HomeMy WebLinkAboutD-1 Staff Report - Repeal Reserve for Stranded InvestmentSCHEDULED ITEM
D-1
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
VIA: SERGIO GONZALEZ, CITY MANAGER
FROM: MANNY ROBLEDO, DIRECTOR OF UTILITIES
DATE: APRIL 5, 2021
SUBJECT: INTRODUCE FIRST READING OF AN ORDINANCE TO REPEAL SECTION 78-40
OF THE AZUSA MUNICIPAL CODE RELATED TO THE RATE STABILIZATION
RESERVE FOR STRANDED INVESTMENT AND ADOPT A RESOLUTION
DIRECTING THE TRANSFER OF FUNDS TO THE ELECTRIC FUND
UNRESTRICTED RESERVE
BACKGROUND
In 1997 the City Council adopted Resolution No. 97-C5 and Ordinance No. 97-01 establishing a Rate
Stabilization Fund for Stranded Investment within the Electric Fund for the purpose of buying down the
cost of long-term power resources that would be rendered uneconomic due to competition in the electricity
industry as a result of California deregulation at that time. After Azusa Light & Water (ALW) successfully
exited the San Juan coal-fired Generating Station project in 2017, ALW no longer has resources that are
at risk of becoming uneconomic as compared to the now stabilized California electrical energy markets,
and the Rate Stabilization Fund for Stranded Investment is no longer required or advisable. The proposed
actions would repeal Ordinance 97-01, which established the Rate Stabilization Fund for Stranded
Investment and transfer the balance into the Electric Fund unrestricted cash reserves account.
RECOMMENDATION
Staff recommends the City Council take the following actions:
1)Make a finding that events have overtaken the purpose of maintaining the Rate Stabilization
Reserve Fund for Stranded Investment within the Electric Fund; and
2)Adopt the attached Resolution No. 2021-C14 directing the Director of Administrative Services to
transfer all monies from the Rate Stabilization Fund Reserve for Stranded Investment to the Electric
Fund Unrestricted Reserve; and
3)Waive further reading, read by title only and introduce the attached Ordinance No. 2021-02,
repealing section 78-40 of the Azusa Municipal Code relating to Reserve for Stranded Investment
within the Electric fund.
ITEM
CONTINUED
Adopt Ordinance Repealing Stranded Investment Fund
April 5, 2021
Page 2
ANALYSIS:
The following events after deregulation were devastating to the electricity industry: (a) not enough power
plants were built to maintain service reliability causing the Energy Crisis of 2000-2001; (b) the price of
wholesale electricity skyrocketed causing the bankruptcy of one major investor owned utility (IOU) and
brought another IOU on the brink of bankruptcy; and (c) the state of California had to step in to buy power
under long term contracts from financially burdened companies. From mid-1990’s – early-2000’s, the
electricity industry was unpredictable.
The market conditions that caused the collapse in the electricity industry during the 1990’s and 2000’s
have since been rectified, and ALW has successfully exited the San Juan coal-fired Generating Station
project in 2017; therefore, ALW no longer has resources that are at risk of becoming uneconomic as
compared to market based electrical energy markets and the Rate Stabilization Fund for Stranded
Investment is no longer required or advisable. Additionally, following the energy crisis, the Energy Policy
Act of 2005 recognized that the Federal Energy Regulatory Commission (FERC) needed enhanced tools
to oversee rapidly changing and increasingly sophisticated energy markets. The law gave FERC broad
authority to assess civil penalties for market manipulation and violations of Commission rules and
standards. The power resources that were previously considered stranded assets under market conditions
in the mid 1990’s are currently very economic, and have been for years. Even with major legislative
mandates over the past 5-10 years, such as California’s Renewable Portfolio Standard, market conditions
have stabilized and Staff no longer sees a need for maintaining a Rate Stabilization Fund for Stranded
Investment.
In accordance with Section 78-40 of the Azusa Municipal Code, the City Council can make a finding that
the reasons for maintaining a Rate Stabilization Fund for Stranded Investment are no longer applicable
and direct staff to transfer this special reserve fund into the Electric Fund’s unrestricted reserves.
