HomeMy WebLinkAbout2016-10-18 Finance Committee Summary Minutes
Special Meeting
Tuesday, October 18, 2016
Chairperson Filseth called the meeting to order at 7:00 P.M. in the Community Meeting Room, 250 Hamilton Avenue, Palo Alto, California.
Present: Filseth (Chair), Schmid, Wolbach
Absent: Holman
Oral Communications
Chair Filseth: With that we should get started. First is Oral Communications and if there is any member of the public here who wishes to speak to an item not on the agenda, could they
please submit a card.
Chair Filseth: Good evening folks. There are no public comments for oral communications, then let’s proceed to Action Item Number One.
Action Items
1. Approval of Fiscal Year 2016 Reappropriation Requests to be Carried Forward Into Fiscal Year 2017 and Approve Corresponding Budget Amendments in Various Funds.
Kiely Nose, Budget Director: Thank you. I’m Kiely Nose, the Budget Director. Item Number One is the approval of Fiscal Year’s 2016 reappropriation requests, and I have Jessie here, who
has joined the Budget Office over the summer who will go briefly over the item before you.
Jessie Deschamps, Senior Management Analyst: Good evening Chair Filseth and members of the Finance Committee, I’m Jessie Deschamps, Senior Management Analyst with the Office of Management
and Budget. Item Number One tonight is the Fiscal Year 2016 reappropriation request as Kiely mentioned. As part of the annual process Staff requests the Finance Committee recommend to
Council the approval of carrying forward funds for Fiscal Year 2016 to 2017 and to make corresponding budget amendments. In summary, for operating projects, the total now being requested
to carry forward is $1.31 million to the General Fund and $889,000 in other funds. Attachment AD tells these projects and represents activities that Staff was unable to complete or encumber
funds during the Fiscal Year, which was primarily due to timing and work load delays. Additionally, two at-place memos have been submitted for your review. This pertains to adjustments
of two transaction amounts, as well as the inclusion of a wastewater treatment transaction. For capital projects, Staff recommends a total reduction of $17.9 million of various funds
detailed in attachment B in order to align estimates used in the Fiscal Year 2017 adopted budget as compared with actual Fiscal Year 2016 expenses. So with that, unless there is something
that my coworkers want to add, we have department representatives available to answer any questions that you might have.
Chair Filseth: Super. First I guess I should ask, are there any comments from the public who wish to speak on this item? If not, then let’s do both questions and comments from the Finance
Committee. Are there any? Council Member Schmid.
Council Member Schmid: Okay, just a couple of questions going through the numbers. Ones that jump out, of course, are the bigger numbers. First, on the overall capital, we have reappropriation
of about $18 million out of 80. That’s about 23 percent. Is that a normal number, or is that sizeable?
Ms. Nose: I’d say that’s sizeable, especially for this year, but the main cause is the golf course, so it’s one project. You’ll see that we pulled back $9.5 million in one project alone,
and that was just due to the fact that Staff worked so hard to get everything done so they could launch construction by July 1, so the timing just got off during the last two months
of the Fiscal Year.
Council Member Schmid: Yeah, I guess that sounds like the Mitchell Park Library. Okay. On the Operating Budget, there’s a number on Teen Programs of $320,000. Now that was identified
in 2015, eighteen months before. Why was there so little activity during 2016 on the Teen Programs?
Ms. Nose: Rob is going to come help us out with that.
Rob de Geus, Community Services Director: Good evening Council Members, Rob de Geus, Community Services Department. It’s good to see you. So the balance in this fund is about $300 something
thousand. What we are spending is the annual revenue that comes in from the Broad Street Garage, which is a little over $100,000, and actually that has been growing, so we have been
investing those funds into a number of different teen programs across the arts and sciences and recreation, but we don’t yet have a plan to spend the reserve or the balance that is sitting
there, which is this $300,000 that’s still carrying forward.
Council Member Schmid: So the concern really is that the annual income that comes in you can spend on continuing programs, but the $300,000 is special.
Mr. de Geus: It’s special and it’s one time, so how do we best invest that. We have some thoughts we have to come back to the Finance Committee to discuss, but at this time we didn’t
have a plan.
Lalo Perez, Chief Financial Officer: To be fully transparent, not in Rob’s shop, in our shop, we were supposed to, once we hit a certain trigger point in paying off the debt, there was
extra revenue that was going to come in, and a portion of this was supposed to go to the Youth Program, and it was caught about three years into it, and that’s why there was a sizeable
amount. So there wasn’t a Community Services Department (CSD) programing issue.
Council Member Schmid: I remember that.
Chair Filseth: Can I ask a follow-up question to that, if you’re about finished.
Council Member Schmid: Yeah.
Chair Filseth: So, I mean, I noticed that one and how come it got reappropriated every year? How come it’s not just a fund that we keep, because we don’t reappropriate affordable housing
fund and other kinds of stuff like that? Why is that one different?
Mr. Perez: We’re trying to limit the work on the accountants because, let me give you a comparison as to why. Each fund, when you create it creates a lot more work and then an audit
process. Kiely came from San Jose, so did Ed. They have the same number of funds as Palo Alto and look at the size of them. So we created a fund for everything. We’re trying not to do
that to ourselves.
Chair Filseth: So does that mean that each thing like this will just sort of automatically reappropriate every year if we don’t spend it?
Mr. Perez: Well, you know, the hope is that we come up with whatever committee or process that Rob comes up and has a plan to use it and that every year we’re using it and it’s active.
There might be some small amount, but hopefully not near this level. That’s the hope.Chair Filseth: Is that how you want to do it?
Mr. Perez: I’m sorry.
Chair Filseth: Is that your guidance as to the best way to do this?
Mr. Perez: I think so, because we think it’s not going to be a normal process.
Chair Filseth: I’m sorry. Go ahead.
Council Member Schmid: Council ought to do that. Um, the other one that struck me was the Management Development and Training $240,000. Now it seems to me that training is something
that we want to do and a lot of opportunities, so not to spend a substantial amount like that on training is surprising. (crosstalk).
Mr. Perez: It’s a good question. Let me give you a little background so we can put it in perspective. In our labor agreements for our Management and Professionals and UMPAPA folks in
Utilities, the City provides $1,000 per employee for training that is provided to the department and $500 to the employee, and what we’re talking about is this $1,000. There’s situations
because of work load or there is just not training available or there is not a specific need in a particular year where the funds don’t get spent from that particular pot, so what we’re
trying to do is take advantage of an opportunity to train our people and take those funds that are not spent and then inject them into the regular operational training programs. So we’re
really repurposing these dollars that would not go to training for whatever reason that didn’t happen. So I think this is one program that is going to take off. Rumi has hired a position
that was vacant that is going to hit the training program as well, and that’s, frankly, an area where we need to step up, especially as we have the turnover we desperately need the training
funds and the programs.
Council Member Schmid: So this might be one we could check off and next year look and see if you have been effective.
Mr. Perez: I think it has ebb and flows because depending on, you know, the departments and the individuals and the training needs. For example, in Office of Management and Budget (OMB)
we were down to three. Well, I wasn’t going to send them to training so there’s money left over from there, because we had to get the budget done. So depending on the circumstances,
it can vary.
Council Member Schmid: Okay. I guess the Crossboar contract for $1 million, I know there was a big effort in 2012 and then it seemed to die off, and yet you have $1 million here.
Mr. Perez: Let me ask Utilities Staff for some help.
Dave Yaun, Strategic Business Manager: So we’re actually embarking on Phase 2 of the Crossboar Program. So we completed the first phase a couple of years ago and right now we’re actually
in the midst of an audit from the City Auditor’s Office to see how that contract was done, if it was completed, just to validate the service that was conducted. So in Phase 2, I think
we’ve done some analysis of what we think is high priorities and we’re going to come back to Council, probably in winter or the beginning of next year with that recommendation and just
target those high-priority ones.
Council Member Schmid: So it’s not a matter of just not having done parts of the City, but you’re looking at different…
Mr. Yaun: Areas.
Council Member Schmid: Needs, different…
Mr. Yaun: Right. So in the first phase I think we’ve completed like 40 percent of all Crossbore completion. There were other areas that were obstructed, so now we will go back and revisit
some of those areas. In the other contract, we didn’t have construction costs imbedded, so in the next contract we will have that service included.
Council Member Schmid: Thank you. Then a couple of questions on the capital projects. On PE-13017, no 1401 (crosstalk) Lucy Stern, right, you got back, is that right, $2.5 million?
Ms. Nose: So, I was actually just talking about this with Rob before the meeting. What these really are are just true ups and what we asked departments to do as we’re developing the
adopted budget, in order to ensure that there is no delays as you cross fiscal years, is we asked them to estimate how far are you going to get in a project by the end of, by basically
June 30 of any given year. And the reason we do that is so that if they don’t think they’re going to get to a project or get to encumber a contract, we want to make sure that on July
1 they are able to hit the ground running and continue with the project. So what you’re seeing here is an estimate that, on all these projects frankly, that Staff anticipated that these
dollars wouldn’t be expended in Fiscal Year ’16, so we wanted to ensure they are available in Fiscal Year ’17, so the reason why we’re bringing them all down is so that we’re not over
budgeting or double budgeting the projects. We’re actually pulling money away from the projects because they spent it in ’16, when they previously didn’t think they would. So really
it is a very technical just true-up based on, we made guesses on operations and Staff achieved more or was able to execute a contract in a more timely fashion.
Council Member Schmid: Now it means that Lucy Stern actually spent the money and did not need to reappropriate it.
Ms. Nose: Correct.
Council Member Schmid: Why is the golf course then also…
Ms. Nose: Pulled down.
Council Member Schmid: Yes.
Ms. Nose: (Crosstalk) Sure, so we anticipated that the golf course contract wouldn’t get approved and encumbered until July 1, so we had appropriated, or Council had approved a project
budget of over $10 million in Fiscal Year ’16, so we didn’t think we would be able to execute the contract, so we moved that $10 million over to Fiscal Year ’17, but ultimately Staff
was able to encumber the contract before June 30, and so I’m pulling it out of…
Council Member Schmid: So it’s not paying the contract, it’s just signing the contract.
Ms. Nose: Signing the contract.
Mr. Perez: Because when you award a contract you have to award (crosstalk)
Chair Filseth: It’s encumbered, it’s accrued.
Mr. Perez: And so we got the permit. We weren’t sure if we were going to get the permit at first.
Ms. Nose: Right.
Chair Filseth: It’s the same thing, right, which is if it’s a negative on this list, I mean what does that mean? I guess that means that we thought it was going to be reappropriated,
right, but actually we were able to encumber it before the deadline, so we’re diminishing the reappropriation tally. Is that what’s going on?
Mr. Perez: That’s correct.
Ms. Nose: Correct.
Mr. Perez: Because it impacts the reserves in the fund at the end, so… Yeah, it’s a process that was behind the office, the back office if you will, that you did not used to see, but
as a result of changing to having every project reappropriated, now you’re seeing all the ins and outs. In a way it’s a little tedious, but second, it gives visibility and you’re able
to ask questions about what’s going on in the project.
Chair Filseth: That makes perfect sense. It’s just confusing, complicated.
Council Member Schmid: I guess just to contrast that with one in which you need to increase the appropriation, the Electric System, $1 million, EL-98003, what happened there? You all
of a sudden need to push it out?
Ms. Nose: Sure. Let me look up the project specifically. I think Dave will also look it up. So at a high level, we didn’t get to encumber the funds, but let me see if I can articulate
why.
Mr. Perez: So maybe while you’re looking that up, if you have any other questions we could go to that one.
Council Member Schmid: The only other question I have is the Cubberley Master Plan which was pushed off into 2017 and I notice our five-year time is creeping up fast. We’re now into
the third year and it implies you’re not making much progress.
Mr. Perez: Maybe I can call on a friend again, Rob, to come up and give you an update on that.
