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HomeMy WebLinkAbout2004-10-13 Utilities Advisory Commission Summary MinutesDraft UAC Minutes from 10/13/04 Page 1 of 21 UAC MEETING MINUTES October 13, 2004 ORAL COMMUNICATIONS............................................................................................ 1 APPROVAL OF MINUTES .............................................................................................. 1 REVIEW AND REVISIONS ............................................................................................. 2 COMMISSIONER’S REPORT.......................................................................................... 2 DIRECTOR’S REPORT..................................................................................................... 2 UNFINISHED BUSINESS................................................................................................. 3 NEW BUSINESS................................................................................................................ 4 NO. 1: BAWSCA........................................................................................................... 4 NO. 2: BI-ANNUAL STRATEGIC PLAN PERFORMANCE .................................... 8 NO. 3: REVISED STRATEGIC PLAN...................................................................... 12 NO.4: PERFORMANCE REPORT ON CUSTOMER SALES CONTRACTS......... 18 ADJOURNMENT............................................................................................................. 21 The UAC meeting was called to order on October 13, 2004 at 7:00 p.m. Those in attendance were: Melton, Bechtel, Rosenbaum, Dahlen, and Mayor Beecham. Commissioner Dawes participated via telephone conference from 204 Horse Hill Road, Marlborough, New Hampshire. ORAL COMMUNICATIONS None. APPROVAL OF MINUTES Rosenbaum sent corrections to the draft minutes from September 6, 2004 UAC meeting to Dee Zichowic earlier this week. Chairman Bechtel asked for a motion or other corrections to the minutes. MOTION: Bechtel moved the minutes from September 2004 be approved with the changes mentioned noted. Dahlen seconded. APPROVED NOVEMBER 3, 2004 Draft UAC Minutes from 10/13/04 Page 2 of 21 MOTION PASSED: Unanimously REVIEW AND REVISIONS None. Bechtel introduced Art Jensen who will give a presentation later tonight. COMMISSIONER’S REPORT NCPA meeting highlights: Dick Rosenbaum attended, spoke with Lompoc and Alameda. Lompoc is going into the telecommunications business by introducing Wi-Fi to the community through 150 antennas throughout the community. Alameda already has telecommunications and is in the process of trying to refinance some of their debt. They were able to do so with a private investor at around 7.5% interest. When Jim Pope was here, we discussed the real cost of the hydro project. Rosenbaum spoke with Don Dame to receive more information and he will forward this to the UAC by email. Melton also attended. He was impressed by NCPA, having just withstood a major forest fire around their geo-thermal plant. Melton was impressed by the operational success of that organization. Rosenbaum said it was an interesting reception hosted by Bob Harrington. People from the Utopia project in Utah attended the reception. The Executive Director spoke to the group. They have $85 million in funding to build an open-access system to the city. They are confident they can do this at a price that the retailer, who is dealing with the customer, will be able to provide at a good cost and make a profit. They have 14 cities, each had to pledge their sales tax revenue 40% towards the bonds. It was about 5% interest. Not tax exempt DIRECTOR’S REPORT John thanked the commissioners who attended the NCPA meeting. A handout was passed out to the Commissioners. Additional copies were available last night for the audience to the Council. Electric Supply Alternatives: reasons we have LEAP, risks associated, costs to go up on renewable energy and going forward on Western. We are attempting to communicate to the Council and the community that prices are continuing to go Draft UAC Minutes from 10/13/04 Page 3 of 21 up. A time line included when we will bring additional recommendations to the Council. Wind, followed by bio-mass were discussed with the 1st contract by the end of October - 23 yr contract. Later this month, we will bring an agreement we are signing with Roseville to utilize the remaining water they have in Calaveras to clean up the hydro resource. This will give us more hydro for next year. Draining Hetch Hetchy reservoir: Environmental Defense has released a study that determines the feasibility of such a project. The study is on their web site: environmentaldefense.org. City of Palo Alto received an award in NY City from the US Environmental Protection Agency, the DOE, and the Center for Resource Solutions. The reason for the reward is GreenPower for PA Green. We have the second highest percentage of Green power in the United States. CPAU will soon have another announcement about one of our large customers. Gas prices at next meeting. We have been watching the price of gas. We will recommend a natural gas supply increase to be effective January 1st. Will bring details to the next meeting. Supply portion of our rate will go up. Rosenbaum asked if the wind power contract is negotiated through NCPA or if it is a PA only deal with the providers? Ulrich said purchase is only for PA, but NCPA helped us through the process. Rosenbaum asked about the long-standing arrangement with Roseville about the hydro we are going to take from them. He wanted to know if what John mentioned was part of this. John said we are going to take back our share of Calaveras project output, but this settlement is for water in Calaveras system that is not being used this year. Bechtel clarified this is a one-time payment of $300,000. Dawes spoke of the bill Governor Schwarzenegger has signed to change the amount of renewable energy required to be in use. Our City will be acquiring green power to fulfill our commitments. We have had a stronger showing by our citizens. Ulrich shared this is step two to get us there, what we recommended in LEAP. The Governor did not sign the bill. We are on track for 20% renewable energy by 2015. John did not know if our percentage is higher than it would have been without our commitments. . UNFINISHED BUSINESS None Draft UAC Minutes from 10/13/04 Page 4 of 21 NEW BUSINESS NO. 1: BAWSCA BAWSCA General Manager Art Jensen was introduced. John clarified that Commissioner Dawes has a copy of this presentation. Jensen updated his slides today with a few slides from his meeting today with the BAWSCA Board Policy Committee. Dawes does not have these updates but can follow along. Jensen shared that BAWSCA is moving along on a plan that will focus on the value to water customers which includes: • three goals • strategic plan to meet goals • Strong board . BAWSCA’s Expected Results in FY 2004-05: 1. Implement legislation (ensure AB1823 is implemented by SF). 