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HomeMy WebLinkAbout2005-11-02 Utilities Advisory Commission Summary MinutesApproved At UAC Meeting on March 7, 2006 Page 1 of 17 November 2, 2005 UAC Meeting DRAFT MINUTES The November 2, 2005 Utilities Advisory Commission meeting was called to order by Chairman George Bechtel. In attendance were Commissioners John Melton, Dick Rosenbaum, Dexter Dawes, and Marilyn Keller. Chairman Bechtel welcomed Marilyn to the Commission after recently being elected by the City Council. ORAL COMMUNICATIONS None APPROVAL OF THE MINUTES Motion: Commissioner Rosenbaum Motioned the minutes from September 7, 2005 be approved as written. Commissioner Melton Seconded the Motion. Unanimous approval. AGENDA REVIEW AND REVISIONS John Ulrich changed the order of New Business items. He suggested Item 1 remain the same, move Item 4 (UWMP 2005) to the second position, followed by the Utilities Quarterly Report, Risk Management Quarterly Report and concluding with the Customer Sales report. Chairman Bechtel agreed with this suggestion. REPORTS FROM COMMISSIONER MEETINGS/EVENTS Commissioners Bechtel and Melton attended the presentation for the program timeline for the EIR for San Francisco upgrading the system. Bechtel commented that there was good attendance here in Palo Alto. DIRECTOR OF UTILITIES REPORT John Ulrich announced a couple of recent changes in the Utilities organization, Tom Auzenne is on vacation tonight. Steven Dortch who was responsible for Customer Service has taken a retirement and Anthony Enerio, Manager of Marketing Services, will hold this position while we are looking at the organization. John mentioned that Anthony just got back from his honeymoon. Bruce Lesch, whose honeymoon was quite a while ago, will move into Anthony’s place in Marketing. Other people on the program will be introduced as we go along. NEW BUSINESS Urban Water Management Plan 2005 Update John Ulrich introduced Ipek Connolly to present the Urban Water Management Plan 2005 which is listed as an Action Item. Commissioner Dawes asked what is the action being asked of the Commission. Approved At UAC Meeting on March 7, 2006 Page 2 of 17 Ipek said the request is for the Commission to provide feedback to add to the report for Council consideration. Bechtel clarified that the feedback is something they are asking us to move the document on to the Council with the Commissioner’s comments attached. Ipek stated that what is presented at this meeting is the first Public Meeting and is also available on the City website. After staff hears the comments, they will incorporate them into the plan and then take to Council. Ulrich said the intent is this is a Public Hearing on this subject so we will convey the input we receive on this report. Jane said normally when we take something to the UAC and then to Council we are asking for Council to take action. This time we will be taking for their information and then in December we will be asking for their approval. Specifically, staff is asking the Utilities Advisory Commission to move or adopt whatever plan the Council recommends. Ipek went through a prepared slide presentation. All agencies are required to supply a plan every five years. This is our fourth plan. This plan is to be coordinated with other agencies within our region. The plan is due to the California Department of Water Resources by December 31st, after adoption by Council. This plan presents no departures from the existing plan, it uses the same set of data for its basis. BAWSCA and SFPUC worked jointly with CPA to prepare the plan. This plan contains plans to implement water conservation programs to secure sufficient supplies from San Francisco, particularly in draughts. The plan has a drought response plan and non-drought emergency plans. Plan coordination and public participation have been followed and at the second meeting of the Council we hope to have the plan adopted. Currently 100% of our water sources are from SFPUC. We plan to continue to obtain 100% of our supplies from SFPUC. We have no current or future plans for other supply options. Groundwater, recycled water used at some parklands, duck pond, Emily Renzel Marsh, and City trucks for dust control and irrigation. We have no plans for new uses but we have a market study underway. Depending on the outcome, we may have additional uses for recycled water in Palo Alto. Ipek gave a history and projections of the City water supplies. Our water use in the past was 20,000 acre feet per year with 2 periods of drought where it was lower. Currently 14,770 acre feet is being used by Palo Alto. We expect to maintain our use at this level with an increase of 2% by the end of 2030. Looking deeper into our water usages by customer class we see it is primarily residential at about 65%. The plan discusses the demand management measures we have looked at. About 13 water conservation programs were looked at in the Plan. The conclusion is that through demand side management there is a Approved At UAC Meeting on March 7, 2006 Page 3 of 17 potential to reduce water use by from 1.6% to 4% depending on what programs the city chooses to use. Reliability takes regional and local reliability into consideration. SFPUC addresses regional but until that program is in place, there is a regional liability of about 60 days during a disaster. There is also a vulnerability to temporary outages. CDHS recommends that in an emergency situation, local systems should be prepared to meet 8 hours plus adequate flows in all pressure zones. Today, our availability is less than 3 hours at maximum daily demand. SFPUC expects to meet 100% of our needs in a normal year; single dry year 90% and three dry years in a row they can meet 80% of normal deliveries depending on regional demands. Our Plan addresses a water shortage contingency plan consisting of emergencies of catastrophic events, long-term water shortages (droughts), and long-term water shortage plan elements. Ipek talked about our long term water shortage plan elements we already