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HomeMy WebLinkAboutAgenda Bill 3.B-Attch4 08/16/20044 i ATTACHMENT iD; CON.TIINGEINT RISKS RISK ANALYSIS Attached as Exhibit A is a table setting forth; ABAG POWER' s best reasonable effort at estimating'the maximum reasonable. liability (in total for the .Electric Program) for each of the listed contingent liabilities. The table allocates , total liability, of the program to individual Members in accordance with the usage; ratio, or CTC Reversal ratio, as appropriate. The allocation is for illustrative purposes only. ABAG POWER does not have sufficient information on which to base an estimate of how thetentit imp_o'sing the liability would allocate the liabilities 0 r how ABAG POWER and the Members ought to. react to such allocation. A. UNINVOICED'ENERGY'CHARGES- Description of 'Risk ABAG POWER is distributing to .each of its Electric Program- Members a proportionate share of the Working Capital contributions made b,y,Members in response to Working Capital calls, by ABAG POWER -an'd residual funds from operating costs, paid b'y'Members during Electric Program (Balancing Account): Th.ese'funds were held, p,part in reserve for payment of charges for electrical energy consumed by, Members of the Electrical Program during a one =week °period' in August 20,01 When ABAG 'POWER was not..purchasing electricity on behalf of the Electric Program (Ga'p'Period). As of February 29, :2004 ABAG POWER has not been invoiced for electricity consumed during the Gap Period Under the Wind Up Agreement, if. ABAG POWER receives such a bill, each Member Will..be required to pay its proportionate share. Backaround Under normal operating conditions, AB °AG POWER purchased on behalf of the Members of the Electric Pro 9 lam sufficient energy:,to meet their'estimated needs'. Purchases were made from a variety f °electri,cit y y generators and energy remarketers, under'various contractual formats (fixed price, indexed price, indexed price with "floors" and /or' "ceilings," etc.), and at various prices. In all instances, one,significant:'factor in6,,the,price o(electricity is the hour in which it is consumed Energy`dui certain "peak" periods was priced considerably higher than at other periods. In the s I , r of .00; th y 9 umm�e " ime rneeting requer=ements w hg rch l,ounstable., ABAG POWER was electric t dselle It , 20 t P our schedulin coos nator and g E in writin of its difficulties sand quently, on 9ugust 2, 20Q0 y rs were im osrn on the market lace Cons ABAG ROWER,notifed P G& g ,, actions bein taken to rectify the situation. PG &E acknowled'ged that rt had .received ABAG POWER's, notice,, and although it, believ , ed that ABAG POWER was in default of its ESP. g reenient; PG &E would allow ABAG POWER until August 7, 2000 to resolve the situation. Prior to this deadline, ABAG POWER was able to secure scheduling coordination services, and contract for electricity at a reasonable price, without he additional credit requirements imposed by other energy providers and, °rernar,eters. Legal Analysis From a legal perspective, the matter is a simple collection issue. Since,ABAG- POWER did •not ,enter into. a contract during the Gap Period, there is no "seller" to invoice ABAG 'POWER for any energy that was consumed. There are only two sources of electricity flowing into the California 'grid that could have serviced the Electric Program during the: Gap Period: the ISO and PG &E. The energy consumed by the Members could have'been ,s,u ed'throu.gh the ISO "imbalance energy:" This is a reserve main..tai'ned 6y the ISO when contracted for,energ,y supples' from PG &E arid 'other electric service providers fall below the amount = necessary to keep the grid operational. Electricity Program electricity consumption during the Gap Period co`uid have come from this source, Alternatively, PG &E supplies such a large amount of electricity over any period. of `time ;that it could have been supplying part of the power.for'the' Electric- Program during the. Gap Period: The risk, of: incurring the liability is wholly dependent on the ability either of 'the ISO