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HomeMy WebLinkAboutAgenda Statement 1986/09/23 Item 17 COUNCIL AGENDA STATEMENT Item No. 17 Meeting Date ITEM TITLE Public Hearing: Amendments to SDGE Franchise Resolution/027Approving Memorandum of Agreement between City of Chula Vista and SDGE for Underground Utilities Allocation Ordi nance,2/G7- Amending Ordi nance 1 427 regarding SDGE franchise by repeal i na Section 9(b) and substituting other considerations - First Reading sLuO D READING AND ADOPTION SUBMITTED BY City Manager 4/5 Vote: Yes No X BACKGROUND In 1972, the City of Chula Vista entered into two franchise agreements with SDGE, one for distributing electricity and the other for distributing gas. (See Attachment A for copies of these two franchise agreements. ) These agreements are for 25 years, with an electric franchise fee of 1 .1% of gross annual receipts, and the gas franchise fee at 2% of gross annual receipts. In addition, the electric franchise provides for the undergrounding of utilities. A complex formula is included in Section 9 (B) in which the allocation grows over a period of years to 4.5% of gross receipts. In the latter part of the 1 970's, with major increases in oil and gas prices, the amount of money available for undergrounding utilities was substantially higher than anyone had expected when the City's franchise was approved in 1 972. Al so, the franchise 1 anguage in Chula Vi sta 's agreement was al most identical to one adopted with the City of San Diego. In that city, SDGE was able to secure a waiver, providing less money for undergrounding in 1 979, which continues on through today. In 1 981 , the issue of modifying the allocation formula was discussed by the Chula Vista City Council . The staff recommended at that time that the 4 1 /2% allocation formula be reduced to 2%, which was the percentage then utilized in the rest of the SDGE service area. The City Council , on December 1 0, 1 981 , took action that "there be a two-part approach: the first part is to have a zero allocation with a surcharge; the second part, if that doesn't work, would be to state simply that the Council would accept the 2%. " The City Council also took action that a letter be drafted and sent to SDGE explaining the Council ' s motion and asking for support. While no such letter was sent, meetings were held subsequent to that Council action, with no apparent final resolution of this issue. In the latter part of 1 984, when SDGE was attempting to obtain approval from the City for the lower undergrounding allocation, the City Council decided at that point to utilize the current, higher formula, which was the formula used in 1985. At that time, staff initiated discussions with SDGE representatives regarding a possible modification of the formula. In September 1985, the standing Council Committee on SDGE matters (Mal col m/McCandl i ss) became involved in the franchise waiver discussions with SDGE and staff representatives. At that time, since one of the areas of interest by the Committee was major landscaping around the perimeter of the SDGE Bayfront power plant, SDGE at that time authorized a study to hire a landscape architect to develop such a plan. That plan and study was recently completed, at which time the Council Committee, City staff and SDGE representatives met to discuss modification of the undergrounding allocation through the end of the City's franchise agreement with SDGE in 1997. That led to a letter (see Attachment B) dated August 1 2, 1 986, from Jack E. Thomas, Executive Vice President and Chief Operating Officer, SDGE, proposing an agreement which would provide for modification of the undergrounding allocation, in exchange for other commitments on the part of SDGE, including landscaping the power plant. As Mr. Thomas states in his letter, ". . . This agreement will enable Chula Vista to continue its beautification efforts and help us in stabilizing customer energy rates. " RECOMMENDATION: Adopt resolution and place ordinance on first reading. BOARDS/COMMISSIONS RECOMMENDATION: M.A. COUNCIL COMMITTEE RECOMMENDATION: Support SDGE proposal DISCUSSION As the previous background statement indicates, SDGE has had an interest for some time in obtaining a waiver of the provisions of the franchise agreements with the cities of San Diego and Chula Vista. This is because the amount provided for undergrounding is substantially greater than originally anticipated hack in the early 1970' s, to provide equity of undergrounding rates within the County, to avoid an adverse impact on SDGE's rate payers because of a higher undergrounding rate in those two cities, and undoubtedly because of some pressure from the California Public Utilities Commission (CPUC) to stabilize rates more by putting less into undergrounding. It is also argued that SDGE has placed more money into the undergrounding of utilities for the size of their operating budget than any other large utility in California, such as PGE and Southern California Edison (please see Attachment C). Further, it can be argued that Chula Vista has the highest undergrounding rate not only in the area but in the State. With San Diego modifying their allocation formula back in 1 979, this is probably true except possibly for cities with their own electrical distribution systems, such as Riverside, Burbank, Santa Clara, etc. While there is certainly no shareholder pressure to reduce the undergrounding allocation (in fact, more undergrounding adds to the rate base), there is a desire apparently to achieve rate stabilization. This is not only reflected in Jack Thomas' recent letter, but also in the company's 1984 annual report, in which Ron Fuller, Vice President, stated, "We have strongly urged cities to consider the financial impact of these mandated undergrounding programs on their citizens. We are seeking a reasonable balance between aesthetics and the desire for rate stabilization. This effort is paying off. For example, the City of San Diego has recently agreed to trim its undergrounding programs nearly in hal f. " SDGE PROPOSAL 1 . SDGE proposes that the City waive the requirements of Section 9 (B) of the franchise, through the end of its term in 1 997, and receive $1 6,071 ,002 during this period of time for undergrounding projects. This compares with $26,542,000 that would be received under the present 4.5% formula. (Please see Attachment D for this comparison. ) COMMENT: Under the present formula, it is estimated that the City woul d be able to achieve 60,900 lineal feet of undergrounding through the year 1 997 under the present formula. Under the proposed formula, the City would achieve 39,500 lineal feet or approximately 65% of the total that would otherwise be achieved. Another way of looking at it is that the City would achieve in 1 997 under the proposed formula what it coul d otherwise achieve in 1995 under the current formula.