HomeMy WebLinkAbout2001-03-07 Utilities Advisory Commission Summary MinutesUAC Minutes March 7, 2001 Page 1 of 28
AGENDA City of Palo Alto
Utilities Advisory
Commission
MINUTES OF UAC MEETING
OF
MARCH 7, 2001
Call to Order _____________________________________________________________________ 2
Approval of Minutes and Agenda Revisions ____________________________________________ 2
Utility Director Report _____________________________________________________________ 2
S.O.C. Update ____________________________________________________________________ 5
Quarterly Water Issues Update ______________________________________________________ 7
BAWUA _________________________________________________________________________ 8
Load Management Plan ___________________________________________________________ 17
TANC __________________________________________________________________________ 26
Strategic Plan Update _____________________________________________________________ 28
Adjournment ____________________________________________________________________ 28
UAC Minutes March 7, 2001 Page 2 of 28
Call to Order
The Utilities Advisory Commission meeting was called to order at 7:30 p.m. in the Palo Alto
City Council Chambers by Chairman Rick Ferguson. All five Commissioners were present. Approval of Minutes and Agenda Revisions
Ferguson: There being no requests from the public to speak, let's proceed to the February 14
meeting minutes. In the minutes, between pages 37 and 41 there are several references to the term “melted rates.” I think that meant “melded” with a “d.” On pages 22 and 49 the magic commodity-futures term is “backwardated”. And at pages 17-18 the terminology “AC entirety” should be “AC inter-tie.” The last correction is at page 43, where John Ulrich says, “We have a
very important role to hold the Mayor up.” I think that should be “hold the mirror up.” And
that’s all for the corrections on my list. Any other corrections or comments? Bechtel: Mr. Chairman, I wanted to point out that I did complete the Utility Advisories but somehow they did not make it into tonight’s packet.
Ferguson: Well, thank you. They are always a helpful summary. Is there a motion to approve the minutes as corrected? Dawes: So moved as corrected.
Ferguson: Moved by Dawes, seconded by Rosenbaum. All those in favor say aye. All those opposed. Passes: 5 – 0 Ferguson: Agenda review and revisions: Again, let’s batch up the BAWUA water issues, items
1, 2, and 3. And for New Business; John is there any other change you want to bring to our
attention? Ulrich: No. I plan to have a brief presentation during my director report.
Ferguson: Any other suggestions, commissioners? All right, let’s proceed on to the Director of
Utilities Report. Utility Director Report
Ulrich: What I would like to do – this is a bit unusual – is give you just a brief overview of our
gas procurement plan and policy. You all participated in the Strategic Plan. We are now in the implementation stage. The Director of Utilities has the authority to purchase gas, through delegation by the City Manager from the City Council. Now that we are going through very significant price fluctuations – or I should say increases, they have not fluctuated down very
much – we have put into place a different gas procurement plan than we have used in the past.
The past has been, we wait for the summer to show up and then we go and buy a year’s worth of gas. We modified that last year and started to purchase smaller quantities of gas over a shorter period of time, so that we were not trying to guess the market. But we bought enough gas to get
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us through June of this year, and then we started our purchase plan for the following year. We have made some headway but have not completed all of our purchases. So I would like to take a minute and go through our gas procurement plan. The reason I am putting it in here in the Director’s report is that I am not asking you for approval, but I would like
you to be aware of what we are doing and, of course, any comments or questions that you might have. I will go through it rather briefly. If you would like details of it, those are available – behind everything is lots of detail – and Monica Padilla who put this together for me is here and will be glad to answer some questions. This just gives you an idea of the pricing, of the cost to buy gas at bid week. You can see what happened in the year 2000. You can see the significant
increase in price. Dawes: John, just for our edification could you say where you froze the price for the fiscal year ending June, or is that a confidential item?
Ulrich: There will be more detail on that. The strategy is sure not confidential. I don’t have very specific prices here with me. Dawes: My recollection is that we got it at around $4.50 or $5.00 or around there.
Ulrich: I will answer those in just a minute. I don’t have that number. What we are embarking on is a 3-year gas purchasing plan so that, as you can tell from our Strategic Plan, we are trying to have our gas rate be as stable as possible. And easy for our customers to understand and to plan for, particularly those who have businesses that rely on significant purchases of gas in their budget. So, we have been hedging our gas costs for non-Direct-Access eligible customers and to
cap and/or fix at least 75% of those costs. We are taking 25% of that gas and going 3 years out, 25% 2 years out and 25% 1 year out and then buy the remaining gas at index prices. Then we would hedge for Direct-Access eligible load when customers commit to terms. We have a rate schedule for that, it is quite innovative and it allows us to give customers some choices. We will not assume the risk. We'll hedge out the risk, hedge credit and price risks through financials,
upon Council approval, and diversify financial and physical gas suppliers. The goals and benefits of the gas purchasing plan is to reduce commodity cost uncertainty, and improve rate stability, not too far from market prices. I am always reminded we are not there to
beat the market or to lose, we are just trying to stay as close to market as we can and go for
stability. Build and stabilize supply reserves and overall improve customer satisfaction. Now, there is a risk that future market prices may be lower than Palo Alto’s cost, and we can be assured that if we have a three-year purchase strategy, sometime, someplace we are going to be too high. This is what we have done to date: We have hedged 100% of total forecasted load
for 2000-01, we have hedged (I have to say “only” at this point) 35% of non-Direct-Access
eligible forecasted load for 01-02, and nothing for 02-03 or 03-04. We have been going through a considerable discussion and frankly we now have resolution on the difference between hedging and speculating. With that policy clear on what hedging is, we are clear and so is the rest of the City that monitors and works with us on purchases and is responsible for the financial well being
of the City. This would give you an idea, this whole area – The difference between our actual
cost (which is the blue line) and the cost if hedges were not entered into is about 15 million dollars saved. And so again, that is about a 20 million budget. Everything to the right of the vertical line at April of 01 is estimated. So this approach is appropriate, and to show the success rate is –you can’t see it but up through March if you look at it real close, you will see a blue line
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which is over the top of the red line which shows what we are doing is buying gas as our cost is right at market. So the hedging strategy is working well, because the difference between hedged and unhedged is in this case exactly the same. Now at first blush it seems, well, that isn’t making anything. But the point is we are not trying to make money, we are trying to minimize our risk.
Dawes: You confuse me. The last slide showed a 15 million-dollar cumulative savings of hedged verses unhedged and here you say the cumulative is the same. I’m missing something. Balachandran: We will know what the performance is once the month actually happens. So this
is basically estimated cost given the future forward price. We haven’t hedged anything for 01 and 02 so as far as today’s concerned, if you are comparing what the market price would be ---- Dawes: I’m sorry, this is 01-02 rather than 2000-01.
Balachandran: Yes, this is the future. Dawes: Yes, I apologize. Carlson: Girish, could you go back to the previous slide – I want to look at the endpoint. What
is the difference in the endpoints in millions. It’s 20 million versus 35 million – so you are projecting that next year our gas is going to cost 35 million dollars for the year. Balachandran: This year's – the current fiscal year’s cost would be around 20 million dollars. If we had not hedged and bought everything in mid-week, it would have been 37.
Carlson: Would be 37 – that is for this fiscal year. I was interested more in what you are projecting for next year. Balachandran: We wouldn’t know. Actually I was incorrect when I said we have not hedged;
we have hedged 35%. But you won’t know the savings until the bid week price is actually published, which will be the end of June. Dawes: It could be either a savings or expense. We may be over the market. Savings or
expense. We wouldn’t know how you performed until that time.
Balachandran: Exactly. Our costs are going to go up, as Randy has mentioned in previous presentations. We are going to come back to you with a rate increase effective July 1 which is going to be, I think, 35 to 40 percent, I don’t know what the exact numbers are.
Dawes: It looks like this is 30 million. It is a 50% increase, but we have already increased rates considerably, so vis-a-vis current rates, it's probably a much lower level of increase. Balachandran: And this is just commodity. The rate increase numbers we talked about are based
on a bundled rate. We are also going to build reserves because those are basically depleted now.
Ulrich: And as Girish pointed out we have only bought 35%, so we may be exposed to higher prices yet before we are finished doing the purchasing. Next steps: In April we plan to execute Enabling Agreements with multiple qualified suppliers. This is increasing the number that we
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had instead of trying to put all our eggs in one basket. On going is to implement the Gas Purchase Plan. March 20th we go to the Finance Committee to consider amending the Muni Code to use financial products. In April, select a new physical gas supplier; in May develop plan rules for using financial products approved counter parties and then in July implement fixed term rates. That is my presentation. Would you like to ask any questions?
Ferguson: Commissioners, any questions on the gas presentation? S.O.C. Update
Ferguson: I have a question about the other news item – the Standing Oversight Committee. Ulrich: Are we through with this one? Ferguson: Yes. I checked. There were no other Commissioner questions.