PG &E to prove that electricity consumed'by, Members ,during this period, was supplied by the party making .the claim. • ABAG POWER is without sufficient information to evaluate the likelihood of'this •risk. occurring. ,. ABAG POWER has `reviewed the "price of imbalance energy for the period in question: Imbalance energy prices tend to be the highest of all prices paid for electricity. Based on the price for imbalance energy an,'estimate of�the amount of electricity theit `Electric, Program ;would,,have consumed during the Gape Period, the maximum exposure is estimated' as •One Million Four'Hundred Twenty Thousand Doll ars.($1,420,,000). Finally, ABAG .POWER notes that as time goes on the ability of e ther'the, ISO or PG &E. to collect •the data necessary to generate an invoice• and prove a claim diminishes. B. UDC CHARGES, Description of Risk From information provided by the Program's billing agent (APS) we believe there may be UDC charges for which neither,ABAG POWER nor its Mertibers have been invoiced by PG &E. During: -they period. July 2000 to June 2001 the amount. of'UD,C charges billed to members (and collected by ABAG POWER) is greater than the amount invoiced' from ;PG &E. ABAG P OWER is also. aware of one ihstance in which UDC charges for,the affected period were enerated b PG &E in connection with an :electric account fcr a Member S streetlight ., streetlight system is not metered and is, PG &E billing system. Electricity,consumed by a system: •These accounts are unique in, the Y s' charged on an .estimated consumption basis In the case of which ABAG POWER''is aware, the Member had, already paid PG &E for the asserted UDC charges. • 2. Wind Up Agreement= Attrnt D - 4 -28'_04 All I{ I Credos, owed b'IIPG &EfABAG,PpN/ d ' information fi°orri 'ABAG POWER s review of the DA V Y° ER has concluded that the'likely total exposure is approximate'iy One. Million' Six Hundred Thousand Dollars ($1,600,00o). LEGAL ANALYSIS II PG&E applies U,DC_ charg to individual accounts based on the 'amount of electricity consumed. As ome to A AG POWER -a tentionnwe bel eve thatbti�ed b &E. In the case that has g. Y PG e Member ha 's been billed twice for the same UDC charges. Other Members with streetlight accounts may encounter the same .situation. C.- ISO ESCROW DEPOSIT AND OX ESCROW DEPOSIT Description of Risk The PX Escrow Deposit and ISO Escrow Deposit, heid' by "NCPA on. behalf of ABAG POWER are be consumed in the purse f und. In the case of'PX Escrow Deposit, all of the funds may settling the" PXfs bankruptcy claims. "The: ISO Escrow Deposit is subject to adjustments based on FERC ordered ener..gy price rollbacks (see detailed P Dpw). The FERC ordered rollbacks can.both increase and description m Section" D b ) I decrease the ISO Escrow' ABAG POWER bought electricity for use by the Electric Program.and° sold excess capacity p times.. At those ins" into the market lace at vanous, tances m which ABAG POWER was . purchasing electricity, the FERC ordered price red uctions`wilI generate a refund and an increase in the ISO Escrow Deposit . In those instances in.which'ABAG POWER sold energy into the ma the FERC ordered rollbacks can reduce the amount available from the ISO Escrow eposit. Based on ABAG POWEWs review of the total amount,of'power sold likel reduct o do of exceed the amount for price n the IS 0', Delude that the g p Y y posit. Under these circumstances, we believe the risk is nominal. D. DIRECT'ACCESS'CREDITS Description of 'Risk ABAG POWER is distributing �to 'each. of its Electric Program Members a proportionate share of the funds received from PG &E as settlement cf ABAG PQWEWs' claim, against PG &E for Direct Access Credits incurred durin'g� 2000 under the deregulated energy market in California." The "Direct Access Credit i's a result of then application ^of a rate formula adopted by the CPUC. 'The formula includes contemporaneous energy pr and the Direct Access. Credit is a by- product of'high electricity prices in 2000,1 The FE,RC has (been engaged in a proceeding to determine whether wholesale prices charged y generators and marketers during 2000 in Californiavere "just and by electricit reasonable." FER'C,has °already found that at certain tiinnes such prices were not. The FERC { For a detailed d'escrip'iion of Direci-Access Credits, see Appendix A, "Direct Access`Cfedit." 