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HomeMy WebLinkAbout2004-01-14 Utilities Advisory Commission Summary MinutesApproved -UAC Minutes 1-14-04 UAC MINUTES JANUARY 14, 2004 Call To Order Rosenbaum: Good evening, this is the January 14th meeting of the Utilities Advisory Commission. We will start with a roll call. Dexter, do you want to start? Dawes: Mr. Dawes present. Bechtel: Mr. Bechtel present. Rosenbaum: Dick Rosenbaum present. Dahlen: Elizabeth Dahlen present. Rosenbaum: And we also have our Council Liaison and Mayor, Bern Beecham with us. Oral Communications The next item on the agenda is Oral Communications. Is there anybody in the audience that would like to address us on any topic which is not on the agenda? Seeing none lets move to approval of minutes. Approval of Minutes Do we have any corrections or additions? Dawes: I move for adoption of minutes. Bechtel: Second Rosenbaum: We have a motion by Dawes and a second by Bechtel to approve the minutes. All in favor Aye Aye Aye. Rosenbaum: That passes unanimously. Agenda Review and Revisions. Agenda Review and Revisions Rosenbaum: I have sent an email suggesting that might be more interest in Item 4 and we ought to take it first. I didn’t realize that we had two distinguished guests from the NCPA who are here to address us on Item No. 2 So what I would like to suggest is Approved -UAC Minutes 1-14-04 that we take Item 2 first so that they can make their way back to Roseville and then do Item 4 and then the remaining two items would that be okay with you all? Ulrich: If I could offer an alternative Members from NCPA and there are three here this evening will be staying over and we went over the agenda protocol before and so if you like to just do the Item 4 first and then follow the rest of them in order that would be fine. Reports From Commissioner Meetings/Events Rosenbaum: Good, You are spending the evening with us. Wonderful. Alright. We will start with Item 4 before we get there we have reports from Commissioners on meetings or any events. Do you have any reports? Seeing none we will move to the Director of Utilities Report. Director of Utilities Report Ulrich: Sure. I have a very short report. First I would like to thank three UAC members that accompanied Mr. Beecham and me to Sacramento on Monday 4th Legislative Day with CMUA – California Municipal Utilities Association and it was quite a good day of long use of your hours driving up there and back and I just want to say thank you for doing this. We had an opportunity to meet briefly with Senator Sher and Assembly Member Joe Simitian while they were diligently working their way on our behalf and I thought it was very beneficial time. Report was made to the Council on Electric and Gas Master Agreements and they were approved in November and December by the Council. In transactions under these Gas Agreements maybe initiated in January and under the Electric Agreements side in February. I would like to suggest two possible dates for Fiber to the Home Report. I know we moved this number of times I will give you a couple of dates and if you will call me or send me an email and let me know if these dates could work, I’d appreciate it. Subject to other possible revisions based on having the report completed and also finding a location. Both February 24th and February 27th the Council Chambers is available and I think we need a large venue for having that and I would suggest that it start at 7:00 o’clock, our normal time. At your places I gave you copies of notice of vacancy for the UAC Commission position that Dick Carlson resigned from and also there is a notice of vacancy for Planning and Transportation Commission that also has a vacancy. In here the deadline for receipt of applications is at the City Clerk’s Office at 5:30 p.m. on Monday, January 26th and to my knowledge so far no applications have been received. The Clerk’s Office has scheduled candidate interviews for February 2nd and expectation of appointment by the City Council on March 1st for the unexpired position. I would also like to announce that Mr. Tom Auzenne has agreed to be the new Assistant Director for Customer Service to replace Randy Baldschun who retired on December 30th. We are pleased that he accepted and he would be here this evening except he’s out of town. I have heard some comments and requests back on information related what is posted on our website. We’ve found a lot of people have been interested in the ability to go into and look at their accounts. You can go in and put in the proper information and you can see online what your utilization is and do some brief analysis on how much you have used and you are spending. Also as a reminder the Utility Rates have been posted on the web since July of 2002. The Utility Rules and Regulations were added to that and posted in August of 2003 and I think we are doing a very good job of updating those as Approved -UAC Minutes 1-14-04 appropriate so customers would be customers and interested parties can get online and see that information. That’s my report Mr. Chairman. New Business Investment in Recycled Water Pipeline to Mountain View Rosenbaum: Thank you John. Any questions? Seeing none we move on . I don’t believe we have any unfinished business. Lets go to New Business and the first item will be Item IV on the agenda. Investment in Recycled Water Pipeline to Mountain View. Ulrich: Thank you. The request this evening is that the Utilities Advisory Commission recommend to the City Council that we add one million dollars to our Water Utilities Budget for FY 04-05 and additional one million dollars to FY 05-06 budget for a total contribution of two million dollars to what is known as the Mountain View Moffett Field Area Reuse Project and since this is an unusual type of request we thought it would be important to come and discuss this before we get into putting this into the budget so you can get good understanding of it and give us your recommendation to move forward. Presentation will be given by Jane Ratchye. Jane, are you all set? Ratchye: I am. Rosenbaum: Good Evening. Ratchye: Good Evening. Good Evening to everyone. I am glad this moved up to the top of the agenda. I think it deserves a lot of discussion and we have several people here that I would like to introduce will be here in case there are questions including Glenn Roberts, Director of Public Works, Bill Miks he is a Plant Manager, Daisy Stark, Sr. Engineer at the Plant and the Project Engineer for this project. So hopefully one of us can answer most of your questions. You have probably read the report and I am going to briefly go through what the project is and then try to discuss what the benefits are or might be for Palo Alto and what other outside forces might be encouraging recycled water and let us do the recommendation that we have tonight. The project re-establishes service to the Shoreline Golf Links that is a requirement under their plants permit. The permit says that they need to maintain the recycled water usage and the pipeline that serves that has been leaky and unable to be repaired and it lies in a very sensitive area and so they need to find a way to serve that end use now and the best way to do it is to move the alignment of the pipeline towards Bayshore Freeway and pick up even more load for the one down in Mountain View and Moffett Field and other loads in Mountain View. The total amount of water that this would deliver for this particular project is about 1200 acre feet a year. It is a very good time right now to do this project for several reasons. It is a sixteen million dollar project and right now is a very good time to do construction work. Prices are relatively low. The timing on this is critical right now because this project is very likely if not almost certain to get twenty five percent of the cost or almost 25 percent of the total cost paid for by State Grant Funds and the balance or at least some of the balance of it we could be eligible for state revolving funds at a very low interest rate of about around 3%. The proposed cost sharing arrangement is in the report. The bulk of it is paid for by the City of Mountain View. Two million dollars from the Treatment Plant Partners of which Mountain View is one and so is Palo Alto. Palo Alto shares about 700,000 of that. We are hoping for the 3.8 million dollars from the State Grant Funds and this two million dollars that we are recommending for the City of Palo Alto Water Utility to Approved -UAC Minutes 1-14-04 retain access to that Pipeline and size it big enough for future loads in Palo Alto. So this is an unusual project for us and it is kind of ahead where we are. We are not ready at this point in time to go forward with the project in Palo Alto but this project is coming up now. It makes a lot of sense as a project and so we have to decide now if we want to contribute money to kind of maintain this option for access to this pipeline before we are ready to bring it into Palo Alto. The only reason we want to do that is if we thought that ultimately in somewhat of a medium term felt like we would actually use and want to extend that pipeline into Palo Alto so that the two million dollars would not be completely wasted. So this Commission has seen from the Water IRP that San Francisco rates are going up dramatically. In ten years they will be over a thousand dollars in acre foot and as I think a Commissioner reminded us before in droughts the rate actually goes up significantly because they still need to recover the same amount of money even though they are delivering less water. The other thing that is clear about the Regional System is there is not enough water to meet demands in a drought even with current system wide demands and certainly with projected demands. Recycled water is almost all capital cost and it looks like for this project it would cost about nine hundred dollars an acre foot some of it is operational cost but mostly capital cost . It will be pretty constant over time if we amortize the capital cost. The project in Palo Alto if it went forward we would contribute about eight percent of the city wide demand and so therefore recycled water is available in a drought and so we would not be subject to the same restrictions. Of course all that hinges on what our allotment is from San Francisco if we ever get one and what the rate structure would be. Some of you here may remember that we looked at recycled water in a very deep way over ten years ago and at that time we looked at the whole Master Plan at laying out a pipeline similar to the one that is being proposed today plus the one into Palo Alto and even further into Mountain View also. And if you look at the cost that are presented in that report and these are in 1990-92 dollars. The value to Palo Alto of having that Bayshore Pipeline piece in place is about 6.6 million dollars in 1992 dollars so that is just a kind of a comparison. Rosenbaum: I have a question. Are you somehow suggesting that the cost of the pipeline from the Water Treatment Plant to East Meadow on Bayshore in today’s dollars more than 6.6 million dollars? Ratchye: Yeah. Roberts: Yes about 6 million dollars. Rosenbaum: Out of a total project of 16 million? Roberts: Yes. Rosenbaum: So it is relatively a short portion of the total pipeline. Roberts: It is the largest size of the pipeline. Dahlen: What size is the pipeline now? Ratchye: There is no pipeline there now. But the pipeline to serve the Mountain View needs would be about 24 inch pipeline. If we were to upsize it for Palo Alto loads the piece from the Plant to East Meadow would have to be 30 inches. Dawes: What is the cost for increasing the size from 24 to 30? Approved -UAC Minutes 1-14-04 Ratchye: It is about one million dollars. So that is kind of a minimum I think that the Utility could justify taking into consideration.. Dawes: Are you taking questions now Jane? Or should we wait until the end? Rosenbaum: I initiated a question perhaps by accident. Why don’t we wait. Ratchye: This isn’t really that long. Rosenbaum: I think she is close to the end. Ratchye: The other thing is that I wanted to bring up is that as you know the supplies from San Francisco Regional System are not sufficient and that’s just a fact and so the Region will be looking at alternative or new water supplies and certainly recycled water locally controlled sources is one of them. As I have talked to this Commission before the San Francisco PUC is undergoing the first part of its environmental review phase on its Capital Improvement Program that is the long term projections and this is going to have a huge amount of scrutiny their whole environmental process to get some of their large capital improvements particularly the fourth pipeline across the San Joaquin Valley and the potentially a 5th Bay Division Line is going to be required in that process that options be looked at and recycled water will be looked at and be encouraged in that process. So that is kind of out there as up pressure. I know that there is an issue about whether or not we are going to save any money even if we did recycled water because we have to sign up for especially under their Regional Financing Authority or BASCA to pay for these capital improvements and if we use less we still pay the same. That is the possibility but I think that if San Francisco does or we agree with San Francisco to implement some sort of fixed cost or take a pay charge with that San Francisco will have to agree to an allotment or entitlement of water and when we get that, it will be something that we can trade away those costs if we do something like recycled water where we are certain we don’t need that water. We can trade the water and the cost away. And I have also already had two neighboring cities call me about interest in getting some of our allotment if and when that happens and I believe it will happen at some point. And one particularly was interested in paying for some of our recycled water project. So I think we will have partners as the Region looks at options, I think that there will be people who can’t or it will be too expensive to use recycled water in their own territory that will be potentially contributing financially to a project in Palo Alto. Of course that is completely uncertain but I believe that it is a likelihood in the future. So finally the recommendation is that Palo Alto Utilities provides a two million dollar contribution to this project at this point and that essentially preserves an option to us. It gives us the ability to access that pipeline without having to negotiate something else with Mountain View because if they owned it all it is unclear what they would charge us for water from the pipeline that they essentially would have owned. And the question you asked about how much does it cost just to upsize it? The one million dollar - I think that would be in my opinion the baseline minimum contribution would be that million because I certainly think it is not very smart at all not to upsize the pipe. If we didn’t upsize the pipe then we could be facing a very expensive line just to serve Palo Alto’s future needs if we ever wanted to that. The other point is in the report we said we thought we would need a million dollars in the next two fiscal years it turns out that the State money that would fund this is the first money that arrives so we may be able to spread this out over a longer period of time and maybe able to take advantage of the lower interest loans from the State. So this is kind of a final summation and you may think of other benefits and risks that I am sure we can talk about but generally the benefits are it looks Approved -UAC Minutes 1-14-04 cheap. The recycled water looks relatively cheap in the long term. It improves reliability in that a supply of recycled water is available in droughts, we won’t be at the mercy of Mountain View for access to that pipeline and the project is in a very good position and makes sense for a number of reasons. It seems relatively cheap time to do construction as I have said the lower interest rates and the State Funds. The risks are we could spend the two million dollars and never develop recycled water and it would never make sense for us for some reasons in Palo Alto. Maybe the cost is way more than we anticipate and we don’t want to go forward and so we will have spent two million dollars. The other risk is that the future rates structure may be setup so that we don’t save any or much. We will not be able to get out of an obligation to pay for a certain fraction of San Francisco’s CIP so that we don’t really save much. The other one was some people don’t think that recycled water should be priced anywhere or should cost anywhere near what Hetch Hetchy water is because it is potable. It is non potable and the usage that it serves is generally one that we cut back first in a drought although if you talk to Park users they may not think that it is a low value to have nice watered plants in the park even if it is a drought. I leave it at that and I am sure there are lots and lots of questions. Rosenbaum: Alright. Dexter. Dawes: Could you explain the organizational structure of this and the basic economics and I mean the organizational structure and here you have a entity which is within Palo Alto, part of the Public Works Department, occasionally has been part of CPU but now happens to be in Public Works, you are electing to have the Water Department make a capital expenditure essentially into a Department that is not under the same financial umbrella and which is not on our balance sheet and that is the way I would look at it. Thirdly, is there any revenues that accrue to the water recycling plant by virtue of this in other words is this water sold to these users or is it quote “free” once they make the capital investment in the operation so that is kind of a preamble and then getting into the fairness of the amounts and whether this is our type of analysis we can get into? Is there a cost benefit and so forth? Ratchye: I think the structure, I think that the water utility would remain in its same role as distributor of water to end users in Palo Alto. And I think that the Mountain View utility would do that to. Dawes: We sell this water? We, the Water Utility? Ratchye: Yes. And we would own the pipeline or the City of Mountain View would own the pipeline and so their Water Utility would not the Partners of the Treatment Plant. Dawes: So let me get this straight. Lets us we build this and we have side pipelines going to parks and various other places, the Palo Alto Water Utility would have a meter on that pipeline that goes out and they would then charge whether it is the Stanford Industrial Park, Veterans Hospital, the Park Department in effect the wholesale rate or retail rate for water that they would have purchased from Hetch Hetchy if it wasn’t connected up to the recycled faucet? Ratchye: Well. They will be it is as you say there would be a meter there, they would be metered, and they would be charged. Now it will be up to the City Council what they want those rates to be. They may want to have a discount for example for taking recycled water. But all the cost would be part of the water utility cost. The two million plus whatever we would spend on an extension if we ever did that would be water utility cost, and we would have revenue sources of potable water and these non potable users too. Approved -UAC Minutes 1-14-04 Ulrich: We may just add a little more. We may own that pipeline that connects to this pipeline and do distribution wherever it was deemed appropriate and so the service would supply water just as we would any other water. It could be with a different rate schedule to pay for the line and