FINAL PLAN Millersburg City Power Committee Meeting Report BUSINESS PLAN FOR MILLERSBURG CITY POWER

Transcription

1 2015 FINAL PLAN Millersburg City Power Committee Meeting Report BUSINESS PLAN FOR MILLERSBURG CITY POWER

2 5/18/2015 Business Plan For Millersburg City Power This Business Plan (Plan) contains the details of a proposed municipal electric utility owned by the City of Millersburg ( City ). 1 This Plan was formulated with input from a utility committee established by the City Council, as well as industry experts. The City instructed the utility committee to develop this Plan because two independent feasibility studies show significant savings to residential, commercial and industrial customers if the City forms a municipal utility. Based on a range of likely outcomes developed for the City, this Plan shows that the citizens and businesses in Millersburg can expect significant rate reductions if the City forms a municipal utility. As described more fully in this Plan, it is estimated that residential customers can expect to see rate reductions in the percent range when Tier 1 power is available to the City. Commercial customers can expect rate reductions in the percent range, and industrial customers can expect rate reductions in the percent range. The total savings for customers in the City for the first 10 years of operation is estimated at $44,000,000. This Plan was presented to the City Council for its review, input and consideration. On May 12, 2015, the City Council voted to present this Plan to the citizens of Millersburg to vote on whether the City should continue the process of forming a municipal utility. The City established a utility committee to develop this Plan so that the City and its citizens can make an informed decision about whether or not to form a municipal utility. The utility committee was instructed to design a municipal utility that is in the best interest of the community. The City is dedicated to providing the best possible electric service at the least possible cost to its citizens and local businesses. 1 The specific details in this Plan are subject to change based on direction from the City Council. 1

3 5/18/2015 Executive Summary The City of Millersburg is considering forming a municipal electric utility as a means to ensure lower energy bills for its residents and to ensure the long-term viability of businesses and jobs in the City. The City has the opportunity to form a municipal utility and to purchase low-cost hydroelectric power from the Bonneville Power Administration ( BPA ). BPA is a federal agency charged with marketing the output of the Federal Columbia River Power System ( FCRPS ). Although BPA has fully allocated the output of the federal hydroelectric system to other consumerowned utilities, BPA reserved a small amount of such power at its lowest rates for new consumer-owned utilities. Only newly formed consumer-owned utilities, such as a municipal utility, are eligible under federal law to purchase this reserved power. The City appointed a committee to formulate this Plan with details about how the utility would be managed and operated so that the citizens could make an informed decision about whether to support or oppose the formation of the utility. On May 12, 2015 the City Council voted to present this Plan to the citizens of Millersburg who will then vote on whether to continue the process of forming a municipal utility. If the citizens of Millersburg vote to continue the process of forming a municipal utility, it is important to point out that the City is not committing itself to owning and operating a municipal utility. The City will only form the utility if: (a). (b) (c) (d) Electric rates for all customer classes will not exceed the electric rates charged by PacifiCorp when BPA Tier 1 power is available to the City; Electric rates produce revenues sufficient to pay for the new utility s operating expenses and debt payments, including an in-lieu of contribution to the City general fund to replace the franchise fees currently collected from PacifiCorp; Electric system reliability will be comparable to or exceed that of PacifiCorp; and The City is able to finance the municipal utility. In simple terms, the City would only move forward with the formation of a municipal utility if the City can provide the same quality electric service at lower rates than PacifiCorp. If service from the City would be either less reliable or more expensive, then the City would have no reason to move forward with the municipal utility. 2

