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2011-01-10 City Council Agenda Packet
RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO IN APPRECIATION OF THE OUTSTANDING PUBLIC SERVICE OF PATRICK BURT AS MAYOR WHEREAS, Patrick Burt served as Mayor of the City of Palo Alto from January 4, 2010 through January 4, 2011; and WHEREAS, 2010 was a year of unprecedented challenges for the City, with an international fiscal crisis, serious City budget concerns, labor tensions, profound high speed rail considerations, and a large and complex negotiation regarding the Stanford Hospital project; and WHEREAS, under the leadership of Mayor Burt the City closed a $6.3 million mid-year budget gap and eliminated a $7.3 million dollar structural deficit and began the process to restructure its long-term pension and health care costs for real structural change while at the same time improving its management and labor relations; and WHEREAS, Mayor Burt was a regional leader on high speed rail, serving as the City’s representative on the Peninsula Cities Consortium , lobbying federal and state representatives, meeting frequently with officials of the High Speed Rail Authority and presiding over the Council’s many meetings on the subject – all in an effort to ensure the best outcome for Palo Alto; and WHEREAS, Mayor Burt ably represented the City internationally at European and Latin American conferences on climate change, clean energy and environmental sustainability; and WHEREAS, Mayor Burt oversaw noteworthy progress in the environmental review of Stanford University’s proposals to remodel and expand the Stanford University Medical Center; and WHEREAS, Mayor Burt was the City’s representative this year on the San Francisquito Creek Joint Powers Authority and worked to obtain the federal funding needed for critical flood prevention projects; and WHEREAS, Mayor Burt strongly supported the city’s goal of emergency preparedness, including the City’s completion of the Fire Services Study, over 200 Safety and Disaster Preparedness presentations, and the Quakeville exercise; and WHEREAS, Mayor Burt’s leadership on the issue of youth well-being – a difficult and emotional topic -- was influential in the City’s adoption of the well regarded Project Safety Net initiative. NOW, THEREFORE, BE IT RESOLVED that the Council of the City of Palo Alto hereby commends the outstanding public service of Patrick Burt and gratefully records its appreciation, as well as the appreciation of the citizens of this community, for meritorious service rendered and contributions made during his term as Mayor. INTRODUCED AND PASSED: JANUARY 4, 2011 ATTEST: APPROVED: ________________________ ________________________ City Clerk Mayor APPROVED AS TO FORM: ________________________ ________________________ City Manager City Attorney TO: FROM: DATE: REPORT TYPE: SUBJECT: HONORABLE CITY COUNCIL CITY MANAGER DEPARTMENT: PLANNING AND COMMUNITY ENVIRONMENT CMR: 110:11 JANUARY 10,2011 STUDY SESSION Update on Snstainable Commnnities Strategy (SB375) and Regional Housing Needs Allocation (RHNA) Process RECOMMENDATION: Staff recommends that the City Council discuss the status of the Sustainable Communities Strategy (SCS) and the Regional Housing Needs Allocation Process (RHNA) and provide comments in anticipation of further actions in February through August. EXECUTIVE SUMMARY: This staff report describes Senate Bill 375, the Sustainable Communities Strategy (SCS) and the effect of the law on local goverrunents as well as the Bay Area as a region, and is based largely on information provided by the Metropolitan Transportation Commission (MTC) and the Association of Bay Area Goverrunents (ABAG). The SCS will be developed in paJinership with regional agencies, local jurisdictions and Congestion Management Agencies (CMAs), such as the Valley Transportation Authority (VTA), through an iterative process. The regional agencies have acknowledged that input from local jurisdictions with land use authority is essential to create a feasible SCS. The SCS does not, however, alter the authority of jurisdictions over local land use and development decisions. The pUlpose of this report is to provide Palo Alto City Council members with an overview of the SCS in relation to local land use policies, transportation implications, and implementation needs, and will address key policy considerations for the City of Palo Alto. The City will provide input to several components of the SCS and RHNA processes in the next 6 months, including: a) the formulation of the regional housing allocation methodology; b) whether to form a subregional housing allocation effort with other Santa Clara County cities; c) characterization of the "place types" in Palo Alto that might accommodate increased development over the next 25 years; and d) response to the Initial Vision Scenario and subsequent iterations to outline the form of development throughout the region. CMR: 110:11 Page 1 of 9 BACKGROUND: Senate Bill 375 (SB375) was enacted in 2008 and is considered landmark legislation for California relative to land use, transportation and environmental planning. SB375 is intended to help to implement AB32 (Global Warming Solutions Act), approved in 2006 and requiring actions to reduce greenhouse gas emissions to 1990 levels by 2020 and by 80% below 2005 levels by 2050. While much of AB32 focuses on emissions from stationary sources (industrial facilities) or diesel trucks, SB375 is focused on emissions from automobiles and light trucks and the reduction in vehicle-miles traveled due to more compact land use patterns and potential mode shifts. A summary of the impacts ofSB375 has been prepared by the Urban Land Institllte (ULI) and is included as Attachment E. The legislation calls for the development of a Sustainable Communities Strategy (SCS) in all metropolitan regions in California. Within the Bay Area, the law assigns joint responsibility for the SCS to the Metropolitan Transportation Commission (MTC) and the Association of Bay Area Governments (ABAG). These agencies will coordinate with the Bay Area Air QlIality Management District (Air District) and the Bay Conservation and Development Commission (BCDC). The SCS integrates several existing planning processes and IS reqllired to accomplish the following objectives: I. Provide a new 25-year land use strategy for the Bay Area that is realistic and identifies areas to accommodate all of the region's population, including all income groups; 2. Forecast a land use pattern, which when integrated with the transportation system, reduces greenhouse gas emissions from automobiles and light trucks and is measured against the regional target established by the California Air Resources Board (CARB). The California Air Resources Board (CARB), in response to the mandates of SB375, has set target GHG emissions from light trucks and passenger vehicles for each of the region's subject to the provisions of SB375. For the ABAG area, the CARB set targets for a 7% reduction in emissions by 2020 and a 15% reduction in emissions by 2035. The SCS is also required to be included as part of the Bay Area's 25-year Regional Transportation Plan (RTP). By federal law, the RTP must be internally consistent and, therefore, the $200+ billion dollars of transportation investments typically included in the RTP must align with and support the SCS land-use pattern. SB375 also requires that an updated eight-year regional housing needs allocation (RHNA) prepared by ABAG is consistent with the SCS. The SCS, RTP and RHNA will be adopted simultaneously in early 2013. The Council and Planning and Transportation Commission have each conducted study sessions in the past year to better understand the background of SB375, and staffs Comprehensive Plan Speaker Series included a presentation by ABAG representatives regarding the legislation. In addition, four Councilmembers and the City Manager and Planning Director attended a meeting sponsored by the Santa Clara County Cities Association, also involving an ABAG overview of the objectives and process for developing the Sustainable Communities Strategy. CMR: 110:11 Page 2 of 9 DISCUSSION: The goal of the SCS is not only is to reduce greenhouse gas emissions, but to build a Bay Area that continues to thrive and prosper under the changing cireumstanees of the twenty-first century. By directly confronting the challenges associated with population growth, climate change, a new economic reality and an increasing public-health imperative, the SCS is intended to support a Bay Area that is both more livable and more economically competitive on the world stage. A successful SCS will: • Recognize and support compact, walkable places where residents and workers have access to services and amenities to meet their day-to-day needs; • Reduce long commutes and decrease reliance on fossil fuels, increasing energy independence and decreasing the region's carbon consumption; • Support complete communities that remain livable and aflbrdable for all segments of the population, maintaining the Bay Area as an attractive plaee to reside, start or continue a business, and create jobs; • Support a sustainable transportation system and reduce the need for expensive highway and transit expansions, freeing up resources for other more productive public investments; • Provide increased accessibility and affordability to the most vulnerable populations; • Conserve water; and • Decrease our dependence on imported food stocks and their high transport costs. In recognition of the importance of these other goals, ABAG and MTC will adopt perfonnance targets and indicators that will help infonn decisions about land usc patterns and transportation investments. These targets and indicators will apply to the SCS and the RTP and will not weigh as heavily as greenhouse gas reduction, but will provide additional criteria for use in comparing the alternative SCS scenarios. The targets are scheduled for adoption by the Joint Policy Committee (ABAG, MTC) in early 2011 and the indicators will be adopted in the spring of2011. Planned Development Areas (PDAs) In many respects the SCS builds upon existing efforts in Bay Area communities to encourage more focused and compact growth while recognizing the unique characteristics and differences of the region's many varied communities. FOCUS Priority Development Areas (PDAs) are locally-identified and regionally adopted infill development opportunity areas near transit. The City of Palo Alto has identified a PDA for the California Avenue/Park Blvd.lFry's area around the California Avenue Caltrain station. The PDAs provide a foundation upon which to structure the region's Sustainable Communities Strategy. PDAs encompass only three percent (3%) of the region's land area whereas, based upon existing plans, resources, and incentives, the PDAs can collectively accommodate over fifty percent (50%) of the Bay Area's housing need through 2035. PDAs have been supported by planning grants, capital funding and technical assistance grants from MTC. The current RTP allocates an average of$60 million a year to PDA incentivc-related funding. Future RTPs, consistent with the SCS, will be structured to provide policies and funding CMR: 110:11 Page 3 of 9 that is supportive of PDAs and potentially other opportunity areas for sustainable development in the region. In Palo Alto, the California Avenue Area PDA is coterminous with the City's ongoing Concept Area Plan for that area. City staff has provided input to ABA G regarding both the existing development levels and the potential for growth in housing and employment. The PDA analysis identifies "place types" for different land uses and densities, and the "Transit Neighborhood" place type has been tentatively designated for the California Avenue Area PDA. This plan envisions a broad range of development possibilities, with up to 20-50 units per acre of residential and floor-to-area ratio (FAR) of up to 2.0. These are estimates based on existing Pedestrian-Transit Oriented Development (PTOD) zoning for the area. If the ongoing planning for the area results in increased intensity levels, staff will forward that information to ABAG. In addition to the City'S PDA for the California Avenue Area, VTA has designated all of the El Camino Real corridor and the University Avenue station area as potential opportunities for further development ("potential PDAs"). Staff has identified the El Camino Corridor as a "Mixed Use Corridor" place type and the University Avenue transit area as a "Transit Town Center" for initial forecasting. Staff has notified ABAG that the City does not consider the San Antonio Avenue transit station to result in a place type with increased development in Palo Alto. Attachment D depicts the concept of "pI ace types" used in the fornmlation of the SCS. Partnership with Local Jurisdictions To be successful, the SCS will require a partnership among regional agencies, local jurisdictions, Congestion Management Agencies (CMAs), transit agencies, and other regional stakeholders. MTC and ABAG are engaged in an exchange of information with County-Corridors Working Groups throughout the Bay Area. These Groups are organized by county, by sub-regions within counties, and by corridors that span counties. They typically include city and county planning directors, CMA staff, and representatives of other key agencies such as transit agencies and public health departments. Working Group members are responsible for providing updates and information to their locally elected policymakers through regular reports like this one and eventually through recommended councilor board resolutions that acknowledge and respond to the implications of the SCS for each jurisdiction. Each county has established an SCS engagement strategy and the composition of a County/Corridor Working Group according to its needs and ongoing planning structure. The City of Palo Alto Planning Director is working with the Santa Clara County Association of Planning Officials (SCCAPO), primarily composed of planning directors from each city and from Santa Clara County, to address these issues. Other City staff members are involved in working groups of planners and transportation officials coordinated by and supported technically by the Valley Transportation Authority (VTA). The City/County Managers Association and the Santa Clara County Cities Association are also active in reviewing key policy actions related to the SCS. In addition to the County-Corridor Working Groups, a Regional Advisory Working Group (RA WG), composed of local government representatives and key stakeholders throughout the region, provides technical oversight at the regional level. The Planning Director is a participant in those meetings on a monthly basis. CMR: 110:11 Page 4 of 9 Development of SCS Scenarios The SCS will be the product of an iterative process that includes a sequence of growth and supportive transportation scenarios. An Initial Vision Scenario will be presented in February 20 II, followed by more detailed SCS scenarios that refine the Initial Vision Scenario (Spring and Fall 2011), with a final draft for review in early 2012. The draft project timeline is outlined in more detail in the "Next Steps" section below and a draft schedule of 2011 milestones and opportunities for City input is provided as Attachment A. Initial Vision Scenario ABAG and MTC will release an Initial Vision Scenario in February 201 1, based in large part on input from local jurisdictions through the county/corridor engagement process and information collected through December 2010. The Vision Scenario will encompass an initial identification of places (place types), policies and strategies for long-term, sustainable development in the Bay Area. Local governments will identify places with potential for sustainable development, including PDAs, transit corridors, and employment areas, as well as infill opportunity areas that lack transit services but offer opportunities for increased walkability and reduced driving. The Initial Vision Scenario will: • Incorporate the 25-year regional housing need encompassed in the SCS; • Provide a preliminary set of housing and employment growth numbers at regional, county, jurisdictional, and sub-jurisdictional levels; • Be evaluated against the greenhouse gas reduction target as well as the additional performance targets adopted for the SCS. For Palo Alto, the place types factored into the Vision Scenario will include the California Avenue Area PDA and the El Camino Real corridor and University Avenue transit area, as outlined previously. The intent of this initial Vision Scenario is to show a development pattern "unconstrained" by public service limitations, fiscal, transportation, or other infrastructure. Detailed Scenarios By the early spring of2011, local governments and regional agencies will evaluate the feasibility of achieving the Initial Vision Scenario and will produce a series of Detailed Scenarios for review. The Detailed Scenarios will take into account constraints that might limit development potential, and will identify the infrastructure and resources that can be identified and/or secured to support the scenario. MTC and ABAG expect to release a first round of Detailed Scenarios by July 2011, following multiple discussions and workshops in response to the Initial Vision Scenario. The County/Corridor Working Groups as well as the RA WG will facilitate local input into the scenarios, with the release of a Preferred Scenario by the end of 20 II. The analysis of the Detailed Scenarios and Preferred Scenario will evaluate benefits of the land use alternatives in reducing greenhouse gas emissions and vehicle-miles traveled, and will also consider the Perfonnance Targets and Indicators as additional criteria. Regional Housing Needs Allocation (RHNA) As described above, the eight-year RHNA must be consistent with the SCS. Planning for affordable housing in the Bay Area is one of the essential tasks of sustainable development. In the SCS, this task becomes integrated with the regional land use strategy, the development of CMR: 110:11 Page 5 of9 complete communities and a sustainable transportation system. The county/corridor engagement process will include discussions ofRHNA, since both the SCS and RENA require consideration of housing needs by income group. The process to update the RHNA will begin in 20 11: o A Housing Methodology Committee for the region will be appointed in January 2011. Meetings will continue through September 2011. o Cities must detennine whether they want to fonn a sub-regional RHNA group by March 2011. If so, they must follow the same timeline for fonnulation as the Methodology Committee. o Local jurisdictions will provide input prior to the adoption of the RHNA methodology by September 20 II. o The final housing numbers for the region will be issued by the State Department of Housing and CommWlity Development (HCD) by September 2011. o The Draft RENA will be released by spring 2012. o ABAG will adopt the Final RHNA by the end of summer 2012. o Local governments will address the next round of RHNA in their next Housing Element update (2014-2022). The distribution of housing needs will then infonn the Detailed SCS Scenarios. Councilmember Scharff has been nominated (and has a good likelihood of being appointed) to the RHNA Methodology Committee. The Committee will include 2 staff from cities (San Jose and Morgan Hill) and 2 alternates (Cupertino and Sunnyvale), and a staff member from Santa Clara County. Staff hasn't heard if any City Managers will be selected. While still not proportional to the County's population or employment, this is an improvement over the last round of housing review, when only I city staff, 1 county staff, and I Council member were included across the entire Santa Clara County. The County Planning Directors emphasized the need for increased numbers and diversity across the representatives from this county, including an elected official from north County. Regional Transportation Plan (RTP) The SCS provides an explicit link between land use choices and the transportation investments in the region. The regional agencies indicate they will work closely with the VTA and other CMAs, transportation agencies and local jurisdictions to define financially constrained transportation priorities in their response to a can for transportation projects in early 2011 and a detailed project assessment that will be eompleted by July/August 2011. The project assessment will be an essential part of the development of Detailed SCS Scenarios. The RTP will be analyzed through 2012 and released for review by the end of 2012. ABAG is expected to approve the SCS by March 2013, and MTC would follow with adoption of the final RTP and SCS by April 2013. Environmental Review Regional agencies will prepare one Enviromnentallmpact Report (ErR) for both the SCS and the RTP. This EIR might assist local jurisdictions in streamlining the environmental review process for some of the projects that are consistent with the SCS. Regional agencies are investigating the CMR: llO:l1 Page 6 of 9 scope and strategies for an EIR that could provide the most effective support for local governments. Additional Regional Tasks MTC, ABAG and the Bay Area Air Quality Management District are coordinating the impacts of CEQA thresholds and guidelines recently approved by the Air District. The Air District is currently developing tools and mitigation measures related to the CEQA thresholds and guidelines to assist with development projects in PDAs. The four regional agencies will be coordinating other key regional planning issues including any adopted climate adaptation-related policy recommendations or best practices suggested by BCDC, Palo Alto Role in Developing and Implementing the Sustainable Communities Strategy The City staff, Planning and Transportation Commission, and Council will be asked to respond to several key questions over the coming year and beyond, such as (but not limited to): I. How much housing and employment should/can the City accommodate to provide a meaningful contribution to smart growth and sustainable development mandates of the Bay Area and balance new growth opportunities with the existing character of the City of Palo Alto? 2. Where does the City desire/expect to accommodate new housing and employment within the next 25 years? 3. What are the key local sustainable development issues/strategies that might be advanced through the SCS (e.g., type (clean tech) and extent of employment growth, affordable housing, enhanced commercial revenues, etc.)? 4. What are the primary constraints to providing for sustainable development opportunities in Palo Alto (e.g., enhanced school facilities, open space, transportation and transit infrastructure, etc.)'1 What key investments would be needed? 5. How should Councilmembers, the Planning and Transportation Commission, and staff participate in this process? The SCS provides an opportunity for the City of Palo Alto to advance local goals as part of a coordinated regional framework. The SCS may help comlect local concerns-such as new housing, jobs, and traffic-to regional objectives and resources. As such, it may serve as a platform for cities and counties to discuss and address a wide spectrum of challenges, including high housing costs, economic development, affordable and accessible transportation, and public health, and identify local, regional, and state policies to address them. The bottom line is that the SCS is likely to reward those cities whose decisions advance not only local goals but also benefit quality of life beyond their borders-whether to create more affordable housing, new jobs, or reduce driving. TIME LINE AND NEXT STEPS: The Next Steps below outline and as shown in Attachment A outline the City of Palo Alto's expected timeline for key participation and response in the coming year (2011). The City Council, Planning and Transportation Commission, staff, and the Palo Alto community will be actively engaged at several points in the SCS and RHNA process over the coming year: CMR: 110:11 Page 7 of9 COURTESY COPIES: Planning and Transportation Commission Ezra Rapport, Executive Director, Association of Bay Area Governments Ken Kirkey, Director of Planning, Association of Bay Area Governments CMR: IIQ:II Page 9 of9 January 9, 2008 ABAG Executive Board c/o Henry Gardner, Secretary -Treasurer Association of Bay Area Goverrunents P.O. Box 2050 Oakland, CA 94604-2050 Dear Mr. Gardner: ATTACHMENT B G!tx O~ Palo~t~ Department of Planning and Community Environment The City of Palo Alto thanks you for providing us with the opportunity to review and comment on the revised Draft Regional Housing Needs Allocation (RHNA), which was adopted by the ABAG Executive Board on November 15,2007. .. The City acknowledges ABAG's modificationio Palo Alto's RHNA to address the City's Sphere of Influence circumstance with the County ,of Santa 'Clara and Stanford Ulliv~rsity.,However, our City Council, the Planning and Transportation Comm.ission and slaffhave alldeteimined that the RHNA of 2,860, even after the reduction of 645 units, is completely unachievable in Palo Alto given the lack of available land, the high cost of land acquisition, and·the impacts of that . amount of growth on the City's neighborhoods and infrastructure. Setting these requirements that cannot be achieved threatens the credibility and viability of important public institutions and becomes simply an exercisdnfutility. . Palo Alto has an extensiveand long history ofleading and implemen(i)lg affordable housing in an area highly impacted by tltehigh cost of housing. We I'o,'¢i'f .the first to implement inclusionary zoning in this region and Palo. Alto Housing Corpor~t!.9~ was established back in 1970 as a non-profit affordable housing provider. Although the .Cityof Palo Alto has adopted zo ning and programs supporting core concepts behind the allocation method such as smart growth, infill developmen't, protection of open space and rurakwe~s,i~l:ricting urban sprawl, and transit oriented development, there should be a reasonable expei:ialioJio[ success in meeting goals when assigning allocations to cities. . .... ,.. . '; ','. Factors such as essential infhlstruchire ne.eds and service reqiiit~i,lienls~lsd:i):e~¢ to be taken into ..... consideration. Many comp,qnents of the City's infrastructur,;¥~'aii~adyatta;pacity and another critical factor is the capacity limitations of the Palo Alto UnitiedSchpol Dis(rict. The cutrent school population has already pushed the present facilities bey6nd capacity so that every elementary school now has muliiple portables. Stlldents from an additftmal 2,860 .housing units simply cannot be accommodated with The eiiistiQg'fac:ilities"and budget. . Given that the s"hoo\ district is at capacity, and there is n()a~ailabl~ funding ' toaccommOdateihe increased'stUdent population from the allocation, these requirements Wouldampunt to an unfundedtnandate fPr Palo Alto. '. Planning 250 Hamilton Avenue P.O. Box 10250 Palo Alto, CA 94303 650.329.2441 650.329.2154 Transportation 250 Hamilton Avenue P.O. Box 10250 Palo Alto, CA 94303 650.329.2520 650.617.3108 BUilding 285 Hamilton Avenue P.O. Box 10250 Palo Alto, CA 94303 650.329.2496 650.329.2240 Mr. Henry Gardner Page 2 of4 January 9, 2008 As staff has indicated previously in transmittals to ABAG, the population and household growth projections for Palo Alto will not be realized and should be adjusted to reflect a population growth rate of approximately 3.0 % over the next RHNA period within our jurisdictional bOlmdary. ABAG's Projections 2007 assumes a population growth rate of approximately 7% during the next 7 years in our jurisdictional boundary. Historically, the City of Palo Alto's population has grown only by approximately 4.7% over the last thirty years. We understand that the methodology uses Sphere of Influence population projections but we believe that the population trend within our Sphere of Influence is proportional to the historic jurisdictional boundary population trends. Although the City has experienced a growth rate of approximately 8% during the last seven years, this has been a period when Palo Alto has constructed significant new housing development well in excess of historic averages and that rate cannot be sustained given Palo Alto's limited land availability and redevelopment potential. Therefore, it's very likely that the, City'S population growth will remain far below ABAG's projections since it will be very difficult for Palo Alto to continue the housing development it has experienced in the last seven years. During the last RHNA period, the City's popUlation growth was largely attributable to a single development of approximately 1,000 units on the City's only remaining vacant large residential site. This City's housing growth occurred during a temporary period of substantial decline in the market for commercial development and increasing demand for housing. Taking this anomaly and extrapolating this into the future is not appropriate. By using its own overestimated Projections 2007 population numbers, the RHNA methodology compounds this error by assigning a 45% weight to the population projections that ABAG itself created. This logic appears circular in that the driver behind this growth appears to be the mandate from ABAG. Additionally, the City should receive credit in this RHNA cycle for the 1,036 units that were built during that last RHNA period that exceeded the City's assigned allocation. The City exceeded its above moderate allocation by 1,282 units and its low allocation by 14 units with a deficit of 51 units in the very low category and 208 in the moderate category. Palo Alto has also protected and retained existing units that are more affordable and should receive further credit to offset the City's RHNA requirements. The City also continues to oppose the inclusion of an additional Transit Oriented Development (TOD) factor in the allocation methodology to the extent that it would disproportionately assign housing to cities like Palo Alto that have shown a commitment to TOD, in effect penalizing cities that have developed smart growth policies. Additional growth requirements for built out cities like Palo Alto should be predominantly TOD housing, not the core ABAG allocation plus TOD housing. The emphasis of transit use in the methodology is illlrealistic at least for Palo Alto. Transit at the University and California Avenue stations is used more efficiently by commuters and not Mr. Henry Gardner Page 3 of 4 January 9, 2008 so efficiently by residents; many more people take transit TO Palo Alto than FROM Palo Alto. A greater eoncentration of jobs in the vicinity of transit will promote mass transit in Palo Allo more effectively than the eoncentration of housing. Furthennore, Palo Alto has been assigned additional units based on transit access from the San Antonio Avenue station. However, this station is located in and serves primarily Mountain View, not Palo Alto. Also, Caltrain only services the San Antonio Cal train station once per hour during rush hours further reducing its TOD effectiveness. Palo Alto has promoted smart growth in its Comprehensive Plan policies and its Pedestrian and Transit Oriented Development (prOD) zoning all in the midst of VTA reducing bus services to Palo Alto neighborhoods and with little or no projected additional funding for transit to support the TOD aspects ofRHNA. However, Palo Alto's diligence and success in implementing smart growth policies appear to have led ABAG to assume that the City has no limit to further intensifying with infill development. Given the RHNA mandate to provide housing for all income levels, it is impossible for the City to provide the 1,875 units assigned for below market rate income levels. Palo Alto prioritized affordable housing as one of the City's top five goals and built over 90 percent of the City's very low and low income housing allocation for the last RHNA cycle. However, the current RHNA methodology uses 2000 Census ineome distribution data for allocating housing based on affordability, and does not reflect the City'S success in building affordable housing over the last seven years. Instead, the current methodology allocated more affordable housing to Palo Alto compared to the region as a Whole. Additionally, due to the extraordinary cost of land in Palo Alto, all very low and low income rental housing that has been developed recently has required significant Cily subsidy. The cosl of low and very low income projects in Palo Alto are averaging $400,000 to $500,000 per unit. Recently the City has had to subsidize approximately 50% of the project cost for most low income and very low income projects. . This is in large part due to the exorbitant land costs in Palo Alto which average $10 million an acre but have been as high as $16 million an acre. In order to develop the assigned 1,234 units of low and very low income housing under current funding conditions, the City would be expected to provide a subsidy of approximately $245 to $3!O million, which is clearly unrealistic and unattainable as the City stmggles to maintain revenues adequate to support basic services to its residents and businesses. Given state subsidy restrictions, and because of the high land cos Is in Palo Alto, moderate income units are achieved only through the City's inciusionary zoning program, which requires 15 -20% affordability. As a result, approximately 70% of the ABAG allocation would need to be subsidized by Palo Alto. In order to provide the assigned 641 moderate income level units, the City would have to develop 3,205 -4,272 market rate units. The high cost to the City of providing this housing as well as supporting services and facilities, schools, transit and parks, is an unfunded state mandate. There may also be insufficient water resources available to serve this additional popUlation. Until there is state Mr. Henry Gardner Page 4 of 4 January 9,2008 subsidy available for affordable units, identifying adequate sites to meet proposed RHNA housing for lower income levels in communities like Palo Alto will be a paper exercise. The City requests that you confirm that the job growth anticipated with the proposed Stanford Shopping Center and Medical Facility expansions are included in ABAG's projections for the City's job growth for the 2007 -20 14 period, and the City will not be assigned these jobs a second time in a future RHNA regardless of those projects' occupancy dates. Finally, much discussion has occurred about thc impact of commute emissions on climate change. Palo Alto has just concluded a comprehensive climate change impact analysis. A significant finding of that report is that 11 % of Palo Alto's C02 emissions are attributable to trips into Palo Alto. Consequently, the report indicates that even an additional 2,860 units with similar commuting characteristics would impact Palo Alto C02 emissions by less that 0.1 % or 111 OOO'h Palo Alto's total C02 In closing, the City requests that ABAG revise Palo Alto's RHNA to reflect a 3% population growth over the seven-year RHNA period, exclude the San Antonio station from our transit factor, adjust the transit factor to eliminate any "double counting" and credit the City with the 1, 036 units the City built in excess of our last RHNA assignment. The City also urges ABAG to consider factors such as land costs and availability as well as community needs to provide adequate open space and essential services in developing a realistic RHNA. Given that there was no representative from the 250,000 residents of North Santa Clara County on the Housing Methodology Committee, we were not adequately represented and, therefore, unique factors prevalent in our area were not sufficiently considered in the ABAG allocations. If ABAG adopts more realistic and achievable RHNA allocation goals, this will enable cities to focus on actually providing adequate housing for Ii diverse population, a goal strongly supported by the City Council and the Palo Alto community. The City of Palo Alto appreciates your consideration of our appeal of the assigned allocation. Sincerely, ..