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HomeMy WebLinkAbout2002-04-10 Utilities Advisory Commission Summary MinutesCity of Palo Alto UTILITIES ADVISORY COMMISSION MEETING MINUTES APRIL 10, 2002 ROLL CALL__________________________________________________________2 ORAL COMMUNICATIONS ______________________________________________2 APPROVAL OF MINUTES _______________________________________________2 AGENDA REVIEW AND REVISIONS _______________________________________3 REPORTS FROM COMMISSIONERS MEETINGS/EVENTS _______________________3 DIRECTOR OF UTILITIES REPORT ________________________________________3 UNFINISHED BUSINESS _______________________________________________6 NEW BUSINESS______________________________________________________7 STRATEGIC PLAN REVIEW ____________________________________________7 NEXT REGULARLY SCHEDULED MEETING _________________________________27 Approved May 1, 2002 1 ROLL CALL Chairman George Bechtel called the meeting to order at 7pm. Present are Commissioners Rick Ferguson, George Bechtel, Dexter Dawes and Dick Rosenbaum. Commissioner Dick Carlson and Council liaison Bern Beecham are absent. ORAL COMMUNICATIONS Bechtel: Thank you all for coming. Are there any oral communications tonight? There seem to be none. APPROVAL OF MINUTES Bechtel: The next item of business item #3, approval of the minutes for the meeting held on March 13 and I regret to say that we apparently missed the first few minutes of the meeting so I’m not sure technical difficulties transpired but I don’t recall any specific action we took during that missing time. Mr. Ferguson. Ferguson: Mr. Chairman, I missed the last meeting. It might have been my first demerit on attendance in 3 years, so I can’t correct last month’s minutes. But I saw the minutes in this package and I saw the minutes from the last package. I don’t know if you approved them last time. I think it’s partly because we’ve been working in ad hoc meeting space, but if we’re going to do verbatim minutes, let’s do them well. They’ve been pretty sketchy, in part because we have less than perfect recording facilities when we shuffle into alternative rooms. There are some pretty big gaps in the minutes from 2 months ago, and we’re missing the front end of this last meeting. I don’t know what we can do to help with that, but if we’re going to do verbatim, let’s do them well. If we can’t do them well consistently, let’s consider dropping back to sense minutes. Bechtel: I think that’s a good point. Any other comments on the minutes? I entertain a motion to approve. Rosenbaum: So moved. Dawes: I’ll second. Bechtel: Moved by Rosenbaum. Seconded by Dawes that we approve the minutes and all in favor say “aye”. Rosenbaum, Dawes, Bechtel: Aye. Approved May 1, 2002 2 Ferguson: And Ferguson abstains. Bechtel: And so motion on the minutes are approved by 3 of the Commissioners. AGENDA REVIEW AND REVISIONS Bechtel: Item #4 is agenda and revisions. First thing, I don’t have anything. Any other suggestions for items for review or revisions? Being none, we’ll go with the established agenda. REPORTS FROM COMMISSIONERS MEETINGS/EVENTS Bechtel: Item #5 reports from commissioner meetings and events. I’m not aware of any meetings since the last one we had which was down in Monterey and so I’m assuming that there is nothing to add there unless some Commissioner has something to add. DIRECTOR OF UTILITIES REPORT Bechtel: If not, we’ll move to item #6 Director of Utilities Report. Ulrich: Thank you Mr. Chairman. I have a couple of comments. First off, I think discussion about the approval of the minutes. I probably have to be in a role of apology for the last 2 minutes because we met in this room on times that were other than our normal meeting and so I think there’s some level of quality. We’ve also attempted to look for ways to keep the cost down. As you recall, we’ve in the past recommended that we consider a different way of minutes either sense minutes or something less expensive. We’re one of the only commissions that have minutes that are done verbatim for a number of reasons which you’ve all agreed to. So we have a person that does this from looking at the video and also listening to the tape so we’ve had problems with technology on that part and we’ll try to do it. But you may want to consider your review of the value that you get from these minutes and whether there’s another way we can do it that will give you as much value or what you’re trying to expect so you may want to give me comments about that a future time. I don’t like to hear that you’re not happy with what you’re getting and you feel that there’s gaps in it that implies that there’s something important that has been left off from the discussion of course spending the time and money to put the minutes together, we want nothing but high quality work. So we’ll work a little harder on that. I didn’t come prepared to discuss in much detail, the last NCPA meeting. Mr. Beecham normally reports on that. The one area that we did agree at the last commission meeting was the refinancing of the Calaveras Hydro bonds. There’s a portion of those that become renewable or can be refinanced on a periodic basis. And as I recall, there’s about $95 million and analysis done that it was worth refinancing and we along with all the 2 members of the party to those bonds agree to do the refinancing. The other 2, as I recall, are Healdsburg and Roseville had decided to pay off their share of the bonds rather than do the refinancing even though the refinancing was more economical. They, for other reasons besides Approved May 1, 2002 3 financial reasons, decided to pay them off. So that was approved by the commission and there will be, of course, some savings to Palo Alto for the refinancing. And I thank Bern Beecham for spending the time on the Finance Committee working on that. He put a lot of hours into that review along with our financial people in ASD here in Palo Alto before we made the decision to go ahead. I think I mentioned before that I wanted to give you an update. Dawes: It sounds, John, as though the bonds can be refinanced in pieces because if there’s a major refinancing done on your watch, Dick, I think about 3 years ago? Rosenbaum: This is a different of bonds that became callable after 10 years. These bonds are not related to the bonds that were refinanced in 1998. Dawes: Same project, but different series. Rosenbaum: Yes, same project, but different series. Ulrich: So do our due diligence to see a way of and it’s too bad that one of those were not callable that we could have. Dawes: Was there any look at whether we should pay off our share? We have a very substantial reserve against it. Ulrich: The benefit of the arbitrage is that these are very low refinance at something like 4.7% rate and we’re earning more money than that on our investment so we did the net [coughing] that was part of the analysis that we’ve done. My report, I’m going to read. One of the reasons why Mr. Beecham’s not here this evening, is he has gone to represent the City of Palo Alto at a couple of very important meetings, Senate meetings, Assembly meetings, regarding the water legislation that we’re behind, trying to get the Hetch-Hetchy system rebuilt. He gave me a little bit of information from that meeting, so I’ll relate it here. Lots of activity in the legislative arena has occurred since last month on the 3 bills being sponsored by BAWUA, Bay Area Water Users Association. On April 1, the City Council adopted resolutions in support of AB 2058 and SB 1870, the 2 pieces of enabling legislation. Letters under the Mayor’s signature were sent in support of all 3 bills and we moved that through the City Council very, very quickly. The City Council was very much in support and spoke with their resolution. Palo Alto hired a lobbyist Greg Cook to assist BAWUA in its efforts in Sacramento. We have an existing contract and expanded on that. As you know, Greg Cook represents us through NCPA and several other areas. Status of the 3 bills (this is up to date as of this afternoon): Senate Bill 1870, the Speier bill, enabling formation of the Bay Area Water Reliability Financing Authority: On April 3, the Senate Committee on local government passed the bill out of Committee on a 4 to 1 vote after Speier agreed to some amendments to explicitly state that the bill does not change the governance, control or ownership of the regional water system and that the 2 appointees representing Stanford and Cal Water, the 2 BAWUA members that are private entities, will be non-voting members of the authorities aboard. Many elected officials representing BAWUA member agencies were at attendance of the hearing. As I recall, it was around 13-14 cities that had sent representatives. Many BAWUA agencies in Santa Clara County were on record in support of the bill. San Francisco was alone in opposition. The bill was Approved May 1, 2002 4 referred to the Senate Committee on Agriculture and Water Resources. Tentative date for this hearing is May 23. Elected official participation will be greatly encouraged at this hearing too. You have to really proud and pleased with the kind of support that has really come forward. AB 1823, that’s Papan’s bill that he cosponsored with our Assemblyman Simitian, Senator Sher and Dutra was amended to accommodate some concerns expressed by ACWA. It was heard today in the Assembly Committee on local government and passed out easily. BAWUA and 19 members were there today including Bern representing us. Santa Clara County and a few others are listed in support. The Sierra Club and the City and County of San Francisco were on record in opposition. The bill was referred to the Assembly Committee on Utilities and Commerce and that hearing date is scheduled for May 22. AB 2058, the Papan enabling legislation bill along with Joe Simitian, Byron Sher, Alquist and Dutra, which were all co-authors, was also heard today by the Assembly Local Government Committee and was passed. BAWUA and the same 14+ member agencies and a few others were listed in support. San Francisco again is the only party listed in opposition of the bill and it will be heard next in the Assembly Committee on Water, Parks and Wildlife with a hearing date of