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HomeMy WebLinkAbout2010-05-12 Utilities Advisory Commission Summary MinutesFINAL UTILITIES ADVISORY COMMISSION MINUTES OF MAY 12, 2010 – SPECIAL MEETING CALL TO ORDER Chair Melton called to order at 12:10 p.m. the meeting of the Utilities Advisory Commission (UAC). Present: Commissioners Ameri, Berry, Eglash, Foster, Keller and Waldfogel and Council Member Liaison Alternate Scharff Absent: Council Member Yeh ORAL COMMUNICATIONS None. APPROVAL OF THE MINUTES The Minutes from the March 31, 2010 UAC special meeting and the April 7, 2010 regular meeting were approved as presented. AGENDA REVIEW No changes to the agenda were proposed. REPORTS FROM COMMISSION MEETINGS/EVENTS Chair Melton reported that he and Director Fong and other staff attended the Federal Policy Forum in Washington DC organized by the Northern California Power Agency (NCPA) and the North West Public Power Agency (NWPPA). Melton described it as helpful and informative, starting with a day of presentations followed by a day of visiting members of Congress and their staffs and commissioners of the Federal Energy Regulatory Commission and their staffs. He said it was useful to meet with these officials and ensure that they know the position of public power. He also noted that the FERC seems to be taking a more assertive role in their regulatory activities. UTILITIES DIRECTOR REPORT Utilities Director Valerie Fong delivered an oral report on the following items: 1. Council action on Ameresco contracts: On May 3 (actually early morning of May 4), Council approved 20-year Power Purchase Agreements (PPAs) for renewable power from two landfill-gas-to- energy projects with Ameresco, Inc. The PPAs will increase Palo Alto’s Renewable Portfolio Standard from about 22% to 28% in 2013, when the projects are expected to be operational. Thank you to the UAC for providing insightful review and recommendations on these projects. To Commissioners Foster, Eglash, Waldfogel, and Chair Melton for attending the meetings with Council Members, the Finance Committee, and the Council. 2. Council action on 10 year Energy Efficiency Plan: On May 3, Council unanimously approved the 10 Year Energy Efficiency Plan as recommended by UAC. Utilities Advisory Commission Minutes Approved on: June 2, 2010 Page 1 of 12 3. Council action on colleagues’ memo regarding resource planning: On May 3, Council unanimously approved a colleagues’ memo directing the UAC to work with staff to evaluate the environmental benefits, economics and rate impacts of the acquisition of energy efficiency and renewable energy. In addition, Council directed the UAC and staff to analyze alternate methods for purchasing renewable energy supplies, including the acquisition of local generation using feed-in tariffs and through direct investment and ownership, including with partners such as NCPA. 4. Sierra Hydrologic Conditions Update: The Federal Central Valley Project has enjoyed above average Sierra precipitation to date, with cool weather leaving 120-200% of average snowpack on the ground, and moderate runoff to date. Runoff forecasts for the April-July period are 118% of average for Shasta, 103% of average for Folsom and 107% of average for New Melones in the same basin with Calaveras. Shasta reservoir is almost full at 112% of average while, Trinity is 60% full and has only 70% of average storage to date. Folsom has 113% of average storage and will easily fill while New Melones will hover about half full with 86% of average storage. Western Base Resource is forecast to meet 35% of Palo Alto needs for FY 2011 with median precipitation forecast. NCPA is forecasting average Calaveras generation for the next 12 months. 5. Hetch Hetchy Hydrologic Conditions Update: As of May 1, 2010, the Hetch Hetchy regional water system had almost 1.3 million acre-feet in storage, or almost 89% of capacity. Precipitation for the 2010 water year to date is about average, but snowpack conditions have increased since the April 1st snow survey and are above average. Given water already in storage and the snowpack conditions, the forecast indicates that the median amount of runoff that may occur in the 2010 water year is about 135% of the long-term median. This forecast is a 15% increase from the April 1st forecast due to the cool and wet April conditions. 6. LED Streetlights Walking Tour on May 13th: The Palo Alto Neighborhoods (PAN) Association and City of Palo Alto Utilities will lead a walking tour of Light Emitting Diode (LED) Streetlights on Thursday, May 13 at 8 p.m. PAN will hold its monthly meeting at 7 p.m. at 3094 Greer Road in Palo Alto, and the walking tour will take place right after the meeting at 8 p.m. The walking tour will cover the streetlights on Colorado, Louis and Amarillo, which have been part of an ongoing test to compare different LED streetlight bulbs. Feedback from participants will help the City narrow the choice of LED streetlights for purchase using Federal stimulus grant funds. The tour is expected to last around one hour. City staff members will briefly describe the lights and the project background prior to the tour. Additional details on the City's LED streetlight project and this tour are available at www.cityofpaloalto.org/ledstreetlights. 