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Home My WebLink About1997-01-23 City Council (10) CRy of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: UTILITIES DATE:January 23, 1997 CMR:125:97 SUBJECT:Agreement between NCPA and ENRON to Pursue Partnering Opportunities REQUEST This report is informational only. RECOMMENDATIONS There are no recommendations and no Council action is required. POLICY IMPLICATIONS This report requests no action at this time and therefore has no policy implications. EXECUTIVE SUMMARY Over the last fourteen months, the Northern California Power Agency (NCPA) had informally contacted various power marketers and utilities to discuss working together, to pursue mutually economic power supply and marketing opportunities unfolding parallel to the restructuring of the California utility industry. This process became formalized in February 1996 through NCPA’s Strategic Planning process that concluded in August 1996. NCPA was directed by their Commission to work with all member utility Directors, including City of Palo Alto’s Utilities Department Director, to seek strategic partnering opportunities to remain competitive with the advent of electric deregulation. Three broad objectives were sought through partnering: 1) more efficient utilization of existing power assets; 2) cost reductions through joint operations; and 3) marketing assistance and product development to serve new and existing loads in northern California. The ultimate goals are to lower costs to NCPA’s existing members, and to enhance members’ competitive positions in existing service territories. CMR:125:97 Page 1 of 3 In August 1996, NCPA issued a Request for Proposal (RFP) to solicit partnering interestin specific areas of potential joint economies. Eight companies responded to the RFP; and NCPA Commissioners, at their September board meeting, approved further formal investigation of partnering approaches that could potentially strengthen NCPA and its members’ competitive positions. Four of the most promising RFP respondents, including a California Investor Owned Utility (IOU), a Pacific Northwest IOU, a natural gas and power marketer, and a California- based independent power producer (IPP), were interviewed by the member utility Directors. In November and December 1996, the four entities underwent formal questioning about how they proposed to work with NCPA and its members to jointly benefit from electric power deregulation. ’ By a unanimous vote of the Utility Directors on December 18, 1996, ENRON Corporation was selected to pursue joint opportunities with NCPA and participating NCPA members. This decision was then confirmed at a special NCPA Commission meeting on January 8, 1997, where board members voted unanimously to form a strategic alliance with ENRON Capital and Trade Resources, a subsidiary of ENRON Corporation. The NCPA/ENRON agreement is the first of its kind in California and is a proactive response to Assembly Bill 1890, the new law passed last September deregulating the electric power industry in California. This alliance is designed to offer improved energy services to customers while positioning NCPA and its member agencies to successfully compete in a restructured electric service industry. This partnership will allow NCPA and ENRON to work jointlyto more efficiently manage power supply and energy sales, to operate more effectively in the new customer-driven marketplace now taking shape in California, and to extend utility services to new customers.. ENRON is one of the world’s largest integrated natural gas and electricity companies, with approximately $15 billion in assets. NCPA will benefit from ENRON’s experience and success in dealing with the transformation of the natural gas industry over the last decade, as well as its industry leadership in developing financial/risk management products specifically