about 2 weeks. We think it’s going to be May 24. So I wanted to say that so that it gets into the record accurately, the amount of work that’s being done on this area. We are somewhat surprised in that getting that many agencies out and driving to Sacramento on two weeks in a row and then going back again soon is, I think, quite an accomplishment and shows how important this water legislation is. The other brief area that I wanted mention is that the Finance Committee of the City and the Council passed what we refer to as “a small change” in the municipal code, that makes it clear that the City Manager has authority to purchase energy of commodities. The need to make this change was brought to the City Attorney’s office by attorneys for energy suppliers who felt that there needed to be more clarity before they would sign agreements with us. In approving this ordinance, some Council Members wanted UAC members to be kept informed of these changes, and we have copies of the CMR for review by Commission. This is approved, it was last week or the week before. Dawes: Any change in the limits announced? Ulrich: No. It went to the Finance Committee on March 5 th so it went to the Council shortly after that. If you want to take a copy of it, you’re welcome to. That’s my report, Mr. Chairman. Bechtel: Thank you John. I noticed that in terms of the Hetch-Hetchy legislation there’s been an awful lot of favorable coverage by the Mercury News and by other media. Ulrich: That was one rusty looking pipe, wasn’t it, in the color picture in the Mercury? Bechtel: Yes. They had some good diagrams showing and so I think certainly, I’m not sure how much people read have interest in that, but I think there is heightened awareness. Hopefully, there’s continuing pressure, but it didn’t seem. Isn’t there one of the bills that actually mandates, there’s something I recall that mandates the Approved May 1, 2002 5 expenditures by the City on certain actual projects apparently short of a bond issue. I’m not sure if I recall the details of that. What is that issue? Ulrich: I think that’s the Papan. Bechtel: The Papan one? Ulrich: Is that 1823? Bechtel: 1823. Actually mandates expenditures, I assume, out of existing funds? Ulrich: I don’t think it’s that specific. It just requires him to go and spend the money. Balachandran: It requires them to complete a projects by a specific time and if they don’t, then the bill, as originally written, had a number of negative consequences and those two amendments, some of them have been negotiated away, including things like CPUC jurisdiction. Bechtel: Well, I thought I probably misread it, but it seemed to me if we can get them to spend it out of their current funds without need for a bond issue, at least things can get moving. Apparently, that’s not how it’s going to come down. Ulrich: It would be rather difficult, as you know, the City did not put money away in a reserve fund over the last 70 years to rebuild the system so they apparently don’t have the money available now to put it back into the water system. I think that’s the big fear they have is this is $4+ billion and over $2 billion of this would be for the Hetch-Hetchy work outside of the City and it’s going to require the voters to approve it. That will be extremely hard to convey that to the public even though we’re paying 2/3 of it. More to come. Bechtel: Comments or questions of John? Yes, Dick? Rosenbaum: Do we have an explanation for the opposition from the Sierra Club? Ulrich: No we don’t. We asked about that and not sure. Actually, the chairwoman of the committee that was there was a member of the Sierra Club and voted in favor of the passing out of their committee. Other organizations are in support, which have a conservation ethic like the Sierra Club so I don’t know. Bechtel: Other questions? If not, thank you John. UNFINISHED BUSINESS Bechtel: Then we move to unfinished business and I don’t believe there’s any unfinished business there. Approved May 1, 2002 6 NEW BUSINESS STRATEGIC PLAN REVIEW Bechtel: So we’ll move to new business and tonight we have one item on the agenda, which is an information item, which is the Strategic Plan Review. I was very pleased to see that among the other issues, among the other items on the report is that there are recommendations for change for items that seem to be out of date. Too many times, I guess in my past career, I’ve seen plans put on the shelf and they don’t ever seem to be brought up to date so I was very pleased to see that the staff has gone through each of the strategies and tactics and whatever and made them certainly more relevant to today’s times. So the plan, I assume, would be to go through the report that we have and I’m not sure if we want to do it line by line, I assume not, but I’ll go over that. Ulrich: We’re, of course, prepared to go through this line by line if you’d like, but I do have a brief kind of an overview that I’d like to go through so that the audience and you can have a chance to look at the overview part of it. As you can tell from this, and the audience here if they pick up a copy of it, will see that it’s a rather complex set of matrices that go through all the specific things that have been accomplished. It’s not intended to be overbearing on what’s been done, but we wanted to be thorough. One of the reasons for the presentation this evening is we promised we would be back to report on results and we would expect to come back in October to do it again but after we’re through this evening, we’re going to, in the next month, send as an information item to the City Council, the report. They also would like to get a report from us on a bi-annual basis so I’d appreciate lots of input on things that would make it better or changes and then ask that some of those comments we will then incorporate in to our report to the City Council. So this would be a good time to look at that. So my presentation would not cover everything on here but then we’ll have plenty of time for you to ask questions. So if you’d like me to do that, I’ll proceed that way and it won’t take long for the presentation. Now as you can tell from the audience since you’ve most of the staff before each one of the sections, the people that are responsible to me and to the City for getting this work done, are here this evening so they’ll be in a position to answer questions. The other area that is not covered here but Mr. Bechtel brought it up and I think it’s important to say is that this is a living document and your point about the changes that have been made, that’s what we do. The Assistant Directors and the leaders in each of the parts of the organization are responsible for having this thoroughly understood by everybody and this is basically a bottom’s up results. It’s not done by several of us sitting on the 3 rd floor. The work and accomplishment have been done by the organization and that’s the benefit of the Strategic Plan is that everybody understands what it is and how they fit in it and where we’re going. So that gives you a little more of a background on it. Karl Knapp is going to keep me in line here and move this along. What we’ll cover briefly are some of the significant events in utilities involving strategic plan as Mr. Bechtel pointed out: accomplishments and activity highlights and some of the performance measures: customer satisfaction, infrastructure reliability, competitive rates and municipal ownership. As you recall, the 4 key areas that we would focus on and virtually everything we do fits within one of those 4 areas. And then the important one that we follow all the time is how well are we Approved May 1, 2002 7 doing with safety and our employees. Major industry events that challenged City of Palo Alto Utilities; all of these, you’re quite familiar with. We’ve gone through them and you helped us and made it through a number of these issues. The PG&E bankruptcy that we’re still working on that caused significant disruption in many of the things we were trying to do, primarily in the area of significant cost and uncertainty about reliability and supply. The Enron bankruptcy energy crisis that resolved through the state and rest of the country and then elimination of direct access meaning that with the change in the environment and change in the competitive nature of the state and the energy crisis, we’ve eliminated direct access for our customers for electric. The next area of strategic plan involves the changing environment, which requires CPAU to adjust and adapt obviously. Strategic plan is designed as a dynamic guideline. Changes to the strategic plan are needed. We made some proposed deletions and modifications and additions and it’s going to have ongoing review and refinement will be part of the plan as it continues to evolve. Take a couple of the items that are in much more detail in the report, just to give a highlight of a kind of a potpourri of things that have been accomplished on the next couple of slides. We received an excellent rating for our 2002 Utility Revenue Bonds for selected CIP projects in water and gas and you recall all the work that was done to determine on the size of it and whether we wanted to do this kind of precedent using bond money for CIP work, but that was completed. A lot of work was done and we had very favorable financial rating as a result of very favorable interest rate. We completed our 2002 and 03 Public Benefit Plan. Some of the things in the plan are under way now. Another area we initiated is 24/7 services for customer appointments. We’re probably one of the few utilities where you can have someone show up at your house at 3am in the morning now and make sure your pilot light is burning properly. Maintained a very reliable electric supply. Bechtel: I do want to point out; you do house calls too, right? Ulrich: Yes, I do them personally too, if you’d like. Wash cars… We maintained reliable supply despite significant energy industry changes and a loss of suppliers was primarily around the Enron gas contracts. Obtained favorable FERC rulings and 2948A, the jargon for our contract with Western and the problems we had in going to market and also the reason why we went after and got the short term Enron electric