HomeMy WebLinkAbout1999-04-19 City Council (17)City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
FROM:
DATE:
SUBJECT:
CITY MANAGER
APRIL 19, 1999
DEPARTMENT:UTILITIES
CMR:216:99
UPDATE ON ELECTRIC UTILITY DIRECT ACCESS
IMPLEMENTATION
This is an informational report and no Council action is required.
REPORT IN BRIEF
This is an informational report on the City of Palo Alto Utilities’ (CPAU’s) experience in
implementing its transition cost recovery, outside sales and internal direct access (DA)
programs. In summary:
Transition Cost Recovery-Staff anticipates reducing or eliminating the transition cost
recovery charges on customers’ bills in fiscal year 1999-2000. A staff recommendation
on this matter will be included, as part of the budget process, in the FY1999-2000 electric
rate proposal
Outside Sales-Staff has researched opportunities for providing CPAU services to
customers’ facilities outside its service territory and has found these opportunities to be,
thus far, uneconomic. Staff will continue its investigations.
Direct Access-The bulk of the report focuses on the DA experience from phases I and
II and revisions being made for future phases. During phases I and II, CPAU received
three applications to participate in DA, although none of the applicants chose to complete
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the subsequent requirements to activate DA service. Staff is implementing changes to
streamline processes for phase III, which begins July 1999. These changes include the
elimination of the open season and selection process as well as revisions to Palo Alto’s
Energy Services Provider Agreement. Staff is also addressing requirements for phase IV
and V implementation.
CMR:216:99 Page 2 of 7
BACKGROUND
In March 1997, City Council approved three policies related to electric direct access (DA):
(1) recover costs incurred during the transition period to full DA; (2) pursue opportunities
in retail energy sales outside the City. of Palo Alto Utilities (CPAU) service territory; and (3)
implement electric DA for CPAU customers (CMR: 159~97).
As part of the FY1996-97 budget process, City Council approved funding of the Calaveras
Reserve to offset potential stranded costs associated with the Calaveras Hydroelectric
Project. For FY1997-98, Council approved a revised Calaveras Reserve target of $93 million
to be reached by December 31, 2001. To reach this target, Council approved the
establishment, on July 1, 1997, of a transition cost recovery charge on all customer bills. The
outside sales effort began in early 1998 with initial business and marketing planning.
In December 1997, Council approved the Direct Access Implementation Plan and related
documents (CMR:460:97) to implement the electric DA policy. The DA implementation plan
was executed in January 1998 and comprises a four-year approach to phasing in DA for
commercial and residential electric utility customers, as outlined below:
TABLE 1: Current DA Phase-In Schedule
Customer
Eligibility
> 1MW
> 1 MW (2nd round)
>0.5 MW
All Commercial
Residential
Open
Season
Jan. 1998
May 1998
May 1999
May 2000
May 2001
Direct
Access
Begins
March 1998
July 1998
July 1999
July 2000
July 2001
Maximum
MW
(cumulative)
10
40
80
160
DISCUSSION
Transition Cost Recovery
Current projections indicate that the Calaveras Reserve will reach a level of approximately
$71 million at the end of FY1998-99. More importantly, a recent refinancing of the Calaveras
Hydroelectric Project by the Northern California Power Agency has significantly lowered the
potential stranded costs for this project. Accordingly, staff plans to recommend a
significantly lower Calaveras Reserve target through its electric rate proposal during the
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FY1999-2000 budget process and anticipates that the transition cost recovery charge will be
eliminated.
Outside Sales
Although staffhas researched potential energy sales outside CPAU service territory; staffhas
not found opportunities for positive economic returns. However, staff will continue its
investigations and intends to act on any cost-effective oppbrtunifies. The potential for outside
sales also may increase once the Investor Owned Utilities (IOUs) have completed collection
of their stranded costs.
Direct Access Program
CPAU has completed the first two phases of its electric DA program. Three applications
were received during the open seasons to enter into the DA selection process. All
applications were approved for participation and, thus, the selection process was not needed.
However, none of the three applicants chose to (omplete the subsequent requirements for
obtaining DA service from an outside energy services provider (ESP).
Staff has conducted a review of the accomplishments and issues for Phases I and II and has
begun implementing a number of changes to streamline Phase III implementation.
Additionally, staff is addressing specific requirements to serve small commercial and
residential customers in Phases IV and V. This review and resulting revisions are highlighted
in the following sections.
Customers have provided feedback about CPAU’s Direct Access program and whether or
not they are considering DA. In general, some customers merely wished to explore their
options in the new, deregulated environment, while a few actually decided to apply for
CPAU’s DA program. Additionally, some customers did not participate in, or withdrew from,
DA because they perceived limitations in potential savings. Other customers specifically
disliked the open.season requirement as it limited their DA option to a one-month period.
Some customers also desire metering services from another provider.
Staffprojects that customerswho are considering Phase III participation are likely to be those
who are (or are planning to be) in an aggregation group, either because their parent
companies are consolidating their facilities’ energy purchases or because they have joined
with similar companies to get bulk purchasing benefits. Only a few CPAU customers have
stated that they will definitely participate in DA in the coming year.