7. Home Energy Reports: City Council approved a contract with OPOWER to deliver Home Energy Reports to residents. These reports will compare a resident’s electric and natural gas usage with homes that have similar characteristics. The program is partially funded with federal stimulus funds and is expected to begin in late summer. 8. ESource Membership: The City of Palo Alto Utilities is a member of ESource, which is a company that provides independent research, advisory, and information services to utilities, major energy users, and other key players in the retail energy marketplace. ESource’s mission is to increase the effectiveness of its members' operations, programs, and customer relationships, while supporting the efficient and environmentally sound use of energy. The UAC Commissioners have been added to a list to receive ESource information on new energy technologies. Utilities Advisory Commission Minutes Approved on: June 2, 2010 Page 2 of 12 UNFINISHED BUSINESS None. NEW BUSINESS ITEM 1: PRESENTATION: Water Benchmarking Study – Preliminary Results Assistant Director Jane Ratchye stated that the UAC and the Council Finance Committee have requested information that can be used to compare costs and rates with other entities providing the same services. Staff has plans to prepare benchmarking studies for all the Utilities funds, but these studies will not be complete in time for this year’s budget review. The water benchmarking study has commenced, but is not yet completed. Additional information will be available for the Finance Committee’s consideration of the Utilities budget on May 25. Even though no revenue or rate adjustments are being proposed for FY 2011, when these benchmarking studies will be provided to the UAC and may be discussed in the context of cost of service study results and rate structure changes that may be proposed during FY 2011. Ratchye introduced Mr. John Farnkopf, representing HF&H Consultants, which has been engaged to complete the Water Utility Benchmarking Study. She noted that there this presentation will primarily be about the scope of the study as no results are yet available. Farnkopf stated that Palo Alto’s water rates appear to be higher than those of neighboring water suppliers and that it is natural to ask why. He said that he will investigate the rates and rate structures, the budget, and other qualitative and quantitative factors that could explain any differences. He noted that one problematic area that deserves examination is the infrastructure, reliability, and emergency preparedness with an eye towards answering what benefits do Palo Alto rate payers receive for their higher rates. Farnkopf listed a group of agencies that will be used for comparator agencies that were selected since they are neighboring agencies that serve similarly situated customers in similar climates and are close to the same size in terms of annual water deliveries. These agencies include Mountain View, Redwood City, Cal Water’s Bear Gulch District (which serves Atherton and parts of Menlo Park), Santa Clara, Milpitas, and Hayward. The investigation will include an evaluation of rate structure and other charges (e.g. connection and capacity fees), service area and customer characteristics, operating and capital budgets, condition of the infrastructure, staffing and operational requirements, and quality of service. The first phase of the work is to use readily available information and benchmarks with the second phase focusing on further evaluation of most informative benchmarks. Interviews of staff from the comparator agencies will be done. The final product will be a technical memorandum and the information will be available in an excel spreadsheet format with information for each agency and each investigation area. Commissioner Eglash stated that he was happy that the benchmarking is underway and that it will include a distinction between commodity, operations and capital expenditures. He suggested that the consultant also look at the City Auditor’s Service Efforts and Accomplishments (SEA) report for the items tracked by Council. Commissioner Waldfogel asked Mr. Farnkopf how the work was done and who he generally reports the work product to. Farnkopf said that he has done many water and wastewater rate studies and generally reports results to staff and has made presentations at public workshops and to Councils and Finance Committees. Utilities Advisory Commission Minutes Approved on: June 2, 2010 Page 3 of 12 Commissioner Keller asked when the study would be completed. Farnkopf said that the first phase would be done in time for the May 25 Finance Committee meeting when the Utilities budget is considered. The final report should be complete in June. ITEM 2: ACTION ITEM: Proposed Operating and Capital Budgets for Fiscal Year 2011 Director Fong advised that the budget presentation would be led by Senior Administrator Dave Yuan. Yuan noted that the UAC’s Ad Hoc Budget Subcommittee was appointed in January and has met with staff and reviewed the capital and operating budget proposals. In February, the UAC reviewed the annual stranded cost calculation and the minimum transfer from the Calaveras Reserve, the annual risk assessment of the Rate Stabilization Reserves and the 5-year financial forecasts for the