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HomeMy WebLinkAbout12/28/1989 - Special Minutes City Council MINUTES CITY COUNCIL SPECIAL MEETING THURSDAY, DECEMBER 28, L989 4~00 P.M. COUNCIL MEMBERS PRESENT: Mayor Ringer, Councilmen Brown, Haddox, Gardner, Birdwe11, MoIlhaney, Schneider STAFF PRESENT: City Manager Ragland, City Secretary Jones, City Attorney Locke, Assistant City Manager Woody, Management Services Director Piwonka, Assistant City Manager Brymer, Assistant City Secretary Hooks VISITORS PRESENT: Sss guest register. The meeting was opened with Councilman Schneider absent. At the request of the staff, the Council moved to executive session to receive a staff report on the legal status of negotiations of the future power supply. A~enda Item No. I - Closed session to receive staff report~ 2.1 Staff Report [6252-17(2) (r)]. A. Future Power Supply. 2.2.Legal Report [6252-17(2)(r)]. The council moved into closed session. himself from attending closed session. Councilman Haddox excused &qenda Item No. 2 - Discussion and consideration of future powe~ SuDDlv for the City of College Station. The council returned to open meeting. council table. Councilman Haddox left the City Manager Ron Ragland explained that the staff would like to reiterate the process taken and to address the concerns raised by Council. Mr. Woody introduced Mr. John Riley, Vice President and General Manager of the Power Division for Burns and McDonnell, and Mr. Rick Norton, Regional Manager for Burns and McDonnell. Mr. John Riley addressed the Council. He stated that the study process started in early spring of 1989. The staff with the assistance of Burns and McDonnell solicited proposals for power suppliers to supply the City power for a ten year period. He stated that the City received at that time three proposals which 0075 5 City Council Special Meeting Thursday, December 28, 1989 Page 2 met the requirements outlined by council. One proposal was not adequate because of cost information and scheduling information; the other two have been carried through to the analysis which Mr. Kiah Harris presented to the Council over the past few weeks. He pointed out that his firm has conducted over 100 different power supply studies during the last twenty years. He stated that this firm has every intention to provide their best professional advice and analysis compiled from both proposers. Mr. Kiah Harris presented the proposers' comments that were made after the December 14th meeting and the process taken to incorporate those comments into the analysis. Mr. Harris described proposals on a common gas escalation. He pointed out that the process Burns and McDonnell has gone through is based on numerous assumptions. Mr. Harris discussed the variables of load growth in the power supply study. Another variability in this analysis is fuel. He stated that numerable discussions have been held on what gas escalations are predicted to be, what the projections are in future growth and what the gas is going to be. Mr. Harris pointed out that Burns and McDonnell looked at the reasonability of the proposals and analyzed the escalations and the starting point for those escalations in the proposals. Both of the proposals use a blend of natural gas and other fuels. In TMPA's case, the other fuel is lignite. In GSU's case the other fuel is coal and nuclear. The costs of all of these fuels are blended together based on the proposers' estimates of what their mix generation is going to be and where the energy is going to come out of the units. He stated that Burns and McDonnell looked at the starting point of the gas costs in their analysis. He further stated that the proposers have taken the gas escalation rates and costs of their other fuels and looked at the blending of the fuel based on the estimated mix of their generation. Mr. Harris stated that Burns and McDonnell felt that the use of each proposer's best guess of their system average fuel cost is the best basis for developing the energy charge in the analysis. Mr. Norton asked if anyone on the Council needed clarification on the statements presented to this point. Councilman Birdwell responded with a concern. He stated that Burns and McDonnell is aware of his concern about the analysis and the inappropriate way it was handled. He further stated that each proposal should be looked at with the same gas price five years from now and determine its effect. Mr. Norton asked Mr. Harris if the gas cost is the same for both proposers. 