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Minutes January 10, 1995 CITY OF DENTON CITY COUNCIL MINUTES January 10, 1995 The Council convened into a Closed Meeting on Tuesday, January 10, 1995 at 5:15 p.m. in the civil Defense Room. PRESENT: Mayor Castleberry; Mayor Pro Tem Brock; council Members Chew, Cott, Perry, Miller and Smith. 325 ABSENT: None 1. The following items were discussed in Closed Meeting: A. Legal Matters -- Under TEX. GOV'T CODE Sec. 551.071 B. Real Estate -- Under TEX. GOV'T CODE Sec. 551.072 1. Discussion regarding lease of property for additional parking for the DMC from Union Pacific Railroad. C. Personnel/Board Appointments -- Under TEX. GOV'T CODE Sec. 551.074 1. Considered working conditions of part-time and assistant judges and gave Municipal Judge direction. The Council convened into a Special Called Session on Tuesday, January 10, 1995 at 6:00 p.m. PRESENT: Mayor Castleberry; Mayor Pro Tem Brock; Council Members Chew, Cott, Perry, Miller and smith. ABSENT: None 1. The Council received a briefing, held a discussion and considered a motion regarding various requests to TMPA. Mayor Castleberry stated that last week the Mayor of Garland invited the mayors of the four cities in TMPA, their city managers, the chairmen of their utility boards and their executive directors to meet regarding TMPA. It was felt that Council needed to meet as quickly as possible to discuss that meeting. The Garland City Council met last night and unanimously approved the motion to be heard later. The Bryan City Council would be meeting this evening and a poll of their council members indicated that they would also approve the motion. City Manager Harrell stated that a memo from Garland Power and Light, which was included in the agenda back-up materials, represented a summary of the meeting. The first page of that memorandum enumerated the concerns expressed by the four cities regarding the TMPA operation. The representatives at the meeting all expressed similar concerns regarding TMPA. The following statements represented the consensus of the concerns for the members present. (1) Reduce the cost of power from the TMPA 326 City of Denton City Council Minutes January 10, 1995 Page 2 resources to the lowest achievable level. Retail wheeling would soon be present and in order to survive as a electric utility in that kind of environment, it was extremely important to be competitive regarding power rates. The major driving force in that was TMPA and all four cities concurred that an overriding goal was to expect TMPA to reduce power costs to the lowest feasible level. (2) Obtain flexibility for member cities to modify or change their own power resources according to their individual desires. That flexibility went back to the power sales contract. (3) Obtain more direct control over TMPA operations. It was his impression that there was general consensus from some of the cities that in the past TMPA had operated independently and the cities did not have oversight regarding the operations. (4) Return TMPA's role in relationship to member cities to one of a large power plant which provided power to the cities as opposed to a full fledged utility operation. After reaching a consensus of concerns, there was a discussion regarding possible goals which the cities felt were achievable by TMPA which would speak to the concerns listed. The four utility directors along with technical staff ~eviewed the staffing and operating cost levels of agencies similar to TMPA. From that information, they developed reductions in power costs which were determined to be achievable if TMPA were committed to do so. It was felt that the cities should enumerate the goals and let TMPA and the TMPA Board decide how to meet those goals. Reductions in the cost of TMPA power included a reduction in staff, a reduction in power costs which was keyed in with the timing issue of change of fuel supply and disposal of the draglines. Flexibility dealt with removing the restrictions placed on the member cities by the power sales contract. That restriction bound the cities to TMPA until a project was offered to the cities which could be declined. Currently Denton could not upgrade its own utility system and could not make efficiency changes which would help keep Denton's own costs down. A second point dealing with the flexibility dealt with having the city managers, city attorneys and TMPA Board attorneys meet in two weeks to develop a plan for submittal to respective boards and councils to remove that restriction. That could involve an amendment to the power.sales contract and could be concluded within 60 days. There were three basic goals dealing with control of TMPA. One stated that the individual city councils would inform TMPA, through their respective board members, of future actions which were expected of TMPA. The second item was that the Planning and Operating Committee would be more involved in the oversight of TMPA's operating budget. Currently the electric directors were involved in the oversight and made recommendations regarding the capital budget of TMPA but not the yearly operating budget. There was an attempt to do this three years ago but it was not successful. The third goal was an acknowledgement that the four city managers needed to spend more time dealing with Agency concerns. The four city managers would meet on a regular basis with the TMPA General Manager as an oversight committee to the operations of TMPA. The City of Denton City Council Minutes January 10, 1995 Page 3 327 issue of the Agency being a generation plant was more of a philosophical issue. There was