An Informal Informational Meeting ("Shirtsleeve" Session) of the Lodi City Council was held Tuesday, April 2, 2002 commencing at 7:02 a.m.

Present: Council Members – Howard, Land, Nakanishi, and Mayor Pennino

Absent: Council Members – Hitchcock

Also Present: City Manager Flynn, City Attorney Hays, and City Clerk Blackston

City Clerk Blackston reviewed the weekly calendar (filed).

City Manager Flynn announced that today was Mayor Pennino’s birthday and City Attorney Hays’ birthday is on April 12.

C-1 "Budget – Electric Rates and Market Cost Adjustment"

NOTE: Due to a potential conflict of interest as an employee of Pacific Gas and Electric (PG&E), Mayor Pennino abstained from discussion on Item C-1 and vacated his seat at the dais.

With the aid of overheads (filed) Electric Utility Director Vallow reported on the financial condition of the Utility. He pointed out that the Enron and PG&E bankruptcies exemplify the unstable and insecure energy market. Mr. Vallow stated that the Utility entered into a long-term contract with Calpine last year. The contract was favorable by last year’s standards, but only marginal at today’s standards. He had hoped to restructure the contract between November 2001 and February 2002; however, it has not been possible. He explained that Calpine has also had financial difficulties and is being scrutinized by various federal and state agencies, regulators, and the financial community. Calpine has cut 70% of what it had projected to build. The Federal Energy Regulatory Commission price caps will be removed in November, which will add to the uncertainty of the market.

Mr. Vallow stated that the Utility’s current financial position is stable. He did not recommend changing the Market Cost Adjustment (MCA) at this time due to the continued instability of the market. He noted that the Utility will make internal cuts where possible and recommended that the MCA be considered again this fall. Mr. Vallow stated that the Council set a "soft policy" when it established a rate structure, which he believed, in essence, kept the economic engine of Lodi going. Based on energy use, this policy resulted in a 7% business expansion in Lodi. He explained that it was much more beneficial to the Utility’s residential customers to be employed, than to save $5 or $6 dollars a month on their electricity bill.

Mr. Vallow reported that during the months of April through November the Utility typically has a surplus that is sold to the state for half what customers pay. He proposed a Home Comfort Discount program, in which customers would have the "first right of refusal" for this surplus energy. As an example, if a customer used 700 kilowatt hours in 2001 and in 2002 they use 850 kilowatt hours, 700 of the 850 hours would be charged at the current rate and the additional 150 hours would be deeply discounted. The premise of the Home Comfort Discount program is to reward customers and allow them to be comfortable during the summer months. The Utility will continue to focus on energy efficiency programs.

Council Member Howard stated that she had met with Mr. Vallow last Friday and discussed the Utility and this morning’s topic. She spoke in support of the Home Comfort Discount program and believed that it represents what Mr. Vallow always strives to do, i.e., to look for what is in the best interest of the City and is most fair to its citizens.

In reply to Council Member Howard, Mr. Vallow explained that an MCA adjustment is not being recommended at this time because the Utility is prohibited by its bond covenants from establishing a revenue that is less than its cost.

Council Member Howard suggested that if the Home Comfort Discount program is approved by Council, a summary be prepared at the end of the year to show what the participation level was.

Council Member Nakanishi recalled that, originally, the MCA was instituted for the purpose of collecting $7 million of a $10 million shortfall. He asked how much as been collected.

Mr. Vallow reported that approximately $9.2 million will be collected this fiscal year. He stated that the MCA for last year was insufficient to cover the Utility’s power costs for this year.

Council Member Nakanishi asked City Manager Flynn why the City did not borrow the $10 million and amortize it over a ten-year period. Mr. Flynn explained that staff made that proposal to Council; however, they were directed to keep the money for cash flow purposes and not to use it to amortize the rates.

Council Member Nakanishi expressed concern about the public’s perception that the City is "gouging" its citizens by not eliminating the MCA, particularly in light of the $900,000 transfer from the Utility to the general fund. He suggested that a better job be done of explaining the situation to the public.

Mr. Vallow reported that residential rates have been lowered from 14.8 cents to 13.3 cents, the Utility’s budget is stable, and an environment was created where businesses were able to grow. He hoped to bring back the Home Comfort Discount program for Council consideration in June.

In reply to Council Member Land, Mr. Vallow stated that the City uses 440,000 megawatt hours a year and generates 620,000 hours. The summer surpluses are based on running the White Slough gas turbine at 50% capacity. Spicer Reservoir is projected to be 110% of capacity.

Council Member Land agreed with Ms. Howard’s suggestion that a summary be prepared at the conclusion of the Home Comfort Discount program. He commented that at a regulatory meeting of the Northern California Power Agency (NCPA) it was announced that NCPA’s budget may double for litigation costs related to the PG&E bankruptcy.

Tony Goehring, Economic Development Coordinator, stated that he has repeatedly received assistance from Electric Utility in providing advantages so that Lodi can compete with other communities for new businesses. He spoke in support of the Home Comfort Discount program.

PUBLIC COMMENTS:

• Paul Littlefield, General Mills Manager, stated that Electric Utility is consistent and reliable. Its cost structure provides an opportunity for General Mills to be competitive.

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• Pat Patrick, Executive Director of the Chamber of Commerce, voiced support for Electric Utility.

None.

No action was taken by the City Council. The meeting was adjourned at 7:53 a.m.

ATTEST:

Susan J. Blackston
City Clerk