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Home My WebLink About2004-05-18 City Council (4)City of Palo Alto City M a o r t ’04- ’05 TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: UTILITIES ATTENTION:FINANCE COMMITTEE DATE: SUBJECT: MAY 18, 2004 APPROVAL OF A RESOLUTION ELECTRIC RATE INCREASE CMR:267:04 ADOPTING AN RECOMMENDATION Staff recommends that the City Council adopt the attached resolution to increase the electric base rate of Fiscal Year 04-05 by 8.5 percent, or approximately $5.7 million annually, to be effective July 1, 2004. The Utilities Advisory Commission (UAC) recommends that the City Council approve the 8.5 percent electric base rate increase, but delay implementation until January 1, 2005, resulting in an annualized rate increase of approximately $2.9 million. BOARD/COMMISSION REVIEW AND RECOMMENDATIONS The UAC was presented with the staff recommendation of an 8.5 percent base rate increase at the May 5, 2004, UAC meeting. Staff discussed two tactics undertaken by the Utilities Department: 1) to maintain the Supply Rate Stabilization Reserve (SRSR) balance at the upper range of the new Guideline established by Council in December, 2003 (CMR:483:03); and, 2) begin transitioning customers to higher wholesale electric costs, to begin with the expiration of the Western Area Power Administration (Western) supply contract in December, 2004. On a 3-2 vote, the UAC recommended that Council delay the implementation of the staff- recommended 8.5 percent electric base rate increase until January 2005. The UAC felt that the rate increase, combined with the projected SRSR ending balance of $64 million for FY 04-05 (or 68 percent above the FY 04-05 Guideline Maximum of $38 million), CMR:267:04 Page 1 of 3 provided sufficient reserves for one-time contingencies and market volatility until FY 05- 06. The UAC felt that delaying implementation would provide greater accuracy to the forecast and could result in a lower-than-projected rate increase for FY 05-06. Staff stated that the rate increase was needed because the SRSR Maximum Guideline was artificially low for FY 04-05, when the existing Western contract would terminate December 31, 2004, and half the year would operate in new market conditions under the obsolete Guideline Range. Staff indicated that for a full year (FY 05-06), the new Reserve Guideline Range, pegged to 103 percent of projected wholesale purchase costs, would be $26 million to $52 million, with a SRSR ending balance at $55 million, or only 6 percent above the Guideline Maximum. FY 04-05 FY 05-06 (50 percent existing Western,(100 percent "new" 50 percent "new" Western)Western) Projected Supply Rate Stabilization Reserve (SRSR) Balance $64 million $55 million Guideline Maximum $38 million $52 million Guideline Minimum $19 million $26 million ALTERNATIVES Staff evaluated the impact of alternative rate proposals against the backdrop of maintaining electric supply reserves at the upper range of the Rate Stabilization Guideline and gradual increases in customer rates. An increase larger than the proposed 8.5 percent would result in a total combined FY 04- 05 rate increase (electricity, water, natural gas) that staff believes is too aggressive and would negatively impact customers, but would result in smaller future increases. If Council adopts the delayed 8.5 percent base rate as recommended by the UAC, then staff’s next electric rate proposal, for FY 05-06, would take effect only six months later and the current projected electric base rate request of 17 percent for FY 05-06 would increase to a projected rate request of 26.1 percent. RESOURCE IMPACT Approval of the staff proposed rate increase will raise the Electric Fund base sales revenues by approximately $5.7 million for FY 04-05. Approval of the UAC proposed rate increase will raise the Electric Fund base sales revenues by approximately $2.9 million for FY 04-05. CMR:267:04 Page 2 of 3 POLICY IMPLICATIONS The staff recommendation remains consistent with the Council approved Utilities Strategic Plan to provide superior financial performance to the City and invest in utilities infrastructure to deliver reliable service. The delay of 6 months for implementing the UAC rate proposal represents a departure in practice from past Utilities Department, UAC and Council actions, where Utilities rates are traditionally adopted on July 1 of the Fiscal Year (unless there are mitigating circumstances, as occurred during the natural gas crisis of 2000). ENVIRONMENTAL REVIEW The adoption of the resolution does not constitute a project under the California Environmental Quality Act. Therefore, no environmental assessment is required. ATTACHMENTS A: Resolution B: Electric Rate Schedules E-l, E-l-G, E-2, E-2-G, E-4, E-4-G, E-4-TOU, E-7, E-7-G, E-7-TOU, E-14, E-16, E-18, and E-18-G C: UAC Report from May 5, 2004 D: Minutes of the UAC meeting of May 5, 2004 PREPARED BY:Lucie Hirmina Utilities Rates Manager~; Girish Balachandran Assistant Director, Resource Management Tom Auzenne Assistant Director; ~ustomer Services DEPARTMENT HEAD: CITY MANAGER APPROVAL: HARRISON City Manager CMR:267:04 Page 3 of 3 ***NOT YET APPROVED*** RESOLUTION NO. RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO AMENDING UTILITY RATE SCHEDULES E-l, E-l-G, E-2, E-2-G, E-4, E-4-G, E-4-TOU, E-7, E-7-G, E- 7-TOU, E-14, E-16, E-18, and E-18-G OF THE CITY OF PAL0 ALTO UTILITIES RATES AND CHARGES PERTAINING TO ELECTRIC RATES The Council of the City of Palo Alto does hereby RESOLVE as follows: SECTION i. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Schedule E-I (Residential Electric Service) is hereby amended to read in accordance with sheet E-l-l, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended, shall become effective July i, 2004. SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Schedule E-I-G (Residential Green Power Electric Service) is hereby amended to read in accordance with sheet E-l-G-l, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended, shall become effective July i, 2004. SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Schedule E-2 (Small Commercial Electric Service) is hereby amended to read in accordance with sheet E-2- i, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended, shall become effective July i, 2004. SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Schedule E-2-G (Small Commercial Green Power Electric Service) is hereby amended to read in accordance with sheet E-2-G-!, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended, shall become effective July i, 2004. SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Schedule E-4 (Medium Commercial Electric Service) is hereby amended to read in accordance with sheet E-4- i, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended, shall become effective July i, 2004. SECTION 6. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Schedule E-4-G (Medium Commercial Green 1 040426 cl 0072390 ***NOT YET APPROVED*** Power Electric Service) is hereby amended to read in accordance with sheet E-4-G-I, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended, shall become effective July i, 2004. SECTION 7. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Schedule E-4-TOU (Medium Commercial Electric Time of Use Service) is hereby amended to read in accordance with sheet E-4-TOU-I, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended, shal! become effective July i, 2004. SECTION 8. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Schedule E-7 (Large Commercial Electric Service) is hereby amended to read in accordance with sheet E-7- i, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended, shall become effective July i, 2004. SECTION 9. Pursuant to Section 12.20.010 of the Palo Alto Municipa! Code, Schedule E-7-G (Large Commercial Green Power Electric Service) is hereby amended to read in accordance with sheet E-7-G-I, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended, shall become effective July i, 2004. SECTION i0. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Schedule E-7-TOU (Large Commercial Electric Time of Use Service) is hereby amended to read in accordance with sheet E-7-TOU-I, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended, shall become effective July i, 2004. SECTION ii. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Schedule E-14 (Street Lights) is hereby amended to read in accordance with sheets E-14-1 and E-14-2, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended, shall become effective July i, 2004. SECTION 12. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Schedule E-16 (Unmetered Electric Service) is hereby amended to read in accordance with sheets E-16-1 and E-16-2, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended, shal! become effective July i, 2004. SECTION 13. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Schedule E-18 (Municipal Electric Service) 040426 cl 0072390 ***NOT YET APPROVED*** is hereby amended to read in accordance with sheet E-18-1, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended, shall become effective July i, 2004. SECTION 14. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Schedule E-18-G (Municipal Green Power Electric Service) is hereby amended to read in accordance with sheet E-18-G-I, attached hereto and incorporated herein. The foregoing Utility Rate Schedule, as amended, shall become effective July i, 2004. SECTION 15. The Council finds that the revenue derived from the authorized adoption enumerated herein shall be used only for the purposes set forth in Article VII, Section 2, of the Charter of the City of Palo Alto. SECTION 16. The Council finds that the adoption of this resolution does not constitute a project under the California Environmental Quality Act, California Public Resources Code section 21080, subdivision (b) (8). INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk APPROVED AS TO FORM: Mayor APPROVED: Senior Asst. City Attorney City Manager Director of Utilities Director of Administrative Services 040426 cl 0072390 RESIDENTIAL ELECTRIC SERVICE UTILITY RATE SCHEDULE E-1 A. APPLICABILITY: This schedule applies to separately metered single-family residential dwellings receiving retail energy services from the City of Palo Alto Utilities. A "single-family residential dwelling" is designated as any house, cottage, flat, or apartment unit having a kitchen, bath, and sleeping facilities. B.TERRITORY: Within the incorporated limits of the City of Palo Alto and on land owned or leased by the City. UNBUNDLED RATES: Per kilowatt-hour Commodity Distribution Public Benefits Total First 300 kWh $0.03859 $0.02561 $0.00177 $0.06597 Next 300 kWh 0.05158 0.03402 0.00217 0.08777 Over 600 kWh 0.06877 0.04547 0.00285 0.11709 D. SPECIAL NOTES: Calculation of Cost Components The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts. On a customer’s bill statement, the bill amount is broken down into three cost components as calculated under Section C: Commodity Charge, Distribution Charge, and Public Benefits Charge. Solar Energy Discount Upon approval by the City, a 10 percent (10%) discount wilt be applied to a customer’s electric bill if such customer has installed a qualifying solar energy system prior to April 1, 1987. CITY OF PALO ALTO UTILITIES Issued by the City Council Supersedes Sheet No.E-l-1 dated 7-1-02 CITY OF PALO ALTO UTILITIES Effective 7-1-2004 Sheet No.E-l-1 