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HomeMy WebLinkAbout2003-06-04 Utilities Advisory Commission Summary Minutes 6/4/03 UAC Minutes – Approved 7/9/03 Page 1 of 39 UTILITIES ADVISORY COMMISSION MEETING MINUTES JUNE 4, 2003 CALL TO ORDER _____________________________________________________ 2 APPROVAL OF MINUTES _____________________________________________ 2 AGENDA REVIEW ____________________________________________________ 2 REPORTS FROM COMMISSIONERS____________________________________ 2 DIRECTOR OF UTILITIES REPORT ____________________________________ 3 GAS UTILITY LONG-TERM PLAN (GULP) ______________________________ 7 GROUND WATER FEASIBILITY STUDY _______________________________ 15 UPDATE ON WATER INTEGRATED RESOURCE PLAN__________________ 26 6/4/03 UAC Minutes – Approved 7/9/03 Page 2 of 39 Call To Order [Chairman Carlson called the meeting to order at 7:00pm. Commissioners Ferguson, Bechtel, Carlson, Dawes, and Rosenbaum are present, along with Councilman Beecham.] Approval of Minutes Carlson: Approval of minutes, any suggestions for changes in the minutes otherwise if we can have a motion to approve minutes? Rosenbaum: Move approval. Carlson: Moved by Dick Rosenbaum, seconded by Bechtel, all in favor? All: Aye. Agenda Review Carlson: Unanimous approval of minutes. Agenda Review, anything we are missing here? We’ll just go ahead with the agenda. That moves us to reports from any meetings. Have there been any meetings? Dexter may as well report on the Council meeting if there is nothing else. Reports From Commissioners Dawes: Council meeting last Monday was to review the situation with Trinity River legal situation. Council member Beecham had put it on the agenda to reflect the fact that there had been activity, namely that SMUD had pulled out of the litigation. And it gave the Council an opportunity to re-examine the city of Palo Alto’s stance. There were, I would guess, six to eight witnesses that testified on behalf of the environmentalists to urge the Council to cease their support through NCPA with respect to appealing the judges decision. I spoke on behalf of the UAC, reiterating our unanimous approval of recommendation to the Council that they support the legal action and support the appeal. I indicated that it was a matter of fairness and the ability to have the whole facts come out, specifically the facts with respect to impact the Sacramento river side if waters were diverted away. The Council voted 5 to 4 to direct Council member Beecham to withdraw City of Palo Alto support from NCPA payment of legal fees for this action. Carlson: Thank you. Any more meetings? Go ahead. Bechtel: No, I just had a question. Can anyone comment on what that really means? 6/4/03 UAC Minutes – Approved 7/9/03 Page 3 of 39 Are we are free to “not participate” in an NCPA commission-approved action, or at least to pay our share of it? Beecham: More literally, the motion made was that we withdraw our support for the litigation and also not participate in the Supplementary EIS (SEIS) that will be done by the Department of the Interior. During the session it was discussed what the impact would be. It is not clear whether we as one member can change the direction of NCPA. It is not clear at this point whether one member can unilaterally withdraw from commitments made or expenses made on behalf of the agency. It is something I will have to discuss with the agency. Bechtel: Is it your plan to propose to the agency that they withdraw their support as did SMUD? Beecham: That is not the direction from the Council and I would not do that. Carlson: Any more commissioner meetings? John, Director of Utilities report? Director of Utilities Report Ulrich: Thank you. Since there were questions about the Trinity decision made by the City Council, I have had some calls and questions about what specifically the motion was at the Council. Commissioner Rosenbaum asked a couple of questions regarding that. If it is all right, I will read verbatim what the motion is and what was passed: “That Palo Alto affirm its support of the Trinity River restoration plan and the December 2000 Record of Decision (ROD) by withdrawing from the NCPA litigation and supplemental environmental impact study (SEIS) activities.” That was the motion and what was voted upon. A couple of things in my report about Trinity River decision. I would agree with Council member Beecham on the proposed actions we will and will not take with NCPA. There is an article in today’s Weekly, a well-written article about what occurred. But in that article we could find three incorrect pieces of information that were stated by people who came to the meeting, then it was reported on in the paper. Several participants at the Council Meeting said, and it was written in the article, “the Trinity River’s flow volume is ten percent of what it was forty years ago.” However, that is about what it was for the first sixteen years from 1964 to 1980. It has been 26 percent of average inflow or more since 1981. Judge Wanger’s ruling of 2001 moved it from 26% up to 28%. So that is the accuracy there. This year inflows at Lewiston are about 39% of average inflow. But we should remember that Lewiston is the driest point on the Trinity, being just ahead of nine streams and forks that are uncontrolled tributaries of the Trinity. The percentage of inflow statistic increases as each of the tributaries makes its uncontrolled contribution. 6/4/03 UAC Minutes – Approved 7/9/03 Page 4 of 39 The second item in the article stated, “But US District Court Judge Oliver Wanger ruled April 7th that water flow could be increased to 503,000 acre-feet and that is 39 percent of inflows until a supplemental EIS is completed by the Federal Department of Interior to comply with existing environmental law.” What I said would more accurately state what is reality. There were a number of things that were brought up at the meeting that were a repeat of things that weren’t necessarily accurate. Today I got a letter from NCPA which went back and looked at all the testimony that was at Monday night’s meeting, and put together a fact sheet that lists the items that are accurate and the items that are not. They will use that for communication at NCPA. We at staff here will follow the vote of the commission and try to find a way to remove ourselves financially from the litigation at NCPA and see how we are able to do that. A couple of other items. The strategic plan provided to the Council on 5/12/03 as an information item was approved by the Council. The Council voted to appoint Bern Beecham as voting member of Board of Directors of BAWSCA. The Trinity River fisheries restoration was heard by Council on June 2nd and items that are scheduled for the Council are subject to change. The LEAP implementation plan was delayed from June 3rd to the July 15th Finance committee meeting and delayed from June 30 to the August 4th Council meeting as an action item. These are items that you reviewed and approved. The GULP is scheduled for July 15th Finance committee and August 4th Council meeting as an action item, we expect we will be able to do that. The Western contract amendment has been postponed to mid to late June for the Council. An item of interest that foretells continued problems is that we had our first Stage One emergency that was called by the ISO on May 28th -- not an unusually hot day -- but the first of its kind for this year. If economy stays the way it is and we have the weather like it is, it’s hard to believe that we will not continue to sustain some kind of emergency stages throughout the summer. An area that we are becoming quite happy with is the NCPA Renewables RFP. Sixty-six proposals were submitted from 52 companies totaling almost 3 GWh for stage one of the RFP. Average first year price at MP 15 was $52 a MWh, and ranging from $41 all the way up to $250. Based on CPAU and NCPA evaluation criteria staff has recommended 19 resources from 15 companies invited to submit the stage two questionnaires which will be the credit, financial and the detail contractual terms. We are on our way to getting some very good Renewables proposals. That’s my report, Mr. Chairman. Ferguson: On the ISO warning, the Stage One alert, have we rehearsed the arguments for threatening to use the COBUG to protect ourselves from being targeted for a rolling blackout obligation? Do we know that it will work, if it comes to that, sometime this summer? 6/4/03 UAC Minutes – Approved 7/9/03 Page 5 of 39 Ulrich: We do test it. Candidly, I don’t think we are going to get to that. But we do practice that, start it up and go through diagnostics on it frequently. Ferguson: But the ultimate question is, will the ISO and PG&E accept our switching on the COBUG in lieu of our 5% cutback, or whatever it is? Ulrich: We think so, because we are going to measure load reduction. If you turn that on, they are going to see the load reduction minus the COBUG. So we should be able to do that. The contract for interconnection agreement is now different than it was at the height of the crisis when our interconnection agreement was with PG&E. Now the interconnection agreement allows for Palo Alto to receive its energy even at a time when PG&E customers may have to sustain rolling blackouts. We have a different contract. The other thing that can happen is that if we have a shortage, there is no sharing from PG&E to help us out. It’s going to be a better situation. Carlson: Any more questions? John, I have one just for comparison purposes on the bids on the renewables, which sound very good. What is our average acquisition cost currently, is it about 3 cents? I just want something to compare to the $50. Ulrich: Are you asking acquisition of renewables or what we are paying now for… Carlson: What we are paying now for non-renewables? Ulrich: Mr. Balachandran will answer that question. Balachandran: Our commodity cost is about 3 cents but it has a lot of variables in it. The market price is about 5 cents on average. Carlson: That’s incredible to me. So the renewable bids we are getting are close to market? Balachandran: Yes, some bids came in actually less than market. I believe that there was one wind bid that came in at less than market, at 30 mills. There were proposals that went up to 250 mills. Karl Knapp has done quite a bit of analysis on it. The whole bunch of landfill wind are around 55 to 65 mills, which is less than the increment that Council has approved as part of LEAP Guideline number 6. Council approved a half-cent system-average rate impact. We’re talking about -- this is about 0.1 cent. Carlson: For wind though, how do we handle the issue of wind being such an intermittent resource? Balachandran: We are only in stage one of the RFP. 6/4/03 UAC Minutes – Approved 7/9/03 Page 6 of 39 Carlson: OK Balachandran: And we have just short listed about nineteen proposals and we will get more detail on Stage 2. That will be one of the evaluation criteria -- the firmness -- and the ISO has recognized that. In California, there is a separate schedule for what they call intermittent resources, so they don’t suffer the same kind of ancillary services scheduling charges that other resources would have to pay. We have a bunch of other resources performing also. Carlson: Is it possible for us to manage those hydro resources that we partially own or have under contract -- to firm up a bunch of wind? Balachandran: The answer is yes, we can. Some of the proposers offered to firm it up for us. We just pay a premium for firming it up. Carlson: This is really very encouraging, this is outstanding. Great. Go ahead Dexter. Dawes: Just one question, a follow-up on the cost aspect. You mentioned a 10th of a penny -- that is, if we acquire the full 10% or 15% of additional of renewables at five cents, we would then increase our three-cent [commodity system] average by a 10th of a penny? Is that the arithmetic, or am I lost? Balachandran: I’ll give up the three cents, forget about the three cents. Essentially the LEAP guideline says half-cent system-average rate impact in order to meet the twenty percent RPS goal. Eyeballing the prices right now, looking at the qualities being offered -- remember we’re at stage one -- we believe we could come in at pretty substantially half a cent. And the volume you are talking about is correct. In fact Karl is probably going to give you a presentation in a month or so, once we get into stage two. There might be a lot of interesting tradeoffs. Given that we have a relatively high cap, we can actually chooses some interesting technologies -- not that we need to be at the cap but we have the ability. My sense of it is that the Council and the UAC would be pretty interested in seeing some of those technologies and the tradeoffs, like tidal power -- things like that. Carlson: Go ahead Commissioner