contract. We really stepped up the water advocacy efforts also. Installed some more of our infrastructure work. We installed a 16,000 ft of water main. On project 15, we selected the design engineer, which will be Carollo from our RFP for the water wells and storage CIP projects. That will go to the City Council for approval of that project in the next 2 weeks. We conducted the water supply tour for officials and, as you know, most of you went on that. It’s one we hadn’t done in a long, long time and we now have a request to go back out and do it again for some others. It’s a nice trip in the springtime. We completed construction of our Fiber to the Home trial. We’re doing the analysis now and we also finished the electric underground district for the seven. Rebuilt a quarter of the Stanford Business Park and completed 4-12 kV conversion projects at Stanford Shopping Center. This is demonstration of the importance of Stanford Business Park where we’ve literally rebuilt a quarter of it already to improve reliability. Approved May 1, 2002 8 Dawes: John, this also relates to our future discussion. These are our notable accomplishments and achievements and they were covered into the budget and so forth, but there’s no frame of reference to the listed accomplishments and that’s not really part of the Strategic Plan. There’s no plan that sets forth what we expect to do in terms of miles of under grounding [inaudible]. Sort of struggling, is there a way we can make it more relevant to the citizens, to the City Council, to ourselves, in having some way of putting this in a broader context of accomplishment? Are we doing absolutely incredibly well, or are we just sort of average for what we do, or are we really lagging behind notwithstanding the fact we got a lot done? I’m just throwing open an idea. I don’t know how to address the issue. Ulrich: That’s good to know that. It’s the kind of input we like to have. This is not an attempt to do anything more than to take that big list of accomplishments and highlight a few things. So you’re right. There’s not a context other than they all fit within the Strategic Plan. Most of these like on this page relate to service reliability. The other page had to do with reliability of supply and keeping cost. So the next page is moved to measure some of the results. This area is customer satisfaction and gives you an idea the number of customers that we asked the same question of. The little bit of a difference here -- and you may want some more details and Kevin Kelly is here to answer those if you’d like -- is that the line that’s across the middle which says zero and then you have the red line above. and you can see 6% and 9%. That’s the difference between what the customers tell us they expect, expectations versus what we delivered. So in this case,the gap is positive one and it shows that we delivered on these measures better than what the customer expected, so you leave them delighted. You leave them much more satisfied than they would be if you had done just what you say you were going to do, or what they asked you to do. This is a different way of measuring it instead it instead of saying 95% of the people were happy and 2% were unhappy. This is giving you the gap analysis, too, on the difference. Bechtel: John, who prepared the questionnaire or survey or carried it out? Ulrich: Do you want to talk about that? Kevin Kelly: I can give you the sample and survey if you want. It basically focuses on 4 areas. Ulrich: I think he asked who did it. Bechtel: Who did it, but his offer to let me see it is also good too so I’ll take that. Ulrich: So you’re telling him what he needs to know here. That’s the example of the gap. You get more than you asked for. Bechtel: You’re right. My expectations were low so there is a big gap. So who actually, you carried it out, was it City staff who designed and carried out? Kevin Kelly: Yes. Dawes: I have another query on, it’s not quite, or it is on customer satisfaction. I was, I guess, aghast and amazed a year or so ago to see a survey of water customers who stated that, the majority said that they didn’t believe Hetch-Hetchy water was safe to drink and therefore they bought bottled water. That was Approved May 1, 2002 9 troublesome then and it’s troublesome now. Do you follow up on a larger sample? I think it would be a very necessary thing for CPAU to know whether our customers trust the quality of the water and if they don’t trust it, I think we have a major education program, because essentially if we lack trust, it’s telling people to go to the supermarket and buy bottled water which is very expensive and totally unnecessary and I would A) strongly advocate a definitive customer survey in this regard and B) if it turns out that that is the case, then we have a consumer campaign through our mailings, the things we do very well through our marketing department to build faith in the reliability and safety of our water system. Kevin Kelly: Let me talk about 2 things as a follow up to that. One was we distributed the water quality report. It was mailed to every resident. The other thing was, we found that a quarter of the Palo Alto residents felt that it was unsafe, but in the general population in the United States, it’s more like half, it’s more like 50%. So by that benchmark, we’re actually doing pretty well. Dawes: I think that is still an amazing and a horrible statistic for one of the highest quality water supplies in the country and that simply distributing a statistical table, which I was fascinated with myself, but I can’t believe was dinner table or breakfast table conversation that the average couple in Palo Alto would have. I would say more of a “pitch at a different level”, shall we say, of building the trust in the water system, because I think the idea that people have to go to the supermarket to buy water is unbelievable. Balachandran: Yes it does. We will be doing a larger survey as part of our water integrated resource plan so [inaudible]. Dawes: We should aim it, if it’s 25% now, we should aim at 5% of the people who would voluntarily feel they have to go out and buy water. That’s just me talking at the top of my head. Bechtel: Mr. Ferguson. Ferguson: Are the staff comments getting recorded effectively tonight? Ulrich: I believe they are. You’re getting them aren’t you? Recordist: Right. Ulrich: Would you like any better audio? Recordist: No, it’s fine. Ulrich: Okay. Thank you. Bechtel: Other questions on customer satisfaction report? Okay. Ulrich: Another measure that we look at is there’s a correlation, we believe, in customer satisfaction and the length of time that a customer is out of electricity and it’s a bit more complicated than the total minutes. It also includes the frequency, how often it would happen. Most people are bothered more by short interruptions that happen quite frequently versus having the power out for some period of time, but it only may happen once a year. So we’re still working on that and trying to Approved May 1, 2002 10 correlate with the customer satisfaction, but we have set these goals and in the case of electric, we’re 41 minutes without the storm that we had in November. We went up significantly to 106 minutes when you add up all the outages we had from the storm in November and the same in the other categories. Do you want to comment on anything Scott to add more to it? Bradshaw: First of all, on the electric issue with the November storm. That storm hit during Thanksgiving weekend and it was a pretty major storm and we had some pretty severe outages. We had a tough time getting crew people in to repair the outages and we do have agreements with neighboring utilities to help us out, but the problem was, they were hit too. So they were in the same boat we were. It did take us some extra time to get those people back in service in that particular incident, but we were able to, once we got them back in, we actually loaned our crews over to SMUD so we can help them get their people back in so if you subtract out again that storm in November, we’re looking pretty good. If you look back at the graph, there is another blip in December when we had some storm outages. You’ll see the rise in December. It’s a little steep too, but that’s also from minor storm outages in December. Going down to the wastewater. Our goal is 95% at 2 hours restoration. That differs from natural gas and water and that’s primarily because in natural gas and water, we have to dig to make the repairs. That includes locating and calling for other utilities to locate and actually getting the equipment out to do the digging. With wastewater, when we have a problem, we are routed to go out there to quickly clear the lines. So our goal is significantly less than the 4 hours on water and natural gas. Also the reason why we were at 89% was that in the past year, we had a fair share of our systems in back-lot lines where it’s very inaccessible and we had 2 major problems in back-lot lines where we had to do a lot of hand work to clear the lines and to clean up the mess that was involved with it. So we have hired a contractor and that contractor’s primary push is to go into those back-lot lines and clean out those lines so that we are able to get to our goal by the end of this year. Dawes: Scott, did you do any preventative maintenance on those difficult issues, in other words, instead of waiting for it to plug up, you go run a router down it every once in a while? Bradshaw: Yes, we do. In fact, that’s exactly part of our program and the reason why we hired this contractor. We’ve had this on the books for quite a while so we bring the contractor in to do exactly that, preventative maintenance and route out the lines. Several lines in the City do have tree problems and we were going in there on a regular basis with water crews to route those out, but we’ve actually hired a contractor now to do that on a planned basis. Ulrich: I think we’re going to see, as Girish mentioned earlier, is doing this 24 by 7 and having somebody in the City all the time, not on call, but here working and we’ve already found that by having somebody here, in addition to doing the service and responding to gas leaks, they’re able to be one of the first