RESIDENTIAL GREEN POWER ELECTRIC SERVICE UTILITY RATE SCHEDULE E-I-G A. APPLICABILITY: This schedule applies to separately metered single-family residential dwellings receiving retail energy services from the City of Palo Alto Utilities under the Palo Alto Green plan. A "single-family residential dwelling" is desig~nated as any house, cottage, flat, or apartment unit having a kitchen, bath, and sleeping facilities. Palo Alto Green power provides for the purchase of 100% renewable geen energy for participating customers. TERRITORY: Within the incorporated limits of the City of Palo Alto and on land owned or leased by the City. UNBUNDLED RATES: Palo Alto Per kilowatt-hour Commodity Distribution Public Benefits Green Total First 300 kwh $0.03859 $0.02561 $0.00177 $0.0150 $0.08097 Next 300 kWh 0.05158 0.03402 0.00217 0.0150 0.10277 Over 600 kWh 0.06877 0.04547 0.00285 0.0150 0.13209 D.SPECIAL NOTES: Calculation of Cost Components The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts. On a customer’s bill statement, the bill amount is broken down into four cost components as calculated under Section C: Commodity Charge, a Distribution Charge, a Public Benefits Charge, and a charge for Palo Alto Green. CITY OF PALO ALTO UTILITIES Issued by the City Council Supercedes Sheet No E-l-G-1 dated 6-1-2003 CITY OF PALO ALTO UTILITIES Effective 7-01-2004 Sheet No. E-l-G-1 SMALL COMMERCIAL ELECTRIC SERVICE UTILITY RATE SCHEDULE E-2 CQ APPLICABILITY: This schedule applies to non-demand metered electric service for small commercial customers and master-metered multi-family facilities. TERRITORY: Within the incorporated limits of the City of Palo Alto and land owned or leased by the City. RATES: Unbundled Seasonal Energy Rates: Per kilowatt-hour Commodity Distribution Public Benefits Total Summer $0.05612 $0.03732 $0.00217 $0.09561 Winter 0.05060 0.03342 0.00217 0.08619 SPECIAL NOTES: 1.Calculation of Cost Components The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts. On a customer’s bill statement, the bill amount is broken down into three cost components as calculated under Section C: Commodity Charge, Distribution Charge, and Public Benefits Charge. 2.Seasonal Rate Changes The Summer Period is effective May I to October 31 and the Winter Period is effective from November 1 to April 30. When the billing period is partly in the Summer Period and partly in the Winter Period, the billing will be computed by prorating the total kWh usage, and the applicable rates thereto between the two seasonal periods, according to the ratio of the number of days in each seasonal period to the total number of days in the billing period. CITY OF PALO ALTO UTILITIES Issued by the City Council Supersedes Sheet No.E-2-1 dated 7-1-02 CITY OF PALO ALTO UTILITIES Effective 7-01-2004 Sheet No. E-2-1 SMALL COMMERCIAL GREEN POWER ELECTRIC SERVICE UTILITY RATE SCHEDULE E-2-G A. APPLICABILITY: This schedule applies to non-demand metered electric service for small commercial customers and master-metered multi-family facilities receiving retail ener~oy services from the City of Palo Alto Utilities under the Palo Alto Green plan. Palo Alto Green power provides for the purchase of 100% renewable geen energy for participating customers. TERRITORY: Within the incorporated limits of the City of Palo Alto and on land mvned or leased by the City. RATES: Unbundled Seasonal Energy Rates: Palo Alto Per kilowatt-hour Commodi _ty Distribution Public Benefits Green Total Summer $0.05612 $0.03732 $0.00217 $0.0150 $0.11061 Winter 0.05060 0.03342 0.00217 0.0150 0.10119 D.SPECIAL NOTES: Calculation of Cost Components The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts. On a customer’s bill statement, the bill amount is broken down into four cost components as calculated under Section C: Conunodity Charge, a Distribution Charge, a Public Benefits Charge, and a charge for Palo Alto Green. Seasonal Rate Changes The Summer Period is effective May 1 to October 31 and the Winter Period is effective from November 1 to April 30. When the billing period is partly in the Summer Period and partly in the Winter Period, the billing will be computed by prorating the total kWh usage, and the applicable rates thereto between the two seasonal periods, according to the ratio of the number of days in each seasonal period to the total number of days in the billing period. CITY OF PALO ALTO UTILITIES Issued by the City Council Supercedes Sheet No. E-2-G-1 dated 6-1-2003 CITY OF PALO ALTO UTILITIES Effective 7-01-2004 Sheet No. E-2-G-1 MEDIUM COMMERCIAL ELECTRIC SERVICE UTILITY RATE SCHEDULE E-4 A. APPLICABILITY: This schedule applies to demand metered secondary electric service for commercial customers with a maximum demand below 1,000 kilowatts who have waived electric direct access eligibility. This schedule applies to three-phase electric service and may include service to master-metered multi- family facilities. TERRITORY: Co Do Within the incorporated limits of the City of Palo Alto and land owned or leased by the City. RATES: Seasonal Demand and Energy Rates: Commodity Summer Period Demand Charge (kW)$3.53 Energy Charge (kWh)0.04050 Winter Period Demand Charge (kW)$3.31 Energy Charge (kWh)0.03645 Distribution Public Benefits Total $10.53 $14.06 0.01222 0.00217 0.05489 $6.07 $9.38 0.01152 0.00217 0.05014 SPECIAL NOTES: Calculation of Cost Components The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts. On a customer’s bill statement, the bill amount may be broken down into three components as calculated under Section C: Commodity Charge, Distribution Charge and Public Benefit Charge. CITY OF PALO ALTO UTILITIES Issued by the City Council Supersedes Sheet No.E-4-1 dated 7-1-2002 CiTY OF PALO ALTO UTILITIES Effective 7-1-2004 Sheet No.E-4-1 Co APPLICABILITY: MEDIUM COMMERCIAL GREEN POWER ELECTRIC SERVICE UTILITY RATE SCHEDULE E-4-G This schedule applies to demand metered secondary electric service for commercial customers with a maximum demand below 1,000 kilowatts who receive power under the Palo Alto Green plan and have waived electric direct access eliNbility. This schedule applies to three-phase electric service and may include service to master-metered multi-family facilities. Palo Alto Green power provides for the purchase of 100% renewable ~een energ2¢ for participating customers. TERRITORY: Within the incorporated limits of the City of Palo Alto and land owned or leased by the City. RATES: Seasonal Demand and Energy Rates: Commodity Distribution Public Benefits Summer Period Demand Charge (kW)$3.53 Energy Charge (kWh)0.04050 Palo Alto Green Charge (per 1000 kWh block) Winter Period Demand Charge (kW)$3.31 Energy Charge (kWh)0.03645 Palo Alto Green Charge (per 1000 kwh block) $10.53 0.01222 $6.07 0.01152 0.00217 Total 0.00217 $14.06 0.05489 15.00 $9.38 0.05014 15.00 CITY OF P.M_~O ALTO UTILITIES Issued by the City Council Supercedes Sheet No. E-4-G-1 dated 6-1-2003 CITY OF PALO ALTO UTILITIES Effective 7-01-2004 Sheet No.E-4-G-1 MEDIUM COMMERCIAL ELECTRIC TIME OF USE SERVICE UTILITY RATE SCHEDULE E-4 TOU Co APPLICABILITY: This schedule applies to demand metered secondary electric service for commercial customers with a demand between 500 and 1,000 kilowatts per month, who have sustained this level of usage for at least three consecutive months during the most recent 12 month period, and who have waived electric direct access eligibility. This schedule applies to three-phase electric service and may include service to master-metered multi-family facilities. In addition, this rate schedule is applicable for customers who did not pay power factor penalties during the last 12 months. TERRITORY: Within the incorporated limits of the City of Palo Alto and land owned or leased by the City. RATES: Seasonal Demand and Energy Rates:Per Meter Per Month Summer Period Commodity Distribution Public Benefits Total Demand Charge (kW) Peak $2.08 $6.20 Mid Peak 1.32 3.91 Off-Peak 0.75 2.25 Energy Charge (kWh) Peak Mid Peak Off-Peak Winter Period $8.28 5.23 3.00 $0.07295 $0.02242 $0.00217 $0.09754 0.03738 0.01122 0.00217 0.05077 0.02860 0.00842 0.00217 0.03919 Demand Charge (kW) Peak Mid Peak Off-Peak $1.91 $3.43 1.03 ! .97 $5.34 3.00 Energy Charge(kWh) Peak $0.04832 $0.01542 $0.00217 $0.06591 Mid Peak - Off-Peak 0.02820 0.00882 0.00217 0.03919 CITY OF PALO ALTO UTILITIES Issued by the City Council Supercedes Sheet No. E-4-TOU-1 dated 7-1-2002 CITY OF PALO ALTO UTILITIES Effective 7-1-2004 Sheet No.E-4-TOU-1 LARGE COMMERCIAL ELECTRIC SERVICE UTILITY RATE SCHEDULE E-7 Bo APPLICABILITY: This schedule applies to demand metered secondary service for large commercial customers with a maximum demand of at least 1,000KW per month per site, who have sustained this demand level at least 3 consecutive months during the last twelve months, and who have waived electric direct access eligibility. TERRITORY: Within the incorporated limits of the City of Palo Alto and land owned or leased by the City. RATES: Seasonal Demand and Energy Rates: Commodity Summer Period Demand Charge (kW)$4.45 Energy Charge (kWh)0.03926 Winter Period Demand Charge (kW)$3.93 Energy Charge (kWh)0.03562 SPECIAL NOTES: Distribution Public Benefits Total $8.26 $12.71 0.01202 0.00217 0.05345 $3.70 $7.63 0.01162 0.00217 0.04941 Calculation of Charges The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts. On a customer’s bill statement, the bill amount may be broken down into three components as calculated under Section C: Commodity Charge, Distribution Charge and Public Benefit Charge. CITY OF PALO ALTO UTILITIES Issued by the City Council Supersedes Sheet No. E-7-1 dated 7-1-2002 CiTY OF PALO ALTO UTILITIES Effective 7-1-2004 Sheet No.E-7-1 LARGE COMMERCIAL GREEN POWER ELECTRIC SERVICE UTILITY RATE SCHEDULE E-7-G A. APPLICABILITY: Bo This schedule applies to demand metered service for targe commercial customers who choose service under the Palo Alto Green plan. A customer may qualify for this rate schedule if the customer’s maximum demand is at least 1,000KW per month per site, who have sustained this demand level at least 3 consecutive months during the last twelve months, and who have waived direct access eliNbility. Palo Alto Green power provides for the purchase of 100% renewable green energy for participating customers. TERRITORY: Co Within the incorporated limits of the City of Palo Alto and land owned or leased by the City. RATES: Seasonal Demand and Energy Rates: Summer Period Demand Charge (kW) Energy Charge (kWh) Commodity Distribution $4.45 $8.26 0.03926 0.01202 Palo Alto Green Charge (per 1000 kWh block) Winter Period Demand Charge (kW)$3.93 Energy Charge (kWh)0.03562 Palo Alto Green Charge (per 1000 kWh block) $3.70 0.01162 Public Benefits 0.00217 0.00217 Total $12.71 0.05345 15.00 $7.63 0.04941 15.00 CITY OF PALO ALTO UTILITIES Issued by the City Council Supercedes Sheet No. E-7-G-1 dated 6-1-2003 CITY OF PALO ALTO UTILITIES Effective 7-01-2004 Sheet No.E-7-G-1 LARGE COMMERCIAL ELECTRIC TIME OF USE SERVICE UTILITY RATE SCHEDULE E-7 TOU APPLICABILITY: This schedule applies to demand metered secondary service for large commercial customers with a maximum demand of at least 1,000KW per month per site, who have sustained this demand level at least 3 consecutive months during the last twelve months, and who have waived electric direct access eliNbility. In addition, this rate schedule is applicable for customers who did not pay power factor penalties