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HomeMy WebLinkAbout2000-10-04 Utilities Advisory Commission Summary MinutesAGENDA Wednesday, October 4, 2000 City Council Chambers MINUTES Item Page ROLL CALL ___________________________________________________________ 2 ORAL COMMUNICATIONS _____________________________________________ 2 APPROVAL OF MINUTES ______________________________________________ 3 AGENDA REVIEW AND REVISIONS _____________________________________ 3 UTILITIES DIRECTOR SUMMARY ______________________________________ 3 UNFINISHED BUSINESS _______________________________________________ 6 1. Strategic Plan Process Update ______________________________________________ 6 2. Electric & Fiber Quarterly Report ___________________________________________ 6 * Public Communication ___________________________________________________ 13 3.Fiber Plan Update _______________________________________________________ 18 4. Scope of Work for the Long-Term Water Supply Study _______________________ 34 NEW BUSINESS ______________________________________________________ 38 5. Water Customer Survey Follow-Up ________________________________________ 38 6. WAPA Post-2004 Plan Update _____________________________________________ 41 REPORTS OF OFFICIALS AND LIAISONS _______________________________ 46 Northern California Power Agency (NCPA) Commission Report __________________ 46 8. Bay Area Water Users Association (BAWUA) Report _________________________ 46 Ferguson: Any comments? __________________________________________________ 46 9. Transmission Agency of Northern California. ________________________________ 51 ADJOURNMENT: _____________________________________________________ 52 City of Palo Alto Utilities Advisory Commission Chairman Ferguson called to order the meeting of the Utilities Advisory Commission on Wednesday, October 4, 2000 at 7:30 p.m. in the City Council Chambers, 250 Hamilton Avenue, Palo Alto, California. ROLL CALL PRESENT: Commissioners Richard Ferguson, George Bechtel, and Richard Carlson ABSENT: Commissioner Dawes and Rosenbaum COUNCIL MEMBER PRESENT: Bern Beecham Ferguson: Commissioner Dawes is trekking in Nepal. Commissioner Rosenbaum is at last on a long trip to Italy with his wife. We will have at least one of them back for the next meeting. Our Council Liaison, Council Member Bern Beecham is here as well. ORAL COMMUNICATIONS First item is Oral Communications. I have two notes here for Item 3, where we have a five-minute allocation, one note here for general oral communications. John Easter and Michael Eager would like to speak at the top of the session. Member of the public: John Easter, 1175 Stanley Way: approaches to speak. Ferguson: Please state your name and address. Easter: Mr. Ferguson, you know who I am. I live on Stanley Way and I am also a member of the community association that you are the president of and hasn’t met for I don’t know how long. I am here for 2 reasons. These relate to July 7 meeting of the UAC where I came and asked about what’s happening with the Fiber to the Home trial. We’ve since had an RFP, I’m kind of curious what the result of that is. Are we going to get the Fiber-to-the-Home trial going soon? The second thing is that at that July meeting, as Vice Commissioner, you suggested to Mr. Ulrich that it would be good for him to place onto the agenda an item for a Telecommunications Advisory group that could expedite, not only a Fiber-to-the- Home Trial but the whole issue of telecommunications. I’m here to ask why it hasn’t been brought up and to ask when that’s going to be discussed and I firmly believe that there ought to be a separate group dealing just with telecommunications. And here’s why. The Utilities Advisory Commission has Gas, Water, and Electric Transmission. You’ve got a full plate. I’ve been reading the minutes to the last meeting, it seems to me that you ought to delegate a telecommunications advisory group to help in that area. Split the work up a little bit and get some expertise happening there and maybe to help with Fiber-o-the Home, which I am primarily interested in, but also the management of the Dark Fiber Ring which apparently there will be a business plan presented for tonight to get it functioning in a very functional and expedient way. Thank you for the time and I’m sorry to be a little curt with you, Mr. Ferguson, but it’s just the way I am sometimes and thank you. Ferguson: Thank you for your comments. APPROVAL OF MINUTES Ferguson: The next item on the Agenda is Approval of the Minutes. The minutes are in the package. May I have a motion to approve? Carlson moves, Bechtel seconds. Any discussion? No questions. All those in favor? Motion carries 3-0 with 2 commissioners absent tonight. The Utility Policy Advisory is something we do not formally pass on. It's a summary now drafted by Commissioner Bechtel and is included as an information item only. AGENDA REVIEW AND REVISIONS Ferguson: John, I’d like to propose that in the Electric and Fiber report we just move the Telecom component to the end, so we can just finish that and move directly to the Fiber Business Plan. Ulrich: OK. Ferguson: Any other items or suggestions for restructuring tonight’s meeting? OK. The first item that we have is Unfinished Business, Item #1: The Strategic Plan and process update. There is nothing in the package on that. Is that just an item that is missing? Ulrich: No. I’ll give you an oral report on that. Ferguson: OK, then let's start with your five-minute news summary. UTILITIES DIRECTOR SUMMARY Ulrich: You should time me on this, I haven’t practiced this before. A couple of items I’d like to call your attention to: Cherie McFadden will be taking the minutes tonight. This will be her first time doing it. She is an employee of the City who is taking on those responsibilities. I’d like to welcome you here for the meeting. I have a couple of other items. I want to thank all four of you for taking two days of your time to attend the NCPA Annual meeting. As you know, and the audience should know, the meeting was very full of a lot of technical subjects, primarily around resources legislation and new ideas such as distributor generation. I appreciate all of you taking the time. Those meetings started very early in the morning and you were there for the entire time and I want to thank you and I hope that the people of Palo Alto realize the commitment that you are making to this position. A couple of other items I’d like to bring up because they’re recent and they were not able to be put into the agenda. We discussed a little bit tonight and we will have more discussion about the resource contract. The contract is expected to go to the Finance Committee of the Council on the 17th of this month and your participation attendance and support based on the Policy action recommended would be appreciated. There is expectation that our rates from WAPA will most likely go up in July and that’s because of re-negotiation of what is called the EA2 Contract between PG&E and Western. Without going into details it’s basically moving this EA2 rate closer to market prices. That will reflect in some way -- and we don’t have all the details on this yet -- higher prices to the City of Palo Alto. Ferguson: You said July -- is that July 2001? Ulrich: Yes, July 2001. Actually, they are going to go up this year. They may be retroactive to July of this year. The point is that we are still in negotiations and we will, of course, advise you of it. The point I’m leading up to is that on Electric Rates, even though our WAPA contract is through 2004, there are some provisions, particularly in firming and the interconnection agreement, that could and probably will increase in price. Those will be passed on to us as customers. We don’t know at this point whether it will have an impact on our retail rates. Also, as you probably know, in the firming part of the contract that Western has, we are exposed to market prices. When the firming energy contracts that Western has with companies such as Enron and Pacificorp also go up with the volatility in the market, we expect those to occur also. On the reliability side, we have a meeting scheduled with the President and CEO of the ISO, Terry Winter, on October 13th. Our discussion will center around reliability to Palo Alto and the peninsula. This is a result of the shortage we had in June and the subsequent rolling blackout we sustained in the city this summer. We have some ideas that have been communicated to the ISO and we will pay a visit to them and re-iterate that. We will also on the same day pay a visit to Western on some other issues. On the Water side, we will participate with BAWA on a new water action network. It follows very much in line what we have discussed with BAWA over the last few months and will become more active on the political legislative side of the business, so we can get our voices heard. On October 24th, and Kirk Miller will discuss this with his presentation, the SFPUC will issue its interim water supply allocation plan. You may want to be available and attend. We will give you more information about that. A few other things you may be interested in: There is considerable pressure on cities that receive energy from Western and BPA and other government entities. Areas like San Diego are attempting, through legislation, to request that preference power be allocated or used throughout the state, and not just to a chosen few. That pending legislation did not see the light of day. There will be continued pressure coming along to move our cost base closer to market-based. We’ve had some discussion about Trinity River flow issues, as all of you are quite aware: diversion of water, back from hydro generation, for the Central Valley Project and into river flow for environmental reasons. We feel strongly that there is mitigation that can continue to allow fish and the environment to flourish while leaving water for power generation. There might be legislation that will result in additional flow back into the river and reduce the flow for hydro generation. This will result in less power available to Palo Alto. On another note, we wrote another letter in support of what’s called the Pipeline Safety Bill by McCain in the House; it passed the Senate. We sent a letter to our representative, Anna Eshoo, that Mr. Beecham signed that provided clear support from the City for approval of that bill. That pretty well covers it. I’ll be glad to answer the question that Mr. Easter made regarding fiber to the home. The latest bids we received in on Sept 19th. We are still evaluating them. There were surprises in some of them. Three of the bid look quite good. We should look at those and consider them, to discuss and get things moving along. Ferguson: Very good. Any questions? I’d like to make a comment on the Trinity River project, to just to stress the point for the people who are favorably disposed toward protecting the salmon. It hits a responsive chord for these people. One of the things that's clear here, if this comes to pass, is that this will cost the people of Palo Alto $5-million per year in increased prices for replacement power, if the water flow is decreased. So there is a real cost that remains here. We can’t defer that. Ulrich: Five million may be on the upper end. It may be around 2 million. It will be a significant impact especially in light of other price changes considering other things impacting us. I want the people to understand that there is no one here in Palo Alto who is interested in having environmental damage to the Trinity River. We all use it and enjoy its benefits. Its waters have been flowing through the generators and also have other uses on the Trinity River for over 20 years, in that there are means to continue to provide environmental habitat for salmon. It’s just a matter of which approach to follow. If the wrong one, in our opinion, is chosen, then that would reduce the water flow. Ferguson: Good, thank you again. Let's move on to the Strategic Plan Update. UNFINISHED BUSINESS 1. Strategic Plan Process Update Ulrich: From previous meetings, Mr. Heitzman has been our spokesperson and is our project manager for the Strategic Plan and he is ill this evening, so he asked me to give you the report. The reason it is not in the package is that this is moving quite quickly and we plan to take the full report to City Council on Nov 20. Prior to that we will prepare our CMR and have lots of discussion about what should be in it. We have developed the Strategic Objectives; we shared those with you. We took all of them to the City Council several months ago for a study session and we got a lot of feedback and are moving to answer those questions. There will be a financial impact report as part of that plan. There will be clear objectives on what is trying to be accomplished and what we expect the end result over time will be. Implementing it will be shown to be in the best interest of the competitive market place so that we are able to be competitive. And it will show its distinct benefits to the residents and owners of the utility. So that’s the update and I will be glad provide you with more information you’d like to have. Ferguson: Any questions or comments? Bechtel: I don’t remember us talking about any financial impact report before, during the discussion. I’m assuming that was in the background. Can you give me some feel as to what some of the issues should be? Ulrich: Thanks for bringing that up. We took some of the information you provided. One of the things we need to show is that what we plan to do is in the best interest of the utility and our customers. The review includes an analysis of the value of the Utility System, as compared with a system owned by a private business in town, so that the public sees that municipal ownership is a valuable asset to the city. 2. Electric & Fiber Quarterly Report Ferguson: The next topic is our quarterly report on Electric and Fiber-optics. Are there any staff presentations? We are holding off on telecom until the end. Commissioners, questions on anything other than the Fiber-optic report. Ulrich: We don’t have a specific presentation. Staff will be glad to answer any questions and the staff member will come forward in the order that’s listed. Carlson: Can we just start? I’m most interested in the future that is slightly beyond this. Basically for next summer: what can we do to reduce the probability of reducing major outages next summer? I know that this is a system-wide problem, but what can we do locally to protect ourselves? Balachandran: There are a few things we can do. We can institute some load management programs where we contract with customers to reduce their demand voluntarily; in exchange we give them incentives to follow this program. A number of other utilities are doing this and ISO will be putting out a bid for demand management later this fall. Generation is going to be installed in the Bay Area. Today, the ISO Board is meeting to consider about 3500 megawatts of generation that could be online for next year. They plan to spend about $165 million to contract for these resources. I’m not sure of the outcome. That is a small generation, could be in 50-megawatt units. It’s going to be located over here. Transmission -- there are some minor upgrades being made, there are some upgrades in transmission lines being made in the East Bay. That could also help with the reliability situation. Carlson: Let me go with those. First of all, regarding load management. My understanding of the ISO rules is that on load management, if we reduce load at a stage one or two level, we effectively don’t get any credit for that at stage 3. We don’t reduce our probability of being cut back. We can’t tell our customer that if you cut back right now that we’ll protect you if there is a stage 3. Is that true? It sounds like the incentives are not very great. Balachandran: That’s true, according to the existing rules, that is the case. We have heard from customers where stage 2 curtailments are concerned. They're saying if we are curtailing and we are making efforts, compensate us. Now to the extent that we go out -- not just us, other utilities -- go out on a system-wide basis, there is more load management that we get from the system. The probability of an outage for the whole system is reduced. Now last year, there was a load management program in the sense that the ISO came out very late with their RFP. It wasn’t structured such that they got sufficient demand bids. As far as we have heard, they have learned from the lessons of last year. We expect substantially more demand management. There are two answers to your question. To the extent that we do have demand management, the probability of a system-wide outage is reduced. Whether we will be exempt from demand