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HomeMy WebLinkAboutAgenda Report - October 19, 2005 K-01AGENDA ITEM �wl CITY OF LODI COUNCIL COMMUNICATION TM AGENDA TITLE: Adopt Urgency Ordinance No. 1765 Amending Lodi Municipal Code Title 13 — Public Services — Chapter 13.20, "Electrical Service," by Repealing and Reenacting Sections 13.20.175 (D)-(1), (5) and (6) Relating to Market Cost Adjustment Billing Factor; and further Repealing Section 13.20.185 in its Entirety Relating to Preexisting Electric Rates; and Adopt Resolution Implementing Market Cost Adjustment (MCA); and Introduce Ordinance No. 1766 Amending Lodi Municipal Code Title 13 — Public Services — Chapter 13.20, "Electrical Service," by Repealing and Reenacting Sections 13.20.175 (D)-(1), (5) and (6) Relating to Market Cost Adjustment Billing Factor; and further Repealing Section 13.20.185 in its Entirety Relating to Preexisting Electric Rates MEETING DATE: October 19, 2005 PREPARED BY: Interim Electric Utility Director RECOMMENDED ACTION: Following reading by title, adopt Urgency Ordinance No. 1765 Amending Lodi Municipal Code Title 13 — Public Services — Chapter 13.20, "Electrical Service," by Repealing and Reenacting Sections 13.20.175 (13)-(1), (5) and (6) Relating to Market Cost Adjustment Billing Factor; and further Repealing Section 13.20.185 in its Entirety Relating to Preexisting Electric Rates; and Adopt Resolution Implementing Market Cost Adjustment (MCA); and Introduce Ordinance 1766 Amending Lodi Municipal Code Title 13 — Public Services — Chapter 13.20, "Electrical Service," by Repealing and Reenacting Sections 13.20.175 (D)-(1), (5) and (6) Relating to Market Cost Adjustment Billing Factor; and further Repealing Section 13.20.185 in its Entirety Relating to Preexisting Electric Rates. BACKGROUND INFORMATION: During the last quarter of the year 2000 and the first two quarters of the year 2001, market prices for electricity were extremely volatile, reaching levels that were extremely high relative to historical standards. As a consequence of this volatility and rapidly increasing prices, the City of Lodi adopted a mechanism, called the Market Cost Adjustment (MCA), which upon approval by the City Council, allowed the Electric Utility to quickly adjust its rates to its customers to respond to dynamically changing market conditions. The broad parameters of the MCA were presented to the City Council in April of 2001 (see Attachment 1, Council Communication dated April 18, 2001), with the specific requirements for APPROVED: City Manager Urgency Ordinance No.1765 Amending Chapter 13.20 Electrical Service October 1'!, 2005 Page 2 of 3 implementing and maintaining the MCA being ultimately adopted by Ordinance on May 2, 2001 for implementation on June 1, 2001. Changes to the initial MCA rates have subsequently been adopted on July 18, 2001, and November 6, 2002, but the specific requirements for implementing and maintaining the MCA have remained unchanged since their initial adoption. Issue: The purpose of the MCA is to provide the Electric Utility a means to respond to substantial changes in power supply costs when there has been a significant change in costs relative to costs included in base rates. The MCA is intended to allow the Electric Utility to adjust rates both up and down depending on the direction of the substantial change in costs. Power supply costs for FY06 have increased significantly relative to the costs included in base rates, triggering the need to implement a Market Cost Adjustment. Specifically, power supply costs have increased by 29% above power supply costs in the last fiscal year (FY05) and by 38.6% since the last time the MCA was amended (FY03). The table below shows the change in power supply costs since FY03, the last operating year in which the MCA was updated. Table 1. Comparison of Changes in Power Supply Costs The need to immediately adopt an MCA is made more urgent due to the fact that operating income for the utility has been negative since FY03. During this time frame, the utility has been drawing upon fund balances (Rate Stabilization Fund and Electric Utility Operating Fund) to make up the differences between revenues and expenses. These fund balances have been augmented with non-recurring additions of cash from activities such as the proceeds from