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HomeMy WebLinkAbout2015-02-04 Utilities Advisory Commission Summary MinutesUtilities Advisory Commission Minutes Approved on: March 4, 2015 Page 1 of 12 FINAL UTILITIES ADVISORY COMMISSION MEETING MINUTES OF FEBRUARY 4, 2015 CALL TO ORDER Chair Foster called to order at 7:05 p.m. the meeting of the Utilities Advisory Commission (UAC). Present: Commissioners Chang, Cook, Eglash, Hall and Foster and Council Liaison Scharff Absent: Vice Chair Waldfogel and Commissioner Melton Note that Commissioner Hall excused himself and left the meeting at 8:15 p.m., just after the discussion of the preliminary financial projections for the Wastewater Collection Utility. ORAL COMMUNICATIONS Resident Jeff Hoel asked if the UAC has jurisdiction over fiber, including the Fiber to the Premise (FTTP) project. David Carnahan, Deputy City Clerk advised that the City is recruiting for three terms on the Human Relations Commission, three terms on the Public Art Commission and two terms on the Utilities Advisory Commission. These terms run three years, from May 1, 2015 through April 30, 2015. He advised that the application deadline is March 3, 2015. Members of the Human Relations Commission must be Palo Alto residents. Utilities Advisory Commissioners must be a utility customer or an authorized representative of a utility customer. Six of the seven Utilities Advisory Commissioners must be Palo Alto residents. Public Art Commissioners shall be members of the architectural review board or shall be professional visual artists, professional visual arts educators, professional visual arts scholars, or visual arts collectors whose authorities and skills are known and respected in the community and, whenever feasible, who have demonstrated an interest in, and have participated in, the arts program of the city. David encouraged members of the public in the audience and viewing from home to consider these exciting opportunities. Chair Foster asked if the UAC still has an advisory role over fiber. Deputy Sr. Assistant City Attorney Jessica Mullin says that nothing has changed. Council Member Scharff said that Council is looking at several phases but that he encourages the UAC to get involved in the FTTP project in the future. Director Fong reminded the UAC that the City’s Chief Information Officer Jonathan Reichental updated the UAC several months ago. Utilities Advisory Commission Minutes Approved on: March 4, 2015 Page 2 of 12 APPROVAL OF THE MINUTES Commissioner Hall noted that, as recorded in the minutes, he left the meeting at the end of Item 5. However, the minutes state that he voted yes on Item 6 after he had left the meeting. He suggested that the minutes be corrected to remove him from the list of commissioners voting for the item and change the minutes to state that he was absent, rather than “recused from the motion” as shown in the draft minutes. Commissioner Cook moved to approve the minutes from the December 10, 2014 UAC meeting as modified with the changes suggested by Commissioner Hall and Commissioner Eglash seconded the motion. The motion carried unanimously (4-0 with Chair Foster, Commissioners Chang, Cook and Eglash voting yes, Vice Chair Waldfogel and Commissioner Melton absent and Hall abstaining). AGENDA REVIEW AND REVISIONS Chair Foster stated that more time than originally estimated for the preliminary financial plans would be needed, but that there were no changes to the agenda. REPORTS FROM COMMISSION MEETING/EVENTS None. UTILITIES DIRECTOR REPORT 1. Solar Group-Buy Program. Palo Alto is joining a regional Solar Group-Buy effort called Peninsula SunShares which is set to launch on March 31, 2015. This program is administered by the non-profit, Vote Solar, and includes participating cities from San Mateo County and Palo Alto. Under a group-buy program, residents and employees of businesses located in the participating cities can register during the limited-time enrollment period to get a discounted price for a solar PV system for their home. In addition to a discounted price, participants in the program will benefit from the simplified solar procurement process. The program informational report went to the UAC on 10/1/14 and Council on 11/3/14. 2. Community Solar Program. Staff is currently conducting an in-depth risk assessment from both the customer and City perspectives to address feedback from the UAC at its December 10, 2014, meeting. Concurrently with the risk assessment, staff has also begun negotiating the associated program agreements. The public/private nature of the prospective partnership—in specific, confidentiality concerns—has added significant complexity to the negotiation and risk assessment processes. There is a possibility that the program, as described in the December UAC meeting, may not come to fruition. Staff plans to return to the UAC in Spring 2015 with a new recommendation on the program. 