3 Wind U'p Agreement- AttmtD- 4 -28 -04 All I r : proceeding is now:trying to determine what "just and reasonable" rate's should have been during specific times,' The outcome will bean order requiring generators and marketers who overcharged' to refund money to purchasers. In principle the CPUC has the, power to recalculate the, Direct Access Credit : based on th'e FERC ordered reduction in electricity prices. However, FERC has(no jurisdiction over the CPUC and':cannot compel such a recalculation. The result of such a recalculation would be "a reduction: in the amount of Di'cect:Access Credit owed , ABAAG POW P_.3 The CPUC can undertake a regulatory , process referred to as ratemaking in Which the,ultimate result.cou-Id i pos imposition o over a specified i, Electric, Program Memberaccounts to recoup overpaid Direct P g time, period or immediately. This risk exposure is punctuated by §4 of theStipulation and Release under PG &E and ABAG POWER are settling the Direct Access Credit claim (Stipulation and Release). §4 states: "[ABAG POWER] and PG &E expressly agree that this, Stipulation and Release is :a cornpromise and settlement of all clarrisand matters that are disputed.as between be parties involving the 1998 RAP'forthe period through and including, June 30,, 2001, •all issues. that were raised or could have been raised, in the CPUC Complaint, and :all issues that . were,raised,,orcould -have been'rais-ed, in the Claim. .In the event that the CPUC issues.any.future ruling relating to the direct access. credits at issue in the Clam, the. CPUC Cornp'laint or the 19.98 RAP, the parties wily use:their best efforts to preserve the intent'of - this Stipulation and Release,.consistent with applicable ow;" (emphasis added)' This' provision was negotiated when PG&E , declined to give ABAG POWER a full indemnity :against the possi6 "ility that the CPUC will, take an action to impose :a surcharge. to recover Direct Access Credits paid to ABAG POWER (or •its electricity members). PG &E agreed that the exposure ;exists but "asserts that it cannot, as ari entity regulatecl'b "the CPUC, agree to make ABAG, POWER whole in the event of an adverse CPUC action. PG &E asserts that an y p on would be characterized as ;illegal circumvention (by'PG &E) - of the CP nABAG POWER acceded to PG &E's argument an §418 the negotiated corn promi.se- Backe round On December22, 2003, the U Bankruptcy Court for Northern California, ';San Francisco - Division confirmed,a Plan of Reorganization for PG &E ('Confirmed Plan): The Direct Access Credit Was paid to ABAG' POWER and'er fhe Stipulation- and 'Rele. ase: The Stipulation and Release was approved by the court and. is included in the Confirmed Plan,as a Class 7 Claim. eorga izat on PG &E: r Simu d lta 'neously, &E was pursuing claims chapleng o plans o gce tanf the 9 P. y P 9 d the• CPUC.submitted tom etin actions by the CPUC durin. g deregulation (CPUC Proceedings). .Further, PG &E filed suit'in Federal District Court for Northern California. against;the CPUC, various aspects of ~the deregu)ated energy market created under :CPUC regulations and guidance. The'CPUG - Pricing, occurred on�an hourlybasist ' On&estimate,of the impact of known (in Spring 200 ,,) FERC;ordered reductions. on ABAG POWER's'Diiect Access Credit resulted'in a,reducti'omof $4 =5 million in Direct Access Creditsowed. ABAG POWER'belieyes the estimate':to be reasonable_ "The''1998 RAP" is the.ratesetting proceeding described below under'the same name. The "'CPUC Complaint" is ABAG POWER's initial complaint filed with the CPUC for- payment Direct Access Credit: 4 Wiiid Up Agreement -Attn t D- 428-04 All! • and .PG &E reached; a Master. Settlement Agreement on all pending disputes, including those before the Bankruptcy Court TheeMaster-Settlement Agreement dismissed the lawsuits and the CPUC Proceedings with prejudice, and.,committed: both parties to supporting and implementing what ultimately became the Confirmed' Plan. 