HomeMy WebLinkAbout1996-04-01 City Council (22)TO:
City of Palo Alto
City Manager’s Report
THE HONORABLE CITY COUNCIL O
FROM:CITY MANAGER DEPARTMENT: UTILITIES
AGENDA DATE:APRIL 1, 1996 CMR:193:96
SUBJECT:Award of Contract to Barakat & Chamberlin, Inc., for
Electric Cost-Of-Service Study
REQUEST
This report requests that the Council approve and authorize the Mayor to execute a
contract with Barakat & Chambeflin, Inc., in the amount of $59,550 to perform a
comprehensive electric cost-of-service study,
RECOMMENDATIONS
Staff recommends that the Council approve and authorize the Mayor to execute the
attached contract with Barakat & Chamberlin, Inc., in the amount of $59,550 for
performance of the electric cost-of-service study.
POLICY IMPLICATIONS
This contract does not represent any change to existing policies.
EXECUTIVE SUMMARY
General Project Description
Recent regulatory policy developments and increasing competition in the electric
industry are causing the Palo Alto Electric Utility to reevaluate the cost of providing
services to its customers. To position the City’s Utility in this new environment, it is
important to have a clear picture of the cost of every type of service and
identification of all the factors responsible for these costs.
The cost-of-service study will unbundle services, functionalize, classify, and allocate
capital investment costs, operating expenses, reserve requirements, and all other
financial obligations. Unbundling refers to the development of separate rates for
generation, transmission, and distribution services. Traditionally, utilities charge one
CMR:193:96 Page 1 of 3
rate for all services. In addition, the consultant will evaluate and recommend changes
in the design of street lighting and traffic signals rates based on the updated cost-of-
service study.
The current cost-of-service model was developed by Economic and Engineering
Services, Inc. (EES) in 1986. Periodically, staff updates this cost-of-service model in
combination with other information to evaluate the adequacy and fairness of its rate
structures. However, the model was not designed to address the variety of rates and
service options expected to evolve as the industry moves to open competition.
Recognizing the need to obtain more detailed cost-of-service information that takes
into account marginal costs as well as accounting costs, staff budgeted $60,000 in
FY 1995-96 Electric Fund budget for a comprehensive electric cost-of-service study.
In the utility industry, marginal costs are the change in total costs resulting from the
production of one additional unit (Kilowatt) of electricity.
Consultant Selection Criteria
A Request for Proposal (RFP) was developed and distributed to nine consulting
firms who have expertise in the ratemaking area. Three proposals were received, and
one consultant declined. The three firms that responded to the RFP were invited to
discuss their proposals with a selection committee. The Consultant Selection
Committee was comprised of the following five persons:
Tom Auzenne, Manager, Market Assessment
Doug Boccignone, Manager, Resource Planning
Blake Heitzman, Manager, Competitive Assessment
Lucie Hirmina, Manager, Utility Rates
Christopher Weiler, Utilities Rate Analyst
The consultant selection criteria included in the RFP are listed below:
1.Specialized experience, qualifications, and credentials of the person(s) assigned
to perform the cost-of-service study.
2.Quality of work in timing and completion of similar projects for other utilities.
References are required.
3.Completeness in responding to the Request for Proposal.
4.Geographic Location of the firm.
5 Proposed fee relative to the services provided.
CMR:193:96 Page 2 of 3
Subsequent to these interviews, references were checked and the committee ranked
the three firms (Table 1) in the following order:
1.Barakat & Chamberlin, Inc.$59,550
2.Resource Management International (RMI)57,500
3.R.W. Beck 52,400
The Selection Committee staff were nearly unanimous in their choices of Barakat &
Chamberlin Inc., RMI and R.W. Beck for 1st, 2nd and 3rd places. The presentations
of the three consultants’ presentations were impressive, however, Barakat &
Chamberlin Inc., has an edge with regard to their team experience, qualifications,
and credentials. They provided the most comprehensive, organized response
especially in the areas of rate design, data gathering, and marginal cost approach.
FISCAL IMPACT
Funds for this project were included in the FY 1995-96 Electric Fund operating
budget.
ENVIRONMENTAL ASSESSMENT
Execution of this agreement with Barakat & Chamberlin, Inc., does not constitute a
project under the California Environmental Quality Act; therefore, no environmental
assessment is required.
ATTACHMENTS
Contract with Barakat & Chamberlin, Inc.,
PREPARED BY: LUCIE HIRMINA, Manager Utility Rates
DEPARTMENT HEAD APPROVAL:
Jo
:tor of Utilities
CITY MANAGER APPROVAL:
STROJNY
Asi istant City Manager
CMR:193:96 Page 3 of 3
0
CONTRACT NO.
BETWEEN THE CITY OF PALO ALTO AND
BARAKAT & CHAMBERLIN, INC.
