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HomeMy WebLinkAbout02-09-2001 City Council Study SessionMINUTES CITY COUNCIL STUDY SESSION CITY OF LAKE EL5INORE 130 SOUTH MAIN STREET LAKE ELSINORE, CALIFORNIA FRIDAY, FEBRUARY 9, 2001 •~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~e CALL TO ORDER Mayor Schiffner called the City Council Study Session to order at 3:05 p.m. PLEDGE OF ALLEGIANCE City Clerk Kasad led the Pledge of Allegiance. ROI,~, CAI.L PRESENT: COUNCILMEMBERS: KELLEY, PAPE, SCHIFFNER ABSENT: COUNCILMEMBERS: BRINLEY, METZE Also Present were: City Manager Watenpaugh, Assistant City Manager Best, Administrative Services Director Boone, Community Services Director Sapp, City Treasurer Ferro and City Clerk Kasad. DISCUSSION ITEM California Electric Market. (F36.1)(X:170.3) City Manager Watenpaugh noted the current energy crisis and the impact that it has had on the State of California. He noted that Robert I,opez, Regional Manager of Southern California Edison Company was in attendance to present an overview of the energy crisis and possible solutions. He stated that Mr. Lopez would be available for Council questions about the current energy situation as well as the Enron project. Mr. Lopez introduced Ms. Drury. Mary Drury, Project Manager for Southern California Edison presented a power point presentation regarding electrical energy as follows: Overview - Key Issues • Generation Supply Shortages • Dramatic Price Increases • Economics 101- Wholesale is higher than retail PAGE TWO - STUDY SESSION - FEB. 9, 2001 California's Electricity Market Structure Southern California Edison is still a Utility Generator and must sell to the State of California. Independent Generators can sell to highest bidder within the State or elsewhere. The State has taken the place of the Power Exchange Spot Market and purchases directly for the State of California. Generation Ownership A pie chart was presented representing Generation of electricity Pre- Restructuring and a pie chart representing Ownership of California Generation after implementation of AB 1890. California Load Growth vs. New Generation (1996 -1999) A bar chart was presented showing the Load Growth and New Generation. Ms. Drury noted that Senator Battin quoted the California Energy Commission as follows: "The California energy use has grown today to the point of what was projected for the year 2015." She explained that the State of California is 15 years ahead of itself and the State has not kept up with the need for generation. She stressed that there is not enough supply to meet the demand. Cal-ISO Summer 2001 Outlook at Peak Demand A bar chart was presented showing the amount of reserves necessary to maintain the integrity of the system. The chart was figured on an estimated load and conditions for the summer of 2001. ISO Operations Ms. Drury gave a brief explanation of the Alert State System as follows: • Alert - Day - Ahead forecast indicates Operating Reserves will fall below 7%. • Warning - Hour - Ahead forecast indicates Operating Reserves will fall below 7%. • Stage 1 Emergency - Current Operating Reserves have fallen below 7% or such shortfall is unavoidable. • Stage 2 Emergency - Current Operating Reserves have fallen below 5% or such shortfall is unavoidable. PAGE THREE - STUDY SESSION - FEB. 9, 2001 • Stage 3 Emergency - Current Operating Reserves have fallen below 1.5% or such short fall is una~oidable. Ms. Drury stated that anything over a Stage 3 Emergency would begin with rolling blackouts. Interruptible Load Program • Customers receive lower rates in exchange for voluntarily reducing load. • Present interruptible program. SCE 2,528 MW PG&E 470 MW SDG&E 40 MW For a Total of 3,038 MS. • Customers on this program enabled the State to avoid several rotating outages. • The California Public Utility Commission issued a decision temporarily suspending the penalty provisions for the interruptible tariffs effective January 26, 2001. New Generation In California Ms. Drury presented an overview of the power plants that were approved for construction or currently under construction. She noted that just because the power plant is built in California, does not mean that the power would remain in the State. She noted that appro~mately 50% of the power is sold out of State. Municipalization Issues Current crisis is one of the cost and availability of the electric commodity, not the cost or quality of the distribution wires service that delivers the power to you. • There simply are no vast untapped sources of cheap electricity out there waiting for municipal utilities to buy them. • Customer of municipal utilities may not have the ability to choose their power provider. SCE 1998,1999, AND 2000 System Average Energy Cost. A bar chart was presented showing the average cost of energy. PAGE FOUR - STUDY SESSION - FEB. 9, 2001 On-Peak Chart Average Price. Three flow charts were presented showing the price increases. FERC Findings and Proposals. Findings • Prices charged by generators and marketers are unjust and unreasonable. Proposals • IOUs no longer required to buy from or sell into the California Power Exchange. • Implementation of a temporary two-year "soft cap" on generation sales set at $150/mWh. • Deferred consideration of retroactive refund issues. • Market participants must schedule 95% of all transactions into the day-ahead markets. • Restructure Cal-ISO Board of Directors. CPUC Decision 10-10-018 CPUC decision allows PG&E and SCE to immediately increase rates for each customer by 1 cent per kWh. *Increases range from 7% to 15% depending on customer rate group. 