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HomeMy WebLinkAbout2007-11-07 Utilities Advisory Commission Summary Minutes Utilities Advisory Commission Minutes from: November 7, 2007 Approved on: December 5, 2007 Page 1 of 8 FINAL UTILITIES ADVISORY COMMISSION MINUTES OF NOVEMBER 7, 2007 CALL TO ORDER Chairman Rosenbaum called to order at 7:05 P.M. the scheduled meeting of the Utilities Advisory Commission. Present: Commissioners George Bechtel, Dexter Dawes, Marilyn Keller, John Melton, Dick Rosenbaum ORAL COMMUNICATIONS NONE APPROVAL OF THE MINUTES The minutes from the September 5, 2007, were unanimously approved. AGENDA REVIEW The order of the agenda items was changed so that Item 3 - Utilities Water, Gas and Electric Efficiency Programs and Services for FY 2007-09 would be discussed before Item 2 – Quarterly Risk Management Report. REPORT FROM COMMISSION MEETINGS/EVENTS Commissioner Bechtel attended the Northern California Power Agency (NCPA) Annual Meeting in Monterey, California, and commented that the focus was on compliance with Assembly Bill 32, the “Global Warming Solutions Act of 2006,” and how to reduce greenhouse gas emission. He noted that the costs to comply are potentially very high and that there is much uncertainty with regards to the rules and regulations that will be put into place at both the state and federal levels. UTILITIES DIRECTOR REPORT Valerie Fong, Utilities Director, noted the passage of two ballot measures: the advisory vote on the Emergency Water Supply Project, and the vote on the Transient Occupancy Tax. Utilities Advisory Commission Minutes from: November 7, 2007 Approved on: December 5, 2007 Page 2 of 8 Fong then introduced two new employees: Joyce Kinnear, the new Manager of Utility Marketing Services, who was most recently with Silicon Valley Power, and Marites Ward, the new Administrative Assistant, who was most recently with Alameda. Fong also acknowledged Bruce Lesch for his excellent work as Interim Utilities Services Manager, and Jennie Castelino and Melody Vega as Interim Administrative Assistants. 1. Resource Adequacy Capacity: Fong gave an update on of the California Independent System Operator’s (CAISO) - Market Redesign and Technology Update tariff and the Local Resource Adequacy Capacity requirement which staff estimates to be roughly $4 million per year. Fong noted that during the evaluation process of local generation, the long-term costs of capacity-only products were incorporated. Fong also noted that the PLUG-IN local cogeneration incentive program incorporated elements of long-term capacity costs into the buy-back rates, and that these costs were further included in the evaluation of renewable energy projects. Fong noted that staff is in the process of purchasing the capacity-only product from other NCPA members, especially Alameda (14 MW at $40/kW-year), and has registered the emergency generators with the CAISO as local capacity. Fong recognized the efforts of Electric Systems Supervisor Norm Brown, his team in Operations, and Shiva Swaminathan in getting the generators CAISO-registered. 2. Fong gave a quick update on Assembly Bill 1470, the “Solar Water Heating and Efficiency Act of 2007,” which requires that all retail gas utilities in the state, including municipal gas utilities like Palo Alto, implement and finance a solar water heating system incentive program, with the goal of installing 200,000 solar water heating systems by 2017 at a program cost of $250 million. Fong remarked that implementation of a gas utility funded solar heating program was already included in the Ten-Year Energy Efficiency Portfolio Plan and identified Palo Alto’s proportionate share of the statewide goal to be approximately 500 systems. 3. Fong gave a quick update on the issuance of $1.5 million in “Clean Renewable Energy Bonds” (CREBs), which had been allocated by the IRS to Palo Alto to finance its portion of the cost of the solar photovoltaic demonstration project with an effective ten-year zero interest loan. Fong recognized the efforts of Nancy Nagel and Joe Saccio from the Administrative Services Department. UNFINISHED BUSINESS NONE Utilities Advisory Commission Minutes from: November 7, 2007 Approved on: December 5, 2007 Page 3 of 8 NEW BUSINESS ITEM 1: INFORMATION ITEM: Utilities Report Water Report: Commissioner Keller asked about the nature of the comments on the Draft Program Environmental Impact Report (PEIR) on San Francisco Public Utilities