---( ~. ~' .. " ... ----J$e-. Larry Klein Mayor cc: Paul Fassinger, ABAG Research Director RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO EXPRESSING APPRECIATION TO GLENN ROBERTS UPON HIS RETIREMENT WHEREAS, Glenn Roberts served the residents of Palo Alto as Director Public Works from April 19, 1993 to December 30, 2010; and WHEREAS, Glenn Roberts directed oversight to an annual budget of approximately $100M in the General Fund, Capital Improvement Fund, three enterprise funds and one internal service fund; and WHEREAS, Glenn Roberts directed the development of a new system of parking structures, districts and transportation improvements during his tenure with the City; and WHEREAS, Glenn Roberts directed efforts to secure property owner approval of a Storm Drainage Fee to fund critical capital projects that alleviate flooding and programs that protect storm water quality and the health of our local creeks; and WHEREAS, Glenn Roberts oversaw improvements to the City's winter storm preparedness and response capabilities; and WHEREAS, Glenn Roberts led the staff responsible for the growth of the City's water pollution prevention and zero waste programs as they became examples to other public agencies; and WHEREAS, Glenn Roberts oversaw the design and construction of improvements to many of the City's major buildings; and WHEREAS, Glenn Roberts, in his 18 years of service with the City of Palo Alto, has directed the operations, maintenance, repair, rehabilitation, and capital improvement of over 1.5M square feet of City facilities, 470 lane miles of City streets, 6.6M square feet of sidewalk, 35,000 trees, processing of 8M gallons of sewage and 49M tons of solid waste annually and a fleet of over 600 vehicles and equipment. NOW, THEREFORE, LET IT BE RESOLVED that the Council of the City of Palo Alto hereby recognizes Glenn Roberts for the public service and contributions rendered during his 18 years of employment with the City. INTRODUCED AND PASSED: January 10, 2011 ATTEST: APPROVED: ____________________ ______________________ City Clerk Mayor APPROVED AS TO FORM: ____________________ ______________________ City Attorney City Manager RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO EXPRESSING APPRECIATION TO ANNETTE COLEMAN ON HER RETIREMENT WHEREAS, Annette Coleman has served the City of Palo Alto in different capacities over the past 40 years and has made significant contributions to the City of Palo Alto in her capacities as Lifeguard/Swim Instructor; Park Ranger; Lead Ranger; and ProducerlNaturalist; and WHEREAS, Annette Coleman, is a 35-year member of the National Association for Interpretation; and 30-year member of the Park Rangers Association of California; and WHEREAS, Annette Coleman implemented a new seasonal ranger training program; recruited, trained, and evaluated seasonal open space personnel; graduated from the Santa Rosa National Park Ranger Academy; served as a District Representative with the Park Ranger's. Association of California; implemented a turf irrigation plan to save the roadside oaks of Foothills Park; supervised the daily operation and maintenance of Foothills Park and the Arastradero Property; and WHEREAS, Annette Coleman led numerous field trip programs for school groups at the Baylands, Foothills Park, and Enid Pearson Arastradero Preserve, engaging children in hands-on activities to discover the different life forms of the habitat; developed and taught an Ohlone People field trip for third graders; doubled the number of students served by the Baylands Naturalist field trip programs; supervised the successful Bay Camp summer camp; directed the Wildlife Camp summer camp; and led many Saturday morning nature walks on a wide variety of topics for the general public; and WHEREAS, Annette Coleman maintained the field trip reservation system for the Baylands and hired, scheduled, and trained staff to lead the school group programs. NOW, THEREFORE, BE IT RESOLVED, that the City Council of the City of Palo Alto hereby gratefully records its appreciation, as well as the appreciation of the citizens of this community, for the outstanding public service rendered by Annette Coleman, along with our best wishes for a rewarding and fulfilling life during retirement. INTRODUCED AND PASSED: ATTEST: APPROVED: City Clerk Mayor CitY Attorney City Manager TO: HONORABLE CITY COUNCIL FROM: CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE: JANUARY 10, 2011 CMR: 100:11 REPORT TYPE: CONSENT SUBJECT: Review and Acceptance of Annual Status Report on Developers' Fees for Fiscal Year 2010 RECOMMENDATION Staff recommends that the City Council review and accept the Annual Report on Developers' Fees for the period ending June 30, 2010 (Exhibit A). BACKGROUND State law (Government Code Section 66006) requires each local agency that imposes development impact fees prepare an annual report providing specific infOlmation about those fees. This requirement is part of the law commonly referred to as AB 1600. It codifies the legal requirement that fees on new development must have the proper nexus to any project on which they are imposed. In addition, AB 1600 imposes certain accounting and reporting requirements with respect to the fees collected. The fees, for accounting purposes, must be segregated from the general funds of the City and from other funds or accounts containing fees collected for other improvements. Interest on each development fee fund or account must be credited to that fund or account and used only for the purposes for which the fees were collected. Government Code Section 66006 contains comprehensive annual reporting requirements for development impact fees. This statute requires that, within 180 days after the close of the fiscal year, the agency that collected the fees must make available to the public the following information regarding each fund or account: o A brief description of the type of fee in the fund. o The amount of the fee. o The beginning and ending balance for the fiscal year in the fund. o The amount offees collected and interest earned. CMR:IOO:ll Page 1 of4 o An identification of each public improvement on which fees were expended and the amount of the expenditure on each improvement, including the total percentage of the cost of the public improvement that was funded with fees. o An identification of an approximate date by which the constmction of a public improvement will commence, if the local agency determines that sufficient funds have been collected to complete financing on an incomplete public improvement. o A description of each interfund transfer or loan made from the account or fund, including the public improvement on which the loaned funds will be expended, and in the case of an interfund loan, the date on which the loan will be repaid and the rate of interest that the account or fund will receive on the loan. o The amount of any refunds made due to inability to expend fees within the required time frame. This report must also be reviewed by the City Council at a regularly scheduled public meeting not less than 15 days after the information is made available to the public. In addition, notice of the time and place of the meeting shall be mailed at least 15 days prior to the meeting to any interested party who files a written request with the local agency for such a mailed notice. An early packet consisting of Exhibit A only was made available to the public and included in the packet for the December 14,2009 meeting of the City Council. The law also provides that, for the fifth fiscal year following the first deposit into the fund and every five years thereafter, the local agency shall make findings with respect to any portion of the fee remaining unexpended, whether committed or uncommitted. The finding must: identify the purpose to which the fee is to be put; demonstrate a nexus between the fee and the purpose for which it was originally charged; and identify all sources and amounts of funding anticipated to complete financing of incomplete improvements along with the approximate dates on which the anticipated funding is expected to be deposited into the fund. If the agency no longer needs the funds for the purposes collected, or if the agency fails to malce required findings, or to perfOim certain administrative tasks prescribed by AB 1600, the agency may be required to refund, on a prorated basis to owners of the properties upon which the fees for the improvement were imposed, the monies collected for that project and any interest eamed on those funds. DISCUSSION The City of Palo Alto development fees covered by AB 1600, and documented in Exhibit A, include the following: o Stanford Research Park/EI Camino Real traffic impact fees (PAMC Ch. 16.45): Fee for new nomesidential development in the Stanford Research Park/EI Camino Real Service Commercial zone, to fund capacity improvements at eight intersections. CMR:I00:ll Page 2 of 4 o San Antonio/West Bayshore Area traffic impact fees (PAMC Ch. 16.46): Fee for new nonresidential development in the San Antonio/West Bayshore area to fund capacity improvements at four intersections. o Housing impact fees imposed on commercial developments (PAMC Ch. 16.47): Fee on commercial and industrial development to contribute to programs that increase the City's low income and moderate-income housing stock. o Parking in-lieu fees for University Avenue Parking District (PAMC Ch. 16.57): Fee on new non-residential development in the University Avenue Parking Assessment District in lieu of providing required parking spaces. o Parks, Community Centers, and Libraries impact fees (PAMC Ch. 16.58): Fee on new residential and non-residential development to provide community facility funds for parks, community centers and libraries. o Residential housing in-lieu fees (P AMC Ch. 16.47): Fee on residential developments in- lieu of providing required below-market rate units to low and moderate income households. o Charleston-Arastradero Corridor pedestrian and bicyclist safety fees (PAMC Ch. 16.59): Fee on new development and re-development within the Charleston-Arastradero Corridor to provide for pedestrian and bicyclist improvements. o Parkland dedication fees (Quimby Act) (California Government Code Section 66477): Fees 01' parkland dedication imposed on new resid~ntial and non-residential development. o Water and sewer capacity fees (California Government Code Section 66000): Fee on developments adding load to water and sewer systems. o Citywide Transportation impact fee (PAMC Ch 16.59): Fee on development in all parts of the City to fund transportation projects and programs to reduce congestion. AB 1600 requires the City to malce specified findings in the event any funds are not expended within five fiscal years of collection and every five years thereafter. While there are several funds containing collected fees that have not been expended in five years, the required statutOlY carryover findings have already been made for those funds and no further findings are required. The San Antonio/West Bayshore Fund, Stanford Research ParkiEl Camino Real Fund, University Avenue In-Lieu Parking Fund, and Community Center and Library Development Funds contain development impact fees that remain unexpended. In fiscal year 2008 (CMR 107 :09) the City Council made the required findings that there was a continued need for the San Antonio/West Bayshore funds for a right turn lane at the intersection of westbound Charleston at San Antonio. In fiscal year 2008, Council also found a continued need for the Stanford Research Park/El Camino Real fund for major intersection improvements at the Page MilllHanover intersection and a continued need for the University Avenue In-Lieu Parking funds for the purpose of construction of public parking spaces. CMR:iOO:ii Page 3 of 4 Finally, in fiscal year 2007 (CMR 106:08) the City Council made the required findings that there was a continued need for the community center and library development impact fees for the development of new facilities at the current Mitchell Park community center and library site, In the case of housing impact fees from commercial development, developers impact fees for parks, parkland dedication fees, Charleston! Arastradero pedestrian/bike safety fees, and citywide transportation impact fees, the funds on hand as of June 30,2010 have all been received within the past four years. Therefore, no findings are required for those fees. RESOURCE IMPACT Council approved the required findings with respect to unexpended fees in fiscal years 2007 and 2008. As a result, there is no fiscal impact associated with this year's report. POLICY IMPLICATIONS This report does not represent any change to existing City policies. ENVIRONMENTAL ASSESSMENT Presentation of this annual report is not a project under the California Environmental Quality Act; accordingly, no environmental assessment is required. PREPARED BY: ALLEN LEE Senior Accountant, Administra . ve Services DEPARTMENT I-rEAD APPROVAL: Z Director, Administrative Services CITY MANAGER APPROVAL: ATTACHMENT Exhibit A: Annual RepOlt on Development Fees for Period Ending June 30,20 I 0 cc: Home Buildcrs Association CMR:IOO:ll Page 40[4 Exhibit A City of Palo Alto Annual Report on Developers' Fees for Period ending June 30, 2010 I Stanford Research Parkl I San Antonio/West FUND EI Camino Fund Bayshore Fund Purpose and Authority for Colle ction Amount of Ihe Fee Fund Balance July 1, 2009 Activity In 2009-10 Revenues Fees Collected Interest Earnings Unrealized Gain/loss Investments Transfer In from Gas Tax Fund Transfer In from CIP Fund Total Revenues Expenditures Other Charleston/Arestradaro Corridor Improvements (Pl-05002) Totel Expenditures Ending Balance June 30, 2010 Net Funds Available Traffic impact fees Imposed on new nonresidential development In the Sfanford Research ParkiEI Camino . Real CS zone to fund improvements at eight identified intersections. PAMC Ch. 16.45 $10.38 per square foot $2,511,906 USE OF FEES: o 96,593 60,406 $166,999 o o o $2,668,906 $2,668,906 No expenditures have been made from this fund in Fiscal Year 2010. Fees are planned to be used for Gunn High School entrance near FoothilllArastradero. Page 1 of 8 Traffic impact fees imposed on new nonresidential development in the ~ San AntoniolWest Bayshore Areas to fund capacity improvements at four identified intersections. PAMC Ch. 16.46 $2.14 per square foot $724,212 27,802 9,790 $37,592 o o o $761,S04 $761,S04 USE OF FEES: No expenditures have been made from this fund In Fiscal Year 2010. Fees are planned to be used for specific traffic Improvements in the Charleslon/San Antonio Road area, but have been delayed by a related project to be constructed by the Slate Department of Transportation. 11/19/2010 FUND Purpose and Authority for Coliection Amount of the Fee Fund Balanc. July 1, 2009 Activity In 2009·10 Revenues other Revenue from Other Agencies Interest Earnings Unrealized Gain/Loss Investments From State of California Total Revenues Expenditures Purchase of 801 Alme property Consultant Fees Total Expenditures Ending Balance June 30, 2010 Other Commilments/Appropriations Encumbrances Reserve for unrealized gain on investments Net Funds Available Exhibit A City of Palo Alto Annual Report on Developers' Fees for Period Ending June 30, 2010 Commercial Housing In-Lieu Fund Fees imposed on large commercial and industrial development to contribute to programs that increase the City's low income and moderate- income housing stock. PAMC Ch.1B.47 $17.59 per square foot $1,673,817 USE OF FEES: 3,962 63,865 (4,090) o 63,737 o o o $1,737,554 o (82,022) $1,655,532 No expenditure of funds have bean made from this fund in Fiscal Year 2010. Page2 of8 University Avenue Parking Assessment District In-Lieu Fund Fees collected from non-residential development within the UniVersity Ave. Parking Assessment District In lieu of providing the required number of parking spaces. PAMC Ch 16.57 $64,272 per space $97,529 USE OF FEES: o 3,745 1,212 4,957· o o $102,486 (5,126) $97,360 No expenditure of funds have bean made from this fund In Fiscal Year 2010. 11/1912010 FUND Purpose and Authority for Collection Amount of the Fee Fund Balance July 1, 2009 Activity In 2009-10 Revenues Fees Collected Interest Earnings Unrealized GalnlLoss Transfer In from CIP Fund Total Revenues Operating Transfer to Capital ProJects Fund Total Expenditures Ending Balance June 3D, 2010 Other Commitments/Appropriations Reserve for unrealIZed gam on investments Funds Available Exhibit A City of Palo Alto Annual Report on Develilpers' Fees for Period Ending June 30, 2010 Residential & Non-Residential Housing Community Facilities Parks Fees imposed on new residential and non-residential development approved after Jan 28, 2002 for Parks. PAMC Ch. 16.58 Residential: Single family $9.971Iresldence (or $14.S90Iresldence larger than 3,000 sq It); Multifamily $6,527Iunit (or $3,300Iunil smaller than or equal to 900 sq It) Nonresidential: CommerciaUindustrial $4,234 per 1,000 sq It; HotellMotel $1,915.00 per 1,000 sq It USE OF FEES: $2,089,860 351,543 87,907 24,867 249,098 $713,415 o $2,803,275 (116,198) $2,687,078 No expenditure of funds have been made from this Fund in Fiscal Year 2010. Residential & Non-Residential Housing Page 301 8 Residential & Non-Residential HOUSing Community Facilities Community Centers Fees imposed on new residential and non-residential development approved alter Jan 28, 2002 for Community Centers. PAMC Ch. 16.58 Residential: Single family $2,585Iresidence (or $3,870Iresidenca larger than 3,000 sq It); Multifamily $1, 700lunll (or $S58/unit smailer then or equal to 900 sq It) Nonresidential: CommerciaVindustrial $239,00 per 1,000 sq It; Hotel/Motel $100.00 per 1,000 sq It USE OF FEES: No expenditure of funds have been made from this Fund in Fiscal Year 2010. Residential Housing 1111912010 FUND Pu rpose and Authority for Collection Amount of the Fee Fund Balance July 1. 2009 Actlvltv In 2009·10 Revenues fees Collected Webster Wood In-Lieu Payment Sale of High St property I nterest Earnings Unrealized GainlLoss Investments Total Revenul!$ Expenditures Housing Program Expense Allowance for Uncollectible Notes Principal Retired Total Expenditures Ending Balance June 30. 2010 Other Commitments/Appropriations Reserve for unrealized gain on investments Reserve for Notes Receivable include $375,000 for 3053 Emerson, $1,300,000 for Tree House Apts. $934,740 for Oak Manor, $756,819 for Sheridan Apts. and $150,818 for Palo Alto Gardens. Net Funds Available Exhibit A City of Palo Alto Annual Report on Developers' Fees for Period Ending June 30, 2010 Community Facilities Libraries Fees imposed on new residential and non-residential development approved after Jan 28, 2002 for Libraries. PAMC Ch. 16.58 ReSidential: Single family $902lresidence (or $1,344lresldence larger than 3.000 sq It); Multifamily $5391unlt (or $296/unlt smaller than or equal to 900 sq ft) Nonresidential: Commercial/industrial $228.00 per 1,000 sq It; Hotel/Molel $96.00 per 1,000 sq ft USE OF FEES: Page 4 of 8 $439.897 55.708 17,565 6,558 $79,830 o o $519.727 (22,214) $497.512 In-Lieu Fund Fees collected from residential developments of three or more units in lieu of providing the required below- market rate unites) to low and moderate income households. PA Comprehensive Plan and PAMC Chapter 18 Varies USE OF FEES: $4,563.766 1,899,836 16,250 o 128,926 21,635 $2,066.647 (255,000) o (113,111) (368,111) $6,262,302 (35,000) (111,071) (3,356,967) $2,759,284 11/19/2010 Exhibit A City of Palo Alto Annual Report on Developers' Fees for Period Ending June 3(), 201 () No expenditure of funds have been made from this Fund in Fiscal Year 201 O. Page 5 018 Expenditures in Fiscal Year 201 0 include $155,000 to Palo Alto Housing Corp for BMR fees, $113,111 for Oak Manor Aptsloan forgiveness, and $100,000 to Housing Trust of SC County for affordable housing. 11/19/2010 FUND Purpose and Authority for Collection Amount of the Fee Fund Balance July 1, 2009 Activity in 2009-10 Revenues Fees Collected Interest Earnings Unrealized Gain/Loss Investments Total Revenues Expenditures Operating Transfer to Capital Projects Fund Total Expenditures Ending Balance June 30, 2010 Other Commitments/Reappropriations Reserve for unrealized gain on investments Net Funds Available Exhibit A City of Palo Alto Annual Report on Developers' Fees for Period Ending June 30, 2010 Parkland Dedication Fees on parkland dedication imposed on new residential and non-residential development Govt Code Sec.66477 (Quimby Act) Varies USE OF FEES: $296,036 o 11,375 4,537 $16,912 o o $311,950 (13,670) $298,280 No expenditure of funds have been made from this Fund in Fiscal Year 2010. PageSofS Charleston-Arastradero Corridor Pedestrian and Bicyclist Safety Fees collecled from new development and ",-development within the Charleston- Amstmdero Corridor to provide for pedest- rian and bicyclist safety improvements. PAMC Ch. 16.60 Residential: $1,045.11 per unit; Commercial: $0.31 per sq It USE OF FEES: $466,721 80,023 17,129 5,253 $102,405 (81,900) (81,900) $487,226 (22,214) $465,012 Budgeted transfers in the amount of $61 ,900 were made the the Capital improvement Fund in Fiscal Year 2010 for the Corridor Plan (PL-05002). 1111912010 , FUND Purpose and Authority for Collection ' Amount of the Fee Fund Balance July 1, 2009 Activity In 2009·10 Revenues Fees Collected Interest Earnings Unrealized Gain/Loss Investments Total Revenues Expenditures Fund Operating Transfer to BMR Fund Principal Retired Total ~xpenditures Ending Balance June 30, 2010 Other Commitments/Reappropriations Reserve for unrealized gain on investments Net Funds Available Exhibit A City of Palo Alto Annual Report on Developers' Fees for Period Ending June 30, 2010 Citywide Transportation Transportation impact fees imposed on new development In the Stanford Research Park to fund congestion reduction projects, PAMC Ch, 16,59 Varies $123,219 USE OF FEES: 46,953 6,154 4,226 $57,333 o o $180,552 (6,835) $173,717 No expenditure of funds have been made from this Fund In Fiscal Year 2010. Page 7 of 8 1111912010 FUND Purpose and Authority for Coliection Amount of the Fee Capacity Fees Coliected Water Wastewater Coliection Tolal Exhibit A City of Palo Alto Annual Report on Developers' Fees for Period Ending June 30, 2010 (INFORMATION ONLY) Water and Wastewater Collection Capacity fees charged to developers that are adding load to the water and sewer systems effective July 1, 2005. California GoVernment Code Sect 66000 Water Domestic: 5/8 in., 3/4 In. $3,600, 1 In. $6,750, 11/2 in, $13,500, 2 in. $27,000,3 in. by est. $901FU ,4 in. by est. $901FU , 6 in. by est. $901FU Water Fire Service: 2 In. $750, 4 in. $9,000, 6 in. $22,530,8 in. $43,080, lOin. $69,510 Sewer: 4 in. $7,500 firsl50 FU, $150/FU additional, 6 in. by est. $150/FU, 8 in. by est. $150/FU FU is fixture unit USE OF FEES: $436,080 38,750 $474,830 The jees are used exclusively for water and sewer system Improvements Page 8 of 8 1111912010 TO: HONORABLE CITY COUNCIL FROM: CITY MANAGER DEPARTMENT: PUBLIC WORKS DATE: JANUARY 10, 2011 CMR:I03:11 REPORT TYPE: CONSENT SUBJECT: Adoption of a Storm Drainage Enterprise Fund Budget Amendment Ordinance in the Amount of $585,517 to CIP Project SD-llI0l, Channing Avenue/Lincoln Avenue Storm Drain Improvement Project and Approval of a Contract with Bay Pacific Pipeline, Inc. in the Amount of $1,668,652 for Channing Avenue Storm Drain Improvement Project, Capital Improvement Program Project SD-lll0l ------REe0MMEND*TI0N~------------------------- Staff recommends that Council: 1. Approve the attached Budget Amendment Ordinance (BAO) in the amount of $585,517 (Attachment A) to provide an additional appropriation for the Channing Avenue Storm Drain Improvement Project, Capital Improvement Program Project SD-III01; 2. Approve and authorize the City Manager or his designee to execute the attached contract with Bay Pacific Pipeline, Inc. (Attachment B) in the amount of $1 ,668,652 for Channing Avenue Storm Drain Improvement Project, Capital Improvement Program Project SD- 11101; and 3. Authorize the City Manager or his designee to negotiate and execute one or more change orders to the contract with Bay Pacific Pipeline, Inc. for related, additional but unforeseen work which may develop during the project, the total value of which shall not exceed $166,865. BACKGROUND In 2005, the property owners of Palo Alto voted to increase their monthly storm drainage fee to fund a set of seven high-priority storm drain-related capital improvement projects, including improvements to the storm drain trunk pipelines along Channing and Lincoln Avenues. The existing storm drains along Channing and Lincoln Avenues are inadequate to convey the storm runoff from the surrounding neighborhoods. These pipelines convey storm runoff to the San Francisquito Creek Storm Water Pump Station, which was constructed in 2008 to serve a 1250- acre watershed area in northeastern Palo Alto. Drainage system performance along Channing and Lincoln Avenues and throughout portions of the Duveneck, Crescent Park, Walnut Grove, and Community Center neighborhoods will be greatly enhanced following completion of a series of storm drain upgrade projects. The work to be implemented under this contract comprises the CMR:103:11 Page 1 of4 first phase of this multi-phase project, which will provide drainage improvements along Channing Avenue between Newell Road and Lincoln Avenue. DISCUSSION Project Description The work to be performed under this contract is the replacement of an aging and undersized 24- inch storm drain pipe with a 5-foot wide by 4-foot high storm drain box culvert. The project limits are depicted on the attached Location Map (Attachment C). The large physical dimensions of the proposed box culvert will preclude the Gas Utility from providing gas service to the residents along the south side of Channing Avenue from the existing gas main and will require the relocation of some underground electric, phone, and cable television lines. Therefore, prior to the start of storm drain construction, Utilities Department field crews will install a new gas main between the box culvert and the curb line and new gas services to the affected customers, and the other impacted underground facilities will be relocated. The cost of this preparatory utility relocation work will be reimbursed by the Storm Drainage Fund. The segment of Channing Avenue between Newell Road and Lincoln Avenue was chosen for early implementation of drainage improvements partly because of the poor condition of the existing pavement, curbs and gutters. Therefore, the scope of the project to be awarded by Council includes the replacement of the curb and gutter, wheel chair ramps, and driveway aprons on both --------csni-ides of-tile street-:-In addItion, followmg tlie completion oillie storm orain project, tliis segment ---- of Channing Avenue will be resurfaced as part of the annual street resurfacing project. Bid Process On October 19, 2010, a notice inviting formal bids for the Channing Avenue Storm Drain Improvement Project was posted at City Hall and sent to 12 builder's exchanges and 24 contractors. The bidding period was twenty-eight days. Bids were received from nine qualified contractors on November 16,2010, as listed on the attached Bid Summary (Attachment D). S fBod P ummaryo I rocess Bid NamelNumber Channing Avenue Storm Drain Improvement Project, Capital Improvement Program Project SD-III01 / IFB #138544 Proposed Length of Project 150 calendar days Number of Bids Mailed to 24 Contractors Number of Bids Mailed to Builder's 12 Exchanges Total Days to Respond to Bid 28 Pre-Bid Meeting? No Number of Company Attendees at Not applicable Pre-Bid Meeting Number of Bids Received: 9 Bid Price Range $1,668,652 to $2,535,745 Staff has reviewed all bids submitted and recommends that the bid of $1,668,652 (which includes the Base Bid plus all Add Alternate Bid items) submitted by Bay Pacific Pipeline, Inc. be accepted and that Bay Pacific Pipeline, Inc. be declared the lowest responsible bidder. The CMR:I03:11 Page 2 of4 low bid is 30 percent below the engineer's estimate of $2,436,500. The change order amount of $166,865 (which equals 10 percent of the total contract) is requested for related, additional but unforeseen work which may develop during the project. Staff confinned with the Contractor's State License Board that the contractor has an active license on file. Staff also contacted the listed references for Bay Pacific Pipeline, Inc. and found that they have perfonned satisfactorily on past construction projects for other clients. Public Outreach Staff has mailed informational letters to residents in the general vicinity of the Channing Avenue Storm Drain hnprovement Project describing the project and the proposed implementation schedule and providing staff contact information for residents to obtain further infonnation. Project information was also e-mailed to representatives of the neighborhood associations for the Crescent Park, Community Center, and Duveneck/St. Francis neighborhoods. Staff has also added a page to the City's web site containing key project infonnation (http://www.cityofpaloalto.orglknowzone/news/details.asp?NewsID=1701&TargetID=109). Staff will continue to keep residents and neighborhood associations updated on the status of the project as the work progresses over the coming months. Proj ect Coordination Tlie Clianning Avenue Storm DraiilImprovement Project lias been cooruinateawitli other capital projects during the monthly UtilitieslPublic Works Department street work coordination meetings and by use of the Geographic Information System-based project coordination program. The work has also been coordinated with other non-city utility agencies, whose underground facilities will need to be relocated as a result of the proposed box culvert installation. In addition, the project has been coordinated with the upcoming pavement resurfacing of Channing Avenue, which is scheduled to take place during the summer of2011. RESOURCE IMPACT The total cost of the recommended construction contract, construction contingency, utility relocation work, and other expected miscellaneous construction-stage expenditures exceeds the available budget in Storm Drainage Fund Capital Improvement Program Project SD-11l01. The funding shortage consists of two distinct elements, one anticipated and one unanticipated during project planning. The anticipated element of the funding shortage is the cost of the concrete curb and gutter, wheel chair ramp, and driveway work that was advertised for bids as Add Alternate Bid items. This work is beyond the basic scope of the storm drainage project, but was included in the bid package because completion of this work will greatly expedite the subsequent street resurfacing work scheduled for summer/fall 2011. Staff planned to proceed with this work and fund it with General Fund dollars if the bid prices received were competitive. Prices bid by Bay Pacific Pipeline, Inc. for the concrete work are exceptionally low, and staff recommends that the work be included in the scope of the contract and funded via a Budget Amendment Ordinance (BAO). The attached BAO would transfer $324,684 (the sum of the two Add Alternate Bid items, plus 10% contingency) from the Infrastructure Reserve to the Channing Avenue Stonn Drain hnprovement Project, Capital Improvement Program Project SD-1l101. The FY2012 appropriation for the annual Street Resurfacing Capital Improvement Project will be reduced by an equal amount in the proposed budget. CMR:I03:11 Page 3 of4 ATTACHMENT A ORDINANCE NO. ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO AMENDING THE BUDGET FOR THE FISCAL YEAR 2011 TO PROVIDE AN ADDITIONAL APPROPRIATION OF $585,517 TO CAPITAL IMPROVEMENT PROGRAM (CIP) PROJECT SD-11101, CHANNING AVENUE/LINCOLN AVENUE STORM DRAIN IMPROVEMENTS PROJECT The Council of the City of Palo Alto does ordain as follows: SECTION 1. The Council of the City of Palo Alto finds and determines as follows: A. Pursuant to the provisions of Section 12 of Article III of the Charter of the City of Palo Alto, the Council on June 28, 2010 did adopt a budget for fiscal year 2011; and B. In fiscal year 2010, the City: Council a:RI;>ro}2riated an initial amount of $820,000 for CIP Project SD-11101(Project) to cover the costs of the construction. In fiscal year 2011, Council increased the appropriation by another $895,000 bringing total appropriation to $1,715,000; and C. Phase 1 of this proj ect, which will provide drainage improvements along Channing Avenue between Newell Road and Lincoln Avenue, was put out to bid. The low bid is higher than the amount appropriated, and an additional funding of $585,517 is needed to award the bid of the Project; and D. The work to be performed in this Project is the replacement of an aging and undersized 24-inch storm drain pipe with a 5-foot wide by 4-foot high storm drain box culvert. The large physical dimensions of the proposed box culvert will preclude the Gas Utili ty from providing gas service to the residents along the south side of Channing Avenue from the existing gas main and will require the relocation of some underground electric, phone, and cable television lines. Prior to the start of storm drain construction, Utilities Department field crews will install a new gas main between the box culvert and the curb line and new gas services to the affected customers, and the other impacted underground facilities will be relocated. The Storm Drainage Fund will reimburse the Utili ties Department for the cost of the preparatory relocation work; and E. Included in the contract is the cost of the concrete curb and gutter, wheel chair ramp, and driveway work that was SECTION 5. Three Hundred Twenty Four Thousand Six Hundred Eighty Four Dollars ($324,684) is hereby transferred from the Capital Project Fund Infrastructure Reserve to the Storm Drainage Fund. SECTION 6. The transactions above will reduce the balance of the Infrastructure Reserve to One Million Eight Hundred Sixty Six Thousand Three Hundred Twenty Two Dollars ($1,866,322) but will have no impact on the balance of the Storm Drainage Fund Rate Stabilization Reserve. SECTION 7. As specified in Section 2.28.080(a) of the Palo Al to Municipal Code, a two-thirds vote of the City Council is required to adopt this ordinance. SECTION 8. As provided in Section 2.04.330 of the Palo Alto Municipal Code, this ordinance shall become effective upon adoption. -------------=~====-=---;:::-------=::-;---~-~;-:;---=--:-;----=-;-:--~;--:::------;;------=-~---;------.----;::-;------------SECTION 9. The Council of the City of Palo Alto hereby finds that this project is categorically exempt from the provisions of the California Environmental Quality Act (CEQA) under Section 15301 of the CEQA Guidelines as repair, maintenance and/or minor al teration of existing facilities and no further environmental review is necessary. INTRODUCED AND PASSED: AYES: NOES: ABSTENTIONS: ABSENT: ATTEST: APPROVED: City Clerk Mayor APPROVED AS TO FORM: City Manager Senior Asst. City Attorney Director of Public Works Director of Administrative Services SECTION 1. CONSTRUCTION CONTRACT TABLE OF CONTENTS INCORPORATION OF RECITALS AND DEFINITIONS .................................... 1 1.1 Recitals ................................................................................................................................ 1 1.2 Definitions ........................................................................................................................... 1 SECTION 2. THE PROJECT ................................................................................................... 1 SECTION 3. THE CONTRACT DOCUMENTS ....................................................................... 1 LIST OF DOCUMENTS .................................................................................................................... 1 3.2 ORDER OF PRECEDENCE ............................................................................... 2 SECTION 4. THE WORK ........................................................................................................ 2 SECTION 5. PROJECT TEAM ................................................................................................ 2 SECTION 6. TIME OF COMPLETION .................................................................................... 3 6.1 Time Is of Essence ............................................................................................................. 3 6.2 Commencement of Work ................................................................................................... 3 6.3 Contract Time ..................................................................................................................... 3 6.4 Liquidated Damages ........................................................................................................... 3 6.4.1 Entitlement. ...................... : ........................................................................................... 3 6.4.2 Daily Amount ............................................................................................................... 3 6.4.3 Exclusive Remedy ....................................................................................................... 3 6.4.4 Other Remedies .......................................................................................................... 3 6.5 Adjustments to Contract Time .......................................................................................... 3 SECTION 7. COMPENSATION TO CONTRACTOR .............................................................. 4 7.1 Contract Sum ...................................................................................................................... 4 7.2 Full Compensation ............................................................................................................. 4 7.3 Compensation for Extra or Deleted Work ........................................................................ 4 7.3.1 Self Performed Work ................................................................................................... 4 7.3.2 Subcontractors ............................................................................................................ 4 Rev. August 3,2010 Contract C11138544 Bay Pacific Pipeline.DOC SECTION 8. STANDARD OF CARE ....................................................................................... 4 SECTION 9. INDEMNIFiCATION ............................................................................................ 5 9.1 Hold Harmless .................................................................................................................... 5 9.2 Survival ............................................................................................................................... 5 SECTION 10 NONDISCRIMINATION ...................................................................................... 5 SECTION 11. INSURANCE AND BONDS ................................................................................ 5 SECTION 12. PROHIBITION AGAINST TRANSFERS ............................................................ 5 SECTION 13. NOTiCES ............................................................................................................ 6 13.1 Method of Notice ................................................................................................................ 6 13.2 Notice Recipients ............................................................................................................... 6 13.3 Change of Address ............................................................................................................ 7 14.1 Resolution of Contract Disputes ...................................................................................... 7 14.2 ·Resolution of Other Disputes ........................................................................................... 7 14.2.1 Non-Contract Disputes ................................................................................................ 7 14.2.2 Litigation, City Election ................................................................................................. 7 14.3 Submission of Contract Dispute ...................................................................................... 8 14.3.1 By Contractor ............................................................................................................... 8 14.3.2 By City .......................................................................................................................... 8 14.4 Contract Dispute Resolution Process .............................................................................. 8 14.4.1 Direct Negotiations ...................................................................................................... 8 14.4.2 Deferral of Contract Disputes .................. : .................................................................... 9 14.4.3 Mediation ..................................................................................................................... 9 14.4.4 Binding Arbitration ....................................................................................................... 9 14.5 Non-Waiver ....................................................................................................................... 10 SECTION 15. DEFAULT ......................................................................................................... 11 15.1 Notice of Default ............................................................................................................... 11 15.2 Opportunity to Cure Default ............................................................................................ 11 SECTION 16. CITY'S RIGHTS AND REMEDIES ................................................................... 11 16.1 Remedies Upon Default ................................................................................................... 11 16.1 .1 Delete Certain Services ............................................................................................. 11 16.1.2 Perform and Withhold ................................................................................................ 11 ii Rev. August 3, 2010 Contract C11138544 Bay Pacific Pipeline. DOC Suspend The Construction Contract ......................................................................... 11 16.1.3 16.1.4 16.1.5 16.1.6 Terminate the Construction Contract for Default.. ..................................................... 11 Invoke the Performance Bond ................................................................................... 11 Additional Provisions ................................................................................................. 12 16.2 Delays by Sureties ........................................................................................................... 12 16.3 Damages to City ............................................................................................................... 12 16.3.1 For Contractor's Default ............................................................................................ 12 16.3.2 Compensation for Losses .......................................................................................... 12 16.5 Suspension by City for Convenience ............................................................................. 12 16.6 Termination Without Cause ............................................................................................ 13 16.6.1 Compensation ........................................................................................................... 13 16.6.2 Subcontractors .......................................................................................................... 13 16.7 Contractor's Duties Upon Termination .......................................................................... 13 SECTION 17. CONTRACTOR'S RIGHTS AND REMEDIES .................................................. 14 17.1 Contractor's Remedies .................................................................................................... 14 --------------.-=-;~ ---------17.1.1 For Work Stoppage ................................................................................................... 14 17.1.2. For City's Non-Payment.. ........................................................................................... 