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HomeMy WebLinkAbout2008-11-05 Utilities Advisory Commission Summary Minutes Utilities Advisory Commission Minutes Approved on: December 3, 2008 Page 1 of 5 FINAL UTILITIES ADVISORY COMMISSION MINUTES OF NOVEMBER 5, 2008 CALL TO ORDER Chair Dawes called to order at 7:00 P.M. the scheduled meeting of the Utilities Advisory Commission (UAC). Present: Commissioners Dexter Dawes, John Melton, Dick Rosenbaum, Asher Waldfogel, and Council Member Yiaway Yeh Absent: Commissioner Marilyn Keller ORAL COMMUNICATIONS NONE APPROVAL OF THE MINUTES The minutes from the November 5, 2008, were unanimously approved. AGENDA REVIEW No changes to the agenda were requested. REPORT FROM COMMISSION MEETINGS/EVENTS NONE UTILITIES DIRECTOR REPORT Utilities Director Valerie Fong provided a brief update on the PaloAltoGreen U.S. Department of Energy award required at the 2008 Green Power Conference. PaloAltoGreen won the DOE Supplier Award in the Category of Small Residential/Commercial Green Power Program or Supplier of the Year. UNFINISHED BUSINESS Chair Dawes asked if the Commission had any additional items that it would like to see that are not already included on the 12-month rolling calendar of upcoming agenda topics for the UAC and Council. Dawes offered some bold suggestions for strategic discussion topics, including: 1. Selling the Calaveras Hydroelectric Project to reduce the large exposure to hydrologic conditions in the electric portfolio. The generation could be replaced with a base-load plant or cogeneration facility located in Palo Alto; 2. Expanding the 0.5 cent/kWh rate impact limit on renewable energy spending to encourage additional solar projects; 3. Changing the City’s primary water supplier from the San Francisco Public Utilities Commission to the Santa Clara Valley Water District in response to the dramatic price increases forecast from the SFPUC; and 4. Buying into a nuclear power facility for baseload power from another state. Utilities Advisory Commission Minutes Approved on: December 3, 2008 Page 2 of 5 The commissioners discussed developing a process to get topics added to the future agendas. Commissioner Rosenbaum stated that the historic process is that staff is in control of the agenda, but that the chair can meet with the Director to suggest topics, but that the Director would have final say. An alternative could be that a commissioner could write a letter to all commissioners advocating an item for discussion and the members could vote to support such a suggestion or not. Then the Director could respond with how the suggestion may impact plans and/or resource (staff and budget) requirements. Chair Dawes indicated he would meet with Director Fong to discuss how to proceed. Fong also indicated that another avenue that the Commission has to request discussion on certain topics is in the annual joint UAC/Council meeting where information is exchanged between the Commission and the Council on priorities. NEW BUSINESS ITEM 1: DISCUSSION ITEM: Proposal for the Calaveras Reserve Senior Resource Planner Monica Padilla presented an updated stranded cost assessment of $32.5 million for existing electric supply assets, or $32 million more than the $64.5 million in the Calaveras Reserve as of the end of Fiscal Year (FY) 2008-09. Padilla also presented staff’s preliminary proposal for managing the funds currently in the Calaveras Reserve going forward and requested the UAC’s feedback on staff’s preliminary proposal, which included:  Reduce the Calaveras Reserve to $32.5 million by the end of FY 2009-10 and plan to deplete the reserve by FY 2023-24.  Transfer $12.0 million to the Electric Supply Rate Stabilization Reserve (E-SRSR) in FY 2009-10 and manage funds according to the E-SRSR guidelines.  Create a new reserve, funded at $20 million, for potential electric utility capital improvement and/or other projects which benefit electric ratepayers with funds committed by the end of FY 2014-15. After much discussion of staff’s proposal, the UAC provided the following general feedback and direction to staff:  The UAC agreed with staff’s assessment that the current estimate of stranded cost is less than the $64.5 million in the Calaveras Reserve and recognized that staff’s stranded cost estimate of $32.5 million is a prudent amount of funds to reserve for stranded cost.  Given the above, the UAC recognized that the Calaveras Reserve has about $32 million more than is needed to cover stranded cost.  The UAC does not support transferring some of those “excess” funds to the E-SRSR as it believes such a strategy sends the wrong price signal to customers and only defers the need to raise electric rates to cover cost. The UAC noted that E-SRSR funds were drawn down in FY 2007-08 and are planned to be drawn down in FY 2008-09 resulting in retail rates that do not fully cover operating costs. An additional transfer would defer the need to align retail rate revenues with costs.  