY OF AZUSA RANCHO VASQUEZ Francis M. Delach, Arthur M. ez, Sr. City Manager Owner/ -8- 024 • W .i.: ��. � t F �•a � ,Far a.' AZ LI SA . CHI 3 'N',tot• SCHEDULED ITEM TO: HONORABLE CHAIRMAN AND MEMBERS OF THE AZUSA UTILITY BOARD FROM: GEORGE F. MORROW, DIRECTOR OF UTILITIE DATE: JUNE 28, 2010 SUBJECT: ELECTRIC FUND FINANCIAL REVIEW AND RECOMMENDATION RECOMMENDATION It is recommended that the Utility Board adopt the attached resolution to replace Electric Rate Schedule "FCA-SJ - Fuel Cost Adjustment-San Juan Resource" with Electric Rate Schedule "PCA - Power Cost Adjustment" to recover purchase power costs incurred from all resources that are in excess of retail base rate revenues. BACKGROUND From FY 2005-06 to FY 2007-08, the cost to purchase and provide power to Azusa's electric customers increased by 40.5% or by $6.6 million per year. Power resources costs continued to escalate in FY 2009-10 and were largely responsible for a budget deficit of $6.5 million at the beginning of the fiscal year. While rates were adjusted by about 5% in October 2007 and by 9.3% in December 2009, the approved rate adjustments were not sufficient to cover the purchased power cost increases since FY 2005-06. Consequently, costs for purchased power exceeded revenues by $9.9 million for the period of January 1 , 2008 through March 30, 2010. As a result, electric utility cash reserves declined and are now well below the existing reserve policy target of$20 million. In January 2010, the Utility Board approved selection of a third party consultant, Utility Financial Solutions, to review the electric fund financials and create a five year forecast. The consultant's report is attached and includes the following findings/recommendations: 1 . Current revenues are not adequate to maintain the long-term financial stability of the electric utility (Page 17). A $2.6 million reduction in our cash reserves is forecasted for FY 2010-11 , which would lower cash reserves to about $9 million by FY end (Page 4). 2. The Board should replace the current San Juan Fuel Cost Adjustment mechanism with a Power Cost Adjustment (PCA) that factors in all purchase power costs and wholesale 025 June 28,2010 Electric Fund Financial Review/Power Cost Adjustment Page 2 revenues. The PCA should be implemented for FY 2010-11 (Page 17). 3. A series of base rate adjustments should be considered after the PCA is implemented. Based on current five year forecast, consultant is recommending that a 2.5% increase be implemented each year for the next 5 fiscal years, in order to meet reserve requirements as identified in the consultant report (Page 17). 4. That a minimum reserve policy should be set at $12.6 million for FY 2010-11 and increased annually to $14.3 million by 2015 based on a formula (Page 18). 5. The five year financial projection should be updated annually as part of the budget process including review and update of five year capital improvement program projection. (Page 18). Staff generally concurs with the consultant's findings and recommendations. Although next year's budget and cash expenditures (i.e., including principal payment on debt service and capital expenditures) are in deficit by about $2.6 million, most of the revenue deficiency is due to purchase power costs exceeding that recovered through electric utility base rates. This is the most immediate problem and can be addressed by adopting a new PCA, which will increase rates by about 7.3%, and provide the utility with an additional $2.1 million to cover expected costs during next fiscal year, FY 2010-11. Other recommended actions, such as the increase in base rates and adoption of an amended reserve policy, can be considered later in the fiscal year. SUPPLEMENTAL STAFF ANALYSIS In working with UFS, AL&W staff generated a significant amount of information and analyzed historical budget/financial data to more precisely identify the cause of the operating budget deficit of the past few years. Through this process it became apparent to staff that net purchased power costs were escalating over time at a rate which outpaced proposed and approved rate adjustments. Consider the following budget items related to net purchased power costs: Net Purchased Power Costs FY 2005-06 through FY 2010-11 Account FY 2005-06 FY 2006-07 FY 2007-08 FY 2008-09 FY 2009-10 FY 2010-11 Wholesale Revenues (10,365,517) (5,367,877) (5,201,029) (3,463,315) *(4,200,000) (6,364,026) Purchased Power Cost 23,893,700 21,900,531 25,829,427 23,106,698 *26,200,000 25,264,118 Net Purchased Power Cost 13,528,184 16,532,654 20,628,398 19,643,384 22,000,000 18,900,092 Transmission Cost 2,602,382 2,391,715 2,255,043 2,372,305 3,349,380 2,650,824 Dispatch and Scheduling 268,587 276,468 589,034 590,352 735,200 656,168 Lodi Adjustments - - (439,216) (658,825) - Total 16.399.152 19.200.837 23,033.260 21.974,216 26.084,580 22.207.084 *Forecast through FY End 2009-10. As shown above, purchased power costs started escalating significantly after FY 2005-06. These costs increased by 17.1% in FY 2006-07 and then by 20.0% in FY 2007-08, with a combined net change of $6.6 million from FY 2005-06 to FY 2007-08. Rates were adjusted by about 5% in October 2007; however, this adjustment was not sufficient to cover the rising costs of power. 026 June 28,2010 Electric Fund Financial Review/Power Cost Adjustment Page 3 The disparity between rising purchase power costs and rates is principally why an operating budget deficit was evident in FY 2009-10, which lead to a rate increase of 9.3% effective December 1, 2009. (The 9.3% increase is projected to increase revenues about $2.9 million annually.) The variance in power supply costs from year to year makes it difficult to set base rates. When the Power Resource Division proposed the rate adjustment in 2007, for instance: (i) the revenue requirement was not adequate given changing market conditions and increasing purchase power costs as noted in above table; and (ii) the proposed rate adjustment did not include a cost adjustment mechanism to account for purchase power cost fluctuations as a whole. This second problem is discussed in more detail below. PURCHASED POWER COSTS AND LOSSES When costs are not being covered adequately with revenue from rates, losses result. In the 2007 study by the Power Resources Division, the cost base or revenue requirement was set at $18,723,000 for net purchased power costs for FY 2007-08. With forecasted sales of 250,668 MWH, the electric utility incorporated in base rates a price of$74.69 per MWH to cover its net purchased power costs. However, in FY 2007-08, actual costs were $23,033,260 and so rates were deficient by $4.3 million, or by about $17.20 per MWH. The table below shows monthly losses for the period of January 2008 through March 2008 based on budget reports -- the period immediately following the October 1, 2007 rate adjustment, excluding costs incurred in March 2008 for City's participation in Lodi Energy Center project: Excess/(Deficiency)in Revenues to Cover Purchased Power Costs Jan '08 Feb'08 Mar'08 Quarter Total Actual Power Costs 1,649,471 2,511,598 1,805,560 5,966,629 Base Rate Revenue for Power Costs 1,474,428 1,372,174 1,301,142 4,147,744 Revenue Excess(Deficiency) (175,043) (1,139,424) (504,418) (1,818,885) The following table shows quarterly losses from January 2008 through March 2010 to further illustrate the ongoing nature of this problem, which, amounted to a total aggregate loss of about $9.9 million. Year Period Revenue Excess(Loss) 2008* Jan—Mar (1,818,885) Apr—Jun (1,612,496) July-Sept 115,403 Oct-Dec (2,188,256) 2009* Jan—Mar 63,192 Apr-Jun (1,102,159) July-Sept (551,125) Oct-Dec (1,940,921) 2010 Jan—Mar (867,575) Total: (9,902,822) *Excludes $1.1 million in capital costs for Lodi Energy Center. The ability of any business to sustain itself financially is to have adequate revenues to cover its cost base for doing business. The above table clearly shows that base rates approved in October 2007 were not adequate to cover purchase power costs during the period cited above; moreover, 027 June 28,2010 Electric Fund Financial Review/Power Cost Adjustment Page 4 the base rate increase of 9.3% on December 1, 2009, was also not sufficient to cover these costs. This shortfall was recognized by staff but it wanted validation by an outside consultant before implementing broader solutions. To address the power supply deficiency in the rate structure, the consultant was requested to formulate a Power Cost Adjustment mechanism and articulate some different options for implementing. a PCA (See pages 9-12 in attached report by UFS). The proposed and recommended PCA is a broader concept than the fuel cost adjustment (FCA) mechanism that Azusa has been using since 2004 to recover costs associated with outages of the San Juan power plant. The new PCA concept factors in all purchase power costs (and revenues), not just those costs related to the San Juan resource. And so, if the new PCA is adopted, it would replace the FCA mechanism for the San Juan power plant. BACKGROUND ON POWER COST ADJUSTMENT (PCA) MECHANISMS PCAs are used to recover purchase power costs that fluctuate above base rates and several utilities have PCA mechanisms, including the following: • City of Riverside • SMUD • City of Glendale • Turlock ID • LADWP • City of Banning • City of Anaheim • City of Burbank • City of Pasadena • Lodi • Imperial ID The concept of a PCA is to pass-through the net purchased power costs not covered by base rates on a dollar-for-dollar basis such that the utility does not lose money on its purchased power costs and does not profit from the PCA rate mechanism. Numerous PCA models were considered through this study, including (1) monthly true up; (2) quarterly true up; (3) 12 month rolling average; and (4) annual budget based PCA with semi-annual true up. Each of these models starts with defining what is included in the base rates for purchase power costs. The report prepared by the Power Resources Division dated July 23, 2007, set the revenue requirement for purchased power costs at $18,723,000, for FY 2007-2008. As previously noted, this was the amount included