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HomeMy WebLinkAboutElectric Board - Minutes - 11/18/1998.% C&A t g A regular meeting of the Fort Collins Electric Board was held at 7 p.m. on Wednesday, November 18, 1998 in the Utilities Training Room at 700 Wood Street, Fort Collins, Colorado. BOARD PRESENT: Jeff Eighmy, Mark Fidrych, Len Loomans, Barbara Rutstein, Richard Smart and Jim Welch BOARD ABSENT: Bill Brayden STAFF PRESENT: Dave Agee, Ellen Alward, Eric Dahlgren, Bob Kost, Mike Smith, Shannon Turner and Wendy Williams GUESTS: Thaine Michie and John O'Neil of Platte River Power Authority OBSERVER: Lu Fisk of the League of Women Voters AGENDA: APPROVAL OF MINUTES: Board Member Rutstein made a motion to approve the minutes of the October 21, 1998 meeting. Board Member Welch seconded the motion. The motion passed unanimously, and the minutes from the October 21, 1998 meeting were approved. 2. LEGISLATIVE UPDATE: Thaine Michie provided Board Members with an update on Colorado State electric restructuring. Legislation has been introduced in the past, although the only bill which passed was the study bill, signed in July 1998. The speaker of the Senate and the Governor each appointed 10 people to the study panel, while the speaker of the House appointed nine people. The study panel consists of 29 representatives, and has been meeting twice per month since August. The study panel is evaluating the impact retail wheeling will have in Colorado. The panel is set up to have two-thirds agreement before they can make a recommendation. Many groups are represented on the panel, and because many members have little or no electrical system experience an educational program will begin on Friday, November 20. Even if the panel were to recommend deregulation, it is likely that it would be in effect before 2003. The Panel has selected consulting firms to perform studies, to look at low income issues, technical impacts, and social economic and legal impacts. One group will study how the system operates and will run sensitivity cases on retail wheeling. Another group will study the social, financial and legal implications of retail wheeling. One issue the panel will study is the market power of Public Service Colorado (PSCo), and how to mitigate market power. One scenario is to have PSCo divest themselves of generation. At this time the panel is only researching a few distribution system issues. There has been some discussion regarding fixing boundaries, opening up generation, regulating distribution companies and metering. The panel has an attorney who is investigating the laws. There will be an interim report given to the legislature in December. A draft report will be completed by July 1999. Open houses and sessions will be held throughout Colorado to discuss the report. Federal legislation may give municipals the choice of opting out of deregulation. The panel is discussing this option. In California the municipals have opted out and they are doing fine. Large industrial customers are negotiating with the municipals to lower their rates. Board Members discussed issues regarding fixing utility boundaries. Thaine related that independently owned (IOU's) and rural electric associations (REA's) are supportive of fixing boundaries because this would open up growth for them. Fixing boundaries does nothing for competition and municipal systems would not benefit. There was some question from the Board as to whether there will be competition at a residential level. Thaine responded he does anticipate it will happen but not for many years. The gas industry has been open since 1989, and residential customers still have no choice. Since the advent of deregulation in California, electrical companies have found costs for serving the residential customers are high, and they are unable to provide competitive rates. The Board questioned potential rate decreases due to deregulation in Colorado. Thaine feels costs will most likely go up for consumers because there will be more players involved, and there will be advertising costs. When the California electric industry deregulated they established an -2- independent system operator at a cost of $200 million. Subsequently their electricity rates have increased. Thaine explained that from a national standpoint deregulation has slowed down. The deregulation movement was started by large industrial businesses. Now many individuals have gotten involved in the issues. Congress requires states to look at deregulation issues on a state by state basis. The large industries are still pushing for national legislation. There was a question regarding potential future impacts of deregulation to PRPA. Thaine related he believes it is important for a municipal system to own its generation. PRPA expects they will not be negatively impacted by competition as long as they remain a low cost supplier. Board Members questioned whether PRPA should have more generation. The PRPA Board will be discussing additional generation issues because of load peaks. If PRPA had a peaker, such as a small 30 to 50 MW gas turbine, they could utilize the base load generation better. Distributive generation is coming in the future. PRPA is looking at issues of how to control distributive generation. There is a group at Colorado State University developing a program to connect generators and dispatch them. The state will be investigating ways to regulate distributive generation. There was some discussion regarding predatory pricing. Fort Collins rates are very low and for other electric suppliers to provide a lower rate would be through predatory pricing. Thaine explained there is a limited amount of power which could be imported into this area. Large industrial customers focus on price and do not have much loyalty, but surveys have shown companies prefer to negotiate locally. Thaine will provide Board Members with a copy of the interim report and will give an update on the study panel's status at a future meeting. 