the operation and maintenance or both. Dawes: Jane, in effect implied that if let’s say we did nothing, if we didn’t invest two million dollars that Mountain View would quote “own” this pipeline that would run down Embarcadero and then down East Bayshore and basically we don’t have any access to it. Is that possible? Ratchye: Well it would be their pipeline. Dawes: Would they own something under our streets Mr. Mayor? Beecham: Presuming the arrangement would be that Mountain View has the rights to the water delivered by the pipeline they paid for. Ulrich: I mean you should know that there are plenty of facilities in Palo Alto that are underground and not necessarily owned by the City. Dawes: So we would give them permission to tear up our streets and cause inconvenience to our citizens. Beecham: The City owns it. But if the City is getting funding from other resources the city would be giving up rights of usage. Glenn Roberts: If I might, Mr. Chair, try to help address the question. Glenn Roberts, Public Works Director. Essentially what’s been said is correct. We would in that case be treating the City of Mountain View let me back up a step. I see the City wearing two hats okay and I am even speaking from both perspectives at the moment. One hat is the Public Works Director for the City of Palo Alto which is a direct response to your question but another hat responsible for this partnership with the partners you addressed a moment ago under the Public Works jurisdiction. Bear with me as I try and follow both those courses for a moment. With regard to the pipeline installation we would be treating the City of Mountain View exactly as we treat any other utility who comes into the City of Palo Alto to install facilities within our right-of-way. The fiber installer be it a telephone company or be it the City Utilities Department who then will have to get a permit and install that facility to certain standards and restore the pavement and pay a newly instituted payment cut fee which the City Council has created last year. And so given that scenario, yes, Mountain View would own and control that pipeline but having installed to City permit requirements and subject to City fees. And that is no different than any other pipe, as John said ,in the City Streets at the present time. So the question is whether the City utility and water is interested in buying some rights into that, I think. Dawes: Is that going to be a negotiated; I mean now we get into the amounts what is the right number to do it? 2 out of 16 million dollars is a number and happens to be twice as much the marginal cost in expanding the pipeline to accommodate our requirements. Has this been negotiated or is it subject to negotiation or where do we stand? Roberts: Let me speak then and wear my other hat for a moment, if I might, representing the other partners if I might. The project is going to happen. It is going to happen to a minimum Approved -UAC Minutes 1-14-04 scale of a 14 million project for a number of reasons if I might cover some brief history. There is really a thirty-year history at issue here that goes back to the early 1970’s on that twelve-inch pipeline that was reinstalled by the San Francisco Water District as part of the project to try some direct injection of reclaimed water into the aquifer__________which proved not to be a vital reuse scenario. That is why the pipeline is there. It’s a thirty-year-old plastic pipeline that has deteriorated severely. We as the Treatment Plant Partners are required to maintain all of our reclaimed water usage as Jane said in her Presentation which includes not only that 12 inch pipeline used to the Mountain View Golf Course, winter marsh, our own Golf Course, Greer Park and a number of other uses. So we must and regulatory required too, proceed with this project, which has been looked at a couple different ways. The theoretical cost of this 12 inch pipeline would have been about two million dollars Now that is not a viable activity for several reasons the major one being its location and the wetlands and we really can’t in this day and age go in and put a replacement pipe in that same location where they built thirty years ago. That is just isn’t viable for many reasons. Beyond that… Dawes: Does it also preclude going down the dykes and so forth I mean Mountain View did a huge project out there about two years ago?. Roberts: Given our wetlands issues I would say probably yes_ but we believe they would be probably not fatal. So if you look at the cost of installing the pipe in a different location without the upsizing that is where you get the fourteen million dollars. The 3.8 million dollar number kind of working estimate____________ not sure of the different cost number. 3.8 million dollar is simply a derived number that is the maximum amount of grant money we could get. Dawes: I understand all that. I am just dealing with the part with the two million dollars that is proposed that CPU put into it. Roberts: Sure. Well I think the one million dollars that you are addressing here just a second ago that is something that perhaps could be negotiable but if we did so would be under a different scenario than the manner we treat anybody else in our street. Once they come in and pay the cost of installation they own the pipeline and we will break new ground if we went that way. Rosenbaum: Perhaps the question might be if the original project was 14 million dollars and the incremental cost for a larger pipe is one million then why is not the cost 15 million dollars? Where does the 16 million dollars figure come from? Dawes: It goes 15 going to 16 maybe. Roberts: The other way look at the issue though I suppose is if you don’t make this investment now and then in future you decide that you want to do so we wouldn’t be able to upsize the pipe yet we will have to go parallel pipeline which is been estimated cost about 6 million dollars. Dawes: Let me ask you. It is kind of a different question. As I look at the map here it seems to me the potential users show that of the main two acre-feet that Palo Alto sort of could take … Rosenbaum: 1200 Dawes: half of that goes Stanford Industrial Park and it seems to me that this is a really round about way to get to Stanford Industrial Park to come up East Meadow and then jog down to the Approved -UAC Minutes 1-14-04 Greek and up to the Hospital and then way over and then back to the Industrial Park area now if that was my big market I would have thought that we just go right down Oregon Ave. where it bends there at East Bayshore and Embarcadero and just go straight on up that’s that big number user there. Roberts: I think you are right. I think Jane has couple of maps that even show but the real question was whether you want to get there more directly with the different route or you want a piggy back on this project to get there which makes it more secured which is absolutely true. But this is the actually presentation at this point and time. The original Master Plan loop system will cover different routes to get there….. Dawes: Unless you went 30 inches just to 101 and Embarcadero and then plan to take across through the freeway there. Roberts: Can you show those maps Jane? Ratchye: Yeah. I do have the 1992 Master Plan,. The Orange project is the one. Dawes: I understand. The Stanford Research Park is there but it really goes way up North there if you look at my map here… Ratchye: Well this is the map that actually shows the end uses on here and this piece here the first one the black line that would go to Stanford University in the Master Plan that was the first phase that the Master Plan at that time 1992 recommended. Unfortunately, at the time they did this they were saying Stanford would take a large amount of water 1800 acre feet and it is clear now that they wouldn’t take more than 500 and so that piece was predicated on Stanford taking that large amount and it made sense if they would. It doesn’t look like they will. That route you don’t pick up much else. You pick up Rinconada Park but anyways intended to be this loop as you see with the blue one connecting to it but if you just did the piece without that loop I mean to get to Stanford Research Park, I guess you are looking at it here on this. Dawes: Yeah exactly. I mean on the eastside of Page Mill Road. Ratchye: Yeah Well this is all we really have for Palo Alto extension. If we were really going to go forward obviously we could look at this again and try to find the best alignment to get whatever any uses made sense and it may not be for ourselves as we thought it would be in this Master Plan. So rather than make up a new alignment just kind of went with what was laid out in the 1992 Master Plan. Dawes: Why isn’t the recycling plant putting up the 2 million instead of the water utility? Ratchye: They are putting up two million. Dawes: They are the focus of this whole development say output from the recycling plant. I am just wondering again this cross funding between the two to do it. Roberts: I guess that’s the simple answer. But my perspective is that the fees that are being paid by the partners through the plant are doing what is necessary to maintain our existing uses of reclaimed water and if I understand you suggested correctly asking the partners to put up two million dollars for Palo Alto’s sole future capacity for reclaimed water would mean my asking Approved -UAC Minutes 1-14-04 Los Altos, Los Altos Hills, East Palo Alto, Stanford University and those folks to fund future capacity for Palo Alto to meet their water needs. Dawes: It is actually for everybody because they all have claim upon them and it could be that we spend this money and all of a sudden Stanford pops up and says Gee with Hetch Hetchy water costing 1200 bucks in 10 years I want some of that water and we now put up the money and they are wanting to get their share of the output… Roberts: Taking that a lot further though that same 8.20 million dollars that Mountain View is putting up should be funded by the Regional Water Quality Control Plant______ Ulrich: The part that we are trying to put forward is a recommendation. It is in the best interest of the water users in Palo Alto who obviously would be paying the cost of this through their rates and or the people that will ultimately use it. Is this the kind of investment that we should make with the kinds of risk and reward that accompanies it. Dawes: It is the question of how much and who pays? Ulrich: Yeah well it is a part of the debate about it. In one sense it is an opportunity. If this did not come along if at the time it did well we wouldn’t be here talking about it. In one sense it is pretty mature but is it an opportunity to pay this two million dollars versus several years from now an additional pipeline that would not be able to piggyback on the one that is going in. Dawes: It gives us an opportunity to sell 1200 acre-feet a year over at $1000.00 an acre-foot. But say it is the opportunity and it will cost us something now and something in the future to do that. Roberts: If I might add one final thought. This is more in a way of opinion then technical substance. What I said to John earlier today was if you accept that this is a desirable future pass that you provide then I think the timing at which Palo Alto or Utilities is considering this is optimal because on one hand we have to defer it now and do it in the future you have to go that parallel pipeline at 6 million dollar cost. If you had come forward a year or two ago as Mountain View did and wanted to be a Partner in this project at that point in time you would have had to pay more than the two million dollars because Mountain View would have seen you coming and wanted you to share equally in that cost for this stretch of the line. So I really think that the point of which you find yourselves today is a very surely schemed position by Mr. Ulrich to minimize your cost. Dawes: What happens when we start connecting up this new pipeline down in East Meadow to what we established this now as their pipeline. They own it. Will they demand a payment? Roberts: That is essentially the one the connection fees that they are asking for. Ulrich: We are essentially by additional capacity that would be connecting. Dawes: Okay that is good. Rosenbaum: George. Approved -UAC Minutes 1-14-04 Bechtel: Let me just follow up on the last you said. So one million dollars capital cost and then one million dollar connection fee is… Roberts: Bill or Daisy? Does this describe that correctly? Miks: I think that is reasonable. Ulrich: Bill if you are going to talk you have to come up here. You can read or sit down here or whatever. Dawes: Or pull up a chair. Miks: My name is Bill Miks. I am the Manager of Water Quality Control Plant. Well one other scenario to figure out what you get for two million dollar is if you just looked at the pipeline the major pipeline from the plant to Mountain View is maybe in the neighborhood of 10 million dollars. Two million dollars paid for by the Plant, two million dollars paid for by the State. The six million dollars and there is one-third of the length in Palo Alto and two-thirds in Mountain View and so it is the two-thirds cost for Mountain View. And one-third for Palo Alto. Four million for Mountain View, two million for Palo Alto. Palo Alto owns their section of the pipeline and can take whatever water they need and Mountain Views own their pipeline in Mountain View. But the other scenario is ‘Yes” it takes a million dollar upgrade to give the double capacity for Palo Alto’s use and… Dawes: Does the recycling plant get any revenue by virtue of putting less water in the Bay. Is there some incentive to you to not to put water in the Bay? Miks: The only incentive is the Regional Board you know would like us to recycle more. So they encourage us to recycle more. But we don’t get any cost benefit and in fact the more water we actually recycle cost us some money because we have to do an additional treatment process and additional disinfections and additional pumping but I offset that by saying that the Regional Board is encouraging us to recycle water so that additional cost is compromised. Bechtel: Let me ask a follow up question Bill. Thank you. Then I guess earlier I guess I really didn’t hear really a clear statement we have negotiated rights and usage and so on and water rights are always in effect. So I want to assume that it is a part of a final agreement or some sort of agreement going forward here is that it would be clear about usage and so on because it is so much like the electric transmission line everybody’s water is flowing through that Palo Alto section so Mountain View will have certain transmission rights through that 30 inch pipe and we will have certain of our rights terminate at East Meadow or wherever the San Antonio Road wherever it is. So that’s all to be negotiated is that right? Miks: Yeah and currently we have treatment capacity for 4 million gallons a day of recycled water and so essentially we would divide that up. Essentially Palo Alto would have two million gallons. Roberts: Supply of the commodity itself is not an issue at this point in time. We have for more capacity for the commodity than we have to man even with this project even with preserving this future capacity for Palo Alto so really issue is the transmission rights and cost of that as you said. Approved -UAC Minutes 1-14-04 Dahlen: How are the 4 million capacities that you have how much are you selling today? Miks: One million. Actually we are not selling it we are producing it and since the water in the Golf course is a requirement. Dahlen: Portion going to Mountain View. Are we selling it to Mountain View now? Miks: When the water district first put the pipeline in they were recovering they were selling it at 30 cents per thousand gallons. When the water district gave the plant the pipeline we stopped charging Mountain View for the water. Dahlen: And as part of this project would we start charging them? Miks: I intend to produce the water and provide it to the Utilities for free. Dawes: But you mentioned that we are providing Greer Park and we don’t charge Parks and Recs. for that. Miks: No because the pipeline that went to Greer Park, Parks and Rec. paid part of that capital cost and the Plant contributed part of the capital cost. Dawes: Does this set an adverse precedence for selling recycled water in future to the Parks in the Recreation Department? Ratchye: I will try to answer that one. No I think if we went forward the end users would pay. These other projects that we did at Greer Park and at the Golf Course were sort of anomalies for stuff cheap close to the Plant. The Golf Course paid for the pipeline or the Greer Park paid for it or Parks paid for those pipelines. I think that’s not the model we go forward I think the Utility would pay and charge for the water. Dawes: I think that back we charged the money. Ratchye: Yes. So we wouldn’t proceed like the current small projects that are nearby. Bechtel: What is the rough timing on the project in terms of expenditures of monies now? Miks: As we are applying for the state grant, we just finished the preliminary project report and we need to apply for the state grant here in April and May and start design in June or July start construction at the beginning of next year. Bechtel: So water delivery would be 2006-2007 and so on. Miks: Yes. That is correct. Bechtel: I have another question that I have left. Anybody else can go on. Dahlen: I had a question with regards to potential revenues coming from utility if we go forward with this. It is my understanding that Mountain View and other participants have not being paying for the reclaimed water until now. Would they be aware that if we were to go forward with this that we the Utility may be selling the water to them. Would that pose a problem? Approved -UAC Minutes 1-14-04 Miks: Mountain View still expects to get water for free. Ratchye: Free after two million dollars. Miks: That is correct. Ulrich: Let me see. I think your question is that we are going to own a portion of that line or the rights to move whatever amount of water would go between a 24 and a 30 inch pipe. When we get to the end and we now have the water we would extend pipes to serve whoever wants it and we develop a rate structure that would pay for that line. Majority of the payment is going to be for capital cost and the delivery. But there would be some component in there for the water. But it would probably be very, very little primarily getting our investment back. Roberts: The wholesale charge for commodity is zero. The retail charge for the commodity can be set by the different water utilities in order to recover the capital cost in a rate base which is I understand Mountain View intends to do to recoup their 8.2 million investment and we would do the same. Just to finish that logic. The two million dollars from the Partners also includes about 700,000 for Mountain View as well that comes out of the sanitary sewer charges which out they fund their share of two plant activities. Dahlen: And 700,000 dollars roughly comes from the treatment plant as well in Palo Alto. Miks: That is correct. Robert: Because we and Mountain View each of us own about 3-5 percent shares of the treatment plant. Ulrich: I just like to make sure you know how we follow the money. The money that the waste treatment plant gets from Palo Alto much of it comes from the revenues that we collect from the customers for their sewer charge and from that we pay the fees. So water usage goes up or revenues. So we follow this and we have additional charges as our share of ownership. We are going to have to raise our fees for the movement of waste through the pipes