14 17.2 Damages to Contractor ................................................................................................... 14 SECTION 18. ACCOUNTING RECORDS ............................................................................... 14 18.1 Financial Management and City Access ........................................................................ 14 18.2 Compliance with City Requests ...................................................................................... 14 SECTION 19. INDEPENDENT PARTIES .................................................................. , .............. 14 SECTION 20. NUISANCE .......................................................... :: ........................................... 15 SECTION 21. PERMITS AND LICENSES .............................................................................. 15 SECTION 22. WAiVER ............................................................................................................ 15 SECTION 23 GOVERNING LAW ........................................................................................... 15 SECTION 24 COMPLETE AGREEMENT .............................................................................. 15 SECTION 25 SURVIVAL OF CONTRACT ............................................................................. 15 SECTION 26 PREVAILING WAGES ...................................................................................... 15 iii Rev, August 3, 2010 Contract C11138544 Bay Pacific Pipeline DOC SECTION 27 SECTION 28 SECTION 29 SECTION 30 NON APPROPRIATION ................................................................................... 16 GOVERNMENTAL POWERS .......................................................................... 16 ATTORNEY FEES ............................................................................................ 16 SEVERABILITY ................................................................................................ 16 iv Rev. August 3, 2010 Contract C11138544 Bay Pacific Pipeline. DOC CONSTRUCTION CONTRACT THIS CONSTRUCTION CONTRACT entered into on ("Execution Date") by and between the CITY OF PALO ALTO, a California chartered municipal corporation ("City"), and BAY PACIFIC PIPELINE, INC. ("Contractor"), is made with reference to the following: REC ITALS: A. City is a municipal corporation duly organized and validly existing under the laws of the State of California with the power to carry on its business as it is now being conducted under the statutes of the State of California and the Charter of City. B. Contractor is a corporation duly organized and in good standing in the State of California, Contractor's License Number 524020. Contractor represents that it is duly licensed by the State of California and has the background, knowledge, experience and expertise to perform the obligations set forth in this Construction Contract. C. On October 19, 2010, City issued an Invitation for Bids (IFB) to contractors for the Channing Avenue Storm Drain Improvements ("Projecf'). In response to the IFB, Contractor submitted a bid. D. City and Contractor desire to enter into this Construction Contract for the Project, and other services as identified in the Bid Documents for the Project upon the following terms and --------c ... o~naitions. ----.-- NOW THEREFORE, in consideration of the mutual promises and undertakings hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is mutually agreed by and between the undersigned parties as follows: SECTION 1 INCORPORATION OF RECITALS AND DEFINITIONS. 1.1 Recitals. All of the recitals are incorporated herein by reference. 1.2 Definitions. Capitalized terms shall have the meanings set forth in this Construction Contract and/or in the General Conditions. If there is a conflict between the definitions in this Construction Contract and in the General Conditions, the definitions in this Construction Contract shall prevail. . . SECTION 2 THE PROJECT. The Project is the construction of the Channing Avenue Storm Drain Improvements ("Project"). SECTION 3 THE CONTRACT DOCUMENTS. 3.1 List of Documents. The Contract Documents (sometimes collectively referred to as "Agreement" or "Bid Documents") consist of the following documents which are on file with the Purchasing Division and are hereby incorporated by reference. 1) Change Orders 2) Field Change Orders 3) Contract 4) Project Plans and Drawings 1 Rev.August3,2010 Contract C11138544 Bay Pacific Pipeline. DOC 5) Technical Specifications 6) Special Provisions 7) Notice Inviting Bids 8) Instructions to Bidders 9) General Conditions 10) Bidding Addenda 11) Invitation for Bids 12) Contractor's Bid/Non-Collusion Affidavit 13) Reports listed in the Bidding Documents 14) Public Works Department's Standard Drawings and Specifications dated 2007 and updated from time to time 15) Utilities Department's Water, Gas, Wastewater, Electric Utilities Standards dated 2005 and updated from time to time 16) City of Palo Alto Traffic Control Requirements 17) City of Palo Alto Truck Route Map and Regulations 18) Notice Inviting Pre-Qualification Statements, Pre-Qualification Statement, and Pre- Qualification Checklist (if applicable) 19) Performance and Payment Bonds 20) Insurance Forms 3.2 Order of Precedence. For the purposes of construing, interpreting and resolving inconsistencies between and among the provisions of this Contract, the Contract Documents shall have the order of precedence as set forth in the preceding section. If a claimed inconsistency cannot be resolved through the order of precedence, the City shall have the sole power to decide which document or provision shall govern as may be in the best interests of the City. SECTION 4 THE WORK. The Work includes all labor, materials, equipment, services, permits, fees, licenses and taxes, and all other things necessary for Contractor to perform its obligations and complete the Project, including, without limitation, any Changes approved by City, in accordance with the Contract Documents and all Applicable Code Requirements. SECTION 5 PROJECT TEAM. In addition to Contractor, City has retained, or may retain, consultants and contractors to provide professional and technical consultation for the design and construction of the Project. The Project requires that Contractor operate efficiently, effectively and cooperatively with City as well as all other members of the Project Team and other contractors retained by City to construct other portions of the Project. 2 Rev. August 3, 2010 Contract C11138544 Bay Pacific PipelineDOC SECTION 6 TIME OF COMPLETION. 6.1 Time Is of Essence. Time is of the essence with respect to all time limits set forth in the Contract Documents. 6.2 Commencement of Work. Contractor shall commence the Work on the date specified in City's Notice to Proceed. 6.3 Contract Time. Work hereunder shall begin on the date specified on the City's Notice to Proceed and shall be completed D not later than ~ within one hundred and fifty (150) calendar days after the commencement date specified in City's Notice to Proceed. 6.4 Liquidated Damages. 6.4.1 Entitlement. City and Contractor acknowledge and agree that if Contractor fails to fully and satisfactorily complete the Work within the Contract Time, City will suffer, as a result of Contractor's failure, substantial damages which are both extremely difficult and impracticable to ascertain. Such damages may include, but are not limited to: (i) Loss of public confidence in City and its contractors and consultants. --------------(ii)--boss-of-J)ublie-use-of-J)ublie-faGilities~. -------------- - --------- 6.4.2 6.4.3 6.4.4 (iii) Extended disruption to public. Daily Amount. City and Contractor have reasonably endeavored, but failed, to ascertain the actual damage that City will incur if Contractor fails to achieve Substantial Completion of the entire Work within the Contract Time. Therefore, the parties agree that in addition to all other damages to which City may be entitled other than delay damages, in the event Contractor shall fail to achieve Substantial Completion of the entire Work within the Contract Time, Contractor shall pay City as liquidated damages the amount of $500 per day for each Day occurring after the expiration of the Contract Time until Contractor achieves Substantial Completion of the entire Work. The liquidated damages amount is not a penalty but considered to be a reasonable estimate of the amount of damages City will suffer by delay in completion of the Work. Exclusive Remedy. City and Contractor acknowledge and agree that this liquidated damages provision shall be City's only remedy for delay damages caused by Contractor's failure to achieve Substantial Completion of the entire Work within the Contract Time. Other Remedies. City is entitled to any and all available legal and equitable remedies City may have where City's Losses are caused by any reason other than Contractor's failure to achieve Substantial Completion of the entire Work within the Contract Time. 6.5 Adjustments to Contract Time. The Contract Time may only be adjusted for time extensions approved by City and agreed to by Change Order executed by City and Contractor in accordance with the requirements of the Contract Documents. 3 Rev. August 3, 2010 Contract C11138544 Bay Pacific PipelineDOC SECTION 7 COMPENSATION TO CONTRACTOR. 7.1 Contract Sum. Contractor shall be compensated for satisfactory completion of the Work in compliance with the Contract Documents the Contract Sum of One Million Six Hundred Sixty-eight Thousand Six Hundred Fifty-two Dollars ($1,668,652.00). ~ [This amount includes the Base Bid and Add Alternates 1 and 2.] 7.2 Full Compensation. The Contract Sum shall be full compensation to Contractor for all Work provided by Contractor and; except as otherwise ex·pressly permitted by the terms of the Contract Documents, shall cover all Losses arising out of the nature of the Work or from the acts of the elements or any unforeseen difficulties or obstructions which may arise or be encountered in performance of the Work until its Acceptance by City, all risks connected with the Work, and any and all expenses incurred due to suspension or discontinuance of the Work. The Contract Sum may only be adjusted for Change Orders issued, executed and satisfactorily performed in accordance with the requirements of the Contract Documents. 7.3 Compensation for Extra or Deleted Work. The Contract Sum shall be adjusted (either by addition or credit) for Changes in the Work involving Extra Work or Deleted Work based on one or more of the following methods to be selected by City: 1. Unit prices stated in the Contract Documents or agreed upon by City and Contractor, -------------'whiel"l-unit--priees-shall-be-deemed-to -include-Gontractor-Markup--and----- Subcontractor/Sub-subcontractor Markups permitted by this Section. 2. A lump sum agreed upon by City and Contractor, based on the estimated Allowable Costs and Contractor Markup and Subcontractor Markup computed in accordance with this Section. 3. Contractor's Allowable Costs, plus Contractor Markup and Subcontractor Markups applicable to such Extra Work computed in accordance with this Section. Contractor Markup and Subcontractor/Sub-subcontractor Markups set forth herein are the full amount of compensation to be added for Extra Work or to be subtracted for Deleted Work that is attributable to overhead (direct and indirect) and profit of Contractor and of its Subcontractors and Sub-subcontractors, of every Tier. When using this payment methodology, Contractor Markup and Subcontractor/Sub-subcontractor Markups, which shall not be compounded, shall be computed as follows: 7.3.1 Markup Self-Performed Work. 10% of the Allowable Costs for that portion of the Extra Work or Deleted Work to be performed by Contractor with its own forces. 7.3.2 Markup for Work Performed by Subcontractors. 15% of the Allowable Costs for that portion of the Extra Work or Deleted Work to be performed by a first Tier Subcontractor. SECTION 8 STANDARD OF CARE. Contractor agrees that the Work shall be performed by qualified, experienced and well-supervised personnel. All services performed in connection with this Construction Contract shall be performed in a manner consistent with the standard of care under California law applicable to those who specialize in providing such services for projects of the type, scope and complexity of the Project. 4 Rev. August 3, 2010 Contract C11138544 Bay Pacific Pipeline DOC SECTION 9 INDEMNIFICATION. 9.1 Hold Harmless. To the fullest extent allowed by law, Contractor will defend, indemnify, and hold harmless City, its City Council, boards and commissions, officers, agents, employees, representatives and volunteers (hereinafter collectively referred to as "Indemnitees"), through legal counsel acceptable to City, from and against any and all Losses arising directly or indirectly from, or in any manner relating to any of, the following: (i) Performance or nonperformance of the Work by Contractor or its Subcontractors or Sub-subcontractors, of any tier; (ii) Performance or nonperformance by Contractor or its Subcontractors or Sub- subcontractors of any tier, of any of the obligations under the Contract Documents; (iii) The construction activities of Contractor or its Subcontractors or Sub-subcontractors, of any tier, either on the Site or on other properties; (iv) The payment or nonpayment by Contractor to any of its employees, Subcontractors or Sub-subcontractors of any tier, for Work performed on or off the Site for the Project; and (v) Any personal injury, property damage or economic loss to third persons associated with the performance or nonperformance by Contractor or its Subcontractors or Sub- subcontractors of any tier, of the Work. However, nothing herein shall obligate Contractor to indemnify any Indemnitee for Losses ______ ~re~s~u~lt~in:glLQmjbe-sole-OLacii'Le-DegLigenc_e~Lwillfulmisc-Qnducl of the Indemnitee. ContractoL _____ _ shall pay City for any costs City incurs to enforce this provision. Nothing in the Contract Documents shall be construed to give rise to any implied right of indemnity in favor of Contractor against City or any other Indemnitee. 9.2 Survival. The provisions of Section 9 shall survive the termination of this Construction Contract. SECTION 10 NONDISCRIMINATION. As set forth in Palo Alto Municipal Code section 2.30.510, Contractor certifies that in the performance of this Agreement, it shall not discriminate in the employment of any person because of the race, skin color, gender, age, religion, disability, national origin, ancestry, sexual orientation, housing status, marital status, familial status, weight or height of such person. Contractor acknowledges that it has read and understands the provisions of Section 2.30.510 of the Palo Alto Municipal Code relating to Nondiscrimination Requirements and the penalties for violation thereof, and will comply with all requirements of Section 2.30.510 pertaining to nondiscrimination in employment. SECTION 11 INSURANCE AND BONDS. On or before the Execution Date, Contractor shall provide City with evidence that it has obtained insurance and Performance and Payment Bonds satisfying all requirements in Article 11 of the General Conditions. Failure to do so shall be deemed a material breach of this Construction Contract. SECTION 12 PROHIBITION AGAINST TRANSFERS. City is entering into this Construction Contract based upon the stated experience and qualifications of the Contractor and its subcontractors set forth in Contractor's Bid. Accordingly, Contractor shall not assign, hypothecate or transfer this Construction Contract or any interest therein directly or indirectly, by operation of law or otherwise without the prior written consent of City. Any assignment, hypothecation or transfer without said consent shall be null and void. The sale, assignment, transfer or other disposition of any of the issued and outstanding capital stock of Contractor or of any general partner or joint venturer or syndicate member of Contractor, if the Contractor is a partnership or joint venture or syndicate or co-tenancy shall result in changing the 5 Rev. August 3, 2010 Contract C11138544 Bay Pacific Pipeline DOC control of Contractor, shall be construed as an assignment of this Construction Contract. Control means more than fifty percent (50%) of the voting power of the corporation or other entity. SECTION 13 NOTICES. 13.1 Method of Notice. All notices, demands, requests or approvals to be given under this Construction Contract shall be given in writing and shall be deemed served on the earlier of the following: (i) On the date delivered if delivered personally; (ii) On the third business day after the deposit thereof in the United States mail, postage prepaid, and addressed as hereinafter provided; (iii) On the date sent if sent by facsimile transmission; (iv) On the date sent if delivered by electronic mail; or (iv) On the date it is accepted or rejected if sent by certified mail. 13.2 Notice Recipients. All notices, demands or requests (including, without limitation, Claims) from Contractor to City shall include the Project name and the number of this Construction Contract and shall be addressed to City at: To City: City of Palo Alto _________________ City_Clerk, ________ ~---- Copyto:~ 250 Hamilton Avenue P.O. Box 10250 Palo Alto, CA 94303 City of Palo Alto Public Works Engineering 250 Hamilton Avenue Palo Alto, CA 94301 Attn: Joe Teresi Or D City of Palo Alto Utilities Engi~eering 250 Hamilton Avenue Palo Alto, CA 94301 Attn: In addition, copies of all Claims by Contractor under this Construction Contract shall be provided to the following: Palo Alto City Attorney's Office 250 Hamilton Avenue P.O. Box 10250 Palo Alto, California 94303 All Claims shall be delivered personally or sent by certified mail. 6 Contract C11138544 Bay Pacific Pipeline.DOC Rev. August 3, 2010 All notices, demands, requests or approvals from City to Contractor shall be addressed to: Bay Pacific Pipeline, Inc. P.O. Box 1162 Novato, CA 94948 Attn: Eugene Carew 13.3 Change of Address. In the event of any change of address, the moving party shall notify the other party of the change of address in writing. Each party may, by written notice only, add, delete or replace any individuals to whom and addresses to which notice shall be provided. SECTION 14 DISPUTE RESOLUTION. 14.1 Resolution of Contract Disputes. Contract Disputes shall be resolved by the parties in accordance with the provisions of this Section 14, in lieu of any and all rights under the law that either party have its rights adjudged by a trial court or jury. All Contract Disputes shall be subject to the Contract Dispute Resolution Process set forth in this Section 14, which shall be the exclusive recourse of Contractor and City for such Contract Disputes. 14.2 Resolution of Other Disputes. 14.2.1 Non-Contract Disputes. Contract Disputes shall not include any of the following: (i) Penalties or forfeitures prescribed by statute or regulation imposed by a governmental agency; (ii) Third party tort claims for personal injury, property damage or death relating to any Work performed by Contractor or its Subcontractors or Sub- subcontractors of any tier; (iii) False claims liability under California Government Code Section 12650, et. seq.; (iv) Defects in the Work first discovered by City after Final Payment by City to Contractor; (v) Stop notices; or (vi) The right of City to specific performance or injunctive relief to compel performance of any provision of the Contract Documents. 14.2.2 Litigation, City Election. Matters that do not constitute Contract Disputes shall be resolved by way of an action filed in the Superior Court of the State of California, County of Santa Clara, and shall not be subject to the Contract Dispute Resolution Process. However, the City reserves the right, in its sole and absolute discretion, to treat such disputes as Contract Disputes. Upon written notice by City of its election as provided in the preceding sentence, such dispute shall be submitted by the parties and finally decided pursuant to the Contract Dispute Resolution Process in the manner as required for Contract Disputes, including, without limitation, City's right under Paragraph 14.4.2 to defer resolution and final determination until after Final Completion of the Work. 7 Rev. August 3, 2010 Contract C11138544 Bay Pacific Pipeline. DOC 14.3 Submission of Contract Dispute. 14.3.1 By Contractor. Contractors may commence the Contract Dispute Resolution Process upon City's written response denying all or part of a Claim pursuant to Paragraph 4.2.9 or 4.2.1 0 of the General Conditions. Contractor shall submit a written Statement of Contract Dispute (as set forth below) to City within seven (7) Days after City rejects all or a portion of Contractor's Claim. Failure by Contractor to submit its Statement of Contract Dispute in a timely manner shall result in City's decision by City on the Claim becoming final and binding. Contractor's Statement of Contract Dispute shall be signed under penalty of perjury and shall state with specificity the events or circumstances giving rise to the Contract Dispute, the dates of their occurrence and the asserted effect on the Contract Sum and the Contract Time. The Statement of Contract Dispute shall include adequate supporting data to substantiate the disputed Claim. Adequate supporting data for a Contract Dispute relating to an adjustment of the Contract Time shall include both of the following: (i) All of the scheduling data required to be submitted by Contractor under the Contract Documents to obtain extensions of time and adjustments to the Contract Time and (ii) A detailed, event-by-event description of the impact of each event on completion of Work. Adequate data to support a Statement of Contract Dispute involving an adjustment of the Contract Sum must include both of the ________ ~ ___ following:------------------------ (a) A detailed cost breakdown and (b) Supporting cost data in such form and including such information and other supporting data as required under the Contract Documents for submission of Change Order Requests and Claims. 14.3.2 By City. City's right to commence the Contract Dispute Resolution Process shall arise at any time following City's actual discovery of the circumstances giving rise to the Contract Dispute. City asserts Contract Disputes in response to a Contract Dispute asserted by Contractor. A Statement of Contract Dispute submitted by City shall state the events or circumstances giving rise to the Contract Dispute, the dates of their occurrence and the damages or other relief claimed by City as a result of such events. 14.4 Contract Dispute Resolution Process. . The parties shall utilize each of the following steps in the Contract Dispute Resolution Process in the sequence they appear below. Each party shall participate fully and in good faith in each step in the Contract Dispute Resolution Process, and good faith effort shall be a condition precedent to the right of each party to proceed to the next step in the process. 14.4.1 Direct Negotiations. Designated representatives of City and Contractor shall meet as soon as possible (but not later than ten (10) Days after receipt of the Statement of Contract Dispute) in a good faith effort to negotiate a resolution to the Contract Dispute. Each party shall be represented in such negotiations by an authorized represen.tative with full knowledge of the details of the Claims or defenses being asserted by such party in the negotiations, and with full authority to resolve such Contract Dispute then and there, subject only to City's obligation to obtain administrative and/or City Council approval of any agreed settlement or resolution. If the Contract Dispute involves the assertion of a right or claim by a Subcontractor or Sub-subcontractor, of any tier, against Contractor that is in turn being asserted by Contractor against City ("Pass- Through Claim"), then the Subcontractor or Sub-Subcontractor shall also have a 8 Rev. August 3, 2010 Contract C11138544 Bay Pacific Pipeline.DOC representative attend the negotiations, with the same authority and knowledge as described above. Upon completion of the meeting, if the Contract Dispute is not resolved, the parties may either continue the negotiations or any party may declare negotiations ended. All discussions that occur during such negotiations and all documents prepared solely for the purpose of such negotiations shall be confidential and privileged pursuant to California Evidence Code Sections 1119 and 1152. 14.4.2 Deferral of Contract Disputes. 14.4.3 Following the completion of the negotiations required by Paragraph 14.4.1, all unresolved Contract Disputes shall be deferred pending Final Completion of the Project, subject to City's right, in its sole and absolute discretion, to require that the Contract Dispute Resolution Process proceed prior to Final Completion. All Contract Disputes that have been deferred until Final Completion shall be consolidated within a reasonable time after Final Completion and thereafter pursued to resolution pursuant to this Contract Dispute Resolution Process. The parties can continue informal negotiations of Contract Disputes; provided, however, that such informal negotiations shall not be alter the provisions of the Agreement deferring final determination and resolution of unresolved Contract Disputes until after Final Completion. Mediation. If the Contract Dispute remains unresolved after negotiations pursuant to Paragraph 14.4.1, the parties shall submit the Contract Dispute to non-binding mediation before ______________ a_mutuall~'-acceptablejhird-party-mediatol".----------------------- .1 Qualifications of Mediator. The parties shall endeavor to select a mediator who is a retired judge or an attorney with at least five (5) years of experience in public works construction contract law and in mediating public works construction disputes. In addition, the mediator shall have at least twenty (20) hours of formal training in mediation skills . . 2 Submission to Mediation and Selection of Mediator. The party initiating mediation of a Contract Dispute shall provide written notice to the other party of its decision to mediate. In the event the parties are unable to agree upon a mediator within fifteen (15) Days after the receipt of such written notice, then the parties shall submit the matter to the American Arbitration Association (AAA) at its San Francisco Regional Office for selection of a mediator in accordance with the AAA Construction Industry Mediation Rules . . ' .3 Mediation Process. The location of the mediation shall be at the offices of City. The costs of mediation shall be shared equally by both parties. The mediator shall provide an independent assessment on the merits of the Contract Dispute and recommendations for resolution. All discussions that occur during the mediation and all documents prepared solely for the purpose of the mediation shall be confidential and privileged pursuant to California Evidence Code Sections 1119 and 1152. 14.4.4 Binding Arbitration. If the Contract Dispute is not resolved by mediation, then any party may submit the Contract Dispute for final and binding arbitration pursuant to the provisions of California Public Contract Code Sections 10240, et seq. The award of the arbitrator therein shall be final and may be entered as a judgment by any court of competent jurisdiction. Such arbitration shall be conducted in accordance with the following: .1 Arbitration Initiation. The arbitration shall be initiated by filing a complaint in arbitration in accordance with the regulations promulgated pursuant to California Public Contract Code Section 10240.5. 9 Rev.August3,2010 Contract C11138544 Bay Pacific Pipeline DOC .2 Qualifications of the Arbitrator. The arbitrator shall be approved by all parties. The arbitrator shall be a retired judge or an attorney with at least five (5) years of experience in public works construction contract law and in arbitrating public works construction disputes. In addition, the arbitrator shall have at least twenty (20) hours of formal training in arbitration skills. In the event the parties cannot agree upon an arbitrator, the provisions of California Public Contract Code Section 10240.3 shall be followed in selecting an arbitrator possessing the qualifications required herein . . 3 Hearing Days and Location. Arbitration hearings shall be held at the offices of City and shall, except for good cause shown to and determined by the arbitrator, be conducted on consecutive business days, without interruption or continuance . . 4 Hearing Delays. Arbitration hearings shall not be delayed except upon good cause shown . . 5 Recording Hearings. All hearings to receive evidence shall be recorded by a certified stenographic reporter, with the costs thereof borne equally by City and Contractor and allocated by the arbitrator in the final award . . 6 Limitation of Depositions. The parties may conduct discovery in -----------------accordance-with-the-provisions-of-section-10240.-1-LoLthe-l::lublic-ContracL -______ _ Code; provided, however, that depositions shall be limited to both of the following: (i) Ten (10) percipient witnesses for each party and 5 expert witnesses per party. Upon a showing of good cause, the arbitrator may increase the number of permitted depositions. An individual who is both percipient and expert shall, for purposes of applying the foregoing numerical limitation only, be deemed an expert. Expert reports shall be exchanged prior to receipt of evidence, in accordance with the direction of the arbitrator, and expert reports (including initial and rebuttal reports) not so submitted shall not be admissible as evidence . . 7 Authority of the Arbitrator. The arbitrator shall have the authority to hear dispositive motions and issue interim orders and interim or executory awards . . 8 Waiver of Jury Trial. Contractor and City each voluntarily waives its right to a jury trial with respect to any Contract Dispute that is subject to binding arbitration in accordance with the provisions of this Paragraph 14.4.4. Contractor shall include this provision in its contracts with its Subcontractors who provide any portion of the Work. 14.5 Non-Waiver. Participation in the Contract Dispute Resolution Process shall not waive, release or compromise any defense of City, including, without limitation, any defense based on the assertion that the rights or Claims of Contractor that are the basis of a Contract Dispute were previously waived by Contractor due to Contractor's failure to comply with the Contract Documents, including, without limitation, Contractor's failure to comply with any time periods for providing notice of requests for adjustments of the Contract Sum or Contract Time or for submission of Claims or supporting documentation of Claims. 10 Rev. August 3, 2010 Contract C11138544 Bay Pacific Pipeline.DOC SECTION 15 DEFAULT. 15.1 Notice of Default. In the event that City determines, in its sole discretion, that Contractor has failed or refused to perform any of the obligations set forth in the Contract Documents, or is in breach of any provision of the Contract Documents, City may give written notice of default to Contractor in the manner specified for the giving of notices in the Construction Contract. 15.2 Opportunity to Cure Default. Except for emergencies, Contractor shall cure any default in performance of its obligations under the Contract Documents within two (2) Days (or such shorter time as City may reasonably require) after receipt of written notice. However, if the breach cannot be reasonably cured within such time, Contractor will commence to cure the breach within two (2) Days (or such shorter time as City may reasonably require) and will diligently and continuously prosecute such cure to completion within a reasonable time, which shall in no event be later than ten (10) Days after receipt of such written notice. SECTION 16 CITY'S RIGHTS AND REMEDIES. 16.1 Remedies Upon Default. If Contractor fails to cure any default of this Construction Contract within the time period set forth above in Section 15, then City may pursue any remedies available under law or equity, -----------including,--without-Iimitation,--the-following: ----------- 16.1.1 Delete Certain Services. City may, without term inating the Construction Contract, delete certain portions of the Work, reserving to itself all rights to Losses related thereto. 16.1.2 Perform and Withhold. City may, without terminating the Construction Contract, engage others to perform the Work or portion of the Work that has not been adequately performed by Contractor and withhold the cost thereof to City from future payments to Contractor, reserving to itself all rights to Losses related thereto. 16.1.3 Suspend The Construction Contract. City may, without terminating the Construction Contract and reserving to itself all rights to Losses related thereto, suspend all or any portion of this Construction Contract for as long .8 period of time as City determines, in its sole discretion, .. appropriate, in which event City shall have no obligation to adjust the Contract Sum or Contract Time, and shall have no liability to Contractor for damages if City directs Contractor to resume Work. 16.1.4 Terminate the Construction Contract for Default. City shall have the right to terminate this Construction Contract, in whole or in part, upon the failure of Contractor to promptly cure any default as required by Section 15. City's election to terminate the Construction Contract for default shall be communicated by giving Contractor a written notice of termination in the manner specified for the giving of notices in the Construction Contract. Any notice of termination given to Contractor by City shall be effective immediately, unless otherwise provided therein. 16.1.5 Invoke the Performance Bond. City may, with or without terminating the Construction Contract and reserving to itself all rights to Losses related thereto, exercise its rights under the Performance Bond. 11 Rev.August3,2010 Contract C11138544 Bay Pacific Pipeline.DOC 16.2 16.1.6 Additional Provisions. All of City's rights and remedies under this Construction Contract are cumulative, and shall be in addition to those rights and remedies available in law or in equity. Designation in the Contract Documents of certain breaches as material shall not waive the City's authority to designate other breaches as material nor limit City's right to terminate the Construction Contract, or prevent the City from terminating the Agreement for breaches that are not material. City's determination of whether there has been noncompliance with the Construction Contract so as to warrant exercise by City of its rights and remedies for default under the Construction Contract, shall be binding on all parties. No termination or action taken by City after such termination shall prejudice any other rights or remedies of City provided by law or equity or by the Contract Documents upon such termination; and City may proceed against Contractor to recover all liquidated damages and Losses suffered by City. Delays by Sureties. Without limiting to any of City's other rights or remedies, City has the right to suspend the performance of the Work by Contractor's sureties in the event of any of the following: (i) The sureties' failure to begin Work within a reasonable time in such manner as to insure full compliance with the Construction Contract within the Contract Time; (ii) The sureties' abandonment of the Work; (iii) If at any time City is of the opinion the sureties' Work is unnecessarily or unreasonably delaying the Work; ----.. -------,(iv)--Ihe-sureties'-violation_otany_terms_ofJhe_Const[Uction_Cont[acl; __________ _ (v) The sureties' failure to perform according to the Contract Documents; or (vi) The sureties' failure to follow City's instructions for completion of the Work within the Contract Time. 16.3 Damages to City. 16.3.1 For Contractor's Default. City will be entitled to recovery of all Losses under law or equity in the event of Contractor's default under the Contract Documents. 16.3.2 Compensation for Losses. In the event that City's Losses arise from Contractor's default under the Contract Documents, City shall be entitled to withhold monies otherwise payable to Contractor until Final Completion of the Project. If City incurs Losses due to Contractor's default, then the amount of Losses shall be deducted from the amounts withheld. Should the amount withheld exceed the amount'deducted, the balance will be paid to Contractor or its designee upon Final Completion of the Project. If the Losses incurred by City exceed the amount withheld, Contractor shall be liable to City for the difference and shall promptly remit same to City. 16.4 Suspension by City for Convenience. City may, at any time and from time to time, without cause, order Contractor, in writing, to suspend, delay, or interrupt the Work in whole or in part for such period of time, up to an aggregate of fifty percent (50%) of the Contract Time. The order shall be specifically identified as a Suspension Order by City. Upon receipt of a Suspension Order, Contractor shall, at City's expense, comply with the order and take all reasonable steps to minimize costs allocable to the Work covered by the Suspension Order. During the Suspension or extension of the Suspension, if any, City shall either cancel the Suspension Order or, by Change Order, delete the Work covered by the Suspension Order. If a Suspension Order is canceled or expires, Contractor shall resume and continue with the Work. A Change Order will be issued to cover any adjustments of the Contract Sum or the Contract Time necessarily caused by such suspension. A Suspension Order shall not be the exclusive method for City to stop the Work. 12 Rev,August3,2010 Contract C11138544 Bay Pacific Pipeline.DOC 16.5 Termination Without Cause. City may, at its sole discretion and without cause, terminate this Construction Contract in part or in whole by giving thirty (30) Days written notice to Contractor. The compensation allowed under this Paragraph 16.5 shall be the Contractor's sole and exclusive compensation for such termination and Contractor waives any claim for other compensation or Losses, including, but not limited to, loss of anticipated profits, loss of revenue, lost opportunity, or other consequential, direct, indirect or incidental damages of any kind resulting from termination without cause. 16.5.1 Compensation. Following such termination and within forty-five (45) Days after receipt of a billing from Contractor seeking payment of sums authorized by this Paragraph 16.5, City shall pay the following to Contractor as Contractor's sole compensation for performance of the Work: .1 For Work Performed. The amount of the Contract Sum allocable to the portion of the Work properly performed by Contractor as of the date of termination, less sums previously paid to Contractor. .2 For Close-out Costs. Reasonable costs of Contractor and its Subcontractors and Sub-subcontractors for: (i) Demobilizing and ____________ (JJ) __ Administering_the_close"ouLoLits_par1icipatiorLin-the-ErojecL -------- (including, without limitation, all billing and accounting functions, not including attorney or expert fees) for a period of no longer than thirty (30) Days after receipt of the notice of termination . . 3 For Fabricated Items. Previously unpaid cost of any items delivered to the Project Site which were fabricated for subsequent incorporation in the Work. 16.5.2 Subcontractors. Contractor shall include provisions in all of its subcontracts, purchase orders and other contracts permitting termination for convenience by Contractor on terms that are consistent with this Construction Contract and that afford no greater rights of recovery against Contractor than are afforded to Contractor against City under this Section. 