HomeMy WebLinkAbout2002-05-14 City Council (2)TO:
FROM:
ATTENTION:
DATE:
SUBJECT:
City of Palo Alto
City Manager’s l epart
. -II--BU.DGF.-T-- [
ll 11
CITY MANAGER
FINANCE COMMITTEE
MAY 14, 2002
DEPARTMENT: UTILITIES
CMR:241:02
ADOPTION OF A RESOLUTION AMENDING VARIOUSGAS
RATE SCHEDULES TO EFFECT A GAS RATE DECREASE
RECOMMENDATION
Staff and the Utilities Advisory Commission (UAC) recommend that the City Council
adopt the attached resolution to amend various gas rate schedules in order to reduce
natural gas rates approximately by 26.7 percent system wide, effective July 1, 2002.
DISCUSSION
Wholesale natural gas prices reached unprecedented highs in 2001. The financial strategy
components to address this phenomenon included: (1) staggering rate increases, (2)
withdrawing and accelerating restoration of reserves, (3) issuing revenue bonds and (4)
lowering retail gas rates upon replenishing the Supply Rate Stabilization Reserve (SRSR)
and the Distribution Rate Stabilization Reserve (DRSR).
As a result of the four retail rate increases during Fiscal Year 2000-01, the Gas Fund
reserves are expected to be restored to target levels this current fiscal year. Furthermore,
since their peak last year, wholesale natural gas prices have been dropping in recent
months. This action, in combination with the expected replenishment of the reserves,
establishes the con’ditions for a rate decrease,
Staff is proposing a 26,7 percent overall rate decrease, effective July 1, 2002. Annually
this represents a revenue decrease of $12 million. The decrease will primarily benefit
residential and commercial retail customers.
UTILITIES ADVISORY COMMISSION REVIEW AND RECOMMENDATIONS
On May 1, 2002, The Utilities Advisory Commission (UAC) unanimously approved
staff’s proposal to decrease rates by 26.7 percent effective July 1, 2002.
CMR:241:02 Page 1 of 2
ALTERNATIVES
¯ Staff also evaluated the impact of alternative rate proposals. If the proposed decrease is
higher than proposed, the SRSR balance would be correspondingly reduced and would
provide less of a cushion to satisfy potential cost contingencies. If there is no rate
decrease or a lower rate decrease than proposed, a. surplus in the reserve could arise.
While gas prices are decreasing, rates should be decreased to a competitive level, which
would be fair to the customers while protecting the Utility from any unforeseen
circumstances.
RESOURCE IMPACT
Approval of this proposed rate decrease will reduce the. Gas Fund sales revenues by
approximately $12 million for FY 2002-03. If wholesale gas costs continue to decline,
another rate decrease might be proposed for FY 2003=04.
POLICY IMPLICATIONS
This proposed rate decrease would satisfy the Strategic Plan objective of providing
superior financial performance to the City and competitive rates to customers. These
recommendations do not represent a change in current City policies.
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. Gas Rate Schedules G-l, G-2, G-3, G-4, G-6, G-7, G-10, G-II, and G-12 ¯
C. UAC Report dated May. 1, 2002
D. Minutes of the UAC meeting of May 1, 2002
PREPARED BY: Lucie Hirmina, Utilities Pricing Manager
DEPARTMENT HEAD:
CITY MANAGER APPROVAL:
Direc~or of Utilities ~" ¯
EMI~--Y’ HARRISON
Assistant City M~nager
CMR:241:02 Page 2 of.2
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OF PALO
ALTO AMENDING UTILITY RATE SCHEDULES G-l, G-2,
G-3, G-4, G-6, G-7, G-10, G-II, and G-12 OF THE
CITY OF PALO ALTO UTILITIES RATES-AND CHARGES
PERTAINING TO GAS RATES
The Council of the City of Palo Alto does hereby RESOLVE
as fol%ows:
SECTION i. Pursuant to Section 12.20.010 of the
Palo Alto Municipal Code, Schedules G-I (Residential Gas
Service) , G-2 (Commercial Gas Service) , G-3 (Large Commercial
Gas Service), G-4 (Large Commercial GasTransportahion Service),
G-6 (Municipal Gas Service), G-7 (Large Commercial Gas Service),
G-10 (Compressed Natural Gas Service) , G-II (Large Commercial
Fixed-Term Commodity Gas Service) , and G-12 (Large Commercial
Custom Commodity Gas Service) of the Palo Alto Utilities Rates
and Charges are hereby amended to read in accordance with Sheets
G-l-l, G-2-1, G-3-1~ G-3-2, G-4-1, G-4-2, G-6-1, G-7-1, G-7-2,
G-10-1, G-If-I, and G-12-1, respectively, attached hereto and
incorporated herein by reference. The foregoing Utility Rate
Schedules, as amended, shall become effective on July i, 2002.
SECTION 2. The Council finds that the revenue
derived from the authorized adjustments of the several gas
service rates shall be used only for the purposes set forth in
A~ticle VII, Section 2, of the Charter of the City of Palo Alto.
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020502 lh 0072160 1
this
California
.Resources Code section 21080, subdivision (b) (8).
INTRODUCED AND PASSED:
SECTION 3. The Council finds that the adoption of
resolution does not constitute a project under the
PublicEnvironmental Quality Act, California
APPROVED:-
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk
APPROVED AS TO FORM:
Senior Asst. City Attorney
Mayor
City Manager
.Director of Utilities
Director of Administrative
Services
020502 11~ 0072160 2
RESIDENTIAL GAS SERVICE
UTILITY RATE SCHEDULE G-1
A. APPLICABILITY:
This schedule applies to natural gas service to in~’vidually metered single family premises, including
those separately metered in a multi-family complex.
B. TERRITORY:
Within the service area of the City of Palo Alto and on land owned or leased by the City.
C. RATES:Per Meter
Per Month
Summer Rates (May 1 to October 3I):
0-20 therms per therm ........................................................................$0.801
Over 20 therms per therm ........................................................................$1.314
(B)Winter Rates (Nov. 1 to April 30):
0-96 therms per therm
Over 96 therms per therm
........................................................................$0.801
$1.314
D. SPECIAL NOTES:
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 therm 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 numberof
days in the billing period.
Service under this schedule is subject to discontinuance in whole or in part, for operational
reasons or if the City experiences supply or capacity shortages. The City will exercise
reasonable diligence and care to furnish and deliver continuous service and a sufficient
quantity of gas to customers, but does not guarantee continuity of service or sufficiency of
quantity. The City shall not be liable for any damage caused by interruption of service, if the
interruption of service is caused by an act of God, Fire, Strikes, riots, war, or any other cause
that is beyond the City’s control.
