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Item #1 CITY OF COLTON AGENDA REPORT For City Council Meeting of February 5, 2002 TO: Honorable Mayor and Gty Council Members FROM: Thomas K. Clarke, Utilities Director ;��ti�. APPROVAL: Daryl 7. Parrish, City Manager SUB]ECT: Approval of an Ordinance and Resolution Related to the City of Colton's Participatwn in the Magnolia Power Project DATE: January 24, 2002 BACKGROUND The Electric Utility has established a generation plan to ensure tliat there is adequate and reliable power to meet the electrical needs of the City of Colton over the long-term. The Utility staff has developed a load forecast that estimates a 100 megaWatt (mW) load by the end of 2004. With the knowledge of the expiration of certain contractual resources and specific projeds that will be undertaken requiring electric service, the forecast has a high level of probability that the resource plan developed by the Utility staff will offer the most reliable and economic way to serve the City's needs. Previously, the City Coundl has authorized staff to praeed with a major component of the resource plan: the Colton ]ets Project. The City's participation in the Magnolia Power Project is the next step. DISCUSSION / ANALYSIS There are various alternatives to sadsfying the capacity and energy needs facing the City. After a lengthy review by our consultants and the internal staff, the Electric Utility is convinced that it is in the best interest of the City and the ratepayers to build a generating unit and to participate in highly efficient projects that offer the lowest risk in terms of reliability and priang. The City will be experiendng loads approaching 100 mW in the next two years. Prudent planning would dictate that a like amount of generation be in our portfolio to meet this need. It is being recommended ihat the City of Colton commit to an allocated 4.1322 percent share (approximately 10 mW) of the Magnolia Power project. An effective plan takes two aspects into consideretion: 1) unit contingency; and, 2) price. {lnit contingency risk relates to reliability of service due to the loss of a generetion resource. It is akin to the "ali your eggs in one baskeY' doctrine. It would not be wise to have ali of the City's power Y�ed to one source, even if it is at a low price. If the resource becomes unavailable for some reason, the Cty may have to drasticaily curtail service or pay an inordinately high prrce for replacement power. In eithercase, it would be to the detriment of the ratepayer. Price is the other #actor in developing a prudent plan. Because of the size of the City of Colton, and its respecdve load, Lfie most efficient plant cannot be built because it would ptace too high of a financial burden on the City. However, through the collective efforts of our partidpation in the Southern Cal'�fornia Public Power Authority (SCPPA), the City can participate in larger projects and realize the benefits of the economies of scale.