HomeMy WebLinkAbout2000-08-08 Utilities Advisory Commission Summary MinutesUAC Minutes 08022000 Page 1 of 69
Wednesday, August 2, 2000 City Council Chambers MINUTES Item Page Roll Call _____________________________________________________ 2 Oral Communications ___________________________________________ 2 APPROVAL OF MINUTES____________________________________________ 2 a. Approval of Minutes: April 12 and July 5, 2000 b. Utility Policy Advisories - July 5, 2000 AGENDA REVIEW AND REVISIONS ___________________________________ 2 UNFINISHED BUSINESS 1. History of the Utilities _________________________________ 3 2. Election of Officers _____________________________________16 3. Gas Quarterly Report _____________________________________17 4. Preliminary Assessment of Water Resource Alternatives_____20 NEW BUSINESS 5. Western Post-2000 Base Resource Contract _________________48 6. Future Minutes ___________________________________________61 CITY COUNCIL REFERRALS 7. Northern California Power Agency (NCPA) Report____________60 8. Bay Area Water Users Association (BAWUA)Report____________58 9. Transmission Agency of Northern California (TANC) Report _________________ 61 Next Meeting: Wednesday, September 6, 2000
City of Palo Alto
Utilities Advisory Commission
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CALL TO ORDER: Chairman Dawes called to order the meeting of the Utilities Advisory Commission on Wednesday, August 2, 2000 at 6:30 p.m. in the City Council Chambers, 250 Hamilton Avenue, Palo Alto, California. ROLL CALL: PRESENT: Commissioners Bechtel, Dawes, Ferguson and Rosenbaum ABSENT: Commissioner Carlson COUNCIL MEMBER PRESENT: Bern Beecham ORAL COMMUNICATIONS: None APPROVAL OF MINUTES Commissioner Dawes: The next item of business is to approve the minutes of April 12 and July 5, 2000. Is there a motion to accept those two sets of minutes? MOTION: Commissioner Rosenbaum: So moved. SECOND: By Councilmember Beecham. MOTION PASSES: Chairman Dawes: All in favor of the motion, say aye? That passes unanimously on a vote of 4-0 for April 12 with Commissioner Rosenbaum abstaining and 4-0 for the July 5 minutes. Let the record show that the packet also included the Utility Policy Advisories, the summary short form version of the discussion of July 5th prepared by Commissioner Ferguson. Mr. Ulrich: Mr. Chairman, I do have a comment on the Utility Policy Advisories for July 5. It is a point of clarification, on the item under Electric and Fiber Quarterly Report, specifically, Short-Term Solutions Under Way, this is in reference to increasing the capacity of either the transmission system or bringing in additional generation. There is a parenthetical point here where it says "Short-term solutions underway (not at our expense)...." There will be an expense to the city when and if the Tracy Substation transformer expansion does take place. We have an approximately four percent interest in it through TANC, and there would be an expense to us. AGENDA REVIEW AND REVISIONS
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Chairman Dawes: John, you mentioned that you wanted to propose some changes. Mr. Ulrich: I believe you will want to do the election of officers first and then do the gas quarterly report, then the preliminary assessment of water resource alternatives. I wanted to know how much time you want to spend on the future minutes item so that we can spend time on the Western Post-2004 item. Probably the longest period of time will take place on the preliminary assessment of water resource alternatives. Chairman Dawes: My personal feeling is that it is all very important, very relevant. If you would like to shuffle them around, I would be happy to do so. What do you propose in terms of order, John? Mr. Ulrich: I would propose having Future Minutes as the last item and take everything else in order. Chairman Dawes: Fine. We will accept that and talk about Future Minutes requires at the end. I understand that there is a movement afoot to boil down the minutes, making them less than a verbatim item. Is there any firm proposition to this effect, John? Mr. Ulrich: Yes, and I do have a sample of the sense minutes that are going to be the norm for other commissions and for the City Council. I think what you want to do is to discuss whether you want to continue the minutes as you are presently getting them, or whether you are willing and comfortable with moving to the sense minutes approach. Chairman Dawes: I have not seen those sense minutes. Mr. Ulrich: I have some samples that I can pass out before the item is discussed. Chairman Dawes: That would be appropriate. I would like to see what they look like. Mr. Ulrich: Also, it is not on the agenda, but we have had a significant amount of work that has been going on and a lot in the news media about the power shortage. I would like to give you some brief comments about that. Chairman Dawes: That would be very much on point. Now, or with the Western discussion? Mr. Ulrich: We can do it at that time.
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UNFINISHED BUSINESS: 1. History of the Utilities Chairman Dawes: Can we proceed with the historical item, Mr. Ulrich? Mr. Ulrich: Yes, we sure can. Randy Baldschun is here to make that presentation. We have been looking forward to doing that for some time. So I suggest that you sit back and enjoy the presentation. There will be time afterwards for questions and answers. Chairman Dawes: Do we have sound, as well? Mr. Ulrich: Yes, and the popcorn will be here shortly. Mr. Baldschun: Good evening. First of all, I want to acknowledge some resources I have used in developing this presentation, particularly the Stanford University archives. The Green Library Special Collections provided a lot of photographs and background materials, as well as our own Palo Alto Historical Association at the Main Library. The history of the Palo Alto Electric Utility is what I am going to focus on, since it is our centennial year, so you will not hear a lot about the water and the gas, but there are some parallel themes that apply to all of the utilities. The history of the Palo Alto Electric Utility is a story of conviction, it is a story of risk taking, it is a story of generous public service, and it is a story of good fortune. It is also a story of several recurring themes. The three themes that you are going to see in the next 45 minutes are (1) there is has been an ongoing controversy with Pacific Gas & Electric and its predecessor before it became Pacific Gas & Electric. That ongoing friction continues today, as you are well aware. The second theme is the profit issue and the transfer to the General Fund, one which you have visited. That has been occurring since the beginning. The third controversy relates to decisions on investments and generation projects, whether it is a CVP or Diesels or a steam engine, whatever it is, there has always been some
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controversy that pops up when that decision has to be made. So I will begin with the year 1894, which is the year the city was incorporated. This is what the town looked like, looking north towards Menlo Park. You can see the train off to the left. This is downtown University Avenue as it was. The idea of electricity at that time, as you know, was in its infancy, so the only people who could afford electricity were well-to-do families. They had just started wiring homes around this time. The idea of a municipal utility in Palo Alto actually surfaced around 1896. The water utility, of course, was the first one, but on the electric side, there was some controversy about the establishment of a municipal electric utility. The Palo Alto Live Oak stated, "We may lay our plans that, before many years, we may have some successful municipal experiments to hold up as an example to our less fortunate neighbors. Of course, there will be efforts made on the part of those whose vested interests may be disturbed to persuade the trustees that a system could not pay and could not be built with the funds on hand. Nothing that the trustees might do...would be more satisfactory to the citizens than any other investment." The trustees, at that time, were the forerunners of the City Council. There was a Board of Trustees that served from about 1894 to 1909. This photo, again, is of University Avenue. It is a shot that is probably from about 1896. The large building on the right is still here. It is at the corner of High Street and University Avenue, and I think there is a Japanese restaurant there today. There was a lot of controversy between the town engineer, E. C. Moore, and an individual named J. J. Lewin, and there were a lot of editorials in the Palo Alto Live Oak at that time. Mr. Lewin said that the town plant would be a burden on the town, "and so far as I have come in contact with the townspeople, they are two to one against the proposition. Palo Alto will be the smallest town in the United States attempting to furnish its own electricity by steam. The money spent on a town plant will be utterly wasted." One hundred years after that statement, which puts us at about 1999, and about where I am standing right here, we heard the following from Randy Okamura, Pacific Bell External Affairs Director, regarding the city proposed entry into the telecommunications business. "While PacBell welcomes competition, the fiber to the home is misguided. Simply put, cities should not compete with citizens. The risk to the city is immense, and the opportunity cost large. I hope you will join me in opposing this ill advised effort." History repeats itself. Let me follow up with another quote that Mr. Lewin made. He stated, "With our taxes already high, we are attempting to put in the electric plant which could not possibly pay and which for years will only be a burden to tax payers. In closing, I would say that the trustees are
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proposing to spend the town money for an enterprise in which not one of them would think of investing his own money, nor can they find anyone who would be willing to put his own money into an electric plant here." Here is an advertisement from the Peninsula Lighting Company that was in the Palo Alto Live Oak that year. At the very bottom, you will see the name J. J. Lewin. He was the manager of the Peninsula Lighting Company. The fight for municipal ownership was won, obviously, and it was won in large part because of a couple of engineering professors at Stanford. In this photograph, there is Charles Benjamin Wing and Charles "Daddy" Marx. Also in this photograph are two other engineers, and it is interesting to note that they are Burns and MacDonald, the two engineers that attended Stanford during the 1890s and went on to form an engineering firm in Kansas City that became a huge success, and continued to be a huge success working on public projects throughout the world. Burns and MacDonald were actually hired by the City of Palo Alto in the summers when Stanford sessions were out. They actually helped in working out the layout of the city streets, and also worked on the power plant that was being built in the town. This is a picture of Charles "Daddy" Marx. Marx claimed that the price that was being charged by the Peninsula Lighting Company, which was actually the first electric utility in Palo Alto, starting in 1896, was 204 per kilowatt-hour. He thought that was exorbitant, and Charles Benjamin Wing and others agreed that the price of power should be about half that, or 104 a kilowatt-hour. They led the effort to convince the trustees and the town to support the petition to install an electric plant here in town. The fact that he was a Stanford engineer and the fact that he was on the board of trustees, he had a lot credibility in town. That helped a lot in persuading the overall population that this was a good idea. As I pointed out earlier, it was not a slam dunk deal. There were allegations of an inappropriate amount of money to be spent on this electric plant. So Charles "Daddy" Marx came from Toledo, Ohio, and he attended Cornell. He also went to school in Germany, and Holland before that. He met President Jordan on a train near Cornell, and Jordan offered him the position of Chair of the Engineering Department of Stanford when it opened in 1891. Marx accepted, and was one of the first ten professors hired at Stanford, sometimes referred to as "the old guard." He served in that capacity for about 29 years. More importantly for Palo Alto, he also served on a lot of public service commissions and the Board of Public Works in Palo Alto. He served on the Board of Trustees for nine years, and then for about 24 years on the Board of Public Works. The reason that these men
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were interested in this town was because they lived in this town, and the reason they lived in this town was because at Stanford, you could not own the land. So that was a blessing in disguise for Palo Alto, because Stanford professors bought homes in Professorville and took an interest in the local town. That has been our good fortune, particularly in the early years. Of the first twelve mayors of Palo Alto, five were professors from Stanford. Charles "Daddy" Marx also worked on the Hetch Hetchy project, the Boulder Dam project, and the Golden Gate Bridge. He was a consultant on the Golden Gate Bridge design, and he criticized it very hard. It led to some reinforcement in the design of the Golden Gate Bridge design proposal. Going on to Charles Benjamin Wing, he also was a Stanford professor who came from Cornell. He was hired shortly after Marx was hired. He was primarily responsible for the water utility starting in Palo Alto. He was a strong advocate of municipal ownership. He served for 20 years on the City Council and served for one year as the mayor. He was the second mayor of the City of Palo Alto. He was a colonel, serving with distinction in World War I. He was a consultant on the Hetch Hetchy Dam and the Mackay Tower in South Palo Alto. He designed the Stanford football stadium, and his greatest interest was in the preservation of the redwood forests. He served 22 years as an executive member of the State Park Commission, and when he took that position, there were three state parks in California. When he left, there were eighty with vast amounts of acreage protected in the Santa Cruz Mountains. So with these two heavyweights from Stanford arguing that the town should spend about $12,000 left over from some sewer bonds to buy a steam engine and go into the electric business, that was the decision that was made. In January 16, 1900, this is the Palo Alto Times announcement. It says, "The town electric plant is now in operation, and there is every prospect that it will give the best of services. No promises by a concern that has never before given good service and is now operating in town only by sufferance should keep our people from patronizing the home system." So on January 20, 1900, the Board of Trustees passed an ordinance establishing electric rates in Palo Alto. They established them at 104. That was in keeping with the promise made by Daddy Marx. That led to a price war between Peninsula Lighting Company and Palo Alto that continued all the way up to about 1910. Within three months of operation, they already had an offer from a private utility to buy out the municipal electric operation, but it was adamantly opposed. I might add that in those days, the
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newspapers were very strongly in favor of municipal ownership. They took very clear positions in support of it, and that is not only the Palo Alto Live Oak and the Palo Alto Times, but even the San Francisco Chronicle, which, as you will see later on, took some very active positions on this. It is not an issue today so much, but back then, it was. As I mentioned, the price competition was pretty intense. PG&E was not formed at that time, but PG&E was in the process of becoming PG&E. Peninsula Lighting Company became Consolidated Gas & Electric, which became United Gas & Electric, which subsequently became PG&E. PG&E is the merging of about 520 separate electric utility companies. In 1905, the relationship between Palo Alto and this local private utility, which is United Gas & Electric, came to a flashpoint at a Board of Trustees meeting. At the meeting, the private company wanted to have a 30-year franchise to operate in town. Charles Benjamin Wing stated that the town did not want the company to get any rights, other than what the town wishes to give. "You would not be here within 24 hours if the town wanted to put you out, but there is no wish to employ such drastic measures." Mr. Wall, Manager of United Gas & Electric, replied, "All I can see now is a lawsuit. Admitting that we have no franchise, do you think the courts would permit you to hamper us in the way that you are doing and throw us out of town?" This is the steam engine that was located out near Newell Road where the Hopkins Substation is today. This is the building where it was housed. You can see the waterworks above, and the steam coming out from the interior. Next is a photo of a street that I cannot identify. The interesting thing about the trees is that the town fathers wanted to keep trees in the street, and they would have, except that somebody from out of town crashed into it and sued the city, so they discontinued the practice of keeping oak trees out in the middle of the street. This is El Camino near California Avenue, Mayfield, 1909. At that time, it was not a part of Palo Alto, and was served by United Gas & Electric. Here is a picture of John Byxbee, who was a city engineer from 1906 to 1941. He attended Palo Alto High and Stanford University. He provided the guidance for laying the foundation of the streets and the utility systems in Palo Alto. He also pushed for acquisition of land in the baylands, from which we benefit today. There is a park named after him, as you know. When he retired in 1945, the council said, "The public utility system of Palo Alto, which enjoys such an enviable reputation in municipal circles, is especially noteworthy. The quality of service which our citizens have enjoyed, the reasonable costs and the profits accruing to the city give concrete evidence of his sound judgment