have in place, info outreach and audit programs, demand-side management programs, incentive rate structures, water use restrictions and availability of recycled water for trucked uses. Ipek asked for questions. Bechtel asked for questions. Dawes observed this addresses the Palo Alto deficiency from the 1999 study, CPAU identified CIP programs to address deficiencies and environmental review on going. These were authorized, and the environmental review is simply the first step. He suggested strengthening the mentioning of this. He was disappointed we did not include when the EIR will be completed. Supply facility is a political hot potato and we should be more forth right about when we are getting through that, pushing city council to see when we will be through this. Central to our preparedness, it is light on the issue of recycled water. We discussed at some length about a year ago to participate with Mountain View to pipe - in the future if the economics work out we can tap into it. There is also in water use area, analysis is light on reasons why our water usage has gone down. Industrial usage declined and will go down in the future. Dawes said due to employment issues that took place but if things pick up, we will not be able to supply the demand that will be expected. Bechtel said he was surprised on page 34, city and public facility use will be the fastest growing in the city 10.7%. The comment made said it is consistent with service growth. Hiring more people, building more parks, building more buildings… not sure he can agree with that growth. Why that number used. Ipek said all together in the next 25 years, the driver is the employment projections. In terms of use per account there is no growth. That’s an assumption that was made in the SFPUC study. Bechtel said it’s not based on a detailed look at our city but on an average that came out of some type of conventional wisdom. The other use, page 37, unaccounted for losses (8, 10, 7%) for leaks, broken pipes, Approved At UAC Meeting on March 7, 2006 Page 4 of 17 people bypassing meters, and so on. If water gets that expensive, we can fix those types of things. Add as goal to USP – percentages lowered. Bechtel remembers discussing recycled water in regards to spending money to tie to Mountain View; he wishes we could find some way to come up with some innovative ways to do so. Bechtel commended the report as putting all our information into one resource. In the past have we ever gotten comments back from the state on what we’ve submitted (no). This is a requirement but once they receive it, it’s okay. Jane said the review is getting more extensive and is also a requirement to get grants. They are being reported to the legislature. This year it will probably be on the internet to see what each agency did or didn’t do. Bechtel asked for a reminder about when we get the EIR for the new storage facility completed. Does it go to the UAC then to Council for approval, contracts awarded, what is the process? Ulrich said approval to spend the money is contingent on completing the EIR's and then coming back to Council. Cwiak agreed. Once council approves the EIR, we will return to council on the contract to start the design included in the EIR. Once design completed, back to council again for construction contracts and construction costs. Roger said optimistic late 2006. Rosenbaum said the problems we are having with our 8 hour supply system parallel the problems that San Francisco is having with the system. We can’t get off the dime and you can’t put your finger on any department that is responsible. In respect to the plan, you might divulge what we would do in the event of a drought. The plan is too general. Jane said no recommendation has been made because we are waiting for the resolution of the EIR and the sighting of the well so we can make these determinations. The cost of treating the well water depends a lot on its location. We can’t make a recommendation now to use ground water to a certain amount until we have the costs to treat the water at a particular well site. We are waiting for a completion of the study. Rosenbaum said the inverted rate schedules were very general. Are we going to do any advance planning or will it be done on an ad-hoc basis. Ipek said we didn’t make any analysis for any specific situation. The draught will happen over a period of time and depending on the circumstances we will devise a plan at that time. Bechtel said we have our own integrated water resource plan. Our plan has to be more specific, will you deal with drought more specifically there (inverted rate structure). Jane said currently we don’t address in our WIRP and didn’t plan to. She would not recommend putting a lot of specificity in this plan as each drought is specific, we can see a drought coming for a long time. It would be a mistake to be specific about actions we would take due to varying circumstances. There is so much that could change, we could have an allocation in the future, it’s not clear what type of specificity you would want. Can’t say it will meet the revenue Approved At UAC Meeting on March 7, 2006 Page 5 of 17 requirements. How can we add some level of specificity. Identify the tools in the general approach in the plan is sufficient. We’d like to hear if you have some plans. Comment on her feelings that it is not a good idea. Bechtel said he agrees. The specificity at this point is not necessary. Moving forward will be for the Council next step will be a public hearing on November 21. Motion: Dawes moved the Utilities Advisory Commission recommend to Council the UWMP 2005 for staff to incorporate the comments passed on by the UAC and pass on to Council. Second by Rosenbaum. Ulrich advised to ask for public comments (since this is a public hearing), if they have any additional comments. Bechtel agreed and asked if anyone in the audience wished to comment on the plan or the motion that we recommend to the Council? No indication from the public. Public Comment closed. Comments from commissioners. Bechtel