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HomeMy WebLinkAbout2014-06-04 Utilities Advisory Commission Summary MinutesUtilities Advisory Commission Minutes Approved on: August 6, 2014 Page 1 of 8 UTILITIES ADVISORY COMMISSION MEETING FINAL MINUTES OF JUNE 4, 2014 CALL TO ORDER Chair Cook called to order at 7:08 p.m. the meeting of the Utilities Advisory Commission (UAC). Present: Commissioners Cook, Eglash, Melton, and Waldfogel Absent: Vice Chair Foster, Commissioners Chang and Hall and Councilmember/UAC Liaison Scharff ORAL COMMUNICATIONS None. APPROVAL OF THE MINUTES Commissioner Melton moved and Commissioner Eglash seconded the motion. The motion carried unanimously (4-0 with Chair Foster, Commissioners Chang, and Hall absent). The minutes from the May 7, 2014 UAC special meeting were approved as presented. AGENDA REVIEW AND REVISIONS Chair Cook decided to change the order of the items on the agenda. The first item discussed under New Business will be item 3 (drought impacts), the second item will be item 2 (PLUG-In program), the third item will be item 1 (MuniGas pre-pay transaction), and the last item will be item 4 (future UAC meeting topics). REPORTS FROM COMMISSION MEETING/EVENTS None. UTILITIES DIRECTOR REPORT Utilities Director Valerie Fong provided the following report: 1. Communications Update o Gas Safety Brochure—during May we focused on updating and distributing this key component of our annual gas safety outreach. In addition to including it in Utilities bills and all new customer Welcome Packets, these brochures are mailed out to a long list of stakeholders that includes local public officials, first responders, contractors, excavators, schools and so on. Utilities Advisory Commission Minutes Approved on: August 6, 2014 Page 2 of 8 o New “Water Waste Warning” Doorhangers—samples are at your places of these doorhangers we created for CPAU and Public Works staff to use when excessive water runoff is observed. In enforcing our permanent ordinance prohibiting runoff, we want to give people the benefit of the doubt by starting with a friendly notification. o Summer Water Efficiency Outreach—the hot days ahead will be a prime time to achieve water efficiency savings since over 50% of most residential water use is for irrigation. Therefore, as part of our ongoing drought response we will be stepping up our outreach both reminding people of simple steps like fixing irrigation leaks and touting our “highest in the nation” rebates for lawn removal and irrigation upgrades. Also on the topic of water, at your places we have included the latest version of our very popular shower-timer and hose-nozzle giveaways as well as a new outreach piece about bottled versus tap water. 2. Community Outreach Events and Workshops o May 17 Solar 101—with our solar PV rebate funds running out we are trying to get residents to take advantage of them while they last. We had about 2 dozen folks at this solar workshop, which was a lower than usual turnout so we may do more targeted outreach for the next one. o May 28 CPAU Programs and Services—we were invited to present an overview of our residential and commercial rebates, loans, website resources and other forms of energy and water efficiency improvement assistance as part of the City Development Center’s “Building Safety Month” talk series. A small but very enthusiastic audience turned out for the talk. 3. Marketing Services Update o PaloAltoGREEN Gas Program – We continue to work on the launch of this program. We anticipate program outreach starting in July and enrollment beginning in August or September. o Water Efficiency Rebates Temporarily Increased—for a short time only, rebate amounts for some water efficiency programs have been increased to encourage further water use reductions during drought conditions. Rebates for turf grass conversion in Palo Alto are now the highest we know of at $4 per square foot of lawn removed and replaced with approved low-water use landscape design. Additionally, rebates for custom water efficiency equipment upgrades, commercial food steamers, and commercial clothes washers have doubled through the end of September 2014. o Home Water Reports—we have continued delivery of Home Water Reports to residential customers and have observed a marked increase in customer calls, emails and participation in water efficiency audits and rebate applications. The program is still too new to report conclusive results, but anecdotally, customers seem pleased with receiving water use information in a new and different way than a standard utility bill. UNFINISHED BUSINESS None. Utilities Advisory Commission Minutes Approved on: August 6, 2014 Page 3 of 8 NEW BUSINESS ITEM 3: DISCUSSION: Update and Discussion on Impact of Statewide Drought on Water and Hydroelectric Supplies Jane Ratchye, Assistant Director of Utilities, Resource Management, provided an overview of the San Francisco regional water system. Ratchye stated that the San Francisco Public Utilities Commission (SFPUC) acquired its water rights before 1914. She pointed out that SFPUC’s pre- 1914 