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and administrative ability." Going from a man of integrity to a couple of scandals, this is the minutes of a Board of Trustees meeting, of which Charles Marx was the Chair. He called a special meeting, because they had a special situation where the city attorney apparently showed up drunk to represent the City of Palo Alto in a case of Palo Alto versus Timothy Hopkins. It was a very embarrassing situation, so they had the meeting to figure out what action to take. They relieved City Attorney Malcolm of his duties and appointed another attorney. Then Marx wrote a letter to the judge on the case, apologizing for this behavior. It says, "...an expression of my personal regret that an official of this town should have been guilty of such disgraceful conduct in your court. Please accept our apologies." So that was one scandal. In 1912, we had another front page scandal where PG&E had gone to the City Council requesting permission to set up some poles to serve a very lucrative customer in the baylands at Cooley Landing. It was a zinc plant, and they used quite a lot of power at that time. The City Council said no, so PG&E decided to wait for a city holiday when no one was around, and string up the poles. Once they were up and it was a holiday, they could not get an injunction from the courts, and they would be home free. That is what they did. They called the crews in at 4 a.m., and they did that. Fortunately, they were noticed by Byxbee and his electrician, who called in the city crews and dismantled the equipment. They put this ad in the paper the following day, which says, "The following property (owner unknown) is in possession of the City of Palo Alto. It will be delivered to the owner on proof of ownership and payment to said city of all the costs incurred in connection of said property: Six 50-foot power line poles, six cross arms, six wooden pins with glass insulators and a quantity of insulated copper wire." (Signed) J. F. Byxbee. Surprisingly, PG&E claimed it and paid the fee for the costs. This is a picture of University Avenue, with pretty much the same shops that you saw in the earlier photos, but this has the tungsten lights and is circa 1914. This is the power plant that was built in 1914. This power plant was also used as a water pumping station and a garbage destructor plant or incinerator. The interesting thing about this plant is that there were some water circulation pipes that went out at the rear into a little pool to cool off the Diesel generators. That little pool later became the children’s pool at Rinconada Park. This facility provided all of the power for Palo Alto until 1923. In 1923, the city load grew to such an extent that it could not provide all of the power itself, so it signed a contract with Pacific Gas & Electric. That continued
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until 1964. The Diesel generators inside the building are referenced in this article. It was supposed to arrive but was delayed because there was a war going on. You will note at the top of the Examiner newspaper that it says, "This paper is committed to the policy of public ownership of public utilities." That is not something you would see in any newspaper today, but they took a strong stand on it at the time. The Diesels were scrapped in 1948, and the building itself was demolished in 1969. This is obviously Stanford Stadium during a big game at about the four-yard line. As I mentioned, Charles Bennington Wing designed the Stanford Stadium. You can see Palo Alto High to the left of the stadium. The reason I have included this in the history of the utility is because I found it interesting, in researching this, that he was a little bit miffed at the Rose Bowl because the Rose Bowl in Pasadena was being built about the same time. Stanford was completed before the Rose Bowl, and it was the biggest stadium in California at the time. According to Wing, the Rose Bowl pretty much copied his design, yet in the publicity brochures on the Tournament of Roses Football Stadium; it did not mention the Stanford Stadium at all. So Wing sent this letter off to the Rose Bowl Committee. "The plans followed by Mr. Hunt, the architect, are almost identical with ours. In the interest of good sports and good feeling between various sections of the state, I hope you will do what you can to remedy what seems to be an unfortunate situation, as our stadium is the largest of any constructed on the Pacific coast, and I believe will prove to be equal to any in beauty." The profit issue first surfaced here in 1923. Here, an anonymous bill payer questions the idea that municipal utilities earn a profit. He says, "Why don’t you tell the public that these utilities are operated by the city to make money. If that is what municipal ownership is for, let us do away with it." In 1922, 1924, 1925, 1926 (and you are going to see more of this throughout this presentation), the utility profits were a newsworthy item in the newspapers. They were proud of the profits, and they actually called them profits. I recall in the 1980s, we did not use the P word. We are using it again now as we head into deregulation, but we did not talk profits back then. This letter is from 1926, and it was written by a citizen, W. L. Peet. He says, "When a city sells to its citizens such universal necessities as water, gas and power, over which it has a monopoly and the uncontrolled right to fix prices, if it so fixes rates that there remains a net profit, that profit has all of the characteristics of a tax." In the other article, Charles Marx responds to the issue. He says, "If city services were not
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partially funded by utility earnings, then property taxes would need to be raised to provide the funding. However, in raising property taxes, the county, not the city, would receive most of the tax dollars." In the 1930s, there is more interest in the utilities at that time from other cities, Redwood City being one of them. And a quotation from another article related to this: "The utility surplus enables the city government of Palo Alto to render, without increasing the tax rate on property, municipal service far superior to that given in San Mateo and Burlingame. This superior municipal service on the part of Palo Alto is particularly evident in her care for the unemployed, the maintenance of the Community Center, the development of parks and cultural and recreational activities, the maintenance of public libraries and the city health departments." And another quote: "During the years of the depression, the City of Palo Alto has spent large sums of money to aid its unemployed citizens, being able to do so because it had surplus funds accruing from taxes and the publicly owned utility plants." Palo Alto Times, 1935. So at a time when the world was in a depression, the utility was providing some income and helping to provide some relief to the unemployed. Next is the history of transfers to the General Fund from the three utilities from 1909 to about 1935. I have subsequent charts that continue from 1935 and through the 1950s and following years. So if there is ever a question about the practice of utility profits, this should pretty much settle that. It has been a well established practice. This is a Letter to the Editor in 1939 written by Mrs. Yardley, referring to utility profits. She says, "Have the brainy, honest, enterprising city fathers a right to collect such an astonishing overcharge from the citizens?" As a result of the utility profits, there were funds that complemented the funds donated by Lucy Stern so that the Lucy Stern Community Center could be built. Professor and Mayor Cottrell responded to the profit issue in this article. Professor Cottrell explains, "Earnings have been plowed back into plant investment, extensions and replacements. Rates have been kept below those of the private utilities in the vicinity, and the excess earnings have been used to pay the general running expenses of the municipality." I mentioned the controversy about generation. This is one from 1935 when they were seriously considering constructing a Diesel plant in Palo Alto. It died, but there was quite a bit of controversy over it at the time. I also mentioned the issue of
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PG&E and the ongoing friction in Palo Alto. This is a case where they were going to reduce their retail rates, but they were not proposing to reduce the Palo Alto wholesale rates. The City Attorney voiced opposition to it, and I do not know if they prevailed in this, but I know that in the 1970s and 1980s on the gas side, this was exactly the issue that we fought with PG&E. Here is a little promotion for refrigerators in 1937. During the 1930s, we were probably still a night-peaking utility. When most utilities began at the turn of the century, they were primarily for lighting. That is why you have the term "light and power." Light was such a key use of power in those days. Today, it is a very small part of the overall load, as you know. So they tried to build load during the day, and there was actually a proposal to build an ice facility in Palo Alto. It was fought by what they called the "ice trust." It was defeated, but they wanted to build up the load during the day through making ice, and thereby operate the electric plant more efficiently. So this is an example of a promotion of an appliance, in this case, a refrigerator. Another one gives a rebate on irons. Nothing uses power more inefficiently than an iron. This is from 1940 when World War II was going on in Europe. There was a poster that basically said, you could save money by owning your utilities, and you would also save money by buying a house in Palo Alto for $5,500. Here is a reference to buying savings bonds to support the war effort. In 1947, in my research of the Central Valley Project, this is the first time I saw mention made of the city talking about the Central Valley Project. The Central Valley Project, at that time _____ bill reclamation, apparently had a clause in the contract that said that the transfers to the General Fund from the utilities that were receiving CVP power were limited by a fixed percentage. I do not know what the percentage was. It could have been five percent, ten percent, who knows, but the problem was that it was fixed. In this article, it says that the city engineer, Fabian Miller, advised against replacing PG&E with CVP power on the basis that if they did, the transfers to the General Fund would go down substantially, and they would have to raise taxes. So at that time they dropped the idea of the CVP project. That was in 1947. In 1951, Jerry Keithley resurrected it. Keithley, at that time, was strongly urging the council and others that they should replace PG&E and sign up with the Central Valley Project. It was through his leadership that the largest and most important contract that the City of Palo Alto has ever had in its history, the CVP contract, was executed in 1964. The question is, why did it take from 1951 to 1964? That is one I can only speculate on, and will get to that in a minute. Here is a picture of Jerry Keithley, and
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he was the first city manager of Palo Alto in 1950 when they revised the city charter to have a city manager form of government. Here is an article about Trinity Power. The Trinity Power Project was a controversial one. First, PG&E wanted it, and we opposed it, as the municipals did not want PG&E to get it. We wanted to get it ourselves. There are references to the forerunner of NCPA in here, a coalition that attempted to say that the Trinity Power Project is a public resource and should not be gobbled up by PG&E. Of course, we were successful, and PG&E lost their efforts to obtain the Trinity Power Project, and it did become a part of the CVP. What is interesting here is this editorial that may shed some light on the times. I mentioned that it was hard to understand why it too so long for the CVP to become a reality for Palo Alto. If you read this editorial, you can see that there was a mood not only in the city but in the country during the McCarthy era, and anything related to Socialism was Communist-related, and it was fought very heavily. I will quote this editorial. It says, "The Palo Alto City Council has rejected the theory of government/private industry partnership. It has endorsed, instead, a further expansion of government in the basic industries and competition in private business. The danger we mention is the danger of socialism. Extension of this type of economic thinking to other fields can mean the death of the private enterprise system." That was a Palo Alto Times Editorial. They have taken a position on the fact that Palo Alto was supporting the Trinity Dam Project to be used for public power and for the Central Valley Project. The Times took exception to that. In the 1950s, the profits kept on coming. The numbers look small by today’s standards, but at the time, the amount of revenue that was collected from the utility in terms of the amount of revenue of the total city budget, up until about the mid-1940s, the percentage of city government revenue that was funded by the utilities was approximately 43 percent. So 43 percent of every General Fund expenditure came from the utilities. That is amazing. Here is a picture of the old power station where the Diesels were located and was torn down in 1969. You can see the children’s pool and the power plant. Across the street is the space where the main library would eventually be built. During the 1950s, they required a lot of bond financing. There was bond financing throughout the history of the utilities, but probably no more than in the 1950s when the expansion of the utility systems became incredible. The population of Palo Alto in 1950 was about 25,000. In 1960, the population was about 52,000.
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In order to build the utility system, these are the crews that did it in the 1945-1955 era. Most of the system that we have today was built by a lot of these men. During this time and throughout its history, the Palo Alto overall utility bills were lower than their neighbors. This is a comparison of 1955, showing that we were lower than other cities. If you did the comparison in the 1920s, 1930s and 1940s, you would see the same thing. Throughout the history of the utility, we have always been lower than the cities surrounding us, when you add up all the utilities. In 1981, Herb Caen referenced a controversial issue involving the public ownership of utilities. He stated: "What about Palo Alto? That enlightened community, and a lovely one it is, has had a municipally owned power, gas, water and garbage system since 1896, and it works just fine." The profit issue caused some concern in 1983. The council and staff were worried about the profits being too high. At that time, there was no methodology to determine what the transfer to the General Fund would be. It was based on whatever the city needed. Price Waterhouse did the study, and we ended up with the Utility Enterprise Methodology. This is a Letter to the Editor of the Palo Alto Weekly from Bill Zaner basically defending that the utility policies are correct. In 1985, the city made one of its most important decisions, which was whether or not the city should enter into the Calaveras Electric Project. All the forecasts that were done indicated that in the short term, it was going to be more expensive to generate power from Calaveras than it would be to buy from PG&E and other resources, but in the long run, the Calaveras Project made economic sense. Based on that analysis, the council approved entering into the Calaveras Hydro Project. There was a Letter to the Editor from a former staff member and citizen of Palo Alto, John Schaefer, criticizing the city quite strongly for its decision to enter into the Calaveras Hydro Project. That prompted a response from Council Member Fred Eyerly, who defended the decision. "Calaveras power will help fill the void in current resources, which are incapable of meeting future demand. It would be extremely selfish not to plan for the future and to deny such projects as Calaveras so as to enjoy lower rates for a very few years." This week has been an example of not having enough power. Time will tell how farsighted we were with Calaveras. None the less, I showed this because as years go by, we tend to take for granted these huge decisions that were made, and we assume they were made with just a nod. It has not been that way. If you go to the very beginning of the formation of the utilities or if you go to the CVP or to this project, they were controversial. This is the Mackay Dam, part of the Calaveras Hydro Project, and
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this is the Spicer Reservoir. In 1993, we provided a huge refund to our electric customers, $37 million, that was largely due to power cost savings and a very favorable settlement that Western had with PG&E over some transmission issues. I think we got $10 million from that and another $10 million from our power costs and some savings from our operating capital budget. The question was what are we going to do with this money? There are a lot of things you can do with $37 million. This was at a time when the city was experiencing some difficulties financially, and it was considering laying off city employees. So it certainly could have used the money. There were a lot of suggestions as to what to do. What the city did was to return it all to the ratepayers. I think that speaks well for the city, and speaks well for the trust and the decision-making. Today, if I had it all to do over again, I would say, do not return it. Just put it into the Calaveras Reserve, but in 1993, we did not know that deregulation was coming and was going to impact us. At the time, it was a good decision. In conclusion, I want to say that I think there are four positive attributes of the Palo Alto utilities, from reviewing its history. One is that we have traditionally had lower rates than surrounding areas. That continues today. Two, there has been sound management, and there has been a dedicated and informed citizenry to oversee the utilities. There is a long history of that. I mentioned the linkage with the Stanford community. Although none of that is there today, there are other important links that we have today that make up for that. The city has not been averse to risk taking. That is clear. They have taken risks in the formation and they have taken risks in their decisions for investing in projects. And there are the utility profits. Without the utility profits, would we have the community center? Would we have Foothill Park? Would we have the police and all of our other services? Probably not as well. So they have made possible an extraordinarily high service level in the City of Palo Alto that otherwise would probably not be here. For my last remark, I have a quote to make: "We began in a modest way and we have been fortunate in having men of the highest intelligence and integrity to manage our municipal affairs. Politics have not entered into the management of the municipal enterprises. We made it purely a business proposition. Under these exceptionally favorable conditions, municipal ownership has been a success in Palo Alto." That was a statement by Charles "Daddy" Marx back in 1918 in an interview with the San Francisco Chronicle. That concludes my presentation. I have enjoyed making it, and I hope it gives you a sense of what the history of the utilities has been. I will be glad to answer any questions.
