HomeMy WebLinkAbout2002-08-07 Utilities Advisory Commission Summary MinutesUAC Minutes 080702 “To Be Approved” Page 1 of 60
UAC MINUTES
AUGUST 7, 2002
ROLL CALL _______________________________________________________________________ 2
ORAL COMMUNICATIONS _________________________________________________________ 2 APPROVAL OF MINUTES ___________________________________________________________ 2
AGENDA REVIEW AND REVISIONS _________________________________________________ 3 REPORTS FROM COMMISSIONER MEETINGS/EVENTS ________________________________ 3
DIRECTOR OF UTILITIES REPORT ___________________________________________________ 4 UNFINISHED BUSINESS ____________________________________________________________ 4
NEW BUSINESS ___________________________________________________________________ 4 ENERGY RISK MANAGEMENT POLICIES ___________________________________________ 4
PRESENTATION OF DRAFT BUSINESS CASE FOR THE FIBER TO THE HOME STUDY ____ 6 LONG-TERM ELECTRIC ACQUISITION PLAN GUIDELINE ___________________________ 38
DIRECTOR OF UTILITIES REPORT (continued) ________________________________________ 53 NEXT REGULARLY SCHEDULED MEETING- Wednesday, September 4, 2002 _______________ 57
ADJOURNMENT __________________________________________________________________ 60
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ROLL CALL
Carlson: Okay I think we’ll go ahead here. It’s a little bit after 7. I’m pleased to see a little larger than our normal audience. I know there’s significant interest tonight on a number of issues especially of our Fiber to the Home. But we’ll start out by calling the
roll. Why don’t you start on the left, Rick? [Commissioners Ferguson, Bechtel, Dawes, Rosenbaum, Chairman Carlson and Council Member Liaison Beecham are present.]
ORAL COMMUNICATIONS
Carlson: Now in terms of schedule, I’ve got one slip from the public who wants to speak on the Fiber to the Home. Anyone else who wants to, please give me a slip if you want to talk to that issue. But I’m going to hold public comments on that issue until after the
Consultant has made his report, in hopes that the Consultant answers the question before you ask it and we save everybody time. We have a significant agenda tonight, so we’re just going to go ahead and go through it. Are there any other oral communications? [Audience member spoke off microphone. Inaudible.] On which? [Inaudible] Okay. We’ll do that later. Please give me a slip. Anyone else on Fiber to the Home? Please
fill out a slip and I’ll just shuffle them. You can go ahead afterwards if you wish, but we will go through our regular agenda. We’ll have the Consultant’s presentation on the Fiber to the Home and after the Consultant’s presentation, if you still want to say something, we’ll invite public comment. Go ahead back there.
[Audience member off microphone. Inaudible request about the agenda].
Carlson: Well that’s second and the first one’s real quick so I see no point in changing the agenda.
Ulrich: Mr. Chairman, may I ask for purposes of the video and for people listening to this on the radio – anyone who wishes to speak has to come up and speak in front of a microphone so it gets recorded. People in the audience, if they would use the microphone over here or the handheld over here, it would be better for posterity.
Carlson: Fine. Once we make the actual comments, please come up to the microphone.
APPROVAL OF MINUTES
Carlson: So we’ll go ahead. First item, of course, after Oral Communications is
Approval of Minutes. Do I have any suggestions for changes in the minutes? We have a few typos requested here.
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Ulrich: There’s a document in front of you that’s a request for changes in the agenda
from Mr. Borock. And there are 2, or 1 page, with his request.
Carlson: I don’t have my glasses on and when I read it, I didn’t realize it was from Herb. I thought it was from the staff.
Bechtel: Mr. Chairman, I move that we approve the corrections indicated by Mr. Borock
to the minutes. Carlson: Is there a second to that? Okay. Seconded. Any other changes requested? All in favor?
All Commissioners: Aye. Carlson: The minutes are approved.
AGENDA REVIEW AND REVISIONS
Carlson: We’ll just follow the agenda as printed. But there’s going to be a discussion which I’ve emailed people about – about the Trinity River agenda and how to get that on the agenda in September, and the potential problem with overloading our September
agenda. I wanted to warn everybody that the Trinity River decision is not on tonight’s
agenda, in case somebody’s here for that. But how we handle that at the next meeting is on the agenda. Any other agenda items? Ulrich: I would offer to do the report from the Director of Utilities to be at the end, at
around the same time we talk about Trinity, because I have some items to discuss about
that, and there may be some cohesion by doing it all together. Carlson: That’s just fine. So for now we’ll skip over that.
REPORTS FROM COMMISSIONER MEETINGS/EVENTS
Carlson: When we talk about the Trinity agenda, I will report about the meeting with the City Council last Monday where they did ask us to do a special intense review of the Trinity River issue, and report back to them in September. I was also at the Long-Range
Energy Planning meeting a week ago tonight, but I’ll talk about that when the issue
comes up. Any other reports? Bern, do you want to talk about New York and our bond people? Beecham: There’s nothing significant to report at this point.
Carlson: They still love us?
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Beecham: As much as ever.
Carlson: Excellent. We’re going to need them. Ferguson: Mr. Chairman, I attended the Fiber to the Home Advisory meeting earlier this month and I’ll report on that meeting when we get to that agenda item.
DIRECTOR OF UTILITIES REPORT
Carlson: We’ll skip over the Director’s report until later.
UNFINISHED BUSINESS
Carlson: Unfinished Business – I don’t recall any, unless somebody else does.
NEW BUSINESS
ENERGY RISK MANAGEMENT POLICIES
Carlson: Let’s move on to Energy Risk Management Policies, which we initially reviewed last time. Do you have anything more to say on that at this point John?
Ulrich: Nothing more, except to briefly summarize our request. You have a memo in
your package as Item 1 called Energy Risk Management Policies. I do not have prepared slides to go through, because we’ve had a number of discussions on it. Tonight, you’re being requested to approve the proposed City of Palo Alto’s Energy Risk Management Policies. These policies were initially approved by the City Council on March 19, 2001.
These are revisions to that policy on Risk Management. As you recall, the City Auditor’s
office conducted an assessment of the Utility’s Risk Management Procedures between November 2001 and June, and a report was presented to the UAC at our July 10th meeting. As a result of the audit, and other recommendations we received from our Consultant who has been working on this, those have been formalized and put into the
Energy Risk Management Policies dated July 3, 2002. They’re shown as a draft, with the
expectation and a request that you approve them this evening. The minor change – one item that you requested be included – was that the statement in the second sentence under section 6.1 would say, “these statements shall guide the
general vision of CPAU business practices, articulating the City’s risk philosophy, and
establishing risk tolerances.” That’s a slight change. Instead of “guide”, it says “include.” So instead of saying, “these statements shall include”, it now says, “these statements shall guide.” There are a number of other changes, but they are all based around an attempt to focus with the Strategic Plan and mission of Palo Alto and to have
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Risk Management Guidelines that truly manage risk in the business that we’re in. So with that, I’d ask if you have any questions or other things you’d like to know about the
final recommendation.
Carlson: Are there any questions? Rick, go ahead. Ferguson: No question. I was just going to make a motion.
Carlson: Dexter. Dawes: The $65,000 limit has come up very recently and it concerns me that this would make the process of buying, particularly small amounts of power – which is often over
$65,000 – laborious, to go through the whole chain of command: UAC, Finance
Committee, City Council type approvals. It really depends on how you plan to buy your product, but it seems like fairly tight limitations to me. Can you live with it or is this going to be a problem?
Ulrich: Hopefully it’s not going to be a problem. The intent here is to be absolutely clear
that we absolutely follow the rules set forth in the municipal code on who has authority to sign and to approve expenditures. In this case, we believe that virtually all the terms and conditions that we would set forth in an RFP to purchase electricity or gas would all be negotiated and completed early on, and that we would be able then during the process to
settle on the price, and that the City Council would approve a band and a level that we
believe will be appropriate. Dawes: So there’s some flexibility on both ends of the PO’s?
Ulrich: I think so. We’re compelled and committed to making it work, but you can be
assured if there are any problems with that, we’d come back and try to change or modify that so that it would work. We’re not in the business of offsetting one risk and superimposing another one on top.
Dawes: Thank you.
Carlson: Any other questions? Mr. Ferguson. Ferguson: I move that the Commission recommend that the City Council approve the
proposed City of Palo Alto Energy Risk Management Policies.
Carlson: Is there a second? Bechtel: Second.
Carlson: Seconded by Commissioner Bechtel. Any further discussion? All in favor? All Commissioners: Aye.
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Carlson: Any opposed? Any abstained? It’s 5-0, and I hope you appreciate the
efficiency with which we got to Item #2.
PRESENTATION OF DRAFT BUSINESS CASE FOR THE FIBER TO THE HOME STUDY
Ulrich: Bear with me a minute. I’ll set it up and attempt to discuss it here. Members of
the UAC have copies of this presentation. Candidly, we’ve made changes up to 45 minutes to an hour ago, so I apologize I do not have enough copies for the audience. But after the presentation, whoever would like a copy, if you can bear with me, we can have them for you by tomorrow. If during the question period, you want to refer back to any
of these pages, just feel free to have us do that. It is quite comprehensive and I want
everybody to have an opportunity to have benefit of this presentation and to be able to use it if they have questions. The presentation is broken down into 3 parts. I’ll give a brief overview. Blake Heitzman, Manager of Telecommunications, will get into a little more detail and then introduce the consulting team that worked on the technical side of
this business case. There will be further communication at that point.
Why we’re here – kind of bring everybody up to speed from many months this process has been going on. Tonight we’re going to discuss the Fiber to the Home trial progress, for all of you as UAC members and the public to be able to review the preliminary
business case. The outcomes desired tonight will be to have the UAC and public input
and to determine additional investigation that you’d like us to make. So you should truly look at this as a draft and we can then move forward with the next steps. The reasons for investigating the Fiber to the Home is that we believe there is strong
community interest. Potential for the City to provide another citywide service in addition
to services we have now. Determine whether it’s cost effective to build it out. Potential of improving telecommunication service and choices within the City. It’s all about service and value added – that’s the reason why we’re here and why you have a municipal owned utility system, and is this the right additional service to provide. An
obvious other benefit can be synergy with other utility service and systems. We’re
already providing many of the pieces of infrastructure, and support systems are already in place, which would allow for easier transition to Fiber to the Home. Goals of the Trial. You’re all familiar with that fact that we have a trial in 70 homes.
Evaluate construction techniques. Test system reliability. Test new services, in this case
phone and video. Determine customer expectations. Measure customer satisfaction. Determine financial feasibility. After all this, if appropriate, develop a business plan. Progress to date. Council approved the trial on 11/13/2000. Raised the funding for the
trial and went out to bid and constructed for $680,000. Initially the first 2 attempts to go
out to bid were over a million dollars, so this was all done with in-house staff. Constructed the Trial network. Managed technical and customer service for 12 month
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trial. It’s hard to believe that the 12 months is over about 2 weeks from now. Surveyed Trial participants. Surveyed the general public. And beginning the business case
analysis, as a first step in a Business Plan.
Now the next step that we envision is to incorporate input from UAC and the public. Final recommendations – we will attempt to come back we believe at the next UAC meeting, which is now scheduled for 9/4/02. Then to move on from there, as appropriate
for presentation to the City Council at their meeting on 9/23/02. Based on the outcome at
that point would then be to prepare the business plan with recommendations on what our budget would be required to do that. The next part would be to have Blake go into a little more detail.
Heitzman: First of all, I want to talk about the trial coming to an official end. It was a 1-year trial and things that we gained from doing this trial. On a micro scale, we had experience with many aspects of doing the Fiber to the Home citywide build out. We had to deal with engineering issues. We had to deal with field installation and
maintenance issues. System operation and troubleshooting some of which happened. We
learned something about customer use patterns, their acceptance and interest in various services. We were able to gain knowledge of many different vendors’ systems due to them contacting us knowing that we had the trial. And a lot of this sometimes is proprietary and so forth, but a lot of this we wouldn’t have been able to get if we hadn’t
been involved in a trial.
We learned where there are weak elements in the system and actually had support from various vendors to correct weaknesses. An example, “Marconi Glass” developed a special drop cable for use in our trial. Marconi and many other vendors subsequently
learned that a hardened box at the customer’s facility is better than running the fiber
through the wall and working inside the customer’s facility. There were issues like that that were learned due to the trial. Vendors and people we worked with, as well as ourselves, gained that information.
We talked to many other municipalities and public utility districts about similar trials
they’re conducting. Finally we learned a lot about what barriers stand in the way of progress. On the Customer Service side, we have learned a lot of what customers feel about FTTH through antidotal evidence and collection by the Customer Service people and testimony by members who have worked with us. The reliability of the FTTH
system was greatly valued by customers. The fact that they have an “always-on” and
speedy Internet connection is important to them. High-reliability fiber lowered the number of customer service calls we expected to receive. A lot of the problems that existed were not on the Fiber system, but in fact had to do with the computers and the systems at the customers’ facilities. We still had to deal with those and that’s an issue we
had to deal with. We’ve gotten email and survey information, the participants trust us to
provide an excellent service. We also learned that some of the Fiber to the Home participants are doing home businesses and need the high-speed to conduct those businesses. We’re getting feedback that they’d like the service to continue.
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Rolling forward toward the business case, just to lead into Neil coming up here and doing
his presentation. There are a lot of components that went into this business case. There
was a scientific survey of Palo Alto citizens, to learn their feelings about the City providing service: costing, types of services they have now, how they feel about their current providers. There are probably others I can’t think of right off the bat, but those are the key issues: the type of services, who’s providing them, pricing points and how
they feel about us (and about us, specifically providing certain services). The business
plan incorporates current equipment technologies and cost information. The engineers who are in the audience who designed the conceptual plan looked at many different systems and picked a particular system for the business case that they felt was economic and supplied all the services that we were interested in providing. That doesn’t mean that
this particular equipment will be the final build-out equipment. It just means that it was a
piece of some equipment that fit into the business case and could provide economic benefit. Based on our survey, we know that certain customers need services and we know the pricing information, the pricing points that the competitor’s have, and again, that information goes into the product development in this particular business case.
This particular business case considers only 3 products: the phone, the Internet and the video service. There are other services that are out there that are not included because either they are not fully developed or they’re not considered standard services. So we only want to include base services to build business cases; other services that could be
developed later would be considered frosting on the cake. We have customer input from
another municipal utility that’s offering these services. We got information about what they like about the other municipal utility service and reasons why they took the business to the municipal utility from their previous provider. A lot of information with regard to why they would switch over to a municipal utility.
Our consultant has been in the industry for quite a while and he’s been doing this particular aspect, working with Munis, for I believe 3 years, with a lot of experience with TCI and @Home and others before that. He has a lot of experience, which he draws upon in building his business case. He has spent a lot of years using and fine-tuning the
model. Basically, the basis of the business case is a pro-forma analysis of economics and
risk. And I already mentioned, the economics of delivery of the 3 services. Beecham: Blake, excuse me, before you go on. You may cover this later, in this case, you can hold my question, but a lot of the economics are based on the results of the
survey which give you guidance in terms of market penetration, and assurance and so on.
I understand the survey was quite extensive. Could you tell us more about the technique and the numbers? Heitzman: Yes, the techniques of the survey. I’ll just go from ground zero all the way up
to the top. We began by going to our Utility billing system and getting a random
selection of customers from the various zip codes so that it was represented by population in each zip code. We contacted each of these and asked them by postcard whether they wanted to answer this survey on the Internet or whether they would like to receive a hard
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copy. Those that wanted a hard copy were sent a hard copy, which they filled out and sent back and we coded them into the system. Those that chose to use the Web or the
Internet were able to do that. We had a response rate of around 1000 participants, which
is about 3 times what is necessary to do a statistical extrapolation. We took the responses and had our in-house Statistician determine the level of reliability of those responses. He gave us some response numbers, which Neil has in his report or at least a summary of those numbers that are within 95% reliability. Is that sufficient information?
Okay.
Following this business case, the next step if we decided to proceed, would be to go to a detailed business plan which would describe a citywide implementation. It would take – oh sorry, I’m getting ahead of myself. The next step after the final acceptance of the
business case would be to move into a business plan, which would look at key
assumptions in the business case and be able to talk about what we mean about that. There are certain factors that are more important variables than other variables: To refine our understanding of those so we can hone them down and even more tightly. An implementation of market strategies plan, product and service plan, staffing and
operational requirements and then a firm financial strategy on how those will be funded.
Putting meat on the bones of the business case and then actually getting down to the details of how you’re going to roll it out. That would be the next step. At this point, I would like to introduce Neil Shaw of Uptown Services who is our Consultant and has his summary of his business case and the key inputs and outcomes.