{Enal
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supercedes Sheet No. G-1-1 dated 6-1-07 CITY OF PALO ALTO
UTILITIES
Effective 7-1-2002
Sheet No. G-l-1
COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-2
APPLICABILITY:
This schedule applies to non-residential customers who use less than 250,000 therms per year at a
single address.
B. TERRITORY:
Within the service area of the City of Palo Alto and on land owned or leased by the City.
C. " RATES:
All year-round delivered commodity:Per Meter
Per Month
Per Therm ........................................................................................................................$0.986
D. SPECIAL CONDITIONS:
Service under this schedule is subject to discontinuance in whole or in part, for operational
reasons or if the City experiences supply or capacity shortages. The City will exercise
reasonable diligence and care to furnish and deliver continuous service and a sufficient
quantity of gas to customers, but does not gtiarantee continuity of service or sufficiency of
quantity. The City shall not be liable for any damage caused by interruption of service, if the
interruption of service is caused by an act of God, Fire, Strikes, riots, war, or any other cause
that is beyondthe City’s control.
{End}
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No. G-2-1 dated 6-1-01 CiTY OF PALO ALTO
UTILITIES
Effective 7-1-2002
Sheet No. G-2-1
LARGE COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-3
A. APPLICABILITY:
This schedule applies to service for large commercial customers who use at least 250,000 therms per
year at one site and have retained gas direct access eligibility.
B. TERRITORY:
Ce
Within the service area of the City of Palo Alto and on land owned or leased by the City.
RATES:
Monthly Market-based Power Supply Charge:
Per Therm
Supply Charges:
1.Commodity Charge ...............: ................................................................$0.10-$2.00
2.Administrative Fee .........................................................................................$0.018
3.PG&E Local Transportation ...........................................................................$0.021
Distribution Charge:
1. Pato Alto Local Distribution ........................................................................... $0.237
D. SPECIAL CONDITIONS:
Service under this schedule is subject to discontinuance in whole or in part, for operational
reasons, or if the City experiences supply or capacity shortages. The City will exercise
reasonable diligence and care to furnish and deliver continuous service and .a sufficient
quantity of gas to customers, but does not guarantee continuity of service or sufficiency of
quantity. The City shall not be liable for any damage caused by interruption of service, if the
interruption of service is caused by an act of God, Fire, Strikes, riots, war, or any other cause
that isbeyond the City’s control.
The commodity charge is equal to the City’s weighted .average cost of gas calculated at the
PG&E City Gate for gas purchased by the City at ftrst of the month and daily market prices
for that month. The commodity charge will fall within the minimum/maximum range set
forth in C. 1.and include the cost of transporting the gas to the PG&E City Gate.
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No.G-3-1 dated 8-%01 CITY OF PALO ALTO
UTILITIES
Effective 7-1-2002
Sheet No. G-3-1
LARGE COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-3
¯ (Continued)
o
o
°
The Administrative fee is equal to the allocable administrative and overhead costs incurred
by the City in providing the gas service.
PG&E Local transportation charge is equal to the cost of transporting gas from the PG&E’s
City Gate to the Palo Alto City Gate.
The total monthly charge = therms used during-the month X (commodity charge +
’administrative fee + PG&E local transportation charge + Palo Alto local distribution
charge).
A qualifying customer may request service under this schedule for more than one account
or meter if the accounts are located onone site. A site shall be defined as one or more utility
accounts serving contiguous parcels of land with no intervening public fight-of- ways (e.g.
streets) and have a common billing address.
Customers may request a rate schedule change at anytime to any applicable City of Palo Alto
full-service rate schedule, however, an election of G-7 will cause the customer to waive its’
gas direct access eligibility. Customers served under this rate schedule may elect Gas Direct
Access at any time.
{End}
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No. G-3-2 dated 8-1-01 CITY OF PALO ALTO
UTILITIES
Effective 7-1-2002
Sheet No. G-3-2
LARGE COMMERCIAL GAS TRANSPORTATION SERVICE
UTILITY RATE SCHEDULE G-4 ¯
APPLICABILITY:
This schedule applies to gas transportation service for- large commercial customers who use at least
250,000 therms per year and have retained gas direct access eligibility.
TERRITORY:
Within the service area of the City of Palo Alto and on land owned or leased by the City.
RATES:Cents
Per Therm
Supply Charge:
PG&E Local Transportation ...................................................................... .................$0.021
Distribution Charge:
Palo Alto Local Distribution ......................................................... ...............................$0.237
Do SPECIAL CONDITIONS:
Qualifying customers may request a rate schedule change at any time during the year to any
applicable full service rate schedule, however, an election of G-7 will cause the customer to
waive its’ gas direct access eligibility.
Specific terms and conditions shall be covered by separate agreement between the City and
Gas Service Provider.
o
PG&E local transportation charge is equal to the cost of transporting natural gas ~om the
PG&E City Gate to Palo Alto City Gate. Customers who elect this service must have the gas
delivered to PG&E City Gate.
Total monthly charge = therms used x (PG&E local transportation charge + P.A. distribution
charge).
Qualifying customers may request service under this schedule for more than one account or
meter if every account meets the minimum usage requirement of 250,000 therms per year.
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supercedes Sheet No. G-4-1 dated 8-1-01 CITY OF PALO ALTO
UTILITIES
Effective. 7-1-2002
Sheet No. G-4-1
LARGE COMMERCIAL GAS TRANSPORTATION SERVICE
UTILITY RATE SCHEDULE G-4
(Continued)
o Qualifying customers may request service under this schedule for more than one account or
meter if the accounts are located on one site. A site shall be defined as one or more utility
accounts serving contiguous parcels of land with no intervening public right-of-ways (e.g.
streets) and have a common billing address.
{End}
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supercedes Sheet No. G-4-2 dated 8-1-01 CITY OF PALO ALTO
UTILITIES
Effective 7-1-2002
Sheet No. G-4-2
MUNICIPAL GAS SERVICE
UTILITY RATE SCHEDULE G-6
A.APPLICABILITY:
This schedule applies to service buildings and facilities owned and!or operated by the City of Pa!o
Alto and not currently served under G-11 or G-12..
TERRITORY:
Within the service area of the City of Palo Alto and on land owned or leased by the City.
C.RATES:Per Therm
Supply Charges:
1.. Commodity Charge ........................................................................................$0.468
2.Administrative Fee ..........................................................................................$0.018
3.PG&E Local Transportation ..........................................................................$0.021
Total Supply Charges ......... ; .............................................................. . ............ : $0.507
Distribution Charge:
1. Palo Alto Local Distribution .......................................................................... $0.237
D.SPECIAL CONDITION:
Service under this schedule is subject to discontinuance in whole or in part, for operational
reasons or if the City experiences supply or capacity shortages. The City will exercise
reasonable diligence and care to furnish and deliver continuous service and a sufficient
quantity of gas to customers, but does not guarantee continuity of service or sufficiency of
quantity. The City shall not be liable for any damage caused by interruption of service, if the
interruption of service is caused by an act of God, Fire, Strikes, .riots, war, or any other cause
that is beyond the City’s control.
