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HomeMy WebLinkAbout2002-07~,, -. RESOLUTION 2002-07 AUTHORIZING ELECTRIC SERVICE CONTRACT EXTENSION (Revised 1/28/02) WHEREAS, the VML/VACo-Appalachian Power Company (APCo) Steering Company (the "Committee") comprised of representatives of local governments and political subdivision has for many years negotiated on behalf of such governmental units within the service area of APCo the terms of standard contract forms which have included rates for the purchase of electricity supply and delivery service and for the installation, maintenance and delivery service for street lights by and for said governmental units from APCo as a single source provider; and WHEREAS, the most recent such contracts for the period beginning July 1, 2000 will terminate on June 30, 2002; and, WHEREAS, on or about February 12, 2001, APCo agreed with the Committee to extend the terms of such contracts to December 31, 2003 at rates set forth in the Company's Schedule 17 on file with the Virginia State Corporation Commission (the "Commission") and, WHEREAS, on or about July 24, 2001, American Electric Power Co. ("AEP), parent corporation of APCo, filed a proceeding in the Federal Energy Regulation Commission . ("FERC") seeking approval of amendment of its intercompany agreement which inter alia affects the supply and computation of the price cr electricity furnished to APCo in excess of that produced by APCo, in which proceeding the Steering Committee and the Town of Wytheville appeared and objected; and, WHEREAS, in consideration of the Committee and the Town of Wytheville agreeing to a negotiated settlement of the FERC proceeding which provides substantial protection against potential escalation of the fuel factor which is a component of APCo's total pricing for electricity supplied to its retail customers, including the governmental units, APCo has granted to the governmental units the election to (1) terminate the current contracts on June 30, 2002, or (2) extend the contracts at Schedule 17 rates to December 31, 2003 pursuant to the offer dated February 12, 2001, or (3) (a) to extend the current contracts through June 30, 2007, at rates contained in APCo's unbundled Standard Rate Schedules, or any successor or replacement schedules then on file and approved by the Commission; and (b) to extend street light service at rates as in effect July 1, 2000, but subject to changes in the fuel factor; provided that election (3) is conditioned upon the governmental unit so electing, notifying APCo of its election within 90 days of December 18, 2001, that (i) it has chosen APCo to provide generation service through June 30, 2007, and (ii) that it will not chose a different supplier prior to such date; and (iii) it will not request the Commission to determine rates and provision for default service different from that provided under its contract, as amended by election (3); and • WHEREAS, the Steering Committee has recommended that the governmental units, including this jurisdiction, exercise election (3) above, that is, the extension of current contracts with APCo for electric service and delivery thereof from July 1, 2002 through June 30, 2007, including street light contracts, at the rates and subject to the conditions all as set forth in the letter dated December 18, 2001 signed on behalf of APCo and AEP and on behalf of the Steering Committee and the Town of Wytheville, all by counsel, which is attached hereto as Exhibit A and incorporating letters dated February 12 and February 15, 2001 attached hereto as Exhibits B 1 and B2. WHEREAS, on consideration whereof, it appearing to the Council of the Town of Pulaski that there is only one source practically available which can and will supply electricity service and delivery thereof for the entire needs of the Town of Pulaski at established rates for such bundled service or unbundled generation service for the period from July 1, 2002 through December 31, 2007, as negotiated and recommended by the Committee; and it further appearing that even if there should develop a truly competitive market in the APCo area for generation service, it is questionable whether the Virginia Electricity Restructuring Act (the "Act") provides for capped rates or default rates for public authorities in the APCo area, and if not could place this jurisdiction at a disadvantage in the event it elects to contract with an alternative supplier or if such alternative supplier should default and be unable to provide the electricity; and it further appearing that notice hereof has been posted or