that our rate schedule. The Customer always pays. It always works that way. Rosenbaum: Dexter. Dawes: So if there is 12 hundred acre feet and maybe a thousand dollars an acre foot that’s maybe a million of cash per year that the board of utility could look to recover and know that would probably amortize 10 to 12 dollar capital expenditure over reasonable number of years. In the plans that were described to connect from the end of this pipeline to veteran’s hospital to Stanford Industrial Park could that be accommodated in a ten million dollar project? I mean this is really ballpark kind of stuff but I am just trying to get a feel for whether this is a feasible project financially. Ratchye: Yeah. I think it would. I think I have that in the report that with the two million it would be about 12 ½ million and if you amortize that’s about 700 dollars an acre foot and then you add another hundred for operating variable costs. Dawes: I picked the thousand as being the likely charge. Approved -UAC Minutes 1-14-04 Ratchye: Yeah. I think if we got into this we would certainly look at this very closely and not rely on a ten year old alignment and stuff like that. Clearly if you cut back on your potable water you are going to save the Hetch Hetchy cost. Hopefully you can if the right structure is set up to do that or if we can trade away allotment or whatever. But lets just to start say that we can’t save that money well you are still going to have your utility fixed costs just the distribution side of the utility fixed costs. It will be squeezed into fewer or spread out to recycle water users too. So you are not going to…there are lots of things to think about when you get down to making that decision and this decision right now..I think the one million to me is a no brainer. Do we pay another million? I think if we were certainly in Mountain View shoes we think that only one million is kind of low for them taking essentially the risk in building this thing. So it is to me a pretty cheap option. But that’s my opinion. Rosenbaum: Elizabeth. Dahlen: Go ahead. Rosenbaum: Tell me a little about pipe capacities. Let me preface this by saying the way this is come to us at the last minute. We never heard anything. I wasn’t aware that there was a plan to have the water utility put some money into this project or this project has been around for couple of years. So you get the impression little cynical but at the last moment you suddenly needed two million bucks where are you going to get it from? Lets hit up the water utility. But I may be cynical but for more practical if you were planning a 24 inch pipe and then you go to 30 I don’t understand the hydraulics that sets 50 % greater area why is doubled the capacity. Miks: I mean it is. The 30-inch pipe will serve more than 3000 acre feet water. Rosenbaum: Understand my question is 20. Miks: It is 24. Rosenbaum: The ratio of the areas is 1.5 so why are we doubling the capacity by going from 24 to 30 another way is what is the capacity is it 24 inch or go to 30 for the stretch from the plant to East Meadow. Miks: The 24 is adequate for Mountain View. The estimate comes from Daisy. Roberts: While you are doing that. If I mind Mr. Chair. I would like to respond to your first question to some extent also that the timing of this is not one that is being initiated by the treatment plant project, treatment plant partners or any fiduciary fund. Timing of this is one that has been initiated by Palo Alto Utilities and the Water Utility for their own reasons and their own timing that I cannot speak to. We find ourselves at this point in time this place because of that as you say this project has been around for about two years. The Recycling Water Master Plan has been around for about ten years and we have been advocates for that as you will know throughout that period of time without much success admittedly. But we do find ourselves now with the project that Mountain View has come forward in money and state put money and here we are given that, for to a certain extent my perspective, Palo Alto or the Utility has chosen now to investigate the possibility of participating. So it is not that we’ve got a project that is over budget and we have come walking to the water utility to bail us out. Quite the opposite. Approved -UAC Minutes 1-14-04 Rosenbaum: Alright. Then the question about pipe capacities. Stark: I am Daisy Stark. I am the planning engineer and the project manager for this project. When we found this project we were just starting ..When we started on this project we were looking at Mountain View and Mountain View in the future expanded usage. That is how we started on this project. So when we look at the sizing of the pipe we chose the 24 inch. It is not for the short term Mountain View take per acre-foot. It is for their long-term use, which is a lot higher than a 1200 acre-foot for Mountain View. So it is not that the 30 inch is double the size for you know Palo Alto which is 1200. It is not because of that. But the 30 inch as we look at the Master Plan will accommodate not only Mountain View but also Palo Alto and it was added at the very last end when we talked to Jane as Bill’s said. When we look at the project we are looking only at Mountain View. We were not going to look at Palo Alto saying at the last second but we were looking for Mountain View accommodating their short term as well as their long term usage. So it is not exactly double. It is slightly different. Rosenbaum: With a 24 inch pipe what is the ultimate capacity that might handle Mountain Views long range needs? Stark: Mountain View long range needs if we don’t apply a usage factor it is 3000. But that is usually when we do retain water. The usage factor that we applied usually operates at different hours. The peak flow is not always at the same time so we look at operation aspect as well as the total usage. Rosenbaum: But you concluded that taking all this into account in order to provide Palo Alto and Palo Alto would have peak usage too. Stark: Yes. Rosenbaum: And you don’t use water in the winter so the usage time is maybe six or eight hours a day. Is that pump water in the summer? Stark: Yes. Rosenbaum: And you concluded that to supply Palo Alto you would have to go from 24 inch to 30 inch. Stark: That is when we did the Master Plan. As I said we did not reexamine Palo Alto when we did this project because we didn’t have time. When we were talking to Jane it was at the last few weeks of our pre-design for Mountain View. So we didn’t even look very closely doing this project to look at Palo Alto usage but we went back to the Master Plan at that time we did look at Palo Alto how we would use, or we would apply the operation and the usage factor. At that time it was recommended to be 30 inch. That is why we picked that it should be a 30-inch. Dahlen: Did that take into account Mountain View’s need of 3000? Stark: Yes. At that time it was also a long-range plan for Mountain View to use 3000. Dahlen: Is this a pumped system? Stark: Yes. It would be a higher pressure then existing. Approved -UAC Minutes 1-14-04 Rosenbaum: George. Bechtel: I have a little concern about the direction we are taking in trying to reengineer your project tonight and in January without a lot of discussion. So I am uncomfortable with that quite frankly to say that to my colleagues. I have a question about it. The project went forward with 24 inches and we suddenly said we are not going to pay anything because we think that’s plenty of capacity. So what is going to happen is Mountain View will come back to us saying we will not charge you one million or two million they will charge us six million because we want suddenly something from their pipes. I am a little worried but I think we are still getting a very good deal here even if we are paying maybe for 50-year capacity or 24-year capacity or so on with a 30 inch. As I say I don’t think I am comfortable trying to reengineer in the choices that you make. But in terms of the money overall I wonder if in some of the discussions at least in looking at our CIP whether there are any savings on the water side on the water utility as we go forward. We know we are talking about several reservoir locations and changing reservoir locations. Is it possible that some of this from our CIP point of view could be covered from our existing funds that w have already designated over the next five years or so. At least from the water utility point of view the CIP remains within the budget and we don’t have to add one or two million dollars to this if that is all we are looking at. We have gone a lot of time what 8 months or so since June of last year where we talked about the CIP. Ulrich: Well I think that what we are talking at here is the supply, that is, being able to add an additional supply resource that could be used during drought for a lower cost resource than Hetch Hetchy. Hetch Hetchy if it was available or if it is not available this would be available. I don’t think it would relate to the CIP work that we have planned for rehabilitation of existing and/or the reservoir and emergency water system that is for infrastructure that related in the ability to deliver, store and deliver water to fire and for other uses when it is a very hot day. So I think it is more an opportunity that is here, not the one that we set and planned for in the past. But in one sense it is like taking an idea whose time is here and saying is: do we want to invest and is it an appropriate investment for the water utility as opposed to having to come back at a later time and pay much more money for something we could get today. Is it worth that kind of risk to do it now? We think it is. That is why we are bringing it here. It is something we thought about number of months or year back. I think the analogy to this is when we came forward just a short time ago and said you know it is probably a good idea to put the emergency storage in the park near Roth Building rather than El Camino Park. But it may not ultimately be the right decision but we think it was appropriate to bring it forward and look forward and I think it is going to turn out to be a pretty good alternative. This is the same kind of thing. Bechtel: Well I guess my question really was going to the fact is if this is a good idea but is it possible that it could be funded out of our current CIP without asking us to recommend to the Council that we add two million dollars to the CIP. Because that is basically what you are doing. There is no question that it is a good idea but certainly you know it is also a good idea and it is also possible to look at the current budget and say this is something that we really need and we should do today and it should come out of the existing budget. Is it not possible? Or is it that you are not ready to say that. Ulrich: I think Jane mentioned that it is a possibility or critical. We are not spending the money for the reservoir as quickly as we thought we would so. We have some money in the budget for doing that this year and next year and we could possibly use that money or stall spending the money for reservoir a little bit longer. But the bottom line is whether you pay it this year or Approved -UAC Minutes 1-14-04 couple of years from now it still has an impact on the rates and would have an impact on the budget. We would look at that. I think we could do it. All that we would do is to shift it for a longer period of time. We would be back here with our budget to show it. I don’t want to deal with the budget unless this is something you would agree with us or make a commitment to do it. Bechtel: I agree. I think you want us to recommend to the Council in principal that this is a great project. It is certainly a new project. It is certainly not been considered in our CIP before so even though the money may come from somewhere else we definitely need to tell you ‘Yes’ this is a good project and lets move forward on it. Rosenbaum: John. The water Utility is perhaps the poorest of our utilities. Our rates are currently higher than surrounding communities; they have the capital expense of our emergency plan. Rates are going to go up considerably because of the increase in Hetch Hetchy expense. Aside from the two millions there is another ten million dollar if this plan were to come to fruition as it would be extended as shown on the map. But do you have any concern about the impact on the ratepayer or further capital expenditure of this magnitude? Ulrich: Well I always have concerns about what customers pay. I have to look back and push back to you and customers that these are matter of choices and alternatives. I think inevitably as we pointed out we are looking at a 10 percent rate increase for water users probably for the next ten years for Hetch Hetchy and this would add an incremental amount to that. But if we believe that using reclaimed water is part of our supply strategy for the future all what we are doing is making a recommendation to spend the money now which we believe would be less than it would be if we do it later. So the real question is do we believe this is a part of our supply strategy to mix with the Hetch Hetchy water in the future. I think it is. You can see that there are very sound economic reasons for using this water and availability. So I think I have to say ‘Yes’ I am very concerned about customers pay. It is very important that they understand and see what kinds of alternatives that are available for providing that water in the future and if you believe in this recommendation it is pay less now rather than paying more later. And I can have a whole lot of examples in the City of Palo Alto Utilities as well as many utilities where we have only looked at the short term. But if look at the short term the recommendation would be to pass it up lets wait for somebody else to worry about it later on. But I am not going to recommend that. Balachandran: To add to that in the report we referred to what are IRP guidelines and water IRP guidelines which were approved by the Council. Guideline 3 says actively participate and develop a cost-effective regional recycled water plans so that is part of our supply plan that has been approved already. Rosenbaum: Let me pursue the report because in the third part of the report and part of the justification we have the argument that the staff has always made Hetch Hetchy water is going up in cost. It is going to be a 1000 or 1200 dollars and this recycled water maybe about the same. And what the UAC has done and what the Council agreed is to say ‘Oh’ but you have to take into account the likelihood that the avoided cost if we use less Hetch Hetchy water is going to be much less than the total cost because of the fixed capital cost. And indeed you put that in almost as an after thought in the report but the suggestion is before we did anything we would really look at all this. So you are suggesting that a two million dollar down payment with the possibility and don’t know whether it is a possibility or probability. Something we might all differ from but we never will think it economic to develop this recycled water system. Approved -UAC Minutes 1-14-04 Ratchye: What was your last statement? We never will think it is economical? Rosenbaum: That’s right. Ratchye: I don’t think that. I think that if we go forward with this obviously we will have to do a lot of analysis. We will have to do some sort of facility plans similar to what the plant has done for this Mountain View Project and look at it at that time. There are too many uncertainties now to spend the big money for me. You know the uncertainty is what is the San Francisco rate structure? If we can’t save money by doing it if it is just an additional cost to spend on recycled water and we don’t save anything from cutting back on Hetch Hetchy then clearly it is not a good option. But I don’t think that is going to happen. I think we will be able to save money from the Hetch Hetchy supply and I wouldn’t recommend going forward if we couldn’t. And I think ultimately San Francisco will have to accept establishing allotments or entitlements for us and I think that is going to come up in the funding of their capital program as we talked for years that approaching and if they are going to ask for a demand charge. If that is something ultimately going to go into their rate structure it has to be coupled with an allotment. Otherwise how are they going to assign us a fixed cost? And so I think that will go hand in hand. Either they never have a fixed cost then we can avoid 1100 dollars or they have it and we can trade it or get out of it somehow. So I think that is an issue that we always have to think about and is not resolved yet. But I think and I wouldn’t want to go forward with the project until that is resolved one way or the other but I think it will be resolved and I do think it is, relative to future cost for San Francisco water, a reasonably priced, locally controlled drought available resource. Rosenbaum: Dexter Dawes: Evidently Mountain View has concluded that they think it is appropriate to spend eight million dollars to create this. Clearly they have an added factor that we don’t face which is their Golf Course is going to be without water unless they do something. But my basic question is have we, has Mountain View shared with us their financial analysis of that. Do they know things we don’t know? Why are they so anxious of this issue of having the Golf Course go without. Evidently they have additional customers from Moffett Field and other areas. Do you know anything about how they are working this through? Ratchye: Let me just clear up one thing. That pipeline the old pipeline that used to serve Shoreline hasn’t been serving water for quite a while. Dawes: Oh, I didn’t know that. Ratchye: So they are getting, they are watering their Golf Course with Hetch Hetchy water. Dawes: Are they under pressure from Hetch Hetchy to cut back on their allotment? They have grown lot more than Palo Alto in recent years. Ratchye: I am not sure where they are. I think they are closer to their allotment certainly than we are. That’s maybe one of their pressures they feel. Dawes: What are the pressures on them to make such a good deal for them? And maybe it should be just a great deal for us but we just don’t know what they are. Approved -UAC Minutes 1-14-04 Ratchye: Well. Daisy or Bill maybe able to answer that better than I might. But from what I look at it, this looks very good from Mountain View perspective paying 8.2 million and getting 1200 acre feet. I think that if you look at the total cost of your recycled water there they are probably around 5 or 600 dollars an acre-foot. And the reason that’s a good deal is because of this relatively cheap project because of the construction cost and 3.8 million from the state and grant funds. That’s the thing that makes this thing really viable. Bechtel: And zero wholesale water cost. Dawes: Because economics works for us. If it is such a great deal for them why isn’t it a great deal for us even better because we pay less of the initial 16 million dollars? Ratchye: It may be if we could get that money, if we can get 3 million or so lets say that it will cost 10 million dollars. I think it will cost 10 or 11 million dollars to do the extension into Palo Alto. If we could get 3 million of it from the state that would lower the cost quite a bit. The problem is we are not in line for that money. We haven’t done the facility plan that Mountain View has. And I don’t that the state grant fund money is something Palo Alto can count on because that they are there today and maybe not be there tomorrow. I don’t think we should go forward thinking that we might get that same