'The dismissed CPUC proceedings do not include the 1998` RAP,or ABAG POWER's CPUC Complaint. The CPUC action to approve the Confirmed Plan and the Master Settlement Agreement is documented in the opinion issued for Investigation 02 -04 -026, (Settlement Opinion)' The Master Settle mentAgreement between' the CPUC and PG&E:' has the following relevant features: 1. The CPUC a reed to include ,certain cost co and r 9 g p g y Pone s future re Such c components included components In the CPUC sum of $2.2 billion g g ry lisped by t uded the atema i_n roceedm s as the affect PG &E cost com l must be sufficient fo a su o t. Rates estab he CPUC esi � Hated the re ulato asse O pp rt all of the. cost components necessary to PG &E's continued vlability'as an no public utility and, °(b) amortize the' regulatory asset over a period o- f ten (16), years. 2. Within , the constraints of`the Confirmed Plan and ;the "Master Settlement Agreement, the tans its .re bl authorit over PG& g _ ato rY . 3. The curl • retains and future"C UCs are bound by he M P , aster Settlement Agreement: 4. The CPUC acknowledges the. continuing jurisdiction of"the _Bankruptcy Court to enforce the Confirmed Plan. Legal Analysis The potential CPUC, regulatory action on the Direct .Access Credit can only triggered by.a FERC ordered reduction in wholesale electricity energy prices' for 2000. Only PG &E and a Direct Access Credit recipient: have standing to Initiate an to recalculate the Direct Access Credit: PG &E and ABAG POWER,are•estopped from so doing 6y §4 of the Stipulation and Release (see below), A recalculation �of the Direct Access Credit can in theory be initiated by the;CPUC. The impetus fora CPUC action is'bureaucratic and triggered by FERC ordered price, reductions.., The central question i's whether the CPUC can legally do so in the face of,, ABAG POWER's objections, The issue of recalculating Direct Access Credits based on FERC ordered refunds was raised by •PG &E m a raternaking action before the CPUC (Application 98 -07 -003, the 11 1998 RAP" filed in 1998.): The Administrative Law)udge (AL]) issued a draft decision on April 3, 2003 but the CPUC has .not taken any action on it and,; it'is not currently on the CPUC agenda for consideration 'public hearing or further action, The 1998 RAP, - D:raft' on states in pertinent'part::, it 'ou "In od. FERC order refs u ds.We are confronted init [ sd y, t Acce houl ss] credit reasonable toi i recompuae th witDth ee ,unknown factors: whetherTERC will or refunds: when FERC will order refunds (and when the order become[s]; final), and the 'amount of those refunds As of ;this writing, FERC'h'as the matter under consideration. Any order of refu_ rids, if substantial is expected to be appealed It as impossible °to predict the date of Y final order. The period in question, December 28 00 20;to Januar 18 2001 , is two ears ol sand „counting. It is unfair for r ce action f re the CPUC Some have adopted as p resented B others have been sub�ec h 1. be taken without pp ,deregulation matters have had a mixed reception befo � � p p t to substantial raft d pmionAdopting aPost Power Exchange Direct Access Credit for Pacific Gas and revision Th Pd ecision'is,0 Electric Com an'yi(1'§9,8 RAP; Draft Decision). 5 %Viid Up , Aarcement -Aitmt D- 4 -28 -04 All ratepayers who paid 'their utility ,bills two years ago to be subjectao an, unknown . liability to be. paid at an unknown future date. We need not elaborate on the ;intensive effort required by PG &E to recomputed individual brills nor the intensive> efforts and spent resources of end use to verify those recomputed :bills. Because we deny' PG &E's proposal we do not reach the question of whether approval of the, proposal would constitute retroactive ratema king. When we speak of refunds in this context, we..refer not.to money going '.back °to' DA [direct access] customers but to a recommendafi'on of their'credit. If'a refund'is ordered, th:e credit would have been less and,the customer `would -have `be_ en overpaid by PG &E.thereby causing 'a'repayment to PG &E. , The same, logistical objections raised by the,AU toy retroactive reductions in Direct Access Credits still stand and , are amplified by the; passag:eof yet another °year since]ssuance ^of „the 199,8 RAP = Draft. Decision and without further action by FERC. Further,'the legal barriers to "retroactive ratemaking,” which the draft decision avoids, become a live.