people out at a problem and are able to assess it and call in the right people to come in. So this is going to save, I think, in overtime and the number of people called out, but getting the right people here at the right time to do it. So I think that’s going to improve and it’s going to move over into this area and have some help. Approved May 1, 2002 11 Dawes: What is the experience again since you extended the 24/7? Is 99% of the time, no calls? Or has there been quite a few calls, for instance, happened in the middle of the night or weekends where we would not have had a service person there and they would’ve had to wait in the morning? I mean, is there any sense of how useful it has been, or does the person that is assigned to that get a lot of reading done? Ferguson: The Maytag repairman. . . Bradshaw: I think both Randy and I can take a shot at that. Do you want to start? Baldschun: Well, there are a number of routine tasks they’re doing. They’re doing paperwork; they’re doing pilot lights at all hours of the morning. People set appointments and we’ve had a number of those. They’re also patrolling the streets looking for streetlights that were out and reported them. We never did that before. Customers usually called in. Now we’re monitoring the streetlights ourselves every night. We’re also doing security checks on the utilities infrastructure. We’re patrolling the substations and reservoirs. That’s when we’re not on-call. What’s happened since January, we’ve had gas leaks. We’ve had one, as I was telling John today, we had a woman call up and at 3 in the morning she wanted somebody to come out and check her water heater to see if the water heater was leaking gas or not. So the guy on call took the call and he was there in 5 minutes knocking on the door and she was surprised to see him so fast. Now a year ago, that would’ve taken at least a half hour because that person would’ve come from San Jose. We’re also monitoring gas leaks that his crew turns over during the day. If it’s a very minor gas leak, class A or class B, that doesn’t require immediate attention. In the past, we would have dropped the crew into overtime and fixed it, because they didn’t know what was going to happen during the off hours. Now we have a guy on call. He’s monitoring these minor gas leaks. If they escalate to a higher rate, then the guy just calls in and often nothing happens then we save in cost and overtime cost. John, you may want to add something? [several talking at one time – couldn’t pick up] Dawes: Now it’s a benefit and you’re not about to – it’s not the first thing you’d cut out if there was a little budget crunch. Baldschun: Well keep in mind that the reason we did this was for safety. All the other things are bonuses as far as I’m concerned. We have always had concerns about responding to gas leaks at all hours and especially with contractors that’s doing work in the middle of the night. We don’t have anybody in town ready to respond if there’s a gas leak. We had some incidents in previous years, which we didn’t think it was the best interest for us to continue that practice and that’s why we went to 24/7 and it’s also a customer service benefit and it’s a cost benefit. Bradshaw: I echo everything that Randy said. It’s been especially helpful for my crews because we have somebody out there that knows how to operate those valves that instead of my crews taking ½ hour to 45 minutes to get there, they’d have to spend another hour valving down to the gas leak or isolating a water leak. Now that’s already done for them and they can get right down to the repair process. So Approved May 1, 2002 12 it’s saving us time. It’s saving us money and Randy’s right on the point, it’s very, very conducive to safety for the public and for our employees. Bechtel: Randy and Scott, approximately how many people are involved in this 24/7 program? Baldschun: Well we had five authorized positions and when we went to 24/7, we requested an additional three positions and so that’s what we’ve got. We’ve got eight field servicemen. So that takes care of, because there’s also vacations that you have to plan for. So we’re able to cover that very well. Ulrich: This is obviously rather new. We started it in January and so the next report, we’ll be able to do a little more than the antidotal information but I’ve been quite pleased from all the benefits we’ve got from this three additional people. Randy has and Scott has a very good training program and so having these people that are knowledgeable in this area on the safety side of it and customer service, it’s quite a nice feature. And again, over where I live, only 2 miles from downtown, we don’t have this kind of service. Baldschun: I wanted to follow up with something you said, John, about being first on the scene. We had an incident that happened in recent weeks in the middle of the night. There was a downed power line in the street and the first one to get there was a Field Service guy and so he took the necessary safety precautions and called in the electric crew to come in and fix it. Bechtel: Okay. Thank you. Ulrich: Now, the next page, you don’t have in your UAC package. This is an attempt to add more information. When you look through your package, it’s got the changes in rates for each of the commodities by commercial and also by residential. But in our budget and in our other reports, we’re providing information about what the customer sees on their bill and as you know, the key area is they look at the bottom. This is probably the only city, in California at least, where you get all your utilities except telephone and cable all on one bill, so they can look at the revenues. They can look at their utilities users tax and it’s all right there. So we’ve taken the 4 utilities that we’re responsible for and just graphed it over the last couple of years and added the projection of what we think it’s going to be when we present to the City Council or request a change of water and gas and waste water rates in July. So let us know if this looks good. You get an idea that the cost of electricity was $24 for the so-called average bill and with the 43% rate increase it went to $34. But you can also see where the major concern has been and that’s in the price of natural gas. When we get telephone calls about “my bill has gone up”, they’re not calling about their electricity. They’re calling about their cost of gas. So what they could buy just a short time ago for $29, after the 200% rate increases, it was $87 and with the expected rate decrease, it will be down to $56 for the same amount. You can also see that even though the water is going up, it’s a rather average part of the bill, not a major part of the bill. So as you go through these rate increases, I think it’s important to see what the customer sees as the bottom line in their bill. Bechtel: Mr. Rosenbaum, I think has a question. Approved May 1, 2002 13 Rosenbaum: Yes, I think if you look at the ’00-’01 bill, probably the gas number is not accurate. Remember we were spending reserves that year so I think the gas bill that year was considerably less. Not for the entire year. Remember the 200% rate increase went into effect for ’01-’02. Baldschun: Well, it went into effect in ’00-’01. I mean we had 4 rate increases through that year so the bar, the $87 is based on the June ’01 rate increase. We didn’t have a new gas rate increases in ’01-’02. They had all taken place prior to this fiscal year. Rosenbaum: In terms of what the customer paid, $87. Baldschun: That’s what they paid. Rosenbaum: They didn’t pay $87 during the course of that year. Ulrich: Because there were a number of rate increases during that time, so you’re right, we didn’t look at the average of those or the mean. It’s kind of the last rate before the end of the fiscal year. Dawes: June 30. Ulrich: Correct. Bechtel: Okay, that’s a little. What you have will probably be different if you annualize those and present them for a whole year. Is that substantially different? Somewhat different? Ulrich: Let me say about Randy. We decided to do this earlier today so I don’t think we thought through and did the taking each rate increase month by month and then looking at it. What it was intended to do was show the overall change. Dawes: Well what you could do very easily, John, is to take the aggregate revenues for the year for commodity divided by the number of therms or cubic feet sold times the average use per year. 14 times 12 for water and so forth and get a actual average user annual cost which I think really would be more relevant to the City Council than a slice of time these are the rates on June 30 th which is a little misleading as we have seen. Rosenbaum: I didn’t want to cause a big problem. Sometimes I do want to cause a problem. It’s just something that struck me when I [interrupted] Ulrich: I think you’ll find what’s interesting is that I ask some of the same things. How do we know it’s 500-kilowatt hours in the average? And it turns out that it’s relatively close to that if you look at the [interrupted] Baldschun: Well 650 is really the more accurate. Ulrich: A certain group of the customers are in that. Are we going to compare it to PG&E or make some other comparisons? It’s helpful to help a bar, but we can give you whatever you want. Approved May 1, 2002 14 Bechtel: Well I think what’s good is that it’s going down and we really believe that it’s going to down this next year. Is that a true statement? Baldschun: You’ll find out next month. It’s up to you guys. Ulrich: You may decide you want to do something else, but that will be our recommendation. Anyways, that is the intent that we’re trying to show is that there will be a change and the overall change even though the water and wastewater is going up, the overall bill will go down. Dawes: This is a comment that’s not on point at this particular juncture, but as you look at that thing, that glaring that stands out is if we can only do to gas what we did for electricity 40 years ago, which basically says that way in the back in our minds, we should be maybe thinking about buying gas reserves? Ulrich: We should have bought that well in Canada. I think that would have [interrupted]. Dawes: I think