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HomeMy WebLinkAbout2012-05-02 Utilities Advisory Commission Summary MinutesUtilities Advisory Commission Minutes Approved on: June 6, 2012 Page 1 of 8 FINAL UTILITIES ADVISORY COMMISSION MEETING MINUTES OF MAY 2, 2012 CALL TO ORDER Chair Foster called to order at 12:05 p.m. the meeting of the Utilities Advisory Commission (UAC). Present: Commissioners Cook, Foster, Keller, Melton, and Waldfogel Absent: Commissioner Eglash and Council Liaison Greg Scharff ORAL COMMUNICATIONS None. APPROVAL OF THE MINUTES Corrections were read into the record by Director Fong: On page 6 of 11, fourth full paragraph, add “Waldfogel” so the paragraph reads: “Commissioner Waldfogel noted that the rates still don’t reflect the fact that all fixed costs are recovered through fixed charges …” On page 9 of 11, delete first sentence “Commissioner Cook seconded the motion.” On page 10 of 11, complete sentence comprising first full paragraph so the paragraph reads: “Chair Foster said that the requirement for conservation pricing is the driver of the motion and that the cost of service [add the following italicized verbiage] study correctly aligns customer class, but the proposed structure to reduce the tier 2 rate is not consistent with conservation obligation.” ACTION: Commissioner Waldfogel moved approval of the minutes as amended. Chair Foster seconded. Motion carried (4-0) with Commissioners Keller and Eglash absent. AGENDA REVIEW In order to ensure that the action items received maximum attention, Chair Foster moved the budget and gas rate items to next on the agenda and to combine the Reports from Commission Meetings and Events with Commissioner Comments at the end of the agenda. Utilities Advisory Commission Minutes Approved on: June 6, 2012 Page 2 of 8 REPORTS FROM COMMISSION MEETING/EVENTS Included with Commissioner Comments below. UTILITIES DIRECTOR REPORT 1. Hydro Update: Reservoirs are nearly full or at the allowed flood curves, but snowpack, ground moisture, and forecasted runoffs are less than average. Forecasted precipitation is average or lower for the next 2 months. Hydro generation is forecast to be somewhat less than average. 2. Demand-Side Management Updates: a. Earth Day events all went very well. Some highlights include: (1) About 200 people attended the ribbon cutting for the new EcoHome Demonstration. (2) The Greenlight film festival had some really fabulous film entries in the energy category, and we are hoping to be able to use some of these in ongoing communication pieces. (3) CPAU provided energy/water saving information and devices to over 520 students at Walter Hays Elementary School at their Earth Day Fair. (4) The upcoming landscaping workshop for tomorrow already has over 100 registrants. b. Ugliest Home Lighting contest announced two winners and two “honorable mentions” at the Eco- Home ribbon cutting event. Winners receive $400 in rebates for the purchase and installation of ENERGY STAR-rated LED lighting. 3. Communications Update: a. New City Website: The City’s “beta launch” has been reset for May 8th. From then through July, whenever you go onto the City’s website, you will have the choice of clicking to switch to the new format. You can also provide comments on the new website format before it becomes final in July. b. Prop 218 Notices: These letters, issued jointly with the Public Works Department and explaining the proposed water, wastewater and refuse rate increases were mailed out to all property owners on Monday. 4. CLEAN Program: First application period closed. Palo Alto CLEAN offers long-term contracts to purchase power from solar systems installed in Palo Alto. The program’s first application period opened on April 2 and closed on April 30 without receiving any applications. The May application period is now open and will close on May 31. The program’s first year’s limit of 4 MW of capacity is still available. Staff is aware of some property owners who are still evaluating potential projects. We are also looking for possible City-owned sites for the program, but installations have already been made on the best City-owned sites, so identifying new locations is challenging and may take some time. 5. Pilot Demand Response Program: The second year of CPAU’s pilot demand response program began May 1. Seven large commercial electric customers are participating this summer. Under the program rules, CPAU may call up to 15 demand response events. Participants who reduce electric by a pre-determined amount, receive an incentive payment of $0.50 per KWh. CPAU is using a web- based system developed by a local innovative new company in Palo Alto called AutoGrid to manage event communication. The system will send out notifications and allow CPAU staff and participants to view actual usage date and program incentive payments after the fact. Staff will evaluate the pilot program next fall and return to the UAC with a recommendation for moving forward. 