HomeMy WebLinkAbout0371.095. J
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City of Palo Alto
City Manager's Report ---------------------
TO; HONORABLE CITY COUNCIL .
FROM; CITY MANAGER DEPARTMENT:UTILlTlES
DATE: AUGUST 3, 1m CMR;371;95
SUBJEct: ELECfRlC INDUSTRY RESTRUctURING
REOlTEST
This is an informational report on the cum:nt status of the ongoing ele<:tric industry
restJUclUring. and b-wards • ccpy of an • Analysis of Competitive Issues facing the City
of Palo Mo', Electric Utility" which has been reviewed by theUtilities Adviso<y
Commission (UAC). No ac600 is required from the CII)' Council at this time.
RECOMMENDATIONS
This report is for infotma6on only.
POlleY IMPUCATIONS
The =tructuring of the electric industry 10 alklw increased competi6on and customer
choices may result in subsequent octioc5 by the Cooneil regarding cflSCOUl1led rates for
large cust?mers. Current City policy regarding .,tility sales outside the Ci!y boundaries
... ill also be reviewed by staff and policy <hanges may be recommended in the future.
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EXECUTIVE SUMMARy
The e!ectric industry bas b.:come increasingly competiti~. over the pas! live )'ears. The
Califurnia Public Utilities Commission and the State l~gislature have beon conducting
e~ indllStty restructuring procced"mgs dUr1118 the past tw" ~ ears that ore likely to
affect Palo Aho", electric utility.
In anticipation of increasing ccrnpetition. staff bas been cwluating the competitive
1hRats and opportunities facing the City". Electric Utility. In June 1995, staff
complele.1 an "Analysis ofCoolpe-.ltive Issues Facing \.'>e City of Palo Alto's Electric
Utility." To addre5; competitive issues, the analysis re<:ommended the fullowing steps:
Develop a strategic marketing plan for aU U@ties customers in general and for
the ley ~ in particular
Inve.tigate d"L<\OOIlnting rates fur large customers
&bance rate maldng f\ex>Hlity
During its July 1995 meeting, the VAC rev'"",ed the entire Phase I Report and
approved the steps staff recommended in addressing the competitive isSlKS. The UAG
al50 recommended. as a ml.'limum, that .. .afT JOrward the Exe<:utive Summary 10 Council
for. informallon. Although section5 of the analysis contain 1eChnical details, staff has
attached the entire report 10 this CMR The Executive Su."llJIlal)' (pages 1-7) provides
an exceDeni sumrruuy of the Palo Alto Electric Utilities Competitive Issues.
One area that received considerable interest by the VAG was the marketing of power
outside Palo alto (reference pages 6 and 71 of the Phase I Report). The City currently
has • policy of selling retail power only to customers within the City boundaries. The
report recommends furIheI analysis of the legal and policy man.".. rel.ted to the
optioos. Staff will COIItlnue to investigate this marketing ortioo and return 10 Council
with any recommendations.
FISCAL IMPACf
Additlooa! technical and legal slud"",. will be cond""'\ed tv ;mplernent the
recommendation appraved by the VAG. Staff will inform the VAC of the cost and
timing of studies in the near future.
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ENYIRONMElIo'T AL ASSESSMENT
This infonnBlional report and the UAC actions does no( constitute I project oWer the
California &~tal Quality Act; 1herefore, an environmental assessment is no(
required.
AITACHMENTS
• Analysis c( Compefith·e Issues Facing the City cC Palo Alto's Electric Utility,
Phase I Report (DisIrilru!ed ID C.oun<:i1 ool)~ copies are Iv.i1.ble in the Utilities
Department. 2nd floor, for rev\..""W.)
