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Home My WebLink About2003-10-01 Utilities Advisory Commission Summary Minutes - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 1 of 37 UTILITIES ADVISORY COMMISSION OCTOBER 1, 2003 Approved 11/5/03 Call to Order The regular meeting of the Utilities Advisory Commission of October 1, 2003 was called to order at 7:01 p.m. Those in attendance were: George Bechtel, Elizabeth Dahlen, and Richard Rosenbaum. Absent: Dexter Dawes. Approval of Minutes Rosenbaum: Is there anyone who would like to speak to any item that is not on the agenda? Seeing nobody, we’ll move to approval of the minutes . I guess all three of us were at the last meeting, Elizabeth by telephone. Do we have any comments, corrections? Bechtel: I move approval for the minutes of the meeting of August 6, 2003. Dahlen: I second that. Rosenbaum: It has been moved and seconded to approve the minutes of August 6, 2003. All in favor say “Aye”. Unanimous: Aye Rosenbaum: Approved. Changes to the Agenda Rosenbaum: I don’t have anything. John any changes? Ulrich: No, I do not and I recommend we follow the format we have. Rosenbaum: Alright. Commissioner Dick Carlson has now joined us. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 2 of 37 Reports from Commissioner Meeting/Events Rosenbaum: I guess the big thing we had last week was the NCPA annual meeting which I was fortunate enough to attend. I am wearing this fine vest, which was given away to all the registrants. Bechtel: Not as attractive as the red ones we received several years ago. Rosenbaum: Very high quality and commendable. I personally found the meeting to be remarkedly discouraging. I had never been to a meeting of this sort before. Unless you were a lawyer or consultant on regulatory matters or a lobbyist, there was very little of interest going on. I find these matters to be extremely arcane. I did ask the staff if they could spend a few minutes talking about the difficulties that we, as public utility face, at both the federal and state level and then somewhat to my surprise, although I should have known, we’re trying to get transmission into the Bay Area and we’ve formed a little group of three cities with the required consultants. It’s really uncertain about how who is in charge or how to go about something that everybody agrees is needed. So, John, could you say a few words about these items? Ulrich: I will have a few things to say during the Director’s Report. Rosenbaum: Alright we do have a long agenda so we should keep it brief. Ulrich: I think it would be good to have some interchange back and forth since you and Commissioner Carlson were at the meeting and I think we appreciate having your feedback and comments. Those of us on staff spend a lot of time on these areas and our level of encouragement or discouragement may be different than yours. Rosenbaum: Alright. So you’ll say a few words when we get to the Director of Utilities report which will be coming up soon. I did have a couple of interesting things I found out just by talking to a few people about things I was not aware of. The City of Santa Clara is building a 120 MG generating plant right in Santa Clara right next to one of their sub stations. This plant is going to have some peaking capabilities of another 27 MG , same plant but if you put some extra gas in somewhere, it becomes a peaking facility. I think they were going to spend $160M, something over a thousand dollars a MG. The heat rate of the basic 120MG, 7800 BTUs is the latest thought of development. The Utility Director of Santa Clara is very confident that this is going to pay off. One of the reasons, he said, was no transmission costs. There does seem to be a premium on building in your back yard. The City of Roseville is building a 160MG plant, it’s not quite as far along as Santa Clara. Santa Clara just got the financing, they plan to be in operation at the beginning of 2005. Roseville is scheduled, I believe, for one year later. I did get a chance to talk to Alameda, Alameda is of course in Telecommunications. Alameda started their video and Internet service somewhat over a year ago. They’ve changed construction contractors, for reasons I’m not aware of, so they haven’t finished the construction throughout the city. But for the nodes they have available, where they - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 3 of 37 are connected, they have 35% penetration in video and 20-25% in Internet. Those are some of the interesting things I gathered that I was not familiar with. Dick, any comments? Carlson: I just want to mention one thing that really struck me. I had never paid much attention to the NCPA power generation because we are not major participants. Which is geothermal and hydro. I just focused on it at the morning meeting on Friday. I looked at the numbers and I thought, ‘Gee this sure sounded great a long time ago, but I’m happy we’re not participating.’ Rosenbaum: The other areas are combustion-turban. At one time we had geothermal but we sold it off. But we own ¼ of the hydro. Ulrich: 22% of the hydro belongs to Palo Alto. Carlson: The overall cost of is 7 cents a kilowatt hour wholesale. Ulrich: It is good to talk about this is that one of the things we did several years ago before I arrived and you were on the Commission we set aside a reserve and something set aside close to 70 million dollars, has been collected, to pay the difference between the cost of that generation and the market that was so-called a stranded assets and that was collected so that is all been taken into account and this hydro facility is extremely an important asset to City of Palo Alto. Carlson: The point I was trying to make is that a long time ago these things looked great and we have accounted for them well . The one part we did get out of but with 20 years worth of hindsight, every good idea 20 years ago does not necessarily pan out. Rosenbaum: I guess from history oil is going $100 a barrel at the time. Carlson: I remember the forecast. Rosenbaum: These facilities were planned and constructed. That didn’t work out because the economics hasn’t been there. Director of Utilities Report Rosenbaum: Alright. On to the Directors of Utilities Report. Ulrich: Thank you. It is interesting that the discussion we have because all the work that we are doing is trying to look forward to take care of the changes and regulations and the changes in the environment we have been through the discussions over the last few years about deregulation we have seen some of that go away and now we have a new form of competition that is probably as bad or worse than having the investor of Utilities or somebody else committed to try to take our business away and place to course is - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 4 of 37 Federal government and State government looking in ways to add additional cost to Municipal Utilities in the form of congestion charges or other forms of transmission based on complicated algorithms and complex energy flow calculations all of which are going to be required be paid by the consumers in California and attempts made by Municipal and more and more trying to take away local control by having rules and regulations that essentially take away the ability of the local government to make decisions. So this is extremely volatile and difficult times we are going through and I think as we discussed it earlier means that these inroads into additional costs are probably more pervasive and more serious than energy crisis we went through couple of years ago. Because we got through that and at very high prices but all of this is going to be long term and keep on going if we don’t find ways to solve it. So I am going to be prepared and may have some dialogues on this after we finish. I would like to process wise to note to everybody in the public or people that are going to speak as we have three microphones that are up on the table and are now connected to a more sophisticated recording system that we checked it out and were able to hear very well what you had to say back in the audience so the microphone up here is not in use but if you will direct your communication and if you have anything to say or called upon, say who you are so that we can record that. This is one of the few commissions that record verbatim minutes and we would like to make sure that they are accurate and also we can record this in do in a timely way. I would like to talk just briefly about the Fiber to the Home Project that we are working on. Members of the audience and the public all of you Commissioners have been working towards the date on which we would make the final report and that has been moved several times. I would like to try to get to a date and my recommendation would be November 19th which is a Wednesday and it is a Wednesday in which we can have the Council Chambers and it will also provide sufficient time for us to, I believe, at this point to complete the project and hand it out in the hands of the public at least two weeks before the meeting. If you would like to think about that date and confirm that sometime this evening we could settle on that. Subject to all these other issues of getting it complete. I would like also to report that between now and then we are still working to put together a trip over to Alameda for interested members of the UAC and others on staff to have some more discussion. Several of you have asked questions and met with people at Alameda. I think it would be helpful to understand their business plan or business model and know the difference between what they are doing and what our business plan calls for. I think that is going to make it easier and more productive when we have our final meeting if we have all that background. I mentioned the schedule and hope we are going to be able to meet that. Some of you are aware that we are looking forward to finding an education program that put out an RFP and asking people that are professionals in this business to give us a price on communication of the business case and business plan and matters that need to be investigated before the City Council makes their decision. So I don’ t look at what we’re doing in a linear fashion, we are not going to go out and spend money and do more work until we understand whether the UAC and City Council are ready to say good project. I do not want to wait before putting those plans in place so that if we are ready to go we can go and do it. We also gathering other additional preliminary data and I do not want you to believe that we were assuming that our set of plans are going to go ahead and that we are going to do it instead of I think it is good to do planning and do the preparation so that we can move ahead in a timely way. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 5 of 37 The next step in my mind is to finish this and make our recommendation as you requested. We can have all of our report complete at least two weeks ahead of time. Put it on the website while everybody could look at it and then we can start the process of the public people that are potentially detractors all of those who are very confident that we should go ahead with it and will be able to come forward provide additional recommendations to me and the UAC. So that is kind of what we have in mind. If you like to ask me some questions about that we can do that. The other item for tonight is that there is a schedule meeting with yourself and the City Council. You have all have I think put on your calendar for October 27th. It would be appropriate for us to have some discussion about the topics items that you like the staff to prepare for the discussion with the City Council so that we can put out a agenda for the public so that everybody knows what we are going to talk about and if you like discuss that and give me your thoughts probably by the end of the meeting if that’s what you like. Several other things we are expecting to schedule time of the City Council for our long term water forecast information is scheduled for in November. Update on long term electric acquisition plan I believe will all be the same. We are starting doing a thermal power plant investment investigation, where that might be and how we should do it and we are starting to look for a location. Ratification of the PG&E Natural Gas Service Agreement we expect to take that to Council also in November. A resolution regarding the Utility Rate Stabilization Reserve Guidelines what we are going to discuss we put that on the agenda for the Finance Committee on the 18th of November and then going to the City Council on the 15th of December. Approval of the Electric Utility Electric Master Agreements. There are seven of those and these are the contracts for the purchase of electricity for after 2005. Based on the recommendations from the LEAP plan, that would go to the Finance Committee also on the 18th of November and then the Council in December. We are also taking an establishment of a next underground utility project 39 approval of the Utility Gas Master Agreements, utility public benefits plan I have some discussion on that tonight. Annual performance report on customer sales contracts which is also for tonight. Approval of the Water Integration Resource Plan Guideline that is scheduled for next month. The CVP Corp which is the item on the agenda tonight and of course Fiber to the Home. So there is a lot of items and so tonight is a pretty packed agenda. Couple of things about the annual meeting. Dick mentioned that several cities including Palo Alto, which is made up of Alameda and Santa Clara and couple of other small entities BART and Port of Oakland, have formed a small group to look at opportunities for either building a power plant in the Bay Area or to do work on reinforcement of the transmission line. We find it is going to be more important to work out agreements with utilities that have similar congestion issues as we do in the Bay Area rather than rely on NCPA or those of us individually to do it. We formed a group to do that, that is what Dick is alluding to, that we met. We are making pretty good progress. The point is that NCPA Commission elected Councilmember Bern Beecham to serve as its next chair. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 6 of 37 The NCPA Commission is somewhat similar position that Dick Rosenbaum had several years ago and this is not a small task. It not only lasts for two years but it involves working with all the other cities that are part of the NCPA and working with their staff. Also the NCPA General Manager will be retiring at the end of the year and the NCPA Commission will appoint a new General Manager and is expected to take place at its October Meeting. The selection committee has gone through and reviewed a number of candidates and has made a recommendation. The Legislative and Regulatory Meeting focused on several issues and this is where much of what Dick was talking about lot of information came from these consultants and people are working with the federal area and the big issue is around what is called Federal Control Area. The congestion pricing and the State of California’s MDO 02, all of which are items that tend to make the cost of providing energy into Palo Alto more and more expensive. The assumption is that because we are in the Bay Area and City Gas and Electric is not reinforced transmission lines over the years as people in pay to do and should have been done. These congestion charges will be accumulated and charged to all entities in the Bay Area. It is too soon to tell how ultimately that is going to impact financially Palo Alto but I think I can say with certainty it means prices will go up. So we are working very hard to keep that from happening and trying to find other ways that will allow us to bring energy into Palo Alto without these charges. Carlson: John could I ask was there a discussion at the NCPA meeting about a construction authority for this additional transmission? I am assuming that they will collect the money but who gets to spend it? Ulrich: It is still unclear that by collecting the money that means they will actually reduce congestion. There is no check and balance between that. They collect the money but there is no direct conduit to say that this money will go and be used for transmission reinforcement. One of the areas is that we had a different control area for Federal Power than to rely on the California ISO. We all know that the California ISO is extremely sensitive to do the work that they do and they just add the cost to the consumer. So we are trying to have a Federal Control Area take the place in lieu of the CAL ISO. There is tremendous amount of opposition to that for CAL ISO is not in favor of it, California Public Utilities Commission is not in favor of it, and Senator Feinstein wrote a letter to Secretary Abraham opposing the Federal Control Area and while that has surprised us a little bit I think you can see that she is looking what she thinks is the best interest of consumers and the rest of the utilities area. We in turn read the letter signed by the Mayor of Palo Alto addressed to Secretary and Senator Feinstein talking about our reasons why it is important to have a Federal Control Area so that we are able to maintain low and stable rates in Palo Alto. This SMD will be discussed in the joint committee of Congress during the current week and is going on now. Some Northeast and Midwest organizations that currently have these regional transmission organizations all similar to the Cal ISO does, do not support a restriction of FERC Powers. All of us in California, with a few exceptions, believe that FERCS move on SMD and California’s move on this MDO2 is inappropriate. We were hoping that this would get delayed or stopped but there is a lot of momentum to keep them going. We had some short presentation on bills that California Legislature dealt with last year. Presentation on - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 7 of 37 Western issues that were also made. We had the regional director from Denver talking to Mike Haskolo and the local director Jim Castleberg was there and talking about the issues and the reasons why this Federal Control Area should go in place. Some of the items we have reported on in past meetings, feel free to stop and quiz me if you like because I am now going to move on to something very positive. Palo Alto, our rates folks just did another calculation today and it’s nice to have the jubilant remarks that our gas rates are now 22% lower than the same residential customers over in Menlo Park and other than Palo Alto areas. So it is a pleasure to report that it is close to what we did last year when we had to raise the rates. And the reason for this is we are buying longer term contracts laddering it. We are not doing what PG&E’s does. They buy on stock market or short term so their rates change each month and we think we are far better to make this longer term purchases and have a stability. This is not an area that we can compete in coming up with some magical cheap gas prices somewhere we have to go out and buy gas just like everybody else. So this is a real challenge and a real compliment to the staff to be able to keep this up. Carlson: John, that is a long term issue for protecting long term issue and I hear people keep track of the futures market and so forth. Is this another six months spike or is this a longer term problem where even we probably have to raise our gas prices next year or the year after. Ulrich: I have no doubt we have to raise our gas prices. Do you want to say anything about that Girish? Balachandran: Right now prices seem to be holding around 450 or so which is about almost twice as much as it was four years ago. Our projections for gas cost are I think about between 15 to 17 million dollars going forward and this last year we drew down our reserves by about three million bucks. So there may be some minor changes I think in gas costs and our rates but basically our long term forecast is like 450 gas prices actually. Carlson: Okay. So you do not see much reality for some of these claims that we are going to go 7 bucks gas and stay there for years. Balachandran: No we haven’t. To certain extent we can come to the scenario that supports that view and we can come with another scenario that supports a 350 gas view too. But our goal is for low and stable rates and so we don’t want to make big bets either way. So that is why we have a laddering approach. We try to stay disciplined to that and we may take advantage of some market movements within those guidelines. So for example, this year we went ahead and locked in all the gas for winter. So for 03-04 we are 90% fixed and we have 10% exposed to the market. Next week we will making similar purchases to fill that gap too. So we will bump some gases at high prices like 6.00 dollars and we have taken advantage of some purchases at 450. Carlson: Okay great. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 8 of 37 Ulrich: I think it is a good part to point out again that we just can’t be in a position with our risk management policies to try to speculate on where those prices are drawing. We are unable to really do that with any level of certainty. So the strategy of doing laddering is not going to get us the lowest price. It is going to get us the market price but it is going to allow us to be far more stable in those costs so I am sure it is going to go up. But on the other hand right now we are joining the benefits of purchasing and the laddering crisis that are lower than currently available in PG&E. The other part I would like to emphasize is that we are looking for alternatives to bringing power here in Palo Alto to alternatives for adding power to Palo Alto similar to what they have done in Santa Clara. We have been working with them and know very well with their project. Redding is also doing the same thing in their available power plant that is far larger than their current load. But these communities, like Roseville and Redding and Santa Clara, have very significant growth forecasts far different than us. We do not forecast the growth. What we are trying to look for is stability and having a resource and if that resource means having a power plant that is close to Palo Alto so that we can avoid these rules that are outside of our control, we’re going to be making recommendations to look at more fixed assets and power plants here close to Palo Alto. So we are in the investigation stage and in working with other local utilities on that. I can spend a little more time tonight than normal. Do you have questions or concerns on that? Dick has probably more answers because it is the end of the meeting. Carlson: John and I have got Dick squared. Bechtel: Trinity River? Any discussions about Trinity River and Palo Alto ______ out? Either in hallway conversations or in public? Ulrich: I did not hear anything. I have been through with all of that in the last few months. But I think I have worn out everyone out in that area so members of the NCPA understand why we did what we did and we worked out an alternative financing to take place and the money that we didn’t spend in the litigation we are continuing our commitment to join the action that we moved away from. Bechtel: We moved away from joint action? Ulrich: No we continue our joint actions. But we are doing it in a different area than joint action on trending litigation. How is that? Carlson: I didn’t ask about that. Staff is working directly on that area and what I came away with is that Westland cut a deal and got their water and the issue is largely over NCPA will have a power problem? NCPA figured out where they get their water and the litigation is probably dead. Rosenbaum: One other positive development that I was not aware of. It has to do with Path 15. Joint Public Private Partnership. Is that really going to happen? - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 9 of 37 Ulrich: It seems to. I have not heard anything that is going to get in the way except there is a process we learned that the Federal government had agreed to act to give the rights away and they told us they had perfected 99%. That had me a little worried, the 1% could be a problem. But they said they’ve got 99% of the right of ways