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HomeMy WebLinkAboutStaff Report 2501-39961.Approval of the Minutes of the Utilities Advisory Commission Meeting Held on March 5, 2025 Item No. 1. Page 1 of 1 6 2 8 7 Utilities Advisory Commission Staff Report From: Kiely Nose, Interim Utilities Director Lead Department: Utilities Meeting Date: April 2, 2025 Report #: 2501-3996 TITLE Approval of the Minutes of the Utilities Advisory Commission Meeting Held on March 5, 2025 RECOMMENDATION Staff recommends that the UAC consider the following motion: Commissioner ______ moved to approve the draft minutes of the March 5, 2025 meeting as submitted/amended. Commissioner ______ seconded the motion ATTACHMENTS Attachment A: 03-05-2025 UAC Minutes AUTHOR/TITLE: Kiely Nose, Interim Utilities Director Staff: Kaylee Burton, Utilities Administrative Assistant Utilities Advisory Commission Minutes Approved on: Page 1 of 27 UTILITIES ADVISORY COMMISSION MEETING MINUTES OF MARCH 5, 2025 REGULAR MEETING CALL TO ORDER Present: Chair Scharff, Vice Chair Mauter, Commissioners Croft, Gupta, Metz, Phillips, and Tucher Absent: None Chair Scharff called the meeting of the Utilities Advisory Commission (UAC) to order at 6:01 p.m. The clerk called roll and declared seven were present. AGENDA REVIEW AND REVISIONS None ORAL COMMUNICATIONS There were no public comments. APPROVAL OF THE MINUTES ITEM 1: ACTION: Approval of the Minutes of the Utilities Advisory Commission Meeting Held on February 5, 2025 Chair Scharff invited comments on the February 5, 2025 UAC draft meeting Minutes. Commissioner Phillips referenced Packet Page 23, the paragraph that read “Commissioner Phillips asked what the output was,” and he requested that the following be added: “Staff asked if the outage scenarios presented would provide adequate insight to pre-inform future consideration of microgrids in Palo Alto. Commissioner Phillips commented it would be more useful in understanding of the type and duration and possibly number of outages that would make the microgrid economical.” Chair Scharff saw no objection and declared that the Minutes would be approved with that addition. Utilities Advisory Commission Minutes Approved on: Page 2 of 27 ACTION: Commissioner Phillips moved to approve the draft minutes of the February 5, 2025 meeting as amended. Vice Chair Mauter seconded the motion. Motion Carried 7-0 UNFINISHED BUSINESS None UTILITIES DIRECTOR REPORT Kiely Nose, Assistant City Manager, delivered the Director's Report. Recent City Council Actions Related to Utilities: •February 3: Authorized the City Manager to execute an agreement with the U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration (PHMSA) for a $16.5 million grant to CPAU for gas capital improvement. Staff have executed this grant agreement on the City side, but it has not yet been executed by PHMSA due to federal administrative changes. PHMSA is revising terms and conditions and is expected to provide guidance for grant recipients in the coming weeks. It is currently unclear whether the City's grant will ultimately be funded. We are waiting to work with the Federal administration and will update the Commission as we know more. •February 10: Approved various contracts for the Commercial and Industrial Energy Efficiency Program, WaterSmart customer portal, verified emission reductions for calendar year 2025 through 2034, and on-call field inspection and construction management. •February 24: Council planned to review the 2025 workplan, priorities and objectives at the end of the month, but due to timing constraints, this item will be covered in March. Green v. City of Palo Alto Settlement Update: The Green v. City of Palo Alto settlement payments were originally scheduled to be paid out to class customers over a three-year period. The City is accelerating that process. The payment that customers will receive in their bills between March 10 and April 11 will be a combination of both the second and third installment. This will complete all settlement actions and administration before the end of the fiscal year. The City is notifying customers by postcard about the accelerated payments. Legislative and Regulatory Update: The 2025 legislative year deadline for bills to be introduced was February 21. Many introduced bills lacked substantive language. However to note, staff are tracking SB 540 (Becker) to create a regional electricity market, and AB 1207 (Irwin) and SB 840 (Limón) to reauthorize Cap and Trade. Utilities Advisory Commission Minutes Approved on: Page 3 of 27 The State Fire Marshal released updated Fire Hazard Severity maps for the State of California in the month of February. For Palo Alto, consistent with past maps, the Foothills region of Palo Alto is mostly a mixture of high and very high fire hazard zones. With the updated maps, now a small region including some key account customers