in the base rate for purchased power. By dividing this revenue requirement by the MWHs of sales for the year, 250,668 MWHs, a base rate of$74.69 per MWH was set for purchase power cost recovery on October 1, 2007. This base rate portion was intended to cover the following budget items: • Purchase Power Cost—long term and short term purchases • Transmission Cost • Scheduling and Dispatch • Wholesale or Resale Revenues (Credit) 028 June 28,2010 Electric Fund Financial Review/Power Cost Adjustment Page 5 A second general rate increase of 9.3% went into effect on December 1, 2009, which increased the power supply cost recovery of$74.69 per MWH to $81.64 per MWH. The purchased power cost above $81.64 per MWH therefore represents the incremental cost not covered by the existing base rates which have been approved to date (See page 13 of UFS's report). It is this incremental difference between $81.64 per MWH and our actual cost for power that the PCA aims to recover. There are numerous ways to recover the incremental purchased power costs that fluctuate above base rates, however, staff is recommending that a PCA be adopted based on the FY 2010-11 budget forecast for power purchase costs. The power resources budget for FY 2010-11 is as follows: FY 2010-11 Power Resource Budget Wholesale Revenues (6,364,026) Purchased Power Cost 25,264,118 Net Purchased Power Cost 18,900,092 Transmission Cost 2,650,824 Dispatch and Scheduling 656,168 Total 22,207,084 While sales may vary in the upcoming fiscal year, total projected sales during FY 2009-10 are 245,631 MWH. Using this figure for next year's forecast, results in a cost of$90.41 per MWH for FY 2010-11. The difference between the current rate of $81.64 per MWH and $90.41 per MWH is $8.77 per MWH or $2.1 million for FY 2010-11. This is the revenue deficiency in the current rate structure to pay for estimated power purchase costs during the upcoming fiscal year and the targeted revenue amount to be recovered through a PCA. (This amount would be grossed up for in lieu and franchise fees.) The forward looking nature of this method allows us to review it more in real time as opposed to looking back at prior periods. Since it is calculated over a one year period, it is believed that this approach will be more stable than using a method that changes rates each month or quarter. This will help large customers which desire more stable utility rates. By reviewing costs every six months, we can assess whether the PCA is adequate to cover our actual costs or should be adjusted either up or down. Following periods are suggested for any true up calculations or adjustments: True Up Tracking Period Add to PCA Effective May-October January 1 November-April July 1 FISCAL IMPACT The PCA for next fiscal year would be $8.77 per MWH or $0.00877 per kWh, plus a 10% franchise fee which brings total PCA to $0.0096 per kWh. Based on sales from last year, this would increase rates by about $2.3 million, including about $210,000 for franchise and in lieu fees. 029 June 28,2010 Electric Fund Financial Review/Power Cost Adjustment Page 6 Since current residential rates are $0.1313 per kWh, the PCA, including City fees, would increase rates by 7.3% to about $0.1409 per kWh. Based on usage of 481 kWh per month, the average household would see an increase of $4.61 per month. SCE's rates for residential customers are about $0.1710 per kWh, based on a recent survey conducted by the California Municipal Rates Group (CMRG). Commercial rates per kWh would increase from $0.1359 per kWh to $0.1455 or by about 7.1%. SCE's rates for commercial customers are about $0.1626 per kWh. Attachments: Resolution—to replace San Juan FCA with PCA Utility Financial Solutions (UFS) Report Prepared by: Cary Kalscheuer, Assistant to the Director of Utilities 030 RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL AND UTILITY BOARD OF THE CITY OF AZUSA, CALIFORNIA, REPLACING ELECTRIC RATE SCHEDULE "FCA-SJ - FUEL COST ADJUSTMENT— SAN JUAN RESOURCE" WITH "PCA - POWER COST ADJUSTMENT" SCHEDULE. WHEREAS, the Rules and Regulations of Azusa Light & Water include Electric Rate Schedule "FCA-SJ—Fuel Cost Adjustment— San Juan Resource"; and WHEREAS, the FCA-SJ Rate Schedule was adopted in 2004 to cover fluctuations in purchased power costs associated with the reliability of the San Juan Power Plant; and WHEREAS, the net cost of purchased power increased by 40% from FY 2005-06 to FY 2007-08, and continues to vary widely from year to year; and WHEREAS, the FCA-SJ Rate Schedule has not provided adequate revenue to cover the Electric Utility's power supply costs in recent years; and WHEREAS, purchased power costs exceeded retail revenues by$9.9 million from January 1, 2008 through March 30, 2010, due to increased cost for purchased power above that collected in approved base rates; and WHEREAS, in January 2010, the Azusa Utility Board approved selection of a consultant to review and analyze rate adjustment options to cover fluctuating purchased power costs; and WHEREAS, the consultant retained by Azusa Light & Water has recommended adoption of a more comprehensive power cost adjustment mechanism which factors in the cost of power purchased from all resources, wholesale revenues, transmission costs, and scheduling and dispatching costs; and WHEREAS, the proposed PCA methodology has been set forth in the attachment to this Resolution as Exhibit A—"PCA Schedule—Power Cost Adjustment"; and WHEREAS, the "PCA Schedule—Power Cost Adjustment"will be more effective at recovering actual purchased power costs that exceed current base rates and help prevent further monetary losses due to power cost fluctuations; NOW, THEREFORE BE IT RESOLVED,by the City Council and Utility Board of the City of Azusa, as follows: 1. That the"PCA Schedule -- Power Cost Adjustment", attached hereto as Exhibit A, is hereby adopted and shall replace the"FCA-SJ - Fuel Cost 031 Adjustment— San Juan" Schedule in Azusa Light &Water Rules and Regulations. 2. That the PCA Schedule, attached hereto as Exhibit A, shall be effective for all utility bills rendered on or after July 1, 2010. 3. That the initial PCA shall be set to $0.0096 per kWh effective July 1, 2010, inclusive of franchise and in lieu fees. 4. The City Clerk shall certify the adoption of this Resolution. PASSED, ADOPTED and APPROVED this day of June 2010. Joseph F. Rocha, Mayor ATTEST: Vera Mendoza, City Clerk STATE OF CALIFORNIA ) COUNTY OF LOS ANGELES ) ss. CITY OF AZUSA ) I HEREBY CERTIFY that the foregoing Resolution was duly adopted by the City Council/Utility Board of the City of Azusa at a regular meeting of the Azusa Utility Board on the 28th day of June, 2010. AYES: COUNCILMEMBERS: NOES: COUNCILMEMBERS: ABSENT: COUNCILMEMBERS: Vera Mendoza, City Clerk 032 EXHIBIT A Schedule PCA Power Cost Adjustment Applicability: This schedule is applicable to all electric customers served by Azusa Light & Water. Each customer shall pay the applicable rate plus a Power Cost Adjustment (PCA) for each kilowatt-hour (kWh) delivered to the customer. The adjustment shall be the product of the total kWh for which the bill is rendered times the PCA amount (cents per kWh). The purpose of the PCA is to adjust for increases/decreases to the utility's wholesale power- related costs. Territory: Within the electric service territory of the City of Azusa. Rate: The PCA billing factor for any given semi-annual period (i.e. six month period) shall be calculated as follows: PCA = (a) - (c) + (d) (b) (e) Where: (a) Equals the utility's projected "power supply related costs" (PS Costs) for the fiscal year. (b) Equals projected retail energy sales (in kWh) for the fiscal year. (c) Equals the baseline energy cost for the utility. At July 1, 2010, this amount is $0.08164 per kWh. (d) A "true-up" equaling the difference between actual and budgeted PS Costs for the prior six month true-up period. (The true-up for the May — October period is implemented during the following January —June period. The true-up for the November—April period is implemented during the following July—June period.) (e) Equals the projected sales level (in kWh) for the applicable six month period of implementation of the "true up" determined in paragraph "d" above. 1 033 The PCA for any semi-annual period shall be adjusted to reflect franchise fees and in lieu transfer costs. At July 1, 2010,this amount is ten (10) percent. Schedule PCA Power Cost Adjustment "Power supply related costs" shall include all costs of power supply including, but not limited to, costs of power production, power purchases, transmission, losses, CAISO, capacity, REC's, environmental allowances, and dispatch & scheduling; reduced by third party power sales revenue. 2 034' CITY OF AZUSA LONG TERM FINANCIAL PROJECTION FINAL REPORT ELECTRIC DEPARTMENT JUNE 22,2010 Utility Financial Solutions, LLC 185 Sun Meadow Court Holland,MI USA 49424 (616)393-9722 Fax(616)393-9721 Email:mbeauchamp@ufsweb.com Submitted Respectfully by: Mark Beauchamp, CPA, CMA, MBA President, Utility Financial Solutions Utility Financial Solutions,LLC 035 CITY OF AZUSA - ELECTRIC DEPARTMENT TABLE OF CONTENTS SECTION PAGE No. INTRODUCTION 2 PROJECTION 3 CASH FLOWS 4 FINANCIAL TARGETS 5 RECOMMENDED RATE TRACK 9 POWER COST ADJUSTMENT 10 SUMMARY OF SIGNIFICANT ASSUMPTIONS 15 RECOMMENDATIONS 18 ACCOUNTANTS COMPILATION REPORT 20 6/22/2010 1 036 CITY OF AZUSA ELECTRIC DEPARTMENT FINANCIAL PROJECTION INTRODUCTION This report was prepared to provide the City of Azusa with a long-term financial forecast and rate track for the period from 2011 — 2015. The specific purposes of the financial plan are identified below: 1) Determine electric utility's revenue requirements. The electric utility's revenue requirements were projected for the period from 2011 — 2015. The long term projection was based on review of actual expenditures occurring in 2009, budgeted expenses for 2011 and projected power supply costs provided by the City for the period from 2011 — 2015. 