Ferguson: In particular, your last slide triggered it. I am just curious about whether the Electric Supply-purchasing regime tracks the dates that you gave there for gas purchasing. Ulrich: No.
Ferguson: Could you give us a quick recap of SOC? Today’s activity. Dawes: John, I picked up the schedule, which shows the recommendations that were asked for. I had to go to dinner, so don’t know if that is what actually came down from the SOC .
Ulrich: Yes, it did. Dawes: So the Oversight Committee approved the conceptual requests; to rely on Western to supply the bulk of our energy.
Ulrich: Yes. I was looking for the page number. I would just like to show that to you for anybody was not there.
Ferguson: And the committee signed off on that conceptual request?
Ulrich: Yes they did. I have every page but … Dawes: There is a copy of it here, John, if you want it.
Ulrich: Do you have page 9? Ferguson: Reliance on Western. Finalize option 1 or 2.
Ulrich: This is a public document today and I will send a copy to each of you so you can look
through it. Sorry about the papers flying around here. I appreciated having Dick Rosenbaum, Richard Carlson, Dexter Dawes at the meeting today. Dick had a chance to address the Council or the SOC with his comments. At the conclusion we did get conceptual approval. We did not ask for them to agree to or finalize our objectives. Our recommendation on the conceptual
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approval is to rely on Western to supply the bulk of energy at a rate determined by Western, finalize option 1 or 2 with the SOC approval immediately prior to execution. When an adverse outcome is known with certainty, we'll develop a revised plan which will include, but not limit to, options 3 and 4 and moderate drawdown of reserves for immediate retail rate increases to pass increase cost, with retail rate having the potential to increase to 12 cents. Currently the total
cost averages around 5-1/2 to 6 cents. I went through those rather quickly and I would be glad to answer some questions about it. The only area where there was some discussion was around use of reserves to reduce the impact of rates. Dick Carlson made a point that indicates that he believes that the long-term cost of supply is around 5 cents; you add to that approximately 4 cents for our distribution and transmission and overhead costs. That results in a cost to the
customers above 9 cents. That is only going to be short term and we would not recommend trying to reduce your costs, reduce using reserves so that you gave customers a false sense that anything below 9 cents was a real number. Now Dick may want to elaborate on that a little bit but that was kind of the essence. The SOC listened and got the idea that trying to use reserves which in all these scenarios go rather quickly – 100 million dollars does not take long to get
close to zero – that it is probably better not to use reserves unless it is a short term strategy. And by saying that I don’t mean to put words in the mouth of the SOC, but there was some discussion around it. We focused only on 4 options. We asked for approval to go ahead and work on those rather than on multiple options, so that we can limit the scope of this review. We went through why we came to these recommendations.
Dawes: It makes me very nervous when you aggregate our electric reserves. The stranded cost reserve is about $70,000,000 with our RSR of about $30,000,000. To me, the amount that should be on the table is the $35,000,000 from the RSR, because now if Dick’s prognostications are right, a nickel is no absolute guarantee that we are not going to have to dip into some of the
Calaveras reserve just to pay the bonds, which is why it is there. So, to tell the City Council that they have basically a hundred million dollars to subsidize the citizens, to me is an improper signal that should be the RSR is on the table – that is what it is there for. The Calaveras reserve should be held out for the bonds, or for my secret passion, which is to build a power plant in the future. Say we don’t need it.
Ulrich: I don’t think you should have the assumption or belief that the $100 million is on the table – we didn’t give any implications. We answered the question, which was how much money do you have in your reserves. I don’t think anyone implied that we should…
Dawes: I think, always carefully segregate between those reserved for bonds payable over the next 30 years versus what is in rate stabilization. Ulrich: We did that. It is in the record. It is far from us recommending the use of it. But I think
our role is to lay out what we have, and what some of the alternatives are, then to point out as
you have the risks that are inherent with doing that. And also to use the example today of what we are doing with our gas reserves to reduce the impact on the gas rate increase and that leads to potential other problems. That is, as you are trying to build those reserves, you are now at a point where your gas rates may be higher than surrounding areas that just passed along the
commodity price increase as it came on. And then as they came down their rates are going down
and ours are still up, because we are still paying off the increases that we didn’t pass on at the time they were here. So, we have to be careful to know what we are getting into.
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Dawes: Okay, oops – one thing on this reserve issue and that is I think both in John’s presentation and what I heard in response, nobody was enthusiastic about dipping into the Electric reserves. I am very pleased to see that, because that should only be done in a short-term emergency situation. We know our rates are going to go up significantly by 2004 and there is no point in spending good money now to delay the portion of that that is inevitable.
Ulrich: You made that very clear today in your presentation. Quarterly Water Issues Update
Ferguson: Good. Let’s move on to our new business agenda here. Item 6 is our usual BAWUA report but we are graced tonight by the presence of the BAWUA general manager. Is there a staff introduction here? Ulrich: Well, it is always a pleasure to introduce Dr. Jensen who has come a long way to be with
us. He likes to come here periodically and give us an update. We are very pleased with our relationship with BAWUA and the kinds of work we are all doing collaboratively with all of the other water users of Hetch Hetchy. It is a pleasure to introduce Art Jensen who will give you an update and be able to answer some of your questions.
Jensen: Thank you John. Ferguson: Great. Do we have a microphone for Art? Ulrich: While they work on the slide projector, would you like the quarterly water issues update.
Ferguson: Yes, let’s do that. Jensen: Would you like to ask some questions?
Dawes: Did the last rainstorm which I was absent for get us better than 65%? You may not know that offhand, but we seem still distressingly low on our precipitation index. Jensen: I am not sure on that particular index there for Hetch Hetchy, but I did look at some data
for the Central Valley Project and the snow pack was on the order of 80% of normal. So it was
looking pretty good from the CVP, I imagine similar numbers for Hetch Hetchy. That was through the 15th of February. Ulrich: This might be a point to interject. I had a chance to be with the Chief Operating Officer
of Bonneville. He tells me that even now they will have the driest or close to the driest winter on
record, and that will have a significant impact on their hydro generation. Carlson: John, we don’t buy anything from Bonneville, directly or indirectly. But isn’t that a problem for the rest of the state? And for the market?
Ulrich: Well, it is our problem for reliability. The market relies on that energy flow and that is a market that we are very interested in.
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Ferguson: Any other questions on the Water Quality Report or the Quarterly Water Issues Update? Bechtel: I notice that there is the SFPUC meeting, which is scheduled for next week, and there has been some discussion about us attending. I am not sure that I will be able to attend but we
talked a little bit about maybe attending or someone from here listening in. What are our plans
are to meet? Ulrich: I would ask that Art could respond to that in the context of his presentation and give you more of an overview of what the issues are with respect to the SFPUC and the where and when
your participation would be best. Dawes: The annual budget had a number of capital spending items. There is no mention of caps so we can assume that the projects are running on schedule and on budget?
Ulrich: Well, we have on the agenda for next UAC meeting to go over our budget, doing it early enough so you have a chance to look at it. Dawes: I was thinking of the projects that were scheduled for 2001 rather than 2002.
Ulrich: I believe so but let me ask Scott here for a minute. Bradshaw: We are a little bit under right now but it looks to me like we are going to be catching up a little bit later on in the spring. I expect to spend about 90% of the CIP budget this year.
Ulrich: The expectation is to spend about 90 % of the CIP water budget this year. Dawes: And we will also be in part of our budget thing looking at our very large caps for the water, the wells, the reservoirs, etc. which we went into in some detail but have not heard about probably for 4 or 5 months.
Ulrich: The answer is “yes”. BAWUA
Ferguson: O.K. We are ready for Art Jensen. Welcome, Art. Jensen: Thank you. Good to see you. Members of the Commission – it is always a pleasure to be here. I am always treated to a good time. You tax me and you send me away with a “to do
list” as Girish and that’s good because what it does is that confirms that we are in touch with the
membership and that we are being responsive in becoming aware with what your needs are and what your interests are. What I would like to do tonight is to cover a number of topics. We don’t have to go through who
we are, but I would like to discuss more about Palo Alto’s role in the organization and what you
can do for us. The topic that is going to come tonight with the status of the CIP in San Francisco and that we can talk a little bit about this next meeting of the Commission. Our actions to effect change and future direction of the organization.
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First of all, the CIP – the status is that it will be released tomorrow. The original schedule was November. They had hoped to release it at the last Commission meeting and they were not able to for production and other reasons and that has heightened the concern of the San Francisco Public Utilities Commission and they are interested in getting it and being able to start the workshops, etc. So, it will be released tomorrow to the public and we will be getting a copy
making available for whoever would like them. The Commission will probably not have workshops concerning the CIP program until either the end of March or maybe even April. In terms of when there will be a public discussion of it therein by the Commission that will occur. The Mayor has a task force that would be looking at the CIP as well and I can say more about that in a few minutes.
