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HomeMy WebLinkAbout2003-02-12 Utilities Advisory Commission Summary Minutes Page 1 of 28 UTILITIES ADVISORY COMMISSION MEETING MINUTES February 12, 2003 Roll Call ____________________________________________________________________________________2 Public Comments; Approval of Minutes___________________________________________________________2 Reports from Commissioners ___________________________________________________________________2 Utility Director’s Report _______________________________________________________________________6 Utility Quarterly Reports _______________________________________________________________________7 Green Power Program________________________________________________________________________20 Page 2 of 28 Roll Call Carlson: Let’s go ahead. We can call the roll. [Bechtel, Carlson, Rosenbaum, and Ferguson each say “Present.”] Carlson: Beecham and Dawes are absent this evening. I understand that we have a sterling replacement for John Ulrich. Baldschun: We have a number of replacements for him. He’s very easy to replace. Public Comments; Approval of Minutes Carlson: I see no Oral Communications, so let’s go ahead with Approval of Minutes. No changes to the minutes that are as incredibly good as ever, as best I can see. Bechtel: I move the approval of the minutes of the UAC meeting held January 15th 2003. Rosenbaum: I second. Carlson: All in favor? [Motion Passed – All in favor.] Reports from Commissioners Carlson: Minutes are approved. Anything missing from the agenda? Wonderfully short, and maybe we can really keep it short this time. Report from Commissioners of Meetings -- anybody go to anything? Bechtel: I attended the NCPA meeting last month which is the strategic planning session. With John Ulrich over there, several of the staff, Tom Kabat , some others and as well as Bern. Basically, I’ll give a brief report of the meeting. The dinner speaker on Wednesday night was a new member, a staff member of the CPUC whose name, a young lady, I’ve forgotten basically what her name was, but a couple of points that she made, first of all, she says that the settlement of the PG&E bankruptcy she sees as soon as, by mid-year. And, as I recall her saying, she thinks the CPUC plan is going to prevail over the PG&E plan. Page 3 of 28 Carlson: Would she keep her job her job if she didn’t say that? Bechtel: I’m not sure about that. The other question is that the new chair and a new commissioner, from her point of view, she’s not sure where these two new people are going to take them, what they’re really going to focus on -- which was kind of an interesting comment. In a Q & A session, Jim Pope, the Utilities Director from Santa Clara, asked a couple of questions that I thought were interesting, one of which is how come the CPUC has filed a lawsuit against Path 15. Basically, they have. The CPUC’s issue is that they’re checking out “congestion skullduggery” -- I guess, his term -- looking at the fact that there may have been no real congestion, and so therefore, there may be no need for Path 15. Of course, there is a need for an EIR. So that was kind of an interesting question. A couple of other things about the transmission later on. The second thing that Pope said. He appealed to her to propose to the commission that they slow down the California version of this market design called Market Design 02 -- “MD 02.” This was one of those meetings in which an awful lot of acronyms were thrown out, to match up with SMD. SMD is FERC’s version of “Standard Market Design.: Her response was “Well, that probably is likely to happen.” For specifics, Girish was there and understands all the ins and outs of the issue. We have two market design proposals and if they can be matched up, then I think Pope would be happy. There were 4 breakout sessions, one on generation. I sat in on that one, and I didn’t hear any solutions from anybody about new generation -- other than that there seems to be a great desire to have some sort of joint action. There was a session on Cost Management, headed up by, led by Jim Pope, who said we ought to focus more on reserves, and he suggested that we ought to certainly have more than one year of reserves, and of course I guess that depends on what the issues are. Third one I think was led by John Ulrich; he talked about standard market design. The conclusion is that all these things, standard market design, or the local congestion issue, a program called LMP (locational marginal pricing), all these, all they’re going to do is create more bureaucracy, and raise our costs. But the interesting comment to come out of that is that any investment in infrastructure that anybody may make could be at risk due to rules changes. We’re not even sure how this market design is going to work. So if the rules change, if you make an investment, you may have some problems. All of that sounds like going slow on any investment is probably the right path. Another one is that Western is talking about building us some new transmission up in Northern California, basically to augment what is happening up there. The purpose of this new transmission system will be basically to bypass and eliminate or to minimize our involvement in what the ISO has. They drew a diagram, a bubble of all of the utilities and all of the members of NCPA, and what the ISO has, and this new transmission through it. The problem for Palo Alto is that this new transmission is going to be a TANC project and not an NCPA project. And Palo Alto’s percentage involvement in TANC is less than it is than with NCPA so that poses a problem for us in terms of our participation. That is an issue that has to be sorted out. Page 4 of 28 Carlson: Why is it a problem? If we got a smaller percentage, our contribution would be less and cost less. Bechtel: We would have less guaranteed capacity, in this transmission. Carlson: Ahhh. Okay. Bechtel: Then there was some discussion on the Government Affairs issues. We have some new legislators. One of them representing Northern California, addressed NCPA, doesn’t know anything about power issues, but I think he’s going to get coached briefly. There’s going to be something like 20 or 30 interview related bills introduced to the legislature in this session, probably 20 already since the middle of January at the meeting. There is another corporation being talked about, called the CVP Corporation, Central Valley, and another funding agency. It seems all kind of confusing as to why we’re creating all these corporations to dole out money and to deal with money. There were proposals about that. Lastly, the Trinity River, of course. We heard in December, the Trinity River issue, Judge Oliver Wenger froze the existing flow on the river, and the real issue there is that he gave the Federal Government 120 days to come up with a new EIS. They are asking for 15 months and so likely 15 months it’ll take before they’ll get any kind of change or any discussion or any resolution. Meanwhile, that leaves openings for the Hoopa. Perhaps we can settle