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HomeMy WebLinkAbout2005-06-01 Utilities Advisory Commission Summary Minutes APPROVED ON JULY 13, 2005 MINUTES JUNE 1, 2005 I. ROLL CALL Those present: Dawes, Dahlen, Rosenbaum, Bechtel, and Melton. Absent: Beecham. II. ORAL COMMUNICATIONS None III. APPROVAL OF THE MINUTES Melton moved and Rosenbaum seconded acceptance of the meeting minutes from May 4, 2005 Passed Unanimously IV. AGENDA REVIEW AND REVISIONS Change No.6 to before quarterly report. V. REPORTS FROM COMMISSIONER MEETINGS/EVENTS Melton spoke of the three Finance Committee meetings. Electric was delayed for a week due to members having conflict of interests. John and team put together a new set of budget proposals and as a result of these actions were able to reduce the increase from 19.5% to 11.5% Did decrease the amount this year but it did increase the two out years. Melton suggested the commissioners get the new 5 year plan. Finance Committee approved everything as we presented to them except that they adopted the electric rate plan B. Melton spoke with a council member after the meeting last night and received assurance that she is on board with our recommendations. VI. DIRECTOR OF UTILITIES REPORT Acknowledged Melton for coming to 3 meetings. Worked together so he had good information prior to the meeting last night. Not aware that we’ve ever changed the information at the last minute but everything seemed to fall into place. Spoke with the Risk Management Committee. Background: settlement between PG&E and NCPA. Late 98 – 02 PG&E came back and claimed there were additional charges due for their coordinating scheduling services. We put all the money into a reserve account last year so it was virtually paid for. We had accounted for the $4.2M in additional recalculation of hydro availability. Don’t think we’ll have to go to the market for purchasing. FC finished its approval of our budget and rate increases and will recommend approval by the full Council. City of Palo Alto Utilities Advisory Commission APPROVED ON JULY 13, 2005 Target level guidelines were raised to the maximum guideline. Enron settlement payments have been made but are not completed yet. Palo Alto Green program has been recognized for several new awards (three). RFP for a recycled water market survey and cost update issued on May 10th. The subject is worth revisiting since the wholesale cost of water from San Francisco PUC has been estimated to triple in 10 years. UAC will receive a report at the July meeting. The study will be completed in 05/06 fiscal year. Legislation for SB1 – for the million solar roofs amended May 31 moving more toward maintaining local authority. Dawes asked how the latest version of SB1 would apply to Palo Alto. Knapp explained that as of the most current version, that there would be a requirement for municipal utilities to offer rebates at least as high as IOUs, but would not have specific quotas. New developments over 50 homes would require that builders offer solar as an option. The bill is in flux and CPAU is working with other munis to maintain local control and keep the money in town. Regulatory: Cal ISO has begun their stakeholder meetings. Palo Alto will congestion costs through deliver and local capacity charges. Rosenbaum commented that he can’t make heads or tails of it, what’s voluntary, what’s mandatory. said it changes everyday and won’t be final until the Fall. Any new development that has more than 50 units/homes in it, builders must offer it now where before they just did it. Bechtel asked about the Enron settlement: The Daily News questioned if we actually got electric and/or gas deliveries from Enron while we had a contract. Was it confirmed that we did receive electric and gas. Ulrich said yes, we did take delivery at the beginning of the contract and we did pay for what we received. Second question: other parties to Enron, who have settled and who hasn’t settled. Who has settled? Truckee Donner settled? Kabat was reluctant to talk about because he hasn’t read Grant’s email about discussing it. Ulrich said we have no comments of other places settlements. VII. UNFINISHED BUSINESS 1. Statewide and Palo Alto Residential Customer Survey Results …………….Info Mr. Richard Claeys from RKS presented a report to the Commission for the state-wide assessment of residential customer satisfaction for electric utilities. Update and compare results to responses of customers owned by investor only utilities. Dawes asked if this was a statistically significant result (sample size). Claeys said yes the results are statistically significant. Value Rating Comparison the higher the score the more weight it carries. You almost never see 10 in this type of polling. IOU’s are beginning to come back a little bit. Palo Alto is clearly outperforming its peers in the state and is