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Chairman Dawes: Let me thank you very much for a very fascinating talk. It must have been very time-consuming to put that all together, but it has indeed been fascinating to find out what went on over the years. Any questions of Randy? Commissioner Bechtel: Randy, you have given this talk, have you not? Has it also been on cable? Have you been interviewed? What sort of public outreach have you done with this? This is a marvelous piece of research with some good information. Mr. Baldschun: I believe that someone is recording tonight, and the idea is to use that to reach out. I have not talked to Cable Co-op, and that might be something to explore. I did talk at MOAH, The Museum of American Heritage, and they did record it. We do want to do something like this for our new employees, as well. When they join us, they should see a little bit of this presentation. I think they should feel proud that they are working for the city, because it is a great story. Commissioner Bechtel: Personally, I would like to thank you very much. Commissioner Ferguson: One of the first questions that came to mind when you started the presentation, and of course, you answered it double and triple down by the end, was, when did it turn profitable? The profit chart made it look like it started in 1909. What was the crossover point? Was it profitable right away, or was it eight years? Mr. Baldschun: I do not know the year it became profitable. The earnings you saw in that chart were after they paid off the debt service, I believe. I know that in the very beginning, it was not particularly profitable for the first few months. That was why they got the offer. I think private industry felt that they were vulnerable. Not a lot of customers has signed up in the first few months, so there was some nervousness about the success of it, but obviously, they held onto it. The load just kept growing. If you look at the charts and the population of Palo Alto, it just continued to grow, and that continued to put more demands on the system. More revenues came in, and more debt service was issued. It has been well managed. Without Byxbee and Marx and Wing and some others to watch the utility in the very beginning, we were very fortunate that they were around to do that and took an interest in it. Chairman Dawes: Randy, I assume that there was never any gas lighting in Palo Alto which would be competitive with the initial
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launching of the electric utility as a lighting source? Mr. Baldschun: There was reference made to some man whose job it was to light University Avenue prior to electrifying University. I am pretty sure it was not gas. It was some guy’s job that pretty much became obsolete when they electrified University Avenue. Gas was served by a private utility in Palo Alto around that time. I do not know the exact year. In 1917, it became a municipal operation. Chairman Dawes: Thanks, again. UNFINISHED BUSINESS 2. Election of Officers Chairman Dawes: The next item is Election of Officers for the fiscal year July 1, 2000-June 30, 2001. I will open the floor for a nomination for the Chair of the UAC. Are there any proposals in this regard? Commissioner Bechtel: Mr. Chairman, I would like to nominate our Vice Chair, Rick Ferguson, to serve as Chairman for the next year. I have been very impressed, but in particular, other than one small comment that John made, his one-page summaries of actions have been right on and have been a great contribution. It has certainly been the scope of the activity, so with that, I am very happy to nominate him. Chairman Dawes: I second the nomination. Is there any discussion? (None) Then I will call for the vote. All in favor? That nomination passes unanimously, 3-0-1, with Commissioner Ferguson abstaining. Next will be the nomination for Vice Chair for the same period. I will open the floor for nominations. Commissioner Ferguson: I would be pleased to nominate Mr. George Bechtel for the Vice Chairman position. I will be glad to coach him in the drafting of one-page summaries over the coming year. Chairman Dawes: I second the motion. Any discussion? (None) Then I will call for the vote. All in favor? That nomination passes unanimously, 3-0-1, with Commissioner Bechtel abstaining. I will now turn the symbolic gavel over to Commissioner Ferguson
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for conducting the rest of the meeting. Chairman Ferguson: Thank you, Chairman Dawes, for your one-year-plus service here. It has been great to watch you in action, and build this team. We have a great group on the commission. 3. Gas Quarterly Report Chairman Ferguson: The next item of business is the Gas Quarterly Report. Are there any staff comments? Mr. Ulrich: I have no opening comments. I will leave it to you to ask questions. Ms. Dailey is here who wrote the report. Chairman Ferguson: Any questions from commissioners? Commissioner Dawes: On the accounting for the gas fund, we have had reports previously about digging into our RSR, given the spike of gas costs. This report does not clarify when we would expect that, given the rate hikes that have been recommended by the UAC and passed by the council. At what time and in what dollars will that fund reach its minimum? Mr. Baldschun: This report does not address that, as it was not planned to address that, although it is a relevant question, and every gas quarterly report should attempt to do so, so that you know where we are in the situation with the gas fund. It is, as you know, experiencing some financial difficulties. There was a report that went to the council in which we projected some curves for the rate stabilization reserve based on certain assumptions about rate increases. What we should do is to bring that back to the UAC. I do not believe we had it at the UAC meeting, but we should bring that back to you the next time so you will have it. The quick answer is that the reserves, with the rate increase that became effective this week, will be adequate until probably the beginning of next year. We anticipate the need for another rate increase in January. There will probably be a need for another rate increase in July of next year. So that would be three rate increases in the gas rates. A lot will depend on the market, and a lot will depend on our sales, too. If sales pick up, that means that we will have more revenue to help build up the reserves. If they remain flat or decline, we will have this financial situation to deal with. Commissioner Dawes: Until this increase took effect, have we been
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selling gas below cost, regardless of our transmission expenses? Have we covered our purchase costs? Mr. Baldschun: The spike in commodity prices was so large in late spring, and continues, that if you look at each of our gas rate schedules on an unbundled basis, which is breaking out the commodity, we are not recovering that piece on any of our rate schedules. If you look at it on a bundled basis, every therm we sell to residential customers is providing some contribution towards margin or fixed costs. The only gas rate schedule that we have in effect that is pretty much selling at a loss, even on a bundled basis, is our G-7. In January, we are going to propose a very hefty increase on the G-7 schedule, much higher than residential and the other rate schedules. So at least we are not losing money on that. Commissioner Dawes: We had talked about analyzing the propriety of moving to a cost pass-through basis rather than essentially speculating on future commodity prices. Is there any tentative conclusions in that regard at this point? Or is it still under study? Mr. Baldschun: It is going to be a council decision. Our plans are to continue to enact these rate increases so that we have a transition to the market price. We do not want to establish our gas rates at the market price at this time, because the impact would be too severe for the customers. We want to do a soft landing, so to speak. Once we are there, then the question becomes, as a policy, do we want to have gas costs track commodity costs at market? There are pros and cons to that. That decision will be made by the council. From the staff standpoint, I think we are probably going to present both sides. We will probably make a recommendation, but a lot is going to depend on a number of factors. Commissioner Dawes: Will the UAC have an opportunity to study and comment on this? Mr. Baldschun: Absolutely. This is the kind of decision for which the UAC was formed. It is to give advice on these kinds of policies, so yes, we will be bringing this to the UAC before going to council. Commissioner Dawes: So in summary, it does not look as though the RSR will go negative between now and next June? Mr. Baldschun: It will not go negative if the council approves the January rate increase. We will design that rate increase in
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January to ensure that it does not go negative for this fiscal year. Commissioner Dawes: Thank you. Commissioner Bechtel: I have a question on the post-gas accord negotiations. There seems to be a list of issues here, and the single largest issue for Palo Alto is whether PG&E will continue to offer retail/wholesale core customers access. Can that be explained in just some simple words? Is this a big deal? A little deal? I would like to have some feeling for what this means. Ms. Dailey: What this means is that there is some pipeline capacity that is at a lower rate that was set aside for the PG&E core and the Palo Alto core as a result of the original gas accord. We get 6,000 MBTUs a day, which is about the same as our base load. We pay 124 for it, and the value of it has varied anywhere from 144 up to 654. So it is incredibly valuable to have, and we will not get it if the PG&E core does not get it. We want to make sure that if anybody is going to get some of that cheap capacity, that we are not overlooked or left out of that. So it is very valuable, but it is not a Palo Alto issue alone. It is really a PG&E core procurement group issue, and we just need to be there to ensure that we get our portion. Commissioner Bechtel: So is this something that we will be negotiating, over what time frame? Ms. Dailey: The gas accord goes through the end of 2001, I believe, so over the next year we will be negotiating for this, sitting in on settlement meetings with PG&E and other parties. It is just beginning right now. Commissioner Bechtel: Thank you. Chairman Ferguson: I have a question for Commissioner Rosenbaum. In our first year-and-a-half or so on the commission, this is the first big spike that is externally imposed on us. I wanted to get a little historical perspective on this. Commissioner Rosenbaum, you have watched this utility pricing and cost phenomenon for more like a decade. Is this a sharp spike that we really need to pay close attention to, or is it on average, a punch that we will roll with? Commissioner Rosenbaum: In my experience going back for a decade, we have not had anything like this. Prices have been low and stable. What went on before that, I cannot comment upon.
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Council Member Beecham: I believe John has just gone to a gas conference, but I wanted to add that I have read in independent sources that the projection, nationwide, is for gas requirements demand to go up consistently over the next decade. So based on that, I would not anticipate that this is a short-term requirement. Ms. Dailey: If I could add a bit to that, the prices that we are seeing are historical highs pretty much since the inception of the Nynex contract. Not only are they historical highs, but they are historical highs at a time of year when normally, gas prices are quite low. So although we have seen a few days in the wintertime of high prices, this extended period of high prices and the time of year that it is happening is really unprecedented. It is pretty much the feel of folks in the market right now that these prices are here to stay for awhile, at least until drilling catches up, which is not instantaneous. Chairman Ferguson: At one of our earlier meetings, I believe one of you mentioned that you were going to gear up at least a residential education program so that paying higher rates was not the only apparent alternative, to pass along news to consumers, industrial as well as residential, that there are alternatives. Is that going to happen? Is that going to kick in soon? Mr. Ulrich: As you will recall, part of our strategy in implementing the rate increases in a slow and thoughtful way and use our reserves was to give us that opportunity to provide additional education and communication in enough time so that people could actually do something about it. If they wish to go and reinsulate or add additional insulation to their homes or other conservation measures, they could actually do them sometime this summer before the full effect of the heating season arrived. So we do have communication plans for that. We will begin that in a couple of weeks when we start the bill insert, and we will also have ads and additional communication so that people can get something accomplished if they wish to do so. I would also like to add that as Councilman Beecham mentioned, I have just gotten back from a meeting with the American Public Gas Association. It is the first time I had made that visit. They substantially said the same thing that Ms. Dailey said. Prices are up and will probably stay at this level for some time. However, being at all-time levels, they are probably going to back off. Some of the consensus is that over the last many, many years, the average is closer to $2.50. It is expected to level off somewhere around $3.00, but it may take six months, a year, or more before it gets down to that level from its historic highs. We have gone through explaining a number of the reasons why that has taken
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place, but it is primarily because the price has been so low for such a long period of time that the drilling and looking for new reserves has not taken place. It was just mentioned by Ms. Dailey that that has been taking place over the last couple of years and is trying to catch up with the additional demand. You can tell that additional demand is coming because of all of the additional power plants that are going to rely upon natural gas for power generation. Chairman Ferguson: Thank you very much. Another hot topic to pay attention in the coming year. No shortage of those. 4. Preliminary Assessment of Water Resource Alternatives Mr. Ulrich: As you will recall, this is the next step in our assessment of our water resource needs. We had our report from Carollo Engineers several months ago, and this is the next step in that analysis process. I hope you found the document as fascinating and as complete as I did. Kirk Miller is here to answer any questions that you might have. Jane Ratchye is also present. We can now make the presentation. Mr. Miller: I have a brief presentation that walks you through some items. First, I would like to acknowledge three people who are here in attendance tonight. First is Jane Ratchye, who has been extremely helpful, which is an understatement, in the development of this item. Second is Roger Cwiak. He and his staff provided some valuable input in the review of certain of the alternatives. Also David Kraska from Carollo Engineers who provided valuable input on the wells portion of the report. What I would like to do is to discuss the preliminary assessment, why we have done the preliminary assessment and the alternatives that we have evaluated, discuss some of the preliminary conclusions, and then talk about some of the next steps. The purpose of the IRP was to answer two questions, although it is listed here as three. The first is that the Water Supply Master Plan was being developed, and the expectation from that was that SFPUC customers would face choices about future water supply, both the quantity, the firmness and the price of water. So we wanted to look at the water alternatives that we have in relation to San Francisco. The second is the cost increases, which you have heard about in a number of presentations, primarily from the capital improvement project, and the questions of all of the other water supplies that are more attractive, given significant price increases, and should treatment be added to the emergency wells to allow for continuous operation of the wells as one of the alternatives. That is one that we looked at in detail.
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As you saw in the preliminary assessment, we evaluated seven alternatives. The first was our existing supply from SFPUC. The second was groundwater wells, and that involved treatment to have them meet secondary standards and the taste and odor requirements that Palo Alto citizens are used to from SFPUC water. The third was irrigation-only wells. We also looked at recycled water and desalination connecting to the treated water lines of the Santa Clara Valley Water District. Last was demand-side management resources. These were all of the alternatives that we looked at. As you see, for each of the alternatives, we went through eleven different attributes. This slide is just to list them. I will not be going over them with you. The first major one that we looked at was the San Francisco PUC. We are all familiar with the PUC water. It is of an excellent water quality. One of the big problems that we have is that the city does not have a firm allocation for that water. That makes our planning very difficult, because we do not know how much water we are going to have in future years under different circumstances. Price is another big issue. It is projected to double in ten years, or perhaps even sooner. The SFPUC is the only source of city supply that raises significant reliability issues. You have heard a lot about local wells in several presentations. There is rehabilitation required in order to use the wells, and that was analyzed in the water well study that was presented to you in other meetings. The treatment costs are fairly significant, and they depend upon the quality of the water that you want to have delivered. There is a range in the cost. There are significant system operation issues related to the complexity of adding wells and treatment to our existing system. There are siting issues and water quality issues. There are also some benefits to the local supply from diversity and reliability under a variety of circumstances. The irrigation-only wells are shallow wells that can be used for non-potable basic irrigation uses. The problems with those are cost, and also limited potential. There are only a few places where they work out advantageously. Recycled water from the water quality control plant is a local supply. It is essentially drought-proof. The disadvantage to that is that it has extremely high cost and is primarily related to the construction of the pipelines from the water quality control plant to the end users. There may be other opportunities for the development of this resource in other communities that may be more
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cost-effective where they do not have to dig up the streets if they are doing new construction. We may be able to have some partnering opportunities there. There are some water quality issues related to the use of this water, such as salinity and public acceptance issues. Treated water from the Santa Clara Valley District is another major source that we looked at. There are large quantities of water available from this source. There are some water quality issues not in relation to the primary or secondary water quality standards but just in mixing it with our distribution system. The cost of the pipeline would be paid through water purchases over the term of the use. There are take-or-pay provisions and certain terms in the contract that we have evaluated and looked at. There are opportunities for cost sharing with possibly Stanford and/or Purissima Hills Water Districts. They are geographically in an area where they could tie into this. And there are some potential impacts on the SFPUC contract. If we connect to this source, it could impact the amount of water that we could get from the SFPUC through the contract. Demand-Side Management Resources is another important one. It is a local supply. There is significant cost uncertainty associated with it, because we have not looked at that resource in Palo Alto in a number of years. So the cost information that we have is fairly outdated. There are questions about how much water could be saved in Palo Alto, and that is also part of an analysis that we need to do to update the demand-side data in order to look at this more seriously. The chart that I have provided you is a rough comparison of some of the alternatives that we looked at. If you look at the first few alternatives in the San Francisco supply, the price for existing supply looks quite good, compared to the others. The problem with the SFPUC supply is drought assistance. We do not know how much water we would get during a drought, and also emergency value. It is our only supply, and you have heard in other presentations the problems associated with that. When you look at new supplies from SFPUC, they have the same characteristics, the same problems, but the price goes up very substantially. That allows you to look at other choices, and if you look at all of the rest of them and you do what I call "the squint analysis," standing back and squinting your eyes, you see that they are all dark, which is good. The problem is in the first and second columns, which is the price. All of them, with the exception of Santa Clara Valley Water District, and possibly DSM, are significantly more expensive than our existing supply, or they have some water quality problems associated with them. So it does not appear that there are any
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easy choices out there for us to make. One of the main conclusions that we have made (and we have provided a number of them in the study so I will not repeat them) is that we will be forced to make decisions without all of the information that we would like to have. We are forced to plan in the face of uncertainty, because there is significant uncertainty related to our primary water supply from the SFPUC. We have now completed the data gathering phase of the water IRP, and that is what you have before you. The memo that we have provided you lists some of the uncertainties, and others are listed in each of the alternatives. The next steps on our present path, we have a number of parallel but largely unconnected analyses going on. One is the short-term emergency, "The 1999 Study" we are calling it, that was done by Carollo Engineers, and they suggested as much as $15 million of improvements for reliability. The second is long-term emergencies relating to the SFPUC reliability study that was recently completed, and what happens to our system in the event of a significant earthquake. How long will we be out of water from the SFPUC system? That is longer than the 8-hour period that the first study was looking at. It is on the order of 30-60 days. The third is what we have begun working on, which is the water IRP which is looking at the long-term supply issues. All of these alternatives involve significant capital investment. We are now seeing a need to coordinate the analyses and the recommendations that we are developing and bringing to you. With that, we have a proposed path which is described in the memo of developing a utility-wide plan for water, incorporating both the long-term supply needs and the emergency needs and look at them both together to make sure that we are not developing alternatives that do not fit both needs, and at least attempt to fit both needs. What we propose to do is to develop an action plan and time line for this coordinated analysis -- what we would plan to do, how we would plan to do the analysis, when we would take the steps in the analysis. What we are suggesting is that we bring a draft, a scope of work, to you at your next UAC meeting to say, this is how we plan to coordinate this analysis and conduct this analysis, getting your feedback at that time. This concludes my presentation. We are asking for two things this evening. One is your feedback on the preliminary analysis, on the contents that is in there. The second is your feedback on the proposal of coordinating these studies and doing a utility-wide water plan. Chairman Ferguson: Great. Thank you very much, Kirk. To organize