2. Regional system build on time and on budget – ensure 3. Managing existing contract –ensuring results of settlement are enacted. 4. Developing a new relationship with San Francisco to establish constructive business communications. Mayor Gavin Newsom provided various commitments. To see capital improvement plan implemented on time, he assured that the board of Supervisors, the leadership of the mayor, the environmental commission would all have to play a role, they can’t lay everything off on the commission. . San Francisco has agreed to provide reports to BAWSCA. Concern had been expressed about accounting irregularities; which are a relatively small amount of money, but left concern about the procedures San Francisco has in place. They need checks and balances. The $3 billion CIP program would magnify whatever problems they have. San Francisco is now conducting monthly status reports with every department. Their monthly meetings are open to the public and departmental accomplishments are discussed. When asked, “are we on track and are we where we are supposed to be”, San Francisco gave the answer that they will be able to tell in the Spring. Mayor Beecham is the Chair of the Contract Initiation Advisory, acommittee that will begin the process of negotiation of the new master water services agreement. Draft UAC Minutes from 10/13/04 Page 5 of 21 Jensen stated BAWSCA will look to the various agencies for guidance of what should be in the contract and will be asking the agencies for permission to represent them. Emerging water supply issues include; potential increased in-stream flow requirements to the Tuolumne River, accommodating planned growth in the service area, the CIP program, environmental impact report, and a proposal to restore the Hetch Hetchy valley. One goal will be to increase the flow of salmon in the river by reducing non-native fish species that eat the salmon as they pass. These issues are being addressed. There is interest in putting more water down the river. BAWSCA is asking groups to not take an automatic stance against putting more water down the river, but to determine what the flow requirements are that will keep the fish alive and prospering. SFPUC policy issues: • Water treatment strategies: ability to bring more water in to ascertain the need for more growth or the appearance of it. • Water demands & purchases: what is future demand and how can it be met • Water system reliability: sufficient water in emergencies and in droughts • Facilities capacities for moving water: 2 droughts have occurred already, but no additional water supply provided. • Water supply sources: future needs and needs of existing customers • System maintenance: conservation of natural resources Bay Area Water Stewards (BAWS) are very articulate and give excellent presentations. BAWS wants environmental values to be reflected in the CIP through aggressive water conservation and reclamation, and the addition of an environmental stewardship program. All projects in the CIP will be examined with and without the O’Shaughnessy Dam. BAWSCA objectives: • Reliable supplies • high quality water • fair price o SFPUC’s timeline: series of workshops-one every month beginning Oct 26: o CIP objectives, policy decision, CIP schedule revisions. o BAWSCA will provide policy input prior to workshops. Because policy significance is important, BAWSCA may call on Board Members to attend the meetings. The BAWSCA statement for the proposal to restore Hetch Hetchy includes: Draft UAC Minutes from 10/13/04 Page 6 of 21 • Examine all aspects and consequences of the proposal • Ensure policy makers have all relevant information to consider • Ensure that all replacement facilities are in place and operations & all institutional arrangements are in place, to ensure a reliable supply of high quality water at a similar fair price to water customers. • A matter of health, safety and economic well-being to the region. The study, which is a proposal to restore Hetch Hetchy Valley, is technical study by Environmental Defense has been released. The study contributes to the debate but does not address all the issues. Governor has been encouraged to study the concept; hearings may be held. Expect hearing to be held by November 10th. Art is waiting to review 2nd report from Restore Hetch Hetchy. Environmental Defense report under review and questions are being compiled. BAWSCA will provide informational briefings, update positions and additional resources will be needed. Melton asked to go back to comments about SFPUC’s scheduled cost and results not available until spring. If things are stalled waiting for policies to be made, that implies there is already a slip in the schedule. Jensen agreed but said the engineers haven’t stopped working. Almost a decade of work been done on these very issues. It was a commitment to work with us. It is significant that policies and procedures have not been documented. Melton referred to an article he read that said the cost estimate for the CIP has grown by multiple hundreds of millions of dollars already. Jensen said it is an accurate report. $200 million in additions were made to the regional water system CIP. BAWSCA’s positions were very well articulated to San Francisco. It’s