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Home My WebLink About2003-03-13 Utilities Advisory Commission Summary MinutesUTILITIES ADVISORY COMMISSION MEETING MINUTES MARCH 13, 2002 ROLL CALL _________________________________________________________________________ 2 ORAL COMMUNICATIONS __________________________________________________________ 2 APPROVAL OF MINUTES____________________________________________________________ 2 AGENDA REVIEW AND REVISIONS _________________________________________________ 2 REPORTS FROM COMMISSIONER MEETINGS/EVENTS_______________________________ 2 DIRECTOR OF UTILITIES REPORT __________________________________________________ 2 UNFINISHED BUSINESS____________________________________________________________ 4 NEW BUSINESS ____________________________________________________________________ 4 BAWUA/SFPUC Legislative Update________________________________________________ 4 Preview of Major Budget Changes for Fiscal Year 2002/2003______________________ 7 Ten Year Financial Forecast and Rate Proposal___________________________________ 19 ADJOURNMENT ___________________________________________________________________ 38 1 [Transcription tape unavailable for the beginning of the meeting.] ROLL CALL ORAL COMMUNICATIONS APPROVAL OF MINUTES AGENDA REVIEW AND REVISIONS REPORTS FROM COMMISSIONER MEETINGS/EVENTS DIRECTOR OF UTILITIES REPORT [Beginning of Transcription Tape] Ulrich: ...and we put in front of you a copy that’s a draft. I have not had a chance to go through it in detail, but it basically says conditions accepted for filing and suspended for 5 months, PG&E’s request to terminate the Interconnection Agreement. So our Interconnection Agreement that would have expired on March 31 is extended for 5 months. The FERC staff is to convene a technical conference to negotiate some kind of replacement arrangements to the IA and FERC has affirmed that PG&E is expected to comply with Western’s and PG&E’s contract 2948A obligations as it relates to the Interconnection obligations during this subsequent 5 months. Additionally, the commission has made the termination of the IA and the institution of the new one subject to further commission order, which may be reversing it’s right to take future action at the end of 5 months. These are some quotes from the [coughing]. It looks like about all we could hope for and expect under the circumstances and we’ll us the next 5 months to try to work out a satisfactory agreement. As you do recall that regardless of whether the IA is terminated or not, energy will still flow into Palo Alto. We’re now basically a matter of money and what FERC will do to honor or take the request of PG&E for additional revenue and funds from all of us that have been using the IA. That’s my brief report. Would you like me to address Mr. Martin’s? Bechtel: John, Mr. Dawes has a question for you. Dawes: At this technical session and 5 months “pendantcy”, did FERC expect that NCPA and its members essentially reach agreement with the ISO as to how the ISO will administer it. It certainly seems to me that PG&E is attempting to push this whole thing on the ISO and we’re resisting for economic terms. So essentially it seems as though we’ve got to come to terms with the ISO as what it really boils down to. Is that correct? 2 Ulrich: Well I don’t think we have, Girish may want to respond to that a little more, but it just gives us additional time to work out the agreements with the ISO and with PG&E. I don’t think it has to be done. Balachandran:Your question is “do we have to deal with the ISO at some point?” and that is the way the system is set up right now, yes. We are in the process of negotiating what’s known as a vertically integrated utility tariff. The ISO tariffs don’t allow for an entity such as us or any other public power entity so this new tariff would actually allow for entity that has load-serving responsibility and also owns generation. So there are certain netting advantages that we can get through a vertically integrated utility tariff. So that was something that was in process. We were hoping to get that done before March 31. At this point, we don’t have to. Dawes: But is that the mechanism for the replacement of the 2948A contract? Balachandran: 2948A is just the Western piece, the thermal energy that we get from Western. This is the transmission contract. Dawes: I misspoke. I meant the transmission contract. Balachandran: Yes, so that’s a way to actually implementing it. ??: That’s what [unaudible] is that NCPA, in Santa Clara in particular, believe that there are certain rights that we have under the Stanislaus commitments and that is with PG&E. So I think there is an opportunity to negotiate with them on how they will continue to meet those commitments for us. Dawes: I assume they’re trying to back away from the commitments and is it possible a litigation will result to see whether or not...[incomplete sentence] Balachandran: There are some other things that FERC mentions that there are obligations that PG&E has outside our IA. That’s the way they interpret it. And all these things have to be resolved in the call for the two technical conferences with ISO, PG&E, Western and NCPA and Santa Clara. So all the information and data, to my understanding, should be put forward in one place and have that discussion. Ulrich: I wish I could say it’s going to happen in 5 months, but it’s a reprieve to give us an opportunity to try to work it out. PG&E has got to get serious about this. ??: And the ISO too. It sounds like they’re intimately involved. Bechtel: Any other questions about John and the subject he covered? John, maybe you would like to address? Ulrich: Mr. Martin has a question. Is it all right if I have the dialogue up here? Do you want to take the time to do that? Bechtel: I’m assuming that. I think it would be all right to have a brief dialogue. Ulrich: Mr. Martin. I think your question, you may want to clarify, but I think you’re asking that “has there been any failures of the water system since it was started?” Are you talking about a physical one or water quality? 3 Martin: [inaudible] planned and unplanned outages and so I’m talking about unplanned outages that have sustained say more than a 2 hour basis, greater than 2 hours. Ulrich: I don’t have. Let me give you my belief here and that is I don’t think they’ve ever had a physical problem in delivering the water unless there was a break down in some particular piece of equipment. Where they have not been able to deliver water is if there is a quality issue that they’ve discovered as they’re attempting to deliver water. Then they curtail the water because they, of course, will not deliver water that doesn’t meet all their quality standards. Martin: Do you know if there are biological or unbiological contaminants, inanimate or animate contaminates? Ulrich: I don’t know which one they would be. It would be health related. Where they also give us warnings when there’s turbidity problems so that we can warn our customers about particulates that might be in the water. Martin: Would you happen to have any idea how many hours of outages that we’ve sustained when that happens? Ulrich: Well it would not have. I don’t think it’s affected our delivery of water here because of the storage that we have. But obviously I think that all these that we’re discussing have been very minor and short term in nature. Martin: Thank you. Ulrich: And if you’d like more detail, we can do more research on it. Martin: At the moment, I’m satisfied, but maybe later on. Ulrich: Give me a call or we can give you more details. I’m sorry I don’t have more specifics. Martin: Oh, I understand. It was kind of a hard question. UNFINISHED BUSINESS Bechtel: Thanks John. The next item is unfinished business and I don’t believe we have anything for us there. NEW BUSINESS BAWUA/SFPUC Legislative Update Bechtel: So we’ll move to item #8, new business and Jane Ratchye will give us a legislative update on BAWUA/SFPUC. Ratchye:You have the report, which I had to prepare a couple of weeks ago, so I just want to give you a little more update on what’s happened since that report was 4 written. I think in the report it says that none of the three bills had been assigned to a committee and all have now. AB 1823 was referred to Assembly Local Government Committee and the Assembly Utilities and Commerce Committee. The Local Government Committee will be the first to committee to hear it. AB 2058 the “enabling legislation” was also referred to the Assembly Local Government Committee and was also referred to Assembly Water, Parks and Wildlife Committee. Both those bills will be heard first in the Local Government Committee in a hearing on April 10 so that’s been established. SB 1870, Spier’s bill was assigned to the Senate Local Government Committee and the Senate Agricultural, and Water Resources. There has not been a hearing date set for that bill. We have sent a letter of support for AB 1823 as soon as we found out the committee assignment. We are in process of getting a resolution to the Council to support the other two “enabling legislations” SB 1870 and AB 2058 and we’ll have some, those will go to the UAC. We’ll try to get that done as quickly as we can to the Council with the resolution and letters in support of the bills. Definitely will try to get that before the hearing on April 10. Bern has attended a meeting of the Committee for Regional Water Reliability and he may want to refer to that somewhere in that meeting. I don’t know. Do you want to talk about that? Or are there any questions on the bills or on my report? Bechtel: Questions of Jane? Dexter? Dawes: Are these the package, Jane? It seemed to me that the last two seemed to have some overlap. They both had referred to issuing bonds for basically whatever purpose and is it likely that they’ll be coming down to the major one, 1823, and then one of the other two or how is that going to play up? Ratchye: I don’t think it will be both. Council member Beecham may have a newer or different perspective on that, but I think there’s politics around people who introduced these and anybody can introduce anything and they do in some ways overlap as you say. Beecham: I would say that the more supplemental and complimentary. The first bill, by Papan 1823, is the most directive and basically, as you may know, it takes the capital improvement plan, that we hope the San Francisco PUC accepts and approves, takes that schedule and implements that in a mandation bill that say therefore you shall meet your own plan. If you don’t meet it, then the state has the authority to do it and bill San Francisco. Even in that case, the system stays. The property of San Francisco does not take it away, but it does enable some alternative mechanism for getting the system built. The other two bills basically enable the BAWUA members to form a joint agency, mainly for the purpose of coming up with funding financing so that we can support San Francisco hopefully in a positive effort to fund their moving ahead with the Hetch-Hetchy repairs. Along with this also, Senator Jackie Spier is supporting us quite well. She has set up meetings between BAWUA with each of the supervisors in San Francisco and I believe in this past week, I was in a few of them, and I think we’ve now met with BAWUA and all the supervisors. It’s not clear that they have, at this point, a consistent direction, but they all have some interest in moving forward. The question is, “will they be able to find some strategy that will resonate with the voters of San Francisco?” Ratchye: I guess, Mr. Dawes, as I was understanding your question about AB 2058 and 1870 overlapping too in the legislation. I agree with Councilman Beecham that 1823 and 2058 are complimentary. 