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HomeMy WebLinkAbout2006-02-01 Utilities Advisory Commission Summary Minutes Utilities Advisory Commission Minutes from 2/1/06: Approved 3/1/06 Page 1 of 6 UTILITIES ADVISORY COMMISSION DRAFT MINUTES OF FEBRUARY 1, 2006 CALL TO ORDER The Meeting was called to order at 7:02 p.m. and those in attendance were; George Bechtel, Dick Rosenbaum, Marilyn Keller, and John Melton. Commissioner Bechtel welcomed the New Year for the UAC. ORAL COMMUNICATIONS No communication received from the public. MINUTES Commissioner Melton made a Motion for approval of the Minutes. Commissioner Rosenbaum seconded. The Minutes 11/2/05 and 12/7/0 were approved unanimously. AGENDA REVIEW No changes to the agenda. REPORT FROM COMMISSION MEETINGS/EVENTS Strategic Planning session in Sacramento. UTILITIES DIRECTOR REPORT 1. SEA report: Key finding this year is that satisfaction still strong in several areas but dipped 20 percentage points. Carl Yeats stated he thinks factors in this drop are the on-going investigation, rates, and Enron. He said tonight staff will be presenting the RKS survey where our satisfaction for commercial customers remains high. Commissioner Bechtel asked what scale the 20 points is at. Carl stated 68% of residents rate compared to 88% last year. Commissioner Rosenbaum confirmed the work the Auditor has done. 2. LEAP implementation plan. Will come back to the UAC in March. 3. Palo Alto joined a climate-action registry. Staff is working on and will update the Commissioners as developments happen. 4. CMU Capital Day: Girish Balachandran, Carl Yeats, Bern Beecham, and Debra Lloyd attended session, met with Ira Ruskin and Joe Simitian and talked about issues relating to CPAU. The focus of the day was the Governor’s water bond, climate change, and exit fees. It is becoming apparent that the environment is heavily regulated, getting more so and we (municipal utilities) are under attack – exit fees, ongoing PG&E issues, ISO, FERC all levels state and federal. Will take quite an effort for staff to stay abreast and keep you updated. 5. Standard and Poors: storm drain, water control, water bonds confirmed excellent ratings from before. S&P gave us stable rating and no change in our credit rating from before. Utilities Advisory Commission Minutes from 2/1/06: Approved 3/1/06 Page 2 of 6 6. Bern, Girish, Dexter and Marilyn all attended the NCPA workshop – overall muni RKS survey, PG&E rate forecast, rate climate, state political climate, issues related to utilities. Keller said Palo Alto looked very good in the entire discussion of Utilities. 7. Cal ISO redesign and market upgrade. MRT Implementation delayed till 2007. (Tariffs) 8. Land fill generator project in Santa Cruz County. 120 hour electrical performance test. Unit will commence operation very soon. Ribbon cutting ceremony on February 24th at the site. 9. Working with key staff to bring back to the Commission, as we promised, in March an overview of the changes we are making. We suggest we hold a special meeting so we can have a lot of the staff participate in that meeting. Commissioner Bechtel said good idea. 10. Emily Harrison said at Council we moved ahead with the 8-hour emergency water supply project which indicated we would use El Camino Park as preferred site. This is a major accomplishment to have it move ahead in the EIR process. Approximately 1 year to process EIR, 1 year to design, and 18 months to construct. We will need to keep a sense of urgency along the way. Most of our sites are Stanford sites so we will be in negotiation with them. Commissioner Rosenbaum asked about the $844,000 mentioned in the paper. He said the UAC looked at this in 2000 and now 5 years later we are told we have to pay this money out of the utility rates for the study. Harrison said there is no agreement at this point on location. Hold up was at the Council level, some Council Members thought the creation was a subtle way of creating the possibility of urban growth. What does the EIR do that makes that problem go away? If at the end we have to use an acquisition process rather than an agreement we will have to have an EIR to back up our acquisition. Cost of bringing water underground from Hetch Hetchy is cost prohibitive to use Heritage Park. Emily Harrison said we do not even know the basic work about where we think it will be located in El Camino Park. Commissioner Bechtel confirmed this is also an engineering feasibility as well. He commented that he did not see the CMR. Russ Carlsen was watching the televised meeting and brought copies for all the Commissioners. The UAC will serve as the host of the public scoping meeting for the EIR. NEW BUSINESS ITEM 1: UTILITIES QUARTERLY REPORT Commissioner Melton asked Jane Ratchye about San Francisco. What is our staff’s view of what San Francisco is doing with their financing plan, issuing bonds and taking bond indebtness from 50 to 300 million? Is that a realistic assumption, is any city going to do that? Jane said that is what they claim they are going to try to do. BAWSCA says they cannot do it with their current organization. BAWSCA financial consultant reviewed SF’s plan and said it is a great plan. The problem is do they have the organization that can get this work done? We have a lot of concerns about that also. Had an update at last BAWSCA Board meeting, Tony Irons thinks this whole thing is do-able. SAN