FOR CONSULTING SERVICES
This Contract No.is entered into ,
by and between the CITY OF PALO ALTO, a chartered city and a
municipa! corporation of the State of California ("CITY"), and
BARAKAT & CHAMBERLIN, INC., a California corporation, located at
1800 Harrison Street, Oakland, CA 946!2("CONTP~ACTOR").
RECITALS:
WHEREAS, CITY desires certain professional consulting
services ("Services"), as more fully described in Exhibit "A"; and
WHEREAS, CITY desires to engage CONTRACTOR, including its
employees, if any, in providing the Services by reason of its
qualifications and experience in performing such Services, and
CONTRACTOR has offered to provide the Services on the terms and in
the manner set forth herein;
NOW, THEREFORE, in consideration of the covenants, terms,
conditions, and provisions of this Contract, the parties agree:
SECTION i. TERM
i.! This Contract will commence on the date of its
execution by CITY. The obligation of CONTRACTOR to perform the
Services will commence in accordance with the time schedule set
forth in Exhibit "~’. Time is of the essence of this Contract. In
the event that the Services are not completed within the specified
time schedule on account of CONTRACTOR’s default, CITY’s city
manager will have the option of extending the time schedule for any
period of time. This provision will not preclude the recovery of
damages for delay caused by CONTRACTOR.
SECTION 2.
CONTRACTOR
QUALIFICATIONS,STATUS,AND DUTIES OF
2.1 CONTRACTOR represents and warrants that it has the
expertise and professional qualifications to furnish or cause to be
furnished the Services. CONTRACTOR further represents and warrants
that the project director and every individual charged with the
performance of the Services under this Contract are duly licensed
or certified by the State of California, to the extent such
licensing or certification is required by law to perform the
Services.
2.2 In reliance on the representation and warranty set
forth in Section 2.1, CITY hires CONTRACTOR to perform, and
CONTRACTOR covenants and agrees that it will furnish or cause to be
furnished, the Services.
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2.3 CONTRACTOR will assign DANA TOULSON as the project
director to have supervisory responsibility for the performance,
progress, and execution of the Services. If circumstances or
conditions subsequent to the execution of this Contract cause the
substitution of the project director for any reason, the
appointment of a substitute project director will be subject to the
prior written approval of the project manager~
2.4 CONTRACTOR represents and warrants that it will:
2.4.1 Procure all permits and licenses, pay all
charges and fees, and give all notices which may be necessary and
incident to the due and lawful prosecution of the Services;
2.4.2 Keep itself fully informed of all existing and
future Federal, State of California, and !ocal laws, ordinances,
regulations, orders, and decrees which may affect thbse engaged or
employed under this Contract, any materials used in CONTRACTOR’s
performance under this Contract, or the performance of the
Services;
2.4.3 At all times observe and comply with, and cause
its employees and contractors (and consultants), if any, who are
assigned to the performance of this Contract to observe and comply
with, the laws, ordinances, regulations, orders and decrees
mentioned above; and
2.4.4 Will report immediately to the project manager,
in writing, any discrepancy or inconsistency it discovers in the
laws, ordinances, regulations, orders, and decrees mentioned above
in relation to any plans, drawings, specifications or provisions of
this Contract.
2.5 Any reports, information, data or other material
given to, or prepared or assembled by, CONTRACTOR or its
contractors, if any, under this Contract wil! become the property
of CITY and will not be made available to any individual or
organization by CONTRACTOR or its contractors, if any, without the
prior written approval of the city manager.
2.6 CONTRACTOR will provide CITY with ten (i0) copies of
the final report, if any, which may be required under this
Contract, upon completion and acceptance of "the report by CITY.
2.7 If CITY requests additional copies of reports,
drawings, specifications or any other material which CONTRACTOR is
required to furnish in limited quantities in the performance of
the Services, CONTRACTOR will provide such additional copies and
CITY will compensate CONTRACTOR for its duplication costs.
2.8 CONTRACTOR will be responsible for employing or
engaging all persons necessary to perform the Services. Al!
contractors of CONTRACTOR will be deemed to be directly controlled
and supervised by CONTRACTOR, which will be responsible for their
performance. If any employee or contractor of CONTRACTOR fails or
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refuses to carry out the provisions of this Contract or appears to
be incompetent or to act in a disorderly or improper manner, the
employee or contractor will be discharged immediately from further
performance under this Contract on demand of the project manager.
SECTION 3. DUTIES OF CITY
3.1 CITY will furnish or cause to be furnished the
specified services set forth in Exhibit "A" and such other
information regarding its requirements as may be reasonably
requested by CONTRACTOR.