6. Innovation and Demonstration Program: CPAU’s Innovation and Demonstration Program application is available online on the Utilities website. The current application period will end July 15, 2012. We have also set up an email for application submittals and questions: innovation@cityofpaloalto.org Utilities Advisory Commission Minutes Approved on: June 6, 2012 Page 3 of 8 7. New Renewable PPA: Staff plans to bring a new renewable energy power purchase agreement capable of supplying about 5% of Palo Alto’s needs for UAC recommendation in June. 8. Federal Lobbying trip: Mayor Yeh, Director Fong, Assistant Director Jane Ratchye, and Senior Resource Planner Debbie Lloyd traveled to Washington, DC and presented several issues to Members of Congress and their staffs and to Federal Energy Regulatory Commissioners and their staffs. The issues included 1) issues raised in the memo written by Secretary of Energy Chu in regards to the Federal Power Marketing Agencies, 2) cyber security; and 3) FERC’s support of the “find, fix, track, and report” method for self-reporting minor violations to reliability standards. UNFINISHED BUSINESS None. NEW BUSINESS ITEM 1: ACTION: Proposed Operating and Capital Budgets for Fiscal year 2013 Senior Management Analyst Dave Yuan thanked Commissioner Melton for his review of the budget as the UAC's designated representative work with staff on a comprehensive review of the proposed operating and capital budgets. Yuan noted that the UAC has already reviewed the financial projections and rate proposals for all funds as well as the changes to the Gas Utility Long-term Plan (GULP) and the changes to the guidelines to the Electric Special Projects (formerly Calaveras) Reserve. New programs include the Cross bore Safety Inspection Program, the Emerging Technology Demonstration Program, the CLEAN Program, and the State's implementation of a cap-and-trade program. For the Electric Fund, no rate changes are proposed for FY 2013 resulting in a net income decrease of $4.2 million. Revenue increases by $10.0 million due to higher demand from commercial site expansions and the new cap-and-trade program. Expense increases are due to commodity purchases, CIP projects, and energy efficiency programs. Electric CIP projects for FY 2013 total $10.9 million including a reconductoring project, street light conversion to LED, system improvements, and customer connections. Electric supply costs constitute 56% of the total Electric Fund costs. Other costs include CIP (18%), operations (12%), equity transfer to the General Fund (8%), energy efficiency (4%), and customer service (2%). Commissioner Keller asked if there are undergrounding projects included in the CIP. Assistant Director Tomm Marshall replied that there are projects under the current undergrounding policy. He noted that a new policy has not yet been adopted. Yuan stated that an estimated gas rate decrease of 10% is requested for FY 2013. The Gas Fund's net income decreases by $3.4 million. Major changes are revenue reductions of 12% due to lower market prices and a change from the laddering purchasing strategy to a 100% spot purchasing strategy. Expenses decrease by 13% due to the removal of the one time expense for the cross bore program and decreases in the commodity purchase costs. In addition, the change in the gas procurement strategy resulted in a decrease of 1.19 FTEs in the Resource Management division. Staff’s time was reassigned to other funds to reflect present and future work activities. Gas CIP projects include a gas main replacement project, which will result in the elimination of ABS pipe material in the City. Gas supply costs are 40% of the total Gas Fund. Other costs include CIP (21%), operations (17%), equity transfer to the General Fund (14%), customer service (4%), and energy efficiency programs (3%). Yuan stated that the Water Fund budget for FY 2013 includes a 15% retail rate increase resulting in an increase of net income of $100,000. Changes to the Water Fund include revenue increases due to the rate Utilities Advisory Commission Minutes Approved on: June 6, 2012 Page 4 of 8 increase, and expense increases due to increases in costs of water supply and seismic upgrade CIP projects. Water Fund CIP projects include a water main replacement project, seismic upgrades to water storage reservoirs, and water reservoir coatings. Water supply costs constitute 43% of the total Water Fund