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HomeMy WebLinkAbout2023-08-15 Finance Committee Summary MinutesFINANCE COMMITTEE SUMMARY MINUTES Page 1 of 5 Special Meeting August 15, 2023 The Finance Committee of the City of Palo Alto met on this date in the Community Meeting Room and by virtual teleconference at 5:30 PM. Present In Person: Burt, Lythcott-Haims, Stone (5:33 P.M.) Present Remotely: None Absent: None CALL TO ORDER Chair Burt called the meeting of the Finance Committee to order at 5:31 P.M. PUBLIC COMMENT There were no requests to speak. ACTION ITEMS 1. Staff Request for Finance Committee discussion for Chief Financial Officer (CFO) Recruitment and input of candidate’s key characteristics Assistant City Manager Kiely Nose noted this was a municipal code position, and the packet included the job description and information about the department and its various activities. Teri Black, Executive Recruiter, explained the purpose of this discussion was to get feedback from the Committee on the qualities, characteristics, and type of experience they feel most important for the new CFO. This will be used to create marketing and advertising materials, predominantly to have informed discussions with potential candidates and to help inform the different interview questioned used in the process. Council Member Lythcott-Haims asked for input from Assistant City Manager Nose about any changes or insights she learned while serving in this role through the fiscal crisis of the pandemic and whether that was reflected in the job description. She also stated the job SUMMARY MINUTES Page 2 of 5 (Sp.) Finance Committee Meeting Summary Minutes: 8/15/2023 description was very comprehensive and asked Assistant City Manager Nose whether there were any pieces that did not fit. Assistant City Manager Nose believed the skills necessary to navigate during such a trying time were the same as would be needed any year. She felt the role required someone adaptable who understands it is a strategic partner role in the organization. She noted that people often say the Finance Director is the one that says no, but she felt it was also important to help someone understand the path to success to meet the goal they want and to move through the system with them to ultimately reach that goal. She noted that skill set was important whether during a pandemic or day to day. She stated the biggest thing that was debated in the job description was the budget office but that the structure could be flexible in order to meet candidates where they are. She suggested if the ultimate candidate has a strong budget background, let them help run that, but if not, look at having a Budget Director. The current budget already authorizes that, and the position was left vacant on purpose to match skill sets with the needs of the organization. That decision can be made once there is a candidate. Vice Mayor Stone stated he was looking for somebody proactive and very open to working with and educating electeds who may be newer to things like city budgets. There was discussion about the flexibility regarding budget roles, having an Assistant Director over the budget team versus having a Budget Director. Ms. Black added that the magnitude of the department is substantial, which could be an attraction to the right candidate or a turnoff. She stated the nimbleness of Palo Alto was helpful because the organization is willing to adjust and invest in people and their growth. Chair Burt asked if the recruitment would be done only within local government or broader backgrounds that have the skill set but not the local government experience. Ms. Black recommended casting a wide net and being open minded about backgrounds. Ideally, the candidate would be someone with the local government background, but in a department this size, the leadership skill has to be strong. She stated leaders can come from many different places and was open to nontraditional candidates. Chair Burt suggested Palo Alto's leading climate program was a potential attraction. He felt the financial mentor aspect of the position should be laid out in the responsibilities. Assistant City Manager Nose agreed it was a good point to highlight as a key attribute. Chair Burt wanted to capture the challenge of achieving goals and working to make the system have fewer barriers structurally while operating within the constraints of a bureaucratic structure. He was interested in a candidate with strategic financial experience. He noted point 4, "Participate in intermediate and long-range financial planning strategies," and felt a CFO should be able to lead, rather than participate, in those areas. Another point he felt was SUMMARY MINUTES Page 3 of 5 (Sp.) Finance Committee Meeting Summary Minutes: 8/15/2023 important was the experience to appreciate that neither booms nor downturns last forever, with the ability to adjust through those times and anticipate each of those trends reversing. Council Member Lythcott-Haims wondered to what extent the City having its own utilities impacted the recruitment for this role. Assistant City Manager Nose stated the City had the teams and structures to support Utilities but that it adds an extra complication. She felt the cutting-edge plans for Utilities would be either an attractive challenge or detractor. Chair Burt felt this challenge would take a lot of ingenuity and strategic thinking and also collaboration outside the organization. Council Member Lythcott-Haims suggested the right candidate would anticipate this as the main issue for the City and Utilities, so an open-ended question on that might help find that candidate. Ms. Black noted Palo Alto's pioneering spirit and comfort with being on the leading edge while committing to problem-solving. Chair Burt felt that a candidate who found this environment and these challenges exciting versus daunting was the right person for the job. Ms. Black also added that resiliency is a characteristic that has never been more important. NO