commented that perhaps staff could draft a brief summary of our comments here and pass back to one or two of us to see if that’s what we really said and then move it along. Ulrich said the minutes can be formulated to be specific about the comments you made. And then you can give us feedback. Dee will start on the minutes tomorrow. Bechtel said it would be good to have back in about a week. Jane said the CMR needs to be completed by November 10th. Bechtel repeated earlier motion that the UAC recommend to the Council the draft UWMP and that staff incorporate our comments when submitted to the Council. Motion was approved unanimously. Local Resources Update Girish Balachandran told the Commissioners that we are presenting a summary of the LEAP and the implementation plans which they have been involved in. We have on a long-term basis about a 30% deficits in a normal year. We have several uncertainties that face our energy portfolio. We have price risk, hydro risk, transmission and regulatory risks. Our implementation plan has identified seven tools to establish a diversified portfolio. The two specific tools staff will talk about tonight are demand side measures (DSM) and local generation/co- generation. Girish went over graphics demonstrating our risks, deficits, and dollars we would spend to purchase that deficit value. Karl Knap, Project Manager, is with us tonight. Due to Karl’s efforts we have hired the Rocky Mountain Institute to do a study for us focusing on DSM and local resources. Girish introduced Joel Swisher who will be making the presentation. Dr. Swisher is the Managing Director of the Rocky Mountain Institute. Dr. Swisher stated RMI has been working with CPAU for about a year now in response to the situation that Girish talked about with the expiration of the old Approved At UAC Meeting on March 7, 2006 Page 6 of 17 WAPA contract. Our assignment was to apply the resource methodology we call ERID (Energy Resource Investment Strategy). The idea is to construct a robust, low-cost portfolio of energy resources based on consideration of a full range of supply and demand side resources available, compared and ranked that includes both cost and risk. We work with the paradigm that the energy you save is just as valuable as the energy you produce and sell, the megawatt. Demand side resources include energy efficiency and demand response (managing timing). The demand side potential doesn’t seem to be a whole lot greater than what Palo Alto already has in place with some of the programs with the larger industrial commercial customers. On the demand side we really focused on energy efficiency. On the supply side, we focused on distributed generation which is an area that had not been so comprehensively explored. Particularly going beyond the conventional approach to distributed generation which is really emergency stand by (old diesel that only comes on during emergency) but rather on resources that would run the majority of time. We also considered the central resources for power production but a lot of the attractive resources for renewables are already going into the plan. We did compare the other resources we considered supply and demand side for Palo Alto to either build or share a part of a larger project with another utility or muni, for example. In summary, we did indeed find significant potential for Palo Alto to take advantage of cost effective energy efficiency improvements and distributed co- generation. For the efficiency potential to be realized would require some augmentation of the on-going programs, probably with emphasis on the commercial sector including the small commercial sector which is sometimes a little more difficult to get at and we suggested a number of ideas including some innovative components for energy efficiency delivery that we’ve identified from looking at utility programs all around the country. In terms of the CCHP, the on- site generation potential, we did a quantitative screening study using monthly load data and billing data from specific customers but to really nail down that potential and determine the full feasibility, we would suggest a more detailed engineering study, specific subset of the customers. Finally, it still makes sense as Palo Alto continues to do, to look at the local central generation resources either co-generation on a larger scale or combining a simple cycle turban in Palo Alto or nearby. We’ve made a graph called the Integrated Marginal Cost Curve of the resource, supply side or demand side. In terms of the annual amount of energy produced or saved, which is the horizontal axis and ranked those resources according to their levelized costs. What we found looking out ten years to 2015, and the resources that could be implemented by that time. The first increment of the least cost potential was in energy efficiency. There are a number of different opportunities in commercial, in particular; lighting, air conditioning and in the Approved At UAC Meeting on March 7, 2006 Page 7 of 17 residential sector it’s mostly lighting. The levelized cost of those resources range from 1¢ to 5¢ per kilowatt hour. Potentially cheaper for a certain amount for the energy to be saved than to produce it. The next more expensive but still relatively cost effective resource is combined cooling heating and power for a particular subset of customers. Namely the really big ones. We looked at the monthly load data for specific customers that are around 4 or 5 megawatts generation capacity per customer. The next increment is actually the central generation option that we looked at building on what the City has already done. We prepared a range of different options and they all came out pretty close in cost to the distributed CCHP option, a little over 6¢ per kilowatt hour. Finally the next group of resources were additional energy efficiency, although higher cost, measures as additional combined cooling heating power. Mostly customers with smaller demand. It looks like the price just keeps going up to infinity but eventually