issues with the Indian tribes in that time. That’s the news from the NCPA meeting in Sacramento last month. Carlson: Any others? Ferguson: I went with Dexter, John and Bern to the California Municipal Utilities Association planning session, the 27th of January, 2003. Just to give you the high points that are not duplicative of George’s report: There are a couple of pots of money that we should pay attention to – one is called the FareCal Financing Authority. It permits the assemblage of a number of municipals when you need a critical mass to generate revenue bonds or financing to run projects. It is a 66 million dollar enterprise. I’m not sure whether staff later can comment on that. There’s something called the Capital Facility Fee legislation. We talked earlier about ingenious avenues of attack on municipal budgets, and by other parts of cities. Apparently, other public agencies have the right to negotiate with agencies who make their capital facilities available to the others. You can negotiate your appropriate capital facility-use fee. Whereas, if you are a utility, you can simply impose a rate and that rate is non-negotiable -- to the school district, for example. So you have some public districts -- whose budgets are crunched -- trying to declare things like rates to have become partly capital fees, in order to negotiate a lower rate. So City of San Francisco and City of Los Angeles are trying to close that negotiating loophole with a piece of legislation this year. Page 5 of 28 The State Budget issues were really probably 90% of the topics discussed by the public speakers there -- just how unsolvable they are, putting all the burden back on the locals. So our focus, in many ways, ought to be on local effects. As far as the specific water issues go, I guess the big one is Prop 50, which was the Parks and Water Bonds Act, a year or two ago. It’s a 3.4 billion-dollar bond authorization, proposition that’s now on the books. The State’s ready to implement it. Most of it is -- I won’t say earmarked -- but logically directed at Valley projects. It’s the environmentalists vs. the farmers: how do you fund the infrastructure equitably to pull those things off? There is a parks component to it as well. But one piece kind of cried out to us. There’s a 50 million dollar component for water-system security, which is probably mostly fencing and patrol cops, but it’s real. They’re asking for applications. So to the extent we can justify allocating or redesigning part of our water security program, we may be able to supplement our budget with that money this year. Other high points: CMUA -- actually, despite the economic downturn -- is seeing an increase in membership because so many cities have decided they want to enjoy the benefits, the unique advantages of municipal ownership of their utilities. So CMUA is actually getting a little extra boost in its life this current year. One topic that CMUA brought up that we took to both Joe Simitian and Byron Sher in our Palo Alto visits, was an attempt to slow down ISO’s implementation of MD02. They are pushing ahead with a plan which is a little too market-like, too price-sensitive -- at the same time that the Feds have slowed. We think at the very least that California ought to step back and fall into line with whatever the Fed plan is going to be, so California doesn’t march off again with an institutional design that makes us an island in the larger Western regional development. Joe said he’s no longer on the Utilities Committee. Byron said “Put together a proposal,” so Bern and Greg Cook will do so. That’s basically it. Other than the legislative staffers who spoke to us, and the executive staffers who spoke to us, basically decrying the budget pain in one form or another, those are the high points of the agenda. Carlson: Is there any direct effect of the State budget disaster on the utilities sector? I mean, I don’t see anything obvious. We’re just an island of prosperity in this sea of disaster. Ferguson: Probably the only direct effect is that everybody’s cut back. To the extent you’ve got to go the State for anything -- a grant application, a regulatory application, an intelligent response of any sort -- you’ve got to stand in a longer line. Baldschun: They cut the subsidy for PV systems to $4 per watt and so now Palo Alto needs to pick that up in our own rebate program. Carlson: That’s a small, outer island, thank God. Page 6 of 28 Baldschun: Yes, that’s an example – little things like that. Carlson: I’m just wondering if there are proposals like energy taxes kicking around, or anything of that magnitude? Ferguson: Nothing specific surfaced here as a threat. Again, this is early in the season. Carlson: It’s going to a wild year. Okay, that’s it for reports. Now our Director of Utilities report. Utility Director’s Report Baldschun: I just have two items. First in this week’s Frank’s Memo you’ll see an item that announces our Safety Record for Electric Operations. These are the line crews and underground crews that respond to electric outages. They’ve gone over 500 days now without a loss-time accident which is quite a record, and that’s going to make the news. I’m very proud of that. Scott should be proud, and certainly John, whose got a very strong passion for safety in the workplace, in both gas and electric. The other item I want to talk about is the budget, and give you a preview of the process that we’re going to go through and let you react to it, give any suggestions. We have got some dates and I’d like to give you those. Next month, March 5th, we will be giving you the 10-year financial forecast, and that will include the projected rates and reserves for the next 10 years. It is going to be as always a document in flux because as we’re preparing it, the numbers are changing. We are not through with the budget process. We are in the middle of it right now. It’s still changing in numbers, but we will give it to you, and the numbers should be fairly close. The following month, April 2nd when we meet, we’ll be giving you the overview of the budget. We’ll be talking about the significant changes to the operating budget CIP. This is what we have provided to you the last two years at this time of the year. Last year we gave it to you in March, the previous year we gave it to you in April. It’s basically a table that captures the significant changes in the operating capital on the revenue side of the business. The threshold they used was any change anything over $300-$400,000 dollars -- we’ll be doing that again. What that gives you is an idea of what is really changing from the previous year, before you actually see that budget. We can discuss these items and we can answer questions and you can put that in the context of the 10 year financial forecast which you will have seen the previous month. Then May 7th, we will come with our actual budget and rate proposals for you to approve or recommend for Council to approve. On May 15th, the Utilities Department will be going to the Finance Committee with the budget and the rate proposals, only