HomeMy WebLinkAbout2001-05-29 City Council (3)City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
3
FROM:.
DATE:
SUBJECT:
CITY MANAGER
JULY 9, 2001
PROPOSED CHANGES TO
PROGRAMS FOR GAS AND ELECTRIC CUSTOMERS
DEPARTMENT: .UTILITIES
CMR: 259:01
THE CUSTOMER CHOICE
REPORT IN BRIEF
In 1997 and 1999 (CMR:460:97 and CMR:148:99), Council approved direct access (DA)
programs for electricity and natural gas, respectively. These programs allowed Palo Alto
customers to seek alternative suppliers of electricity and natural gas which would be
delivered to their facility over the City of Palo Alto Utilities (CPAU) distribution
systems. To date, no CPAU customers have elected to receive supply from alternate
commodity suppliers.
As part of its plan to provide stable rates to its customers, CPAU has begun securing
long-term supply contracts on behalf of its gas and electric commodity customers.
However, there is uncertainty as to whether customers eligible for direct access will
¯ actually choose another supplier in the future. Therefore, the costs and benefits of these
long-term purchases cannot be allocated to those customers eligible for direct access.
Since current rules allow customers to change rate schedules at any time, there is a risk
that DA-eligible customers will move between rate options at the expense of other
customer groups. Therefore, it is necessary to mitigat~ against the risks imposed by the
DA programs. These risks can be managed by:
1.Suspending the previously planned expansion of DA to additional customers
(CMR:460:97 and CMR: 148:99).;
2.Adjusting rate schedule eligibility and description so that no long-term purchases are
made on behalf of customers who wish to retain their DA-eligibility;
CMR:259:01 Page 1 of 8
3.Requiring customers who choose to be served by the CPAU-managed portfolio of
supplies (including the long-term purchases) to forfeit their eligibility for direct access
in the future; and
4.Ensuring that PG&E local transportation and administrative costs are recovered from
all customers.
CMR:259:01 Page 2 of 8
RECOMMENDATION
Staff and the Utilities Advisory Commission .recommend that the City Council;
1.Adopt a resolution revising the electric and gas direct access (DA)programs to:
a. Discontinue the expansion of the gas and electric DA programs;
b. Clarify the eligibility for large commercial customer electric rates as follows:
1) Rate schedules available for those with DA-eligibility: E-8 and E-9.
2) Rate schedules available for those with no DA-eligibility: E-7 (and all the
green rates available for large commercial customers: E-7 G1, E-7 G2,. E-7
~3);
c.Clarify the eligibility for medium commercial customer electric rates as follows:
1) Rate schedules available for those with DA-eligibility: E-17 and E-11
2) Rate schedules available for those with no DA-eligibility: E-4 (and all the
green rates available for medium commercial customers: E-4 G1, E-4 G2, E4
6-3);
d. Clarify the eligibility for large commercial customer gas rates as follows:
1) Rate schedules available for those with DA-eligibility:G-3, G-4, G-11, and
G-12
2) Rate schedules available for those with noDA-eligibility: G-7;
e. Customers currently eligible for DA will forfeit their eligibility if they choose to
receive service under a rate schedule available only to those without DA-
eligibility. If, and when, such customers option out of DA-eligibility, they will not
be eligible for DA thereafter; and
f. The components of the "Supply Charges" (Commodity Charge, Administrative
Fee, and PG&E Local Transportation) on gas Rate Schedules G-3, G-4, G-7, G-
11, and G-12 are adjusted so that PG&E local transportation and administrative
costs are fully recovered. This change is revenue neutral as only the allocation
between Supply Charge components of the rate were changed, not the Supply
Charge total.
2.Adopt a resolution approving the proposed modifications to the electric and gas
service rates and to Rule 19 to indicate that DA eligibility requirements are found in
the rate schedules as well as the rule itself.