The Administrative fee is equal to the allocable administrative and overhead costs incurred
by the City in providing the gas service. ’
PG&E Local transportation charge is equal to the cost of transporting gas from the PG&E’s
City Gate to the Palo Alto City Gate.
CITY OF PALO ALTO.UTILITIES
Issued by the City Council
Supercedes Sheet No. G-6-1 dated 3=1-02 CITY OF PALO ALTO
UT LITIES
Effective 7-01-2002
Sheet No. G-6-1
LARGE COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-7
Co
APPLICABILITY:
This schedule applies to service for large commercial customers who use at least 250,000 therms per
year at one site and have waived gas direct access eligibility.
TERRITORY:
Within the service area of the City of Palo Alto and on land owned,or leased by the City.
RATES:Per Therm
Supply Charges:
1.Commodity Charge ..............................................................................; .........$0.468
2.Administrative Fee .........................................................................................$0.018
3.PG&E Local Transportation .............................................: ............................$0.021
Total Supply Charges ............" .........................................................................$0.507
Distribution Charge:
1. Palo Alto Local Distribution ........................ , ...................... ...................... i .... $0.237
SPECIAL CONDITION:
Service under this schedule is subject to discontinuance in whole or in part, for operational
reasons or if the City experiences supply or capacity shortages. The City will exercise
reasonable diligence and care. to furnish and deliver continuous service and a sufficient
quantity of gas to customers, but does not guarantee continuity of service or sufficiency of
quantity. The City shall not be liable for any damage caused by interruption of service, if the
interruption of service is caused by an act of God, Fire, Strikes, riots, war, or any other cause
that is beyond the City’s control.
The Administrative fee is equal to the allocable administrative and overhead costs incurred
by the City in providing the gas service.
PG&E Local transportation charge is equal to the cost of transporting gas from the PG&E’s
City Gate to the Palo Alto City Gate.
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No. G-7-1 dated 8-1-01 CITY OF PALO ALTO
UTILITIES
Effective 7-1-2002
Sheet No.: G-7-1
LARGE COMMERCIAL GAS SERVICE
UTILITY RATE SCHEDULE G-7
(Continued)
5~
The total monthly charge = therms used during the month X (commodity charge +
administrative fee + PG&E local transportation charge + Palo Alto local distribution charge).
Qualifying customers may request service under this schedule for more than one account or
meter if the accounts are located on one site. A site shall be defined as one or more utility
accounts serving contiguous parcels of land with no intervening public right-of- ways (e.g.
streets) and have a common billing address.
Customers served under this rate schedule are not eligible for gas direct access and cannot
request a rate schedule change to any full-service rate applicable to customers who are
eligible for gas direct access (i.e. G-3, G-11, or G-12).
{Enal
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No. G-7-2 dated 8-1-01
CITY OF PALO ALTO
UTILITIES
Effective 7-1-2002
Sheet No. G-7-2
COMPRESSED NATURAL GAS SERVICE
UTILITY RATE SCHEDULE G-10
A. APPLICABILITY:
This schedule applies to the sale of compressed natural gas (CNG) at the City-owned natural gas fueling
stations to customer who use CNG for fueling CNG vehicles.
B. TERRITORY:
Applies to locations within the service area of the City of Palo Alto.
C. RATES:
Per Therm
Per Gasoline "
Gallon Equivalent
Commodity Charge $0.830 $0.960
For billing purposes, the number of gallons will be complied from a Summary of Transactions recorded
by the dispensing unit for the customer during the month.
D. SPECIAL CONDITIONS
Service under this schedule is subject to discontinuance in whole or in part in case of actual or
anticipated shortage of natural gas resulting from insufficient supply, inadequate transmission or
delivery capacity of facilities.
Service under this schedule is provided only from a designated City fueling station which will
deliver CNG at approximately 3,000 pounds per square inch (PSI).
Individuals responsible for fueling a Natural Gas Vehicle shall be required to complete training
sessions to be certified to fuel a vehicle. Each individual must sign and date the Certificate of
Instruction fo) Fueling Natural Gas Vehicle.
Customers requesting to take service under this rate schedule are required to sign a Compressed
Natural Gas Agreement before commencing service.
ffrequired by local or federal law, assessed applicable taxes shall be added to charges shown in this
rate schedule.
{End}
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supercedes Sheet No. G-10-1 dated 6-1-01 CITY OF PALO ALTO
UTILITIES
Effective 7-1-2002
Sheet No.G-10-1
LARGE COMMERCIAL FIXED-TERM COMMODITY GAS SERVICE
UTILITY RATE SCHEDULE G-11
A.APPLICABILITY:
This schedule applies to large commercial customers who use at least 250,000 therms per year at one
site and have retained gas direct access eligibility.
TERRITORY:
Within the service area of the City of Palo Alto and on land owned or leased by the City.
C. RATES:
Per Therm
Supply Charges:
1.Commodity Charge ................................................................................$0.20-$2.00
¯ 2.Administrative Fee ....................................i ....................................................$0.018
3.PG&E Local Transportation ...........................................................................$0.021
Distribution Charge:
1. Palo Alto Local Distribution .......................... i .............. i ................................ ,$0.237
D. TERM:12 Months or 24 Months
Eo SPECIAL CONDITIONS:
Service under this schedule is subject to discontinuance in whole or in part, for operational
reasons, or if the City experiences supply or capacity shortages. The City will exercise
reasonable diligence and care to fumish and deliver continuous service and a sufficient
quantity of gas to customers, but does not guarantee continuity of service or sufficiency of
quantity. The City shall not be liable for any damage caused by interruption of service, if the
interruption of service is caused by an act of God, Fire, Strikes, riots, war, or any other cause
that is beyond the City’s control.
Qualifying customers who choose to be charged under this rate schedule are required to sign
a letter with CPAU committing to a price and term and to adhere to rules and regulations set
forth in CPAU Rule and Regulation No. 5 (Contracts). The letter shall indicate the estimated
gas consumption over the term of the contract rate. This consumption shall be served solely
by CPAU.
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supercedes Sheet No. G-11-1 dated 8-1-01
CITY OF PALO ALTO
UTILITIES
Effective 7-1-2002
Sheet No. G-11-1
LARGE COMMERCIAL, CUSTOM COMMODITY GAS SERVICE
UTILITY RATE SCHEDULE G-12
Be
Co
APPLICABILITY:
This schedule applies to large commercial customers who use at least 250,000 therms per year at one
site and have retained gas direct access eligibility.