3. Construction Starts on Hayworth Solar. Palo Alto has long been committed to increasing the amount of renewable energy it purchases, with a recent example being our Power Purchase Agreement for the Hayworth Solar Farm in June 2014 – which was the fifth solar PPA the City executed in recent years. The developers of that project, 8minutenergy and sPower, announced last week that construction has begun on the project in Kern County, and that it will be fully operational later this summer. The Hayworth project will provide Utilities Advisory Commission Minutes Approved on: March 4, 2015 Page 3 of 12 about 6% of the City’s total electricity supplies, and when all five large-scale solar projects are completed next year, together they will supply almost one-third of the City’s electricity supplies—adding to Palo Alto’s existing carbon neutral energy portfolio that includes hydroelectric, wind and landfill gas-to-energy resources. 4. Staff Speaking Engagements:  On February 3, Senior Resource Planner Shiva Swaminathan and Business Analyst Taha Fattah made a presentation at the DISTRIBUTECH national conference on one of our smart-grid pilots.  On January 22, Marketing Engineer Lindsay Joye participated as a presenter in a Solar Electric Power Association webinar on solar rebate programs.  In December, the City co-hosted a free community forum about drought-proof water supply resources. Communications Manager Catherine Elvert moderated the panel discussion. 5. Marketing Services Update  Launch of PaloAltoGreen Gas Program: In January, the City announced its full launch of PaloAltoGreen Gas, a voluntary program that allows residents and businesses to pay a small premium each month to offset the carbon emissions associated with their natural gas use. Approximately 600 customers have enrolled in the program, including two non- residential facilities that are purchasing carbon offsets to match 100% of their natural gas consumption.  Palo Alto is a Semi-Finalist in the Georgetown University Energy Prize Competition: Beginning on January 1st, and over a two-year period of time, Palo Alto will be competing with 50 other communities on energy savings, program innovation, potential for replication, future performance, equitable access, education and overall quality of services. The winning city will receive $5 million intended for use in continuing programs to reduce energy consumption. Visit cityofpaloalto.org/Georgetown to contribute your ideas for our campaign theme of “5 Million Ways to Save."  Mayor’s Green Business Leader Awards: In the third year of the Mayor’s Green Business leader program, at the Council’s meeting on February 23rd, Mayor Holman will present awards for six buildings in Palo Alto that received an Energy Star certification in 2014. UNFINISHED BUSINESS None. NEW BUSINESS ITEM 1: ACTION: Selection of Potential Topic(s) for Discussion at Future UAC Meeting Commissioner Cook stated that he would like an update on the Fiber to the Premise (FTTP) master plan. Commissioner Hall added that he would like to see this in time to offer input to the Council. Chair Foster asked that the topic be agendized in March or April. Commissioner Eglash said that "fracking" has become an issue of interest. In addition, fuel switching has gained some political interest. He recommended that these topics not just be Utilities Advisory Commission Minutes Approved on: March 4, 2015 Page 4 of 12 discussed, but that the UAC seek outside experts for presentations. These experts could represent differing viewpoints. He suggested that these topics could be taken up in the context of a normal UAC meeting, or in a study session. Director Fong stated that staff is looking into the idea of conducting study sessions on topics of interest that would have experts present information on these and other topics of interest. ITEM 2: DISCUSSION: Preliminary Financial Forecasts and Rate Changes for Electric, Gas, Wastewater Collection, and Water Utilities Senior Resource Planner Jon Abendschein stated that this is an informational item, but that the comments from the UAC are very helpful for staff while finalizing the Financial Plans. He said the presentation would include information on the Electric, Gas, Wastewater Collection, and Water Utilities, but some information on Refuse rates was also included for context. He said the City had been able to hold rates steady last year, and the year before that there were no increases except to water rates. Future projected cost increases were such that holding rates steady would begin to require cuts into things like infrastructure investment. That meant that the next few years will require rate increases for the Electric, Gas, Water, and Wastewater utilities. Next year staff is proposing 3% increases for the Gas Utility, 9% for Wastewater, and 7% for Water. After that, the median residential bill is projected to increase 5-6% each year through FY 2019, a bit above inflation, and higher than that if Refuse is included. The main driver for the Electric, Gas, Water, and Wastewater increases was infrastructure investment, mainly