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Home My WebLink About2002-02-04 City Council (3)City of Palo Alto City Manager’.s Report TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: UTILITIES DATE:FEBRUARY 4, 2002 TITLE:UTILITIES STRATEGIC PLAN REPORT CMR:129:02 PERFORMANCE MEASURE This is an informational report and no Council action is required. BACKGROUND On May 21,2001, the City Council approved the Utilities Strategic Implementation Plan (CMR 223:01) and directed the staff to make periodic progress reports on the performance of CPAU in meeting the objectives of the strategic plan. Staff has committed to update the City Council twice a year about the performances of the Utilities. The report presented to the UAC was amended in order to take into account the UAC’s comments and suggestions. Those comments included: ¯To include a comparison of CPAU’s retail rates with PG&E’s ¯To include narrative descriptions of major findings ¯To reformat some of the charts presented in the original report The UAC also questioned the removal of equity transfers as a measure of financial performances from a previous draft report. It is staff’s opinion that equity transfers reflect policy decisions rather than performances of the utilities. Therefore, equity transfers were not reintroduced in the performance measure report. In November 2001, the Utility Advisory Commission (UAC) reviewed a performance measure report relating to the Utilities Strategic Plan. CMR:129:02 Page 1 of 7 DISCUSSION Financial Performance Three measurements are used to report the Utilities’ financial performance: 1.Price stability 2.Financial leverage 3.Value to the residents Price Stability." Price stability is defined as the annual variation of the average system rate of each utility. Exhibit 1 presents price changes for gas and electric utilities. Future release of this report will include a benchmark against PG&E’s rates. 100.0% 80.0% ~.0% 40.0% 20.0% 0.0% , -2~.0% -40.0% FY96-97 FY97-98 FY98-99 FY99-00 FY00-01 FY01-02 Electric -5%2%0%-17%0%39% Gas -9%-2%-6%0%80%54% 2. Financial Leverage: Financial leverage is related to the extent to which CPAU relies on debt financing rather than equity. Measures of financial leverage are tools in determining the probability that CPAU will be able to honor its debt contracts. For the purpose of this report staff used the debt ratio as a measure of financial leverage. CMR:129:02 Page 2 of 7 The debt ratio is calculated by dividing total debt by total assets. Exhibit 2 presents the debt ratio for each utility from fiscal year (FY) 1996 through 2001. Exhibit 2: Financial Leverage measured by debt ratio FY 1996 FY 1997 FY 1998 Electric Utility 1.0%0.9%2.2% Gas Utility 1.8%1.3%1.7% Water Utility 2.8%2.1%2.2% Wastewater Collection 6.8%6.9%4.8% Total 2.1%1.9%2.5% FY 1999 FY 2000 2.1%2.1% 1.6%2.3% 2.2%2.O% 4.1%4.6% 2.3%2.4% Exhibit 3 benchmarks CPAU1 ’s financial leverage against other utilities’ (investor owned utilities and public entities) financial leverage. Exhibit 3" Benchmark of financial leverage2 (year 2000) Financial Leverage= Total De~t / EqLity Average = 1.31 &50, &O0 4 2.50t 2.004 1.504 1.004 0.5O4 129 1.07 3. Value to the residents: The financial value to the community is defined as the savings realized by CPAU’s customers compared to PG&E’s retail rates. During FY 2000-2001, CPAU’s customers saved an estimated $48 million on their electric bills while the electric reserves increased by $28 million (Calaveras reserves dropped by $3.2 million). Therefore, the value to the residents created by the electric utility was roughly $72.8 million. During the same period, CPAU’s customers saved an estimated $15.5 million on 1 All Utilities (Water, Electric, Gas, and Wastewater Collection) Source: CAFR (Revenue" Bonds, net ofunamortized discount/Book Equity ) CMR: 129:02 Page 3 of 7 their gas bills while