Rosenbaum. Rosenbaum: It just seems to me that you are talking head room again and I’m always very hesitant when you start talking that way. Balachandran: I will make a note of that. Ulrich: We talk about head room quite a bit. 6/4/03 UAC Minutes – Approved 7/9/03 Page 7 of 39 Bechtel: Girish, I’m wondering about the rules under which we would actually be able to purchase what NCPA is doing. We will share this -- I guess this will be a pooled requirement, and we will have some allocation of what is purchased. Or how is the divvying up of, let’s say, the cheapest renewable to the next price category -- and so on. Balachandran: This is an NCPA RFP. All NCPA members will have a right -- just like any NCPA project -- to request a certain participation percentage. There is also the option -- for example, if there’s a landfill generator close to one city where that city may have some unique advantages to purchasing it. That would be carved out of the RFP and the contract would be between that city and the proposer. There would be other resources which would be open to the general membership. Financing is another issue on how we going to finance these projects. These are 10- to 30-year projects we are talking about. We will probably propose to issue some tax exempt bonds to finance all of these purchases. Beecham: At NCPA they have formed a committee to review these and I am chair of that committee. Palo Alto will certainly have some input in the process. Bechtel: The financing is a surprise. These are not contractors saying, if you give us the contract we will build it. Some of them are proposing to actually borrow the money to build? Balachandran: We have both options. Bechtel: OK. Carlson: Any more questions? Let’s go ahead. I don’t think there is any unfinished business. We will just go ahead with first new item, the Gas Utility Long-Term Plan (GULP). This is an action item. [Commissioner Ferguson places a regular-size soft drink cup labeled “GULP” on the dais.] Gas Utility Long-Term Plan (GULP) Ulrich: Thank you Mr. Chairman. The request that you have before you is an action item for the approval of the natural gas supply portfolio planning and management objectives, and the guideline for the gas utility long-term plan known by the acronym GULP. Karla Dailey will have a brief presentation that you see up on the screen. Then we will ask for your questions and your approval of this item. Dailey: Thanks John. This is a very quick presentation and nothing that is not in the 6/4/03 UAC Minutes – Approved 7/9/03 Page 8 of 39 report in your packet. Objectives and guidelines, I just noticed an error on the cover sheet here, there is more than one guideline. Let me go ahead and get into it. What are the reasons that we are doing this? The first one is just a need to review our commodity purchasing strategy. It has been in place over two years and although we think of it often we haven’t really sat down and done some analysis on whether our strategy is the right one given all of the objectives that utilities has. The second reason has to do with some negotiations that are going on associated with PG&E bankruptcy case. One outcome in a list of many of that proceedings is that Palo Alto may be asked to commit to some pipeline and storage assets with PG&E. So we want to be proactive and know which of those assets we might be interested in committing to before we are asked to make such a decision. The third reason is a regulatory one. At this point in time Palo Alto is not required to hold any assets. But there is a movement among some interested parties that would require any customers who have the status of core, which means non- core customers could have their gas diverted in an emergency situation to us. That might require us to hold some those kinds of assets. Proactively, we would like to know what we may want to hold if we were required to take some action by a regulatory mandate. The fourth reason is just the desire to have a platform for evaluating opportunities as they arise - having some systematic way to evaluate an asset or make a decision when it comes up. There are three proposed objectives. The first one is to insure low and stable rates for the pool customers. The non-pool customers are the large customers who have opted not to be part of our pool; we set their rates based on whatever rate option they choose. It’s a straight pass through. They have control over whether they want to have stable costs or costs that vary with the market. So this GULP objective just applies to the pool. The second objective is to manage our supply costs in a competitive manner with the market. And to maintain a retail advantage compared to PG&E. The third objective has to do with energy and efficiency. What we have said here is to strike a balance between the environment, rate impacts and cost impacts when we are considering such investments. There are four guidelines. The first has to do with market risk management. I divided these up into three bullets. Diversity is a guideline. We want to maintain diversity. We want to maintain some appropriate level of market exposure and we will avoid long term fixed price commodity contracts. That mainly has to do with an issue - liquidity - at this point. Once you go out a certain number of years there aren’t enough players in the market to have a liquid market for those types of products. This is just a reminder of our current strategy, this slide was done a couple of months ago but the idea is still the same. Our current strategy is that in the near 12 months we will have locked in 75% of our expected needs through fixed price contracts. Fifty percent for the next 12 months, and then 25 percent for the third 12 months. There was a management decision to fix the price of a hundred percent of our 2002 – 2003 needs. That is reflected in that graph. If I were to update that graph today, the first month would be July and we’re at a 75 percent 6/4/03 UAC Minutes – Approved 7/9/03 Page 9 of 39 goal for the fiscal year of 03-04, today looking at that graph. This is the strategy we will be reviewing: Do these percentages make sense? Does the timing make sense? Does a three-year term make sense? All these components of the strategy will be under review. The second guideline has to do with asset acquisition. We will just explore assets such as storage and pipeline capacity to see if it makes sense in our whole supply portfolio. We will take into consideration the long-term supply costs for our gas that is delivered - operational needs, regulatory mandates and we will look into potentially teaming up with another agency. Also keep in mind the City’s low cost of capital for assets acquisitions, which may make a difference in some cases. The third guideline has to do with regulatory and legislative matters, and this isn’t really any different than what we do now. We intervene where we need to, to protect the City’s interests. And we are always on the lookout for someone to team up with. So we will keep that high on our radar screen as well. Unfortunately on the gas side there aren’t usually as many opportunities as electric, because there aren’t very many gas utilities in California. Often our interests are different than other parties that are intervening in a proceeding. The fourth guideline addresses energy efficiency investments. We will provide expertise and incentives to support efficiency improvements. We’ll demonstrate efficiency and load management alternatives and provide low-income rate assistance. The schedule. Obviously we are coming to you today in June with the objectives and guidelines. These objectives and guidelines are scheduled to go to finance committee in July and the Council in August. That schedule slipped a little bit from our original goal because of other conflicts and overloaded agendas. We are proceeding with the analysis nonetheless, and are still hoping to get a draft of the analysis to you this summer, although it will probably be late summer at this point. And then a final sometime in the fall. That’s all I have. Carlson: Any questions? Go ahead Dexter. Dawes: I am fascinated by the asset-acquisition comments coming out of the PG&E reorganization. I cannot remember hearing about these opportunities. I view them as opportunities to cement our infrastructure, if you will. I am aware of, for instance, the huge discrepancies between the Henry Hub gas and the California border and the Palo Alto Citygate prices that are not so much now as they were a year or two or three ago. But they were very substantial - on the order of 50 to 100% was my recollection. If there is any information you can give about the opportunities that are available here, I would be very interested in hearing about them. I view this again as an opportunity to lock in low- cost public transportation and storage facilities, which are vitally important to the City. That is one comment. 6/4/03 UAC Minutes – Approved 7/9/03 Page 10 of 39 The second comment has to do with the long term commitments to supply. I had mentioned in the past and will do so now - I hope we would not foreclose opportunities to actually buy producing wells if they become available at attractive prices. Again, I think that on a long supply basis, to own the assets -- obviously at prices that are attractive to us -- is something we should do. On the basis that our strong suit is low cost-of-capital, which you have mentioned, and it is a very powerful one in the utility business. And lack of having to pay any taxes is a very big item in comparison to IOUs that would be or other regulated companies or unregulated companies supplying us. So the opportunity to avail ourselves of long term asset acquisition even in the supply end, I think, could be extremely attractive. Just so our antennas are open and our minds are open to these. But I would like some input on the first issue. Dailey: Let me respond to your second issue first. Definitely on the list of things we are looking at is an interest in production or some sort of reserves. As you probably know, SMUD just made an acquisition. Oh, you didn’t know that? Yes, SMUD just took an interest in some reserves, so we have made contact with some of the analysts at SMUD who pushed that deal through and are trying to see how it applies to Palo Alto. The guideline in here really refers to long term fixed price contracts, not long term assets. I think those two things are fairly different so we won’t be shutting out opportunities as you discussed. What may result from the PG&E bankruptcy would be the possibility to reserve California or PG&E system assets before some sort of open-season. We are talking about pipeline capacity from the California border to the Citygate. PG&E storage that is in-state will not address any sort of basis differential between Henry Hub and the California border. I don’t foresee buying capacity to the Henry Hub. We would possibly look at buying capacity up to Canada or in the Southwest, the San Juan Basin or something of that nature. I am sort of putting the cart before the horse, because the analysis hasn’t been done. The most obvious assets are in state and just moving the delivery point a little farther -- for at least part of our supply -- a little further away from the city gate, closer to the wellhead. Dawes: Henry Hub was just as an example of the price differentials. I also mentioned from state border to our City Gate was a pretty big number at one point, too. I don’t know where they sit now, but to freeze those long-term is a long-term objective that we should have in mind. Dailey: Right, right. We did sign a memorandum of understanding with PG&E. That has to do with -- if their plan gets approved through this whole bankruptcy proceeding, they will have this other entity that manages all their pipeline and storage assets, and we may be able to make a reservation ahead the open season on those assets. There are a lot of “if’s” in that scenario, but it is one possible outcome. Dawes: So PG&E will be forced to do a lot of asset sales to successfully reorganize? It 6/4/03 UAC Minutes – Approved 7/9/03 Page 11 of 39 sounds like that is what is coming out of this whole arrangement. Dailey: They are not talking about selling their assets, they are talking about allowing us to make reservations of their assets ahead of the open season. They are not divesting assets, they are just filling them up. They are filling the bus, more or less. Dawes: Are these at fixed prices in the future? Or is it just the fact that we will be able to get storage, but we’ll set the price at market at some future date that we need it? Dailey: As far as I can see, we would know the price at the time we committed so, yes, it would be, it would be a fixed price for some amount of pipeline capacity for some term. Dawes: Long term? Dailey: Probably five to ten years, at least. Dawes: Hopefully, ten or longer. Thank you. Carlson: Commissioner Ferguson. Ferguson [placing a second and larger “Big Gulp” cup on the dais]: Thank you. I understand the talk about buying capacity, but my next question goes to the number of different gas pipelines. Is there an opportunity here to diversify the number of different physical ways to get gas to the Bay Area? Dailey: To the Bay Area or to Palo Alto? Ferguson: To Palo Alto or to the Bay Area. I understand there may be a limitation to Palo Alto. But just as we have had an opportunity to strengthen the Hetch Hetchy pipelines and perhaps build a fourth pipeline, does this asset purchase increase the number of ways physically to get gas closer to us? Dailey: I will make an attempt at this. I don’t think we are talking about additional pipelines being built into the Bay Area. We might be able to diversify our supply cost by being subjected to different base in prices and different delivery point prices. But we are not talking about physically adding more pipeline capacity in California. Ferguson: So this plan doesn’t eliminate any physical chokeholds on us? Dailey: No, and I don’t think… Ferguson: We are still exposed to the same earthquake risks and physical risks? 