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HomeMy WebLinkAbout2011-05-04 Utilities Advisory Commission Summary Minutes _______________________________________ City of Palo Alto FINAL UTILITIES ADVISORY COMMISSION - SPECIAL MEETING MINUTES OF MAY 4, 2011 CALL TO ORDER Chair Waldfogel called to order at 12:05 p.m. the meeting of the Utilities Advisory Commission (UAC). Present: Commissioners Cook, Foster, Keller, Melton and Waldfogel. Commissioner Berry arrived at 12:15 p.m. Absent: Commissioner Eglash and Council Member Liaison Scharff ORAL COMMUNICATIONS None. APPROVAL OF THE MINUTES The Minutes from the April 6, 2011 UAC meeting were approved as presented. AGENDA REVIEW No changes to the agenda were requested. REPORTS FROM COMMISSION MEETING/EVENTS Chair Waldfogel stated that the Finance Committee, in its review of the electric financial forecast, recommended returning to the UAC with plans for spending the Calaveras Reserve on projects. UTILITIES DIRECTOR REPORT Director Fong noted that CPAU is expanding its ongoing safety program to include video camera inspection of sewer laterals throughout the city at homes and businesses to identify and repair any situation where a gas line passes through or intersects a sewer line, a condition known as a crossbore. UNFINISHED BUSINESS None. NEW BUSINESS ITEM 1: ACTION: Proposed Operating and Capital Budgets for Fiscal Year 2012 Director Fong advised that the budget presentation would be led by Senior Administrator Dave Yuan. Yuan thanked the UAC commissioners for their contributions on the various ad-hoc subcommittees throughout the year: UAC bylaws, strategic plan, Council colleague’s memo, budget, and innovation, technology and projects. The UAC reviewed the 5-year financial forecasts and reserves projections for the Electric, Gas, Water, and Wastewater Funds. Utilities Advisory Commission Minutes Approved on: June 1, 2011 Page 1 of 9 Yuan stated that rate adjustments are being recommended for the Water, Wastewater, and Fiber Optics Funds. The 12.5% rate increase in the Water Fund is the only revenue increase adjustment. The adjustments in Water and Wastewater are fixed-cost realignments amongst the different customer classes based on cost of service studies. The 1.5% adjustment in the Fiber Fund is based on the Consumer Price Index (CPI) applied to pre-2006 rates. Yuan noted that the UAC has reviewed and provided feedback on the following policy and plan updates: Strategic Plan, Long-term Electric Acquisition Plan (LEAP), Gas Utility Long-term Plan (GULP), and Demand Side Management Implementation Plan, and will be reviewing the Urban Water Management Plan (UWMP) as the next item on the agenda. For cost management, staff worked closely with other members of the Northern California Power Agency (NCPA) and NCPA staff in reducing NCPA costs. Where appropriate, to achieve cost-effectiveness or to augment resources, services have been outsourced. For example, Operations has outsourced some of the off hours dispatch calls to a 3rd party and contracted out some sewer and line clearing responsibilities. Yuan emphasized that all levels of staff are constantly monitoring their budgets and reviewing charges that are posted to their accounts. Electric Fund For the Electric Fund, Yuan provided the following highlights:  the proposed budget for fiscal year (FY) 2012 revenues is $3.5 million (M) lower than the FY 2011 adjusted budget  Overall commodity purchases are expected to decrease by $4.2M due mainly to lower market purchase costs.  sales revenue is expected to decrease by $2.0M due to $1.5M reduction in surplus energy because of lower hydro forecast and $0.5M decrease in market costs and load forecast  Interest income is decreasing by $0.3M reflecting lower cash balances in reserves and $1.2M reduction in other income due to a methodology change in the Central Valley Project (CVP) loan repayment program.  Central Valley Project (CVP) expenses are going down by $1.2M. Yuan also noted a request to increase staffing by full time equivalent (FTE) in the marketing division to coordinate energy management programs and support the new energy efficiency goals. He also noted the increase in the General Fund equity transfer of $0.4M. Yuan summarized the major capital improvement projects (CIP) and provided the expected levels of the Electric Supply and Distribution RSRs which are both forecast to remain within the approved minimum and maximum guideline levels. Yuan listed the following major accomplishments: updated long-term electric acquisition plan, defeat of Proposition 16, designation of CPAU as a Platinum Level Reliable Public Power Provider by the American Public Power Association, the doubling of energy efficiency goals, and the execution of geothermal renewable power purchase agreements. Commissioner Waldfogel commented that staff should show the percentage of renewable energy in the budget overview. Commissioner Waldfogel asked for an explanation of the $5M asset base increase which appeared to be higher than the amount of CIP expenditures and which have an impact on the amount of the General Fund equity transfer. Fong offered that Yuan will follow up with a separate email to the UAC. Utilities Advisory Commission Minutes Approved on: June 1, 2011 Page 2 of 9 Gas Fund For the Gas Fund, Yuan provided the following highlights:  revenues are expected to be $0.9M lower in FY 2012 due primarily to lower market costs.  