disheartening to see in this early stage the cost is already growing. Dahlen asked that the policy issues seem to be such fundamental concerns, is this simply an oversight by SF? Jensen replied that when the CIP was being formed BAWSCA suggested to staff they do a program EIR. They elected not to do it that way, the initial report included individual environmental reports for each step of the project along the way. San Francisco is now realizing they need to answer the questions sooner rather than later. Dahlen asked if BAWSCA is identifying other supply resources? Jensen replied they hadn’t focused on that at this point in time. Today BAWSCA showed they will be continuing to do this independently of what San Francisco is doing and will be looking at alternative supplies. Draft UAC Minutes from 10/13/04 Page 7 of 21 Dawes asked Jensen about the EIR environmental impacts of significant elements of the CIP (broken down into 7 or 80 individual projects) but not all of them. Dawes is concerned that a determined group who want to slow down the process could use this process to delay, bog down, and add to the cost. Dawes asked for assurance that BAWSCA is dealing with this issue. Projects not being included in policy directions are replacement projects, environmental or negative declarations are considered suitable for those projects to go forward. Bechtel asked about Agenda Item 5 purchase projections. He gathers San Francisco has asked all customers to project water purchase estimates out to 2030. There could be an argument that the bond issue will just promote growth in the Bay Area. A review of the comprehensive plans for each of the cities could support a thesis an environmentalist was doing that this would support growth. Just another big water project … Jensen stated BAWSCA’s concerned that environmental work must be bullet proof. If it fails or is successfully contested it shouldn’t be because of sloppy work. BAWSCA wants to make sure they use consistent methodology. Solid process, reproducible and tied to general plans or documents cities can go back to. Whatever supplies are used, it is to serve planned growth. Growth in Palo Alto is low compared to other regions in the Bay Area. More importantly, if not another baby is born, no more new business, and the population froze – we would still have to fix the system, billions need to be poured into the system just for that. The regional water system still has old pipelines going across the Bay that will not last forever. Growth is inevitable. None of us can turn our backs on this issue. Mayor Beecham commented that this was presented by Art in a measured tone. The complexity facing BAWSCA has doubled. We were already well challenged to upgrade the system to ensure we have a safe, high quality water supply done by San Francisco as this has never been done before. Now we are concerned not only with whether we can get the system rebuilt, but will the system be safe and reliable? The Mayor said Art didn’t talk about our confidence in San Francisco and what they can do. Susan Leal, the new General Manager of SFPUC, has made a courageous decision to not finalize the revised schedule without solid information. A lot of work has been done on this. It is not only her saying it can’t be done, commission members say it can’t be done. There are great concerns about the ability of San Francisco to implement the CIP, meet reliability and to do it in a fashion so that our $3 billion is spent responsibly Ulrich asked the question if Art had a great deal of support from both Mayor Beecham and Jane Ratchye, when would the Hetch Hetchy system be rebuilt? Draft UAC Minutes from 10/13/04 Page 8 of 21 Jensen responded in probably ten years or so. Ulrich continued, “We’re concerned about bad news… rivets coming out of the pipeline. We’re putting a lot of money, about $16 million, to provide water locally if the regional system fails.” Jensen has asked SFPUC for an analysis of CIP projects completed over the years. The report was promised in the spring, will go into internal PUC review at the end of this month. Jensen says based on the revised schedule SFPUC showed us, 8 of the 9 critical projects would have been delayed from their original schedule. He expressed the hope that Palo Alto is investing in things to make its local system more reliable in case of an emergency. He also said Hetch Hetchy is no better now than it was two years ago. Mayor Beecham left at 8:14 p.m. NO. 2: BI-ANNUAL STRATEGIC PLAN PERFORMANCE Ulrich clarified the Strategic Plan is in two parts – Item 2 is an update and then making significant recommended changes in action Item no.3. Taha Fattah and Ipek Connolly have put much effort into this report. Ulrich started with the evolution of the Utilities Strategic Plan on page 2. Starting in 1999, readers can see how far we’ve come. Page 3 details the semi annual balanced score card and lists all things we’ve accomplished. Under the Customer & Community heading we have met or exceeded all measures with exception of one. Term accelerated several years ago. We accelerated our spending because of the state of our infrastructure. We had some delays on accelerated projects. Underground 38 had the telephone company agreeing to a share of the money. Negative on the chart means we have not spent the money. Dahlen asked if we’re spending money on the emergency water project. Ulrich said we are spending the money, but we’re not getting the work done. Melton asked is the measure spending money or getting the work done? Ulrich clarified that this measure is spending the money. We have a lot of measures, defined as tactics, which roll up to the objects we are trying to accomplish. Spending money is just one part, they also include customer satisfaction, getting the work done, etc. We have measured ourselves quite well. Dahlen remarked that unique municipal value seems like it should be under money spent. Ulrich stated CPAU is trying to define Muni value as measurable. We have Draft UAC Minutes from 10/13/04 Page 9 of 21 the ability in Palo Alto to accelerate, slow down, change priorities based on what the community