Mr. de Geus: Good evening again. (Crosstalk) The Cubberley Master Plan project has been slow to get started for a couple different reasons. Largely, I think the school district has been
talking and doing a lot of analysis on the enrollment and trying to figure out what it is they truly need. Will it be another school, will it be K-12, middle or high school, and those
discussions, frankly, are still ongoing. But we have committed to putting a scope of services out to get some help, for a consultant to do some sort of “what if” design work for the
district and the City. We have written that scope and it’s now being reviewed by City Staff and the school district Staff and we hope to have that out before the end of the year so we
can really start the planning process in earnest January of 2017, but there remain still some big unknowns with the district really…
Council Member Schmid: I understand the demographic differences between the schools and the City, but we are trying to sign up a lease, leasee for the property which means they have
to know what they’re facing and it’s important that we give them some clear notion of where the future is. And also we have two years before our five-year window closes again on some
capital investment decisions that need to be made.
Mr. de Geus: We have three years left, ’17, ’18 and ’19.
Council Member Schmid: Okay, but time flies.
Mr. Perez: Perez: It does, and you know, we’re trying to utilize the funds, the roughly $1.8 million, $1.9 million that used to go to the school that now we’re using for the facility
and you will see some restrooms, for example, some necessities that need to be taken care of, but we’re also mindful that we don’t want to put money in an area where it may get changed
and so those funds could also stay there and be part of the pot that goes towards whatever capital program we put in.
Council Member Schmid: Yeah, I guess my only point of bringing this up is that it’s one of the only times that Council has a chance to, you know, see what’s going on.
Mr. Perez: Yeah, and this one is, you know, tied to our partner so we need that partner to dance with us.
Council Member Schmid: I appreciate that there are two different visions of the future.
Mr. de Geus: And different timelines, perhaps, too. I think the school district does believe that at some point they are going to need the space for a school, they just don’t know when
that will be, whether it’s, you know, five, 10, 15 years, they don’t know. So we have to come up with some alternatives likely, some designs that have flexible spaces that can be converted
to school use in the future.
Council Member Schmid: Good, thank you very much. And that’s my questions.
Chair Filseth: You know, actually you pretty much covered all mine. Cory?
Council Member Wolbach: I’m good.
Mr. Perez: So we may have to give you the answer later in the...
Council Member Schmid: On the electric?
Mr. Perez: Yeah. We could also e-mail you the answer. Why don’t we do that.
Chair Filseth: In that case…
Council Member Wolbach: I’d be happy to make a Motion.
Chair Filseth: Go ahead.
Council Member Wolbach: I’ll move this item for recommendation.
Chair Filseth: Second.
Mr. Perez: I’m sorry to interrupt Chair. Could we also include the two at-places as part of this.
Council Member Wolbach: So do you need me to read these?
Mr. Perez: I don’t think so. I think it’s if you state that the two items added to the at-places memo be included in the Motion.
Council Member Wolbach: Okay, so I’ll say that, so I’ll move the Staff recommendation that the Finance Committee amend the Fiscal Year 2017 Budget Appropriation Ordinance for various
funds as identified in Attachment A and capital projects as identified in Attachment B and in addition the two at-places memos dated October 18, 2016.
MOTION: Council Member Wolbach moved, seconded by Chair Filseth to recommend the City Council amend the Fiscal Year 2017 Budget Appropriation Ordinance for various funds and capital
projects as recommended by Staff, as well as the recommendations outlined in the two at place memos.
Chair Filseth: Care to speak to your Motion?
Council Member Wolbach: No need to.
Chair Filseth: All in favor?
Chair Filseth: Motion passes 3-0 with Council Member Holman not present.
MOTION PASSED: 3-0 Holman absent
Mr. Perez: Thank you.
Chair Filseth: Thanks to everybody who stayed here for this.
2. Utilities Advisory Commission Recommendation That Council Adopt a Resolution Approving a Carbon Neutral Natural Gas Portfolio Plan to Achieve Maximum Carbon Neutrality Using a Combination
of Offsets and Biogas in the Gas Supply Portfolio by Fiscal Year 2018 With No Greater Than 10¢/Therm Rate Impact; and Related Termination of the Palo Alto Green Gas Program.
Chair Filseth: Welcome. So next item on the Agenda is the Utilities Advisory Commission (UAC) Recommendation for Carbon Neutral Gas Portfolio Plan and I guess there is a Staff presentation,
at which point we’ll do public comment after that and then Committee questions and comments. Okay.
Ed Shikada, General Manager for Utilities: Just a quick intro that Karla Dailey will report for Staff. We also have two of our UAC Commissioners here present if the Committee is interested
for additional feedback.
Chair Filseth: Super. Thanks for coming. Please proceed.
Karla Dailey, Senior Resource Planner: Good evening. Thank you. My name is Karla Dailey. I’m a Senior Resource Planner in Utilities, and I do, as we said, have a short presentation for
you. This is just a quick outline of what we’re going to talk about. So we’ve been doing a number of things over the past years to address the carbon footprint of our gas utility. I
wanted to point out a couple of policies that are in place right now. The gas utility long-term plan, which was last revised and approved by Council in 2012 has a strategy, it happens
to be Number 4, that says, Reduce the Carbon Intensity of the Gas Portfolio in accordance with the Climate and Protection Plan by: 1) designing and implementing a voluntary program;
and secondly, purchasing non-fossil fuel gas as long as it can be done with no rate impact. So that’s what the current policy in place as far as the long-term plan looks like. So, because
of that policy there was designed and implemented a Palo Alto Green Gas Program that was modeled very closely after the Palo Alto Green Program, which I know you are all very aware of.
It was a very successful program, won lots of awards, 20 percent participation, kind of a model for similar programs around the country. The current participation in the gas program
is about four percent of residents, 100 percent of City facilities and that results in about six percent of the City’s total gas demand. We supply that program with high quality environmental
offsets with a preference for California projects, but we did go back earlier this year and take a really close look with our UAC Commissioners at the current program, looked at the
possibility of converting it from an opt-in program to an opt-out program, but also presented the UAC with some other alternatives to that and the UAC supported, instead of converting
that program to something like an opt-out program, moving to a completely carbon neutral gas portfolio. So that’s how we came to work on the program that is being proposed this evening.
Natural gas use accounts for about 27 percent of Palo Alto’s greenhouse emissions, and you can see that while mobile combustion is by far and away the largest culprit, since the electric
utility is carbon neutral, the largest, second largest remaining chunk is attributed to the gas portfolio. The recommended program achieves 100 percent carbon neutrality with these four
sort of constraints. The rate impact being no greater than 10 cents/therm, proposing to use a combination of the same type of offsets that are used currently for the voluntary program,
but trying to incorporate some biogas into that portfolio as well, as much biogas as possible without exceeding that 10 cent/therm rate impact. The time frame proposed is Fiscal Year
(FY) 2018 and again, we are proposing that 100 percent of our portfolio be covered. Now, of course, for all four of those constraints, any one of them or any combination of them could
be changed to come up with a slightly different program, really a continuum in all directions, but this table shows you some discrete options for different rate impacts, different combinations
of offsets in biogas and different amounts of the portfolio that could be covered in a carbon neutral fashion. Of course, the time frame could be, achieving any of these benchmarks,
could be done within any time frame as well. So, just to talk about the rate impact a little bit more, I think it’s important to think about the electric program, the electric carbon
neutral program rather than the Palo Alto green program and compare that to what Staff is proposing on the gas side. The electric portfolio was quite different. We had a renewable portfolio
standard requirement that was quite significant prior to moving to a carbon neutral electric portfolio, and the combination of that RPS requirement and our large amount of hydro supplies
really resulted in a largely carbon-free content of the electric portfolio already, and so in order to move from that to a 100 percent carbon neutrality there was a very small rate impact
to do that, one to two percent for a few years, and then almost zero after that. The gas portfolio, on the other hand, is 100 percent fossil fuel with no renewable aspect to it. Ten
cents/therm is about a 10 percent rate increase based on today’s rates and, again, part of why that 10 percent or 10-cent number was anchored on in the proposal is that we could include
some biogas in the portfolio at that level. If you get much lower than a 10 cent/therm rate impact to biogases, it’s too expensive to include in it. So…
Jane Ratchye, Assistant Director of Utilities: Can you go back one Slide, point out the Pacific Gas and Electric (PG&E) rate.
Ms. Dailey: Oh yeah, down at the bottom of that Slide you can see the difference between Palo Alto’s rates and PG&E’s bundled rates. So for residential customers Palo Alto’s rate is
significantly lower.
Council Member Wolbach: Is that gas only, or is that gas plus electricity?
Ms. Dailey: Just gas.
Chair Filseth: And is commercial and large commercial the other way? Am I reading that right?
Ms. Dailey: It’s very close for commercial and we are slightly higher for large commercial. So should the program be approved ultimately by Council, our next steps would be to execute
enabling agreements for purchasing environmental offsets. Right now, even though we are purchasing some for the voluntary program, we are doing that through a turn-key contract with
our marketing consultant, so we are not directly buying those. We would need to develop new rate schedules for Council approval, given the gas utility long-term plan that says we won’t
do anything that has any rate impact whatsoever, we would have to go back and revise the gas utility long-term plan, and we would need to do some communication and outreach with the
existing Palo Alto green gas participants and perform some fairly insignificant administrative tasks to terminate the program. The request before you this evening is from the UAC and
Staff to adopt a resolution approving the Palo Alto, the proposed carbon neutral gas plan and terminating the Palo Alto green gas program established by Resolution (Reso) 9405, and secondly,
to direct Staff to develop an implementation plan for getting to carbon neutrality for the gas portfolio. And that’s all the official presentation I have. We can take questions or public
comment.
Chair Filseth: Okay. Thank you very much. I think the next step is we should do public comment, so the first speaker, there are six speakers, I think, so you will each have three minutes.
The first speaker is Sandra Slater.
(crosstalk)
Chair Filseth: Ah, let’s see. Should we have the UAC. Actually, why don’t we do that. Is that okay, the Chair of the UAC speak. Sorry Sandra.
James Cook, Chair, Utilities Advisory Commission: I was last to arrive and did not fill out a card, so sorry. James Cook. I’m currently the Chair of the Utilities Advisory Commission,
and I live at 730 College Avenue. So I just wanted to briefly run down how we looked at this. We voted 6-1 in favor of the Staff recommendation, as we thought this was a great way to
reduce greenhouse gas emissions for the City. You know, obviously, natural gas is, at least for the utilities, is the next big hurtle to overcome in terms of greenhouse gas emissions,
the biggest greenhouse gas emitter for the gas utilities and a big part of what the City does. So we thought this was a great way to raise awareness and take some action on the issue,
and also a great way to replace the Palo Alto green gas, and at the same time to replicate the success we’ve seen in the carbon neutral portfolio on the electrical side. They are not
the same thing. The carbon neutral electricity is based on having actually, if the market system is a lot more open to inexpensive electricity that is green, so it’s not the same thing.
Here you’re facing a market situation where there really isn’t a market for the biogas, or there is a very small one, but it gives, I think it gives a good market signal for that industry
possibly to develop in a greater way. Also, the offset, using offsets versus Renewable Energy Certificates (RECS) are not the same thing. So it’s not considered, I would consider it
not as high quality a way to offset your emissions, but it is what the green gas system uses right now is offsets. There is also a cool opportunity to use local, potentially local offsets
because the system isn’t as clearly defined as RECS are. You know, there is a possibility you can fight climate change and reduce greenhouse gases here locally with those offsets, so
I like that possibility. Also, I think we liked it as a good policy to improve what we’re doing, and it’s a policy that can be adjusted over time, so if, you know, we tried, like the
carbon neutral electrical side we tried to cap it. I think that came from the Staff, but it was replicated, certainly a good part of the policy on the carbon neutral electricity. But
it also says, recognizes that biogas isn’t ready now, but it might be in the future, or there might be other ways to do it, so I like that it sort of establishes this framework, gets
everyone involved in it right away as opposed to your four or five or six percent or whatever who are involved now in the green gas. And, so I think we like this as a great way to take
action locally to do something different than we’ve been doing in a much greater way and reduce greenhouse gases. So I think there wasn’t that much debate at the UAC level. The question
really was, are these quality, is this one-time or I think I’m on different sides from our friends at, Zero Carbon Palo Alto, what’s is it?
