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1977/05/2677-605 City Hall. Anaheim. California - COUNCIL MINUTES - May 26, 1977. 4:30 P.M. The City Council of the City of Anaheim met in adjourned regular session. PRESENT: ABSENT: PRESENT: ABSENT: PRESENT: COUNCIL MEMBERS: Kaywood, Seymour, Kott, Roth and Thom COUNCIL MEMBERS: None PUBLIC UTILITIES BOARD: Stanton, Townsend, White, Kiefer, Haynie and Keesee PUBLIC UTILITIES BOARD: Anderson ASSISTANT CITY MANAGER: William T. Hopkins CITY ATTORNEY: William P. Hopkins CITY CLERK: Linda D. Roberts UTILITIES DIRECTOR: Gordon Hoyt ELECTRICAL SUPERINTENDENT: George Edwards WATER SUPERINTENDENT: Larry Sears Mayor Thom called the meeting to order at 4:30 P.M. noting that the joint session was called in response to request received from the Public Utility Board Chairman, Ken Keese, for discussion of electric rates. 175: RETAIL ELECTRIC RATES: Mr. Hoyt su~mmrized that this meeting is the result of discussions held earlier with both the Public Utilities Board and City Council and is a necessary step to determining the course and policy which the Utilities Department should utilize in establishment of electrical rates to conform with the Charter Amendment approved by the voters o~ November of 1976, i.e., that rates be based on cost of service. Mr. Hoyt reviewed a list of expenses to the utility which should be covered by the rate~of return from retail electrical sales, in response to which Mayor Thom commented that it is far too complex an approach and, instead, suggested that the Utility Department simply add up its total cost for the year and then divide that by the number of customers served to determine a flat rate for all customers, as has been used in a midwestern city. Mr. Hoyt com~ented that this approach would not fairly allocate customer demand and energy charges to those who incur same, and would most probably result in large transfers of these kinds of costs to residential: consumers, whereas with present rate-making policy, these costs are charged to those customer classes which incur them. He noted that a ma]or portion of the electrical bills of such organizations as Disneyland and Rockwell are related to demand charges. He roughly calculated that this method would amount to a charge of approximately $33.00 per customer, in addition to the kilowatt hour charged. He suggested an alternative to this approach which would be more reasonable, which would permit the utility to collect the same rate of return from each class of customers. He explained that the utility, with its rate-making policy being based currently on Edison rates, does not collect the same rate of return from each customer class, and that at the year ending March 31, 1977, the rates of return were: a positive 5-1/3% for residential customers; a positive 18-1/4% for co~ercial customers; and negative 8-1/2% from industrial customers. He stressed that with the budget proposed for Fiscal Year 1974-78, the utility will need to recover a 13-1/2% rate of return after paying expenses. 77-606 City Hall, Anaheim, California - COUNCIL MINUTES - May 26. 1977, 4:30 P.M. Mr. Hoyt added that in deliberation of rate-making policy, the Council should also consider the source of the subsidy for lifeline rates since an equal rate of return from all customer classes would place the lifeline subsidy entirely on the residential class, whereas if the Council feels this expense should be borne by all consumers, then a higher rate should be charged to the industrial sector. He con~nented that the California PubliC Utilities Commission, as he understands a recent ruling, may soon require that all customers in all classes help subsidize the lifeline shortfall. Mr. Hoyt concluded that the Utilities Department and the Public Utilities.Board need direction from the Council to assist them in establishing rates which will be in conformance with Council Policy. Following extensive dialogue with the Council, Mr. Hoyt summarized that from this discussion, as he understands the Council's position, they would like the Utilities Department to establish a rate policy which would result in the same rate of return for each class of customer and that the cost of lifeline service should be borne by all customer classes equally. Council, by general consent, concurred with his summarization. Councilman Seymour, in addition, requested should this policy cause one customer class to be more heavily impacted cost-wise,that the Utilities Board come up with some alternatives such as a phase-in program for the new rates. BUDGET FORECASTS: Mr. W. T. Hopkins explained that the City utility is going into Fiscal Year 1977-78 with a deficit position in working capital, and financing in-house capital improvements out of