BACKGROUND
Under the electric DA program approved by the City Council (CMR:460:97), eligibility
for DA was to be phased in to certain customer groups. To date, three phases out of an
original planned five phases have been completed, as follows:
¯Original plan phases implemented:
CMR:259:01 Page 3 of 8
_March 1998: first round - largest ten customers (each with load greater than 1
MW) who use about 39% of CPAU’s annual electric energy usage
_ July 1998: second round - next largest four customers (each with load greater
than 1 MW) who use about 3% of the annual usage
_ July 1999: an additional 96 large customers (each .with load greater than 0.5 MW)
who comprise about 30% of the annual usage
Originally planned, but no~ yet implemented:
_ July 2000: the additional 2,630 commercial customers who comprise about 14%
of the annual usage
_ July 2001: all remaining 25,000 customers, including residential
The originally conceived gas DA program (CMR: 148:99) also had a phased approach to
the expansion of eligibility as follows:
Gas Direct Access Program:
¯ First phase from original, plan implemented in October 1999: the ten largest
customers (with load greater than 250,000 therms/year) comprising 16% of CPAU’s
total annual gas use
¯Originally planned, but not yet implemented:
_. July 2000: an additional 2,529 commercial customers who consume 53% of
CPAU’s annual gas use
_ . July 2001: all remaining 20,600 customers, including residential
At this point, about 72% of CPAU’s electricity load and about 16% of CPAU’s gas load
are eligible to change commodity suppliers under the electric and gas DA programs,
respectively. There has been very little customer interest in CPAU’s DA programs and, to
date, no CPAU customers have participated in DA.
DISCUSSION
Under current rates and rules, the gas and electric DA programs could pose risks to
CPAU since DA-eligible customers can choose an alternate supplier at any time, yet still
be eligible for the standard rates with fixed prices. DA-eligible customers have made no
term commitment to supply .services. However, long-term supply purchase commitments
for electricity (for terms up to ten years) and gas (for terms up to three years) are planned
or being made. Thus, the risk exists that those purchase commitments will be made
without comparable commitments from customers.
Staff proposes to manage these risks while maintaining the DA programs by making
adjustments to the rules and rate eligibility. Managing the choice of rate schedules for
those who wish to retain their DA-eligibility will mitigate the risks. The goal is to allow
customers who are eligible for DA to make choices without impacting the group of
CMR:259:01 Page 4 of 8
customers whose supplies will be managed by CPAU. That customer group will be
served by standard rate schedules and .be provided the "CPAU portfolio" of supply
resources. Those who wish to retain their DA-eligibility will be served from supply
resources acquired from the market or from contracts that can be ended without cost. . If
existing DA-eligible customers wish to be served from the CPAU-managed portfolio,
they can elect the applicable "portfolio" rate, but they will, in turn, give up their DA
eligibility.
For the electric DA program, the existing largest (loads greater than 1 MW) DA-eligible
customers will have the following choices:
°
o
Select an alternative commodity supplier and receive transportation and
distribution only services from CPAU (Rate Schedule E’9);
Elect the monthly varying commodity rate based on CPAU’s cost of market-priced
electricity (Rate Schedule E-8); or
Give up DA eligibility and elect the CPAU-managed portfolio with rates to be
adjusted by Council as it sees fit (Rate Schedule E-7 and all the green rates
available for large commercial customers: E-7 G1, E-7 G2, and E-7 G3)..
For the electric DA program, existing large (loads between 500 kW and 1 MW) DA-
eligible customers will have the following choices:
°
o
Select an alternative commodity Supplier and receive transportation and
distribution only services from CPAU (Rate Schedule E-11);
Elect the monthly varying commodity rate based on CPAU’s cost of market-priced
electricity (Rate Schedule E- 17); or
Give up DA eligibility and elect the CPAU-managed portfolio with rates to be
adjusted by Council as it sees fit (Rate Schedule E-4 and all the green rates
available for medium commercial customers: E-4 G1, E-4 G2, and E-4 G3).
For the gas DA program, existing large (loads greater than 250,000 therms/year) DA-
eligible customers will have the following choices:
°
°
°
1
Select an alternative commodity supplier and receive transportation and
distribution only services from CPAU (Rate Schedule G-4);
Elect the monthly varying commodity rate based on CPAU’s cost of market-priced
gas (Rate Schedule G-3);
Elect a fixed-term rate for a 12- or 24-month term for which the customer will sign
a term commitment contract (Rate Schedule G-11);
Elect a negotiated contract rate for a 12- or 24-month term for which the customer
will sign a term commitment contract (Rate Schedule G-12); or
Give up DA eligibility and elect the CPAU-managed portfolio with rates to be
adjusted by Council as it sees fit. (Rate Schedule G-7).