management is yet to be determined. Carlson: Are these contracts with us or with our major customers? Who are the contracts with? Balachandran: We would aggregate the load over here. Then that demand we would bid into the ISO. We’d contract with various customers, aggregate that and then sign a contract with ISO. Then we would work with NCPA who is our scheduling coordinator. We’d have other NCPA cities who are also going to be doing load management. Alameda and Santa Clara are both going to be very active in this, and provide an aggregated bid. The City of San Francisco has been very active in the current demand program, and have made a few million dollars this year by offering up some of their load management. Carlson: Let me move to the next one: New generation. Would any of that be sited here or in this vicinity? Do we like this idea? Should we like it? Balachandran: I don’t know what projects are going to be approved. It is being discussed today. We have heard from some suppliers that they would like to site generation in Palo Alto. They have looked at some sites. We don’t know if that would be successful. We’ll have to see at the next meeting. We’ll have more information as to what generation would be successful and whether any of those are close by. Carlson: So they are bidding to the ISO before they have approval from us? That sounds backwards. Ulrich: Well, I think the hope is that if they are successful with the bid that they would find locations. They don’t expect that every location they propose will come through. If they have the machines, and they have the interest to site them somewhere and they have a contract with the ISO to deliver it, I believe that the cities or the government agencies and the people of California would help get those sited on a expeditious basis so that there is load for additional capacity on-line for next summer. There’s clearly an incentive for all of us to participate in that. It would then come down to evaluating various alternatives to see if one is accepted. Then wherever the right environment is, they will need high pressure gas to run these turbines and then access to transmissions to connect it. Carlson: Does it help us in specific to have an additional 50 megawatts here, or are we just helping the system as a whole? I’m concerned about our classical situation of Palo Altans being in favor of the idea in general, but against all specific proposals. Ulrich: It’s premature to be raising that as something that would be done or should be or could be done in Palo Alto. But to answer the first part of your question, it would benefit us electrically to have a generation facility as close as possible to Palo Alto. As you know, the power shortage we had this summer was not that we did not have the contract for the generation, it was the capacity of the transmission line to deliver to Palo Alto. If we had transmission in or close to Palo Alto, it would help mitigate part of the problem, not only for us, but for the rest of the Peninsula. Whether it could be, should be or would be in Palo Alto, it is too premature for that. Carlson: I was thinking exactly that. It would be electrically to our benefit in both the shortage situation but also in an emergency situation. You know, in an earthquake-style emergency, we would have effectively no generation for many miles, as far as I know. Ferguson: Councilman Beecham, did you want to weigh in on that? Beecham: I just want to add, that in the equations as we think about additional generation, if there were smaller facilities located close to Palo Alto, they are normally quite high in cost. One would expect they would be on standby and be used only under certain conditions. If, for example, Palo Alto were to own that, there would be a high cost of ownership that one would pay for the prospect of having that to boost reliability during what would otherwise be a back-up period. Carlson: My understanding is that we wouldn’t own these. These are just things that others would own and possibly lease sites from us? Ulrich: I’m sure that we could have every one of these options. I think to Mr. Beecham’s point is that these generators -- particularly ones in short duration that would be sited here -- they would be a quite higher cost than what we currently have for the purchase price of energy. So you’d have to evaluate the benefit that you would get by having it here. There may be an advantage for having those here for just a short period of time, just a couple of years, while your other resources -- additional capacity from transmission or other generation from merchant plants -- are being considered to come on line, so that you don’t commit yourself to some piece of iron that would be extremely expensive in the long run. We’re going to discuss future energy resource needs when we get to the presentation later this evening – the study that we plan to do. You’re raising good questions and we are talking to people about those and we are trying to come up with a solution. But you should not have the impression that this is all going to be solved. And that we will not have a Stage One, Stage Two and Stage Three next year. I believe from listening to the ISO that there is a very high likelihood, at about 50 percent, of having significant power shortages next summer. Carlson: Let me ask about the third part: Transmission. I understand that there is discussion about running a second circuit from the major Tracy substation into the Bay Area and some uncertainty if that can really be done by June 30th. Is there anything we can do to speed the process. Balachandran: It’s true that that is what is being planned. What we are going to do to speed the process is we are going to be meeting with Terry Winter in a couple of weeks. We'll reiterate our interest on it and ask him pretty much the same question: is there anything we can do to help facilitate this process. We’ve been advocating at different stake-holder groups about the need for additional transmission lines and that’s been our mantra for several months now. Carlson: What about the Metcalfe Project? Is that possibly something that could be on line -- this is the one in South San Jose -- by next summer, or is that a couple of more years? Balachandran: I think that is a couple of more years. Ferguson: Thank you. Commissioner Bechtel, any comments? Bechtel: I just want to follow-up on what Commissioner Carlson said in terms of worrying about next summer. I know we are going to talk about this later under replacement power. But I just wanted to see us, as we have done in the water case, look at these two parts of it: our immediate needs for power with the long term needs. If we can in fact site things within the next year or two, other than that, it certainly puts us in a better position in the post year-2004 situation, where we are going to have to make up some 60% of our power supply. Perhaps it’s better to discuss it later tonight because I think we’ve already brought out all the specific points about very big, very expensive transmission lines being sited. The second item has to do with the contract: It was pointed out at the NCPA meeting how a number of cities were negligent in returning the post 2004 contract. I see we’re on the Council agenda for October 17th. What sort of feeling do we have when it goes to the Council? I see that the Council is not on vacation any time after that. So Council signature is likely to be … when? Ulrich: Well, I’m a very positive person on this. I feel that we have an excellent story and we supported the contract. I think it’s going to have very good reception by the Council and be able to be approved. Bechtel: So that means it will certainly be signed by December 31st ? Ulrich: Absolutely! Bechtel: Thank you. Good. Ferguson: Thank you. I’d like to pass along one comment from Commissioner Dawes, who did get the packet before he left. He emailed a couple of comments. One was congratulations to the Staff on selling power recently. He liked the sales numbers -- actually, the reduction in purchase costs where we fold in our ability to re-sell it at quite a margin. Is that an outlandish improvement? Is that just the typical seasonal improvement? By the end of the year, how much money have we put into the Electric Utility from that power sale? Balachandran: It’s very high. There are two reasons for this. We were able to get some cheap power from Western, so that lowered our cost. And that the market prices having gone up five times. This was more than expected. That helped too. You are going to see great numbers like these in the first quarter of this fiscal year, too. Ferguson: Is it our plan to put that into the reserve, to keep building the reserve? That will put the reserve near the top of the limit. Or do we have some other good ideas? Ulrich: That’ll be discussed at our Long Term Supply discussion later on, and its part of our study. Carlson: I just want to add to it. That it’s our little secret that we made a lot off money off the shortage this summer -- I think that’s the bottom line. But it’s a very temporary situation, due to the temporary nature of our WAPA contract. I mean, four years from now, it will be gone -- right? It’s not something we can look at as a continuing revenue stream every hot summer. Balachandran: We were selling [power from] Calaveras. If you look at market prices out in the future, you can see that they are actually going down. The trend for a few years out is down. You wouldn’t expect it to be as high as this year. Carlson: Excuse me. We were buying WAPA and selling Calaveras? Electrons don’t come in different colors, do they? Balachandran: You’re right. The Western Power we buy is for ourselves. Carlson: Right! Ferguson: A short question here. You mention the electric vehicles under Public Benefit that we were going to purchase for the Shuttle Project, that these are no longer available. Are we in a use-it-or-lose-it funding problem there, if we are not able to get the right type of vehicles? Do we lose the Public Benefit? Ulrich: Do you mean, do we lose the Public Benefits dollars? No. Ferguson: Do we roll that over into a new year? Ulrich: There are funds that we can collect that we can reallocate them for something else. Ferguson: OK. Councilman Beecham, any other comments on Electric? Beecham: Not on Electric, but if we’re talking about also telecommunications update in this section, I have a few questions on that – or are you holding all of that for later. Ferguson: That’s our next topic. I’d like to cluster that with Fiber. But before we move to that, is there a presentation on the Fiber Business Plan? A slide presentation? Ulrich: There is, but it’s in your packet. Ferguson: Are we going to do it? Ulrich: We hadn’t planned to go through each of those slides. We would use them as appropriate. I want to make sure we have time for the Public to be able to have their say. Ferguson: That is my point. I’d like to treat the Telecom Report as well as the Fiber Business Plan in one chunk, if it is OK with you. In that case, I’d like to invite our two members of the Public to speak before we launch into that. Mr. Bechtel. Bechtel: Before we leave the Electric Utility, I saw something mentioned when I went to Austin Energy, the community electric utility of Austin, Texas. They have a program where they will rent infrastructure. Apparently they rent microwave towers, transmission towers, building rooftops, and an extensive pole inventory -- of which there are still some remaining in my neighborhood. Anyway, do we have any such marketing program to rent things like that? Presumably this is for wireless cellular, perhaps high-speed data, in the future as some of those new products get rolled out? Do we have anything like that, officially, that tells people that infrastructure is available? Ulrich: Someone here may have far more information than I do. I’m not aware of a program as you describe. We do have some leases of facilities for telecommunications and some of it is having to do with load management -- being able to collect data. You see those on poles. But I think you are really talking about a business enterprise where you look at how you can make money on utilizing that space. I do not believe we’re doing that at this point. Bechtel. I’m not sure how much Austin generates from this. Perhaps, maybe it is more to facilitate cellular. Maybe they just have a lot of customers asking about it. It looked interesting. Maybe one thing we can do is follow up and see how much money it is? It certainly has its disadvantages, of course. When I saw this, I thought it was great. On the other hand, I see that people don’t want more towers. So, of course, if we already have towers, we can use them. But people don’t like to see antennas mounted and there’s all these issues. But if this were to generate a million dollars a year -- which I think it could very easily do if you could consider trying to improve cellular coverage, particularly with new systems coming up -- you know, that’s not small dollars. That’s certainly a significant compared to what we have today. So, I just really want to just surface it as something where at least Austin, being another Public Utility, has a program like this. We might be able to look at this at some point in the future. Ulrich: We do and will look at ways that we can use our assets to our advantage. Of course, as you describe that, I would suggest that those individuals contact us and talk to us about our Dark Fiber System. And we’d be glad to help them move their data all the way around Palo Alto so they can get to where they want to go. Ferguson: Great. Thank you for that convenient segue into the Telecom topic. I’d like to invite our two members of the public to speak. Let’s start with Peter Allen. And on these specific topics, five minutes each. Peter, could you state your name and address for our record. * Public Communication Speaker: Mr. Peter Allen, 1127 Hopkins Ave: I’d like to applaud the City’s Utilities for their desire to expand the Fiber Loop and to eventually create an Information Utility. The word in your pamphlets is Fiber Utility. I prefer the word Information Utility and that may become obvious to you as we go along here. (Showing a PowerPoint Presentation.) It is time for the benefits of this system to begin reaching the residents. Today, we have a communications world in which companies own the roads. I should say the taxi company owns the roads. We are locked into the service of whoever owns the wires to our homes. And why not? They have paid for it. It’s good to be the King. But barriers of entry for competing services are extremely high. To begin with, you need to build your own network before you can even start service. Switching service, from my standpoint, takes months. And I have recently experienced this. It is important to create an information utility, whereby any service provider can reach any customer and vice-versa. This is the very fundamental definition of Open Access. The creation of an Information Utility is a brave undertaking, much in the tradition that founded our Utility one hundred years ago. In order to create this utility, we must first do two things. Right now, you are seeing the circles of service (slide-show) that given our current backbone would be able to serve the City if it was fully deployed at all the access points. Some areas, residential, are not covered. We need to bring the Fiber loop within a half-mile of every home. It is not a big difference between this slide and the last one. It is very attainable and we need to do this aggressively within two years. Why? The answer to the first is just in the physics and the economics of building fiber-to-the-home. But the second answer to why we must do this soon is that we are in a foot race. If we hesitate to do this, we should end this discussion tonight. Any delay is a waste of our money and our time and someone else will win. The creation of our seventh Utility must be deliberate and swift. I caution the City, however, in creating the Information Utility. Here you see (slide show) the different layers where the utility might be structured. The left hand side is pretty common to the electric utility customer’s infrastructure in the middle is distribution, and then the two layers above are simply transmission and generation. Well, an information utility can involve the infrastructure and the network operations. But I would caution the City in creating this Information Utility. Do not build out the fiber loop and then simply lease the fiber to other service providers who will then do fiber-to-the home fiber services. This would be like building University Avenue but then leasing out [rights to build] Bryant Street. It would also lead to the Balkanization of neighborhoods and services. Let’s get one