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HomeMy WebLinkAboutRESOLUTIONS-1991-100-R-9112-12-91 • 100-R-91 A RESOLUTION Affirmation of City's Intent to Explore all Opportunities for Electric Energy Service WHEREAS, the City of Evanston had undertaken a Preliminary Study of the Feasibility of Establishing a Municipal Electric System; and WHEREAS, the Preliminary Study. determined that a Municipal Electric System was a feasible option for the City of Evanston; and WHEREAS, the City .Council concurred with the Energy Alternatives Task Force's recommendations to: 1. Prepare a Request for Proposal for a second study to determine the available power supply; and • 2. Appoint a Negotiating Team to initiate discussions with Commonwealth Edison regarding the renewal of the franchise agreement; and 3. Support the work of the Northwest Municipal Conference in their efforts to develop a model franchise agreement. and WHEREAS, a negotiating team has been appointed to initiate discussions with Commonwealth Edison regarding the franchise agreement; and WHEREAS, the Northwest Municipal Conference endorsed the model franchise and it is available for use by member communities; NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF µ ,THE* -CITY OF EVANSTON, COOK COUNTY, ILLINOIS : H 100-R-91 • SECTION 1: The City of Evanston affirms that it is exploring all viable options and opportunities to maintain the most efficient and cost effective power supply alternatives for the business and residential citizens of Evanston. SECTION 2: That Exhibit A, the Duncan Allen response to the Commonwealth Edison letter of November 22, 1991, become a part of the public record of the City and that it be released to the media and the concerned citizens of Evanston. SECTION 3: This resolution shall be in full force and effect following its passage and approval in the manner provided by law. • 44-e-t-aMayor TES C' Clerk Adopted: 1991 , F-439 T-926 P-002/007 DEC 09 191 11:54 Duncan & Allen COMMELLM AT LAW 1575 Eye Street, Northwest Washington. AC 20005-1175 Telephone (202) 289-8400 FAX (202) 289-8450 December 9, 1991 Ms. Judith A. Aiello City of Evanston 2100 Ridge Avenue Evanston, Ohio 60204 Re: Resnonse to Commonwealth Edison ..Dear Judy: This is our response to Commonwealth Edison's "Dear Evanston Customer" letter of November 22, and to comments by Commonwealth Edison that appeared in a newspaper article on November 26. We disagree with Commonwealth Edison's criti- cisms of our Preliminary Feasibility Report and we stand by its assumptions and conclusions. • Initially, we note that criticisms such as Common- wealth Edison's are to be expected whenever a city considers the option of establishing a municipal electric system. We have encountered them before and, as here, found them to be without merit. In each case, moreover, Commonwealth Edison's comments appear to indicate a failure to read the study carefully rather than to reveal flaws in the study itself. Commonwealth Edison provided specific criticism on three aspects of our Preliminary Feasibility Report. It claims the study is flawed by: (1) Understatement of the cost of acquiring facilities due to failure to include the acquisition cost associated with Substation TSS 47; (2) Understatement electricity due consider losses transmission of tourers located of the cost of to failure to associated with power to the cus- in the City; and -439 T-926 P-003/007 DEC 09 191 11:�� Duncan & Allen - 2 - (3) Unrealistic assumption of a start-up date of January, 1993. in addition to these issues, Commonwealth Edison also offered less specific arguments in opposition to the establishment of a municipal electric system. Exclusion of Substation TSS 47 Commonwealth Edison claims that our study fails to include the cost associated with acquiring Substation TSS 47. This claim is incorrect. As was indicated on Page V-2 of our report, we have included the cost associated with acquiring the necessary portion of the facilities located in Substation TSS 47. Specifically, our analysis included costs associated with acquiring facilities located within Substation TSS 47 and which are operated at and below 34.5 kV. • The remaining portion of the substation and the costs associated with obtaining it were excluded for a reason: • The City does not need them and would not need to acquire them. Commonwealth Edison would continue to own them and use them as it does today. Further, if the City were to acquire all of the facilities at Substation TSS 47, the additional cost should be offset by several factors explained below. More technically, the reason we have not included the cost associated with facilities located in Substation TSS 47 that are operated at voltages higher than 34.5 kV is be- cause we assumed that the City would interconnect with Common- wealth Edison's system at 34.5 kV. This is consistent with our assumptions regarding the City's power supply. The City, we assumed, will purchase power from Wisconsin Electric Power Company ("WEPCO"). That power would be transmitted (or "wheeled") across the Commonwealth Edison transmission system and delivered to the City at 34.5 kV. Evanston would receive the power at 34.5 kV and would have no need to acquire the higher voltage facilities in the substation. This is not a theoretical approach, but is in fact the practice that is in use today in the City of Geneva, Illinois, which also pur- chases power from WEPCO, wheels it across the Commonwealth Edison system, and receives it at 34.5 kV. If the City were to purchase the entire facilities located in Substation TSS 47, the City would then be connected to the Commonwealth Edison system at 138 kV and, as a result, we would expect that it should pay a lower wheeling charge • P-439 T-926 P-004/007 DEC 09 '91 11:56 � Duncan & Allen - 3 - than is paid by Geneva. Moreover, as Commonwealth Edison would still need to use the 138 kV facilities to transmit its own power to its electric load outside of Evanston, the City, would be justified in charging the company a wheeling charge if the City owned the 138 kV facilities. We have not analyzed the specific costs associated with acquiring the additional facilities located in Substation TSS 47 which are operated at voltages higher than 34.5 kV, nor have we attempted to iden- tify (a) the reduction in wheeling costs that would occur as a result of the City interconnecting with Commonwealth Edison at 138 kV, or (b) the revenues that Commonwealth Edison would pay to the City to use these facilities. It is apparent that there would be