commodity purchases are decreasing by $5.2M,  contract services are increasing by $3.8M for one-time expense crossbore program,  The General Fund equity transfer is increasing by $0.7M  CIP expenses are $7.8M for gas main replacement, system improvements, and customer connection costs. Commissioner Cook asked if the increased in contract expenses is related to the crossbore program. Yuan confirmed the $3.8M increase is due entirely to the crossbore. As a result of current rate proposals, the Gas SRSR will be above the maximum, but the Gas DRSR will be below the minimum, however, the Gas Fund as a whole will have adequated total reserves. To address the imbalance between the Supply and Distribution Rate Stabilization Reserves, staff will effect an estimated $7.0M transfer from the Supply RSR to Distribution RSR in FY 2012 to bring reserve levels within guidelines. Gas Fund highlights includes GULP update, increase of energy efficiency goal, and gas main replacements in various locations. In response to questions from Commissioner Keller, Yuan and Assistant Director Tomm Marshall indicated that t Utilities has completed about 50% of the original 20-year gas main replacement project and. that the gas main replacement project is an ongoing program which should require declining expenditures in the future because most of the older steel and plastic pipes are being replaced by new and better plastic pipes that are anticipated to have a very long lifespan Commissioner Cook asked whether the laterals to the residences and businesses are maintained by the City or owners. Marshall noted that the City owns the pipelines up to and including the meter. Commissioner Waldfogel asked if there were any changes in headcount. Yuan noted a decrease of approximately 2.0 FTEs due to reallocation to the Electric, Water, and Wastewater Funds. Commissioner Waldfogel also asked if there are any formal guidelines for transferring reserves from Supply RSR to Distribution RSR. Commissioner Melton mentioned that the management of the different reserves within a fund is an internal Utility decision as long as the reserves fall within guidelines and that within-fund transfers between Supply and Distribution reserves had occurred in the past. He noted that the City’s financial statements only show a single reserve for the Gas Fund. Fong noted the impetus behind the separately designated within-fund Supply and Distribution Reserves was prompted by open access rules adopted in 1996 as a way to avoid having stranded distribution and supply assets. Fong suggested that UAC could open up a discussion on a general reserves policy when they discuss Calaveras reserves in a future meeting. Water Fund For the Water Fund, Yuan provided the following highlights:  revenues are expected to increase by $1.9M in FY 2012 due to a 12.5% proposed rate increase effective July 1, 2011, Utilities Advisory Commission Minutes Approved on: June 1, 2011 Page 3 of 9  water purchases from the SFPUC are expected to increase by $3.7M due to SFPUC rate increases needed to fund the SFPUC’s system seismic upgrade project,  ten emergency generators will be rented for back-up power purposes at critical water pumping stations,  CIP expenses are budgeted at $4.9M for local seismic water system upgrades, water main replacements, system improvements, water recycling facility, and customer connection costs. Commissioner Cook asked about a decrease of $4.0M in CIP budget compared to FY 2011. Yuan stated that last year’s budget included funding of $3.5M for the emergency water supply project. Total funding for the project is around $35M, and there is no need to ask for additional budget in FY 2012 for this project. Commissioner Melton asked whether the City should be leasing or buying the emergency generators. Fong stated the Engineering and Operation teams analyzed these two options thoroughly and it was more economic to lease. The Water RSR is expected to decrease by $3.9M. The ending RSR is projected to be above the guideline level. However, the City is forecasting an additional $7.0M in expenses in FY 2013 for SFPUC water purchases and continuing seismic improvements which were recommended in the Preliminary Design Report completed in November 2010. Water Fund highlights include completion of the water benchmark study, construction of two emergency wells, and success of the cross connection program. Commissioner Cook asked whether the 1,665 backflow devices installed marks the beginning or completion of the cross connection program. Fong indicated the program is almost completed. Commissioner Waldfogel asked if there were any changes in headcount. Yuan stated there was a minimal decrease of 0.06 