Public Utilities 2011/12/21CITY OF ANAHEIM
PUBLIC UTILITIES BOARD
MINUTES
DECEMBER 21, 2011
The agenda having been posted on Thursday, December 15, 2011, the Regular Meeting of the Public Utilities
Board (Board) was called to order by Chairperson Jordan Brandman at 5:01 p.m. on Wednesday, December
21, 2011, in the I P Floor Large Conference Room, Anaheim West Tower, 201 S. Anaheim Blvd., Anaheim,
California.
Board Members Present: J. Brandman, D. Morgan, B. Hernandez, S.E. Faessel, C. Peltzer,
J. Machiaverna
Board Members Absent: P. Carroll
Staff Present: M. Edwards, D. Calkins, D. Lee, E. Zacherl, S. Sciortino, J. Lehman,
A. Kott, B. Beelner, R. Dowell, G. Bowen, C. Thompson, M. Samra,
L. Quiambao, P. Oviedo, G. Barnes
Guest(s) Present: David Wain, Resident; Stephen Faessel, Resident
AGENDA ITEM
1. PUBLIC COMMENTS.
There were no public comments.
2. APPROVAL OF THE MINUTES OF THE REGULAR
PUBLIC UTILITIES BOARD MEETING HELD ON
NOVEMBER 16, 2011. *
3. PRESENTATION OF CARBON OFFSETS AND
CALIFORNIA CARBON ALLOWANCES TRANSACTIONS.
ACTION TAKEN
There being no public
comments, J. Brandman closed
the public comments portion of
the meeting.
B. Hernandez moved approval
of the November 16, 2011,
Public Utilities Board Minutes.
D. Morgan seconded the
motion. MOTION
CARRIED: 5 -0.
ABSTAINED: 0. ABSENT:
1 (P. CarroIl). DELAYED: I
(J. Machiaverna)
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AGENDA ITEM
M. Edwards began the presentation by sharing that the overarching
California Carbon Offsets and Carbon AIlowance Transactions
(Cap- and - Trade) issue is one in which there is no shortage of
opinions. Although an enormous amount of time has been spent by
City of Anaheim (City) staff as well as other interest groups
working through alternatives, there are certain rules and regulations
passed by the state Legislature which will impact the City. The
challenge in compliance is that this is an extremely complex area.
She also shared that the presentation will demonstrate to the Board
how the Department plans to work with the Cap -and -Trade rules
and regulations, deal with the market, and how it works overall.
Through a series of slides, G. Bowen, Integrated Resources Manager,
began the presentation by sharing some background information on
the Cap - and -Trade program. In 2006, California State Legislature
passed the Global Warming Solutions Act, AB 32, in an effort to
reduce carbon emissions to 1990 levels by the year 2020. To date,
California's level is about 600 million metric tons of greenhouse gas
or its equivalent, which means a 30% reduction from where
California is today.
California Air Resources Board (CARB) has been put in charge of
the Cap -in -Trade program to get emissions levels down to the 1990
level. He shared that CARB intends to do this through the renewable
portfolio standards, energy efficiency programs, and low carbon fuel
standards as well as a market based approach to environmental
regulation, as evinced by the Cap and Trade Program.
G. Bowen then provided the Board with the definition of Cap -and-
Trade, a market based approach to control pollution by providing
economic incentives for achieving reductions in the emissions of
pollutants. The "cap" is designed to provide each utility with an
annual allocation of allowances that will be applied against the total
amount of emissions the utility actually produces from carbon -based
generating resources for that year. The amount of allowances CARB
will allot to utilities is purposely designed to decline each year so that
as the "cap" drops, the shortage of allowances to utilities will force
the industry to find other ways to reduce emissions.
The "trade" aspect allows an entity to purchase emissions allowances
when actual emissions exceed its allotment or conversely, sell
allowances if allocated more than needed for compliance in that
particular year. Utilities will be required to "retire" or turn in
emission allowances to the CARB equal to or greater than their actual
produced emissions or be subject to penalties.
