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HomeMy WebLinkAbout2007-08-01 Utilities Advisory Commission Summary Minutes Utilities Advisory Commission Minutes from: August 1, 2007 Approved on: September 5, 2007 Page 1 of 6 FINAL UTILITIES ADVISORY COMMISSION MINUTES OF AUGUST 1, 2007 CALL TO ORDER Chairman Melton called to order at 6:45 p.m. the scheduled special meeting of the Utilities Advisory Commission. Present: John Melton, Dexter Dawes, George Bechtel, Dick Rosenbaum, Marilyn Keller. Absent: Bern Beecham, Council Liaison. ORAL COMMUNICATIONS NONE APPROVAL OF THE MINUTES Minutes of the June 6, 2007 meeting were unanimously approved with the following correction: Dick Rosenbaum was not in attendance at the June 6 meeting. It was also requested that in the future, if there is technical difficulty with recording the meeting, that this be noted in the minutes. There was technical difficulty with the video taping of the June 6, 2007 meeting. AGENDA REVIEW NONE REPORT FROM COMMISSION MEETINGS/EVENTS NONE Utilities Advisory Commission Minutes from: August 1, 2007 Approved on: September 5, 2007 Page 2 of 6 UTILITIES DIRECTOR REPORT Fong presented the following report: 1) On June 29th, the San Francisco Planning Dept. issued the Draft Program Environmental Impact Report (PEIR) on the SFPUC’s Water System Improvement Program. The 90-day public review period ends on Oct. 1, 2007. A public hearing in Palo Alto is scheduled for 6:30 pm, Sept. 19, 2007 at the Avenidas Senior Center located at 450 Bryant Street. The draft report examines alternatives to the proposed project. One of the alternatives is to greatly expand the development of water conservation and recycled water programs. Mayor Kishimoto has appointed an ad-hoc subcommittee to develop comments. Council has tentatively scheduled a full Study Session for Sept. 17. Due to Brown Act limitations, Val retracted her invitation to send one UAC representative to attend the subcommittee meetings. This item will be on the Sept. UAC agenda. Commissioners will be able to discuss any recommendations to Council at that time. Copies of the Draft PEIR Summary were to be distributed after the meeting to allow time for review before the Sept. meeting. 2) A Request for Proposals (RFP) was issued for renewable power. The bid opening date is Aug. 21. The RFP is designed to meet the long-term renewable portfolio goals of 30% by 2012 and 33% by 2015. We are currently at 13% and, assuming the Landfill Gas Project materializes, expect to meet the 20% goal in 2008. From the pre-bid conference showing, there are about 12 parties interested. 3) There was an article in the Palo Alto Daily regarding an electric outage in the California Avenue District. A customer sent a letter to Council complaining about the outages and the telecom infrastructure. We are responding to the customer outlining the Utilities’ short- and long-term solutions for the area. We are working with the City’s Building Inspection Division, Utilities’ Marketing, property owners and affected businesses to ensure meter replacements and planned customer outages are scheduled to minimize inconveniences to this District. This District is also included in the 2010 Capitol Improvement Project timeframe. 4) The next NCPA Commission meeting is scheduled for Aug. 23 in Murphys, CA. The next NCPA Annual meeting is scheduled for Sept 26 – 28 in Monterey, CA. If interested in attending, contact Jennie Castelino. Rosenbaum asked to receive a copy of the customer’s letter and staff’s response regarding the outages in the California Ave. District. Utilities Advisory Commission Minutes from: August 1, 2007 Approved on: September 5, 2007 Page 3 of 6 Dawes asked why the Renewables RFP did not go through the NCPA process. Val responded that since the NCPA process has been slower than what we would have liked, Palo Alto Utilities decided to issue an RFP to target a smaller project closer to home in the 25 MW range. We are still working through the NCPA process and waiting to see what projects there might be Melton asked for an update on the NCPA process. Tom Kabat, Sr. Resource Originator, explained that the NCPA Green Power Pool Project received responses in Oct. 2006 and negotiations are ongoing. They have been, however, losing some of these bidders to larger Utilities. There are ongoing negotiations with smaller niche companies. There is progress being made with these as well as a few big ones. UNFINISHED BUSINESS NONE NEW BUSINESS ITEM 1: ACTION ITEM: Election of Officers: For the office of Chair, Bechtel nominated Rosenbaum. Dawes seconded. Nomination was unanimous. Rosenbaum thanked Melton for all his work and for “keeping his ear to the ground.” For the office of Vice-Chair, Melton nominated Dawes. Bechtel seconded. Nomination was unanimous. Rosenbaum referred to the timeframes now listed on the agenda for each item. He said Val realizes that these are only suggested times, that staff cannot control the length of time that might be spent, but he also wants to be respectful of staff’s time and, as Chair, will try to move things along if needed. ITEM 2: INFORMATION ITEM: Utilities Quarterly Risk Management Report and Electric Portfolio Update: Karl Van Orsdol, Energy Risk Manager, presented the quarterly Risk Management Report that covers the 3rd quarter of the fiscal year. There were no major credit issues and no exceptions to existing policies or procedures. Credit risk continues to decline, credit quality has improved. The new counterparties for electric and gas contracts have highly rated credit. Electric supply reserves have