* Basically, what would happen, assuming that any franchise after 1 997 will contain at least a similar provision for undergrounding, is a delay for completion of these projects to the year 2003. In evaluating this proposal , it is helpful to review the context within which SDGE provides for undergrounding within its electric rate structure. They do so within the regulations of the CPUC's Rule 20A. This restricts such undergrounding to only those areas necessary to eliminate an unusually heavy concentration of overhead electric wires, or on those heavily traveled streets, such as major arterials, or streets which join or pass through civic or park areas. Rule 20A does not mean that all overhead wires will be undergrounded. It also means, in effect, that since new areas of the City are being constructed with underground utilities, except for 69KV lines and larger, the areas of the City which will be subject to this rule represent a definable list of projects in the developed part of the City which can be incorporated into a capital improvement program for undergrounding utilities. A map will be available at the Council meeting which shows those underground projects already accomplished, those which could be accomplished under the proposed formula, and those that would be accompli shed under the present formul a through the end of the current franchise agreement. Basically, the City will accomplish most of its undergrounding objectives by the end of the franchise (1 997) and should accomplish all of them within the term of the following franchise agreement by the year 2003 assuming an undergrounding allocation formula similar to the one proposed. Please see Attachment E which shows those projects which would be completed between 1997 and 2003. *This is based on a staff undergrounding CIP program developed for illustrative purposes only, and which has not been subject to policy review or approval . Similar to the San Diego program, they used a 9% annual escalation factor in estimating project costs. /7 '? 17` 2. In exchange for modifying the undergrounding allocation, SDGE proposes to initiate a three year landscaping plan beginning January 1987 for its South Bay power plant, for a total expenditure of $1 .6 mill ion. Specifically, they would allocate $600,000 in 1 987, $400,000 in 1 988, and $300,000 for the first through sixth month of 1989 for a total of $1 .3 million. In addition, they will provide for design and specifications and contract administration for this project. The total estimated amount which SDGE would spend on this project would be $1 .6 million. Comment: Plans will be available at the City Council meeting to indicate the amount of landscaping which will be included in this project. Its purpose would be to beautify the perimeter of the SDGE power plant, and partially screen it. SDGE agrees to begin with more mature plant and tree specimens than were originally proposed, as well as to coordinate the first two allocations into one construction project which would occur in the latter part of 1 987 and the first part of 1 988. In this way $1 million could be spent on the project in what in effect would become Phase 1 of this work. This should have a substantial impact on this part of the City. At the same time, the Council Committee envisioned the City al so doing offsite landscaping along its public park property adjacent to the SDGE plant in order to have even a greater impact upon this area. 3. SDGE will provide an easement across the South Bay power plant for the purposes of the Telegraph Canyon Flood Control Project. It is estimated that this easement is worth in excess of $750,000. Comment: This is a crucial easement for the implementation of this pro pro-e the construction for which is expected to begin in 1987. 4. SDGE indicates it will agree to sell the company-owned street lights (1 611 ) presently serving the City, at a price to be negotiated using the same formula and credits as SDGE used in its recent sale of company-owned street lights i n the City of San Diego. Comment: This may result in some savings to the City in its desire to 7 ower its electric rates for street lights. 5. SDGE also indicates their general willingness to use the land under the transmission power lines that traverse the Bayfront in order that that property can be used to support public and private development in the area. This can occur with their license agreement which provides for a five-year lease, and can provide for up to three five-year options or more, so that this area can be used for parking, landscaping, etc. to support devel opment in this area. Comment: This should permit more effective use of property on the Bayfront and shoul d al so be advantageous to SDGE. 77 pOA /- 6. There is a provision in the proposal that the City and SDGE agree to exercise good faith in coordinating and providing information in order to facilitate the proposed agreement. Comment: The City is interested in this provision to ensure that undergrounding plans and cost estimates for underground projects will be reviewed by the City Engineering Department before work is performed. This is necessary so these plans can be reviewed for conformance with City regulations and policies, and to ensure that the City is receiving value for the undergrounding dollars contained in the franchise formula, as modified. 