says. That’s why we put it in this category. Dawes asked a benchmark question, below average for APPA Muni’s. Does this mean our benchmark goal is to be below these guys? Connolly said our goal is to be below average. Dawes asked if 1 is best and 10 worst? That was confusing, it says to Commissioner Dawes that our goal is to be worse than West Coast Munies. Ulrich stated the objective is to provide Munies with the right type of benchmark. The intent is that we are better than other Munies. Connolly stated that the description is wrong. Bechtel asked to change the statement to above average in both A1s – A2 under reliability. Dawes inquired about A2 reliability – duration of outages excluded or included storm related outages. Is that an appropriate measure? Scott Bradshaw, Assistant Director, stated the reason we pull that out is because of the number of variables related to storm outages, response time, available equipment, manpower, how hard the area was hit, where our priorities are. It is very hard to control all those variables. Tree trimming, conditions of lines are very controllable, but the overall impact of any major storm there are so many variables. Dawes stated that our customers’ satisfaction will depend on how quickly we can get power back. Ulrich noted that is addressed in Perception. What can we do about it, need a level of measure that CPAU can go do something about. Bechtel asked to move to Environment B. Connolly stated we have 7 measures that have met or exceeded goal and one, for which we have no results, yet. LEAP renewal guideline compliance, approved 8/4/03 performance will start to be recorded after July. We are making progress but don’t have results to report for January to June period. Dexter expressed concern in detail B2 Renewables: had greater percentage than IOU’s doesn’t make any reference to having 20% by 2015. Ulrich will look at this closer, but it was stated the current way before we had the agreement with UAC and Council that we had those goals. Connolly said when we discuss the update, that is addressed. C: Financial Connolly reported most of them met or exceeded the goals. Some don’t have closed books yet so not able to report financial measures on some. On-budget performance (C3) is negative, relates to spending budgeted expenditures. Just a little short of set goal. Goal was 100%, we are 88% due to some delays. Dawes remarked that the billing of NCPA is late so we agreed to use estimates, we could use these same estimates for our report card here. Draft UAC Minutes from 10/13/04 Page 10 of 21 Ulrich expects more timely results on these closing issues and items going forward. We are still having issues on SAP areas and whether we put the funds in the correct category or not. Don’t recommend using estimates – spent lot of money on SAP accounting system and how will we know how good our estimates are. Dawes wanted to use estimates from quarterly reports but Ulrich is not in favor of doing that. Dawes wants staff to think more deeply about this. Dawes asked about the detailed measurements in C-1, looking at the local Bay Area locations including Santa Clara, which is a Muni, but in other columns, Santa Clara isn’t mentioned. Dawes will make a recommended move to change that. He stated the report is moving toward much less detail and summary views. He expressed a problem with that, as when too many things are combined you loose the ability to project problems. Bechtel moved to the next item: People. Connolly reminded the group the negative score under Safe Workplace means we did not meet our goal of no accidents. Bechtel asked for questions on the report for the previous period. Dawes noted that four out of seven problems are back-related. He expressed he hopes due consideration is being given to employees age and physical considerations when they are asked to do the tasks. Bradshaw said a fair share of back injuries have happened to young staff who are trying to use force rather than technique. We are educating them on the proper way to use technique. Melton asked: is there a way to correct with equipment? Bradshaw said the utility has a very active and progressive program for new equipment providing extensive training on how and when to use equipment. Recently, an employee stepped out of a truck and stepped on a rock and hurt his back. Most of our accidents are based on technique. Bechtel asked if workers comp a valid measurement to use? Ulrich said we do measure this and it’s going down. Bradshaw said we don’t measure it on this report but we do monitor very closely, we work with our Risk Management and work at getting our people off Worker’s Comp, and back to work. Bechtel thought this would be a very high level way to measure. Ulrich told group that Bradshaw and he look at every accident in detail. Melton agreed that tracking the dollars is a very complicated issue. How about tracking days lost? Ulrich told him we do keep track of days lost. This only scratches the surface; why are people sick, what are the reasons for, we look at all the factors. Draft UAC Minutes from 10/13/04 Page 11 of 21 Bradshaw said we track for each accident, with the goal to get people back to work much faster if they are on light duty – they recover faster. Ulrich said our intent is to show the Commissioners that we know how to manage the utility. Part of the “N/As” in the report is that we have not found a way to do the “N/As” or not on a sequence of time, when it’s time to do the report we don’t have the information. Dahlen commented on the negative mark under worker’s safety. Ulrich told about the discussion Scott and him have once each week. Number will never be anything but negative until we have no accidents. Bechtel asked for questions and having none, moved on to Item 3. Draft UAC Minutes from 10/13/04 Page 12 of 21 NO. 3: REVISED STRATEGIC PLAN Ulrich reviewed that the UAC has given direction and we’ve reviewed with our employees asking them what’s a better way of dealing with these measures. The main reason for having this is so every employee in Utilities should understand what they do is related to customer satisfaction and what