Shaw: Good evening. I’m Neil Shaw with Uptown Services. We were hired about 3 months ago to complete the business case for Palo Alto’s Fiber to the Home project. As Blake explained what the business case was all about, they hired us because we specialize in working with public power utilities interested in getting into telecommunications.
Over the past 4 years, we’ve worked with – I think about 28 now – public power utilities
that have wanted to explore or want to run numbers on business cases for entering all different types of sources of providing telecommunication ventures; from providing fiber – similar to what Palo Alto is doing now – to starting up a wireless Internet company, to going out and building a full blown Fiber to the Home system to provide a video, voice
and data services.
Let’s just go through the outline of what I want to talk about tonight and then we can get to questions and answers, if you’re interested in getting more information. First thing I’d like to do is talk about public power activities in telecommunications – just to give you a
feel for the breadth and depth of the different activities that are going on with the public
power community. I’ll talk about key business plan assumptions, and then get into the results of our modeling activities, and then wrap up with questions. The public power community is made up of around 2000 utilities that are owned by
municipalities or government agencies. This does not include rural electric cooperatives.
Out of that 2000 figure, 1500 are members of the American Public Power Association, which publishes a directory that lists under a separate heading the number of utilities offering some type of telecommunications services or deploying some type of
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telecommunications capabilities. That typically falls under two different categories. One would be external services; services that are offered either in a wholesale or resale
fashion. You’ll see those listed. We’ve got close to 100 utilities providing cable TV
service, almost 60 providing cable modem service or some type of DSL service and so on down to 103 Internet Service Providers, which are primarily dial-up players. And there’s even almost 30 doing local telephone. So you can see, there’s a great number of public power utilities that over the past 5-7 years have really come on strong in meeting the
needs of the community with these retail and wholesale services.
Now on the internal side, of course, of the 400 currently doing something in telecom, many of them are doing it for their own internal purposes to control their electric or water system or provide their own internal voice or automatic metering capabilities.
If Palo Alto were to go forward with this kind of a project, they wouldn’t be blazing the trail necessarily in the area of providing these services, but more on the technical front. What I’d like to do now is talk about the service sets we’ve modeled in the business case.
Qualifying this by saying these are planning service sets and planning prices that we used
that we think are going to be the most probable scenarios for the case. The first will be video and Internet services – the City will provide retail video and retail internet services with the idea that the City will be able to come to the table using the Fiber to the Home system to provide higher quality at a better value. That will be defined as more reliable,
better value in terms of price, with service and support that’s unmatched in the
community. I think research has already shown that relative to other providers. In terms of cable television services specifically we listed prices here just to be upfront about what we’ve put in the business case. But the pricing is really going to depend on
what are the competitive levels at the given time and what types of channel line-ups are
actually going to be put out at the time of deployment. In this case, we’re targeting pricing at or 10% below the current incumbent wire line provider – which is AT&T – with the 3-tiered line-up, which is the simplest configuration, with basic cable, which would be “life line” service with just local channels. With expanded basic, you pick up
all your primary special interest channels like your ESPNs, all your news channels, things
of that nature. And your digital cable – where you get into your ultimate special interest channels. Obviously AT&T’s pricing range is anywhere from $42-82. But for modeling purposes we just did something more manageable so we can get a feel for a 3-tiered system. Of course, there will be premium channels. Now the latest round of premium
channels are all multiplexes, which means you get multiple HBOs, Cinemaxes,
Showtimes, Starz packages instead of just a single premium channel. Then of course Pay-Per-View offerings. On the Internet side, since we have the capacity in the local system to provide up to 100
megabits for access to the local system – that’s not out to the Internet, that’s not to the
Internet backbone, but internally – as we talk about the technology in a minute, we have a great amount of flexibility. The idea here is we provide tiered Internet access services at
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an equal or much better value than what you can get today because there is that flexibility.
On the telephone side, it’s much different than the video and Internet side, mainly because it’s a much more complicated bureaucratic system to manage within, given the regulatory requirements and the strict technical requirements of interconnection. It’s not our recommendation that the City provide retail telephone services and buy the type of
switching equipment that’s required and make the interconnections that’s required to be a
full-blown lifeline telephone provider. Given the location in the Bay Area and the number of competitive local exchange carriers (CLECs) that should still be around here, it would make sense that the City seek out and attempt to partner and offer access to a certain number of providers of telephone service rather than enter that business at retail
level themselves. The model here is that the City will offer access to Pacific Bell and
other competitors, Pacific Bell CLECs. There will be a process of certifying each carrier so that they’re approved. Carriers who are not financially viable are not brought on. They would connect to the City’s network via standard telephone interfaces. I don’t necessarily want to get into details of that, but the idea would be that the switching and
the interconnection to the public switch network would occur and would be the
responsibility of the individual carriers, whether it’s Pacific Bell or CLEC. The structure here is the City simply charges for access and there’s an opportunity to do revenue sharing, but it’s most likely going to be a flat rate per line charge for the local optical access for each customer. The idea would be that there would be enough for the City to
charge a telephone provider for the local line and the carriers would make their returns
mainly from custom calling feature and long distance services. Even though this is not a retail offering from the City, we’d be striving for package discounts for customers to buy multiple services on the Palo Alto system.
I know partnering and open access is a very big issue for many constituents in the City.
We’re seeking out and we’re looking at partnering very seriously. We’re currently evaluating many partnership opportunities with Pacific Bell and of course with local CLECs in the area. On the video services side, there are a lot of opportunities there in terms of partnering with an existing provider of video services which would allow the
City to purchase head-end or origination services from the City and maybe save about a
million dollars or so on investment of that capital. That’s a make-versus-buy decision: would it make sense to pay monthly for head-end services or put in capital? And that really is going to depend on if the folks that are potential partners in the Bay Area think those agreements can pay out. There are also some national video providers that are
using some very advanced digital technologies and Ethernet technologies to bring
complete digital video line-ups nationwide. We’re also discussing opportunities with them as well. There is very likely certainly some low hanging fruit on the 3rd Party ISP side. It’s very
likely that the City will certify ISPs to ride the local network in an open access model.
Just because we didn’t model that in the business case doesn’t necessarily mean that that may not be more economically viable or more qualitatively appealing as the end game, especially given first of all, the location or the proximity of PAIX obviously, and then the
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connection via dark fiber. PAIX being the Palo Alto Internet Exchange. It’s a couple blocks from here and it’s a major point of interconnection for anyone who wants to do
anything on the Internet or with high-speed data in the Bay Area. There’s also an
opportunity when we’re talking about the market share available on Earthlink within their dial-up base – they have a 46% share. So to give up any opportunity to pull those folks over to the broadband system, if in fact they like their relationship with AOL or Earthlink, it only makes sense to discuss how we can go about developing an open access
system and bringing in some partners. Discussions are ongoing until it’s fully developed
and we’re able to tie-off what this open access arrangement is going to look like. In terms of staffing, this is a work chart. It goes from 15 people in the first year up to close to 21 in the 5th year. Where we have 6 to 9, 6 represents year 1 numbers and 9
represents year 5 numbers. The term “General Manager” may be a misnomer in terms of
how the staffing may actually line up, but the General Manager still applies to that person’s function in that they have P&L responsibilities for this business and basically the buck stops with that person. Their direct reports will be Marketing, Field Service and the Field Service Supervisor would also be referred to as the Chief Technician and
Customer Service Department. For technical staff, we’ll be looking at Field Technicians
that would be responsible for network maintenance and service and field service at customer locations. The Data Technician would be equivalent to the systems administrator to handle all the back office systems, and the Head-End Technician would be responsible for managing the analog and digital portions of the video network at the
Head-End. The Customer Service Reps – there’s a separate line item for sales and
marketing – the Customer Service Reps would primarily be responsible for customer care and very high-level helpdesk functions. The idea here is that we’ve got 15 people, which may or may not seem like a lot, but we’re talking about a fairly small system that’s going to go through some very heavy peak periods. In addition to contracting during those peak
periods, we’re going to have to have the mentality within this group that it’s all for one
and one for all. So the Data Technician or Head-End Technician might have to pull off and get on the phone or take a call, that sort of thing. An organization this small doesn’t have the opportunity to really get into a functional “silo” type mentality. Everyone needs to work together and be able to back each other up.
Network modeling assumptions. As Blake said, Peregrine Communications was brought in to conduct an engineering analysis. After having met with the City’s Fiber to the Home Team to discuss requirements and evaluating all leading Fiber to the Home vendor solutions, it recommended a Wave 7 Optics solution for the preliminary design and cost
estimation. Of course this doesn’t mean that Wave 7 Optics has a long-term lock on
deployment. It just means that something had to be selected at that time and they were the best one given the considerations and given the requirements of the Palo Alto situation. In terms of a Wave 7 Optics solution, we didn’t want this to be a technical discussion tonight and if you want to get into more of the technical items, we can refer
you to the right people. What we looked at here is we put an active node or active site –
which is really equivalent to a few amplifier casings (I’m not sure of the dimensions but we’re not talking about an eyesore presence here) but each active site will serve 288 homes. These node sizes are set up such that if the Wave 7 architecture wasn’t ultimately
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selected, that the model will still hold up in terms of other architectures that use multiples of 32 or 24 in terms of their node sizing. So 288 turned out to be the ultimate size in
terms of interchangeability of different vendor solutions. The Wave 7 has capability to
deliver full analog and digital video, configurable with a minimum of 1 gigabit full duplex to and from each node with the ability to go up to 4 gigabits full duplex within the same node and that’s...I’m sorry. The 288 homes configuration when it’s fully built out will have 3 nodes, or 3 96-home nodes, and each one of these 96-home nodes could
carry up to 4 gigabits full duplex.
We’re talking about an extremely high capacity system; something that goes beyond what most people would ever need. When we talk about full duplex, we mean 1megabit to the node and 1 megabit from the node so there’s no sharing in that capacity. It’s a 2 Fiber
connection. Now on the home network interface, it’s served by 1 Fiber from that node
and it’s a 100-megabit optical connection. In terms of the construction budgets that we used and the first subscriber numbers that we used, it’s around $1000 per home passed per initial construction and you have to build past every home to (inaudible) your cable stakes. You have to build up past every home and that’s $1045 per home. Then for
every subscriber that you sign up, the cost of running from the service pole to the home
with those materials and placing the unit – what is called a gateway – at the side of the house and connecting that to power and doing all the things that’s required to run the lines over to that gateway, we’re looking at $1138.
Some more key assumptions. Given the scale of this operation, it’s really critical that the
City not bring on 20 Sales people. I may be exaggerating there, but there are certain functions that are going to be very taxed in the initial start up phases and then will die off and will be able to be self served over the rest of the plan period. Three of those are Direct Marketing and Advertising. Those are typically outsourced to a creative agency
anyway and those will be managed by the Marketing/PR Manager. Inbound telesales;
there’s going to be a high volume of sales in the initial period given the number of customers that we project to be signing on and we don’t envision outbound telemarketing. Very few municipalities agree with that – but we should be able to drive a lot of sales activities to the appropriate inbound telesales channel. Subscriber
installations – defined as once the network is constructed in a neighborhood, the process
of rolling a truck, hooking the fiber drop up to the network cable and bringing that fiber to the home, placing the gateway on the home and running a data drop, if that’s required, which is twisting a pair of wiring to the home – that’s all going to be contracted, because that spike in demand is going to go on for 2 to 3 to 4 years. The Field Techs will
eventually be able to take that on, but it doesn’t make sense to bring on 20 installers and
have them on the City’s payroll, so it’s better to contract that. The next thing is Financing. This is a little more complicated. It’s important to understand how this type of thing would be financed. If and when the City were to go to
bond for this type of a project, it leaves fairly strict limitations on your ability to use bond
proceeds to fund operating losses or any operating expenses. So what we’re doing here and the table below shows that you’re going to raise money or draw it down on moneys based on your capital expenditures. And your capital expenditures are primarily in 3
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categories. Of course you’ve got vehicles and some other items in here as well. You’ve got network construction, which is the cost to build a network past every home and
business in the community. That’s $1045 per home passed. There’s fixed equipment,
which includes all of your Head-End capital and all of your operational support system, platforms and things of that nature. Then you’ve got your subscriber equipment, which are your portals and your gateways. When you look at your totals, we look at the first year is $16.5 million, these are in millions, then $26.4 million and then $6.7 million.
What we do in the first two years, we use an instrument called a Bond Anticipation Note.
The difference between a Bond Anticipation Note and an actual Long Term Bond is that with the Bond Anticipation Note, or BAN, you’re allowed to borrow the money in a short-term manner and only pay interest on that money, so you don’t have to make principal payments. But you can only do that for 2 or 3 years, depending on the state. So
the idea here is we’ll draw down BANs for the first 2 years for a total $43.1 million and
we’ll take out the last $6.8 million that’s required in that 3rd year and roll it all into a 20 year bond. The City would be required to fund all the negative cash flows from operations and financing using its own cash. We’ll come back to the outcomes. We’ll come back to the performance of the business case in a slide or two.
Market penetration. We compiled the penetration estimates from several sources. We’ve talked about the primary research and other municipal utility deployments. What we’ve done is taken the, primarily, we looked at the market research which we believe to have very sound adoption factors to come up with the expected penetration scenario for basic
telephone, Internet access and basic cable. And this is actually a little bit more
conservative. We took the penetration expectations and the adoption expectations and moved those out to the 5th year and grew to that over the first 4 years. You can see for Basic Telephone, we’re looking at going back 10 to 25%, Internet Access going from 30 to 53%, and Basic Cable going from 30 to 38%. There’s always a worst-case scenario.
We always run those numbers for our clients because you want to know what would
happen if the wheels come off of this, what would happen in terms of my exposure. We run the worst case scenarios as such; telephone going from 5 to 15%, Internet access going from 20 to 25% and basic cable going from 20 to 25%. Again, we also cross check these numbers with other municipal deployments that we’ve had experience with. We
believe these to be reasonable.
When we run the case, we’ll talk about the two Fiber to the Home cases first, and then describe the “traditional” cable case – that’s something that comes up quite often. When somebody is looking at Fiber to the Home, there’s always the issue of “why don’t you
just build the network like AT&T has?” That’s typically referred to as a “Hybrid Fiber
Coax” (HFC) network which combines Fiber fairly deep into neighborhood, but uses Coax in the last several thousand feet. When we look at the unleveraged summary – which is defined as a summary where it’s
straight cash, no financing, no borrowing – when we look at straight cash flow summary,
the expected and worst cases both go positive in the 4th year from a cash flow perspective. In that 4th year, the cash flow is pretty healthy on the expected case and about a little more than half that with the worst case. Years to break even is 10 and 15
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with the worst case. It just barely breaks even with $2.5 million in cash in the 15th year with the worst case. But by the 15th year with the expected case, we’re up to $45 million
in cash – which means that after you pay back the initial cash investment that you poured
out over the first 3 years, and 15 years into it, you may need to start plowing money back into the network with network upgrades and things like that. But you’ve got $45 million dollars in cash reserves to potentially be doing technology upgrades.
We’re bonding the projects for 20 years because we expect that this technology is going
to last that long and that technology upgrades will be funded on a justified basis on products that are made possible by those upgrades. In terms of bonding summary, which is where we’re borrowing money to fund these activities, borrowing money through revenue bonds. 20-year revenue bonds starting the 3rd year like we looked at earlier, over
a 20-year period, you’re looking at the bond being roughly $49.9 million on the expected
case and $42.1 million on the worst case. Now you might say, “why am I bonding less on the worst case?” Well the worst case is lower penetration – which means fewer number of those $1100 gateways. The total utility-provided cash, which is the amount of money that would be required to fund negative operating income and negative cash flows
from operations, is $2.9 million over the first 2 years in the expected case. It goes to $5.2
million because your losses go on for longer. Cumulative cash not including the utility-provided cash grows to very healthy amounts in the 10th and 15th years in the expected case. (Inaudible) in the worst case, but then in the worst case, your cumulative cash is positive and it’s growing from the 10th through the 15th year and that’s after you cover
your finances both principal and interest. So it’s self-funding and the bond will be paid
off. But it will take a little longer given the penetration being lagging. Net Cash is defined. Since it’s hard to define a breakeven when you’re looking at a bonding summary because you accumulate cash, you’re borrowing enough to keep your
cash balances positive, a term called Net Cash is defined as your cumulative cash balance
minus the balance on your bond. So by the 10th year, the $22.9 million is not enough to cover your bond because apparently the bond is somewhere in the order of $22.9 minus $12.6 and then by the 15th year, you have enough to cover your bond and have $25.3 million left over. So your years to early bond payoff is 12 years- you have enough to
cover within 12 years, and in the worst case, it’s probably going to take you 20 years to
pay off that bond and break even from a cumulative cash perspective. The important part here is when your Net Cash in the 15th year is $25.3 million, that means you have that in reserve to do technology upgrades if you need to, so you’re not constantly on the margin in terms of your operating cash flow.
