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1980/01/3180-95 City Hall, Anahei~,..Ca~f0rnia - COUNCIL MINUTES - January 31~ !9B0~.7:00 P.M. The City Council of the City of Anaheim met in adjourned regular session. PRESENT: ABSENT: PRES ENT: ABSENT: PRESENT: COUNCIL MEMBERS: Overholt, Kaywood, Bay, Roth and Seymour COUNCIL MEMBERS: None PUBLIC UTILITIES BOARD: Keesee, Anderson, Townsend, Stanton, Haynie, White and Kiefer PUBLIC UTILITIES BOARD: None CITY MANAGER: William O. Talley CITY ATTOP~NEY: William P. Hopkins CITY CLERK: Linda D. Roberts PUBLIC UTILITIES GENERAL MANAGER: Gordon W. Hoyt PUBLIC UTILITIES ASSISTANT GENERAL MANAGER: Edward E. Alario Mayor Seymour called the adjourned regular meeting to order for the purpose of meeting jointly with the Public Utilities Board. Chairman Ken Keesee called the Public Utilities Board to order, all members being present. Public Utilities General Manager Gordon Hoyt first explained that the meeting was the first of a series of public meetings directed to be held by the City Council to discuss with the general public, the Public Utilities Board (PUB) and the Council, the Intermountain Power Project (IPP) and how it would affect the City. He then outlined the general format of the meeting and named those who would be speaking: Mr. James H. Anthony, Project Engineer, Intermountain Power Project, Room 943, General Office Building, Department of Water and Power, Los Angeles - Mr. Anthony would discuss the project relative to its technical ram- ifications, its location, description, costs and environmental considerationa. Mr. Winston H. Peterson, Manager, Seattle area office of R.W. Beck & Associates, Engineers and Consultants, Seventh Avenue at Olive Way, Seattle, WaShington, who had analyzed the IPP and economic effect on Anaheim, would explain how he had approached the question of benefits that would accrue to the City by partic- ipating in the project. Following the presentations, the floor would be open for questions. Mr. Hoyt stated that he had distributed to the Council copies of the contract documents, which contract would be entered into by those entities who contracted to purchase power from the IPP - statement of offer to Prospective Purchasers - Intermountain Power Project (on file in the City Clerk's office) copies of which had been placed in the main and branch libraries for public inspection. At the next meeting, Wednesday, February 13, 1980 at 7:00 P.M., they planned to have Mr. Bob Verdun, Mudge, Rose, Guthrie and Alexander, New York City Bond Counsel and Mr. Alan Watts, Special Counsel for the City and Chairman of the Legal Committee of IPP, to review the contract with the PUB and the Council, so that all contractual conditions would be clearly understood by everyone. As well, Mr. Frank Martin, Vice President of Goldman Sachs Company, financial ad- visors on IPP, would be present and hopefully by that time a senior underwriter for the project and also a representative of that firm to discuss the outlook on interest rates and the economy during the period of the IntermoUntain construction. 80-96 City Hall~ Anaheim~ California - COUNCIL MINUTES - January 31, 1950~ 7:00 P.M. The Council also expressed the desire to either frame or discuss the ballot wording. He felt that the first two meetings would be taken up with providing information, and any subsequent meetings could be devoted to working towards those ballot questions. Mr. Hoyt then introduced Mr. James Anthony. Mr. James Anthony, Project Engineer and Principal Power Engineer with the City of Los Angeles, Department of Water and Power, Manager of coal fuel projects for the Department, relayed the entire history of the IPP, in conjunction with a pertinent slide presentation, from its inception six years prior up to and including its present status. He considered the IPP to be Southern California's most promising energy resource for the 1980's. The extensive presentation included data relative to site selection, environmental compliance, the long approval process and the formation of a 30-person siting task force jointly established by the Department of Interior and State of Utah. They evaluated the six alternate sites which included the Salt Wash site on which they had spent $7~ million. It was finally concluded, however, that the administration would not approve the Salt Wash site because of newly imposed environmental con- siderations and subsequently an alternate site at Lynndyl was chosen, a number of studies performed, and one year ago the I?P Board filed parallel applications for the grants of rights of way at the Lynndyl site. It appeared that they had support relative to that site, including the environmental groups. They also filed all the necessary documentation with the Bureau of Land Management (BLM) so that it could be included as an alternate to the Salt Wash site. On December 19, 1979, the Secretary of Interior approved the entire project which included the site for the power plant at Lynndyl, 500 miles of transmission line right of way in Utah, and 980 miles of transmission line right of way to Southern California over three states. (see IPP - secretarial issued document - IPP - United States Department of the Interior - Bureau of Land Management - discussing the site selection in detail, as well as Lynndyl alternative site, Vol. No. 6 - Preliminary Engineer and Feasibility Study - both on file in the City Clerk's office) Mr. Anthony also described the plant itself which was similar