a general acknowledgement that if the cities expected TMPA to become a power plant, some of the functions now performed by TMPA would have to be done by the member cities such as maintaining power lines or serving as a purchasing function for the Agency. The cities were willing to do such provided the TMPA role was limited. A short term calendar was then developed for implementation of the recommended actions. (1) A report was to be given to each City Council within two weeks. (2) Following the report to the various councils, it was hoped that each city council would endorse the goals as articulated by the representatives from the Garland meeting. (3) TMPA would be asked to call a special meeting within 30 days to be held in Greenville to discuss the proposed directives. (4) After the special meeting, the city managers would be ready to meet with the General Manager to start the oversight responsibilities. (5) The city managers and TMPA bond counsel with TMPA management would meet on the flexibility issue as soon as possible. (6) Within 30 days after the Greenville meeting, there would be a follow up meeting in Denton at which time the General Manager and the TMPA Board would report back on how TMPA expected to follow through the goals indicated by the cities. Council Member Cott stated that he approached the issue as money and electricity. If production were going to be reduced, the sale of that production had always been the principle way to pay off the bonds. He felt it was important to be careful on the projection so that the reduced production did not come back as higher rates. Bob Nelson, Executive Director for Utilities, stated that the production would actually go up rather than down. The present price was $.052 per KW hour and the cities asked that that cost be lowered to $.04. One way to do that was to follow a study just completed which converted the power plant to western fuel. One of side lights of converting to a western fuel was to increase the Kw of the plant. Council Member Cott asked if the four customers were obligated to take that. Nelson replied yes but not immediately. For a majority of the time, they would be able to do so. Any excess could be sold when necessary. The western fuel was a low sulphur fuel as opposed to the current fuel. With this fuel, it would be possible to eliminate the use of the scrubber as well as the drag lines and conveyor belts. Western fuel had twice the heat value as opposed to the current fuel. Council Member Cott asked if there would be projection of a debt reduction.. 3 2 ~ity of Denton City Council Minutes January 10, 1995 Page 4 Nelson replied that there would not be a reduction in debt. The debt would stay the same. The conversion to the western fuel would cost approximately $33 million. The Agency had in reserve some resources to handle the conversion. City Manager Harrell stated that all the.cities represented were unanimous in acknowledging that the cities were responsible for the outstanding debt and were obligated to pay that debt. The cities were focusing on the operating costs to get them as low as possible. Council Member Cott stated that the current amount of debt would remain the same. Nelson replied yes that the debt structure would not change. Council Member Cott asked for a scenario which would reduce that debt. Mayor Castleberry stated that the procedures outlined would get the cities closer to be able to get a better handle on the issue. Mayor Pro Tem Brock stated that one of the proposals to reduce the cost of TMPA power was to reduce overhead and demand and would be left to the TMPA Board and management. She questioned if the TMPA Board Members felt this was possible. She assumed that this reduction was related to the philosophical shift of TMPA as a power supply and not as a larger utility. Tom Harpool, TMPA Board of Directors, stated that it was not known at this time if the price could get that low. It had been investigated and felt it was a reasonable goal. If the lower rate impinged on anything else, the Board Members would return to Council with that information. The engineers felt that it was a reasonable request. Mayor Pro Tem Brock asked if by having the city managers as an oversight committee and with the city councils giving stronger direction to TMPA, would the role of the TMPA Board be reduced. Harpool replied that it would not necessarily be a reduction as the Board would still be resDonsible for the actions. The city managers would bring items to the General Manager who would bring them to the Board. The Board looked at it as a supplement and a much needed help to the Board because there was a problem in the past trying to get each city have the same goals. This proposal would help the Board carry out the goals of the cities. Mayor Castleberry felt that this would be an instance when the City Council and its two representatives would be working much closer with TMPA than ever before. City of Denton City Council Minutes January 10, 1995 Page 5 329 Harpool stated that for years there had been a problem that the four cities could not come to a consensus. Council Member Miller stated that there had been an indication of concerns regarding the results of the Burns and McDonnell supply study. Were those concerns being revisited and how did that tie in with the goals and recommendations. Nelson replied that there were two elements of the results which were of some concern. The first concern, which was addressed in Item lB, dealt with the price which Burns and McDonnell expressed for the power. Their price was approximately $.046 to $.047 per Kw per hour. There were also