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HomeMy WebLinkAbout1997-05-05 City Council (14)C ty Manager’s City of Pal. Alto Summary Report TO:HONORABLE CITY COUNCIL ATTENTION: FINANCE COMMITTEE FROM:.CITY MANAGER DEPARTMENT: UTILITIES AGENDA DATE: SUBJECT: May 5, 1997 CMR:219:97~ Proposed Electric Fund Rate Increase, Establishment of Unbundled Rates and New Commercial Rate Options, and Calaveras Reserve Proposal This report requests Council approval of a revision of the Calaveras Reserve target balance to $93 million to cover stranded costs, a 4 percent systemwide electric revenue increase effective July 1, 1997 to fund the Calaveras Reserve, establishment of unbundled rates and new commercial rate options..The Utilities Advisory Commission (UAC) has reviewed and endorses the proposal to revise the Calaveras Reserve target. RECOMMENDATIONS Staff recommends that Council: Approve imposition of a Transition Cost Recovery Charge. Approve a revised Calaveras Reserve target balance and target date of $93 million by December 31,2001. Adopt the attached resolution which authorizes new and revised rate schedules incorporating a 4 percent systemwide retail rate increase, new commercial rate options, and unbundled electric rates into the four cost components of: Power Supply Charge, Transition Cost Recovery Charge, Distribution Charge, and Public Benefits Charge. POLICY IMPLICATIONS On March 17, 1997, the City Council approved major electric utility policies related to customer choice, stranded cost recovery, and marketing beyond the City of Palo Alto borders (CMR: 159:97). The recommendations contained in this report begin implementation of these policies. EXECUTIVE SUMMARY To act in accordance with AB 1890 and to implement the Council policies, the following actions are proposed in this report: [] Separate Palo Alto’s electric rates into four cost components to allow-direct accesSto occur. Introduce new rate options to provide commercial customers more choices in managing their utility costs. Set aside additional revenuesto cover Palo Alto’s stranded costs in the future to assure the long-term financial health of the Electric Utility. [].Enact~ a $2.4 million or 4percent systemwide rate increase in FY1997-98 to fund the ~Calaveras Reserve to cover stranded costs. Approve imposition of a~non-bypassable Transition Cost Recovery Charge. The proposed $2.4 million rate increase maintains affordable electric rates while moving closer to equitable rates based on e0st of service. The revenue requirement was spread among the City’s retail customers based on cost of service, therefore, the percentage rate increase varies by rate schedule. On a percentage basis, the largest increase was applied to the residential baseline rate; however, it remains perhaps the lowest rate in California. The proposed rate increase is the first Palo Alto electric rate increase in 7 years, a period in which the utility refunded $37 million to ratepayers. Despite this proposed increase in Palo Alto rates and the expected decreases in Pacific Gas & Electric (PG&E) residential/small commercial rates, the City’s retail rates will continue to compare favorably statewide. In the first half of FY1997-98, staff will propose additional rate schedules to the Council to accommodate direct access customers. During the transition period to full competition (July 1, CMR:219:97 Page 2 of ~ In the first half of FY1997-98, staff will propose additional rate schedules to the Council to accommodate direct access customers. During the transition period to full competition (July 1, 1997 to December 31, 2001), statfwitt continue to evaluate stranded cost estimates, update cost of service analyses with improved cost data, and recommend rate adjustments as appropriate. LIMPA T []Theproposed retail rate increase will generate approximately $2.4 million sales revenue in FY199%98. [] The proposed funding of the Ca!averas Reserve forFY97=98 is approximately $10.5 million. [] The proposed revision to the Calaveras Reserve target balance represents an increase in funding of $61.4 million between July 1, 1997 and December 31,2001 from the previously approved Calaveras Reserve target balance.. -- ..... ENVIRONMENTAL ASSESSMENT Adoption of this resolution does no~ constitute a project under the California Environmental Air Quality Act; therefore, an environmental assessment is not required. Resolution Rate Schedules E~ 1.,E~2,E-4,E-5,E-6,E-7,E-8,E- 14,E- 15,E- 16 Attachment One - Report to-UAC on Updated Stranded Cost Analysis Attachment Two - Rate Plans to Fund Stranded Costs Report to UAC Attachment Three - Stranded Cost Strategy Report to UAC PREPARED BY:Randy Baldsehun, Assistant Director of Utilities, Administrative Services DEPARTMENT HEAD REVIEW: CITY MANAGER APPROVAL: Director of Utilities O~UNE FLEMING City Manager C1’vIR:219:97 Page 3 of 3 .. City of Palo Alto¯City Mznager’s .Report SUBJECT:Proposed Electric Fund Rate Increase, Establishment of Unbundled Rates and New Commercial Rate Optiom, Calaveras Reserve Proposal RECOMMENDATIONS Staff recommends that Council: 1.Approve imposition of a Transition Cost Recovery Charge. Approve a revised Calaveras Reserve target balance and target date of $93 million by December 31, 2001. Adopt the attached resolution which authorizes new and revised rate schedules incorporating a four percent systemwide retail rate increase, new commercial rate options, and unbundled electric rates into the four cost components of: Power Supply Charge, Transition Cost Recovery Charge, Distribution Charge, and Public Benefits Charge. ~ In September, 1996, AB1890 was signed into law radically changing the California electric industry. It established a timetable beginning January 1, 1998 for large electric users to be given a choiceof suppliers and set forth a number 6f requirements and guidelines for municipal and investor-owned utilities. In response to AB1890, many utilities, including Palo Alto, plan to adjust rate levels, conduct public hearings on recovering stranded costs during the transition period to full competition, and tmbundle electric rates in order to identify cost components on customer’s bills. The proposals in this report a~e being driven by deregulation and a recognition that the Palo.Alto Electric Utility needs to remain financially strong while continuing to provide excellent service at competitive rates; the proposals ,in this report have been developed to achieve this goal. On March 17, 1997, the City Council approved major electric utility policies related to customer choice, stranded cost recovery, and marketing beyond the City of Pal0 Alto borders (CMR:159:97). The recommendations contained in this report begin implementation of these policies. CMR:219:97 Page 1 0f 10 Stranded Costs and Transition Cost Recovery Charge As the electric industry transitions towards deregulation, many utilities are saddled with so-called stranded costs. These costs represent billions of dollars of sunk costs (debt) for generation or transmission resources with costs above market prices.. The investments were made under the reasonable expectation that customers would continue to buy power from the local utility. However, under direct access, ratepayers may bypass the local utility and purchase less expensive power on the open market. In this situation, the utility may find .it difficult to recoup the costs of these "high priced" assets, since revenues will drop. Furthermore, if competitors serve lucrative industrial customers, utilities may be left primarily with residential customers to pay for those stranded costs. Last year, in order to meet the financial impact of stranded costs, the City Council approved the Calaveras Reserve Policy (CMR:214:96). The centerpiece of this policy is to accelerate funding of the Calaveras Reserve during the transition period to full competition. The policy established a $31.6 million Calaveras Reserve target to be attained by June 30, 2003, which represents approximately 26 percent of the Calaveras debt service obligation. The potential stranded costs were based on a medium market price scenario and limited to the Calaveras Hydroelectric Project. The adopted Calaveras Reserve policy requires an annual review of the stranded cost issue and an update of the underlying assumptions to calculate stranded costs: This fiscal year, staff revisited the stranded cost issue with the UAC in.three meetings, providing a basis forthe revised calculation of Palo Alto’s stranded costs (Attachments One, Two, and Three). As a result of this review, staff and the UAC recommend the following revisions: Base the stranded cost estimate on a low market price scenario rather than a medium market price scenario. This change in assumptions accounts for a subst~antial portion of the projected increase in strandedeosts to $93 million from last year’s estimate of $31.6 million. The lower-the market-price-assumption, the higher the estimate of stranded costs. This is because stranded costs represent the difference between the Projeet!s actual fixed costs (debt service) and the estimated market price for the project power output. Include additional potential stranded costs of approximately $15.3 million related to the California Oregon Transmission Project (COTP). COTP was not included as a stranded cost last year. Next year, issues may be settled regarding the COTP and there is a possibility that the stranded cost for this project will be reduced significantly. 3. -Achieve the target balance in the Calaveras Reserve by December 31, 2001 rather than by June 30, 2003, to conform to the revised timetable established by AB1890 for California investor-owned utilities. Build up the Calaveras Reserve through retention of power cost and operating budget savings in combination with system average single-digit rate increase(s). This " CMR:219:97 Page 2 of I0 approach is recommended over other alternatives and mitigation measures the staff presented to the UAC (Attachment Two). Investor-owned utilities are also covering a portion of their stranded costs by freezing rates and capturing power cost savings during this favorable market period. " The net effect of the recommendations is: An increase in the Calaveras Reserve target from $31.6 million to $93 million to be attained by December 31, 2001, which represents approximately 73 percent of the Calaveras debt service ¯obligation. []. The Calaveras Reserve would be funded by $10.5 million in FY1997-98~ [] A 4 percent revenue increase in FY1997-98 would be necessary. [] The Transition Cost Recovery Charge (TCR) for residential and snlall commercial customers may need to be extended to approximately FY2002-03 to mitigate customer rate impacts. At the conclusion of the collection period for the Transition Cost Recovery charge, the TCR charge would be eliminated from customer bills. For medium and large commercial customers, the charge would be eliminated by December 31, 2001 while the TCR charge for the residential and small commercial enstomers would be eliminated by approximately July 1, 2003. (The TCR charge is discussed later in this report.) It may be noted that PG&E plans to extend their Competition Transition Charge (CTC) to residents and small commercial customers beyond 2001 as well. The need to extend the TCR charge to Palo Alto residents and small businesses to FY2002-03 will be re- evaluated during the transition period as stranded cost estimates are updated. ~ -~ Rate Increase Proposal As of June 30, 1997, the projected balance of the Calaveras Reserve is approximately $41.6 million. In order to accelerate and supplement funding of this reserve to the recommended $93 million target, a 4 percent system average rate increase is proposed. The proposed rate increase is the first Palo Alto electric rate increase in 7 years, a period in which the Utility refunded $37 million to ratepayers. The results of a recent cost of service analysis indicate that small commercial and large commercial customers are currently paying their fair share of allocated costs. However, the cost of service study indicates that revenue generated by the residential class and medium commercial class (including public facilities) is below the allocated costs to serve these classes. Accordingly, the proposed rate increase is applied to residential and medium commercial customers while retail rates for small and large commercial customers would remain unchanged. Electrierates for the City’s traffic ~ignals and street lights have been increased 9 percent to more closely match costs incurred by these activities. As the Utility enters a competitive marketplace, it is important to avoid intra-elass and inter-class rate subsidies. At the same time, however, it is important to provide affordable rates to residential CMR:219:97 Page 3 of 10 customers with minimal energy requirements. Table One indicates the impact of the rate proposal on customer bills. Residents using under 300 kilowatt-hours (baseline allowance) per month will experience an increase of $1.85 per month, or a 15 percent increase in their electric bill; this represents less than three percent of their total utilities bill. Despite this increase, the proposed baseline rate of 4.73 cents per kilowatt-hour continues to be affordable. Palo Alto residents with minimal energy usage will continue to pay the lowest rate on the system and perhaps the lowest residential baseline rate in California. However, to the extent this rate increase presents a financial burden on any resident, the Utility’s Residential Rate Assistance (RAP) program, ProjectPLEDGE, and Budget Billing, which involves establishing a monthly payment plan, are available to help. TABLE ONE Effect of Rate Increase on Customer Bills CUSTOMER Small Residential - Average Residential Residential. Large Residential SmaU Commercial Medium Commercial (winter) Medium Commercial (winter) Large Commercial KWH USAGE PER MONTH 300 5OO 750 3000 500 160,000 500,000 5,500,000 AMOUNT OF PROPOSED BILL $14.18 27.18 46.67 241.46 36.55 9,108.00 25,025.00 255,050.00 $ CHANGE IN BILL AMOUNT $1.85 2.91 4.50 20.42 572.00 1,485.0o 0 % CHANGE IN BILL 15.0 12.0 10.7 9.2 0 6.7 6.3 % BELOW PG&E 59.2 55.1 50.3 38.7 26.4 22.9 17.5 In response to AB1890, investor-owned utilities such as PG&E are planning to reduce residential and small commercial rates during the transition period. The rate reductions will be financed by bonds to be repaid by PG&E residential and small commercial customers through approximately 2008. As PG&E may be lowering rates this year when Palo Alto is raising rates 4 percent, questions and CMR:219:97 Page 4 of 10 concerns may be expressed by Palo Alto residents. Staff is aware of this issue and plans to contract with a public relations firm to prepare a response. The firm will also prepare consumer information on deregulation and related topics such as unbundled rates. Despite the PG&E rate reductions, staff anticipates that Palo Alto residential rates will continue to remain significantly below PG&E rates. This message will be conveyed. Unbundled Electric Rates In a competitive environment, a customer may elect to buy electricity from an alternate electric service provider. In this case, Palo Alto will continue to provide distribution and other system support services but will not charge for the power supply cost. To avoid double charging a customer who elects direct access from another supplier, the cost of supply must be separated from retail rates. In this manner, unbundling will give customers the opportunity to select from a menu of services offered by Palo Alto and enable them to pay only for the services they use, Staff anticipates that most municipal utilities and all investor-owned utilities in California will unbundle electric rates on customer bills. As part of this rate increase proposal, staff recommends that Palo Alto’s electric rates be unbundled, or separated into cost components. Staff proposes to unbundle electric rates into the following four cost components: 1) Power Supply Charge, 2) Distribution Charge, 3) Transition Cost Recovery Charge, and 4) Public Benefits Charge. Components 2, 3, and 4 are nonbypassable charges and, therefore, will be paid to Palo Alto by the customer, regardless of supplier. These four charges will appear on electric bills approximately July 1, 1997 and an accompanying bill insert will describe them~to our customers. Palo Alto’s electric rate seheduies will probably require updating on an annual basis through the year 2003 to reflect market prices and changes in cost components. A description of the four charges, which vary in amount by customer class, follows: POWER SUPPLY CHARGE - recovers the cost of power at a projected 12 month average market price, with the exception of the Western Area Power Admim’stration resource, wl~’eh is included at cost. Also includes the cost of transmission, at market prices, The Power Supply Charge is lower for large commercial customers when compared to the Power Supply Charge for residents because the market price will favor high volume users. Although the investor-owned utilities (IOU’s) plan to list transmission as a.separate cost, at this time staff is not recommending that this relatively small portion of transmission cost be separated from the Power Supply Charge. DISTRIBUTION CHARGE - recovers the cost of distributing electricity including operation and maintenance expenses~ capital expenditures~ the transfer to the General Fund, administrative overhead, and supporting services from other City departments. As expected, the distribution unit cost is higher for residential and small commercial customers than the distribution unit cost for larger eommerc.ial customers. The primary reason is that the fixed costs of distribution are spread over a considerably lower sales volume for residential and small commercial customers, thus raising the relative cost per unit sold; CMR:219:97 Page 5 of 10 TRANSITION COST RECOVERY CHARGE - recovers the potential stranded costs of the utility for the current frscal year and beyond the year 2001. This cost component is based on the cost above market prices for power purchases and transmission, including the potential stranded costs associated ¯ with the Calaveras Hydroelectric Project. The primary basis for allocating the potential stranded costs among customer classes is the relative contribution to system growth by each customer class during the period 1980 through 1995. This method was used to allocate stranded costs since stranded .costs are largely based on the Calaveras Project which was entered into and built specifically to meet future growth on the system. All retail customer classes were assigned responsibility for stranded costs. Table Two, which follows in this report, provides the results of this allocation. Palo Alto’s Transition Cost Recovery Charge is comparable to an IOU’s Competition Transition Charge (CTC). A public hearing to implement a transition charge is sanctioned by AB1890 and provides the public an opportunity to address this proposal; Attachments 1, 