you’d just look at other options. If you sum up the annual energy potential just from the resources we did consider, it comes up with about 600 gigawatt hours per year which is about 60% or 16?? of the total load of Palo Alto. You wouldn’t need all of those even in a dry year. There seems to be plenty of resources available to meet the remainder of the City’s load. The ranking of resources doesn’t seem to change no matter if the price of gas goes up or down. The one, well two really, it does benefit is the energy efficiency which of course saves rather than using it and the other would be the renewables. The reason that the combined cooling/heating power is so attractive is because of the ability to use more of the energy. When you make electricity you produce a lot of waste heat. With CCHP, the majority of the waste heat is used to supply heating loads on site and also you can turn heating into cooling, air conditioning, and thereby use it not just in winter but also in summer. When you add the ability to use all that energy, you get more bang for your buck. When you take the existing resources and add the energy efficiency savings that we think can be implemented by the year 2015 and those large combined cooling/heating power productions what you find is in a wet year, you already have more resources. You’d probably be selling, you’d be dispatching your CCHP less than the maximum and you’d be selling some of the surplus and thereby supplying cleaner energy to your neighbors. In an average year you’d have about a 10% deficit still and a dry year would be more like 30%. Commissioner Bechtel thanked Dr. Swisher for his presentation. Karl Knapp said Roche has already conducted Level 1 testing. Commissioner Rosenbaum thanked Dr. Swisher for coming to the meeting. He commented that we’ve been pursuing energy efficiency for many, many years. He Approved At UAC Meeting on March 7, 2006 Page 8 of 17 asked if we have an idea of how many gig watt hours we’ve saved though out this process and how does that compare to the 70 that is being suggested that can still be obtained? John Ulrich said we’ve done a lot but the more you do, the tougher it gets. Karl Knapp replied we are developing a ranking to see what is the right way to spend the money. Dr. Swisher said it’s not a non-renewable resource, we have new technical measures available today that were not available when some of the programs were implemented. If you keep looking you can find new opportunities. Rosenbaum asked that Stanford built a co-generation plant but it was so expensive they would never do it again today. Are you familiar with that facility? Dr. Swisher said he is not. It is a CCHP plant but he thinks if you looked at the costs compared to PG&E it would still pencil out fairly well. Their system is about 10 times larger than what we are talking about. Rosenbaum commented the demonstration chart shows 25 Megawatt of co-generation, is this independent of any company? Dr. Swisher said it’s a hypothetical single city owned plant where you could link to a substantial thermal load. It would not be feasible today but could in the future if they change the process. We don’t have a specific host in mind. The other three examples are well known in respect to their performance. Karl Knapp said the last page (14) of the electric report says the commercial advantage of the program they estimate they’ve saved 13,000 megawatt hours per years, accumulative over the last five years, which adds up to 13,000 so far and there is 70 more to get at that price level. Dawes followed up by saying the big burst of spending for demand side management was at the height of the blow off in 2001-02 primarily with large industrial customers replacing air conditioning units with up-to-date units.. It sounds as though with the red diamonds there, which are five, the industrial facilities that are programmed to have co-gen facilities would replace whatever air conditioners they now have with absorption units driven off the waste heat. It sounds as though the investment we made three years ago would be discarded, is that the idea? Dr. Swisher replied that he was not sure of the specifics of the two different programs but they are not all industrial customers. Dawes said he assumes these are customers that used portions of our $2.5 million to replace their air conditioners and are now, in effect, going to throw them away and do it again. Dr. Swisher said, some are. In the case of Roche, who are being very up front about their intentions, intend to do that anyways. They had a directive from their corporate in Switzerland to phase out refrigerant based cooling all together. So the idea of going these chillers would be consistent in any case. Dr. Swisher does not know about the other four. Approved At UAC Meeting on March 7, 2006 Page 9 of 17 Dawes asked about the other nine, specificity of them? State-wide averages, we’ve been pushing these for quite some time and would like more information on those bullets. Are they appliance rebate programs, are they commercial accounts savings that we haven’t done a lot with. Lead me though half of the savings you identify in that area from ½ a penny to 5¢ cost. Dr. Swisher said the top two boxes cover the electric measures with include lighting measures in both commercial and industrial sectors, refrigeration in commercial sectors. The next would be air conditioning. In residential it’s not that much in appliances because California has appliance efficiency standards that have been in place long enough where you have captured a lot of efficiency there already. The majority of potential is in the commercial sector. The small commercial is harder to get at but there remains some potential. Commissioner Dawes asked about the five large “co-gen” facilities” which are 4 1.2 each. 4 ½ is too big for Roche, they are clearly our largest electrical customer. He was surprised to see so many 4 ½ Megawatt size plants. Dr. Swisher said they looked at heating as well as looking at cooling and was based on the monthly