we do in this business. Connolly said managers had a series of meetings to discuss every component of the strategic plan and looking at what we have. Our revised mission statement has same spirit as previous but more succinct. Bechtel said mission statements get people wrapped around an axel. Commissioners like the new statement. Connolly went to the next level: Key Objectives. In the revised objectives, we’ve made them more succinct. Dawes feels the utility infrastructure is such an important part of the Utilities organization he is opposed to whittling it down. He wants to see it shown in the updated plan. Dahlen agreed, and said she would like to see it in the updated report. Bechtel remarked that Dexter is recommending a reference to the Utility infrastructure. Dawes likes the focus on infrastructure; it leads to reliable service more than satisfaction does. Connolly said investing in infrastructure sounds like a strategy. We have it under strategies in S-1. Melton and Bechtel both stated S-1 doesn’t mention infrastructure. Ulrich said right now we’re spending a lot of money on capital improvement; it’s embedded in there. We’re looking at doing system reliability work in the most cost effective way. Connolly directed the Commissioners to Attachment C, page 3. Tactic 2. Dahlen thinks it’s buried in the details and the goal is to bring it more in the front. Maybe change infrastructure to maintenance. Dexter agreed with Elizabeth. Ulrich said we feel very comfortable with this but the Commissioners have to feel very comfortable. We want to make sure we report what they need. Dahlen wants it upfront because to the community, infrastructure matters and it’s okay to have it in there. Maybe CPAU could modify S-1. Dexter would like to see it in the objectives. Looking at the big slides with plusses and minus’s it would not be measured since we have dropped all reference to CIPs. Connolly stated CIP expenditures are moved under financials. We are captured by fund but captured as a financial measure. Melton said on page 7 it is 1-B. Connolly said moving on to the other objectives: No.3 Managing Financial Resources Effectively. Competitive rates are part of the measures. Bechtel Draft UAC Minutes from 10/13/04 Page 13 of 21 measured shift from existing 3 to managing effectively. Dahlen likes having competitive rates in there, but feels something is missing. Dawes and Bechtel both agreed with Elizabeth. Bechtel said we are measuring the benefit to us as users of the system and we’re loosing that in these updated objectives. Connolly spoke of the two new objectives; employee balanced environmental solutions, and the other under People – ensuring a safe and engaged workforce. Dahlen said the environmental section is a weak statement. Balanced environmental solution, what does it mean? Ulrich thinks pragmatically, it will be difficult to define environmental without balancing the cost but we’re trying to look at it from that stand-point. We didn’t want to become so environmentally focused that we forget about the other side of the business. You can define balanced any way you decide to do so. Dahlen likes John’s example. Maybe we can be clearer on this statement. Ulrich asked for a suggestion, but Dahlen was not prepared to give a suggestion at this point. Bechtel thinks trying to craft the words tonight would be difficult. He stated the Commission will give feedback at a top level and staff will come back to us. Ulrich thinks at the top level, you’re comfortable with these mission objectives and strategies. Don’t want to work on something you’re not comfortable with. Bechtel summarized updated objectives, • we’re missing a reference to utility infrastructure. • Balanced environmental solution is a weak statement. • Financial resources is missing something about competitive rates and benefit to the city. Dawes agreed and stated he appreciates staff’s efforts, but these updated objectives lose some importance. Ulrich said we’re doing this as a self-centered objective. We’d like to know clearly what the City expects of us. We’re trying real hard to write it down and use it on a daily basis. We listened a lot to employees who read through the old one, and we worked on it for a year. John said the Commission’s feedback is valuable to us. Dahlen commented that balanced score-cards and people – it’s a missing point that some of these issues are not up there. Ulrich thinks we’ve captured what the UAC summarized. Bechtel agreed we have the old strategic plan to operate under until further input from staff and the Commission regarding a revised plan. Connolly went on the Measures: how to do? Key objectives that few, but most relevant. Customer and Community: We are developing a customer survey which Draft UAC Minutes from 10/13/04 Page 14 of 21 will give us feedback, develop database to track customer complaints which will be designed to allow us to pull information into reports. Environment: we will set goals for demand side efficiency. Bechtel asked to take comments on these two measures. Dahlen commented on “Customer” saying we’re loosing unique customer value. Connolly said we are monitoring under the financial. Dahlen repeated we are loosing our unique customer value in this updated version. Ulrich said accelerated doesn’t mean as much as it did a couple of years ago when staff said “we’ve done this analysis and it’s going to take us 30 years to do this.” We don’t look at accelerated now, we look at where should money be spent, how should it be spent, and how do we get the most for the money spent. We track under financial how much we are actually spending. Melton thinks tracking CIPs under financials makes a lot of sense to him. Customer Measures measure customer reaction to what we’re doing. Customer satisfaction. Ulrich said we will be doing a more focused view on customer satisfaction. Melton said a measurement tool that is not timely doesn’t have much value. Bechtel mentioned cost competitiveness is a customer value. We can measure how well-off we are here in Palo Alto compared to other utilities. Melton wants cost competitiveness to be retained in financials. Bechtel