the sale of securities and interest on investments that will be reduced by $5 million to $6 million per year over the levels seen in FY03 and FY04. These types of cash additions will not be sustained in future years. Absent an MCA to arrest the deficit operating condition, Lodi Electric will completely exhaust all remaining fund balances, leaving the utility in a deficit fund balance position at the end of the fiscal year. Table 2 below, summarizes revenue and expense levels since FY03, changes to fund balances, and the change to this year's fund balance if the recommended MCA level is adopted. Table 2. Compairlison of changes in operating income and fund balances FY03 FY04 FY06 FY06 As FY06 As FY06 Budgeted Forecast Power Projected Supply Cost $30.8 $32.3 $33.1 $39.8 $42.7 $ Millions $56.7 $56.7 $62.7 Expenses $55.99 % Change $59.2 $65.0 $65.9 $65.9 Operating from Prior n/a 4.9% 2.5% 20.2% 29.0% Year % Change Fund Balance $0.77 $6.3 $7.5 ($2.2) from last n/a 4.9% 7.5% 29.2% 38.6% MCA The need to immediately adopt an MCA is made more urgent due to the fact that operating income for the utility has been negative since FY03. During this time frame, the utility has been drawing upon fund balances (Rate Stabilization Fund and Electric Utility Operating Fund) to make up the differences between revenues and expenses. These fund balances have been augmented with non-recurring additions of cash from activities such as the proceeds from the sale of securities and interest on investments that will be reduced by $5 million to $6 million per year over the levels seen in FY03 and FY04. These types of cash additions will not be sustained in future years. Absent an MCA to arrest the deficit operating condition, Lodi Electric will completely exhaust all remaining fund balances, leaving the utility in a deficit fund balance position at the end of the fiscal year. Table 2 below, summarizes revenue and expense levels since FY03, changes to fund balances, and the change to this year's fund balance if the recommended MCA level is adopted. Table 2. Compairlison of changes in operating income and fund balances FY03 FY04 FY05 FY06 As FY06 FY06 Budgeted Projected Projected w/o MCA w/ MCA Revenues $55.8 $56.3 $53.8 $56.7 $56.7 $62.7 Expenses $55.99 $58.1 $59.2 $65.0 $65.9 $65.9 Operating ($019) ($1.8) ($5.4) ($8.3) ($9.2) ($3.2) Income Fund Balance $0.77 $6.3 $7.5 ($2.2) ($1.7) $4.3 Urgency Ordinance No. 1765 Amending Chapter 13.20 Electrical Service October 10, 2003 Page 3 of 3 As can be seen in Table 2, expenses exceed revenues by approximately $9.2 million under the column "FY06 Projected w/o MCA". Similarly, in Table 1, it can be seen that power supply costs have increased by approximately $9.6 million over the last fiscal year and by approximately $11.9 million since the last MCA. While the increase in power supply costs would justify an overall increase of $11.9 through the MCA, staff is recommending that the annual increase achieved through the MCA be set at $10.5 million. Because the annualized MCA would not be implemented until November 1, 2005, total MCA collections for the year would be reduced to approximately $5.8 million, reflecting the fact that the months of July through October would not factor into the annual collection process. Setting the MCA at this level will bring revenues and expenses into balance on an annualized basis for FY06, but because the adjusted MCA will only be in effect for a portion of the year, the electric department will have to further deplete its reserve funds by an estimated $3.4 million to help make up for the uncollected difference between revenues and expenses. Setting the MCA at this level will keep all customer rates equal to or less than PG&E, once PG&E's "2006 True Up" rate increase is adopted. Attachment 2 compares and contrasts average rates for Lodi Electric with the average rate for a PG&E customer in Stockton, subject to the 7% electric users tax. Attachment 3 shows the recommended MCA's by each customer class as well as the average rate increase that would result to the class as a whole by virtue of implementing the MCA. Depending on levels of electricity consumption, some customers would see increases higher than the average customer and some others would see increases less than the average (or decreases). This is particularly