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HomeMy WebLinkAbout2024-04-23 Finance Committee Summary MinutesFINANCE COMMITTEE SUMMARY MINUTES Page 1 of 17 Special Meeting April 23, 2024 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 (Chair), Lauing, Veenker Present Remotely: None Absent: None CALL TO ORDER Chair Burt called the meeting to order. The clerk called roll with three present. PUBLIC COMMENT None. Action Items 1. Adoption of a Resolution Amending Utility Rate Schedule D-1 (Storm and Surface Water Drainage) Reflecting a 2.6% Consumer Price Index Rate Increase to $17.20 Per Month Per Equivalent Residential Unit for Fiscal Year 2025 Karin North, Assistant Director of Public Works, provided a slide presentation about the stormwater management fee, capital projects funded by the stormwater management fee and FY 2025 stormwater management proposed rate increase and impact. Chair Burt was interested in an update on when the acceleration and changes on stormwater measures to reduce flooding would occur. He asked if they were reallocating resources to prioritize those over others that were more routine because of what they learned from recent flooding. He encouraged looking for opportunity to communicate to the public the impact on flood risk reduction that resulted as a result of Reach 1 projects and possibly fold it into this update. Ms. North answered that update was not yet available. The stormwater CIP group is looking at how to prioritize different projects. She stated the engineering team has looked at the data and SUMMARY MINUTES Page 2 of 17 Finance Committee Meeting Summary Minutes: 4/23/2024 flooding and that is the reason they are prioritized higher than others. She offered to get a report in terms of where they anticipate they will go at the budget hearing meetings. She agreed to communicate the benefits received because of the Reach 1 measures. MOTION: Council Member Veenker moved, seconded by Vice Mayor Lauing to recommend that the City Council adopt the attached resolution amending Utility Rate Schedule D-1 (Storm and Surface Water Drainage), to implement a 2.6% rate increase consistent with the applicable Consumer Price Index, increasing the monthly charge per Equivalent Residential Unit (ERU) by $0.44, from $16.76 to $17.20 for Fiscal Year 2025. MOTION PASSED: 3-0 2. Recommendation to the City Council to Adopt a Resolution: 1) Approving the FY 2025 Wastewater Collection Utility Financial Plan, Including Approval of a Short-Term Loan from the Fiber Optics Fund Reserve to the Wastewater Collection Fund Operations Reserve for FY 2024 and 2) Amending Rate Schedules S-1 (Residential Wastewater Collection and Disposal), S-2 (Commercial Wastewater Collection and Disposal), S-6 (Restaurant Wastewater Collection and Disposal) and S-7 (Commercial Wastewater Collection and Disposal – Industrial Discharger). Lisa Bilir, Senior Resources Planner, gave a slide presentation about the Wastewater Collection Proposal including an overview of the proposal, wastewater collection utility cost structure, wastewater collection reserve projections, wastewater collection cost and revenue projections, wastewater collection operations reserve projections, wastewater collection CIP reserve projections, wastewater collection monthly residential bill and recommendations. Vice Mayor Lauing thought the age of the sewage system had to be taken into account. He supported using the short-term loan to build up reserves and thought they should replace 1.25 miles at the 15 percent rate. He asked what the probability of funding from Valley Water would be. Ms. Bilir described the Valley Water grant program. She stated they would be receiving them. She said none of those funds are modeled at being received in 2025. Council Member Veenker discussed the 15 percent increase and 9 percent the year before. She noted they were still in good shape when looking at comparison cities. She assumed Mountainview and Los Altos were in the same range due to using RWQCP. She opined if they do the 15 percent, they would not continue to compare favorably. She discussed the Staff recommendation that would be 1.25 miles sewer replacement in FY26 being deferred if they go to the 9 percent then resuming the 2.5 miles per year in FY28. She was curious what happens in SUMMARY MINUTES Page 3 of 17 Finance Committee Meeting Summary Minutes: 4/23/2024 FY27. She asked what lower connection meant under operational costs. She asked what the revenue line on the wastewater collection cost and revenue projections would look like if they went with the 9 percent. Ms. Bilir explained the comparisons and the projections mentioned in the presentation. She clarified that Council approved a plan of moving to an every other year replacement approval process. They do the construction every other year in order to try to get efficiencies and better pricing on larger projects and do a coordinated effort with inspection. The even years are when construction is planned. The connection charges are for new connections and that has declined significantly over the last couple of years and they project it will continue to be low. She explained that in 2024 the loan she mentioned was reflected in the revenue line which is why it is higher. That is why it looks as thought it is going down in 2025. Vice Mayor Lauing asked if the loan would be thought of as a line of credit that they would start pulling down and if so why would the $3,000,000 be in there in the first day. If they wanted to be more flexible in that to reduce the fees, they could say starting at 3 but flexible up to 4 and see what that does to the percentage but the percentage in dollars only ends up to be $3. Ms. Bilir