Now one of the very important things, given the business case includes well over 150 independent variables, is to understand the sensitivity and impact that any given input in the business case has on the outcomes that you’re most concerned about. This table helps define, as each independent variable goes from worst to best case, how does that impact
an outcome that’s very important in the model? Since Net Cash goes positive in year 12,
it means you can pay off your bond early in year 12 if you chose to. So let’s define that as the “breakeven year” and let’s see how that Net Cash amount of $1.3 million is impacted as we change each independent variable from best to worst case, or each input
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into the model from best to worst case. What we do is run the model from best to worst case for each variable and record the value for Net Cash for the worst and the best. Then
we calculate of that outcome which is basically the best minus the worst case value.
The most sensitive value in the case as it relates to Net Cash in year 12 is (no surprise) the Internet monthly price, the residential Internet monthly price. The average is expected to be in the $40 range. If it drops as much as $5 on average we’re going to drop
over $6 million, or over $8 million, or $7 million out of the plan. But if we can squeeze
another $4 out, we’ll be popping up another 7. So that is a $16.8 million range and that tips us off to say, well that’s something that needs to be highlighted and drilled down very deeply in the business planning process.
The 2nd most sensitive variable is the construction cost per meter passed. We’ll talk
about it being $1045. If we can chip $100 or $95 off of that, we can add another $4 million to the bottom line. But if it costs us more – you can see that this is not necessarily symmetrical, and we applied some numbers here besides just a plus or minus 10 variable – but if it goes up by as much as $200, then we’d be about $8 million lower
than what we thought we’d be. We spend a lot of time to make sure that this construction
estimate is very very accurate before we enter into any bonding or any type of construction project, finalize the business plan. Internet penetration in the 5th year, obviously that is a big piece. Bond rate is a big piece.
It’s actually 4.5 % to 5.5% and then the expanded basic price. You can see that the most
sensitive variable creates the $16.8 million range, and the 5th most sensitive is only $5 million. So we’re able to provide a fair level of visibility into the variability of the model.
Another key outcome here is to understand which of these are controllable – within our
ability to influence and which ones are out of our ability to influence. Things we need to get a handle on and do a gut check on: Can we take it if it varies as much as we think it might? On the controllable side, you’re going to know what your bond rate is. You’re going to know what your budget is. You’re going to pay what is necessary to figure out
what your budget is. And you’re going to fix the price and do research on that price level
and you’re going to do a lot of work to make sure that it’s the right price. The only problem is even if you fix the price, the penetration is going to be dependent on that and several other factors. That’s why we really spend a lot of time understanding what can go wrong, and if things go wrong, can we suck it up and make this case work?
I didn’t go over the HFC case did I? I blew right by that. So we can come back to that if need be. There’s a lot of risk factors and ways to mitigate risk. But in terms of technology
obsolescence, we’re looking at a $50 million project and some might say, well, you’re
putting in $50 million worth of gear, what happens if in 5 or 10 years, if all of a sudden that’s obviated by some new technology and you have to go ahead and replace it? Or what about wireless? Wireless always comes up as something that all of a sudden will
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become better than fiber. So we just ask straight out, “will future wireless technology improvements eclipse fiber capabilities?” And the answer is no. Wireless simply doesn’t
have the capacity of fiber. It has its applications and it does very well with satellite. It
does very well with mobile applications. But it’s simply not as dependable as fiber. And there may even be some health risks involved with wireless, when you start getting a lot of high-powered microwave transmissions in residential areas. The other piece as it relates to technology obsolescence is that the business case builds significant cash
reserves for technology replacement. This isn’t a case where you’re just eking by in 15
years and you breath a sigh of relief when your bond is paid off and then all of a sudden, you’re starting over. You’re talking about significant reserves being built – and that’s in addition to a major technology replacement budget within the business case on the order of $500,000 a year.
In terms of competitive threats, the notion came up that satellite and cable providers have a major programming buying advantage. That’s actually a myth. The City will purchase most programming from the national cable television cooperative who represents the total number of membership that puts it in the top 10 cable systems in the United States in
terms of buying power. Most municipal systems buy from that coop as well. While
AT&T may give a better price they have to be careful about harming themselves and their affiliates with advantages. So the pricing difference is actually not material. As far as competitive threats, no other network has the capacity of an all fiber system. There’s an article in the paper today about digital television and the fact that broadcasters, the
cable companies, the consumer electronic companies are all fighting over digital
television and having to add digital tuners to TVs. The cable companies are saying we’ll agree to simulcast digital broadcast signals, but that’s about it. Well, there are many challenges they face on their systems until they get to a very high capacity system. But with a fiber system you don’t have those limitations. Also with the fiber system, you are
able to provide full duplex, full 2-way, not asymmetric (which is lots of stuff down, but
not much stuff up). You have the ability to do the types of interactive applications like video conferencing and things like that, which we don’t have in the business case because it’s difficult to quantify. But 5 or 10 years down the road when you start to look at those type of things, Fiber to the Home system is going to be the only one that’s going to be
able to provide for those advanced applications.
I know that was fast and I’m really sorry that you had to look at my back while I was talking. I’d like to open it up to answer questions. I’m sorry. It’s not my role to do that. I’m done.
(Applause from audience) Ulrich: I think that was a first, wasn’t it Mr. Chairman, a round of applause?
Carlson: Yes, yes it is. It’s an interesting subject.
Ulrich: May I make just a couple of other comments and observations from Staff’s standpoint first, and then as you wish to follow forward. Obviously the devil’s in the
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details of all of this and I would hope people have an opportunity to ask those questions this evening. Also keep in mind that we’ve had a very top-notch consultant that has
looked at all of this, and that has had a number of meetings with members of the
Advisory Committee. The consultant is here to do what we ask him to do and what we pay for. But keep in mind that the consultant eventually leaves and we are in a position of living with the outcome, as we expect. So I would hope that everybody asks questions and make sure we get our full time this evening from Neil. Also I need to point out that
the legal analysis of this venture has not been completely evaluated. More work needs to
be done in that area by our internal legal staff. We also would expect that this plan, if we go forward with it, would be subject to the same type of negotiations of a franchise agreement with the City of Palo Alto as anyone else that wanted to get into this kind of business. We would not have a preferential treatment, so it’s fair to everyone who comes
to Palo Alto that wants to get into this business. There are plenty of benefits of course by
having the City of Palo Alto Utilities be in this business – that was articulated. But I wanted to bring that up as a point. There was not a detailed mention of the potential benefits of using this system for very key uses on the part of Utilities. There was a mention of automated meter reading. While that isn’t necessarily economically viable at
this point, there are a number of other services. By having a utility fiber system in place,
it would allow us to offer services that we haven’t even thought of, that would add to the benefit of our customers. I just wanted to bring up those things. I think it was a very good presentation. and turn it back to you Mr. Carlson and how you’d like to proceed.
Carlson: What I’d like to do, if it’s okay with the Commissioners, is to have the public
members put their comments in right now. I know we have a great many questions. I certainly do and I’m sure the many of rest of you do. I just put these in alphabetical order, so if you have something new to say, we’re interested in hearing from you. If you’re all saying the same thing, we’ve got time for other things. Mr. Cavender, Mr. Forte, Mr.
Hardy are the first three. Please, there’s a 3-minute time limit here. So you can go ahead
and give your name and address, and state your business connections to this industry if any. Mr. George Cavender, 989 Commercial Street, Palo Alto. Complimented Neil Shaw on
presentation. Works in telecommunications industry at listed address. Has looked into
building this type of network and has a lot of information to share. Suggests that Utilities look at all the numbers and challenge them. Spoke about possible pitfall of raising taxes. Concerned about escalating costs that the City may have to pay for later.
Carlson: Thank you. Mr. Forte is next and that would be followed by Mr. Hardy. So if
you can be ready to go right away, we can get through these. Mr. Sanford Forte, 280 College Avenue, Palo Alto 94306. Resident of Palo Alto. Telophase cofounder. Concerned about installing Fiber in earthquake zone. Talked
about wireless technology compared to Fiber. Suggests need to be careful and suggests
the possibility of scaling and preferability of starting with what works (wireless).
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Carlson: Thank you. Mr. Hardy. And after Mr. Hardy will be Tom Lyon. If you can just come up here and sit, so you can go up right away.
Mr. Ralph E. Hardy, 3062 Emerson Street, Palo Alto 94306. His concerns and questions were answered in the presentation. Carlson: Thank you.
Tom Lyon, 1400 Edgewood Drive, Palo Alto. Self employed resident. Has 2 questions. Is business included when you say Fiber to the Home? I’m coming in late. <Shaw: Yes> In the comparisons with the traditional cable roll out, was that in comparing to a greenfield cable or a second-system cable? <Shaw: This is Neil Shaw. That was
compared to if Palo Alto were to build a traditional hybrid fiber coax system instead of
Fiber to the Home. Everything else is the same except the technology. > Well the Fiber system had best and worst case, but the HFCable didn’t. <Shaw: That was expected. We didn’t do a worst case for...> But expected with the second system as opposed to expected with when somebody rolls out like a municipality as a first system? <Shaw:
Nobody can have a first system anymore. Everyone’s an over-builder now. It’s a second
system or an overbuild situation just like the Fiber to the Home system would be, so the business structure is the same. > I just wanted to make sure. It didn’t say anything about penetration rates. Mr. Lyon also spoke about the City aggregating purchasing power for Internet bandwidth.
Carlson: Thank you very much. Next is Mr. Harris followed by Nicholas Koras. Mr. David Harris, 455 Margarita Avenue, Palo Alto 94306. Has 2 questions. A technical thing under key business drivers, you had both the expected and the best penetration for
data services at 53%. Both best and expected are the same? <Shaw: That’s because the
research projected 53% with standard option characteristics, but I didn’t want to take it above that just because we felt that that was already the maximum. > And we have a figure that had floated around the newspapers of 85% penetration of ISPs or some sort of another computer connection now for Palo Alto homes? <Shaw: It’s very high, but I
don’t have the numbers on me. > That’s why I’m checking it. Mr. Harris also has
concerns about the City, as an entity, delivering cable content and censorship issues and competition of ideas. Ulrich: As I pointed out earlier, we have not gone through the legal analysis on that side.
Mr. Nicholas Koras, 275 Hawthorne Avenue, #105, Palo Alto, 94301. Retired. Resident for 32 years. Commended Mr. Shaw on presentation. Concerned about what Fiber to the Home may do to taxes. Doesn’t feel Fiber is essential to him. Feels it’s too expensive. Would not be interested in paying for something that he would not use. Would prefer to
use resources and money on other City issues which he thinks is more pressing.
Carlson: Followed by Michael Eagar.
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Mr. Herb Borock, P.O. Box 632, Palo Alto. Has a question on key business drivers – the bond rate shows the same with the worst and expected case but with different dollar
amounts and it also shows in the best case, the bond rate higher rather than lower, so I’m
not sure I understand those numbers correctly as to what is there. Mr. Borock suggested that Utilities and City Council needs to include technical parameters when making decisions of this sort. Concerned about the City being an ISP and how the citizens would feel about the Government being in that role. Pointed out the issues concerning the
method of approval on issuance of bonds for Fiber to the Home – approval by Council
vote only or election needed and whether that falls under policy question or legal requirement. Carlson: Thank you Herb. Mr. Eagar followed by Ken Poulton.
Ulrich: Would you like any of these questions answered as we go along or would you like to wait until later? Carlson: I’d like to try to get through this because some of these are duplicate questions
and then if you can give a summary result, that will be more efficient. Go ahead please.
Mr. Michael Eagar, 1960 Park Blvd, Palo Alto. Represents Palo Alto Fiber Network. Pleased with business case as presented. Spoke about Technologies and feels the City would be the best to roll out new technology. Feels the City being an ISP may be a risk.
Carlson: Thank you. Mr. Poulton and then Bob Moss. Mr. Ken Poulton, 884 Los Robles Avenue, Palo Alto. Member of PA Fiber Network. Feels that Utilities staff didn’t emphasize enough that this is a new utility funded out of
Utilities capital and is repaid by users. Not a tax supported system. Spoke about
engineering details of not being dependent on a particular vendor’s equipment. Compared wireless with fiber systems. On City being an ISP, feels that more should be explored in the business plan on this issue and that City should supply the network, but let ISPs keep the service.
Carlson: Thank you. Bob Moss followed by Tom Lyon. Mr. Bob Moss, 4010 Dame, Palo Alto. Spoke about 1999 consultant study/estimates on building out system in the areas of Palo Alto, Menlo Park, EPA and Atherton. Thinks
that the City’s estimate for Fiber is high. Spoke about benefits that Fiber/high speed data
access has on businesses. Feels that Fiber is a good return on investment for the City and that the capacity will be enormous. Carlson: Thank you Bob. Tom Lyon and then the next person Andy Poggio.
Tom Lyon, 1400 Edgewood Drive, Palo Alto. Reiterated benefits of system for businesses. Spoke about ISP definition and doesn’t think the City should be an ISP at the
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service level. Aggregating purchasing power of all users by the City on an Internet backbone would make system attractive.
Carlson: Andy Poggio is the last one. Mr. Andy Poggio, 2708 Gaspar Court, Palo Alto. Spoke about alternatives: HFC/Hybrid Fiber Coax and Wireless. Feels that HFC is not a good option. Believes Wireless should
be used for devices on the move and that Fiber should be used for homes, desktop
systems, etc. Has heard feedback from FTTH Trial members that Internet access has been outstanding. Feels that the City should invest in Fiber. Carlson: Thank you. Terry Andre?
Ms. Terry Andre, 5981 Vista, Palo Alto. Spoke about subscription cost of Fiber compared to DSL. Does the Fiber cost include fee to the ISP, various other entities, the video feed and CLEX or are you only speaking of one service at this point? <Shaw: The average price for the Internet revenue stream per subscriber was modeled at $40. > And
that’s the revenue stream to the City? <Shaw: Correct. That is for an all inclusive
Internet service. > So the users are going to need to spend a little bit more to get the ISP? <Shaw: With that model, the City would purchase backbone access with the PAIX and provide Internet access and email and provide those internet services portions at the $40 level price. So the $40 equates to the $49 on the DSL. > Spoke about penetration rates
and suggested the City survey how many current DSL users, as they are most likely to be
interested in Fiber. Also identified benefits of Fiber for telecommuters. Carlson: Thank you very much and the last person is Peter Allen.
Mr. Peter Allen, 1127 Hopkins, Palo Alto. Co-founder of communications company that
is the largest lessee of Dark Fiber from the City. Trial member of FTTH. Says FTTH is “awesome” and that the system is very reliable. Wants the Fiber system to be continued. States that houses in the FTTH Trial area are selling at a $200k premium because they are in the trial area.
Carlson: Thank you. Okay I assume I have many questions. Commissioners have many questions. Are there any questions unanswered Mr. Shaw or have we covered them all? Shaw: I’m sorry if I’m missing something. The financing question in the key drivers
table, as John said, we were making changes to these until the last minute. I apologize
that the bond rate variables suffered a catastrophe of formatting proportions. The 5%, the middle value should 5.0 and the best and the worst were switched, but they should be 4.5 and 5.5. Then the best and worst are switched, but you kind of get the idea there. This will all be corrected before it gets posted on the website. I’m trying to think of some
other issues. Yes, we will be building past businesses. This gear is best, and even with
the 100-megabit interface, there are small business gateways – that are different than residential gateways – that provide for those who know what T1 interfaces are. T1 interfaces, traditional telephone interfaces, so that there’s a lot of flexibility in terms of
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business application and primarily on the small to medium sized applications and that’s all I can think of right now. You can grab me after this and pull me aside if you want.
Carlson: But you still have a ways to go here. I understand. I thought we would start out with Mr. Ferguson who’s worked with the Advisory group and then go from there. Ferguson: Since I had an opportunity to participate in the Committee’s work and since
you’ve seen the Committee’s work product tonight, I agree that’s it’s a very good work
product. I don’t have too much to add. But thank you for a job well done and for putting together the extra introductory set of slides on where we are in the process. Ulrich: Mr. Chairman. It may be helpful in reference to Mr. Ferguson working on this;
you may want to mention the citizens and Committee that was put together for this so
everybody knows who was part of it. Carlson: That was what I hoped Mr. Ferguson would do since I wasn’t part of it. Why don’t you just summarize what you did Rick?