a week after you guys see it. So Page 7 of 28 we’ll probably have, hopefully, some kind of minutes from the UAC meeting. But we’ll also request that at least the Chair attend the Finance Committee meeting to give some verbal comments on our proposals. That will be on May 15th. The whole budget right now is scheduled to go to Council right now on June 16th including the Utilities. My experience is that these dates change as we get down the line, but that’s what we have today. That’s it for the Director’s report. Carlson: Of course, on that projected time scale, we don’t have any idea of what the State will be doing at that point. Baldschun: Yes, that’s true, although as we were talking earlier, the general funds of the city and schools are obviously severely impacted…. Carlson: I’m thinking the City as a whole. Baldschun: Yes, we’re not focusing so much on what may happen with the budget but more on what our needs are. We’re not anticipating any -- Girish will be talking tonight about some of the potentially major impacts that are in the quarterly report that we have to follow every closely. You guys are very much aware of the water, gas, electric side. Ferguson: There was a line in the minutes from January that we were going to hear from someone from ASD. About budget. Was that this meeting, or …? Balachandran: That’s going to happen next meeting. Joe Saccio is going to give you that – the long range financial plan. Ferguson: The City’s long range financial plan? Balachandran: Exactly, general funds. Ferguson: So we should put that down on the agenda for next month? Balachandran: Right. Utility Quarterly Reports Carlson: We don’t have any unfinished business so let’s just go to the Utilities Quarterly reports. Do you have a presentation or should we just ask questions? Page 8 of 28 Balachandran: Just ask questions. Carlson: Sounds great. Very thorough, good job. Who wants to start? We’ll do water first. Anyone have any questions on water? Well, I’ve got one question and that is all of these deadlines that are outlined under the AB1823 – what are the chances of their hitting them? Many of them look pretty tight. Ratchye: I think San Francisco’s likely to hit them all. Whether or not you’re satisfied with what they submitted isn’t in the question. They’ve already adopted their capital improvement program, I’ll submit that. Carlson: Right. Ratchye: As adopted. We did hear that they’ll be updating that on an annual basis now in their internal process. They obviously done that, they’ve met these first deadlines that were Feb 1st, the March 1st one is just submitting it to DHS. They’ll do that if they haven’t already. The Draft Emergency Response Plan -- they are working on that. I don’t know what that’s going to look like yet. We haven’t seen a draft of that. But I expect they’ll make all these deadlines. Carlson: That’s progress. Ratchye: We went to the annual meeting that we have, that’s required under the [San Francisco Water] Contract, called the ________ Advisory Group meeting, STAG meeting. Every year they’ve shown us their one-year-ahead expectation of capital expenditures. They just budgeted the year before and then how much they did. There’s always like 20% or something. This year they did more than they had budgeted, and 4 or 5 times as much as previous years. And their plan is to continue to move forward, so we’re seeing a change there. They’re hiring 80 new engineers there. They’re gearing up. Carlson: That’s great. That’s good news. Ferguson: I’ve got a question. The San Mateo paper yesterday had a story about some of our brother or sister cities in BAWUA asking the question about emergency replacement water in case Hetch Hetchy breaks. It’s related to our own discussion of putting some emergency wells and reservoirs in place. It looked like it caught Art a little bit by surprise that the City of San Mateo and other cities were marching off thinking about this separate water-supply issue. Can you shed any light on that, or is that news to you as well? Ratchye: No, I hadn’t seen that article. It’s in the San Mateo paper? Page 9 of 28 Ferguson: From the Independent or one of those papers up there. Ratchye: I don’t know, I know that BAWUA is trying to collect the information of the readiness of the different people, both for the chlorination conversion and in general meeting the 8 hour recommendation from DHS and … Ferguson: Yes. Ratchye: They also had a consultant come in and try to access the earthquake vulnerability of most of the different Valley systems. I don’t think we have an overall result for that. But I haven’t heard about this Ferguson: They were asking the 60-day question. We’ve focused on the 8-hour question. They were asking the 60-day question -- what do we do, if for whatever reason the pipelines break? Ratchye: Are you talking about the action of the San Mateo County Board of Supervisors .. Ferguson: Correct. Ratchye: They are following up on, you say that Art Jensen was? Ferguson: Art either responded to them or to the newspaper, but it looked like Art was -- Ratchye: Art’s been pushing all the counties to try to get involved in this crisis management planning effort. I think San Mateo County is the only one that has actually taken some steps towards recognizing that they need to be ready for that Ferguson: Yes. Ratchye: I think that’s all. I did read a couple of articles about that, bringing it to the attention of different people. Ferguson: High-level attention to the 60-day problem is wonderful. Ratchye: I don’t think they have any solutions. Page 10 of 28 Ferguson: But at least they’re asking. Carlson: That’s progress. Any more water questions? Let’s move on to gas. Any questions, gas issues? If no one else has any questions, I have a question on this chart, Attachment B. Baldschun: Is that the one that shows Palo Alto gas rates are lower than PG&E gas rates? Carlson: No, that’s the one that shows how much we’ve bought. I don’t quite understand the notes on the bottom of it. If somebody could explain how the thing works -- I mean, it’s a piece of genius how much information is packed into here. Dailey: You’re looking at the Procurement Plan? Carlson: Right, Procurement Program for Full Customers, right. Dailey: Just let me try and describe the whole thing. What this is trying to show is what we think our load will be, what the laddering structure goal is, which is more or less, 75% in the near 12 months, 50% in the next 12 months, and 25% in the third 12 months, from today, from whatever point we are today. The 3rd thing that is shown on here, is where we are, relative to that goal, how much we’ve bought. In general, the first note, this 100% of 02-03 says that although our general goal is 75% for the near 12 months, we had made a management decision previously to lock in 100% of our expected load, for 02-03. That decision was made around a year ago. Carlson: So we’re at 100% right now. Dailey: Right, that’s why that line looks like one line, because the expected load, the goal, and the actual are all the same numbers. Carlson: That’s the summer of 03. Dailey: That’s right. Then in July 03, they diverge. Actually we’re just in the process. I bought some gas yesterday to fill in that gap that you see in December and January where peak goes up and we haven’t bought that chunk. I bought some of that yesterday, and we’re going to be buying the rest of it over the next couple of weeks. Carlson: So these notes that are on the bottom are basically saying we’re a little bit behind our goal at this point, we’re under-purchasing in the following years. Page 11 of 28 Dailey: Right, and that’s mainly due to, well, in 03-04, really the whole middle part of the graph it’s really just December and January that’s causing that difference. So we were buying strips, winter strips, or strips of maybe 3 or 4 months. Now we need to fill in that gap with extra for December and January, which are obviously our highest use months. That’s what we’re doing right now, is filling that in. Carlson: Is there a concern that we’re going to have another spike in gas prices -- with oil prices going up and generators doing fuel-switching from oil back into gas? Dailey: There’s definitely a lot of folks out there that have the opinion that gas prices are headed up, although I tend to believe that whatever the market says takes all of that into account. So the forward prices should reflect the fear of that. Certainly there’s a chance of that happening. There’s also a chance of them going the other way -- which is why we like the laddering strategy of buying a little bit all along the way, and not putting all our eggs in one basket one way or the another. That prices are going to move either direction. Carlson: Looks like we are in pretty good shape for the near term. That’s a probably a near term risk, unless something really awful happens. Any more questions on gas? Let’s move on to the big dollars, electricity. Any questions on electricity -- and fiber’s in here, too. Let’s do electricity first. Electricity questions? Go ahead, Rick. Ferguson: Nothing about the report, but again, in the paper yesterday or the day before, the Wall Street Journal, they had an article about energy, electric energy prices just surprising everybody by dropping, going flat. If it was enough to make it newsworthy to the Journal, was that news to you? Balachandran: Actually, I hadn’t heard it was going flat. Ferguson: Going down. Balachandran: No, it was actually going up for a while and then it’s higher than where it was a couple of months ago. There’s some short-term change. Right now the daily prices are in the 5- 51/2¢ range or so, which are quite a bit different than a few months ago, and the long term prices are definitely different. Ferguson: They were talking about prices at 3.9¢ and 4.4¢ in California, surprising everybody -- and discouraging the few remaining people building generation from building their projects. The Redlands project was cancelled. Page 12 of 28 Balachandran: Do you have something on that, Shiva? Swaminathan: Yes, because when we did ___________ purchase it was at 3.6¢ in August. Now the product is about 4.5¢ or 5¢. It has gone up. Balachandran: For a long time purchase and dailies have also gone up. Swaminathan: The price last year, the entire year, was 3.5¢, but it’s picking up now. Carlson: What is our contracting status? In gas, we’ve got this laddering approach and we know how much we’ve bought. Where are we in electricity? Balachandran: In electric, we have the LEAP, the portfolio objectives and we call it LEAP, that’s our short form for it, Long Term Electric Acquisition Plan. Carlson: That’s the really-long term. Balachandran: In the short term, in the next couple of years, we have the Western contract which meets most of our needs. Carlson: So we’re fully hedged Balachandran: Right. Our attention is focused on some short-term opportunities. Tom Kabat works on excess capacity and things like that we can get this year. But a lot of attention is focused on developing the long-term strategy. We’ll be back to you with an update next month. Carlson: Yes, I noticed that. That’s going to be important. That’s the LEAP plan that we’ll see next month. Any more electric questions? Go ahead Rick. Ferguson: Got one on Fiber. Carlson: Done with Electric. Ferguson: Done with the normal electric operations -- now on to the abnormal electric operations. I was pleased to hear we are going to get some of the early data, some of the Phase 1 data that we asked of the consultant on fiber. Are we going to hear about this at the March meeting? Page 13 of 28 Bradshaw: I’ll have to talk with Blake when Neil is going to have information pulled together. We do have Neil, contract’s ______ with Neil, he is moving ahead with that, so I’ll have to check and see exactly when he’ll have that information. Ferguson: He had a full head of steam up, whether or not the contract was signed. I was hoping we’d have a couple of those preliminary questions as soon as possible. Bradshaw: I’ll talk with Blake and find out when Neil is going to have something for us. Ferguson: There’s another reason for that. We can discuss that when we talk about the agenda, and I’ll just broach the topic now. Some of us have mentioned the wisdom of putting a fiber proposal to the electorate for a vote -- whether as a formal measure or an advisory measure, whether to raise it as an issue and let Council candidates kick it around as part of their own campaigns. Now, we want to get a real survey, lots of people voting their dollars or their checkbooks or something on this issue, preferably sooner rather than later. If you look backwards on the calendar, if there were to be an advisory vote on the November ballot, and the Council were comfortable framing it, the Council would need to vote to put that on the ballot at the end of May -- which is right in the middle of budget stuff, which is always a terrible time to do it. If the Council doesn’t do it, there’s always the possibility somebody in the community will, and there’s no telling what the language will say in a community referendum. To the extent we want to have a somewhat rational and thoughtful approach to getting this opinion, we might want to think about the calendar steps necessary to do that. Maybe we could add an agenda item at the March meeting -- not necessarily an action item -- to talk about the pros and cons and the shape of various kinds of ballot measures on the fiber topic. Rosenbaum: Given the focus on the budget nightmare, does anyone really want a new $50 million idea on this November ballot? Ferguson: The glass is either half full or half empty. It’s a revenue stream. Rosenbaum: Rick, it’s a good try, but clearly it’s widely premature to think of us making a decision that would lead to something on the ballot by the end of May or June. I just don’t think that’s practical at all. Baldschun: Scott, when is the business plan scheduled to be completed? Bradshaw: Not until later this spring, probably April, or later. Page 14 of 28 Baldschun: That’s really the next critical piece on this path to a decision, the result of the business plan. Rosenbaum: We