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HomeMy WebLinkAbout2008-03-05 Utilities Advisory Commission Summary Minutes Utilities Advisory Commission Minutes Approved on: April 2, 2008 Page 1 of 4 FINAL UTILITIES ADVISORY COMMISSION MINUTES OF MARCH 5, 2008 CALL TO ORDER Chairman Rosenbaum called to order at 7:00 P.M. the scheduled meeting of the Utilities Advisory Commission (UAC). Present: Commissioners George Bechtel, Dexter Dawes, John Melton, Dick Rosenbaum, and Council Liaison Yiaway Yeh Absent: Commissioner Marilyn Keller ORAL COMMUNICATIONS NONE APPROVAL OF THE MINUTES Commissioner Bechtel expressed his approval as to the quality of the minutes for February. The minutes from the February 6, 2008, were unanimously approved. AGENDA REVIEW No changes to the agenda were requested. REPORT FROM COMMISSION MEETINGS/EVENTS There were no reports. UTILITIES DIRECTOR REPORT Utilities Director Valerie Fong gave the following updates:  Hydro Conditions: Northern Sierra precipitation is at 90% of average to date and reservoir levels are about 80% of average. As a result, hydro electric generation is expected to be below average if precipitation resumes median levels for the rest of the season.  Local Cogen: The project proponent, a key customer, has retained an energy consultant to assist with project feasibility and development, however, neither firm is interested in owning the project and ownership interest was proposed to the City. The preliminary project design is for a 20 MW plant, with an initial capital cost of approximately $47M.  COTP Transmission Asset Lay-off: Staff will be sending a formal offer letter to other owners of COTP transmission expressing the City’s interest to lay-off all 50 MW of City’s ownership share for 20 years at cost. Continuing updates will be provided to the UAC, and the offer and final contract will be subject to final Council approval. Utilities Advisory Commission Minutes Approved on: April 2, 2008 Page 2 of 4  Western Geo Power: On 2/19 Council approved participation in an NCPA 3rd phase agreement to purchase up to 5 Average MW of a new Geysers area geothermal powerplant being developed by Western GeoPower. The City’s share of output will range from 2 to 4% of the City’s electric load depending on plant output and other member participation levels. Power flow is expected starting in 2010 and running through 2030.  CIP: In response to Vice Chair Dawes question at last month’s UAC meeting, an update on the gas main replacement CIP was provided. The gas main replacement projects are an on-going expense of running the gas utility. Over the last 15 years or so the gas mains have been replaced at an accelerated rate due to the deterioration of ABS main pipelines. The replacement of the ABS mains is expected to be completed in 2012-13 timeframe. Once this is completed the ABS services will be replaced along with the on-going replacement of steel mains. Expenditures for pipeline replacement are expected to begin decreasing after the all ABS mains are replaced and then level out at a level that sustains the condition of the infrastructure. The following upcoming meetings were noted:  March 10, 2008 – Council Meeting (to establish UUD 45 and to approve the PPA with Ameresco for the Keller Canyon landfill gas to energy)  March 17, 2008 – Council Joint Meeting with Senator Simitian  March 18, 2008 – Finance Committee – Water, Gas and Electric Rate Increase  April 2, 2008 – Next UAC Meeting UNFINISHED BUSINESS NONE NEW BUSINESS ITEM 1: ACTION ITEM: Proposed Water Rate Increase Effective July 1, 2008 Valerie Fong, Utilities Director, stated that no presentation was prepared, but that staff was available to answer questions on the report. As a prefatory comment, for residential customers, the 8 percent proposed increase was geared more towards higher tier water users, primarily as a conservation signal. Commissioner Melton questioned why the customer charge was not increasing at this time, and if it was staff’s intention to bring this charge up to cost-of-service study levels for residential customers gradually. Fong stated that all increases were on volumetric charges only this time for conservation reasons. Jane Ratchye, Assistant Director for Resource Management, clarified that, with conservation goals growing in importance, widening the price gap between residential tiers was a staff’s recommendation this year. This emphasis will be re- evaluated on an ongoing basis. Commissioner Dawes questioned the capital expenditures in Fiscal Year 2007-08 and the return of previously encumbered Capital Improvement Program (CIP) funds to the Rate Stabilization Reserve (RSR), and specifically whether the Emergency Water Supply and Storage project would be worked on this fiscal year. Fong clarified that it would be, and that well rehabilitation and pump station upgrades could go forward independent of reservoir siting issues. Commissioner Dawes asked if the FY 07-08 CIP figures were for funds spent or funds committed, and Fong clarified they were committed funds. Utilities Advisory Commission Minutes Approved on: April 2, 2008 Page 3 of 4 Commissioner Rosenbaum questioned the first sentence on page four, which appears to give reasons as to why water rates have been higher than surrounding areas. Commissioner Rosenbaum stated that the reasons given imply that Palo Alto has higher relative costs than others cities, and questioned whether that has been studied. Ratchye agreed that the sentence related more to cost drivers rather than cost comparisons with other cities. Commissioner Rosenbaum asked specifically about the level of allocated charges and general fund transfers in other cities. Ratchye posited that allocated charges were unknown, and transfers were probably very low. Commissioner Rosenbaum posited whether rate-payers would enjoy paying for such transfers, along with rents to the City, as they account for roughly $0.80 per