4 5/18/2015 As described in more detail in this report, the committee, with the aid of consultants, developed financial models assuming the City builds a new substation, new transmission and acquires the poles and wires from PacifiCorp. The financial models include all the costs associated with startup equipment and supplies, legal and engineering expenses, working capital, reserves and financing expenses. The City estimates the total startup costs, including the costs to build a substation and transmission and to acquire the poles and wires, will be approximately $23 million. To be conservative and to account for any unexpected costs, the City then directed its consultants to assume that the startup costs will cost approximately $17,000,000 more than what is anticipated. In other words, this Plan assumes that total startup costs will be $40 million giving the City a significant margin of error to account for legal and regulatory and other potential risks. Even assuming a case where the City pays $40 million in startup costs for the system, the savings to Millersburg customers are significant. A summary of the cost savings by rate class is estimated as follows: Case 5 ($40M startup cost, 25yr, amortization for revenue bonds, 5% PPL annual rate increase, ATI assumed to be served with market power for purposes of financial model, entire City served with market power in 2018, Tier 1 power available in 2019, BPA power rates are assumed to increase 8 percent every 2 years and BPA transmission rates increase by 7 percent every 3 years) Residential Savings with City ($000) $ 278 $ 386 $ 414 $ 477 $ 507 $ 584 $ 619 $ 709 $ 753 $ 854 $ 909 Savings with City (%) 26.7% 34.6% 34.6% 37.2% 36.9% 39.7% 39.2% 41.9% 41.5% 44.0% 43.6% Commercial Savings with City ($000) $ 216 $ 314 $ 329 $ 379 $ 394 $ 454 $ 470 $ 541 $ 567 $ 645 $ 678 Savings with City (%) 21.9% 30.2% 29.9% 32.7% 32.1% 35.0% 34.3% 37.1% 36.6% 39.1% 38.6% Industrial Savings with City ($000) $ 244 $ 737 $ 761 $ 976 $ 998 $1,251 $1,268 $1,548 $1,590 $1,886 $ 1,938 Savings with City (%) 5.3% 15.3% 15.1% 18.5% 18.0% 21.5% 20.8% 24.2% 23.7% 26.8% 26.3% ATI Savings with City ($000) $ 970 $1,642 $1,688 $2,308 $1,604 $2,366 $2,343 $3,197 $3,257 $4,142 $ 4,237 Savings with City (%) 7.5% 12.1% 11.8% 15.4% 10.2% 14.3% 13.5% 17.5% 17.0% 20.6% 20.1% Cumulative Savings with City Electric - First 10 Years ($000) $ 44,666 The committee also had its consultants run a series of alternative financial reports to see how different financial scenarios impacted the study. In all of the reports, it was assumed that revenue bonds are amortized over 25 years instead of 30 to make the reports conservative. In all the reports, ATI is assumed to be served with 3

5 5/18/2015 market power rather than less expensive BPA power, and is responsible for compliance with the Renewable Portfolio Standard. In all the reports, PacifiCorp s rates were assumed to increase at a rate (5 percent) that is lower than its 10 year annual average. BPA power rates are assumed to increase 8 percent every two years, and BPA transmission rates are assumed to increase 7 percent every three years. Those reports showed that the City will have lower rates than PacifiCorp, once Tier 1 power is available to the City, as long as the total startup costs are $69 million or less (more than three times what the City estimated the costs will be). Those alternative cases are attached as Exhibit C. A preliminary acquisition and condemnation timeline is attached as Exhibit F. Introduction and Background Electric service is currently provided to the residents and businesses in the City and the surrounding area by PacifiCorp. The City comprises approximately seven square miles and is adjacent to and north of Albany, Oregon. The City s current population is approximately 1,505. Although the City is relatively rural and residential for the most part, there are several large commercial and industrial facilities in the City. PacifiCorp provides electric service in the City pursuant to a franchise agreement that terminates in There have been two feasibility studies that have looked at the economics of forming a municipal utility within the City. Both studies (one commissioned by ATI Millersburg Operations and one commissioned by the City) concluded that the cost savings to residents and businesses in Millersburg would be significant, with no reduction in the quality of service. These feasibility studies included all the typical costs for a startup municipal utility including all operating costs and debt payments. There are currently 12 municipal utilities operating in Oregon, all of which have electric rates lower than PacifiCorp. 2 2 See 2013 Oregon Utility Statistics, Oregon Public Utility Commission, p. 19, 33, 34. 4

6 5/18/2015 Mission Statement The City of Millersburg is considering the creation of an electrical municipal utility to serve its community. Millersburg City Power has the following objectives: Local ownership, control and accountability. o Creating a local municipal utility that will be responsive to its customers needs. o Millersburg City Power, through the City Council, will be held accountable for the operational and financial performance of the utility. o Millersburg residents will have input and influence over the general policies and planning of the utility. Providing exceptional and reliable electric service at the lowest possible cost. o Creating a local utility that meets or exceeds the service quality and performance of PacifiCorp with lower rates. o Reinvesting in the utility to improve the short and long term reliability of the distribution system. o Providing exceptional electric service and customer service at cost without markup for taxes or profit. o Hiring experienced personnel for emergency and nonemergency repair, response and maintenance. Reducing carbon footprint and environmental stewardship. o Access to BPA s low cost hydropower system. o Encouraging customers to install solar and energy efficient appliances through conservation programs. o Compliance with State Renewable Portfolio Standards. 5

7 5/18/2015 Economic development. o Preserving existing jobs in the community. o Having the ability to offer economic incentives and cost savings to attract new businesses and families to the community. o Offering cost based rates and policies tailored to customer needs. ORGANIZATION OF MILLERSBURG CITY POWER The structure and organization of Millersburg City Power is described below and shown on Exhibit E. City Council Role The City Council is ultimately accountable to the citizens of Millersburg for electric service within the City. All major decisions, (utility budget, bonds, capital projects, policies, hiring of staff and specific contractors and electric rates) must be approved by the City Council. Citizens Advisory Committee For certain types of actions, the City Council may appoint a committee to make recommendations to the City Council. For example, the City Council may appoint a committee to develop draft policies for Council review and approval. The City will also create a citizens advisory committee. The committee will be made up of representatives from each customer class (industrial, commercial and residential) and make recommendations to the utility s general manager and City Council on how to improve the utility based on feedback from the community. The Charter for the Citizens Advisory Committee is attached as Exhibit D. 6