3. FUEL CELLS: John O'Neil provided Board Members with a packet of information and gave a presentation on fuel cells. Fuel cells were discovered in 1839, and since then technology has evolved rapidly. A fuel cell is a similar to a battery, the main difference between the two is that fuel cells will continue to produce energy as long as fuel and air are supplied to the cell. They have a stack of plates and can be recharged with a fuel such as natural gas, propane, methane or butane. Fuel cells are a reliable source of energy and are environmentally friendly. Through an electrochemical process they convert fuel and oxygen into electricity. Fuel cells are D/C converted to A/C and have their own protective devices built in. Fuel cells generate heat, which can be captured and used for space heating. These units are self- sustaining and require little or no maintenance. As technology advances and the costs of raw materials drops, the price of fuel cells is decreasing. Fuel cells are currently being used to power vehicles, road signs and buses. -3- A company called Plug Power LLC is developing fuel cells for residential use. The residential units will be about the size of a dishwasher and will sell for approximately $5,000. The units can be placed inside or outside the home. This company already has a commercial cell. ONSI Corporation has over 160 commercial fuel cell units in use. They recently put six PC25 units in a substation in Alaska. Their commercial units are selling for $650,000. The power output of the PC25 is 700,000 BTU's of heat and 200 kW of energy. ONSI uses their fuel cells in new construction. The cells are used to provide power and heat to a large building. John briefly discussed fuel cells that convert waste gas into electricity. Fuel cells can be run off methane gas, which is a renewable by-product of the wastewater treatment process. Waste gasses produced by landfills can also power fuel cells. The Rawhide Energy Station generates about 70,000 cubic feet of methane gas per day, which is more than enough to run a fuel cell. There was some discussion regarding the potential for utilities to use fuel cells in the future. John explained there is potential for the City to use fuel cells. The Department of Energy has grants available to purchase fuel cells. 4. DRAFT 1999 ANNUAL REPORT: Changes to the draft 1999 Annual Report were proposed. The 1999 Annual Report was approved as revised. 5. STAFF REPORTS: FINANCIAL UPDATE Ellen Alward responded to questions regarding the September 21, 1998 Financial Update Memorandum. There was some discussion regarding the transfer of the Customer Service Division from General Fund. Before 1997 Light and Power paid the General Fund for these services. The Customer Services Division is now in the Light and Power Fund and provides services to the other three Utilities funds. All of the expenses appear in the Light and Power Fund, and are offset with revenues for services provided to the other Utilities. Board members asked whether the extra purchase power reserve was used for the 1998 $20 million capital construction program. Ellen explained $20 million is being spent in 1998 and some dollars are coming from the purchase power reserve. The target purchase power reserve is 10 percent, and the financial policy sets a cap at 25 percent. This limit was exceeded at year end 1997, but by year end 1998 purchase power reserves are projected to be within the financial policy guidelines. There was some discussion regarding the purchase power budget for Hewlett Packard. The Utility was notified on October 1 that Hewlett Packard intended to shut down the Genesis IV K's Project. Ellen noted that because of this late change we have appropriated more for purchase power than will be needed for 1999, and that revenues will also be less than projected. Board members requested clarification of the potential PRPA 10 percent wholesale rate reduction in 2001. Staff explained PRPA has been paying off debt early and may be in a position to decrease rates. A question was raised regarding the difference between the 1997 budget and the 1997 actual figures for net income. Ellen explained revenues increased, while many O&M expenses decreased in 1997. Reserves were larger than anticipated and generated more interest income. The Utility has devoted more resources for capital construction and subsequently O&M expense has been reduced. Ellen provided a breakdown of the 1997 increase in reserves: $3 million was net income, $2.8 million was Contributions and Aid, and Capitol Additions were $6 million dollars less than budgeted. Actual 9997 reserves were greater than projected. Many projects were deferred to 1998 (such as the CIS system). There was some discussion regarding the projected rate increase in 1999. Ellen explained that when staff put together the 1998 - 1999 budget it appeared a two percent rate increase would be needed. However, there will not be a rate increase in 1999 due to efficiencies gained from the 1996 early out program, the Utilities merger and being able to spread fixed costs among a larger customer base. Ellen asked Board Members whether they would like more frequent financial reports. Some Board Members suggested a quarterly financial report similar to the report PRPA provides. 