so in the residential class where the increases will be the greatest on those consuming the most energy, while those consuming lower amounts of energy will see little or no increase with some receiving decreases. Next Steps: The next step in addressing the financial structure for the Electric Utility will be to perform a comprehensive rate analysis that results in a base rate structure and set of rules for each rate class that is appropriate to the cost structure for the utility. In particular, the base rates should be sufficient to cover the routine and ongoing costs of the utility with the MCA utilized to adjust for sudden extreme changes in costs. Staff expects to make recommendations in this regard at the Council's November 16, 2005, meeting. Current and Future MCA to be Implemented by Resolution: Electric utility charges may be imposed by Resolution or Ordinance under California law. This amendment will clarify that all future MCA's shall be set in amounts and at times established by Resolution of the City Council. Staff recommends this change because MCA's are designed to react to the unexpected and immediate volatility of the utility market. Urgency Ordinance Requirements: Government Code §36934 requires that the City Council find by 4/5's vote that the public peace, heaNh or safety mandate that the Ordinance be passed on an urgency basis. In this case staff recommends that the Ordinance be passed on an urgency basis because continued sale of electricity below cost threatens the ability of the Utility to continue to provide electricity which is necessary for the health and safety of the citizens of Lodi. FISCAL IMPACT: The fiscal impact of this action will be to reduce the imbalance between revenues and expenses as described in the body of the staff report. FUNDING: Increased sales revenue associated with this action wI flow to the Electric Utility "Electric Op er ting Revenue" account. ()Z�-�, ,�. a es R. Krueger, Finance Director David Ockham DD/ist Interim Electric Utility Director Attachments cc: City Attorney Finance Director Attachment 1 AGENDA TITLE: Public Hearing to introduce ordinance for the implementation of an Electric Market Cost Adjustment Policy and Mechanism MEETING DATE: April 18, 2001 PREPARED BY: Electric Utility Director RECOMMENDED ACTION: That the City Council approve introduction of ordinance amending Lodi Municipal Code Chapter 13.20 Electrical Service, Article III Rates, by adding section 13.20.175 Schedule Market Cost Adjustment effective on applicable utility billings prepared by City of Lodi on or after June 1, 2001. BACKGROUND INFORMATION: The City of Lodi's historical power purchase strategy has been to be in a partial deficit energy position in the winter season. This strategic position has been very successful because the price for power on the spot and short-term market was generally very low during this period. The gas and electric energy market has seen dramatic volatility in recent months and has caused the City of Lodi to take various mitigation strategies. The nature of the market situation has caused the cost of purchased energy to be significantly higher than originally budgeted, although without the mitigation strategies would have been much more severe. It is anticipated that the market will improve, but should remain volatile for at least two more years. The Market Cost Adjustment will allow the Electric Utility Department to better follow the market and to capture both recent under -collections and future costs. This mechanism would be adjusted on a quarterly basis and would utilize an approved formula. The formula will reflect a true up of prior costs and a rolling twelve-month projection of purchased power costs. The mechanism is designed to minimize spikes to the adjustment rates. It is anticipated that the adjustment may go up or down depending on the various short and long-range strategies the City of Lodi elects to employ and the state of the power market at the that time. FUNDING: Not Applicable Alan N. Vallow Electric Utility Director ANV/1st C: City Attorney APPROVED: !9::Xlwlvl��� X14. Dixon Flynn - City 14anwager ' CITY OF LODI ELECTRIC UTILITY DEPARTMENT SCHEDULE MCA MARKET COST ADJUSTMENT APPLICABILITY: When in effect, this schedule is applicable to all areas served by the City and to all