are considered in moderate fire hazard zones. The City has a specific timeline for providing the information to the public for review and comment, adopting the recommended maps by local ordinance, and submitting the ordinance and required documents to the Board of Forestry and Fire Protection. The City will also review and update its Wildfire Mitigation Plan accordingly. Grid Modernization: The cost of the grid modernization project was discussed at the February UAC meeting. The current budget for the project is $300 million with the recent resolutions for debt reimbursement approved by Council reflecting $350 million. The additional $50 million helps provide flexibility should costs rise. Staff estimate that about half of the project costs are for equipment replacement that would be necessary in the future regardless of electrification. The project duration is anticipated to be 6-7 years or longer. In addition to the grid modernization CIP, there are approximately $60 million in electric utility investments included in the FY 2025-FY 2029 CIP budget. These projects include investments in system improvements, substations, security enhancements, routine wooden pole replacement, and utilities undergrounding. Gas Main Replacement Project Update: The Gas Main Replacement Project #24B project is scheduled to be completed at the end of this month. This project involves installing around 3.5 miles of gas main and services from Highway 101 and University to Webster and University, including the surrounding streets. CPAU also replaced gas pipeline at the Town & Country Village and on Geng Road. The Contractor (Daleo Inc.) is currently working on Middlefield Road between Lytton and Hamilton Avenues to install the last section of pipe. Hydroelectric Update: After an exceptionally dry January, the Northern Sierras saw better than average conditions in February, while the Central Sierras saw roughly average conditions for the month. For the water year to date, precipitation and snowpack levels are about 20% above average levels in Northern California, while they are about 20% below average in Central California. However, reservoirs across the state remain slightly fuller than average for this time of year. And overall, the City’s hydroelectric resources are still projected to produce roughly their long-term average levels of output in fiscal years 2025 and 2026.  Federal actions threaten the operations and efficiency of the Western Area Power Administration (WAPA) and the Central Valley Project (CVP), largely through suspended federal grant money and staff reductions. This doesn’t directly impact Palo Alto's ability to provide power, but it could increase the costs of supplying electricity. Customer Programs Update: On February 13, the City launched a suite of new program services to make it easier for residents to electrify their homes. This includes rebates for heat pump Heating, Ventilation, and Air Conditioning (HVAC) projects and incentives for gas meter disconnections. A new “Rebate Hub” allows customers to apply for rebates and request quotes from contractors. Residents can now receive a free online home electrification assessment Utilities Advisory Commission Minutes Approved on: Page 4 of 27 powered by QuitCarbon and free phone consultation with an electrification expert. More information can be found at www.cityofpaloalto.org/electrifymyhome. NEW BUSINESS ITEM 2: ACTION: Approval of the Fiscal Year 2026 Water Utility Financial Forecast including reserve Transfers, and Amending Rate Schedules W-1 (General Residential Water Service), W-2 (Water Service From Fire Hydrants), W-3 (Fire Service Connections), W-4 (Residential Master-Metered and General Non-Residential Water Service), and W-7 (Non-Residential Irrigation Water Service) 6:45PM – 7:30PM Utilities Advisory Commission Minutes Approved on: Page 5 of 27 accelerated within the collection system to extend the life of the asset and to do spot repairs. The same type of technology could not be used on the water and gas side. Utilities Advisory Commission Minutes Approved on: Page 6 of 27 customers, which was listed as a potential Work Plan item, but alternatively it could be agendized for the Commission to work out. The other cost savings to consider was a State and City mandate to purchase EVs, which he explained, and the UAC could explore seeking carb waivers and perhaps a policy adjustment at the Council level. Utilities Advisory Commission Minutes Approved on: Page 7 of 27 Commissioner Tucher addressed CapEx and asked how painful it would be to defer roughly $7M out of the current plan. He discussed the 2.1 percent increase in wholesale rates from SFPUC and asked if in December they were signaling that it would be zero. Utilities Advisory Commission Minutes Approved on: Page 8 of 27 Mr. Zucca stated that they were working through the details of the next phase, which