Ferguson: Let’s talk a little bit about the decision, the process and the products here. Tonight we rolled out the second of the products. The decision that we’re headed to is the decision that the Council is going to make. The decision is going to be for the City to provide some sort of step increase in broadband service to the citizens of Palo Alto. We
don’t know what the shape is going to be, going into this. I had hoped – but I truly
wasn’t convinced – that there was ever going to be a business case. I’m just delighted that the City spent the money; that we picked a good Consultant, and that a business case is out there now. In the next month, the UAC will hear this again. The next month is the perfect time for all of you and all of us to rethink the numbers here, think of the questions
we didn’t think of tonight, and send them to John and the Staff. We’ll kick it around
again either at the regular meeting in September or perhaps at a special meeting. But this is an important first look at the business case. I said we’d need to focus more on the decision the Council will make because, in the last
Council election, at least 5 of the candidates – I think all 5 of the successful candidates –
said when asked about Fiber to the Home, they wanted to see the results of the business case. So in our staff advisory committee, we tried to ensure that this was a darned good analytical effort. We can vouch for the cost realism, the believability of the market penetration numbers. As each of you and Neil commented, there’s a pretty good level of
comfort here, but it needs to be beaten up some more in public. Tonight is the night we
start out to do that. What the Council eventually does with that is going to be a choice for the Council, but we at the UAC have an important role. This is one of the most perfect applications of
this creature called the UAC: we act as the technical-economic advisory body to the
Council. Commissioner Rosenbaum had asked just recently – on the Interconnection Agreement issue – when the UAC passes along a recommendation to the Council, whether we as a Commission have really looked at the numbers. Have we pored over
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them, item by item and line by line? We had a chance to do that. Commissioner Dawes joined us in the staff committee last week or so, looking at the spreadsheet numbers. So
there’s a higher than normal level of inspection and attention and confidence to the
numbers. But we ain’t done yet. We want that business model to inform an ultimate decision by the Council. The process we’re going through – I think of it in 3 phases. The first phase was to get the
trial started. The product of that process was the build out of the wonderful test-bed in
our neighborhood. I hope the test-bed lasts too. It’s a great place for any number of people to run additional data-gathering exercises, at whatever cost. We’re in the middle phase now, where we take the results of that test-bed activity and
believable numbers from outside this city, and put them together in the form of a business
case. You saw the delivery of that draft product tonight. We also need another product, which is a more specific evaluation of what really did happen on the ground in the Community Center trial area, and we had some comments
tonight about that. We’re going to need some more information about the meaning of
bond financing; what are the options? And there will be a little political razzmatazz. It would be nice to get more speculation about what the benefits might be coming from that technology. We’re in the middle phase now and it’s been opened it to the public. Today we rolled out that product and I hope you’ll all participate.
My guess is all that public back and forth between the Utilities staff and sometimes in front of this Commission is going to last a matter of months. It would be nice if by the end of the year, this Commission and Staff are comfortable enough with the draft shape of a decision to be made by Council, that we can put it in front of the Council. I don’t
know if that’s going to happen, but it would be nice to get there. So that’s basically it.
We’re looking for an ultimate decision by the Council. We’re advisors in that process. We’re in the middle of that process. The third phase comes when we’ve framed a decision for Council to make, and various people campaign for or against that decision. I hope that will be early next year, but we’ll see.
Ulrich: You might describe the committee. Ferguson: The Committee consisted first of Utilities Staff. Staff agreed to bring in one Commissioner at the outset and one active member in the trial area, Bob Harrington.
Bern Beecham joined as the elected-official member of the committee. Most of us made
most of the meetings. They were good, roll-up-your-sleeves, technical working meetings. We talked about everything from whether or not to do pretests, to the terms and conditions and evaluation factors for hiring the consultant. I think 90+ % of the suggestions Bern or Bob or I made to the Staff were reflected in the Staff’s work. We
didn’t get everything we asked for, but mostly because time ran out. We were cracking
the whip, hoping to bring the product to you and the UAC early this year. Some people asked for the slides to be available on the website ahead of this meeting. But the only reason we couldn’t get them to you ahead of time was because the survey results came
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out of the hopper just a couple months ago; the Consultant has been working for about 2 months intensively here, and some of the last numbers came just an hour or 2 before the
meeting. So I hope you appreciate the fact that the numbers did get out today.
It really takes a month to get into those more deeply. I’m pleased with the process. It was important to let it bake – and in a nonpolitical way, give this baby a chance to be born. This business case is a good first step. There are many other questions that need to
be answered and more products to be produced. We’ll participate as committee members
as the staff opens it to us. But now it’s been opened to the public now as well, and the Commission meeting next time is the next discussion on this topic. There were several questions along the way, but I’m going to reserve any more of my
comments on this for the end of the discussion. I’m interested in hearing what the other
Commissioners have to say. I just want to make sure that the questions posed by the public – I took notes on most of them, so if any of them goes unanswered, I’ll pitch in with a final comment, Mr. Chairman. Thanks.
Carlson: Commissioner Rosenbaum had some questions.
Rosenbaum: I just have a broad question. It wasn’t clear to me where we as a Commission are headed in terms of making a recommendation. Clearly before the Council is recommended to spend $40 million, I would expect to get a report and it’s
something we can dig into? When is that going to be before us?
Ulrich: Well much of the detail of what you saw tonight is together in a draft that we received from the Consultant and that’s some of the information that Mr. Ferguson and Mr. Dawes and Mr. Beecham have had a chance to look at. So we’ll have to evaluate
how we’re going to be able to get that information out in a way that also protects the
nature of the competitive business that we’re looking at. You’re more than welcome to come over and look at whatever detail at this point and then we’ll finalize the report at a later date.
Rosenbaum: It seems to me that that’s not satisfactory. We ought to have a report that I
can take home and study it and members of the public can do the same. I don’t understand what the issue is. You’re not going to go to Council with a $45 million based on a view-foil presentation. I mean, you understand my point?
Ulrich: I do. I’m not trying to be argumentative with you. I’m just trying to tell you
where we are in the process and if you’d like to have it right now, I just thought of a way you can have it. We have not got to the point where we ready to publicize it. Obviously we would never ask Council or ask you to make a final decision without you going through all that analysis.
Rosenbaum: All right. Then maybe we ought to talk about the calendar. You talked about, what was the word, a final outtake to the UAC? Is that the word?
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Ulrich: I don’t know where that term came from. I think where we’re looking...
Rosenbaum: Next month.
Ulrich: Right. We’d like to bring it back but I need to emphasize that there is not a date we can be certain of until you’ve had a thorough opportunity to ask the kind of questions that you want and you get the kind of answers that you want. This is not a cat and mouse
game. This is an extremely important issue. We’ve spent a lot of money on this. And
obviously we want to come to a conclusion and that conclusion might be something other than a recommendation of going ahead with the project. Rosenbaum: John, the word is readout. What it says here is “Next Step: UAC final
readout September 4th”. I don’t know what a readout is, but I would think that before we
have any substantive discussion, we ought to have a report in front of us that we can look at and study and not try to figure out what’s going on. I’m a smart guy, but I’m certainly not in a position to be able to evaluate this from verbal comments and a set of “view foils”. I mean, how are we going to get there before the UAC is asked what we think of
this and need to make a recommendation to the Council?
Ulrich: Well again, I kind of sense that there’s some level of concern that there’s something being held back. I tried to state that we spent a lot of money on this report and that we need to have a certain level of information so that doesn’t become a competitive
threat from outside. Again, I would encourage you to come and look at the information.
We will then put together whatever we can in a form that can be publicized and we will clearly do that. And again, I hope I can be real clear on this, I will never ask you and I want to keep saying that because you keep implying that we want to hold something back. I can give you whatever information you’d like to have and be pleased to do that.
Dawes: Maybe I can just jump in here Dick. I did have the opportunity to attend the Advisory Committee meetings. Neil can attest to the fact that I came as a skeptic to the entire exercise, which I will go into later, incidentally.
But I have to say that I was incredibly impressed with the depth of the analysis that went
on here, and the backup that surrounds all of the assumptions. The issue you bring up is: how do you get that same benefit? How does the Council get that benefit, and how does the Citizen get that benefit? It’s an issue that John is sort of
dancing around with here. One of the real problems is that a certain amount of this data
is proprietary. It hasn’t really been addressed head-on here, but everybody knows that there’s an existing system here – there are competitors that offer services in Palo Alto. We’ve done a lot of work in finding out what makes our group tick and whether or not the City can invest $50 million in competing head-to-head with these other folks.
The issue is should we drop our drawers in front of all these folks? Tell them how their business is going and not going, how we think we can do it better, what our entire approach is? I haven’t come to an entire conclusion on how that arrangement is arrived
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at. But to put together a 200-page report – with our entire data-dump on your desk and everyone else’s – does give pause. As to exactly what our position should be in this
regard, I don’t know, John, if you sort of agree with this tenor of approach. But there’s a
balancing act here. Obviously this level of commitment needs substantial underpinning and fact analysis. I feel I’ve had a real good start on that, and you’ve got to feel you have the start and the completion, and we have to figure out how to do that. I have a lot more comments, but this was just apropos to Dick’s question.
Carlson: Dick do you have any more questions? Rosenbaum: No, but I’ll just make a final comment. I don’t find either the Staff’s response or yours, Dexter, satisfactory. Perhaps I don’t understand the proprietary
nature. I know Blake spoke of getting data from another city. Maybe something in
regards to that is proprietary. I would like to know what that other city is and what the data shows. It’s hard for me to understand why that information wouldn’t be available for everybody. So I’m not sure how we’re moving along here but I’m not prepared to make a recommendation without having a good-sized report in front of me. Meeting
individually is one thing, but my knowledge base is limited to the point where I’d really
benefit from having a discussion with everybody having the same information in front of them. I think I’ll stop there, but that’s my view on that subject. Ulrich: If I can just interject. I would like very much to provide you with whatever,
again, that would give you comfort. I don’t want any implication that Staff is trying to
hold anything back. We’ve spent a considerable amount of money on this investigation and you may want more information before you’re satisfied to make a recommendation to City Council and we’ll endeavor in any way possible to do that. I’ll take my request back and see what I can do about it. My only reason for pushing back is that I am an
employee of the City of Palo Alto and I have an obligation to look out for its best interest
for this particular assignment, and I’ll endeavor to do that. I would hope that tonight, since we spent a considerable amount of money on this endeavor, that you make sure that you ask, as you can, questions of our Consultants that are here at expense, included in the project, so you have benefit of what they can provide this evening. The areas where you
don’t have enough information on as you point out, we’ll endeavor to get that to you but
because of this one area that we’re talking about, I hope that will not preclude you from firing away and asking other questions that you think are appropriate. Carlson: John, let me try to cut through this. I agree very much with Dick Rosenbaum
that we need a major substantive document to look at and to distribute to the public, a 50
or 100-page document. We do not need your entire spreadsheet, which I know is many hundreds of rows long and you’ve got many parameters, some of which may be proprietary. But we need a major report. This is a huge decision for the City. There are many ramifications beyond the economics, and I certainly expect to see that kind of
report before we make a decision. I understand that some of this may be proprietary and
that’s fine. But we really need a major report that I hope will answer the questions we had tonight, and the questions the audience has brought up, because I have a great many
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questions and I’m sure there are others. George, you’re the only person who hasn’t said anything. Do you want to put your questions in here?
Bechtel: I agree with the sentiments of Dick that there’s not enough information. As a matter of fact, some of you may know that before the meeting I expressed my disappointment of not getting more. But now that I understand a little bit about the process, let me tell you about what I think we need. The next meeting is not going to be a
decision-making meeting. I will not be able to make a decision if we spend 3 hours on it
next month. But let me give you some questions or maybe some homework on some of the questions that we need to look at. First of all, the trial was supposed to be a marketing study. It was not necessarily going
to be a study of feasibility of technology solely. It was not going to be an exercise of
what our costs are going to be. It was going to be a marketing study – at least that’s what I recall. So out of that we were supposed to get out from our residents, the people that are in the trial, many people wanted to be in the trial, but we were supposed to get innovative ideas on how to use of Fiber other than the normal things of video, data and
voice. Tonight – except from Mr. Allen, the only person who spoke who was part of the
trial – we heard nothing from those residents who were part of this trial. It’s absolutely mandatory that we get some data from what’s going on there. Not necessarily from our reliability. We’ve heard great reports of it. I have friends who have been part of it and they’ve been very happy also, but I have heard yet nothing that this was a marketing
success and we need that before we move ahead. That’s what the purpose of the trial
was to begin with. We’ve got some great numbers and I appreciate the proprietary nature of the cost and so on, but those numbers are available from many other systems. There’s nothing unique
about what we saw tonight. Everyone knew that it was a $1000 a home for the
infrastructure, a $1000 for the customer premise equipment and so on. Those numbers are readily available. You multiply them out. That’s not the issue. The issue is: Is this really going to be something that we can invest any kind of money in because it may be a success at some point in the future. So enough of my soapbox on that part.
I’d like to see more marketing data. I’d like to see the results of the survey. I’d like to see results of what questions were asked, what price points were asked. I know that’s proprietary, but for me to make some kind of a decision, I’d really like to know what people in this town said. We had some good input tonight and I heard a number of
people express concerns over whether they would even use the system, and whether or
not it would cause us to raise taxes. There are some regulatory issues; we haven’t discussed that. We have yet to find out from our City Attorney on what we can do in the way of regulatory issues. Can we deliver video in competition? What are the consequences of us opening another franchise with AT&T being present in the City? We
have not heard anything about that. We haven’t even heard what the benefit is of a
municipality would have in this case. We haven’t heard anything about the use of our dark fiber. Does that reduce our cost therefore putting us at an advantage? We heard nothing about that. We all know that our dark fiber is having a tough time selling and we
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know that there is going to be a lull in the market probably for another couple of years. That’s going to have a big impact. We haven’t discussed what possibility we can do to
spread our cost with our neighbors. Could be overlay of existing cable coop franchise
territory, provide an extended base, so there are a number of issues in dealing with our neighbors that we can ask. These are just a few of the questions that I would have before I would seriously consider taking this to the Council with a recommendation of yay or nay on it.
Carlson: Dexter, you had some questions. Dawes: Yes. I wanted to elaborate on my first comment about skepticism. I’ve always felt that this particular endeavor was a “build it and they will come” kind of an approach;
that it was going to be the biggest, the fastest. Clearly the data shown here – we have
100-megabit service going to the home, but only 1-megabit glass fiber within the home – indicates there will be some that will actually connect up inside the house to make available to the entire capacity. But it certainly seems as though the bulk of the people will have vastly less ability to use this big pipe, unless they do something about this in the
future. Also as a DSL user, I find that 95% of the time it meets my needs. The addition
of huge amounts of data capacity – just as an active business user I’m on the internet probably 3 to 4 hours a day – just wasn’t a big deal for me. I love it, but I don’t need it. If it was less money, I certainly can be persuaded – there’s no doubt that about it. As I work this over in my mind, I came to the point: the gentleman who talked about needing
it, but not paying taxes on it, is absolutely right.
One of our duties is not only to provide an advanced service to our citizens, which could be a boon to home businesses, to small businesses. The idea that it might even escalate the home prices in Palo Alto is all very appropriate.
I came to the realization that if we’re going to do something, we shouldn’t just do a “me too” system against AT&T. That makes very little sense to have a situation of selling against a commercial competitor. If we’re going to do anything, we’re going to have to do it a step ahead of the current competition. With the very important proviso that our
risk has to be absolutely minimized. It can’t be put down to the vanishing point of zero.
That’s never going to happen. We have to figure out a business case, where the risk of having a taxpayer bailout is virtually nil. We have to keep in mind here that probably there’s not a venture capitalist in the
Peninsula that would say that this is something that the City should do. I think they’re
right because the potential pay off in terms of profits and escalation in value is pretty remote – although I have to add that the Cable Coop has had a difficult enough time as it had, and ended up by selling out at a very huge profit. With all the troubles they had, they were able to set up a $16 million foundation for public access for the future. We
have to minimize the financial risks. The bonds that are contemplated here, I want to
emphasize, very strongly are revenue bonds secured by the revenue system. They are not general obligation bonds. They are ones that look to the revenues of the system for repayment. Dick, I see, has his arm up.
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Rosenbaum: I was just wondering what revenue system you were referring to, the
electrical system or the telecommunications system?