kilowatt-hours billed under all rate schedules as defined under the special conditions of the rate schedules labeled Purchased Power Adjustment. PURPOSE: Generally, power supply costs will be recovered through application of the base rates. In the event that substantial changes in projected power supply costs occur, either increases or decreases, the Market Cost Adjustment Billing Factor will be activated to provide for increases or decreases in the City's charges for electric service. The Electric Utility Director shall develop and recommend a MCA Billing Factor to be effective on a specified date for the approval of the City Council. APPLICATION OF MARKET COST ADJUSTMENT: When applicable, the Market Cost Adjustment Billing Factor (MCABF) for a particular rate schedule as designated in the attached MCABF table, in cents per kWh, shall be applied to kilowatt-hours sold on and after the effective date, and continuing thereafter until the next base rate change or until a revision to the Market Cost Adjustment Billing Factor becomes effective. The dollar amount to be added to or subtracted from each bill due to the Market Cost Adjustment shall be obtained by multiplying the number of kilowatt-hours for which the bill is rendered by the applicable Market Cost Adjustment Billing Factor. CALCULATION OF THE POWER COST ADJUSTMENT BILLING FACTOR: 1. When the Electric Utility Director deems that substantial changes in power supply costs have occurred relative to the costs included in base rates, the Market Cost Adjustment Billing Factor shall be activated following the approval of the City Council. 2. The Billing Factor shall remain in effect until the next base rate change or until a revision to the Billing Factor is necessary. 3. While the Billing Factor is activated, a Market Cost Adjustment account shall be maintained. Entries into this account shall be: a. The balance from the previous month; b. The increase or decrease in charges for electric service billed using the applicable Billing Factor; and C. Any interest accruing to the account. Effective Date June 1, 2001 MCA -1/2 Ordinance No. SCHEDULE MCA MARKET COST ADJUSTMENT 4. The MCA Billing Factor shall be designed by giving consideration to the following factors: a. Rate stability is desirable and frequent changes in the MCA Billing Factor are undesirable. b. The financial integrity of the Electric Utility Department shall be maintained by applying a MCA Billing Factor, when necessary, to ensure that the Electric Utility Department does not overcollect or undercollect the revenue required for sound financial operation. 5. The Electric Utility Department shall furnish to the City Council a notice of any proposed activation or change in the MCA Billing Factor. Any activation or change in the MCA Billing Factor requires approval by the City Council. 6. The Electric Utility Department generally shall make the MCA Billing Factors effective as of the first day of the appropriate month. Adjustments to the MCA shall be no more frequent than quarterly and no less than semi-annually. MARKET COST ADJUSTMENT BILLING FACTOR The Market Cost Adjustment Billing Factor by designated rate schedule, in cents per kilowatt-hour, shall be shown in this Section. Certain classes may have a tiered MCABF by level of monthly consumption. Class Cents per kWh Date Effective EA, EE under 300 kWh 1.250 June 1, 2001 EA, EE 301 to 600 kWh 1.900 June 1, 2001 EA, EE above 600 kWh 3.000 June 1, 2001 ED, EF 0.000 June 1, 2001 EM 0.000 June 1, 2001 EL 0.000 June 1, 2001 G1 2.000 June 1, 2001 G2 2.000 June 1, 2001 G3 0.000 June 1, 2001 G4 0.000 June 1, 2001 G5 0.000 June 1, 2001 11 1 0.000 June 1, 2001 Effective Date June 1, 2001 MCA -2/2 Ordinance No. Attachment 2 Current Lodi Avg Rate Current PG&E Rate Lodi Rate w/ Proposed MCA PG&E w/ True Up and 6% Elec Users Tax EA $0.1465 $0.1363 $0.1600 $0.1600 EE $0.1297 $0.1363 $0.1462 $0.1530 ED Share $0.0842 n/a $0.0927 $0.0930 G1 $0.1545 $0.1545 $0.1659 $0.1660 G2 $0.1287 $0.1366 $0.1496 $0.1500 G3 Small $0.1172 $0.1311 $0.1428 $0.1440 G4 Medium Industrial $0.1074 $0.1124 $0.1232 $0.1230 G5 $0.0991 $0.1040 $0.1141 $0.1140 11 $0.0642 $0.1040 $0.1141 $0.1140 Contract Medium $0.0852 $0.1124 $0.1167 $0.1230 Contract Large $0.0621 $0.1040 $0.0934 $0.1080 EM Domestic $0.0792 $0.1268 $0.1491 $0.1490 City ES $0.0944 