during the last 12 months. TERRITORY: Within the incorporated limits of the City of Palo Alto and land owned or leased by the City. RATES: Seasonal Demand and Energy Rates:Per Meter Per Month Summer Period Commodity_Distribution Public Benefits Total Demand Charge (kW) Peak $2.94 $5.43 Mid Peak 1.43 2.72 Off-Peak 0.81 1.36 Energy Charge (kWh) Peak Mid Peak Off-Peak Winter Period $8.37 4.15 2.17 $0.04874 $0.01512 $0.00217 $0.06603 0.04068 0.01252 0.00217 0.05537 0.03377 0.01032 0.00217 0.04626 Demand Charge (kW) Peak $2.17 $2.07 Mid Peak -- Off-Peak 1.13 1.03 $4.24 2.16 Energy Charge(kWh) Peak $0.04008 Mid Peak - Off-Peak 0.03327 $0.01312 0.01082 $0.00217 0.00217 $0.05537 0.04626 CITY OF PALO ALTO UTILITIES Issued by the City Council Supercedes Sheet No.E-7-TOU-1 dated 7-1-2002 CITY OF PALO ALTO UTILITIES Effective 7-1-2004 Sheet No.E-7-TOU-1 STREET LIGHTS UTILITY RATE SCHEDULE E-14 APPLICABILITY: This schedule applies to street and highway lighting installations other than the City of Palo Alto. owned by any governmental agency B. TERRITORY: Within the incorporated limits of the City of Palo Alto and land owned or leased by the City. C. RATES: Burning Schedule: kWh’s Per Month All Night/Midnight Per Lamp Per Month - Class A Utility supplies energy and switching service only. All Night Midnight Lamp Rating: Mercury, -Vapor Lamps 100 watts 42/20 $ 8.22 $ 6.07 175 watts 68/35 9.81 7.65 400 watts 154/71 20.20 15.58 High Pressure Sodium Vapor Lamps 120 volts 70 watts 29/15 7.22 5.06 100 watts 41/20 9.67 7.06 150 watts 60/30 12.55 10.54 240 volts 70 watts 34/17 8.07 6.07 100 watts 49/25 10.54 7.65 150 watts 70/35 12.55 8.66 200 watts 90/45 14.00 11.11 250 watts 110/55 15.88 11.25 310 watts 134/167 18.61 14.72 400 watts 167/84 22.80 16.88 Fluorescent Lamps 40 watts 15/8 3.03 2.45 CITY OF PALO ALTO UTILITIES Issued by the City Council Supersedes Sheet No. E-14-1 dated 7-1-2003 CITY OF PALO ALTO UTILITIES Effective 7-1-2004 Sheet No.E-14-1 STREET LIGHTS Burning Schedule: Lamp Rating: Mercury-Vapor Lamps 100 watts 175 watts 250 watts 400 watts kWh’s Per Month All Night/Midnight UTILITY RATE SCHEDULE E-14 (Continued) Per Lamp Per Month - Class C Utility supplies energy and s~vitching service and maintains entire system, including lamps and glassware. All Night Midnight 42/20 $ 9.24 $ 7.06 68/35 11.11 8.80 97/49 13.84 10.69 154/71 20.64 15.88 Incandescent Lamps 189 watts (2,500 L)65/32 295 watts (4,000 L)101/5 405 watts (6,000 L)139/70 620 watts (10,000 L)212/106 Fluorescent Lamps 25 watts 12/6 40 watts 15/8 55 watts 18/9 9.81 7.80 12.55 9.81 15.88 13.13 22.08 18.31 3.61 2.75 3.74 3.03 4.33 3.18 High Pressure Sodium Vapor Lamps 120 volts 70 watts 29/15 7.51 5.34 100 watts 41/20 10.10 7.36 150 watts 60/30 12.99 10.83 240 volts 70 watts 34/17 8.37 6.36 100 watts 49/25 10.96 8.07 150 watts 70/35 12.99 9.09 200 watts 90/45 14.43 11.54 250 watts 110/55 16.17 11.84 CITY OF PALO ALTO UTILITIES Issued by the City Council Supersedes Sheet No. E-14-2 dated 7-1-2003 CITY OF PALO ALTO UTILITIES Effective 7-1-2004 Sheet No.E-14-2 UNMETERED ELECTRIC SERVICE UTILITY RATE SCHEDULE E-16 APPLICABILITY: This schedule applies to unmetered electric service and other miscellaneous Electric Utility fees to various public agencies and private entities. TERRITORY: Co Within the incorporated limits of the City of Palo Alto and land owned or leased by the City. RATES: Service Description Automatic Irrigation Systems: Hwy 101 & Embarcadero, Sand Hill Road Customer State of California, Public Works Rate * $ 5.03 ea Highway Lighting & Sign Illumination State of California (A)Highway Lighting Electrotier (20,000 L) Electrolier (4000 L) & (7000 L) (B)Sign Lighting Sign (1,910 W) Signs (1,572 W) Signs (786 W) Page Mill Expressway and E1 Camino Park & Ride Lot Lighting and Signal Automatic sprinklers at Oregon & Page Mill Expressway *Rates are monthly unless otherwise indicated. Santa Clara County Public Works @ 17.50 ea @ 8.81 ea @ 58.44 ea @ 48.03 ea @ 24.01 ea 54.66 26.65 CITY OF PALO ALTO UTILITIES Issued by the City Council Supersedes Sheet No.E-16-1 dated 7-01-2003 CITY OF PALO ALTO UTILITIES Effective 7-1-2004 Sheet No.E-16-1 UNMETERED ELECTRIC SERVICE Service Description Traffic Signal (A)Controller (B)8" Lamp (C)12" & PVH Lamp (D)Pedestrian Head (E)Vehicle, System and Bike Sensor Loop Electric Service for Cathodic Protection Station UTILITY RATE SCHEDULE E- 16 (Continued) Customer Rate * PG&E $373.79 ea 4.38 ea 5.61 ea 7.48 ea 14.97 ea 10.18 13. Cable TV Power Supply/Service Permit Fee for Electric Conduit Usage (A) Exclusive use (B) Non-Exclusive use Processing Fee for Electric Conduit Usage Permit Fee for Utility Pole Attachments (A)1 ft. of usable space (B)2 ft. of usable space (C)3 ft. of usable space (D)4 ft. of usable space Processing Fee for Utility Pole Attachments Utilities Broadband Local Area Network (A) Bandwidth Assignrnent (B) Carrier Usage Power supply to Groundwater Treatment Service Comcast Permittee Permittee Permittee Permittee City Departments City Departments 33.70 1.10/ft/yr 0.55/ft!yr Actual Cost $18.08/pole/yr $19.98/pole/yr $21.871pole/yr $23.77/pole/yr $47.00/pole 210.80/MHZ 52.70/carrier 97.65 CITY OF PALO ALTO UTILITIES Issued by the City Council Supersedes Sheet No.E-16-2 dated 7-1-2003 C;TY OF PALO ALTO UTILITIES Effective 7-1-2004 Sheet No.E-16-2 MUNICIPAL ELECTRIC SERVICE UTILITY RATE SCHEDULE E-18 Co APPLICABILITY: This schedule applies to service for buildings and facilities owned and/or operated by the City of Palo Alto. TERRITORY: Within the incorporated limits of the City of Palo Alto and land owned or leased by the City. RATES: Unbundled Seasonal Energy Rates: PerkilowaR-hour Commodity Distribution Public Benefits Total Summer $0.04566 $0.03032 $0.00217 $0.07815 Winter 0.03669 0.02412 .000217 0.06298 SPECIAL NOTES: 1.Calculation of Cost Components The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts. On a customer’s bil! statement, the bill amount is broken down into three cost components as calculated under Section C: Commodity Charge, Distribution Charge, and Public Benefits Charge. 2.Seasonal Rate Changes The Summer Period is effective May 1 to October 31 and the Winter Period is effective fi-om November 1 to April 30. When the billing period is partly in the summer period and partly in the winter period, the billing will be computed by prorating the total kwh usage, and the applicable rates thereto between the two seasonal periods, according to the ratio of the number of days in each seasonal period to the total number of days in the billing period. CITY OF PALO ALTO UTILITIES Issued by the City Council Supercedes Sheet No. E-18-1 dated 7-1-2002 CITY OF PALO ALTO UTILITIES Effective 7-1-2004 Sheet No. E-18-1 MUNICIPAL GREEN POWER ELECTRIC SERVICE UTILITY RATE SCHEDULE E-18-G Co APPLICABILITY: This schedule applies to service for buildings and facilities owned and/or operated by the City of Palo Alto receiving power under the Palo Alto Green plan. Palo Alto Green power provides for the purchase of 100% renewable green energ2¢ for participating customers. TERRITORY: Within the incorporated limits of the City of Palo Alto and land owned or leased by the City. RATES: Unbundled Seasonal Energy Rates: Per kilowatt-hour Commodi _ty Distribution Public Benefits Total Summer $0.04566 $0.03032 $0.00217 $0.07815 Winter 0.03669 0.02412 .000217 0.06298 Palo Alto Green Charge (per 1000 kWh block)15.00 SPECIAL NOTES: 1.Calculation of Cost Components ° The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts. On a customer’s bill statement, the bill amount is broken down into four cost components as calculated under Section C: Commodity Charge, Distribution Charge, Public Benefits Charge, and a charge for Palo Alto Green blocks. Seasonal Rate Changes The Summer Period is effective May 1 to October 31 and the Winter Period is effective fi’om November 1 to April 30. When the billing period is partly in the summer period and partly in the winter period, the billing will be computed by prorating the total kwh usage, and the applicable rates thereto betnveen the t~vo seasonal periods, according to the ratio of the number of days in each seasonal period to the total number of days in the billing period. CITY OF PALO ALTO UTILITIES Issued by the City Council Supercedes Sheet No. E-18-G-1 dated 6-1-2003 CITY OF PALO ALTO UTILITIES Effective 7-01-2004 Sheet No. E-18-G-I MEMORANDUM 2E TO:UTILITIES ADVISORY COMMISSION FROM:UTIITIES DEPARTMENT DATE:MAY 5, 2004 SUBJECT:PROPOSED ELECTRIC RATE INCREASE RECOMMENDATION This.report requests that the Utilities Advisory Commission (UAC) recommends that the City Council approve an 8.5 percent system wide retail electric rate increase effective July 1, 2004, in order to pay for rising commodity costs, increase the Supply Rate Stabilization Reserve and fund Distribution operating and Capital Improvement Projects (CIP). BACKGROUND The last Palo Alto electric rate increase was 43% in 2001. Since the 2000-01 energy crisis the electric commodity costs have remained relatively stable. However, Palo Alto costs are expected to increase when the low cost Western contract expires in December 2004. Therefore, electric purchase costs are expected to increase from approximately 4 cents per kilowatt-hour to approximately 6.5 cents per kilowatt-hour starting January 2005. These purchase cost increases are the main driver for the projected retail electric rate increase from its present average 7.3 cents per kilowatt-hour to 10.5 cents per kilowatt-hour by the end of this decade. This proposed rate increase for FY 04-05 is expected to be the first of a series of rate increases contemplated in the next few years. In the meantime, staff continues to evaluate opportunities to reduce current and potential costs associated with commodity purchases and transmission. DISCUSSION This rate proposal has two objectives. Primary Objective: Maintain adequate Supply Rate Stabilization Reserve (SRSR) balances, in line with new reserve guidelines approved by Council in December 2003 (CMR:483:03). These guidelines recognize uncertainty issues related to regulatory and legal matters, supplier risk management, transmission access, hydro production, and wholesale market volatility. Page 1 of 4 ¯Secondary Objective: Begin a gradual transition to higher rates that are expected in the near future, rather than expose customers to greater rate shocks in future years. Since 1964, the City of Palo Alto has procured most of its wholesale power through a contract with the Western Area Power Administration (Western). This low cost contract will expire on December 31, 2004. The Long Term Electric Acquisition Plan (LEAP) approved by the Council is designed to systematically meet the City’s energy needs after 2004. Expiration of this low cost contract along with higher cost for transmission and related services is expected to increase electric purchase costs starting January 2005. This proposed retail rate increase is a transitional step towards recovering these higher forecasted energy purchase costs. The City has two tools to deal with higher utility costs. The rate charged to customers and utilization of rate stabilization reserves. These tools can be combined using several approaches. To illustrate two different approaches - consider one that postpones rate increases to the last possible time combined with drawing down the reserves in the interim period to minimum levels