3.2 The city manager will represent CITY for all
purposes under this Contract. LUCIE HIRMINA is designated as the
project manager for the city manager. The project manager will
supervise the performance, progress, and execution of the Services,
and will be assisted by CHRISTOPHER WEILER, the Utilities Rate
Analyst.
3.3 If CITY observes or otherwise becomes aware of any
default in the performance of CONTRACTOR, CITY will use reasonable
efforts to give written notice thereof to CONTRACTOR in a timely
manner.
SECTION 4 - COMPENSATION
4.1 Tn consideration of the full performance of the
Services by CONTRACTOR, CITY will pay CONTRACTOR a total sum not
to exceed Fifty-Nine Thousand Five Hundred Fifty Dollars ($59,550),
payable within thirty (30) days of submission by CONTRACTOR of its
itemized billings, in triplicate, in accordance with the following
fee schedule set forth in Exhibit
SECTION 5.AUDITS
5.1 CONTRACTOR will permit CITY to audit, at any
reasonable time during the term of this Contract and for three (3)
years thereafter, CONTRACTOR’s records pertaining to matters
covered by this Contract. CONTRACTOR further agrees to maintain
and retain such records for at least three (3) years after the
expiration or earlier termination of this Contract.
SECTION 6. INDEMNITY
6.1 CONTRACTOR agrees to protect, indemnify, defend and
hold harmless CITY,iis Council members, officers, employees and
agents from any and all demands, claims, or liability of any
nature, including death or injury to any person, property damage or
any other loss, caused by or arising out of CONTRACTOR’s, its
officers’, agents’, subcontractors’ or employees’ negligent acts,
errors, or omissions, or willful misconduct, or conduct for which
applicable law may impose strict liability on CONTRACTOR in the
performance of or failure to perform its obligations under this
Contract.
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SECTION 7.WAIVERS
7.1 The waiver by either party of any breach or
violation of any covenant, term, condition or provision of this
Contract, or of the provisions of any ordinance or law, will not be
deemed to be a waiver of any other term, covenant, condition,
provisions, ordinance or law, or of any subsequent breach or
violation of the same or of any other term, covenant, condition,
provision, ordinance or law. The subsequent acceptance by either
party of any fee or other money which may become due hereunder will
not be deemed to be a waiver of any preceding breach or violation
by the other party of any term, covenant, condition or provision of
this Contract or of any applicable law or ordinance.
7.2 No payment, partial payment, acceptance, or partial
acceptance by CITY will operate as a waiver on the part of CITY of
any of its rights under this Contract.
SECTION 8. INSURANCE
8.1 CONTRACTOR, at its sole cost and expense, will
obtain and maintain, in full force and effect during the term of
this Contract, the insurance coverage described in Exhibit "C",
insuring not only CONTRACTOR and its contractors, if any, but also,
with the exception of workers’ compensation, employer’s liability,
and professiona! liability insurance, naming CITY as an additional
insured concerning CONTRACTOR’s performance under this Contract.
8.2 All insurance coverage required hereunder will be
provided through carriers with Best’s Key Rating Guide ratings of
A:X or higher which are admitted to transact insurance business in
the State of California. Any and all contractors of CONTRACTOR
retained to perform Services under this Contract will obtain and
maintain, in full force and effect during the term of this
Contract, identical insurance coverage, naming CITY as an
additional insured under such policies as required above.
8.3 Certificates of such insurance, preferably on the
forms provided by CITY,.will be filed with CITY concurrently with
the execution of this Contract. The certificates will be subject
to the approval of CITY’s risk manager and wil! contain an
endorsement stating that the insurance is primary coverage and will
not be canceled or altered by the insurer except after filing with
CITY’s city clerk thirty (30) days’ prior written notice of such
cancellation or alteration, and that the City of Palo Alto is named
as an additional insured except in policies of workers’
compensation, employer’s liability, and professional liability
insurance. Current certificates of such insurance will be kept on
file at all times during the term of this Contract with the city
clerk.
8.4 The procuring of such required policy or policies of
insurance will not be construed to limit CONTRACTOR’s liability
hereunder nor to fulfill the indemnification provisions of this
Contract. Notwithstanding the policy or policies of insurance,
960321 0070933
C0NTP~ACTOR will be obligated for the full and total amount of any
damage, injury, or loss caused by or directly arising as a result
of the Services performed under this Contract, including such
damage, injury, or loss arising after the Contract is terminated or
the term has expired.
SECTION 9.WORKERS’ COMPENSATION
9.1 CONTRACTOR, by executing this Contract, certifies
that it is aware of the provisions of the Labor Code of the State
of California which require every employer to be insured against
liability for workers’ compensation or to undertake self-insurance
in accordance with the provisions of that Code, and certifies that
it will comply with such provisions, as applicable, before
commencing the performance of the Services.