billing data. Dr. Swisher pointed out that if you look at the other investor owned customers, they too have made considerable investments in energy efficiency over the years. They too are finding additional potential for savings. Commissioner Rosenbaum asked about the greenhouse gasses courses that Dr. Swisher has taught. Sequestering carbon dioxide, CO2, while burning coal, is that practical? Dr. Swisher said he would consider it a long term wild card. The opportunities will be fairly limited. The resources listed here are far more reliable. Chairman Bechtel asked staff if the final report from RMI in December, are we going to be able to use this information to set priorities and actions and tell us about these things over the next month or so? There should be some action already underway. Girish said yes, we will be bringing several of the recommendations conclusions drawn here. You will get the final report at the December meeting and the first part of the new year we’ll talk about our co-generation options. Chairman Bechtel closed this topic thanking Dr. Swisher for his information. Commissioner Dawes said the import of this is we are building a structure to lose our biggest customers and this has a lot of implications of spreading overhead , particularly distribution costs to the rest of the community. Is this been added into the analysis as to what the ancillary impacts of losing big customers to the system? John Ulrich asked if the Commissioner was saying that by building a facility at Roche, they are no longer a customer of ours? Dawes said they are no longer buying power from our grid though our City gates. Dawes said he worries about losing customers. Girish Balachandran replied that it depends on who owns it Approved At UAC Meeting on March 7, 2006 Page 10 of 17 and what kind of structure you put in place. The analysis we’ve done so far show some advantages to the City. As we move forward and study it, some of those questions will be answered. Ulrich said the entire point is to provide highly reliable service. Karl Knap said the numbers that are on the chart assume that Palo Alto actually owned and then recovered enough revenue to cover the distribution costs. When we looked at customer owned options, non of them ever panned out to be economic. Dawes asked if we will permit customer owned or will we draw the line and say the only way this is going to happen is if we own them? Karl said he doesn’t believe we can do that but it would require legal advice from our attorneys. Are we going to sell it to ourselves for less than what we’d sell to our retail customers? Knapp said he would think so, Dawes said that would have some serious implications about the whole customer base. Knapp said that would be a policy decision. Dawes said if the whole thing turns on a differential pricing for gas, it seems like this might be a serious problem. Chairman Bechtel suggested we take this up when we hear more specific proposal coming back from them. Dawes said we were presented with an optimistic scenario about getting into the co-gen business and he is trying to say there may be some issues here. Bechtel agreed but based on the lack of facts presented tonight, we’ll wait until we hear more. Bechtel called a five minute break. Meeting resumed at 9:08 p.m. Utilities Quarterly Report First Quarter 05/06 Chairman Bechtel said we will address questions from Commissioners and asked for any questions on the Water Report. Bechtel spoke about the ‘restore Hetch Hetchy’ statement on page 6 in the report and the different ways numbers can be embellished. Dawes asked about where do we go from here? Does BAWSCA have bullets in their ammunition quiver to get things changed? Jane Ratchye said they do have a lot of long term thoughts of what to do to be less dependent on San Francisco’s system including looking at desalination the development of recycled water and more conservation. Also legislation, but Jane didn’t have a lot of detail about that. The best outcome is if San Francisco is successful in rebuilding this system. We need to work with them and to be looking closely, as BAWSCA does, at their plans and proposals. Generally, Art Jensen was very impressed in his review of the program to get them going on the right track quickly. Unfortunately, their contract process is very long and only leaves them two months. BAWSCA is the only organization that is asking the right questions, trying to get performance measures incorporated and trying to establish responsibility farther than just SFPUC. They are also trying to get the supervisors and the Mayor to commit. As you know, they’ve talked about this a long time. Melton said looking at Palo Alto’s response, we had our main item (No.1) pushing again for the two organizations to look at a second inter-tie between Santa Clara Approved At UAC Meeting on March 7, 2006 Page 11 of 17 Valley Water District and SFPUC. Why are we pushing these two agencies to consider this and what makes us think we might have a chance to be successful? Jane Ratchye said in the water IRP we looked at potentially connecting to the SCVWD treated water line as a potential long term supply as a replacement for some part of the Hetch Hetchy – San Francisco supply. When we looked at that cost that we would bear the majority of, it didn’t look like a very good deal. On the other hand, if we could get an inter-tie then there is a regional reliability benefit. Not necessarily for water supply. The whole thrust of this water system improvement program, from San Francisco’s view point, is to increase the reliability of the regional system. We feel this would be an improvement. There is a benefit for both systems but we don’t know how great it is. We don’t know the cost. It would certainly benefit Palo Alto. If there was a regional benefit and it was going to be paid for by the regional beneficiaries that would mean that would mean that all of the San Francisco regional customers would be included. It could be a good thing for us. We’re not saying do it, we’re saying look