as well. It’s a long term thought process that is not lost on me. You know if we go through a trough of a cycle and in the gas business, to buy resources in the ground is not something that we should not look at. That’s a double negative, but. Balachandran: Yes, actually we have looked at drilling in the late 80’s, early 90’s and it was very expensive. I think we actually looked at, John, the City of Santa Clara. Baldschun(?): Santa Clara because of their well generation, had purchased rights to some gas reserves in California and at the time, I only suggested that we look at that ourselves so we did look at the California gas production and we also met with producers in Canada. And then at about the time we were ready to move on it in 1986, you know what happened in ’86, oil prices dropped from 36 down to 20, and then all of a sudden, gas was really cheap. Dawes: That’s what I would have thought. Baldschun(?): [inaudible – Dawes and Baldschun talking at the same time] the economist have on the gas [inaudible] Dawes: That’s what I would have said, “Let’s buy.” Baldschun: Today is a different story. Dawes: Well you don’t want to buy when it’s expensive but when the bottom falls out of it, that’s when you buy. Have 10-15 years worth of gas. Balachandran: We have to be looking at longer-term purchases once we’re done with the electrical resource plan. Bechtel: Rick, you have a question? Ferguson: Yes, it does make sense to buy the well in Canada, but buy a big fat unobstructed pipe from Canada to Palo Alto along with it. Approved May 1, 2002 15 Ulrich: We were selling transportation rights for 99 years and bid on all of this. Okay. I’ll move along here with my last slide, if that’s all right. I’ll come back with 2 slides. The benefits of municipal ownership. You’re all aware of these and I’d just like to continue to point it out. The reason why we’re in business here besides returning a good return to the city and providing a very low competitive rates. We do keep our cost down is that we have rate options. The city has rates that are competitive, but they’re also responsive to specific customer class needs. We have some rates that are customer-specific. We’ve allowed gas customers to purchase gas on contracts and they’re making decisions on how they would like to purchase the gas. Renewable energy – we’re not at about as much as we’d like to, but we have the option of future green rate options. They’re supported with 100% renewable sources. Energy efficiency- you’re all very aware of the unique programs we developed and implemented to drive our energy use down and also in load management last year. They were quite successful. I think all of that is because of local control and having community values built around it is why we’re here. The last page, which Scott and I think, we should probably put up. Bechtel: John, before you leave, relative to municipal ownership, it seems like and I’m recalling this and I may have notes in the report, I don’t see an item there that we are, that the Utilities are providing a transfer to the City General Fund. That’s one of the advantages of municipal ownership is that some of our revenue that we generate from our people go into the City Council. That’s probably almost #1 on there. I think we ought to step out and say that that’s why we own that, that’s what we’re able to do and contrast to PG&E or California Water or any other private utilities. I’d like to see us add to what one of our benefits. Mr. Ferguson. Ferguson: Yes. And another bullet that belongs up there, it’s behind the rate options. We’re part of these consortia of other government agencies. You can make that case -- whether it’s the BAWUA exercise to rebuild Hetch-Hetchy, or the NCPA- APPA exercise on a whole portfolio on Federal initiatives. Being part of this group of other government organizations has made a difference in very critical areas. You probably don’t want to go into a whole lot of detail on it, but some spin on our ability to lock arms with sister cities. Ulrich: Even though we’re small, we’re able to lock arms with the consortiums that are there. Ferguson: Yes, and you can behave differently than the private sector players, to our mutual advantage. Ulrich: Thank you. The last slide is a summary of our safety statistics. This is extremely important to us and I don’t think we’ve shown too much of a measurement in this area before. Two areas that we’re looking at; the top one shows the difference in number of claims that relate to utilities and the second line is cost of claims that are attributed to utilities. And in the year 2000, those were about 21% of the total claims for the city and 17% is the current year, but what is even better is the amount of money that’s involved in it where it’s dropping 21% down to about 8%. In the area of human involvement that groups are very proud of is the Approved May 1, 2002 16 significant improvement in the number of lost time injuries which is a way of measuring people that are injured that can’t come back to work. Bechtel: Is it number of days previous? Ulrich: It would be a period...[interrupted] Bechtel: Previous record. Oh I see. Without any. Okay. Knapp: [inaudible – Bechtel and Knapp speaking at same time] since they didn’t keep any statistics. Bechtel: Thanks Karl. Ulrich: That’s the way the other two below it are also measured and you can see the significant difference. It’s almost over double improvement and those are not easy things to achieve so primarily in Scott’s group, this is where it’s all happening. Bechtel: Rick has a question I think. Ferguson: I would like to reinforce the safety comment. It’s been lost in the budget discussions, but at budget time before, we’ve talked about the amount that we set aside for risks, whether it gets rolled into the overall City budget for risk costs. But it’s nice to have a separate measure for it. There are analogs in other areas, which shows that this has more leverage than just the numbers on this page. The U.S. Treasury Secretary O’Neill, when he ran Alcoa, was known on every visit he made to every facility, the first thing he’d ask for were the safety records. It had a way of communicating a sense of quality and responsibility at all levels of the organization. That had an effect that was disproportionate to the actual dollar cost of safety losses. The other analog is crime reduction programs, starting in New York. Their first focus was on repairing broken windows. But it communicated an overall value that again was bigger than the cost of just replacing the glass. I’m glad to see it up here. It really has big spillover effects. Dawes: And O’Neill did it when he hit the Treasury Dept too. Ferguson: As long as he could. Dawes: Surprised everybody! You know, what does this have to do with paper pushers? He focuses on great things. Ulrich: I appreciate you recognizing that. This is a very important area to us and one where you can see if you focus on it and communicate and support safe work practices, what kind of results you can have. I think Scott’s goals are even far loftier than this. Bradshaw: That’s unacceptable. Ulrich: Hard, tough guy. Thank you Scott. The last page is, just to reiterate, as needed, we are going to review the Strategic Plan tactics and make adjustments. Quarterly, we’re going to track progress on performance measures. Semi-annually as we’re doing now, report accomplishments to the UAC and the Council. I think you Approved May 1, 2002 17 may have more questions and some more recommendations for us and I’d be glad to have us all here to discuss that. Bechtel: I would propose that at this point that we take the report and go by Commissioners on specific questions on the report. I think the key is on the background on the first page of the report, it says Staff seeks UAC feedback on their progress which you just heard about and the evolution. So maybe take the rest of the time tonight to give you that feedback. I think there are several attachments in thinking how we can organize this is that there are various attachments. I guess there are 3 attachments: A, B and C, so perhaps we can go by attachment first and see if there are comments or any other proposals as to how to organize our feedback venue. Commissioners, do you have any preference as to how we tackle this? Mr. Ferguson. Ferguson: It might be better to address it by substance area first, so that we have one staffer responding consistently to each batch of questions, rather than jumping back and forth. Ulrich: The way we’re organized and the way we work, you’ll find a number of people responsible for the same thing. Bechtel: Like Randy and Scott both were answering the question on 24 by 7. Ulrich: We’ll have Girish answer that one next time. Bechtel: You should be on the phone 24/7 trying to get us the best deal right? Okay. Comments. I have some questions on Attachment A. I’ll defer to my fellow Commissioners first. Dick? Rosenbaum: Attachment C page 2 in Recommended deletions – going on Distributed Generations. Cycles are getting shorter these days. A couple of years ago, we thought of Distributed Generations as a threat. People with [inaudible] who would buy electricity from us so they would have their own. And then a little while later, that threat became a business opportunity. We’ll supply with distributed generation. Now we seem to be backing away from that order. Do you have some explanations on what’s going on there? Balachandran: You’re probably going to get 4 people answering this question from different perspectives over here. It’s not necessarily removed. It’s actually repeated in other areas so for example, right in strategy 1, item D: Provide customized reliability solutions to meet customer needs, distributed generations gets subsidy out of that. On the strategy 4, item L, we have distributed generation again. Provide technical assistance and standards for customers who wish to install distributed generation equipment. In terms of our work plan and our effort that we’re stepping off this, number one, it does span all the different divisions. We are taking a, we’re not spending as much energy on it. It’s not an opportunity that we’ve been going after. It’s more keeping responsive to customer requests. To