HomeMy WebLinkAbout9/18/2002 - STAFF REPORTS (17) DATE: September 18, 2002
TO: City Council
FROM: Assistant City Manager-Administration
SUBJECT: Approve Agreement with Henwood Energy Services for Consulting Services Relating
to an Independent Rate Comparison of Local Electric Distribution Rates and
Revenues.
RECOMMENDATION:
It is recommended that the City Council approve an agreement with Henwood Energy Services, in an
amount not-to-exceed $20,000, for consulting services relating to an independent rate comparison of
local electric distribution rates and revenues under a proposed local municipal utility for the Coachella
Valley. It is further recommended that the City Council approve and authorize the Director of Finance
to prepare an offsetting budget adjustment in the amount of$20,000.
SUMMARY:
For the past several months, the Electric Utility Municipalization Feasibility Study (EUMFS) Group has
been actively exploring the viability of forming a local, publicly owned utility. To assist them in this
endeavor, the EUMFS Group hired a consultant, EES Consulting, to prepare a feasibility study on the
creation of a new municipally owned utility in the Coachella Valley.
Southern California Edison (SCE) contends that in preparing this feasibility study EES Consulting has
incorrectly estimated the revenues that SCE receives for owning and operating the electric distribution
system in the Coachella Valley. In order to determine the existence of this error, SCE has offered to
pay for a third party assessment of the differences between SCE's distribution rates and the values
reflected in the local municipal utility feasibility study.
BACKGROUND:
Southern California Edison (SCE) believes that EES has grossly overestimated the amount of
distribution revenues that could be used by the proposed local municipal utility in projecting possible
electric rates for the Coachella Valley. To help prove their contention, SCE has sent correspondence
to the Mayor dated July 1, 2002, offering to "split" the costs of retaining a mutually agreeable third
party to perform a "limited review" of SCE's distribution rate position. The purpose of this review is to
verify whether EES made an error, as SCE alleges, in projecting the distribution costs that local
consumers would pay under a new local municipal utility. A copy of this correspondence is attached.
Because the City Council had expressed some interest in having a third party assessment of the EES
study, staff has been actively working with SCE in both the design of a mutually acceptable scope, as
well as the selection of a consultant. As part of this process, staff provided SCE the names of three
consulting firms specializing in energy related issues. In response, SCE submitted correspondence
dated July 12, 2002 indicating their preference for two of the three consulting firms that were provided
by staff. The two firms that SCE agreed to consider for this project are Henwood Energy Services and
R.W. Beck. A copy of SCE's correspondence is attached.
In early August, staff contacted both consulting firms to request a proposal. Of the two firms, only
Henwood Energy Services submitted a proposal. A copy of this proposal is attached. R.W. Beck
informed the City that due to a potential conflict of interest with another client that they were
previously under contract to, they would not be able to respond to our request for proposal.
1 /0
Henwood Energy Services is a Sacramento based consulting firm that has been providing strategic
and management assistance on energy issues and the competitive electric power industry since
1997. Henwood primarily serves public agencies and has provided independent financial, risk, and
power market analysis on more than $10 billion in electric power investment in more than 30,000 MW
of projects. Some of their public agency clients include: Cove Communities Services Commission,
Mercer Irrigation District, Oakland Army Base, San Diego Association of Governments, and the City of
Santa Monica.
Henwood understands the limited nature of this assignment and has divided their scope of work into
two parts. In the first part, Henwood will determine what the local electric distribution rates and
revenues will be based on present California Public Utilities Commission (CPUC) approved SCE
distribution rates and what the increase would be if SCE received the distribution rates requested in
its General Rate Case (GRC). Once Henwood has determined the correct distribution rates, they will
assess the annual distribution revenue for the area, making use of annual Coachella Valley customer
case usage data that will be provided by SCE. Differences with the EES study conclusions will be
identified and, to the extent possible within budget constraints, the underlying cause(s) documented.
Henwood proposes to perform this assignment on a time and materials basis and has developed a
not-to-exceed budget estimate of$20,000 for the entire project. The budget includes all labor and
expenses necessary to complete this project. Henwood believes that the entire project can be
completed within thirty (30) days from receipt of a notice to proceed.