at it and evaluate what those reliability benefits are. We felt it is appropriate to ask them to look at that in the scoping phase. When we were looking at it in the water IRP perspective we were looking at it as a water supply and it had emergency benefits. This proposal would be we wouldn’t necessary take water from them on an on-going basis but we would have another emergency supply. That definitely has benefits for Palo Alto. Melton said we can see the value to us but if SCVWD and SFPUC have not looked at it, we’re asking them to do something that has a value for us but may not have a value to them. What prospects do we have of making this happen as the two principle agencies don’t seem to want to do it. Jane said SCVWD has said they have other reliability enhancements that are cheaper but San Francisco has not looked at it. That’s what she wants them to do. Now is a good time to have them look at this opportunity. Under the CEQA process you are required to look at alternatives that meet the same objectives. It’s not unreasonable to ask them to look at this. There were no other questions or comments. Chairman Bechtel asked for questions on the Gas Report. Commissioner Melton stated that he sees the numbers on the report, he reads the newspapers and wants to know if he should worry about a rate increase coming up in January? Ulrich said in theory if everyone uses more gas than we have purchased, we’d have to purchase more gas at a higher price. Right now we have 100% of our needs for the winter. Melton said no one is going to default on this, they will supply what we’ve contracted for, right? Ulrich said Karl Van Orsdol will report on our risk at a later point tonight. The gas that is purchased is based on the assumption that that gas is going to be purchased by our customers. If it becomes an extremely cold winter or inaccurate and people purchase more gas, we’d have to go buy more at the price it was selling for at the time. Approved At UAC Meeting on March 7, 2006 Page 12 of 17 Commissioner Dawes asked if we had any contracts that were impacted by Hurricane Katrina? Karla said no. John Ulrich said the strategy the City has for purchasing gas is part of our successful plan that takes away some of the volatility that the PG&E market is exposed to. Karla said we haven’t bought anything at a fixed price since before Katrina hit. Chairman Bechtel asked for questions on the Electric and Fiber update. Tom Kabat gave brief overview of the electric and fiber report. Commissioner Rosenbaum referred to page 6 of 18, CVP Corporation Activities; please explain that paragraph. Kabat said the first part of the paragraph talks about a seasonal exchange program Palo Alto participates in. Some energy is provided to Western in the winter and then Western supplies back an amount of energy in the summer. That’s tracking the energy returns. The second part of the paragraph talks about another exchange program that is being developed to try to work out a way to provide Western some more energy on Fall and Winter nights that they would use to meet their loads overnight while they back down the hydro generation in order to deliver the hydro generation in the more valuable day time of the same day. Rosenbaum asked about the first part; where is the energy coming from that NCPA is delivering and where does Western getting the energy that they are delivering in exchange? Kabat said NCPA is the schedule coordinator and provider for the CVP Corp procuring energy that they deliver to Western. Some winter days when the Western resource is too small to meet the project use needs. Those are days there wouldn’t be deliveries of base resource. Rather than have them work out an exchange agreement with a for-profit counterparty, the CVP Corp is involved in an arrangement that has NCPA schedule to Western. The value of those amounts of energy are tracked and the value is returned 105% in June, July, and August in some energy deliveries back to CVP Corp that is distributed back to the participating members through NCPA. Kabat said during the winter they are taking the energy in for free and during the summer they are giving it back ahead of base resource. Dawes asked if seasonality is a big problem. Kabat replied that NCPA is working off an account of energy in dollars that built up in the summer of 2004, a pool of money about $5 million. They are using the $5 million to buy market energy and then Western delivers back a little more than the $5 million. Rosenbaum asked about on page 18, the dark fiber financial report. This looks much different than what we usually see. This shows a small loss. Blake Heitzman said the last report showed us $400,000 in the black for the first three quarters. This report says we are $100,000 in the red for all four quarters. The Approved At UAC Meeting on March 7, 2006 Page 13 of 17 major difference between the two reports is that all of the end-of-year allocations were dumped on at the end of the year. We’ve asked ASD to put this on quarter by quarter so we can track it. We need to look at some allocations to see if they are correct. We are going on an accelerated sales program in the next three months to improve the bottom line. Bechtel asked are we getting calls in asking for service or are we going to have to shake the trees? Heitzman said, yes, we are going to be a little more aggressive. It has been slowly increasing as we come out of recession but we do need to ramp it up. We will be sending out an infomercial survey to about 2,000 business’s in Palo Alto. We are also going to work with the utility marketing group and have them work with their contacts. Bechtel asked about construction; are these the actual distribution, are we building out the main loop to other locations? Heitzman said most construction is custom paid influenced. Every one of these is a custom job and is a fairly extensive process. Bechtel asked about lit fiber, how are we doing in terms of utilizing full capacity in terms of the network. Heitzman replied we are still way below full