that certain extent, it’s prioritization of [inaudible] to the value we can get out of it. Rosenbaum: I mean there’s something more going on. You think it’s not cost effective or nobody’s going to be interested. I mean this is going to be a new business line for us. Approved May 1, 2002 18 Balachandran: In that response, the whole restructuring of Enron, other companies are coming in with proposals like that. That just hasn’t materialized. Actually “Comptons”, is our efficiency market research management wrote an excerpt on DG. You may want to say some things about that you see this good business opportunity. Knapp: Well not that there are very many deletions in the first part, was to not provide it as a product but to focus more on helping to install it for those people which is cost effective. There isn’t a big business opportunity without direct access anyway to just customers in Palo Alto, the City of Palo Alto. And we actually have conducted a study at large, one of our customers is interested in putting in a co- generator and they probably have the most cost-effective application and there’s kind of a knife-edge there. So the best we can do is to provide the technical piece and help to try to get that to move on. One is beneficial to the customers, but right now, it’s going to be a business opportunity. Rosenbaum: Did I hear you to tie in the elimination of direct access with distributed generation becoming less effective? Knapp: Well if you were to offer distributed generation products, there wouldn’t be any reason why you would have to limit it to Palo Alto customers for example, we can provide distributed generation services to Menlo Park or Lodi. Baldschun: I think the drivers of distributed generation are either, from an economic business sense for the customer, because they can save money from either their current utility or if direct access were available they can save money in the market. So that the economic piece here hasn’t materialized although you see the number of companies in recent years with their talent and technology. They’re just 6 months away. You’ve seen Honeywell get out of business. You see other major players fold, but regardless of whether the industry is going, I think the question for us in utility is “how does that fit into our new strategy given the fact that in California direct access has been terminated? What does that mean for Palo Alto’s direct access program?” So we haven’t made any decisions. We haven’t come to you, but we will be coming to you perhaps with recommendations on our own DA programs for gas and electric internally. We have to decide on what direction we want to go, but it looks like we’ll certainly be back enough to tell from a number of programs that really were formed out of the [inaudible] threat environment of direct access. You take that away and now if you look at the tactics, there’s probably 8 or 10 tactics there that are related to this deregulation which is now non-existent or certainly going to be in the back burner for California. Rosenbaum: Thank you. Bechtel: Mr. Dawes. Dawes: Apropos of the mention of the cogeneration study, which is listed under the resource management accomplishments matrix, I was not aware that one such was going on and mentioned that which I guess is were we now paid for that “RS” consultant or did we do that on a pro bono basis? Is that a business area for us? Knapp: As part of, at the time it got started, this was a major effort in order to try to find “is this a business opportunity for the City of Palo Alto and what kind of benefits could we have?”. Approved May 1, 2002 19 Dawes: Were we paid for this study? Knapp: No, we paid for the study. Dawes: So it was for ourselves rather than for an industrial customer? Knapp: It was more, because they were interested, that we can then go and do a study at their site as opposed to us trying to select who would have a good application. A [inaudible] application, we thought poses a perfect first try to see if this is an opportunity for the City of Palo Alto to provide reliability to the area and save money and develop a new product. Dawes: This is where you would build the plant. They would buy the steam and we would sell the electricity to our customers? Knapp: That’s probably the most likely scenario, or they can actually own the plant and have fuel switching where they’re buying gas instead of electricity. You didn’t have to specify the exact ownership. It’s more of a feasibility study of “can it fit?” and “how big of it would match their load?” and “what kind of costs are involved?” and to get into the details of finance. It looks like it’s possible. That it could be reliability benefit for all of the customers in this area that it could be located. So that’s where the real gain can be. Dawes: Is it still on the griddle or is it something that has been shelved? Knapp: It’s still on the griddle. Balachandran: But it hasn’t been divulged to the customers. It’s up to them if they want to “keep”. Dawes: At some point, we might see a proposal to build a 35-megawatt cogen plant? Balachandran: John’s eyes are lighting up, but no it’s not going to be that vast. It’ll be in single digits. Ulrich: Only if I can get coal over there. Knapp: It’s more in the range of a large energy efficiency project. Bechtel: Who is driving this, let’s say from a meeting or a schedule point of view? The customers, the city or I guess, I’m not getting a sense of whether this is real active, a somewhat active or what. Balachandran: In terms of this type of program for distributed generation, it comes from both sides. Karl in our group monitored technology and we have a marketing group that is out talking to customers all the time. So customers are also hearing about this. You have Benest talking to them about increasing reliability and in engineering too. So you have this dialogue happening and a case like this, which is one of our larger customers, and the opportunity was there consistent with what the study says coming from both sides. From our perspective though, compared to a few years back, it will just be slowing down. Approved May 1, 2002 20 Ulrich: There’s clearly something that’s a key attribute in Palo Alto is knowledge of our customers. We have 2 people that spend all their time with our larger customers so you get knowledge of what they’re thinking about and I think that’s one of the reasons we were so successful in being able to get them to implement a number of the conservation and load management programs during the energy crisis. So if the customer’s interested in something, we’re going to go out and take a look at it. Bechtel: Well I noticed that we are dropping one. It says financial assistance using CPAU’s low capital cost to assist customers so I guess are we, we’re obviously not planning to loan any money to anyone for this. Ulrich: No I don’t think the market is there for it. If you recall, that was the innovative part of the strategic plan. We put down a lot of ideas and we’ll just keep putting new ideas down there. Baldschun: For the point of competition, you want to provide the services that meet customer’s needs and that’s how that was derived. Ulrich: You can imagine owning a, it could be a municipal owned facility, and the customer leases it or gets use from it. It could be a real win-win, but not right now. Bechtel: We seem to be talking about changes. Any other questions or comments on changes? Rick. Ferguson: Since we are skipping around . . . Bechtel: I tried my best. Ferguson: And I’m proud of you, Mr. Chairman. Let me focus on page 2 of Attachment C, the proposed changes to the plan. I’ll try to boil it down to a couple of deletions. I’d like to buck these a little. One: deleting the outsourcing of certain support functions. Yes, I agree with deleting the support functions, but I think we should routinely consider outsourcing, which we might call non-strategic or not strongly strategic activities, things that are unlikely to change over the years. Maybe we can let go of those, maybe that’s a subhead under streamlining. But outsourcing shouldn’t be a bad word here. Balachandran: No, that’s not the point here. If you look at strategy 3, item D – eliminate or streamline low value work. One of the things we come to as we were using the strategic plan was like; the same things were showing up in different areas. So part of the deletions are just to get rid of the duplications. Ferguson: Let’s use “non-strategic” as the word. “Outsourcing non-strategic work” or something like that. The second one is on reviewing the city charter. I agree that the deregulation pressure we felt two-three years ago was a big argument for rethinking this. But I’m still at least 51% convinced that we don’t have it quite right yet, the UAC/Council relationship. I’d like us to keep that on the agenda. Again that’s part of streamlining, a little bit higher level streamlining activity that belongs under governance and probably will get treated differently, so I might drop the second phrase there. But keep the review on our list. Again, if we don’t do it, someone else will do it to us, and we might not like the results. So let’s keep that review in our domain. Approved May 1, 2002 21 Balachandran: So you’re suggesting that 3C would remain? Ferguson: Yes, but drop everything after the comma. On 3F, I’d drop investigative and regulatory process, but I do think that we’re going to be continuously challenged to protect and preserve privacy and confidentiality. It’s going to be more of an issue no matter what we do on telecom. It’s going to become more of an issue to the extent for all purposes, such as our billing records. Lord knows privacy’s an important headline issue and will be for a couple more years, so I’d like to keep it up a little higher on the list. On all of these things you might reduce time and cost, but they still deserve their headline value on our agenda. Balachandran: I would like to talk about 3F, it was again put in when the outlook seemed like we were going to have retail competition and a bunch of suppliers. A number of suppliers were going to come in and offer products and services to our customers and they would be requesting customer specific data, like