FRANCISCO is making changes but they are not anywhere near the gigantic projects. They are in the process of developing a quarterly report. He claims this report will provide all kinds of reassurance. Commissioner Melton said we need to start a publicity campaign with our customers telling them San Francisco is getting this going and when it does our rates are going to go up. Better sooner rather than later to flag that to our customers. Carl said we are working on a Long Range Financial Plan for each utility and we hope to have in September. Will be mailed to every rate payer. We Utilities Advisory Commission Minutes from 2/1/06: Approved 3/1/06 Page 3 of 6 have brought up with our key customers and they are aware of this. Commissioner Melton said the residential customers are the ones who will be jumping up and down. He expressed his concern. Commissioner Rosenbaum followed up about the financing, not planning on using regional authority. He asked about the management of the project, has there been any discussion on having anyone other than San Francisco manage the project. Jane said Parsons is the management team they hired to manage the project. Commissioner Bechtel said San Francisco is fully aware of what they have to do with the financing. Jane said BAWSCA has the ability to finance. San Francisco can now finance it completely on their own but it’s not determined if they will or not. How much indebtedness do they want to take on? Commissioner Melton asked about page 4 of the report where the BAWSCA survey that indicates water consumption will exceed the secured supply before 2010. What is the impact on Palo Alto customers? Jane responded that Palo Alto’s consumption is not expected to increase. Question of how it will be shared in the future. Current contract expires June 30, 2009 and in the current contract we can exceed it with only a very small cost. Commissioner Keller asked about page 2, recycled water projects – will this apply to Palo Alto? Jane said they are trying to develop 4 different water supply options. All plans are being looked at. Some projects are more defined than others. Every city has the potential to use recycled water. QUARTERLY GAS UPDATE Commissioner Melton asked about attachment B – gas leaks by type of pipe. Everything dropped to zero except “Other”. What is other? Tomm Marshall said he thinks it is copper pipe but does not think there is a significant amount. Commissioner Melton said this graph looks very encouraging. Marshall said we know we have AVS pipe that needs to be replaced. Commissioner Bechtel asked about Figure 2 on page 2. Fixed price purchases vs. target purchases. He asked for clarification on graph and different indicators as the arrows are not working. Table One is encouraging (on page 3). QUARTERLY ELECTRIC AND FIBER ISSUES UPDATE Recent market design from meetings in Sacramento, load aggregation and congestion charges – impact is yet to be known. Girish said we have estimates of what those costs could be. Commissioner Rosenbaum asked about hydro hedging. Page 3. Complementary hydro energy exchange good idea, what prices are offered that are not attractive? Tom Kabat said it is a good idea but the counterparties have arranged some of their agreements. They are not bidding prices low enough to make it attractive to consider working with them. Commissioner Rosenbaum said staff thinks use of reserves will be better for us rather than paying off the money. Kabat said what would the utility be willing to pay to reduce the risk of wet and dry years hydro risks. Other members of the pool whose share of Calavaras is very small which results in a question of diminishing returns. We have the most hydro of any of the other pool members. We are carrying a higher hydro risk. There are some members who have a much bigger hole in their portfolio where hydro belongs so we thought we would see if we can reach an agreement with them. Commissioner Bechtel asked about the LEAP update that will deal with co-gen and potential partners. He stated he thinks it will be interesting and that the report sounds positive. Is the size of Utilities Advisory Commission Minutes from 2/1/06: Approved 3/1/06 Page 4 of 6 City Hall out of the question for co-generation? K2 said the only one with large gas load would be the water plant but they use that for the incinerator. Long term there is some potential but not right now. Revenues look good for fiber. We are seeing more requests for fiber connections. Staff has been working with the Finance staff on resolving some issues. Our marketing has been productive. A rate study was completed which makes more sense than our current customer rate. Tomm said it looks like it will eventually result in rate reduction for our customers. FINANCIAL UPDATE General question from Commissioner Melton: All through the report we are comparing RSR forecasts with minimum and maximum guidelines. We were supposed to get a new methodology for establishing new guidelines. Girish said we have decided to delay that. Staff has provided the presentation as part of the rate proposals but we are not going to make any major changes at this point. Commissioner Rosenbaum commented we think we are going to be $20 million better off than when we began this year. He mentioned that John Ulrich had an interest in having very high reserves. When Karl Van Orsdol came along we felt better with lower reserves. Once the