Our expectations of it, potential cost what you might expect to see, the wholesale water rate impacts, all those things are important issues and I will try to provide you what I can with information, but more important, I can tell you what is not known and therefore what actions might be important to take. Very quickly, what we are concerned about in terms of a capital
facilities is the potential outages due to earthquakes, and I know that you folks have seen many of these issues before. You have been on tours and you have seen the system. The bottom line is strengthening the system now, reduce that exposure to risk, the sewers are aging, there is no other system, it does not make sense to try parallel the system. The solution is to rebuild it. The problems are all solvable. It takes money and it takes a sense of urgency but they can be
handled. Drought protection is needed, not necessarily a capital issue, more a matter of acquiring dry year water contracts, at least for existing customers and that should begin now. I like to show this graph because it demonstrates a couple of things. To those of us with gray hair you can remember, John that includes you, you can see the drought of the 70’s as well as the
most recent drought of the 80’s. More importantly, you can see the consumption, the purchases from the San Francisco System by customers today are still 10% less than they were prior to the last drought. It is remarkable. What is more remarkable that in that same period of time, 15% increase in population. It is about a percent a year as well as all of the influx of commercial and industrial land uses in this end of the system since 1985 and if you can remember driving along
237 back in l985 and you imagine driving along it today and the difference you would see. You see, it is quite remarkable. What does that tell us about this pretty graph? What it says is that in some ways our use of water must be more efficient because we are supporting a whole lot more economy and a whole lot more people with 10% less water than we were before and no
significant development of other sources – some but nothing that would explain this. So, what
we have learned from this in that it is going to be really hard to conserve water during the next drought. I am not saying that water conservation possibilities do not exist but they do and I believe that there are some alternatives.
Just based on space you can tell that the problem will be different during the next drought.
Deliberate capacity is needed. There is a growing demand involving plant growth. Plant growth is far below the prior demand projections. That seems to be typical of most areas and yet there is modest growth in the system is estimated to run out of capacity somewhere between 2005 and 2015 and those of you sitting in your chairs, most of you know that between now and 2005, 4
years, nothing is going to get built in that period of time. And the construction is not the long
part. Construction goes relatively quickly. It’s all the rest of it. So things need to be – some alternatives actions need to be taken. The building of the pipe must occur some day but other actions are needed. I liken it to watching a train come down the tracks. It is entirely predictable when it will hit you. There is no question about it; you can time it, you can print schedules for
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the accident and stand there and let it happen is what a fool would do. A really smart person would find a way to step to the side and let the train go by. But if you watch the movies, that is never what they do in the movie. They always run down the track trying to get away from the train. That is what we have to do. We have to change that demand curve and buy some time which means additional conservation beyond what I displayed before. That’s a reality of life.
What are some of the problems? In terms of capital facilities need to be built. You see a curve here that shows identified funding and funding shortfall and this curve comes from prior report by the PUC and this will be updated but the top of the line, the accumulation of 2.5 billion dollars is still about 2.5 billion, the length of time may go beyond 2013 but the volume of
unfound money remains the same. Our concerns right now, we haven’t seen the draft report obviously, the CIP program and funding program that they have developed, my concern today I can tell you is that they have assumed funding innovations as opposed to sought funding opportunities for a different outlook. So funding alternatives might involve you and others are yet to be explored. They may have some things in there that I am not aware of and that would
be good. The conclusion is the time lines we are looking at are short and unlikely to be met and any actions required upon your part. Here is a list of bullets that speaks to a sense of urgency. This is more directed toward dry year water supplies and future supplies than it is the rehabilitation of
the aging system. The question is will San Francisco take care of your needs. They are going to drought proof their own city. They are experiencing very little growth. They have no contractual obligations to meet future needs outside the city above the supply assurance and there has been nothing done to increase the supplies over several decades. The conclusion I draw from that is the same you would draw from that, there is no guarantee that San Francisco will take
action. If you don’t vote for them, if you don’t send them extra money to do that. Tat does not mean that they can’t or that they won’t. But it won’t happen naturally, as the need is not as great if you live in San Francisco. Dawes: I thought that the arrangement which had been negotiated between the member agencies
and the city, which our Council approved recently and has circulated amongst the other suburban members, basically committed San Francisco to a sharing arrangement in the event of drought -- which does not seem to be what you are saying here. I don’t understand the difference when you say there is no agreement, and the piece of paper which says there is an agreement.
Jensen: Right. We will address the Interim Shortage Allocation Plan up there and the beauty of that agreement, and right now we have about 55% of the agencies have signed on. We expect the rest to sign on in time. The beauty of that agreement is that it lets everybody know how much water they can count on. So, for instance Palo Alto would know how much water they
could expect to get if we went through a drought similar to the one before and with that you can
develop other sources of water and project to your customers, and you would get your share of the San Francisco water through that agreement and you can develop other sources to protect your customers. That is basically what the City has done.
Dawes: Doesn’t that commit them to share the shortfall?
Jensen: They will share the shortfall and they can develop sources within San Francisco, at their own expense, to make up the difference.
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Dawes: The third bullet point is it says it has no contractual obligations to meet future needs outside the city but what you didn’t say is that they have a contractual obligation to share in a shortfall between the City and its customers. Is that true? Jensen: That is true. In terms of the future obligations, that talks about shortages. When there
are shortages they have to share the pain. In terms of how much water they have to supply you, the master contract has a limit in it, and it could be stated better, where they have no obligation to increase that amount. Dawes: This makes no mention of that agreement and to me that was an important agreement, it
was an important step forward by San Francisco and sort of addressing the uncertainties that the members face but this seems to say they are not doing “nothing” and ---- Jensen: It is a good point and probably what I should do with this presentation is to divide the dry year supply issue from the future-growth supply issues, so that is clear.
Bechtel: Art, in the monies that we paid to San Francisco for water, all the BAWUA users members, is there any financial reserve being built for future capital expenditures? Or have we been pretty much paying costs and there has been really no build up of any capital funds?
Jensen: A good question. The short answer is no. And there is a genesis for that and there is a future to that. The genesis was that during the original dispute that Palo Alto brought against San Francisco and was joined by others, one of the concerns was that San Francisco was setting rates arbitrarily and then the money could be reallocated for other things and you did not know where your money was going and the Master Contract now protects you from that. The money is
segregated. You pay your share of the costs and with respect to the Capital funds if you read back to the correspondence, some of the proposals from your side of the table were that you contribute in real time and that the capital be there so you are assured funding for projects and they would get built. The City rejected that proposal and said “no” you will pay after it goes on, basically what the agreement says now, as a result of their counter proposal, you pay after the
facilities are built and you pay your fair share over the life of the facility. What you don’t do is develop a replacement fund so to speak. So, you know where your money goes and you don't pay anything unless it is operational. That is very secure. And you don’t
have to leave your money at risk. One of the ideas that should be explored is just that for 2
reasons. Number 1, you can build capital reserves so that the money can be built for capital reserves. 2. That reserve can help stabilize your rate fluctuations. So as long as that sort of thing can be developed where you control the use of that money, it is not at risk, you retain the interest on it as you do now when there is excess money and then that would be an excellent
provision.
To go back to Commissioner Dawes comment, this looks like a slam session on San Francisco here. The passage of that agreement was a key, critical, item for San Francisco and its suburban customers. And I don’t wish to just pass over that too lightly because it was a major
accomplishment for both sides, certainly for you and the other members. So what are we doing
to try to effect change with the CIP? Obviously, we are concerned about a sense of urgency; we are concerned about there being a plan at all, a sense of urgency that funding is explored properly. One of the things we began several years ago was an effort to make sure that the plan was formally adopted by the Commission for a number of reasons. Having experienced the CIP
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programs they had in the past, that were not adopted by the Commission, there was no ownership by the Commission. The Commission would set rates so as to minimize rate increases which was a mandate of the people but now a requirement under an existing Ordinance, but that would be the initiative as opposed to taking care of the system and being concerned with the condition of the system.