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the discussion, let me try to pick off the factual questions first, and then we can step through the memo and collect comments, if any, on each of the particular resources just so that we have a clear understanding of what each of these resources means and the characteristics you have attached to each in the memo. Any questions from commissioners on the San Francisco PUC supply attributes? Commissioner Dawes: Let me address a question which really does not fit neatly into anything about the SFPUC. Assuming they spend all or most of the money they are earmarking over a ten- or fifteen- year period, it seems to me that a lot of these metrics will change. In other words, the reliability that we are so worried about now, and rightfully so, from an old system should be substantially improved. To the extent that that reliability is improved, it can impact our decisions on where we spend money for emergency needs, in other words, whether it be fifteen for wells or fifteen to connect to the Santa Clara Valley or whatever, let us say the reliability assurance goes to 100%. It cannot ever do that, but it could get a lot higher than it is now, so I would like to see in this study that you are proceeding upon that a consideration be given to the extent their money, which gets passed back to us, offsets the capital costs that we have to make in our own system. Before leaving this, I also want to say, Kirk and Jane, that this is the best work I have seen come out of the staff. It is fabulous. It really laid out this thing, and as you said, it was some disparate stuff flying around, and now, it is really starting to come together, interweaving the emergency and the continuous use issues and the various sources and the pluses and minuses and costs. You push in here, and it pops out over there and there. It is a great start. It is a tough, tough issue, and you have done a super job in dealing with it. Commissioner Rosenbaum: You do make a good point following up on Dexter about the significant reliability issues with San Francisco. Has there ever been a problem? For how many years have we been taking water from San Francisco? Have we ever had a problem when the water supply was cut off? Ms. Ratchye: I think the reliability question we are raising here is whether it is available during a drought. It is a firm supply? Our experience is that it certainly is not. We were cut in 1976-77 and in 1986 through 1991. That is the kind of long-term reliability that this supply study focused on, whereas the engineering study focused on a short-term, perhaps a water quality event that would shut down our supply for eight hours, and then the long-term emergency potential problem out there is highlighted by the San Francisco study that they released in January that said we
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could be out of water in a major earthquake situation for 30-60 days. We have not experienced that yet, but we certainly have experienced the long-term reliability problems. Commissioner Rosenbaum: Let us talk about that a little. I am new to the water area. In eight years on the council, water was not a big concern. Water rates sent down steadily over those eight years, but I am familiar with electricity. We made a major investment in Calaveras, as an example, and we do not have any firm electricity from Calaveras. What we do have is a percentage of the output, and that output varies from year to year, depending upon the amount of water, the same water that we want to drink. I assume that an arrangement could be worked out with San Francisco where everyone gets a percentage of whatever is available. Is this a topic under discussion? Ms. Ratchye: That would be nice, and we have been pushing for that for a long time. We would like to get some fraction of what is called firm, safe yield, which would be for the electric analogy what you could get in a critical dry year out of Calaveras. We are proceeding on that just for droughts, but we do not have any long-term allocation. That would be a step we would take after we have resolved how much we get during a drought. The safe yield of the system now is less than the current system usage. There is no long-term allocation. We have no allocation of San Francisco water. We are only guaranteed to get water when they have it, and that is not a very interesting guarantee. We certainly are pushing for that. I see as critical to spending any capital dollars on developing any other alternative. I am fearful of spending money on some alternatives such as Santa Clara or even wells to find that oh, now, you are permanently shut off from future long-term allocations when they come from San Francisco. San Francisco, at this point, has shown no interest in handing out allocations of their safe yield. Commissioner Rosenbaum: Do you know why that is? Ms. Ratchye: They own it, it is theirs, it is their toy. They do not see the incentive, from their perspective, to do that at this point. Commissioner Rosenbaum: But clearly if they are going to be looking for $2 billion from the suburban customers, they are almost certainly going to have to do exactly that. Ms. Ratchye: Right, and that is our opportunity. Right now, the problem with slicing up the 239 million gallons a day of safe yield from the San Francisco system is, you would be giving it to people
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for free, essentially, and everybody wants lots of free stuff. So to the extent that is changed and people have to actually pay some sort of demand charge to get it, maybe people would not be so willing to take as much as they possibly could. Then they would be balancing it against earlier alternatives. So I certainly see that to be where we are going. Right now, we just pay for water as we use it. It is a 95 or something percent volumetric charge, so we do not have any demand charge, essentially, with San Francisco. So if we conserve, we save all of that volumetric charge from San Francisco. If we use more, we just pay that incremental amount. We are not paying any kind of contribution to capital costs for maintaining the safe yield or increasing the safe yield, which we hope to do through expenditures identified in the Water Supply Master Plan. So I see that as being where we are going to go. People will have to pony up the cash to get an allocation of this firm yield. Council Member Beecham: To follow up more on the existing discussions, it seems as though on the major problems, the short-term emergency, the long-term emergency, and then the guaranteed supply, we are somewhat tending to take out the middle of those, the long-term emergency, that is, if there is an earthquake, we would lose supply for 30-60 days. I would like to find out more about what happens if and when we do put in two or three billion dollars into the Hetch Hetchy system, and improve the reliability, how much does that reduce the probability of catastrophic failure? There have been no major earthquakes in the East Bay, which is where we are susceptible, and the probability of an earthquake over there, I think, is about three percent a year, which is what the U.S.G.S. or someone says, so that is non-trivial, certainly. If we can insulate ourselves against that, that may say, that is a problem we can deal with by a much less acceptable method, such as the wells with very poor quality, just because it is an emergency, very low likelihood, so we will take that higher risk approach to it. Commissioner Dawes: I would like to follow up on Commissioner Rosenbaum's observations. As I went through this, there are charges in here that San Francisco must deal with, long-term supply issues, and there is a discussion of the superior and subordinate water rights on the Tuolumne River, which, of course, is the key to this whole thing. San Francisco, in a low water year, is the last person out, so MID and TID get everything on the bottom, and they get what is left over. That makes the variations that Jane talked about even more severe. It seems to me that the only way the six million or so people served by this system are going to have any sort of assurance is that somebody (and there was a write-up here that maybe Palo Alto would do it for its own account or San
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Francisco would do it for their account and for all of the suburbans, or maybe a new group would do it on behalf of the suburbans) is to make a deal with the farmers as to what amount of dollars does it take for them to go to Palm Springs and play golf for a year. In other words, go out of the farming business, turn off their irrigation systems, and sell it to the cities. I view this as a straight, economically rational kind of argument if they could set up contingency plans to buy water and pick a number, $2,000 per acre foot from XYZ Farm Company out in the Central Valley, it would seem to me that that would be a hell of an inducement to, as I term it, play golf for a year. It would probably be more profitable than what they get off their ground, so there is a discussion here about it that to me is absolutely fundamentally central to this whole situation of assurances. As a final comment, politics being politics, in an extreme crunch situation, six million people are going to come before 600,000 acres of irrigated alfalfa. It is just the way of the world. I think something will come out of that, but whether it is incumbent upon us to try and move that along, I do not know. It might be a pretty interesting exercise to go to MID or TID, or both, and see what it would take to bribe farmers to go out of the farming business at our paying up, and how much it would take. Commissioner Bechtel: We had talked earlier and in previous meetings about another governmental body. I think there is an attachment to the water report that came later, endorsing some other government body that could be put on a stronger political front before the San Francisco. How realistic is that? Is putting some other governmental body besides BAWUA in place going to push San Francisco to be tougher in their negotiations? For example, for us to get a fixed percentage allocation? Or is it going to help? Do you have an assessment of the political realities of some of these ventures? Ms. Ratchye: I feel that bringing our elected officials to bear on these things would improve our chances with San Francisco. It is a lot easier for them to ignore us when we do not bring in our big guns like Bern. I think it cannot but help. It has not been formulated how that would be done. We did have a symposium in April when we got a substantial number of elected officials to come and learn about the issues. I think BAWUA has to reach out to that group more and more to get that group educated about the issues. I think that we have a good enough case to pique their interest if we can find realistic things to ask them to do, rather than just learn about it and pray that San Francisco does something. When that group came again a few weeks after that symposium and showed up at the San Francisco PUC meeting, the PUC saw how many agencies were
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represented there by elected officials and saw how many spoke there, and I think that does affect them. I think they now have to recalibrate their relationship with BAWUA and say, Oh, what are your issues again? I think the elected officials that represent the BAWUA agencies are big. It is a big economic base, and it is three counties. It is more people than in San Francisco. It would get the attention of the mayor of San Francisco with that level of pressure, so if we can define what it is that we want them to do, which is, fix your system, upgrade your system, and do it now, do it when we need it. You have identified all these problems, great, now fix them, and get your money in order and get your internal workings in order so that you can actually build these things, and how can we help you to do that? Do you need our help financing that? I think the pressure will help our cause. Commissioner Bechtel: Jane, I think you are a lot more optimistic than I am, but that is good to hear. Thank you. Mr. Miller: One other interesting and close-at-home analogy would be NCPA where we have elected officials. They have been able to do things that staff has not been able to do by being elected representatives. So we could learn a lot from that experience. Chairman Ferguson: Are there any comments on the groundwater wells section of the memo? Page 18. Commissioner Dawes: I have one along the lines that Commissioner Bechtel was talking about -- the organization of how this proceeds. We have this group that came into being by virtue of the SFPUC contract, which I believe is called SAG. Five suburban representatives are selected annually to represent the suburban purchasers. We also have BAWUA, and it seems to me that there is no reason to have both of these entities, and there should be some merger and a common voice amongst the suburban people. Ms. Ratchye: I do not understand what two separate groups you are talking about. The SAG is simply one representative from each agency in BAWUA. It is essentially a group of representatives. Commissioner Dawes: From the memo, it sounded as though it were totally separate. It came about by -- Ms. Ratchye: The contract recognizes two groups. The SAG, which is just all of the different agencies that have signed the master contract with them -- Commissioner Dawes: Is that, in fact, BAWUA?
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Ms. Ratchye: The contract does not recognize BAWUA as an entity. The only thing about SAG is that under the contract, San Francisco is required to meet with this SAG, which is essentially BAWUA, annually. Then there is this group of five agencies elected every year by the SAG, or BAWUA, that is called the suburban representatives, and Palo Alto is one of those. Those have some special responsibilities under the contract, including being able to ask for arbitration on something under the contract. Commissioner Dawes: Mine was a more general question. Is the organization appropriate, and even though they are called separate things, do these, in fact, operate as one? Ms. Ratchye: Yes. Almost all of the suburban representatives are represented on the BAWUA board. Commissioner Dawes: So there are no cross-purposes or lack of communication, all of the things -- Ms. Ratchye: No, they are all a part of BAWUA. Chairman Ferguson: Once again, any further questions on the staff discussion on groundwater wells? Commissioner Bechtel: On groundwater wells, it is expensive because we have to do treatment to them. Do we have technology in our favor in this case? Is there anything going on, technology wise, not within the next year, but over the next ten years, a breakthrough that would reduce the cost of treating water so that the treatment becomes less of a cost issue? Mr. Miller: I do not know, but we have a member of the audience who might be able to answer that question. David Kraska, Carollo Engineers: Let me reintroduce myself. I am David Kraska with Carollo Engineers, and we have worked on the reports. I wish I could see that, because then I would know what to invest in. There are constantly companies trying to find the next best way to treat water and in the most inexpensive fashion. Some of the current technologies that are coming out are fairly power-intensive, such as electric coagulation and UV disaffection, and there are a couple of others that are effective on very small quantities of water. For the quantities of water that we are looking at for this particular problem that we are trying to solve, the technologies that we have in this report are the most cost-effective, the most appropriate for the situation we are dealing with here. Over the next one year, I certainly do not see any break-through technologies that would be better than what we are
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recommending here. Five to ten years out, I suppose it is possible for a new technology to come out. More likely, however, might be a change in the economy where membrane technologies might get less expensive, UV technology might be even more effective, and that would be a ratcheting down a bit of the numbers that we have here in front of you. For example, over the last ten years, membrane technologies have become more and more cost-effective. But as far as a change in the technology versus what we are presenting here, I think that is unlikely. Commissioner Bechtel: That is discouraging. Mr. Kraska: Right. I understand that and I agree with that, too. Council Member Beecham: I have a question on how the information is presented to us and what we do with it. The common currency is dollars per acre foot, and we can do that across all the sources. But I wonder, if in fact, our objective is to ensure that we have a minimum of, say, 12,000 acre feet per year. Given that we do not have any guarantee from San Francisco and we make an assumption, then what combination of these gives us the lowest cost amount to make up the difference? For example, looking at all the wells, the various well to well to well, I do not know which might be the best combination. But when it comes to decision time, to reach a certain level for our citizens, we want the lowest total cost for that. Ms. Ratchye: I think that in the end, it is going to be a balancing, and the council is going to have to decide, presented with the alternatives. "Even in the most severe drought we have seen, there is always going to be water, and you will never have to reduce." Commissioner Johnston reminded us many times that you have to have a critical will to have the same green lawns when everyone else is cutting back. "That is one alternative, and it is a lot of money, but that is it, or here is another one which is real cheap, but we have to cut back fifteen percent and the quality is sketchy." It is difficult to monetize water quality and all of the other attributes. We have tried that, and we may try that again. We tried to monetize unserved demand by saying, here is the cost of having to put your landscape back in after the drought. We tried to monetize water quality by saying, if we use, let us say, one of these treatment options for wells, that means that so many people are now going to use bottled water that did not before, and this many people are going to put in water softeners. That is a cost to the community, so we have to incorporate that in. We will probably attempt to make some monetization, but again, we are going to have to look at the other aspects besides long-term water supply, the emergency value of these two, and try to look at the
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whole picture for the utility. It will be difficult. There will be a balancing that will need to be made. To me, I see different whole packages presented. "Here is one that is this theme, and here is another one, the high quality theme." The community is going to have to decide between those. Council Member Beecham: I agree with what you say, and in the package, the solutions we have for the very short term is an entirely different package than for the drought year solution. That is probably a different package from what we may want to do in the long-term supply issue. So even though we are going to have an integrated plan, the solutions for each of the particular problems in the _____________ are going to be somewhat different. Maybe in all cases, what would be an additional valuable point for me is to know -- currently we are using about 15,000 acre feet per year. If we say that a minimum drought level quantity we want to ensure is 12,000, and we assume that San Francisco will give us a maximum of 10,000, we need to make up 2,000, what is the cheapest way to do that? We will have to talk about quality, etc., so that they meet the quality levels at those break points. At that point, what is not necessarily the cost per acre foot, but what is the total cost of getting the next 2,000 acre feet? Commissioner Rosenbaum: Following up on this issue of trying to assign a cost to redoing the wells either for emergency use or drought use, there is an analogy in the electrical field also. A number of the NCPA cities built peaking power units. For many years, these were essentially not used except that you had to test them every once in awhile to make sure they would work if you had to use them. If you tried to compute the kilowatt-hour cost of one of those units, it is an astronomical amount because of the ongoing capital cost. Of course, you never really do that. This is simply a cost you have to bear. I am wondering if that might not be a more appropriate way of looking at the cost of the wells, either for drought or for emergencies. You are not going to be assuming that they are used only for drought or emergencies. There is not any steady amount of water that you are going to be drawing from them, but you are going to have a capital cost if you assume it is going to cost a certain amount, and you pay for it with bonds and you are going to have ongoing costs for 20 or 30 years. One could compute the increment in cost to San Francisco water for providing this assurance that you will have some supplies in a drought or an emergency, so you could tell people it is going to cost you 10 percent more or 20 percent more to have this reserve. I wonder if this would not be a more realistic way of trying to look at those costs, rather than doing it on an acre foot basis. Ms. Ratchye: So you are saying that you have essentially a baseline
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criterion. It is kind of like Councilman Beecham was saying. We want some amount of reliability for emergencies, so we want to be able to provide some amount of acre feet or some amount of gallons per hour, or whatever, so what is the cheapest way to do that? A combination of wells and storage, whatever the criterion is, is it eight hours or something longer? That is just what we have to pay. That is kind of where we are already as a result of the emergency study that Carollo Engineering did. They said, we think you should spend $15 million just to rehabilitate these wells, never using them except in an emergency. The supply look was, wow, they are already going to justify spending a bunch of money just to rehabilitate these wells for emergency use. How much more would it cost to make this stuff of better quality in order to supply it on a continuous or drought-only basis. What you are telling me is, maybe we should -- because you see that the drought-only operation of these wells is fairly costly if you view it on a dollar-per-acre-foot basis, so we could do what you are saying and say, in a drought, we can expect something reduced from San Francisco, only we do not know what it is, but at least, we will have spent some money, some additional $2 million or whatever, I think it is $1.6 million for some of the alternatives, to have fairly good quality water available from the wells, even if we only plan to use it for a drought, not an emergency, but for a significant period, perhaps two years. So I think what you are both saying is that maybe all of the themes presented here at least meet some minimal criteria, at least saying what the availability during a drought is for each of the themes. Commissioner Rosenbaum: I guess what is in the back of my mind is that San Francisco water is so good, and the probability of having it is so high, given that there would be reductions in drought times, that I do not think it is realistic to start adding well water on a routine basis, regardless of how well we treat it, to that San Francisco water. If that were a general feeling, I think you would want to look at the use of the wells. In determining cost, you would want to use something other than trying to figure out the dollars per acre-foot. Commissioner Dawes: On wells, the largest component of cost in running wells is the so-called Santa Clara tax, $310 per acre foot, compared to $434 per acre foot under the first treatment option on Page 20. So it is really the tail wagging the dog as far as I am concerned. As I understand it, this is the reinjecting of water into the subsurface to account for the water being taken out by the wells. Could we think out of the box here in terms of radically changing the economics of wells and maybe our interest in running them a little more continuously? First, we have a large water permeation facility in the Emily Renzel Wetlands which I mentioned