to the Navajo Power Plant but which would consist of four 750,000kw units (see Lynndyl alter- native site Vol. No. 6 describing raw material sources and requirements, gener- ating station and support facilities, water supply system, transportation system, power transmission system, utilities, community development, construction and permanent work force, environmental monitoring). He also pointed out that 90% to 95% of the coal in Utah was underground and that coal would be mined by underground techniques. Four 85-car trains a day, six days a week would transport the coal into the plant which would burn approximately nine million tons a year. He then described in detail how a coal fired generating plant produced electricity. He also reported that $600 million would be spent on pollution control in trying to make the plant the cleanest burning they could. He further explained that the method to be used to get the power down to Southern California would be over a high voltage DC transmission line instead of AC, which was a new and innovative way of transmitting power over long distances. Only two cables were needed on the transmission line, whereas three were needed for AC and thus larger towers would be necessary. Capital costs were less utilizing DC, but one of the key factors in the selection of DC was the ample capacity in those lines for future energy supplies to Southern 80-97 City Hall~ Anaheim~ California - COUNCIL MINUTES - January 31~ 1980~ 7:00 P.M. California. Two lines for a total of 980 miles would bring the power down to Victorville where a converter station would convert the power back to AC which, in turn, would be transmitted into the Southern California Edison (SCE) system and the Los Angeles Department of Water and Power system where it would subse- quently be distributed to participating cities. Mr. Anthony also reported on the number of workers needed to support the project and the socioeconomic effects and what they were planning to do to assist the surrounding communities in preparing proper planning to accommodate the popula- tion influx. Mr. Anthony further explained that one of the advantages from the Department of Water and Power standpoint was the method by which they were going to finance the project. It was economical to produce power in the larger plants precluding the necessity of many coal delivery systems, water systems etc. if many smaller plants were involved. However, the cost was very high and they found it difficult, as most utilities, to raise the capital to build. At the outset, they set up a non-profit corporation in Salt Lake City called the Intermountain Power Project. They envisioned that it would issue tax-exempt revenue bonds, gather the money and pay for the design, construction and operation of the power plant. The collateral against which it would borrow money would be the power sales contracts with the various participants including Los Angeles and Anaheim who would sign to guarantee purchase of power from the plant. However, after about two or three years into the project, the Internal Revenue Service (IRS) made a ruling which prohibited the use of a non-profit corporation for that type of funding. They then devised an alternative approach whereby they went to the State Legislature of Utah and secured an amendment to one of their laws - the Interlocal Cooperation Act. The law previously permitted cities to Join together to do things, and the amendment permitted the entities so formed by the various cities to issue revenue bonds themselves. The Intermountain Power Agency was formed about two years ago and the Agency was going to issue tax-exempt securities for the entire design and constuction costs. The various cities and utilities would then sign power purchase contracts to pay for the cost of capital required to build the plant. They found that to be very attractive, offering the benefit of municipal financing. They were looking at a rate of 8% at which to borrow capital, whereas a few years ago it was 6 3/4% on tax-exempt securities. The estimated cost of a generating station in today's dollars if they could build instantly was $2,306,000,000 including interest during construction. The Southern California Transmission system would cost approximately $593 million and the cost of the power at the generating station approximately 25 mills Per kwh and 32 mills to get the power delivered to Victorville. He m~phasized those figures were prepared for the Salt Wash site. They were Just completing an estimate for the plant located at the Lynndyl site, since approval was given as late as December. The cost figures for the Lynndyl site would be completed in approximately two weeks~ and they would perhaps escalate because the estimate was based on the 6 3/4% bond interest with a certain inflation rate. They were updating the figures and were using the 8% interest rate. Mr. Hoyt suggested that questions be held until Mr. Peterson completed his pre- sentation as well. He then explained that they had made a presentation to the Public Utilities Board at their afternoon meeting indicating what the effects of the recent increases in OPEC oil were going to be. Their recommendation was going to be approximately a 15% to 17% increase in electric rates, effective 80-98 City Hall~ Anaheim; California - COUNCIL MINUTES - January 31~ 1980~ 7:00 P.M. March 1, 1980, because of things that took place in December. That did not take into consideration recent oil cost increases announced in