capacity. The most congested spots, which are near downtown, are about 30% utilized. The important thing to look at is trying to recover our cost and to start paying off the original debt. The fact we have 144 fibers; we could have put in 48 and it would be at a higher capacity but it would have cost us about the same. Our goal should be that we’ve reached the number of customers who can use our product and that may not fill it up, at least in the near future. Heitzman said we are also having a rate study being done. Are we bound in terms of pricing to hook up to be only able to charge the cost of doing that, can you mark up the installation or bill out so you can always recover something. We could but we don’t want to scare off customers by charging them too much up front. By covering just the construction costs and then make the revenue on the annual fee. There is nothing prohibiting us from raising the construction cost, it’s just a practicality thing. If you raise your cost customers will go away. Bechtel said he received an email today asking about making telecommunications a sub fund, what’s that about? Heitzman said they are trying to set us out as a subfund of the electric utility. That will make it easier to track these numbers and also will probably re-access our allocations to see if it’s appropriate. Apparently we are being assessed like the rest of the electric utility. It may be we are getting allocated things we should not be getting. Dawes followed on the subfund issue. Previously he has argued we are in the telecommunications business and should set up as a separate fund and treat as a utility. Looks like we’re heading in that direction. It opens the door to have more services offered to more people as a separate sub utility. He asked for elaboration on potential activities the telecommunications subfund could explore. Heitzman said as a subfund it will help us get on our feet a little better and sustain ourselves. Legal issues and Council approval issues are our determining Approved At UAC Meeting on March 7, 2006 Page 14 of 17 factors in expanding our business. Some things are very complex and involve legal entanglements which Heitzman said he would not look forward to. Bechtel moved on to the Financial report attachment. Any questions? Melton move to page 8, CIP Reserve Balances. We’ve had a lot of discussion over the past couple of months. In the reapportions line in water and electric, I know these numbers are a build up of a bunch of different projects, he wants a sense if there is within this number, are there one or more really big projects (say 25% of the number) or is it not so concentrated. Is it 10 little projects, 2 big ones and 5 little, what’s the sense of what makes up the numbers. Ulrich said we don’t have that breakdown with us tonight. Our budget person is out for training this week. Melton said this report detail is fine but maybe when the budget person can send him an email with the information. Ulrich asked Melton if he’d like to come in and go through the material. Melton said he just wants a sense of if it’s one or two big projects or just a bunch of little ones. If they are big ones, he’d like to know what they are so he can focus on them. Dawes asked about page 2 Electric RSR; this is hard to track unless you have a very good memory. The projected ending balance at 0405 was $42.2 for electric RSR. The adopted ending balance for 06 is $23.8 which is a budget reduction of 15$-16 million. The big settlement with Enron was hit in last year. He stated he can’t envision why our reserve balance dropped by $18 million. John Ulrich said this is presented this way is to try to summarize this, as you recall we moved from 10 year to 5 year. Dawes said just so it goes though all the line items. Take the current year column and next column is the actual and you can see exactly how it lays out. Bechtel said if you really look at it, the beginning balance is $23,000,876 plus $5 million and adjustment, the actual reserves going into this year was $28 million. Dawes disagreed saying it’s the starting number and Bechtel agreed. Balachandran said we are working on some enhancements to reflect some of the suggestions the Commission has made. Melton referred to page 9 schedule, where we have adopted and adjusted budget and first quarter data; under reserves we use an acronym EPR (Emergency Platinum Reserve). With no further questions or comments Chairman Bechtel moved on to the next item. Energy Risk Management John Ulrich told the Commissioners that Karl Van Orsdol is here to present his report. Karl said it’s been a very exciting three months in the energy field due to Hurricane Katrina effects on the infrastructure and price increases to our portfolio. The above market value for all of our gas and electricity contracts is worth $102M more than market value, but of course, that’s just a paper value. Correspondingly our credit exposure has also increased. We continue to monitor and this continues to improve. During the quarter the actual average cost of Approved At UAC Meeting on March 7, 2006 Page 15 of 17 electricity declined. This is proof of the success of the laddering strategy of managing the portfolio during highly volatile times. The value of our electric portfolio increased by more than doubled and of course, our credit exposure has also increased. The expected value we get from hydro increased $23 million during the quarter and the expected value from our wind energy increased $2 million during the quarter. It was a good quarter in that respect. With regards to Coral, barring any dramatic changes in our energy infrastructure between now and the end of the hurricane season, Van Orsdol feels we’ve reached a high point of our credit exposure and it will be going down. On the gas side, calendar year end prices in increased for delivery by 38% but fortunately, due to the laddering strategy, we’ve been fully hedged for this winter. Because of the increase in prices the average price of gas did increase from $5.46 per to %6.21, a pretty