can’t really go forward without that. Ferguson: We can’t go all the way forward without it. But again I’m just thinking about the mechanics of the calendar. You don’t have to have your final product in order to start planning for the calendar events. That’s all. Rosenbaum: I can’t see that even the proponents would want it on this November’s ballot. Ferguson: Well, that’s why I wanted to agendize it, rather than kick it around today, so we can get a little thought and public comment going into it. I understand the arguments pro and con on it, but I’d like to suggest that we agendize it -- at least a short discussion on it. Carlson: We certainly will be having a discussion whenever we get the report, which I understand is most likely April, what it’s sounding like. Bradshaw: I’ll have to check with Blake and Neil for sure, but I would say at the earliest, it’d be that time frame. They’ve got a lot of work to do. Carlson: I’m certainly glad Rick brought up the issue. Bechtel: Rick, I saw something interesting the other day about absentee ballots. This particular issue of fiber to the home would not necessarily have to be an election coinciding with the Council election. What I saw was postcards and I guess some of the candidates were talking about absentee ballots. It was amazing how much those kind of postcard fill-in sort of things, and those are the kind of things that can be done almost any time. With this particular issue we could probably not have to plan on having something coincide with general elections -- it could be done perhaps by slow-speed internet until we could have high-speed internet. Ferguson: And I agree. It’s just that other people have suggested that this ought to be formally put to the voters. I’m personally in favor of just a mail survey with an invitation to send in deposit checks -- that’s a real good indication of where it’s going to go. But again, if we’re going to pay attention to the calendar, we need to focus on it next month. Rosenbaum: It was more than that. It was an opinion from the attorney, that a minor charter revision was going to be necessary. Some people thought that might be the mechanism to allow the public to express their views. Page 15 of 28 Carlson: A minor charter revision was going to be necessary for…? Rosenbaum: In order for the city to engage in cable TV. Ferguson: I beg to differ. Rosenbaum: We heard that from staff. Ferguson: I beg to differ. That is certainly one option. The only requirement is that a body separate from the City be created to make the content decision on video programming. Carlson: That’s a requirement? Ferguson: Under the federal statute. Whether you create that body by a city charter amendment or you simply contract with something equivalent to the Palo Alto Housing Authority, again, that’s a design issue that doesn’t necessarily require a charter amendment. We’ve barely touched that issue. But again, if you’re looking at the calendar, if we wait till May, we will lose a year. Rosenbaum: That’s not even true. There’s the March primary election in 2004 in addition to the General Election 2004. My view -- and we don’t want to have too much discussion -- is that the longer we wait the more we learn., the more experience you get. And it’s wonderful how much more you gather from the experience. Ferguson: So we just do a second demo project? Carlson: Okay -- I think that’s all for fiber for the home. Rosenbaum: I had a question. Carlson: Go ahead. Rosenbaum: There’s the report on revenue, that is Attachment C, page C-6. Carlson: That’s what I was going to talk about next, but go ahead. Page 16 of 28 Bechtel: I have a question on _________, on public benefits update. Carlson: You’re back on electricity. Bechtel: I have a general question on this. How are we doing on collecting spending money in public benefits? I don’t get any sense, I know we looked at some of these things before, and I know we were under spending, is that right? Can someone give me a sense of this particular? I guess it was triggered by Rick’s comment or someone using the PV program having to be funded strictly by ourselves. So… Baldschun: Tom Auzenne manages the PV program. He can talk about budget and program and what it’s spent on. Auzenne: In general, we’re finding that because of the poor economic climate, particularly in the commercial industrial sector, the amount of rebates that we’re processing dropped off significantly in terms of insulation hardware. We’re finding however that our commercial industrial customers are particularly interested in our consulting services, so that they’re actually doing planning for the future when their budgets become a little less draconian. We’re going through their facilities and identifying those opportunities for them. I expect to probably return about $800,000 out of this year’s budget of 2 million-plus to the public benefit reserve at the end of this year. That will get recycled for future programs. We’re also taking a look at -- and you will be seeing sometime in the near future -- a report on what our future plans are, because of this downturn in the economy has obviously impacted our ability to deliver those kind of services. We’re looking at other market segments that are historically been underserved such as schools, such as city facilities, and the like to try and see what we can do to use this opportunity to capture significant savings and reduce operating costs there. As Randy alluded to, the State of California has taken all their portable tag money off the table, and run screaming into the night. We have benefited directly from that program to the tune of $136,000 in calendar year 2002. So we will take their money and run off screaming into the night. Today for all of our portable [PV?] programs, we’ve spent probably on the order of $700,000 dollars for 58 installations in the city. Ferguson: Isn’t there a sunset year for that program? Auzenne: Which one? Our program? Ferguson: Public benefit. AB1890. Page 17 of 28 Auzenne: No. There was originally a sunset date of 10 years and in all of the ensuing legislation, I believe that sunset date has vanished. But in any case it would probably be several years in the future from now. Carlson: Any more electric questions? Any more telecom questions? I think we had a dollar question? Rosenbaum: Yes, Attachment C, Page C-6. This is the 2002 dark fiber revenue. We still have this paragraph at the bottom to the effect that staff is still working with the finance group to complete the process. Thereby fiber staff can provide quarterly pro forma information. I’ve asked the question before -- when are we going to be able to evaluate our revenues and expenses in a way that a business might, so we can really figure out what’s going on. Baldschun: One of the issues that has come up is that the City’s converting to the RAFTS, the new RAFTS financial program system and IFAS is going away. All this information is now on IFAS and ASD has been pulling it out for us, but they agreed only to pull it on an annual basis for us. We are expecting a full report, they promised