thing straight. Content and Delivery must be separated. In fact, in our liquor industry, it’s the law! So, what we have here are the Policy boundaries for – well, it initially looks like an electric utility. This is what I’m proposing for an Information Utility. Whoever owns the network must provide safe and reliable operations. Our Electric Utility already understands this distribution model. In that respect, the network deserves a last-mile monopoly, a utility. But it is vital that the network operations provide no other services or content any more than the local ownership of our roads provides no more than traffic control. I congratulate the Utility on their success of the backbone of the commercial leasing program. Here’s my picture of what I think a Palo Alto Fiber Utility network might look like (slide-show). It serves everyone. I understand there are two million dollars of investment in our fiber backbone that will be fully recovered by 2004, ahead of schedule. Congratulations. Now, let’s work together to build the seventh Utility, an Information Utility. Thank you. Ferguson: Thank you, Mr. Allen. The next slip is from Michael Eager. Carlson: Can I ask some questions, now that I have somebody here? What does it cost? Allen: That’s to be decided. The estimates have been in the thirty to fifty million- dollar range to build a utility like this, where it could reach every home and every residence. Any other questions? Carlson: No, but that’s a lot of money. Allen: It seems that you guys were worried earlier this evening about where to spend money from Electric. Carlson: Nope. Ferguson: Again, thanks. Council member, Beecham. Beecham: Peter, on the 30-50 million, what are you assuming at the consumer end, in this cost? Allen: At the consumer end, I am thinking that this will average $4-5,000 per home. Nothing more than that. Marketing studies have shown that if you exceed more than $5,000 per home that people walk away. That they are not interested in it. You won’t get a deep enough penetration into your market and market penetration is especially critical for payback of an infrastructure like this. We’ve talked about that before. Ferguson: Any more questions? Commissioners? Bechtel: Did you ever consider any wireless means for expanding coverage, rather than using fiber? Allen: One of the fundamental beliefs of the company I work for is in optical networks. I work for Lucent Technologies in Bell Labs Research. One of the fundamental tenets of their business is optical and wireless. But our belief is that the more that you expand wireless, the deeper you encourage the penetration of fiber. And there is another point I made in front of Council when they heard the initial fiber-to-the-home presentation at my home. Pardon the tic, but no one has ever proven that wireless has any detrimental effects. Ferguson: Mr. Beecham Beecham: Back to your $4-5,000 per home. We’ve heard estimates in the past that have maybe only $1,000 per home. Is the price going up – or is there something else happening here? Allen: I think we could have a better estimate of what it might cost if we saw some of the bids for the trial construction. I don’t have those figures. I’d look to our Utility to answer some of those questions, but they have a fine job with their numbers in the past. Ferguson: NTT in Japan just filed to build out fiber to their residences. Obviously, they have a much more densely packed residential structure there, but the numbers they quoted were several hundred dollars per residence, and on the order of under $100 per month for the service. Allen: I’m aware of certain devices that you’d want to put into someone’s home just as the network interface unit on the side of the house, or within the house. That installation and the device itself costs around $1,000. Now running up the fiber, the labor, and then the equipment, those all are another 80% of the cost of the whole pie. Ferguson: Great. Thank you, Mr. Allen. Beecham: (Looking at the underwater-theme screen-saver projected on the screen) I would like to say that in the City Council that we never do have slides this interesting. Ferguson: Our next speaker is Michael Eager. Speaker: I’m Michael Eager, 1960 Park Blvd: Actually, I’m at a severe disadvantage. I came here this evening to be informed about what the Utilities business plan is. I guess what I can talk about, since I haven’t seen it, and I know of a number of people who haven’t seen it and I know of a lot of people who are watching on television that are unaware of what the business plan is. I guess what I have to talk about is the lack of transparency and I am disappointed in it. We have a large community that is very interested and very concerned about this and we’ve been very active. A couple of years ago, there was a Telecommunications advisory panel created. People volunteered on that for a while and it ended. A year ago, we had a broad band advisory committee which met. John Easter has suggested that we create a Telecommunications Advisory Commission, which I think is also an idea with quite a bit of merit. We have a large group of people in the Palo Alto Fiber network, which we have done a lot of work in the same type of material that Peter is talking about in estimating, in designing systems, and the people in the community are the people responsible for getting the trial to work. Both in presenting it to the Council and in marketing it to the community and signing it up and in reviewing and rewriting the RFP's for the ISP. We would like to be involved in what the City is doing in this area. I’ll say that I am dreadfully disappointed that there is no presentation tonight on what the business plan is because this is the public forum for that presentation and while the commissioners may have it in your packet, and you can go look at it, that’s not very public. So, I certainly think it would be wonderful to have a presentation on this business plan to inform the community and I think it would be wonderful to have some active involvement between the community and the Utility Staff, rather than what we have now, which is essentially no involvement. Ferguson: Thank you, Mr. Eager. Any comments from Staff or Commissioners? Bechtel: I see a PowerPoint presentation in my packet. Where is the file? Could we not show that? Ulrich: The file is right here on the computer. Bechtel: Are we going to see it later on? Ulrich: As I mentioned to Mr. Ferguson, that was not part of the plan. We can do whatever you wish. As you recall, the idea was to get input. You specifically asked to have this kind of a meeting so we could get input. We are starting to hear some of that. You have the beginning of your plan in the package. Of course, people who are here tonight get a copy of that packet and of course it is public information. So, we can do whatever you like. It is planned that the November 1st meeting, the next meeting would be the accumulation of this information and final input for the final report prior to us going to the City Council on November 17th. So, we are more than eager to make sure that whatever information we have gets out. This plan -- as you are looking through it, if you want to get into more detail, Mr. Creger is here to answer questions. I’ll say in broad cuts that we are very excited and believe that it is appropriate for us to move into this area. We think there is a lot of clarity around being an infrastructure provider – the highway, as earlier pointed out -- and we are focusing our business plan around that. Our main objective would be to get fiber at some point, when it’s economical and appropriate to do so, to every residence and business in Palo Alto. That has to be our objective. There is also a type of content that we believe is important that a Utility be able to provide -- not as content for something like cable television or for other data -- it’s important that we are able to provide utility content services in the Electric, Gas and other utilities to everyone, either in the form of helping them with load management and demand-side services, or in the area of reading meters, and doing a lot of other things that will become a more efficient way of running an overall utility. So, we do believe and there is energy in being able to go into this additional utility business. But it is also important that we find a way to do it where there is payback and it really is a business -- not just an objective to build a system and then not have a way of earning money on it. To be an appropriate way of using the assets that the City and the Utility would own. To be able to come back and provide financial benefit to the people that own us, the City of Palo Alto. Ferguson: Commissioner Carlson, you had a comment? Councilman Beecham? Beecham: Well I would expect, based on the report that there are no reports down here (in the file) for the Public. Is that what’s happened? Mr. Eager: I don’t see any reports on any table here. (Someone points out that there is a packet on the table right in front of Mr. Eager. Mr. Eager opens packet and glances through it.) We have a website run by the City of Palo Alto Utilities. It would be an excellent place to strip in this type of information in advance, but we usually don’t even get it after the fact. So… Ulrich: It is intended that any of these documents that we have would go on the website. So there would be plenty of opportunity for people to look at them. Beecham: And for tonight, this is a Public Meeting and a public document, and I know it is not your plan to make a presentation, but in our discussions as we begin to talk, I think it would be certainly helpful for those watching and those here to have it shown on the slide screen unless it is not possible. Ulrich: It’s possible. It’s here and if you want to discuss any particular page or have us go through any part or all of it, we’d be glad to. Beecham: I think that for the Public, we probably need to go through them one-by-one and even if we don’t see anything, at least let the Public at the same time look and see what is being presented that we’re considering. Ferguson: Yes, I’m just checking the clock, John, and we are doing just fine on time. So if you’ve got the presentation, and you or Leo would like to step through the bullets, I do think that would be very helpful. A shared basis for the rest of the conversation. (Applause) Thank you, Mr. Eager for your comment, point well taken. 3. Fiber Plan Update Ulrich: Is there other Public comment that you may want to get, while we are waiting for this to go up? Ferguson: That is all the slips I have. While the machine warms up again, are there any comments on the telecommunications, the basic proforma update in the Electric and Fiber report? Councilman Beecham? Bechtel: My question was, I looked at the numbers but my understanding is that the financial report in our packet is really from the previous period because, as I recall a statement that is in there, pulling the numbers together is fairly tedious and you are waiting for a new process to do so. Am I understanding correctly that it is three-months-ago numbers? Creger: It’s three-months-ago numbers with any added advanced engineering requests or any interconnection fees that we have received for projects during that three-month period. Right now, I am trying to pool together a better system that will collect that data in a much more efficient fashion for reporting purposes. Bechtel: I appreciate that pulling some of these things together is tedious. The question I had was that -- one of the speakers earlier talked about breaking even in 2004 -- we are showing much better performance than that, which I think is looking like a very good start for the Utilities. Am I understanding that correctly? Creger: That is correct. What that proforma statement shows and what it was intended to show last quarter was what we know today if we had no other new business come through the door. Those are the numbers out through those years. As we continue to grow business, obviously the revenues will increase and our numbers will come back to the left even further. Ferguson: Any other comments on the proforma? Mr. Beecham? Beecham: So on attachment A on the report, where you show revenue, that’s where you say that if no more revenue comes through the door, that’s the revenue have? Creger: That’s correct. The numbers that were in there were for long-term leases on companies that have established business with us at this point. Now, as you get out beyond 2005 and 2006 there is some growth in there, but up through 2004 -- because that was the target I was using for recouping the 2 million dollar investment in the initial -- that is the leases in place today. Beecham: So as you talk about in your report that the demand for dark fiber continues to increase, why do miles-leased drop continuously after next year? Creger: What you have are the leases which are in place today expiring in the out years. You have some expectation that they will renew. But as it stands right there, the miles are based on what we have in place today. The demands are what keeps increasing through the door. Beecham: So this proforma is not something that we should use at all, as a comparison against the proposal we will be seeing on the slides on the with/without business plan. Creger: Right, the business proposal slide that you will see, assumes the $800,000 from this year, but with the 20% each year growing. And that is what’s in the business plan that you will see in the slides Beecham: OK. Another question: in your report on page 6, you talk about approximate utilization of the dark fiber backbone as 15.5%. I thought that based on some reports that have come in here earlier, that based on some interest by possibly a large customer, which resulted in the City changing our rates, that there is going to be a substantial increase in the fiber miles leased. Did that occur? Creger: There is one that I know of that had a large number to be leased, but that has not occurred at this time. Beecham: If that happened, would that substantially change the 15.5%? Creger: It would go up some. I can’t say exactly how much it is. It depends on the overall path that they decide to take. Beecham: If it is anything you can say, without divulging any confidential matter, could you have any probability of that occurring? Creger: There is one issue that has come up in the last couple of days, which could actually prevent it from occurring. That is the status of the second PAIX facility. And the uncertainty or certainty of that facility going in place. That may have some effect on what happens with fiber leases that wanted to go up to that area. That was a significant route that would, in turn, increase the utilization of the fiber from where these companies wanted to take fibers to. Beecham: OK, thank you. Bechtel: Leo, of the number of the total fiber strands, how many are lit at this point? Is that 15%, is that the number? Creger: That’s correct, that’s what is lit by customers. Ferguson: OK (to Leo Creger). Creger: Then what I’ll do is go through these slides and touch on what my thinking is for the City’s best use of the dark fiber and where we need to go with this fiber highway. I am here tonight to actually get a lot input from you as well, to help refine this for our November 1st meeting. (Slide show begins) In a nutshell, our mission for the City and dark fiber needs to be a fiber highway. We need to be providing the roads to the customers, to the residents that in turn will provide open access. That is what people want, they want an open access and the ability to choose what service provider brings that content to their home. And I’ll just move on. If you have questions, please just stop me and I’ll … Beecham: So, if we have questions, you just want us to jump in, Rick? Ferguson: That’s the best way. Beecham: On the previous slide then. As you say, be the premier provider of fiber optic services, is there any presumption of dark or lit? Creger: At this time, my focus would be on dark fiber. Beecham: On dark fiber? Is that something, therefore that you are basing the plan on? Creger: Yes. Beecham: Then I suggest that you clarify that in here. Also, there’s one line that talks about corporate commitment to the community? What is that? Creger: We feel that, even though we are the City, we still need to be able to move and respond expeditiously to customer requests, the same way that an outside corporate agency would. In part, it’s being able to continually do business with these customers. They are expecting that and there have been inherent practices that make that difficult or actually a slow process that keep the customers from coming to us. Beecham: Do you mean that is because you are a municipal utility? Creger: Yes. Beecham: You might find a different