ML19347D297
| ML19347D297 | |
| Person / Time | |
|---|---|
| Site: | San Onofre  |
| Issue date: | 12/31/1980 |
| From: | CALIFORNIA, STATE OF |
| To: | |
| Shared Package | |
| ML13302A498 | List: |
| References | |
| 59785, 59788, NUDOCS 8103110766 | |
| Download: ML19347D297 (535) | |
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ALJ/EA/nb Decision No. 92557 . December 30, 1980 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA In the matter of the application ) of SAN DIEGO GAS & ELECTRIC COMPANY ) Application No. 59788 for authority to increase its rates ) (Filed July 2, 1980) and charges for electric and gas ) service (NOI 21) . )
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In the matter of the application ) of SAN DIEGO GAS & ELECTRIC COMPANY ) for authority to revise its Electric ) Application No. 59785 Department tariffs to implement ) (Filed July 1, 1980) Schedule A-4 TOU, General Service- ) Time Metered. )
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(Appearances are listed in Appendix A.) t 8103110 16' P -
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A.59788, 59785 ALJ/EA/nb TABLE OF CONTENTS Page No. Subiect 2 INTERI!! OPINION ............................................
SUMMARY
OF THIS DECISION ............................. 2 I. INTRODUCTION ......................................... 4 II. 4 A. SDG&E'S REQUEST .................................. ! B. PROCEDURAL
SUMMARY
............................... 4 5
C. MOTION TO DISMISS ................................ BASIS OF REQUESTED RATE INCREASE ..................... 8 III. 9 IV . PUBLIC WITNESS STATEMENTS ............................ STATEMENTS BY LOCAL GOVER!2 ENTAL BODIES . . . . . . . . . . . . . . 11 V. 11 A. CITY OF SAN DIEGO (City) ......................... B. COUNTY OF SAN DIEGO (COUNTY) ..................... 11 C. 3ORREGO SPRINGS .................................. 12 13 D. POWAY UNIFIED SCHOOL DISTRICT .................... RATE OF RETURN ....................................... 14 VI. 14 A. GENERAL .......................................... B. RETURN ON EQUITY ................................. 14 C. BANKERS' ACCEPTANCES ............................. 15 15 D. ADOPTED RATE OF RETURN ........................... VII. RESULTS OF OPERATION ................................. 16 A.
SUMMARY
AND ADOPTED RESULTS ...................... 16 Table I - Electric Department ................... 17 Table II - Gas Department ........................ 18 B. OPERATING REVENUES ............................... 19
- 1. General ...................................... 19 Table III - Electric Sales ................... 20 Table IV - Electric R'evenues ................ 20 Table V - Gas Sales ........................ 21 Table VI - Gas Revenues ..................... 21 Table VII - Gas Margin ....................... 21
- 2. Sales Estimates .............................. 22
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o . >~ A.39783, 59 785 AL7/EA /nb Subioct Pace No.
- 3. Lifeline Refunds ........................... 24 C. OPERATING EXPENSES ............................. 27
- 1. E'lectric Production Expenses ............... 27
- 2. Electric Transmission Expenses ............. 28
- a. General ..;............................. 28
- b. Account 562 - Station Expenses-Operation .............................. 29 Account 570 - Station Equipment-Maintenance ............................ 29
- c. Account 568 - Supervision and Engineering-Maintenance ................ 31
- 3. Electric Distribution Expenses ............. 31
- a. General ................................ 31 l
- b. Account 593 - Maintenance of overhead Lines .................................. 32
- c. Account 584 - Underground Line Expenses-Operation .............................. 33 Account 594 - Maintenance of Underground Lines .................................. 33
- d. Account 588 - Miscellaneous Distribution Expenses ............................... 36
- 4. Gas Supply Expenses, Gas Storage Expenses, and Gas Transmission Expenses .............. 38 l
- 5. Gas Distribution Expenses .................. 38
- a. General ................................ 38
- b. Account 880 - Other Expenses ........... 40
- c. Account 887 - Maintenance of Mains ..... 40
- d. Account 892 - Maintenance of Services .. 41 l
l 4 . . % - l l A.59780, 59705 ALJ/EA /nb Subject , Pace No.
- 6. Customer Accounting and Cc11ection Expenses .. 42
- 8. General .................................. 42
- b. Account 903.7 - Postage .................. 42
- c. Account 903.2 - Credit Mana'gement ........ 43 Account 903.3 - Collections .............. 43 Account 903.5 - Billing and Bookkeeping .. 43 7 Marketing Expenses ........................... 45 Table VIII- Adopted Marketing Expenses ....... 45
- 8. Administrative and General (A&G) Expenses .... 46
- a. General .................................. 46
- b. Account 922 - A&G Transferred-Credit ..... 46
- c. Account 926 - Employee Pension and Benefits, Newsmeter, and Employee Organizations ............................ 48
- d. Account 930 - Miscellaneous General Expenses-R&D Blanket ..................... 50
- e. Account 930 - Miscellaneous General Expenses-Stock and Bond Expense .......... 52
- f. Account 9 31 - Rents . . . . . . . . . . . . . . . . . . . . . . 52
- q. Account 932 - Maintenance of General Plant .................................... 53
- 9. Depreciation and Amortization ................ 54
- 10. Ad Valorem Taxes ............................. 54
- 11. Payroll and Miscellaneous Taxes .............. 54
- 12. Income Taxes ................................. 55
- a. General .................................. 55
- b. Benefit Costs Capitalized ................ 55
- c. R&D Expense (Heber) ...................... 58
- d. ITC Carry-overs .......................... 65 l
- 13. Wage Settlement .............................. 68
- 14. Wage and Price Standards ..................... 69 l
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g , . o-A 59738, 59787 ALJ/EA Subject Pace N~. o D. RATE BASE ........................................ 71
- 1. General ...................................... 71
- 2. Plant in Service ............................. 71
- 3. Net Plant Additions .......................... 71
- 4. Fuel in Storage .............................. 72
- 5. Worl:ing cash ................................. 75
- 6. Plant Held For Future Use .................... 76
- 7. Conservation Voltace Regulation (CVR)
Program ...................................... 78 VIII. CONSERVATION ......................................... 79 A.
SUMMARY
.......................................... 79 Table IX - Conservation Expenses ................. 80-81
'B. PROGRAMS ......................................... 82
- 1. General ...................................... 82
- 2. Mandated Programs ............................ 82
- 3. RCS Program .................................. 83
- 4. New Customer Conservation Program ............ 95
- 5. Conservation Voltage Regulation (CVR)
Expenses ..................................... 86
- 6. Supplemental Reserve ......................... 87 C. POSITIONS OF PARTIES ............................. 91
- 1. Position of City ............................. 91
- 2. Position o f CalPIRG . . . . . . . . . . . . . . . . . . . . . . . . . . 92
- 3. Position of Executive Agencies of the United States (Federal Agencies) .................... 92
- 4. Position of Staff Legal Division ............. 93 D. DISCUSSION ....................................... 96
- 1. General ...................................... 96
- 2. Management Discretion ........................ 96
- 3. Price-Related Conservation ................... 97
- 4. Cost-Effectiveness ............o.............. 98 l
1 l
-iv-
i 1 A.59700, 59785 ALJ/EA/nb Subject Pace No.
- 5. Energy Savings ............................... 98
- 6. Conservation Advertising Expenses ............ 99
- 7. Adopted Expenditure Levels ................... 101 IX. RESEARCH AND DEVELOPMENT ............................. 103 Table X - R&D Programs ............................... 103 X. RATE DESIGN .......................................... 105 A. COMPANY'S AND STAFF'S PROPOSALS .................. 105 B. POSITION OF PARTIES .............................. 106
- 1. Position of Farm Bureau ...................... 106
- 2. Position of Executive Agencies of the United
' States (Federal Agencies) .................... 108
- 3. Position of City .. ...... .................. 108
- 4. Position of CalPIRG .......................... 109 C. DISCUSSION ....................................... 110 D. TIME-OE-USE RATES ................................ 111
- 1. General ...................................... 111 e 2. Impact of A-4 TOU Rates ...................... 112
- 3. Public Nitness Testimony ..................... 114
- 4. Position of California Community Colleges (Community Colleges) ......................... 114
- 5. Discussion ................................... 116 XI. TEST YEAR 1982 ....................................... 117 -
XII. FINDINGS AND CONCLUSIONS ............................. 118 l i A. FINDINGS OF FACT ................................. 118 l 122 i B. CONCLUSIONS OF LAW ............................... INTERIM ORDER .............................................. 123 APPENDIX A - List of Appearances APPENDIX B - Electric Rates APPENDIX C - Gas Rates i I
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o* j A.59788, 59785 A LJ / bw *** l l [ INTERIM OPINION
- 1.
SUMMARY
OF THIS DECISION , This decision authorizes an incresse of $80,943,500 for the Electric Department and $14,957,900 for the Gas Department, for a total increase of $95,901,400 in gross revenues for test year 1981. San Diego Gas & Electric Company (SDG&E) originally requested a total increase in gross revenues of $144.8 million for test year 1981. This request was later reduced to $107.7 million following the staff's investigation and publication of the staff . report. . The return on equity of 14.5 percent remains unchanged from.SDG673's last general rate case based on a test year 1979. The resulting rate of return on rate base is 11.36 percent. This return reduces after-tax times interest coverage from 2.7 times last found j reasonable to 2.3 times. This decision increases expenditures for conservation programs for 1981 from $5.1 million to $11.3 million per year. This level of expenditure was adopted after close scrutiny of the company's proposed $15.2 million program and the Commission staff's recommended expenditure level of $13.1 million. This decision reduces 1981 advertising levels from a company-proposed level of
$3.5 million to $2.0 million. The Commission did consider the views of customers expressed at the public hearings, regarding the need for expensive conservation programs notwithstanding extremely high utility rates which compel customers to conserve.
l However, the Commission believes a significant level of conservation expenditure is nevertheless necessary in order to avoid construction of costly new power plants. i l- . . . . .
~_ - - _ . ..
g A.59708,,59735 ALI/nb
- 1 A typical residential customer electric bill for 500 kilowatt-hours will increase from $48.54 to $52.76.
A typical residential customer heating-season gas bill I for 100 therms will increase from $31.22 to $33.36. This is an interim increase and further hearing will be held on SDG&E's 1982 test year, at which time the Coc: mission will consider rate of return and other issues such as major changes in rate design. 9 O h_. -- - =4 -c-. ...
* . . s .
A.59788, 59785 ALJ/EA /nb
- II. INTRODUCTION A. SDG&E'S REQUEST SDG&E originally sought authority to increase its rates approximately $144.8 million (11.2 percent) annually at its estimated test year 1981 level of sales. This was reduced to an increase of
$107.7 million (8.3 percent) as a result of various stipulations to the staff's estimates and transfer of issues to other proceedings. By department, this amounted to an increase annually of $91.2 million (9.5 percent) for electric and $16.5 million (4.9 percent) for gas service. In comparison the staff recommended a total increase of $68 million for all departments.
B. PROCEDURAL
SUMMARY
SDG&Z tendered a Motice of Intent (UOI) 21 on March 12, 1980 and it was accepted for filing on May 1, 1980. The application uns filed July 1, 1980. The prehearing conference was held July 15, 1980, and the public witness hearings were conducted August 12,13, and 14,1980. Evidentiary hearings commenced September 15,1980 and concluded October 27, 1980, at which time the case was submitted 7 pending filing of concurrent briefs on November 17, 1980. The ! matter uas heard before Administrative Iaw Judge .(AIJ) Bertram f Patrick. SDG&E's A.59785 dated July 1, 1980 for authority to implement Schedule A-4 TOU, Electric General Service-Time Metered Ra'tes, was consolidated with the general rate increase proceeding and is discussed in Chapter X - Rate Design. l l
, . . o
- e A.59788, 59785 ALJ/EA We note that in its last general rate case, D.90405 based on test year 1979, we allowed SDG&E the opportunity to file its next general rate case with two separate test years. The objective was to shift the company to an even test year to smooth out the staff's workload under the Regulatory Lag Plan. Accordingly, this decision covers the first part of the dual test year (1981 and 1982) general rate increase application. A separate decision will cover the 1982 test year phase since further hearing is to be held on this matter.
Briefs were received from SDG&E, staff, city of San Diego (City), California Public Interest Research Group (CalPIRG), Executive Agencies of the United States (Federal Agencies), Cali-fornia Farm Bureau Federation (Farm Bureau), and California community Colleges (Community Colleges). C. MOTION TO DISMISS Prior to commence, ment of the evidentiary hearings, CalPIRG made a motion to dismiss the application for the following reasons: (a) The abbreviated and compacted hearing schedule adopted is an unjustified departure from past Commission policy and may produce a less than thorough investigation of the company's appli-cation by the parties involved in the proceeding. (b) It has been the past policy of the Commission to schedule general rate case hearings in the geo-l l graphical region of the consumers being affected by the increase. Since the schedule adopted included two weeks of hearing to be held in San Francisco, CalPIRG contends this will prejudice intervenors unable to be present in San Francisco due to financial limitations. l l l l
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e ,
- n. e A.59788, 59785 ALJ/EA/nb e
CalPIRG contends that the aforementioned time and geographical restrictions of the adopted hearing schedule will lessen the scope and potential effectiveness of their advocacy 8
- ducing this proceeding. It states that such a result is contrary to the Commission's expressed desire to encourage public involve-ment in its decision-making process. More importantly, CalPIRG believes that the San Diego ratepayers will not be served.by their diminished involvement in this important rate increase application.
At the prehearing conference on July 15, 1980, the ALJ informed the parties that because of staff's budgetary constraints, it was necessary to have two weeks of hearing in San Francisco and the remaining four weeks, for a total of six .eeks of hearing, would be held in San Diego. The objective was to have as many . San Francisco staff members as possible testify at their home office location to cut down on travel time, waiting tice, and living expenses otherwise necessary if they had to testify in San Diego. On September 3, 1980 CalPIRG filed its motion to dismiss. On the first day of evidentiary hearing, September 15, 1980, the ALJ took CalPIRG's motion under submission and informed all parties that because of CalPIRG's inability to attend the two weeks of hearing scheduled in San Francisco, a motion by any party to have a witness recalled to San Diego for further cross-examination on a particular tasue would receive consideration. Also, to assist parties unable to attend the hearings in San Francisco, the ALJ ordered copies of daily transcripts be made available in the Commission's San Diego office. e . c , , . . _ _ _ _ , . , . _. .. . -
e a 1 A.59788, 59785 ALJ/EA Regarding CalPIRG's objection to six continuous weeks l of hearing, we note that the Regulatory Lag Plan prescribes a l minimum of 12 days of hearing a month. It does not prescribe a maximum or place restrictions on the number of days of hearing in a week. While we agree that in this instance the schedule was compacted (for good reason),1I we do not agree with CalPIRG's assertions that there was insufficient time to participate
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effectively. We note that SDG&E's amended NOI, complete with work papers, was accepted by the Commission on May 1, 1980 and i served on parties within five days. The application itself was filed on July 1, 1980 and served on parties receiving the NOI. Since evidentiary hearings did not commence until September 15, 1980, we believe all parties had ample opportunity to submit data requests to the company and make adequate preparation for the hearings. We regret that CalPIRG was unable to attend the two weeks of hearing in San Francisco due to financial reasons; how-ever, the record is clear the ALJ did take reasonable measures to protect CalPIRG's (and the ratepayers') interests by providing for witnesses to be recalled to San Diego upon a showing of reasonable cause. However, we note that CalPIRG did not choose to exercise bhis right. 1,/ In recognition of the fact that staff would be fully occupied with Southern California Edison Company's and Southern California Gas Company's general rate increase proceedings, SDG&E agreed to file its A.59788 pursuant to a modified plan which provided for hearings to be scheduled after the submission of the other utilities' cases. Also, SDG&E agreed to limit the scope of its test year 1981 ey:pli-cation to a "make-whole" presentation based on the' return on equity found reasonable in its test year 1979 general rate case, D.90405.
A.59788, 59785 ALJ/EA We are satisfied all parties were given an adequate opportunity to evaluate A.59788 and to participate effectively in the proceeding. We conclude that the ability of CalPIRG or any other party to participate in the proceeding was not unreasonably hampered by the expedited hearing schedule set by the ALJ. Accordingly, CalPIRG's motion to dismiss is denied. III. BASIS OF REQUESTED RATE INCREASE SDG&E states that its request for 1981 is essentially to "make it whole" since without the requested rate relief, the company's ability to raise capital on reasonable terms would be seriously impaired. It is not asking for an increase in its authorized rate of return on common equity for test year 1981. SDG&E claims that in the period since the last general rate case, D.90405 dated June 5, 1979, it has been confronted by the effects of double-digit inflation on the cost of providing utility service. Compounding this problem is the fact that some 59,000 new electric customers and 28,000 new gas customers will ! be added to the system. As a result, SDG&E expects to experience an increase in expens'es for wages, materials, and services of 35 percent in 1980 over adopted 1979 levels, and an additional l 17 percent in 1981 (57 percent overall). Another major element of the rate request is proposed expenditure for conservation programs. While these programs are undoubtedly worthwhile in this era of high energy demand and costly supply, their benefits can be reaped only through the expenditure of sufficient monies to ensure their success. In this opinion we examine the various factors that make i up SDG&E's amended request for a $107.7 million increase in gas and electric revenues for test year 1981.
. I A.59708, 59785 ALJ/EA IV. PUBLIC WITNESS STATEMEN"3 Commissioner Leonard Grimes presided at the public witness hearings held in Oceanside on August 12 and in San Diego on August 13 and 14, 1980. Evening hearings were held at both locations to provide SDG&E's customers with an opportunity to present their views on the rate increase filing.
Local TV, radio, and newspapers provided extensive coverage. A total of 290 customers attended and 99 made state-ments. While the majority of customers were older and on fixed incocies, there was good representation from all age groups, including younger customers struggling to raise families. In addition to general opposition to the rate increase, the views of the customers are summarized as follows:
. Management inefficiencies are responsible for the company's financial problems.
. Expenditures for abandoned projects should be borne by the stockholders and not the ratepayers.
.SDG&E should tighten its own economic belt by improving management efficiency, eliminating waste, laying off employees, and doing the things other businesses do when times are difficult. .
.The high cost of energy makes conservation a financial necessity and therefore expenditures
! for conservation programs are not necessary.
.TV and newspaper advertising for conservation and load management programs should be eliminated.
. Rates could be reduced if. money is not spent on colorful pamphlets offering conservation suggestions.
l ( . Customers practicing conservation should not be ! penalized with increased rates because SDG&E's sales are reduced, l
A . 59 788, 59785 ALJ/EA/nb
. Rates could be reduced by ending undergrounding of overhead utility lines.
l .New connections to the utility's system should j pay a hookup fee.
.!!obile home parks should not make a profit on the utility bill.
. . Employee discounts should be eliminated.
. Businesses in SDG&E's territory are unable to compete with out-of-state competition because of SDG&E's high electric rates. A representative i of Crystal Silica Company, a commercial customer with 80 employees, voiced his concern that his company's electric bill had risen faster than inflation (643 percent since 1973).
. Rates should not be raised because of solar loans and insulation programs.
. Wind and solar power should be used for generation.
. Pronuclear and anti-nuclear views were expressed on San Onofre Nuclear Generating Plant.
.More lifeline allowances should be available for air conditioning.
. Lifeline allowances are inadequate and should be increased.
Generally, customers are angry that they received six rate increases in 12 months and that SDG&E's rates are the second highest in the country. They make no distinction between offset increases for higher fuel prices and those resulting from general rate increase applications such as covered by this proceeding. They are particularly concerned with the ability of senior citizens and those on low or fixed incomes to pay continued utility increases. The Commissio,n received 568 letters and three petitions containing 1,411 signatures protesting the proposed rate increase. The letters addressed the same concerns that the public witnesses spoke of. We will consider all of these concerns in our disposition of this matter. mm -- m+em e e. e
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O b e e A.59788, 59785 ALJ/EA/nb V. STATEMENTS BY LOCAL BODIES A. CITY OF SAN DIEGO (City) William S. Shaffran, deputy city attorney, opposed the increase requested by SDG&E and questioned: (1) the amount of the increase, (2) management's prudence in certain areas, (3) the company's sales forecasts, and (4) the amount requested for conservation and the cost-effectiveness of these programs. The City was represented throughout the evidentiary hearings and vigorously participated in cross-examination of the company's and staff's witnesses. B. COUNTY OF SAN DIEGO (COUNTY) William D. Smith, deputy county counsel, presented a statement from the Board of Supervisors (Board). The Board called upon everyone - citizens, employees, government agencies, an'd utility companies alike - to make sacrifices and share in the austerity that is required of,all segments of society in order to reduce our dependence on foreign oil. In addition, the Board called upon SDG&E to forego the requested rate increase. The Board supported SDG&E's conservation programs and the Eastern Inter-Tie Project. As part of its program to reduce dependence on foreAgn oil, the Board pointed to the energy conservation measures instituted by the County, which include: (1) development of an energy conservation policy, (2) delamping operations, (3) installation and refinement of a computerized energy manage-ment and control system for major County facilities, (4) monthly energy management reports, (5) energy audits, (6) installation of time switches, (7) replacing inefficient lighting, and
A.59700, 59705 ALJ/EA/nb (8) additional light switching to provide more flexibility and control. As a reruit of these efforts, electricity consumption in eight major County facilities has decreased by 6.3 million kilowntt-hours (kWh), a reduction of 20 percent. A reduction of gas usage of 54 percent has been realized, and steam consump-tion has been reduced by 75 percent. Overall energy savings in these facilities, from the base year 1972-73 to 1979-80, are 57 percent. Smith stated that the County is studying plans for cogeneration and has embarked upon a program to produce electricity from solid wastes which will convert 423,000 tons of solid waste each year into an estimated 25.5 megawatts of electrical energy. The program calls for a capital expenditure of nearly $200 million over six years. Supervisor Jim Bates of the Fourth District, San Diego County, proposed that: (1) a consumer advocate with no financial interest in SDG&E be put on the Board of Directors, (2) stockholder-l dividends be reduced, (3) advertising expenses be eliminated from , rates, (4) the County take steps to be totally energy independent, (5) public ownership of the gas and electric utility be studied, and (6) more emphasis be placed on renewable energy sources. We commend the County for its active involvement in the areas of conservation and cogeneration. C. BORREGO SPRINGS Approximately 300 residents attended an informal meeting held by the Commission's Consumer Affairs Branch in Borrego Springs on October 14, 1980. The residents requested the meeting to protest the high level of electric rates and asked that the Com-i mission give special consideration to the plight of desert communities. \ . I I L_ _
. a l A.59700, 59785 ALJ/EA/nb
- i They request the Commission consider higher summer lifeline allowances of at least 1,200 kWh for the months of July, August, and September instead of the present 400 kWh, and they want to bank unused lifeline allowances for credit against future consumption.
The residents state that because of an electric bill of $4,600 for August 1980, the owner of the only grocery store
- in the community has refused to stay open next summer. This means residents will have to travel 50 miles each way for groceries. They ask that 1,1 feline allowances and reduced demand charges be considered for small businesses. They believe that desert communities will not be able to exist unless they are given special consideration.
D. POWAY UNIFIED SCHOOL DISTRICT Doctor David Stine, representing the Poway Unified School District (District), stated that more and more educational dollars are being taken away from students in the classroom and are spent on utilities. He said that out of a budget of $34 million approxi-mately $1.5 million is presently spent on utilities and the District will be in a real dilemma to find an extra $500,000 to pay higher utility bills for the next fiscal year. He complimented SDG&E l for the assistance it had given the District with conservation measures. He stated that energy audits have been made of the 18 schools that serve the 15,000 students in the District. They
- have delamped and relamped, lowered water temperatures, put on l water heater blankets, and employed some 25 measures to. conserve energy. Doctor Stine asked that SDG&E be made to stay within a budget just like any public agency.
2/ D.90405 dated June 5, 1979 adopted an air conditioning lifeline allowance of 400 kWh to all customers in Zone V for the months of May through October.
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O g A.59 708, 53705 ALJ/EA
.V I . RATE OF RETURN A. GENERAL In its cost of capital presentation, SDG&E has kept frozen the return on common equity and updated the other cost factors, consistent with its commitment to minimize controversy in this proceeding. The company presented witness Williams to sponsor the rate of return showing in Exhibit 1. As a result of certain stipulations made to the staff's usa of more recent financing data, the requested overall rate of return on rate base is 11.36 percent, with a corresponding return on equity of 14.50 percent, as shoun in late-filed Exhibit 70. This compares to the staff's recommended rate of return of 11.22 percent overall, and 14.5 percent on equity.
B. RETURN ON EQUITY A few comments are in order regarding the mutually recommended return on common equity of 14.50 percent. This level was last authorized for SDG&E in D.90405, based upon a 1979 test year. According to SDG&E, financial conditions have been much worse than was forecasted. Witness Williams testified th'at were it not for the company's policy in this proceeding to eliminate return on equity as an issue, the required level would be higher than 14.50 percent. Staff witness Quan testified that his cost rate recommendation of 14.50 percent, contained in Exhibit 16, was based upon an independent analysis that led him to conclude that such level is fair and reasonable for test year 1981. Considering the above factors, we adopt a s reasonable a 14.5 percent return on common equity for test year 1981.
A . 59 788, 59705 ALJ/EA/nb
- C. BANKERS' ACCEPTANCES The only area of dispute in the cost of capital is the proper cost rate to be used for the bankers' acceptances component of the calculation. Bankers' acceptances are financial instruments which have lives of less than a year and are used to finance' fuel oil purchases. The company estimated a cost rate of 12.50 percent in 1981. The staff, on the other hand, used a cost rate of 10.50 percent.
Since interest rates have remained high with no signs of returning to "nor=al", tu eill adopt a 12.5 percent intersst cost as . reasonable for t. t y ar 1981 for bankers' acceptances. Based on the staff's capital structure, we calculate this will provide a 2.3 times interest coverage, a reduction from the previous level of 2.7. l l D. ADOPTED RATE OF RETURN Considering the above factors, our adopted capital structure and costs will translate to a 11.36 percent rate of return as follows: l Adopted Rate of Return Capitalization Weighted Component Ratios Cost Cost Lona-Term Debt 44.40% 9.43% 4.19% Bankers' Acceptances 6.60 12.50 .83 Preferred Stock 12.75 8.44 1.08 Common Equity 36.25 14.50 __ 5.26 Total 100.00% 11.36%
e A.59788, 59735 ALJ/EA VII. RESULTS OF OPERATION A.
SUMMARY
AND ADOPTED RESULTS SDG&E and staff have estimated SDG&E's 1981 test year results of operation for the Electric and Gas Departments. The following Tables I and II present the final SDG&E and staff estimates and our adopted test year results of operation. Energy costs are excluded and revenues reflect base rates only.
- t A.59788, 59785 /AIJ/k3 ***
TABLE I San Diego cas & Electric Company Electric Departnent , RESULTS OF OPERATIO!!S Test Year 1981 , Item At Rates Authorized Staff Company Adopted Total CPUC (A) (B) (C) (D) (E) (Dollars in Thousands) Revenues 296,643.7 282.943.0 282,930.1 363,873.6 363,023.5 Excenses
~ Production 48,455.7 48,455.7 48,455.7 48,455.7 48,435.7 Transmission 6,793.2 6,931.4 6 6 920.3 6 Distribution 23,143.3 24,776.5 24,920.3
,027.2 24,,027.2 24,,735.3 027.2 Customer Acets. 10,800.0 11,184.0 10,766.9 10,888.3 888.3 Marketing 9,289.8 9,289.86 6,685.0 6 10,685.0 6
A&c 42,314.1 43,401.0 42,613.5 44,685.0
,189.4 44,,068.4 Total 140,796.1 144,038.4 139,469.6 141,165.9 140,849.9
*lage Adj ustment e 1,147.2 459 0 549.0 457.9 Total 139,648.9 144,038.4 139,009.7 140,706.9 140,392.0
- epreciation and Amortization 49,950.0 50,076.0 50,126.0 50,126.0 49,961.0 Taxes Other Than Income 14,141.0 14,957.0 14,141.0 14,141.0 14,095.0 Calif. Fran. Tax 792.7 7,474.1 7,455.0 Fcderal Income Tax 305.4 4,967.8 -3,514.9 26,734.3 26,665.0 Total Expense 204,838,0 204,103.6 199,761.7 239,182.3 238,568.0 Tot Oper. Revenues 91,805.7 78,839.4 83,168.4 124,691.3 124,455.5 Rcte Base 1,055,401.0 1,105,504.01,097,635.0 1,097,635.0 1,095,299 0 Date of Return 8.70% 7.13% 7.58% 11.365 11.365 ,
Stcff and Company estimates reflect late filed exhibit 70.
s , A.59788, 5978) ALJ/FA/nb ** Table II San Diego Gas & Electrie. Company Gas Department RsSULTS OF OPERATION Test Year 1981
- At Present Rates : :
- : C - any : Adoot ed : Authorized :
- Item Staff (A) (B) (C) (D)
(Dollars in Thousands)
$ 56,253.0 $ 56,253.0 $ 56,253 0 $ 71,210 9 Revenues Expenses Gas Supply (713.0) (713.0) 713.0) ( 713.0)
Storage 1,990.0 1,990.0 1,990.0 1,990.0 , 1,745.7 1,708.7 1,708.7 1,708.7 Transmission 11,006.8 11,006.8 Distribution 10,743.3 11,034.3 5,966.4 6,120.8 5,966.4 5,989.1 Cus':omer Accounts 2,888.0 Marketing 3,820.0 3,820.0 2.888.0 A&G 11.337.7 11.741.1 11.L17.0 1T.794.0 Total 34,890.1 35,701.9 34,283 9 34,663 3
'403.2) - (161.0) (161.0)
Wage Adjustment 34,486.9 35,701.9 34,122.9 34,502 3 Tecal Depreciation and 8,541.0 Amortization 8,535.0 8,541.0 8,541.0 2,649.0 3,728.0 2,649.0 2,649.0 Taxes Other Than Income Calif. Franchise Tax - - 141 3 . 1.540 9 (361.8) (1.342.6) - 5.905 5 Federal Income Tax 45,309.1 46,628.3 45,454.2 53,138 7 ' Total Expenses 10,943.9 9,624.7 10,798.8 18,072.2 Net Operating Revenues 159,611.0 159,180.0 159,086.l_ 159.086.1 Rate Base 6.867. 6.057, 6 797 11.367. Rate of Return , (Red Figure) Notes: 1. Present rates are rates effective January 20, 1980.
- 2. Staff and company estimates reflect late-filed Exhibit 70.
- ~ - ~ . - . . . . . . . . _ _ . . _ _ . _ j
e . A.59788, 59705 ALJ/EA B. OPERATING REVENUES
- 1. General There is a significant difference between SDG&E and the staff in the estimates of electric revenues. A summary of l
these differences is as follows: Total Electric Sales (GkWh - millions of kWh) Difference SDG&E Staff SDG&E Less Than Staff 1 10,334.28 10,917.38 583.10 Electric Revenues Difference' SDG&E Staff SDG&E Less Than Staff , At Present Rates
$282,943,000 $296,643,700 $13,700,000 At Proposed Rates
$409,573,000 $431,135,600 $21,562,600 There is no difference between SDG&E and staff estimates of 2
revenues for the Gas Department. The major reason for the difference in Electric Department revenue estimates between SDG&E and staff is a difference in the sales estimates. In addition, there is a difference in estimates for miscellaneous revenues due to refunds on lifeline sales ($203,000),, f The following Tables III through VII show the staff's, L SDG&E's, and the adopted estimates of sales and. revenues at present rates and the gas margin for test year 1981. l l l l 1 i
,y y [ 4M'* _ , _ , w--wem-rm - - - - - - - - '
A.59788, 59785 ALJ/EA Table III Sales - Electric Department Test Year 1981
- Class of Service : Staff : SDG&E : Adopted :
(Mi131ons of kWh) Residential 4,294.60 3,968.28 3,968.28 General Service 3,400.00 3,313.80 3,313.80 General Power 213.00 206.34 206.34 Industrial 2,440.75 2,299.77 2,299.77 Agricultural Power 164.31 148.60 148.60 Street Lighting 74.86 67.63 67.63 Resale 54.29 54.29 54.29 other Sales to Public 275.57 Authority 275.57 275.57 4 Total Sales 10,917.38 10,334.28 10,334.28 Table IV Revenues at Present Rates - Electric Department
- Test Year 1981 Class of Service : Staff : SDG&E : Adopted :
(Thousands of Dollars) Residential $124,497.3 $115,374.0 $115,374.0 General Service 104,272.6 101,936.0 101,936.0 General Power 6,496.7 6,312.0 6,312.0 Industrial 44,835.2 43,917.0 43,917.0 Agricultural Power 4,379.5 3,986.0 3,986.0 Street Lighting 4,033.4 3,644.0 3,644.0 Resale 682.0 682.0 682.0 Other Sales to Public 17.0 - Authority 17.0
' Base Rev. From Cust. 289,213.7 275,868.0 275,851.0 Miscellaneous 7.430.0 7.075.0 6.872.0 296,643.7 282,943.0 282,723.0 Revenues
- Transfer of Department of Water Resources sales to ECAC per D.92496 in OII 56.
I s .~- A.59788, 59785 ALJ/EA/nb
- l Table V Sales - Gas Department Test Year 1981
- Class of Service : Staff, SDG&E, and Adopted:
(Thousands of Therms) Residential 355,675 Nonresidential 202,266 Total Sales to Customers 557,941 Interdepartmental Sales 223,749 Total Sales 781,690 Table VI Revenues at Present Rates - Gas Department j Test Year 1981
- Class of Service : Staff, SDG&E, and Adopted:
(Thousands of Dollars) Residential S36',426.0 12,775.0 Nonresidential Subtotal 49,201.0 - Interdepartmental 5,676.0 Miscellaneous 1.376.0 Total Revenues $56,253.0 In order that there will be no misunderstanding of the appropriate gas margin for the test year, the following summary l sets forth our adopted results: Table VII Gas Margin Test Year 1983 l Gas Margin :
- ($000) :
- Item l
Authorized Rev. $71,210.9* - l ! Less other Misc. Rev. . 1.37 6.0 Total Authorized Gas Margin 69,834.9 l l
- Based on a franchise and uncollectible factor of 2.5364%.
l l - .e--- _
~
n . i 1 A.59788, 59785 ALJ/EA , 2. Sales Estimates Both the company and staff used econometric models to estimate historical statistical relationships between sales and economic and noneconomic variables. A major difference between the company and staff lies in the structure of their respective models. The issue of sales was vigorously contested by both staff and the company. An impressive showing was made by both sides. Staff and company witnesses provided competent testimony. l to support their positions. However, both sides were far apart on the level of electric sales for test year 1981. The staff and SDG&E estimates of total electric sales differ by 583.1 million kWh. The staff's higher estimate yields a revenue
- estimate at proposed rates that is $21.5 million greater than i the company's.
Because of the large difference in sales estimates, the company proposed that the Commission adopt SDG&E's sales estimate for 1981, together with a refund provision that would operate if revenues based on rates, set using SDG&E's sales levels, exceed SDG&E's estimate. This proposal involves a balancing account with monthly entries comparing actual base rate revenues with the base rate revenue based on the company's monthly sales estimates as reflected in Exhibit 62. If the actual revenue exceeds the target revenue for that month, a credit equal to the excess base rate revenue would be entered into the balancing account. An opposite debit entry would be made if the monthly base rate target revenue exceeded actual. At year end 1981, or the date when 1982 test year rates are t effective, whichever is later, if a net debit balance remains,
- - e
a . . A.59780, 59785 ALJ/EA the balancing account would be closed out and SDG&E would not seek to recover that undercollection from the ratepayer. If a net credit entry remains, the balancing account would be closed out and a credit equal to that overcollection would be made to the Energy Cost Adjustment Clause (ECAC) balancing account for the benefit of the ratepayers. Staff has no objection to this company proposal so long as it applies to the 1981 test year only. We should observe that if any level of estimated sales in excess of the company's were adopted by the Commission for setting rates, and higher sales did not materialize, the company would suffer a base rate revenue deficiency. If this happens, SDG&E will not have any chance to earn whatever rate of return is authorized. Therefore, we believe the proposed mechanism for 1981 will give the company a reasonable opportunity to collect the adopted base rate revenues while at the same time protect the ratepayer through the refund provision from a possible underestimate of sales by the company. Accordingly, we will adopt SDG&E's sales estimate for test year 1981, subject to the above conditions.
4 . A.59788, 59785 ALJ/EA 1 I
- 3. Lifeline Refunds Here the $198,900 difference between the company and l staff is attributable to a negative entry to miscellaneous revenues proposed by SDG&E for base rate portions of the life-line refunds made to electric customers consistent with Commission Resolution No. E-1833. This $198,900 amount is about one-third of the total base rate amount refund of $596,755, which the company proposes to amortize over three years beginning in 1981.
Resolution No. E-1833 of April 24, 1979 acknowledged I that a number of SDG&E's residential customers might not be receiving their correct lifeline allowances. In order to ! rectify this situation, SDG&E agreed to contact its customers again and verify the proper allowances, correct such billing j records as necessary, and refund amounts determined to have been incorrectly billed as a result of such allowances. Resolution No. E-1833 provided for the ECAC portion of such refunds to be considered for recovery through the ECAC balancing account. This resolution also provided for the base rate portion of the refunds, together with any administrative costs, to be deferred and for recovery to be considered in a future SDG&E proceeding. l SDG&E's proposed lifeline refund plan was adopted in l D.91971 of July 2, 1980, in A.59643. As a result, SDG&E refunded approximately $1.5 million to lifeline customers. Of'this amount, the ECAC portion of $1,037,000 was allowed j to be recovered by the company through ECAC D.91971 of July 2, 1 1980. The remaining $467,738 of the base rate portion, plus administrative costs of $129,017, were placed in a deferred
- account. These base rate amounts totaling $596,755 are requested
! to be considered for recovery in this proceeding. m@ *M @ O
.- __ , %2.
; .
A.59788, 59785 ALJ/EA
;
SDG&E's witness Strachan pointed out that the reason for these lifeline refunds was the customers' failure to report 3 to the company their ownership of appliances. The opportunity for these customers to report to the company such information, regarding electric space heating and electric water heating, was provided by bill insert questionnaires first sent to all residential customers in 1976. The second such opportunity was provided customers in March 1977, again through a bill insert seeking the same information. Simultaneously, SDG&E was pursuing an advertising campaign stressing the ne'ed for the company to have such information. Staff witness Infante acknowledged that the reason for the second set of bill inserts was the " poor" response to the first. Witness Infante accepted that StG&E did not discover that it may have improp: 1 lifeline information until late 1978, and that the major problem was the incomplete responses provided by the customers. He. agreed that the problem of incorrect lifeline allowances was the result of incomplete, inadequate.information accumulated from customers' response to questionnaires and not the result of I intentional wrongdoing, oversight, or miscalculation. According to staff, the issue here is not the reason-ableness of the expenditure but retroactive ratemaking. Staff states that the. rule _against retroactive ratemaking ! prevents the Commission from authcx Lng revenues to recover any of SDG&E's expenditures made prior ts ' effective date of the decision.
~
l 1/ William L.'Govan (1926) iv Cal RRC 254, 256; Southern California Water Company (1962) 59 Cal PUC 797, 799; California Cities Water company (1967)67 Cal PUC 197, 203; The Pacific Telephone & Telegraph Company (1968) 68 Cal PUC 203, 204. l l
i , l A.59788, 59785 ALJ/bw
- ue disagree with the staff for the following reason.
Although Resolution No. E-1833 did not authorize recovery of the lifeline refunds, it did authorize the company to make those refunds to its residential customers. The company pursuant to Resolution No. E-1833 returned both the ECAC and the base rate portions of the refunds to its customers. To deny recovery of only the base rate portion to the company, as staff recommends, would be unfair. We recognize that the prospective recovery of the refunds and associated administrative expenses incurred in 1980 will have a retroactive impact. However, we also. note that the company already has made a retroactive adjustment to prior general rates by refunding the base rate portion of the lifeline refunds. Our allowance of the recovery of those expenditures merely returns to the company revenae which it collected under previously established Seneral rates and which were recognized in a deferred account - pursuant to Resolution No. E-1333. Since we approved the lifeline refund plan in Resolution No. E-1833, we will authorize recovery of the $596,755 over three years as requested by SDG&E.
..--_. 7- . - . - - . -
e . e A.59788, 59785 ALJ/nb C. OPERATING EXPENSES
- 1. Electric Production Expenses The company stipulated to all differences with staff in this expense area (late-filed Exhibit 70). However, as company
{ witness Stoehr noted, there was one reservation concerning the { treatment of certain fuel costs associated with sales to the Department of Water Resources in excess of purchases. This is no longer an issue in the general rate case proceeding since D.92946 in Order Instituting Investigation (01I) 56, issued sub-
- ~
sequently, determined that these costs are properly included in ECAC procedure. During the course of the evidentiary hearing, SDG&E sought recognition of an increase in test year electric production expenses of approximately $4.9 million, allegedly caused by factors unknown at the time of its direct ' showing (Exhibit 58 - not admitted). I The increase was for unexpected repairs and expense due to additional regulatory requirements for San Onofre Unit No.1. The ALJ ruled that the Regulatory Lag Plan precluded introduction of this evidence. l The company may seek recovery of these amounts in connection with its 2 1982 test year rate case, t i ( i I
s . . A . 59 788, 59785 ALJ/EA
- 2. Electric Transmission Expenses
- a. General The final positions of the company and staff regarding electric transmission expenses, as shown on late-filed Exhibit 70, are as follows:
SDG&E Staff Difference
$6,931,400 $6,793,200 $138,200 These figures (1) exclude the staff's wage adjustment which is dealt with elsewhere; (2) are conditioned upon a tran'sfer to ECAC of wheeling charges in Account 565 in the amount of $1,512,800; and (3) include all stipulations made on the record, totaling a reduction of $204,500.
SDG&E's witness Liska explained the methodology used to de.velop the company's estimates. Nine years' data (1971-79) was analyzed to determine if a reasonable trend could be identified. In those cases where a trend was not indicated, a separate analysis of functionally related account groupings was performed. The company's approach considered that there is a common work force performing both operation and maintenance functions, sometimes split between gas ahd electric, that they do both transmission-and distribution-related work at varying times, and that their time may be charged to both capital and expense accounts. Witness Liska also noted that there was a cyclic pattern to many expenses due to the effects of rapid growth in certain years and the con-sequent deferral of maintenance. He stated that SDG&E developed a computerized methodology that takes into account items such , as variable rates of inflation, account sensitivity to customer or system growth or both, similarity of functions between two or mora closely related accounts, and other factors. The model then , analyzed expenses over a long enough period of time, nine years in this case, to allow for cyclic activity. m- :: . ~ . - . . - . . - . - . . , .
. - , - _ . - - . - . , ~ , - - ~' -
A.59788, 59785 ALJ/EA The staff, on the other hand, analyzed individual accounts. After review of 1979 expenses as a base for estimating i future costs, where no new projects, reorganizations, or unusual expenses were anticipated, staff escalated the 1979 base levels to 1981 dollars by wage and material factors. According to j staff, analysis by individual accounts yielded no noninflationary growth. I SDG&E points out that the staff approach ignores the ( existance of a common work force and the cyclical nature of some closely related accounts. Also, SDG&E contends that analysis by individual accounts overlooks the growth rate in total expenditures,
- b. Account 562 - Station Expenses-Operation Account 570 - Station Equiement-Maintenance The final company and staff figures, as shown in late-filed Exhibit 70 for these accounts, are as follows:
SDG&E Staff Difference Account 562 $365,300 $340,100 $25,200 Account 570 $907,300 $805,400 $101,900 Staff reviewed labor and nonlabor data for the years 1971-79 for each of these account.s and concluded that no trend was evident and that no noninflationary growth had occurred. Therefore, staff used 1979 recorded expense levels and escalated them into 1980 and 1981. -
s . A.59788, 59785 ALJ/EA/nb The company instead analyzed Accounts 562, 569, and 570 as a group and developed a growth rate based on recorded data for 1971 through 1979. Witness Liska explained why he chose to combine these accounts for analysis:
" Account 570 is a closely related account to 562.
"All three of them have to do with the maintenance of substation and structures and are used by the same group of substation maintenance and operations personnel regularly, so that as one account might be charged, so might the other or if one account is not particularly emphasized for a day's work, the other may be more heavily emphasized."
Witness Liska explained that the account histories were too erratic to predict future expenses if looked at individually, as staff did. According to SDG&E, the defect in the staff's individual ( analysis method is that it allows for absolutely no real growth (other than inflation) in either of thesa accounts. A simple comparison of the data at the beginning of the trend period 1971-73, with the end of the period 1977-79, showed that the three-year average of expenses for each of these periods in fact increased from $496,109 in constant dollars. SDG&E believes this confirms that real growth occurred over the trend period, and this is not accounted for in the staff's figures. SDG&E takes exception to staff's making no allcRance for increased expenses resulting from addition of new substation facilities to serve the approximately 60,000 new customers expected in the 1979-81 period. Also, SDG&E takes exception to staff's making no allowance for the company attempting to catch up on deferred maintenance in this. area. We will adopt the company's estimates for test year 1981.
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A.59788, S9785 ALJ/EA /nb
- c. Account 568 - Supervision and Engineerina - Maintenance There is a difference of $11,100 in this account due to staff's exclusion of borrowed labor expenses which will support a new transmission maintenance group being formed to do hot-line work.
Staff determined that any charges for borrowed labor already had been considered and included in the recorded expenses for other operation and maintenance accounts. The company witness also stated that the historical cost for this borrowed labor was not subtracted from other accounts. As a result, inclusion of the $11,100 borrowed labor expense in Account 558 would result - in a double counting of those labor charges. The staff submits that its estimate of $77,900 should be adopted to prevent a double recovery of these expenses by SDG&E. We will adopt the staff's estimate of $77,900 for this account as reasonable for test year 1981.
- 3. Electric Distribution Excenses
- a. General The final positions of the company and the staff regarding electric distribution expenses, as shown in late-filed Exhibit 70, are as follows:
S DG&E Staff Difderence
$24,776,500 $23,143,300 $1,633,200 These figures (1) exclude the staff's wage adjustment; (2) include SDG&E's corrected figures for tree-trimming expense included in Account 593 which were taken under submission by the ALJ; and (3) include all stipulations made on the record.
_ __ r
e s A.59708, 59785 ALJ/EA/nb
- b. Account 593 - Maintenance of Overhead Lines The company estimates a 1981 test year expense for Account 593 of $8,031,500 versus $7,050,200 by staff, with a difference of $981,300. This difference is attributable solely to the methodology used to develop the tree-trimming cost component of this account.
The company estimated this account as a whole, based upon an analysis of historic data. This derived an annual growth rate of 9.98 percent, which was applied to the 1979 base year figures and escalated into 1981. An adjustment of $400,000 was also made to the 1979 base year figures to reflect expansion of l tree-trimming activities, which escalates to approximately l
$504,200 in 1981.
The staff used a five-year average of tree-trimming expense and adjusted that average for inflation. I SDG&E's figures for additional tree trimming are the corrected amounts based upon witness Liska's testimony that an honest mistake had been made as to the computer input data used to adjust the 1979 base year. Allowance of this correction was l taken under submission by the ALJ. We note that staff agrees that this was an honest mistake which was brought to the staff's attention as soon as it was discovered on August 7, 1980. Unfortunately, SDG&E neglected to inform the other interested parties. We, note that the Regulatory Lag Plan does not permit updates of estimates af ter day 29. However, the ALJ may in his dis-cretion permit a correction to be made for an honest mistake. Therefore, we will allow the additional amount included by SDG&E for tree-trimming expense to be considered.
A.59788, 59785 ALJ/EA/nb i The corrected estimates for tree-trimming expense for test year 1981 are: SDG&E Staff Difference
$2,669,800 $1,688,500 $981,300 This issue was argued at great length. We need not repeat the testimony and are not convinced by the arguments of either the company or staff. The 1979 recorded tree-trimming expense was $1,771,222. Adjusted for inflation, this amounts to $2,143,000, and we will adopt this amount as reasonable for test year 1981.
- c. Account 584 - Underground Line Expenses - Operation Account 594 - Maintenance of Underground Lines The company and staff positions regarding these accounts are as follows:
SDG&E Staff Difference Account 584 $480,500 $523,500 $43,000 Account 594 $3,521,000 $3,119,100 S401,900 l These differences are' attributable primarily to estimating l methodology and the impact of the Underground Preventative Maintenance Program (UGPMP). SDG&E's witness Liska testified that since Accounts 584 I ! and 594 are functionally related, they were analyzed together using recorded data for the period 1971 through 1979. This analysis suqqested a trended annual growth rate of almost 20 percent, which he deemed an unrealistic forecast for 1980-81. Instead, a lower fixed dollar amount of $39,000 was added to the
base year 1979 figures for 1980 and 1981, and the appropriate ! escalations were applied. The fixed amount was derived by individual analysis of the labor and nonlabor components of
o . l A . 59 788, 59785 ALJ/EA the recorded data. Witness Liska falt this provided a more representative result for the future than would the 20 percent growth rate. Staff witness Rayburn testified that he also analyzed Accounts 584 and 594 together, since they were functionally related.- He trended recorded data from 1975 through 1979, excluding the UGPMP, escalated that result into 1980 and 1981, . and then added back the company's estimate for the UGPMP. The staff's methodology provided a figure which was $444,900 lower than SDG&E's estimate for both accounts. The staff reviewed SDG&E's analysis of Account 584 and found that the company projects an increase in cost per under-ground customer for 1980 and 1981. The company's estimate apparently does not include any allowance for increased productivity. The staff estimate, however, considers increased efficiency of operation and maintains the cost per customer near the 1979 recorded level. The staff submits that its estimate for Account 584 shou: de adopted since it gives the company an important incentf.vc to increase its productivity and efficiency of operations. Similarly, staff analyzed SDG&E's estimates of Account 594 I expenses for 1980 and 1981 and found that the company projects an increase in cost per underground customer. The staff reviewed the l cost per underground customer over the past five years and found a downward trend in the cost. The staff's estimate for Account 594 would continue this downward trend into 1980 and 1981. Staff expects cost- savings from the company's underground preventive maintenance program to continue into 1980 and further reduce the cost per underground customer. 1
.. . . . _ _ . =
o . A.59788, 59785 ALJ/EA/nb Staff also reviewed SDG&E's estimate for its underground preventive maintenance program, a subaccount within Account 594. Staff found the company's estimate for the program to be reasonable and allowed $972,200 for the program in 1981. Staff submits that the expenditure for the underground preventive maintenance program should result in increased cost savings in 1981. Staff believes its estimate is more reasonable and should be adopted as it predicts a decrease in the overall cost per underground customer while the company's estimate increases the cost per customer. SDG&E's witness Liska disagrees with the staff position - that the decline in total expenses in 1979 for these two accounts was caused by the effects of the UGPMP. He stated that all of the , reductions that had been experienced in Account 594 were caused by reductions in maintenance associated with capital. He said that the subaccount that allowed for the strafght underground maintenance not associated with capital had actually leveled off slightly but still increased at what you might expect as inflationary levels. According to witness Liska,he does anticipate some reductions in maintenance, but certainly not in the first year of the UGPMP. He believes that the effects of the UGPHP would initially be felt in extended service lives of the system components, reduced interrup- ! tions, safety, and quality of service. He disagreed with the level of savings estimated by staff. We believe the savings estimated by staff are high. Accordingly, we will adopt, as reasonable, the average of the staff's and SDG&E's estimates for test year 1981, i.e., Account 584 -
$502,000; Account 594 - $3,320,000, i
l
\ A.59788, 59785 AIJ/EA
- d. Account 588 - Miscellaneous Distribution Expenses As shown in late-filed Exhibit 70, the company and staff i estimates for this account in test year 1981 are as follows:
S DG&E Staff Difference -
$3,338,200 $3,131,200 $207,000 The sole issue here regards the company's reque,st for the addition of "four automated drafting work-stations and drafters who will begin reducing the 2,500 man-day mapping backlog, and be available to begin converting present records and maps into the DFIS data ,
\ base." l SDG&E's witness Liska explained that a backlog in preparing distribution system maps has developed in recent, years since, I (1) the current process requires that the maps be updated manually; (2) the underground facilities mapping requires more detail; and (3) the number of new underground customers has exceeded the estimates and available manpower. The four-person team would attempt to catch up and avoid a compounding of the problem which has developed. Staff derived a five-year growth rate for Account 588 which it claims should account for increased expenses in 1981. Staff maintains that the company has functioned in the past with a backlog and can continue to operate in 1981. It is staff's position that the backlog can be reduced when the new Distribution I Facilities Information System (DFIS) is fully implemented. Staff also expects the DFIS program to offset any future needs for additional personnel since implementation of the DFIS program has been accelerated from an eight-year to a five-year schedule.