He continued by sharing that there are two commodities that can be
traded. The first is an allowance, which is a certificate or permit that
represents the right to omit one ton of carbon dioxide or other
greenhouse gas. These are the credits that CARB provides to utilities
at the beginning of the process. The second is an offset which
represents one metric ton of carbon dioxide that has actually
ACTION TAKEN
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AGENDA ITEM
been reduced through direct action that the CARB has approved as a
measured reduction in emissions. Some examples of carbon offsets
are urban forestry, livestock methane destruction, ozone depleting
substances, and U.S. forest projects. Some ways to trade either
commodity are thru bilateral transactions directly with another
counter party or thru an allowance exchange such as the Chicago
Mercantile.
G. Bowen also mentioned to the Board that the auction process is the
primary vehicle for buying and selling allowances in California.
CARB sets a hard floor price of $10 and a soft ceiling price of $50
for the allowances which gives some protection to the buyer and
seller. All bidders are price takers, meaning they cannot determine
the price they want. He also shared issues related to program
implementation such as allocation of allowances, monitoring and
enforcement, sector coverage, offsets, banking of allowances, and
safety mechanism.
Approximately 86% of the Department's resources are either natural
gas or coal. Currently there are five facilities: San Juan Power Plant,
Intermountain Power Plant, Magnolia Power Plant, Kraemer
Generating Station, and the Canyon Power Plant that are subject to
CARB's allocations.
At this time, Anaheim requires 17.4 million metric tons of
greenhouse gas reductions to meet its goals. Currently the amount of
allowances allocated by CARB to Anaheim is I5.7 million, resulting
in a shortfall of approximately 1.7 million tons over the next eight
years.
Strategies to address this shortfall are: participating in the Cap -and-
Trade auction process as well as purchasing allowances outside of the
auction process. Bilateral markets can be considered, as well as
purchasing offsets. Reduced operations of the carbon producing
units as well as purchasing additional renewable resources and the
implementation of energy efficiency programs are part of an overall
strategy to meet the legislative mandates.
G. Bowen completed the presentation by sharing that the
Department, at the January or February 2012 Public Utilities Board
meeting, will be seeking the Board's recommendation to City
Council to participate in the California Carbon Offset and Carbon
Allowance markets in order to meet the AB 32 mandate to decrease
the greenhouse gas emissions to 1990 levels by the year 2020.
There were a variety of questions posed by the Board and substantial
dialogue on impacts to the Department, costs, mitigation strategies,
and other alternatives.
4. PRESENTATION OF NORTH AMERICAN ENERGY
STANDARDS BOARD (NAESB) WHOLESALE GAS
ENABLING AGREEMENT.
ACTION TAKEN
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AGENDA ITEM
S. Sciortino gave a presentation to the Board about the North
American Energy Standards Board ( NAESB) wholesale enabling
agreements. The presentation included a review of the background
of the City's gas usage and the importance of NAESB contracts.
He shared with the Board that on the agenda for later in the year,
the Department will be seeking the Board's recommendation to
approve the Department's authority to enter into NAESB wholesale
enabling agreements. He continued by mentioning that gas is
required for operating the Magnolia Power Project, which is a 24
hours a day 7 days a week operation. Natural gas is also required
for the peaking facilities: Canyon Power Plant and the Kraemer
Generating Station. Managing the gas portfolio is an important
factor because of the amount of fuel that Magnolia burns. Every
dollar spent on gas unit price translates to approximately $5 million
in expenses.
There are a few options in terms of how the portfolio has been
managed in the past. The long range commitments act as a hedge
against price volatility. They also provide a guaranteed supply.
The shorter term gas, if purchased a month ahead or a year at a
time, reduces the commitment over a long period of time and allows
the opportunity to take advantage of price drops. A gas portfolio
for Magnolia Power Project has been developed. He invited the
Board's attention to a graph that displayed the rise and fall of gas
prices over the last six years.
S. Sciortino continued by sharing that natural gas prices have not
been as volatile in the last eighteen months but, in terms of
protecting against shortages, the Department wants to ensure it is
doing a good job of managing price volatility. Typically when gas
is purchased, the contracts are based on daily deliveries rather than
in terms of total volume for a month or year. The contracts specify
how much is to be delivered on a daily basis.