in the City’s suppliers’ systems. Wholesale water costs were going up due to investment in the Hetch Hetchy water system, improvements to the wastewater treatment plant were underway, and our costs to transport gas across PG&E’s system were going up as they overhaul their system to make it safer. In the past, in the face of cost increases like these, the City has been exemplary about not cutting back on infrastructure investment, and has continued to make the capital investments needed to keep the system running safely and to avoid pushing a large capital investment need on to future ratepayers. This forecast assumes that practice continues. He stated that this year’s bill projections were slightly higher than last year’s, which was mainly related to higher infrastructure projections. Abendschein said staff was also planning to propose one change to the Reserves Management Practices that would apply to all four utilities. The change would not have any short term impact on the financial forecasts, but it would help staff manage a change in City capital improvement project (CIP) budgeting practices. That change was expected to result in a release of funds from the Reappropriations Reserve. The purpose of the CIP Reserve would be changed for each utility to make it a cash flow and contingency reserve, and funds released from the Reappropriations Reserve would be added to the CIP Reserve. Staff was also planning to propose adding minimum and maximum guidelines to the CIP Reserve. Commissioner Hall asked if the CIP reserve would have a specific plan for CIP reserve replenishment. Utilities Advisory Commission Minutes Approved on: March 4, 2015 Page 5 of 12 Abendschein stated that staff would make an initial reserves management practices proposal with the upcoming Financial Plans, but plans to review those practices and may propose changes next year. Electric Utility Abendschein stated that for July 1, 2015 staff was proposing no rate increase for the electric utility. Reserves were adequate to avoid a rate increase until FY 2017, even with the drought. Delaying the rate increase would allow the City time to do a thorough job with an electric cost of service study before rates were changed again. He said that the drought had resulted in additional costs that staff planned to propose to fund from reserves. Staff had originally planned to draw down the Rate Stabilization Reserve by $5.8 million, but now planned to propose to transfer $11 million from the hydro stabilization reserve and $11.4 million drawdown of the rate stabilization reserve. Even with the transfer, reserves were adequate to manage the utility’s financial position even if the drought continued through FY 2016. Abendschein showed the utility’s financial projections. He said 5% rate increases were projected in FY 2017 and FY 2018, and subsequently rates were projected to be stable over the long term. The increase in costs was mostly associated with renewable energy projects coming online. The ratepayers were still getting a great value from their electric utility. Rates were lower than most other utilities in the state, and substantially lower than PG&E. PG&E had increased their rates 8% in 2011, 3-4% since then, and they had future 3-4% rate increases planned. By contrast, the City had not changed electric rates since July 1, 2009. Abendschein showed the reserves levels over the forecast period. The drought had an impact on supply reserves due to low hydroelectric generation, but there were still ample reserves remaining to protect against continuing drought. Both supply and distribution reserve levels were projected to stay within the reserve guidelines through the forecast period, and well above the level of staff’s risk assessments. Abendschein showed the current rate projections compared to the previous year’s projections, noting that the lack of a rate increase for FY 2016 meant slightly higher rate increases in the following year, but that the current rate change trajectory would result in roughly the same customer bill in FY 2020 as projected the previous year. He noted some uncertainties in the forecast, including the length of the drought (and its effect on hydroelectric generation) and the timeline for the new transmission line the City had been investigating. The forecast also assumed the use of the Electric Special Projects Reserve (previously known as the Calaveras Reserve) for the cost of Smart Grid implementation. That was not a formally adopted policy yet, and if a different policy was adopted, and the smart grid rollout was funded by rates, it could result in higher rates in the short term. Commissioner Hall asked if the chart showing the drawdown in reserves in FY 2015 and FY 2016 assumed a 0% electric rate change. Abendschein confirmed that this was correct. Utilities Advisory Commission Minutes Approved on: March 4, 2015 Page 6 of 12 Commissioner Hall asked what the risk assessment level for reserve adequacy included. Abendschein stated that the risk assessment