{ o . A.59780, 59785 ALJ/EA Staff submits that an increase in mapping equipment and personnel just before a new electric mapping system is installed is unnecessary and wasteful. . We disagree with the staff position that the company should continue to operate with a backlog through 1981 and will adopt the company's estimate of $3,338,200 as reasonable for , ! test year 1981. l O e b i
- v. ..
t 'd i A . 59 788, 59785 ALJ/EA I 4. Gas Supply Expenses, Gas Storage Expenses, and Gas Transmission Expenses There is no basic disagreement between the company and i 1 staff rGgarding these gas accounts. However, late-filed Exhibit 70 l shows there is a remaining difference in Accounts 810 and 812, I which are credits to gas supply expense. There are also differences in Gas Storage Account 841, and Gas Transmission Account 854. I l Account 810 is a credit account for compressor fuel exper;ses debited to Accounts 841 and 854, and the differences , . are offsetting. Account 812 is a credit account for gas pur-chased by other company departments. , { In addition, the company's final estimates reflect the i effect of the actual July 1980 increase in the rate paid to Southern California Gas Company under Schedule G-61. The staff's l figures would correspond with the company's if this change were l also made in their showing (late-filed Exhibit 70).
- 5. Gas Distribution Expenses
- a. General SDG&E stipulated to all of the staff's estimates of gas distribution expenses, except for Accounts 880, 887, and 892.
As shown in late-filed Exhibit 70, the relative company and staff positions for these accounts are as follows: SDG&E Staff Difference Account 880 $ 849,500 $ 749,400 $ 55,100 , Account 887 1,521,000 1,413,400 107,600 Account 892 548,900 420,600 128.300 Total $291,000 i I i r
- 38-l
- - - . . . - , , ,y.% -
. . - . , , - _.. -...y+ ..w , . , . . . . -
A.59788, 59785 ALJ/EA 1 l SDG&E's witness Rogers indicated that with respect to l the stipulated accounts, the staff's estimates t.ere an adequate l l reflection of the general level of anticipated test year expenses. He stated that his conclusions were based upon an independent evaluation which he performed using more current data and his methodology. He did not purport to endorse the staff's methodology in making his stipulations. The remaining differences are significant and are attributable primarily to the forecasting methodology. SDG&E analyzed recorded data from 1971 to 1979, looking at activities and influences which were causally responsible 'for " trends". Labor hours and nonlabor dollars were separated. A regression analysis was performed and a trend developed which provided the best " fit" for the test year data points. These figures (labor hours and nonlabor dollars) were then escalated into 1980 and 1981, using the corporate inflation assumptions (which are the same as staff's). The staff's estimates are based on recorded expenditures for the first half of 1980. A seasonal factor was developed for each account individually, based on an analysis of the first six months' recorded data, for the period 1975 to 1979. The six-month seasonal factors for each year were then averaged. As shown in
. Exhibit 31, the resulting factor was then applied to recorded expenses for the first six months of 1980, to develop the expected expenses for the remainder of the year. The 1980 figure was split into labor and nonlabor using a labor factor, and then escalated into 1981.
4 1
l A.59788, 59785 ALJ/EA l According to SDG&E, the problem with the staff's approach is that it totally ignores the possibility that the six months' 1980 data may not be representative of the future. It also presumes that the percent of expenses following in the second half of 1980 will be accurately estimated by the average percent of total yearly expense falling in the second half of the year over the period 1975 to 19 79. SDG&E contends that other than labor hour adjustments for planned organization changes, staff's method provides for no growth in activity between 1980 and 1981, since only the escalation rates are used.
- b. Account 880 - Other Expenses We find that the staff use of an average seasonal factor overlooks the trend since 1977 and produces a test year estimate which is lower than if the latest recorded factor was used. On the other hand, SDG&E's estimate for the test year is high compared to recent recorded. We will adopt the average of SDG&E's and the staff's estimate of $822,000 as reasonable for test year 1981.
- c. Account 887 - Maintenance of Mains l There is a difference of $107,600 in this account, again due to methodology. The company made its estimate as described previously in this section, as did staff.
According to SDG&E, staff made no attempt to evaluate whether 1979 was representative of prior years in developing its labor factor to split out the 1980 extrapolated results. Also, SDG&E contends that staff failed to investigate whether other l factors might have impacted this account, such as abnormal weather, and the effect of a common labor pool which charges expense to both distribution and transmission, as well as gas and electric accounts .
-40
_mim
l -
. 2 A . 59 788, 59785 ALJ/EA SDG&E's witness Rogers testified that figures for the first half of 1980 did not reflect the anticipated expense.e associated with a welding school which is charged to Account 887.
According to witness Rogers, expenses in the last half of 1980, are expected to increase, making the whole of 1980 more normal, which effect will continue into 1981. He believes that the staff's use of the first six months of 1980 rec'orded data as its starting point, which is too low, cannot yield a representative estimate for test year expenses. We agree with SDG&E and will adopt the company's expense of $1,521,000 as reasonable for test year 1981.
- d. Account 892 - Maintenance of Services There remains a difference between the company and staff in Account 892 of $128,300, as shown in late-filed Exhibit 70. For ,
the same reasons discussed in Account 887, we will adopt SDG&E's estimate of $548,900 as reasonable for test year 1981. e l l l
;
. . s A.59788, 59785 ALJ/EA
- 6. Customer Accountina and Collection Extenses
- a. General In the area of customer accounting and collection expenses
! for both the Gas and Electric De.partments, the difference between the company and staff (excluding Account 904, Uncollectible l Accounts, and the wage adjustment) is as follows: l SDG&E Staff Difference
$13,094,500 $12,471,500 $623,000 The differences lie in the areas of Account 903.2, Credit Management; Acccunt 903.3, Collections; Account 903.5, Billing and Bookkeeping; and Account 903.7, Postage,
- b. Account 903.7 - Postace The difference between staff and the company in this subaccount for both the Gas and Electric Departments is as follows:
S DG&E Staff Difference
$1,953,200 $1,517,600 $435,600 I
l SDG&E's request is based upon an application filed by the postal service to increase presort postage rates from 13 cents to 17 cents. A decision by the Postal Rate Commission on the appli~ cation is not expected until the end of February 1981. Thus, . a postage rate increase will not be authorized by the Postal Rate Commission before the Commission issues its decision for this proceeding. Staff submits that the mere submittal by the postal service of an application to the Postal Rate Commission does not justify authorization of increased expenses to SDG&E in 1981. We agree with staff. We will adopt the staff estimate of $1,517,600 as reasonable for test year 1981. I l l
A.59788, 59785 ALJ/EA l l
- c. Account 903.2 - Credit Management Account 903.3 - collections Account 903.5 - Billing and Bookkeeping l The total difference between the company and staff in i these three subaccounts for the Electric Department is as follows:
SDG&E Staff Difference
$2,078,800 $1,891,400 $187,400 The staff methodology in developing its cost estimates for these subaccounts was to trend the historical costs per customer for the years 1975 through 1979. Staff attributed the decline in these accounts to improved productivity, better labor management, and cost savings.
The company's methodology for estimating these subaccounts was to divide the previous year's (1979) costs for each such account by the average number of customers during that period to develop the average cost per customer. This was then multiplied by the average annual expected customers for 12 months ended December 31, 1981, in order to derive an estimated 1981 expense prior to any adjust-ment for wages or postage. The labor portion of that total was then escalated for the expected wage increase in 1981. The , remaining nonlabor portion has no adjustment for inflation. l SDG&E's witness Ault pointed out that, historically, the company's methodology, which does not inflate the nonlabor portion of the estimated expenses, develops a differential which is approximately equal to the increase in productivity that the ! company experiences. Therefore, according to witness Ault, the company's methodology does, in fact, take into consideration increased productivity. l l \ . w , , --m-- - ,. , ,
A.59788, 59785 AL3/EA Staff witness Chan concluded that the company's reliance l only on nonlabor portions of the accounts, which were less than 20 percent for all three subaccounts, could not adequately. reflect increased productivity occurring in the entire account. According to witness Chan, SDG&E's cost per customer for customer account service has declined since 1976. The staff estimates continue this downward trend to project a cost per customer of $11.72 in 1981. On the other hand, the company's projected cost per customer of $12.04 in 1981 is an increase ! above the recorded 1979 level.- Staff submits that its estimates fully capture the impact of increased productivity in 1981. Acceptance of the SDG&E's figures in this area would underestimate the impact of increased productivity and could undercut the company's economic incentive for efficient operations in 1981. SDG&E's witness Ault testified that examination of recorded costs for the first seven months of 1980, annualized to develop 12-month figures for 1980, compared with the staff's estimates for 1981, showed increases of 2.9, 2.5, and- 6.6 percent, respectively, for the three subaccounts. Witness Ault considered this to be inadequate since the wage increase expected for 1981 was 13.5 percent. According to witness Ault, in these times of more complex billing and bookkeeping practices it is reasonable to expect these expenses to increase. Purthermore, these accounts address credit management and collections which necessitate additional, costs in these poor economic times with increasing bankruptcies.- Witness Ault contends that the staff method which develops 1981 estimates-by strictly looking at recorded data is not appropriate as it does not realistically consider recent developments and anticipated costs for 1981.
l A . 59 788, 59785 ALJ/EA/nb On further scrutiny of the company's estimate, based on witness Ault's testimony, we find that the company's figures for the three subaccounts in total cover approximately half of the wage increase for 1981 assuming no change in the number of employees. In other words, the company will have to offset half the wage increase with increased productivity. We think this is a reasonable offset for increased productivity. We will adopt the company's estimate for test year 1981. The adopted expenditures for the Electric Departr.ent are: Account 903.2 S 144,500 Account 903.3 1,056,000 Account 903.5 878,300 Total $2,078,800 7 Marketing Expenses The following tabulation shows marketing expenses adopted for conservation programs for test year 1981. For details see discussion on conservation, Chapter VIII. Table VIII f
.ted Marketina Expenses Test Year 1981 l Total.
l Account No. Electric Gas (Thousands of Dollars) 907 $ 171.0 $ 93.0 $ 2 64 .0 908 5,,6 70.0 2,378.0 8,056.0 463.0 168.0 631.0 909 ' 373.0 249.0 622.0 l 910 Tot. Marketing Exp. $3,685.0 $2.888.0 $ 9,573.0 School Program 169.0 920 Conservation Programs Expensed 9,742. 0 ' ' CVR Program Capitalized 1,597.0 Total Conservation Programs $11,339.0
- ese oe-
A.59788, 59785 ALJ/EA 1
- 8. Administrative and General (A&G) Excenses
- a. General The difference between the company and staff for both the Gas and Electric Departments, eXcludina Account 927, Franchise Fees, and the wage adjustment, is as follows:
SDG&E Staff Difference
$55,142,100 $53,651,800 $1,490,300 This difference arises in Account 922, A&G Transferred-credit:
Account 926, Employee Pensions and Benefits (Employee Organiza-tions and Newsmeter); Account 930, Miscellaneous General Expenses (Research and Development ( R&D) Blanket and Stock and Bond Expense); Account 931, Rents; and Account 932, Maint.onance of General Plant.
- b. Account 922- A&G Transferrad-Credit The difference between staff and the company in Account 922 for both gas and electric is as follows:
SDG&E Staff- Difference 3-11,193,600 $-12,204,900 $1,011,300 The difference in this account is due to the use of different capitalization ratios by the company and staff. The company used a ratio of 22 percent while staff used a ratio of 26 percent. Account 922 reflects the transfer to construction of a certain portion of the company's employs 4' benefits and a certain pos tion of the expenses incurred in Accounts 920 and 921. The transfer establishes a credit to Acepunt 922. The company and staff agree on the al?.ocation of employee benefits to construction. However, the company does take exception with the allocation percentage used by staff. s 6
., 1 A.59788, 59785 ALJ/EA SDG&E's witness Ault stated that the company annually prepares a study which determines the amount of dollars appropriately charged to Accounts 920 and 921, which are related to construction accounts with the corresponding credit being recorded in Account 922.
The company's capitalization rate is developed by a two-step process: First, the expected construction activity for the test year is examined; second, a comparison is made between that estimate and historical percentages for years with a level of construction activity expected to be similar to the test year. Historical rates since 1975 have been as follows: Year Rate
~
1975 25% 1976 24% 1977 23% 1978 26% 1979 28% 1980 (est.) 25% SDG&E points out that in 1975 when the rate was higher, the company was in the process of constructing its Encina 4 generating station. Furthermore, in 1978 and 1979 the company's Encina 5 generating station was under construction. In 1981 SDG&E will have no major power plants under construction. The staff witness computed an average capitalization ratio of the recorded numbers from 1975 to 1979 and a 1980 as-expected figure and also developed a least squares trend from those numbers. He then took the midpoint between the average of 25 percent and the trended figure of 27 percent to derive his capitalization ratio of 26 percent for the 1981 test year.
) . .
A.59788, 59785 ALJ/EA i i l Witness Ault stated the company's estimate also took I into consideration the fact that the overall construction level related to new customers is decreasing. That is, instead of adding customers at the rate that was experienced between 1975 through 1979, that rate has shown a decline in 1980 which is expected to continue. He further stated that the company's reduced level of construction activity is demonstrated by the fact that the company is now in the process of closing its Plant Construction Department in order to allow for greater utilization of outside contracting services. Taking all of these considerations into account, SDG&E concluded that 1977, with its rate of 23 percent, was a comparable year to 1981 due to the fact that no power plants were under construction during that time frame. Further, witness Ault felt that a 1 percent reduction to 22 percent would be appropriate to reflect the reduced rate of growth in new customers. We believe an average of the company's and staff's estimate j will be reasonable and adopt 24 percent as the capitalization ratio for test year 1981. , c. Account 926 - Employee Pension and Benefits, Newsmeter, and Employee Orcanizations Account 926 contains the costs of the company news periodical to employees, the Newsmeter. The total difference between the company and staff attributable to this periodical is $114,000 for both the Gas and Electric Departments. Also, in Account 926 are the costs of company Employee organizations. Tha difference between the company and staff in this category is
$74,500 for both the Gas and Electric Departments. .
t
A.59788 0 59785 ALJ/EA O i Examples of expenses which would be included in the category of Employee orgaaizatians are the costs of supporting the old Timers' Annual Banquet to honor retired employees or those with length of time in service to the company over a certain minimum. Furthermore, these expenses sponsor such functions as the Christmas Dinner for the Employee Women's com-mittee. The staff's position is that the Newsmeter does not produce any measurable benefits for the ratepayer in terms of increased operating efficiency or greater employee productivity. i Staff points out that SDG&E, for a variety of reasons, is a financially troubled utility that already charges electric ratss that are among the highest in the codntry. SDG&E's ratepayers, who already are confronted with high utility bills, should not 1 be forced to subsidize activities which, according to staff, have a speculative impact, if any, on the company's service and opera-tions. Accordingly, staff recommends disallowance of these expenditures. - _ _ . - The above items may be reasonable business expendi-tures serving worthwhile purposes, but they suggest that SDGGE may not sufficiently recognize the need for tightening its corporate belt and sharing with its ratepayers the burden of l increasing energy costs. We will not adopt staff's recommen-dations to disallow these expenditures for test year 1981, but we commend the staff's efforts and encourage further close analysis of SDG&E's operating expenses for the 1982 test year proceeding. We intend to apply a more rigorous standard in l assessing the reasonableness of such marginally necessary expenses in that proceeding.
-- e . . - * -== b e em o __ ~ emme m e.e -
A . 59 788, 59785 ALJ/EA/nb
- d. Account 930 - Miscellaneous General Expenses-R&D Blanket SDG:sE is requesting a R&D blanket in the amount of
$300,000. Staff recommends disallowance of this amount. Uith this exception, SDG&E and staff are in agreement on R&D programs for test year 1981.
According to SDG&E, the purpose of the blanket is to cover the cost of unanticipated R&D projects which are worthwhile. SDG&E's uitness Ault pointed out that frequently such projects present themselves and funds would not have been provided in rates. The blanket will enable the company to pursue such programs without cutting funds committed to existing projects. The company is , seeking the flexibility, through the blanket, which will enable it to achieve . its R&D goals for the benefit of the ratepayer. SDG&E's witness Ault feels confident that at this point in time the 1981 blanket will be spent in the area of solar or geothermal, not including the Heber Project. The intended scope l for these R&D efforts is in developing resources indigenous to I SDG&E's service territory, i.e., solar, geothermal, conservation, etc. j Witness Ault testified that the company's 1980 blanket ($664,000) was used in the areas of geothermal, solar, biomass, or energy conservation as specified by the Commission in D.90405. Specifically, the blanket was used for che Heber Project and the geothermal project at East Mesa. Consistent with D.91271, the company has used a large portion of the blanket on the Heber Geothermal Project. None of the $300,000 blanket requested in this proceeding is for Heber.
A.59708, 59785 ALJ/EA /nb Staff witness Joshin recommended disallowing the general research blanket for several reasons: (1) authorization of a gen-eral research blanket wot ld eliminate any opportunity for prior staff review of projects funded under a general research blanket; (2) the Regulatory Lag Plan gives the utility sufficient time to submit complete estimates of R&D programs for the upcoming test year; and (3) authorization of a general research blanket creates an unwarranted " cushion" which allows the utility.to recover in rates,more than its projected R&D expenses for the test year. Furthermore, staff maintains that SDG&E did not use the
$664,000 blanhet, allowed in D.9040r for test year 1979, in the specified manner. Staff points out that in D.90405, page 42a, the Commission authorized a general research blanket on the condition that the funds be used for R&D in the areas of geo-thermal, solar, biomass, or energy conservation. However, SDG&E used blanket funds in 1979 on two projects, Fuel Oil Additive and DFIS - Phase II, which did not fall within the Commission's prescribed guidelines. As a result, the staff witness recommends j that the requested .$300,000 blanket be disallowed for the 1981 test year to prevent additional R&D expenditures by SDG&E on programs that are not approved for blanket funding.
We note that the total R&D expense for test year'1981 exceeds $10 million (see discussion in Chapter IX),and we believe I this amount provides SDG&E with the flexibility to rearrange its R&D priorities. We will adopt staff's recommendation and dis-l allow SDG&E's request for a $300,000 R&D blanket. l
6
- e-4 A.59788, 59785 ALJ/EA 1
- e. Account 930 - Miscellaneous General Expenses-
- Stock and Bond Expense
The difference between the company and staff in the area of stock and bond expenses for both the Gas and Electric Departments is as follows: SDG&E Staff Difference
$761,300 S726,400 $34,900 Staff used a least squares trend from 1975 through 1979 to project expenses for 1931. According to SDG&E, staff's 1981 estimate does not take into account the issuance of more debt and equity in 1981 than was issued in 1979, and 1979 was a year of
abnormally high-recorded stock and bond expenses. Staff submits that its estimate of $726,400 for the cost of stock and debt issaance in 1981 is a reasonable increase over the 1979 recorded level of $629,206 since its figure represents a 15 percent increase from the 1979 level for Subaccount 930.220. We will adopt the staff's estimate of $726,400 as ! reasonable for test year 1981. ! f. Account 931 - Rents The total difference between the company and staff in this account fer both the Gas and Electric Departments is as follows: SDG/sE Staff Difference
, $1,146,900 $1,064,600 $82,300 The difference relates to the amount of rent for lease of the electric building.
According to SDG&E, the company's rent on the electric bu'ilding is, fixed for the term of the lease and the company estimates its 1981 expense to be the same as the 1979 level.
1 l A.59788, 59785 ALJ/EA Stuff used a least squares trend of the amount of electric building rent charged to Account 931 from 1975 through 1979 to derive its 1981 estimate. Staff shows a decrease in the amount of electric building rent allocated to this expense account as compared to 1979 reccrded. We will adopt SDG&E's estimate of $1,146,900 as being l reasonable for test year 1981.
- g. Account 932 - Maintenance of General Plant The difference between the company and staff for both the Gas and Electric Departments is as follows:
S DG&E Staff Difference
$1,716,500 $1,581,400 $135,100 The company's 1981 estimate was developed by taking the 1979 recorded level of expenditures and escalating that amount for i labor and nonlabor inflation. According to SDG&E, this methodology properly reflects the higher level of recorded expense in'1979 which captures the company's expanded maintenance program.
Staff used a five-year trend to develop the 1981 test year estimate. SDG&E submits that the staff methodology does not reflect the company's augmented plant maintenance program as it was pursued in 1979, and for this reason the staff's estimate is l unreasonably low. The staff witness observed that 1979 was an abnormally high-recorded year which increased by 42 percent from 1973. Prior recorded increases averaged 4 percent or less. According to staff, the company's reliance on the 1979 level as a base which is then escalated to a 1981 level exaggerates the level of expenses for general plant maintenance which will be experienced in 1981. m - __ - - - _
V A.59788, 59785 ALJ/EA 1
- 1 I
We believe an average of the company's and staff's estimate will provide SDG&E with a sufficiently augmented main-tenance procram for 1981. Accordingly, we adopt $1,649,000 as a reasonable 'evel of expenditure for test year 1981.
- 9. Depreciation and Amortization ,
SDG&E and staff agree on the proper depreciation rates to be utilized and the appropriate methodology to be employed. We will use the same rates and methodology in our adopted results.
- 10. Ad valorem Taxes The difference between SDG&E and staff in the area of ad valorem taxes is in the amount of $1,895,000 for both the Gas and Electric Departments.
Staff and the company used substantially different methodologies in allocating ad valorem taxes between capital and expense. Staff witness Bondeson pointed out that he had made an identical recommendation for allocatinggad valorem taxes in Edison's pending A.59351. SDG&E's witness Strachan testified that because the issues are the same in this proceeding as in the Edison case and because under the staff methodology the total tax expense would be substantially the same, SDG&E would be willing to accept whatever resolution of this particular issue is mide in the pending Edison case. We will adopt the staff's estimate.
- 11. Payroll and Miscellaneous Taxes No differences exist between the company and staff in the payroll and miscellaneous tax expense category.
I
** " = - . . . . . .. . . -.. .
y 9 -, y_., _ . . . ,. . ,
A.59788, 59785 ALJ/EA/nb
- 12. Income Taxes
- a. General There are differences between the company and staff in income tax expense in three areas: (1) benefit costs capitalized; (2) R&D expense (Heber); and (3) investment tax credit (ITC) carry-overs. Thes.e differences are in the treatment of book-to-tax (Schedule M) deductions which impact taxable income. The staff's results of operation report, Exhibit 14 (Electric) and Exhibit 15 (Gas), Tables 14-C and 15-C, respectively, identify the Schedule M deductions.
In the following tabulation it will be noted that staff shows larger Schedule M deductions. This results in lower income tax expense for the company.
- b. Benefit Costs Capitalized Th'e company and staff Schedule M deductions are as follows:
Staff S DG&E Difference Electric $9, 629,000 $7,448,000 $2,181,000 Gas 3,158,000 1,857,000 1.301.000 Total $3,482,000 The benefits capitalized Schedule M adjustment is intended to recognize that certain expenditures which are normally capitalized on the company's books can be taken as current expense l
. deductions for income tax purposes. This item reflects the effects l
l of certain administrative and general expenses, pensions and benefits, and payroll taxes which are capitalized for book purposes and therefore do not show up in the re'sults of operations as expenses, but are nonetheless deductible for tax purposes. l l l . .. . . . = . _ _ . - . _ . , _ .
' . 9 A.59788, 59785 ALJ/EA Staff witness Mulligan stated that the primary reason for the difference between the company and staff is that staff included health and dental costs in the Schedule M adjustment, whereas the company did not. By making the additional Schedule M adjustment for health and dental costs, staff has imputed the l existence of a current deduction that the company is not taking on its tax return. These costs are capitalized for tax purposes by the company. The company cannot automatically take this item as a deduction, since it must request and receive permiss' ion from the Internal Revenue Service (IRS) to adjust its tax accounting.
According to staff, Income Tax Ruling 3408 attached to Exhibit 29 allows haalth and dental costs as proper deductions even though a portion of those items may be capitalized and i charged to construction. Staff agrees that Income Tax Ruling 3408 presently is under review by the national office of the IRS and may.be revoked. However, it is staff's position that Income Tax Ruling 3408 has not yet been rescinded and may be relied upon by a taxpayer. Staff points out that the IRS in a letter ruling dated July 26, 1979 stated that although Income Tax Ruling 3408 is under review, the ruling is still in effect and shall be observed until the ruling is actually withdrawn. SDG&E's witness Fonss stated it would not be prudent for the company to take this additional deduction under any circumstances, due to the existence of substantial amounts of unused ITC which could expire in future years. He further explained that he had a responsibility to both the ratepayers and the company's share-holders to manage its tax strategy to everyone's best interest. Witness Fonss stated that neither the company nor its ratepayers need any more current deductions. Moreover, if the Commission allows the company to continue to capitalize the health and dental plan costs, there will be a better matching of tax benefits with
A . 59 708, 59705 ALJ/EA expenses charged to the ratepayer. The same ratepayer who will be , paying for the plant asset in the future will also benefit from I the additional depreciation for tax purposes which will be available under the company's method. According to witness Ponss, under the staff's proposal, on the other hand, the current ratepayer will benefit from the tax deduction and he may never bear any part of i the cost of the asset to which the underlying expenditure is related. j Both witnesses Fonss and Mulligan stated that the IRS is ! ) contemplating retracting Income Tax Ruling 3408, which would eliminate any possibility of these costs being currently deductible. Regarding the question of how the company can be made whole for any revenue shortfall if IRS should subsequently dis-allow t'he deduction, staff suggests that the Commission could f determine not to flow through the accelerated depreciation and 4 percent ITC arising from the health and dental costs in future test years. In this way, the company could recoup any unrecognized tax expense in 1981 by retaining in future years the depreciation and ITC tax benefits attributable to capitalization of its health and dental costs. We do not agree with staff's suggestion for recouping unrecognized tax expense and will adopt the company's Schedule M deduction of $7,448,000 as reasonable for test year 1981. _. . _ _ a. _ _ . _.
A.59789, 59705 ALJ/EA
- c. R&D Expense (Heber)
Another major difference between the company and staff relates to the Schedule M adjustment for the Heber Binary Project. As testified to by SDG&E's witness Fonss in Exhibit 34, the company seeks to include a negative adjustment of $2,791,000 (revised) for the Electric Department, and staff has included no adjustment. l The company's position is premised on the fact that the Heber expenditures during the test year are not currently deductible for tax return purposes and, without an adjustment, the revenue received from the ratepayer would be ful1Y taxable. Staff contends, on the other hand, that the expenditures would be currently deductible and that no adjustment is necessary. This issue originally surfaced in the Heber A.59280 and was deferred to this proceeding by the Commission in D.91271. Ordering Paragraph 12 of that decision provided:
"12. SDG&E and the Commission staff are directed to address the income tax expense consequences resulting from this project in SDG&E's next general rate proceeding to. insure the utility will not recover more than dollar for dollar for the R&D project authorized herein." (Er.phasis added.)
SDG&E contends that without the Schedule M cdjustment as proposed, it will not,in fact,be reimbursed on a dollar-for-dollar basis, since each dollar received from the ratepayer as an R&D expense would be subject to taxation. According to SDG&E, this result would be contrary to the Commission's intent to provide full . reimbursement of Heber-related expenses, as well as a current cash flow for the project expenditures. l I
A.59788, 59785 ALJ/EA/nb
- There is a difference of opinion as to the correct interpretation of the applicable provisions of the Internal Revenue Code (Code) and the regulations thereunder. Staff contends that all of the Heber Project expenditures qualify for current Nk deductibility under Section 174 of the Code. The company, on ,
the other hand, contends that Section 174 explicitly precludes current deductibility, and that the expenditures must be capitalized and depreciated over the life of the project, just as with any other power plant project. . Staff witness Mulligan stated that based on his reading of the Heber record and decision, the project qualified for an immediate deduction under IRS Regulation 1.174-2(a)(1). That
- regulation provides: , "The term 'research or experimental expenditures', as used in section 174, means expenditures incurred in connection with the taxpayer's trado or business which represent research and development costs in the experimental or laboratory sense."
According to staff, a review of the Heber record, A.59280, shows that the company witness' assumptions about the Heber Project's eventual availability for commercial use are unfounded. Staff refers to SDG&E's witness Gary Cotton's testimony in A.59280 that .h states:
"Given a successful outcome of a demonstration program, plant op"eration may be continued on a commercial basis. (Emphasis added.) (Vol. 1, RT 14 in A.59280.)
e r A . 59 708, 59735 ALJ/EA/nb "The purpose of the project is to demonstrate a new cycle that has not been demonstrated at a commurcial size, and for that reason we consider the total project to be an R&D program." (Vol. 1, RT 32.)
"After the demonstration period it would be normal for us to take the plant and try to integrate it into our system of resources as a commercial plant, although, we are not includino it in our resource r\an." (Emphasis added.) (Vol. 1, RT 48.) -
"Primarily it will be, operated as a demonstration plant, and the power that it produces from the standpoint of being usable to the customers, and so forth, is probably of questionable value."
(Vol. 1, RT 60.) SDG&E strongly disagrees with the staff's position that the Heber Project is R&D in the experimental or laboratory sense. i SDG&E points out that throughout the Heber proceeding, the company described the objective of the project to be the demonstration of the commercial scale feasibility of the binary cycle geothermal technology (A.59280, RT 14-5). It was always contemplated that the plant facility would continue to operate after the demonstration phase on a commercial basis. The heat supply contract will be negotiated to provide for a 30-year term (A.59280, RT 24); the cost of electricity generated by the plant l was openly discussed (A.59280, RT 244-5); arrangements to reimburse the Department of Energy when the plant becomes commercial were explored (A.59280, RT 80-82); and possible ECAC treatment of the cost of geothermal brine was contemplated (A 59280, RT 59-60). The company specifically stated that it has a goal of 80 percent 1 e { I
- - e- - - _ _ _ _ _ _ _ _ _ _ _
A.59 708, 59705 ALJ/EA . availability for the plant (A.59200, RT 60-9); that there uns a very low probability of failure (A.59280, RT 32); and that the plant components will be designed with a 30-year life in mind (A.59200, RT 82). According to SDG&E, the company's intention in this regard was best expressed by Mr. Cotton in A.59280 where he stated:
"A. Well, if you are going to build a commercial size demonstration plant at the size of the dollars that we are dealing with in order to do that, first of all you want the plant to be a success. You are not building a demonstration plant to be a failure. You are building it to be a success and prove the objectives we have outlined.
"On that basis it would be kind of ridiculous for us to build a plant to operate for five years.
"Say we demonstrate it non and walk away from it.
"After the demonstration period it would be normal for us to take the plant and try to integrate it into our system of resources as a commercial plant, although we are not including it in ou.-
resource plant." We believe the future of the Heber Project as a commercial
,olant is unknown at this time. As we view it, at this point in time the Heber Project is a demonstration of the commercial l feasibility or the commercial infeasibility of the geothermal l binary process. SDG&E hopes that the Heber Project eventually will have commercial value, but for the moment the Heber Project must be considered only as an R&D procram for ratemaking purposes.
l l L j l l t . . _ . . . . _ . _ . _
s- , A.59788, 59785 ALJ/EA e The Commission explicitly recognized in i 91271 (page 48) ' that the Heber Project construction and demonstration costs should * [ be treated as R&D expenses for ratemaking. The Commission allowed SDG&E to expense rather than capitalize its share of the Heber [ Project. As a result, the current ratepayer is forced to pay for . the cost of the Heber Project before it is operational. Staff contends that SDG&E should also be required to currently deduct the Heber Project costs so that the present ratepayer a' Iso will receive any tax benefits that may accrue from the project. Other-wise, the present ratepayer would bear the entire expense of the Heber Project while the future ratepayer would receive the benefits of any tax deductions as w' ell as any other benefits when the project becomes operational. Staff points out that if the Com-mission recognizes for ratemaking purposes that the Heber Project expenses are currently deductible, then at least the tax benefits attributable to the Heber Project will be flowed through to the present ratepayer who is paying for the entire project. According to staff, if the IRS should disallow a current deduction of the Heber Project costs under Section 174, then SDG&E will be required to capitalize only the expenditures for the actual physical p ant constructed for the Heber Project. Furthermore, if a Section 174 current deduction is disallowed, then SDG&E's 1981 income tax expense should not be materially affected due to the I availability of a $14.7 million not operating loss (NOL) carry-over and unused ITC of about $41 million. Because of these offsetting deductions and credits, SDG&E will not be subject to any actual reduction in revenue; (however, we expect there will be an erfect on the NOL carry-over.) i
^^
A.59738, 59705 ALJ/EA
i There is another aspect of this matter which we should touch upon. If the entire project is expensed, then there will be no future tax depreciation offsets. We believe this is reasonable since this will benefit present ratepayers who are paying for the project. SDG&E points out that Regulation 1.174-2(b)(1) exolicitiv precludes this project from qualifying under Section 174 of the Code, even if it is R&D in a laboratory sense. The regulation provides:
" Expenditures by the taxpayer for the acquisition or improvement of land, or for the acquisition or improvement of property which is subiect to an allowance for deoreciation under section 167 or depletion under section 611, are nor deductible under section 174, irrespective of the fact that tne property or improvements may be used by the taxpayer in connection with research or experi-mentation." '. Exhibit 35.) (Emphasis added.)
SDG&E submits that in view of the company's intent to construct Heber so that it can operate on a commercial basis, the project will result in "the acquisition of property that is subject to an allowance for depreciation under section 167 of the code" (RT 1548); that is, the end result will be a 45-megawatt geo-thermal power plant which will be depreciated for tax purposes like any other plant facility over its useful life. Staff contends that SDG&E should take this tax deduction on its return and aggressively argue its appropriateness with the IRS. Witness Mulligan indicated that if after audit by the IRS, which could be years from now, it is determined that the de' duction is inappropriate and that there is an additional tax liability, the ratepayers should make the company whole. 1 w
A .39 708, 59705 ALJ/EA On the other hand, SDG&E points out that there may be some legal and procedural complications with the staff's suggestions. SDG&E submits that the more prudent approach would be to allow the additional tax expense in test year 1981, subject to refund, with the proviso that SDG&E seek a revenue ruling on its interpretation of the Code. In the Heber D.91271 we ordered:
"4. Commencing January 1, 1981, and annually thereafter, SDG&E is authorized to file an application or advice letter to obtain rates which would allow the receiot of revenues to cover reasonable proje:t co'sts during th'e l current year. If such request is part of a t
pending general rate case, the Commission may consider issuing an interim decision regarding that matter as of January 1 of each year."
"6. To account for project expenditures and revenues received during each calendar year, SDG&E is authorized to establish a Heber project balancing account, commencing January 1, 1981."
In view of the establishment of a balancing account ' commencing January 1, 1981, we believe SDG&E's fears are unfounded that it may not be aole to recover income tax expense if none is allowed in this proceeding (because of the rule against retroactive ratemaking). Further, since the record is clear that because of large ITC credits SDG&E will not be paying income tax in 1981, we believe there is ample time for SDG&E to seek an IRS ruling. I We should remind SDG&E that the Heber Project was given special ratemaking treatment in D.91271 and it was made clear that the company would not recover more than dollar for dollar for the project. Accordingly, we will not allow SDG&E's Schedule M adjust-ment of $2,791,000 for test year 1981. We will review the question of income tax expense for the Heber Project in subsequent proceedings. i i 1 l
A.59788, 59785 AIJ/EA /nb l l
- d. ITC Carry-overs !
The third area of dispute between the company and staff regarding income taxes is whether ITC normalized carry-over[ should bg reflected in the test year. The figures are as follows: Staff SDG&E Difference Electric $(722,000) $ (98,000) S(624,000) Gas (77,000) (14.000) (63,000) Total $ (799,000 ) $(112,000) $ (687,000) , Staff and company agree that the current year 1981 ITC f should be flowed through. However, staff has proposed to further l reduce test year income tax expense by the ratable portion of the l unused additional 6 percent investment tax credits which were i l generated during the period 1975 to 1979, to the extent they have , not been flowed through in prior rate decisions. There are l approximately $30 million of these credits available, of which I
$687,000 is proposed to be flowed through in the test year. This !
amount will grow in future test years as new plant is added. The company submits that it is improper to flow through the benefit of prior years' ITC if, in fact, those credits have not been utilized on the tax return. The primary reason these l credits have gone unused is that, in all but one of the last six l years, SDG&E did not have any taxable income. This was caused by j a shortfall in tevenue or an increase in expenses for those years, l compared to the levels assumed in their respective test years. l l I 4j As differentiated from flow-through ITC credits. i I I i l lh l _ . - - . - . . . . . ..
A.59 788, 59785 AQ/EA/nb
; SDG&E's position, as expressed by witness Fonsa, is that these credits should be flowed through to the ratepayer only after the company, in fact, utilizes them on it: tax return.
According to SDG&E, if the staff position is followed, the rate-payer may receive a benefit which the company may never itself realize. Witness Fonas testified that almost $3 million of credits must be used by 1981 or they will expire due to the time limitation on their use. The staff's position is that. flow-through of all ITC normalized'should be adopted by the Commission for several reasons:
;
(1) the Commission sets rates and considers income tax expense on a test year basis which is not related to the actual income tax paid by the utility in the test year; (2) the Commission does not consider "real world" taxes in a general rate case (rather, the Commission evaluates income tax liability and benefits attributable to the utility operations in the test year and derives a ratemaking estimate of tax expense for the test year); (3) the staff's recommendation follows traditional ratemaking policy by simply flowing through the benefits of any ITC generated in prior years attributable to constructicn of utility plant which has not been flowed through because of the company's Section 46(f)(2) election; and (4) the flow-through of these ITC benefits is in conformance with the Commission's stated policy for all major utilities. i e 2 l y-ae..-
l
;
A.59788, 59785 ALJ/EMnb i Staff points out that to argue, as the utility does, that a flow-through should not be recognized unless the ITC will actually be utilized in the test year is to advocate recognition of actual or "real world" taxes. Calculation of income tax expense on an
" income taxes actually paid" basis is an issue in OII 24.
Staff submits that if the Commission nevertheless should decide that a flow-through only of ITC actually utilized in the 1981 test year is appropriate in this case, then to be consistent the Commission must determine what SDG&E's actual income tax liability will be in 1981 and set rates on a " taxes as paid" basis. Staff would agree to such a calculation of actual income l tax expense but suggests that use of actual income taxes would be inappropriate before OII 24 is resolved. 'It is the staff's position that until OII 24 is decided, the Commission should adhere to its traditional method for calculating income tax expense in this proceeding and flow through all ITC normalized whether or not SDG&E actually will be able to utilize all of those credits in 1981. According to staff, if the Commission declined to flow j through ITC normalized as recommended by staff, the company never-theless may earn enough taxable income in 1981 to utilize ITC which the Commission did not recognize when fixing rates. In that event, the company would receive all the benefit from applying those credits against its tax expense. The tax benefits already realized by the company could not be transferred to the ratepayer in a future test year due to the rule against retroactive ratemaking. As a result, staff points out, the company would reap an undeserved windfall because the Commission failed to flow through the ITC as quickly as possible. We will adopt the staff's estimate as reasonable for test year 1981, since this reflects traditional ratemaking policy. l l l H - ~ ~- .____________________T_
s . . . A.59 788, 59 785 ALJ/EA/nb *
- 13. Wace settlement A major area of difference between the company and staff is the wage rate assumption to be used for test year 1981.
SDG&E's witness Williams testified that the company's assumption , used throughout the results of operation reports was a wage l increase of 13.5 percent, commencing March 1, 1981. He explained that the company has offered its union an increase in 1981 which will track the rise in the Consumer Price Index (CPI) for 1980, i with an upper limit of 13.5 percent. The percent increase will be determined by comparing the December 1979 CPI with the December 1980 CPI. Staff has included, throughout its results of operation exhibits, a wage adjustment showing the effect of an increase of only 11 percent in 1901. While we cannot ignore valid costs that a utility is incurring in providing service to its customers, we must examine closely costs such as labor for reasonableness for the simple fact that the utility is incurring them may not of itself be sufficient justification of reasonableness. We do not wish to establish the precedent of referencing our adopted labor expenses to the CPI or automatically passing through any expense the utility negotiated without examining it for reasonableness under the circumstances existing at the time the expense is incurred. To do so, particularly with an expense such as labor, would destroy any incentive the utility has to take a firm position at the bar-gaining table. Under SDG&E's wage settlement, the amount of the increaJe is not definitely known at this time and will not be definitely known until almost three montns after this decision is issued. Since we must set rates based on reasonable expense levels under those circumstances, we will use 12.5 percent for l the 1981 labor portion of empenses.
A . 59 788, 59785 ALJ/EA
- 14. Mace and Price Standards the company p e en ed a rep rt o Co n i n Wa e and P ice Stability (COWPS) Voluntary Pay and Price Standards, in Exhibit 57, .
which was sponsored by company witness Higgins. With respect to i the Voluntary Pay Standards, it was demonstrated that the company's l proposed wage increases of 9.5 percent for 1980, and up to 13.5 , percent for 1981, comply with the applicable provisions of the program. Witness Higgins pointed out that COWPS has adopted interim price standards which basically extend the existing standards through December 1980. It is unknown at this time whether any price standards will be in effect during the test year. If, however, it is assumed that the current standards were continued into 1981, SDG&E's original request would have exceeded the Price Deceleration and Gross Margin Standards. It must be understood that these standards are voluntary, and that COWPS has encouraged regulatory commissions to determine qualification for exemptions where appropriate. COWPS has stated:
"The commissions may administer the profit >
margin limitation exception and exceptions l for extreme hardship and gross inequities. Commissions may find it necessary to grant exceptions in order to enable utilities to
- raise capital in order to finance construc-l tion that is needed to serve customers, or l to meet federal policies that seek to reduce dependence on oil."
1
. A.59788, 59785 ALJ/EA/nb SDG&E agreed, in Exhibit 5 7, that its rate request does not comply with the " profit margin limitation exception". However, it argues that its financial condition is such that forced compliance with the standards would cause extreme hardship and create gross
- inequity. Therefore, the company contends that it should be j excepted from the standards.
We note t .Tt SDG&E's rate request in this proceeding is a bare-bones minimum tequirement. During the test year, the company will be faced with substantial n,ondiscretionary cost increases and ever-rising capital requirements to finance new construction in one of the fastest growing regions of the country. At the same time, the company is attempting to improve its tenuous financial condition and credit rating. l Based on the record in this case, it would be proper for the Commission to conclude that the level of rate relief to be granted in thi~s proceeding is fair and reasonable. Any further reduction in the amounts found reasonable would cause extreme financial hardship and gross inequity. Even staff has agreed that the sought rate of return is fair and reasonable and that its recommended expense levels are appropriate. Accordingly, we find that SDG&E should be excepted from the standards because of sucatantial 1981 nondiscretionary cost increases and capital requirements. To do otherwise would result in extreme hardship and gross inequities to the company. 1 i l
-- - ~ _ . _ _ __
r . p.. [ A.59708, 59785 AL7/EA /nb j D. RATE BASE f l 1. General l h
SDG&E and staff estimates, as presented in late-filed .,
)
Exhibit 70, are as follows (thousands): . I SDG&E Staff Difference Electric $1,105,504 $1,055,401 $50,103 Gas 159.180 159.611 - 431 Total $1,264,684 $1,215,012 $49,672 The principal areas of disagreement are discussed below.
- 2. Plant in Scrvice SDG&E and staff differ as to the correct plant in service balance to be used in the 1981 test year calculation of rate base. The difference for the Electric Department is only $186,000 and for the Gas Department only $73,000; however, the difference was due to an oversight by staff. We will adopt I
the company's figures.
- 3. Net Plant Additions There is a difference of $1,902,000 in the Electric Department and $110,000 in the Gas Department in the estimate of not plant additions in test year 1981. The company performed a study which reviewed the estimated expenditures and scheduled completion dates of some 200 individual projects which were included in the 1980 and 1981 not plant additions on a weighted average basis.
l Staff developed a ratio of not plant additions to plant in service beginning balances, for each recorded year, from 1975 to 1979. These five ratios were then averaged. The resulting average ratio was applied to the company's estimated 1981 plant in service beginning ba' lance to develop the staff's 1981 net plant additions. i 3 - -.- r m .. - - - - - -w.
A.59788, 59785 ALJ/EA The staff's method does not allow for any possible growth trend or known not plant additions. We will adopt the company's natimate.
- 4. Puel in Storage There is a difference between SDG&E and staff as to the appropriate amount of fuel in s?.orage which should be included directly in ^.he Electric Department rate base. Staff accepted the company's estimated prices for oil but disagreed with the number of barrels of oil which should be recognized.
This amounted to a rate base difference of $33,424,000. The company developed its fuel in storage estimate through the use of a computerized model which considered the beginning' inventory level of 1981, additional purchases, and the monthly fossil fuel burn requirements for that year. This process resulted in quantification of the number of barrels of oil SDGEE would have, on a weighted average basis, in 1981. This equated to an 84-day burn for residual oil, the major component of the account. Staff witness Van Lier reviewed SDG&E's 1979 recorded monthly day burn average of 65 days' burn for residual oil and adopted that level as reasonable for test year 1981. SDG&E points out that the Commission has previously stated a policy of allowing the equivalent of 90 days' burn in fuel in storage (D.84577). This policy has been reaffirmed most recently in two cases: for PG&E, based on test year 1980 in D.91107 and for Edison, based on test year 1979 in D.89711. SDG&E submits that if this policy is appropriate for PG&E and Edison, it is even more appropriate for SDG&E due to obvious differences in operation of the systems.
. t A.59788, 59785 AIJ/EA i
SDG&E states that the Commission has encouraged utilities to enter long-term fuel oil supply contracts to l . ensure adequate inventory levels (D.81931). The Commission has also founc, upon investigation by an outside independent consultant, . hat SDG&E's fuel oil procurement policies and practices are not imprudent (D.90404, Finding 11). On the other hand, staff states that the amount of fuel in storage was not an issue in SDG&E's previous 1979 test year case. Additionally, the appropriate amount of fuel in storage was not examined in prior PG&E and Edison f cases which authorized a 90 days' burn for those utilities. l l Thus, the instant recommendation is the first staff effort l to determine what a reasonable level of fuel in storage should be. Staff submits that 65 days' burn will adequately protect the ratepayer in 1981. According to staff, current market conditions indicate that fuel oil supplies will be available to SDG&E throughout 1981. If a change in fuel oil availability should occur in 1981, staff suggests the Commis-l sion may allow SDG&E to maintain a hiqher level of fuel in storage in 1982. The quantity of oil held in storage has become a significant rate base item because of the high price of oil. Nevertheless, price is not the controlling factor upon which a decision should be made as to what is a reasonable quantity of oil to be held in storage. As we view it, factors that abnormal weather conditions, should be considered include: gas availability, off-system purchases, force majuere contract provisions, etc. We do not believe that a temporary oil 1
~ - ~ ~
I A.59780, 59785 ALJ/EA oversupply situation is a factor that should be given much weight, since world oil supply is highly dependent on the international political situation and could change overnight. While we commend staff for its initiative in examining the question, we will not adopt its adjustment. If staff proposes a similar adjustment for test year 1982, we will expect a detailed analysis that cofisiders as-expected conditions for the test year rather than reliance upon a prior recorded year which may or may not be representative of the test year. We will adopt the company's estimate for test year 1981. l l l i r 1 l A.59788, 59785 ALJ/EA/nb
- 5. Working Cash Allowance The working cash component of' rate base is intended to compensate the utility for the carrying cost of money associated with goods and services which have been purchased, and for which revenues have not yet been collected from the ratepayer.
At the same time, it is intended to ensure that the ratepayer receives the full benefit in the converse situation. The level of working cash is directly affected by the adopted revenues and expenses. The only area of contention in working cash allowance involves the appropriate n6mber of lag days to be used for the purchased fuel oil item of the calculation. Staff has used 22 days and the, company contends that 15 days is more appropriate. ~~ There is 'no dispute as ' to the dollar value to be used in the
~
calculation; however, this one item could have a revenue impact of $2.3 million. In the case of fuel oil, it has been established on l the record that the supplier, in effect, finances the oil from i the time of shipment until it is paid for, approximately 22 days later. The ratepayer is also paying the carrying cost of the oil, under both the company's and staff's calculations, from the time it ent'rs e physical inventory, 15 days before payment. The purpose of the working cash adjustment is to avoid a double counting by returning to the ratepayer the corresponding benefit the company receives of " free" financing for the same 15 days. l l
.r - e-_, . - _ , . , . - - , , , - . - - - - - - - - - , . -_ _ _ . _ _-
A.59788, 59785 ALJ/EA SDG&E points out that the only reason a working cash reduction is appropriate at all is that the ratepayer is carrying an associated burden. If he were not, then he would be entitled to no negative adjustment. For this reason, a 15-day lag is more correct than 22 days. The ratepayer is not carrying the oil as a fuel in storage rate base item for the seven-day period from the time it leaves the refinery to when it reaches SDG&E's tanks in San Diego. SDG&E's witness Malquist testified that the company's . rate base treatment commences when the oil is taken into physical inventory. He also confirmed that this was true of the staff's calculations, since staff witness Van Lier used recorded 1979 inventory levels,which do not include oil in transit, as the basis of his racommendations. SDG&E submits that staff witness Han's 22-day lag proposal would be appropriate only if the company had included oil in transit in the fuel in storage rate base item. While we commend staff and witness Han for raising the issue in the first instance, since SDG&E originally showed zero lag days, we will adopt SDGEE's amended estimate of 15.07 lag days.