9% for residential customers; 7% for small business customers 12% for medium commercial customers; and 15% for large commercial and industrial customers. • Increase provides $65 million per month in additional revenue toward energy procurement costs. • Actual procurement costs are $750 to $900 million per month. • First rate increase in 6 years. SCE Rate Stabilization A bar chart was presented showing the actual procurement increase and SCE's proposed increase. Recent Government Actions PAGE FIVE - STUDY SESSION - FEB. 9, 2001 January 17, 2001 - As a result of multiple stage three emergencies and current financial and credit positions of SCE and PG&E, Governor Gray Davis declares a state of emergency. Currently negotiating with generators for long-term contracts Bids receive on January 24, 2001 weighted a~erage cost of 6.9 cents pesr kWh. Governor signs three energy related bills over a two day period. AB SX-January 18, 2001, Restructures governing boards of the ISO: and SB 6X- January 18, 2001, Requires SCE, PG&E, and SDG&E to retain their existing generation assets; and SB 7X - January 19, 2001, provides the Department of Water Resources the authority to purchase power. AB 1 X- Allow the State to buy power. • January 23, 2001- President Bush directed the Delpartment of Energy to require gas and electric power producers to sell to California. This tow week e~ension is the final e~ension. Pending Litigation Nov. 15 SCE filed suit against CPUC asking the federal court to overturn rulings by the CPLUC that illegally prevent it from the reasonable recovery of operating costs for purchasing power on behalf of customers. *Federal Court ruled in favor of SCE, pending hearing on procurement cost prudency review. *Hearing is scheduled for February 12, 2001. • January 25, 2001, PG&E filed in San Francisco Federal Court, two separate lawsuits. *Requests recovery of it's wholesale power costs going forward. *Seeks preliminary injunction that would allow recovery of past wholesale power costs. Decisive Action Needed Actions needed to protect customers and ensure System Realiability. *Actions Under California's Authority. • Order utilities to provide cost-based rates (sales from retained generation assets) • Eliminate mandatory buy/sell through PX PAGE SIX - STUDY SESSION - FEB. 9, 2001 • Implement rate stabilization plan that will ensure steady, reliable rates going forward • Secure low cost long-term contracts • Take steps to accelerate development of new generation • Promote energy efficiency and conservation. *Action that must be taken by Federal Government. • Rein in extreme wholesale power costs • Institute "hard" price caps • FERC (or Federal Courts) to require power marketers and generators to issue refunds for excessive profits from unjust and unreasonable rates Consequence of Inaction - Utility bankruptcy is NOT in the best interests of California Consumers or the economy. If utilities are forced into baukruptcy, Federal Bankruptcy Court takes control. • California Elected Officials may lose remaining control over State's energy future. • Bankruptcy Court puts interests of creditors ahead of electricity consumers. • Bankruptcy Judge could require utilities to sell off remining generation assets to repay debt. • Minimal generation that could be under state control ceded to federal government. • Bankruptcy Judge could seek significant and unilateral rate increases - without stabilizing impacts to consumers. How you can help Contact Governor Gray Davis Urge him to take action to ensure: There is a reliable supply of electricity. Electricity prlices are stable and affordable. Price and Supply of electricity are determined under a stable framework. Participate in energy conservation and load management programs Work with your assigned SCE account team. Helpful Websites Southern California Edison - www.sce.com California lSO - www.caiso.com California Power Exchange - www.calpx.com California Public Utility Commission - www.cpuc.ca.eov PAGE SEVEN - S'd'UDY SE55ION - FEB. 9; 2001 ` California Energy Commission - www.enerev.ca.eov Councilman Pape questioned when deregulation was started, but never completed, why Southern California Edison was not allowed to enter into