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some 3-6 months ago, the question of whether or not this water is going back into the subsurface. If we were pumping wells, why could that not be counted as water going back into the aquifers and hence, not being taxed on that amount. Or if that is not the case, why can we not take that water and say, do it yourself in terms of putting it back in. I do not know exactly how they recharge, other than the study indicating that there is none of these recharging stations nearby servicing our aquifer, but it would seem to me that if we are considering incorporating wells into a long-term supply arrangement, and we cannot forget, of course, that unless we do that, we may not be able to use the wells in an emergency. We might spend all this money and they will be ready, and then the emergency comes, and people say, sorry, Palo Alto, you do not own it because you have not been pumping it, and that is ours over here for us. So I guess just as a piece of unfinished business or investigation, etc., I would commend to you to see if there was a way that we can do a do-it-yourself -- maybe we are currently doing it ourselves and do not know it -- of recharging the aquifers and come up with some entirely different economics on this well situation. Council Member Beecham: I have a few other questions also on the aquifers and the charge. On Page 23, you mention the pump tax as currently being $310 per acre-foot. The next paragraph talks about the wholesale rates going up by 50 percent. Does that indicate that the pump tax is also likely to go up? Mr. Miller: Yes, the pump tax would go up, because the two are related. The district has a difference between the treated water, with the treated water surcharge on top of the base wholesale rate, and the base wholesale rate is the same as the pump tax. So they regulate those to (1) get revenue, and (2) control how much ground water is pumped in the other area. So they are related, and it would go up. Council Member Beecham: Thank you. Another question. Also it mentioned in here that the water table has come up by 100 feet since we have quit pumping. Did we take it down 100 feet by our pumping? Ms. Ratchye: I do not believe we know that. Clearly, if Palo Alto began pumping heavily, continuously, Santa Clara would probably want to build some sort of recharge facility. It would be up in the hills, not down at the baylands, because they are trying to recharge the lower aquifer. But the ground water table in the county has risen a tremendous amount in the last ten years. Right at the beginning of the last drought, it was not at a critical level, but it was pretty low, relative to what it is now. It is
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very high now, extremely high. They are discovering artesians everywhere. They are discovering old wells that were improperly sealed. It was under somebody’s house or under a freeway, etc. So it is extremely high everywhere, and we have not pumped in a long time. Many other cities in the county have while it has gone up. In the last few years, there has been a lot of high water use, and Santa Clara has managed that ground water. They manipulate their pump tax versus treated water charge to try to encourage one use over another, depending on where they want to see that ground water. They will get imported water, or they will purchase water, and they will want to put that under ground or will want to put that above ground. They have ten or eleven above ground reservoirs around, so they have a fairly flexible system of places to store water, including the large underground reservoir that they do manage heavily. So the fact that it is up high has something to do with natural recharging and a lot to do with how Santa Clara manages it. They have a lot of active recharging where people are continuously pumping. It is not a surprise that they do not have a facility here to recharge. Why would they build one? We have not pumped since 1964. They certainly would not waste any money here until and unless we begin pumping a lot. Council Member Beecham: One final question on this. On Page 24, it mentions that the recharge estimate for the local aquifer is between 6,000 and 12,000-acre feet per year. When you talk about the local, is that the one that would be servicing Palo Alto? (Answer not heard) So that 6,000 to 12,000 is nominally available to Palo Alto on a natural recharge basis. Ms. Ratchye: Yes. Without a lot of extra study, that is the estimate. We would probably want to keep on the lower range of that thing. It has no subsidence problems. We did look at one thing that Commissioner Dawes may find outside the box. That is, right across the county line, there is no pump tax. Commissioner Dawes: I was going to ask that. Ms. Ratchye: There is no entity that manages the ground water in San Mateo County. It is conceivable that someone could drill a well there and pipe it into Palo Alto. We looked at that in a very conceptual way, having someone, like a neighboring water agency, do that, and perhaps use that water but have a connection into Palo Alto for emergency use. That would avoid building one of the wells that was recommended in the engineering study if we had that pipeline that we could turn on in an emergency. It seems odd that we would have an eight-hour in a San Francisco emergency, and they would not, but if we made that agreement, I guess we would get the water, although if it is only an emergency, the pump tax is not a
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big deal. On a continuous basis, perhaps, you never know what all of the implications are of our exporting of water across county lines, but it certainly would save the pump tax, and it has to be the same aquifer. Chairman Ferguson: Then San Mateo County would find a way to tax the transfer somehow. If there are no further questions on ground water wells, we can proceed with the Irrigation-Only Wells alternative, starting on Page 29. Council Member Beecham: For the most part, just on the basis of the very small quantities we are talking about with these wells, my conclusion would be that it may not be worth the effort of doing anything. Would that be your rough conclusion? Mr. Miller: Yes. It would not be a large effort. If it is possible to capture some of this with a minimal amount of effort, then it may be worthwhile, but if it is not a large amount of water, we would not expend a lot of effort. Ms. Ratchye: Again, it is not a huge amount of money, if you view it from Commissioner Rosenbaum’s suggestion. It is not that much money, but when you view it as dollars per acre foot, it is. It may be viewed in some circles like CalFed as an appropriate use for a non-potable end use, like irrigation in a park. It is like "Why are you not irrigating your own parks with well water that is right there? It costs you $75,000." Council Member Beecham: Let me ask perhaps an odd question. Do you have any idea what the commercial establishments around here would be willing to pay in a drought year to keep their lands irrigated? Ms. Ratchye: I do not know that, but I know that many people did pay to have reclaimed water trucked from our treatment plant. The water was free, but I do not know what they paid to have it trucked there. We could find that out. I know there was a market for that during the drought. Council Member Beecham: That was why I wondered because that is a market price we could shoot for, in fact. Commissioner Dawes: I cannot recall if it was in this section or not, but there are two companies that are pumping now for remediation purposes, which I gather is acceptable for landscaping purposes. The dollars required to use that locally for landscaping were very low. Even though it is a drop in the bucket, if you will, it would certainly be something that would be marginally
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useful and would be excellent PR. Ms. Ratchye: Another comment on that particular thing. The Santa Clara Valley Water District charges for that water. It charges the same pump tax even though it is upper aquifer, and they would never recharge that at all, and it is put to beneficial use. We are trying to change that, and at least have them provide an incentive to these customers who are spending extra money to distribute this water, and put it to beneficial use. We are trying to arrange it so that they do not have to pay the pump tax for that water. Many people pump it up, treat it, and either put it in their storm drain or sanitary sewer. They do pay the pump tax for that, and these people are taking the extra step and paying the extra money to use it. It just seems as though they should be able to avoid the pump tax on that. We are talking with the district as to the possibility of that. Commissioner Dawes: My recollection is that most of it went back into the sanitary sewers or storm drains so that very little is used for landscaping purposes? (Answer unheard) We should find a way to change that, and preferably not to have them pay the tax if they have to do it for remediation purposes. It seems like double dipping to me. Commissioner Bechtel: Regarding the irrigation on Page 31, it looks like the city, the schools, i.e. public agencies use six percent of our water for irrigation, I guess, and five percent of our large customers, which is about 11 percent. If you take that and add in the residential usage for irrigation, is that also an equal amount of money? In other words, I am trying to get a feel for irrigation. Would it be 20 percent of our usage? Mr. Miller: I do not know off hand. We can look at that to see what that aggregate number might be. Commissioner Bechtel: What it is coming to is that we were talking before about using -- let us say that Hetch Hetchy provides 80 percent of our water, or 10,0000 acre feet, and we were left over with 2,000. I am trying to get some feel whether that difference that we are trying to make up would have any correlation to the size of the usage for irrigation. It sounds like it possibly would, but is certainly not a major item. Shutting down all irrigation is certainly not going to reduce our consumption by 50 percent. Mr. Miller: I do not know the numbers. Relative to other cities, for example, Daly City or those that do not have as much landscaping needs, landscaping does make up a significant amount of
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our usage. You can see that by the seasonal change in the usage, and we are aware of that. Commissioner Bechtel: That leads to a question, Mr. Chairman, that maybe has more to do with recycled water. My mouth was watering, if I can use that pun, when I saw the discussion on recycled water. Chairman Ferguson: Then we can proceed to that topic if there are no other comments on irrigation? Please continue. Commissioner Bechtel: We were talking about storage before, and the emergency site, and I know that recycled water is very expensive. One of the problems is that a lot of water comes out and goes right into the bay, but we have no storage facility there. So it seems to me that if we could somehow deal with the storage issue in the city, we would at least have a lot of things going for us. I can see open space. Crystal Springs Reservoir, as a reservoir, although we do not have access to it, is certainly beautiful as you drive by it. So I see the hills needing to be preserved, and I see a way to build the lakes, so I am just wondering about 18,000 acre feet, which is 18,000 acres with one foot of water on it. If you made it ten feet deep, it could be 1,800 acres, and now we are starting to get to a manageable piece of land. What is the possibility of that? Is it so out of sight to think about more storage somewhere in the city that we develop over a 10-, 20-, 30-year period? Mr. Miller: It is not unreasonable to look at it. As I am sure you are all aware, there are significant barriers to doing anything in the foothills, but it is clearly within the realm to investigate it, and there are some advantages that could be gained from it. There are some people within the utility that think that is a good idea and would like to pursue it, and there are others who say, we will never be able to do it. Somewhere between the two, there may be an answer, and it is surely worth looking at as we look at alternatives that cost many millions of dollars. When we are looking at the overall package from the liability short-term, long-term, it is something to look at. Commissioner Bechtel: I know that we have looked at undergrounding, and my particular street is last on the list in the City of Palo Alto, and that was a fifty-year project, so certainly I believe this important enough that on the scale of time, waiting a few years to at least have some sort of proposals out there to deal with makes a lot of sense. The other part of this is the distribution of this water. I see my streets being dug up for fiber. So I do not understand how some
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people can dig up streets while others cannot do it for a good source of routing water around. I am just wondering why we cannot have people who dig up streets also put in water pipes -- every foot of fiber they put in, a foot of pipe to be able to route this. I can see an irrigation loop in the city like I can see a fiber loop. But maybe that is thinking too far out of the box. Commissioner Rosenbaum: I want to comment and remind George that the City Council did look at a recycled water project in 1993 or 1994. Recycled water is so expensive and so hard to get it to the few places that use irrigation, that unless there is an overriding consideration (which there evidently is in Santa Clara and San Jose, as they are not supposed to send any more fresh water out to the bay) -- the rationale here was that we were going to cut down on the amount of water that went into the bay in order to reduce copper. The cost of that project in terms of each pound of copper that you would divert was so astronomical that it just did not make any sense. So it went away, and I assume that an analysis done today would lead to the same conclusion. Commissioner Dawes: I want to go on record to reflect my disappointment that the "experimentation" with recycled water at the golf course has proven to be less than 100% successful. Evidently, the city salinity problems that keep popping up in this review are not trivial. Not only the barrier cost and lack of storage, etc., but the basic commodity sounds a little salty, somehow. Mr. Miller: My understanding is that that problem is associated only with the greens. For the fairways, it is not a problem. For the rest of the irrigated lands in Palo Alto, it would not necessarily be a problem, unless you are trying to get it to golf course green quality. Ms. Ratchye: It also has to do with the bay mud out there, not just the grass you are trying to grow, but the soils. Commissioner Dawes: So it should be good for any type of irrigation. Ms. Ratchye: It should be better farther away from the bay. Council Member Beecham: I believe the core problem, in fact, is because of the high water level there which is somewhat salty under it. The water evaporates and leaves a lot of the salinity on the top layers of soil. That would not be a condition elsewhere in Palo Alto.
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Chairman Ferguson: If that completes comments on recycled water, let us move on to desalination, Page 40. If Commissioner Carlson were here, he would have remarked that this deserved only three lines and a heading, as a topic. Are there any comments from the commissioners who are present tonight? Mr. Miller: You will notice that in the presentation, I did not cover that topic. Chairman Ferguson: Then let us move on to Treated Water from the Santa Clara Valley Water District. Commissioner Dawes: I have always had a feeling in the back of my mind that this is a subject that we should be very seriously considering. What appeals to me is their very diverse sources of supply. They have everything from Sacramento delta water to various rivers and wells, etc. From an emergency standpoint, even though they are a "neighbor," the fact that they do not cross the east bay earthquake faults, at least not to the extent that I am sure some of their supply does, but not the extent that Hetch Hetchy does, plus it is a relatively short pipeline. It is four miles to the turnout. The quality is acceptable. It is not up to Hetch Hetchy standards. My wife pointed out that what you are going to get here is if the turnout is down at Gunn High School, particularly if the alternative of supplying one section of the city with this water, it sounds like South Palo Alto would be the ones to get that water, and there would be a hue and cry of incredible dimensions that they are again being discriminated against, providing inferior water quality to that part of our village. Perhaps we can find a way to blend it so that everybody takes a hit on water quality, but my feeling is that even if we did not take a hit on our supply assurance from Hetch Hetchy, the diversification and the emergency preparedness balance is appealing. So I hope that we will continue to study this in depth. The price seems to be pretty good, too. Council Member Beecham: I think the staff discussion on availability in here is critical. It would seem to me that we need to ensure that we are not jumping out of the pan into the fire. In drought years, your information on Page 48 indicates that they certainly are not immune from drought restrictions. The Central Valley Project cut back their supply by nearly 70 percent for Santa Clara, so if we were ever to make this decision, we would have to have a much more ironclad agreement with them on drought year supply than we currently do with San Francisco. Commissioner Dawes: Regarding this PH difference, and there is a lot devoted to it, I assume it is fairly solvable? Is it a straw
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man or a real problem? Mr. Miller: I would ask Dave Kraska from Carollo Engineers to speak to that. He knows more about it than any of us at this table. Mr. Kraska: The short answer is yes, it is solvable. There is a difference in the PH and in the corrosion control methodologies used that is fairly straightforward to address. In fact, the City of Mountain View is addressing it themselves with their own treatment facilities. It is fairly straightforward to take care of it. Commissioner Dawes: To your knowledge, did the Mountain View citizenry have an issue with the city when they cut over to the use of the Santa Clara Valley water in a certain section of that city? Was there an outcry about it? I know that is not your bag, but thought you might know. Mr. Kraska: No, it is not my bag, but we are working with them right now, and I have heard some anecdotal information that initially, it was not a big issue. The way Mountain View handled the situation was to section off a part of the city to serve it only with Santa Clara Valley, as you mentioned might happen in a theoretical case with South Palo Alto. Initially, there was not a large difference because the water qualities are pretty similar, in fact, but in the coming months, actually about 30 days after the change, there was some notice of some increased corrosion in some of the existing distribution system. They found that they had to address this issue of the different PH and the different corrosion control strategies. Once they had that problem tacked, the problem went away. To my knowledge, there have not been any further complaints. Commissioner Dawes: But that was city engineering versus consumer issues of taste and odor, that sort of thing. Mr. Kraska: The consumer issues that brought it to bear on the city were, to my understanding, color-related issues. Some of the corrosion products were iron coming out in the water, so people had brown or orange colored water that stained their fixtures. That is what brought it to the attention of the city. The city was able to solve the problem with the help of Santa Clara. Chairman Ferguson: My only comment on the Santa Clara Valley district connection is that I agree with Commissioner Dawes. There is a nice conceptual diversification to be had there with one tiny little connection. It is very attractive, and I think we ought to
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find an excuse to do it. My only concern, when we discussed this a few months ago, was that we do not check off the box in the back of our mind that by doing this, we have somehow solved our local emergency supply problem. I think the breaking of that connection or the 70 percent cutback that they might suffer is still the risk that is out there. But yes, I agree, it is a little thing, but it has a lot of implications for us if we can do it. Commissioner Rosenbaum: As a point of discussion with you, if you agree that it may not solve the emergency problem because they might have the same earthquake-related breaks that San Francisco would have, and I think we all agree that a drought is statewide, so their system would have the same drought problems that San Francisco would have, what diversity are you really gaining from connecting to them. Chairman Ferguson: The mere existence of a reliable connection where both parties have come through and rehearsed through the water quality issues, the pumping issues, the pressure issues; have talked about cost; have talked about reimbursement. Having all of that done in advance I think is a useful exercise. If the price is not too high for doing it, I think we should proceed with that analysis. Ms. Ratchye: How does $15 million grab you? Chairman Ferguson: For what? Ms. Ratchye: For connecting to that line. Chairman Ferguson: That is a big number. Commissioner Dawes: Is it a better deal than $15 million for wells and some additional storage? Ms. Ratchye: I do not feel that you can replace everything there. The other thing is, there will shortly be a connection between San Francisco and the Santa Clara Valley Water District system. So if you think there is diversity in the two situations, there is a question I am hearing about in the case of a drought, are we gaining any diversity. Certainly in the last drought, Santa Clara had the same drought as San Francisco. All water supplies were almost equally reduced. The other potential for wanting diversity is that in an emergency situation, you may achieve that with this interconnection that is being constructed now or very shortly. Commissioner Dawes: To me, that would address the issue.
