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CITY OF COLTON <br />AGENDA REPORT <br />For the City Council Meeting of August 1, 2000 <br />TO: Honorable Mayor Pro Tempore and City Council <br />APPROVAL: Henry T. Garcia, City Manager �,� <br />FROM: Thomas K. Clarke, Utility Director—\ lav <br />SUBJECT: REQUEST FOR APPROVAL OF PROFESSIONAL SERVICES AGREEMENT <br />FOR DESIGN OF A POWER GENERATION FACILITY WITH STEWART & <br />STEVENSON, INC., OF SANTA ANA, CALIFORNIA, IN THE AMOUNT OF <br />$150,000 <br />DATE: Monday, July 24, 2000 <br />BACKGROUND <br />A number of contract terminations, as well as new developments, prompt the City's Electric <br />Utility to bring forward plans for the improvement of the City's electric resource portfolio. <br />The contract terminations include: <br />1. Payment of the City's $1.2 million annual ancillary services cost by SCE will end on <br />12/31/2000 per the 1997 SCE/Colton Restructuring Agreement. After that date, <br />Electric Utility revenues will need to pay those costs. <br />2. Termination of the Power Sales Agreement between the City of Colton and the City <br />of Pasadena for 18 Megawatts of Firm Capacity and Energy will occur on <br />12/31/2002. This contract provides excellent hedging against current market <br />conditions. <br />3. Termination of the Power Sales Agreement with Idaho Power Corporation occurs in <br />the Year 2009. <br />4. Capacity contracts with Los Angeles, SCE, and the Cities of Burbank, Glendale, and <br />Pasadena combined have already terminated. <br />New developments in the electricity market include: <br />1. Unprecedented volatility and high prices, with wholesale prices varying from zero to <br />75 cents per kWh within a single day and likely to increase in volatility as price caps <br />are removed consistent with deregulation. <br />2. Natural gas, the fuel of virtually all new significant generation projects, has risen in <br />price from approximately $2.50 to $4.60 per mmbtu, with little prospect of going back <br />down to its former price. This is putting substantial upward pressure on electricity <br />rates. <br />3. New capacity will no longer be mandated by the California Public Utilities <br />Commission but by investor confidence in a fair return. In the opinion of the <br />California Energy Commission, this is likely to lead to a form of long term volatility in <br />the electricity market. <br />Page 1 of 3 Item #9 <br />