SERVICES
SECTION i0. TERMINATION OR SUSPENSION OF CONTRACT OR
i0.! The city manager may suspend the performance of the
Services, in whole or in part, or terminate this Contract, with or
without cause, by giving thirty (30) days’ prior written notice
thereof to CONTRACTOR. Upon receipt of such notice, CONTRACTOR
will immediately discontinue its performance of the Services.
10.2 CONTRACTOR may terminate this Contract or suspend
its performance of the Services by giving thirty (30) days’ prior
written notice thereof to CITY, but only in the event of a
substantial failure of performance by CITY or in the event CITY
indefinitely withholds or withdraws its request for the initiation
or continuation of the Services to be performed.
10.3 Upon such suspension or termination by CITY,
CONTRACTOR will be paid for the Services actually rendered to CITY
on or before the effective date of suspension or termination;
provided, however, if this Contract is suspended or terminated on
account of a default by CONTRACTOR, CITY will be obligated to
compensate CONTRACTOR only for that portion of the Services which
are of direct and immediate benefit to CITY, as such determination
may be made by the city manager acting in the reasonable exercise
of her discretion.
10.4 Upon such suspension or termination, CONTRACTOR will
deliver to the city manager immediately any and all Copies of
studies, sketches, drawings, computations, and other data, whether
or not completed, prepared by CONTRACTOR or its contractors, if
any, or given to CONTRACTOR or its contractors, if any, in
connection with this Contract. Such materials will become the
property of CITY.
10.5 The failure of CITY to agree with CONTRACTOR’s
independent findings, conclusions, or recommendations, if the same
are called for under this Contract, on the basis of differences in
matters of judgment, will not be construed as a failure on the part
of CONTRACTOR to fulfil! its obligations under this Contract.
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SECTION ii.ASSIGNMENT
I!.i This Contract is for the personal services of
CONTRACTOR, therefore, CONTRACTOR will not assign, transfer,
convey, or otherwise dispose of this Contract or any right, title
or interest in or to the same or any part thereof without the prior
written consent of CITY. A consent to one assignment will not be
deemed to be a consent to any subsequent assignment. Any
assignment made without the approval of the city manager will be
void and, at the option of the city manager, this Contract may be
terminated. This Contract will not be assignable by operation of
law.
SECTION 12. NOTICES
12.1 A!l notices hereunder will be given in writing and
mailed, postage prepaid, by certified mail, addressed as follows:
To CITY:Office of the City Clerk
City of Palo Alto
Post Office Box 10250
Palo Alto, CA 94303
To CONTRACTOR: Attention of the project director
at the address of CONTRACTOR recited above
SECTION 13.CONFLICT OF INTEREST
13.1 In accepting this Contract, CONTRACTOR covenants
that it presently has no interest, and will not acquire any
interest, direct or indirect, financial or otherwise, which would
conflict in any manner or degree with the performance of the
Services.
13.2 CONTRACTOR further covenants that, in the
performance of this Contract, it will not employ any contractor or
person having such an interest. CONTRACTOR certifies that no
person who has or will have any financial interest under this
Contract is an officer or employee of CITY; this provision will be
interpreted in accordance with the applicable provisions of the
Palo Alto Municipal Code and the Government Code of the State of
California.
SECTION 14. NONDISCRIMINATION
14.1 As set f~rth in the Palo Alto Municipal Code, no
discrimination will be made in the employment of any person under
this Contract because of the age, race, color, national origin,
ancestry, religion, disability, sexual preference or gender of that
person. If the value of this Contract is, or may be, five thousand
dollars ($5,000) or more, CONTRACTOR agrees to meet all
requirements of the Palo Alto Municipal Code pertaining to
nondiscrimination in employment, including completing the requisite
form furnished by CITY and set forth in Exhibit "D"
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14.2 CONTRACTOR agrees that each contract for services
with an independent provider will contain a provision substantially
as follows:
"[Name of Provider] will provide CONTRACTOR
with a certificate stating that [Name of
Provider] is currently in compliance with all
Federal and State of California laws covering
nondiscrimination in employment; that [Name of
Provider] will pursue an affirmative course of
action as required by the Affirmative Action
Guidelines of the City of Palo Alto; and that
[Name of Provider] will not discriminate in
the employment of any person under this
contract because of the age, race, color,
nationa! origin, ancestry, religion,
disability, sexual preference or gender of
such person."
14.3 If CONTRACTOR is found in violation of the
nondiscrimination provisions of the State of California Fair
Employment Practices Act or similar provisions of Federal law or
executive order in the performance of this Contract, it will be in
default of this Contract. Thereupon, CITY will have the power to
cancel or suspend this Contract, in whole or in part, or to deduct
the sum of twenty-five dollars ($25) for each person for each
calendar day during which such person was subjected to acts of
discrimination, as damages for breach of contract, or both. Only
a finding of the State of California Fair Employment Practices
Commission or the equivalent federal agency or officer will
constitute evidence of a breach of this Contract.