stated it could be structured in either way; however, the Staff did it all at once with a repayment. She explained why the revenue line was showing as declining in 2025. Chair Burt understood the loan would have no impact on the fiber to the premise roll out. He thought they wanted to make sure that was laid on the table. He asked if they were aligning the connection projections with the housing growth projections and he wondered how multifamily connections compare to other connections. Ms. Bilir explained they were looking at the most recent recorded information and basing the projection for this five-year period on that. Based on what happened in FY23 when they modeled some connection revenue that did not materialize, it is risky to count on that revenue. For the purpose of this financial forecast, they are not projecting that to align with planning projections but they will update the forecast each year to reflect the new data. Chair Burt appreciated the risk of being too optimistic on connection revenue but opined there is also a risk to projecting based on trailing patterns rather than including other factors. He encouraged doing a hybrid of that. He thought the El Camino Real Project should be highlighted to make sure the public understands that is part of this. He asked why this is not titled Wastewater Collection and Treatment. He asked if the Valley Water revenue was revenue they were getting for the pilot recycling. He thought they should agendize negotiations on extending the five-year plan. He asked about the rate comparisons on the wastewater collection monthly residential bill slide. He suggested putting the treatment costs in a different category. Assistant City Clerk Kiely Nose agreed they should add Palo Alto Wastewater Collection and Treatment. SUMMARY MINUTES Page 4 of 17 Finance Committee Meeting Summary Minutes: 4/23/2024 Ms. North discussed the Valley Water revenue and discussed guiding principle number five that allocated five years’ worth of fiscal funds to the communities that do not get direct water from the water project tax. She explained that the wastewater collection monthly residential bill slide showed both the FY24 and FY25 comparisons and described the comparisons. MOTION: Vice Mayor Lauing moved, seconded by Council Member Veenker to recommend that the City Council adopt a resolution (Attachment A): 1. Approving the Fiscal Year (FY) 2025 Wastewater Collection Financial Plan (Attachment A, Exhibit 1), including approval of a short-term loan from the Fiber Optics Fund Reserve to the Wastewater Collection Fund Operations Reserve not to exceed $3,000,000 for FY 2024; and 2. Increasing Wastewater Collection Utility Rates Via the Amendment of Rate Schedules S- 1 (Residential Wastewater Collection and Disposal), S-2 (Commercial Wastewater Collection and Disposal), S-6 (Restaurant Wastewater Collection and Disposal) and S-7 (Commercial Wastewater Collection and Disposal – Industrial Discharger) (Attachment A, Exhibit 2). MOTION PASSED: 3-0 3. Finance Committee to Review and Recommend that City Council Adopt a Resolution Approving the Fiscal Year 2025 Water Utility Financial Plan, and Increase Water Rates by Amending Rate Schedules W-1 (General Residential Water Service), W-2 (Water Service From Fire Hydrants), W-3 (Fire Service Connections), W-4 (Residential Master-Metered and General Non-Residential Water Service), and W-7 (Non-Residential Irrigation Water Service) as Recommended by the Utilities Advisory Commission 1) Patricia Tamrazi described incidents that have raised health and safety concerns stemming from the use of contractors working on Palo Alto’s water delivery system. She urged the Committee to allocate money to do the work correctly. Ms. Bilir discussed that the SFPUC rate has increased from 6.5 to 8.8 percent. She provided a slide presentation about preliminary water rate projections, water utility basics, water cost and revenue projections, water operations reserve projections, water CIP reserve projections, monthly median water bill comparison and Staff recommendations. Council Member Veenker asked about usage on the monthly median water bill comparisons. She pointed out the cost per CCF was not too variant from residential to commercial. She thought that might be an opening to make up whatever revenue needed. She asked how it ended up so different given it was cost of service across each type of customer. Ms. Bilir explained there was overlap in the usage shown as comparison. She thought there was a wider variety of usage in the commercial customers because it is broad customer class. She SUMMARY MINUTES Page 5 of 17 Finance Committee Meeting Summary Minutes: 4/23/2024 said they do not set rates based on the comparison across the customer classes but based on a Cost of Service Study. She described the Cost of Service Study. She stated they would not be changing the rate structure right now but will take their feedback into account to work with the consultant on the next Cost of Service Study. Vice Mayor Lauing asked about the water cost and revenue projections. He asked what they could do to get their rates down this year. He was open to getting more reserves used in 2025 even if it made it go up more later and wanted input from his colleagues on that. Ms. Bilir answered their rate notice from April 12 has a five-year projection in it. She explained one of the key drivers for the water rate increase is the need to pay for the infrastructure investment they are planning. She indicated that customers who conserve will manage their own bills. She stated they have the funds in the rate stabilization reserve and can access more of those funds in the current year to reduce the rate