here we’d be saying, it’s still going to be an issue. Ferguson: Especially for individual residential user. Balachandran: Right and that’s something we’ll take care of on an ongoing basis. It’s a legal issue and our legal department feels really strong about protecting that. Any kind of information that we provide on the efficiency statements or other kind of forum. Ferguson: But it’s a hot-button consumer value. So it ought to remain on our identifiable list of things. Baldschun: It absolutely will for the reasons you mentioned, but this is really more in the context of when deregulation came, there was concern about access to our records by our competitors and basically that’s no longer an issue. Ferguson: Sure, and that part I agree with. Baldschun: And that’s the thought here. It’s strictly limited to that piece, but confidentiality of customer’s records have always remained very important. Bechtel: Just to follow up on that. I’m not sure if we do have a privacy statement anywhere in this document. Do we? So perhaps from a customer’s point of view, you know as a customer satisfaction point of view, we ought to have a very positive statement about privacy as do most business on the web and so on. So I think if we come under the normal relationship you would have with a customer so. Ulrich: You’re talking about reaffirming what we do as a policy but to state it more explicitly. Ferguson: Re-label S3F as “to protect customer privacy to the greatest extent possible”. Ulrich: That’s what we want to do. Bechtel: Rick. Any other? Approved May 1, 2002 22 Ferguson: Let’s go round robin. Bechtel: Mr. Dawes. Dawes: I concur with Rick that the essence of this discussion is on post changes to the strategic plan. Deletions, additions, and modifications and in many respects, the ones I noted are echoed by Commissioner Ferguson. Continue to have and look at outsourcing of functions as something we should always be cognizant about. Hardly agree about continuing to review city charter and governance and organization changes. Competition really doesn’t have anything to do with it. It’s something that should be continually in the back of people’s minds, perhaps not with any active program going to reorganize the department, but certainly to keep weighing the benefits and the issues of having an organization the way it is which has the benefits, but also has huge problems. The biggest issues before and continue to be are length of time to make key decisions. We also prove the decisions can be made very fast when necessary. These would be procurement activities particularly and I think that’s wonderful,but nevertheless, it is a cumbersome process that does take a lot of energy to keep that momentum going. So review is the key word to retain. I agree about the need to continue to look at alternative businesses where we use our low cost of capital. I mean, in the utility business, if you rank the top 3 problems in running a utility, the cost of capital has to be right up there as one of the major issues and air quality problems in dealing with supply, etc. So it’s something that we shouldn’t let roll off our radar screen totally. Keep an open ear to customers who say let’s take a look at a Co-Gen issue and be very willing to think about putting up capital for that. Also, 6G is not something that we should delete, unless Girish, it’s mentioned in other places. Design stand by and/or exit charges to recover fixed or stranded costs. I mean, that’s still an issue with Calaveras, how that whole thing will play out. That’s probably one of the biggest money items we have out there as to whether or not we have not enough, enough or way more than what we need. Lastly, under the modifications, I think maintaining or establishing a branded presence is a very good thing for the utility company. That we shouldn’t just be a service out there that’s kind of appreciated. I think, a branded presence is a very good nomenclature. It certainly can drop the competitive markets issues by having a branded presence, I think is a fine idea and that’s the fourth. That’s all my comments. Dawes: Other comments on the changes to the utility’s strategic plan? I hope this is giving feedback. Is this the sort of feedback you were looking for on this? Ulrich: Well it is. My goal and our goal is to have very clear strategy on what we’re doing in the utility so there’s no surprises so that we can come to virtually every meeting and every item that we discuss fits into the strategic plan. And as you know, all the documentation that we do in the City to get approvals from the City Council, we refer to the Strategic Plan as the reason why we’re doing it. We’re spending money; it has to fit in it. So I want the public community to understand and buy into and help us change whatever it is we need to do so that we’re focusing on the things people would want us to do as a utility, whether that’s adding new products or stopping doing things and they should be reflected there. This is a very high-energy document for having everybody in the utilities and a good portion of the Approved May 1, 2002 23 city start to do all the right things, instead of doing things that are maybe unimportant; we focus on things that are important. And that gives us a whole lot of clarities. Much easier when we come to work in the morning, we know where we’re going. So if there are areas in here that you think are ambiguous or would convey a better communication message to the public or solicit more input from the public and businesses on this, let us know. Because that’s exactly what this document is supposed to do. Bechtel: Mr. Ferguson. Ferguson: A couple more comments and then one final global one from me. One: on the layout, I will separately send along some wordsmithing comments. I’ll punch it up a little. It deserves wider public discussion and comment and I think wordsmithing will help in general. Second, I’m just curious on Attachment B, the microprint. I’d still like it on one chart. I’ll argue a way to make this a little better. Ulrich: We kept making it smaller until we could fit it all on one piece of paper. Ferguson: Our Dick Tracy wristwatch summary chart. Ulrich: Did we miss an X there somewhere? Ferguson: No, but is there an implied priority in the way you listed these things, either here or in the text report? Ulrich: I don’t think so. I think we put down all the things we can think of. Ferguson: Random. Baldschun: There are so many other accomplishments that we can put in there, but we get to a certain level where you get an overload of information, so we tried to capture the most...I know there’s one missed that we probably should put in there. So those are the kinds of comments that help us review. Ferguson: And the final comment. We talked about this at least for 3 years, maybe even predating your arrival in the utility. This conversation used to be done in between the cracks of the discussion on the budget. And as we slogged through the details of the budget, we never got a chance to focus on what the business was all about. We just talked about better ways to do this or that. I’m just delighted that we now have the structure and the context that Mr. Dawes was commenting on earlier. It’s a very good start. You asked for comments on the evolution of this document. On the evolutionary scale, we’ve moved from the gleam in the eye of the parents, well past the Neanderthal stage, well past hunter-gatherers ... Dawes: Maybe we should say we’re past the teenage years. Ferguson: So I am very pleased with the progress. I enjoyed this very much. Thank you for the effort. Ulrich: Thank you for the feedback. Bechtel: I think there’s one remaining item that I wanted to talk about. Dick Rosenbaum sent us all an email that talked about suggesting using other NCPA cities Approved May 1, 2002 24 or perhaps municipal utilities maybe also as a general word, as bench marks in addition to PG&E and I thought his analysis that he had brought to mind 2 things is that let me ask Dick, in fact, did you get all of these great information from these city’s websites? Rosenbaum: That was the extent of my research. Bechtel: That was the extent of your research, but that was very good, because do we not focus our rates in such a fashion that one could in fact calculate out what their bill could from our website? Baldschun: We don’t put the actual rate structures. We have probably 40 rate structures for water, gas, electric, sewer and refuse. It’s extensive, so we don’t do that. We don’t get requests to do that. I do want to mention one thing on the Santa Clara website, we contacted them today and apparently the rates are wrong on the website. They did not include the public benefit charges as well as the ISO GMC charge so instead lower than Palo Alto, they’re actually higher by 5%. Rosenbaum: I think on their website, they mentioned that those are in addition. But they’re on the order of 5%. Baldschun: They have another department that manages their website. Rosenbaum: No. I think the information was there. Bechtel: Maybe the suggestion is, Randy, a simplified formula of something like that. I’m not sure I have a strong feeling with that. More importantly was the suggestion that in addition to comparing when we do rate comparisons with PG&E either an amalgam of other municipal utilities and so on. Certainly perhaps on UAC, I think it will be useful and I’m not sure if everybody in the city would want to know that because you don’t have a lot, I mean, those other municipal utilities are not competing in our space, but I think for benchmarking purposes we had talked about, I think it would be useful to have that. Ulrich: Well we can do whatever you think is valuable. We have not done that on individual cities even though we get our report, APPA puts one out and others that show all the municipal utilities and we can show where we stand compared to that. That is a very difficult one to make a very wide comparison with unless you want to focus it on something else other than just the dollar amount difference. Bechtel: Dick? Rosenbaum: I very specifically suggested 2 similarly situated cities both of which have access to Western power although staff can correct me, I’m pretty sure that neither