remarked about feedback for Muni Value and Acceleration. The suggestion is to look at this as a customer issue, and measure in some way. Connolly said under Financial Measures, the revised objective is managing resources effectively. Go to attachment B, under financial measures – net sales will be measured in terms of budget to actual to make sure when forecasting or setting budget we have good sense of what to expect. She described tactics for financial measures. We will measure utility bills by customer types, with goal to be by area. We’ll add Santa Clara as was mentioned earlier. Goal is making sure our goals are competitive. Dawes asked about Net Sales, it implies if we beat our sales by 5% we’re not meeting goal. He didn’t understand that. Ulrich gave a perspective of what we’re trying to do. His expectation is our forecasting folks will figure out what our customers will need because we will have to go out an purchase. We are prohibited in the Muni Code from speculating and we are audited all the time. We’re having a more difficult time forecasting what our customers are buying because of the economic times. Price of fuel is changing quite dramatically. This is an extremely important area to do. Dexter said we’re grading the accuracy of the forecast and not the amount of money. Ulrich yes, we need to meet what our customers want to purchase and see that we don’t buy too much or too little. Draft UAC Minutes from 10/13/04 Page 15 of 21 Retaining measures of balance sheet issues are now lacking. Reserves are very essential to our stewardship of utilities. This is probably the most important thing to outsiders looking at us. Likes the debt service measures; to be able to watch coverage rating change over time is very important. Looking at combined utility bills, this can cover a lot of sins, very competitive in electric at the moment but not in water. Dexter feels it is important to know how we compare in each category. Ulrich said doing these things may make you feel good but there may not be much he can do about. These are some things he can do things about. We can measure anything the Commission wants but he’d like to measure something CPAU can do something about. Recommend keeping Financial 2 and see the individual information. Rosenbaum feels strongly about cost competitiveness. Rosenbaum moved that staff continue to compare cost for the individual utilities, in particular, electric to Santa Clara and Roseville, gas to PG&E, and water to neighboring communities. Dahlen seconded. Bechtel addressed the process, stating that we could make motions on each one or we can give staff the feedback on what we want done and have them come back to us with another draft. Rosenbaum felt this one was most straight-forward and definitive. Thought we could give them a clear message. Three reasons for picking Santa Clara and Roseville; they are the same size as us, they have a similar composition, and use a significant amount of Western. All things being equal, our rates should be a little less than theirs. Bechtel asked for any comments on the motion on the floor? Melton suggested giving staff feedback and saving our motions till we get a revised version. He thinks we ought to go another round before we go to making motions. Dexter agreed. Send back to staff to incorporate suggestions made by Commissioners. Concluding motion putting it back to staff for revisions. Bechtel also preferred that method. Motion: Motion the floor to be specific to cost competitive factors. Motion overturned on a vote 3 to 2 (Aye: Rosenbaum and Dahlen; No: Bechtel, Melton, and Dawes). Melton remarked that he believes we are omitting the most important financial measure, which is list net sales, next thing should be operating net. Dexter agreed. Ulrich said those numbers are easy to get. He asked Melton to sit down with him to discuss the process, the financial methodology that the City uses so he can see how we really do it. Draft UAC Minutes from 10/13/04 Page 16 of 21 Bechtel says that is an appropriate subject for our quarterly review. Ulrich said this goes back to the importance of having measures we can do something about and it has some impact to our mission and indicators. If this fits into that category, it’s easy to do, but he wants to make measurements that help improve the business. Melton questioned C and D under Effective Financial Management. 1-C is O&M, 1-D is allocated and direct charge. Melton not quite sure what value obtained from measuring these? Ulrich couldn’t answer that question until he started working here at the City. Some of the explanation is “City-speak”, 1-D we do not provide all the services within the utility organization. We devise our salary in the Enterprise Fund, but we also hire other people in the City to do work for us. We allocated money into other departments; this is a very important area we track. Also has rents included. Melton asked if O&M 100% of the time would be a subset of allocated direct charges? Ulrich thought so. Bechtel asked for any other recommendations on Financial measures. None offered. Connolly moved on to the “People” section, stating that staff changed the objective to secure workplace and having safe work force. Other measures will continue to be monitored, but will not be part of the revised goal. Bechtel clarified if compensation does not have to be measured specifically since it would be part of this, will employee turnover be easy to measure? Ulrich said it is easy to measure, but don’t know what to do about that. Our turnover is low. Melton says if it starts going up, something is wrong. Gallup job satisfaction, is it an annual thing, monthly turnover is this real time feedback? Ulrich we have 230, none leave without him looking into it. He said we do a pretty good job of trying to figure that out. Gallup looks at how someone is satisfied with their job, couldn’t tell if they are getting paid less than or more than the market. We thought of a simplified way to determine what employees think about and are concerned about and have found that you can tell a lot from the Gallup survey. Bechtel agreed that staff is