When a public agency body has to adopt a plan, they have to confront the issues of the system, the impacts of service to their customers, and what future water rate increases they are going to have to impose. It is a scary, terrible thing for politicians to do and it is the job. So we have worked very hard to insure that this is going forward toward the point of adoption by the
Commission. Everyone in the world seems to be using that word and I am convinced it will happen. The structure for the decision making, I believe and working on your behalf, it is important that the document that comes forward to the public be something that supports decision making. My view is that a CIP program, if it were presented, that said here is a schedule for some projects and here is how much money it is going to cost and here are some
rate increases -- now, adopt this. That would not be valuable. It probably is not something that the Commission would adopt, number 1 but it would not be valuable because you not be able to see the trade-off between what this is costing and what financial arrangements you might care to get into and what the service consequences are. What improvements, what are you buying, what is the alternative to this. A single point in the universe of possibilities does not make for good
decision making. Particularly, if you would explore at some point, the opportunity to fund projects differently, then you are going to want to know how much, over what period of time. This was sent out to the Board and you may have received it from Jane, sent forward an outline to the Commission of what I think they should be looking for in the CIP and one aspect of that if you can you imagine different rates of developing capital projects and putting them in place,
there are an number of ways to do that. So, pick some themes. You can have one theme that is minimum rate increase. The only projects that are mandated by law in the Department of Health Services before everything else. You could have another theme, which is do everything in 10 years, arbitrarily 10 years. That
would be a steep one. You could have another one which is, for instance, seek the potential 60 day outages following a major earthquake and during the next 10 years, reduce that to something acceptable, say, well I don’t know what acceptable is but for the sake of the CIP, say reduce that to 30 days, 60 to 30. Think about the cost. A 30-day outage is stiff when you are in those towns
at that point. But it is demonstrated progress. To have CIP put forward, but can’t answer the
question, can that 60 be reduced and if so, to what. That would not be acceptable. So what we have been trying to effect is to adopt themes that they measure, they grade the CIP in terms of what it provides, not just what the rate increase would be but what it provides and what it doesn’t provide. So for a few things like that, you can get some trade-offs. I think that would be far
superior.
We are also keeping track of major projects. The projects require increased capacity. The projects that they have cited with respects to the water supply master plan, which they adopted and you folks supported very positive. Are those milestones being met? Is work being done? In
some cases, "yes “ things are going forward; in some cases, “no” things have been delayed and
we are keeping those milestones in front of the Commission. I do a six-month report to them. The first meeting was last September saying these are key milestones and we try to keep them in front of them and it is having a positive impact because the Commission now asks questions about how these projects are doing.
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The last item here is the Mayor’s task force. I was invited to sit on Mayor Brown’s infrastructure task force. That is an interesting body. It has taken a lot of different issues on, largely lay people but some with considerable expertise in law, engineering or finance. They have been looking at the business of the PUC and it will be interesting to see what they make of
the CIP and what their comments are. We have done presentations for them in terms of the CIP program and the PUC from our perception and I believe that has been well received. The planning and economics are another part of this. How are costs going to be allocated and how will water be priced, two different things. Supply entitlement, you are familiar with these issues, and these are things still to be worked on. This graph, I know is unreadable and I put it up not to
make you hurt your eyes, but to indicate that we have done some planning here and this will be discussed with the board at the coming meeting where we are looking at, for instance, local projects, what the BAWUA agencies can do collectively or individually on their own to address some of these issues. One activity, which is mundane, but follows through a lot of different areas of work is to define and clarify demand projections so they are defendable so they can
stand the test of scrutiny in a secret document and the test of scrutiny in the public eye. Are you folks doing everything you can for the wise use of water? Many agencies may be. At this point, we are woefully unable to demonstrate that convincingly. Intramural Transfers: Transfers between the various agencies – we are in a position where we
will soon be able to exercise that opportunity for agencies that wish to do that and that would be a good beginning, forerunner to a lot of things. Dry year Supplies: Again, we would like San Francisco to go to dry year contracts. There would also nothing to prevent agencies, such as you, or BAWUA from doing the same thing.
Finally, the principles for water pricing gets into the cost allocation issue. It also relates to the termination of the existing contract in 2009, which you see on the bottom so we are looking at the time lines that will be useful for developing principals. We go into that agreement encouraged to negotiate so just to let you know that this is the kind of thinking that is going on and many of these things interrelate. The time lines become critical. The periods you see
they’re in one and two-year increments are going to be challenges for us track with. Other ways we are trying to create change: communications program. One of the things we try to do is to try to explain the risk associated with the Hetch-Hetchy System issues and describe what
we are doing as an organization and to make contact with key individuals so that they can bring
the power that only they have to bear to create that sense of urgency that I mentioned before. San Francisco, I believe, can do incredible things when there is the desire and urgency and the demands upon them and one of the things that we can’t do is create that single handedly. At some point our testimony appears self-serving and yet it is quite different when people from the
community, from business, people from real estate, etc. go up and say “hey this is important, we
are at risk”. We are tired of hearing the spots on KCBS every morning as we drive to work where Michigan is wooing business away from Silicon Valley. We are tired to know we know that joint venture tells us that the Governor of Utah visits Silicon Valley monthly, and it is not for pleasure, it’s for business. This is going on a great deal and what we don’t need is to suffer
the criticisms of the energy predicament we are now in. The same kind of criticism is in the
water business. To be down the road 5 or 8 years from now, short periods of time on those earlier graphs, you knew about this and you didn’t do anything. That is unconscionable so again, other people can speak in a different voice than we can.
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Legislation: With respect to certain legislation, the water ruling and transfer, etc we are tracking that closely, it has been over a year now. Our water resource analyst is well connected with the groups in Sacramento that do this legislation and that has been a boon to us. Consider opportunities for new legislation that has been mentioned to this group before – why don’t we go to Sacramento and sponsor something. We do track that and look for those opportunities and the
appropriate timing for those. We maintain communications with Sacramento and local jurisdictions and that is a growing effort. The future of BAWUA: We wish to continue this increased role in decision-making. We have come a long way in 5 years. Where 5 years ago, we had a Strategic Planning session and
everybody in the room looked like a victim and felt like a victim. Had no sense of mastery over their predicament and they would wine at one another. But they also had a vision and that is why they began the incorporation of BAWUA and the development of staff and the Strategic Planning and I don’t think they see themselves as victims anymore. They see themselves as facing many challenges but not as victims. We are trying to develop a long-term strategy to
achieve our goals. We have gotten a lot smarter, a lot more information now, that more information that we are concerned and we can convey that to people but we need to define a long term strategy so what each of you can do as agencies on behalf of your customers to insure reliable water supply and what San Francisco must do. You can do a lot in your local systems, and you probably have been, but at some point if that major system is unavailable to you for any
reason at all very few, perhaps only one or two of you, can survive without it for any length of time. Other things for the future of BAWUA: that is, to insure common support and the resources to do the job and that is in terms of things that you folks can do. One of the things you can do is when
we review the CIP and wait to get information out to you, it may be very valuable for you to come to the PUC meetings in April to listen to how they examine their CIP program, listen to the presentations that they receive and forward your own concerns, your own message as to what you would like to see from it. Internal communications are just as valuable. If you would like to see this organization do other things than it has been or do things at a faster pace, those are things
that require your support and the support of your Council and Mayor. I can take those ideas back and I can cook them, I can put them into the broth, but that does not insure they are going to happen so if there are issues or initiatives that are important to you, what would be valuable would be to have you convince the other agencies that those were the important things. I can’t
necessarily bring that home to you and if they are important, we might even share that they were
important and others might share the importance. But, without those mechanisms, without those communications, I can’t guarantee that I can deliver to you and then I would be back here several months from now explaining why things did not get done, which is not my favorite sport. And through that process, we can insure that the resources exist as well to get the job done.
So, your historical support has been unfailing and extremely strong. Your ability to attend meetings in San Francisco, etc., we don’t want to waste peoples time, but when there is a message or an issue that we know is of interest to you that you comments would be well spent, then I think that would be the time and then again to articulate your concerns and issues to the
other members are very important.
I will stop here and ask for questions or comments. Dawes: Assemblyman Papan was stirring the pot mightily a year or so ago on governance issues. Has that sort of faded away or is there still bubbling going on in Sacramento?
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Jensen: Bubbling, bubbling. As a matter of fact, one of the things that grew from that was a request from his office to the California Policy Research Center that they do an academic reevaluation of the Governance issue and suggest some alternatives and Professor Crane from UCLA has been doing that. He has interviewed folks, etc. The draft report has been eminent for
some weeks so we ---- Dawes: Does BAWUA have a position on it? Do we advocate one way or the other to get in and share leadership with San Francisco on the whole system?
Jensen: The organization has not taken that position yet. The current approach has been, it is based upon, let’s include San Francisco to get the job done. That the shortest distance between two points would be for them to do it and for the world not to have to create another organization. If the progress, if it is evident that that can happen then I am sure that the membership will want to take a different course.
Dawes: One other item. Certainly the “sweet spot” here is going to be the money pot. Your presentation really did not address how they are going to come up with the money. To me, it is either they are going to convince the bonding committee that they can access the cost of this to the suburban community and that the bond market will believe them and they can float the bond
issue on the basis of the future charges to the suburban folks. Failing that, they are going to have to get some live support, either guarantees or take-or-pay contracts or some such thing. Have there been any mechanism set up in BAWUA to think through, you know just getting all our members to agree on the best way to deal with this sounds like it could be a very significant undertaking.