8 General Manager FINAL PLAN 5/18/2015 A general manager will be hired to oversee utility operations, including oversight of employees and / or third party utility contractors. The general manager of Millersburg City Power will report and be accountable to the City Council. The general manager will be, at a minimum, responsible for: Following the direction of the City Council; Ensuring that the utility is in compliance with applicable laws and regulations; Keeping the City Council apprised of the financial condition of the utility; Preparing budgets for the municipal utility; Reviewing budgets for third party contractors; Preparing budgets for needed capital improvements; Reviewing all utility related bills and authorizing payment, except where City Council approval is required; Oversight of third-party contractors; Maintaining adequate back up supplies/equipment for the utility consistent with prudent utility practices; Making recommendations to the council on needed policy revisions; Coordination with BPA on power supply and transmission; Coordination with new customers and existing customers on service issues and general questions. Participating in any utility related committees such as a citizen advisory committee--at the direction of the City Council. Coordination with larger customers on power supply, service quality and expected changes to load. Office and Warehouse Millersburg City Power Millersburg City Power will have an office for customer service functions and a warehouse space for the equipment, systems and operations necessary to support the operation of the utility. 7

9 5/18/2015 Customer Service (Billing and Accounting) The Customer Service function includes billing and collections, call center representatives and account management. These functions will be directly hired or contracted out to a third party, who will report to the General Manager. Online and auto pay options will be available to customers. Millersburg City Power will also have a physical office space in Millersburg for customer service and utility related questions, and for those individuals who would prefer to make payments in person. Operations and Maintenance (including capital projects) OVERVIEW: Electrical system reliability in the City has been good historically. But much of the current electric system infrastructure is now aging and may require renovation or replacement. With a planned, aggressive maintenance program for the entire electrical distribution system (including the new substation and new transmission planned by the City), the city will ensure that system reliability continues to meet or exceed current performance. These maintenance practices will be applied throughout the entire Millersburg City Power electrical system. One of the key benefits of a municipal utility is that it can provide excellent employee benefits and sustain optimum maintenance practices without having to yield to the pressures faced by investor owned utilities. The City Council will consult with the General Manager about how to best design the organization of the utility and whether to directly hire and/or contract with staff and industry personnel to assist with the operation and maintenance of the municipal utility. The City will either directly hire or contract with third parties for the operations, maintenance, meter reading and the day-to-day operations of the electric utility. These employees or contractors will report to the General Manager, who will have oversight responsibility for all aspects of the utility. The City will either lease or own an office space for utility operations, which will also include a warehouse and yard for equipment and supplies. The committee recommends owning the office space rather than leasing from a third-party. This 8

10 5/18/2015 Plan assumes the City will purchase an office and land for utility operations for $1 million. The utility will be appropriately staffed to ensure superior customer service and response times. One Staffing option being considered is: One full time administrative person Daily customer interaction, payroll, accounts payable and receivable, and customer billing. Two Journeyman Lineman with one assigned as a working foreman and both being capable of operating and maintaining the substation. Responsibilities include switching, customer field meetings, disconnects/reconnects, make safe work, system inspections. All work activities will be in accordance with Oregon OSHA Division 3 (29 CFR 1926), Subdivision V and prudent utility practices. When work activities require additional crew members, they will be scheduled in advance from the hiring hall or a contractor to ensure an efficient work flow process to meet customer needs. One part time engineering manager (one day per week on average). Responsibilities include system analysis, customer care and consultation, capital project development, etc. 24-hour Emergency contact information for Staff Meter reader. Reliability of the System The City is committed to providing exceptional and reliable electric service at the lowest possible cost. To achieve this goal, the municipal utility will: (a) reinvest in the utility to improve the short and long term reliability of the distribution system; and (b) hire or contract with experienced personnel for emergency and nonemergency repair, response and maintenance. Millersburg City Power will contract with third party contractors or directly hire experienced industry personnel for capital projects (line extensions, pole 9

