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HomeMy WebLinkAbout2008-12-03 Utilities Advisory Commission Summary Minutes Utilities Advisory Commission Minutes Approved on: January 7, 2009 Page 1 of 5 FINAL UTILITIES ADVISORY COMMISSION MINUTES OF DECEMBER 3, 2008 CALL TO ORDER Chair Dawes called to order at 7:02 P.M. the scheduled meeting of the Utilities Advisory Commission (UAC). Present: Commissioners Dexter Dawes, Marilyn Keller, John Melton, Dick Rosenbaum, and Asher Waldfogel Absent: Council Member Yiaway Yeh ORAL COMMUNICATIONS NONE APPROVAL OF THE MINUTES The minutes from the December 3, 2008, were unanimously approved. AGENDA REVIEW No changes to the agenda were requested. REPORT FROM COMMISSION MEETINGS/EVENTS NONE UTILITIES DIRECTOR REPORT Director Valerie Fong provided the following oral report: 1. Joint Agency Debt: The national turmoil in the capital markets is having an impact on some of our joint agency debt, specifically the portions of the Calaveras debt and TANC debt that were financed with variable rate bonds. Palo Alto’s share of these variable rate bonds is approximately $20M for the Calaveras project and $9M for COTP. For the Calaveras project the amount of variable rate debt in approximately 20%, and for COTP is closer to 75%. The Finance Committees of NCPA and TANC are grappling with refinancing options to reduce the financial impact on members. The financial impact on the City in uncertain at this time. Commissioner Rosenbaum asked about the status of the NCPA variable rate debt. Senior Resource Planner Shiva Swaminathan explained that some of the financial institutions providing credit support for the variable rate bonds were in distress. In addition, the variable rate hydro debt that is fixed by swaps is no longer an effective hedge because of the divergence between London Interbank Offer Rate (LIBOR) and municipal bond rates, thus increasing the cost to serve the variable debt. 3. UMS: Held a training event for Facility Managers this morning on lighting replacements, including LED lights. The training also included a tour of Roche’s 1 MW solar PV system. The training was very well attended and well received. Roche’s system has its final electrical inspection tomorrow and should start producing electricity soon thereafter. Contracts have been signed for CPAU to pay a performance-based Utilities Advisory Commission Minutes Approved on: January 7, 2009 Page 2 of 5 rebate and to pay for the Renewable Energy Credits over a five year period. The RECs from this system will be used for the PaloAltoGreen program. 4. Customer Connections Billing: In June new connection and capacity fee rates went into effect based on the UAC’s and staff’s recommendation to Council. Last week a letter went to customers who had outstanding invoices informing them that they had until middle of December to pay these fees. After the middle of December all of the unpaid outstanding fees will be recalculated at the new approved rates. 5. Calaveras Reserve Update from the Finance Committee: Director Fong described the action of the Finance Committee at its December 3, 2008 meeting. She noted that the committee agreed with staff and the UAC’s recommendation not to transfer any money out of the Calaveras Reserve – either into the Electric Supply Rate Stabilization reserve or into a new reserve for capital projects. The committee also requested that the UAC assist the Council in reviewing projects that could potentially be fully or partially funded with funds that are not needed for stranded costs. Chair Dawes, who attended the Finance Committee meeting, noted that the committee was very interested in the UAC’s involvement in vetting projects. 6. UAC Calendar: Rolling calendar of upcoming items for UAC meetings. UNFINISHED BUSINESS NONE NEW BUSINESS ITEM 1: INFORMATION ITEM: Utilities Quarterly Report: Water, Gas, Electric, Fiber, Efficiency Programs and Financial Issues Updates Staff had no presentation on this item, but answered Commissioner’s questions. On the water report, Commissioner Keller asked how the penalty for water use over the delivery cap that is part of the Water System Improvement Program that the SFPUC adopted would work. Assistant Director Jane Ratchye explained that the BAWSCA agencies will have a cap of 184 million gallons per day (MGD) and San Francisco will have a cap of 81 MGD until at least 2018 for a combined cap of 265 MGD. If deliveries of water from SFPUC watersheds (doesn’t count other water sources that may be used or found) is greater than 265 MGD, then a penalty will be applied to those agencies that are over their allocations. Individual allocations for each BAWSCA agency have not been set yet – this matter is still to be resolved. The amount of the penalty has not been established yet, either. The concept is that all penalty money collected will be used for improvements on the SFPUC watersheds. This money is above and beyond that which is already allocated for environmental programs on these watersheds. Ratchye did not have specific examples of these environmental programs and projects. Commissioner Waldfogel asked if more information on this project would be provided in the January report on energy and water conservation measures. Utilities Marketing Services Manager Joyce Kinnear stated that next month’s report will be primarily a review of program achievements in the last fiscal year. Fong mentioned that staff would update the UAC as information is available on the environmental programs and projects. Commissioner Melton noted that there seems to be substantial progress on the new water contract, which he called encouraging. Ratchye confirmed that there