- 6. Plant Held For Future Use Staff recommended that $9,130,000, relating to two South Bay gas turbines, be excluded from rate base for ratemaking purposes.
i These particular turbines have been the subject of con-troversy for some years. Unfortunately, the company has had various planned uses for them, which for a number of reasons have not materialized. It should be noted, however, that the commission has confirmed that SDG&E's prior actions with regard to these turbines have'been proper and, in fact, rate recovery for the abandoned projects has been allowed (D.87639, D.90405). l
. ,=
A.59788, 59785 ALJ/EA /nb The Uniform System of Accounts, Account 105, specifies that for accounting purposes the utility must have a definite i plan for use if an item of equipment is to be included therein. Nowhere in the Uniform System of Accounts is the definition
- further amplified. The Commission in D.87639 affirmed the requirement that there must be a definite plan for all plant held for future use entered in Account 105.
Staff requested the company to furnish its definite plan for future use of the South Bay gas turbines. In response, the company offered 11 possible applications for the gas turbines prefaced by the admission that "a specific' plan for utilizing the gas turbines is not available ". SDG&E's rate base witness Williams later testified that although the company has a number of " definite" plans for use of l the gas turbines, its two primary options are a cogeneration project with Kelco and an installation at Navy's new hospital site. SDG&E, however, was unable to submit any documentation of its negotiations with Kelco or the Navy. The South Bay gas turbines have been included in Account 105 since 1974 and were included in rate base in July 1977. Since July 1977, the ratepayer has paid an additional $3,000,000 in rates because the gas turbines were included in rate base although the turbines were never put into operation. 1
- A.59788, 59785 ALJ/EA/nb *
' Staff submits that the $9.1 million cost associated with the South Bay gas turbines should be excluded from rate base until SDG&E can furnish a single definite plan for their future use.
The ratepayer already has paid a return on the turbines for over three years without receiving any benefit. Inclusion cf the gas turbines in rate base for the 1981 test year would compel the
- ,
ratepayer to continue to pay a return for yet another year without adequate assurance from the utility that the gas turbines will be used. Since SDGGE is filing a 1982 test year amendment to this application, staff recommends that the South Bay gas turbines be excluded from rate base for the 1981 test year. If SDG&E is able to provide concrete evidence of a definite plan for the use of the gas turbines, then the cost of the turbines may be included in the rate base in 1982. However, at this time, staff submits that the company has failed.to demonstrate that there "is a definite plan for use of the turbines. Accordingly, we agree that the
$9.1 million cost associated w'ith the turbines should be excluded from rate base as recommended by staff.
- 7. Conservation Voltage Regulation (CVR) Procram As discussed in the conservation section of this opinion, we will add $1,597,000 equipment costs to 1981 plant additions .
(Exhibit 38), to reflect that amount of capital expended over the course of the test year. 1 l P
- 7,8 -
i .
. A.59788, 59785 ALJ/EA VIII. CONSERVATION i
A.
SUMMARY
SDG&E proposed an expenditure level of $15.3 million for conservation programs for test year 1981. Staff agreed to the various programs proposed by SDG&E but recommended a total reduc-tion of approximately $2.2 million to the company's proposed l expenditure level. The staff's adjustments include: (a) reduction in advertising expenses for various programs amounting to $1 l million; (b) reductions in various programs amounting to $126,000; and (c) reduction of the utility-requested supplemental reserve from $1' million to $100,000. SDG&E stipulated to the staff's total level of expenditure of $13.1 million. In view of the high electric rates now existing in the SDG&E's service area and the significant price-induced conserva-tion, estimated for test year 1981, we have reduced staff-recommended j expenditure levels by a further $1.8 million to a total of $11.3 million for test year 1982. This adjustment reflects a reduction of $750,000 for anticipated. delay in implementing the Residential l ! Conservation Servica (RCS) Program and deletion of all Priority 2 and 3 expenses shown in Exhibit 38 for the various programs. The following Table IX shows the test year 1981 conservation programs, SDG&E's estimate, staff's estimate, and the adopted expenditure levels for the various programs. i l l l l
- ~ ~ -
-- -- . . _ , . ,, .p->ww. m -;,.
l l A.59738, 59785 ALJ/EA Table IX San Diego Gas & Electric Company COMPARISON OF CONSERVATION EXPENSES Test Year 1981
- Program : SDG&EM: Staf k : Adopted :
(Dollars in Thousands)
$ 1,801 2/
Residential
~~
Residential Audits (RCS) $ 2,534 $ 2,551 Appliances 141 141 91 Community Outreach 145 145 146 Builder Incentives 839 739 459 Insulation Incentives 847 847 326 Products 325 325 225 New Products Testing 100 100 - Shows and Exhibits 146 101 79 Brochures 145 145 109 Meter Conversion 46 46 47 Customer Service 520 520 405 Pilot Light- 219 80 99 Spirit 20 20 - Residential Direct Mail High Users 142 142 - Advisory Service 255 256 246 168 168 61 i Consumer Affairs i Subtotal 6,592 6,326 4,094 , Commercial-Industrial 1,031 637 P.A.C.E. 1,031 765 765 766 Assigned Accounts 8 Pump Testing 8 8 29 29 29 Street Lights 493 493 394 Energy Saver Lights Recognitica 180 180 - 140 140 140 Cogeneration Subtotal 2,646 2,646 1,974 1/ Exhibit 7, Table 1, adjusted to reflect final ;asition of SDG&E prior to stipulation. 2/ Exhibit 17, Table 2, adjusted to reflect final position of staff. 3/ Reduction of $750,000 to reflect delay in implementing RCS Program. 1 m- ,-- - + , , - ----e,a w ow--m .--n
i A.59788, 59785 ALJ/EA i i t Table IX San Diego Gas & Electric Company l COMPARISON OF CONSERVATION EXPENSES Test Year 1981 e i
- Program : SDG&EA/ : Staff 2/ : Adopted :
i (Dollars in Thousands) . Others
- Solar $ 501 $ 301 $ 501 1 Awareness 309 100 77 School Education - - 169S/
3 i CVR 1,643 1,643 45 7 i Peak' 1,001 550 424 Supplemental Reserve 1,000 100 1,100 Load Management Subtotal 4,454 2,694 2,317 Ancillary 1,444 1,444 1,357 Subtotal - Expensed 15,136 13,110 9,742 CVR Capitalized 1.597 Total Conservation Programs $11,339 f 4/ Included in Account 920. 5/ CVR Program; total $1,643,000; capital $1,597,000; and ! expense $46,000.
- Other adopted figures reflect Exhibit 38 - Priority 1 expenses. Priority 2 and 3 expenses were deleted.
l A.59788, 59785 ALJ/EA /nb
- B. PROGRAMS
- 1. General SDG&E's Exhibit 7 provides a description of each conserva-tion program and lists energy savings. Staff's Exhibit 17 discusses the reductions recommended by staff to expenditure levels proposed by SDG&E for the various programs. We will discuss the areas which go beyond the scope of the company's and staff's reports.
- 2. Mandated Procrams In addition to programs ordered by this Commission, the company is required to implement programs mandated by other agencies.
j The mandsted programs comprise: (1) the RCS Program, and (2) the Icad Management Standards with its four constituent programs. The RCS Program, discussed subsequently, is estimated to cost approximately $2.5 million per year and is expected to last five years. However, present indications are it is unlikely the program will be implemented on a full year basis in 1981. Load Management Standards have been established by the California Energy Commission (CEC) pursuant to legislative decree. These s'tandards set basic requirements for: (1) a Residential Peak Load Cycling Program, (2) a Swi-ing Pool Filter Pump Program, (3) a Large Connercial Customers Program, and (4) a Small Commer-cial Customers Program. By D.92024 dated July 15, 1980, we allowed SDG&E $3.9 million to implement load management programs in 1980. Expenditures for 1981 are expected to be approximately the same. Imad management expenses are not. included in this pro-ceeding since SDG6E recovers these expenses, separately, through a Ioad Management' Adjustment Billing Factor aiidT balanciing' a'cc~ount~. All the other programs shown in the preceding Table IX are programs authorized by this Commission. l
\
j -
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l I A.59788, 59785 ALJ/EA
- 3. RCS Procram SDG&E states that the National Energy Conservation Policy Act (Act) requires it to implement a RCS Program. The program is a five-year project designed to substantially increase the installa-tion of energy conservation measures, including renewable resource measures, in existing residential buildings.
According to SDG&E, the Act requires the company to provida: (1) A Home Energy Audit upon the residents' request. (2) Information about estimated savings in energy costs for recommended conservation measures and practices. (3) Arrangements upon request for the purchase, installation, financing, and billing of energy conservation and renewable resource measures, with appropriate attention given to consumer protection. (4) Post-installation inspections. ' SDG&E's Exhibit 38 shows a cost breakdown for the RCS Program for test year 1981 as follows: Labor Administrative $ 107,000 Clerical 500 Supervision 1,500 Contract 1.302.000 Total Labor 1,417,000 Nonlabor Expenses Employee Expense 5,000 Materials 5,000 Transportation 270,000 Uniforms 17,000 Equipment 30,000 Mailing Costs 71.000 Total Nonlabor 398,000 1 l l 1 l , l N
- , ~ , -,---m.n - , , ,e<
4 \ A.59708, 59785 ALJ/EA/nb communications l Hajor Media $ - l Collateral 12,000 Reproduction 363.000 1 Total Communications 375,000 Incentives - Data Processing 344,000 Total cost $2,534,000 The staff Energy Conservation Branch recommends an j expenditure of $2,551,000 for this program for test year 1981. l SDG&E's . witness Hunter testified that in accordanco l with the Act, SDG&E would be implementing the procedures as set forth by the CEC. He stated that the original submittal of CEC made in June 1980 had been rejected by the Department of Energy (DOE). He expected approval of a plan sometime in 1981. Since this time, the CEC plan, subject to certain mod-ifications, has received DOE approval. . We'~ expect'SDG&E'to be aBle to.begin its RCS Program around the second quarter of 1981 and will'
;therefore allow a reduced _ amount to provide costs to reflect this delay'.~ Accordingly, we will ' deduct $750,000 from the staff- -
recournended estimate for this program and allow $1,801,000 to cover test year 1981 costs. Funding for this program on a full scale basis will be addressed in SDG&E's test year 1982 rate case. Hope-fully, cost-effectiveness will be optimized subject to the CEC-l adopted plan. l
1
A.59788, 59785 ALJ/EJ/nb
- 4. New Customer Conservation Procram The controversy surrounds an amount of $520,000 which SDG&E included as a conservation expense. In previous rate cases this item was considered as an operating expense; however, in this proceeding SDG&E decided to include it as a conservation expense. Staff witness Barnhardt deleted this item from con-servation expense Account 908 because he believed it belonged in operating expense Account 903. Staff witness Chan, responsible for operating expense accounts, did not include the item in his i estimate of Account 903 for the test year. Therefore,SbG&E correctly pointed out that staff had denied recovery of this item.
Under this program, when a new customer or a customer l changing residence signs for service, SDG&E's customer service clerks will ask if the customer wishes to spend a few moments discussing some of the most effective conservation actions he can take to reduce consumption. The clerk then identifies several conservation actions the customer can use and then offers to send him additional conservation literature which will provide the customer with detailed information on all con-servation action which he is interested"in. Staff witness Barnhardt thought the time spent by the customer service clerk was minimal; however, SDG&E points out that it is significant in the aggregate. SDG&E estimates the equivalent . time of 32 persons out~ of a total 318 persons is spent on conservation activity when signing up new customers over the course of a year. l
~ ~ . - - - - - ...
-p. pt 3; , ._
i A . 59 788, 59785 ALJ/EA The ALJ requested staff to further investigate the matter,
to review prior recorded expenses for the two accounts, and to , l report back. The results of staff's investigation are described in Exhibit 66. Staff witness Barnhardt then agreed that the item should be considered a conservation expense. However, staff accountants disagree with the dollar amount, since they celieve there was some double counting of this item in Account 903 and Account 908. We ask that staff and SDG&E look into this matter further for the 1982 test year phase. For test year 1981 we will adopt the 1979 recorded figure of $326,000 escalated for wage increases to S.405,000.
- 5. Conservation Voltage Regulation (CVR) Excenses According to SDG&E, the company's CVR Program was pursued in 1980 without any authorized revenues in rates. Expenses for this program of $576,100 for 1980 were capitalized rather than expensed. The remaining estimated labor costs of $48,175 were expensed in 1980. The company is now proposing that authorized costs for the CVR Program be expensed in 1981. For 1981, CVR expenses could be broken down as follows: labor approximately
$46,000 and equipment approximately $1,597,000.
The costs for 1981 relate to the purchase and installation of equipment such as distribution transformers, switch. capacitors, line conductors, and miscellaneous equipment as indicated in Exhibit 43. The company is requesting that all of these equipment costs of the CVR Program in 1981 be expensed. SDG&E's witness Hunter provided four reasons why the Commission should grant the company this expense treatment. First, expense treatment in the 1981 test year would allow the conpany to be made whole after capitalizing these costs in 1980. Second, the
A.59783, 59705 ALJ/EA /nb l l l expected life of some of this equipment is uncertain at this time because it is new, not very reli-ble, and may be short-lived. He stated that, in fact, some of the equipment installed for this program has already had to be replaced. Third, some.of the equip-l ment may not remain on the system into the future. Fourti, the company's present financial condition would justify such treatme,nt. SDG&E submits that for each of the foregoing reasons, this equipment should receive expense treatment for 1981. We shoulC point out that the Commission has provided SDG&E l with special ratemaking treatment in several areas because of its o, resent financial condition. However, we are not convinced this is an area that requires special treatment and for ratemaking we will treat the CVR Program costs in accordance with normal ratemaking l procedures. Accordingly, the labor estimate of $46,000 will be treated as an expense item and the equipment cost of $1,597,000 will be treated as a capital expenditure in test year 1981. The l i total expenditure level for this program will remain unchanged.
- 6. Supplemental Reserve SDG&E has requested revenues sufficient to cover unanticipated conservation requirements of regulatory agencies which are to be implemented between test years. This proposal has been labeled the supplemental raserve. It should be noted that the company stipulated to the staff's estimates which recommended disallowance of such a supplemental reserve. How-l ever, the staff used a portion of this aspect of the company's request in the amount of $100,000 for funding a conservation potential study. Notwithstanding the stipulation, SDG&E believes such a supplemental reserve would be useful to fund programs or activities not included in the company's proposed expense estimates, and should be considered in the 1982 test year proceeding.
l l l l l
- o A.59780, 59785 ALJ/EA SDG&E states that in the past the company has found itself in the position of being compelled to implement conser-vation prograns without revenues authorized in rates to recover such expenses. SDG&E cites, for example in 1979,, the CEC promulgated certain mandatory load management standards which the company sought to implement beginning in January 1980.
A.59350 was filed in December 1979, and the company began incurring certain expenses on the programs with th,e g'ood faith belief that rates would be granted to cover such interim efforts. Finally, in July 1980 D.92024 was promulgated which provid'ed offset rate relief for the anticipated expenses to be incurred in implementing the load management standards. However, due , to the question of retroactive ratemaking, an issue not raised in the proceeding, program expenses in the amount of $550,000 incurred before that decision were disallowed. According to SDG&E these expenses which were disallowed will go , forever unreimbursed. SDG&E points out that another example of the necessity for a supplemental reserve can be found in the mandated RCS Program which could become effective in 1981. At the present time, SDG&E has no dollars in rates for the RCS Program; however, the company must move forward with that program to gain experience, to train l l personnel, and to determine what problems or conditions exist in the market. m --
l A.59 708, 59785 ALJ/EA ) l l SDG&E notes that in making this request, it attached two important conditions to the proposal which will protect the rate-payer. First, these funds would only be used to satisfy state l or federal directives for conservation activities not previously funded through a rate case procedure. Second, these funds would be received with the understanding that monies not specifically spent to satisfy such a mandate would be subject to refund or result in reduced rates. In any event, dollars from the supple-mental reserve would not be spent for any purpose-without commission authorization. SDG&E submits that this proposal is absolutely necessary to protect not only the company from a reoccurrence of the disallowance in D.92024 but also to protect the ratepayer. SDG&E states that presently there are other conservation programs pending before this Commission which could necessitate expenditures which are not anticipated in the 1981 test year filing. SDG&E cites for exampl's C.10260, the line extension case which is now pending and could necessitate more expenditur'es. L Also, solar financing A.59724 is now pending which arose out of OII 42. According to SDG&E, that filing may not have been necessary if a supplemental reserve, subject to refund, had been in place. ! F6rthermore, SDG&E suggests there is the possibility that it will be requested to implement a low or zero interest financing program for conservation products in 1981.
~~ *b - ,
i A.59708, 59785 ALJ/EA/nb We adopt as reasonable for test year 1981 a supplemental reserve of $1,100,000. This amount includes $100,000 for the staff-recommended conservation potential study program. We believe a supplementary reserve of the above amount is reasonable since there is a real possibility SDG&E will be required to For implement certain programs not allowed for in 1981 rates. example: the Summer Peak Contingency plan may have to be implemented at short notice; the RCS plan may need additional funding if there is a higher customer response for energy audits than allowed in the adopted estimate; start-up of zero interest financing for weatherization may have to be implemented; and establishment of a weatherization training center may become necessary. Expenditures authorized under the supplemental reserve will be spent only on the designated program and SDG&E will be required to provide a full accounting of such amounts. However, we stress that no supplemental reserve funds may be used'unless prior approval has been received from staff for amounts up to $300,000. Such approval must be in writing l over the signature of the Exe'cutive Director. For amounts in excess of $300,000 in a single year, prior Commission approval must be obtained. Unexpended funds will be subject to refund. i Mme
A.59708, 59785 ALJ/EA/nb a C. POSITION OF PARTIES ON CONSERVATION
- 1. Position of City City is in favor of cost-effective conservation programs that are not duplicative but emphasizes that there is a limit to the amount of money ratepayers can pay for conservation programs.
Therefore, City recommends that only the programs listed as Priority 1 in Exhibit 38 be authorized for test year 1981. (This amounts to an expenditure level of $10.9 million.) City believes the record in this proceeding shows that the major reduction in the use of gas and electricity is due to increasing price rather than conservation programs. City refers to the testimony of SDG&E's witness Strachan who testified that the estimated reduction in 1981 test year usage of electricity and gas due to price was "/08 GkWh and 38,548 Mtherms, respectively, whereas the reduction due to conservation was 354 GkWh and
. 6,580 Mtherms, respectively, which means that about 85 percent l of the reduction in usage is due to price. City questions the need for'a myriad of conservation programs when price alone has such a very large effect on reducing usage, j
We agree with City regarding the significant price-related conservation expected in test year 1981 but also believe that conservation programs have assisted people in being more responsive to price. We will recognize both of'these effects when setting conservation expenditure levels for the test year. l
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s A.59708, 59705 ALJ/EA/nb
- 2. Position of CalPIRG CalPIRG states that it is becoming increasingly apparent that consumers react negatively to many of SDG&E's conservation programs. It notes that during the public witness phase of this proceeding, consumers repeatedly stated that it was price increases l
rather than company conservation efforts that caused them to con-serve more energy. CalPIRG believes that in order to avoid a potent.ial backlash against SDG&E, the Commission must authorize substantially less conservation advertising, brochures, school programs, products testing, and other promotional activities. Accordingly, CalPIRG recommends an expenditure level of $7.5 million for test year 1981 conservation programs. As previously stated, we will make appropriate allowance for price-related conservation in setting 1981 expenditure levels.
- 3. Position of Executive Agencies of the United States (Federal Acencies)
The Federal Agencies support conservation activities but believe expenditures in this area should not be rubber-stamped. They point out that conservation expenditures recommended by staff and stipulated to by the company for test year 1981 of $13.1 million, compared to 1980 as-expected expenditures of $6.0 millionhI represent a 118 percent increase., They believe an increase of such magnitude deserves careful scrutiny. l SJ RT 1715 - Less load management expenses. -. . l 1 I l l i
'J _
A.59 788, 59705 ALJ/EA According to Federal Agencies, tS.e magnitude of the proposed expenditures in the area of conservation has resulted in a public outcry on the part of the customers of SDG&E, and this is evidenced by the public witness testimony in this proceeding. Federal Agencies believe that SDG&E has failed to demonstrate that all expense levels are reasonable and therefore request that conservation expenditures be maintained at 1980 levels ($6.0 million) adjusted for inflation.
- 4. Position of Staff Legal Division Legal Division states that SDG&E's conservation expenses per customer for test year 1981 are high compared to its fellow California energy utilities and refers to the staff-prepared table in Exhibit 14, page 12-2, which follows:
l l l l
- w. am. a. . ..m. . w .
em*
i , A.59738, 59735 ALJ/EA/nb * . COMPARISON OF 1981 TEST YEAR CONSERVA'"pCN EXPENSES INCLUDING LOAD MANAGEMENT 1 Gas C/ Therm Over S/Cust. c/Thern Lifeline
. SoCal GasE ! 8.55 .36 .45 SDG&S Staff 7.26 .47 72 Utility 8.70 .57 .86 Adopted 5.67 .37 .56 PG&EE/ 5.99 .23 .29 Electric C/kWh Over
$/Cust. c/kNh Lifeline SoCal Edison Staff & U*ility 12.12 .60 .71 SDG&E StaffSI 16.60 1.21 1.53 Utility 18.66 1.36 ~
1.73 Adopted 13 34 0 97 1.23 PG&E 14.22 .78 .94 1/ All estimates are from the staff results of operation
~
reports. To be on a comparative basis, staff customer and sales estimates were used. 2/ Test year 1981 per D.92497. 3/ Test year 1980 per D.91107.
- 4/ Includes $3.9 million for load management.
Legal Division reminds the commission of the increasing customer dissatisfaction with rising energy costs and points to l the hnndreds of written complaints from customers in Borrego l Springs and elsewhere, as well as the several hundred who appeared at the public hearings in Oceanside and San Diego, several , of whom,specifically objected to conservation advertising at ratepayers' expense.
I , . I A.59788, 59785 ALJ/EA/nb l Legal Division believes that identifying conservation I expenditures with energy and capacity sLvings is elusive. Reference is made to SDG&E's witnese Dougherty's testimony l that price is the most significant factor in achieving reduced consumption. It is also noted that SDG&E has a number of measurement techniques, all are empirical and it is developing a new econometr.ic model of measurement due to the deficiencies l in the pre'sent methods. d
Legal Division points to the RCO Program estimate at
$2.5 million which could be delayed in ing'.ementation, thereby effecting a commensurate reduction in 1981 expenses.
Legal Division further believes that there is latitude
-- for the Cer-insion to'feduce..1981 conserv u~ ion expendituresTheyond the level reconcended by the. Nnergy'Cdneervation Branch since
~
l reduced levels would not have's material imoact on the utility's
~ conservation goals, given the present indistinct relationship between programs and energy savings.
1 1 l i _ _ . . _ _ _ _ _ . j
A.59788, 59785 ALJ/EA D. DISCUSSION
- 1. General Both SDGGE and staff are in agreement that the programs listed in the preceding . Table IX should be implemented in test year 1981. SDG&E's Exhibit 7 provides a description of each program and lista energy savings. Staff Exhibit 17 discusses l
i the reductions recommended by staff to expenditure levels proposed by SDG&E for the various programs. We concur with all the reductions recommended by staff and need not repeat the details since they are set forth in the staff's report. Accordingly, we will limit our discussion to areas which go beyond the staff's report and recommendations.
- 2. Management Discretion As stated previously, SDG&E stipulated to the total level of expenditure recommended by staff for test year 1981; however, SDG&E emphasizes that it should have some ' management discretion and flexibility to change levels of expenditure with-in programs if it should be determined that the company cannot achieve a conservation goal or if a program becomes inappropriate due to changed circumstances. We agree that since SDG&E is accountable for the results of the programs, it must retain some degree of management d'iscretion which will give it the flexibility to increase efforts in one program or decrease those in others.
i P l
r . A.59788, 59785 AIJ/EA /nb on the other hand, we believe it is important that the company keep staff fully informed on changes cf funding levels within previously authorized programs. Accordingly, the company should seek approval from staff, in writing over the signature of the Executive Director, before shifting amounts exceeding 10 percent of the authorized level of any affected program up to
$300,000 in a single year. For amounts exceeding $300,000 in a single year, prior Commission approval should be sought.
As stated previously, no .v,$plemental reserve funds may be used unless prior approval has been obtained from staff for amounts up to $300,000 Such approval cast be in writing over the signature of the Executive Dir'ector. For amounts exceed-ing $300,000 in a single year',yrior Commission concurrence ,s.hould
^ be obtained. Unexpended funds are sublect to refund'.~
- 3. Price-Related Conservation The testimony presented by SDG&E shows estimated 1981 price-related conservation levels of 85 percent for gas and 66 percent for electric over 1979. Appliance efficiency and building standards account for an additional 12 percent electric conserva-tion. Therefore, according to the testimony, 15 percent of gas conservation and 22 percent of electric conservation are attributable to 1981 conservation programs.
The customers of SDG&E, during the public witness hearings, repeatedly spoke of SDG&E's rates being the second highest in the i nation and asked the Commission to cut back on advertising and conservation programs, since they felt that a myriad of programs l was not necessary with such high rates. i I
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~
o . l A.59788, 59785 ALJ/EA l l We believe that there is evidence that price is significantly affecting sales, especially in the residential class, and we will consider this factor in setting expenditure levels for 1981 conser-vation programs.
- 4. Cost-Effectiveness cost-effectiveness is a crucial element in any evaluation of a utility's conservation programs. SDG&E's Exhibit 39 shows that with certain exceptions, the majority of SDG&E's programs for test year 1981 are cost-effective.
Cost-effectiveness has been an issue regarding the RCS ( l Program. This is a federally mandated program which is required to be instituted by state or local regulation. This program will be implemented some time in 1981, after SDG&E has received from its rate-approving body rates to offset expenses. We encourage the company and CEC to optimize the cost-effectiveness of this program.
- 5. Enercy Savincs certain of the programs described in SDG&E's Exhibit 7 do not show kWh or therm savings in their respective p,rogram descriptions; they are: the.New Conservation Product Develop-ment Program; the Shows and Exhibits Program; the New Customer Conservation Program; the Conservation Community Spirit Program; the Consumer Affairs Program; the Energy Efficiency Recognition Program; the Insulation Incentive Program; Cogeneration; the 1
Conservation Awareness Communication Program; and the Supplemental R'eserve . The reason why these programs do not show energy savings in Exhibit 7 was explained by SDG&E's witness Hunter. These programs, with the exception of Cogeneration and the Supplemental
t _.% _ _ . um --- -
l . .' A.59788, 59785 ALJ/EA/nb
- Reserve, are described as " support programs". That is, they support the actions taking place in other areas. According to SDG&E, because these programs support other programs, they are no less essential to achieving the company's conservation goals.
Consequently, the savings specifically attributable to these programs are included in the savings denotations of the programs they support. For example, the Insulation Incentive Program , which contributes to the savings is included in the table supporting the Conservation Products Program, and the New Con-servation Product Development Program savings are also included in the Conservation Products Program. A review of the company's conservation showing in this proceeding confirms that each program has been shown to be appropriate for achieving this Commission's conservation purposes'. With this Commission's increasing emphasis on conservation, we believe the adopted programs are reasonsble and should be implemented during test year 1981, with some adjustment in f expenditure level to reflect increased price-induced conser-vation resultinc from the high electric and ga_s_ra'tes" pie 9 ailing in
~SDG&E's t'arritory.
- 6. Conservation Advertising Expenses A broad area of discussion in this proceeding has been the level of advertising expenditures requested by the company for 1981. The company's stipulations caused SDG&E's dollar request for advertising efforts to be reduced from $3.5 million to $2.5 million, the level recommended by staff. The amount included in the $2.5 million figure for major media advertising is $1 million.
SDG&E believes any further reduction in expenditures in the area of advertising would affect tile company's ability to achieve its conservation goals. 4
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o . A.59788, 59735 ALJ/EA As an example, SDG&E cites the goals of the Solar Energy Procram set by the Commission. Since the present incentives under that program have been decreased from the level originally con-templated, SDG&E believes advertising is all the more necessary to make the customer aware of what is offered and its benefits. As the incentives decrease, SDG&E states it must increase the pool from which it can draw interested customers and this is done through advertising. On the other hand, SDG&E agrees that if the goals for the Solar Energy Program were to be decreased, then the advertising dollars could be decreased commensurately. Although he acknowledged that the effectiveness of advertising is difficult to measure, SDG&E's witness Hunter spoke to the success of SDG&E's conservation advertising programs. Furthermore, witness Hunter pointed out that in some instances research has determined that there is a very high percentage of customers influenced by company communications regarding conser-vation. He pointed out that there is a very high correlation l between SDG&E's conservation advertising efforts connected with the Energy Efficient Appliances Programs and purchases of the recommended appliances. SDG&E states that the purpose of its conservation advertising dollars requested in.this proceeding goes beyond , conservation messages per se. For example, the Conservation 1 j Awareness Communications Program advertising amount is attrib-utable to safety messages to the customer. This additional purpose for these expenses was noted by the staff report. l 1 l
- 100-l
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I l A.59788, 59785 ALJ/EA/nb
- SDG&E believes the scrutiny which its advertising expenses have received in this proceeding points up the fact that the company cannot achieve its conservation goals in a vacuum. SDG&E emphasizes it must be adequately funded to get its conservation messages to the public in order for customer reaction to follow.
We note the mounting public criticism against media advertising and expect this criticism to get louder as rates climb still higher. However, we realize that some level of advertising is necessary in order to get the conservation message across. The price of energy, although a significant factor in reducing consumption, will not by itself accomplish all the desired results. Therefore, the Commission must ultimately decide what levels of ratepayer funding are reasonable for advertising expense. As stated previously, the company requested $3.5 million and staff recommends an advertising expense level of $2.5 million. We believe further reductions are possible by eliminating Priority 2 and 3 advertising shown in Exhibit 38. Accordingly, we will adopt an advertising expenditure level of $2 million as reasonable for test year 1981. l 7 Adopted Excenditure Levels { While it is extremely important that SDG&E accelerate l ' its 1981 conservation programs over present levels (S6.0 million), i we believe that some reduction in the $13.1 million staff-recommended level of expenditure can be made without significantly reducing ( program levels. I l l l i l -101-l l
A.59788, 59785 ALJ/EA
;
Accordingly, we will delete $750,000 frc= the RCS Program since it will not be implemented on a full year basis. We will also delete all Priority 2 and 3 expenditures shown in Exhibit 38 for the various conservation programs. These adjust =ents provide a 1981 test year expenditure of $11.3 million as shown in the j preceding Table IX. We shov1d point out that ? level of $11.3 million for conservation programs represents an 88.3 percent increase (fro = S6.0
~ ~
=illion) over 1980 levels. In addi~ ion, SDG&E has $3.9 million in separately fu5.ded load' management progra=s for 1981. Accordingly, we adopt as reasonable a level of expenditure for test year 1981 conservation programa.of $11.3 million.
a e I e P
~
-102-
A . 59 788, 59785 AIJ/EA /nb II. RESEARCH AND DEVELOP!ENT l With the exception of an amount of $300,000 for an R&D blanket, the company and staff are in agreement regarding programs and levels of axpenditure. SDG&E's Exhibit 7 provides a description of the programs and staff Exhibit 13, the General Report, discusses the staff review of the programs. Expenses for R&D are included in electric production expense, A&G expense, and in rate base. The following tabulation j shows the total amounts: l Table X l R&D PROGRAMS Test Year 1981
- Ac.: : : : :
- No.: Item : SDG&E : $taff : Adopted :
(Thousands of Dollars) Production Expenses
- 506 Particle Fallout Program l Amortization $ 906.00 $ 906.00 $ 906.00 506 Magma Geothermal OEM 260.00 260.00 260.00 506 Niland Geothermal Amort. 600.00 600.00 600.00 506 Heber Geothermal Program
- 2,791.3 2,791,3 2,791.3 506 Expanded Geothermal Program
( Amortization 471.6 471.6 471.6 A&G Expense 930 Misc. General Expenses 5,110.00 4,810.0 4,810.0 l Rate Base RD&D Plant Capitalized 2,060 x.ll29 232.6 232.6 232.6 Total $10,371.5 $10,071.5 $10,071.5
*SDG&E revised its original amount of $6.6 million to reflect delay in receiving Department of Energy approval of its
- program (RT 691).
-103-s - W ** i .N_ ,.. - **7 . . . _ . . . , _ _ . . _ .__ ,
A.59788, 59785 ALJ/EA/nb SDG&E's request for the $300,000 R&D blanket is discussed under A&G expense - Account 930. l Staff recommends that the Commission order SDG&E not to cancel or defer R&D expenditures to reduce the overall levels authorized for the programs. On the other hand, SDG&E emphasizes that it should Ave some management discretion and flexibility to change levels of expenditure within programs if it should be determined that the company cannot achieve a R&D goal or if a program becomes inappropriate due to changed circumstances. We j agree that since SDG&E is accountable for the results of the l programs, it must retain a degree of management discretion which 1 will give it the flexibility to increase efforts in one program or decrease those in others. However, SDG&E will be required to keep staff fully informed of any deviations and be prepared to explain any change from authorized expenditure levels. We believe that SDG&E's R&D expenditures past, present, and future must be evaluated on a project-by-project basis. There-fore, we expect staff in SDG&E's next general rate proceeding to verify the reasonableness of differences bet'een w recorded R&D expenditures and those which we will adopt in this decision. i Furthermore, we expect staff to make recommendations on the propriety of SDG&E's total R&D expenditures and those which we will adopt in this decision. Furthermore, we expect staff to make recommendations on the propriety of SDG&E's total R&D effort and to recommend ratemaking adjustments if warranted by the l ( staff's evaluation of R&D expenditures. ' I I
-104-
A.59708, 59733 ALJ/CA X. RATE DESIGN A. COMPANY'S AND STAFF'S PROPOSALS SDG&E submits that its rate design proposals,as presented by witness Strachan,are intended to be consistent with the Commis-sion's recent decisions regarding rate design. As presented in l its Exhibit 5, the electric rate design reflects a uniform cents per kWh increase to each customer class. SDG&E agrees that within the residential class, the rates should be structured to reflect the' appropriate lifeline-nonlifeline differential. SDG&E stipulated to the use of the gas rate design presented by staff in Exhibit 19. Staff witness Garg recommended a uniform cents per kWh , increase to base rates. He stated that his recommendation, Exhibit 18, Option 2, was in accordance with SDG&E's last three l rate decisions and will have the least impact on the domestic class. He considered two other alternatives: (1) Option 1 - same [ percentage increase to each class, and (2) Option 3 - setting the average domestic rate equal to the total system rate. The staff domestic rate structure is based on a 50 percent differential or 1.5 times ratio between lifeline and nonlifeline, as compared with SDG&E's 1.378 factor. The 50 percent is based upon the same differential adopted in SDG&E's A.59643, D.91971 dated July 2, 1980.
-105-r-
A.59708, 59785 ALJ/EA
- B. POSITION OF PARTIES
- 1. Position of Farm Bureau ,
Farm Bureau states that the staff-proposed uniform cents per kWh increase for all customer classes wt tid further promote discrimination against certain classes of cui :.omers and provide unjustified preferential treatment of the domestic class. The staff's recommendation, according to Farm Bureau, ignores the fact that the growth in the domestic class is the very basis for this rate increase request and yet the class which is primarily respon-sible for the increase is given preferential treatment. Farm Bureau notes that neither SDG&E nor staff performed any marginal cost allocation studies or cost of service studies in. arriving at their proposals. Farm Bureau supports cost of service and recommends adoption of a uniform percentage increase to preserve the differential between customer classes. Regarding gas rate design, Farm Bureau questions the relationship between the priority of a customer and the price that the customer pays for gas. Farm Bureau cites the example of two , agricultural customers conducting the same operation, in the same geographical area and in the same marketplace. Under the current priority system and pricing schedules, where customer A uses 99,900 cubic feet per day and customer B uses 100,500 cubic feet per day, l they will be paying different rates because the former customer will be on the GN-1 schedule and the latter on the GN-3 schedule, r According to Farm Bureau, this simple example shows the discriminatory pricing policy which presently exists. l l t
-106-L -- . _ - - _ .
A.59788, 59785 ALJ/EA , Farm Bureau points out that the priority system was created to provide for the interruption of natural gas service in time of a shortage. However, with the forecast for a plentiful supply into the future, Fala Bureau believes the only effect of the priority system is to create economic discrimination in pricing. Farm Bureau opposes adoption of SDG&E's sales estimate subject to the refund provision discussed previously. Farm Bureau believes the proposal lacks specifics concerning the refund provision since it is not clear whether the refunds would be made to the class which contributed any overcollection or whether there would be a refund "across the board". We note Farm Bureau's concern regarding pessible refunds. We will consider this matter in a subsequent proceeding, if there are refunds payable. Regarding agricultural time-of-use (TOU) rates, SDG&E stated that it will work with staff and Farm Bureau regarding develop-ment of an optional agricultural TOU program. Farm Bureau believes that such a TOU rate will benefit agricultural customers, as well as the utility, and will strive toward the development and implemen-tation of such a rate. Farm Bureau fully supports staff and SDG&E in their recommendation that the Agricultural Pump Test Program is a very effective conservation program. 9
- 107- ~
A.59788, 59785 ALJ/EA/nb
- 2. Position of Executive Agencies of the United States (Federal Acencies)
Federal Agencies support a uniform percentage increase since this will more closely reflect cost of service. According to Federal Agencies, a uniform percentage increase to base rates . will still heavily subsidize the residential class but would freeze these subsidies at the present level. On the other hand, a uniform cents per kWh increase, as recommended by staff, would result in further deterioration in the relationship between the
cost of supplying utility service to a customer class and the rates charged that class.'
~
Federal. Agencies point out that the staff proposal has the least impact on the largest class and must correspondingly l give a much larger increase to the remaining smaller number of customers. Federal Agencies agree that the application of a methodology which has the least impact on the largest class of customers is a laudable goal; however, it strikes them as totally inappropriate to put on blinders as to the related effects of applying this methodology. Federal Agencies urge the Commission to order rates which are nondiscriminatory, just, and reasonable and to consider the impact on various classes of customers, whether large or small, in determining these rates.
- 3. Position of City of San Dieco City requested SDG&E to commence preparation of energy-only rates for customer-owned low-pressure sodium vapor lamps for street lighting. SDG&E agreed to commence preparation of a study and make advice letter filings for such rates. A significant amount of hearing time was devoted to this subject and the l testimony indicates there are several factors that have to be carefully evaluated in developing the schedules. 'We will consider this matter further in test year 1982.
j
-108-
o A.59788, 59785 ALJ/EA/nb * *
- 4. Position of CalPIRG CalPIRG states that it represents the interests of low and moderate income residential utility customers. CalPIRG reconnends. adoption of staff's proposal of a uniform cents per kWh ir. crease to base rates since this option minimizes the impact of the proposed increase on the residential customer.
! CalPIRG believes that this is appropriate in that residential customers, unlike many of their commercial and industrial counter-parts, do not have the opportunity to pass through their increased utility costs to others. In regard to the lifeline-nonlifeline differential for domestic electric rates, CalPIEG recommends that this Commission adopt a 60 percent figure, rather than the 50 percent differential chosen by staff witness Garg. According to CalPIRG, such a differential will probably increase conservation and will help ( ease the burden of this increase on the low-income lifeline Consumer. CalPIRG concurs with staff witness Garg's recommendation against increasing the per customer service charge, but urges
the Commission to move towards the eventual elimination of the charge. CalPIRG also urges looking toward a multi-tiered inversion approach in setting future domestic electric rates. On the gcs side, CalPIRG recommends adoption of l staff witness BarYeti's[ multi ,tiere.d residential rate design , as presented in Exhibit 19. However, CalPIRG also recommends reduction of the lifeline rate (Tier 1) to a level equal to 70 percent (as opposed to Barrett's 80 percent) of the total
- system average.- CalPIRG submits this modification will help ease the impact of this increane on the low-income lifeline customers.
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l A .59 788, 59785 AIJ/EA
- C. DISCUSSION We note the positions of the various parties in this proceeding. The question of rate design, marginal costs, cost of service, and customer service charges will be thoroughly reviewed in-the next phase of this proceeding. For test year 1981 we will adopt, as reasonable, a uniform cents per kWh increase for base rates. The lifeline differential within the residential class will be 50 percent. For gas rate design, we will adopt the staff's proposal for test year 1981.
Pending consideration of SDG&E's 1982 test year, we are concerned that measures be taken to address the difficult situation of residents of the low desert area, as represented by residents of Borrego Springs at our hearings. We intend to address these problems in the case of SDG&E by the same means we are employing in the case of Southern California Edison Company pursuant to Decision No. 92549 issued today. We direct SDG&E to cooperate with our staff and affected customer groups in developing optional general service time-of-use rates to I alleviate the effect of rigid demand charges in the desert area. We also request SDG&E, in formulating its pending application ( for an expanded residential weatherization incentives program, to place special emphasis and priority,upon reaching residents of the low desert area. i
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f . . . e a A.59780, 59785 AIJ/EAlnb
- D. TIME-OF-USE RATES
- 1. General By A.59785, SDG&E seeks authority to implement Schedule A-4 TOU, General Service-Time Metered Rates.
SDG&E, in compliance with the Commission's order in C.9804, has proposed to implement new TOU rates for its electric customers wi+' demands in the 500 to 1000 c kilowatt (kW) range. Proposed Schedule A-4 TOU was initially filed by Advice Letter No. 490-E on September 21, 1979. After a protest by the California Hotel and Hotel Asscciation, staff requested that the advice letter be withdrawn and submitted as an application. SDG&E, therefore, withdrew Advice Letter No. 490-E on January 3, 1980 and filed A.59785 on July 1, 1980, setting forth its TOU rate proposal. A.59785 was consolidated with the instant general rate A.59788, and hearings were held on proposed Schedule A-4
.TOU on October 16, 1980. .
SDG&E's Electric Department tarif fs currently include Schedule A-5 TOU, which applies to customers with demands in the 1,000 to 4,500 kW range. Proposed Schedule A-4 TOU is similar in design to the existing A-5 TOU schedule, and extends the TOU rate coverage to customers with demands in the 500 to 1,000 kN range. SDG&E estimates that 187 electric customers who are currently served on Schedules A, P, PA, and A-5 would be transferred to Schedule A-4 TOU. The proposed A-4 TOU rates have been designed to produce the same revenue from these customers as would be produced iff they remained on their current schedules
- so there is no revenue impact on A.59788.
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i A.59780, 59785 ALJ/EA/nb l j '
j Schedule A-4 TOU is intended to encourage affected l t i customers to shift their usage off SDG&E's peak' load periods, t j In order to promote customer understanding of this rate proposal, { SDG&E originally served those effected with copies of Advice Letter No. 490-E and comparisons showing estimated bills for 12 months at existing rates and 12 months on Schedule A-4 TOU. After filing A.59785, SDG&E notified all affected customers.of l a workshop which was held on October 3, 1980. Customers who I attended the workshop had questions dnswered by SDG&E and staff personnel, and were'provided with updated billing c6mparisons.
- 2. Impact of A-4 TOU Rates l Regarding the impact of the proposed A-4 TOU rates on i customers, SDG&E's witness Asmus testified that based on 12 months'
- recorded data through August 1980, he estimates that under the I proposed A-4 TOU rates, based on 187 customer accounts
- 11
! customers would have billing decreases of 5 to 10 percent; 46 customers decreases of 0 to 5 percent; 81 customers increases of l 0 to 5 percent; 42 customers increases between 5 to 10 percert; i i 5 customers increases between 10 and 15 percent; and 2 customers with increases in excess of 15 percent. These figures assume no l change in the customers' usage pattern. Witness Asmus further testified that if customers shifted
load as estimated in the rate design - 5 percent decrease in billing i demand due -to TOU rates and 3 percent shif t each from consumption I from on-peak to semi-peak and semi-peak to off-peak - the impact on customer bills would be: 19 customers with a decrease of 5 to 10 percent; 52 customers decreases of 0 to 5 percent; 84 i I i l I l L
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A.59788, 59785 ALJ/EA customers increases of 0 to 5 percent; 28 custo=ers increases of 5 to 10 percent; 2 customers increases of 10 to 15 percent; and 2 customers increases in excess of 15 percent. Regarding the t.vo customers receiving increases in excess of 15 percent, he stered that these customers were large water pumping customers and he believed it was possible for them to shif t usage out of the peak period. . Staff witness Robert L. Mahin supported the rate lesign proposed by ODG&E. He testified that the revenue require =ent for the proposed Schedule A-4 TOU is based upon the historical usage and TCU patterns of the customers whose demands would qualify them for the schedule. He agreed with SDG&I's assumr-tion that the effect of the proposed schedule would be a 5 percent decrease in customer maximum demand (kW) during the on-peak period and a shift of 3 percent of the on-peak consu=ption (kWh) to semi-peak and 3 percent of the semi-peak consu=ption (kWh) to off-peak. Witness Mahir further testified that the proposed rate design conforms to the =cllowing criteria: (1) recover approxi-
=ately the same revenue that would be produced by the same custo=ars on their present rate schedules; (2) be compatible with alternate rate schedules (particularly A-5 TOU) for which tha A-4 TOU l customers may also be eligible; (3) encourage load management in the sense of controlling on-peak demand; and (4) must not create billing hardships for customers with normal lead profiles.
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- 3. Public Witness Testimony Two customer representatives attended the October 16, 1980 hearing and commented on proposed Schedule A-4 TOU. Mr. Dewey Baggett, executive director of the Hospital Council for San Diego and Imperial Counties, stated that hospitals in general cannot shift their usage patterns and will, therefore, probably experience I increased costs which will have te be passed on to the consumer.
Mr. Baggett would like to see the Commission give special recog-nition to hospitals in its adopted rate design as, he believes, other jurisdictions apparently do. I John Lovett, representing Industrial Castings, Inc. , was primarily concerned with the fact that in SDG&E's proposed tariff, the on-peak hours begin earlier than those in Southern California ~
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Edison Company's tariffs. ~I.'ovit}.beihves'thak this puts _hEs [c'e'm-pany in a competitive disadvantage with Los Angeles area firms. The solution he proposes is a statewide consistency in the TOU ' periods. However, in view of LaVett's Woument's'aFout the effects of different peak hours on competition between similar businesses in different service areas, SDG&E's witness Asmus agreed that the company should review its peak hours to determine if any change is warranted. We expect a report at the 1982 test year hearing.
- 4. Position of California Community Colleges (Community Colleces)
Community Colleges are a statewide system of 106 community colleges, five of which are affe ted by SDG&E's TOU-4 rate applica-tion.
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A.59788, 59785 ALJ/EA Community Colleges state that the community college system . operates from September to June, being open between the hours of 7:00 a.m. and 11:00 p.m. There are approximately 1.2 million students enrolled in the 106 community and junior col]eges in California. A profile of the average enrollee reveals a part-time student who is 27 years old, who works during the day and attends cla'sses afterwards. T'he majority of the enrolled are ! part-time students who normally attend late efternoon and/or l evening classes which are necessarily scheduled during the on-peak ) hours. Secause they serve the community, Community Colleges nust I schedule classes at a time when their students are able to f attenJ. Thus, in Community Colleges' case, the facilities reach l maximum use during the on-peak period. ) Community Colleges point out that they cannot continue to serve the community and its students and avoid the peak-hour rate. They have no flexibility to shift their electricity demands to off-peak hours. The very natu're of the community services and - the. programs provided forbid any shifting of schedules. In the community college situation, it is the clientele (i.e., the students) and the activity (an evening education), not the rate design, which are instrumental in determining how much energy is used and when. Community Colleges state that the new A-4 TOU rate is l l unfair - requiring an unwarranted expenditure of public funds. Community Colleges agree that while the implementation of TOU schedules to curb peak load, promote efficient use of existing I power plants, and diminish the need for new plants are admirable goals, they should be accomplished by a method that takes into account the custoe.sr's capability to respond to that method and the realization of the goals. Community Colleges disagree with
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A . 59 78S , 59705 ALJ/EA e staff's assertion that customers exempt from TOU would feel free to indiscriminate 1y load the system during on-peak periods. Community Colleges believe the TOU rate concept and its purposes i should be implemented and pursued only after careful consideration l of the socioeconomic consequences of its application on customers such as the public-funded community colleges. Comnunity Colleges subm.tt that such an action should not have been undertaken at the expense of the public interest and"the well-being of the residents of this State.
- 5. Discussion We recognize that certain customers may have less flexibility in their usage patterns than others, but special exemptions are inappropriate at this time. The TOU periods proposed for Schedule A-4 TOU are essentially the same as those applicable to SDG&E's other TOU customers and are based on the average load shape for the Electric Department. While it is true that other factors etn be used to determine the appropriate on-peak, off-peak, and semi-peak hours, deviations from the proposed schedule should be ordered only after a full review of all TOU tariffs. We plan such a review in SOG&E's-test year 1982 general rate case.
We adopt, as reasonable, for test year 1981 the proposed Schedule A-4 TOU rates shown in Exhibit 5, Table A, Page 2 of 10, adjusted Le reflect the revenues adopted in this ' opinion.
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r_ 4 - A.59788, 59785 ALJ/EA . XI. TEST YEAR 1982 We note staff used six months of 1980 recorded data in preparing its estimates fgr test year 1981. We believe for test year 1982 it will be more meaningful if staff's estimates include a full year of 1980 recorded data. Accordingly, the hearing schedule for test year 1982 will be adjusted to allow for this. Evidentiary hearings will not commence until all parties have had ample time to review staff's report. However, the matter will be submitted in accordance with the Regulatory Lag Plan so that new rates may be placed in effect at the commencement of test year 1982. G
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i A.59788, 59785 ALJ/EA/nb *
- d XII. FINDINGS AND CONCLUSICNS l
A. FINDINGS OF FACT
- 1. SDG&E is in need of additional revenues, but its revised request of $107.7 million for test year 1981 is excessive.
- 2. A rate of return of 14.50 percent on common equity, l
previously found reasonable for test year 1979 in D.90405, is reasonable for test year 1981.
- 3. A 14.50 percent rate of return on common equity, when applied to the adopted capital structure for test year 1981, will
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yield an 11.36 percent average rate of return on rate base for SDG&E's gas and jurisdictional electric cperations. This level of return will provide an after-tax interesr coverage of 2.3 times, a reduction from the previously authorized level of 2.7 times in 'D.90405 for test year 1979.
- 4. To earn an average rate of return on rate base of 11.36 l
percent in test year 1981, the additional annual v ross revenue requirement is $80,9' 3,500 for electric service and $14,957,900 for gas service. The total increase in gross annual requirement , is S95,901,400. l S. The rate of return on common equity and rate base, i l together with the increased revenue requirement herein found to l l be justified for test year 1981, is authorized with the under-l standing that further hearing will be continued on this matter in establishing SDG&E's revenue requirement for 1982.