on-going revenues. This affects rate structure in that it is taking money out of general operating revenues. Mr. Hoyt reported that in the 1977-78 proposed budget there are several major items which the City needs to cover from increased rates, these being: 1) the increased cost of purchased power from Southern California Edison (up $4.5 million dollars over last year); 2) the increase in capital outlay from current revenue by $2.25 million dollars); 3) the increase in the proposed transfer to the General Fund of $365,000; 4) the increase in working capital to $3.5 million dollars. Mr. Hoyt pointed out that these represent an increase of approximately $10,800,000 in costs from these items over which the Anaheim utility has no control. Faced with these increased costs, Mr. Hoyt explained that if the rates are set to provide an equal rate of return from each customer class, the return rate necessary would be 13.46%. This would require that residential rates be raised by 18.8%, commercial rates by 5.6%, industrial rates by 26.6% and municipal rates by 32%. Mr. Hoyt summarized another problem which the Council needs to address, being the timing of any rate increases; i.e., whether or not"to increase the rates in several stages or all at once to achieve stability. It appears that the City of Anaheim rates will have to be over Edison's slightly for a portion of the year until something happens to lower the City's cost of purchased power. Otherwise, it would be impossible to stay in good financial position and end the year with good working capital. He ~stimated that Edison rates will increase 27% to 28% over current rates by the end of 1977. In addition, the City must take into 77-607 City Hall,. Anaheim, California - COUNCIL MINUTES - May 26, 1977, ~.:30 P.~. account the fuel adjustment changes which vary as much as $400,000 to $500,000 per month. In response to Councilman Seymour, Mr. Hoyt explained that Southern California Edison has.received, as of the end of 1976, $130 million dollars collected subject to refund, from municipal utilities. If this entire amount were refunded, the City of Anaheim might expect to receive one-third. Councilman Seymour expressed his frustration with the fact that this price squeeze situation has been before the Federal Power Commission for five years without a decision, the end result being that the municipal utility consumers are being "ripped off". He stressed the problem is a political one and perhaps there are some pressures which should be exerted to attempt to obtain a speedy solution. In response to Councilman Kott, Mr. Hoyt explained that the City's industrial rates, while they would appear to be competitive because of the low rate of return to the City, were not in actuality, because they were based on Edison rates and were approximately the same. However, the City of Anaheim's costs and Edison's are not identical. He recalled that the last study comparing Anaheim and Edison's costs indicated that the City of Anaheim distribution and Operations group is smaller and more efficient and incurs a lower cost for services performed. Councilman Kott reiterated that his general philosophy is that if .the utility costs are the same or higher than Edison's, there is no advantage to owning a public utility; it then becomes difficult to justify. He stated that he would like to see the Public Utilities Board come up with what the advantages, disad- vantages and ramifications of selling the public utility would be, and that this should be one of the alternatives considered. Councilman Kott noted that the last review of the situation was in 1975, that the last two years have made quite a difference, and that the City should reconsider as to whether or not it is worth maintaining the utility through the current Edison price squeeze situation. Councilwoman Kaywood pointed out that there is.no doubt when looking at the record of the Anaheim public utility that the citizens have received a double benefit in lower rates and a transfer to the General Fund for quite some time; that there is a very short period in which the City of Anaheim rates were equal to Edison's, and the City is still receiving a transfer to the General Fund which helps to maintain lower property taxes. Councilwoman Kaywood concluded that if the City of Anaheim were to divest itself of the utility, then they would have no choice but to pay whatever rates are charged. 