some offsetting effect, however. Overall, we believe the assumptions made with regard to the facilities located in Substation TSS 47 are reasonable and we do not believe that the facilities operated at voltages higher than 34.5 kV need to be acquired by the City. Transmission Losses Commonwealth Edison also points out in its letter to its customers that, although losses are mentioned in our report, we failed to account for those losses in our analysis. This is totally wrong and can only be explained by an apparent failure to read the report carefully. As indicated on Exhibit IV-2 of the report, we have included in our analysis an allow- ance for losses associated with transmitting power from WEPCO to the City. As indicated on Line 3 of Exhibit IV-2, we have assumed a transmission loss adjustment of 5%, the same loss adjustment that is identified in Commonwealth Edison's trans- mission tariff that is utilized by Geneva to wheel power from WEPCO to Geneva. We have also included an allowance for losses in the City's distribution system as discussed in Page IV-1 of the report. As indicated on Lines 1 and 19 of Exhibit IV-1, we have assumed a 10% and 5% loss adjustment for non -industrial and industrial customers, respectively. These loss adjust- ments are based on the experience of other municipally owned electric systems which we represent. Consequently, we believe that our analysis does pro- perly reflect the losses associated with wheeling power from WEPCO to the customers located in the City and that Common- wealth Edison's observation is incorrect. 0 F-439 T-926 P-005/007 DEC 09 '91 11:57 Duncan & Allen - 4 - Timing Commonwealth Edison further claims that a January 1993 start-up date is unrealistic. We believe this was a realistic assumption to use at the time the study was com- missioned, based on actual start-up times required by new municipal utilities with which we have been associated. We believe it remains a realistic start-up date if Commonwealth Edison agrees to negotiate a sale of its distribution facili- ties in Evanston. As noted below, however, the purpose of the study was not to identify precise amounts that could be saved and when, but instead to determine whether there were insur- mountable obstacles to establishing a municipal system and, if not, whether there appeared to be sufficient savings poten- tially available to warrant more serious consideration by the City. Other Arcmments • In addition to the key issues discussed above, Com- monwealth Edison also raised other less specific arguments opposing the establishment of a municipal electric system. 0 One of those arguments is that some cities, such as Chicago and Riverdale, recently rejected the idea of forming their own municipal electric systems. As we have pointed out to the Task Force, there are many factors that affect the feasibility of establishing a municipal electric system. These factors differ from city to city, which is why each community must make its own evaluation and determination of the feasibility of establishing its own municipal electric system. While it is true that some cities have recently rejected the idea of a municipal electric system, several cities also have recently elected to establish their own municipal electric systems and are doing well. According to the American Public Power Association, the national associa- tion for municipal electric systems, 30 communities have elected to establish their own electric systems since 1980. One of those communities with which we have worked, Clyde, Ohio, established its system in 1988 and now provides reliable electric service to its customers at rates that are 20% - 40% less than the rates of the investor -owned utility that pre- viously served those customers. • r- �_ •-_moo ; -/rC, vVJr c. it >1 li:r= Duncan ,10 &Allen - 5 - Commonwealth Edison also suggested that our report did not fully discuss WEPCO's long-term capacity as a supplier of power. However, the report relied on WEPCO's projections of available power. Presumably, WEPCO is in a better position to project its future availability of power than Commonwealth Edison. More importantly, the report relied on the fact that the terms of service offered under WEPCO's supply arrangement obligate WEPCO to provide the capacity necessary to serve the City's requirements. Finally, the attachment to Commonwealth Edison's November 22 letter questioned (without specific or quantified criticism) the study's treatment of legal fees, financing costs and municipal budget stability, and reserves. Again, it appears the company has not read the report closely. our estimated capital requirements included $2.5 million in legal, engineering, and financing costs (pages VI-1 and VI-2). In addition, we assumed that revenue bonds would be used to finance the system (page VI-3), which means that only revenues from electric sales will be used to pay off the bonds. Muni- cipal taxes and municipal budget stability will not be affected. Lastly, with regard to financial reserves, our • study included significant funding (over $1 million per year) for repairs and replacements (Exhibit VII-1) and $5.5 million of debt service reserves (page VI-2). These figures are in accord with accepted standards for reliable municipal electric service. summary and Conclusions In summary, we did not find anything in Commonwealth Edison's letter that requires us to alter the assumptions and results provided in our report. The company has raised fewer issues than is typically the case (which may indicate they do not disagree with major portions of the report, although we do not expect the company to concede that) and, where it has raised issues, they are either groundless or based on lack of detailed review of the study, rather than the assumptions or conclusions contained in it. Nevertheless, the citizens of Evanston should not lose sight of the fact that our study was designed only to hit the tops of the waves and to address key issues of feasibi- lity. This was done so the City could avoid the cost of an in-depth study if the preliminary report identified serious problems. The report does not and was not intended to provide a detailed answer to every question that might be asked. On ri U F-439 T-926 P- r/007 DEC 09 '91 12:00 Duncan & Allen - 6 - the other hand, in our view it does provide sufficient detail to.conclude that there may be significant benefits available to the businesses and residents of Evanston from a municipal electric system. sincere yours, Gre tinger cc: Jim Suhr John Courtney Jim Dittmer • •