- 6. CalFIRG's motion to dismiss is denied since no party was
. unduly hampered in participating in this proceeding.
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- 7. A 12.5 percent interest cost for bankers' acceptances is reasonable and is adopted for test year 1981.
- 8. It is reasorable to adopt SDG&E's electric sales estinate for test year 1981 on condition that revenues generated from sales in excess of the adopted sales estimate will bc refunded and SDG&E would not seek to recover undercollections, if any, from the rate-l payer.
l l 9. It is proper to allow recovery of the base rate portion of lifeline refunds made by SDG&E to its customers in the amount of
$596,755. This will not increase SDG&E's rate of return previously authorized.
- 10. SDG&E may seek recovery in test year 1982 of the $4.9 million electric production expenses for San Onofre Unit No. 1, excluded from test year 1981 for nonconformance with the Regulatory l Lag Plan.
- 11. SDG&E's request for an R&D blanket of $300,000 is not adopted since SDG&E has an expenditure level of $10.1 million for R&D .in 1981 and may rearrange its priorities to accommodate any change in R&D goals or programs.
l 12. SDG&E will not be paying income tax during 1981 on j revenues received for the Heber Binary Project and since recovery l of project costs is on a dollar-for-dollar basis, no Schedule M adjustment for income taxes need be allowed in test year 1981. This matter will be considered in subsequent proceedings.
- 13. The staff's position on ITC. carry-overs reflects traditional ratemaking policy and is adopted.
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i A.59788, 59785 ALJ/EA/nb *
- 14. A wage increase allowance of 12.5 percent is reasonable for test year 1981.
l
- 15. SDG&E's proposed wage increase complies with the Voluntary Pay Standards.
- 16. The adopted test year estimated increase in revenues herein found reasonable are not in compliance with the Federal Wage and Price Guidelines issued by,the Council on Wage and Price Stability. However, adequate justification exists for-granting SDG&E exemption on grounds of hardship and financial necessity.
- 17. The $9,130,000 related to two South Bay gas turbines is excluded from rate bpse because the company does not have a definite plan for their- use. The items may be reconsidered in test. year 1982'if"SDC&E'has a definith pInh"for their
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use by then. ,
- 18. There is no need for special ratecaking treatment for CVR costs. Those costs will receive standard ratemaking treat-ment.
- 19. There is evidence that price is causing significant conservation and will be recognized in setting expenditure levels for SDG&E's 1981 and future conservation programs.
- 20. An appropriate level of conservation expenditure for test year 1981, excluding load management, is $11.3 million.
This represents an 88.3 percent increase over 1980 levels.
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A.59788, 59705 ALJ/EA 1
- 21. Cost-effectiveness is a concern in the proposed RCS ,
Program. SDG&E needs to take steps to maximize cost-effectiveness of this program.
- 22. A supplemental reserve of $1,100,000 is reasonable for test year 1981 conservation programs. These funds must not be used without prior authorization and unused funds will be subject to refund.
- 23. Accurate measurement of the specific savings of. individual conservation programs and general savings of overall conservation efforts are crucial to the determination of cost-effectiveness.
SDG&E's present measurement techniques need improvement.
- 24. A conservation advertising level of $2 million for test year 1981 is reasonable.
- 25. An R&D expenditure level of $10.1 million for test year 1981 is reasonable.
- 26. An increase in electric rates on a uniform cents per kWh basis is reasonable for test year 1981.
- 27. The staff-recommended gas rate design is reasonable for test year 1981.
- 28. Making Schedule A-4 TOU mandatory for all general service customers with demands above 500 kW will promote energy i
conservation and load management.
- 29. The record in this proceeding does not provide an adequate basis for determining the relative merits of low-pressure and high-pressure sodium vapor lamps. SDG&E has agreed to study the matter further and prepare apnropriate advice letter filings.
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A.59788, 59785 AIJ/nb * *
- 30. In order to better evaluate SDG&E's 1982 test year show-l ing it is necessary that 1980 recorded data, on a full year basis, ,
be included in the staff's resulcs of operation. Therefore, the hearing schedule should be adjusted to allow staff sufficient time to include this data in its showing.
- 31. The increase in rates and charges authorized by this deci-sion is justified and is reasonable; the present rates and charges, insofar as they differ from those prescribed by this decision, are for the future unjust and unreasonable.
- 32. Estimated electric sales and revenues for test year 1981 are subject to significant fluctuations.
- 33. A reasonable method for treating such electric revenue fluctuations is to refund any base rate revenues for 1981 e::ceed-ing our adopted base rate revenues of $363,023,.500 for the six major customer groups: Domestic, Lighting and Sma_11., Power,, large, ,
Power, Time-Of-Use, Agricultural Power and Street Lighting. B. CONCLUSIONS OF IAW
- 1. SDG&E should be authorized to file the revised electric rates which are set forth in Appendix B and the revised gas rates set forth in Appendiz C of this decision.
2 The revised rates based on test year 1981 results of oper-i ation shculd produce additional gross revenues of $80,943,500 for , the Electric Department and $14,957,900 for the Gas Department. The total additional gross revenue increase should be $95,901,400.
- 3. The effective date of the ensuing order should be the date hereof because there is inanediate need for rate relief concurrently with the cocznancement of the 1981 test year pursuant to the Commis-sion's Regulatory lag Plan.
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< I A.59780, 59785 AIJ/nb **
INTERDI ORDER , IT IS ORDERED that:
- 1. San Diego Gas & Electric Company la authorized to file uith this Cocunission revised tariff schedules for electric rates ac set forth in Appendix B and gas rates as set forth in Appendix C attached hereto. By this reference, these tariff schedules are made a part hereof.on or after the effective date of this order.
The revised tariff schedules shall become effective four days after the date of filing and shall comply with General Order No. 96-A. The revised rate schedules shall apply only to service rendered on or after the effective date hereof. 2 The staff's results of operation for test year 1982 shall include 1980 recorded data on a full year basis, and the hearing schedule shall be adjusted accordingly.
- 3. Cal PIRG's motion to dismiss the application is denied.
- 4. Any portion of the $1.1 million supplemental reserve for conservation left unexpended at the end of test year 1981 will be I
subject to refund.
- 5. SDG&E shall maintain a record of all base rate reveimes for the six major customer groups.
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A.59788, 59785 ALJ/nb *
- 6. Any base rate revenues for 1981 exceeding adopted revenues for the six major customer groups shall be refunded or credited t.o ratepayers as directed by the Commission. -
The effective date of this order is the date hereof. Dated December 30, 1980, San Francisco, California. JOHN E. BRYSON President RICHARD D. GRAVELLE CLAIRE T. DEDRICK LEONARD M. GRIMES, JR. Commissioners Commissioner Vernon L. Sturgeon, being necessarily absent, did not participate in the disposition of this proceeding. d i
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A,59788, 59705 ALT /EA/nb APP:HDIX A i LIST OF APPEARANCES g i Applicant: Stechen A. Edwards, Jeffrey Lee Guttero, and William L. t Reed, Attorneys at Law. j i Intervenor: David X. Durkin, Attorney at Law, for the San Diego Energy Coalition. l Interested Parties: Etta G. Herbach, Attorney at Law, for the Department of the Navy and all Executive Agencies of the Federal Government; John W. Witt, City Attorney, by William S. Shaffran, Deputy City Attorney, for City of San Diego; Antone S. Bulich, Jr., Attorney at Law, for California Farm Bureau Federation; Philio R. Mann, Attorney at Law, for Cogeneration Group; James Tanner and Kenneth Strassner, for Kimbe y-Clark Corporation; Burt Pines. City Attorney, by Ed Perez, Leputy City Attorney, for the City of Los Angeles; Harry K. Winters, for the University of California; Uilliam L. Knecht, Attorney at Law, for California Association of Utility Shareholders; Riddle, Walters & Bukey, by Halina F. Osinski, Attorney'at Law, for California Community Colleges; William D. Smith, Attorney at Law, for the County of San Diego; and Richard L. Hamilton, Attorney at Law, for Western Mobile Home Association. , Commission Staff: Randolph L. Wu and Timothy E. Treacv, Attorneys at Law. l w*
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i j , . A ,. . A.59788, 59785 /AIJ/ks
- Appendix 3 Page 1 of 9 RATES - SAN DIEGO CAS & ELECTRIC COMPANY, ELECTRIC DEPARTMENT .
Applicant's electric rates, charges, and conditions are changed to j the level or extent set forth in this appendix. ;
SUMMARY
OF BASE RATES GENERAL SERVICE (SCHEDULE A) Per Meter Per Month Non-Demand Metered Customers Customer Charge ......................................... $ 2.20 Energy Charge: All kwhr, per kwhr..................................... $ 0.04272 Demand Metered Customers Customer Charge.......................................... $10.00 Demand Charge , per kw of billing demand. . . . . . . . . . . . . . . . . . S 1.00 Energy Charge: All kwhr, per kwhr..................................... $ 0.03323 GENERAL SERVICE (SCHEDULE A-5)_ Per Meter Per Month Customer Charge.......................................... $10.00 Decand Charge, per kw of billing demand.................. $ 3.96 Energy Charge: First 200 kwhr per kw of billing demand, per kwhr.. ... $ 0.02072 All excess kwhr, per kwhr............................. $ 0.01772 A- - N_. < _ _
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..*fA.59788, 59784 /AIJ/ko
- App;ndix B Page 2 of 9 RATES - SAN DIEGO GAS & ELECTRIC COMPANY, ELECTRIC DEPARTMENT 2
1 4I GENERAL SERVICE - TIME METERED (SCHEDULE A-4 TOU) t j Per Meter Per Month Customer Charge........................................... S10.00 Demand Charge: l Customer's Maximum Demand During the.On-Peak Period...................................... S 6.05/ kwhr Energy Charge: l 0n-Peak................................................. S 0.03122 Semi-Peak............................................... $ 0.02322 0ff-Peak................................................ S 0.01522 CENERAL SERVICE - TIME METERED (SCHEDULE A-5 TOU) Per Mater l Per Month l Customer Charge........................................... $20.00 Demand Chstge Customer's Maximus Demand During I the On-Peak Period...................................... S 5.84/ kwhr l l l Energy Charge: 0n-Peak................................................. S 0.02252 Semi-Peak'............................................... S 0.01752 0ff-Peak................................................ S 0.01502 i GENERAL SERVICE -INCLUDING CUSTOMER GENERATION (SCHEDULE A-5 CG) Per Meter Per Month - Customer Charge............................................ $20.00/mo. - Demand Charge: I. Billing Demand.......................................... S 5.84/Kw Net Energf Charge: 0n-Peak......'........................................... S 0.02252 [ S 0.01752 Semi-Peak............................................... 0ff-Peak................................................ $ 0.01502
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. .A.59788, 59785 /ALJ/ko
- Appendix B Page 3 of 9 RATES - SAN DIEGO GAS & ELECTRIC COMPANY, ELECTRIC DEPARTMENT GENERAL SERVICE - LARGE - (SCHEDULE A-6) i Per Meter Per Month 1
- 4 Customer Charge......................................... $600.00 i
Peak Demand Charge for Customer Contribution to Monthly System Peak .................................. $ 7.67/kw Energy Charge: 0n-Peak............................................... $ 0.01872 Semi-Peak............................................. $ 0.01372 0ff-Peak.............................................. $ 0.01122 GENERAL SERVICE - LARGE - INCLUDING CUSTOMER GENERATION (SCHEDULE A-6 CG) Per Month l Customer Charge......................................... $600.00 Demand Chargei Billing Demand........................................ $ 6.40/kw Net Energy Charge: 0n-Peak............................................... $ 0.01872 Semi-Peak.............................................
. $ 0.01372 . 0ff-Peak.............................................. $ 0.01122 l
1 DOMESTIC SERVICE (SCHEDULE DR) l Per Meter Per Month 1 r Customer Charge......................................... $ 2.20 l Energy Charge (to be added to Customer Charge):
- Lifeline, per kwhr.................................... $ 0.02617 Non-Lifeline, per kwhr................................ $ 0.Q4205 MULTI-FAMILY SERVICE (SCHEDULE DM)_
Per Meter Per Month Customer Charge'......................................... $ 2.20 Energy Charge (to be added to Customer Charge): Lifeline, per kwhr.................................... $ 0.02617 Non-Lifeline, per kwhr................................ $ 0.04205
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' ' 'A.59788, 59785 /ALJ/k3
- Appendix B Pega 4 of 9 RATES - SAN DIECO CAS & ELECTRIC COMPANY. ELECTRIC DEPARTMENT 4
SUBMETERED MULTI-FAMILY SERVICE (SCHEDULE DS) I, Per Meter l, Per Month Customer Charge........................................ S 2.20 Energy Charge (to be added to Customer Charge): Lifeline, per kwhr................................... $ 0.02617 Non-Lifeline, per kwhr............................... 0.04205 SUBMETERED MULTI-FAMILY SERVICE - MOBILEHOME PARK (SCHEDULE DT) Per Meter Per Month Customer Charge........................................ S 2.20 Energy Charge (to be added to Customer Charge): Lif e line , pe r kwhr . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.02617 Non-Lifeline, per kwhr............................... 0.04205 I
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r-h.59h88,59785 /ALJ/kG
- App;ndix B Page 5 of 9 RATES - SAN DIEGO CAS & ELECTRIC COMPANY, ELECTRIC DEPARTMENT l
LIGHTING - STREET AND HICHWAY - UTILITY-OWNED INSTALLATIONS (SCHEDULE LS-1) Dollars Per Electrolier Per Month Lr p Approximate Class A B C W.sts Lumens 1-lamp 2-lamp 1-lamp 2-lamp Mercury Vapor Lamps l 175 7,000 $12.28 $ -
$20.90 $32.13 250 10,000 15.56 - -
24.69 39.09 400 20,000 21.58 - - 30.92 51.57 700 35,000 35.53 - - - - 1,000 55,000 46.92 - - 63.53 - High Pressure Sodium Vapor Lamps 100 9,500 $ 9.32 $10.52 $18.63 $18.09 $ 26.51 150 16,000 11.60 12.77 23.10 20.92 31.55 250 30,000 18.00 18.95 35.30 27.22 44.01 400 50,000 24.09 25.08 47.64 34.11 57.26 1,000 140,000 48.34 49.40 95.87 64.84 111.95 SPECIAL CONDITIONS
- 1. Facilities and Rates.
- a. (1)(b) Reactor Ballast. Increase the reduction for reactor ballasts to 46c for 175 watt lamps and 71c for 250 watt lamps.
l (1)For comparative purposes, the rates shown include the effect of the ECAC factor currently in effect ($0.07143/ kwhr). l I e D9 @ . M WW*O-9 4W
*A.19788, 59785 /AIJ/ks
- Appendix B Pcg2 6 of 9 RATES - SAN DIEGO GAS & ELECTRIC COMPANY, ELECTRIC DEPARTMENT LIGHTING - STREET AND HICWAY - CUSTOMER 4HED INSTALLATIONS _
(SCHEDULE LS-2) l Dollars Per Lamp Per Month ( , 8 RATE A RATE B Surcharge Lamp Approximate Energy and Limited for Series t Watts Lumens Energv Only Maintenance Service incandescent Lamps 1.000 $ 3.11 S -
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2,500 6.44 7.52 4,000 9.51 10.59 6,000 13.78 14.86 10,000 23.04 - Mercury Vapor Lamps 175 7,000 $ 7.91 3 8.55 $0.49 25 0 10,000 10.84 11.62 0.63 400 20.000 16.85 17.55 0.92 700 35,000 28.28 29.45 1.66 1,000 55,000 39.79 - - High Pressure Sodium vapor Lamps 70 5,800 $ 3.33 $ 4.24 100 9,500 5.55 6.45 150 16,000 7.70 8.61 250 30,000 11.58 12.48 400 50,000 17.63 18.54 1,000 140,000 39.92 40.82 LIGHTING - STREET AND HIGHVAY - CUSTOMER 4 NED INSTALLATIONS (SCHEDULE LS-3) ., Per Meter Per Month First 150 kwhr per kw of billing demand, per kwhr $0.05345 All excess kwhr, per kwhr } .02248 ( 'For comparative purposes, the rates shown include the effect of the ECAC factor currently in effect ($0.07143/kuhr).
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- Appendix B Page 7 of 9 RATES - SAN DIEGO CAS & ELECTRIC COMPANY, ELECTRIC DEPARTMENT OUTDOOR AREA LIGHTING SERIVCE ;
(SCHEDULE OL-1) Dollars Per Lamp Per Month (1 RATE A RATE B Lamp Approximate . Streetlight Directional f Lumens Luminaire Watts _Luminaire Mercury Vapor Lamps 175 7,000 $12.28 - 400 20,000 22.28 - High Pressure Sodium Vapor Lamps 100 9,500 $10.05 - 150 16,000 12.33 , 250 30,000 18.88 S19.96 l 24.83 400 50,000 . 26.34 l l 1,000 140,000 48.92 50.50 i RESIDENTIAL WALKWAY LIGHTING (SCHEDULE DWL) Per Month Facilities Charge: Per dollar of utility investment in walkway lighting facilities........................... $0.021 Energy and Lamp Maintenance Charge (to be added to the f acilities charge): 50-watt high pressure sodium vapor lamp, per lamp.. S3.25 100-watt mercury vapor lamp, per lamp............. 55.07 (1)For comparative purposes, the rates shown include the effect of the ECAC factor currently in effect (SO.07143/ kwhr) . . ( ) Tor comparative purposes, the energy and lamp maintenance charge shown below includes the effect of the ECAC factor l currently in effect ($0.07522/ kwhr). l r 1
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- e. . . . - .A.59788, 59785 /AIJ/ks App;ndix B Page 8 of 9 I a
RATES - SAN DIEGO CAS & ELECTRIC COMPANY, ELECTRIC DEPARTMENT POWER - CENERAL (SCHEDULE P) Per Meter Per Month _ Customer Charge: - I 0- 500 kwhr............................ $ 5.00 i 501 - 2,500 kwhr............................ 10.00 2,501 -10,000 kwhr............................ 15.00 over 10,000 kwhr............................ 30.00 Energy Charge (to be added to Customer Charge): 0 - 10,000 kwhr , pe r kwhr . . . . . . . . . . . . . . . . . . . . . $ 0.03812 All excess, kwhr, per kwhr.................... $ .03622 f . POWER - AGRICULTURAL (SCHEDULE PA) Per Meter Per Month Customer Charge: 0- 500 kwhr............................ $ 4.00 501 - 2,500 kwhr............................ 7.00 2,501 -10,000 kwhr............................ 11.00 Over 10,000 kwhr............................ . 20.00 Energy Charge (to be added to Customer Charge): All kwhr, per kwhr............................. $ 0.03372 POWER - DIRECT CURRENT (SCHEDULE PDC) (CLOSED SCHEDULE) Per Meter Per Month Energy Charge: First 500 kwhr, per kwhr....................... $0.12772 l All excess kwhr, per kwhr...................... .07472 GENERAL SERVICE - PARALLEL GENERATION , (EXPERIMENTAL SCHEDULE A-PG) Per Meter Per Month Customer Charge.................................. $6.47 Net Energy Charge (to be added to Customer Charge): First 100 kwhr, per kwhr......'................. No Additional Base Charge All excess kwhr, per kwhr...................... $0.04272 O e m m_
s .o s o
'A.59788, 59785 /AIJ/ks
- App : dix B .
Pcg2 9 of 9 RATES - SAN DIEGO CAS & ELECTRIC COMPANY, ELECTRIC DEPARTMENT t. DOMESTIC - PARALLEL GENERATION (EXPERIMENTAL SCHEDULE D-PG) Per Meter Per Month ; Customer Charge.................................... S6.41 Net Energy Charge (to be added to Custc,mer Charge): First 100 kwhr, per kwhr......................... No Additional Base Charge Excess kwhr, per kwhr............................ $0.04205 EXPERIMENTAL DOMESTIC UNCONTROLLED TIME-OF-USE SERVICE (SCHEDULE D-UTOU) Per Meter Per Month Energy Charge (to be added to Customer Charge): On-Peak, per kwhr................................ $0.04861 Off-Peak, per kwhr............................... . 00000 Lifeline Discount: All kwhr, per kwhr............................... $0.01588 POWER - AGRICULTURAL - PARALLEL GENERATION (EXPERIMENTAL SCHEDULE PA-PG) Per Meter Per Month l Customer Charge: 1 0- 500 kwhr.............................. 4 7.37 501 - 2,500 kwhr.............................. 10.37 2 ,501 -10 ,000 kwh r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.37 Over 10,000 kwhr.............................. 23.37 Energy Charge (to be added to Customer Charge): Firs t 100 kwhr, per kwhr. . . . . . . . . . . . . . . . . . . . . . .No Addition'al Charge All excess kwhr, per kwhr........................ $0.03372 SPECIAL CONTRACT 216 (1} San Diego Gas & Electric Company proposes to increase the monthly charge for each illimminated street name sign from $3.42 to $3.66. l (1) For comparative purposes, the monthly charges shown below '
- include the effect of the ECAC factor currently in effect ($0.07143/ kwhr).
M*M 4 % w- -w - - - _ . - - _- -._-
M ,/ a 5'.~'T3 !, 59785 Appendix C San Diego Gas & .'lectric Co "psn/- Gas Oepartz.ent ADOPTED FA 2 DZSIGIf FOR T23T 'd::AR 1961 i EA3 D UPC'I R1 TIS ZFFICTI72 JULY 7,1560 (F.x:luding San Diego Surcharge)
- Present :_ Adoptau
- : 3 ales : Rate ;
Inera23e Ite-. : Rev. : Rate : 2ev. (:!th) : (1/th) : (.*t) : (3 /th): (2} : : : Resiisatisi1/ :6/ther.: Percent: GL-1,-2 - C': (1,C00's) 3 ,, - 65 - 65 Itcr I 5 78c: - - 9,9:-1 26h,,c16 0.260 3,3h1 - rier II 76,318 74,lL 2 3.297 73,650 1.7 fier III 360 27,L7' . hoc 5.1
- 12. l'O 350 30,527 .0 n.1 Total Residential 6.68': .600 7.2C0 353,2$. 335 11d,211 5.0 9.1 35d 12o, 373 23 69 iten-Residential 0:4 (1,000's)
M
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3:!-1, -2 52 - 592 - G::-3,4 5h0 0 360 w,15h 0.h00 - 136,639 65, .h20 54,6 16 k.0 11.1 3:1-36, -he,p - 27,589 .h20 27,589 - i GL-1,-2 - G:I-5 223.7h9 n - n - 350 78,312 356 79,655 Total !!on-Residential 425,976 .6 1.7 155,656 - 162,L63 - Total Sales 779,262 - 273,S69 - 288,836 Cther (Special Contract 55 No. 176) - - - 16
~
19 5.6 Total Revenua 779,262 351 273,887 371 288,855 2.0 .55 E!/0 LL 51h,hk6 388 199,739 .h09 210,205 2.1 55 1/ l Residential and GT discounts. sales reflect reductions of 2,391 M thcrms efor employe j 2j Not included in total. ! g :: sales are forecast under these schedules, however, the recommended rate or $0 would 39 be three cents less than the corrdsponding GN-3 or -h rate , l . l i
, ATTA:tP E T FOR ITE" i.0. 5.d FIriA',: t STAT:5 iC5 1 ron?.s ' ende 3 :e . ..-- ; : :.
(collars ir. -'ii rt; Earnings available to comon equity 3257 152 M Average co : on equity $2.? D $ 2 .1 '5 31.915 Rate of return on average comon equity 2 C ~M !? M '5~ Tires total interest earned before FIT: Gross income (both including and excluding */^
- 2*02 3 C' E 5~
AFDC) + current and ceferred FIT + total w/c Ar c 1.uS 2.;7 2.:; interest charges + amortization of debt ciscount and expense Times long-tem interest earned before FIT: Gross inccme (b:rth including and excluding w/A 2.5: 3.45 3.cl AFDC) + current and ceferred FIT + long-term interest charges + amortization of
. ../0 n Ar*>, , ,,
- a. us c.u
- .b, cebt discount and expense Sond ratings (end of period)
Standard and Poor's " " " Moody's ^* ^^ ^^ j Tires interest and preferred dividends earned
. after FIT:
Gross income (both including and excluding */" 1 " ". 2'1- l'93 AFDC) + total interest charges + amortization of debt discounc and expense + preferrec
~
w/o Ar c 1.30 1.71 1.58 dividends. AFUDC 2162 $119 !?S Net inccce after preferred dividends IIR $299 22:9
% 62% u:5 37; Market price of co r:on $25-5/8 :26-1/2 s25-3/4 Book value of comon $33 ' $3;.22 :32.57 Market-book ratio (end of period)* 77 d 71 65 79 15 Earnings avsil. for comon less AFDC +
depreciation and amortization, deferred taxes, and invest. tax credit adjust.- deferred. Co con dividends 82l5 I'l9 $579 Ratio 212 168 l?? 995 LO5 3W Short-tem debt Bank loans 32o $2c $2: Cocriercial paper $165 $134 Capitalization (Anount & Percent) 1950 1979 1978 Long-tera debt
- 3059 47 5% 2 E>31 4.2% 2511 L7.55 Preferred stock 882 13.6 814 13.8 7c1 13.3 Co.r:cn equity n io 38.9 2233 38.o 2'ou 38.9
- If subsidiary company, use parent's data. >
d
A"I'ACEMENT FCR ITEM NO. 5d FINANCIAL STATISTICS ,
/
12 months ended Decenter 31, 1980 1979 1978 (dollarc in milliens) Earnings available to ec= mon e~uity $34.4 $52.5 $k9.6 Average cc= mon equity $570.7 $507.1 $h3h.1 Rate of return on average eccmon equity 6.03% 10.35% 11.43% Times total interest earned before FIT: Gross inec=e (both including and excluding AFDC) + current and deferred FIT + total interest charges + amortization of debt (including AFDC) 1.h9 2.16 2.22 discount and expense (less premium) (excluding AFLC) 1.07 1.76 1.8h Times long-term interest earned before FIT: Gross inecme (both including and excluding AFDC) + current and deferred FIT + long-term interest charges + amortization of (incl. AFDC) 2.18 2.49 2.65 debt discount and expense (less premium) (exc]. AFDC) 1.56 2.03 2.20 Bond ratings (end of period) Standard and Poor's BBB BBB BBB Moody's Baa Baa Baa Times interest and preferred dividends earned after FIT: Gross income (both including and excluding AFDC) + total interest charges + anortization of debt discount and expense (less premium) (incl. AFDC) 1.31 1.65 1.67
+ preferred dividende. (excl. AFDC) 0.96 1.3h 1.37 AFUDC $39.3 $25.3 $21.8 Net inecme after preferred dividends $34.4 $52.5 $h9.6
% 11h.2% 48.2% k4.0%
Market price of ec= mon (per share) $11.75 $13.125 $14.75 Book valuc Of co==on (per share) $16.06 $17.35 $17.bl Market-book ratio (end of period)* 73.2% 75.6% Sh.7% Earnings avail, for ec= mon less AFD0 + depreciation and a=ortization, defferred taxes, invest. tax credit adjust. - deferred. $38.3 $77.9 $71.1 Ca==on dividends $53.9 $h3.6 $35.5 3atio 71.1% 178.7% 200.3% Short-term debt Bank loans $50.0 - - Cc=mercial paper $18.0 $9;.4 $21.3 Other $131.0 $60.0 $23.6 Amount Capitalization (Amount & Percent) 1980 1979 1978 Percent Long-term debt $732.3 $6ho.1 3573.1 47.8% 45.9% 45 2% Preferrs3 stock $213.5 $213.5 $213.5 lb.0% 15.3% 16.9% Canmon equi +y $585.8 $5hl.2 $480.h 38.25 38.8% 37.9%-
"If_subsRLamhusmemt's Anta.
(-IDL-City of Anaheim's Answers to San Onofre Nuclear Generating Station, Unit Nos. 2 and 3 Docket Nos. STN 50-361 and STN 50-362 Request for Additional 'inancial Information Question No. 6: Describe the nature, amount, rations and success of each municipal applicant's most recent revenue and general obligation bond sales. Indicate the current total out-standing indebtedness in each category for each entity. _ Answer No. 6: Anaheim sold $84,000,000 in princioal amount of Electric Revenue Bonds dated October 1, 1980. The purpose of this Electric Revenue Bond issue was to finance Anaheim's cost of acquisition of its share of the San Onofre Nuclear Generatina Station, Units 2 and 3 from Southern California Edison Company. This issue also contained funds to be util-ized for the payment of construction costs incurred after the City acquired the owner-ship interest from Southern California Edison Company. The bonds were rated by Moody's Investor Service as Aa and by Standard & Pnor's as A+. The bonds were sold at a 10% d'.scount because the City v w limited to paying no more than an 8% interest on the bonds. The net interest cost on the bonds was 9.17%. As of June 30, 1980 the principal amount of outstanding Electric Revenue Bonds was
$11,450,000. The Electric Revenue Bonds, Issue of 1980 added to the total amount of outstanding Electric Revenue Bonds of Anaheim results in a total electric revenue bond indebtednnss of $95,450,000.
The City has not issued General Obligation Bonds since 1963. The principal amount outstanding on General Obligation Bonds of the City as of June 30, 1980 was
$2,845,000.
Question No. 7: Provide copies of the official statement for the most recent bond issue. Provide copies , of the preliminary statement for any pending security issue. Answer No. 7: Attached hereto is a copy of the Official Statement pertaining to the Electric Revenue Bonds, Issue of 1980, of $84 mill'on which is the most recent issue of Electric Revenue Bonds sold by the City of Anaheim. There are no pending security issues.
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Question No. 8: Provide copies of the most recent annual financial report and the most recent interim financial statements for each municipal applicant. Continue to submit copies of the annual financial reports for each year there-after as required by 10 CFR Part 50.71(b). Answer No. 8: Attached hereto are copies of the Annual Report for the period ending June 30, 1980 for the Public Utilities Department of the City and a separate Annual Report for all of the departments of the City, in-cluding the Public Utilities Department. 4 l s e
I i i.
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Question No. 9: Is each participant's percentage ownership share in the facility equal to its percentage output of the plant? If not, explain the difference (s) and any resultant effect on any participant's obligation to provide its share of operating cost. l Answer No. 9: Anaheim's percentage ownership share in San Onofre Nuclear Generatina Station Units ! 2 and 3 is 1.66%. Its entitlement to electrical capacity and output of those two
, units is equal to its percentage ownership
! share. Units 2 and 3 will, however, share certain facilities (common facilities) with Unit l'at San Onofre Nuclear Generating Station, in which Anaheim will have no ownership interest. The parties have dealt with this problem by reducing Anaheim's ownership interest in common facil-ities. The fact that Anaheim owns different i percentages of the. common facilities than it owns of Unite 2'and 3 of San Onofre Nuclear . . Generating Station shOuld have no effect upon Anaheim's obligation to provide its share of operating cost. l l I L r I i [2 h T i-
Question No. 10: Describe the rate-secting authority of each municipal applicant and how that authority may be used to insure the satisfaction of financial obligations related to both capital and operating costs of the facility. Describe any restrictions on such rate-sett'.ng authority and how this may affect the appli ant's ability to satisfy its obligations to t) project. Describe the nature and amount .& each muni-i cipal applicant's most recent rate relief action and the anticipated effects on revenues. Indicate the nature and amonat cf any pending rate relief action (s).
Answer No. 10: Section 1221 of the Charter of the City of Anaheim provides that the City Council shall establish rates, rules and regulations for the water and electric utilities. This Section further provides that the rates shall
, be based upon cost of service and shall be sufficient to pay: (a) for operations and l maintenance of the system; (b) for payment
! of principal and interest on debt; (c) for creation and maintenance of financial ~ reserves adequate to assure debt service on bonds outstanding; (d) for capital construction for new facilities and improve-ment of existing facilities, or maintenance of a reserve fund for that purpose. The provisions of the Anaheim Charter require , rates to be established in amounts adequate to pay for both capital and operating costs of any facilities which are part of Anaheim's electric utility. The City's ownership interest in San Onofre Nuclear Generating Station Units 2 and 3 would be a part of the Anaheim electrical utility. Thus, l Anaheim believes that its financial position
- with respect to payment for the capital and. operating costs of San Onofre Nuclear Gancrating Station Units 2 and 3 is sound and that the financial obligations of the City with respect to those matters may be met.- Anaheim is not aware of any i restrictions on its rate-setting authority
- l. which might interfere with its ability to '
satisfy its obligations to pay its costs associated with San Onofre Nuclear Generating Station Units 2 and 3. r i
. . . - _ = .- . _ _ _ _
i Answer No. 10: The City's most recent rate action, effective (Continued) January 1, 1981 wcs to increase the Energy , Cost Adjustment Billing Factor (ECABF) for non-lifeline residential use and other than residential use in order to provide sufficient revenues to recover changea in the wholesale cost of energy. In general, residential rates were increased 0 to 9 percent, commercial rates 7 to 12 percent, and industrial rates about 12 percent. For the system as a whole the increase was about 9.5 percent. There are no rate relief actions pending and i firm decisions on the amount of rate relief required, in the ensuing months have not been made at this time. However, Southern California Edison has filed with the Federal Energy Regulatory Commission (FERC) for an increase in wholesale rates to the City. FERC has accepted the filing and suspended its effective date to July 16, 1981. It is expected that the City will increase its retail rates by July, 1981. These increase; i may include both fuel cost adjustments and
. a general rate increase, j
4
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i 4 4 1 + t e
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Question No. 11: If a membership organization is participating in the joint ownership, explain the contractual arrangement among the members that assures that funds will be available to meet the entities' obligations to the project. Provide copies of the power sales contract. Answer No. 11: This question is not applicable because Anaheim is financing its own share of the cost of ownership in San Onofre Nuclear Generating Station Units 2 and 3.
Question No. 12: Describe the applicant's plan for financing its share of the cost of eventual shutdown of the facility and maintenance in a safe shutdown condition. Answer No. 12: The City is currently attempting to determine which of several methods it should adopt to finance its share of the cost of eventual shutdown of San Onofre Nuclear Generating Station, Units 2 and 3. A principal fact'r i.. this determination will be that those electric customers who benefit from use of the Generating Station facilities should also pay the cost of shutdown of the Generating Station. It is also the intention of the City to comply with the regulatory requirements of all governmental authorities having jurisdiction to regulate decommissioning cost recovery.
. ;
I FV ISSUE Interest on the 1980 Bonds is exempt, in the opinion of Bond Counsel.from income taxes of the United States of America under present federal ncome tax laws, and is also exempt from personal income taxes of the State of California under present state income tax laws.
$84,000,000 CITY OF ANAHEIM, CALIFORNIA ELECTRIC REVENUE BONDS, ISSUE OF 1980 Dated: October 1,1980 Due: October 1, as shown below II Interest is payabic temi-annually on April 1 and October 1 in each year, commencing April I,1981.
, The 1980 Bonds are ist' able as coupon bonds in the denomination of $5,000 registrable as to principal only or as to both principal and interest. Principal of, premium, if any, and ; .urest on the 1980 Bonds are t7 payable at the Corporate Agency Division of Bank of America NT&SA in Los Angeles or San Francisco,
? California, or at the option of the holders at any other paying agent of the City in Chicago, Illinois and New York, New York.
The 1980 Bonds maturing after October 1,1990 are subject to redemption on or after October 1,1990 at 100% of the principal amount thereof. In ceitsin circumstances the 1980 Bonds maturing on or after October I,1996 pre also subject to redemption on October 1,1990 at less than 100%, but not less than 95%. of the principal amount thereof. See " Description of the 1980 Bonds" herein. The 1980 Bonds are being issued for the primary purpose of acquiring a 1.66% ownmhip interest in the 3 San Onofre Nuclear Generating Station, Units 2 and 3, from the Southern California Edison Company, to 7 pay 100% of the interest on the 1980 Bonds until October 1,1982 and 50% of the interest on the 1980 Bonds thereafter until December 1,1983, and to fund the Reserve Fund. s 4' The 1980 Bonds are payable solelyfrom the Gross Revenues of the Electric System of the City ar.d do
') not constitute a general obligation or indebtedness of the City. The 1980 Bonds rank on a parity v.ith 1 $11,875.000 outstanding electric revenue bonds, and any additional parity bonds which may be issued in the future.
MATURITIES, AMOUN'IS, RATES AND YlELDS OR PRICES
,. (Acerned interest to be added) a $30,475,000 Serial Bonds , Dw Yield or Du October I- Assovet Rate Price ] October i Annoens Rate Price 52,150,000 8% 100 %
1984 51,250,000 8% 6.75 % 1991 %g 1985 1,375,000 8 7 1992 2.325,000 8 98% 1986 1,450,000 8 7.20 1993 2,525,000 8 96% . 1987 1,600,000 8 7.40 1994 2,725,000 8 94% ! 1988 1,700,000 8 7.60 1995 2.925,000 8 93% 1989 1,850,000 8 7.80 1996 3,175,000 8 92h 1990 2,000,000 8 100 1997 3,425,000 8 91%
$16,650,000 8% Term Bonds Due October 1,2001 Price 89%%
l- $36,875,000 8% Term Bonds Due October 1,2007 Price 87%% l The 1980 Bonds are offered when, as, and if issued subject to approval of legality by O'Melveny &
; Myers, Bond Counsel, Los Angeles, California. Certain legal matters will be passed upon for the City by its Special Counsel, Alan R. Watts, Esq. Certain legal matters will be passed upon for the Underwriters by ) their counsel, Mudge Rose Guthric & Alexander. It is expected that the 1980 Bonds in definitive form will !- be available in New York, New York, on or about October 30,1980.
3 Salomon Brothers [ Goldman, Sachs & Co. ! Merrill Lynch White Weld Capital Markets Group MerrlH Lynch, Pierce, Fenner & Smith incorporated Donaldson, Lufkin & Jenrette Securities Corporation October 10,1980
OFFICIAL.S OF THE CITY OF ANAHEIM CITY COUNCIL John F. Seymour, Jr., Mayor E. Llewellyn Overholt, Jr., Mayor Pro tem Miriam Kivwood, Councilwoman Ben W. Bay, Councilman Don R. 30th, Councilman i i PUBLIC UTILITIES BOARD Kenneth M. Keesce, Chairman James H. Townsend, Vice Chairman Cr. J. Kiefer, Member
- f. Wynn W. Anderson, Member S Dale Stanton Member Richard L. Haynie, Member loseph R. White, Member CITY OFFICIALS William O. Talley, City Manager William T. Hopkins, Assistant City Manager James D. Ruth, Deputy City Manager George P. Ferrone, Finance Director William P. Hopkins, City Attorney Linda D. Roberts, City Clerk Glenn E. Stewart, City Treasurer PUBLIC UTILITIES DEPARTMENT 200 South Anaheim Blvd.
Anaheim, California, 92805 Gordon W. Hoyt, General Manager Edward G. Alario, Assistant General Manager
! Darrell L. Ament, Management Services Manager George H. Edwards, Electrical Engineering Manager l Ray A. Auerbach, Water Engineering Manager Beatrice A. Staley, Conservation Services Manager j Edward E. Dumon, Operations Manager James E. Willis, Customer Service Manager l OTHER CITY DEPARTMENT HEADS Philip M. Grammatica Data Processing Director Norman J. Priest. Executive Director, l
William J. Griffith, City Librarian Redevelopment Agency / Housing Authority l Thomas F. Liegler, General Manager, Bob D. Simpson, Fire Chief Stadium, Convention Center and Golf Courses Ronald L. Thompson, Planning Director Garry O. McRae, Human Resources Director George P. Tielsch, Police Chief Thornton E. Piersall, l l Public Works Executive Director BOND COUNSEL O'Melveny & Myers FINANCIAL ADVISOR James J. Lowrey & Co. Incorporated SPECIAL COUNSEL Alan R. Watts CONSULTING ENGINEER R. W. Beck and Associates .
I . No dealer, broker, salesman or other person has been authorized by the Gay of Anaheim or the Public Utilities Department or by the Underwriters to giie any information or to make any representations, other than as contained in this OfRcial Statement, and if gioen or made such other information or representations most not be relied upon as basing been authorized by the City of Anaheim or the Public Lailities Department or the Underwriters. This Omcial Statement does not constitute an offer to sell or the solicitation of an offer to buy. nor shall there be any sale of the 1980 Bonds by any person in any jurisdiction in which it is unlawful for such persons to make such oKer, solicitation or sale. The information set forth herein has been furnished by the Gay of Anaheim and the Public ( tilities Department and includes information obtained from sources which are beliesed to be reliable, but is not guaranteed as to accuracy or completeness by, and is not to be comtrued as a representation by the Finansial Adiisor or the Underwriters. The information and espressions of opinion contained herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall. under any circumstances, create any implication that there has been no change in the affairs of the City of Anaheim or the Public Utilities Department since the date hereof. In connection with the offering of the 1980 Bonds, the Underwriters may oierallot or effect tran actions which stabilire or maintain the market price of the 1980 Bonds at lesels aboie thme which might otherwise presail in the open market. Such stabilization if commenced, may be discontinued at any time. TABLE OF CONTENTS Pate Page i nt rod uct en .. ... .. . .... I Nudcar i uel 23 Purpne of the 1950 Bonds _. . . _ . . I Pcrmit and \rpmah 23 Use of Proceeds.~.-... - . . . I Citsi f uture Pamst %rrh Rws~ent ad Ii.iu e r Secunty and Rate Cecnant _. 2 Power surph Re our ce . 2) The Electne Spiem~... .. .. _ 2 tmmated t u t of Pa*er f ren tN Prow.i 2a Resource P!anning _.. 2 Cun .deration, ar d bwmrt-e of (N ( "* mes The Project . ~ - . . . . . . . . _ . . . . _ . . . 2 Engmeer .. 23 The Citis Pubhc Ltihtses Department .. - 3 Conslui.on of the ( . nWurg i ynesr 25 General Desenption ....... . . . . _ . . . . . . . . . . . _ . . 3 Certon Factor We tirg the Ilats 1 sty Management of the Pubhc Liihties Department- 4 Indu try and E:Tect of the Three M4 l Led Pubhc Laihties Board ..... . ..._.. .. 4 Accident 25 De cripoon of the 1980 Bonds.. $ Regulatory Matter- 2.' General ... .._. . . . . . _ . . . . . . . $ Nudcar Regulators Corrmnunr: 2e Mandatory Redemption . . . . . . . _ . - 5 Future Plan of the Elestnc 5ptem > Opuonal Redemption.._ _.. . . . . 5 Other Projech of the liesir4 Sptcm *e Special Refunding Call.. .._. . . . _ 5 Intermountain Poact Proge > Notice of R edempoon .._ .-..- ._... - . . . . . . 6 % hise Pme Progst 2* Security fer and Sources of Payment for the Bond- 6 Cahforma Coal Progtt 2* Pledge Lnder the Rewtution.. .. . . . . . . . 6 Nonh Brassey Geothernui Projcs: > Resenues and Flow of Funds Lnder the Resolution . 6 Other Powbie Rewurce- > Reserse Fund. . _ . . 7 Southern Cahfornu Pubhe Pa cr \uthonty > Rate Cosenant... 85 Latiganon . 3 Additional Debt.. __ s Relatm, to tN l si> and the le0 Bord- 3 Refundmg Bonds 9 Other Luisanon . .. . . . . 24 Insurance.- ._._ 9 Asailable informaten Regarding Edwn and San Diego 29 Other Cosenants. 10 Legabty for Insestment by hasmgs and Commercut Amendments to the Resolution IO Banks in Cahfornu . 29 Investments . 10 Certain Legal Matters - -. 29 Defeasance . . 10 Cnderantir g . 29 Apphcanon of the 19W Bond Proceeds. Il Tat Esempten . 30 City d Anaheim - The Electnc Spiem II Appendia A - ConMong Engmeeri Repart.. A.! History of the Electne Systern 11 Appendit B - summary d the san onofre t.mt. 2 Estimated Financial Information- ._. 11 and 3 Participation Agreement . B.i Esistmg Facihties. 12 Appendit C - Summary of the Edisonanaheim San Po cr Supply 12 Onofre Transmnsion demce Agreement.. C. I Customers . . . . _ .. 13 Appendis D - Summar> d ik Integrated Operaten. Electnc Rates and Charges. . . _ . . _ . 14 Agreement. . . . . . . . . . . . D-t Operation and Mamtecance of the Electnc Spacm_ 17 Appendia E - Summary of the Surriememal Outstanding Deb Semcc Requirements 18 Agreement for the Integration of \ruheimi Coserage of Debe Semcc 19 Entitlements in San Ondre t mis 2 and 3.. . . E.1 Energy Conservation 19 A ppendit F - City of Anaheim Electrs 1.tihty Fund Consututional Limitation on Gosernmental Spendicg 19 Audited Finansul Statement. for icar. Feded June Summarv Projection of Operatmg Results of the 30.1979 and 1975. . .. - . . . . . . . F-I Electric Sptem . _ . _ . . 19 Aprend:s G - City d Aruheim Flestnc L tihty F und The Project 21 Unaudited finaneul Statement. For the 10 Month-General 21 Ended Arn! 30.19=0 and 1979 - G1 Desenpanon of the Project.. 2: Apgnda H - The City of truheet Ecorwmg Estimated Financmg Requirements for the Project-.. 22 Background and hnansul inform.ioon H. i Status and Schedule of Constructm .._ . . . . 22 Appenda 1 - Propo ed ham os I cpl 0; mion . I. I
OFFICIAL STATEMENT OF THE CITY OF ANAHEIM, CAIJFORNIA Relating to its
$84,000,000 Electric Resenue Bonds, Issue of 1980 INTRODUCTION This Official Statement, including the Cover Page and Appendices hereto,is provided to furnish certain information in connection with the sale by the City of Anaheim, California (the " City") of 584,000,000 Electric Revenue Bonds, Issue of 1980 (the "1980 Bonds"). The 1980 Bonds are issued pursuant to City Charter Section 1210; procedural Ordinance No. 2980, as amended (the " Ordinance"), which incorporates certain provisions of the Revenue Bond Law of 1941 (Chapter 6, Part 1. Division 2, Title 5 of the California Government Code) (the " Bond Law"); and Resolution No. 80 R 457 of the City Council adopted October 10,1980 (the " Resolution"). The 1980 Bonds represent a portion of $150,000,000 principal amount of c!cctric revenue bonds authorized by the voters of the City on March 4,1975 The resolution calling the election established a maximum coupon rate of 8% The Ordinance established the maximum discount rate at 10% of the principal amount of such electric revenue bonds.
The City previously has issued for the financing ofits Electric System: (i) 58,000,000 Electric Revenue Bonds, Issue of 1972 (the "1972 Bonds") authorized by the voters at an election on January 18,1972; (ii) 56,000,000 Electric Revenue Bonds, Issue of 1976 (the "1976 Bonds") representing a portion of
$150,000,000 of electric revenue bonds authorized by voters at the election on March 4,1975; and (iii) 512,500,000 Electric Revenue Bonds, Second Issue (Subordinated) of 1976 (the "1976 Subordinated Bonds") representing a portion of the same 5150,000,000 authorized by voters in 1975. The 1980 Bonds together with the 511,875,000 outstanding balances of the 1972 Bonds and the 1976 Bonds and any future bonds issued on a parity with the outstanding Bonds (herein collectively referred to as the " Bonds") are equally and ratably secured by the security, interest, pledge and assignment created by and the covenants contained in the Resolution.
Purpose of the 1980 Bonds The 1980 Bonds are being issued to accuire an ownership interest of 1.66 percent (36.5 megawatts) in the San Onofre Nuclear Generating Station, Units 2 and 3, and certain common facilities (collectisely referred to herein as the " Project"). The Project is currently owned by the Southern California Edison Company (" Edison") and San Diego Gas and Electric Company (" San Diego"). Edison had been designat-ed as project manager and operator, The City proposes to purchase its share of the Project from Edison. Edison has signed and the City, upon delivery of the Bonds, will sign the Participation Agreement which provides, among other things, for the City to own its share of the Project, for the City to pay Edison for the ownership share and for Edison to construct, operate and maintain the Project on its behalf and on behalf of I the other owners of the Project. The City has also signed an Integrated Operations Agreement and upon delivery of the 1980 Bonds will sign a Supplemental Integration Agreement with Edison which agreements provide, among other things, integration of Project power and future City generating resources with those of Edison for operstion, including the scheduling and dispatching of power from the City's ownership share of the Project with the scheduling and dispatching of output from Edison's other generating resources. Under
! the agreements, Edison will continue to supply the City's power and energy requirements over and above the capability of the City's own resources and will credit the City on its monthly billing statements for the power and energy generated by the City's own resources that are integrated with Edison resources.
Use of Proceeds it is estimated that proceeds of the 1980 Bonds (excluding accrued interest) will be allocated as follows: (i) 550,250,000 to the Construction Account which, together with investment income thereon (estimated to
be 54.172,000), will be used'to pay the City's proportionate share of the cost of the Project (554,422.000), (ii) 516,800,000 to the Interest During Construction Account ( the "lDC Account") to pa) 1000 of the interest on the 1980 Bonds until October I,1982 and 504 of the interest on the 1940 Bonds thereafter until December I,1983, (iii) 58,000,000 to the Reser e Fund so that such Fund shall equal the \tasimum Annual Debt Service on the Bonds to be outstanding and (iv) 58,950,000 to allow for certain costs of issuance including a maximum underwriting discount of $8,400,000. Security and Rate Covenant The 1980 Bonds will be special obligations of the City and will be secured by a pledge of and lien upon and shall be a charge upon, and shall be payable as to principal thereof and interest thereon and any premiums upon the redemption of any thereof solely from, the Gross Revenues of the Electric System of the City, such Gross Revenues being pledged, charged and assigned for the sewit y of the Bonds. The Electric I; System of the City (sometimes herein referred to as the " Electric System") con:ists of the entire electric system of the City including all improvements and extensions later constructed or acqaired. Gross Revenues of the Electric System are defined as all rates, fees and cherges for providing electne service to persons and real property and all other fea, rents and charges and other income derived by the City from ownership, operation, use or services of the Electric System. (See " Security for and Sources of Payr,ent for the { Bonds"). The City is obligated by its Charter and by the Resciution to establish rates and collect charges m an
-} amount sufficient to service the Electric System's indebtedness and to meet its expenses of operation and 8 maintenance, with specified requirements as to priority and coverage. (See " Rate Covenant" under the y section " Security for and Sources of Payment for the Bonds".) Electric rates are fixed by the City Council x and are not subject to regulation by the California Public Utilities Commission or by any other state agency.
The Bonds do not constitute a general obligation of the City and neither thefullfaith and credit nor i the taxing power of the City is pledged to the payment of principal of or interest on the Bonds The Electric System The Electric System serves the entire area within the City limits of Anaheim. The City purchases at wholesale rates its firm power from Edison and economy energy from Nevada Power Company. g g As of the end of fiscal year June 30,1980, the average number of customers of the Electric System uas 82,571 and the total kilowitt hours sold was 1,734,000,000.