2, and 3 of this report provide a basis for the stranded cost calculation and strategy. PUBLIC BENEFITS CHARGE - recovers the cost of low-income financial assistance programs, demand side management programs, solar rate discount, or other programs identified in AB1890. Palo Alto’s Public Benefits Charge is established here at a level based on an estimate of expenditures in these areas. At this estimated level, it represents approximately 1.6 percent of Palo Alto’s revenues.compared to the minimum level of approximately 2.85 percent stated in AB1890. Staff plans to conduct an analysis of Palo Alto’s costs which may be incorporated in a Public Benefits Charge and also develop a plan to introduce appropriate programs during FY1998-99 to achieve a 2.85 percentage dedicated to such activities. The process of unbundling rates involves: 1) allocating expenses, revenues, and reserve level changes to the four cost components, 2) apportioning the cost components to each rate schedule based on specific cost methodologies, and 3) breaking down the total bill into four cost components for consumer informational purposes. In order to break down the customer’s bill, the four cost components are represented on each rate schedule., While the actual amount of the bill will continue to be calculated .under the appropriate rate structure, the bill total will be broken down into the four cost components. The breakdown of ~the charges for a full-service customer who buys electricity from the City is provided for the customer’s information, not for purposes of utility accounting nor to calculate the bill total. In this manner the customer will have better information on what constitutes his or her utility costsand will be in a position to compare the City’s power supply costs with prices that may be offered by alternate suppliers. . Each retail rate schedule contains a provision that describes how the cost components are calculated. The cost components are based on the results of a cost of service analysis and varyby rate schedule. The cost components may require updating on an annual basis. While some rate schedules will apply fixed percentages to compute the cost components, other rate schedules will use a forecast or actual market price for the Power Supply Charge and apportion the remainder of the bill to the other cost components on a relative percentage basis. This approach to identifying cost components on a customer’s bill is similar to a method proposed by PG&E. CMR:219:97 Page 6 of 10 The following example illustrates how the cost components would be unbundled on a resident’s bill.,. statement. The computer calculates the bill amount ($100.00 in this example) according to the adopted rates for Schedule E-1. The $100.00 is broken down into the four cost components based on percentages unique to Schedule E-I. The resident’s electric bill would appear as follows: Distribution Charge ................$49.60 Power Supply Charge ...............40.30 Transition Cost Recovery Charge..8.60 Public Benefits Charge.. ..............~ Total $1OO.00 The results of the cost of service analysis and the unbundling process are shown in a unit cost format in Table Two. Table Two indicates the break down in costs for various customer classes. The costs are expressed in a cents per kilowatt-hour format. For example, the average cost or rate for a resident is 5.85 cents per kilowatt hour of which .5 cents per kilowatt-hour represents the Transition Cost Recovery Charge. The cents per kilowatt-hour vary by customer class and cost component based on cost of service as indicated in the previous discussion for each component. For illustrative purposes, the percentages used to calculate the cost components inthe example of a $100 residential bill are shown besides the respective costs in Table Two. TABLE TWO Palo Alto Unbundled Electric Costs Cents per Kilowatt-hour Cost Component Distribution Charge Power Supply Charge Transition Cost Recovery Charge Public Benefits Charge Total Unbundled Costs - Residential Cents/ KWH Cost (%) 2.90 (49.6%) 2.36 (4O.3%) .50 (8.6%) ..09 (1.5%) 5.85 (I00%) Small mercial 2.92 .50 .09 6.95 Medium Com- mercial 2.09 2.31 1.86 .09 6.35 Large mercial 1.61 2,31 1.42 For cost comparison purposes, Table Three presents estimated unbundled PG&E rates based on information gathered from a recent PG&E application before the California Public Utilities Commission. This information indicates that Palo Alto’s unbundled rates will continue to be competitive with PG&E’s unbundled rates for all customers during the transition period. While Palo Alto’s cost components are below PG&E’s cost components in every category, the distribution cost for large commercial customers merits close attention since the cost differential is less than 10 percent. Part of the reason may be due to Palo Alto recovering its return on investment through the CMR:219:97 Page 7 of 10 distribution cost component whereas PG&E spreads its return on investment between generation, transmission, and distribution. TABLE THREE Estimated PG&E Unbundled Electric Rates Cents per Kilowatt-hour Cost Component Residential Medium Commercial Large Commercial Distribution Cost Power Cost plus Transmission CTC (Competition Transition Charge) Public Benefits Charge Other (Diablo Decom.) Total tmbundled costs 3.84 2.91 3.81 .42 .94 11.92 2.27 2.90 3.74 .36 .79 10.06 1.74 2.87 3.26 .32 .70 8.89 Introduction of Three Commercial Rate Options Staff anticipates that a menu of pricing options will help retain many large Palo Alto commercial . customers. This report presents three new electric rate options that provide competitively priced rate structures as alternatives to existing rate schedules. Presently, medium and large commercial ¯ customers are billed under a seasonal rate structure that provides for different prices between the winter and summer months. Proposed Rate Schedules E-5 and E-6 will offer rates that remain the same year-round. It may be noted that new and revised electric rate schedule designations are proposed to accommodate the expansion of rate schedule numbers. The third new electric rate option applies to large commercial customers and is described on Rate Schedule E-8. This rate schedule provides for a Power Supply Charge component of the bill which will be based on the market price of power delivered to the City and will change on a monthly basis. In concept, this rate option is similar to the City’s existing Gas Rate Schedule G-3 which provides for monthly price changes within a price range approved by Council. The same rate flexibility is recommended for Rate Schedule E-8, whereby the monthly market price of electricity will be charged to the customer within a pre-authorized range identified on the rate schedule. Technology and Billing System Considerations A new comprehensive Utilities Customer Information System (CIS) may not be brought on line until FY1998-99. In the interim, the approach to billing unbundled rates is to identify the cost components on a customer’s bill that can be accommodated by the current billing system without major software CMR:219:97 Page 8 of 10 programming changes. Nonetheless, the proposed electric rate schedule changes will present a significant challenge in the existing Customer Utility Billing Information System (CUBIS). While staff recommends that all rate schedules become effective July 1, 1997, the three rate options may be phased-in to customers during the fiscal year. This delay may be necessary to allow adequate time for software programming in CUBIS. Testing of a billing and payment system is the most time consuming portion of major software programming work. Deployment of other new technologies that are necessary to respond to the challenges presented by direct access, may cause a delay in offering new rate options. For example, it is anticipated that new technologies such as Automatic Meter Reading will be necessary to facilitate billing under rate tariffs whereby the billing cycle must conform to a calendar month. Finally, to the extent future new rate options cannot be accommodated in CUBIS, staff plans to purchase an "off the shelf" billing package to calculate bills under complex rate structures. This interim billing solution is intended to bridge the gap in functionality between CUBIS and the Customer Information System (CIS). Staff is evaluating a number of billing issues and rate options. The evaluation includes the results of a survey regarding customer interest in rates and service options, feasibility of implementation from a technical and staffing perspective, and impact on revenues. Some of the rate options and proposed changes to Utility Rules and Regulations will be presented to the City Council for approval this fall. The following rate and service options are under consideration: [] A direct access tariff for customers whoqualify and elect an alternate supplier after January 1, 1998. A time of use rate whereby prices-to the customer would automatically change during specific hours of the day. . ..... "Green pricing’ whereby customers elect to pay h premium price .for electricity that is produced from environmentally benign resources such as wind or solar power. []Consolidated billing for customers with multiple facilities under different rate schedules. Aggregated billing to serve combined loads for customers with multiple facilities under one rate schedule. []A net energy metering tariff. [] The proposed retail rate increase will generate approximately $2.4 million sales revenue in FY1997-98. [] The proposed funding of the Calaveras Reserve for FY1997-98 is approximately $10.5 million. CMR:219:97 Page 9 of 10 The proposed revision to the Calaveras Reserve target balance represents an increase in funding of $61.4 million between July 1, 1997 and December 31, 2001 from the previously approved Calaveras Reserve target balance. ENVIRONMENTAL ASSESSMF_J~T Adoption of this resolution does not constitute a project under the California Environmental Air Quality Act; therefore, an environmental assessment is not required. A_TT.ACtIMENTS Resolution Rate Schedules E-1,E-2,E-4,E-5,E-6,E-7,E-8,E-14,E-15,E-16 Attachment One - Report to UAC on Updated Stranded Cost Analysis Attachment Two - Rate Plans to Fund Stranded Costs Report to UAC Attachment Three - Stranded Cost Strategy Report to UAC PREPARED BY:Randy Baldsehun, Assistant Director of Utilities, Administrative Services DEPARTMENT HEAD REVIEW: Jt of Utilities CITY MANAGER APPROVAL: City Manager CMR:Page 10of 10 RESOLUTION NO. RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO AMENDING UTILITY RATE SCHEDULES E- 1, E- 2 and E- 7, RENUMBERING AND AMENDING UTILITY RATE SCHEDULES E- 4 AND E-6 AS E-14 AND E-16, RENUMBERING UTILITY RATE SCHEDULE E-5 AS E-15, AND ADDING UTILITY RATE SCHEDULES E-4, E-5, E-6 AND E-8 OF THE CITY OF PALO ALTO UTILITIES RATES AND CHARGES PERTAINING TO RESIDENTIAL ELECTRIC SERVICE, SMALL COMMERCIAL ELECTRIC SERVICE, MEDIUM COMMERCIAL .ELECTRIC SERVICE SEASONAL DEMAND AND ENERGY RATES, MEDIUM COMMERCIAL ELECTRIC SERVICE - FLAT DEMAND AND ENERGY RATES, LARGE COMMERCIAL ELECTRIC SERVICE SEASONAL DEMAND AND ENERGY RATES, LARGE COMMERCIAL ELECTRIC. SERVICE - FLAT DEMAND AND ENERGY RATES AND LARGE COMMERCIAL ELECTRIC SERVICE -SEASONAL RATES WITH A POWER SUPPLY CHARGE,ELECTRICAL SERVICE CONNECTION FEES ,STREET LIGHTING AND UNMETERED ELECTRIC SERVICE The Council of the City of Palo Alto does hereby RESOLVE as follows: SECTION !. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-I (Domestic Electric Service) of the Palo Alto Utilities Rates and Charges is hereby renamed Utility Rate Schedule E-I (Residential Electric Service) and amended to read in accordance with Sheets E-I-I and E-I-2, attached hereto.and incorporated herein. The foregoing Utility" Rate Schedule, as amended, shall become effective July i, 1997. SECTI6N 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-2 (Commercial Electric Service) of the Palo Alto Utilities Rates and Charges is hereby renamed Utility Rate Schedule E-2 (Small Commercial Electric Service) and amended to read in accordance with Sheets E-2-1 and E- 2-2, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended, shall become effective July 1, 1997. ~ SECTION 3. Pursuant to Section 12,20.010 of the Palo Alto Municipal Code, current- Utility Rate Schedule E-4 (Street and Highway Lighting) of the PaloAlto Utilities Rates and Charges is hereby renumbered Utility Rate Schedule E-14 (Street Lights) and amended to read in accordance with Sheets. E-14-1 through E-14-4, inclusive, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as.amended, shall become effective July I, 1997. ¯ SECTION .4. Pursuant to .Section 12.20,010 of the Palo Alto Municipal Code, new Utility Rate Schedule E-4 (Medium Commercial Electric Service) of the Palo Alto Utilities Rates and Charges is hereby added to read in accordance with Sheets E-4-1 through E-4-4, inclusive, attached hereto and incorporated herein. Schedule E-4 970501 !~ 0071189 sets forth, the seasonal demand and energy rates. The foregoing. Utility Rate Schedule, as amended, shall become effective Julyl, 1997. ~ECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, current Utility Rate Schedule E-5 (Electric Service Connection Fees) of the Palo Alto Utilities Rates and Charges is hereby renumbered as Utility Rate Schedule E-15 (Electric. Service Connection Fees) to read in accordance with Sheets E-15-1 through E-15-7, inclusive, attached hereto and inco.rporated herein. The foregoing Utility Rate Schedule, as renumbered, shall become effective July I, 1997. SECTION 6 Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, new Utility Rate Schedule E-5 (Medium Commercial Electric Service) of the Palo Alto Utilities Rates and Charges is hereby added to read inaccordance with Sheets E-5-1"through E-5-4, inclusive, attached hereto and incorporated herein. Schedule E-5 sets forth the flat demand and energy rates. The foregoing Utility Rate Schedule, as amended, shall become effective July I, 1997. ~ SECTION 7~.~ Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, current Utility Rate Schedule E-6 (Unmetered Electric Service) of the Palo Alto Utilities Rates and Charges is hereby renumbered and amended to read in accordance with Sheets E- 16-1 through E-16-3, inclusive, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended, shall become effective July I, 1997. SECTION_I_Q~_~. Pursuant to Section ~2.20.010 of the Palo Alto ~Municipal Code, new Utility Rate Schedule E-6 (Large Commercial Electric Service)of the Palo Alto Utilities Rates and Charges is hereby added.to read in accordance with Sheets E-6-1 through.E-6-4, inclusive, attached hereto and incorporated herein. ,Schedule E-6 sets forth the flat demand and energy rates. The foregoing Utility Rate Schedule, as amended, shall become effective July i, 1997. SECTION ~. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, -Utility Rate Schedule E-7 (Large Commercial Electric~Service) of the Palo Alto Utilities Rates and Charges is hereby amended to read in accordance with Sheets E-7-1 through E-7- 4, inclusive, attached hereto and incorporated herein. Schedule E- 7 sets forth the seasonal demand and energy rates. The foregoing Utility Rate Schedule, as amended, .shall become effective July i, 1997. SECTION IQ. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, new. Utility Rate Schedule E-8 (Large Commercial Electric Service) of the Palo Alto Utilities Rates and Charges is hereby added to read in accordance with Sheets E-8-1 through E-8-5, inclusive, attached hereto and incorporated herein. Schedule E-8 sets forth the seasonal rates with a monthly market-based power supply charge. The foregoing Utility Rate Schedule, as amended, shall become effective July I, 1997. 970501 la~ 0071189 2 SECTION II. The Council finds that the revenue derived. from the authorized adoption and adjustments of the several service rates enumerated herein, shall be used only for the purposes set forth in Article VII, Section 2, of the Charter of the City of Palo Alto. SECTION 12. The Council finds that the adoption of this resolution does not constitute a project under the California Environmental Quality Act, California Public Resources Code section 21080., subdivision (b) (8). INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST:APPROVED: City. Clerk Mayor APPROVED AS TO FORM: Senior Asst. City Attorney City Manager ~-. Directon of Utilities Acting Director of Administrative Services 3 RESIDENTIAL ELECTRIC SERVICE UTILITY RATE SCHEDULE E~I " A.. APPLICABILITY: This schedule applies to separately metered single-family residential dwellings receiving retail energy services from the City of Palo Alto Utilities. A "single-family residential dwelling" is designated as any house, cottage, fiat, or apartment unit having a kitchen, bath, and sleeping facilities. B.TERRITORY: Within the incorporated limits of the City of Palo Alto and on land owned or leased by the City. C.RATES: Energy Rates: Per Meter Per Mont~Per Kilowatt-Hour First 300 kVVh Next ~ 300 kWh All Over 600 kWh $0.0473 .................. $0.0650 .................. $0.0866 Minimum Charge, Per Month "$1.00 Special Remote Meter Register Charge, Per Month $1.00 D. SPECIAL NOTES: Calculation of Cost Components The bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts. On a customer’s bill statement, the bill amount is broken down into four cost components based on percentages shown below for each of the components: Power Supply Charge, Transition Cost RecoveryCharge, DistribUtion Charge, and Public Benefits Charge. These percentages reflect forecasted annual costs. The breakdown of the bill amount into cost components is provided for the customer’s information and does not affect how much a customer pays. These cost components and their percentages are shown here: Issued by the City Council Supersedes Sheet No~ E=I-1 dated 9-10-90 CITY OF PALO ALTO UTILITIES Effective 7=1=97 Sheet No. Eo1-1 RESIDENTIAL ELECTRIC SERVICE = T--,’--; _---T~ ; .~ "-1_ (Continued) Illustrative Cost Corn_portent Percenta~Jes a.Power Supply Charge b.Transition Cost Recovery Cl~arge c.Distribution Charge d.Public Benefits Charge 2.Solar Energy Discount a= 40:3% 8.6% 49.6% 1.5% Upon approvalby the City, a 10 percent (10%) discount will be applied to a customer’s electric .bill if such customer has installed a solar energy system and met the following criteria before April 1, 1987: The. solar energy system is in conformance with the City’s performance and aesthetic standards; The .solar energy system is designed to provide for 50 percent or more of the residential domestic water heating or space heating requirements; and Appropriate City permits are acquired. {End} Issued by the City Council Supersedes Sheet No. E-1-1 dated 9-10-90 CITY OF PALO ALTO UTILITIES Effective 7o1=97 Original Sheet No. E-’lo2 SMALL COMMERCIAL ELECTRIC SERVICE U_T_LLITY RATE SCHEDU~ A. APPLICABILITY: This schedule applies to non-demand metered electric service for small commercial customers and master-metered multi-family facilities. B.TERRITORY~ Within the incorporated limits of the City of Palo Alto and land owned or leased by the City. C.RATES: Seasonal Energy Rates:Per Meter Energy Charge (Per kWh) Effective During Summer Period ...........................