With respect to Magnolia Power Project, the total amount of fuel
used on a daily basis is approximately 15,000 Million Metric
British Thermal Units (MMBtu) per day. For the peaking facilities
it is not necessary to purchase gas in advance as a pricing hedge
because those facilities are not used daily. The peaking units are
typically used during the summer and their output is bid into the
market based on daily spot gas pricing. Their operations are based
strictly on daily market economics.
He continued the presentation by showing the Board a graph that
displayed the long term gas supplies that have been procured
including Pinedale and Barnett gas reserves and a graph that
showed the tracking of the contracts in terms of when they were
purchased and the prices they were procured at.
To date, the primary source supply has been with the procured gas
reserves and prepay contract for long term supplies. Shell has
ACTION TAKEN
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AGENDA ITEM
exclusively supplied the gas that was procured for short -term use.
In addition to supplying gas, Shell also schedules gas for the
Department on a daily basis. The reason for only buying from one
supplier is, typically with short term contracts, the market dictates
pricing so that the different companies such as Shell do not
influence or direct the price charged for gas but refer to the market
indexes for pricing. What is driving the need to go beyond Shell is
that the Department would like to be able to look at a mid -term
contract that runs 2 — 5 years as opposed to a 20 year commitment
that is done with the long term supply or shorter term contracts for
one year or less.
Another reason is that the Department could actually use biofuels to
burn at the Magnolia Power Project and have that count as a
reduction against the greenhouse gas emission, but also count as a
renewable resource.
In order to achieve this, the NAESB contracts are used which are, in
a sense, a master agreement with the supplier, in that utilizes a
template with the supplier that identifies standardized terms such as
definitions, scheduling, ordering, billing, and damages. NAESB
agreements are similar in concept to the Western System Power
Pool (WSPP) agreement for standard transactions in the energy
industry.
By signing a NAESB agreement with other parties in addition to
Shell, there is no commitment for specific gas purchase amount or
price. Actual procurement would only take place under a
confirmation agreement that would identify price, quantity, term
and point of delivery. The NAESB just provides a pre -set of
general terms with the supplier so that contractual procurement can
take place at a later date.
The intent of using NAESB agreements is to procure gas with a 2 —
5 year term with different suppliers in addition to Shell as an
example for the procurement of biofuels; however, those contracts
would likely be 10 years or longer. Under those conditions, the
Department would go back to City Council for the authority to enter
into the longer term contracts.
Additional use of NAESB contracts include, diversifying suppliers
for optimal pricing and acquiring mid -term supplies to fill gaps.
Biofuels at the Magnolia Power Project would also qualify under
the Renewable Portfolio Standards and the cost advantage for this
particular aspect is 20% below what the cost would be for a
geothermal or some other renewable project.
Another positive feature of using biofuels at the Magnolia Power
Project is based on the 50% failure rate for renewable projects that
have been opted into. With "steel in the ground" or in other words
a project that is already developed such as Magnolia, the project
already exists and has the fuel already there and used. This takes
ACTION TAKEN
2011 -94
AGENDA ITEM ACTION TAKEN
away the development risk and the production risk associated with
the development of a new renewable resource.
This item was presented as a means of allowing the Board
additional time to consider and discuss such a complex item. A
variety of questions were asked by the Board as they considered the
presentation material. The actual item recommending that the
Board formally support staff s recommendation will be made at a
later Board meeting after any remaining Board inquiries have been
satisfied.
5. APPROVAL OF THE SECOND AMENDED AND
RESTATED METERED SUBSYSTEM AGREEMENT
BETWEEN THE CALIFORNIA INDEPENDENT SYSTEM
OPERATOR AND THE CITY OF ANAHEIM. *
M. Edwards indicated to the Board that as the Federal Energy
D. Morgan moved approval of
Regulatory Commission (FERC) approves the changes in the
the Second Amended and
Independent System Operator (ISO) tariff, so the Metered
Restated Metered Subsystem
Subsystem Agreement (MSSA) between the ISO and the City needs
Agreement Between the
to go back to City Council for approval. The change is a positive
California Independent System
one, because it has the effect of moving more towards a cost
Operator and the City of
causation model in terms of allocation. Every time the MSSA
Anaheim. J. Machiaverna
changes, it will need to be presented to City Council for approval.
seconded the motion.
MOTION CARRIED: 6 -0.