Although support for the creation of a local municipal utility has significantly diminished since SCE
originally made their offer, staff has been reassured by SCE that they are still committed to an
independent assessment to validate their position. SCE has reviewed Henwood's proposal and
budget and has indicated that they are ready to proceed. Although SCE had initially agreed to split
the cost of the consultant, they are now willing to pay for the entire cost of this assessment. In
addition, SCE has agreed to allow the City to contract directly with the consultant rather than both
parties. This will eliminate any questions as to the objectivity of the consultant's findings, as well as
simplify the overall management of this project by placing it under one entity (e.g., the City) instead of
two.
This is not a budgeted expense. If the City Council wishes to proceed with this assessment, an
offsetting budget amendment will be necessary. The City will be reimbursed in full by SCE at the
completion of this project.
Troy utzlaf ssi nt City Manager-Administration
APPROVED
City Manager
Attachments:
1. Minute Order Approving a Contract with Henwood Energy Services
2. Minute Order Authorizing the Director of Finance to prepare an offsetting budget adjustment
3. Correspondence from Kathleen DeRosa dated July 1, 2002
4. Correspondence from Kathleen DeRosa dated July 12, 2002
5. Proposal from Henwood Energy Services dated September 9, 2002
_ 2
J SOUTHERN CALIfORNIA
ILL 2N'
E D I S O N Kathleen DeRosa
anagei
Rcgion Manager
An EDISON INTERNATIONAL"Company
July 1, 2002
Mr.Will Kleindienst
Mayor
City of Palm Springs
3200 E.Tahquitz Way
Palm Springs, CA 92262
Dear Mayor ' nst: (�
The question of whether Coachella Valley cities should take over Southern California
Edison's (SCE) electric distribution facilities and form a new utility is of tremendous
importance and potentially long-lasting consequences to the Valley, its taxpayers,
residents and businesses. As many local elected officials have acknowledged, reliable
information is essential to making an informed decision.
Recent city council meetings in Rancho Mirage and Palm Springs have unfortunately
failed to resolve questions about the relevant facts and issues. The issue before each city
council in the Coachella Valley is not whether people like SCE, or whether people would
like lower electric rates. The question is whether the proposed municipalization will
result in lower rates. EES Consulting's study promises lower rates, but SCE's analysis of
the EES study identified several matters of fact—not opinion—that show it will result in
higher rates.
Specifically, we believe that two significant errors were made by EES that would result
in higher rates by a new government-owned utility:
• First,EES very clearly states in its June 4 memo that SCE's distribution rates
are 4.94 cents per kWh. This is simply wrong, and is in fact about 2 cents
higher than SCE's rates. This translates into a$46 million overestimation of
the amount of distribution revenue it can utilize in projecting possible CVAG
electric rates, lowering the amount available from $112 million to $66 million
annually.
• Second, in the same June 4 memo EES now projects$45 million per year in
operating and maintenance costs rather than the $33 million($270/customer
times 123,000 customers)EES stated in its Report.
Taking these two factors into account,the proposed JPA Utility would not be able to
cover its costs even if it made no reduction from SCE's projected distribution rates,
and it was able to obtain SCE's facilities at their Original Cost plus a 14 percent
premium.
36100 Cathedral Canyon
Cathedral City,CA 92234
x 7 0 211 Fa f 1
Fax 60-2-202-4136 I/
.j SOUTHERN CALIFORNIA
EDISONG
An EDISON INTra NA7'7ONAL*Company
To support SCE's position that a $46 million error was made, we ask that you and EES
review the CH2M Hill Overview Report we distributed to councilmembers in each city
last week. In addition, please review the documents provided to you in SCE's May 31,
2002 written comments that clearly demonstrate, using official documents filed with the
California Public Utilities Commission, the facts regarding our distribution rates. After
you review this information, we would like to meet with you to discuss the CH2M Hill
conclusions. Because the differences in their conclusions stem from disagreements as to
matters of fact, we would hope such a meeting could drive the matters to ground.
If after this meeting and any agreed-upon follow-up, there are still questions or a
disagreement on SCE's distribution rates,then SCE would entertain the possibility of
splitting the cost with the EUMFS Group to have a mutually agreeable third party
perform a limited review of SCE's, EES' and CH2M Hill's distribution rate positions to
verify the existence of the two-cent error. This confirmation would provide the EUMFS
Group with the necessary factual information on which to make a decision.
I will call you shortly to discuss your views on these two factors, and to schedule a
follow-up meeting. I hope you will accept our offer to meet and resolve these issues so
that the EUMFS Group can gain a clear understanding of the facts and begin to provide
accurate information to the public prior to any public vote being scheduled.