way of saying that. I understand what you are saying, but I’m not sure that this is going to be understood by many people. In the final line, you talk about uncompromising quality of service. I don’t know what you can do that is not going to be a compromise. Creger: I guess my intent there was that if a customer has a deadline, we will try to meet it – to whatever extent we possibly can. Beecham: With considerations of cost and manpower and other rationalities, so again, uncompromising is a commitment you can’t make – in my opinion. Creger: OK. For market summary, we talk about here that the dark fiber program is here to serve the communications Internet interconnectivity and access needs for businesses in Palo Alto. In a future slide, you’ll see where I talk about the desire to provide that expansion to the residents. The most important client that I see right now is the small to mid-sized organization. My reason for that is the competition on the playing field has changed dramatically. There are a number of businesses that do exactly what we are trying to do. But they are going after the larger markets, and leaving the small and medium ones behind. We also find that, once we get in the door with the smaller companies, that they are depending on us to provide the same reliable service that they see with other utilities from the City. Beecham: Before you go on, on your first point, you talk about serving the communications interconnectivity and access needs. To me, that’s incredibly broad, especially if one talks about only doing dark services. So, I would suggest that you may want to define and focus it a bit more on what you are really planning on providing. Then, as you talk about in the next point, small to medium- sized, do you specify that because that is what is not being serviced now – or do the large customers not need these services? Creger: Large customers do need it, but large customers tend to have alliances with companies that are significantly larger than us. The small and mid-sized are being passed over for those larger customers. It’s short-term for now. Beecham: As you go on in that same point, you talk about carriers who rely on our services. That is the definition of your market. I would suggest that to me, that is a bit circular – to say our customers are those who need us. You didn’t define what they need, other than our services. That could be a bit more precise. And the final point, our best clients appreciate the value in the services that we offer and are very sensitive to risking their company’s name and reputation. If your intent was to make those two parallel clauses, value and services, that’s not an aspect of risking their company’s name and reputation. I would expect reliability. Your point, I think , should be reliability and not value. It’s not to say that value is not important. As you go through this page, and as you mentioned at the beginning, there are businesses doing what you plan to do, except only with the large customers. Somewhere in this document, you need to clearly establish with the Council that point of view: What is the philosophical reason for a governmental entity providing the services that apparently, in fact, can be provided by private businesses? And, in my mind, there’s got to be a compelling reason why we should do that. Because, otherwise, government entities are not supposed to be generally in the competitive marketplace. Creger: If I can comment on that briefly here. One of my thoughts and reasons for looking at this in this light is that eventually, what we’re going to find in this industry is that there are so many players that have come into the market to sell or light fiber and sell bandwidth. One of the things that I think we’re going to find here is that increased competition is eventually going to drive margins down to where only your municipals or your electric utility agencies are going to be able to provide the services, bundled with other services today. Just one of my thoughts on that. Carlson: Let me add to that because I think Bern’s point is the really fundamental point that has to be addressed, and is really not addressed here. But one important aspect that is worth considering is we’re essentially providing space for many of the smaller carriers, effectively. The ones that are willing and able to meet the residential and small business needs that the big people are just skipping. And that’s an important way of maintaining competition in this whole market because otherwise, you just get a couple of biggies and they concentrate on the big customers and leave the residential people alone with nothing for a real long time. That is a potential public utility role of some importance that is not easily filled by the private market. You have to look at things like that – to answer Bern’s fundamental question. Creger: Kind of talking back from the market opportunities that we see out there are the telecommunication carriers, e-commerce businesses in town, internet service providers, small and medium businesses for their own purposes, city, state and federal agencies and schools. We still want to incur the benefits to the schools as well. One of the strong points, there’s actually one that’s not up here: The fact that we can provide unlimited bandwidth at a fixed cost attracts customers. The fact that we provide secure fiber, that they know they are the only ones on the fiber, attracts customers. The fact that we are a municipal and assured of being here for some time, attracts customers. And those are the opportunities that we are seeing. I can name two or three companies today that I’ve been in touch with this week that have little to no knowledge about fiber and the equipment that is required to use it, but they have come to us because of the relationship that’s already in place with other utilities, and they don’t want to opt to use one of the other companies that have started up to provide them with a complete turnkey solution. And those small and medium businesses out there are the ones that we have been most effective in winning. Beecham: Just one editorial comment. You talk about unlimited bandwidth. In major aspects, that may be true. But truth-in-advertising: that’s not really unlimited. Creger: I would say that from the way the thing was put together four years ago and the model that was in place then and the technology and the equipment that was in place then, one would have thought a company would have come out and leased 24 strands of fiber. However, the equipment that is in place today, allows that same company to come in and lease 2 strands of fiber providing the same bandwidth and connectivity resources for those businesses that would have been served by 24. We are seeing today technology continuing to evolve that will provide upwards of 1000 wavelengths down a single strand of 10 gigabit fiber, more than anybody imagined four years ago. And I will suspect that things will continue to change and on the unlimited bandwidth side, it’s all dependent on what the budget is for that company on the end. Carlson: Bern, I would almost agree that “unlimited” my be stretching it a little bit, but that the bandwidth is incredible, anyway. Beecham: Sure. Mr. Allen: I work with some of the top optical engineers in the world. We haven’t found a limit yet. It’s just the electronics on the other end. Ferguson: What I’d like to do is finish the entire agenda for the evening without it getting too late. I understand the trade-off here and I think that Michael Eager’s suggestion that we just put the slides up for the benefit of television audience as well as for the people here is a good allocation of extra time tonight. I think when we've stepped through the slides and given the UAC members and Councilman Beecham an opportunity to comment, if it looks like we have another sliver of time, we can solicit some additional comments from the members of the public, as a kind of wrap-up. Thank you. Leo, would you continue? Creger: Continue with other opportunities, benefits associated with increasing the use of internet and internet traffic. As the increase goes up, we’ll have more demand for the fiber. Leveraging the positive perception that businesses have about locating in Palo Alto, it’s a haven. People want to come here; businesses want to come here. Leveraging our existing assets and relationships to expand into the fiber optic related services. This next one is kind of a key one: developing strategic alliances and partnerships with various communication providers or other companies doing the same thing that will foster for us a long term win-win relationship. This is kind of important. We kind of think about this for potential expansions in fiber to the home. Bechtel: A question on leveraging into other fiber optic related services. We talked about dark fiber. But now if you move to fiber-to-the-home, that is not exactly dark fiber. There is an ISP involved, so there is content and so on. Things are flowing. So, I’m not quite sure exactly what things you mean beyond dark fiber. Could you give me an example of that? Creger: That may be one in itself, right there. One of the things that I look at this as dark fiber is the fiber; it’s the roads for service providers to provide their content. In the case of the ISP, I wouldn’t expect that to be the City. I would expect that to be somebody outside providing that service. We are merely providing the dark fiber that they would then light up to provide the services to the residents. As we move on with dark fiber and look down the road, when we have the business running and we have everything in place and it’s where we want it to be, then we’ll start investigating, potentially, other services. But I think right now, there’s so much competition in the marketplace that I don’t think we’re at a strong point to do that right now. Down the road, maybe there are those small businesses out here where it would be beneficial for us to light a couple strands of fiber and provide internet service as a bundled package to them. I would not want to make that leap, though, until we did a full market study and said, is there benefit in it? Is there reason to expand that service? What I want to focus on right now is getting our dark fiber business utilized to much better percentages than I am seeing today. Beecham: Before you go on. I’ve got some comments on the layout of what’s on here, OK. And it’s not so much the information. As you talk about opportunities, I think you mean what we can achieve. And I would want to try to turn around how these are presented. For example, on your third point, you talk about leveraging to expand into fiber optic related services. So I would say the opportunity is to expand into other fiber related services by leveraging. And then in the following, the opportunity is to enhance the City’s scope of service offerings by developing this strategy. So I would – it’s a matter of presentation and take it as you will, or not, -- but I would turn it around and say that’s what the opportunity is. and here is how we get there. Creger: I appreciate it. Business concept. Fiber business unit offers a high level of expertise in the design, construction and operation of a fiber optic communication network. Neighboring businesses that do the same thing do not go to that extent. Neighboring cities that do this do not go to that extent. We actually provide a significant amount of expertise and knowledge in helping the customer get signed up. Clients who contract with the City of Palo Alto to install and receive access to the fiber-based network with the high reliability they expect. Brief light on who our competition is. Shouldn’t be any surprise. Local exchange carriers, competitive exchange carriers, start-up companies who compete at any cost for the business. They have money. They are looking to build long-term contracts. National and global backbone providers are heavily capitalized. They have rapid, rapid deployment. They can get in there quickly. We’re seeing that today. I must get two or three phone calls a week asking what my construction crews are doing through the residential neighborhoods and I have to explain to them they are not mine. And wireless communication providers. I know that this has been brought up a few times tonight. They have limited scope and capability right now. A lot of discussion of what the answer for the residents is. I don’t know. Bechtel: Leo, do we have a list of our competitors who have fiber in the ground at this point? Creger: I know of many of them. But I do not have it in this slide here. Bechtel: Out of curiosity, are we talking about six at this point? Creger: I can tell you that there are at least six small, local carriers that do what we do. There are a number of larger ones. Beecham: Before you go. There’s a significant inconsistency here. You talk on the one hand about the rationale for providing the services that is not offered to small and medium sized companies. You said earlier on the other hand, that there would be so many providers in this area, that it would drive the margin down so that they can’t stay in. Here you list really a huge group of competitors in your marketplace. So, on one hand I’ve heard that this market is not being addressed and nobody’s do it. On the other hand, I hear that there are many competitors out there now, so many that they’ll drive the costs down and drive themselves out of business. So, it can’t go both ways. Creger: You’re right. In fact, one of the things that I didn’t include in here is the fact that for these start-ups with cash, the enhanced communication carriers, a lot of them are local and they are leasing our fiber. So, it’s competition to us to move into other businesses. But at the same time, they are utilizing our dark fiber for the purpose we wanted. They are just going after different customers. Beecham: That is not the only kind of competitor you have listed here. And there is still a major disconnect between saying that this market is not being served and then saying here are all the competitors -- more than just the one about the start-ups with money. Bechtel: There is a target market, which we already talked about, which is fiber-to-the-home, which I could guarantee that none of the people on your list here are going to address. To me, I think that going with the spirit of that particular program is really one that maybe we should focus on. Certainly, as we go through this leasing of dark fiber, it is the way to get revenue and demonstrating that we have that. Well, I think very quickly we going to have to move into how we address the home situation (applause) because that is the kind of fruit that these other people are not going to try to pick. Creger: Just a couple on our threats. The larger competitors are beginning to compete in our area, regional, national competitors that offer services we can’t compete with. I’ll take one for example; just say there is a facility in our city with the desire to interconnect with another facility in another state. We don’t provide the long-haul service that the national competitors can do. Real estate costs will drive new businesses to nearby cities. I comment a little bit about ourselves internally, how we are a threat to ourselves. It’s a threat in a sense that key employees leave and go elsewhere. That hurts us, it can result in lost accounts. Resource deficiencies, kind of what I touched on here is staff requirements and needed the resource to actually keep this business going. Meeting the goals and deadlines that we actually set to be competitive. Some of that ties into some of the policies and practices that are imposed within the City itself. How that impedes our ability to compete. Beecham: You talk about the loss of employees. I believe that one of the reasons you are doing this is in fact to make the City of Palo Alto Utilities dynamic and enticing to employees. And the more creative and state-of-the-art we can become, the better ability we will have to attract key people that you are concerned about here. So I applaud that effort. Creger: Correct. On the team, what is needed? I’ve heard it already a couple of times, establish a Fiber Utility or an Information Utility, under different names. Staff to include kind of earmarked in what my best estimate of what I’ve seen of how this is going today. A manager, an engineer, estimators, people who can do the drawings, keep them up-to-date. A planner, a scheduler to manage the projects that are being done for interconnections to customers and administrative assistant to keep track of this, so that it will allow me to get out there and do marketing. And installers, maintenance people to assist the customers in their work and ongoing interface with other departments within the City which continues to