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HomeMy WebLinkAbout2004-10-18 City CouncilCity of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL 3 FROM:CITY MANAGER DEPARTMENT: UTILITIES DATE: SUBJECT: OCTOBER 18, 2004 CMR:400:04 FINANCE COMMITTEE RECOMMENDS ADOPTION OF A RESOULUTION AUTHORIZING NORTHERN CALIFORNIA POWER AGENCY TO APPLY PAYMENTS DUE FROM PACIFIC GAS AND ELECTRIC COMPANY (PG&E) TO SET OFF THE ALLEGED PG&E PAYMENT CLAIM RELATED TO ITS SCHEDULING COORDINATOR SERVICES TARIFF RECOMMENDATION The Finance Committee recommended by a vote of 3 to 0 that Council approve resolution authorizing Northern California Power Agency (NCPA) to apply payments due from Pacific Gas and Electric Company (PG&E), as appropriate, to set off the alleged PG&E claim related to its Scheduling Coordinator Services Tariff (SCS Tariff). COMMITTEE REVIEW AND RECOMMENDATIONS At its September 21, 2004 meeting, the Finance Committee considered the proposed resolution. The approach taken by other affected NCPA members was discussed, and staff informed Committee members that three NCPA member cities had already passed similar resolutions and others were in the process of doing so. Council Member Freeman explored the potential of limiting the dollar amount of pledge the City would make to NCPA. It was pointed out that the amount pledged was limited to the amount required to offset payments claims made by PG&E and any limitation imposed on a carefully drafted resolution with legal nuances may negate the effectiveness of the resolution itself. The Committee voted on the motion to approve the resolution, and the motion passed unanimously. ATTACHMENTS A: CMR:396:04 CMR:400:04 Page 1 of 2 JOHN ULRICH CITY MANAGER APPROVAL: [-IARRISON Assistant City Manager CMR:400:04 Page 2 of 2 ***NOT YET APPROVED*** RESOLUTION NO. RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO AUTHORIZING THE NORTHERN CALIFORNIA POWER AGENCY TO APPLY PAYMENTS DUE FROM PG&E TO SET OFF THE ALLEGED PACIFIC GAS AND ELECTRIC COMPANY CLAIM RELATING TO ITS SCHEDULING COORDINATOR SERVICES TARIFF WHEREAS, Pacific Gas and Electric Company ("PG&E") has presented a demand for payment of alleged and disputed charges for its alleged services under a tariff commonly referred to as the Scheduling Coordinator Services Tariff ("SCS Tariff"), which tariff is currently the subject of proceedings in FERC Docket No. ER00-565 ("Subject Proceedings"); and WHEREAS, the Northern California Power Agency ("NCPA") and its affected member entities such as the City of Palo Alto ("City") believe that the SCS Tariff is not just and reasonable and dispute the demand PG&E has made for payment due in part to its utter lack of documentary, contractual, methodological, and legal foundation, which dispute goes to the entirety of PG&E’s alleged claim; and WHEREAS, PG&E’s alleged claim, if paid, will divert needed public financial resources to pay PG&E for an alleged claim PG&E itself never expected to present to NCPA with the onset of deregulation; and WHEREAS, PG&E has outstanding obligations to NCPA and its affected members relating in one or more material ways to the disputed PG&E alleged claim, which obligations arose before PG&E’s bankruptcy and have continued thereafter, and which PG&E has an unconditional obligation to pay to NCPA and its affected members (PG&E Obligations); and WHEREAS, for several reasons, including the possibility that any payment to PG&E for the alleged claim may not be repaid, it would be unwise and imprudent to release public funds to PG&E’s control in any event without certain enforceable assurances from PG&E, and in their absence, the City has no choice but to escrow disputed amounts with an independent escrow agent; and WHEREAS, a form of escrow agreement with U.S. Bank has been approved by NCPA and NCPA has requested that its affected members pledge their interests in the PG&E Obligations ~o be applied to set off the alleged PG&E claim. 040726 cl 0072427 ***NOT YET APPROVED*** NOW, THEREFORE, the Council of the City of Palo Alto does RESOLVE as follows: SECTION i. All right, title, and interest in and to any payments that Pacific Gas and Electric Company may make to the Northern California Power Agency arising from the PG&E Obligations are hereby pledged .and authorized to be applied as a set-off against the alleged PG&E claim. SECTION 2. The Council finds that this is not a project under the California Environmental Quality Act and, therefore, no environmental impact assessment is necessary. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk APPROVED AS TO FOR~4: Mayor APPROVED: Senior Asst. City Attorney City Manager Director of Utilities Director of Administrative Services 040726 cl 0072427 2 TO:HONORABLE CITY COUNCIL ATTENTION: FINANCE COMMITTEE FROM:CITY MANAGER DEPARTMENT: UTILITIES DATE: SUBJECT: SEPTEMBER 21, 2004 CMR:396:04 ADOPTION OF A RESOLUTION AUTHORIZING NORTHERN CALIFORNIA POWER AGENCY TO APPLY PAYMENTS DUE FROM PACIFIC GAS AND ELECTRIC COMPANY (PG&E) TO SET OFF THE ALLEGED PG&E PAYMENT CLAIM RELATED TO ITS SCHEDULING COORDINATOR SERVICES TARIFF RECOMMENDATION Staff requests that Council approve a resolution authorizing the Nol-thern California Power Agency (NCPA) to apply payments due from Pacific Gas and Electric Company (PG&E), as appropriate, to set off the alleged PG&E claim related to its Scheduling Coordinator Services (SCS). BACKGROUND Between April 1998 and August 2002, PG&E provided NCPA with scheduling coordinator services in the newly created transmission services markets of the California Independent System Operator (ISO). This service was provided by PG&E as part of its existing obligations under the NCPA-PG&E transmission interconnection agreement (IA). The City received transmission services as a party to this interconnection agreement. During this period, PG&E alleges it incurred costs, payable to the ISO, related to its role as a scheduling coordinator for NCPA members under the IA. However, PG&E’s claim has been disputed by most lnunicipal utilities in Northern California that had IAs with PG&E. DISCUSSION CMR:396:04 Page 1 of 3 Over the past years PG&E made numerous revisions to its claim against NCPA and its member cities as part of its Scheduling Coordinator Services (SCS) tariff) proceedings before the Federal Energy Regulatory Conm~ission (FERC). FERC has ruled on various facets of this case since January 2000, including "accepting the tariff for filing subject to refund." This FERC order essentially gave PG&E the right to collect payments in the interim, until the issue is finally resolved. The latest disputed claim submitted by PG&E for se~’ices to NCPA members, for the 41- month period between April 1998 and August 2002, is approximately $21 million. An additional $5 million in accumulated interest liability also exists. Palo Alto’s share of this disputed claim for services is approximately $6.9 lnillion, with an additional claim of $1.6 million for accrued interest, for a total of approximately $8.5 million. PG&E has indicated that it will bill for the claimed amount in 12 equal paylnents over the 12 months starting in June 2004 ........ Due to the complete lack of information on billing determinants underlying the invoiced amounts or the relationship of those billing determinants to allocation methodologies described in PG&E’s SCS tariff, NCPA is disputing invoiced amounts inaccordance with the provisions contained in PG&E’s SCS tariff. However; since PG&E has started billing in June 2004, NCPA has set up an escrow account and is paying disputed invoice amounts into that account. The City expects to place its share of the bill via NCPA in the escrow account. Palo Alto’s share of the first bill of $705,921 was paid to NCPA on July 2, 2004; with the second payment expected to be made by the City by the end of July. All these funds will be deposited by NCPA in to an escrow account until NCPA reaches a final settlement with PG&E. NCPA and its members also have a number of recognized claims against PG&E for energy services provided directly to PG&E and through the ISO/PX. NCPA is investigating the amounts and extents to which these claims against PG&E can be used to off set NCPA payments, while conforming witl~ PG&E banka’uptcy settlement agreement. In order to formalize this off-set, each NCPA member is requested to adopt a resolution (attached) pledging all rights, title, and interest ~n any payment PG&E may make to NCPA arising from its past obligations as a off-setagainst PG&E’s alleged SCS tariff claims. Similar resolutions are expected to be passed by other NCPA member governing boards. The potential set-off amount for Palo Alto could be approximately $2 million. RESOURCE IMPACT Pledging funds owed by PG&E to Palo Alto, to tl~e extent determined to be allowed by bankruptcy counsel and NCPA, towards the alleged SCS tariff payment obligation will reduce the need to make payments from City funds. A portion of the disputed SCS tariff payment was considered as part of the regulatory contingency reserve in the Utility Rate Stabilization Rese~we Guidelines approved by the Council in December 2003 (CMR: 483:03). Unspent funds available in the FY 03-04 budget will be utilized to make these CMR:396:04 Page 2 of 3 payments. If additional funds are required, a mid-year budget adjustment request will be brought to Council in January. POLICY IMPLICATIONS Making payments to suppliers in a streamlined fashion and reducing financial exposure to entities with limited credit quality conforms to .the Utilities Strategic Plan and Energy Risk Management Policies and Guidelines. ATTACHMENT A: Resolution Authorizing the Northern California Power Agency To Apply Payments Due from PG&E To Set Off the Alleged Pacific Gas and Electric Company Claim Relating To Its Scheduling Coordinator Services Tariff PREPARED BY: ./<.~/~SHIVA HAN Senior Resource Planner DEPARTMENT HEAD: :or of Utilities CITY MANAGER APPROVAL: ~N Assistant City Manager CMR:396:04 Page 3 of 3