standing up nationally. Dahlen asked how many customers they looked at. APPROVED ON JULY 13, 2005 Nationwide survey included 1500 customers nationwide with 400 in the Western Region. The perception in pricing is that lower is better. Only ¼ [28%] of our customers think their rates are high. Other utilities customers has over ½ [52%]. Strictly residential customers. Customer belief is that CPAU works hard to keep prices down: was 54% in 2002 but only 39% in 2005. Palo Alto has a very strong result in perceived value of the electric service. Dahlen asked about surveys and Mr. Claeys confirmed that the population looked at in 2002 sample size was identical to 2005. It is important to keep the content of the web site fresh. More people are turning to the web site and this will become even more popular in the future. The reliability chart says nearly ½ of our customers can’t recall any outages in the past year. Image: residents tend to believe and trust in CPAU reflecting on the management and reliability. There is some option for improving our payment options. There is a very high level of awareness of the Palo AltoGreen program. Why hasn’t the awareness and participation in PAGreen [74%] increased. Dawes questioned the figures of residents being aware of the program. Knapp said first they are asked are you aware and then do you participate. Dahlen asked if Claeys could find out why we don’t have higher levels of participation. Claeys said we need to talk with the customers to find out why they don’t participate. Knapp said it’s not surprising that people know about the PAGreen but don’t want to pay for it. To the questions “would people be willing to pay a nominal charge to support an increase in water supply’, RKS received fairly high willingness. Claeys continued by saying stick with what you’re doing, keep up continuity, look into power delivery, continue to recognize unique customer base in Palo Alto and their specialized wants and needs. Dawes commended John and his staff for the great results. John said we will continue to look at ways to offer improvement. Bechtel asked about effectiveness of our public benefits programs. PA scored in the 6’s, we used to see a bunch of 7’s. Could we do better of publicizing public benefits. Claeys said he is optimistic about increasing awareness of public benefit programs. 2. Quarterly Risk Transaction Report ……………………………………………….Info Melton referred to page 9 and asked Van Orsdol about renewable electric where marketing not being covered. He asked about having to develop your own risk factor. Van Orsdol said we will continue to get per our agreement confidential information. Bechtel commended the report and asked about the gas transaction report. Is there anything that could be done to reduce our gas transmission costs? Karla APPROVED ON JULY 13, 2005 Dailey said the difference is around 40 cents. The price difference is due to when the gas was bought. Dawes asked about the laddering strategy on page 8. December through March looks great, but it appears we are uncovered for a piece of it in summer and early fall and then on into the spring for next year. Is there a policy to leave a piece of this uncovered to buy on the market. Karla said the GULP guidelines say we will leave a portion open so we can have some exposure to the market. PG&E buys all of their gas on the spot market. 3. Utilities Budget and Rate Revisions……………………….Info Lucie Hirmina passed out new rate changes and impacts. The last two pages of the handout are the average customer projected utility bill. The last page is projected commercial utility bill increase. Tom Auzenne said this is where we are at right now. Expects this is what Council will adopt. We are proposing no water rate increase, gas 15%, electric 19.5% to 11.5%; we traded a 19.5% and a 10% and a 6.6% for 11.5%, 11.5%, and 11.5%. This will always be pursuant to any other actions in the market bases. We originally started with wastewater at 19% and it’s now at 12%. Auzenne said we’ve sharpened our pencils, had resolution of outstanding contingencies that were resolved in our favor, looking at distribution reserve policy and reviewing it with an eye toward Risk Management protocols so we can make sure we’re not holding too much in reserves. Van Orsdol said rate agencies – we’ve had no feedback from them regarding our reserves. Bechtel asked when this will go to Council, Ulrich said June 20th. 4. Quarterly Report……………………………………………………….