16.6 Contractor's Duties Upon Termination. Upon receipt of a notice of termination for default or for c,Onvenience, Contractor shall, unless the notice directs otherwise, do the following: (i) Immediately discontinue the Work to the extent specified in the notice; (ii) Place no further orders or subcontracts for materials, equipment, services or facilities, except as may be necessary for completion of such portion of the Work that is not discontinued; (iii) Provide to City a description, in writing no later than fifteen (15) days after receipt of the notice of termination, of all subcontracts, purchase orders and contracts that are outstanding, including, without limitation, the terms of the original price, any changes, payments, balance owing, the status of the portion of the Work covered and a copy of the subcontract, purchase order or contract and any written changes, amendments or modifications thereto, together with such other information as City may determine necessary in order to decide whether to accept assignment of or request Contractor to terminate the subcontract, purchase order or contract; (iv) Promptly assign to City those subcontracts, purchase orders or contracts, or portions thereof, that City elects to accept by assignment and cancel, on the most favorable terms reasonably possible, all subcontracts, purchase orders or contracts, or portions thereof, that City does not elect to accept by assignment; and (v) Thereafter do only such Work as may be necessary to preserve and protect Work already in progress and to protect materials, plants, and equipment on the Project Site or in transit thereto. 13 Rev. August 3, 2010 Contract C11138544 Bay Pacific Pipeline.DOC SECTION 17 CONTRACTOR'S RIGHTS AND REMEDIES. 17.1 Contractor's Remedies. Contractor may terminate this Construction Contract only upon the occurrence of one of the following: 17.1.1 For Work Stoppage. The Work is stopped for sixty (60) consecutive Days, through no act or fault of Contractor, any Subcontractor, or any employee or agent of Contractor or any Subcontractor, due to issuance of an order of a court or other public authority other than City having jurisdiction or due to an act of government, such as a declaration of a national emergency making material unavailable. This provision shall not apply to any work stoppage resulting from the City's issuance of a suspension notice issued either for cause or for convenience. 17.1.2 For City's Non-Payment. If City does not make pay Contractor undisputed sums within ninety (90) Days after receipt of notice from Contractor, Contractor may terminate the Construction Contract (30) days following a second notice to City of Contractor's intention to terminate the Construction Contract. --------'17'.2-Damages-to-Contractol'. ------------- In the event of termination for cause by Contractor, City shall pay Contractor the sums provided for in Paragraph 16.5.1 above. Contractor agrees to accept such sums as its sole and exclusive compensation and agrees to waive any claim for other compensation or Losses, including, but not limited to, loss of anticipated profits, loss of revenue, lost opportunity, or other consequential, direct, indirect and incidental damages, of any kind. SECTION 18 ACCOUNTING RECORDS. 18.1 Financial Management and City Access. Contractor shall keep full and detailed accounts and exercise such controls as may be necessary for proper financial management under this Construction Contract in accordance with generally accepted accounting principles and practices. City and City's accountants during normal business hours, may inspect, audit and copy Contractor's records, books, estimates, take-offs, cost reports, ledgers, schedules, correspondence, instructions, drawings, receipts,.subcontracts, purchase orders, vouchers, memoranda and other data relating to this Project. Contractor shall retain these documents for a period of three (3) years after the later of (i) final payment or (ii) final resolution of all Contract Disputes and other disputes, or (iii) for such longer period as may be required by law. 18.2 Compliance with City Requests. Contractor's compliance with any request by City pursuant to this Section 18 shall be a condition precedent to filing or maintenance of any legal action or proceeding by Contractor against City and to Contractor's right to receive further payments under the Contract Documents. City many enforce Contractor's obligation to provide access to City of its business and other records referred to in Section 18.1 for inspection or copying by issuance of a writ or a provisional or permanent mandatory injunction by a court of competent jurisdiction based on affidavits submitted to such court, without the necessity of oral testimony. SECTION 19 INDEPENDENT PARTIES. Each party is acting in its independent capacity and not as agents, employees, partners, or joint venturers of the other party. City, its officers or employees shall have no control over the conduct of Contractor or its respective agents, employees, subconsultants, or subcontractors, except as herein set forth. 14 Rev. August 3. 2010 Contract C11138544 Bay Pacific Pipeline.DOC SECTION 20 NUISANCE. Contractor shall not maintain, commit, nor permit the maintenance or commission of any nuisance in connection in the performance of services under this Construction Contract. SECTION 21 PERMITS AND LICENSES. Except as otherwise provided in the Special Provisions and Technical SpeCifications, The Contractor shall provide, procure and pay for all licenses, permits, and fees, required by the City or other government jurisdictions or agencies necessary to carry out and complete the Work. Payment of all costs and expenses for such licenses, permits, and fees shall be included in one or more Bid items. No other compensation shall be paid to the Contractor for these items or for delays caused by non-City inspectors or conditions set forth in the licenses or permits issued by other agencies. SECTION 22 WAIVER. A waiver by either party of any breach of any term, covenant, or condition contained herein shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant, or condition contained herein, whether of the same or a different character. SECTION 23 GOVERNING LAW. --------'T'his-Construction-Contract-shall-be-construed-in-accordance-with-and-governed-by-the-Iaws-of-the-------~- State of California. SECTION 24 COMPLETE AGREEMENT. This Agreement represents the entire and integrated agreement between the parties and supersedes all prior negotiations, representations, and contracts, either written or oral. This Agreement may be amended only by a written instrument, which is signed by the parties. SECTION 25 SURVIVAL OF CONTRACT. The provisions of the Construction Contract which by their nature survive termination of the Construction Contract or Final Completion, including, without limitation, all warranties, indemnities, payment obligations, and City's right to audit Contractor's books and records, shall remain in full force and effect after Final Completion or any termination of the Construction Contract. SECTION 26 PREVAILING WAGES. [gI This Project is not subject to prevailing wages. The Contractor is not required to pay prevailing wages in the performance and implementation of the Project, because the City, pursuant to its authority as a chartered city, has adopted Resolution No. 5981 exempting the City from prevailing wages. The City invokes the exemption from the state prevailing wage requirement for this Project and declares that the Project is funded one hundred percent (100%) by the City of Palo Alto. Or D The Contractor is required to pay general prevailing wages as defined in Subchapter 3, Title 8 of the California Code of Regulations and Section 16000 et seq. and Section 1773.1 of the California Labor Code. Pursuant to the provisions of Section 1773 of the Labor Code of the State of California, the City Council has obtained the general prevailing rate of per diem wages and the general rate for holiday and overtime work in this locality for each craft, classification, or type of worker needed to execute the contract for this Project from the Director of the Department of Industrial Relations. Copies of these rates may be obtained at cost at the Purchasing office of the City of Palo Alto. Contractor shall provide a copy of prevailing wage rates to any staff or subcontractor hired, and shall pay the adopted prevailing wage rates as a minimum. Contractor shall comply with the provisions of Sections 1775, 1776, 15 Rev.August3,2010 Contract C11138544 Bay Pacific Pipeline.DOC 1777.5,1810, and 1813 of the Labor Code. SECTION 27 NON APPROPRIATION. This Agreement is subject to the fiscal provisions of the Charter of the City of Palo Alto and the Palo Alto Municipal Code. This Agreement will terminate without any penalty (a) at the end of any fiscal year in the event that the City does not appropriate funds for the following fiscal year for this event, or (b) at any time within a fiscal year in the event that funds are only appropriated for a portion of the fiscal year and funds for this Construction Contract are no longer available. This section shall take precedence in the event of a conflict with any other covenant, term, condition, or provision of this Agreement. SECTION 28 AUTHORITY. The individuals executing this Agreement represent and warrant that they have the legal capacity and authority to do so on behalf of their respective legal entities. SECTION 29 ATTORNEY FEES. Each Party shall bear its own costs, including attorney's fees through the completion of mediation. If the claim or dispute is not resolved through mediation and in any dispute described in Paragraph 14.2, the prevailing party in any action brought to enforce the provision of this Agreement may recover its reasonable costs and attorney's fees expended in connection with that action. The prevailing party ---------shaILbe-entitled-to-recover-an-amounLequaUo-the-fair-markeLvalue-ofJegaLsentices-pl'Ovided-by------ ---- attorneys employed by it as well as any attorney's' fees paid to third parties. SECTION 30 SEVERABILITY. In case a provision of this Construction Contract is held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not be affected. 16 Rev.August3,2010 Contract C11138544 Bay Pacific Pipeline.DOC IN WITNESS WHEREOF, the parties have caused this Construction Contract to be executed the date and year first above written. CITY OF PALO ALTO ~ Purchasing Manager D City Manager APPROVED AS TO FORM: Senior Asst. City Attorney ----~---------- APPROVED: Public Works Director Contract C11138544 Bay Pacific Pipeline.DOC 17 CONTRACTOR: BAY PACIFIC PIPELINE, INC. By:, ______________________ __ Name: ________________________ _ Title: ____________ _ ---------------- Rev. August 3, 2010 TO: HONORABLE CITY COUNCIL FROM: CITY MANAGER DEPARTMENT: UTILITIES DATE: JANUARY 10, 2011 CMR: 106:11 REPORT TYPE: CONSENT SUBJECT: Finance Committee Recommendation to Adopt a Resolution Approving the Proposed Gas Utility Long-term Plan (GULP) Objectives, Strategies, and Implementation Plan RECOMMENDATION Staff, the Utilities Advisory Commission, and the Finance Committee recommend that the Council adopt a resolution approving the proposed Gas Utility Long-term Plan Objectives, Strategies, and Implementation Plan. SUMMARY The proposed set of GULP Objectives and Strategies have a focus on balancing environmental and economic sustainability. At its meetings on September 1, 2010 and October 6, 2010 the UAC recommended Council approval of the proposed GULP Objectives and Strategies and the associated Implementation Plan (Attachment A). On December 7, 2010, the Finance Committee voted to recommend Council approve the GULP Objectives, Strategies, and Implementation Plan. In parallel with the GULP revision, staff is developing a new Utilities Strategic Plan. Ultimately, GULP will be aligned with the Utilities Strategic Plan to ensure that the GULP Objectives are consistent with the vision, goals, and strategic objectives of the Utilities Department and, thus, further revisions to GULP may be required after the Utilities Strategic Plan is completed. COMMITTEE REVIEW AND RECOMMENDATIONS Staff presented the proposed GULP Objectives, Strategies, and Implementation Plan to the Finance Committee on November 16, 2010. After discussion and requests for additional information, the Finance Committee voted to request that staff return to the Finance Committee with a revised report providing more detail and clarity on several points. In addition, the committee wanted the gas purchasing strategy known as the “laddering strategy” to be reviewed by the Utilities Advisory Commission (UAC) for further study and for staff to return to the Finance Committee with the results of the review including any suggestions to change the laddering strategy. Staff returned to the Finance Committee on December 7, 2010 with a revised report that was responsive to the questions and comments provided by the Committee at its November 16, 2010 CMR: 106:11 Page 1 of 2 meeting. Staff provided a brief explanation of the changes in the report compared to the November 16,2010 version. In addition, staff noted that it added a new task (Task #2) in the GULP Implementation to review the gas laddering strategy with the UAC and potentially make changes to the strategy. The Finance Committee voted unanimously to recommend that the City Council approve the revised, proposed GULP Objectives, Strategies, and Implementation Plan. Draft notes from the Financo Committee's December 7, 2010 are provided as Attachment C. RESOURCE IMPACT There is no direct resource impact as a result of the proposed changes to the GULP Objectives and Guidelines. Implementation of various programs that meet the Objective and Strategies will be brought to Council for approval and may have a resource impact at that timc. POLICY IMPLICATIONS lbe proposed GULP Objectives, Strategies and Implementation Plan support the Council- approved Utilities Strategic Plan, Energy Risk Management Policies, and Comprehensive Plan Goal N-9 (a clean, efficient, competitively-prieed energy supply that makes use of cost-effective renewable resources). ENVIRONMENTAL REVIEW Adoption of the resolution approving the GULP Objectives, Strategies and Implementation Plan does not constitute a project for the purposes of the California Environmental Quality Act. ATTACHMENTS A: Resolution B: CMR: 432:10 Utilities Advisory Commission Recommendation to Approve the Proposed Gas Utility Long-term Plan (GULP) Objectives, Strategies and Implementation Plan C: Excepted Draft Minutes of the Finanee Committee meeting of November 16, 2010 D: Excerpted Draft Minutes of the Finance Committee meeting of Deeember 7, 2010 \ts>KARLA DAILEY Senior Resouree Planner PREPARED BY: REVIEWED BY: ~NERATCHYE V Assistant Director, Resource Management DEPARTMENT APPROVAL: Director 0 Utilities CITY MANAGER APPROVAL: CMR: 106:11 Page2of2 Not Yet Approved 1 110104 syn 6051499 Resolution No. ______ Resolution of the Council of the City of Palo Alto Approving the Gas Utility Long-term Plan (GULP) Objectives, Strategies, And Implementation Plan WHEREAS, the Gas Utility Long-term Plan is a strategic planning document focused on how the City of Palo Alto’s Utilities Department (CPAU) can successfully balance environmental and economic sustainability as it provides natural gas service to CPAU customers; and WHEREAS, staff presented the Gas Utility Long-term Plan to the UAC at its September 1, 2010 meeting, and the UAC voted 7 to 0 to recommend that the City Council approve the Gas Utility Long-term Plan (GULP) Objectives, Strategies, and Implementation Plan; and WHEREAS, staff presented the Gas Utility Long-term Plan to the Finance Committee at its December 7, 2010 meeting, and the Finance Committee voted 4 to 0 (with Councilmember Larry Klein absent) to recommend that the City Council approve the Gas Utility Long-term Plan (GULP) Objectives, Strategies, and Implementation Plan. NOW, THEREFORE, the Council of the City of Palo Alto does hereby RESOLVE as follows: SECTION 1. The Council hereby adopts the resolution approving the Gas Utility Long-term Plan (GULP) Objectives, Strategies, and Implementation Plan. SECTION 2. The Council finds that any revenue derived from the authorized adoption enumerated herein shall be used only for the purpose set forth in Article VII, Section 2, of the Charter of the City of Palo Alto. / / / / / / / / / / / / / / Not Yet Approved 2 110104 syn 6051499 SECTION 3. The Council finds that the adoption of this resolution does not constitute a project under Section 21065 of the California Environmental Quality Act (CEQA) and the CEQA Guidelines, and therefore, no environmental assessment is required. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ___________________________ ___________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ___________________________ ___________________________ Senior Deputy City Attorney City Manager ___________________________ Director of Utilities ___________________________ Director of Administrative Services TO: HONORABLE CITY COUNCIL FROM: CITY MANAGER DEPARTMENT: UTILITIES ATTENTION: FINANCE COMMITTEE DATE: DECEMBER 7, 2010 CMR: 432:10 SUBJECT: Utilities Advisory Commission Recommendation to Approve the Proposed Gas Utility Long-term Plan (GULP) Objectives, Strategies and Implementation Plan EXECUTIVE SUMMARY The Gas Utility Long-term Plan (GULP) covers a wide range of gas supply activities of City of Palo Alto Utilities including supply procurement given varying market prices, supply cost reduction, energy efficiency, climate protection and regulatory involvement. The proposed GULP Objectives, Strategies and Implementation Plan have a focus on balancing environmental and economic sustainability. REQUEST The Utilities Advisory Commission (UAC) and staff recommend that the Finance Committee recommend that the City Council approve the proposed Gas Utility Long-term Plan (GULP) Objectives, Strategies and Implementation Plan. BACKGROUND In July 2003, Council approved the first GULP Objectives and Guidelines (CMR: 345:03), and in September 2004, Council approved the accompanying GULP Implementation Plan (CMR: 368:04). In April 2005, and again in April 2006, Council received informational reports about GULP (CMR: 186:05 and CMR: 255:06). Staff reported that minor modifications had been made to the Implementation Plan and informed Council that no other GULP reports were planned. In 2007 and 2008, three factors drove the need to update GULP: 1) changes in the natural gas market prompted a review of the economics of gas storage; 2) new opportunities and favorable economics and contract terms prompted the need to re-examine financial alternatives for long- term discounted gas purchases; and 3) the arrival of renewable gas resources from livestock manure (biogas) afforded new opportunities for the City to pursue non-fossil fuel gas resources. The potential availability of biogas was significant because the City’s Climate Protection Plan (CPP), approved in December 2007 (CMR: 435:07), included greenhouse gas (GHG) emissions reduction goals related to renewable energy supply to be purchased voluntarily by gas utility customers. Council approved new GULP Guidelines and an Implementation Plan in February CMR: 432:10 Page 1 of 14 2008 (CMR: 134:08). The existing GULP Objectives, Guidelines and Implementation Plan are provided as Attachment B. Since 2008, staff has effectively worked towards meeting the Objectives within the set Guidelines. Significant accomplishments include: Maintained robust gas supply contracts with private sector suppliers to purchase market price-based gas supplies; Managed market price variability within portfolio and risk management limits through implementation of the laddered purchasing strategy; Positively influenced new regulations and legislation to increase reliability and to maintain parity with Pacific Gas and Electric’s (PG&E’s) residential and commercial customers; Conducted an exhaustive search for reasonably priced non-fossil fuel gas resources; and Achieved gas efficiency savings of 0.11% and 0.49% of the annual gas usage in FY 2008 and FY 2009, respectively. The single biggest change since GULP was last updated is the global recession that began in 2007 and continues to affect federal, local and state governments, consumers, and businesses. Diminished global demand for energy resulted in lower prices for natural gas. Because Palo Alto purchases a portion of its gas needs at fixed prices over a period of years, Palo Alto’s gas cost is currently higher than prevailing market prices. (The opposite has been true during past periods of rising gas prices.) In addition, the cost of renewable energy has increased as more California electric utilities pursue Renewable Portfolio Standard (RPS) goals while future GHG emissions regulation is uncertain. Solutions with a reasonable cost are becoming difficult to find. The proposed set of GULP Objectives and Strategies have a focus on balancing environmental and economic sustainability. At its October 6, 2010 meeting, the UAC recommended Council approval of revised GULP Objectives and Strategies and an Implementation Plan (Attachment A). In parallel with the GULP revision, staff is developing a new Utilities Strategic Plan. Ultimately, GULP will need to align with the Utilities Strategic Plan to ensure that the GULP Objectives are consistent with the vision, goals, and strategic objectives of the Utilities Department and, thus, further revisions to GULP may be required after the Utilities Strategic Plan is completed. DISCUSSION Proposed Changes to GULP Objectives The GULP Objectives are intended to address several functions related to long-term gas resource acquisition and management including implementation of related Council policies. The Objectives are intended to direct the management of gas supply cost and uncertainty inherent in the business of serving Palo Alto’s gas customers. Modifications to the GULP Objectives are proposed with a focus on procuring supply resources and gas efficiency and managing existing gas supply assets to meet customer needs over the next ten years. The proposed changes to GULP Objectives are shown below. CMR: 432:10 Page 2 of 14 Existing and Proposed GULP Objectives Existing GULP Objectives Proposed GULP Objectives Objective 1 Management of market price uncertainty Ensure low and stable gas supply rates for pool customers. Balance supply cost stability with market exposure. Objective 2 Supply Cost Management Provide superior financial performance to customers and the City by managing the supply portfolio cost in a competitive manner compared to market cost and a retail supply rate advantage compared to PG&E. Lower delivered gas cost over the long term. Objective 3 Energy Efficiency Balance environmental, rate, and cost impacts when considering energy efficiency investments. Ensure the deployment of all feasible, reliable, cost-effective energy efficiency measures. Objective 4 Climate Protection Reduce the carbon intensity of the gas portfolio in accordance with the Climate Protection Plan Objective 5 Parity with PG&E At a reasonable cost, protect the City’s interests and maintain access to transportation on par with PG&E’s core customers. Proposed Changes to GULP Guidelines The proposed modifications to the 2008 GULP Guidelines and Implementation Plan are described in detail in this section. In an attempt to be consistent with the Strategic Plan, the term “guidelines” will be replaced with “strategies”. For each proposed GULP Objective, a Strategy is proposed providing definition for the Objective. The changes are intended to better reflect the proposed GULP Objectives, account for initiatives that have been completed and new ones that are underway, include concepts currently addressed in the implementation plan, and bring them more in line with Council priorities. Proposed Objective #1: Management of market price uncertainty Unlike the electric utility, the gas utility does not hold any long-term commodity assets and is ultimately dependent upon the spot market for all gas commodity purchases. After experiencing skyrocketing gas prices during the 2001 energy crisis, staff developed a plan to manage gas price volatility for periods longer than one fiscal year (CMR:196:01). Figure 1 shows Palo Alto’s historical and projected cost of gas compared to the monthly spot market price since July 2005. CMR: 432:10 Page 3 of 14 Figure 1 Palo Alto's Cost of Gas versus the Monthly Spot Market $0 $2 $4 $6 $8 $10 $12 $14Jul-05Oct-05Jan-06Apr-06Jul-06Oct-06Jan-07Apr-07Jul-07Oct-07Jan-08Apr-08Jul-08Oct-08Jan-09Apr-09Jul-09Oct-09Jan-10Apr-10Jul-10Oct-10Jan-11Apr-11Jul-11Oct-11Jan-12Apr-12Jul-12Oct-12Jan-13Apr-13$/ M M B t u CPAU's Cost of Gas PG&E Citygate Monthly Spot Price Palo Alto has implemented a “laddering strategy” for its residential and small commercial gas customers (i.e. the “pool” customers). The rates for the largest gas customers change on a monthly basis similar to gas rates for all of Pacific Gas and Electric’s (PG&E’s) customers. These large customers do, however, have the option to select a variety of rate structures to manage their energy cost. The gas laddering strategy spreads out the purchase of gas over a longer time period in an effort to stabilize costs and, thus, rates. The laddering strategy is implemented by purchasing gas at fixed-prices or prices with a negotiated cap on the price. The parameters of the laddering strategy are established by the Director of Utilities by her approval of a procurement plan. Procurement plans are developed in accordance with the City of Palo Alto’s Energy Risk Management Procedures. The procurement plan includes an analysis of the risks to net revenue (projected revenue minus cost) and takes into account Palo Alto’s expected gas costs compared to the spot market, Palo Alto’s current and projected gas commodity rate, the system average rate compared to market prices and the Gas Supply Rate Stabilization Reserve (G-SRSR) balance. Figure 2 below shows the cumulative cost savings that have accrued to the average residential customer from gas bills paid to the City of Palo Alto Utilities (CPAU) compared to what would have been paid to PG&E since January 1998. The figure shows that there were savings (CPAU’s bill was lower than PG&E’s) from about January 1998 through May 2001, then PG&E’s bill was lower than CPAU’s from June 2001 until November 2002. CPAU’s bill was lower from December 2002 through September 2006, but since October 2006, PG&E’s gas bill has been CMR: 432:10 Page 4 of 14 lower than CPAU’s. Over the entire span of time for which we have data – from January 1998 to October 2010 – Palo Altans paid about the same as PG&E customers for gas usage. Figure 2 Cumulative Residential Gas Bill Savings January 1998 through October 2010 $0 $100 $200 $300 $400 $500 $600 $700 $800Jan-98Jan-99Jan-00Jan-01Jan-02Jan-03Jan-04Jan-05Jan-06Jan-07Jan-08Jan-09Jan-10Bi l l S a v i n g s ( P G & E B i l l - C P A U B i l l ) Note that Figure 2 shows the entire gas bill savings. However, in July 2006, Palo Alto “unbundled” its gas rates by separating the charges into those related to distribution and those related to supply. Since GULP is about the supply business only and the laddering strategy relates to supply only, it may be useful to compare the supply rates and bills for Palo Alto and PG&E. Figure 3 below provides the cumulative gas supply bill savings since July 2006 for Palo Alto versus PG&E. As shown, Palo Alto residential customers saved money on gas supply compared to PG&E customers until September 2008, when the gas supply market prices started to plummet (See Figure 1). Since October 2008, Palo Alto residential customers have paid more for gas supply than PG&E. Overall, over the July 2006 to October 2010 period, the average Palo Alto residential customer paid about $140 more than a PG&E residential customer for gas supply. CMR: 432:10 Page 5 of 14 Figure 3 Cumulative Residential Gas Supply Bill Savings July 2006 through October 2010 -200 -150 -100 -50 0 50 100 150 200 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Cu m u l a t i v e S a v i n g s f o r G a s S u p p l y O n l y The current procurement plan’s targets are to purchase 80% of expected usage for the next 18- month period, 50% of expected usage for the following 9-month period and 20% of expected usage for the last 9-month period in the 36-month laddering horizon. The laddered commodity procurement strategy means that in times of rising gas prices, Palo Alto’s gas cost will be lower than the market and in times of falling gas prices Palo Alto’s gas cost will be higher than the market. On the other hand, purchasing gas on the short-term spot market results in unpredictable and volatile costs. In either case, communication with customers when rates are impacted is important and will be addressed in the context of overall customer communication improvements in the Utilities Strategic Plan While the current GULP Objectives have competing goals (stable and competitive rates), rate stability has been an overriding objective in recent years. Staff has used an internal objective of limiting rate changes to 10% in a given year; however, the cost of gas is only one factor contributing to the potential need for a rate change. Capital, regulatory and operational costs for the distribution system also impact total cost. Reserves are also used to achieve rate stability by building reserve levels during low-cost periods and drawing down reserves during high-cost periods. The table below shows the existing GULP Guideline #1 compared to the proposed GULP Strategy #1 and related Implementation Plan tasks. The proposed Strategy is essentially the same as the existing Guideline. All of the strategy elements are designed to strike a balance between cost stabilization and to not stray too far from the market cost over the longer term. CMR: 432:10 Page 6 of 14 This strategy also includes a limit of 10 years for fixed-price contracts due to the credit risk associated with such long-term transactions and the reality of an inactive market that far into the future. Fixed-price purchases for delivery more than three years from present require Council approval. The Utilities Strategic Plan may establish a quantifiable, measurable objective for gas rates at which time this strategy will be reviewed and may require modification. Staff will bring the results of that analysis to the UAC and then to the Finance Committee for review by June 2011 or as soon as practical after the completion of the Utilities Strategic Plan. In the interim, staff recommends continuing with a diversified portfolio, thus dampening the effects of the volatile gas market, helping to stabilize costs and rates while reducing the need for large reserves. The proposed Implementation Plan task makes this recommendation explicit. Existing Guideline Proposed Strategy Guideline #1: Market Risk Management – Manage market risk by adopting a portfolio strategy for gas supply procurement by: a. Diversifying energy purchases for the pool across commitment date, delivery date, duration, suppliers, pricing terms, and delivery points; b. Maintaining a prudent exposure to changing market prices by leaving some fraction of the forecasted gas pool needs exposed to near-term market prices; and c. Avoiding long-term (>10 years) fixed-price commodity contracts. Strategy #1: Balance supply cost stability with market exposure by: a. Diversifying energy purchases for the pool across commitment date, delivery date, duration, suppliers, pricing terms & delivery points; b. Leaving some fraction of the forecasted gas pool needs exposed to near-term market prices; and c. Avoiding long-term (>10 years) fixed-price commodity contracts. Existing Implementation Plan Proposed Implementation Plan No initiatives were specified. 1. Continue to implement a laddered commodity purchasing strategy for the pool. 2. Review the laddering strategy and rate stability with the Utilities Advisory Commission and recommend changes, if appropriate. Proposed Objective #2: Supply Cost Management Because Palo Alto does not own gas supplies (reserves in the ground, or gas production wells), all gas must be purchased on the open market. This objective is to lower Palo Alto’s cost whenever possible through asset management and the acquisition of cost-effective storage services or pipeline capacity. This objective does not refer to trying to “beat the market” or PG&E’s commodity cost, but to lower these other aspects of supply-related costs. Procuring gas pipeline capacity, gas storage services or resources are potential opportunities to lower gas supply costs. Gas prepay transactions, described below, provide an opportunity for Palo Alto to systematically acquire gas commodity at a discount to market prices. Storage The use of gas storage may result in a lower delivered gas cost if that storage service is cost- effective. Typically gas is injected into storage during the low-usage summer months and then CMR: 432:10 Page 7 of 14 withdrawn during the winter when usage is high. If the difference between the price of gas for summer delivery and the price of gas for winter delivery is greater than the cost of storage, then storage is cost-effective. Palo Alto has access to several independent storage service providers and Pacific Gas and Electric Company (PG&E). Palo Alto already has the ability to purchase storage services from PG&E through an existing transportation contract but would need contracts to purchase gas storage services from any of the other storage service providers. The proposed Implementation Plan is intended to prepare Palo Alto to purchase gas storage services, if those services prove to be cost-effective. Asset Optimization Occasionally, below-market assets or services become available to Palo Alto. For example, through a regulatory process, Palo Alto acquired access on a PG&E pipeline at a discounted rate. Another way to lower costs is through the optimization of assets. For instance, in some months excess pipeline capacity on a pipeline may be sold for more than its cost. However, this revenue is very small compared to the overall cost of the gas portfolio. As a result of a pending settlement agreement, Palo Alto has an opportunity to elect pipeline capacity on two PG&E-owned intrastate pipelines at a rate comparable to that for PG&E’s residential and commercial customers. Accepted capacity will be contracted at set rates for a four-year period beginning in 2011, the same term as the settlement agreement. Forecasting the value of the pipeline capacity and then capturing that value is included in the proposed Implementation Plan. Gas Prepay A potentially significant opportunity for lowering delivered gas commodity cost is through a “gas prepay” transaction. In a gas prepay transaction, a municipality purchases discounted gas by prepayment using tax-exempt bonds. IRS regulations allow for tax-exempt prepay natural gas transactions by municipalities, and the tax-exempt status of those transactions was codified in the Federal Energy Policy Act of 2005. Many other municipal utilities have completed prepay transactions for their gas-fired electric generation plants, including the City of Long Beach, the City of Roseville, the City of Redding, Silicon Valley Power, and the Sacramento Municipal Utility District. Gas prepay transactions are one way for municipal utilities to have a cost advantage over investor-owned utilities such as PG&E. Typically transactions are structured such that the gas supplier is liable in the event of bond payment default. While the prepayment amount is calculated using a fixed gas price, gas is purchased monthly by the municipality at an index price, less a fixed discount as the gas is delivered. The amount of the discount is dependent on several factors, including the difference between municipal bond interest rates and taxable interest rates. Recent recession-related credit market problems stalled prepay activity as achievable discounts have shrunk considerably. Because the potential benefit of participation in a gas prepay transaction in the future could be substantial, Palo Alto should position itself to be able to act in the event an attractive opportunity arises. Prepay transactions are quite complicated and involve a number of parties and agreements resulting in a significant up-front cost. Palo Alto may want to partner with other municipal utilities. Additionally, Palo Alto may want to consider a series of one to three prepay arrangements over a number of years to diversify price risk. The proposed Implementation Plan CMR: 432:10 Page 8 of 14 includes the necessity of engaging a consultant to help guide CPAU through the process of evaluating these complex, but potentially cost-effective, transactions. The table below shows the existing GULP Guideline #2 compared to the proposed GULP Strategy #2. The proposed strategy is very similar to the existing guideline, but removes some of the operational specificity and contains language that is more policy-based. In addition, the existing and proposed Implementation Plan tasks supporting this strategy are shown. Existing Guideline Proposed Strategy Guideline #2: Asset Acquisition and Management – Explore supply, pipeline, and storage acquisition options available to the City which may be assembled to yield reliable supply at a fair and reasonable cost, taking into consideration: a. Long-term supply cost for gas deliveries at PG&E Citygate; b. Operational needs including the need for daily balancing during Operational and Emergency Flow Orders; c. Existing and potential regulatory mandates; d. Potential operational streamlining opportunities with other agencies; and e. City’s low cost of capital for asset acquisition. Strategy #2: Lower delivered gas cost over the long term by: a. Acquiring pipeline and/or storage assets that yield supply costs below market and meet operational needs; b. Taking advantage of the City’s low cost of capital to acquire gas supply and assets; and c. Optimizing existing assets. Existing Implementation Plan Proposed Implementation Plan Implementation Plan Items: 1. Pursue cost-effective opportunities for natural gas storage capacity; 2. Do not acquire additional natural gas pipeline capacity at this time; 3. Take steps to analyze Palo Alto’s tax-exempt status to realize a discount to the City’s gas cost by: a. Identifying risks and costs associated with prepay transactions including required modifications to City policies and operating procedures; and b. Exploring alternative prepay structures 4. Pursue any low-cost, high-value prospects to acquire supply- related resources that may arise from time to time. 3. Pursue cost-effective gas storage services by: a. Signing enabling agreements with available gas storage service providers; b. Monitoring gas prices for seasonal differences; and c. Purchasing gas storage services when cost-effective. 4. Pursue below-market assets available through the Gas Transportation and Storage Settlement by: a. Evaluating the pipeline capacity reservation options available; and b. Contracting with PG&E for any pipeline capacity with an estimated cost below the forecasted market value. 