kind of funding that this Mountain View, that this particular proposed project has and that’s one of the reasons that this project is on the timeline that it is on because they are going to be…. Dawes: Both year and term? Ratchye: No they have to get their financial plan and their facility plan, which is basically done, and their financial plan to the State by the end of February. Roberts: We have already tied timeline to getting into the state to secure that grant funding. If I might just add a little bit more about Mountain View. I can’t speak to the economics because it is too macro sort of picture. Mountain View’s water utility gets their supplies from 3 sources. They get Hetch Hetchy, they take some well water and in the southern end of the city they get treated water from Santa Clara Valley Water District. My understanding is they are either very close to or over their Hetch Hetchy allocation. They had to switch the Golf Course from treated water and switch from the reclaimed water to the Hetch Hetchy when the pipeline started leaking. It had to be shut down. They have in Mountain View something that we don’t have which is a tremendous growth potential yet to happen. I believe in the Shoreline Industrial Park area the recent economic climate has slowed that down but they still see that rebounding in the future. They expect their demand to grow when the economy rebalances and that growth does occur and to push them over their Hetch Hetchy allocation. They need reclaimed water to make their future economic growth and their own plans are viable. Rosenbaum: Dexter I would just add that perhaps why Mountain View is able to think of this as a good deal is that they not only have the Golf Course they have Shoreline Park. These are two very large areas that are being watered at great cost with the City paying the water utility itself the Hetch Hetchy rate. If they can get this water it is pretty easy to do the calculations. What you would like to do is to see what the return is because this water is going to be free. Dawes: Same stuff applied to us in respect to Mitchell Park and other places. Approved -UAC Minutes 1-14-04 Rosenbaum: Alright. But think of that. We are already are using recycled water on our Golf Course and we are not getting that and Greer. So what we are talking about are relatively small city parks. Mitchell is the largest there is a list here Ramos Park, Robles, Ventura, Boulware, Bol and Terman where these are. These are relatively small entities. So the amount of money that the City would save by using reclaimed water rather than buying water from the water utility is quite small and beyond that you are going to have to deal with private customers who we’ve had no discussion as yet we may or may not. They may or may not be interested in reclaimed water in the amounts that are cited here. So for us the whole concept of reclaimed water is much more speculative than it is for Mountain View. Alright. So do we have further questions? Do we have motion? Bechtel: I move the staff recommendation that we recommend to Council that we add one million dollar to the water utilities budget for the fiscal year 04-05 and for fiscal year 05-06 for a total contribution of two million dollars for use for the Mountain View Moffett Field Area Water Reuse Project. Rosenbaum: Do we have a second? Hearing none that project dies. Can we try another motion? Dawes: Maybe I could try a variation on a theme to see if anybody salutes this problem or not: that the Commission recommends that City Council that the Utility Department or the Public Works Department whichever is the appropriate organization it ought to be and I am not very clear on which one that would be enter into further negotiations with Mountain View with a view towards paying the cost to upgrade the reusable work pipeline from 24 to 30 inch in the amount not to exceed million dollars. Rosenbaum: You are suggesting that in your motion that we recommend to Council an additional budget item of one million dollars. Dawes: I think that would be fair. It would be an appropriate way to phrase it. But I also would put in that it would be subject to an agreement with the various parties because evidentially this injects a new variable into the equation. They might think poorly of us or what happens. Rosenbaum: Do we have a second? Dahlen: I can motion. Rosenbaum: We have a second from Elizabeth. Dexter do you want to comment further on this? Dawes: In general I think that this is reasonable water as viable element to our work for Integrated Resource Plan Long Range Plan. I am disturbed that it didn’t come forward in a way that would enable us to compare this to other alternatives such as we have already discussed it at great length the use investing in using well water in emergencies, droughts and that is expanding our storage capacity to the extent that might help it also an emergency issue. But for droughts well water is/are sort of fundamental backup here and this is a curve ball that comes in if you will from left field that in this presentation doesn’t make any relationship to the plans that have been developed in great detail and at great cost. Cost in terms of hiring people to design it, to study alternatives. This alternative was never there even though apparently Mountain View must have started in this analysis sometime ago in order to get into the State Funding cycle and so forth so the timing of it is certainly hot I guess awkward for this body. But nevertheless I think that it is appropriate if we can hedge our bets on resource obtaining an additional resource at a Approved -UAC Minutes 1-14-04 price that is appropriate and I think this is still very speculative. I think the use is speculative, I think the capital cost to extend on to connect up to these various other entities as our Chairman pointed out are small entities some we control the vast majority we don’t as I pointed out earlier Stanford Industrial Park is the biggest number here. It is also the furthest away it would take the longest pipeline to get there. So I think to me a million dollars spread over three years which we would probably squeeze out of our existing budget given timing changes and so forth is a more reasonable bet to make on the availability of this resource at a price that works for the City and for the Utility. Rosenbaum: Thank you. Elizabeth the seconder would you like to add your comments. Dahlen: Yeah. I think Dexter has touched most of them but I think the key thing is that we do have the work plan that we are moving along with and this does come in and sort of presumed certain end uses that we haven’t already established at this point of time. It is just the timing that it is difficult to swallow tonight. But I think the million-dollar bet as Dexter points out with recycled water use that makes sense. Rosenbaum: Alright. George you have a comment. Bechtel: My comment is that I would just like to say that I believe this maybe unexpected that it came. We talked about this just a month or two ago that this was on the table. We have been talking about our Integrated Water Resource Plan and all the alternatives. Girish listed Guideline No. 3. It said we had to consider this so I am really surprised that my colleagues for being totally surprised that this would come before us. Because this is the opportunity I think Glen talked about the timing issue which is very short and so here we are dealing with something on quick notice it is not so quick we are big people we can make decisions. With respect to one million or two million dollars so okay we are going one million we are offering one million into this project. I’d be concerned if I were Mountain View that our contribution is not a lot and this may in fact make it difficult to negotiate some water rights over the project. Now the question I have is one million dollar is going to upgrade the pipe. Because if pipe gets upgraded to 30 inches then at least we try to update it . Then we basically have said we are not going to get any of this water without going back to the Partners in the project sometime in the future if we are trying to negotiate something on this. Maybe that is the gamble that you are willing to make. I was not prepared to make that gamble in the future. If you look at the website of the Water Quality Control people you will see a very extensive website on the usage of water and all the planning is going on. They have done a magnificent job. I looked at it today. At the end of January the Community Green Foothill is sponsoring on a media center a whole discussion. Who knows it maybe televised on the 27th and 28th talking about recycled water. So recycled water is going to come into our lexicon very shortly and I know I had this argument before. So I am really disappointed but I would support motion and go and hope that our million dollar contribution will make this happen. Rosenbaum: Mayor Beecham. Beecham: For the motion where you are asking recommendation to the staff to go back and renegotiate you may want to ask staff their assessment of the probability of doing that and whether that has much chances of success. And also the alternative to their success. Are you is your recommendation to comply that every million dollars that we walk away. Or do you want the staff to come back and hatch this out again. Approved -UAC Minutes 1-14-04 Rosenbaum: Let me offer a thought and perhaps Dexter this is what you have in mind. If indeed as staff has said a million dollars is the incremental cost that is a real number the project in terms of having enough money you can go ahead if we put in a million dollars. But then I would assume that what we would negotiate and would negotiate in advance is that we would pay for delivery one million dollars to Mountain View or to whoever the appropriate partners are at the time and if we decide we are going to do a recycled water program. This in fact to me is not unreasonable way of looking at. So I would expect not to have this open ended. The second million dollars would be paid if and when we decided to go forward with the recycled water project. Dahlen: Pay for the tap. The million dollar tap in the future but have the pricing… Dawes: Incidentally I would be more than happy to amend my motion to include that revision. A million now and a million later if we put the taps in cost now and pay the connection fee later. Miks: It will cost Mountain View the same whether you put your million dollars in to lay plant pipe or not. Rosenbaum: Yeah. Roberts: If I might Mr. Chair in response to couple of Beecham’s comments. This puts Public Works staff in a rather delicate position quite frankly. And I am not certain I know as I see what the result would be. Let me say a couple of things. First of all speaking as the Public Works Director for the City of Palo Alto certainly if this is the recommendation of the Utilities Advisory Commission we will take use our best professional judgment ability to go and pursue that. I can’t tell you whether that would be successful or not. What I can tell you is that I think the City of Mountain View will be surprised and disappointed to hear that, since from their perspective they’ve initiated this project put up the local money and view Palo Alto as coming somewhat late to the party. Hopefully we will be able to negotiate with them. Also as the Public Works Director I do have certain leverage available to me and controlling these public right-of-way within the City and ability to play that part if necessary and can try and do that in a mutually acceptable manner. I think the amendment to the motion may help in that regard but then putting on my other hat for a moment speaking as the person responsible for keeping all the partners together and functioning well in a collaborative effort in the treatment plant, I don’t know that I think Mountain View is going to care a lot whether Palo Alto participates or not, that’s the bottom line. If they can see a way that they think they are being held harmless and made whole, they may go along with it. If they think they are being economically damaged, I think their response will be ‘build a 24-inch pipe.’ So there is a very delicate balance there and we will try our best to play that out but… my number one criteria will be to do that as quickly as possible in a manner that does not jeopardize the overall viability of this project timing and to receive the state grant fund. I cannot get in a position where I’m leaving here tonight and engaging in a six- month drawn out process that ultimately winds up losing state grant funds for the project. I need to try this the best I can within the next 30 days and succeed or not on that platform. Rosenbaum: Alright. Dexter you are happy to amend your motions. Dawes: I amend my motion to include that our recommendation would include agreeing to a connection fee of million dollars when as and if the City decides to do that. Rosenbaum: Alright. Approved -UAC Minutes 1-14-04 Ulrich: Can I say just a couple of things. Rosenbaum: John. Ulrich: I guess I would like to get clarity on whether it is the two million dollars or it is the method in which we would pay it based on these conditions. Are you comfortable that for the connection you pay a million now and then another million when and if we want it are you satisfied that that is an appropriate expenditure for the water utility to pay for providing reclaimed water at that particular location? Dawes: The assumption, the underlying assumption is that the economics were as described in other words the water utility obtains the right to sell that water to the users that we connect up to the pipeline. I mean that is the fundamental assumption that I am making. When a 10 million dollar capital expenditure program comes before the commission and the council that would be well thought through and all the numbers would be stacked up we will know a lot more about what the Hetch Hetchy costs are at that point and what the outlook for the financial requirements for Hetch Hetchy just how they are going to pay for it when it is going to be phased in and whether or not it makes sense for us to do it now. I will have to digress a little bit and I know that our Council is very environmentally conscientious and as soon as the green word is run up there is a lot of swearing that goes on. We saw that with the Council not accepting the UAC’s recommendation with respect to the Trinity Litigation and it wouldn’t surprise me a bit if the Council in their wisdom decided to accept environmental arguments and basically ignore or soft pedal or not consider seriously the economic issues that surround us. That is just the Sierra Club and Committee for Green Foothills says it is a great deal we should do it. I tend to be more hard nosed about my analysis and look at it under a microscope particularly in comparing to the plans we have already made for emergency drought supplies and our investment in our wells. If you could say well now we don’t have to invest in our wells we are going to do this instead that is spending big bunch of dollars on wells for emergency water we will do this. But I haven’t heard anybody say that but maybe Jane will figure that out over the next two years and it will make a lot more sense. But I just think that the risk of we are taking million dollars and we are putting it out on roulette you know in the Casino and we spin the dial and in a few years we will know whether or not we get the nickels worth of return for that which has taken our ratepayers money and washed it out to the recycling plant and help Mountain View out as a good neighbor should. Ulrich: I think that I understand that but if, one, I want to continue to have an incentive to bring back ideas that may come along at the last minute. Dawes: Oh absolutely. Ulrich: And it may not be ones where you say well I wish I had heard about this three four six months ago and it was part of our Integrated Plan. We may not be able to always do that. So I am looking for an encouragement to say we did the right thing by bringing this forward at this point. It is an opportunity you got to weigh the risk and reward and all of that and I guess I am just trying to understand by the way you vote whether you are still encouraging us to go and look for a way to make this work so that we can have reclaimed water at the lowest possible cost or if we are unsuccessful in doing it the way you suggest. Should we continue to look for other ways to do it as long as it doesn’t exceed two million dollars or you are saying that one million dollars is all you want to risk on this for either the potential reward or failure. Approved -UAC Minutes 1-14-04 Dawes: Of course just speaking for this Commissioner I absolutely encourage staff coming forward with sound ideas and this is a sound idea. To preface the whole thing by saying that I think it is an excellent idea but I also think that I went to some detail on why it is very risky. We just don’t know what the future is going to hold. Everything we know says it probably will be okay but I think the million dollar plus a million is a good middle ground for saying ‘Yes’ we’ll put some money in the pot add to expand the facility to meet our needs in the future if we cared, if we decide that’s in the best interest of the City and the Ratepayers. Ulrich: It is difficult to get back and tell you these things in a speedier way. I am just trying to understand by voting this way and lets presume we are unsuccessful or whatever that might be or for that million you may say ‘No’ is that the point where we step back and move ahead with the 24 inch line and that’s the end of it and recognize what … Dawes: Why would they do that? Is it just a thumb in the eye? I mean we are saying build the pipeline, expand it a little bit we will pay low cost and open that. Ulrich: I understand it but it is really easy… Dawes: And they’ll say ‘No’ we don’t want to do that because we just don’t like that. Ulrich: Well I can’t speak for them I am just trying to understand because we have to go out and sit down and talk about this. I just want to understand it. I’ll say this way. It is very easy to say we’ll offer them a million and hold out the other million because you know we are kind of splitting them maybe that is the kind of approach. I just want to know that you thought through the part that may say ‘No’ if they do what the next step would be and that means either we walk away from it or we keep working on it. Dawes: This goes back in my very first question is whose project is it? Who makes these decisions? Roberts: If I might. I think there is another scenario that addresses the question that I don’t want to go into detail about here on the record tonight but I think I have the fall back strategy which we can effect utilizing the forwarding of the City to what this construction contract if necessary and that is all about I want to say about it. Rosenbaum: Good. John I would like to reply to a number of points and let me preface this by saying that almost ten years ago we had the same group of people of the staff at the table.. Ulrich: Almost Rosenbaum: Here I am missing Phil Bobel, where is Phil Bobel? And we considered a Recycled Water Project and after great consideration the UAC rejected it unanimously and that was taken to the Council and the Council rejected it unanimously and it made absolutely no economic sense at all and my concern here is that we will come to the same conclusion and I am reluctant to have put payment down when I think the likelihood is we will never go forward if economics counts. with that Recycled Water Project. And George in response to your impassioned defense in recycled water I think that’s the answer. If it is going to