2) Recommend rate adjustments needed to meet targeted revenue requirements. The primary purpose of the financial projection is identification of appropriate revenue requirements and rate adjustments needed to meet financial targets. The report includes a long-term rate track for the City of Azusa to help ensure the financial stability of the utility in future years. The current rate track based on the projected expenditures recommends a rate adjustment of 2.9% 2011 — 2015. In addition, a power cost adjustment is recommended for immediate implementation. 3) Review the current Fuel Cost Adjustment and if appropriate recommend modifications. The City of Azusa uses a fuel cost adjustment factor (FCA) to help ensure expenses incurred for power supply costs are recovered from customers in a timely fashion. The FCA was developed a number of years ago, this report reviews the current methodology and its applicability to the current power supply environment in California. The City of Azusa retained Utility Financial Solutions to review the above items and make recommendations on the appropriate course of action. This report includes results of the long-term financial plan and rate track. 6/22/2010 2 037 CITY OF AZUSA ELECTRIC DEPARTMENT FINANCIAL PROJECTION PROJECTION To determine revenue requirements, the actual revenues and expenses for 2009 and budgets for 2010 and 2011 were analyzed with adjustments made to expenses to reflect projected operating characteristics. Detailed descriptions of the methodology are included in the section "Summary of Significant Assumptions". Projected net operating loss for 2011 is ($2.7) million and decreases slightly to a projected loss of ($2.4) million in 2015. Table One — Projected Financial Statements without Rate Increases Projected Projected Projected Projected Projected Revenues 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 Retail Revenues $ 31,515,900 $ 31,594,690 $ 32,490,269 $ 32,648,637 $ 32,807,798 Resale Revenue 6,364,026 7,203,566 10,560,763 11,129,432 11,821,880 Other Nisc Revenue 303,300 304,058 304,818 306,342 307,874 Total Revenues $ 38,183,226 $ 39,102,314 $ 43,355,851 $ 44,084,412 $ 44,937,552 • Expenses Purchased Power $ 25,264,118 $ 26,888,549 $ 29,460,253 $ 30,132,645 $ 30,259,566 Transmission Dispatching 4,243,012 4,381,592 4,509,018 4,631,772 4,761,650 Operations and Maintenance 4,757,795 4,348,377 4,500,571 4,658,090 4,821,124 Administrative and General 2,183,746 2,686,430 2,780,455 2,877,771 2,978,493 Franchise and In-Lieu-Tax 3,151,590 3,159,469 3,167,368 3,183,204 3,199,121 Depreciation 1,323,291 1,344,511 1,360,011 1,370,011 1,382,011 Total O&M Expenses $ 40,923,552 $ 42,808,928 $ 45,777,675 $ 46,853,494 $ 47,401,964 Net Operating Income I $ (2,740,326) $ (3,706,614) $ (2,421,824) $ (2,769,083) $ (2,464,412)1 Other Revenues&Expenses hterest Income $ 245,715 $ 210,356 $ 125,259 $ 76,762 $ 17,062 hterest on Long-Term Debt (468,614) (443,151) (416,996) (388,349) (357,710) Net Income $ (2,963,224) $ (3,939,408) $ (2,713,562) $ (3,080,669) $ (2,805,059)1 1. The projection shows an interest income line item in the "Other Revenues and Expenses" section. Per City ordinance, interest income is transferred to the City when net income is positive. When net income is negative, it is held within the electric utility and shown as "Other Revenue". In the current projection, the interest income would be held within the electric utility as net income is projected to be negative. 2. Resale revenues can significantly impact the financial results of the Electric Department. Resale revenues are dependent on a number of factors that affect the market price of electricity and historically have fluctuated between a high of $11.5 in 2004 and a low of $3.8 million in 2009. The current power supply projection included resale revenues of $6.36 million in 2010-2011. The projected resale revenues are dependent on a number of factors that are difficult to predict with accuracy. This may result in undercharging or overcharging customers in any given period. 6/22/2010 3 038 CITY OF AZUSA ELECTRIC DEPARTMENT FINANCIAL PROJECTION CASH FLOWS Table Two is projected cash flows for 2011 — 2015. Cash balances are projected at $9.02 million in 2011 and projected to decrease in 2015 to negative ($1.7) million. Cash reserve levels are below recommended minimum cash levels for the period from 2011 — 2015. (Please see page 7) Capital improvement programs can have a significant impact on projected cash reserves. The current cash projection estimates capital improvements around $500,000 per year plus and average of an additional $1.2 million per year in the operations expense budget. Modifications to the capital improvement plan may result in substantial variations from projected cash balances and should be reviewed on an annual basis as part of the budget process. Table Two— Projected Cash Flows —Without Rate Adjustments Projected Projected Projected Projected Projected Projected Cash Flows 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 Add Net hcome $ (2,963,224) $ (3,939,408) $ (2,713,562) $ (3,080,669) $ (2,805,059) Add Back Depreciation Expense 1,323,291 1,344,511 1,360,011 1,370,011 1,382,011 Subtract Debt Principal 480,000 530,000 555,000 585,000 620,000 Add Bond Sale Proceeds - - - " - Cash Available from Operations (2,119,934) (3,124,897) (1,908,551) (2,295,659) (2,043,049) Estimated Annual Capital Additions 486,000 575,000 200,000 300,000 300,000 Net Cash From Operations $ (2,605,934) $ (3,699,897) $ (2,108,551) $ (2,595,659) $ (2,343,049) Beginning Cash Balance 11,621,559' 9,015,626 5,315,728 3,207,177 611,518 LEnding Cash Balance 9,015,626 5,315,728 3,207,177 611,518 (1,731,531) 6/22/2010 4 039 CITY OF AZUSA ELECTRIC DEPARTMENT FINANCIAL PROJECTION FINANCIAL TARGETS Development of Recommended Rate Track Two targets were established for the City of Azusa and used in development of the long-term rate track: • Debt Coverage Ratio • Minimum Cash Reserves 1. Debt Coverage Ratio - Debt coverage ratios mandated by covenants established in a bond ordinance must be maintained to ensure the City of Azusa maintains its bond rating and the capacity to issue additional revenue bonds. Azusa's bond coverage ratios require cash generated from operations to exceed 1.1 times the debt payments. Due to fluctuations in sales, mainly the result of weather, a safety factor is recommended to help ensure coverage ratios are met during low sales years. We have established a target of 1.3 for financial projection purposes. This becomes the minimum target and rates must be established to meet the debt coverage target. The table below contains projected debt coverage ratios from 2011 — 2015. Please note that the transfer to the City is not included as an expense for debt service calculations per bond counsel (Reference page C-4 of the sale installment agreement). Table Three - Debt Coverage Ratio Projection —Without Rate Adjustment Projected Projected Projected Projected Projected Debt Coverage Ratio 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 Add Net hcome $ (2,963,224) $ (3,939,408) $ (2,713,562) $ (3,080,669) $ (2,805,059) Add Depreciation Expense 1,323,291 1,344,511 1,360,011 1,370,011 1,382,011 Add Interest Expense 468,614 443,151 416,996 388,349 357,710 Add Transer to City 3,151,590 3,159,469 3,167,368 3,183,204 3,199,121 Cash Available for Debt Service $ 1,980,270 $ 1,007,722 $ 2,230,813 $ 1,860,894 $ 2,133,781 Debt Rincipal and Interest 948,614 973,151 971,996 973,349 977,710 Projected Debt Coverage Ratio(Covenants) 2.09 1.04 2.30 1.91 2.18 Minimum Debt Coverage Ratio ( 1.30 1.30 1.30 1.30 1.30 I The debt ratios are sufficient 2011 and 2013 through 2015. 6/22/2010 5 040 CITY OF AZUSA ELECTRIC DEPARTMENT FINANCIAL PROJECTION FINANCIAL TARGETS 2. Minimum Cash Reserve Target - To help ensure timely completion of capital improvements and enable the utility to meet requirements for large unexpected expenditures, a minimum cash reserve policy should be established. Minimum cash reserves attempts to quantify the minimum amount of cash the utility should keep in reserve, actual cash reserves may vary substantially above the minimum and is dependent on the life cycle of assets that are currently in service. If a minimum cash reserve policy is established, and the utility's cash balance falls below the established amount, it will require the Board to take action to rebuild cash. The typical action includes a rate increase or the consideration of a bond issuance. The City of Azusa currently has a cash policy that sets the desired amount of cash to be on hand of approximately $20 million. The policy recommended here sets the minimum cash to be on hand before action is required by the Board. The two policies complement each other as one sets the desired or target amount, and one sets the minimum balance that would trigger action by the Board. The methodology used in this report is based on certain assumptions related to percent of operation and maintenance, rate base, capital improvements, and debt service. The establishment of minimum cash reserves should consider a number factors including: • Working Capital Lag - Timing differences between when expenses are incurred and revenues received from customers. Establishing a minimum cash reserve helps to ensure cash exists to pay expenses in a timely manner. The calculation used 25% of O&M (less depr) to account for this, which is equal to approximately 3 months of operating expenses. • Investment in Assets — Catastrophic events may occur that require substantial amounts of cash reserves to replace damaged assets. Some examples of catastrophic events include earthquakes, wind storms, floods, or tornadoes. Many of these catastrophic events may allow the utility to recover the cost of damages from FEMA; however FEMA reimbursements can take between 6 months to 2 years to recover. The utility should ensure adequate cash reserves exist to replace the assets in a timely fashion. The minimum reserve levels are often combined with emergency funding from banks or bonding agencies. The calculation used 3% of historical asset base to account for this. • Annual Debt Service — Debt service payments do not occur evenly throughout the year and often occurs at periodic times typically every six months. The utility has to ensure adequate cash reserves exist to fund the debt service payment when the payment is due. The Debt service payment for the following fiscal year is allocated at 100% for the calculation. • Capital Improvement Program — Some capital improvements are funded through bond issuances and some through revenues or cash reserves. The establishment of a minimum cash reserve level helps to ensure timely replacement or construction of assets. The calculation used 15% for the next year capital improvement plan and 15% of the five-year capital plan to account changes in the annual capital improvement program. 