6/4/03 UAC Minutes – Approved 7/9/03 Page 12 of 39 Dailey: No, it doesn’t eliminate that. I am not sure that is a big concern right now. There is a lot of capacity in California, it’s not a major issue for gas. Bechtel: Karla, what would be the impact, probably in our commodity cost, of doing nothing of purchasing assets. I am sure there are number of people who really don’t have the City’s resources to purchase anything, as we do. What if we did nothing? What would be the impact? Dailey: In a sense, doing nothing is what we have done for the last few years. We used to have some storage that was part of a bundled rate with PG&E. When that was unbundled we immediately declined to take it, it was just not cost-effective. We didn’t take any of it. Also, we have not traditionally held pipeline capacity, with the exception of the piece of Redwood that we own. which we got at a very cheap rate. It was a no-brainer to take that. At least historically speaking, those were good outcomes. We had lower supply costs than we would have, and in most cases, than if we would have held those assets. Just because that’s true today doesn’t mean that a decision for the future is to continue to do nothing. We certainly recognize that. When we do this analysis, I’m not actually doing the analysis. Another person in our group is, which is good because they don’t have all the biases and the history that I do. He is looking at a very blank page, and very open-mindedly at all the possible futures and what the best portfolio of assets to hold, given all those potential futures, would be. Bechtel: I guess you are really saying that you don’t know what the outcome would be? Perhaps we are planning ahead. I am hoping this is what we are doing, we are anticipating various scenarios that would happen to us, one of which would be nothing, to consider the range of options of acquiring something in the future. I am assuming that the study includes all those features and then we will get a chance to look at it. But that brings up the point… how fast would we have to react? Let’s say the PG&E bankruptcy is resolved, the PUC or someone has a plan of reorganization. Are we looking at fast decisions here? Or is this open season on acquiring going to be a year long, six months, two years? Can you give me some feel what sort of time pressure we might be under? Dailey: John might be able to respond better to how quickly the bankruptcy might be resolved. Ulrich: You are asking questions about filling in all the spaces around the guidelines that we’re asking you to approve. You are moving into how to make these guidelines work to our advantage, and we are not that far along in this process, as Karla is trying to point out. Frankly I would very much ask [that we be] moving on from bankruptcy and talking about something else, because of the implications this has with our electric business. Feel free to ask what you like, but I am making a suggestion that we focus on these 6/4/03 UAC Minutes – Approved 7/9/03 Page 13 of 39 guidelines for approval things that you think that we missed, or are not covered here, so we have thoroughly good long range plan when it’s put together. Rosenbaum: Just to follow-up, I assume the timing on GULP going to the finance committee and to the Council is some months away? Ulrich: Yes. Rosenbaum: Apparently that’s fine from a timing standpoint, you don’t sense anything happening that would require any other action? Ulrich: Going beyond whether we sense something or not, one of the real strengths we have here in Palo Alto is I have your phone numbers. We can set a meeting and get people together rather quickly and also go to the City Council if those are the kinds of things that need to be done. That will be our contingency plan. Move this as fast as we have to if we get something that tells us there’s an opportunity that we need to take advantage of. Rosenbaum: Thank you. [Commissioner Ferguson adds a third and still larger cup labeled “Super Big Gulp” on the dais]. Carlson: Any more questions? Go ahead Dexter. Dawes: On Attachment A, which is the thing we would be recommending to City Council, and under guideline one, section B, it says, “maintaining a prudent exposure to changing market prices by leaving some fraction of the forecasted gas pool needs exposed to near term market prices.” Then, under balancing objectives, under A, it says “maintain large spot power and short term market exposure.” Are we prudent or are we large? Dailey: That’s not recommended objective, this is a comparison. All these tables in attachment A show the recommended objective in bold and for comparison purposes, the objectives that are different. We are just trying to show here…. Dawes: I got it. These were comparative purposes only. Dailey: Great. Carlson: Any other questions? In that case, lets have a motion to approve. Bechtel: Mr. Chairman, I move that the UAC recommends that the City Council approve 6/4/03 UAC Minutes – Approved 7/9/03 Page 14 of 39 the three objectives and four guidelines for the gas utility long term plan. I guess that’s the end, we don’t need the second sentence. Carlson: Do we have a second? Ferguson: I’ll second. Carlson: Any discussion? All in favor say aye. Ferguson [placing on the dais a fourth giant-size cup labeled “Double Big Gulp”]: Yes, this has gotten better as we’ve talked. Mr. Chairman, can I vote twice on this? Ulrich: I would suggest that the video camera take a close up of Mr. Ferguson, so that it can record his nonverbal comments accurately. Carlson: So we have a program already designed for us! Dailey: Did you have to buy all those? Ferguson: No, it was a gift. Ulrich: I hope you enjoyed gulping the drinks. Ferguson: Good Hetch Hetchy water. I vote aye. All: Aye. Carlson: Any opposed? Unanimously approved. Very good job, thank you very much. Ulrich: Thank you. You can see from the staff report the thoroughness that the group has spent putting this all together. And particular thanks to Karla. Carlson: Dexter, you had one more question. Dawes: One more thing I had written down and forgot to say but it is illustrative only, it goes with the “no long term contracts.” What I had opined or suggested before my note says “Maintain an opportunistic approach. If a good deal comes by, take it.” Remember the WAPA contract of 1964, which was sort of average at the time, but we learned to love it at the end. I was unaware that SMUD had bought reserves but I think gas is going to get very scary here over the next ten or fifteen years. If we can buy into a gas field, I think we should look at very seriously. Beecham: To answer that, we are going to have to look at our policies in the city for 6/4/03 UAC Minutes – Approved 7/9/03 Page 15 of 39 purchasing commodities and length of time and quantity, to make sure we are fitting in with the rules that we have with the city. Or go and attempt to have those changed. Rosenbaum: Just one comment. I am disappointed that we chose the acronym GULP for gas, when it seems to me more appropriate for water. But it does seem to work very well. I have to compliment the staff on coming up with something that we’ll always remember. I am waiting for the next project that we have. And Mr. Dawes is still asking for a name for our Fiber to the Home Project. So maybe in the next month the staff can come up with some nice names for that project. Ulrich: We will put tremendous effort and intellectual thought, and try to meet your expectations. Dawes: As you may have heard, I have a suggestion. Ulrich: Yes, we do recall and it is in the record. Since you have not copyrighted it, we may be willing to steal it very quickly. Ground Water Feasibility Study Ulrich: The next item; the Groundwater Feasibility Study. Jane Ratchye will give you a bit of an introduction. Dave Kraska, the principal at Carollo is here to participate in the discussion as his firm has prepared the final report that you see attached that’s dated April 2003. What we are asking this evening is for you to receive the report for information purposes and get a thorough understanding of what’s in it, and what it has attempted to accomplish. Jane? Ratchye: Good evening. You all heard about this report before you saw the scope of work when we started it. The basic idea was to look at the groundwater basin and try to figure out what would be a safe volume to extract. “Safe” is defined as not causing land surface subsidence, not causing migration of groundwater or contaminate plumes, and not causing any salt water intrusion into the groundwater aquifer. We had Carollo engineers , and you are probably familiar with Dave Kraska, do that study and it’s final. He is going to jump right in with his presentation. Kraska: Thank you Jane and good evening. As Jane mentioned, this is the summary report for the groundwater supply feasibility study. We had two main purposes in the study. First was to evaluate whether operating one of the two wells would significantly decrease the groundwater levels in the Palo Alto area. As Jane also pointed out, really the main impact is we are trying to find out if that would cause any of the environmental impacts which we are mostly worried about, which are subsidence, contaminant plume migration and salt water intrusion. 6/4/03 UAC Minutes – Approved 7/9/03 Page 16 of 39 Starting with the summary of the scope of work, what we were asked to do. First we did a preliminary analysis of some readily available background information. From that information we tried to estimate the capacity of the aquifer in the Palo Alto area and develop a preliminary extraction plan. Then we wanted to take that information and meet with Santa Clara Valley Water District and present it to them to gauge their reaction and determine what their input would be and how they would react to it. Following that we could better define what a possible groundwater supply system might be, define the potential impact from that system, and then write the report that you have. What we first did is reviewed what are called time series plots, showing water level over time. We took some liberties in terms of exactly groundwater hydrology but we estimated the area in Palo Alto specifically, and I will explain that in a second. From that we were able to determine or estimate capacity for the Palo Alto area. This is an example of the time series plots that we looked at. The Hale well is one of the better producers, continues to be one of the better producers for the City today. If it were to be operated, this shows that from when data was collected from 1948 to present, the groundwater extraction on the bottom shown in acre-feet per year, and you can note that it drops off to zero in the early 1960s. Then it was used a couple of times during the drought in the late 80’s, early 90’s. And this is the graph on top, it is pretty characteristic of all five of the existing wells in the City. Where in the late 50’s, early 60’s when data again was collected, the groundwater levels continued to decline until the wells were essentially turned off. Then they rapidly rise back to pre-development levels. In the late 80’s again you can see in this particular graph, a spike downward. Then it rises back up again once the well is turned off. You can see it has dropped down a bit, that level is about 24 feet from a static level when the well wasn’t in operation for some time. After reviewing time series plots, again we decided to determine how much area we have in Palo Alto to extract groundwater from. One of the characteristics of the groundwater basin in this area is that there is essentially a fault that