007600 City Council Special Meeting Thursday, December 28, 1989 Page 3 Mr. Harris replied that the gas cost of the two utilities are not the same today; however, they are within a reasonable level of what consumers are paying in the area for gas cost. Councilman Brown questioned the spread from five years to seven years. Mr. Harris responded that due to the way the gas price escalates, the relative spread between the two remains somewhat constant. Councilman Birdwell remarked that Mr. Harris' statement is not correct. He pointed out the spread in the next 10 years as provided in the analysis. Mr. Harris noted that when he discusses the analysis of TMPA on GSU's fuel cost, the escalation of TMPA's fuel is at the same basis that GSU's gas is. Councilman Birdwell commented that he does not think it is appropriate to compare out years with gas cost at significantly different numbers. Councilman Brown asked for the spread based on today's cost. Mr. Harris replied that if one looks at the projected cost in 1989, it's a sixteen percent difference in TMPA's existing cost as opposed to the estimate for GSU's existing cost. Councilman Brown remarked that this is not the figure we are looking for. Mr. Riley stated that Mr. Harris has an analysis where the comparisons have been calculated on a similar escalation basis. Councilman Birdwell pointed out that even though you start from a similar escalation basis and from a different base, it is not appropriate; you must consider the same gas prices for both proposers. This analysis shows a big difference and that is why he thought the analysis was incomplete. Mr. Riley responded that the costs today are not the same. Councilman Birdwell commented that the consultants did not ask either supplier for escalation. They asked the proposers for gas prices or energy prices. Discussion continued. Mr. Riley mentioned that discussion has been based upon uncertainties as far as what the fuel costs are. He reiterated a point stated by Councilman Birdwell, that assumption on fuel cost and fuel escalation have dramatic effects on the bottom line of 007601 City Council Special Meeting Thursday, December 28, 1989 Page 4 this analysis. Mr. Riley commented that he feels the analysis is reasonable and appropriate. Mr. Harris explained the changes that could be made to the analysis, if the council desires. First, however, he would need to talk with TMPA and look at what the common gas cost does in bringing them up to GSU's equivalent gas cost. Councilman Brown commented that an apples to apples comparison should be done. Council Birdwell expressed concern about several points in the consultant's analysis. Mr. Harris remarked that the numbers for GSU cannot be considered on an absolute dollar basis. He pointed out that there is a more volatile condition in GSU regarding natural gas. TMPA is growing into gas and their gas costs in the beginning are not as impacted by high gas escalation as in the future years. Mr. Riley noted that the different gas prices are really the only hard data in this whole thing. All the other numbers are projections or estimates. Mr. Harris pointed out comments made by TMPA at the last council meeting. He responded to the comment that the demand did not reflect the two percent decrease offered. He explained that it could not be included until the letter of intent was received from Dan Wilkerson. Mr. Harris also addressed the question raised about the energy charge for the combustion turbine. Mr. Harris continued his discussion. He moved to GSU's comments. He stated that modeling the method of calculating the kw energy cost and the demand cost was based on his firm's interpretation of written contracts and was developed on the basis of certain data that has changed fairly rapidly since the September meeting. He referred to the letter of intent received on December llth. He pointed out that the consultants modified the analysis to reflect the new intent of GSU. Mr. Harris mentioned the issues raised by GSU concerning the difference in the first two year savings and their point that the energy should be deleted from the analysis. He reviewed letters received from GSU. He referred to the CLG rider and the terms under which it was offered. He explained that the capacity margin is an indication of how much generation the facility has versus its demand, and as long as that ratio is kept above 18% the load growth rider would be available. Councilman Brown asked if it is legally binding on GSU's part in the way it is written. 