Commission’s (SFPUC’s) Water System Improvement Program (WSIP). Jane Ratchye, Assistant Director – Resource Management, responded that although there is broad support for completing the seismic improvements, the overwhelming comment is to stop any additional diversions from the Tuolumne River. Commissioner Melton asked what San Francisco will do. Ratchye explained that San Francisco’s Planning Commission (Planning Commission) is scheduled to certify the Final PEIR, which will contain the responses to the comments submitted on the Draft PEIR, in May 2008. Any appeals to the Planning Commission’s actions will be considered by the San Francisco Board of Supervisors. After the Final PEIR is certified, the SFPUC will adopt the Water System Improvement Program (WSIP), including level of service goals. Then remaining planning, design, and construction on the projects can proceed. At this time, we do not know exactly what projects will be built and how any other arrangements such as agreements with Modesto or Turlock Irrigation Districts will proceed. Commissioner Bechtel asked how the 70 shutdowns will affect Utilities operations. Ratchye replied that the shutdowns are designed to not result in any loss of service, however, the system will be losing redundancy, and, therefore, be vulnerable to unplanned emergencies, during the shutdowns. Melton asked about the timeline for the City’s Emergency Water Supply and Storage project. Fong stated that the project is anticipated to be completed in 2012 with construction forecast to take about two years, following a project design phase estimated to take 18 to 24 months. Chairman Rosenbaum asked about the status of any agreements with Stanford on the lease for the reservoir project. Fong said that staff is working on this, but there is nothing to report at this time. Utilities Advisory Commission Minutes from: November 7, 2007 Approved on: December 5, 2007 Page 4 of 8 Gas Report: Rosenbaum asked why the gas meter exchanges are below the goals for each month of the fiscal year. Tom Auzenne, Assistant Director Administrative Services, noted that manpower issues have slowed the ability to meet the monthly goal, but that staff is working to improve performance in this area. Electric Report: Bechtel asked whether staff believes that the transmission cost upgrade will be as expensive as estimated. Fong acknowledged that high cost and noted the preliminary nature of the estimate. Fong indicated that staff is continuing to work with PG&E to refine the cost estimate which may or may not reduce with refinement. Rosenbaum asked why the costs for the NCPA Green Power Pool (NGPP) were so high. Tom Kabat, Senior Resource Originator, responded that the cheapest projects are done and that it’s now a seller’s market, possibly due to the state Renewable Portfolio Standard (RPS) mandate. Rosenbaum remarked that the City may want to re-evaluate the standard in light of the fact that costs of electric supply are an issue as will be discussed later. Commissioner Dawes asked whether the increased costs associated with generation capacity could be applied to the incentives for local generation, and whether that would provide a greater incentive for projects to be more likely to happen. Karl Knapp, Senior Resource Planner, stated that the generation capacity and associated market design costs are included in the electric buyback rates, and would be adjusted in response to the costs facing the utility. The potential to recoup some of the fixed costs through a capacity charge that reflects those high costs would be likely to push some projects into economic feasibility that may not otherwise be economic, which would reduce the risk associated with the initial capital cost. Financial Report: Dawes asked whether the fiber project has repaid the electric fund for the initial start-up funds and whether the City pays for the fiber it uses. Auzenne replied that loan has not been paid back yet, but it will likely be repaid in FY 08-09 and that yes, the City does pay for use of fiber at its facilities – about 22% of the fiber revenues are from the City itself. Utilities Advisory Commission Minutes from: November 7, 2007 Approved on: December 5, 2007 Page 5 of 8 ITEM 3: INFORMATION ITEM: Utilities Water, Gas and Electric Efficiency Programs and Services for FY 2007-09 Staff presented the Utilities Water, Gas and Electric Efficiency Programs and Services informational report for FY 2007-2009 to the