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HomeMy WebLinkAboutAgenda Report - October 5, 2005 K-04J4AGENDA ITEM K CITY OF LODI COUNCIL COMMUNICATION TM AGENDA TITLE: Adopt resolution authorizing the City Manager, or his designee, to approve advance procurement of energy (up to 95% of the Electric Utility's net open position) through Northern California Power Agency (estimated at $11.3 million pursuant to pricing on 9113f2005) (EUD) MEETING DATE: October 5, 2005 PREPARED BY: Interim Electric Utility Director RECOMMENDED ACTION: That the City Council authorize the City Manager, or his designee, to approve the advance purchase of energy (up to 95% of Lodi Electric's net open position) through the Northern California Power Agency where such energy is forecast to be needed to supply Lodi Electric's obligations to its customers. BACKGROUND INFORMATION: The City of Lodi contracted for the services of an interim electric utility director effective September 6, 2005. As part of the interim electric utility director's review of electric utility operations, it was determined that Lodi Electric Utility had not fully procured, on an advance basis, all of the energy that is forecast to be required to meet load serving obligations through the end of the fiscal year. This is referred to as having a net open position in the electric markets. There are no mandatory requirements that a utility fully procure all energy that it expects to need for the year on an advance basis. In fact, some utilities leave a portion of their energy needs open as part of a strategic procurement plan that balances the utility's ability to absorb the costs associated with rising forward energy prices against that same utility's view of prices in the future. The attached spreadsheet contains the detail of current sources of supply and net open position in each month through the end of the fiscal year. The spreadsheet is divided into three sections. The first section provides a summary of the total energy needs of the city during the High Load Hours (HLH) and Low Load Hours (LLH). The next two sections itemize the owned resources and or contracts that would be utilized to fulfill the load serving obligation to the community within those two periods with any differenoes between the load forecast and supply sources representing a surplus or a deficit. As can be seen in the attached worksheet, deficits range between 5% for the month of September to 59% for the month of November, and approximately 27% on average. Issue: Procuring Lodi's net open position at current commodity prices may require a budget adjustment and Market Rate Adjustment to electric rates. Procurement of this net open position is occurring at a time in which energy prices have risen over 30% since the beginning of the fiscal year and are continuing to rise. Based on forecasts of procurement costs in September, the costs to procure the total open position is estimated at $11.3 million, which would cause total estimated bulk power procurement costs to exceed budget estimates by approximately $700,000. Procurement of the net open position at this time will result in procurement of energy at prices which are arguably very high by historical standards and could deprive the city of the opportunity of procuring needed energy in the future at a lower price. As a APPROVED: /��— B it ng, City Manager Adopt noWugon audwftng the City Manager, or his designee, to Approve advance procu snwnt of energy (up to 95% of the Electric UtlNWs not open poeFtwon) through Northern California Power Agency (estimated at $11.3 million pursuant to prking on 9M312005) (EUD) October 9, 2600 Page 2 of 2 counterpoint, procurement of the net open position at this time will provide certainty of power supply costs through the end of the fiscal year and protect the city against further increases in power supply costs. To put this difficult decision into perspective through a simple example, if one were to assume that prices for electricity were to increase or decrease evenly for each month's need between today and the time the energy is needed by Lodi's customers, the estimated advance procurement costs of $11. 3 million at today's prices would decrease to $7.9 million W prices were to decrease evenly by 30% or increase to $14.7 million W prices were to increase evenly by 30%. FISCAL IMPACT: Bulk power required to serve Lodi electric customers must be procured through the spot markets on the day needed or in advance through ownership in plants or contract mechanisms. The actual costs of procuring the bulk power required will be assessed to Lodi Electric Utility regardless of whether the bulls power is procured in advance or later in the spot markets. Lodi Electric Utility must therefore either be prepared to pay for the costs of the bulk power required to serve its customers, adjusting its rates if necessary, or alternatively, to curtail service to customers. FUNDING: Funding for this purchase will come from the Lodi Electric Utility account 160642 for Bulk Power Purchases. As Council is aware, the current Electric Utility budget was adopted with an imbalance between revenues and expenses. Specifically, revenues were adopted at $56.7 million and expenses at $65 million resulting in a shortfall of $8.3 million in the current fiscal year. Staff expects to make additional presentations to the City Council to address these revenue and expense imbalances, which will be further informed by the actual procurement costs incurred in filling the net open position, and adjust rates as necessary, as part of additional presentations to the City Council in October and November. R. Krueger, Finance Director IhW6� finL— David Dockham Interim Electric Utility Director nanst Attachmeft (1) cc: City Attorney RESOLUTION NO. 2005-219 A RESOLUTION OF THE LODI CITY COUNCIL AUTHORIZING THE CITY MANAGER, OR HIS DESIGNEE, TO APPROVE ADVANCE PROCUREMENT OF ENERGY (UP TO 95% OF THE ELECTRIC UTILITY'S NET OPEN POSITION) THROUGH NORTHERN CALIFORNIA POWER AGENCY NOW, THEREFORE, BE IT RESOLVED that the Lodi City Council does hereby authorize the City Manager, or his designee, to purchase energy (up to 95% of Lodi Electric Utility's net open position for the balance of the 2005-06 fiscal year) at the best price available on the market October 6, 2005, through the Northern California Power Agency. Dated: October 5, 2005 I hereby certify that Resolution No. 2005-219 was passed and adopted by the City Council of the City of Lodi in a regular meeting held October 5, 2005, by the fallowing vote: AYES: COUNCIL MEMBERS — Hansen, Johnson, Mounce, and Mayor Beckman NOES: COUNCIL MEMBERS -- None ABSENT: COUNCIL MEMBERS — Hitchcock ABSTAIN: COUNCIL MEMBERS — None SUSAN J. BLACKSTON City Clerk 2005-219 K `1 Dear City Council Member, RECELIV- 20jr5i OOT —5 Ate 10: -53 I am a concerned citizen. Newly relocating from Stockton liiAA66wy disappointed in the city's capacity to manage their resources (water, electricity). Perhaps it is the Wednesday's issue of the Stockton Record who says it best. Maybe you can explain how something of this caliber occurs. Did the city planner forget to take into account the sapid growth and development of the city? First it was the increase in water, and now the hike in electricity. It seems to me that responsible, tax -paying citizens such as myself are being left to take the brunt for someone's elementary mistakes in city management. Whatever the case, it would occur to me that this type of fiscal irresponsibility can not be tolerated by new homeowners, people on fixed incomes, and those who are of lower socioeconomic status. I am awaiting a response to a solution of this issue. Kristen Hodge S7CM HR —is ZCA CD