$0.0731 Effective Dudng Winter Period ................- ............$0.0657 D, SPECIAL NOTES: 1, Calculation of Cost Components The bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts. On a customer’s bill statement, the bill amount is broken down into four cost components based on percentages shown below for each of the components: Power Supply Charge, Transition Cost Recovery Charge, Distribution. Charge, and Public BenefCs Charge. These percentages reflect forecasted annual costs. The breakdown of the bill amount into cost components is provided for the customer’s information and does not affect how much a customer pays..These cost components and their percentages are shown here: ~ ~.ConmonentPe -- -- -: a.Power Supply Charge b.Transition Cost Recovery Charge c.Distribution Charge d.Public Benefits Charge 42.0% 7.2% 49.5% 1.3% Issued by the City Council Supersedes Sheet No. E-2-1 dated 7-1=95 CITY OF PALO ALTO UTILITIES Effective 7-1=97 Sheet No. 2.Seasonal Rate Changes SMALL COMMERCIAL ELECTRIC SERVICE UTILITY RATE SCHEDULE E-2 (Continued) The Summer Period is effective May I to October 31 and the Winter Period is effective from November 1 to April 30. When the billing period is partly in the summer period and partly in the winter period, the billing will be computed by prorating the total kWh usage, and. the applicable rates thereto between the two seasonal periods, according to the ratio of the number of da~;s in each seasonal period to the total number of days in the billing period. =.Minimum Charge A minimum charge of $1.00 per month will apply to all accounts. 4.Solar Energy Discount Upon approval by the City, a 10 percent (10%) discount will be applied to a customer’s electric bill if such customer has installed a solar energy system and met the following. criteria before April 1, 1987: ao The solar energy system is in conformance with the City’s performance and aesthetic standards; The solar energy system is designed to provide for 50 percent (50%) or more of the residential domestic water heating or space heating requirements; and c. Appropriate City permits are.acquired. {End} Issued by the City Council Supersedes Sheet No. E=2-2 dated 9-10-90 CITY OF PALO ALTO UTILITIES Effective 7-1-97 Sheet No. E-2-2 MEDIUM COMMERCIAL ELECTRIC SERVICE =UTILITY R~,. T~ A. APPLICABILITY: This schedule applies to demand metered electdc service for commercial customers with a maximum demand below 1,000 kilowatts. This schedule applies to three-phase electric service and may include service to master-metered multi-family facilities. TERRITORY: Within the. incorporated limits of the City of Palo Alto and land owned or leased by the City. RATES: Seasonal Demand and Energy Rates: Demand Charge (Per Kilowatt of billing demand) Effective During Summer Period ¯ Effective During Winter Period Energy Charge (Per kWh) Effective During Summer Period Effective During Winter Period Per meter ........ ~ ......................$9.50 ..... ¯ .. ~. ....; ................ ....$6.25 0482-$0 ...: $0.0413 D, SPECIAL NOTES: Calculation of Cost Components The bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts. On a customer’s bill statement, the bill amount is broken down into four cost components: Power Supply Charge, Transition Cost Recovery Charge, Distribution Charge, and Public Benefits Charge. The breakdown of the bill amount into cost components is provided for the customer’s information and does not affect how much a customer pays. The following three-step formula is used to estimate the four cost components 1) The Power Supply Charge is determined based on the applicable charges shown in Section D.l.a. below. 2) The Power Supply Charge is subtracted from the total bill amount to arrive at the RESIDUAL amount of the bill to be apportioned between the remaining three cost components. Issued by the City Council Supersedes Sheet No. E=2-1 dated 9=10-90 CITY OF PALO ALTO UTILITIES Effective 7=1o97 Original Sheet No. E-~-t 3) MEDIUM COMMERCIAL ELECTRIC SERVICE UTILITY RATE SCHEDULE E=4 (Continued) The RESIDUAL amount of the bill is broken down into three components by application of the relative percentages shown below. The percentage for each component is based on the annual estimated cost of that component relative to the estimated total costs of the three components. Illustrative Cost Com~on.~q_~_~_~ a;Power Supply Charge Demand (per KW) Energy (per KWH) b.Transition Cost Recovery Charge c.Distribution Charge d..Public Benefits Charge $3.77 $2.36 $0.01646 ’$0.01805 43.5%53.2% 54.4%44;2% 2.1%2.6% 2. Seasonal Rate Changes The Summer Period is effective May I to October 31 and theWinter Period is effective from November I to April 30. When the billing period is partly in the summer period and partly in the winter period, the billing will be computed by prorating the total kWh usage, KW demand, and the applicable rates thereto between the two seasonal periods, according to the ratio of the number of days in each seasonal period to the total number of days in the billing period. 3, Maximum Demand Meter Whenever the monthly use of energy has exceeded 8,000 kilowatt-hours for three consecutive months, a maximum demand meter will be installed as promptly as is practicable and thereafter continued in service until the monthly use of energy has fallen below 6,000 kilowatt-hours for twelve consecutive months, whereupon, at the option of the City, it may be removed. The maximumuteg3agd in any month will be the maximum average power in kilowatts taken during any 15-minute interval in the month provided that in case the load is intermittent or subject to violent fluctuations, the City may use a 5=minute interval. A thermal-type demand meter which does not reset after a definite time interval may be used at the City’s option. The billinq demand to be used in computing charges under this schedule will be the actual maximum demand in kilowatts for the current month. An exception is that the billing demand for customers with Thermal Energy Storage (TES) will be based upon the actual maximum demand of such customers between the hours of noon and 6 pm on weekdays. Issued by the City Council ~/~ Supersedes Sheet No. E-2-2 dated 9-10-90 . Effective 7-1o97 C,,OFPA,O ALTO Original Sheet No~ E-4-2 UTILITIES MEDIUM COMMERCIAL ELECTRIC SERVICE UTILITY RATE SCHEDULE E-4 (Continued) 4.Minimum Charge A minimum charge of $1.00 per month will apply to all accounts 5. PrimaryVoitage Discount Where delivery is made at the same voltage as that of the line from which the service is supplied, a discount of 2o112 percent for available line voltages above 2 kilovolts will be allowed provided the City is not required to supply service at a particular line voltage where it has, or will install, ample facilities for supplying at another voltage equally or better suited to the customer’s electrical requirements: The City retains the right to change its line voltage at any time after providing reasonable advance notice to any customer receiving a discount hereunder and affected by such change. The customer then has the option to change his system so as to receive service at the new line voltage or to accept service (without voltage discount) through transformers to be supplied by the City subject to a maximum kVa size limitation. 6. Solar Energy Discount Upon approval by the City, a 10 percent (10%) discount will be applied to a customer’s electric bill if such customer has installed a solar energy system and met the following criteria before April 1, 1987: The solar energy system is in conformance with the City’s performance and aesthetic standards; The solar energy system is designed to provide for 50 percent (50%) or more of the residential domestic water heating or space heating requirements; and 3.Appropriate City permits are acquired. 6.Power Factor For new or existing customers whose demand is expected to exceed or has exceeded 300 Kilowatts for three consecutive months, the City has the option to install VAR-hour metering to calculate power factor. The City may remove VAR=hour metering from the service of a customer whose demand has been below 200 kilowatts for four consecutive months. Issued by the City Council Supersedes Sheet No. E-2=3 dated 7=1=92 ~ClTY OF PALO ALTO UTILITIES Effective 7-1=97 Odginal Sheet No. E-4=3 MEDIUM COMMERCIAL ELECTRIC SERVICE -UTILITY RATE SCHEDULE E=4 (Continued) When VAR=hour metering is installed, the monthly electric bill shall include a Upower factor penalty", if applicable. The penalty adjustment shall be applied to a customer’s bill prior to the computation of any primary voltage discount. The power factor penalty is applied by increasing the total energy and demand charges for any month by 0.25 percent (0.25%) for each one percent (1%) that the monthly power factor of the customer’s load was less than 95%. ,. The monthly power factor is the average power factor.based on the ratio of kilowatt hours to kilovoltampere hours consumed during the month. Where time-of-day metering installed, the monthly power factor shall be the power factor coincident with the customer’s maximum demand. 7.Changing Rate Schedules Customers may request one rate schedule change in any twelve-month period. The City of Palo Alto Utilitiesmay not be required to make more than one change of rate schedules within a twelve-month period, unless a rate schedule is replaced by a successor rate schedule or the customer’s electrical usage has changed significantly to warrant a change. {End} issued by the City Council Supersedes Sheet No. E-2-3 dated 7-1-92 CITY OF PALO ALTO ~- UTILITIES Effective 7-%97 Original Sheet No. MEDIUM COMMERCIAL ELECTRIC SERVICE UTILITY RATE SCHED~ A. APPLICABILITY: This schedule applies to demand metered electric service for commercial customers with a maximum demand below 1,000 kilowatts. This schedule applies to three-phase electric service and may include service to master-metered multi-family facilities. B. TERRITORY: Within the incorporated limits of the City of Palo Alto and land owned or leased by the City. C. RATES: Flat Demand and Energ~ Rates (All Year): Per meter Demand Charge (Per Kilowatt of billing demand) ......................$7.89 Energy Charge (Per kWh)¯- $0.0458 D. SPECIAL NOTES:. Calculation of Charges The bill amount is calculated based on the applicable rates in Section C above and adjusted, for any applicable discounts. On a customer’s bill statement, the bill amount is broken down into four cost components: Power Supply Charge, Transition. Cost ,Recovery Charge, Distribution Charge, and Public Benefits Charge. The breakdown of the bill amount into cost components is provided for the customer’s information and .does not affect how much a customer pays. , The following three-step formula is used to estimate the four cost components 1) The Power Supply Charge is determined based on the applicable charges shown in Section D.l.a. below. 2) The Power Supply Charge is subtracted from the total bill amount to arrive at the RESIDUAL amount of the bill to be apportioned between the remaining three cost 3) The RESIDUAL amount of the bill is broken down into three components by application .of therelative percentages shown below. The percentage for each component is based on the annual estimated cost of that component relative to the estimated total costs of the three components. issued by the City Council CITY OF PALO ALTO UTILITIES Effective 7-1-97 Odginal Sheet No. E=5ol MEDIUM COMMERCIAL ELECTRIC SERVICE .UTILITY RATE SCHEDULE_E~- (Continued) illustrative Cost Com_eonen~ . a.Power Supply Charge Demand (per KVV)$3.10 Energy (per KVVH)$0.01723 b.Transition Cost Recovery Charge 50.1% c.Distribution Charge 47.6% d.Public Benefits Charge 2.3% 2, Maximum Demand Meter VVhenever the monthly use of energy has exceeded 8,000 kilowatt-hours for three consecutive .months, a maximum demand meter will be installed as promptly as is practicable and thereafter continued in service until the monthly use of energy has fallen below 6,000 kilowatt-hours for twelve consecutive months, whereupon, at the option of the City, it may be removed. The maximum demand in any month will be the maximum average power in kilowatts. taken during any 15-minute interval in the month provided that in case the load is intermittent or subject to violent fluctuations, the City may use a 5-minute interval. A thermal-type demand meter which does not reset after a definite time interval may be used at the City’s option. The ~ to be used in.computing charges under this schedule will be the actual maximum demand in kilowatts for the current month. An exception is that the billing demand for customers with Thermal Energy Storage (TES) will be based upon the actual maximum demand of such customers between the hours of noon and 6 pm on weekdays. Minimum Charge A minimum charge of $1.00 per month will apply to all accounts. 4. Primary Voltage Discount Where delivery is made at the same voltage as that of the line from whi~ch the service is supplied, a discount of 2-112 percent for available line voltages above 2 kilovolts will be allowed provided the City is not required to supply service at a particular line voltage where it has, or will install, ample facilities for supplying at another voltage equally or better suited Issued by the City Council CITY OF PALO ALTO UTILITIES Effective 7-1=97 Original Sheet No.- 5~ MEDIUM COMMERCIAL ELECTRIC SERVICE .UTILITY RATE SCHEDULE_E~ (Continued) to the customer’s electrical requirements. The City retains the right to change its line voltage at any time after providing reasonable advance notice to any customer receiving a discount hereunder and affected by such change. The customer then has the option to change his system so as to receive service at the new line voltage otto accept service (without voltage discount) through transformers to be supplied by the City subject to a maximum kVa size limitation. Solar Energy Discount Upon approval by the City, a 10 percent (10%) discount will be applied to a customer’s electric bill if such customer has installed a solar energy system and met the following criteria before April 1, 1987: ~-~ ¯ 1.The solar energy system is in conformance with the City’s performance and aesthetic. standards; = The solar energy system is designed to provide for 50 percent (50%) or more of.the residential domestic water heating or space heating requirements; and . 3. Appropriate City permits are acquired. 6, Power Factor For new or existing customers whose demand is expected to exceed or has exceeded 300 Kilowatts for three consecutive months, the City has the option to install VAR-hour metering to calculate power factor. The City may remove VAR-hour metering fromthe service of a customer whose demand has been below 200 kilowatts for four consecutive months. When VAR-hour metering is installed, the monthly electric bill shall include a =power factor penalty", if a~plicable. The penalty adjustment shall be applied to a customer’s bill prior to the corn putation of any primary voltage discount. The power factor penalty is applied by increasing the total energy and demand charges for any month by .0.25 percent (0.25%) for each one percent (1%) that the monthly power factor of the customer’s load was less than 95%. Issued The monthly power factor is the average power factor based on the ratio of kilowatt hours to kilovoltampere hours consumed during the month. Where time-of=day metering is installed, the monthly power factor shall be the power factor coincident with the customer’s maximum demand. by the City Council CITY OF PALO ALTO . UTILITIES Effective 7,1-97 Original Sheet No. E-5-3 MEDIUM COMMERCIAL ELECTRIC SERVICE UTILITY RATE SCHEDULE E=5 (Continued) 7.Changing Rate Schedules Customers may request one rate schedule change in any twelve-month period. The City of.Palo Alto Utilities may not be required to make more than one change of rate schedules within a twelve-month period, unless a rate schedule is replaced by a successor rate schedule or the customer’s electrical usage has changed significantly to warrant a change. {End} issued by the City Council CITY OF PALO ALTO UTILITIES Effective 7ol °97 Odginal Sheet No. E=5=4 LARGE COMMERCIAL ELECTRIC SERVICE ~E SCHEDULE_E~6_- A. APPLICABILITY: This schedule applies to demand metered large electric service for commercial customers with a maximum demand of at least 1,000KW and have sustained this demand level at least 3 consecutive months during the last twelve months. B.TERRITORY: Within the incorporated limits of the City of Palo Alto and land owned or leased by the City. RATES: Flat Demand and Energy Rates (All Year): Per meter Demand Charge (Per Kilowatt of billing demand) ......................$5.72 Energy Charge (Per kWh) "$0.0430 D. SPECIAL NOTES: Calculation of Charges The bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts. On a customer’s bill statement, the bill amount is broken down into four cost components: Power Supply Charge, Transition Cost Recovery Charge, Distribution Charge, and Public Benefits Charge. The breakdown of the bill amount into cost components is provided for the customer’s information and does not affect how much a customer pays. The 1) 2) 3) following three-step formula is used to estimate the four cost components The Power Supply Charge is determined based on the applicable charges shown in Section D.l.a. below. The Power Supply Charge is subtracted from the total bill amount to arrive at the RESIDUAL amount of the bill to be apportioned between the remaining three cost The RESIDUAL amount of the bill is broken down into three components by application of the relative percentages shown below. The percentage for each component is based on the annual estimated cost of that component relative to the estimated total costs of the three components. Issued by the City Council CITY OF PALO ALTOUTILITIES Effective 7=1=97 Original Sheet No. E-6-’! LARGE COMMERCIAL ELECTRIC SERVICE _UTILITY RATE SCHEDULE_E_~ (Continued) Illustrative Cost Com_~onents a.Power Supply Charge Demand Charge (per KW) Energy Charge (per KWH) b.Transition Cost Recovery Charge c.Distribution Charge d.Public Benefits Charge $3.10 $0.01723 ¯ 46.0% 51.1% 2.9% 2,Request for Service A customer may request service under this schedule for more than one account or one meter if the accounts are on one site. A site shall be defined as one or more utility accounts serving contiguous parcels of land with no intervening public right-of-ways (e.g. streets) and have a common billing address. 