Kimberly Chaudhry
Senior Administrative Analyst
City of Fullerton
303 W. Commonwealth Avenue
Fullerton, California 92823
April 21, 2023
Dear Kim,
Thank you for reaching out to me and MRW concerning the City of Fullerton’s request concerning exploring the processes, costs, and implications of the City exiting the Orange County Power Authority (OCPA). I understand this request comes per the direction of the City Council at the April 4, 2023.
Section 6 The OCPA Joint Powers Authority Agreement (JPA) addresses the process and requirements of a Member withdrawing from the JPA. This includes timing requirements, documents needed from the withdrawing JPA Member, and liabilities the withdrawing Member would face. MRW would address each of the requirements listed in the JPA agreement, as well as any others that may not be so explicitly laid out or that the City Council requests.
Of particular importance is Section 6.3 of the JPA Agreement, which says the withdrawing Member shall be responsible for the “costs arising from the resale of capacity, electricity, or any attribute thereof no longer needed to serve such Party’s load.” The underlined quote effectively means that the City would be liable for the difference between the cost of the power and other power-related products that OCPA entered on behalf of the City’s load (e.g., power supply contracts) and what OCPA could sell the products for. (The JPA Agreement requires OCPA to “reasonably and in good faith” seek to mitigate any costs and obligations.) Thus, to estimate this potential liability, MRW would need to compare the costs imbedded in the contracts that OCPA has entered into to serve the City against the market value of the products. This later factor would be based upon current prices, forward market prices, and other forecasts of power. The City should note that this comparison might not result in liabilities. If the market value of the OPCA contracts exceed the contract costs, which given current market conditions could easily be possible, then OCPA could financially benefit from the City’s withdrawal,
Getting the data to perform this analysis may not be simple. Our work with other OCPA members suggests that OCPA management may be reticent to provide the details of the power 1736 FRANKLIN STREET
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Letter proposal to City of Fullerton
April 21, 2023
contracts to members contemplating withdrawal. While this may have changed, not having the key contact terms (length, pricing, volume) would greatly hinder our analysis. However, even without this data we can make broad estimates of the possible stranded contract cost values.
Tasks
1. Qualitative assessment of the requirements and implications of the City’s withdrawal from the OCPA. MRW will provide a memorandum describing the steps needed to withdraw from the JPA.
2. Quantitative analysis of the potential costs to the City of withdrawing from the JPA. This analysis will concentrate on the potential market value comparison described above. If the City cannot acquire the needed details of OCPA’s contracts, MRW could still provide an estimate of potential costs.
3. Qualitative description of how the departure cost might be negotiated. MRW has assisted municipalities who have had load depart from Southern California Edison to their municipal utilities negotiate the exit costs with SCE. Here, we would describe the likely process that the City would need to go through to get from its own preliminary estimate of the costs imposed on OCPA by its departure to a final number.
Timeline and Deliverables
Task 1: MRW will provide City Staff the draft memo no sooner than 3 weeks from when MRW is authorized to proceed. The Staff would provide feedback, either written or via Zoom-style conferencing, or both. MRW would then prepare the final memo, incorporating the feedback from City Staff.
Task 2: MRW will perform a quantitative analysis of the potential costs to the City of withdrawal from OCPA. If OCPA provides the data associated with the contracts used to serve the City, MRW would provide the City Staff a preliminary report on the results of the analysis within four weeks. This would be in the form of a PowerPoint presentation, presented via a remote conference or in person. The Staff would provide feedback, either written or via the remote conference, or both. MRW would then prepare a memorandum describing the results of its assessment, the process used to arrive at the cost value, and the uncertainties underlying the analysis.
If OCPA will not provide the contract data, then MRW would, at the direction of the City, perform a “back-of-the-envelope” assessment of what the liabilities might be. This assessment would be based on the market conditions when OCPA entered into its contracts and current market forward and conditions. MRW would provide the City Staff a preliminary report on the results of the analysis within four weeks. This would be in the form of a PowerPoint presentation, presented via a remote conference or in person. The Staff would provide feedback, either written or via the remote conference, or both. MRW would then prepare a memorandum describing the results of its assessment, the process used to arrive at the cost value, and the uncertainties underlying the analysis.
Letter proposal to City of Fullerton
April 21, 2023
Task 3: MRW will provide a memo describing how the departure cost might be negotiated. This memo will be provided to the City two weeks after the delivery of the Task 1 memo.
Task 4: Present results to City Council. In this task I will present the results of our analysis to the Fullerton City Council, either in person or remotely. This will include the preparation of presentation materials.
Budgets
Task 1 will be provided on a time and materials basis for a fee not to exceed $5,000.
Task 2 will be provided on a time and materials basis for a fee not to exceed $25,000 (OCPA provides data) or $15,000 (if OCPA does not provide data)
Task 3 will be provided on a time and materials basis for a fee not to exceed $5,000.
Task 4 will be provided on a time and materials basis for a fee not to exceed $3,000.
The values quoted above do not include travel costs. I estimate that it would add approximately $750 of travel and lodging costs per trip.
MRW’s fee schedule is attached.
Conclusion
I hope that this proposed scope of work and budget meet your needs. This proposal is based on the brief conversation we had last week. I would be happy to adjust this proposal to meet your needs. If you have any questions or need additional information, please contact me at 510-834- 1999 x 240. We look forward to working with you on this project.
Best regards,
Mark Fulmer
Principal