would be to send out mailers notifying folks to get the testing. The third phase would be the City taking on the entire scope of the testing for those who had not gotten the testing. Daily Post had a headline “Rate Hike for Leaking Pipes.” The complaint in the article was that rates were higher because of water leaks. He noted that part of what was being deferred was leaking pipes to keep rates low, which he found tricky to resolve. He questioned how much rates were impacted by leaky pipes. Utilities Advisory Commission Minutes Approved on: Page 9 of 27 represented how much would be recovered for CIP if rates were not increased versus making the rate change and specifically deferring capital, which would lower the amount of costs associated with CIP by 5.4 percent. Utilities Advisory Commission Minutes Approved on: Page 10 of 27 Ms. Nose answered that if bar-napkin math was used that would be correct. As different levers were moved, it would change reserve levels and many calculations. Utilities Advisory Commission Minutes Approved on: Page 11 of 27 Ms. Bilir did not see a $4M reduction. The chart showed the year-end reserve balances and the dark blue bar represented the Rate Stabilization Reserve going from $4M at the end of FY2024, to $1M at the end of 2025, and then to zero at the end of 2026. Commissioner Gupta noted that there was mention in the Staff Report that the Finance Committee had discussed whether they were the appropriate reserve levels or whether they might be reduced, and he asked if staff was investigating that. Ms. Nose responded that it was an area that staff was aware of for further study. In terms of the review between December and now, staff had checked to make sure they were in compliance with the rate policies. Unfortunately, she suspected that a formal study might show the reserves to be insufficient. It was under review. Staff agreed that a broader study should be done, but she did not think it would come back in a cost-reduction manner. Commissioner Phillips requested that it be agendized for discussion. It was interesting that the debt covenants from 2009 and 2011 were on the individual reserve but also the sum of the reserves for water, gas, and electric. He wondered why they were not jointly managed. He stated that it made no sense to have individual optimized numbers. Mr. Kurotori noted that each utility had to be accounted for separately and the loans the City had taken had to be repaid between the funds, so there must be a separate accounting structure. Ms. Nose thought it would be a great item for the Work Plan discussion for the upcoming year. She felt that there was mixing of apples and oranges. Some things were associated with debt covenants and some with operating reserves, and each was governed by different regulations. Commissioner Gupta echoed Chair Scharff’s concerns related to deferring CapEx and that in the future larger reserves may need to be maintained. He thought the 10 percent rate increase was reasonable. He asked his colleagues were they stood on the proposed alternative and which option they would propose. Chair Scharff stated that staff explained why they were opposed to the alternative option. Public Comment There were no requests to speak. Vice Chair Mauter moved that staff’s recommendation for a 10 percent rate increase be accepted and that the UAC encourage Council to consider the savings opportunities and that any savings opportunities be applied toward a reduction in the use of the reserve expenditure. She wanted the cost savings identified in the proposal to be applied to a reduced spend on the reserve. Utilities Advisory Commission Minutes Approved on: Page 12 of 27 Commissioner Croft did not support subsidizing credit cards. She did not know if the UAC could determine where it should be spent. She stated that the Wastewater Reserve was in great need. Chair Scharff voiced that electricity credit card fees had to go to electricity and wastewater credit card fees to wastewater. Commissioner Phillips seconded the motion. Chair Scharff suggested that the motion spell out the cost savings the subcommittee came up with. Vice Chair Mauter accepted that. Motion Carried 7-0 ACTION: The Utilities Advisory Commission Recommend the City Council 1. Approve the Fiscal Year 2026 Water Utility Financial Forecast shown in this staff report and attachments and approving a reserve transfer of up to $3,000,000 from the Rate Stabilization Reserve to the Operations Reserve in FY 2025; and 2. Amend the following Rate Schedules (Attachment B) effective July 1, 2025 (FY 2026): a. W-1 (General Residential Water service) b. W-2 (Water Service from Fire Hydrants) c. W-3 (Fire Service Connections) d. W-4 (Residential Master-Metered and General Non-Residential Water Service) e. W-7 (Non-Residential Irrigation Water Service) 3. Recommend the Finance Committee and City Council consider