right to pick what they think is useful, but the other part of the reason for measurements is to tell the rest of the world how you are doing. Dahlen mentioned training and development are important, maintaining a safe workplace, other aspects of job training. She questioned if these issues are being rolled up into the job satisfaction category. Ulrich spoke of the employee training plan. Connolly said we track training time and dollars. Melton noted in S-7, “foster a productive workplace,” there is no mention of productivity in the measures. Ulrich said we provided those reports in the annual Draft UAC Minutes from 10/13/04 Page 17 of 21 report in infrastructure work, how much mileage or footage we put in and how much it actually costs. Productivity tends to change the cost of that and it is particularly labor dependent on the market place. We don’t do well with work management systems, looking at labor rate and hours people spent on that job – we don’t have that system. When you build an accounting system in City government you build it for the entire City not for one department. Bechtel asked if a productivity measurement is included in the Strategic Plan. Melton said he doesn’t think you can but would like to see it added in the future. It doesn’t sound like we’re there yet. Bechtel says the updated measurements are good ideas. Ulrich addressed training and development. Some is mandatory around safety, then job/skill related, and then professional development which is listed for each employee in the forthcoming year. Dahlen questioned where issues related to career development were listed. Ulrich explained the professional development budget that each employee has they decide how they want to use that. Dahlen thought Professional Development could be added as B under job satisfaction. Bechtel moved on the seven strategies. Connolly described the strategies. Melton thinks this section needs to be re-worked: range of decision management portfolio risks – there needs to be a risk portfolio strategy that is more meaningful than “obey the law.” Ulrich agreed to reword that section. We were trying to say that we’re not going to go out and develop any risk management policies that are in conflict with City Council. Ulrich then asked for clarification saying that Council, UAC, and staff have put a lot of work into this document and it is more than simply follow Council recommendations as those recommendations are the outcome of a long process that involves Staff and UAC input. Melton asked about managing the supply portfolio risk to do what? What is the objective, it’s to protect the financial integrity? He said , is it to work in the risk tolerance that the City has decided it wants to be at? He said it is it the definition of the supply risk portfolio that is confusing? Dahlen elaborated, there is your internal process and then there is an end result that Council approves your plan. I think Melton is saying that to make your measure description more targeted on the process of developing the plan. Ulrich said if you have this policy that is in the book, we have all these measures we agreed we would follow. Bechtel supposed there is strategy that says you will acquire this? Ulrich stated that he thinks we’re not communicating well. Dahlen objected again to the wording “as per Council direction.” Ulrich said we’re trying to reassure you we are doing this the way you want. That is where Melton said he was. I’m having a Draft UAC Minutes from 10/13/04 Page 18 of 21 problem since we are now talking about strategy not measurement tools. Strategy is how do you develop the portfolio risk boundaries. Ulrich remarked that nobody is going to listen more intently than he will. Bechtel said, “develop a supply that meets our risk management guidelines.” Dexter said to send this back to staff for more clarification. Bechtel asked for any other comments or recommendations on the updated strategies? Bechtel had one suggestion to staff on Number 4: Provide low and stable rates, adequate reserves, and transfers. He feels this statement needs a modifier to transfers. Ulrich asked if it should be budgeted or targeted? Auzenne remarked that transfers are growing at 3% per annum. Bechtel asked whether we need to state that we will provide mandated transfers? Ulrich thinks the word, budgeted, is better. Bechtel asked for any other recommendations/changes? None noted. Bechtel stated we’ve gone through exhaustively – motion for action. MOTION: Rosenbaum moved refer the Strategic Plan Update back to staff to respond to feedback provided by the UAC. SECOND: Melton seconded. Motion passed unanimously. Bechtel directed staff to report back to the Commission whenever staff is able to get it back on the agenda. NO.4: PERFORMANCE REPORT ON CUSTOMER SALES CONTRACTS Ulrich shared that we have provided this report to the Commission in the past. It is important to give the Commission background. Bechtel asked if there were any questions or need for clarifications? Does it mean margins? Auzenne replied risk premium. Bechtel asked what is the outlook for the future? Auzenne stated he is not really sure with the increased volatility and very high gas prices. Two large customers have their fixed-rate gas contracts ending and cost can flip in a week. Auzenne was not sure if our customers will want to lock in at the current fixed-price gas rate or take a risk on the market rates. Cost will Draft UAC Minutes from 10/13/04 Page 19 of 21 continue to increase. He notified the Commissioners that staff will be coming back to them with proposals to address the rising gas costs. NO.5: PRELIMINARY WATER PURCHASE PROJECTIONS IN SUPPORT OF THE ENVIRONMENTAL REVIEW PHASE OF THE REGIONAL WATER SYSTEM’S CAPITAL IMPROVEMENT PROGRAM – ACTION Ratchye spoke saying this is the 3rd step in the process over the last year to provide inputs to San Francisco’s Programmatic EIR. The first step was to make long term water demand projections. The second step was to identify a range of reasonable water conservation savings. We selected some of the 32 measures evaluated and put them into different programs. Final step is to tell