`i'ssue. Independent of the: arguments.; made in the 1998 RAP' - Draft Decision; a strong .legal . argument can be made that the,CPUC is''estopped by the Settlement Opinion and Master Y . , Settlement, reement from reducing the amount: of the Direct;Access Credit paid to ABAG 9 The: Settlement Opinion snakes the following policy, finding: "It is ,in the public interest that PG &E emerge from hankruptcypromptly ..To emerge from bankruptcy 'PG &Eshoul'd; pay its creditors. All allovi%ed claims should be paid in full: (emphasis added) " On the date of the Settlement Decision,;.ABAG POWER "s Stlpulation and Release was an "allowed' claim" and part of the record before the CPUC. -It wilt be difficult for the CPUC to defeat `the, argument' that it is'estopped from takin g y an (otherwise permitted) action that effectively rhodlfies` ;the Stipulation and Release: or reduces the payment required' .'by the Stipulation .and Release. In addition, the Master Settlement;Agreeriient ;states,: "[PG &E and. the CPUC] agree. not to contest the. validity and enforceability of [the 'Master Settlement Agreement], the [Confirmed Plan] or'any order entered bythe [Bank.rupt -y Court] contemplated by or required to ;supplement [the Master Settlement.Agreement and the Confirmed Plan], "$ , Ancillary-Ana lVSjS In addition to the`" iogi:c _of a bureaucratic recalculation of the Direct: Access .Credits in res p onse to the an ticipated FERG-ordered price red'uction's, there might be pressure on the CRUC:to recover Direct Access Credits to reduce.general utility rates. In response, one -can raise the objection ; stated in the 1998 RAP- - Draft Decision that the costs to recalculate ,and' recover "ove.rpaid" credits may Well ekceed the.recouery. Finally, please note that the post - bankruptcy CPUC ratemaking structure for PG &E includes the "regulatory asset." Under the terms of the: Confirmed .Plan and'tbe ;,Master`Settlement Agreement, the-amount of Chet regulatory asset which must be ;amortized' by ongoing electric rates wild be red'uced•by any monies actually recovered by PG &Eas a result'of the FERG price rollback.9 The direct • r 6 Although, the.contested time`,period misses ;most&the' times 'during wFiieh ABAG P.OWER's Direct. Access Credit was generated. The same legal;,arguments apply, and the FERC proceeding liar expanded the timeframe for potential price rollbacks to ineludemore okhe period `in which ABAG POWER's'credits were• "generated." ' Settlement Decision, `p. 78. ' Master Settlement Agreement; p. 18, §21- 9 ' Master 'Settlement Agreement, pp. 8 -9, §2'.d. 6 Wind Up Aercement- AttmtD- 4 -28 -04 All effect of the FERC ordered rollback brings °significant rate relief under'the Confirmed Plan.' In the context of.generalized rate relief, 'it appears doubtful that.the CPUC� would be willing to undertake the ironic step of imposing a surcharge on certain , classes of customers (including local ,government entities 'such as ABAG POWER's electricity members) in. order to wring out the last bitter drop of'savings ;generated by the FERC.ordered refunds. Another impediment to such action, by the CPUC is the specter of resurrecting the public debate about California's failed energy deregulation program. Conclusion The CPUC- h.as.the`thedretical ability to reduce the Direct Access Credits paid to ABAG POWER. However,, POWER can pose the foilowing legal, argument in position: (a) the CPUC is estopped from so; doing by the CPUC's findings and actions in reaching the Master Settlement Agreement with PG &E, an "d the CPOC's support for the: Confirmed Plan under which the credits were paid, and (b) the logistical' and equity issues raised in the 1998 RAP - Draft Decision. In :the, :absence of any motivation to undertake'.such'a