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Resource Planning in 1969 R. W Beck & Associates (the " Consulting Engineer"), as part of a power supply study conducted for the City, recommended the City immediately investigate and negotiate participation in large generating plants. It was concluded by the Consulting Engineer that such participation would result in the lowest cost of power supply for the City. The City has participated in feasibility studies of several large generating stations and the Project will be the first such station to be completed. As discussed under the subcaption "Other Projects of the Electric System",in addition to the Project. the City has an ongoing program to investigate other potential power supply resources which could be used
. to serve a portion of its requirements which are currently being purchand from Edison. Of these potential 3
resources, the most definitive is the coal fired Intermountain Power Project to be located in Southwest Utah. Other possible projects include participation in the coal-fired White Pine Project, the California Coal j Project, the North Brawley Geothermal Project and certain hydroelectric projects. Participation in such ! projects may be on a purchase or ownership basis, with the City's obligation for costs being payable, in certain instances, whether or not energy is received. The Project The Project will be owned as tenants-in-common by Edison (76.55%), San Diego (20.007), City of Riverside (1.79%) and the City (1.66%;. 2 l
Unit 2 is scheduled for commercial operation in December 1981 and Unit 3 is scheduled for i commercial opera 6on in February 1983. As of June 27,1980 Edison has stated that the construction of ' Unit 2 was aproximately 93% complete and Unit 3 was approximately 639 complete. l Edisca has informed the City that all major required permits, except an operating license, have been i grantei. Edison's current schedule anticipates that the operating license will be received from the Nuclear Regulatory Commission (the "NRC") in sufficient time to meet the projected fuel loading and start up schedules. However, petitions have been granted to certain adverse parties to intervene in the operating license proceedings. The City cannot predict what impact, if any, such intervention will have upon the timing of issuance of, or the conditions included in, the operating license (See " Regulatory Matters"). Construction work on the Project is currently halted due to a strike as part of a western regional work stoppage by the International Brotherhood of Boilermakers. ~3e City is unable to predict the duration of the stoppage, or its impact on the construction schedule or cost of the Project. See "The Project - Status and Schedule of Construction." The City's share of the construction costs of the Project is currently estimated at 545,475,000, plus a payment to Edison for Edison's carrying costs equal to approximately 58,947,000 (total cost $$4,422,000). The City's ownership share of the Project is expected to provide approximately 8% of the Electric System's energy needs during its first (cli year of operation. In the opinion of the Consulting Engineer, the forecasted overall revenue requirements from the sale of electricity by the City are reduced by the City acquiring an ownership share in the Project rather than continuing to purchase all of its power requirements from Edison. The estimated savings to the City resulting from Project ownership increase from 5794,000 in the fiscal year ending June 30,1982 to 59.510,000 in the fiscal year ending June 30,1990. These projected savings will differ from actual savings to the extent that actual conditions differ from those assumed (See " Appendix A - Consulting Engineer's Report"). Brief descriptions of the 1980 Bonds, the security therefor and the Electric System, and summaries of the Resolution and other documents are included cisewhere in this Official Statement. Such descriptions and summaries do not purport to be comprehensive or defmitive. All references herein to the 1980 Bonds, the Resolution and any other documents are quaufied in their entirety by reference to each such document. Terms not defmed herein shall have the meanings as set forth in the respective documents. THE CITY'S PUBLIC UTILITIES DEPARTMENT General Description Under the provisions of the California Constitution, the Charter of the City and Title 10 of the Municipal Code of the City, the City owns and operates both electrical and water public utilities for the citizens of Anaheim. The Public Utilities Department (the " Department") exercises jurisdiction over both the electric and water systems of the City and is under the supervision of the Public Utilities General Manager (the " General Manager"). The General Manager is responsible for the supervision o' the design, construction, maintenance, operation, and upkeep of both the electric and water utilities. The virector of Finance of the City is charged with the accounting and collection of all revenues as well as the administra-tion of the financial affairs of the City. The General Manager and Finance Director are under the direction of the City Manager and the City Manager is appointed by the City Council. The Department serves water as well as electricity to virtually all the residential, commercial and industrial customers within the City limits. The City has sold 59,350,000 of water revenue bonds, of which 58,505,000 are outstanding, for the purposes of expanding the water system. The City is obligated by its Charter and by the relevant bond resolutions to establish water rates and collect charges in an amount sufficient to service the water system indebtedness and to meet its expenses of operation and maintenance, with specific requirements as to priority and coverage. During fiscal year 1980 the water system sold over 17 3
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4 l l l l l I billion gallons of water to over 49,000 custoniers. The funds and accounts of the Electric System and the l water system are held separately and the funds and accounts of one s>> tem are not pledged to the other system's bonds. Management of the Public Utilities Department GoRoos W. H0YT, General Manager,is in charge of the City's electric and water distribution systems and has been General Manager since 1964. He is an electrical engineering graduate of the University of ; Texas and a registered professional engineer. He has served as superintendent of the City of Santa Clara's l Electrical Department, and as an Electrical Engineer for Pacific Gas & Electric Company. He is a Senior Member of the Institute of Electrical and Electronic Engineers. He is a member of the Executive Committee and Board of Directors of the Intermountain Power Project. He is a member of the Board of Directors of the American Public Power Association and of the Western Energy Supply and Transmission Associates (WEST). He is a past president of the California Municipal Utilities Association and served on its Board of Governors for six years. Mr. Hoyt's professional experience includes design, construction, and operation of electric generating, transmission, and distribution facilities, as well as management of municipal electric and water utilities. ' f , EowARD G. ALARIO, Assistant General Manager,is a Business Administration graduate of San Jose State University. In the 15 years prior to his employment with Anaheim, he served as the City Adminis-I trator of the City of Bellflower, City Manager and Finance Director of the City of South San Francisco, and { Revenue Officer of the City of Sunnyvale. 4*: DARRELL L. AMENT, Management Services Manager, has been with the Department since 1967, and is responsible for formation of overall financial policies and long-range financial plans for the Department, A electric and water cost-of-service studies and rate design, utilities accounting and management information, i public information, and systems analysis and design. He has a B.A. (1961) and M.A. (1963) in goverrment M from Kent State University and has completed additional graduate work in government and public administration at UCLA. m GEORGE H. EowApos, Electrical Engineering Manager, has had responsibility for Electric System engineering and planning since 1966. He earned a B.S. in electrical engineering from Texas Technological College in 1950. He is a Senior Member of the Institute of Electrical and Electronic Engineers and has been chairman of the American Public Power Association's Transmission and Distribution Committee. He is a registered professional engineer. Public Utilities Board The City Council, by Ordinance No. 3557 approved July 6,1976, established a Public Utilities Board (the " Board") with the power and duty to make recommendations to the City Council;(i) for the operation
- and conduct of the electric and water systems,(ii) concerning the establishment of rules and regulations and rates for the operation of fne elec"ic and water systems, (iii) concerning the duties and qualifications of the General Manager and other employees of the Department, (iv) concerning the acquisition, construction, improvement, extension, enlargement, diminution, or curtailment of all or any part of the electric and water systems, (v) concerning the annual budget of the Department and (vi) concerning financing, including the issuance of bonds for the Electric System and the water system; and to exercise such other powers and duties as may be prescribed by ordinance not inconsistent with the City Charter.
?, - The Board consists of seven members, none of vhem may hold any paid office or employment in the City Government. The members of the Board are appointed by the City Council and may be removed by a majority vote of the City Council. Board members serve rour-year terms except that for the initial appointment, three members were appointed for one year, t- members were appointed for two years and two members were appointed for three years. The csent members of the Board and their terms of appointment are-KENNETH M. KEEsEE, Chairman, term expires June 30, 1981. Mr. Keesee is an industrialist and operates a steel tank manufacturing company tnd an industrial park. 4 i
l l 1 JAMES H. TOWNsEND, Vice Chairman, term expires June 10, 1982. Mr. Townsend is the editor and publisher of "The National Educator," a monthly tabloid newspaper with worldwide distribution. WyNN W. ANDERSON, term expires June 30, 1982. Mr. Anderson is a teacher in the Anaheim Elementary School District. RICHARD L. HAvNiE, term expires June 30, 1981. Mr. Haynie is the Plant Superintendent for the Delco.Remy Divisior. Q%eral Motors Corporation operations in Anaheim. C/.RL J. KIEFER, term sxpires June 30, 1983. Mr. Kiefer is employed by Rockwell International Corptration. He is in charge ofindustrial engineering and facilities for the Anaheim operations of Rockwell. S. DALE STANTON, term expires June 30,1981. Mr Stanton is a consulting engineer. JOSEPH R. WHITE, term expires June 30, 1983. Mr. White is a realtor and active in Chamber of Commerce activities and community activities. DESCRIPTION OF THE 1980 BONDS General The 1980 Bonds are being issued in the aggregate principal amount of 584,000,000, are dated October 1,1980, bear interest at the rates per annum set forth on the cover page of this Official Statement, payable semi. annually on April I and October I of each year, commencing April 1,1981, and mature on October 1 in the years and principal amounts set forth on the wver page of this Official Statement. The 199 Bonds are issuable in coupon form in the denomination of 55,000 each, registrable as to principal only or as to principal and interest, with the privilege of discharge from registration. The principal of and premium,if any, and interest on the 1980 Bonds are payable at the Corporate Agency Division of Bank of America NT&SA in Los Angeles or San Francisco, California, or at the option of the holders at any other paying alent of the City in Chicago, Illinois or New York, New York. Mandatory Redemption The 1980 Bonds due October 1,2001 and October 1,2007 will be subject to mandatory redemption prior to maturity at a redemption price of 100% of the principal amount thereof plus interest accrued to the redemption date on October 1,1998 and October 1,2002, respectively and on each October 1 thereafter to maturity, in the following principal amounts in the years specified: 2001 Mesurity 2007 %fstorit) _ Year A mount Year Amount 2002. .. .. 5 5,025,0 0 1998. 5 3,675,000 5,425,000 2003. .. 1999... . 4,000,000 5,875.000 2004 ...... . .. 2000 4,325,000 2005 ~ 2001 (Maturity)... . 4,650,000 2006. . . . . . . . . . . . 6[325',000 6 850 000 2007 (Maturity).. . 7,375,000 Optional Redemption The 1980 Bonds maturing on or after October 1,1991 are subject to redemption, at the option of the City, on and af:er October 1,1990,in whole or in part on any interest payment date, at a redemption price of 100% of the principal amount thereof, together with accrued interest to the date of redemption. All or any of the 1980 Bonds subject to call may be called for redemption at any one time. If less than all / the Bonds are redeemed at any one time, such Bonds shall be redeemed in inverse order of maturity and by lot within each maturity. Special Refunding Call if 1980 Bonds maturing after October 1,1990 are defeased prior to October I,1983 in 'he manner described herein onder the caption " Security for and Sources of Payment for the Bonds - Defusance" and 5
, ,e are called for redemption on October 1,1990, then the redemption price for the 1980 Bonds so to be redeemed shall be as follows, plus accrued interest to the date of redemption:
Matueity Special Refundseg Octobec I Reden,peien Price 1991. 100 'i 1992.. 100 1993. 100 1994.m. .. .- 100 1995. 100 1996.. . 99 % 1997.. . 98h 1 g 200I. 2007
. 964 95 y Notice of Redemption v ' The Resolution requires tha; notice of redemption of the 1980 Bonds be published in a newspaper of general circulation in the County of Los Angeles, California, and in a financial newspaper or journal of national circulation published in or near the City of New York, New York, said publications to be at least k
30 days but not more than 60 days prior to the redemp' ion date. If any of the 1980 Bands designated for
redemption be registered other than to bearer, the Registrar shall, on or before the dates of publication of 2 said notices to such registered owners at the addresses appearing on the bond registry book. g SECURITY FOR AND SOURCES OF PAYMENT FOR Tile BONDS Pledge Under the Resolution ,, Pursuant to the City Charter, the Ordinance, which incorporates certain provisions of the Bond Law, m and the Resolution, the Bonds are t 3u ,lly secured by a pledge, charge and lien upon the Gross Revenues of the Electric System. Gross Revenues are defmed in the Resolution as rates, fees and charges for providing electeic service to persons and real property and all other fees, rents and charges and other income derived g by the City from the ownership, operation, use or services of the Electric System. The General Fund of the City is not liable for the payment of the Bonds or their interest, nor is the credit or taxing power of the City pledged for the payment of the Bonds or their interest. The holder of the Bonds or coupons may not compel the exercise of the taxing power by the City or the forfeiture of any ofits propety. The principal of and interest on the Bonds and premiums upon the redemption of any thereof are not a debt of the City nor a legal or equitable pledge, charge, lien, or encumbrance upon any ofits property, or upon any of its income, receipts, or revenues, except the Gross Revenues of the Electric System which are, under the terms of the Resolution, pledged to the payment of the Bonds. Remmes and How of Funds Under the Resolution Pursuant to the Resolution, all Gross Revenues are deposited with the City Treasurer to the credit of the Electric Revenue Fund. The City Finance Director shall allocate or transfer from the Electric Revenue Fund the following amounis in the order of priority as set forth below.
- , First, on or before the twentieth day of each calendar month so long as any of the 1980 Bonds are E~
outstanding for deposit in the Bond Service Account (and,in the case of the 1972 Bonds,in the bond service fund created for that issue), the following:(i) one-sixth of the interest which will become due and payable on the outstanding Bonds within the next ensuing six months, except that for any interest payment due on or 2 before April 1,1984, the monthly sum allocated shall be the interest which will become due and peyable less the amount of any funded interest placed in the IDC Account pee " Application of the 1980 Bond Proceeds") divided by the number of months remaining in said period, and (ii) one-twelfth of the principal amount which will mature and be payable on the o ststanding serial Bonds within the next ensuing twelve 6 l I l
months. Commencing on or before October I,2001 and on 3r befcre each October I thereafter so long as any of the term 1980 Bonds are outstanding, the Finance Director shall allocate to the Sinking Account established pursuant to the Resolution sums sufficient to call and redeem said term Bonds in accordance with the schedule set forth under " Description of the 1980 Bonds - Mandatory Redemption? Second, to the Maintenance and Operation Account. amounts sufficient for the payment of the maintenance and operation expenses of the Electric System. Maintenance and operations expenses are defiaed in the Resolution as the reasonable and necessary current expenses of maintaining. repairing and operating the Electric Systen , including City administrative expenses directly attributable to Electric System functions, but excluding depreciation, interest and amortization, all computed in accordance with sound accounting principles an.4 consistent with existing accounting practices of the City. Third, on or before the twentieth day of each calendar month, for deposit in the Reserve Fund, the amount required,if any, for such Fund to equal the Maximum Annual Debt Service. (Set " Reserve Fund" below). Fourth, on or before the twentieth day of each calendar month, for deposit in the Renewal and Replacement Account, an amount equaf to one percent (19) of the Gross Revenues received in the precedk a calendar month until a balance is established or reestablished therein equal to two percent (2% of the de ~.ated book value of the land, general plant and equipment which constitute a portion of the Electric System. The moneys contained in such account may be used for extraordinary maintenance and repairs, renewals and replacements to the Electric Sy: tem and may be transferred to the Bond Service Account to prevent default in payment of the principal and interest on outstanding Bonds. The balance in the Rmewal and Replacement Account was 5805.000 as of June 30, 1980. Since this account may be depleted at any time for the various purposes, na assurance can be given that moneys in said Account will be available at any particular time for transfer to the Bond Service Account. All mv.teys remaining in the Electric Revenue Fund after the foregoing transfers have been made shall be transferred tc, the Electric System Surplus Revenue Fund. Such moneys have been pledged to the payment of principal of and interest on the outstanding 1976 Subordinated Bonds, the outstanding balance , of which mature on December I,1980. As of the date hereof, the City has on deposit sufficient monies to pay at maturity the principal of and interest on the 1976 Subordinated Bonds. All moneys remaining in the Electric System Surplus Revenue Fund after satisfying the requirements of the resolution authorizing the issuance of the 1976 Subordinated Bonds shall, to the extent available, be transferred to the Construction Account on a monthly basis, up to and including the month of October,1982 in an amount equal to 100'Tr of the amount ofincome received during the preceding month from the investment of moneys in the Reserve Fund, and thereafter up to and including the month of December,1983 in an amount equal to 509 of the amount of such income received during the preceding month, and any remaining moneys may be: (i) invested in any authorized investments, (ii) transferred to the Redemption Fund to be used for the redemption of Bonds which are subject to call or for purchase in the open market of any outstanding Bonds or (iii) used for any lawful purpose of the City. Reserve Fim! The Resolution requires,in effect, that there be deposited into the Reserve Fund from the proceeds of the 1980 Bonds and any additional Bonds ranking on a parity with the Bonds the amount necessary so that such fund shall equal the Maximum Annual Debt Service calculated immediately after the issuance of such series of Bonds. Maximum Annual Debt Service is defined in the Resolution as the maximum sum obtain for any fiscal year of computation, or any fiscal year thereafter, by totaling the following for such fiscal year: (i) the principal amount of all outstanding serial Bonds payable in such fiscal year, (ii) the minimum - principal amount of all outstanding term Bonds scheduled to be called and redeemed in such fiscal year, j together with the premium thereon,if any be payable, and (iii) the interest which would be duc during such fiscal year on the aggregate principal amount of Bonds which would be outstanding in such fiscal ycar if the Bonds are retired as scheduled, but deducting and excluding from such aggregate amount the amount of l Bonds already retired. l 7
J t l The Reserve Fund is currently held and administered by the Bank of America NT & SA Agent. After retirement of the 1972 Bonds, it will be held by the City Treasurer. The Resolution requires that the Reserve Fund be maintained in an amount equal to M Debt Service. Moneys in the Reserve Fund shall be used solely for the purpose of p interest on the Bonds in the event that the moneys in the Bond Service Account or Sink bond service fund in the case of the 1972 Bonds) are insufficient therefc:r, and for that p l Agent or the City Treasurer, as the case may be,shall withdraw and transfer moneys from i to the Bond Service Account (or the bond service fund,in the case of the 1972 Bond , are withdrawn from the Reserve Fund an equal amount of moneys shall be placed transfers from the first available moneys in the Electric Revenue Fund. on allAs of the date outstanding Bonds, hereof, the balance in the Reserve Fund is equal to the Maximum Annua i Rate Covenant The City has agreed under the Resolution to prescribe, revise and collect such charges and facilities of the Electric System which, after making allowances for contingencies and estimates, shall be at least sufficient to pay the following amounts in the order set forth; ( gj
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become due and payable, (ii) all current expenses for the s operation expenses of the Electric System as said expenses become due and payable, 5 required for compliance with the Resolution including transfers required to be made from th Revenue Fund to other funds and accounts, (iv) all payments required for compliance wi , . i. providing for the issuance of the 1976 Subordinated Bonds and (v) all payments required obligations of the City which are charges, liens, encumbrances upon or payable from the g Electric System. Charges shall be so fixed that the Net Revenues shall be at least equal to i times the amounts payable under (i) above, provided that so long as any of the 1972 Bon outstanding (the final scheduled maturity being July 1,1992) such charges shall be so fixed th Revenues shall at least equal 1.25 times the maximum amount payable under (i) above. N l defined in the Resolution as the araount of Gross Revenues less the Maintenance and Additional Debt Under provisions of the Resolution, the City covenants that no additional indebtedness sha having the Bonds.any priority in payment of principal or interest out of the Gross Revenues of the Ele Parity bonds may be issued to finance or refinance any repairs, improvements, enlargem ! extens~ns of the Electric System and to refund any Bonds then outstanding, provided that w covenants that, except for bonds issued to refund Bonds, no additional indebtedness evidenced
' bonds, revenue notes or any other evidences of indebtedness payable out of the Gross Reve e Electric System and ranking on a parity with the Bonds shall be created or incurred u not in default under the terms of the Resolution, (ii) the Net Revenues of the Electric System, ca sound accounting principles, as shown by the books of the City for each of the last two co i
prior to the adoption of the resolution approving the sale of such additional indebtednes audit certificate or opinion of an independent certified public accountant or firm of certified i > accountants employed by the City, plus, at the option of the City, the allow ance for earnings described in next paragraph, shall have amounted to at least 1.10 times the amount of principal and interest which w l become due and payable ur accrue in the fhcal year next succeeding the fiscal year in which s indebtedness is incurred on all Bonds and, so long as any of the 1972 Bonds remain outst scheduled maturity being July 1,1992), at least 1.25 times the Maximum Annual Debt Serv year thereafter on all indebtedness to be outstanding immediately subsequent to the incurring additional indebtedness. 8
For the purpose of applying the restriction contained in this covenant, Gross Revenues may include an allowance for earnings arising from any increase in the charges made for service from the Electric System which has become effective prior to the incurring of such additional indebtedness but which, during all or any part of said last two completed fiscal years, was not in effect,in an amount equal to 95% of the amount by which the Gross Revenues would have been increased if such increase in charges had been in effect during the whole of said last two completed fiscal years, .s shown by the certificate or opinion of an independent certified public accountant or firm of certified public accountants. employed by the City. In addition to the foregoing, under provisions of the resolution authorizing the issuance of the 1976 Subordinated Bonds, the City may not issue additional electric revem e bonds, whether parity or subordinat-ed, unless (i) the City is not in default under the terms of the resolution authorizing the issuance of the 1976 Subordinated Bonds and (ii) the Net Revenues for each of the two preceding fiscal years shall have amounted to at least the amount of principal and interest which will become due and payable in the fiscal year next succeeding the fiscal year in which such additional indebtedness is incurred on all indebtedness payable out of the revenues of the Electric System. Refunding Bonds Parity bonds may also be issued to refund outstanding Bonds if, after giving effect to the application of the proceeds thereof either (i) Annual Debt Service will not be increased in any fiscal year in which Bonds (excluding such refunding parity bonds) not being refunded are to be outstanding, or (ii) the Net Revenues of the Electric System, calculated on sound accounting principles, as shown by the books of the City for each of the last two completed fiscal years prior to the adoption of the resolution approving the sale of such additional indebtedness as shown by an audit certificate or opinion of an independent certified public accountant or firm of certified public accountants employed by the City, plus, at the option of the City, the allowance for earnings described in the third paragraph under " Additional Debt", shall have amounted to at least 1.10 times the amount of principal and interest which will become due and payable or accrue in the fiscal year next succeeding the fiscal year in which'such additional indebtedness is incurred on all Bonds so to be outstanding. The City may issue parity bonds to refund the 56,200,000 outstanding 1972 Bonds without compliance with the foregoing tests. In June 1980, the electorate of the City rejected a proposal to amend the City Charter to permit the issuance of refunding revenue bonds by the City without an additional election. The Department intends to seek resubmission of this proposal to the electorate. The City is unable to predict whether or when such proposal will be resubmitted or adopted or whether or when, if adopted, the authority to refund would be exercised. Insurance Under the provisions of the Resolution, the City covenants that it shall at all times maintain with responsible insurers all such insurance on the Electric System as is customarily maintained by similar utilities systems with respect to works and properties of like character against accident to, loss of or damage i to such works or properties and loss of revenues insurance. If any useful part of the Electric System shall be damaged or destroyed such part shall be restored to use. The money collected from insurance against accident, loss or damage shall be used for repairing or rebuilding the lost, damaged or destroyed works and properties, and to the extent not so applied, shall be applied to the retirement of Bonds and for such purpose paid into the appropriate funos or accounts. The money collected from loss of revenues insurance shall be deposited in the Electric Revenue Fund. The City shall also maintain with responsible insurers worker's compensation insurance and insurance against public liability and property damage to the extent reasonably necessary to protect the City and the Bondholders. Notwithstanding the foregoing, the City may provide any insurance required by this covenant through a self-insurance program. 9
Other Covenants Other covenants of the City under the Resolution are summarized below: (a) The City will punctually pay, or cause to be paid, the principal of and interest on the Bonds and will make all payments into the Bond Service Account, the Sinking Account and the Reserve Fund j in conformity with the terms of the Bonds and the Resolution. (b) The City will commence the accomplishment of the purposes for wnich the Bonds are being issued and will complete such purposes with all practicable dispatch and in an economical manner. (c) The City will pay and discharge all lawful claims and any taxes, assessments or other governmental charges lawfully levied or assessed against the Electric System or the Gross Revenues which, if unpaid, might impair the security of the Bonds. (d) The City will operate the Electric System in an efficient and economical manner and preserve the Electric System in good repair and working order. I.4 s [" (c) The City will not (except as expressly permitted by the Resolution) mortgage, encumber, sell, lease, pledge, place a charge on or otherwise dispose cf the Electric System or the Gross Revenues and will not enter into any agreement which impairs the operation of the Electric System or otherwise impairs the rights of the Bondholders with respect to the Gross Revenues or operation of the Electric System without making adequate provision to protect the rights of the Bondholders. (f) The City will keep proper books of records and accounts of the Electric System in which complete and correct entries will be made of all transactions relating to the Electric System and will M cause the books and accounts of the Electric System to be audited annually by an independent certi6ed ITi public accountant and furnish a copy of the audit report, upon request, to any Bondholder. l (g) The City will maintain and enforce valid regulations for the payment c' ;; ills for electric service and will permit no free connections with, or use and services of, the ElectQ "ystem. (h) The City will not invest the proceeds of the Bonds in a manner which would result in the Bonds constituting taxable " arbitrage bonds" within the meaning of Section 103(c) of the Internal Revenue Code of 1954 as amended, and the income Tax Regulations issued theret.nder. Amendments to the Resolution Any covenant of the City contained in the Resolution may be amended, waived or modified upon the C consent of the holders of 60% of the bonds outstanding, exclusive of Bonds,if any, owned by the City. No such amendment, waiver or modification shall be made which will permit (i) a change in the maturity or i, term of redemption of the principal of any Bond or any installment of interest thereon or a reduction in the principal amount of or redemption price or redemption premium or rate ofinterest upon any Bond without the consent of the holder of such Bond; or (ii) a reduction of the percentage of the principal amount of Bonds the vote or consent of which is required to effect such amendment. Investments Moneys in the Construction Account, the iDC Account, the Bond Service Account, the Sinking Account and the Renewal and Replacement Account traintained by the City Treasurer and moneys in the i Reserve Fund maintained by the Fiscal Agent may be invested in any obligations in which the City may lawfully invest its funds, provided that so long as any of the 1972 Bonds are outstanding, moneys in the i Bond Service Account, the Sinking Account, the Reserve Fund and the Renewal and Replacement Account may be invested only in direct obligations or obligations guaranteed by the United States of America or Certifict.tes of Deposit of recognized banks or trust companies fully secured by direet obligations of or obligations guaranteed by the United States of America. Defensance The Resolution provides that 1980 thnds shall no longer be deemed to be outstanding and unpaid if the City shall have made adequate provision for the payment, in accordance with the 1980 Bonds and the Resolution, of the principal and interest to become due thereon at maturity or upon call and redemption 10
l
, i l
prior to maturity. Such provisions shall be deemed to be adequate if the City shall have irrevocably set aside, in a special trust fund or account, moneys which when added to the interest earned or to be earned from the investment or deposit thereof shall be sufficient to make said payments as they become due. Moneys so set aside may be invested in any direct obligations of, or obligations guaranteed by, the United States of America, in which the City may lawfully invest its money. APPLICATION OF THE 1980 BOND PROCEEDS The City estimates that the proceeds of the 1980 Bonds (c)cluding accrued interest) will be applied as follows: For payment of the City's share of Project Construction Costs m 550,250,000 For deposit in the Reserve Fund. . .. 8,000,000 For payment of costs of issuance (including a bond discount of 58,400,000)-- .. . 8,950,000 For deposit in the IDC Account (2). . . . . . . . . i6.800,000 Total 1980 Bonds . .. .. 584.000,000 (1) Includes an estimated 58,947,000 to be paid to Edison for interest charges prior to November I,1980. Excludes 54,172,000 of estimated investment income on Bond proceeds in the Construction Account, the IDC Account and the Reserve Fund. (2) To pay 100% of the interest on the 1980 Bonds until October I,1982 and 50% of the interest on the 1980 Bonds thereafter until December 1,1983. Moneys in the Construction Account may be invested in any Authorized Investments, provided that the maturity or maturities thereof shall not be later than the date or dates on which moneys must be available to meet scheduled Construction Account expenditures. If any sum remains in the Construction Account after the full accomplishment of the purposes for which the 1980 Bonds were issued,it shall be transferred to and placed in the Electric Revenue Fund. CITY OF ANAHEINI - THE ELECTRIC SYSTE31 History of the Electric System As one of the first such municipally-owned systems in the State of California, the Electric System has been fundamentally a sub-transmission and distribution system, although it did generate all its owr power from 1895 to 1916 and part of its own power from 1927 to 1930. The original City-owned generatin plant was constructed in 1895 and consisted of a steam-driven generator of 500 lights capacity. By 1896, the maximum capacity of the generating plant had been reached and Anaheim voters passed authorization for bonds for the combined rebuilding of both the electric light plant and the City water system. In 1916 the City entered into an agreement to purchase electricity at wholesale rates from Edison rather than generate its own power. In 1934, the City, working with the Federal Public Works Administration, rebuilt and expanded the distribution system sufficiently to serve the needs of the citizens until the end of World War II. The City has since continued to expand its distribution system to mect the growing demands of its customers. The Electric System serves the entire area within the City limits by receiving electricity at the 220 KV Lewis Receiving Station. Estimated Financial leformation The Electric System, as well as the City, is currently undergoing its annual audit for the fiscal year ended June 30,1980. Therefore, the financialinformation and statistics reflecting the status of the Electric System for the fiscal year ended June 30, 1980 and the ten months ended April 30, 1980 have been estimated by the Department and are preliminary and subject to adjustment. 11 i I J !
Existing Facilities The Electric System serves the entire area within the City limits of Anaheim, approximately 42 square miles. The principal facilities of the Electric System are transmission and distribution lines aggregating 1,211 circuit miles as of the fiscal year ended June 30,1980. The Electric System comprises eight existing distribution substations with an additional distribution substation scheduled to be completed by late 1981. The following table sets forth statistical information relating to the facilities of the Electric System: ELECTRIC SYSTD1 STATISTICS Fiscal Year ended June 30 19s0 1979 197s 1977 1976 (tjeneeseds Utility Plant (less accumulated depreciatior)(1) 540,262,000 537,102,000 $32,711,000 533,428,000 3 0,720,000 Transmission - 69 Kv Circuit Miles 51 44 44 44 44 Distribution Overhead Circuit Miles.. 871 871 870 869 863 Underground Circuit Miles.. .... ... 289 272 248 210 182 Transformer Capacity (in KVA) 220 Kv to 69 Kv 840,000 840,000 840,000 840,000 840,000 y 69 Kv to 12 Kv.. 492,000 492,000 457,000 417,000 417,000 1 12 Kv to Customer ..~.. .. . .. . 734,000 687,000 647,000 607,000 565,000 A (1) During the year ended June 30,1977, the City obtained an historical cost appraisal ofits property, plant hS and equipment from a professional appraisal firm, Marshall and Stevens, Inc., which included a physical inventory of assets and a determination of their estimated remaining useful lives. Accordingly, utility plant (less accumulated depreciation) reflects adjustments at June 30,1977 and 1976 and in subsequent
' years resulting from that appraisal. During the year ended June 30,1979, the City elected to record its unarnortized project costs as an other asset rather than utility plant. Accordingly, utility plant at June 30,1980,1979, and 1978 reflects this reclassification.
g Power Supply E
' The electricity supplied to the City is purchased at wnv,esale rates from Edison or as economy energy from Nevada Power Company. In the fiscal year ended June 30,1980, the E:ertric System purchased a total of 1,834,788,614 kilowatt hours of electricity for delivery to customers thrwghout the City. About 90 3" percent, or 1,657,880,614 kilowatt hours, was purchased from Edison. The remaining 10 percent, or , ~
176,908,000 kilowatt hours, was purchased from Nevada Power Company. ! On July 30,1980, combined customer electric requirements created a new system peait demand of 408,000 kilowatts, up 12,000 kilowatts from the 1979-1980 peak. The following table sets forth,in kilowatt hours of electricity, the total purchases of power and Electric System peak demand during the last 5 fiscal years. .i TOTAL KILOWATT HOURS PURCHASED AND PEAK DDIAND Fescal Y .ar ended June 30 p 19so 1979 197s 1977 _ 1976 C From Edison (kWh). 1,657,880,614 1,501,098,304 1,472,686,902 1,305,991,471 1,541,60y,451 ^@9 From Nevada Power Company (kWh) ... 176,908.000 333,104,000 250,049,000 355,347,000 41,651,000 System Total 1,834,788.614 1,834,202,304 1,722,735,902 1,661,338,4~ 1 1,583.260,451 System peak demand (Kw) 396,000 395,600 347,600 328,000 330,400 12
The Electric System purchases power from Edison pursuant to the Integrated Operations Agreement whereby Edison agrees to furnish the capacity and energy necessary to meet the City's load, to the extent not provided by City integrated resources. The term of such agreement is 50 years commencing November, 1977. (See Appendix D - " Summary of the Integrated Operations Agreement"). In addition, the Electric System purchases power from Nevada Power Company pursuant to an agreement negotiated in 1976 which provides for purchase of a minimum of 250,000,000 kilowatt hours of economy energy per year for a minimum of four years. Proceeds of the 1976 Subordinated Bonds were used to fund such purchase. The Nevada Power agreement ends in December 1980. In June 1980, a subsequent agreement was executed between the City and Nevada Power Company providing for economy energy exchanges and energy banking arrangemes ts. (See " Future Plans of the Electric System.")
. The fol'owing table sets forth the annual power costs for purchased power during the last five fiscal years.
ANNUAL PURCHASED POWER COSTS Fiwal Year ended June 30 1980 1979 1978 1977 1976 (l'naudited) Annual Power Costs.. 571,930,000 559,198,000 551,747,000 545,842,000 539,347,000 Unit Power Costs (mills per kilowatt hour)... 39.20 32.27 30.04 27.59 24.85 For a discussion of recent increases in power costs see " Operation and Nf aintenance of the Electric System." Customers The following tables set forth the average number of customers and total kilowatt hours sold during the last five fiscal years. AVERAGE NUMBER OF CUSTONIERS Fiwal Year ended June 30 1980 1979 1978 1977 1976 Residential ... 72,426 70,386 68.380 66,957 63,772 Commercial . . 9,507 9,029 8,457 8,002 7,347 Industrial - . .. 451 438 407 383 365 Other ,, . 187 185 195 197 200 Total - all classes-- 82,571 80,038 77,439 75.539 71,684 TOTAL KILOWATT HOURS SOLD (Millions of kWh) I j hwal icer ended June 30 l 1980 1979 1978 1977 1976 i Residential ... . . 43' 423 389 377 356 Commercial . . 391 379 357 338 307 l
' 879 894 846 827 814 '
Industrial - . Other.- 30 31 29 33 34 Total Kilowatt 1,734 1,727 1,621 1,575 1,511
. Hours sold (1). . .
(1) The difference between the total kilowatt hours purchased and total kilowatt hours sold is due to system losses. 13
b The following table sets forth the ten major commercial and industrial customers and the t public agency customers of the Electric System in terms of total energy sales and total billings for th year ended June 30,1980. energy sales and 18.1 The major commercial and industrial customers accounted for 19.8% of total of total annual billings of the Electric System. The largest of such industries accounted for 6.3% of total energy purchases and 5.7% of total annual billings, respectively, of the Electr System. The major public agencies noted below account for 4.2% of total energy purchases and 4.4 annual billings. MAJOR ELECTRIC CUSTOMERS Casemer Type of Beinen Rockwell International Corporation. Aircraft, Aerospace and Electronics Disneyland . . . . Delco-Remy Division, General Motors Recreation and Entertainment Corporation.. .
. . .. Batteries I
Facific Telephone and Telegraph Company. Telephone Service Wrather Corporation. Hotels, Restaurants, Shops (includes Disneyland Hotel and Inn at the Park) Northrop Electro-Mechanical Division, Northrop 4 Corporation.. .. .. Aerospace Electronics 3 ' Kwikset Division Emhart Industries, Inc.. . Interstate Electronics Corp., Division of A-T-0, Residential Locksets and Powdered Metal Parts j Inc. .. . Electronic Equipment
] Monsanto Company-Packaging Division..
j Lear Siegler, Inc.. . Plastic Containers, Film and Sheeting Electronic Equipment Public Agencies City of Anaheim (including Water System and Street Lights) Anaheim Union High School District Anaheim Convention Center Electric Rates and Charges 0 The City is obligated by its Charter and by the Resolution to establish rates and collect charges in an amount sufficient to service the Electric System's indebtedness and to meet its expenses of operation and maintenance, with specified requirements as to priority and coverage. (See " Rate Covenant" under the i section " Security for and Sources of Payment for the Bonds".) Electric rates are fixed by the City Counc and are not subject to regulation by the California Public Utilities Commission or by any other state a Although its rates are not subject to approval by any federal agency, the City is subject to certain j ratemaking provisions of the Public Utility Regulatory Policies Act of 1978. The City is operating in 1 compliance with that Act. The City Charter requires that electric rates (as well as water rates) shall be based upon the cost of service to the various customer classes. At present, the Electric System has 25 rate schedules in effect. The City provides no free electric service. All retail electric rates are subject to adjustment by an Energy Cost-Adjustment Billing Factor y ("ECABF") applicable to each kWh to cover the variable cost of energy purchased from Edison above or below Edison's base rate. The ECABF is evaluated monthly and may be changed administratively. The ECABF cifective May 1,1980 (not reflected in the rate schedules below) is .572c for residential service } (lifeline) and 1.485c for residential service (non-lifeline) and for all other classes of service. The followin table sets forth the principal rate schedules for the residential, commercial and industrial customers. 14 e
RATE SCHEDULES FOR RESIDENTIAL, COMMERCIAL AND INDUSTRIAL CUSTOMERS Per %1eter Per \1onth Charge Type and Description of Service Domestic Service Single Family Customers
- Applicable where the customer is entitled to only the Basic Residential Use Lifeline allowance Customer Charge. 5 2.00 Energy Charge (to be added to Customer Charge):
First 300 kWh, per kWh.- 3.912c All Excess kWh, per kWh .- 4.356c General Service Small Commercial and Industrial Customers Customer Charge. . 5 4.50 Energy Charge (to be added to Customer Charge): All kWh, per kWh 5.820e General Ser* ice Large Commercial and Industrial Customers Demand Charge: First 200 KW or less of billing demand-- $1.020.00 All Excess KW of billing demand, per KW-- 5.10 Energy Charge (to be added to Customer Charge): All kWh. per kWh.. 2.571c Electric System rates have been changed 12 times over the last five fiscal years, the current rates having become effective May 1,1980. The following table sets forth the percentage changes in rates for the indicated customer classes. AVERAGE PERCENTAGE INCREASE OR (DECREASE) IN ELECTRIC RATES Overall Efective Date Systemi Residential Co. neirial Industrial July 15,1975 - (1.0) - (0.7) (2.0) 5.1 1.9 4.9 7.7 February 4,1976 - July 1,1976... .- (0.03) - (0.02) (0.06) , 5.0 5.0 5.0 5.0 September 1,1976- . December 29. 1976. . (1.7) (5.0) (1.0) - 5.7 2.5 7.0 7.0 July 1,1977_ 13.5 13.0 9.5 15.5 September 21, 1977.- June 1,1979.- . . 5.3 (1.7) 3.9 9.3 15.4 7.7 15.4 19.8 September 1,1979* . . December 1,1979* 10.3 6.1 10.1 12.5 March 1,1980* 17.8 14.6 16.5 20.0 May l 1980* .. (13.5) (7.8) (13.7) (16.1)
- ECABF adjustment.
The Department is currently planning to present an application to the City Council for an increase in base electric rates to be effective January 1981. As of the date hereof, the expected overall increase in base electric rates to be requested is 10%. The ECABF will change from time to t ime. The electric rates now in effect in the City compare favorably with those of other cities in the area. The following table sets forth electric billings of eight cities, of which three are served directly as retail customers 15 I
of Edison. Edison sells power and energy wholesale to both Riverside and Anaheim, whi Pasadena and Glendale generate their own power. ELECTRIC RATE COMPARISON BY MONTHLY BILL (As of June I.1980i man ' tee gg, ladmemsi See lite See kWb Mee K%I2s 2ee K%i3# kWh kWh kWhls k% hip 5.000 Kwi4i 43.Seekwh 87.600 kWh 2.555.000 k%h AN A HEIM(5) .. ... 5 Santa Ana(6) 10.97 3 27.13 11.71 14.19 5 62.18 83.91 5 41.03 47.11 5 223.65 5 2.283.47 5 4.573.06 5 129.130.80 260.16 2.827.32 5.570.67 158.144 60 Fullerton(6) .. . . . . 11.71 34.89 83.91 Orange (6) 47.11 260.16 2.827.32 5.5701 7 I1.71 34 39 83.91 158.144 60 47.11 260.16 2.827.32 5,570.67 Riverside (5) 13.39 30.19 158.144 60 68.15 42.30 235.7) 2.508.05 4,625.47 Los Angeles 130.576.15 I, . (DWP)( 5 )(7) ... 14.54 36.35 79.99 36.16 201.96 2.720.20 4,982.24 Pasadena (5)(7) .. 16.26 38.94 144.825.45 84.30 46.8? 257.98 2.972.82 Glendale (5)(7).- 21.02 5.808.0G 164.295.00 48.30 101.46 59.05 319 55 3.806.28 7.442.56 203,878.00 (1) GeneralServ e - Single Phase less than 20 KW demand.
'[ (2) Assumes 50% load factor.
f (3) Assumes 60% !aad factor. [ (4) Assumes 70% load factor. b (5) Served by municipal electric system. i (6) Served by Edison at retail.
.6 (7) Generates own power supply.
kJ The Electric System's Gross Revenues from the sale of electricity have increased from 548,509.000 in fiscal year ended June 30,1976 to 590,461,000 in the fiscal year ended June 30,1980, an increase o The following table sets forth such Gross Revenues during the last five fiscal years. GROSS REVENUES FROM SALE OF ELECTRICITY Hscal Year Endd .eme 30 1900 1979 1978 _ 1977 7 t? (Uanented) 1976 Residential.
- 321,708,000 $19,407,000 517,289 000 515,431.000 514.330,000 Commercial -- - . . . 23,490,000 18,110,000 16,471,000 13,488,000 11,578,000 Industrial . - - . . .. . 43,699,000 32,091,000 29,178,000 23,619,000 21,616.000 Other 1,564,000 1,234,000 1.100.000 987,000 985.000
,. Total .- - 590,461,000 570,842,000 564.038.000 553.525.000 548.509,000 si 16
i j l l l l The table below sets forth the a erage 'illing o price per kilowatt hour of the various customer classes during the last five years. AVERAGE BILLING PRICE PER KILOWATT HOUR Fiscal Year Ended June 30 1980 1979 19'8 1977 1976 (Unaudited) Residential- 5.0501 5.0459 5.0445 5.0410 5.0403 Commercial . . .6602 .0478 .0461 .0400 .0378 Industrial ..._ .0497 .0359 .0345 .0286 .0266 Other-- . . . . . _ . . .... .0523 .0393 .0376 .0300 .0293 l Average All Classes Combined. .0522 .0410 .0395 .0340 .0321 Operation and Maintenance of the Electric System A staff of approximately 195 persons is employed by the City to operate and maintain the Electric System. During the fiscal year ended June 30,1980 the total operating expenses of the Electric System were 578,250,000 excluding depreciation. Operating expenses have increased from 543,215,000 in the fiscal year ended June 30,1976 to $78,250,000 in fiscal y ar ended June 30,1980, an increase of approximately 81% . While system growth and general inflation has had some impact on operating expenses, the impact of increased prices paid by Edison for imported low sulphur fuel oil on Edison's resale power rates has been the primary cause of increased operating expenses. Edison's wholesale electric rates were increased 2.8% on August 16,1980 subject to refund. Purchased poser expense increased from 539.347,000 for fiscal year ended June 30,1976 to $71,930,000 for fiscal year ended June 30,1980, an increase of aprc: imately 83%. The following table sets forth the Operating Expenses of the Electric System (excludi:s depreciation) during the last five fiscal years. OPERATING EXPENSES (EXCLUDING DEPRECIATION) Fiscal Year Ended June 30 1980 1979 1978 1977 1976 (Unaudited) Cost of Purchased Power- 571,930,000 559,198,000 551,747,000 545,842.000 539.347,000 Maintenance and Operations.. 6.320,000 5.693,000 4,658,000 4,463.000 3.868.000 Total . 578.250.000 564.891,000 556,405,000 550.305,000 543,215.000 Accounting records, financial transactions, and billins, including all billing and accounting for the Electric System, are computerized. Annual audits of the City's electric and water utilities are made separately by the City's independent certified public accountant. The audits are made simultaneously with the audits of the non-utility .mancial activity of the City. Prior to July 1971, the Electric System was treated, for accounting purposes, as an account in the City's General Fund. Since July 1971, funds of the Electric System have been separated from the General Fund of the City and the books and records are maintained separate and apart from all other funds and accounts of the City. Transfers to the General Fund of the City of surplus funds of the Electric System (after payment of operation and mt intenance expenses and debt service on the Bonds) are made annually. Prior to June 30, 1977, there were no restrictions on the maximum amoint that could be transferred annually from the Electric Utility Fund to the General Fund of the City. The amount of these transfers, to and including the year ended June 30,1977, was determined by the City Council through the budgeting process. As a result of an amendment to the City Charter, approved by the voters on November 11,1976, annual transfers after June 30,1977 were limited to a percentage of gross utility fund revenues of the prior fiscal year remaining after payment of debt service payments on outstanding Bonds, operation and maintenance expenses and 17 a
other payments reqt. ired by the Resolution. In fiscal year 1979, the maximum amount that could transferred was 6'1 of the prior year's adjusted gross revenue and all subsequent transfers are limited Such transfers may be further limited as a result of the enactment of Article XillB of the California Constitu.. - (See " Constitutional Limitation on Governrcental Spending" below and " Constitutional Amendments Affecting City Revenues" in Appendix H). For further information concerning the Electric System's finar.citi position, see the audited financ statements for the fiscal years ended June 30.1979 and 1978 and tN unaudited financial statements for ten months ended April 30,1980 and 1979 attached hereto as Appendices F and G. respectively. Outstanding Debt Service Requirements The following table indicates the actual debt service on the outstanding Bonds of the Electric l and debt service on the 1980 Bonds, at interest rates as set forth on the cover page of this Official Sta DEBT SERVICE REQUIREMENTS * ( w=r W 1972 Beads and 1976 Bends June 30 19ttG Be ds Pnacipal lasseres Tesal y Prunneal laseress" Total Debs Ser, ice 1981 5 425,000 $ 639,000 5 1,064.000 1982 450,000 607,375 5 3.360.000 5 3.360.000 5 4,424.000 1,037,375 6.720,000 1983 475,000 6.720.000 7,777,375 575.500 1,0$0.500 6,720.000 6,720.000 1984 500,000 7,770.500 546.675 1.046.675 6.720,000 6,720.000 1985 525,000 522,975 7,766,675 a 1.047,975 5 1.250.000 6.670,000 1986 550.000 7.920.000 8,967,975 497.125 1.047,125 1.375,000 6.565,000 7,940.000 1987 600,000 468,913 8.987,125
- 1.068,913 1.450.000 6.452,000 7,902.000 1988 625.000 438,150 8.970,913 1,063,150 1.600.000 6,330.000 7,930,000 1989 650,000 405,512 8.993.150 1,055,512 1,700,000 6,198.000 1990 700.000 371,100 7.898.000 8.953,$ l 2 1,071.100 1,850.000 6.056.000 7,906.000 1991 750,000 332,925 8,977,100 1.042,925 2,000.000 5,902,000 7,902.000 1992 775,000 292,450 8,984.925 1,0c ,450 2.150.000 5,736,000 7,886.000 1993 825,000 260,750 8,953,450 1,00 750 2,325,000 5,557,000 7.882,000 1994 175,000 8.967,750 245.300 42 300 2.525,000 5.363.000 7.888,000 2 1995 200,000 234,975 8.308.300 1990 43 175 2.725,000 ' 5.153,000 7,878.000 8.312.975 225,000 223.175 446 '75 1997 2.925.000 4.927,000 7,852,000 8.300.1/5 250,000 209.675 459 75 3,175,000 1998 4383,000 7,858,000 8.317.675 275.n00 194.675 40.t .75 3,425,000 4,C 9.000 1999 300,000 7,844.000 8.313.675 178,17' 478.175 3,675.000 1 2000 325,000 4.13L000 7,810,000 8,288.175 160,173 485.175 4,000.000 2001 3.828.000 7.828.000 8.313.175 350.000 140,350 490,350 4,325,000 3,495.000 2002 350,000 7.820,000 8.310.350 119.000 469,000 4,650,000 3.136,000 7,786,000 2003 375,000 8,255,000 97.650 472,650 5,023.000 2.749.000 7,774.000
{ 2004 400,300 74,400 474,400 8.246.650 5,425,000 2,331,000 7,756,000 8,230,400 2005 400,000 i 49.600 449.600 5,875,000 1,879,000 7.754,000 8,203.600 2006 400,000 2.4,800 424.800 6,3?5,000 1,391,000 7,716,000 8.140,800 2007 6.850,000 864.000 7,7I4.000 7,714,000 2008 7.375.000 295.000 7,670.000 7.670.000
$11.875.000 57,910,400 519,785,400 584,000.000 5127.634.000 5211,634.000 5231.419.400
- The table excludes the currently outstanding 32.225,000 of 1976 Subordinated Bonds due December 1, 1980, The City has on hand funds sufficient to pay such bonds together with interest thereon.
t Interest capitalized on 100% of the interest on the 1980 Bonds until October 1,1982 and 50% of the interest on the 1980 Bonds thereafter until December I,1983. s 18 1
. l l
l l l Coverage of Debt Service The following table shows the historical coverage of debt service by the Net Revenues of the Electric l j Syst1m for the last five fiscal years as calculated in accordance with the flow of funds in the Resolution. I
SUMMARY
OF COVERAGE OF DEBT SERVICE l (000) Fiscal iest Ended June 30 1980 1979 1978 1977 1976 i it n diam Open: ting Revenues: 590,461 570,842 564,038 553,525 548,509 Sales of Electric Energy.. ...-- - 1,261 1,141 784 2.074 1.200 Other Operating Revenues (including interest income) 592,535 572.042 565,299 554,666 549,293 Total Operating Revenues. Onerating Expenses (excluding depreciation): 571,930 559,198 551,747 545,842 539,347 Con of Purchased Power 5.693 4,658 4.463 3.868 Maintenance and Operations- 6.320 578,250 564.891 556,405 550,305 543,215 ~ Total Operating Expenses
$14,285 5 7,151 5 8,894 5 4,361 5 6,078 l Net Revenues. -
Debt Service Requirements (excluding St.bordinated 51,06951,07251,07251,0725 644 1 Bonds)- - - 6.7 8.3 4.1 9.4 13.4 l Times Debt Service Covered By Net Revenues.. . Energy Conservation Since the OPEC Oil Embargo, industry and large commercial customers generally have made the greate.t strides in reducing electric energy consumption. Through printed materials mailed with utility billings, the Department continues to promote consumer awareness of the need for conservation measures and erTective steps which can be taken by individual customers to reduce their electric use. The Department emphasized its commitment to effective conservation programs with the establishment of the Conservation Services Division. The Electric System is subject to the National Energy Conservation Policies Act, and is in the process of implementing conservation programs required by the Act. A residential conservation service plan has been prepared and submitted in a timely manner to the Department of Energy for approva! as required the Act. Constitutional Lianitation on Governaiental Speeding Article XillB of the California Constitution (adopted by a vote of the people in November,1979) limits the annual appropriations of State and local governmental entities to the amount of appropriations o the entity for the prior fiscal year, as adjusted for changes in the cost of living, changes in population an changes in services rendered by the entity. Pending clarification of certain of its provisions by the courts, or by the Legislature, the full impact o Article XillB on the amounts and uses of moneys to be deposited in the Electric Revenue Fund is not clear However, to the extent moneys in the Electric Revenue Fund are used to pay the costs of maintaining a operating the Electric System and debt service on the Bonds (including the funding of the Reserve required by the Resolution), such moneys should not, under the terms of Article XillB as suppleme l recent legislation and based upon the official ballot argument supporting the measure at the Novembl election, be held to be subject to the appropriation limit.