3. Maximum Demand Meter Whenever the monthly use of energy has exceeded 8,000 kilowatt-hours for three consecutive months, a maximum demand meter will be installed as promptly as is practicable and thereafter continued in service until the monthly use of energy has fallen below 6,000 kilowatt-hours for twelve consecutive monthS, whereupon, at the option of the City, it may be removed. The maximumd~J~J~l in any month will be the maximum average power in kilowatts taken during any 15-minute interval in the month provided that-in case the load is intermittent or subject to violent fluctuations, the City may use a 5-minuteinterval.= A thermal-type demand meter which does not reset after a definite time interval may-be used at the City’s .option, The ~ to be used in computing charges under this schedule will be the actual maximum demand in kilowatts for the current month., An exception is that the billi.ng demand for customers with Thermal Energy Storage (TES) will-be based upon the.actual maximum demand of such customers between the hours of noon and 6 pm on weekdays. 4. Minimum Charge A minimum charge of $.1.00 per month will apply to all accounts. issued by the City Council CITY OF PALO ALTO UTILITIES Effective 7-1-97 Original Sheet No. E-6-2 5.Primary Voltage Discount LARGE COMMERCIAL ELECTRIC SERVICE UTILITY RATE SCHEDULE E-6 (Continued) ~Where delivery is made at the same voltage as that of the line from which the service is supplied, a discount of 2-1/2 percent for available line voltages above 2 kilovolts will be allowed provided the City is not required to supply service at a particular line voltage where it has, or will install, ample facilities for supplying at another voltage equally or better suited to the customer’s electrical requirements. The City retains the right to change its line voltage at any time after providing reasonable advance notice to any customer receiving a discount hereunder and affected by such change. The customer then has the option to change his system so as to receive service at the new line voltage or to accept service (without voltage discount) through transformers to be supplied by the City subject to a maximum kVa size limitation. 6.Power Factor For new or existing customers whose demand is expected to exceed or has exceeded 300 Kilowatts for three consecutive months, the City has the option to install VAR-hour metering to calculate power factor. The City may remove VAR-hour metering from the service of a customer whose demand has been below 200 kilowatts for four consecutive months. ~ When VAR-hour metedng is installed, the monthly electdc bill shall include a Upower factor penalty", if applicable. The penalty adjustment shall be applied to a customer’s bill prior to the computation of any pdmary voltage discount. The power factor penalty is applied by increasing the total energy and demand charges for any month by 0.25 percent (0.25%) for each one percent (1%) that the monthly power factor of the customer’s load was less than 95%. The monthly power factor is the average power factor based on the ratio of kilowatt hours to kilovoltampere hours consumed during the month. Where time-of-day metering is installed, the monthly power factor shall be the power factor coincident with the customer’s maximum demand. Issued by the City Council CITY OF PALO ALTO UTILITIES Effective 7-1-97 Original Sheet No. E-6-3 7.Changing Rate Schedules LARGE COMMERCIAL ELECTRIC SERVICE .UTILITY RATE SCHEDULE E-6 (Continued) Customers may request one rate schedule change in any twelve-month period. The City of Palo Alto Utilities may not be required to make more than one change of rate schedules within a twelve-month period, unless a rate schedule ~is replaced by a successor rate schedule or the customer’s electrical usage has changed significantly to warrant a change. {End} Issued by the City Council CITY OF PALO ALTO UTILITIES Effective 7-1-97 Odginal Sheet No, E=6-4 A. APPLICABILITY: LARGE COMMERCIAL ELECTRIC SERVICE ~UTILITY --.- - H- :.: _-.- This schedule applies to demand metered electdc service for large commercial customers with a maximum demand of at least 1,000KW per month per site and have sustained this demand level at least 3 consecutive months during the last twelve months. B, TERRITORY: Within the incorporated limits of the City of Palo Alto and land owned or leased by the City. C. RATES: Seasonal Demand and Energy Rates: ~ J~Per meter Demand Charge (Per Kilowatt of billing demand) Effective During Summer Period ...............................$7.50 Effective During Winter Period ................................$4.00 Energy Charge (Per kWh) Effective During Summer Period ................................$0.0458 Effective During Winter Period ................................$0.0391 D, SPECIAL NOTES: Calculation of Charges The bill amount is calculated, based on the applicable rates in Section C above and adjusted for any applicable discounts. On a. customer’s bill statement, the bill amount is broken down into four Cost components: Power Supply Charge, Transition Cost Recovery Charge, DistribUtion Charge, and Public Benefits Charge. The breakdown of the bill amount into cost components is provided for the customer’s information and does not affect how much a customer pays. The following three-step formula is used to estimate the four cost components 1) The Power Supply Charge is determined based on the applicable charges shown in Section D.l.a. below. 2) The Power Supply Charge is subtracted from the total bill amount to arrive at the RESIDUAL amount of the bill to be apportioned between the remaining three cost components. Issued by the City Council Supersedes sheet No. E=7=1 dated 7-1-95 CITY OF PALO ALTO UTILITIES Effective 7-1-97 Sheet No. E-7-t 3) LARGE COMMERCIAL ELECTRIC SERVICE UTILITY RATE SCHEDULE E~7 (Continued) The RESIDUAL amount of the bill is broken down into .three components by application of the relative percentages shown below. The percentage for each component is based on the annual estimated cost of that component relative to the estimated total costs of the three components. J!lus~;rative Cost Com~ Power Supply Charge Demand Charge (per KW) Energy Charge (per KVVH) b.Transition Cost Recovery Charge c.Distribution Charge d.Public Benefits Charge 2.Seasonal Rate Changes $3.77 $2.36 $0.01646 $0.01805 40.4%53.8% 57.0%42.8% 2.6%3.4% The Summer Period is effective May 1 to October 31 and the Winter Period is effective from November 1 to Apdl 30. When the billing period is partly in the summer period and partly in the winter pedod, the billing will be computed by prorating the total kwh usage, KW demand, and the applicable rates thereto between the~.tWO seasonal periods, according to the ratio of the number of days in each seasonal pedod to the total number of days.in the billing Period. 3.Request for Service A customer may request service under this schedule for more than one account or one meter if the accounts are on one site; A site shall be defined as one or more utility accounts serving contiguous parcels of land with no intervening public fight-of-ways (e.g. streets) and have a common billing address. Maximum Demand Meter ~ Whenever the monthly use of energy-has exceeded 8,000 kilowatt-hours for three consecutive months, a maximum demand meter will be installed as promptly as is. practicable and thereafter continued in service until the monthly use of energy has fallen below 6,000 kilowatt-hours for twelve consecutive months, whereupon,, at the option of the City, it may be removed. Issued by the City Council Supersedes Sheet No. E-7~2 dated 7-1-95 CITY OF PALO ALTO UTILITIES Effective 7=1,97 Sheet No. E-7o2 _ LARGE COMMERCIAL ELECTRIC SERVICE UTILITY RATE SCHEDULE E-7 (Continued) The maximum demand in any month will be the maximum average power in kilowatts taken during any 15-minute interval in the month provided that in case the load is intermittent or subject to violent fluctuations, the City may use a 5-minute interval. A thermal-type demand meter which does not reset after a definite time interval may be used at the City’s option. . The billin_a demand to be used in computing charges under this schedule will be the actual maximum demand in kilowatts for the current month. An exception is that the billing demand for customers with Thermal Energy Storage (TES) will be based upon the actual maximum demand of such customers between the hours of noon and 6 pm on weekdays. 5.Minimum Charge A minimum charge of $1.00 per month will apply to all accounts. Primary Voltage Discount VVhere delivery is made at the same voltage as that of the line from which the service is supplied, a discount of 2-112 percent for available line voltages above 2 kilovolts will be allowed provided the City is not required to supply service at a particular line voltage where it has, or will install, ample facilities for supplying at another voltage equally or better suited to the customer’s electrical requirements. The City retains the dght to change its line voltage at any time after providing reasonable advance notice to any customer receiving a discount hereunder and affected by such change. The customer then has the option to change his system so as to receive service at the new line voltage or to accept service (without voltage discount) through transformers to be supplied by the City subject to a maximum kVa size limitation. 7. Power Factor For new or existing customers whose demand is expected to exceed or has exceeded 300 Kilowatts for three consecutive months, the City has the option to install VAR-hour metering to calculate power factor. The City .may remove VAR-hour metering from the service of a customer whose demand has been below 200 kilowatts for four consecutive months. When VAR-hour metedng is installed, the monthly electdc bill shall include a =power factor penalty", if applicable. The penalty adjustment shall be applied to a customer’s bill prior Issued by the City Council Supersedes Sheet No. E-7=3 dated 7~1-95 CITY OF PALO ALTO UTILITIES Effective 7=1-97 Sheet No. E=7-3 LARGE COMMERCIAL ELECTRIC SERVICE LI RA H - (Continued) ¯ The monthly power factor is the average power factor based on the ratio of kilowatt hours to kilovoltampere hours consumed during the month. Where time-of-day metering is installed, the monthly power factor shall be the power factor coincident with the customer’s maximum demand. to the computation of any primary voltage discount. The power factor penalty is applied by increasing the total energy and demand charges for any month by 0.25 percent (0.25%) for each one percent (1%) that the monthly power factor of the customer’s load was less than 95%. 8.Changing Rate Schedules Customers may request one rate schedule change in any twelve-month period. The City of Palo Alto Utilities may not be required, to make more than one change of rate schedules within a twelve-month period, unless a rate schedule is replaced by a successor rate schedule or the customer’s electrical usage has changed significantly to warrant a change. {End} issued by the City Council CITY OF PALO ALTO UTILITIES Effective 7=1-97 Original Sheet No. E-7=4 LARGE COMMERCIAL ELECTRIC SERVICE .UTILITY RATE SCHEDUL~ A. APPLICABILITY: This schedule applies to demand metered electric service for large commemial customers’ accounts with demand of at least 1,000 KW per month and have sustained this level of usage for at least three consecutive months during the most recent 12 months period. B.TERRITORY: ’ Within the incorporated limits of the City of Palo Alto and land owned or leased by the City. C.RATES: Seasonal Rates with a Monthly Market-based Power Supply Charge: Customer Charge Per meter $50.00 Power Supply Charges Summer Winter Demand (per KW)$3.77 $2~36 Energy Market Price Ra.nge (per KWH) ...............$0.0050 - $0.0400 Other Charges Summer Demand (per KW) ..... ¯$3.73 Energy (per KVVH)¯$0.0285. Winter $0.0222 D. SPECIALNOTES: Calculation of Cost Components The bill amount is calculated as the sum of the charges in Section C above and adjusted for any applicable discount or power factor. The breakdown of the bill amount into four cost components is provided for the customer’s information. The four components identified on a customer’s bill are: Power Supply Charge, Transition Cost Recovery Charge, Distribution Charge, and Public Benefits Charge. The following three-step formula is used to estimate the four cost components: 1)The Power Supply Charge is calculated based on the monthly market price for electricity delivered to the City and the applicable seasonal demand charge. Issued by the City Council CITY OF PALO ALTO UTILITIES Effective 7-1=97 . Odginal Sheet No. E=8-’! LARGE COMMERCIAL ELECTRIC SERVICE UTILITY RATE SCHEDULE (Continued) 2)The Power Supply Charge is subtracted from the total bill amount to arrive at the RESIDUAL amount of the bill to be apportioned between the remaining three cost components. 3)The RESIDUAL amount of the bill is broken down into three components by application of the relative percentages shown below. The percentage of each component is based on the annual estimated cost of that component relative to the estimated total costs of the three components. Illustrative Cost ComDonents Power Supply Charges Demand Charge (per KVV) Energy Charge (per KWH) Transition Cost Recovery Charge Distribution Charge Public Benefits Charge $3.77 $2.36 Within a range of $0.005 - $0.0400 40.4%53.8% 57.0%42.8% 2.6%3.4% 2,Market Price The Power Supply Charge will havetwo components: Demand (per KW) and energy (per KVVH). The energy component (market-based energy) is based on the monthly NYMEX COB Futures Closing Price. NYMEX COB Futures Closin~ Price is the settlement price for the NYMEX COB futures contract on the last trading day of the month. The last day of trading is the fourth business day prior to the first day of the delivery month (e.g. June 1998, NYMEX COB futures contract trading closes on May26, 1998). 3. Seasonal Rate Changes The Summer Period is effective May I to October 31 and the Winter Period is effective from November 1 to Apd130. When the billing period is partly in the summer period and partly in the winter period, the billing will be computed by prorating the total kwh usage, KVV demand, and the applicable rates thereto between the two-seasonal periods, according to the ratio of the number of days in each seasonal period to the total number of days in the billing Period. Issued by the City Council CITY OF PALO ALTO UTILITIES Effective 7-1-97 Original Sheet No. E-8=2 LARGE COMMERCIAL ELECTRIC SERVICE HE - (Continued). 4.Special Metering Equipment and Customer Charge Service under this rate schedule requires the City’s installation of automatic meter reading equipment to enable billing on a calendar month. The City of Palo Alto Utilities normally installs standard metering equipment to provide regular service. Service under this rate schedule requires additional equipment that is in addition to the standard metering and billing equipment. The Customer Charge provided in Section C. includes the estimated additional costs of the required additional equipment as well as ~the cost of administration of this service option. A customer may be required to provide dedicated telephone service to facilitate remote meter access. 5.Changing Rate Schedules Customers may request one rate schedule change in any twelve-month period. The City of Palo Alto Utilities may not be required to make more than one change of rate schedules within a twelve-month pedod, unless a rate schedule is replaced by a successor.rate schedule or the customer’s electrical usage has changed significantly to warrant a change. 6.Maximum Demand Meter Whenever the monthly use of energy has exceeded 8,000 kilowatt-hours for three consecutive months, a maximum demand meter will be installed as promptly as is practicable and thereafter continued in service until the monthly use of energy has fallen below 6,000 kilowatt-hours for twelve consecutive months, whereupon, at the option Of the City, it may be removed, The maximumu;[emagd in any month will be the maximum, average power in kilowatts taken during any 15=minute interval in the month provided that in case the load is intermittent or subject to violent fluctuations, the City may use a 5-minute interval. A thermal-type demand meter which does not reset after a definite time interval may be used at the City’s option. Issued by the City Council CITY OF PALO ALTO UTILITIES Effective 7o1=97 Original Sheet No. E-8=3 LARGE COMMERCIAL ELECTRIC SERVICE UTILITY RATE SCHEDULE E=8_ (Continues) The bJ~ to be used in computing charges under this schedule will be the actual maximum demand in kilowatts for the current month. An exception is that the billing demand for customers with Thermal Energy Storage (TES) will be based upon the actual maximum demand of such customers between the hours of noon and 6 pm on weekdays. Minimum Charge The customer charge will be considered the minimu m charge. 8. Primary Voltage Discount Where delivery is made at the same voltage as that of the line from which the service is supplied, a discount of 2=1/2 percent for available line voltages above 2 kilovolts will be allowed provided the City is not required to supply service at a particular line voltage where it has, or will install, ample facilities for supplying at another voltage equally or better suited to the customer’s electrical requirements. The City retains the right to change its line voltage .at any time after providing reasonable advance notice to any customer receiving a discount hereunder and affected by such change. The customer then has the option to changehis system so as to receive service at the new line voltage or to accept service (without voltage discount) through transformers to be supplied by the City subject to a maximum kVa size. limitation. 9. Power Factor ~For new or existing customers whose demand is expected to exceed or has exceeded 300 Kilowatts for three consecutive months, the City has the option to install VAR-hour metering to calculate power factor. The City may remove VAR-hour metering from the service of a customer whose demand has been below 200 kilowatts for four consecutive months. When VARohour metering is installed, the monthly electric bill shall include a Upower factor penalty", if applicable. The penalty adjustment shall be applied to a customer’s bill prior to the computation of any primary voltage discount. The power factor penalty is applied by increasing the total energy and demand charges for any month by 0.25 percent (0.25%) for each one percent (1%) that the monthly power factor of the customer’s load was less than 95%. Issued by the City Council CITY OF PALO ALTO .UTILITIES Effective 7-1-97 Odginal Sheet No..E=8-4 LARGE COMMERCIAL ELECTRIC SERVICE T / ~ (Continues) The monthly power factor is the average power factor based on the ratio of kilowatt hours to kilovoltampere hours consumed during the month. Where time=of=day metering is installed, the monthly power factor shall be the power factor coincident with the customer’s maximum demand. {End} Issued by the City Council CITY OF PALO ALTO UTILITIES Effective 7=1=97 Original Sheet No. A. APPLICABILITY: STREET LIGHTS _UTILITY RATE SCHEDULE E=14 This schedule applies to street and highway lighting installations either owned by the City of Palo Alto or owned by any other governmental agency. B.TERRITORY: Within the incorporated limits of the City of Palo Alto and land owned or leased by the City. C.RATES: Burning Schedule: Lain p Rating: kWh’s Per Month All NighUMidnight Per Lamp Per Month = Class A City supplies energy and switching service only. All Night Midnight Mercu,ry-Va.oor Larnp~. 