Sinc ely,
Ka een DeRosa
Public Affairs
Region Manager
cc: City Manager
City Council Members
Mission Springs Water District Board Members
Desert Water Agency Board Members
Coachella Valley Water District Board Members
Agua Caliente Band of Cahuilla Indians Tribal Board Members'
) qK
36100 Cathedral Canyon Dr. 2
Cathedral City,CA 92234
.J SOUTHERN CALIFORNIA
E D I S O N Kathleen DeRosa
Region Manager
An EDISON INTERNATIONAL'"Company
July 12, 2002
Mr Will Kleindienst
Mayor
City of Palm Springs
3200 E. Tahquitz Way
Palm Springs, CA 92262
Dear Mayor Kleindienst:
Southern California Edison (SCE) is gratified that the City of Palm Springs has
agreed that the public debate on municipalization will benefit from a third party
examination of what is perhaps the key assumption in the CVAG consultant report
which advocates municipalization: namely, what is the actual SCE distribution rate
that a new municipal utility would have to beat in order to meet the projected
distribution rate reductions in the EES Report.
As we discussed at the workshop on June 28 and our July 1 letter to you,
the scope of work consists of the following:
CVAG consultant EES asserts that beginning in
2004, the distribution component of SCE's rate will be
4.94 cents per kilowatt/hour (kWh), on a system-average
basis, and claims that a new Valley utility could lower
overall Valley utility bills by 15 percent by lowering that
distribution component by about 48 percent. SCE
contends its distribution rate is only about 2.7
cents/kWh today, and that even if 100 percent of the
increase requested in SCE's recently filed General Rate
Case application were granted and attributed to
distribution (which it is not), the distribution
component of SCE's rate will only rise to 3.1 cents/kWh.
We invited the City to provide us with a list of consultants that Palm Springs
would consider acceptable for this task, and Mr. Troy Butzlaff provided us with the
list of those to whom CVAG submitted its Request for Proposals several months
ago. Of the others on the list aside from EES Consulting, the City expressed a
preference for three: Henwood Energy Services, PE Power and R.W. Beck. While
any of those three is acceptable to SCE, we believe an affiliate of PB Power is
Performing work for an affiliate of SCE, and we suggest excluding PB Power for
this reason.
We do express a preference for personnel who are knowledgeable with
California utility regulation and ratemaking, which would favor using offices of
those firms other than the ones identified on your list. In the case of R. W. Beck,
for example, this would mean the use of the firm's Sacramento office —we refer
specifically to Ken Mellor. In the case of Henwood Energy Services, we believe
Doug Davie would be the appropriate individual.
36100 Cathedral Canyon 104
Cathedral City,CA 92234
760-0-202-4211
Fax 760-202-4136
SOUTHERN CALIFORNIA �
EDISON"
An EDISON INTERNATIONAL'y'Compan%
Both of these firms have consulted extensively for cities and other local
governmental entities considering municipalization, and SCE has been on "the
other side" in several of those matters, but we believe each is up to the task given
the unique and.well-defined scope of the assignment here, as set forth in the
second paragraph of this letter. Please select the one you wish and inform us of
that selection as quickly as possible so we may verify their availability and transmit
the scope of work and the necessary materials to the consultant. We will
determine their interest and availability to perform the project. In addition, we
will furnish the selected consultant with the publicly available materials needed to
answer the question, including the letter dated May 22, 2002 from the California
Energy Commission (CEC) staff acknowledging that its distribution rate increases
contained in the original CEC outlook report do not appear to be appropriate.
Finally, with respect to payment, our original offer was to split the cost of
this consultant, believing that such approach would eliminate any ground for
alleging bias in favor of SCE. However, at your request we are willing to pay for
the total cost of this limited scope of work. Please let us know which consultant
you wish to select and we will proceed expeditiously to issue an appropriate
Purchase order. We believe the sooner we hear back from you on who the
consultant is to be, the better.
Please feel free to call if you have any questions about the foregoing.
Again, we thank you for Palm Springs' commitment to an informed process of
Public debate and decision-making.
very tr yours,
Ka en eRosa
Publi Affairs
Region Manager
cc: Council members
City Manager
Assistant City Manager
lqi*
36100 Cathedral Canyon Dr.
Cathedral City,CA 92234
Energ
--
Henwood Sacramento,
o, CA Services, Inc. 11 Henwood
2379 Gateway Oaks Drive, Suite 100
Sacramento, CA 95833
(Phone)916.569.0985
(Fax)916.569.0999
www.h enwoodenergy.com
September 9, 2002
Mr. Troy Butzlaff Sent by e-mail
Assistant City Manager
City of Palm Springs
3200 E. Tahquitz Way
Palm Springs, CA 92262
Re: Proposal for Rate Comparison Study
Dear Mr. Butzlaf£
As we agreed in our recent phone conversation, I have prepared this letter-proposal as a
follow-up and revision to our proposal from August 27, 2002. This revised proposal clarifies a
scope that we believe complies with Southern California Edison request for a specific rate
comparison study while also ensuring the City will have information to understand any
differences between SCE's distribution rates and the values reflected in the local municipal utility
feasibility study.