;
SUMMARY
PROJECTION OF OPERATING RESULTS OF THE ELECTRIC SYSTEM Based oc the forecast of power costs by the Consulting Engineer and on certain data supplied by the City and certain considerations and assumptions (see " Considerations and Assumptions o' Je Co Engineer"), the Consulting Engineer has pepared a projection of operating results of the City's Ele , l System for the fiscal years ending 1981 through 1985. Increases in revenue requirements are p beyond those generated by the City's existing rates. The required revenues are based on cove I 19 i
operating expenses, debt service on the 1980 Bonds and previous bonds issued by the City, and on meeting the City's projected capital improvement program and other non-operating financial commitments. The additional revenues required are primarily to meet future capital improvements and escalating purchased power costs from Edison. PROJECTED OPERATING RESULTS (000) Fheal iear Endine June 30 1981 1982 1983 1984 1985 Gross Revenues: Revenues from Sales of Electricity: At 1980 Average Charges $100,280 $105,217 5110,864 5116,545 5121,731 Additional Revenues Required (1). .. . 11,240 32.992 55.454 85.775 110.510 Subtotal $111,520 5138,209 5166.318 5202,.V.0 5232.241 Miscellaneous Operating Revenue (2) . 274 263 275 287 303 Interest Income (3) l 723 922 1,116 1,359 1,576 Interest income (Reserve Fund) (4)- , ct78 727 727 727 727 Total Estimated Gross Revenues-- $112.995 5140,121 5168,436 5204,693 5234,847 Operating Expenses: 3 Power Production - San Onofre Units 2 and 3. 5 r- 5 692 5 2,179 5 3,885 5 4,684 p Purchased Power - Edison-- . . . . 96,632 114,502 139,153 169,473 195,265 g Other Operation and Maintenance Expense Q (2)- 9,443 10,294 11,431 12.303 13.205 7 N Total Estimated Operating Expenses Excluding Depreciation and Amortization..- 5106,075 5125,488 5152,763 5185,661 5213,154 Total Estimated Net Revenues.- 5 6,920 5 14,633 15,673 5 19,032 5 21,693 Debt Service on the Bonds: Outstanding Bonds... 1,064 1,057 1,050 1,047 1,048 The 1980 Bonds (5).. 0 0 2.520 6.258 7,989 Total Debt Service on the Bonds- . 5 1,064 5 1,057 5 3,570 5 7,305 5 9.037 Balance for Other Purposes (6); 5 5,856 5 13.576 5 12,103 5 11,727 5 12,656 Debt Service Coverage by Net Revenues on the Bonds (7) . 6.50 13.84 4.39 2.61 2.40 L (1) Additional revenues required primarily to meet costs of future capital improvements and escalating purchased power costs from Edison. (2) Estimated by the City. I. (3) Estimated by the City. Includes interest earnings on existing Reserve Fund at an assumed 8.5% interest rate and interest earnings on other funds at an assumed 7% interest rate. (4) For the 1980 Bonds only at an assumed investment rate of approximately 9.0%. (5) Based on 100% of interest capitalized to October 1,1982: 50% of interest capitalized to December 1, 1983. (6) Includes, among other things, payments to renewal and replacement account as required by the Bond Resolution, payments to the general fund, funds for Electric System capital improvements and a payment of 52.280,000 in 1981 on subordinated bonds. In addition the balances shown include interest earnings on the Reserve Fund expected to be available for transfer to Construction Account: Year Eadise June 30 1991 1982 1983 1984 x Interest Earnings (000) 5478 5727 5452 3148 (7) Ratio of total estimated Net Revenue to total debt service on the Bonds. 20 ?
THE PROJECT General Pursuant to a Settlemen Agreenant dated August 4,1972 with Edison.the City was granted the right to acquire a 1.66% ownersh.p inter at in the Project, with Edison providing the necessary transmission services to the City to delives the output of the Project to the Electric System. Edison has signed and the City upon delivery of the B mds will sign the San Onofre Units 2 and 3 Participation Agreement (the
" Participation Agreement") aith Edison which sets forth the terms and conditions under which the City will participate in the ownersh'.p and output of the Project and the Transmission Service Agreement (the
" Transmission Service Ar,reement") whereby Edison agrees to provide transmission of the City's share of the output of the Project to the City's point of delivery at the Lewis Substation. The City has also signed an Integrated Operations Agreement (the " LOA") and will sign upon delivery of the 1980 Bonds a Supple-mental Agreement for the integration of Anaheim? atlements in San Onofre Units 2 and 3 (the
" Supplemental Agreement") with Edison which provides, among other things, for the operation of the Project by Edison for the benefit of the City. Under the IOA, Edison will continue to supply the City's power and energy requirements over and above the capability of the City's share of the Proiact and any future City owned resource and credit the City on its monthly billing statements for the pow- . energy generated by such resources that are integrated with Edison's resources. The City ar' have agreed in the Supplemental Agreemer.t that the Project will be included as an integrated arce pursuant to the IOA.
(For a summary description of the Participation Agreement, the Transmissbn Service Agreement, the IOA and the Supplemental Agreement, see Appendices B, C, D and E attached hereto.) Description of the Project The San Onofre Nuclear Generating Station consists of two 1,100-MWe nuclear generating units currently under construction and an existing nuclear generating unit No.1 (not a part of the Project) rated at 450-MWe. The station is located on an 84-acre site approximately three miles south of San Clemente, California and within the U.S. Marine Corps Base at Camp Pendleton. Except for certain common facilitio shared with Unit 1, the Project consists of the two units under construction. These units. Units 2 and 3, are essentially identical in design and will share certain common facilities including the control room and certain other facilities. The nuclear steam supply systems for the Project, supplied by Combustion Engineering Inc., are closed-cycle pressurized water reactor systems rated at 3,410 MWt each. The turbine generators are tandem compound units supphed by GEC Turbine Generators, Ltd. (formerly English Electric). The main condens-ers are being supplied by Ingersoll Rand and will be cooled by circulating seawater obtained through large mtake lines extending out 5,200 feet into the ocean. l The main generators are rated at 1,312,950 kVA. The main transformers will consist of banks of three single phase transformers designed to step-up the output voltage of each generator to 220 kV for intercon-nection into the facilities of Edison's transmission network. The Project is being designed and the construction is being managed by the Bechtel Power Company l for Edison. Edison is managing the start-up program and will operate the two units upon receiving a commercial operating license. I It is currently planned that the Project will be owr.ed as tenants-in-common by the following investor owned and publicly owned utilities: Ownenhip Internt Particionets 76.55% Edison . San Diego= -
. 20.00 1.79 City of Riverside .
1.66 City of Anaheim. Total _ 100.004 21 a
- c. 6: t
* ,..-w-
~ _.
Estimated Financing Requirements for the Project The following table shows the estimated cost of constructing and financing the Project: Total Prgecs1. Orfsshare Land and Land Rights . . . . 5 3.270.000 5 54,000 Structures and improvements .. . . . . 680.928.000 11.304,000 l Reactor Plant Equipment - . . . . . . . . . _ . 811.009.000 13.463.000 1 Turbogenerator- ._ . . . . 460.008.000 7.636.000 Accessory Electrical Equipment . 195.485.000 3.24:>.000 Miscellaneous Power Plant Equipment. 58.500.000 971.000 Subtotal Direct Construction Costs... 52.209.200.000 536.673.000 Ad Valorem Taxes (2)- 648.000 j l Nuclear Fuel (l) -- 4.798.000 City's Contingenc)(3).. - . 3.356.000 Total Construction Costs 545.475.000 Interest Payable To Edison (4) . .. 8.947.000 Reserve Fund (5) - 8.000.000 Interest Funded During Construction (6) . . . . . . . 16.800.000 Financing Costs (7)-- . . . . . 8.950.000 Gross Requirements 588.172.000 Less: Interest Income (8) . ... _ 4.172.000 Net Financing Requhements .. . 554.000.000 (1) Estimated by Edison. (2) Estimated share of tax to be paid by City. (3) Additional contingency not included in Edison's estimated costs to allow funds for uncertainties in the licensing schedule and possible additional design changes in the future. (4) City's share of estimated interest costs paid by Edison through October 1.1977 and City's interest costs at 9% per year on funds expended by Edison frorn November 1.1977 to October 31. 1950 (5) Approximate maximum annual debt senice. (O Based on 8.0% annual interest rate on the 1980 Bonds.100% of the interest on the 1950 Bonds is capitalized until October 1,1982 and 5 ' of the interest on the 1950 Bonds is capitalized until December 1.1983. (7) Includes maxirnum allowable Bond discount of 58.400.000 and costs of issuance of 5550.000. (8) From temporary investment at an assumed interest rate of 7% of the 1950 Bor.d preceeds deposited in the Construction Account and the IDC Account. Also included are 100% of investment income on the Reserve Fuad until October,1982 and 50% of such interest income until December 1783 estimated at a rate of approximately 9.0%. The interest earnings on the Reserve Fund are presumed to reach the Electric Sptem Surplus Revenue Fund and as such, subject to the pledge of the 1976 Subordinated Bonds, are r: quired by the Resolution to be deposited in the Construction Account to the extent not l otherwise needed in accordance with such Resolution. Edison has estimated that certain design changes resulting from the accident analysis of the Three Mile Island Unit No. 2 ("TMI.2) will result in an additional 530.000.000 plus overhead costs to the Project and l have included such costs in their estimate of the total direct construction costs. j Status and Sebedule of Coastnscrios Construction of Unit 2 began in March 1974 after receipt of a construction permit from the NRC in October 1973, and the major construction of Unit 3 started in June 1975. Fuel loading for Unit 2 is l scheduled for the second quarter of 1981 with commercial op: ration in December 1981. Fuel loading for Unit 3 is scheduled for the third quarter of 1982 with commercial operation scheduled for February 1953. An operating license must be issued for each unit before fuelloadhg may begin for that unit. As of June 27 1980. Edison has stated that the construction of Unit 2 was aproximately 93% complete and Unit 3 was
- approximately 63% complete.
22 e
f Various locals of the International Brotherhood of Boilermakers have begun work stoppages at projects in certain western states, after the expiration on September 30,1980 of their regional contract. Local 92 of the Boilermakers halted work on the Project on October 7,1980 and, with other trade unions honoring the stoppage, construction work on the Project has stopped. The City is unable to predict the duration of the stoppage and therefore the impact the stoppage will have on the construction schedule or cost of the Project. Nuclear Fuel The nuclear fuel cycle consists of four basic elements prior to insertion of the fuel assemblies in a nuclear reactor. These elements include acquisition of uranium concentrates, conversion of the uranium
- concentrates to uranium hexafluoride, enrichment of the uranium hexafluoride and fabrication of the enriched uranium into fuel assemblies. After the fuel has been used in the reactor, it is removed for reprocessing or disposal.
The following table shows the amount of coverage of the necessary materials and services Edison has acquired for the Project: l'ait 2 t ~ nit 3 Full Coverage % Co.erage Full Co.erage % Co.erage Through Through 1990 Through Through 1990 Uranium.. .. 1985 85 1985 52 Conversion . . .. 1990 100 1990 100 Enrichment . , 2009 100 2009 100 Fabrication.. 1984 25 1985 55 Storage. , 1991 100 1992 100 At the present time, no operating facilities for the reprocessing of spent fuel are available, and in April 1977 the President of the United States announced an indefinite deferral of reprocessing spent fuel and the use of plutonium. In October 1977, the United States Department of Energy (the " DOE") announced its intent to accept and take title to spent fuel from utilities upon payment of a one time storage fee. The details of this DOE program are currently being formulated. Edison is providing on-site spent fuel storage capacity for the Project estimated to be sufficient to accommodate storage of the discharges of all spent fuel from Unit 2 through 1991 and from Unit 3 through 1992. By then it is assumed that an appropriate program will have.been implemented to accept spent fuel for placement in a suitable repository. Permits and Approvals Edison has informed the City that all major rea*., permits, except an operating license, have been granted. Edison's current schedule anticipates thr s = operating license will be received from the NRC in sufficient time to meet the projected fuel loaeg s.nd start up schedules. However, petitions have been i granted to certain adverse parties to interven . .ae operating license proceedings. The City cannot predict what impact, if any, such intervention will have upon the timing of issuance of, or the conditions included in, the operating license. (See " Regulatory Matters"). ! City's Future Power Supply Requirements and Future Power Supply Resources Pending further development of other generating resources the City may acquire (see "Other Projects of the Electric System"),it is assumed that the City's power requirements not produced by the Project will be met by purchases from Edison through the IOA. The compound annual growth rate for peak demand is 1.3 5 and for energy requirements is 3.5% for the ten years projected. The following table shows the annual peak and energy requirements as estimated by the City and the estimated amounts of power and energy l expected to be supplied from the Project and from Edison purchases. Peak (MW6 Earrgy tMiNions of kwhe y capadry Purchased Generated ieer Purchmand by the Emded Require- from frean the Require- from June 34 mesas Edenen Project meets Edison Protect 1981 415.0 415.0 - 1,905 1,905 - ! 1982.. 428.0 428.0 - (1) 1,999 1,967 32 1983.- 450.0 435.5 14.5(1) 2,107 2,005 102 i 1984- - 473.0 444.1 28.9 2,215 2,048 167 1985.- , 496.0 467.1 28.9 2,313 2,114 199 1986 515.0 486.1 28.9 2.399 2,187 212 1987 . 532.0 503.1 28.9 2,478 2,256 222 . 1988-- , 547.0 $18.1 28.9 2,551 2,329 222 1989... . 562.0 533.1 28.9 2,622 2,400 222
- 1990 576.0 547.1 28.9 2,688 2,466 222 (1) The City will receive certain capacity credits for the Project for the years ending June 30,1982 and 23 i
1983 from Edison, ho <ever, not all capacity from the City's share of the Project will be availab meet the City's foreast peak load for those years. Estimated Cost of F.ner from the Project The following table shows the estimated annual costs of power from the Project as it is delivere City's Project. system for the years 1982 through 1990 based on Edison's estimate of energy gener ESTIMATED ANNUAL COST TO THE CITY OF POWER FROM THE PliOJECT (5000) Fiscal Year Ending June 30 1982 1983 1984 1985 1986 1987 1988 1989 1990 Interest and Amortization (l).- - 2,520 6.258 7,989 7,969 7,986 7,973 7,977 7,982 Land Easement (2) . I 2 3 1 3 4 4 4 4 Operation and Maintenance (2) - 245 500 4 925 1,337 1,471 1,612 1,767 1,937 Administrative and General (2)- 143 299 2.123 375 416 452 492 535 Nuclear Insurance (2) 48 582 634 115 157 174 190 206 Nuclear Fuel (3). 224 244 266 101 837 1,763 2,052 1,890 2,347 Renewals and Replacements (4).. 2,889 2,493 2.588 107 270 412 445 481 Ta xes(5).. 519 561 606 654 5 56 107 112 112 Transmission (6)-- 112 112 112 112 40 100 143 145 147 Subtotal ., 149 152' 154 156 Less: Interest Earnings (7). 692 4,699 10,143 12,673 12,716 13.427 14,217 14,109 14.519 275 579 727 727 727 727 727 727 Total -- 692 4,424 Energy Delivered 9,564 11,946 11,989 12,700 13,490 13,382 13,792 (Millions of kWh)(8). . 32 102 167 199 212 Cost (Mills per kWh)- 222 222 222 222 21.6 43.4 57.3 60.0 56.6 57.2 60.8 60.3 62.1 l1 (1) Based on 100% of interest capitalized until October 1,1982 and 50% of the interest capitalized un December I,1983 Remaining interest to be paid from revenues. (2) As estimated by Edison. (3) Based on Edison nuclear fuel costs.
, (4) Estimated at 1% of capital costs and escalated at 8% per year.
~
(5) Based on the City's share of ad valorem taxes at the time of acquiring its ownership share. (6) Based on tue Transmission Service Agreement. (7) Earnings on the Reserve Fund not deposited in the Construction Account at an assumed interest ra approximately 9%. (8) Computed as the City's share of estimated total generation at the Project site, less energy transmis losses estimated at approximately 1%. l 4
'l 24
wr l. f Considerations and Assaunptions of the Consulting Engineer i The estimates and projections of the Consulting Engineer are based upon, among other things, information from Edison, as manager of the Project and from the City. Such estimates and projections are also based upon the considerations and assumptions reflected in " Appendix A - Consulting Engineer's Report." Conclusions of the Consulting Engineer R. W. Beck and Associates, Consulting Engineer to the City, has prepared "The Consulting Engineer's Report" concerning the Project. Based upon the studies, investigations, analyses and assumptions set forth and the information supplied by the City and Edison with respect to the proposal by the City to acquire an ownership interest in the Project, the Consulting Engineer is of the opinion that:
- 1. The acquisition of an ownership interest in the Project by the City and the operation of the Project under the provisions of the IOA will provide the City with an economical long-range source of i power that will result in lower power supply costs than would result from the continued purchase of all its power requirements from Edison.
- 2. The forecasted overall revenue requirements from the sale of electricity by the City are reduced by the City acquiring an ownership share in the Project rather than continuing to purchase all of its power requirements from Edison.
- 3. The estimated cost of power from the Project compares favorably with forecast purchase power rates from Edison and with available cost projections of other generating resources potentially available to the City in the 1980's.
- 4. The construuion cost estimates by Edison for the Project are comparable with the costs expected for similar projects being developed within the same time frame.
Certain Factors Afecting the Electric Utility Industry and EKects of the Three Mile Island Accident The electric utility industry is currently experiencing problems in a number of areas including, among
' others, the effects of inflation upon the costs of operations and construction, availability and high cost of capital, availability and increased cost of fuel for the generation of electric energy,long construction periods for new generating units, licensing and other delays affecting the construction of new facilities, and compliance with environmental regulations and Federal energy legislation, including the National Energy Act of 1978. The City is unable to predict the extent to which the Electric System will be affected by such factors.
In addition, folicwing the accident at TMI 2, the NRC has undergone a reorganization and an i interruption of its licensing efforts. The licensing requirements for nuclear plants are continually being re-evaluated in light of the TMI-2 accident which has resulted in some uncertainty in the licensing schedules for all plants approaching completion of construction. The TMI 2 accident analysis of the NRC has resulted in additional design change requirements by the NRC. Edison has estimated that these design changes will result in an idditivat 530,000,000 plus over-l head costs to the Project and have included such costs in their estimate. There is the possibility that additional design changes may be required in the future.
;
I REGULATORY MATTERS The California Public Utilities Commission has issued an order authorizing Edison to transfer an ownership interest in the Project to the City. It is not necessary that either the Federal Energy Regulatory Commission ("FERC") or the California Energy Commission approve the transfer of an ownership interest to the City. The City has complied with the California Environmental Quality Act insofar as it is applicable to the transfer of an ownership interest to the City.To the extent that additional permits or approvals (other than the NRC operating permit discussed below) may be required, the City believes that such will be obtained in due course. 25
Nuclear Regulatory Comunission The Atomic Energy Act (42 USC 2131: Title 10 CFR 50.10(a)) provides that it is unla person within the United States to transfer or receive in interstate commerce, manufacture, pr transfer, acquire, jossess, use any utilization of production facility equipment except under and in cordance with a license issued by the NRC. A Construction Permit was issued on October 18,1973 to Edison and San Diego. Therefore, while the City wi'l not operate the facility,it has been conclud will be necessary J.x the Construction Permit to S amended by adding the City as an owner there July 19,1979. Edison, Sar: Diego, Anaheim and Riverside filed an Application with the NRC to a l Construction Permit. On August 5,1980, the NRC approved the Application to amend the Cons l Permit thereby adding Anaheim and Riverside as owners of the Project. Edison and San Diego have applied for an Operating Permit. Petitions to Intervene have to several adverse parties. Primary issues raised relate to seismic and geologic conditions a planning. As part of the proceedings, the United States Geological Survey is preparing a report on ! and geologic matters for submissien to the NRC for its consideration. Edison has advised the based on studies conducted by or on behalf of Edison, it believes that the Project is designed to b withstand maximum adverse seismic conditions it considers credible for the Project area. Dis commenced and is presently proceeding. It is anticipated that the Atomic Safety and Licensing Board set dates for hearings on this matter in early 1981. The Licensing Board has indicated that when the Ci acquire their ownership interest in the Project they will be consolidated with applicants Edison and Sa Diego for the Operating Permit proceedings. An Operating Permit has not yet been grante It will be necessary for the Citv to apply for, and be granted, an Operating Permit for Units 2 and 3
- anticipated that the City wiu have any different problems with obtaining an Operating Permit than will Edison and San Diego.
FUTURE PLANS OF THE ELECRIC SYSTE51 The City currently purchases all of its firm electrical power requirements from Edison at Edison's u wholesaledated Agreement rates Mayand 25, purchases 1976 certain amounts of economy energy, pursuant to an Econo from Nevada Power Company. The Economy Energy Agreement will terminate in December 1980. In June 1980, the City and Nevada Power Company executed an which provides for economy energy exchanges and energy banking arrangements. In addition, in Jun,
- the City and the DOE executed a letter agreement whereby the City may purchase fuel replacem interruptible energy from relatively low cost DOE resources when such energy is available.
3 The increased cost ci fuel oil has resulted in higher wholesale power costs to the City. The cos electricity purchased by the City increased by 22% for the fiscal year ended 1980. In order to lessen t impact of the continually rising power costs, the Department is actively pursuing alternate sou including joint participation in coal and other electric generating projects.
1 OTHER PROJECTS OF THE ELECTRIC SYSTEM In addition to the Project, the City has an ongoinE program to investigate other potential resources which could be used to serve a portion of its requirements which are currently being purchase from Edison. Of these potential resources, the most definitive is the Intermountain Power Project be located in Southwest Utah.
.] Intermountain Power Project 1
, in 1974, the City entered into a Membership and Study Agreement with the California cities of Riverside, Burbank, Glendale, Pasadena and the Department of Water and Power of The City S-Angeles ("LADWP") and with the Intermountain Consumer Power Association, composed of a Utah municipalities and rural electric cooperatives. The purpose of the msmbership and study a was to investigate the feasibility of constructing and operating the project. The proposed project is a 3,0 megawatt coal-fired electric-generating plant consisting of four 750-megawatt generators, to be located in 26 I
Southwest Utah. The presently projected coramercial operation date of the first unit is July 1986 with other units following at one-year intervals. A feasiaility study has been completed by LADWP pursuant to an agreement between IPP and LADWP. In May 1977, several Utah municipalities, which are members of the Intermountain Consumer Power Association, agreed to organize the Intermountain Power Agency (" IPA"). a political subdivision of the State of Utah created pursuant to the provisions of the Interlocal Cooperation Act of the State of Utah, for the express purpose cf undertaking and financing IPP. It is currently contemplated that IPA will issue long. term bonds (estimated to aggregate 58 billion) to finance the construction of IPP. with said bonds secured l by "take-or-pay" power sales contracts between IPA and purchasers of power from IPP obligating those purchasers to pay whether or not power is produced. On August 6.1980, the City entered into such a power sales contract obligating it to purchase a 10.23% share of IPP capacity and energy. Payments by the City of its share of IPP power costs (including debt service) are expected to commence in the fiscal year ending 1987. Based upon preliminary estimates, the Consulting Engineer expects that participation in IPP will result in lower costs of power to the City than purchasing the equivalent amount of power from Edison. Pursuant to the IOA, Edison has agreed to integrate IPP as a resource and to provide transmission services to the City's point of delivery. An environmental impact statement has been prepared by the United States Bureau of Land Manage-ment. On December 19,1979, the Secretary of the Interior announced his approval of the project following the completion of the environmental impact statement. IPA is entering into contracts to acquire approxi-
. mately 39,500 acre feet of surface water anncally from the Sevier River and 5,500 acre feet of ground water I annually from wells located in the vicinity of the proposed plant site. IPA has commenced negotiations to
- j acquire a coal supply but no contracts have been executed to obtain coal for the project.
.White Pine Project i The City, together with other public and private utilities in California and Nevada, has begun preliminary studies to explore the feasibility of constructing a coal fired generating station near Ely, l
Nevada. This generating station would provide approximately 1,500 megawatts of electrical capacity. It is I contemplated that White Pine County would finance and construct this project. The bonds issued by White Pine County would be secured by power sales contracts executed with the various purchasers of power from i the project. The City's entitlement percentage share for feasibility studies is currently expected to bc l approximately 3.6%. It is currently anticipated that the electric utilities referred to above will enter into a l power supply development agreement with White Pine County in the fall of 1980 for the purpose of l conducting further feasibility and environmental studies and obtaining permits and licerises for constructing and operating the project. It is anticipated that White Pine County will issue notes not exceeding
$30,000,000 for such purposes. Such notes will.be payable from the proceeds of long term bonds issued by ; the County or from payments by the participants under such agreements on the basis of entitlement shares.
The estimated commercial operation dates for each of three 500 megawatt generating units are: 1989,1990 and 1991, respectively. Caufornia Coal Project The City has entered into a letter agreement with Edison and other utilities to endeavor to obtain necessary regulatory approvals required to construct and operate the California Coal Project. The project is a proposed 1,500-megawatt plant consisting of three 500-megawatt generating units planned to be located in the eastern desert in Southern California. A Notice of Intent for certification and approval of a plant site was filed with the California Energy Commission on December 28,1979. Proceedings are currently being
. held before that Commission with respect to the Notice of Intent. A decision by the Californn Energy l Commission is expected by January 15,1981. The City's entitlement percentage share for the feasibility
! studies currently is 3.38%. The project is planned to be in operation in the early 1990's with Edison aedng as the project manager. 27 l
North Brawley Geothermal Project Union Oil Company (" Union") has entered into an agreement with Edison wherein Union agreed to construct a 10 megawatt demonstration plant and a separate agreement wherein Union agreed to sell geothermal energy to Edison to operate the 10 megawatt demonstration plant. It has been proposed that the City, along with other public agencies in Southern California, agree to acquire a 509 ownership interest in the demonstration plant for the purpose of studying the technological desclopments and operating experi-ence obtained in the operation of the demonstration plant, all for the purpose of constructing additional geothermal units. The City is studying whether or not to enter into an agreement with LADWP. Burbank, Glendale. Pasadena, Riverside and the Imperial irrigation District to acquire ownership rights in the demonstration plant and the right to acquire options to purchase geoti.-rmal energy from Union in the North Brawley Geothermal Field for approximately 450 megawatts of geothermal energy. The City's proposed entitlement percentage share would be approximately 7% Other Possible Resources The City is also studying thc feasibility of participating in the acquisition of some hydroelectric ( t resources in the State of California. Along with the City of Riverside, the City has filed an application for a preliminary permit to study a proposed 140 megawatt hydroelectric project at Balsam Meadows. FERC Project No. 2858. The City has also filed, along with the cities of Azusa. Banning, Colton and Riverside and the Northern California Power Agency, a competing application with Pacific Gas and Electric Company for
a license to operate the existing hydroelectric facilities at Cresta r.nd Rock Creek puerhouses on the
; Feather River, FERC Project No.1962.
It is unknown whether either of these applications will be granted by FERC. Southern California Public Power Avtbority The City and other public agencies in Southern California are members of a joint powers authonty. As currently contemplated, such authority would provide for the financing and construction of electric generating and transmission projects for participation by some or all of its members. To the extent the City participates in any project developed by the authority,it is anticipated that the City would be obligated for its share of cost on a "take-or-pay" basis whether or not power is generated or delivered. I LITIGATION j Relating to the City and the 1980 Bonds There is no litigation pending or, to the knowledge of the City, threatened. questioning the corporate existence of the City, or the title of the officers of the City to their respective offices, or the validity of the ) 1980 Bonds or the power and authority of the City to issue the 1980 Bonds, or the validity of the IOA. Participation Agreement, Supplemental Agreement, and Transmission Service Agreement, except as noted below. There is no litigation pending, or to the knowledge of the City, threatened, questioning the authority of the City to fix, charge and collect rates for the sale of power and energy by the City as provided in the Resolution. Other Litigatica City of Anaheim, Et Al. v. So. California Edison Company On March 2,1978 the Cities of Anaheim, Riverside, Banning, Colton and Azusa filed an action in the Federal District Court for the Central District of California alleging that Edison was involved in a conspiracy to restrain and monopolize trade and price discrimination all in violation of the Sherman Antitrust Act and the Robinson-Patman Price Discrimination Act. On or about May 5,1978 Edison filed motions for a more definite statement, to dismiss the complaint for failure to state a claim, or in the alternative, to stay the action. The District Cou'rt denied Edison's Motion to Dismiss, but stayed the case 28 l 1 l l 1
i t pending FERC's decision in Docket No. ER 76-205, E-7796 and E-7777. The District Court lifted the stay on September 10,1979 to permit discovery on certain matt:rs. On February 10,1980 the District Court vacated the stay entirely. On November 29, 1979 Edison filed its Answer and Counterclaim requesting damages in an unspecified amount. A status conference is scheduled for February 1981. Counsel to the City
- believes, based upon the allegations contained in the Counterclaim, which allegations constitute the factual basis for such belief that the counterclaim of Edison is without merit.
The City is a party plaintiff or intervenor in various rate cases and other proceedings affecting the Electric System. The City does not beliese that any of these proceedings will have an adverse effect upon the financial condition of the Electric System. AVAILABLE INFORMATION REGARDING EDISON AND SAN DIEGO Information at various dates concerning, among other things, the respectise financial positions of Edison and San Diego and their respective abilities to pay their proportionate shares of capital and other costs of the Project and otherwise to perform their obligations under the various Project agreements is contained in reports and other information filed by each of such companies pursuant to the informational requirements of the Securities Exchange Act of 1934. Such reports and other information on file can be inspected and copied at the office of the Securities and Exchange Commission at Room 6101,1100 L Street, N.W., Washington, D.C.; Room 1228, Everett McKinley Dirksen Building, 219 South
Dearborn Street,
Chicago, Illinois: Room 1100, Federal Building,26 Federal Plaza, New York, New York; and Suite 1710, I i Tishman Building,10960 Wilshire Boulevard, Los Angeles, California. Copies of such materials can also be ! obtained at prescrioed rates from the Commission at its principai office at 500 North Capitol Street, N.W.,
}
Washington, D.C. 20549. Certain securities of each of such companies are listed on the New York. American and Pacific Stock Exchanges and information on file can be inspected at the respective offices of these Exchanges at Room 401,20 Broad Street, New York, New York; 86 Trinity Place. New York, New
'3 York; and 301 Pine Street, San Francisco, California.
LEGALITY FOR INVESTMENT BY SAVINGS AND COMMERCIAL BANKS IN CALIFORNIA The Superintendent of Banks of the State of California has certified that the 1980 Bonds will, when i issued, constitute legal investments for savings and commercial banks in California. i l CERTAIN LEGAL MATTERS Legal matters incident to the authorization, issuance and sale of the 1980 Bonds are subject to the unqualified approving opinion of O'Melveny & Myers, Los Angeles, California, Bond Counsel. Said opinion in substantially the form attached as Appendix I will be printed on the Bonds. Certain legal matters will be passed upon for the City by Alan R. Watts, Esq., Special Counsel, and for the Underwriters by their l counsel, Messrs. Mudge Rose Guthrie & Alexander. I i UNDERWRITING ! The Underwriters have jointly and severally agreed to purchase all, but not less than all, of the 1980 Bonds at a price representing an aggregate discount of 1.712% from the initial public offering prices set forth on the cover page hereof. The Underwriters may offer and sell the 1980 Bonds to certain dealers and others at prices lower than the initial public offering pdces and the initial public offering prices may be changed from time to time by ! the Underwriters.
'9
i TAX EXEMI" TION
)
In the opinion of Bond Counsel, interest on the 1980 Bonds is exempt from income taxes of the Unitedl States of America under present federal income tax laws, and is also exempt from personal income taxes o the State of California under present state income tax laws. l Bond Counsel is further of the opinion that the amount of original issue discount, if any, in the price of the 1980 Bonds (which original issue discount with respect to each maturity of the 1980 Bonds equals, at a minimum, the lesser of (i) tne difference between the principal amount of such 1980 Bonds and the price paid to the underwriters by the original purchasers of a substantial portion of the 1980 Bonds of such maturity, and (ii) the difference between the principal amount of such 1980 Bonds and the price by the Underwriters, calculated in each case without regard to accrued interest) represents interest which is exempt from federal income taxation to the same extent expressed in the preceding paragraph; provide however, that in the case of a sale or exchange of such 1980 Bonds or the redemption of such 1980 Bonds prior to maturity such original issue discount is apportioned among such original purchaser of such 1980 Bonds and subsequent holders, and each respective holder is entitled to treat as exempt from federal income taxation, at a minimum, that portion of his gain,if any, which does not exceed the amount of such original issue discount with respect to such 1980 Bonds multiplied by a fraction the numerator of which is the number of days (computed on an actual calendar day basis) such 1980 Bonds were owned by him and the
, denominator of which is the total number of days from the date ofissuance of such 1980 Bonds to the date f of maturity of such 1980 Bonds.
8 Ic This Official Statement has been approved by the City Council of the City of Ar.aheim Y a CITY OF ANAHEIM, CALIFORNIA
/s/ John Seymour Mayor
/s/ W.O. Talley City Manager j
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/s/ Gordon W. Hoyt October 10,1980 Public Utilities General Manager O
30
R. W. BECK AND AssoclATES APPENDIX A l m .isu - sii m ss e sis
'664m.~ I8 IWI E R4 il l)N .
ii wisi e u ,me u,
,,,,,,-,,~.,,,s....,
m s .. . . ., s - :~ ..:: um October 10,1980 l City of Anaheim Civic Center 200 South Anaheim Blvd. Anaheim, California 92805 Gentlemen:
Subject:
Consulting Engineer's Report Ancheim Electric System Presented herewith is a summary of our analyses, investigations and studies with respect to the proposal l by the City of Anaheim, California (the " City") to issue 584,000,000 of Electric Revenue Bonds, Issue of 1980 (the "1980 Bonds") for the purpose of paying a portion of the cost of acquiring an ownership interest in the San Onofre Nuclear Generating Staticn, Units 2 and 3 and certain common facilities (together j referred to he.cin as the " Project"). The Project is being constructed by the Southern California Edison Company ( Edison") and San Diego Gas and Electric Company. Edison has been designated as Project manager and operator. The City proposes to purchase its ownership share from Edison. Based on estimated costs of the Project, the City expects that the Bonds will be sufficient to acquire a 1.66% ownership interest in the Project. However, the City's present financing program provides that additional bonds could be issued at later dates if necessary to pay any remaining cost of acquiring its ownership interest in the Project. The City entered into a Settlement Agreement dated August 4,1972 with Edison which provided. I among other things, that the City may acquire a 1.66% ownership interest in the Project and that Edison l will provide the necessary transmission services to the City to deliver the output of the Project to the City's system. The City has signed an lategrated Operations Agreement ("IOA") and will sign upon delivery of the 1980 Bonds a Supplemental Agreement for the Integration of Anaheim's Entitlement in San Onofre l i Units 2 and 3 (" Supplemental Agreement") with Edison which provide, among other things, for the operation of the Project by Edison for the benefit of the City. Under the IOA, Edison will continue to supply the City's power and energy requirements over and above the capability of the City's share of the Project and any future City owned resource and credit the City on its monthly billing statements for the power and energy generated by such resources that are integrated with Edison's resources. The Supplemental Agree-ment provides that the Project will be included as an integrated resource pursuant to the IOA. Further. Edison has signed and, upon delivery of the 1980 Bonds, the City will sign the San Onofre Units 2 and 3 l Participation Agreement which sets forth the terms and conditions under which the City will participate in l l the ownership and output of the Project, and the Transmission Service Agreement in which Edison agrees to provide Transmission of the City's share of the output of the Project to the City's point of delivery. For a summary of the San Onofre Units 2 and 3 Participation Agreement, the Transmission Service Agreement, j
-the IOA and the Supplemental Agreement, see Appendices B, C, D, and E respectively to the Official l
Statement to which this report is attached (" Official Statement"). A-1 l
i I l Currently all of the City's power and energy is purchased at wholesale rates from Edison except for interruptible energy which is purchased from other public and privat: electric utilities and governmental agencies when it is available at an eco"mically attractive price. The City expects to use its share of the output of the Project to replace a portion of the power and energy currently being purchased from Edison. [ with resulting long-term economic benefits to the City. THE PROJECT San Onofre Nuclear Generating Station The San Onofre Nuclear Generating Statbn consists of two 1,100 MWe nuclear generating units e currently under construction and an existing nuclear generating unit No.1 (not part of the Project) rated at 450 MWe. The station is located on an 84-acre site approximately three miles south of San Cleme ..e, l California and within the U.S. Marine Corps Base at Camp Pendleton. Except for certain common facilities shared with the existing unit, the Project consists of the two units under construction. These units, Units 2 and 3, are essentially identical in design and will share certain common facilities including the control room and certain other facilities. (y The nuclear steam supply systems fer the Project, suppliM Ly Combustion Engineering, Inc., are closed-cycle pressurized water reactor systems rated at 3,410 MWt each with two reactor coolant loops. The turbine generators are tandem compound units supplied by GEC Turbine Generators, Ltd. (formerly English Electric). The main condensers are being supplied by Ingersoll Rand and will be cooled by l .irculating seawater obtained through large intake lines extending out 5,200 feet into the ocean. The main generators are rated at 1,312,950 kVA. The main transformers will step up the output
+
voltage of each generator to 220 kV for interconnection into the facilities of Edison's transmission netwc k. The Project is being designed and the construction is being managed by the Bechtel Power Company for Edison. Edison is managing the startup program and will operate the two units upon receiving a 1- commercial operating license. It is currently planned that the Project will be owned as tenants-in common by the following utilities.
- o. r.
WP Interest Edison ........ . . . . . 76.55 % )
, San Diego Gas & Electric Company.. 20.00 City of Riverside....... ... . . . . 1.79 City of Anaheim . ........ .. . . . 1.66 Total .. ... . . . . . ....... . . . . .
100.00% Status and Schedile , Construction of Unit 2 began in March 1974 after receipt of a construction permit from the Nuclear Regulatory Commission ("NRC") in October 1973, and the major construction of Unit 3 started in June 1975. Fuel loading for Unit 2 is scheduled for the second quarter of 1981 with commercial operation in December 1981. Fuel loading for Unit 3 is scheduled for the third quarter of 1982 with commerr.ial operation scheduled for Febre oy 1983. An operating license must be issued for each unit before fuel loading raay begin for ".sai unit. As of June 27, 1980, construction of Unit 2 was approximately 93% complete and Unit 3 eas approximately 63% complete. Edison's current schedule anticipates that the
' operating license will be received from the NRC in sufficient time to meet the projected fuel loading and startup schedules. For a discussion of the status of the operating license, see the caption " Regulatory j
Matters - Nuclear Regulatory Commission" in the Official Statement.
Construction work on the Project is currectly halted due to a strike as part of a western regional work stoppage by the International Brotherhood of Boilermakers. The City is unable to predict t'.e duration of the A2
i stoppage, or its impact on the construction schedule or cost of the Project. For a further discussion, see the caption "The Project - Status and Schedule of Construction" in the Officia' Statement. Estimated Financing Requirements for the Project The following table shows the estimated cost of constructing ud financing the Project: Toeal ProjaaIi Cisy's % sre 5 3,270,000 5 54,000 Land and Land Rirbts.. . 11.304,000 Structures and Improvements - . 680,928.000 811,009,000 13,463,000 Reactor Plant Equipment-- 460,008,000 7,636,000 Turbogenerator.. 195.485,000 3,245,000 Accessory Electrical Equipment 58,500,000 971,000 Miscellaneous Power Plant Equipment; . Subtot.1 Direct Construction Costs.. .. 52,209.200,000 536,673,000 648,000 Ad Valorem Taxes (2)- .. .. 4,798,000 Nuclear Fuel (1).. . . . . . . . . . . - . 3,356,000 City's Contingency (3)- . 545,475,000 Total Construction Costs = 8,947,000 Interest Payable to Edison (4)=- .. . . . 8,000,000 Reserve Fund (5) . . 16,800,000 Interest Funded During Construction (6)- 8,950,000 Financing Costs (7). 588.172,000 Gross Requirements - .. 4,172.000 Less: Interest Income (8).. .. . 584.000,000 Net Financing Requirements-(1) Estimated by Edison. (2) Estimated share of tax to be paid by City. (3) Additional contingency not included in Edison's estimated costs to allow funds for uncertainties in the licensing schedule and possible additional design changes. (4) City's share of estimated interest costs paid by Edison through October 1977 and City's interest costs at s% per year on funds expended by Edison from November 1,1977 to October 31,1980. (5) Approximate maximum annual debt service. (6) Based on 8.0% annual interest rate on the 1930 Bonds.100% of the interest on the 1980 Bonds is capitalized until October 1,1982 and 50% of the interest on the 1980 Bonds is capitalized until December 1,1983. (7) includes maximum allocable Bond discount of $8,400,000 and 5550,000 for costs of issuance.
- (8) From temporary investment e an assumed interest rate of 7% of the 1980 Bond proceeds deposited in the Construction Account and in the Interest During Construction account. Also included are 100% of investment income on the Reserve Fund, invested at an assumed interest rate of approximately 9.0%,
' until October 1982 and 50% of such interest income until December 1983. The interest earnings on the Rese ..- Fund are presumed to reach the Electric System Surplus Revenue Fund and as such, subject to the pledge of the 1976 Subordinated Bonds, are required by the Resolution authorizing the 1980 Bonds to be deposited in the Construction Account to the extent not otherwise needed in accordance with such Resolution. A-3
Efects of the Three Mile Island Accident Following the accident at the Three Mile Island Unit No. 2. ("TMI-2"), the NRC has undergone a reorganization and an interruption of its licensing efforts. The licensing requirements for nuclear plants are continually being re evaluated in light of the TMI 2 accident which has resulted in some uncertainty in the licensing schedules for all plants near the completion of construction. The TMI-2 accident analysis of the NRC has resulted in additional design change requir 1ents by the NRC. Edison has estimated that these design changes will result in an additional 530.000.000 plus overhead costs to the Project and have included such costs in their estimate of the total direct construction costs. Additional design changes may be required in the future. I Nuclear Fuel The nuclear fuel cycle consists of four basic elements prior to insertion of the fuel assemblies in a nuclear reactor. These elements include acquisition of uranium concentrates, conversion of the uranium concentrates to uranium hexafluoride enrichment of the uranium hexafluoride and fabrication of the enriched uranium into fuel assemblics. After the fuel has been used in the reactor, it is remosed for reprocessing or disposal. The following table shows the amount of coverage of the necessary materi9 and coverage Edison has acquired for the Project: tJait No. 2 l'ait No. 3 Full Co.erste % Co.erste Full Co+erste 4 Co.erste 7 Through Through 1990 Through Through 1990 (-I Uranium.- 1985 35 1985 52 Conversion . 1990 100 1990 100 Enrichment . 2009 100 2009 100 k Fabrication.- .984 25 1985 55 Storage 1991 100 1992 100 5 At the present time, no operating facilities for the reprocessing of spent fuel are available, and in April l~ 1977 the President of the United States announced an indefinite deferral of reprocessing spent fuel and the use of plutonium. In October 1977, the United States Department of Energy (" DOE") announced its intent to accept and take title to spent fuel from utilities upon payment of a one time storage fee. The details of q. a this DOE program are currently being formulated. Edison is providing on site spent fuel storage capacity for the Project estimated to be sufficient to accommodate storage of the discharges of all spent fuel from Unit l No. 2 through 1991 and from Unit No. 3 through 1992. By then it is assumed that an appropriate program i will have been implemented to accept spent fuel for placement in a suitable repository. l Estimated Cost To De City of Power from the Project The following table shows the estimated annual costs of power from the Project as it is delivered to the City's system for the years ending June 30, 1982 through 1990 based on Edison's essmate of energy generation by the l'roject. 1 4 l
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l A-4
u ESTIMATED ANNUAL COST TO THE CITY OF POWER FROM THE PROJECT (000) F~meel )ser Emdnas Jane 30 IM2 1953 1984 190s 19e6 IM7 19e8 1989 19ee Interest and Amortization (l) ... 5- 52.520 5 6.258 5 7.989 5 7.969 5 7.986 5 7.973 5 7.977 5 7,932 Land Easement (2) . I 2 3 3 4 4 4 4 4 Operation and
%f aintenance(2) .. 245 500 925 1.317 1.471 1.612 1.767 1.937 2.123 Administrative and Gerera!(2) 143 299 375 416 452 492 535 582 634 Nuclear Insurance (2) 48 115 157 174 190 206 224 244 266 Nuclear Fuel (3) 103 837 1,763 2.052 1.890 2.347 2.889 2.493 2.588 Renewals and Replacements (4)_. 107 270 412 445 481 519 561 606 654 Taxes (5) 5 56 107 112 112 112 112 112 112 Transmission (6) 40 100 143 145 147 149 152 154 156 Subtotal 5692 $4.699 510.143 512.673 512.716 513.427 514.217 514.109 514.519 Less; interest Earningsl7) .. -
275 579 727 727 727 727 727 727 Total 5692 54.424 5 9.564 511.946 511.959 512.700 513.490 113.382 513.792 Energy Delisered (%11 ions of kWh)(8) - 32 102 167 199 212 222 222 222 222 Cost (% fills per kWh) 21.6 43.4 57.3 60.0 56.6 57.2 60.8 60.3 62.1 t (1) Based on 100% of interest capitalized until October 1,1982 and 50% of the interest capitalized until December 1,1983. Remaining interest to be paid from revenues. (2) Estimated by Edison. (3) Based on Edison nuclear fuel costs. (4) Estimated at 1.0% of capital costs and escalated at 8.0% per year. (5) Based on the City's share of ad valorem taxes at the time of acquiring its ownership share. (6) Based on the Transmission Service Agreement. (7) Earnings on the Reserve Fund not deposited in the Construction Account at an assumed interest rate of apprcximately 9%. ! (8) Computed as the City's share of estimated total generation at the Project site,less energy transmission losses estimated at approximately 1%. ENERGY AND CAPACITY REQUIREMENTS During the last five ftscal years, the City's electric customers have increased by 15.2%. from 71,684 customers in 1976 to 82,571 customers in 1980. During the same period of time, the City's electric energy requirements have increased from 1,583,260.000 kilowatt-hours in 1976 to 1,834,789,000 kilowatt . hours in 1980, a 15.9% total increase and a 3.8% increase per year. Peak demand increased from 330,400 kilowatts in 1976 to 396.000 kilowatts in 1980 and 408.000 kilowatts in July 1980 A-5
Historical Number of Custa,mers and Imad Requirements Averste % Emergy % Nombre of Peak % Fiscal )eer Ending June 30 Increaw Requirements Increase Customers Demand Increnw Ili (M%hi #1: 61%s ali 1976.. . . 71,684 - 1,583,260 1977.. 330.4 - 75,539 5.4 1,661,338 4.9 328.0 1978... 77,439 (0.7) 2.5 1,722,736 3.7 347.6 1979.. . . 80,038 6.0 3.4 1,834,202 6.5 1980.. 395.6 13.8 82,571 3.2 1,834,789 0.0 396.0 0.1 l (1) Over previous year. I The City's load growth between 1979 and 1980 was lower than that experienced in prior years only a slight increcse in energy requirements. The City feels the slower growth rate can prima attributed to milder than average temperatures during the year and to the City's ongoing conservation
' efforts. The City'; forecast load requirements, shown on the following table, are based on a fo has submitted to the California Energy Commission. The forecast shows a higher rate '.,f growth than experienced in the 19791980 period but less than that experienced over the previous five-year period. The
- load forecast, as developed by the City, was prepared considering, amor.g other things, economics region, price clasticity and the City's ongoing conservation programs.
e Forecast Peak and Energy Requirements (I) Fiscal i Vest
> Peak % Emercy Endine Demand June 3o increase Requirements lacrease (MW) (2i SIW hs (2) 1981: . 415 -
1,905,000 - 1982.. 428 3.1 1,999,000 4.9 1983.. . 450 5.1 2,107.000 5.4
. 1984- .
473 5.1 2,215,000 5.1 1985.. . 496 4.9 2,313,000 4.4 1986.. 515 3.8 2,399,000 3.7 1987_ 532 3.3 2,478,000 3.3 1988... . . 547 2.8 2,551,000 2.9
- 198 9.. . . ... . . . . . . . 562 2.7 2,622,090 2.8 1990.= . 576 2.5 2,688,000 2.5 (1) Estimated by the City.
(2) Over previous year. POWER SUPPLY PLANNING Currently, all of the City's electricity is purchased at wholesale rates from Edison except for inter-
' ruptible energy which is purchased from other public and private electric utilities and governmental agencies when it is available at an economically attractive price. For a discussion of the contractual arrangements between the City and Edison and the City and the Nevada Power Company which has provided certain economy energy to the City (See the subcaption, " Power Supp!y" under the ca A-6
of Anaheim - The Electric System"in the Official Statement). The capacity and energy expected to be received from the Pqiect will be used to displace a portion of the power currently purchased from Editon. Future Power Supply Reneerees The City has an ongoing program to investigate potential power supply resources, in * ' tion to tne Project, which could be used to offset purchases of power from Edison as well as to meet all or some portion of forecast load growth. The City has contracted to purchase power from the Intermountain Power Prweet ("lPP") and is involved in the fea.ibility studies of other projects. The City plans on evaluating each of these potential future resources on the basis of providing an economically reliable supply of electric power to its customers. The status of IPP and other projects under consideration are described herein. Intermountain Power Project in 1974 the City entered into a membership and study agreement with the California cities of Riverside, Burbank, Glendale, Pasadena and the Department of Water and Power of The City of Los Angeles ("LADWP") and with the Intermountain Consumer Power Association, composed of a group of Utah municipalities and rural electric cooperatives. The purpose of the membership and study agreement was to investigate the feasibility of constructing and operating IPP. The proposed IPP is a 3.000-megawatt
. coai fired electric generating plant consisting of four 750-megawatt generators, to be located in Millard ! County in central Utah. The presently projected commercial operation date of the first unit is July 1986 with other units following at one year intervals. The IPP plan includes construction of two 500 kV direct-current transmission lines from the plant site to the Leon Substation it. he vicinity of Victorville. California where the lines will be connected to the LADWP transmission grid. The City will receive its power over this transmission line. A feasibility study has besn completed by LADWP pursuant to an agreement between IPP and LADWP. As currently contemplated, LADWP will act as project manager.