5. Pursue opportunities for natural gas prepay transactions by: a. Hiring a consultant to help staff with; i. Identifying any internal policy changes needed including the policy on the use of financial instruments; ii. Identifying system and internal processes required; iii. Identifying opportunities; and iv. Evaluating opportunities and quantifying the benefits and costs; and b. Seeking UAC recommendation and Council approval regarding whether to proceed with a gas prepay transaction. Proposed Objective #3: Energy Efficiency Palo Alto has long been a leader in energy efficiency programs, and views efficiency as a critical long-term resource that plays a key role in long-term planning and in achieving the GHG CMR: 432:10 Page 9 of 14 CMR: 432:10 Page 10 of 14 emissions reduction goals in the CPP. Council approved the first Ten-Year Energy Efficiency (EE) Plan in April 2007 which set energy savings goals for both electric and gas efficiency. Over a ten-year period, the cumulative electric and gas savings were targeted at 3.5% of both gas and electric usage. Council approved the updated Ten-Year Electric EE Plan in May 2010, which doubled the cumulative electric efficiency savings to 7.2% by 2020. In determining the amount of cost- effective electric efficiency, staff used a value for renewable energy adopted by the California Public Utilities Commission (CPUC) so that the carbon emission reduction benefits of EE are properly valued. Staff is currently updating the Ten-Year Gas EE Plan, which will include updated gas efficiency targets. Staff is using the carbon adder (carbon price premium)1 identified in the CPP for the purposes of calculating the cost-effectiveness of gas efficiency measures. The proposed update of the Ten-Year Gas EE Plan will be presented to the UAC in Fall 2010 and to Council in early 2011. The table below shows the existing Guideline #4 compared to the proposed Strategy #3. The proposed strategy states that the Ten-Year Gas EE Plan must be prepared every three years and must include a “reasonable” carbon adder when evaluating cost-effectiveness for gas efficiency. The carbon adder identified in the CPP is used for the purpose of calculating the cost- effectiveness of gas efficiency measures. A $20/tonne carbon adder translates to around 12¢ per therm. Therefore, given a long-term natural gas price of about $0.60 per therm, a gas efficiency measure that costs less than $0.72 per therm ($0.60/therm + $0.12/therm) would be found to be cost-effective. Including a value for carbon in the EE Plan is justified because natural gas is anticipated to be regulated under cap-and-trade, which is expected to result in a market cost associated with carbon emissions. Using a carbon adder ensures that the long-term liability of the costs of buying allowances for carbon emissions is incorporated into the investment decision for gas efficiency measures. The proposed update of the 10-year gas efficiency goals will be presented to the Utilities Advisory Commission in January 2011. The existing Implementation Plan item that relates to Guideline #4 is listed. The proposed Implementation Plan tasks related to this strategy address the evaluation of substitutions (gas for electric appliances and vice versa), reporting of gas efficiency program results and ongoing evaluation of gas efficiency technologies. 1 The City’s 2007 CPP recommended using a carbon adder for investment decisions of $20 per tonne escalated by 5% each year starting in 2008. A $20 per tonne CO2 carbon adder translates to around 12¢ per therm. Existing Guideline Proposed Strategy Guideline #4: Gas Efficiency and Solar Heating - Fund innovative programs that promote and facilitate deployment of all cost- effective, reliable and feasible energy efficiency and solar heating opportunities as high priority resources consistent with the Ten-year Efficiency Plan. Strategy #3: Ensure the deployment of all feasible, reliable, cost-effective energy efficiency measures by: a. Developing and implementing a ten-year gas efficiency plan every three years that includes a reasonable carbon price premium for traditional gas supplies; and b. Considering the impacts (cost, benefits, and GHG emissions) of substituting electricity-using appliances for gas-using appliances and vice versa in the ten-year gas efficiency plan. Existing Implementation Plan Proposed Implementation Plan Implementation Plan Item: Develop comprehensive demand-side management goals and implementation plan by fall 2004 in time for incorporation into FY 2006 and future ratemaking and budget decisions. In the interim, continue implementation of current and planned FY 2005 demand-side management programs. 6. Develop an implementation plan by summer 2011 to meet the gas efficiency targets including the: a. Evaluation of the cost-effectiveness of substituting gas-using appliance for electric-using appliances and vice versa and the greenhouse gas impacts of such substitutions; and b. Incorporation of any cost-effective substitution measures in the implementation plan to meet the gas efficiency targets. 7. Track and report progress against adopted gas efficiency goals by: a. Providing quarterly updates on the gas efficiency program achievements to the UAC; and b. Providing annual updates on gas efficiency program achievements to the UAC and the City Council. 8. Continue evaluating new gas efficiency technologies and undertake pilot studies where appropriate. Proposed Objective #4: Climate Protection Climate change continues to be a key global environmental challenge that impacts not only utilities, but all City operations. Both a voluntary green gas program similar to PaloAltoGreen and a mandatory green portfolio similar to the Renewable Portfolio Standard (RPS) concept for the electric portfolio were considered in staff’s analysis. Besides the expected CO2 emissions reductions from gas efficiency (under Strategy #3 above), the City’s CPP includes a CO2 reduction goal associated with a voluntary green gas program. This strategy reflects staff’s intention to pursue resources for that purpose. Staff investigated the potential acquisition of non-fossil gas supplies through the issuance of a Request for Proposals in July 2009, but found the resource to be too costly for a successful voluntary program. Currently staff is pursuing several non-fossil fuel gas opportunities through Palo Alto’s Northern California Power Agency (NCPA) membership and participation in the NCPA Green Power Project (NGPP). NCPA has hired a consultant to perform due diligence on the projects. CPAU is a participant thus far in the project evaluation process with an interest in the gas for the voluntary green gas program. The proposed implementation plan includes continued CMR: 432:10 Page 11 of 14 involvement in NGPP to pursue green gas at a reasonable price that could be used in a voluntary green gas program. Non-fossil fuel gas acquisition was also considered for the portfolio. Any additional cost for non- fossil gas supplies would have the benefit of meeting local GHG reduction goals, but would adversely impact gas rates. Given the lack of regulatory pressure and the current economic climate, no rate impact for non-fossil gas supplies is deemed prudent at this time for the overall gas portfolio, and this is reflected in the proposed strategy. The table below shows the existing Guideline #5 compared to the proposed Strategy #4. The proposed strategy recommends pursuing a voluntary program for green gas. Non-fossil fuel supplies for the portfolio are recommended only when there is no rate impact, which in essence means that a renewable gas portfolio standard for the overall gas portfolio will not be implemented at this time. The proposed Implementation Plan tasks include pursuing reasonably priced renewable gas resources through NGPP. Existing Guideline Proposed Strategy Guideline #5: Renewable Resources - Develop alternatives to reduce the carbon intensity of the natural gas portfolio consistent with the Climate Protection Plan. Strategy 4: Reduce the carbon intensity of the gas portfolio by: a. Designing and implementing a voluntary retail program using reasonably priced non- fossil fuel gas resources; and b. Purchasing non-fossil fuel gas for the portfolio as long as it can be done with no rate impact. Existing Implementation Plan Proposed Implementation Plan Reduce the carbon intensity of the natural gas portfolio by a. Designing and implementing a voluntary retail program using low- carbon gas resources; b. Evaluating the participation of City facilities in the voluntary program; and c. Evaluating portfolio targets for low- carbon gas resources. 9. Pursue reasonably priced non-fossil gas for a voluntary program through NGPP by: a. Reviewing the due diligence report to be provided to NGPP participants by the end of October 2010; and b. Based on the results, recommending whether to continue participating in the projects. Proposed Objective #5: Parity with PG&E Palo Alto participates in regulatory proceedings and in the legislative arena when the expected cost to intervene is less costly than an adverse outcome and when the city has a reasonable chance of influencing that outcome. Whenever possible, staff seeks to partner with other entities with similar positions and interests. The table below shows the existing Guideline #3 compared to the proposed Strategy #5. The proposed strategy is similar to the existing guideline, but adds more detail on parity with PG&E and specifies that participation in regulatory and legislative advocacy be cost-effective. CMR: 432:10 Page 12 of 14 Existing Guideline Proposed Strategy Guideline #3: Management of Regulatory and Legislative Matters – Serve as an effective voice to protect and enhance the City’s positions in regulatory and legislative arenas by: a. Intervening in the regulatory and legislative arenas that the City’s gas utility interests are protected and enhanced; and b. Exploring potential joint action with other public agencies. Strategy 5: Protect the City’s interests and maintain parity with PG&E’s core customers by: a. Participating in the regulatory and legislative arenas when the potential impact on the City is aligned with the cost to intervene and the probability of success; b. Negotiating with PG&E for fair access to transportation and storage; and c. Exploring potential joint action with other public agencies. Existing Implementation Plan Proposed Implementation Plan No initiatives specified No Implementation Plan initiatives are recommended for this strategy as the strategy itself provides staff the direction needed. COMMISSION REVIEW AND RECOMMENDATIONS The UAC began discussing the GULP update at its June 2010 meeting. At that meeting, staff reviewed the existing policies and GULP Objectives and Guidelines and began the discussions with the UAC on the range of alternatives to the current policies. Discussion continued on draft GULP Objectives and Strategies at the UAC’s July 2010 meetings. Using the UAC’s input from those discussions, staff presented proposed GULP Objectives and Strategies to the UAC at its September 2010 meeting. At its September 2010 meeting, the UAC voted (6-1) to recommend that the Council approve the proposed GULP Objectives and Strategies as staff recommended. Chair Waldfogel opposed the motion clarifying that he felt that Strategy #1 did not provide sufficient policy direction. The notes from the UAC’s September 1, 2010 meeting are provided as Attachment C. Staff presented the proposed GULP Implementation Plan to the UAC at its October 2010 meeting. At that meeting, the UAC unanimously recommended that the City Council approve the proposed Gas Utility Long-term Plan (GULP) Implementation Plan (7-0). The notes from the UAC’s October 6, 2010 meeting are provided as Attachment D. The Finance Committee reviewed the draft GULP Objectives, Strategies and Implementation Plan on November 16, 2010. The committee asked for clarifications on several issues and requested that the report contain additional information providing that clarification. For example, there was a question about whether Objective #2 – Lower delivered gas cost over the long term – referred to lowering gas costs compared to PG&E. Staff explained that this did not refer to being lower cost than PG&E, but to finding ways to reduce Palo Alto’s cost by investing in cost-effective storage or pipeline capacity and pursuing a gas prepayment transaction. The committee also discussed the gas procurement laddering strategy and questioned the value of rate stability that results from the laddering strategy versus a strategy of tracking market prices. The committee requested that staff review the laddering strategy and rate stability CMR: 432:10 Page 13 of 14 objectives with the UAC. Another issue raised around gas rates was communication to customers. Staff advised that customer communication would be addressed in the strategic plan that is currently under development. The committee voted unanimously to continue the requested action until the report was revised to include the clarifications requested. This report contains additional explanation on the issues raised by the Finance Committee and includes a new implementation plan item to review the laddering strategy with the UAC. RESOURCE IMPACT There is no direct resource impact as a result of the proposed changes to the GULP Objectives and Guidelines. Implementation of various programs that meet the Objective and Strategies will be brought to Council for approval and may have a resource impact at that time. POLICY IMPLICATIONS The proposed GULP' Objectives, Strategies and Implementation Plan support the Council- approved Utilities Strategic Plan, Energy Risk Management Policies, and Comprehensive Plan Goal N-9 (a clean, efficient, competitively-priced energy supply that makes use of cost-effective renewable resources). ENVIRONMENTAL REVIEW Adoption of the GULP Objectives, Strategies and Implementation Plan does not constitute a project for the purposes of the California Environmental Quality Act. ATTACHMENTS A. Proposed GULP Objectives, Strategies and Implementation Plan B. Existing GULP Objectives, Guidelines and Implementation Plan C. Excerpted Minutes of the UAC Meeting of September 1,2010 D. Excerpted Minutes of the UAC Meeting of October 6, 2010 E. Excerpted Draft Minutes of the Finance Committee Meeting of1\ovember 6, 2010 PREPARED BY; REVIEWED BY: DEPARTMENT HEAD: CHRISTINE TAM, Resource Planner KARLA DAILEY, Senior Resource Planner '~NE RATCHYE VALERI O. NG ~ ""i~RoW"= M_,""" sz-':::: CITY MANAGER APPROVAL: fC .j ~ JAMES KEENE ......-City Manager CMR:432:10 Page 14 ofl4 Proposed 2010 Gas Utility Long-term Plan (GULP) Objectives, Strategies and Implementation Plan GULP Objectives: 1. Management of market price uncertainty – Balance supply cost stability with market exposure. 2. Supply Cost Management – Lower delivered gas cost over the long term. 3. Energy Efficiency – Ensure the deployment of all feasible, reliable, cost-effective energy efficiency measures. 4. Climate Protection – Reduce the carbon intensity of the gas portfolio in accordance with the Climate Protection Plan. 5. Parity with PG&E – At a reasonable cost, protect the City’s interests and maintain access to transportation on par with PG&E’s core customers. GULP Strategies: 1. Balance supply cost stability with market exposure by: a. Diversifying energy purchases for the pool across commitment date, delivery date, duration, suppliers, pricing terms & delivery points; b. Leaving some fraction of the forecasted gas pool needs exposed to near-term market prices; and c. Avoiding long-term (>10 years) fixed-price commodity contracts. 2. Lower delivered gas cost over the long term by: a. Acquiring pipeline and/or storage assets that yield supply costs below market and meet operational needs; b. Taking advantage of the City’s low cost of capital to acquire gas supply and assets; and c. Optimizing existing assets. 3. Ensure the deployment of all feasible, reliable, cost-effective energy efficiency measures by: a. Developing and implementing a ten-year gas efficiency plan every three years that includes a reasonable carbon price premium for traditional gas supplies; and b. Considering the impacts (cost, benefits, and GHG emissions) of substituting electricity-using appliances for gas-using appliances and vice versa in the ten-year gas efficiency plan. 4. Reduce the carbon intensity of the gas portfolio in accordance with the Climate Protection Plan by: a. Designing and implementing a voluntary retail program using reasonably priced non- fossil fuel gas resources; and b. Purchasing non-fossil fuel gas for the portfolio as long as it can be done with no rate impact. 5. At a reasonable cost, protect the City’s interests and maintain access to transportation on par with PG&E’s core customers by: a. Participating in the regulatory and legislative arenas when the potential impact on the City is aligned with the cost to intervene and the probability of success; a. Negotiating with PG&E for fair access to transportation and storage; and b. Exploring potential joint action with other public agencies. GULP Implementation Plan: 1. Continue to implement a laddered commodity purchasing strategy for the pool. 2. Review the laddering strategy and rate stability with the Utilities Advisory Commission and recommend changes, if appropriate. 3. Pursue cost-effective gas storage services by: a. Signing enabling agreements with available gas storage service providers; b. Monitoring gas prices for seasonal differences; and c. Purchasing gas storage services when cost-effective. 4. Pursue below-market assets available through the Gas Transportation and Storage Settlement by: a. Evaluating the pipeline capacity reservation options available; and b. Contracting with PG&E for any pipeline capacity with an estimated cost below the forecasted market value. 5. Pursue opportunities for natural gas prepay transactions by: a. Hiring a consultant to help staff with: i. Identifying any internal policy changes needed including the policy on the use of financial instruments; ii. Identifying system and internal processes required; iii. Identifying opportunities; and iv. Evaluating opportunities and quantifying the benefits and costs; and b. Seeking UAC recommendation and Council approval regarding whether to proceed with a gas prepay transaction. 6. Develop an implementation plan by summer 2011 to meet the gas efficiency targets including the: a. Evaluation of the cost-effectiveness of substituting gas-using appliance for electric- using appliances and vice versa and the greenhouse gas impacts of such substitutions; and b. Incorporation of any cost-effective substitution measures in the implementation plan to meet the gas efficiency targets. 7. Track and report progress against adopted gas efficiency goals by: a. Providing quarterly updates on the gas efficiency program achievements to the UAC; and b. Providing annual updates on gas efficiency program achievements to the UAC and the City Council. 8. Continue evaluating new gas efficiency technologies and undertake pilot studies where appropriate. 9. Pursue reasonably priced non-fossil gas for a voluntary program through NGPP by: a. Reviewing the due diligence report to be provided to NGPP participants by the end of October 2010; and b. Based on the results, recommending whether to continue participating in the projects. EXISTING GAS UTILITY LONG-TERM PLAN (GULP) GUIDELINES, OBJECTIVES, AND IMPLEMENTATION RECOMMENDATIONS GULP Objectives (CMR:345:03) Objective 1: Ensure low and stable gas supply rates for pool customers. Objective 2: Provide superior financial performance to customers and to the City by managing the supply portfolio cost in a competitive manner compared to market cost and a retail supply rate advantage compared to PG&E. Objective 3: Balance environmental, rate, and cost impacts when considering energy efficiency investments. GULP Guidelines (CMR:134:08) Guideline 1: Market Risk Management – Manage market risk by adopting a portfolio strategy for gas supply procurement by: A. Diversifying energy purchases for the pool across commitment date, delivery date, duration, suppliers, pricing terms and delivery points; B. Maintaining a prudent exposure to changing market prices by leaving some fraction of the forecasted gas pool needs exposed to near-term market prices; C. Avoiding long-term (>10 years) fixed-price commodity contracts. Guideline 2: Asset Acquisition and Management – Explore supply, pipeline, and storage acquisition options available to the City which may be assembled to yield reliable supply at fair and reasonable cost, taking into consideration: A. Long-term supply cost for gas deliveries at PG&E Citygate; B. Operational needs including the need for daily balancing during Operational and Emergency Flow Orders; C. Existing and potential regulatory mandates; D. Potential operational streamlining opportunities with other agencies; and E. City’s low cost of capital for asset acquisition. Guideline 3: Management of Regulatory and Legislative Matters – Serve as an effective voice to protect and enhance the City’s position in regulatory and legislative arenas by: A. Intervening in the regulatory and legislative arenas to ensure that the City’s gas utility interests are protected and enhanced; and B. Exploring potential joint action with other public agencies. Guideline 4: Gas Efficiency and Solar Heating - Fund innovative programs that promote and facilitate deployment of all cost-effective, reliable and feasible energy efficiency and solar heating opportunities as high priority resources consistent with the Ten-year Efficiency Plan. Guideline 5: Renewable Resources - Develop alternatives to reduce the carbon intensity of the natural gas portfolio consistent with the Climate Protection Plan. GULP Implementation Recommendations (CMR:134:08) 1. Pursue cost-effective opportunities for natural gas storage capacity; 2. Do not acquire additional natural gas pipeline capacity at this time; 3. Take steps to analyze Palo Alto’s tax-exempt status to realize a discount to the City’s gas cost by: a. Identifying risks and costs associated with prepay transactions including required modifications to City policies and operating procedures; and b. Exploring alternative prepay structures. 4. Pursue any low-cost, high-value prospects to acquire supply-related resources that may arise from time to time; 5. Develop comprehensive demand-side management goals and implementation plan by fall 2004 in time for incorporation into FY05-06 and future ratemaking and budget decisions. In the interim, continue implementation of current and planned FY 04-05 demand-side management programs; and 6. Reduce the carbon intensity of the natural gas portfolio by a. Designing and implementing a voluntary retail program using low-carbon gas resources; b. Evaluating the participation of City facilities in the voluntary program; and c. Evaluating portfolio targets for low-carbon gas resources. EXCERPTED FINAL MINUTES OF UTILITIES ADVISORY COMMISSION Meeting of September 1, 2010 ITEM 3: ACTION: Proposed Gas Utility Long-Term Plan (GULP) Objectives and Strategies Senior Resource Planner Karla Dailey focused the discussion on the proposed GULP objectives and strategies, as given in Attachment A of the Memo on Proposed Gas Utility Long-term Plan Objectives and Strategies in the UAC package. Chair Waldfogel stated that proposed Objective #1 (Balance supply cost stability with market exposure) is too vague and doesn’t offer enough guidance as to where the “balance” gets resolved. Dailey offered that the strategic plan will provide a rates objective such as that rates do not change by more than 10% every 12 months, for example. The gas supply portfolio would then be managed to meet the rates objective. Assistant Director Ratchye added that during the annual long-term financial forecast and budget process, the level of the reserves and the forecast costs would be evaluated along with the rates stability objective so that the Council could determine the proper balance. There is a danger of adding too much specificity into the objective and strategy that could box staff in to a corner in managing the supply portfolio. Commissioner Eglash stated that there was no opposition from the UAC to contracts longer than one year and wondered what problem proposed Strategy #1 was addressing. Chair Waldfogel replied that the strategy provides no policy direction. Council Member Yeh asked if we could have a policy to change how the portfolio is managed if our costs exceed PG&E’s for a period of time – say, three years, for example. Commissioner Eglash stated that in the long term, energy prices have risen and, given our laddering strategy, we should overall (in the long term) be lower priced than PG&E. Commissioner Keller stated that the City should strive to have rate stability and weather the storm when our costs are higher than PG&E’s. Council Member Scharff asked where our rates have been with respect to PG&E’s over the past 10 years. He advised that the topic of rates and rate stability was very relevant as it is being discussed by the Council Finance Committee with respect to the Refuse Fund. Dailey stated that CPAU started the laddering strategy during the energy crisis. In contrast, PG&E historically buys nearly 100% spot purchases, which is expected given the CPUC gas procurement incentive mechanism for the IOUs, Council Member Scharff stated that he had read that natural gas reserves were huge and that some experts expect prices to remain low for the foreseeable future. Dailey responded that staff monitors gas prices on a daily basis and understands the volatility of gas prices; however staff doesn’t have a “market view” and can’t predict where prices might go in the future. At the current price levels however, there is more room for gas prices to go higher rather than lower. There aren’t many analysts predicting sudden price spikes in the short term. Commissioner Cook asked if CPAU’s objective was to have less variability in gas prices than PG&E. Commissioner Eglash responded that rate stability is an objective, but noted that stable rates shield customers from price signals. Stability however is better than volatility. Commissioner Eglash then asked if the UAC should accept the proposed GULP strategy and wait until the other issues are resolved and the strategic plan is complete and return to the question in the future. Commissioner Berry agreed with this approach to act now and return to these issues later. Yeh asked if the UAC had an opinion on Strategy 4.b. (Reduce the carbon intensity of the gas portfolio by purchasing non-fossil fuel gas for the portfolio as long as it can be done with no rate impact.). He noted that LEAP did contain a rate impact limit for RPS and wondered if a rate impact limit should be allowed under this GULP strategy. Commissioner Eglash commented that there is no competitive alternative to fossil-based gas supply. Commissioner Melton offered that the reality is that the premium for green gas is very high and that staff’s proposal was acceptable and responsive to this fact. Commissioner Eglash asked how proposed Strategy #2 (Lower delivered gas cost over the long term by: a) acquiring pipeline and/or storage assets that yield supply costs below market and meet operational needs; b) taking advantage of the City’s low cost of capital to acquire gas supply and assets; and c) optimizing existing assets) would work. Dailey replied that, for subsection a, the City’s pipeline capacity rights that were granted in settlements with PG&E have some value that the City receives and that, for subsection c, there is a small amount of money that can be realized by optimizing that asset. However, the largest potential value could come from subsection b, which is a gas “pre-pay” arrangement whereby the City would prepay for gas for the long term and realize a discount off of the spot market index for the gas. The GULP implementation plan would contain all the steps that would be required to implement such an arrangement, which is a complex set of agreements that would minimize the City’s risk and provide a long-term benefit. ACTION: Commissioner Melton made a motion that the UAC recommend that the Council approve proposed GULP Objective and Strategy #1 – Balancing Stability and Competitiveness as proposed. Commissioner Eglash seconded the motion. Commissioner Eglash offered a substitute motion that the UAC recommend that the Council approve the proposed GULP Objectives and Strategies as proposed. Commissioner Cook seconded the motion. The motion passed (6-1) with Chair Waldfogel opposing. Chair Waldfogel stated his opposition was due to his opinion that Strategy #1 did not provide sufficient policy direction. EXCERPTED FINAL MINUTES OF UTILITIES ADVISORY COMMISSION Meeting of October 6, 2010 ITEM 3: ACTION: Gas Utility Long-term Plan (GULP) Implementation Plan Senior Resource Planner Karla Dailey presented the proposed GULP implementation plan, which consists of eight initiatives to be taken by staff in order to achieve the proposed GULP objectives and strategies that the UAC recommended Council approve at its September 2011 meeting. Commissioner Keller asked if GULP addresses long-term maintenance and new pipeline development. Dailey clarified that GULP only addresses gas supply and not infrastructure. Commissioner Cook noted his support for Implementation Plan Initiatives #2 (Pursue cost- effective gas storage services) and #3 (Pursue below-market assets available through the Gas Transportation and Storage Settlement) as they are proactive attempts to save costs. Regarding Initiative #4 (Pursue opportunities for natural gas prepay transactions), Council Member Yeh asked for clarification on the use of financial instruments. Dailey emphasized that the use of financial instruments needs to be part of the prepay discussion up front because implementing a hedging strategy with physical gas priced at a discount to a market varying index price requires the use of financial instruments. Council Member Yeh expressed his concern about structuring the deal to protect the City. Commissioner Eglash noted that using a consultant can be expensive, and the City may not end up pursuing prepay. Dailey explained that the potential benefits of several million dollars out of an annual supply budget of $20 million outweigh the costs of using a consultant, and a prepay arrangement is the only way to achieve gas supply cost below PG&E’s. Commissioner Eglash asked about the cost range for a consultant. Dailey responded that if Palo Alto decides to pursue prepay alone, that could result in higher transaction costs. A consultant would help Palo Alto identify how best to pursue prepay. Commissioner Eglash asked if the Energy Risk Manager is aware of the prepay initiative. Karl Van Orsdol, Energy Risk Manager, responded that he himself, along with Lalo Perez, Director of Administrative Services, and City Manager Jim Keene are aware of this, and that a consultant was hired around two years ago to provide training to staff on this issue. Commissioner Melton asked if any of the cities that participated in a prepay transaction was financially was harmed during the financial crisis. Dailey responded that the worst case did occur when Lehman Brothers collapsed and a prepay deal involving Lehman fell apart. However, the unwinding of the transaction happened exactly as contractually planned under such conditions and the bond holders lost their investment. The municipal utility involved lost only the discount to index for future deliveries, but was otherwise unharmed. Director Fong reassured that given the complexity of a prepay transaction, staff will present more details on the structuring of a prepay transaction to the UAC. Chair Waldfogel supports a reasonable cost for the consultant study for prepay. No comments were made on Initiatives 5, 6 and 7. On Initiative #8, Commissioner Eglash asked about the Return on Investment of reviewing the cost of non-fossil gas. Dailey responded that Palo Alto’s share of the NCPA due diligence study is $5,000, which is a relatively low investment. Chair Waldfogel asked if we have ruled out offsets. Dailey explained that customers can currently purchase offsets from many sources for personal travel and energy usage. Palo Alto does not provide unique value by offering offsets to customers and that offsets would be difficult to market. ACTION: Commissioner Eglash moved, and Commissioner Foster seconded, that the UAC recommend that the City Council approve the proposed Gas Utility Long-term Plan (GULP) Implementation Plan. The motion passed unanimously (7-0). ATTACHMENT E FINANCE COMMITTEE – MEETING EXCERPTED DRAFT MINUTES OF NOVEMBER 16, 2010 ITEM 3: ACTION: Utilities Advisory Commission recommendation to Approve the Proposed Gas utility Long-term Plan (GULP) Objectives, Strategies and implementation Plan (Continued from the November 2, 2010) Senior Resource Planner Karla Dailey provided a brief presentation on GULP noting that the UAC unanimously approved the objectives, Strategies, and Implementation Plan at its October 2010 meeting. She highlighted the differences between the current and proposed GULP Objectives and the Strategies and Implementation Plan to meet those objectives. Council Member Klein asked what the benchmark is for “lower cost” referred to in proposed GULP Objective 2. Staff explained that “lower” is better than a do-nothing strategy and that gas prepay transactions are the only means to lower cost relative to the market/PG&E. Council Member Klein noted that the report contained no explanation for avoiding long-term fixed price contracts in proposed Strategy 1. Council Member Klein said he did not have a preference between stable rates and competitive (market-based) costs. Council Member Scharff requested that staff do more analysis on laddering strategy alternatives and discuss with the UAC. Council Member Scharff also asked what the purpose of the carbon adder is when evaluating energy efficiency as stated in proposed Strategy 3. Staff explained that it expects that the City will have to pay for greenhouse gas emissions in the future. Therefore reducing these emissions has value and, since energy efficiency is a long-term investment, those avoided costs are included in the value of energy efficiency. Vice Mayor Espinosa noted that it is important to communicate with the public on why the City’s gas purchasing strategy sometimes leads to the City’s gas rates being higher than PG&E’s. Staff indicated that this would be part of the job of the new position Council approved in the FY 2010 budget, the Utilities Communications Manager. Council Member Schmid expressed concern about the City’s gas cost relative to the market and commented on the need for more information regarding prepay transactions. ACTION: Council Member Klein moved, seconded by Vice Mayor Espinosa to request that Staff bring revisions to the Staff Report back to the Finance Committee that clarify the justifications for the proposals Staff is making. INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE MAKER AND SECONDER for Staff to refer the laddering strategy to the Utilities Advisory Commission for further study and return to the Finance Committee at a later date. Motion Passed: 4-0 ATTACHMENT C FINANCE COMMITTEE – MEETING EXCERPTED DRAFT MINUTES OF NOVEMBER 16, 2010 ITEM 3. Utilities Advisory Commission Recommendation to Approve the Proposed Gas Utility Long-term Plan (GULP) Objectives, Strategies and Implementation Plan (continued form November 2, 2010) Senior Resource Planner Karla Dailey provided a brief presentation on GULP noting that the UAC unanimously approved the objectives, Strategies, and Implementation Plan at its October 2010 meeting. She highlighted the differences between the current and proposed GULP Objectives and the Strategies and Implementation Plan to meet those objectives. Council Member Klein asked what the benchmark is for “lower cost” referred to in proposed GULP Objective 2. Staff explained that “lower” is better than a do-nothing strategy and that gas prepay transactions are the only means to lower cost relative to the market/PG&E. Council Member Klein noted that the report contained no explanation for avoiding long-term fixed price contracts in proposed Strategy 1. Council Member Klein said he did not have a preference between stable rates and competitive (market-based) costs. Council Member Scharff requested that staff do more analysis on laddering strategy alternatives and discuss with the UAC. Council Member Scharff also asked what the purpose of the carbon adder is when evaluating energy efficiency as stated in proposed Strategy 3. Staff explained that it expects that the City will have to pay for greenhouse gas emissions in the future. Therefore reducing these emissions has value and, since energy efficiency is a long-term investment, those avoided costs are included in the value of energy efficiency. Vice Mayor Espinosa noted that it is important to communicate with the public on why the City’s gas purchasing strategy sometimes leads to the City’s gas rates being higher than PG&E’s. Staff indicated that this would be part of the job of the new position Council approved in the FY 2010 budget, the Utilities Communications Manager. Council Member Schmid expressed concern about the City’s gas cost relative to the market and commented on the need for more information regarding prepay transactions. MOTION: Council Member Klein moved, seconded by Vice Mayor Espinosa to request that Staff bring revisions to the Staff Report back to the Finance Committee that clarify the justifications for the proposals Staff are making. INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE MAKER AND SECONDER for Staff to refer the laddering strategy to the Utilities Advisory Commission for further study and return to the Finance Committee with at a later date. Motion Passed: 4-0 ATTACHMENT D FINANCE COMMITTEE – MEETING EXCERPTED DRAFT MINUTES OF DECEMBER 7, 2010 ITEM 3: ACTION: Utilities Advisory Commission recommendation to Approve the Proposed Gas Utility Long-term Plan (GULP) Objectives, Strategies and Implementation Plan Assistant Director of Utilities for Resource Management, Jane Ratchye, provided a brief explanation of the changes in the report compared to the November 16, 2010 version to be responsive to the direction provided by the Finance Committee. She highlighted the following: 1. An implementation step to review the laddering strategy with the Utilities Advisory Commission (UAC) by June 2011 was added to the Implementation Plan. 2. Text and 2 graphs were added showing the cumulative residential gas bill savings compared to PG&E for the bundled bill and the commodity portion only of the bill. Ratchye pointed out that for the total gas bill, Palo Alto customers have paid the same amount as PG&E customers for the time period for the last 13 years. For the period July 2006 through present, Palo Alto customers have paid approximately $140 more than PG&E customers for gas commodity only. 3. A paragraph detailing the fixed-price purchase targets for the next 36 months was added. 4. The reasons for not engaging in transactions for fixed-price contracts beyond 10 years were listed. 5. Clarification was made that lowering cost does not refer to “beating the market”. 