ACTION TAKEN 2. Staff Discussion and Finance Committee Recommendation and Alternative to Manage Winter 2023-24 Natural Gas Price Uncertainty Utilities Director Dean Batchelor explained that this was the first step in talking about options in regard to the increases in gas pricing over the winter. Utilities Assistant Director Karla Dailey gave some background on the natural gas rates, including the winter price surge in 2022-2023, when the commodity charge cap was raised from $2/Therm to $4/Therm. As the January 2023 monthly index price settled just below $5/Therm, $1.8M was taken from reserves to cover the difference. She reviewed the current policy, or status quo: continue purchasing gas at prices tied to a published market monthly index; continue tying the monthly variable retail rate to the same index; and utilize reserves when the commodity price exceeds Council-approved cap. A variation of this would be to create a separate reserve to ensure against future price spikes. Resource Planner Jason Huang described the alternative option, capped-price winter gas purchasing. This would mean continuing to purchase gas at the index but with a cap of SUMMARY MINUTES Page 4 of 5 (Sp.) Finance Committee Meeting Summary Minutes: 8/15/2023 $2/Therm, consistent with what was in place before the surge in 2023. The retail cost of this price cap would be $0.175 to $0.275/Therm based on recent supplier quotes. The cap would only be purchased for December through February, the months with highest prices. The cost would be spread out for ratepayers over the year, with an estimated adder on the commodity charge of $0.07 to $0.11/Therm, ultimately resulting in an increase of 4% to 6% in the median monthly residential bill. Assistant Director Dailey noted that with the alternative offered, the rate-setting methodology would not change other than adding a cap. She listed and briefly explained pros and cons of several other alternatives: establishing a reserve to manage price spikes, fixed-price gas purchases, full laddering strategy, gas production assets, and gas storage. This item will go to Council for consideration on September 18. Council Member Lythcott-Haims asked why the amount chosen for the cap was $2/Therm. She felt it should be a little lower than the previous cap to justify charging customers more to pay for the insurance. She also worried that making the price similar to PG&E would be a problem to Palo Alto residents. She questioned what is anticipated to happen to the cost in the future as the cost of the commodity is spread over fewer users as more people convert to electric. Resource Planner Huang replied that 10-year forecasts remain under $1/Therm on the market side. Assistant Director Dailey stated the $2 cap was chosen because it was the pre-December 2022 maximum price on the rate. She explained it was within the Council's purview to choose a different number. Chair Burt noted the rate spike did not go over well with ratepayers and that Palo Alto was subject to a higher spike than PG&E. Vice Mayor Stone asked for thoughts related to a potential sunset date for natural gas. Assistant Director Dailey felt that would play into longer-term discussions and had not thought through it all. This discussion was more focused on this winter. Vice Mayor Stone stated there were pros and cons to both options. He did not want to agree to something that would increase the price on the average bill and did not want to react to something if it is not expected to happen again. He was more comfortable with the idea of a one-year increase to see what happens this winter. Chair Burt asked for a comparison of what was being put into the reserve to this cost as buying this cap would reduce what would otherwise need to be put in reserve. Resource Planner Huang noted if the maximum price had not been raised from $2 to $4 and the reserve took the entire hit, $9.5M would have been taken from reserves. SUMMARY MINUTES Page 5 of 5 (Sp.) Finance Committee Meeting Summary Minutes: 8/15/2023 Chair Burt felt the alternative option had some appealing characteristics. He described what had been done with electricity in renewables to get to carbon neutral while staying below PG&E, by not buying when costs were too high and being out in front and therefore in a good position when competing with everybody else in the state. He made a suggestion to give Staff latitude to buy more during times of low costs. There was further discussion about this. Council Member Lythcott-Haims felt the cap provided an equitable share, with both customers and reserve being protected. She was in favor of trying the one-year cap because the factors that led to a spike last year were still in play this year. Vice Mayor Stone agreed and was comfortable with doing a one-year cap given that the monthly price increase per customer would not be that significant. Chair Burt was also comfortable with the cap. He felt it was important to remember what a crisis it was during the spike and how much it affected ratepayers' perspective on the performance of the utility and the local government in general. He felt this would maintain competitive prices. MOTION: Chair Burt moved, seconded by Council Member Lythcott-Haims, to recommend the City Council revise current strategy and implement the capped-price winter natural gas purchasing alternative. MOTION PASSED: 3-0 FUTURE MEETINGS AND AGENDAS Assistant City Manager Kiely Nose noted the September 5 Finance Committee meeting had been canceled in lieu of a full Council meeting. The next Finance Committee meeting will be September 19, with at least 2 agenda items planned. The following meetings will be October 3 and October 17. Director Batchelor asked whether it was preferred to have the above item as an action item or on consent for the Council. It was decided that it was preferred to be an action item, but should it be able to be agendized as an action item September, it would come back as a consent item. ADJOURNMENT: The meeting was adjourned at 7:10 P.M.