January and the last few days. Southern California Edison had gone to the State Public Utilities Commission and in about two weeks they had secured an increase of approximately 10 to 13% which did not reflect the increase in oil costs. It reflected an increase in the amortization period for their Energy Cost Adjustment (ECA) balancing account which would be in effect February 3, 1980. They (Southern California Edison) also indicated that effective March 1, 1980, they were requesting an additional increase of approximately 30 to 33% on a retail basis. Therefore, they were looking at unbelievable oil increase costs. The two SCE requests rep- resented an approximate 50% increase in three months. That was one of the reasons why they were so interested in looking at non-oil alternatives for power supply. Mr. Hoyt continued that he was going to ask Mr. Peterson to discuss how R.W. Beck had analyzed the cost of the project relative to Anaheim's alternatives for obtaining electric power to meet the City's needs in the mid-1980's and the savings that would result to Anaheim. He believed in Mr. Peterson's estimate. He used the project interest rate cost, and thus they could expect those to increase somewhat. He also used $27 a barrel which had risen since the time of the study. The savings indicated, therefore, should be somewhat larger. Two weeks ago, the Council and the Board were given a copy of letter dated January 31, 1980 from R.W. Beck & Associates indicating the magnitude of savings that would be available by purchasing power from IPP, rather than SCE. That was based on the forecast they had submitted to the California Energy Commission (CEC). In recent weeks, the CEC adopted an official forecast for them that changed slightly from the forecast they had in the past, and Mr. Peterson would discuss that as well. A copy of the January 31, 1980 letter was available for distribution to the audience. Mr. Winston Peterson, Manager, Seattle area office, R.W. Beck & Associates, then described the methodology they had gone through in trying to compare and evaluate the cost of the IPP and comparison of alternatives that might be available to the City. He referred to, and his presentation was based upon, the January 31, 1980 letter with attachments Exhibit "A", Page 1 through 5 - Letter File No. SF-4124-EF1-MX (on file in the City Clerk's office). The general theory they used in evaluating the economic liability of the project was that they tried to take a look at what the City's power cost would be if it did not enter into the agreement for the IPP and then to look at what the City's power cost would be if it did enter those agreements and operated the project in accordance with the Integrated Operations Agreement with Southern California Edison which resulted from the settlement agreement of years back. He first referred to Exhibit "A", Page 2 of 5 - Southern California Edison cost of power without projects, 1987 to 1996 and briefed the Council and the Public Utilities Board on the figures contained therein. Mr. Peterson cautioned, however, that in forecasting that far in advance, it included a significant number of assumptions. Mr. Peterson next briefed Page 3 of 5 - Cost of own Generation with a 10% share of the for Anaheim; Page 4 of 5 - Purchase power costs; Page 5 of 5 - Anaheim contract energy, and finally, Page 1 of 5 - power cost for Anaheim with IPP - summ-ry sheet - showing a total savings from 1987 through 1996 of $379.4 million. 80-99 City Hall, Anaheim, California - COUNCIL MINUTES - January 31~ 1980~ 7:00 P.M. Mr. Peterson pointed out that the very last line on the su~ry sheet was a small indication of the amount of energy that would be generated by IPP which could not be utilized by the City. For example, it would be generated at 3:00 in the morning in the month of May and the total input would be greater at that time than the City's requirements. In other words, there might be some hours when the project would be operating when the City could not fully utilize the total output. How- ever, the amounts of power were extraordinarily small and would diminish and at some time in the future would completely disappear. They had taken no credit for the sale of that surplus energy, but in the Integrated Operations Agreement, there was a provision whereby given adequate notice, SCE would purchase that power if it agreed to, at cost. Those dollars would then go as a credit to the City. Mr. Peterson stated generally that relative to any forecast of that nature, they did not know what OPEC was going to do or what oil costs were going to be and they were not certain what the U.S. economy would produce in the way of a general in- flation factor. On the other hand, they had, as Mr. Anthony indicated, a concep- tual estimate of the cost of the project, but no detail design estimate as yet, and there could be changes there as well. They tried through the analysis to standardize the assumptions that addressed all the unknown factors. They felt their estimate was conservative of the size of the SCE projected rates, and conservative in that it used the best cost they knew for IPP. They felt power cost savings of $30 to $60 million per year was the size of the scale of savings that would accrue to the City regardless of the other variations in cost. The underlying basis for the projection was that they would be dis- placing oil with domestically mined coal. That appeared to be a very viable trade-off in energy resources. Councilman Bay