To: Honorable Public Utilities Board Submitted by: /s/ Girish Balachandran General Manager. From: Girish Balachandran Approved by: /s/

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1 AGENDA ITEM NO.: 5.B.1 MEETING DATE: 10/21/2013 ADMINISTRATIVE REPORT NO.: To: Honorable Public Utilities Board Submitted by: /s/ Girish Balachandran General Manager From: Girish Balachandran Approved by: /s/ General Manager Girish Balachandran General Manager Subject: Soliciting the Board s Comments on Draft 2 of the Northern California Power Agency s Strategic Plan RECOMMENDATION This item is for information only. The Public Utilities Board (Board) is requested to provide comments to Alameda s Northern California Power Agency (NCPA) commissioner and the general manager related to NCPA s draft Strategic Plan. BACKGROUND NCPA developed a draft Strategic Plan (Exhibit A). The general manager of NCPA requested comments by October 24. The general manager provided the Board the draft Strategic Plan in September. Commissioner Hamm provided a brief update on this Strategic Plan at a previous Board meeting. DISCUSSION Attached is a draft letter from Alameda Municipal Power (AMP) to NCPA with comments related to NCPA s draft Strategic Plan. FINANCIAL IMPACT There is no financial impact at this time. Depending on the final Strategic Plan that is adopted by the NCPA Commission there may be cost impacts to AMP. The Board will be informed and involved in further developments. LINKS TO BOARD POLICY AND OBJECTIVES Strategy 1: Re-focus on the core electric business via developing a new corporate identity and renewing partnerships with the City Council, customers, workforce and industry partners.

2 AGENDA ITEM NO.: 5.B.2 MEETING DATE: 10/21/2013 ADMINISTRATIVE REPORT NO.: Strategy 4: Strategy 9: Utilize policies and procedures that allow for superior customer satisfaction and workforce effectiveness. Endeavor to maintain local control over utility programs including energy efficiency, renewable power and distribution system standards. EXHIBITS A. NCPA Draft 2 Strategic Plan B. Draft Letter from AMP to NCPA

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21 DRAFT.. to be finalized after input is received from the Alameda Public Utilities Board on October 21 October 22, 2013 Commissioners of Northern California Power Agency c/o James H. Pope General Manager Northern California Power Agency 651 Commerce Drive Roseville, CA AGENDA ITEM NO.: 5.B. MEETING DATE: 10/21/2013 EXHIBIT B Dear NCPA Commissioners and Mr. Pope: Thank you for the opportunity to provide comments on Draft #2 of the 2013 NCPA Strategic Plan. We appreciate the transparency of this process and the outreach to members. Being explicit about the approaches being considered is very valuable in aiding a full discussion of opportunities and risks. 1) Assumptions a) We agree that this plan will require a clear set of governance rules and agreements before we can embark on forming a new services entity and contain costs by generating new revenue. We agree that the governance agreements identified in the draft plan are a good start (Facilities Agreement, Pooling Agreement, Scheduling Coordination Program Agreement and a newly created Power Management and Administrative Services Program Agreement). However, there is a significant area related to governance governance evaluation - that is missing from the scope (please also refer to section 4d)(ii) of this letter for a related comment). We want to ensure that included in the scope of governance rules is a commitment the Commission adopts an evaluation policy. We suggest that this evaluation be undertaken in conjunction with the effort to update the governance agreements referenced above. The following is AMP s Board Evaluation Policy that is offered here as a template for consideration and discussion by the NCPA Commission (Commission), as a start to developing the Commission s own evaluation policy. Board Evaluation Policy At least every three (3) years and possibly concurrent with the redevelopment of the strategic plan the Board will formally evaluate its performance. The Board will typically conduct a formal evaluation with the assistance of a knowledgeable independent party. The formal evaluation may include individual and group interviews, written surveys, observation of Board meetings and other appropriate methods that yield consistent outcomes. Each formal evaluation will include written documentation of results and recommendations. The evaluation will consider the following: (a) The effectiveness of the Board s policies and the extent to which the Board has used the policies to perform its functions. 1