Electric, Gas, and Water Funds. In March, the UAC reviewed an updated 5-year financial forecast for Water Funds and the 5-year financial forecast for the Wastewater Collection Fund. Yuan stated that overall, no rate adjustments are being recommended and Utilities continues to enforce strict cost management efforts by reviewing and renegotiating existing contracts, monitoring and sharing expenses with employees for non-essential training, and outsourcing services. New initiatives include: 1) managing increasing regulatory and reporting requirements with federal, state, and regional agencies; 2) implementing billing system enhancements to meet legislative requirements and to provide more usage and rate information for customers; 3) updating of the Utilities strategic plan, coordination of public outreach and improved responsiveness to public and media inquiries; and 4) improvements to customer service levels and reduced call time. These new initiatives will require new positions, which will be discussed in depth at the end of the presentation. For the Electric Fund, Yuan reported that the proposed budget for FY 2011 expenses are lower than FY 2010 adjusted budget’s expenses by $6.9 million while revenues are $4.8 million lower than in FY 2010. For FY 2011 to FY 2010 comparison, purchase costs are expected to decrease by $3.6M, salaries and benefits to decrease by $1.1M, CIP to increase by $0.5M, equity transfer to increase by $0.1M and other expenses to decrease by $2.2M. Long-term cost trends in key categories (CIP, commodity purchase costs, operations expenses, and other – transfers, debt, and rent) were provided. A cost and quantity chart of supply was provided to show the change in portfolio mix (from all Western/hydro in FY 2003 to less than 50% hydro and more renewables and market purchases in FY 2011). Supply cost has almost doubled since FY 2003 due to the expiration of the previous Western contract, recent drought, and renewable purchases. Overall commodity purchases account for 55% of the expenses, salaries and benefits account for 8%, the General Fund equity transfer accounts for 8%, and CIP accounts for 7%. CIP expenses are $10 million for undergrounding, system improvements, smart grid technologies, LED streetlight conversion and customer connection costs. Since FY 2007, revenues have not covered expenses resulting in lowered balances every year in the Rate Stabilization Reserves (RSRs). The Electric Supply and Distribution RSRs are expected to be just above the minimum guideline levels at the end of FY 2010 and FY 2011. Overall, Palo Alto’s FY 2011 system average electric rates are very low relative to electric utilities in the state with only Santa Clara’s rate lower than Palo Alto’s, according to data collected by the California Municipal Rates Group. Commissioner Keller asked what the $500,000 CIP budget for smart grid is for as she understood that the strategic plan is being prepared now and that there were no plans for subsequent expenditures. Fong stated that indeed there are no commitments and that this is a placeholder budget for expenditures that have yet to be justified. Commissioner Foster asked for an explanation of the Calaveras Reserve transfer. Ratchye explained that the transfer is from the Calaveras Reserve to the Electric Operating budget and that the transfer proposed Utilities Advisory Commission Minutes Approved on: June 2, 2010 Page 4 of 12 is the minimum transfer level according to the Calaveras Reserve guidelines, which is equal to the calculation of the FY 2011 stranded cost. Commissioner Berry mentioned the RSR guidelines in the proposed budget document are different than the ones in the presentation. Yuan confirmed the reserve guidelines in the proposed budget for all utilities were not updated in time for publication and an “At Place Memo” will be handed out at the Finance Committee representing the updated guidelines. For the Gas Fund, Yuan said that the proposed budget for FY 2011 expenses are higher than FY 2010 budget’s expenses by $4.8 million while revenues are $1.3 million lower than in FY 2010. For FY 2011 to FY 2010 comparison, purchase costs are expected to decrease by $2.3M, salaries and benefits to increase by $0.1M, CIP to increase by $5.9M (due to the postponement of a gas main replacement project in FY 2010), and other expenses to increase by $1.1M. Long-term trends in expenditure categories (CIP, commodity purchase costs, operations expenses, and other – transfers, debt, and rent) were presented. Overall commodity purchases account for 49% of the expenses, salaries and benefits account for 9%, the equity transfer accounts for 10%, and CIP accounts for 16%. CIP expenses are $8.3 million for gas main replacement projects, system improvements, gas station rebuild, and customer connection costs. Since FY 2007, expenses have exceeded revenues so that the balances every year in the RSRs have increased. The Gas Supply RSR balance is expected to be below the minimum guideline level in FY 2011 and the Gas Distribution RSR balance is expected to be between the minimum and maximum guideline levels at the end of FY 2011. Ratchye stated that the actual expenses for commodities for FY 2010 is expected to be less than the budget so that the ending Supply RSR balance is likely to