make sense economically sure we will all be happy to do it. But as I indicated earlier we have got a water utility that is financially stretched and I cannot see speculating further with what the ratepayer is going to have to pay. So when I came to the meeting I was prepared to simply vote ‘No’. and we Approved -UAC Minutes 1-14-04 worry about recycled water when we do the analysis. I am moved by the desired compromise and Dexter’s willingness to suggest that we do it for a million now and a million if we decide to go forward and I will leave to your good offices to do the negotiation. So I will support motion are there any further discussions? Dawes: I will call the motion. Rosenbaum: Alright. Is the motion clear? The motion is that we recommend that Council approve a one million dollar increase in the water utility capital improvement program and that we negotiate with Mountain View to acquire the necessary water rights in return for one million dollar at the time we decide to make use of the pipeline. Roberts: Yes. Rosenbaum: Make sure you’re understanding that. Roberts: That is correct. Rosenbaum: Alright. All those in favor? Aye Aye Aye Rosenbaum: That passes unanimously. Thank you. Ulrich: Thanks. Rosenbaum: Alright. Are we lets say shall we take a short break? Or should we carry on to the next … Dawes: I would suggest we go ahead with the Item #2 and take a break after that.. Rosenbaum: I would certainly like to do that because of our visitors. LEAP Implementation – Renewable Procurement Standard Implementation & LEAP Implementation Update – Thermal Resource: NCPA RFP Ulrich: As you can tell from the agenda we have a presentation. What we are going to do is we put out a RFP and we had asked NCPA to do that to look for alternative power resources in form of generation and whether that was appropriate supply resource for us to consider to mix with our change in our allocation from changing the contract with Western at the end of 2004. As you know as part of our LEAP or Long Range Plan we have contracts that are going to be in place to provide the supply for us beginning in the first of 2005 but is that the appropriate long-term plan for energy? So you will hear tonight what we did in looking at the power supply RFP and what are some of our findings and recommendations. And these would be recommendations and observations from NCPA. We will then take what they provided and then look at it from the local perspective on what it will mean to Palo Alto if we proceed. So we look at these sites and their recommendations and then come back to you probably next month with recommendations on what we think we should do with the recommendations that we get from NCPA. So this is the Approved -UAC Minutes 1-14-04 report and it will give you an opportunity to see what we have done so far and ask us some questions. Girish please take the podium. Balachandran: Thank you. Girish Balachandran. I just want to introduce a couple of people we have Don Dame here who is the Assistant General Manager of NCPA, Harry Mody and Tom Lee all three of them work closely with us, City of Alameda and a few other cities in developing the RFP among all the members of NCPA many of the members had similar situation to us in the sense that the Western Contract is expiring at the end of this year. Different members have taken different approaches. You have some members who have decided to they are not part of the NCPA Power Pool. They built their own power plants. One member of the power pool has already gone ahead and is in the middle of the permitting stage. So each member is taking a little different approach. So this is the approach that our approach is: lets see what the market has to offer us in terms of generation in the Bay Area so the RFP was put out. We are the major participants in this RFP. The City of Alameda is another participant and they are also taking it forward in their governing bodies. So with that I will hand over to Don and be available to answer any questions. Dame: Good evening Mr. Mayor, Good Evening UAC Commissioners. It is a pleasure to be in Palo Alto again as usual. I appreciate the opportunity to talk about electricity a little bit. Unlike the last topic electricity will flow uphill. We are going to cover a couple of different topics quite briefly. One is the need for electricity. Palo Alto and other NCPA members do in fact have a significant need for electricity. We did a request for proposal to try to surround various options of fulfilling that need and then evaluate financial and economic consequences and then reach some findings based on other parameters like Power Plant Location for example, a changing structure of the electricity market where location can have a significant dollar impact. Plant in one location is not identical as a plant in another good location even if the plants are identical. The need is with our penchant for colorful graphs. Here we are in 2004 the rest of this year this red line out here for the Northern California Power Pool shows the loads growing out through time by quarter. As you can see the colored area shows the resources that are available to meet that load and in 2004 the total of the resources exceeds the load. As supply exceeds demand everything looks pretty good. Now this is under average hydro condition. Dawes: Just NCPA members or all other Bay Areas? Dame: This is just the NCPA power pool. This does not take into account Pacific Gas & Electric, or Smarter or any other industry participants in Northern California specifically Southern California generally. What happens however is I am sure you have been briefed on previously is the blue dotted area here is the energy contribution from the Western Area Power Administration. That contract changes substantially after the end of this year and you will note that area right there drops down approximately this area. We get about 40 percent of the energy from Western starting in 2005 that we get during the current year. The direct result of that is this white barred area here that actually shows the energy shortage by quarter and there are various ways to make that up for the pool. That area if you were to eyeball it for the next 5 years is about a hundred average megawatts that is a one hundred megawatt plant running every hour of the year. Obviously electricity isn’t needed generally like that but is one way of looking at it. But if you were to go out after about 2010 that grows to about 250 to 300 average megawatts a year. Again this is average hydrology. If you look at the same picture under a dry hydro conditions, dry hydro means both Western resources and NCPA’s hydroelectric power plant will have less energy available to it that adds about 50 or 60 average megawatts to the whole in the first five years and about 60 to 80 average megawatts after 2010. Also note because this is for Approved -UAC Minutes 1-14-04 the NCPA pool but this particular event with the change in Western disproportionately affects the City of Palo Alto because of the very high percentage of Western Area Power Administration resource that historically has been used to supply your load. So a little bit better, teeny bit better than half of that whole really is Palo Alto’s energy deficit beyond the current year that we are in. Dawes: What is the light green? I can’t read it. Dame: The light green at the bottom? Dawes: No the one just above it. Dame: This area right here? Those are contracts that other NCPA members have procured for energy supply. Dawes: Including the Palo Alto ones? Dame: Including Palo Alto and those contracts come in various lumps as you can see and then they drop of at about 2010. Dawes: The dark green one is? Dame: The dark green grading one is the output of the NCPA geothermal units. Dawes: That we don’t own. Dame: Well here the light orange is the steam injected gas turbine that is the stake unit and the little pieces of yellow that you can see on there that’s really occurring during the summer peaks those are the simple cycle combustion turbines that we have right now. Dawes: Where is Calaveras? Dame: Calaveras is the blue project right here on top of the Western. It almost looks like it is blended with it. Dawes: That’s our deal part of it. Doesn’t it have a spot? Dame: Here it is right there. A little bit of Calaveras on there. It is actually significant but it is small relative to Western. Another way of looking at the need that we have. Again this is a peak day for the pool in the year 2004 in July versus year 2005 in July. Although the colors aren’t consistent the colored waves that go beyond that are laid out horizontally here is the resource stack. This is for this year. The redline is the load. This is a typical day hours from 1 to 24 you have got a load for the pool that comes up in peaks in the afternoon and then drops of as we get into the evening and these resources would be stacked in here to meet that load and in this particular year under economic conditions we have actually in general got more resources then we need to meet our load. With the change in Western that we will experience over the next twelve months you can see that Western is the light blue area here we would reshape Western a little bit to push it into the highest value time period more during the heat of the day so to speak but here is another way of looking at the energy hole on the daily basis that you saw in the last graph there is an energy hole here from midnight to early in the morning and a little bit of a hole in the peak part of the day and towards the last two hours of the day we got that hole right there. Approved -UAC Minutes 1-14-04 This just shows an identical perspective but this is for the winter. One thing I didn’t mention this is the winter peak day. This is the January day. The exposure here in terms of cost is about for the pool it is about 2 ½ million dollars per month. It is about 75 thousand dollars for a typical winter day. 75 thousand dollars in the context of the power business doesn’t sound like a lot of money but on a daily basis it cranks up fairly quickly. We are looking at a total economic exposure probably in the neighborhood of 25 to 35 million dollars to backfill behind this Western. I mean you will backfill behind Western because you will meet the load here in Palo Alto. Dawes: I didn’t realize that Western could be shaped like that. I mean we have enough control over those turbines so that we can bunch it into the peak? Dame: Yes. And part of the difference between the old western world and the new western world, under the contract that we are operating under rate now is really a three party arrangement between the Western Customers, Western and PG&E and PG&E original attempt was to backfill behind the substantial Western hydro resources with their thermal plants so that you could take power like that. We had even some mobility to move that around but contract limits we had to take it out of the 70 percent load factor. That is not going to be true post 04 we are going to give Western essentially as it flows. It becomes a hydro project we will not have the firming energy which would otherwise been provided and within that context, within the capability of the units we can push that resource into the highest value period. That’s what part of our obligation to you is as you are schedulers. Dawes: The fishes are not going to object to the weirs during the night? Dame: The fish ..We are going to get fish on a normal sleeping routine here. We do have minimal flows to comply with. So we will meet all the restrictions that are placed on the plan. Dawes: And this is consistent with.. Dame: Yes. Bechtel: Don what do you mean by exposure? Is that the gap that we have to purchase in the open market is that what you mean by that? Dame: Yes. At this juncture this is the economic gap that we would fill. We won’t run your simple cycle turbines out there. It won’t be economic to do that but you will replace it with other resources that you do not now own or control. Bechtel: So we are exposed to the market. Dame: Yes. Absolutely. Bechtel: That is the reason for that term. Dame: Yes. Bechtel: Okay. Approved -UAC Minutes 1-14-04 Dame: Given that need and wanting to look at options to fill that need we did what is called the Bay Area RFPs. Specifically looking for resources on or approximate to the Bay Area that fills again all of the portion of that need. We were looking at the existing power plants, the potential power plants that could be built or other methods of filling that energy hole. I want to put one portion of need which we haven’t shown in any of the slides. The CPUC is currently working on a resource adequacy plan, which may require something again to a planned reserve margin of approximately 15 percent more than you anticipated peak load. If that happens your exposure goes up just a little bit more. It will cost you something to put resources in place to be assured that you are covering that need. That is another reason we are out here we are kind of probing supply growth so to speak. We got a substantial number of responses. We got seventeen entities who responded to that RFP. Most of the proposals were power purchases with fixed price and/or fixed and variable price components to them. As you can see one included the alternative to prepay the first ten years capacity. There are typically two components to a power plant because the capital cost of building it. The dollars to put the hardware in the ground and then there is then the O&M the operation and maintenance cost of buying the fuel and putting the staff on board, running the plant and buying the chemicals and performing all the staff that it needs to maintain the plant. Most of the responses we got were less than five years in length. This is a graphical view of our responses timeline. It looks kind of busy. The indication of these circles. This is timeline. This is 04. This is 2027 and the blue lines are the length of each of these 17 different responses. The circles here indicate basically what we call in the business EPC contracts Engineering Procurement and Construction Contracts. Those are for plants that have not yet been built and are not now on the ground which is why to go back to the last slide when we talked about generally the response is being a five years duration or less these are essentially 30 year responses but there is no plant associated with them yet. The last circle on the bottom for comparative purposes are 30 year responses if NCPA and/or Palo Alto or sub set of NCPA were to build and construct a power plant that would have a 30 year expected operating life as well. Essentially some of them relatively short term and indeed if you look at this you will see here’s some that have two-year terms on them. If we build our own plant we still got an 18 to 24 to 36 months gap with which we would have to backfill with some type of power proof just to assure supply. In assessing the value the economics side of the responses we looked at the low and high, medium low and high gas prices, medium low and high electricity prices. Again just as a way to evaluate. Lot of wiggling lines on here. The bottom one just shows the low medium and high gas prices and dollars per mm BTU. You can see those these are the gas prices on this side going out to about 8 between 6 and 8 dollars an mm BTU in the out years and the squiggly lines on the top here again variable by time of year are the low medium high and electricity prices in terms of dollars per megawatts. Alternatively you could drop it to zero and have it be cents per kilowatt hour. Today you can see about 50 dollars or nickel a kilowatt hour at the wholesale level expecting to grow into something around 12 to 16 cents a kilowatt hour at the wholesale level at about 30 years hence 25 to 30 years hence. Well you start to put the RFP responses together and those economic evaluations together and we end up getting a benefit cost ratio. The market line of one basically this line of one year says the expected cost essentially matched the benefits. We would always like to have the benefit cost ratio of greater than one meaning we get more benefits than we pay out in cost. Not surprisingly you see if you were to wave your hand on this most of these are around the current market forecast, which is where you come up with the one. That is generally you take a look at what is going to happen out through times. If someone could exactly track the market you exactly paid the market the cost and the benefit would be identical. These plants here are not really comparable even though they look like they have a relatively high benefit cost ratio but they don’t include the operation, non fuel operation and maintenance costs. That would be an additional adder to that. These three here, which are items numbers 30, are the estimated cost associated with building new generation by Approved -UAC Minutes 1-14-04 NCPA. These two with the relatively high benefit cost ratio are combined cycle plants this one down here is a simple cycle unit. One other thing I should say in putting this in. These particular cost for our internal units don’t include any factor or consideration for ancillary services which are non spin revenues that we now receive from certain number of our units meeting into the ISO that would tend to increase those ratios. There is no factor or consideration in there for any other operational benefits that may accrue due to having your own hardware versus relying on a contract which is relatively inflexible from an operating perspective. Again those all have a tendency to increase those particular ratios. I will give you some other reasons for having that in just a minute. This shows. Actually this was for Jan. 6th. You just can’t quite see the red in here but this was the daily load shape for Jan. 6th for the NCPA metered sub system, which includes the pool plus Silicon Valley Power. It is 12 entities now that the Port of Oakland is one of our pool members. This kind of light blue purple stack right here is all of our base resources. I didn’t break them up by all the particular types. The right here is the current Western what Western provided on that particular day. You can see it provided a substantial portion of the energy. Again diminish that by about 60 percent that will be where we are year from now. And the top rate here this little portion here, this is Collierville. And Collierville was a real work horse and we are actually moving Collierville up and down to track that load that is how we dial in and make sure that the demand of energy for all of the MSS participants is equated with the supply of energy. Also note that Western has the ability to dial in our supply of energy and you can see on this particular day we did between the pool and Silicon Valley approximately 90 real time Western schedule changes. We essentially have the ability to do it. Essentially twice an hour for each of the two entities. Silicon Valley and we use that to follow load. Next year when Western changes, Western schedules will not be flexible on an hourly basis. All we will have to work with is really Collierville and if we are fortunate enough to find some other piece of hardware or some other contract that allows us that real time scheduling facility. So we follow loads right now. We think that there is good reason for continuing to do that but if we don’t have an additional hardware that has that throtling capability our ability to follow load is in jeopardy. Well what do we find just summing up all this up now. Most of the proposals are nearly equivalent to the midrange of market price assumptions. The earliest start date for any plant contingent purchase it would be 2006 and 2007 and that is if we build our