5 Dawes: And eventually we will select which one of these to support? Beecham: Our guess is not so much we select which one we support. To us, BAWUA has worked with all these legislators to come up with these bills and has assisted in their drafting as they may have been requested. We, I expect, would support each of them. More of the question is, “what will happen in Sacramento? Which of them might gain traction and move forward the best?” Ratchye:There are essentially two different routes to success eventually. Bechtel: Jane, is there likely that we will have some sort of action on these in this legislative session? Ratchye: Action? Bechtel: Action being either an actual bill. Ratchye:Well, it’s possible but there’s not a whole lot of time. What may happen is they at least come out of the Assembly. I don’t know. I’m not in a position to speculate on politics. Beecham: I think BAWUA right now has a success plan for promoting these and getting them accepted in both Houses, but I think also, we’ve got to be realistic in acknowledging that it may well not work this year, so our plan does allow for need be to continuing on an year. There is no guarantee that these will go through this year. Bechtel: Yeah. I just was wondering if this is going to take another session. Beecham:We need to have that in the plan. Ulrich: As I mentioned the other night we also have a contingency plan in place in case this doesn’t take place. These are just multi-prongs of trying to get to the same objective and that’s get Hetch-Hetchy to rebuild the system and if we have to go through it legislatively or since try to take over the governance, then that’s the direction we’ll move towards. It pays to go after this a number of different ways. Beecham: And I want to point out or add that for 1823, our Palo Alto constituents in Sacramento are fully behind it. We both have Simitian as a co-author of it, as well as Senator Dutra and Sher have signed on to it. So I think our Palo Alto contingent in Sacramento is doing everything they can to get this to work. Bechtel: Mr. Carlson, you had a question? Carlson: I just keep needing reminding of what the magic dates are here. Is it July that the San Francisco City Council has to vote to put the bond on the fall ballot? Ratchye: I have to review that but I think that’s close and I don’t know if you’ve heard that some of the San Francisco Supervisors are looking at perhaps a charter change to their municipal code whatever to allow the PUC to issue bonds without voter approval. 6 Beecham: The President of the Board Ammiano has asked the staff to come up with that type of recommendation to allow the Board itself to approve a revenue bond without necessarily needing to be approved by the voters. It would have a clause in there that if the bond were over $100 million, that it could be referended and therefore still go to the voters. From what we hear, and I’m not sure if this is true, but from what we hear is that Mayor Willie Brown is probably willing to along with that. I’m not sure and I don’t know if that has support from the rest of the Board. Ratchye:There’s definitely some skepticism and I think opposition on the Board of Supervisors for that proposal and my fear is that they’ll fiddle around with that proposal long enough that the time to put some bond issue on the November ballot will pass and they will blame this as an unresolved issue and that’s my fear in this proposal. Bechtel: Any other questions of Jane? Thanks Jane very much for the legislative update. Ulrich: May I just mention that this will not be done. We’ll probably discuss this at each of the meetings and not just have this on quarterly basis. The next parts of this are trips that are being planned to Sacramento by various organizations including local government. April 2 and 3 are days that will be spent in Sacramento by a number of people and the issue we’re trying to get in front of the legislature. We’re talking to City Council getting participation from them. We’re going to be going back probably for a request for a resolution from the City Council in support of these measures. And as you noted, Bern Beecham is spending a considerable amount of time working with BAWUA and the other legislatures on moving this along. Preview of Major Budget Changes for Fiscal Year 2002/2003 Bechtel: Okay. Next item on the agenda is Preview of Major Budget Changes for Fiscal Year 2002-2003. This is an information item. At this time, there’s always discussion that leads basically to budgets and plans that we will talk about specifically in the next few meetings. Ulrich: I suspect that you have probably very little questions or things to talk about on these subjects. We’re prepared to answer any of those you might have. Bechtel: I noticed that we have an additional handout here. Are the numbers changed or can I ask? Ulrich:There are a few changes and.... Bechtel: Which one should we refer John? Ulrich: The one you should look at is, copies are on the table, it’s got, I would say it is green, but my wife would say it’s a different color. Ralston:Teal. Ulrich:Teal? Thank you very much, Rosemary. So this is the latest one. 7 ??: Can you point out or finger from what we’ve already seen on the report? ??: We plan on going through all that. Ulrich: We’re going to go through this line by line. Bechtel: Line item by line item? Ulrich: As you recall from last year, this meeting discussion was rather short in that in prior years we’ve gone through all of the budget. But you requested and our attempt here is to give you a heads up early on before the budget is finalized. Those areas that are of significant dollar magnitude or of significant policy or change from what you’ve seen in the past. So I don’t expect that each one of these lines that you’d want to go through, but those that have a gray to them have a change that is different than what is in the approved budget document that you have. Those may be the areas you’d like to focus on. Bechtel: So those that have some shading, those line items that are shaded, is that the one you’re referring to John or Randy? Baldschun: That’s right. The ones that are shaded are changes that we’ve proposed for ’02-’03 that are different than the adopted-in-concept ’02-’03 budget which you approved last year. And the changes that were handed out to you that are reflected in this recent handout, there are only a few, but changes are occurring everyday, as you know, we’re right in the middle of a budget process. We’ve had several changes since last week so I’ll go over those right now. Bechtel: Please. Baldschun: The first one is legal fees. I think in the original hand out you saw a decrease in our legal fees and since then we’ve gotten information and we’re going to propose an increase in legal fees and Girish can answer any questions you have on that in a few minutes. Ulrich: As I recall, it was $400 minus going down and you can see it’s in the middle of the page. It’s $675,000 greater so it’s about a $1 million change. Each one of these we’re prepared to talk about. Obviously we put a lot of effort into putting this in, but I would propose that we would answer the questions that you have as opposed to going down each line by line and not stopping at every one unless you... Dawes:Do you want to go through the presentation and then take questions? Ulrich: Sure. Bechtel: Maybe, perhaps we should do this fund by fund first and then. First, we’re dealing with the electric fund now so perhaps we can go through this one and then move to, after all the questions, we move to the other funds. Is that okay Randy? Baldschun: That’s great. The other change I want to mention, getting back to the original question, was a change in the handouts last week. We’ve added wholesale sales revenue and broken out electric wholesale cost to serve outside the City's load. There are really only 2 changes that were made in the handout today compared to 8 last week. Girish can answer questions on power cost, Scott will handle questions on the CIP, and I’ll handle rates and reserves questions. Bechtel: Okay. Questions, Commissioners, on the electric fund? Dick Rosenbaum? Rosenbaum: I think the question I would have on this sheet has to do with the power purchases. I have a question about the amount of money that’s in here for power purchases. My premise is that we’re still getting almost all of our energy from Western and it’s hard for me to see the cost of that energy with Western is anywhere near the amount that’s in here and I do see that you’ve got this $8.1 million settlement. Maybe you can talk about that. How that fits into the total. Balachandran: Well, the $8.1 million is included in the $27 million proposed budget. The other thing that’s included in the $8.1 million, the dollars has to deal with annual settlements that NCPA pool members go through and this is something that end up every settlements run and dollars are reallocated. In addition, we are also budgeting $2.5 million payment into an escrow account as a reserve to handle PG&E’s charges for the SC Tariff, that’s the Scheduling Coordinator Tariff. This is something that PG&E has charged NCPA more than $50 million and that’s being [inaudible] at FERC right now. So word has been recommended by NCPA as to put some money away in an escrow account right now so there’s an additional $2.5 million in that $47 million [inaudible]. Rosenbaum: That $8.1 million; that would seem to be an unprecedented amount. We are somehow in arrears? To whom are we in arrears? Balachandran: It’s not really unprecedented. One thing we need to keep in mind is what the power prices were last year. Power prices last year in ’00-’01 were about 10 times normal so we always had settlements with the pool members. The numbers are large because power prices were essentially 10 times where they were so we always had settlements at the end of every year in the hundreds of thousands of dollars range. Because if NCPA has a budget of $180 million so millions of dollars is what the settlements usually work out to be about. Not just the pool members, but also power plant owners who have true cost of actually operating the plants and purchasing it [inaudible]. Rosenbaum: So without that $8.1 million and the $2.5 million, we’d be looking at power purchases at about $36 million. Is that right? Balachandran: Yes, I guess if you do that for funding, that’s what you’d end up with or it should be less than. ??: This $8.1 million? I mean we took that as income and [inaudible]? Balachandran: Well, that’s in our reserves at this point and so it’s in our financial forecast and will be included as deposited for reserves. Rosenbaum: It’s revenue we booked. Balachandran:Right. Rosenbaum: Not based on new calculations where we have to give back $8.1 million to someone? 