6. More explanation regarding the carbon adder for comparing energy efficiency to natural gas resources was provided. Council Member Scharff asked if natural gas could be purchased at the current spot market price of $4 per MMBtu for the next several years. Ratchye explained the difference between the spot market and the market for deliveries of gas in the future and presented a forward curve for gas showing that the price for gas for delivery two years from now is $5.90 per MMBtu despite gas costs for delivery in the next month being closer to $4.00 per MMBtu. Ratchye also pointed out that interested people can view similar graphs in the quarterly update reports to the UAC available on the City’s website. Council Member Schmid expressed an opinion about the forward curve lagging compared to the spot market and commented on the need for more information regarding prepay transactions. Utilities Director Valerie Fong acknowledged the need for staff to provide more information on gas prepay transactions. MOTION: Council Member Espinosa moved, seconded by Schmid, that the Finance Committee recommends to the City Council approval of the proposed Gas Utility Long-term Plan (GULP) objectives, strategies, and implementation plan. MOTION PASSED 3-0, Klein absent TO: HONORABLE CITY COUNCIL FROM: CITY MANAGER DEPARTMENT: UTILITIES DATE: JANUARY 10, 2011 CMR: 108:11 REPORT TYPE: CONSENT SUBJECT: Approval of Amendment No. 1 to Contract C10135713 with K. J. Woods Construction, Inc. in the Amount of $170,000 for a Total Not to Exceed Amount of $2,202,800 for Asbestos Cement Pipe Removal and Disposal for Capital Improvement Program Project WC-08012 (Wastewater Rehabilitation and Augmentation Project 21) and Adoption of a Wastewater Enterprise Fund Budget Amendment Ordinance for Fiscal Year 2011 to Transfer Appropriation to Capital Improvement Project WC-08012 Wastewater Rehabilitation and Augmentation (Project 21) from Capital Improvement Project WC- 07004, Wastewater Rehabilitation and Augmentation (Project 20) in the Amount of $170,000 RECOMMENDATION Staff recommends that Council: 1. Approve Amendment No. 1 to Contract C10135713 with K. J. Woods, Inc. in the Amount of $170,000 for a Total Not to Exceed Amount of $2,202,800 for Asbestos Cement Pipe Removal and Disposal for Capital Improvement Program Project WC-08012, (Wastewater Rehabilitation and Augmentation Project 21); and 2) Adopt a Budget Amendment Ordinance for Fiscal Year 2011 to Transfer Appropriation to Capital Improvement Project WC-08012, Wastewater Rehabilitation and Augmentation (Project 21) from Capital Improvement Project WC-07004, Wastewater Rehabilitation and Augmentation (Project 20) in the Amount of $170,000. BACKGROUND On June 21, 2010, the City Council approved and authorized the City Manager to execute a contract with K. J. Woods Construction, Inc. (KJW) for rehabilitating the sanitary sewer and related structures for Sanitary Sewer Rehabilitation Capital Improvement Program Project WC- 08012 (Project 21 – Barron Park, Alma, Baylands) (CMR:271:10). The original contract included $1,848,000 for construction, plus a contingency of $184,800, for a total not to exceed amount of $2,032,800. The original scope of work to be performed under the contract was for the replacement of approximately 22,083 linear feet of sanitary sewer mains of various sizes, 63 sewer manholes, and 380 sewer service laterals. The project is primarily located in the Barron Park area with some of the work in non-contiguous areas along a part of Alma and by the Baylands Ranger Station and Baylands Interpretive Center. The size of this project significantly exceeds our in- house resources making it necessary to contract out the work. CMR: 108:11 Page 1 of 3 CMR: 108:11 Page 2 of 3 DISCUSSION During the design phase of the project wastewater laterals were specified to be replaced by pipe bursting methods. Pipe bursting is the most cost effective replacement method for wastewater laterals, involving minimal excavation. During project construction staff determined that a higher than normal percentage of the laterals were made of Asbestos Concrete (AC) pipe. The high percentage of AC pipe could not be anticipated because existing records were incomplete as a result of this neighborhood being annexed into the City of Palo Alto in 1975. According to the contract, most of the laterals were to be replaced by a method that burst the existing pipe while inserting a new pipe. Federal, State and local regulations prevent the use of this method for AC pipe. Since the pipe bursting approach was not acceptable and required a modified replacement method, the project involved unanticipated excavation and proper disposal of the AC materials. There have been two change orders executed to cover part of the open cut AC lateral replacement and part of the removal and disposal of AC pipe material. These two change orders have already used 92% of the original contingency. Although approximately 8% of the original contingency is still available, the project is only 15% complete. Staff anticipates that there may be insufficient funds available if additional change orders are needed. The recommended contract amendment will add $170,000 to the total contract price, and increase the 10% contingency from $184,400 to $200,255, to cover future change orders. The contract amendment also clarifies the contractor’s responsibility for proper handling of hazardous materials. Generally, the City has limited quantities of AC pipe in the wastewater collection system. Based on the pipe types that are identified in our database, the AC portion of the system is less than 2% of the total inventory in the wastewater collection system. For this project, however, located primarily in the Barron Park area, staff has subsequently determined that approximately 50% of the affected laterals scheduled for replacement are AC. This was due to the fact that when Barron Park was annexed in the 70’s, there were incomplete utility records. This was unforeseen and unexpected. RESOURCE IMPACT Staff requires $170,000 to amend the contract with K. J. Woods Construction to cover additional change orders that may include removal and disposal of AC pipes. The existing appropriation of Project 21 is not sufficient to cover the cost of this amendment. Capital Improvement Project WC-07004 (Project 20) has sufficient remaining available appropriation that will be transferred to cover the additional cost of Project 21. This transaction has no impact on the Wastewater Collection Fund rate stabilization reserve balance. POLICY IMPLICATIONS Amending the contract is consistent with Council policy. This recommendation is consistent with the Council approved Utilities Strategic Plan Key Strategy #2, “invest in utility infrastructure to deliver reliable service.” ENVIRONMENTAL REVIEW This project is categorically exempt from California Environmental Quality Act (CEQA) pursuant to CEQA Guideline Sections 15301 (b) repair, maintenance of existing facilities and 15302 (c) replacement or reconstruction of existing facilities. ATTACHMENTS A. AmendmentNo. 1 to Conn-aetNo. ClO135713 B. Budget Amendment Ordinance PREPARED BY: REVIEWED BY: DEPARTMENT APPROVAL: CITY MANAGER APPROVAL: CMR: 108:11 ROBERT ITEM, Project Engineer-S, WGW Engine-J21Jti EDWARD WU, Sr. Project Engineer, WGW Engine:t::.~ GREG SCOBY, Engineering Manager, WGW Engineering~ TOMM MARSHALL, A~sistant Director Utilitie~ A~ VALERIE . FO' Director of hties JAMES City Mana er Page 3 on Attachment B ORDINANCE NO. ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO ADOPTING A WASTEWATER ENTERPRISE FUND BUDGET AMENDMENT ORDINANCE FOR FISCAL YEAR 2011 TO TRANSFER APPROPRIATION TO CIP PROJECT WC- 08012, WASTEWATER REHABILITATION AND AUGMENTATION (PROJECT 21) FROM CIP PROJECT WC-07004, WASTEWATER REHABILITATION AND AUGMENTATION (PROEJCT 20) IN THE AMOUNT OF $170,000 The Council of the City of Palo Alto does ordain as follows: SECTION 1. The Council of the City of Palo Alto finds and determines as follows: A. Pursuant to the provisions of Section 12 of Article III of the Charter of the City of Palo Alto, the Council on June 28, 2010 did adopt a budget for fiscal year 2011; and B. In fiscal year 2008 Council initially appropriated $265,000 for the design cost of CIP Project WC-08012, Wastewater Rehabilitation and Augmentation (Project 21). In fiscal year 2009, Council increased the appropriation by $2,700,000 for the construction cost bringing total appropriation to $2,965,000; and C. Project 21 will replace approximately 22,083 linear feet of sanitary sewer main of various sizes, 63 manholes and 380 sewer service laterals. Project 21 will be located in the Barron Park area with some of the work in non-contiguous areas along a part of Alma Street, Baylands Ranger Station and Baylands Interpretive Center; and D. The original design of the Project 21 was to use the “pipe bursting” method which is the most cost effective, and involves minimal excavation. Pipe bursting does not remove existing laterals but instead burst the existing pipe while inserting a new pipe. However, during the construction of this project it was determined that a high percentage of the laterals were made of Asbestos Concrete (AC); and environmental regulations require the AC laterals to be removed and disposed of via an alternative method, such as open-cut replacement; and E. An estimated amount of $170,000 is needed to amend the contract with K.J. Woods Construction should additional change order be required to cover the removal and disposal of any remaining pipes, or for any other unforeseen but necessary work. The existing appropriation of Project 21 is not sufficient to cover the cost of this change. CIP Project WC- 07004 (Project 20) has sufficient remaining available appropriation that will be transferred to cover the additional cost of Project 21; and G. City Council authorization is needed to amend the 2011 budget as hereinafter set forth. SECTION 2. The sum of One Hundred Seventy Thousand Dollars ($170,000) is hereby appropriated to CIP Project WC- 08012, Wastewater Rehabilitation and Augmentation (Project 21). SECTION 3. The appropriation for CIP Project WC-07004 (Project 20), Wastewater Rehabilitation and Augmentation is hereby reduced by One Hundred Seventy Thousand Dollars ($170,000). SECTION 4. The transactions above will have no impact on the Wastewater Collection Fund reserve balance. SECTION 5. As specified in Section 2.28.080(a) of the Palo Alto Municipal Code, a two-thirds vote of the City Council is required to adopt this ordinance. SECTION 6. As provided in Section 2.04.330 of the Palo Alto Municipal Code, this ordinance shall become effective upon adoption. SECTION 7. The project is categorically exempt from California Environmental Quality Act (CEQA) pursuant to CEQA guideline Sections 15301(b) repair, maintenance of existing facilities and 15302 (c) replacement or reconstruction of existing facilities. INTRODUCED AND PASSED: AYES: NOES: ABSTENTIONS: ABSENT: ATTEST: APPROVED: City Clerk Mayor APPROVED AS TO FORM: City Manager Sr. Assistant City Attorney Director of Utilities Department Director of Administrative Services TO: HONORABLE CITY COUNCIL FROM: CITY MANAGER DEPARTMENT: UTILITIES DATE: JANUARY 10, 2011 CMR: 104:11 REPORT TYPE: CONSENT SUBJECT: Utilities Advisory Commission Recommendation to Adopt a Resolution Approving the City of Palo Alto Utilities’ Legislative Policy Guidelines for 2011 RECOMMENDATION Staff and the Utilities’ Advisory Commission (UAC) recommend that the City Council adopt a resolution approving the Utilities’ Legislative Policy Guidelines for 2011. EXECUTIVE SUMMARY The Utilities’ Legislative Policy Guidelines for 2011 (Attachment B) have been developed by staff and reviewed by the UAC to: 1) provide direction to staff in evaluating and responding to legislative action involving utilities and utilities issues, and 2) clarify approved policy and advocacy direction when active involvement of Palo Alto elected officials is required. The guidelines are grouped in five sections: the first addressing legislative policy guidelines that are common to all utilities (electric, gas, water, wastewater, and fiber), and the following four sections addressing those guidelines that are specific to water, gas, electric, or wastewater collection. Each section includes a set of goals for the utility and guidelines for Palo Alto staff and elected officials when taking action to achieve the goals. DISCUSSION The utility industry is a high profile and heavily regulated industry that is subject to copious legislative actions at both the regional state and federal level. Such legislation can influence, among other things, the quality of supplies, reliability and security of the supply and distribution infrastructure; commodity procurement practices; customer service and billing; program design; rate design; and activities and costs associated with climate protection. Representatives of the City (elected and appointed officials and staff) participate in federal and state legislative forums to advocate positions on energy and water-related issues that support the City Utilities Department’s key objectives of providing valued utility services to customers while cost effectively balancing environmental solutions. The City Utilities Department also participates in joint action efforts to advocate for goals and objectives shared by other public owned utilities. CMR: 104:11 Page 1 of 3 At the state level, hundreds of bills focused on the utility industry can be introduced each year. The number of bills introduced, the pace at which bills change and new language is negotiated, and the often surprising speed at which bills can be placed for a vote during the legislative year requires Utilities Department staff and elected officials to respond quickly if the City is to have any influence on the resulting legislation. Often, a response to an amended bill is required in a matter of days. These timing constraints preclude a return to the UAC and Council for approval each time a response is required. Therefore, a set of policy guidelines is developed each year that identifies the goals and priorities for the Utilities Department to be applied by staff when evaluating and responding to legislation. While it is impracticable to return for approval each time a letter is sent in response to a bill amendment, the issues under debate are known to the UAC and Council through their participation in legislative committee meetings, the publications and summaries circulated from joint action agencies, and updates from the Utilities Director and her staff. Advocacy positions taken in alignment with these guidelines will be subject to the approval of the Utilities Director or City Manager per the City’s legislative advocacy process. BOARD/COMMISSION REVIEW AND RECOMMENDATIONS The Utilities’ Legislative Policy Guidelines for 2011 were presented to the UAC at its December 1, 2010 meeting. There was discussion about the new guidelines proposed and the UAC proposed some changes to make guidelines more generally applicable to legislative remedies. The UAC unanimously approved a motion to recommend that the City Council approve the Utilities’ Legislative Policy Guidelines for 2011 with the changes discussed. The motion carried unanimously (6-0), with Commissioner Keller absent. Draft minutes from the UAC meeting are included as Attachment C. Staff has incorporated the changes recommended by the UAC into the attached proposed Utilities’ Legislative Policy Guidelines for 2011. RESOURCE IMPACT There is no direct resource impact associated with adoption of the proposed legislative policy guidelines. However, actions taken that support the efficient use of the City’s assets and resources will help control costs, implement the Council’s policies and goals, and protect utility customers. POLICY IMPLICATIONS The recommendation is consistent with the Council policy and supports the Council’s 2010 priorities of City Finances and Environmental Sustainability. ENVIRONMENTAL REVIEW Approval of a Resolution Adopting the Utilities’ Legislative Policy Guidelines for 2011 does not meet the definition of a project pursuant to Section 21065 of the California Environmental Quality Act (CEQA), thus, no environmental review is required. CMR: 104:11 Page 2 of 3 ATTACHMENTS A. Resolution Adopting the Utilities' Legislative Policy Guidelines for 2011 B. Utilities' Legislative Policy Guidelines for 2011 ----C ··Excerpt-from-Dra±tUAC-MectingMinutesofDecemberl, 2010 PREPARED BY: DEBRA LLOYD VL Acting Assistant Director, Resource Management DEPARTMENT APPROVAL: VAL1r~~r-N-G---------- Director of Utilities CITY MANAGER APPROVAL: CMR: 104:11 Page 3 of3 * NOT YET APPROVED* 1 110105 dm 6051482 Resolution No. Resolution of the Council of the City of Palo Alto Approving the City of Palo Alto Utilities' Legislative Policy Guidelines for 2011 WHEREAS, the City of Palo Alto Utilities Strategic Plan (“Strategic Plan”), approved by the Council of the City of Palo Alto on March 7, 2005, [CMR 148:05] provides a set of Key Objectives for the City of Palo Alto Utilities Department (CPAU) to follow in the areas of customer satisfaction and utility infrastructure, employment of balanced environmental solutions, provision of competitive rates to customers through municipal ownership, and assurance of a safe and engaged workforce; and WHEREAS, CPAU annually identifies Utilities’ Legislative Policy Guidelines that facilitate the Strategic Plan’s Key Objectives; and advocates for utility-related issues at Federal and State legislative forums in furtherance of those objectives; and WHEREAS, in November 2010 CPAU staff updated the Legislative Policy Guidelines to respond to recent legislative and regulatory trends; and WHEREAS, the 2011 Legislative Policy Guidelines also support the City Council’s inclusion of “City Finances” and “Environmental Sustainabilty” in the 2010 Council Top 5 Priorities, and the recommendations of the Mayor’s Green Ribbon Task Force on Climate Protection; and WHEREAS, action on some of these issues may require active involvement of Palo Alto elected and appointed officials; and WHEREAS, the Utilities’ Legislative Policy Guidelines for 2011 were presented to the UAC at its December 2, 2010 meeting, and the UAC voted 6 to 0 (with Commissioner Keller absent) to recommend that the City Council approve the Utilities’ Legislative Policy Guidelines with the changes recommended by the UAC. NOW, THEREFORE, the Council of the City of Palo Alto does hereby RESOLVE as follows: SECTION 1. The Council hereby adopts the resolution approving the Utilities’ Legislative Policy Guidelines for 2011. SECTION 2. The Council finds that any revenue derived from the authorized adoption enumerated herein shall be used only for the purpose set forth in Article VII, Section 2, of the Charter of the City of Palo Alto. // // * NOT YET APPROVED* 2 110105 dm 6051482 SECTION 3. The Council finds that the adoption of this resolution does not constitute a project under Section 21065 of the California Environmental Quality Act (CEQA) and the CEQA Guidelines, and therefore, no environmental assessment is required. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ___________________________ ___________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ___________________________ ___________________________ Senior Deputy City Attorney City Manager ___________________________ Director of Utilities ___________________________ Director of Administrative Services ATTACHMENT B Utilities’ Legislative Policy Guidelines for 2011 Advocacy positions taken in alignment with these guidelines will be subject to the approval of the Utilities Director or City Manager as per the City’s legislative advocacy process ALL UTILITIES Goals 1. Preserve/enhance local accountability in the control and oversight of matters impacting utility programs and rates for our customers while balancing statewide climate protection goals. 2. Support legislation that makes bold progress in cost effectively reducing greenhouse gas emissions, and recognizes early voluntary action. 3. Support efforts to maintain or improve the reliability of the supply, transmission, storage and distribution/collection infrastructures. 4. Maintain the City of Palo Alto Utilities’ (CPAU’s) ability to provide safe, reliable, sustainable, and competitively-priced utility services. Legislative Policy Guidelines Venue Goals 1. Local Accountability 2. Climate Protection 3. Reliability & Infrastructure 4. Service & Cost Control 1. Advocate goals through active participation in joint action efforts. Federal, State, and Regional 2. Communicate the City’s record on environmental and energy efficiency programs with Legislature, California Energy Commission (CEC), California Air Resources Board (CARB), and Natural Resources Defense Council (NRDC) via California Municipal Utilities Association (CMUA), Northern California Power Agency (NCPA), and the Bay Area Water Supply and Conservation Agency (BAWSCA). State Utilities Legislative Policy Guidelines for 2011 1. Local Accountability 2. Climate Protection 3. Reliability & Infrastructure 4. Service & Cost Control 3. Support legislation that will result in the most cost-effective reduction of GHG emissions, recognition of early action, and inclusion of more efficient solutions, such as cogeneration, distributed resources, and demand control programs, in integrated resource plans. Federal, State, and Regional 4. Promote utility legislation and regulation that support reasonable reliability standards and compliance requirements, and effective and consistent reporting requirements, customer communications, and goal- setting. Federal, State, and Regional Reliability Councils 5. Oppose cost shifts from Federal or State budgets and California Public Utilities Commission (CPUC) jurisdictional utilities through active participation in CMUA and NCPA legislative activities. Federal, State, and CPUC 6. Advocate for State and Federal grants for local and regional applications of energy efficiency, conservation, renewable resources, fiber, wastewater collection systems and recycled water projects. Federal and State 7. Maintain right of way access for utility infrastructure. Federal and State 8. Protect the value of existing contracts and local regulatory approvals of such contracts. Federal and State Page 2 of 10 Utilities Legislative Policy Guidelines for 2011 WATER Goals 1. Increase the security and reliability of the regional water system owned and operated by the San Francisco Public Utilities Commission (SFPUC). 2. Maintain the provision of an environmentally sustainable, reliable supply of high quality water at a fair price. 3. Support ability of municipal utilities to develop and manage their own conservation and efficiency programs and retain authority over ratemaking, including the ability to optimize volumetric and fixed charges to balance the goals of revenue certainty and water use efficiency. 4. Support efficiency and recycled water programs in order to minimize the use of imported supplies. Legislative Policy Guidelines Venue Goals 1. Reliable infrastructure 2. Supplies at fair cost 3. Local Authority 4. Minimize imports 1. Advocate goals through active participation in the Bay Area Water Supply and Conservation Agency (BAWSCA) and California Municipal Utilities Association (CMUA), with support from Palo Alto staff for BAWSCA and the San Francisco Bay Area Regional Water System Financing Authority (RFA). Local, Regional & State 2. Participate in California Urban Water Conservation Council (CUWCC) Best Management Practice (BMP) revisions and development to ensure that aggressive and cost-effective efficiency goals are incorporated and operating proposals are reasonable, achievable, and cost-effective. State 3. Advocate to ensure that legislative actions regarding the Hetch Hetchy Reservoir and conveyance system include the following requirements: timely rebuilding of the regional water system; maintains the quality of delivered water; minimizes any increase in the cost of water; creates no additional exposure to more frequent or severe water shortages; supports the existing water system and its operation. Local, Regional & State Page 3 of 10 Utilities Legislative Policy Guidelines for 2011 1. Reliable infrastructure 2. Supplies at fair cost 3. Local Authority 4. Minimize imports 4. Advocate for interpretations or implementation of Water Code provisions (such as those enacted by AB 1823 (2002), AB 2058 (2002) and SB 1870 (2002)) that maintain or reinforce the authorities and protections available to the City and BAWSCA members outside of San Francisco. Local, Regional, and State 5. Support provision of sufficient resources for BAWSCA to enable it to advocate for: an environmentally sustainable, reliable supply of high quality water at a fair price; preservation of Palo Alto’s existing contractual water allocation and transportation rights on the SFPUC Hetch Hetchy system; regional planning for conservation, recycled water, and other water supply projects. Local and Regional 6. Advocate for: actions that preserve Palo Alto’s existing contractual rights supporting actions that preserve local control over water use and limit encroachment from outside jurisdictions Local and Regional 7. Support infrastructure security and reliability including an interconnection between the SCVWD West Pipeline with the SFPUC’s Bay Division Pipelines 3 and 4. Regional, and State 8. Support notification requirements that aid residents/customers but do not inflict undue or unobtainable requirements on the utility. State 9. Support local control of public benefit funds funding levels and program design. State 10. Advocate for financing or funding for water conservation programs and recycled water projects that meet end-use needs and conserve potable water. Regional, State and Federal Page 4 of 10 Utilities Legislative Policy Guidelines for 2011 GAS Goals 1. Preserve /enhance the ability of municipal utilities to develop their own demand side efficiency and conservation programs, alternative gas supplies, and rate structure. 2. Support efforts to reduce greenhouse gas emissions and protect the environment. 3. Increase the security and reliability of the gas supply and transmission infrastructure. This includes retaining access to intra- and interstate gas transmission systems to reliably serve customers. 4. Preserve just and reasonable utility rates. Legislative Policy Guidelines Venue Goals 1. Local Authority 2. Environ- ment 3. Reliability of Infrastructure 4. Cost Control 1. Advocate most of these goals mainly through the American Public Gas Association (APGA) with minor support from Palo Alto staff. Primarily Federal with minor advocacy at State level 2. Work with Northern California Power Agency (NCPA) and California Municipal Utilities Association (CMUA) to the extent that the City’s goals as a gas distributor align with generators’ use of natural gas. Federal and State 3. Support increased production/incentives for renewable gas supplies. Federal and State 4. Advocate for financing or funding for natural gas efficiency and solar water heating end uses. Federal and State 5. Support market transparency and efforts to eliminate market manipulation through reasonable oversight Federal 6. Support municipal utilities ability to enter into pre-pay transactions for gas supplies. Federal Page 5 of 10 Utilities Legislative Policy Guidelines for 2011 ELECTRIC Goals 1. Preserve /enhance the ability of municipal utilities to exercise local accountability and oversight over matters impacting customer service, programs (such as demand side efficiency and conservation programs), and rate structure. 2. Preserve/enhance the reliability and security of infrastructure. 3. Support legislation that makes bold progress in cost effectively reducing greenhouse gas emissions and encourages early voluntary action. 4. Preserve just and reasonable utility rates/bills. Legislative Policy Guidelines Venue Goals 1. Local Accountability 2. Reliability 3. GHG Reduction 4. Cost Control 1. Advocate goals through Northern California Power Agency (NCPA), California Municipal Utilities Association (CMUA), American Public Power Association (APPA), Transmission Agency of Northern California (TANC), and Bay Area Municipal Transmission Group (BAMx) with support from Palo Alto staff to speak with a coordinated voice. Federal and State 2. Advocate for legislation/regulations that provide local support for: clean distributed generation and cogeneration projects, and standards for connecting such resources to the local distribution system; electric efficiency programs; implementation of renewable portfolio standards; storage integration; smart grid design and implementation, and control of public benefit funds (as allowed in AB1890 (1996)). Federal and State 3. Support cap-and-trade market designs that: protect consumers from the exercise of market power; allocate allowances that help mitigate impacts to Palo Alto customers while providing incentives for utilities to move to lower GHG emission portfolios; provide flexible compliance mechanisms such as banking & borrowing of allowances. Federal and State Page 6 of 10 Utilities Legislative Policy Guidelines for 2011 1. Local Accountability 2. Reliability 3. GHG Reduction 4. Cost Control 4. Support renewable portfolio standards that: promote the 33% goal for the state; maintain local compliance authority; allow utilities to pursue low cost alternatives by utilizing existing transmission system to access out-of-state resources. Local and State 5. Support/encourage transmission, generation, and demand-reduction projects and solutions including advocating for financing or funding solutions/options for projects that: enhance/ensure reliability; ensure equitable cost allocation (including protection against imposition of state-owned electric contract costs on municipal utility customers); improve procurement flexibility (e.g. resource adequacy rules that ensure reliability and provide flexibility or use of Renewable Energy Certificates (RECs) in meeting State renewable portfolio standards); improve market transparency (particularly transparency of IOU’s transmission and procurement planning and implementation activities); and lower the environmental impact on the Bay Area and the Peninsula. Local, State, and Federal 6. Advocate for Congressional, legislative, or administrative actions on matters impacting costs or operations of the Western Area Power Administration such as: support of Congressional Field Hearings to explore modernizing flood control strategies, river regulation and generation strategies at CVP plants to enhance generation, water delivery, flood control and fisheries; protection of the status of Western Power Marketing Administration and cost-based rates; and provisions for preference customers’ first take at land available with economic potential for wind farms. Federal, State and Regional Page 7 of 10 Utilities Legislative Policy Guidelines for 2011 1. Local Accountability 2. Reliability 3. GHG Reduction 4. Cost Control 7. Advocate for Congressional, legislative, or administrative actions on matters relating to overly burdensome reporting and compliance requirements established by the North American Reliability Corporation (NERC), the Federal Energy Regulatory Commission (FERC) or the Western Electricity Coordinating Council (WECC). Federal, State and Regional 8. Seek Congressional remedies (if needed) for punitive application of fees and fines established by NERC, WECC, or FERC. Federal and Regional 9. Work with California Independent System Operator (CAISO) or through FERC: to give buyers of renewable intermittent resources relief from imbalance penalties; and to promote financial and operational changes that result in timely and accurate settlement and billing. Federal and State Page 8 of 10 Utilities Legislative Policy Guidelines for 2011 WASTEWATER COLLECTION Goals 1. Increase the reliability of the local wastewater collection systems. 2. Maintain the provision of an environmentally sustainable, reliable high quality wastewater collection service at a fair price. 3. Support ability of municipal utilities to develop and manage their own conservation and efficiency programs and retain authority over ratemaking, including the imposition of non-volumetric customer meter or infrastructure charges for wastewater collection service. 4. Support equal comparisons of wastewater collection system with regard to regulations in order to minimize and reduce onerous, costly and time-intensive reporting requirements and improve value and accuracy of information reported to the public. Legislative Policy Guidelines Venue Goals 1. Reliable infrastructure 2. Maintain service 3. Local Authority 4.Valuable Reporting 1. Advocate goals through active participation in the Association of Bay Area Governments (ABAG). Local, Regional & State 2. Advocate to ensure that legislative actions regarding the comparison of wastewater collections systems for future regulations include the following requirements: timely rebuilding of the local wastewater systems; maintains the quality of delivered wastewater collection service; minimizes any increase in the cost of wastewater collection service; creates no additional exposure to more frequent or severe wastewater overflows; supports the existing wastewater collections systems and their operation. Local, Regional & State 3. Support provision of sufficient resources for ABAG to enable it to advocate for: environmentally sustainable, reliable wastewater collection service at a fair price; regional comparisons of wastewater Local and Regional Page 9 of 10 Utilities Legislative Policy Guidelines for 2011 Page 10 of 10 1. Reliable infrastructure 2. Maintain service 3. Local Authority 4.Valuable Reporting collection projects for future state grant funding. 4. Support infrastructure security and reliability including equitable allocation of funds for increasing the security of infrastructure. Regional, and State 5. Advocate for funding for wastewater collections system projects that reduce overflows and improve collection system efficiency. Regional, State and Federal Utilities Advisory Commission Minutes Approved on: Page 1 of 1 DRAFT UTILITIES ADVISORY COMMISSION EXCERPT MINUTES OF DECEMBER 1, 2010 ITEM 3: ACTION ITEM: Utilities Legislative Policy Guidelines for 2011 Acting Assistant Director Debra Lloyd presented the Utilities Department’s proposed Legislative Policy Guidelines for 2011. Lloyd explained the reason for the guidelines, to provide direction in evaluating and responding promptly to legislative action involving utilities and utilities’ issues throughout the year and to clarify approved policy and advocacy direction when active involvement of Palo Alto elected officials is required. Then she highlighted the changes to goals and guidelines from those approved in 2010 that are proposed to respond to anticipated legislative focus in 2011. The Commissioners made further amendments to the goals and the guidelines through the presentation. The “All Utilities” goals were amended to include a reference to storage and safety issues. An additional guideline was added to protect the value of existing contracts, which was a guideline originally stated in the electric utility section but that the UAC suggested was a priority that applied to all utilities. For the Water Utility guidelines the Commissioners discussed the relevance of guidelines for interactions with other agencies that are more operational in nature rather than legislative. Commissioner Berry suggested that language should allow for legislative remedies while avoiding language that would curtail the City’s ability to pursue legal remedies, so changes were made to guideline 6 to make it more generally applicable to potential legislative remedies. Staff was directed to review this language again with the City Attorney’s office. Commissioner Berry suggested changes to Guideline 8 to make it more general to refer to notification requirements to any residents. The UAC made no changes to the Natural Gas utility goals and guidelines but Commissioner Foster did ask for clarification on the change of language in Guideline 4 that the proposal is to advocate for financing or funding for efficiency programs, which could be from state or federal grants or from local funding. For the Electric Utility guidelines, the Commissioners discussed the language proposed for the allocation of GHG emissions allowances under a cap-and-trade market in guideline 3. To make the guideline more focused on protecting Palo Alto customers the language was changed to “Support cap-and-trade market designs that allocate allowances that help mitigate impacts to Palo Alto customers while providing incentives for utilities to move to lower GHG emission portfolios.” The Commissioners also discussed the new guideline 4 to support the 33% RPS goal for the state while allowing utilities to use out-of-state resources to meet that goal. Staff explained that although Palo Alto may meet its goal with in state resources, any restrictions on how other utilities met their targets could require expensive transmission infrastructure investments, the costs of which would be shared by everyone, including Palo Alto. No changes were recommended to the proposed language for Electric guideline 4. Chair Waldfogel suggested that the Electric guideline 9 regarding protecting the value of existing contracts could be more generally applied to all utilities and the UAC agreed that this should be moved to the All Utilities section. Lloyd provided an overview of the goals and guidelines for the new section added for the Wastewater Collection utility. There was no discussion on these guidelines and no changes proposed. ACTION: Commissioner Eglash made a motion to recommend Council approval of the Utilities Legislative Policy Guidelines for 2011 with changes proposed by the UAC. Commissioner Cook seconded the motion. The motion carried unanimously (6-0) with Commissioner Keller absent. \ RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO EXPRESSING APPRECIATION TO PATRICK V ALATH UPON HIS RETIREMENT WHEREAS, Patrick Valath, has served the City of Palo Alto from January 3,1984, to December 30, 2010, as Utilities Power Engineer, Utilities Senior Power Engineer, and Utilities Electric Engineering Manager; and WHEREAS, Patrick Valath, has enhanced the quality of life for the citizens of this community by providing professional engineering and long-term planning for the electric distribution systems; and WHEREAS, Patrick Valath, has enhanced the visual aesthetics of the city for the citizens of this community by coordinating, managing, and directing the completion of 15 Electric Underground Districts; and WHEREAS, Patrick Valath, has always sought to provide excellent electric services to the citizens and businesses of Palo Alto by providing electric connections services; and WHEREAS, Patrick Valath, has provided superior customer service and timely responses to customer queries on a consistent and dependable basis; and WHEREAS, Patrick Valath, has provided his expertise, guidance and support to his fellow employees in the Utilities Department over the last 26 years; and WHEREAS, the City of Palo Alto desires to recognize the meritorious service of Patrick Valath. NOW, THEREFORE, BE IT RESOLVED, that the Council of the City of Palo Alto hereby commends the outstanding public service of Patrick Valath and records its appreciation as well as the appreciation of the citizens of this community for the service and contribution rendered during his 20 years of employment with the City. INTRODUCED AND PASSED: ATTEST: APPROVED: City Clerk Mayor APPROVED AS TO FORM: City Attorney City Manager TO: FROM: DATE: City of Palo Alto City Manager's Report HONORABLE CITY COUNCIL CITY MANAGER DEPARTMENT: LIBRARY JANUARY 10, 2011 CMR: 102:11 REPORT TYPE: CONSENT SUBJECT: . Authorization to Continue Participation in and Funding for the LINK+ Resource Sharing Library Consortium for a Period of Two Years for a Total Amount Not to Exceed $200,000, with the Friends of the Palo Alto Library (FOPAL) Contributing up to $100,000 RECOMMENDATIONS Staff recommends that Council authorize the City Manager or his designee to continue participation in and funding for the LINK + resource sharing library consortium for a period of two years totaling up to $200,000, with FOPAL contributing up to $100,000 of the total amount, in order to allow customers of the Palo Alto City Library (Library) to continue to borrow books from other LINK + member libraries. BACKGROUND LINK + is a consortium of academic and public libraries in California and Nevada that maintains a unified catalog of the holding of the member libraries for the purpose of facilitating borrowing across the system. In contrast to traditional interlibrary loan service, library users who have access to LINK + initiate their own requests through the online catalog, and the books are delivered via a contracted courier to the customers' local libraries within a few days. LINK + borrowers have access to over 18,000,000 volumes owned by consortium members. There is no charge to an individual to request or borrow a book through the LINK + system. A significant portion of the cost of LINK + service is associated with the loan of books to other libraries in the consortium. Member libraries must commit to provide adequate staffing to meet the system's goal of a 24-hour turnaround to fill loans. The Library is also responsible for contracted courier service charges to deliver books to other member libraries, and incurs additional expenses for special software and a server needed to manage the transactions between LINK + and the Library's own circulation system. In 2008, the City approved CMR: 166 :08, which allowed the Library to join the LINK + consortium and embark upon a two-year pilot project to test the service and assess its benefits CMR:102:11 Page lof4 and costs. The Board of the Friends of the Palo Alto Library (FOPAL) committed $110,000 to partner with the City in funding the cost of the pilot project, and at a recent board meeting, FOP AL approved a continuation of the partnership with the City and agreed to fund LINK + for $100,000 for another two year period. The pilot project will conclude March 31, 2011 when the Library's sUbscription will become due for renewal. Based upon an analysis of costs and feedback from LINK + users and supporting organizations, the Library recommends that the service be renewed. DISCUSSION In order to develop a realistic estimate of annual costs and perform a costlbenefit analysis, staff studied LINK+ activity for a l2-month period. There are two areas of costs associated with participation in LINK +. Major service costs (membership and sUbscription fees, hardware support, training and record profiling) are paid directly to Innovative Interfaces, the parent company ofLINK+, by FOPAL. Other service costs (delivery fees and supplies) are paid by the City. Annual service costs for the trial program for combined FOP AL and City costs were proiected at $76,000. Actual costs were $69,700. Going forward, service costs will drop further with the elimination of one-time start-up expenditures. Staff anticipates service costs for the coming year to be approximately $65,000. The second cost area is staffing costs, which include supervision, technical support, and shipping and receiving operations at the City. These costs were originally estimated to amount to $39,000, but were somewhat higher ($43,000) due to unexpected difficulties in loading files and the need to assign some complex start-up tasks to regular rather than hourly staff. Staffing costs started to decrease six months ago, and are expected to total approximately $35,000 in FY 2012. The State Library, through its Transaction Based Reimbursement (TBR) Program, reimburses the Library for each LINK + item loaned to other consortium members. The formula used for calculating the reimbursement amount changes annually. In 2010, the Library received $1.34 per item. During the one-year study period, the Library loaned 7,148 items to other libraries and received revenues from the State Library in the amount of$9,578. During the same period, 4,659 items were received for Palo Alto customers. This activity accounted for 0.63% of the Library's total first-time book circulation figure. It was anticipated that the TBR Program would cover the majority of the LINK + delivery charges and in fact the Library received $1,487 more from the State Library than was spent for delivery. Staff expects FY 2012 reimbursement to total approximately $10,000. 