6/22/2010 6 • 041 CITY OF AZUSA ELECTRIC DEPARTMENT FINANCIAL PROJECTION FINANCIAL TARGETS The recommended minimum cash reserve calculation established for FY 2011 is $12.6 million based on the assumptions listed below. The minimum level of cash reserves is projected to increase each year and exceed $14.2 million in 2015. Current and projected cash reserves are below minimum levels throughout the projection period. The Electric Department should develop and approve a formal cash reserve policy based on cost categories listed below. The assumptions used to determine minimum cash levels are based on the judgment and experience of Utility Financial Solutions and consider the potential variations in power supply costs and risks factors that may adversely impact Electric Department's cash reserves. Table Four - Minimum Cash Reserve Compared to Projected Reserves Projected Projected Projected Projected Projected Input 20102011 2011-2012 2012-2013 2013-2014 2014-2015 Operation&Maintenance Less Depreciation Expense 14,205536 14575,869 15,774,004 16,167,431 16,576,980 Flow er Supply 25,264,118 26,888,549 28,643,660 29,316,053 29,442,973 Historical Rate Base 46,448,227 47,023,227 47,223,227 47,523,227 47,823,227 Current Fbrtion of Debt Service Reserve 973,151 971,996 973,349 977,710 977,710 Next Years CIP-Net of bond proceeds and Donations 372,200 372,200 372,200 372,200 372,200 Five Year CIP-Net of bond proceeds and Donations 1,861500 1,861500 1,861500 1,861500 1,861500 Percent Allocator Percent Allocated Fbrcent Allocated Percent Allocated Percent Allocated Percent Allocated Operation&Maintenance Less Depreciation Expense 25% 25% 25% 25% 25% Flower Supply 25% 25% 25% 25% 25% Historical Rate Base 3% 3% 3% 3% 3% Current Fbrtion of Debt Service Reserve 100% 100% 100% 100% 100% Next Years Capital Improvements-Net of bond proceec 15% 15% 15% 15% 15% Five Year Capital Improvements-Net of bond proceeds 15% 15% 15% 15% 15% Recommended Recommended Recommended Recommended Recommended Minimum Minimum Minimum Minimum Minimum Minimum Cash Reserve Recommended 20102011 2010-2012 20102013 2010-2014 2010-2015 Operation&Maintenance Less Depreciation Expense $ 3,551,459 $ 3,643,967 $ 3,943,501 $ 4,041,858 $ 4,144,245 Flower Supply 6,316,030 6,722,137 7,160,915 7,329,013 7,360,743 Historical Rate Base 1,393,447 1,410,697 1,416,697 1,425,697 1,434,697 Current Portion of Debt Service Reserve 973,151 971596 973,349 977,710 977,710 Next Years CIP-Net of bond proceeds and Donations 55,830 55,830 55,830 55,830 55,830 Five Year CIP-Net of bond proceeds and Donations 279,150 279,150 279,150 279,150 279,150 ;Minimum Cash Reserve Recommended $ 12,569,066 $ 13,083,777 $ 13,829,442 $ 14,109,258 $ 14,252,375 i !Projected Cash Reserves $ 9,015,626 $ 5,315,728 $ 3,207,177 $ 611,518 $ (1,731,539 Notes: 1. Operation and maintenance expense excludes depreciation expense. 2. Rate base is historical investment in plant and equipment. 3. Debt Service is based a an annual payment 4. Next years capital includes budgeted capital improvements for the next fiscal year and excludes capital improvements funded through debt issuances. 5. Next five years capital is budgeted capital improvements for the next five years and excludes capital improvements funded through debt issuances. 6/22/2010 7 042 CITY OF AZUSA ELECTRIC DEPARTMENT FINANCIAL PROJECTION FINANCIAL TARGETS SUMMARY OF ANALYSIS The recommended rate track was developed to meet the following objectives: • Exceed a bond coverage target of 1.30 for each year. • Maintain cash balances that exceed the minimum cash reserve target. • Maintain operating income targets established in this study. Table Six is the recommended rate track to achieve financial targets established in this study while minimizing rate impacts on customers of the City of Azusa. A 2.5% rate increase is recommended for Fall 2011, and subsequent yearly increases in 2012 — 2015 to meet operating income and move cash reserves above minimum recommended levels by 2015. The projected rate adjustments should be considered, however an in depth cost of service analysis should be completed in conjunction with any subsequent rate designs. In addition, the City should consider immediately implementing a "Power Cost Adjustment (PCA)" to help ensure changes in power supply costs are recovered from customers as discussed on page 10. The table below includes revenues in 2011 of $2.1 million from a proposed PCA, recommended to be implemented immediately and a 2.5% increase to be implemented in Fall 2011. Table Six — Recommended Rate Adjustments PCA Revenues Projected Included in Adjusted Debt Fiscal Rate Projected "Projected Projected Operating Capital Projected Bond Coverage Year Adjustments Revenues* Revenues" Expenses Income Improvements Cash Balances Issues Ratio 2011 2.50% $ 41,124,892 $ 2,153,769 $ 40,923,552 $ 201,341 $ 486,000 $ 11,957,292 $ - 5.19 2012 2.50% 43,681,322 2,979,527 43,266,828 414,493 575,000 12,439,394 - 5.80 2013 2.50% 47,211,442 1,420,182 46,163,234 1,048,208 200,000 13,957,953 6.42 2014 2.50% 48,899,249 1,510,261 47,334,978 1,564,271 300,000 15,936,151 - 7.11 2015 2.50% 50,077,920 936,480 47,916,001 2,161,919 300,000 18,565,133 - 7.79 Recommended Target(Minimum)2011 $ 2,068,260 $ 12,569,066 1.30 Recommended Target(Minimum)2015 $ 1,831,949 $ 14,252,375 1.30 6/22/2010 8 043 CITY OF AZUSA ELECTRIC DEPARTMENT FINANCIAL PROJECTION REVIEW OF POWER COST ADJUSTMENT Power Cost Adjustments are used by many public power systems and most investor owned utilities to help ensure changes in power supply costs are recovered from customers in a timely manner. The City of Azusa has relatively stable and predictable costs of power supply from its owned and contracted resources however, power supply expenses are reduced by wholesale (Resale) revenues resulting from excess power sold into the market. The market price of power varies depending on a number of factors including: natural gas prices, weather, economic conditions, and transmission constraints that occur in certain regions of the state. Over the past six years the revenue received from market sales has ranged from $11.5 million in 2004 to a low in 2009 of $3.8 million. Table Seven –Wholesale Sales Revenue Wholesale Sale Revenue 12,000,000 – — i 1 10,000,000 -AWL 8,000,000 6,000,000 �---- I a 4,000,000 . ...... ... . 2,000,000 (6)) o`O o`� tiaa� tiao� tiooP tiaah tiao� tioo\ 195' o 6/22/2010 9 044 CITY OF AZUSA ELECTRIC DEPARTMENT FINANCIAL PROJECTION REVIEW OF POWER COST ADJUSTMENT The fluctuations in revenue from sales to the market resulted in the average cost of power rising from 6.2 cents/kWh in 2005 to 9.0 cents/kWh in 2009, an increase of 45% over the five year period. Table Eight —Average Cost of Power Supply - kWh Average Cost of Power Supply - kWh 0.090 1.075 1 .7 I.' FY 2004-05 FY 2005-06 FY 2006-07 FY 2007-08 FY 2008-09 . 1 . The current Fuel Cost Adjustment methodology used by the City adjusts only when replacement power is purchased for the San Juan generating unit and does not adjust for changes in operating costs at San Juan, Pala Verde, other power supply sources or the variations in revenue from market sales. This current method has several financial weaknesses currently affecting the Electric Departments financial stability including: 1. Substantial reductions in cash reserve balances 2. Exposes the City to a substantial amount of market risk with inadequate cash reserve levels to support the fluctuations in power supply costs 3. Operating income losses 4. Inadequate funding for the replacement of infrastructure 6/22/2010 10 04.E CITY OF AZUSA ELECTRIC DEPARTMENT FINANCIAL PROJECTION REVIEW OF POWER COST ADJUSTMENT To help ensure the long-term financial stability of the Electric Department, the City of Azusa should consider the establishment of a Power Cost Adjustment (PCA) mechanism to protect the utility and customers from under or over-recovery of power costs. Consideration should be given of the positives and negatives prior to implementation of a PCA mechanism. Some of these are listed below: Negatives: 1. If large fluctuations in power supply costs occur, it can result in large un- expected charges to customers resulting in increased customer complaints. 2. A PCA tends to impact high load customers more in the short-term when compared with the cost impacts on lower load factor customers. 3. Upon initial implementation, customers may not understand the new line item on bills Positives: 1. Implementing a PCA recovers variations in power supply costs in a timely fashion from customers 2. Helps improve bond ratings of utility 3. Results in lower cash reserve requirements for the utility 4. Helps prevent overcharging or undercharging customers 5. Reduces the frequency of annual rate changes The impacts on customers can be minimized while helping to maintain the financial integrity of the utility. The type of PCA mechanism established should consider the potential impacts and consider the current financial position of the utility. A number of methodologies exist in calculating PCAs. A few of the methodologies are listed below: 1. Monthly PCA - Typically calculated each month based on the power costs and sales that occurred in the previous month or projected for the next month. This methodology can result in significant changes in the PCA on the month to month basis and may result in increased complaints from customers who might prefer a smoother adjustment. 