9 Balachandran: And we have in our “cap?”, we have the [inaudible] and that’s in the auditor’s financial statements. We take the NCPA settlements and there are a number of other regulatory proceedings which [inaudible]. Rosenbaum: A couple of more questions. What are we doing about the Enron contract? Is there any money being put into reserve in case of some adverse ruling on that? Balachandran: I’m going to hand that question over to John since there’s a litigation issue, a potential litigation over the Enron contract. Ulrich: I don’t believe we have specific money set aside for that. Rosenbaum: One final question, perhaps. What are we paying Western for energy today? Balachandran: It’s about 2.6 cents. Rosenbaum: 2.6 cents. So if we got most of our billion, I’m assuming we got a billion kilowatt hours and then that will be 26 million. Balachandran:Right. Rosenbaum: And we don’t get it all from them. Balachandran: Right and there are other “pass through” charges that are passed on to us. There are also transmission charges included over here, there’s [inaudible], ISO charges, all these ancillary charges that the ISO has passed through to Western. So that’s all included. Some are true costs that get billed. Others are assumptions of cost that could get billed. Rosenbaum: Now, if I look ahead, well, I’m getting ahead of myself, but when we get to the 10-year budget, I’ll be looking at next year’s power purchase number, which seems to be about the same as this year’s power purchase number. Balachandran: Are you talking about ’03-’04? Rosenbaum: Yes. Balachandran: And it’s the same as ’01-’02? Rosenbaum: ’02-’03. The 8.1 million won’t be there. The escrow won’t be there so is there something else that you’re anticipating? Balachandran: No. The escrow will continue to be there. We’re just funding $2.5 million this year. Rosenbaum: No, they are showing. ??: Pardon me. 10 Dawes:There is an increase in the [inaudible] forecast this year. [inaudible] we don’t track it all. ??: Dexter is pointing to the 10-year report, which says [inaudible]. Balachandran:The settlements are, but the escrow will probably stay because the potential exposure to us could be up to $15 million and so we’re not going to fund the whole thing with rates in the reserves right now, but the escrow seems to be much [inaudible] prudent approach to our funding. Rosenbaum: Thank you. Bechtel: Other questions on the electric fund? Mr. Dawes. Dawes: I don’t like to belabor numbers but I have to because I’m trying to deal with the 10 year plan and the budget schedule and I’m having a great deal of problem in reconciling. I don’t know if it will be less of a hassle to, sort of, treat these together and say, have the electric fund budget number and the 10-year forecast? Is that something we can do? Ulrich: This is to recall. What we’re trying to do here is show the significant changes that are not all. So I don’t think you can tie them together. This is to highlight those. Dawes:For instance, you show on the 10-year plan, the kilowatt hours go up from 981 to 998. This is what Dick referred to. Over on this one, you say that consumption is going down. So I just don’t know what’s happening. Bechtel: Revenue isn’t going down. Dawes: No it says consumption is going down too. Retail sales revenue declined due to reduced consumption. I don’t know maybe this is a budget number here versus a forecast over here, but these are fairly fundamental. I mean, it’s very confusing to put up a budget for last year that we know is just total cockamamie. Ulrich: Well, I’m trying to meet the needs that you’ve asked for. This objective of doing this was different than the 10-year financial forecast, but we’ll try to [incomplete sentence] Dawes: I guess the issue then, my issue, is the fact that you put in a set of current year budget numbers for comparison to next year’s budget and this year’s budget numbers are very significantly different from our estimated actuals. So it’s very difficult to draw any financial conclusions comparing a budget to budget when the current estimate, which is now 6-7 months into the season, we know there are going to be significant changes so I tend to relate to “are the costs going to go up? Does our sales go up or down?” That kind of a thing. Ulrich: Well would it be better to go through the financials first and then come back to these? Because what we’re trying to do is just to highlight things so you can say, “well why are you doing that? Maybe that’s a better [inaudible]” 11 Dawes:Yeah, I mean, this says consumption is going down and this is saying consumption is going up. So I guess that’s the first question. Randy will answer that. Bechtel: My feeling is that the purpose of this was, at least the 2 years I’ve been here, we’ve been looking for some way to highlight the changes, major changes, and I would suggest that we look at this by taking note of what the changes are and then when you look at the forecast, relate those changes to the forecast and say, “is that assumption correct or not?” So just look at the changes and see what the rationale is there. The inconsistency we can get to perhaps later on. Ulrich: Would you like to answer the question? Baldschun: There is a reason. The reason for this financial statement format is to enable a comparison with the adopted budget because really what you’re going to be looking at in the next couple months are the changes from the adopted-in-concept budget to the proposed budget and this here is more of a reality check. For example, we now anticipate a 10% decrease in consumption and a drop in electric sales revenue. The proposed budget, is based on the lower consumption from the electric system for the last fiscal year and reflects our revised projections. We propose to reduce the adopted-in-concept budget from $79 million down to $72 million because sales are down. Over here in the 10-year financial forecast, there’s a line item for sales consumption of 981 gigawatt-hours under the revised column and that is our latest projection for the current fiscal year. What we’ve done is we’ve taken the sales down to 981. The adopted budget figure was probably close to a billion, over a billion. Now the reason it goes up next year is because we’re anticipating that the economy is going to come back and that the worst is over, so ’02-’03, we’re expecting a slight increase in our sales. We’re projecting that the worst is over and that worst is occurring this fiscal year and slowly going to come back up. Dawes: I understand that and I guess I will just make a request or a suggestion that to me to compare a budget to a budget when we know that the budget under which we are now performing is completely obsolete and it’s a particularly, in war it’s very close, but here it’s just hugely different. It’s very difficult to make any kind of, draw any kind of sensible conclusions in this kind of comparison. To my way of thinking, we should be comparing to the estimated actuals to next year’s budgets. Ulrich: Well, we have a budget in the budget in the budget process and procedure in the City to follow so we what we’re trying to do is to fit it. Dawes: Okay, so now you’re saying that this is directed from on high, that we really need to do budget to budget. Ulrich: This is supposed to be informative. We’re not trying to say it shouldn’t be, but we’re following a format that fits within the budget and it’s the budget, if you took out the budget that’s been approved, the 2 year budget, and you look at it, we wanted you to be able to see something that compares with that budget. Dawes: Big book has not only last year’s current year budget, but it also has the estimated actuals and it has 2 columns and I guess I’m saying is that if we’re going to follow the format, we should include that estimated actual as well. 12 Ulrich: Maybe you’d want to critique us on how to do this better. We tried really hard to make this useful and I want to be able to give you what you want but this was intended to be helpful and show significant changes, not to be the financial document for the utilities. I apologize if it’s not meeting that. Bradshaw: If I understand what Dick just talked about. I think the [inaudible] one single column between adopted budget ’01-’02 and the proposed budget ’02-’03, revised ’01-’02 which I presume is [inaudible] estimate to actual. Balachandran: And that’s on the 10-year. [inaudible] Bechtel: Perhaps maybe the feedback we can give is that in highlighting these changes perhaps consistency between all the documents would make sense. I have a question, I guess, on the underground system rebuilds and so on. I noticed that we’re netting out on the CIP the same amount of dollars on this. Are these questions really more of timing or are there dollars in a project cost, for example, the Park Blvd is up 700,000, North/South is up, but on the other hand when you close out previous projects, the dollars go negative. Are we just looking at timing issues here on these Scott? Bradshaw: On these particular items, the increases are related to some engineering phases and right now we found in engineering that the cost of construction are significantly higher than we originally estimated. Especially one of them is the boring cost. We found the soil conditions much different than expected so the boring costs have gone up significantly and causing the preliminary estimates for construction to go up considerably. Most of these estimates are changes that are directly related to changes in scope that engineering found as they got into the detail. Bechtel: So that translates into real higher costs? Bradshaw: Real higher costs. These will be real higher costs. These will not be netted out. Bechtel: And the one with the boring is primarily on the North/South Hampton where the cost increased? Bradshaw: That’s correct. No wait a minute. The quarter million dollars, that’s for the engineering. There was the increase. It’s only $500,000 for construction and the $500,000 is directly related to the additional cost of boring. The proposed budget that breaks out [inaudible] Bechtel: Right. As I look at the total, expenses are up a little less than 10% comparing expenses total and revenue is down about 10%, so it’s a net change of 20% top to bottom on this in terms of the net revenue minus expenses? Ulrich: Well you don’t know what the other items are. This is only some of them. Bechtel: Only the major items. 13 Ulrich: Or significant which we determined may not be related to money. It may be another something in policy. Is this a helpful document? Baldschun: We gave this last year and you guys loved it. Bechtel: Well this is now getting scarier. Ulrich: Well what is it that you’ve had a chance to look at some of it? What we thought you’d see, I guess, is that one, we know how to manage the business and we’re telling you things that we’ve learned from when we put the budget together that are different such as the legal fees have changed. So what we’re trying to do is give you that update on what we know that has changed the financial picture of our cost and also of our revenues. It has been a dynamic year and so it’s an opportunity to see what those changes are. Bechtel: This is a helpful document. I mean I see the changes. These are significant changes. We’re asking questions about significant changes. Well what we don’t know is what the impact is on the bottom line really until we get to the 10-year projection. Perhaps what we’ll do is these are significant changes, perhaps we do this, and then we remember those when we go into the other document. So perhaps that’s how best we look at this at this point. Other comments on the electric fund? Beecham: I’ve got a question. On the legal services as you indicate on the comment side, part of that would be shared by NCPA. Is this the net amount or gross? Balachandran:This is gross. The revenue account doesn’t show up on this spreadsheet, but essentially it will be about a 7/30 split, we’ll end up paying about 30% on most of these costs. Beecham:Excellent. Good. Bechtel: Okay. Any other questions on the electric fund? If not, let’s move to significant changes in the water fund. Questions on this fund? Mr. Beecham. Beecham:Later on, there’s a discussion on the waste water that volume is down and I presume that is indicated and is relative to the [inaudible] water used as well and that’s in terms of waste water. So therefore I presume water volume is down also? Baldschun: Water volume is down I think 5 or 6% from our adopted forecast but we didn’t make any mid-year adjustments because it was just at the threshold. We could, but we didn’t. But we have seen a significant decline in wastewater collection sales revenue with buildings vacant. Beecham:And that was my question. The reduction in water use is a consumption or vacancy or unused vacancy? Baldschun: Well it’s vacancy, but for commercial customers, we base it on the water consumption, as you know. That’s how we charge sewer charges to businesses based on their water consumption. If they’re vacant, there’s no water, there’s no sewer charges. 