own plant or we bought from a plant that was not yet existing. Internal construction tends to offer lots of benefits and we talk about internal construction, we are talking about construction inside one of the NCPA member service territories. Again because of the ability to provide ancillary services and load falling. Environmental impacts vary for all the different plants. The newer the plant typically less of the impacts. More stringent environmental restrictions placed on the plant, plus the plant tends to be all up generally a little bit more efficient, little bit less fuel for the same amount of output. And last but one on there I think is important whatever technology is used and whoever builds it environmental litigation will indeed be required. It is simply part of the process. Other activities that we are pursuing simultaneously is we got a renewable RFP that is in the process of developing a Phase II Agreement. I think we will be moving forward with that probably in the next 30 days and then it secures to have Phase II Agreement, our NCPA General Council ready for review within the next two weeks. Several of our members have power plant projects underway Silicon Valley Power has a hundred and forty seven megawatts project. They are currently building internal to their city. Redding has built several power plants. Roseville has got a plant under the initial stages of design not under construction yet. TID and MID has also built plants and I mentioned earlier the potential impact of resource adequacy. Dawes: Those projects included in that graph stated that you showed earlier done as NCPA resources or they are outside of those? Approved -UAC Minutes 1-14-04 Dame: The one that is not included rate now Turlock is not included because they are not part of the pool they are not part of the metering sub system. Two of those entities have been in that stack of comparisons. Dawes: Of the six two are in the stack. Dame: Two are in the stack. They made a bid in the RFP. Dawes: What about SMUD? Dame: SMUD did not bid. But they are not included in our load resource balance So Tom is right. Two entities did indeed bid into our RFP. Dawes: Of those 30 items two of them were these guys. And in the resource stack themselves the Silicon Valley Plant is in there, Roseville plant is not yet in there. Ulrich: Don excuse me but just so that we are clear you showed a lot of short fall back in the earlier pages that required daily exposure and monthly exposure. For clarity is any of these power plants assumed to be in the deficit period or part of the supply going forward. Dame: No. Ulrich: None are in there. Dame: None are in there. Is that correct, Tom? Lee : None are in there. Ulrich: That is what I think. Dawes: Are they going to be there? Balachandran: It will be Roseville. If anything could be put in there it will only be Roseville. Because here is showing us the pool, load resource staff, none of the other guys are members of the pool. Dame: And Silicon Valley just so that we know although they are building this new 147 megawatts plant that is under construction they even after that plant is completed they projected an additional 25 megawatt deficit in their balance that they will have to backfill even after completion of that plant. Beecham: What is the short and long summary here. Palo Alto will have a load that exceeds supply commencing next year as a load serving entity you will meet your load; Palo Alto was looking for local reliability. Palo Alto was looking for competitive rates; Palo Alto will demonstrate environmental stewardship. These are all givens no matter where and when a plant is built however you serve your load. Dame: One other thing you must address is local congestion and transmission cost. One huge advantage of putting a plant inside a member service territory is you won’t pay ISO a willing cost that is estimated to be 5 to 7 dollars a megawatt hour a little bit more than half a cent a kilowatt hour and if and when the system is under duress and if when the ISO puts into it into Approved -UAC Minutes 1-14-04 place its locational marginal pricing scheme having a plant proximate to your load gives a significant protection from high congestion cost. You don’t have to go far to get your electricity which is essentially right next to your load. And the reserve margin is the one that will also be assisted with the power plant. As I showed you the slide requiring operational flexibility. If you have your own power plant you can decide how and when to run it. Sometimes we get a little difficulty with contracts that slam in during a certain hour it is not there and then it is there. With a plant you can ramp that plant up throttle it up back and forth as you need it. With a contract often times you simply exasperate the need to throttle other units that are trying to work that are trying to keep the impact of those contracts from putting you outside your deviation band. Silicon Valley Power for example estimates with their plant when it is up and running they will have 20 megawatts of load following capability out of that plant when it up and running. So it is operating at about 125 megawatts. They can go between 125 and 147 literally like you step on the throttle of your car. We anticipate that for load following capability we need about 25 megawatts. Collierville does a great job at following load but it is one plant. When it is not operating we really don’t have anything other than Western is as we speak to backfill behind that project. What are the advantages again of an inside site. Other advantages. Final construction and operation will need to exceed all our environmental standards, enhance local reliability you will avoid transmission wheeling charges and you get that congestion relief. Local control economic development. The last bullet is really interesting right now because cost of money right now is relatively low if you build your own power plant you are looking at probably about 4 ¼ to 4 ½ percent borrowing rate. These are historic loads and equipment is readily available at rock bottom prices. Two huge advantages to putting your own piece of iron in the ground something that you will own for a 25 to 30 years. I think we really think it bears strong consideration. That would be the NCPA recommendation. Yes John. Ulrich: Before you could you just cite or review quickly the disadvantages so that you know that is not all positive for example say forced outage situation. Dame: With all hardware you have the percentage of the time when a power plant won’t run. Again we take that into account when we do our planning. But on any given day market prices might be high and your plant might not run. You also have a fuel cost exposure if you have a gas fired power plant you don’t have long term fuel contracts or depending on how you blended your fuel contracts you are exposed to the bare risk of the gas supply market. With contracts I mean if you are going to give the negatives of owning a plant with contract you have some credit issues. If you own your own plant it is your credit that is on line you bought a plant with your credit, you have more control over that then if you have a counter party that some how goes non performing on you there is some exposure there. With the power plant and a fixed cost that go with that if market prices drop down very, very low you continue to pay the fixed cost of the power plant even though you may be buying energy of the market. There are some down size with it. You do have to weigh both sides. What we can see at the staff level at NCPA is that over the long term you will pay at least the cost what another power plant cost to meet your load because the economic facts are that is what it cost. All of this energy is generated by a piece of large spinning equipment somewhere and it cost money to put those on the ground and operate and maintain them. So our recommendation would be to initiate an internal Palo Alto decision process to evaluate whether there are any sites within approximate to Palo Alto that can garner some of these advantages engage the council and the public very early on in this process to let them see and discuss the pros and cons include all the instrumental city department heads and folks that otherwise would be involved in the decision within Palo Alto if there is some type of consensus that built through that process conduct a thorough environmental assessment like filing an application with the California Energy Commission that’s if you find again a site that Approved -UAC Minutes 1-14-04 you maybe suitable with approximate or within the city. And then ultimately it will be a joint solicitation with participation by other NCPA entities that are handful of NCPA entities it would indeed be very interested in pursuing a joint power plant project. Rosenbaum: Dexter Dawes: Our resource planning that we looked at in great detail here before the thing that is most striking in Palo Alto is the seasonality of our resource which you are very well familiar with and in the graphs that I have seen ad nauseam those of the ability to factor a base load plant into that escapes me. Your chart seems to say that winter and summer there is a hole there that a base load plan will fill. You were actually looking at the entire NCPA route not Palo Alto specific. Our specific thing is different because we march to the hyper drummer all the time and Girish has done a wonderful job in educating us on all these substitutes. I happen to be very strong advocate of owning our own hardware believe me. So you are preaching to the choir when it comes to this. I struggle with this seasonality issue and how to carry us to another NCPA member that is sort of totally different than at a high load during the high hydro run of period where they can take most of the output at this plant and somehow they would have some resources during the winter or needed or whatever so that we could take the base load there. I guess between you and Girish I would be interested in how that analysis is coming along. Dame: We think probably the most economical option here is a combined cycle unit. That is a unit that really doesn’t have to be base loaded. It can be base loaded. So it is a very, very flexible plant. At times when Palo Alto may not be the output to provide its own load if the market prices are greater than the gas and O&M cost you would run that unit and sell the excess into the market and get a contribution towards your fixed cost. You also indicated that by pairing up with other NCPA members that have complementary load patterns you get more efficiency out of the unit when you run the unit you rather run it at a high output level and you rather run it for a long period of time. It is easy round the equipment. It will lower your cost commensurately. You can also buy options for seasonality. In other words why wouldn’t I just buy during the period I need it. That is something you can look at. The longer term difficulty with that however… Dawes: It does. Dame: But you have and you can do it. The longer term difficulty with that is if everybody wants to buy it during the period when they need someone has got to have the ideal plant capacity during other times. If there plans to be a relative surplus that can be done because those folks that have the output will sell it no matter what time of the period of the year it is. We also want to take advantage of other energy sources. We tell the stake owners on the at the plant that has about 9000 heat rate in Lodi you are making money when the plant isn’t running and you are making money when the plant is running. When the plant isn’t running you are getting your supply of the market at a cheaper cost than then gas and O&M cost that you would otherwise pay to run the plant and when it is running that plant the gas & O&M cost is cheaper than the market alternative. What you really have is a call option on your own plant. If and when you need that capability and you need that energy but for those rare instances or forced outage you have it at your disposal. You want to add to that, Girish? Balachandran: I just add a little bit. I think one part of your question was implying if we had a base load plant we would basically be surplus for a majority of the year because of the variability of our hydro run period. Approved -UAC Minutes 1-14-04 Dawes: Just during the high run of period just two or three months. Balachandran: Yeah right. Especially if it is a wet year we will be surplus. And that is in the guidelines that were approved that is why we have asked for a range between 25-50 megawatts. So a number of scenarios where for the majority of the year and sometimes in some years it is dry or less than average for the entire year where we can run the plant at full capacity factor and not be selling it surplus because it is based on market prices but we could be taking it all within our own load. Dawes: Have we started the economical analysis to probe these issues Girish in conjunction with NCPA? Balachandran: Yeah You are talking about which specific issues? Dawes: Building our own power plant. Balachandran: Oh yes. We are…. Dawes: We have not seen any. We’ve sort of…. Balachandran: And that is what John started the discussion of talking about the process we are going to use. We have done some preliminary studies. We need to take it out as per these recommendations to. We are going to bring it to you next month. Basically the process of how we plan to take it out to the community, layout what kind of factors we are going to use, evaluate internal plant sites we will revisit the logic we use to come with the plant size, bring it to you take it to the Council get a buy of there and then do more analysis. Dame: I think that was it. And I will be happy to answer any questions otherwise Thank you. Dawes: Thank you Don. Rosenbaum: Do we have questions for Don? George. Bechtel: Don. Part of not related to say local generation but is the issue that you mentioned earlier of transmission and congestion do you have any good words for us from any of the work going on in the NCPA now in terms of new transmission facilities. Dame: I know that the BANX participants are looking at actually having Western look at pushing the line into the Bay area. I know there is some discussion in Palo Alto connecting into 230 KV level as opposed to the 115 KV level. Building an upgrading transmission line is a very difficult long-term process. I guess if you need addition generation anywhere and you have a load that will allow for the construction of that plant building it internal to your load is the single most desirable option. When we go down out packing or whatever it is NCPA is where would you put it first. You would put inside a Bay Area service territory because you have not only the avoidance of the wheeling but you have the potential congestion where to construct. What you do next is what you put inside any member service territory because you at least avoid the wheeling because they start the wheeling first and then you back of and you say well lets put in any other location that has good interconnection capabilities with the existing transmission grid. You can see how you back of that packing order. I think George that shorter that is if you need Approved -UAC Minutes 1-14-04 the generation capability and you decide that a new power plant is amongst the best alternative to provide for that need locating inside your service territory is the very best option. Also the playing field that we are in right now we talk about location and marginal pricing when we talk about what happens with our transmission operator that California ISO all of these things are very much in flux rate now which is not really a flux issue. At the same degree it is your forecast that meets the needs of people of your community and the supply that you are going to have to build to provide their needs. Bechtel: So it tells us that if implicit in your recommendation is that we should go down this path and explore it until it comes lets say to a dead end in some way or another for some reason or another and probably meanwhile transmission I would think either will improve or the ISO will make all the charges go on now and then and so on. And so it sounds that as if that’s always going to be in flux. Alright. Thank you. Lee: Regardless. Tom Lee NCPA. I would say that regardless you got two components of transmission. You got congestion and the wheeling costs. Even if the system gets build up all kinds of transmission to avoid congestion type cost and charges we still are going to pay the wheeling cost if your outside your service area and these studies here especially the 30 series of proposals of eternal generation accounts for the wheeling cost and not being paid for. So doesn’t matter what they do with the transmission they can reduce the congestion cost but not the wheeling cost. The more transmission you build the higher is the wheeling cost. Ratchye: Unless it is in Palo Alto. Lee: Right. Ulrich: One thing keep in mind is that again is that you want to be able to retain local control. The more you rely on the transmission line the less local control you are going to have and other entities whether it is FERC, PG&E or ISO are going to make tariff changes going to do things if are necessary outside the control Palo Alto to do anything about having a park land something within Palo Alto you are going to have more local control. It may not always be most economical but that is an important factor to think of. Dahlen: I had a question about 2007 estimate. Does that already taken into account the sum estimate of the timeframe to get the siting figured out and the permitting environmental issues and everything? Lee: Yes. We think it is doable. Rosenbaum: Dexter. Dawes: Two things. Western was rumored for a long time to be in the process of coming up with alternatives to the firming contract and I asked from time to time in this area as to working some of the questions and I understand that. The related question is PG&E obviously had facilities that serviced the Integration Contract the power plant near the Delta there which what I understood was one of the main contributors to that the thermal plant and just because a contract ends doesn’t mean that the power plant comes tumbling down. It is still there pumping out energy and they just got to find new customers for they charge a lot of different prices that is for sure then what they got from Western. But nevertheless there is a resource from which energy Approved -UAC Minutes 1-14-04 can be purchased at a price. So those two questions where is Western? What happens to the PG&E power that year before went into the Integration Contract? Dame: Western is indeed pursuing what they call custom products which could possibly backfill. The question I think that a Western customer has to ask is: can your own staff and your own organization fulfill that need on more defined way than Western potential to do that. Western really hasn’t done that as yet. Western is not building a power plant: they talked about it. Your recommendation has talked about building power plant but they haven’t done it yet. At some point you have to say what’s our obligation to our end use customers and how do we take control to assure supply within some relatively known cost plan. You can wait for Western. Western may indeed provide the firm power. You will pay whatever Western pays to turn that power for you whether it is one or two or three year basis. One of the advantages of a power plant is at least you put the hardware in the ground for 25 or 30 years you still have fuel cost first which you can narrow to some of the exposures. Second cost was the power plants