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HomeMy WebLinkAbout2005-02-09 Utilities Advisory Commission Summary Minutes UAC Minutes: 02/09/05 – Approved 3/9/05 Page 1 of 12 I. ROLL CALL The UAC meeting was called to order on February 9, 2005 at 7:00 p.m. in the Council Conference Room. Those in attendance were: Commissioners Dawes, Bechtel, Dahlen, Rosenbaum, and Melton. Council Liaison Bern Beecham absent. II. ORAL COMMUNICATIONS None. III. APPROVAL OF THE MINUTES Dawes asked for approval of the minutes from January 12, 2005. Motion: Rosenbaum made motion to approve as written. Dahlen seconded. MOTION APPROVED: Minutes approved unanimously. IV. AGENDA REVIEW AND REVISIONS No changes or revisions. V. REPORTS FROM COMMISSIONER MEETINGS/EVENTS Rosenbaum shared his experiences at the NCPA wine tasting event at their Strategic Planning Meeting. Palo Alto took second place in the white wine this year. Lompoc is continuing their Wi-Fi. He discussed the Governor’s proposal to put one million solar systems on roofs in California. The Redding Utility Department did a study and it was an outrageous cost which would never repay itself, basically $20K per roof. VI. DIRECTOR OF UTILITIES REPORT Ulrich began by stating that on the future agenda is an item titled ‘Budget Highlights.’ He does not have Joe Saccio on tonight’s agenda but he has come tonight and he will give a presentation but there will be no request for action from the Commission. It’s not a new business item and will be added to the Director’s report. John reported highlights that are going on right now. New contract revision with Western started on Jan 1st (hydro product). We had a zero delivery in January and we do not expect to receive much in February. Staff is monitoring closely. Bush’s administration will propose PMA rates closer to average market rates. The Reclamation Law requires cost-recovery. We think there will be little progress in having this happen this year. The CVP Corporation recommends exchanging high value energy with City of Palo Alto Utilities Advisory Commission UAC Minutes: 02/09/05 – Approved 3/9/05 Page 2 of 12 Western. At the February 22nd Council meeting staff will request Council to approve. We went to Finance last year and we’re just now coming to Council to ask approval. Kabat explained exchanges right now have to do with Western’s obligation to do pumping. The corporation members are providing that energy mostly during night time hours and they will get back during day time hours. Exchanges so far have been seasonal. Ulrich said the corporation would be allowed to come up with whatever arrangements they would like to have. The exchanges are primarily users who have access to public power. Any central valley customers are eligible to join. Western recently received a large bill for Transmission related services allegedly provided by PG&E from 2001-2004. We’ve had indications of that and we are putting money into an escrow account. We are looking back at our reserve guidelines and expectations for use of reserves. Ameresco received their permit for the landfill generator in Watsonville. Planned opening could be as early as December 2005. John stated that most of the Commissioners have seen the article about Enron. The article summarized what was involved. We are also doing an extensive investigation into the possible misconduct by utility employees from letters we’ve received from the public. That’s on-going and we will complete very soon. Melton asked for expansion on the SFPUC meeting yesterday. (Jane Ratchye will do during the water report). Dahlen asked how much money is due to Western on the transmission related charges? Ulrich said the bill had a number of items that could not be explained by Western. We don’t know what the allocation of that bill would be to Palo Alto, could be up in the millions. Dawes asked if there will be a second shoe to drop on transmission costs. John said he doesn’t know how to answer that, that is why we continue to study our plans. Joe Saccio handed out a presentation to do with the FY 2005-07 General Fund Budget Outreach. He talked about his power point presentation over the table which addresses the following issues: (1) Why do we have financial dilemma? (2) What have we done to address the City’s dilemma during the past three years? (3) The budget process time line. The City Manager has asked ASD to come out and talk with the Commissions and neighborhood groups. So, why do we have a financial crisis? Since the 2001 peak in revenues we have experienced a $10M fall-off and also a dramatic increase in pension and benefit costs. We are coping with an imbalance of roughly $18M. State is taking away $1.5M from Palo Alto both 04/05 and 05/06. This is defined as a structural deficit. UAC Minutes: 02/09/05 – Approved 3/9/05 Page 3 of 12 We have reduced the budget 5%, reduced staff by 40 positions, instituted an employee furlough, introduced a two-tier retiree medical program, tried to enhance revenues, outsourced certain functions, and extended replacement schedules for equipment. The City has managed to maintain the same level of services we have over previous