increase; however, it would increase the later years of rate increase more. Chair Burt explained why he thought the average monthly bill should be highlighted and not just for a tier. He recommended breaking down the cities that are almost entirely Hetch Hetchy SFPUC water from the other comps. He wanted an explanation on why the costs from SFPUC are not leveling off other than the drought rebound. He thought they need to highlight to the community that there is a pattern to the drought rebound. He indicated they need the same water infrastructure year after year kept up but when looking at the community’s overall consumption and as households over a 20 plus year period, they have had a 40 percent reduction in water consumption and it continues to go down. The infrastructure does not decline as a result. He asked if there was a projection of when the lag time on the debt service and phase 1B would create a leveling out of their capital investment cost. He noted an interest in having sustainable groundwater pumping in their area a decade ago. Ms. Bilir explained in the late 90s there was a concern about the reliability of the water coming to the Bay Area and that there was not enough capital investment going into that system to make sure that when there is a seismic event or other disturbance that Palo Alto and other cities in the Bay Area could have a reliable water supply. That generated that capital investment from SFPUC. She described the process of the debt service and how it will level out. She stated they were doing a One Water Study and would be bringing information forward about groundwater pumping. She said if they were to pump water in Palo Alto, they would have to pay the groundwater production charge to Valley Water and discussed how the rate would become more expensive in the future. Mr. Batchelor stated that groundwater pumping could be looked into. Vice Mayor Lauing wanted to see if they could get down to single digits and see what happens in the spreadsheet. Ms. Bilir mentioned they are moving forward with the Prop 218 notice and it needed to be sent to customers within the timelines required by Prop 218 before Council would see this request SUMMARY MINUTES Page 6 of 17 Finance Committee Meeting Summary Minutes: 4/23/2024 in June. She understood that if they were going to move forward with a lower number than what they put in their notice they can still move forward. She discussed how they could use funds from the rate stabilization reserve to lower the rate increase on the distribution side from 13 to 12 or 11. She stated they would look at it again the following year. Chair Burt noted the overall rate increases of all utilities in 26 and 27 are lower than this year and spreading out the increases a little bit would be favorable. He shared that with all the massive capital costs that Valley Water is investing in the coming years, their water supply cost will increase. What has been a big differential between SFPUC and Valley Water customers will no longer be the case longer term. Ms. Bilir shared that the One Water Study costs are not incorporated in this cost projection yet. The Water Utility is expecting to develop a plan for replacing asbestos cement pipeline and that projection is also not included in this plan. MOTION: Vice Mayor Lauing moved, seconded by Council Member Burt to recommend that the City Council adopt a resolution (Attachment A) for the FY 2025 Water Utility rates: 1. Approving the Fiscal Year (FY) 2025 Water Utility Financial Plan (Attachment A, Exhibit 1) as modified to reflect SFPUC's April rate increase notice, and by increasing use of reserve funds in FY 2025 to limit the overall system average water rate increase to 9.5% while reducing reserve funds available in FY 2026 and future years; and 2. Amending the following rate schedules to reflect increases effective July 1, 2024 (FY 2025) (Attachment A, Exhibit 2), as modified consistent with item 1 above: a. W-1 General Residential Water service, b. W-2 Water Service from Fire Hydrants, c. W-3 Fire Service Connections, d. W-4 Residential Master-Metered and General Non-Residential Water Service, and e. W-7 Non-Residential Irrigation Water Service MOTION PASSED: 3-0 4. Finance Committee to Review and Recommend to the City Council to Adopt a Resolution Approving the Fiscal Year 2025 Gas Utility Financial Plan, Including the General Fund Transfer, and Amending Rate Schedules G-1 (Residential Gas Service), G-2 (Residential Master-Metered and Commercial Gas Service), G-3 (Large Commercial Gas Service), and G- 10 (Compressed Natural Gas Service) as Recommended by the Utilities Advisory Commission Ms. Bilir gave a slide presentation about gas utilities including the gas rate proposal, long term cost trends, gas general fund transfer, FY 2025 general fund transfer alternatives and gas rate SUMMARY MINUTES Page 7 of 17 Finance Committee Meeting Summary Minutes: 4/23/2024 projections, gas cost and revenue projections, gas operations reserve projections, gas CIP reserve projections and gas rates recommendation. Council Member Veenker asked for clarification of the usage data on the commercial chart on the estimated gas bill changes slide. She wondered if there was some place with a dollar comparison per month for the average user. Ms. Bilir stated she would have to look at the spreadsheet in order to answer the question in more detail. She explained how to determine a dollar comparison per month for the average user. Mr. Babbit described the electricity comparisons. Vice Mayor Lauing asked for confirmation that the 11.9 and 16.5 recommendations were to simply make the increases in rates. Ms. Nose confirmed that and pointed out and explained an