City Council Agenda Report
Meeting Date: April 4, 2023
From: Todd Dusenberry, General Manager of Public Utilities Department: Public Utilities
Submitted by: Adriana Ramos, Administrative Analyst
Subject
Shared Services Agreement with Northern California Power Agency, Southern California Public Power Authority, and NewGen Strategies and Solutions, LLC Recommendation
Approve and authorize the General Manager of Public Utilities to execute the Northern California Power Agency Confirmation No. 0273 among the City of Vernon, Southern California Public Power Authority, and NewGen Strategies and Solutions, LLC, for an Electric Cost of Service Analysis and Rate Design Study for a total amount not-to-exceed $145,225 through August 14, 2023.
Background
A Cost of Service (COS) Study is one of the most effective analytic tools a utility can utilize for designing rates that equitably identify associated cost components for each customer rate class.
This is important to ensure that the utility can collect the revenue necessary to fully fund operating and maintenance expenses of the electric system. As a publicly owned utility, rates for Vernon Public Utilities (VPU) can only be set to recover what it costs to operate a utility, whereas investorowned utilities like Southern California Edison and PG&E can make a profit from their rate settings. Performing a COS every five years is a best utility practice. VPU’s last electric COS included a five-year rate study and financial modeling that covered Fiscal Years (FYs) 2019 through 2023, thus the utility is due for an updated COS.
Additionally, as a result of ongoing supply chain challenges and surges in natural gas costs due to low storage inventories and weather conditions, VPU finds it even more necessary to complete an updated COS. Surrounding public utilities are also in the process of pursuing similar COS and rate design studies to include these more recent external factors. From the COS study, VPU will have the financial model necessary to respond to market changes that impact its customers. One of the objectives of this project is to ensure that VPU can provide competitive and stable rates to its customers.
As a member of the Southern California Public Power Authority (SCPPA), VPU can contract with vendors who have gone through the competitive bid process for professional services, such as this project. SCPPA is a public entity duly organized and existing under the Joint Exercise of Powers Act (Cal. Government Code sec. 6500 et seq.), under a Joint Powers Agreement (JPA) entered into by and among the cities of Anaheim, Azusa, Banning, Burbank, Cerritos, Colton, Glendale, Los Angeles, Pasadena, Riverside, Vernon, and the Imperial Irrigation District (Members) with authority to engage in various activities supportive of the Members' electric utilities. The SCPPA Board of Directors is responsible for the general management of the affairs of SCPPA, and under the JPA, has the power, among other things, to make and enter into contracts for services specific to electric utility needs. This allows VPU and other member agencies to benefit from economies of scale and procure goods and services with volume discounts.
Additionally, Northern California Power Agency (NCPA) and SCPPA have a Shared Services Agreement dated August 1, 2015, that enables both agencies’ participating members to utilize consulting services for this type of project. NCPA is a governmental joint powers authority like SCPPA but comprises northern California publicly owned utilities. NewGen has an active agreement with NCPA for Cost of Service Analysis and Rate Design Study services. Staff requested a proposal from NewGen, to which they responded on October 27, 2022. NewGen's proposal met the needs of VPU and provided excellent examples of extensive experience in assisting agencies in developing COS analysis and rate design studies. NewGen also performed the utility’s last COS. Following the acceptance of NewGen's proposal, VPU notified NCPA of the intention to proceed with a task order for NewGen to provide an Electric Cost of Service Analysis and Rate Design Study. Vernon’s Task Order is for services through August 14, 2023 for a total not-to-exceed amount of $145,225 consisting of $143,550 for the COS by NewGen and $1,675 for NCPA administrative fees.
An electric COS study will provide VPU with the revenue requirement in order to fully fund operating and maintenance expenses of the electric system, including equipment repair, replacement, and capital projects to ensure the continued reliability of the electric system.
The scope of work under the proposed Agreement with NewGen would consist of the following:
• VPU System Level Load Forecast
• Financial Forecast Model and Revenue Requirement
• Financial Reserves Policy (a utility best practice and an important rating consideration of the rating agencies)
• Cost of Service Analysis
• Rate Design
• Model Training
• Final Reports
• Meetings and Presentations
Staff recommends that the City Council approve the agreement with NewGen to assist staff with the electric COS analysis and rate design study. Since VPU is using a vendor approved by SCPPA and NCPA, the proposed agreement is exempt from the City's competitive bidding and competitive selection requirements per Vernon Municipal Code (VMC) Section 3.32.110, subsections (A)(5) and (8)(1). The Finance Director is of the opinion that it is to the advantage of the City to contract with NewGen through their existing agreement with the NCPA. City Council approval of the proposed Agreement is necessary since the Agreement exceeds $100,000, per VMC Section 3.32.030(A).
The Agreement has been reviewed and approved as to form by the City Attorney's Office.
Fiscal Impact
The total fiscal impact is not-to-exceed $145,225. Sufficient funds are the Public Utilities Electric Fund, Professional Services - Other Account No. 055-050-590-529215 for FY 2022-23 and FY 2023-24.
Attachments
1. NCPA Confirmation No. 0273