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CC 2013-11-26_08.e. Purchase of Rule 20A CreditsMEMORANDUM TO: CITY COUNCIL FROM: STEVEN ADAMS, CITY MANAGER fk SUBJECT: CONSIDERATION OF APPROPRIATION FOR PURCHASE OF RULE 20A CREDITS FROM THE COUNTY OF SAN LUIS OBISPO DATE: NOVEMBER 26, 2013 RECOMMENDATION: It is recommended the City Council: 1) approve an appropriation of $33,000 from Local Sales Tax funds for the purchase of Rule 20A credits from the County of San Luis Obispo; and 2) reduce the funding programmed in the Capital Improvement Program for underground utilities in FY 2014-15 by $33,000. IMPACT ON FINANCIAL AND PERSONNEL RESOURCES: The initial cost of purchasing the Rule 20A credits is $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 of the funding will be spent on new light poles for the current project, leaving $117,000 available in the existing budget. Therefore, an additional $33,000 is needed at this time, but it can be reduced from the amount programmed in FY 2014-15. As a result, the recommendation will result in an immediate reduction in the Local Sales Tax fund balance, but will have no impact over the course of the two-year budget. BACKGROUND: At the July 9, 2013 meeting, the Council authorized the City Manager to execute an agreement with the County of San Luis Obispo 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 (Elm Street to Halcyon Road). 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. 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. Item 8.e. - Page 1 CITY COUNCIL CONSIDERATION OF APPROPRIATION FOR PURCHASE OF RULE 20A CREDITS FROM THE COUNTY OF SAN LUIS OBISPO NOVEMBER 26, 2013 PAGE2 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. Therefore, it will not be feasible for the City to complete the final phase of undergrounding utilities on East Grand Avenue for several decades based on Rule 20A credits it will accumulate. As a result, staff negotiated an agreement with the County of San Luis Obispo to purchase their Rule 20A credits needed to complete Phase Ill for five cents for every dollar of Rule 20A credits. The agreement is ready to be executed. Sufficient funding is available in the biennial budget. However, a portion of the funding is programmed in FY 2014-15, which has not yet been appropriated. As a result, staff recommends the amount needed be appropriated at this time in order to move the funding up by one year in the budget. ALTERNATIVES: The following alternatives are provided for the Council's consideration: Approve staffs recommendation; Do not approve staffs recommendation and reverse the July 9, 2013 authorization to execute the agreement with the County; Request staff to pursue other terms with the County; or Provide other direction to staff. ADVANTAGES: The recommendation is necessary to execute the agreement, which presents the only feasible and timely option 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 reduce the existing Local Sales Tax fund balance. 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, November 21, 2013 and on the City's website on Friday, November 22, 2013. No comments were received. Item 8.e. - Page 2