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HomeMy WebLinkAboutMINUTES - 12011998 - C193 TO: BOARD OF SUPERVISORS FROM: Barton J. Gilbert,Director of General Services Centra Costa DATE: December 1, 1998 Count/ SUBJECT: REPORT ON ELECTRICITY DEREGULATION AND RECOMMENDATION TO CONTINUE WITH ABAG POWER FOR CALENDAR YEAR. 1999 SPECIFIC REQUESTS OR RECOMMENDATIONS)&BACKGROUND AND JUSTIFICATION 1. RECOMMENDATION: APPROVE the County's continuation in ABAG POWER for calendar year 1999. II. FINANCIAL IMPACT: Natural gas costs averaged 2% below PG&E's rates over a 2.5-year period through Association of Bay Area Governments (ABAG)'s power pool. Electricity savings have not materialized yet for several reasons, the primary reason being a three-month delay in electricity deregulation by the California Public Utilities Commission (CPUC). This delay affected contracts and started the Program during the high-cost period without the offset of the colder months. A more in-depth explanation is described in Section III. ABAG POWER experienced a 0.2%cost over PG&E's rates for the first few months of the Program. The expectation is that next year there will be electricity savings from participation in ABAG POWER, although they will not be as great as originally projected. Until the competitive transition charges from the investor-owned utility companies are paid off, projectionsfor electricity savings are modest. 111. BACKGROUND AND REASONS FOR RECOMMENDATIONS: In September, 1997 the Board of Supervisors authorized Contra Costa County to participate in a Joint Exercise of Powers Agreement (JPA), for a pooled power purchase program, ABAG POWER, for natural gas and electricity. ABAG sponsors this pool. The natural gas component of ABAG POWER had been part of an ABAG gas purchasing pool since 1996 and was added to the JPA with the electricity component. Since 1996 the County has saved an average of 2%under PG&E prices for natural gas. CONTINUED N ATTACHMENT: X YES SIGNATURE: &*BAfif& O �LRECOMMENVATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE APPROVE OTHER SIGNATURE(S): ACTION OF BOARD ON D e C e i,jt b e r r 1998 APPROVED AS RECOMMENDED XX X OTHER VOTE OF SUPERVISORS XX UNANIMOUS(ABSENT AYES: NOES: ABSENTS: ABSTAIN: MEDIA CONTACT: Barton J.Gilbert (925)313-7100 CC: Office of the County Administrator I HEREBY CERTIFY THAT THIS IS A TRUE Auditor-Controller AND CORRECT COPY OF AN ACTION TAKEN AND ENTERED ON THE MINUTES OF THE BOARD GSD-Administration OF SUPERVISORS ON THE DATE SHOWN. Accounting ATTESTED DmP r 1 . 1 9 9eC HELORLEROF WARD OF SUPERVISORS AND COUNTY ADMIRASTRATOR BY DEPUTY F:\DATA\WPDOCS\BRDORDER44BAG Report Cal Yr 99 N98.doc Page'I of 4 M382(10/88) REPORT ON ELECTRICITY DEREGULATION AND RECOMMENDATION TO CONTINUE WITH ABAG POWER FOR CALENDAR YEAR 1999 Under SB 1890, the California Public Utilities Commission (CPUC) and the Mate Legislature approved legislation to allow unbundling of electricity services and to provide for open;competition. They wanted residents and businesses in California to have reduced costs for electricity, as California's electricity rates have been among the highest in the nation. Not all components of electricity service have been unbundled. Transmission and distribution are still being handled by the Investor Owned Utilities (IOUs), which in Contra Costa County is PG&E. In addition, the stranded costs of previous uneconomic infrastructure debt acquired by the IOUs must be paid before true competition begins. For example,two nuclear power plants in California have significant debt service to be paid off. California electricity deregulation was scheduled to commence January 1, 1:998; however, the CPUC delayed the implementation date until April 1, 1998. Even then, not all the rules had been decided and guidelines for meters were not determined until the summer. ABAG POWER PROGRESS WITH ELECTRICITY DEREGULATION: The transition to an electricity pool-purchase program has been significantly',harder to implement than the natural gas portion. This has been the case for all power pools and not just ABAG POWER, and ABAG POWER is one of only two public power pools in California. Not only was the overall program delayed for three months, but changes are continuing to occur. ABAG had planned its program to take advantage of a competitive program that was to start January 1, and it developed bid packages for purchase of electricity and billing to be ready for the January 1 implementation date for the 65 counties, cities, and special districts joining ABAG POWER. Because of the delay, some suppliers cancelled their bids. Since electricity is the most volatile of the utilities for planning of purchases, as it cannot be bought and stored as can natural gas, the demand and purchase price can vary depending on demand and availability. The weather this summer played havoc with electric generation and supply, and the costs for electricity went as high as $7,500/mwh, the highest recorded price in history, during the height of high temperatures in the Midwest and South when the electricity demand soared. This affected some of ABAG POWER's suppliers that had to pay unexpected high prices. Because of the delay from the CPUC, the contract period: was delayed until April 1. This is when electricity usage and rates start increasing. ABAG POWER suffered the disadvantage of not being able to average the rates for a whole year to include the high months of usage and rates in the spring and summer with the lower usage and rates of fall and winter. With the January 1 implementation delay and no CPUC decision on metering until the summer, meters installations have been delayed. Buildings with electricity usage over 50/kwh need new meters, as required by the CPUC. There is a demand for these meters because all users want them at the same time, and the meter vendors have had a difficult time supplying them. Another major issue for Contra Costa County and other participants in ABAG POWER has been the difficulty of obtaining accurate electricity account data from PG&E. The time for staff to verify the accuracy of PG&E account information and to implement a new billing process with Arizona Power, the new billing agent, has required significant patience and expertise by the General Services Department's Fiscal staff. By December all of the 50/kwh meters for large County