14 Beecham: Could one do a rough correlation and say if water usage by commercial is down by more than the 5%, that therefore we have roughly that amount less commercial operations in Palo Alto? Baldschun: I don’t know. We’ve never done that kind of statistic, but I mean you can do it. You can try to correlate I suppose and see how you would test it or see how you would verify it. Beecham:Do you know off the top of your head who your commercial customers are and how much they’re down on a percentage basis? Baldschun:On the water? Ulrich: We do on the electric. Baldschun: We don’t have the customers’ class breakdown tonight, but we can provide that. Beecham: If you could, I’d be curious, because that would translate more than electric where you can’t conserve. Water I don’t think they’re conserving. They just leave and don’t use water, so that would be useful for getting a vacancy rate on commercial. Baldschun: Okay. Bechtel: Mr. Rosenbaum. Rosenbaum: On water, the water commodity line item where you show this $414 thousand increase associated with the SFPUC, it says the Adopted in Concept figure was much higher. Last year, we were anticipating the considerably larger increase from the SFPUC? Balachandran:Yes, that is right. In the projections they made, they had projected a higher rate increase, but now they’ve changed their schedule of construction programs for 10 years to 14 years and projects have been delayed. Whereas a year or two before, they thought, they were a little more ambitious then, so that’s the latest. Rosenbaum: So the $414 thousand increase for next year is firm? Balachandran: Nothing is firm. This is the latest we have. Bechtel: Other questions on water fund? Mr. Dawes. Dawes: At your presentation yesterday, John, you talked about the $180 million number over 10 years. My recollection is we won’t be receiving any charges from San Francisco until the CIPs are actually completed and folded into their rate base and then it gets bumped up so I presume that that $180 bump won’t commence until a year or 2 or 3 or 4 but if it’s over 10 years, that’s like $18 million a year and we currently pay them now $6 million a year so it’s $18 million more per year so that’s almost a factor of 300%. And you talked again yesterday about a 100% rate increase. Our purchases are only a fraction of. 15 Ulrich: I’m not sure that the $180 million is amortized over 10 years. Dawes: It’s a [inaudible]. Ulrich: We owe $180 million. That’s what we’re going to owe, but I don’t think you can put that $180 million and get that all paid back in 10 years. Baldschun: The 10-year financial forecast includes the SFPUC rate projections, which include the CIP now. This is just a 10-year forecast. The CIP will obviously be amortized over a number of years. Dawes: So the 20% increase that we’re talking about will be in preparation for those rate increases? Baldschun: Right. The 20% that we’re going to be talking about later is not really the SFPUC CIP. It’s our own CIP mainly. Ulrich:There’s a forecast of water cost from San Francisco in there right? Baldschun: There is an increase from San Francisco in there, that’s correct. Ulrich: So that would not be the $180 million. It would be a portion of it that’s in that water increase from San Francisco. I would expect they’re going to amortize $2.5 billion over a much longer period. We were trying to show what our share would be. Dawes: And presumably that forecast that SFPUC gave us of water rates includes whatever our share would be of that. Ulrich: Well we think so. I wish this were a better relationship between what we estimate they’re going to charge us for the water and what we’re really going to get for it. It’s not clarity. That’s not that good. Bechtel: Thank you. Other questions on the water fund? I have a question on the format here that I find a little confusing. As I understand, CIP is not included in the expenses, is that correct? Yet you have got a subtotal for expenses at the bottom below CIP, so can, if I interpret the subtotal right. Ulrich: Rosemary, how did you? Ralston: Actually, it should be included and I think it might have been the way it’s formatted. Ulrich: So it’s really a total of the net changes of the CIP and expenses. Bechtel: Okay. The numbers, just looking at them, I guess they netted out so closely from the CIP changes to roughly zero that when I added up the other expenses, I wasn’t sure if you’re putting there or not. So okay, so that expenses total is everything above the line all the way up there, Rosemary? Ralston:That’s right and what you’re seeing are projects moving and dropping off. 16 Bechtel: So in this case, this is a question of timing. We’ve deferred the spending and moved the project. Ralston: No, CIP projects are planned on a 5 year plan and the first year, these are from the regional water well re-storage study, and the first year, it was the purchase of the land, but they planned that they were going to be doing the projects in one year and if you look in the comment section, this is not shaded because we actually planned not to have any funding until next year and then the funding does kick in. You will see the funding will start to kick in in ’03-’04 for the next one over the whole 5 years [inaudible]. So that’s sometimes they drop off because there’s no additional funding or sometimes it’s part of a plan that [inaudible] and that’s the case so that’s why it was not shaded. Bradshaw:Okay. In these adopted budgets, you have to have the moneys allocated before you can commit those moneys, so what happens is you have those moneys allocated in ’01-’02 and towards the end of the year, we’ll try to get all those moneys committed and then the actual work is actually taking place in ’02-’03, but the money had to be in the budget so that we can commit that money. And so there is no budget request in ’02-’03. Bechtel: Any other questions on the water fund? If not, let’s move to the gas fund. Ulrich: It starts on the bottom of the page. Bechtel: If there are no questions on the gas fund, let’s move to waste water. Beecham:Sorry, I got one. Bechtel: Sorry I didn’t hear you. Beecham: I just wanted you guys to go first. I just want to make sure I understand the implications of some of the numbers. On the metered sales revenue from the adopted budget of ’01-’02 to the proposed ’02-’03 is a $23 million reduction in revenue. You indicate on the comments side that there’s a 26% retail gas rate decrease and I presume that’s average. If you take the 26% decrease from the 49 million, that’s about 36 million. Then there’s an additional decrease of 30 % from the 36 million to the 25.7 million and so I just want to verify my assumption that that implies a decrease in consumption of 30%. Baldschun: That’s correct. I forgot to put that in the explanation that there’s a decrease in consumption here. Getting back to the financial forecast, we were using forecasts at around 36-37 million therms and then we reduced it to 31 million therms. So that’s a significant decrease in consumption that’s reflected in lower revenue which accounts for the piece that you brought up here about the sales revenue going down. So it’s a combination of the consumption drop and the rate decrease for the reason the revenue is going down. Dawes: However, Bern, it’s budget to budget not actual to budget. They say it goes down, but in fact it goes down just a tiny little bit. This column that’s missing is really confusing. Baldschun: Well you’re going to see this in the budget though. When you look at the budget and approve the budget, this is what you’re going to look at. 17 Dawes: But there will be that third column in there that makes piece with my mind. Baldschun:Okay. Bechtel: Okay. Other questions on the gas fund? Okay. Major changes in the waste water collection fund. Okay, I guess we’ve seen the significant changes. Is there any conclusion to be made after looking at all these significant changes other than that electric fund look like it’s had the largest changes and uncertainties? Dawes:Mr. Chairman, do we discuss rate change proposals here or in the 10 year forecast? Bechtel: I think we’re going to discuss them in the 10 year forecast. Baldschun: Next month, between now it’s a short month because we’re in the middle of the month, but between now and the next UAC meeting, there may be some more significant changes. So if there are, we’ll be coming back in April with a new spreadsheet with a new column and you can. Ulrich: I don’t know. I don’t know if you want to come back. Baldschun: Okay. Dawes: No more columns. The April meeting got moved back. Baldschun: I know. It’s April 1st. Dawes: April 10 Baldschun: It’s April 10. Dawes:You’ve got 4 weeks. Baldschun: I mean, I’m just going through the process because I know it’s always a question in your mind of how this is going to go through the budget process. So this is a first crack at the budget. You’ll possibly see some new changes next month, time permitting, and if there’s any significant changes from what we’ve already told you tonight and then you’ll see the budget in May for action as well as a rate proposals. Ulrich: You might want to take a moment to understand the timing of the budget being put together. Rosemary? Ralston: I’m sorry. Ulrich: Rosemary, would you like to tell the UAC the budget key dates so they know how, when the budget will be finalized and what dates? Ralston:Essentially, and it is in the report, but the next we’ll be having - budget will be submitted to ASD. We’ll have our internal hearings sometime in early April. They’re planning on sending the budget document to press April 19, but we’ve been promised an extract of the utilities. The next hearing will come to the UAC May 1st 18 and then on May 14th, we’re scheduled to go to the Finance Committee. Then of course Council’s optional budget is scheduled at this time on June 17th. Ulrich: So there’s very little opportunity to make recommended changes. So the intent of tonight’s meeting was that if there’s something that you see we’ve missed or an area that needs more clarity or focus, because when we finalize this budget, it’s going to be cast and print and gone to the printers. Bechtel: Yes, Mr. Rosenbaum. Rosenbaum: In terms of questions of timing, if I had the impression that last month, you said, “certainly the gas rate proposal would be in front of us this month”. Baldschun: I think I might have said that. I think we were going to first bring the rate proposal to the UAC and then there would be a lapse between taking it to Finance and Council. And then we decided to do it the way we normally do it which is bring it on as part of the budget process which would come to you in May and then go to Finance in May and then to Council in June, so we did change that, so you are correct in stating. Ulrich: I believe the information here tonight will give you what basically our rate proposal is. It’s quite clear on that. It’s not in the form of the CMR ready to go the Finance Committee and the City Council, but that’s the purpose again for tonight, to be able to go through the explanation of it before it all gets cast in mortar and concrete. Bechtel: Before we leave or decide on significant changes, there are enough questions about format and all that, I’d suggest that those of us who have some specific recommendations address those to John and to Randy so that the next time, I guess which would be certainly next year at this time, that we get a format that we’re all comfortable with and that’s a lot easier to go through these flags and what’s important in there so. Ulrich: I think I’m going to go back and take a look at the one we did last year. We went through very quickly as I recall. I think that format maybe we should follow. Bechtel: Perhaps so. Beecham: So you’re going to alternate between the old ones [inaudible] and this one which was created last year? Ulrich: We’ll make some improvements in this. Ten Year Financial Forecast and Rate Proposal Bechtel: Okay. Next item is the 10 Year Financial Forecast and the Rate Proposals. In this case, no action is required of us, but this is to again prepare us for looking at both rate changes and, excuse me, the 5-year CIP. I’m about to lose my voice so. Let’s move ahead with. We could, I’m suggesting, I don’t know if it makes much difference, we might just start there in the order that’s in the packet there if that’s all right with every one which covers gas utility which may have the most. Dawes:Can I ask a general question first? 