Dawes: It’s going to be the utilities system, so there will be some crossover, as you know, and that is a potential issue. Lastly, 2 miscellaneous items. There was a big brouhaha several years ago about unsightliness of the Cable Coop infrastructure and
domes on people’s lawns. We were assured that the vaults will be fully under-grounded
and there will not be an eyesore issue. The second is I think the name is lousy and that we ought to relabel it the Palo Alto Telecommunications Initiative, or PATI, or something like that. FTTH designates homes and not businesses. It doesn’t say it is a telecommunications initiative, which it is. Image is important here, and we should
rename this as we go along. Thank you.
Carlson: I have both comments and questions. First of all, this is a very exciting thing. This is one of the biggest decisions that this City is going to make in the next several years. I’m afraid I’ve had to say that a couple times in the last couple years – and it’s
been those kind of years – but this is not a panic “what are we going to do about this
disaster that’s suddenly facing us?” situation. This is a long-term decision. We have some time to look at this one. We need to look at it with a great deal of depth. Now I’m a consultant and I want to congratulate this Consultant. This is a really solid
job. You’ve got the guts of the basics I want to see that embodied in a report that, if
people want to, can really pour into and really look at and really get comfortable with. So you have a ways to go with that. That kind of report has got to include the details of our experiment. How many homes did we go by? What did it cost? How many participated? With what kind of service? At what level? What did they pay?
I want to see the text of that survey. I’m an economist, professionally trained to distrust surveys. I know how difficult they are. I’ve dealt with dozens of them in my life and all too frequently, the answer you get, is what the respondent thinks you want to hear, which is often times real different from how they actually spend real money from out of their
own pocket. It’s a problem. I want to see the full results of that survey.
I want to see a great deal of detail and who else has actually tried this with more than a few weeks of experience. I know we’ve got some significant great experience over there in Alameda. Exactly what was their experience? What penetration did they reach, in
what time, under what circumstances? Is anybody, I don’t think anybody has done a 3-
way system. If they have, I’d like to hear about it. I think we will be the first 3-way Fiber to the Home system. If we’re not, has anybody else tried it and for how long? I’d like a review of the commercial experience here. Some of the largest corporations in the country said they were going to do this; AT&T obviously being high on the list and AOL
and a bunch of others. They clearly failed. Why did they fail and why do we think we
can be successful where these organizations that are 100+ times larger than we are, why we think we can be successful when they clearly failed? If these numbers are so good,
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why isn’t the private sector stepping into this one? There are all these fundamental basic commercial questions.
This appears to be a very substantial fixed cost system. For the risk from the City’s perspective is that you spend all of the $50 million ahead of time. It’s 50 now, not 45, but it could easily be 55 or 60. And then you see who comes in. What really is the phasing here? How much of this can be phased? If we’re not getting the penetration that
we’re hoping for in the first year or two, are there phase in stopping points here where we
don’t have to risk all that money up front? The problem with this kind of system, it’s very much like building railroads. You put all the money up ahead and then you see who comes. In the 19th century, thank God for foolish British investors who lost everything in paying for the vast but ultimately wonderful railroad system this country has – but the
great majority of them lost most of their investment. It is that fixed, way up-front
investment before you really know how much we’ll make is the fundamental risk here – is there any way to control that? I’m afraid we’ll need all 3 systems here. We’ll need money from the video and some
money from the telephones and some money from the Internet. I do not believe this
system flies if any one of those fails. Certainly if two of those fails, we’re in trouble. If you’re talking about something like video, exactly how does a City run a video system with many channels? I want to be there the first time when the City has to vote on whether we should have the Playboy Channel. I happen to have a satellite and I’ve got
200 channels that comes through this little box that I take back and forth to Lake Tahoe
with me. It cost $40 a month for 200 channels. It’s very reliable, crystal clear. My neighbors all hate the local cable company but everyone I know loves their satellite systems, so you’re not just competing with cable.
Everybody I know hates PacBell right now. My secretary hates them. I hate them. My
partners hate them. My wife hates them. I think you’re getting some of that in your surveys, but that’s got to be a temporary market opening. They’ve got to get their act together sometime, one would think. I really mean it when I say I hate them. It works fine for two months and then the whole damn thing goes down and nobody can tell you
why and it’s just maddening. The characteristics of that – is there a special market
opening that won’t be here two or three years from now? Are we a of special circumstance? How can we handle the service needs? This is a service business. I would like outside
investors that are in the cable business that aren’t competing here to help us and tell us
why they think it would work or not work. I think none of us have, there’s only one person who might have the experience in this and even there, I understand that there were, what, 28? In the communities you’ve consulted with, did you say no to any of those?
Shaw: We recommend about 50% go forward.
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Carlson: That makes me feel much better, because in the electric power business, it’s more like 100%. They always say yes, because they like to do the work and float the
bonds.
Okay, 50% makes me feel really much better. There must be some that haven’t worked out there. I’d like to find out what community tried this and it didn’t work and why. It’s not going to hurt to take a couple of months here. Then the legal side – exactly as Dick
Rosenbaum said, I think it is the Utility. We have to pledge the Utility assets, Utility
Revenues, Utility Reserves against these bonds. I don’t think we can say you only get paid off if the Telecom system works. I don’t think we can do that unless we want to sell bonds and pay 10% interest. Exactly how that works in this bonding issue, whether it’s going to be voted on or not, whether it should be voted on or not. I sure want to see some
details on that and how it fits with the other bond issues that the City is talking about.
Right now we’re talking about tens of millions of bonds this fall, which may or may not pass. I don’t think they’re going to pass. How this package works together. I love high-speed access. That’s why I hate PacBell
so much, because I lose them once in a while. Everybody who’s interested in it loves it,
but I don’t know if I’m 20% of the population or 30, 40 or 50% of the population. I’d like something better than DSL. You’re offering me something that’s 10 times faster than my DSL. Is that the kind of ballpark we’re talking about? Wonderful, because I’m on that system 5 hours a day. We need that kind of detail. We really need it and it’s
going to take more than just another meeting in September. We’re going to need some
back and forth. This is just an awful big one and it’s a very important role that this commission needs to play because I can’t imagine the pour City Council members getting into the depths that you need on this sort of thing.
Is that a long enough list of questions?
Ulrich: The expectation was that you would ask these kinds of questions. I’d be remiss if I didn’t say that I’m just a little surprised in the way you’re asking the
questions. We have tried to be responsive to the people who put up all this money, the
residents of Palo Alto, to go out and do a very thorough report. I’m convinced that much of the questions that you’ve asked, we’ve already done much of the detail on that. We can go over – particularly in the marketing side, going beyond the anecdotal on whether you like the service or not, is to actually go and do a rigorous survey of that. All of that
can be done. If you’d like to have a more detailed or a series of workshops to go through
all the detail, any way you’d like to do it, we’d be pleased to do it. We’d also be pleased – I will use different adjectives – we’d be receptive if you want to slow this process down and take several more months or go through additional amount of
analysis, whichever you’d like. We put out an RFP a number of months ago when we
selected Hometown Connections all based on a series of expectations that they would prepare, and I believe they have put all that together. You may want additional information that goes beyond what we had in the case and at the committee that you put
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together to look at would like and I’d like to have some more information about that and then we can go out and get it. You’re in the driver’s seat on this. and I would like to
make sure you feel that way about it. We are not trying to jam something down
anybody’s throat. I’m sure “Daddy” Marks had some of the same issues in 1900 when they tried to figure out what to do with the $25,000, and whether to go into the electric business or not in Palo Alto. You’ve got a lot of work to do to make sure this is comfortable. So give that kind of guidance and I’ll stay and listen to that. Again, if you
would like to have a number of additional meetings on this, just ask and we’ll do it.
Carlson: John, I just want to be clear here. I’m very happy with what’s been done so far. You probably have the answers to about 90% of what I was asking for, but I’m asking for it to be put out there in a really substantial, useful document. And I do think we need
more discussions. This, in particular, is the kind of issue that we really need to get into
depth because it’s beyond all of us. It’s way beyond the depths of everybody in this room, because nobody’s really honest-to-God done it for very long, or in many places. I’m not trying to be critical of the Staff at all. I’m just saying this one is really important and we really have to get in depth on it and we are really going to need some more time.
So George, you had a [question].
Bechtel: I was just going to suggest that, it’s on our agenda for next month, I would like to see us focus maybe on one or two issues. One might be more discussion of the marketing, the survey that you’ve done, the information. Perhaps, what also I’ve heard
tonight, what the other city’s results, other municipalities results and so on. Maybe if we,
at least I personally think that’s a good strong discussion right there. I think you did an excellent job on the finances. I didn’t mean to belittle the work that you did because I’ve done that sort of analysis before and I know all the variables you look at and I think you’ve done an excellent job. I’d also like to point out to the public for those of you who
don’t understand, those numbers on revenue are just the model that you use and that’s not
necessarily the rates that the City Council is going to authorize for the City to charge. I can see the asterisk that said those are subject to change – certainly on the infrastructure side. So could we just take just a look at the marketing data and so on? Convince us there that your penetration numbers are right. Some other samples from working with
other cities and cities you’ve not worked, with so we could take a look at that and spend
an hour or so, maybe longer, on that. Hopefully that’s within the scope of the contract that you have. Carlson: Dick, go ahead.
Rosenbaum: Let me just follow up on that one and ask a couple of questions. I doubt that you’d be able to find out the current penetration by asking AT&T and the two satellite providers how many customers they have because they probably wouldn’t tell you. But we of course used to have the Cable Coop, and that information was publicly
available. The trouble with Palo Alto of course was that our penetration rate was far
lower than other cities. Bob Moss can attest to that. One of the reasons that the Cable Coop had some of the troubles that it did have was because of the low penetration rate. The number that sticks in my mind – and Bob is here, he probably remembers better –
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was something like 48%. So when you show me data for basic cable, 38% of all customers are going to subscribe to us. That kind of leaves 10% for, assuming the
numbers haven’t changed, that leaves 10% for AT&T and the two satellite people, which
was one of my questions. So you can certainly go other cities, but for whatever reason, there’s a bias against subscribing to more television channels in Palo Alto. Let me go on and try to establish one other thing for the benefit of at least some people.
This Fiber to the Home trial was a resident driven project. A group of people got
together and was able to convince the Staff and the Council that this was a good thing to do. They were clearly interested in the very high frequency broadband. I never heard one of them say we didn’t have enough access to video. Now were you asked to consider the economics of a system that would just provide very high broadband without the
video? Does that make any sense? Could we try to establish that point?
Shaw: We were first asked to determine what services would be a logical revenue sources for the system and we ran those services into the model. Services were determined to be the 3 prevailing services that are being offered today: voice, video and
data. We ran Internet-only, high-speed data-only cases in the past for other systems.
You cannot make the system work on a data-only model. Rosenbaum: So it is clear that if this is to have any chance for success, we’ll need to do video.
Shaw: You have to do video and you need to have some sort of telephone component to bring the average revenue per subscriber up because of the high investment. Rosenbaum: All right. One small correction. You mentioned that AT&T’s basic cable
rate was $18. It’s really $12 – as somebody who subscribes to it and pays $12 a month.
You’re aware of that? Would that change any of your conclusions? Shaw: No, it wouldn’t change any conclusions. It would possibly change a couple thousand dollars. I could provide you with those numbers. But the basic – there are a
couple of published rates the lifeline rate of $12 and they have another rate of $18. But
I’m not going to argue with you. The projected penetration of expanded basic is 90%. The basic customers are going to take an expanded basic package. Rosenbaum: In some cities. All right. Those are my questions for the moment.
Shaw: First of all, the overall penetration projections are based on the research. The research clearly defines what the market share of each individual video provider are, satellite and AT&T. The market share projections are taken up in the scientifically valid study that’s been blessed by Bernard within the City, with the 95% confidence that it will
project across the entire population, not just the tech-savvy Internet folks within the City,
that it projects across the entire population, homeowners versus renters. On the projections of what are related to penetration, of expanded basic versus basic and other types of penetration projections – those are based on multiple triangulation sources based
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on the Kagan fact book which is a national database of cable television penetrations. It’s based on other systems within the West, specifically California, so we believe we’ve
triangulated on the appropriate penetration projections, albeit the $15 basic price may not
be correct. If in fact it’s not $18 but instead it’s $12, that’s my error and it would have very small impact on the overall projections in that case. Rosenbaum: Were you able to talk to someone who used to be in Cable Coop and get the
actual numbers that existed in Palo Alto?
Heitzman: The survey went out to, as I said, we had a thousand responses. These included people who had been Cable Coop and so forth. The questions that were asked were about their current service provider; their satisfaction with their current service
provider; the level of service that they’re taking; what they’re paying for that service. All
this information was laid out in the survey. It was done by a third party. It wasn’t done by Neil at all; it was a data service company that put that together. There was not a specific question of “did you have Cable Coop before?” but we talked about did they have cable service now and what were they paying for it. That was the kind of questions
that were asked.
Ulrich: There’s probably a lot more detail than we given you tonight. But we tried to tell you of the validity of it and we’d be pleased to go into more detail. What I have been reluctant in, and Mr. Rosenbaum fingered me on that, is a willingness to share all of the
data, which is in some level proprietary in a competitive business. I did commit to go
and evaluate that some more, and come back and make a recommendation. I think that point that’s still trying to be made here is that this is not anecdotal discussion among several people. The survey itself allowed for people to write down specific anecdotal information, which we accumulated. But the validity comes from the number of people,
which were only residents of Palo Alto and not someplace else. That’s where this data
comes from, so they’re not from somewhere outside the realm of influence we have on this project. Rosenbaum: Perhaps I’m not making myself clear. I’m saying there is an exact number
for the penetration that existed in Palo Alto when the Cable Coop was our provider. We
ought to be able to find out just what that number is. I’m telling you from my recollection, the last time that information was given to us, it was about 48%. Heitzman: That’s correct.
Ulrich: If we don’t have it at the tip of our tongue, it’s not that we don’t know it, and if it is available and we don’t have it, we’ll get it. But I believe we already have that part of the survey information.
Rosenbaum: Blake indicates that he had that information and it was 48%. So then the
question would be, how does that 48% correspond to the numbers you’ve assumed for the likely penetration of this new system based on the survey plus information from other cities.
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Dawes: Dick, it corresponds to systems where the current cable operator has done such a
terrible job at providing service that people move over in massive quantities, and
basically leave the incumbent operator in such large quantities that that’s basically the result. We have several systems that, there’s a gentleman experienced, I don’t remember his name, mentioning the fact that many municipal cable systems are experiencing penetration rates on the order of 30, 40, 50, 60% just because the incumbent operator was
not paying attention to the needs of the customer. So the research also tracks with similar
communities across the country. Carlson: Bern, did you have some questions? We’d love to hear from you if you’re interested.
Beecham: I don’t have questions, but I do have comments and I’m not sure if this is an appropriate time. Carlson: Please go ahead.
Beecham: It’s clear that there’s a credibility gap and it’s obvious from the questions that have been raised that that gap cuts across those that have been able to participate in the task force and those who have not. And Staff has a difficult question in front of them of how do they share information that they prefer to keep confidential with the decision
makers and with you who recommend to the Council what to do and with the public so
they understand where to go. For those of us who have worked on the team, we’ve gone through a lot of the questions that you’ve raised today, but without you knowing that, you can’t approve anything, you can’t accept anything and that is the challenge that is coming up to us.
One thing I am surprised at though. While I understand the frustration that you will have on not having the information but being asked to make a recommendation, there’s been an air of anger in some degrees that have come across here tonight and I don’t know why that happens. In my opinion, this is certainly the most professional board that we have in
the City and I hope we are able to keep it that way.
There were some other questions that came up in particular and I will respond to them. One is a question of whether or not the Council would have a Playboy Channel and how that would affect the cost. The costs, in fact, were assuming that we would not have a
Playboy Channel. It was conservative and assuming that the Council would not want to
do that, as an example, if the question was raised and there was a conservative approach taken to it. Also there is a concern that the trial that we did, this community did, was a marketing trial. My recollection was that is not correct. The trial was a technical trial. The sampling of the customers was not sufficient to make it a marketing trial. One could
not extract from that set of customers what the City as a whole might want to do and I
think that was out there. Also, some of the data that has come up and was presented to us tonight in fact similar to what was experienced elsewhere. I don’t think that belittles the fact that the trial verifies that in Palo Alto with our Utilities in fact those are the numbers
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that we believe we could achieve. And so we would not go forward if we were just using numbers from other communities. I think the trial in particular served to find out
what the difficulties were and what costs would be, and that is what came out of it.