Chair Filseth: Carbon Free Palo Alto.
Mr. Cook: Carbon Free Palo Alto, thank you very much. You know, we talked about this and we don’t see it as a problem with, if the City were to try to push for a greater electrification,
which would be a real great way to also reduce greenhouse gas emissions, it looks like, we don’t see that this is in conflict with that, and we also don’t see that would take any energy
away from that, so we did discuss that. Obviously you guys can decide whether or not you feel that’s true or not, but that was the other thing we wanted to consider when we were looking
at this policy. But I think as far as we were concerned, that we did spend a lot of time discussing this. This has been a long discussion. Obviously, it started back in 2013 really,
and I think what Staff ended up with is really, we felt like this was the best option of the things we’ve seen over the last three years. Thanks very much.
Council Member Schmid: Question.
Chair Filseth: Let’s see, so how should we do this? I mean if we have questions for the UAC do we do that now?
Council Member Wolbach: I’d say, since we are saving questions for Staff till later, let’s also save questions for the UAC till later and hear from the public.
Chair Filseth: You’d like to ask them now.
Mr. Cook: I’d be happy to stay, so…
Council Member Wolbach: I have a million questions for Staff and UAC but I’d kind of like to…
Chair Filseth: I’ve got a few too. Let’s see.
Council Member Schmid: It’s your decision.
Chair Filseth: Yeah, um. If you’ve got a million questions for Staff and UAC, then we’ll probably have Steve up here for a long time.
(crosstalk)
Chair Filseth: So why don’t we, if Greg only has one, why don’t we let Greg ask his question, this will be a little bit of a hybrid here, let’s have Greg ask his question, then we’ll
do public and you and I can ask all ours.
Council Member Schmid: There was one dissenting vote on several meetings. Could you articulate what the…
Mr. Cook: Yeah, sorry, I was going to bring that up too. So Commissioner Schwartz had a dissenting vote on this and on when we were discussing the, I think it was the Green Gas Program.
I think her concerns centered around whether or not, I think she is not so concerned about gas, natural gas, and I also think she felt like, she did have one concern, remember Karla,
one time she was bringing up to you like that she thought that there might be, if you, and I think this is, it gets, I think some of her thoughts were sort of led off into more on the
electrification question, but she was concerned that if we encourage more electrification would that possibly somehow lead to higher use of gas, because you are using some gas in the
grid that is being used in order to create electricity and that we have the carbon neutral portfolio.
Lisa Forsell: If I may.
Mr. Cook: Commissioner Forsell.
Lisa Forsell: My recollection of her opposition was concern for rate payers.
(crosstalk)
Lisa Forsell: Lisa Forsell, also Utilities Advisory Commissioner. If I recall, Commissioner Schwartz was mainly concerned about the impact to rate payers and she favored the opt-out
program because it gave customers choice and her dissenting vote wasn’t that she didn’t, you know, want the carbon neutral gas portfolio is that she wanted to maintain choice for the
rate payers.
Mr. Cook: Yeah, that’s a more articulate and short (crosstalk). There were a couple of other things that she had brought up, but her probably number one concern was choice, whether or
not you were forcing people to do something or not. And, again, one of the things we discussed was, of course, we did that we did that on the electrical side.
Chair Filseth: Which is one of your options up here.
Mr. Cook: That’s right. So it was more, and it was also when we were talking about opt in and opt out in previous meetings as well.
Chair Filseth: Okay, why don’t we do the public comments now and then we’ll come back and if you guys, especially if you guys will still be able to be here, okay? So first public speaker
is Sandra Slater.
Sandra Slater: Thank you Council and Staff for all your hard work and for allowing me the opportunity to address you this evening. I got to expand on a letter that Lisa VanDusen and
I wrote to the UAC back in August, which is on the record. You can take a look at that, and we’re very grateful for the support of both the UAC and Staff for the green gas program. Natural
gas was originally considered as a way to wean the country off of coal and it was touted as sort of a cleaner bridge to a renewable energy future, and we were, frankly, I think, misinformed.
Natural gas is an extremely potent greenhouse gas. In fact, according to the Union of Concerned Scientists, “the drilling and extraction of natural gas from wells and its transportation
and pipelines results in the leakage of a methane that is 86 times stronger a greenhouse gas over 20 years.” In addition, the calculations we were initially given regarding natural gas
versus coal does not take into account the fugitive emissions from extraction and you can think of the Porter Ranch leak that was so pernicious just last year, which produced 1,200 tons
of methane every day, and in terms of greenhouse gas output per month it “compares to the equivalent effluvia of 200,000 cars a year”. So preliminary studies in field measurements show
that these so-called fugitive emissions are just the tip of the iceberg. They occur not only in extraction, but in the transporting of gas right here in Palo Alto even, there are fugitive
emissions in our gas pipelines. This is no clean energy bridge to a renewable future. It’s imperative that we wean ourselves from fossil fuels as quickly as possible, and in the meantime,
purchasing a biogas in offsets is basically, as far as I can see, the least we can do. It’s not a panacea, but it’s a great step in the right direction. Palo Alto has a set goal of reducing
our Greenhouse Gases (GHGs) by 80 percent by 2030 and this green gas initiative supports that effort and will send a signal to Palo Altons that we are using all the tools in our toolbox
to try to reach that goal. Green gas offers an interim strategy of carbon offsets that can be used as a bridge to get us weaned off of gas entirely, something that's going to take quite
a few years, if not a decade or more. I’m a firm believer in an all of the above strategy to get us quickly to carbon neutrality as possible. We need quick and effective efficiency programs.
We need a fuel switch to cleaner sources for our cars and our homes, and we need a real tax on carbon, but all these things take time. The program Staff outlined will begin to place
a price signal to consumers that gas is something that should be used sparingly, if at all. It makes efficiency that much more attractive, because the more expensive the gas, the more
attractive efficiency measures will be and electrification will become. So this is not an infrastructure investment or spend. We can dial the cost up or down and efficiency is certainly
the low-hanging fruit. This is not giving a pass to Palo Altons to use as much gas as possible. The Electric Utility I see Palo Altons every day trying to reduce their electric usage
and we have a carbon neutral electricity, so I think Palo Altons want to do the right thing if they can so this is a roadmap, interim tool, what we got. Thank you.
Chair Filseth: Thank you. Next speaker Catherine Martineu.
Catherine Martineu: Thank you. Good evening. I’m the Director of Canopy, which is an urban forestry organization based here in Palo Alto. I’m here actually to talk about another maybe
more fun aspect of this project, which is the potential for local carbon offsets. There is a group of people, a climate action reserve, who are working right now on a new protocol for
urban forestry carbon offsets that will, should allow a city like Palo Alto to use local tree planting programs, such as for example, tree plantings in South Palo Alto, which is something
that we want to do to bring South Palo Alto tree cover at parity with North Palo Alto to use these type of programs and with this new protocol and obtain the offsets. So obviously, then
you get the cake and you get the revenue as well, because we can get the offsets, all of the extra benefits of a healthy tree canopy and we get to keep the revenue to fund the program
itself. So this is something that is being worked on right now. This replaces an older protocol that was basically not practical to use, it was very onerous to administer. This one uses
new technology such as remote sensing, which makes it cost effective, so I’m very hopeful. And it looks like probably in the spring of 2017 we will see this protocol sent to the ERB
and other agencies for validation and then vetting and so forth, and we might see potential program by the end of 2017. We are very lucky that Walter Passmore, our urban forester, is
one of the advisors on the carbon action reserve team. So there is absolutely no risk that either he or I would forget to let you know when the protocols are available, but I wanted
to make sure, and I think actually, Commissioner James Cook mentioned that the program that Staff is recommending allows for local programs. But I just want to make sure that when the
time comes, it is a possibility, that it is evaluated as part of the carbon offset portfolio.
Chair Filseth: Thank you very much. The next speaker is Bruce Hodge.
Bruce Hodge: Hello. I’m Bruce Hodge from Carbon Free Palo Alto. I’ll be speaking on what we view as problematic aspects of this plan, and my colleague, Bret Anderson, will explain our
alternative proposal. Carbon Free Palo Alto does not support this plan. The use of offsets and biogas are nonscaleable solutions that don’t address the root cause of our natural gas
emissions. The plan is a stand-alone effort that doesn’t serve as a bridge to more robust solutions. It is an underprised green washing approach that will most likely be hard to move
away from when required additional investments and real solutions are proposed in the future. Many local community stakeholders, likely the majority, prefer directly addressing natural
gas problem without using offsets. Other entities, such as the innovative Sacramento Municipal Utility District (SMUD) Utility are very interested in Palo Alto’s approach to reducing
the use of natural gas and will not be impressed with an offset solution. Instead, Palo Alto should be advising innovative solutions that are scaleable and affordable. An offset solution
was vigorously debated during lead up to the Sustainability and Climate Action Plan (S/CAP) and offsets were eventually dropped from the S-CAP 80 by 30 plan because of opposition to
them. Solving the natural gas situation here at home is crucial. Offsets will result in approximately $3 million a year leaving the community, money that could be spent more wisely on
investing in our own infrastructure. The use of offsets is essentially a green washing approach for several reasons. Number one, the market has failed to price carbon emissions realistically
and hence offsets based on an unrealistically low cost of mitigation was not grounded in reality. And secondly, offsets only count the combusted emissions from gas and discount the real
cost by as much as 50 percent by ignoring the impact of fugitive emissions of natural gas itself, as Sandra mentioned earlier. Just to be clear, the cumulative emissions from natural
gas are estimated to be approximately double the reported figure. This means that in Palo Alto natural gas accounts for about half of our total emissions and that reduces the transportation
percentage from two-thirds down to about half. We object to the use biogas as well. Biogas is not a scaleable solution, supplies are likely to remain limited because of lack of feed
stocks and it just perpetuates the use of a leaky gas infrastructure with fugitive emissions. Lastly, the plan is presented in isolation, with no linkage to other efforts that will be
occurring in the same time frame. The proposed expenditure is somewhat arbitrary and there is no way to compare the potential costs (inaudible) to other approaches. We urge a more comprehensive
approach.
Chair Filseth: Thank you. The next speaker is, you already know that, Bret Anderson.
Bret Anderson: So I’m also a member of Carbon Free Palo Alto. I’m going to explain a little bit about what we are proposing as an alternative. What we think of this alternative is that
it’s really Plan A. This is what we should be doing to reduce gas use in Palo Alto and Plan B could be offsets, but we should only do that if we have a full comprehensive plan for what
plan A really entails. We’re talking about efficiency measures, electrical equipment upgrades and upgrades to the electric panels in our homes and in our businesses and amid infrastructure
upgrade to Palo Alto’s grid. So these are the things that we must do. We know we’re on the path to do them, but we have not yet, from our Utility Staff, a comprehensive plan that addresses
how we’re going to get these adopted, these measures adopted. So we need to flush that out. That’s, goal number one would be to lay that plan out, look at how much it costs, how much
it’s going to take from Staff to develop and run that program, how much would it take to fund that program. The key to all of this is the high up-front cost of these measures. We know
these measures are tough and they’re going to be mostly done in a retrograde situation, so we have to come up with a way to finance this. The utility mode for financing using on-bill
financing, tariff based financing is the best pass forward to get adoption rates high in a retrofit situation, which is really what we’re dealing with in an 80/30 scenario for reducing
gas use in Palo Alto. So we really have to look at the way we’re going to get on-bill financing for single measures like a large meter or Heating, Ventilation and Air Conditioning (HVAC)
or efficiency or a whole-house upgrade where we could finance $30,000 or $20,000 worth of upgrades for a home and have that billed over ten years or whatever it takes to make that flow
for the customer. It should be a check-the-box decision for the customer as an opt in, but we need to do all the thinking beforehand and the financing beforehand using the Utility Financing
Mode, which is low cost to capital and a very easy understood relationship with the end-user customer. We need to define that funding mechanism is a plan drawn up by Staff where we would
love to work with Staff as Carbon Free Palo Alto to flush that plan out, but we also need to enumerate the (inaudible) benefits of this kind if a program, doing it ourselves to the rest
of the community to sell the fee, maybe a use fee, that funds this effort, to sell it to our community, because we’re talking about improving our infrastructure, our resiliency, benefits
for the environment for not using fracked natural gas. We’ve got local jobs to create using these measures, or implementing these measures and I’d also add the home value that is improved
by investing in the infrastructure, so you can improve the value of your home when you make this investment so offsets really represent a rent moving, exporting our problem outside of
Palo Alto, whereas our own program, if we fund that through (inaudible) financing is an investment in our own community. Thank you.