the potential cost saving activities (credit card separate charge, electric vehicle replacement policies) as discussed by the UAC Subcommittee to control rate increases and to the extent these mitigate costs, reallocate savings to restore reserves while maintaining the recommended rate increase in 1 and 2 above. ITEM 3: ACTION: Approval of the Fiscal Year 2026 Wastewater Collection Utility Financial Forecast, and Amending Rate Schedules S-1 (Residential Wastewater Collection and Disposal), S-2 (Commercial Wastewater Collection and Disposal), S-6 (Restaurant Wastewater Collection and Disposal) and S-7 (Commercial Wastewater Collection and Disposal – Industrial Discharger), and Repealing Rate Schedules S-3 (Industrial Waste Laboratory and Analysis Charges) and S-4 (Hauled Liquid Waste Charges) 7:30PM – 8:00PM Lisa Bilir, Senior Resource Planner, provided slides and stated that the Wastewater Collection Utility provided a critically important service to Palo Alto. Palo Alto and neighboring cities sent wastewater to the RWQCP, and some of the facilities at the plant needed to be rebuilt, so some Utilities Advisory Commission Minutes Approved on: Page 13 of 27 of the costs were to fund that. She outlined the proposal for the Waste Water Collection Utility. There was also an alternative proposal, which she discussed. She spoke of the drivers for the rate increase. The reserves in the Wastewater Collection Utility were depleted, which needed to be restored to within the guideline range. Compared with the preliminary rates that were presented in December, there were a couple changes that increased the level from 18 percent to 20 percent, which she discussed. She shared a slide representing the bill comparison for residential customer, which they had taken from Silicon Valley Clean Water and the Financial Plan, and a slide showing the drivers for the rate increase, which she detailed. She also spoke of the alternative proposal. She supplied charts showing cost and revenue projections and Operations Reserve projections. Staff recommended that the UAC recommend that Council adopt a resolution approving the financial forecast. They were recommending to repeal two rate schedules (S3 and S4), which she stated was a clean-up item. Utilities Advisory Commission Minutes Approved on: Page 14 of 27 Ms. Bilir responded that they could put that comparison together. Utilities Advisory Commission Minutes Approved on: Page 15 of 27 Kiely Nose, Assistant City Manager, stated that the proposals were taken seriously. They were large increases and different from the December rates, and staff needed to proactively work on communicating with the public the reasons for the increases. ACTION: The Utilities Advisory Commission Recommend the City Council S-1 (Residential Wastewater Collection and Disposal), S-2 (Commercial Wastewater Collection and Disposal), S-6 (Restaurant Wastewater Collection and Disposal) and Utilities Advisory Commission Minutes Approved on: Page 16 of 27 d.S-7 (Commercial Wastewater Collection and Disposal – Industrial Discharger), and e. Repealing Rate Schedules S-3 (Industrial Waste Laboratory and Analysis Charges) and S-4 (Hauled Liquid Waste Charges) 3. Recommend the Finance Committee and City Council consider the potential cost saving activities (credit card separate charge, electric vehicle replacement policies) as discussed by the UAC Subcommittee to control rate increases and to the extent these mitigate costs, reallocate savings to restore reserves while maintaining the recommended rate increase in 1 and 2 above. ITEM 4: ACTION: Consideration of the Utilities Advisory Subcommittee’s One Water Advocacy Letter and a Commissioner’s Proposed Bay Area Water Supply & Conservation Agency (BAWSCA) Advocacy Letter and Potential Recommendation to City Council 8:00PM – 8:30PM Chair Scharff moved to Item 4, and asked if this pertained to a letter the subcommittee drafted. He asked who was on the subcommittee. Commissioner Gupta stated that was an accurate statement for the One Water Advocacy Letter. The subcommittee included Vice Chair Mauter, Commissioner Phillips, and himself. Chair Scharff asked Commissioner Tucher if thoughts from this should be integrated into this letter or if it should be thought of separately. Commissioner Tucher replied that his letter was very different and had a different audience. His letter related to recommending to Council that they, through BAWSCA, request more dialogue, information, and answers from SFPUC. Chair Scharff declared that the One Water letter would be addressed by the subcommittee first and then Commissioner Tucher’s item would be discussed. [The Commission took a break at 7:55 p.m. and resumed at 8:09 p.m.] Public Comment Peter Drekmeier, Policy Director for the Tuolumne River Trust, appreciated the transparency of Items 2 and 3. He shared slides. He spoke about the drought from 