100 watts 42/20 175 watts 68/35 400 watts 154/71 Hi_ah Pressure : -.-- i ~ -- __ , ,;_ - 120 volts 70 watts 100 watts 150 watts 240 volts - 70 watts 100 watts 150 watts 200 watts 250 watts 310 watts 400 watts 29/15 41120 60/30 34117 49/25 70/35 90/45 110/55 1 341167 167184 $ 6.21 $ 4.58 7.41 5.78 15.26 11.77 5~45 3.82 7.30 5.34 9.48 7.96 6.10 4.58 7.96 5.78 9.48 6.54 10.57 8.39 12.00 8.50 14.06 11.12 17.22 12.75 40 watts 15/8 2.29 1.85 Issued by the City Council Supersedes Sheet No. Eo4=1 dated 9=10-90 Effective 7,1-97 Odginal Sheet No. CITY OF PALO ALTO ,.~.:#" C. RATES: Buming Schedule: kWh’s Per Month All NighUMidnight ¯ Lamp Rating:.. ~ STREET LIGHTS UTILITY RATE SCHEDULE E-14 (Continued) Per Lamp Per Month - Class C City supplies energy and switching service and maintains entire system, including lamps and glassware. All Night Midnight Mercury-Vapor LamDs. 100 watts 42/20 $ 6.98 $ 5.34 175 watts 68/35 8.39 6.65 250 watts 97/49 10.46 8.07 400 watts 154/71 15.59 12.00 65/32 101/5 1.39/70 212/106 Incandescent Lamps 189 watts ( 2,500 L) 295watts ( 4,000 L) 405 watts ( 6,000 L) 620 watts (10,000 L) 25 watts 1216 40 watts 1518 55 watts ~ - 1819 120 volts 70 watts 100 watts 150 watts 240 volts 70 watts 100 watts 150 watts 200 watts 250 watts 29/15 41/20 60130 7.41 5.89 9.48 7.41 12.00 9.92 16.68 13.84 2.73 -2.07 2.83 2.29 3;27 2.40 5.67 4.03 7.63 5.56 9.81 8.18 34117 6.32 4.80 49/25 8.28 6.10 70/35 9.81 6.87 90145 10.90 8.72 110/55 12.21 8.94 Issued by the City Council Supersedes Sheet No. 4-4-2 dated 9-10.90 CITY OF PALO ALTO UTILITI[S Effective 7-1-97 Original Sheet No. E-14-2 D. SPECIAL CONDITIONS: STREET LIGHTS UTILITY RAT_E_.S_CHEDULE E-14_ (Continued) So Tvoe of Servic~e: This schedule is applicable to series circuit and multiple street lighting systems to which the City will deliver current at secondary voltage. Unless otherwise agreed, multiple current will be delivered at 120/240 volts, three-wire, single-phase. In certain localities the Utility may supply service from 120/208 volt star-connected poly-phase lines in place of 240-volt service. Single phase service from 480-volt sources will be available in certain areas at the option of the Utility when this type of seivice is practical from the Utility’s engineering standpoint. All currents and voltages stated herein are nominal, reasonable variations being permitted. New lights will normally be supplied as multiple systems. Point of Delivery_i: Delivery will be made to the customer’s system at a point orat points mutually agreed upon. The City will furnish the service connection to one point for each group of lamps, provided the customer has arranged his system for the least practicable number of points of delivery. All underground connections will be made by the customer or at the customer’s expense. .,~: Switching will be performed by the.City of Palo Alto (on the City’s side of points of delivery) and no charge will be made for switching provided there are at least 10 kilowatts of lampload on each circuit separately switched, including all lamps on the circuit whether served under this schedule or not; otherwise, an extra charge of $2.50 per month will be made for each circuit separately switched unless such switching installation is made for the City’s convenience or the customer furnishes the switching facilities and, if installed on the City’s equipment, reimburses the City for installing and maintaining them. Annual Bumina _-- : -_’=1 .: The above rates apply to lamps which will be turned on and off once each night in accordance with a regular burning schedule agreeable to the customer but not exceeding 4,100 hours per year for all-night service and 2,050 hours per year for midnight service. M~: The rates under Class C include all labor necessary for replacement of glassware and for inspection and cleaning of the same. Maintenance of glassware by the City is limited to standard glassware such as is commonly used and manufactured in reasonably large quantities. A suitable charge will be made for maintenance of glassware of a type entailing unusual expense. issued by the City Council Supersedes Sheet No. E-4=3 dated 7-1 CITY OF PALO ALTO UTILITIES Effective 7ol-97 Original Sheet No. E=14-3 So o 10. = STREET LIGHTS UTILITY RATE SCHEDULE E-!4 (Continued) Maintenance (cont.) Under Class C, the rates include maintenance of cimuits between lamp posts and of circuits and equipment in and on the posts, provided these are all of good standard construction; otherwise, the City may decline to grant Class C rates. Class C rates applied to any agency other than the City-of Palo Alto also include painting of posts with one coat of good ordinary paint as required to maintain good appearance but. do not include replacement, of posts broken by traffic accidents or otherwise. Multilamo Electroliers: The above charges are made on per-lamp basis. For posts supporting one or more lamps, where the lamps are less than nine feet apart, the above charges for Class C will be reduced by 6 percent (6%) computed to the nearest whole cent, for all lamps other than the first one. O_oerating Schedules Other Than All-Night and Midnigl~: Rates for. regular operating schedules other than all-night and midnight will be the midnight rates plus or minus one-eleventh of the difference between the midnight and the all-night .rate, computed to the nearest whole cent,for each half hour per night more or less than midnight service. This adjustment will apply only to lamps on regular operating schedules which do not exceed 4,500 hours per year. .Street Light Lamos. Standard and Nonstandard Rating.~: The rates for incandescent lamps " under Class A are applicable for service to regular street lamps only and must be increased by 6.percent, computed to the nearest whole cent, for.service to group-replacement street lamps.. The rates under Class C are applicable to both regular and group-replacement street lamps. Continuou ODe,-- ~on: The rate for continuous 24-hour operation under Class A service will be twice the all-night rate. SvstemOwned In-Part bv Ci: VVhere, at customer’s request, the City installs, owns, and maintains any portion of the lighting fixtures, supports, and/or interconnecting circuits, an extra monthly charge of one and one-fourth percent of the City’s estimate of additional investment shall be made. 11.¯ .Rates For Lamo~: In the event a customer installs a lamp which is not presently represented on this schedule, the utility wil! prepare an intedm rate reflecting the utility’s estimated costs associated with the specific lamp size. This interim rate will serve as the effective rate for billing purposes until the new lamp rating is added to Schedule E=4. {End} Issued by the City Council Supersedes Sheet No. E=4-4 dated 7-1-88 CITY OF PALO ALTO UTILITIES Effective 7=1-97 Original Sheet No. E-14-4 ELECTRIC SERVICE CONNECTION FEES UTILITY RATE SCHEDULE E-15 APPLICABILITY: This schedule applies to all connections, expansions, and upgrades to the City’s electric. distribution system except those which serve street lighting or traffic signals. B.TERRITORY: Ca All territory within the incorporated limits of the City and land owned or leased by the City. PREPAYMENT OF FEES: All fees must be paid ~ to the scheduling of any construction or connections to the City’s electrical distribution system. Customer is responsible for the actual costs where an estimate is shown herein. Adjustments will be made if actual costs vary significantly from estimated costs. D. SUMMARY OF FEES: The following schedule is for summary purposes. Section E herein describes the specific tee and conditions in detail. UNDERGROUND SYSTEMS: (A) Service Connection Fee Residential - Single Family 200 ampere maximum ......i ...................$1,120.00 Other ......................................By Estimate Commemialllndustrial 200 am pere maximum ......., ..................... $800.00 Other ......................................By Estimate (B) On-site Distribution System Fee o Underground Residential- Single Family ..............: .........By Estimate Commemial/Industrial ...........................By Estimate © Off-site Distribution System Fee - Underground Residential- Single Family Four lots or less ..............................By Estimate Other ...........................Per Rule & Regulation 17 Commemial/Industrial Transformer on lot .................Per Rule & Regulation 17 Other ............" ............................By Estimate Issued by the City Counci! Effective 7-1 =97 Supersedes Sheet No. E-5-1 dated 7-1-94 ClTYOFPALOALTO Original Sheet No. UTILITIES ELECTRIC SERVICE CONNECTION FEES I I---. ; "~ __-!; :~ - OVERHEAD SYSTEMS: Overhead Replacement Fee Basic fee ....................................No Charge Mid-span ......................................$300.00 Different Pole ...................................$300.00 Other ...........................: ...........By Estimate TEMPORARY SERVICES: Overhead Temporary Service Fee 200 ampere, 100 foot maximum ....................$440.00 Other .....................- ................By Estimate Underground Temporary Service Fee 200 ampere .....: ............." ..........." ......$300.00 Other ......................................By Estimate E, FEES: 1. UNDERGROUND SYSTEMS Connection fees for new or replacement services to the underground electrical system consist of one or more of the following: Service Connection Fee, ~On-site Distribution System Fee and/or Off-site Distribution System Fee, where applicable. (A)Service Connection Fee - Underground: Where the City connects any Customer to the underground electrical distribution system, a service connection fee shall be charged. A waiver of this fee is granted for services connected during an underground conversion distdct and for replacement of existing underground services. (1) =Residential - Single Family These fees apply to development in which electric metering will be on a single- family basis. (a)For a 250 volt maximum, 200 ampere maximum service the fee shall be $1,120. (b) of the installation cost or $I,’120.00, whichever is ~reater~ Issued by the City Council ~,~%~ I~’~ Supersedes Sheet No. E-~2 dated 7-1=94 c,~o~o~t~o UTILITIES For any connection requiring greater capacity the fee shall be the estimate Effective.7o1-97 Original Sheet No. E,,15-2 ELECTRIC SERVICE CONNECTION FEES UTILITY. RATE SCHEDULE E-15. (2) Commercial/Industrial These charges apply to commemial, industrial, non-metered and multi=family residential services. (a)For a 250 volt maximum, 200 ampere maximum service the fee shall be $800.00. (b)For any connection requiring greater capacity the fee shall be the .estimate of the installation costs or $800.00, whichever is greater. (B) On-site Distribution System Fee Where the City installs or will install the underground conductors (primary or secondary), switches or transformer in and on facilities provided by the developer :~itbJg the boundaries of a subdivision or other development, an on-site distribution system fee shall be charged. (1) Residential = Single Family These charges apply to development in which electric metering will be on a single-family basis. (a)The on-site distribution system fee for. developments in which electric metedng will be on a single-family basis shall be as corn puted by Rule and Regulation 17 = Extensions of Main Lines or Other Facilities. (2) Commemialllndustrial These charges apply to commercial, industrial, non=metered and multi-family residential services. (b)The on=site distribution system fee for multi-family residential, commercial and industrial development shall be the estimate of the installation costs. © Off=Site Distribution System Fee Where the City installs or will install an electric distribution system, system extension, Issued by the City Council Supersedes Sheet No. E=5-3 dated 7-I-92 Effective 7-1-97 C’~OF~ALOALTO Original Sheet No. E-15=3 ~ UTILITIES ~_ ELECTRIC SERVICE CONNECTION FEES UTILITY RATE SCHEDULE E-15 or system reinforcement ~ the boundaries of a subdivision or other development to be served, an off-site distribution system fee shall apply. (1) Residential- Single Family (a)The off-site distribution system fee for developments of four singleLfamily units ¯ or less in which electric metering will be on a single-family basis shall be the. estimate of the installation costs less $1,200 per lot and not to exceed $1,000 per lot.. (b)The off-site distribution system fee for developments of five single-family units or more in which electric metering will be on a single-family basis shall be as computed by Rule and-Regulation 17 - Extensions of Main Lines or Other Facilities. ~ (2)Commercial/Industrial These charges apply to residential services. commercial,industrial, non;metered and multi-family (a) (b) VVhere the transformer used to serve the development is located within the boundaries of the development, the off-site distribution system fee shall be as computed by Rule and Regulation 17 - Extensions of Main Lines or Other Facilities. VVhere the transformer used to Serve the development is located outside of the boundaries of the development, the off-site distribution system fee shall be the estimate of the installation costs. 2.OVERHEAD SYSTEMS No overhead service for new construction shall be permitted except with the approval of the Electrical Engineering Manager and only after a finding that an underground service is not feasible. Replacement of existing overhead services with new overhead services will be allowed so long as the new service does not exceed the size of the existing service or 200 Amperes for single-family residential or 400 amperes for all other, whichever is greater. (A) Overhead Replacement Fee: Issued by the City Council Supersedes Sheet No. E-5-4 dated 7-1-92 CITY OF PALO ALTO UTILITIES Effective 7-’~=97 Odginal Sheet No. E-t5-4 ELECTRIC SERVICE CONNECTION FEES .UTILITY RATE SCHEDU!.E_E_~15- (1) (2) Replacement of existing 250 Volt maximum, 200 Ampere maximum, 3 wire services will be done at no cost to the Customer if such a replacement does not require relocation of the service connection point at the pole. Replacement of any service by the City for maintenance will be done at no charge to the Customer. (3) (4) Replacement of existing 250 Volt maximum, 200 Ampere maximum, 3-wire services, where replacement requires relocation of the service connection point at a pole or installation of a mid-span connection, the fee shall be $300.00. Replacement of any other service of greater voltage or capacity when done for Customer benefit, or when required due to damage by Customer, shall be the estimate of the installation costs. (B)Overhead Service Fee: VVhere a new overhead service isallowed, an overhead service fee shall be charged. (1) For 200 ampere maximum, 250 Volt maximum, 100 foot maximum the fee shall be $300.00. (2) -Any connection requiring greater capacity, voltage or length the fee shall be the estimate of the installation costs or $300.00, whichever is greater. TEMPORARY SERVICE A fee shall be charged to connect temporary service. The Customer shall furnish all equipment up to the designated point-of-service. This point-of-service will usually be the weatherhead for overhead temporary services in overhead distribution areas or the secondary connection box for underground temporary services in underground distribution system areas. The City will not supply overhead temporary services in underground service areas or underground temporary services in overhead distribution system areas. The City will supply: overhead conductors and meter for overhead temporary services; and meter only for underground temporary services. The City will connect both overhead and underground services to the City’s electrical distribution system. Any additional offsite facilities or work required shall be provided and removed by the utility at the Customer’s expense. issued by the City Council Supersedes SheetNo. E-5~5 dated 7-1-92 CITY OF PALO ALTO UTILITIES Effective 7-1=97 Original Sheet No. E-t 5.~ (A) (B) Overhead Temporary Service Fee: (1) ELECTRIC SERVICE CONNECTION FEES UTILITY RATE SCHEDUL!~ Eo15 For a 250 volt maximum, 200 ampere maximum, 3 wire, 100 foot maximum service the fee shall be $440.00. (2)The fee for a temporary service of greater length, capacity or voltage shall be the estimate of the installation and removal costs or $440.00, whichever is greater. Underground Temporary Service Fee: (1)For a 250 volt maximum, 200 ampere maximum, 3 wire service the fee shall be $300.00. NOTES: 1. 2. (2)The fee fora temporary service of greater capacity or voltage shall be the estimate ofthe installation and removal costs or $300.00, whichever is greater. These fees apply to all vacant land except where the fees are recorded as previously paid. Where a junction box, switch pad, vault, or switch must be added to an existing system in order to serve a development, this addition shall be considered as a distribution system extension. The Customer is responsible for the installation of all equipment from the facility to the designated point-of-service. For underground systems, this includes conduit and conductors. For overhead systems, because the point-of=service is the weatherhead or point of attachment to the facility, this includes the mast or dser and all conductors therein. When the City replaces a service, the Customer is obligated to accept a shutdown of service during regular working hours. The time of the shutdown shall be agreed upon as mutually acceptable.. When, for the convenience of the Customer, the shutdown is during other than regular working hours, it shall be done entirely at the Customer’s expense. The Customer shall pay the entire cost of the overtime labor, not the incremental cost. issued by the City Council Supersedes Sheet E=5=6 dated 7-1-92 CITY OF PALO ALTO UTIklTIES Effective 7-1-97 Odginal sheet Number E=15-6 ELECTRIC SERVICE CONNECTION FEES TILl RAT S H D - 5. ~The City can generally provide service availability from 30 to 45 days after all fees are paid except when long lead-time equipment or materials are required. Consult the City for estimated lead-times. 