Jensen: That’s correct. Two things I would say in response to that is – “no” there is no group currently looking at that and one of the things we did do a year ago was to look at what are the ramifications of a joint powers authority to fund projects and that study was completed and brought forward and it had some failings and the next step would have been. Okay, let’s look at
those questions and answer those. At the time, this was last fall, it appeared that San Francisco was going to produce a CIP and funding plan. The funding plan might well look at alternatives sources of funding other than those prescribed in the Master Contract and they would make sense to let them spend your money and do that work and then evaluate and access what should be
done from there. As I said, that has been delayed until this time – it is only now coming out so
we are anxious to look at not only which pipes are going to get fixed but also what they have done in the way of a funding analysis. I can tell you that in spite of repeated suggestions, they have not approached us to say we are putting this report together, let's talk about what we could put in there, what makes sense.
So it doesn’t hold great promise. There is the good and the bad end to that. The bad end is that those analyses won’t have been done and appear into the report, or at least the ones with our input. The good part of that is that would create a good number of people, including yourselves, some sense of urgency to go ahead and do that and get it done. I have spoken with the President
of the Commission who does not like the idea of joint powers authorities. I believe, primarily
because he is concerned with sharing the decision making and he is concerned with sharing equity ownership of the system, which I have yet to hear you or anyone else say that they wanted. I have not heard anyone say they wanted to own it or take it away but in terms of decision making about where the money is spent. And based on that conversation with him, I
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believe that he is going to look at that and I think the time for that will come when he sees the financial plan that establishes ____________. Ferguson: Speaking of timing here, what has been the effect of the electric power emergency on San Francisco’s thinking, on their ability to implement this plan? Is there an opportunity for us
in some way? Can we turn that to our advantage in our longer-term objective vis-a-vis San
Francisco? Jensen: Interesting. It has not – I have not heard it included in their conversations about the water system. There has been concern about the energy situation in San Francisco and how to
protect the citizenry there, and the businesses there, from power outages, etc. But I have not
heard it linked to the water system. Bechtel: Art, could you tell me, and this is because I am speaking from ignorance, exactly what scope of responsibility the SFPUC has. What other utilities do they address; what other issues
are on their plate at this time? My thought was encouraged by our chairman’s question about the
energy crisis. Obviously they cannot set rates for PG&E but maybe they do. Could you enlighten me on that? Jensen: Yes. San Francisco PUC is a department within the City and County of San Francisco
and the five members are appointed by the Mayor of San Francisco so their situational setting is that they report to the Mayor. Because it is a City-County, there is a Mayor here and a Board or Commission here, which are often in conflict. And the Board has the budget authority. The Board can control the budgets, they can’t add to the budgets but they can subtract from the budgets. They cannot raise the rates but they can disapprove the rates. They have those kinds of
authorities. The Charter sets all that up. So, within the Scope of Services of the PUC, currently it is the collection and treatment and delivery of water to the Bay area, the generation of hydropower for the facilities up in the mountains, the distribution of water within the City and County of San Francisco and the
collection treatment and disposal of Wastewater. They used to have the Muni when they were first born they had the Airport. Some distribution – they divorced themselves from the Muni which was good for the water system because the Muni was a daily pie in the face. I was reading in the paper today all the graffiti and the bus stops that get bashed down every evening. That
would consume Commission meetings. So it is good because how there is more of a single
focus. The energy issue is interesting because of different groups in the City have long wanted the City to buy and take over PG&E and there is activity around that currently. Efforts to form a
Municipal Utility District, external to PUC. The PUC, I know, has had to spend some energy,
some human resource shall we say, trying to answer questions about the energy issues, trying to explore what it could do for the City in the way of broader scope of energy services and also to deal with the contracts that they have with irrigation districts which are now costing them an arm and a leg so I know that has consumed some resources in the PUC but they have yet to been
given (I am sure they have the legal authority) the charge of go forth and build power plants and
solve the problems. I don’t know if that is helpful. Bechtel: That was quite helpful. I appreciate that very much and I would like personally to compliment you and your staff at BAWUA in supporting us in our water utility.
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Ferguson: Any other questions or comments, Commissioners? Art, thank you very much. We appreciate the annual report. Ulrich: Thank you very much Art for coming.
Load Management Plan Ferguson: Shall we take a break? A break before we do the next item. We have 2 more items. You tell us John; you have 2001 Load Management Program and the Strategic Plan update.
Ulrich: Well if is all right with you; my preference would be to move on ahead. Ferguson: OK. We are on New Business, Item 3, and the 2001 Load Management Program.
Ulrich: Yes, Kirk Miller has a brief presentation. I think you will find some very new ideas here. This really gets to what we need to do and work with our customers during the upcoming shortage. I guess I would just like to remind everybody that all the discussions you hear about the Governor doing long-term energy contracts, to purchase the transmission system and other ways to help PG&E and Southern Cal Edison from going bankrupt – I think all those areas are
clearly in our best interest for a number of reasons. But none of the plans or fixes really address the major problem we are going to have this summer, and that is shortage of energy in the middle of the summer. As you know, our current demand statewide is something roughly around 30,000 megawatts; when the peak of the summer gets here it is going to be in the high 40’s, low 50,000 megawatts. The Governor’s purchase plan is locking up around 9,000 megawatts and the rest of
that will be long-term contracts, energy exchanges, self generation, things like our power plants, our contracts with Western. A good part of it is unknown as to where it is going to come from. So, we are looking at a number of strategies in Palo Alto. The one area that I discussed with the SOC earlier was that we would bring forward to you very soon in April, a more comprehensive plan to increase demand side management in Palo Alto, and increase our budget, probably
around 5 million dollars to achieve something like a 5% load reduction. So we are going to work actively on that. We also need other areas, and Kirk is going to describe our Load Management Program.
Miller: I would like to say that what I am presenting here is very much a work in progress. As
we are going along in developing this program, we are developing it literally as we go along, with the customers and staff and there has been a lot of other staff, Palo Alto and customers have been working on it very hard. What I would like to do right now is to give you some background on what the plan is, what we are hoping to achieve, what the design of it is and get your feedback
on it. If there are things that give you heartburn well let us know. If there are things that give
you heart attack, we really need to know that. Some context here for the description of the problem. We all know that this summer is going to be a bumpy period. Right now, use of the existing outage block and the rotating outages is our
only plan and our only tool in the toolbox for this summer. The ISO estimates are, some of the
estimates that I have read are the ISO staff is suggesting that there may be as much as 200 hours of shortage this summer and the economic impact of Palo Alto from that would be quite huge. The Palo Alto customers have told us in very strong terms that they have high-cost outages and please don’t turn us off. The customers will do whatever they can to not get turned off. We have
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designed the program with that in mind to try and eliminate the frequency and severity of rolling blackouts Dawes: How does that 200 hours compare with what we experienced in the last 12 months in terms of – because I think of 24 hours a day times 30 days is a lot of Stage 3 – this would be 200
hours out in Palo Alto? Miller: Not necessarily 200 hours out in Palo Alto but 200 hours within California that there would be shortages where they would have to implement rolling blackouts somewhere between 1% of load and as much as 10 % of load. From past experience it would suggest that a lot of that
curtailment would happen in northern California because of constraints of Path 15 and lack of
snow pack in the Northwest. It would likely to be more constrained in the North than in the South. A lot of those 200 hours look like they would hit in the north. Whether or not we would have to curtail for 200 hours is not clear and it is a complete guess by the ISO staff.
Ulrich: The report that is in the paper today one consulting firm, Cambridge Energy Research and Associates predicts 20 hours of rolling blackouts during July and August and about 200 hours of especially intense calls for voluntary cutbacks. Miller: I haven’t seen that one but ---
Ulrich: That corresponds with your 200 hours. Miller: The question of how to respond to the ISO curtailments that we get through NCPA. We have three options: One is implement the rotating outages. We have the plan, we know which
blocks and we have demonstrated that we can do that and the customers all say, “please don’t do
that”. We can turn on some local back-up generation. All we have in Palo Alto right now are some fairly dirty diesel generators owned by customers. We can talk about that option a little bit later. John may have some comments on that. The third option is to reduce load and limit the severity and frequency of the rotating outages and that is the core of the Load Management
program and what I’ll do now is to go through some of what that plan is. The structure of the plan is work primarily with the large customers and ask them to reduce load both during Stage 2 of ISO emergency and Stage 3. In exchange for that reduction (we’ll talk
about what the percentages for reductions are) they would be exempt from the rotating outages.
That reduction that they would provide would essentially serve as a shock absorber to Palo Alto so that when we ask our large customers to curtail 10 or 15 or 20 Percent that reduction will eliminate or reduce the amount of rotating outages that we have to implement and that is how it is designed to work. A similar program has been developed by the City of Santa Clara Silicon
Valley Power and has worked reasonably well for them. They have different program
parameters but they have shown that it works. When they call on their large customers, they curtail. What I have now is a one-page program description and this is the same program description that we have sent out to key customers in late February. This is the design at present we would like to get your feedback on it. What I would like to do is have you turn to the next to
the last page in your presentation. I won’t even put it up there because you cannot see it on the
screen. What I would like to do is walk through it and give you a sense of what the program is, the parameters, how it would work and then get your comments.