anomaly in the gross receipts chart on the calculations for FY25. Chair Burt asked what transfer rate is built into the long range financial forecast. He asked what the fixed cost was out of the 250 therms per month on the estimated bill changes slide. He was curious what the anticipation is at this point in time versus what they thought a year ago. He asked what they assumed last year. He discussed capital costs related to transitioning away from gas and the life expectancy of the replaced lines. He queried if they are seeing other localities that are further along on the gas retirement curve and how they have or are planning to accomplish it. He asked if lines would stay in the ground as they are retired. Ms. Nose answered the current forecast is in alignment with the long-range financial forecast. Mr. Babbit explained the monthly service charge is $129 per month and is flat for everyone. He guessed that they used a higher forecasted projection cost last year. He explained the price of natural gas in the US has fallen in the last 12 months. Ms. Bilir added the variable and fixed charges were being increased by 15 percent in this proposal for the distribution charges but what the bill shows is the overall picture including the commodity component which is not increasing as much in this projection. She brought up the slide that shows the actual and projected Palo Alto gas commodity rates. Mr. Batchelor explained that the lines they will be putting in will last 100 years. He thought they were going to have to use some of those lines in the future. He stated they have been working with APGA (American Public Gas Association) this and have not found anybody yet that has accomplished transition. He stated the plan was to leave the lines in the ground and explained the process of retiring them. SUMMARY MINUTES Page 8 of 17 Finance Committee Meeting Summary Minutes: 4/23/2024 MOTION: Vice Mayor Lauing moved, seconded by Council Member Veenker to recommend that the City Council adopt a resolution (Attachment A): 1. Approving the fiscal year (FY) 2025 Gas Utility Financial Plan (Attachment A, Exhibit 1), which includes amending the Gas Utility Reserve Management Practices (Attachment A, Exhibit 2); and 2. Amending Rate Schedules; a. G-1 Residential Gas Service, b. G-2 Residential Master-Metered and Commercial Gas Service, c. G-3 Large Commercial Gas Service, and d. G-10 Compressed Natural Gas Service) (Attachment A, Exhibit 3; and 3. Transferring up to 11.9% of gas utility gross revenues received during FY 2023 to the General Fund in FY 2025. MOTION PASSED: 3-0 5. Finance Committee to Review and Recommend to the City Council to Adopt a Resolution: 1) Approving the Fiscal Year (FY) 2025 Electric Financial Plan and Accepting the 2024 City of Palo Alto Electric Cost of Service and Rate Study, and 2) Amending E-1 (Residential Electric Service), E-2 (Residential Master-Metered and Small Non-Residential Electric Service), E-2-G (Residential Master-Metered and Small Non-Residential Green Power Electric Service), E-4 (Medium Non-Residential Electric Service), E-4-G (Medium Non-Residential Green Power Electric Service), E-4 TOU (Medium Non-Residential Time of Use Electric Service), E-7 (Large Non-Residential Electric Service), E-7-G (Large Non-Residential Green Power Electric Service), E-7 TOU (Large Non-Residential Time of Use Electric Service), E-NSE (Net Metering Net Surplus Electricity Compensation), and E-EEC (Export Electricity Compensation) as Recommended by the Utilities Advisory Commission 1) Patricia Tamrazi expressed concern about poor power supply to her home. She requested having funds allocated in order to have proper response to emergencies and problems. She described poor customer service provided by the utility services. Lisa Bilir, Senior Resources Planner, provided a slide giving an overview of the proposals. Micah Babbitt, Senior Resources Planner, discussed slides giving an overview of the general electric rate proposal, utility cost structure, electric utility long term cost trends, FY 2025 electric cost and revenue projections, basic cost of service methodology, Prop 26 considerations, adopted policy guidelines, key results from this COSA, estimated bill changes, residential bill changes by usage level, current electric bill comparisons, electric supply operating reserve projections, electric supply reserve projections, electric supply reserve SUMMARY MINUTES Page 9 of 17 Finance Committee Meeting Summary Minutes: 4/23/2024 adequacy, electric distribution operating reserve projections, electric distribution reserve projections and electric recommendation. Vice Mayor Lauing asked how they trend the various commercial businesses as opposed to residential in the conservative study. He questioned the planning of $50,000,000 plus the Hanover substation in municipal bonds and modeling the debt service on that for two years. Mr. Babbitt explained they forecast their load at an aggregate basis where they look at their total sales for the previous 20 years, run a linear regression model and based off of research they do, anecdotal conversations with engineering and changes in the year to year trend and an assessment is made on what they think is most likely to happen with the load. They see a small percentage of load loss every year. Most of it occurs in the E4 and E7 medium and large commercial businesses. To the extent they see growth in certain types of customers, until that is born out in the data for a year or two, it is generally not a strong enough signal to overtake the longer term trend they are seeing. They go back and forth between the electric supply planning and rate teams and take a conservative view on what they