Chair Filseth: Thank you very much. The next speaker is Lisa VanDusen.
Lisa VanDusen: Good evening. Thank you for considering this issue and I just want to say that Sandra Slater and I have been having these conversations with the UAC and with others for
a while, yes, some years at this point, so it’s great to have come this far. I just want to comment a little bit on the remarks that these folks made, and I just want to say that all
sounds great and it’s not entirely clear to me how that’s separate and not combinable with what we’re doing here. So I would hope that would be and I would contend that this does not
slow us down or prevent us from moving in that direction at all. So great work, both of you. So first, also I want to say how much the Staff has done a really excellent job of flushing
out the specifics of this, Karla and Jean, in particular. So I think the benefits you’ve heard, but I just want to reiterate that this program is really flexible. It can flex with the
marketplace, with what’s available, with the tide of where we are with efforts like that or anything else. It really does, as James said, create a framework and allow us to really move
around with availability, with rate payer concerns, with sustainability targets, with progress and cost. So the second thing is that, and I think you also said this, that it sends a
signal. It sends various kinds of signals. It sends a price signal that, in fact, natural gas should not be less expensive than electricity. It is not the direction we want to go, so
it sends the signal that way. It sends a market signal to tell the world and the marketplace that we want alternatives to natural gas. And it tells consumers, rate payers here and elsewhere
that we are doing what we can to move in the right direction. And when I think, you know, maybe East Bay Municipal Utility District (MUD) is looking at us, but I think others the world
over are looking at what we’re doing and I agree with the “all of the above” strategy that Sandra mentioned. So the fact that, I want to just speak to the concern that Commissioner Schwartz
had, which was that the matter of choice and the importance of that and, in fact, we have competing things. We have consumer choice, but we also have a mandate and really a moral calling
right now to do everything that we can, and the City has already adopted the 20 by 2020, 80 by 2030 goal and we have also the proclamation from 2009, the Council said we wanted to be
considering externalities in our decisions as we do business, so I hope that you will go forward with this and take this to the Council and we can all move forward quickly with this.
Thank you.
Chair Filseth: Thank you very much. And our final speaker tonight is Lisa Forsell.
Lisa Forsell: Hi. Lisa Forsell, UAC Commissioner, although tonight I’m not representing the UAC but I just wanted to share my own thoughts as to why I support the proposal. A lot of
things have been said tonight that I will try not to rehash at length. I see it as a transition strategy, not the permanent strategy, that we shouldn’t go like, “okay, we’re done now,
our gas portfolio is carbon neutral, no more work to be done”. It’s a way to start having an impact now while we implement the long-term electrification strategy. I like the current
proposal because it’s flexible, so Council, there was a good slide about it, can decide how much appetite you have for rate impact, and if you feel it is too high you can go with five
cents/therm or, you know, another number, or if you have a great appetite for rate impact, more physical biogas could be added to the portfolio. I might also throw in there that, you
know, Carbon Free Palo Alto has also raised a very legitimate concern about fugitive emissions and if I recall, Staff isn’t quite sure what’s the appropriate estimate for Palo Alto fugitive
methane emissions, but one could attempt to purchase offsets against the fugitive emissions as well, if that was something that we wanted to pursue. And finally, just a couple of thoughts
about the opt out, because when we started the conversation at the UAC meeting in June, we did spend a lot of time talking about opt out and one of the reasons that I was against an
opt out program was because a lot of the rate impact actually went to administrative costs to operate the opt out program and all the sort of complicated corner cases about what if you
only noticed it six months later and you wanted retroactive opt out and all these things, so it felt like, for the money rate payers were spending, I’d rather that money go to the offsets
and the physical biogas than to a big administrative burden for staff. And I also felt that if we went with an opt out, that could not be a transition to a full portfolio because we
then had, you know, let members, let rate payers who did not want to be part of the program identify that they didn’t want to be in and then it’s quite rude to pursue upon them later
and I felt it was better for the community to just take a stand and go with the whole portfolio. Thank you very much.
Chair Filseth: Thank you. I have a couple of procedural comments. Do you have a question?
Council Member Wolbach: Actually a procedural question for you.
Chair Filseth: Okay.
Council Member Wolbach: Do you want take five before we get into questions? I just want to go grab a cup of coffee before we get into the rest of this. If we’re going to lose quorum
(crosstalk) Take a couple of minutes to absorb the comments.
Chair Filseth: Yeah, let me make a couple of procedural comments and then maybe… Is two minutes enough?
Council Member Wolbach: Sure.
Chair Filseth: A maximum of five. Okay. So thank you very much everybody who came. My question for you guys. I guess what you guys are suggesting is that we should proceed straight to
figuring out how to move to electrification, get rid of gas and what’s the financing strategy for that. Did I get that right? That’s, I’m going to guess, is beyond the scope of our agenda
tonight, and it’s something that would be sort of a complex agendized process, so we’re probably not going to dive into that. Is that accurate?
Terence Howzell, Principal Attorney: That is accurate.
Council Member Wolbach: Can I ask (inaudible) to that one?
Chair Filseth: Yes.
Council Member Wolbach: To the degree that one program might be an opportunity, present an opportunity cost that deprives us of funds or Staff resources to pursue another program, we
can talk about, you know, the fact that, we can talk about it in that context, correct?
Mr. Howzell: In passing.
Council Member Wolbach: In passing.
Chair Filseth: Okay. So the second one is, and there may be some disagreement a little bit on this side, which is okay, right? But it seems to me that what we’re talking about here is
sort of a long and complicated decision for the City, right. Are we going to move to sort of a different way of doing gas? It seems to me that the heavy lifting on that decision should
be borne by the UAC and by the full Council, right. So the question is, what is our role here in the Finance Committee, because obviously we could cover a lot of territory. It seems
to me that our role in these kinds of things in the Finance Committee is not, for example, to go back and revisit policy, so I don’t think the Finance Committee should say, “no, we think
it should be option number 3 instead of Option Number 4”, right. It seems to me that sort of the center of gravity, what we should be doing is looking at is, you know, is the City going
to go broke trying to do this, right. I mean, it’s our money to do this. And to a lesser extent, maybe get into the issue of is the City getting its money’s worth from this kind of program,
right. It seems to me that’s sort of the space that we ought to spend most of our time today. Do you guys agree generally with that or disagree?
Council Member Schmid: Disagree a little bit.
Chair Filseth: Okay.
Council Member Schmid: I think the function of the committees are to look in detail at what the consequences of decisions might be. Primarily financial but I don’t think exclusively
financial.
Chair Filseth: Primarily financial would be my comfort zone for this Committee, because the Utilities Advisory Committee is another committee another Council Committee that looks at
this, and this is their job, to set rate and things like that seems to me is the purview of the Utilities Advisory Committee and we can look at that, right, but it doesn’t seem to me
that we, they ought to be going one way and we ought to be going the other and they ought to provide the guidance on this.
Council Member Schmid: The difference between the UAC and a Council Committee is we also are elected and have to go in front of the voters, and so we should be taking into account the
public more maybe than the UAC.
Chair Filseth: Sorry. Maybe I haven’t been clear on that. I think as members of the full Council, I think we are going to be very, very interested in that. So, I mean, I sort of see
myself as having two hats, one is Finance Committee and the other is, I’m very interested, I mean, I’m going to be interested in a lot more aspects of this when it comes to Council than
on this Committee. That sort of has been my thought process. But I don’t want to constrain you from going outside that, to be too narrow. I want to go outside that somewhat, and I think
have at it. But I think my guidance on this would be the heavy lifting on policy issues ought to be borne by the UAC and the full Council when it comes to this. Okay. But as members
of the full Council we’re going to see this thing again, so it’s not completely divorceable. With that, why don’t we take a couple of minutes break, two minutes.
The Committee took a break from 8:04 P.M. to 8:08 P.M.
Chair Filseth: Okay, with that let’s do Finance Committee comments and questions and why don’t we do both at once. Council Member Wolbach.
Council Member Wolbach: So a few questions at the moment. I’ll probably have more later. I guess a good place to start for me would be if somebody from Staff or UAC perhaps provide just
a quick reminder of the difference between offsets and RECS, first.
Ms. Dailey: So a REC is only associated with Renewable Electric Energy, so when you generate electricity from a renewable resource, there is an attribute attached to that electron that
is a renewable energy credit. So it doesn’t make sense to use, you can’t use that for gas. Those are particular to energy, not to natural gas. An offset is generated by an action to
prevent greenhouse gases from going to the atmosphere by, for instance, planting trees to sequester carbon, if it’s an additive tree-planting operation. So trees that are just sort of
hanging round town don’t generate offsets, but a program that is financed by being able to collect revenue for the offsets in order to achieve that carbon reduction generates offsets.
Council Member Wolbach: So RECS are not an option for natural gas I heard you say.
Ms. Dailey: Yes, that’s correct.
Council Member Wolbach: So they’re off the table and that’s why it’s not part of this discussion.
Ms. Dailey: That’s right.
Council Member Wolbach: Thank you for clarifying that question. Okay, I can move on from there. Next question, there seems a clear emphasis on biogas over offsets aside from the concerns
about costs, biogas being very expensive. Just for our edification, maybe a real quick summary why there is the emphasis on biogas over offsets?
Ms. Dailey: Well, I think because offsets are kind of a more esoteric product, there has been an emotional leaning toward liking biogas, but it is a very expensive resource and Staff
felt like the rate impact of achieving carbon neutrality just with biogas would be unacceptable, and so tried to strike a middle ground. It’s a matter of personal preference, but…
Council Member Wolbach: Any input from the UAC on that one? See if there are any further thoughts from the recommending body.
Mr. Cook: No, I think that captures it pretty well. I think there is a sense of biogas as preferable to the existing stock of natural gas, but this is still seen as a bridge or some
sort of transition to using less gas because it does have the methane emissions, most of the people who have talked from the public have said. So I think that, you know, we are seeing
either that if there is more biogas you might have an increased percentage of biogas usage in the program or if there is some other way to transition away from… You know, I think ultimately
may want to transition away from gas, but it’s just that they don’t have a better explanation. Karla is the real expert on gas, so maybe she… But I think there is much more to it.
Council Member Wolbach: Okay, next question. On Slide 8 of tonight’s presentation, Palo Alto’s gas rates are compared to PG&E gas rates, and I just want to be clear. These are our current
gas rates, correct? And I was hoping to see a quick side-by-side, if it’s available, of… Are we facing some expected increases in our gas rates anyway? Aren’t we planning to increase
our gas rates already or and if so…
Ms. Ratchye: Yeah, in the long-term plan, the Ffinancial Plan, we had an 8 percent expected increase for Fiscal Year, the next Fiscal Year.
Chair Filseth: And that goes on for a few years, right?
Ms. Ratchye: Yeah, I can’t remember the whole trajectory, but next year we did and I think there are a couple of years.
Ms. Dailey: But these rates do include a big rate increase that we experienced as a result of a lot of the money that’s being spent on safety in the PG&E system. It gets passed straight
through to us from all the work they are doing.