was good progress and that almost all of BAWSCA’s requests for items to be included in the contract were finally accepted by San Francisco. Commissioner Keller asked what the “water first” principle was. Ratchye explained that the system would be operated so that water deliveries would have priority over electricity production, a byproduct of the system. Utilities Advisory Commission Minutes Approved on: January 7, 2009 Page 3 of 5 Commissioner Keller asked about the “commitment to work with BAWSCA to augment dry year supplies.” Ratchye explained that there are plans to pursue supplemental supplies for dry years, including negotiating with agricultural water districts. Although SFPUC may not need these supplemental supplies, BAWSCA may want to pursue them independently and would work with the SFPUC to arrange for transportation, or “wheeling” of the water through the regional water delivery system. On the gas report, Chair Dawes noted that the natural gas price decline has led to prior purchases being at costs above the current market price. Commissioner Waldfogel asked whether staff is moving to buy more gas than previously planned due to the prices being lower than they have been in several years. Fong explained that it’s something we’re looking into, but many factors are involved including reserve levels and the existing laddering strategy guidelines. On the electric report, Commissioner Keller asked if demand response programs can count towards the resource adequacy requirements. Senior Resource Planner Shiva Swaminathan responded that the requirement for local capacity depends on the City’s load at the time of peak demand for the NCPA pool. Therefore, although a demand response program does not count at this time as local capacity, the effect of such a program (and efficiency programs as well) is to lower demand and, therefore, to reduce the local capacity obligation (and cost). Commissioner Keller asked what proposals were received from the NCPA Green Power Pool (NGPP). Senior Resource Originator Tom Kabat responded that the proposals are confidential, but that there were a variety of projects proposed, including wind, solar, and biogas projects. Commissioner Melton asked how the response to the proposals is coordinated. Kabat explained that interested NGPP members can declare whether they want to participate in any of the projects. Some projects may have 5 or 6 agencies interested, others may have 2 or 3 and some may have only one agency interested and could, therefore, negotiate separately with the proposer. Commissioner Waldfogel asked how the UAC can participate in the NGPP selection process. Director Fong stated that due to confidentiality requirements, even Council Member Yeh, an NCPA Commissioner, doesn’t see these proposals. Any projects that were deemed to be worth participating in would be in line with Palo Alto’s Renewable Portfolio Standard that was approved by the Council and recommended by the UAC. On the energy efficiency report, Commissioner Keller asked whether the 70 unique businesses who participated in the Ecology Action Right Lights+ Program indicated a large participation rate. Utilities Marketing Services Manager Joyce Kinnear noted that this is a small percentage of the small and medium business customers, who are a hard-to-reach customer group, due to problems with cash flow and other business priorities. Commissioner Keller asked if the program would be continued. Kinnear indicated that it probably would as utilities who use this type of Direct Install program do find them effective with this customer group. On the financial report, Chair Dawes asked about the large projected revenues and expenses shown in the water fund (Table 10). Senior Resource Planner Ipek Connolly stated that these were related to the expected bond funding and related commitments for the Emergency Water Supply and Storage Project. Commissioner Waldfogel asked what staff is doing to about the fact that the Gas Supply Rate Stabilization Reserve was below the minimum guideline level. Ratchye responded that this was planned, not unexpected and that over the 5-year financial planning horizon, the reserve balance was projected to rise above the minimum guideline level. Risk Manager Karl van Orsdol added that the guidelines levels are applied for long-term planning purposes, not for a single year. In addition, annually during the budget process, the reserve target levels are compared to the risks for each of the rate stabilization reserves and quarterly, the reserves are reviewed by the Risk Manager to assess adequacy to cover risks. Utilities Advisory Commission Minutes Approved on: January 7, 2009 Page 4 of 5 Chair Dawes asked whether the fiber optic fund revenues included only customers who have signed up, or also those who are in the process of signing up. Connolly confirmed that the projections only include those customers who have actually signed up. ITEM 2: INFORMATION ITEM: Utilities Quarterly Risk Management Report – First Quarter, Fiscal Year 2008-09 Commissioner Melton asked Risk Manager Karl van Orsdol about the future for credit risk. Van Orsdol replied that the portfolios have limited credit risk at this time as the mark-to-market (MTM) values have dropped. Chair Dawes asked if the renewable projects’ MTM values are based on green power prices or regular “brown” power. Van Orsdol responded that they are based on brown power as there is no independent, reliable forward curve for green power or for a green premium. Commissioner Keller asked why the volumes delivered for the landfill gas generation varied each month. Van Orsdol replied that there is more than one landfill gas