that are out there, well if you look at the inventory of the plants in California it is about 60 or 70 percent of them are over 30 years old. So it is simply not true that all the power plants out there are going to continue to be there. Some of them are shutting down. If we had a problem with Diablo Canyon for example you could lose that. There is some discussion right now about some of our nuclear plants either reducing its output or having a 5 or 6 year window wait when it shuts down. So again part of it is who is responsible to provide the hardware? When times when it is not a stress year and the water year isn’t bad yeah you may escape by and we get a pretty resource adequacy requirement it may be energy available. It is really during the years when power plants retire the system is stressed there is not enough water available then it can be a very significant prices and/or shortages associated with not having taken control over your generation. Rosenbaum: Than you Don. Lee: And some of that power you are saying is still there. It is in this RFP. Dawes: I was going to ask you. One of the thirty was from the plant that supplied the firming power to Western. Lee: Exactly. All those plants that is from 1 to 17 here right there in this RFP. Dexter: Okay that answers the question. They are there. Just the prices have changed a lot. Balachandran: And PG&E bought from the market too. So in many years they bought the market and they used their own generation. After they de-vested their generation they bought most of it from the market and basically from these generators. Rosenbaum: Let me ask a question about location. We have got 3 NCPA cities here in the Bay Area and Santa Clara has independently already built the facility. So let us just think of us and Alameda. Would we be unhappy if we a joint power plant involving those two cities would build in Alameda rather than Palo Alto in terms of wheeling or congestion cost or anything else? Dame: Well, Alameda would be a fair choice too as we ticked down those advantages of being behind a members meter and being in a congested area. The advantage that Palo Alto specifically has is Palo Alto’s load is larger than Alameda’s. So lets take a 150 megawatts plant for example. If that plant were behind the meter in Palo Alto there is a fair percentage at that time that the Palo Alto’s load is at or exceeds a 150 megawatts you would save all the wheeling Approved -UAC Minutes 1-14-04 charges associated with all the power that came out of that plant that was consumed in Palo Alto. The load in Alameda with a hand wave is about 65 megawatts on a peak day or lets say about 50 megawatts on an average. You could put a 150 megawatts plant in Alameda but you would indeed pay the 7 dollar wheeling charge to get the power from Alameda to Palo Alto. So there is an advantage to locating the power plant where the load tends to be larger for the avoidance of the wheeling cost and the additional congestion protection. Rosenbaum: Conversely Alameda would be disadvantaged if a joint project were to be built in Palo Alto? Well not necessarily because the share of the output that was Alameda’s presumably there would be a way to work the compensation for the avoided wheeling charge and if indeed congestion were to occur, congestion would be avoided on the portion of Palo Alto’s load that was met with Alameda’s share of the power plant and there would be a way for Palo Alto to share those minutes with Alameda so that Alameda could for all practical purposes experience the same benefits of that plant were located behind their meter. Rosenbaum: George. Dawes: I have a question on permitting process. Would it be easier or the same process as a City as a municipal utility? Dame: It is virtually the same. The CEC permitting process. Dawes: I seem to recall that the AQMD has a really major control on the number of hours per year that a power plant can run in a congested air quality district such as the Bay Area would we be able to get a permit to run this as a base load plant or is this something that will be only maximum of 6 hours a day or whatever. Dame: We have plants right now are simple cycles. We can only run I think it is about 877 hours a year and there are some daily limitations on our simple cycle power plant. The state power plant can run around the clock so it is part of your permit. The Silicon Valley Power Plant that they are building the Peaking Plant or the Don Von Raesfeld Plant can run round the clock. It can run flat out for the entire year under its jurisdiction. Dawes: Are we able to get a similar purpose? Dame: Yeah. Dahlen: Is the internal projects that you have in the chart with your evaluation results, is that Palo Alto only or Palo Alto sited plant in here? Dame: The proxy for the Palo Alto sites are the 30 series, which one of them is essentially a clone to the Peaking Plant. It is about 145 megawatt combined cycle. I think it is a 65 megawatt combined cycle and then the one that has a lower benefit cost ratio is a simple cycle plant about 45 megawatts. Dawes: It’s a jet engine? Dame: Just a jet engine. They are all jet engines here. Thank you. Approved -UAC Minutes 1-14-04 Rosenbaum: Any other questions? If not I want to thank Don and Harry and Tom for coming and staying overnight too. I hope you all enjoy your evening here in Palo Alto. Thank you for being with us. Alright. Now I think we will take a short break and reconvene shortly to finish our agenda. Rosenbaum: Can we reconvene please? Alright lets come back into session and John has suggested that the next item we take up is the Modified Gas Laddering Strategy. John. Modified Gas Laddering Strategy Ulrich: We have had some new ideas and I would like to share those with you and Karla Dailey will make a presentation and take the podium. Dailey: Hello. I am going to try and go to this fairly quickly given the hour and that there is another big item that requires action this evening. (Someone says here that it doesn’t need action.) Dailey: Oh Well. I’ll still go quickly. This is an information item and the subject is our Gas Procurement Strategy Just a little bit of background. The City does not hold any long-term supply assets and several years back started a hedging program that was mainly looking at just the near 12 months and even really mostly the nearest 6 months with our hedging. During the energy crisis it became clear to us that we needed a longer term strategy and so what was born out of that was the gas laddering strategy. It is 3 year rolling ladder and the basic premises for the near 12 months we would purchase 20 to 30. Oh let me backup. For each of the 12 months period starting from now on looking forward 36 months we would purchase 20 to 30 percent of our needs at a time and the remainder we would purchase right before the month or within the month. So this is just a graphical representation of that idea and there is a similar graph that as of a different date in the report but this one has a January start date so the period that you are looking toward it starts on February 04 and goes 36 months forward from that. The gray shaded area is the strategy. So it is the minimum and maximum amount that we would buy fixed price gas and then the red line is the actual purchases. The pink dotted line is our plan that we have set internally within that minimum and maximum range and then the top blue line is the estimated load. So you have all seen this graph before hopefully this is clear. If there is any questions on this? No. So another thing that has happened within the last year is that we have taken on this gas long-term plan project and the first thing that we did as part of the project is set our objectives and guidelines. The objectives were approved by Council in July of 2003 and just briefly objective one is to ensure low and stable rates. Objective two is to manage supply portfolio in a cost-effective manner competitive manner compared to market and compared to PG&E and the third objective has to do with energy efficiency. There were several guidelines but the one that applies to our commodity purchases was guideline number one and addresses market risk management. The idea is we wanted to diversify our energy purchases for the pool by commencement date, delivery date, duration etc. and maintain a prudent exposure to changing market prices. We also want to avoid greater than 10 year fixed price commodity contracts because the market isn’t just very liquid out that far mainly. So we wanted to go back and look at our laddering strategy and try and put a little more analysis to it then we did in 2001 when we developed it in the midst of the energy crisis and a lot of the analysis was really qualitative. So we did a couple of things. We looked back at the goal objectives and tried to look at the aspects of the laddering strategy and assess whether changing this different aspects would help us Approved -UAC Minutes 1-14-04 towards those objectives or take away from meeting those objectives and I am not going to go through all these. All these tables are in the Report. But we just tried to break it down. Do we want to keep it at 36 months, we want a longer horizon or a shorter horizon what the timing be, how much should we purchase in each of the sections of the ladder and what types of products we want to be looking at. We also did the same thing with different aspects of the laddering strategy compared to guideline one that I just showed you and tried to discern whether changing any of those characteristics of the strategy would have a good impact on meeting guideline one or negative impact. The other thing we did was to put together a brainstorming session with members of Resource Management, Representatives from Rates, Representatives from Marketing, our Risk Manager, we all sat down in a room and said Okay what things do we like about the laddering strategy, what things do we not like about the laddering strategy, what are some of the practical matters that we need to take into account when we talk about modifying or keeping the strategy. And the main things that came up were the budget cycle, reserve level, considerations, credit risk, administration, operational concerns and simplicity of whatever plan we lay out. Both simplicity for being able to implement the strategy and simplicity in being able to explain it to decision makers. So we didn’t want to get too complicated then we would have trouble explaining it. So once we had those other matrix established from the brainstorming session we did the same kind of qualitative analysis again with the characteristics of the ladder and tried to figure out whether changing those would help us meet those practical objectives or not. So after all that what we came up with was a slight revision to the existing strategy. We kept the time period at 36 months. The 36 months period has a couple of magical things about it. One is that there is just really a good market credibility in that time period. So we don’t have any concerns about purchasing gas out in that 36 months timeframe. There is plenty of activity going on there. So we are comfortable with that. The other hazard of the city policy level issues City Manager has authority to purchase gas for up to 3 years. So if we expanded the timeframe beyond that we would run into some logistical problems in being able to implement that. So one of the things we did want to address is that the old strategy doesn’t address. It is the budget cycle and right now with our current strategy where we can purchase up to hundred percent of our needs 12 months in advance if we are sitting in December and setting the budget for 04-05 that only covers half of that fiscal year. So the extension of the initial time period from 12 months to 18 months where we have that much ladder to go up to hundred percent gives us the ability at budget setting time if the reserves level are such and if gas prices are such and if rates are such that there is a management decision to lock in more of our gas supply needs for our pool we will be able to do that. The other ranges are we are also slightly widened a bit to give us a little more flexibility. So it is not wildly different from the old strategy but the time period is now 18 months 9 months, 9 months instead of 12, 12, 12 and the ranges are a little bit wider in the out months. Here is just a graphical representation of that table. The gray shaded area is the new strategy and the spaces between the red dotted lines is the old strategy you can see kind of the shift in the min/max values and the widening of those ranges. We also tried to do a little bit more of a quantitative analysis on this and I will just pick up one line if you look at the case where there is a 8 dollar gas and this is a really simplified case. It was 8-dollar gas for the entire 36 months straight not very realistic but just trying to put a bound of what the change in strategy does to our risk. For 3-year risk under the old strategy this is market price risk. Our market price risk would be between 10 million and 16 million dollars and under the revised strategy we have narrowed that to between 5 million and 14 million dollars. Implementation. We have implemented the strategy as of January 2004. The next step is for Resource Management Staff to make a recommendation to John as to where our target should be within those min/max ranges and we are working on that right now. We haven ‘t got that to him yet. And the other on-going thing that happens with our old strategy and our new strategy is to monitor credit risk and to Approved -UAC Minutes 1-14-04 make sure that we are managing that well and that we are keeping within the risk management guidelines given that we might be buying more price fixed gas. That’s it. Any questions? Rosenbaum: Thank you Karla. Do we have questions? Dexter. Dawes: Are we keeping our eyes and ears open on gas that might come on the market as a purchase of reserve positions? You talked about not going over 10 years because of market liquidity, which I can understand, but if gas at reasonable prices comes on are we a buyer? And we let this interest be known to investment bankers and others that might handle such transactions from El Paso needs to cut their debts level so they put some resources on the market and I can see as being a buyer if the price is right. Dailey: Right. Yeah. The 10 year limit applies to commodity contracts not to reserve purchase such as that and you will be seeing next month a report on the full preliminary GULP recommendations that will address that question. Dawes: So probably will be but wait and see. Dailey: We have definitely been talking to folks and Redding for instance is going out with an RFP of course SMUD has already done one bid. Had reserves purchased and are looking for more. There are some folks in other parts of the country who are doing various things. We have been on the phone with different people but we haven’t brought a recommendation to you or to the Council yet. So we haven’t spent any money doing that. Dawes: The issue of course applies here. Does electricity where we were been taken into the cleaners what 2 years ago on transmission cost into California which is just outrageous and I guess we got stuck a little bit so if we could find gas go down I think it will be great. Dailey: Yeah. I mean I think you know the interesting thing about well ahead reserve acquisition is not necessarily that it is going to be really cheap but that you are trading market price risk for production risk and may be that is a good way to diversify your portfolio. Dawes: Yeah. Rosenbaum: We have other questions? If not Thank you very muck Karla. Dailey: Thank you. Rosenbaum: Alright. Final item for tonight is Item II. LEAP. Knapp: Item 1 I believe. Rosenbaum: Implementation. Renewal Procurement Standard Implementation. Knapp: Okay So. I am Karl Knapp. I work in Resource Management for Girish Balachandran and Don Dame and Tom Lee has actually been involved in this RFP also. We will go quickly through what I am going to be talking about. I will give you just a little background and again remind everybody why it is buying renewable energy at all and where that comes from. Review again how the renewable purchases for the portfolio fit into the other programs with the renewables so they don’t get a little bit confused and then on going to the proposal summary. Approved -UAC Minutes 1-14-04 We participated in the NCPA RFP for renewables all you have been hearing about this. I said I would be back to you in a month that was in April that was my delusions of grandeur on the speed of getting things evaluated. We have a recommendation that is in the report. I will try not to cover everything that is in the report but point out the highlights. I’ll focus on is called what are we going to do next. So what the Bubble Chart is trying to convey is the long term electric acquisition plan ultimately drives from City policies, the comprehensive plan, sustainability policy and the other ones that are listed which drives the utilities strategic plan from which all of these different plans GULP or LEAP or WIRP come from. So this is kind of consistent evolution that has come about all the way from the high policy level down to where we are trying to actually implement something. And all I am talking about today is one of the several tasks in the LEAP Implementation Plan and this one specifically gets to guideline number six which is the renewable portfolio investments. So which is one of the three different and distinct renewable energy programs we have. Although I have called them alternative energy supply because under alternative supply is something what others refer to as a renewable portfolio standard. We called it Investment Guidelines. The goal is to get to 10 percent of our energy load by 2008 and 20 percent by 2015 with the rate input not to exceed half a cent kilowatt-hour. The Green Power Program, which is now Palo Alto Green, is separate and distinct. The power we are talking about today isn’t being bought for the Palo Alto Green Program. The Palo Alto Green Program is hundred percent voluntary to be a one hundred percent that is actually quite a bit of success so far this year. This is over 6 percent participation rate. Now I mean 6 percent of the people not 6 percent of the load. Then the third is public benefits where a lot of the money is available for rebates for photovoltaic systems, renewable energy, energy efficiency that is also distinctly different revenue stream and a different set of state rules governed what you can do each of the different categories. I am talking about the one with the bold outline around it which is buying it for everybody. Now this is not a new and sudden discussion. We have been developing this even all the way up to where we had the approval for LEAP objectives talking about what should be do about renewable energy in the long-term. But what we have been doing since the approval of the LEAP implementation plan was get this renewable resource RFP out on the street that was back in March and it’s joint with NCPA and several other members who are interested in doing the same basic thing meeting a portion of their deficit with some renewable energy. Proposals came in April cut it down to short list by June, had interviews from August through November with that short list and tried to pane it down to those that we were most interested in and we developed a staff recommendation which we are talking about today. After that, actually a little bit to be done is what I am doing tonight which is giving updates to UAC and then follow up with the Council and get out and start negotiating these contracts and bringing back the approval. I