2020 to 2022. He noted that 2023 had been an incredibly wet year. He appreciated rationing, but he spoke of it not benefitting the environment and hurting fiances. He discussed demand projections and water and wastewater sales recovery by FY2026-2027. He explained that it was vital that Palo Alto get information from the SFPUC. Commissioner Tucher asked what information he was referring to. Utilities Advisory Commission Minutes Approved on: Page 17 of 27 Mr. Drekmeier discussed the One Water letter containing a sentence referencing the return period for the design drought, the likelihood of occurrence, and he encouraged that the numbers in the letter be changed, which he outlined. He recommended modeling for water sales and demand being lower than projected. He suggested getting information from the SFPUC concerning the what ifs, which he explained. Utilities Advisory Commission Minutes Approved on: Page 18 of 27 planning or investments decisions at this time. She did not want to discard it. She thought it could be a resource moving forward. She referenced Page 204, the design drought, and stated that the City was relying on Peter Drekmeier and Dave Warner’s analysis related to the probability of a design drought because they had not received an assessment from SFPUC, which she believed could be addressed in the letter from Commissioner Tucher. She addressed the sentence that read “found that no drought in 25,000 years of stochastic modeling that approached the severity the design drought scenario,” and she thought the historical model should also be mentioned, which she suggested read “the SFPUC found no drought in 25,000 years of stochastic modeling or 1,100 years of historic and paleo-modeling that approach the severity of the design drought.” She remarked that they had discussed the “several hundred thousand years fourth probability analysis suggested design drought scenario has an exceptionally rare return period, potentially one in several hundred thousand years.” She recommended that be modified to potentially 1 in 8,000 years or that there be a range. Utilities Advisory Commission Minutes Approved on: Page 19 of 27 Karla Dailey, Assistant Director of Utilities Resource Management Division, answered that they did coordinate and collaborate with fellow cities and that they worked regionally. She discussed why One Water had been done, which included providing a framework for projects. Other cities were looking at One Water planning, but not everyone had the same definition of One Water, and everybody’s territory was slightly different. There may be opportunities in the future to take what each city had learned to inform decisions being made as regional partners. She did not know about recouping money. Utilities Advisory Commission Minutes Approved on: Page 20 of 27 also considering preserving the authority of the UAC. He thought some of the concerns were included in the One Water letter. He did not think sending the letter would accomplish the SFPUC doing the things that are requested in the letter. He understood that Council Member Stone had the letter. He felt that sending two letters would take away from the One Water letter, and he was not sure what would be gained by sending it to Council. He did not support it. Utilities Advisory Commission Minutes Approved on: Page 21 of 27 Commissioner Croft felt that this letter requesting answers to questions could go with the One Water letter in the same packet to Council. Vice Chair Mauter explained why it was not possible to put the letter in the One Letter Plan letter. The One Water letter was written to respond to the conditions given by SFPUC, and the second letter questioned the validity of those conditions. She was not sure that the One Water Plan letter was the correct place to make these distinct requests. She considered it to be more of a future-looking effort. She would support asking Council to help the UAC get answers to the questions and to move away from language asking them to pursue one particular route over another in order to seek the answers. Commissioner Tucher asked what the one route was. He suggested sending the letter. Vice Chair Mauter thought Chair Scharff was suggesting that potentially Council Member Stone raising the questions independently could be more politically effective in eliciting the needed answers. Commissioner Tucher wanted Council to decide what should be done. Vice Chair Mauter felt that a unanimously supported letter would be a stronger letter to Council. Seeking compromise seemed to be an important path to pursue. Commissioner Phillips felt that the reasonable compromise would be Chair Scharff’s suggestion for an alternative letter. He asked how the letter could be drafted. Chair Scharff thought the letter could be drafted at this meeting. He suggested that staff draft it and that the questions be succinctly listed for