approximately $8.5 million of administrative costs included in that price. The second concern dealt with some of the other options the study looked at such as closing the facility and purchasing external or repowering or putting an efficiency generator with one of the cities power plants. The kind of facilities and the kind of purchase power which were selected as the alternatives did not seem to be the lowest possible opportunity. Council Member Miller asked if Burns and McDonnell were still involved and were they being asked to confirm the results. Nelson replied that the group did not anticipate to have them return for any further information. He was certain that the TMPA staff would ask for their continued advice. Council Member Miller felt there was an assumption that the cities were on record for not wanting any additional long term debt but that it was not indicated so. He felt there was a need to make that very clear. Nelson replied that Item 3B would be addressing that issue but that it might be a good idea to include that very specifically. Council Member Miller felt that it would be much better if that were specifically stated. Harpool stated that Burns and McDonnell did not include further reductions as they were not directed to do so. In regards to the debt, the Board was well aware that the cities did not want to incur any further long term debt. Council Member Perry stated that the second objective dealt with flexibility regarding native generation. He asked Nelson what he envisioned that would do to local plants and what impact it would have on Denton. Nelson replied that it was not known yet. The focus was on having the flexibility to be able to look at those issues. The City's 3 3 0City of Denton City Council Minutes January 10, 1995 Page 6 first generators were installed in 1954 and the last one in 1972. The technical efficiency of the machines were not as good as some of the later models and not as good as the technology today. The flexibility would give the cities the opportunity to redesign the plants to produce better efficiency. Right now the cities could only do what TMPA wanted to do and did not have any flexibility. Council Member Chew did not want to add anything additional to the proposal at this point in time as all four cities had agreed to what was presented. He felt that perhaps the suggestion by Council Member Miller could be added later. Council Member Cott felt that a five year reduction goal in capital needed to be developed. Mayor Pro Tem Brock asked for a clarification on changing TMPA from a power agency to a generation plant. Nelson presented an example of the cities taking on more of TMPA's responsibilities. TMPA had three substations in Denton. The City had a service crew which visited the City's substations each day and also checked on TMPA's substations. If TMPA had a failure of one of their three substations, they would send someone from Bryan to repair it. Denton had individuals capable to do that and could provide that service. That was one way to reduce TMPA staff. Mayor Pro Tem Brock asked for the difference between a power agency versus a generation agency. Nelson stated that there were two basic ways to create an agency. One way was to have several cities come together to build a power plant or a series of power plants. Each participant bought a percentage of the power plant and the power from the plant. Another way was to create an agency which became the umbrella agency for the group. The cities were not involved in the production and generation business. When the cities went into this 20 years ago, Garland was interested in a full requirements entity. Greenville and Bryan, at the time, wanted individual participating agencies. Greenville and Bryan put in a clause which allowed the cities to back out when the next project was selected. The cities have never gotten to that point and thus never had the opportunity to come out. Mayor Pro Tem Brock stated that it was implied from the minutes of the meeting to return TMPA's role to that of a power plant. Was that the original role of TMPA which had been lost over the years. City Manager Harrell stated that on that point there was less specifics articulated than on the other three points. That was more of a philosophical statement and a willingness to determine if there were items which could be deleted at the Agency level and City of Denton City Council Minutes January 10, 1995 Page 7 331 picked up at the member city level. Smith motioned, Chew seconded approve the plans which the representative had detailed and endorse their propositions. Council Member Cott asked what happened as a result of the vote. city Manager Harrell stated that after the votes of all of the cities, there would be a special Board meeting as soon as possible in Greenville to present the goals to the TMPA Board. At that point in time, TMPA would have 30 days to report back at a special meeting in Denton on how it would respond to the goals and how to achieve them. Council Member Miller stated that he would still like to have a discussion with the other cities regarding long term debt so that it was not implied that the cities were not willing to have any further long term debt. If that were not in writing, it might be too late. Council Member Cott felt that it was necessary to have an objective of debt reduction. On roll vote, Brock "aye", Cott "aye", Miller "aye", Smith "aye", Chew "aye", Perry "aye", and Mayor Castleberry "aye". Motion carried unanimously. With no further business, the meeting was adjourned at 7:10 p.m. TERS CC~I T Y SECRETARY CITY OF DENTON, TEXAS ACC00243