1,017 Palo Alto customers (2% of the Library's total customer base) used the service during this period. Borrowing activity is increasing. 950 items were borrowed during the 4th quarter of FY 2009. During the same period in FY 2010, borrowing activity had increased by nearly 25% to 1,185 items. Overall, the total cost per item processed on behalf of Palo Alto customers amounted to $22.19. In FY 2012, estimated costs per item are expected to decrease to about $16.10 per item. Customers who used LINK + and responded to a LINK + customer satisfaction survey voiced unanimous praise for the service. FOP AL affirmed their support for continuance and approved the Library's request for funding for an additional two years. The Library Advisory Commission CMR:102:11 Page 20f4 discussed LINK + at their November 18, 2010 meeting and unanimously recommended continuance as long as FOPAL continues their contribution. Because the actual costs closely matched the estimates, and users and FOPAL support continuing the service, staff recommend that funding for the service be continued for two more years. RESOURCE IMPACT Staff has estimated the total cost (both service and staffing) for continuing the service for two years to be about $200,000. Depending on the number of books loaned to other libraries and the State Library's funding formula for its TBR Program, potential reimbursement over the two-year period is estimated to be about $20,000. Costs for membership and subscription, hardware support and software licenses for two years will total approximately $100,000. FOPAL has approved funding for $100,000, and will pay Innovative Interfaces directly for these costs. The City's share of the cost for continuing the service for two years, approximately $100,000, wi1I cover the cost of supplies, delivery charges and hourly staff to cover the workload to provide the service. The anticipated revenue received from the ,TBR Program over two years, estimated at $20,000, will partially offset the expense. Staff will continue to promote the service and evaluate its cost relative to its benefit and use to determine if continued funding of the service is recommended. The estimated City cost in fiscal year 2011 (March-June 2011) is $10,800; $8,700 for staffing and $2,100 for delivery fees. The staffing cost is included in the FY 2011 adopted budget while the delivery cost of $2, 100 will be requested as a midyear adjustment to the Library budget, if Council approves renewal ofthis program. POLICY IMPLICATIONS This recommendation is consistent with Council's approval on December 11,2006 of the highest level ofrecommendations in the Library Advisory Commission's Library Service Model Analysis and Recommendations report, including the recommendation to use technology to "join the LINK + or similar resource sharing system to provide access to a wide range of books." ENVIRONMENTAL REVIEW This is not a project requiring environmental review under the California Environmental Quality Act (CEQA). PREPARED BY: APPROVED BY: CMR:I02:11 CORNELIA VAN AKEN Assistant Library Director NED HIMMEL Interim Library Director Page 3 of4 CITY MANAGER APPROVAL: City On the afternoon of February 24, 2010, members of the City Parks Section, Public Works Tree Section, and managers from the Community Services Department met with a small group of concerned neighbors and park users of Pardee Park to listen to concerns about the safety of the playground, adjoining sidewalks and the area surrounding the sixteen eucalyptus trees lining the southwest comer of the park at Channing A venue and Center Drive. Staff tried to assure the neighbors and parents that no branches to date had fallen inside of the fence around the children's playground and that the area was considered by staff to be safe. As a precaution staff agreed to close the playground until the City's Managing Arborist could evaluate the structure of the trees and make recommendations. Staff held a second meeting at the park in the early evening of March 11, 2010 for the benefit of neighbors and park users who were not able to attend the first meeting on February 24th. The City's Managing Arborist Eric Krebs evaluated the condition of the eucalyptus trees, effects from their prior pruning and their general health. His report, dated March 2,2010, concluded that six of the trees exhibited evidence of internal trunk rot caused by an aggressive wood decay pathogen (sulphur fungus) (Attachment B), and he recommended that these six trees, together with a dying redwood tree in another area of the park, be removed. He further recommended that the remaining ten eucalyptus trees be pruned to remove structurally unsound branches. On March 11, 2010, staff from Public Works, Community Services and the City Manager's Office held a third informational meeting at the Lucie Stem Community Center with concerned citizens to review the Arborist's report and recommendations. Staff explained that because of the aggressive nature of the decay pathogen, the six trees with fruiting bodies of sulphur fungus showing the greatest extent of trunk cankers, as outlined in the March 2nd report, would be cut down and thoroughly examined. City Manager Keene sent a memo to Council on May 9, 2010, providing notice of the eminent removal of these six trees. Three of the most severely affected trees were removed first and examined. The examination of these three trees showed conclusively that the sulphur fungus had indeed caused extensive rotting of the core of the trees. Staff held a fourth public meeting at the Stern Community Center on June 8,2010, to discuss the findings from the examinations of the trunks of the removed trees. There was a large turn-out of concerned neighbors, parents and park users at this meeting. The public was informed that the final three of six trees would be removed from the park as soon as possible. Many members of the audience urged the City to hire an independent arborist to examine the trunks of the removed trees and all of the remaining trees for their health, safety and structural integrity. During the month of July, the services of Torrey Young, an arborist from the firm of Dryad, LLC, were contracted by the City. Mr. Young examined impacts of the tree pruning conducted by the City tree crews in the 80's, the recent limb pruning by West Coast Tree Services, the condition of trunk cores of the removed trees, and the trunks of the remaining trees. His report (Attachment C) concluded that the structural integrity of the branches had been compromised because of past tree pruning as well as severe soil compaction around the roots of the trees caused by vehicles, that the trees could not be completely rehabilitated. His conclusion was that CMR: 112:11 Page 2 of5 all of the eucalyptus trees should be removed either in phases (as indicated by the health of individual trees) or at one time to lessen the risk of additional limb drop or whole tree failure around the playground. Mr. Young presented his two alternative recommendations at a fifth public meeting held at the Stern Center on September 23,2010. DISCUSSION Concluding that all of the eucalyptus trees would either need to be removed in phases or at one time, staff hired Landscape Architect Edward Chau to develop conceptual plans for the replanting of trees at the southwest corner of the park. His plans were intended to be designed to both complement the olive, oak and other ornamental trees around the playground and provide a relatively safe and attractive canopy along Channing A venue and Center Drive. At the extensively advertised sixth public meeting on December 1, 2010 for the review of three different conceptual replanting plans, Mr. Chau gathered input from the public on the "pros" and "cons" of each of the three conceptual drawings. Comments, suggestions and concerns were also gathered from the meeting participants. Notes from this meeting and the subsequent review meeting on December 8, 2010 at attached for reference (Attachment D and E respectively). In developing his final conceptual plan, Mr. Chau has also taken recommendations from Mr. Krebs, Mr. Young, members of the park staff, the public and representatives from Canopy for the species and spacing of trees in this area. Based on subsequent conversations with the consulting Arborist and his recommendation (Attachment F) that six of the eucalyptus trees could remain along Channing A venue with systematic monitoring and continued pruning, staff and Mr. Chau have developed a phased approach that would remove three additional Eucalyptus viminalis (White Gum eucalyptus) trees from along Center Drive and one Eucalyptus globulus (Blue Gum eucalyptus -identified in Mr. Kreb's report as #12) closest to the children's playground on Channing Avenue. This phased approach (Attachment G) leaves one eucalyptus (#1) near the bowl area of Pardee Park on Center Drive and five trees (#11, 13, 14, 15 and 16) along Channing Avenue. The rationale for recommending the phased approach Mr. Chau has developed, rather than the complete removal of all sixteen trees, is that significant pruning completed last springs seems to be adequate to address concerns about limb failure. This alternative removes trees from along Center Drive where cars can park. Since parking is not permitted along Channing Avenue where five of the trees will remain, there is less risk of damage or injury from limbs if a branch does indeed fall. Staff feels that retaining the healthiest of the sixteen original trees is a prudent approach to retaining the beauty and character of these trees for as long as safely possible. Staff monitored the trees during recent winter storms and noted that no limbs fell during periods of severe wind gusts of up to 45 miles per hour. Mr. Chau's recommendation also incorporates two new pathways between the sidewalk on Center Drive and the playground or the existing pathways near the Bowl. A decomposed granite pathway would connect the two new concrete pathways. These pathway concepts were popular with the meeting participants. At the public's suggestion, an existing pathway near the Channing Avenue entrance to the playground will be rerouted to skirt the footprint of remaining eucalyptus tree #16. CMR: 112:11 Page 3 of5 Based on Mr. Chau's designs, staff from the Public Work Engineering section have developed engineer's cost estimates for the removal of the four trees, grinding of tree stumps, installation of irrigation systems to sustain the newly planted trees, pathways, fencing and other necessary park amenities for the area. The costs for these improvements are estimated at $30,470. An additional $2,438 is requested for design services for the preparation of the final design and specifications, and an additional $4,440 for additional tree monitoring and pruning services by Mr. Young. While staff acknowledges that leaving the six remaining eucalyptus trees involves some potential liability risk, in consulting with Mr. Young and reviewing his recommendations, staff feels that the trees can be further pruned and monitored to keep any risk to an acceptable minimum. It is not clear at the time of this report when additional trees may need to be removed because of health or heightened safety concerns. If Mr. Young determines at any time that the condition of any tree has worsened to a unacceptable level, staff will then advise Council of the proposed removal and additional tree replanting. TIMELINE Once Council approves the recommended Budget Amendment Ordinance (Attachment A), staff will immediately proceed with the fiI;1al design of the proposed improvements. While plans are being finalized, Public Works will oversee the contracted removal of the four additional eucalyptus trees and with the grinding of the remaining tree stumps. Park staff will oversee the installation of the new irrigation system to support the new trees. Staff intends to manage all of the components of the replacement project so that the twelve new trees could be planted by mid- March. ' RESOURCE IMPACT This proposed project for the planting of twelve trees, the removal of four additional eucalyptus trees, the stump grinding of ten stumps, the installation of new irrigation for the watering of the trees and the addition of new concrete and decomposed granite pathways and other related expenses are estimated to cost $37,348. The details of the expenses are shown on the following table: ,Description Amount Planting of twelve trees, the removal of four additional $27,700 eucalyptus trees, the stump grinding of ten stumps, the installation of new irrigation for the watering of the trees and the addition of new concrete and decomposed granite pathways 10% contingency $2,770 Professional arborist services to continue monitoring the $4,440 six remaining trees and additional pruning Design services for the preparation of plan:' specifications $2,438 Total $37,348 The appropriation of CIP Project PG-09002 (Parks and Open Space Emergency Repairs) did not include the work describe in the table above. A budget amendment ordinance of $37,348 is being CMR: 112:11 Page 4 of5 Attachment A ORDINANCE NO. ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO AMENDING THE BUDGET FOR FISCAL YEAR 2011 TO PROVIDE AN ADDITIONAL APPROPRIATION OF $37,348 TO CIP PROJECT PG- 09002, PARKS AND OPEN SPACE EMERGENCY REPAIRS FOR THE REPLANTING OF TREES AT ELEANOR PARDEE PARK The Council of the City of Palo Alto does ordain as follows: SECTION 1. The Council of the City of Palo Alto finds and determines as follows: A. Pursuant to the provisions of Section 12 of Article III of the Charter of the City of Palo Alto, the Council on June 28, 2010 did adopt a budget for fiscal year 2011; and B. During the year staff conducted seven meetings with the community to discuss the safety of eucalyptus trees at - Eleanor Pardee Park along Channing Avenue and Center Drive (Park), and more specifically the options for further removal of the trees and alternatives for the replanting of trees in the southwest corner of the Park; and C. Staff considered the comments made by meeting participants, recommendations from the City's Managing Arborist and independent consulting arborist; and have concluded that the best strategy is to replant the trees in at least two phases; and D. The first phase, which is the subj ect of this budget amendment ordinance, is for the removal of four eucalyptus trees along Center Drive and the planting of twelve new replacement trees along Center Drive and'Channing Avenue; and E. The adopted budget for fiscal year 2011 for CIP Project PG-09002 (Parks and Open Space Emergency Repairs) did not incorporate expenses related to actions mentioned in Section D of this ordinance; and F. City Council authorization is needed to amend the 2011 budget to make additional appropriations of $37,348 to PG-0002 (Parks' and Open Space Emergency Repairs) for the removal and replanting of trees at Eleanor Pardee Park along Center Drive and Director of Administrative Services March 2, 2010 Attachment B Eleanor Pardee Park Eucalyptus and Redwood Maintenance Recommendations Report Prepared for: Greg Betts City of Palo Alto Director of Community Services Eric Krebs City ofpalo Alto Public Works Managing Arborist Prepared by: Eric Krebs City of Palo Alto Managing Arborist March 2, 2010 Page-I-ofI2 eric.krebs@cityofpaloalto.org (650) 496-6905 March 2, 2010 Background/Summary In response to safety concerns expressed by Palo Alto.residents, I performed an inspection of the Eleanor Pardee Park eucalyptus trees and one redwood tree. My recommendation is to preserve ten of the sixteen eucalyptus trees and to remove six. I am also recommending the removal of one redwood tree that is in very poor condition. The individual tree conditions and supporting rationale are discussed in the Observations portion of this report. My inspection was performed from the ground and this report reflects only the information I noted from this perspective. Most of these trees are very large and it is difficult to provide a thorough evaluation from ground level. If the City adopts my recommendation, a more comprehensive inspection will be performed during climbing/pruning operations. While the need for maintenance is clear, I did not find obvious signs of imminent hazards. The trees are tagged with numbers that correspond to the City's tree inventory. A map is included for easy reference to individual trees (see Attachment A). Observations Tree #1 Species: Size: Eucalyptus viminalis Diameter at breast height (DBH) = 53" Height (per PWE Survey) = 94' Canopy spread = average 70' Past pruning was limited t6 the more horizontal branching. The remainder of the tree's structure was left to grow naturally. There are branches with heavy end weights throughout the canopy. No obvious or imminent hazards are noticeable. The most recent maintenance was in September of2006. Maintenance included pruning and an aerial inspection. The health appears to be good. Recommendations: Safety Prune (See Pruning Recommendations) Tree #2 Species: Size: Eric Krebs City of Palo Alto Eucalyptus viminalis DBH = a multiple of three trunks originating below 4.5 feet (M/3); 31",22" and 17.5" eric.krebs@cityofpaloalto.org (650) 496-6905 Public Works Managing Arborist . Page - 2 -of 12 March 2, 2010 Height (per PWE Survey) = 31 ' Canopy spread = average 25' This tree was topped in July of2000. Rapid regrowth of branches at the topping cuts are weakly attached to the parent sterns. Fungal fruiting bodies were found on the base of the tree. Field identification indicated a well- known and aggressive wood decay pathogen, sulphur fungus (Laetiporus sulphureus). The most recent maintenance was in September of2006. Maintenance was limited to an inspection. Recommendations: Due to the aggressive nature of this wood decay pathogen, my recommendation is removal. Tree #3 Species: Size: Eucalyptus viminalis DBH = M/4; 26", 21", 19" and 13" Height (per PWE Survey) = 60' Canopy spread = average 25' This tree's natural form has been maintained. Fungal fruiting bodies (L. sulphureus) were fo·und on the base of the tree. The most recent maintenance was in February of201O. Maintenance included limb pickup and an inspection. Recommendations: Due to the aggressive nature of this wood decay pathogen, my recommendation is removal. Tree #4 Species: Size: Eucalyptus viminalis DBH = M/2; 19" and 16" Height (per PWE Survey) = 47' Canopy spread = average 25' This tree's natural form has been maintained. Fungal fruiting bodies of SUlphur fungus (L. sulphureus) were found on the base of the tree. Eric Krebs City of Palo Alto Public Works Managing Arborist Page - 3 -of 12 eric.krebs@cityofpaloaJto.org (650) 496-690Y March 2, 2010 The most recent maintenance was in September of 2006. Maintenance included pruning and an aerial inspection. Recommendations: Due to the aggressive nature of this wood decay pathogen, my recommendation is removal. Tree #5 Species: Size: Eucalyptus viminalis DBH = M/3; 49", 36" and 26" Height (per PWE Survey) = 134' Canopy spread = average 60' Past pruning was limited to the lower branches. The remainder of the tree's structure was left to grow naturally. There are branches with heavy end weights throughout the canopy. No obvious or imminent hazards are noticeable. The most recent maintenance was in September of2006. Maintenance included pruning and an aerial inspection. The health appears to be good. Recommendations: Safety Prune (See Pruning Recommendations) Tree #6 Species: Size: Eucalyptus viminalis DBH = 57" Height (per PWE Survey) = 90' Canopy spread = average 40' Past pruning was limited to the lower branches. The remainder of the tree's structure was left to grow naturally. There are branches with heavy end weights throughout the canopy. No obvious or imminent hazards are noticeable. The most recent maintenance was in September of 2006. Maintenance included pruning and an aerial inspection. The health appears to be good. Recommendations: Safety Prune (See Pruning Recommendations) Eric Krebs City of Palo Alto Public Works Managing Arborist Page -4-of 12 eric.krebs@cityofpaloalto.org (650) 496-6905 March 2, 2010 Tree #7 Species: Size: Eucalyptus viminalis DBH = 48" Height (per PWE Survey) = 31' Canopy spread = average 20' This tree was topped in July of2000. Rapid regrowth of branches at the topping cuts are weakly attached to the parent stems. Fungal fruiting bodies (L. sulphureus) were found on the base of the tree. The most recent maintenance was in November of 1995. Maintenance included pruning and an aerial inspection. Recommendations: Due to the aggressive nature of this wood decay pathogen, my recommendation,is removal. Tree #8 Species: Size: Eucalyptus viminalis DBH = 64" Height (per PWE Survey) = 62' Canopy spread = average 50' This tree was topped in July of2000. Rapid regrowth of branches at the topping cuts are weakly attached to the parent stems. Fungal fruiting bodies (L. sulphureus) were found on the base of the tree. Recommendations: Due to the aggressive nature of this wood decay pathogen, my recommendation is removal. Tree #9 Species: Size: Eric Krebs City of Palo Alto Eucalyptus viminalis DBH = 56" Height (per PWE Survey) = 125' Canopy spread = average 40' Public Works Managing Arborist Page - 5 -of 12 eric.krebs@cityofpaloalto.org (650) 496-6905 March 2, 2010 Past pruning was limited to the more horizontal branching. The remainder of the tree's structure was left to grow naturally. There are branches with heavy end weights throughout the canopy. No obvious or imminent hazards are noticeable. The most recent maintenance was in September of 2006. Maintenance included pruning and an aerial inspection. The health appears to be good. Recommendations: Safety Prune (See Pruning Recommendations) Tree #10 Species: Size: Eucalyptus globulus DBH = 42" Height (per PWE Survey) = 122' Canopy spread = average 35' Fungal fruiting bodies (L. sulphureus) were found on the base of the tree. The most recent maintenance was in July of2000. Maintenance included pruning and an aerial inspection. Recommendations: Due to the aggressive nature of this wood decay pathogen, my recommendation is removal. Tree #11 Species: Size: Eucalyptus globulus DBH = 37" Height (per PWE Survey) = 72' Canopy spread = average 35' Past pruning was limited to the more horizontal branching. The remainder of the tree's structure was left to grow naturally. There are branches with heavy end weights throughout the canopy. No obvious structural defects are noticeable. The most recent maintenance was in September of 2006. Maintenance included pruning and an aerial inspection. The health appears to be good. Recommendations: Safety Prune (See Pruning Recommendations) Eric Krebs City of Palo Alto Public Works Managing Arborist Page - 6 -of 12 eric.krebs@cityofpaloalto.org (650) 496-6905 March 2, 2010 Tree #12 Species: Size: Eucalyptus globulus DBH =40" Height (per PWE Survey) = 113' Canopy spread = average 30' Past pruning was limited to the more horizontal branching. The remainder ofthe tree's structure was left to grow naturally. There are branches with heavy end weights throughout the canopy. No obvious or imminent hazards are noticeable. The most recent maintenance was in September of2006. Maintenance included pruning and an aerial inspection. The health appears to be good. Recommendations: Safety Prune. (See Pruning Recommendations) Tree #13 Species: Size: Note: Special attention should be given to the limbs that are oriented towards and located above the playground. Eucalyptus globulus DBH = 41" Height (per PWE Survey) = 96' Canopy spread = average 35' Past pruning was limited to the more horizontal branching. The remainder of the tree's structure was left to grow naturally. There are branches with heavy end weights throughout the canopy. No obvious or imminent hazards are noticeable. The most recent maintenance was in September of 2006. Maintenance included pruning and an aerial inspection. The health appears to be good. Recommendations: Safety Prune (See Pruning Recommendations) Tree #14 Species: Eucalyptus globulus Eric Krebs City of Palo Alto· Public Works Managing Arborist Page - 7 -of 12 eric.krebs@cityofpaloalto.org (650) 496-6905 March 2, 2010 Size: DBH = 36" Height (per PWE Survey) = 87' Canopy spread = average 40' Past pruning was limited to the more horizontal branching. The remainder of the tree's structure was left to grow naturally. There are branches with heavy end weights throughout the canopy. No obvious or imminent hazards are noticeable. The most recent maintenance was in September of 2006. Maintenance included pruning and an aerial inspection. The health appears to be good. Recommendations: Safety Prune (See Pruning Recommendations) Tree #15 Species: Size: Eucalyptus globulus DBH =40" Height (per PWE Survey) = 87' Canopy spread = average 45' Past pruning was limited to the more horizontal branching. The remainqer of the tree's structure was left to grow naturally. Throughout the canopy many branches have heavy end weights. No obvious or imminent hazards are noticeable. The most recent maintenance was in September of 2006. Maintenance included pruning and an aerial inspection. The health appears to be good. Recommendations: Safety Prune (See Pruning Recommendations) Tree #16 Species: Size: Eucalyptus globulus DBH = 55" Height (per PWE Survey) = 112' Canopy spread = average 50' Past pruning was limited to the more horizontal branching. The remainder of the tree's structure was left to grow naturally. No obvious or imminent hazards are noticeable. Eric Krebs City of Palo Alto Public Works Managing Arborist Page - 8 -of 12 eric.krebs@cityofpaloalto.org (650) 496-6905 March 2, 2010 The most recent maintenance was in September of2006. Maintenance included pruning and an aerial inspection. The health appears to be good. Recommendations: Safety Prune (See Pruning Recommendations) Tree #17 Note: Special attention should be given to the limbs that are oriented towards the playground. (See tree # 125 on attached map) Species: Size: Sequoia sempervirens DBH =47" Height (per PWE Survey) = 122' Canopy spread = average 35' This tree is in serious decline, I estimated that more than seventy percent of the canopy is dead. An inspection of the root flare indicated that 90 percent ofthe roots at the surface are dead and in various stages of decay. The dead limbs and the decaying roots make this a hazardous tree. The most recent maintenance was in November 2009. Maintenance Included root crown inspection. Recoinmendations: Based on these findings my recommendation is removal. Ther.e is a plaque at the base ofthis tree identifying that this tree was planted by the Daughters of the American Revolution. Additional outreach is being done with that organization and the tree will not be removed until after the representatives have been consulted with and have agreed with our findings. Discussion In my opinion the risk of limb failures on these trees has a higher degree of probability than the risk of whole tree failure. The likelihood of limb failure is compounded by the type of pruning used in the past to maintain safety. My recommendations are intended to mitigate both whole tree failure andJimb failure. Some of the risk can be mitigated by fencing a large portion of the area below the trees that I have recommended for retention. This fencing would also relieve some of the soil compaction that is being caused by foot and vehicle traffic. Soil compaction can negatively impact tree roots Eric Krebs City of Palo Alto Public Works Managing Arborist Page - 9 -of 12 eric.krebs@cityofpaloalto.org (650) 496-6905 March 2, 2010 and over time cause the demise of a tree. (This is a secondary recommendation and depends on Parks Department's funding.) The most probable targets for limb failures are the areas directly under the trees including the street, parking areas, and the sidewalk (We can not close the street parking and sidewalk but we can fence the areas between the playground and the sidewalk.) In July of 2000, many of the eucalyptus were topped and major scaffold limbs were headed off to eliminate the possibility of large branches falling into the playground area. This aggressive pruning negatively affected the health and physiology of the trees and made them vulnerable to insects, disease, and decay. The sUlphur fungus (Laetiporus sulphureus) was identified on the base of many of these trees. The presence of this decay pathogen is most likely a direct result of the topping and heading cuts. All of the literature I have studied suggests that by the time the fruiting bodies of this fungus appear, the internal decay in the hosting tree is significant enough to warrant removaJ. My experience supports these findings. Fungicide treatment is an option I considered however it is limited to direct application to the targeted fungi. Even with the invention of systemic fungicides, there use is limited. In this specific case, the pathogen is too involved in the wood for fungicides to be effective. Additionally, given some residents concerns regarding these trees and the proximity of the children's play area I do not recommend second guessing what is known about the pathogen. Decay in the roots and basal area of a tree increases the risk of whole tree failure. This is not an acceptable risk in a high use area such as the park. The remaining trees are generally in good shape, both in health and structure. While pruning cannot guarantee that we will not have tree failures, it does minimize the risk of retaining such large trees. The pruning that I am recommending is intended to minimize risks while maintaining tree health. With proper care these trees should be viable for many years to come. Recommendations Pruning: Use thinning cuts only .. Reduce the height, spread and end weights by pruning back to lat~ral branches that are large enough to assume the terminal roles (at least one-third the diameter of the cut stem). Do not use heading cuts. Cuts should be limited to a maximum of six inches in diameter. At old failure sites and heading cuts, reconstructive pruning should be used to maximize the strength of the limb to remain. Care should be taken to choose structurally sound limbs. The climber will be expected to thoroughly inspect the tree's structure and to discuss any abnormalities with the arborist before any cuts are made so that changes to the recommendations can be formulated. Removal: At this time, because of the aggressive nature of the decay pathogen found on tree numbers 2,3,4, 7, 8, and 10, I am recommending removal. Trees 2, 4 and 7 will be removed first as they show the greatest signs of the pathogen decay. I will personally inspect those three trees Eric Krebs City of Palo Alto Public Works Managing Arborist Page -10 -of 12 eric.krebs@cityofpaloalto.org (650) 496-6905 March 2, 2010 as they are removed to observe the amount of decay found within the tree and use that information as another tool to validate my recommendations regarding the remaining Eucalyptus trees currently planned for removal. I will share my findings on the first three trees removed with all interested parties before any work is taken to remove the other three trees. The redwood (tree # 17) is a hazardtree. The only means of mitigation for this hazard is removal. Planting: The removal of the seven trees will create an opportunity to create a planting that will provide aesthetics, shade, and reduced risk in the play area. The Parks Department and Public Works Arborist will need to discuss the possibility of fencing the areas between the sidewalk and the playground. Once this is accomplished, we can choose suitable tree species and locate appropriate sites. Schedule for work: Timing to perform this work will be difficult because of the recent layoff notices received by several members of the Public Works Tree Crew. Public Works still plans to use in-house crews to do this work because of the large size of the trees as well as to maintain better trimming practices by using our experienced crews. No work will begin until we receive authority from the City Managers office to move forward. Once approval is received the 14-day notices posted on the removal trees will go into affect. After the 14 waiting period is over, and assuming no other issues arise to delay the work, Public Works crews would start on the trimming and removal work immediately. If approval of this project is delayed we may need to switch to using contractors to trim these trees. Aswe currently do not have this project in any contract scope we will need to proceed with the normal contracting process which could add 2- months for competitive bidding and possible City Council Approval depending on cost. We estimate work on this project will take 3-4 weeks to complete. Conclusion Providing safety for the City of Palo Alto's residents and visitors is always our primary objective, but we cannot guarantee that trees will be safe. We use our professional judgment and experience to manage the risks associated with living with trees. From my visual inspection of the trees mentioned in this report, I feel that the trees I recommended for retention can be reasonably managed and that my recommendation to remove seven trees is based on sound arboricultural judgment. The trees that I am recommending for retention have no obvious signs that indicate they should be removed. The recommended pruning is targeting safety issues such as heavily weighted limbs. Fencing the areas under the trees will further minimize the risk of injury due to falling limbs and provide for better tree health. The trees that I am recommending for removal are considered hazardous due to decay in the roots and basal areas. I considered other means of mitigation, but concluded that the potential for catastrophic whole tree failure is too high and that, considering the target area, it would not be prudent to maintain these trees. Eric Krebs City of Palo Alto Public Works Managing Arborist Page -11 -of 12 eric.krebs@cityofpaloalto.org (650) 496-6905 March 2, 2010 My investigation did not include a comprehensive study to quantify the extent of the decay or the limb attachment strength to limb weight ratio. However, I believe that the evidence collected during my visual tree assessment supports my recommendations. Respectfully submitted, Eric Krebs Public Works Managing Arborist ISA Certified Arborist # WC-829 Member of American Society of Consulting Arborists Eric Krebs City of Palo Alto Public Works Managing Arborist Page -12 -of 12 eric.krebs@cityofpaloalto.org (650) 496-6905 Attachment C 1 0024-40006 c EVALUATION OF TEN EUCALYPTUS TREES Eleanor Pardee Park Palo Alto, California Prepared For: Eric Krebs, Managing Arborist "- City of Palo Alto 3201 East Bayshore Rd. Palo Alto CA 94303 650-496-6905 Prepared By: Torrey Young \, " \. \ Registered Consulting Arborist® 35570 Palomares Rd. Castro Valley CA 94552 Phone (877) 206-4001 Fax (510) 538-6001 \ E-mail tyoung@dryad.us \ August 5, 2010 Dryad, LLC #10024-40006 City of Palo Alto Eleanor Pardee Park CLIENT ..................................................................................................................................................... 1 SITE ........................................................................................................................................................... 1 INSPECTION DATES ............................................................................................................................. 1 INTRODUCTION ..................................................................................................................................... 1 SUMMARY ................................................... I! ••.......................................................................................... 2 DISCUSSION ......................................................................................................................................... 3-4 MANAGEMENT RECOMMENDATIONS ............................................................................................ 5 TREE DATA & TRACE EVALUATIONS ..................... · ...................... ~ ............................................. 6-8 TREE LOCATION DIAGRAMS ....................................................................................................... 9-10 PHOTOGRAPHS ............................................................................................................................... 11;.34 CERTIFICATION, STATEMENT & COPyRIGHT ........•..................................•.......•..................... 35 CONSULTANT ....................................................................................................................................... 36 END NOTES .................................. ~ ............................................................•............................ Ii! ••••••••••••• 37-8 + + 35570 Palomares Rd. Castro Valley CA 94552 Phone Fax E-mail (877) 206-4001 (510) 538-6001 tyoung @dryad.us August5.2010 Dryad, LLC #10024-40006 City of Palo Alto Eleanor Pardee Park 1. Eleanor Pardee Eucalyptus and Redwood Maintenance Recommendations Report, Eric Krebs, March 2, 2010. 2. Eleanor Pardee Eucalyptus and Redwood Maintenance Recommendations Report, Eric Krebs, Phase II, June 4,2010. 3. Facebook, Residents for Safe Palo Alto Parks5, Question and Answer pa~e by David Muffly. 4. Care2, Replace Eucalyptus Trees at Eleanor Pardee Park; online petition. 5. Eleanor Pardee Park Eucalyptus Maintenance Project documents, RFQ123456, including Section III Scope of Services. I met on site with Mr. Krebs, performed my inspection and photographed the trees on July 16, 2010. This repOrt details and summarizes my evaluation and resulting opinions as to the condition and management of these trees. A number of trees in the vicinity had been recently removed to stumps prior to my inspection. One additional tree (no. 3) is already scheduled for removal and is therefore not addressed in this report. For identification purposes, I refer within this report to the numbers on existing aluminum tags attached to the trees. The ten trees included are nos. 1, 5, 6, 9 and 11-16. The ten trees addressed in this report are very large, well-established trees. They appear to have experienced similar pruning over many years, including a recent pruning in 2010. They display a myriad of conditions worthy of concern, remarkably similar between all trees. The majority of these conditions cannot be remedied, and the extent to which they can be mitigated is minimal. There is currently a significant potential for failure of smaller limbs and branches, as well as potential for large limbs and stems eventually to fail. The presence of extensive trunk decay from sulfur fungus (Laetiporus gilbertsoniil combined with external related signs in standing trees suggests there is also potential for whole tree failures. It is my opinion that the high-traffic nature of the site combined with the method and long-term impacts of previous pruning renders inevitable the need to eventually remove these trees. In consideration of that conclusion, there are only two viable management options: 1) Develop a long-term phased removal and replacement plan, including regular risk reduction pruning. Root crown excavation and inspectionS, Resistograph® testing9 and mapping of basal decay should be performed on every tree before developing removal priorities. 