The UAC supports the use of excess funds to pay for capital improvement projects to the benefit of electric rate payers and identified several types of projects which may be funded, however does not feel the need to create a new fund to do so. Commissioner Dick Rosenbaum advocated for using some of the funds to create a secondary hydro uncertainty reserve to separate this cost uncertainty out of the E-SRSR and include a rate adjustor to deal with hydro cost uncertainty. Commissioner Rosenbaum requested that staff return to the UAC with an assessment of what it would take to implement such a mechanism. However, the other Commissioners did Utilities Advisory Commission Minutes Approved on: December 3, 2008 Page 3 of 5 not support Rosenbaum’s suggestion and saw no need to manage two separate reserves to manage cost risk of the electric supply portfolio. Although he supported using the excess funds for capital projects, Commissioner Melton did not want the funds to be used for capital projects that are already in the pipeline. He noted that this would simply result in lower rates in the short-term. Instead, he supported new strategic initiatives such as local generation. Chair Dawes agreed with Melton’s suggestion to use the funds for local generation or co-generation facilities. He also suggested using funds for undergrounding electric lines in certain neighborhoods. Commissioner Rosenbaum disagreed with using the funds for undergrounding, noting that it doesn’t comport with the principle to use the funds for the benefit of all electric ratepayers. Commissioners agreed that any excess funds should not be a “slush fund” that would be used for projects that otherwise might not have been done. Chair Dawes also suggested that excess funds could be used to buy more expensive renewable power, such as solar photovoltaics, to meet the Renewable Portfolio Standard (RPS) goals, if additional funds are needed that would go above the Council-approved rate impact cap of 0.5 cents/kWh. Commissioner Waldfogel could not identify a good reason to draw on the excess funds now and advocated for leaving them in the Calaveras Reserve to be re-visited when the hydro conditions improve. Waldfogel also reminded the Commission and staff that spending the funds, either through expenditures on capital projects or through supporting operational costs, will reduce the electric fund revenue from interest earned on those funds. Public comment on the item: Herb Borack questioned the process being used. He noted that if any policy change is proposed, it must be approved by Council and that both the UAC and the Finance Committee are advisory bodies to the Council. In summary, ideas generated by the Commissioners on the types of projects that could possibly be considered for funding with excess Calaveras Reserve funds, included:  Development of local and/or distributed generation as a baseload resource;  Upgrade of transmission voltage from PG&E to the City’s distribution system;  Development of smart grid elements, purchase of smart meters;  Purchase of land from City which the electric utility currently rents; and  Loans to other Utilities funds and/or the General Fund in order to save financing costs. ITEM 2: INFORMATION ITEM: Utilities Quarterly Report: Water, Gas, Electric, Fiber, Efficiency Programs and Financial Issue Updates Chair Dawes asked for any questions on the water report. Commissioner Melton mentioned that there would be no additional supply from the San Francisco Public Utilities Commission (SFPUC) until 2018 as a result of its adoption of the Phased Water System Improvement Program (WSIP) Variant. He then asked about the Recycled Water Facility Plan currently scheduled for presentation to the UAC in March. He asked about the process for declaration of a Mitigated Negative Declaration (MND) for the project. Assistant Director Jane Ratchye said that there would be a public comment period and that the Council would be asked to formally adopt the MND for the project. Commissioner Rosenbaum asked about the other new contract issue that is not resolved regarding how the wholesale agencies would pay for capital Utilities Advisory Commission Minutes Approved on: December 3, 2008 Page 4 of 5 projects. Ratchye explained that the method in the current contract is the “utility” method, whereby no payments are made until a project is completed. Alternately, the “cash” method requires payment during all project phases (planning, design, and construction). Although the issue has not been resolved for the new contract, a hybrid method is being proposed – using the utility method for current assets and the cash method for new assets. Commissioner Melton asked for more explanation about water quality and high nitrite levels—why and what is the risk to humans? Staff from the Utilities Operations Division were not in attendance to answer this question. Commissioner Rosenbaum asked about progress on the Emergency Water Supply and Storage project. Director Fong said that discussions with Stanford are ongoing. Commissioner Dawes asked if the SFPUC has improved its ability to run and manage the WSIP project. Ratchye said that they have. Regarding the gas report, Chair Dawes noticed that the gas prices are now going down and that Palo Alto costs may be higher than PG&E’s if the current trend continues. The electric and fiber report was discussed. Commissioner Rosenbaum asked if we were able to get local capacity credit for the wind projects. Director Fong said that we do, but only for between 20 and 30% of the projects’ capacity. Council Member Yeh congratulated staff on completing the assignment of the COTP project and noted the significant annual savings that are accruing. He also asked about Utilities’ role in managing fiber under the consortium. Fong said that negotiations are ongoing with the consortium, and that staff’s perspective is that we would continue to manage operations and maintenance of the fiber system backbone because of the co-location of SCADA and other utility communications with all other fiber. Commissioner Rosenbaum asked whether the requirements in AB 1763 are valuable, even if CPAU is not required to comply with them. Fong said that this has not been thoroughly reviewed, as it does not apply to us, but we are making every effort to have information and energy audits on line to help customers save energy and money. Commissioner Rosenbaum said that he would like the rate tier information to be clearer on the bill and