be higher than anticipated so that the FY 2011 ending reserve balance will be above the minimum guideline level. Due to the 3-year laddering gas purchasing strategy, Palo Alto’s residential gas rates have been higher than PG&E’s since FY 2007. PG&E’s rates follow the market prices, which have been declining in the past several years. Council Member Scharff asked how many vehicles Utilities has. Fong stated that Utilities vehicles include pool cars, some cars assigned to specific individuals, and many special purpose vehicles for the operations area. Scharff asked if all these vehicles were included in the City Auditor’s vehicle audit report. Fong confirmed that they all were included in that audit. Chair Melton asked if the gas main replacement CIP project was the one project deferred from FY 2010, or two projects – both a new one and the one deferred from FY 2010. Assistant Director Tomm Marshall replied that it is for the delayed gas main replacement project, a relatively large project and some incremental costs, not two separate projects. Commissioner Ameri asked if the project was for new gas main pipelines, or for replacement of old gas mains. Marshall stated that it was for a gas main replacement project. Ameri asked who pays for new gas pipelines that may be required to serve a new development. Marshall stated that normally new gas mains are not needed even for new developments since the City is already built out. He added that any pipeline extensions that may be required to serve new developments are paid for by the development. For the Water Fund, Yuan reported that the proposed budget for FY 2011 expenses are higher than FY 2010 budget’s expenses by $1.8 million while revenues remain the same as FY 2010 excluding the $35M bond issuance and emergency water supply project. For FY 2011 to FY 2010 comparison, purchase costs are expected to increase by $1.7M, salaries and benefits to decrease by $0.3M, CIP to decrease by $0.3M, and other expenses to increase by $0.7M. Long-term cost trends in key categories (CIP, commodity purchase costs, operations expenses, and other – transfers, debt, and rent) show that the proportional cost of commodity purchases has risen over time. Overall commodity purchases account for 33% of the Utilities Advisory Commission Minutes Approved on: June 2, 2010 Page 5 of 12 expenses, salaries and benefits account for 14%, and CIP accounts for 24%. CIP expenses are $8.8 million for the emergency water supply project, water main replacements, system improvements, and the recycled water project. Since FY 2007, revenues have exceeded expenses. The Water RSR balance is projected to be above the maximum guideline level at the end of FY 2011, but staff did not recommend a rate decrease due to known increases in future water costs. Palo Alto’s water rates in effect in July 2008 were higher than those of most Bay Area water agencies, but they are comparable or lower than those for the neighboring cities of Menlo Park, Atherton, and Los Altos Hills. The rate comparisons were collected by the Bay Area Water Supply and Conservation Agency, but have not been updated for FY 2010 rates. Commissioner Eglash, noting that the budget for operations is higher than the prior year’s actual operations expenses for all funds, asked if this is true since not all budgeted funds are spent each year. Yuan confirmed that this was the case and that the budget contains funding for all positions, even though vacancies do occur during the year, which result in savings from the budgeted expenses. Chair Melton noted that the water commodity cost is only 33% of the total water budget, a fraction which is lower than for the gas and electricity budgets. Fong stated that in the water fund, there are significant CIP projects, including the emergency water supply and storage project in FY 2010 and FY 2011, and the recycled water project in the future. Ratchye also noted that the fraction of the budget for commodity cost will certainly rise over the next 6 years as wholesale water rates are projected to increase significantly. Commissioner Berry stated that the FY 2010 CIP budget was very high due to the emergency water supply and storage project funding and asked if all those budgeted funds would be spent in FY 2010. Marshall confirmed that the funds for the project were encumbered in FY 2010, but have not all been spent. Council Member Scharff commented that the agencies with high bills seem to correspond to cities with larger lot sizes and therefore, higher irrigation usage. For the Wastewater Collection Fund, Yuan reported that the proposed budget for FY 2011 expenses are higher than FY 2010 budget’s expenses by $0.5 million while revenues are $0.1 million lower than in FY 2010. For FY 2011 to FY 2010 comparison, treatment costs are expected to decrease by $0.4M, salaries and benefits to increase by $0.1M, CIP to increase by $0.2M, and other expenses to increase by $0.6M. Long-term cost trends in key cost categories (CIP, treatment, operations expenses, and other – transfers, debt, and rent) were presented. Overall treatment costs account for 44% of the expenses, salaries and benefits account for 11%, and CIP accounts for 24%. CIP expenses are $4.1 million for the rehabilitation and augmentation of collection systems, replacement