published as specified in Va. Code § 2.2- 4303Ethat competitive sealed bidding and competitive negotiation for such services for such period, are not fiscally advantageous to the public because the procurement process • for electric services in a competitive market, even if there should be such a market, must be of such flexibility to provide a rapid response to fluctuating market conditions on a daily, or even hourly, basis; and it further appearing that the contract extension recommended and agreed to by the Committee will provide this jurisdiction with a safeguard against excessive electricity generation costs both at this date and in the foreseeable future due to a lack'of real competition in this area of Virginia; and WHEREAS, in addition to the fact that no other source is practically available for such electric services for such period, the APCo offer to extend the contracts, being for a limited time, i.e., ninety (90) days from December 18, 2001, is such that an emergency does exist inasmuch as such period is not sufficient for this jurisdiction to correctly assess its entire needs for electric service, whether for the short term or through June 30. 2007, to prepare and receive requests for proposals and to review, consider and act upon any proposals which may possibly be received. NOW, THEREFORE BE IT RESOLVED that this jurisdiction accepts the offer of APCo to extend its current contract for electric service on a bundled basis, including its street light contract, from July 1, 2002 through June 30, 2007, as set forth in Exhibit A and as agreed and recommended by the Committee. RESOLVED Further that in accordance with the conditions in APCo's offer this jurisdiction agrees that (i) it has chosen APCo to provide generation service through June 30, 2007, (ii) that it will not choose a different supplier prior to such date, and (iii) that it • will not request the State Corporation Commission to determine rates and provisions for default service different from that provided in the contract, as amended and extended as set forth above. RESOLVED further that the Town Manager is authorized to execute and deliver on behalf of this jurisdiction all documents as shall be deemed appropriate to carry out the foregoing action. The Clerk is directed to notify APCo of the aforesaid election and agreement by transmitting a copy hereof to counsel for the Committee, Howard W. Dobbins, 1021 East Cary Street, P.O. Box 1320, Richmond, VA 23218-1320, who is authorized to deliver the same to APCo. This Resolution is effective upon adoption and is adopted by duly recorded vote of the Town Council on this the 5th day of March, 2002 as follows: Jeffrey S. Worrell -Abstain Bettye H. Steger -Aye Pauline G. Mitchell -Aye James M. Neblett, Jr. -Absent Daniel Talbert, Jr. -Aye Kenneth M. Fleenor -Aye E. G. Black, Jr. -Aye Lane R. Penn -Aye r~ Attest: L ~J(~l Patricia Cruise, Clerk of Council By: Charles W. Stewart, Jr., ayor • • ~Z77d%ic~n Je~:rit °a:ver Three James Centar Suite i0Y tOSt E vary Street AiccmcaC, VA 2.279-4029 Febr:zary I2, 2001 lvlr. Howard W. Dobbins ti1r. Ralph L. "Bill" Axselle, Jr. Williams, Mullen, Clark & Dobbins Two James Center 1021 East Cary Street P. 0. Box 1320 Richmond, VA 23210-1320 RE: Rates for Public Authority Customers Gentlemen: Appendix 7 Page 7 of 3 .~ir39d~B~st~ ~3L~So~O~ ~~~tR In our discussion on Thursday, February 8, 2001, we agreed to consider a modification of tl~e contract for electric service between Appalachian Power Company and its public authority customers. On behalf of the Company, I extend the following offer: I) P.ppalaclua:-~ Power Company will a~ee to provide service to public authority customers in Virginia by extending the tee of the contract urtiI January I, 2003, the c~,~srently expected date for applicability ofdefault service, or January 1, 200 if default service is not irstiated until then. 2) For the pe:~od July I, 2002 to January 1, 2003, the Company will bill those customers under the appropriate rate schedules of the currently effective Appalachian Power Company SCC Tariff Ito. 17, as the same may be adjusted pursuant to §56-582.B of the Code of Virginia. • The Company believes that this modification of the contract obviates the need for arly arnendzilrent to SB 1420, as that bill is currently pending before the Virginia General Assembly. Ple~e let us know your response to this proposal as soon as possible. Sincerely, ~,~ c~-~,,._ R. D. Carson, Jr. W I:k Appendix 1 Page 2 or 3 ~, T~cr~. f~c;~ a+:.I~9i E•i~1.4SLt.DDF.~S: DLS=Cl Dire (SGJ ie3-~•~•+i ~v~7 T ~'~' DR55; n-.