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Ms. Ratchye: It does. It is unclear to me how much we could get from that versus an actual connection of our own. Commissioner Dawes: As far as the drought situation is concerned, I view wells, Santa Clara Valley and Hetch Hetchy all in the same boat. In a severe drought, they are all going to be curtailed, and wells, too. Ms. Ratchye: Santa Clara cannot curtail well usage. Commissioner Dawes: No, and I am speculating now, but my guess is that there would be a rapid dropping of water tables, etc. Or is it expected that they could be pumped at their full capacity in a severe, multi-year drought? Ms. Ratchye: In the event that there was an emergency situation in the ground water, they could force people to stop pumping. But it would have to come to that. They could not, because it is a drought, for example, say okay, everybody gets 25 percent less than you have been pumping. They cannot do that. In fact, in the last drought we did pump sometime during the drought. Certainly that would be a million percent more than we used prior to the drought, which was zero, unless it is a very severe situation and the basin is in a crisis. We would be in bad shape then. Chairman Ferguson: Next is Demand-Side Management, Page 54. Commissioner Bechtel: I have a question on Table 6, the Palo Alto Best Management Practices Compliance. I note that we are not in compliance on several of these items, particularly in water surveys for residential and multi-family customers, and also residential plumbing retrofits. Have you ever seriously considered doing that, and rejected it, or it just has never come up? What have we done by way of auditing our personal usage? Mr. Miller: I do not know as much of the history of that as Jane may know, but right now, one of our customer reps in the Utility Marketing Services Group is speaking with the Santa Clara District about the possibility of utilizing their staff and some of their services to assist the residential market in water, precisely to do audits, etc. There may some synergies where we do not have to build on that resource within Palo Alto for the few audits that they could provide that service to us. So we are speaking with the Santa Clara District about that to fill that gap. On the plumbing retrofits, I cannot answer, but at least for the audits, they are in discussion. Commissioner Bechtel: Are there any items on here that would have
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a big impact on usage if we did comply? Nothing sticks out, but like in #14, the ultra-low-flush was discussed, and we heard previously that they have had a very minor impact. Mr. Miller: For the commercial-industrial areas, it is possible that there is room for some additional improvements there, or for the low-flush toilets, there are a number of them that are already installed in Palo Alto, and it is not clear how many there are left to do and how much penetration we get. That could be part of what would be investigated in looking at the demand side management resource to see where we are with that. The data we have for that are quite old at this point, but the commercial-industrial is another area where we could look at making some significant improvements. Commissioner Rosenbaum: On the question of ultra-low-flush, is it not federal law that all toilets sold in this country have to be 1.6 gallons? Mr. Miller: Yes, that is my understanding. Commissioner Rosenbaum: So what the city could do and which I believe some other agencies have done is to offer an additional financial incentive to encourage people to do this independently. Mr. Miller: In addition to the natural replacement? Commissioner Rosenbaum: That is right, yes. And that is essentially what we have done with refrigerators. We are not doing that currently. Mr. Miller: No, we are not currently doing that. The last analysis that we did before I came to the city was that it was not cost-effective to participate in that program, so we have not done so. Commissioner Rosenbaum: It is widely assumed that people hate those toilets, and indeed, there is an effort under way at the federal level to repeal that legislation, led by a Congress Member from Michigan who says that all of his constituents go to Canada to buy their toilets. Mr. Miller: I have heard of that smuggling problem. I do not know how much of smuggling problem we have with toilets in Palo Alto. Commissioner Rosenbaum: If the federal law were to change, then it would perhaps be even more important, because the intent would be to leave it to the states. Perhaps the State of California,
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recognizing water supply problems, would want to continue with the 1.6-gallon toilets. Supposedly, they have gotten better over time. The ones you buy today are supposed to work. Council Member Beecham: As a small question for clarification, correct me if I am wrong. I assume that the low-flush requirement is by the building code, but it is not illegal to buy or sell higher volume toilets, is it? Ms. Ratchye: They are not available. They are not being manufactured, and they are not for sale. Council Member Beecham: Somehow, I hear from people in construction that the common thing to do is to put one in for the inspection, and then replace it. Ms. Ratchye: Where are they getting them? Council Member Beecham: I do not know that. I will ask the next time. Commissioner Dawes: My son is in the recycled building supply business, and believe me, they get recycled, in true Palo Alto fashion. Chairman Ferguson: If there are no further comments on demand side management, we can go on to water trading and water banking. Commissioner Dawes: However, claw-footed bathtubs are in high demand. Chairman Ferguson: There is an interesting staff discussion on Page 61 on water trading and banking, and the opportunities there or lack thereof. Any comments? Commissioner Dawes: I would like to hear staff elucidate on this item a bit more. I visualize how it could work, and if you had your druthers, how would you like to set it up? Mr. Miller: In a lot of the CalFed work that has been done, water trading and transfers are seen as a panacea. It is part of all solutions. The difficulty that they are running into is that all of the water laws are not designed, and in fact, they restrict trading the way the water laws are structured, so there are significant barriers to water transfers and trading. They are at a statewide level trying to address some of those concerns and get some water transfers and trading to happen. Unless and until some
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of those barriers are broken down, it would be very difficult for Palo Alto, on our own, to implement certain types of transfers. We could possibly do something with MID TID because that one is fairly straightforward in structure, but for other types of transfers, there are some significant barriers that we probably would not want to tackle by ourselves. As this transfers and trading issue is getting worked on, others are putting in a significant effort toward solving some of those barriers and roadblocks. So in the next couple of years, those could get solved, and it could be easier. Commissioner Dawes: The thing I do not understand is that water is not a problem until it is a problem. Everybody does not have enough, and it is not easy to store for multi-year periods. Obviously, our reservoirs are designed to do a very good job in buffering supplies, etc., but if we faced another late eighties type drought, everyone is going to be in the same bucket, and I do not see how trading gets you out of that problem. Ms. Ratchye: During the last drought, there was water made available, and it was probably those farmers playing golf. Commissioner Dawes: It is basic economics that you go out and buy it, you do not trade it. Crops take a certain amount of water, and in wet years, they have it; in dry years, they sell it, would be the way I would see it happening. Ms. Ratchye: There are more storage facilities being developed both underground and above ground. I think that people are buying into that now. They are putting it away to take it out in a drought, but they did not do that the last time. The whole trading for water is going to be increasing over time. San Francisco bought some water from the state water bank during the last drought, and they did take in delta water. They do have a connection to the state water project now as a result of that emergency basis connection. So we have to assume, I think, that in the future, if it got severe enough, as someone said, the six million people in the bay area are going to outweigh some crops in the Central Valley, and we will get water. In the assumptions you would make about how low you could go in San Francisco, I think it is not realistic to expect a 40 or 50 percent cutback in the urban areas now. There are possibilities for building more storage. Even though San Francisco has junior rights on the Tuolumne, they do not utilize all of their rights. In wet years, they lose water because they do not have a place to store it. They would have a significant amount more of water available safe yield if they had a place to store
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some of their wet year excess water. Commissioner Dawes: You are basically saying that we have to build more dams, and I just do not see that as being a solution. They are tearing them down. Ms. Ratchye: They can build a reservoir like out at Corral Hollow, for example, which is a location that has been identified out by Livermore. Maybe a small dam might be involved, but off-river storage. It is unlikely that you are going to have a big dam on a river, I agree, or that is going to be difficult. But I think it is possible to build some off-stream storage. Commissioner Dawes: I hope you are right, Jane. Ms. Ratchye: San Francisco did look at that in their Water Supply Master Plan. They looked at several different locations for that, so I think that as water becomes more valuable, there are places, but I do believe that the water trading business is going to increase, and it will increase, it will get a big boost during the next drought. Commissioner Dawes: It is just my assumption that either everybody had too much of it and it was ho-hum, or everybody ran short at the same time so that trading was not an option. I understand sales, and maybe what I am saying is a sale and you are saying is a trade. Ms. Ratchye: Yes, sale is trading, trading dollars for water. Chairman Ferguson: One of the points I wanted to make about the banking section is that it is probable that ten years from now, we will see a legislative fix that incorporates something roughly analogous to electric energy deregulation that will be applicable to water. They will change the water laws and the water regulations that block a lot of these trades. So if you are willing to bet that that is out there a decade or so from today, it will be speeded up if there is a drought along the way. How would that change our investment decisions today? Are there things that we would build today -- is there something at the margin that we would choose to do if we believe that we were going to be in a more market-like water environment fifteen years from now? Some of the things we are talking about building are 15-year-lifetime projects. So again, this is not space-cadet stuff anymore. We are seeing market-like behavior working in other fields, and I think we are going to see it in water, too. So let that future-oriented thought govern our decisions, at least at the margin. Any other comments on banking?
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I believe staff wanted our comments on the overall approach on some of the next steps for this study. Commissioner Bechtel: I want to speak to your last slide, Develop Action Plan Timeline -- What - How - When. Draft Scope of Work, you say, for the next meeting in September. What is that? Staff work? Consultant work? All of it? Can you give me some feel for what you have in mind presenting to us at the next meeting? Mr. Miller: It would be very preliminary. It would be the staff assessment of what tasks we think would be most appropriate, and what the order of the tasks would be, and possibly some time associated with them; the staff level requirement associated with them would be my guess. Any thoughts on that, Jane? Ms. Ratchye: I think the main work we are facing now is just trying to figure out how to integrate all of these different objectives into one objective statement, trying to ensure that we are capturing all of the values of emergency and supply look, and are we making sure we have the short-term emergency covered and the long-term, also. It is thinking about that which we have started to do here. We have started by focusing on long-term supply with the small; does it add any emergency value? Since we are potentially making such large capital investments just for emergency, we want to make sure that we are thinking of everything. So I think it is formulating how we are going to proceed in that analysis and how we are going to define the problem. Commissioner Bechtel: I want to follow up by saying that we have spent a lot of time talking about the emergency aspects. This is the resource side, but I am assuming that we still have a firm plan to move ahead on the emergency supply side, and only if, during the resource discussions where there are some things that could be folded in, that those things would be folded in at the right time. I could foresee down the road some changes, even in our emergency thing, if something comes up on the resource side. Am I thinking the way that you would be thinking? Mr. Ulrich: Yes, the short-term plan is under way and factored into the budget. But there are points along the way in which modifications can take place, based on what we are currently learning. Chairman Ferguson: I foresee a "what-if" analysis. It is not as if we can predict in advance that the right way to set up this problem for solution is this: bing, bing, bing, turn the crank and generate an answer. I see you coming back with these results
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folded in with the emergency study, and then just giving us a what-if: What if we do define an emergency and decide, then, to rely on three wells for supplementary, long-term supply, rather than spending $15 million to connect to Santa Clara or spending an extra $15 million to cajole San Francisco along in a particular direction. Take us along that path. What happens if we make a left turn here -- based upon this much thicker set of data, which is wonderful to see. I see this as something of an iterative process taking us into the new year. But again, let us not lose sight of the emergency-supply target. Commissioner Dawes: I might add that we will know more as we go along, particularly with respect to San Francisco. My vision is that they are going to be forced to come to the table and start dealing pretty specifically, as Councilman Beecham, said. I do not think the two million bucks is going to come to them just by saying to the bond market, "Well, we will just charge our suburban customers, and they will pay." So at that point, we can get a much better grasp on supply assurances, a guaranteed portion, and maybe even some action on the backup supply, some sort of dealing on, I say buying, Jane says trading, but some real backups there. We will learn more, and I just want to make sure that as the plan unfolds, as we start spending money, we may decide two years down the road, whoa, we do not have to spend all this much because new things have happened down the road with respect to San Francisco. So we have to keep flexible, and to my way of thinking, that says that this is not a fire drill project, but is one that can put some band-aids on first, like maybe getting some wells started up and rehabilitated, but the reservoir, which is the big bucks end of it maybe we can put five years down the road and wait and see what happens. Chairman Ferguson: Just to put a wrap on this, you mentioned in the presentation that we are going to be forced to make some decisions in the absence of data. All I can say is that as a result of the studies that you have done, we have a whole lot more data than we had a year-and-a-half ago, and I think we will be making a better decision as a result. So thank you again for the good work, and I look forward to the next iteration on this topic. Council Member Beecham: Let me add one more comment based on the last conversations, and that is, on the time frame and the uncertainty, I do not see how we can make the decision until we know how San Francisco will approach the $2 billion question. As they do that, they are going to have to include in their plan any plans they may have for future supply. That will have such an overwhelming impact on what we do and the very basis of our cost that I do not know how we can make some of these other decisions
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without knowing more of where they are going with it. So it does talk about this not being a fire drill, not having to decide today because we do not have the information, and may force us to continue on a short-term approach, even though we very much wish we could take an overall, integrated plan with us. NEW BUSINESS 5. Western Post-2000 Base Resource Contract Chairman Ferguson: Let us proceed with the Western post-2004 base resource contract renewal. Mr. Ulrich: I had suggested earlier that I give you an update on the energy shortage. I must admit that it only has some tangential relationship to the subject that we are bringing up with the Western contract. Virtually everything I have to say, at least on the surface, you are all aware of, which is that we are going through another critical stage in energy shortage in California. On June 14th, we had our own shortage in the bay area, resulting in having Palo Alto, along with PG&E, Santa Clara and Alameda, turn off some of its customers for more than two hours. We did a lot of communication with our customers, both before and after that occurred, and learned a lot about how well we performed. It is something that we have not done ever in Palo Alto. As I mentioned, I have never done it in my 30 years in the utility business. So we learned a lot from that, and it showed that we had pretty good plans in place. We know that it is only a matter of time before we will be tested again. The hot weather is back. It started on Monday, and we had a little forewarning of that, so we began contacting our customers. We have been retaining our large customers, the ones who will help us in Stage 2 when the capacity gets below 7-1/2% and then goes below 5%. We have asked them to voluntarily curtail what they can, and I would say that we have had phenomenal support from these customers. They clearly know that if they do not help during the voluntary stage, it just makes it quicker getting to Stage 3 and have to turn people off. They also know that they may not be the ones who are turned off. We have educated, communicated and explained how the rotating block system works. Every customer that is interested has determined where they are in the rotation schedule and can get a pretty good idea as to when their turn will come. Even though their turn may not necessarily come quickly, these large customers have gone and curtailed when we call. We have developed a very good communication system with them, both by telephone and through the Internet, and also those that are able can get a direct page from us. They can know within a few minutes
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after we have been notified by the ISO and PG&E. So I wanted to tell you that those are in place. While it is not the role of the UAC to be involved in operational issues, this may help shape your thinking about long-term policies, particularly as it relates to service reliability. You may have seen the article in USA Today, an article on the front page today, that it is not only a California problem. It is quite widespread. Also an article in the New York Times today, and you have read them in other media. So this is a very hot issue. Apparently, the PUC is going to investigate regulation and deregulation again and take a look at it. We have also seen the effect of the deregulation in San Diego where their CTC has been removed, and they are now buying electricity at the market, passing it right on to their residents and businesses. It has caused huge havoc and economic problems. As you probably know, Palo Alto is a listed energy supplier in the state. Even though we do not sell outside, we have had numerous calls from people in San Diego, asking if we will send electricity down to them. So they are very, very concerned, as we all should be. I wanted to say that we are very sensitive to this, and feel that we have done a very good job of communication with the customers, and they are doing a very good job in helping us. How long that can continue when equipment gets strained, noise in the neighborhood when trying to run generators on the hottest days of the year, those are all very poor practices and ones that we need to find a way to eliminate and get out from under, getting back to serving electricity as we should. If you have any questions, I will be glad to answer them. That is my brief summary. Commissioner Dawes: John, is there anything that the Palo Alto utilities or the City of Palo Alto should do in the political arena? I read that the biggest issue currently today is lowering again the cap on the ISO for peak power, which is sort of a back door kind of regulation. Of course, there is also a lot of noise about re-regulating, but basically, I can see this cap being ratcheted down. Is there anything we should do to either approve, disapprove, or otherwise comment to the state officials whom I guess are feeling the heat quite a lot? Mr. Ulrich: Yes, we are doing things. I read the letter to the present CEO of the ISO with some very specific recommendations on things that should be done. The primary problem is that the ISO is there, but they do not really have the authority to order and spend any money and actually get anything accomplished. As you know, their philosophy has been that the market will build and take care of the load. It has not happened, so they either need additional authority to accomplish something, or find some incentives to get the energy providers, primarily transmission people, to increase
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capacity, and do it quickly. I also met with the EPA last week. It was investigating the practice on how to allow very prompt building of plants, particularly the one that PG&E would like to bring in on a barge and hook up. While that is not a lot of capacity, the current process in air quality requires a very long and protracted period to get approval. So I was somewhat encouraged by the meeting. At least, they are asking questions. NCPA is very active in doing that, and we are also holding meetings, at least on the process, with PG&E. So we are doing things both collectively and independently. Commissioner Rosenbaum: For your reading edification, today’s Wall
Street Journal has a brief story about Senator Steve Peace and his problems in San Diego. Mr. Ulrich: As I mentioned, this has a little bit to do with our next topic. I think we should all think of Jerry Keithley, the city manager who helped orchestrate and put together the contract with Western that is going to expire at the end of 2004. We are in the process of getting agreement contracts for the next twenty years. As this unfolds, we are learning a lot more about it. The base contract had been finalized with staff at the end of June. We have a six-month period in which to review it. Frankly, there is not much, if anything, that we can do about it (and that will be explained shortly) to try and change it, other than to review it, understand it, and then move on and approve it, as this is an excellent contract. The next phase becomes more interesting, and has more unique features that we need to work on the custom side. We have approximately two years to work on that. So tonight is the request to ask you, after review, to give us your recommendations and approval so that we can move ahead with it to the City Council. We would like to have that done shortly after they come back from their vacation in order to get it approved in, say, September, and no later than October. Presently we have it on the calendar for September 12. Jane Ratchye and Tom Kabat are here to present the item and respond to your questions. Ms. Ratchye: The presentation I am going to make is going to briefly go over the key elements of this base resource contract. I will try to give you a little ballpark idea of the value of the contract as we see it from here without a whole lot of analysis and show you our recommendation, which is to approve this contract, and then describe what things will be coming back to the UAC in preparing for that Post-2004 period. It will be dramatically different from our current era of Western power.