• Memorandum ID UAC dated )uly 5, 1955
PREPARED BY: [Ioog Boccignooe, Manager of R~ce Planning
REVIEWED BY; Tom Habashi, Assistant Director of l1t<l;ties,
Resource Managemenl ~
DEPARTMENT HEAD APPROVAL:· /<~<
EDWAlID 1. MRl K
Dire<:I& of L'tilities
Jl G
City Manager
CMR:371:95
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TO:
FROM.: Utilities Depmmeot
AGENDA DATE: July S, 1995
SUBJECT: Electric UtiI~ COllloetltive lso-ues
Electtic R=ucting Update -Cumru Status
RW!lf5T
This is an inf'onnaOoD item describing !:be curreO[ status m the oogoiDg ekctrlc industI:i
restnK:Wl"ing. This "'poet summarizes tile M.y 24,1995 California Pubfic l'tiIities CommissioD
(CPUC) restrUCturing proposals, the ellerg-f industrJI restrucruring activities of the CalifornIa
legisl.nm. and reecm.",.nded Sttps fo< ad<!Iessing eketoc utility ccmpc-jtive is .. ...,..
BECOMME1'iDAT!ONS
Staff RCommend.'i UAC approval oflbe fonQ'\loin~ steps for addressing ej~t:ic urilily competitive
issues:
• DevekJp:a strategic marketing. plan fur an Utilities ~stomeT5 in ge:teral and f« the key
accounts in panicular
fQ!,!CY iMPLICATIO;'S
Ra~ discouDtS for large customers '\lo'ooId invoivt potential changes to ex.:srIng City policies.
Samrnar"t' of rh<! Mav 24. 1995 Cpuc R~srrucrurt.02 Propgsals
On May 2¢~ 1995 tfu: C.Pt1C issued: !'.l.'O aJternati,.e poI:i~ propo5Jls. foe fl"'...5trUcruring
Cafd'ocni.a"s .elec.tric $eI"l\ee5 i.'1dustry_ The majoriry proposal. suppor".t".1 by Cornm1ssioners
Fessler. Conlon and Duque. would Crel[e a "'bolesz!e p.J'~,:e!' pool by 1991_ The mlnor"ity
propos.a:1. from Commissioner Knight. 9o'ocld aIlow dlr~ct acce5s lO .anel...:-t,lve power suppTj~rs
for an mvestor-owned utl1iry cu..qomers. beginning in [VwO }'ear5.
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The maJo< eJemeoa 0{ !he majorily (Who!tsalc Povru Pool) propo<al are:
• MaI!dato<y ,.bol<Wc powtr pool for Ihe StI~·. iov ... .or.{,wned utilities (volunwy
munkipal utility pan;cipation)
• Independenl 5J'I&'Ill operator 10 """,tel! 1<"""'Don and ",bedule =missi<>n
• Functionl! oepuadon 0{ renemioo from If2IlStIllssion and <fIStribJJtion -nor necessarily
divesti~
• BiJateru coruracl5 after at lust years
• PerfofIlWlCe based rate ~ for dimil>ution fun.."tlon
• Low inc<lme. ecooomi<: dev<lopmeD!, enlliroruneotal and energy diversity programs
coDlinue. ~ Costs ilkntified for each on bills
• SIrmled CCst allocation unclear
The major elements o{!he minori<y (Direct Access) propc<a! a't:
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Direct access for all customers ";thin ""., years
lndepen<kn< grid operator f'Ol'CO')
Lo~' income. econom....iC development en viton.rnental aOO energy di ... rers1ty prc;-grams
~octinue. with Costs identified for each 00 bills
Stranded costs paid 90'1; bJ ra~ p.,en. 10% by <ha.reoo\ders
Boll>. p~. would have d~t and iro'= irnp>cts on Pale Alto'S electric utility. Staff ... ilI
continue iO monitor and participate in the ongoin~ CPUC e!ectric industry rest:I'UCruring
proceeding's.