declined. Gas reserves Utilities Advisory Commission Minutes from: August 1, 2007 Approved on: September 5, 2007 Page 4 of 6 are increasing slowly and are considered adequate given the current market conditions. There are two challenges on the electric side. One is the longer-term volatility of hydro risk. We will come back at a later time with some proposals to mitigate that risk. The second is the short-term, immediate impacts on reserve rates from this year’s drought. Jane Ratchye will address this next. Jane Ratchye, Assistant Director for Resource Management, discussed how this year’s drought has impacted the electric Supply Rate Stabilization Reserves (SRSR). In January 2007, during the development of the FY 07-08 budget and retail rates, hydro conditions were considered average. The Electric SRSR was close to the maximum guideline level and drawdowns of $11 million in FY 07-08 and $8.5 million in FY 08-09 were planned. However, the current assessment is that hydro generation is reduced due to the dry hydro conditions to only 64% of average. Even if 2008 has average precipitation, hydro generation in 2008 will be lower due to the need for reservoir levels to recover. Since hydro production has decreased, market purchase costs in FY 07-08 are currently projected to be $10-15 million higher than estimated in January 2007. Given the planned drawdown of reserves, it is now expected that the SRSR will be at about $31 million by June 2008, or near the minimum guideline level. If 2008 is dry, costs could increase even more, putting the SRSR level below the minimum. Even if precipitation is normal in 2008 and 2009, hydro production is preliminarily estimated to be below normal through FY 08-09. Given the planned drawdown of $8.5 million and $9 million for additional market purchases to make up for the below average hydro generation in FY 08-09, the SRSR could be at $13.5 million by June 2009 even with the 10% rate increase planned for July 1, 2008. If next year is dry, the SRSR could be reduced to near zero. In summary, current reserves are sufficient for FY 07-08, but could be insufficient for FY 08-09. Staff will return to the UAC to discuss near-term management options to supplement electric supply reserves, including the use of other financial reserves (e.g. Calaveras Reserve), additional rate increases, or alternative pricing mechanisms. As shown in the long-term financial forecasts, Palo Alto’s retail rates are expected to move towards 12 cents/kWh over the next five to six years. Rates have been held down due to above average hydro generation in FY 05-06 and reserves drawdowns in FY 06-07 and FY 07-08. Short- term solutions proposed by staff will be developed in the context of the long-term cost drivers and revenue forecasts. Utilities Advisory Commission Minutes from: August 1, 2007 Approved on: September 5, 2007 Page 5 of 6 Dawes asked if market prices are higher than expected for the additional market purchases that must be made due to lower hydro production. Shiva Swaminathan, Senior Resource Planner, indicated that prices have been 10-20% higher than expected. Melton asked if there was any plan to move to a Time of Use (TOU) rate structure. Tom Auzenne, Assistant Director of Customer Support Services, noted that we currently don’t have infrastructure in the field or office to offer TOU on a wide scale basis now, but staff is evaluating such pricing options. Bechtel noted an article on how a family modified its behavior due to TOU pricing. Val noted that the UAC will have the opportunity to discuss TOU options since staff has promised to bring back a proposal in the May 2008 timeframe. Melton asked whether TOU for long-term should be considered. Rosenbaum noted that TOU pricing for residential does not sound cost-effective since only 15% of Palo Alto’s electric load is residential. Instead, it might be worth having a variable charge for hydro generation. ITEM 3: INFORMATION ITEM: Follow up to the Council/UAC Joint Study Session: There were three items to be discussed at the Council/UAC Joint Study Session. 1) Undergrounding Val mentioned that too many Council members were conflicted on this item so it could not be discussed. A staff report, however, was provided prior to the workshop. 2) Emergency Water Supply Melton said Council was made aware that the advisory vote would go on the Nov. ballot. The Council Members present spoke personally and were strongly in favor of it. They said they would do whatever they could, such as draft ballot arguments, etc., to support the measure. 3) Public Outreach and Education This was Mayor Kishimoto’s item and she encouraged staff to do more to provide information on rate increases – what’s coming, why and the background. Dawes wanted to discuss Undergrounding. Rosenbaum said that staff is going to generate policy with respect to continuing or not continuing undergrounding and then a discussion would take place. He said Dawes could contact staff with his concerns. Utilities Advisory Commission Minutes from: August 1, 2007 Approved on: September 5, 2007 Page 6 of 6 Keller asked about a short public description of the Emergency Water Supply to discuss at neighborhood meetings. Val said there was some information on the website in the Know Zone but that she would ask our engineers to draft something of this sort. Rosenbaum liked the recent bill insert in which all our rates were presented. He hopes we can do this on a regular basis. Next meeting is scheduled for Sept. 5, 2007. Action Taken: Meeting adjourned at 7:45 p.m. Respectfully submitted, Melody Vega City of Palo Alto Utilities