~: ~r,.:~xa ~'ILLL=Lti1S ~liLLEti CL.~xh. & Doss>:tis i~C 1.~1.1~-.i ..^-...1-~, IG.1 ~°.S i Cr1.~Y 5,:~- n n 'GY 1J2Q F.bC~dCru7, v?. aiiS-li~7 Febrsary 15, 300 i iti1.r. R. D. C~~or; 7r. ,Q~Iericarz Elec~ic Pow~t Tnre~ James C~..ter Suite 702 1051 East Cary Street Richmond, Viryria 2J? 19 r ~~? oria;NZ-... I~iCR: ~1'`i' tf"i Gi ~i: SIC=~rIOi ~D ,n.Gu ~ a3 L1L.. ~77.zSr.~i IGTC: ~, D!.. D ~ Gi: R P.at°s Lor Pub~i~ Atit~orir~ Cus,omers • DES Thi: to conTMrm my oral acce~vta:;ce on behaL~'of the _ ~ iVACO Jtee^.r~ Cor~.i.rtee of the oar: cc~`~ed is you: le.~~' dated ~'eor~a: r 12, X001. Yau have con.rrred cry that: • I. L the eve^~t ^~t default sW-vice is not ir~tiated untI January 1; 200, th3.t rile rates fo; the eL.ension of Lhe ccnt-aets until such time vr~l be ti:e same as far the six moms peioc e: July 1, 2002 to 7anua-y 1, 2005, ghat is; SCC Tar.'tf'No: 17 adjusted per §56-582.8; 2, Tyr e~p ~? provide the data relatin.e to c~..accoents duo the e;~tensions as des~bed in the cluzeat contiac`.s and; ' ~. iLa*. t e SCC iz:.::~ No. 17 rates az~ at',it'~~ed to re:tect the reduction r°~?t~nQ nom th= saostrition of the Corzsi:up*.ion ta.Zes in Leu of ~.oss receipts and 1oca1 i:ce se tz;ies- Fc"B I S ZED, .:~itev;c~ n:v ~7'd !Ma~f a lf1G? ~l ~'~~d!"i ' ~ ~ Appendix 1 ~'rTY.L.Lgtti1$ ~IULLE~ Page 3 of 3 CLL. & DOBBI~iS- .,i! vR.~r': S ~ G~G'i 7sL.QPS : ~: ~~ ~v Februa-y 1 ~, 2001 Page 2 On be.~.alf of the Stea:in.g Committee I than: you, Barry and the Company for working with us in our effort to solve a ser'vus problem. The Contact este~sions do not provide a complete solu*ion but provide a br dge of safety for `she public auu'~orities. incerely, f' ,. ~ ~ , ~ ., ~~^. !, ~.~N~ • (j Howard D. Dobbins ' ~A T~.a/. i/t cc: F,. L :ace Tene y C. F. Hicks, Esq. .. Ralph L. t~selle, Jr., Esa. . 11w:dC7JlMJ1YnFS~DWb56:IA01 c~~•~rau;c n3u l~u iuaCC;b inn? ~i '~y~~ ~. '• Appendix 2 • Page 1 of 5 Subject to the conditions contained herein and in the accompanying letter, APCo agrees to execute with each PA Customer that timely elects to extend its current contract through June 30, 2007, an amendment that revises that PA Customer's current contract as follows: 1. The amendment will incorporate the modifications and contract extensions agreed upon ~ in the aforementioned letters dated February 12 and February 15, 2001. 2. The contract term would be further extended to cover the period January 1, 2004 through June 30, 2007 ("Contract Extension Period"). No PA Contract shall be sold, assigned, or transferred to any other entity, including an affiliate of APCo, without the express written permission of . the affected PA Customer; provided, however, that such permission shall not be unreasonably withheld. 3. Rates. a. The rates for service from July 1, 2002 through June 30, 2007 shall be those contained in APCo's unbundled Standard Rate Schedules SGS, MGS, LGS, LPS-TOD and/ or OL, or any successor or replacement to such Standard Rate Schedules, then on file with and approved by the Virginia State Corporation Commission ("VA SCC"), as applicable to the individual PA Customer accounts. If no such rates are on file with the VA SCC because it has terminated such rates, then the rates contained in the last applicable Standard.. • Rate Schedules shall be charged by APCo to the PA Customer Appendix 2 ' ~ Page 2 of 5 accounts through June 30, 2007; provided, however, to accommodate the fuel protections contained in the Virginia/West Virginia Settlement Agreement, the Parties will agree to enter into good faith negotiations to develop a reasonable fuel adjustment mechanism. The fuel protections contained in the Virginia/1~'Vest Virginia Settlement Agreement will be applicable to the PA Customers when they become effective for APCo's other Virginia retail customers, through June 30, 2007. b. The rates for Street Lighting ("SL") shall be those in effect July 1, 2000, but shall be subject to changes in the fuel factor, including the fuel protections contained in the Virginia/West Virginia Settler-~er~z Agre ~r;~lent, through June 30, 2007. • 4. Revenues from PA Customer billings will be based on the unbundled components of the applicable retail tariffs. SL revenues will be unbundled into the applicable components. 