CMR:259:01 Page 5 of 8
For those who still wish to retain the rights to choose direct access in the future, this
recommendation gives them a chance to choose among the alternative program options.
However, if they wish to receive the benefits of long-range supply planning offered by
the CPAU gas and electricity energy supply portfolio and elect the applicable portfolio
rate option Rate Schedules (E-4, E-7, or G-7), they will forfeit their future eligibility to
either select another supplier or elect any of the rate options open only to those eligible
for direct access Rate Schedules (E-8, E-17, G-3, G-11, or G-12).
On Gas Rate Schedules G-3, G-7’ G-11, and G,12, the Supply Charge is made up of three
components: Commodity Charge, Administrative Fee, and PG&E Local Transportation.
Gas Rate Schedule G-4, the gas direct access rate, provides gas transportation service
only and, therefore, has only the PG&E Local Transportation component. The Total
Supply Charges are adequate to recover total supply costs and do not .need to be adjusted,
but an adjustment of the allocation of the costs between the three components is
necessary to ensure full cost recovery of administrative and PG&E local transportation
costs.
The PG&E Local Transportation charge on the current rate schedules is $0.019/therm,
but the cost for FY 01-02 for PG&E local transportation is $0.021/therm. Since these
costs are directly passed through to customers, the rate schedules need to be changed to
reflect, that cost.
Administrative costs are derived from Gas Supply Business Unit (GSBU) salaries and
benefits, GSBU direct expenses, and other charges allocated (for services provided by
other City departments) to the GSBU. For FY 01-02, these administrative costs total
$0.015/therm as opposed to the $0.004/therm charge on the current rate schedules. To
ensure that these costs are recovered from all customers, the proposed Administrative Fee
on the applicable Gas Rate Schedules is changed to reflect the $0.015/therm cost.
Although the proposed rates increase the Administrative Fee and PG&E. Local.
Transportation charge, the Total Supply Charges are unchanged and, thus, the change is
revenue neutral. The changes are proposed so that costs for those electing Rate
Schedules G-3, G-4, G-11, and G-12 are fully recovered.
ALTERNATIVES TO STAFF RECOMMENDATION
The staff recommendation presented above is preferred to these two alternatives:
1.Simply suspend direct access. This takes away the flexibility of a small number of
customers who may be currently considering direct access but have not acted upon it.
CMR:259:01 Page6 of 8
Continue with direct access as outlined in CMR:460:97 and CMR: 148:99. If this path
is selected, modifications to additional rates schedules would be needed to mitigate
any risks posed by this action. In addition, considerable staff time and expense will
be incurred to administer the program and prepare for an expanded group of direct
access customers.
UTILITIES ADVISORY COMMISSION REVIEW AND RECOMMENDATIONS
At its May 2, 2001 meeting, the UAC received an oral report.outlining the proposal to
suspend the DA programs and to make the recommended rates and rules adjustments.
They voted to unanimously support the ~staff recommendation.
RESOURCE IMPACT
These adjustments to the rates are budget neutral. Rate schedule eligibility is changed
and the allocation of the components of the Total Supply Charge, but not the rates
themselves. No additional staff is required. Suspension of the expansion of these
programs will free up existing staff to work on other activities.
POLICY IMPLICATIONS
This action retains the existing gas and electric direct access programs for Palo Alto
customers, but doesn’t proceed with the originally anticipated expansion of the programs.
This action is consistent with the strategy in the Utilities Strategic Plan to promote
commodity at or below market prices and to manage the risk of providing commodity
service.
TIMELINE
Now through July 31, 2001 - Customers will be asked to select a rate schedule under
which to receive service. Customers who choose the CPAU portfolio rate will waive the
right to change electricity or gas suppliers under the direct access program. If customers
make no choice by July 31, 2001, they will be placed on the monthly varying Rate
Schedules (G-3 for gas, E-8 or E-17 for electricity) as of August 1, 2001. Customers who
choose a rate allowing them to retain DA-eligibility can opt into the portfolio rate (and
give up further DA eligibility) at any future date.