Council Member Wolbach: Okay, so we’re including some of that.
Ms. Dailey: Oh yeah.
Council Member Wolbach: But this does not include the potential 10 percent rate increase from this proposal?
Ms. Ratchye: That’s correct.
Council Member Wolbach: So we could… And you said there was also an 8 percent that we’re going to be increasing this coming year anyway, correct?
Ms. Ratchye: That was the expectation that we had in the long-term Financial Plan, that next year for FY’18 so July 1 it would be 8 percent.
Council Member Wolbach: That’s what I thought. And so I want to make sure I did my math right here. Looking at just Tier 1 residential, which is currently we’re at 0.8707 and multiplying
that by 1.18, so adding 10 percent and another eight percent.
Ms. Dailey: Ten cents is the proposed.
Council Member Wolbach: Oh, I’m sorry, it’s 10 cents. We’re not looking at 10 percent.
(crosstalk)
Council Member Wolbach: But it says it’s about a 10 percent rate increase.
Ms. Ratchye: On a winter bill, yeah, there’s a little apples and oranges.
Council Member Wolbach: So estimating a little bit, so we’re still looking at less than a PG&E bill. So that would be still under Tier 1, for residential Tier 1.
Ms. Dailey: Right.
Council Member Wolbach: And for, so that would be 0.952. Sorry I’m taking long doing the math, but doing the same for Tier 2, it would also still be cheaper, again anyone can check my
math here, Tier 2 would still be cheaper than PG&E at 1.663. Again, these are estimations. So I just want to get kind of apples to apples what we would be looking at. And I appreciate
the PG&E information being included in this report so we can do a comparison. As a quick comment on that, one of the most important things I think about our electricity portfolio which
is carbon neutral, is that we are substantially cheaper than PG&E and being able to stay cheaper than PG&E on our gas, I think, is also important.
Ms. Ratchye: I want to point out one thing about the gas rates when you’re making these comparisons, PG&E doesn’t have a fixed charge for residential and so these rates are the volumetric
rates shown, plus you have to add in this monthly service charge too.
Council Member Wolbach: I got you, thanks.
Ms. Ratchye: So there is another part of it that does kind of effectively bump up our rates.
Council Member Wolbach: Right but that’s just a fixed $10.32, right?
Ms. Ratchye: Yes.
Council Member Wolbach: And that’s a good reminder. I guess I’m still kind of sorting out my thoughts about all the public comments we have heard, so I’m happy to turn it over to colleagues
for questions, as I continue to mull over the different pieces we’ve heard.
Chair Filseth: Very good. Council Member Schmid.
Council Member Schmid: I think there is no question that it is an important issue and something we’ve got to act on. The opt out decision is a big one. It’s striking that the Palo Alto
Green got four percent of the customers jumping in and the green electricity had, what, 24 percent? So maybe one question is, why are there different perceptions out there in the customer
land between gas and electricity.
Ms. Dailey: You know, one answer, and I’ll let Jane chime in too, is we didn’t market it very heavily, and part of what was going on was so much drought messaging over the last couple
of years, particularly last year, that there is some limit to the number of messages that are going out to customers, so a lot of focus was placed on the drought and not so much on this
program. Do you want to add anything else about why?
Ms. Ratchye: No, I think that’s true. We didn’t market it, and then we started having all these conversations about, are we going to change it, and then we’re like, let’s not market
it heavily now and then switch it up really quickly, and so we stopped kind of actively marketing it. The other aspect is, we did achieve a tremendous number of fraction of customers
who joined the Palo Alto Electric Green Program, but that still amounted to less percentagewise total electric use than this program, which was not marketed as a fraction of gas use,
and that’s because residential was the bigger number of participants and so it’s a bigger part of the gas use. So we actually had more participation in this program, however poorly marketed,
in terms of percentage of gas use than we did after ten years of marketing the Palo Alto Electric Program.
Chair Filseth: Can I chime in on that briefly? I would concur with that, so I mean, this focus group of one here, okay, you know we were one of the earliest adopters of Palo Alto Green,
so I asked my spouse, “so are we doing this?” She said, “no, I don’t know much it”. So… There wasn’t much information about it so I’m concurring with sort of the, not a lot of investment
in the marketing.
Council Member Schmid: The thought process is a little different. I think the electricity comes easy to jump on. So my question is, you know, what’s an offset? Talk to me a little bit
about what offsets are. You’re going to depend for 95 percent of your program on offsets. What is an offset? People have said gas is worse than electricity in terms of…
Ms. Dailey: Right. An offset is a credit generated from a project that keeps a greenhouse gas from entering the atmosphere.
Ms. Ratchye: Can you give an example.
Ms. Dailey: For instance, urban forestry, it’s a large planting of trees that stay in the ground for 100 years and are verified to be there year after year.
Council Member Schmid: I guess offset in electricity is easy. You buy solar power made in the desert. It doesn’t come to Palo Alto, but it substitutes for what you’re getting.
Ms. Dailey: That’s a Renewable Energy Credit.
Council Member Schmid: Okay, what’s an offset?
Ms. Ratchye: Can you do the cow farm thing?
Ms. Dailey: Right, so if you have a, say you have a dairy farm that obviously cows leave a lot of manure that emits methane into the atmosphere. You can take that methane and generate
electricity with it. That electricity has a Renewable Energy Credit associated with it, because it was generated with a renewable resource. But if you are just capturing that methane
and not letting it go to the atmosphere, that’s generating an offset. So you can actually have an offset, you can have offset generation and renewable energy credit generation from the
same project.
Council Member Schmid: Okay, but cows in California might offset 1 percent of our natural gas usage. Where are the other 99 percent of offsets?
Ms. Dailey: So you’re buying offsets from a specific project. Are you saying there are not enough dairy farm projects in California? Yeah, so they’re coming from other parts of the country.
I mean, the biggest sources are landfills, but also dairy projects in other parts of the country as well.
Council Member Schmid: So we are shifting our offset to somewhere else, not to the central Sierras that are most important to us?
Ms. Dailey: Well, I mean, the atmosphere is the atmosphere I would argue, and you know, we’re concerned about global warming, not necessarily Palo Alto warming.
Council Member Schmid: There was some discussion earlier about landfill, garbage being turned into through conversion technologies into gas. Is that an offset?
Ms. Dailey: If a project is preventing methane from a landfill from going into the atmosphere, that would generate an offset.
Mr. Cook: If it’s a new program.
Ms. Dailey: If it’s a new program and it’s not required by some existing regulation.
Council Member Schmid: Right, but stopping garbage going into landfill would, of course, stop it for the next 50 years.
Ms. Dailey: There’s no protocol for that type of project developed yet.
Council Member Schmid: Why not?
Ms. Dailey: Um.
Council Member Schmid: There are such conversions going on. There is a big debate in Sacramento about it, so why wouldn’t that be effective? We’re dumping thousands of tons a year.
Ms. Dailey: Well, we’ve only proposed to use offsets from protocols that are approved by the California Air Resources Board and…
Council Member Schmid: and so far it’s just cow farms.
Ms. Dailey: Sorry?
Council Member Schmid: So far it’s just cow farms?
Mr. Cook: No, it could be planting trees.
Ms. Dailey: Yeah, I think it’s in the Staff Report actually.
Chair Filseth: Forestry, livestock, landfill, coal mine methane, urban forestry, ozone depleting projects and (inaudible) projects.
Ms. Dailey: Those are all the Comprehensive Air Resources Board (CARB)-approved protocols right now.
Council Member Schmid: Yeah, I guess my point about those, that list, is that list would not deal with California’s gas problem. It might deal with two percent, three percent, but…
Ms. Dailey: That’s right, it’s Greenhouse Gas Prevention Protocols. Not necessarily natural gas and they are different.
Council Member Schmid: Los Angeles is working very hard to try to get landfill gas conversion technologies and they feel it’s the only way they can really get offsets.
Ms. Dailey: Let me put it another way, I mean, you as an individual could go out and buy an offset for your airline travel, if you wanted to, to counteract it. Or you could go out and
buy offsets to counteract the gasoline that you are burning in your car, assuming you don’t have an electric vehicle. So an offset can be used to cover many different types of greenhouse
gas emissions. It’s not, as opposed to biogas, which is a physical commodity that could be used in place of natural gas.
Council Member Schmid: I guess I thought landfill conversion into gas is a biogas.
Ms. Dailey: It is, absolutely, so that’s the other product that we’re proposing to use in this. So we’re proposing to use two things to get to carbon neutrality. One is biogas and the
other is offsets, and they are separate.
Council Member Schmid: I guess conversion of waste is not technically biogas because it uses a broader set of inputs than biogas?
Ms. Dailey: Conversion of waste to methane is biogas, yes.
Council Member Schmid: Okay, I worked it out earlier, and it’s not included on most biogas lists, and I think for that reason it has been difficult to get approval in Sacramento for
it. Let me ask another question…
Chair Filseth: Before you leave that one, I actually had a question on exactly the same thing.
Council Member Schmid: Okay, good.
Chair Filseth: Would you mind? So, yeah, I was looking at your example of offsets that pay to convert waste into methane and was used by a dairy farmer in Wisconsin I think was one of
the examples, right? That sounds like biogas to me.
Ms. Dailey: There is also biogas that’s generated from the same project, so if you’re preventing the methane from going into the air, that generates an offset. If you’re using the methane
from the dairy farm, that’s biogas, if you’re buying the molecules.
Chair Filseth: So why is the offset only worth 12 cents/therm, but the biogas is $2/therm?
Ms. Dailey: You know, all these different environmental parks have different markets that they’re being traded in, and biogas can be used for the Federal Clean Fuels Program. You can’t
use an offset for the Federal Clean Fuels Program, and so that program is driving the (crosstalk).
Chair Filseth: So there’s a limited supply of biogas and it’s bid up by these other programs? That’s not fair. Got it. I’m sorry, go ahead.
Council Member Schmid: On Packet Page 29, Figure 8.
Council Member Wolbach: Staff Report Page 15?
Council Member Schmid: Page 15 of the Report. You have the environmental offsets very cheap at the moment. Things like infrastructure, water heating, space heating, stoves, get more
expensive, biogas very expensive. Then you have compact vehicles pay for themselves. What do you mean by that?
Ms. Ratchye: What this is is the societal abatement cost for the carbon equivalent ton, so what that’s basically saying if you bought, this is a Nissan Leaf instead, I can’t remember
what it is, a Civic…
Chair Filseth: A Honda Civic.
Ms. Ratchye: A Honda Civic, then it’s cheaper for society just to do that alone, so if you say that it’s a negative cost divided by how many therms of carbons you saved, it’s a negative
amount. That’s how all the things on this graph are done.
Chair Filseth:…your cost right, because you have a bunch of government credits and so forth, right? Isn’t that what it says?
Ms. Ratchye: No, this is the societal one. We do have also the customer, the participant cost.
Council Member Schmid: So why don’t we spend our $3 million per year in buying Nissan Leafs?
Ms. Ratchye: This is actually the electrification analysis that we did, and Council has seen this. So, is your question, yeah, that’s like the most cost-effective way to get carbon reductions.
Council Member Schmid: Yeah, as Chair pointed out, the role of the Finance Committee is to try to find the best financial option. Are you saying that we should be spending our $3 million
per year to buy Nissan Leafs?
Ms. Ratchye: Well, it might be a better investment for society to make, but the problem is, who is going to be making this expenditure is the gas rate payers. So I don’t know if you
had anything to add to that.
Council Member Schmid: I mean, you can spend it on Wisconsin cows or…
(crosstalk)
Ms. Ratchye: It becomes a Proposition (Prop) 26 issue.
Council Member Schmid: But you want to spend it on cows in Wisconsin, and you say, “oh, that’s good”. I mean, why should we be spending it on cows in Wisconsin instead of, say, replace
the bike program with a Nissan Leaf program? Put Nissan Leafs all over town bought by the City and drive (crosstalk) save $183.