us a full report in April. But we don’t have access to that data and we don’t have anybody trained to dig that data out, so we’ve been depending on ASD. Frankly right now they are tied up with converting our financial system to the RAFTS project, and IFAS is going away July 1st. So we have a whole new financial system coming on board. Really, they didn’t want to take the time and effort to train us, get us up to speed so we could do it, so they’re going to give us the information in April. I’m expecting in April we’ll have a full pro forma report for you. The conversion to RAFTS with the new financials will get everybody in our own shop up to speed on it, so we can pull it out for you rather than depend on ASD to pull it out for us. That’s where the latest information I have is on the status of the pro formas. The information that Blake has pulled together here is the latest data that we have on our receivables and monies that are collectible. If you need more before then, I’m not sure how we can get that for you. We’ve been told by ASD that we will have something in April. Rosenbaum: I don’t need anything quickly, but it has been an ongoing issue. We seem to have a handle on the license fees we’re getting, and I think the expenses wouldn’t be that difficult. We know and you know how many people are charging to the dark fiber project. We do have a system of charge numbers and everybody charges their time. From my standpoint, it wouldn’t seem very difficult to be able to figure out what all that added up to. But it does seem to be a problem. Baldschun: Again, that is something that we depend upon ASD folks to pull out for us, by going to those charge accounts and pulling those numbers out for us. They have told us that they’ll give us that number on an annual basis. We haven’t been able to get that on a quarterly basis like we’ve wanted to get, so therein lies our problem Page 18 of 28 Rosenbaum: I think it would be hard to run a business that way. Baldschun: Yeah. Carlson: The numbers you have here, is this fiscal 2002 or calendar 2002? Baldschun: This is fiscal 2002, I mean excuse me, this is calendar 2002. Carlson: Okay, calendar. At least right now we’re in pretty good shape, but it sure would be nice to have some reality. Rosenbaum: We will get the 10-year forecast next month. It has line items for expenses and revenues associated with our telecommunications, and those numbers are going to be completely different from these numbers. And there they are. We’ll ask about that and Randy will have a answer, well, you just can’t make that comparison. The whole thing just isn’t satisfactory. We’ll see next month. Carlson: If that’s it, we can move on to the Quarterly Financial Update. Any questions on that? Bechtel: Mr. Chairman, I was just looking at the electric, and looking at the numbers they look quite good. I noticed on the reserves. Although we are higher than the guideline on our reserves -- which I guess according to what I heard Mr. Pope of Santa Clara say, that’s probably good -- and if you look at the numbers, 42 million reserves against a revenue, we have in fact, our reserves on the supply side are a little over a year’s worth of revenue, conditioned on the distribution. Looking at it from a business, our reserves are more than annual revenue. Of course if you look at it on a purchase cost side, our purchase costs are running about 40 million. So we’re running maybe 120% of purchase costs in terms of reserves. That looks healthy. But are we going to do anything about leaving the reserves higher than the guidelines? Is there anything that could be turned back to the general fund in some way? Is that dangerous? Have there been any thoughts about that? Baldschun: This is the thought every year when we go through the budget process. In this particular case, this year you’ll see the reserves are above the maximum by a couple of million in supply and distribution. Current Council policy is that when we do exceed the guidelines as we are showing here, then we are required to tell the Council what out plans are to do -- meaning are we either going to have a rate decrease, or going to let the reserves stay there because we know in the next year or two, we’re going to have some huge expenses or some contingencies, future liabilities that may come about. It really triggers an explanation, and triggers a discussion, which I am sure we will have next month, when you see the 10-year forecast, when you see all the utilities and look at them in relationship to the reserves, maximum guidelines and minimum guidelines. That’s the thought process we’re going to go through. But just because a reserve is Page 19 of 28 showing above the maximum does not in itself does not mean that it needs to be brought down. There are some good reasons not to bring them down in those cases. That’s how that works, just about every year. Carlson: Go ahead. Rosenbaum: I just wanted to comment on George’s comment. You mentioned is there any thought of giving the money, transferring it to the General Fund. That’s not allowed. The real question is, are you going to transfer it back to the customers, which is something that has been done in the past. But this surplus is not for the use of the General Fund. Carlson: We hope. Rosenbaum: They’ve got other ways. Ferguson: To connect this up to our discussion of water, that’s about as much as it would take to truck water to Palo Alto in the event we lose the Hetchy pipeline for 60 days. So there are some foreseeable disasters where you might want to have that money ready to be used. Carlson: In the turmoil of the energy world right now, I don’t mind having these reserves. I had the same reaction, reserves are really building up. But these are pretty crazy times. If things stabilize, a year from now I would be saying, you know, we’ve been above the maximum for two years now, guys, and we gotta do something. Baldschun: That’s true. There’s always the risk, too You’d like to return the money and just have a rate decrease. But then you also have the risk of a contingency hitting you, and then you’ve got come right back with a rate increase -- or worse. I like to look at this stuff not in a one-year timeframe but really over 3 or 4 years in taking account, because you can never, in terms of the increasing rates, or decreasing rates, you can never act too slow. You need to look at the bigger picture, and look at what’s going on 3 or 4 years down the line, not just in this one year. A lot of this is information that is cost-contingent -- that are potentially liabilities that don’t show up on the balance sheets. Carlson: Speaking of those contingencies, is anything happening with Enron? Is that potential problem gone away? Is it still legally lurking? Where is it? Baldschun: It’s legally lurking and I’m sure we’ll hear more information about it, probably next month or the following month. Page 20 of 28 Carlson: So we’ll have this discussion in detail as part of the LEAP discussion next month, because of the reserve issues. Baldschun: In the context of the reserves, we’ll probably