19 Bechtel: Yes, go ahead. Dawes:John, last year, there was a study conducted by an outside consultant about transfers to the general fund from the Utilities departments. Much delayed. Finally came out elaborate proposals for how to calculate transfers and so forth. I can’t remember whether the final disposition of that was simply to settle for a 3% annual escalation in the rate of transfer, which is indicated here. Is that the way we came out of that session? Ulrich: That’s my recollection. It’s more complicated than that. It had a reserve component in it that if we earned, if revenues went up, that we’d take credit for moneys spent for CIP and then there was a net revenue after that and that would be used to determine what the transfer would be. So it moved away from the asset to revenue. Dawes: This isn’t necessarily a change then in our way of doing things. Baldschun: This is a change. The methodology was suspended last year when wholesale energy prices skyrocketed and our rates went way up. The formula just didn’t work. In the budget this year, at least so far, we have proposed a 3% annual increase in water, gas and electric transfers based on the previous year’s transfer. Now that is a departure from the methodology. Ulrich: We used the previous year where we had it locked at a set amount and that was the base and then 3% above that, rather then going to the revenue formula. Dawes: By the way, the City has budget problems and depends on the Utilities for contribution to underwrite City activities, but I don’t know if it’s appropriate in this context, is this endorsing this change? Because there’s certainly a great deal of caution about for instance driving water transfers higher compared to the other cities and towns around on a per capita, per usage percentage basis. It was very high and my recollection was we’re going to hold that steady and I just feel that if there is contemplated to be a new policy, then perhaps, is this the time to talk about it or there is another time to talk about it? Ulrich: Well, I guess I’d recommend that this not be the time because we put the forecast together based on the current policy and what we’re doing is showing what the parameters were in developing that. So the 3% annual escalation was included and if you want to go back and reconsider the transfer policy that would be something you’d want to do at another time. Bechtel: Mr. Rosenbaum. Rosenbaum: It just seems to me a couple years ago, we and the Council adopted a new transfer policy and what I assume that’s in here is the result of the transfer policy. Baldschun: No. The transfer policy the Council approved was rather complicated in methodology that basically was triggered by sales revenue and because electric sales revenue was up 46% and gas sales revenue was up 200%, when you apply the methodology to that kind of revenue base of transfer, it becomes unreasonable. So rather than use a formula that produces results that doesn’t do anyone any good 20 including the City, we internally set an amount of 3%. The 3% methodology is actually, for the Water Fund, was the one that the Council did approve. This is all beyond the Utilities department and involves the City Manager’s office and the City Council. And it hasn’t gone to Council, so what we’re doing here in our projections; we’re trying to make some assumptions of what the transfer is. It may not be 3%, but that’s what our assumption is. Ulrich: You may want to, correct me if I’m wrong, but if you go back and look at the agreed upon transfer methodology, there was basically a cap of 3%. If it were above that, whatever that additional amount that we’re earning would go into a reserve account. And that reserve account would be used to fund the transfer during those years when the revenues were much lower, so it was supposed to smooth it out. So this is not, would not be very far off from that, at least in the early years, but we do need to pull that back out and go through it step by step again. Baldschun: I don’t think I’m prepared tonight to really discuss the equity transfer methodology. Rosenbaum: I just didn’t know whether we were endorsing this or whether it was just. Baldschun: No, we’re not asking for any action tonight. Even when you do take action on the budget, it’s not to endorse a methodology of transfer. That would be a totally separate report and a totally separate action if we were to go that route. Ulrich: In the general fund, the general fund budget plans are consistent with this. Their assumption is in preparing a general fund budget, that this transfer methodology, the one that’s listed here, would take place. So they’re expecting to set up this transfer amount in the general fund and it has a 3% escalation. Bechtel: I’m assuming that we are to view this as a forecast and planning document and not necessarily a policy document. That’s how I would view this. This is what business does is a long-range plan, so based on the assumption stated here and the anticipated rate changes; this is what the long range forecast for the Utilities. Is that a reasonable way of looking at it? And this is all that we are doing tonight is taking a long-range view of this change. Ulrich: Yes. The early years right now we’re using for calculation and rate changes and those are important numbers for that purpose. Bechtel: Okay, should we start. Randy, are you going to talk about the basic assumptions of when you put this together for each of these utilities as we go through? You have this write up in here, which is real clear, but you might want to reiterate. Baldschun: We’ll do it fund by fund as you mentioned, but when we get to the water, electric and wastewater collection, I have some separate slides, which you haven’t seen, that’ll break out the rate increases in the 2 funds and also discuss what’s going on in the electric fund, which even though we’re not proposing rate changes or anything, we want to highlight. And the purpose tonight is to highlight the changes, highlight the reasons for the rate increases and get your feedback. In the gas fund, as you know, we’ve locked into some supply contracts for ’02-’03 and we’ve got a pretty firm handle on what the cost is going to be. We can translate 21 that into a rate decrease. As I mentioned, the gas sales have gone down significantly this fiscal year in large part, I think, to the high rates and also the conservation that we’re seeing. With the slow economy, that’s another factor that is hitting the gas revenue so we revised our gas forecast from the adopted-in-concept budget. The gas rate decrease proposal is designed to maintain an adequate Supply Rate Stabilization Reserve. We want to make sure that there is an adequate amount of funds available for any potential contract settlements for existing and prior supplier contracts so we added $7 million on to the target level for the Supply rate Stabilization Reserve to arrive at the desired reserve balance. So if you look at the balance right here and you look down here, the amount that the balance in the reserve is about $7 million over the target level on the Supply Reserve. From that reserve balance objective flowed the rate decrease of 26.7% and, in addition, another potential decrease the following year because gas costs are stabilizing and coming downward. We’re estimating that there will be another decrease. The question is why don’t you just do the decrease all in one year and make it larger than 26.7%? Well you can do that, but you’ll still have this issue that is undecided regarding this contract so our plan is to wait and see. We’ll get more information on that and then make a decision on the following year. Dawes:You’re talking now about the terminated Enron gas contract? Baldschun: Yes. So it’s a $12 million decrease. In terms of the way it impacts customers’ bills, the 26.7 % refers to the overall system average decrease. We have about 25% of our gas customers are under contract, fixed prices that are essentially a revenue neutral position for us. We buy the gas in the market for one or two years, we sell it at that price, so there’s no loss, there’s no gain. So those contracts, the 25% of sales, they’re not going to be affected by this decrease which means that the decrease will be spread higher to the core customers, residential and commercial that are not under contract. So the decreases we’re seeing for residential customers are at about 35-36% in the wintertime and commercial is about 30-33%. Ulrich: Randy. Bern asked me to ask you this. About your transfers to the general fund [inaudible] I told him that was part of the plan. Bechtel: We’re going to fire this. Baldschun: My only purpose to put it there was to see if you’re paying attention Bern and obviously you are. Bechtel: Well if you go out of business in 2010... Beecham: Just a minor oversight. My concern was that maybe you were planning to secede from the City. [inaudible comments and laughter] Carlson:Don’t put any ideas into his head. Baldschun: Okay. Any other questions on the gas? Bechtel: Mr. Carlson. 22 Carlson: This gas area, and electric has got some of this too, there are just some wild swings here because of the rate changes and the changes in consumption and pulling money out of reserves and putting money back into reserves and in that kind of situation, I think it would particularly useful to split out the capital budget from the operating budget, because I think it will give a clearer picture to look at, just all the operating stuff together and we’ll look at the capital together. But I think what’s going on here is that if you do that, or try a rough version of that, we are probably, at least in electric, and last year in gas obviously, operating at an operating deficit. Our operating revenues were less than the operating expenses and we just pulled money out of reserves to try to smooth things out. If we’re going to, and we’ve done that one place here we’re going to have a series of rate cuts this time and with a gigantic rate increase in ’01, then we’ll have some rate cuts and then we’ll start increasing rates again and I’m wondering if that’s a situation where we should plan on smoothing things some more and I’m not sure there’s much point unless commodity prices go crazy again. They have a rate cut of 17% one year and two years later increase it back up. A little more smoothing might be a better long run policy. It sends a more consistent price signals to our customers and so forth. Baldschun: We could run the model and defer the rate decrease and see what happens, but if this were actually the situation, I would rather see the decrease. Our gas rates are uncompetitive right now. They need to come down. Even if they have to go up, like you say 3 years or 2 years, after we’ve had a decrease, I think that’s palatable. I think the key points right now is to get our gas rates comparable to PG&E. They’re not and I think we have to commit to do that. Carlson:That’s a very good rationale. Does that take us below PG&E then? Baldschun: That I can’t answer. Obviously not right now, with the proposal that you’re going to see in May, we’re still going to be above PG&E. But then some of the keys, will have to be decided on what the gas purchase contracts are that we entered into for ’03-’04. We probably entered into about a third of them at this point, so we have two thirds to go and let’s see what the price is and see how that translates into a decrease. Then you’ve got the sales issue and the consumption issue. Is that going to stay down? Is that going to come back up? That will have a big impact. Carlson:This implies the significant, I mean, you had a really sharp drop off and this implies a modest rebound, but basically we never get back to where we were in ’01 until a period. Baldschun: Well it’s going to be based on supplier costs. Supplies commodity prices are the key and whatever the market is what we’re going to reflect in our rate levels. Carlson: I’m talking about consumption. Baldschun: Oh, I’m sorry. Carlson: Consumption dropped off dramatically and basically this projection has us never coming back to where we were, really last year, in terms of physical consumption. Baldschun: Right. It may be a little conservative in terms of the come back. But you know on the water fund, we never came back from the drought in the late 23 1970’s I think. We’re still below the peak in the 70’s in water usage. But if we do, and hopefully we’ll come back, but I don’t know if we’re going to come back in any kind of progressive style. There are still some high bills out there. Electric rates are still 43% higher. Water rates are going to go up. Sewer rates will probably go up, so there’s some cross price elasticity effects that we’re going to continue to see I think in all the utilities because