Council. Commissioner Gupta stated the letter raised very important points that needed to be addressed by BAWSCA and SFPUC. He liked the approach recommended by Chair Scharff and Commissioner Phillips. He was concerned that Council may choose to not forward the letter if it was presented to them, which would be a lost chance to get the questions answered. Chair Scharff asked staff if they were drafting the letter. Ms. Nose replied that she had started to recorder type the initial thoughts the Commission had identified. She felt that the tapes could be viewed to frame that out. She thought staff was missing the specific questions and that the UAC’s dialogue on that would be helpful. Commissioner Tucher stated that the questions were in the public. He recommended that the UAC follow through with Chair Scharff and Commissioner Thomas’ suggestions. He wanted the questions to be listed and presented with the letter he drafted for Council to use if they desired. The questions included asking the reasoning for using higher enterprise forecast, which Utilities Advisory Commission Minutes Approved on: Page 22 of 27 he did not want to lead with. He wanted to ask the SFPUC rerun the analysis based on lower demand projections. Utilities Advisory Commission Minutes Approved on: Page 23 of 27 demand projections using the Finance Bureau numbers and the current numbers and growing at X rate. 2) SFPUC to publish the likelihood of the design drought occurring, the return period for the design drought, and to model the likelihood of using a less severe drought using 7½ years. 3) Looking back at the three droughts modeled in the LTVA, what the storage levels would be if the Bay Delta Plan was in place. Utilities Advisory Commission Minutes Approved on: Page 24 of 27 Commissioner Phillips Seconded the motion. Peter Drekmeier stated that BAWSCA gave demand projections to the SFPUC, which he discussed being a problem. He noted that care needed to be taken when addressing demand projections. He added that giving SFPUC an end-of-year date would result in them waiting that long. He voiced that it needed to be very specific without any opportunities to fudge. He liked the direction it was going. Vice Chair Mauter stated that BAWSCA was doing new demand projection models that hopefully would be less inflated. Mr. Drekmeier commented that they would be less inflated and there would be a sensitivity. He suggested using their 2022 demand study high and low scenarios. Chair Scharff declared that the Commission accepted that. Mr. Drekmeier added that they had done a lot of investigative work to understand what was happening, so they created a water supply calculator. He could crunch the numbers, but unless they came from the SFPUC, they would be questioned. He explained that the SFPUC had created a water supply worksheet and that different scenarios could be produced quickly. He noted that having the low-end and high-end numbers would provide information to have a discussion. He suggested editing Number 4 to read “at current demand” and to remove “historic.” He voiced that Number 3 was open ended and that it would be interesting to see their response. He thought the UAC wanted to know how shortening the design drought using reasonable, realistic demand projections would impact the water supply deficit that would need to be made up for with expensive, alternative water supplies. Vice Chair Mauter confirmed that UAC wanted to know how shortening the design drought using reasonable, realistic demand projections would impact the water supply deficit that would need to be made up for with expensive, alternative water supplies. Mr. Drekmeier thanked the UAC for the time they had put into this. Motion Carried 7-0 ACTION: Motion Approved ITEM 5: ACTION: Review and Recommend Utilities Advisory Commission FY 2025 – 2026 Work Plan for City Council Approval 8:30PM – 9:00PM (Moved to April Agenda) Chair Scharff asked if Item 5 could be rescheduled. Utilities Advisory Commission Minutes Approved on: Page 25 of 27 Kiely Nose, Assistant City Manager, would reschedule the item for April and address the tentative accordingly. ACTION: Moved to April FUTURE TOPICS FOR UPCOMING MEETINGS ON (DATE) AND REVIEW OF THE 12 MONTH ROLLING CALENDAR Utilities Advisory Commission Minutes Approved on: Page 26 of 27 and agendize these topics. They had considered drafting a Commissioner’s Memo on the topic and getting it on the agenda, although they would be happy to go about it in a different way. COMMISSIONER COMMENTS and REPORTS from MEETINGS/EVENTS Utilities Advisory Commission Minutes Approved on: Page 27 of 27 mod and technologies that should be considered. He hoped the Professor and Jonathan Abendschein could meet to discuss grid mod, which maybe could be the seed of broader and more regular collaborations with Stanford. th. He thought they would pay registration. ADJOURNMENT