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CC 2013-07-09_08.f. Rule 20A Credits for Undergrounding UtilitiesMEMORANDUM TO: CITY COUNCIL FROM: STEVEN ADAMS, CITY MANAGER#" SUBJECT: CONSIDERATION OF PURCHASE OF RULE 20A CREDITS FOR UNDERGROUNDING OF UTILITIES ON EAST GRAND AVENUE DATE: JULY 9, 2013 RECOMMENDATION: It is recommended the Council authorize the City Manager to execute an agreement with the County of San Luis Obispo, in a form satisfactory to the City Attorney, for the purchase of an estimated $3 million in Rule 20A credits for completion of Phase Ill of the East Grand Avenue Utility Undergrounding project in exchange for an amount equal to 5% of the credits necessary to complete the project. IMPACT ON FINANCIAL AND PERSONNEL RESOURCES: The estimated cost of purchasing the Rule 20A credits is approximately $150,000. There is currently $147,000 budgeted in FY 2013-14 for undergrounding of utilities and $50,000 in the Capital Improvement Program from Local Sales Tax funds in FY 2014-15, which is a total of $197,000. Approximately $30,000 will be spent on the Phase II project for new poles, and an additional $30,000 is projected necessary for poles for Phase Ill, leaving $137,000. Therefore, an additional $13,000 in Local Sales Tax funds will need to be budgeted in a future year. There is projected funding available that can be programmed without impacting other projects. BACKGROUND: Most public undergrounding utility projects are funded through Rule 20A credits, which are issued by PG&E each year to municipal agencies and are derived from an electric tariff filed with the Public Utilities Commission. For projects to be eligible, an underground utility district must be formed. When a sufficient amount of credits are accumulated to fund a project, a request is then made to PG&E to schedule the project. There has been a significant wait time over the past few years for Rule 20A projects. A project cannot be placed in the queue until the Rule 20A credits are available. The City has been working on undergrounding utilities on East Grand Avenue for over 15 years. The project was divided into three phases. Phase 1 (Highway 101 to Halcyon Road) was completed in approximately 2002. The County provided prior Item 8.f. - Page 1 CITY COUNCIL CONSIDERATION OF PURCHASE OF RULE 20A CREDITS FOR UNDERGROUNDING OF UTILITIES ON EAST GRAND AVENUE JULY 9, 2013 PAGE2 assistance with credits to help complete the first phase. Phase 2 (Oak Park Boulevard to Elm Street) is under construction at this time, but will deplete and exceed all the City's remaining Rule 20A credits. Phase 3 (Elm Street to Halcyon Road) is utility District No. 6. Formation of the district was approved by the City Council on December 13, 2005. ANALYSIS OF ISSUES: Due to construction costs above original estimates, costs for Phase II undergrounding work has exceeded the City's available Rule 20A credits. While PG&E will complete the work despite the underfunded amount, they will not proceed with the next phase until the City has Rule 20A credits sufficient to fund both the remaining amount for Phase II and the amount needed to construct Phase Ill. This results in an estimated total cost of approximately $3 million. The third phase consists of an area entirely built out. Costs for the project are escalating at a greater rate than the amount of credits that are issued to the City each year. Therefore, without the County's assistance, utility poles and wires are projected to remain on this lone segment of East Grand Avenue for at least the next 25 years or probably much longer. Undergrounding utilities has been one of the City's major efforts to enhance the East Grand Avenue corridor. An allocation of Rule 20A credits is also being requested by the City of Pismo Beach. County staff has determined that both requests can be approved with minimal impact on County undergrounding projects. City staff has been working with PG&E and staff from other jurisdictions throughout the County for several years through a countywide underground utility coordinating committee that meets on a monthly basis. After several discussions with representatives of the County Public Works Department, the terms of an agreement have been reached that County staff have agreed to recommend to the Board of Supervisors. The key terms of the proposed agreement include the following: • The County will provide the Rule 20A credits needed to complete the East Grand Avenue District No. 6 project. • The City will pay the County an amount equal to 5% of the total value of the Rule 20A credits needed. • The payment will be due to the County when design commences on the project. Staff has contacted other cities that might be interested in selling Rule 20A credits, but all have a much smaller amount of credits and none have agreed. If approved, Item 8.f. - Page 2 CITY COUNCIL CONSIDERATION OF PURCHASE OF RULE 20A CREDITS FOR UNDERGROUNDING OF UTILITIES ON EAST GRAND AVENUE JULY 9, 2013 PAGE 3 PG&E has indicated that the project is likely to be completed within the next two to three year period. ALTERNATIVES: The following alternatives are provided for the Council's consideration: - Approve staffs recommendation; - Direct staff to instead continue to identify other agencies that may sell their Rule 20A credits, but it is unlikely any will have enough credits and would likely require a higher cost to acquire; - Request staff to pursue other terms with the County; - Do not approve the recommendations and abandon the undergrounding project at this time; or - Provide other direction to staff. ADVANTAGES: The recommendations likely present the only feasible option for many years to complete undergrounding of utilities on East Grand Avenue. This will be an important step in enhancing the East Grand Avenue commercial corridor. The recommendations provide a very cost effective approach by completing an estimated $3 million project for approximately only $150,000. DISADVANTAGES: The recommendations will result in an expenditure of funds. ENVIRONMENTAL REVIEW: No environmental review is required for this item. PUBLIC NOTIFICATION AND COMMENTS: The Agenda was posted in front of City Hall on Wednesday, July 3, 2013 and on the City's website on Friday, July 5, 2013. No comments were received. THIS PAGE INTENTIONALLY LEFT BLANK Item 8.f. - Page 4