and another that increases rates gradually in conjunction with reserve drawdown. Regardless of the approach selected, rates are expected to rise from 7.3 cents/kWh today to approximately 10.5 cents/kWh by the end of the decade. The utilities financial plan and rate projections contemplate a multi-year increase in retail rates to reduce the adverse impacts of a one-time large rate shock. This multi-year rate increase is accomplished in a coordinated manner with a measured draw down of the supply reserves (which are at present at a relatively high levels, although the Reserve Guideline Maximum will increase during the transitional FY 04-05), and a gradual increase of rates. Since supply reserves are currently higher than the maximum guideline for the remainder of FY 03-04 and partially during FY 04-05, staff evaluated the option of a more aggressive draw down of reserves in the near term and delaying the start of the multi-year rate increase to FY 05-06. This would result in reserve levels being below the maximum guideline. In staff’s judgment the approach of a measured and gradual draw down of reserves in combination with a multi-year increase in retail rates starting in.FY 04-05 provides the utility the financial depth and flexibility to deal with the significant regulatory and operational challenges facing the utility. To meet these objectives, a $5.7 million revenue increase in FY 04-05 is recommended. In spreading the revenue increase to customer classes, all retail rate schedules were increased by approximately 8.5 percent. This increase includes metered and unmetered services. This rate increase has been applied to the commodity portion of the rates on an equal percentage basis to achieve equity between customer classes. Table 1 shows the impact of this rate proposal on a typical monthly bill for the various customer classes. Comparison with PG&E is based on PG&E current rates approved by the California Public Utilities Commission. Page 2 of 4 TABLE 1: Effect of Electric Rate Increase on Customer Bills MONHLY PROPOSED MONTHLY %% CPAU KWH’S MONTHLY BILL BILL (BELOW)CUSTOMER USAGE BILL INCREASE INCREASE PG&E Residential Small 300 $ 19.79 $ 1.49 8.1 (42) Residential Average 650 51.98 4.04 8.4 (39) Residential Large 3000 327.18 25.66 8.5 (41 ) Commercial Small 500 45.45 3.53 8.4 (45) Commercial Medium 500,000 34,464 2,978 9.5 (39) Commercial Large 5,500,000 374,970 29,869 8.7 (34) RESOURCE IMPACT Approval of this rate proposal will increase the Electric Fund metered retail sales revenues by approximately $5.7 million on a fiscal year basis. With this infusion of revenue, the balance in the Supply Rate Stabilization Reserve wit! remain over the maximum guideline in FY 04- 05. However, due to a number of uncertainties that include regulatory uncertainties, staff recommends that the reserves remain above maximum guidelines in the interim until these uncertainties are resolved. POLICY IMPLICATIONS These recommendations do not represent a change in current City policies. TIMELINE The effective date of the proposed electric rates is July 1, 2004. Page 3 of 4 ENWIRONMENTAL REVIEW The adoption of the resolution, does not constitute a project under the California Environmental Quality Act, therefore, no environmental assessment is required. ATTACHMENTS Electric Rate Schedules E-l, E-l-G1, E-!-G2, E-l-G3, E-2, E-2-G1, E-2-G2, E-2-G3, E-4, E-7, E-8, E-9, E-10, E-11, E-12, E-13, E-14, E-16, E-17 PREPARED BY: REVIEWED BY: Lucie Hirmina, Rates Manager Tom Auzenne, Assistant Director, Customer Services Girish Balachandran, Assistant Director, Resource Management DEPARTMENT HEAD: JOHN ULRICH Director of Utilities Page 4 of 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 UTILITIES ADVISORY COMMISSION MEETING MAY 5, 2004 DRAFT - EXERPT Rosenbaum: Can we reconvene please? Alright the next item is the budget and rates. And under that we will first consider the capital improvement program, John. Ulrich: I don’t have a specific presentation on the CIP, but we would be glad to answer questions you might have. Rosenbaum: Alright, last month we received a report on the major changes from year to year we also have in front of us the proposed capital budget. Do we have any questions on either of these documents? Is everyone happy with the CIP? Ulrich: I know you had an opportunity, we discussed it last time about some of the big ticket items and we have taken that to heart. But if you have some questions about some of the specifics of the smaller projects we would be glad to chat about it. Rosenbaum: I am looking to my colleagues and I don’t seem to see any interest in further discussion of the CIP. Would you like a motion on each item or how do we normally proceed on this? Ulrich: Probably better to do one on each one that way you won’t have to go back again and put it all together. Rosenbaum: Alright could we have a motion recommending that the council approves the CIP for the enterprise funds. Bechtel: Mr. Chairman I have one question. Normally we only address electric, water and gas funds. And that’s what I have spent most of the time recommending. Should our recommendation include the other enterprise funds although they are not the responsibility of the UAC. Rosenbaum: That’s a good question. Ulrich: That depends upon what your recommendation is. No I’m not going to say that. No I think you should feel free. You know we bring the sewer the waste Draft UAC Minutes 5/6/04 Page 1 of 22 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 collection, and we understand that is not a purview but it is a utility and all the work you have been doing on the fiber is also new so feel free to give you advice and ask questions about those utilities too. Rosenbaum: Dexter? Dawes: John I had sent an e-mail some time ago about a proposal to put on our agenda a review of the electric undergrounding project. To put it into perspective, I have had many citizens question me about it, it actually came up in the fiber discussion and it seems to me that a hundred year program should rate a review by the UAC may once a decade, or something like that. And I have been around six years or so and I just know that it is a hundred year program and its not on my street and that’s about all I know. So I thought it might be a very good thing to do and while we are talking about capital appropriations I just wanted to put another statement on the record and we should put this on the agenda and I appreciate your thinking about it and proposing it in due course of time. Ulrich: Yes in fact that was the call I made to you this morning. I had the answers and I apologize I was out of town the other week. Basically the question is, improved communication and I think the best spot would be on our web site where we have a little more dynamic model showing where we the locations of the underground districts are and the ones that are proposed. As you know in your binder that on CIPs you get a copy of it, but that is not necessarily easy for the public to look at. So, since I got your note, we are looking at how to do that. It is just another page to put in but it also requires once you do it, you want to keep it up to date. The other part that it is probably unclear to some people how the process works to get into an underground district. Dawes: Almost everybody. In fact I would say everybody, except Scott. Ulrich: You would be amazed at the number of people telephone that make a call, I may have had several today. And I think Scott may have to, So that when we are about ready to do an undergrounding, there are plenty of people in that district that learn about it. The point I was trying to make is that this is all articulated very thoroughly in role # 17 that can be found by any member of the public that would like to move though the rate and rules schedule. However, having said that, there are a number of options and a number of things and we would be happy to have that as a subject matter. But it would be helpful, I think, for you to tell us the things you would like us to bring up. Draft UAC Minutes 5/6/04 Page 2 of 22 8O 81 82 83 84 85 86 87 88 89 9O 91 92 93 94 95 96 9"7 98 99 100 101 102 103 104 105 106 107 108 109 110 111 !12 113 114 115 116 117 118 119 Dawes: Will do. Rosenbaum: John? Melton: Mr. Chairman I move approval of the proposal capital budgets for the gas, electric, water, fiber and waste water utility projects. Rosenbaum: Do we have a second? Dawes: Seconds Rosenbaum: Alright we have a motion by Melton and a second by Dawes to recommend to the council approval of the capital improvement program for electric, water, fiber, gas and waste water collection. Any further discussion? All those in favor, please indicate by saying Aye. ALL PR£SENT: Aye. Rosenbaum: That passes unanimously. Let’s go on. Ulrich: Mr. Chairman. I think I neglected to mention that on May 1 lth, which is next Tuesday will be the review by the finance committee of the enterprise funds CIP program. And it’s your call, you may want a member of the UAC there. If not, I would be glad to convey your vote. Rosenbaum: Let’s see, the operating budget is going the finance committee on May 18th, iS that correct. I was planning on attending that one. Ulrich: The one on the 11 th is capital. Rosenbaum: Right, is someone one of the commissioners care to attend the May 11 th finance committee meeting? Bechtel: I would be happy to attend. Rosenbaum: Alright, Commissioner Bechtel will be present at the May 11 th finance committee meeting and I will attend the May 18th .meeting. Let’s move on to the operating budget. John, and introductory remarks? Ulrich: No I do not. Draft UAC Minutes 5/6/04 ’age 3 of 22 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 Rosenbaum: Once again we did receive a report on significant changes at our April meeting and we have the entire budget in front of us tonight, are there any questions? ’ Bechtel: Mr. Chairman implicit in the operating budget are rate increases and I would suggest that rate increase also impact the CIP. So as I was thinking about questions are on the rate increases. I am wondering how to proceed with the operating budget if the numbers all include revenue increases to fund the budget. Rosenbaum: You raise a good point, but I would suggest we ignore it and simply approve the operating budget with the understanding if any of the rate proposals are not approved why the operating budget will automatically be adjusted. Bechtel: That’s agreeable. Rosenbaum: Good alright. Do we have any questions on the operating budget? If not, can we have a motion. Bechtel: I move that we recommend to the city council that we approve the proposed operating budget for 2004 - 2005. Dahlen: I will second the motion. Rosenbaum: All right, we have a motion by Bechtel and a second by Dahlen to recommend to the city council approval of the utilities operating budget. Is there any discussion? All those in favor. ALL PRESENT: Aye Rosenbaum: That passes unanimously. Rosenbaum: Alright the next item C is the gas rate proposal. John. Ulrich: Thank you. The rate proposal that you have requests an increase that articulates the main reason is the commodity cost increase and the interest in having a financial going forward that not only pays for the gas and other services but also retains the reserve level that is recommended. I would be glad to answer any questions about that. The impact on customer bills are indicated