At~gust 1, 2001 - The rates take effect.
ENVIRONMENTAL REVIEW
This program does not constitute a project for the purposes of the California
Environmental Quality Act.
CMR:259:01 Page 7 of 8
ATTACHMENTS
Minutes from the May 2, 2001 Utilities Advisory Commission meeting
Resolution suspending initially planned expansion of the electric and gas direct
°
PREPARED BY:
access programs
Resolution amending utility Rate Schedules G-3, G-4, G-7, G-11, G-12, E-4, E-4-
G1, E-4-G2, E-4-G3, E-7, E-7-G1, E-7-G2, E-7-G3, E-8, E-9, E-11, and E-17
pertaining to direct access eligibility and approving and adopting rule and
regulation 19 governing electric Direct Access.
~o/..jane R~tchye ( ~u,
Senior Resource Planner
DEPARTMENT HEAD APPROVAL:
~ctor of Utilities
CITY MANAGER APPROVAL:
FI~K BENEST
City Manager
CMR:259:01 Page 8 of 8
RESOLUTION NO.
RESOLUTION~ OF THE COUNCIL OF THE CITY Of~ PALO
ALTO APPROVING THE DISCONTINUATION OF THE
EXPANSION OF THE CITY OF PALO ALTO’S DIRECT
ACCESS PROGRAMS FOR ITS ELECTRIC UTILITY AND GAS
UTILITY CUSTOMERS
WHEREAS, on March 24, 1997, the Council adopted
Resolution No.. 7656, to consider a direct access program for the
City"s electric utility customers and the collection Of a
transition cost recovery charge from the City’s electric utility
customers;
WHEREAS, on December I, 1997, the Council adopted
Resolution No. 7720, to approve (I) the initiation and
implementation of the City’s direct access program for certain
electric utility customers over five different time periods, (2)
the adoption of Utility Rule and Regulation number 19, and (3)
the repeal of Resolution No. 7656;
WHEREAS, on June 28, 1999, the Council adopted
Resolution No. 7871, to (I) approve the initiation and
implementation of the City’s direct access program for its gas
utility customers, over three different time periods and (2)
adopt pertinent rules and regulations governing fees and charges
applicable to those gas utility customers;
WHEREAS, during this period of short-term wholesale
price volatility, the City intends to assure its customers a
reliable supply of electricity and gas at reasonably affordable
and stable prices; and
WHEREAS, in entering into supplementary long-term
contracts for electric service and gas service, the City intends
to limit the planned expansion of the electric ~utility and gas
utility direct access programs -to minimize the risk of losing
its utility customer base;
NOW, THEREFORE, the Council of the City of Palo Alto
does hereby RESOLVE as follows:
SECTION i. The Council finds that the City’s direct
access program for Palo Alto electric utility customers was to
be extended to those customers over five different time periods.
That pl~an has not been extended to a certain number of
commercial customers and all residential customers.
010703 syn 0071982
1
SECTION 2. The Council also finds that the City’s. direct
access program for Palo Alto gas utility customers was to be
extended to those customers over three different time periods.
That plan has not been extended to a certain number of
commercial customers and all residential customers.
SECTION 3. In view of current wholesale electric and
gas price volatility and the City’s plans to address such
volatility by negotiating long-term energy and gas contracts,
the City finds that the public .health, safety and welfare
requires the discontinuation of the expansion of the electric
utility and gas utility direct .access programs, or the City
otherwise will incur risk in losing its electric utility and-gas
utility customer base.