2. Quarterly PCA - Calculated on the quarterly basis and charged to customers over the next three months. Rate fluctuations are minimized however, once again significant changes in the PCA charge may occur when the true up occurs each quarter. 6/22/2010 11 046 CITY OF AZUSA ELECTRIC DEPARTMENT FINANCIAL PROJECTION REVIEW OF POWER COST ADJUSTMENT 3. Semi-Annually PCA - Results are similar to the quarterly PCA methodology except costs are spread over the next six months. 4. Annual PCA - The power costs are trued-up each year and significant changes can occur at the beginning of each year. Also the Utility has to maintain significant reserves to provide funds to cover the fluctuations in the power costs over the year. 5. Rolling average PCA - Tends to smooth out the fluctuations while maintaining the financial integrity of the utility. Costs are reviewed each month with small changes occurring with the goal of balancing power costs at the end of specific period of time such as 12 months. 6. Forecasted PCA Monthly Review - Based on the annual budget then adjusted monthly to reflect actual power supply costs 7. Forecasted PCA Semi Annual Review - Based on annual budget with a review after six months In discussions with staff, it was recommended to use a forecasted PCA set on an annual basis (based on that fiscal year's budget) with a review (true-up) of the PCA on a six month basis. Base Amount Currently Included in Rates A critical component of a PCA is the establishment of the base amount currently included in the rates. The base amount is the amount of power costs recovered in the current rates paid by customers. The 2007 cost of service study was used to establish the base amount and was identified through review of the budgeted power supply costs included in the rates designed for customers in 2007. The base rate amount was adjusted in 2009 by an approved rate increase of 9.3%. The table below is the calculated base rate amount for power supply currently included in customers rates. 6/22/2010 12 04 / CITY OF AZUSA ELECTRIC DEPARTMENT FINANCIAL PROJECTION REVIEW OF POWER COST ADJUSTMENT Amount Fixed $ 14,570,035 Variable 2,775,245 Transmission 1,377,720 Total Power Supply Costs Projected in 2007 $ 18,723,000 kWh Sales Projected in 2007 Residential 75,487 G1 19,237 G2 57,789 Other 12,259 TOU 85,896 Total 250,668 Average Cost of Power Supply (2007) - mWh $ 74.69 2009 Rate Adjustment 9.3% Base Rate $ 81.64 POWER COST ADJUSTMENT PROPOSED: The City should consider using a PCA methodology based on budgeted power supply costs and reviewed periodically during the year. The following methodology should be considered: 1. Project power costs and wholesale revenues at the beginning of each year as part of the budget process. 2. As the year progresses, the projected power costs should be compared with actual with changes occurring periodically during the year. 3. The objective is to achieve a zero balance in power supply costs between the amount paid by the City and the amount reimbursed from the customer's at the end of a 12 month period. Any variations would be rolled into the subsequent year. 6/22/2010 13 04 8 CITY OF AZUSA ELECTRIC DEPARTMENT FINANCIAL PROJECTION SUMMARY OF SIGNIFICANT ASSUMPTIONS The following is an outline of the significant assumptions used in development of the financial analysis and long-term rate track for City of Azusa. 1) Growth rates were projected at the following: Year Growth Rate 2011 0.00% 2012 0.25% 2013 0.25% 2014 0.50% 2015 0.50% 6/22/2010 14 049 CITY OF AZUSA ELECTRIC DEPARTMENT FINANCIAL PROJECTION SUMMARY OF SIGNIFICANT ASSUMPTIONS 1) Expenses other than power supply were projected to increase at an annual rate of 3.5%. The table below is the projected expenses from 2010 — 2015. Projected Projected Projected Projected Projected Expenses 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 Purchased Power $ 25,264,118 $ 26,888,549 $ 29,460,253 $ 30,132,645 $ 30,259,566 Transmission Dispatching 4,243,012 4,381,592 4,509,018 4,631,772 4,761,650 Operations and Maintenance 4,757,795 4,348,377 4,500,571 4,658,090 4,821,124 Administrative and General 2,183,746 2,686,430 2,780,455 2,877,771 2,978,493 Franchise and In-Lieu-Tax 3,151,590 3,617,370 3,552,927 3,664,688 3,713,157 Depreciation 1,323,291 1,344,511 1,360,011 1,370,011 1,382,011 Total O&M Expenses $ 40,923,552 $ 43,266,828 $ 46,163,234 $ 47,334,978 $ 47,916,001 2) The capital improvement plan is as stated below: Projected Capital Year Improvement 2011 $ 480,000 2012 575,000 2013 200,000 2014 300,000 2015 300,000 The capital improvement plan listed is projected capitalized expenditures for the Electric Department. In addition to the amounts above, approximately $1.2 million per year of capital outlay expenses are included in the operating budget. 6/22/2010 15 050 CITY OF AZUSA ELECTRIC DEPARTMENT FINANCIAL PROJECTION SUMMARY OF SIGNIFICANT ASSUMPTIONS 3) Power costs and wholesale sales were provided by the City of Azusa and listed below: 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 CAPACITY AND ENERGY $25,264,118.10 $26,888,548.53 $ 28,643,660.35 $29,316,052.75 $29,442,973.23 SALES $(6,364,026.35) $(7,203,565.89) $(10,560,763.13) $(11,129,431.65) $(11,821,880.43) TRANSMISSION $ 2,650,824.00 $ 2,741,824.00 $ 2,834,824.00 $ 2,908,824.00 $ 3,001,824.00 SCHEDULING&DISPATCH $ 656,168.00 $ 656,168.00 $ 656,168.00 $ 669,291.36 $ 669,291.36 Net Cost $22,207,083.75 $23,082,974.64 $ 21,573,889.21 $21,764,736.46 $ 21,292,208.15 4) Franchise fees paid to the City of Azusa as a payment in lieu of tax were calculated using 10% of the revenue sales of electricity 5) Debt coverage ratio calculation was provided by the Electric Department and based on the cash generated from operations less franchise fees paid to the City divided by the debt service payment. 6) Interest earned on investments vary over time and is currently at historic lows, for purposes of the long term financial projection a 2.3% interest rate was assumed. 7) Interest income was assumed to stay with the Electric Department in years when net income losses occur and transferred to the City in years when positive net income occurs. 8) Starting cash balance for FY 2010-11 based on total of"Cash and Investments" and "Rate Stabilization Fund" amounts as reported in FY 2008-09 Comprehensive Annual Financial Report less reduction in Cash for FY 2009-10 based on forecast using FY 2009-10 budget report through third quarter, extrapolated through FY End 2009-10. The cash from these sources is believed to be liquid and available for operating and capital expenditures as needs arise. These amounts do not include restricted reserves, loans to other funds or any lump sum repayment amounts of loans during the forecast period. 6/22/2010 16 051 CITY OF AZUSA ELECTRIC DEPARTMENT FINANCIAL PROJECTION RECOMMENDATIONS 1. The study indicates current revenues are not adequate to maintain the long- term financial stability of the utility. The Board should consider replacing the current Fuel cost adjustment with the Power Cost Adjustment (PCA) methodology recommended in this report. The PCA should be considered for implementation in 2011. In discussions with staff, it was recommended to use a forecasted PCA based on budget with a review of the PCA periodically during the year. The proposed PCA uses the following methodology: • Project power costs and wholesale revenues at the beginning of each year as part of the budget process. • As the year progresses, the projected power costs should be compared with actual with changes occurring periodically during the year. • The objective is to achieve a zero balance in power supply costs between the amount paid by the City and the amount reimbursed from the customer's at the end of a 12 month period. Any variations would be rolled into the subsequent year. • The table below is the projected financial statements including Power Cost Adjustment Revenues of $2.1 million for 2011, along with the recommended rate adjustments. Table of Financial Projection including Recommended Rate Adjustments and the Establishment of a Power Cost Adjustment PCA Revenues Projected Included in Adjusted Debt Fiscal Rate Projected "Projected Projected Operating Capital Projected Bond Coverage Year Adjustments Revenues" Revenues" Bcpenses Income Improvements Cash Balances Issues Ratio 2011 2.50% $ 41,124,892 $ 2,153,769 $ 40,923,552 $ 201,341 $ 486,000 $ 11,957,292 $ - 5.19 2012 2.50% 43,681,322 2,979,527 43,266,828 414,493 575,000 12,439,394 - 5.80 2013 2.50% 47,211,442 1,420,182 46,163,234 1,048,208 200,000 13,957,953 - 6.42 2014 2.50% 48,899,249 1,510,261 47,334,978 1,564,271 300,000 15,936,151 7.11 2015 2.50% 50,077,920 936,460 47,916,001 2,161,919 300,000 18,565,133 - 7.79 Recommended Target(Minimum)2011 $ 2,068,260 $ 12,569,066 1.30 Recommended Target(Minimum)2015 $ 1,831,949 $ 14,252,375 1.30 2. It is recommended that a series of rate adjustments be implemented to base rates after the implementation of the PCA in 2011. All financial targets under this rate track would be met in 2015. The table above summarizes the recommended rate track. A 2.5% rate adjustment is recommended for 2011 — 2015. The City should consider an in-depth Cost of Service Study to help guide the design of electric rates in upcoming years. The rate track should be reviewed as part of the annual budget process as costs and revenues may vary from projections. 