22 DRAFT.. to be finalized after input is received from the Alameda Public Utilities Board on October 21 (b) The knowledge level and effectiveness of the Board members in performing their duties (individually and collectively). (c) The level of financial, information and other resources available to support the Board in the performance of its functions. (d) Effectiveness of the Board in working with the City Council and staff. b) The assumptions you have laid out are clear. However, we think accepting the following two assumptions will require more information (outlined later in this letter) be provided: i) Asset owning JPA signatories have full obligations(s) for Agency costs assumed through execution of governance agreements, and ii) Agreement of JPA signatories (equity members) that they are responsible for current "core" agency costs (e.g. L&R, Power Management, A&G) on a "cost of service" ownership basis and ineligible to transition to a "market price" cost allocation basis that may be offered to "non - members" in the future Agreement of JPA signatories (equity members) that they are eligible for any new services that might be developed above and beyond NCPA/s current "core" services (e.g. retail services) based on cost allocation and contract terms to be developed in the future. 2) Mission a) The mission is suitable 3) Vision a) The vision ( To the preferred supplier of wholesale power services to public entities in the western US while enhancing the value of NCPA ) seems too far reaching. We would prefer that the vision be amended to reference that NCPA will be a low-cost provider of services to its members. This is, we believe, your primary responsibility. 4) Strategies and Goals a) Strategy 1 and Associated Goals i) The strategy is suitable ii) The goals are suitable b) Strategy 2 and Associated Goals i) The strategy is suitable ii) The goals are suitable c) Strategy 3 and Associated Goals i) The strategy is suitable ii) We suggest that the following goal (from Strategy 6) be included here: (1) Goal: Explore opportunities to develop new generation projects for nonmembers (12/2014) General Manager/Generation Services (a) If you do not want to move this goal from Strategy 6 to Strategy 3, please clarify that NCPA will explore opportunities to develop renewable and conventional generation for members and non-members under Strategy 3. We don t believe that NCPA needs to wait until a new entity is created to develop 2

23 DRAFT.. to be finalized after input is received from the Alameda Public Utilities Board on October 21 such generation projects. A case in point is the development of LEC for members and non-members that resulted in positive value for the LEC participants and lower NCPA overhead costs for all members. d) Strategy 4 and Associated Goals i) The strategy is suitable ii) The following goal should include all committees, including the Executive Committee. The recommendation to adopt a Commission Evaluation policy (see AMP Board Evaluation policy as an example) should be considered and be undertaken by a third-party that is selected by the Commission. (1) Goal: Review committee process effectiveness and structure then report findings to Commission. (12/2014) General Manager & AGMs e) Strategy 5 and Associated Goals i) The strategy is suitable ii) The timeline for the following goal should be accelerated. (1) Goal: Study effect on NCPA of the potential financial failure of member(s) and develop contingency options. (12/2015) GM/AGMs (a) As we are thinking about developing a new entity (Strategy 6) we should manage our risk by ensuring that contingency options are developed prior to entering a new venture. f) Strategy 6 and Associated Goals i) The need for this strategy is clear. NCPA members have a need to reduce their costs. However, the demand from the market place for expanded NCPA services is not clear. ii) Are there other ways in which the strategy could be achieved? (1) For example, projects such as LEC seem to have worked effectively in providing value to members and participants, while reducing costs to members. (2) Are there others in the markets that are providing some or the entire suite of services NCPA is contemplating? (3) NCPA, acting as a whole, has considerable size and therefore market power. NCPA should always consider whether providing the service or purchasing the service for members is the more cost-effective approach. Could NCPA take the role of a facilitator who obtains some or all of such services from the market place for the benefit of reducing member cost? iii) It is not clear from the strategic plan whether new members will provide enough net income to make this initiative viable. iv) We strongly recommend a staged or phased approach. This would involve less risk and is therefore preferable. However, if NCPA believes that there are time-sensitive opportunities that require immediate investments from members, we need additional information to support NCPA pursuing such opportunities. Specifics related to the services being provided should be outlined. The slide on page 10 of the power point presentation accompanying the strategic plan suggests that NCPA will provide three kinds of services, Retail Services, Power Management Services and Other Services. (1) More explanation is requested on 3

24 DRAFT.. to be finalized after input is received from the Alameda Public Utilities Board on October 21 (a) What exactly is being proposed under these three categories of services (b) Who these services may be marketed to (c) Who will be marketing these services (i) Existing staff or new staff? (d) Price and revenue forecasts v) A basic business plan with at least a 5-year pro forma would be useful in evaluating the viability of this strategy (1) The business plan should include (a) Cost, Revenues, Staffing, Risk Analysis (b) Exit ramps, evaluation ramps, and pre-determined benchmarks vi) Ensure that NCPA fixed costs are fixed for a suitable period prior to embarking on this venture. If AMP s allocated costs are changed due to a change in the allocation methodology, its evaluation of this opportunity to develop a new business entity will probably change. g) Strategy 7 and Associated Goals i) Strategy is suitable ii) Include CMUA as a partner in the first goal. Thank you for the opportunity to provide comments. We look forward to supporting this discussion and furthering NCPA s success. Sincerely Gregory Hamm NCPA Commissioner & AMP Board Member Girish Balachandran General Manager, AMP 4