long-term contracts. Ms. Drury stated that it was decided that Southern California Edison and PG&E should not have market saturation in terms of generation. She noted that SCE and PG&E were required to sell their generation. She further explained that the Power Exchange would only allow long term contracts in the event of an emergency to prevent domination of the market. Councilman Pape stated that since SCE sold their generation plants, how would they monopolize the energy. Mr. Lopez stated that the Power Exchange considered that the power utility companies have the largest base; therefore they are the ones that need the bulk of the power. He further explained that if the utility were required to buy only from the Power Exchange all the other non-utility owners would contribute to the Power Exchange and competes against each other and as a result would drop the price. Ms. Drury noted the delays in the Public Utilities Commission. Councilman Pape clarified that the Governor appointed the Public Utilities Commission Board. Mr. Lopez concurred. Ms. Drury understood that the Senate was going to call for hearings regarding actions of the Public Utilities Commission. Councilman Pape stated that on March 1, the City Council would be reviewing the budget and asked what cost the City should factor in for power. NIr. Lopez stated that Mr. George Hanson, the representative assigned to the City of Lake Elsinore could work with the City to suggest formulas to answer increase questions. Councilman Pape asked what Southern California Edison's position was regarding the socialization of power by the Governor. Mr. Lopez indicated that SCE had mixed feelings regarding that issue. He eaplained that for the last 100 years SCE had been generating, transmitting and delivering power to their customers, however at this time they could not buy the electricity. He further indicated that the Governor's actions have relieved SCE because it allows them to continue to provide power to their customers. Councilman Pape stated his concern regarding the State dealing power, since they were the same entity that brought forth the efficiency of the DMV. Mr. Lopez stated that AB 1 X sets some deadlines and the bill states that they have until 2003 to enter into long-term contracts and be involved for up to 10 years if needed. Councilman Pape clarified that now that the State is involved long-term contracts were O.K. Mr. Lopez concurred. Councilwoman Kelley stated that her father worked for the Southern California Edison Company for 30 years and remembers being told that the Edison Company plans their power generating plant 15 to 25 years into the future. She asked why Edison fell so far behind in development of the generating plants. Mr. Lopez explained that deregulation did not start in California until 1994 and prior to that it was just rumors and discussion. He indicated that in 1995 the utilities PAGE EIGHT - STUDY SESSION - FEB. 9, 2001 had a 30% reserve and the plants on the books would have been adequate for the projected demand. Councilwoman Kelley asked even if the plants come on line would there be enough to meet the demand and would the prices drop. Mr. Lopez stated that was the concern regarding long-term contracts. He reminded Council that any generation that would be built in the State by a private industry doesn't have to stay in the State. He indicated that California has become dependent on import power from the Pacific Northwest, which has been affected by low rainfall. Councilman Pape noted that every day last month has been a Stage 3 Alert. He asked if it was a foregone conclusion that there would be blackouts. Mr. Lopez noted that all of the power generation should be back on line by summer. He further noted that the State had seen a decrease in usage since the Governor called for conservation. He explained that supplies would be tight, however if the conservation continues, there should be enough power to see the consumers through summer without rolling blackouts. Mayor Schiffner asked if there had been any noticeable increased cost in the actual production of electricity. Mr. Lopez stated that most of the plants are run on natural gas and the cost of gas has increased which caused a dramatic cost in generation of electricity. He indicated that the Attorney General's Office has been investigating price gouging and in the last report there had been no gouging and the increased cost was caused by the increased cost of fuel. Mayor Schiffner clarified that the cost is market driven. Mr. Lopez concurred. Mayor Schiffner stated that the market driven price was something that a Federal Agency could regulate. Mr. Lopez confirmed. Councilman Pape asked if there had been any discussion regarding doing away with penalties. Mr. Lopez confirmed that there had been. ~Ie noted that three plants in the Long Beach area were shut down because their credits were used up with the