all the rates have been going up. Carlson: Okay, so the philosophy here in gas is to get back down to competitive as quickly as possible. Ulrich: It’s also to have stability, more stability in prices so you don’t have big swings. That’s why we’re laddering. Right now we’re buying gas because prices are quite low. We’ve deviated from the laddering policy and we’re not trying to lock in gas at these lower prices further out. Carlson: Are gas prices starting to inch up again? Girish, can you give us a feel for how much gas prices are going back up again? Balachandran: Well the gas market is what you call “contango” right now, so future prices are higher than today’s prices. Where just a year back, it was what was called “backway?” which is future prices will go downward. So when you’re buying gas for ’03-’04, the prices are higher than today’s prices. [inaudible] Carlson: Oh, it’s that much? Ulrich: I’m sure Dick has a number from. Rosenbaum: Well, you know, I’ve stopped looking. When Girish talks about $3- 3.50, that’s for future purpose, that’s not. Carlson:Yes, but it’s just a year or two out. That’s wow. Balachandran: I should check the exact number. Carlson: But it’s significantly higher a year or two out. Balachandran: Yes, compared to 25-30% at least. Carlson: Okay. Ulrich: We’re attempting not to have these swings in rate increases and decreases and increases in rate. Rosenbaum: But you need to be competitive and have your reserves too. Ulrich: Okay. Bechtel: Other questions? Mr. Dawes. Dawes: Randy, could you track the bond money through schedules? As I try to figure it out, even if I assume that all of our CIPs this year were from bond proceeds, I still couldn’t account for why the reserve for bond service, the bond reserve, has lowered as low as it is. It would seem to me that it would go into a bond reserve 24 and then it would be taken out to pay for CIPs, but basically we had $13.1 million go into the gas fund. We had total CIPs of about 5.1 between the two and we only had 6.9 go into the debt service reserve. Baldschun: Okay. The bond proceeds we see this year in the Gas Fund is $13,137,000. We’re going to use the difference between that and the ending balance of $6,987,000 so say $6,000,000 will be expended in FY01-02. We’re paying for soft engineering costs for the CIP projects for prior years so even though the CIP for example is only $5 million, we’re going to be paying back the soft cost for these projects, for these specific projects in the years, so we can get away spending more than the CIP hard cost in that year and that’s why the numbers don’t particularly add up. If you take the $6,987,000 on line 55 and then look at line 20 for ’02-’03 and then ’03-’04, you can see how the $6,987,000 gets broken up in those last 2 years. Dawes: Well I assume we’re intending to sell more bonds next year. Baldschun:No. Dawes: The $3,587,000 is not in the bonds. Baldschun: The bond issue is a departure from policy. This one issue was driven by the water fund primarily. The gas is there because we needed to have rate relief for our customers. But we’re not going to go out for bonds. This is strictly a one shot deal. Dawes: Where does the $3,500,000 come from? Is that shown on this schedule as part of the reserve? So it comes out of there and flows up into bond proceeds? Baldschun: Mm hm (in agreement). As a source of revenue. Dawes: Okay, basically we typically have spent in the $5-6 million range out of our own cash flow for CIPs. We’ve bonded them this year, so what we typically would have spent the $5 or $6 million I guess has all gone into the RSR which was so desperately diminished by our [incomplete sentence] Baldschun: Everything basically ends up in the RSR, any savings or any revenue source. Dawes: One last point. Your budget schedule back here, I guess it’s the right time to try to figure this out without jumping ahead, shows revenues at $25,722,000 for next year budget and I understand for ’02-’03 is proposed here and it’s not the budget number. The sales number is $31,215,000 or $6 million or almost 20% higher than what you show on the budget. Is this just due to changes and projections in the budget or is it just something I don’t understand here? Baldschun: The numbers again? I was shuffling the pages. Was the question $49 million? Dawes: No, you’re budgeting revenues in the gas fund of $25,722,000 metered sales revenues. Baldschun: For ’02-’03. 25 Dawes: ’02-’03 and the 10 year forecast it’s shown as $31,215,000 after the $12 million rebate there and it also includes distribution charges as well as supply charges and I assume that’s a consistent number, but my comment is that it just seems like a very large difference, $6 million. Am I interpreting it wrong? Baldschun: You expect it to be $31 and it’s $25, is that correct? Dawes: Yes. It just seems like a very large difference. Baldschun: Well, I would say the $25 million figure is incorrect and the $31 million figure is correct. Dawes: So when the final budget comes in May, we’ll see something closer to the $31 million? Baldschun: Yes. Hirmina: This is actually the numbers that I gave to Rosemary for the budget so I don’t know what the $25 million. Dawes: I don’t know what it was either. Last question. We have basically a 100% increase in gas over a 2 year period, I guess, are you going up it’s one number. Coming down it’s another number but after we get through with our 2-year roll back, Randy, what’s your guess at where we’ll be in comparison to the big bulge? Are we going to be 10% above where we were back then or 20%? Baldschun: I’ve been trying to figure that out Dexter. There’s a lot of different ways you can do the numbers because you’re dealing with different bases. Also you’re dealing with different consumption levels. When we started this rate increase process, we were selling 36 million therms a year. The revenue increases, on a magnitude, were much higher than now we’re having a 12 million decrease, which is based on a smaller base. But my guess is that we increased our residential bills, typical residential bill about 200%. I think with this decrease that we’re proposing, of that 200%, this is probably 68% of that 200% that’s coming back down. Dawes: So your charges per therm on your bill 2 years ago would be $4.00 and now it will be $5 or $3.4? What does the consumer see? Rosenbaum: I know what it used to be $6.00. The lifeline rate is $4.80. Beyond the lifeline it was $6.00. We’re looking at $7.50. Dawes: $7.50 would be the charge? That was my question. Baldschun: It’s going to come down to about 83 cents a therm and that’s based on a bill of 100 therms in the wintertime, which is about $83.00. That’s the proposal. Ulrich: That’s for residential. Baldschun: That’s the residential bill. Ulrich: It’s 91 cents. 26 Baldschun: That’s a system average rate, but I think you want what it actually means to a residential bill. Well if you use 100 therms, it’s about 83 cents. Dawes: And Dick said he was paying about $6.00 so that’s probably where the [incomplete sentence]. Rosenbaum: Yes, I mean it was $48.60 for 100 therms in the winter, most of that would have been for [inaudible]. You get 90 therms so it would have been $4.80 so it’s still a fair amount. Bechtel: Okay. Other questions on the gas utility projections? Okay. Let’s move on to the water utilities. On the water utility, you’re talking about a recommended combination of two factors. You have a recommended retail water rate increase of 20% or $3.1 million fiscal year ’02-’03 and then following that another increase so I assume that’s built into this projection. Baldschun: The story with the water fund is obviously the CIP in ’03-’04 and it has a dramatic increase from $4.9 million to $11.5 million so how do you accommodate that with the least disruption to your customers? What we did is, of course, we did the revenue bonds and that was about 12 million in revenue bonds and then we’re using the rate increases to get to the point where we can cover this ’03-’04 CIP project and then eventually have to decrease the rates again because the CIPs returning to a normal level. Bechtel: Questions? Dick. Rosenbaum: I have a lot of trouble with this one and I try to take it from the layman’s point of view. As a Council member last year we had a very long discussion about the desirability of using bond financing for usual one time capital improvements and we agreed to do that because we had this $12 million project for the 8 hour reserves and such. So we sold $12 million worth of bonds and the idea was we were going to spread the cost out for future generations. And when you look here, the debt service is $775 thousand and I guess it was my impression based on last year’s discussion, that that is a [tape change-missed portion of speech] $470 thousand per year, so I divide that by 6 million and I get 7 cents. So I get 7 cents and 13 cents as the required rate increase to meet our $12 million capital improvement plus the rate increase and instead what I’m told here is that we’re increasing the rates by 57 cents this year and will look forward to 77 cents increase next year with the explanation being that the 2 items [inaudible]. So how do I reconcile? And then further more, I don’t see any increases later on having to do with this big program that San Francisco is supposed to do so I conclude that we are trying to raise rates now in anticipation of something that’s going to happen in the future. Baldschun: From the debt service, the $775,000 debt service gets us $12 million, but the CIP is $22 million. I thought it was $12 million, but it’s $10.8. So you still have another $12 million or so of CIP. Rosenbaum:Excuse me, but we’ve always had an ongoing CIP. Baldschun: I know, but I think you’re selectively taking revenue requirement items and saying this changed this much and this changed that much so that automatically translates to some decrease amount. But I think you have to look at the whole 27 revenue requirement including the reserves. We’ve seen, if you look at this and compare this with the water rate increase, first the cost, well, the purpose of showing this was really to look at ’03-’04. The change is $6.6 million. Now you can say... Dawes: The change is 6.6. Baldschun: I’m looking at what’s driving this whole model here. What’s driving it is the CIP in ’03-’04. The change is a $6.6 million increase. Dawes: I’m sorry. I don’t see that. Baldschun: In the very far right hand column. Dawes: Okay it’s the second number down. Got it. Baldschun: This is the bottom. Dawes: I was looking at the top. Baldschun: Here we have $10 million from the CIP. Of which again some of that, I think, $3 million of that $10 million is covered in the soft engineering costs in progress which were incurred in the previous 4 or 5 fiscal years and so that money is not available to cover the $6.6 million. We’ve got an ongoing increase in purchase costs. The way the rate increase was triggered was not necessarily by looking at one specific component and saying this change is going to translate to this or that. I was looking at the reserve, which is what we typically do. And the bottom line is that you take the CIP bond financing, you take the rate revenue, and then you look at the revenue requirements. It all gets down to the reserve balances. Dawes: Randy, again, I’d like you to track where the money went from the bonds, because this is, I asked the same question on gas. This is even more murky to me because we have $10.8 million flowing into bond proceeds on line 13 and yet we only have a million and a half going into the debt service reserve on line 41 and I don’t know where the money went. It just vanished. Hirmina: It’s the same principle of what happened with the gas with soft engineering costs. It happened a couple of years ago. Dawes: So where does that, you have $3 million that you spent 3 years ago, and the $3 million goes where? Hirmina: It’s more than $3 million. Baldschun: It’s like trying track individual electrons through a wire, you just can’t do it. It’s the same thing. A dollar from this source doesn’t go to pay a dollar for that source. It’s the way I look at this, I don’t think I can answer your question. Dawes: But our total reserves went from 7.9 to 13.3 which is $5 million and again even if all of our CIPs were paid out of the bond proceeds for this year, the total increase of my reserves don’t seem to get me that back to the amount of money that came into the system from sale of bonds. Do you follow? 