happen today, whether it’s the marketing or the finance group, public works with their assistance. We will continue to interface with them as well. But what I have up there, is a core group of people to support this business and, yes, this will have impact on revenues and expenses in the out years. But I need to find out the support level for this before I can move on to the next stage to determine what the costs are going to be and what am I looking at for expenses in the out years. Ferguson: One comment on that. I do have a preference for using the term Fiber Utility. I like the concept of the Information Utility. I get it. I just think we are trying to get this launched in some basic fashion. The less you have to explain away challenges based on content, why is the City riding herd on content, the less the better. So, I think Fiber Utility is the better first label for it. Creger: Goals and Objectives. I’ll start out with initial efforts which had taken place before I got here. Pretty much they had 22 customers and 6% of network utilization. In 1999, there were 44 engineering requests. This year, to date, there is 170. Break even, where revenues equal expenses was achieved in February of this year. Goals for the next three years, a million dollars in revenue this year, with a 20% growth rate on from there. Maintain the plan to pay back initial funding by 2006. And I use that only because that’s the information that I saw out there when all of this was coming in to effect in the beginning. We are on track pretty much for 2004. We could do better, could do worse, depending on whether we decide to re-allocate revenue to other infrastructure build-out. Positive cash balance this year, which we have. Net income at more than 50% of sales in 2001. Two new long-term customers per quarter. Long-term meaning a contract that exceeds three years. Annual growth rate of 20%, I mentioned, and client diversity. Here, I am looking for a diversity where no single industry has more than a 40% concentration. Sorry for this slide, it is hard to read up here. It looks a lot better on the computer screen. This is just a graph that shows sales in the year 2000, at $800,000 with a 20% growth rate through the year 2006. Beecham: Before you go: If I am interpreting this slide correctly, I think this is… you have 3 lines on yours, I see 2 on mine… what is the lowest line on yours? Creger: The lowest line is cost of sales. It means our expenses associated with doing business. Beecham: OK that did not print out. Some line did not print out on our pages here. We only have 2 printed lines. Creger: On the cost of sales line, just go across: 300, 375, 425 Beecham: OK, I see. Ulrich: The marketing is below the cost of sales. Beecham: OK that is what’s missing. And is marketing included in cost of sales? Creger: I kept marketing out as a separate block. Beecham: So if I wanted total costs, then I have to add marketing and cost of sales. Creger: Right. And here on the next slide, you see that it gets incorporated in. Beecham: To me, if I am interpreting this right, the whole key is, you've got on the ground all the assets you need. There is no additional physical investment that you are showing on here. There is either marketing or, I’m not sure what cost of sales is, but I’m assuming that there is no additional hard-asset investment that you are intending or anticipating to make in this. Creger: Right, at this time assuming build-out as it is today, with only known things that are going to happen, this plan says no more build-out. Beecham: And, so in terms of risk, if this doesn’t work, we have only headcount to show. There is no asset that you’re putting out there that we are risking in the future. There is no major investment or funding that we need to do this. So, in a sense, what this is, is a marketing plan. You want to market the heck out of our dark fiber that is already installed. OK. Thank you. Creger: The next slide takes into account the total of the marketing and sales cost and gives a revenue breakdown by year, with a cash balance going through. Ferguson: Leo, just to catch up with the proforma that we talked about and dismissed while the machine was warming up. This is the same thing as that proforma projection, just corrected for new, real, justifiable estimates of growth. Creger: Pretty much at this point. Yes, assuming the growth rates, right. Ferguson: And so you think by 2006, we will have, in fact, accumulated six million dollars. Creger: This is assuming the 20% growth rate that you see on the slide. Ferguson: With no additional capital expenditure? Creger: Correct. Carlson: Let me ask. This is basically a fixed cost system and so if you can get more people on it, it’s almost pure profit, right? Creger: That’s correct. Carlson: So, in many ways, the key thing is speed to capture the profitable medium-sized customers before the others. Creger: Not only speed to capture those customers, but to get them committed for the long term. Getting out of these year-to-year contracts. Carlson: So your contracts are year-to-year right now? Creger: There are a couple that were. Right now, you see more on an average of 3-5 years. Carlson: OK. Ferguson: I have a second question on this, as well as the preceding slide. I know you made one simple assumption on likely revenue growth. Does that compare to anybody else’s numbers in the industry? Is that an assumption that we know that ABC Corporation is also making and relying on? Creger: I can’t say for sure but I have a feeling that 20% is conservative, based on the growth that’s going on in the market today. That’s to say that 2005 may not be 20%. The market may be saturated by then. But I actually see businesses out there doing 50 and 60% growth these years while people are jumping on and getting on the fiber. Ferguson: You say growth in new customers. New revenue coming in? That’s across all ranges of customers? Creger: Yes. Large corps, small corps, medium. Ferguson: So we can point to more than one independent number - somebody elsewhere in the business that is assuming and meeting this kind of growth rate. Creger: Yes. Ferguson: OK. Bechtel: On that, it may be worthwhile for our next presentation, particularly for our presentation to City Council, to pick out some other dark fiber companies out there and show their financials as an example of that. It’s easy for me believe 20%, it’s a round number also, so I think it would be nice to have a couple of other benchmarks. Creger: Sure, I’ll see if I can’t get a couple of them on there for that. Ferguson: There’s another observation, recently that return on assets in the telecommunications industry in general has dropped from 20% down to 8%, which ought to seem scary, but it also implies that other people with billions to spend are rolling the dice. They’re betting that they are going to make it back on new demand growth one, two, three years out. Creger: The other thing also on those assets, a lot of those reports include a large number of equipment and infrastructure, as well. Where they are actually lighting the fiber or doing dimlit services and as a result is the new - when the new technology comes out cheaper, faster, better, the return is obviously dropping down on their initial investments. Beecham: As you come up with your projections, I know it’s all a crystal ball. But, I think that you really do need to give your basis for your projection. And in particular, you’re going to have a hard time explaining why you expect a 20% growth rate when, as I look at what’s happened in the past four years, it’s been over 100% every year. So, and that’s 100% without your plan. And I've got to say -- in your Exhibit A, where all of a sudden, it drops off -- I would expect that the analysis on Exhibit A. in contrast with your plan, Exhibit A has to be what you expect to happen with your existing level of effort. And if you expect it to drop off, you’ve got to justify why what’s happening in the marketplace that has this year shifted from 100%-plus growth-rate per year to a negative growth. And what is going on -- because something is badly wrong to have that growth rate in the past, and this year it stops -- and we have no rationale for what happened. When you say you add a half dozen people who can in the future grow at 20%, there's no basis for those numbers. Creger: I absolutely agree. In that proforma, there is one clarification. When I saw that for the first time, three months ago, I basically said: “Tell me the truth, tell me what I have today, assuming no growth.” And that’s what primarily you see out there when you see those declining values in there, it’s because contracts are going away. I needed to see that for myself, so I could see what commitments we had already in place. Beecham: And that [scenario] is basically turning the lights out. And I do not believe that it is the alternative plan you are proposing here. So I hope when you come back with this, the alternative is not a turn-the-lights-out program. Creger: OK, shall I touch on the risks here? Loss of resources, technology changes, changes in the legal environment, as to how that may affect us. Any unmanageable increases in web traffic, while that could be great for us, the increased demand, it could also hurt us. Bechtel: Nobody is going to admit to unmanageable increases in internet traffic. Ferguson: I’d like to connect up the changes in the legal environment to the comment that we’ve made with the Strategic Plan in general and Bern Beecham’s comment at the top of the presentation. Just as we are paying attention in the Electric Utility, and in the Water and probably not as importantly in Gas, we need to build all of the Strategic Plan -- all of the new business plans with Utility, whether it’s seven utilities or six -- first on the unique advantages of municipal ownership. We have to be able to say explicitly what those advantages are. We know them in the world of NCPA and Western Power, a wonderful accident of political history we have to this day -- a very long-term promise of low-cost electric power. That’s a unique advantage that belongs only to munis. That’s a source of great jealousy on the part of the IOUs, and they are countering with IOU control and influence over the distribution system. Here we are at a point roughly the equivalent of the formation of NCPA and the original Western-type contracts. Here we can avoid the error of losing control of the distribution system by trying to find a way to lock in the unique advantages of municipal ownership. We got a unique advantage because of federal law in the electric power world -- many, many years ago, but it’s there. Today we’re about to re-jigger federal regulations, if not the federal statute. The FCC is undertaking to re-think telecom regulation. They are going to put an end to open, free-for-all competition here, and treat cable probably more as a data telecommunications activity, instead of a cable TV activity. So we have an opportunity to lobby, if you will, in that federal government process. And, if we are successful at that, joined with other munis, we may have an opportunity to build in that unique advantage of municipal ownership. That’s not something that’s just going to happen to us out of the blue. It’s an opportunity for us to be proactive. We should certainly research and track proactively with the other munis, and step up to that. (Applause) Creger: Key issues in closing here. Near term: establish a new fiber utility and staff to support it. Basically get the infrastructure in place and build out the infrastructure. Refine department processes and create a central management system which is ongoing and in process right now. And, while I am doing that, I am trying to evaluate our in-house and outsourcing capabilities. Including looking at what capabilities I have with an out-source contract for construction to help keep that process flowing. Long term market. Getting out to the customers, showing them solutions. What they can use this fiber for. Integrate a fully capable consulting staff that can provide a turnkey solution to these customers without the know how. I spent so much time on one customer, who had no knowledge what-so-ever on how to use fiber. If I could have had somebody to send over to him, it would have made the process so much easier. Establish ourselves as experts in the infrastructure. We already do that today in the other utilities in the City. Use revenues to explore expansion to the residential neighborhoods. Evaluate future service offerings as the market conditions allow, whether it be dimlit or internet services for small businesses. Whether it be something specific for the utilities, automated metering. Basically research those one at a time. I come across so many different reports about UTS, everything else about trying to become a comprehensive utility or telecommunications service provider, cable voice, ISP. There’s a lot of competition and right now, we are not positioned fast enough to do that. So again, I say that we need to look at those one at a time, as time permits. Beecham: A few comments based on our previous discussions. I think you have a few key issues you need to add. I would establish a philosophical rationale as why a city entity should compete in this marketplace. And establish a realistic short-term revenue projection. How long is long-term? I had trouble seeing that any of these need to be done right away. I know you are constrained. When you say "market, market, market" that is exactly the whole thrust of what you are doing. So that is your number one item. Creger: It is number one. But before I can do that, I need to get those first ones done because I can’t step away from things long enough to market. If I want to define near-term, I would say that is three to six weeks. Beecham: Sounds good to me. On your second-to-the-last item, use revenues to explore expansion to residential neighborhoods, you need a separate rationale on what you are doing, because the dark fiber where you are talking about everything else is not analogous to neighborhoods. So you need to establish why you are doing that and what the benefits are. And as you talk about benefits -- John and I have talked about many things in the past -- what are the benefits of the electric utility and other utilities we have that would be a rationale for enabling us, causing us. to expand into the residential areas. So at some point, that is certainly going to come into this discussion. A final point: My objective tonight is to be your harshest, but constructive critic. If this is to work, to become successful, it’s got to be good. I certainly applaud what you are doing. I am very enthusiastic about the creativity, the innovation, the initiative to look at doing this. I completely support using our assets and getting every dollar and every benefit out of them. So I want to make sure that my comments are construed hopefully as constructive, so that when you come back to the public and to the council, it’s got the best possible result. Creger: I appreciate that and I’m sure that I’m going to be in touch again. Ferguson: One thing in summary: the unique advantages of municipal ownership. Focus on the advantages that face us, especially in a temporal sense: What are the things that we can do with advantage today, whether or not we are a Muni, that are going to vanish in six months or a year and a half. What those are, so we understand them. (We’ll take a break soon.) I like the idea of finally drawing a separate boundary around this topic. Pull it out of Electric, give it its own name, give it its own business function, and its own life. The new City Manager said: “We’re going to innovate” and he points to the Utility Department as a nice place to try his first experiments. I hope this turns out to be one of the first ones. We'll take a break at 9:30, but first I’d like to invite one-minute statements from the public here so that we can capture all these comments and wrap this up neatly for our first joint drafting session. So, again for the record if you could state your name and address. Ulrich: Leo has a plane he has to catch. If it’s OK, I’d like to have him leave and we can continue on for the ten minutes. I didn’t want the audience or anyone else think that Leo is leaving because of uninterest in this topic. Ferguson: We will have good minutes, as always, so Leo can read them when he gets back. Speaker: I would like Leo to hear this for about one minute. I did appreciate your general presentation. There is one thing I’d like you to know about Palo Alto. My name is Marvin Lee, I live at 1241 Harker Avenue, which is the heart center of the trial area. I was just mentally going over your distinction between small business and residential. In our neighborhood, there is no such