11 5/18/2015 replacements, conductor replacement, underground conversions, system relocations) and all routine maintenance, emergency repairs, tree trimming and line clearing, meter reading and traffic control for utility work. ROUTINE MAINTENANCE: Routine maintenance will be performed by experienced industry personnel. Routine electric system maintenance includes, but is not limited to, the following: Installing temporary power to new construction sites. Installing power cables and meters for new services. Providing maintenance to all utility facilities. Conducting preventive and predictive maintenance for all system components. Overseeing maintenance of vegetation that impedes access to switches, overhead power lines, or any other system structure. Maintaining storage and inventory of on-site spare parts and materials (assuming warehouse personnel will not be required). Maintaining street lighting. Millersburg City Power will also have the opportunity consistent with its mission statement-- to replace and upgrade critical facilities to actually improve system performance and reliability over both the short and the long terms. EMERGENCY RESPONSE: The City will be prepared to handle emergency situations and major power outages. A major outage that impacts a large section of power line or piece of equipment will require a prioritized use of resources. Given that these are rare events, the City will utilize additional contracted resources when needed, as other local utilities do. An inventory of materials required to respond to system outages will be maintained by Millersburg City Power. An emergency response plan will be established that provides the required additional utility crew support to address these emergency situations and outages. This emergency response plan will 10

12 5/18/2015 require, at a minimum, backup support agreements with contractors that will be used for additional support during emergency situations. A mutual aid agreement will be negotiated with other utilities, which is common practice among utilities. These mutual aid agreements provide a mechanism for other utilities to provide emergency response support. The City will also pursue an agreement with ATI for using their contract, on-site lineman for additional support in emergencies. It should be noted that municipal utilities operate safely and reliably across the country. In fact, municipal utilities with access to BPA power can provide electric service at least as reliably as an investor owned utility for many reasons, including: (a) The power supply and transmission components of electricity service would be managed and operated by BPA and not by the City. BPA has a staff and other technical resources that are equal to or exceed most investor owned utilities. (b) The City plans to build a new substation and new transmission to increase reliability of the system. (c) The operation and maintenance of the local distribution system would be staffed by professional crews with access to the equipment needed to operate and repair the distribution system. (d) The City will coordinate for emergency situations with other utilities through mutual aid agreements (agreements that coordinate utilities during emergencies), and will coordinate with ATI, which operates its own distribution system. (e) Finally, in the process of acquiring the local distribution system, the City would have the opportunity to analyze and upgrade any portion of the current distribution system that may be outdated or deficient. Thus, the City would operate and manage the distribution system is a safe and reliable fashion. 11

13 5/18/2015 Generation, Power Supply and Long Distance Transmission A utility must provide generation/power supply, transmission, and distribution services in order to provide electricity to its customers. BPA 3 will provide the generation (power supply) and transmission, and Millersburg City Power will be responsible for the distribution function of the utility. As a municipal utility, the City has the right under federal law to purchase low-cost wholesale power from BPA to serve at least part of its load obligations (as discussed below). BPA has reserved a fixed quantity of its lowest cost power to serve on a first-come, first served basis any new preference utility such as the City that may be formed. According to BPA s regulations, the City must wait three years for low cost BPA preference power (PF) power to be available after the necessary assets are acquired and the utility has met BPA s Standards for Service. BPA s Standards for Service are: 1. The City utility must be legally formed according to state and local laws. 2. The City must own the distribution system. 3. The City must have general utility responsibility in the service area. 4. The City must demonstrate the financial ability to pay BPA for power received. 5. The City must have adequate utility operations and structure. 6. The City must be able to purchase power in wholesale amounts. Before the City is eligible for Tier 1 power, the City will purchase wholesale power from the market for all of its customers. This power is readily available from a variety of sources, including BPA and PacifiCorp. To the extent PacifiCorp offers competitive rates before Tier 1 power is available, the City may, in its discretion, approach PacifiCorp about purchasing power for its customers until Tier 1 power is available. Three years after meeting BPA s Standards for Service, the City will be eligible to purchase the lowest cost BPA power available (Tier 1) for all of its residential, commercial and industrial customers, with the possible exception of the City s largest loads. 3 If a customer purchases market power, BPA may not be the source of the power supply. The City will not be acquiring generation assets, and therefore will not be responsible for maintaining these assets. 12

14 5/18/2015 Because the City will be purchasing power from BPA, or on the open market, Millersburg City Power will not acquire any generation resources. Local Transmission and Distribution The City s electric utility would serve the residents and businesses within the City s municipal boundary currently served by PacifiCorp. The electric facilities located within the proposed service territory include certain transmission lines, substations, overhead and underground distribution lines, poles, transformers, vaults, service drops, meters, streetlights and any ancillary distribution system facilities. PacifiCorp has publically indicated that it will not enter into a joint use agreement with the City for joint use of the Murder Creek substation. PacifiCorp has also stated that if the City condemns the Murder Creek Substation, PacifiCorp will incur significant separation costs to build new substations and transmission to serve PacifiCorp customers outside of the City. The City wants to design a system to enhance the reliability of the electric system, and has concerns about the age and quality of the PacifiCorp facilities in Millersburg. Consistent with the City s goal, this Plan assumes that the City will build a new substation and new transmission to serve the residents and businesses of Millersburg. In doing so, the City would not only increase the reliability of the system, but also honor PacifiCorp s request to leave the Murder Creek substation for PacifiCorp to serve its customers outside of the City limits. The City will build its own or acquire part of the distribution system from PacifiCorp (poles and wires). In order to acquire the distribution system from PacifiCorp, the first step is to complete a detailed inventory of those parts of the local distribution system that the City may want to acquire. Based on this inventory, the City would then make a reasonable purchase offer to PacifiCorp that would compensate PacifiCorp for the value of the facilities. PacifiCorp has informed the City that its distribution system is not for sale. Presuming that PacifiCorp is unwilling to negotiate, then the City would build its own or initiate the legal proceedings necessary to acquire a part of the distribution system through condemnation. Because PacifiCorp has urged the City not to take the Murder Creek substation, and the City believes a new substation will be more reliable, the City s Plan is not to condemn the Murder Creek Substation or 13