In light of this, Staff is recommending that the City Council make a finding that events have overtaken
the purpose of maintaining the Rate Stabilization Reserve Fund for Stranded Investment within the
Electric Fund; adopt the attached resolution directing the Director of Administrative Services to transfer
all monies from the Rate Stabilization Fund Reserve for Stranded Investment to the Electric Fund
Unrestricted Reserve; and waive further reading, read by title only and introduce the attached ordinance,
repealing section 78-40 of the Azusa Municipal Code relating to a Reserve for stranded investment within
the Electric fund.
FISCAL IMPACT
As of March 2, 2021 there was $10,826,755 in the Rate Stabilization Fund. Transferring Rate Stabilization
Fund Reserves to Electric Fund Unrestricted Reserves will be done via the following journal entry:
Dr. 33-00-000-000-1100
Cr. 33-00-000-000-1331
The balance of the Rate Stabilization Fund shall be $0 and the Electric Fund Unrestricted Reserves will
increase by the balance in the Rate Stabilization Fund at the time the journal entry is prepared, plus any
accrued interest.
Adopt Ordinance Repealing Stranded Investment Fund
April 5, 2021
Page 3
Also note, closing the Rate Stabilization Fund could be beneficial to the City’s General Fund as the interest
earned on Rate Stabilization Fund, which is currently restricted, will become eligible to be transferred to
the General Fund at the fiscal year end in the same manner as interest earnings on the Electric Fund
Unrestricted Reserve.
Prepared by: Reviewed and Approved:
Danny Smith Manny Robledo
Utilities Admin & Finance Manager Director of Utilities
Reviewed and Approved:
Sergio Gonzalez
City Manager
Attachments:
1) Resolution No. 2021-C14
2) Ordinance No. 2021-02
3) Ordinance 97-01
RESOLUTION NO. 2021-C14
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
AZUSA, CALIFORNIA, DIRECTING THE DIRECTOR OF
ADMINISTRATIVE SERVICES TO TRANSFER ALL
MONIES FROM THE RATE STABILIZATION FUND
RESERVE FOR STRANDED INVESTMENT TO THE
ELECTRIC FUND UNRESTRICTED RESERVE
WHEREAS, in January 1997 the City Council adopted Resolution No. 97-C5 and Ordinance
No. 97-01 establishing a Rate Stabilization Fund Reserve for Stranded Investment; and
WHEREAS, the Reserve Fund was needed at the time in order to mitigate financial impacts
of electricity retail market conditions during the late 1990’s and early 2000’s; and
WHEREAS, the Azusa Light & Water (ALW) successfully exited the San Juan coal-fired
Generating Station project in 2017 and ALW no longer has resources that are at risk of becoming
uneconomic as compared to the now stabilized California electrical energy markets, and the Rate
Stabilization Fund for Stranded Investment is no longer required; and
WHEREAS, under Section 78-40 of the Azusa Municipal Code, the City Council can make a
finding that the reasons for maintaining Rate Stabilization Fund for Stranded Investment are no
longer applicable and direct staff to transfer this special reserve fund into the Electric Fund’s
unrestricted reserves; and
WHEREAS, as of March 2, 2021 there was $10,826,755 in the Rate Stabilization Fund; and
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF AZUSA DOES HEREBY
RESOLVE AS FOLLOWS:
SECTION 1. Make a finding that events have overtaken the purpose of maintaining the
Rate Stabilization Reserve Fund for Stranded Investments within the Electric
Utility Enterprise.
SECTION 2. Direct the Director of Administrative Services to transfer all monies from the
Rate Stabilization Fund Reserve for Stranded Investments to the Electric
Fund’s Unrestricted Reserves within thirty (30) days of the passage of
Ordinance No. 2021-02.
SECTION 3. The City Clerk shall certify to the adoption of this Resolution.
PASSED, APPROVED, AND ADOPTED THIS 5th day of April, 2021.
Robert Gonzales, Mayor
Attachment 1
ATTEST:
_________________________________
Jeffrey Lawrence Cornejo, Jr., City Clerk
STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES ) ss.