questioned the total energy requirements (Page 1 - S,,-~,-ry Sheet) in GWh escalating from 2,381 in 1987 to 3,667 in 1996. He wanted to know what that need growth factor was based upon; Mayor Seymour also questioned those figures and wanted to know what was going to happen in Anaheim that made them predict the City's need for electrical energy would be increased by 54% over that period of time. Mr. Hoyt first explained that they had employed Economic Sciences Corporation to help put together an Econometric Model of the City whereby they included all variables and various parameters that were applicable to such a study, including forecast of population growth, average income, etc. They also performed an end use model study, an appliance saturation survey, and an industrial study to determine the effects of industry and what its plans would be as to how future growth would take place etc. They incorporated all the information in a common forecasting methodology and submitted that to the California Energy Commission (CEC). Subsequently a number of hearings were held and at the end of the 18-month period~-the Commission provided a forecast for the City which the Utilities Department contested before the Commission, because the CEC forecast was lower than the Utilities Department forecast. Mr. Alan Watts and Tom Slatten, forecast engineer, appeared before the Energy Commission and convinced them essentially that the Utilities Department forecast was correct, and the Energy staff forecast was erroneous. After they contested the hearings, the Utilities Department forecast was accepted by the California Energy Commission. Councilman Bay was trying to ascertain if the projected figures contained anything extraordinary, such as electric cars by 1990 or the like; Mr. Hoyt answered "no". 80-100 City Hall~ Anaheim,. Califqrnia - COUNCIL MINUTES - January 31~. 1980~ 7:00 P.M. Mr. Tom Slatten explained that their forecast in the near term was both very accurate. He then elaborated further on the items Mr. Hoyt reported they used in formulating the forecast which included areas of economic and demographic factors. The commercial models also included various local economic indicators that primarily affected Anaheim. Mayor Seymour stated that it was still not clear to him. He reiterated he saw a 54% increase over a 10-year period in consumption of energy. If the population of Anaheim grew from its present 210,000 to 250,000 by that time, that would account for a 12% increase in electrical energy needs, assuming that the needs of present day uses did not increase. He was still interested in an explanation relative to the large increase indicated. Mr. Slatten explained that the largest growth area was in the industrial sector and that sector had the largest impact on the forecast. Industry was presently consuming approximately 35% of the total energy requirements in Anaheim. They were forecasting that the industrial sector would also compose the greatest amount of usage in the future. Mr. Hoyt then explained where utility dollars were generated: residential sales, 27¢; commercial, 25¢; industrial, 44¢; street lighting, 1¢; miscellaneous, 1¢; and other sources, 2¢. They were looking at industry providing the greatest pull of the electrical energy consumption in the City. In the year Just com- pleted (1977-78), there was a 6%% increase over all customer classes. The residential consumer used about 5.7% more energy than last year. On the commercial-industrial side, electric consumption had decreased 1.8% on indus- trial and 0.6% on commercial. The trend they were seeing since 1974 was toward conservation by industry in energy consumption. They were also seeing a lot more interest in conservation out of the residential consumers as well. Thus, they tried to factor these things into the energy forecast, and basically, they were finding that their forecasts were consistent with those of the rest of the Utilities in the State. Nothing unique was being planned for Anaheim that was not similarly being planned for other areas. Mayor Seymour asked if the Utilities total energy requirements were, for example, 25% high, how that would affect the bottom line. Mr. Hoyt answered that their billing forecast in the past was fairly accurate; Mr. Peterson stated by taking the year 1996 as an example, where the total energy requirement was 3,667 gwh, if that was reduced and they lost approximately 360 gwh or 10%, at that point in time, the IPP would still be displacing approximately the same amount of power from City purchases from Southern California Edison. At that point in time, by simply displacing the same amount of power, they would be displacing the same dollars or the cost savings would be in the Same relative magnitude as they had indicated. The Mayor thereupon opened the floor to questions from the public. Mr. Ian Skidmore referred to Exhibit "A", Page 1, surplus energy available (gwh), of the January 31, 1980 R.W. Beck letter, and asked if that surplus gwh had been impacting the cumulative savings figure. 