SECTION 4. The Council finds that the adoption of this
resolution does not constitute a project under the California
Environmental Quality Act and the CEQA Guidelines and,
therefore, no environment assessment ms required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk
APPROVED AS TO FORM:
Mayor
APPROVED:
City Attorney City Manager
Director of Utilities
Director of
Administrative Services
010703 syn 0071982
2
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OF PALo
ALTO AMENDING UTILITY RATE SCHEDULES G-3, G-4,
G-7,G-If, G-12, E-4, E-4-GI, ’E-4-G2, E-4-G3,
E-7,E-7-GI, E-7-G2, E-7-G3, E-8, E-9, E-If, AND
E-17 PERTAINING TO DIRECT ACCESS ELIGIBILITY AND
AMENDING RULE AND REGULATION 19 GOVERNING
ELECTRIC DIRECT ACCCESS
The Council of the .City of Palo Alto does hereby
RESOLVE as follows:
SECTION i.Pursuant to Section 12.20.010 of the Palo
¯ Alto Municipal Code,Schedules G-3 (Large Commercial Core Gas
Service), G-4 (Large Commercial Core Gas Transportation), G-7
(Large Commercial Core Gas Service), G-If (Large Commercial
Fixed-Term Commodity Gas Service), G-12 (Large Commercial Custom
Commodity Gas Service), and E-4 (Medium Commercial Electric
Service),E-4-GI (Medium Commercial Green Power Electric
Service),E-4-G2 (Medium Commercial Green Power Electric
Service),E-4~G3 (Medium Commercial Green Power Electric
Service),E-7 (Large Commercial ElectricService), E,7-GI (Large
Commercial Green Power Electric Service), E-7-G2 (Large
Commercial Green Power .Electric Service), E-7-G3 (Large
Commercial Green Power Electric Service), E-8 (Large Commercial
Electric Service), E-9 (Large Commercial Direct Access Electric
Service), E-f1 (Medium Commercial Direct Access. Electric
Service), and E-17 (Medium Commercial Electric Service) of the
Palo Alto Utilities Rates and Charges are hereby amended to read
in accordance with Sheets G-3-1, G-3-2, G-4-1, G-4-2, G-7-1, G-
7-2, G-If-I, G-II-2, G-12-1, G-12-2, E-4-1, E-4-2, E-4-3, E-4-
GI-I, E-4-GI-2, E-4-GI-3, E-4-G2-1, E-4-G2-2, E-4-G2-3, E-4-G3-
i, E-4-G3-2, E-4-G3~3, E-7-1, E-7-2, E-7-3, E-7-GI-I, E-7-~I-2,
E-7-GI-3, E-7-GI-4, E-7-G2-1, E-7-G2-2, E-7-G2-3,E-7-G2-4, ET-
G3-1, ET-G3-2,E-7-G3-3, E-7-G3-4, E-8-1, E-8-2,E-8-3, E-8-4,
E-9-1, E-9-2,E-If-I, E-II-3, E-17-1, E-17-2,and E-17-3,
respectively,attached hereto and incorporated herein by
reference. The foregoing Utility Rate Schedules, as amended,
shall become effective on August I, 2001.
SECTION 2. The Council finds that the revenue derived
from the authorized adjustments of theseveral gas service rates
shall be used only for the purposes set forth in Article VII,
Section 2, of the Charter of the City of Palo Alto.
-SECTION 3.Pursuant to Section 12.20.010. of the Palo
Alto. Municipal Code~ Rule and Regulat’ion 19 (Direct Access) of
the Utilfty Rules and Regulations is hereby amended to read in
accordance with the sheet captioned "Direct Access" and ~Rule
and Regulation 19," Sheet No. i,attached hereto and
incorporated herein by this reference.
//
010703 sm 0072072
SECTION 4. 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:
City Clerk
APPROVED AS TO FORM:
Senior Asst. City Attorney
Mayor
APPROVED:
City Manager
Director of Utilities
Director of Administrative
Services
010703 sm 0072072 2
EXCERPT
UAC MINUTES
MAY 2, 2001 MEETING
Revisions to the Direct Access Program
We are now at item 7. There was no document here. This is the Revisions to the Direct
Access Program. Is there a presentation?
Balachandran: Yes. Jane is going to make a presentation on some changes to the
direct access program. We have talked about it. We have heard some suggestions
from you in the past and we are going ahead with some of our power purchase
recommendations with SOC. We need to do something.with our direct access program:
She will make the presentation.