costs. Other costs include operations (21%), other system improvements (16%), the Water Supply and Storage Project (14%), and customer service (6%). The Wastewater Collection Fund includes a 5% retail rate increase despite a decrease of net income of $1.7 million. Changes to the Wastewater Collection Fund include revenue increases due to the rate increase and expense increases due to increases in wastewater treatment charges, sewer system management plan update, and CIP. Wastewater treatment charges are increasing by 7% because of new CIP projects to upgrade the treatment plant facility and replace plant equipments. Wastewater Collection Fund CIP projects include system rehabilitation and augmentation and sewer lateral replacements. Wastewater treatment charges constitute 47% of the total Wastewater Collection Fund costs. Other costs include CIP (27%), operations (23%), and customer service (2%). The Fiber Optics Fund includes a 2.9% CPI increase for EDF-1 and EDF-2 rates resulting in an increase of net income of $2.1 million. Changes to the Fiber Optics Fund include revenue increases due to the rate increase and expense decreases due to change in benefits allocation methodology to reflect actual employee expenses. Fiber Optic Funds costs includes customer service (40%), operations (38%), and CIP (22%). Commissioner Waldfogel noted that staffing increases for compliance are growing and added the caution to be concerned. Director Fong agreed that staffing needs to meet compliance obligations have been an on- going issue and gave a brief update on some of the increasing regulatory compliance requirements in the electric, natural gas, water and wastewater utilities. Chair Foster recognized Commissioner Melton as the UAC’s designated representative to conduct a more in-depth review of the budget. Commissioner Melton noted that the Electric Fund revenues increased by $10 million since there are new large demands in the Research Park, but there are also new expenditures for upgrades to serve those new demands. Also, there are system upgrades to meet the new Stanford Hospital load. It is encouraging that customers are bringing new facilities into the City. In the Gas Fund, the gas main replacement CIP is twice as big as a normal year, but it is to replace the troublesome plastic pipe out of the system. For the Water Fund, work is proceeding on the water storage reservoirs to ensure that they are seismically strong so the CIP costs increased. The reservoir tanks need seismic attention and the upgrades have been deferred in previous years. This work ensures that the City is prepared for emergencies. Regarding electric undergrounding project, the plan is to proceed with those projects that AT&T will participate. Commissioner Melton stated that he thinks that the City needs to move forward with a long-term plan and policy decision to address the undergrounding issue. Another policy discussion is the size of the Fiber Reserve, which is very large. The uses of the reserve are restricted to the fiber utility so there needs to be a discussion of what to use it for, especially if it's for an expansion of the fiber system Commissioner Waldfogel stated that smart grid has been discussed several times, but there has been no policy discussion to resolve going forward. However, the 5-year CIP shows expenditures for smart grid. Director Fong stated that the UAC saw a progress report in November 2011. Commissioner Waldfogel noted that the budget includes costs associated with smart grid projects. Fong acknowledged the budget and reminded the Commission that the dollars are not for the upcoming fiscal year but for the following fiscal year. No approvals of the dollars are being requested, and any requests for smart grid dollars will be Utilities Advisory Commission Minutes Approved on: June 6, 2012 Page 5 of 8 preceded by a plan reviewed by the Commission and approved by the Council. Vice Chair Cook stated the Finance Committee is also asking similar questions about smart grid. Chair Foster stated that he had not done an independent evaluation of the staffing requests, but reviewed everything that was presented. Vice Chair Cook noted his own review of the budget including additional questions to staff regarding staff’s proposed staffing level increase. Vice Chair Cook indicated his concurrence with staff’s proposal. Commissioner Melton said he was impressed with the Operations Division having taken advantage of some vacancies to reorganize to create two Trouble Man positions to extend service beyond normal working hours. He stated that this provided an increase in customer service without increasing headcount. Commissioner Waldfogel stated that he supported the two