included a list of scenarios that had a negative impact on the utility’s financial position, such as increases in market prices, a decrease in hydroelectric generation, or supplier default. The utility wanted to keep the reserves above the risk assessment level. Commissioner Hall asked whether there were other contexts in which the reserve levels were reviewed. Director Fong said that the reserves were reviewed in the context of the budget annually. She added that an internal staff risk oversight committee reviews the reserve levels. Commissioner Hall asked when the levels of the reserves were reviewed outside the budget process throughout the year. Director Fong stated that the reserve levels are reported to the UAC and Council in the quarterly informational reports. Commissioner Hall recommended that staff provide detail of the reserves and their management practices in the future. Director Fong said staff would provide that with the Financial Plans and the quarterly reports. Commissioner Cook noted that the City has done a remarkable job holding the line on electric rates over many years as the supply portfolio has become greener and greener and, ultimately carbon neutral. Gas Utility Resource Planner Eric Keniston stated that there would 3 to 4% increases over the planning horizon. Rate increases were presented holding commodity costs ‘steady’ as they vary monthly and are passed-through directly to customers. Referring to cost components, capital improvement budgeting would resume after a two year hiatus to complete outstanding projects, and all other costs were rising steadily. He noted that the Rate Stabilization reserve was being drawn down by FY 2018 to moderate rate increases, with the Operations reserve staying above the minimum and risk assessment guideline levels through the forecast period. Keniston stated that the 3% increase in FY 2016 was primarily due to increases in the PG&E transportation cost to Palo Alto, and in outer years, higher capital improvement costs, with rate increases starting two years earlier than what last year’s financial plans projected. Regarding capital improvement costs, Keniston stated that costs for main replacement in water, gas and wastewater have increased by 25 to 50 percent from prior projections. Where possible and can be done safely, projects have been reduced in size to keep budgets stable. He stated Utilities Advisory Commission Minutes Approved on: March 4, 2015 Page 7 of 12 that staff is completing a Gas System Master Plan to determine the appropriate rate of future pipeline replacement, but future costs remain an uncertainty. He stated that the forecasts do not include the impact of fuel switching, which could lead to reduced load. Keniston added that the cap-and-trade program is currently only planned through 2020 and it is unclear what will happen after that time. The cross-bore program also is costing more than originally expected, and may go even higher. Commissioner Eglash stated that he was happy to see the continued focus on infrastructure investment by the Utilities. He asked if the labor shortages that were experienced a few years ago have been solved. Assistant Director Tomm Marshall stated that they are caught up now on projects, but labor shortages for engineers still exist. Commissioner Eglash noted that in the Electric Utility, we are not proposing a rate increase even though there are also CIP increases. Abendschein stated that the size of the electric utility was much larger than the other funds and that the CIP expenses were a smaller portion of the total expenses for electric. Chair Foster asked if we could either not increase rates in 2015 and have higher rate increases next year, or, alternatively, we could have higher increases this year to avoid increases in 2016. He noted that the 3% and 4% rate increases could be replaced with no change followed by a subsequent year higher rate change, or the other way around. Abendschein stated that bill increases may be larger in those scenarios. Director Fong said that the proposal is to spread out the rate increases and total bill impact. Council Member Scharff stated that he may prefer an earlier larger increase with no increase the following year. Abendschein stated that proposals would have to be weighed against having reserves too high. Commissioner Hall said that his memory is that the Commission has supported smoothing out the rate changes and not having pre-emptive rate increases that are higher than justified. Chair Foster mentioned it would be interesting to see what increase in FY 2016 could generate no increase in FY 2017. Wastewater Collection Utility Keniston said that the wastewater rate projections are driven by substantial treatment cost increases (about 5% per year) causing the need for 4 years of 9% per year rate increases starting in 2016. Prior year projections were for 7%. The Rate Stabilization reserve is projected to be drawn down by the end of FY 2016, with the Operations reserve dropping closer to the minimum