expect from sales or load for the purpose of rate making. They are taking the prior data to be what it is and not deviating much from the historical trend they are seeing. Jonathan Abendschein, Assistant Director of Utilities, said they are looking at four debt issuances totaling a little over $300,000,000 over the next seven years to cover grid modernization plus a couple other projects happening in FY24 and FY25. Vice Mayor Lauing asked if they would get those instruments out there and get the money. Ms. Nose thought the thing to remember is the issuance they are modeling is basically a revenue backed debt issuance which would be pledging the electric utility rate revenues as the backing for that capital investment. The reason it is phased is when issuances are done, the proceeds need to be spent within a certain period of time and given the length of time of this capital improvement, they expect multiple issuances will be necessary. Council Member Veenker wondered if the proposed numbers were typically the case for utility inflation and if it is expected to continue to be the case. She asked how confident they were that the FY25 electric cost and projections would match up in the outyears given the uncertainty. She requested more information on the rate assistance available for lower income customers. Mr. Babbitt did not know what is expected to be the case moving forward but he hoped it would become more in line with CPI. He thought what electric utilities have seen over the last few years is that there has been extreme challenges and shortages with critical things like transformers and the price of those items have risen much more than standard things that are included in CPI. He stated they felt reasonably confident in the plan. They have seen so much volatility in the last couple of years that they are cautious. SUMMARY MINUTES Page 10 of 17 Finance Committee Meeting Summary Minutes: 4/23/2024 Mr. Abendschein stated there were changes that could be made that were detailed in the cost of service analysis to change the way they do rate assistance to help those who are lower user and being affected more heavily by that customer charge and the changes to the changes to the tiers. The higher user, low income residents will benefit from some of the reductions in the higher tier costs. If they can design something that provides extra benefit to the low users through a rate assistance program, their consultant estimated the cost was very manageable in the $50,000 range for those who are on rate assistance now. There are more people that are eligible for it than are on it. Chair Burt wanted an update on how they contend with not penalizing folks for electrifying. He asked when they plan on having a completion of AMI installed and what steps come after that. He asked how procurement is affecting costs and what is anticipated will be the cost impact to the rate payer of time of use pricing in aggregate if certain behavioral changes are assumed based on time of use. He asked where Santa Clara, Alameda and others are on the adoption curve and what could be projected based on their experiences. He wanted to know what projections are being made based upon best available information. He was interested in following up on what Silicon Valley Clean Energy and others have seen so far and on trend lines. He added historically in this field, they had only the real economic drivers to do it but no economic drivers that were coupled with smart technologies that could just let people program what they are going to do. That is anticipated to have another significant impact on how users will respond to time of use pricing. Those comps of other agencies are not yet able to see that because it is an emerging trend but a potentially big one. He discussed behaviors he expected to see. Mr. Abendschein explained that these changes switch some of the revenue recovery to a fixed charge and narrow the tiers so there is less of a differential between higher and lower tier usage. Those who are using heavily already will see benefit under the new rate plan. In the long term, it is likely that they will see differentials based on time of day electricity is used as they switch to time of use rates. That will eliminate disincentives to higher efficient usage of electricity. They aim to roll out all residential meters by the end of this calendar year. Supply chain issues or delays with their contractors could delay that. The original thought was that process would take longer and 2026 was the right time to switch to time of use rates. They are thinking it may be possible to do it sooner. He said they do not have firm differentials to talk about. One place indications could be found is in the E4 and E7 time of use rates. The differentials between peak and off-peak prices in Palo Alto have tended to be lower than PG&E territory. That has to do with the fact that peak summer usage has serious impacts on places in the Central Valley. Mr. Babbitt explained they designed time of use rate in this cycle. They just do not have everything in place in order to offer it. Implementing a time of use rate introduces some uncertainty in revenue projections because they do not know exactly how much customers will use at what time periods which introduces a new risk to their financial planning. They have SUMMARY MINUTES Page 11 of 17 Finance Committee Meeting Summary Minutes: 4/23/2024 used data from Silicon Valley Clean Energy to do an analysis to build a rate and look at differentials. The cost of service study allocates about $29,000,000 of revenue collection to the residential class. When they move to time of use rates, that amount will stay roughly the same. The true