questioned whether SAP would provide this function. Fong said that it would not in the next roll out, but in a future iteration. The report on efficiency was discussed. Commissioner Melton asked why PV installations must have an inspection that is different from permitting requirements. Joyce Kinnear, Manager of Utility Marketing Services, said that the Permitting Division inspects for code compliance, but that the law (SB1) requires inspections for performance, as well. Melton then asked whether Permitting staff could be trained to perform this function. Kinnear said that they could, but did not have the staff capacity. Commissioner Waldfogel asked if the inspections were being performed by a third party. Kinnear answered in the affirmative. Chair Dawes asked why PV rebates are going down as participation increases. Kinnear answered that the law (SB1) requires that rebate levels go down to attempt to increase commercialization of these systems. Commissioner Melton asked about the performance of the PV demonstration system. Kinnear answered that she did not yet have that information, but that a contract was being issued to clean and maintain them. Council Member Yeh said that he is excited about the solar water heating rebate program launch and wondered if the applicants were residential or business customers. Kinnear answered that they were residential. Yeh asked about the new fiber customers. Assistant Director Tom Auzenne said that they were downtown and in the Stanford Research park, as our dark fiber system is a good alternative to large customers. Director Fong added that the fiber business is going well. Chair Dawes asked whether the fiber funds for initial construction had been reimbursed to the electric fund. Senior Resource Planner Ipek Connolly said that they had. Dawes then added that the fiber system appears to be doing well financially, and Fong agreed. The financial report was discussed. Ratchye noted a correction on page 5 of the financial report: the third paragraph relating to the Gas Distribution costs stated: “Other expenses were slightly higher by $285,000.” Utilities Advisory Commission Minutes Approved on: December 3, 2008 Page 5 of 5 This should be changed to “Other expenses were slightly higher by $328,000.” The correct figure of $328,000 was accurately reflected in Table 6 of the report. ITEM 3: INFORMATION ITEM: Utilities Quarterly Risk Management Report – Fourth Quarter, Fiscal Year 2007-08 Karl Van Orsdol, Energy Risk Manager, presented the impacts of the credit “crisis” on the credit rating of the City’s energy counterparties which are primarily financial institutions. He discussed the uses of CreditEdge product to evaluate publically traded companies and RiskCalc for the evaluation of privately held companies. Van Orsdol noted that the counterparties which are primarily financial-based organizations (such as JP Morgan Chase, Royal Bank of Scotland, and Sumitomo) have had their credit more significantly impacted by the recent market turbulence than have more traditional energy companies (such as Shell and BP). Van Orsdol noted that the key financial stresses on the former group include leverage and asset valuation. Van Orsdol finished by reiterating that the City’s current exposure is minimal overall, and is zero for exposure to financially-based counterparties. In response to a question from Council member Yeh concerning the low credit rating of Ameresco, Van Orsdol noted that they have performed exceptionally well in previous contracts for landfill gas power, and that all the contracts have special safeguards and protections for the City in the event of a default. ITEM 4: INFORMATION ITEM: Update on the October 1, 2008, Staff Recommendation to Eliminate the Residential Customer Discounts for Water and Storm Drain Service to Comply with the Requirements of Proposition 218, Approve Rate Assistance Program Changes, and Adopt a Resolution Amending the utilities Rate Schedule C-4 “Residential Rate Assistance Program” Director Fong gave a quick overview of this informational item which had been earlier reviewed by the UAC at its October meeting. Fong noted the purpose of the November update was to inform the UAC that Utilities would not take any further action on the rate assistance program discount for the Storm Drain since the UAC does not review Storm Drain activities. Instead, the elimination of the discount for the Storm Drain Utility should not have been included in the October memorandum to the UAC, and Public Works would pursue any further actions. Additionally, the elimination of the rate assistance discount for the Water Utility would not be presented to the Finance Committee or Council until sometime in 2009 when the balance of any rate changes would be considered by the Finance Committee and Council in the context of the Fiscal Year 2009-10 and 2010-11 budgets. This would permit a rate hearing on the matter since is conceivable that the elimination of a long-standing discount to water rates may be construed as a rate increase by some customers Commissioner Waldfogel expressed extreme discomfort with the delay in presenting the matter to the Finance Committee and Council by a few months and asked that the matter be returned to the UAC prior to going to the Finance Committee and Council. Chair Dawes explained that having the rate hearings in the context of Proposition 218 made sense to him and that he was not troubled with the delay since the delay did not represent a change in content, only in timing. No other Commissioners spoke in support of Commissioner’s Waldfogel’s request to have the UAC re-visit staff’s recommendation. Meeting adjourned at 10:00 P.M. Respectfully submitted, Marites Ward City of Palo Alto Utilities