6:The City. cannot be held liable for delays in service connection caused by conditions beyond it’s control, including, but not limited to, delays in. the arrival of equipment such as transformers, switches and cable. {End} Issued .by the City Council Supersedes Sheet No. E=5=7 dated 7=1-92 CITY OF PALO ALTO UTILITIES Effective 7=1m97 Original Sheet No. E=15-7 UNMETERED ELECTRIC SERVICE UTILITY RATE SCHEDULE E-16. APPLICABILITY: " " This schedule applies to unmetered electdc service and other miscellaneous Electric Utility fees to various public agencies and private entities. TERRITORY: Within the incorporated limits of the City of Palo Alto and land owned or leased by the City. RATES: ~ervice Description Automatic Irrigation System at Hwy 101 & Embarcadero State of California $ 4.40 2. Highway Lighting & Sign Illumination State of California (A) (B) Highway Lighting Electrolier (20,000 L) Electrolier (4000 L) & (7000 L) Sign Lighting Sign (1,910 W) Signs (1,572 W) Signs. (786 W) Page Mill Expressway and El Camino Park & Ride Lot Lighting and Signal Santa Clara County 5.30 ea @ 7.70 ea @ 51;10 ea @ 42.00 ea @ 21.00 ea 47.80 *Rates are monthly unless otherwise indicated. Issued by the City Council Supersedes Sheet No. E=6~1 dated 7-1-93 CITY OF PALO ALTO UTILITIES Effective7=1=97 Original Sheet -.-" e e ::ri_.ti_n UNMETERED ELECTRIC SERVICE UTILITY RATE SCHEDULE E-16 (Continued) 4. Automatic sprinklers at Oregon & Page Mill Expressway 5. Traffic Signal 10. (A)Controller (B)8" Lamp ~©12" & PVH Lamp (D)Pedestrian Head (E)Vehicle, System and Bike Sensor Loop Electric Service for Cathodic Protection Station Cable TV Power Supply/Service Leasing of Electric Conduit for CATV Use (A) Exclusive use (B) Non-Exclusive use Utilities Broadband Local Area Network (A) Bandwidth Assignment (B) Carrier Usage Data Communication Radio Transceiver Attachment to Street Light Poles * Rates are monthly unless otherwise indicated. Public Works Public Works PG&E Cable Co-op Pacific Bell Pacific Bell City Departments City Departments Metdcom Inc. 23.30 311.00 ea 3.64 ea 4.67 ea 6.22 ea 12.46 ea 8.90 27.80 O.60/ft/yr 0.30/ftJyr 200.00/MHZ 50.00/carrier 5.001radio Issued by the City Council Supersedes Sheet No. Eo6=2 dated 7-1-95 CITY OF PALO ALTO UTILITIES Effective 7-1-97. Original Sheet E-16=2 UNMETERED ELECTRIC SERVICE UTILITY RATE SCHEDULE E=16 (Continued) SPECIAL PROVISIONS: In the event a customer requests electric service which the Utility determines will be an unmetered service, or miscellaneous fee, the Utility will charge an interim rate reflecting the Utility’s estimated costs associated with the specific service. The Utility may charge an existing rate contained on this Rate Schedule for an identical or similar type service, or prepare a new rate. This interim rate will serve as the effective rate for billing purposes until the service type is added to Rate Schedule Eo16. {End} Issued by the City Council Supersedes Sheet No. E=6=3 dated 9-10-90 CITY OF PALO ALTO UTILITIES Effective 7-1-97 Original Sheet No. Eo16-3 MEMORANDUM TO.’ FROM: AGEND~ DATE: SUBJECT: Utilities Advisory Commission Utilities Department November 6, 1996 Updated Stranded Cost Analysis This report is informational only. As part of the Calaveras Reserve Policy approved by Council during .the 96-97 budget process, staff recommended a further review of- stranded costs with the UAC during FY96-97 (CMR:214:96). This report presents staff’s plan to revisit this issue and provides updated estimates of. Pale Alto’s potential stranded costs. RECOMMENDATION There are no recommendations and no UAC action is required. pOLICY RECOMMENDATIONS ¯ ~. No policy recommendations are contained in this report. However, in order to. calculate stranded costs, some policy decision-assumptions have been identifed. Also, the technical- review and evaluation-of stranded costs with the UAC this Fall may lead to policy implications and subsequent actions by the Council. EXECUTIVE SUMMARY .During the budget process for FY96-97, the City Council adopted a policy regarding stranded investment costs for the electric utility, The centerpiece of Palo Alto’s strategy to recover potential stranded costs is to accelerate funding of a stranded cost reserve (Calaveras Reserve). The current policy provides for funding of the Calaveras Reserve to a target level of $31.6. million (20035) by. the end of FY 2002-032 The net present value of $31.6 million .was based on. $42.1 million in nominal dollars. The level of funding and timetable is to be evaluated annually. This report begins this annual evaluation process. Broadly speaking, the UAC agenda on stranded costs Will focus on two issues. They are: 1. What is the appropriate estimate of Pale Alto’s stranded costs and reasonable’funding schedule to recover these costs’?. 2, What are the viable strategies to .mitigate risk to the Electric Fund if actualstranded, costs beyond the transition period are higher (or lower) than was assumed to be recovered from the stranded cost reserve? In other words, what are the risks .if we are too conservative or too liberal in our long-range forecasts? For the next three.UAC meetings, staff plans to address the~e issues. For this November meeting, staff will update calculations of potential stranded costs (Attachment 1), discuss ¯ Pal0 Alto’s additional vulnerabilities, and other related topics. This update will include the following changes from previous stranded cost estimates presented this Spring. 1) In calculating the stranded costs associated with the Calaveras Project, a revised debt service schedule has been used which is lower than the existing schedule. Reduced Calaveras debt. service obligations are anticipated as NCPA plans, to refund certain fixed rate series bonds at a lower rate due to favorable market conditions. 2) Besides Calaveras, staff will evaluate the potential stranded costs of other Palo Alto generation and transmission obligations. In particular, the California Oregon Transmission Project (COTP) potential stranded costs of approximately $16.7 million (in 1998 dollars) have been added. 3) Staff has received long-range electric market price quotes from marketers willing to "buy" power. In order to estimate the price a marketer might be willing to "sell" power, staff has added a 30 percent margin to the quotes. For comparative purposes, a stranded cost estimate based On the market price quotes is provided. ~ - 4) An estimate by Merril Lynch of Palo Alto’s share of stranded costs associated with tlie Calaveras Hydroelectric Project is provided. A total of 6 stranded cost estimates are provided in Attachment 1.The use of the market quotes and the Merrill Lynch analysis accounts for two estimates while four estimates are based on staff’s forecast of market prices ranging from low, medium low, medium, and high that were used earlier this spring. " Stranded cost estimates in this report are shown in nominal dollars, 1998 dollars, and 2002 dollars. The 1998 dollars provide the net present value of potential stranded costs incurred during and after the transition period (1998-2024). Thus, total stranded costs are represented. However, the finaneialstrategy to recover these costs involves two.parts. First, stranded costs incurred between 1998 and 2001 would be recovered through retail rates, including a CTC. Secondly, stranded costs incurred after 1-.1-02 (the projected date that full competition is expected to begin) would be recovered through the Calaveras Reserve. Accordingly, 2002 dollars represent .the net present value of potential Stranded costs incurred beyond 2001 and is particularly relevant in setting an appropriate target balance for the Calaveras Reserve. The nominal dollar amounts will be used in the financial analysis next month to.estimate .annual withdrawls of the Calaveras Reserve. ’ The following table summarizes the results of this analysis developed by Utilities, Resource Management.. Millions Resource Calaveras COTP Total Staff- Low. Market Price 2002 $ $82.0 $16.4 $98.4 Staff- Medium Low Market Price 2002 $ $42.6 $16.4 ¯ $59.0 Staff- Medium Market Price 2002 $ $22.8 $16.4 $39.2 Staff- High Market Price 2002 $ $ .4 $16.4 $16.8 Market Quotes Forecast 2002 $ $82.2 .$16.4 $98.6 Merrill Lynch Estimate (1998 $) $69.5 $16.4 diff. $ It should be noted that th~ above $39.2 million stranded cost estimate based on the staffs medium market price forecast is the same market, price scenario adopted by Council to establish a target for the Calaveras Reserve. The increase from $31.6 million to $39.2 million reflects the net changes as previously stated, including the COTP addition. For the December meeting, staff will provide a multi-year retail rate plan to fund two levels of stranded costs _in2002 dollars. This involves 28 year financial forecasts based on stranded cost estimates derived from: 1) staff’s low market price scenario, and 2) staff’s medium low market price scenario. If appropriate, other funding or cost minimization alternatives (restructuring/refinancing debt) will be evaluated to soften rate impacts during the transition window to full competition. Also, for the period beyond the transition window, staff will present, for purposes of discussion and evaluation, a number of mitigation measures the Electric Utility might consider if stranded costs are higher or lower than had been planned. The measures vary in merit and political feasibility. Examples of mitigation measures include application of a Competition Transition Charge (CTC) beyond the investor-owned utility’s CTC window, extending Calaveras debt payments, and using profits from the sale of power outside Pale Alto. Unless further meetings need to be scheduled, staff will present its overall recommendation on stranded costs for UAC input in January, 1997. Then, the final recommendation by the staff on this subject will be presented to the UAC during the Spring budget process. The staff’s recommendation will be contingent upon the City Council approving a number of policy issues related to stranded cost and the issue of direct access in Pale Alto. Staff plans to present these policy issues to the UAC and the City Council before February 1997. For purposes of calculating stranded costs in the attached analysis and as a basis for discussion in the UAC December meeting, a number of assumptions were necessarily made that ultimately will be decided by Council. Some of the policy decision assumptions i_ndude: 1. Palo Alto will provide direct access to its customers. 2. Palo Alto will collect a Competition Transition Charge. 3. Palo Alto may partner with other agencies to market its resources and services to retail customers outside of its service territory. 4. The date to achieve full funding of the Calaveras Reserve target balance is 6/30/02. FISCAL IMPACT No recommendations are contained in this repo .rt 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. ATrACHMENT Attachment 1: Stranded Cost Analysis PREPARED BY:Randy Baldschun, Assistant Director of Utilities, Administrative Services DEPARTIVIENT HEAD APPROVAL: EDW~D J. Ml~EI~ Director of Utilities Stranded Cos Analysis ATTACHMENT 1 I.Executive Summary This study was undertaken to update the calculation for the range of potential stranded costs for Palo Alto. Stranded cost is defined as the cost of our own resource portfolio and other resource related ob!igations that are above the market value of those resources beginning January 1, 1998 ,(the assumed date for offering customer choice). The only significant stranded costs for Palo Alto are from the Calaveras and COTP projects. Other potential stranded costs are discussed in this report, but are not included in the totals shown below. Stranded cost estimates can vary Significantly depending upon the forecasts of market prices in’ the future. Staff used two different market forecasting techniques to provide additional information for decision-makers. The first forecast Was initially developed by an NCPA contractor and was used by staff to estimate stranded costs in Spring 1996. The second .was obtained from quotes received this October from marketers for long-term supplies. For .. comparison, staff also Used a forecast of market prices used by Merrill Lynch in an analysis of stranded costs for NCPA. Using the first forecast, stranded cost for Calaveras and COTP is estimated at between $27 and $101 million (in 1998 dollars). The second.forecast yielded stranded cost estimates of $100 million (in 1998 dollars). The largest contribution to stranded costs originates from the Calaveras Project. These calculations include expected savings from refinancing Calaveras bonds to take advantage of lower interest rates, however, they do not ~ include other potential liabilities discussed in this report which could further" increase Palo Alto’s stranded cost. Such liabilities include those relating to the possibility of increasing obligations to bond holders if our partners in the Calaveras, Geothermal, or COTP projects default on their obligations. As of July 1, 2002, stranded costs should be fully collected. The stranded costs for the pe~od from 2002 through 2024are estimated to be between $17 and ~98 million (in 2002 dollars). This is the range of stranded cost estimates applicable to funding a reserve to recover such costs after the transition periodi II. Stranded Cost Assessment Stranded Cost Components Definit’m of- tr -ded ~ -t Stranded cost is defined as those fixed and variable costs of resources that are above’the market value of the resources. The stranded cost for each resource was estimated by comparing the total cost of output from that resource (including variable O&M. fixed O&M, and debt service) to the market price of the output. If the fixed and variable O&M cost of the resburce was above the market price, then the resource would be operated at its minimum or must-take level and, conversely, if the fixed and variable O&M cost of the resource was below the market price, then the resource would be operated at its maximum output. The difference between the total cost of generation and the market value of that same electricity production is the stranded cost for that resource. Resources to Include All the generation resources and contracts we have from 1998 .onward were analyzed to determine their contributions to stranded costs. Although the COTP.project is a .transmission project and its costs can be included in our non-bypassable transmission charges, we estimated by how much COTP costs might exceed transmission costs for PG&E customers. Valuation-of Existing Resources A principal Calculation in the delermination of an asset’s stranded cost is-its market valuation. One way to determine market valuation is to sell the asset. Another is to sell future production from the plant by executing a contract with a buyer who pays up front in return for all production for a set period into the future. These two methods will result in certainty of the resouree’s value. Another method is to estimate the value of the future productionby forecasting the-market price into the future. This method results in an uncertain value of the resource since future market prices areunknown. If market prices turn out to be high, the value of the resource will be high, but, if future market prices are low, then the value of the resource will likewise be low. /~ength’ of Time into the Future to Estimate Stranded Costs Stranded eo~t determination also must take into account how far into the future the costs and. benefits of the resource in question should be estimated..The evaluation time period is key to the calculation and must be decided upon in order to estimate the stranded costs of Pal0 Alto’s generation resources. One approach is to evaluate resource costs over the expected remaining life of the resource. The downside ofthis approach is that the uncertainty over a long time frame is enormous. The debt life of the resource is another possibility, although this can be.very long as. well. A set time frame of 10, 15, or 20 years may be appropriate.given the uncertainty in market prices, regulation, legislation, and technology that can occur in longer time periods. Another altemati’ve is to usethe time period until stranded costs decline to zero and to let future ratepayers .reap any benefits which may accrue. In this approach, each resource and power purchase contract is evaluated with a different time frame for different market price forecasts. Using this approach would not count on the potentially large benefits which might accrue in later years for projects such as Calaveras if costs are lower than the future expected price for energy. Because market prices are extremely uncertain as the time horizon is extended, we cannot count on those benefits accruing. If the benefits are realized; the effect of not now counting the future benefits is that customers inthe future Will reap the benefits of lower than market costs rather than the customers oftod.ay. The alternative is to risk .undereolleetion of stranded costs by assuming the future benefits will accrue. This study will consider only gross stranded costs ~nd 2 will not net out future below market costs. Sources of Uncertainty Future Market Price ..1. Market Energy Prices Two market energy price forecasts (referred to as Case I and Case II) were used in this study (see Exhibit A). For Case.I, staff used market energy prices developed in May 1995 by Henwood Energy Services, Inc (HESI)for NCPA and updated in February 1996 when gas market forecasts ¯ were updated. The "high" and "low" forecasts reflect higher and lower market prices for natural gas, respectively, than in the medium ease. Case II was developed from marketer quotes received in October 1996 for long-term supplies specifically for the Calaveras project output to capture the project’s timing of electricity production. The quotes received were quite low sineewe asked for prices that marketers would buy the power from us for very long-term (through. 2024). At this time, long-term supplies are - not traded enough to have developed a liquid market. In addition, electricity commodity quotes from marketers for long-term power are assumed to be priced low to protect the marketer from the risk’inherent in long-term commitments. These quotes are. a proxy for the market .value of the project’s output, but do hot reflect negotiations between the parties. Therefore, staff adjusted the "buyer" quotes received by adding 30% onto the quote in an attempt to reflect higher market prices in the future. " ¯ In a May, 1996 proposal for restructuring Calaveras debt, Merrill Lynch estimated market energy prices for the purposes of calculating Calaveras stranded cost. This forecast is illustrated on the attached chart (Exhibit A). In the early years, this forecast seems excessively high given recent experience where market prices are about one-third of those in the Merril! Lynch forecast. Given that the marketer quotes received were on the low side of the NCPA forecasts, staff developed another forecast between the Case I low and medium eases. This "medium-low" ease was also used to calculate stranded costs and is shown’on the attached chart (Exhibit A). 