6. TELECOMMUNICATIONS FRANCHISE WITH PLATTE RIVER Eric Dahlgren requested a resolution from Board Members recommending Council approve a franchise for PRPA. This franchise will allow PRPA to provide telecommunications infrastructure and services in the City of Fort Collins. The ordinance would give PRPA a franchise to get into the telecom business. They will be agents on the City's behalf, and any revenue collected will be returned to the City. These monies will be split with 50 percent going to the General Fund and the other 50 percent going to the Utility. Eric gave a brief presentation on the current status of the telecommunications project. The Utility is trying to complete the project by the end of the year. We are finishing the physical construction of the loop around the city. By joining the loop a redundant safe system is created making the fiber a marketable item. If the fiber is broken, data can travel in the other direction without interruption. According to the City Charter the loop is on city right -of way. All extensions off the loop are built across city property. The City Charter is in conflict with Colorado Senate Bill 96-10, which says that municipals cannot require telecom vendors to have a franchise. We are trying to avoid legal issues with our home rule Charter and Senate Bill 96-10. In order to avoid legal issues PRPA will retain ownership of the fiber system and any extensions built by other providers. Other providers must negotiate with PRPA for the right to build on to -5- the system. Other providers must turn over the ownership of the system extension to PRPA in exchange for an indefeasible right to use the fiber for a given number of years. If the City can establish the PRPA franchise by the end of 1998, ICG of Denver is willing to contract for the use of 24 fibers, for $275,000 annually, Board Members discussed the draft Agenda Item Summary. Eric explained the item will go to Council for the first reading on December 8. The second reading is scheduled for December 15. If it passes, it will become an ordinance 10 days after the second reading. The Utility hopes to have the franchise ready for PRPA on December 25. There was a question as to why the City is not fully in the telecom business. The City of Fort Collins is leasing dark fiber, which is a safe way to break into the business. Board Member Rutstein made a motion to recommend to Council to adopt the ordinance as proposed. Board Member Eighmy seconded the motion. The motion passed unanimously. 7. CITIES FOR CLIMATE PROTECTION UPDATE: Board Member Eighmy gave an update on the Cities for Climate Protection group. This group has agreed to cooperate with other cities across the nation to reach a national goal to reduce COZ emissions. The group can choose to try and achieve one of four goals. The easiest goal is to achieve the status quo of COZ emissions recorded in 1990. The other three goals are reductions in COZ emissions beyond the 1990 figures. The Natural Resources Department staff has looked at 32 measures and estimated how much these measures would reduce CO2 emissions. Some of the 32 measures are in place, while others are future measures. According to the figures the group could easily reach and exceed this goal. Measure 27 on the Cities For Climate Protection Summary Table refers to power. The proposed program moves the wind program from a pilot to a regular program. Lucinda Smith of the Natural Resources Department has met with Utilities staff and has calculated COZ emissions reductions based on the Utility replacing Fort Collins growth and demand power with wind power. These figures include erecting 100 to 120 wind turbines in the year 2000 then adding 13 to 17 turbines per year over the next ten years for a total of 281 turbines. This proposal includes a rate increase for all Fort Collins customers because in this scenario the wind power would no longer be a voluntary program. By including this measure the group believes they can approach goal number two. Board Members would like clarification on the figures provided by the Natural Resources staff. There was some concern that the figures for electric do not assume that one-third of Light and Power's generation is hydro. The Board requested Utilities staff assist Natural Resources in providing options for the Utility in the reduction of CO2. Staff will talk with PRPA to determine how many wind turbines the Medicine Bow site will support and will estimate how much coal generated energy would be displaced by erecting 281 turbines. Staff will work with Natural Resources to explore options which the Utility could support. M 0 The Cities for Climate Protection group would like an endorsement of the project from the Electric Board. Board Members expressed some concern that Natural Resources staff has not looked at the most cost effective way to achieve the COZ emissions reduction goal. Some Board Members feel a fuel cell project may be as cost effective as the wind power. There was some discussion regarding the use of peakers as an opportunity to reduce COZ emissions. Some Board Members would like to see more proposals from the group. Other possibilities the Cities for Climate Protection group has discussed is the purchase of carbon credits from third world countries. Board Members discussed the pros and cons of purchasing carbon credits. Corporations are buying carbon credits as a cost effective way to get carbon offsets. There was discussion of a possible project which farmers who want to put carbon back into the soil. The Cities for Climate Protection group will provide information on what measures are required to reach each goal, and City Council will decide which goal they want to pursue. 6. OTHER BUSINESS: A special meeting at 5 p.m. on Tuesday, December 8, 1998 to meet with consultant R.W. Beck to provide input on the strategic plan. FUTURE AGENDA ITEMS: Cities for Climate Protection presentation by Lucinda Smith of the Natural Resources Department. Adjourned 10:05 p.m. -Shannon L. Turner, Board Liaison r -7-