6. UPDATE ON SOUTHERN CALIFORNIA WIND STORM.
ABSTAINED: 0. ABSENT:
1 (P. Carroll)
D. Lee invited the Board's attention to a series of slides that
displayed the extent of damage experienced in the San Gabriel
Valley due to Los Angeles County wind storm in late November
and early December. Damage was so severe that schools and other
facilities were forced to close. Well over 400,000 customers were
affected by outages caused by winds of 40 -60 miles per hour with
gusts reaching upwards of 100 miles per hour in some cases.
D. Lee shared with the Board that Anaheim first monitored events
in Anaheim and had personnel ready to mobilize to local outages.
Since there were no wind- related outages reported in Anaheim, two
electric utility crews were dispatched to assist the City of Pasadena.
Crews mobilized very quickly, arriving the Friday after the storms,
and worked to help repair and restore power in Pasadena.
M. Edwards shared that one of the major challenges the City of
Pasadena experienced was their overall communication with
customers. As a result, there has been discussion of implementing
visible tagging systems so that power outages could be identified
should a similar event impact Anaheim. The utilization of
Anaheim's Hi Neighbor distribution lists may be one way in which
to outreach to individuals and neighborhoods.
D. Lee concluded the presentation by sharing a historical chart of
wind outages in Anaheim. Over a 21 year period, there have been
approximately 480 wind outages with a vast majority occurring in
the month of January. The charts also showed that there were
2011 95
AGENDA ITEM
significant wind - related outages in 2003. A broader presentation on
the specific lessons learned will be provided to the Board at a later
date.
7. UPDATE ON WATER SYSTEM ISSUES.
Hidden Canyon Pump Station Project
D. Calkins provided an update on the Hidden Canyon Pump Station
Project. As a result of City Council's recent approval to purchase
property from a local homeowners association, the Project can now
move forward. The Project was recently bid and will be going to
City Council in January for award of a construction contract.
Windy Ridge Water Storage Tank Project
D. Calkins referred to the presentation for the Board at the October
meeting on the proposed Windy Ridge Water Storage Tank Project.
On December 5th, staff mailed letters and Project information to
about 600 residents in east Anaheim near the Project site. This
information is to advise residents about the Project before the
consultant moves in heavy equipment in mid -January to do
exploratory soils investigation work. As a result of the mailing,
staff has received two responses. Both inquiries were positive;
expressing appreciation for the City doing the project to improve
fire protection, but emphasizing the importance of aesthetics. He
assured the Board that staff will continue to communicate and work
with the community.
Water SuppIv Conditions Update
D. Calkins shared with the Board that beginning next month they
will be provided with monthly water supply conditions updates for
the winter. Currently, the water supply situation is excellent as a
result of a last winter, which was wet, allowing large volumes of
water to be placed into storage. Therefore, at this point, water
supplies are strong, but the last few months have been drier than
normal.
Water is Life Calendar
D. Calkins referred to the annual water calendar from the
Metropolitan Water District (MWD) that was handed out. He
invited the Board's attention to the artwork for the month of
December, which includes a poster from an Anaheim 6' grade
student from Acaciawood Elementary School. Recently, the poster
contest winners, including the Anaheim student, were recognized at
an awards ceremony at MWD Headquarters in Los Angeles.
Anaheim's OCWD and MWD Directors
D. Calkins advised the Board that Iry Pickier has resigned as
Anaheim's Director on the Orange County Water District (OCWD)
Board, effective January 31, 2012. At the December 6th Council
meeting, Harry Sidhu was appointed as Anaheim's new OCWD
Director, effective February 1, 2012. Also, at the December 6th
Council meeting, Kris Murray was reappointed as Anaheim's
Director on the Metropolitan Water District Board. The Board
ACTION TAKEN
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AGENDA ITEM
suggested the City should recognize Mr. Pickler for his dedication
and service to the water industry overall.
8. UPDATE ON ELECTRIC SYSTEM ISSUES.
D. Lee informed the Board that the dedication for the Canyon
Power Project has been set for March b, 2012, at 11:00 am.