distinction. Almost every household in which there are not retired people living, is essentially a small business. These are very active businesses. Some of them are so extensive that they may even have more than one home in the neighborhood. So I think that we have to take another evaluation of Palo Alto and go back to the Hewlett Packard garage and visualize that it is essentially how the town remains today. Thank you. Ferguson: Great. Is there another member of the Public who would like to speak for a minute? Mike Eager: I certainly thank you for having this presentation. A picture is worth a thousand words. A presentation from the person who did the slides is much more valuable than just having the slides. One comment about it. I’ve seen many projections of revenues that actually didn’t quite come true. In the telecommunications industry, cost per unit service has been declining steadily. So to achieve a 20% revenue growth rate, you need to have more than a 20% growth in customers. It wasn’t clear from the chart. I can do exponential calculations too and they go off the chart sooner or later. One of the things that was noted here, and I’ll just echo Mr. Beecham. This is a crowded market for services to businesses. It will become increasingly overcrowded. I think having a business plan now is wonderful. I wish we had produced a business plan when we produced the dark fiber four years ago. Now is a good time and a good start to the plan. It is a crowded market. Mr. Bechtel mentions we have a market that is not serviced at all, which is the residential market. There are 28,000 homes in Palo Alto. There are a few hundred customers in this business plan. I think the numbers are there. If you are looking to market service, my suggestion would be look where your market is. Speaker: Hello, I’m Andy Poggio. I live at 2708 Gaston Court, Midtown. I really appreciate taking the time to do the full presentation. I really appreciated that change in plan. I applaud the support I am seeing in fiber-to-the-home and I anxiously await it in my Midtown neighborhood. I wanted to address the question that came up twice tonight on wireless vs. fiber because I think there is a lot of confusion and a lot of the organizations that are commercializing wireless are perhaps over-representing it. I work at Sun Microsystems. We do wireless and wired, so I don't have any particular bias. The issue with wireless is it depends on the electromagnetic spectrum that exists today. You can’t add to it. What’s there right now is all you get. We talked about the 10 billion bit-per-second channels. To do one of those in radio spectrum in the electro-magnetic spectrum is very difficult, just to do one broadcast. We know how to get four hundred of those in one tiny little fiber. If that’s not enough, pull another fiber and you get another 400. So fundamentally, the way to look at wireless vs. wired is: "if it doesn’t move, wire it." It would work much faster. It will be less expensive in the long run. Save the electromagnetic spectrum, a precious resource, for things that move: mobile phones, wireless devices of all kinds. Thank you. Ferguson: Thank you. Any other members of the public want to speak? OK, one more. Easter: I’m John Easter 1175 Stanley Way in Palo Alto. I want to applaud you on your recommendation that we look at this Fiber Optic ring as a separate dark ring as a separate business because obviously it should lead into a separate advisory commission to advise that group as it grows. Thank you. Ferguson: We’ll take a five-minute break, and pick up with the next agenda item. Thank you all. (Applause) BREAK 4. Scope of Work for the Long-Term Water Supply Study Ferguson: We are back in session with three commissioners seated. We are on Item #4, scope of work for the long-term water study. Any comments or a presentation from Staff? Ulrich: We do not have a formal presentation on this. We have the materials in the packet. The item I have handed to you is an additional task that we are discussing to be included and that is an analysis of the seismic risk of the existing system and of the water supply options that we are looking at. If you want to take a few moments to look at this, if you have any questions on this task. Carlson: Let me ask you a quick question here because it applies to what you’ve done new and the whole thing. That is when you look at this kind of thing, you almost invariably end up wanting to look at a portfolio that includes a combination of things. Mostly, a reservoir but a couple wells. And I just want to be sure that you understand that you’re going to look at... you’re going to try to come up with that portfolio in mixes of these options will be considered because it’s an important part of the analysis. Right now it kind of looks like pure options and usually pure options are not the ideal solution. Ulrich: We are doing both. We are looking at the individual options, individually at first so that we can identify the characteristics of each one by itself. Then, we will be looking in Task 3 at the comparative analysis in Task 3.2 where we create optimal alternatives a combination of water supply. Carlson: OK. I missed the word combination. Bechtel: I have a question. Near the very end it says project schedule. Engineers PC shall complete scope of work within four months. Do you mean complete the study? Is that what you mean? Ulrich: Yes. These tasks we’ve outlined, they will be able to do in four months. Ferguson: In a related question, is there another UAC look at an interim product before month four? Balachandran: We don’t have that in there. But, we could incorporate that. It is a good suggestion and that was mentioned today by one of our staff and I realize that we don’t have that in there. But I would like to have that so that when we have a draft report we bring it to you, get your feedback. Ferguson: That would be great. There are probably several different places where additional input would be useful and I sure don’t want to belabor it before it’s done. But if it is a four-month time period, there ought to be at the one-month point, or the three-month point, a time for 30 minutes with us here. Balachandran: I’ll speak with the consultants and find out what time periods they think is best to get your input as well. They are familiar with you and the kind of input you provide. Ferguson: Let me pass along one of Commissioner Dawes' comments here. He wanted to be sure on Task 1.3(a) (the capital construction cost evaluation factors and the use of those factors) that we make sure to assume San Francisco PUC costs fully loaded with the three billion dollar capital expenditures, so that when we assume the PUC cost is X, then we get a fair hearing or opportunity for building a reservoir for whatever that cost may be. That we are comparing apples to apples: fully-costed San Francisco PUC supply compared to what will almost certainly be an expensive reservoir-type alternative. Balachandran: I think I understand your comment there, When we are looking at the reservoir cost that we are not looking at that in isolation, but we are looking at that comparing to what our alternatives are with San Francisco. Ferguson: Right, with San Francisco costed at the worst case analysis - or nearly worst case. Balachandran: Right. Carlson: I’ve got one more question here. As I read this, it is a very engineering- oriented analysis. All of my neighbors are engineers and I’ve learned to get along with them very well. They’re neat people. But this is beyond ordinary engineering, it’s not just how you build it and what does it cost? The trade-off issues are relatively complex economic issues and one key criteria I don’t see in your evaluation is the cost of the outage scenario. What’s the cost to the consumer of the outage if you choose this. I want to be sure that on the team, they’ve got some people with serious economic ability that can bring that broader viewpoint here. I want to see more that pure engineering. I assume they are a big enough firm to have that breadth of capability. Balachandran: I believe I understand your question and your comment there. As you noticed, this scope doesn’t deal with that. I’m not sure that within the budget we have to work with on this one if we can address that within the study or not. I’ll talk with other members of the staff and consultants to see how we might be able to incorporate that. Part of what we are hoping to get from you, the UAC, is some input about those kinds of choices from a policy standpoint. We can talk about what kind of information we could provide you to help you with that. Ulrich: Think also keep in mind that this is a preliminary to make sure we have looked at the alternatives and then some of the other things, the implementation and acceptability in the community and all of that is clearly going to have to be factored into any of these mix and match solutions. Ferguson: It would be good at this stage to go back to Paul Johnson’s comments earlier in the year. Get some feel, even at this early stage, for not just the hypothetical reservoir vs. the wells issue, but think about two different kinds of reservoirs. The underground, several expensive underground reservoirs vs. a larger reservoir elsewhere up in the hills. Maybe those are just guesstimates at this point, but getting even a little greater wisdom on that may be helpful. Ulrich: As I recall, you also asked us to look at coalitions and other opportunities of sharing. Balachandran: We do have one of the items in Task 1.2. You will see that Task 1.2(d) is construct new surface water storage with treatment and that would be a larger reservoir - open type of system that would then require treatment in order to go into the system. So it is in there. Ferguson: Good. One more comment to reiterate from last month. It’s still not quite in here. Maybe it is here, and I just don’t see how the connection gets made. I really do foresee one kind of emergency where we are cut off from San Francisco water and Hetch-Hetchy, but the rest of the community -- Santa Clara County -- is not. The scenarios you have here imply only that we’re cut off along with all our neighboring cities and county supplies, or else we are all connected. I think there is a possibility particularly to explore the scenario under 2(e) looking at the option of hooking up to the Santa Clara Valley District, where that makes a difference. It might be advantageous for us to pay whatever Jane said, 15 million dollars, to build the link to the Santa Clara County District. But if they are shut off or impaired because of widespread SFPUC failure, that may not be so valuable a 15 million-dollar link. Yet it may look just great in the circumstance where we are the only ones cut off from Hetch-Hetchy. It may not be a difficult analysis, but I’d like not to lose that variation. Balachandran: I think we’ve got some of that as you mentioned. Other than that one, there’s not really an alternative supply that’s outside of our territory, other than this one. Ferguson: I agree that it might be the only place that’s worth worrying about it. Balachandran: It appears that it’s the only one right now, but we will be looking at that as well. Kirk Miller: Commissioner Ferguson, I think when we looked at One - a 30-60 day cut-off from SFPUC supplies, for example, we are thinking of a major event. 30-60 days is a really major event. The assumption is the Santa Clara system is also being affected by the same major event. So the probability of just the San Francisco system being affected for a 30-60 day period and Santa Clara being OK is very low. Ferguson: And maybe that is the only analysis that you need. Lay out the probability of each of those scenarios so that we don’t have to pursue logic to its ultimate extreme. We can afford to lop off the one- percent impact scenario. Beecham: Can I comment on that? I would expect that one of the large threats to the Hetch-Hetchy system supplying water to us is the Calaveras fault and I believe that the USGS or whoever the authorities are estimate that there is a one or two percent chance annually of that fault going significantly. I would expect that would dramatically affect our Hetch-Hetchy supply and much less dramatically impact the Santa Clara supply. Ferguson: I agree. And what is the range of probability in all the emergency scenarios? Is that the one percent - or the five percent? Balachandran: And we can take a preliminary look at that with the assistance of the engineers. From a gut level, I also agree with you that there will be different impacts on the two systems, just because of where they are located and the age of the systems. Hopefully, with the assistance of the engineers, we can get some additional information on that - or guesstimates. Ferguson: Any other comments? Ulrich: I’d just like to point out that, in general, one problem is with the earthquake we are talking about. We’ve got the Loma Prieta, which had a tremendous amount of damage around the epicenter and then it went deep underground and came up and did a lot of destruction in one section of San Francisco around the Marina and obviously on the freeway overpasses. That could be a situation that we either get caught where we are located or get completely by-passed. We need to consider kind of the opposite to what you proposed earlier. So, I think that needs to be looked at: what is the probability of that happening? NEW BUSINESS 5. Water Customer Survey Follow-Up Ferguson: Next topic: Water customer survey follow-up. Any commissioner questions or comments on that? We were the ones who had asked for the additional break-out of survey questions and responses. One great big question: For that 26%, which is now explained, any particular reason to think that 26% is not representative? Were they random responses? Do we have a feel for that? Ulrich: Well, I’ll give you a statistical answer here. From Kevin. Kelly: I wasn’t really prepared to speak tonight, but I’ll try to understand your question. I believe there were some confidence intervals which were provided included in the report. So if there were any questions about that, I’d be happy to try to answer. Ferguson: There is a plus or minus 7% number. A plus or minus 10% number. Is there 80% confidence? Kelly: OK. Right, so the question is? Ferguson: Of the total number of customers in these categories, we actually got responses from how many? Kelly: I think we only got 31 out of 118. The problem is the bias, the people who mail it back are the people who are the most upset. And they are really not representative. It is a classic bias survey problem. I think we addressed that also. There was some similarity with the key and major account results and the residential responses and the small to medium commercial. So, I think if you look at those confidence intervals that you’ll see that there is some play in there. They are still telling you similar things. Ferguson: I agree that this needs to be addressed. I just want to understand better how seriously it needs to be addressed. Ulrich: I think you’re asking how confident are we that 26% think the way they do. Bechtel: Is it likely if we got responses from everybody, the number would still be 26%? Plus or minus 10%. That’s the raw statistical calculation. But there is another kind of bias here, which is that there are angries who mail theirs in first. Kelly: When you take a sample, you balance the cost of the sample with the cost of perfect information. As you said, you could try to interview everyone and you may only get responses from people who are upset. We do try to make it a random sample, especially with the residents. And since the residential results were similar to the key and major results... Ulrich: Putting it another way, I believe what is said here, I don’t think customers are biased as to tell you that you do not like something. We have as many surveys that show that customers like what we do and depending on what the question is. I think there is very much interest in this information. To say whether the number is 26 or 24, there is still a reason behind it and why they think the water is the way it is stated here, I think that it is really important that we go and find that out and to understand where that comes from and try in some way to set the record straight. Ferguson: So there is a way to get the specifics. Ulrich: That’s the eye-opener here for me and for our staff. The customer is telling us something and we’d better be willing to listen to it and do something about it. Ferguson: And what’s our method of finding out specific reason for the 26%? Are we going to re-survey the objectors? Ulrich: I think you have to ask... when you read this, they don’t tell you on this survey. You’re going to have to go back and ask some more Ferguson: Are you going