14.4 If CONTRACTOR is in default of the nondiscrimination
provisions of this Contract or the Affirmative Action Guidelines
pertaining to this Contract, CONTRACTOR will be found in material
breach of this Contract. Thereupon, CITY will have the power to
cancel or suspend this Contract, in whole or in part, or to deduct
from the amount payable to CONTRACTOR the sum of two hundred fifty
dollars ($250).for each calendar day during which CONTRACTOR is not
in compliance with this provision as damages for breach of
contract, or both.
SECTION 15. MISCELLANEOUS PROVISIONS
15.1 CONTRACTOR represents and warrants that it has
knowledge of the requirements of the Americans with Disabilities
Act of 1990, and the Government Code and the Health and Safety Code
of the State of California, relating to access to public buildings
and accommodations for disabled persons, and relating to facilities
for disabled persons. CONTRACTOR will comply with or ensure by its
advice that compliance with such provisions will be effected in the
performance of this Contract.
15.2 This Contract will be governed by the laws of the
State of California, excluding its conflicts of law.
960321 0070933
7
15.3 In the event that an action is brought, the parties
agree that trial of such action wili be vested exclusively in the
state courts of California or in the United States District Court
for the Northern District of California in the County of Santa
Clara, State of California.
15.4 The prevailing party in. any action brought to
enforce the provisions of this Contract may recover its reasonable
costs and attorneys’ fees expended in connection with that action.
15.5 This document represents the entire and integrated
agreement between the parties and supersedes all prior negotia-
tions, representations, and contracts, either written or oral.
This document may be amended only by a written instrument, which is
signed by the parties.
15.6 All provisions of this Contract, whether covenants
or conditions, will be deemed to be both covenants and conditions.
15.7 The covenants, terms, conditions and provisions of
this Contract will apply to, and will bind, the heirs, successors,
executors, administrators, assignees, and contractors, as the case
may be, of the parties.
15.8 If a court of competent jurisdiction finds or rules
that any provision of this Contract or any amendment thereto is
void or unenforceable, the unaffected provisions of this Contract
and any amendments thereto will remain in full force and effect.
15.9 All exhibits referred to in this Contract and any
addenda, appendices, attachments, and schedules which, from time
to time, may be referred to in any duly executed amendment hereto
are by such reference incorporated in this Contract and will be
deemed to be a part of this Contract.
15.10 This Contract may be executed in any number of
counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
15.11 This Contract is subject to the fiscal provisions
of the Charter of the City of Palo Alto and the Palo Alto Municipal
Code. This Contract will terminate without any penalty (a) at the
end of any fiscal year in the event that fund~ are not appropriated
for the following fiscal year, or (b) at any time within a fiscal
year in the event that funds are only appropriated for a portion of
the fiscal year and funds for this Contract are no longer
available. This Section 15.11 shall take precedence in the event
of a conflict with any other covenant, term, condition, or
provision of this Contract.
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IN WITNESS WHEREOF, the parties hereto have by their duly
authorized representatives executed this Contract on the date first
above written.
ATTEST:CITY OF PALO ALTO
City Clerk
APPROVED AS TO FORM:
Mayor
Senior Asst. Cit]: Attorney
APPROVED:
Assistant City Manager
Director of Utilities
Deputy City Manager,
Administrative Services
INC.
By:
Its:
Taxpayer’s I.D. No. 94-2964717
Risk Manager
Attachments:
EXHIBIT "A" :
EXHIBIT "B" :
EXHIBIT "C" :
EXHIBIT "D" :
SCOPE OF SERVICES AND TIME SCHEDULE
FEE SCHEDULE
INSURANCE
NONDISCRIMINATION COMPLIANCE FORM
960321 0070933
CERTIFICATE OF ACKNOWLEDGMENT
(Civil Code ~ 1189)
STATE OF 4D¢~ ~)
) ss.
a Notary Public in a~d for said County and State, persoially
appeared ~[~\\ ~%~% personally known to me
or proved to me on the basis of satisfactory evidence to be the
person(s) whose name~ is/~n_re-subscribed to the within instrument
and acknowledged to me that h=/=~/~- executed the same in
his/~ authorized capacity(~), and that by his~he~~
signature~ on the instrument the person(~-, or the entity upon
behalf of which the person@e% acted, executed the instrument.
WITNESS my hand and official seal.
Signature of Notary Public
960321 0070933
10
Exhibit "A" 1. of 7
II.STATEMENT OF WORK
Barakat & Chamberlin has developed a plan of work that allows for some flexibility
"in the details" to ensure the fulfdlment of the City’s overall ratemaking objectives
and strategic goals and the best use the City’s existing resources. The best way to
update the City’s existing cost-of-service models and to design unbundled or
competitive rates depends on current data availability and the flexibility of current
models in providing sufficiently disaggregated outputs. The best way to update also
depends on the overall flexibility needed by the City to reasonably provide
competitive services to its customers while meeting its ongoing rate and revenue
objectives.