6/22/2010 17 052 CITY OF AZUSA ELECTRIC DEPARTMENT FINANCIAL PROJECTION RECOMMENDATIONS 3. The City of Azusa Electric Department should consider adopting a Cash Reserve Policy based on the formula below to establish a minimum cash reserve for the Electric Utility. Cash is recommended to be above this established amount. The recommended minimum for 2011 is $12.6 million and increases to $14.3 million in 2015. Projected Projected Projected Projected Projected Input 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 Operation&Maintenance Less Depreciation Expense 14,205,836 14,575,869 15,774,004 16,167,431 16,576,980 flow er Supply 25,264,118 26,888,549 28,643,660 29,316,053 29,442,973 Historical Rate Base 46,448,227 47,023,227 47,223,227 47,523,227 47,823,227 Current Portion of Debt Service Reserve 973,151 971,996 973,349 977,710 977,710 Next Years CIP-Net of bond proceeds and Donations 372,200 372,200 372,200 372,200 372,200 Fee Year CIP-Net of bond proceeds and Donations 1,861,000 1,861,000 1,861,000 1,861,000 1,861,000 Percent Allocator Percent Allocated Percent Allocated Percent Allocated Percent Allocated Percent Allocated Operation&Maintenance Less Depreciation Expense 25% 25% 25% 25% 25% Power Supply 25% 25% 25% 25% 25% Historical Rate Base 3% 3% 3% 3% 3% Current Portion of Debt Service Reserve 100% 100% 100% 100% 100% Next Years Capital Improvements-Net of bond proceed 15% 15% 15% 15% 15% Fee Year Capital Improvements-Net of bond proceeds 15% 15% 15% 15% 15% Recommended Recommended Recommended Recommended Recommended Minimum Minimum Minimum Minimum Minimum Minimum Cash Reserve Recommended 2010-2011 2010-2012 2010-2013 2010-2014 2010-2015 Operation&Maintenance Less Depreciation Expense $ 3,551,459 $ 3,643,967 $ 3,943,501 $ 4,041,858 $ 4,144,245 Power Supply 6,316,030 6,722,137 7,160,915 7,329,013 7,360,743 Historical Rate Base 1,393,447 1,410,697 1,416,697 1,425,697 1,434,697 Current Portion of Debt Service Reserve 973,151 971,996 973,349 977,710 977,710 Next Years CIP-Net of bond proceeds and Donations 55,830 55,830 55,830 55,830 55,830 Fee Year CIP-Net of bond proceeds and Donations 279,150 279,150 279,150 279,150 279,150 ;Minimum Cash Reserve Recommended $ 12,569,066 $ 13,083,777 $ 13,829,442 $ 14,109,258 $ 14,252,375 I Notes: a) Operation and maintenance expense excludes depreciation expense. b) Power Supply allocation percent is based on peak supply divided by total supply costs c) Rate base is historical investment in plant and equipment. d) Debt Service is based a semi-annual payment e) Next year's capital includes budgeted capital improvements for the next fiscal year and excludes capital improvements funded through debt issuances. f) Next five years capital is budgeted capital improvements for the next five years and excludes capital improvements funded through debt issuances. 4. It is recommended the financial projection be updated annually as part of the annual budget process including review and updating the five year capital projection. 6/22/2010 18 053 Utility Financial Solutions 185 Sun Meadow Ct. Holland, MI 49424 Phone: 616-393-9722 Fax: 616-393-9721 ACCOUNTANTS' COMPILATION REPORT City of Azusa Board of Directors The accompanying forecasted statements of revenues and expenses of the City of Azusa (utility) were compiled for the year 2011 in accordance with guidelines established by the American Institute of Certified Public Accountants. The purpose of this report is to assist management in forecasting revenue requirements and determining the cost to service each customer class. This report should not be used for any other purpose. A compilation is limited to presenting, in the form of a forecast; information represented by management and does not include evaluation of support for any assumptions used in projecting revenue requirements. We have not audited the forecast and, accordingly, do not express an opinion or any other form of assurance on the statements or assumptions accompanying this report. Differences between forecasted and actual results will occur since some assumptions may not materialize and events and circumstances may occur that were not anticipated. Some of these variations may be material. Utility Financial Solutions has no responsibility to update this report after the date of this report. This report is intended for information and use by management and the Board of Directors for the purposes stated above. This report is not intended to be used by anyone except the specified parties. UTILITY FINANCIAL SOLUTIONS Mark Beauchamp, CPA, CMA, MBA Holland, MI June 22, 2010 6/22/2010 19 054 Electric Financial Study 1•r_ Azusa Utility Board June 28, 2010 AZUSA LIGHT y W p T E R Background A staff report in October 2009 found that the electric utility's FY 2010 budget was deficit $6.2M and it would not meet Debt Coverage for the year A rate adjustment was implemented in December 2009 to aid in meeting debt coverage requirement for FY10 but which did not fully address utility fiscal situation going forward In January, the Utility Board approved hiring of a consultant to review the electric financial condition and to make a five year forecast 2 AZUSA LIGHT & W A T E R Study Findings 1 . Current revenues not adequate for long-term financial stability 2 . The San Juan FCA should be modified to include other power supply costs & revenues ("PCA") 3 . The utility should consider a series of base rate increases over next 5 years (-2.5% a year) 4. The utility should review its reserve policy to establish minimum and target levels 5 . Five year forecast should be updated annually AZUSA LIGHT & W A T E R Net Income Projected ' Projected Projected Projected Projected Revenues 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 Retail Revenues $ 31,515,900 $ 31,594,690 $ 32,490,269 $ 32,648,637 $ 32,807,798 Resale Revenue 6,364,026 7,203,566 10,560,763 11,129,432 11,821,880 Other Nfisc Revenue 303,300 304,058 304,818 306,342 307,874 Total Revenues $ 38,183,226 $ 39,102,314 $ 43,355,851 $ 44,084,412 $ 44,937,552 Expenses Purchased Power $ 25,264,118 $ 26,888,549 $ 29,460,253 $ 30,132,645 $ 30,259,566 Transmission Dispatching 4,243,012 4,381,592 4,509,018 4,631,772 4,761,650 Operations and Maintenance 4,757,795 4,348,377 4,500,571 4,658,090 4,821,124 Administrative and General 2,183,746 2,686,430 2,780,455 2,877,771 2,978,493 Franchise and In-Lieu-Tax 3,151,590 3,159,469 3,167,368 3,183,204 3,199,121 Depreciation 1,323,291 1,344,511 1,360,011 1,370,011 1,382,011 Total O&M Expenses $ 40,923,552 $ 42,808,928 $ 45,777,675 $ 46,853,494 $ 47,401,964 Net Operating Income ( $ (2,740,326) $ (3,706,614) $ (2,421,824) $ (2,769,083) $ (2,464,412) Other Revenues & Expenses Interest Income $ 245,715 $ 210,356 $ 125,259 $ 76,762 $ 17,062 Interest on Long-Term Debt (468,614) (443,151) (416,996) (388,349) (357,710) Net Income $ (2,963,224) $ (3,939,408) $ (2,713,562) $ (3,080,669) $ (2,805,059)1 OW 4 AZUSA i G N - & W AT ER Projected Cash Flows Projected Projected Projected Projected Projected Projected Cash Flows 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 Add Net Income $ (2,963,224) $ (3,939,408) $ (2,713,562) $ (3,080,669) $ (2,805,059) Add Back Depreciation Expense 1,323,291 1,344,511 1,360,011 1,370,011 1,382,011 Subtract Debt Principal 480,000 530,000 555,000 585,000 620,000 - Add Bond Sale Proceeds - - Cash Available from Operations (2,119,934) (3,124,897) (1,908,551) (2,295,659) (2,043,049) Estimated Annual Capital Additions 486,000 575,000 200,000 300,000 300,000 Net Cash From Operations $ (2,605,934) $ (3,699,897) $ (2,108,551) $ (2,595,659) $ (2,343,049) Beginning Cash Balance 11,621,559' 9,015,626 5,315,728 3,207,177 611,518 LEnding Cash Balance 9,015,626 5,315,728 3,207,177 611,518 (1,731,531) N 1 ,"r 5 AZUSA LIG H T & WATER Minimum Reserves Projected Projected Projected Projected Projected Input 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 Operation&Maintenance Less Depreciation Expense 14,205,836 14,575,869 15,774,004 16,167,431 16,576,980 Power Supply 25,264,118 26,888,549 28,643,660 29,316,053 29,442,973 Historical Rate Base 46,448,227 47,023,227 47,223,227 47,523,227 47,823,227 Current Portion of Debt Service Reserve 973,151 971,996 973,349 977,710 977,710 Next Years CIP-Net of bond proceeds and Donations 372,200 372,200 372,200 372,200 372,200 Five Year CIP-Net of bond proceeds and Donations 1,861,000 1,861,000 1,861,000 1,861,000 1,861,000 Percent Allocator Percent Allocated Percent Allocated Percent Allocated Percent Allocated Percent Allocated Operation&Maintenance Less Depreciation Expense 25% 25% 25% 25% 25% Pow er Supply 25% 25% 25% 25% 25% Historical Rate Base 3% 3% 3% 3% 3% Current Portion of Debt Service Reserve 100% 100% 100% 100% 100% Next Years Capital Improvements-Net of bond proceec 15% 15% 15% 15% 15% Five Year Capital Improvements-Net of bond proceeds 15% 15% 15% 15% 15% Recommended Recommended Recommended Recommended Recommended Minimum Minimum Minimum Minimum Minimum Minimum Cash Reserve Recommended 2010-2011 2010-2012 2010-2013 2010-2014 2010-2015 Operation&Maintenance Less Depreciation Expense $ 3,551,459 $ 3,643,967 $ 3,943,501 $ 4,041,858 $ 4,144,245 Power Supply 6,316,030 6,722,137 7,160,915 7,329,013 7,360,743 Historical Rate Base 1,393,447 1,410,697 1,416,697 1,425,697 1,434,697 Current Portion of Debt Service Reserve 973,151 971,996 973,349 977,710 977,710 Next Years CIP-Net of bond proceeds and Donations 55,830 55,830 55,830 55,830 55,830 Five Year CIP-Net of bond proceeds and Donations 279,150 279,150 279,150 279,150 279,150 (Minimum Cash Reserve Recommended $ 12,569,066 $ 13,083,777 $ 13,829,442 $ 14,109,258 $ 14,252,375 I o"."1.0 'Projected Cash Reserves $ 9,015,626 $ 5,315,728 $ 3,207,177 $ 611,518 $ (1,731,539 6 AZUSA i c H T & w A, Eci Staff Recommendations Implement Power Cost Adjustment ( PCA) mechanism Further consider consultant's proposed "minimum reserve" proposal Review actual YE 2010 financial results and consider need for base rate adjustment ( Fall 2010) 0„.„.„ 7 AZUSA Power Cost Adjustment .,..,.., .. 