Introduction
The Electric Utility Municipalization Feasibility Study (EUMFS) Group is exploring the
viability of forming a local,publicly owned municipal utility. EUMFS Group engaged EES
Consulting(EES)to prepare a feasibility study of forming such a local municipal utility.
Southern California Edison(SCE) contends that EES has incorrectly estimated the revenues
that SCE correctly receives for owning and operating the electric distribution system in the
Coachella Valley. SCE maintains that EES has over estimated SCE's distribution rate by about 2
cents per KWh and the resulting annual distribution revenues available to the proposed municipal
utility by about$46 million.
Having prior experience in trying to initiate municipal utility services,the City of Palm
Springs is not interested in pursuing the formation of a local utility based upon faulty or overly
optimistic analyses. Before considering joining other local governments and possibly supporting
the formation of a regional municipal utility,Palm Springs wants a second,independent opinion
on whether EES made an error, as SCE alleges, in projecting the distribution costs local energy
consumers would incur under the status quo conditions.
Proposed Scope of Work
The scope of work for this limited assessment is to determine what the local electric
distribution rates and revenues will be based on present CPUC approved SCE distribution rates
and what the increase would be if SCE received the distribution rates requested in its GRC. In
making this determination, Henwood will rely on public record documents filed with the CPUC,
which will be provided by SCE. The City will ensure that Henwood receives a copy of the EES
study and all appropriate work papers and electronic analysis that detail their determination of the
local distribution service costs under the status quo conditions.
In performing this work,Henwood will meet with SCE and with EES separately to determine
their position on what the appropriate distribution rates are and are likely to be following the
GRC decision. Our analysis will include consideration of the documents provided by SCE as
well as any additional materials provided by EES.
h 7
Mr.Troy Butzlaff
September 9,2002
Page 2
Once Henwood has reviewed the materials provided and determined the correct distribution
rates for the electric consumers that would become customers of the new municipal utility,
Henwood will determine the annual distribution revenue for the area making use of annual
Coachella Valley customer class usage data that will be provided by SCE. Differences with the
EES study conclusions will be identified and, to the extent possible within the budget constraints,
the underlying cause(s) documented.
Key Staff
In performing this assignment, Henwood will make use of appropriate staff and expertise from its
150+staff resources. Key individuals that will be involved include:
➢ Mr. Adrian Chiosea, Project Manager
➢ Mr. Craig Castagnoli, Senior Project Manager,
➢ Mr. Doug Davie, Director Power Business Solutions Services
Schedule
It is understood that time is of the essence for this review. Work will begin immediately after
the approval of this proposal and receipt of the necessary documents that will be the basis of our
evaluation. A letter-report summarizing our findings will be delivered within 30 days thereafter.
Estimated Budtret
As we discussed,Henwood proposes to perform this assignment on a time-and-materials
basis, in accordance with our current consulting rate schedule (submitted previously), and limited
by a cap of$20,000. Included in the budget are the individual meetings with SCE and EES to be
held at Henwood's office in Sacramento and one meeting to review the report with you at your
Palm Springs office.
Authorization
If this proposal correctly reflects your needs and meets your expectations,please counter-sign
a copy and return it to us. Please do not hesitate to call Adrian, Craig or me at(916) 569 0985
with any questions or comments.
Sincerely,
41ld67�
Douglas E. Davie
Director, Power Business Solutions Services
I hereby authorize Henwood to provide services to the City of Palm Springs pursuant to the scope
of work and commercial arrangement detailed above.