show a little arrow because there are a couple of different contracts and it may not all happen at the same time. And as we go from 10 percent to 20 percent this is what will be happening over the next 3 to 5 years. So there were 66 proposals received and I wont run through all of their numbers but it was pretty impressive. And what this chart is showing is one of the many different ways we looked at the different proposals. This hopefully shows some of the scatter even within each technology and between technologies. What it is it is the first 3 years average rate that was in the proposal for each different technologies. A couple of them look a lot better than they end up looking when you look at all the different aspects so some of the biomass plants for example turn out to be more expensive than we thought were in the proposal because when they say here is the cost and here is some other cost they were interpreted as here is the cost and this is a sub set. But there is actually a system cost and this other cost. Some of the other ones also started at a low rate and escalated at a higher escalation rate than others. For example the wind one that is showing extremely cheap passed along the production tax credit for the first 10 years when at a sudden jump to over 5 cents a kilowatt hour after 10 years. So this is one of the many ways of looking at it because this tells you how much Approved -UAC Minutes 1-14-04 did it cost to get started? It is kind of a representative number. Wind or landfill gas in general is most competitive on average. Now what this chart is showing is for all each of the different major technologies. What the levelized cost is if you take the whole cost present value comes out to a flat equivalent cash flow stream how many cents per kilowatt you are talking about 25 cents for photovoltaic all the way down to about 5.8 per wind. What is in the green line if you divide all of your 20 percent portfolio, I mean if you are going to spend the whole half a cent kilowatt hour rate impact limit what percentage of your portfolio you could buy from that technology. So you spent the whole half-cent on photovoltaic you can could only get up to 3 percent. Whereas wind if you actually at 63 percent of your load and you only get half a cent per kilowatt rate impact. In the blue part is the actual rate impact in cents per kilowatt-hour if you buy 20 percent of your load. So this is kind of different ways of cutting how different technologies compare to each other. So we go through the evaluation process here is a little map of how we got from 66 down to just a handful and I won’t run through each of these. It was kind of make one cut and take a look at what is left and compare them in a different way make another cut. Quite a few of them don’t count because the renewable portfolio guideline that we have was stipulating new resources when we adopted the definition of the PUC what you mean by new. So everything that was built before 1996 did not count to meet that requirement. They tended to be expensive anyways. So it really didn’t matter much. But through the second round we had somewhat turned out to be higher cost than we thought and was explained earlier to Biomass and it was a matter of what you got two proposals that are pretty similar why would you talk to one that is more expensive. So you continue making these cuts. You get down to a final cut, which is after the oral interviews you find out a lot more about where this project really ends. Is it done yet? And do you have fuel things like that. And what we are recommending is just to take a two-tiered approach. I called it two-phase approach in that report. People got confused about Phase II and Phase III agreements at NCPA and phases of this proposal so when I say Tier it is what we are doing in Phase II and Phase III that NCPA is doing which is to go ahead and serve roughly 5% wind and 5% landfill gas to get to the first 10 percent goal for 2008, the wind can start beginning in January 05. Landfill gas plants are not built yet and will come on later in 2005. And the Tier II is several of the proposals were longer term kind of generation project development and we will be very interested in exploring whether those can really work or not. To meet the second half of it of the 20 percent goal some of them were jointly with Plumas Sierra whereas some direct connective energies and the higher engine tribe has some geothermal resources in North West Nevada that they have also come to talk to NCPA about possibly participating as NCPA member and most of those project proposals really need a lot more due diligence to figure out whether they really work or not. But if they work they look really promising. The other thing I should probably mention on the local landfill gas is that one of the proposers, most of the proposers say well we will we also look at landfill gas resources that you have locally and we have been talking to Mountain View for a couple of years or so where they have 4 megawatts of landfill they are just flaring right now and so we are talking to the AMRESCO who is the best developer and with Mountain View about trying to figure out with whom we can work here without actually being in town with cost per megawatt for their resource at about the same price as all the other landfill gas generation facility. Dawes: From our own dump do we get enough fuel out? Knapp: It is not actually not very economic. It turns out that it is only putting out 750 kilowatts and it is about 40 percent methane so we looked at it and it turns out that they were not very interested in looking at it. Dawes: There is a box there that is not on the dump? Approved -UAC Minutes 1-14-04 Knapp: The generator is owned by a third party and the electricity sold to PG&E as per a Sole Contract. So there is electricity being generated there but it works out to be a pretty big money loser although if you put a pipeline in when you put this water pipeline into Shoreline you can actually put another line in from there in addition to wherever this other landfill generator was and use it. Then it is all going to into a 5 megawatt plant and then it comes across the Baylands but I don’t want to pay an extra million dollars for that though. Dawes: Good Karl. Knapp: So essentially we are pursuing two-tier approach and we are ready to actually sit down and negotiate contracts with Wind developers and the landfill generators and go ahead and get them started in putting some plants in. The wind plant is actually already built. The rate impacts are lot more complicated than this simple representation of the calculation. But this is the basic way it works. Whatever percentage of your load is above your avoided cost works out to be your rate impact and we are looking at the long-term price curve of about 5 cents for equivalent supply and these cost are looking around 6 cents. If the price goes up higher we can actually have a real renewable energy credit but this is well within a half cent and this is including both the first phase and what we are expecting to get out of the second phase. So we are able to meet that goal. The total supply cost now the wind contracts are longer term. They have offered both 15 and 25 year terms but there is really not much of a premium on the longer term. But the total cost you are looking at 60 to 120 million dollars. Whenever we bring numbers like that it seems like a lot but it is still a small fraction on an annual basis on the actual commodity budget. Then for gas it is similar it is going to be in the same order of magnitude for the same size. They tend to be a shorter duration with the option renew after 15 years and so it is less of a commitment. Dawes: Karl could I ask a question on the wind. I am guessing that it is not it seems like it is an unlimited resource but it is probably not because the cost of building location and so on. Are we at an advantage if we just jump in and sign a contract now meaning being undefined. Are we going to have others in the Bay Area all of the NCPA members or even PG&E or some others go in and get the same resource? Are we going to be fighting over this resource in a few years? Knapp: We are actually in a situation right now that if we take too long to buy one we may have to start all over. So we don’t feel so positive about it that we want to buy all 20 percent right of the back. We can get a good deal. There is enough of it we can buy some of it but as you point out there might be some others that come along down the road. If it gets too expensive then we can build it ourselves with some other developers that are provided. But there aren’t that many good wind sites near the Bay Area. I also pointed out that in the press recently and Altamont bid into this RFP and that is one of the reasons we are concerned about it that there is a big immigration bird issue in Altamont in particular, but this and as long as the candidate does not have the problem. Also now it is a big part of the environmental impact statement for putting a wind firm in wasn’t the case when these others were build responsibility. Dawes: Let me ask you the same question I asked you earlier Karl about seasonality and how does these two resources fit in. I would guess Biomass gases that is a sort of a base load deal that is not seasonal but how does that fit in with the hydro world? Knapp: Actually it doesn’t fit our basic load but it fits our deficit very well, because it puts out a lot in mid summer, late in the summer. It puts out more than we need winter during the real wet hydro months in the early very first quarter but it is good in match to our deficit. Approved -UAC Minutes 1-14-04 Dawes: We are coming down in the summer time in the hydro world. Rosenbaum: It is not perfect match. But it actually falls in well. Also falls in well when the market price is high. Dawes: Are we buying this on the basis of base load deal or are we buying it on a run a river in other words just on the load cost. Knapp: It is somewhere between the product that makes more sense for us is the day ahead buy in product so it is guaranteed and a day ahead in their forecast and so if their actual generation is up then we can make it up with other resources. The total kilowatt-hours that come out it will match the total kilowatt-hours that were generated for use. It also easily allows them to do that and also intermittent resources when in particular are allowed to not to have to incur deviation from schedule penalties as long as they use CEC’s approved forecasting methodology for a day ahead schedule so that you therefore don’t have to worry about that part to. Actually having only for that 5 percent actually end up being closer to 7, 8 or 9 percent when you are want to know how Alameda is going to buy it. I think this will give us some ability to find out how much can we rely on other resources to help balance that before we buy too much of it. Dawes: Has NCPA looked into building our own farm? Knapp: I would say that is what comes into two pieces. It takes so long to do it. We would probably come on line say over 08 to 2010 timeframe. I do know from NCPA there are people who proposed into NCPA RFP for some people it looked like NCPA building a farm. NCPA owned it. I do not know if NCPA would build it. Rosenbaum: Karl on the same issue Dexter brought up. We think in terms of firm energy. You think this is essentially firmed in the price we are paying guarantee one day ahead we are going to get what we expect. Knapp: Yeah. Rosenbaum: And what do the wind people do if the wind doesn’t blow that day. Where do they go? Knapp: They get the Firming energy resources from all sorts of generators. They firm it up with either some other wind farms. They farm out the state line at Sonoma County, Southern California, Northern California. Then they have regular power plants too and it is a lot of them you see on renewables too as long as the output from the plant over a month or quarter matches what you bought. It is like trading but it is not the same. You are actually buying energy. So it they firm up with better with natural gas as long as they on generators much as you took. Rosenbaum: So we wouldn’t want to deal with the one who get that one windmill. That wouldn’t work. Knapp: That would probably be too risky. Although we did get one. We did have one with 150 kilowatt single wind generator. Approved -UAC Minutes 1-14-04 Swaminathan: I am Shiva Swaminathan. It has energy but does not have capacity behind it. Because the intermittent state it is like saying the Western Resource, which is a huge capacity but little energy behind the dam. And this is kind of filling in with energy so you can operate both of these together as if you have turned of the Western capacity with wind. So that is not available as the same product. Knapp: We have not even formed even one. But NCPA folks actually feel like with the other resources they have they can a day ahead is enough and firm the rest on their own. It is a good match between hydro varies on year-to-year basis in terms of wet dry average. Wind tends to be on a week-to-week, day-to-day kind of variability. It is kind of a good diversification. Because over from year to the next the generation from June to June is very similar and from year to year is almost identical. So there is very little annual variation some monthly and a lot of daily and weekly and hydro is the other way. Dahlen: How about the landfill gas you have on the chart indicated that this will start in the year 2005? Is there already an agreement in place to get the landfill gas back to us? The Mountain View sounded one like that was planned. Knapp: That one will take a while. The other ones in the area have agreements in place and permits. They have done environmental impact statements. They are just looking at this point for power purchase agreements so that they can get the money and put it in their generation. Dahlen: And from where is that coming from? Knapp: Different sites. There is one in Contra Costa Landfill. One in Suisun and one in Livermore and there is another one there is another one in Richmond… Dawes: Santa Cruz? Knapp: Oh yeah. Actually Santa Cruz came up since I wrote that report. So that is a new one. The proposal included anything that came up along the way. So they are scattered around the Bay Area. There aren’t very many really close. There is Palo Alto and Mountain View small but close one in Menlo Park. But there are nice flat base load that kind of match this intermittent wind piece. Should be a kind of good mix. Also it can come from one person so it is lot less one counter party so it is lot less this contract administration overhead even though it is several different generators. Dahlen: And the total capacity that could be available for the one for gas? Knapp: What it could be? Dahlen: Yes Knapp: It’s a couple of hundreds megawatts throughout the whole region. But the total amount that was bid in was on the order of say 40 to 50 megawatts into this RFP. We are looking at about 6 megawatts. Dawes: Purchasing 6 megawatts. Dahlen: In the Tier 1 Approved -UAC Minutes 1-14-04 Knapp: Yeah. I got some more slides. This actually addresses some of the questions that I have been already asked so it is a good lead in buying some now it is coming to the question asked by Mr.Bechtel. Calling you George but Commissioner Bechtel’s question about should we buy now or buy later. If you read the CEC report on what is happening with the renewables. There is a view that it is going to get cheaper and cheaper and then ask them all why should I buy now. They say Oh no you should buy now you should buy now. The way the price could go up is because all the good best sites get used up and the demand is up whereas the technology and development with windmills themselves is going pretty fast and pretty far. So that is the trade off as technology can get better faster than the wind goes away. Dawes: So we get more juice out of the same wind. Is that the idea? Knapp: Yeah and in more in terms of cost than actually efficiency. They are able to build bigger wind turbines like the ones I will show you a picture of wind turbine of 1.8 megawatt turbine which was unheard of even 5 years ago. So kind of upscale and greater finance I guess. So I don’t have to run through all of these but credit provision is something these guys are used to dealing with everyday from strong termination payments to collaterizing so if they go we may get the wind firm that’s sort of thing and you know trying to maintain flexibility to adapt to technology and adapt to regulations that will change as we go. Trying not to do too much too soon but do enough to get going. Dawes: That’s the 150 kilowatt one up there. Knapp: The one on the right. Ulrich: There is water resource there too. Knapp: This is right off highway 12 just outside Fairfield down by RioVista. So when I saw this I stopped at the road and took a picture to do my artistic windition. So the next steps are NCPA is working on phase II and III. This is not in phase two thirds due diligence and we are negotiating contracts and we should be approving contracts in spring and then they get executed shortly thereafter and starting in January you will receive electricity. And then kind of half way through the Tier I process we will be sitting down and talking to the other folks who have these longer term projects so see what we are doing. So there is no action tonight other than that shows you what we are planning to do. Any questions? Dahlen: I have a question on the Biomass. Can we do anything with our own Biomass here in Palo Alto? Knapp: The volumes are pretty large in terms of what you need. The whole region could bring the Biomass here, that’s the possibility. Actually Alameda is thinking about trying to that because their municipal solid waste plant may not work. But that takes quite a bit of effort just to get enough material them to make it economic. And it has the same emissions problems. In fact worst emissions problems than natural gas plant has. So they are effective in places like any city name that you never heard of. Madera, I am trying to think of the locations that the ones that were proposed one is in Madera. I had to look that up but they are not very effective for having nearby. Rosenbaum: Any other questions? Not called. Karl Thank you very much. Approved -UAC Minutes 1-14-04 Dawes: Nice job Karl. Rosenbaum: Alright our next that finishes our agenda. Our next regularly scheduled meeting February 11th and I might mention that George has agreed to review the minutes of this meeting and he will let me know that he is the one to be contacted and our other task of the Commissioners is to contact John about the possible dates for the Fiber-to-the Home either 2/245 or 2/27. 2/27 is a Friday taking that into account. That is not a traditional meeting date for us. Ulrich: Just to be clear I said February 24th or February 27th. Rosenbaum: 27th is a Friday? Ulrich: I don’t. Dahlen: It is. Ulrich: It may be correct because when I looked at it…. Dawes: I am sure City Hall I mean the Council Chambers are vacant then. Ulrich: Probably vacant right now. Rosenbaum: Let us know if that is the right day. Ulrich: Sure. Rosenbaum: To a degree where we are worried about making sure that public is out to hear us they might wonder about why we are scheduling it on a Friday. Ulrich: I think certainly it with some certainty that it was intended better with the 26th. Because it is also a Commission Day. That is why the 25th was not important. So if you also look at February 26th as opposed to the 27th I’ll confirm that and send you a note back on those dates. Rosenbaum: Alright. Anything else? If not we are adjourned. Adjournment