of sewer laterals and manholes and system improvements. Since FY 2007, revenues and expenses have been relatively closely aligned resulting in small changes to the Wastewater Collection RSR balance, which is expected to be slightly higher than the maximum guideline level at the end of FY 2011. Based on a survey by the California Municipal Rates Group, Palo Alto’s residential sewer rates are lower than most sewer agencies in the state. Commissioner Ameri asked how many wastewater pumping stations the City had. Marshall replied that it has only one, small pumping station located up by Foothills Park and that most of the system operated by gravity flow to the wastewater treatment plant. Commissioner Berry asked about the sewer rate structure and noted that San Francisco’s sewer bills depended on the amount of water used. Ratchye said that residential sewer rates are fixed, flat rates that do not change by the amount of water used while non-residential sewer rates do depend on wintertime water usage. Utilities Advisory Commission Minutes Approved on: June 2, 2010 Page 6 of 12 Yuan reviewed the Utilities overall staffing trend, which has grown by only one position from 228 full-time equivalents (FTEs) in FY 2004 to 229 in FY 2010. However, Utilities is requesting 7 new FTEs in the FY 2011 budget. In addition to FTEs in the Utilities Department, some positions in General Fund departments are directly paid by the departments. The number of these positions has increased from 5.75 FTEs in FY 2004 to 12.61 FTEs in 2010 to 15.71 FTEs in the proposed FY 2011 budget. Some of this increase was due to a change in methodology from Utilities paying for General Fund services through “allocated charges” in the cost plan to paying for certain positions directly that are dedicated to serving Utilities. So the increase in direct payment has corresponded to reduced allocated charges from General Fund departments. Yuan noted that the 7 positions include a Compliance Manager, two Installer Repairers, a Customer Service Representative, a Customer Service Specialist, a Senior Business Analyst, and a Communications Manager. First Yuan discussed the new positions requested for the compliance and reporting area. Yuan explained that these positions, a Compliance Manager and two Installer Repairers, are needed to ensure compliance with increasing regulations and for oversight of reporting, deadline tracking, and data compilation. Regulations for all utility services have increased dramatically over the years. For electric, there are new regulations from the North American Electricity Reliability Corporation, the Western Electricity Coordinating Council and the California Public Utilities Commission. The US Department of Transportation regulates gas service and distribution systems. Regulations on water services emanate from the California Department of Public Health Services for water quality, cross- connection control programs, and water system operations. The wastewater collection services are regulated by the State and Regional Water Quality Control Boards and include the requirement to develop and implement a Sanitary Sewer Management Plan. Commissioner Eglash asked why Utilities needs Installer Repairers instead of the Public Works Department. Fong replied that it is the Utilities Department that does the maintenance and repair of the water and gas distribution systems and the wastewater collection system. Commissioner Waldfogel asked if the Utilities were to relinquish ownership and maintenance responsibilities of the wastewater system laterals, would that result in the need for an increase in the headcount. Assistant Director Dean Batchelor stated that Utilities would still have responsibility for the lower lateral and that the new positions are needed regardless of being responsible for the entire lateral section. Yuan identified the three positions needed for customer service and support as a Customer Service Representative, a Customer Service Specialist, and a Senior Business Analyst. These new positions are requested to support the features provided by the new billing system and to support more complex processes. The new billing system features include improved quality control, integration with City’s financial system, online credit card payment, improved data reporting, improved customer interface, enhanced Credit and Collection processes and debt recovery. Many of these new features are more complex than the old billing system and more personnel are required to manage them. For example, billing system resolution takes more time and there are more bills selected for review before they go out. In addition, new communication channels (email, online billing system) need to be tended and the more complex billing system is found to result in longer transactional processing times. Commissioner Keller asked what the payback was for the SAP billing system. Fong replied that she does not have that information, but that the new billing system may not improve efficiencies, but does have much more capability than the old system so it would be difficult to calculate a payback period for the investment. Utilities Advisory Commission Minutes Approved on: June 2, 2010 Page 7 of 12 She added that the improved communication with customers is