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Home My WebLink About1/3/2001 - STAFF REPORTS (13) DATE: January 3, 2001 TO: City Council FROM: Procurement Manager and Assistant City Manager-Administration RECEIVE BRIEFING AND CONSIDERACTION RELATED TO POSSIBLE IMPACTS ON PALM SPRINGS ENERGY SERVICES CUSTOMERS FROM CALIFORNIA PUBLIC UTILITIES COMMISSION RULINGS EXPECTED TO BE ANNOUNCED BY JANUARY 3, 2001 RECOMMENDATION: It is recommended that City Council receive a briefing from New West Energy relative to rulings that the California Public Utilities Commission (CPUC) may make relative to Southern California Edison's application to initiate a Rate Stabilization Plan and rate increase which may effect Palm Springs Energy Service's ability to provide competitive electric energy to it's customers, and consider action in response to the CPUC rulings. SUMMARY: At the time this report was written, the California Public Utilities Commission (CPUC) was considering a request from Southern California Edison (SCE) for a rate increase. The increase, in the form of a "Rate Stabilization Plan" is designed to protect Edison customers from tremendous price spikes in the cost of electrical generation and to allow Edison to recover its costs of providing service to its customers. If approved, the rate increase would end the regulated-to-deregulated transition period during which rates have been frozen. The approval could have an unintentional or overlooked side effect that might result in the changes that would preclude Palm Springs Energy Services from providing discounted electric services to Palm Springs residents. Rather than subject residential customers to the risk of having to pay market rate for electric services (a rate which could be even higher than the new SCE rate) New West Energy Services and city staff have been evaluating the concept of possible suspension of electric sales by Palm Springs Energy Services and request approval to transition PSES customers back to SCE. As evaluated by New West Energy and City staff, this action would best protect the Palm Springs residential electric consumers in the current volatile electricity market. Whether or not this action will be recommended to the City Council depends on actions of the CPUC. BACKGROUND: Palm Springs Energy Services (PSES), a city-initiated municipal energy-aggregation program, was launched in 1998 as a way to reduce energy bills for Palm Springs residents. The City's first partner, Portland General Electric, merged with Enron later in the year and Enron subsequently opted to leave the initiative in May of 1999. New West Energy then replaced Enron, stepping in to provide the back-office support to manage the program. New West has been a model partner participating in and contributing to community service organizations in addition to providing high quality customer services. PSES currently provides 2% discount (before taxes) off the SCE bill to residential electric customers in Palm Springs. The ability to offer this discount is tied to the price freeze put in place by the CPUC during the regulated -to-deregulated transition period. Since May /0b 1999, this program has saved the 1,300+ participating residential customers almost $88,000. Page 2 On November 16, 2000 SCE filed an application with the CPUC requesting the authority to institute a rate stabilization plan and to increase rates (effectively ending the transition price freeze). CPUC hearings commenced on December27,2000. The changes proposed in SCE's application are designed to protect SCE customers from tremendous price spikes in the cost of electrical generation and to allow SCE to recover its cost of providing service to its customers. If approved, the rate increase would end the regulated-to-deregulated transition period during which rates have been frozen. It appears there is no provision for price protection for a municipal aggregation program such as Palm Springs Energy Services. PSES would be forced to charge "market rates" which, in the current energy environment, would be substantially higher than the SCE's proposed "stabilized" rates. Turning the customers back to SCE would assure customers the lowest available cost in today's volatile electricity market. Since providing the "lowest cost" is the goal of Palm Spring's Energy Services, the suspension of electricity sales and the return (at least temporarily) of customers to SCE is recommended if the CPUC acts to end the freeze on electricity rates. The transition back to Edison would be seamless and no interruption of service is involved. A recommendation to suspend electrical sales would leave all existing agreements with New West Energy in place in order to provide a framework for renewed activity when the market stabilizes and it is again possible to offer discounted rates to Palm Springs customers. At this point, no specific recommendation is being presented to the City Council, pending action that may be taken by the CPUC. We believe the CPUC will have announced its determination relative to SCE's Rate Stabilization Plan by January 3', 2001. We will then, hopefully, be in a position to know the impact that those CPUC decisions may have on PSES and New West Energy Services. Only then can recommendations be made to the City Council on how to best serve the interests of PSES customers. Since it may be necessary for the City Council to take immediate action for the protection of PSES customers, this item is before the Council to provide for that eventuality. APPROVED: HAROLD E. GOOD DALLAS J. FLICEK Procurement Manager Assistant City Manager - Administration APPROVED: City Manager�� MINUTE ORDER NO. AUTHORIZING NEW WEST ENERGY SERVICES TO SUSPEND ALL SALES OF RESIDENTIAL ELECTRIC SERVICES THROUGH PALM SPRINGS ENERGY SERVICES AND TO TRANSITION ALL PALM SPRINGS ENERGY SERVICES CUSTOMERS BACK TO SOUTHERN CALIFORNIA EDISON IN THE EVENT PALM SPRINGS ENERGY SERVICES IS NO LONGER ABLE TO OFFER LOWER RATES THAN SOUTHERN CALIFORNIA EDISON. ------------------ I HEREBY CERTIFY that this Minute Order, authorizing New West Energy Services to suspend all sales of residential electric services through Palm Springs Energy Services and to transition all Palm Springs Energy Services customers back to Southern California Edison in the event Palm Springs Energy Services is no longer able to offer lower rates than Southern California Edison, was adopted by the City Council of the City of Palm Springs, California, in a meeting thereof held on the 3rd day of January, 200I. PATRICIA A. SANDERS City Clerk i UED City of Palm Springs JanuaryA3, 2001 - Unconstrained--Constrained SCE Rate 600 400 1,200 1,000 00 n 6 600 400 zoo ....un-w�.tl'Y�,�.4'HV✓i,�,`ll"1^Y'kr1•.-r» •�'J�N� ,reM1;'„� o ' ° °° e° e0° hP ,to0°°,'10 --PG&E City Gate—SoCal B°mer 54 44 34 24 14 — 4 6 ae ¢° ry,UA° ,�,2° e,0° ^O°° ,to0° ry10 Revised proposal filed December 21 2000 +• Confirm Edson can recover 'reasonable" power procurement costs Includes"8 billion through December collect these costs over 5 years from all customers r End AB1 rate freeze and implement rate stabilizatiorl plan stabilize rates through current rate structure increase rates by 30%effective January 4,2001 establish trigger for further rate changes determine actual increase amount early next year 40 We believe CPUC will Increase SCE rates approx 10 to 20%effective January 4,2001 . Approach will be different than SCE's proposal A61890 rate T49,-FTTr9MTR7rAT`fect -surcharge applied to all rate schedules 4 Most likely Interim changes - we expect further,more extensive proceedings legislative action Policymakers^focus Is to II''(iII anage consumers and businesses through cdment crisis little a eotran[o impact an direct access including mumc it aggregation prograng >As a re It PSES may forretto charge higher prices than SCE In currentlie wlronment n®blRy to defer"excess'energy costs Tra (timing PSES customers back to SCE Tel west available cos n today s market . Trar�Itl Is seamless with n Interruption of service