15 5/18/2015 PacifiCorp transmission. If PacifiCorp wishes to discuss a consensual sale or Joint use of the Murder Creek substation, the City is willing to discuss and consider this option. Further, if PacifiCorp is willing to negotiate in good faith with the City, the City would consider alternatives to the Plan described above, including but not limited to the acquisition of all existing facilities, including transmission, substation, poles and wires. Once the City acquires the system through condemnation or negotiation, the exclusive right to serve electric customers in Millersburg will be transferred to the municipal utility pursuant to ORS Electric Service Rates The Millersburg City Council will establish electric rates based on a cost-ofservice model and in accordance with rate setting provisions established for municipal electric utilities in ORS Chapter 225 and generally accepted utility practices. Rates will be established to prevent dilution of BPA s Tier 1 rates according to cost of service principles. At a minimum, the following rate classes will be established: 1. Residential 2. Commercial 3. Industrial 4. Any Industrial not eligible for Tier 1 power (including industrial and commercial load growth after BPA sets high water mark for City) Any industrial customer not eligible for Tier 1 power may purchase its wholesale power from the market, or through the City, in the City s sole discretion. The City shall require adequate security for any power purchase made through the City, and may refuse any transaction that may have an adverse impact on the City or its customers. Once the City is eligible for Tier 1 power, all Customers eligible for that Tier 1 power will be unaffected by fluctuations in the market price of power. Any fluctuations in the market price of power would only impact a customer that both elects and is eligible to purchase wholesale market power. 14

16 5/18/2015 To protect the City and its customers, for the largest customers, a fixed or demand charge will be established to cover the fixed costs of providing service to that customer. In the event a large customer reduces load, it will still pay its fair share of the fixed costs through a fixed or demand charge to prevent impact on the remaining customers. Electric rates will include: 1. Basic Charge a flat fee charged each month regardless of energy use designed to cover administrative and billing related costs, meter reading and distribution related costs. This is a charge for having electric service available and is billed even if no electricity is used. 2. Energy Charge a variable rate based on the electric energy consumed. 3. Demand Charge Demand charge is intended to cover a customer s share of the utility s investment in generation, transmission and distribution equipment used to serve that customer. The charge is based on the rate at which electric energy is delivered in a designated period during the billing cycle. 4. Transmission and Distribution Costs-this charge covers the infrastructure and costs to deliver electricity to the customer s home or business, including costs related to poles, wires, transformers, substations and other equipment. 5. In lieu of Tax this charge replaces the franchise fee currently collected by PacifiCorp and benefits the City. 6. City Public Purpose Programs- Although not required by law, a 3 percent public purpose charge is included in the municipal utility s rate forecast for energy efficiency, low income assistance and other programs. ATI Millersburg Operations The power sales agreement with ATI Millersburg Operations (ATI) will require ATI to pay the City an amount equal to the unamortized costs of acquiring facilities to serve ATI if the company terminates or ceases operations in the City. The rates for ATI will include a charge designed to recover ATI s share of the debt and operational costs regardless of whether ATI purchases its electricity directly from the City, or on the open market, or reduces operations in the City. 15

17 Renewable Portfolio Standards FINAL PLAN 5/18/2015 The City will comply with Oregon s Renewable Portfolio Standard (RPS). The RPS does not require any utility to spend more than 4 percent of its annual revenue requirement to comply with its renewable energy obligations. ORS 469A.100. The rates included in this Plan assume that four (4) percent of the utility s revenue requirement is spent each applicable year to comply with the RPS standard, and that these costs are only assigned to customers not eligible for Tier 1 power. The RPS states that utilities do not have to displace preference (Tier 1) power purchased from BPA in order to comply with their RPS obligations. ORS 469A.060. In lieu of fee to Protect the City s General fund This rates included in this Plan includes a utility tax as authorized by ORS that is set to be equivalent to the 5% franchise fee currently paid by PacifiCorp and collected from Millersburg customers. The utility tax is both authorized and required by ORS and will be set to ensure that the City does not lose a source of revenue. Oregon s 12 municipal utilities include this charge on its bills as authorized under ORS It is important for the City and its citizens to ensure that there are no adverse impacts to the City s general fund revenues. Utility Programs The City has decided to offer several energy related programs for its citizens, which will be funded through utility revenues. Although not required by law, a 3 percent public purpose charge is included in the municipal utility s rate forecast for energy efficiency, low income assistance and other programs. This funding will be directed at programs designated by the City and is equivalent to the public purpose charge collected from ratepayers of investor owned utilities. (a) (b) (c) Low income Conservation programs (such as that offered by Energy Trust) (examples of programs are heat pumps, energy audits, weatherization measures, water heater rebates, appliance rebates). Net metering (e.g. customer that installs solar could use energy to offset purchases and sell excess to utility for resale). 16