impacts will be felt by customers that use energy differently. It will reflect their costs to customers more accurately. Customers that are using during the 5 to 9 period will have higher bills than those who do not. Overall, if the rates are designed appropriately, they will collect the same amount of money. The E4 and E7 rates will give indication on the tier differential the residential customers will see. They have started doing the analysis on the residential customers but it is not yet ready to be implemented. He stated there were learnings from studies conducted on the impact of time of use rates that say the cost differential of on to off peak should be a 3x difference to incentivize consumer behavior change. He said the primary objective of the proposed rate changes are setting them up for better positioning to continue making changes. Dean Batchelor, Director of Utilities, stated Alameda completed their meter AMI about two years ago. They did not find a lot of change in the first year because of behavior. In the second year, they have tracked about a 4 percent difference. He stated there is no major push for electrification in Alameda. He thought that everything they are doing up front will produce a much higher trend. He also thought they would see a little bit less than on the supply chain of what they have to purchase. He did not think Alameda will get everything they want until they can start thinking about what that future looks like. Council Member Veenker wondered if there is a tension between those who can take more ready advantage of the lower daytime use and those who cannot. She thought they should consider that as they watch the habits change. Chair Burt agreed with that consideration. His assumption was that all would benefit from those adjustments because collectively bringing down the consumption at high cost periods helps everyone. He asked for an explanation of the distribution costs going up between FY25 and FY29. He discussed a political concern on how to present what is going on to their rate payers in ways they are going to understand and appreciate that even with all that has gone on, they are getting a screaming deal through them. He opined they have to explain to the rate payers what is really happening. He stated their biggest comps in the region are their CCAs. He had been under the assumption that the CCAs were going to be able to provide greener energy than PG&E at comparable rates but that was not the case. He thought they should present that clearly and repeatedly. He asked about supply projections. On the commercial side, they have seen a decline occurring. He asked what might happen with the overlay of the projected massive data center growth globally from AI. He talked about a decline in reliability and increase in reliance on electricity. He assumed they needed to have a plan that returns them to their former reliability and then targets some higher reliability. He asked how much of that is built into this capital investment program. He asked for an update on how the market is being advanced for the rate assistance program. He asked if affordable housing providers were in a similar category. He asked about future projections on supply cost and what they project is SUMMARY MINUTES Page 12 of 17 Finance Committee Meeting Summary Minutes: 4/23/2024 going to be the impact longer term and to what degree that will mitigate against increased distribution cost. He talked about retiring some of the earlier renewable contracts and the comparison of how the new contracts compare to recent ones or the oldest. He asked if there is any way to level out a spike year. Mr. Abendschein explained the percentage changes in distribution. He stated for the purposes of rate setting, they were assuming business as usual increases in load from things like electrification, continuing decreases due to efficiency in solar, continuing decreases due to the long-term trend toward lower intensity commercial uses moving from industry to office in Palo Alto. This is where part of the uncertainty comes into the forecast. They have a lot of ambitious programs. If they are able to move the needle on that, that will be reflected in their load data and rates. Since they change rates every year, they have a quick response rate. Potential large new loads are not factored into this projection this year because there have been a lot of changes in business conditions and their projections. As they have more certainty in that, that will get built in. That is offset by uncertainty in things like costs and how much they rely on debt service versus cost financing. There will be changes when they bring this back next year and policy decisions on how certain things will be funded. He stated the massive data center growth globally from AI was uncertain. They have not found anyone with a clear answer. He explained that real estate is the biggest challenge in Palo Alto for that sort of a business. He stated there is a matter of the plan and then the metrics. He described steps being taken to increase reliability. He explained that people moving into affordable housing can be put on these rate schedules proactively because they already have eligibility. They are reviewing whether there is more that can be done with them. He talked about the effects of trending cost decreases. Mr. Batchelor described ways they are helping the customers who still have large utility bills resulting from the COVID and they are doing an outreach campaign to the low-income families. He explained the cost comparisons for old and new contrasts were in Council packet for the consent item. Mr. Babbitt pointed out page 435 of the packet where they call out