In May 1977, several Utah municipalities, which are members of the Intermountain Consumer Power Association, organized the Intermountain Power Agency (" IPA"), a political subdivision of the State o.
; Utah, for the express purpose of financing and constructing IPP. It is proposed that IPA issue long term bonds (estimated to aggregate approximately 58 billion) to fmance construction of IPP with said bonds secured by "take or pay" power sales contracts between IPA and purchasers of power from IPP obligating the purchasers to pay whether or not power is produced. The City has entered into such a contract to i
purchase a 10.23% share of IPP capacity and energy. Payments by the City of its share of IPP costs (including debt service) are expected to commence in 1987. Based on preliminary estimates, it is expected that participation in IPP will result in lower costs of power to the City than purchasing the eqW+.. amount of power from Edison. Pursuant to the IOA, Edison has agreed to integrate IPP as a resource and to provide transmission services to the City's point of delivery. An environmentalimpact statement has been prepared by the United States Bureau of Land Manage-ment. On December 19,1979, the Secretary of the Interior announced his approval of the project following the completion of the environmental impact statement. IPA is entering into contracts to acquire approxi-mately 39,500 acre feet of surface water annually from the Sevier River and 5,500 acre feet of ground wster annually from wells located in the vicinity of the proposed plant site. IPA has commenced negotiations to acquire a coal supply but no contracts have been executed to obtain coal for the project. White Pine Project The City, together with other public and private utilities in California and Nevada, has begun
, preliminary studies to explore the feasibility of constructing a coal-fired generating station near Ely. ! Nevada. This generating station would provide approximately 1,500 megawatts of electrical capacity. It is l contemplated that White Pine County would finance and construct this project. The bonds issued by White Pine County would be secured by power sales contracts executed with the various purchasers of power from the project. The City's percentage share for feasibility studies is currently expected to be approximately 3.6% It is currently anticipated that the electric utilities referred to above will enter into a power supply development agreement with White Pine County in the fall of 1980 for the purpose of conducting a study to A7
.;
determine the feasibility of constructing rnd operating the project. The estimated commercial operatio dates for each of three 500 megawatt ge.1erating units are: 1989,1990 and 1991, respectisely. It is anticipated that White Pine County will issue notes not exceeding $30.000.000 for conducting a fea study and licensing of the Project. California Coal Project The City has entered into a letter agreement with Edison and other utilities to endeavor to obtain necessary regulatory approvals required to construct and operate the California Coal Project. The project is a proposed 1,500-megawatt plant consisting of three 500-megawatt generating units planned to be located in the castern desert in Southern California. A Notice of Intent for certification and approval of a plant site was 61ed with the California Energy Commission on December 28,1979. Proceedings are currently b held l' lore that Commission with respect to tN Notice of Intent. A decision by the California Energy Comruission is expected by January 15,1981. The City's entitlement percentage share for the feasibility studies currettly is 3.382. The project is planned to be in operation in the early 1990's with Edison acting the pr.8ect manager. North Brawley Geothermal Project Union Oil Company (" Union") has entered into an agreement with Edison wherein Union agreed to construct a 10 megawatt demonstration plant and a separate agreement wherein Union agreed to sell geothermal energy to Edison to opera;e the 10 megawatt demonstration plant It has been proposed that the City, along with other public agencies in Southern California, agree to acquire a 50'7 ownership interest i the demonstration plant for the purpose of studying the technological developments and operating es ence obtained in the operation of the demonstration plant, all for the purpose of constructing additional geothermal mits. j The City is studying whether or not to enter into an agreement with LADWP Burbank. Glendale. Pasadena, Riverside and the Imperial Irrigation District to acquire ownership rights in the demonstration plant and the right to acquire options to purchase geothermal energy from Union in the North Braw Geothermal Field for approximately 450 megawatts of geothermal energy. The City's proposed entitlement percentage share would be 7% Other Possible ltesources j The City is also studying the feasibility of participating in the acquisition of some hydroelectric resources in the State of California. Along with the City of Riverside, the City has filed an application for a preliminary permit to study a proposed 140 megawatt hydroelectric project at Balsam Meadows. Federal i Energy Regulatory Commission ("FERC") Project No. 2858. The City has also filed, along with the cities of Azusa, Banning, Colton and Riverside and the Northern California Power Agency, a competing application with Pacific Gas and Electric Company for a license to operate the existing hydroelectric facilities at Cresta and Rock Creek powerhouses on the Feather River, FERC Project No.1962. It is unknown whether either of these applications will be granted by FERC. Southern California Public Power Authority 1 j The City and other public agencies in Southern California are members of a joint powers authority. A
' currently contemp;sted, such authority would provide for the financing and construction of electric generating and transmission proje:ts for participation by some or all ofits members. To the estent the City participates in any project developed by the authority,it is anticipated that the City would be obligated for its share of costs on a "take or pay" basis whether or not power is generated or delivered.
PROJECTED RESOURCES AND POWER COSTS City's Power supply Pending further development of IPP or other generating resources the City may acquire, we have assumed ;Tein that the City's power requirements above that produced by the Project will be met by A-8
l l purchases from Edison through the IOA. The following table shows the annual peak and energy require-ments as estimated by the City and the estimated amounts of peak and energy expected to be supplied from the Project and from Edison purchases. raa iuw , r.rce. iwn .I 6w m, l r.rcha ed beeeeeeed
*.rths.ed Capsesty Reg. ore- fre.e free. the R egenre. frene by ibe Decal ) ear u Pr.,ne t
l r m.: J w . u Pr.,ni _ r.n 415.0 415.0 - 1,905 1,905 - 1981.. ... . .. j 428.0 428.0 -( l ) 1,999 1,967 32 i 1982... . . Q .0 435.5 14.5(1) 2,107 2,005 102 198 3.... .. . f 473.0 444.1 28.9 Ulf 2.048 167 1984.. . ... .. 496.0 467.1 28.9 2,313 2.114 199 l' 1985.. .. 515.0 486.1 28.9 2.399 2,187 212 l 1986.. . l 532.0 503.1 28.9 2.478 2,256 222 1987.. . . . ' 547.0 $18.1 28.9 2,551 2.329 222 1988.. . . 562.0 533.1 28.9 2,622 2.400 222 1989= . . . . .. 576.0 547.1 28.9 2,688 2,466 222
- 1990= . ....
l (1) The City will receive c:rtain capacity credits for the Froject for the years ending June 30,1982 and 1983 from Edison; however, not all capacity from the City's share of th: Project will be available to mee. the City's forec't peak load for those years. Under the provisions of the IOA, the City will receive credit for the amount of capacity ofits integrated resources less transmission losses and less the City's share of Edison system reserves. For purposes of our analyses, we have assumed the transmission losses would be approximately 1% and that Edison system capacity reserves would be 20% for each year of the study. Cost of Power to the City l l We have projected the costs of power to the City for the period 1982 through 1990 on the basis that the City would purchar I Om Edison all power requirements not supplied from the Project. In accordance with l
- the IOA, the City will purchase power from Edison at Edison's partial requirements rates. In addition. when
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a City Capacity Resource, such as the Proje:t, is not available, the City shall purchase Contract Energy, which is the amount of energy capability associated with the capacity credit,less energy received from City i Integrated Resources. During the study period Contract Energy is estimated to average less than 5% of all energy purchased from Edison by the City. The Contract Energy cost is determined by multiplying Edison's cost of fuel for conventional oil-fired combustion turbine and combined-cycle generating resources measured in dollars per Btu by the weighted heat rate of these generating resources measured in Btu's per kilowatt hour. This rate plus a charge for certain other costs associated with fuelis then adjusted for transmission losses to the City point of delivery. Should extended outages occur at the City Integrated Resource, the City will be required to provide or purchase from Edison Replacement Capacity, in accordance with the IOA. The amount of Replacement Capacity that the City must purchase is the greater of (i) the maximum kilowatt difference (rated ' generating capabilitpf the City's Integrated Resource for a given day less the capacity available from the resource that day) which has existed for 70 or more consecutive days immediately preceding that day, or (ii) the maximum kilowatt difference which exists for that day and has existed for 100 or more non-consecutive l days during the 180 consecutive-day period immediately preceding that day. The City will not be required to purchase Replacement Capacity until a generating unit has been out or partially out of operaticn for more than 70 consecutive days or more than 100 days out of 180 consecutive days and the City has exhausted its maintenance reserve for each unit for that year. The maintenance reserve is an amount of megawatt-days i A-9
l - J t l l i established for each City's Integrated Resource each year from which the City may withdraw days to be credited against City's Replacement Capacity obligation for each unit. The cost of Replacement Capacity, measured in dollars per kilowatt-day, is based on the cost electric generating facilities installed during the five years just prior to the current year. H expects to be required to pay the cost of Replacement Capacity only under unusual circumst from extended outages of its integrated Resourcesc Therefore, we have no' considered the effect Replacement Capacity costs on the City's power supply costs. Based upon the foregoing assumptions, forecast wholesale power rates from Edison and ! costs, the following table shows the estimated power supply costs for the City for the period from 198 l through 1990, with and without Project ownership. The savings to the City resulting from P as shown on that table increase from 5794,000 in the fiscal year ending June 30,1982 to 59,510,000 fiscal year ending June 30, 1990. However, these projected savings will differ from actual savings to the extent that actual conditions differ from those assumed. ESTIMATED POWER SUPPLY COSTS AND SAVINGS TO TifE CITY Fiscal Year ending June 30 (000) 1982 1983 1984
$ ANNUAL POWER COSTS 1985 1986 1987 1988 1989 1990 I ;
i WITH THE PROJECT g San Onofre Proget Costs......- 5 3 692 5139.153 4.424 5169.473 9.564 5195.265 11.946 5 II.989 1 12 'no 5 13.490 $ 13.382 5 13.792 chased Power Costs (1). 114.502 217.046 240.026 265M0 287.t t i 307.793 Total Annual Power 1 Costs . 1 Total Energy Requirements 1115.194 5143.577 5879.037 5207.211 5229.075 5:52.726 5279.370 1300.493 1 ( G W h)..-. 1.999 2.107 id 2.215 2.313 2.399 2.478 Unit Power Costs (Mills /kWhl 57.6 2.551 2.62: 2.688 68.I 80 8 89 6 95.5 102 0 ANNUAL POWER COSTS 1095 114 6 119 6 WITHOUT THE PROJECT l 1 Purchased Power Costs-Unit Power Costs (Mills /kWhl Savings to the City (2)
$115.988 1
58 0 5144.884 68.8 5180.862 81.7 5210.839 5235.139 5260.338 5287.538 5309.638 $331 91.2 98.0 105.1 112.7 I l 8. I 123 2 794 5 1,307 5 1.825 5 3.628 5 6.064 5 7.612 5 8.168 5 9.145 5 9.510 (1) Based on projected Edison energy and capacity rates and projected Edison contract energy cos lj l; (1) Estimated savings to City are calculated from estimates of Project costs and Edison wholesale p rates which are based on the assumptions set out in this report. The savings to the City resulting from Project ownership shown above will differ from actual savings to the extent that actual conditions differ from those assumed. 1 1 A 10
PROJECTED OPERATING RESULTS Based on the foregoing forecast of power costs and on certain data supplied by the City, we have prepared a projection of operating results of the City's electric system for the fiscal periods ending 1981 th' rough 1985. In these projections, we show increases in revenue requirements beyond those generated by the City's existing rates. Required revenues are based on covering projected operating expenses, debt smice on the 1980 Bonds and previous bonds issued by the City, and on meeting the City's projected capital improvement program and other non-operating financial commitments. The additional revenues required are primarily to meet future capital improvements and escalating purchased power costs from Edison. PROJECTED OPERATING RESULh (O't rec. v , Emm.: h., 3e IMI IM2 IM3 1964 IMS Gross Revenues: Revenues from Sales of E1cetricity: At 1980 Average Charges.. .. 5100.280 $105.217 5110.864 5116.545 5121.731 Additional Revenues Required (1). .. 11.240 32.992 55.454 85.775 110.510 Subtotal- .. 5111,520 5138,209 5166,318 5202.320 5232.241 Miscellaneous Operating Revenues (2) 274 263 275 287 303 Interest income (3)..._. ..... .. . . . . 723 922 1,116 1.359 1.576 Interest income (Reserve Fund) (4). ... 478 727 727 727 727 Total Estimated Gross Revenues- 5112.995 5140,121 5168.436 5204.693 5234.847 Operating Expenses: Power Production - San Onofre Units 2 and 3.. .._ . 5 0 5 692 5 2.179 5 3.885 5 4.684 Purchased Power - Edison . 96,632 114,502 139.153 169.473 195.265 Other Operation and Maintenance Expense (2) . . . . - . . . ~- 9.443 10.294 11.431 12.303 13.205 Total Estimated Operating Expenses Excluding Depreciation and Amortization... 5106,075 5125,488 5152,763 5185.661 5213.154 Total Estimated Net Revenues -- ... 5 6.920 $ 14,633 $ 15,673 5 19.032 5 21.693 Debt Service on the Bonds: Outstanding Bonds.. .. .. .. 5 1,064 5 1,057 5 1.050 5 1,047 5 1.048 Proposed Bonds (5) . 0 0 2.520 6.258 7.989 Total Debt Service on the Bonds.. .. $ 1,064 5 1,057 5 3.570 5 7.305 5 9.037 Balance for Other Purposes (6) 5 5,856 5 13,576 5 12,103 5 11.727 5 12.656 Debt Service Coverage on the Bonds (7) ... 6.50 13.84 4.39 2.61 2.40 (I) Additional revenues required primarily to meet costs of future capital improvements and escalating purchased power costs from Edison. (2) Estimated by the City. (3) Estimated by the City. Includes interest earnings on existing Reserve Fund at an assumed 8.5% interest rate and interest earnings on other funds including unrestricted cash and investments at an assumed 7% interest rate. (4) For the 1980 Bonds only at an assumed reinvestment rate of approximately 9.0%. (5) Based on 100% of interest capitalized to October I,-1982; 50% of interest capitalized to December 1. 1983. A-11
(6) includes, among other things, payments to renewal and replacement account as required Resolution and a payment to the general fund, funds for electric system capital improsements payment of 52,280,000 in 1981 on subordinated bonds. In addition, the balances shown include in earnings on the Reserve Fund expected to be available for transfer to the Construction Fund. im Ending June 30 IMI 1982 1983 19N4 Interest Earnings (000).. 5478 5727 5452 5148 (7) Ratio of total estimated net revenues for other purposes to total debt service on the bonds. CONSIDERATIONS AND ASSU.%fP'TIONS The estimates and projections, contained herein, of the operations of the electric system based upon, among other things,information made available to us by Edison, as manager of from the City. These estimates and projections are also based upon the following principal cons appearassumptions and to be reasoneble:which in light of inflation rates and other conditions presently prevailing in
- 1. The forecast power and energy requirements were estimated by the City.
( 2. The capital expenditures and operation and maintenance expenses of the City'. t ectric s will follow historical trends and have been estimated by the City. i 3. Commercial operation for Units 2 and 3 of the Project, respectively, will be December 1981 and February 1983 as estimated by Edison. 1
- 4. Based on Edison's estimate of Total Direct Construction Costs of the Project, the City's sha of such costs will be 536.673,000.
4
- 5. Nuclear fuel costs, ad valorem taxes and all other operating costs of the Project were estimated by Edison.
g 1 4 6. Each unit of the Project will have a plant factor of 35% during the first year of operation 604 in the second and third years of operation, and 70% thereafter as estimated by Edison.
- 7. Power and energy requirements of the City beyond that provided by the Project will be purchased from Edison in accordance with the principles of the Integrated Operations Agreement. Th City's participation in the Intermountain Power Project or other potential resources available d the forecast period have not been included in forecast power costs to the City.
- 8. The Bonds will be amortized over 24 years at an annual interest rate of 8%. Reinvestment rate for the Reserve Fund is approximately 9.0%. Reinvestment rate in all other funds is 7%.100% of the interest on the Bonds is capitalized until October I,1982 and 50% of the interest on the Bonds is capitalized until December ~
1.1983.100% reinvestment earnings on the Reserve Funi will be deposited j in the Construction Fund until October 1,1982 and 50% of reinvestment earnings on the Reserve Fund will be deposited in the Construction Fund until December I,1983.
- 9. During the study period, the City will finance the estimated costs of the electric system capita improvement program from current revenues.
- 10. Transmission for Project power will be provided by Edison at a rate of 53.71 per kilowatt escalated at 1.5% per year with losses from the Project to the City at 1.09% per year.
j .
- 11. Renewals and replacements are assumed to be 1% of direct construction costs escalated at 8.0% per year.
.l
- 12. Projected wholesale power and energy rates for Edison are based on recent rate filings, electri system plans and forecasts and their generation resource program. Annual escalation factors for coal and nuclear fuel were 8.0% per year. Fuel oil and natural gas were escalated at 25% from 1980 to 198 20% per year from 1981 to 1983,16% from 1983 to 1984, and 10% thereafter, utilizing a base rate for A-12
r I fuel oil of $28.00 per barrel in 1980. Operation and maintenance expenses were escalated at approxi. mately 10.0% per year. The resulting average wholesale power rate during our study increased at an average annual rate of 9.3%. CONCLUSIONS Based upon our studies, investigation and analyses, the assumptions set forth in this letter and the information supplied by the City and Edison with respect to the proposal by the City to acquire an ownership interest in the Project, we are of the opinion that:
- 1. The acquisition of an ownership interest in the Project by the City and the operation of the Project under the principles of the Integrated Operations Agreement will provide the City with an economical long-range source of power that will result in lower power supply costs than would result from the continued purchase of all its power requirements from Edison.
I
- 2. The forecast overall revenue requirements from the sale of electricity by the City are reduced by the City acquiring an ownership share in the Project rather than continuing to purchase all of its power requirements from Edison.
- 3. The estimated cost of power from the Project compares favorably with forecast purchase power rates from Edison and with available cost projections of other generating resources potentially available
! to the City in the 1980's.
- 4. The construction cost estimates provided by Edison for the Project are comparable with the costs expected for similar projects being developed within the same time frame.
Informttion appearing in the Official Statement which was taken from or based upon data prepared by us,is properly and accurately reficcted in the Official Statement. Respectfully submitted.
/s/ R. W. BECK AND ASSOCIATES l
l l l A-13
APPENDIX B
SUMMARY
OF THE SAN ONOFRE UNITS 2 AND 3 PARTICIPATION AGREEMENT The following is a general summary of certain provisions of the Participation Agreement. Such summary does not purport to be complete and accordingly is qualified by reference to the full tex Participation Agreement, copies of which may be obtained from the City, upon written request. Purpose Edison and the Cities of Riverside, Anaheim and Banning entered into a Settlement Agreement, da l
- August 4,1972, under which Edison offe ed to said Cities participation in the ownership and ou 2 and 3 at San Onofre. Anaheim and F iverside have indicated their intent to participate in Units 2 and l The purpose of the Participation Agreement is to provide for the terms and conditions under l
Parties will participate in the ownership and output of Units 2 and 3. Parties The parties to the Participation Agreement are Edison, San Diego, Riverside and Anaheim San Diego have signed the Participation Agreement and the City will sign upon delivery of the Ownership t Upon execution of the Participation Agreement Edison, San Diego, Riverside and Anaheim facilities as tenants in-common as follows: Sea Diego Rherside Aasheim Edieen l 1.66% 76.55% 20.00% 1.79 % Units 2 and 3 .. .. . . .. . .. .. 1.49 1.39 77.12 20.00 Common Facilities... ... ., . Project Easements 0 80.00 20.00 0 Unit I . . . . . . . . . . . . . . 1,79 1.66 Units 2 and 3.; .. . . . . 76.55 20.00 80.00 20.00 0 0 Switchyard Area = Construction Agreement Edison assigns to Riverside and Anaheim, respxtively, an undivided 1.79% and 1.66% intere Construction Agreement as it pertains to Units 2 and 3. Riverside and Anaheim acquire all right l assume all duties and obligations of a " company" under the Construction Agreement, which sha j amended to provide for payment by Riverside and Anaheim of their proportionate shares of exp l Operating Agreeseent The parties shall execute an Operating Agreement, covering the operation and mainte and 3, which shall be accomplished in substantially the same manner and terms and cond Operating Agreement provides for Unit 1. F4 son will be operating agent for Units 2 and principal on its own behalf and as agent fW the other parties. Each of the parties shall be entitled to their proportionate share of the benefits and bear t f proportionate share of the burdens incurred by Edison and San Diego in the performa under the agreements entered into by them for the construction, operation and maintenan l and the common facilities. Billing and Payment Riverside and Anaheim will reimburse Edison within fifteen (l$) days after receipt of invoice l construction costs incurred prior to execution of the Participation Agreement. Construction co ( after date of execution shall be paid in the manner prescribed in the Construction Agreement. l B-1 l
)
1
time as direct payment arrangements are made, Edison will bill oportion- Riverside an ate share of costs of all lease and taxes and assessments. project casements, plant site casements, the Units 2 a Edison and for the acquisition, rer.tal and developm after execution of the Participation Agreement. Riverside and Anaheim will reimburse Edison for costs incurred to effect their and 3 each month within fifteen (15) days after receipt of invoice. Payments not made on or before the due date will be payable, with intere annum or the maximum rate of interest, whichever is less. Administration Anaheim and Riverside shall designate representatives in accordance with Section tion Agreement within ten (10) days after execution of the Participation . ns Agree set forth in Section 7 will become effective when Riverside and Anaheim begin pa billing and payment procedures set out above. j Liability and Insurance
?
{% The provisions Agreement of except as follows: Sections 8 and 9 of the Construction Agreement shall appl k, The term " company" shallinclude Edison, San Diego Riverside, and Anaheim. paid as set forth in Sections 9.5 and 9.7 of the Construction Agreement shall be cha 76.55%, San Diego - 20.00%, Riverside - 1.79%, and Anaheim - 1.66%. Riverside and Anaheim will be added as named insured 3 on those policies o effect. Each will make application to Nuclear Mutual Limited, to become member ins policies ofinsurance presently in effect for San Onofre Units 2 and 3 for (a) all risk-buil insurance. If application for such insurance is accepted through the term of the Participation Agreement. If the application is not accepted Riv f* will each secure and maintain insurance coverage from the Nuclear Energy Liability Association and the Mutual Atomic Energy Reinsurance Pool, or their equivalent. [ Riverside and Anaheim agree to release Edison and San Diego from any and alll damage to, or loss or use of. Units 2 and 3, which is a result of the construction, opera Unit 1, the Edison Switchyard, the San Diego Switchyard, the Interconnection Facilit t generating units. Edison and San Diego release Riverside and Anaheim from any an from damage to or loss of use of Unit 1, which is the result of the construcuon, operatio Units 2 or 3, or any additional generating units. Nuclear Fuel The Project Director, Edison, will make arrangements for the supply of nuclear fuel. I negotiate, execute, administer, perform and enforce nuclear fuel agreements as its d L apnropriate. The proposed Nuclear Fuel Agreements will be submitted to the coordinating fp for approval prior to execution; provided, that any Nuclear Fuel Agreement may be Director without its being submitted to the coordinating representatives as long as ob; are consistent with the Nuclear Fuel Budget. !;h g Except as otherwise provided in the Participation Agreement, costs incurred by the Pro connection with the nuclear fuel shall be shared by each party in pr > portion to its generation i share. Each party will own an undivided interest in all nuclear fuel equal to its generation en and may determine its own method of Snancing. With certain limitations, any party may B-2 l
directly all or a portion of its share of natural uranium (U,0 ) concentrates if the election is communicated to the Project Director sufficiently in advance. One year prior to each date on which natural uranium (U,0,) concentrates are scheduled to be delivered, the Project Director will notify all parties of the quantity and specifications of uranium concentrates required. Within one month of such notification each party will provide the Project Director with evidence that the party has firm commitments for providing the required uranium. If such evidence is not satisfactory, the Project Director may proceed to arrange for delivery of the deficient party's uranium concentrates and the cost sha:W silled to the deficient party as incurred. If the Project Director is unable to arrange for the uranium to cover a deficient party's commitment, then party shall be subjected to an appropriate reduction in its entitlement to the Net Energy Generation during the cycle. Each party shall pay its proportionate share of the total amount due for the purchase of nuclear fuel in advance of the date of which payments therefor by the Project Director become due. Taxes All taxes or assessments levied against each party's ownership or beneficial interest in San Onofre shall be that party's sole responsibility. Riverside and Anaheim shall reimburse Edison or San Diego for all taxes which are levied against Edison or San Diego as a result of the transfer to Riverside and Anaheim of a portion of Edison's ownership interest in Units 2,3 or the common facilities. These taxes shall not include any tax on capital gains which may result from such transfer. Teriaination Riverside and/or Anaheim may terminate the Participation Agreement if unable to attain any required approval frcm regulatory and other authorities. If construction of Units 2 and 3 is not continued by the remaining parties the accumulated construction costs incurred by the terminating party shall be borne by such terminating party. If construction is continued Edison shall acquire the terminating party's interest in San Onofre and shall reimburse such terminating party for its incurred construction costs. Additional Generating Units The parties reserve any right to participate in any additional generating unit at San Onofre, provided, that Riverside and Anaheim shall neither be grantsd nor denied participation rights by reason of any provision of the Participation Agreement. If additiomi generating units are constructed, interests in the project casements shall be reallocated among the participants. Useontrollable Forces No party will be considered in breach of any obligation other than the obligation to pay money, to the extent failure of performance is due to an uncontrollable force as defined in the Participation Agreement. Any party unable to fulfill obligations by reason of an uncontrollable force shall exercise diligence to remove the inability with all reasonable dispatch. , l Miscellassons Provisions Edison shall, within 12 months after receipt of payment from Riverside and Anaheim of Edison's costs in connection with the construction of Units 2 and 3, procure releases of the interest transferred from the lien of Edison's trust indenture and deliver to Riverside and Anaheim a bill of sale covering their respective ownership interests in Units 2 and 3. Each party will be responsible for making arrangements necessary to transmit its entitlement of San Onofre power from San Onofre to its electric system. Except as provided in the Participation Agreement, Riverside and Anaheim are each responsible for obtaining from all regulatory authorities such authoriza-tions and approvals as are necessary for its participation in the construction and operation of San Onofre and its performance of the provisions of the Participation Agreement. Each party waives the right to seek partition of San Onofre and the Project Easements. Each further agrees that it will not resort to any action at law or in equity to partition the same. Before any party may B-3 u
t shall have the right of first refusal. assign to any entity, other than each anothe Units 2 and 3. the common facilities and the appropriate edjustments will be made. n ngplant pecG n to si I i,.. i< 1 4 J 1 1 B-4
0
.I' APPENDIX C -i
SUMMARY
OF THE EDlSON-ANAHEIM SAN ONOFRE TRANSMISSION SERVICE AGREEMENT The following is a general summary of certain provisions of the Edison-Anaheim San Onofre Transmis-sion Service Agreement Ohe " Agreement"). Such summary does not pur> ort to be complete and according-ly is qualified by reference to the full text of the Agreement, copies of which may be obtained from ' ne upon written request. Purpose The purpose of the Agreement is to provide transmission of Anaheim's share of the energy from the Edison Switchyard at San Onofre Nuclear Generating Station to Anaheim's point of delivery. Tens The Agreement shall become effective on the date following execution by the parties when accepted fo filing by the Federal Energy Regulatory Commission. The Agreement shall remain in effect for 50 years unless terminated sooner by (i) written agreement of the Parties: (ii) termination of the Integrated Operations Agreement; or (iii) termination of Units 2 and 3 ownership or operating agreements. If termination of the Integrated Operations Agreement is given by either party, the parties shall take actions to develop a new agreement for furnishing the services referred to in the Settlement Agreement. Edison ha signed the Agreement and the City will sign upon delivery of the 1980 Bonds. Taa Service Except as modified in the Agreement, transmission service shall be provided in accordance with th Contract Rate TN. Service shall commence on the Date of Firm Operation for Unit 2 et which time Contract Capacity shall be 18.26 megawatts, the City's share of the expected maximi.m rated capacity Unit 2. On the Date of Firm Operation for Unit 3, Contract Capacity shall be increased by 18.26 megawatts, the City's share of the expected maximum rated capacity for Unit 3, and Contract Capacit shall, for each unit, be 18.26 megawatts. Edison will accept delivery of Anaheim's Unit 2 and Unit 3 energy at Edison's 220 kV buses at San Onofre at rates of delivery not exceeding Contract Capacity, and will simultaneously deliver a like amount of energy less tran mission losses to Anaheim at the Point of Delivery. The Point of Delivery is Anahe Lewis Substation. During times when Anaheim may be required to provide its share of the auxiliary power requirement at San Onofre, Edison will accept deliveries from Anaheim at the Point of Delivery and simultaneously deliver the like amount less transmission losses to Edison's 220-kV buses at San Onofr enable Anaheim to meet its requirements. l ' Edison reserves the right to temporarily interrupt or curtail services (1) upon reasonabic advance notice to Anaheim to make repairs or modifications or to perform maintenance work, (2) without notice to I Anaheim if such interruption or curtailment is because of an Uncontrollable Force. Charges and Trans-i=='u= f ama = Charges wit be made in accordance with the rates set forth .n Contract Rate TN. Circuit mileage agreed to be 47.4 miles, subject to change. No additional narge shall be made for auxiliary power requirements. Transmission losses will be determined in accordance with the rates set forth in Con using the circuit mileage agreed to above. Edison reserves the right in furnishing transmission service to file with the Federal Energy Regulatory Commission for changes in rates, charges, classification, or services, or any rule, regulation or contract as provided in the Integrated Operaticns Agreement. C-1 l l
Billing and Payawat Prior to the 15th day of December of each year, Edison will render a bill to Anaheim for services to provided during the following year. One-twelfth of such annual charge shall be due amd paya Anaheim on the l$th day of each month. Payments which are not made in full by the duc date shall acc interest at 10% per annum on the unpaid balance. Integration Agreenwnt Provisions Provisions of the Integrated Operations Agreement covering liability, arbitration, regulatory uncontrollable forces, governing law, notices, and other matters, apply also to this Agreement. 4 C-2
APPENDIX D
SUMMARY
OF THE INTEGRATED OPERATIONS AGREEMENT The following is a general summary of certain provisions of the Integrated Operations Agreement (the
" Agreement"). Such summary does aot purport to be complete and accordingly is qualified by reference to the full text of the Agreement, copics of which may be obtained from the City, upon written request.
Purpose The City has executed the Agreement with Edison pursuant to which the Project will be integrated and operated for the benefit of the City, in order to more efficiently meet the power requirements and obtain operational economics on their respective systems, the City and Edison agreed to integrate their present and future Resources. The Agreement is intended to provide for Edison to furnish the capacity and energy necessary to meet the City's load, to the extent not provided by City integrated resources. Term The Agreement was signed by Ediscn and the City on November 29,1977 and became effective on the date it was accepted for filing by the Federal Energy Regulatory Commission and shall remain in effect for 50 years, unless terminated (i) tfwritten agreement of the parties,(ii) upon 30 dayf advance written notice by the City, to Edison,if no City Capacity Resource has been accepted for integration, (iii) upon not less than 10 years advanced written notice from one party to the other, or (iv) upon 5 years advance written notice from the City to Edison if Edison tenders for filing a change in rates which effects Integrated Operations, and which creates a substantial detrimeat to the City. If notice of termination is given by either party, the parties shall commence *o negotiate in good faith a new arrangement for the furnishing of services, to become effective upon termination of the Agreement. Integration of Resources The City may construct or acquire and integrate a Resource as a City Capacity Resource to meet all or part of its Firm Load, and Edison shall use its best efforts to intergrate such proposed City Capacity Resource in accordance with the qaalifications contained in the Agreement. Scheduling and Dispatchh Edison, acting as the City's agent, shall provide scheduling and dispatching services for City Capacity Resources and City Transist;on Facilities. Reserve Obligations City's contribution to installed reserves required to provide reliable electric service to the combined electrical requirements of the parties is deemed to be a percentage of the sum of the kilowatt capability of City Capacity Resources. The percentage for any year shall be equal to the arithmetic average of the five annual reserve margins planned by Edison for its resources for the next five consecutive years. Partial Requirestests Service Edison shall make available and deliver capacity and energy to the City under the Partial Requirements Rate then in effect with the Federal Energy Regulatory Commission. The City is billed under the Partial Requirements Rate for its maximum peak demand during the billing period,less the Capacity Credit in effect at the time such maximum peak demand occurs. The Capacity Credit is equal to the rated capabilities of the City Capacity Resources minus the City contribution to installed reserves. The amount of the partial requirements energy to be purchased in any billing period shall equal the total energy requirement of the City's load, minus the greater of the amount of energy scheduled and dispatched from City Capacity Resources, or the amount of energy capability associated with the effective Capacity Credit. D-1
Replacement Capacity and Contract Energy if a City Capacity Resource is unavailable for 70 or more consecutive days, or for 100 or more non-consecutive days during a ISO consecutive day period, the City must provide replacement capacity by first withdrawing a number of kilowatt-days from the Scheduled Maintenance Account for that City Capacity Resource. After the scheduled maintenance account for a City Capacity Resource is exhausted, the City may obtain replacement capacity by purchase from one or more third parties outside the Edison Cc atol Area, or Edison, or both. When a City Capacity Resource is not available, the City shall purchase Contract Energy from Edison, which is the amount of energy capability associated with the capacity credit, less the amount of energy received from City Integrated Resources. The Cost of Contract Energy is derived by utilizing Edison's fuel cost for conventiona! oil-fired, combustion turbine and combined-cycle generation plus the operating and maintenance costs associated with the production of such energy. Surplus Capacity and ljxcess Energy from City Capacity Resources Edison shall purchase from the City surplus capacity and associated energy from any City Capacity Resource when the City, upon 12 months advanced writ;en notice to Edison, shall declare such capacity and energy to be surplus to the City's estimated load during the period of sale. Edison shall pay the City for such capacity and associated energy at a price which shall fully compensate City for its costs associated with such g City Capacity Resources. 1 When energy is dispatchC from one or more City Capacity Resources which exceeds the requirements hj of City's load in any hour, such excess energy shall be purchased by Edison. The charge for such energy shall be City's incremental costs of that City Capacity Resource, plus 15% of such costs. {1 To the extent a City Capacity Resource is available, but not dispatched by Edison, City may sell energy associated with such City Capacity Resource to third parties outside the Edison Control Area. Transmission Senice Edison shall provide, upon City' equest, firm transmission service for capacity or energy, or both, associated with City Capacity Resourc, Transmission Service shall be provided either on Edison's 220 kV , network or on a point-to-point basis wher. 'smission service is to be provided outside the 220 kV network but within Edison's Certificated Service Are 'ison shall use its best efforts to provide transmission service where a City requests transmission service of Edison's Certificated Service Area. Transmission sevice sMI be provided in at 'nce with rates on file, and approved by the Federal j Energy Regulatory Commission. I Change of Rates In general, with respect te the rates charged by Edison fo, rtial Requirements Service, Replacement l Capacity and Contract Energy, aad Transmission Service, Edisc-Energy Regulatory Commission for a change in rates, charges anu trves the right to file with the Federal
* . of service provided that no ch3nge shall be made which is inconsistent with the Agreement or any Integration Agreement. Edison's rignt to file for a change in rates with respect to Partial Requirements Service is subject to certain limitations when the Partial Requirements Rate becomes different from the All Requirements Rate.
Thereafter, changes in the rate design of the Partial Requireme ts Rate are also subject to certain limitations. Edison has the right to char ge the rates, charges and conditions relating to Replacement Capacity and Contract Energy, provided that no change shall be inconsistent with the Agreement or any Integration Agreement. Edison may also change the wording contained in the Agreement which describes how Regslacement Capacity and Contract Energy charges are calculated, but such changes may not become f etTective for 3 years after the filing or a Final Order of the Commission, whichever occurs first. Edison reserves the right to change the rates, charges and conditions of service with respect to the , , furnishing of Transmission Service, provided that no change shall be inconsistent with the Agreement or any I j Integration Agreement. Moreover, any change as to wording in any Transmission Service Agreement may not become effective for 2 years after the filing or until a Final Order of the Commission, whichever occurs first ) D-2 l
APPENDIX E
SUMMARY
OF THE SUPPLEMENTAL AGREEMENT } l FOR THE INTEGRATION OF ANAHEIM'S ENTITLEMENTS IN SAN ONOFRE UNITS 2 AND 3 The following is a general summary of certain provisions of the Supplemental A i Integration of Anaheim's Entitlements in San Onofre Units 2 and 3 (the " Sup summary does not purport to be complete and accordingly is qualified by refe Supplemental Agreement, copies of which may be obtained from the City, upon wri The Supplemental Agreement between the City and Edison is supplemental t t i tions Agreement and does not amend or supersede it except to the extent that term The Supplemental Agreement provides that the City's entitlements in the San Station, Units 2 and 3 will be integrate 1 lategration Anaheim's entitlements in Units 2 and 3 shall be integrated and Anaheim sha in accordance with the Integrated Operations Agreem h and Anaheim's Unit 3 entitlement shall become a source of Rated Capability on J Date of Firm Operation for Unit 3, whichever is later. Determination of Aanheim's Rated Capability Rated Capability of Anaheim's entitlements shall be equal to 1.66% of th Units 2 and 3, respectively. The Rated Capability shall be equal to the effe unit, and is planned for 1,100 megawatts for each unit. Anaheian's Election to Pay for Energ) When Units Are Available But Not Dispatched To the extent that Units 2 and 3 are available, but not dispatched by Edison, the for the amount of energy associated with itsContract capac entitlements in Unit 2 and 3 at City incremental Cost. Anaheim may change its election Eneigy Cost or City incremental Cost upon either th cost of fuel to other production costs and subtracting transmission losses. Effective Dete, Term and Termination The Supplemental Agreement is effective on the date following the ex d the accepted for filing by the Commission. Tbci Supple h years, except that it shall terminate sooner upon, the Units 2 and 3 ownership or operating agreements. If notice of termination of the Integrated Operations Agreement is given b shall take actions to develop a new arrangement for furnishing the service Supplemental Ab. cement. E-1
1 e 66o NEwpCAT cENTE A L AWE
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P NEWACAT BEAc- CAUFOANiA 92660 Ta ter louse &Co, ~~2= ; APPENDIX F REPORT OF INDEPENDENT ACCOUNTANTS To The Honorable City Council City of Anaheim, California In our opinion, the accompanying balance sheet and the related statements of 3.icome, changes in retained earnings and of changes in financial position present fairly the financial M tion i of the Electric Utility Fund of the City of Anaheim at June 30,1979 and 1978, and the results of its operations and the changes in its financial position for the years then ended, in conformity with generally accepted accounting principles consistently applied. Our examinations of these statements were made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. 06 Un ed. November 16,1979 Newport Beach, California l 1 F-1 l l 1
l 1 l 1 l CITY OF ANAHEIM ELECTRIC UTILITY FUND j BALANCE SHEET June 30. 1979 1973 sin thonandu ASSETS Utility plant: Transmission - SI1,058 511,039 Distribution., . 32,183
. 37.231 General.. . 1.708 1,670 Construction work in progress. . .- 1,890 1,452 5 887 46,344 Less - accumulated depreciation. 14,785 13,633 37,102 32,711 k Restricted cash and investments (Note 3) . . .. 4.724 4,521 5- Current assets:
Cash and investments. . - - - - 7.894 4,121 Customer and other accounts receivable, less allowance for doubtful accounts of $180,000 in 1979 and 5160,000 in 1978.. . . 4,425 4,728 ( Accrued interest receivable. .. 186 Materials and supplies, at average cost. . 870 1,479 Prepayments (Note 6)- 2,457 3.885 4 15.832 14.213 Other assets: {a. Prepaid electric power (Note 6). . . . . 4,838 B. Unamortized project costs (Note 5)... .. 2,427 2.851 t, Unamortized debt expenses.- . .. 57 , 68 _ 2,484 7.757 Total assets ; 560,142 559,202 EQUITY, LIABILITIES AND OTHER CREDITS
. Equity:
Fund balance transferred . $14,629 514,629 Retained earnings.. . - . .. . 14,845 13,670 1 Total equity - - - - - - 29,474 28.299 g Revenue bonds, less current portion (Note 3)...... 14.100 18,100
,[ Total capitalization- . 43,574 46,399 Current liabilities (payable from restricted assets):
Current portion of revenue bonds.. .. 300 579 Accr.ed interest on bonds.. .. .. 248 273 548 852 Current 1.-bilities (payable from current assets): Current portion of revenue bonds.. . . 3,700 3,221 Accounts payable and accrued expenses = 10,330 8,290 Customer deposits: 392 386 e 14,422 11.897 i, Total current liabilities - 14.970 12.749 Contributions in aid of coastruction . 1.598 54 Total equity, liabilities and other credits.. 560,142 559,202 g See accompanying Notes to Financial Statements F-2 l
CITY OF ANAHEIM ELECTRIC UTILITY FUND STATEMENT OF INCOME ve , ended h., Jo. 1979 1978 Operating revennes: (le thouse.dse Sales of electric energy (Note 7). ... . . ... Other operating revenues = . .. 570.842 564.038 33I 815 Total operating revenues.... 71.173 64.853 Operating expenses: Cost of purchased power = . . . . Other operations - . 59.198 51.747 Maintenance . .. ... .. 3.657 2.981 Depreciation. .
. . . 2,036 1.677
. ... .. . . . . . . . . . =
1.358 1.395 Amortization of project costs (Note 5) . . . . . . . . . .. 302 118 Total operating expenses . ... . ... .. . _66.551 57.918 Operating income.. .
. .. . 4.622 6.935 Other laeosee (expense):
Interest income....... .......... . . . . . . . . . . . . . . . .. 869 446 Interest expense, including amortization of debt expenses.. . . . (692) (725) 177 (279) Net laeoste.. . . .. . . .
. 5 4.799 5 6.656 Balance at beginning STATEMENT of year..~. . .... OF CHANGES IN RETAINED EARNINGS Net income for the year..
513.670 5 9.582 4.799 6.656 18.469 16.238 Transfer to the general fund of the City - . _ (3.624) J2.568) Balance at end of year--
$ 14.845 513.670 See accompanying Notes to Financial Statements F-3
1 1 1 1 1 i I CITY OF ANAllEINI ELECTRIC UTILITY FUS;D STATEN1ENT OF CifANGES IN FINANCIAL POSITION iter ended June M 1979 1973 ~ Financial resources were provided by: ila llbousandse Operations - Net income.. . . . . . 5 4,799 5 6.656 Charges to income not involving working capital-Provision for depreciation.. . Amortization of project costs.. 1.358 1,395 Amortization of debt expenses. 302 118 11 Il Resources provided by operations.
. 6,470 8,180 Decrease in prepaid electric power... .. .
4,838 4.412 Contributions in aid of construction.. . 1,544 Decrease in unamortized project costs.. . . . . . Disposal of plant and equipment.. . 122 496 Decrease in restricted cash and investments. . 41 _12.974 _13,129 Financial resources were used for: Expenditures for plant and equipment.. . .. .
. 5,665 4.143 Revenue bonds becoming current., ..
4.000 3.800 Transfer to the general fund of the City.. ... . . . . 3,624 2,568 increase in restricted cash and investments.. . . . 203 Other.. .. . 84
. 13.576 10.511 Increase (decrease) in working capital.
($ 602) 5 2.618 increase (decrease)in components of working capital: Cash and investments. .. 5 3,773 5 (116) Customer and other accounts receivable.. (303) 1,538 Accrued interest receivable....
, Ntaterials and supplies.. . 186 Prepayments.. (609) 299 l .
Net change in current assets = (1.428) 619 t
. . 1.619 _ 2.340 Current portion of revenue bonds .
Accrued interest on bonds.. (200) (200)
.. . . . 25 21 Accounts payable and accrued expenses.. ..
Customer deposits. (2.040) 529 Net change in current liabilities.. (6) _g) (2.221) 278 increase (decrease) in working capital = (5 602) 5 2.618 See accompanying Notes to Financial Statements F-4
CITY OF ANAHEl%1 ELECTRIC UTILITY FUND NOTES TO FINANCIAL STATEN1ENTS NOTE 1 - Summary of Signincant Accounting Policies: Basis of accounting The Electric Utility Fund was established June 30, 1971, at which time the portion of the City of Anaheim's General Fund equity relating to electric utility operation was transferred to Electric Utility equity. The financial statements of the Electric Utility are presented in conformity with generally accepted accounting principles and accounting principles and methods prescribed by the Federal Energy Regulato Commission (FERC). The Electric Utility is not subject to the regulations of such commission. Utility plant and depreciation The cost of additions to utility plant and of replacements of retirement units of property is capitalized. Utility plant is recorded at cost, or in the case of contributed plant, at fair value at the date of the contribution, except that assets acquired prior to July I,1977, are recordef at appraised historical cost. Cost includes labor; materials; allocated indirect charges such as engineering, supervision. construction and transportation equipment, retirement plan contributions and other fringe benefits, and; certain administra-tive and general expenses. The cost of relatively minor replacements is included in maintenance expens When assets are retired the remaining net book value or any excess or deficiency of sales proceeds over (or under) net book value at the date of sale is recorded in accumulated depreciation. Depreciation of utility plant is provided by the straight line method based on the estimated service lives of the properties: Transmission and distribution plant.. . . . 20 to 75 years Other plant and equipment . . 3 to 50 years Depreciation on contributed assets is charged direr.tly to contributions in aid of construction. Cash and investments The City pools idle cash from all funds for the purpose of increasing income through investment activities. Investments are carried at cost, which approximates market value. Interest income on investments is allocated to the various funds of the City on the basis of average daily cash and investment balances. Revenne recognition Revenues are recognized as billed to customers. Billings are on a cyclical basis and the Electric Utility does not accrue revenues for dectricity sold but not billed at the en d of a fiscal period. Residential and the smaller commercial accounts '.rc billed on a bimonthly basis; all ithers are billed monthly. Shared operating expenses The Electric Utility shares certain administrative functions wit 1 the Water Utility. Generally, the cost of these functions is allocated on the basis of benefits provided tr, the Electric and Water Utilities. Debt expenses Debt premiums, discount and issue expenses are deferred and amortized to income over the lives of the related bond isstees. Pension pina All full-time City employees are members of the State of California Public Employee's Retirement System. The City's policy is to fund all pension cost accrued; such costs to be funded are determined F5
.J NOTES TO FINANCIAL STATEMENTS (Co:itinueda annually ending as of July June 30,2000. 1 by the System's actuary. Unfunded prior service cost is Vacation and sick lease is the policy of the City to pay all accrued vacation pay ,
e. ! fourth of the accrueo sick leave when an employee retires. At June 3i ,1979, acc and sick leave did not exceed a normal yea /. accumulation. I g) e Trsafers to the general fund of the City A.?icle Xil of the City Charter was amended by a vote of the electorate c%ective D provide that transiers to the General Fund of the City in fiscal1977 8% of the gross revenue earned in fiscal year 1978 79 for gross revenue of 1977 78, and1979 to 4% year78 shall be equal to, or less than are not in lieu of taxes and are recorded as distributions of retained earnings. in fiscal year 1976-77. This pe 80 and succeeding years. Such transfers NOTE 2 - Accounting and Classification Changes: m As of July 1,1978, the City elected to report its Electric Utility Fund under FER guidelines. In accordance with the guidelines, depreciation on assets acquired from construction is not reflected in net income but rather is charged directly to contributions income for the current year, construction. This change had no cumulative effec j ,; i For the year ended June 30,1979, certain other account classifications have been changed to reflect A been reclassified to conform to therecommendations set forth in the FERC guidel 1978-79 presentation. NOTE 3 - Revenue Bonds 'O The Electric Utility Fund is indebted under three revenue bond issues as follows: l J e 30,
'r. 1979 1978 iR Electric Revenue Bonds Issue of 1972, 4.9263%, issued March 28,
'" 1972 in the amount of $8,000,000, maturing serially to July 1, 1992, in annual principal installments of $300,000 to $675,000, total debt service of 58,914,000 to maturity - $ 6,525,000 5 6,800,000 Electric Revenue Bonds Issue of 1976, 6.07%, issued April 27,1976 in the amount of $6,000,000, maturing serially to May 1,2006, in i annual principal installments of $100,000 to $400,000, total debt service of $11,939,975 to maturity -
..-........ 5,750,000 5,850,000 Electric Revenue Bonds, Second Issue (Subordinated) of 1976, 4.8259%, issued June 8,1976 in the amount of $12,500,000, t maturing serially to December 1,1980 with remaining principal installments of $3,600,000 and 32,225,000 in fiscal years 1980 and I
.c 1981, total debt service of 36,119,038 to maturity. 5,825.000 9,250.000 Less current portion. . 18,100,000 21,900,000
. ~ . . . . 4,000.000 3,800,000
$14.100.000 $18,100,000 F-6
NOTES TO FINANCIAL STATEMENTS (Continuedi in accordance with the 1972 bond resolution, a reserve for maximum annual debt service has been established and a reserve for renewal and replacement is being accumulated to a maximum of 27 of the book value of the utility plant. The abree bond issues require the establishment of a bond payment reserve by accumulating monthly, one-sixth of the interest which will become due and payable on the outstanding bonds within the next ensuing six months and one-twelfth of the principal amount which will mature and be payaole on the outstanding bonds within the next twelve months (six months for the 512.500.000 issue). Restricted cash and investments includes reserved amounts as well as undisbursed bond proceeds as follows: June 30. 1979 1978 Held by fiscal agent: Maximum annual debt service reserve; . .. . - 5 682.000 5 682.000 Bond service account . . . . . . . . . . . 418,000 449.000 Other: Maximum annual debt service .. 404.000 404.000 Bond service account . . . . . - 682.000 402.000 Renewal and replacement reserve.= . . . .. 742,000 7!2.000 Restricted bond proceeds.. . . . .. . 1.796.000 1.872.000 5 4.724.000 5 4.521.000 NOTE 4 - Operating Expenses Operating expenses shared with the Water Utility amounted to $3.823.000 and 52.662.000 for the years ended June 30, 1979 and June 30, 1978, respectively, of which $2,553.000 and $1,624.000 was allocated to the Electric Utility. NOTE 5 - Unanortized Project Costs The City plans to participate in various power generation projects with other agencies. Unamortized project costs includes $1,213,000 which represents advance payments to participating agencies for prelimi-nary engineering and environmental impact studies for the related projects. During 1978, two projects to which the City had advanced 51,382.000 were terminated without benefits accruing to the City. The 51,382,000 is being amortized to expense over the ensuing fne years, of which 31,214.000 remained unamortized at June 30,1979. NOTE 6 - Prepaid Electric Power The City entered into an agreement with Nevada Power Company on May 25, 1976 to purchase electric power over the next four years. On July 1,1976 the City used 512,500,000 of revenue bond proceeds to make a partial prepayment to Nevada Power Company for energy to be supplied. In accordance with the terms of the agreement, beginning July 1,1977, the prepayment has been offset against billings from Nevada Power Company for electric power purchases.
