2003 AGN MAR 18 I16 - Laserfiche WebLink

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Item #16 CITY OF COLTON CITY COUNCIL AGENDA REPORT For Council Meeting of March 18, 2003 TO: Honorable Mayor and City Council APPROVAL: Daryl J. Parrish, City Manager FROM: Thomas K. Clarke, Electric Utility Directoi__— SUBJECT: Approval of Agua Mansa Power Plant Pre -Commencement Operating Budget DATE: March 10, 2003 On October 15, 2002, the City Council approved the Operating Agreement between the City and Noresco for the Agua Mansa Power Plant (AMP). As part of the Agreement, Noresco had to develop and submit a pre -commencement operating budget to the City for approval. DISCUSSION I ANALYSIS As directed by the terms of the Operating Agreement, Noresco has prepared a pre -commencement budget and over the course of the last several weeks has been in discussions with the Utility staff to adjust certain elements of the proposed budget. After taking into account the various changes and recommendations, Noresco has finalized the proposed budget to the satisfaction of the Utility management. The total budget is $1,057,785 and will be recognized as an operating expense in the current operating year by the Electric Utility. The budget recognizies the anticipated costs prior to the commercial operation date of AMP. Included are the salaries, office supplies and equipment, maintenance equipment and supplies, wastewater charges associated with the SARI line, and consumables requied for plant operation during testing. Not included in this budget, directly as a result of the negotiations with staff, are major parts inventory ($900,000), and the gas costs for testing and pre -commercial operation. The spare parts inventory will be acquired out of the proceeds from the revenue bond sale and capitalized as part of the initial plant cost. Since most of the gas used during testing and start-up will result in some energy production, it will flow through the Utility's current operating budget. It is difficult to pin point those costs since the gas market has fluxuated greatly over the past few weeks. At current prices, the cost of gas would be somewhere between $600,000 and $900,000 during the pre -commencement period. The Utility is currently in discussions with gas suppliers and those costs should finalized within the next few weeks. Whoever gets the gas supply contract, it is expected to be priced on an indexed basis so that current market prices are reflected in the gas deliveries. FINANCIAL IMPACT The $1.058 million will become part of the current fiscal year's power supply budget. In addition, the gas costs will be accounted for as current power costs. Therefore, beginning with the first delivery, the costs will be included in the Power Cost Adjustment (PCA). Though there will not be any change in the PCA, the Balancing Account could be affected through the balance of the year.