Ratchye: This, as we said there were no written materials for this. It is going to be an
oral presentation. We are going to ask you to approve, generally, the concept that we
are talking about here and then we will proceed with a CMR to the Council. First, I am
going remind everyone what the original proposals were for these direct access plans for
gas and electric and then talk about the risks that we currently face in the current market
with a direct access plan and how they can be mitigated for each of the gas and electric
d a programs in our plans to mitigate those risks and then what the next steps are for
what we are planning to do. So, the first program, the Electric Direct Access program,
there are phases of that which have been implemented. We have opened to direct
access for a customer group of a. size at least half a megawatt but the planned
expansion of that program as of last July and this coming July to explain it to you first,
include all commercial customers and then including all customers, we. have not
implemented and we are going to recommend tonight not to expand. In the Gas Direct
Access program as originally conceived, we were planning also a roll-out of ultimately
opening the gas commodity service to all customers. Right now it is only open to our
large commercial customers, those that are served currently by,the G7 or G3 rates and
we never did take the steps we originally contemplated to extend that program to all the
commercial customers and then even to the residential customers. And the reasons we
did not do that - there are risks to having customers have the choice to leave you at any
time and those are risks that need to be mitigated. We want to tighten up those rules
and also we are making long-term purchases, as you know, in electricity and we are
making longer term purchases in gas than we have before. As we have presented to
you, I think we are implementing a three year laddered approach to purchase gas to get
some cost stability longer term than we have seen in response to the volatility we have
experienced this past year. So, in light of these long-term commitments, we feel that we
really need to tighten up all the rules and rates around Direct Access and re-examine
that. So, let me go through what we are proposing to do for gas and I think you have
heard part of this already. We would like to stop any further expansion of the program at
this time. We have seen to date very little customer interest in this program anyway and
we are also now going to offer as of July 1st our customers essentially four, depending
upon how you count it, 5 choices and the first choice - they can retain their direct access
eligibility but get on to our G3 rate which is a market based rate that changes every
month and that is very similar to PG&E’s rates right now. So they could get on that rate
but they would not have any cost certainty. If they wanted to retain their DA eligibility
and have some cost certainty, they could sign some contract with us, either one of the
fixed term rates, a 12 or a 24 month fixed term rate or a custom contract for some period
of time. Therefore, they would be committed to us for our commodity service for the
length of the term they signed on and so we would hedge that right as they made that
commitment so we would not hold any risk in that situation. The other alternative we are
allowing them to do is, if they want to be on the.PA managed portfolio, be part of this
laddered approach that we are going to do for our G1 and kG2 customers the residential
and small commercial customers, then they can opt into the rate that actually these guys
are currently.on right now, which is G7 and that would be, you can call it fixed rates -
you know they are fixed right now unless the Council changes them, and so in order to
jump onto that rate or opt into that rate as of July 1st, they would have to give up their
rights to direct access because then they would be part of these long-term purchases,
part of the portfolio.. The final alternative they have is to seek commodity service from a
third party from some other supplier, in other words, act on their right to direct access.