on table one which more clearly translate a 9.9% increase to actual amounts of money that people would pay. And then it also gives a kind of a ballpark number comparing it Draft UAC Minutes 5/6/04 Page 4 of 22 160 161 162 163 164 165 166 167 168 169 170 17t 172 173 174 175 176 !77 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 with Pacific Gas and Electric for the same commodity and the same class of customer. Mr. Auzerme is here, our new assistant director, who is right on top of things. Dawes: It is my assumption that we have locked in this says about 73% of our gas for the next fiscal year, 27% is not least at the time of this writing. It was not clear to me how much of the rate increase depends upon the gas we have already locked up vs. the gas we haven’t locked up presumably at a higher price. The amount that we haven’t locked up is relatively small even if we paid a fair amount more, it would not have a large impact on our rate for the year. Could you give me a sense to accommodate the locked in portion of the gas we have already contracted for. Ulrich: We are going to be working as a team because you are going back and forth between supply - next to me Lucie Hirmina and to left is Girish Balachandran the assistant director of supply. Balachandran: Let me rephrase the question, your question is what percentage of the rate increase is to cover the exposed part of 04-05. Dawes: That part we have already locked up. Yes Balachandran: I don’t have the exact number, we can back into this. We essentially, at the time the budget was put together we know exactly what our costs are, at least for the fixed portion of 04-05 load, we estimate at the day we provide the budget estimate we get the market prices and apply that to the exposed load. That is essentially what we do for a ten year period. And the rates group places it into the financial model, looks at reserves other cost changes and that’s how the rate increase gets developed. Its developed at the back end. I don’t think there is a direct correlation in the sense that this is your supply cost and this percentage. Dawes: No your have answered the question. Thank-you. That was great. Another question on the G3 people it says they will not experience a bill increase. Is that because we don’t set the rate, they basically buy for themselves and some have bought well and some may be paying more than our other customers, is that correct? Balachandran: G3is the monthly varying rate so they just could pay market rate. Dawes: Pay market at the time. Thanks. Rosenbaum: Any other questions? Elizabeth? Draft UAC Minutes 5/6/04 Page 5 of 22 2OO 201 202 203 204 205 206 207 2O8 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 239 Dahlen: I had a question with regards to table 1 and the comparison to PG&E rates. Based upon my interpretation of this it looks like most of our rates duril{g different portions of the year are. going to be exceeding PG&E rates. How accurate is the PG&E rate that we are comparing to here and do we assume that their rate is going up in a similar manner to ours so that our rates will actually ultimately likely be lower than PG&E. Hirmina: Sometimes it’s higher sometimes it’s lower because PG&E passes through the commodity price to customers and so their prices change on a monthly basis. The comparison here is based upon March prices. When this document was prepared. So every month is different. And of course in the winter time when prices go up, when PG&E market prices go up, our bills will-lower than PG&E. Balachandran: If I can just add to what Lucie said. Essentially here is an apples to orange comparison because our purchasing strategies are different. But maybe a proxy way to compare it is to look at the quarterly report and you look at the gas on page three of attachment B there’s a chart market prices vs. pooled purchases. Page three of ten. Are you there? Dawes: Yes I am there. I am just trying to interrupt what you are saying. Balachandran: OK right what Lucie tried to compare was its our rate at the time. Our rate was what PG&E’s rate in March. If you look at the forward market price, the dotted line, and the market price essentially stays the same way those are the prices that PG&E customers will see on a monthly basis. Dawes: The forward market prices. Balachandran: Exactly. Now we all know that changes every day. But this was the forward market price at the time that this chart was created. So if you are looking forward, that’s the price vs. if you look at the expected, pool rate the solid line in the middle, that is what our customers will be paying. Dawes: But as I look at this and based upon this interpretation, we do start to see the same rates as PG&E. As we move out into 2006. Am I correct, the dotted line is tracking the solid line there? Balachandran: Yeah, if you skip one page back page two often, you can see it is a function of how much we have locked in. So you see when you go to 2006, the red line shows what percentage of the load we have locked in and so the remaining Draft UAC Minutes 5/6/04 Page 6 of 22 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 278 279 part is borrowed market so there is a greater portion of the load borrowed market and thus closer the weight market. Dawes: Got it, since you numbers so well if we bump out into 2006 how much of that we secured? Are we estimating at PG&E rates 50 / 60% ? If you can give me a feel for how much of the load we have locked in at that point in time? And just to be clear, I am looking at that portion of the chart on page three often that is May 6th and forward. Can you give roughly give me an estimate of how much we have locked in at that point? I am trying to figure it out from the page before too. Balachandran: Actually I have to do the calculations. There is 47% for the period Nov. 05 through September 06 and about 27% in round numbers around 35. OK so basically we are paying the same price out there for the bulk of what we are estimating. Balachandran: Exactly for about 65% is exposed to the market at the current time but for the latter strategy we will be locking in prior to that period. Dawes: Thanks for the clarification on that. Rosenbaum: George Bechtel: Girish maybe you know. In Palo Alto we have a utilities user tax of 5% on three of utilities. In comparison with PG&E. So we actually our rates are a little higher than theirs if you take the 5%. How do you compare that with a PG&E rate? I’m not sure what other taxes or fees would be on a PG&E customer’s bill. Maybe John knows living in Menlo Park. Ulrich: Part of it depends upon the community. Most communities or a good portion of them have a utility user tax. It is not just in Palo Alto. So if the utility user tax applied in another community that would be added on top of a PG&E bill similar to the condition you describe in Palo Alto. George? I see thank you. Rosenbaum: Are there any other questions? Can we have a motion? Bechtel: I am prepared to make a motion to make the gas increase. But it says that we should approve a $2.5 million retail gas revenue increase. Effectively we can not do that, because we can not control that. But we are recommending a rate Draft UAC Minutes 5/6/04 Pag 7 of 22 280 28! 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 3O8 309 3!0 311 312 313 314 315 316 317 318 319 increase and so can we change the wording and maybe I will make the motion in the following way. Looking at your recommendation that the UAC recommends a city council approve a rate increase averaging 9.9% or a $2.5 million retail gas revenue increase effectively July 1, 2004. Dawes: Dawes Second Rosenbaum: Alright we have a motion by Bechtel and a second by Dawes to approve the staff recommendation for a gas rate increase. Is there any discussion? If not, let’s vote. All in favor say Aye. ALL PRESENT: Aye Rosenbaum: That passes unanimously. Let’s move on to the proposed water rate increase. Ulrich: The recommendation there is requesting your approval of 10.3% or $2.1 million water rate increase effective on July 1, 2004. We articulate in there the reasons for it, primarily the increased costs of supply and our reliability work. Rosenbaum: Questions for staff. John Melton: John the water fund. I’m trying to figure out why it is after having set this thing up a year ago for two sequential 15% increases, you are now proposing to decrease this one down to roughly 11%, 10 or 11% which is going to result in a decrease in the rate stabilization reserve below the minimum guideline, whereas if you stuck with original plan of 15% that would essentially would wipe out that decrease in the reserve and you would be within the guidelines. It seems to me you had this thought our correctly a year ago and now your screwing it up. Hirmina: Actually with the planned 15% rate stabilization reserve would have also been below minimum. It’s the same picture. What happened was there were cost savings and because we were planning an increase in electric and gas we did not plan an increase in electric last year and so this year when we looked at the increases we didn’t want to burden our customers with all those increases. That, of course, makes presumptions about an increase in the electric rate which is the subject of the next discussion. But you know independent of what is going on with the electric rate or the assumptions about the electric rate, just looking at the water rate it seems to me that the case is pretty persuasive that the 15% rate is a better rate as far as the overall financial health of the utility’s reserve is concerned. Draft UAC Minutes 5/6/04 Page 8 of 22 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 353 354 355 356 357 358 359 Auzenne: You are in fact correct sir. The water rate stabilization rate has been below minimum for some time. We have been slowly increasing that point to get to minimum. Our water rates are problematic in that we are historically above our neighboring communities and we hear that from our customers. Part of that is because of our aggressive infrastructure replacement program and the like. What we are trying to do hear is balance financial prudence with political realities - as it were. One of the things you will probably notice in this document. Recent information from the public utilities commission changed our calculations of what in fact our wholesale rates are to be going forward for the next year. In fact it is lower than our original projections. So rather than sit there and modify our rate request, if those savings come true, then we will significantly close the gap to the bottom of the minimum rate stabilization guideline. So we didn’t see a need to overhaul as many documents. The budget process for Palo Alto is a very long ponderous process. So rather than sit there and change all of numbers we have been using going forward, since we have already been changing electric for you, we decided it would probably be prudent to stick where we are and we will capture those savings and the reserve will increase. Melton: One more point. Looking at it in a different context, my understanding is that we anticipate substantial increases in the water rates for the next several years as a function of our obligations under the Hetch Hetchy reconstruction process. That has to happen. Are we just setting ourselves up for a bigger increase in some future year by reducing the rate this year, are we just going to make