runs more or less along El Camino Real, that defines productive aquifer and non-productive aquifer. One of the nice things that this presents to us is that some of the areas of past contamination are actually on the bottom half of that line or in the non-productive aquifer. You can see where the City’s existing wells shown in red and the proposed well sites that were considering in the other work, shown in blue, are actually in what we consider a productive aquifer. But the area shown tan is the area that we consider as potential use for groundwater extraction. We use this area to determine or estimate how much water we could possibly extract. The data was limited, so we took three approaches to estimate how much water there was to use. The three methods are listed there: the Santa Clara Valley Water District groundwater model, an estimation of groundwater basin recovery following pumping cessation and then the basin response to 6/4/03 UAC Minutes – Approved 7/9/03 Page 17 of 39 the 1988 pumping. Using that data we were able to come up with three different estimates. In the Santa Clara Valley Water District model, they used some assumptions in terms of rainfall and how much the rainfall actually gets into the aquifer versus evaporal transpiration and run off, and we end up with a number, 500 acre-feet per year. Unfortunately, however the SCVWD model is not very well calibrated for the Palo Alto area. One of the main problems is that you may recall from a previous graphic the north part of this figure right here, San Francisquito Creek is not considered in the SCVWD model. Normally a creek like that would be a significant contributor to a groundwater aquifer, but it’s considered a boundary condition essentially in the Palo Alto model and so it’s not considered. It lends some inaccuracies in terms of the number that can be derived from that model. If we use the more technical approach of how much water can really be stored in the interstices, between all the grains of sand essentially in the aquifer, we end up with some pretty wide ranges because we are making some pretty broad assumptions in determining exactly what sort of material is the essentially underlying the aquifer area. We end up with a number that ranges over two or three orders of magnitude, anywhere from 38 to 3,800 acre-feet per year. This certainly isn’t very useful to us. What was most useful is to look at the most recent pumping data, where during the most recent drought, the City drew out 1,500 acre-feet per year. Actually, all of this information was presented to Santa Clara to determine what their reaction would be. Following that meeting there were a number of outcomes. One is that Santa Clara actually did review comment on the draft report. They agreed that 1,500 feet per year during a drought would essentially lead to a 24-foot drop in the average level in the Palo Alto area. Regarding year-to-year use and not just drought use, but ongoing use, there was some discussion but no decision made at all. Santa Clara concluded that before they could really make any comment at all, they wanted a lot more data and information than is either available or can readily be obtained at this time. However it was also agreed that the City is not required to get Santa Clara approval in order to use its wells, it’s not legally bound. Not necessarily that the City might not want to operate in a vacuum outside of Santa Clara. It really became clear that ultimately however, almost regardless of how much data is collected, Santa Clara might not ever really “approve” a specific use plan. They will never quite get to that point. With that consideration, we needed to move forward with the project. We essentially developed a groundwater scenario that we felt was reasonable given the data that we had and the information that we had obtained at the time. We ended up with one scenario, which is 1,500 acre-feet per year, once every three years. Based on occasional use of groundwater in the area, if we were to go to an active use, ramping that back down to 500 acre-feet on a year-to-year extraction. What these two mean is that 1,500 acre-feet per year is operating one or two of the City’s existing wells for about one year during a drought. In the case of 500 acre-feet per year, most of the 6/4/03 UAC Minutes – Approved 7/9/03 Page 18 of 39 City’s wells operate somewhere around 1,000 to 2,000 gallons a minute, if we were to operate it continuously we would have to throttle it all the way down to 300 gallons a minute. Now one of the main concerns that we had was how do we prevent subsidence. In this graph is pretty useful in demonstrating how subsidence occurs. This is taken from a report by Poland and Ireland, published in 1988 and it shows data from 1910 to 1980, taken from the San Jose area. And moving from left to right across the graph you can notice the dark blue line is groundwater level and subsidence occurring and you notice as the water level drops, subsidence occurs. But then around 1935 when water levels rise back, you notice that ground levels do not bounce back but subsidence stops, or at least I slows down significantly. And even when in 1943 and 1945 the wells are pumped again and the artesian wellhead or the head drops significantly, subsidence does not yet occur until that level drops below or is held below the previous groundwater level. You can see that red line drawn horizontally across there. When the groundwater level is held below that red line subsidence continues to occur until the groundwater level rises back up above the red line. This is very instructive in how subsidence occurs and how do we prevent it from occurring in the future in the City. Our approach for preventing subsidence if the City were to use the wells would really come down to preventing dewatering of the clay layers. The gravel layers, you can remove the water from and they don’t compact any more, the clay layers however, is the water that keeps them fluffed up. When you pull the water out of them it’s the clay layers with the over burden that causes them to push down ward. So, essentially ties back to the previous graphic. But by limiting the withdrawal to 1,500 acre-feet per year, once every three years, we are limiting it to about 25% only about a quarter of the historic draw down. So we are well into a safety zone that will prevent further subsidence and further by turning it off, we allow it to recover every three years, will allow for basin recovery and will prevent dewatering of the clays. If the wells were to be used on an active basis, the goal there would be to keep the groundwater level at a constant level, basically extraction equal to recharge. That appears to be from the data we have around the 500-acre-foot per year level. The next issue we looked at was how to prevent saltwater intrusion and again we looked both at our case at using it once every three years or an ongoing basis. Now with average draw down of 24 feet, that will push the groundwater lever in the City somewhat below sea level, not extremely below, but it will push it somewhat below. As is shown in the top graphic there it maybe overly dramatically shown in the top graphic, it will cause a gradient that will actually tend to move salt water the City’s aquifer. However, this takes time. It is not something that occurs very rapidly and again by controlling this to a one year every three years would control the amount of chlorides, the amount of solids that is essentially that’s brought in from the sea water into the aquifer. By allowing it to recover for three years it would push the water, allow the aquifer to clean itself out before water was drawn out again. 6/4/03 UAC Minutes – Approved 7/9/03 Page 19 of 39 Again, in the active use basis -- if we were to operate the wells on a more continuous basis that’s where you need to constantly maintain a gradient from the city’s groundwater level out to the bay. You would constantly have groundwater flow out towards the bay. This ties back to the previous statement about prevention of subsidence and maintaining withdrawal equal to extraction. Or roughly extraction equal to recharge. Finally the last impact we were looking at is preventing contaminant plume migration. As I mentioned before the City’s production wells are in the area that was not impacted significantly essentially by the some of the clean up sites that were dealt with. Furthermore this graphic here shows what needs to be protected. Is that around a well you’ll have a draw down cone and that will create essentially a capture zone. So contaminants are in essentially a capture zone for the well, that is where the well might have influenced and cause the contaminant plume migration. However as the graphic shows, the nine contaminant sites in the Palo Alto area have been cleaned up and the sites of the City existing wells as well as the well sites that we are considering for the phase two work, are not located near any known contaminant sites. This issue has also been mitigated. Two slides here in conclusion. One, our summary of the data analysis is that essentially water levels in the Palo Alto area have risen back to pre-development levels, our current estimate of annual recharge is 500 acre-feet per year. The 1988 extraction of 1,500-acre- feet per year had minimal impact. It was also evident in our data analysis that Palo Alto’s groundwater levels are impacted by its neighbors. Whether it’s Mountain View or East Palo Alto or others, including those outside the jurisdiction of the SCVWD. The summary of our extraction conclusions is that periodic extractions in response to drought or supply reductions at 1,500-acre-feet per year are possible if the basin is allowed to recover. That’s a key point. A year to year extraction of 500 acre-feet per year is possible with negligible water level declines. One caveat to this, based on limited data analysis, is that the actual extraction value is going to be dependent on the well location, number of wells in operation, climatic conditions and certainly the operation of neighboring utilities. One key factor is that the wells certainly remain a viable emergency supply source due the short duration of operation. A lot of these concerns are mitigated by an “emergency” description of the wells, where they would only be used rarely and in response to emergency conditions. That is the conclusion of my presentation. Carlson: Any questions on this most interesting presentation? Rick, go ahead. Ferguson: Just want to clarify the implication of the San Francisquito Creek exclusion from the model. You said it’s a boundary condition. Doesn’t that just cut to our benefit, if you included it? However it’s included, it’s a new source of water. It only improves the rate at which the aquifer recharges, if you throw it in. If you contemplate reality, the situation only improves. It’s a very conservative exclusion. 6/4/03 UAC Minutes – Approved 7/9/03 Page 20 of 39 Kraska: That is exactly right. Yes, you understand it correctly. Ferguson: But am I correct in thinking that San Francisquito Creek doesn’t necessarily mean there is more water in the month that we need it in a drought; it just means that there’s more water later to recharge the aquifer if we draw the aquifer heavily during a drought. Kraska: Yes, that’s correct. Ferguson: Thanks. Carlson: Any other questions? Yes go ahead. Rosenbaum: Maybe I’m getting ahead of myself to the next agenda item, but it seems to me that the City used 15,000 acre-feet per year and in the event of a drought what were the cutbacks in the last drought? Ratchye: Yes, we will be look at that a little bit in the next presentation. But it was over 1,500. If you look at our consumption, we did use about 1,500 from the wells but we cut back a lot from San Francisco, about 25-30 percent of our usage. So without the wells we would have cut back, let me see now. When we cut back a whole lot it was because we were using wells, but probably even without the wells we cut back more than 25 percent from what we were using. But we have not yet climbed back up in usage to what we were using prior to the drought in 1987. We’re at a lower level of consumption now than we were then. Rosenbaum: My recollection is that the wells were used only very briefly and we went through most of the last drought without using the wells. Ratchye: You are right. The drought started in 1987. They gave us a ten percent voluntary reduction, which we achieved. Then the next year they said, oops now its for real and we are basing it on 1987. After they told us to voluntarily reduce. We did use the wells the first year of the drought. Because people weren’t quite getting the message early enough. Then following that we didn’t need to use the wells to achieve the goals of the, the reduction goals, the rationing goals from San Francisco. We