FTE due to position reallocation amongst different utility funds. Wastewater Collection Fund Yuan provided the following highlights for the Wastewater Collection Fund:  there is no change expected in revenues,  wastewater treatment charges are increasing by $0.5M,  operating transfers are decreasing by $0.5M because of a one-time funding for a Refuse project in FY 2011,  CIP expenses are $4.3M for rehabilitation and augmentation of collection systems, continuous improvements, and replacement of sewer laterals and manholes,  there is also a 0.9 FTE increase due to reallocation from other funds,  Reserves are expected to decrease by $1.3M but remain slightly above the guidelines. Fiber Fund Yuan provided the following highlights for the Fiber Fund  revenues are expected to increase by $0.3M,  no rate increased proposed for EDF-3 rate which is the rate most existing customers and all new customers are charged, Utilities Advisory Commission Minutes Approved on: June 1, 2011 Page 4 of 9  there is a 1.5% CPI increase for the pre-2006 rates EDF-1 and EDF-2 based on the existing dark fiber agreement,  reserves are projected to increase by $1.6M in FY 2012,  staff will be presenting a conceptual plan to build-out existing fiber optic backbone network in June or July. Commissioner Waldfogel asked if there is a dedicated salesperson for fiber and would sales increase if the City added another headcount to this fund. Fong indicated that the City could potentially garner more sales but the challenge is coordinating marketing services with delivery capabilities. Commissioner Cook asked if the City could outsource some of the duties for Engineering and Operations to meet the demand. Fong stated that the idea is not inconceivable but the City might encounter some union issues with contracting out. For upcoming safety and reliability initiatives in FY 2012, Utilities will continue to assess an alternative transmission connection, implement the crossbore safety program, continue to work on the emergency water supply project, and staff 24/7 coverage in the Utility Control Center. For innovation and environmental sustainability, Utilities will install LED streetlights, assess renewable energy feed-in-tariffs, construct electric vehicle charging stations, and continue to assess Smart Grid technology. Finance initiatives include reduction in commodity purchases costs, reductions in NCPA charges, and reductions in operating expenses. There are several organizational efficiency projects which Utilities will be involved with including the City Auditor’s work plan, an organizational assessment coordinated with the City Manager’s Office and Administrative Services, a Communications Strategic Plan, and a Utilities IT Strategic Plan. Commissioner Waldfogel asked if there was any budget set aside for innovations in the FY 2012 budget. . Yuan explained that there is $0.5M budgeted in FY 2011 CIP for Smart Grid technology. Commissioner Waldfogel asked for further clarification on the innovation fund since Utilities was not planning to do anything related to Smart Grid in the near term based on discussions during the April 27th UAC meeting. Marshall noted that Utilities will go back to Council to request funds for innovation efforts after a plan is developed. Commissioner Berry asked if budget was set aside for the Utilities IT strategic plan. Senior Resource Planner Debra Lloyd stated no budget has been set aside for the Utilities IT strategic plan because the initial plan is to follow up on the citywide IT strategic plan which will be completed in June or July. Currently, the Utilities IT strategic plan is an internal effort based on the recommendations of the citywide plan. Fong also mentioned Utilities did not add anything to the budget because Utilities not know how much to budget for the Utilities IT strategic plan. Utilities would request for a budget adjustment at a later time if the costs identified for a consultant was high. Commissioner Waldfogel asked if some of the Utilities-related IT projects are budgeted under a different fund. Yuan confirmed SAP projects are budgeted under the Technology Fund. Commissioner Berry asked if there were any CIP changes in the Technology Fund that are Utilities-related. Yuan recalled there is one continuous improvement project in the amount of $250,000 for SAP budgeted for FY 2012. Fong stated the bill redesign CIP was not approved by the Finance Committee and is not moving forward. Lloyd presented the increasing regulatory and reporting challenges with various agencies and noted the proliferation and cumulative nature of the regulations imposed on all of the utilities, accompanied by stiff Utilities Advisory Commission Minutes Approved on: June 1, 2011 Page 5 of 9 penalties and fines for non-compliance. She shared a timeline showing the increasing pace of new regulations beginning in 1976 to present. In particular, beginning in 2005 and each year thereafter, multiple legislated regulations were adopted into law regarding energy efficiency; greenhouse gas reporting; renewables