80-101 City Hall} Anaheim,. Ca.lifornia -. COUNCIL MINUTES - January 31~ 1980} 7:00 P.M. Mr. Peterson answered that the surplus energy available was that amount of power which would not fit under the load curve of the City. As he explained earlier, that would occur at two or three in the morning in May or October and Anaheim's share at that point would be more than the load the City required, but it~ would be a rare occurrence. The magnitude was very small in comparison to, the total generating ability. They ignored the potential sales of the kilowatt hours, but if the City sold those hours, it would increase savings to the City. The cost of producing them was included in the cost of the project. Councilman Bay noted if there was a plan within the City, for instance, industrial use could use that energy at those off-peak hours; Mr. Peterson agreed and further stated that revenue could be derived from them. Mr. Fred Br6wn, 1531 Minerva, referred to Exhibit "A" Page 2, total energy, $556,367 in 1996, and asked if they utilized a cost per barrel of oil in any part of the forecast and if that factor was something that could be relied upon today. Mr. Peterson explained that the cost per barrel for oil was included in the forecast for the Southern California Edison wholesale power rates. They started with the basis in 1979 of $26.50 a barrel, increasing 10% a year for the first two years and declining to 8% after the fourth year. He assumed from their recent experience with the cost of oil that was a conservatively low estimate. To bring the cost of oil in line with the general inflation assumption, they used 8% and carried it out. If they were to redo the rate study today, they might have to start off with a larger cost per barrel. He further explained for Mr. Brown that they were also utilizing another power source other than oil as a basis. SCE had in its forecast its ownership share of San Onofre and its interests in the Palo Verde project and its small hydro projects that it currently owned. The fixed charges associated with an invest- ment in San Onofre Unit No. 1 was not escalated because it was fixed. Those costs which could be varied by escalation had been varied in the study. Mr. Brown wanted to know what the cost per btu was based upon on IPP if they used the $26 per barrel estimate as the cost of power from SCE. Mr. Peterson answered for the IPP, the Los Angeles Department of Water and Power staff worked on the analysis of the coal resources available in Utah based on today's prices and escalated that at 8%. He expected oil to rise at a faster rate in the short term, than coal. Councilwoman Kaywood asked if the figures presented were conservative, could the spread and the profit then be much greater. Mr. Peterson answered "yes" and if oil costs went higher, the savings reflected would be greater. Councilman Roth asked if there was enough coal to keep the project going over the years and if not, what would then occur. Mr. Anthony answered approximately 250 billion tons of coal presently existed in Utah. The project would use 297 million tons over the life of the project. He emphasized there were tremendous coal reserves in Utah that were completely tapped, and the source was located close to the plant. Relative to transportation 80-102 City Hall~ Anaheim~ California - COUNCIL MINUTES - January 31~ 1980~ 7:00 P.M. costs, Mr. Anthony explained that was the difference between the new site (Lynndyl) and the old site (Salt Wash), the cost of hauling the coal would be approximately 1¢ a ton, and thus transportation costs would now be relatively minor. Mayor Seymour wanted to know the location of the most recently developed coal- fired plant in the country and one which had been running for at least two years. Mr. Anthony stated it was the Navajo Power Plant in Page, Arizona (3 units) which came on line in 1971 to 1976 range. There was good availability on those, as well as the Mojave Power Plant currently owned by Los Angeles and SCE on the Colorado River, south of Las Vegas. They decided not to spend a lot of capital funds on the latter project and used cheap equipment to build the plant. The availability from that plant subsequently was very poor, and units were down 40 or 50% of the time. The Mayor asked if they projected down time in the n,,mhers presented and, if so, what those were. Mr. Anthony stated they conservatively projected a plant average over its whole life of 58% availability. He then explained the factors that were used in projecting plant capacity down time. Plants were at their peak after about a two-year maturation period which lasted for about 10 years. They then assumed a drop would take place primarily because there would be more efficient forms of generation and technological breakthroughs. Because the West was very energy deficient, however, they felt the plant would be base loaded all the time, because there would be no other resources to replace it. Mr. Anthony then answered a technical question from the audience relative to peak power operation. Mr. Joseph White, member of the Public Utilities Board, then posed the questions, relative to transmission capital, Exhibit "A" Page 3, January 31, 1980 R.W. Beck letter, of what was included in the debt service and the total cost of the plant. Mr. Anthony first explained that Southern California citizens only would have to amortize the cost of the Southern California Edison transmission system. The other items would be two transmission lines, the footings, steel towers, insulators and the most expensive part of the transmission line, the conductors. Those range generally from $200,000 to $400,000 a mile dependent on the rugged- ness of the terrain. Relative to the debt service, Mr. Peterson stated it included interest and the amortization on the bonds sold for the project by the Intermountain Power Association--their cost of raising the money adequate to construct the project, including some small subsidiary funds, such as reserve funds which are cap- italized from bond proceeds and other small funds. It was a level debt service based on the entire amount of bonds required to build the project. The figures shown in the debt service line (Page 3) included a fixed cost element for insurance and certain other fixed charges associated with the project. They based the estimate on the escalated figures that came from Mr. Anthony, the $2.9 billion figure escalated and calculated on how much interest would have to be funded during construction for the total amount of bonds that would be sold and those bonds would then be amortized over the life of the project. 