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The base resource is primarily output from the Central Valley Project. Also included is a very small project called the Washoe Project, but there is not much production out of that project. There is also a purchase power contract that is at an index price. It is just a market-based resource that is part of the base resource. That is for the first ten years of the 20-year term of this contract. You subtract out of what is available from the CVP and Washoe, you subtract out the project use requirements for the project, which is basically all of the water pumps in the system, a significant amount of use annually, and you take out the loads for the first-preference customers, which are special Western customers, but fairly small loads, and then other adjustments for maintenance, reserves, transformation losses and ancillary services. The key about this contract is that it looks very much like a hydro project. You pay for the cost every year, and you get whatever the thing produces every year, and that is highly dependent upon the hydrologic year. This is completely different form our current Western contract where we were guaranteed a firm amount, and we have an energy entitlement every year, year in and year out. This is very different from that. Another few key components of the contract are that rather than getting our allocation, which is 11.6%, necessarily every single hour of the day, we will get a daily allocation, and we can schedule that in the manner that we want to, and try to shape that in the most valuable hours. Then Western will establish exchange programs, an hourly exchange program and a seasonal exchange program, and there is not much detail about either of those right now. They have time to create the implementation part of those exchange programs. That is a feature of it, but we are not clear as yet on how valuable those programs may be for Palo Alto. To give you an idea, right now, we get from Western about 1,100 gigawatt hours per year, and our load is about 1,200 gigawatt hours per year. Under the base resource, we will get, in an average year, about 40% of that, and lower than that in a dry year and greater than that in a wet year. To see how that looks graphically, the checkered column on the right shows our load, and you can see that until the end of 2004, a lot of our load is met with Western resources. There is a bit of difference on hydro year, and that is basically our access to some excess capacity products that Western makes available when they have it. You will see that the amount we are going to get in an average year is a lot less than we are getting now. So there is a big hole to fill with some resources after 2004. It is a significant hole. As for the cost of this, we are expecting about five to six million
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dollars a year. That is a ballpark figure. In terms of dollars per megawatt hour, in an average year, that is fourteen dollars. It is obviously higher in a dry year, because we are going to pay those costs year in, year out, and those are take-or-pay costs. In a wet year, it is way down to $10. We have gotten some market Price estimates for period 2005-2024 of market value. It is in the $50 per megawatt hour range. So even in a dry year, it is a below-market-cost resource. Commissioner Dawes: What do we pay now, on average? Ms. Ratchye: Twenty, and the market is higher now. This is a ballpark for market prices in Northern California. It is just a price forecast, and you can see the price falling from current levels to about 2004, and then it will increase slowly after that. So right now, we are paying around $20 until 2004, and then a little less than that after 2004. Every year, it is well below this market forecast. There is a lot of uncertainty around what these prices are. Commissioner Dawes: Does that not fly in the face of what is happening today? The price escalation is pretty severe, and this forecast says that it is going to go down every year for the next five years. I do not understand that. Ms. Ratchye: Well, that is are what people are willing to sell us for in the future. Higher prices next year, and then the following year after that. You will see the same thing in gas. It is higher this year, next year it is less, and in the third year, it is even less. Commissioner Dawes: So we could buy power two years out for less than what the market is today? Ms. Ratchye: Yes. Even ten years out. I think part of it is a short-term supply problem. This graph shows in millions of dollars per year the value of the Western resource to Palo Alto. You can see that for an average year, it is about $55 million per year that we are saving the customers in Palo Alto primarily because of this Western power, and that declines, but there is still plenty of positive value even after 2004. The blue lines show different market price estimates and different hydro estimates, but even in the unlikely scenario of a very dry year and low market prices, we are still below market. There is still net value to the Western resource. So all of this says, recommend signing this contract. It is the best deal out
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there. There are risks to the base resource. As I have shown, there are pretty significant differences between how much is available, depending on the hydro year. It is a non-firm resource, so there is a question about what the average rate will be in the future. Also, we are committing to pay for 11.6% of the Western costs, whatever they turn out to be. Some may worry that that puts Western in a position to not really care about their costs too much. So there is a risk there. And there are always the regulatory and legislative changes that could come in and take away all of the value. So it is certainly not risk-free, but we do recommend approval of the base resource contract. This is the first piece, sort of a building block for any other deals we can make with Western. There are some significant pieces that have not been worked out. One of them is with ancillary services. We could even contract with Western for a product very similar to the one we have now, if we want to pay for that firming, and a firm allocation regardless of hydro units. There are a number of things we can do. We are helping Western right now to develop those custom products that they may want to offer, but if we do not sign the base resource contract, we are ineligible for any custom product or any other Western product. Basically, we are expecting this to be below market, even in a dry year and a low market forecast year. Even though it may feel like there is not a lot of analysis around this, we feel that the case is sufficiently made at this point to sign this base resource contract. We do feel that there is a lot of work remaining in just our resource planning effort. What are we going to do to fill this hole? There are a lot of different alternatives for us there. We could just remain on the market for all of that additional power that we need. That would almost guarantee that we would remain below market, or should we buy something forward? Should we invest in a thermal plant? There is a lot of analysis that needs to happen to figure out where we go forward from here. It all starts from having this base resource in our portfolio. We will be returning to the UAC many times over the next months and years with plans for how to fill this long-term big hole. We would like to return to the UAC in October with a work plan on how we are going to address essentially the hole. This project, in particular, looks to be right up the UAC charter, as someone on the staff said. So this looks like something you would have a lot of interest in. Chairman Ferguson: Since this is a specific request for action, and the action is simply defined, let us have our discussion inside a motion. Can I have a motion that the UAC recommend that the City Council execute the Western base resource contract?
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MOTION: Commissioner Dawes: So moved. SECOND: By Commissioner Rosenbaum. Chairman Ferguson: Now, questions or comments on the motion. Commissioner Dawes: I have a couple of things. First, is this contract with Palo Alto alone, or are there other parties that are signing the same contract? Ms. Ratchye: All of the parties, except for first-preference customers, will be signing I think an almost identical contract. I do not believe there will be any differences. Everyone will obviously have a different percentage. Commissioner Dawes: If everybody was not signing, other than the preference customers, exactly the same contract at the same time, do we have the rights to get the best deal if somebody gets a better deal later on? Tom Kabat: There is not a specific clause in the contract that says whether you have the rights to -- Commissioner Dawes: Yes, but if everybody is signing the same contract at the same time, it does not make any difference. I guess what it also means is that there is nothing on the table here. This is a take it or leave it deal, and it has been heavily negotiated by a lot of parties. So what you see is what you get. Secondly, not directly on point, but I would come back to this price graph again, and I think of the stranded cost analysis. We went round and round on that about a year ago when we ratcheted down our stranded costs for the Calaveras Project. As we reasoned it through at that time, the stranded costs turn entirely on the forward expectation of prices. That line went gently upwards. There was none of this down and up. While there is no need to have these things to be the same, it just is terribly puzzling to me that this down trend, when we made our stranded cost decision, was based on what seemed to me an entirely different set of numbers. Ms. Ratchye: There is a different set of numbers every day as to the market forecast. The stranded cost numbers were going upwards, but they were probably starting from here. Commissioner Dawes: But the price of electricity is the price of electricity. Basically, this is a forecast of future prices, and that was a forecast of future prices, too.
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Ms. Ratchye: Right, and at that point, we could have bought power for those prices. At this point, we can buy power for these prices. So the market is the market, and it has changed. Commissioner Dawes: So you are saying that the market has just leapt up. If I were to look back at that graph, it would be down in the $30 range rather than in the $60 range. Lastly, where does NCPA fit into this? They will stay in the same relationship as our dispatcher and partner, but we make our deal directly with Western without their being involved. Mr. Kabat: NCPA has been at the table helping to represent a number of their members, and Palo Alto has been there, too. A couple of the big members show up all the time. But you are right about the contracting relationship. We have always maintained that it is between Palo Alto and Western, but right now, we are anticipating continuing to use NCPA as our scheduling agent. So we are anticipating a continuation of the same relationships. Commissioner Dawes: Thank you. As you said, there is no choice here. Commissioner Rosenbaum: I think the general tenor of your presentation is that this is a good deal, but we will probably not be as well off after 2004 as we have been up to now with the present contract. And I am curious about that. Western today only owns the same base resource. The only way they are able to provide us with firm power is go to out and buy the stuff, and they are selling it to us now at 20 mils. If we were to do nothing more than to say to Western, well, we will contract with you to continue providing us with the same firm energy, why would we be any worse off than we are now? Why would the price be any different than what it is now? Mr. Kabat: There are three factors that make the contract degrade a little bit in value. The first one is the natural end of Contract 2948-A with PG&E. It is an integration agreement that gives PG&E certain rights. In exchange for those rights, like the right to dispatch the Central Valley Project system of 2,000 megawatts of hydro power, PG&E has that right to dispatch in the shape they want. PG&E also has an obligation to fill in for customers loads when the system is not generating. In the past several years, customer loads have been high, compared to CVP output. So under that integration contract, we have been getting backup power at favorable rates. It is not known how favorable a rate, compared to the market, we will be able to negotiate in a
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follow-on integration agreement. That is one possible dilution of our use. The original integration agreement was signed in a simpler time, back in 1968, I believe. Now the market is a lot different. There are a lot more competitors with different expectations, so we may not get as good a deal on integration. Another factor is the dilution of our share of the project. We are dropping from about a 122-13% participation in the Western market to 11.6%. It is for a few reasons. One is that SMUD is going up. Counties of origin are going up, and about 5% new customers are coming on board. So there is dilution that way, as well. Then the third factor is a decline in net project availability after project use. That is coming from two factors. One is tightening of environmental requirements, reshaping when the power can be generated, and how much power can be generated because of more water needing to be released or bypassed for river temperature controls. Also, a potential increase of project use that has a first right ahead of all other uses in the Central Valley output. So there is some anticipation of more project use taking that Central Valley output. We have these three major categories of decline coming along. Commissioner Rosenbaum: So there are some specific reasons why you think it will be of less value, rather than the very striking one that it is only 400 as opposed to 1,000. Mr. Kabat: Right, and maybe embedded in your question is, is it already only about 400 or 500 gigawatt hours hydro, and the answer is yes, it is probably around 550, but then with what amounts to call provision on some reasonably priced backup energy, it is not at market prices. We are not sure that we will be able to get that same nice arrangement, and then we will have to share with more folks and with more pumps. Commissioner Rosenbaum: One other feature is that when market prices were low, we were able to take less Western, which I guess is not available here. We are going to be paying for the same amount. Mr. Kabat: That is correct. That degree of flexibility is not there as obvious. We think there will be some exchange programs, and we are working on helping to design those now. But if we get into a real departure where the market plunges below the Western per-unit costs, we will not have the ability to lay it off to folks the way we were able to find folks who would want it in the prior situation. At least, we do not see it now. In the prior situation, we were able to lay it out, because there were arbitrage opportunities where different parties had different alternatives.