28 Baldschun: It’s hard to tell, but here we had money coming in last year that’s not coming in this year. So that’s part of that built up perhaps right there in terms of what happened. And then the other part is down here, the other main section of it. Does that make sense? Those are gross amounts. That’s about $8 million [inaudible]. Dawes:The rate increases are justified on the fact that we have these large capital expenditure programs and I’m saying when we got the money in, if it was still in reserve, we can spend it from our reserves and we wouldn’t have to raise the rates so much and that’s what Dick was talking about. And I’m trying to see why the reserves haven’t gone up as much as my reading of this schedule, which is partially a balance sheet and partially an operation schedule. It has elements of both, which actually is really good. I like it because when things come out of operations, they go into a balance sheet and out of the balance sheet and back into operations. Excellent. It’s kind of a. Which is why I like the schedule so much and to me it’s saying that I don’t understand where the money flowed through and you can do that through an operating statement in the balance sheet and that’s how they all work. And this one I don’t understand. Hirmina: The money that’s going into the others are it’s because this money was spent understanding in previous years so it came back two of them. Dawes: So the 10 is now $7.8 million. That’s what we have left. Hirmina: About and then we have the CIP of this year. Dawes: So all of that was funded by bonds. Hirmina: Parts of it. Dawes: And the $1.5 million went into reserves and then we had the $6 million that we normally spend on CIPs. Where did that go? Hirmina: Well, we didn’t have any money. If we didn’t have the 10.7, we should have increased rates in ’01-’02. Dawes: But our basic revenue base is. Baldschun: Are you trying to cap the bond proceeds? Is that? Dawes:Yeah, I just. Baldschun: So the 10.7, you’ve got a CIP project, we’re talking about the current fiscal year is that right? Hirmina: ’01-‘02 Dawes: I’m just tracking through. The real reason is why do we have to raise rates so much when we’ve got, it’s Dick’s question, but I’m asking it in the sense of following it through the schedule? Baldschun: You’ve got a CIP of $6.4 million this fiscal year. You’ve got soft engineering costs, which you don’t even see on there. 29 Ulrich:The money is being spent. Dawes: Yeah, but that’s also partially rate increases too that’s funding those CIPs. Baldschun: Legally, we are allowed to pull out of the bond proceeds for ’01-’02 $10,770,000. And it’s based upon the $6.4 million on line 18 plus soft engineering costs from previous 4-5 years. When we put that in, that goes to pay for the $6.4 million plus funds and reserves down there in line 30 of $3.8 million. So it’s funding the rate stabilization reserve you might say. Dawes: Oh, last year, previous year’s soft cost? Baldschun: Previous year’s soft cost. It’s all there in the procedure. So that’s how the $10.7 is going to get spent this year and next year, we’re only going to have $1.5 million to spend and that’s not going to cover much so we’re really going to be using our rates to bump up to a level we need to accommodate the CIP. Dawes: Without the rate increase the RSR in ’03-’04 would go below the $5.9. And you think that’s too low? Ulrich: We’re looking at the rates now to start to pay for the expenditures out after the bond proceeds are used and to pay for the, put money in the reserves. Dawes: I guess the bottom line is we didn’t put enough money in the bonds. Is that the issue? Baldschun: Well we could have put more money in the bonds but you know the problem with that is then you have more debt service costs. I mean there was some reluctance from some of you here to even issue revenue bonds and so what is the right amount to issue. Should you go for the whole? Ulrich: I think you’ve got the right amount of revenue bonds. The rest of it is in the rate increase. Baldschun: Our strategy was to use a 2-prong approach, use the bonds and rates and that’s what you see here. Ulrich: And rebuild the reserves. We still have that. We’re still working on that. Dawes: Water never got as bad as gas. Bechtel: Let’s go back to Mr. Rosenbaum. I’m sure he wants. We still have not heard an answer to his question. The simplistic explanation sounded pretty simple and straight-up [inaudible]. Rosenbaum: We had an ongoing capital improvement program and I don’t have the numbers going backwards, and I’m sure it’s the same order of magnitude as what we were planning for the future years except for that great big one. Baldschun: You’re right. 30 Rosenbaum: And we’ve always had money with existing rates to pay for those capital improvements. Baldschun: Look at line 10, that’s $2,459,000 we had to pull out of the reserves. Beecham?: We were in deficit that year and had to take care of it. Baldschun: So we don’t always have rates covering all your expenditures. Sometimes you have to use the reserves and if you go back to prior years, you’ll see reserves sometimes taken out, sometimes put in. It’s always kind of a moving target because the CIP never, in most cases, none of our expenses in other departments are stable every year. They change and you don’t want to adjust rates every single year, so you use the reserves. You’re right, this is the portion of the CIP and our longstanding policy is to fund the CIP through rates. Based on your question, again, this is kind of like selectively picking one line item and saying okay this revenue source is going to the CIP and we’re going to use interest income to pay for the transfer to general fund or use connection fees to pay for something else. We don’t look at it this way. What we look at really is what is the impact on the reserve level, on line 40? That’s what we base our decision on. If the reserve is going below the minimum guideline level, then we need to have a rate increase. I don’t care where the money comes from. I don’t care if it’s from other revenues or sales. The question is where are we going to get the total revenue and our plan this year is to have a rate increase. Last year, it was to issue some bonds. Rosenbaum: And next year’s rate increase, what’s the purpose of that? Baldschun: Well if you look at line 40, you’ll see in ’03-’04 which is the worst year where the reserve is well below the minimum. That’s even with the rate increase. And that’s okay. We don’t like to be below the minimum but you have to balance that with the need to keep the rates down as much as we can. So the following year, the reserves will start to climb back up and then eventually we’ll have a decrease to our rate. All this portends to the future. Beecham:For the $11 million here, that’s the big blip in the CIP and again that’s for what park? Baldschun: El Camino Reservoir. It’s about $3 million I think. Ulrich:Yes, that’s where the big money is spent on reservoir. [inaudible] Rosenbaum: It’s the whole 8-hour reserves. Bechtel: Randy, one thing, we have a tremendous number of line items here, one thing that’s always confused me on this is how come these numbers aren’t smoother? I see these reserves bouncing back and forth by $2 million or so and there’s not a lot happening except in the CIP area. They’re changing rates and for the CIP, we spend the money here and there. But the commodity cost, we know, is gradually increased so I’m wondering, part of the confusion is these numbers change $1 or 2 million a year going up and down and I’ve always been fascinated by why isn’t your algorithm smoother? Baldschun: Well we try to do that. I mean that’s one of the considerations. For example on the water rate increase, we looked at 30-35 % instead of 20-25% . The 31 problem with that one was that we thought 35% was just too high so 20-25% was the better between the 2. Rate stability is one of our primary rate making objectives. But the reality is that there are a lot of factors we don’t have any control over that impact the revenue requirements. Consumption is one. The commodity cost is another. The CIP we have some control over, but it does fluctuate. We have years of engineering design and alternating years of construction. Years of design may be $500,000 and next year’s construction for that project could be $2-4 million. So you put all those into a spreadsheet and then you try to plan some rate adjustments and reserve considerations to keep the rate stable and you end up balancing all these factors and that’s what we bring to you. Bechtel: Now, I find even more fascinating is that we increase rates by 45% over 2 years. 2 years later, we drop them 15%. We go 2 years with no change and then we increase 35% over 2 years. Again why isn’t that a smoother? Baldschun: Well you can see the huge impact of the CIP Program in FY 03-04. I mean, you take that out and you’ll see a smooth water fund. It’s just too big of a draw on total revenues. Total revenue in the water fund prior to that project was $18 million. You’ve got a $12 million CIP project. You’ve got to swing from $5 million to $7 million. So that’s like 50% of the revenue requirement. Dawes: That’s why we sold the bonds. Beecham:No. The bonds were sold for expenditures this year. Dawes: That’s what it turns out. Beecham:Because we already have the deficit. Dawes: Actually Bern, we never got to the minimum RSR level. We had $7 and 7025. The minimum is $6. Beecham: We could have chosen to go more into deficit in the reserves, but in terms of revenue versus expenses, we’re in deficit because we are drawing from reserves. Dawes: It’s a double whammy. That and that fact that San Francisco [inaudible] Bechtel: Gentlemen, I’m not sure, I guess the real question is do we have enough information to say that when this water rate increase comes before us that we will recommend it or not? That’s the question we should focus on is this. Otherwise we’re trying to redo long range projections which basically are projections anyways. Any other comments on this? Beecham:To me, I’m looking at where we’re going. [inaudible] It’s these numbers here that tell us how we’re doing. Now we’ve got roughly anywhere from $400 to $1000 to a half million dollars increase per year in our expenses here. We’ve got major expenses right along in here, $11 million in that one year. That tells us where the money’s going. The reserve here is our interim savings account and that bounce anywhere from $8 million here to a max to about $13 and it bounces up and down by about a million or two a year, but that’s just our savings account. Where the money’s going is right in here. These numbers are fairly consistent. There’s almost no change in those so if you’re wondering what’s happening, don’t look up and down 32 so much as look across right in here. And if you want to not spend money, I’d be surprised if you not want to spend it, if you want to do those things, as long as then these numbers stay roughly the same, you’ve got to mix these increases up here. Baldschun: I also want to add that we proposed this water rate increase last year and the Adopted-In-Concept budget has a 20% water rate increase. So we went into that budget process recommending two things: the revenue bond issue and the rate increase. And that’s what you have here. There’s nothing new here. Bechtel: All right. Do we have enough information now to move on to the next schedule, which is the wastewater, I guess? On wastewater, Randy, what changes and rates are you proposing there? Baldschun: It’s hard to get the whole picture here because you don’t see ’99 which is the last time you had a rate increase in sewer. But since ’99, I’ll put up the slide, we’ve seen some increased cost in the treatment cost and we’ve seen a decline in our sales revenue more recently, as I mentioned before, because of the slowing economy and the fact that