life tough on everybody next year or the year after. Auzenne: Well as you pointed out, we are probably one of the few entities that forecast ten year financials as a utility you know out that far. Our expectation is that the rates are about to go up by 10% a year for the next decade. And so, yes the cost of water is going to be more and more infrastructure and less and less water. As Mr. Rosenbaum has pointed out a number of times, so as the cost of infrastructure goes up those will get translated very quickly into.rate increases. When you do make a comparison with other communities and look at the overall rate impacts on customers, because you will find our position in our arguments about the electric RSR and electric rate a bit different than what we are saying about here on the water. Is we like to look at the whole thing and not make this a calculation that we say we calculated so this what it should be. I think we need to meter it and mitigate it where we can. Rosenbaum: Dexter Draft UAC Minutes 5/6/04 Page 9 of 22 360 361 362 363 364 365 366 367 368 369 370 371 372 373 374 375 376 377 378 379 380 381 382 383 384 385 386 387 388 389 390 391 392 393 394 395 396 397 398 399 Dawes: I’m concerned about the pace of the capital projects. Several years ago we bonded a fairly sizable amount in the water fund to deal with the $13 or 14 million package which dealt with emergency water and it’s totality. The wells, the big expensive storage facility and so forth. Some of that work has started. The biggest one has slipped quite a lot because of political issues and EIRs and what have you. I am not quite clear on how all of that is worked into this, and I am looking at the ten year plan now of March. Are all those projects incorporated in this plan and in the rate assumptions, which is the 10% this year, the 15% next and then virtually zero out into the future. Ulrich: The answer is yes. The staff has put a lot of time one recognizing that we are spending and it is a lot of money so it impacts very quickly the rates and that has been factored in so that the delay or the money we expected to spend earlier on has been moved out. Dawes: My recollection is that in effect that unspent bond proceeds ends up in the reserves until it is actually spent on the appropriate capital expenditure. If that is the case, then I am uneasy that the RSR which doesn’t have anything to do with capital but it’s the largest reserve in the water system is below its minimums. Ulrich: As I recall, you asked us this before. As you recall the amount of money that was in the bond was a relatively small amount as compared to the percentage of money we spend on this type of infrastructure. So you can see that the last use of the bond proceeds is on line 12 actuals 0203 in going forward 03 onward there is no more proceeds being used. It has all been used up. Dawes: My recollection was that there was bond precedes 01-02 as well. More than the $3.2 million. Ulrich: I should point out that the money that we got is spent in the years that is not in these pages. Dawes: And on other projects. Ulrich: Appropriate for the use of the bond money, yes. Rosenbaum: Any further questions? Are we ready for a motion on the water rate proposal. Dawes: So moved. Draft UAC Minutes 5/6/04 Page 10of22 400 401 402 403 404 405 406 407 408 409 410 41l 412 413 4t4 415 416 417 418 419 420 421 422 423 424 425 426 427 428 429 430 431 432 433 434 435 436 437 438 439 Bechtel: Second Rosenbaum: have a motion by Dawes and a second by Bechtel to approve the water rate increase proposed by staff. Any discussions? All those in favor please say Aye. ALL PRESENT: Aye Rosenbaum: That passes unanimously, let’s move on to the electric rate increases. Ulrich: This is a similar situation in the electric we are forecasting increase costs and we believe it is appropriate to raise the rates as recommended 8.5% we can go into more detail. I have a chart to pass out to you and we will discuss it in more detail. I think the big important thing is that we have been trying to convey for some time is that the end of the forty year contract with Western is over at the end of this year. So costs of supply are going up as we implement the long term supply plan leap and that what’s projected as the reason for this rate increase. So to give you a little bit added information. So we passed out some handouts, I’ll put them up the projector so the audience can also see as we go along. Would you like to ask some questions or focus us on the things you would like us to cover? This is obviously a very important commodity and it has revenue and therefore a big impact on our budget and also obviously the cost to our customers. In summary, I mentioned the Western contract is ending in December of 04. The long term supply trend is up. The regulatory uncertainty continues on several fronts: Your utility wishes ~ gradual rate changes for customers all price scenarios have a system rate of 10.8 cents per kilowatt hour. By fiscal year 08/09 and that of course is significantly higher than it has been in past years. The supply reserve maximum guideline is changing in 04/05 to reflect rising supply costs. That’s a calculation based upon a percentage of revenues. Utilities strategy is to maintain supply reserves at or near the maximum guideline in order to have flexibility in mitigating unforeseen costs. And for more details on that refer l~ack to report we gave you last year, I think that was in October which articulated all the single and on going contingencies for our reserves. So you probably want to talk in more detail the rate proposal and please feel free to ask. Rosenbaum: Questions for staff?. Draft UAC Minutes 5/6/04 !1 of 22 440 441 442 443 444 445 446 447 448 449 450 451 452 453 454 455 456 457 458 459 460 461 462 463 464 465 466 467 468 469 470 471 472 473 474 475 476 477 478 479 Dawes: I guess it more of a statement there is no question looking at the ten year chart that things are changing very radically. What sits uncomfortably on the stomach is a forecast of $66 million RSR at the end of this fiscal year against a reserve maximum guideline of $28. In other words, it is more than double and we are suggesting at 8.5% increase. Then you look across the page and the reserve maximum guideline increases from the 28.5 this year up to 52 two years out 53 three years out so that doubles. Also, of course, supply costs double. The Chairman has circulated a little chart which shows the forecasts of reserve levels made at various times at this time each of the last three years. Each of those reserve levels have been breeched, all great fully on that side. There are issues and problems on the horizon that the utility director has drawn our attention to both orally and in writing. FERC gave us a great gift when he said that the PG&E could not unilaterally revolt its integration contract in bankruptcy which we thought they were going to do. But it looks like they are going to perhaps take us away a bit of that good news with these other decisions which are either about to be made or have been made which are subject to review or what have you. My assumption are those uncertainties are not baked into these as a debit to our reserve, but could amount to $7.5 million for one and there is a second one which could be somewhat more. You show the glide path of these curves coming together the increasing maximum guideline and reducing RSR itself due to these increased costs offset by the consistent higher actual reserve than what had been estimated - again offset by possible big hits out in the future. My feeling is that staff have been too aggressive in requesting an increase, I wouldn’t support the full 8.5%. Zero might be too low given these uncertainties. I think something in the perhaps the 4% range might be more appropriate for this commissioner. Rosenbaum: Further comments Bechtel: My question addresses the reserve ranges you have set. I think you have talked about them in previous years. Tonight you mentioned that there’s the reserve guidelines are set at a certain percentage of revenues. Could you tell me exactly what they are? Because we are comparing reserves and if we didn’t know anything about the guidelines we might assume that $60 million was the right number. You call it a guideline, so therefore we compare that and are adjusting revenue to make sure that works. What is the rationale for those guidelines? And the second question is that you are using maximum, you want to target at the maximum. To me a maximum is a maximum. You have a target level there and Draft UAC Minutes 5/6/04 Page 12 of 22 480 481 482 483 484 485 486 487 488 489 490 491 492 493 494 495 496 497 498 499 500 501 502 5O3 5O4 505 506 5O7 5O8 5O9 510 511 512 513 514 515 516 517 518 519 why aren’t we shooting for the target level that the mid-point between min and max? You want to use the maximum as the target because you want flexibility in case of a downside. Well that’s the purpose of the minimum. So if we are right in the middle we are running a good ship if we have a lot, then we can give it back. If we have too little reserve then we took care of the down side. So I am not sure understand the rationale on these guidelines. Ulrich: We’ll go over those guidelines in detail because they are listed in the October 1, 2003 recommendation and as you know when you look at the quarterly report we show where the money in comparison with those so my assumption is your want to know of a reminder of how it is calculated. It’s a percentage of the supply costs up the revenue that I may have said a minute ago. So we will go through that. I think it is important for you to see the dynamics of just change in the reserve by looking at what happens if you don’t have an 8.5% increase and you pick something else. And I think it is appropriate to go through so you see the dynamics and see why our recommendation is to be up near this maximum and that for the foreseeable future is something we ought to maintain. Primarily for this uncertainty area that I continue point out. I don’t believe it appropriate to have any more of customer money than we should. That what’s the reserve is there for to take care of these unforeseen and unexpected problems that come along. I think the last thing we want to do is shock our customers or do something like we had to with the gas when we had some very significant unforeseen price increases and if it wasn’t for having those reserves we would have been in far worst shape in having to go to and get some very dramatic increases from our customers. So if you bear with us for a minute then we will go through those dynamics and then come back to your reasons for wanting to do something else. Tom and Girish, if you would like to go through that a little bit we can get some discussion about it. Auzenne: If I take your questions in the order in which I wrote them down. The purpose of a rate stabilization reserve is as it says is to stabilize rates. It’s not necessarily an additional funding mechanism for what ever you might choose. The term guideline, as it says, is a guideline. John spoke of the problem we had in gas in the year 2000. That is something we really truly want to avoid in the electric business because our exposure is much much more in the electric side of the house than in the gas. We wound up taking the rate stabilization reserve of gas to almost zero. And left ourselves