step other than bureaucratic purity of process, AB'AG POW €R's opinion is that the risk is nominal. s J 10 Mas g estimates a 'potential - recovery by PG &E of fer Settlement A reement price reductions: ($ ) in FERC ordered Wind Up Aurcement- .Atom D- 4 -28 - All r ,0 I EXHIBIT A. TO ATTACHMENT" D: Allocation of Estimated Contingent Liabilities. This table illustrates 'the allocation of ABAG, P,OWER's estimate of the Electric Program liability for the denoted charges among Electric Program members... Allocated:amounts have been rounded to the nearest 10 dollars. Please see Attachment D for an explanation of'the methodology and basis for this Member's City of Albany Town of Los Altos Hills City of Antioch City of Arcata Town of Atherton City of Benicia City of Berkeley County of Butte City of Cloverdale County of Monterey County of Contra Costa City of Cotati City of Cupertino City of Daly City City of Davis City of El Cerrito City of Foster City, Golden Gate Bridge District City of Gonzales City of Half Moon Bay H.A.R.D. City of Hercules Town of Hillsborough Housing Auth. Co. of Alameda City of Los Altos Los Trancos Co. Water District City of Menlo Park City °of Millbrae City of Mill Valley City:of Milpitas Town of Moraga County'of Napa City,of Newark City of Orinda Cityof Pacifica . . City -of Patterson. City of Petaluma Cityof Pinole City-6f Pleasanton R;A.F.C. City of Salinas; (A) (B) (D) Uninvoiced Direct Access ,Energy Charges -(1) UDC Charges (2) Credits (3) $1,420,000' :$1,600 $4 Total $ 4;920 $ 1 5 1 550 $ 9,350 $ 19,820 470 530 1,220 2,220 - 74,030 83 164,090 321,540 5,360 6 15,470 26,870 -2,860 3,220 8,000 14,080 18,1 6,0 20 50,600 89,230 4,060 4;570, 55,190 63,820 28,680 32,310 107,610 168,600 7,70.0 8;670 29,570 45,940, 78,860 88',860 . 151,450 319,170 207,960 2a4,320 778,930 1,221,210 3 4,460 '' 1.0;690 19,110 20,620' 23;230 49 92,890 6 2,020 69',880 357,930 489,830 3,320 3,740 3,720 10,780 5,130 5,780 16 27,440 19,770 22',280 54,620 96,670 19,880 22;400 101,650 143,930 5 ; 630 6;350 15,130 27,11.0 2,840 3,200 7,180 13,220 12,630 14,230; 38,750 65,610 7,890 8',890 , 22,280 39,060. 11,460 12,91 ;0 ,, 30,760 55,130 1,880 2;120 ": 6,690 1,0,690 7,760 8;740 20,970 37,470 1,010 1,,140• 1,330 3,480 17;380 19.;590' 56,130 93,100 7,890 8;890 12,770 29,550 15,860 1 7,870 50,970 84 16,580 18;'680 79,120 114;380 2,660' 3;000 3,660 9,320 21,800 24;560 109,150 1.55,510 1.3,140 14;81:0 25,400 53,350 2 2 5; "150 10,280 12,260 13 28,160 54,240 9,570 10,780 .62,570 82,920 54,380. 61 ;270 96,470 212,120 14,220 16;020 72,080 102,320 43,290 48,780 107,930 200,000 i 17,870 20,130 64,580 102,580 40,070 45,1'50 58,300 143,520 EXHIBIT'A TO ATTACHMENT,D Allocation of Estimated Contingent. Liabilities. 'This table' illustrates the.allocation of ABA, G.PO.WER's estimateof °the Electric. Program liability for'the denotedcharges among Electric. Program members:, Allocated amounts have been rounded to the nearest 10 dollars. Plbase,see Attachment - D for an explanation of the methodology and basis;for.,this r� u 1 01 (A) (B) (D) Unihvoiced, Direct Access. Energy Charges (1) UDC Charges(2) Credits, Members $1 $1 $4576,000 Total City of San Carlos 10;380 11,700: 27 49,250 City of San,Leandro 49,380 55,640. 139 244 City of San,Ma'teo 44,790 50,460 117,720, 212,970 County -of San Mateo 148;120 166,900 582,550 : 897,570 City of San, Pablo 9,370 10,550 .23 43,500 City of. Santa',Rosa 82,740 93 1:88480, 364 City-of Saratoga 4,360 4,920 10,060 '19,340. County of Sonoma 7;230 8,150 15 30,770 South Co. Fire Authority 910 1,020' 3,800 5,730 City, of Union'City o 2;880 3,240 1.7,130 '23,250 Cityof Vacaville 7;770 8,760 26;690 43,220 City of Vallejo 9:1 103,450 346 541,760 West'County Wastewater Dist. 20,620 23,240 131 175;280 Town of W ridso.r 24 27,950 93 .11 146,150 City of Winters 6;570 7,410 11,540 25,520 Total• $ 1419;980. $' 1,600,000 $ 4,676,010 $ 705,990; Notes: (1) Allocated' by kWh usage (2):Allocated by kWh usage, (3') Allocated on CTC Credit Reversals. Represents PG &E's estimate of the possible reduction in the CTC credits due to the FERC „price mitigation hearings. r� u 1 01