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HomeMy WebLinkAbout2006-04-19 Utilities Advisory Commission Summary MinutesDRAFT - DRAFT - DRAFT - DRAFT Utilities Advisory Commission Draft Minutes of April 19, 2006 Approved 05/03/2006 Page 1 of 10 UTILITIES ADVISORY COMMISSION MINUTES OF APRIL 19, 2006 CALL TO ORDER The Meeting was called to order at 7:04 p.m. and those in attendance were; George Bechtel, Dick Rosenbaum and John Melton. Chairpersons Dawes and Keller absent. PUBLIC COMMUNICATION None. APPROVAL OF MINUTES The minutes from the Public Scoping Meeting on 3/1/06 and the minutes from the regularly scheduled meeting on 3/8/06 were approved unanimously. Vice-Chair Melton Motioned for approval, Commissioner Rosenbaum seconded. Unanimous. DIRECTOR OF UTILITIES REPORT Carl Yeats distributed handouts of his report. No commission action was required. Yeats gave updates on recent press releases, the NCPA Utility Director Retreat Report on 4/12-13/06, the upcoming ethics training session, Council approval of LEAP, recent legislative actions, the annual Federal Policy Forum and Lobbying trip, and the annual Lineman Rodeo. Vice-Chair Melton asked about the Utility Connection Fees report that is scheduled for Council. Yeats shared these connection fees are for the Automated Meter Reading (AMR) enabled meters program where when we have new developments of 30 units or larger, where we will charge the developer. Auzenne said it’s a new fee for new large developments. We’re in a trial phase for AMR right now and will be going into phase II this summer. We’re evaluating it’s usefulness to us. We have identified the AMR test areas as difficult to read or large numbers of meters the connection fee CMR has AMR as one object, the other two deal with lateral connections, and bollard protections (so people don’t drive into meter sets). For AMR we deemed it prudent to have these meters installed with the AMR “Encode, Receive, Transmit (ERT) functions installed at the DRAFT - DRAFT - DRAFT - DRAFT Utilities Advisory Commission Draft Minutes of April 19, 2006 Approved 05/03/2006 Page 2 of 10 meter factory as it would cost us much more to retro-fit in the field if we decided to do so at a later time. We’re not losing any efficiency, and the minimal costs would be recovered through developer fees. Yeats told the Commission he will provide his report in written format for all future meetings. . New Business ERAP Debra Lloyd, Resource Planner; presented a handout presentation on the Electric Utility Resource Adequacy Program (ERAP). She gave an overview of how we got to this requirement. The restructured California electricity market of 1998 relied on markets for reliability but, since the 2000/2001 energy crisis, responsibility for those resource requirements has moved back to load serving entities (LSEs) and the Munis have supported this. CPAU had been told we would not be subject to the CAISO’s interim tariff but now we find we are going to be subject to the tariff. Lloyd went over some of the risks associated with the FERC-enforced tariff. Capacity requirements are driven by a few hours out of the year to ensure if we really need to have emergency power (ex: 4 hours on a hot summer day), the City could actually generate the needed energy. The counting in this charge refers to maximum output out of an electricity generator. The CAISO has asked us to do a ‘showing’ of the different types of resources we have and also how our resources support our energy demand,, which will depend on how the units will be planned for use in the coming year. Lloyd said NCPA will submit the required reports to the CAISO. This ERAP is just about capacity counting, it’s not about the energy. We have the excess capacity as we plan to meet our energy need. The COBUG may also qualify as a resource. We do studies of different scenarios of capacity needs with simulations of the entire network. One of our problems is the way the CAISO’s resource adequacy requirement is being enforced through the ISO tariff. Public power has not been given adequate time to respond. We are not being treated as full stake-holders in the adequacy proceedings. DRAFT - DRAFT - DRAFT - DRAFT Utilities Advisory Commission Draft Minutes of April 19, 2006 Approved 05/03/2006 Page 3 of 10 Staff, in coordination with NCPA, developed an interim resource adequacy development program for the city which will incorporate elements required under the tariff. Financial impacts of adopting; going through to 2008 – we don’t see any system capacity procurement being initiated by this program. There is a local capacity requirement that is looming and could have some financial impacts by the end of this year. Local meaning, within any of PG&E’s load pockets, doesn’t have to be within City limits or under our control. We are taking to Council on May 1st and asking them to approve. NCPA will submit the load balances for the city as required by the CAISO