open to second guessing as to when we initiated rate increases and when we should have been more aggressive in those rate increases early on in order to protect the reserve. So you can have a philosophic point of view or a philosophic discussion as to the efficacy of our efforts there. Our Draft UAC Minutes 5/6/04 Page 13 of 22 520 521 522 523 524 525 526 527 528 529 530 531 532 533 534 535 536 537 538 539 54O 541 542 543 544 545 546 547 548 549 550 551 552 553 554 555 556 557 558 559 exposure on the electric side again is predicated on the fact that the maximum guideline as shown on that graph is currently being exceeded. That’s not necessary a problem of the size of the reserve, but rather a problem with the guideline. And we only adjust the guideline periodically. We only adjusted it, council adjusted it December after you saw it in October of 2003. So what we are on an upward curve to match the guideline to our economic reality. So that’s what happens when those points come together. Right now you could be saying that we are in a surplus position. On the other hand you see that line stays relatively flat and the guideline is in fact increasing. We looked at a number of different scenarios and those are indicated on this chart where we are playing a zero sum game. At the end of the say the average retail rate is going from 7.3 to 10.9 cents per kilowatt hour. Under any scenario you care to choose. Under any mechanism you care to use. So it’s just a question of how we get there. Using our philosophy of trying to have gradual rate increases is what prompts our 8.5% rate increase at this point. If we in fact under scenario 3A as it was listed there, forego any increase in 04/05 then in order to sit there and maintain our other assumption which is we want to maintain the supply rates stabilization reserve at the upper level. Now we can have a discussion about whether that is a supportable philosophy but if we use that as a philosophic approach, then we are going to be looking at thirty six percent electric rate increase. And after that a four and then further out a six. Under scenario 3B we sit there and forego a rate increase and again in 04/05 and we try and mitigate or spread that increase out again and it turns out to be 17 then 12 then 36. Then the minus sixteen is because you overshot it at the back end. Again our system average retail rate is going to 10.9 and we don’t see anything changing that. The problem with the ten year financial forecast that commissioner Dawes indicated is also what prompts us to make a change in our presentation. What we are going to be doing is bring you a new ten year forecast on a quarterly basis. Because, as I said at the last meeting, this has now gotten totally dynamic. This is not your father’s utility. This not the Western contract with a nice smooth life span anymore. That’s why we are sitting there and trying to, not necessarily over capture too much money, but rather to be able to sit there and be able to have enough money to mitigate anything that happens. Questions? Bechtel: I am going to take the prize since I asked the question. Tom why don’t we use the mid-point? In another words you know today you have a great forecast Draft UAC Minutes 5/6/04 Page !4 of 22 56O 561 562 563 564 565 566 567 568 569 570 571 572 573 574 575 576 577 578 579 580 581 582 583 584 585 586 587 588 589 59O 591 592 593 594 595 596 597 598 599 of what our costs are going to be so why don’t we make the guidelines so we try to hit the mid point? We use the mid-point in the gas fund. And it didn’t work too well. I think this is a big question of concern and maybe a better approach is to go back and start over on how we got to the maximum / minimum because that’s set and the we try to work in it. And your push back is that we are above the maximum and I think we pointed out in the other chart, it’s not going to be there. That gap that we have is thankfully is that big of a gap for as the costs go up we are going to be able to use some of reserve to keep the increase from being any greater than it is. So this is supposed to be a positive thing, not some penalty we are going after our customers for. So we may be better off going back and articulating the guidelines and recommending go up higher so the number we actually have translates to these increases is somewhere in the middle. And I don’t mean to sound like we will just jigger around. That’s the whole point of this to be able articulate why we need these kinds of reserves. I think we did a very good job in the October report pointing out the risks in this business and I would not be here recommending these numbers if I didn’t feel very strongly that this is the kind of levels that we need. Give where these rates are going to go. So that’s the rationale for it. Bechtel: I’m satisfied, I don’t have any more questions. Rosenbaum: John? Melton: Looking at the operating budget and the enterprise fund reserves, page 140 and when you established the budget, you.and proposed this rate increase, you had as a target a $55.6 million ending reserve. With no rate increase you can still get there because your starting point is higher. You have a $66.6 million start. If you don’t do any rate increase your going to have a reduction down to $58.5 million. So what it looks like is, you’ve already gotten your rate increase this year. Because your beginning balance is $8 million higher than you expected it to be. So I’m at the point of saying, why do we need a rate increase this year when even without the rate increase this year you will have an ending reserve that is slightly larger than what you budgeted it to be because your beginning balance, your starting point is higher. You can end up where you want to be without a rate increase. Balachandran: I’m going to take a crack at this. I think I’m going to revisit, to a certain extent, some of the initial comments that John had made. We’re looking at this, not necessarily one year. This is a series of rate increases that are being proposed, over three years with the philosophy of keeping the reserves at the Draft UAC Minutes 5/6/04 Page 15 of 22 6O0 601 602 603 604 605 606 607 6O8 609 610 611 612 613 614 615 616 617 618 619 620 621 622 623 624 625 626 627 628 629 630 631 632 633 634 635 636 637 638 639 maximum level. You’re totally right if you look at just this year’s budget ending reserve balance. It’s huge. The delta is huge. If you look at the chart again 04/05, you see that’s high too. But scenario 3B is one where you forego that 8.5% increase with the current reserve balance, the 66 million including the additional money, and you have your rates at 17% and 12% for the second and third year of this three year increase stays exactly the same. What happens is you get your reserves drawn down a little below half way of the balance and then you impose a 36% rate increase to get back to the maximum. In many of these calculations you have to set one variable. Otherwise there are infinite possibilities here. I mean we can talk all night about 6% one year, 12, and tinker around the edges. Something needs to be kept fixed. What we kept fixed, and we strongly believe this is the right strategy, at this point in time where we still have the overhang of the energy crisis over us, in fact that to a certain extent explains some of the difference between forecast and actuals in our reserves in the last three years. If we forego the 8.5% rate increase but we do the second and third year we will basically go to the bottom half of our reserve balance and then we have a rate increase. Again, what Tom and John said, regardless of how we go after, we’re going to end up at about 10.9 cents with certain uncertainties still unresolved that we hope will get resolved in the next years and some of these uncertainties that we have not budgeted for because they are one-time contingencies that we have just not budgeted for. We think the appropriate strategy and have a very strong recommendation is to maintain the reserve level at the maximum level during this historic transition time in our portfolio and coming off the energy crisis. Ulrich: Remember the reason for putting this together is that you’ve got two things that are going. Whether you think the guidelines are at the right amount. Here is the dynamics for following the guidelines and you’ve got to be up here. It’s not like this is staying straight and it just keeps on going .down here where it’s always been. You could draw that because the last 40 years have been It’s not going to happen any more. I think you should be very happy that we’ve collected this money and it’s in the reserve to be able to take the delta that is getting smaller and smaller, and that’s with a 8.5% increase, so that it’s more of a glide path here rather than this big drop and then hitting people later on. That’s our recommendation. We think our customers should be treated as far as moving forward on the cost of energy going up and being able to doing it slowly rather than doing it as a higher rate later on. Melton: But just looking at your chart there, if you, even under scenario 3B, you end up out there in 06 and 07, is just about where Commissioner Bechtel described is where you’re supposed to be. You’re at the mid-point range. Draft UAC Minutes 5/6/04 Page 16 of 22 640 64! 642 643 644 645 646 647 648 649 65O 651 652 653 654 655 656 657 658 659 660 661 662 663 664 665 666 667 668 669 670 671 672 673 674 675 676 677 678 679 Hirmina: But at this point any market shock would eat up the whole thing. Ulrich: I think it’s important we go through in detail the recommendations that we made on the reserve and the risk in this business. I think it’s important that when you make a vote that you see those things out there. Hopefully, they don’t occur but that’s something that needs t~) be taken into account. We don’t make this recommendation to you lightly. Balachandran: If I may add, in the Quarterly Report which is the next item, on the regulatory side we have indicated a case, and Commissioner Dawes has referred to that in his comments, a FERC administrative law judge ruled about three weeks ago against Western and NCPA, and therefore us, the transmission rate case. This is part of the 2948A contract, the integration contract which we won the energy side of the contract that PG&E was proposing. On the transmission side, a district court sent it back to FERC and it was ruled against us. The process is going to take 8 to 12 months before it comes to hearings and we figure out what the actual dollars are. This has not been included in our budget or our 10-year forecast. It comes under the category of one-time cost contingency and that’s again a hang- over of the energy crisis. There is the SCS ___, what I call the cousin of the transmission rate case, this is PG&E charging NCPA for very similar what they call new services. They sent a bill to NCPA a couple of years back a $45 million bill and a $45 million bill to Silicon Valley Power, they’ve now reduced it to $24 to NCPA of which the-current estimate of Palo Alto’s share, according to PG&E’s calculations, would be about $8 million. We’ve reported that to you in public documents because PG&E sent us that letter. But that is not included in our budget because that is something that is being fought out, we spend a lot of dollars in attorneys and with NCPA’s legal staff to fight that case. There are contingencies