one of them, either Roseville or Santa Clara, has anywhere near the % allocation from Western that we do. So the reason I bring it up and you’ve all heard me question our electrical rates, the City of Santa Clara that receives a considerably lower % of Western, the cheap stuff, is able to offer residential rates, which do not differ significantly from ours. This was not the case a couple of years ago. As I say, I haven’t done any more research than to look up their websites. My assumption is that Santa Clara went through the energy crisis without feeling the need to raise rates and I don’t know what Roseville did, but more broadly, the PG&E comparison is interesting and it makes us all feel good and it points out the virtue of being in a Approved May 1, 2002 25 municipal utility, but when one thinks of benchmarks, I think one wants a little more rigor in a comparison to other suppliers who are in roughly the same situation. So I would not make it a big deal. I would not look at the APPA, which did put out this report, which gives you the information for everybody. I would keep it focused on 2 similarly sized cities. Santa Clara is a little over twice our size. Roseville is about the same size. I think that would be of use and of interest to us. Ulrich: If I can give maybe a contrary view here for a moment. There will be differences. What I would not like to do is when we have these meetings and make a comparison, be able to go through and analyze all the reasons why Santa Clara may be different than us or we may be different than them. It appears to me is that then if we want to compare, you’re going to have to look at very specific, whether their distribution rate is the same, their supply rate because we all “divide those in two” and we have components for each and then we have to get into explaining the differences, the reason why there is a difference and I’m not sure if that’s an appropriate analysis to be making particularly when some of the comparisons, the rates will be higher, as Roseville will be. I frankly don’t see a value. This is reason for maybe this debate is what they’re doing in a fast growing area in Roseville, which is a long way away. The only thing they have in common is that they have a very small amount of allocation from Western and they’re a member of NCPA. Once you do that, there are other areas to compare. We could be looking at Alameda, which is only a shorter distance away. Or we can be looking at another place that fits 100% of their allocation in gains or slack and then you’re starting to make some other comparisons. I don’t mean to make a big deal out of it, but I think there needs to be simple benchmarks that we can compare easily and show difference without getting into explaining why theirs may be different than ours. That’s my only point. We can do any of these things, but I feel compelled that once we do that is to be able to have an analysis why there may be a difference and what those differences might be. Baldschun: I found rate comparisons to be always interesting but when you’re on the outside looking at rate comparisons, you’re forced to speculate on what the reasons why their rates are higher or lower or you’ve got to have staff dedicated to spending days, maybe weeks talking to staff of that utility and coming back with their responses. We do that in the water fund, I think you were on Council at the time, Dick, with the water fund financial review. It was a report about this thick and we went through every revenue-required item of about 6 water utilities in the area and I found it was a great report. It got a good handle on why our water rates were higher, but that importance took an extensive. We took a Rate Analyst, a Manager of Rates, myself and somebody from ASD to work on for weeks and then a lot of time, these people just don’t call you back. It’s not a city thing where you can just call up and pick up the phone and say “hey, why are your rates lower or higher?”. A lot of times you get the wrong answer, because the guy himself you’re talking to doesn’t know. So you’ve got to spend time on it to really get the correct answer if that’s what you’re after to really want to understand why the rates are higher or lower. Bechtel: Mr. Dawes. Dawes: I tend to agree with John, Dick, and because I look back on our electric rate increase. We benefited from a extremely favorable rate for a lot of years, for all the reasons we know why. We therefore were stood much more exposed than the PG&E bankruptcy than anybody else because we had the highest proportion of Federal Approved May 1, 2002 26 power and therefore the highest exposure to the thermal of the PG&E balancing act. So we took out an appropriate insurance policy at the time, which we knew was going to be expensive. Our rates reflected that. Totally different from what other people had to deal with at that time who were, as in Santa Clara, has coal interest in Arizona which has hydro, has thermal that they bought from and contracted from so each of us marches to our own drummer and I think that the fact that we had a problem because of a very favorable rate structure is not really material in comparison sense. Bechtel: Well I think the comparison is interesting. I guess I’m not sure I looked at this as a way to, as more of a rate comparison than more of a way of benchmarking Palo Alto. If you look at our financials, we have transfers to the general fund, which is probably different than the different cities have so there are a lot of differences how our cash flow moves in different ways, but I think we still need to strive to have benchmarks that tell us whether we as a city and you as the managers of the utility are doing a good job. Maybe the rates may not be the right one, but some sort of benchmarking, I think we should continue to need to look. I think other municipal utilities are probably the best to look at in terms of how, well benchmarks for us. Perhaps, this is not the right one, but I encourage you to, as we go through our reports, to add some things you do think are worthwhile. Rick? Ferguson: Thank you Mr. Rosenbaum for raising the issue. It’s an interesting point of discussion and it’s a proper discussion for a UAC meeting. As it relates to the strategic plan and the strategies that we’re adopting, I like the little diversified utility rate picture that you had there -- even though we need to correct the $87 figure for ’00-’01. When you look at the total rate of our full service utility, you’ve essentially explained that we’ve met on our stated objective, the highest level in the strategy. We claim fame as a diversified utility -- this is one of the nice things that come from being a diversified utility. When you take a hit in one utility, there are usually compensating advantages in another. That story is told beautifully in that chart. There may be an important discussion of tactics at the next meeting, say, what are you going to do to crank back on water, or is that an irreducible increase in cost related to Hetch-Hetchy, or something like that. But in terms of strategic measures to be waving around in public, I like the little portfolio of diversification drawing better. Bechtel: With no other comments on this, we’ve I guess completed the review of this. NEXT REGULARLY SCHEDULED MEETING WEDNESDAY, MAY 1, 2002 Bechtel: Our next meeting is Wednesday, May 1 and we have 2 items on there: Utilities Third Quarter Report and then the ’02-’03 Operating CIP Budget and our long look for rate proposals. Ulrich: I might point out that solely in about 2 weeks, this is going to be the shortest length of time between meetings since [interrupted]. 3 weeks. Baldschun: I was just about to give you a preview of the rate proposals. Approved May 1, 2002 27 Approved May 1, 2002 28 Bechtel: Please do Randy. Baldschun: I know you know a few of them coming, but there are a couple of new ones. The gas rates we’re going to be proposing is 26.7 % decrease. Residential customers will receive a much higher decrease somewhere in the 35-36% rate. Water rates, we’re going up to 20% and that’s because of the CIP going from I think $4 million to $11 million 2 years from now and so we’re trying to build up to pay for that through a combination of the debt financing and the reserves and this rate increase. The sewer rates we’re proposing to go up 25% and that’s because we haven’t had a sewer rate increase since 1999 and we’ve been drawing down on the reserves heavily every year since the [inaudible] increased treatment costs. And also we’ve seen a decrease from our sales revenue in wastewater traffic. ??: So those 3 you talked about last time. Baldschun: The 2 you haven’t heard about are connection fees. We may increase connection fees, which are fees which developers and homeowners pay to connect water, gas and electric. It’s mainly the engineering crew in Scott’s shop that work with customers on these estimates for their connections. And then we’re also going to increase traffic signals. Bechtel: Is that the number of traffic signals you’re saying? Baldschun: No, it’s the fees for traffic signals. A modest increase in fact. We’re going to increase the labor rate that we charge for using our staff to do special projects. We’re going revise all the electric rate schedules that have a public benefit charge because the Senate Bill 1890 requires us to charge a 2.85% on top of benefit revenue and we need to do that. We need to increase the public benefit charge about half a million dollars, a little less than that, and we’ll decrease the distribution charge corresponding. So it’s a revenue neutral rate change, but there will be about 30 pages of rate schedules to pass through this report. Or maybe you won’t see the calculations here. So that’s it. Just to give you a preview to be thinking about these things. Bechtel: Thanks for the heads up. Ulrich: Randy’s going to enjoy this presentation. You can tell. He’s got it all worked out. Obviously, the net effect is as we pointed out is still going to be a reduction in the total utility bill. Baldschun: Right. Bechtel: Okay. I entertain a motion to adjourn. Mr. Rosenbaum moved. Mr. Dawes seconded. All in favor say “aye”. All commissioners: Aye. Bechtel: Meeting is adjourned.