TERRITORY:
Within the service area of the City of Palo Alto and on land owned or leased by the City.
RATES:
Per Therm
Supply Charges:
1.Commodity Charge .... .............................................................. ...............$0.20-$2.00
2.Administrative Fee .........................................................................................$0.018
3.PG&E Local Transportation ~ ..........................................................................$0.021
Distribution Charge:
1. Palo Alto Local Distribution ............ : .............. ’ ................................................. $0.237
TERM: Up to 5 years
SPECIAL CONDITIONS:
Service under this schedule is subject to discontinuance in whole or in part, for operational
reasons~ or if the City experiences supply or capacity shortages. The City will exercise
reasonable diligence and care to furnish and deliver continuous service and a sufficient
quantity of gas to customers, but does not guarantee continuity of service or sufficiency of
quantity. The City shall not be liable for any damage caused by interruption of service, if the
interruption of service is caused by an act of God, Fire, Strikes, riots, war, or any other cause
that is beyond the City’s control.
Qualifying customers who choose to be charged under this rate schedule are required to sign
a contract and confirmation schedule with CPAU and adhere to rules and regulations Set.
forth in CPAU Rule and Regulation No. 5 (Contracts).
The Commodity Charge shall be based upon the customer load shape and size, term, and
market prices. The other components of the rate: Administrative Fees, Transportation
Charges, and Distribution Charges may be modified periodically with the" Council’s approval.
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supercedes Sheet No. G-12-1 dated 8-1-01 CITY OF PALO ALTO
UTILITIES
Effective 7-1-2002
Sheet No. G-12-1
MEMORANDUM
TO:
FROM:
UTILITIES ADVISORY COMMISSION
UTHTIES DEPARTMENT
DATE:MAY 1, 2002
SUBJECT:PROPOSED GAS RATE DECREASE
RECOMMENDATION
This report requests that the Utilities Advisory Commission (UAC) recommend that the
City Council approve a $12 million retail gas revenue decrease effective July 1, 2002.
The proposed revenue decrease represents approximately a 26.7 percent system wide
decrease.
BACKGROUND
Wholesale natural gas prices reached unprecedented highs in 2001. To reduce exposure
to high market prices and to assure a stable delivery cost of natural gas to our customers
during FY-00-01 and FY01-02, significant quantities of natural gas were purchased at
fixed prices. By using a "laddering" strategy, these fixed price purchases saved Palo
Alto ratepayers millions of dollars compared to monthly market prices. However, gas
purchase costs were considerably higher than budgeted. Therefore, during FY 00-01, a
series of four rate increases were approved by Council to phase-in the higher costs to
retail customers. To cushion the customer bill impact from the rate increases, Gas Fund
reserves were also drawn down to supplement sales revenue. The use of reserves in
combination with the "laddering" strategy saved Palo Alto residents about $500 per
household during FY 2000-01. In addition, to provide some rate relief, revenue bonds
were issued in 2002 for the Capital Improvement Program. Thus, the financial strategy
components included: (1) stagger rate increases, (2) withdraw and accelerate restoration
of reserves, and (3) issue revenue bonds and (4) lower retail gas rates upon replenishing
the Supply Rate Stabilization Reserve (SRSR) and the Distribution Rate Stabilization
Reserve (DRSR).
DISCUSSION
As a result of the four retail rate increases in Fiscal Year 2000-01, the Gas Fund
reserves are expected to be restored this fiscal year. Furthermore, since their peak last
year, wholesale natural gas prices have been dropping in recent months. Taking
advantage of favorable market prices, the City secured significant gas quantities for
Page 1 of 4
FY02-03 at favorable prices.
This action in combination with the expected replenishment of the Utility reserves
establishes the conditions for a rate decrease, A primary consideration in determining
the size of the decrease is maintaining a prudent reserve balance that is sufficient to
cover a range of cost contingencies.
The staff is proposing a 26.7 percent overall rate decrease to be effective July 1, 2002.
On an annual basis this represents a revenue decrease of $12 million. The decrease will
primarily benefit residential and commercial retail customers. The proposed decrease is
entirely commodity related and no change in distribution rates is proposed.
The decrease is spread on an equal cents-per-therm to the supply portion .of all retail
rate ~chedules except for contract customers. Applying the same cents-per-therm
decrease to the supply component of the rate schedules produces varying percentage
decreases among customer classes. This results because the overall bundled rate
(including a distribution component) varies by rate schedule. Ten large industrial
customers who are eligible for Direct Access account for approximately 15 percent of
revenue and are currently served under fixed-term contracts with the City. Because the
contract customers have locked-in to fixed commodity prices and contract terms, they
will not experience a bill decrease. The following table shows the impact of this rate
proposal on a typical monthly bill for the various customer classes. Comparison with
PG&E is based on staffs projected average market price of twelve months starting July
2002 plus current PG&E distribution rates.
TABLE 1
Impact of Proposed Rate Decrease on Customer Bills
Residential/Winter
Residential/Winter
Residential/Summer
Commercial G-2
Industrial G-2
Contract Customers
100
150
26
500
10,000
60,000
$ 82.15
147.85
23.90
493.00
9,860.00
14,220.00
($ 47.80)
(71.70)
(14.34)
(175.06)
(3,5oo)
0.00
(36.8)
(32.7)
(33.0)
(26.2)
(26.2)
0
90%
102%
110%
114%
157%
N/A
12%
28%
29%
45%
72%
N/A
Regardless of possible wholesale market price fluctuations during FY 02-03, this rate
proposal provides rate stability to our customers. For FY03-04, staff will continue to
¯ Page 2 of 4
purchase gas quantities at f~xed prices using a "laddering approach". Depending on
supplier contract prices and other factors, staff may recommend another retail rate
decrease in July 2003.
ALTERNATIVES .
Staff also evaluated the impact of alternative rate proposals. If a larger decrease is
enacted than proposed, the SRSR balance will be correspondingly reduced and provide
less ofa cushion to satisfy potential cost contingencies. Also, the DRSR could fall
below the minimum guideline level. If there is no rate decrease or a lower rate decrease
than proposed, the SRSR would be over the maximum level approved by the Council.
While gas prices are decreasing, rates should be decreased to a level, which would be
fair t~) the customers but protect the Utility from any unforeseen circumstances.
RESOURCEIMPACT
Approval of this proposed rate decrease will reduce the Gas Fund sales revenues by
approximately $12 million for FY 02-03. If wholesale gas costs continue to decline,
another rate decrease might be proposed for FY 03-04.