n/a $0.1038 n/a Attachment 3 MARKET COST ADJUSTMENT BILLING FACTOR The Market Cost Adjustment Billing Factor by designated rate schedule, in dollars per kilowatt-hour, shall be shown in the Section. Certain classes may have a tiered MCABF by level of monthly consumption. Winter Residential MCA I I Summer Residential MCA Commercial/Industrial MCA-Winter/Summer Class Type $ per kWh ES All $0.0094 EM All $0.0698 EL All $0.0100 G1 All $0.0409 G2 All $0.0483 G3 All $0.0446 G4 All $0.0336 G5 All $0.0280 11 <4,000 kW $0.0624 11 —5T7UTRV- $0.0499 Average Rate Chan e bv Rate Class EA 9.40% EE 12.68% ED 10.07% G1 7.39% G2 16.23% G3 22.47% G4 14.69% G5 15.15% 11<4mw 73.71% 11 > 4mw 50.26% ES 10.00% EM 88.09% EL 10.00% Avg 1 19.48% ORDINANCE NO. 1765 D AN URGENCY ORDINANCE OF THE CITY COUNCIL OF THE CITY OF LO ��► AMENDING LODI MUNICIPAL CODE TITLE 13 —PUBLIC SERVICES —CHAPTER 13.20, "ELECTRICAL SERVICE," BY REPEALING AND REENACTING SECTIONS 13.20.175 (D)-(1), (5) and (6) RELATING TO MARKET COST ADJUSTMENT BILLING FACTOR; AND FURTHER REPEALING SECTION 13.20.185 IN ITS ENTIRETY RELATING TO PREEXISTING ELECTRIC RATES Whereas wholesale Electricity Prices have increased by approximately 38.6% since the last time the Market Cost Adjustment was implemented as a result of unforeseen natural disasters and other worldwide events; and Whereas, the Lodi Electric Utility is currently selling power to its customers at a significant loss; and Whereas the Lodi Electric Utility is required to set rates under the rate covenants set forth in its bonded indebtedness at 110 percent of its cost of service; and Whereas continued operation of the Electric Utility at a loss, could place the Electric Utility in default of its rate covenants and subject the City to significant litigation, costs and threaten the Electric Utilities ability to continue providing electric service to its customers; and Whereas electric service is necessary to provide for the public peace, health and safety of the residents of the City of Lodi. BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF LODI AS FOLLOWS: Section 1. Lodi Municipal Code Title 13, "Public Services," Chapter 13.20, "Electrical Service," is hereby amended by repealing and reenacting Section 13.20.175 (D)-(1), (5) and (6) relating to Market Cost Adjustment Billing Factor, and shall read as follows: D. Calculation of the Power Cost Adjustment Billing Factor. 1. When the Electric Utility Director deems that substantial changes in power supply costs have occurred relative to the costs included in base rates, the market cost adjustment billing factor shall be activated following the approval of the City Council in amounts and at times set by Resolution. 5. The Electric Utility Department shall furnish to the City Council a notice of any proposed activation or change in the MCA billing factor. Any activation or change in the MCA billing factor requires approval of the City Council in amounts and at times set by Resolution. 6. The Electric Utility Department generally shall make the MCA billing factors effective as of the first day of the appropriate month. Adjustments to the MCA shall be no more frequent than quarterly and no less than semi- annually. Section 2. Lodi Municipal Code Title 13, "Public Services," Chapter 13.20, "Electrical Service," is hereby amended by repealing Section 13.20.185 in its entirety relating to Preexisting Electric Rates. Section 3. This is an urgency ordinance under Government Code §36934, and is necessary to insure the Lodi Electric Utility's continued ability to provide Electricity to the Citizens of Lodi and therefore provide for the public peace, health and safety for the reasons set forth above. Section 4 - No Mandatory_Duty of Care. This ordinance is not intended to and shall not be construed or given effect in a manner which imposes upon the City, or any officer or employee thereof, a mandatory duty of care towards persons or property within the City or outside of the City so as to provide a basis of civil liability for damages, except as otherwise imposed by law. Section 5. All ordinances and parts of ordinances in conflict herewith are repealed insofar as such conflict may exist. Sec 'on 6. This urgency ordinance shall be published one time in the "Lodi News Sentinel', a daily newspaper of general circulation printed