………… Info Water: Jane Ratchye noted that a February 22 meeting between BAWSCA meeting and SFPUC officials was discussed in the written report. She updated the UAC on a subsequent meeting on May 3rd, when BAWSCA officials met with the Mayor of San Francisco, SFPUC GM Susan Leal, and the President of the commission Dick Sklar. BAWSCA requested written assurances that the city of SF recognizes its responsibility to complete the repairs and improvements to the regional water system in a timely manner and with a reasonable budget. On May 18th such assurances were provided in the form of a statement signed by SF Mayor Gavin Newsom. Bern Beecham, as Chair of BAWSCA, issued a statement on May 19th saying BAWSCA was happy to get these assurances but remain concerned with the increasing costs and the very steep timeline the SFPUC has in its plan. Dahlen asked about the ‘drain Hetch Hetchy’ movement, what is status and impact. Jane said the Water Supply Improvement Program (WSIP) would not be impacted as most recognize a need to complete these projects regardless of APPROVED ON JULY 13, 2005 whether the reservoir is drained or not. The report from the state, which should identify what is known and not knows about the proposal, is due out at the end of the summer. The advocacy group, Restore Hetch Hetchy, is also preparing a report, but there is no timeline and it may not be completed until after the state releases its report. The claim by the Tuolumne River Trust that the WSIP will allow San Francisco to take out 70% more water from the river, but it hasn’t explained how that will be done. The worry is that a fourth San Joaquin pipeline will increase the take-away capacity. However, SF has used its entire water right except in a very, very wet year, when there is not sufficient storage capacity for the extra water. The Trust is concerned that SF will enter into agreements with the irrigation districts to take more than its water right. SF claims that the additional pipeline is needed for operational flexibility to be able to take one or more out of service for inspection and maintenance. Bechtel asked about the urban water management plan and whether the amendments added since 2000 will create a burden for staff in time or money. Ratchye said it is taking some staff time but the plan isn’t expected to contain anything new or different than what we are already doing. She hopes to bring a draft of the report to the UAC in July or August. The main feature of the report is a description of the conservation programs planned for the next five years. It will also contain a long-term plan (to 2030) in a more conceptual way. The plan also requires a public hearing, which we will have when the Council is asked to adopt the plan. In addition, there are some new requirements about noticing neighboring agencies. It’s a significant, but doable, effort in the time available. Dexter asked about the CIP emergency situation. He said he participated in a citizen round-table on locating the underground reservoir, which he believes will be the thorniest portion. Is the EIR addressing all the probable sites we have enumerated? Ulrich said El Camino Park and Heritage Park were pretty high on the list. We decided we needed to look at other locations that are not city- owned or are not at a park. It is important to add other locations. The EIR is still expected to be complete in November. He is continuing to make presentations to the community. Dawes asked about reservoir mixing systems, we had debated about adding mixing systems. Are these systems for adding chloramine or mixing well water? Those systems relate to the chloramine addition, which requires moving the water more often than when chlorine was used. The project is not for mixing well water with Hetch Hetchy. Quarterly Gas: Dexter commended the staff on the laddering strategy. Questioned gas main leaks by type of pipe, in 01/ 02 it went berserk, every type of material had more failures that any other years. Ulrich said it is our attempt to spend more money to replace those things. There is a large amount due to 3rd party damage. What is staff doing to educate customers, provide maps, stiffen fines. Ulrich said we have not found a financial punitive measure because we cannot charge above what it actually costs us. Tom has been working on trying to find a way to do so. Sometimes contractors - not doing daylighting – look for the pipe and explore for it instead of assuming markings are correct or not. Dawes asked if we are trying to benchmark against other communities. John said a private utility has a different way of charging. Melton APPROVED ON JULY 13, 2005 said fines and penalties are the things that will get the contractors attention. Municipal government says we cannot charge for anything over what it costs us to do the work. Private companies have a lot more latitude to do that sort of thing. We’ve been working on this for almost a year. Upshot of financial damage would like to make as punitive as possible to make them stop. We can’t even charge them our overhead costs. Reverse claims as a nuisance to them. Working with Purchasing to have a boilerplate contract that includes contract language to address these issues. Quarterly electric: Bechtel said he will go over locational marginal pricing off line. CRR hedges, he has never understood how to get revenue out of congestion if we don’t own the transmission. Shiva Swaminathan confirmed we don’t have contractual rights. Grid operator would come up with abilities for the areas and how the loads have been used in the past and then allocate on the past amounts. Bechtel asked about Western on page 3 – average generation 11% of all or just PA’s allocation? TK answered that PA and all other customers received only 11% of what they could expect in an average year. Bechtel asked about how we pay for the Western resource. Question is we pay $300,000 for Western base resource in the winter, we pay for even no deliveries, correct? Kabat said yes. Bechtel asked: If we exchange with a counter party how do they get compensated? TK said he will present for about an hour after this and he will go into that detail. Dawes questioned LMP pricing and load aggregate pricing. Swaminathan said the proposed market design will result in known node prices. New proposal is LMP of nodes will be weighted with corresponding load at those nodes. One is for generator and one for load servicing. As an example, Palo Alto Utilities makes a contract to buy power from x generator for $40, then ISO says no it’s $50. How does that work? Swaminathan said we get credit for the $50. This is only market purchases? Swaminathan said it is a settlement process. If you contract with supply, they will say this power is for Palo Alto, the difference ISO puts in their pockets. If no congestion it will be the same except for losses. Dawes asked why we go through a generator. Swaminathan tried to explain but Dawes said the congestion prices didn’t provide any incentive to create additional generation. Quarterly Telecommunications – no questions. Dawes said he has been a proponent of FTTH from the beginning. He’s noticed there is glass fiber going in around town on a sporadic basis. As these strands are going in, it seems it would be a variable cost to add conduit into the trench. Is this policy in the department and if not, is it possible to initiate and add more fiber as it is required for other uses. Ulrich said our policy is to install conduits when ever we can so we can install fiber at later dates if we can. Dawes asked abut home fiber APPROVED ON JULY 13, 2005 system. Is this an issue we will take up he will let this drop but will expect we will have in-depth fiber profits finance additional capability within the FTTH program, opening up the existing neighborhood to additional subscribers to take up the service. Ulrich said yes, we owe to the Council so the Commission will get an in-depth report. Quarterly Financial Electric – no questions. Quarterly Financial Gas – Melton spoke of the comparison of what is reported in the quarterly report comparing us to PG&E but last month’s rate increase report; in that report it’s a more thorough comparison. Shows the only time we have better rate than PG&E for residential is in the winter. This came up last month, the impression is to go beyond just looking at the residential comparison, and our rates are not great competitively. Auzenne said yes, generally our commercial rates are higher than PG&E. part of the problem is the way we try to benchmark to PG&E. they try to pass on the price of gas to their customers all of the time. Ulrich said we don’t have a methodology to accurately compare to PG&E since it changes every month. If we looked at supply and did 12 month rolling average forecasting on what we think PG&E’s will be, then it would be closer to comparison. We are not competitive in that we do not take our distribution rate and provide a discount or reduced cost as people are using more gas. Since we put a lot of money into improvements our costs are high. PG&E also does a significant amount of bond funding and we don’t. Melton asked what impact does this have on the business community? Are we at the risk of losing customers? Ulrich said we try to look at the entire cost of utilities. Roche and other large customers purchase 60-70% of our power. Roche has done very well in the Palo Alto rebate programs in the amount of a couple of million dollars. Ulrich said customers need to look at the entire Utilities package. Quarterly Financial Water. No questions. 