80-103 City ~all~ Anaheim~ California - COUNCIL MINUTES - January 31~ 1980~ 7:00 P.M. Mr. Hoyt stated they had a 2.225% interest in the project as far as the generating station was concerned, but as Mr. Anthony mentioned they were not paying any of the costs of the Utah transmission system nor were any of the Utah participants paying the costs of the Southern California transmission system. On the Calif- orniatransmission system, the City's interest was approximately 17.65%. When Mr. Anthony mentioned a 4,000 mgw capacity of that line, therefore, 17.65% of that capability was Anaheim's or if somebody else wanted to use that share, the City could provide service at a cost. A cost basis for the generating station including interest during construction was $2,306,987,000. The cost of the Southern California transmission system including interest during construction was $593,150,000 in 1979 dollars. R.W. Beck took those costs and escalated them at 8% to the time of the money being spent. Once the project was built, in- flation would stop and that was one of the benefits. Mr. White wanted to know if the figures included what the City would owe and what the indebtedness would be upon completion of the project in 1989 or 1990--Just the bonded indebtedness they were going to guarantee on the construction of the plant and the transmission lines. Mr. Hoyt answered that those were the figures Mr. Anthony indicated earlier were going to be ready in a couple of weeks. Mr. White was concerned that the figures presented were not broken down and as understandable as those previously presented on the project. From the audience, a member of the public asked how much power cost Anaheim in 1978; Mr. Hoyt answered it was approximately $51.7 million. For July 1, 1980 through June 3, 1981, the figure projected was approximately $106 million for purchase of power. Thus, in 1980, costs for purchased power would be approxi- mately twice the 1978 figure. Mr. Hoyt pointed out that on Exhibit "A", Page 2, bottom line, if the City con- tinued purchasing power from SCE, in 1987, the cost would be $195 million which he suspected might be low. In 1996, the cost was projected at $556 million and thus they were talking about very large sums of money. Mr. Jim Townsend, member of the Public Utilities Board, stated that Anaheim was in the electrical business and thus, there were a number of things upon which they had to make a decision. What they needed to know tonight and through- out the public hearings was what the project would ultimately mean to the tax- payers of the City if they entered into the project. There was one factor which had not been mentioned and that was the federal government. It was almost im- possible to make a projection without understanding what the dollar would be worth somewhere down the line and what the federal government was going to do. His point was to make certain that the public understood that the cost of energy that Mr. Hoyt had to project, as well as the cost to build plants to provide that energy, that he was doing so at a great handicap because of the bureaucrats and controllers in the federal government who were deflating the dollar. People had to recognize that something was wrong in the country and the federal govern- ment was making it very difficult for them. 80-104 City Hall, Anaheim~ Calif?rnia - COUNCIL MINUTES -,~anuar~. 31, %980, 7:00 P.M. Mr. James West, 1537 West Kimberly Avenue, first asked if the City was in the electrical generation business today. Mayor Seymour answered that Anaheim had a portion of San Onofre and theVoters did approve a $150 million expenditure to have the City pursue electrical gen- eration. To that degree, they were in the business, but not nearly to the extent they would be if they entered into the IPP. Mrs. West then asked the average kilowatt use of a family of four in a three- bedroom house in Anaheim and also the cost for Los Angeles. Mr. Hoyt stated that the average residential use per customer in 1979 was 6,007 kwh/500 a month at a cost of $25.54, rising to $28.84 in March. Offhand, he did not know the rates for Los Angeles. Mr. West stated he obtained a rate schedule from Los A~geles indicating 6½¢ per kilowatt or $32.50 a month. Los Angeles generated its own power and paid $32.50 a month for electricity; Anaheim residents paid $25.54. He questioned .Why go into the electrical generation~business Mr. Hoyt explained that Los. Angeles generated a great bulk of its energy by burning oil andoil prices had gone "out of sight"; originally they burned natural g~s. The outlook for. everybody for the futurewas~ either coal. or oil. He was recommending they go into the business because the bottom line savings approached $40 million a year, as compared with continuing to buy from the present suppliers. Should