CITY OF AZUSA )
I HEREBY CERTIFY that the foregoing Resolution No. 2021-C14 was duly adopted by the City
Council of the City of Azusa at a regular meeting on the 5th day of April, 2021.
AYES: COUNCILMEMBERS:
NOES: COUNCILMEMBERS:
ABSENT: COUNCILMEMBERS:
ABSTAIN: COUNCILMEMBERS:
_________________________________
Jeffrey Lawrence Cornejo, Jr., City Clerk
ORDINANCE NO. 2021-02
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF
AZUSA, CALIFORNIA, REPEALING SECTION 78-40 OF
THE AZUSA MUNICIPAL CODE RELATING TO A
RESERVE FOR STRANDED INVESTMENT WITHIN THE
ELECTRIC FUND
WHEREAS, in January 1997 the City Council adopted Ordinance No. 97-01 establishing a
Reserve for stranded investment within the Electric Fund; and
WHEREAS, the Reserve was needed at the time in order to mitigate financial impacts of
electricity retail market conditions; and
WHEREAS, under Section 78-40 of the Azusa Municipal Code, the City Council can make a
finding that the reasons for maintaining Rate Stabilization Fund for Stranded Investment are no
longer applicable and direct staff to transfer this special reserve fund into the Electric Fund’s
unrestricted reserves; and
WHEREAS, the City Council wishes to repeal and rescind Section 78-40 of the Azusa
Municipal Code, at the recommendation of staff, by reason of the fact that the power resources,
previously considered stranded assets under market condition in the mid 1990’s, are now economic
and market conditions have since stabilized, and the Reserve created by said section is no longer
needed.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF AZUSA DOES HEREBY
ORDAIN AS FOLLOWS:
Section 1. Recitals. The City Council of the City of Azusa hereby finds and determines
that the forgoing Recitals of this Ordinance are true and correct and are
hereby incorporated into this Ordinance as fully set forth herein.
Section 2. Repealed. Section 78-40 of Chapter 78 of the Azusa Municipal Code,
entitled “Reserve for stranded investment,” is hereby repealed in its entirety
and is of no further force or effect.
Section 3. Reserved. Section 78-40 of Chapter 78 of the Azusa Municipal Code is
hereby reserved for future use.
Section 4. Severability. If any provision of this Ordinance or the application thereof to
any person or circumstance is held invalid, such invalidity shall not affect
other provisions or applications of this Ordinance which can be given effect
without the invalid provision or application, and to this end, the provisions of
this Ordinance are severable. The Utility Board of the City of Azusa hereby
declares that it would have adopted this Ordinance irrespective of the
invalidity of any particular portion thereof.
Attachment 2
Section 5. Signature and Attestation. In accordance with California Government Code
Section 36932, this Ordinance shall be signed by the Mayor of the City of
Azusa and attested to by the City Clerk of the City of Azusa.
Section 6. Publication; Effective Date. In accordance with California Government
Code Section 36933, within fifteen (15) days of the passage of this
Ordinance, the City Clerk of the City of Azusa shall cause this Ordinance to
be published, at least once, in a newspaper of general circulation published
and circulated in the City of Azusa, California. This Ordinance shall take
effect thirty (30) days after the date of adoption.
PASSED, APPROVED, and ADOPTED this ___ day of April, 2021.
___________________________________
Robert Gonzales, Mayor
ATTEST:
___________________________________
Jeffrey Lawrence Cornejo, Jr.
City Clerk
STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES ) ss.
CITY OF AZUSA )
I HEREBY CERTIFY that the foregoing Ordinance No. 2021-02, was duly introduced and
placed upon first reading at a regular meeting of the Azusa City Council on the 5th day of April, 2021
and that thereafter, said Ordinance No. 2021-01 was duly adopted and passed at a regular meeting of
the Azusa City Council on the ____ day of April, 2021 by the following vote:
AYES: COUNCILMEMBERS:
NOES: COUNCILMEMBERS:
ABSENT: COUNCILMEMBERS:
___________________________________
Jeffrey Lawrence Cornejo, Jr.
City Clerk
APPROVED AS TO FORM:
___________________________________
Best, Best & Krieger, LLP
City Attorney
Attachment 3