UAC. Auzenne stated that this was a report providing supporting detail to the Council- approved “Ten Year Energy Efficiency Portfolio Plan.” There was no presentation, but staff could be asked clarifying questions. Keller asked whether portables at the school district were included in the efficiency programs, if schools were considered to be commercial or residential customers, how the City was working with the schools to ensure trees could be watered (paving was cutting off trees from water sources), and whether irrigation programs were available to City facilities. Auzenne replied that: 1) portables are included in efficiency programs, they are often inefficient, but staff is working with the school district to ensure new structures are efficient; 2) schools are “commercial customers” for rebates; 3) CPAU staff works with both the school district and the city to make buildings as water and energy efficient as possible; and 4) irrigation programs were available to schools, and CPAU would look into the water accessibility problem for tree locations at schools. Keller also requested clarification on the definition of “negawatts,” which Auzenne explained was another way of having third parties bid to provide energy and demand savings at customer sites. Dawes requested definition for “evapotranspiration” controller for watering and why the utilities are working with the Santa Clara Valley Water District (SCVWD) on these water efficiency programs. Auzenne explained that an evapotranspiration, or ET or ETO, controller senses ground moisture to prevent overwatering. He also explained that the SCVWD partners with the Utilities to co-fund water efficiency services as part of their county-wide services. Ratchye explained that the City gets good value for its money on the water efficiency programs through the SCVWD, as the district delivers programs and pays half the costs of administering and delivering the programs, while the City only has to reimburse the district for half the cost of the customer programs. Dawes remarked that he wanted to make sure that the City was not just paying for the SCVWD to deliver programs that the utilities would not otherwise deliver. With no further comments, Rosenbaum moved to the next item on the agenda. ITEM 2: INFORMATION ITEM: Quarterly Risk Management Report Utilities Advisory Commission Minutes from: November 7, 2007 Approved on: December 5, 2007 Page 6 of 8 Energy Risk Manager, Karl Van Orsdol, presented his quarterly risk management report. Dawes asked if the negative mark-to-market value of the Calaveras project included the subsidy provided from the Calaveras Reserve. Van Orsdol explained that the mark-to-market of the project did not include that reserve transfer, but was only the total costs (debt service and variable and fixed O&M charges) less the market value of the energy produced. Rosenbaum remarked that he liked the appendix with all the transaction details that has appeared in past reports. Van Orsdol promised to include the detailed appendix in the report on a twice per year basis. ITEM 4: ACTION ITEM: Recommendation to Not Increase Electric Rates until FY 2008-09 in keeping with the Impact of Current Drought On the Five-Year Electric Supply Cost, Rates and Reserve Projections Resource Planner, Monica Padilla presented her report on cost increases to the electric supply fund due to the current drought compared to the budgeted costs for FY 2007-08, conceptual budget for FY 2008-09, and the 5-year Financial Plan developed in January 2007. Since that time, reduced estimates for hydroelectric supplies have necessitated purchases from the market resulting in costs being over budget by $11 million for FY 2007-08 and $8.4 million for FY 2008-09. Given the retail rate projections contained in the 5-year Financial Plan, the ending balance of the Electric Supply Rate Stabilization Reserve (E-SRSR) is expected to be below minimum guideline levels as of June 30, 2009. If dry conditions continue, the reserve could be exhausted by June 30, 2009. Padilla showed that planned rate increases would bring the E-SRSR balance above minimum by FY 2011-12. Padilla noted that staff considered alternatives, including: 1. A 10% mid-year rate increase effective February 1, 2008, which would bring revenues more quickly in line with costs and let reserves climb above minimum levels by FY 2011-12. 