175: GENERATION - REPORT ON STATUS OF INTERMOUNTAIN POWER PROJECT EIR: Mr. Hoyt stated that at a recent Intermountain Power Project Board Meeting, it was reported that the schedule for production of the EIR required by the California Environ- mental Quality Act has slipped several months, and this report will not be complete until some time in July, which means that the decision on the project, will not have to be made as early as previously thought and, therefore, the ballot proposi- tion discussed for a November, 1977 decision by the voters would no longer be necessary. The same ballot question could be placed before the voters in March, April, or even June of 1978. 77-608 City Hall, Ana~.eim, California - COUNCIL MINUTES - May 26, 1977, 4:30 Mmyor Thom noted that this postponement would represent a substantial savings to the voters in the amount of about $65,000 for a special election. MOTION: Councilman Roth moved that the City Council not conduct a special election in November of 1977 to place the question on participation in the Intermountain Power Project before the voters. Councilman Kott seconded the motion. MOTION CARRIED. COMMUNICATION AND COMMENTS FROM THE PUBLIC UTILITIES BOARD: Mr. Joe White voiced the opinion that the Public Utilities Board has not received sufficient information from staff to make decisions of the magnitude and far-reaching effects as some of the generation projects proposed. He felt that there is still a great deal of information regarding the utility which the Board does not yet have a handle on, and that they are not, therefore, fulfilling the Council's intent when this advisory board was established. Mr. Keesee disagreed, noting that he has observed the City staff to be most accommodating and helpful in providing information to the Board. Mr. Townsend agreed that the information is ample, but also concurred with Mr. White that the consequences to the City's future of the recommendations being made to the Council by the Public Utilities Board are extremely far reaching, in view of the amounts of capital required. He stressed that he felt the Board and Council should come up with a comprehensive plan for generation and with a bottom line for expenditures. He voiced the opinion that the Anaheim electorate would become "unglued" if they realized, although the $150 million bond issue was recently approved, that the cost for participation in generation projects of $800 million may be approached. Mr. Hoyt responded briefly that current economics still indicate the cost savings from generation will be realized. Mr. Stanton requested that Council directives to the Public Utilities Board be addressed to the Board, specifically, in writing. 175: WATER RATES: Mr. Hoyt reported, in response to Council concerns expressed several weeks ago regarding the surcharge being levied by the Metropolitan Water District, that the City is now pumping 60% of its water supply from the basin, and at the current time does not feel there will be the need for any increase in rates to pay penalties from the Metropolitan Water District. He reported that the Public Utilities Board is reviewing the revenue situation and proposed budget, as well as working on some conservation-related issues, and will be making recommendation to the Council on water rates. Councilman Seymour suggested that the Board consider the strategy in a conser- vation push of setting water rates so that a consumer who effects the requested 10% reductzon under last year 8 consumption would pay les~ than he did for water last year, whereas that consumer who does not meet the 10% reduction be required to pay 20% more for his water than last year. In his opinion, this approach would put the motiPation in the proper place and, at the same time, give credit for those who use conservation measures. 77-609 City Hall~ Anaheim, California - COUNCIL MINUTES - May 26~ 1977~ 4:30 P.M. ADJOURNMENT: Councilwoman Kaywood moved to adjourn to Tuesday, May 31, 1977 at 10:30 A.M. to meet in Executive Session on personnel matters. Councilman Kott seconded the motion. MOTION CARRIED. PUBLIC UTILITIES BOARD ADJOURNMENT: Mr. White moved to adjourn. Mr. Townsend seconded the motion. MOTION CARRIED. Adjourned: 6:25 P.M. LINDA D. ROBERTS, CITY CLERK City Hall~ Anaheim, California - COUNCIL MINUTES - May 31~ 1977~ 10:30 A.M. PRESENT: ABSENT: PRESENT: The City Council of the City of Anaheim met in adjourned regular session. COUNCIL MEMBERS: Kaywood, Roth and Thom COUNCIL MEMBERS: Seymour and Kott CITY MANAGER: William O. Talley CITY ATTORNEY: William P. Hopkins CITY CLERK: Linda D. Roberts Mayor Thom called the meeting to order at 10:35 A.M., whereupon, by general consent, the Council recessed into Executive Session. AFTER RECESS: Mayor Thom called the meeting to order, all Council Members being present with the exception of Council Members Seymour and Kott. (12:04 P.M.) ADJOURNMENT: Councilman Thom moved to adjourn. Councilman Roth seconded the motion. Council Members Seymour and Kott were absent. MOTION CARRIED. Adjourned: 12:05 P.M. LINDA D. ROBERTS, CITY CLERK