have some discussions, and we’ll all call up our cost contingencies. Hydro conditions are always an issue, and the watched situation is always the drought. Carlson: Any more questions on this material, or can we move on to the Green Power Program? Bechtel: I have a question on the water financials, on water usage on Page 5. I’m glad, Randy, that we’ve now been able to get uniform periods of reporting which makes it easier to do the arithmetic. But I noticed that the actual water usage for July 02 to Dec 02 is 3.4 million ccf. We doubled that – that’s about 6.8. That’s about a million higher than the previous fiscal year. Any comments? Baldschun: Seasonality you’re looking at. You’re looking at the summer months, so you’re going to see…. Bechtel: So the winter months will be less usage. Baldschun: Yes. Bechtel: Fine, thank you. Baldschun: If you notice, all the utilities are down. Usage in water, gas and electric are all across-the-board down. That’s the way of the economy. Green Power Program Carlson: Any other questions or do we go to the Green Power program? Green Power -- do you have a presentation or should we start asking questions? Enerio: I do not have a presentation packet, but I could just point out the highlights. Carlson: I’m not sure we recognize you, so why don’t you introduce yourself? Enerio: Anthony Enerio, Utility Marketing Services. Page 21 of 28 Carlson: Okay. Enerio: For tonight I didn’t prepare a presentation, but I do have some program highlights that I wanted to mention. The reason for putting together and revising the renewal program was to simplify design, have a single choice for each customer class, rather than 3 options. Reduce the number of green rate schedules from 12 to 5. It’s probably a high point there. Our proposed rates right now are about 1.5¢. We’ve gotten about five proposals from contractors and the rates they provided fall within the proposed retail treatment that we’ve mentioned for the new program. We’ve narrowed down our contractors to two, and we’re still currently evaluating those proposals. We should have a pretty good idea by next week of a contractor to provide the green tags for CPAU. Carlson: I just want to be sure I understand a couple of these numbers, because I keep hearing how enthused people are about buying green power. But the actual numbers are 188 people? Enerio: Right, that’s actually gone up to about 198 and we are expecting, with the new program to hit at least 3% to 5% participation level from our residential sector -- which is about 1,000 people. That’s our target goal. Carlson: You think we might reach 1,000 within what kind of time period? That would be interesting. Enerio: Well, the program is, we’re looking at about a couple of years. Carlson: We’ve been doing this for a couple of years. Knapp: Most successful programs…. Balachandran: This is a better, this is an improved program. Enerio: Yes, one of the highlights of this program is sustained marketing and educational component to residents to know what the program is , they keep carrying on the news. Carlson: So this is both simplification and substantial increase in marketing effort? Enerio: Education. Page 22 of 28 Carlson: Education. Knapp: I’ll say this for the record. This is Carl Knapp, for the person that transcribes who likes to hear the name. The other part is, you actually are getting a lower average cost for a better product. Prices have come down for what we’re trying to offer to customers. So the lower cost, and a more simple, stronger marketing effort is what we think we’ve combined actually to make it more successful. Carlson: Go ahead, Rick Ferguson: While we’re on that topic, I was one of the proponents of the three different flavors, the three shades of green, thinking we might get a bigger response and that we might learn something about the different price points. Now, I know it’s a pretty low and small number, but did we learn anything about the different price points? Auzenne: Yes, we did. In terms of percentage participation, probably 50% of the current participants picked the 100, and the other the rest, 60%, seemed evenly divided between the other two options. That’s why _______? Most of our participants focused on the one option. Ferguson: So there wasn’t that much price sensitivity, basically. If you’re going to do it, you are going to go whole hog. Auzenne: The problem was, probably, the understanding of consumers as to exactly what the differences were with the combinations the new and existing and different price points for .25, .50 -- it was just too much. Ferguson: Well, having extracted some learning, I’m in favor of dropping back to a simpler program. Baldschun: It might be interesting to hear from Carl. We’ve applied for an 8(d) grant to work on successful marketing of green power. Want to talk about that? Knapp: It was submitted for the EPA 8(d) program for – well with the proposal was to develop some generic marketing materials for all the numbers so thereby getting a lot of marketing value with EPA’s money rather than spending CPA’s money – basically leverage Anthony’s efforts where he’ll focus on what specific for Palo Alto and allow the broader public power group to generate information that is useful for all of us. I don’t know if we’re going to get the grant, though. In conjunction with Western, and with CRS, the Center for Resource Solutions, do the green-e certification. They’re like a separate power, like the Good Housekeeping seal for the green tags. We’ll see. It has good chance of being successful and could really leverage the marketing budget. Page 23 of 28 Carlson: I want to be sure I understand. The margin for 100% new power is now 3¢ a kilowatt hour? Enerio: No, about 1.5¢. Carlson: 1.5 -- so where was I reading 3 here? On page....? Enerio: That’s the old… Carlson: Oh, so where’s the … Auzenne: It’s cheaper, it’s better, it’s faster. Carlson: So it’s going to be about 1.5? Enerio: Right, for 100% Carlson: 1.5 per kilowatt hour is all it’s going to cost for 100% -- Balachandran: That’s the premium on top of your normal rate. Carlson: I’m talking on top of normal rate, right, but that’s up to 8.5¢. Enerio: Right. Ferguson: That’s almost PG&E territory. Carlson: So, move to Palo Alto and keep paying PG&E rates and go 100% renewable. Well, okay, so that was the table that I missed. Bechtel: Mr. Chairman, I have a question on Table 2, which I thought was very interesting. It lists what other people are doing in the premium. So do we have any statistics or does anyone have any statistics on the participation of each of these people listed in that table? Do we have any idea about participation vs. premium that we could deduce from, if we had a different column there that talked about people and how many were customers? Page 24 of 28 Knapp: They have the data. I’m not sure what we’ve asked for. We don’t have the full database, we have the top ten in participation and the top ten in price. Enerio: In the typical successful program you get a participation rate of anywhere from 5% to 8% -- around there. Bechtel: Like