5. Each PA Customer that elects to extend its current contract through June 30, 2007, will agree that 1) it has chosen APCo to provide generation service through June 30, 2007; 2) it will not choose a different generation supplier prior to June 30, 2007; and, 3) it will not request that the VA SCC determine rates and provisions for default service from APCo different than that provided for under its current contract, as amended herein. Nothing in the preceding sentence shall apply to preclude any PA Customer from qualifying for or receiving default service from a different • Appendix 2 Page 3 of 5 default service provider in the event that such a provider has been named • and APCo fails to deliver under the contract. APCo and the PA Customer will further agree that the types of interruptions of service provided for under the existing PA Customer contracts and any applicable Standard Rate Schedules shall not constitute a failure to deliver for purposes of § 56-585 of the Code of Virginia. 6. The Extension of Service provision shall be as contained in the current contract. However, if the VA SCC approves a change in the extension of service provisions applicable to the Standard Rate Schedules identified in 3.a., above, to utilize revenues which exclude generation andlor other revenue components, then such a change shall be reflected in the Extension of Service provision of the contract applicable to the PA • Customers. ~T. The information to be provided under the TENTH paragraph of the current contract will be provided in electronic form to a single designated representative of the PA customer group ("Designated Representative"), as designated by the Executive Directors of the Virginia Municipal League and the Virginia Association of Counties, at no expense to the Customer for the first request, within 90 days of receiving the request, but in any event not later than January 1, 2007. APCo shall comply with any reasonable additional requests from the Designated Representative for the data described in the TENTH paragraph, but no more frequently than once in any calendar year, and the Customer agrees to pay for such data. In Appendix 2 Page 4 of 5 . the event that a PA Customer elects only to extend its current contract through December 31, 2003 (option 2), then APCo agrees to provide to the Customer only available information specific to that PA Customer, at no expense for the first request, within 90 days of receiving the request, but in any event not later than June 30, 2003, and APCo shall comply with any reasonable additional requests from that PA Customer for the data specific to that PA Customer, but no more than once in a single calendar year, and the Customer agrees to pay for such data. 8. The date by which acost-of-service based distribution rate shall be negotiated by the parties will be changed to January 1, 2007, to establish rates for distribution service to be effective alter June 30, 2007. 6y May 1, 2006, AEP will provide to the Designated Representative a proposed • distribution revenue requirement and distribution rate(s) based on the cost of providing distribution service to the PA .Customers, together with the underlying distribution cost-of-service study and supporting wrorkpapers. APCo agrees to comply with all reasonable additional requests for information in accordance with the terms of the current contract. APCo's obligation to execute the amendment described above, in addition to being conditioned upon receipt of a timely PA Customer's election of option 3 as described in AEP-VA's cover letter, shall not become binding upon APCo until the following conditions are met: a. FERC has issued a final order or orders approving AEP's corporate restructuring plan as proposed in FERC Docket Nos. EC01-130-000 and • Appendix 2 Page 5 of 5 ER01-2668-000 and modified by the VirginiaM/est Virginia Settlement Agreement and the combined offer of settlement in those cases; b. AEP has transferred the transmission and distribution assets of OPCO and CSP, including interconnection agreements with neighboring utility systems, to newly formed subsidiary Energy Delivery Companies and makes effective Power Supply Agreements whereby the OPCO and CSP Power Generation Companies sell capacity and energy from their facilities to AEP's Power Marketing Affiliate (PMA); c. AEP has provided FERC with not less than 30 days' written notice that the Restated and Amended AEP-East Interconnection Agreement and the Restated and Amended System Integration Agreement are to become effective as rate schedules in accordance with their terms; and • d. the VA SCC has issued an order approving Exempt Wholesale Generator ("EWG") status for the generatine units operated by AEP electric utility company subsidiaries that currently serve customers in the states of Ohio and Texas, as well as on units 3 and 4 of the Northeastern Station of Public Service Company of Oklahoma located in Oklahoma. If condition d) of this paragraph