18 5/18/2015 Economic Development and Connection of New Customers The City will establish a policy for the connection of new customers, which is commonly known as a line extension policy. This policy will be designed to recover the costs associated with connecting new customers while also attracting new customers to the area. Studying, Financing and Funding the Municipal Utility The transaction costs incurred by the City with respect to studying and forming a municipal utility have been and will continue to be paid for by ATI. This includes, for example, both legal and technical consulting fees associated with drafting the feasibility study, and the legal and technical work associated with the development of this Plan. This also includes any legal fees incurred by the City to acquire the distribution system, including the costs of filing and prosecuting a condemnation action, if necessary. The amounts paid by ATI will be reimbursed only if the City forms the municipal utility. The financing of the purchase of the retail distribution system will be funded most likely through revenue bonds, but other options are available. The debt would be repaid over time (usually years) through the retail rates charged and collected by the municipal utility. The financials included in this Plan assume that the City s bonds are amortized over 25 years (rather than 30) to make the results more conservative. Millersburg City Power will secure adequate financing for the construction of new facilities, the acquisition of assets and other start-up costs (including reserves) with the best possible interest rates, taking into consideration all financing options and total transaction costs. In order to obtain financing, Millersburg City Power will develop rates for the various classes of customers (residential, commercial, industrial, industrial non- Tier 1). The retail rates will include typical customer requirements such as the basic charge, energy charge, transmission charge and a demand charge (for larger customers). Millersburg City Power will also develop a policy to cover new customer connection fees, disconnection fees and reconnection fees. As typically required for financing, the rates and estimated energy usage will be used to develop a financial model. The financial model will show that revenues generated from Millersburg City Power customers through rates will be adequate 17

19 5/18/2015 to pay for all utility charges, including but not limited to power costs, operating expenses and debt service. In other words, if the financial model does not satisfy bond underwriters that utility rates will be more than sufficient to cover all utility related expenses and debt service, then the City will not incur any debt and will not start a municipal utility. The financing will be secured by and paid only out of revenues earned from the utility. Once the municipal utility is operating, all continuing expenses with respect to the operation and maintenance of the municipal utility will be paid through the retail rates charged and collected by the municipal utility. This includes, for example, payments to BPA for wholesale power supplies and payments associated with operating and maintaining the distribution system. Again, the reasonably anticipated costs associated with operating and maintaining a municipal utility have been included in the detailed feasibility studies. No tax dollars from the City s general fund will be used to form, acquire, own, operate or maintain the municipal utility. The expenses associated with the municipal utility will be funded entirely through the utility revenues. In fact, the municipal utility is required by Oregon law to make a financial contribution to the City to offset property taxes. Thus, the only expected financial impact to businesses and residents in the City would be a reduction in their electricity bills. The City s estimated utility financial model is set forth on Exhibit A, and its estimated revenue requirement is set forth on Exhibit B. Mutual Aid Agreements Millersburg City Power will contact other utilities, cities and public bodies about entering into a Mutual Aid Agreement. Most public power utilities in the Pacific Northwest have mutual aid agreements with each other where if a disaster or outage hits one utility, others will come to their assistance on an at cost basis. This allows utilities to share resources and supplies in the event there is an emergency or outage. 18

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21 5/18/15 Exhibit A UTILITY FINANCIAL MODEL New System Construction and Acquisition of PacifiCorp poles and wires. Substation (100 MW, 115/20.8 & $ 9,000,000 (1) 115/12 kv) Transmission Line (115 kv to BPA) $ 1,700,000 (1) Distribution System $ 1,520,000 (2) Subtotal $ 12,220,000 Startup Equipment/Supplies Service truck with man-lift $ 120,000 Heavy duty pickup truck $ 45,000 Light pickup $ 35,000 Forklift $ 50,000 Office/warehouse building $ 1,000,000 Tools, radios, other misc. $ 70,000 Materials and supplies $ 100,000 Computers, IT equipment $ 20,000 Subtotal $ 1,440,000 Other Initial Costs Legal and Engineering expenses $ 3,000,000 SEPARATION, OTHER STARTUP $ 16,400,000 (3) AND ACQUISITION COSTS Total Initial Costs $ 33,060,000 Working Capital, Reserves and Finance Costs Working capital $ 3,000,000 Reserve Fund $ 500,000 Financing Expense $ 605,000 Debt Service Reserve $ 2,873,000 Total Financing Requirement $ 40,038,000 19