years. We have not drawn on reserves as other cities have to deal with our budget problems. We had anticipated revenues would recover but they haven’t. PERS portfolio costs are higher than anticipated. We plan to maintain the hiring freeze and continue to do restructuring. Staff met with Council at a retreat with general plan for prioritizing services. Layoffs are being integrated into the budget process. We will continue to review all non-salary expenses. Budget will go to the Finance Committee in May and be adopted by Council in June. We have developed a budget primer for the community, Budget 101 class, City Pages, City Manager’s Memo, planning a TV call in show so the City Manager and Director of Finance will answer questions from the public. We’ve done a CityBeat spot. We’ve also publicized coffee meeting with the Mayor and City Manager. Web site on how to solve our budget dilemma There is a strong effort to reach out, we are gathering questions. Dahlen asked when did the long-range financial plan come out? December and to the Council in January. We try to time it just before the budget process. Bechtel asked about Council’s cities priority session retreat to determine the City’s Priorities. They see priorities being set at budget time but comment is item is in the budget and that’s too late. They would like to see a process earlier so it could be discussed while something could be done. Does Council feel they really have the opportunity to discuss outside the budget process. JS said there is an urgency to deal with this deficit. Council always has the chance to discuss during the finance hearings. The City Manager should address with Council if there is some discontent with the process. Mini retreat or second phase retreat? JS said in past there have been several sessions on setting priorities, in the past there have been opportunities. Joe will relay back to the City Manager this is something that came up at this meeting and we feel it is an issue with some Council members and some community members. Dawes spoke of the zero based budget. What is the Cities position, pros and cons? Joe said staff looks very carefully at all the programs and looks at costs and expenses. We look at everything when it comes to the reductions. What we do right now is fairly thorough and well thought out. 6-7 years ago looked at zero based budgeting with the Fire Department but nothing has come out of that year. We are always looking for opportunities for saving money. The City Manager has not adopted zero based budgeting for this year. It is something that could be considered in the future. Rosenbaum asked about pensions. Page 16 asking employees to contribute towards their pensions. City did pay 7% but the 7% is added to salary for comparisons between jurisdictions. Joe said we did with the Fire Department but it is not applied to others. UAC Minutes: 02/09/05 – Approved 3/9/05 Page 4 of 12 When we do comparisons we attempt to do a total salary and benefit comparison. Rosenbaum asked about the SEIU asking for the increase to 2.7%, have other cities agreed to do this? Joe said South San Francisco is giving 2.7 at 55. A number of other cities in California have agreed to do this. It is very expensive, $7M, and was not agreed to during the last negotiations. Pensions for public safety came from the state and drifted to local jurisdictions. John said we plan to focus on changes rather than the entire budget. We will do in April. Dawes asked if that meeting will be the only session we have to deal with this subject. Ulrich said in the past we’ve been able to see it again and he will try to do that this year. Melton asked about the supposed shifting of roles and responsibilities from the General Fund to Utilities. In the highlights he would like to be made aware of anything like this that is proposed to happen. Ulrich said if there is a shift from the General Fund to the Enterprise Fund, it should not have a material effect costs since if the work is being done we pay for it in allocations. VII. VII. UNFINISHED BUSINESS Melton indicated that the questions and concerns he had expressed at the January meeting regarding the option to extend the Santa Clara Valley Water District’s (SCVWD’s) treated water pipeline were resolved after a discussion with staff. He indicated that he now understands that there is already an interconnection between the SCVWD and SFPUC in Milpitas and that after Palo Alto completes its capital projects to rehabilitate the wells, drill new wells and add storage, the City will be protected from SFPUC outages as it will be able to supply 80% of the City’s water needs. VIII. NEW BUSINESS 1. Utilities Quarterly Report - Information Water: Bechtel asked Jane to go over the SFPUC report. Jane said SFPUC has been conducting workshops to establish the CIP objectives. At the 1/13 workshop, the commission was presented with alternative strategies in 4 different areas. The two alternatives in the seismic reliability area were that after a large earthquake, service would be recovered to the service area within 24 hours equal to: A) wintertime loads; and B) wintertime loads plus 