all of their financial forecasts on a line by line item and break out the electric supply purchase forecast. In FY24, the forecast is $114,000,000, $121,000,000 in FY25 then $132,000,000 in FY29. Their supply costs are made up of a number of different costs so transmission and all the power purchase agreements that are locked in for multiple years at a time. He explained that the overall revenue increases 0.5 percent and then the 9 percent at the residential is an outcome of the cost of service study and the rebalancing occurring between the different rate classes. Vice Mayor Lauing opined the big elephant in the room was that they had to do a lot of infrastructure changes to be moving radically to electricity. He thought 9 percent was too much for this year. He thought the messaging part was contained in how much they have to spend to upgrade where they are. Chair Burt stated that was the night to take a look at the 9 percent. SUMMARY MINUTES Page 13 of 17 Finance Committee Meeting Summary Minutes: 4/23/2024 Ms. Nose explained these rates would go to Council with the budget for adoption June 17. Chair Burt pointed out only half the $300,000,000 toward the grid mod was attributable to electrification. The rest has to be done anyway. The press has put the higher number out there and it needs to be clarified. Council Member Veenker thought they would have the same conversation on a couple of other utilities. There did not seem to be a lot of ability to ratchet down. She thought part of the grid modification that they would not be paying anyway is something people support. She was in favor of the staff recommendation. Chair Burt recalled what they did the prior year. He asked if they could put as a placeholder to the end of the meeting a vote on the rate increases. Ms. Nose explained the Committee could consider operating like they do during the budget hearings where they move tentative approvals and at the end of the meeting take a final formal vote. Chair Burt asked if they went to 6 it would be 6 all the way out to 2029. Mr. Abendschein answered he experimented with this and tried to get down to 5. He explained how it affected the reserves and later changes in rates. MOTION: Council Member Veenker moved, seconded by Vice Mayor Lauing to recommend that the City Council Adopt a Resolution (Attachment A): 1. Accepting the 2024 City of Palo Alto Electric Cost of Service and Rate Study (Exhibit 1) 2. Approving the FY 2025 Electric Financial Plan (Exhibit 2), which includes the following actions: a. Amending the Electric Utility Reserves Management Practices (Attachment B), to direct staff to transfer to the CIP reserve, at the end of each fiscal year, any budgeted capital investment that remains unspent, uncommitted, and which is not proposed for reappropriation to the following fiscal year and to clarify how the Cap and Trade Program Reserve is adjusted each year. b. Approving the following transfers at the end of FY 2024: i. Up to $20 million from the Electric Special Projects Reserve to the Supply Operations Reserve; ii. Up to $17 million from the Supply Operations Reserve to the Hydroelectric Stabilization Reserve; iii. Up to $58 million from the Supply Operations Reserve to the Distribution Operations Reserve; and c. Approving the following transfers in FY 2025: SUMMARY MINUTES Page 14 of 17 Finance Committee Meeting Summary Minutes: 4/23/2024 i. Up to $26 million from the Distribution Operations Reserve to the Supply Operations Reserve; ii. Up to $30 million from the Supply Operations Reserve to the Electric Special Projects Reserve; and iii. Up to $5 million from the Distribution Operations Reserve to the CIP Reserve; 3. Amending the following rate schedules effective July 1, 2024 (FY 2025), (Exhibit 3): a. Changing retail electric rates E-1 (Residential Electric Service), E-2 (Small Non- Residential Electric Service), E-4 (Medium Non-Residential Electric Service), E-4 TOU (Medium Non-Residential Time of Use Electric Service), E-7 (Large Non- Residential Electric Service), and E-7 TOU (Large Non-Residential Time of Use Electric Service) by varying percentages depending on rate schedule and consumption with an overall revenue increase of 0.5% effective July 1, 2024; b. Decreasing the Net Surplus Electricity Compensation (E-NSE-1) rate to reflect 2023 avoided cost, effective July 1, 2024; and c. Decreasing the Export Electricity Compensation (E-EEC-1) rate to reflect current projections of FY 2025 avoided cost, effective July 1, 2024; d. Updating the Residential Master-Metered and Small Non-Residential Green Power Electric Service (E-2-G), the Medium Non-Residential Green Power Electric Service (E-4-G), and the Large Non-Residential Green Power Electric Service (E-7- G) rate schedules to reflect modified distribution and commodity components, effective July 1, 2024. MOTION PASSED: 3-0 6. Receive and Discuss the Palo Alto Transportation Management Association (PATMA) 2023 Annual Report, Strategic Plan, and Commute Survey 1) Rob George emphasized that TMA is a collaborative organization with both residents and businesses in mind. He stated they have been part of the economic recovery of Palo Alto and want to continue to be the future of a more progressive ped, bike and transit friendly Palo Alto. 2) Cedric dLB described how PATMA helps address economic development, health and safety, communication and equity. He urged continued support of PATMA and increasing its funding and scope. 