is not met, APCo will agree that if it is named the default service provider in its service territory and a PA Customer that elected to extend its current contract through June 30, 2007, becomes a default service customer of APCo's on January 1, 2004, then the fuel protections contained in the Virginia/West Virginia Settlement Agreement will be applicable to that PA Customer through June 30, 2007. r ~ LJ 1 .. Appendix 3 Page 1 of 1 • Virginia/West Virginia Sett9ement Agreement Fuel Protections (Subject to Conditions Contained Therein) 1. Net Energy Cost Protection. For the period January 1, 2002 through June 30, 2007, APCo will use its Virginia fuel factor to pass through to Virginia retail customers their jurisdictional share of the following categories of costs: a. For each month during the period, the actual average fuel cost of generating energy from generating units owned by APCo for that month; b. For each month during the period, the cost of energy purchased by APCo for that month through the member pool agreement for native load requirements, priced at the actual average fuel cost of generating energy from generating units owned by APCo for that month; c. For each month during the period, the actual cost of energy APCo purchased from AEP's Power Marketing Affiliate ("PMA") under the terms . [contained in other provisions (some of which are subject to FERC confidentiality rules) of the Virginia/West Virginia Settlement Agreement]; d. For each month during the period, the actual cost of energy purchased from the market (excluding energy provided by PMA under the Peaking Supply Options). 2. Revisions to Fuel Provisions. APCo agrees to file with the Virginia Commission for revisions of its definitional framework for fuel, as may be necessary to include the provisions of Section 1.a-d above. The Virginia Commission agrees to expedite to the maximum extent reasonable, consistent with applicable state law and due process, its decision on APCo's revisions. All Parties (excepting the Virginia Commission) agree not to oppose such revisions. The Staff c; the Virginia Commission will provide AEP with written assurance that the Staff will support the revisions described above. Except as necessary to permit recovery of costs within the categories of costs described in 1.a-d above, PCo's Virginia retail fuel factor avill be determined as it has been in the past under Section 56-249.6 of the Code of Virginia and APCo will continue to use deferred fuel accounting. Nothing in this Agreement shall be interpreted to require the Virginia Commission to approve unreasonable or imprudent fuel costs solely because such costs are within the categories of costs described in Section 1.a-d. This Agreement is not intended and shall not be interpreted as pre- approval by the Virginia Commission of the prudence or reasonableness of APCo's fuel costs as they may be amended in accordance with the terms of this r.greement and as determines' under Section 50-249.6 of the Code of Virginia. :7 J MEMORANDUM VML/VACo APCO STEERING COivIVIITTEE Appendix =f Pale 1 of =t TO: Key Officials -All Public Authority Customers of Appalachian Power Company ("APCo") FROM: R. Michael Amyx, Executive Director, VML James D. Campbell, Executive Director, VACo DATE: February 12, 2002 RE: Extension of Contracts for Electric Service for Governmental Use IMMEDIATE ATTENTION AND ACTION REQUIRED The contracts for electric service currently in effect for each jurisdiction in the • APCo area will terminate on June 30, 2002, unless extended as provided herein below. Retail electric service entails three elements: generation, transmission and distribution to the end user. Historically, all three elements have been bundled together, and the bundled service has been provided by a single supplier that has been assigned a designated territory in the Commonwealth. In Much of the Southwest Virginia, that supplier has been APCo. Although the Virginia State Corporation Commission (the "SCC") has traditionally established the rates, terms, and conditions for bundled retail electric service, for many years the Steering Committee, comprised of representatives of the APCo jurisdictions, has negotiated the rates, terms, and conditions for this service to APCo's public authorities. The current contracts are a product of such negotiations, that were conducted in 1999-2000. However, in 1999 the General Assembly adopted • the Virginia Electric Utility Restructuring Act (the "Act"), whereby retail customers are to Aspen{li~i =~ ' ~ Pale 2 of =~ be granted a "choice" as to whether they will continue to