Based on customer feedback and staff analysis, there are a number of revisions that will be "
needed for the remaining three phases of DA. Note that the overall, four-year phase-in
schedule for DAimplementation will not change. Changes will be incorporated into updated
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tariffs and rules and regulations which will be presented in upcoming staff reports. The
proposed changes are:
Eliminate the DA Open Season
The open season concept was originally included in the DA program to allow staff
advance notice of the number of potential DA customers and the potential amount of DA
load for supply planning and pricing purposes. It also ~ontrolled the time when customers
could choose DA and, thus, allowed staff to adequately plan for manually processing DA
transactions. However, the need to keep an open season is diminished due to the projected
low customer demand for DA, proposed changes in pricing policies and the advent of
automated processing through the new billing system.
Eliminating CPAU’s open season will allow eligible customers the flexibility to choose
DA any time during the year. In addition, this provides some consistency with the DA
programs of the investor-owned utilities (IOUs) and allows customers to plan DA for
their facilities in IOU as well as CPAU territory.
Eliminate the DA Selection Process
The original DA program included a selection process (lottery) designed to equitably
allocate opportunities for DA if the DA program was oversubscribed (i.e., applications
exceeded the maximum DA load allowed). Staff did not need to utilize the lottery system
during Phases I and II.
Staff does not expect to need the selection process in the future because the anticipated
customer interest in DA is below the MW limits for upcoming phases; thus, CPAU is
eliminating this process. Instead, Direct Access Service Requests will be processed on
a first-come, first-served basis throughout the year. Eliminating the selection process will
have the added benefit of simplifying the DA program and achieving further consistency
with IOU programs.
Revise the Energy Service Provider (ESp) Agreement
Staff developed an ESP Agreement which details the contractual obligations between Palo Alto
and the ESP who is providing energy to a CPAU customer. Minor revisions are being made to
this agreement as a result of changes to the DA program and feedback from staff and several
ESPs. All changes to the ESP Agreement will be coordinated with the City Attorney’s office.
Revise DA Termination Procedures
Based on anticipated proposed changes to pricing and contract policies, staff is revising
procedures related to a customer’s option to terminate DA participation and return to
CPAU as its full-service provider. The revisions provide customers with more flexibility
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and choices in available tariffs. The proposed pricing and contract policies will be
presented for Council consideration near the beginning of FY99-00.
Additional DA Activities
In addition to the changes described above, staffis undertaking a number of activities related
to upcoming phases of DA. These activities include:
For Phase III, an existing staffmember has been designated as the "DA Project Manager"
to process DA service transactions and centrally coordinate internal communications and
work responsibilities. For Phases IV and V, staff anticipates that a new position may be
required to handle the potentially greater volume of DA transactions and workload.
Staff is currently conducting a strategic business assessment to analyze the benefits and
costs of unbundling revenue cycle services, i.e., allowing competitive provision of
metering, meter data management and billing services. These services are already
unbundled in IOU territories and ESPs provide some or all of these as part of their energy
service packages to IOU customers.
Staff is developing a work plan and time line to address Phases IV and V, when small
commercial and residential customers will be eligible to participate in DA. These sets of
customers have their own specific requirements and issues, including the potentially
higher volume of service request transactions, load profiling methodologies, ESP
certification and standards of conduct.
Evaluation of DA Program
Staff believes that implementing the DA program during 1998, rather than waiting several
years as most municipal utilities have done, has provided Palo Alto with a number of positive
results:
While many other municipal utilities must spend the next year or two preparing for DA,
CPAU can focus on improving its competitive position in the evolving marketplace.
Being relatively ahead with DA puts CPAU in a better position than other municipal
utilities. Additionally, the Federal Energy Regulatory Commission may require recipients
of Federal wholesale power to establish DA in order to continue receiving this power; if
this is the case, then CPAU is again ahead of other agencies in this process.
CPAU staff learned a great deal during the DA implementation phase-in. Staff is more
knowledgeable about DA and the evolving marketplace. Other municipal utilities have
actively sought CPAU’s information and advice for their own planning.
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While no customers ended up choosing to participate in Phases I and II of the DA
program, the customers did appreciate that the choice to undertake DA was available to
them. Customers and ESPs also appreciated that the DA program, and associated DA
tariff, was equitable and fairly easy to understand.
The phased implementation process has allowed a fairly smooth and steady transition to
full DA. Staff was able to postpone or minimize manycomplex billing, metering and data
transfer issues because there were only a few potential DA participants in the early
phases. While not all systems have been fully tested (because no customers actually
participated), the testing that has been conducted so far provided enough information for
staff to improve and fine-tune the planning, systems, processes and procedures for future
phases.
RESOURCE IMPACT
For Phases IV and V, staffexpects a greater volume of requests for DA service and other DA
processing requirements. If this greater volume occurs, additional staffing may be required
to handle the additional workload.
PREPARED BY:Kirk Miller, Resource Planner
Jane Siguenza, Senior Market Analyst
APPROVED BY:
J. MRIZI~,
Director of Utilities
CITY MANAGER
EMI HARRISON
Assistant City Manager
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