5. Update Summary of Low Income Programs ……………………………. Info Anthony Enerio introduced himself. Currently we are running 2 programs, rate assistance [RAP] and Project Pledge which is other customers pledge to put in additional money for needy customers. July 1st and with Council approval we will be implementing a new program for residential low income program. Will go into low income homes and help to identify savings within their homes and make those changes. Vic Farisito explained how through RAP, we help customers in a couple of ways. They receive a 20% discount on their bills. Also assists a customer if for a medical reason, they are using a particular utility we will discount that utility 20%. Customers are re-evaluated every year to determine if they remain eligible. APPROVED ON JULY 13, 2005 Other program is Project Pledge. Customers can stop at any time. Special cases, we will pay their complete utility bills for up to two months. If it goes beyond two months, we will help them apply for state and federal assistance. REAP home energy and water audits, education, home weatherization, installing insulation, thermostats, appliance replacement. This program will be a great addition to our programs. Melton thinks that project pledge hasn’t been marketed very well. Initially it was heavily promoted. Enerio said with the new REAP program we will be upgrading our marketing plan. We will make sure everyone in Palo Alto knows about our programs. Bechtel asked about audit program. Feel for participation for owner occupied versus landlord projects? Is there a way we can deal with the different classifications for all our customers. Vic said we will initially market to the single- family residence but eventually will be marketed to the landowners. VIII. NEW BUSINESS 1. Presentation “Update on Hydro Uncertainty” ……………………………………Info Tom Kabat said hydro is one of our largest risks. We would like to decide if we should change the current policy on how we handle this. Will be requesting feedback tonight on the Commissioner’s initial thoughts. Kabat listed 8 strategies to mitigate hydro risk. We think volume risk is about 80% of hydro dollar risk an that price risk on that volume is about 20%. Dawes said it seems if you buy forwards you’ve got it locked up, in effect you’re contracting for more than you think you’ll need so why doesn’t the risk go to zero. Kabat explained that you’ve undone the price risk but you still have the volumetric risk associated with the uncertain hydro output. [We will need to consider the trade-offs of different options. With CHEX [hydro exchange], Palo Alto receives Western Base Resource and all rights responsibilities and costs of WBR and a fixed volume of on-peak energy from counter-parties. Palo Alto delivers an amount of other on-peak energy that corresponds to the amount generated by Western. The net effect is that Palo Alto has low variability of net energy value result. Dawes asked about paying our counter-party a service fee for this. Do they take no risks on the power pricing and what they have to buy to fulfill our needs? Kabat said we would pay the monthly service fee, they would be taking the risks on making the purchases and price offers. We would have the bid go out requesting the amount everyone would charge us for the fixed monthly fee. Dahlen asked if there were examples of other communities that are doing this. Kabat replied that he doesn’t know but he will investigate. Kabat went over the proposed next steps, which are to complete the hydro risk mitigation analysis and APPROVED ON JULY 13, 2005 then come back to the UAC in July or August with further analysis, results, and recommendations. The purpose tonight was to get everyone up to speed and to get reactions from the Commissioners. Rosenbaum asked about chart on page 7; volume risk remaining against price risk remaining. He indicated those both seem like price risks on the vertical scale. Kabat said we are separating price from costs. Hydro risk is made up of both volume risk and price risk. Kabat said we have not done a lot of risk management product pricing investigation. We might have to go out with an RFP to find out what the bid prices actually are. Dawes said it’s fascinating, it will all come down to a matter of price. They may be not in our price range but putting an RFP together fairly rapidly would be a good thing to do. Dawes stated he doesn’t believe we will get swift turnaround since this is a very complicated arrangement. Let’s think about getting some real RFPs on the street to see if it makes sense. It may be out of our price range. Bechtel commented on Kabat’s point on the window of opportunity. The pressure to mitigate the hydro risk, we would be in a better bargaining position when everything is normal. Have a RFQ process in mind within the next several months. This may be the year to do this. Dawes said he thinks there will be large risk premiums based on what happened this past year. Rosenbaum asked if we have a way to compute the costs of carrying reserves. Swaminathan explained the hedging guidelines to cover our needs. IX. NEXT REGULARLY SCHEDULED MEETING: July 13, 2005 in the Council Conference Room August 3 X. FUTURE HIGHLIGHTS UAC Elections – July Update for Dark Fiber and Fiber to the Home – July Hydro Uncertainty Next Steps XI. ADJOURNMENT Meeting adjourned at 10:39 p.m.