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The first thing is that the program description that the customers would be removed from the blackout list in exchange for providing for up to 20 % load reduction when requested so that when we get a request from the ISO and NCPA that says drop ex megawatts we call these folks and they provide these megawatt reductions. The participants, as I mentioned, serve as a shock absorber, eligibility criteria, we are focusing on the large customers and we are asking that they
have an incurable meter so that we can tell what the reduction was on a 15-minute basis. We are also looking at how 5to incorporate it on a feeder by feeder basis so that we don’t necessarily have to have meters on every account but simply do it on a feeder basis and our SCADA system out at the low center sees the system on a feeder by feeder basis so there is some data there, real time, that we can work with…
Dawes: I’m sorry to interrupt but I don’t think any of us know what a feeder is. Miller: Oh, a distribution line going from a substation to one or more customers in Palo Alto, typically for 12 KV line. Many of the feeders go to individual customers like there is a single
one providing an HP facility. Some of them are mixed where they will be one large customer
and a couple of medium sized customers and some of them have a mix where there is large, small and very small so we have to work with all of those in the design of the program and the third bullet under eligibility criteria is an attempt to deal with the mixed feeder that at least 90 % of the feeder load must participate in the program in order to protect a feeder and this is an
attempt to eliminate essentially a free rider problem. Because if we did not have that, we could
exempt a whole bunch of feeders not get enough reduction and become a ______. On the second point there the participants were asked to deliver a total of 20 % reduction; 8% during stage 2 and that would be load reduction only, no use of back-up generators and then 12%
during stage 3 and they could use load reductions and/or turn on their generators. That is a choice they make. The program is intended to operate from June 1st to September 30th between 11:00 a.m. and 7:00 p.m. and that is coincident with an ISO program that the ISO’s load management program where they have asked for loads to curtail in exchange the ISO will double pay you money. We, Palo Alto, have submitted loads into that program through a firm called
Plannergy and NCPA. Those loads have been accepted and now we have to work out a lot of the details associated with that load. The advantage to participating in that program is that it provides some revenue back to Palo Alto
which could help pay for the use of Plannergy which is assisting us and also provides some
additional revenue which could be used for further load management and/or whatever you and management decides to do with that money. The curtailments would be up to 4 hours per curtailment. We would notify the customers at Stage 2, via pager and E-mail. We would ask them to curtail within 30 minutes of notice down to the sec level that we are requesting and 20
minutes in the Phase 3 reduction. Under process, we would establish a baseline which is a kind
of a normal usage for that customer and we are working on how exactly to establish that baseline. There are questions of how to incorporate conservation versus load management. I’ll’ talk about that a little bit later and we would verify the curtailment on both a real time basis that would be a web-site that is set up so that the customer can see what their usage is on a 15 minute
basis compared to what their baseline is so that they can get some feed-back on what they are
doing and also after the fact we will be able to look at the data from the SCADA System and also the date from the meters to see how well it has worked. The consequences of a customer not meeting their target could include being tossed out of the curtailment pool which is essentially if you are going along and not pulling your weight we could warn them, maybe warn them a
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second time but the threat is that we toss them out of the pool and they go back into the rotating outage list. And on the second page I have an example of Widget Manufacturing Company of what is involved with the 8 and 12 % curtailment and the fact that we would like to be able to design the
program so that a customer can reduce at one facility and if it works out from a feeder basis protect a second facility because it is possible that a customer has a critical facility where they really cannot reduce load but it is their most critical facility. Yet they have other facilities where they can reduce load so we can get the reduction in other places within the system. So, we would like to be able to give the customers as much flexibility as possible to allow them to
choose where they want to curtail and how much of their load they want to protect. If we implement the curtailment program and we still need additional curtailment we would then go into the rotating outage blocks and use those. The difference is that those blocks would now be thinner because we have pulled out certain feeders out of those blocks, the block that might
have been 10 megawatts may be down to a 5-megawatt block. The risk that we have is that if we go through the curtailment pool and we don’t get the results that we need, we then go into the curtailment blocks and it is possible that we could circulate through those fairly fast so it is important that we have as much participation in the program and that we get them to curtail a large amount so it is a meaningful reduction, The intent is that we have enough of a shock
absorber so that if Palo Alto with a 200 megawatt load was asked to curtail 10% or 20 megawatts a combination of load reduction and back-up generator could give us that 20 megawatts so that if we were asked for 12 percent, well o.k. We have got 10 percent here and we only have to go into the pool to rotating blocks of non-participants for a little bit. It seems if we have a thick enough pool it will take care of most of the curtailments, maybe not all, but most of them. So
that is the example. The next thing is assistance. We have not implemented this type of load curtailment program in Palo Alto but we are working with Plannergy, Inc. They have a contract with NCPA to provide various services including this and other NCPA members will be working with Plannergy,
Incorporated on similar programs. The cost to Palo Alto having Plannergy assist us is on the order of $200 to $250,000 depending on the level of participation. That’s a lot of money. Where does that money come from? We are hoping that if we design the program right and participate in the ISO program that revenues well in access of that amount will come to Palo Alto. We are
looking at the possibility of as much as a million dollars in revenues coming from the ISO
program to Palo Alto and roughly a quarter million dollars goes off to Plannergy for their services so we have a maximum amount of money in our hands at the end of the program. What are the advantages to the participants? The advantages to the participants essentially are
protection from rolling blackouts. We don’t hit them with the stick. The advantages to non-
participants are hopefully the reduced frequency and severity of the rolling blackouts. The disadvantages of this program – we don’t see a whole lot. If we implement it properly and it works, we don’t see a whole lot of disadvantages. If it completely falls apart and we have to abandon it and get back to where we are which is the use of the rotating blocks which is in place
now. We will spend some time and money on it but it appears to be a reasonable endeavor. The
development process – we planned this program for the summer as you are all well aware this January we got kicked around in the state and we realized we need to come up with something now so we talked with our largest customers.
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We called them in. We said we need to set something up now. Do you want to play? They said “yes” so we designed the spring program which had a 10 percent curtailment requirement and we worked on the communications with them. On February 13th, it looked like we were going to have rotating blackouts in Palo Alto. As it turned out, we did not but at noon that day we made the decision to test the program. We contacted the participants and said O.K. at 4:00
we are going to ask you to drop load and we got an average of 14% reduction from the 4
participants and it ranged from, essentially zero because there was no one at a particular building as we did not give them any warning, up to as much as 20% reduction so we were very pleased with it. We got the data that we wanted out of the SCADA System. We were able to go back into the Meter Data and see an actual dip at each of the meters, including the one where they did
not do anything, it was pretty much a straight line, a low profile that looked like their normal
day. So we are very pleased with the test. The next steps are to finalize the design of the program and we are working on that right now in March, contracts with the customers in March and April. We need to have an agreement with
them in place and then test it in April and May and work out all the bugs and them implement it
in June. Some of the remaining questions are: What is the proper baseline and how do we set up a proper baseline that both encourages conservation and also encourages participation in the Load Management Program. Load
Management by itself has somewhat of a disincentive to conservation. If you want to be very
successful in Load Management you have a whole bunch of incandescent lights and you turn them on and you leave them on all the time and then 10% reduction, you just turn them off, whereas if you are doing a whole lot in Energy Efficiency, making you facility very efficient, it will be harder for you to get a 20% reduction. You start getting into process and the actual
business. We are struggling with that. We are looking at a method where we can give some type
of credit for hard-wired conservation. Maybe as much as 5% credit, if you can demonstrate that between last year and this year you did a whole lot of conservation. That may be a way to accommodate and encourage conservation because we don’t want to send the wrong signals just to set up the Load Management Program.
Metering and Monitoring are big issues and we are wrestling with them, getting the data, and managing the data. We have a number of people working on that. Running short of time – we basically need to have all these things done 2 months ago. Coordinating participation of all the
customers on a feeder – that is something that Marketing is going to have to work very closely
with - the key customers and also the major customers and some smaller ones to get them together to coordinate their efforts. Lastly, some feedback comments from you. Is the direction we are going the right direction,
anything here give you a heart attack. Suggestions and comments are appreciated.
Carlson: I really want to compliment the staff on thinking on this one. I frequently see impressive pieces of work and I am delighted –
Ulrich: Excuse me – was that “frequently?”
Carlson: Yes. Ulrich: Thank you.
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Carlson: I think the key problem is that one you just identified is that people trying to game the system by keeping usage as high as possible until you get to Stage 2 and you just have to work at it. I have a couple questions. First of all, what are the magnitudes here? I mean are major customers you could get on this in time are what – 40 to 50 % of our load or is that too much?