one hundred cubic feet of water, and were “significant.” Commissioner Rosenbaum suggested the charges may be too high, and perhaps a comparison study should be done to surrounding cities. Commissioner Dawes stated that the Auditors report shows Palo Alto’s water department costs have increased rapidly over the last few years and are now higher than the next highest city utility, which was “worrisome.” Asked whether charges by the city to the water utility could be reduced, Fong commented these were not within her scope to modify or make recommendations on, and if the UAC wanted to not increase rates due to these costs, staff’s only recourse would be to drop CIP projects. Commissioner Dawes commented that perhaps the chair or vice-chair of the UAC should present to Council the problems they see with costs. Commissioner Rosenbaum asked for a motion. Commissioner Dawes moved and Commissioner Bechtel seconded the water rate proposal. No further discussions were presented. Commissioner Rosenbaum asked for those in favor, and the motion passed unanimously. ITEM 2: ACTION ITEM: Proposed Natural Gas Rate Increase Effective July 1, 2008 Fong again stated that no presentation was prepared, but that staff was available to answer questions on the report. She noted that there were no proposed increases to the customer charge for gas. Commissioner Dawes questioned whether, based on projections of stable gas supply costs over the next few years, whether the proposed increase should be spread over multiple years. Commissioner Melton countered that a lower increase would take the RSR below the risk assessment level. Commissioner Rosenbaum asked if staff had comment, and Fong expressed staff’s agreement with Commissioner Melton, and added that there were no additional reserves to “back-up” the gas funds, unlike the electric fund (Calaveras). Commissioner Bechtel expressed concern for future projections showing no increases, and questioned whether staff would look at debt financing more projects to spread costs over time and keep rates down, perhaps having annual inflationary increases instead of large changes. Fong confirmed that staff was serious about pursuing debt financing for large projects, and may finance gas projects along with larger projects should the need arise. Commissioner Rosenbaum stated that normal maintenance operations should be funded through rates, and that larger maintenance programs or CIP spending explains why Palo Alto’s distribution costs were higher than Pacific Gas & Electric. Commissioner Rosenbaum asked for a motion. Commissioner Dawes moved and Commissioner Melton seconded the gas rate proposal. No further discussions were presented. Commissioner Rosenbaum asked for those in favor, and the motion passed unanimously. ITEM 3: ACTION ITEM: Proposed Electric Rate Increase Effective July 1, 2008 Fong again stated that no presentation was prepared, but that staff was available to answer questions on the report. Commenting that, as the February UAC meeting regarding electric scenarios indicated that the “middle Utilities Advisory Commission Minutes Approved on: April 2, 2008 Page 4 of 4 of the road” option was what seemed to resonate with the UAC, this was what staff was proposing. Ratchye added that, in order to ensure that reserves will end at the risk assessment value for FY 08-09, additional funds are planned to be drawn from the Calaveras Reserve, but that the Calaveras Reserve fund balance would still be within Council approved guideline levels. Commissioner Dawes sought clarification as to whether staff could make such a transfer, and Commissioner Melton confirmed that, within a particular fund, staff can move money between RSR’s. Commissioner Melton commented that the discussion on this increase was really done last month, and the current proposal was exactly what the UAC asked for the last time. Commissioner Melton moved and Commissioner Bechtel seconded the electric rate proposal. Commissioner Rosenbaum asked why the higher residential tiers would see larger increases than the lower tiers, and what fraction of residential usage was in tier 3. Staff commented that it was quite a bit less than half, but the exact figures were not immediately in front of them. Commissioner Rosenbaum commented that a two tier pricing system may be more appropriate, and requested staff to look into that in the future. Fong commented that, as shown on Table 3, the impact to larger users was not that dramatic. Commissioner Bechtel asked if there were any instances of a neighborhood needing a service change on the distribution side due to household consumption levels increasing, or whether there has been a significant increase in residential usage in general. Fong stated that she would have to ask the engineering department for confirmation, but generally that the system is sized to take growth into account. Ratchye stated that average usage has not increased dramatically over the last few years. Commissioner Rosenbaum, seeing no requests for further discussion, asked for those in favor, and the motion passed unanimously. Resident Lois Nisbet, at the conclusion of New Business, asked to address a question to the UAC: “Is there any ethical consideration for the fact that you charge for utilities when in fact you spend it on something else?” Commissioner Dawes asked if this was in regard to transfers, and Ms. Nisbet stated, “I guess so.” Commissioner Dawes stated that question should be brought before the City Council regarding this issue, as they set the policy regarding transfers. Commissioner Rosenbaum clarified that the transfer has been going on since the inception of the utility, although it was capped at a growth rate of 3 percent several years ago. The next schedule meeting is April 2, with everyone present. The May 7 meeting is set for a day meeting. Meeting adjourned at 8:00 P.M. Respectfully submitted, Marites Ward City of Palo Alto Utilities