used them again briefly in 1991 also, during the drought and that was on the verge of going to instead of a 25 percent cut back, a 45 percent cut back. When things were looking really grim, then we had the Miracle March and the drought was over. Rosenbaum: If we are talking droughts, the last two have lasted for more than one year and if you are talking about a maximum draw of 500 acre-feet per year, and 25 percent of our current usage is 3,700 acre-feet per year, it wouldn’t appear the wells are going to be 6/4/03 UAC Minutes – Approved 7/9/03 Page 21 of 39 a great deal of use on a long basis. I assume you will be talking about that in the next presentation. The purpose of this study was to dramatize that you’re not going to get a hell of a lot out of the wells if there was a multi-year drought. Ratchye: Right. The purpose of the study was to characterize this groundwater resource for us because prior to this study we weren’t really thinking that there were some limitation as small as what has come out of this study on using the wells. Previously when we have done our integrator water resource plan, we assumed we could take 3,000 or 4,000 acre-feet any time we wanted to. This does help us decide what we can use the wells for. Rosenbaum: Thank you. Carlson: Dexter? Excuse me. George? Bechtel: Jane, how much storage capacity do we have in the city? Because one thing we could do is continually draw and store if we had adequate storage so how many acre-feet of storage do we have in the city. Ratchye: Dave do you know the answer to that? I think that … Ulrich: I didn’t bring the…If you would like to wait a few minutes, I will go get the 1999 report and we can go through that. Kraska: It’s not much. Ratchye: It’s not much. Ulrich: It’s not much, if that’s what you want to hear. Bechtel: I am content with that answer, that it’s not much. Ratchye: It’s not much from the perspective of our annual consumption. It’s more when you are thinking about an emergency or for fire. But for the purposes that we are talking about what water supply it just isn’t much. Kraska: Is the question the surface water storage? The storage in the steel tanks and reservoirs. It’s 10.5 million gallons. I thought the question was the aquifer in this. Bechtel: Can you convert that to acre-feet then? Kraska: A fraction of a percent of an acre-foot, a very small amount. 6/4/03 UAC Minutes – Approved 7/9/03 Page 22 of 39 Carlson: Any more questions? Okay Dexter. Dawes: I am concerned about the relationship of this study to the very large capital expenditure that we are now pursuing to rehabilitate the wells. And whether or not this study clouds the earlier analysis in terms of its value as an emergency source. Or have we capped -- I can ‘t remember the figures. I see Girish vigorously shaking his head, are we capping our emergency resource at a level lower than what we had expected we could use in the past. We are spending many millions of dollars on these wells. I don’t know if I’m hearing that they are going to be as valuable as we thought they would be for an emergency use. Kraska: The wells will definitely be a valuable resource in an emergency condition. For example, the emergency condition we were investigating in the 1999 study was a complete shut down of the San Francisco aqueduct system. When we originally started working on it everyone believed that it was an eight-hour condition but that got expanded to perhaps thirty or sixty days. Over that period of time the wells would be the source of water for the City of Palo Alto, there would be no other source of water and it would be a period of use up to sixty days after which time the city would again be getting surface water or imported water from the City and the basin could recover again. So it would be a short-term use. The wells’ capacity over that period of time, the groundwater basin certainly has that capacity. Dawes: Again, leaping ahead. One of the things I underlined in the third item on the agenda was that we are precluded even in an emergency for using wells longer than just a few days. That was not in accord with what my impression or assumption or belief of the policy that we had established in respect to the longer term emergencies. My guess is that if in fact Hetch Hetchy was gone thirty days, we would pump for thirty days even though we are supposed to only pump for five days. We are just going to do it for as long as we have to, ‘cause you gotta have the stuff. Kraska: The California code of regulations does allow for that. Since the wells do meet primary drinking water standards you are only exceeding your secondary drinking water standards. So, technically the procedure to go through would be let DHS know that you have to do this and then let the residents know that you are exceeding your secondary drinking water standards and what the impacts of that are. If this were to be an ongoing basis, say to use the existing wells without any form of treatment, then what you need to do essentially is go to a vote and allow people to say that they are willing to accept that quality of water. In the case of an emergency it would be a lower standard to meet in order to get approval to use the wells for that period of time. Dawes: That is valuable additional information, we can go beyond that five days. Bechtel: Let me just clarify that the limit on using it in an emergency is a regulatory 6/4/03 UAC Minutes – Approved 7/9/03 Page 23 of 39 limit, not a physical limit? Kraska: That’s correct. Bechtel: There’s enough water there to supply us with most of what we need for thirty to sixty days. Kraska: That’s correct. Bechtel: Thank you. Carlson: Rick. Ferguson: Just one clarification or recollection for Dexter. This is the study we bargained for. You have done a nice job weaving it together with the “long-term” water resource study as well. We are embarrassingly behind the curve with our less-than-eight- hour survivability. That alone is worth the ten million or whatever it is. Keep in mind that part of that infrastructure is the storage site as well as the well rehabilitation. That is a complete argument for it, everything else is a nicety. It would have been nice if the investment in the initial analysis had shown that a different mix of wells was the right thing to do, to hedge against that long-term drought. It appears that it is useful, but the tail is not wagging the dog here. But this is exactly the study that we asked for, and thanks for the good work. Beecham: I’ve got a few questions also. So you mentioned that there is a fault roughly along the El Camino and so that is how you defined your boundary lines. What does that imply about the flow of water across that boundary? Is there much water flowing across there, or is it more or less a barrier? Kraska: I will have to excuse myself, I am not the hydro-geologist on the job. There is an expert that we had analyze this. But from my understanding there are different layers and so the shallow ______ for this is a pretty fixed boundary, the fault that does go along there. One of the things we looked at in the 1999 study was historical well production. Where we could look at the amount of water we can get per foot of casing essentially on the well. It’s clear that on one side of El Camino it’s less production than on the other side. As I understand the recharge area for Palo Alto, the aquifer that you actually use to produce the water is not clearly understood. It is not really well defined and it’s one of the reasons why SCVWD does not have active recharge facilities in this area. But I believe there is some understanding that some of the recharges are in the foothills and goes to underlying soils down deep underneath Palo Alto. There also is some understanding that perhaps some of the recharging occurs in the East Bay. There is some inter-fingering with the aquifers in the East Bay side with the aquifer underneath the Palo Alto area. There is a certain amount of understanding but not a total complete 6/4/03 UAC Minutes – Approved 7/9/03 Page 24 of 39 understanding. What we do have to work with is the data from historical wells that show what ones that were productive and which ones weren’t. From that we infer what’s actually taking place. Beecham: You may have just answered, to the limits you know of, my next two questions. One is how in fact does our recharge work out here? I think you have said that you are not sure of those understandings and not certain what it is. My other question is that the SCVWD, as your slide indicated, would like more data and more analysis. My question is, why is that? Are we making decisions that are premature based on a need to know more information before we can make a decision. I understand you have empirical data, my question is why do they think they need more information than that? Ratchye: I’ll start on that. The district has no reason to bless this study. In fact they have a reason not to. They would just have a liability they don’t now have. We can pump as much as we want actually, and they can’t really stop us. They are the groundwater managers for the county. It is their responsibility to manage for saltwater intrusion, subsidence and stuff like that. If we did start pumping, they would have to do something. Obviously we are not going to do something like that. That would damage especially land surface subsidence, something permanent like that. But when we showed them this report, you know they will never be satisfied with whatever amount of information that you could possible develop. They were suggesting something that costs some huge amount of money. They were saying you need to conduct an aquifer study, and you need to get monitoring wells all over the place. It became clear to me that they will never be satisfied to the point that, “yes, that will be safe.” They didn’t disagree with anything in this study, they didn’t say that would not be safe, but “can you prove it?” With the drilling of the new wells and the rehabilitation of the current wells, and a monitoring well that the district has installed, we will get more information. We are hoping to revise these numbers up or down as appropriate as we do get more information over time. But for now, I’m not sure how much the aquifer study that they were requesting would cost. It seemed like it was a fair amount of money, in my memory. I want to say in the multiple hundreds of thousands of dollars, though. Kraska: It would be very expensive to conduct. Depending on the City’s direction on actually rehabilitating the existing wells and drilling new wells, it will be very easy to conduct once that’s done. One of the things they want is the City to pump test the wells, and then see the basin response to it in a very structured and measured fashion. From that some of those previous numbers would show with very wide range. Then we can help start calibrate some of those numbers. They wanted to see more of that physical data that the district currently doesn’t have. Given the way the wells are currently plumbed and equipped, it would be very difficult to get that kind of information. But following the rehabilitation, it would actually be pretty easy to get that information and it could be done as part of the rehabilitation exercise. 6/4/03 UAC Minutes – Approved 7/9/03 Page 25 of 39 Ratchye: We’ll gain more information over time. I mean, they were so conservative, that as I recall one of their analyst-engineer guys at the meeting said there could be damage done if you extracted a molecule. I mean, what are we going to do with that? Dawes: Or even think about it. Ratchye: One of these. Beecham: That is the pseudo medicine that has you diluting the chemical to whatever they want you to have, until it’s undetectable. Then they say, here is your homeopathy. So that theory of one molecule is all you need. I certainly understand that it’s not in the district’s interest to tell us, “fine.” They gain nothing from allowing us to do that, they gain nothing from taking a risk in saying okay. In terms of the empirical data you have, that is often enough in many cases the best data. It shows what happened when something was done and it’s quite compelling. I would think if the district wanted to find out more about the aquifer, they are welcome to come do the study. Ratchye: We asked them to do that. We asked them that when they do more analysis as we gain more data from our wells, that we calibrate their model for Palo Alto and help us out with getting a better handle on how much would be safe to pump here. Beecham: I am sure they will be quite cooperative in that effort. Ratchye: Yes, I think they were cooperative in what we have done so far. I just don’t think you are going to get out of them a number that is safe. Because if anything happens, they will not want to take the responsibility. Beecham: Thank you. Carlson: Rick? Ferguson: First, I wouldn’t want to be too hard on a governing board that keeps asking for more information. You’d want to be careful about that. Ulrich: Yes, we have no experience with that here. Ferguson: More seriously, for Dave. Can you give us a feel, a simple figure-of-merit, for the sensitivity of the saltwater intrusion to the number of years that you are pumping at 1,500 acre-feet? For example if we pump 1,500 acre-feet two years running instead of every three years, what is the result for saltwater intrusion? Does it take one more year to recover? Or does it take five more years to recover for every one additional year of pumping? 