007602 City Council Special Meeting Thursday, December 28, 1989 Page 5 Mr. Riley replied that if the margin drops below 18%, they do not have to offer the CLG rider. Councilman Birdwell asked for their margin at today's rate. Mr. Harris replied that it is probably 30-40%. Mr. Harris referred to another letter sent by GSU on November 29th that refers to the predictability of the rate to the 2500 kw customer. It also applied to 50% on all other load growth after 1991. He stated that the letter of intent provides that the initial term will start on April 1, 1990. He discussed the provisions relating to the load growth calculations. Councilman Birdwell clarified to the press, that TMPA signifies TMPA cities, Garland, Denton, Greenville and Bryan. Councilman Birdwell remarked that the analysis shows a drop in the demand in '96 and '97 by $1.2 million and asked how this happened. Mr. Harris replied that the drop at this point is involved with the roll in of the combustion turbine. He explained the recalculations based on the combustion turbine model. Councilman Birdwell asked if the combustion turbine is cheaper that what they already have. Mr. Harris replied that it is significantly cheaper in terms of capacity only. Councilman Brown asked for clarification concerning the $50-$70 million dollars difference in contracts. Mr. Harris referred to Table II in the analysis. Burns and McDonnell estimated a comparison of demand over the 1992-2000 time frame where there is a $50 million difference in favor of GSU, and if one delineates energy, there is roughly $50 million plus $6.5 to $8.5 million up front savings, which is roughly $60 million. Mr. Harris explained the differences between the GSU and TMPA fuel cost escalation. He stated that the GSU's gas usage is a blend of 43% to 54% and TMPA's gas usage is a blend of 40% to 44%. TMPA did not consider off system purchases and GSU included 16% to 24% off system purchases. Mr. Harris also pointed out the difference in the gas escalation averages and the difference in energy costs for the years 1992 through 2000. He noted that the numbers are based on each proposer's forecast for their system's average fuel cost. Mr. Harris described the cost estimate summary of the power supply proposals, (1992-2000); he showed graphs of the annual cost of power supply for each proposers' own fuel forecast. 007605 City Council Special Meeting Thursday, December 28, 1989 Page 6 He summarized the presentation by pointing out several factors. Points he addressed included the following: 1) TMPA letter of intent allowed the 2% reduction which resulted in a three million dollar decrease; 2) GSU letter of intent allowed a load growth demand analysis & dropped the GSU number to $157,000,000; 3) the fuel remains in the analysis; 4) GSU estimates are reasonably closed on the overall number when the demand and energy are included; and, 5) Burns and McDonnell's Analysis using proposer's information, GSU more sensitive to gas price fluctuations. Councilman Birdwell asked Mr. Harris to explain a graph Mr. Birdwell provided depicting the two suppliers mils per kw hour where the lines do not cross. Mr. Harris apologized for not supplying this. Mr. Harris commented that the graph is accurate. Mayor Ringer announced that Councilman Schneider is on his way to the meeting. The Council recessed at 6:10 p.m. The meeting was reconvened at 6:25 p.m. Mr. Jim McCord of McCord Engineering discussed briefly the connection of the two utilities. He showed maps illustrating how the city is presently served. Mr. McCord described the present budget and the revised budget in the CIP Budget Electrical Division in terms of system improvement through the TMPA Service. The total savings is estimated at $3,235,000. He referred to the cost breakdown of CIP savings in the TMPA Service. He noted that the City of Bryan has a distribution line from the Shady Lane substation as a backup. TMPA has offered to sell the facility to the city in exchange for a metering point. He commented that this offer has not been evaluated; therefore, a value has not been determined. . Public Utilities Director Mr. John Woody addressed the council. He explained several major factors of each proposer's offer. GSU: 1) Lower cost on basis of present ten year contract offer effective April 1, 1990 allows cost savings. 2) No effort required in changing transmission lines. 3) The load growth rider is available. 4) The market base rate, which the city has at this time, may not be available in the future. 5) Offered several programs to aid in customer service & economic development. 6) College Station would have to prepare for future supply planning in approximately eight years. Councilman Birdwell remarked that it is possible to be with GSU for fourteen years at a favorable rate. Mr. Woody agreed. 007604 City Council Special Meeting Thursday, December 28, 1989 Page 7 Mr. Woody continued to point out several factors in the proposals. TMPA Cities: 1) College Station would have more control over the destiny of power. 2) College Station would be with public power partners sharing similar goals and objectives. 