buildings/facilities should be installed, all of the electricity accounts entered in ABAG POWER's database and the PG&E account problems should be resolved. Staff should then be able to monitor the usage of electricity by each building to determine savings or costs over PG&E that accrue from being in the ABAG POWER pool. Because of the initial delay, problems in installing meters, getting accounts transferred, slow meter readings from PG&E, and changing requirements, full implementation has not been possible. ABAG POWER staff has worked hard to keep up with the changing requirements and follow up for invoicing, metering, and contractors to obtain the savings that should be available to members after the numerous stumbling blocks are out of the way. Billing information only became available within the last month. Until ABAG'was able to obtain the usage and cost data to make comparisons with PG&E rates, ABAG POWER members could not determine what recommendation to make on continuation'in ABAG POWER for next year and then to be able to make recommendations to their respective Board of P:IDATAUPDOC&BRDORDERIASAG Report Ca!Yr 99 N96.doc Page 2 of 4 M382(14188) REPORT ON ELECTRICITY DEREGULATION AND RECOMMENDATION TO CONTINUE WITH ABAG POWER FOR CALENDAR YEAR 1999 Supervisors and City Councils to meet the December 1, 1998 notification date. December I is the last day to tell ABAG if agencies do not want to continue in the Program for another year. Failure to respond means an agency remains in the Program for the next year. ABAG had estimated a year ago that savings would be approximately 4% over PG&E, but this estimatewas based on a year of participation, limited glitches, and meters being installed early in the process. Total cost information was not available due to the delays in receiving meter reads from PG&E and transmission fees from the ISO. The data show that "savings" for a shortened year, with several glitches, have not materialized; however,the 0.2%cost over PG&E is a small difference. The ABAG POWER Executive Committee weighed the pros and cons' of the first year, and it recommended continuing with ABAG POWER to the general membership, which voted to continue with ABAG POWER, although individual agencies might choose to not participate. The members also voted for the following Executive Committee for 1999, with most of the Committee continuing from the first year(members in Contra Costa County are highlighted): • Chair: Ken Blackman, City of Santa Rosa • Vice Chair: Cheryl D. Jackson, City of Milpitas • Committee Members: Michael Garvey, City of San Carlos Kathy Brown,Contra Costa County Wayne Green, City of Salinas Ross G. Hubbard,Town of Moraga Alan Nadritch, City of Benicia Robert Jacques, MRWPCA John deRussy, City of San Mateo; Continued participation in the ABAG POWER Program is being recommended for reasons outlined below: • Limited options are available at this time. Returning to PG&E would mean going through the same trauma of switching;accounts as occurred with the change to ABAG POWER. Other competition is coming, but it is not here yet. The City of Pittsburg has two electricity plants being built which should be more efficient than current facilities,and might offer Contra Costa County better rates, but these plants will not be completed for approximately two to three years. • All of Contra Costa's electricity accounts should be on line and meters installed at the large sites by December. ABAG POWER is sending out requests for proposals for new contracts for a full year. • Potential for lower costs than PG&E's are available with a full year of Program operation. Load profiles will be better with the large accounts on line, and an average of high usage months with low usage months should offer better rates. • Energy usage data is being accumulated for future cost reductions' and energy efficiency proposals. • Consolidated billing for gas and electricity offers agencies improvements over what PG&E offers. • Future possibilities exist for extension of lower cost energy benefits to community residents and promotion of economic development through lower energy costs. • Restructuring the purchasing strategy This year's method of purchasing electricity was to enter into contracts with four suppliers, which offers the greatest flexibility in matching the power needs of the Pool with supply contracts to secure the lowest possible power costs for Pool members. The electric power market, dominated by the PX will have a significant impact on the relative value of these contracts during the year. In addition, Richard Bilas, President of the CPUC, does not project significant savings to customers until the IOU's stranded costs are covered. ABAG POWER elected to change the purchasing strategy to seek a guaranteed discount against an index, of which there are several, and the choice will be decided by the successful FADATA\VUPDOMBRDORDERIABAG Report Cal Yr 99 N98.doc Page 3 of 4 M382(44/88) REPORT ON ELECTRICITY DEREGULATION ANIS RECOMMENDATION TO CONTINUE WITH ABAG POWER FOR CALENDAR YEAR 1999 bidders). This approach should reduce the risk of having higher costs than PG&E,but it will also mean that savings to the pool will be modest. • The County is part of a pioneering effort to be in the first wave of an alternate method of purchasing electricity. Contra Costa could have waited as some counties and cities preferred to do While there have not yet been savings in electricity,there have been in natural gas, and there's been a substantial learning process in managing the County's electricity accounts. There are many changes; that are occurring in the electricity industry, and it is important to keep up with the changes and projected opportunities for the future. ABAG staff assists with current information, sponsors power conferences, and has direct contact with the CPUC and electricity industry members, and these connections and information are shared with ABAG POWER members. Understanding electricity deregulation and the roles of the ISO, the PX, the Federal Energy Regulatory Commission (FERC), the CPUC, and the industry players is critical to effective power management. This includes power reliability, generation,', energy reduction, energy distribution,billing,metering, and related costs for all these elements. 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