purchasing, reliability, and gas, water and sewer operation, maintenance and reporting requirements. Lloyd noted the expected start of a cap and trade market sometime in 2012. Lloyd further pointed out the ever increasing dedication of staff time needed to prepare annual reports, update databases, attend workshops, complete 10-year target reporting, and update customer information on the EPA Profile Manager system. Commissioner Berry asked what impact the challenges had on this year’s budget. Lloyd responded that it impacted energy efficiency in particular because Utilities had to request an additional $900,000 in budget and 1.0 new FTE to implement new energy efficiency programs. Fong stated Utilities hires consultants to help translate federal requirements, review plans to ensure City is meeting compliance, conduct table top audits, and obtain specialized training for gas and other utility workers. Yuan presented the upcoming staffing challenge as a result of higher turnover in recent years. There have been an increased number of retirements and voluntary separations in the past 2.5 years of highly trained and experience workers. Commissioner Waldfogel asked if the higher number of vacancies is affecting operational efficiencies or readiness. Fong indicated that there has been a tremendous loss of knowledge and experience due to retirements. Utilities have struggled slightly with a less knowledgeable workforce. It might impact some efficiencies because it could take longer to get work done correctly. Commissioner Waldfogel asked is there any budget request to help fill the vacancy needs. Fong stated Utilities has been re-hiring retirees for training and documentation purposes to bridge the knowledge gap. Commissioner Melton noticed the ASD Risk Manager position was being eliminated and inquired about future risk management functions. Fong indicated the functions will be filled by contract services and a half-time Senior Financial Analyst. The analyst and consultant will continue to provide risk management reports and evaluate annual risk assessment The Commission discussed general methods of review of the budget and acknowledged the work of the Budget Subcommittee in reviewing the budget proposals. Commissioner Foster noted the commission has several options, including: 1) approve the budget without sending any comments to Council; 2) write a transmittal letter at the meeting which would be time consuming; 3) write a transmittal letter offline but this could potentially be a Brown Act violation; 4) approve the budget and request the budget ad-hoc subcommittee to write up the transmittal letter. Commissioner Cook added another option: 5) approve the budget and one of the budget ad-hoc subcommittee members will speak on behalf of UAC at the Finance Committee. ACTION: Commissioner Foster made a motion that the Utilities Advisory Committee recommend that the Council adopt the Utilities budget as proposed. In addition, he moved that one or more members from the Budget ad-hoc subcommittee attend this year’s Finance Committee budget hearing and next year’s Budget ad-hoc subcommittee will write a transmittal letter to the Finance Committee recommending approval of the budget. Commissioner Melton seconded the motion. Utilities Advisory Commission Minutes Approved on: June 1, 2011 Page 6 of 9 The Commission voted unanimously (6-0) to support the motion. ITEM 2: ACTION: Recommendation to Council to Approve and Adopt the 2010 Urban Water Management Plan and SBx7-7 Compliance Strategy Senior Resource Planner Nicolas Procos and Utility Account Representative Catherine Elvert prepared a presentation to deliver to the UAC. Prior to beginning the presentation, Chair Waldfogel inquired about the regulatory requirements behind the Urban Water Management Plan (UWMP) and if it were pertinent for the Commission to discuss the highlights of the 2010 UWMP including any changes since 2005. In response, Commissioner Melton explained that the UWMP is a legislative requirement, and made a motion for the Commission to move ahead with approval of the plan and proposed SBx7-7 compliance methodology. Commissioner Cook seconded the motion. Commissioner Melton then asked if there were any new legislative actions included in the plan. Staff explained that the 2010 UWMP does not contain any dramatic departures in policy since the 2005 UWMP, but did mention two differences from the 2005 UWMP worth noting – the new efficiency program targets and the SBx7-7 compliance program. The Commission asked staff to present the efficiency and SBx7-7 issues. Elvert proceeded to discuss the current and past water conservation measures and savings achieved by the Utilities Dept. For the 2010 UWMP and future savings projections, Elvert discussed the new measures that the City will use to achieve the significant increase in water conservation savings when compared to the 2005 UWMP. Procos discussed the proposed SBx7-7 compliance strategy. Procos noted that there are four possible methods and the rationale behind staff’s recommended methodology. Procos