staff says we’re going to have a raise increase this year. Next year if we use that philosophy Rosenbaum does not think we will need a rate increase. Commissioner Bechtel asked about WAPA – getting more hydro and what terms do we have with our suppliers if we don’t take the contracted power. Girish said if they don’t deliver we don’t pay. Blocks we buy we have to pay for and any excess gets sold (done through NCPA in the daily market). GAS FINANCIALS Commissioner Bechtel said we are below our minimum guideline on our rate stabilization reserve. As a result, any chance of making up this year? Girish said we cannot get it back to minimum this year. We have hedged most of our needs for the rest of this year. WATER FINANCIALS Commissioner Bechtel referred to page 5 of the water table: years should be corrected; should be 05/06 on 2nd and 3rd column. He questioned on the WRSR, what was $355,000 BAO for. It was the Carollo 8-hour emergency water project for what couldn’t be covered. The new table on page 9 refers to EPR (emergency plant replacement). Commissioner Melton thanked staff for putting in emergency CIP reserve balances that the UAC asked for. ITEM 2: ENERGY RISK MANAGEMENT UPDATE Potential of price increase for 9% is $500,026. We will continue to have higher and higher credit exposure. Sufficient or prudent is the question. Commissioner Melton referred to page 2 figure 1 – total load and components to fill. SCL exchange. We provide power to SCL, we’re in the market buying power. Once our wind generation comes on line we no longer need that power. By 2013 we will not need that power. The current contract was entered into in 1993 as a 20 year contract when today’s environment could not be seen. Commissioner Melton said we are shipping out power to the point where we have to buy power on the open market. Utilities Advisory Commission Minutes from 2/1/06: Approved 3/1/06 Page 5 of 6 Girish and Karl Van Orsdol said SCL is not willing to change the contract, they like it a lot. Commissioner Rosenbaum asked for a review of value at risk as it applies to gas. Karl responded at the forward price, what you think prices will be for the next year, then prices up and down. Unpurchased portion (9%). Guideline of 10% as the recommended level. This applies to the unpurchased supply during the year. Karl said we are concerned about all the risks to our credit reserve. What we know about prices right now, the market risk will probably go down but we can’t say for sure. Commissioner Rosenbaum asked if we were looking for a new method of determining what we have in reserves. Karl said we are exploring some things right now. Commissioner Bechtel asked if we use distribution reserves on gas utility. Do not want to mix use of reserves across utilities. Carl Yeats said you can use the reserves in any fund that the Council would approve but you cannot cross fund boundaries. ITEM 3: STATEWIDE AND PALO ALTO BUSINESS CUSTOMER SURVEY RESULTS Commissioner Melton asked about page 11 of the written report; pricing and value and the discussion of the customer’s response to whether or not their perception of our prices and value, satisfaction in that area has gone down. It is not clear whether this is general angst over higher energy prices or is it specific to CPAU that our electric prices are not as good a value as other Munis who might have the service. Ipek said this negative direction is more observed in response to our survey. Not the same negativity in the answers statewide. Commissioner Melton stated that these businesses believe we are not providing them as good a value as other utilities. Ipek said customers are still satisfied on a number of aspects. Girish added the different customer’s perception. The ones who want to expand did not provide as good a response as those who planned to stay the course. There is an opportunity for us to communicate more with our customers. We talk about the value of all the utilities (a full package) when marketing our utilities. It is a reaction to our rate increases. Carl said the utility preference speaks to overall satisfaction to provider. BPR 8% Munis, 8.2% for CPAU. Commissioner Melton remarked on the ratings between the “key” and “large” accounts. This may be attributed to customer mix changing and the fact that some “large” customers moved to the “key” classification and some “key” moved to the “large” classification. Commissioner Rosenbaum remarked that they could also be aware of the pricing differences between Palo Alto and Santa Clara. Tom Auzenne stated how we measure our response time but included we don’t measure by class. He stated there is a high level of price sensitivity and lower ratings are typical when you raise prices in this market. Although the Auditor’s SEA report notes a drop from 88% satisfaction to 68%, the report does not determine why we dropped. The Commission asked staff if there is a possibility of them receiving the rate information earlier this year. The Commission asked to receive the 5-Year Forecast in April, if possible. The next Utilities Advisory Commission meeting will be held on March 1, 2006 at 1 p.m. in the Council Chambers. Utilities Advisory Commission Minutes from 2/1/06: Approved 3/1/06 Page 6 of 6 Commissioner Rosenbaum Motioned for adjournment. Commissioner Keller Seconded. Unanimous. Meeting adjourned at 9 p.m. Respectfully submitted, Dee Zichowic City of Palo Alto Utilities