expected to provide a long-term payoff for the new billing system. Commissioner Eglash stated that he was one of three commissioners on the UAC’s Budget Ad Hoc Subcommittee and that the subcommittee discussed the new billing system and the larger Information Technology (IT) needs of the department. He noted that the SAP billing system was justified as part of a citywide effort and was not developed for the specific needs of the Utilities Department. The Utilities specific IT requirements are complex and were not recognized as part of the billing system upgrade, but there is more spending in the budget for IT to help respond to the Utilities needs. Commissioner Berry asked what the costs were for the new positions. Yuan stated that the base salaries were approximately $120K-$140K for the Compliance Manager, $70K for each Installer Repairer, $61K for the Customer Service Representative (CSR), $67K for the Customer Service Specialist (CSS), $110K for the Senior Business Analyst, $100K for the Communications Manager, and an additional 50% for benefits. Chair Melton asked what the role would be of the Senior Business Analyst. Yuan explained the position will support the billing side of SAP with the bill redesign and the new assembly bill requirements. The Business Analyst will be also be responsible for ad hoc reporting, providing more customer usage information, along with identifying and correcting SAP issues. Commissioner Foster asked what work on the SAP billing system means. Fong replied that the additional work on the SAP system would be geared toward providing more information on usage to customers; essentially enhancements to the bill as currently presented. Foster asked how many CSRs and CSSs there are now. Auzenne said that there are currently 5 CSRs and 3 CSSs and that they respond to phone calls, answer emails (a new function), online billing questions (new) and that each transaction takes longer than it did in the past. Auzenne also explained that he has used four temporary FTEs since the SAP billing system was implemented and that these will be reduced to zero when the new permanent FTEs are hired. The average utility wait time is one minute and ten seconds but our wait time is sometimes between six to eight minutes. Auzenne added that the new billing system’s oversight features result in the system kicking out about 1,000 bills per week for manual intervention before they would be released for billing to customers. We also respond to over 100 emails and 900 phone calls per week. Foster wondered why it takes longer with the new billing system and stated that it was very unfortunate that the new billing system resulted in longer wait times and reduced efficiency. Commissioner Waldfogel questioned if there is an IT solution that would improve efficiency and commented that Utilities needs to have an IT strategic plan that focuses on the needs of the Utilities Department as a business enterprise. Fong stated that she would not support a different IT solution other than SAP since any implementation requires resources to be gathered for that effort while other efforts would have to be on hold. She stated that we have this direct experience with the SAP billing system implementation, and that the implementation of the new customer billing system was far from smooth. Council Member Scharff asked why Utilities got involved in the SAP billing system if it doesn’t meet the needs of the department. He described what he heard as stunning news. Marshall explained that the decision was part of a citywide IT strategy to integrate all the City’s financial systems onto a single platform, which is enabled by the SAP system. Yuan stated that a new Communications Manager is being requested in the FY 2011 budget. This new position will result in increased customer education and outreach, improved and timely responses to the public and the news media, more effective use of staff time to focus on core business activities, Utilities Advisory Commission Minutes Approved on: June 2, 2010 Page 8 of 12 establishment of a coordinated utility-wide messaging, enhanced coordination with other City departments, and improved communications of the Utilities strategic vision and goals both internally and externally. Commissioner Foster stated that he supported better communication and asked how this effort is conducted currently. Fong stated that there is a reactive, but not very proactive, response to communication needs now. She asks existing personnel with other responsibilities to stop what they are doing and help to respond as needed. Foster asked if the new position would then result in less time spent on this activity by others. Fong concurred that this would be true. Commissioner Eglash added that the new position would result in a chance for Utilities to have a more coordinated and strategic communications under a new central person. Foster asked if the future communication would be responsive or proactive. Fong replied that it would be both, as appropriate. Foster asked if the new person would also handle crisis communication as well. Fong affirmed that the new person would work with her and the Operations Division on crisis communications. Foster asked if the new communications person should be better situated in the City Manager’s