2. Market Capacity Prices For Case I, staff used market capacity price forecasts also developed by HESI in May 1995 (see Exhibit B). Staff adjusted that forecast to create a "high" forecast which is represented by a rather steep incline from current market costs to 2002 when aregional, load and resources balance is assumed to occur. At that time, thepriee represents a high value for new combustion turbine (CT) capacity. The "medium" forecast for capacity assumes regional ¯load and resource balance in 2010 when it reaches a price equal to the cost to build new CT eapaei.ty. After load and resource balance in the medium and high forecasts, the price increases at the inflation rate. The "low" foreeast’esealates the eun’ent market, capacity price by inflation. Market capacity price forecasts for Case II were embedded in the marketer quotes for firm energy. _Calaveras Project It is anticipated that the Calaveras bonds will be refinanced within the next 18 months and the expected interest payment savings of approximately $8 million (in 1998 dollars), are incorporated " in the analysis. The debt period was assumed to be unchanged for this analysis. Western Resource . Given that Palo Alto is capable of terminating the Western agreement with 3 months notice, the cost of~he Western resource should have no impact on the calculation of the stranded costs. The decision whether to terminate or not will obviously be made by using appropriate assumptions regarding future electricity market prices and Western costs, Washington Water Power The WWP contract was terminated (5 years termination notice) in January of 1996. The NCPA Commission has approved an early buy-out with an up-front payment of $17 million (Palo Alto:s share is $2.2 million) to WWP. This early buy-out will be funded from the current power purchase budget and therefore has no impact on the calculation of stranded costs. Bonneville Power Administration The BPA contractexpires in 2004, unless terminated early. The earliest possible termination date is in 1998. Since the stranded costs were lowest if terminated early, ~iven the estimates of market prices, it was assumed that we would terminate it at the end-of 1"998. In all cases, the BPA contract has little or no impact on stranded costs, so staffreeommends removing this resource from the stranded cost analysis: California Oregon Transmission Proieet The above market cost for the COTP was estimated by comparing the totalcost of the COTP, including debt, fixed O&M and overhead, to the estimated market value of transmission. The market value of transmission was assumed to be PG&E’s rate as published in their 1995 Open Access Tariff (OAT). COTP costs other than debt service were assumed to escalate at 5% per year. PG&E’s transmission rate was assumed to.escalate.at 2% per year. Given these " assumptions, the above market cost of COTP from 1998 through 2024 (when COTP debt is retired) is estimated at approximately $16.7 million (19985) for the base case. The actual COTP above market costs are uncertain since they depend upon the market value of transmission and the credit we obtain for the value that the COTP provides to the interconnected electric grid. At the FERC.and CPUC, proposals that may determine the credit issue are being discussed. The outcome of this process is highly uncertain. It is possible that the COTP project investors will get the full value of the investment credited in the credit proceedings, In this case, the above market cost for COTP would be zero. It is also possible that the market value of transmission will be lowerthan PG&E’s OAT. If the market value of transmission is 90%~of 4 PG&E’s OAT and COTP costs other than debt were to escalate at 7%/year, the above market cost associated with the COTP project would be $19.8 million. These uncertainties are believed to be uncorrelated with the power market price uncertainties, so staff recommends using the base case COTP stranded costs for-all’power market forecast cases. Other sources of uneertain’.ty ¯ There are many other potential changes that could change stranded cost estimates including new regulations or legislation, other NCPA member activities, and Calaveras production (hydro year). -III. Palo Alto’s Stranded C~sts As expected, the "stranded cost estimates are extremely dependent .upon the market, price estimates. To represent the uncertainty in market price forecasts~ the results are presented for.the two market price methodologies as welt as for the Merrill Lynch forecast. The charts below show the discounted (in 1998 dollars) cumulative stranded costs for the Calaveras and COTP projects, since these resources represent the only.si.gnificant stranded, costs for Palo Alto. Paio Alto’s Cumulative GenerationStranded Costs Palo Alto s Cumulative Transmission Above Market Costs $1998 (xl000) COTP PG&E Transmission Cost. Low Bas~High 19,800 16,700 0 Palo Alto’s Additional Vulnerabilities There are potentially additional sources.of stranded costs for Palo Alto. There are certain risks as the electric utility industry moves towards competition that threaten Palo Alto’s competitive position. One is the "step-up" requirements that exist in our contractual relationships with other NCPA members who jointly own generation and transmission resources. If, for example, one or more of the other member-owners of the Calaveras project defaults on their repayment obligations for some reason, then the other members, including Palo Alto, must step-up to cover the defaulting member(s) obligation. The maximum amount fbr any member to step-up is 25% of their original obligation. Therefore, Palo Alto is exposed to some additional stranded costs from thesecontract provisions. The resources for which Palo Alto is at risk include the Calaveras project, the Geothermal project, and the COTP project. The additional stranded cost due to the step-up provisions depends upon when the step-up occurs and the amount of step-up that must be endured. The earlier the step-up and/or the higher the step-up level, the.greater the additional stranded cost. Note that members may be more at risk of defaulting due to the increasingly competitive nature of the industry and the possible need to raise rates to collect stranded costs in a short time frame which makes them appear even less competitive. It is necessary for Palo Alto to understand the competitive positions of and the risks facing the NCPA members as their actions eoutd increase our exposure. In the worst ease of maximum step-up (25%) occurring in 1998 or befor.e, Palo Alto’s stranded. cost estimates would increase by. $12.5 million assuming the medium-low market scenario is realized. The additional Calaveras stranded costs are as shown in the table below for various step-up fractions if step-up occurs in 1998: Palo Alto’s Additional Calaveras Cumulative Stranded Costs for 1998-2024 Due to Step-Up Provisions (1998 Dollars X 1000) Calaveras Step-Up Fraction Market Quote plus 30% Low Market Forecast Medium-Low Markei Forecast Medium Market Forecast High Market Forecast r,r 5% 4,200 4,200 2,500 1,700 500 15% $12,500 $12,500 $ 7,500 $ 5,000 $ 1,600 25% $20,80O $20,800 $12,500 $ 8,400 $ 2,700 The Geothermal project may also impact Palo Alto’s competitive position. Palo Alto has transferred all of its rights and obligations of this project to the Turloek Irrigation Distriet’(TID). If TID goes ba "nkrupt, Palo Alto may have to assume the obligation of the bonds. If a Geothermal project participant other than TID defaults,-then TID is liable for the 25% step-up provision. Since the fixed O&M costs for this project are so high relative to market energy price projections, in mo~t years the project would not necessarily be operated. Therefore stranded costs for this project consist almost entirely of the debt which is retired in 2010. Thus, stranded costs for.the portion of the project which Palo Alto laid offto TID total about $68 million assuming the medium:low scenario (NPV in 1998 dollars). If an additional 25% step-up obligation were required, then Palo Alto could be responsible for an additional $17 million for a total worst case liability of $85 million. However, the likelihood of being forced to pay for the entire amount is very low. Palo Alto’s contract with TID is unequivocal in stating that TID is obliged to make payments for their share of the geothermal project regardless of Whether the project is in operation or not. Total Estimate of Palo Alto’s Stranded Cost It is unlikely that either TID or other NCPA members would default on their bond obligations. Therefore,staff recommends that we not include these potential liabilities in calculating our stranded.costs. Similarly, because the analysis shows that the stranded costs for BPA are less than $200,000 in the worst ease and zero for other eases, staff recommends that thestranded costs associated with BPA not be included and that we concentrate on t_he" significant stranded costs deriving from Calaveras and COTP. Not including the potential step-up liabilities, the table below shows the potential stranded costs for Cases I and II for Calaveras and COTP in ¯ nominal dollars. The "base" above market costs for COTP are shown in all eases since the transmission value is not related to the market pdee for energy. Stranded Costs for Calaveras and base case COTP in nominal dollars (X 1000) Low $6,200 $6,000 $5,900 .$5,800’’ $5,900 $6.000 "$6,000 $8,300 $8.300 $8.300 $8,200- $8.100 s8.1oo. $8.100 $8,100 $8,100. $8.000 $8,000 $7,900 $7,800 $7.90.0 $8.000 $8,100 $8.200 $8,200 $3,000 1998 1999 2000 "2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 202’3 2024 CPA Market Forecast ed-Low !M~dium $5,800 $5,700 $5,500 $5,300 $5,200 $5,000 $4,900 $4,900 $4,800 $6.400 $6.000 .$5.700 !$5.4ooi $4.900 i $4.400 ~ $4.400 i $4.300.i$4,200 i $4.000[ $:3.900 I $3.700 i $3.400 $3,300 $3,200 [ $3.200 $3,1’00 ¯ $2,900 :$2,700 $1.500 $5.1~0 $4,700 $4.600 $4.500 $4,300 $5.400j $4.900 $4,400 $3.700 $2,900 $2.100 52.000 51.800 $1.600 $1.400 $1.300 $1.300 $1.400- $1,400[ $1,400 $1,400 $1,400 $1.500 $1.500 $1,500 High 55.100 $4,300 S3,400 52.400 S1;300 51.200 SI.O00 SI.200 51.200 SI.200 51.300 $1.300 51.300 51,300 S1’,300 51.300 SI.300 SI.300 SI.300 SI.400 $1.400 SI.400 S1,400 51.400 51.5o6 "SI.500 .500 Market Quotes $6,100 $5,900 $5,800$5.7od $5,7od $5.800 $5.9od $8.000 $8,000 $8.000 $8,000 $8,100 $g.100 $8,200 $8.300 $8.200 $g.300 $8.300 $8.200 $8.100 S8.300 $8,400" S8.500 S8.500 $8.500"’ $3,400 The chart beloW’represents Palo Alto?s stranded cost estimates afterlhe transition period (1998- -2001) has ended. The stranded costs are shown as the net present value in 2002 dollars for the period from 2002 through 2024. Stranded Costs For Calaveras and COTP for 2002-2024 (NPV in 2002 dollars) NPV ($2002)Low ~alaveras $82,000 COTP .$16,400 Total $98,400 CPA Market Forecast Market " Med-Low - Medium ¯High Quotes $42,600 $22;800 5400 $82,200 $16,400 $16,400 S i 6.400 $16,400 $59,000 $39,200 $ i 6.800 $98,600 IV. PG&E’s Stranded Cost Estimates Our competitiveness relative to PG&E is important and more analysis needs to be done to determine Palo Alto’s p~sition relative to PG&E’s. The California legislation regarding el~-ctric 8 industry restructuring,-AB 1890, addresses investor-owned utility (IOU) recover3’ of stranded investments. Under AB 1890, IOUs such as PG&E are allowed full recovery of stranded costs through a Competition Transition Charge (CTC) which will be nonbypas~sable and levied on all etistomers on a usage basis. In addition, AB 1890 dictates that stranded costs must be collected under certain rate cap restrictions. In other words, the amount that the IOUs can devote towards stranded costs is that amount collected in their current rates less their expenses. The IOUs can collect CTCs from all customers from January 1, 1998 through December 31,2001. The IOUs are at risk if they cannot collect enough under the rate cap restrictions in that transition period. The rate cap restrictions also include guaranteed rate reductions for residential and small commercial customers. The amount of stranded cost that the IOUs cannot collect due to these rate reductions for residential and small commercial customers in the transition period can be financed with a bond. Thus, for these customers, stranded cost collection can continue until these "rate reduction bonds" are retired. The IOUs have submitted estimates of their stranded costs only for i 998 to the CPUC. They have provided no long term .stranded cost estimates, The market rate estimates they provided are only for 1998 rates and were provided for illustrative purposes only. An annual true-up after each year of the transition period will show the IOUs" progress in their stranded cost recovery by using the actual after-the-fact market prices to determine the portion of stranded costs paid off each year. The incentive for the IOUs to cut costs is dear since all revenues above costs can be devoted to paying down their stranded costs. It is also possible that stranded costs will be paid off earlier than December 31, 2001 (especially for large customers), all~wing theearly removal of CTCs. " Attachments:. Exhibit A Exhibit B Melded Market Energy Price Projections Market Capacity Price Projeetibns ¯ Prepared by: Jane Ratehye Reviewed by: Tom Habashi Doug Boeeignone 9 .1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20|5 2016 2017 2018 2019 2020 2021 2022 2023 2024 Energy Price ($/K’WH) ~,~>>>> 1996 1997 1998 1999 2000 2001 2002 20O3 20O4 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Capacity Price ($/KW-year) Attachment Two MEMORANDUM TO: FROM: ¯ AGENDA DATE: SUBJECT: Utilities Advisory Commission Utilities Department December 4, 1996 Rate Plans to Fund Stranded Costs This report is informational only. At last month’s UAC meeting, staff updated stranded cost estimates arising from the .Calaveras Hydroelectric Project and the California Oregon Transmission Project (COTP). This report presents five year rate plans to fund the Calaveras Reserve for two stranded cost estimates. It also outlines possible mitigation measures to recover stranded costs during the transition period and after full competition begins in 2002. ~E__COIVIlVlE _ND A TION There are no recommendations and no UAC action is required. POLICY RECOMMENDATIONS ¯ No policy recommendations are containedin this report. However, in order to’ calculate stranded costs~ some policy decision assumptions have been identified. Key assumptions include providing Palo Alto customers a choice to select suppliers and instituting a Competition Transition Charge. This technical review and evaluation of stranded costs with the UAC may lead to policy implications and subsequent actions by the Council. EXECUTIVE SUMMARY - The centerpiece of Palo Alto’s strategy to recover potential stranded .investment costs is to accelerate funding of the Calaveras Reserve during the transition period to full competition. The five year transition period begins 7-1-97 and ends 7-1-02. Staff evaluated alternative financial strategies to fund the CalaverasReserve. during the transition period for two stranded cost estimates being considered. In Case 1, additional,funding of $20 million would be required based on a "medium-low" market price forecast to calculate stranded costs. Case 1 indicates a 7 % rate increase in FY97-98 to raise the Calaveras Reserve to a target level of $62.4 million in. FY2001-02. Case 2 represents, a low-market price scenario and indicates that additional funding of $51 million is required to raise the Calaveras Reserve to a target-level of $93.1 rhillion. This suggests rate increases of 8% and 5% in the hext two consecutive years. To soften the rate impacts during the transition period, a number of mitigation measures are ¯ identified for consideration. Also, a number of mitigation measures available after the transition period are identified. These actions could generate additional revenue or cost savings at a time when raising rates may not be a viable alternative. While some mitigation measures may be taken for sound business reasons, others may be taken only if stranded costs are higher than accommodated in the Calaveras Reserve. Last month a total of six stranded cost estimates were presented to the UAC based on different market price scenarios and assumptions. For this month’s rate analysis, two market price scenarios have been selected to calculate stranded costs for the period 7-1-02 to 7-1-24. The stranded .costs-shown in Table 1 differ from the estimates provided last month, due to a presentation format based on an end of fiscal year basis instead of.a calendar year basis and correction of an error in the medium-low market price calculation. Because of the uncertainty with forecasting, stranded cost estimates will be updated on an annual basis. Next year, events could be settled regarding the COTP and there is a possibility that the stranded cost of this transmission project will be reduced significantly. Other factors will tend to increase or decrease current estimates. The Calaveras Reserve target is-based on potential stranded costs arising from the City’s participation in two projects. In Table 1, a breakdown between the two. projects allows a comparison of the percentage of the Calaveras debt service obligation represented in the Reserve. For example, under Case.2 the Reserve would cover 73 % of the debt service obligation between_ FY02-03 and FY23-24. In nominal dollars, the amount is $79 million for Case 1 and $144 million for Case 2. The Reserve would pay this level of the Calaveras debt service in addition to accommodating potential stranded costs of the COTP. This information conveys to.what extent the Calaveras Reserve would c.over the high fixed cost (principal and interest payments) of the Calaveras Project, Project Calaveras COTP Total TABLE ONE Case l:Medium-Low Market Price. . Stranded Cost % Calaveras Debt Service 20025 Millions ¯$47.1/40% 15.3 $62.4 . Case 2: Low Market PriCe Stranded Cost % Calaveras Debt Service 20025 Millions $77.8/73 % 15 .3 $93.1 2 During the transition period (771-97 to 7.