head count additions related to compliance since it seems that is required, but asked why the Engineering Estimator is needed. Fong replied that the position is dedicated to the New Development Center, which is a high City priority. Commissioner Waldfogel stated that he hoped that this partially addressed Chair Foster's hesitation. Chair Foster reiterated that he was comfortable with the position requests, but wanted to make sure that Council understood the level of review done by the UAC, or by him personally. Commissioner Waldfogel stated that he was comfortable with the new position requests, which seem to be focused on compliance, but the existing positions didn't necessarily get the same scrutiny. Fong stated that the Council also felt that the Utilities’ budget may not have gotten the same level of attention as the General Fund’s budget in the past several years. Therefore, the Council approved the hiring of a consultant to review the Utilities organization. Since this study is in progress, potential additional position requests or changes to the organization have been put on hold. Fong also noted that the request for additional positions before the Commission was pared down from a much larger request of 7 positions. The vetting of the position requests was first done within the Utilities Department, then by the Administrative Services Director and City Manager. Vice Chair Cook suggested that there be a clear explanation of the vetting process that new position requests goes through, resulting in requests for those positions that are truly deemed critical. ACTION: Vice Chair Cook made a motion that the UAC recommend that Council adopt the proposed Utilities Operating and Capital Budgets for FY 2013. Chair Foster seconded the motion. The motion carried unanimously (5-0), with Commissioner Eglash absent. ITEM 2: ACTION: Gas Utility Proposed Rate Adjustments Effective July 1, 2012 Senior Resource Planner Ipek Connolly provided a presentation on the requested changes to gas retail rates. In summary, the change to a spot purchase strategy, rather than a laddering strategy led to changes to the rate structures. Overall, rates are expected to fall by 10% based on the budgeted supply cost estimate. A cost of service study concluded that realignments needed to be made to the distribution rates so the rate changes for each rate class vary. Residential gas rates continue with a 2-tier rate structure, but the winter period was redefined to exclude April, tier sizes were modified to reflect 50th percentile usage levels for summer and winter seasonal averages, and tier rates were revised based on distribution cost allocations per cost of service study. Resulting rate differential between tier 1 and tier 2 is $0.52 per therm compared to the current differential of $0.57 per therm. Connolly explained that the service charges will increase, except for the Compressed Natural Gas (CNG) station, and average distribution rates will increase, except for the G-1 Residential class. Connolly showed actual and projected market prices for gas Utilities Advisory Commission Minutes Approved on: June 6, 2012 Page 6 of 8 commodity that continue to decline since the budget submission in November 2011. Connolly also showed graphically the volatility in market-based rates and expected gas supply rate decrease for G-1 Residential and G-2 Commercial rate classes by comparing these rates against the market based supply rate of G-3 rate class for the July ‘06 – March ’12 period. Connolly then showed that based on market based G-3 commodity rates for March 2012 and proposed revisions to other fixed rate components of G-1 rate schedule, the decrease in average residential customer bills is 33% for the gas utility. Combined with proposed rate changes to other utility services, the total bill is expected to decrease for the average Palo Alto residential customer. Connolly also added that as gas commodity rates will be market-based, the actual bill changes will be subject to change based on the market price of natural gas and individual customers’ monthly gas usage levels. Commissioner Waldfogel asked how tiering works when the supply rate is based on market prices. Connolly explained that the commodity rate will be the same for all customers and will not be tiered. The residential tiers will be applied to the distribution rates. Connolly stated that the commodity rate will change every month based on market prices and so it's difficult to predict the actual supply rates. Commissioner Melton asked about the fixed-term rate contracts that haven't yet expired. Connolly explained that the above market part of those contracts will be drawn from the supply reserve and that