tailored to the electric industry. These strengths, coupled with a strong balance. sheet, an innovative, "can-do" corporate attitude, and the ability to quickly adapt to the changing power environment, make ENRON a desirable partnering candidate for NCPA. ENRON also demonstrated strong corporate commitment to provide necessary resources and staff to work with NCPA and its members to achieve success in the new California power world. When final contractual agreements are approved, ENRON will provide a comprehensive package of services to NCPA and its members. NCPA and ENRON together will seek and develop new electric loads outside NCPA member service areas. These new loads will be served through the market and existing NCPA resources. Member utilities will have the option of selecting the specific service offerings most beneficial to their service area. These services will likely include the sale of natural gas to member customers being served by PG&E; the purchase of electricity from ENRON when needed; the sale of excess power to ENRON when available; development of customer metering, billing systems and other systems for existing NCPA CMR:125:97 Page 2 of 3 customers; the design of, and accounting for, new gas and electric loads; and financial and risk management products. FISCAL IMPACT No recommendations are contained in this report and there is no fiscal impact. ENVIRONMENTAL ASSESSMENT This informational report does not constitute a project under the California Environmental Quality Act; therefore, an environmental assessment is not required. ATTACHMENTS NCPA’s press release NCPA/ENRON Final Agreement PREPARED BY:Linda Clerkson, Coordinator, Utility Marketing Services DEPARTMENT HEAD APPROVAL: EDWARD J. MRIZEK Director of Utilities CITY MANAGER APPROVAL: CMR:125:97 Page 3 of 3, ¯ D1 / 1 ~/97 NCPA Northern California Power Agency 180 Cirby Way, Rosevtlla California 95~78 MICHAEL W. McDONALDGeneral Manager (9 6) 7s =4200 JOD 720 Page January 15, 1997 TO: NCPA Commissioners and Utility Directors SUBJECT: NCPA - ENRON Major Strategic EnergyAlliance Press Conference Today, the N~rtl~i.ri~Ca~if~r~tiit.-Pb~eFAg~ncy(N~A:~and~ENR~N~a~ita~and-~-~ade~Res~urces~ a subsidiary of ENROH Corporation, announced the formaxion of a-’strategic, alliance designed to offer improved energy services to customers while positioning NCPA and its member agencies to suc~ss~lly compete in a restructured electric service industry. The partnership will allow NCPA and ENRON to work jointly to more effectively manase power supply and energy sales, and to extend utility services to new customers. A copy of the press announcement and other information is attached. .... The conference was attended by mysel~ ENRON Corporation President and Chief Operating Officer Jeff Skilling, and Mark Nelson of Hewlett-Packard Company in Roseville. Mark Nelson’s o~ts about the agreement highlighted the press conference: . *’This alliance the potential to be very positive for all residents in these communities, including community businesses. Our vision is to continue to enjoy the outstanding service and reliability provided by locally managed and controlled municipal utility, and combine that with costs which are competitive with the m~ket, predi~table ,and stable."’ Please call either myself at the above phone num~ber or Roger Fontes at NCPA at (916) 781=4203, if you have any questions about the alliance Or the press conference. Sincerely, MICHAEL W. McDONALD General Manager RAF/dg Attachments 91~f1781-3636 FOR.IMMEDIATE RELEASE: ~anuary 15, 1997 SACRAMENTO -- (NCPA) aild El~ioi, t Capii:ll-&~rad¢ ~ p~p will ~om~. N~A ~ i~ (more) ~ent ~~n end p~on, and ~~ c~m~+,+~~+ ~:.;:~; .- ,: ~~on ~ne pow~ f~flides ~ug~ ~, one of ~ w~d’s-l~gcs~ ~ a~~[y $1~ .