8 AZUSA PCA Background Power Cost Adjustments ( PCA) are called a variety of names across the country Timeframes of adjustment run from monthly to quarterly to semi-annually to annually The types of charges included in a PCA run the gamut from all power supply costs/revenues , to variable costs only, fuel only, purchased power only, etc. PCA's are used to address fluctuating power supply costs 9 AZUSA Purpose To recover net costs of power supply on a "real time" basis Minimize under or over collection of power supply costs Improve the financial condition of the electric utility to include rating agency outlook 10 AZUSA Average Power Cost ¢/kWh mq3 0.090 i .075 i . I I , 7 FY 2004-0.5 FY 200.5-06 FY 2006-07 FY 2007-08 FY 2008-09 11 AZUS .A LIGHT & WATER Dollars A C L C CP CP %-C2) L L L C ` , 0 CD c3a CD (in)oes,k A) 0 (1)15, ti ic.)0 CD cid,No 0 C 0 1` G) )/p � N : U)C Fitch Report Excerpt Liquidity Factor Considerations Positive A B Rest Gond • Unrestricted cash. • Automatic achustment rate 4 • Cash informally pledges. (semi annual or longer). • Aurnmatirrate arljucnnent • Cash formally pledged (monthly preferred). • Margins substantially bow rare • No automatic rate adjustment(but covenant. good dialogue with board). • Surplus fuel reserves. C redo Effect D Lest.Favorable Least Favorable • Lux furl tesawrs. • Opt-idling mai gins um to ly • lice oferistingenrrntetrialpaper meeting rate covenant program- • No automatic rate adjustment. • Drawdown of bank facility- • New long-tern:deficit Neoral' financing. Weak • Asset sale. Quick Slow Liquidity Access A Z U S A Standard & Poor' s California Public Power Credits Are Adapting To An Evolving Market Publication date: December 18, 2006 "On the financial side , many utilities that lacked fuel or power cost adjustments five or 10 years ago have now established them. These adjustments allow for quicker and more complete recovery of variable power and fuel supply costs, while at the same time reducing some of the politics that can limit or delay cost recovery. We believe utilities that have yet to implement some version of a variable cost recovery mechanism in their rate structures should certainly consider them , especially those that are gas -dependent, as these mechanisms can help to stabilize financial performance and debt service coverage ratios--two key factors in our credit analysis." 14 AZUSA L I G H T & W A T E R CA Utilities with PCAs Riverside SMUD Glendale Turlock Irrigation District LADWP Anaheim Banning Pasadena Lodi Imperial Irrigation District 15 AZUSA LIGHT & WATER Proposal Modify the San Juan FCA to reflect all power supply costs A baseline PCA would be set annually based on the power supply budget The PCA would be "trued up" semi-annually PCA could reflect a charge during periods when costs are higher than base level or a credit when costs are lower than that base PCA would be identical for all rate classes July 1 , 2010 proposed effective date 16 AZUWSA H T & A T E R PCA Form u la The PCA billing factor for any given semi-annual period (i.e. six month period) shall be calculated as follows: PCA = f a) - (c) + (d) (b) (e) Where: (a) Equals the utility's projected "power supply related-costs" (PS Costs) for the fiscal year (b) Equals budgeted retail energy sales (in kWh) for the fiscal year (c) Equals the baseline energy cost for the utility. At July 1, 2010, this amount is $0.08164 per kWh. (d) A "true-up" equaling the difference between actual and budgeted PS Costs for the prior six month true-up period. (The true-up for the May — October period is implemented during the following January — June period. The true-up for the November — April period is implemented during the following July — June period.) (e) Equals the budgeted sales level (in kWh) for the applicable six month period of implementation of the "true up" determined in paragraph "d" above The PCA for any semi-annual period shall be adjusted to reflect franchise fees and in lieu transfer costs. At July 1, 2010, this amount is ten (10) percent. ievevi 17 AZUSA LIGHT & WATER Net Purchased Power Costs Net Purchased Power Costs FT 2005-06 through FY 2010-11 Account FY 2005-06 IT 2006-07 FT 2007-08 FT 2008-09 FT 2009-10 FS 2010-11 Wholesale Revenues (10.365.517) (5.367.877) (5.201.029) (3.463.315) `(4.200.000) (6.364.026) Purchased Power Cost 23.893,700 21.900.531 25.829,427 23.106.698 e26.200.000 25.264,118 Net Purchased Power Cost 13.528.184 16.532.654 20.628.398 19.643.384 22,000.000 1L900.092 TransntissionCost 2.602.382 2.39 L715 2.255.043 22.372 305 3.349.380 2.650.824 Dispatch and Scheduling 268.587 276.468 589.034 590.352 735,200 656,168 Lodi Adjustments - - (439 2161 (658.8251 Total 1+5 399 151 19'00837 71 033,260 11 974 216 ?6 084580 72,707 084 'Forecast through FY End 2009-10. 18 AZUSA PowerSupply Cost Recovery Year Period Revenue Excess (Loss) 2008* Jan — Mar (1.818.885) Apr — Jun (L612.496) July - Sept 115.403 Oct - Dec (2A88.256) 1009* Jan — Mar 63. 192 Apr - Jun (1. 102.159) July - Sept (551 .125) Oct - Dec (L940.921 ) 2010 Jan — Mar (867.i 75) Total: (9,902.822 ) 19 AZUSA LIGHT & WATEFl Azusa PCA Equals amount of power supply cost different from 8. 164 /kwh Set annually with automatic semi-annual true- up Changes would be reported to Utility Board Baseline PCA for FY 2011 would be 0. 96 çi /kwh Projected additional revenue for FYI I is $2 . IM 20 AZUSA PCA Impact Proposed PCA is projected to increase net revenue by $2 . 1 million Residential average rate would rise from 13 . 13 /kWh to 14. 09 /kWh (7. 3% ) - Average household increase of $4.61 per month - SCE average rate about 17. 1 ¢/kWh Commercial average rate would go from 13. 59 /kWh to 14 . 55 q /kWh ( 7 . 1 % ) - SCE average rate about 16.26 ¢/kWh 21 AZUSA Summary Consultant financial study projects FY11 cash flow of negative $2 .6M and Y-E reserves of only $9M Power supply costs/revenues are highly variable and have been under-recovered for a period of time A Power Cost Adjustment (PCA) mechanism would address cost/revenue variability and increase FY11 net revenues by $2. 1 M A PCA ensures that Power Costs are not under- or over-recovered by the utility Staff will report later to the Board regarding a possible update of the electric reserve policy and on need for a base rate increase later in the fiscal year 22 AZUSA LIGHT & W A T E R Questions 1111, ■ 23 AZUSA LIGHT & WATER N.$ _�� x'+� `;;,c `'. aa:'�4 .. " eft' �.•°* '. . x -s ,, �. t,<Y, §e '�"'`/t f a Fb{'� %4 a ° k ,�z,:$1 -t f�'i10 � j�, r� �f. ; r�:> ' z AZ USA. 1:uT R. weary SCHEDULED ITEM TO: HONORABLE CHAIRPERSON AND MEMBERS OF T A` USA UTILITY BOARD FROM: GEORGE F. MORROW, DIRECTOR OF UTILITIEiiir 11( DATE: JUNE 28, 2010 SUBJECT: APPROVAL OF A NEW RATE SCHEDULE "EDR" ESTABLISHING ECONOMIC DEVELOPMENT RATE DISCOUNTS FOR QUALIFIED COMMERCIAL/INDUSTRIAL ELECTRIC CUSTOMERS RECOMMENDATION It is recommended that the Utility Board approve the attached Schedule "EDR" to establish a two year pilot program to provide Economic Development electric discounts to qualifying commercial/industrial customers. BACKGROUND The City of Azusa has a comprehensive program to promote economic development and redevelopment in the community. For many new and/or expanding businesses, the cost of electricity is an important factor in their decision to invest in Azusa. A large number of electric utilities within California provide varying forms of Economic Development discounts. Southern California Edison, for instance, offers 5 years of declining discounts for large customers (200 KW or larger) for the purposes of attraction, expansion and relocation. Similarly, Anaheim offers 3 years of declining discounts for customers 150 KW or larger. Other electric utilities which provide some level of economic development incentives include PG&E, Alameda, Redding, Modesto, Sacramento, Lodi, and Riverside. Azusa Light & Water believes that the availability of discounted electric rates could make a difference in the decision by a commercial/industrial entity to locate or expand locally. As such, it is proposing a new rate tariff, Schedule EDR, to establish Economic Development Rate discounts on a pilot basis. 055 Economic Development Rates June 28, 2010 Page 2 A summary of the key aspects of Schedule EDR is as follows: • A two year program accepting new customers for the period July 1, 2010 through June 30, 2012. • A 10% discount would be provided to commercial/industrial customers occupying new buildings/facilities or existing space that has been vacant for ninety(90) days or longer. • An additional 5% discount would apply to those customers who qualified above who are locating in active City of Azusa Redevelopment Project area. • An additional 5% discount would be provided to new or expanded industrial load of at least 100 KW with a minimum "load factor"of 50 percent. • Discounts would be for a 36 month period, but would not extend later than the December, 2015 billing month. • Discounts would not apply to various bill surcharges/taxes as defined in the rate schedule. • Entities who received approved plans/permits dated prior to July 1, 2010 are not eligible. Staff has reviewed the projected financial impact of the proposed Economic Development discounts. Based on the FY 2011 budget, purchased power represents approximately 60% of total electric utility expenses. Power Supply costs could be considered variable costs and hence a maximum discount of 20%would enable the utility to collect its variable costs. FISCAL IMPACT It is difficult to predict the fiscal impact of the proposed Schedule EDR, but as noted above, the utility expects to collect its variable costs of providing electricity to customers under the program. Given that discounts would last only 36 months, the impact of any discounts is relatively short term and full rate recovery would conceivably continue for many years beyond the discount period. Prepared by: George F. Morrow, Director of Utilities Attachments: Resolution EDR Schedule 056 RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL AND UTILITY BOARD OF THE CITY OF AZUSA, CALIFORNIA, APPROVING ELECTRIC UTILITY RATE SCHEDULE "EDR-ECONOMIC DEVELOPMENT RATE"PROVIDING ECONOMIC DEVELOPMENT INCENTIVES FOR QUALIFIED COMMERCIAL AND INDUSTRIAL ELECTRIC CUSTOMERS. WHEREAS, pursuant to Section 78-37 of the Azusa Municipal Code, the City Council is required to adopt rules and regulations governing the operation and services provided by the Azusa Light & Water Department; and WHEREAS,the City of Azusa owns and operates an electric utility that provides electricity to over 15,000 customers; and WHEREAS, the City of Azusa has a comprehensive program to promote economic development and redevelopment in the community; and WHEREAS, discounted electric rates for new commercial and industrial entities will help attract such businesses to the City of Azusa; and WHEREAS, discounted electric rates for qualifying commercial and industrial businesses that are existing customers of Azusa Light & Water will help them expand their operations in the City of Azusa; and WHEREAS,the expansion of commercial and industrial business activity inside the City of Azusa is vital to the local economy and provides jobs to residents of Azusa; NOW, THEREFORE, THE CITY COUNCIL AND UTILITY BOARD DO HEREBY RESOLVE AS FOLLOWS: 1. That a two year pilot program to provide electric rate discounts to qualifying commercial/industrial customers is herby approved for the purpose of providing economic development incentives to help stimulate jobs growth and the Azusa economy. 