20%. The difference between the two alternatives was that option A included enlarging the Sunol Valley Water Treatment facility and building a Crystal Springs bypass tunnel #2l. The commission chose Option A, the lower level of service. UAC Minutes: 02/09/05 – Approved 3/9/05 Page 5 of 12 The second area was Delivery Reliability, or what level of service could be provided if there was an unplanned outage at a major facility at the same time as a planned outage. Option A was to deliver summer flows and Option B was to deliver annual average flows. Again, the commission chose the lower service level. The difference between the options in the Water Quality area were that Option A included an additional $75 million to buy land in the watershed and to fence out areas to keep cattle away from creeks. The commission selected Option A The most controversial area was Water Supply in which the commission was presented 3 alternatives for how much cutback would be expected in an extended drought (8.5 years). Option A included no cutbacks, Option B was a 10% reduction, and Option C had a 20% reduction. The commission chose the 20% reduction even though the CIP costs were identical for Options B and C. The difference was in the level of conservation, recycled water, groundwater use, and water transfers the water agencies were expected to implement. At its February 8 workshop, the commission voted to send its program to the Planning Department to begin the Programmatic EIR. They are starting with the selected objectives and will come up with alternatives. They voted again for the 20% drought- time cutback. Art Jensen showed them several errors included in the materials that their staff had presented to them and an SFPUC document used in the 1993 FERC re- licensing proceedings for New Don Pedro Dam and Reservoir, which showed that drought reductions would result in huge economic costs to the Bay Area. BAWSCA brought that back to them saying ‘here’s your own document, you didn’t consider it’. Also at the Feb. 8 workshop, the SFPUC staff indicated that the cost of the program has increased $177 million although some projects were dropped. AB1823 allows the BAWSCA agencies a 30-day period to comment whenever the SFPUC makes a change in its CIP projects or schedule. Palo Alto will be drafting a letter to the Mayor of San Francisco. Dawes asked if there was any discussion of the additional supply requirements for some of the growing suburbs? Jane said part of the goal is for the system to meet all future purchases requests from the BAWSCA agencies. Bechtel clarified that the projected cost is $4.3 billion. Dahlen asked about the Bay Area Water Stewards (BAWS); do you see any potential roadblock if their concerns are not taken into account and what would their response be? Jane said they are in a similar position to BAWSCA. They maybe are being listened to or not. BAWS doesn’t want another drop of water taken out of Tuolumne River. The commission asked its staff to determine whether an expanded Calaveras Reservoir can be filled with non-Tuolumne River water. UAC Minutes: 02/09/05 – Approved 3/9/05 Page 6 of 12 Rosenbaum asked when the capacity issue became part of the CIP (the drought supply). Jane said a lot of projects in the program meet multiple objectives. Dahlen asked if the Calavaras dam and reservoir is one of the CIP projects? The dam replacement is. However, the reservoir would not be expanded in the 20% cutback option. Dawes asked about our own water CIP. Where is our reservoir going to be? Scott said the EIR is scheduled to be completed in December 2005. September and November reports didn’t eliminate any of the sites. Scott said this will go to Council in November of next year and that will determine the direction we are going to go. Dawes asked about the environmental report – are we able to move ahead on any of the well related items? Bradshaw said we are starting the Foothills portion. The wells rehab are tied to the project we have under construction. The part we’re doing now are the existing facilities that are not involved with new well sites. The existing wells will add the ability to inject chlorine to create chloramines to match the disinfectant residuals that is in the distribution system. Bechtel EIR have a cost alternative for the cost objectives? Roger said it was also in the 1999 study we did. Dawes asked about desalination. Roger said it’s still being discussed but he is not sure it will be an option. What about extending the SCVWD treated water pipeline down the expressway? Roger said it would be nice if someone comes up with the money but it is a take or pay option. Jane talked about the graphs and asked if they would like to see in the hydrologic report in the future. In the charts, “the City” refers to San Francisco. Gas: Karla Dailey Rosenbaum questions: pg 1 supply acquisition approx 90% load has been purchased. 