3) Becoming a partner would entail very little upfront costs. 4) Joint transmission and distribution projects estimated at $3,235,000. Parallel distribution lines on east side of Texas Avenue can be eliminated. 5) College Station would be in the same energy control area (ERCOT) with the possibility of future participation or sharing backup with Texas A&M University and the City of Bryan. 6) Unlimited flexibility at plotting the future power needs of College Station. Councilman McIlhaney asked how much the study cost the city. Mr. Woody replied that the study started in November 1987; he gave the cost at approximately $70,000. Councilman Birdwell stated concern about the TMPA cities proposal because the study does not include information about the time when the cities will need future power plants and how much the City of College Station will have to participate. Mr. Dan Wilkerson of TMPA answered Mr. Birdwell's question. He stated that in 1997 the combustion turbines would be added to the plant based on the best gas price forecast that TMPA has available at the time the power supply planning is performed. He hoped the planning supply will be conducted in such a way that there is no significant rate impact in the year that the base unit is on line. He explained how the city's portion would be based. Councilman Birdwell stated concern about the city's share of the new plant cost. He noted that the contract should include an amount of power available on the old basis or a formula; otherwise, TMPA may not give the city an option in the future. Mr. Wilkerson replied that gas turbines would be added indefinitely, if the gas price stayed lower than predicted. Mr. Birdwell commented that the combustion turbines are very expensive to run. Mr. Wilkerson pointed out that the blended price of demand charge from new capacity and cheap fuel will have to be less than the year that the base load is built. If this is not the case, TMPA will not build the plant. He further explained that one can build capacity with gas turbines indefinitely if the gas price forecast is low enough. 007605 City Council Special Meeting Thursday, December 28, 1989 Page 8 Councilman Birdwell asked how large the city's participation must be in the new units. Mr. Wilkerson replied that this has not been set by TMPA; however, in the spirit of cooperation, these figures will be worked out. Mayor Ringer referred to Table II. Dr. Ringer pointed out that in a sense, gas prices are common except they start with the difference of the rates already in existence, so the gas sensitivity estimates for each utility is fairly close. Councilman Birdwell commented on the difference in the gas sensitivity escalation forecast. Responding to a question from Mayor Ringer, Mr. Riley referred to the philosophy generally preferred for rate calculation. Councilman Birdwell noted that if a scenario exists in a high growth rate, a low demand cost is desirable; on the other hand, if the scenario exists with the low growth rate, then it is preferred to have a high demand charge. Mr. Riley briefly summarized factors related to each proposer. Councilman Brown pointed out that there is a $6 million difference between the two contracts. Mr. McCord replied that the difference is $13 million in terms of present value at annual costs. Mr. Brown noted that $3.5 million savings in the CIP projects should also be included in the distinction of savings. Mr. Moss of Gulf States Utilities addressed the Council. He thanked the City for being a customer during the last seven years. Mr. Moss reiterated several pertinent items from the GSU proposal; he presented the history of gas purchases in Texas from 1986 through 1989. Mr. Moss mentioned that GSU is in a perfect position to replace high price gas with coal. He indicated that GSU will also work with the city to construct new transmission lines which will be an advantage to the city. Councilman McIlhaney asked if the rates offered have been approved. Mr. Moss replied that the rates have been reviewed by Burns and McDonnell. Councilman Brown asked if the CLG rider is legally binding. Mr. Moss replied that GSU's reserve margin is in excess of 40%, and it is very unlikely that the clause will be alluded to. Mr. Dan Wilkerson of TMPA Cities addressed the Council. He stated that if College Station comes on-line in 1992, the use of lignite will be 66% and 34% natural gas. He stated that the sensitivity to natural gas is based on these numbers and will be 007606 City Council Special Meeting Thursday, December 28, 1989 Page 9 less sensitive to fluctuations in natural gas prices than GSU. He stated that all the numbers presented are