2. That the"Schedule EDR—Economic Development Rate",attached hereto as Exhibit A, is hereby adopted and included in Azusa Light &Water Rules and Regulations. 3. That the EDR Schedule,attached hereto as Exhibit A,shall become effective on July 1, 2010. 4. The City Clerk shall certify the adoption of this Resolution. Joseph Rocha, Mayor 057 ATTEST: Vera Mendoza, City Clerk STATE OF CALIFORNIA ) COUNTY OF LOS ANGELES ) ss. CITY OF AZUSA ) I HEREBY CERTIFY that the foregoing Resolution was duly adopted by the City Council and Utility Board of the City of Azusa at a regular meeting of the Azusa Light&Water Utility Board on the 28th day of June, 2010. AYES: COUNCILMEMBERS: NOES: COUNCILMEMBERS: ABSENT: COUNCILMEMBERS: Vera Mendoza, City Clerk 058 EXHIBIT A SCHEDULE EDR ECONOMIC DEVELOPMENT RATE Applicability: Applicable to qualified commercial/industrial customers receiving electric service from Azusa Light & Water for the purpose of(i) incenting businesses occupying new buildings/facilities or vacated commercial space or (ii) industrial business attraction and/or expansion; as provided below. Territory: Within the electric service area of the City of Azusa. Rate: Commercial/industrial customers occupying space in (i) new buildings/facilities or (ii) existing commercial buildings/facilities that have been vacant for ninety (90) days or longer, are eligible to receive a discount equal to 10% of the electric bill associated with the qualifying commercial facility electric load. Premium for New Commercial Customers associated with City Redevelopment Projects Commercial customers who are otherwise qualified to receive an EDR discount and who are associated with active City of Azusa Redevelopment Projects are eligible to receive an additional 5% discount to their electric bill. Premium for New or Expanded Industrial Load Industrial customers otherwise qualified for an EDR discount are eligible to receive an additional 5% discount to their electric bill if the new or expanded industrial load is (i) sized at 100 KW or greater and (ii) has a monthly load factor of 50 percent or higher. An Industrial Customer is one who operates facilities that are primarily used for the manufacturing of goods. Special Conditions: 1. Schedule EDR shall become effective on July 1, 2010 and applies to customers who receive a permit from the City of Azusa on and after July 1, 2010 to build/modify qualified commercial/industrial facilities. Draft 06-10-10 059.. Schedule EDR(continued) 2. Customers desiring to take advantage of Schedule EDR must file an application with Azusa Light & Water for approval prior to initiation of electric service to the qualified new or expanded load. 3. Upon approval and initiation of electric service, EDR discounts shall apply for a period of thirty six (36) months subject to paragraph 7 below. 4. The EDR discounts shall not apply to the CEC fee, State Energy Tax, Public Benefits charge or any other assessment or charge levied on electric bills after the effective date of this rate schedule unless specifically provided otherwise. The EDR discounts shall apply to the Fuel Cost Adjustment Factor or any successor surcharge/factor related to power supply costs. 5. Expanded industrial load must be separately metered or sub-metered to enable verification of the minimum additional load requirement. Such metering shall be at the customer's cost. The industrial discount premium shall not apply for any billing period that the qualified industrial load does not meet the minimum size or load factor. 6. Light & Water shall be responsible for (i) establishing/enforcing rules and procedures for administering this rate schedule and (ii) determining whether customers meet the qualifications set forth herein. Customers shall provide information on a timely basis for the purposes of verifying eligibility and administering the terms of this rate schedule. 7. Schedule EDR shall remain effective for new qualified customers through June 30, 2012 (i.e. 2 years). No discounts will be applied for billing periods after December, 2015. Draft 06-15-10 060 . :,., 4 Economic Development Rate Proposal e 1 .„ , 1 • Azusa Utility Board June 28, 2010 , AZUSA LIG H T & W A T E R Back r • und Many electric utilities provide some form of economic development discounts Purpose can vary from attraction , expansion to retention For some businesses , the cost of electricity is an important factor in location/expansion decisions 2 AZUSA SCE offers 5 years of declining discounts for large customers (200+ KW) Anaheim offers 3 years of declining discounts for customers 150 KW or larger Others in CA offering EDR discounts are PG&E, Alameda, Redding, Riverside, Sacramento, Modesto and Lodi AZUSA LI GH T & W AT ER • ey � I ��nent� o� • C� 1 . Term & Sunset 2 . Applicability 3 • tounof Discount 4 . Minimum new load size 5 . Minimum load factor 6 . Job Discount? 7 . Energy Efficiency 8 . Geographic Limitations/Enhancements 4 AZUSA Propossd Azusa E I 3 year term 10% base discount — Applies to new businesses or to a business occupying site vacant for more than 90 days Extra 5% discount in designated Redevelopment Areas Extra 5% for new or expanded industrial load over 100 KW with 50% or higher "load factor" June 30, 2012 sunset 5 AZUSA Applicability " Proviso " The proposed EDR discounts would not apply to those businesses with approved construction plans/permits prior to July 1 , 2010 Load factor is a measure of the percent of time a customer uses the electrical capacity reserved for it Higher load factor is beneficial to utility and other customers since it implies more consumption in off-peak periods Many utilities require a minimum of 50% or higher load factor to qualify for EDR ."."„ d„,„,„ AZUSA Azusa has a progressive economic development program The EDR would provide an additional marketing tool to promote new local business g AZUSA Fiscal Impact The proposed maximum 20% discount would still allow the utility to recover its variable cost of providing service (power supply) Following expiration of 3 year discount, utility would begin to receive additional contributions to fixed expenses 9 AZUSA L I G H T & W A T E P The availability of an EDR would be an additional economic development tool Fiscal impact of discounts are expected to be manageable and short term Staff recommends establishment of EDR program as a two year pilot 10 AZUSA i a I%) � P"'" � N �C/^� DVl 9 Fer sot ro' 'a SAx�se."�>�ti+'+�{�'k Y'�1�4s',`�%' �`'F,r^..,� _`�,'i°" v�'^.'S� � �"'�n - - `.Fi i. t _ ' to ;-E' E, A.ZUS.A tIGNT & WATER INFORMATION ITEM TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD FROM: GEORGE F. MORROW, DIRECTOR OF UTILITIES DATE: JUNE 28, 2010 SUBJECT: ANNUAL ADJUSTMENT OF REPLACEMENT WATER COST ADJUSTMENT FACTOR AND TEMPORARY LEASING OF EXCESS WATER RIGHTS The existing water rates for the Azusa Water Utility include an annual adjustment factor called the "Replacement Water Cost Adjustment Factor (RWCAF)." This adjustment factor was implemented following the severe drought that occurred around 1990. The drought forced the Watermaster to set the Operating Safe Yield in the San Gabriel Basin very low. When water is pumped in excess of the safe yield, the excess must be replaced by Watermaster purchasing water from outside the area and such costs are passed on to water purveyors that use water in excess of their water rights. Lower safe yields, therefore, tend to increase replacement water costs above those anticipated in a so-called "normal" water year. In response to this environment and in 1992, the City Council adopted a rate methodology which included a RWCAF, which was incorporated into the City's regular water tariff. This resulted from a water rate review in which the replacement water cost component was analyzed separately. The adjustment factor that the City Council adopted, and which was recommended by staff, is similar to the Fuel Cost Adjustment Factor used by many electric utilities to cover fluctuating energy costs during the 1970's oil embargo when energy costs were so unpredictable. The RWCAF adopted in 1992, is to be reviewed annually and adjusted accordingly. Whenever an adjustment is required, the Director of Utilities is to inform the Utility Board/City Council. By this memorandum, I am providing notice that the RWCAF will be decreased to $0.00 per CCF from the current rate of $0.0518 per CCF effective July 1 , 2010, and that the new rate will continue in effect through June 30, 2011 . The Watermaster has, for Fiscal Year 2010-2011 , again set the Operating Safe Yield of the Main San Gabriel Basin at 170,000 acre-feet. Ordinarily this would trigger higher replacement water costs, however, due to conservation and replacement water purchases, the City is expected to have excess water rights. Since water resources from outside areas are limited, the Watermaster has temporarily suspended Rule 27 to enable local water purveyors to lease excess water rights. 061 . RWCAF Report and Water Right Lease Update June 28,2010 Page 2 Since the City of Azusa has excess water rights, staff is now in the process of negotiating those leases. Resolution No. 09-C69, adopted by the City Council/Utility Board on July 27, 2009, authorizes the City Manager to enter into agreements to temporarily lease excess water rights. The temporary assignment or lease of water right form must be notarized by June 30, 2010 and water transfer agreements must be executed by July 15, 2010. Pursuant to Resolution No. 09-C69, the agreements will be brought back to the Utility Board/City Council for information and ratification at its July 26, 2010 Regular Meeting. Prepared by: Chet Anderson, Assistant Director- Water Operations 062