to do phone calls - or? Ulrich: We have a lot of detail particularly on larger customers. We know specifically who they are so it is a matter of us going in and doing that. It is quite possible that their perception is different than our residential customers. Ferguson: If we believe now that the 26% is a pretty representative number, then it would be good to see if it was a scatter shot of reasons. Ulrich: It doesn’t take much in one sense. If they have this number, a high number of people that say they don’t believe the water is the way they want it to be. And they think it’s not pure. Then we know it is, there’s a message that we haven’t communicated very well. That’s one obvious thing. Get the information in front of people. And once they read it, they still say “we don’t believe you” then we have another issue to deal with. Ferguson: One of the reasons I’d like to get specifics from those objectors is that one of our neighboring cities voted to stop fluoridation recently. I’m just wondering if there is a pattern that’s emerging. People think it’s unhealthy. So, tune in next month? Ulrich: It’s all in the communication area. We have a brochure being developed that will explain this. It’s also going to be available on the website. I think that is the characteristic. There is not enough communication in a forum where people see it and understand it and know. There’s other sides to this. The delivery of the water is through the tap. You are never sure that perception is based on reality. Is it that it doesn’t taste good that gives them this negative connotation. But you’re not sure it’s the water, or something in the infrastructure or whether somebody told them this and they haven’t tried tasting it for the last number of years. So we don’t really know any more than that. It’s finding those things out and trying to present the appropriate and positive story about that. Ferguson: But we will be talking specifically to some of these responders, and saying: “Specifically, what do you object to in the water?” Whether it is by phone call or another in-depth survey? Ulrich: Also remember a large customer, you’re only talking to one person. You don’t go in this complex with several hundred people and go through that. You are looking at a different customer when you are talking to one big one than a residential customer. Ferguson: Any other comments? Mr. Beecham? Beecham: I apologize if this was asked earlier. Do we have similar data from other communities? Has this question been asked this way? Kevin: That’s a good question. You’re talking about the idea of benchmarking with other communities? We do not have that data. We did look at some other communities that do distribute brochures that provide the more positive messages about the water. Here’s our benchmarks against chloroform or copper or all the different components of water. That was part of the original recommendation, that we develop a brochure like that and place it onto the website and people would get the positive messages. There’s negative messages out there in the culture. Not necessarily in Palo Alto, but just books, movies and things like that. What you try to do is emphasize the positive messages. Then you benchmark yourself, as you said, against other communities to see if you are doing better or worse. Beecham: I think it would be very interesting to find out. And communities that have a positive program or whatever. What is the best that can be achieved in today’s environment. As you mentioned, there’s a lot of consideration of the risks, the philosophical differences on fluoridation. Given what we have and given that we are currently fluoridating, these numbers may be great. I don’t know. Without taking out the fluoridation, people may never change. Maybe only one or two people may think the water is not healthy. 6. WAPA Post-2004 Plan Update Ferguson: Thank you very much. Next item is Western post 2004 plan. Any presentation? Balachandran: Maybe I’ll just mention. This is an outline of the process we intend to follow to bring back recommendations to you. So we want some feedback from you as to any comments on the process we are following and take that. Carlson: I have a couple of questions. Is this deficit after we sign the new WAPA contracts? I was afraid of that. I just wanted to be sure. In that case, there are a couple things you need to cover in this scenario that I don’t see covered here. On the Central Valley Project generation and Calaveras generation. The dams are maintaining existing flows from existing dams and existing patterns a la the Trinity issue, is an issue in other sites too. We need to look at Trinity but look at potential restrictions on generation patterns on key hydro facilities that we rely on. Balachandran: I think we have taken care of that in item 1-a and 1-b. Carlson: I just want to be sure that you are specifically looking at that. The other item I’m looking at in terms of WAPA is this controversy that is building up in San Diego. Maybe it will disappear, maybe it will come back, is that turned into an enormous controversy. In the Pacific Northwest, back in the late 70’s or early 80’s, and what they finally did was called the residential exchange program. That’s what is worth looking at. What would happen to us under a residential exchange-type program. I agree with signing the contracts as quickly as you can, but this is a specific option that is worth checking out. See how badly we do. We know it’s bad. It would be useful to know how bad. Ferguson: Any other questions or comments? Commissioner Bechtel? Bechtel: I think the proposed work plan is very comprehensive. You’ve got a long list of things here to cover, You said preliminary results are in December or January. Here we are in early October, so we have about 3 months. That should give us some pretty good answers in January or so. Is that realistic? Do we have a lot to talk about at that point in time? Balachandran: I believe so. I think when you look at the scenarios, you have the objective, function of cost and market value. We are in the process of building a model to analyze these scenarios. Our alternative supply strategies, January is when we will complete the analysis. We are going to put it on the agenda in February to get it to you. If any changes in plan, we will give you monthly updates. If it is done earlier, you will see it earlier. Ferguson: There is a family of software packages sprouting up to help smaller utilities and big corporate customers do this kind of analysis. Take real generation and transmission options and price them out and pick and choose as well as to help decide whether to develop additional options here or there. One called Nexant, and there are a couple others recently featured. I’m wondering whether we know about those things and are going to use them or not? If we haven’t considered them yet, maybe we can offer our services as guinea pigs and get some compensation for our own efforts here. Balachandran: Well, I have gone down the road of modeling Western and I think the best way is with spreadsheets. Using spreadsheets and other models like decision analysis models that have model uncertainties. I have not heard of Nexant, so maybe after this meeting, you can give me some contact information and we’ll connect up with them. I’m giving you my experience of modeling Western. It is such a variable and unique resource that you can pay contractors thousands of dollars to customize it. It just doesn’t model as well as you model it yourself with a spreadsheet. Ferguson: I know nothing about the product, except what I read in the paper. I’d be glad to pass it along. I say that because there are really a lot of interesting problems because of the energy woes, and we have a smart staff. It would be nice to extract all the value we can from your efforts. And one way to do that is to "can" our expertise in software and sell it to the next person or the next Muni. So I hope that we don’t lose that opportunity. Thanks. Any other comments? Beecham: John, you have shown me something that will keep me awake at night. And, if I go to sleep, I’m going to have nightmares about it. This chart is striking. Let me ask some questions that will help me sleep at night and that is: How is the current integration contract shown or not shown on this graph? Balachandran: The current contract is shown through 2004. Beecham: The Integration contract, not the WAPA necessarily, but the make-up for what WAPA does not provide. Balachandran: It’s included in here. Western power comes from CVP. The graph has several effects taking place, but one of the big ones is the expiration of the current integration contract. And also, the expiration of 87 megawatts of Northwest purchase. When both of those energy sources stop being in this model in 2004, then you see this sudden gap develop in 2005. Beecham: It would be useful for me to see in your bar chart some identification of, say, here’s what we get from WAPA generator and their water resources, and here is what we’re getting over the years as the make-up integration contract. The integration contract is one of the options that is in the proposal that we may re-negotiate. I’d like that to show here as one of our options, although the price will be much different than that in the future. That will help clarify that it’s not Western that’s going away to this huge degree, but it’s Western and integration contract that are both going away. Two pieces of the puzzle. Also, how is Calaveras shown in here? I expect that it is not, is that correct? Balachandran: I believe it is included in here. Since we don’t have the breakout of what is included here in the legend, I'll say it is. Beecham: If we could more clearly see it, that would be good. On page two, under construction, item 1-b. You talk about changes in project use and environmental uses. I wonder if that is an allusion to Trinity. Balachandran: The Trinity River issues are one of the environmental issues. There are others, temperature control issues at different reservoirs and new uses for water and stream flow. Beecham: I hope you can tell me that Trinity is the largest impact of those. Balachandran: It’s the largest one we have modeled. Beecham: We don’t have other ones waiting out there, in the wings, so we? Balachandran: One of the frightening prospects with the discussions going on at CalFed. They’ve talked about moving quite a bit of water and they may look at some point for the power to move the water. And if that power gets tagged as a project use, it competed directly with what we were planning to use shown in these bars to the right in 2005. That is an example as an environmental use getting dubbed as a project use and we end up competing with water movement. Ulrich: Mr. Beecham, I think it is appropriate to be paranoid about these issues and these are very important questions to ask. There is nothing certain about anything, but we need to look at alternatives and keep that in mind. I think that it is helpful to keep warm milk before you go to bed, also. That’s the thing we sweat about on the staff, and these are excellent questions. Beecham: At this point, paranoia is the better part of valor at this stage and I don’t intend on having warm milk tonight. On the last page, what do you expect to happen? You expect to come back in January or February to the UAC with preliminary results of your analysis. And then based on that, you may seek bids from potential third party suppliers of energy, based on the analysis you have. Is there any thought of going to the Council with an informational report or other status in the interim? Balachandran: In the interim prior to January? No, we have not thought about that. Right now, the only communication with the Council on this issue would be at the Finance Committee and then after that, the base resource contract. If that is something you think would be useful to bring to the Council prior to that. Let me try to understand your question, an information report saying here is what we are doing and here are preliminary results? Or share something like what we share with the UAC today? It seems to be very technical. Ulrich: We are going with the Base Resource Plan. I know you have read it and it has been through UAC and there is a lot of the same information in it - scary sorts of things, because it is the difference between a dry hydro year, and normal or wet is very significant. All of that below the wet years will have to filled in. So this is our conscious effort to be able to find that. I think going to the Council, you can ask the questions during the Council meeting. But I think we probably gain a lot by going through this. Then in about January, right after we come here, would be when we’d have the information based on what we know. So we are not just saying here there is a problem. I think it is going to be quite obvious that there is a problem in the Base Resource Plan in October as it goes to the Council, and then we will follow up. Ferguson: I can appreciate that. I think having the UAC vouch for the modeling tool and the first draft use of the modeling tool is helpful and might avoid a lot of time to spend with the Council. Any other comments on this. Carlson: I’ve got one more comment on this. It’s a criterion that I think would be very important, especially with the Council. That is, once you come up with a recommended strategy to price it out, in terms of a rate forecast, for comparison purposes, find a rate forecast for PG&E. One of things the whole State is going to be finding, is that PG&E’s rates are going to be going up a lot, too. To a degree, it makes it less of a problem. If there rates are level, and we’re catching up a lot, that’s a bigger problem and I think that is an important comparison to have. Balachandran: We try to look at that in the second objective function. The difference between cost and market value. PG&E customers will also be exposed to the same market, so PG&E would like to pass through all of its costs to its customers right now. They have a rate freeze and they have been advocating a different regulatory body to pass through the cost, so the costs are basically at market. Carlson: The rate freeze is going off somewhere in the next two years maximum and they have a substantial unbilled amount building up plus they have a great deal of construction and fairly high cost of new power plants to do too. Somebody does. Balachandran: PG&E is out of that business. Carlson: Somebody has got to build it and we’re going to have to pay for it - whoever that is. Balachandran: That is reflected, so that is why cost-to-market-value is how our rates are doing. That is embedded in the second objective function. So if we present it to the Council, we talk about the rate advantage or disadvantage we would have under different supply scenarios is reflected in objective function two. Carlson: OK, because that is what translates into the transfer, which is a pretty important thing to the Council and every citizen in this community. Ulrich: There is another part to bring up. You started to discuss it earlier, in the short-term issues that we talked about earlier this evening about what are we going to do next summer? The other part to this is we have a relatively short period of time to make decisions about 2004. The sooner we understand what we want to do, the far more options we have to be able to achieve those. We mentioned earlier about this windfall and this additional amount of money that we received in our recent sales. There’s no reason why those revenues and our projections for the future can’t be melded together so that we can do some things that will reduce the demand for electricity later on, not requiring us to buy as much. We can become involved in some power projects that have longer lead time. There are a number of scenarios of things that we can do but the sooner we get to this study being completed, we then have more time to have options. The longer we wait, you have less options. We are really at a critical and opportune time to get that done and we can have a plethora of choices. Many of those things PG&E customers are not going to have. They have already made decisions to pass everything on to the customers. Bechtel: John, were you suggesting that just now that we could invest those extra revenues in some alternatives now? Is that what you were saying? Ulrich: Well, we’d be real careful. I don’t want to say that I suggested that I brought that up as a something to look at. Sure, we need to explore things, there are all kinds of things to consider. Bechtel: That was my comment earlier in the evening about short-term, about siting local generation. It would be great if we could sell power and then put a generator in place and do something in the next two years or three