22 5/18/15 Annual Debt Service $ 2,852,986 Interest Rate - tax-exempt 5.00% Interest Rate - taxable 6.00% Repayment period (years) 25 (1). Estimated cost of construction for new facility. (2). Estimated cost of acquisition at estimated net book value. (3). This line item addresses cost overruns and other unanticipated costs not accounted for in the cost study. 20

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31 5/18/15 Exhibit D CHARTER MILLERSBURG CITY POWER ADVISORY COMMITTEE PURPOSE The purpose of the Millersburg City Power Advisory Committee (Advisory Committee) is to provide representation for the customers of the utility the citizens and businesses of Millersburg. This Advisory Committee represents the customer base and will provide a forum for customers to voice concerns and suggest ways to improve service and utility operations. The Advisory Committee recommendations will be communicated to the Manager of the utility for consideration and ultimately the Millersburg City Council, if appropriate. MEMBERSHIP The Millersburg City Council will appoint five voting members to the Advisory Committee with representation as follows: 1 Industrial customer 1 Commercial customer 3 - Residential customers Upon selecting the first members of the Advisory Committee, the commercial customer and one residential customer will serve two years and the remaining members will serve four years. All future members (after the first term) will serve four years so the Advisory Committee will never replace all members at any one time. REPORTING RELATIONSHIPS The Advisory Committee will select a chair, vice chair and secretary at the first meeting each calendar year. The Manager of the utility will be a resource and a non-voting member of the Advisory Committee. The Manager of the utility will listen, participate in meetings, answer questions and take input from the committee. Notwithstanding the above, the utility manager and city council have ultimate responsibility for all aspects of utility operations and the discretion to decide if any proposed actions are in the best interest of the utility and the citizens of Millersburg. Customers of the utility are encouraged to present their questions, concerns and ideas for improvement to the Advisory Committee. The Advisory Committee, members of the Advisory Committee and citizens are not precluded from taking questions, concerns and ideas for improvement directly to the city council. PROCESS 23

32 5/18/15 A meeting of the Advisory Committee will be conducted at least quarterly. The meeting will be facilitated by the committee chair (or vice chair in the absence of the chair), with minutes taken by the secretary. The following topics are examples of routine agenda topics: Review of financial documents, financial projections and budgets; Review of and input for annual budget development; Review of reliability and service related activities; Open forum for customers to provide input, raise concerns, and suggest areas for improvement; Status report of capital projects and operations and maintenance activities; Review of annual cost of service study and proposed rates by customer class; Results from Advisory Committee meetings will be summarized as a part of the utility manager s regular report to the city council. 24

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34 5/18/15 Exhibit E Citizens of Millersburg City Council (Final Approval of all Major Utility Decisions (rates, policies) Millersburg City Power General Manager (reports to City Council) Citizen Advisory Committee / Other Committee's established by City Council Administration (day to day) (GM oversight responsibility) Operations and Maintenance Contractor or Utility (GM oversight responsibility) Billing/Accounting (third party contractor) Meter reading 25

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36 Exhibit F CITY OF MILLERSBURG PRELIMINARY ACQUISITION AND CONDEMNATION TIMELINE Target Date Time Period Task Comments Council decides whether to send plan to voters to approve the continuation of formation process. If council does not accept plan and does not send plan to voters, process stops here. Public Vote. If Voters approve, move to next step. If voters do not approve, process stops here. Experts must make a recommendation on what assets to acquire, assessment of value, separation issues, and other impacts. The consultants must also analyze building a new system and not taking anything from Pacific. Refine separation system issues. Develop plan for interim financing. Determine Report on above title issues to Council with analysis and recommendation. Recommend how to finance Staff to engage PacifiCorp in Analyze discussions probable on voluntary rates, purchase. Bonneville issues, analyze general fund, Negotiate franchise standby fees interim and taxes financing. Any issues related to set up of MES Report to Council on results of negotiations with PacifiCorp. Final touches to the internal organization for BPA purposes Approximate 2 month period to negotiate with PacifiCorp Approve or continue to negotiate voluntary purchase. If no voluntary sale, go to condemnation or build new system. Council adopts Resolution of Need at this meeting or at 4/8/14 meeting Council decides not to proceed