9. UPDATE ON FINANCE ISSUES.
E. Zacherl invited the Board's attention to the November Financial
Dashboard provided to them at their place settings. Revenue for
both electric and water came in slightly under budget. Electric was
approximately $500,000 or 0.25% under budget. The offset in
expenses were down $2.7 million or almost 2 %. Water was similar
with revenues under budget by approximately $100,000 or 0.4%
offset by expenses under budget by approximately $1,000,000 or
4.7 %. He also shared with the Board that the annual financial audit
was completed and the final reports were just being issued and will
be provided to the Board at the January meeting. He was also
happy to report that the information will be used to go back to the
rating agencies to explain to them that the results are better than the
projections provided to them last April. If market interest rates
continue to be at the current low levels, it may provide some
refinancing opportunities in the coming year that could provide
additional debt service savings.
10. UPDATE ON JOINT SERVICES ISSUES.
None.
11. UPDATE ON RISK & LEGISLATIVE/REGULATORY
AFFAIRS ISSUES.
J. Lehman shared that Hoover Power has been renewed for another
50 years because President Obama signed the legislation yesterday.
She also mentioned that the next State legislative session starts on
January 4th, and there will be a PUB Legislative Working Group
meeting in January.
12. POTENTIAL AGENDA ITEM(S) FOR THE NEXT PUBLIC
UTILITIES BOARD MEETING ON JANUARY 25, 2012.
• Quarterly Utilities Capital Improvement Project Report
• Quarterly Utilities Spot Bid and Pre - Qualified Awards
Report
• Carbon Offsets and California Carbon Allowances
Transaction
• North American Energy Standards Board Wholesale Gas
Enabling Agreement
• Agreements for the Customer Information System
Replacement Project
2011-97
ACTION TAKEN
AGENDA ITEM ACTION TAKEN
• Out of Area Service Agreement to Provide Water and
Sewer service to a 70 -unit Apartment Complex in Buena
Park
• Master Agreement to offer assistance to customers on
backflow device installations
13. ITEMS BY SECRETARY,
M. Edwards shared with the Board that internal strategic planning
process is actually engaged in year round. There are a variety of
benchmarks that are used to track and indicate successful utility
management.
She provided the Board with three handouts: a draft version of
Utility Success Indicators, California Systems Average Electric
Rates, and a June 14, 2011 staff report regarding Guiding Principles
for the Development of Legislative Positions. She indicated to the
Board that a discussion of the success indicators would be
agendized for a later Board meeting.
14. ITEM (S) BY THE BOARD
C. Peltzer asked about the Brea Landfill's progress. S. Sciortino
responded by sharing a brief photo presentation that displayed the
progress.
S.E. Faessel shared a conversation she had with an Anaheim
resident regarding the OPower comparison letter received in the
mail. She also wished everyone Happy Holidays and a Merry
Christmas.
D. Morgan thanked M. Edwards for preparing the information that
will be reviewed at the next Board meeting. He also wished
everyone a Merry Christmas and thanked everyone for a great year.
J. Machiaverna echoed D. Morgan's thoughts for a Merry
Christmas and Happy New Year. He shared that it had been a great
year, and he is looking forward to another good year.
J. Brandman thanked staff for the tour of the Canyon Power Plant.
He is also looking forward to the Canyon Power Project dedication
on March 6th. He wished everyone a Merry Christmas and Happy
New Year.
15. ADJOURNMENT: (TO THE REGULAR MEETING ON
JANUARY 25, 2012, AT 5:00 P.M., IN THE 11" FLOOR
LARGE CONFERENCE ROOM, ANAHEIM WEST TOWER,
201 S. ANAHEIM BOULEVARD, ANAHEIM,
CALIFORNIA).
D. Morgan moved to adjourn
the Regular Meeting at 7:10
p.m. to the Board's next
201 1 -98
AGENDA ITEM
Respectfully su �) �
Marcie L. Edwards
Secretary, Public Utilities Board
ACTION TAKEN
Regular Meeting date of
January 25, 2012 at 5:00 p.m.
S.E. Faessell seconded the
motion. MOTION
CARRIED: 6-0.
ABSTAINED: 0. ABSENT:
1 (P. Carroll)
* Indicates item(s) that will be forwarded to City Council for action upon recommendation by the Board.
** Indicates item(s) that will be forwarded to City Clerk and City Council for informational purposes.
2011 -99