100% of the winter months and 90% overall. The amount of pool load that has been hedged, pool verses non-pool load. Rosenbaum asked if we really care what the price of gas is for non-pool customers? Karla answered that we care with respect to the budget, if our costs go above budget we need to allocate dollars. Rosenbaum asked for a number for expected costs for the pool load since that is the number we have to worry about when setting rates. Dahlen asked about the chart on figure 1; high and low – 30% chance price will be outside the high and low range. Karl Knapp explained the standard deviations were based on average actual prices. UAC Minutes: 02/09/05 – Approved 3/9/05 Page 7 of 12 Dawes questioned the graph-fig 3 page 3; full market price fixed price pool purchases in all cases below our WAYCOG. Karla said this is the price we’ve paid for gas. No market gas in the WAYCOG since we don’t expect to purchase during those months. Dexter commented that our buying strategy has been well done. Karla said that if you look at the same numbers over a period of years you would see the reliability of our costs, our laddering strategy has paid off. Dawes said he is satisfied this is a good strategy and would not recommend anything else at this time. Electric Dahlen footnote no.2: sellers choice contract - how long are they good for? Debra Lloyd said the issue is extending beyond 2007 when the ISO is expecting us to move to their new market pricing. Melton mentioned paragraph 1: Cal ISO was waiting for decisions on FERC in January. Did it come through? DL said yes, why their market proposal was not consistent with other market calculations. We are expecting more from the ISO to further explain their market power litigation. Dawes asked about PAUC going down road to adopt what is coming out of PUC: NCPA and CMUA the decision does not apply to Munis but we would have to adopt similar policies. Would we have to buy additional supply that we don’t need. Lloyd said potential is that there will be a new market concentrated on capacity. A new product which will take the place of RMR. Current proposal is they will keep RMR along with resource adequacy requirements. FERC asked them to explain why is this required. Dawes asked if we could sell our excess capacity to two other localities. Resource Adequacy is another issue will be deliverability. How much can be delivered to a pocket how much can we move out or a pocket. This is long way off. It is a FERC way but Cal ISO has not taken this direction this year. Bechtel asked if this product will be priced lower since it is an insurance, would it be priced lower than having to actually buy the power itself. Lloyd said yes theoretically. Don’t know if we can expect to see n lower price, what we are hearing is we are in a shorter position so will be valued in an incremental cost. When you reach your level of just not reaching your reserve the benchmark price is set up. Lost revenue string: the impact of our market cap. Joint meeting a few months back to talk about capacity market giving arguments for these markets. Is this actually enough – no. They still want long-term contracts. Rosenbaum offered his solution to the capacity problem; California uses about 40,000 Megawatts, we need gas turbines with the capacity of 6,000 MW sitting around. Alternatives are energy efficiency, demand response, transmission alternatives. Which is more cost effective would require a study. Two sides to that problem deliverability UAC Minutes: 02/09/05 – Approved 3/9/05 Page 8 of 12 is not just generation. If we move to new market side, potential congestion cost – can we avoid or sell into the market. Dawes liquidated contracts treated differently; why. DL Right now they won’t be counted different. It all comes to deliverability. It is a portfolio. ISO doesn’t always know the unit behind the contracts. They want to know physically how generation is going to meet load. Dawes fig 2 graph. Wonderful load balance for us, any possibility of increasing the amounts under that contract? Shiva asked about long term contracting for switching power. Shiva said right now we are in a deficit except when we are wet so there is not much opportunity for swapping. We could even the load balance out – right now because gas prices are higher during winter, prices are relatively strong but swamping ratio is fairly balanced. Telecommunications Update: Bechtel asked about sales and losses - is that a change or is that a revenue? Ceyda Can explained this is projects the bottom line contribution to our annual revenue. Added to our base revenue. Bechtel asked about loss column. Ceyda said we lost a number of jobs totally over (100M)? during that time which created a big loss on our end. Page 14 talks about revenue. Dawes said our 6 month revenue this year was ________ which was from four new customers. Dahlen asked about the chart – what are 6 new projects currently under construction? Ceyda said new customers interested in billing connections. Basically total addition has been estimated at $43,000 anticipated in next couple of months. Customers pay for construction and once connected begin paying licensing fees. These are projected customers. Termination of service has slowed down dramatically. 