Ms. Dailey: Bought by the City would be fine.
Mr. Shikada: Is there a protocol for that?
Chair Filseth: He’s tugging on an interesting thread here. Go ahead.
Mr. Shikada: Jane, is there a protocol there for hybrid cars that would allow us to do that?
Ms. Ratchye: It wouldn’t be an offset, not an offset. I mean the problem is this program is to buy something for the entire portfolio for all gas rate payers. And buying Nissan Leafs,
there would be…
Council Member Schmid: I don’t get what the difference is between a cow in Wisconsin and a Nissan Leaf in Palo Alto.
Chair Filseth: She’s saying it’s a Prop 26 issue, is that right.
Ms. Ratchye: I mean, what this electrification analysis basically shows is everyone should have a Nissan Leaf, absolutely shows that.
Council Member Schmid: I guess we’re looking at it from the point of view of the City, how can the City take money from the rate payer and get the most productive use out of it. And
if you are going to have an opt-out program, you want to be able to say, we are using this money effectively.
Ms. Ratchye: We’re not proposing an opt-out program.
Chair Filseth: UAC’s proposal was to make it mandatory, not opt out. Mandatory for everybody, right.
Council Member Schmid: Well, even more so then, you have to convince people if you’re taking $43 from every citizen of Palo Alto, that you are using it in the most effective way.
Chair Filseth: He’s tugged on an interesting cord here, right, which is, Prop 26 says that we’re allowed to pass the cost of the gas onto the consumer. We’re not allowed to just tax
it and go off and use it to buy park space or something like that, okay. But what if we spend it on something that reduces co2 more efficiently than cows in Wisconsin? Is that legal
under Prop 26?
Council Member Wolbach: There has to be a protocol. We need a (CARB) Comprehensive Air Resources Board approved protocol for the offset. It will have one for car sharing, for electric
vehicles, which would be interesting, but it will have one you just said, right?
Mr. Shikada: Or even like more broadly than the protocol itself is the question of the legitimacy of the use of the funds, and is…
Mr. Perez: What is the benefit to the gas rate payer…
Council Member Schmid: Okay, let me go a step further then.
Chair Filseth: The benefit to the gas rate payer is less emissions, right?
Council Member Schmid: People earlier said a more effective use of the money would be to start dealing with heating in the homes, heating water, warming homes, would that be (crosstalk)
Ms. Ratchye: That’s the same answer.
Council Member Schmid: But it’s not, you cannot justify it?
Ms. Ratchye: You can’t use all rate payer funds to benefit just particular individuals who are going to do an electrification of their water heating or space heating or whatever.
Chair Filseth: But the benefit to rate payers by this program you’re proposing is that they produce less carbon dioxide when they cook their Ramen, okay, it reduces carbon dioxide, and
so if you have some other program that reduces carbon dioxide even more when they cook that Raimen, how is that not a benefit to rate payers? If the first one is a benefit to rate payers?
Council Member Schmid: Let me pursue…
Ms. Ratchye: It’s a use of the funds. It’s basically a Prop 26 issue. It’s, when you’re buying these offsets or biogas, that is something you’re doing for the entire customer, all customers.
Council Member Schmid: Let me pursue then the other issue of opt in and opt out. Wanting to leave the opt out in, and you get rid of 26.
Council Member Wolbach: Is that true?
Council Member Schmid: No one has to do it. It’s their own volition. So Prop 26 is not relevant, then you could spend it on the most effective thing for Palo Alto.
Mr. Shikada: Again, the nature with the opt out or opt in is the administrative costs, and effectively running a program that allowed that choice.
Ms. Ratchye: I’m just trying to contemplate, I mean, we could do that. That is an option to change the Palo Alto Green Gas opt in program to an opt out program. I’m trying to imagine
a marketing campaign for it that says pay a little bit more for somebody who might get (crosstalk).
Council Member Schmid: You would have to effectively convince the people, which is exactly what you want to do. You don’t have to convince all of them. You say convince 90 percent of
them. And that’s what politics is, so that’s what we should be doing.
Ms. Ratchye: And as you see, if you’re looking at this graph, the only thing that’s cost effective is the Nissan Leaf, that’s it. Heat pump water heaters, no,unless you value carbon
at $59 a ton.
Chair Filseth: Well, you’re valuing it at $8 a ton here.
Ms. Ratchye: Offsets, that’s the cost of that.
Council Member Schmid: A question to the Chair, keep on finances?
Chair Filseth: Yes, we are still on, we are in the zone of is the City getting its money’s worth.
Council Member Schmid: Okay, good. That’s the questions I had.
Chair Filseth: That was yours. Well, you took all the good ones. So I have a couple of procedural questions and sort of my questions sort of come back in sort of the some of the same
zone, although not as clever as Greg. If we proceed with this program, there is basically a 10 percent rate hike, right, does all that go to the commodity price or is there an expansion
of sort of, it’s going to, you know we’re going to have to have… You know, the administration of it is going to take some resources, and so forth, is some going to go to overhead, or…
Ms. Dailey: No, that’s just the commodity price and we would just, I mean, it’s just kind of the normal course of business. We could certainly buy biogas from the contracts we already
have in place for brown gas and have a one time set up some enabling agreements for offsets, but it’s a very low administrative cost program.
Chair Filseth: I assume what we’re talking about here is legal with respect to Prop 26?
Mr. Howzell: It is. And the appropriate use of gas rate payer funds.
Chair Filseth: So the sense of the program is that we said, okay, we think a 10 percent rate increase is a reasonable thing for Palo Alto residents, you know, to move to a carbon neutral
gas supply, okay? We think 10 percent is about appropriate. Now, we could do it for less than that if we, because we’re doing, basically we’re going to modulate the amount of biogas
versus the offsets we do right? We could do it for less than that if we use less biogas and more offsets, or we could do it for more than that, if we said we’re going to buy more biogas
because we think biogas is a better thing than offsets. But I assume there is a range of quality of offsets, right? I mean, you pick, for example, one which is animal waste is going
to be converted into methane and it’s just going to be gone, as opposed to planted trees, which is a good thing, but in 100 years the trees going to fall down, the carbon is going to
be released into the atmosphere again, right. So I assume there is a range of quality of offsets. Is that an accurate characterization?
Ms. Dailey: I don’t believe so. I mean, we have placed that onto CARB and if the project meets the protocol that CARB has laid out, then it’s an offset. So we’re not going to place,
we’re not proposing the place some other layer of verification or scrutiny above and beyond what CARB says is a verifiable real offset.
Chair Filseth: Okay, I understand. So if I understand what you just said, it’s, excuse me, as long as you stick to the CARB schedule, you’re at the highest quality of offsets that there
is?
Ms. Dailey: Right, and another reason for using CARB-certified protocols is because all those offsets could be used to meet an Renewable Portfolio Standard (RPS) compliance requirement,
so in effect, by us purchasing them for our gas portfolio voluntarily, we’re taking them off the market and retiring them so that someone else can’t use them to pollute.
Chair Filseth: So I guess sort of the thing that I’m wondering about this is, you know, assuming the offsets are real, I mean we said well we think biogas is a higher quality thing than
the offsets, why is that? I mean, Cory sort of tugged on that one a little bit. Why is that? I mean, the both get rid of carbon, right?
Ms. Dailey: Right. I mean I think we’d be naïve to say that there isn’t some public perception that doesn’t quite… Biogas is a very physical, definable thing. The offsets you have to
have a bit more faith in the verification system and the CARB protocol, so again, it’s a little bit of an emotional thing.
Chair Filseth: I mean, we’re paying a non-negligible price for that emotional thing, right? So let me as the question a different way, the way I’d really like to ask it. I mean given
the immense difference in cost, okay, between biogas and the offsets, you know, let’s say for the sake of argument, you went to 100 percent offsets and 0 percent biogas, okay, but you
kept the 10 percent rate increase, okay, and used the difference to buy a whole lot more offsets, I mean, wouldn’t you go from carbon neutral to massively carbon negative. It’s like
ten times as many, or 20 times as many carbon offsets as you’re buying biogas. I mean wouldn’t that be a better use of that investment? I mean, did you guys talk about that at all?
Council Member Wolbach: Can I chime in on this?
Chair Filseth: Okay, if they’re done.
Mr. Cook: Yeah, let me just answer (crosstalk) The UAC did not consider that. I think it’s an interesting thought exercise. That’s primarily why you guys get paid the big bucks.
Chair Filseth: We’re just the bean counters on this side. Go ahead.
Council Member Wolbach: I think we heard from members of the public some of the concerns around offsets are that they’re, some people interpret offsets to be green washing. That perhaps
CARB’s protocols aren’t as tight as they could be. Actually that’s a quick question, do we know if CARB is considering those criticisms, and considering updating their standards to be
more stringent around how they identify and measure offsets. I don’t know if you’ve paid any attention to that. Maybe that’s a question we should ask our…
Ms. Ratchye: I actually think they have the strictest there are. There are protocols developed by different agencies and then CARB certifies those for their own use and they only accept
a fraction of what other people accept. They, because they do it for compliance, so they’re pretty strict. I’d say they’re the strictest.
Council Member Wolbach: So if we did switch to more offsets and less biogas, that might help make up for any under valuation that was raised by members of Carbon Free Palo Alto.
Chair Filseth: Or leakage for example, etc.
Council Member Wolbach: And, I’m getting into comments. I’ll let you finish your questions and I have a couple of comments.
Chair Filseth: I think we’re (crosstalk), so…
Council Member Wolbach: Well then, since I’ve stolen the mike, that’s a really interesting idea of maybe just focusing on offsets rather than biogas entirely and my hope is that, I think
if we’re talking about, you know, a plan not for just this year but setting up a process that will probably last a few years, CARB standards may continue to improve to address the concerns
raised by members of Carbon Free Palo Alto that the offsets might not be as substantial as they should be, but if we’ve set up a system in saying we’re going to buy offsets and maybe
offsets continue to improve, I think the concept of offsets, well, that’s the question, right, is the whole concept of offsets a joke, or is it just that the current system for evaluating
them is not stringent enough? I don’t know if we can ask members of the public who spoke earlier on this.
Chair Filseth: Well, that’s sort of the rub, right, which is, do we believe in offsets or not. If you believe in offsets, why are we not looking. If we don’t believe in offsets, why
are we doing this, right?
Council Member Wolbach: Chair, may I, may we?
Chair Filseth: Yeah, you can ask them.
Council Member Wolbach: Let me ask either or both members of Carbon Free Palo Alto who spoke earlier who were critical of offsets, if you would like to come to mike and weigh in on this
question. Is it impossible that offsets could be improved in the future through more stringent regulation?
Mr. Hodge: I think that the earlier comments that were made about CARB and the quality of the offsets is spot on. I think they are probably the highest offsets that are available, and
because CARB has defined those offsets to be the equivalent of buying allowances so they are for compliance purposes. So I don’t, I wouldn’t expect that the quality of the offsets to
somehow get measurably better over time.
Council Member Wolbach: So why is it still considered green washing in your view then?
Mr. Hodge: It’s considered green washing, we would consider it green washing because it’s not something which is scaleable. In other words, it’s something that you can buy, there’s a
limited quantity of offsets that are out there. Certainly Palo Alto could go off and buy these offsets, right, and it would solve Palo Alto’s problem, but clearly everybody cannot do
that, and so one of the things that we have concentrated on as our group is to focus on innovative solutions that Palo Alto can deploy and serve as a leader for the region and state.
Council Member Wolbach: While we’ve got you up there, one other question, which is people who spoke after you during the public comment period on this topic expressed their view that
this proposal and your ideas are not incompatible. I would be curious if you would have any further explanation about why you think this current proposal and your proposals are not compatible.
Mr. Hodge: I guess one of the things we’re concerned about is this lost revenue. So that’s the $3 million a year we’re estimated leaving the community where imagine that $3 million spent
on our infrastructure instead. Buying the offsets does absolutely nothing for our community except it’s sort of a feel good thing, but it doesn’t really address the issue that we have
directly.