years if excess power is going to be available for that period of time. It would make sense to look at that rather than just turning that money back into the City treasury, when we are looking at a long-term potential shortfall in power. Ferguson: I agree as well, that the extra money ought to be focused on Electric Utility survival strategies long-term, rather than going into the General Fund as if it were a lucky bonus. I think we need it in Electric Utility. Any other comments? REPORTS OF OFFICIALS AND LIAISONS Northern California Power Agency (NCPA) Commission Report Ferguson: NCPA -- we’ve all been there. I’m not sure that we need to say anything further for the Public Record here. Bechtel: I would just like to say that John thanked us for attending the NCPA. I would like to thank him for the opportunity to visit with other organizations and other people and see the issues. I learned an awful lot and it was definitely worth the time I spent there. Ferguson: I agree. Thank you, John. 8. Bay Area Water Users Association (BAWUA) Report Ferguson: Any comments? Balachandran: Actually, we have a presentation on that, that Kirk is going to be making. This is something that John mentioned earlier about a decision going to be taken at the San Francisco PUC in late October. Miller: What I’d like to speak about briefly tonight is the Interim Water Shortage Allocation Plan, which is being developed by BAWUA, and San Francisco PUC. We have been very active for almost the last two years in developing this plan and it is very close to being finalized. I wanted to bring you up to date on this and let you know what is coming down the pike in the next couple of months, to both you and to City Council. As compared to the previous item, which was a little bit scary, this one is a little bit like warm milk. This is a nice thing. What I’d like to do is talk about the purpose of the shortage allocation plan, the development of some key provisions that are in the plan, the allocation methods that are included in it, and the schedule and next steps. Briefly, what is the shortage allocation plan? It is a plan for slicing up the water between San Francisco and BAWUA as a whole and between the BAWUA members during a drought. The plan is interim in nature, designed to expire June 30, 2009 when our master contract for our existing water supply also expires. So that contract will get renewed and renegotiated. This component of the plan will go away and be incorporated in the new contract. Why do we need a shortage allocation plan? It satisfies a condition of the master contract which was signed in 1984. We were supposed to develop this within a short period of time and it’s only taken us this long to get it developed. It helps with BMP #10, which is wholesale agency assistance program. It also removes the disincentive to conservation that is important in CalFed and Bay Area recycled water regional program. It helps to plan and manage the limited water supplies that we have better. Encourages the development of conservation and reclamation alternative supplies. The existing contract has a powerful disincentive and that is that the water available during a drought is based on your prior year’s usage. It creates an incentive for water-wasting so you can justify a larger allocation when you go into a drought. This plan largely removes that problem. The history of development had a workshop with all the BAWUA members last November. We went out many of the BAWUA agencies in the Spring. In March, the intra BAWUA allocation method with how we cut up water between BAWUA agencies was approved by the BAWUA members. Since that time and up until now, we have been negotiating the San Francisco BAWUA split. How much water does San Francisco get and how much to the rest of the members. How do we administer a shortage allocation program that has some of the components that I’ll talk about. The BAWAU board has adopted the San Francisco BAWUA split this past month. The general manager made a report to the San Francisco PUC commission last month, describing the allocation plan and it was well received by the commission. The provisions of the shortage allocation plan are that it applies to shortages up to 20%, It involves both mandatory and voluntary curtailments, depending on the level of the shortage. It has both the San Francisco BAWUA split and the intra-BAWUA split in it. There would really be two agreements. One is the San Francisco BAWUA that deals with those components and another one is intra BAWUA with just the issues that are specific to BAWUA. That way we keep San Francisco out of the intra BAWUA component and keep things simple. The program involves banking and transfers that did not exist during the last drought. The ability to do transfers between BAWUA members. It incorporates excess use charges, which are the same charges that applied during the last drought. The recommended San Francisco BAWUA split is shown here on this table and it changes depending on the severity of the drought. As the drought gets more severe, the BAWUA agencies get slightly less water. The reasoning for that is that San Francisco’s water use pattern can’t take as much of a hit as BAWUA as a whole can. Primarily, that is the difference between inside use, which SF had proportionally more of, and outside use. It gets into a whole complex equity question: are we dealing with health and safety or with watering lawns. Without getting into that, we needed to come up with a compromise solution that SF could accept and we could accept. These are the splits that we came up with and we think it meets BAWUA’s needs quite well. It also is satisfactory to SF. Beecham: A point of clarification. On the split, is that to say that 35.5% of the 5% is allocated to SFPUC for example? Miller: No, it means that during a 5% shortage, 35.5 % of the available water goes to SF, the remainder goes to BAWUA. Beecham: What is the zero shortage? Miller: It’s roughly one-third, two thirds. But there are no limits or caps to that. We can use as much as we want. The intra- BAWUA allocation component that was approved several months ago has three components. Supply assurance, which is a fixed number. A three year average going back three years from 98-99. That is also a fixed component. A three year rolling average, just prior to the drought and that is the variable component. The results of applying the split. What does that mean to San Francisco and Palo Alto? The next chart shows in the 3rd column, the result percentage cut back. You see that Palo Alto in a 20% system-wide shortage; we Palo Alto would face a 19.6% cutback. BAWUA as a whole faces 23.6% and SF as a whole faces 13.1%. The reason for that disparity is that whole equity issue and coming up with a compromise that deals with that whole issue with how much water is available per capita. That’s what the 4th one is. At 52.1% you see that SF has significantly less water than Palo Alto and quite a bit less than the average BAWUA user. Bechtel: A great job of negotiating! Miller: We’re happy with it. We had a lot of support from BAWUA. They really led the charge on this one. This last chart describes why we should want to participate in this plan. On the left side, you see that under the Master Contract the way it is now, we would get hit with a 23.6% cutback if there wasn’t a BAWUA. If the same percentage was applied to all BAWUA members. The second one -- inside-outside -- happened during the last drought an allocation method San Francisco came up with where we would get a 25% cut. The third one, the interim water shortage allocation plan. Our cutback is reduced down to 19.6%. The reason that our cutback is less than the BAWUA average is that we have a fairly fat supply assurance number. This number was set many years ago, and Palo Alto put a lot of effort into water conservation, which brought our usage down continually over a number of years. We are getting some of that benefit now, by having one third of our formula based on supply assurance. The last column bar, shows what happens with the allocation plan if we were able to reduce the usage by 10% through conservation and reclamation and alternative supplies. We see that we get an additional benefit from that by having less of a cut in a drought and that advantage does not exist under the present framework. Under the present framework, if we conserve, then we get dinged even harder in a drought. Beecham: Can you explain that a bit more? The proposed project again is what and is applied when? Miller: That is an assumption we use for illustrative purposes. We created for all of BAWUA agencies to show if we had the interim shortage allocation plan in place and we Palo Alto invested in conservation sufficient that our usage dropped 10 %. Then what happens during a drought? What it shows is that during a drought, out amount of water would go from 10.48 down to 10.16 so we would get less water, but as a percentage cutback, we instead of having 19.6% cutback, we have 13.4% cutback. So, we do get a big majority of the benefit from the conservation. The reason that we don’t get all of the benefit is because 1/3 is still variable and that is part of the compromise that we needed to make with the other BAWUA agencies. The rollout next steps: On October 19th, this will be discussed at the BAWUA Board. We are not expecting any problems there, we expect they’ll approve this plan. They have been very supportive. October 24th is an important date and John mentioned it possibly having some representatives from Palo Alto may be useful. We can talk with John and get back to you. That would be an action item at the SFPUC, where they would pass a resolution that we adopt this plan if during a certain time period, all the BAWUA agencies adopt the same plan by resolution. Immediately after that, the shortage package would go to all of the members from BAWUA. That package would include 3 things. A resolution that all agencies would have to pass exactly the same resolution. And it would also include a SFPUC BAWUA agreement that we’ve negotiated and it would include the intra- BAWUA agreement. Those three things, it shows on the lines. I did not put a comment in there. Once all the members pass the resolution, then the plan becomes effective. We have to have full sign-off, because it is implementing a piece of the Master Contract, so for Palo Alto, in November we would like to bring the resolution and the plan to you for your approval of that and then in December, we would like to bring it to the City Council with your support for their approval of the resolution. Over the following months other BAWUA agencies would approve it and we are hoping to have all the BAWUA agencies approve it in the first six months of 2001, so that it would become effective at the beginning of the next water year in July. That concludes my presentation. I am able to answer questions. Ferguson: Great, Kirk. That’s excellent. You know that we’ve had scraps and reports of this over the last year-and-a-half as it shaped up, and this is just a wonderful summary of the story. I take great comfort in the fact that this is going to be in place in the year 2001, as a practical matter. We will start to feel the next drought in 2002 and definitely feel it in 2003. All of the other kinds of long-term resource planning capital expenditures we have been talking about really won’t kick in for years after that, so this will help. Thank you for a job very well done. Beecham: I’ve got a simple question, the stock’s about a 20% cutback, how does that compare to the previous two severe droughts we have had? Miller: It’s similar in severity to the previous droughts. 20% system-wide during the end of the last drought, we were in danger of having cutbacks in excess of 25%. But it didn’t get to that. What happen to this plan after 20% is that we, BAWUA, have to say to SF who gets what water, but the banking and the transfer components still stay in place and that is very important. So then all we have to argue about is what is the slice? The plan stays in effect, we just have to have a different matrix. We didn’t go that far for now, because it’s very difficult to get agreement with all these people and have agreement on a deep cut before everyone has an understanding of how this is going to work and get comfortable with it. We kept it at 20%. Bechtel: On the point about all the BAWUA members pass resolutions, I assume since you all met and discussed this that it is likely that all members will pass. There’s not likely to be hold- outs with respect to bond measures. Miller: If there are any holdouts, we will ask that you go and bludgeon them. Ferguson: To use the technical term. Bechtel: I take you at your word at that. Miller: We have done two outreach efforts that BAWUA has done to all of the BAWUA agencies. They haven’t come here because I am on the committee and I have been representing it. But we have the reasonable expectation that it will be supported. All the BAWAU agencies present at the quarterly meeting in March supported the intra- BAWUA split and that was one of the most difficult components of it. The only new part of the plan that they are not familiar with is the SF- BAWUA split. That actually turned out better than we had hoped so we are expecting full approval. Bechtel: Does this mean now that we are more committed than ever to help San Francisco bail out Hetch-Hetchy now? Does that mean that we are going to be coughing up more money than we did before? There are no under-the-table quid pro quo’s? Kirk: No, I think it doesn’t affect that. What it does do is it makes our position somewhat stronger because we have more control about the available water. So, we’re in a little better position as far as the use of the supplies and coordinating between BAWUA members and possibly using some of the local supplies that may be available within other BAWUA agencies. There is now a mechanism where can trade that water. So it makes our situation slightly better. Ferguson: Any other comments? Thank you, Kirk. 9. Transmission Agency of Northern California. Ferguson: Are there any news items or comments there, since we covered several related topics in Electric and Fiber? Balachandran: Nothing new, other than what you heard at the public NCPA meeting. Ferguson: Well, good. Our next meeting is November 1st. John, did you want to make another comment? Ulrich: I wanted to bring your attention or remind you that there is a great ad in the paper today announcing Public Power Week and if you stop by in the lobby on your way out, see that and help us celebrate that and tell everybody in town about it. Also, the future agenda. I wanted to confirm that for the November meeting. Do all of you have a city of the future agenda? Am I the only one? I’ll send that to you. We’ll add the fiber plan. We’re going to do risk management principals. We are going to discuss the Gas Rate increase for January. A review of the Palo Alto’s water shortage contingency plan. And then I’ve added to January, the interim update you have asked for on the long term water. And then on February 7th, we’ll do the post 2000 for the plan again and give you that information. Our next meeting is November 1st. Do we have any issues about a quorum? Ferguson: We expect that Mr. Dawes will still be trekking. But I think that Dick Rosenbaum is back in town by then, so we have a fighting chance for a quorum. Just one comment on the fiber plan coming up next month, Round Two. I really would appreciate something more than a sentence and something less than 5 pages on two related topics that set the stage for that. Call them telecom topics, but I’d like to know what we learned from the universal telecom service RFP. The fact that it went belly-up despite lots of bids and much discussion. And secondly, what we know about what’s public and releasable about AT&T’s plans, now that it has taken over from Cable Co-op. What do we know about the way it’s going to build out with copper and maybe fiber of their own. A little more of a broad backdrop to the telecom question, so we have some perspective on the numbers and the next round of improvements in the Fiber Plan. Finally, as we all know, our former Utility Director, Ed Mrizek, lost his son a few weeks ago. It was an absolutely astonishing and tragic event, so before we break, I just wanted to let Ed and Carol know that our hearts go out to them. It’s just tough news and a tough event. We all felt it. John: I think that will be greatly appreciated. Thank you. I would ask if there is any feedback or comments on our materials that you received. You are all getting your hard copies and any suggestions, recommendations, any improvements, we will be glad to listen to, Ferguson: We’re satisfied. Thank you, sir. We are adjourned. ADJOURNMENT: 10:45pm