6 gains and 2 losses. Scott said this is a strong indicator of the change in our economy. Ceyda said it’s all over the place not just downtown. Outside of downtown our revenue base increases much more since we charge by the mile. Bechtel asked about the percent of total fiber strands – capacity. In certain downtown it could go up to 20-30% but away from downtown it drops to 4-7%. We still have a lot of room to grow. UTL financial solutions amount? $29,000 Dawes: fiber optic ring as fund. Ulrich said we have been looking at this past month. We have to report back to Council on what to do with the trial – continue, put in another form or get rid of? Dawes asked if this would come to the UAC? Ulrich said he doesn’t see why not. Dawes views this as an expansion of a business we are already in. Setting up a fund that would help us push forward in this area is a way of UAC Minutes: 02/09/05 – Approved 3/9/05 Page 9 of 12 seeing what kind of popularity it would have. An incremental approach building on the base shows good sense. He urges staff to consider as an approach. Bechtel asked for clarification on the electric public benefit program. Are customers savings the dollarized total energy therms? Tom Auzenne said that represents the total dollar savings by the customers. It’s about a 3 ½ year payout. Dahlen asked year about 2005/06 – Calavaras portion appears smaller, why? Shiva explained this was produced in January and doesn’t have the latest information. Dawes asked if any impact on NCPA or us on Western’s move into the SMUD area? Shiva said yes, access to Western CVP generation (typically have amount of ancillary services is lower that previously). Dawes asked why? Shiva explained Western sub- control area within the SMUD. Western has to maintain generation to meet it’s obligation to SMUD. 2. Reserves for ancillary services, you cannot export ancillary services. 3. We pay 2 transmission rates, transport from CVP through SMUD projects and then another $5 to the ISO to get that same energy. This has significant financial impact on this which we fought against We haven’t been successful but we haven’t given up. Sounds like we end up paying more rather than less. Shiva: Western has more control over its transmission – customers in the bubble benefit most, out of the bubble not as much. Ulrich said it’s hard to say we didn’t gain something from it, the majority is yet to come. We’ll work on how to get us some if not all benefits of getting our load within the bubble. We don’t have Western transmission into the Bay Area. It’s a Palo Alto problem (BAMAX problem). Non-direct connect issue. Ultimate objective is to own a transmission line that would plug into the power line. Melton commented under the Public Benefits program and Palo Alto Green. He thanked staff for information on customer participation and what does it amount to in kilowatt hours. New goals have increased our goal for community participation customer sign-up goal, would it make sense to have a goal of kilowatt hours? Tom Auzenne said 15% is an internal goal. The numbers have increased since this report was written. It could make sense to make a goal based on kilowatt hours. The truth is we’ve been very successful with residential basis but 70% of our goal is business. Doesn’t see what necessary benefit would be verses reporting overall benefit. Melton said even if it is a small number it would be something to strive for (include business). He was thinking of trying to have a goal which puts a focus on getting commercial/industrial customer signed up to Palo Alto Green. Tom said it is worthwhile to establish a percent customer goal. This would be a reasonable marketing goal. Financial – Electric: No questions – robust reserves. Financial – Gas: Dawes assumes all gas projections include rate change in January? Tom said yes. RSR is projected only slightly above the minimum. DSR is okay. Couldn’t understand in light of our rate increase, this report projects market prices UAC Minutes: 02/09/05 – Approved 3/9/05 Page 10 of 12 have decreased – revenues will be reduced as well. Lucie said the 1.5M is related to non-pool. If cost to them decreases out revenue decreases. Financial – Water: Bechtel asked about the rate stabilization reserve numbers - reserves are changing a lot yet our rates are higher than all cities around here. It just doesn’t feel good. Our reserves are doing what they are but our rates are higher. Particularly our rates. Ulrich said our costs have been deferred (8 hour and reservoir) is going to go up. We need to increase our rates. We need to look at what other cities are spending on their rehabilitation programs. Dawes said we bonded the entire CIP. That extra bond money should be in our reserves and apparently it’s gone. Tom said bonding for water and gas was $20M; for water alone it was $13M. We have assigned staff to look at other cities to see what their cost structure is to see exactly what they are spending. It’s hard to know where the level playing field is. Other concerns are rates are high, reserves are low. Emergency project in the foothills when a system failed. We moved some money around to pay for it so we didn’t effect the RSR. We are chronically under-funded in water reserves. When things break – under funded. Ulrich said our proposal