AQMD. He indicated that AQNID allowed the plants to come back on line because of a Stage 3 Alert to avoid rotating outages. He noted that the plants still paid a penalty, however it was much less then they would have paid otherwise. Ms. Drury noted the problems with licensing and stated that regulations would have to be relaxed to facilitate future power generation. Mayor Schiffner addressed the pump storage plant that was being proposed in Lake Elsinore and asked what Mr. Lopez felt about the proposal. Mr. Lopez stated that any additional generation that would be allowed would help. Ms. Drury stated that currently if the price stays the same at night as it does during the day then the economics of the plant would have to be examined. Mayor Schiffner commented on ; PAGE NINE - STUDY SESSION - FEB. 9, 2001 the clean environment that the plant would provide since it runs on its own electricity and would not damage the environment. Mr. Lopez stressed the fact that Enron would not have to sell to the State of California grid. City Manager Watenpaugh asked if there could be legislation to require that they sell to the California power grid. Ms. Drury commented that the only way the marketers would go for that type of regulation would be if they received incentives. She noted that the marketer would sell their product where they would get the best price. City Manager Watenpaugh asked whose transmission lines or corridors the marketers use to get the power out of State. Mr. Lopez stated that they would use the utility lines, however the transmission lines are operated by the ISO and they have an obligation to move the power wherever the marketers wish it to go. City Manager Watenpaugh stated that there should be a penalty if the marketer sends the power out of the State. Mayor Schiffner asked if a local agency could condition a generating plant to require the power be sold locally. Mr. Lopez stated that they could not since it would be Federally permitted. Ms. Drury noted that Wastewater Plants have partnered co-generation plants and supply their own energy which takes a strain off the grid, however there are constraints regarding how the energy gets sold and how it gets used other than the wastewater plants. Mayor Schiffner inquired,if Los Angeles Water and Power could keep all the power they generate within their own system. Mr. Lopez explained that ~he Deparhnent of W'ater and Power and Municipalities that have long-term contracts can keep their own power, however they have their own transmission grid. He noted that anyone that was part of the statewide grid could be subject to rolling blackouts. Chris Hyland clarified the PUCs decision to hold the money, and asked what they would use it for if they did not return the money. Ms. Drury stated that if the PUC decided that the Southern California Edison Company did not deserve the money, then it would be returned to the customers. Ms. Hyland asked if the Boardmembers of the PUC were open minded to the electricity problems. Ms. Drury stated that it was staff's opinion that they were. She stated that the majority of the five members was reasonable and does understand the market. Mayor Schiffner asked what would be a minimum generating plant that would be efficient. Mr. Lopez stated 500 MW. He stated that a group of municipalities would be capable of generating approximately 50 MW. Mayor Schiffner asked if a group of cities could look at an investor for a long-term contract on land to build a generating plant. Mr. Lopez stated that the City of Escondido is looking to do just that PAGE TEN - STUDY SESSION - FEB. 9, 2001 and is an option that was being reviewed by several cities. The major key is a fuel source and must be factored into the cost. He noted that WRCOG is in the process of examining that option. Mayor Schiffner asked if the City could place the energy in the grid and then pay the cost to remove it from the grid for the City's use. Ms. Drury stated that a City could do that, there would be a number of rules that would be set to the project. Mr. Lopez reminded Council that the State of California would not want competition and has created restrictions on creating generation and keeping it in one place. He stated that the City could still generate and add to the grid, and what it would accomplish was to expand the power base for supply and would help. Mayor Schiffner questioned if it would be possible to lease lines if there were secondary transmission systems that would not be part of the grid and cover the major portion of the valley. The transmission would have to remain on the property where it was generated and could not exceed the limits of the property. Mayor Schiffner thanked Mr. Lopez and Ms. Drury for their presentation. ADJOURNMENT 'I'HE CITY COUNCIL STUDY SESSION WAS ADJOURNED AT 4:10 P.M. ~ _ ROBERT L. SCHIFF , MAYOR CITY OF LAKE CITY CLERK/ HUMAN RESOURCES DIRECTOR CITY OF LAKE ELSINORE