' NOTE 7 - Sales of Electric Energy Effective June 1,1979, rates for all classes of service were increased approximately 4.7 percent. The rate resolution established for the first time an energy cost adjustme't formula by which billings to customers are subject to adjustment, up or down, to reflect variations in the cost of wholesale power to the Electric Utility.
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1 1 l l l NOTES TO FINANCIAL STATEMENTS (Continued NOTE 8 - Pension Plan The Electric Utility has a contributory pension plan for its full time employees under the State of California Public Employce's Retirement System. The Electric Utility's cost of benefits funded for 1979 and 1978 were approximately $282,000 and 5293.000, respectively. Information as to the actuarially computed value of vested benefits over the related pension fund assets is not available. NOTE 9 - Self-insurance Programs Effective September I,1974, the Electric Utility became part of a City of Anaheim adopted self-
' insured workers' compensation program which is administered by a service agent. Effective July 1,1977, the City (including the Electric Utility) became self-insured for the first 5500,000 on each general liability claim. Costs relating to the litigation of claims are charged to expnditures as incurred.
NOTE 10 - Commitments and Contingencies The Electric Utility's budget for the fiscal year 1979-8b provides for capital expenditures of approxi-
'i mately 56,468,000 and substantial commitments have been made in connection therewith. The Electric Utility plans to sell bonds of approximately 555,000,000 to finance its participation in the San Onofre Nuclear Generating Station.
A number of claims and suits are pending against the Electric Utility for alleged damages to persons and property and for other alleged liabilities arising out of matters usually incident to the operations of a utility business such as that of the Electric Utility. In the opinion of management, the uninsured liability under these claims and suits would not materially affect the financial position of the Electric Utility as of June 30,1979. 1 e-x.
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APPENDIX b CITY OF ANAHEIM ELECTRIC UTILITY FUND 4 30,1980 and 1979. Unaudite6 financial Statements for the 10 Months Ended A 4 G1
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CITY OF ANAHEIM ELECTRIC UT!!JTY FUND BALANCE SilEET (Unauditedi Apra 30 1990 1979 ASSETS tle theemands6 Utility plant: Transmission.. .. . . . . . . . . . .
' Distribution--= .
$ 11,075 5 11.054 General = -
40.396 36,174 Construction work in progress . . .- 1.715 1.677 2.068 1,753 Less - accumulated depreciation.. 55.254 50.658 (15,990) G 4.752) 39.264 35.906 g Restricted cash and investments . . 6.007 5.899 Current assets: Cash and investments. . .. . . . -
............................. 13,469 Customer and other accounts receivable, less allowance for doubtful accounts 6.010 5,429 3.960 Accrued interest receivable .... .. .. ...
Materials and supplies, at average cost-412 87 Prepayments-- . 981 974
. . . . . 7 3.759 20.298 14.790 Unamortized project costs.. ..... ..
2,327 Unarnortized debt exprises.. . . .. --
. 2,417 L.
48 59 2.375 2.476 Total aseets ..... . - . 5 67.944 5 59.07I EQUITY, LIABILITIES AND OTHER CREDITS Equity: Fund balance transferred .
, Retained earnings-- . .
$ 14,629 5 14,629
.. 21.908 14.459 Total equity - . . . -
,i Revenue bonds, less current portion . .. ... . . -
. . . . . . . . . . . .. 36.537 29.088 i
........................... I1.550 16.000 Total capitalization.. ... ... ~.- .... .... ....
........................ 48,087 45.088 l'
- Current liabilities (payable from restricted assets):
Current portion of revenue bonds.. . . . . . - Accrued interest on bonds -
. . . . 325 300
.............................. 504 i
598 829 898 l Current liabilities (payable from current assets): l Current portion of revenue bonds.. .. ............... . .. . .
..... .... . . . . 4,125 3,600 Accounts payable and accrued expenses.... . ... .. ..... ...... . . - . . . . .
Customer deposits.
. . ... I1,827 7,800
....,.........-.............~
, .. 468 328 16.420 11,728 Total current liabilities - ..~. -- . - . . - - ... 17.249 12.626 Contributions in aid of construction ........ ...... .. .
Total equity, liabilities and other credits-- 2.608 __ 1,357 0 -
. . . . . . . . . . . . . 5 67.944 5 59,071 G.2
-w-g-CITY OF ANAHEIN1 ELECTRIC UTILITY FUND STATE.\fENT OF INCOME (Unsedited Tre %em ended April 30.
1980 19*9 als theensedu Operating re,eemes: 559.193
. . . . . 574.599 Sales of electric energy.. .
255 227 Other operating revenues -
..- . 74.826 59.448 Total operating revenues.. .. . .. -- . .
Operating expenses: 49.116 59.307 Cost of purchased power-.- . . . . . . . . . . . . . . . - 5.442 4.589 Other operations and maintenance- l.165 1.132 Depreciation.= - 268 251 Amortization of project costs. 66.182 55.088 Total operating expenses-. - - - - 8,644 4.360 Operating income . . Other incesse (expennen 1.472 602 Interest income. . . . .
. . . . . (550) (573)
Interest expense, including amortization of debt expenses.. 922 29 5 9.566 5 4.389 Net incomie- . - - - . . . . . . . . STATEMENT OF CHANGES IN RETAINED EARNINGS 514.845 513.670 Balance at beginning of year. .....~... - 9.566 4.389 Net income for the period. -- 24.411 18.059
.. (2.503) (3.600)
Transfer to the general fund of the City . . . .~.. . .. 521,908 514.459 Balance at April 30.. -- l G.3 l
f l l I APPENDIX H l CITY OF ANAHEIM - ECONOMIC BACKGROUND AND FINANCIAL INFORMATION ECONOMIC BACKGROUND The Bonds will not be secured by any pledge of ad valorem taxes or General Fund revenues but will be
payable solelyfrom the Gross Revenues of the City's Electric System. Thefinancial and economic position j ofIhe City of Anaheim setforth below and on thefollowing pages is included in the ODicial Statementfor information purposes only, in the interest of giving a more complete description of the City. General The community of Anaheim was founded and incorporated in 1857, disincorporated in 1872, reincorpo-rated in 1876, and reorganized in 1888. No change in organization took place until June 1964, when the local voters approved a City Charter. The City operates under the Charter and with a Council-Manager form of government. The five City Council members are elected to four year terms in alternt.te slates of three and two every two years, with the Mayor being elected every two years. The Mayor presides over meetings of the Council and has one vote. The Council appoints the City Manager, who heads the executive branch of government, implements Council directives and policies, and manages the administrative and operational functions through the various departmental heads, who are appointed by the City Manager. Anaheim is located in northwestern Orange County, about 28 miles southeast of downtown Los Angeles and about 90 miles north of San Diego. The City lies on a coastal plain which is bordered by the Pacific Ocean on the west and the Santa Ana Mountains on the east. The climate is generally characterized as sunny and mild with mean temperatures ranging between 53' in January and 72* in July. Rainfall averages about 14 inches per year. Afternoon humidity averages 45%- 52% throughout the year. r ! Anaheim, Orange County's oldest and most populous city, is strategically situated in relation not only to Orange County's population but also to the economics of San Diego, Los Angeles, Riverside and San Bernardino Counties. Major freeways in ard through the City conveniently locate industry to labor markets and recreation and commerce to consumers of a much broader area.The Santa Ana Freeway (Interstate 5) ( connecting Los Angeles and San Diego is the main artery traversing the City, and it connects in or near the City with the Artesia/ Riverside (State Route 91), the Garden Grove (State Route 22), the Orange (State Route 57), and the Costa Mesa (State Route 55) freeways. Anaheim is also served by three railroads, the Southern Pacific, the Santa Fe, and the Union Pacific,
- and numerous truck carriers in bouthern California.
l The major airports in the area include John Wayne (14 miles south), Ontario international (20 miles l northeast), Los Angeles International (30 miles northwest) and Long Beach (14 miles west). l ! The City is served daily by sarious bus lines including the Orange County Transit District, the Southern California Rapid Transit District, Greyhound Lines, and Airport Coach Services, Inc. City Commeil
-. JOHN F. SEYMOUR, Ja., Mayor, was elected to his second two year term as Mayor of the City by a popular vote of the people in April of 1980. He was elected to a second consecutive four year term on the City Council in April of 1978. He has served his community as a planning commissioner and was president of the Anaheim Chamber of Commerce. He currently is President of the California Association of Realtors.
- E. Lt.EWEU.YN OVERP 3.T, Ja., Mayor Pro Tem, was elected to his first four year council term in April 1978. He has been a practimg attorney in Anaheim for 21 years and has served his community on a variety of special study committees and on commissions. He also has been active in civic affairs and is a past trustee of the Anaheim City School District.
H-1 L~- _ _ , . __. . ___ _ . . , , _ . . - - , _ _ , - - - - - - - ,
BEN W. BAY, Councilman, elected to his first four year term on the City Counc been unanimously appointed to the City Council on May 8,1979 to fill an unexpire Review Committee and has been active in a variety of commu MiRi AM KAYWOOD. Councilwoman, began her second term in April 1978. Mrs planning commissioner and was active in civic affairs ranging from the cultur improvements prior to her initial four year e uncil term which began in April 1974 Dos R. Rom, Councilman, elected to .iis second four year term on the City Co was elected to his first council term April 1976. He has been active in civice affairs an original voting members of the City of Anaheim Charter Committee which a Charter. City Management I Wituaw O. TALLEY, City Mansger, was named to the City's top administrative Previously he was Assistant City Manager and was responsible for installation by Objectives" program. Mr. Talley came to the City in December,1975 from intergovernmental relations, and a wide range properties and utilities. on, oil of adm j .4 h. E background which included two years as vice presid , , i - firm of Ernst & Whinney in Los Angeles. Mr. Ferrone is Public Accountants, the Municipal Finance Officer's Association of the United State Society of Municipal Finance Officers, where he serves o tions; collectin; all electric and power, water,epara-sanitatio tio, of the City payroll; the bt.dget; and purchasing and warehousing. a by the City Cotmcil in October 1976. Mr. Hopkins joined . became an assistant in November of 1973. Mr. Hopkins has a law degree from the California. He is a member of the American, California Orange County and Los associations. He also is a member of the Bar of the Supreme Court of the United States. H-2
i Popuistion Anaheim's land area remained at 3.7 square miles from 1900 through 1940. From 1940 to 1979, that area multiplied by 11.36 times to 42.04 square miles. Since World War 11, immigration and, to a lesser extent, annexation have produced major population growth in Anaheim. The growth multiple was about 14.5 from 14.556 in 1950 to about 211,700 in 1980. Anaheim is California's eighth most populour City. The 4 following chart indicates the growth in the area and population of the City since 1900 as well as that of the County. CITY OF ANAHEIM AND ORANGE COUNTY Area and Population A*erage Anmuel City Rank is City of Anaheim Popuisties Orange Papelation Size er
$guste Per Cent County Per Cent Californie Population of Ceesty Cities M Miles Population Change 3.70 1,456 -% 19,696 7.4% SI 1900... .... . . . .
2,628 8.1 34,436 7.6 66 1910.. .. 3.70 5,526 11.0 61,375 9.0 42 1920...... ~. . 3.70 10,995 9.9 118,674 9.3 44 1930 . .... ....... . 3.70 NA 3.70 11,031 - 130,760 8.4 1940. ._... 4.40 14,556 3.2 216,224 6.7 68 1950 ... ... .. . . . 27.34 104,184 61.6 703,925 14.8 12 1960... . ... ...... .. .. ...-. . 166,701 6.0 1,420,386 11.8 8 1970.... . . . 33.10 186,200 7.9 1,584,259 11.8 8 1973..................... 37.98 187,400 0.6 1,646,314 11.4 8 1974; 38.62
- 191,800 2.3 1,684,462 11.4 8 197 5.... . . . . . . ... 38.84 196,400 2.4 1,722,100 11.4 8 197 6....~. . . ..... .. .. . 38.97 200,100 1.9 1,768,000 11.3 8 1977-. - . . . . . . 39.40 204,800 2.3 1,808,200 11.3 8 1978.. .. .- . . . . . . . . . 39.95 208,500 1.8 1,851,000 11.3 8 1979. . . . . . . . . . . . 42.04 211,700 1.5 1,896,200 11.2 8 1980- .
42.05 SouncEs: United States Bureau of the Census; California Department of Finance; City of Anaheim Planning Department.
Building Activity l According to the 1976 Anaheim Census, prepared by the City Planning Department, the total number of dwelling units in the City increased from 56,216 in 1970 to 73,606 in 1976, an increase of 17,390 (31%) The trend toward a greater percentage of renter-occupied units has continued during the 1970's. In 1970 only 37.1% of all units were multiple; by 1976 approximately 47% of all dwelling units were multiple un The median listing price of owner-occupied single-family structures in 1979 in Anaheim was 5122,900, l compared to the County median of 5155,670, according to the Walker and Lee Real Estate Research Section survey on residential resales, calculated from multiple listings. The 1976 Anaheim Census indic a median monthly payment for owner-occupied households enumerated of $209; median contract rent of
$175 represented an increase of 28% from the 1970 median of $137.
During the nye years 1975 through 1979, total valuation of all building permits issued by the City of Anaheim Building Division averaged about $171.8 million; total permits averaged 5.961 per year. H.3
CITY OF ANAHEIN! Building Activities 1979 1978 1977 1976 1975 Total Valuation (thousands). .. . . . 3177.457 5155.031 5251,983 5175.162 $99.524 Total Permits issued.. .. . 4.882 6.036 7.301 6.516 5.073 New Construction Residential (thousands) . 5 67.166 5 70.735 5152,997 5109.108 564.616 Permits .. .. 365 625 1.775 1.652 1.277 Non-Residential (thousands)... Permits.. 5161.351 5138.391 5 83.685 5 52.838 525.787 1,238 1.353 1.346 958 732 Additions and Alterations ! Residential (thousands) . ,i 5 7.111 5 7,529 5 7.505 5 6.174 5 4.093 Permits. 2,513 3,142 3.413 3.091 2.427 Other (thousands). 5 8,696 5 8.969 5 7.796 5 7.042 5 5,028 Permits... ., 642 792 767 815
- 637 4
e New Dwelling Units Total Residential Units. 984 1,396 2.919 2,847 1.795 Sot RCE: City of Anaheim Planning Department, Building Division. Employment No annual information is regularly compiled on employment and unemployment for the City alone. Employment in Orange County increased from about 773.000 in 1976 to about 1,019.000 in 1979, at an
~3 average annual rate of about 8.0%. The County unemployment rate was lower than that in the State in each cf the past four years. The mobile resident labor force of Orange County is employed not only in the but also in adjacent counties, such as Los Angeles.1970 Census data indicated that about 44.9% of the City's population was in the civilian labor force, and that about 94.2% of that labor force was employed j County by comparison had about 41.5% ofits population in the civilian labor force and 94.7% of that labor force was employed. ] ORANGE COUNTY 4 Employment, Unemployment and Labor Force (l) , Averages: 1976-79 1
(thousands) 1979 1978 1977 1976 Employment 1,019.0 953.7 864.4 773.0 Unemployment - 44.1 48.9 53.6 64.8 Civilian Labor Force-- . 1,063.1 1.002.6 918.0 Unemployment Rate 837.8 4.1 % 4.9% 5.8% 7.7% State Unemployment Rate 6.2% 7.1% 8.2% 9.2% (1) By place of residence, including workers involved in labor disputes. sot,RCE: State Employment Development Department. H i
The 1976 Anaheim Census prepared by the City Planning Department indicated a civilian labor force living within the City of 92,863. The percentages of Anaheim workers in different industries so reported were: Per Cent of Indestry % erkers Services . .. . 24.4% Manufacturing.. 23.7 Wholesale and Retail Trade. 16.7 Government - 10.1 Transportation. Communications and Utilities.. 9.0 Construction - 8.5 Finance Insurance and Real Estate- 6.0 Agriculture...- .. 1.1 Mining.. 0.4 CITY OF ANAHEIM Major Private Employers Number of Company Employees Products Rockwell International Corporation 8,000 Aircraft, Aerospace and Electronics Disneyland 6,000 Recreation and Entertainment Carl Karcher Enterprises 2,300 Fast Food Restaurants Wrather Corporation 2,300 Hotels Kwikset Division, 1,800 Residential Locksets and Emhart Industries, Inc. Powdered Metal Parts Northrup Electro-Mechanical Division, 1,800 Aerospace Electronics Northrup Corporation Interstate Electronics Corp., 1,700 Electronics Division of A-T-O, Inc. Disneyland Hotel 1,400 Hotel, Restaurants and Shops Anaheim Memorial Hospital 1,000 Hospital General Automation, Inc. 900 Mini-Computers California Computer Products, Inc. 800 Computer Products United Parcel Service 800 Mail Delivery, Pick-Up Anaconda Telecommunications 725 Telephone Equipment Altec Division of Altec Corporation 700 Scund Products Kaiser Canyon General Hospital 700 Hospital Taylor Bus Service 700 Transportation Van Doren Rubber 700 Tennis Shoes Martin Luther Hospital Medical Center 651 Hospital Data Products Division of Lear Siegler, Inc. 630 Data Products Southern California Gas Company 622 Natural Gas Distribution Laura Scudders Division of Pet, Inc. 545 Snack Food Products Topmost Foods, Inc., Division of Pmata Foods 500 Frozen and Convenience Foods Unitax Division of Tymshare, Inc. 500 Computerized Income Tax Service Sot:ncr: Orange County Bu>. ness", February / March,1980. Income Total personal income of Orange County residents increased 60.4% from over 57.4 billion in 1971 to over $11.9 billion in 1975, the latter year being the most recent for which the U.S. Department of Commerce has published such data. The County share of total personal income in California increased from 7.8% in 1971 to 8.6% in 1975. On a per capita basis, the average annual rate of Orange County increase was H5
L 8.5% over the four-year period, from 55,040 in 1971 to $6,995 in 1975. The latter figure 5400 greater than the State per capita income of 56,596. The 1970 1969;13.2% U.S. Census indicated that 11.2% of Anaheim families received income under $5,000 received 55,000-57,999; 45.9% received 58,000-514,999; and 29.77 received $15,000 and o Comparable percentages reported in the 1976 Anaheim Census, prepared by the City Plann were 14.3%,11.6%,33.6%, and 40.4%. In 1975,1970 Census comparison of Anaheim with O and California shows the City to have had a significantly larger proportion of middle income famil both the other areas. ORANGE COUNTY Resident Personal Income (5000) Source 1975 1974 1973 1972
, 1971 Net Labor and Proprietor *s incomett).-
Resident Adjustment (l). 5 6.515.602 2.560.182 5 5.918.411 5 5.329.193 5 4.651.046 5 4.104.118 2.268.503 1.929.167 f.820.082 Dnidends. Interest. Rent I 707.497 1.605.032 1.445.286 1.207.556 Transfer Payments.. 1.084.571 983.621 1.282.220 1.004.975 832.183 732.060 661.373 Total Resident Personal income. Per Capita.. 5 11.963,036 5 10.637.175 5 9.298.099 1 8.287.759 5 7.456.609 56.995 55.427 55.809 California Resident Personal Income- 55.418 55.040 Per Capita.. $139.388,100 s t 26.955.682 5113.514.529 5102.949.604 595.335.940 56.5 % $6.090 35.497 55.044 54.711 (1) Net Labor and Proprietor's income is by place of work and includes wage and salary and pro income earned in Orange County, less personal contributions for social insurance. The Residence Adjustment, when added to Net Labor and Proprietor's Income by place of work, provides the net lab and proprietor's income by place of residence (i.e., Orange County). SOURCE: Bureau of Economic Analysis, U.S. Department of Commerce; Regional Economics Information System. Tourisai and Community and Recreational Facilities Tourism is a major industry in Anaheim. Much of that industry, including about 120 hotels and mo and over 275 restaurants, is located for convenience to the major local attractions: the Anaheim the Anaheim Convention Center and Disneyland. i The Anaheim Stadium, financed and built by a non-profit corporation and leased to the City, ( expanded and consists of a 70,500 seat athletic stadium and supportive facilities. The stadium is the the California Angels, an American League baseball team, the Los Angeles Rams, a National Foo ! League team, and the California Surf, a North American Soccer League team. The City also ren stadium to others for concerts and exhibitions and utilizes it for civic events. l The Anaheim Convention Center, largest such facility west of the Mississippi River,is a mu convention / sports / concert hall complex covering approximately 53 acres of land. The Anaheim Convention Center Betterment 11 Program represents the second major addition to l important coavention center. This single-story. Type I construction addition, with square feet of 185,990 I gross floor area,is on a 12.5 acre site to the south of the existing Anaheim Convention Center facility includes a third exhibit hall of 100,000 sq. ft.: plus 21,000 sq. ft. for meeting rooms; for a concession stand, storage areas, restrooms and a satellite kitchen; and offices. Niovabl utilized to separate the meeting rooms so that various room configurations may be arranged to s exhibitors. This second addition, providing approximately 1,000 more parking spaces will bring parking for the facility to approximately 4,000 spaces. Total square footage for the entire comp approximately 867,193 sq. ft. H-6
The following table summarizes the number of consentions held at the Center, as well as estimated attendance and delegate expenditures for the past six years. ANAHEJM CONVENTION CESTER De4ernie Yar Ceewet.sm A rtendence Es pendasees 1975. I91 490.000 5 98.000.000 1976- I81 517,000 142.000.000 1977 .. . I61 475.000 166,000.000 1978 174 674.000 201.000.000 1979- .. .. 147 476.000 178,500.000 1980( Actual and Estimated. __ 149 675.000 270.000.000 Sot;ncE: Anaheim Area Visitor and Convention Bureau. l
! Disneyland occupies a 180 acre site in the City and is one of the rnajor tourist attractions in the nation.
j Opened in 1955 with an original investment of $17,000,000, Disneyland today has a total capital investment
-j exceeding $200,000,000. Approximately 10.8 million visitors passed through its gates in 1978.
i The Disneyland Hotel has just completed a 450 room expansion for a total of 1.350 rooms. Construc-tion is now under way for an 750 room Marriott Hotel across from the Convention Center, to be completed in 1981. On May 6,1980 the City of Anaheim entered into an agreement for exclusive right to negotiate with Hilton Hotels Corporation /Wrather Corporation for the construction of a four-story convention center hotel of approximately 1,500 guest rooms (including the approximately 500 guest rooms at the current inn at the Park Hotel) located on property adjacent to the Anaheim Convention Center. Construction costs are currently estimated at 5100.000,000. The parties anticipate the lease and development agreements for the hotel project will be executed no later than November 6,1980. Orange County is a major tourist center of Southern California. Forty-four miles of shorelines with more than twenty publicly maintained beach areas provide year-round aquatic activities. In Anaheim, there are two 18-hole golf courses, ten community parks, four of which contain major athletic facilities, and 32 neighborhood parks and playgrounds. Within an hour's drive from the City of Anaheim are Knott's Berry Farm in the adjacent City of Buena Park, the Los Alamitos Race Course, the renowned Spanish Mission of San Juan Capistrano, and the Art Colony at Laguna Beach with its annual art festival. Within two hours' drive are the numerous summer and winter resort areas in the San Bernardino and San Jacinto mountains. The Newport Harbor area. a few miles south of the City, provides anchorage facilities for over 5,000 private boats. Boat launching ramps, deep sea fishing, skin-diving, and other related water activities are readily accessible. Other Anaheim facilities include a main public library and four branch libraries. Within the City, there are eight generai bospitals with a capacity of 841 beds, four AM or FM radio stations. 32 banks and 14 l savings and loan associations, and 80 churches of all major denominations. H-7 ur .e
Retail Sales The table tekt. presents the City's tatable re.ai! sah:s for sances yean sece 19'5 e ce;anson to other cities in Orange Cccaty. Orange County and the Sute cf California AN AHEIM. M AJOR ORANGE COUNTT CITIES. ORANGE COUNT). CALIFORNI A Tatable Retail Sales. All Outlets.l> (000; Ice les 19-- 19
- it's A N A H El M ._.. . .. . . - 5 1.526.416 5 1.2 M.653 5 1.0E 6.5 if 5 i M.CCi 5 ie+.6 ? 5 B u e .a Pa ri _ ._.. . . - 522.' 2ri 436.426 383.46i 3 3 E.440 294.1 %
.I Costa M esa _.._.. . . . . - . . 575.306 515.022 695.03i 575.742 476.9%
~-
Fullerton .. .. .. _.._ .. 562.669 500.754 445.159 371.450 299.552
; Garden Gr:ne... _... .. . .. 554.627 464.575 434.503 w "7 309.i %
Huntington Beach.. .. .. 732.364 623.C47 545.657 435.175 3592 % Orange 799.670 697.247 625. 90 510.406 415.749 Santa Ana 1.325.754 1.163.460 1.cci.055 537.445 654.956
, Westminster 444.769 400.766 360.953 284.2.*9 230.554
- Major Cities . ...._ . .-. 7.344.095 6.362.333 5.591.511 4.607255 3.543.034 All Other 4.244.657 3.602.096 3.066.617 2.355.609 1.905.399 N
' F-Orange Cocnty .. CC ernia. 11.555.752 9.964.429 5.655.12! 6.%5.594 5131.675.257 5113.467.724 599.451.969 58 3.522.ON 573.475.703 5.751.433 1, - )
, (1) Owing to changes in the sales tas base for reuil goods, the years are ret totally c=paratie tetween years. but the trend in relative r.agmtude of retail sales tax bases are exhibited.
Souncn: Califcenia State Board of Equalizat>on, Trade Outlets and Taxale RetailScles in C:hfor-i: fce 1975.1976.1977.1978 and 1979. FoDowing is the bre2kdown of 1979 sales tax perntits in the City by type of cctiet. and the percentage of each type's total tauble dol!ar transactions:
~
Pee Cent et Type et Omnes Pee Tramactam
.=
[ Apparel Stcres *13 107
\ General Merchandise Stores 35 4.6 M] Drug Stores _ 25 1.1 Food Sto-es ___ . 155 4.9 Packaged Licuor Stores 55 1.0 Eating and Erinking P' aces. 455 10 0 Home Furnishings and Appiances 165 33 Building Materials and Farm implements 77 7.5 Auto Dealers and Auto Supplies % 10.7 Senice Stations 151 6.0 ,. - h 00 er Retail Stores 462 7.3 e4 ) All Other Outlets 4.260 40.9
[ 'l Sotact: Taubie Sales in California, lith Annual Report. State Board of Equalization.
~
Education The City is served by Eve elementary, t o union high. and three uni 5ed schxl dismets. and two community co!;ege districts. Howeser almost al of the City lies within eight districts: the Anahet= City. H-8
I Magnolia, Savanna and Centralia Elementary School Districts, the Anaheim Union High School Di<trict.
- the Placentia Uni 6ed School District the Orange Uni 6ed School District, and ihe, North Orange County
! Community College District.
There are eleven institutions of higher learning in Orange County and an additional twelve in adjacent areas of southern Los Angeles County. Within Orange County are the Ur.iversity of California. Irvine. California State University. Fullerton; Chapman College; Southern California College; and public com. munity colleges with grade 13 and 14 enrollments totalling nearly 120.000. FINANCIAL INFORM ATION Certain Financial Informaation The following unaudited summaries of certain Funds of the City have been prepared by the City of Anaheim Finance Department from audited financial statements. CTFY OF ANAHEIM ALL GOVERNMENTAL FUND TYPES (1)
SUMMARY
OF REVENUE AND TRANSFERS Years Ended June 30, 1975 1976 1977 1978 1979 awn .ds. Property taxes . 5 6,644 5 7,i80 5 7,793 5 8,453 5 5.187 Other taxes (including Sales and Use Taxes)- 8,129 8,989 10.557 12.594 15.001 Licenses, fees and permits- 1,716 2,432 2,889 3,938 2.931 Fines, forfeits and penalties- 578 670 669 867 1.018 From other governmental agencies 8.311 11.538 14.256 26.286 23.544 Interest and rental- 1,122 896 920 1.268 1.532 Charges for senices 2,599 2,725 4,223 4,542 7.971 Other revenues _ 319 157 464 1.536 1.403 Revenue before transfer from other funds 29,418 34,587 41,771 59,484 58.587 Transfers from other funds- 5,128 5,801 4.416 7.009 6.340 Total revenue and transfers. 534.546 540.388 546.187 566.493 564.927
SUMMARY
OF EXFENDITURES Years Ended June 30, 1975 1976 1977 1978 1979 (Theessedse General government 5 3,385 5 3,845 5 4,490 5 5.671 5 8.564 Non departmental -- 2,289 3,661 4.960 6.357 5.254 Public safety .. 13,450 14.919 16.874 19,609 21.476 l Public works- - .- 9,759 10,382 11,978 16.201 28.629 Parks and rect::ation-- 3,621 4.351 4,820 6,044 4.935 l Library - 1,308 2,126 1.792 1,766 1.667
44,914 55,648 70,525 Total operating expenditures- . . . . . . 33.812 39.284 Redemption of serial bonds, general obligation. 1,260 1,085 1,085 1,045 1,045 Interest expense general obligations 305- 269 233 196 161 Total expenditures .. 535.377 540,638 546.232 556.889 571.731
(1) Includes the General Fur.d, Special Revenue Funds, Debt Senice Fund and Capital Project Funds. Excludes Enterprise and internal senice funds. H-9 t L
, a Budgetary Process JuneThe of thefiscal year following year.of the City begins on the first day of July of each year and ends on t At such date as the City Manager determines, each board or commission and each departme must furnish to the City Manager an estimate of revenues and expenditures for such departm commission for the ensuing fiscal year, detailed in such manner as may be prescribed b In preparing the proposed budget, the City Manager reviews the estimates, holds conferenc the respective department heads, boards or commissions as necessary, and may revise the e she deems advisable.
At least sixty days prior to the beginning of each fiscal year, the City Manager submit Council the proposed budget as prepared by him or her. After reviewing and making such re deems advisable, the City Council determines the time for the holding of a public hearing th causes to be published a notice .nereof not less than ten days prior to the hearing date. Copies proposed prior budget are available f ' inspection by the public in the office of the City Clerk at to the hearing. At the conclusion of the public hearing, the City Council further considers the proposed b 4 makes any revisions thereof that it deems advisable and on or before June 30 it adopts the revisions, if any, by the affirmative vote of at least a majority of the total members of the Council.
'j From the effective date of the budget, the several amounts stated as proposed expenditures appropriated to the several departments, offices and agencies for the objects and purposes na that the City Manager may transfer funds from one object or purpose to another within the same I
department, office or agency. All appropriations lapse at the end of the fiscal year to th have not been ecpended or lawfully encumbered. At any public meeting after the adoption of the budget, the City Council may amend or supplem budget by motion adopted by the affirmative vote of at least a majority of the total me Council. 4 Under the City charter, the City may not incur indebtedness evidenced by general obligatio l which would in the aggregate exceed fifteen percent of the total assessed valuation, fo taxation, of all the real and personal property within the City, and no bonded indebtedness which constitute a general obligation of the City may be created unless authorized by the affirmative vot thirds of the electors voting on such proposition at any election at which the question is subm "8 electors. At present the City has no authorize <' bia unissued general obligation bonds, and futu tions are precluced as a result of the passage of Article XIllA of the California Constitution
; The City Council employs, at the beginning of each fiscal year, an independent certified ig accountant who, at such time or times as specified by the City Council, at least annually, and at such o a times as he or she shall determine, examines the books, records, invstories and reports of a
- 4 employees who receive, control, handle or disburse public funds and of cil such other officer departments as the City Council may direct. As soon as practicable after the end of the is submitted by such accountant to the City Council and a copy of the financial statements as
'}, the fiscal year is published. Separate financial statements are prepared for the Electric System system. N Assessed Valuation and Tax Collections i Taxes are levied for each fiscal year on taxable real and personal property which is si f as of the preceding March I. For assessment and collection purposes, property is classified eith a " secured" or " unsecured" and is listed accordingly on separate parts of the assessment roll. The D roll"is that part of the assessment roll containing State-assessed public utilities property a taxes on which are a lien on real property sufficient, in the opinion of the County Assessor to secure payment of the taxes. Other property is assessed on the " unsecured roll". H-10
Property taxes on the secured roll are due in two installments, on November I and February I of the fiscal year. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a 6% penalty attaches to any delinquer.t payment. In addition, property on the secured roll with respect to which taxes are delinquent is sold to tl e State on or about June 30 of the 6 scal year. Such property may thereafter be redeemed by payment of the oclinquent taxes and the delinquent penalty, plus a redemption penalty of 1% per month to the time of redemption. If taxes are unpi for a period of five years or more, the property is deeded to the State and thcn is subject to sale by the County Tax Collector. Property taxes on the unsecured roll are due as of the March I lien date and become delinquent, if unpaid, on August 31 of the fiscal year. A 6% penalty attaches to delinquent taxes on property of the unsecured roll, and an additional penalty of 1% per month begins to accrue beginning November I of the fiscal year. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer: (3) filing a certi6cate of delinquency for record in the County Recorder's office,in order to obtain a lien on certain property of the taxpayer, and (4) seizure and sale of personal property, improvements or posse sory interest belonging or assessed to the assessee. Total assessed valuation for revenues purposi in t'u e City increased from $54!,374,168 to
$1,308,557,841 at an average annual rate of approximately .4.0% from 1971-72 to 1980-81. 5 uch assessed valuations include secured and unsecured properties assessed by the Orange County Assessor, and secured utility properties assessed by the Sta'e Board of Equalization. Such assessed valuations are before deduction of State-reimbursed homeowner's and business inventory exemptions but exclude veterans, religious, charitable, and other such nonreccverable exemptions. Excluded also are the incremental assessed valua-tions within redevelop nent projer.t areas, the tax revenues from which were allocated to the Anaheim Redevelopment Agency in the years beginning with 1974-75.
The tax roll for 1980-81 indicates a Full Market Valuation of $5,234,231,364 for the City. In addition to a 10-year record of assessed and estimated full market valuations, the table below shows the City tax levies, collections, and delinquency percentages for the last nine completed fiscal years. H-Il l i
1 CITY OF ANAHEIM Assessed Valuation and Tax Collection Record I"'*l e. e w I Esteessed '- elmenes Tesal W Fun 41sches for Re.eeer Teest curreos Per t ee Per ( ap ra Esossened J'"' M Cier Tes ts.) of tm
% ehtaen fi Perpenes 2: Taa Levt Fan %tarkes ceaectseen L scenected Pepeta hee % alas eaos 1972.... 5 2,166.388.000 5 545.374.168 55.418.580 55.336.373 1.5';
1973.. 2.423.495.000 608.099.032 6,049.488 180.000 5 12.035 5.900.915 2.5 186.200 13.016 1974.. 2 % l 901.000 665.475.350 6.115.299 5.879.195 3.9 I h7.400 1975.. 2.919.524.000
'4.204 729.881.000 6.642.416 6.359.885 4.3
'1976.. 191.800 15.222 3.172.483.000 807.673.074 7.378.264 6.934.601 60 1977.. 197.200 16.0k k 3.*90.239.000 914.230.624 7.751.993 7,482.161 3.5 1978..
200.100 17.942 4.169.099.000 1.042.274.804 8.384.523 8.232.390 1.8 1979 204.800 2r,357 4.352.207.000 1.088.u51.68 9 5.359.430 4.952.832 7.6 1980.. 203.500 20.*74 4.923.566.000 1.230.891.544 5.799.946 5.439.73r. 6.2 211.700 23346 1981.. 5.234.231.364 1.308.557.841 6.674.640 VA. N.A. 217.800< 3 ) 24.032 0 s 9 (1) Estimated full market valuation is based on the Orange County Assessor's ratio of 259, effective since 1961 62, for all property except public utilities property. Estimated full market valuation for public utilities property is based on the ratio used each year by the State Board of Equalization. (2) Consists of gross assessed valuation, less redevelopment project area incremental assessed valuations. the taxes on which are payable to the Anaheim Redevelopment Agency, without deduction for homeowners and business inventory exemptions. (3) Estimated. SOURCE: City of Anaheim Annual Financial Reports and City Finance Director. i Summarized below is a ten-year history of property tax rates levied by the City and overlapping tax agencies in a typical tax code area in Anaheim. CITY OF ANAHEIM TYPICAL TAX CODE AREA Property Tax Rate History
.)
Oramec ,N I Fiscal Basic County. Counts %1etro- Total Tas i' ) ear Sanita"- Orance politaa Rate Per l I Emded City. County tion County W ater 5100 School of School Dis- Flood Jane 30 Dis- Assessed issy City trict _Orm Districts Control trict 0:her 4 aluation 1971 - 1.0500 1.71 t,0 1972 6.5633 .4256 .2505 .1700 .i365 10 3119 1.0500 2.0688 6.5185 .4255 .2481 .1700 .2072 10 6881 1973 - 1.0500 2.1950 6.6102 .4254 .2395 .1500 .0925 10.7626 1974 1.0500 1.7344 6.3384 .4206 .2332 .1400 .2742 10.190s 1975 1.0500 1.6582 6.1420 .3825 .2222
.1400 .2585 9 8534 1976 1977 1.0500 1.6875 6.1294 .3793 .2169 .1300 .1865 9.7796 1978
.9500 1.4854 5.7992 .3467 .1872 .1200 .2827 9.'712
.8800 1.3761 5.8589 .2988 .1888 .2000 .2518 9.0544 1979 4.000 .1470 .0032 .5312 .0215
.0171 .1000 -
4.8200 1 1980 4.000 .0950 .0028 .4640 .0240 .0146 .1000 - 4.7004 t k
- f SOURCE
Ccunty Tax Rates (various years). Auditor-Controller, County of Orange. H-12
Direct and Oierlapping Debt Although the 1980 Bonds will be payable from Gross Revenues of the Electric System, th overlapping bonded debt of the City as of October I,1980 is shown below for informative purpose CITY OF ANAHEIM STATEMENT OF DIRECT AND OVERLAPPING DEBT
- As of October 1,1980 1980-81 Assessed Valuation: 51.308.557,841 (after deducting redevelopment tax allocation increm I DIRECT AND OVERLAPPING BONDED DEBT: % App i kable Debt 10/1/80 10.525% 5 342.588(1)
Orange County.._ ...... 10.525 2,047,401 Orange County Building Authorities. .. 10.525 1,843.980 Orange County Flood Control. . 2.000 10,094,380 Metropolitan Water District...... . . . - . 34.251-34.270 1,082,400 County Sanitation Dist. =2 (Various Issues).. 9.309 451,393 County Sanitation Dist. =3 = - 50.537 1,440,304 North Orange County Community College District -- 0.263 12,055 Fullerton Comm. College and Union High School Dists. 62.847-62.869 16.244,082 Anaheim Union High School Dist. (Various issues).. 17.699-18.373 3,385.236 Orange Unified School District (Various issues).. .. . 29.066-30.160 6.752,635 Placentia Unified School District (Various issues).. 99.493 99.498 1,527,293 Anaheim School District (Various issues) . 177,618 14.419-14.606 Centralia Schooi District (Various issues). 65.675 13,135 Magnolia School District. . .. 46.583 261.330 Savanna School District Various 61,313 Other School Districts- 100. 2,515,000 City of Anaheim .... ....... _ . 100. 94.460.000(2) City of Anaheim Building Authorities....... . ....... ---- 11.876 9,429,544 Municipal Water Dist. of Orange Co. Water Facilities Corporation Various 36.200 Other Special Districts. . TOTAL GROSS DIRECT AND OVERLAPPING BONDED 5152.177.887(3) DEBT. 1,410,421 Less: Water and electric bonds (100% self supporting). Convention Center bonds (Series A, B, C and D 50,405.000 100% s-s) .... 9,429.544 Water Facilities Corporation (100% s-s). .. . 44.055.000 Stadium Inc. (100% s-s) TOTAL NET DIRECT AND OVERLAPPING BONDED S 46.877.922 DEBT x .. (1) Excludes share of Orange County lease-purchase obligations.(2) l (3) Excludes revenue and tax allocation bonds. Ratios to Assessed Valuation: 11.63 % Gross Direct Debt ($96,975,000).. ... 7.41% Total Gross Debt . 3.58 % Net Direct Debt ($1,104,579) - 0.08 % Total Net Debt..... . SHARE OF AUTHORIZED AND UNSOLD B9NDS: 57,300,000 Metropolitan Water District = 54.224,743 Placentia Unified School District 5 249,449 Centralia School District........ - - 6/30/80: 531,356,346 STATE SCHOOL BUILDING AID REPAYABLE AS OF
- SOURCE: City of Anaheim Finance Department and California Municipal Statistics Inc.
H 13
?
Ceestitutional Amendments Affecting City Revenues On June 6,1978, Califorr.ia voters approved Proposition 13, a statewide initiative relating to the taxation of real property which added Article killA ;' the California Constitution. Among other things, the Proposition: (a) Limits ad valorem propert taxes of a,1 real property to one percent (19) of the full cas'. value of the property;(b) Exempts exi; tin;, voter approved bonded indebtedness from the 1% limitatio Defines " full cash value" as the Assessor's appraised value of real property as of March 1,1975 changes in the Consumer Price Index - not to exceed 2Tc per year;(d) Permits establishment of a new " cash value" when there is new construction or a change in ownership; (c) Permits the reassessmen
- March 1,1975 value, of property which was not current on the 1975-76 assessment roll: (f) Require counties to collect 14 property tax and to " apportion it according to law to the districts within the counties (g) Prohibits new ad valorem taxes on real property, or sales taxes, or transaction taxes, on the sales of real property; (h) Permits the imposition of special taxes by local agencies; and (i) Requires a two-thirds (%)
vote of all members of both houses of the Legislature for any changes in State taxes which would result in increased revenues. Various legislative measures have been adopted by the California legislature since the passage o Proposition 13 to reduce its impact on local governments. The net effect of Proposition 13 and such measures in the fiscal year ended June 30,1979 was a reduction of City budget resources of approx
$3.0 million from the prior year level. The City has taken various steps to restrict spending and adju and service charges in light of Proposition 13. It is unable to predict whether state assistance will continue a recent levels or whether further budgetary and other measures will be required in the future to offset the effects of the Proposition.
S A special election was held on November 6,1979, at which time the voters of the State of California approved the Initiative Constitutional Amendment - Limitation of Government Apprt@tions ("Proposi-
- tion 4") which added Article XillB to the California Constitution. The details are complex and will requir clarification from suosequent legislation or judicial decisions. The City cannot predict whether the Amend-ment will, if challenged, be upheld, in whole or in part, by the courts.
Proposition 4 went into effect on July 1,1980 and provides that state and local government appro
- tions from certain revenue sources each year may not exceed the appropriations limit related to such reven sources set for the fiscal year 1978-79, with certain adjustments made for changes in the cost of living an population. Any surplus revenues will be required to be returned to the taxpayers through downward revision of tax rates and fee schedules during the subsequent two fiscal years. The measure also contains provisions relating to emergency situations, revision of the appropriations limit by a majority vote of the people, reorganizations of governments, savings by government, nonimpairment of bonds, allocation of funding of state-mtndated programs, and veicus exemptions.
Tne City is subject to Proposition 4. Bt ,,ed on certain assumptions (which will require clarification as dis:ussed above), the City believes that the knitations imposed on it by Proposition 4 will have the effect of reducing the funds expected (in the absence of Proposition 4) to be available for the payment of various anticipated City expenditures. H 14 f 1 _m..----e.-- -
Largest Taxpayers The nine largest taxpayers in Anaheim and their 1979-80 assessed valuations are as follows: CITY OF ANAHEIM Major Taxpayers, 1979-80 Assessed s aluetions for Re+ esse Number of Taspeyer Purposes Employees 5 34,768,680 6,000 Disneyland.. - Rockwell International Corporation... 32,964.640 8,000 Disneyland Hotel, - __ __ __ 15,061,040 1.400 Delco-Remy Division, General Motors Corporation . 8,486.370 475 6,928,555 1,800 Northrop Electro-Mechanical Division Northrop Corporation.. Kwikset Division, Emhart Industries, Inc. . .- 6.674,685 1,800 California Computer Products, Inc.. .-.. 6,109,270 800 interstate Electronics Corp., Division of A T-O, Inc....._ 3,560,260 1,700 Monsanto Plastic and Resins Company - Packaging Division.. 3.213.520 350
$117,767,020 22,325 SOURCE: Orange County Assessors Office and " Orange County Business", February / March,1980.
Pension City personnel belong to the State Public Employees Retirement System (P.E.RS.). As of June 30, 1976, P.E.R.S. had separate contracts with the State of California and 944 local public agencies, including coverage for 1,109 school and community college districts. Membership includes safety, st&te industrial, and miscellaneous groups. Each group has somewhat differing programs and amounts of actuanal liabilities. For the Public Employees' Retirement Fund as a whole, net assets available for benefits on June 30, 1976, according to the annual audit were 57,858,768,931, while the unfunded obligation was 56,753,964,123. The latter is the amount by which the excess of the present value of total projected benefits over the sum of the present values of future employer normal costs and future member contributions exceeds the amount of available net assets at carrying value. Based on the latest actuarial valuation, the City's unfunded prior service cost relating to the City's participation in P.E.R.S. was $9't6,000, which is being funded over 25 years ending June 30,2000. Contributions to P.E.R.S. of 7% of 'he misdlaneous employees' earnings, and 9% of the public safety employees' earnings, are accomplished through autoraatic paycheck deductions. The City's contribution rate is determined by periodic actuarial valu.stions based on the benefit formula and the number of employees and their respective salary schedules. For 1979-80, the City's contribution rate was 14.126% for miscellane-ous employees and 27.905% for public safety employees. The rates for 1980-81 are 14.498% and 27.905% for miscellaneous and public safety employees respectively. City contributions totaled $5,875,000 for 1978-79. Labor Relations City employees are represented by various unions, and labor relations have been generally amicable in that there have been no major strikes, work stoppages, or other incidents. Currently,68.3% of all city employees are represented by unions, including the Anaheim Municipal Employees Association; the Anaheim Police Association; the Anaheim Fire Association; the International Brotherhood of Electrical Workers, Local 47 (IBEW) (utility department employees); the Hospital and Service Employees Union. Local 399 and the General Truck Drivers Union, local 952. The preceding are designated representatives under the Meyer-Milias-Brown Act (Section 35i0 er seg. of the Government Code of California) and are covered by memoranda of understanding for periods expiring October 9,1980, exc-* for the memoranda with the latter two unions, wnien expire February 6,1983. Negotiations are curratly being conducted to renew memoranda of understanding which expire on October 9,1980. There are no other organized employee groups. H 15
APPENDIX X ta* 4 tsccs or O' M E LV E N Y & MYERS sn *csr sier- srecer Los ANGELCs, CALIFoama gooi?
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*gsta at 4-22 c... . .. m -2..
PROPOSED FORM OF LEGAL OPINION 1980 We have examined certified copies of the proceedings taken for the issuance of 584.000,000 elect revenue bonds (the "1980 Bonds *) of the City of Anaheim,Canfornia, and the sale of the 1980 B underwriters thereof. We have s Iso examined executed 1980 Bond No.1. The 1980 Bonds are issue of $150,000.000 authorized st an election held March 4,1975, are issued pursuant to Se the City Charter, City Ordinance So. 2980, as amended, and Resolution No. 80R-457 (the of the City Council of said City, are designated " Electric Revenue Bonds. Issue of 1980", c bonds. numbered I to 14,600 inclusic,in the denomination of 55,000 each dated October 1,1950. interest payable semiannually thereaftr.r at the rate of 8% per annum ed mature in conse order on October 1 in each of the years and in the amounts, as follows: Pnacgal Pnneval Amment ieer xse :
) eer _
51,250,000 1992- . . _ . . . . 52.325.000 1984 .. 2.525.000 1,375,000 1993. 1985. 2.725.000 1,450,000 1994. 1986- 2.925.000 1,600,000 1995m 1987. .. 3,175.000 1988..... . .. I,700,000 1996-- l.850,000 1997- 3.425.000 1989 . . __ 16.650.000 2,000.000 2001-1990... - 36,875.000 2,150,000 2007- -- 199I- . The 1980 Bonds maturing on or after October 1,1991 are subject to call and redemption prio maturity on the dates, at the prices and in the manner set forth in the Resolution. Our services as bond counsel to the City were limited to an examination of the transcript o proceedings referred to above, to a review of the description of the issue, stateme conclusions set forth in the Official Statetaent for this issue under the capticas " Security Payment for the Bonds" and " Description of the 1980 Bonds", and to the rendering below. From such examination, we are of the opinion that: 1.- The proceedings have been taken in accordance with the laws and Constitut California and the Charter and Ordinance No. 2980, as amended, of said City, and that th having been issued in duly authorized form and executed by the proper officials and d by said underwriters, constitute the legally valid and binding obligations of said City revenues of the Electric System of the City as set forth in the Resolution and not from out of a moneys of said City, but said provision for such payment out of said fund does not preclud certain other sources mentioned in the Resolution.
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- 2. The 1980 Bonds, and any parity bonds (as defined in the Resolution), are equally sectired by a valid pledge, charge and lien upon said gross revenues, as provided in the Resolution.
- 3. The Resolution has been duly adopted, and the agreements and covenants contained in the Resolution are authorized by law and are legally valid and binding.
- 1. The form and execution of 1980 Bond No. I are regular and proper.
The agreements, covenants, and obligations described in the foregoing paragraphs, however, may be limited by bankruptcy, insolvency, or other laws affecting the enforcement of creditors' rights. We are further of the opinion that interest on the 1980 Bonds is exempt from income taxes of the United States of America under present federal income tax laws and such interest is also exempt from personal income taxes of the State of California under present state income tax laws. We are further of the opinion that the amount of original issue discount,if any,in the selling price of the 1980 Bonds (which original issue discount with respect to each maturity of the 1980 Bonds equals, at a minimum, the lesser of (i) the difference between the principal amount of such 1980 Bonds and the price paid to the underwriters by the original purchasers of a substantial portion of the 1980 Bonds of such maturity, and (ii) the difference between the principal amount of such 1980 Bonds and the price paid by the underwriters, calculated in each case without regard to accrued interest) represents interest which is exempt from federal income taxation to the same extent expressed in the preceding paragraph: provided, however, that in the case of a sale or exchange of such 1980 Bonds or the redemption of such 1980 Bonds prior to maturity such original issue discount is apportioned among such original purchaser of such 1980 Bonds and subsequent holders, and each respective holder is entitled to treat as exempt from federal income taxation, at a minimum, that portion of his gain,if any, which does not exceed the amount of such original issue discount with respect to such 1980 Bonds multiplied by a fraction the numerator of which is the number of days (computed on an actual calendar day basis) such 1980 Bonds were owned by him and the denominator of which is the total number of days from the date ofissuance of such 1980 Bonds to the date of maturity of such 1980 Bonds. Respectfully submitted, O'MELVENY & MYERS I-2
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