6/4/03 UAC Minutes – Approved 7/9/03 Page 26 of 39 Kraska: That is a difficult question to answer, because as you imagine, it depends on the climatic condition, how much rainfall we get. That induces our flushing action, it depends on the actual hydro-geology of the area. One of the things Santa Clara is currently working on with the USGS is drilling additional monitoring wells, specifically for the reason to monitor chlorides. They are interested in saltwater intrusions and saltwater movement because the data is not very good right now. We feel the proposal that we have made here is safe, and it would be one measure, a way to prevent saltwater intrusion. As far as whether we can move up or down from there or how sensitive it is, I’m reluctant to answer that, because I don’t have enough information to do so. Ferguson: Okay, but do you have a sense we’re close to a cusp? That if we did two years running we’re okay, but if we did three years running, we really fall off a cliff? Kraska: That would be my sense, yes. Ferguson: Thanks. Carlson: Any more questions? Let’s move on to the obviously related item. Update on Water Integrated Resource Plan Ulrich: Thank you. The item is an update on the water integration resource plan, again this is an information item with no action requested. Ratchye: This is another report on the water IRP. We didn’t have as good an acronym as GULP. We thought of WSUP, Water Supply Utility Plan. I am going to take you through the report and a little bit beyond. It will be a preview of a report I would like to do next month that kind of outlines the plan of where to go with the information we have gotten so far. First though, just to show you some history of Palo Alto loads, go over again the resources we looked at and the characteristics of each of those, including the cost comparison between the San Francisco and the Valley Water Districts rates to date, and also projections and look at the results of the study done so far, and what are some preliminary recommendations in the next steps. This is a graph of Palo Alto water use since 1910. I don’t have data on the groundwater use from 1938 till about 1947 or 1946, so I just drew a straight line between the data I have. I am not sure all the wells were included in the data I have in the late forties. So you can see how much groundwater pumped, relating to the last topic, you know we were up at five thousand acre-feet a year in those years, but then as you saw the groundwater levels in the county were quite low although he showed was for land surface subsidence in San Jose, not Palo Alto and that was much, much more severe that here. Although we 6/4/03 UAC Minutes – Approved 7/9/03 Page 27 of 39 did have subsidence here in Palo Alto too. Then you can see the little, the little bit that we pumped in 1988 and 1991, I also believe that we pumped in the 1976 – 77 drought, but I don’t have data on quantities during that period. But you can generally see that our loads after the 76 – 77 drought never regained their heights and then after the late eighties and early nineties drought we’ve never gotten back up to the pre 1987 consumption. Which is fairly interesting. Dawes: Jane, what is the commercial residential cut on this? Does commercial and industrial take a respectable thing, or is it really almost all residential? Ratchye: I think it’s about a third residential. Dawes: And two thirds industrial and commercial? Ratchye: That’s what I want to say. Dawes: Wow, that is a bunch. Ratchye: I’d have to get back to you with an actual number on that. It’s actually in a report we gave last month on the BAWUA survey, it shows by customer class and I don’t have that in front of me, but I just can’t recall what that split is. Fifty five percent residential, Girish says. The resources we looked at, again as a review. Obviously water from San Francisco. Groundwater and whether we would use it on an ongoing basis year to year and that would be the 500 acre-feet a year or use it in droughts. Assuming we could use it for 1,500 acre-feet for a few years there. The groundwater would have to be treated. There are different treatment options. I think you received a report a couple of years ago also done by Carollo, looking at all the different treatment options. Another option is to connect to the SCVWD treated water line and we could use that on a continuous basis or we could choose to use the water only during droughts, for that option. Recycled water is something we looked at extensively in 1992 with the completion of a master plan there and so we could look at that. The biggest end use is identified in that master plan that would be about eight and half percent of the load. For the conservation demand side management programs we are looking at base sort of program which would reduce loads two and half percent and that is not insignificant as just part of all new, just going forward we are going to try with that sort of base line goal. Then we could try to double that and have a five percent reduction as an alternative. We looked at each of these resources in terms of their availability or might want to call it reliability as how much can we get from that resources during a drought, during the time that we would really need it and also just on an ongoing basis. The costs and the water 6/4/03 UAC Minutes – Approved 7/9/03 Page 28 of 39 quality and the environmental impact which, of course, any of these that or many of these alternatives if we did choose them we would have to go forward with the full on environmental report. So this doesn’t really touch on many of those issues. San Francisco Water is characterized by its extremely high water quality, it’s relatively reasonably priced now compared to alternatives but it’s costs are going up dramatically. It provides all we need in normal years, but in drought time it’s availability is cut back considerably and I have a graph for that coming up, Commissioner Dawes, that shows the cut back will likely be less than we had last time because we now have the interim water shortage allocation plan. SCVWD water, that’s good quality water, on a per unit basis the prices are currently about the same as San Francisco’s but they are not projected to increase as dramatically, although they are certainly project to increase significantly. One interesting feature about that is that they would require a take-or-pay commitment to have that connection and I think we have discussed that here. You can ask if you need to be reminded about that. Dawes: One of the things that the Trinity River folks spoke about at Monday’s meeting was that much of the Trinity water ends up transiting the Delta and going into the reservoir that feeds or one of the reservoir that feeds SCVWD. In the event that there was a major cut back in that Trinity supply, has any body researched whether or not that would impact on the Santa Clara system? Ratchye: I don’t know, I don’t know if SCVWD has looked at that. They are Federal and State water contractors and I’m not sure if they had an interest in the, anything around that issue. Dawes: I guess the supplemental EIR would address that if there was any, if they, if we get around to paying for it. Ratchye: The groundwater is clearly a very interesting resource and it was, in order to characterize that as I said we’ve done this groundwater supply feasibility study, which was the last presentation. The water quality is not that great, but it can be treated. They all pass all primary drinking water standards but some of them don’t pass all the secondary drinking water standards. Primarily, iron, manganese and total dissolved solids. I am just repeating myself on some of this other stuff from previous report. Recycled water, when we looked at that back in 1992, it looked awfully expensive, but now San Francisco’s costs have caught up and this looks reasonably good, it’s, the costs are almost all capital costs, very low operation costs. So, over the long term it looks like a fixed cost resource of fairly reasonable cost. The other feature about recycled water is that it is fully available in droughts also, it’s not cut back in droughts. Demand Side Management also has that feature, like recycled water it’s available drought times and non in fact you probably have a lot of emergency, or short term DSM in droughts. The prices depend largely on what sort of programs you select. When I was looking at it for 6/4/03 UAC Minutes – Approved 7/9/03 Page 29 of 39 the water IRP, I looked at all the costs, whether they are paid for by participant or by the utility and so some of these programs were fairly costly. But if the utility was to bear, lets say 25 percent of them or provide a rebate, the utility cost is quite reasonable for the saved water. So it depends on how you look at it Demand Side Management. If you look at it as a cost to the community, which is appropriate in a water IRP, then the costs are not scraping the bottom by any means. This is a graph that shows our forecasted water loads, and how much would be available from San Francisco in a drought. This is assuming that the interim water shortage allocation plan would persist beyond 2009, when it’s scheduled to be replaced with a new master contract with San Francisco. So you can see that it’s a significant reduction, looks like about twenty 500 acre-feet from that slide, but we certainly did in 1988. This graph shows the actual costs or the wholesale water supply costs, commodity costs from San Francisco and the SCVWD, the green line is the treated water rate, which has sort of a surcharge on the pump tax. The pink line with the blocks is the pump tax or the groundwater extraction fee. Santa Clara has projected that their costs will increase quite a bit in the future, but the blue line, or the darkest line is San Francisco’s actual rates which have hovered right around the SCVWD’s. In fact, they’re cheaper than their treated water but they are scheduled to skyrocket as expected as they begin implementing their capital improvement program. Dawes: Why do the costs increase for the tax? It looks almost like there’s collusion between San Francisco and the pump tax and SCVWD. I don’t understand why they have to go up so high. Ratchye: Are you asking why are the districts costs scheduled to increase so much? Dawes: No. The pump tax is skyrocketing and I assume that is, there is some cost element in that, they are actually pumping water back into the ground, but it’s rainwater. I don’t know what they do, do actually. I’m curious as to why those costs skyrocket so much, why they are not just stable? Ratchye: I’m going to give you an answer that is my understanding, but I’m not exactly sure about this. I don’t think that they separate out and have cost based rates for groundwater and the treated water. They have a whole revenue requirement from both of those, from groundwater and treated water together. So they figure out what the rates for groundwater need to be with the surcharge for the treated water and that is how they develop their rates, so their whole revenue requirement is made up of all their costs that are increasing, water quality, they are having some projects there to improve the reliability of their system and so they have capital improvements planed and that is increasing their total revenue requirement. At one point during the last, often they try to adjust their pump tax and the treated water surcharge to try to encourage the use of one or the other, depending on what the water looks like, what the basin health looks like. Generally that surcharge they have tried to make it almost equal generally and so you can 6/4/03 UAC Minutes – Approved 7/9/03 Page 30 of 39 take the groundwater and incur your own operation and maintenance costs to operate your wells or take treated water and it’s about the same cost. That used to be how they set that surcharge. It’s not really like they are taking, it’s so costly to manage the groundwater. They do buy imported water and recharge the groundwater with that. So they do have costs, it’s their whole system cost. Carlson: It just seems that there is a curious correlation between the district costs and San Francisco’s costs. Ratchye: I