the reserve was sufficient to cover that difference. Director Valerie Fong explained that all of the fixed-term contracts will expire by October 2014. Assistant Director Jane Ratchye explained that such contracts comprise a very small and declining percentage of the supply needs. Chair Foster asked why our proposed rates result in higher bills than PG&E's in the summer compared to the winter as shown in the charts presented. Connolly explained that in the summer the usage levels were much lower, and therefore the difference in the CPAU fixed service charge, and higher distribution rates compared to PG&E were causing the comparison to be less favorable than the winter comparisons. Ratchye explained that staff reviewed the PG&E cost structure in comparison with CPAU costs and the difference is due to the higher costs in the distribution side, predominantly the higher CIP expenditures, distribution operations costs and General Fund Transfers. Ratchye also noted that PG&E CIP expenditures may be rising significantly in the near term. Commissioner Keller asked how predictable the distribution charges are. Connolly said that she didn't expect significant changes in the future. Fong added that these costs are relatively predictable. Commissioner Waldfogel asked for the justification for residential tier 2 rates higher than the commercial rates. He stated that the higher charges are not justified and constitute a spa and pool tax. Commissioner Keller stated that she supports conservation pricing. Chair Foster stated that the rates are supported by the cost of service study and he has determined that it is risky to recommend rates different from those developed from a cost of service study. The only way that a different rate could be proposed is to question the assumptions used in the study and ask that the study be redone. Commissioner Waldfogel asked where the cost of service study supported higher tier 2 gas distribution rates. Connolly pointed to page 32 of the cost of service study attached to the UAC report and explained that the tiered rates were determined based on calculation of base and extra capacity costs for the residential class using the average class peak based on the billing data for the past ten years. The method first calculates the average rate if everyone utilized the system at full capacity and determines tier 1 rate as Utilities Advisory Commission Minutes Approved on: June 6, 2012 Page 7 of 8 this value. But since the system is not utilized at full capacity all the time, this rate does not recover all costs that must be collected from the class. The remaining costs are to be recovered from the second tier usage amount and the rate for tier 2 is determined by dividing the remaining costs by the expected tier 2 usage amount. Commissioner Waldfogel argued that, if the costs are assigned by system peak, then the summer usage clearly does not impact the system peak and, therefore, this is invalid reasoning for the differential in rates for the tiers. Chair Foster remarked that the cost of service study is key to the development of the rates and tiers. Commissioner Waldfogel made a motion to recommend that Council adopt a G-1 tier 2 distribution rate equal to the proposed G-2 distribution rate ($0.5638/therm) and the residential tier 1 G-1 rate be adjusted to whatever it needed to be to collect the required revenue for the G-1 rate class. After discussion, Commissioner Waldfogel amended his motion to recommend that the G-1 distribution rate be set to equal the average G-1 distribution rate ($0.5961/therm) and not have tiered G-1 distribution rates. The motion died for lack of a second. ACTION: Chair Foster made a motion that the UAC recommend that the City Council: 1) amend Utility Rate Schedules G-1, G-2, G-3, G-4, G-10, G-11, and G-12, and Utility Rules and Regulations 2 and 5, as attached to the report, effective July 1, 2012; and 2) repeal Utility Rate Schedule G-6 as of July 1, 2012. Commissioner Melton seconded the motion. The motion carried (3-1) with Commissioner Waldfogel opposed and Commissioners Keller and Eglash absent. ITEM 3: ACTION: Potential Topic(s) for Discussion at Future UAC Commissioner Waldfogel stated that he would like to have a discussion on how to achieve conservation without using rate incentives. Chair Foster agreed that the UAC should look at energy efficiency programs and Fong agreed to add a discussion item to the July agenda. Chair Foster asked when the carbon neutral plan would be addressed by the Council. Fong stated that the proposal to develop a plan is scheduled for Council consideration on May 21. ACTION: No action taken COMMISSIONER COMMENTS Chair Foster indicated that he had a few things