7. The Council Committee, City staff and SDGE representatives also discussed the desire by the City to see SDGE complete improvements, such as sidewalks, curbs and gutters, along the frontage of facilities and properties throughout the City of Chula Vista. While not contained in the agreement, the SDGE representatives indicated that every effort will be made to accomplish this annually in SDGE's South Bay district's operating budget. Basically, what is being proposed is that SDGE is willing to provide improvements, easements and other considerations worth in the range of $2.5 to $3 mill ion in the immediate future, in exchange for reducing the amount for undergrounding, which would slow down the undergrounding program by about 2-3 years in the mid-1 990's. It should be understood that there may not be any real slow-down at all since the execution and implementation of a program this size very likely will not meet the time table set forth with the current formula. It al so should be realized that, in 1 i ght of the fact that the City has the highest allocation formula for undergrounding in the State, as far as the CPUC is concerned, SDGE very likely could be successful in achieving the proposed allocation formula through appeal to the CPUC even without the proposed agreement. Another point is that the City would achieve, regarding the landscaping of the power plant, a commitment for funding which it is highly unlikely we would have achieved in any other way. Finally, this action should benefit the rate payers in the SDGE system by helping to stabilize rates. OTHER OPTIONS In developing this proposal for modifying the underground allocation formula, there were other options which were evaluated. These are: 1 . No change. This would be to maintain the 4.5% allocation with the fuel cost adjustment. This would clearly be in excess of what the City woul d need for undergrounding its major arterials, as limited under Rule 20A and probably CPUC action. It should be stressed that this money cannot be used for undergrounding utilities in residential areas, since it does not fall within the CPUC program. This present formula in the franchise agreement probably was adequate given the price of fuel and the cost of electricity back in 1972, but it has obviously escalated substantially over the years to a greater point than was anticipated at that time. While another way of looking at this is to simply say that the undergrounding program can be accomplished much more rapidly, there is a limit in accomplishing that work due to the need for planning and coordination with other affected utilities. /.? V 2. Follow the San Diego allocation formula in exchange for an increase in the franchise fee. The argument for this option is that if the City is willing to reduce the undergrounding formula to be consistent with San Diego's, Chula Vista should also receive the same franchise fee -- 3% instead of 1 .1% (electrical ) and 2% (gas). This was rejected by the SDGE representatives on the basis that this would open the door for other cities to attempt to accomplish the same franchise fee in the rest of 'the County. They argue further that the City of San Diego received the higher franchise fee because of some exceptional political circumstances which occurred in the early 1 970's. 3. Reduce the allocation formula to that used in the rest of the County; as proposed by SDGE, but modify the franchise to provide for a shorter franchise term. This has the advantage of accomplishing SDGE's short term objectives, while at the same time providing the City the opportunity to renegotiate the entire franchise earlier than in 1 997. This was rejected by SDGE, however. 4. Modify the undergrounding formula to the San Diego allocation in exchange for other projects and considerations by the company. This has been the approach taken by the Council Committee and SDGE leading to the proposal which is now before you and has been discussed above. As previously stated, this will bring the undergrounding rate in Chula Vista in 1 i ne with the rest of the County but still provide substantial funds for accomplishing a major amount of undergrounding work in addition to obtaining other major considerations in the value of $2.5 to $3 million, principally the landscaping of the South Bay power plant. The rationale for this approach is more fully stated above. 5. Other projects which were discussed with SDGE, including agreeing to relocate the gas lines in Fifth Avenue, in connection with any remodeling in the Chula Vista Shopping Center, relocating gas lines i n connection with the Highway 54 project, and relocating the substation at Fourth and F. The Fifth Avenue gas lines were not pursued, due to advice from the Tay Attorney that SDGE would be required to relocate the gas lines in any case if this project were ever initiated. The City gas line reconnection regarding the Highway 54 project was not pursued because it was not well defined enough to be included in this agreement. A rough figure of $100,000 had been developed by Engineering to accomplish this work. Regarding relocating the substation at Fourth and F Streets, SDGE indicates it is not feasible nor cost effective to relocate the station at this time. It meets the service and reliability needs for the many customers it services. Although SDGE has no plans to relocate the substation at this time, it is possible that future demand may necessitate changing the 4,000 volt to a 12,000 volt system. If this situation occurs, SDGE will reevaluate the benefit of moving the substation to another site. FISCAL IMPACT There will be a commitment by SDGE for $2.5 to $3 million for capital improvements, easements and other considerations, in exchange for completing the 20A underground projects in 2003 rather than 1 997. JDG:mab all 3sdge ` .a j d by e City Council of Chula Vista, California Dated 7 -Ametiammj,