2. Re-evaluation of the 5-year Financial Plan and possible recommendation of an increase higher than the 10% approved-in-concept rate increase effective July 1, 2008. Utilities Advisory Commission Minutes from: November 7, 2007 Approved on: December 5, 2007 Page 7 of 8 3. Utilization of the Calaveras Reserve, which was established to recover “stranded costs” and subsidize rates through FY 2031-32 to reduce rate increases. 4. Implementation of a rate adjustor that could be applied with supply cost increases or decreases to more quickly reflect the impacts of dry or wet hydro conditions. Padilla reviewed Staff’s recommendation as follows: 1. No mid-year rate increase for FY 2007-08. 2. Modifications to the 5-year Financial Plan in the FY 08-09 budget and rate setting process. 3. Evaluation/recommendation of funding levels for the Electric reserves, including the Calaveras (“stranded cost”) Reserve. 4. Implementation of an automatic rate adjustor mechanism only after the billing system upgrade is complete. Padilla noted that staff plans to return to the UAC in December with an assessment of and recommendations for use of the electric reserves; in February, 2008 with an updated 5-year Financial Plan; and in March, 2008 with a rate increase proposal as part of the FY 08-09 budget process. Melton noted that the information staff presented made a compelling case for a mid-year rate increase, and that without a mid-year increase, the increase that may be needed in July 2008 could be very large. Fong responded that staff believes it has an obligation to look at all resources and reserves closely before recommending an electric rate increase outside of the normal budget and rate setting process. Dawes agreed with Melton on the need for an interim increase noting that a decision to forego an increase now makes him very nervous. Dawes cautioned that without a mid-year increase, revenues could get too far behind costs resulting in the need for a series of dramatic increases as happened with gas costs and rates in 2001. Dawes noted that the high cost of renewable resources also increases cost pressures. Bechtel commented that he generally agreed with Melton and Dawes and questioned whether the 5-year Financial Plan needs to be updated in order to make a decision on rates in the short-term due to cost increases caused by the drought. Bechtel indicated his understanding of the need for more analysis, but advised it was still possible to implement an increase effective in February 2008 if analysis is brought to the UAC in December. He noted that a 5-year forecast is not needed to make a decision on rates now. Utilities Advisory Commission Minutes from: November 7, 2007 Approved on: December 5, 2007 Page 8 of 8 Dawes commented on the need to re-look at the Calaveras debt service and the need for the money in the Calaveras Reserve. Melton noted that the Calaveras Reserve can’t be changed before FY 2008-09, but also noted that implementing a rate increase in February 2008 doesn’t mean an automatic rate increase in July 2008. Prior to the budget process, Melton posed that there would be more information on the status of hydro conditions, and a wet hydro year could mean no additional rate increase in July, 2008. Rosenbaum supported staff’s recommendation. He noted that requesting a mid-year rate increase indicates an emergency, which is not the case. Melton moved that the UAC recommend that Council approve a 10% electric rate increase effective February 1, 2008. The motion died for lack of a second. Bechtel asked why this report was prepared as an action item instead of an informational report. Fong noted that staff wanted a mechanism to show the Council the information and to give it a heads-up that the July 2008 may be higher than projected last year. The UAC chose to take no action and make no recommendation to Council. Staff will return to the UAC with a new recommendation and analysis of the reserves at the December 5, 2007, meeting. Rosenbaum requested that staff compare Palo Alto’s rates to Roseville’s and Silicon Valley Power’s and not just PG&E’s. He expressed concern over costs rising at a fast rate due to Palo Alto’s reliance on Western hydro power. Rosenbaum also noted that a rate adjustor mechanism can be quite simple if adjusted annually based on hydro year conditions, and that a drought reserve could be maintained at a certain level with the adjustor raised or lowered to maintain a balance in the reserve. Meeting adjourned at 8:55 P.M. Respectfully submitted, Marites Ward City of Palo Alto Utilities