POLICY IMPLICATIONS
This proposed rate decrease would satisfy the Strategic Plan objective of providing
superior financial performance to the City and competitive rates to customers. These
recommendations do not represent a change in current City policies.
TIMELINE
The effective date of the proposed rates is effective July 1, 2002.
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
Gas Rate Schedules G-l, G-2, G-3, G-4, G-6, G-7, G-10, G-11, and G-12
PREPARED BY: Lucie Hirmina, Pricing Manager
Page 3 of 4
REVIEWED BY: Girish Baiachandran~. Asst. Director of Utilities, Resource Management
Randy B~ldschun, Asst. Director of Utilities, Adm. Services
DEPARTMENT HEAD:
Page 4 of 4
EXCERPT OF UAC MEETING 5/1/02
F¥ 2002/03 OPERATING/CIP BUDGET AND RATE PROPOSALS
Bechtel: And we’ll just move on to the next item with is item #2, the FY 2002-2003
operating and CIP budget and the rate proposals.
Ulrich: This would be item #2.
Bechtel: Item #2 on the agenda.
Ulrich: .Do you want to do them, we’ve got them listedas A through E or do you Want to
do them that way or what would your preference be?
Bechtel: I have notes from looking it over. It looks like for example there is a summary
report on the enterprise funds that lists all of the funds including some 0fthose that are not
under our review. That’s the summary and it’s page 1. Then there are discussions of the
reserves for each of the funds and then we move to individuals so I’m open to comments
from the Commissioners as to how you would like to proceed with next year’s operating
budget and then at the same time we can look at the CIP. Comments on how you would
like to handle this? Mr. Ferguson.
Ferguson: Just a question at the top l~re. As I read item 2, what we have here is 4-5
requests for the UAC.to approve proposed rate increases and there is no staff request here
for the UAC to approve or discuss the budget items. So do we want to proceed directly to
the rate discussions or should we have some global discussions about the implications of
the budget?
Ulrich: If I can just make one point. The reason for putting it together this way is we
brought the major changes and major items in the budget to you before and we’ve had
good discussion on that and our agreement was we would hit the major changes because as
you recall, this is an interim year budget. This is not starting all over. You asked
questions andwe went through that last time~ My commitment to you at that time was I
would give you the latest draft of the budget, That way you will not be surprised when it
moves on to the Finance Committee and it all gets approved. But it’s not intended that we
would go through each of the items unless you had questions and wanted to get. into more
detail. Because we had attempted to do those kind of items early on.
Ferguson: Good, I just wanted to clarify that, because mypreference is to proceed ahead
directly to the discussion of the various rate proposals.
Bechtel: Mr. Rosenbaum.
Rosenbaum: I did have one question on the text associated with the Electric Fund. This is
page 3, next to the last paragraph, it starts off in 2001-02, a 43% increase in rates was
adopted and then it goes on to say at present there is uncertainty regarding a potentially
UAC Minutes 5-1-02 DRAFT Page 19 of 40
significant impact related to supply contract settlement provisions and other outstanding
supply issues. What is that issue? Which one is that?
Baldschun: This relates to the cancellation ofour Enron contract.
Rosenbaum: You’re suggesting there is some uncertainty? We’ve heard otherwise we
don’t think.
Baldschun: Oh no. Our position is Of course that there’s not going to be any, you can’t
assume any liability here, but you never know so the prudent thing to do is don’t react too
quickly. So we’re not going to be assuming anything. We’re just going to keep the
reserves where they are and not propose to reduce rates. There’s some other factors too
that are... [interrupted]
Rosenbaum: All right, but you are suggesting the concern about the eventual outcome of
the Enr0n contract had some effect on your decision with regards to rates? We haven’t
heard that before.
Ulrich: You mention concern?
Rosenbaum: Yes.
Ulrich; I think it says uncertainty and there is alevel of uncertainty. I wouldn’t raise it. I
think we did exactly the right thing and we’ve had significant discussion here and
communication about why we did what we did. And I feel very confident that what we did
was appropriate, but I think it is important that there’s always a level of uncertainty and
with this significant amount of it in that contract, .I think it’s important to list it here. I
would not say in the sense of concern that we think we did something inappropriate and
we’re waiting for something to happen.
Rosenbaum: I wouldn’t suggest that, but it seems to me at the meeting, hither last meeting
or 2 meetings ago, I did ask the question and I think the answer was we had not put aside ’
anything andwe were not contemplating putting aside anything.
Baldschun: That is correct~ We have not specifically set aside any funds.for that.
Rosenbaum: But this should be an argument for maintaining a healthy reserve.
Baldschun: Like any other cost uncertainty, absolutely. We have, Bern mentioned, half a
dozen that potentially that could impact us so I think it is the prudent thing to do, and the
reserves are not exactly that healthy. If you look at the electric fundrate stabilization
reserve in the budget and given the fact we’ll be pulling out substantial amount of money
in this proposed fiscal year, this whole discussion is ~ the context of explaining why we
are not going to reduce the electric rates. I think there have been some.perceptions that we
were automatically going to reduce our electric rates 43% in this year, which would not be
a wise thing to do.
Rosenbaum: All right, but ifI look forward to next year and some of these issues go away,
we’ll have another discussion about electric rates then. One other issue where I know there
was some concerns. I guess Dexter and I both went to the NCPA strategic planrfi.’ng
UAC Minutes 5-1-02 DRAFT Page 20 of 40
session and in conversations with some of the other NCPA members, we got the idea that
some of them were unhappy with what we had charged them during the height of the
energy crisis and were attempting to recovering some of those funds. Is this the $6 million
that we talk about as the NCPA settlements or is this still an outstanding issue?
Ulrich: I think what you’re referring to is what happens in a pool. A pool has a certain set
of agreements and it occasionally and sometimes quite frequently goes through discussion
about whether the pool agreements are being followed and what are the changes to be
made and that is a healthy thing that is done all the time, so that may be the area you’re
referring to. Yes, a significant amount of discussions have been done on that and some of
those expectations on what we think the settlements will be are reflected in the budget and
in this document so that there is no shock or surprise if or when that occurs. And with the
significant price increases last year, these numbers are much higher than they would be in a
calm year, but we go through the same process and the same settlement. That’s an
experience that the pool does all the time.
Rosenbaum: We’re still on good terms with everybody.
Ulrich: You bet.
Rosenbaum: Good.
Bechtel: All right then. Mr. Ferguson.
Ferguson: I was just going to propose a motion on 2A if you’re ready to.