to mention that have arisen since our last meeting: First, Mayor Yeh announced that Palo Alto will start awarding recognition to non-residential buildings in Palo Alto that receive Energy Star certification with a score of 80 or higher. To explain briefly what this is all about, non-residential building owner or managers anywhere in the US can, if they wish, enter their building energy usage along with other information on their building into an online software tool provided by the US Environmental Protection Agency called Portfolio Manager. Portfolio Manager will then generate a score for the building on a 1-100 scale with 1 being worst and 100 being best. Any building with a score of 75 or higher is entitled to use the Energy Star label if they have the results certified by a trained professional. Palo Alto currently has about 15 Energy Star certified buildings. It is possible that there are more buildings that would qualify in Palo Alto but the owner or manager simply hasn’t run the building’s numbers through Portfolio Manager. Hopefully, the contest announced by Mayor Yeh will encourage more Utilities Advisory Commission Minutes Approved on: June 6, 2012 Page 8 of 8 building owners to run the numbers and, in doing so, get a better sense of whether their building are or are not energy efficient. Second, Palo Alto has joined the American Council for Renewable Energy, also known as ACORE. Val forwarded information to all of you about ACORE, but let me just briefly mention that ACORE is made up of over 600 organizations around the country that are at the forefront of renewable energy issues. Stanford, EPRI, SMUD, and all the investor-owned utilities in California are members. I anticipate that Palo Alto’s membership in ACORE will be a good way to stay on top of developments in the renewable energy sector, as well as learn best practices from other member organizations. I hope that at some point down the road, Palo Alto can even be the venue for a future ACORE event of one sort or another. Third, at our last meeting we spent a substantial amount of time discussing the proposed water rate increase. You will recall that staff recommended implementing the rate changes suggested by the Cost of Service study consultant. We agreed with that with one relatively small exception – at a time of rising water prices and the need for ongoing conservation, we did not want to reduce the volumetric rate on the largest water users. The Finance Committee did not follow our guidance and chose to go with exactly what was recommended by the Cost of Service study consultant. The whole issue of rate setting in a Prop 218 environment has now become clear to me. Regardless of what we may recommend from a policy perspective, the City Council is likely to take the most legally conservative approach and always follow the Cost of Service study results to the last detail. So there is really no point in us spending a lot of time – or even any time – delving into rate structure design if a Cost of Service study has been done. What is going to happen going forward is that any input we want to provide really need to be provided before the Cost of Service study is done. Director Fong told me that CPAU staff recognizes that it would make sense to develop a Rates Policy that could include things like conservation pricing (to the extent permitted by law). The rolling calendar now includes a discussion on this topic later this year. Also, the Finance Committee recommended to the full City Council that they “retain the position of pursuing conservation pricing to the extent it is reasonable by law.” Fourth, you will recall that the UAC and CPAU staff recommended that the City Council approve establishment of a CPAU Emerging Technology Field Testing program. That program is now up and running. I don’t believe there has been a press release about it, though I hope there will be one soon. But with or without a press release, I encourage everyone to spread the word about the program so that companies with innovative energy-related products and technologies can apply. Fifth, the City Council was supposed to review the issue of a carbon neutral electric portfolio last month. You will recall that in conjunction with CPAU staff we advised the City Council to ask CPAU to develop a proposal on the subject. It turns out the City Council review did not take place last month and has been deferred to May 21. If you look at our rolling calendar, however, you will see the subject on our agenda for July in anticipation that the City Council will, in fact, ask staff to develop a carbon neutral policy. Meeting adjourned at 2:05 p.m. Respectfully submitted, Marites Ward City of Palo Alto Utilities