large businesses sewer rates are tied to water consumption. So we were going to have a sewer rate increase last year, we decided not to do it because of the fact that energy rates were going up so we deferred it. Which meant we went into the Wastewater Collection Rate Stabilization Reserve. So now you see in ’02-’03 that the reserve balance of $1.9 million is below the minimum of $3.5 million. And that’s with a proposed rate increase. So we need a rate increase to set the level of our rates to cover all operating costs and keep our waste water collection reserve from being depleted. Here’s some information on that rate increase in terms of the primary changes. The very bottom compares ’99 actuals with the projected budget and there’s a swing of $265,000 decrease in revenue from the last time we changed rates. There’s an increase in treatment of $1.2 million. There’s an increase of O & M of $378,000 so you add all those up and it’s close to $2 million. And then, there’s the need to replenish the reserves because we’ve been depleting it for the last 2 or 3 years. We hit the reserves quite hard this year. Do you have any questions? Dawes: The sewer line thing that’s been such a “brew ha ha” politically, that’s not in wastewater collection, that’s in the storm drains, is that correct? Baldschun: Yes, that’s correct. Hirmina: If you look at the balance of the rates in the wastewater reserves. Dawes: I tracked this whole thing. This makes a lot of sense. If they all read like this, it would good. Bechtel: Other questions on wastewater? Okay. On the electric fund, in terms of rates, we have that rate adjustment out on ’05-’06. Any other issues on this one? Carlson: I’ve got a side question but it’s interesting. It’s the first time I’ve seen a long-term projection of telecomm. As I read this, we were assuming that we’re going in the long run, we’re going to lose $800,000 a year on our telecomm enterprise and if that’s true, why are we doing it? Because it shows a revenues of $1,170,000 a year and it shows long run expenditures of $1,972,000 a year. An experiment, I can understand. A start-up, I can understand. But losing $800,000 a year, year after year doesn’t make much sense. 33 Rosenbaum:You mean $200,000? Ulrich: I think you’re looking at the CIP on line 43. Carlson: I’m looking at telecomm’s revenue, which is total revenue, and I’m looking at telecomm distribution, which is everything, as I understand it. It’s operation and maintenance and [incomplete] Ulrich: He’s looking at lines 20 and 43. Carlson:Exactly, I’m comparing 20 to 43. Hirmina: We really haven’t done or I haven’t received a new forecast yet. They are still. Ulrich: I think that’s the problem. It’s not an updated forecast. Hirmina: Yes, on the telecomm. Baldschun: I don’t put too much confidence in these numbers. It’s not something we really focused on for this. Carlson: Okay. You certainly have bigger fish to fry here, but I was just curious since in the long run. The other question here is again where we have rate increases. We had the big rate increase, I guess there aren’t any decreases here. How is this? This still leaves us very comparable in this case to PG&E. We should be way below PG&E in this case. Baldschun: We are. Palo Alto should enjoy a rate advantage over PG&E rates for many, many years. Carlson: So this is. Now what is our long range? We’re just starting to contract long range for post ’04 power? Or where are we at for post ’04 power? Balachandran: We’re in the process of beginning to study the issue. We’ve got to come back to the UAC with a proposal. It’s probably going to be in the May or June timeframe which is further away from my initial projection. I originally wanted to come to you in March or April. Carlson: But that’s what we hear about the buy or build, build or buy, because one of the proposals kicking around was to jointly actually build something. Balachandran: Right. There’s some studies continuing on that. NCPA has done some studies on whether to utilize the [inaudible] unit. They’ve completed phase one of the study. They still have to I believe substantial analysis before they can get into phase two. And depending on that, we’ll probably fund that study. And so that’s the potential build possibilities. We also had a consultant come in and look at some sites in Palo Alto. The developers were looking at developing plants up in San Francisco, we’re actually going to meet somebody tomorrow on that, so we are attempting to gather information and put it into analysis. 34 Carlson: Are we having discussions with Calpine and so forth, because they’ve got some very large projects coming up? There all of a sudden, it’s a buyers’ market. Balachandran: Well we are talking to some suppliers. I don’t believe we’ve been talking to Calpine for a while. I’m not sure where the Metcalf energy center whether it will be built. They have been having some financial issues and the load has dropped off substantially in California. So we’re not sure. We are not talking to Calpine at this point. I put in the recommendation to include what we’re doing in the NCPA study and whether we’re going to go forward with some of the JPA members to pursue that and also look at some other options. Carlson: It probably doesn’t affect this budget year that we’re talking about, but it starts hitting after that pretty quickly. Ulrich: Are you talking about how to finance or pay for some of those future? Carlson:Yes. Bechtel:Okay. Other questions? Mr. Dawes. Dawes: As a follow up Girish, has the NCPA folks come off their proposal that if we did go into that combined cycle project up there near the stick site, that newcomers would have to pay more or has that been? Balachandran: Well that’s one issue I said that needs to be analyzed more. We had not done that so it’s kind of difficult to submit to any kind of place to fund this without getting clarity as to what the other owners would want so there’s more due diligence that needs to be done with this from NCPA staff. Dawes: No change. Balachandran:Correct. Bechtel: Other questions? Beecham:Can I go back a page? Bechtel: Yes you may. Beecham:I fell behind. On water, wastewater, excuse me, on line 7, what is the interest from? Where did we get so much interest? Hirmina: That’s the interest, I get those interest numbers from the budget chair from AST. It’s under reserves. And that’s the share of the collection and the rest of it is based on calculations that are up for collections, but usually it comes higher than what I have. Beecham:My presumption was that the interest is on the reserve balance more or less and we’ve got reserves of roughly $7 million and interest of $1.3 million which is a real good interest. Carlson:Whoa whoa whoa. How do you do it? 35 Hirmina: This is the actual number and it’s from the AST. Beecham:I believe it’s the actual number. I just don’t know where you get it from. Hirmina: It’s much higher, because what I do for the projections, I take the reserve balance and multiply it by like 6% which is 5.9 or something. It’s on the portfolio interest charge and that is why it’s lower in the years after the budget year. That’s the projections from AST. Ulrich:Can you tell us the interest that’s the one we’re going to keep? [inaudible] Bechtel: This is only a projection guys. [inaudible] Bechtel: It’s only some bean counters allocation. Ulrich: It’s under the actual column here. Bechtel: Any other questions on? Dawes: I have trouble with the purchase numbers on the budget versus the projected. We show supply purchases of 50.4 on the 10 year plan and 46.8 on the proposed budget on the proposed budget column. That’s a big difference but the even bigger difference was the prior year and I guess that’s what’s caught up in all this Calpine and Enron purchases and so forth, but it’s really the discrepancy in the proposed year which is what we’re really focusing on. Hirmina: yes. It’s different counts here. Dawes: I understand this is in earlier sequence. Baldschun: I think there is some logic to this. We’ve talked about this before. Hirmina: This is [inaudible]. [inaudible – more than one person talking] Dawes:You add the wholesale and I guess that brings it to 48 closer. Baldschun: You can see how all those items on the spreadsheet add up. The difference is this sheet is combining wholesale purchases for sales within as well as outside Palo Alto. Hirmina: There is, this is not a wholesale revenue. This is [inaudible-more than one person talking]. Dawes: I was trying to put it back in, but it’s close enough I guess. A couple million dollars. 36 Baldschun: Just for your own understanding. The 10-year financial forecast is one page that you see. However, there are approximately 12-13 pages of models/formulas that produce it. Dawes: Our Chairman has left us to adjourn the meeting. Ulrich: Have we done better on the communication and on the forecast and on the significant changes? Do you have any other suggestions on how we can make some improvements? Carlson:[inaudible] focus on the 10-year. The 10-year is really [inaudible]. Ulrich: Give them the overview. Randy has a very important. Baldschun: Are we through with the 10-year? Okay. Bechtel: We’re through with the 10-year. Baldschun: Okay. I really have 2 slides that I want to go through on the electric. If you had a chance to look at the electric 10-year budget forecast, what’s interesting is that we’re pulling about $17 million out of the Supply Rate Stabilization Reserve this year and we’d only planned to pull out about $4.2 million based on the Adopted-in-Concept Budget. So we want to review what’s going on here to figure out why we have to radically change the amount we’re going to have to withdraw. What it gets down to is that the sales revenue in the Electric Fund is down $9 million. We’ve got purchases cost going up $5.2 million so those are the main factors behind this really unprecedented withdrawal from the Supply Rate Stabilization Reserve. Dawes: It was also well above it’s maximum too. Baldschun:It was. Dawes: I thought you were just bringing it down. Baldschun: No, it’s being drawn down because sales revenue is down and purchase costs are up from the previous forecast. This is the bill impact of our three proposed rate changes. I understand there’s not going to be any refuse rate changes this fiscal year and perhaps not a storm drain increase as well. So, the bill impact for a typical residential customer works out to be about a 9% decrease in their bills. Dawes: Is this an average for the whole year? Or just winter month? Baldschun: Well it changes during the year, because you don’t use 14 units of water during the winter. Dawes: 12 months divided by 12. Beecham: And our projected bill is for what year, this is after the change is recommended and the air quality is coming up? Baldschun: Correct. So it’s ’02-’03. 37 38 Ulrich: Beginning July 1st. Baldschun: With the proposed rates for ’02-’03, a typical resident is expected to see an overall drop of about $20 a month or $240 a year. Bechtel: Okay, thank you Randy. A lot of detail. NEXT REGULARLY SCHEDULED MEETING WEDNESDAY, APRIL 10, 2002 Bechtel: Our next meeting is going to be April 10th and will be the Strategic Plan Review. Ulrich: Do you want to have a brief discussion about the following meeting in May? We better put [inaudible] if it’s okay. Bechtel: Yes, let’s go ahead with that. Carlson: Are we going to have a regular meeting on? I’ve got a whole schedule designed around not having UAC on the second Wednesday. Rosenbaum: Is there a question about May 1st? That’s our scheduled meeting. Bechtel: I think that is. It’s only next month that’s being changed because of the State of the City. Ulrich: Okay. May 1st then. I just wanted to make sure everybody was fine with that. Carlson: I think the regular meeting this year so far has always been the second Wednesday. I know with January, with last month, this month and next. Bechtel: Keeps you on your toes. Ulrich: That’s all we have. ADJOURNMENT Bechtel: I entertain a motion to adjourn. Rosenbaum: So moved. Carlson: Seconded. Bechtel: Moved by Rosenbaum. Seconded by Carlson. All those in favor, say “aye”. Commissioners: Aye. Bechtel: Thank you very much.