Barakat & Chamberlin proposes to conduct the City of Palo Alto’s cost-of-service
study in six broadly defined tasks, each of which covers well-defined steps:
In Task 1, we will kick off the project and clarify the City’s financial and
ratemaking objectives. We will also review the City’s existing and
proposed cost and financial models, together with their data requirements,
to see if the project scope best addresses the City’s actua! needs and
objectives.
In Task 2 we will develop the marginal-costing approaches appropriate for
the City’s future pricing flexibility.
" In Task 3, we will perform the City’s cost-of-service study.
In Task 4, we will design rates for streetlighting and traffic si~nals based
on the updated cost-of service study.
In Task 5, we will evaluate the feasibility of integrating the new (or
updated ) models with the City’s existing systems.
In Task 6, we will prepare a final report documenting all results.
Each of these tasks is described in more detail below.
We understand that a presentation before the Utility Advisory Commission and the
City Council regarding the results of the cost-of-service study may be necessary. We
are prepared to make this presentation on request; it is not included in the proposed
budget.
4
Exhibit "A" 2 of 7
TASK 1. INITIATE THE PROJECT AND REVIEW OBJECTIVES AND
EXISTING METHODS
The purpose of this task is confLrTn the project scope and objectives and ensure that
we have a full understanding of the Utilities Department’s existing and contemplated
service-pricing situation and objectives and the data or models that may already
support these objectives.
This task will involve team members from Barakat & Chamberlin and EPS as well as
Utilities Department staff. Our goals for this task are:
To review and analyze the City’s existing revenues and costs, including
rate levels and structures, customer classes, and supply sources.
To develop a detailed understanding of the City’s current or anticipated
pricing and rate design objectives, including cost recovery, "profitability,"
and other objectives (such as revenue stability, efficiency or rate
simplicity). For example, the City may be concerned about "cross-class"
subsidies and seek to reduce these over time.
To develop a clear picture of the City’s existing models, including its
Interactive Fund Accounting System (IFAS), rate design models, load
research system, and the new Customer Information System (CIS)
currently being developed. We will also want to know about any system
planning methods/models used by the City and any marginal-costing
approaches in use today. In addition, we want to familiarize ourselves
with the cost allocation model and the updating mechanisms employed.
To determine the strengths and deficiencies in the City’s existing pricing
models and alternative tools that may be available. As an EPRI member,
the City has access to EPS’s RateManager model. This model enables
utilities to evaluate new rate options both in terms of revenue recovery
and economic efficiency. In 1996, EPS (with EPRI funding) will be
enhancing the model to evaluate real-time pricing programs. The City may
wish to combine this tool with its existing cost-of-service model.
TASK 2. EVALUATE SHORT-RUN MARGINAL COSTS
Exhibit "A" 3 of 7
Most utilities develop marginal costs by identifying how the cost of operating their
own resources changes with increases or decreases in load. Given its position as a net
energy and capacity buyer, we suggest that the City base its marginal cost estimates
on prices found in California wholesale markets.
Under traditional methods, utilities develop short-run marginal energy costs using
production cost models, such as IRPManager or MIDAS, that simulate the hourly
dispatch of utility-owned resources. If a utility purchases most of its requirements,
then marginal energy costs are usually identified by using the purchase contract the
utility calls on to follow load.
Short-run marginal capacity costs are developed by estimating what customers would
either need to pay or be wiiling to pay to avoid an outage. These methods (which
include the "peaker" and "value-of-service" methods) rely on production cost models
to identify changes in expected unserved energy (EUE) or changes in loss-of-load
hours (LOLH) as a result of increases or decreases in load. Some methods also rely
on surveys of customer outage costs.1
While these methods may be appropriate, we suggest that the City take advantage of
the new types of information that are becoming available as the competitive power
market unfolds. Each day, market brokers fax buy and sell offers to utilities
throughout the West. The offers involve f’m-n and nonfirm transactions for as little as
a day and for as long as three months. Quotes are given for "6x16" power (on-peak
hours, six days a week) and for fiat week-long energy purchases. These quotes
provide a way to develop market-based short-run marginal costs (SRMC).
We understand that the City’s system planning department is in the process of
developing a process for estimating market prices in lieu of relying on traditional
production cost models. Although we do not know the exact scope of this effort, some
of the results could provide rele.vant data for rate design purposes.
Our approach to developing SRMC involves four steps:
1.Gather and assess alternative sources of market data (including system
planning department efforts).