On the survey itself, there is a lot of information in there that answers a lot of the questions. I don’t know, again, how Staff is going to work out how do they on one hand share enough so that you and others believe and agree, and can make a decision, not
necessarily agree, how does that balance against ultimately what may be in the interest in
the City to have a strategy that isn’t fully written in the public realm. I don’t know how this is going to work out yet. Regarding the business case that is come up here from what I do understand, the survey was quite detailed. The inputs that the Staff used, from what I can see, were accurate. I don’t know, on confidentiality, I don’t know why this other
city we talked to we can’t say who it is, when in fact it ought to be obvious anyways. But
there are also other communities that have been looked at and I think gave great assurance that in fact the numbers that were coming out of the survey were reasonable. Other miscellaneous items. On the question of how this might be paid for, right now
we’re not quite at that point, certainly not in my opinion. At this point, this would be
based on revenue bonds. That would be a question ultimately for the Council to decide and to make a recommendation on it. Revenue bonds do not have to be approved by the voters, by the citizens, but certainly it may be a very wise thing to do to have a referendum, perhaps for two reasons – for taking the heat off the Council for deciding to
spend if we were to spend $45-50 million and secondarily every vote of yes is a customer
who would like to sign up. So if it’s successful, it kind of stamps it in that fashion. But ultimately, there is a question of why should we do this? Dick asked other corporations who knew what they were doing have tried this and failed. I think that the numbers presented here show why they failed. Anybody looking at this from a venture capitalist
point of view would not do this. A 10 or 15 year payback doesn’t make it, in anybody’s
book. If we go ahead and do this, it has to be from the point of view that there are services and benefits otherwise going to our citizens. The question was asked what are the responses from the trial participants and that is an important part. Does this make a difference in terms of what they’re getting? If we just do it on the basis of money, which
is why the Director of Utilities was originally interested in getting more Utilities money
to the City, it doesn’t pass that test. 10 to 15 year payback is not adequate in my opinion. We do need to find out from the trial residents and others whether there is and what it is that they believe are truly the benefits they think they will get out of this.
Carlson: Is there anything else for tonight? We’ve gone about as far as we can. This is
worth more time. Dawes: I have a question, Mr. Chairman. I unfortunately will be out of the country the first week of September and so won’t be here. I was very interested in your thought of
having a double meeting in September. I would certainly welcome one where the Palo
Alto Telecommunications Initiative was weighed after like about September 10, which is the time I’m returning. I do that because of selfish interest, but I would very much like to participate and do the other business in the first meeting.
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Carlson: Go ahead Rick.
Ferguson: I agree. We’ve burned as much time as most human beings can stand on this for one night. A session dedicated to this topic, a study session, really is the right next step. A month hence, it gives Staff enough time to figure out how to divide the baby here in terms of proprietary interest and the need to get some detail in front of us. The
Commission is the perfect place to vet this issue. I’m delighted at the questions that the
other Commissioners asked tonight, because they came up in the Staff committee meetings. Commissioners, I think you will find when Staff finds a way to pull the veil away that there’s a whole lot of good data and support behind the summaries the Consultant’s presented tonight. It’s a good news story. Again it’s a tough assignment to
Staff to figure out how to shape that up. I’d vote for a study session dedicated to this
topic with a good solid 2 hours there. Carlson: I certainly agree. The question is time and I warned everybody. We have timing problems next month. The normal date would be what, the 11th?
Ulrich: The normal date it’s scheduled for is the 4th and before we decide on those dates, I’d appreciate if we go through the other subjects and at least get to the Trinity issue and then kind of talk about the sequence of events that could or should take place because we have a directive from the City Council to take back and I’d like to have a discussion with
you about that so we can meet their expectations if we can.
Carlson: So we can finish the rest of the agenda and the final item will be this scheduling problem. That’s fine with me. Let’s go ahead.
Ulrich: I recommend that and before closing this subject, maybe a summary of what
you’d like to have as a next step and the timing on this. I mentioned kind of where we were at on this and would like to have your direction on what you’d like to do next. Carlson: It’s obvious that we need a major report to look at and review and discuss at a
workshop in September and that’s what we need. I know you’re worried about this
proprietary issue, but I’m convinced that almost everything you have, you ultimately have to put in a bond marketing circular in order to convince the bond market that this thing is for real. It is that new. It is that big. Just everything will have to be public in the end anyways in my judgment, but I understand your concern.
Ulrich: Will it be helpful to have, if you’re supportive of this, to have a member of UAC as kind of a liaison to work on this with us to plan it? What I don’t want to happen is to have another meeting without a real clear understanding of your expectations of that meeting so we’re not surprised or we’re not prepared to do what you expect. So if we
can have someone to work with on this, then we’ll can a place to try out our ideas and
make sure we’re there. Carlson: Well Rick has already been doing it. Would you like to do it Dick?
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Rosenbaum: Yes, I can certainly talk to Staff and let them know what I think would be
appropriate in terms of providing good information that we can dig into.
Carlson: I think enough information to satisfy Dick will satisfy the rest of us. That’s probably the most efficient way to do it. I’m sorry if you were surprised and Bern thought we were being antagonistic. These are just some really exciting things, and we
need a lot more information to get into something like this. This was just a fine first cut.
It’s a tremendous jump from where we were before, at the beginning of the meeting. We’ve got something really solid to deal with in the outlines of a real business model. Carlson: Time for a break. A quick break. [Meeting break]
LONG-TERM ELECTRIC ACQUISITION PLAN GUIDELINE
Carlson: I know you’ve got one action item, which is the long-range electric acquisition plan. Let’s try and go through that. There’s nothing in here that’s controversial, I would hope. John, would you like to say a few words about it?
Ulrich: We’ll find, I don’t think we have any more than about two and a half hours worth of information this evening… Carlson: I’ve already been through this once so I’m okay.
Ulrich: But if you have questions, we’ll keep on going. Next subject is the long-term electric acquisition plan, better known as LEAP. Some of you, Mr. Carlson, Mr. Beecham and Mr. Dawes, attended the meeting that we had last Thursday. Time goes by. And in that we made a concerted effort, through advertisement, to have the public come
out and listen to some of our ideas on the long-term electric portfolio plan. We’ve had a number of presentations earlier, as outlined in the memos you received, when we came and talked about the deficiencies we were going to have at the end of the Western contract, which expires at the end of 2004. In fact, last November you approved and subsequently the Finance Committee approved that we purchase a 25-megawatt contract
to cover a portion of the 3rd and 4th quarter of the year because the hole where the deficiencies that were expected due to hydro conditions of our resources from Western was going to be so dramatic that it was clear that additional energy would be needed. So in fact, we’re just about finished with the RFP process and hopefully will be awarding a contract on that in the very near future.
That of course has led to us having a series of guidelines, some of which we have communicated to the public last week, because we think it’s very important, as you do, that the residents and businesses of Palo Alto have a good understanding of where energy is going to come from and have some ability to participate in some of the decisions we
are going to make. We went through a number of iterations on what level of renewables we might have, the cost of some of those renewables and where they might come from.
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All of that is embedded in our guidelines. Since we’ve had an opportunity to share those with you before, we’re here this evening to request that you approve the guidelines so
that we can then forward it to the City Council for their approval. Briefly, tonight we’re
just going to say what’s been done, go over the 4 Electric Portfolio Objectives, the 7 LEAP Guidelines and some of the public comments received, so that you understand we are listening very clearly to what the public has to say, justification for proposed guideline related to investment in renewables and then go over the next step.
I won’t spend much time here. You get a good pictorial of progress that’s been made here, what’s been completed. It’s a good snapshot of the amount of time and effort and review process that has taken place to get us to this point. So the “To Do” in the bottom right hand corner is your consideration to approve these and to move ahead so that we
can go right after Council returns in September to receive their approval on the
Guidelines. Then in progress is continued communication with the public and how we’re making offers to go out into neighborhood associations and to the Chamber and into the industrial/commercial community, who have meetings, to go over all these plans. The final LEAP document and implementation process would take place at the end of the
year. And then have a specific deal approval request and those will go to the UAC and
Council as required as we’re trying to fill up the resources. You’ll see that this is a very thorough process. And one you can look back probably a few years from now and when people wonder where we got where we’re at and see that they got an opportunity to participate in it.
The 4 Electric Portfolio Objectives: ensure low and stable electric supply rates, maintain a cost advantage compared to market cost and a retail supply rate advantage compared to PG&E (you can see embedded in this, all of the things that are in our Strategic Plan and in Mission), pursue reliability enhancements, and balance environment and local
reliability.
The 7 Proposed LEAP Guidelines: Electric Portfolio’s dependence on Western, hydro risk management, market risk management, reliable and cost effective transmission services, local generation, renewable portfolio investments and electric energy efficiency
investments. Maybe it’s better that I don’t read every single one of these, but Guideline
#1. Carlson: John, I wonder if we can just go through these guideline by guideline?
Ulrich: Do you want me to stop then and ask if you have questions?
Carlson: Yes, if you would. If anyone has any questions or comments on guideline 1 and guideline 2, maybe we’ll be quicker that way. Does anybody have any questions on Guideline 1, which is basically saying we’re going to purchase power, “firming” power
independently from Western? Okay #2.
Ulrich: I have extra copies of it if you’d like.
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Carlson: Looks like we have multiple versions, but go ahead. Guideline 2.
Ulrich: I might point out if you have the Memo item #2, it’s on page 10, that rationale
and discussion. You can read it there too. Manage hydro production risk by planning for an average hydro year, diversifying to fossil and/or renewable generation technologies, and maintaining adequate supply rate stabilization reserves.
Carlson: John, what this one means is that a substantial amount of what we do is to buy
extra power from the market in dry years primarily using the supply stabilization reserves as the cheapest way to the smooth rates rather than buying forward products or firm power.
Balachandran: No, we’re going to be doing a combination of things so we will be buying
forward but we’re going to be buying. These are guidelines, when you get into the detailed hedging strategies and implementations, you’ll get into more details. Yes, we are buying some contracts, 2-5 year contracts. We will be buying some thermal resources and those are covered in Guidelines 2 and 3 combined.
Carlson: Already 2 and 3 are being worked together. I guess 3 is the one that says we’re going to buy part of a thermal plant and we’re going to have limited contracting forward. Balachandran: Correct. The reason why we put this separately is because we’re so hydro
dependent and we’re so exposed to that risk. When you look at 2b – diversifying to
fossil/renewable generation technologies, some of the fossil technologies we’re talking about gets covered in Guideline 3. You need to look at those together. Carlson: Okay.
Ulrich: It might be helpful to have page 10 in front of you in addition to what I show up here. I apologize if it’s.... Carlson: We have 3 overlapping documents with different page numbers on them.
Balachandran: Maybe I can explain that. There’s actually one staff report that has 2 parts to it. The first part is 8 pages and that essentially looks at the Guidelines as changed by your comments from the last meeting.
Carlson: Is it this? This is 10 pages long.
Balachandran: This is John’s presentation. So that’s one document. In your packet, you have the staff report, this thick packet.
Ulrich: It’s listed as Attachment 1 and it starts right after the Memo and it starts #1, page
1 and it has the Guidelines with details.
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Balachandran: That’s what John was referring to. I’m just saying that the document is split into two parts. The first part just takes your comments from the last meeting,
summarizes those and also points out here’s how we’ve changed the Guidelines based on
your comments. Attachment 1 is kind of a generic document that explains the Guidelines from scratch. We didn’t want to repeat that report to you because you’ve looked at it already.
Carlson: So what’s John reading from?
Balachandran: John’s reading from the slide presentation, which I just handed to you. Ulrich: My attempt was to summarize this evening all the things that are in your packet.
Balachandran: So in terms of guiding us through this, you need to look at the slide and if you have questions, go to 2 places, first in the document itself where your comments are addressed and then to the main memo, in this case, it’s page 4 of 8, because it addresses your comments from your last meeting. And if you want additional detail, the attachment
goes from A to Z.
Ulrich: Maybe I jumped to too quick a conclusion that you wanted kind of a summary to go through since all of these we’ve gone through before, so I want to be responsive to either go through this because this is extremely important stuff because we’re going to
the City Council with it. You have had an opportunity before when we had this in June
but obviously you can’t remember all this stuff. So if you’d like to find a way to go through it in a way you’re comfortable with. Carlson: Dexter.
Dawes: Yes, I was going through the 8 page thing where you interleaved the comments from the last meeting; that’s where I have all my comments and this tends to jump around so what I’d like maybe ask is some questions that deal with 1 and 2 while we’re here. The whole process really seems to me to submerge NCPA and its capabilities and
functions in this whole LEAP thing. I’ve come away – with the activities that I’ve had
being exposed to NCPA – with a feeling that it’s an excellent organization. It’s one that we spend a lot of time on, Bern spent a lot of time on and Dick did in the past. But yet it seems to kind of, it doesn’t disappear totally, but it’s way down here and it seemed to me that many of these issues are ones that munis acting in concert could gain thereby. I just
wondered if you could elaborate on your philosophy on how NCPA fits into this Western
“go it alone” philosophy. Balachandran: Interesting that you use the word “submerged” when you’re talking about hydro over here. There is no philosophy or attempt to actually marginalize NCPA over
here. In fact, maybe we haven’t called it out, but if you look at thermal plant ownership,
that’s an area where we can utilize NCPA and the reliable and cost effective transmission services, we do use NCPA there. They’re the ones who lobbied for us at FERC. They
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advocated a regulatory site so they’re very active there. They also assisted us in some transmission planning.
Dawes: I’d include them on the chart by name because even in the explanatory paragraphs, I don’t even see their names pop up under 3 or 4, but I agree that that should be explored through.
Ulrich: Since these were guidelines, we weren’t trying to be specific with who we might
do this with, but what Girish tried to outline was there’s some obvious benefits in working with NCPA because they have been an excellent partner, but it would not preclude us from doing something independent of them if that turned out to be in our best interest. So in the guidelines side, we just wanted to outline our planning criteria and go
from there.
Carlson: But the key think in at least Guideline 1 is that you would not rely on WAPA to negotiate a contract for you.
Balachandran: Correct.
Carlson: Let’s go ahead. Any more questions on 1 and 2 here? Okay. Bern? Beecham: On 2, and you might have covered this at the last meeting and I wasn’t here
for it. Your first item was planning for an average hydro year and what I wonder on that
was it seems the downside of a dry year has more potential for much more cost than the upside of a wet year. I expect that in your normal thoroughness, you calculations of where the money lies and so on, but it seems to me for minimizing risk of higher costs, not loss of heat energy, you’re better off planning for a drier than normal year.
Balachandran: I think that that is addressed in a way in a sense this is long term acquisition plan, so when we go .… Beecham: This is the hydro-risk management.
Balachandran: Right. Right. But the overall context that we are looking at is the long term plan. When we’re looking at Guideline 3, you see that we have a hedging strategy to buy not more than 90% 2 years out and 75% 5 years out. In those 2 years, if you’re planning for 2004 right now, we wouldn’t have bought more than 90%. So we buy up to
90% of the 2004 average year load. When 2003 comes around, we continue to buy, so
we’ll probably be long going into the month. The other thing to balance out in terms of risk is when you have a number of long-term resources. We do have. Go ahead, you had a question.
Beecham: The deficit, the hole, is up to 70%. I guess virtually any year we have to cover
the summer months. But then the increase – the difference – is in the springtime. Is that right? Again it seems to me that if you plan for an average year, you’re not minimizing
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your risk. I don’t know if I can say that any more clearly. John is kind of shaking his head, but I don’t know what that really means.
Ulrich: I’m just trying to figure out how to answer that. The other side of this thing is if you get in a position, if you plan for a dry year, then you have resources you don’t know what to do with – except sell. We have been in this kind of a dilemma, not making commitments for more than our load of our customers. The municipal code requires that
we do not speculate beyond what we recently estimated our loads to be. Obviously, if it’s
a dry year and you need it all, then you’re not speculating. It’s when it doesn’t turn out that way. So this is an attempt to balance it. This is what the reserve stabilization is for. If you have that dry spell and you don’t have enough resources, then you’re going to have to go out in the market and buy it. That was the attempt with this 90%.
Bechtel: Mr. Chairman. Carlson: Yes, this is a complex question. Go ahead.
Bechtel: I agree with Bern. What’s troublesome to me is the first sentence. If you just
drop that and have B and C, it would be real clear when it says “diversify and cover your base” or “plan for an occasional dry year or so.” But when you have that first sentence there, it says plan for an average year. So it’s clearer when you just deal with the B and C aspect of it. Clearer to me, anyways.
Balachandran: The criterion we use for our reserves is 2 dry hydro years. Dawes: For the financial reserves?