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sUmmary of Caljf.9mia Legi5Jarure Energy IMlJsqy rnqucruring Activities
Senator Ste,·. Peace is conducting energy industrY resaucnuing meeting. throughout !he =
10 address many o(!he issues rajse,l by !he CpUC's restrUClUrlnJ proce.4iDg. Saff has been
participating in Ihcse meetings bo<h cfire..."tIy and through representation by !he Nonbern
filifocnia Power Agooey and !he c.Iifocnia Manicipal Utilities Association. Of greatest co[]Cern
is !he potelltial (0< legislation that would rfduco Ille "'vel 0( ]ocal control over our eleo!ric
lItili<y.
ncomrpsn4ed Steps for Addressing Elmric Utili[V COr11lXfiti .... e rssues
SttfJ bas been evaluating !he competitjve 1h. ... 1S and opporrunities f.ci.'lg !he City" ele<tric
utility. Staff retOfIllIl<"OOs UAC approval c( me follo,.';"g steps for add;ossiDg .",,!ric utUity
c.ompetitive issues:
~ ;II strarellic marketing pIan. A wen-designed strategic marketing pIar. is a
potentially effective I!leans of responding 10 the threa.ts and opporrunities of competition.
Soch • plan links Ibe utility's 1Illlf .. 'ing efforts 10 !he goals and objectives of its strateg'.c
pian. In developing: such. pIan. the utililY will ,gam a bener understanding of 'CUStomers'
energy requi.~ents and OpOoIlS for meeting those requirements. The es5ell!ial elements
<>f. straregic m.arlceting PWl include:
1. Sta:emem: of the utility·s S'"l.Tategk objectives
2. ~gmeDtation ollhe utility9-s market into ma . ..ior gro"UpiDgs or scckKS
;. [)evoJopmelll of stnIregies for a<hieving tey objectives
4. Developmeru <>f tools for measuring !he effectiveness of !he marketing efforts
InvestiGate Iftsqr.Joone rares fOr laNe customers. long-term contracts with custome.;."''S that
may have compeoo\lt OpUollS are I porenllany effective means of mlrtimiz"ing furure sales
losses, provided the downside risks can be. miti£iltcd. Staff will. conduct funher -analvsis
0{ the legal and tecbnkal issues related to ~cb contracts and prepare a repon~ Gn
negotiating rateS with large customers if market conditioos requm:. The analysis will
assess the implications of discolJDte;;i contraCtS fer the utilir-.-s non-taXable financln!2:5 and
develop appropriate floor prices for discounts, criteria for d~terminin.g" ",;!Jea disc(IU~'[5 2re
warranted. and liquidated damages p~visio~~ LerminatioD fees, ~ ocher pro~tions
against the future breacb of the CQ[]{rKtS b.y me customers. This report 'ii/ill be used Kl
develop a policy .em ClSCouOUng large cus;:omer rates.
Enhance rate making flexibilirv _ In i compecitivc marker environmeot, the utility must be
able \0 npid'1y devc:lop 4.116 update rate options and rates 10 be competitive. 1'0 cO SIJ,
we mnst have a clear picrun: of ~'-ha[ it: costs EO provide parJcu!ar rypes 0( sefV'~es and
accurate methods of allOC.lting: costs to CUStomers Staff ",:ill use the: upcoming cost of
service srudy \0 improve its rate making capabilities b? refIning lts Cost categor..es.
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ideDlifYing the (act,ors (and ==r classes) res;xmsible for costs, and dev.loping more
a«:'1rlU. cost allocation fic<o!'$. These efforU will belp !be utili!}, unbundle its 8''''_
and tr3DSIlllssioofdistribu60D costs 1$ required 10 keep in step willi CPIJC-regu1ared IOUs.
[J$fl.' IMPACI
Additional ~ and IepI studies ""JI be coodlJcted 10 impkment the recommendation
ou,1lDed in !his report. SI3ff will infO<Ill !be UAC of the cos< and timing of stu<fies in !be
,near future. '
E!!OORONMEl'ITAL MWSMrm
The above recommendat1olls do DOl constiru" I project under the Californla Enviromnental
Quality Act; theIefoce. an environmental =em is DO( required.
ATfACHMENTS
Analysis ol Competitive J= Faci."@ !be Cily of PaJio Alto's ElecDic Utility. Phase i
RqJon.
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Reviewed By: Tom Habashi. Assistant Director ol Utiliti.es. Resource Management
Depanmen< He>d Approval: . /. /~
EDW~.Rln , ou..ooc ol Utilities
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