3) Alejandra Mier explained how PATMA has improved the lives of the workforce. Justine Burt, Executive Director of PATMA, provided a slide presentation to include what PATMA stands for, mobility as a service, PATMA tools – information and incentives, rebuilt – SUMMARY MINUTES Page 15 of 17 Finance Committee Meeting Summary Minutes: 4/23/2024 transit passes activated, opportunities for mode shift – commute survey, 2021 Palo Alto GHG emissions by sector, FY2024-25 opportunities, partnerships and governance – 8 board members. Vice Mayor Lauing asked what is meant by average number of commuters diverted from single occupancy vehicles. He asked if they have distribution on where else the cards are being spent. He wondered if it should be made just for Palo Alto businesses. Ms. Burt answered when people apply for a free transit pass if they will use it at least three days a week instead of driving. She explained how they are audited to confirm continued use. She pointed out a chart that explains in which city they are spent. She stated they could adjust the parameters now that they have a robust dataset of merchant IDs. Sylvia Star-Lack, Transportation Planning Manager, thought there was initially a problem with limiting the cards but in the future they may be able to. Council Member Veenker asked if there is hope for Palo Altoans going other places in the future. Ms. Burt described how the many TMAs in the Bay Area are different. She felt that it was close to a convergence. Chair Burt provided context on the Transit Agency Coordination. He suggested considering adding air pollution impacts and supporting the viability of the transit systems to the core values. He talked about mitigating the impacts on businesses regarding the decision about bike lanes and safety measures on El Camino. Philip Kamhi, Chief Transportation Official, explained how the statement that PATMA is doing more with less is not exactly correct. Ms. Burt indicated they had a $750,000 budget in 2019-2020 and everything ground to a halt in 2020-2021 and that helped build up the surplus. The current burn rate is about $340,000 a year without an expansion in the El Camino Corridor. Ms. Nose explained that this is intended to inform the Committee so as they move toward the budget deliberations in the coming couple of weeks that they can make any recommended adjustments. The base level of funding for PATMA is $200,000. If they want to meet the current burn rate, that will be $140,000 additional allocation as part of the 2025 budget process. That is not built into the Staff recommendations currently. Mr. Kamhi provided a correction in that TMA was allocated $200,000 initially through the base budget but in the mid-year it was allocated $42,000 in addition. SUMMARY MINUTES Page 16 of 17 Finance Committee Meeting Summary Minutes: 4/23/2024 Council Member Veenker thought at least $284 was the more appropriate number. Chair Burt said that number based on no longer having the reserves to burn down would mean a cutback and would not include funds to increase to meet the El Camino needs. Mr. Kamhi noted that this past year in addition to the reserves, the $42,000 was allocated in mid-year to help expand the TMA programs to additional locations. Ms. Burt stated $340 would keep the same service level and the same level of passes but they see opportunities to do more. Vice Mayor Lauing suggested using a plug number of $350,000 to be put in the budget then they could listen to what they propose for the businesses on El Camino and other things. Chair Burt agreed with Vice Mayor Lauing’s suggestion. He discussed the possibility of using the money from parking passes to benefit PATMA. He asked for a summary of where they are and what opportunities are seen regarding grants. Ms. Burt explained they just received notice that the Palo Alto Community Foundation is providing a grant of $5000, Transportation Research Board $100,000 grant to develop the Bike Love App and pilot it and the APTA grant proposal is due. She mentioned that they have memberships from five different companies that total about $5000. Chair Burt asked if there are MTC and VTA grants they have explored. Ms. Burt stated there is a VTA grant due in a few weeks. Mr. Kamhi said they track MTC grants and if there is one applicable they apply but he did not recall seeing any recently. Chair Burt opined this was something they may want to pursue with their county VTA representatives. Council Member Veenker asked if the numbers were grant restricted. She suggested to her colleagues considering the middle scenario and asked for a summary. Ms. Burt answered Palo Alto Community Foundation was unrestricted operating expenses. Transportation Research Board was specifically for the Bike Love App. The memberships go into their funds. She stated they have been scheming to go city-wide for a while and they have a little geographic creep going on. The more resources they have, the more they can do. The $200,000 budget was 26 percent of the 2019 budget and yet they have accomplished just as much. That is partially a function of Caltrain granting them the hundreds of Go Passes but also that they have gotten more efficient. SUMMARY MINUTES Page 17 of 17 Finance Committee Meeting Summary Minutes: 4/23/2024 Chair Burt supported the middle proposal with an understanding that they not only want to support the general trend toward the El Camino but also a focused effort there as a near-term priority because of the bike plan. Vice Mayor Lauing clarified they are not approving that number but it was the plug number to come back. Ms. Nose asked how it would be helpful for Staff to bring this back. Chair Burt thought when they have the presentation of the budget to the Council, it would be noted that the Committee made that recommendation and then it would come back within the parking lot. Ms. Nose discussed upcoming meeting agendas. Adjournment: The meeting was adjourned at 10:20 P.M.