and published in the City of Lodi and shall be in force and take effect immediately. Approved this 19th day of October, 2005. JOHN BECKMAN Mayor Attest: SUSAN J. BLACKSTON City Clerk State of California County of San Joaquin, ss. I, Susan J. Blackston, City Clerk of the City of Lodi, do hereby certify that Ordinance No. 1765 was adopted as an urgency ordinance at a regular meeting of the City Council of the City of Lodi held October 19, 2005 and was thereafter passed, adopted and ordered to print by the following vote: AYES: COUNCIL MEMBERS — NOES: COUNCIL MEMBERS — ABSENT: COUNCIL MEMBERS — ABSTAIN: COUNCIL MEMBERS — I further certify that Ordinance No. 1765 was approved and signed by the Mayor of the date of its passage and the same has been published pursuant to law. Approved as to Form: D. STEPHEN SCHWABAUER City Attorney 2 SUSAN J. BLACKSTON City Clerk RESOLUTION NO. 2005- A RESOLUTION OF THE LODI CITY COUNCIL APPROVING MARKET COST ADJUSTMENT NOW, THEREFORE, BE IT RESOLVED that the Lodi City Council does hereby approve the Market Cost Adjustment (MCA) as set forth in the rate schedules attached marked Exhibit A, and will take effect immediately. Dated: October 19, 2005 I hereby certify that Resolution No. 2005- was passed and adopted by the Lodi City Council in a regular meeting held October 19, 2005, by the following vote: AYES: COUNCIL MEMBERS — NOES: COUNCIL MEMBERS — ABSENT: COUNCIL MEMBERS -- ABSTAIN: COUNCIL MEMBERS - - SUSAN J. BLACKSTON City Clerk 2005- EXHIBIT A ORDINANCE NO. 1766 0 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF LODI AMENDING �� LODI MUNICIPAL CODE TITLE 13 — PUBLIC SERVICES — CHAPTER 13.20, "ELECTRICAL SERVICE," BY REPEALING AND REENACTING SECTIONS 13.20.175 (D)-(1), (5) and (6) RELATING TO MARKET COST ADJUSTMENT BILLING FACTOR; AND FURTHER REPEALING SECTION 13.20.185 IN ITS ENTIRETY RELATING TO PREEXISTING ELECTRIC RATES Whereas wholesale Electricity Prices have increased by approximately 38.6% since the last time the Market Cost Adjustment was implemented as a result of unforeseen natural disasters and other worldwide events; and Whereas, the Lodi Electric Utility is currently selling power to its customers at a significant loss; and Whereas the Lodi Electric Utility is required to set rates under the rate covenants set forth in its bonded indebtedness at 110 percent of its cost of service; and Whereas continued operation of the Electric Utility at a loss, could place the Electric Utility in default of its rate covenants and subject the City to significant litigation, costs and threaten the Electric Utilities ability to continue providing electric service to its customers; and Whereas electric service is necessary to provide for the public peace, health and safety of the residents of the City of Lodi. BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF LODI AS FOLLOWS: Section 1. Lodi Municipal Code Title 13, "Public Services," Chapter 13.20, "Electrical Service," is hereby amended by repealing and reenacting Section 13.20.175 (D)-(1), (5) and (6) relating to Market Cost Adjustment Billing Factor, and shall read as follows: D. Calculation of the Power Cost Adjustment Billing Factor. When the Electric Utility Director deems that substantial changes in power supply costs have occurred relative to the costs included in base rates, the market cost adjustment billing factor shall be activated following the approval of the City Council in amounts and at times set by Resolution. 5. The Electric Utility Department shall furnish to the City Council a notice of any proposed activation or change in the MCA billing factor. Any activation or change in the MCA billing factor requires approval of the City Council in amounts and at times set by Resolution. 