Anaheim not decide to go into the project, Los Angeles and other cities would pick~up Anaheim,s share very quickly. The project would bring electri¢~ty .to Anaheim consumers at a~lower cost than if.purchased from SCE and assured the most reliable energy supply they could get. Mr. ~Alan Watts, Special Counsel, stated in the proceediqgs Edison Just went .through in front~of~the California Energy Commission, Edison's forecast pre- dicted that their load would outstrip their resources in the late 1980's when the IPP unit would be coming on line. If Anaheim and Riverside did not par- ticipate in the IPP, there would be a greater deficit in the Edison control area.or in.the customers, both wholesale and retail, that Edison served if their projections as to their load were correct. The Energy Commission did not agree with the Edison Company projections. If Edison was correct, there was a question of the adequacy of their supply. Mr. Hoyt confirmed that.~the IPP would insure an energy supply and should meet approximately one-half of the City's needs in 1990. ~ Mr. West stated the plan was to do what had never been done before. Los Angeles was saying they could do what they had never done before and that was to produce energy through municipal generation at a lesser cost than private industry; Mr. Hoyt stated it could not be said it had never been done before. Mr. Anthony then explained thatregardless of who would build the'power plant, investor-owned or a municipal utility, there were three things that entered into the cost of power: (1) the cost of raising the capital with which Ko build the facility; (2) fuel costs;and (3) operation and maintenance. The operation and 8 0 - 105 C~.ty ~_~!1~ i__-~heim~ California - COUNCIL NINUTES - January 31~ 1980~ 7:00. maintenance was minimal and the biggest difference between the cost of power produced for various utilities was relative to their fuel mix, which he further explained. Mr. West asked if they could show him a town today like Anaheim generating its own electricity at a savings to the users of the City. Hr. Peterson gave as an example the Clark County Public Utility District in the State of Washinston. It was a municipal corporation providing 11 mills per kilowatt hour to its residential customers or 1.1¢. Directly across the river was Portland General Electric and its costs were on the order to 2.5¢ per kilowatt hour to its residential customers. It was not a function of ownership in that case, but a function of corporate decision and federal law which made the distinction in the power costs. The complete decision on Portland's part was not to develop hydro electric resources historically, but to build new power plants. The City of Seattle generated an enormous amount of its own power and its rates were approximately 701 of the Puset Sound Power and Light Company rates and it basically surrounded the City of Seattle. Thus, ~here were examples where municipal corpor- ations operating adjacent to private corporations had a lower power cost. Mr. White then presented an item which he hoped to be taken up at future meetings and that was relative to the risk involved .in enterin$ into ~he project. The Mayor suggested that they defer such questions to a later time when discussing the power contract. Councilman Bay asked in taking the very large cost of $2.9 billion and reducing it to a layman's concept, were they ~alkin$ about a 'base cost or total cost? He gave as an example a house costing $100,000 where he would be interested in the purchase cost, and not the cost at the end of 35 years. Mr. Hoyt answered that they were talking about base cost, the cost of construc- tion in January 1979 dollars. That would be the point at which escalationwould begin. ~ Mr. Gerald Nissen, an Anaheim resident, asked, based upon all estimated projec- tions, what that equated out to the average home owner or user who would be 'utilizing the electricity. Mr. Hoyt stated they did not have those figures, but in re~tation to the project (Exhibit "A" - Page 1) in any of the given years, he could take the savings and divide those by the power costs without the project. That should be an indication of how much less theywould have to pay for their power supply. Because oft he City's Charter requirements, the only thins they could do was pass those saVings right throush to the consumer. They were looking at an 11 to 13Z decrease in the cost of electricity to each customer, as compared to the cost if'they did'not~' participate. ~r. Nissen pointed out that most of the figures presented were equated out in large sums. The average citizen was not going to be able to relate to those, but could relate to their utility bills. He emphasized the ftpres did not address the average layman and to give proper input, he contended it was necessary 80-106 Cit[ ~-!]