complete and have commitment from PG&E to do the construction of the substations at both ends and Trans Select to finance the construction of the 80 miles of transmission. Do you recall the schedule 15-18 months or something? Balachandran: I don’t recall at the top of my head. Ulrich: Apparently much of the environmental work was done some years ago and PG&E contributed, whoever did the environmental work contributed all of that to the plan. Rosenbaum: Elizabeth, are you familiar with Path 15? Dahlen: Yes. Rosenbaum: It was the big bottle neck that we thought that has caused problems in Northern California during the power crisis. If it is built perhaps we will find out if it was really responsible. How much difference does it make. It certainly seemed as if some progress was made in a very difficult area. Alright John. Thank you for that. If there is no further questions for John we can move on to New Business and the first item is the Strategic Plan Performance Update. Strategic Plan Performance Update Ulrich: You have the report in front of you. We have few brief slides to go through the highlights. Just a little background. Couple of years ago we put together our strategic plan and felt that it is important to know where we are going, have confidence from the public, City Council that we had very clear objectives as a Utility and that we were not going to stray off and do something else. So we prepared the Strategic Plan Mission Goals and Objectives and we come back and report to you occasionally, you can see on the background on the slide, a little easier to read in your handout that I gave you, all of the same slides have been accomplished. One of the agreements is that we would come back several times a year and report. We are calling it a balanced scorecard, an ability to tell you how we are doing and rather than report to you on area of measures we would just focus on form and it will allow you as you deem interested to move deeper and deeper into those scores and tell us and you can see how involved they are and take a look. The real positive about this is in a very few minutes, in fact just a few seconds, you can tell an overview of how the utility is doing. So what we have is broken down into in the scorecard four areas. Customer and Community; B: Environmental, C: Financial, and D: People. They are colored different and unless you are color blind as we already learned it is quite easier to see the difference. The other part too is that all of our objectives, everything we do is in one of those four quadrants. So if you like to see how - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 10 of 37 well we are doing with our customers and community you can look to see whether in this case we have a positive or zero or negative. And if you are interested and want to know more details then you can burrow down below those numbers and ask questions. The first spreadsheet we had turns out that we purchased a plotter that will plot out 3 x 4 feet and the plotter has put every single goal and measure which has now been broken down much of it into the last pages of your handout. So you can read what the measure is, you can read what commodity it is, you can tell whether it has been benchmarked and there are a number of benchmarkings that we have been able to do. Some of them are so innovative that no one else does it so we have been unable to benchmark it. Measures see how well we are doing with the goal and the staff can pick up and are able to roll those up into these four areas. Over time we are going to learn that some of these measures are worthless in reality of life some others are going to become more important than others and we will change those. Earlier in the years if you recall while our objectives did not change our tactics in which to reach those objectives change and we brought those to you and you worked them over with us and we are working on those and we will bring those back and change them. I went through all those slides without going through all of them so if you like to have some questions the folks that put this together are here and will be glad to answer them. You will notice that the one that I focus on is one of the three positives, they are excellent results. The one that shows people in the negative is that we are not accepting anything other than zero accidents and injuries as our goal. So this is going to stay negative until we reach that holy grail of zero. Carlson: So that one was negative not because you haven’t developed the measures but because you saw an accident or two? Ulrich: Yes. You can get an idea of if from slide #6 that shows the actual numbers. Dahlen: Perhaps you can comment on under the customer and community there was a negative for the business customer perception. Do you want to discuss that at all? Ulrich: Karl, you want to make a comment on that? Knapp: I am Karl Knapp from Utilities. Part of the scorecard piece is we have a survey every year; one year is for residence and one year is for commercial and one of the discoveries we made in that survey is that commercial customers perceive that reliability provided by Palo Alto is not very good. This is the question on how they perceive it not and not what they actually receive; which is in contrast to the actual data and the actual interruptions in the outages. So certainly it is an issue of communication and education how is the reliability and the action plan to address that it is on the last slide. So any individual measure that actually received a negative we have to find out how to deal with that. It is a customer service action plan primarily. Ulrich: So what we do is convert all the negatives into specific action plans so we can go out and do it. It is also very valuable because we can communicate with all of our employees and public where we think those are the areas we need more work so when the people are out working they know what they are focused on. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 11 of 37 Bechtel: John, actually Karl you said if business customer perception is not very good. Can you gives us not very good on a scale of 0 to 10? Because that sounds terrible. I mean is it really just because if I just look at the numbers in the Figure 3 in your report now our overall is a 2.4 for example compared to 2.3’s and so on and that doesn’t sound terrible. It sounds well below average. Knapp: It is somewhat like getting an A-. The survey that was conducted upon the report was quite impressive for Palo Alto overall. Ulrich: You might mention the RKS results. Knapp: The survey was conducted by RKS, which is a firm that does a statewide survey for all municipal utilities and compares us to NCPA members and to California Utilities in general. So Palo Alto scored the lowest in perception to the liability, much higher than the state average for the IOUs. It is a matter of relative perception as opposed to. So it is relatively bad not absolutely bad. Do you want to know the actual number? Ulrich: No. To turn out we send out a report I am not sure you saw, we send it out weekly and in Frank’s Memos that go out show that the survey gave us one of the highest ratings they’ve ever had for any utilities in California on those measures on actual performance and the value proposition that commercial/industrial customers see in favor of Palo Alto. But it does not take away from the question you have about what one measure is not as good as we like it to be. So one way of doing it is if you look at all the individual ones you will find some negatives, very few frankly. I want to report those to you. But overall I am very pleased with the report we have. Knapp: To answer your quantative question. The average value for APPA is for customer perception utility reliability. They believed that they had two interruptions in a year when asked. Whereas Palo Alto stood for fourth. So the actual interruptions is lower than that. It is not a reliability problem more of an educational customer service problem. Ulrich: So that is APPA data which covers the entire United States so the perception across the United States is to 2.0 where we are at 2.4 but the reality of it is that we are less. Knapp: That’s perception …………………. Balachandran: It is reported in Attachment B. You have the detail data here in the Table, third row from the bottom. You will see the negative that we graded ourselves. Bechtel: I have one follow up a question on that. On the action plan you see up here. We are going to as an action increase our CIP funding by 2.4 percent devoted to reliability improvements. Now if I were a customer I would look at 2.4 percent almost - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 12 of 37 down in the noise level. But does that 2.4 percent translate into hundred thousand dollars or million dollars or so? It sounds an awful lot better if we could actually quantify that number and put it in dollars rather than it amounts to 2.4 percent. Ulrich: I guess it is all in the eyes of the beholder. We are at a 120 million dollar a year utility and so 2 percent of that is a lot of money. What number are we talking about the…? Bechtel: The increase in the CIP funding by 2.4 percent devoted to reliability improvements. Ulrich: Alright. I will put it in the statistics on electric. Our CIP funding is about 12 million dollars as I recall. So overall our CIP funding for all of the utilities is about 28 million dollar this year going up. So this 2.4 of 12 million is probably the… Dahlen: What would bring that score at least to a zero or plus? Ulrich: Which score are you talking about? Dahlen: The business/customer perception. Knapp: The score was actually below 2.0. That’s an A+. Below average is good. Dahlen: Zero is what? Knapp: This does not actually have a range. Only some of them have a range. This is only to say you are better or not. Balachandran: That’s our idea we could. You are right. 10 percent 12 percent. Ulrich: There would be a plus then? Rosenbaum: Any other questions for John or staff on this item? Ulrich: It would be helpful if we have some feedback on the part of simplifying this in this balanced scorecard decision. One way quite an innovative way of doing it is extremely is unusual for a business function of a city to measure itself the way we are doing it, so. Rosenbaum: I have got one particular quite a feedback something that I have mentioned before the comparisons we make with other cities and PG&E and I noticed that there has been some change and we say we are comparing with Munis. So I went and tried to find the information in this chart. If you go to Attachment B page 6, and I look at row C4 supply cost advantage. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 13 of 37 Ulrich: It will be helpful to mention the measure because some people cannot have the colored document and the number of items on the page are different between standard of quality that you have. Rosenbaum: The measure idea is electric commodity cost versus PG&E. But as you go further across that row you get some measures that seem to involve NCPA but I guess my question is when we get to Measure Goal Statement and Measure Goal Value in that row I had no idea what that box was supposed to mean. Ulrich: Can you tell me which column? Dahlen: It is the financial. Balachandran: Basically it is defining the bad. So 90% percent of PG&E cost, if you read from the center CPAU cost should be less than 110 percent of the PG&E cost or less than 90 percent of NCPA cost. So if we are less than 90 percent of NCPA cost we get a plus. Bechtel: So can you explain the measure of goal value the 9 cents it looks like – that’s the Delta? What is the 9 cents? Knapp: 90 percent of PG&E’s cost is 9.1 cents So the next statement is what the goal is. The next is what number do you have to be below to test that goal? Bechtel: So our rate has to be less that 9 cents per kilowatt hour? Rosenbaum: Well it is supply cost rather than rate. Bechtel: So. Rosenbaum: Let me make my comment once again. I think for everybody, including Councilmembers, it would be far more useful to simply compare our electric rates residential/commercial and industrial with, I mean we do it with PG&E and we ought to do it, I think, because they are similarly located with similar amounts or actually less Western with Santa Clara and Roseville and that rate comparison would, I think, be far more useful to the ordinary person than what we see on this chart. Balachandran: If I could also bring your attention to page 4 of the same attachment and you look at measure C 1 the top three rows of that table on page 4 that’s the comparison that basically drops what comparative shows the whole picture and looks not just at it is all the bills combined so it is kind of a broader look what our customers pay for utilities versus surrounding. Rosenbaum: I was suggesting doing this specifically for electricity and if you want to do it others. Gas is just one standard of comparison with other cities water and certainly do it for water and electric. But I think the point I used to make is that comparing to PG&E is just setting the bar far too low. If we are really interested in using benchmarks to - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 14 of 37 compare how well we are operating it makes a lot more sense to do that and with my suggestions with Santa Clara and Roseville there could be others. So I will look forward in the future to some future change in that direction. Bechtel: Dick, could I just follow up with since our bills are broken down between supply cost and distribution cost maybe that benchmark could be PG&E’s or other supply cost versus our supply cost and leave out distribution that might be closer to what they were trying to capture earlier with supply side. Rosenbaum: I virtually think that is more complicated more difficult to get that information and also I think we are interested in benchmarking our distribution cost with other people and that gets too involved. I wanted to keep it simple but in a way useful and certainly understandable. Ulrich: We could provide what you like. I think as you could see that I would suspect that there are very few other places in any utility that I am aware of that does all the measures that I am seeing here. So we can work out those. One area that might be helpful that over time that you tell us something that are not useful and we can eliminate those. I will say that when you get down into making comparisons on distribution as some people are attempting to do and looking at budgets between our city and other cities is that we are now get into an areas where you are spending the money and in our case we are spending a lot of money on distribution rehabilitation and comparing it with some places may not be doing as much. It either requires to add additional kind of measures so you know what you are getting for your money. Any other comments for us? Dahlen: Yeah. I just have one. Potential offering to the environment sheet where you have a note concerning the staff looking for performance measures for the wastewater efficiencies. You might want to, I don’t know what this is worth, but you may want to think about looking at metals discharging to the bay as potential something that you could compare to other wastewater plans on to the bay discharge. Something that we will be able to measure against. Ulrich: One way we are not measuring the waste treatment flow because we do not have responsibilities for it. I do know that they do that measurement that is available. We are just focusing on the things we have accountability for. Carlson: Is that operation in Public Works? Ulrich: Correct. Actually on the regional. They formed an Enterprise Fund on its own by number of cities which the City of Palo Alto manages the tour of the Public Works. Rosenbaum: They do indeed keep a track of this treatment. Dahlen: No. I am just thinking because you were looking for performance measure that might be one. You are attracting wastewater on the scorecard though. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 15 of 37 Knapp: We are trying to do some self incentives. The feedback is that it is hard to develop a City measure to tell us if we are doing a good job or not. Ulrich: What we are tempting to do is trying to measure in the wastewater the things that having to do with the collection of the wastewater and delivering it to the waste treatment plant that we intended to think that everybody knows what we do. Bechtel: Don’t we do everything. Ulrich: Well it depends on who is calling at this for some problem we cause for someone else. Bechtel: We don't do that? Rosenbaum: Anything else on this item? If not thank you John and staff. Let us move on to the recommended revisions to Utilities Rates Stabilization Reserves Guidelines. Recommended Revisions to Utilities Rate Stabilization Reserve Guidelines Ulrich: Folks if it is okay with you, you can just tell us what you like in our report and we can go on to the next item. Rosenbaum: That may well be the case. Is there a staff report? Ulrich: There is not a slide show or anything like that. I think you will find that by going through the report, we put a lot of work and people that are involved in doing this have attempted to make this one divided up by commodities so you can take each one of them at a time and with the tables that are listed there is a summary on Table 1 of all the commodities and then they are broken down on subsequent pages. Table II has electric supply, Table III has electric distribution, Table IV has gas supply, Table V gas distribution and so forth. If you like we can go through each of those and then walk through the summary how we got to it. This is probably the first time, and as I promised, we would go through all the potential risks that we have; both ones that can be ongoing and, in some cases, so-called one time risks that we see are there but if they occur, would not happen again. So we have broken it down that way so feel free to ask us some questions about if you would like to do the work for the electric first. Bechtel: Alright. Shall we try the electric first Dick? Carlson: I have a question on the gas area. But I want to say that this is a very valuable exercise. It is a good job. But one of the interesting thing is it kicks up where the big risks are. We can focus on can you avoid some of these things? There are two things. One is how much money do we need and (B) if there are some big items maybe we get out of them. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 16 of 37 Ulrich: Well the attempt is made in one sense is that when we look none of these things ever happened. But what we are also trying to do is give you a worst case. It is not trying to say that we are going to work real hard but they don’t happen because many of these things are out of our control. Whether there is an earthquake what kind of damage. On the other hand, we are trying to be realistic by saying look, here is a number of things in this business that can occur. Not that we can do anything about most of them but if they occur how much money could we have. That’s what the focus in on. I hope that never happens. Rosenbaum: Can I ask perhaps a general question. Table 1 the last column. Proposed formula to calculate maximum guidelines suggesting that regardless of some percentage of purchase cost there is a reality, I would think then, in Table II there is summed up a whole bunch of individual items and come up with a number but nothing to do with a percentage or revenue. Am I missing a point? Baldschun: Well it has nothing to do with revenue. It has to do with primarily the purchase cost because you are talking about supply reserves. The formulas if it is a supply side it has to do the link or the yard stick as some percentage of the cost purchase cost. If it is a distribution reserve it is some percentage of the revenue. The way we have done in the past all that is doing here is recalculating the percentages based on raising the guideline ranges as we have indicated here. Rosenbaum: The suggestion is that the numbers calculated by taking 103 percent of the purchase of the cost while that is really just a Bechtel: That is the result. Baldschun: Every year the guidelines change. There is self correcting into our extent because as purchases go up or revenues go up the guidelines always go up. These are the formulas that we are proposing to use again to meet the proposed maximum guidelines. The old formulas are set up for 103 percent purchase cost I think it is 80 percent right now. So it has gone from 80 percent to 150 percent and that is to achieve this increased guideline of 42 million to a guideline of 54 million. Rosenbaum: You are saying that in the future that if purchase cost changed this would adjust automatically. Baldschun: Correct, and we are doing that right now. Rosenbaum: On the other hand our one time cost contingencies that have nothing to do with purchase cost that are involved here so that it wouldn’t seem that you want just to take a percentage of purchasing cost. Baldschun: Well it seems to work out pretty well. You need to have some formula to develop the guidelines so you look for some similarities and commonalities in what is the - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 17 of 37 cause and effect which is primarily on the purchase side. It is the purchase cost and you are right. We want to keep the formulae simple and this is what works and again what we have been doing it changes the numbers to a little bit to arrive to the new guidelines. Carlson: Okay let me be sure because I was lost. You came up with this mechanism today’s percentage but for the future you want to use a flat percentage as a way of having giving us a variable reserve. Baldschun: The process was that we got the order of magnitude of our cost purchases in the millions. Then we translated that figure to a common denominator either purchases but the purchases budget of the sales revenue budget and develop this percentage of formula is what is going to develop the actual guideline every year in the budget and that guideline is going to change as they have changed since 1993 when we developed the first rate stabilization. Dahlen: So they are going up now for some of these but they could considerably go down then in the future. Baldschun: It will be great if it went down because that probably means that revenues are going down, sales revenues are going down. Carlson: We have had some decreases, John. Bechtel: Do I understand Randy, that this is probably the first time you have done a Bottoms Up Contingency study maybe in some time. But you review this every year now and see if you are 103 percent and the case is accurate. Or every other year? Ulrich: For the record I must point out to you that Randy is going to be retiring in December so if you ask him a specific question you need to direct that to me because Randy will not be here. Carlson: So the part of the purchase here is to not have to do this level of analysis every year because it is a big job. Baldschun: It is a big job and this is the first time we have done this level of comprehensive analysis since 1993. That is when we initially established the rate stabilization we tweaked them a little bit I mentioned that in the report but this is the first time it is about six of them. Ulrich: As we recall, when we embarked on this we had a lot of discussion with you about perceptions. There were times that looked like these stabilization reserves should go down because competition is going down, wherever that stabilization is. So it is important that we go through the Bottoms Up and look at it. I think you should look at the specifics of what went into coming up with that number and quiz us about whether those are valid or not. We are going to follow this, as Randy said, and going forward until we do this again. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 18 of 37 Bechtel: I would like to echo what Dick Carlson said I think this is (_____) first time I had seen this. Then it occurred to me. May be I should ask the question of the minimum guideline which looks like a very straight forward formula; Min = .5 max. Right? Why? Baldschun: Because you want a range. You want your reserves to float up and down before you trigger something. You either trigger the need for rate decrease or you trigger a need for rate increase. The whole purpose of this to stabilize rates. That is how we use the reserve. That is why it is called stabilization rates. Bechtel: I guess the question around the assumption of half of the maximum is a good minimum and going through this analysis you know the details do you still say that because some of these contingencies may not really go in half or are you saying that the probability is half of them will occur and so on and so forth. Baldschun: No. No signs of probabilities here but you need to have for a minimum so that you are always aware of when your reserve stuff gets signaled. Then you start getting closer to the minimum and you start getting closer to maximum that tells you that now either you are going to have a reason for those reserves to be below minimum and we did that with the gas crisis we purposely broke it to zero. But about the maximum you need to know or explain to Council why you don’t want to decrease the rates because you may see something that they don’t see a year or two down the road that says that you are going to need that money. When you see that stuff in the 10-Year financial forecast because you see a lot of that in the long range financial planning that the Council needs to see. That’s how you decide. Dahlen: I had a question on the item #3 for the electric Calaveras Plant Outage being 1.5 million. Is that Palo Alto share or is that ? Baldschun: That is Palo Alto. Dahlen: Not 22 percent of that stuff. Baldschun: 22.9percent Carlson: In other way of when expressing the minimum if you look at this one in particular is you want to at least have enough in the rates stabilization reserve to get through two dry hydro years and have something else happen. And that is not a bad minimum because we know we are going to get two dry hydro years once a decade or so. Ulrich: I hope not. Rosenbaum: And the philosophy to the maximum since nobody expects all of these things to happen, why do you simply add them up to get the maximum. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 19 of 37 Baldschun: Because we did not expect to have to draw down our reserves to zero and the gas supply and the distribution supply to energy crisis. I mean you can’t predict any of this stuff. I think it is just a good insurance policy, for a couple of reasons, to have. To plan for potentially the worst. We did see the worst happen. We saw it three years ago. I think what has changed this time around compared to ten years ago is that now you are seeing, particularly in the electric supply with the Western hydro production, the two year high of 18 million. 18 million, that is a pretty large number and we didn’t have those kind of cost contingencies before. Now we are close to 2005 we are seeing some of these big impacts and that is a big change. We’ve added a number or new cost contingencies that we haven’t had in the past in electric. In the water situation you have seen the impact you see in the huge CIP projects in San Francisco and now, also our own. It is not surprising that out of the six reserves the three that are changing are the three businesses that are facing the most uncertainly and the most challenges in the next five or ten years certainly electric supply, water supply and water distribution and the gas supply businesses. The other ones are fairly stable businesses. Carlson: What else can we start? Baldschun: We can always start collection. You know. Gas distribution, and I guess that’s it. Rosenbaum: Do we have further questions on electricity. Dick you had a question on gas. Carlson: I have a question on gas. I have one question on gas. It is something resulted in the analysis that brought to my attention it is that G-7 rate I thought we got rid of that. Baldschun: What you remember was during the budget process we decided not to decrease the G-7 rate. We came back during the middle of the meeting and said if we forget our proposal we are not going to decrease G-7 and we are going to leave it where it is. And what that did is was it kept that rate high which meant none of our customers switched to it. Now even better than that is lets just terminate the rate schedule, just get rid of it and so that is the plan. Carlson: So we are fairly quickly going to get that because that is an important risk in those kind of areas where people have been ought there and if they have an unlimited right to come back at a below market rate we are forced to go out and buy those stock markets then we have got a problem. Baldschun: Karla might want to speak on that. When you did your initial analysis. Dailey: Right, when we looked at that, I am Karla Dailey, sorry we haven’t met yet. We looked at what that one time risk is if all of the customers at once came to the G, to rate in a high market price environment we had to go out and make up for that gas it was about 2 ½ million dollars one time risk. We thought a couple of ways to try and mitigate against that risk; one was since we buy on a three year basis we could require customers - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 20 of 37 to give us three years notice before they want to come on to rate. This is a sort of outlandish ideas but that is one way to get rid of our risk is to have that kind of a lead time and another solution is to have some sort of entry and exit fee on to and away from the rates so that the utility was kept whole if customers wanted to move in and out of that rate. It could get fairly complicated and difficult to administer. So just given that the risk was there and none of the mitigating solutions were very attractive and the customers really haven’t expressed any interest in that rate. I have sat down with key account reps on more than one occasion with large customers and said what do you think about G-7 and they don’t like that it is uncertain, that the council can change their rate at anytime and it has been lower than the market price on more than one occasion and I don’t know how big that difference would have gotten to and send those customers to move to that rate. But they weren’t expressing any interests in it in the last couple of years. Carlson: Lets get rid of it because at the state level back in 2000-2001 that is one of the things happen. Number of major customers they supplied the gas prices, they defaulted and the customers came galloping back to PG&E and they had the right to buy below market power and that was in billions. Dailey: PG&E does not provide gas commodity service to any large customers. Carlson: This was in electricity. It was really big bucks. Ulrich: That is the reason that at this time there is nobody on the rate and so our recommendation is suspension of it. Rosenbaum: Is there anything else on gas? Questions on water or wastewater? Dahlen: Actually can we go back to gas. I had a question on item #1, the 10 percent whole consumption explain where the 2.4 million comes from? Dailey: That is a scenario where the consumption of the customers that we do buy gas for and have a set rate. Their usage goes up and at the same time the market price is high. So we have to go out and buy additional gas for these customers at a high price. And in this particular analysis I used a 1 and 3 high price. High price has 1 in 3 chance of happening and it is not outlandish scenario. Not a super high case that came out to be like 7 little less than 8 dollars and may be cheap gas in that case. And so that resulted in 2.4 million dollar cost increase. Rosenbaum: Any other discussions or questions. This is an action item that is looking for motions. Carlson: I move we approve staff recommendations. Bechtel: Second. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 21 of 37 Rosenbaum: We have a motion by Carlson and second by Bechtel to approve the staff recommendation on the subject of recommended revisions to Utilities Rate Stabilization Reserve Guidelines and that motion includes suspension of gas rates schedule G-7. Any further discussion? All in favor. Carlson: Aye. Bechtel: Aye. Rosenbaum: Then it passes unanimously. Balachandran: Dick, I just want to thank Shiva, and Karla and Lucie for working on these rate analysis. Baldschun: Yeah they have being working on this reserve now. We also had Karl Van Orsdol and some ASD folks. The reserves by committee. Rosenbaum: Well as you can tell by comments we thought this is a fine piece of work and we appreciate your efforts here. Ulrich: Thank you. Maybe we’re beating this to death but it is a very important area for us and we want to feel confidence that we are collecting information and right on the money. Proposed Utilities Public Benefits Plan for 2003-05 Rosenbaum: Lets move on to Item #3 The proposed Utilities Public Benefits Plan for 2003-2005. Ulrich: Randy is here to answer some of the questions. Tom Auzenne who was going to be here, had to go home sick and he relied on Randy to provide answers. But this is a program where legislature requires that we collect a percentage of revenues our money our revenues of customer’s bill towards the use of public benefits purposes. Since we are collecting that money we believe it is important it goes back for the good of the community in the form of encouragement of energy conservation and areas that are beneficial in improving the value of electricity, gas, water and so forth. So we made some changes in the program and I want to make sure you know what they are and know where we are going with spending this money. Rosenbaum: Any questions for staff? Dahlen: How much money do we have to deal with here ? Baldschun: We collect roughly two million dollars a year on everyone’s utility bill, Public Benefit charge. But as mentioned in the report one of the changes that we are - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 22 of 37 going to see next couple of years beyond is that the supply rate stabilization rates will be used to justify certain management actions that won’t be funded out by the benefit fund but by the supply. We did that similarly during energy crisis. When energy crisis wholesale market was 15-26 kilowatt hour we drew money out of the rate stabilization reserves supply to buy CFLs in an amount. We probably won’t do that. The concept is that one of the changes is that close to 2005 energy situation we are going to see load management techniques within programs become more predominant than they have been in past because our avoided cost are not going to be higher. Dahlen: What percentage of the plan are we spending now getting back to the ratepayers. Baldschun: Well it depends on what year. We've spent around 5 millions in energy crisis so we dipped into the reserves about 3 million but we are back down to around 2 million a year and we are going to spend that. We really kind of expanded some programs and we have added some new ones. Some are very small and some are very large and we are going to focus on schools, or are we going to focus on city facilities to get more energy efficiency to all those buildings, school education with a 50 thousand dollar grant to Palo Alto Unified School District. We put about six thousand a year on leveraging public art to communicate the value of renewable energy such as on California Avenue. Probably we are using traffic signals controllers in town. We are going to discontinue the termination of our rebate programs. This is a common practice for utilities to stop and start the rebate programs. As a consumer, I am not talking about not as a professional utility but I am talking about as a consumer because I live in Palo Alto. It is frustrating when you get into a program that just ended a week before and I have a lot of people tell me that so we’re going to keep this program going all the time. There is no need to terminate these programs. We will have to change the requirement before we get changes from the appliance manufacturers about what is qualifying in energy efficiency. Those specifics will change but the programs in the rebate level will probably continue. So that is the change. I have got a Grant from the Dept. of Energy for the City 2.8 million dollar PV project in City facilities pending approval it looks probably that it is going to happen the utilities will kick in 1.4 million which means probably the supply of stabilization reserve will be coming in but we have to get council approval on the funding. Any questions I am glad to answer. Rosenbaum: Elizabeth? Dahlen: When do you get the final answer on the renewable energy program on the 2.8 millions. Baldschun: I think it is going to be very shortly. Dahlen: So when you will be looking for heading additional funding? Baldschun: The project is probably two or three year project and it will be in phases so my guess is that it will be spread out. So we don’t have to come up with 1.4 million this year. It will be based on construction schedule and all that. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 23 of 37 Ulrich: We think it’s important to get the money in hand and then looking for the plan together and how we are going to spend it. Rosenbaum: Will the 1.4 million spread over several years come out of the public benefits money? Baldschun: It could. Actually it could. But I don’t believe that the public benefit fund is financially strong enough to handle 1.4 million hit without impacting some of the other programs. Ulrich: These kinds of programs give us some options. They are not cut and dried. We can use some good planning. I think you know that when we went through the details of the Long Range Energy Plan, we are going to have to move into areas of looking at the demand control time of use areas because the cost of electricity as we are going forward it is going to be more expensive at certain times. We’ve enjoyed for the last four years rates that have been basically the same 24 x 7 per cost. So is it appropriate to use public benefit dollars to appreciate and change people’s habits or incentives? I am not sure. I think it is more appropriate to use supply funds to do that. Rosenbaum: Other questions. Let me ask you about this solar project. Where did this idea come from applying for 1.4 million dollars? Ulrich: We look out for these grants. The search is available and tell us what is there. Rosenbaum: Something we think we are going to get it? Ulrich: The indications are that we are, all the paper work we turned in. Rosenbaum: Solar voltaic never much appealed to me as they combines worst of both worlds. Very high capital cost and very low utilization rates. I mean the last time I looked it cost seven thousand dollars a kilowatt for the cells and you combine that with the low utilization then you wind up paying 35 cents a kilowatt hour. Ulrich: That is why you don’t see them all over everywhere. Rosenbaum: Well for good reason. Ulrich: That is why the ones that are in Palo Alto and elsewhere are all done because of this subsidization of it. If it wasn’t for the state grants or the funds that Palo Alto has put out it would be very difficult for somebody to rationalize doing it from a cost effort particularly in Palo Alto because our rates are significantly lower than other locations. Addison, PG& E are charging over 20 cents a kilowatt hour for people that used a lot of electricity. We are nowhere near that. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 24 of 37 Baldschun: More to the point. You are right. It is not the most cost-effective way to save energy, far from it. But the reality is that our consumer based businesses and consumers in Palo Alto are very interested in it and it is a technology that we get a lot of interest from in the communities a very strong support for the PV systems and solar systems in Palo Alto. So I think it made sense for us to gear programs to what people want much likely done with Eichler home programs. I think the Eichlers in Palo Alto are the only utility in the country that has a program to have Eichlers because of the unique problems. Rosenbaum: I guess I am just curious that nobody on staff is willing to say that the emperor has no clothes. This is simply not a reasonable way to spend money on electrical generation and it’s been 30 years that people have been talking about photovoltaic and the cost is yet to come down and I don’t know that it ever will. So the solar energy manufacturer association is happy to give out awards. We can proudly talk about getting an award but to me it makes very little sense. I understand the environmental concerns and about the PV partners programs, the individuals, or small companies that want to it fine, but the rationale for us doing it is they seem to be loosing interest though. Let the City do it. Ulrich: One of the things we are moving away is funding individual, putting money in the benefit of one individual’s home we are moving more towards using that money to help out and reducing energy cost in schools and in public buildings. If you are going to put that money towards something there is much more common good that’s obtained from cost saving standpoint. At the same time there is a price tag on the environment that is where we get feedback from the people what they want us to do. Rosenbaum: Wind is fine. There are ways to satisfy the public concern. I don’t just think that this one makes much sense. But I understand. Baldschun: I am talking about seven years ago. I came to the UAC and the Council with a proposal to terminate this sun set on this discount we give for the solar water heating systems in Palo Alto. We have over a thousand. This is a big thing and it was my worst defeat for the UAC and Council since I been here. I got creamed on that one and I had no support to do that. But I thought it made sense to do it because I don’t think we should have programs to go on pertutity. But there was strong support in the community to keep this discount going and it is still there and will probably always be there because there a lot of people in this community who really believe in solar. Ulrich: Are you okay now? Baldschun: I am okay now. Rosenbaum: I guess the argument was that the systems were falling under disrepair we have to put a lot of money into them to maintain the environmental features and therefore seemed unfair at this point to eliminate the rebate. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 25 of 37 Bechtel: Is there any discussion. I don’t believe you were not spoken against you because I am sure my colleague Mr. Rosenbaum probably voted with you Randy. Rosenbaum: No. No I was there. I voted to maintain the discount. Ulrich: Well we provided you an updated information on what we are doing. Rosenbaum: I think you provided me with enough information. Is everybody fine with it? Carlson: I really want to encourage what you’re doing on demand size management because from the overall City the ratepayers perceptive this by far are the biggest bank for the buck. And I am glad that you are improving that. It is going to become much more difficult. Ulrich: It will be going forward. It hasn’t been. Carlson: But it will clearly will be in the next new area we are going into and we have to start getting ready for it. Because we will be basically losing our shirts on the peak post- 2005. We will be paying much higher rates and we are not charging higher rates for. Baldschun: We do kind of have photo voltaic rates right now in Palo Alto for commercial/industrial customers now they’re reluctant to go on into it. Carlson: We have to. It is a major change that we have to make post 05. I agree with Dick on these big photo voltaic things. They are just so appealing and so sexy and so expensive and it is one of the most expensive ways to save fossil fuel energy. Is he going to do now and then. Rosenbaum: Alright. I think that completes the cycle. Ulrich: Thank you. Well Randy is still here. Rosenbaum: Randy is still here. Randy will be here we have to have a proper farewell but he will here for the December meeting. Ulrich: Ready to move to the next item. Annual Performance Reports on Customer Sales Contracts Rosenbaum: The annual performance reports on customers sales contract. It is very arcade. Baldschun: You remember this when you were in the council? - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 26 of 37 Rosenbaum: Alright is there a staff report? Or you have questions on this item? Dahlen: No, I think we discussed some of this already. Rosenbaum: Anybody. Yes George. Bechtel: I want to know whether are customers have seen Table 1. Rosenbaum: I don’t think so. Bechtel: How are we going to deal with the fact is that the margins on these contracts is quite good. 39 percent versus in terms of revenue compared to cost and then if you look at the last quarterly report if you look at the gas as a whole the margins is about 52 percent sorry 48 percent. 52 percent cost of sales. So these contracts are in total are quite lucrative. Ulrich: Are you happy with our performance? Bechtel: I am happy with your performance. I am just concerned about customer satisfaction. Ulrich: You better keep in mind on the customer satisfaction. The customers that are here are probably as sophisticated and more so than we are because we have smart customers so they look what they can get with us versus what they can do themselves. Just because we are making a high mark in business does not necessarily mean that if they go and do it themselves that they are going to be able to save that kind of margin. Carlson: Basically they paid for stability too didn’t they. Baldschun: This is an aberration. This is a high margin this year is that there is one of our suppliers basically unable to keep their end of the bargain. So we cancelled that contract and it so happen that when we cancel that contract we placed that with another contracts the prices were lower at that time than the high price contract. That is why we have the savings now. Had it been gone the other way had the prices been higher than the one we cancelled we would have eaten it because this is a contract with the customer. Just because one of our supplier faults we do not follow the customer. We keep that price we agreed to and in this case yeah we made some money but it could have gone the other way. And it’s going to go into supply rate stabilization, it’s going to benefit these customers. Ulrich: As you recall one of the facts we put into our cost was this risk side we calculated that and increased the price we charged to take on that additional risk. Bechtel: One thing I did not look at quite frankly and I should have is the contract pricing dollars per therm. How did the average of that compared to let’s says residential - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 27 of 37 rate or let say the City as a whole could be lower I presume, which will be make it more attractive. Balachandran: It depends on what you are comparing to and which months you are comparing to. In some months when during the energy crisis and when we had to raise rates five times in a year these were relatively good. I think today’s prices are probably comparable just from competitors. Bechtel: In other words the cost of these rates here would be comparable for all customers throughout the city. Balachandran: It is apples and oranges because you are comparing a price that is offered to a customer at one instance of time. So each of these customers selected contracts on different dates. So if you look at the second column this is when the contracts were executed so each of these contract prices are based on the term of the contract and the date that it was executed. Bechtel: Most of these, Girish, were stark months of August, July1st, 2001, etc. Only three of them were not done. Balachandran: No, you need to look at this column II of the date the contract was executed. So for example look at two people A and C who both started had an August 1 start date but they executed their contracts a difference of sixteen days, there is a price difference in the contract of 89 cents. Bechtel: That’s a lot. Balachandran: Sorry, I take it back. It is 9 cents. Ulrich: That’s what I said. 89 was just loud. So it should have been softer. Bechtel: Clearly these prices are arrived at by negotiations. Balachandran: No. These prices are basically what we can get from our supplier. We have our suppliers who will offer us a price for these quantities and so we just do back to back transactions. The customer turns in the request sheet basically saying here is a kind of contract I want to use. Pick a price a market price or whatever they have couple of choices and they specify the term of the contract and Karla goes to the supplier and does the deal. Baldschun: And don’t forget the risk premium too. Balachandran: The risk premium is added in the current year contracts. In the last year we didn’t add risk premium for things like supply default and load uncertainty. So those have been added into the current rate schedules, which got approved tonight. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 28 of 37 Rosenbaum: Alright. Anything else on this item. Bechtel: I would like your explanation as to why we didn’t give the money back. It should have gone the way and as long as the customers understanding. Ulrich: I think it is important that the customer perceives this as a good value. Many would have a very difficult time going out and purchasing the at the quantity that is here and find a counterparty that would sell it to them so we provide a very good service. Central Valley Project Corporation Rosenbaum: All right. The final item on the agenda is the Central Valley Project Corporation. Ulrich: Randy is going to do this one too. Thank you. Let me call your attention to the fact that we are talking about 5000 dollars, 5200.50 dollars but because it has a significant change in the way we are advancing money there is a lot of money involved in this so the administration cost of it is very insignificant but there is so many benefits of us joining this corporation over the current we’re funding that it is very compelling to join. If you like Tom Kabat could give you a little of explanation of how we do it know. The kinds of money we are talking about versus what the benefit will be for doing this. Rosenbaum: I would appreciate that. I hope somewhere in there you can explain the motivation for starting this. Kabat: All right. I am Tom Kabat with the Utilities Department. I have been working with dealing with the City’s Western Contract for a number of years and some of the things that have happened over the years to Western and its 80 customers have been occasions of Congress under-funding certain aspects of the Central Valley Projects instead of dams and generators that produce most of this power and when that maintenance got under-funded some of the reliability was at risk and there were times where the customers came together in fact sub-sets of the customers came together to work with the Department of Interiors Bureau of Reclamation and with Department of Energy’s Western Area Power Administration to fund certain projects. One of them was rewinding the generators at the Shasta Power Plant that had gone beyond their rated lives; That took a year or so of working together to develop a contract to figure how we would advance money, or how we would be tracked or we would be escrowed how we would be credited back to the participants how we would be paid for by all customers regardless of whether they were the fronters of money and those things take some time. We had to do it again. After that we decided to expand the O&M in the Shasta Rewind type arrangement to address all kinds of O&M opportunities and problems with the Central Valley Projects so we got a more general O&M funding setup. We had to do the same kind again about two or three years ago when it look like Western had to buy some energy they did not have enough money in the budget, the customers had to front some money for Western to be ready to go to purchase the energy otherwise they would have - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 29 of 37 cut the volume they supplied to us and so these all have been kind of one of solutions, one at a time, as we have come to a problem and we have struggled to figure out how to solve it. There also have been significant risks of about ten years ago now almost where the administration has been proposing to divest the Central Valley Project and sell it. The customers realized that these kind of slow maneuvers we do to get people together to raise a few million dollars might be inadequate for raising the hundred of millions it might take to purchase the CVP if it were divested. So one idea was to form this type of entity, the CVP Corporation. It is a 5013C Non-Profit Corporation. Group of customers who are in the electric distribution business like municipal utilities, utilities district etc. coming together to establish this entity they can do different things. They are going to be able to roll up different products hopefully have a set of solutions that they work on they perform for rolling out a product like financing products for smoothing up for our uneven contributions that have been made to Central Valley Project causes and then if in the unfortunate event that Congress does some day decide to divest the Central Valley Project it would definitely help to have this kind of organization around. They would be able to raise the capital needed to make substantial offer to purchase the project to keep it intact to keep delivering the benefits it now delivers. So that is some of the background about where we have been, what we have tried, what shortcomings we have seen, what we are worried about, what we are doing to solve future problems and current problems. Ulrich: Did you mention that project oriented ways this can work is that you can participate project by project if it is in our best interests? Kabat: Right. The idea is you can join the overall umbrella organization of the CVP Corp. and then you subscribe to the individual services or projects and they are rolling first one out as a kind of cost levelization escrow account for Central Valley Project Improvement Restoration Fund. It is not a particularly big problem for Palo Alto so staff does not propose that we participate in their very first offering but staff has proposed that we ask the Commission to recommend to Council have the City join the CVP Corporation not that we pick up on the first product they offer. Carlson: Who else are the major members I am sure at the most NCPA but are there others that are in there? Balachandran: There are seven members who joined so far and they needed six to actually form the corporation officially. Some of the larger members that have joined so far I believe Redding, BART and Silicon Valley Power then you have Biggs, Gridley, and a couple of other small members who also joined. But a number of cities are in the process that we are in of going towards those. Carlson: What about SMUD for example, are they potential members? Kabat: Yes they are. Ulrich: We would like to have as bigger than distance. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 30 of 37 Carlson: That’s okay. So who outside of NCPA. SMUD and Sacramental Municipal Utility District? Ulrich: It would be TID and MID. Carlson: What about LADWP? Kabat: No they are not CVP customers. Rosenbaum: Not everybody joins doesn’t that create a problem? If SMUD were not to join and there are projects to be advanced funded how would they pay their share? Kabat: It may end up being some agreement between SMUD and CVP Corp on how that is done. Carlson: We have handled that in the past. Rosenbaum: Yes, we have done all these things in the past. It is just not obvious to me that this is anything but complication. Ulrich: I think it is just the opposite. It does one is it makes it real clear what is in the agreement and tells what each parties what share and role is that is one of the benefits. The other benefit is that this money that we are already advancing, there is no, we are not getting any interest on that money. If we put it all into invest we would have mechanism of being able to collect interest in terms of money on stock market. Rosenbaum: Is there a staff here? Kabat: I don’t know that the corporation has hired staff. I think they intended to use… Ulrich: We look at the model. I have been on this team that has been looking at this stuff. There is a model for this. This isn’t something new and unique. Western already has this in the Colorado area. It is the Transmission Agency of Rocky Mountains of something like that. I just made that up. Western State Corp. I did not make that one up. So we brought the Director which is a one-person organization out and frankly that person could also manage the CVP Corp that is what we wanted to do. So it is very, very minimal amount of staff work. Balachandran: And currently NCPA staff is providing the admin support for this and so the NCPA organization bills the CVP Corporation through a contract in place for services. The Board of Directors is basically the temporary board of directors headed by the General Manager and the Asst. General Manager. As soon as the organization convenes they can basically convene at any time now since they have six members. A Board of Directors will be instituted and continue to have the staff worked on by NCPA till it gets to some kind of critical mass where there may be directors or higher ups. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 31 of 37 Carlson: Why can’t NCPA do it? Balachandran: They wanted to expand the membership and just not have limits for NCPA. Dahlen: Seems like the Board is really key to this. How many board seats would there be potentially? Ulrich: What we look at it. It is possible that Palo Alto would not be on the Board. It doesn’t necessary mean to you now that you are on the Board. But if I think the key for our success is one is it where we want to invest our money. Do we see a direct benefit back from Western in the form of benefits we otherwise wouldn’t get. Tom pointed out the real key to this the government does not have the money to fund improvements and without the improvements we do not get the benefit of higher efficient of production and we don’t get the benefit of that additional amount of megawatts or energy that are coming out of that project. So far before we have invested the money and we’re into the millions, and City Council approved for this year was 4 million and we are already spending advancing 4 million dollars. We get it back in the end of the month in a billing credit but we have already committed and it has been an outstanding program and we have got direct benefit back over the years that we have been doing it. So this is just going to formalize it. We are going to do the same thing and participate in the same kind of projects. Rosenbaum: SMUD is by far the largest single customer, have they joined? Or are they thinking of about joining. Kabat: I do not know SMUD’s status with the CVP. Ulrich: I didn’t check it out. I should have. Balachandran: They have been included in the discussion from the inception and so I know they have been brought along. I do not know where they are in the process of decision making. Ulrich: I have not heard of anybody that said that they are not going to join. So I can’t tell you everybody has. Rosenbaum: I would say if they didn’t join the effect of this the organization would be greatly diminished. Ulrich: I don’t think so. Rosenbaum: But you need their cooperation for any big projects. Ulrich: We did that now. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 32 of 37 Rosenbaum: That’s good. Balachandran: Admin cost of herding 15 cats to get into one project, like the Shasta Project is high. Having some kind of umbrella organization like this will minimize the cost. Time is going to get everyone together like what Tom said. If SMUD doesn’t join I don’t have an idea of where they are with them. It is easier to do a contract with just two parties CVP and SMUD. Rosenbaum: Any further questions? Dahlen: What is the timeframe when the effectiveness of the CVP Corp is no longer beneficial to Palo Alto? Balachandran: I wouldn’t guess on that. I think it is going to be a pretty long term because a lot of projects have pretty long term. Ulrich: We decided twenty year contract will continue to… Balachandran: Resource contracts are in the decades. Kabat: I would imagine it would be as long as we have our Western Contract the benefits of working together with folks to keep making project better and safer. Ulrich: Again the best part about this is you don’t participate if you don’t think it is in our best interest, project by project. This is a corporate umbrella, which it sits under. Rosenbaum: And you can leave with a 120 day written notice. The money is trivial so is everyone convinced it is a good idea? Ulrich: We thought what was important that the money we can even delegate that authority to purchase, spend that kind of money. But the whole concept I think that the big dollars involved in the project I think it is important that you see the benefit of it and of course the City Council. We are going to take this to the Finance Committee and the City Council. Not to get the 5000 dollar approval so they understand what we are doing. Rosenbaum: Perhaps my colleagues have a better understanding of this than I do but I really don’t see why this is going to make life easier than what we have been doing currently. You all tell me I expect it but I just don’t see it in what is been written or what you have told me as to why this is such a wonderful thing. But I dare say Council members might either take it on faith I am certainly willing to do or they may have throw the lights at me trying to figure out just … Ulrich: Of course you should be comfortable with it. We would like to go the Finance Committee as far as UAC is supportive. Rosenbaum: Oh yes. I will be happy to do it. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 33 of 37 Carlson: I would like to move approval. Rosenbaum: All right. We have a motion. Do we have a second? Dahlen: I’ll second it. Rosenbaum: All right. Motion by Carlson and Second by Dahlen to approve the staff recommendation that the City become a participant in the Central Valley Project Corporation. Without further discussion all those in favor. Aye, Aye, Aye, Rosenbaum: That passes unanimously. Ulrich: Thank you. Kabat: Thank you. Rosenbaum: Next regularly scheduled meeting November 5th. One item the Utilities Quarterly Report. Ulrich: I think we will have more on the agenda. Joint Meeting of the City Council and UAC Rosenbaum: Topics that might require support from staff at that meeting. Ulrich: I think Mr. Carlson and Mr. Bechtel were at the last joint meeting last year. You were there too? Rosenbaum: I think we all were there. Ulrich: You may recall the dialog, there is a limited amount of time. The meeting starts at 5:45 and will be through before 7 p.m. I suggest there be a topic that we can have dialog and have some conclusion by the end of the hour. Bechtel: What I remember is one of the topics, a discussion, a question that I asked of Council… did they feel they were getting useful information from our meeting minutes and so on. That was at least one question we discussed and there was some dialog on that. I don’t think we need to answer the question again unless they are turned out. I want to put this on the table, is that the kind of question we address Council, are we doing our job effectively for them? - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 34 of 37 Rosenbaum: That certainly is one potential topic. As I recall it used to go on, the UAC members would decide among themselves on two or three significant topics and then a member of the UAC would take it upon themselves to prepare material and the point was to provide Council with more information than they would normally get about what we regard as an important issue. An effort of the UAC to help educate the Council. This is quite time consuming and requires commitment on the part of the members. So, one could talk at some length about what’s going to happen to water rates. Council probably knows something about this, it would be our chance to emphasize this. Electricity, a discussion on what’s really happening with Western and why rates are likely to go up and what the difference is. Once again, in theory and actuality, staff has been presenting Council with just this sort of information and it’s a matter of do we want to amplify and give our spin or have a more generic sort of question. I don’t think we want to bother with fiber to the home because that’s all going to becoming very soon. Dahlen: I think it might be when you talk about a big issue, that may be new or one that we’re not specifically addressing in one of our meetings, I’m specifically interested in exploring where those rates are going to be going in the future and what options we might have available for us in Palo Alto. I’d be happy to do some research on that. Talking hopefully with John and Jane, with some of her questions that I’ve asked you about John, specifically groundwater supply. Bechtel: Sounds like Dick, what you are talking about is really giving Council a heads up. Maybe more even from the heart a heads up rather than a City Manger Report. I think those things are useful, I think Council listens to us when we say something. It’s not our full time job, I think they value, they know the time we put into it, they value those kind of things. If you want to pick water, that might be a very useful one. I think all our rates are going up and I frequently get into discussions with my friends that in the future our rates are going to go up and I don’t think we can hide that fact that they are going to do that. Whether the Council needs to have that said again, I don’t know, maybe options, maybe solutions. I think that is a good general area to talk in to. Rosenbaum: Elizabeth indicated an interest in talking about water, is there anything we could say about the other utilities and have two topics? Carlson: I’m thinking the general issue, how can we be more useful, where have we been useful, where haven’t we been useful. Those need to be addressed. There is one additional water issue that is part of both of these and that’s were Council, as I understand it, went against all our recommendations to delay the action on the emergency water supply _________ reservoir. Which leaves us hanging out there and I think we should discuss that. It’s the only one I can think of where the Council said no. Rosenbaum: I don’t think it’s our job to reprimand Council for their actions. Carlson: I just want to hear more about their action, to understand why. It was not to debate, just to hear why, what kind of analysis was lacking or what kind of directions do you want to give us? - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 35 of 37 Rosenbaum: I would be reluctant to ask a leading question which could lead the Council members to argue with each other. Carlson: Okay, okay. Dahlen: Would it be beneficial to bring up the issue of the future of the power supplies and the interest we may have in supplying our own power here in Palo Alto. The big picture, discussion on that. Find out where the Council would be going on that issue? Carlson: That’s a pretty interesting issue. Rosenbaum: It almost comes back to water issue too when you think about it. I was at the Council meeting and part of it has to do with their decision was the location of the reservoir. Location, location, location as they say. There is no question that may come up in the future. So maybe a general topic “The Future”. How the UAC sees the future. Ulrich: I would suspect you are going to want to set aside some time and put it on the agenda to ask them the things they would like to get from you all, the things they don’t get now or in addition to. Give them a chance to give them some feedback. Bechtel: So we have approximately an hour. Thirty minutes for them, thirty for us. Rosenbaum: I think Council may have some items they want on the agenda too. Carlson: There are more of them than us! We’ll be outnumbered! Ulrich: You are advisors to them so I suspect they would like to give you some direction. That’s part of having give-and-take on this. Rosenbaum: So how should we do this? Elizabeth, do you want to take on the water and work with John? And I would love to prepare two or three viewpoints. Maybe five minutes of comment. Ulrich: Can I suggest, I sure agree that water is at the top of our minds, we’ve put a lot of time into it and we have a lot at stake in completing a lot of work. So, in addition to the rates, can we also talk about reliability as part of it because the rates are only one component. Actually the end result. We’re spending a lot of money to provide reliability, and safety and emergency water which has a big effect on cost when you add that also to the work they are doing on Hetch Hetchy those are additional infrastructure costs in addition to the cost of the supply of water. We may want to do more of a comprehensive, add those all together, all that equals money, something like that. Rosenbaum: Five minutes. And then somebody want to take on the topic of our future electric supply? Choices that face us. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 36 of 37 Dahlen: And Dexter is not there, right? Carlson: If Dexter doesn’t want to do it, I’ll do it. Rosenbaum: When is Dexter returning? Bechtel: I don’t know when he is returning, he’s on his annual New Hampshire, north tour. Ulrich: He’s in Maine right now. I get the impression he’ll be back … Bechtel: I think by the end of the month. Carlson: I’ll start it. Bechtel: I can certainly talk to you and we can probably… Ulrich: Can you summarize what the assignment is? Carlson: The key range of options for long term supply? Bechtel: Or not, I think we’re calling it local generation, right? Carlson: I’m talking local generation as one option. Bechtel: I was thinking we could only deal with one of those. The long range energy, they’ve had a lot of discussion on it but I think the one that will be the real tough one is really local generation. Carlson: I think it’s really worth looking within the context because it’s either local generation, contracts with generation from somewhere else plus transmission, a big portion on conservation. Ulrich: Can I suggest that as part of this you discuss the renewable component that is now part of our plan and that is 10% by 2008 and 20% by 2015. Those are going to be challenges and clearly impact costs. Brown versus renewables. Carlson: I think the bottom line issue is within this range of choices is there any point at all of working within the community issue where Palo Alto has this wonderful pattern of being in support of many things in general but opposing all specific sites. Is it worth actually talking about something like this or should we just take it off the board right now? Dahlen: Or maybe we should we talk about some of the bigger picture issues which we consider when we talking about setting them in the city. You know, they’re not in my backyard versus taking care of your own environmentally. - Approved 11/05/03 – UAC Minutes October 1, 2003 Page 37 of 37 Ulrich: There is also the significant financial incentive that was never there before by locating it close to Palo Alto. Carlson: Right, because of the transmission problem and all that. Ulrich: Okay, those are two topics. Rosenbaum: Okay and George, I don’t think we need any review regarding the subject are we providing Council with what they want. Bechtel: Okay, I’ll _________ again. Rosenbaum: And ideally, we’ll have some materials to be handed out to the Council in advance. I really think five minutes. Bechtel: Well, it’s about 15 minutes of discord . Ulrich: Now that you are going to get into the time frame for presentation, that means the materials for this Council meeting, if you want them distributed, I’ll need it all in place by Tuesday before it can go in the packet. I’ll need an outline of everything that will be at the meeting. Bechtel: What is the date you need for this meeting? Ulrich: The 27th is the meeting date, the 21st is the date needed. Bechtel: These guys can do their own PowerPoint slides. Ulrich: We have a UAC logo. (John will email template) Rosenbaum: Sometime before the meeting I will be in touch will the three of you to coordinate all of this and I appreciate your assistance. Discussion resulted in the special meeting regarding FTTH will be held on November 19th. Rosenbaum: You’ll have the reports for us hopefully in the first week of November. Adjourned