water rights are outside of State Water Resources Control Board purview but are junior to those held by the Modesto Irrigation District (MID) and the Turlock Irrigation District (TID). She explained how water is shared between San Francisco and those districts by showing a chart which shows how the water is shared between the SFPUC and MID/TID. MID and TID get all the water flows up to about 2,200 cubic feet per second (CFS) for most of the year and SFPUC gets any flows that are greater than that. During the runoff season from mid-April through mid-July, MID and TID get the first water up to about 4,200 CFS and SFPUC gets all flows above that. Ratchye presented a graph showing SFPUC’s water storage and showed that Hetch Hetchy reservoir is near full as of the end of May and may spill later this year. However, the amount of water SFPUC stores in the water bank in Don Pedro Reservoir is being depleted due to the dry conditions so overall the amount of stored water is falling. Commissioner Melton asked a clarifying question about MID/TID’s rights for water stored by SFPUC and who has control. Ratchye replied the MID/TID will get the water they have a right to, but SFPUC gets to decide whether to preserve water in the mountain reservoirs, or let MID/TID take it out of the water stored in the water bank in Don Pedro Reservoir. She further noted that only Hetch Hetchy water is potable without treatment and that if Hetch Hetchy water is blended with water from other sources (such as from Cherry or Eleanor Reservoirs), all of that water will require treatment. This is what will happen if SFPUC completes a project to allow water from Cherry reservoir to go into the Hetch Hetchy aqueduct for delivery to the Bay Area. SFPUC plans to utilize state and federal drought funds for that project. Ratchye reminded the Commission that the SFPUC is still calling for voluntary 10% reductions and said the SFPUC will provide another water supply update in mid-June. SFPUC has said that BAWSCA agencies are not doing enough to conserve water, so SFPUC may increase its request from 10% voluntary to mandatory and/or higher reductions. Commissioner Melton asked about political pressure from Sacramento to match the state's call for 20% reductions in water use. Ratchye responded that it's clear there's political pressure, so they may call for increased reductions in that environment. She noted that the Santa Clara Valley Water District (SCVWD) has called for county-wide 20% reduction goal, even for Palo Alto although the City doesn’t buy water from the SCVWD. Ratchye presented a graph showing that Palo Alto water consumption is below that in 2013, and below the 10% target reduction line. Ratchye said that hydroelectric generation for the City is greatly impacted by the drought and that generation will be about 20,000 megawatt-hours per year less than last month’s estimate. Commissioner Melton asked how much Palo Alto is spending increased for electricity and the Carbon Neutral program because of the drought and wanted to know if costs will be under the Utilities Advisory Commission Minutes Approved on: August 6, 2014 Page 4 of 8 Council-approved cap. Ratchye said that costs will be under the cap, and that more renewables will be coming on line over time, so Palo Alto will not have to buy as much. Commissioner Waldfogel asked about the effect on rate setting for next year if a 20% water use reduction target is established. Ratchye confirmed that there will be a rate impact from a reduction in water sales. She added that staff is preparing for the potential implementation of drought rate schedules and looking at all the impacts including financial impacts on reserves. Commissioner Waldfogel followed up with a question about cost-based rates versus emergency rates. Ratchye answered that rates for this year were designed assuming a 10% reduction in water sales. Commissioner Waldfogel commented that a budget issue related to consumption may indicate that not all rate elements are based on cost. Commissioner Eglash said the majority of the cost of water is fixed but revenue is collected mostly on a volumetric basis and that this is nothing new. ITEM 2: ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend that Council Adopt a Resolution Terminating the “Power from Local Ultra-clean Generation Incentive Program,” and Repealing Utilities Gas Rate Schedule G-8 (Gas for Electric Generation Service) Director Fong said that no presentation was planned for this item, but that Senior Resource Planner Shiva Swaminathan was available to answer questions. Commissioner Waldfogel asked why no one was interested in the program. Swaminathan replied that the program was originally designed for one customer, who was planning to build a combined heating, cooling and power project. However, their plans changed and they were no longer interested and no other customers have shown an interest in the program. Chair Cook asked if terminating the program will affect the anaerobic digester project. Swaminathan stated that it will not impact the anaerobic digester project. He