don’t know. Maybe there subject to same regulations and around water quality and maybe they have similarly aged systems that need improvements, I don’t know. I don’t think that there’s a conspiracy. Carlson: You must not be a Palo Alto resident if you don’t believe that. Ratchye: They’re both regulated in that they’re cost based, and so one is not making a profit or something to try to match the others rates. This slide shows the different portfolios that I looked at. First of all, all the portfolios have San Francisco water and two and a half percent, at least of Demand Side Management. Then I looked at one alternative that was a high quality alternative where we used the wells during drought only with a very high level of treatment, to have high water quality. Another portfolio was also a high quality sort of themed portfolio and that was using the groundwater on a continuous basis. So using the 500 acre-feet a year and treating that to high level. The fourth one was connecting to the SCVWD treated water line and then the fifth portfolio shown there is using groundwater to some sort of, and not treating it all. I’m not sure how we could really do that, but it would be cheap, but the quality won’t be very good. Portfolio six is using the groundwater during wells and treating them to sort of medium level and Portfolio seven is using groundwater during droughts treating it to a medium level and adding more Demand Side Management. The next one does that and adds recycled water. The last two, oops -- I think there’s an X in the wrong place down there. Portfolio number ten should have an X in the recycled water high level. And nine should just have one in the moderate level. Those are the ones that I looked at. These were the results, the dark line shows this is how the portfolios are sorted, they show the cost, the total cost. Dawes: How do the numbers in the previous slide relate to these nomenclatures here? You have Alternative One and it’s hard to know which is “One” down here. Ratchye: Yes it’s not very good. I tried to make some descriptions here so you don’t have to refer to the numbers. The cheapest alternative is to use San Francisco only, but the pink line there shows how much of a deficit you would have in a drought. One of the problems with looking at it this way is that it’s really cheap, you don’t pay for any water 6/4/03 UAC Minutes – Approved 7/9/03 Page 31 of 39 in a drought -- because you don’t get any water. So some of them are more expensive because you are paying for more water. In the report I gave you, it shows the average cost per unit rather than the total cost, like this graph is showing. The reason the graph is fairly interesting is when I graphed it, there were some that were more expensive and less reliable. So I took those out of the picture. The ones I took out of the picture were using, I have to refer to my notes. With high DSM and medium recycled water that was too costly for the reduction in the deficit during a drought. Also, if you are going to connect with to the treated water line and only use it in a drought, that’s extremely costly, because in non drought years you don’t need the water although you. It’s a take-or-pay situation, so that’s kind of a funny one. But you don’t get any more reduction of a deficit in the drought. So this is kind of one way to look at the results from the analysis so far. This is perhaps a better way to really look at the results. It shows the different alternatives and how much they cost relative to the base and how much the reduction in the drought time deficit was. You can see for groundwater, if you use groundwater during droughts. Only then you are going to pay even if you don’t treat the water $4.4 million more, but you’re buying more water, so you’re not having as big of a deficit. Then you pay another $1.1 million on top of that if you want to treat the water for iron and manganese. If you want to blend you pay more for that and if you wanted it put on reverse osmosis you pay significantly more. Then you can look at the different recycled water projects and see how much more you pay and the reductions in your drought time deficit. This chart shows that you pay almost $6 million more to do enhanced DSM program, but as I said that is assuming that’s all the costs. That’s administrative, the cost of the measure, it’s all the costs. It’s likely that the utility would not pay for the entire measure, but more like our standard programs where the participant pays for a large part, and then there is some incentive or rebate the utility would offer, so they would pay some fraction of that. Rosenbaum: ____ It’s still a cost to the community and if it’s not born by the utility the community pays for it. Ratchye: That’s right, that is why I wanted to include that here and it shows that in fact the DSM is not by any means the cheapest option out there. Connecting to the SCVWD is costly, as we already knew. This kind of a preview of next months presentation where I’ve kind of come up with some overall recommendations around everything except the wells. These things are relatively non-controversial and they are pretty obvious conclusions from the analysis done so far. First of all, we want to continue to participate actively with BAWSCA on San Francisco water issues. I think we all know what those issues are, there is the short term reliability, in other words lets get some dry year water transfers into the system, the long term reliability problems, trying to get their capital improvement program implemented, and we want to make sure that were going to continue to have cost base fair pricing and we 6/4/03 UAC Minutes – Approved 7/9/03 Page 32 of 39 want to make sure to retain the highest water quality. That is one front. My recommendation is that we remain quite active there. One other conclusion is that since we do get sufficient water from San Francisco, unless something unusual would happen, full time use of the groundwater or a connection to the SCVWD is not recommended, it does not look attractive. However, if we were somehow able to get the cost that we would be allocated to pay for that connection, it wouldn’t be that bad. One way to do that is to have the SCVWD have another interconnection between it and San Francisco’s system with the Bay Division pipelines #3 and #4 at Page Mill in Palo Alto. Next month I will be bringing another report to you that was completed by the SCVWD that was a conceptual study of the west pipeline extension including an interconnection with San Francisco’s PUC water at Bay Division pipelines. We would like the district to make that to have that interconnection there. It would be very valuable to us. Then if we could get a small connection from there for droughts or know that via the interconnection more water would be available, that would be very valuable to us. The other thing that this analysis kind of brought home to me is that recycled water opportunities look fairly good, we need to reexamine that in more depth, again, its time to reopen that. In 1995 the Council decided to shelve the recycled water plan and not implement it beyond a few things and the golf course and Greer Park. It was based on, unless this, this and this happens; and I think that one of those “this’s” has happened and that’s the cost of the alternatives has gone up significantly. The other one is, another recommendation is that we do pursue the two and a half percent DSM savings program. As you saw in the BASCA survey, Palo Alto has one of the highest per capita residential consumption in all the BASCA Agencies. Now for the wells, I think that is going to be a fairly interesting and controversial question. We are going to have to be careful on how we talk about groundwater and it’s going to get to a balancing question. We have used the wells in droughts in the past to help us supplement our San Francisco supply. Are people still willing to do that, or are they just happy taking the increased reduction in a drought? If they feel that they really would like to have that water available in droughts, then how much are they willing to pay for treatment for the water? I think those are some pretty complicated questions. We need some feedback from the water customers and from the policy makers. We are going to try to characterize those questions so people have a feeling, like, if you want this it’s going to cost this much more, or if you like this, then your deficit, you are going to be asked to cut back this instead of this in a drought. We will have to carefully craft questions so people can make valid balancing of assorted preferences. We can decide what to do with the groundwater option. Obviously there’s no closing window on using it. Since we are putting in the wells for emergency use, we can convert them or treat them at some later date. One of the results from Dave’s study is. it looks like there is just 6/4/03 UAC Minutes – Approved 7/9/03 Page 33 of 39 one well we would need to fit with treatment, and one well we would use if we used it in a drought or on a continuous basis. That would probably be Hale well. Just because of its location and it’s a good big productive well and it has space around it. That is the work that is remaining. I don’t have a recommendation obviously on that at this time. I would like to come back next month with a lot of the recommendations that I am previewing to you tonight, and then pursue this survey. We probably need to have a work shop with the Council on these questions and then find out what that feedback is on those preferences. Rosenbaum: On the question of the survey, I would be concerned that if you asked people, if the survey is not designed properly, the answer’s going to come back that “I want good water, I want perfect water.” Ratchye: We’ve done that survey, and that was the answer. Rosenbaum: So I’m just concerned about another survey. Maybe there is, if you think about it, another process by which we can get answers on this. Ratchye: I completely agree with you. Rosenbaum: That is my comment. Ratchye: Thanks. Ferguson: In a similar vein, one of the nice things about this analysis -- I really like how this is all coming together -- on your “key” work results, it shows that we would spend about $ 5 million to move from the medium level of treatment to high-quality level of treatment, roughly. It would be interesting to convene a little panel of citizens before we are actually upon the drought situation. Have the panel of citizens sit down with some Council members and have them taste water at Level One and Level Two. Have this good natured conversation and discussion about whether it’s really worth 5 megabucks to put up with the medium level for a year or two in a drought circumstance. Have that survey if you will, that very important focus group -- run that experiment before the decision is upon us. It jumps right out of your handy-dandy summary. Carlson: Any other questions? Bern. Beecham: Jane, I think you may have explained this but I didn’t quite get it yet. On connecting to the District, this on one of your later charts, on page thirteen of my sheet here. …. Droughts-only net present value cost of $22 million is continue ….. present value of $ 4.1 million. 