~ Anaheim~ California - COUNCIL MINUTES - January .31~ 1980~ 7:00 P.M. that they be given proper paperwork. He asked if it were possible by the next meeting to devise such paperwork, his point being, if the issue was going to go before the voters and they were shown a $2.9 billion dollar figure, he could guess what the voters' answer would be. Mr. Hoyt stated, for instance, they might be paying 87% over what they would be paying without IPP, and he would prepare something along those lines for the next meeting. Mr. West also asked that information be given as to how much each household would be indebted by the bond sale. Mr. Hoyt explained that most of the energy in Anaheim was used by business and industry, and what was used to pay off the contract were the revenues from the sale of electricity, which would come largely from the industrial community. Thus, it was going to be difficult to come back and forecast what would happen in the residential area over the length of time involved to reach that number. He was not too optimistic in being able to provide that data. Mr. Michael Valenti, 751 North Zeyn, stated that the analysis was based on cost with and without IPP projected into 1996, which was assuming Anaheim's being in the utility business. He wanted to know if any analysis had been mede showing Anaheim out of the utility business and considering there was a duplication of services that SCE provided that the City was paying on. Mr. Hoyt stated that periodically, and it probably had been a couple of years since they had a citizens' committee, they reviewed the operations of the Electric Utility and studied all facets of it in reaching a recommendation to the Council as to whether or not the City should continue in the Electric Utility business. Almost overwhelmingly with only two negative votes, the study group determined it was to the City's advantage to continue operating its utilities. They did not look specifically at what kind of savings might be realized. In the studies conducted in the past, when they looked at the cost reported by SCE and the cost reported by Anaheim to the Federal Regulatory Commission, and those areas where they both did the same thing such as sending out bills, administrative and general expenses, transmission, etc., they found that Anaheim performed those jobs in the area of 15 to 20% less cost per customer, or least cost per kilowatt hour, than SCE. ~ Mr. Valenti stated if they did enter into the project, they were going to be looking into coal as an energy source for approximately 40 years. The projec- tion covered a 10-year course which was the "good looking" part of the curve. He wanted to know what would happen when curves started swinging and what would occur if after 15 years, there were technological breakthroughs such as geothermal or nuclear power. Mr. Hoyt stated that should there be a breakthrough in the future, the time involved in building the facilities to supplant new generation was going to take decades to accomplish. Whatever they build now, there were really no technological advances on the horizon presently that could be put into effect across the nation so as to make the project obsolete. He received this infor- mation from conversations with people in the industry, R & D fields, etc. - it 80-:107 city Hall, Anaheim~ California - COUNCIL MINUTES - January 31~ 1980, 7:00 P.M. was not'his idea. They were saying, should solar, fusion or other breakthroughs occur, the time to replace an existing technology would be long enough so that the plant would not become obsolete. The alternatives 10 years from now would be to buy from SCE or participate in other projects. Looking at Edison's resource plan covering the same period, they would find the same conventional projections and the same commitment to known technology as far as planning was concerned. Mr. Valenti asked the next time that they fill in some of the blanks because per- haps the curve would go all the way to where it declined. He wanted to assure that they were getting the full picture relative to what they could anticipate. Mr. Hoyt stated they could do that for the plant, but if they went too far out into the future, they would be dealing with tremendous uncertainties as to what Edison's resource plan might be. It would be difficult to try to construct an Edison wholesale rate case for 35 years from now. Councilman Bay commented on the question of technology broached by Mr. Valenti. The project represented only 50% of their total needs so they still had an additional 50% depending upon SCE should they come up with something better. If there was a breakthrough in solar or an unexpected breakthrough in wind or geothermal, they would still have 50% of the capapcity to take advantage of those breakthroughs. Mr. Ken Keese~, Chairman of the Public Utilites Board, stated that they could be referring to an unknown factor of what it was going to cost and what they were going to have. The important thing was that they were guaranteeing themselves a percentage of an energy source. They were overlooking the fact that perhaps in the middle to late 1980's, they could have power shortages of a severe nature in Southern California. He believed they should cover their bases because if they wanted to create havoc, they could hold back and do nothing. However, in the future, he did not want to tell his employees they could only work 32 hours a week because he was unable to run his shop for 40 hours due to power shortages. They had to secure themselves a percentage of the power so that someone could not come along, such as Edison, and play games and raise their prices and over- charge them in some cases. In closing, Mayor Seymour asked that if possible Mr. Anthony and Mr. Peterson be present at the next meeting as well to answer any additional questions that might arise after they had a further opportunity to consider the matter. ADJOURNMENT - PUBLIC UTILITIES BOARD: By general consent, the Public Utilities Board meeting was adjourned. ADJOURNMENT - CITY COUNCIL: Councilman Overholt moved to adjourn. Councilman Roth seconded the motion. MOTION CARRIED. Adjourned: 10:00 P.M. ~BERT~CLERK