that we have quantified and provided to you reports. We are also updating you in this quarterly report about some recent events. I think in a more generic basis back in October 2003 we’ve talked about our philosophy of one time cost contingencies. That is why I believe there is a pretty strong recommendation from the utilities staff to keep it at the maximum. Dahlen: When it comes to setting the maximum/minimum guideline level, I think a policy decision has been made that for this particular utility it is best to operate at the maximum level. We should probably revisit how the calculation is done to come up with a maximum and minimum so that what we currently consider the maximum becomes the mid-point. I think that is what Commissioner Bechtel is getting at. With regards to the water utility, we operate that utility at the minimum Draft UAC Minutes 5/6/04 Page 17 of 22 680 681 682 683 684 685 686 687 688 689 69O 691 692 693 694 695 696 697 698 699 700 701 702 703 704 705 706 707 708 709 710 711 712 713 714 715 716 717 718 7!9 or below the minimum guidelines. Again, it may be time to revisit those calculations so we have consistency from utility to utility with regards to where our strike point is and we keep that to a minimum for those utilities based on the contingencies that have been brought up this evening. I think we’re getting hung up on the fact that we look at the large amount of reserves we have right now and we hear the justification that it’s best to operate at the maximum. It’s really a semantics question. I think what your advice is ,is that the maximum is truly the mid-point. We have to re-visit what the mid and max points should be and that there are significant contingencies and significant risks to this utility that you are justifying the rate increase by. I think it’s worth re-visiting that. Who makes the decision that we should target the maximum as our guideline? How is that decision come to and who makes that decision? Ulrich: I think ultimately the City Council approves our recommendation but the recommendation comes from, in this case, from staff and I guess from me. Dahlen: Very good, you answered my question. Rosenbaum: Let me offer a couple of thoughts here. I did write a memo on the subject. The fact is that our estimated reserves at the end of the year are not at the maximum, they are $14 million over the maximum. The reserve guidelines look to just the thoughts of the issues that Girish was talking to, I don’t remember the exact number, I think there was something along the order of $10 million to deal with regulatory issues. You can’t very well put the same issue in reserves and say they need to be in rates too. In this coming year, the first six months under the old system, the first six months of the year is when we’re pretty heavy in hydro, which is a low cost resource. We have the .Coral contract for the first three months of the year, which is a 3.6 cent resource. As John Melton pointed out, if we had no rate increase the reserve at the end of 04/05 will still be greater than the maximum specified reserve level. And further, it is my feeling, that next year we will have far more substantive and definitive information as to what our costs are going to be during the following three years. I think there is a speculative element to that right now. I don’t want to get into a warm discussion of rates but the fact remains that we’re going to have 40% of our supply as a 2 cent resource and another 10% from Calvarias as a 3 cent resource and in order to get to the supply cost numbers that you are providing us, there’s going to have to be a lot of 10 cent energy and I’m not aware of any 10 cent energy at the moment. So I think in view of the $14 million surplus, $8 of which was unanticipated, as John Melton says, at the time you put the budget together and in view of the fact that next year we will have far better information on which to set rates that no rate increase is certainly required Draft UAC Minutes 5/6/04 Page 18 of 22 720 721 722 723 724 725 726 727 728 729 730 731 732 733 734 735 736 737 738 739 740 741 742 743 744 745 746 747 748 749 750 751 752 753 754 755 756 757 758 this year nor do I believe it is appropriate given the level of reserves. I don’t know if there is any further discussion or are we ready for a motion. Dexter? Dawes: I just wanted to point out a couple of other things. Both Tom and Lucie pointed Out the fears of the gas situation of three years ago. I just don’t think there is a potential for that kind of problem for much of the reasons that the Chairman points out. Gas, we would have to have another wild ride in the electric market as we had in the same period in the gas thing. Gas we buy 100% off the market. Electricity we are over half between Western and ourselves. Under the new regime I just don’t see the swings in purchase costs that are being floated out here as a potential. I definitely, as I said earlier, feel the full increase is not warranted. Whether it’s 0 or 4% I think it’s a matter ofjudgrnent. Normally we have at least one utility that doesn’t have a rate increase or has a decrease. This year the proposal is for all of the utilities to have an increase. It would be a certainly lessen the blow to our citizens if we had a very modest or no increase in one of our utilities particularly in electric. Since I have the microphone, I will propose the UAC recommend a 4% electric increase to the Council and I will see if I can get a second for it. Rosenbaum: We’ve got a proposal for a 4% increase. Is there a second? Hearing none, do we have another motion? Bechtel: Mr. Chairman, I move that we defer any rate increase in the electric fund to January 1, 2005. Rosenbaum: That’s a six-month delay. Alright, no increase for six months and reconsideration in time for the January bills. Is there a second to that motion? Dahlen: I have a question on that. Do we have a history of doing that in the past? Hirmina: During the gas crisis we went four times during the year to increase rates. We ended up increasing the rates 200% at the end of the year playing catch- up. That’s why we are asking for ... Balachandran: I guess the majority of rate increases happen at this point in time. The energy crisis was a different situation that we hadn’t seen in decades. I’d just ventur a guess that more than 90% of rate changes happen when they are scheduled. Draft UAC Minutes 5/6/04 Page 19 of 22 759 760 761 762 763 764 765 766 767 768 769 770 771 772 773 774 775 776 777 778 779 780 781 782 783 784 785 786 787 788 789 790 791 792 793 794 795 796 797 798 Rosenbaum: Do we have a second for the motion to re-examine the electric rate in January? Dawes: I’ll second that. Rosenbaum: Alright, do we have any discussion on this? Dawes: In my view, the UAC can bring up the questions of rates at any times just as we did several years ago. As I recall some of those increases did resolve from prodding of the UAC to staff to move things up. So I don’t feel that it’s technically necessary to defer for six months because it’s always able to be put on the table in a weeks notice. But I think it might perhaps be a showing staffs concerns are perceived and considered by the UAC so that is the reason why I support it. Dahlen: I think also the timing is important coming at the end Western contract seeing as we may have some new information at that time. Rosenbaum: Alright for staff’s benefit, what are we saying. We’re saying no rate increase with the issue to be brought up at the December UAC meeting. Would that be more specific? Ulrich: Are you interested in our opinion? Rosenbaum: Not at the moment. I’m interested in trying to figuring what the motion means. We would be recommending no rate increase and then suggesting that staff make a new proposal in time to enact any rate change starting in January based on further information. Balachandran: IfI may, in order to have a January 1 rate proposal, it would probably have to come to you in October because after that it has to go to the Finance Committee and then it has to go to Council. Given that Council is going to be coming back from vacation at the end of September, we have the Thanksgiving and holiday break. In terms of staff preparing it, we would probably be preparing it in September. Ulrich: I believe it’s probably also going to require a BAO, budget amendment ordinance. What you’re doing you’re not putting any money in the budget. By saying you’re going to want to look at it in six months there’s zero sitting out there. So if you’re doing it in October, what’s it going to be? Then you have to go back Draft UAC Minutes 5/6/04 Page 20 of 22 799 80O 801 802 803 804 8O5 8O6 8O7 8O8 809 810 811 812 813 8!4 815 816 817 818 819 820 821 822 823 824 825 826 827 828 829 83O 831 832 833 834 835 836 837 838 and do the analysis of what that rate increase wil! be and then you need to go back and attempt to change the budget. I don’t think you’re recognizing a need for any rate increase if you do what you’re doing as opposed to recognizing that there may be a increase and suggest what that increase should be a some future time rather than leave it in an abyss as it sounds like you’re doing. Rosenbaum: John? Melton: Another way to approach this thought is to, this is just a discussion I’m not proposing an amendment, it would be to recommend that the electric rate increase at whatever percentage level we choose, 8.5 or some smaller number greater than zero, would go into effect January 1 st. In other words, agree to a proposed rate increase but not have it go into effect until January 1st rather than July 1 st. In effect get half your rate increase corresponding to the end of the Western contract. Rosenbaum: That probably begs the question as to whether we need a rate increase. We’ve heard the comments from staff suggesting the complications involved in the motion by George seconded by Dexter. Do you have any second thoughts on that motion? Dawes: I don’t have second thoughts. If there is inconvenience to staff there is also the pocketbooks of our citizens. So I think one balances off the other. Bechtel: In view of what staff has said, I would like to change my motion to defer the proposed 8.5% system wide retail electric rate to be effective January 1, 2005. Rosenbaum: So now your proposal is that the 8.5% rate increase go into effect in January rather than in July. You are withdrawing your previous motion and this is a new motion. Is there a second to this motion. Melton: Second. Rosenbaum: We have a second by John Melton. Is there a need for further discussion on this? I will oppose this motion because I don’t think we’ve established the requirement for a rate increase at any point this year. I guess I would almost prefer Dexter’s idea of 4% for the year rather than picking a number for the second half of the year the net effect would be the same. So I will vote against the motion. Any further discussion? Alright I think we are ready to vote on the motion for a 8.5% rate increase effective January 1st. All those in favor. Draft UAC Minutes 5/6/04 Page 21 of 22 839 840 841 842 843 844 845 846 847 848 849 Aye, Aye, Aye Nay, Nay Rosenbaum: John, how did you vote? Alright it looks as if this motion passes on a 3-2 vote. So the recommendation of the UAC to the City Council will be an 8.5% increase delayed six months. Any further action to take this month? Draft UAC Minutes 5/6/04 Page 22 of 22