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HomeMy WebLinkAboutAGENDA REPORT 1998 1007 CC REG ITEM 10A54a . i 3 ITEM 10 . A . CITY COUNCIL AGENDA REPORTCITY OF MOORPARK, CALIFORNIA City Council Meeting i � � � -' �-g TO: The Honorable City Council of �cfi (,a ACTION: e FROM: Donald P. Reynolds Jr., Administrative Se __ DATE: September 28, 1998, (Council meeting of October ober , 1 98 SUBJECT: Consider Resolution 98- Establishing the City Council's Position Opposing Proposition 9 "Utility Rate Reduction and Reform Act " - (Follow Up from Council Item 10.L, September 16, 1998) Summary On September 16, 1998, the City Council directed staff to provide additional information related to the potential outcome of the passage of Proposition 9, and report the results of this research to the Council for further consideration. Staff still recommends that the City oppose the "Utility Rate Reduction and Reform Act." Discussion As stated September 16, Proposition 9 is intended to reverse some of the original provisions outlined in Assembly Bill 1890, which initiated the deregulation process of the electrical industry. The primary focus of Proposition 9 is targeted towards the removal of the capital asset recovery mechanisms within AB 1890, (7 billion dollars in bonds). AB 1890 provided public bonds to be sold for the utility companies at a lower cost than they could arrange privately, which helps the utility companies pass a 10 percent rate reduction to consumers. It is argued in Proposition 9 that if the consumers are removed completely from the cost recovery mechanisms, the savings to them could be doubled. Comparing electrical bills from July 1997 to July 1998, a ten- percent cost reduction has been confirmed. AB1890 also required the utility companies to provide more detailed information on their statements than they had in the past. Thus, there is a coincidental "transfer" cost that did not previously appear on the bill. The transfer cost is new, but the net impact is that the ten- percent reduction did occur. Without the transfer cost, the cost would be reduced by approximately 20 %, rather than ten percent. Staff has contacted the Californian's Against Utility Taxes ( "CAUT ") that drafted the flyer in favor of the Proposition presented September 16. One of the most significant points of debate is the impact the measure may have on the bonds already sold. The State pledged to uphold these bonds, and the measure removes the consumer from repayment of them. For the most part, it can be concluded that the impact on the bonds is uncertain, and that any impact to bonds already sold will have to be decided in court. One article (AM36 from the Sacramento Bee reports that the measure will most likely have no impact on bonds already sold, and that this potentially negative outcome was removed from the ballot argument because it was misleading. The League of California analyses includes the calculation of a revenue loss to cities related to the loss of utility taxes and franchise fees. Moorpark does not have a utility tax, so the impact is not as significant as generally stated. The CAUT argues that the League's position is not based on the final and official legislative analyst. Staff confirmed that although the final official legislative analyses are different, they maintain their position to oppose the initiative. The estimated loss to City revenues would be offset 50% by cost savings General Fund supported electrical costs. Applying rough estimates, staff projects a $30,000 loss in General Fund revenue from franchise fees, (applying a 20% reduction in Edison revenues) and gain $15,000 savings to the General Fund in electrical costs (applying 20% cut to 1997/98 actual expenses). The net impact to the City's General Fund would be an estimated loss of approximately $15,000. The League's position is comprised of three points. First, if a twenty- percent cost reduction were mandated, there would be a reduction in state and City revenue, (approximately $10,000 to the City per year). Secondly, the bond issues could tie up any progress in court for several months, and generally speaking, the impact is unknown. Thirdly, is the realization that the restructuring efforts already in place may be halted or slowed as a result of the legal battles that would follow the adoption of the law. This could postpone many municipalities from changing vendors now. Although there are many uncertainties, changes to the law would certainly slow the progress the City is making towards selecting a new vendor for electricity. Staff is currently evaluating the State's electricity vendor solicitation process, and may consider cooperating with their selection. If the process is halted by this measure, the City's ability to make its own changes could also be postponed. Also, any reduction to the State's revenues could potentially impact local government (based on past history), so acting to protect State revenues is also an indirect means towards protecting City revenue resources. Recommendation That the City Council oppose Proposition 9, by adopting Resolution 98- Attachment- Resolution 98- 600037 RESOLUTION NO. A Resolution of the City Council of the City of Moorpark Stating Its Opposition to Proposition, the "Utility Rate Reduction and Reform Act." WHEREAS, Proposition 9 will appear on the ballot at the November 3, 1998 General Election; and WHEREAS, the Proposition would dismantle California's new competitive electricity market, eliminating customer choice and competitive electrical rates; and WHEREAS, the State Legislative Analyst and State Department of Finance have determined that the net impact of this proposition on local government would be revenue reduction potentially in the tens of millions of dollars annually through the fiscal year 2001- 02; and WHEREAS, the League of California Cities has adopted a position in opposition to the measure due to the negative impact it would have on cities, the uncertainty that would result in the municipal bond market, and the effects on the newly restructured electricity services market; and WHEREAS, the proposition could create a $6 billion hole in the state budget, resulting in significant reductions in funding to local government and critical services, impairing community health and welfare and community quality of life; and NOW, THEREFORE, BE IT RESOLVED AS FOLLOWS: Section 1. The City Council of the City of Moorpark does herewith state its opposition to Proposition 9, the Utility Rate Reduction and Reform Act, scheduled to appear on the November 3, 1998 General Election on the basis of its potential for a negative financial impact on the City and the uncertainty that would be created with State financing. Section 2. The City Clerk is herewith directed to transmit copies of this resolution to the local news media. PASSED, APPROVED AND ADOPTED this 16th day of September 1998. Patrick Hunter, Mayor ATTEST: Deborah S. Traffenstedt, City Clerk 000038