1These methods and others are outlined in Chapter 3 of the rate design text we recently completed for
EPRI. See Winning Retail Strategies: Beyond Innovative Rate Design (Palo Alto, Calif.: Electric Power
Research Institute, June 1995).
6
Exhibit "A" 4 of 7
Confmn that the City wants to pursue an external, market-based approach
as opposed to the more traditional internally focused SRMC methods.
Identify and develop any adjustments to the market data. For example,
transmission costs will need to be added and market prices may need to
divided into energy-related and capacity-related components. (One
approach might involve comparing f’m-n and nonfirrn buy/sell offers.)
Develop specifications for putting adjusted market data into a usable form
for rate design purposes. The City may want to incorporate the data into
its embedded cost model or interface the data with EPRI/EPS’s
RateManager planning tool.
TASK 3. PERFORM COST-OF-SERVICE STUDY
This task will provide the City. of Palo Alto Utilities Department with an updated,
fully allocated embedded cost-of-service study. As competitive electric markets
develop, the City’s enhanced cost of service must provide a detailed identification of
costs.
The "cost causation" principle underlies cost allocation--ultimately, the goal of the
cost allocation process is to best reflect the costs of providing utility service for each
class, given how Costs were, are, or will actually be incurred. This means capturing
the unique nature of Palo Alto’s municipal system in terms of its loads, operations,
and basic planning practices.
Our understanding is that the utility’s current revenue requirement covers its capital
costs, operating and maintenance expenses, purchased commodity costs, debt service
costs, reserve funding, and a transfer to the City’s General Fund based on the rate-of-
return on rate base. The City’s accounting system is based on the FERC’s Uniform
System of Accounts. We will use the Utilities Department’s recorded accounting costs
for FY 1994-95 in developing a cost-of-service study geared toward providing the
detailed cost information needed to design unbundled rates.
We will cover the following three steps in performing the cost-of-service study:
Functionalizing costs, according to generation, transmission, distribution
(and by voltage level), customer service, and general utility overhead;
Exhibit "A" 5 of 7
2.Classifying costs, according to whether they are demand costs, energy
costs, or customer costs; and
o Allocating costs to customer classes by direct assignment of costs
identifiable by class or using an allocation method for costs common to
all classes.
We understand that the City requires the use of the average and excess demand
(AED) method to allocate demand-related costs to customer classes. Under this
method, each customer class bears cost responsibility depending on its share of
average system loads; each also shares responsibility for the costs of additional
resources to meet maximum system loads.
A need to provide for greater unbundling of costs and services requires a focused
examination of the functionalized costs. Some amount of functional unbundling is
straightforward--for example, the system of accounts typically separates transmission
from distribution costs. Other costs--such as overhead costs--may not be unbundled,
but can be allocated to customer classes in a variety of ways.
We assume that the City’s existing cost-of-service model is usable for the study. In
carrying out the study, we will recommend and implement changes that can enhance
the City’s service-pricing flexibility.
TASK 4. DEVELOP TRAFFIC SIGNAL AND STREETLIGHTING CHARGES
The purpose of this task is to develop annual charges for streetlighting and traffic
signals.
We understand that the Utilities Department provides streetlighting services to the
City of Palo Alto; it also serves traffic signals and signalized intersections owned by
the State of California, the County of Santa Clara, and the City. Palo Alto’s
streetlighting facilities consist of over 6,000 lights of various types and sizes--ranging
from 40 watt fluorescent to 400 watt mercury vapor lights. As indicated in the RFP,
streetlighting and traffic signal revenues currently amount to approximately 3 % of
electric revenue requirements.
We will develop the appropriate charges consistent with the rate design goals elicited
in Task 1. We will evaluate the development of unbundled charges for these services
in light of the City’s needs and objectives and any streetlighting-related services
provided by the utility.
Exhibit "A" 6 of 7
We will Krst examine tile results of the updated cost-of-service study. Under the AED
allocation method used in the cost-of-service study, .streetlighting and traffic signals
are allocated some demand-related costs and energy-related costs. (This is not the case
with all of the peak responsibility methods). We will also take into account readily
available information on marginal costs, including replacement costs for the different
facility types, to determine the relationship between marginal and allocated embedded
costs. For these costs, we may recommend the use of cost information developed by
nearby utilities.
TASK 5. CONDUCT FEASEBILITY ASSESSMENT FOR INTEGRATING
COST-OF-SERVICE MODEL
We will perform the following steps to evaluate the feasibility of integrating the
embedded cost-of-service model with the City’s existing systems, including the
Customer Information System, the Interactive Fund Accounting System, and load
research system. In addition, we will explore the advantages of linking the model to
spreadsheets or other models that may be in use to develop marginal cost information.