contract. Commissioner Keller asked why the MTM value for the Calaveras hydro project is negative. Van Orsdol said that the value of load following and ancillary services are not included in the MTM calculation since there is no reliable way to value these components for the project. Commissioner Waldfogel asked how staff reacts to prices that are lower than recent history. Director Fong noted that we continue to follow the laddering strategies, but have some leeway in the range between the minimum and the maximum guidelines. Commissioner Dawes asked if staff could go the UAC and Council to make adjustments to the purchasing strategies if prices appeared “low.” Fong noted that this was worth looking at and also noted that the current strategy and risk management practices prohibit speculation and permit managing to a budget amount. ITEM 3: PRESENTATION ITEM: Budget Process Discussion Senior Resource Planner Ipek Connolly provided a presentation on the proposed budget and rate process for the upcoming 2-year budget for FY 2009-11. She noted that the process is a year-round process including budget preparation, budget approval, and rate design and analysis. The budget preparation and approval process this year is complicated somewhat by the concurrent timeline for the billing system migration to SAP, which has a “go live” date of March 1 followed by two months of post live support. The proposed budget and rates review process for FY 2009-11 has the following steps: 1. Utilities long-term financial projections, including the cost drivers and trends, the short term risk assessment and reserve balance targets, and the estimation of the revenue requirements and rate adjustment targets. This discussion will occur with the UAC on February 4, followed by consideration by the Finance Committee on February 17. 2. FY 2009-11 proposed rate adjustments, including the allocation of revenue increases, impact of rate changes on customer bills, and comparison of Palo Alto bills to those in neighboring communities. This discussion will occur with the UAC on March 4, followed by consideration by the Finance Committee on March 17. 3. The Proposition 218 notice requirements are a major driver for the budget and rate setting timeline since customers must be notified of proposed rate increases for water, wastewater and refuse 45 days in advance of adoption of the rate increases. To meet the timeline, these notices will be sent out on April 15 followed by a public hearing on June 8, the same night the Council is set to adopt Utilities Advisory Commission Minutes Approved on: January 7, 2009 Page 5 of 5 the budget. The capital and operations budgets for each fund will be reviewed by the UAC at its May meeting and considered by the Finance Committee on May 19. 4. Rate policy, including discussion of any changes to rate structures, will be discussed after the FY 2009-10 budget is adopted. Due to the unavailability of resources and date due to the billing system migration, staff will not propose any changes to the rate structures for FY 2009-10. However, staff recognizes that rate structure changes need to be evaluated. Staff plans to conduct a review of rate policy starting with a workshop with the UAC on May 6 and with the Finance Committee on May 19. Rates policy direction will be discussed with the UAC on June 3 and with the Finance Committee on June 29. Council adoption of rates policy may be sought by the end of June. After getting direction on rates policy, staff will conduct cost of service studies in October and develop revised rates structures in November to use in the FY 2010-11 budget and rates process. Commissioner Waldfogel asked how CIP requests get vetted by the UAC. Chair Dawes said that the UAC doesn’t generally provide much input into the long-term, ongoing, “routine” capital projects. FUTURE AGENDA ITEMS Chair Dawes informed the commission that he had met with Director Fong to discuss a way to put items on the agenda for future discussion in compliance with the Brown Act. The commission can vote to put a specific item that can be clearly defined for discussion so that the public has an understanding of what will be discussed at a meeting. Commissioner Waldfogel asked whether the commission could invite a third party, such as a vendor, to make a non-commercial presentation on a topic. Chair Dawes noted that the Finance Committee suggested that, with respect to project ideas for funding from the Calaveras Reserve, staff may need to hire consultants to help with evaluating a project. Commissioner Rosenbaum suggested that the commission develop a list of topics that could be voted on at the next meeting to be agendized at a future meeting. Director Fong noted that the commission already had a list developed from prior discussions on the Calaveras Reserve. ACTION: The commission voted unanimously to put the following items on a list for the January meeting for a discussion of which items should be agendized for future meetings: 1. Expanding the 0.5 cent/kWh rate impact limit on renewable energy spending to encourage additional renewable projects, including solar; 2. Development of local and/or distributed clean generation or co-generation; 3. Upgrade of transmission voltage from PG&E to the City’s distribution system; 4. Development of SMART grid elements; purchase of SMART meters; 5. Purchase of land from the City which the electric utility currently rents; and 6. Loans to other Utilities funds and/or the General Fund in order to save financing costs on a capital project that would otherwise have sought bond financing. Meeting adjourned at 8:50 P.M. Respectfully submitted, Marites Ward City of Palo Alto Utilities