HomeMy WebLinkAboutAgenda Packet - April 24, 2006 - CC titi a(O
AZUSA
CHT & M'ATEE
AGENDA ITEM
TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD
AND AZUSA CITY COUNCIL
FROM: JOSEPH F. HSU, DIRECTOR OF UTILITIES) (
DATE: APRIL 24, 2006
SUBJECT: ELECTRIC UTILITY COST OF SERVICE STUDY
RECOMMENDATION
It is recommended that the Utility Board/City Council authorize staff to retract the solicitation
for consultant proposals to perform a cost of service study for electric utility, and authorize
staff to conduct the study in-house.
BACKGROUND
In January 2006, the Utility Board/City Council authorized staff to solicit proposals from
consulting firms to conduct a cost of service study for the electric utility and to determine an
appropriate rate structure to equitably recover costs from each customer class. In the course
of reviewing consultant proposals and conducting telephone interviews, staff realized that
Utilities Department staff would be required to do much of the data gathering and
compilation, no matter which consultant was selected. Since data compilation is the most
critical and time consuming part of a cost of service study, staff believes the study can be
performed in-house with the following advantages: (1) cost savings; (2) conducted at our
own pace rather than the consultant's; and (3) represents a good opportunity for staff to
apply APPA rate design training to our system's load characteristics and to determine how our
current costs are being recovered from current rate structure, and then propose changes to
rate design to align rates with actual costs.
FISCAL IMPACT
Since the study will be performed by in-house staff, no funds will be expended.
Prepared by: J. Hsu
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San Juan Environmental
Project Update
April 24, 2006
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Background:
❑ The Sierra Club filed a lawsuit in 2003 against the San Juan
Generating Station claiming the plant was polluting
excessively
o Public Service Company of New Mexico (PNM) on behalf of
the plant owners unsuccessfully sought to dismiss the lawsuit,
the case was heading to a jury trial in late 2004
o In the interest of bringing a finality to the lawsuit, PNM
entered into a settlement agreement with the plaintiffs
(Consent Decree) in early 2005 agreeing to install state-of-
the-art pollution control equipment by date certain
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Environmental Project:
❑ The state-of-the-art pollution control equipment as part of the Consent Decree will
control NOx, SO2, particulate matters, and mercury using the best available
technology
o Initial project was estimated to cost about$110 million based on PNM's own
modeling
❑ However, the project initial engineering contractor Sergeant&Lundy's estimate
in the summer of 2005 was substantially higher than PNM's own estimate($280
million)
o PNM switched the engineering contractor mid-course to Babcock&Wilcox and
re-started the engineering design hoping the cost would be minimized
o Early this year, PNM confirmed that the project cost would not be reduced to the
initial estimate of$110 million,rather it would be closed to$270 million
o PNM is seeking owners approval expeditiously to keep the project on track
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The Hindsight:
❑ In the hindsight, mistakes were made in not
accepting the initial estimate by Sergeant & Lundy
and concentrate the efforts on cost minimization as
opposed to re-engineering
❑ Precious time was spent in re-engineering the project
for six months while some of the project costs have
escalated (cost of steel, concrete etc. . .)
❑ The project management was not up to par for
project of this magnitude
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Southern California Public Power Authority
(SCPPA) Involvement in the Project:
❑ In the past two months at the urging of the City, SCPPA has
been assertive in seeking detailed information about the
project timeline, costs, and major outstanding issues
❑ We have received most of the information from PNM and are
continuing our review of the information
o Several meetings took place with PNM (March 28th, April
5th, 18th)
❑ Incremental progress is been made by PNM to get the project
back on track and under control. SCPPA is exerting
considerable pressure in seeking the transparency of the
process and is succeeding
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Going Forward:
❑ SJGS owners will exert substantial oversight of the
project from this point, SCPPA will be participating , 1.
in the process
❑ The cost of the project still faces some upward is
pressure for costs that remain unhedged, e.g., steel. k,
❑ Staff will bring back a complete funding mechanism
for City's portion of the project in May. Our current
projection is $5 million vs. the initial estimate of $2
million
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