Bechtel: First of all, for the interest of any viewers or for the minutes, let me just talk
about 2A. Item 2A is before us and it says staff requests the UAC recommend that the
City Council approve amended Utility Connection Fee Rate Schedules and they are listed
here to be effective July 1. And just a little bit of background, it says current fee schedules
were last revised in 1998 and so it’s appropriate to raise the ratesat this time. So that’sthe
background on the first rate schedule we’re looking at 2A. So Mr. Ferguson?
Ferguson: I’d like to move approval that the staff recommendation on item 2a.
Bechtel: Mr. Ferguson recommends 2a that UAC recommend to the Council that the fee
schedules be listed to be affected. Do I hear a second?
Rosenbaum: Second.
Bechtel: Second byMr. Rosenbaum. Any discussion on the proposed increase to the
Utility Service call and connection fees?
Dawes: Thislooked pretty Straightforward to me. Basically cost of service, updated hours
and pay rates has my support.
Bechtel: Any other questions of staff on their justification? If not, I’ll call for a vote. All
in favor of the UAC recommending.that the City Council approve these rate schedules
please say "aye".
UAC Minutes 5-1-02 DRAFT Page 21 of 40
¯ All Commissioners: Aye.
Bechtel: All opposed. None opposed. Motion is approved unanimously. Moving next to
item 2B. 2B, there are 2 items here and this report requests that the UAC recommend that
the City Council approve a 1) revised electric rate schedule to update the public benefit
charge and the unmetered electric service rate schedule, which would be effective Julyl,
2002 and 2) to transfer $4 million from the supply rate stabilization reserve to the
distribution rates stabilization reserve. So there are 2 issues here on this recommendation
from staff. Questions on this before a motion? Mr. Dawes.
Dawes: I was a little confused as to how the arithmetic worked on the 2.85%. I had
assumed that that’s what we were charging as an over-ride all the time, but the last
paragraph on that page starting 2B seemed to imply that we weren’t. Or maybe it’s just
simply an issue of kilowatt-hours versus percentage of dollars billed, but if you could
elucidate me Randy, I’d appreciate, it.
Baldschun: As you recall, AB 1890 was passed to require utilities to automatically charge
a public benefit fee and implement programs. The problem was you couldn’t implement
effective programs in a very short period of time. It took us, I thiN<, a year to roll out the,
the Advantage Program. So for the first year or two, we had a surplus in the public benefit
reserve because we weren’t spending as much as we were collecting. So it didn’t make
sense for us to raise the public benefit charge percentage to 2.85 when we had the 43% rate
increase. Well after the energy crisis, we pretty much almost depleted the public benefits
reserve and so now there’s a good use and need for that money, so we’re going to be
collecting that.
Dawes: So there was a gap where we were collecting less than 2.85%?
Baldschun: That,s correct.
Dawes: Where we increase the ratio? Okay..That answers my question.
Baldschun: Actually this fiscal year, we’re collecting less than 2.85 %.
Bechtel: Other questions of staff at this time on 2B? Let me just take a sense of the
Commission on separating these 2 issues, 1 and 2, separating the rate schedules from tl~e
transfer. I’m assuming unless there’s some other discussion that we’ll handle both of those
items together in the same motion. Do I hear a motion?
Ferguson: Move approval.
Bechtel: We have a motion from Mr. Ferguson that we recommend to the City Council
that they approve a revision to the Electric Rate Schedule and that they approve a $4
million transfer between reserves. Do I hear a second?
Rosenbaum: Second.
Bechtel: Second by Mr. Rosenbaum. Any other questions? Discussion? Mr. Dawes.
UAC Minutes 5-1-02 DRAFT Page 22 of 40
Dawes: Traffic fights. When we converted, we paid a lot of money to convert over to
LADs which were going to reduce the amount of electricity that they used and here we’re
hitting up the City for a $32 thousand a year increase. I don’t get it.
Baldschun: I think some of you on the UAC reviewed our enterprise transfer
methodology. Well part of that transfer methodology recommendation was for the Utilities
to charge the City for traffic signals capital cost. Up until that study was done, the policy
was not to charge the City for capital cost in the traffic Signal system..They recommended
and Council approved that we do collect capital cost. Council approved I think a three
year transition to what was presumed to be full cost capital recovery and it was, I think,
$32,500 a year. And so we’re just following that, but to get to the point, I believe you’re
not the first person who has brought this up because our energy usage in these traffic
signals, we just saw an email, it’s gone down 2/3. ’Our cost of service, as it currently
stands, we’re not recovering our full cost and we can’t... [interrupted]
Dawes: ’ That’s including the CIP, which installed them.
Baldschun: Right..
Dawe~: We don’t.pay; we don’t ge~ all the cost of the electrical sel~ice back.
Baldschun: The energy costs are really insignificant in terms of the overall traffic signal
operation. R’sreally the capital cost that is the issue so we’re going to follow what
Council approved and in another year or two, we will look at the full cost of service and
we will make a recommendation if we feel we need to continue to increase those rates. But
it’s a policy decision that the Council is really the only one who can make and so we’re
just following what they’ve approved two or three years ago.
Dawes: Thank,you.
Bechtel: Other questions on proposal 2B? Then I’ll call for a vote for the proposed
revision to the electric rate schedules and the $4 million transfer between reserves. All in
favor, please,indicate "aye".
All Commissioners: Aye..
Bechtel: Any opposed? Passes unanimously. Moving on to 2C. That’s the proposed gas
rate decrease. This report requeststhat the UAC recommend to the City Council that they
approve a $12 million retail gas revenue decrease effective July 1; 2002. The proposed
revenue decrease represents approximately 26.7% decrease system-wide: That’s the issue
before us. Discussion from Commission? Mr. Ferguson.
Ferguson: Thank you Mr. Chairman. I’m a great believer in our reserve approach and
using the reserve as shock absorbers in the over-all pattern of rate increases and decreases.
We had a couple of opportunities in the last year to talk about increasing the size of the .
reserve maximums and minimums across programs and I think in the case of the electric ¯
fund, we did accommodate the wild swings in electric energy prices and I recall Girish.had
a nice little table showing the new factors that justified changing the over-all range in the
reserves. This year in the gas fund, what we have is a gas fund at least on the supply side
that’s going to be $3 million above the max. Did I read that correctly? So we’re on the
UAC Minutes 5-1-02 DRAFT Page 23 of 40
.usual, reasonable assumption that we want to keep.rates, stable over a multi-year period. It
might have made sense to leave $3 million above the maximum in the till. But my guess is
gas prices are going to be much more stable in the coming year or two, especially if we do
laddering, then the experience we had along with everything else with wild swings where
they took us by surprise. So I’m inclined to stick with the reserve guidelines that we
adopted and had kept in place for several years and rather than hold $3 million back above
the maximum guideline, let’s just roll that into the over-all decrease and adopt a reduction
of revenue of $15 million instead of $12 million. And if I’m just reading those numbers
wrong, I’m happy to be corrected, but it looks like we’re keeping an extra $3 million in the
supply reserve above the maximum guideline.
