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Home My WebLink About1990-07-24; City Council; 10735; SDG&E Cancel San Marcos Incinerator Power Contract@ 524 Cl'- OF CARLSBAD - AGENL , BILL ' AB# '4 ydy MTG. 7/24/90 DEPT. CA/CM + DEPTm HDmm TITLE REQUESTING SDGCE TO CANCEL THE SAN MARCOS INCINERATOR POWER CONTRACT CITY ATTY CITY MGR.+-+ RECOMMENDED ACTION: That the City Council, by motion, ask SDG&E to immediately begin proceedings in court or before the PUC as necessary to cancel SDG&E's contract with NCRRA to purchase power produced at the proposed San Marcos incinerator. The San Diego Gas and Electric Company on November 14, 1983 entered into a contract with NCRRA to purchase electric power generated at the proposed San Marcos incinerator. The County, in response to a data request from Tom Erwin on January 3, 1990, reported that the 1983 SDG&E/NCRRA contract requires the company to pay more than twice as much for the incinerator power over the cost from normal sources. This agreement forces the rate payers throughout the company's service territory to substantially subsidize the incinerator. We estimate the total "premium" to the developer of approximately $318 million over the expected life of the contract. Staff thinks it is wrong to subsidize solid waste disposal especially when the burden falls in a regressive way on utility customers. Unfortunately the County is treatingthe contract as an "asset" and as a reason to construct the incinerator. Recent case law allows SDG&E to institute legal proceedings to invalidate the contract. It is in their interest to do that and invalidation would benefit utility customers. It would also encourage the County to evaluate the economic soundness of the incinerator on its own merits. If the City Council, by motion takes the recommended action, the mayor will send the letter attached as Exhibit A to SDG&E and return to Council with the company's response as soon as possible. EXHIBIT Exhibit A - letter to SDG&E June 22, 1990 Thomas Page President and Chief Executive Officer San Diego Gas & Electric 101 Ash San Diego, California 92101 RE: NORTH COUNTY RESOURCE RECOVERY ASSOCIATES Dear Mr. Page: On November 14, 1983 SDG&E entered into Contract No. 83-0247 with North County Resource Recovery Associates (NCRRA) to purchase energy from NCRRAIs proposed incinerator to be located at the San Marcos landfill in North San Diego County. At the time, the terms and price to be paid for the energy as specified in the contract may have been reasonable, but since then the situation has changed dramatically. If this contract is enforced, SDG&E will be paying almost three times the current market cost of power. We are informed that the current market cost for kilowatt hour of power is approximately 2.7 cents per KWH, yet this contract will require a payment of 7.8 cents per kilowatt hour. This llpremiumll will result in a subsidy to the incinerator of approximately $13 million per year and approximately $318 million over the expected life of the contract. This llsubsidyll will be paid by all utility users in your service territory not just those who live in the geographical area to be served by the incinerator. As you know, the contract has no start date, and consequently, no specified ending date. We believe that SDGtE would certainly be within its rights to request cancellation of the contract based upon the grounds that it lacks an essential term, i.e. , a beginning and ending date. Certainly, this huge contractual subsidy should not be left hanging over the rate payers indefinitely. We believe that the contract is entirely inappropriate. On behalf of the City of Carlsbad and its rate payers, we respectfully request that you immediately institute proceedings at the Public Utilities Commission, or in court if appropriate, to terminate the contract. We believe that you will be acting within your legal rights to take such action, that you have a duty to take such action, and that you will not be exposing the company to liability. We note that the California Supreme Court has recently ruled that such a good faith action on you part to terminate this contract 1200 Carlsbad Village Drive Carlsbad, California 92008-1 989 (61 9) 434-2830 would not expose your company to any liability. See, Pacific Gas & Electricity Co. v. Bear, Stearns & Co., California Supreme Court, June 7, 1990, DAR page 6359. Carlsbad has traditionally not been involved in the rate proceedings of your company before the PUC. We feel strongly enough about this issue, however, because of its impact on our citizens that we might have to reconsider that position if your company does not take prompt, appropriate action to relieve itself and rate payers of the burden of this contract. The City Council at their meeting of July 17, 1990 unanimously voted to ask that SDG&E immediately begin proceedings in court or before the PUC as necessary to cancel the contract. Please let me know your response to this request as soon as possible so I can place it before the Council. Very truly yours, CLAUDE A. LEWIS Mayor .- July 24, 1990 TO: Carlsbad City Council FROM: Tom Erwin 7703 Garboso Place Carlsbad, CA. 92009 RE: AB #10,735 Request for SDG&E to cancel the San Marcos incinerator power contract. In 1983 SDG&E signed a blank check and handed it to Thermo Electron, the promoter of the proposed San Marcos incinerator. I don't need to tell you who SDG&E expects to pay for this grand gesture on their part, but I will. It's you, and me, and every- one else who buys their electricity from SDG&E. SDG&E would have you believe that the Federal Government and the State PUC forced them to sign this contract. That is correct. Instead of signing a "standard Contract" with an ex- piration date, the crack negotiating team at SDG&E signed a non- standard contract with s expiration date. SE&E gave Thermo Electron a perpetual option. Had SE&E signed a standard contract, there would be no need for this discussion tonight, because there would be contract. It would have expired! Due to this single act of incompetence on SDG&E's part, the people of San Diego County will be forced to pay over $500 MILLION DOLLARS in added electrical costs. I ask that you seek out some of the more enlightened lead- ership at SDG&E and request that they immediately begin proceed- . ings in Court, or before the PUC, as necessary to cancel this contract. If they are unwilling, I ask that this City join with the other Cities of San Diego County in Court and at the PUC, to demand that the Stockholders of SDG&E, not the customers, be forced to pay for this "act of gross financial incompetence". Sincerely yours, %-- i ... I' I .