office, instead of the Utilities Department. Fong stated that Utilities does need this function separate from the Manager’s office since there are so many issues specific to the department and since the department touches all residents and businesses in the City. Further Fong noted that it is difficult for a communications person to stay on top of Utilities issues when she/he does not reside within the department. Chair Melton recalled a time in the past when Utilities did have a Communications Manager, but that the position was moved to the City Manager’s office. Fong confirmed that this was true and that she now is convinced that Utilities does need its own communications manager that can focus full-time on Utilities issues and can help to develop a communications strategy. Commissioner Waldfogel asked if there was a communications plan now. Fong stated that one will be developed in the next several months. Waldfogel stated that he was uncomfortable with approving the new position without a communications plan. Fong replied that a new communications person will need some time to come up to speed on the Utilities Department’s activities and issues, and that many of the job requirements are immediate and known despite the absence of a communications plan. Commissioner Berry agreed with Commissioner Waldfogel that this may not be the best year to add new positions, given the state of the General Fund budget, but that his interactions with staff in the department has shown that existing staff is stretched thin and that there was a stress level associated with the level of work being requested. Fong stated that additional positions were requested by the Assistant Directors, but that she rejected many of them in an effort to pare the requests down to those that were absolutely essential. She said that she feels these new positions are the bare minimum that is needed now. Commissioner Keller stated that she supports the new Communications Manager and sees it as a way to increase efficiencies to have a point person to handle departmental communications. With respect to the request for the Compliance Manager position, Chair Melton observed that he has seen many employees who don’t specialize in compliance issues have been asked to perform part of this function and he agrees with the need for a dedicated compliance person to improve efficiencies of the entire department. Commissioner Eglash provided a summary of the work of the Ad Hoc Budget Subcommittee, comprised of himself and Commissioners Berry and Waldfogel. He said that the subcommittee was formed to provide greater oversight and involvement over the development of the operating and capital budgets than has been done in the past. Eglash stated that the budget presented by staff incorporates the input from the Utilities Advisory Commission Minutes Approved on: June 2, 2010 Page 9 of 12 subcommittee. He said that the subcommittee met with staff and separately as a committee. He noted that they expressed a desire to see benchmarking studies for all funds and he is happy that the water benchmarking study has already commenced. He observed that the level of budget review was unprecedented from his understanding of past practice. As a final act before dissolution, the subcommittee plans to meet with the Chair of the UAC to provide recommendations for the same process to occur in the future. Commissioner Waldfogel, also a member of the subcommittee, thanked staff for adding to his understanding of the capital budget and the value of the proposed capital projects and agreed that while he was not in a position to determine whether the long-term strategy actually achieves goals in excess of industry standards for reliability, nevertheless, the proposed budget reflects Utilities best practices and is reflective of longer-term strategy for the department. Commissioner Berry, the third member of the subcommittee, added that the exercise involved good, frank discussions and touched on the need for an IT strategic plan and benchmarking. The subcommittee provided feedback to staff, which was reflected in the budget proposal and presentation. Berry said that the subcommittee members also met with members of the Finance Committee to gain an appreciation of their perspectives. He also agreed that he could see how staff incorporated input from the Committee in the budget submission. Chair Melton thanked the subcommittee for their work and stated that it was valuable to both the UAC and staff. Commissioner Foster asked if the subcommittee had a recommendation on the new staff positions proposed. Commissioner Waldfogel replied that all subcommittee members agree that the Compliance Manager and Installer Repairer position requests are appropriate, but that they diverged on the other position requests. Commissioner Keller asked about reductions in tree trimming costs that are shown in the Public Works budget. She asked whether there would be a delay in responding to emergencies. Marshall replied that there wouldn’t be an impact to tree trimming for Utilities since contractors are used for the service to trim trees to clear the lines above electric overhead lines. Keller asked about recycled water and asked if there was any coordination to prepare new development to ensure that they are ready to