Miller: In a peak summer day, Palo Alto’s load is on the order of 80% large and medium commercial load. The residential load drops way off so the target we are looking at is a very big target and many of them are the large customers so we could have as many as 100 megawatts participating in the program. We have identified that many megawatts likely candidates and if
we got 20 megawatts or 20% reduction out of that we are at 20-megawatt reduction. Carlson: That's like 10%, which we never got a call for more that last year did we? Ulrich: Actually we got slightly more than that for a very short period of time.
Carlson: O.K. but the point is if this works with something like half your load, we could avoid the great majority of blackouts. Ulrich: Well, this is an area where we do really well on our staff. We challenge each other on
how well these program will work. I think the key thing is that customers are interested in doing it. This kind of program does not work unless you got everybody participating that wants to and it is not something that is forced on them. So it is how long can you do this? Are they willing to do this on a sustained basis? This appears to have a lot of benefits because there is some money coming back for the effort that they do. But their key is that they have to operate their business
and they have got to operate it efficiently and competitively so if this allows them to do that, this can be an island, in a sense of prosperity or less hurt than in some other places, and I think that is really important to be able to allow those businesses to continue to operate. But we have to be very, very clear on one area: if we do go to rolling blackouts, we have to have
an excellent communication plan in place that way ahead of time we explain how all this works to all of our customers. While Kirk is very right that a large amount of our electric load is from our commercial/industrial customers. The vast majority of our customers that are affected by rolling blackouts are residential and we have been through most of them. Many of them have
already had rolling blackouts so they know what an hour of power being off, particularly in the
hot summer. If they see businesses down the street with their lights on and they have got theirs turned off or their air conditioners turned off, we have to do a lot of good communication ahead of time. Because the last thing that these customers participating want is to get a bad public relations for something that they feel they are doing is quite a good service and, of course, what
we do too. So we are going to have to work on that to communicate that very well throughout
the community and as Kirk points out we have more testing that we have to do. Miller: If I may comment on something that John mentioned and also brought up by Commissioner Carlson. The question of gaming the system. We have designed this program to
a great extent to work on the good will that we have with our customers. The customer reps have
excellent relationships with the customers. They have been extremely cooperative and to a large extent, that is what we are going forward with. We could develop rules and regs and all these things to tie it down but to a large extent, we are going forward on the relationship that we have with our customers and as far as gaming, we don’t see any indications so far that there is anyone
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who wants to do that and we would also rely upon the other customers to somewhat police themselves that if we do see any gaming, essentially what we would do is let the other pool members know this is going on and it puts everybody, puts the whole pool concept in jeopardy so at Silicon Valley Power they have an excellent results from peer pressure and others on a feeder and in a group working with each other making sure that the program works. The
cooperation we have had from the customers is really key. Carlson: One other part of it that I think we need a little background on is the air quality problems of putting the generators on. How many hours can they do it? And how much of a problem is it really from an air quality prospective and is this something that would be great
most of the time but on a really dirty air day we would want to discourage? Ulrich: Well that is going to be a tough one. The worst possible day of the summer is going to be the time when these generators are going to come on. Part of the question you have to ask is that if we don’t have a cooperative relationship like this what are our customers going to do
unilaterally? They always have an opportunity to do this anyway and this at least organizes it
and it ends up with a benefit for everybody. But it is a critical problem, the air quality, anytime those generators operate they are going to put more pollution into the air than if any one of these clean central stations continue to operate. I think we are beyond that. This summer – I think we are at a point where you can call it a crisis and incidentally where the public is going to have to
support these businesses for doing this kind of on-site generation. But we don’t know where the
police officials or the air quality people are going to come down on this. Ferguson: Well, the Governor has done all he can in relaxing the regulations by executive order.
Rosenbaum: You speak of the trigger points here as Stage 2 or Stage 3 emergencies. But you will recall we had 13 days in a row of Stage 3. I assume the same thing is likely to happen this summer, but we are not going to expect 20% reductions. Is there going to be some other trigger more serious than Stage 3?
Miller: Yes, I can talk to that. Stage 2, I was speaking with one of reps this afternoon and we were kind of joking, we are going to be in Stage 2 the entire summer. The ISO’s program will call for Stage 2 only I believe a total of 96 hours during the summer. The ISO Stage 2 Load Management Program would be implemented and there is an upper limit to that so there would
be an upper limit to what we are asking for in Stage 2 reductions from the customers. For Stage
3, we would only implement this program when we get a call for curtailment. So, if we are looking back at January, it would all have been in place 4 hours, which was the number of hours curtailment, not the 37 days of Stage 3 or how many days was so its stage 3 when there are calls for rolling blackout in Palo Alto.
Rosenbaum: Thank you. Dawes: Earlier in the day, there was discussion that a 5 million-dollar expenditure equals a 5% reduction load. I didn’t see any suggestion that we would have to make an investment in our
customers or in equipment or perhaps in this metering program. Could you cast some light on
any investment required?
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Miller: As far as the Load Management Program we are not planning to provide any investment to the customers to participate in this program. However, we do have our on-going aggressive conservation programs that would be helpful. Dawes: It is only with respect to refrigerators, insulation and stuff like that for residences. The 5
million that was referred to was earlier in the day. Ulrich: These are totally different. The earlier one, Demand Side Management, would be an ongoing, permanent type of reduction where you would have programs where you would have to use something. This one we are talking about is for use during the rolling blackouts. Again, I
want to point out that all the things we are talking about by getting contracts for replacement
power and all that have nothing to do with the rolling blackout situation. So, we have to have two separate programs. Dawes: No, I understand. In fact, this approach to me seems like much the best way to go
where you focus on the large customers who have the ability to cut back and make a very solid good quo pro for it. They want reliable power; they will get exempted from the rolling blackout if they can cut back. And that is a wonderful bargain and its going where the money is, if you will. A few customers take the greatest amount of the load -- much better deal to me than spending 5 million dollars subsidizing refrigerator purchases and stuff like that.
Ulrich: I would again like to point out you are comparing apples with oranges. I agree with you that this is very cost-effective because you have customers willing to participate. And cash flow is coming from the ISO back to the customer that will pay for this. But that will not take the place of spending money and encouraging people to do conservation. I just want to separate
those two. I think you want to make decisions on expenditures separate from each other. Ferguson: One thing that we -- One kind of expenditure we should be sure to make is to let the general public know the extreme measures to which some of these big customers are going under this plan. There ought to be great big headlines.
Ulrich: Absolutely. They have to come out as a winner in this. They are very important to us and I think people in Palo Alto should feel very fortunate that they are here doing business. It is great for the economy and they need to feel that when they participate they get credit. You may
recall that the first rolling blackout we have ever had in Palo Alto, we took out an ad a few days
later and publicly thanked all of those large customers for having never done this before helping us and helped everyone in Palo Alto very quickly. Bechtel: What is the role or what is happening in our Energy audit area that is working not only
with households but with companies – maybe those intermediate size companies, those that
really had not thought so much about it. You were so kind to forward a presentation made by Roche about it, and I looked at two things. One of which, they saved money because they used less energy and of course they did some other things and I thought it was a very effective presentation by their Facilities Manager to his boss. It was very nice and complimentary to Palo
Alto. It says that maybe other companies could use something like that. So, are we doing
anything in the area of the energy audits to help people to figure out what they can do to reduce load?
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Miller: I don’t have all the details but I will provide two comments. One is that for the key accounts we do have a whole bunch of programs that are, at least in my view, very effective. It has a lot of funding behind it and a lot of resources both of staff and consultants. For the medium-size customers, my understanding is they have just rolled out something called the “commercial advantage program” which is targeted specifically at those customers and we are
getting – I see a whole stack of applications come in to the department next to ours so they are quite buried with participants. The details of it I do not have. We could provide that to you at another meeting. Bechtel: I think that would be very interesting for us to understand a little bit about what we are
doing in the area of audit and a full time reduction of the electrical load, much as we have done for water and gas. Ulrich: Well we do have a very aggressive program and as Kirk points out we have people who are specialized in doing nothing but that. As you get larger number of customers, smaller-size,
we have more programs that are focused on that group rather than the specialized individual, we
will do an audit and provide you with a detailed engineering design and we will offer you Public Benefits dollars to do actual things to make it cost effective. We have had excellent support there. As you recall, some of the fairly significant checks that we have given out for those programs, you do get a big bang for the buck. And as it gets smaller, we are down to the kinds of
things just rolling out the next set of decals that say, “yes, we are open but our doors are closed
to keep the heat in.” Those kinds of things are focused on that group of customers. Rosenbaum: In the past couple of months when there was a Stage 3 alert there was an implication on the part of the ISO that they expected customers to conserve as much as possible.