~ioa in ~s~,.:o~es one of the 1~$~ n~ ~s ¯ ~ ~dus~ owns a ~L;~U]D /~’~ ~’ZO~-01/16/}97 8:45AM ~ ,.JOb 7;’0 Page billing Benefits ~rom NCPA/E~O~ A~reemen~ Page 816 THE WALL STREET BUSINESS BRIEFS Enr6n ,to, Involving 11 Cltles. . in:. By P~ ~ ¯ ~ Co~, ~ e~ect~ w announce ~y a fl~t~f-l~-~nd ~iance to ~na~ ~e ene~ ~ of II No~e~ C~ifor, ~ for ot~er publi~pHvate p~er- =~s tn a dere~at~ ele¢~ci~ msrket. " ~nron, ~ in Ho~n, ~1 te~ up ~ ~e ~,~tomer.No~e~ Calf fo~a P~er A~ney ~ m~age ~e agency’s ~wer supp~ and ene~ sales. N~& is a nonprofit utili~ a~n~ In I~ ¯ gene~te, ~nsmit and d~ic~..[= sere te~ ~dudes cit- ~ugh~ ~% ~ ~e ~flon’s elec~ci~ is prodded ~ smaller munidpal ageaci~like g~A, The a~n~l~ fa~ ~e p~ or tn~ ~Nuoon ~m InNer~ ~ defecation oNas ~nsm~sioa]in~ ~ ~-p~ sales. ~nt ff defeCa- tion ca~ ~ a~endes m !o~ ~mme~~ l~er ~Q~, ~ey ~Md have l~s ~venue for o~er i~ ~c~,~bage pinup ~d ~ Np~. "T~ ~ a ~e where ~monoNIg p~der ~. I~Nng Ior ou=lde, p~vzte ~is~nce m.se~e 1= ~d Eaton ~esNent J~I~ ~ SNlling,¯ ’It’s a new idea la eae~ management we e~t to ~uce elsewhere,’ To ~e NCPA, ~e venture ~ ~nmn is ~ defensive mo~ a@In~ P~c E]~,ctz’tc Co. PG&E currently provides nat- ural gas to ]~_C’PA customers and is ex- pected to c~mpete as a seller of elec~c[tyes deregulation evolves. With Enron, the NCP/L gains ~other potential gas providerto compete with F’G~£.For Znron, Mr. Skilllng said, the alli- ance represents the belief that the best way for Znron to compete for retail, cus- tomers ¯ is to work with loc~ ener~ pro- riders instead of vying directly for their customers, the approach taken .by Sprint Corp, and MCI,Corp. after the breakup of AT~T Corp. In addition to incre~ed na.tU: ral-gas sales, E~’on will provide risk-man- agement and other ~inancial products to the NCPA.~..Longer terrn,£nron hopes.the deal will help it develop brand-name recognition.that it can parlay into other consumer business opportunities. . l’oward that end, Znron unveiled yes- terday its first major advertising cam-[ai~m .to make the company a house- old na~me. In five years, Briton plans to¯ spehd over ~ million a year selling its corporate image and the idea of cheaper enersy in a deregulated world.In many ways, Callfomi~ is the perfectlabor~tery .~or.companies hoping to, dobusiness In deregulated energy° With elec- ~c ~es 50% higher then the natinnal ~verage. the st~e is moving’ quickly toopen the mm-ket to competition and helpspe~ the state’s economlcrecovery.. F’RO~ ECm LEGAL ’ ~’ ’~’~ ....~:,~TUs~OI. ~, ;{:Sei~.. 7:57/~0. 3561646597 2/4 W!|~;l~A$, Tltc Pro’tics ~,"xpecl that some inie~lraiio, of.NCPA’I told ENRON’i c..apabilili~ may he mulually NOW, "I}IEREFORE, ,n ~itild~rll~mil of tl~ n~iual p~olnis~ hurcmb~lmv sm fl)rth, ~ for e~!~r j~ood and valulbl~ c~rtsJderlllon, lh~ receipt and adequacy which il hcnaby ack~la~,lodf~l, NCPA amd ENJKON i.~ P~i~ ~lll ~ol~m in 8~ ~i~ m ~vclo~ one or mor~ ~lcnti ~pl~[ ~ g~ls ~i~ a~;c. The i~ ~d ~itio~ of such sub~u~i ~r~ Includl ~hc foll~vill8 principles, m~ion8 ~: . Inark¢! product~ and ltert,i~s for d~ir reip~liv~ and proIp~tJvc’,..~...t,nl~m~i ~d cu~l~rs. 7 Upon ruqu~,’~, ENRON ~,11 work wall p~tlc~patmg NCPA M~rs m d~l~ ~d ~plom~,t cu~om~r m~unng, bHhng, Inf~ii~. ~d odor systgms for Iho ~i o[ p~mctpa[mg NCPA Members and m ~s~l lhc ~,a/~t ~d ~g of ~W g~ ~d NCPA and ENRON will explo~e ~J=~r an.~ ef each Pa~s Ix~r ~upply ~ mrq!y e.omhina=ion ~m the or~ P~n.v.. An)’ agreen~Jm or ahtr ’~nts ~hich ~ dcvelol~., shall be subject to ~:¢ssary corporal, k.md~L ~gulat~3". ~u~d NCPA Commission appmwds ~d r~ui~cm~uu. ENRON acknowlcdR~ ~mZ,a pord~ of NCPA ~’ ~r~ ~ ~r~tty o~ joinOyfor the bo~fit ~f Iho~ NCPA% Mombe~ a~ ~ subjc~ to d*~ NCPA Mm~s ~sh~ 1~ panic~ in dzis A~r~ aH ~ a pomo!~ of de ~¢it)’, ~’ ~ ~ ~wic~ ~p~ity of sack ~zourc=~ ~ a~d~on, ot such n~-~mcz~t~ ~PA M~bu~’ uddid~ ~ri~. ~y ~ cxclu~d from tlti~ Agr~lncnk LEGAL ’~-~, ~’~.u.~O]. ] 97 ~:Sgi£T "~,:57/~0, 356!646591’ P 4/4 DATE SET FORTH ABOVE NORTHERN CALIFORNIA POWIi:R AGENCY Mia~ot W. McD0~4 3