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We laid off our Western to folks who had a worse alternative. They enjoyed it, and we enjoyed laying it off. Commissioner Rosenbaum: One further point. Western clearly has many, many small customers who are not in a position to worry about how they are going to firm up. Someone is going to have to do it for them. Is Western going to do that? And do we think we can find a way to do it better than simply dealing with Western? Mr. Kabat: The Western customers are working together to look at different options. We are starting to interview marketers to see who is interested in replacing PG&E as the integrating agent. PG&E has also mentioned renewing the integration, as well. So those discussions are happening. They will be thoroughly explored for the next two years as part of the custom product formulation. I think one of the custom products will be a replacement type contract. They do not have a lot of interesting risk mitigation features built into it, but I think people will have to pay for it fairly explicitly, so there may be weather hedges in there, calls on energy at different strikes with embedded premiums. There will be a lot of interesting features that will make it a bundled product that someone could sign. They would then know their price. Commissioner Rosenbaum: Strikes with embedded features? Mr. Kabat: Yes, you can break it down into a lot of derivatives, but the contract could have calls on energy in dry years, so that is one feature we have now. We do not talk about it that way very often, but if you break it down into all of its components, that one is in there. Commissioner Rosenbaum: You will have a good time explaining that to the council. That will be an interesting period. Commissioner Bechtel: I guess the change is that we are going to have a fixed percentage allocation of the fixed cost. What mechanism is anticipated for us to be able to look at their cost? Or will they have a forecast of their cost over a period of years? What sorts of things do you anticipate from a cost control possibility that we have? Mr. Kabat: I think we will have some of the same mechanisms which we have now, which is that they do cost forecasting and repayment studies that go out dozens of years. They now set their rates five years at a stretch though a public process. They will still be under that process and doing that. Their rates are not now a part of the contract. They are keeping those separate, so they will go through a different public process to do that rate development. As
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Jane has alluded to, we will lose some of the pressure in some of our alternatives. Right now, since their charges are somewhat volumetric, when their rates are high and the market is low, we decrease our schedules and dodge some of their costs. But under the base resource contract, we do not see that opportunity. Commissioner Bechtel: How many different sources do we use today to provide all of our needs beyond Western, and what are the options? You have mentioned PG&E as perhaps continuing in some kind of contractual arrangement in the future to make up the difference as an integrator. What options do we have, going out? Mr. Kabat: Currently, we are using Western and several products that Western markets. We have used the Calaveras Project on the order of ten percent of our energy this year, I believe. We have an exchange agreement that will continue with Seattle City Light where we send them power in the winter, and they send us power in the summer. We also go to the market occasionally when we have shortages. This year, we have not had many shortages, so we have not been going to the market. When we go to the market, we shop around with a number of different suppliers, compare prices, and buy attractive products. Commissioner Bechtel: So it sounds like we are quite experienced in filling our needs beyond just using the Western contract as our source. Mr. Kabat: Yes, we have done it, but we have had the luxury of only having to do it for small fractions of our needs. From the bar chart where you see the sudden hole developing, if we only have the base resource contract, we will be out there looking for 60% of our supplies from other sources. So it is a much different thing. That is why we are coming back to you in October with a plan on how we will be addressing that hole and the purchases. Chairman Ferguson: If there are no other questions, let us have a vote on the motion, which is to approve the base resource contract. MOTION PASSES: Chairman Ferguson: All in favor of the motion, say aye? That passes unanimously with all four commissioners voting aye. CITY COUNCIL REFERRALS 8. Bay Area Water Users Association (BAWUA)Report Chairman Ferguson: Jane, would you like to comment on BAWUA?
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Ms. Ratchye: It pretty much says it all in this report. The advocacy committee right now is looking at how to implement a proposed draft strategic communications plan; however, we are not ready to make it public yet. You saw the letter from the North Coast County Water District that asks for some way to involve elected officials in more than what he called an ad hoc basis. We are trying to figure out what that would look like for BAWUA. Would that mean that the BAWUA representatives would be elected officials? Or would they be some other group that would be briefed, similar to the symposium that we had on some sort of ongoing, regular basis that we draw upon who could help us to achieve our goals? These are just concepts floating around right now. Perhaps the UAC has some comments on that general concept. Chairman Ferguson: Commissioner Rosenbaum, to the extent that BAWUA is an analogy to NCPA but on a somewhat smaller, regional scale, is there any question but that elected involvement of electeds in NCPA makes a difference? Commissioner Rosenbaum: How often does BAWUA meet? Ms. Ratchye: The board meets monthly, and this group of suburban reps, which is essentially the board, meets probably every other month with San Francisco management. The whole membership meets quarterly. The SAG group, which is everybody, also meets with San Francisco management once a year at an annual SAG meeting. Commissioner Rosenbaum: At the monthly meetings of the board, is everyone represented on the board? Ms. Ratchye: No, there are just seven of us. Commissioner Rosenbaum: It is like NCPA. NCPA has 15 cities, while there is certainly a commissioner appointed by each city, and many of the cities are represented by the utility director. How often do you have a council member make those trips? There is much less travel in BAWUA, because everyone is integrated. So it is conceivable that there could be representation either at the board -- maybe the board is the one from council members. If there were no council member, it would be the staff, just as it is now. Bern, do you want to go to another monthly meeting? Council Member Beecham: Part of the question, too, is what would be the tasks of these meetings? If it is more technical, and at this point, I do not know if it is, that would be one thing, and that would lead to certainly having staff continue what they are doing, and maybe not much of a function for an elected official. One thing that is particularly valuable at NCPA is the elected
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people being on the legislative committee. That is really the analogy I think you are talking about here, and there are elected officials who show up for that or for those events who do not necessarily show up for technical discussions. At least, now what is being discussed is finding some mechanism to get the electeds to turn out when you do want to lobby, basically. So maybe it would be an analogy of NCPA where you have board members or commissioners appointed who are electeds, but then they have the staff members who normally go in their stead, and at the same time, have an active lobbying group that more focuses on getting the electeds involved and focusing them, in turn. Chairman Ferguson: Like the NCPA legislative group. Chairman Ferguson: Is that the picture for BAWUA? Ms. Ratchye: I do not think that picture has been formulated yet for BAWUA. These are just being -- Chairman Ferguson: Sounds like the lesson of experience is that that particular set of skills, that currency, works best in the legislative setting. Council Member Beecham: And I think that associated with that, Lou Pappen is very active in the area of asserting control over the SFPUC. If BAWUA had a more active elected group, I think one function would probably be to work more actively with Pappen and see how to shape things there. On the other hand, we do not necessarily want Pappen to determine where we go elsewhere. Chairman Ferguson: It seems to me that the BAWUA issues coming up here are big dollar issues. We are making great big control decisions that are going to last another seventy years, just like the last Hetch Hetchy build-out. It deserves the attention of electeds. So if there is a way to attract them by limiting the scope to something like legislative or something slightly larger, making it easier for them to say yes on the first pass, that might be the right approach. Mr. Ulrich: That has been our approach and attempt in the last year to move the BAWUA group into more of a legislative and political arena so that there was focus in that area. As you know, you have to get the majority, or a large number of members, to want to do that. We are looking at another approach, and that is to bring a smaller group together that may have a closer interest and willingness to support that, because it is also a money issue, transferring the money to BAWUA in order to be able to pay for this type of additional support. So I think I understand your direction
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in the policy area to move more into that area, and that is what we are attempting to do. It is a little slower than I think we would all like it to be. 7. Northern California Power Agency (NCPA) Report Chairman Ferguson: Next is the NCPA report. Was the Western contract the big news item? Council Member Beecham: If you are asking for a report on NCPA, I have two things to pass on. One is that the rate swap has been consummated. That happened in this past month, and I feel that we got reasonably good rates out of that. The more important rate was at a reasonable, all-time high, but we could not execute the contract because we had to get a full one percent differential between the two rates, so we waited until we got that one point differential. The key rate is still fairly high for us, and I think it should do well in the long term. The other thing I want to mention is that NCPA took a few of us to Washington, D.C. a few weeks ago to, in particular, lobby. We elected to lobby our Senator Diane Feinstein on the Trinity River. The issue there is a very expensive one for us. Currently, water is diverted from the Trinity and goes into reservoirs and into our power plant and comes out on the Sacramento River side of things. There is a strong move to take some of the water that we use and put it back into the Trinity for the fish. The question is, how much? Whatever solution comes up will be expensive, and we are just hoping that it will be less expensive than it might be. That decision will probably be made around November, we expect. Commissioner Dawes: Is that Trinity River a part of the CVP project? I do not understand how we get power from it. Council Member Beecham: Yes, it is. I do not know quite how it works, either, but apparently Palo Alto gets a very large portion of this particular water. Commissioner Dawes: So within the CVP, we could get 20 percent of something and five percent of something else? I had not heard that. Mr. Ulrich: I am sorry that Tom has left. It is a part of the integrated CVP project of Shasta and Trinity. Trinity is a later addition to the plan. What Bern is talking about is that if the water is diverted in any way, then it is not available for power production. So whatever that percentage is would clearly impact Palo Alto.
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Chairman Ferguson: It makes the hole bigger in the estimates at the meeting we went to last month. In Palo Alto's particular case, it would have cost us anywhere from 1.5 to five million dollars to plug that hole. That is our cost to participate in the fish ecosystem story. So it is not a number to sneeze at. That is our real dollar cost to take that environmentally sensitive action. 9. Transmission Agency of Northern California (TANC) Report Chairman Ferguson: Now for the TANC report. Mr. Ulrich: There is no official report on this item other than what I mentioned earlier about the Tracy transformer. NEW BUSINESS 6. Future Minutes Chairman Ferguson: Now our last item is the issue of the minutes. John, as I read it, it is whether we find it useful to have verbatim minutes or whether to follow the lead of the rest of the city to go with sense minutes. There is an example before us to see the difference in style. I will start the discussion by simply asking, who are the users of the minutes? There is a legal requirement to make a record of the meeting. We have had public comment in favor of verbatim minutes at the last meeting. Is there another use of our minutes by staff or by commissioners that we can define, that is better served by verbatim versus sense minutes? Commissioner Dawes: To me, the primary user should be the finance committee and the council. I view it as the eyes and ears of the electeds to ferret out the strengths and weaknesses of our utility company and the various proposals that are made or the various proposals which are not made but which we badger them to make. Therefore, to me, the issue is, what does the council want to see? The other side of it is, who does it? It is going to take somebody who is highly skilled to do sense minutes. We sometimes will go for a couple of meetings without any resolutions at all. As I look through this sample of sense minutes, it is primarily a record of motions passed and an occasional boiled summary of speeches at the city council made in support of one thing or another, the storm drain situation, for instance, being the primary one in these minutes. To me, the role of the UAC is to debate and question and pull things out. It would be very difficult to distill down the essence of that, particularly when it gets into issues that involve, shall I say, technical tradeoffs, although
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they are not really technical, but the twists and turns and capital expenditure alternatives similar to the kind of thing we were debating with the water issue tonight. It would be very hard to boil that down and get the essence of that to the finance committee or the council. To me, staying with the verbatim minutes is probably the simplest way to go and perhaps the easiest to prepare. Perhaps the hardest to read would be the issue. Commissioner Bechtel: I want to ask Commissioner Rosenbaum, since he was on the council, and also our Councilman Beecham, about the study sessions for the City Council. Maybe there are not very many, and I have not sat in on any in some time. Are there sense minutes there or are they more verbatim minutes? Essentially, what we are doing is that we are studying issues ourselves as we go along talking about the results of what we have done, our homework. We are not simply debating an issue and then coming to a decision in a few minutes or a half hour later. In the case of a study session environment, what sort of sense do you get out of the minutes from those meetings? Commissioner Rosenbaum: My impression is that no minutes are taken of the study sessions. That is my recollection. Let me ask Bern a question. We have a new city manager and a new City Council, but in the old days, this issue used to come up, and staff would always recommend shorter minutes. They would give you some number of dollars that would be saved if you had shorter minutes. The council would look at that, and maybe they would go along and maybe they would not, but it was a council decision. So I am wondering whether the council has weighed in on this subject? They are the end users. Council Member Beecham: The basic philosophy of the council is that with anything that a board or commission is doing, whether recommending a decision that will come before the council, especially if it is likely to be appealed by some party, the council does wish to see full verbatim minutes. But for other issues, the council is generally satisfied with sense minutes. Another consideration (and I am not sure if it is especially for UAC minutes) is that many council members may not have a bent toward these kinds of issues. There may be, in fact, a value of having something that is more readable and having them be more likely, in fact, to go through them and really think about what is being said. Commissioner Rosenbaum: John, is that your understanding of what the proposal would be? If it is an item being discussed that is going to go to the council, we would have verbatim minutes? And other items would be sense minutes?
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Mr. Ulrich: To put it more simply, at least from my standpoint, I think all of you and the commission should decide what you would like to have that would make your job go well and for you to communicate with the council. I am up to giving you whatever you want. We already have a video of this session, and we also have an audio of it. You have been getting the full verbatim minutes for a long time, so it is up to you. I will not give you feedback on the cost savings or the additional cost because I do not know what it is. I think you have to decide what you would like to have for your communication and deliberation on whatever the issue is. Commissioner Rosenbaum: Well, we do work for the council, and I was going to suggest a compromise, which Bern said, is the intent. So personally, I think it might work well to have the verbatim minutes for an action item that is going to be forwarded to the council, and sense minutes for everything else. That would make it a lot easier for the council members to read minutes on items that are not coming to them but which they should be keeping abreast on. They would have the full minutes for items that are coming to them. Mr. Ulrich: If you do not mind, I will put Joyce on the spot and ask her about the technical details of splitting it, doing it one way versus the other. Does it make much difference if part of it is verbatim and the other portion is sense minutes? Joyce Slocum: I am not sure that I can do sense minutes, because it is all quite technical - engineering and economics. So I might not do a good job of the sense portion of it. Mr. Ulrich: So it may take a staff member to go through and summarize it. That may be a job for Commissioner Bechtel similar to what Chairman Ferguson was doing previously. That may help to answer the question. Chairman Ferguson: As one who has done it, if you take the job seriously, it is a good exercise. It just boils things down and fits it on one page. Whether a commissioner does it or a staffer does it, I think that process is worth going through. I share Joyce’s concern that what we are talking about here is awfully technical stuff most of the time. That is a tough job to lay on her. I think the choice is whether it will be a staff person or that we continue with the system as it is because it is easier to just continue doing the same thing. I could work with Commissioner Bechtel in putting together that one-page summary for those who are interested. Does anyone feel like making the appropriate motion?
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MOTION: Commissioner Bechtel: I would move that we maintain our current verbatim minutes for the UAC meetings. SECOND: By Commissioner Dawes. MOTION PASSES: Chairman Ferguson: All in favor of the motion, say aye. All opposed? Commissioner Rosenbaum: Yes, I would oppose that with a preference for a system that I think the council would probably find more useful. Chairman Ferguson: That motion carries, 3-1 with Commissioner Rosenbaum opposed. Mr. Ulrich: In your package, I gave you a copy of future meeting agendas. There was one error in it. It stated "Rick Management Guidelines." It should be "Risk Management Guidelines. Chairman Ferguson: I enjoyed that. My wife enjoyed that, too. She wanted to see the Rick Management Guidelines as soon as they are ready. Mr. Ulrich: Based on the discussion this evening, I would leave the September 6th agenda the way it is. Also, for October 4, please add the base resource plan, otherwise known as The Western Hole. Then in November, have the gas rate increase discussion and proposal for January. Commissioner Dawes: I understand that the universal telecom RFQ has come a cropper. Will we ever have an official sort of post mortem on that to understand why eight or ten or twelve, which went down to five, to two, to zero, happened, and whether we should be doing something different that would encourage universal Telecommunications within the city? Mr. Ulrich: That would come under the fiber business plan. I would hold the post mortem that we have done on it. If you wish, I can report on that separately. That is really part of the basis of our new knowledge about the applicability of a universal service RFP. So our thought was that I would put it into context besides coming and giving you a post mortem, to also give you a recommendation on what we should do for the future. That was the intent of the fiber business plan. Chairman Ferguson: That would be great. I guess the AT&T agreement is now signed and final, so we know the lay of that land. You will be able to tell us the universal service RFP story, and
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presumably we will have another piece of bidding information on fiber to the home by that time. Maybe we can pull a little more coherent and comprehensive set of topics together around that. Mr. Ulrich: Certainly, and I can also say on the fiber to the home, as you probably know, we have rejected the bids that we received. We do plan to go back out with modifications on what we have learned from the first bidding proposal process. We are still intent on trying to make that work and get on with it. ADJOURNMENT: The meeting was adjourned at 10:45 p.m. Then next meeting will be held on Wednesday, September 6, 2000.