Baldschun: On which document are you looking at? Is it in the budget or in the rate
proposal?
Ferguson: In the gas fund, page 4 or in the text at the bottom of page 2.on the gas fund.
Baldschun: Let me direct your attention to page 2 of the Enterprise Fund Reserves in the
budget. If you 10ok at the projected reserve balance for the supply rate stabilization
reserve, there were a number of changes that occurred and have been occurring in the
recent weeks and that’s why I’m delaying my response because as I indicated to some.of
you earlier today, I’ve got some revised reserve balances and one of them is the supply rate
stabilization reserve. But on page 2 of the enterprise fund reserves, you see anending
balance of $4,989,000.
Ferguson: Yes. I’m reading the’ extra $3 million in the distribution reserves so my
apologies.
Baldschun: So that one’s within the range. Yet the statement you pointed Out says it’s
above the maximum guideline and that’s because there were some changes that have been
occurring. If your point is are we going to change the guidelines or Should we keep them,
we changed the guideline formula for electric, and for gas last year. The impact was that it
didn’t change the actual guideline amounts in the gas while it did in the electric. So where
we are now is we’ve got new guidelines as of last year, but it’s notresulting in any
significant difference at all than the old guideline. If you’d like, I’ll talk about that
particular reserve because in the accounting in the budget process, there was a double entry
in the bond proceeds related to our soft engineering costs.
Ferguson: Let me jus~ correct myself first. There is an extra $3 million in the distribution
reserve, not the supply reserve, so there really is $3 million there abovethe guideline and
that’s what I’d prefer to send back to the ratepayers, but maybe there’s mo}e to the story.
Amy Javelosa-Rio: Good evening.. I’m Amy. I’m With the budget accounting and I’m the
one responding for Preparing the budget documents. First of all, I would like to point to
your attention that there is a change in the reserve balance. We originally gave you a draft.
document on the fund.reserves. This has been amended, so for your discussion purposes, I
would refer you to the amended, which i’s a part of the document I think this evening.
Bechtel: You’re referring to page 2 of the summary sheet enterprise fund reserves?
Javelosa-Rio: That is correct sir.
UAC Ninutes 5-1-02 DRAFT Page 24 of 40
Bechtel: And that has electric fund at the top, gas fund in the middle,
wastewater... [interrupted]
Javelosa-Rio: That is correct. We have an amended statement.
Baldschun: While she’s putting that up, I’ll talk in terms of what the impact of what the
changes are. Essentially, a change in the balance in the Gas distribution RSR resulted in a
drop from $7.8 million down to $5.2 million. That’s about a $2.6 million decrease in the
gas distribution RSR and it relates to an accounting oversight with certain CIP bond costs
going into that reserve, which is incorrect. Theother change is in the water fund that is a
change in the budget draft. It shows an RSR ending balance of $14.586 million and thefe
were two changes that brought that down to a level of $10.2 million. So that’s a total of a
$4.3 million drop in that projected reserve balance. Now what that essentially does is
bring that reserve below the maximum guideline in the water fund. I apologize
for... [interrupted]
Bechtel:, So let me understand. Let me summarize what I have heard and that is that on
the gas fund that the distribution RSR for the projected ending balance ’02-’03, you’re
saying is $5.2 million as opposed to almost $7.8 million. Is that correct? So $5.2 million
is about $1 million or maybe it’s. $900,000 above the reserve guideline of $4.3827 That’s
what we ~terrupt. We’re still a million dollars above the maximum.
Baldschun: Correct.
Bechtel: Okay. Under the water fund, which we’ll talk about, that is the reje.cted ending
balance, I assume that the first column which is ’01-’02 is 10.2 down $4 million so that
brings for next year, that brings that down to below 11.4 million.
Baldschun: Correct.
Bechtel: Okay. And so let me come back to Mr. Ferguson’s question was, where he was
leading to is, that on the gas fund, why wouldn’t we want to give back a million? He was
going to give back 4 million. Why not 1 million? I think that’s where the discussion was
around when we got onto this.
Baldschun, The way we sized the rate proposal was we wanted to be prudent in terms of
any cost contingencies and there’s one outstanding uncertainty that we wanted to plan for
just in case and that’s approximately $7 million above our target level. What we did was
we took that target level and we added $7 million. Lucie, you can correct me if I’m wrong
here. That was what we want to end fiscal year ’02-’03 with.
Hirmina: The plan was to leave $7 million above the target level on the supply side. The
distribution is only $785 thousand over the maximum at this point, we’re waiting to see
where all the expenses are going to be with those issues. We’re waiting for them to settle.
If theysettle as we think they would, then next year we would have another decrease.
Baldschun:. I hate to do this because we have so many financial statements with different .
goals in terms of presentations.. I mean the budget is based on certain assumptions. Then
we have the i0-year financial forecast.. The 10-year financial forecast is a document we.
UAC Minutes 5-1-02 DRAFT Page 25 of 40
use to develop the rate proposal. As I mentioned earlier today, the difference between our
10-year financial forecast reserve balances and the reserve balances you see here, are
significant in that the budget proposal was developed over a period of months, finally
getting to the point where we put it in draft form. In the meantime, we have been updating
on an ongoing basis, including the most recent being the quarterly report, what we project
to be reserve balances. Maybe it might help if we turn to the supply rate stabilization
¯ reserve ending balance, let’s see what that looks like. The example in the quarterly report,
the supply rate stabilization reserve for fiscal year ’01-’02 is rising from an adopted budget
figure of $1.9 million to $6.8 million. A lot of that increase is based on the staff’s internal
assumptions about events that some of which are reflected in the draft budget and some of
which are not. In terms of the rate proposal we base it on the most updated information. I
think it would be imprudent not to use the most recent information we have. This budget
document, the way the City process goes, is you have a mid-year report in which
adjustments are made and becomes the adjusted budget. When that happens, the process
takes in November, December and then finally the Councilapproves it and it’s not until
probably February or March where it’s released. Well lot of things happen between then,
So we don’t just use the adjusted budget. We keep on updating that adjusted budget in
terms of our projections for our rate requirements and that’s what we use the 10-year for. I
apologize for dragging this out, but the 10-year financial forecast indicates from our best
information that we can end fiscal year ’02-’03 with this 27% rated decrease where the
supply reserve will end up at a balance somewhere around $7 million over target which
was the defining factor. Next year, we’ll have a lot better information on what’s going to
happen with regards to that cost contingency and we’ll also have more informat{on on the
cost for ’03-’04 which we’ve talked earlier about. We purchased up to have of that fiscal
year at this point. So next year, there’s a very good possibility we’ll have a subsequent
rate decrease if the cost contingency is not required and purchase gas costs continue to fall
below our current level of gas costs.