-1-02), a Competition Transition Charge (CTC) will recover stranded costs, incurred. In addition the CTC will collect potential stranded costs projected for the period 7-1-02 to 2024. During the transition period; the CTC will be revised on an annual basis to incorporate updated stranded cost estimates. To achieve the Calaveras Reserve target, the current financial strategyis to continue building up the Reserve through favorable power cost variances in combination with a rate increase(s) (CTC) to generate additional revenue. The current Calaveras Reserve balance projected this fiscal year is $42 million. Table Two presents a 5 year rate plan to achieve the Calaveras Reserve targets for Case 1 and Case 2. To meet these targets requires additional funding ’through FY01-02 of approximately $20 million and $51 million under Case 1 and Case 2 respectively. The rate projections in Table 2 may change during the budget process as reserve, revenue, and expense data are updated. TABLE TWO Case 1: Medium.low Market FY 97-98 98-99 99-00 00-01 01-02 02-03 I % Rate Adjustment Case 2: Low Market ¯ % Rate Adjustment 7% 0 0 0 0¯ -4 8% 0 0 0 M/TIGATION MEASURES DURING TIlE TRANSITION PERIOD The multi-year rate plans identified in Table Two allow the Utility to build up the Calaveras Reserve to meet certain targets. The rate projections incorporate revised power costs due to favorable market conditions and an anticipated NCPA refinancing of the Calaveras Debt to reduce costs. However, if appropriate, there are other funding and cost .minimization alternatives (A through D) that could also build up the reserve and thereby soften rate impacts during the transition period to full competition. The following steps, if taken, would lower the Utility’s overall revenue requirement in the near term. As a result, the component of the retail rate previously funding this activity would become available to fund the Calaveras Reserve. ¯A. DeferC. a.pital Improvement Projects The CIP budget is fun.ded from current rates. Deferring certain CIP projects without affecting reliability of service would reduce the revenue requirement in two ways. First, the eo[t of the project is eliminated in that year.. Secondly, in aecor.dance with the Utility Enterprise Methodology, .the Transfer to the General Fund is lower than .otherwise would be the ease. It is estimated that approximately $8 million-S11 million could be saved during the transition period by deferring cerlain CIP projects. Long-term debt financing provides an infusion of cash to the Utility. Bond financing the CIP ris an important tool to ease financial problems in the near term since the financial obligation is spread to subsequent periods which more evenly matches the useful life of.the distribution assets. As an example,. Palo Alto could issue long-term bonds to finance annual CIP activity of $5 million. The issue could cover a future three year period, thereby adding approximately $15 million to the C~averas Reserve from bond proceeds. Assuming a 6 percent interest rate on 25 year bonds, a $15 million bond issuance translates to an annual .debt service payment of approximately $1,200,000. It is also assumed that at theeOnelusion of the three year period, the.annual $5 million. CIP would be funded by rates. However, in addition to fuiading the annual CIP of $5 million, rates would also have to cover the debt service’ payment of $1.2 million for the next 22 years. ~. Because of this added revenue requirement, 10ng-term debt financing raises rates higher than pay as you go financing. $I.2 million represents a 2 percent increase in current retail rates. However, $1.2 million applied to a "distribution rate" (that is planned to beunbundled from generation) represents approximately a 6.3 percent rate increase. ,In this example, financing a . 3 year $15 million .CIP rai~’ses rate levels for 22 years approximately 6.3% higher than woutd:: result from a "pay as~you go~’ financial strategy. This could be an. issue. The recent~ organizational review, by Theodore Barry & Associates encouraged the Utility to .strengthen efforts at distribution cost containment. _ C’ F.reeze or Lower _Operating Costs Since FY92-93, the Electric Utility has reduced its operating .budget, exclusive of purchase power costs, approximately $3.5 million or 12 percent. To the extent additional cost reductions . are identified, such-savings can be transferred to the Calaveras Reserve, ~ The .recent. organizational review contained recommendations on this matter which will be evaluated during this fiscal year. . The Gas, Electric and Water Funds all provide equity transfers to the G~neral Fund. In the Electric Fund, the 1997-98 transfer is projected at $7.5 million, which represents approximately 11 percent of the 1997-98 preliminary Electric Fund expenditures. The UAC has raised the issue of the appropriateness of the Utility Enterprise Methodology which applies a rate of return" to the value of depreciated utility assets to arrive at a transfer amount. The concern of the UAC and the staff centers around the impact of the aggressive infrastructure replacement program and its impact on the transfer calculation. Accordingly, staff committed to a comprehensive review of the transfer methodology with the 1998-2000 budget .cycle. This will also provide an opportunity to examine other issues in conjunction a transfer methodology. Such issues’ir~elude the appropriate ratemaking .methodology to use in a competitive environment and the appropriate disposition of excess revenue or costs that may occur as prices (revenues) are driven by the market rather than by the utility!s cost of.service. D. Unbundle the Rate Stabilization Reserve In 1993 Council established the Utility Rate Stabilization Reserve (RSR). The RSR combined the Transfer Stabilization Reserve and System Improvement Reserve and developed reserve guidelines based on 12 power cost Contingencies. The RSR serves to accommodate operating andcapital budget variances as well as power cost variances. In view of the plan to establish. separate rates for commodity and distribution services in FY97-98, a similar need will ariseto introduce an RSR for commodity as well as an RSR for the distribution system. Depending on the new RSR guidelines to be developed, a fund surplus may be identified as a result of the unbundling which could flow to the Calaveras Reserve. If one or more of the aforementioned mitigation measures are implemented in combination with a rate adjustment, the magnitude of the rate increase would decline. The chart below represents an alternative financial strategy to build up the Calaveras Reserve by $51 million during the transition period under a Case 2 scenario. This .funding strategy reflects an 8 % rate increase, deferring a $2 million CIP for five years, achieving operating cost savings of $600,000.per year, interest income of $5.8 million and lower debt service due to Calaveras refinancing. C~se 2: Calaveras Reserve Target = $93 Million .Sources of,Funding I:’Y 1996/97 Calaveras Balance Additional Funding $ 42MM $ 51MM -O& M Savings $ 3MM Rate IncrJOther $ 38MM 8 Percent 7/1/97 Defer CIP $ IOMM MITIGATION MEASURE~ AFTER THE .TRANSITION PERIOD (FY01-02) The adequacy of the Calaveras Reserve .to recover stranded costs will depend on the proven accuracy of the market price forecast Of electricity. Given that the 27 year forecast will prov.e either high or low, it is useful to consider the downside and upside risks in deciding what constitutes a reasonable amount to set aside in .the Calaveras Reserve by 6130102. With that objective in .mind,-a list of potential mitigation measures available after the transition period are identified to help put the level, of risk in perspective. [] IF STRANDED COSTS ARE LOWER THAN FUNDED 1N RESERVE , If funds are overcollected there could be customer complaint issues. The primary o~tions to 5 reduce the surplus include application of a customer rebate or alternatively lowering the commodity cost to existing customers. However, from an administrative standpoint, it could .be difficult to locate or determine what level of credit a customer may be entitled to who has alternated between Palo Alto as a supplier or who has moved from the area. From an equity standpoint, former customers who paid into the Calaveras Reserve between 1997-98 and 2001-02 could claim a right to a refund. [] 1F STRANDED COSTS ARE HIGHER THAN FUNDED IN RESERVE A decision to raise rates after 6-30-02 will have to be balanced against the adverse effects such an action could have in a competitive environment. The following mitigation measures address a condition if the Utility finds itself in a position whereby the Calaveras Reserve is inadequate to recover stranded costs and raising rates is not considered a viable remedy. The measures vary in merit, political feasibility, and probability of success. The favorable financial impact of some of these, measures was not included in the long-term financial analysis that was used to estimate stranded costs, e~,en though some measures (B,C,E) would like!y be implemented regardless of the need to mitigate stranded costs. A, Application of a CTC After FY01-02 AB1890 specifically allows municipally-owned utilitys to charge a CTC indefinitely. While this mitigation measure reduces the financial exposure of the Electric Utility to stranded costs, there are political and customer relation considerations with" this measure. Some municipal utilitys may be planning to extend a CTC to 2003, 2005, or later. However; .industrial customers of investor-owned utilities will cease to pay a CTC after 12-31-01. Residents and small commercial Customers of investor-owned utilities Will pay a CTC"ilntil the rate reduction bonds are paid off. Accordingly, it may be unpopular to charge a CTC in Palo Alto if it is effective at a time when similar customers in surrounding areas are no longer paying a CTC. Nonetheless, a CTC is a "parachute" available to the City. " B. Restructure. or Refinance Calaveras Debt The current .Calaveras debt service schedUle terminates in 2024. To the extent that NCPA restructures debt by extending the final maturity date to 2032, or converts some of the. bonds into short-term variable interest rate debt, stranded costs may decline for two reasons. First, the revised debt service schedule would probably lower annual payments, Secondly, the probability of entering the period of stranded benefits before debt is paid off increases as the schedule lengthens in time. NCPA is currently planning to refinance and restructure debt of the Calaveras Project. Should other refinancing opporttinities arise in the future, stranded costs would be lowered further. C. Market Off-system Sales to Increase_Revenue Contingent upon Council’s approval, staff plans to leverage its resources and market power beyond Palo Alto’s borders. To the extent the Utility-is successful in this activity, incremental revenue would be earned that could help mitigate stranded costs. Shift o ts to Distri ution 6 Merrill Lynch has suggested this strategy as an option for municipal utilities to consider. This approach is applicable to municipal utilities with little or no outstanding debt on their distdb.ution system assets. Merrill Lynch states that participants (municipal utilities) "may be able to refinance Hydro debt with contracts that are related to their Distribution system assets. In effect, they can strip cash out of the equity in their distribution assets and use it to retire the hydro debt. This will shift costs to Distribution where, they are non-bypassable. Participants can also consider imputing a return on equity to their Distribution system assets when setting rates to shift costs to non-bypassab!e assets.. Unfortunately, this cost,shifting strategy does not produce inherent economic benefits in the sense that total revenue requirements arh not effectS." This approach may help to recover stranded costs but it .could create new problems. It is assumed that under retail wheeling, rates will become fully unbundled between commodity, distribution, and transmission.. As customers and marketers become more sophisticated, it is likely that questionable ratemaking practices will draw complaints. To the extent supply related costs are added to a distribution charge, a legal challenge may arise on the basis that such cost allocations are inappropriate and violate soundratemaldng principles. In. effect, customers would-be paying the current commodity rate for supply and also pay a portion of their, non- bypassable distribution charge that is attributable to refinancing of stranded generation assets. This could occur well beyond the standard CTC transition period ending in 2002. Despite deviating from traditional ratemaldng pdneiple~ of cost allocation, this strategy is being openly considered by investor-owned and municipally-owned utilities. Another concern with this strategy is that it increases the distribution charge which must be balanced with .other. considerations. Specifica!!.y_, a non-competitive distribution rate may build momentum to: I) generate customer dissatisfaction, 2) add political pressure, 3) contribute to self-generation; and 4) create total bypass circumstances in the service territory. .. E. Telecommunications Revenue This year the City Council approved the UAC recommendation for the Electric Utility to develop a fiber optic ring around Palo Alto by leveraging existing Electric Utility infrastructure. "The riskwould be borne by the Electric Utility with the belief that the risk is limited and that the recommended strategy will diversify the Electric Utility’s revenue streams into a growth market and better position the Electric Utility for impending competition in the electric utility industry (CMR:361:96)." - Current expectations are that this business will produce net revenue in 4 to 5 years and continue thereafter. Such revenue could help to lower overall electric distribution charges.to Palo Alto ratepayers. It is assumed that telecommunications revenue would not directly offset stranded costs since it is not related to the generation side of the Utility business. However, it is included here because it may indirectly help recover stranded costs. To the extent such activities result in lowering the distribution rate below competitive levels, strategies such as described by Merrill Lynch above may ha~,e more appeal if s.tranded costs were higher than accommod~ited in the Calaveras Reserve. 7 Strandedcost estimates presently under consideration range from $62.4 million to $93.4 million in 2002. To fund the Calaveras Reserve to accommodate such levels could require rate increases over a five year period. While there are mitigation measures the Utility may take to soften such rate adjustments, the magnitude of the rate adjustments suggests that only moderate measures. need be considered. Stranded cost estimates rely on highly speculative forecasts ’of market pri.ces for the next 28 years. In reality, the Calaveras Project may prove to be a strong economic asset for the Utility or it could turn out to be unm~ketable. The forecast scenarios used in this recent analysis lean toward the latter ease. During the next five years, there is a window available to provide for stranded costs..with relatively moderate rate increases. This is .particularly true if rate adjustments are used in. conjunction with other mitigation measures to build up the Calaveras Reserve during the transition period. . ’ ~ Under any.scenario, there appear to be mitigation measures to recover stranded costs to sustain the Utility’s financial viability beyond the transition period. AB1890 allows municipal utilities to collect a CTC indefinitely which, in effect, is a "fiscal parachute". Other financial tools such as debt restructuring or debt refinancing may make sense. Nonetheless, to the extent the worst case stranded cost estimate is accommodated in the Calaveras Reserve, the need to consider such mitigation measures in years following the transition period will be significantly diminished and long-range price reliability will be more assured for Palo Altans. - Next month the staff will present its overall recommendation on stranded costs f~r UAC input. Then, the final recommendation by the staff on this subject will be presented to the UAC during. the Spring budget process. ~ ~sc~ No recommendations are contained in this report and there is no fiscal impact. ENVIRONMENTAL A~ - This informational report does not constitute a ~projeet under the California Environmental Quality Act; therefore, an environmental assessment is not required. PREPARED BY:Randy Baldschun, Assistant of Utilities DEPARTMENT HEAD APPROVAL: CITY MANAGER APPROVAL: Manager MEMORANDUM TO: FROM: AGENDA DATE: SUBJFA~T: Utilities Advisory Commission Utilities Department January,8, 1997 Stranded Cost Strategy REOUF~T This report is informational only. At the last two UAC meetings, staff updated stranded cost estimates under a range of assumptions, presented five year rate plans tO fund the Calaveras Reserve, and evaluated a number of mitigation measures to recover stranded costs. Also, during these meetings, the UACprovided comments and advice on a number of key issues. As a result of this process, the staff has developed a specific stranded cost strategy which is presented in this report. ~ATION o There are no recommendations and no UAC action is required. Staff will present the recommendation on this stranded cost strategy for UAC action during the FY1997o98 budget process. ~- ~- POLICY IMPLICATIONS This report requests no action at this time and therefore has no policy implications. Staff will present .the recommendation on this stranded cost strategy and policy implications for UAC action during the FY1997-98 budget process.. ~~-: -~’-’-- /- R The centerpiece of Palo Alto’s strategy to recover potential stranded investment costs.is, to ac.~3erate fundingof the-Calaveras Reserve during the transition period to full competition. Three key variables to this strategy are: 1) the appropriate estimate of stranded costs; 2) the timeframe for the transition period to full competition; and 3).the funding plan. The past two months, staff and the UAC have evaluated these variables in the context of how each variable or scenario would help position the Electric Utility in a competitive environment, balane~xl with the needto raise rates in a prudent manner. Based on this analysis, staff plans to recommend a specific stranded cost strategy to assure long- range price competitiveness for Palo Altans as follows: 1. Base the stranded cost estimate on the low-market price scenario. 2. Achieve the target balance in the Calaveras Reserve by 12-31-01. 3. Fund the Calaveras Reserve.during the transition period (7-1-97 to 12-31-01) by single-digit rate increases in combination with favorable power cost variances and/or operating budget savings. Because the timetable has been moved forward six months to 12-31-01, the Calavems Reserve target and rate plan provided last month will need to be revised. In preparing the FY1997-98 budget, the staff recommendation on stranded costs will also reflect updated operating and capital budgets, reserve projections, and any material changes affecting the stranded cost estimate. In any event, the recommendation will be based on the three variables identified above. With regard to mitigation measures and alternative financial strategies to 10wer costs to fund the Calaveras Reserve, staff does not plan to defer necessary capital projects nor bond finance the CIP during the transition period. The primary f’maneial strategy is to continue building up the Calaveras Reserve through favorable power cost savings in combination with a rate increase(s) to generate additional revenue. A rate increase will be planned to become effective.7-1-97. A non-bypassable Competition Transition Charge (CTC) will collect potential stranded costs during the transition period beginning 7-1-97 and ending 12-31-01. The stranded cost estimate and the CTC will be updated annually. No recommendations are contained in this report and there is no fiscal impact. This informational report does not constitute a project under the .California Environmental Quality Act; therefore, an environmental assessment is not required. PREPARED BY:¯ Randy Baldsehun, Assistant Director of Utilities .Administrative Services DEPARTMENT HEAD APPROVAL: EDWARD J. MRIZEK Director of Utilities CITY-MANAGER APPROVAL: JUNE FLEMI~G City Manager 2