tariff. We could have local resource adequacy programs prior to the end of 2006. Balachandran said we have some indications of what the resource impacts would be and these are based on building a new peaking plant in California. Some of the local capacity requirements could be imposed on us very soon. The amount is based on capacity. The City would have to show up to 55% of our load – load pocket capacity is more expensive. Vice-Chair Melton asked if we have enough capacity to serve our load capacity. Lloyd said there is sufficient capacity in the Greater Bay Area. The issue is whether you can get a contract for it. You have to contract the capacity in order to secure the reliability. Vice-Chair Melton asked about delegating the authority to the City Manager to make changes. He asked what sorts of changes are contemplated and is it an appropriate delegation. Is it just tweaking and not major policy? This will give us the flexibility to have the City Manager have the ability to respond to ‘tweaks’ in adapting our program to reflect changes that have happened to the entire market. Motion: Commissioner Rosenbaum moved to approve staff request. Vice-Chair Melton seconded. Vote was unanimous. Bi-Annual GULP Progress Update Balachandran mentioned that there have not been any major changes since we began making these reports and staff would like this to be the last report the Commissioners receive unless there is something major that happens. DRAFT - DRAFT - DRAFT - DRAFT Utilities Advisory Commission Draft Minutes of April 19, 2006 Approved 05/03/2006 Page 4 of 10 Melton asked about the term ‘enabling agreements’ and what it means. Staff replied the standard form contract is a purchase and sale agreement that allows gas to be purchased and sold back and forth between two parties. We have 5 agreements right now with different entities. We put our own constraints on the city when the contracts were approved by the Council. If we see an opportunity to make another deal, we’ll have to take to Council for approval. Utilities 2006/07 Revenue Requirements and Rate Change Proposals Auzenne stated his intention tonight was to share the revenue requirements for FY 06/07 from what has been input into the budget system and that the formal proposals would come to the UAC with the Utilities Budget in two weeks. He explained how staff have taken the 10 year and the 5 year financial forecast documents and broken it in two separate reports. The first half is the revenue requirement - next month we will be bringing the Commission the 5 year rate projections. In previous reports, the combined figures were speculative and not approved which led to confusion. We are now projecting on the best available information. The Revenue Requirement will give greater clarify in terms of what is actually going forward in the next year budget. Yeats is putting together a long term financial plan for each utility which will include a lot of the information from the 5 year projection. The five year projections of revenue, expenses, and reserves are based on projections and best available information. The forward rates have never been generated by the budget reports for the last few years. The basis of those numbers was not what was actually in our accounting system. Staff plans to combine the Five Year Rate Projections with a new 10 year plan for each enterprise fund to the Commission in October. Commissioner Rosenbaum questioned the purpose of separating the first year from the remaining four years. The Commission has always been happy with it the way it has been done in the past. Auzenne said the next UAC meeting will be in two weeks and formal rate proposals will be in the CMR. Line one gives rates you will be seeing in the transmittals. DRAFT - DRAFT - DRAFT - DRAFT Utilities Advisory Commission Draft Minutes of April 19, 2006 Approved 05/03/2006 Page 5 of 10 Commissioner Rosenbaum observed the proposed budget holds significant changes and the Commission needs time to digest the information. Council is scheduled to meet the day after our next UAC meeting and will consider the Commission’s recommendations. Commissioner Rosenbaum said one of the more important things this commission does in evaluate rate proposals – he doesn’t see how that can be done this year. Auzenne said we are in the process of re-evaluating our reserve guidelines. He mentioned that Karl Van Orsdol has reviewed the rate proposals and feels they are fully adequate as far as risk management goes. It is our best interests to come back to the Commission sooner rather than later with modified recommendations to the risk guidelines. Van Orsdol’s report will be coming in two weeks. It is our intention to come back to the Commission sooner rather than later with modified recommendations to the risk guidelines. Some time in fall or winter next year. By the end of the calendar year is a good time to promise that. Yeats said we will need to come