6/4/03 UAC Minutes – Approved 7/9/03 Page 34 of 39 Ratchye: Is it this one? Beecham: Yes, on the bottom of the table next to the District. Tell me again why is it the take-or-pay aspect that has a much higher capital cost? Ratchye: Right. If you use it in a drought only in all non-drought years, you are paying for it but not using it -- but you are buying water at Hetch Hetchy costs. If you use it continuously you are substituting Hetch Hetchy costs for the district’s costs, which are projected to be lower. Beecham: Okay. Also, it’s at another question on “use the Hetch Hetchy water only” at the top -- that is, on their increase in pay scale, increase in cost over the next twenty years. Ratchye: Oh, yes. Carlson: Go ahead Dick. Rosenbaum: I always worry about the death spiral in water and these numbers don’t help. Do you know how we anticipate the capital costs for San Francisco are going to be paid? Are we going to assume a portion of the debt, which we will have to pay regardless of how much water we use or will it really be based on a per unit cost? Ratchye: There is nothing known on that now, if I understand your question. Something I’ve have pushed for, for a very long time is to have -- Right now we pay for water as we use it and so it’s almost entirely a volume metric rate. Now I would think one alternative for the future when we start paying for these three billion dollars worth of projects is that we would have to commit to a take-or-pay quantity, essentially. Some sort of demand charge or some sort of fixed annual fee in exchange for that to have some sort of certainty about how much water we could get. Right now we don’t really know how much water. It’s very difficult resource to characterize. Among all the different resources that are up here it’s the most difficult to characterize because of that aspect. You can’t get a handle on how much you have. You have some, if they have it, and if they don’t, you have less. We don’t know how much. There is no allocation or entitlement to the water at all. If it could be paid for in the way I am talking about -- and I advocate this -- that would completely change things. If that were the case, then we would have some serious decision making about how much we would want to sign up for. Presumably you can even have two types of water, you could a firm supply and an interruptible supply. Essentially we have that now, but it’s not characterized that way and it’s an unknown firm supply. Which makes it very difficult to plan. Am I answering your question -- are you talking about physically who’s going to pay, is it going to be the regional financing authority or BASCA to pay for it? 6/4/03 UAC Minutes – Approved 7/9/03 Page 35 of 39 Rosenbaum: No. I think you are getting to my point as the potential buyers of bonds are not going to be concerned at all with how much water we’re guaranteed. But they are going to be concerned with getting prompt annual bond payments. It would seem to me that one way to do this is for each of the cities to assume essentially a certain amount of that debt. It would be annual payments independent of the amount of water that you get. If that were to be the case, it would be to our interest to use every last one gallon that was available to us. I would question both DSM and use of recycled water because it would increase the per-unit cost of the water that we did get from San Francisco. Ratchye: I mean there are two ways to look at that. If it came to the point where, when let’s say, take the extreme that essentially all your payment would be fixed. The problem in the interim Water Shortage Allocation Plan -- or any other plan we’ve had where we try to divide up the water -- everybody wants as much as he can possibly have, because it’s free. They are giving it away free, there is not a commitment or obligation to pay anything to get that water. If you introduced this thing and said, “How much do you want? You’re going to have to pay that corresponding fraction of three billion dollars, do you want to commit to that?” We mighty say, “Yikes, recycled water looks better, we don’t want to commit to that amount” I think the way you were setting it up there, sounded like you know we’d want to get as much as we possibly could. I’m not sure that’s true -- at some cost it would not be true. Unless we valued the high quality something close to an infinite amount, then we wouldn’t want to get, grab -- and pay for - - as much as we possibly could, as you suggested. My feeling is, that once people have to pay and commit to pay some, take-or-pay some fixed payment, they are not going to be elbowing each other to get as much as they possibly can. I think they will finally start to look at alternatives. Rosenbaum: I would question that the water is of such good quality and there is no alternative. But in any event, the three billion dollars is going to have to be paid off. You can’t have all of the cities say, well, we only signed up for half of what we used to take, because that would simply double the cost for all the people who were taking it. I just don’t think that the incentives are going to run in that direction. The point I am making is, I would really look closely at measures that are going to reduce consumption. It’s counterintuitive to everything that we have talked about. Water is a precious resource, we’re all environmentalists, we want to conserve, but the cost per unit is going to be seriously affected by measures of that sort. Ratchye: So you are saying that if we did recycled water or DSM, that our access to some commitment or some sort of amount of water from San Francisco would be reduced in the like amount? Rosenbaum: No, I am not saying it would be reduced, I’m saying that the cost per unit of what we did use would be higher, assuming that we are going to be obligated to some fixed percentage of that three billion dollars. I’m saying you’ve got fixed capital costs. 6/4/03 UAC Minutes – Approved 7/9/03 Page 36 of 39 With fixed capital costs you want to use as much product as possible to reduce the capital cost per unit that you have to pay. I am questioning the normal desire to want to reduce consumption. Carlson: Bern? Beecham: Somewhat along the same lines, I always like looking at the chart of the annual consumption showing the reductions during the past couple of droughts. On one hand I think the elasticity of water is, the demand is not very elastic. On the other hand obviously it is elastic because people have reduced and they have not come back. So if the cost of our wholesale water triples as is indicated in here -- going from roughly $400 to $1,200 per acre-foot is what I think is what the term was -- how much reduction not only will our customers give and demand, but also customers throughout, not necessarily looking at other sources, but just reducing overall demand. As we forecast our load, if our prices are going up substantially, doubling, I think we can expect our demand is going to go down, and it’s going to go down throughout the Bay Area. That will affect the issues that Dick is talking about, it’s going to affect our need under drought conditions because we won’t be using as much water anyway. I don’t know how we get a handle on or we get an aspect of that level of elasticity. Would prices double, or more? That’s got to be in the planning too, I would think. Ulrich: This is a point we clearly need to keep in mind. When we went through the rate analysis in both water and wastewater, one of the reasons we are increasing the wastewater costs is there are fixed costs in that the waste treatment plant, and our revenues have been going down because of the economy. You can see exactly that kind of analogy in the water prices going up -- people use less. And then Dick’s point is that those fixed costs are going to be spread across a lower revenue from the sale of the commodities and therefore the rates are going to go up. It’s something that we have to be very aware of. Beecham: And for San Francisco, between them and us as a wholesale customer, they can simply give us some assignment to base your fixed costs to prepay, and here’s your marginal costs beyond the fixed costs, pay back the bond, here’s your marginal costs, our marginal costs operation. We can’t do that near as easily to our power customers. I would think because, with some commercial customers perhaps yes, but with residential customers, it’s going to be a hard sell to say that you are going to be paying a hundred bucks a month, whether you use water or not, and then the cost of a gallon is this much of your bill. That will be a difficult thing to explain to people, why we are charging them a high fixed cost when they don’t want to take anything. That will be another complication for us. Carlson: Dexter. 6/4/03 UAC Minutes – Approved 7/9/03 Page 37 of 39 Dawes: Jane, it might be interesting to look very carefully at the monthly data during the drought. As I recall we had some major price increases and adjusted the increments blocks of charges to encourage lower usage. Perhaps it would be very illustrative to look at those months where those jumps came into affect, to try to get a handle on the price elasticity that Bern discussed. I think it might add a lot of substance to your analysis and be very useful. Carlson: Go ahead. Bechtel: Mr. Chairman, I have a question for Bern and of course, staff, too. This is a question that Dick raised earlier about paying off the debt. Is it in the scope of BAWSCA and or the financing authority to negotiate issues like fixed and marginal, fixed costs, marginal costs, that sort of things? Is that in the scope of the legislation to deal with issues and in looking at the San Francisco CIP? Beecham: I believe that BAWSCA has the authority to negotiate contracts with San Francisco and negotiate on behalf of all the members of the agency. There are a few constraints put, I think, on how those contracts would have to be written. It’s within the realm of possibility that the contracts could be written such that, here’s how San Francisco would charge back, or here’s the conditions under which we would finance. Also, it’s possible that if in fact that BAWSCA finances the portion that would be used by the BAWSCA members, then BAWSCA determines how the costs are allocated among its membership. Those things are rather open in terms of options available to us. Carlson: Any more questions? I just want to add in a comment here. I don’t see how we can go forward very quickly with this until we have pinned down this issue, exactly how we are going to pay for those enormous San Francisco capital costs, as that really determines the remainder of the strategy. So you might just have to hold off on your planning a little bit, because that might take a long time. Ratchye: Most of the recommendations I’m looking at right now don’t need to wait. I mean, I’m not saying let’s do recycled water, hurry up, let’s start spending $30 million on that. But it’s time to look at it more closely, we’ve had it on the shelf for eight years, we need to develop a little bit more information about Demand Side Programs than we have recently for water. Obviously the first recommendation, I don’t think anyone would argue with, which is continue to work closely with BAWSCA and San Francisco to resolve that. A lot of them are fairly straightforward. I don’t think that we are ready to take any other step regarding implementing something. Perhaps the nearest issue is the groundwater one, which is a prickly one. We have to get some sort of information back from customers, maybe using a focus group and actually tasting water and trying to get real feedback from people when you are asking them about tradeoffs, not just asking, do you like high quality water? That work can go forward. 6/4/03 UAC Minutes – Approved 7/9/03 Page 38 of 39 The reason that one’s more up front, is we just don’t know when the next drought will be. We don’t want to have to race to decision in the midst of a drought or on the precipice of one. Carlson: Any more questions? I guess that’s it, unless there is another item of business? We have a motion. Let’s see, the next meeting is the ninth of July. Ulrich: Could I say something about that, for just a moment? Carlson: Okay. Ulrich: First off, it’s not the normal time. The normal meeting is July second so we will have it on the ninth, because it seemed to fit most everybody’s schedule, except for Mr. Dawes, who will not be able to be with us on the ninth. Besides, the Fiber to the Home Phase Two Final report which we’ve moved around several times, this is the date certain at this point for doing that. If you can’t be here, I’ve already discussed with Mr. Dawes about being able to call in to participate, we will add other items and other normal business to it. Also, I’ve had questions about the term of office of the commissioners, where the term is expected to end. The Council, it looks like from the agenda, will probably pick the people for that position some time in the second week of July. They have of course an option to change that date, but looking at the Municipal Code, it says that the commissioners have a term of office but they continue in that office at the will of the Council and until they’re replaced. You’re a commissioner until the time that the City Council replaces you or reaffirms your position, when they make that decision in July. Ferguson: There’s a constitutional provision against indentured servitude. Ulrich: I’m sorry, I don’t practice law, I would suggest you look into that. I hope that clears it up. I have a copy of it here if you like to ask anymore about it. But thank you, very much, Mr. Ferguson. Ferguson: I’ll be happy to hang in there till about the middle of July. Then I just physically go away. Carlson: The middle of July is the magic time. Ulrich: That’s all I have, Mr. Chairman Carlson: Motion to adjourn? Bechtel: So moved. 6/4/03 UAC Minutes – Approved 7/9/03 Page 39 of 39 Ferguson: Since I’m not reapplying, I’d like to discuss this for just a second. This might be my last meeting, depending on what happens in July. But I do appreciate the pleasure and privilege of serving with these commissioners and working with the staff. It’s been a very interesting, very pleasant, good learning time -- a great gig, as a piano player would say. Ulrich: I don’t think we will let you get away quite that easily. Ferguson: We’ll see, but thank you all. Carlson: Thank you very much. We’re adjourned.