Council Member Wolbach: Did your proposal have a mechanism by which that same $3 million would be turned around in our own community?
Mr. Hodge: We believe that we have a mechanism that’s too complicated to describe now, but there are financing mechanisms that are out there that we believe where the cost actually can
be in the same range of costs. In other words, for the amount of money that we would be spending on offsets, we believe for instance, that you can have electrification efforts for about
the same price, depending on the driving factors.
Chair Filseth: Although then you may run afoul of Prop 26?
Mr. Howzell: …gas rate payer funds for those efforts, yes, a Prop 26 issue. And also we need to just be careful to say…
Chair Filseth: We’re getting close to the edges we understand.
Mr. Howzell: Yes, we may be on the edge.
Chair Filseth: So we’re getting close to the edge, we may be on the edge.
Mr. Anderson: Okay, at a simplistic level, we had the idea of a utility fee, a utility use fee. There’s already one there for gas. You could replace that, you could put another one on,
but that would be used to basically finance or fund programmatic improvement in the utility to allow your rate payers options to reduce their gas use through electrification and efficiency,
so if you funded it at the same level as the offset proposal, then you could get some real work done in terms of getting those options out on the bill for customers. So you allow them
choice to reduce their gas use through electrification, which allows them to benefit from that investment as a gas user. Just one additional point on the quality of offsets, so offsets
by nature are difficult to measure. It’s just the nature of the beast. You can put as many, as heavy a qualification and activity and protocol in place, but you can’t get away from the
fact that they have to be additive. The project that they promise happens, would not happen otherwise but for your purse with that offset. They have to be measurable also. Those things
are just difficult to do. They will never be surety around that and there’s always ways to cut corners and you have five years later saying, well, is it still in place, are they still
monitoring it. So it’s just a hard thing to kind of keep your arms around and it’s prone to problems. So that’s one of the difficulties in just, that’s why they’re suspect in terms of…
Chair Filseth: How are we going to manage that, who is going to be… Oh, I see, if we just use CARB, CARB manages it we don’t have to worry about it.
Mr. Anderson: Yeah, so CARB’s are reliable. There are third parties. There are watchdogs. We just trust them.
Council Member Wolbach: But you guys are saying don’t trust them.
Mr. Anderson: Well, we’re saying just the principal of offsets doesn’t work in terms of we’re trying to reduce gas use, not compensate and export that problem outside our community with
something that is, by nature, suspicious.
Chair Filseth: Well, I mean if offsets don’t work then we shouldn’t do this. And if they do work, then we’re sort of, what’s the right mix of biogas versus offsets, right, you know,
because you could go negative, you could compensate for, you know, losses, transmission losses and stuff like that. So what’s the right, I mean, that’s what we’re grappling with, right?
Mr. Cook.
Mr. Cook: Yeah. I just thought what Bret said last was the most important thing, and that’s what I wanted to say when I raised my hand earlier. It’s just that what we want to do is not
generate greenhouse gases, right, and by burning gas we generate greenhouse gases, so where Carbon Free Palo Alto is going and where I’d love to see this City go ultimately through the
mechanism of this policy, you know they’re saying don’t do this policy, do something else and I totally respect that. But we all agree on the core problem with the offsets is just that
you’re, you still are generating the greenhouse gases. Now you’re offsetting that by reducing greenhouse gas emissions somewhere else, whether it’s Wisconsin or wherever, it doesn’t
matter in the way that it’s the globe, it’s our planet. But is there, should the money be spent and the effort be spent locally to reduce the initial greenhouse gas emission by reducing
the use of gas to do the things that we want to do every day, so can you cut straight to that, and I guess what I’m saying is and I think what the UAC is saying, and I think what, you
know, what Sandra and Lisa are saying is, hey, let’s do this as an interim step, as a transitional step to ultimately get to where we’re reducing our greenhouse gas emissions, not an
offset.
Chair Filseth: Can I, I don’t think there’s disagreement on that here.
Mr. Cook: So the question is with policy. How do you get to that point, and we’re just saying this is the transition to that.
Chair Filseth: But we’re not, that’s not agendized for tonight so we can’t…
Council Member Wolbach: I hate to be asking so many questions, because we, I mean we’re almost 2 hours in, but there was some discussion about the possibility of local offsets, and that
does sound like keeping the money locally or making the investment locally to some certainty, to some degree. Can we get any more color on that concept?
Ms. Ratchye: Any urban forestry project is absolutely welcome to go meet the protocol and get that done and we would then be able to buy those offsets, but it has to be verifiable. You
know, it has to be those same high quality, and if the local project can actually achieve that, that would be awesome.
Council Member Wolbach: So when we move to a Motion, I’m not sure if it was already in the recommendation from the UAC to prioritize identifying local offset opportunities, if they’re
available, and if we move this forward to the Council, maybe that’s something that we could tag on to say that as we’re looking for offsets, it’s, what’s that?
Ms. Ratchye: At a premium price?
Council Member Wolbach: Maybe at a premium or...
Chair Filseth: It can’t be as big a premium as biogas.
Mr. Hodge: Your trees, your urban forestry is not going to offset the total emissions from the canopy.
Council Member Wolbach: I would not expect any one item would be, would solve the problem, but to the degree that it’s an option, maybe that’s something we would include in directing
the Staff to present an option or two to the full Council when it comes to Council.
Chair Filseth: I think the point here is that there’s probably going to be a limited capacity, right, it’s a nice thing to do so I’m not arguing against it. It’s probably going to be
limited.
Council Member Schmid: Let me state one possibility. Palo Alto dumps tens of thousands tons of garbage each year in landfill, which produces methane gas for 50 years. If there is a conversion
technology that translated that into gas, biogas.
Chair Filseth: You’d like the anaerobic digester or something.
Council Member Schmid: No, conversion technology (inaudible). That would directly deal with two Palo Alto problems, the need for an offset and what we do to stop the creation of future
methane gas. That’s a double win.
Chair Filseth: Let me pause for a second and ask our colleague from the Legal Department. Presumably we’re going to do a Motion at some point, somebody brought it up, right, and the
Motion is going to have to do with the Staff recommendation and the UAC recommendation adopting the Carbon Neutral Gas Plan. What does it mean for the Finance Committee to approve it,
right? This is a policy issue that goes far beyond the purview of Finance, so I mean, let’s say we adopt the Staff recommendation unanimous. The Council is going to go debate this again,
right, and much more broadly, so it doesn’t go on the consent calendar or something like that, right?
Mr. Howzell: It could, but there would be a further discussion as to whether it is appropriate to have it on the consent calendar and based on your comments suggesting that it really
should be something that the Council would want to necessarily discuss and they will do what they will, what the recommendation, you know, a unanimous recommendation and interpret it
as they will. But you raise an interesting issue.
Chair Filseth: Well, to me, I’m not comfortable having this Committee sign off on the whole program. I think it’s beyond our scope, right, to do that. I think the whole Council should
look on it before we just enact it into law, right.
Mr. Howzell: Well, we have to. (crosstalk) We legally can’t.
Council Member Wolbach: That’s the Staff recommendation?
Chair Filseth: I think in that context, so what is a Motion from us going to look like? It’s going to look like we adopt this, we vote in favor of the Staff Motion, but we have these
three comments, or what does it look like?
Council Member Wolbach: Can I give it a try?
Mr. Howzell: You could do it that way, or you could inform the full Council of what the nature of the discussion was. The limits on what your recommendation is.
Chair Filseth: Okay, right.
Mr. Perez: Let me see if I can add. You have, not necessarily this Committee, but the Finance Committee have added a condition that it be an Action Item. You know. So it could be heard
and discussed by the full Council.
Council Member Schmid: I guess another option is we could ask either the UAC or Staff to come back with some amendments. (Inaudible) so we don’t have to send it directly to Council without
some adaptation.
Chair Filseth: We could.
Council Member Wolbach: I’ll try my hand at a Motion. I’m just looking at the time. So I’ll move the Staff recommendation with a couple of minor changes. Do you need me to read the Staff
recommendation or… Okay, so the changes would be to provide an option for Council to consider to prioritize locally generated offsets or local offsets. That would be the first change.
And the second one would be to prioritize offsets over biogas.
Chair Filseth: I would second that, but I guess I’d be more comfortable with language on the second piece. It doesn’t specifically say, well I guess the Council could, maybe it works.
The same discussion, prioritize offsets over biogas, but I’d like to see a discussion of the relationship between biogas, offsets and emissions. Because of it’s cost, and I’d like to
see, if we’re going to spend rate payer money on reducing carbon, I’d like to see us reduce carbon as much as we possibly can, and I think that’s kind of the discussion, I’d like to
hear a little more discussion on that, between UAC and Council.
Council Member Wolbach: What if we, instead of saying prioritize offsets over biogas, say prioritize maximum carbon reduction within the 10 percent, I’m sorry, within the 10 cent/therm
rate impact cap? And that allows flexibility.
Chair Filseth: Are you okay with that?
Council Member Wolbach: Well, I’ll speak to that if I have a second.
Chair Filseth: So you can speak to it and I’d like to hear the response from the UAC and the…
Council Member Wolbach: Do I have a second?
Chair Filseth: Sure, I second it.
MOTION: Council Member Wolbach moved, seconded by Chair Filseth to recommend the City Council:
Adopt a Resolution that:
Approves the Carbon Neutral Gas Plan, enabling the City to achieve a carbon-neutral gas supply portfolio starting in Fiscal Year (FY) 2018 with a rate impact not to exceed ten cents
per therm (10 ¢/therm); and
Terminates the PaloAltoGreen Gas program established by Resolution 9405; and
Direct Staff to develop an implementation plan for the Carbon Neutral Gas Plan; and
Direct Staff to provide an option for Council to consider prioritizing local offsets; and
Direct Staff to prioritize maximizing carbon reduction within the 10 cents per therm (10 ¢/therm) rate impact cap.
Council Member Wolbach: So that would allow the flexibility by the Utilities Department within the program to go with biogas or with offsets, understanding that their priority would
be maximum carbon reduction and again, it also gives to Council the option to promote local offsets.
Chair Filseth: I see a frown over here. So you’re worried about Prop 26?
Ms. Dailey: No, let me take those in two different chunks. The first one was prioritizing local projects. I mean, we do have a preference for California projects in here, which could
be modified to local. We’ve never put a price on that. So we’ve never said we’d be willing to spend X more on a local California project. So we just put that out there that it’s an undefined
thing now and under your amendment it still stays undefined. As far as prioritizing offsets, to me that just changes the recommendation to use offsets and it changes it to spend 10 cents/therm
and buy as many offsets as you can with that, no matter, without tying it to the gas burned.
Chair Filseth: The territory you’ll get into is, well, actually if we did it all with offsets, it would only take a five percent rate increase.
Ms. Dailey: Well, that’s right and it’s in your Staff report already, so you have that information.
Chair Filseth: But you come back and said if you spend 10 cents (crosstalk) Then we have Prop 26 issues, right? You’re offsetting more carbon than you’re actually producing, right? But
you also get into the issue of the value of biogas versus offsets, right, and I think you need to grapple with that.
Council Member Wolbach: Can we ask the City Clerk to read back the Motion, just to make sure it was captured.
Jessica Brettle, Assistant City Clerk: Sure. Would you like me to read the full Staff recommendation as well?
Chair Filseth: I think so, yeah.
Ms. Brettle: I have a Motion by Council Member Wolbach, seconded by Chair Filseth to recommend the City Council adopt a Resolution that: A, approves the carbon neutral gas plan, enabling
the City to achieve a carbon neutral gas supply portfolio starting in Fiscal Year 2018 with a rate impact not to exceed 10 cents/therm; B, terminates the Palo Alto Green Gas Program
as established by Resolution 9405; C, to direct Staff to develop an implementation plan for the carbon neutral gas plan; D, to also provide an option for Council to consider prioritizing
local offsets. And I think D, to prioritize maximizing carbon reduction within the 10 cents/therm rate impact cap.