the gas reserves were depleted of $8.9 million. Therefore, the value created by the gas utility was roughly $6.6 million. Customer Satisfaction The level of customer satisfaction is the difference (i.e., the gap) between the level of service delivered by CPAU and the level of service expected by the customer. A positive gap shows that CPAU has exceeded customers’ expectations and negative gap shows that CPAU has not met customers’ expectations. Exhibit 4 presents the gap between the level of service delivered by CPAU and customers’ expectations. Exhibit 4: Customer Satisfaction Index (Total) 0.80 o 60 0.40 0.20 0.00 , -0.20 -0 40 2000_Q1 ~2000_Q3 .ii! .. 2001_Q1 2001_Q2 -0.60 Water Gas Wastewater Operations C,ustomer contacts Public Benefits: Demand Side Mgmt / Energy Efficiency Rebates / Photovoltaic Engineering (Includes Telecom customers) Total Satisfaction Index 2000Q1 2000Q2 2000Q3 2000Q4 2001Q1 2001Q2 0.10 0.20 0.10 -0.80 0.50 0.50 NA NA NA NA 0.50 0.20 0.10 -0.30 0.30 -0.10 0.80 1.50 0.10 -0.05 0.20 -0.45 0.60 0.73 CMR:129:02 Page 4 of 7 The small variations in customer satisfaction levels could have been caused by changes in the numbers of responses received to the Utilities’ customer satisfaction surveys from one quarter to the other.Additional variance analysis will be conducted in subsequent reports. System Reliability Two measures of reliability of the electric system are presented in this report: 1. System Average Interruption Duration Index (SAIDI): minutes of sustained (lasting 5 minutes or more) outages per customer per year 2.System Average Interruption Frequency Index (SAIFI): number of sustained outages per customer per year System statistics were computed including transmission, substation, and distribution outages, while excluding planned outages. Exhibit 5 presents a summary of the year to date reliability performance of CPAU’s system Exhibit 5: Reliability (First Two Quarters of 2001) Q1 Q2 SAIDI 4.2 27.7 SAIFI 1.9 18.6 The increase in SAIDI and SAIFI during the second quarter of 2001 is due to an increased number of outages affecting residential customers during the second quarter of 2001. Exhibit 6 and 7 present benchmarks of CPAU’s SAIDI and SAIFI with those of SDG&E, PG&E, Sierra Pacific, and SCE since 1997. CMR:129:02 Page 5 of 7 Exhibit 6: Benchmark of SAIDI SAIDI PG&E EDISON SIERRA PACIFIC SDG&E CPAU POWER 1997 161 70 125 89 68 1998 180 69 164 92 46 1999 157 40 138 65 105 2000 166 38 119 52 65 Exhibit 7: Benchmark of SAIFI SAIFI PG&E EDISON SIERRA PACIFIC SDG&E CPAU POWER 1997 1.6 0.8 1.8 0.9 0.7 1998 1.7 0.9 3.2 0.9 0.5 1999 1.5 0.7 1.8 0.7 1.0 2000 1.4 0.7 1.7 0.6 0.7 Value of Municipal Ownership Some of the value created by municipal ownership cannot be directly quantified. Below is a list of items that create value for the community: ¯City bond rating favorably impacted by pledging utilities’ revenues for storm drain and Wastewater collection revenue bonds. ¯Energy conservation programs tailored to Palo Alto’s interest in photovoltaic systems, compact fluorescent lights, schools, green power, and rebates for efficiency measures ¯Community interests are heard and taken into account in decision making process to acquire long-term power resources ¯Public benefit funds stay in Palo Alto and the City Council decides how to allocate these funds among various programs, whereas allocation of public benefit funds collected by investor owned, utilities, such as PG&E, is decided by the California Energy Commission. ¯Advancement of goals with multi-government entities (e.g., advancement with issues relating to Path 15 by working with TANC, Western, etc.) ¯Local access to Council CMR:129:02 Page 6 of 7 PREPARED BY: BERNARD ERLICH Senior Market Analyst DEPARTMENT HEAD: JOH~ ULRICH !~,_J Diredtor of Utilities CITY MANAGER APPROVAL: EMIL~I~ARRI--S ON Assistant City Manager CMR: 129:02 Page 7 of 7