* f .- 1 I f i I 1- AGREEMENT FOR A FIRM CAPACITY QUALIFYING FACILITY POWER PURCHASE AND INTERCONNECTION BY AND BETWEEN SAY DIEGO GAS L ELECTRIC COMPANY and NORTH COUNTY RESOURCE RECOVERY ASSOCIATES- Transaction Number: 83-0247 .. . .. . .. I I I I f 1 1 i i t i i i I * 4 4.26.2 Action taken or not taken by a Party at the -- dfrection of--its-directorsioff icersor-supervisory ernpr0y-s I - affecting its performance under this Agreement, which action has been determined by arbitration award or final judgment or judicial decree to be a contract breach under this Aqreement and which occurs or continues beyond the time specified in such arbitration award or judgment or judicial decree for curing 'such default, or, if no time to cure is specified therein, occurs or continues thereafter bevond a reasonable time to cure such def aul to 4.26.3 Action taken or not taken bv a Party at the direction of its directors, officers or supervisory employees affecting its performance under this Agreement, which action is knowingly or intentionally directed by such directors, officers or suPervisory employees with the knowledge that such action taken or not taken is a contract breach under this Agreement. This Aqreement shall be binding upon execution and shall remain in effect until thirty (30) years from the Firm Capacity Ooeration bate, i , I' .. . .-i i 1 1 I f t -- 1. 4.11 Firm Capacitv Ooeration Date: The day upon which the Plant is deemed, by both Parties, to be capable of reliable delivery of Enerqy and Firm Capacity. Written notice shall be provided to SDGhE by Seller at least ten (10) days prior to the actual Firm Capacitv Operation Date, which notice shall be . modifiable by Seller at any time prior to the actual Firm Caoacity Ooeration Date. be the first day of the.month following ten (10) days after such notice is received by STX;&R. In the event that the Firm Capacity Ooeration Date has not occurred within eighteen (18) months of the As-Available Opetation Date, the Pirm Capacity Oaeration Date The Firm Capacity Operation Date will + shall he deemed to be the first day of the first calendar mcfith followinq eighteen (19) months after the As-Available meration Date, unless otherwise agreed in writing by both Parties. t Provided that Seller has not abandoned the construction or ! operation of the Plant, SDG&E shall not have any right to terminate this Aareement for failure of Seller to provide Firm Capacity .or Energy. . 4.12 Forced Outage: Anv outage resulting from a design defect, inadequate construction, operational error or' a breakdown of the mechanical or electrical equipment or a lack of sufficient ' supply of waste resulting in a full or partial curtailment of the electric outout of the Plant. 4.13 Interconnection Facilities: Facilities and devices which are required for the proper and safe operation of the Plant -4- BladeXitizen Friday, September 8, 1989 SDG&E won’t be passing to ratepayers losses on By Bob McPhail Staff Writer I The California Public Utilities Commission has again rejected an attempt by San Diego Gas & Electric Co. to make its customers pay for a bad business decision. Meeting in San Francisco on Thursday, the five-member state utilities commission denied SDG&E’s request for another hearing on the issue of allowing SDG&E to charge its customers more than $28 million to make up for unexpected costs when SDG&E bought imported elec- tricity from companies in New Mexico and Arizona. SDGLE had sought a rehear- ing so the commission could review and reconsider a Feb. 24 decision prohibiting SDGBE from collecting the losses from its ratepayers. The commission, however, denied SDG&E’s request and allowed its February decision to stand. Commission members con- cluded in Eebruary that SDG&E paid the excess $28 million because of a series of bad business decisions, including negotiating a bad contract with one firm and agreeing to an un- necessarily long contract with another. ’ In denying SDG&E’s request for a rehearing, the commission ruled that it had made no legal error in its original decision. The controversy stems from power purchased by SDG&E from firms in Arizona and New Mexico and transmitted to San Diego via the Southwest Powerlink, a 280-mile-long elec- tric transmission line completed in 1984. The PUC’s February ruling found that most of SDG&E’s electricity purchases via the powerlink were “reasonable,” but took exception to several business decisions totaling more than $28 million. The commission said that SDG&E was imprudent when it negotiated one contract with Tucson Electric Power Co. that See SDG&E, Page B-4 b From Page 6-1 contained no provisions that SDG&E must approve assign- ment of the contract to sub- sidiaries of TEPCO. As a consequence, SDG&E “eventually paid more than nec- essary for the power it purchas- ed.” In another instance of cor- porate imprudence, the commis- sion found that SDG&E signed a long-term contract with Public Service Co. of New Mexico in 1985 even though SDGBE “knew that it would have been cheaper to obtain power from sources other than New Mexico for a few years and that, if oil prices declined or stabilized, the con- tract wpuld be uneconomic €or its entire i3-year term.” I