Council Member Wolbach: Right, so it’s not specifically saying prioritize offsets over biogas. It’s saying whatever Staff is deciding, you know, within this, because this program does
allow flexibility already, it was intended to and that was one of the benefits we heard by UAC and analyzed it. This would just provide a little bit more encouragement to Staff to really
say, as you’re working within that flexibility, rather than the emotional bias towards biogas, our emotional bias is towards maximum co2 reduction, however you do it.
Chair Filseth: Right. Let me try another slice, another view on it. I’m (crosstalk)
Ms. Dailey: I’m just wondering what is it that we’re, that we’ll be looking at? What are the products. There’s biogas, there’s offsets. What other things are you thinking of that are
going to reduce…
Council Member Wolbach: I’m just saying, when deciding what mix, rather than stipulating fove percent and 95 percent, it’s saying you can stay flexible on the percentages, depending
on Staff’s interpretation or, you know, if biogas improves, if something changes in the marketplace, if something changes in technology.
Chair Filseth: …high quality offsets to buy.
Ms. Dailey: If there’s no, I mean the way it’s structured now is to include as much biogas as possible, staying within the 10-cent rate cap. If it’s structured the opposite way, we will
not buy any biogas, period. I think if that’s what you’re leaning toward, then it’s a different plan that just says use offsets.
Chair Filseth: We didn’t understand why there was a bias in favor of biogas versus offsets. That’s one of the things I think all of came to understand here tonight, because we were all
asking questions about it.
Ms. Dailey: Yeah, and I think, you know, again, over, the main discussions we’ve had at the UAC and some discussions at Council around the Climate Action Plan, there’s never been a policy
against offsets, but there has been a feeling about the preference for physical commodity, and so the plan that we developed was kind of the minimum rate impact you could possibly have
and have any biogas in the portfolio at all.
Chair Filseth: I understand, and that’s part of the reason I like this Motion, okay, as is. Because we’re not telling, and as I read this Motion, we’re not telling you to go with offsets
and forget about biogas. What we’re saying is, prioritize CO2 reduction, okay, and if you can translate that feeling into tons of carbon dioxide, then go for it. But if it’s just a feeling
and we really don’t know, please wait rate payer money and CO2 reduction and go for the max CO2 reduction, do the 10 percent, you know, take care of Menlo Park carbon, that’s fine. But
prioritize that, because look at it this way, you’re going to like this, right. You know, look at this Wisconsin example. The question we asked Greg and I sort of scrummed on earlier,
right, said, well you converted waste into methane and then you’re taking the gas and making electricity out of it and if you buy the offset, it’s 10 cents/therm and if you buy the gas
it’s two bucks a therm, why is that? Well it’s because other people are bidding on the gas. Well, I don’t think rate payers in Palo Alto, I mean the value here is the offset, right,
at least to this program, so it doesn’t make sense to charge Palo Alto rate payers for these two other guys bidding against, bidding up the price of the gas, if that makes sense.
Ms. Dailey: Let me try it another way. Would it be, if we could, as we said somewhere in the Staff Report, cover the entire gas portfolio with offsets, with a rate impact of two cents,
would you rather be there or would you rather spend 10 cents and do something beyond that?
Chair Filseth: Excellent question. I think that’s a good question for the Council, not the Finance Committee.
Council Member Wolbach: So the Motion on the table is to spend up to the 10 cents and get as much CO2 reduction as you can within that 10 cent impact, 10 cents/therm.
Ms. Dailey: Actually, the proposal is to spend 10 cents and to incorporate as much biogas in that as you can.
Council Member Wolbach: Right and what we’re saying is spend the 10 cents.
Chair Filseth: Spend up to 10 cents.
Council Member Wolbach: And get as much CO2.
Chair Filseth: I’ll take it the way he’s doing it.
Council Member Wolbach: It’s to spend (crosstalk) and get as much CO2 reduction as you can, rather than saying buy as much biogas as you can.
Ms. Ratchye: That’s getting 200 percent of the production.
Council Member Schmid: Let me suggest an alternative.
Chair Filseth: But you’re going to have some flexibility here. You’re going to have losses in our transmission system. You’re going to have losses in the nationwide transmission system.
Ms. Dailey: Right, I hear you.
Council Member Schmid: Can I make a suggestion.
Chair Filseth: Okay, go ahead.
Council Member Schmid: The pressure is to do it by Fiscal Year ’18, 100 percent carbon neutral. It seems to me we’re talking about two different things. You know, get that done, meaning
offsets, or work toward a program that will achieve that with local offsets, and local offsets could involve things like infrastructure changes and conversion technology, so that says
spend the 10 cents/therm, but let’s use the money to have a plan, a strategic plan, to get us somewhere three, four or five years.
Chair Filseth: Yeah, give the difference to those guys. Figure out some way to do that.
Council Member Wolbach: Was that an Amendment, or is that, are you suggesting that’s still plausible within the Motion as it’s currently drafted. (crosstalk)
Council Member Schmid: I think we’d have to change A to read, enable the City to work towards a carbon neutral gas portfolio with the rate impact, and to add the local offsets, things
like conversion technology and infrastructure.
Council Member Wolbach: We already have that in the Motion.
Council Member Schmid: Do we have those words?
Jessica Brettle, Assistant City Clerk: Do you want me to read it again?
Council Member Wolbach: Could you read just the things that we added.
Ms. Brettle: The two things you added were to provide an option for Council to consider prioritizing local offsets and to prioritize maximizing carbon reduction within the 10 cents/therm
rate impact cap.
Council Member Schmid: Yeah, such as, I want to add after that local, such as infrastructure and conversion technology.
Council Member Wolbach: I would actually not accept that Amendment. I don’t think it’s necessary. I think it’s redundant, or I think it’s getting too specific.
Chair Filseth: Wait a second. Can you repeat the second addition again.
Ms. Brettle: Sure. The second addition said, to prioritize maximizing carbon reduction within the 10 cents/therm rate impact cap.
Chair Filseth: Right.
Ms. Brettle: And Council Member Schmid added a friendly amendment, such as, or an amendment, “such as infrastructure and conversion technology”.
Council Member Schmid: That would be under C.
Chair Filseth: What you’d really say is, potentially include infrastructure and conversion technology.
AMENDMENT: Council Member Schmid moved, seconded by Counci Member XXX to add to Motion Part C “such as infrastructure and conversion technology.”
Chair Filseth: But does that take us outside the place where we’re not allowed to go tonight? I don’t know.
Mr. Howzell: I think at this point I think you’re fine and obviously the caveat on everything that you’re talking about is that we will also work within the constitutional limitations
of Prop 26 regarding the use of rate payer funds, won’t go beyond the cost of service parameters.
Chair Filseth: So I don’t have a problem with it the maker of the Motion has a problem.
Council Member Wolbach: Yeah, I’d prefer, I don’t think it’s necessary and again, you know, looking at the alternatives that are in the Staff Report on Page 16, I think that the tweaks
we’ve made to the Motion reasonably fall within that range of alternatives. I think that goes a little bit further and I think that gets more towards other initiatives that should be
agendized separately. I don’t see how it would be accommodated into this effort.
Chair Filseth: We’re staring into space. You want to get the idea in front of Council on the Agenda that some of it could go to future mechanisms to reduce carbon?
Council Member Schmid: Yes, we could start working on things, won’t deliver them in 2017, but would work to have a long-term global impact.
Mr. Howzell: And I would suggest that that is outside of what we are, the scope of what we are agendized for this particular meeting.
Chair Filseth: I think you’re probably right.
Council Member Wolbach: And that’s why I didn’t accept it, even though I think it’s an interesting idea.
Chair Filseth: Okay, your Amendment is not accepted, your friendly Amendment is not accepted. You can offer it as an unfriendly one.
AMENDMENT FAILED DUE TO THE LACK OF A SECOND
Chair Filseth: Once the City Attorney weighs in (crosstalk). Okay, so we have a Motion.
Council Member Wolbach: Should we add also that we wanted to come on as Action rather than consent?
Chair Filseth: Yeah, I think it should go on Action.
Ms. Brettle: I’ll add that on there.
Chair Filseth: Okay, I’m satisfied. All in favor? All opposed.
MOTION PASSED: 2-1 Schmid no, Holman absent
Chair Filseth: Okay, Motion carries with Council Members Filseth and Wolbach in favor, Council Member Schmid opposed and Council Member Holman not present. Thank you guys very much.
We like it.
Council Member Schmid: Yeah, very important.
Chair Filseth: Yeah, go look at the tradeoff between offsets and so forth.
Future Meetings and Agendas
Chair Filseth: Alright. So the next item is Future Meetings and Agendas.
Lalo Perez, Chief Financial Officer: So, the first item we have is, we only have one item on November 1st. After Staff reviewed the item, the changes are minor, they are not substantive.
So, what we propose is that we just send it to the Council and, if the Committee disagrees, you can always pull it off the Consent Agenda. So, if that goes to Council, we don’t have
anything else. For the 15th, it’s an important meeting. We have our year-end financials, which are almost done. I think we are on track to be in a positive position. Staff will come
and explain to you their review process and what they are finding for Fiscal Year ’16. And Staff will present you the year-end financial position and any recommendations on the end of
year excess funding. We know we have excess, we just have to go through the final audit. So, it is an important discussion for us.
Council Member Schmid: Will we get the audit reports well before the meeting?
Mr. Perez: Absolutely. Yeah. They are trying to finalize them as we speak. And the other item is the Development Services Cost of Service Study. This is the view of where the revenue
and expenditures are for the Development Services Center and we will have some recommendations for you to consider making some adjustments to our fees. So, it is an important matter.
Then, we go to the last scheduled meeting, which is December 6th. We are working right now on bringing you some preliminary budget balancing outline and maybe some of the guidelines
that we use internally. The Charter requires the City Manager to formulate a proposed budget for you to consider, but we wanted to give you just a heads up on what he is considering
giving including the fact that we know there are some financial challenges.
Chair Filseth: Yes. There are.
Mr. Perez: Just to remind you, one of the reasons is because we really want to have the latest on the revenue side because that is going to drive our decisions. Property taxes, for example,
that information is coming in.
Chair Filseth: That’s important.
Mr. Perez: Yeah. Exactly. And so, that’s one of the reasons. We want to give you a, we are going to provide you a picture of what we think the numbers look like.
Chair Filseth: So, at one point, in past years, in December, we have done sort of a whack at theLongRange Financial Plan.
Mr. Perez: Right.
Chair Filseth: Where is that …
Mr. Perez: Right, so I think that the last update I gave you, because of lack of Staff and trying to rebuild the bench, what we would commit to do is the Fiscal Year ‘18 numbers and
we will have three years projected out. Personally, I feel that is probably good enough because the further you go out, the less accurate it will be.
Council Member Schmid: Wasn’t there a financial study of city revenues that was supposed to be on the list …
Mr. Perez: Revenues?
Council Member Schmid: Yeah. Connected to the Comprehensive Plan…
Mr. Perez: Oh, you’re talking about Planning? So, Planning came last month and then went to you as a Council …
Council Member Schmid: No. It was the basic financial …
Mr. Perez: Oh. Yes. Thank you for the reminder. The reason it hasn’t come back is because you added an element to the Comp Plan, Scenario 6, or something like that. What Planning Staff
told me was they are waiting for that to vet out and they can wait for the analysis.
Council Member Schmid: Yeah. Well, they basically pushed the Council out of any discussion of the Comp Plan. That’s crazy.
Mr. Perez: And, unfortunately, he is not involved in the Comp Plan conversations so I don’t know.
Chair Filseth: Okay. Thank you. In that case, I guess we are adjourned.
Adjournment: The meeting was adjourned at 9:27 P.M.
TRANSCRIPT
Page 2 of 53
Finance Committee Action Minutes
October 18, 2016
FINANCE COMMITTEE
TRANSCRIPT
Page 1 of 53
Finance Committee Transcript
October 18, 2016