Balachandran: Right. There are a number of ways of hedging dry year prices. What we
did over here was use financial reserves as one way of doing it. Maybe we should try to clarify these points by Council Member Beecham and Commissioner Bechtel. The point over here – by saying “average year,” we’re looking at “long-term average hydro.” We’re not going to ignore the operational realities of having a dry hydro year, so when
you have a dry hydro year, this guideline would not imply that we are not going to hedge
or buy power in advance. That’s one part of it, but to get to Bern’s question, I’m going to pass it over to Shiva. Beecham: Before you do that, don’t you have to plan for the year before you’re going to
know if it’s going to be dry or normal?
Balachandran: Yes – I’ll let him answer. Swaminathan: The key to Bern’s question is: in a dry hydro year, you have low
production and prices tend to go much higher than on a wet side. We’ve done the
analysis for that, and the hydro production is skewed the other way. In other words, if you look at the hydro production variability, on the downside – in a dry hydro year – the production reduction is not as much as the production increases during a wet hydro year.
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So the curve for hydro production is also skewed in favor of wet hydro years. In a wet hydro year, there’s more production [increase] compared to reduced production in a dry
hydro year – so that kind of evens it out. Yes, if you look at those two aspects, overall
there is a negative net impact financially, but it’s not as substantial as you may think based on market price going way up. Also there’s the other aspect, the other contracts you’re buying, tolling contracts, where we are looking at exercising options just as we find out about the hydro conditions of the next cycle. So there are mechanisms we are
building to respond to that. But for the long term, we don’t want to come into resources
more than our expected load. Carlson: But the point Bern was making and George also, was that the cost increase in a dry year was so much that, on average, you’ll be better off planning for at least a
moderately dry year. What you’ll lose from selling that surplus will be more than made
up by what you save by not having to buy power in the year that does turn out to be dry – at a much higher rate. Ulrich: Your logic is impeccable. We’re straddling this issue about prevention of buying
something that we knowingly won’t use, and if you plan for a more frequent dry year,
then you’re paying for something more than you really expect to happen. You’re going to end up more frequently having more power than you can sell. It may be economically beneficial – because the hydro is cheaper than the replacement - to have that in reserve. But we have got this problem and we can’t do it legally, so that’s why we’re kind of
toying with it a little.
Dawes: Did I hear correctly, though, where Shiva said we’re using this option strategy – which sounded exceptionally fine to me – where you buy the contract with the option for more, with the option exercise date in effect keyed to the time when you know what the
hydro year is going to be – about. So you can pull the ripcord at a favorable price once
you know, or have a better idea of, what the outcome is. It’s an excellent strategy. Swaminathan: Correct. In fact, that option we purchased ahead of time for long term, so that the exercise date we expect to be somewhere in February and March, just as we firm
up our expectations of the hydro conditions. The option price we’ve found does not
increase – we can exercise the option on an annual basis, on a monthly basis and on a daily basis; on an annual basis, you get the long-term contract exercise date within the year – does not change very much. We plan to exercise sometime in the February/March time period when we know reasonably well what the hydro conditions are.
Dawes: Maybe they’ll get smart at you at some point and they’ll price it a lot higher, but it sounds great. Carlson: Bern, you had a comment here.
Beecham: Actually, Dexter picked it out. The options, I think, will provide a slight downward bias. I know you guys do a lot of detailed “what ifs” and calculations, and the
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options would probably provide the bias that I was inherently thinking would be appropriate.
Ulrich: Well, if the option is to buy, that’s one thing. But if you have options and you have to sell it, that’s a whole other issue. Balachandran?: I want to clarify one point. In terms of the options, we are going to be
buying from the tolling contract. We’re not, according to these guidelines, we won’t be
buying more than average load. Dawes: No, but you have the option to buy. If our average supply is less than what the average [load] is, then you can exercise the option and make it up to where – am I
interpreting it wrong?
Balachandran: No, it’s just the strike price. Say you have an option that you bought 2 years ago, and you can strike at a certain price. But according to our guidelines, we’re not going to be buying for a long-term basis more than our expected load.
Dawes: Correct me if I’m wrong. If you buy 2 years ahead and it turns out to be a drier year, you have the option of exercising that option. If it’s a wet year, you’re not going to be exercising it. So you have a commitment to buy more than you need, but you have the flexibility to buy if your supply is less than the average that’s expected. We’re beating a
dead horse here.
Ulrich: Well it’s helpful to have the guidelines that reflect what’s in our best interest. We’re trying to find the right – do you want to say something Jane?
Ratchye: I’m wondering if, Commissioner Bechtel, we can address his question by
modifying what we show there as A – “planning for an average hydro year.” Would it reflect the comments of the commission to say “manage hydro risk by conducting long-term planning for an average hydro year”? The intent is so we don’t make 20, 10 and 5-year commitments based on a dry year. We’re talking about the long-term view here. So
should we modify the statement of the guideline to reflect this thought, that planning
features are long-term? Bechtel: I think that would go further, but I’m not even sure you need that. I’m not even sure that particular guideline is needed for risk management because “number” B says, if
you read the sentence out completely, it says, “Manage hydro production risk by
diversifying to fossil and/or renewable generation technologies” and “C - Maintaining adequate supply rate stabilization.” You don’t even need the first guideline because you do that anyways.
Ratchye: Well, there are different philosophies you can go with. You could say, let’s
plan for a dry year and know that you have a lot you’re going to have to buy every year. Or you can plan for a wet year and you’ll have to do the opposite there. So the thought
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is, be in the middle and have the rate stabilization reserve of adequate size. Of course, the size will have to be determined.
Carlson: I would consider adding a 4th bullet of “use contract options to handle dry years,” but I think we’ve beaten this too much. You’ve got some suggestions to deal with, to try and prevent the same question from the Council. We should try to move on to the next one.
Ratchye: We need action on these items. Ulrich: We’ve got to keep going, unless you don’t want to take action tonight. That makes it a whole different evening. We either need to settle on it or ….
Carlson: What’s the number to put in front of the word “average”? Long-term, or twenty years? Ulrich: Long term.
Carlson: Is ten years not long enough? Is this a twenty-year long-term average? Balachandran: Can I add something over here? In our third guideline, we talk about locking in up to 90% two years out. Now for the next two years, we’re going to be doing
some planning to actually buy some energy. What I’m hearing you say is that 2nd year
out may be a dry year, so you may be better off locking that in. And yes, that is within these guidelines to actually do that. One way of handling that, one of the Auditor’s recommendations, was to come to the Council on a regular basis to update the Council on long-term supply strategies. So we plan to come to the Council anyway to say here’s
how we’re performing; here’s our plan for the next 2 to 5 years. We’re going to have
more opportunities to get into some more of the operational details of what we’re going to be doing in the next 2 to 5 years, which would incorporate some of this dry year planning. We offer that up. That’s how we think this will unfold.
Bechtel: What you’re saying is just not captured in these words, though, but is by and
large, you’re planning to have average years? By and large we are planning on having average hydro over the next 20-30 years – but you are going to diversify, and you are going to maintain an adequate rate stabilization reserve. I’m comfortable with that, so let’s move on.
Ulrich: It’s important that we’re all happy with this, because we’re going to be living with this for some time. We’ll be making some pretty significant decisions. Our definition of guideline is, it is a guideline. If we see something that’s different as time goes on, we will come back and try to change that on a specific basis – just like we did
with the laddering and our purchases on gas. If you’re willing to go with it that way, then
I’d be comfortable with you leaving it either “planning for on an average long-term basis,” if that’s agreeable with all of you.
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Carlson: Go ahead Dexter.
Dawes: I’d like to suggest formalizing the option strategy here: “plan for an average
hydro year, but allow flexibility by including options to buy additional power under existing contracts to augment our supply in a dry year.” It’s modifying A - “planning for an average hydro year” but by acquiring options to acquire more power in the event of a dry year.
Carlson: Any objection to that change? I think it’s a good idea. It will save time with the Council. Beecham: May I suggest that in the attachment 1 on page 2 there is discussion about the
option purchases, so you may want to consider if your option discussion is just off of the
text, or if it’s actually included in the guidelines. Ulrich: Sorry, if you can just say that again? I didn’t quite hear it.
Beecham: It’s here.
Ulrich: I got that part. I think it’s down in the text that you suggested changing and I just want to be sure.
Beecham: My comment to the Commission was that because it was in the text that it
talks about options, we should simply just leave it there; it may not be necessary to put it in the guidelines. Ulrich: Why don’t we put it up with belt and suspenders? We’ll put it up to respond to.
Dawes: I don’t know if that paragraph is part of your written record or not, or whether it’s just an explanatory thing. But Bern is right. It is laid out there. Carlson: With that change, can we go on to Guideline 3?
Ulrich: I put the summary up on the screen and there’s more detail on page 3. Dawes: My comment before was – I was the one pushing for a larger flexibility here and I still believe that as a good idea. We’re evidently working with NCPA to be a partner in
a plan. I would encourage us to explore the option of working with other merchants,
owners of power plants, particularly given the extremely difficult time that merchant power plant owners – the Duke Energy’s, the Dynegy’s, the Calpines of the world – are having. A partner that can buy a 10-15% interest in the plant just might make the difference between having a plant cancelled or indefinitely deferred, where they’ve
already got the permit for it. Particularly if it’s anywhere in our area, not in our
backyard, but down in Coyote Valley or some other place comes to mind. Money talks, and we have the capital structure where we can make a very good partner for these
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people. I know your mind is open. It should not be included in Guideline 3, but it’s my belief, urging you to keep your minds and your wallets open.
Carlson: Dexter I agree with you completely, but I don’t think this guideline limits it. It says 25 to 50 megawatts worth of power. If you can find a good buy, go for it. Swaminathan: We previously increased it. We previously had approximately up to 25
and now we have no more than 50. We are exploring options. But the problem is, a 25
megawatt piece has to be more like a base load plan. Within the NCPA membership – we have to construct a base load plan of 150 megawatt size – within the membership alone, there is not sufficient interest. However, we are exploring other merchant power plant builders to try to find some equity positions to try to take (inaudible).
Carlson: Good. Great. Ulrich: This is the Transmission Guideline: Ensure the reliability of supply at fair and reasonable transmission cost by supporting basically upgrades particularly in the Bay
Area. Participating in transmission market design, which we’re doing. Pursuing the
option of forming or joining a Public Power Transmission Control Area. That’s more like what SMUD has done. Ensure PG&E honors the Stanislaus Commitments by providing firm-transmission rights or equivalent. All of those would be strategies in order to get the reliability that we need.
Bechtel: Mr. Chairman, I have a comment on D. Carlson: Go ahead.
Bechtel: I was wondering, shouldn’t you change the word? Don’t we want to make
PG&E ensure us firm-transmission rights? Is that what you’re trying to say there? Balachandran: Can you repeat your question there please?
Bechtel: You’re saying “ensuring PG&E honors the Stanislaus Commitments by
providing” – it almost implies that we’re providing firm-transmission rights. You mean that PG&E should provide that. Correct? Beecham: I think what he’s asking is if it were to say, “ensure PG&E honors the
Stanislaus Commitments and provides firm-transmission rights”. That would clarify his
question. Bechtel: I just want to make sure that it’s PG&E providing those rights. It’s just an addition to the words.
Ulrich: Since this is under transmission, we added the word firm-transmission. We just need it to say that PG&E honors the Stanislaus Commitments, which is embedded in it.
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Carlson: Dexter?
Dawes: We are part owners of COTP. We at one time talked about participating
financially in Path 15, but at the end of the day, we didn’t. There’s no mention here under Guideline 4 of buying into additional transmission resources, if only to be able to swap them for other areas. Any reason why we would not entertain additional buy in?
Ferguson: It’s in “A”.
Balachandran: It’s in 4A, Commissioner Dawes. Dawes: Okay. I stand corrected. I was looking at political and technical advocacy.
Ulrich: We always have good tactics. Ferguson: Let me propose fixing “D” by inserting after the word “providing” the words “to us” – “by providing to us firm-transmission rights or equivalent.” That resolves the
ambiguity.
Carlson: Okay. #5 Local Generation. Ulrich: Yes, explore the potential of local generation options to meet customer needs,
improve local reliability, minimize congestion and wheeling charges and stabilize/reduce
rates. Rosenbaum: Have we used the COBUG at all this summer?
Ulrich: No, there is some potential for using that, because we have a lot of hours that we
can go after. But it’s got to be economic. Plus it’s only 2.5% of our load, so it’s a little tough to meet some of those criteria. That doesn’t mean we couldn’t build a power plant right here in Palo Alto. That’s more of what that’s getting at, but I’m not sure that’s the most economical.
Carlson: Why spend 10 years getting the permit? Let’s move on to #6. Beecham: Before you go on, on 5, in the text on attachment 1, the text indicates that you’ve looked at this, it’s not economic, there are no sites, it will be small anyways, and
so the text concludes that we just monitor technology, basically. The text kind of takes
away the promise of what you actually say in the guideline. On the one hand it says explore the potential – that sounds good – so let’s do something. Then the text says, yes we did it and it’s not really there. I just wonder if you’d like to leave it as it is, or be a little more straightforward with it?
Bechtel: Yes, your text puts up a straw man and then knocks him down. And the guideline is more direct.
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Balachandran: I think we’re distinguishing 2 things over here: local generation and distributed generation. There’s local generation which ....
Carlson: They’re both talking about local. Ulrich: The problem is that so far, the analysis shows you can’t get there from here by having the hole filled with a piece from our local generation. But it isn’t yet clear that we
can’t find one. Similar to what Mr. Dawes suggested. it might just be down the road.
Ratchye: The point is, it’s how the guideline is written: we want to continue to explore it. The most recent exploration didn’t look so good, but that doesn’t mean we should never look at it again. We should continue to look at it and we may come up with a different
conclusion in the future.
Dawes: Could we strike that and put “monitor” rather than “explore” in the guideline? Ulrich: Sure.
Carlson: Item #6, which is all the audience cared about about a week ago, but they’re sure not here now. I would have to summarize: what the audience wanted was for free, they wanted a portable tank on every roof in town.
Ulrich: We’ve gone further than that. The next slide has some anecdotal comments.
Plus we’ve given you a handout that’s got almost all of their comments. You can read them in the handout. Yes, there is an interest. It was not a large group that came by. Virtually all the comments were similar or supportive of the kinds of recommendations we made in the guideline. If there was a bias, it was for more renewables. Some of them
were – if you don’t mind, I’m just going to skip a page here – offer quality Public
Benefits programs collected through the 2.85% so that you can utilize as much of that, or more than we currently do, for renewables. Carlson: John, I assume the operative item here on Guideline 6, though, is that we buy
the best renewables we can find – up to a cost to the customer of quarter of a cent per
kilowatt hour. Is that correct? Ulrich: That’s correct. That’s what the survey data shows us. There’s maybe not as much detail as you’d like, but we did go and survey our customers on this and that’s what
they’re telling us. And there is a different price point – as you can see – from the
commercial industrial customers, which is a lower threshold. Carlson: Next? Commissioner Rosenbaum.
Rosenbaum: Just a comment on page 7, item 4, that asks “should cost-effective
efficiency measures be counted as part of the renewables fraction of the portfolio?” The answer is, they shouldn’t. And that’s fine. But then there’s the sentence “counting saved energy is problematic and difficult to track.” It seems that’s the whole basis of demand-
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side management. I’m surprised you would just throw it out like that. I think it reads fine, but I would just question having that sentence there at all.
Carlson: If you’ve ever tried it, it’s real. It’s very difficult to try to figure out how much is from conservation as opposed to economic change, industrial change and everything else.
Beecham: And before you leave that section, I’d suggest that Renewables always be
capitalized if you’re talked about the legally defined term Renewables. In reality we’ve got plenty of renewables with our hydro, that’s the bulk of our availability. Dawes: Don’t confuse it with reality.
Beecham: As I see you are talking about it, we need to make sure that the public understands that a substantial portion of our supply is “renewable” in a common sense, as in “hydro.” We are also working on an officially defined term of “Renewables” which is different from that.
Dawes: You missed my speech at the public meeting. Ulrich: Yes, you did quite well, thank you. The problem with us continuing to talk that way is that it’s the not the way it’s going to be counted elsewhere. In fact, legislation is
being pending now where they’re trying to see that it goes up to 20% – and they’ll count
it the way the legislature looks at it, and it’s 30 megawatts or lower for hydro. Beecham: So what I’m suggesting is when we use those requirements, we use a capital R, so people will know we’re meaning that definition versus the hydro we have. I think
we just lose credit for having a very renewable supply, just because it doesn’t meet the
legal definition. Ulrich: All right.
Carlson: Okay. Any more questions on #6? #7 is the last one.