and risk assessment guideline levels. Commissioner Hall inquired as to whether this drawdown was being done to prevent even larger increases. Keniston responded that that was the case. Keniston showed that a 9% increase amounted to a $2.64 per month increase in residential customer bills, and that at the end of the forecast period, with the rate changes shown, average Utilities Advisory Commission Minutes Approved on: March 4, 2015 Page 8 of 12 residential bills in FY 2021 would be slightly under $45 per month. As a point of comparison, surrounding community average bills are currently about $44.50, so Palo Alto is well under the average. Keniston stated that sewer main replacement and rehabilitation costs are higher than anticipated, and that, similar to water and gas, a wastewater collection master planning study is planned in future years. Commissioner Hall noted that the treatment cost is a black box to this commission since it does not have jurisdiction over wastewater treatment. He stated that the Council does not get the benefit of UAC review of that large part of the costs. Director Fong said that she would ask the Manager of the Regional Water Quality Control Plant to attend the UAC’s March meeting when the UAC reviews the Wastewater Financial Plan and rate proposals. At this point in the meeting, Commissioner Hall left the meeting due to a self-identified conflict of interest on water issues. Water Utility Abendschein presented the water financial projections, which show that 7%/year rate increases will be required due to the rising cost of water supplies from the San Francisco Public Utilities Commission (SFPUC) as well as increases in CIP costs. He stated that staff will propose separating out of the commodity cost on the bill so that the wholesale water cost would be passed directly on to the customers. This would enhance transparency so that customers would be able to see the water cost. In addition, the cost of sending notices of water rate changes would be reduced. Reserves were projected to stay within reserve management guidelines over the forecast period. Staff anticipated keeping additional funds in the CIP reserve through the end of FY 2017 in case of unanticipated costs in CIP projects, particularly seismic upgrades to various reservoirs. Staff was still working on preparing a drought surcharge, which was not expected to be needed in 2015 unless water use restrictions increase. Commissioner Eglash asked staff to confirm that a drought surcharge would be needed because the water utility’s costs were largely fixed, and when usage decreased, revenue had to increase to cover those costs. Abendschein confirmed that was the case. Abendschein explained that rate increases in later years were increasing from the previous year’s forecast due to a change in the load forecast methodology. Water consumption had decreased since the recession, and in previous years staff had projected that consumption would return to normal once the economy recovered. The Bay Area economy had largely recovered, however, and there had been no increase in water consumption, so staff was now projecting that water consumption would not increase in the future. Abendschein said staff had analyzed two major uncertainties in our forecast, a higher CIP cost scenario just like the one that had been done for the Gas and Wastewater Collection Utilities, Utilities Advisory Commission Minutes Approved on: March 4, 2015 Page 9 of 12 and an extended drought scenarios. An extended drought would reduce reserves meaning that some of the rate increases in the outer years would have to be moved forward to FY 2020. Higher CIP costs would result in higher near-term rate increases, 9% to 10% for three years instead of the 7% under the normal CIP scenario. Abendschein said that several potential costs are not included in the forecast. These include extended (or more severe) drought, the impact of which would be managed through drought surcharges. It also included the need for seismic work on the Foothills water transmission line, though staff had a consultant investigating a possible lower cost approach to that project involving a system that could be used to bypass breaks. The SFPUC was also doing condition assessments of some Hetch Hetchy assets that were not included in their Water System Improvement Plan, and if those revealed the need for additional work, it could increase wholesale water costs. Lastly, the rate impact of a potential recycled water project had not yet been analyzed. Commissioner Eglash complimented staff on the complex analysis. He stated that staff may be much too optimistic regarding the drought’s impact on water rates and that he thought that a return to pre-drought use levels may not be a good assumption to make. He said that it will take many years to replenish the state’s water reservoirs. There could be extended periods with reduced precipitation and less snowfall and more rain in the Sierra as well. He asked if staff has given enough consideration