San Francisco what our long term forecast is and how much do we intend to buy from them in 2030. This projection will be used in their environmental review of their capital improvement program. We and all the BAWSCA agencies have taken great pains to do a thorough job with this as it forms the basis for how to size pipes for the San Francisco water system. Of the total long term water demand projection, 1300 is recycled water we are currently using, the future amount of recycled water is zero since we don’t have a plan to do recycled water and no budgets, it is not appropriate to put into plan. How much conservation will likely happen? The chart shows the conservation amounts from programs A, B, and C. My recommendation is to go with program C. It doesn’t commit the City to anything; it’s just telling them our best estimate. It’s saying that over the next 30 years we should be able to find something that can reliably reduce our demand by 4%. It is not a commitment to pay or agree to pay any portion. We do need to show that in the future, we will use our water in the most efficient way we can. Jane believes there will be more and more water efficient technologies in the coming years. Melton said since this is to be used in their EIR by using collective numbers from all the users is to size the system, under-sizing is a much bigger problem, why not give them the “A” number. Ratchye said we want to go with a number that is believable and achievable. One of main things San Francisco wants to know is whether we plan to connect to the Santa Clara Valley Water District. Are you intending to get your supply from us in the future? SF wants to make sure they are not feeding unplanned growth. That will be a huge part of the environmental community’s review of the program. They know there is future demand, it gives them a planning number. Draft UAC Minutes from 10/13/04 Page 20 of 21 Dawes asked if the supply assurance number from SFPUC, about 18,000 acre- feet/year, is part of the contract renewal that was mentioned earlier? Even in 2000 we were higher than what we used in 2001 but we are proposing going to under 15,000 acre-feet for this exercise. Right now we are not using even close to our supply assurance. Since Palo Alto has a high supply assurance relative to current demand, we want to retain whatever we have. However, in the future, it’s not likely to be free; it’s more likely to be tied to the cost of the capital improvement program. At that point, we will have to look at how much we want to pay for it. It could be quite costly. If the contract renewal contains an entitlement or allocation for the first time, it will be tradable. We could sell off or trade to another agency. We don’t know how that is going to go, we don’t know what the value is of having that supply assurance. Dexter asked if this will be an asset or liability. Dahlen told Jane it’s been helpful listening to this description. She stated Jane’s number is aggressive, not where we are at right now. Hence, she would be concerned people would hold us to that number and then we would be at risk. Dahlen said she would like us to be more conservative in our estimate of how much we are going to use. Need to balance with the amount of scrutiny we are going to receive. Ratchye said that we moved some of their measures around. If you look at the attachment, there are not many measures in that at all. 4% over 30 years does not seem like a big risk. Dahlen stated in the past 30 years we have not seen that kind of movement. Ratchye said Palo Alto has grown since 1955. Consumption per person has gone down. The effect of the draught was pretty dramatic and had a permanent effect of permanent reductions. In the 1976-1977 drought, we saved hot water. There have been permanent reductions and there is opportunity for more. Global warming is one big risk in the future, are people going to continue having lush landscapes as we do here in Palo Alto? The programs identified in program C are not elaborate programs, some other cities are already implementing. Ulrich said we are going to be raising the rates for water, how much impact is that going to have on people using water? It’s going to go up 10% per year. Part of our rate proposal will be to potentially have a higher fixed cost people are going to pay because they are going to have to pay for the infrastructure. Bechtel asked for any other comments. Rosenbaum remarked about the two CMRs attached to the cover report. Each report has a chart base water forecast. Why one at about 16,000 acre-feet and one at about 14,000? Draft UAC Minutes from 10/13/04 Page 21 of 21 Ratchye said the difference is recycled water. In the first report, we didn’t include it, but then we wanted to show we are doing recycled and we wanted that acknowledged. The revision is shown in the second CMR. Rosenbaum said with this amount of recycled water, 1300 acre feet, what are we using it for. Ratchye said recycled water is being used at both Greer Park and at the golf course. It is also used at the plant itself as process water. There are a couple of different categories of water, one we counted and one we didn’t’ because it wasn’t replacing potable water. Part of it does replace potable water. Melton remarked if the demand projection stays flat over this period: right now we’re looking at local generation, if we put in plants in this City, we’ve got to have water. Ulrich stated that would be an opportunity to use recycled water. Melton asked if we were to proceed and the demand for water would go up would the demand for recycled water go up the same amount? Ulrich said it would be hard to imagine we would locate this plant and not be required to use recycled water. Bechtel said the numbers will go forward as presented in the report. Next meeting will be on November 3, 2004. Dick will not be at that meeting. Gas prices will be on the November agenda. Assign review of minutes to Dahlen. Minutes will be reviewed on an alphabetical basis beginning with Dahlen. Motion: Motion made to adjourn by Dawes. Second: Melton seconded. Motion passed unanimously. ADJOURNMENT Meeting adjourned at 10:59 p.m.