Ulrich: Just quickly, to make sure I call your attention to the customer survey information, which quantified that $5 and also the smaller amount that commercial/industrial customers are willing to pay. Also, to the cost of these renewables.
I know we went into this in detail at an earlier UAC meeting. The predominant cost most
equal to brown power is wind. As you move up through the chain, it gets quite expensive. Many of the questions from the public centered around, why don’t we put in more photovoltaics around the city? Our attempt is to show that if we do that, there’s going to be a significant cost increase beyond the price point we believe people are
willing to pay. That’s how we settled on this 10% number.
Bechtel: Excuse me John. Is there any significance to the fuel cell having a purple bar? I’m sorry I missed the meeting. I noticed you have a purple bar on that.
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Ulrich: That’s because it’s not a Renewable.
Carlson: I thought it was a “capital R” Renewable under the state definition. Fuel cells. Ulrich: I don’t think so. The fuel that it burns is a fossil fuel.
Carlson: Well, physically, but politically, I thought they just threw it in there.
Balachandran: I think they’re supported through the Public Benefit funding through R&D and advanced technologies.
Carlson: So under Public Benefits it’s defined as ....
Balachandran: But it’s not Renewable. Carlson: It’s not Renewable. Got it.
Ulrich: That’ll be fuel cell with a small “f”. [laughter]
Carlson: Go ahead Bern.
Ulrich: Everyone has this application. I just put it up here because it’s a very interesting area and it’s something that has some viability in places. 4 main components. Do you want to review this anymore or do you want to move on to the next?
Carlson: I want to entertain a motion to approve the guidelines as slightly edited this evening. Ferguson: So moved.
Bechtel: Second. Carlson: It’s been moved by Commissioner Ferguson and seconded by Commissioner Bechtel. Any further discussion? In that case, everyone in favor say “aye”.
All Commissioners: Aye. Carlson: Anyone opposed? Passed 5 to 0. Thank you.
Ulrich: Thank you, gentlemen. Would you like to move to Item 4?
Carlson: No, I want to go home. Let’s talk about schedule. I’m afraid we’re at that point, it being 11-something. I’m embarrassed to say that this is the longest meeting
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we’ve had in – it’s my first meeting and I don’t want to break the record. I think the record is another 10 minutes.
Ulrich: So your preference then would be not to do item 4 and item 5 this evening? Carlson: Yes. We should move those forward. They’re not vital to be covered this evening. I think we do have to discuss for a few minutes the scheduling issue. We need
to hear from you exactly what the City Council has directed us to do. I understood them
to ask us to do a full review of the Trinity issue, and to come back to them in September with recommendations on what should be done and what the impacts would be done of various alternatives.
DIRECTOR OF UTILITIES REPORT (continued)
Ulrich: In my Director’s report, let me just mention the major topics, and if you’d like me to elaborate on any of them, that may be a time saver. An update on the San Francisco PUC CIP, slight additional information from what you have. A little bit of discussion of the Hetch-Hetchy tours later this fall. Water legislation update. Some feedback on the energy forum, which I’ve given a little bit of information about. Then
we move into the Trinity River litigation area and I’ll come back to that. Authority to direct Western bills greater than $65,000. We had a little bit of a discussion from Mr. Dawes earlier today. And then this metered subsystem (MSS) agreement with the California ISO and the replacement IA with PG&E. I don’t think there’s any fatal flaw in putting any of these off. I can also provide you with email information.
Carlson: I think that’s a great idea. We can skip those if you can just inform us by email. But I think we do need to talk about Trinity, especially if there was any information you received after the Council meeting on Monday night.
Ulrich: Briefly, on Monday night’s Council meeting, there were two motions by the Council. One passed 9 to 0 and the other was a split vote. I believe it was 5 to 4. The first one is that the UAC study the Trinity River Environmental Impact Statement, EIS, and the Record of Decision, the ROD, litigation situation and report back to Council
to recommend a negotiation position. Two, that the Council have an opportunity very soon to decide on whether Palo Alto will continue to take part in this litigation.
The court will hold a hearing on motions for summary judgment on August 20th. Staff will discuss this issue with the UAC at its next meeting which is scheduled now for September 4 and Council now is scheduled to take up this matter with a public hearing, and it’s been agendized for September 15th. Those last 2 pieces of information were not known at the Council meeting, but as you recall, the Council did ask to do this. They
wanted it in early September and finally said they would like to have it done in
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September. To try to accommodate that and also try to have a UAC meeting in between, we can of course provide the report to you on these areas and have whatever discussion
before making the recommendation that goes to the Council. In the interim, of course,
we would work further with any or all of you, NCPA, the City’s legal staff on clarifying this issue and the Staff’s position for Council. We also have to discuss a few things, to kind of process inside the City, because the
discussion that led to the NCPA vote back in September of 2000 was done in a closed
session of the NCPA Commissioners, because it is litigation. We’ll have to either extract that, or deal with everything but the litigation portion of it, and figure out how to do that. We’re also attempting to determine what decision the City Council can make, or take any action they wish, because they specifically asked to have a hearing time set aside so they
could make a range of decisions they would like, as opposed to the very narrow range
they were allowed Monday night. They asked that they would have the opportunity, and schedule it so that the proponents or opponents could come and speak. But it raises questions about what can they tell [NCPA] Commissioner Beecham to do?
Obviously they can tell him anything, but then there has to be some understanding of
what he can carry back to NCPA because they are the ones that filed the litigation. We have a certain amount of voting rights in this matter, but they may not be a majority to either influence or affect any change in the decision by NCPA. We’re exploring that side of it, too, so we can discuss that, and you’ll know what alternatives there are. Something
to consider is that, it was clear to me at the meeting Monday night, that our strategy of
requesting of the Council not make any decisions was based on 1) an understanding that the people that were coming in also in a letter asked Council not to make a decision because they wanted to have an opportunity come back at a later time to discuss it. So we did not in our staff report get into the details of the benefits or the negatives of the EIS
or the ROD. We were just focusing on, we should just let the litigation process because
that’s the way due process works. In the hearing, motions and counter-motions can be listened to by the Judge and decided – rather than expecting the City Council to evaluate flow rates and whether they’re appropriate for going down the Sacramento River or into the Delta or down the Trinity.
I don’t think we were able by plan to give as much information to the Council at that meeting. The opponents that came had all kinds of reasons for why the water should go back into the Trinity. We didn’t sit there and counter that, and get into an argument. So there’s a bias here. A lot of information was given, whether that was true or not. It was
public, and public input was very clear on the side that Palo Alto should ask you not to
support this litigation, so that the water can flow back into the river and the Hoopa Indians would have benefit of this water. There was a lot of detail and information that we would, I believe, have to prepare for and develop so that the full story can get out. In addition, we are going to have some information from the hearing that takes place on the
20th of August, including a decision made by the Judge if he so wishes. So there’s a
number of things that can come out of that, that of course would have to be factored into what we say and recommend to the City Council. I’m not trying to paint this as
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something too big, as something we can’t work on, but it’s a pretty significant amount of commitment of our time to do that. It’s quite important.
Another thing that’s important here for discussion is that Palo Alto is a member of some percentage with NCPA. NCPA is a co-litigant along with SMUD and Westlands. So regardless of what Palo Alto might do and regardless of what NCPA might do, it all may just continue and we’ll get the water or we won’t, regardless of what we do. There seems
to be a lot of rancor towards Westlands Water District. Of course, in Palo Alto, we’re not
party to them and we know very little about their business. But it’s clear that the water flow is driven by water needs; the power production is a secondary or third tier component of all of this. So it’s complex and it’s one we’re going to have to put some time in. I may be belaboring this a bit, but I wanted to lay out what’s been going through
our mind, for one, in preparation for the meeting on Monday, and then the outcome, and
then for what our next steps should be. Carlson: The Council clearly wants us to get into this. Let me suggest a way to do it. First of all, if you can send us by email the key existing documents or references to those
documents and where we can quickly get them. I found them, but it took some stumbling
around the Environmental Impact Statements and the Record of Decision. The one I haven’t seen, and I don’t know where it is, is the NCPA motions on why NCPA disagrees with those. I think those are the 3 key documents. Maybe there are others you can think of that we can all start looking at right now.
Beecham: I would suggest one more. I think there’s a May 20 – I’m not sure if it’s a decision – a statement from the Judge, a good 20 to 30 pages. It gives a good summary of the arguments and his take on it at that point.
Ulrich: Another part here, and we can do this if you’d like, is we can have a meeting to
go through all those documents and have a .... Carlson: We should look at them first. The other thing I was going to suggest – especially to deal with, not proprietary, but they’re private issues – is to appoint a
Committee from the Commission to work closely with you. Maybe we need a meeting
too. But I think we need at least the documents ahead of time to start looking at and a Committee to work with you. Then I assume you’ll give us a summary set of documents after the Judge has made a decision, because that will change things significantly for us to consider at our next meeting in September. Comments please?
Ulrich: We have to have consultation with the attorneys from NCPA to determine which parts of these are in some form part of the litigation, and make sure we give you the documents that are public and can be shared.
Carlson: I assume that ... Rick, go ahead.
Ferguson: In order of precedence, the first thing I’d like to see is probably relatively straightforward and not voluminous. It’s what you described earlier: Is there any
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scenario under which a Palo Alto decision really makes a difference, stacking up the votes? I think you can put that in a 1 or 2 page memo. Let’s look at that, because if our
decision is not going to make a difference in the NCPA Commission or the outcome of
the litigation … Ulrich: We can do that, but I would ...
Ferguson: … then we’re engaged in a kind of fruitless homework exercise.
Ulrich: I suspect that maybe – it’s good information, but it may not change the outcome of anything we do. I think the Council wants to weigh this. That’s what I heard.
Carlson: I feel the Council really wants to weigh it. Whether we can directly force
something or not, I think they believe and a lot of other people believe that this is a political/legal matter. And political action by something like Palo Alto can have significant impact on the legal proceedings. Maybe I’m wrong, but there sure were a lot of people were at that meeting who thought that to be true.
Ferguson: That’s my point. Reading through the Record of Decision and the EIS – the documents there, they’re largely technical discussions, scientific discussions, engineering discussions of options that were considered, or failed to be considered, in the Interior Department’s actions – that’s a time-consuming homework assignment. I’m more
interested in doing it if there’s some swing, if there’s some leverage at the end of the day.
If this is ultimately a political or environmental values-judgment call, that’s okay too. But we should acknowledge that, and not pretend that there’s some grand scientific basis underlying it.
Carlson: My other request that we do need before our next meeting, is an analysis of
what really is the impact on Palo Alto if we lost that water under the terms of that decision, which depends on whether it’s a wet year or a very wet year. What would the impact be? What would it cost us this last year to replace that power, etc.?
Ulrich: We can clearly share that with you. Our report that went to the City Council
included that analysis. Carlson: Okay. I think it would important for us to look at that analysis and anything new you have to add to that.
Ferguson: It was $5 million when prices were climbing and it’s at about a million and a half today. Ulrich: The big impact comes at the end of 2004 because we’re getting only Hydro. The
difference when the flows change is they are not being made up by the integration
agreement with PG&E. So it becomes much more dramatic at the end of 2004. It’s going to vary depending on whether it’s a dry or a wet year. But the big impact is how will you replace it? Will you replace it with “little r” renewables? Or brown power?
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What type of renewable do you replace it with? Those things have a change in the cost to the Palo Alto residents.
Carlson: I think we need a table to that effect. There were again, the people who want free photovoltaics are assuming the replacement renewables are going to be free, too. Ulrich: Sure.
Carlson: We need some numbers.
NEXT REGULARLY SCHEDULED MEETING- Wednesday, September 4, 2002
Ulrich: We should agree on this timing. I’m going to request that you consider meeting
as the current plan is on the 4th, which would give us time after that to plan for the presentation to the City Council. If we wait until the 11th, it will be much more difficult. Carlson: I think we have to cover Trinity on the 4th and I don’t know who else is really interested in this one, but I would like to meet with staff. Rick, are you interested? Is
anyone else interested? Ferguson: Yes, I’m happy to spend time on that, just because I started climbing the learning curve a couple years ago.
Carlson: Is that acceptable to everybody else? Rick and I get into depth on this one so we can make a recommendation to the rest of you on the Commission? Everybody else is smiling. Okay, so Rick and I will work with you and we’ll cover this at the meeting on the 4th. The 4th will not cover the Palo Alto Telecommunications Initiative – I like that name better, too. The question is, we need a full meeting for that, so what is the date?
Does the 11th work for everybody? It’s the only Wednesday available over here. Balachandran: Yes. Ferguson: There’s a room-assignment issue connected to that. As long as we’re meeting
the first Wednesday of the month, we have a big room. The alternative is a much smaller room. And as you can see from the folks that turned out tonight, we can’t handle that in the Council Conference room very effectively. Plus it makes a below-average recording generally. I don’t know what our options are for bigger rooms or meeting at other Utility facilities, but the size of the room matters with the kind of interest level we had tonight.
Ulrich: The best way on that is to go back and do some scouring around for what is available. If you want to do it on the 11th, we’ll see what we can find. I think you’re right, we’ll not be able to come in here unless that commission decides they’re not going to have a meeting tonight. I think that’s Planning.
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Carlson: If everyone can make the 11th, I think if you can find a large room for us somewhere, that’s the easiest thing to do. Does that work?
Ulrich: It’s more complicated than that, because with this meeting we have to videotape it and record it. There’re only 2 rooms I’m aware of, it’s this one and the Council Conference room next door. Unless we can figure out ....
Carlson: What about Tuesday or Thursday of that week?
Ulrich: There’s a solution to all this. I’m not trying to .... Beecham: I’d suggest that the Council Conference room should hold about 40 people. It
would get crowded but you can do it.
Carlson: It would be pretty ugly. What about Tuesday or Thursday? Is that a problem for anybody?
??: Yes.
Carlson: The Palm stylus is slow tonight. Rick? Ferguson: It’s fine.
Carlson: George? Bechtel: Are you talking about the 10th or the 12th in addition to the 11th? It’s fine.
Carlson: Not in addition to, instead of, because of the room problem. Bern does that
work for you? Beecham: (inaudible)
Carlson: Okay. Dick?
Rosenbaum: Okay. So it’s the 11th or the 12th? The 12th works. Carlson: John, we can do it on the 12th. Does the 12th work for everybody?
Ulrich: With the 11th, is there an ability and a willingness for people to meet at a different time other than 7 o’clock? Or do you want to have it at a time when you can have all the public participation? It may be easier. Thursday is not a good day because it conflicts with our Utility Directors’ meeting and I have to travel out of town for that.
Carlson: We need everybody here, so it’s got to be Wednesday or Thursday. I’m afraid we’d get a pretty unhappy public if we tried a 5 o’clock meeting.
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Ulrich: I don’t know. You know it’s on “September 11th” so it’s going to be ....
Carlson: Oh, I didn’t even think about that.
Ferguson: Didn’t think about that. Ulrich: Another alternative is, you’ve got to be satisfied with this, is to keep moving it
out until you find a Wednesday that works. You just don’t go back to the Council with a
conclusion until later. I think we have to set priorities on what we do. Carlson: Well, they clearly said they want Trinity fast and you’ve got tremendous amounts of staff work.
Ulrich: I’d suspect they’d want to talk about Trinity first before they get to Fiber, or pardon me, the Palo Alto Telecommunications Initiative. Bechtel: I sort of agree with what’s evolving here. It’s that Fiber is less critical if it were
to slip some. Unfortunately, if it slips much later in September, many of us will be gone
already. I know a couple of us are going to be gone. Ulrich: If you want to give us direction, I’ll go ahead and look up and find any date.
Carlson: Let’s just go ahead and do it on 11th then. It’s either that or it’s slipping into
October, it sounds like, because you can’t make it. What’s your preference John? Ulrich: These other meetings start at 7. Do you have a problem if we just have it from 5-7 and just have a 2-hour meeting set aside, and then we beat it and leave? Or we’re
probably very likely to be able to get the Council Conference room at 7. We’ve had it
before when we’ve moved the meetings. Carlson: We’ve never tried a meeting at 5, but I bet 2/3 of that audience can make it. Can everybody else make it? I’m flexible.
Ulrich: Would you rather it be in here? Carlson: I’d rather be here at 5, than be there at 7 with 40 people with the air conditioning overloaded.
Ulrich: Let me do that. Carlson: Unless you can talk to the other commission to switch rooms with us.
Ulrich: I’ll give it a try.
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ADJOURNMENT
Carlson: I think we are as done as we’re going to be. I’m sorry it took so long.
Rosenbaum: Move to adjourn. Bechtel: Second. Carlson: All in favor?
All Commissioners: Aye. Carlson: We’re adjourned.