will be for a rate increase, what we plan to do and look at where the money comes from. Dawes asked when the next 10 year projection forecast comes out. Tom said we will bring to UAC when we bring the budget. Dahlen asked about the chart on residential gas bill comparison. Our laddering strategy has been successful but on the chart comparing to PG&E we don’t look that great. Bechtel said it really is quite good quarterly. Ulrich said take December 04 at $75 versus $125. John said we need to look at that scale. Risk management Quarterly Report – Information Karl Van Orsdol was present to answer questions from the Commissioners. Dahlen asked about Seattle city light volumes. How we’re handling that, swapping back and forth with Seattle. KVO said this is a contract signed several years ago. It’s a power swapping contract. Tom Kabat said the volumes are fixed in the contract schedule. KVO said it’s not monetized. Contract is till 2014. Bechtel asked if this distorts our revenues and costs? KVO said any distortion is less now than earlier in the contract. Increases in gas prices summer vs. winter, this doesn’t distort that. Bechtel asked if we monetized how much roughly would it be. Tom Kabat said he doesn’t know, Bechtel said on our books we would monetize it and over the year the balance would be zero since no money is being exchanged. KVO said we could do a mark to market evaluation in the next quarterly report. The amount of energy swapped is a very small fraction of the total load. He will do in the next quarterly report. Bechtel said he’s neutral on yes or no. KVO said if we monetized we start reporting on their credit scores. Bechtel said interest is looking at the profit/loss for the enterprise. KVO described the process for reporting on this. Ulrich asked if there is a market where you could get the market price? Leave it up to KVO to determine how much time and effort to put into this report. Dawes said if it is useful to you, the City, the department that would be fine. UAC Minutes: 02/09/05 – Approved 3/9/05 Page 11 of 12 Dahlen asked for clarification on electricity mark to market. KVO explained that in January we did well with Coral and we did poorly with Sempra. Prices declined after we made necessary purchases with Sempra. Now we are much more dependent on Western’s ability to forecast costs in advance. Highly variable estimates that can switch in one month. Total mark to market for January is positive. Dahlen asked how much in advance can we predict with uncertainty with Western? Tom Kabat said we’ve learned a lot in the past months on how accurate their averages are. We’ve noticed the winter months hit a volumetric cliff; drops from average to a simulated number. We were caught off guard with the big gap. Now we are planning our strategy on what we’ve learned so we can position ourselves accordingly. Would it be prudent to look at other products we might purchase is something we are looking at now according to KVO. Kabat said it’s all variable. A strategy of deliberately overbuying/contracting assumes a very low Western delivery, over buy and if they come through with something then sell it off. KVO said we’d want to look at what the cost of different strategies would be. There are always questions about utilities involved in speculative actions. Ulrich said we are obligated to figure out the most accurate estimation of what we will use. Difference between Calavaras hydro (operated by NCPA in a way that maximizes the value of hydro) and Western hydro (multipurpose project operated for 5 purposes ahead of power; flood control, navigation, irrigation, recreation, fish and wild life damage and litigation, and is a different product). We are predicting both of these with rainfall. Western uses rainfall and snow pack. Is rainfall the right parameter to use with Western (Dahlen). Kabat said the forward curve has nothing to do with how they will operate. Dawes asked if the communications are good with Western? Kabat said it is moderately good, may be guarding at top but there is communication at the peer level. Dahlen asked about gas contracts. Costs: we have page 1 BP – price is high, above $6, projecting ahead to next year (pg 3) where we have substantial contracts over $7. Why don’t we have better prices for the larger contracts? KVO said these are contracts entered into over a period of time for delivery at another time. They are not responding solely to current market prices to purchase. Sometimes you get prices that appear low and others high. The average MMBTu cost for every contract we have for forward delivery is $5.1 per MMBTU which is more than $1 lower than the current spot price. Charts do not say when we bought it, which is proprietary information. Kabat said gas prices are noticeably higher in the winter months. Motion: Bechtel made the motion to Adjourn. Dahlen seconded. Motion passed unanimously. IX. NEXT REGULARLY SCHEDULED MEETING March 9, 2005(Special date) – Council Conference Room UAC Minutes: 02/09/05 – Approved 3/9/05 Page 12 of 12 X. FUTURE HIGHLIGHTS Budget XI. MEETING ADJOURNED Respectfully submitted, Dee Zichowic, CPAU Administrative Assistant