By: Troy Butzlaff
Date:
Cc: Craig Castagnoli-Henwood
Adrian Chiosea-Henwood I Y$118
J SOUTHERN CALIFORNIA
E D I S O N° Kathleen DeRosa
Region Manages
An COISON INTLRNATIONAL'R Company
August 23, 2002
Mr. Troy Butzlaff
Assistant City Manager
City of Palm Springs
3200 E. Tahquitz Way
Palm Springs, CA 92262
Dear Mr. 12T _--"/'
Thank you for sending the August 14, 2002 Henwood proposal to perform the
limited rate comparison study and your e-mail to Henwood in which you set forth
your understanding of the projected scope of work. After reviewing both
documents, it seems that the scope of work focuses only on evaluating the EES
Report, and is not consistent with the scope of work in our July 1 letter to Mayor
Kleindienst. In addition, we believe that there is public record material from the
California Public Utilities Commission (CPUC), which establishes our distribution
rates and should be used to expedite the project.
Specifically, SCE's distribution rates are, by law, established by the CPUC and
Published in SCE's tariffs and are a matter of fact, not opinion. The system average
distribution rate is a function of those statutory rates and billing determinants,
which can be established within a reasonable range based on current operations
and available forecasts. In addition, SCE's maximum possible distribution rate after
completion of its present General Rate Case (GRC) can be determined based on
SCE's General Rate Case filing.
Therefore, we would propose the following scope of work:
1 SCOPE OF WORK
The Electric Utility Municipalization Feasibility Study Group (EUMFS Group) is
exploring the viability of forming a local, publicly owned municipal utility.
EUMFS Group engaged EES Consulting (EES) to prepare a feasibility study of
forming a local municipal utility.
Southern California Edison (SCE) contends that EES has incorrectly estimated
the costs of owning and operating the electric distribution system in the
Coachella Valley. SCE maintains that EES has overestimated SCE's
distribution rate by about 2 cents per kWh and the resulting annual
distribution revenues by$46 million.
Cathedral Canyon Dr.Cathedral
Cathedral City,CA 92234 (7�
760-202-4211
Fax 760-202-4136
SOUTHERN CALIFORNIA r
EDISON°
An EDIS'ON INTHRNATIONALO Company
Having had prior experience in trying to initiate municipal utility services,
the City of Palm Springs is not interested in pursuing the formation of a
local utility based upon faulty or overly optimistic analyses. Before
considering joining other local governments and possibly supporting the
formation of a regional municipal utility, Palm Springs wants a second,
independent opinion on whether the EES Report and EES June 4, 2002 letter
made an error in projecting SCE's distribution rates.
The scope of work for this limited assessment is to determine what the
present CPUC approved SCE system average distribution rate is and what
would be the maximum possibly increase if SCE received its total request in
the GRC and the total increase was applied to SCE's distribution rate. In
making this determination, Henwood will rely on public record documents
filed with the CPUC. Once Henwood has determined the appropriate
system average distribution rate, Henwood will determine the annual
distribution revenue for the Coachella Valley, utilizing the annual customer
usage in the Coachella Valley that will be provided by SCE.
In performing this scope of work, Henwood will conduct individual
meetings with SCE and EES to determine their position on what the
appropriate distribution rate should be and will specifically review the
attached public records documents provided by SCE as well as any material
EES chooses to provide.
SCE would also like a cap on the amount to be expended under the contract of
$20,000. If you have any questions please call me on 760/202-4211.
Sincer
een DeRosa
Regl Manager
l /IT
36100 Cathedral Canyon Dr.
Cathedral City,CA 92234
MINUTE ORDER NO.
APPROVING AN AGREEMENT WITH HENWOOD
ENERGY SERVICES FOR CONSULTING SERVICES
FOR AN INDEPENDENT RATE COMPARISON OF
LOCAL ELECTRIC DISTRIBUTION RATES AND
REVENUES, IN THE AMOUNT OF $20,000.
------------------
I HEREBY CERTIFY that this Minute Order, approving an agreement with
Henwood Energy Services for consulting services for an independent rate
comparison of local electric distribution rates and revenues, in the amount of
$20,000, was adopted by the City Council of the City of Palm Springs, California,
in a meeting thereof held on the 181h day of September, 2002.
PATRICIA A. SANDERS
City Clerk
y�
MINUTE ORDER NO.
AUTHORIZING THE DIRECTOR OF FINANCE TO
PREPARE AN OFFSETTING BUDGET
ADJUSTMENT IN THE AMOUNT OF $20,000.
------------------
I HEREBY CERTIFY that this Minute Order, authorizing the Director of Finance
to prepare an offsetting budget adjustment in the amount of $20,000, was
adopted by the City Council of the City of Palm Springs, California, in a meeting
thereof held on the 18"'day of September, 2002.
PATRICIA A. SANDERS
City Clerk
l � �