significant 80¢ increase. The other important thing that happened during the quarter is that the value risk of our unpurchased portfolio is high. Van Orsdol said we have exceeded the 10% and staff does not recommend purchasing additional gas supplies to get below the benchmark. We see major price reductions in gas over the past couple of weeks and we will continue to monitor. We have had some pretty dramatic changes in the four weeks after the fiscal quarter. Electricity prices have declined for delivery in November, last night they dropped another $10. Per calendar year 2007 and 2008 we have reached the peak and we are now on the downward side. For gas, in October there are very significant differences in December gas deliveries on a daily basis where October 25th the price was almost $15 and October 31st the price went down to almost $12. The forward curve on gas prices continues to decline. Chairman Dawes asked about the three year laddering strategy if it is typical of the forward pricing and might it be sensible to buy some gas out in 2010? If we expanded our ladder out further maybe the beneficial effects should be discussed. Van Orsdol said we have been discussing internally with ROC and has been a proposal by the front office which the middle office strongly supports buying up to 20% of supply as far out as 10 years. The current decline in market prices we see going out is to some extent the results of the short term run up of prices from Hurricane Katrina. If the front office had the ability to purchase supplies, it would be an opportune time to do so. Commissioner Rosenbaum asked if we look at financial statements and Van Orsdol said yes, we receive confidential information from Coral and also from PacifiCorp and he analyzes those reports. We’ve had discussions with the CFO and we are getting those reports. We have regular discussions with Standard & Poors, I just completed a three day course from S&P on credit ratings. Chairman Bechtel asked if next time the Commission could have the opportunity to read the report prior to the commission meeting. Approved At UAC Meeting on March 7, 2006 Page 16 of 17 Customer Sales Contracts John Ulrich said this is an informational item and no item is required. Eric Keniston is with us tonight to answer any questions the Commission might have. Commissioner Bechtel had no questions, looks like we are doing fine on these contracts. The significant thing is most of the customers are going into standard rates, do you see this continuing? Keniston said we only have one customer on contract and no one else has expressed interest in going on contract. Commissioner Dawes mentioned letter we received, will we discuss at a future meeting since it was not available to the public at this juncture. Ulrich said he does not have a plan to schedule for another meeting but since this communication came in today, we used this opportunity to deliver to you personally. The Commission will have to decide if they want to agendize it for a future meeting. Commissioner Dawes said he feels it warrants further discussion and deserves an open forum to examine what the issues are. If it is very specific to only one person that is one thing but to have a very large customer unhappy that’s another thing. Commissioner Dawes said he is not familiar with the issues involved and all of the information. All the information seems to say we have happy customers out there and then we get something that says that is not the case. He’d like the chance to hear what the explanation is. Ulrich says typically we would provide an answer back to the customer. If you recall, this customer has been here before and given a presentation on this exact subject. You listened to him and gave him some feedback. He told us he was going to hire a consulting firm and the firm is the one who wrote this letter, not the customer. Dawes recalls the person but doesn’t remember the exact details. Where there is smoke there is fire and this is an important customer and Dawes thinks it’s worth surfacing and discussing it. He asked Ulrich to circulate the response to the Commission that would be the next step and if we want to discuss at a meeting, we certainly can. Chairman Bechtel said we should wait for a response from all of us. He hasn’t had a chance to read it and he assumes staff has just looked at it also. This requires some thought. Bechtel said he also believes the Commission should only deal with it on a policy basis. If there is some policy or some part of our rate setting or so-on, that is the context we need to discuss it. He is not certain we should deal with an individual customer in a public forum. Dawes said it seems to be policy issues but let’s wait to see what John has to say. Commissioner Melton said he knows at the meeting a few months ago, Tom Auzenne spoke of a cost of service study which he recalls tied in with the comments the representative from this company made earlier at that meeting. He thought it would come up at some point in the future. Does this tie into this letter? Ulrich said it could but he apologized by just giving them the meeting tonight. It’s not appropriate to talk about an item that’s not on the agenda. It is Approved At UAC Meeting on March 7, 2006 Page 17 of 17 important and we will deal with it. You’ve had a discussion on this particular item in the past also. Commissioner Bechtel said next meeting is December 7, 2005. All present for that? John Melton said he is unavailable in January to meet. Only the first Wednesday is when he can attend. Ulrich said the preparation and due process will be the problem since this is around the holidays. December 11, 2005 is a good date for all the rest of the Commissioners. Bechtel commented on John’s upcoming retirement. He said it’s been a great pleasure working with John. He gave his thanks and said John has always been helpful to the Commission. Thank you very much and best of luck. Dawes supported that. Meeting adjourned at 10:32 p.m. Respectfully submitted, Dee Zichowic City of Palo Alto Utilities