back sooner as the next year is the start of the two-year cycle, in September. Vice-Chair Melton said he would have liked to see the information a couple of months ago. Yeats reminded the Commission that all of this information goes through the Risk Oversight Committee which included the Assistant City Manager and himself. He is relying on the Assistant Directors for guidance on how soon we can come back to the Commission with information. Chairman Bechtel remarked on how smoothly the system has worked since he’s been on the Commission and does not believe former staff had any hands-on involvement with the financials the Commission looked at every year. He questioned the philosophical changes brought on by Yeats and Harrison. Chairman Bechtel stated it is almost impossible to make a recommendation with a one year snapshot of the reserves. Yeats reminded the Commission that in regards to actual risk to our portfolio – the Risk Manager has reviewed and will be formally talking to the Commission in May. His viewpoint is that the reserves are adequate and the Commissioners will see what the reserves are at the next meeting in two weeks. DRAFT - DRAFT - DRAFT - DRAFT Utilities Advisory Commission Draft Minutes of April 19, 2006 Approved 05/03/2006 Page 6 of 10 WATER Vice-Chair Melton said he was not surprised to see it a 7% rate increase. Commissioner Rosenbaum remarked that it wasn’t necessary to change the rate last year and asked if the SFPUC costs are going up for next year? Lucie Hirmina answered that they are. Hirmina said this year we adjusted the purchase cost lower because the sales revenue (units) lower than what we projected. SFPUC is raising their rates to us about 10%. Commissioner Rosenbaum said this last year has basically been a disaster due to the rain, and Hirmina said she has not looked at other cities and what their sales have been but will do so. Commissioner Rosenbaum said that if commodity costs are going up, it’s pretty clear we have to raise rates to cover those costs. Commissioner Rosenbaum asked about the 18% rent increase and requested a copy of the independent appraiser’s report. Yeats agreed to provide to the Commission. Commissioner Rosenbaum asked Hirmina if our neighboring cities pay rent to their cities, is there a transfer to the General Fund, is the real reason for our higher rates due to the rent increases and transfer? Vice-Chair Melton remarked that proposing a 7% increase, revenue will go up about $1.47M, looking at the reserves on line 38, roughly $1M of that increase is going into reserves. As a result our reserves are increasing so why are raising the reserve level in the water utility? Auzenne said that unlike some of the other utilities, because of the relative size of the reserve, it’s prudent to carry something higher than the minimum. We don’t have a separate supply for reserve and water, it’s still a relatively modest reserve and we will still be below the minimum guidelines. Commissioner Rosenbaum reminded that last year when we didn’t have any need for a rate increase, the fund was supposed to increase by $2.6M, we had economic disaster as far as the water utility went – you can see wanting to put something back into the reserve and he has no objections to doing this. Auzenne said we no longer have a monthly fixed minimum or meter charge, all of our rates are volumetric so when it rains, there is no fixed cost buffer. DRAFT - DRAFT - DRAFT - DRAFT Utilities Advisory Commission Draft Minutes of April 19, 2006 Approved 05/03/2006 Page 7 of 10 Chairman Bechtel said the connection fees have gone up every year. Last year we had a new fee, capacity fee, that did not take complete effect in 05/06 and it’s now showing in 06/07. Chairman Bechtel asked about the rent for the water utility – mostly water reservoirs, can we move to a cheaper location? Yeats said we are in contract negotiations with Stanford. They are going to market-based rents so the General Fund will not benefit as much on rents received from the water utility. We have an established an equity balance transfer methodology for the Water Fund that has gone through and been approved by the Grand Jury. Gas $4.4M commodity cost increase from last year to this year. Proposing a 20% change in this utility. Supply costs increased this year from last year. The adjusted budget was set in December in a very high priced time. The significant number is the pool cost and how that affects revenue. There will be updated numbers in the next Quarterly Report. The distribution charge is allocated to all customers, pool and non-pool. Next year almost all the increases will be from supply and a very small increase from distribution. Chairman Bechtel asked what the CIP is for and why is it up so Hirmina said it was kept as low as possible in 04/05 in order to reduce rate impacts, and it is now back to normal.. The City has done well at locking in supply – unhedged supply risk is low. At