of a "new normal" of lower water availability. Abendschein said it was worth considering, and that there had not been a return to pre- drought usage levels after prior droughts. He said it was a good argument for not putting the water rate increase off another year. He added that although there is the potential for a “new normal” level of water consumption, it would be premature to adjust rates preemptively. Director Fong added that if there was a real need, staff would return to Council with a mid-year rate increase request. Commissioner Chang asked if the forecasts took into account efficiency savings. Abendschein confirmed they did. Commissioner Chang asked if staff considered the bill impact on business customers. Abendschein said rates were based on a cost of service model, but that staff considered the bill impact to all customer groups when setting rates. Commissioner Chang asked about the outreach strategy for the rate increases. The projections showed large cumulative rate increases, 30% over 5 years. There were good reasons for the increases, but it was important to explain them to people in easily understandable terms. Director Fong explained that staff had focused on carefully communicating rate changes in prior years and would continue to do so. Utilities Advisory Commission Minutes Approved on: March 4, 2015 Page 10 of 12 Council Member Scharff asked what would happen if customers conserved and the SFPUC was able to sell the water they saved to other agencies. Would it have a beneficial impact to customers bills? Abendschein said that if Palo Altans reduced their per-capita water consumption and more water was available to other agencies, as those agencies grew they might use more water, meaning more of the costs of the Hetch Hetchy system would be allocated to other agencies. That would have a beneficial impact on Palo Alto customers’ bills. Chair Foster asked staff to confirm that customers in Palo Alto had paid substantially for improvements to the Hetch Hetchy system. Abendschein said they had, just like other customers of the Hetch Hetchy system. Chair Foster asked whether the Santa Clara Valley Water District had paid anything for those improvements. Abendschein said that to his knowledge, they had not. ITEM 3: DISCUSSION: Update on the Santa Clara Valley Water District’s Collection of all of its State Water Project Costs via Property Taxes Instead of Water Rates Public Comment Gary Kremen, Chair of the Santa Clara Valley Water District (SCVWD), but speaking as a Palo Alto resident tonight, stated that Palo Alto property owners pay three components to the SCVWD on their property tax bills: for Clean Safe Creeks, for flood control, and for the State Water Project (SWP). It is the SWP component for which the property owners do not get any benefit. He noted that, since the City does not pump any groundwater, it gets no benefit from the SWP property tax collections. He said that the northern part of the county pays a larger part of the SWP tax than its population share—14% of the county population but pay 25% of the SWP tax. He encourage the City to keep all options on the table and that the SCVWD staff has some ideas, including supporting an expansion of the City’s recycled water system. Steve Jordan, Board member of the Purissima Hills Water District (PHWD), stated that his service area’s property owners also share the "joy" of paying the SWP tax and receiving no benefit. He said they are looking forward to working with Palo Alto City staff on this issue. He said that the PHWD asked the District for additional water in the past and was told that there is no water for them. So, he concluded that they too have been paying the taxes for years, but actually have received no water as a benefit of all these costs. He also noted that the District prepares its rate changes each year after assuming that the Board will decide that SWP should be collected entirely from property taxes. The Board makes the formal determination after the rates have been set. Brian Schmidt, former SCVWD Board member, stated that he also has publicly raised the SWP issue in the past. He stated that the City does get some benefit from the District and that the Utilities Advisory Commission Minutes Approved on: March 4, 2015 Page 11 of 12 goal should not create a wall between the City and the SCVWD. He noted that the City can indeed pump groundwater if it so chooses, and that SCVWD actions make that possible. In addition, the City could get a benefit from the SCVWD for developing its recycled water project. He suggested that the City try to balance out the costs between conservation dollars received and property tax dollars spent. Chair Foster asked Mr. Schmidt how much it costs the District for water conservation programs. Schmidt did not know. Chair Foster asked if the City could decide to use SCVWD water now. Schmidt said that the regional intertie in Milpitas could be used for the City to get water from the SCVWD. Schmidt added that the City should