accept recycled water in the future, especially with respect to the new libraries and community center. She asked whether there was any involvement to ensure that these opportunities to prepare for recycled water were followed up on. Marshall stated that Council has adopted regulations that require new large development to add dual plumbing and irrigation systems to be ready for recycled water when it is delivered. Melton replied that dual plumbing was a part of the Mitchell Park library project. Keller wanted to make sure that there was coordination to prepare for recycled water for the future and wondered who would be the best to answer these types of questions. Marshall replied that the Building Department would have the best information on the building standard and the recycled water use ordinance. Commissioner Berry asked why the numbers in the budget book for the Electric Fund reserves was different from what was shown in the presentation. Is $2.3M in Calaveras reserve being transferred to the Supply RSR in FY 2010 and $4.1M in FY 2011? Yuan confirmed the transfer. The $2.3M and $4.1M represented the minimum stranded costs for FY 2010 and FY 2011 and they were not reflected correctly in the reserve publication. Berry asked for an explanation of the one-time $2.7M transfer from the General Fund Transfer Stabilization Reserve in FY 2010. Senior Resource Planner Ipek Connolly answered that the General Fund Transfer Stabilization Reserve was created under the old equity transfer methodology Utilities Advisory Commission Minutes Approved on: June 2, 2010 Page 10 of 12 and was used to ensure that the transfer to the General Fund from the Electric and Gas Funds would occur on schedule despite any conditions occurring in those two funds. With the new equity transfer methodology, this reserve was closed and the balance returned to the Electric and Gas Funds during FY 2010. Commissioner Ameri wanted to clarify that the salaries and benefits for the new positions are included in the proposed budget. Yuan confirmed the new positions are included in the proposed budget. Commissioner Foster stated that Palo Alto’s gas rates were lower than PG&E’s in the past, but have been higher for the past several years. Yuan confirmed that this is true and is a result of Palo Alto’s laddering strategy, which differs from PG&E’s strategy to buy gas only on the short-term, or “spot”, markets. Foster stated that PG&E’s residential electric rates have five tiers with the highest usage tier having very high prices. Palo Alto’s residential electric rates are too low in the highest usage tier and, as a consequence, there is much less incentive for Palo Altans to install solar systems on their roofs. Connolly stated that rate design will be discussed at a later date, when the cost of service and rate structures for all funds will be under discussion with the UAC. Commissioner Waldfogel cautioned against reducing the price for the lowest use tier as that could induce additional use of energy due to the elasticity of demand. ACTION: Commissioner Eglash made a motion that the Utilities Advisory Commission (UAC) recommend that the Council adopt the Utilities as proposed, including no rates adjustments and the new seven new positions. Commissioner Berry seconded the motion. Commissioner Waldfogel requested an amendment to the motion to recommend approval of three of the new positions requested, but not to recommend approval of the Communications Manager, the CSS, the CSR, and the Senior Business Analyst. He added that the approval of those new positions should be considered only after a communications strategy and an IT strategic plan are completed and in recognition of the General Fund’s budget difficulties. Commissioner Eglash declined to accept the amendment to the motion and stated that there was no impact on the General Fund if Utilities added staff. Commissioner Foster asked if the CSR and CSS positions were budget neutral since they would replace temporary staff. Fong confirmed that this was true. Commissioner Waldfogel then made a substitute motion to recommend that the Council adopt the Utilities as proposed, including no rates adjustments and three of the new positions requested – the Compliance Manager and the Installer Repairers only. The motion died due to the lack of a second. The Commission voted unanimously (7-0) to support the original motion. ITEM 3: ACTION ITEM: Potential Topic(s) for Discussion at Future UAC Meetings Commissioner Foster asked when rate structures would be discussed. Commissioner Eglash asked if this subject would be discussed when the response to the Colleagues’ memo was discussed. Fong stated that this could be a part of this discussion. Commissioner Melton noted that the items in the Council Colleagues’ memo would be addressed with the review of the Long-term Electric Acquisition Plan (LEAP) and the Gas Long-term Utility Plan (GULP) in August. Fong added that the reviews of LEAP and GULP would begin in June. INFORMATIONAL REPORTS None. Utilities Advisory Commission Minutes Approved on: June 2, 2010 Page 11 of 12 Utilities Advisory Commission Minutes Approved on: June 2, 2010 Page 12 of 12 COMMISSIONER COMMENTS None. Meeting adjourned at 3:00 p.m. Respectfully submitted, Marites Ward City of Palo Alto Utilities