6. The Electric Utility Department generally shall make the MCA billing factors effective as of the first day of the appropriate month. Adjustments to the MCA shall be no more frequent than quarterly and no less than semi- annually. Section 2. Lodi Municipal Code Title 13, "Public Services," Chapter 13.20, "Electrical Service," is hereby amended by repealing Section 13.20.185 in its entirety relating to Preexisting Electric Rates. Se9kon 3 - No Mandatory Duty of Care. This ordinance is not intended to and shall not be construed or given effect in a manner which imposes upon the City, or any officer or employee thereof, a mandatory duty of care towards persons or property within the City or outside of the City so as to provide a basis of civil liability for damages, except as otherwise imposed by law. Section 4. All ordinances and parts of ordinances in conflict herewith are repealed insofar as such conflict may exist. Sec ' n 5. This ordinance shall be published one time in the "Lodi News Sentinel," a daily newspaper of general circulation printed and published in the City of Lodi and shall be in force and take effect thirty days from and after its passage and approval. Approved this, day of , 2005. JOHN BECKMAN Mayor Attest: SUSAN J. BLACKSTON City Clerk State of California County of San Joaquin, ss. I, Susan J. Blackston, City Clerk of the City of Lodi, do hereby certify that Ordinance No. 1766 was introduced at a regular meeting of the City Council of the City of Lodi held October 19, 2005, and was thereafter passed, adopted, and ordered to print at a regular meeting of said Council held , 2005, by the following vote: AYES: COUNCIL MEMBERS — NOES: COUNCIL MEMBERS — ABSENT: COUNCIL MEMBERS — ABSTAIN: COUNCIL MEMBERS — I further certify that Ordinance No. 1766 was approved and signed by the Mayor of the date of its passage and the same has been published pursuant to law. Approved as to Form: D. STEPHEN SCHWABAUER City Attorney 2 SUSAN J. BLACKSTON City Clerk Susan Blagcston From: Susan Blackston Sent: Wednesday, October 19, 2005 10:34 AM To: 'Kevin' Cc: City Council; Blair King; Steve Schwabauer; Dave Dockham (Lodi EUD) Subject: RE: Lodi Iron Works, Inc. - Electrical Rates Dear Kevin Van Steenberge: This reply is to confirm that your message was received by the City Clerk's Office and each member of the City Council. In addition, by copy of this e-mail, we have forwarded your message to the following departments for information, referral, or handling: 1) City Manager, 2) City Attorney, and 3) Interim Electric Utility Director. /s/ Susan J. Blackston, City Clerk -----Original Message ----- From: Kevin [mailto:Kevin@lodiiron.com] , Sent: Wednesday, October 19, 2005 10:26 AM To: Susan Blackston; Susan Hitchcock; Bob Johnson; JoAnne Mounce; John Beckman; Larry Hansen Subject: Lodi Iron Works, Inc. - Electrical Rates To our honorable city council: John Beckman, Susan Hitchcock, Joanne Mounce, Larry Hansen & Bob Johnson I had a visit by Blair King, David Dockham, Mel Grande & Rob Lechner yesterday afternoon {10-18-05}. They were the bearer of bad news and informed me that our electrical rates are going up another 50% effective 11-1-05. This is a shock to me and it will hurt my business. I may be forced to do some actions that I don't want to do but I am looking at every option that is available to me. We have been in a contract with the electrical dept for the last 2 plus years that allows a 33% rate increase over 3 years starting a little over 2 years ago. The deal was to do an ll% rate increase each year for a total of 3 years. The 3rd and final year just started 10-1-05 with the final 11% rate increase. Now my business is hit with another 50% rate increase that will increase my overall electrical costs to over 80% in the last 3 years. This is absurd!! For our business, we have invested heavily into future growth and this will cause us to step back and may have to consider cutting back our labor force. I was reading the Record and Lodi News Sentinel this morning and saw a couple of articles that mentioned about this rate increase. According to the articles, it said large commercial business will be seeing a 14% to 22� rate increase. Why is it that we are hit with a 50% rate increase? I've been told that the electrical dept has been buying power for more than what they charge us for. I thought that is why we are in the middle of a 3 year contract to bring our costs up to reflect the market costs. I am pleading to you to help us. This huge increase could really set up back. Thank you for taking the time to read this. If you have any questions, please do not hesitate to contact me. Regards, Kevin Van Steenberge, President Lodi Iron Works, Inc. 820 So. Sacramento St. Lodi, CA 95240 p. 209-368-5395 ext. 1 f 209-339-1453 e. kevin@lodiiron.ccm <mailto:kevin@lodiiron.com> Website: www.lodiiron.com <http://www.lodiiron.com> 1 Susan Blackston