The steps are:
Review existing data sources for the embedded cost-of-service model. This
review will provide a comprehensive summary of all data input
requirements, identify the sources within the City, determine the format
(electronic or other) in the existing sources, and identify the traditional
flow of this information into the cost-of-service process.
Define the appropriate type of linkage for each data input item. These
interfaces may be direct electronic linkages that allow access to other
databases via computer network, electronic data in standard formats
exchanged on diskettes, or existing hard copy reports.
o Recommend data formats and transfer mediums for the data items
requiring electronic linkages. For direct electronid linkages, equipment
requirements will be specified.
4.Estimate the level of effort and time frame required to integrate the
model.
Exhibit "A" 7 of 7
o Document feasibility assessment and recommended actions. This step will
include a preliminary review of the steps with the City and a final
presentation.
Our approach wili provide a comprehensive assessment of the feasibility of integrating
the embedded cost-of-service model. It will also provide a clear strategy for
maximizing the effectiveness of the embedded cost-of-service model by minimizing
barriers to the ongoing use of the model. In addition, it will improve the quality of
the results from the model by providing clearly defined and consistent paths for
information to be entered into the model.
TASK 6. DOCUMENT RESULTS A.ND PREPARE REPORTS
We will provide a preliminary draft and a complete final report with documentation,
worksheets, and diskettes.
10
Exhibit lofl
Exhibit "C" 1 of !
Earakat & Chamberlin. Inc.
1800 Harrison St. i8 Floor
Oakland
CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATEDOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THEPOLICIES BELOW.
O01vPANIE$ AFFORDING COVERAGE
COI~AkYLET~ A Kemper Group
COW~AHYLET~B Atlantic Mutual Ins. Co.
LETTER C Evanston ¢/o Brown & RidinE
LETTER D
CA 94612 LE~ E
~ICAT ED, NOTWlTHST AND~ANY RECUSANT, TE~ OR ~NDIT~N OF ANY CONTRACT OR OT~R ~C~NT WITH RESPECT TO W~H
CERT~ICATE MAY BE B$UED OR MAY ~ERTA~,T~ ~S~A~E AFFOR~D BY T~ POL~IE9 DE$CROED ~RE~ 19 S~CT TO ALL T~
EXCLUSIONS AND CO~T~ OF S~ POL~S. L~TS S~WNMAY HAVE BEEN ~ED BY PA~ ~A~S.
_._~ 0~N~R’~ & CI:~ITRACTOR’$ PROf.
A
P<~IOY~JI.I~I:~)¢YE~FECTWE P<X.10Y EXPI:iATK)N I.LI.illl
432300682
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9113/95
9113195
432300682 9/13195
3BA08468700 (CA/CO/OC 12117194
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PERSO~I. & ADV. INJJRY
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~SEASE-EACH ~PL~E S 1000000
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claim $50,000Ooduct
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~iEXPIRATION DATE THEREOF, THE ISSU~G COMPANY WILL. ENO~AVOR TO
MAIL 30 DAYBWRITTENNOTICETOTHECERTF:ICATEHOLDr-’RNAk~DTOTHE
~Examp I ¯~ LEFT, BUT FALSE TO MA[ S~ ~T~ SHA~ ~SE ~ OBL~AT~N OR
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Exhibit "D" 1 of I
CERTIFICATION of NONDISCRIMINATION SECTION 410
PERFORM AN ELECTRIC COST-OF-SERViCE STUDY
Certification of Nondiscriminatio!!; As suppliers of goods or services to the City of Palo Alto, the
firm and individuals listed below certifies that they do not discriminate in employment with regards
to age, race, color, religion, sex, national odgin, ancestry, disability, or sexual preference; that they
are in compliance with all Federal, State and local directives and executive orders regarding
nondiscrimination in employment; and that they agree to demonstrate positively and aggressively
the principle of equal opportunity in employment.
The Bidder agrees specifically: .
1.0
2.0
3.0
4.0
Firm: Barakat & Chomb,:rli~l, Inc.
Title of Officer Signing: Human ources Manaoer
Signature Jennifer Gray
Please include any additional available regarding
programs now in effect within your company.
Barakat & Chamberlin, Inc., has an Affirmative
provide a copy to the City on request.
To establish or observe employment policies which affirmatively promote
opportunities for minority persons at all job levels.
To communicate this policy to all persons concemed, including all employees,
outside recruiting services, especially those serving minodty communities, and to the
minodty communities at large.
To take affirmative action steps to hire minodty employees within the organization.
To be knov,4edgeable of the local, state, and federal laws and regulations concerning
affirmative action policies and provide opportunities for employees.
pATIO: !2-0z~-95
opportunity employment
Action Plan and will
(Please attach addi~onal pages if necessa~)
CITY of PALO ALTO: Non-discrimination (6/94)
END OF SECTION
SECTION 410-1