Is there an implication here that under this plan, a customer would not have to do anything when
there was a stage 3 alert, would wait until the rolling blackout was imminent before at that point making a reduction? Miller: That is part of the disincentives in place with a Load Management program. What we
are trying to do is encourage conservation by providing some sort of a credit towards that 20 % for conservation, so we are looking at that. Recently, apparently the Governor called the heads of a number of companies, including some in Palo Alto, and said “you are going to conserve, right. I want you to conserve 8%” and the CEOs said, “yes sir” and its is rolled down to the
plant managers and they said, “hey, we just heard we are conserving 8%” we can do that and we
are putting the forces in place and yet you are asking for an additional 20%. That is 28% -- and we have a serious problem as far as running our business and that has caused us to look again at that credit of some percent to not be a complete discouragement to conservation. So we are trying to find a middle ground there and it will not be a perfect solution. There will be somewhat
of a disincentive to hold off, but again we are working on the good will of these customers and
they have said, we can do 20% but we need some credit for the conservation. Many of the large customers have done a significant amount of conservation in the last year or two. Rosenbaum: But the implication still is that when a stage 3 alert is announced it will not be
necessary to take any specific action because you are either waiting for the rolling blackout
announcement or you have got conservation on going independent of whether there is any alert. Ulrich: Well you recall though that the plan is that they have to start, the ones we are talking about in the pool, reduction during Stage 2. They cannot wait for Stage 3 to occur. In fact they
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have to give close to half of their load reduction during that period of time. And also we have a general call if – the idea has got to be and we were quite effective during the last rolling blackout period – to get voluntary compliance to start reducing load. It is incumbent upon us to have a very good communication to say it is Stage 2 and it is something you should do and we are doing that through our web-site and telephone calls and all of that. Ultimately, if people don’t
participate then we are going to be in more rolling blackouts and these kinds of programs aren’t going to work. Rosenbaum: Isn’t that the issue. It was my understanding that people are not going to have to do anything until the rolling blackout announcement occurs because Stage 3 went on for 30 days
and Stage 2 is probably going to be the situation all summer so we are not going to be requesting
something all summer. Ulrich: On the contrary, we will be requesting. It is going to be a very tough summer for everybody because we will be asking for it and if those reductions don’t take place, then there
will be more probability of having rolling blackouts. This is not going to be a simple area but I
think people will get a clear understanding that it is going to occur. I hope we don’t have to wait until we get into actual rolling blackouts and say “whoops, I better do something about this.” This will not be easy.
Rosenbaum: Well, maybe the answer is that the 8% is generalized conservation level that you expect all the time because pretty much Stage 2 will be in effect all the time. And then the question is, if you announce Stage 3, I assume nobody will do anything specific. They will wait until you have an imminent rolling blackout and then effect another 12 %. That is what I would do.
Miller: I think that that is essentially not an effect of the program, but the effect of the reality that we are in California. Without this program, I think we would get the same response in a Stage 3 that lasts 30 days. They are going to curtail, and we saw that our customers curtail in January and February quite a bit. We looked at the data compared to previous months and the
year before but we did not see huge cutbacks every day that it was a Stage 3. But when we did the test they were already at a reduced level. For example, one of the companies got their facility down to a level that they had never been to before. They had never run their facility down that low before, except during this test, so they were pleased with it and we were as well.
Rosenbaum: Was there a suggestion that they did this without interfering with a manufacturing process? Miller: It appears to be. They are still interested in participating in the program.
Ferguson: We are going to be exploring uncharted territory here that is for sure. Before we leave electricity and move on to the Strategic Plan update, is there anything on NCPA or TANC to mention?
TANC
Ulrich: There are a couple of things. As you probably know on TANC, and maybe Girish would like to add to it, that the Tracy transformer addition project is expected to be in service by the summer of 2002 as scheduled. The estimated budget has been reduced based on a decision to go
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with an 850-megawatt transformer option. There has been associated PG&E activities with the addition to the Tesla Substation is proceeding with an in-service date of the summer 2001 so there will be some relief there. You probably also know we have been working through TANC and elsewhere to reinforce this Path 15. One of the proposals is that TANC would be the appropriate public power manager to manage and construct the new path. The estimated totals
that PG&E estimates are 250 million dollars with 30 to 40 million for other related work. So we think that doing it that way (1) there will be clear focus on getting it done; and (2) there are benefits of public doing it because if you can have the Federal Government involved with eminent domain to get the rights of way and procure those much quicker than through some public financing through the state. It would be to go ahead and do that work short-circuited, not
literally speaking, of course. That is kind of the highlight. Do you have any other specifics? Balachandran: I think the only thing I would add is TANC is looking at refinancing some commercial paper that it had and doing it from taxable to tax exempt. That is something else that we will be participating. We have some taxable paper that it will save some money by moving
to non-taxable. Ferguson: Did TANC have any direct participation in the Governor’s negotiations to buy other transmission assets?
Balachandran: I don’t believe they have but given the Path 15 proposal and the State going to take over these lines, there are discussions to come. Jim Pope of Santa Clara and the Executive Director of TANC and a PG&E representative are going to be meeting to see who is the better lead agency to get Path 15 done and also in context with the State’s take over.
Ferguson: Thanks. Any more unanswered questions from the emergency ordinance discussion and the creation of the SOC -- or the participation formally or informally of the UAC and the SOC? I am just wondering, is there a mechanism we can set up here so that you can ping us with notice and one or more of the UAC members can attend or comment at the SOC meetings?
Ulrich: Sure, you might give us some feedback on that attempt to give you notice of the meetings and share with you the information that I have. We have not been sharing preliminary information with the SOC before the meeting when we virtually get it done, the last draft, just before we come. So as I told the group today, some of you are smiling, its my chance to do a
dress rehearsal in front of the committee but I think an area you sure can do and you did today
and that is to participate and give your comments at the meeting. Frankly any one of you are more than welcome to come to sit down and talk with me or the staff and we would be more than glad to keep you apprised and pick your brain on all of this stuff, if that is an informal way you would like to work. I do want to reiterate there is no attempt to try to surprise anybody, but this
is moving and the SOC made decisions about how they wanted the process to go.
Ferguson: Yes, I think it is perfectly lawful for you to send a one-way e-mail to all of us with as much notice as you can of the meeting and the high points on the agenda.
Ulrich: Just make sure I get it on the record tonight that the next meeting is scheduled on
Tuesday, March 20th (a different day than previous) and that will be the next meeting. The one that is scheduled for the 14th is not going to happen. The 20th at 4:30. I might point out from NCPA’s standpoint that goes along with rolling blackouts you may have seen in the newspaper today that it says PG&E could face mutiny on outages. SMUD and others may balk if utility
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orders summer blackouts. As you read through the article what you will see is that some Munies and all of us at NCPA are looking at the Interconnection Agreement and while we believe as we have in Palo Alto we are all part of the same state-wide network, there is a point where some of these rolling blackouts are lack of capacity generation on line and the only reason it is not there is that some parties are not able to have enough credit to allow that generation to come on. That
does not include any NCPA generation or anything we have under contract so we are looking very strongly in trying to have meetings to see public perception to this and to look at whether we should change our practice on how we participate. So to put that article in context that you should know so we are having a meeting on that tomorrow.
Ferguson: Good. Let’s move onto our last item then for tonight. The Strategic Plan update. Strategic Plan Update Ulrich: I can be rather quick on that. You have a report on that in your package, number 4,
which gives you an update and basically says that we are on schedule to come to the UAC in April with a draft report of the implementation plan and then to go on to the Council sometime in May and it gives me an opportunity to thank some of you for participating in the advisory group, specifically Rick and George and then Bern has participated so there is continued involvement and so I don’t think you will see any surprises when this all comes out and this is a major change
and it has been going along quite well. You may want to comment a little bit on that but that is basically the report. Bechtel: I would like to comment. I was also pleased to sit in on the seminar by Mike Conduff, City Manager from College Station, Texas. He was talking about one of the roles that he would
like to see when he was discussing governments and that was more strategic action, more
strategic issues addressed by Councils and he personalized it to the UAC. I think the Strategic Plan goes a long way to that and I think that probably our role, once the Strategic Plan is in place, to monitor what is going on in that role. I think we should probably either have an agenda item quarterly or so where we actually review how we are doing on our Strategic Plan. Maybe
we can set a model for the City Council to follow when they are dealing with the overall City
Strategic Plan. So, I am very encouraged by the progress I have seen from the staff, the meetings we have had as the advisory group as we are looking over the work they are doing and I think the process the coming along. I know Rick is working hard to make sure that we get something to
the Council next month. I think he is being strategic there in pushing a tactic of doing things on
time. Adjournment
Ferguson: Right. Hitting our first promise date to the Council is a good idea. If there are no
other suggestions or comments tonight, we'll adjourn. Our next meeting is April 4th. We are adjourned. Ulrich: Thank you.