added that the program is simply an outdated program that has not had any participants. Action: Commissioner Melton made a motion to support the staff recommendation. Commissioner Waldfogel seconded the motion. The motion carried unanimously (4-0 with Vice Chair Cook, Commissioners Chang and Hall absent). ITEM 1: ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend that City Council Approve the City’s Participation in a Natural Gas Purchase from Municipal Gas Acquisition and Supply Corporation for the City’s Entire Retail Load, an Amount Estimated to be Approximately $150 Million over Ten Years, Waive the City’s Choice of Law and Venue Requirements, and Authorize the City Manager to Execute all Associated Agreements Required to Effect the Natural Gas Purchase Senior Resource Planner Karla Dailey presented information about the MuniGas natural gas purchase program. Dailey recounted the history of pre-pay discussions and actions by the UAC. She then reviewed the relevant sections of the Gas Utility Long-term Plan. She presented an overview of pre-pay transactions and then highlighted the difference between a standard pre- Utilities Advisory Commission Minutes Approved on: August 6, 2014 Page 5 of 8 pay transaction and the MuniGas structure. She compared all of the pre-pay participation options against each other including the pros and cons. Dailey described the history of the MuniGas program and the anticipated natural gas market price discounts that will result from participating. She presented a brief summary of the legal analysis and the potential risks associated with the transaction. She concluded with a list of next steps and staff’s request that the UAC recommend that City Council approve a 10-year natural gas purchase from Municipal Gas Acquisition and Supply Corporation and authorization for the City Manager to execute all required agreements. Chair Cook asked if prior consideration of the City participating in a gas pre-pay transaction was before termination of the gas laddering purchasing strategy. Dailey answered that it was and added that Palo Alto could have participated in a gas pre-pay transaction, but that financial instruments would have been needed to hedge the gas portfolio to implement the laddering strategy. Commissioner Melton asked what types of entities are the swap counterparties, and Dailey replied that banks typically serve that function. Chair Cook asked why gas suppliers are willing to provide discounts to the price of gas, and Dailey replied that it is because they get all the money up front and this is valuable to them, especially because those suppliers have a relatively high cost of capital. Commissioner Melton asked if MuniGas was the only organization that offers this particular structure and Dailey confirmed that this is the case. Commissioner Waldfogel asked if any gas disruptions of prepaid gas occurred during the credit crisis, and Dailey answered that there were not. Commissioner Melton followed up with a question regarding any other pre-pay deals that have failed. Dailey confirmed that a pre-pay transaction involving Lehman Brothers collapsed when that firm declared bankruptcy and that the unwinding of the transaction happened exactly as the structure was designed leaving the bondholders holding the bag. Chair Cook stated that if Palo Alto decided to do this, we might not get to do it for a while since we'll have to be on a waiting list, and this was confirmed by Dailey. Chair Cook inquired about how the physical gas is delivered. Dailey explained that Palo Alto will still get the physical gas the same way we do now. All the operational details about deliveries of gas are ruled by our master agreements. The gas in this deal is delivered at Henry Hub. Chair Cook recalled the issue this winter with difficulty getting sufficient gas deliveries due to the polar vortex and asked if there is any more risk from doing the MuniGas deal than buying gas from the regular market. Dailey replied that there is no more risk with getting physical gas delivered. Utilities Advisory Commission Minutes Approved on: August 6, 2014 Page 6 of 8 Commissioner Eglash pointed out that the savings shown do not include the cost of staff time to manage the contract. Dailey agreed and said that those resource needs are small and basically would involve keeping track of the gas we purchased, just as we do now. Commissioner Eglash asked about the supply risk in the unlikely event that the deal collapsed and wanted to know if Palo Alto would still be able to get the gas. Dailey replied that physical gas would still flow from our suppliers to Palo Alto. Commissioner Eglash asked what market conditions make a pre-pay deal good or bad, and Dailey replied that high gas prices yield larger discounts. Commissioner Eglash asked, compared to current gas price conditions, if there is a better time to do a deal. Dailey explained that Palo Alto could wait and enter into a transaction later when prices are higher, but that Palo Alto would forego the discount in the meantime. Commissioner Eglash confirmed that he was