From: Susan Blackston Sent: Wednesday, October 19, 2005 11:40 AM To: 'Mark fillips' Cc: City Council; Blair King; Steve Schwabauer; Dave Dockham (Lodi EUD) Subject: RE: Electrical Energy Costs )ear Marie Phillips: Page 1 of 1 "his reply is to confirm that your message was received by the City Clerk's Office and each member of the City Council. In iddition, by copy of this e-mail, we have forwarded your message to the following departments for information, referral, or candling: 1) City Manager, 2) City Attorney, and 3) Interim Electric Utility Director. Susan J. Blackston, City Clerk -----Original Message ----- From: Mark Phillips[mailto:Mark.Phillips@ssimail.net] Sent: Wednesday, October 19, 2005 11:23 AM To: Susan Blackston; Susan Hitchcock; Bob Johnson; JoAnne Mounce; John Beckman; Larry Hansen Subject: Electrical Energy Costs Dear Council Members, I was informed yesterday about the impending potential rate increase for electrical costs scheduled for November 1St of this year. I was aware and in support of a rate increase for the Industrial accounts that were on the transitional rate plan due to information published about the financial issues with the Electrical Utility Department. In other words, I feel that those of us on this transitional rate plan were realistic about an impending increase. However, I believe that we were all shocked at how much of an increase is being proposed and the apparent "change of philosophy" that the City of Lodi has adopted. When we came to Lodi in 2000, we were told that Lodi had a policy of keeping the commercial rates very competitive in order to attract companies to Lodi to provide for a robust local economy. It was felt that the residents would be willing to pay a little more to keep the local economy very healthy. It is certainly concerning that there has been such a radical change in philosophy. A 57 % increase in rates for SSI Schaefer Systems International results in an increase in costs of $300,000 annuafiy with little time to react. This is very difficult financially to overcome for a small manufacturing facility such as ours. I will be at the City Council Meeting tonight. I would hope that you are careful to fully understand the potential ramifications of such an increase on the local economy. I'll see you tonight. Sincerely, Mark Philos Plant Maneger Schaefer Systems Internationai,Ine Lodi, CA Operations 2093656030 0/19/2005 TO: The Magor and City Council Members Through: Blair King From: Jim Krueger 1. Date: 10/19/2005 Re- Financial Ratios for Lodi Electric Utility Attached you will find two worksheets showing various financial ratios. The first shows the City of Lodi over the last ten years starting with fiscal year 1995-96 and ending with fiscal year 2004-05 (Unaudited). The second worksheet shows ratios for other cities in Califomia. All of the cities except for Anaheim (amongst the comparison cities used) are members of The Northern California Power Agency. All of the comparative information for other cities comes from the Comprehensive Annual Financial Reports available from City websites. In the brief time available to do this analysis, it was not possible to provide exhaustive comparable data from cities of the same size as Lodi. It should be apparent that there is no "average" city. Therefore, it is advised that you use this information to make only limited comparisons and conclusions. Having said that, the following conclusions do appear valid: • The net assets for Lodi Electric utility have steadily declined over the last ten years. Although other cities are mostly larger, which is evidenced by the operating expenditures numbers, the basic ratios should not be too far different from Lodi. The worksheet shows that all other cities have better financial ratios than the City of Lodi. Although the cash position increased right after the sale of bonds in 2002, the ratios did not show any improvement. This shows that borrowing money does not improve the underlying financial health of the utility unless the proceeds of the borrowing is used to purchase productive assets that increase the revenue base or decrease operating expenditures. Neither of these elements was true in the case of Lodi and consequently the underlying financial structure did not improve due to the borrowing of money in 1999 and in 2002.