reasonable. Mayor Ringer expressed the Council's appreciation to the staff for their hard work, and also to the representatives from GSU and TMPA Cities for working with staff in providing the information. Councilman Birdwell stated that he sees many reasons to do business with TMPA cities, but he has a concern at how much the cost is in the early years to do business with them. He pointed out that he is not satisfied with the analysis prepared by Burns and McDonnell. He noted that GSU offered an unsolicited proposal to hire and pay for a mutually agreeable consultant to review the two proposals and give an outside third party opinion on the differences in cost. Councilman Birdwell moved to accept the proposal to have an outside firm look at this. He indicated his belief that this study can be done in less than thirty days. Councilman Brown seconded the motion to delay the decision and to retain services of a third party consultant. Councilman Birdwell discussed his motion. He stated that GSU is cheaper by $2-3 million up to $19 million. If the difference is 10-12% different, he'd rather have another consultant's review. Councilman McIlhaney stated that a decision has been delayed, and both parties have reviewed the data. She added that the council should make a philosophical decision, to rent or buy. She stated that having new figures will not make a difference. Councilman Birdwell restated that he wants to have another consultant review the proposals. Councilman Brown pointed out that he does not want to delay the decision, but if there is a major difference, then the council owes it to the citizens to look again. Councilman Gardner said that the problem will be selecting a third party and that he does not want to spend additional money for another consultant. Councilman Schneider stated that he will vote against the motion; he indicated that he agrees with the points expressed by Councilman McIlhaney. He did not believe additional information will improve the council's ability to make a decision. He also noted that there are other considerations. 007607 City Council Special Meeting Thursday, December 28, 1989 Page 10 The motion made by Councilman Birdwell to delay the decision at this time and select another consultant to review the proposals failed by the following vote of 2-4, with Councilman Haddox absent from the council table: FOR: Councilmen Birdwell, Brown AGAINST: Mayor Ringer, Councilmen Gardner, Schneider, McIlhaney Councilman McIlhaney commented that GSU has been a good supplier and no problems have occurred. She remarked that the City is faced with one contract to remain as a wholesale buyer and another contract which offers a better handle on the city's energy destiny. This has been a very difficult decision based on these two aspects. Councilman McIlhaney moved to go with TMPA for future power. Mayor Ringer stated that Councilman McIlhaney's motion is for staff to bring a contract with the four cities through TMPA as the supplier. Councilman Brown seconded the motion. Mayor Ringer repeated that the motion is for staff to bring forth to the council a contract for future power supply with the four cities, Greenville, Denton, Garland, and Bryan. Calling for discussion, he asked if anyone on the council wished to comment. Councilman Birdwell stated that the motion was a good one and may well be the right answer, but that he would abstain from the vote. He explained that he felt the Council was acting more on faith and less on data. He would like to spend additional time to get some additional data. Councilman Birdwell added that he was not going to vote against the motion. He stated that he looks forward to working with the four cities, although he wishes that the decision could be based on better knowledge. Councilman Gardner commented that he share's Councilman McIlhaney's concern in planning for the city's energy future. He expressed his belief that the proposal from the TMPA cities will provide that option. Mayor Ringer repeated the motion, for staff to bring forward a contract with the four cities for future power supply. The vote was taken. Councilman Birdwell answered "present" and abstained. The motion was approved by the following vote of 5-0-1, with Councilman Haddox absent from the council table: FOR: Mayor Ringer, Councilmen Brown, McIlhaney, Gardner, Schneider AGAINST: (none) ABSTAINED: Councilman Birdwell 007608 City Council Special Meeting Thursday, December 28, 1989 Page 11 Aqenda Item No. ~ - Adjourn. Mayor Ringer adjourned the meeting. City Se~ary Dian Jones APPROVED: Ma~'~~~~~ 007609 GUEST REGISTER CITY COUNCIL SPECIAL MEETING THURSDAY DECEMBER 28, 1989 4:00 P.M. 11 12 13 14 15 16 17 18 19 10. 20 007610