For Electric,. we are proposing a similar program. Again, no expansion of the current
program but we are only going to offer one less choice than we are in gas. The first one
is just like the gas one, it is a monthly varying rate, change every month, depending on
the Cost. They could, as with the G7 go to E7and give up their DA eligibility, they could
seek an alternate supplier. For the Electric program though, we do not want to offer at
this time, fixed term or contract rates for electricity. The reason for that is, that in the gas
area it is very easy for us to back to back hedge when they make a commitment, we buy
that on the wholesale side, it is a pretty easy to match that pretty precisely. However,
there is no such security, we feel that we cannot hedge the such a rate offer in electricity
in any term. As you know, we cannot predict what Western rates might be so it is very
difficult for us, or close to impossible to hedge that. The only potential for offering a fixed
term rate and we would consider it if there is customer interest would be to have it
essentially be a market rate. We don’t think there would be any interest in at the
moment. But, if times change and rates come down, or whatever, there could be a time
when that would be a reasonable rate offering we could make to customers, but at this
time if we constructed it that way, it would be clearly unpopular so no one would ever
take it so that there would be no reason to create it so the only choice they have if they
want to retain their DA eligibility for electric then will be this monthly varying E8 rate and
that would be a rate that consists of our Western, our Calaveras, our Seattle City Light
contracts and everything about our portfolio except these new long-term contracts
commitments. So that is what we are proposing there to mitigate those risks. So we are
asking the UAC recommend that Council approve the suspension of the existing gas and
electric direct access programs and to change the rules and the tariff eligibility as
described in the oral presentation. We are going to prepare a CMR with those
recommendations depending on the feedback we get from the UAC tonight and then we
would need to inform the electric Direct Access eligible customers of the rate options
that we are proposing to make available to them as of July 1st. We have already done a
letter like that to the DA eligible customers in the gas program and they have already
seen those choices and they understand that they need to make some choice by July
1st. So, I am ready to take your questions about that:
Carlson: I am glad we are doing this. This is certainly thought through than the State
policy which ends it entirely. This gives people some reasonable options. The only
concern I have is in the Electric program. I am not quite sure what the portfolio is that
you are offering. If it is a combination of our existing long-term contracts, plus the spot
market, which is what I think it is, is that what it is?
Ratchye: That is what it is. It is everything except these new purchases that we would
make.
Carlson: O.K. My concern is that right now that rate would be very high. Two years
from now, that rate could look real interesting. Are we at risk - I mean it sounds
impossible but I think it really isn’t - of a lot of people jumping on that band-wagon in that
time period?
Ratchye: You are reminding me of a very key item I did not mention. When people
make these choices, let’s go to the gas example for now, they have until July Ist to make
the choice. If they choose to go on G7 they have given up their DA rights. So, from then
on, they have no choices. They are just like the G1 customers. They get GI. That is the
only rate they are eligible for. G2 customers are eligible for G2 and G2 only. If they opt
into the PA Manager Portfolio G7 will be there rate. That is not to say that in the future
we may offer some alternative rate to PA Portfolio customers but we are not proposing it
at this time. They can either retain their DA eligibility and choose G3, one of the fixed
term rates or even DA but once they choose G7 {hey are in the portfolio and they no
longer have DA. They are no longer eligible for G3, the fixed term rates or G4.
Carlson: In electric it would be E8 and they would be crazy to pick that right now and we
don’t give them the option of being on G7 for awhile and then shifting on E7 for awhile
and then shifting to E8 for awhile.
Ratchye: That is:correct.
Carlson: Great. Fine. You’re covered.
Dawes: ¯ Just to reassure me, I assume that all of the either E8 or G7 which are a cost
based that we include full costs, in other works, all of the Utilities Department’s
overheads, etc. not just the straight commodity
Ratchye: Yes, that is right. That would be required under the commodity pricing policy.
Dawes: Again to reiterate, no customers have selected DA in either gas or electric at
this time.
Ratchye: Not to date.
Bechtel: You have said that there are no longer eligible for DA once. they opt into one of
these. Under what conditions can they change their position? Does it take an act of City
Council?
Ratchye: I suppose.it could take an act of City Council. The way we have thought about
it, sort of conceptually for gas for example, since we are doing these three year
purchases we thought of a couple of.things. One of them is do you need togive us 3
years, notice? The other one is you have to buy out of the Portfolio-because the only time
someone is going to do this obviously is if prices decline essentially or our Portfolio
purchases are under water, looks better in the market and people will choose and if they
want to go there they are going to have to buy their way out of the portfolio. That is what
we are thinking cenceptually is they can potentially get out but there will be some costs
that they will have to pay.
Bechtel: Oh, but that would all be handled by you folks and it does not sound like it
would be a legal-
Ratchye: No, it would be fairly easy to track what these have cost us, we have bought
them on your behalf, you are now opting out of the Portfolio, Here essentially, the cost
and windings to liquidate the positions we took on your behalf.
Fer.quson: If there, are no other comments a motion.
Bechtel: I move staff recommendation with regard
Changes.
to the Direct Access Program
Carlson: Second.
Fer,quson: Anymore discussion. All those in favor say aye. Non opposed. Thank you.
That passes - we are at Item 8 - the MOU