Roseville. The Utilities Director there is a good friend. You say Roseville, you shake your head, Girish. Balachandran: Our program is much better than what Roseville’s offering because that’s all old green stuff -- mostly old geo -- whereas what we are offering is -- pristine. Knapp: They really want to feel like they are making a difference, not just buying something that was already there. Baldschun: Well, the idea is to spread development, right? Knapp: Right. Baldschun: That’s where you would want to put your investment. Knapp: 3.5% of the future green customers can….? Rosenbaum: What is the anticipated source of renewable energy that we will be using? Enerio: In the RFP we have preference for the wind and solar close to Palo Alto resources. Proposals we have gotten have been indicative of that the two we were looking at. Knapp: Also the most competitive prices have been wind the last two years. Last year we bought wind tags from Bonneville Power – they’ve got some pretty large wind farms that served the future green customers last year. Carlson: So it’s mostly wind, and nearby. Knapp: We have a preference for nearby, but there is no actual wind farm nearby and -- Page 25 of 28 Carlson: Even Altamont isn’t building anything new at this point? Knapp: No -- which is probably a good thing for bird lovers. Carlson: So it’s more Bonneville-level air. Knapp: SMUD’s putting some things in Solano County but those aren’t really built yet. Part of the beauty of using tradable renewable certificates (as they call them now) is that that’s pretty much become a standard for how to have a market for these renewable attributes. It’s basically a production subsidy that flows to the goal, that’s get them to the actual generator, it gets them an incentive to build new farms. So it will probably be wind. But as things develop over the next few years, it could be some of each. Can’t really say too much until we finish negotiating with whoever gets selected in our RFP process. Carlson: Go ahead, Dick. Rosenbaum: If we do deal with a contractor, are we doing to specify what they use? Or are we going to care as long as it has a certification? Enerio: We have a preference for non-combustible resources, obviously, and we’re also looking at that the contractor be green-E certified,. Rosenbaum: Assuming that they are certified, that it’s a renewable resource, are we really going to care how or where they get it from? Enerio: I guess that’s part of what we’re looking at – price will be an issue with that as well. Knapp: Customers have indicated they want portable tags and they want 1/10th of a cent. But there is preference for wind and solar with a lot of the environmental groups, communities now calling it dark green -- which I would call light green -- but which is combinations of wind and solar. If we can provide that kind of product for Palo Alto customers at a cost below 1.5 cents, that’s what we want to shoot for. Rosenbaum: What sort of solar are we talking about? Knapp: Probably a small percentage. We’d probably be sold on thermal, that’s really the only thing you can really get that is being built right now. The parabolic trough. Page 26 of 28 Rosenbaum: When I was commenting to our chairman I mentioned 8.5¢, but it’s 9.5¢ -- that includes distribution. I’m thinking of the average rate, whereas the average commodity cost is about 4.5¢ and we add the 1.5, we’re talking 6¢. Are you saying there’s some solar thermal that can be purchased for 6¢? Knapp: No, but I think you can buy a mix of wind and solar that comes out to be 6¢. Rosenbaum: So the wind by itself might be less than 6¢? Knapp: Yes, but I think it’s like 2 or 3 % solar, not 50% solar. Carlson: Solar, direct electric, like thermal. Knapp: Yes, it’s solar -- but it’s most likely to be wind because there’s a lot of wind being built nearby, and it’s all new. They’re looking to provide this kind of product. And especially Palo Alto, people of Palo Alto, is a very attractive customer to have on your list: “We sell our power to Palo Alto.” Rosenbaum: That may be true, but you still have to pay the bills. You’re suggesting the solar/thermal may be there just because it sounds good, rather than because it providing any significant amount of -- I don’t want to put words in your mouth, but that’s the way it sounds. Knapp: You wouldn’t buy more than you could afford with this kind of a price tag. Bechtel: Anthony, I’d like to know a little bit more about how this product is offered to us. How many hands does this green power go through before it gets to us? Are we having to pay a premium by many people brokering this thing or are the people selling it to us directly? How many sellers are there behind the person who owns the wind source and us? Enerio: The two proposals that we are looking at, correct me if I’m wrong, at least one of them is Bonneville, they’re getting the power from Bonneville, I’m not quite sure where the other … Knapp: I don’t know how much I can take about. Enerio: We’re still evaluating. Page 27 of 28 Knapp: Last year we bought it directly from the source. Bechtel: So you can get it without a lot of layers of extra costs added on by somebody brokering deals and aggregating sources. Knapp: What we’re looking for in a contractor is one who has experienced marketing this kind of product, because we’re not experts at that either. It’s a combination type of contract. Carlson: So you would like their assistance in marketing within Palo Alto on top of what we’re going to be doing? Knapp: Well, more marketing support -- their expertise, helping us make sure we say the right things to get people. Enerio: Supplemental to whatever marketing approach we do for Palo Alto. Bechtel: Yes, I see your comment in here, and I just really like it and I endorse it, which is to utilize the marketing expertise of an advertising agency. Really we need to look at that for all of our products. But in particular it could be really helpful to us to have someone who is [good at] slick, glossy and all those kind of things, rather than the utility mailers and so on. Try on what I would call a passive, semi-passive way. Carlson: Any more questions on this one? Rick? Ferguson: I’ll move the staff recommendation. Rosenbaum: Second. Carlson: So moved and seconded that we go ahead with the staff recommendation on the new improved version of the green power program. All in favor? All: Aye Carlson: Any opposed? No opposed. It’s passed. I would like to point out that it’s 8:15 pm -- well, 8:18. In March we are going to be talking about the long-term financial plan and the strategic plan and the LEAP. It’s going to be a longer meeting but this is very good. Page 28 of 28 Baldschun: And we’ll add the City’s long-range financial plan, the Joe Saccio talk. Carlson: Yes, if there is anything we can do to help, we ought to talk about it. If they’re about to propose we do something radically different, it’d be nice to know about it ahead of time. Think we need a motion to adjourn the meeting? Bechtel: So moved. Ferguson: Seconded. Carlson: All in favor? [All say Aye]. Adjourned.