not in favor of waiting for more ideal market conditions. Commissioner Waldfogel said the deal looks attractive, and asked if Palo Alto’s supply cost will be lower than PG&E’s. Dailey answered yes. He then asked about the City’s ability to buy “green” gas, biogas for example, in the future. Dailey stated that we could buy other gas supply products through our master agreements and still realize the MuniGas discount. Commissioner Melton commented that as long as we buy gas from any of our suppliers that can be part of the MuniGas deal, we would be able to get the discount on all types of gas. Commissioner Eglash asked about restrictions on buying a new source of supply in the future and Chair Cook and Commissioner Eglash asked for clarification on this point with respect to gas from an anaerobic digester for electric generation. Dailey answered that the MuniGas deal is specifically for gas consumed by Palo Alto’s retail gas utility customers, so there are no restrictions regarding any types of gas purchased for the electric utility. Commissioner Waldfogel expressed concern regarding the uncertainty of our gas suppliers’ willingness to sign the supplier addendum and suggested that support for the recommendation may be conditional on making at least 4 of our suppliers signing the agreement. Action: Commissioner Eglash made a motion to support the staff recommendation. Commissioner Melton seconded the motion. The motion carried unanimously (4-0 with Commissioners Chang, Eglash, and Hall absent). Commissioner Waldfogel commented that this is a lot to absorb in the course of the meeting. The memo and the contract were long and complicated. He stated that it's a lot to take in all at once. However, he stated that it sounded like staff has thought through the risks and the alternatives, but that it deserves careful thinking Commissioner Cook added that the item might have been covered over two meetings due to its complexity. Utilities Advisory Commission Minutes Approved on: August 6, 2014 Page 7 of 8 Commissioner Waldfogel suggested that these complicated issues may benefit from additional focused analysis, including the creation of a UAC subcommittee to allow a subgroup to delve deeper. Commissioner Eglash noted that the staff has worked on this for a long time and brought it forward when it made sense and he indicated that he was supportive the proposal. ITEM 4: ACTION: Selection of Potential Topic(s) for Discussion at Future UAC Meeting Public Comment Commissioner Waldfogel said he would like to discuss how to communicate with our customers. He got the new customer welcome packet recently in the mail and wondered how much customers really use the information provided. He wanted to know if staff has done an analysis of what impact the communication pieces actually have. Director Fong noted that at the last meeting, the issue of fiber and what role the UAC should have with respect to that topic was raised, and that Deputy Senior Assistant City Attorney Jessica Mullan was prepared to address the matter. Mullan stated that the UAC does not have an oversight function, but does have an advisory function under the muni code. Mullan indicated she had done a quick legal review of the UAC’s responsibilities (versus the Citizen Advisory Committee (CAC) working on the muni fiber optic/wireless network issues). The UAC’s responsibilities include “advisory” oversight covering a wide range of issues involving long range planning issues and policy matters associated with utilities including the fiber optic utility. Two items from muni code that are particularly noteworthy include long-term planning and policy involving the development of the utility, and joint action projects that have an impact on the fiber optic utility. The CAC is exploring ideas for an RFP, but nothing has been issued as yet, and there’s no actual project underway, so the UAC is not shirking any of its responsibilities. Nevertheless, a fiber agenda item will be put on the August agenda. Commissioner Melton stated that the UAC has an advisory role with respect to the dark fiber utility. Commissioner Melton asked whether UAC involvement could be expected at the point in time at which use of dark fiber utility fiber/funds in a fiber to the premise project is proposed. Mullan responded that as a policy, use of fiber funds for a particular purpose, may call for UAC advice. Commissioner Eglash asked if the UAC's advisory role with respect to dark fiber is the same as the other utilities. Mullan stated that the role is the same for all the Utilities funds. Commissioner Eglash asked if the UAC should expect that it would play the same role for dark fiber as for gas, water, and electric. Mullan agreed. ACTION: None. COMMISSIONER COMMENTS None. Utilities Advisory Commission Minutes Approved on: August 6, 2014 Page 8 of 8 The July 2 meeting will be cancelled. Staff is waiting to hear from the commissioners as to their availability for the regularly scheduled meeting date in August. Meeting adjourned at 8:46 p.m. Respectfully submitted, Marites Ward City of Palo Alto Utilities