work with others and gain allies. Commissioner Cook asked why the City used to get a credit for Hetch Hetchy water, but doesn't now. Schmidt said that the credit was eliminated when the price of water from the SFPUC and SCVWD was the same. Jim Fiedler, SCVWD’s Chief Operating Officer, stated that the SCVWD would welcome having a contract with the SFPUC and have asked the SFPUC about that. Fiedler said that the SCVWD provided the City about $160,000 per year for conservation programs. Chair Foster said that City property owners pay the SCVWD about $1.6 million in SWP tax charges. Fiedler said that the intertie has been used by both the SFPUC and SCVWD when needed for reliability. Fiedler stated that the groundwater extraction fee would be paid for any groundwater pumped. Fiedler delivered a presentation on the SWP tax. He said that state voters approved the SWP in 1960 and the SCVWD recovers 100% of its SWP costs via property taxes as decided by the Board annually. He said that the City of Palo Alto has experienced, or has the potential to experience, land surface subsidence of up to 5 feet and other parts of the County have experienced 13 feet of land surface subsidence, which was finally halted when imported water and groundwater management practices were introduced by the SCVWD. He stated that the SCVWD strongly supports recycled water, which could be taken advantage of by Palo Alto. He added that the SCVWD recently completed an advanced water purification plant that can treat wastewater to potable water quality for reuse, potentially including direct potable reuse in the future. Commissioner Cook commented that the idea of paying the tax without receiving any tangible benefits is outrageous. He asked if the City can get water from the SCVWD directly via a pipeline. Fiedler responded that in emergencies, SCVWD water has been provided to SFPUC customers via the Milpitas interconnection. Fiedler added that, if groundwater was used, it would essentially be getting SCVWD water. Commissioner Cook stated that by not pumping, the City is not contributing to groundwater levels falling that could contribute to land surface subsidence. Fiedler confirmed that, but noted that the City is relying on the District for making sure that groundwater is available for the City in emergencies. Council Member Scharff added that the City is saving the SCVWD lots of money since it does not draw on groundwater, but if it did, it would cause the SCVWD to recharge the aquifer, costing it money. Utilities Advisory Commission Minutes Approved on: March 4, 2015 Page 12 of 12 Commissioner Cook commented that the City takes great pains to comply with the cost of service requirements for setting water rates, but this constraint doesn't seem to exist for the situation of paying property taxes, but not getting any water for it. Commissioner Cook asked how the SCVWD can conform to these Proposition 218 requirements. Fiedler stated that the Board follows all Prop. 218 requirements and the Board has the authority to make a decision on how much of the SWP costs to collect via property taxes. Chair Foster asked if the SCVWD is amenable to contributing to the City's recycled water project. Fiedler said that the SCVWD is very interested in expanding recycled water and noted that the Board has sent a letter to Palo Alto’s mayor to begin such discussions. Chair Foster suggested that the SCVWD make a specific proposal for how much it would support the recycled water project. Commissioner Eglash asked Mr. Fiedler to explain, assuming the City stopped paying the tax, what benefits would the City not get from the SCVWD. Fiedler said that the Board has not entertained that idea. He added that if the SCVWD did not pay the SWP costs (a contractual obligation), it would not get the SWP water. Chair Foster said that the UAC may want to agendize this topic again in the future. He said that there may be a legal aspect of this topic as well. Council Member Scharff informed the UAC that the Council may have a closed session on this item in the future. ITEM 4 DISCUSSION: Update and Discussion on Impacts of Statewide Drought on Water and Hydroelectric Supplies Senior Resource Planner Karla Dailey stated that the SFPUC's regional water system customers exceeded the 10% water use reduction goals. Therefore, it is likely that a 10% goal will remain unless it gets critically dry, in which case 20% reductions may be required. The City as a whole did well by reducing usage by 16% in 2014 compared to 2013 usage. City operations reduced usage by 28% compared to 2013. Dailey also presented the impact on the drought on hydroelectric supplies—the additional cost of the drought for the electric utility is expected to be about $9.26 million in FY 2015. COMMISSIONER COMMENTS Chair Foster announced his appointment of Commissioners Melton and Cook to a subcommittee to review the budget, financial plans and rate increases. Meeting adjourned at 9:35 p.m. Respectfully submitted, Marites Ward City of Palo Alto Utilities