2) Remove all ten trees, redesign the site landscape including judiciously selected shade tree species and specimens, as well as growing area culture and protection (fencing). A third option, retaining the trees indefinitely, is possible, but inconsistent with my observations and conclusions relative to the condition of these ten trees. Regular and judicious pruning could reduce but not eliminate the potential for failures and resulting damages or injury. I do not recommend indefinite retention of any of these trees. + + + Page 20f38 35570 Palomares Rd. Castro Valley CA 94552 Phone Fax E-mail (877) 206·4001 (510) 538-6001 tyoung@dryad.us August 5, 2010 Dryad, LLC #10024-40006 City of Palo Alto Eleanor Pardee Park Acute-angled attachments originate at a close angle to the parent stem or Ii~b, interfering with growth in the area between, where bark remains. Such attachments are extremely prone to failure and should be eliminated when very small. Sulfur fungus (Laetiporus gilbertsonii/7: Extensive decay from this heart-rot fungus compromises both trunk strength, and supportive roots. This pathogen typically enters through large wounds, including topping and heading cuts and damaged roots, aU of which are prevalent in these trees. The decay from this fungus will continue to spread and is not treatable. It is not unusual to condemn infected trees by virtue of its mere presence. In the interest of phased removals, Resistograph®18 testing and diagramming of the results could establish a basis for prioritizing removals. The presence of vigorous ribs of reaction wood19 at the base of several trees (e.g., #5 & 6) suggests basal decay severe enough to increase stress on the remaining outer shell of the trunk. These two trees are thus particularly suspect as having the potential for whole tree failure. Resistograph® testing is warranted. Site use and management: The soil throughout the growing area of these trees is bare of organic material (mulch) and heavily compacted. These conditions are not conducive to tree health, likely contributed to susceptibility to the decay pathogen, and reduced ability to compartmentalize large cuts. Compaction interferes with root gaseous exchange, reduces infiltration of water, and increases soil temperatures damaging existing roots and rendering new root development difficult. TRACE20 Risk Assessment: Included in this report (Data chart, pg.6) are Risk Assessment ratings developed following the Pacific Northwest Chapter ISA's Certified Tree Risk Assessor Program protocol. This information was included for informational purposes only and is not the basis of my conclusions or recommendations. This process is based upon identifying only the tree part most likely to fail soonest, rather than the largest, most serious or with the most potential for serious damage or injury. The majority of the ten trees addressed in this report have short term potential for minor failures and long-term potential for failure of large parts that could result in serious damage and/or injury. Cost Considerations: 1) A long-term phased removal plan would require substantial and continuous maintenance. The current cost . of debris clean-up for a profusely-shedding species (Eucalyptus) would be reduced as trees are removed, but not eliminated. The substantial cost of removal would be experienced over a long-term duration. A slight increase in removal costs might result from the need to protect new plantings and design elements. Replanting costs and resulting maintenance would also be experienced over a long-term duration. 2) Removing all ten trees at once and promptly replanting would entail substantial cost in a short duration. The benefits of large landscape trees would also be lost for many years. The substantial cost of maintenance, including constant debris clean-up would be eliminated. The risk of these tree.s would be eliminated, along with any financial exposure the City of Palo Alto and its agents or contractors might experience should failing trees or tree parts result in serious damage or injury. Further, a well-planned and maintained replacement landscape results in little maintenance needs or associated costs. The asset feature of the trees would be lost, but eventually regained as a well-designed landscape takes its place, without the substantial risk represented by the existing trees. Page40f38 35570 Palomares Rd. Castro Valley CA 94552 Phone Fax E-mail (877) 206-4001 (510) 538-6001 tyoung@dryad.us August 5, 2010 Dryad, LLC #10024-40006 City of Palo Alto Eleanor Pardee Park 1) Management recommendations for trees retained: the following are recommendations for the management of any trees to be indefinitely retained or retained over a phased removal approach. Although these efforts can enhance tree health and reduce risk, they cannot eliminate risk. Some conditions, regardless of preservation efforts, will continue to worsen and increase risk. . a) Root crown excavations and inspections should be performed on all trees along with Resistograph® testing of supporting roots. Inspection should be possible around the origination area of the trunk and supporting buttress roots to a depth of at least six"'twelve inches below the current grade. The intent is to determine the condition and distribution of the supporting root system. b) Resistograph® testing should be performeg at the base of each trunk circumferentially and at any specific location suggesting decay or fractures, as well as vertically on significant supporting roots. Sound wood depths can be used to diagram any discovered internally decayed areas. c) Prioritize trees for removal based upon plan duration, City tolerance of risk and tree condition. d) Remove promptly any and all trees found to be at immediate risk for whole-tree failure. e) Mitigate soil compaction in the area beneath the trees, roughly from sidewalk to playground. Soil cultivation/aeration can be achieved in the least damaging manner using a radial trenching technique via an air knife tool21 (pneumatically driven). f) Mulch22 the area beneath the trees, roughly from sidewalk to playground, with 3-4" (settled depth) of organic mulch. Maintain the mulch layer permanently and enhance on a regular basis. g) Perform crown-reduction pruning, including of elimination of limbs structurally at risk, on at least a biannual basis. Allow interior and lower growth to develop, selectively leaving occasional sprouts to be nurtured into substantial lateral branches. 2) Management recommendations for removal and replacement: the following are,recommendations relative to complete removal and replacement of all ten trees, or for incorporation into a long-term phased removal plan. Not included are any recommendations for construction elements, or design for aesthetics or usage beyond the selection and handling of replacement trees. a) Remove all trees to grade and grind completely all stumps and roots within approximately ten feet of the center of each trunk or anywhere visible at grade. b) Mitigate soil compaction in the area beneath the trees, roughly from sidewalk to playground. Tilling is acceptable except in the vicinity of trees or shrubs to remain. In those areas, employ radial trenching only via an air knife tool (12-18" depth). c) Replant with native species. Native species can reduce maintenance needs while providing enhanced aesthetics and functional value. I recommend a combination of native trees and shrubs found in the area: i) California live oaks (Quercus agrifo/ia) plant two or three to the north and northwest, mid-way between sidewalk and playground, to allow for maximum growing space. ii) Valley oak (Quercus lobata) and/or California black oak (Quercus keloggil) plant two to four to the south and west, to provide shade in the summer and allow for sunlight penetration when leaves are lost in winter. iii) California coast redwood (Sequoia sempervirens) replace the grandeur of large trees by planting eight to twelve specimens, allowing maximum space between trees and oaks. d) Mulch the area, roughly from sidewalk to playground, with 3-4" (settled depth) of organiC mulch. Maintain the mulch layer permanently and enhance on a regular basis. Avoid planting of turf, groundcovers or any plahts requiring frequent irrigation beneath trees. e) Install permanent protective fencing, sufficient to protect much of the dripline areas of trees, while allowing for use of and access to the area. f) Mail1tenance: establishment (1-3 years) usly an organic mulch layer throughout the planting area. , structural, corrective pruning of oaks and as necessary for clearance. redwoods altogether. If pruning is preformed, limit to removal of dead branches and ral improvements (e.g., codominant stems) and broken limbs. Page 5 of 38 35570 Palomares Rd. Castro Valley CA 94552 Phone Fax E-mail (877) 206-4001 (510) 538-6001 tyoung@dryad.us August5,2010 Dryad, LLC #10024-40006 City of Palo Alto Eleanor Pardee Park Identification . No Genus-Species Eucalyptus 9 viminalis manna gum Eucalyptus 11 globulus bluegum ,- Eucalyptus 12 globulus bluegum Eucalyptus 13 globulus bluegum © Copyright 201 0, Dryad, LLC Trunk diameter Conditions and DBH24 Observations • Acute-angled attachments • Decayed pruning cuts • Old and recent heading cuts • Lion's tailing (old & recent) 56 • Right-angled new leaders • Topping cuts • Poor taper of limbs • Limb curvature • Reaction wood with kino exuding at base • Coda min ant stem @ 30° over street • Acute-angled attachments • Decayed pruning cuts 37 • Topping cuts • Old and recent heading cuts • Lion's tailing (old & recent) • Right-angled new leaders • Poor taper of limbs • Limb curvature • Codominant tops • Acute-angled attachments • Old and recent heading cuts 40 • Right-angled new leaders • Topping cuts • Poor taper of limbs • Limb curvature • Lion's tailing (old & recent) • Codominant stem & tops • Acute-angled attachments • Decayed pruning cuts • Topping cuts' Old and 41 recent heading cuts' Lion's tailing (old & recent) • Right-angled new leaders • Poor taper of limbs' Limb curvature • Rooldamagefgirdlinll root(s) TRACE Evaluation23 Rated Defeces Probability Part Target Risk TRACE Risk (most likely part to fail) (1-5) Size Rating Rating Description26 (1-3) (1-4) (1-12) (summarized) High 1, Issues -6" diameter limb, are clear- poor taper, lion's-4 2 3 9 retain but tailed. monitor annually. Moderate 3, -4" diameter limb, Well defined poqr taper, lion's-issues -retain 3 1 4 8 tailed. and monitor, no concern for 1-2 years. High 1, Issues -6" diameter limb, are c1ear- poor taper, lion's-3 2 4 9 retain but tailed. monitor annually. Moderate 3, -4" diameter limb, Well defined poor taper, lion's-3 issues -retain 1 4 8 tailed. and monitor, no concern for 1-2 years. Page 7of38 AugustS, 2010 Dryad, LLC #10024-40006 City of Palo Alto Eleanor Pardee Park Identification No Genus-Species Eucalyptus 14 globulus bluegum Eucalyptus 15 globulus bluegum Eucalyptus 16 globulus bluegum ----- © Copyright 201 0, Dryad, LLC Trunk diameter Conditions and DBH24 Observations • Topping cuts • Old and recent heading cuts 36 • Lion's tailing (old & recent) • Right-angled new leaders • Poor taper of limbs • Limb curvature • Codominant tops; both near- horizontal • Acute-angled attachments • Decayed pruning cuts 40 • Topping cuts • Old and recent heading cuts • Lion's tailing (old & recent) • Right-angled new leaders • Poor taper of limbs • Limb curvature • Acute-angled attachments • Decayed pruning cuts • Old and recent heading cuts 55 • Lion's tailing (old & recent) • Right-angled new leaders • Poor taper of limbs • Limb curvature + TRACE Evaluation23 i : Part Target Risk Rated Defect25 Probability TRACE Risk! (most likely part to fail) (1-5) Size Rating Rating Description26 (1-3) (1-4) (1-12) (summarized) High 1, Issues -4" diameter limb, are clear- poor taper, lion's-4 2 3 9 retain but tailed. monitor annually. High 1, Issues -4" diameter limb, are clear- poor taper, lion's-4 2 3 9 retain but tailed. monitor annually. High 1, Issues -4" diameter are clear- sprouts, poor taper, 4 2 3 9 retain but lion's-tailed~ monitor annually. + + Page 8 of 38 August 5, 2010 Oryad,llC #10024-40006 City of Palo Alto Eleanor Pardee Park NOTE: Printed from GoogleEarth. Page 9 of 38 35570 Palomares Rd. Castro Valley CA 94552 Phone Fax E-mail (877) 206-4001 (510) 538-6001 tyoung@dryad.us AugustS, 2010 Dryad, LLC #10024-40006 City of Palo Alto Eleanor Pardee Park There are photographs on the following pages of each entire tree, followed by examples of described negative conditions. Tree No.1 photographs include numerous examples, intended to illustrate the extent of such conditions, as is typical with all the trees. The photos of subsequent trees include only a few examples each. Page 11 of 38 August 5, 2010 Oryad, LLC #10024-40006 City of Palo Alto Eleanor Pardee Park Page 12 of 38 35570 Palomares Rd. Castro Valley CA 94552 Phone Fax E-mail (877) 206-4001 (510) 538-6001 tyoung@dryad.us August 5, 2010 Dryad, LLC #10024-40006 City of Palo Alto Eleanor Pardee Park Tree No.1 (continued) Page 150f38 35570 Palomares Rd. Castro Valley CA 94552 Phone Fax E-mail (877) 206-4001 (510) 538-6001 tyoung@dryad.us August 5, 2010 Dryad, LLC #10024-40006 City of Palo Alto Eleanor Pardee Park Tree No.5: Manna gum (Eucalyptus vimina/is) Page 17of38 35570 Palomares Rd. Castro Valley CA 94552 Phone Fax E-mail (877) 206-4001 . (510) 538-6001 tyoung@dryad.us August 5, 2010 Dryad, LLC #10024-40006 City of Palo Alto Eleanor Pardee Park Tree No.6: Manna gum (Eucalyptus vimina/is) Page 190f38 35570 Palomares Rd. Castro Valley CA 94552 Phone Fax E-mail (877) 206-4001 (510) 538-6001 tyoung@dryad.us August 5, 2010 Dryad, LLC #10024-40006 City of Palo Alto Eleanor Pardee Park Tree No.9: Manna gum (Eucalyptus viminalis) Page 21 of 38 35570 Palomares Rd. Castro Valley CA 94552 Phone Fax E-mail (877) 206-4001 (510) 538-6001 tyoung@dryad.us August5.2010 Dryad, LLC #10024-40006 City of Palo Alto Eleanor Pardee Park Tree No11: Bluegum (Eucalyptus globulus) Page 23 of 38 35570 Palomares Rd. Castro Valley CA 94552 Phone Fax E-mail (877) 206-4001 (510) 538-6001 tyoung@dryad.us August 5, 2010 Oryad, LLC #10024-40006 City of Palo Alto Eleanor Pardee Park ) Tree No12: Bluegum (Eucalyptus globulus) Page 25 of 38 35570 Palomares Rd. Castro Valley CA 94552 Phone Fax E-mail (877) 206-4001 (510) 538-6001 tyoung@dryad.us August 5, 2010 Dryad, LLC #10024-40006 City of Palo Alto Eleanor Pardee Park Tree No14: Bluegum (E uca/yptus g/obu/us) Page 29 of 38 35570 Palomares Rd. Castro Valley CA 94552 Phone Fax E-mail (877) 206-4001 (510) 538-6001 tyoung@dryad.us AugustS, 2010 Dryad, LLC #10024-40006 City of Palo Alto Eleanor Pardee Park '\ j \ CREDENTIALS: • ASCA Registered Consulting Arborist ® No. 282 '. ISA Board Certified Master Arborist No. WE-0131 B • CUFC Certified Urban Forester No. 121 • PNW-ISA Certified Tree Risk Assessor No. 602 • CA P.C. Qualified License No.: 10477;2 PROFFESSIONAL AFFILIATIONS • American Society of Consulting Arborists • International Society of Arboriculture • Society of Commercial Arboriculture • Tree Care Industry Association • California Arborists Association • California Urban Forests Council • California Landscape Contractors Association , • California Oak Foundation • American Forests • Pesticide Applicators Professional Association • U.S. Green Building Council + + + Page 36 of 38 35570 Palomares Rd. Castro Valley CA 94552 Phone Fax E-mail (877) 206-4001 (510) 538-6001 tyoung @ dryad~us Attachment D SUbject: Notes from Eleanor Pardee Tree Mtg. on December 1, 2010 Eleanor Pardee Park Eucalyptus Meeting Lucie Stern Community Center, Fireside Room, 7pm Landscape Architect Eddie Chau presented three different replanting plans (A, B, and C). He explained that the point wasn't to vote on a particular plan, but rather about features that the audience likes and doesn't like. Eddie explained that he will synthesize the comments and look for trends. He will return for the Dec. 8th meeting and present a plan that reflects the comments he collected. The plan will address a few short comings in the park that aren't related to the trees. For example, there are currently three entry gates to the playground, yet there are only two paths to the playground. There are also no park benches in the vicinity of the playground, unless you go inside the fenced playground area. Along with the additional path, and two new park benches, the plan would address some American with Disabilities Act (ADA) issues in the multi-use bowl area. This time of year is a great time to plant trees. We would like to (if feasible) plant in January. There is currently no irrigation, so we would need to install irrigation. Question from Audience: What is the City's decision on the remaining trees? Answer: Structural issues make these trees a safety risk and liability to the City. The City is now liable if someone is hurt. The trees will eventually be removed. Torrey Young-presented a brief summary. These large trees are very close to targets. Pruning, done long ago, has caused structural problems that cannot be fixed. Recent pruning by City staff helped reduce risk, but the trees cannot be kept long term. Comment from Audience: The City arborist report had a different conclusion-stating that some of the trees could be retained. Comment from Audience: If a decision wasn't made at the last meeting, shouldn't we make the decision to remove or keep the trees now, before we talk about designing tree replanting? Answer: Trees have already been removed. Many people have expressed their strong feeling that the City must replant trees right away. These various replanting plans help us accomplish that goa/. Eddie Chau: He expressed his vision for the area in question. His plans are designed to help make the park safe; to determine pedestrian flow; to define the lawn edge and separate it from the tree/mulch areas; create shade; and utilize low water-use tree species. Plan A: Plant large shade trees with deciduous oaks, which will provide sunshine in the winter and shade in the summer. These would make a presence. There would be a combination of evergreen oaks and deciduous oaks to create visual interest. The entry to the playground would have smaller, flowering accent trees, identifying the entry to the path and playground. There would be a new path (composed of decomposed granite) that would link the two existing paths together, as well as to help define the lawn space. *This path element is part of all three plans. Question from audience: How long will it take before these trees are large enough to provide shade? Comment from audience: The fastest growing trees usually come from acorn or small (15 gallon) plantings, rather than the really large potted trees, which are often root-bound. A member of Canopy and a person who works as an arborist commented that they have seen smaller trees outgrow trees that were larger when planted. They also suggested Hungarian Oak trees that grow quickly. In ten years they can reach 35 to 40 feet tall. This species is a low water use variety. Comment from Audience: This feels absurd that we are rushing into this project. We are working to cut down trees because they are too tall, and we are rushing to plant new trees to grow big and tall. Why would we do this? Why don't we put a protective structure around the playground. Comment from Audience: The problem is that these particular trees have several problems: past pruning damage that irrevocably damaged the structure, decay from a fungus, and it is a species that frequently drops limbs. If we put in the right tree species, and prune it properly it would be fine. Plan B: This plan calls for removing the eucalyptus trees on Center Dr., and temporarily retaining the existing eucalyptus trees on Channing Ave. Plan C: This plan calls for replanting with all California native trees. Larger oaks would be more randomly placed. Comment from Audience: There are lots of children who have allergy problems that are exacerbated from trees that drop excessive pollen. There are also often problems of trees that drop nuts and things on the paths that cause problems for kids riding their bikes on the path. Also issues with kids tripping over tree roots. Please select species t~at help avoid these issues. Comment from Audience: Lighting concerns. It is very dark at night and it is a safety issue. She would like lighting to be added so that she knows nothing bad is going on in the park. Eddie: All the plans call for adding mulch around the trees, which will help the soil, as well as reduce tripping issues because people will not bike through the mulched areas. Comment from Audience: I live near the park and I would prefer to save the existing trees. I also suggest that we do not plant redwoods, because they use too much water. Comment from Audience: Will the City be using recycled water? Answer: No. The City only has potable water at Eleanor Pardee Park. Comment from Audience: Can you speak about cost estimates? Answer: It would cost about $20k to remove all the trees at one time. It would cost approximately $65K if we do it over a ten year period. We aren't prepared with cost estimates for the irrigation, path, or new trees. Comment from Audience: Canopy would be willing to help with the planting. Comment from Audience: I love the idea of the new path. Comment from Audience: A lot of City money has been spent on the existing trees. It is a concern about how much we are spending on these plans to remove them. Comment from Audience: The City set aside $200k for restrooms for this park, where did that money go? Answer: We are using that money for restrooms at Seale Park. Comment from Audience: Lots of us neighbors want the trees out right now; and for the City to replant right away. If we do it right now, it will not be long before the new trees fill in. Comment from Audience: We have letters and signatures on a petition from people who want to remove the trees. We were told the City would base its opinion on the third party arborist's (Torrey Young) report. The report was clear about removing the trees. The letters asked the City to fund a replanting plan. We are willing to help raise funds, too. Many of these people couldn't be here today. Comment from Audience: Please do not add lights in the park. There are existing street lights. Also please don't add benches. It leads to people hanging out late at night. Comment from Audience: I don't think benches will cause any probiems. I like the idea of adding benches. Comment from Audience: I like the idea of adding large shade trees on the corner. Comment from Audience: My preference is for Plan B. I prefer a phased removal. Another Comment seconded that idea. Comment from Audience: It might be nice if the trees were shorter so that we didn't just look at trunks of trees, but rather could see the canopy. Torrey stated that this has a lot to do with how the trees are pruned. It is good to keep the lower branches. Comment from Audience: I would like to see a phased approach to the removal. Keep the eucalyptus as long as possible. Comment from Audience: The redwoods use a lot of water, and there is an existing redwood that hasn't survived. Don't plant redwoods. I would prefer Plan A. It is more cost effective and there are less redwoods. Eddie: There is a clear consensus that we should not plant redwoods. Comment from Audience: I vote for option A. It is the most beautiful and takes a holistic approach. Eddie: I wanted to use a variety of shapes, sizes, and widths-all the plans have this variety of trees. This will provide different colors, life spans. This will change the uniform look of the trees that we currently have. Greg asked for a show of hands regarding who would prefer: Uniform look to the trees: minority raised their hands Variety of types of trees: majority raised their hands. Comment from Audience: What is the general distance from trunk to trunk of the trees in your plans? Answer: About 25 feet. Comment from Audience: I like that spacing. Comment from Audience: we could have kids do a fundraising project, like the tiles at Heritage Park. Comment from Audience: We could add some shrubs which would enhance the area, as well as to add some berms. It would be good to get rid of the flatness. Like to see a unique tree on the corner-like a large valley oak. Eddie: Liked the idea of mounds to help direct any vehicle traffic away from the trees. Comment from Audience: What are the next steps? Answer: Eddie will synthesize the comments and present them at the Dec. 8th meeting. Eddie will not be here, but City staff will present his plans. Then we would go to City Council and ask for money for this project. If we don't plant by January, then we would wait until Fall. Comment from Audience: Just don't take out the trees and then leave it empty. Don't remove anything else until you have money to replant. Comment from Audience: Who will make the decision about removing the trees? Answer: City staff will make a recommendation to Council. Council must approve the budget for this project. Comment from Audience: What is the point of the next meeting? Answer: To look over the revised replanting plans. The meeting was completed at 8:47pm Eleanor Pardee Tree Meeting Dec. 8th , 2010 Attachment E Lucie Stern Community Center Fireside Room Introduction by Community Services Director Greg Betts Mr. Betts presented the synthesized replanting plan created by Eddie Chau. The revised plan was created by incorporating the feedback from participants in the previous public meeting, where participants commented on aspects of the three replanting plans Mr. Chau had prepared for review. The feedback from the previous meeting resulted in the following features in the revised plan: ' -adjusted tree species: removed redwoods due to their high water requirements; added Hungarian Oak trees due to their quick growth -ensured that there aren't any high pollen producing trees; trees with hazardous roots; nor trees that drop excessive debris (seed pods, etc). -ensured that there were not shrubs planted; -ensured that Tree # 1 is saved due to its stature and distance from playground. -plan is designed to help guide maintenance vehicle traffic out oftree area; including berms. -pathway improvements -ensure shade is provided for playground -removed the two suggested benches, since there was no consensus -no additional lighting was added -ensured a variety of tree species -landmark tree on the corner -ensured tree spacing of approximately 25 to 30 feet -ensured that additional trees will not be taken down unless we have a plan in place to replant. '-ensure that the pathways are accessible. -ensure a mix of evergreen and deciduous trees; which will help provide shade in the summer, and sunlight in the winter. -ensure mulch around the tree areas, and not bare dirt. Six species of trees are suggested in this revised plan. These trees should be about 20-45 feet tall in about 8 to 10 years. Question: Has there been a decision to take down the 10 existing trees? Answer: yes. We will be doing it in a phased approach; essentially a modified Plan B (which was presented at the previous meeting) This plan removes the trees from Center Dr, with the excepting of Tree #1, and retains the trees 5 eucalyptus trees on Channing, where parking is not allowed. Tree #12, which is close to the playground, will be removed. Question: How was this decision determined, was it a vote? Answer: This decision was a compromise based on feedback from participants in our public meetings; feedback from the arborists. Comment: Tree #16 is the one that dropped iarge branches in the past. This isn't just about the playground. There is a lot of vehicle traffic in this area. The drastic pruning that was recently done makes these trees hazardous. Answer: Torrey Young, and Dave Muffly have both been consulted on this tree plan. Torrey is on board with this revised plan. He has reviewed this plan and supports it. Comment: Torrey, didn't you say that these trees should be removed? Answer: Torrey's report also says that the trees could be phased out. Question: What is the life span of these trees? Answer (Torrey Young): I Ccmnot give you a black and white answer about how long these trees will live. There is risk and I do not recommend that these trees stay indefinitely. There is always going to be risk with large trees. Comment: The general consensus was that there is no way of knowing when or if one of' these tree's limbs will fail. So you carmot say what the exact risk is. Comment: This is a major intersection and it is at risk from these trees. Since June, I've seen two more limbs drop. Please tell us about the pruning you plan to do for the remaining trees: Torrey: The first step will be further evaluation. We will carry out the Resistograph testing to look for the decay pathogen. Pruning will not make these trees better with time. There is still a chance of parts of the trees breaking. The pruning will help minimize that chance. What will you do if you find symptoms of decay? Torrey: Ifwe don't find decay now, it will not be there in five years. The decay pathogen is slow moving. The pruning will be focused on minimizing major limb failure. The pruning may be outside the industry standard in some situations. We will have to do more pruning to keep smaller limbs. Comment: This doesn't remove a serious risk. Answer: There are certain risks we live with. At Foothills Park we live with rattlesnakes. At the Pearson Arastradero Preserve we have mountain lions; at other areas in our open space there are ticks with Lyme disease. We live with certain risks: The cost to have Torrey conduct annual inspections on the remaining trees andto perform pruning will be $13,000 over a five year period. Comment: There were people who wanted these trees removed even before any of the science or arborist reports were conducted. Comment: I called Dave Muffly and asked if he would consult on these trees. I asked Dave because I know of his affiliation with Canopy Trees and that he is a tree lover. He did his evaluation and recommended that the trees be removed. This plan strives to minimize those risks. Comment: You should put up a fence to prevent people from going into the tre~ area Comment: I agree; a fence would be a good idea. Comment: Yes, and you could move the trail that leads to the playground, so that isn't in the area where limbs could drop on it; and add the fencing as well. Questions: Could you use guy wires to help prevent catastrophic limb failure? Answer (Torrey Young): In some places it is plausible, but wires can also cause problems. In some ways they can enhance the chance oflimb failure. It is possible, but it isn't a magic remedy; and it would not be appropriate for smaller limbs. The cost for the irrigation, pathways, trees, soil preparation, grinding of stumps will be approximately $33,000. There will also be an additional $13,000 for Torrey's inspections and pruning of the existing trees. Question: What are the species that Mr. Chau recommended in the revised plan? Answer: California Coast Live Oak, (which would grow approximately 25' high in ten years) Hungarian Oak (approximately 30' in ten years) California Buckeye (approximately 17' to 25' in ten years) (this is a deciduous tree) Arbutus Marina (approximately 17' to 25' in ten years) (this is an evergreen tree) Valley Oak (approximately 30'iri ten years) Persian Ironwood (approximately 25' in ten years) * Arborist noted that all these growth estimates are extremely rough. Question: Would the faster growing trees be more likely to drop limbs than slower growing trees. Answer: Oak trees are typically very good about not dropping limbs. Comment: I represent Canopy Trees and I am surprised by this plan. Our recommendation is to remove all the eucalyptus trees at one time. If you are going to phase them, why don't you have a plan for their eventual replacement? Answer: We would usethis existing plan as a template for how to replace the trees. We would use the recommended species list and tree spacing. Comment: I am disappointed that redwood trees aren't part of this revised plan. Answer: The biggest issue with the redwood trees is that they are high water use trees. Question: I have a question about Tree #16. Do the arborists have concerns about this tree? Answer (Torrey): The· plan is to monitor all the trees once per year. Of all the trees in question, this was one of the best candidates for retention. Summary: This completes our public meetings on the eucalyptus trees at Eleanor Pardee Park. The next step is that this plan will go to City Council to request that $33,000 be moved into an existing Capital Improvement Project (CIP) account to pay for carrying out the plan. Question: Will the changes that we suggested regarding moving the path and adding the fencing be part of the revised Plan B that you recommend to Council? Answer: Yes. Closing Comments: Good job Closing Comments: This seems like a good compromise between all the different factions. Closing Comments: It looks good. Closing Comments: It wasn't what I wanted, but you guys made an effort. Good luck with it.. Closing Comments: I appreciate the work. EricKrebs, City of Palo Alto 3201 East Bayshore Rd. Palo Alto CA 94303 Attachment F 10024-40006 RE.: Eleanor Pardee Park, phased removal plan proposed by City of Palo Alto. Mr. Krebs, et al; I am writing as per your request for a response to the City of Palo Alto's (The City) intent to implement a phased removal1 of the subject ten Eucalyptus trees at Eleanor Pardee Park. My understanding of The City's plan is as follows: 1. Prompt removal of four specific trees (Nos. 5,6, 9 and 12)2. The criteria upon which The City is basing this decision on is to reduce the risk of falling limbs from trees nos. 5, 6 and 9 into the adjacent curb parking area, and tree no. 12 into the fenced play area. 2. Retain six specific trees (Nos. 1, 11, 13, 14, 15 and 16), for an estimated period of at least five years. These trees are to be subject to a prompt further, individual evaluation, and if determined by The City to be retained at that point, to be re-inspected annually relative to condition changes and maintenance recommendations for a proposed period of at least five years. Your (The City's) plan has the potential, while eliminating risk from the four trees to be removed and mitigating the aesthetic impact of removing these sUbstantial trees, also reduces the risk of those to remain. In company with my Management Recommendations (page 5, Dryad, LLC report no. 1024- 4006,08/06/10), this plan is consistent with my management option no. 1 (page 2, Dryad, LLC report no. 1024-4006,08/06/10). However, I do not endorse the retention of any trees for an extended period of time without implementing the recommended further investigation and prioritization. I emphatically recommend the implementation, in their entirety, the evaluation items of the Management Recommendations I provided (page 5, items 1 a-d), before committing to retain any of these trees. The remaining Management Recommendations (items 1 e-g) should then be implemented in their entirety for those trees selected to remain. The advanced evaluation processes may also reveal conditions that would warrant prompt removal, or removal within the five years minimum targeted retention duration. I reiterate from my report, that the measures described above' and in my report can reduce the risk of failure, but cannot eliminate it. Further, these trees cannot be improved structurally in a manner that would warrant indefinite, long-term preservation. Please refer to my original report for more detailed explanations of tree conditions and Management Recommendations. ' ReSpectf~IIYI ~ Torre 0 g. Raa:u ASCA Registered Consulting Arborist ® No. 282 ISA Board Certified Master Arborist No. WE-0131B CUFC Certified Urban Forester No. 121 PNW-ISA Certified Tree Risk Assessor No. 602 consulted in the development of the described "phased removal plan", or any further evaluation or retained beyond what is reported in y original report (08/05/10). consistent with the identification numbers in the Dryad, LLC report of 0-8/05/10. 35570 Palomares Rd. PHONE (877) 206-4001 Castro Valley CA 94552 FAX (510) 538-6001 E-MAIL tyoung@dryad.us Eric Krebs City of Palo Alto 3201 East 8ayshore Rd. Palo Alto CA 94303 Attachment H C' f , ' RE.: Proposal for further and continuing evaluation and reporting of six specific Eucalyptus trees ((Nos. 1, 11, 13, 14, 15 and 16) at Eleanor Pardee Park. Mr. Krebs; I am writing in response to your request for a proposal for further evaluation of six specific Eucalyptus trees (Nos. 1, 11, 13, 14, 15 and 16)1 at Eleanor Pardee Park. My understanding is that the City of Palo Alto (The City) intends to implement a plan2 to retain these specific trees for an estimated minimum of five years, while removing four other remaining trees (Nos. 5, 6, 9 and 12). It is my understanding that you specifically require the following services for trees Nos. 1, 11, 13, 14, 15 and t6: SCOPE OF WORK: 1. Visual inspection and evaluation on a tree-by-tree basis, from the ground. 2. Specification for and direction of root crown excavation (via air spade or other agreed method), as deemed necessary, to be performed by City staff in advance or concurrently with Resi. testing, to expose at least 50% of the upper circumference of buttress roots to at least a 24" radius from the trunks. 3. Resistograph® testing3, to be performed at the base of each trunk circumferentially and at any specific location suggesting decay or fractures, as well as vertically on significant supporting roots (estini~te of approximately 4-8 Resi. test sites per tree). Determined sound wood depths to be used to diagram any discovered significant decayed areas (only). 4. Prioritize trees for removal based upon plan duration, City tolerance of risk and tree condition. S. Individualized recommendations for trees to be retained (pruning, cabling, treatment, etc.) 6. A (single) formal written report of my findings, observations, opinions and recommendations. 7. Annual re-inspection and updating of prioritization and management recommendations, for a period of five years (five additional events through 2015). Inspection criteria will be a visual inspection and evaluation from the ground, with recommendations for additional investigation if deemed appropriate 8. Terms and intent for inspections and recommendations: Resistograph® testing, root crown excavation and management recommendations shall be performed and developed in cooperation with the City Arborists, including annual re-inspections and reporting. COST ESTIMATES4: Items 1-6: I propose performing this work at my current Commercial Rate of $180.00 per hour plus expenses, as per the terms in the attached Fee Schedule. I estimate field, office and related time and expenses will be approximately $4,440.00. Item 7: I propose performing this work at my Commercial Rate, currently being charged at the time the service is performed, otherwise as per the terms in the attached Fee Schedule. Including an estimated 3% inflation factor over each of five years, I estimate field, office and related time and expenses will be approximately $8,892.00. "".,..,.,.. .. ,.. for all described services over the total five years is $13, 332.004• 35570 Palomares Rd. Castro Valley CA 94552 Page 1 of3 PHONE (877) 206-4001 FAX (510) 538-6001 E-MAIL tyoung@dryad.us