purchase the generation element from the incumbent supplier such as APCo, or from an alternative supplier. The distribution element remains with the incumbent electric utility. While the rates, terms, and conditions of distribution service are regulated by the SCC as to APCo's other retail customers, they are negotiated by and on behalf of the public authorities. The Act contemplates that there will be a truly competitive market for retail electric generation service, and because of market competition customers for generation service may attain savings. Under the Act and pursuant to a ruling from the SCC, choice for all of APCo's customers became effective on January 1, 2002. However, because the price for the generation element in a competitive market will be determined by market inr1uences and not based on the cost of service as in the past, the • actual cost under "choice" may be greater, perhaps substantially greater, than the public authorities have paid and are now paying under their current contracts. Although the Act provides for a cap on retail rates as a protection against excessive rates if a retail customer elects not to change generation supplier, and provides for a default rate in the event a customer (i) does not affirmatively select a supplier, (ii) is unable to obtain service from an alternative supplier, or (iii) has contracted with an alternative supplier who fails to perform, counsel to the Steering Committee advises that it is unclear the extent to which capped rates and cost-based default service rates will be applicable and available to the public authorities. As stated in its cover letter, APCo's negotiations with the Steering Committee and its counse! resulted in an agreement whereby APCo has agreed to offer the public • authorities an opportunity whereby they may elect to either (1) terminate the current ~PPendis =~ .. Pale 3 of =~ contracts on June 30, 2002 and seek proposals for generation services from alternative suppliers, or (2) extend the current contracts from July 1, 2002 through December 31, 2003 at the applicable rates on file for retail customers at the SCC, or (3) extend current contracts from July 1, 2002 through June 30, 2007 at terms and rates on file and approved by the SCC. If a jurisdiction elects to terminate on June 30, 2002, it should immediately commence preparations to seek proposals from reliable suppliers for generation and to negotiate with APCo for rates, terms, and conditions related to the distribution component of the service. If a jurisdiction elects to extend from June 30, 2002 through December 31, 2003, or from June 30, 2002 through June 30, 2007, when under the Act capped rates and • default rates are scheduled to terminate for all customers (and presumably when there will be a true competitive market in the APCo area), its governing body must so elect b,~~ Resolution or Ordinance and notify APCo (directly or through the Steering Committee's counsel) by March 20, 2002. If, in good faith, additional time is needed for the governing body to act, the date may be extended by 30 days to April 19, 2002 provided notice of such request is delivered to APCo by March 20, 2002. The Steering Committee recommends that all jurisdictions in the APCo area elect option (3) to extend contracts from June 30, 2002 through 2007. Although the Steering Committee recommends option (3) extension of contracts through June 30, 2007, each jurisdiction should carefully consider the advantages and disadvantages of all three options before making an election. • ., Appendix =t Pale =t ot'4 ~' A form of resolution or ordinance has been prepared by the Committee's counsel, which may be used in the event your jurisdiction elects option (3). This document contains certain recitals supporting the decision to extend the contracts, and also includes the agreements by the jurisdiction on which APCo's offer is conditioned. A copy of the form resolution/ordinance may be obtained by request to Committee counsel as shown below. Questions and requests for form resolutions may be directed to Committee C.~i ~r?~21: Howard W. Dobbins Williams Mullen Two James Center 1021 E. Cary Street P.O. Box 1320 Richmond, Virginia 23218-1320 • telephone (804) 783-6441 e-mail - hdabbins@williamsmullen.com Thomas B. Nicholson Williams Mullen Two James Center 1021 E. Cary Street P.O. Box 1320, Richmond, Virginia 23218-1320 telephone (804) 783-6904 e-mail - tnicholson@williamsmullen.com and C.F. Hicks, General Counsel Virginia Association of Counties 1001 E. Broad Street Richmond, Virginia 23219 telephone (804) 288-6652 0%98544 p4 •