HomeMy WebLinkAbout0372.092"
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August 6. 1992
THE HONORABLE CITY COUNCIL
Palo Alto, California
Northern California Power Agency BUdg~t settlements
Members of the Counci 1 :
This report is to inform the Council of the Northern California
PoWer Agency (NCPA} 1983 through 1990 budget settlements and the
establishment of a general reserve fun~ at NCPA on behalf of Palo
Alto, Staff has reviewed this matter with the Council delegate
and alemate. to nePA. No action is requested of the council.
Discussion
~~ring the past nine years, NCPA has bQen an ongoinq
de~~elopmental enterprise that 'Werjt from being strictly an
administrative agency to one with full wholesale electric utility
operations~ AnlC.'9 the maj or ac.complishments durinq that period
were the fo11owinq:
1~ completed construction and development of two Geothermal
Plants, a Combustion Turbine Project, a Hydroelectric Project
and a multi-purpose transmission project~
2. Negotiatea an Interconnection Aqrsement with Pacific Gas ana
Electric to allow for coorainated power scheduling among some
of its iZl.embers.
3. Rene90tiat~d and settleo cumulative ongoing disputes in
regard to the interpretation of various provisions of ~he
Interconnection AgreeDlent.
As of June 30, 1991, NC?A had $44,109,000 of surplus operatinq
related funas that were collected over those nine fiscal years
for contingencies, potential liabilities, claims by PG&E, etc.
Durin9 the same period, a number of continqent liabilities arose
in connection wjth those effo~s. For example, by January of
19~1, the Interconnection Agreement disputes being billed to the
Agency totaled approximately $20 million4
Palo Alto's share of the sources and proposed uses of funds are
shown below:
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NCPA BUDGET SETTLEMENT
ALLOCATION OF FUNDS
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~ce9 of Funds
For Palo 1\lto's share, there are four sources of funds resulting
trom gettlement of the disp~tes: .. ~r&D .. 1.ftion Disputes Settlement with PO,s. This settlement
resulted in the release of moni~s that were collected by NCPA
and held in an e~crow fUnj pending resolution of those
disputes in\yolving charges by PG&E for transmission servicl?'.
2. settl*R4nt o~ PG'Z Ver8u8 Healdsburg Cas.. This resulted in
a refund to the participants of about $5 million. Palo ~lto,
as well as several NCPA members, has financially supported
Healdsburg in litigating this case, becaus~ there were direct
implications t,o Palo Alto involving the future ability to buy
power through western Area Power Aqency as a broker of other
federal power sources.
3. ~e Diablo canyon Settl .. ent with PO.E. This was a part of
the Interconnection Agreement settlement; ho~ever, proceeds
from this settlement have not yet been received ~y NCPA.
Proceeds from this settlement will apply to fut~re NCPA po~er
bills.
4. ~ov.~ Billing Settlement.. This, in effect, is a
reconciliation between actual and buogeted expenditure. It
also represents resolution of several billing disputes among
NCPA members that have arisen ~urinq the past nine years.
Proposed Uses of Funds
Staff concurs with the NCPA proposal to apply these funds in the
following manner:
1. Workinq Capital. The Agency's working capital requirement to
date has been funded from advanced hillings, bond issues arid
excess funds from prier years' budgets~ The excess funds
from prio~ years' collections masked the need for additional
working capital. However, vith the final disposition of the
prior years' settlements monies, these excess tu~ds will no
longer be available. NCPA performed a study that determined
the working capital requirements should be approximately
$11 million. Palo Alto's share of the obligation is
estimated at $1,557,161.
2. Retirement Medical. The Aqe:r4cy curren.tly provides each
retiree and spouse paid medical coverage, if the retiree is
59 1/2 years of age and has 10 ye~rs of service. A recent
actuarial study shows that an accumulated post-retirement
benefit obligation of S,2, 297, 000 't.as been accrued through
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June 30, 1992. A reserve fund is the most cost effective
appr()4ch to pr'.)vid inq the necessa.ry coverage. The funding of
t..~ilS program was not dorle in previous years.
J. General operatinq a ••• rv... This will serVE as a conting~nt
fund to pay for unanticipated expenditure SI.,lch as replace-ment
power tor the H}'droelectric Project during a dry year, risks.
associated with the Agency's self-ir.s'..lrance in t;he event of
catastrophic circumstances, Interconnection A9re~ment
disputes and other similar issues. Palo Alto's General
operating Reserve is to be initially fundEd at $2,527,180
from tr._"!!' scttl~ent. 'While the General Operating Reserve is
intended for NCPA expenses, the city will have access to the
funds for other emerqency needs.
The 'Working capital and. retirement cedi cal :monies would he
controlled by NCPA. Ceneral operating Reser~es will be held in a
separate account, and deposits or withdrawals from it will be
controlled by PC":lo Alto. Each fund .. ill earn its own interes-:' on
investments.
Conclusion
staff conc~rs with NCPA'g recommend~ticn of allocating the
settlement fund.s.
Respectfully submitted,
.? t!i71,d:i ~ J..-J ~Y-71/
TOM BABASHI
senior Power Enqineer
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RICHARD L. YOUM .:7
Director of utilities
~~r' city Maf1ager
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