37 Target Date Time Period Task Comments Council approves and signs Acquisition Contract with PacifiCorp. Assumes voluntary purchase Timeline ends here if voluntary purchase. Move to closing. Due diligence and contingencies. If Council decides to condemn then proceed as outlined below. Financing (interim or final). If Council choses to build new timeline and steps apply. BPA Contract. Other Power Contract Council adopts Resolution Separation declaring public Issues need and and Solutions necessity. Transition to MES Resolution would also: Operating Entity Contract with MES Specifically identify assets to be acquired; Council decides not to go forward Direct appraiser/valuator to meet with PacifiCorp and conduct inspection required by statute; and Authorize drafting of 40-day offer consistent with valuation. Continue to work on interim Financing. Assumes Council decides to condemn, including determination that it is a public necessity. The Governing Body must declare, by resolution or ordinance, that the condemnation is necessary for the proposed use and compatible with the greatest public good and the least private injury. ORS (1) (5). Issue Notice of Appraisal Inspection. Unless otherwise agreed by the City and PacifiCorp, prior to appraising the property, City shall provide not less than 15 days written notice to PacifiCorp of the planned appraisal inspection. PacifiCorp shall be invited to accompany the appraiser on inspection of the property for valuation. ORS (3) 15 days after notice. Appraisal Inspection Occurs. 6-8 Weeks. Appraisal and Valuation Completed and Reviewed. City Council approval to make Written Offer, with Appraisal. City must make an initial written offer for the property at least 40 days before filing an action for condemnation. ORS (1). Subject to ORS (2), the offer shall be accompanied by any written appraisal upon which the City relied in establishing the amount of compensation offered. ORS (2).

38 Target Date Time Period Task Comments At least 40 days after written offer. Between offer and this date, City will attempt to agree with PacifiCorp on compensation. After a resolution or ordinance is adopted, the City must attempt to agree with the owner with respect to the compensation and the damages (if any) for the taking. ORS (1). PacifiCorp accepts or rejects offer. The owner has not less than 40 days from the date the owner receives the written offer accompanied by the appraisal to accept or reject the offer. ORS (4) 40 days after written offer. 30 days from the date of service. Decision to file lawsuit if PacifiCorp rejects offer. Council may grant authority to file actions in Resolution of Need or defer to this point. City can file lawsuit 40 days after written offer. ORS (1). An action to condemn property may be commenced in the Circuit Court for Linn County because the property proposed to be condemned is located there. ORS (1). The complaint must name as defendant the person(s) in whose name the record title appears. There may be included as defendants any lessee or other person in possession and all other persons having or claiming an interest in the property. ORS (2). The complaint shall describe the property sought to be condemned and shall allege the true value of the property sought and the damage, if any, resulting from the appropriation thereof. ORS If the parties proceed to trial or arbitration, each party shall provide to the other a copy of every appraisal obtained. ORS (5)(b) condemnation, and shall also allege the true value of the property and the damage (if any) resulting from the taking. ORS day deadline for responsive pleading. ORCP 7C(2). PacifiCorp s responsive pleading. PacifiCorp may raise any legal defense it may have to the Complete discovery. Brief, argue, and await rulings on any motions for summary judgment. Public need and necessity. No less than 60 days prior to trial. PacifiCorp must disclose appraisals and valuation reports. If PacifiCorp rejects the City s offer and obtains a separate appraisal, PacifiCorp has to provide the City with a copy of the owner's appraisal not less than 60 days prior to trial. ORS (4). 7 days prior to trial. PacifiCorp s election re evidence at trial. PacifiCorp can elect whether it will present evidence first or whether the City will present evidence first, subject to filing notice at least 7 days prior to the trial date. ORS (1). Trial. Assume trial date roughly 11 months from date of filing condemnation action. A trial is conducted according to the rules as prescribed for a civil action in the circuit court. ORS (jury trial).

39 Target Date Time Period Task Comments Jury verdict and judgment. Upon determination of the compensation by the jury, the court shall issue a judgment appropriating the property to the condemner (conditioned upon the condemner's paying into the court the amount of the compensation). After such payment, the judgment shall become effective to convey the property and the right of possession (if not previously acquired). ORS If real property is acquired by a condemner by judgment, the court shall: (a) specify in the judgment a reasonable period within which the real property must be used by the condemner for a public purpose or specify a 10-year period, and provide that the right of repurchase may be exercised with respect to the real property; or (b) specify that the right of repurchase of the real property has been waived, in such case, not specify a period within which the real property must be used by the condemner for a public purpose. ORS (2) Last day to appeal. 30 days from the date the court enters judgment. ORS Sixty days to abandon action after the jury verdict. If an election to abandon is not filed within 60 days, the condemner is considered to have elected to take the property. Must pay PacifiCorp reasonable attorney fees and expert witness fees if abandoned. ORS (1). When City makes payment to the court, the judgement becomes effective to convey the property, and the right to possession. Interim or final financing must be ready at this point. BPA Contract