Karl Van Orsdoll’s last presentation he talked about the unhedged supply portion that was lower than the reserves we had. He will talk about the reserves adequacy in May. Wastewater Council will be considering asking the Commission to increase their purview to every utility that has a rate connected to it. Electric 11.7% increase which is unchanged from last year. Vice-Chair Melton pulled out the last Quarterly Report which said the adjusted numbers in that document are much smaller. Auzenne explained DRAFT - DRAFT - DRAFT - DRAFT Utilities Advisory Commission Draft Minutes of April 19, 2006 Approved 05/03/2006 Page 8 of 10 that the rate sheets are based on actual dollars. The quarterly report was based on projections. Melton asked which are more accurate, the quarterly report or the rate sheet today? Yeats said the revenues are up but costs are up an equivalent amount. Balachandran said this year the hydro has been better and he expects the end of year balance to be closer to the Quarterly Report. NCPA bills don’t get finalized until 3 or 4 months after the fact because of CAISO and this causes a delay in accurate accounting. Commissioner Rosenbaum doesn’t believe the need to have any raise in the rates when we’ve had a very good year. He expects a more definitive answer in two weeks when we have the quarterly report and asked staff to delay rate considerations for electricity until all the information is in which would upset the budget. Vice-Chair Melton said if our reserve level will be $10M greater than we anticipate, and if the rate increase will generate $10M, this really is a stretch to explain why we need a rate increase. Auzenne said we have the ability at the mid- year to take a look at adjusting the rates. Our portfolio is based on having cash reserves to mitigate a dry year. Essentially you have a one year hydro risk of about $20M. This is essentially what we’ve been projected for the past 3 – 4 years that this is where our rates are going to end up at. The cash reserves will help mitigate the hydro risks. Commissioner Rosenbaum said supply costs assume an average hydro year – costs are not going up, should be constant. Balachandran said two components with a dramatic change; transmission went from $3 to $10M and also market prices and these prices change. The major driver for reserves is hydro; if next year is dry we will have a huge draw down on reserves. Supply costs are just a portion of the total rate, which also include distribution costs, overhead and transfer to the General Fund. Commissioner Rosenbaum mentioned the rent increase of 11% in electric which is a total increase of $300,000. Melton asked what cost plan charges are. Charges from other departments, purchasing costs, payroll costs, general liability insurance, other things like that. Almost always allocated out on a per-employee basis. Chairman Bechtel asked staff to re-look at the recommendation. We’ll have another chance before we go to City Council. The Commission will give staff push back on the electric rate increase. Auzenne said we’ll go back and discuss with the Risk Manager and we’ll be able to have a discussion next month. Commissioner Rosenbaum indicated that we never use Santa Clara in our DRAFT - DRAFT - DRAFT - DRAFT Utilities Advisory Commission Draft Minutes of April 19, 2006 Approved 05/03/2006 Page 9 of 10 comparisons. Auzenne suggested agreeing on a ‘benchmark’ city for all utilities. Chairman Bechtel said what our residents actually pay is more important that the benchmarking. May 3 is the next UAC meeting. Agenda items include 5 Year Rate Projections, the Utilities Operating and CIP budgets, the FY 2006-07 Rate Proposals, and the Quarterly Report. Yeats said he hopes the budget document will go into the packet tomorrow. Rate resolutions will go into the same packet. Yeats presented the Budget Highlights. He told of the changes by adding an Assistant Director of Operations, and an Assistant Director of Engineering. Rate increases – will come back with additional information the Commission has requested. Yeats shared that staff did zero based budget exercises looking at all the functions. We reduced $177,000 in non salary expenses. We are trying to ramp up to a flat cycle of CIP at a higher level, where we are completing the ramped up projects every year. We will be doing the relocation of the Alma Substation, construction will occur next year. Water main replacement project 20 will begin. The utilities related retiree- medical calculation will have to be factored into future rates as a result of the requirements of General Accounting Standards Board (GASB) 45. We will begin to allocate in the 07/09 budget and we will begin to talk about next week. Meeting adjourned at 9:20 p.m. Respectfully submitted, Dee Zichowic Administrative Assistant, Utilities DRAFT - DRAFT - DRAFT - DRAFT Utilities Advisory Commission Draft Minutes of April 19, 2006 Approved 05/03/2006 Page 10 of 10