further discussed the City’s compliance strategy, including the plan to review progress prior to the 2015 UWMP. Commissioner Keller asked if the rising cost of water will result in a higher conservation potential, especially with regards to outdoor conservation potential. Elvert responded that rising water costs should continue to make a number of efficiency measures cost-effective, and in the future should be a contributing factor toward additional water savings. Commissioner Melton noted his skepticism with one savings measure in particular, “workshops.” Elvert responded that there are certain assumptions involved in estimating water savings as a result of contacts with the public, and that staff has noticed a dramatic increase in attendance at workshops and this trend may continue. Utility Director Fong responded that staff agreed that savings from workshops and educational classes was difficult to quantify and staff will track this measure closely. Commissioner Keller discussed the extensive educational outreach to residents and asked if there was anything more the City could do to work with businesses for water efficiency. Elvert replied that a number of workshops are open to professionals in the community, and the City continues to diversify the educational opportunities and incentives offered to this sector. Utility Director Fong replied that the Utilities Department has Key Account representatives that work with large customers on a regular basis to identify potential efficiency improvements. Elvert mentioned programs particularly beneficial to large customers including the Water Efficient Technologies and outdoor irrigation rebate programs. Chair Waldfogel asked whether the 2010 UWMP was consistent with the City’s current water reduction policies. Staff clarified that the Chair was referring to the City Council approved 20% by 2020 reduction Utilities Advisory Commission Minutes Approved on: June 1, 2011 Page 7 of 9 plan that was approved by Council on April 19th 2010 (CMR 212:10). Procos responded that the timing for the City’s reduction plan was not synchronized to the SB7x-7 effort, but noted the alignment between the 2010 UWMP and the City’s own effort. Chair Waldfogel inquired if there was anything in the plan that might result in a future recommendation to the UAC to approve mandated water use restrictions. Procos responded that the SBx7-7 program may change in 2015 and it does not at this time set specific use restrictions on any customer class. Other than that, there is no intention at this time to use the 2010 UWMP as a basis to impose additional water use restrictions. Utility Director Fong mentioned that new development regulations are included as part of the demand management measures in the 2010 UWMP. Elvert added that the City adopted these new regulations for indoor and outdoor water efficient design through its adoption of the new State Green Building Standards Code, CALGreen, which went into effect at the first of this year. These regulations do not require existing properties to change landscape design or water use practices. Utility Director Fong mentioned the one exception would be water use during a drought. ACTION: Commissioner Melton repeated the motion to recommend Council approval of the proposed UWMP and SBx7-7 target methodology. Commissioner Cook seconded the motion. The motion carried unanimously (6-0). ITEM 3: ACTION: Designate Spokesperson at Council Meetings The UAC discussed the idea of designating a spokesperson to represent the sense of the UAC when items of importance are discussed at the Finance Committee or the Council. For example, Director Fong noted that the budget will be discussed by the Finance Committee on May 17 and the Strategic Plan is being considered by the Finance Committee on June 7. Commissioner Melton stated that the Planning Commission rotates representatives to attend such meetings. Chair Waldfogel suggested that the Chair should attend with a backup to be decided each month. Director Fong said that, if that method was used, she would add an item on the agenda for a designation of the monthly spokesperson. ACTION: No formal action was taken. ITEM 4: ACTION: Potential Topic(s) for Discussion at Future UAC Commissioners Melton and Keller announced that they will not be able to attend the June UAC meeting. Future topics suggested for discussion included:  Whether the Renewable Portfolio Standard (RPS) of 33% within a rate impact 0.5 cents per kWh means that the 33% is the maximum amount of renewables, or whether more renewables can be pursued as long as the rate impact limit was not reached.  The status of the innovation fund effort and the City Manager’s progress on the test bed idea.  A review of the fiber optic fund. ACTION: No formal action was taken. Utilities Advisory Commission Minutes Approved on: June 1, 2011 Page 8 of 9 Utilities Advisory Commission Minutes Approved on: June 1, 2011 Page 9 of 9 COMMISSIONER COMMENTS None. Meeting adjourned at 2:25 p.m. Respectfully submitted, Marites Ward City of Palo Alto Utilities