Bechtel: Mr. Ferguson, follow up to that since you’ve kicked this one off.
Ferguson: Yes, I’-m trying to do the right thing here and I shouldn’t have kidded myself
¯ that there would be $3 million lying on the table at the last minute before our budget
approval. But let’s goback and focus on what’s really going on here. We do have reserve
guidelines. The reserve guidelines are there because there are generally external factors
that bounce around supply prices or bounce around the distribution cost experience and we
want to accommodate those things without having annual rate increases or decreases. ~
Makes plenty of sense.. I’ve always assumed that those brackets were created based on
experience and mostly because of external factors; things beyond our cdntroi; things we
can’t plan and manage for on an annual basis. Sounds like here, we’re.talking about a
couple million, dollar swing that’s entirely inside our accounting system. And I’m just
wondering if maybe we ought to rethink our reasons for having max’s and min’s here if
part of the max and min calculus is that it’s just mechanically impossible to close the
books or get a good number here at budget time to the nearest 1 million or 3 million. Well
so be it. Then let’s build that into our reserve guidelines, as well as our provision for
external factors. Am I reading that co.rrectly or is this a one-time event?
Baldschun: I understand it;s a one-time event.
Bechtel: Mr. Dawes.
UAC Minutes 5-1-02 DRAFT Page 26 of 40
Dawes: I have the same line of thinking as Rick. Obviously these new figures are new
data, but sort of going backwards a year and half or so, I was certainly very strong on
.inserting an extra rate increase in our series of either 4 or 5 increases in one fiscal year
when the gas was just running away from us in our reserves headed toward and .actually
got to zero at that time. My message here is I think,,we have to do the same thing but only
on the down side of the curve. As I read the quarterly reports on the gas reserves, it looks
as though we’re considerably ahead of where we thought we would have been on the
enterprise fund reserve schedules and Randy you’ve confirmed that. We’re doing better
than we had the opportunity to put in the enterprise fund budget cycle. So rather.than
trying to suggest that we do something different than the rate adjustment that’s on the
table, I would like to re-emphasize the appropriateness of revisiting this in 6 months. It’s
great to .have things stable for a year, but if it goes the way I sense it is going, and the .fact
that you also said you’ve got our purchase prices locked up for this coming year, this
should be a fairly calculable thing. Other than the issue, the same issue in the gas fund as
we have in the electric side vis-g-vis contract termination issues, which to me says we
should have a little robust fund there, but again over time we’ll know more about that so
let’s look at it again in 6 months.
Baldschun: I absolutely agree. I think weshould look at it on a quarterly basis. The end
of this fiscal.year is going to be real critical and real important for us as every end of fiscal
year is because that’s where you find that there might be CIP projects deferred or there
may be other costs or that’s when our sales revenues come in. That’s when our actuals are
known and you really have a foundation of going forward to propose any rate changes.
Now we can propose rate changes anytime. We don’t have to do it in July. If we get good
contracts in ’03-’04 and we end this fiscal year as we’re hoping we are, then there’s
nothing preventing us from.coming back with a rate change if the financials indicate that.
Dawes: Yes, one item I did forget to mention is that the rate of change of those reserves is
very high. I mean, we got about to zero and we’ve restored them in virtually in one year to
where we are today and so it would seem to me and gas isn’t varied that much on the cost
side so we should be adding very rapidly to that and _again goes the same, we should look
at it quickly.
Bechtel: Other discussion, more discussion, on the gas rate decrease? Mr. Rosenbaum.
Rosenbaum: Rick, I just wanted to commend you for looking so carefully at this. It would
seem that if we are using the new number, the 5.2 million, and you add that to the supply
rate stabilization number, the sum of those two is about equal to the maximum for the sum
so we’re about in the ballpark using that number. So perhaps we should wait and we’ll
remember staff-indicated that it is indeed possible to have rate changes in the middle of the
year.
Bechtel; Other discussion? ]_,ucie, while you’re here, could you update the last line of the
enterprise fund reserves with the numbers that you have on the table here? I’m looking at
page 3 and what I’m noting is if you take a look at all of the enterprise funds, all added of
course together, our reserves are dropping $24 million according to the numbers we have
in front of us and dropping to $154 million.. Do you have what that number would be?
Really what do you think our projecting currently what or how our reserves are going to
drop or increase?
UAC Minutes 5-1-02 DRAFT Page 27 of 40
Ulrich: Just say, Amy will give you an answer to that.
:Javelosa-Rio: The $154 million that you saw here includes enterprise funds other than the
utilities department and with the new numbers I have given, this will. definitely be updated.
So the $154 million will decrease approximately by the difference of the numbers that I
gave you previously and the new numbers and it’s approximately I believe $6 million.
Bechtel: So $154 will drop to $6?
Javelosa-Ri0: That is correct.
Bechtel: Okay, so there’s been no. At least from that point of view, the City is not
deteriorating too rapidly even with decreasing the rates at this point. Any other
discussion? I’ll entertain a motion on the proposed gas rate decrease.
R0senbaum: I move approval of the proposed gas rate decrease.
Dawes: Second,
Bechtel: Moved by Mr. Rosenbaum. Seconded by Mr. Dawes that we recommend to the
City Council to approve a rate decrease effective July 1, 2002. All in favor please indicate
"aye".
All Commissioners: Aye.
Bechtel: Opposed? None. Then motion passes unanimously. Moving on toitem 2D
proposed water rate increase. What the City taketh giveth, the City taketh away I guess.
We are being asked to recommend to the City Council that they approve a 20% water rate
increase effective July 1; 2002 and there’s a basically part of the reason for this is the
revenue bonds and other issues associated with our long-term water cost. Discussions or
questions of staff on this item? Mr. Rosenbaum.
Rosenbaum: The water rate increase was in part predicated on the increase in the
wholesale rate from San Francisco. We,re told that the increase from San Francisco is not
going to occur. Are you going to propose reducing the rate increase request?
Baldschun: No we won’t. Again, timing is everything. We got the proposed rates from
San Francisco indicating a wholesale rate increase and went through the budget process as
the staff does. We prepared the language that we’re expecting this and also indicate that
as the reason for the rate increase because it’s a $400 thousand hit and that adds to the rate
increase. With Schedule B changes, we will revise this downward to reflect no increase in
wholesale costs. But if you look at the rate issue here, it’s certainly not SFPUC. Even in
’03-’04 when there is a planned sFPUC increase. It’s the C]P. The CIP is going up so
much in one year that we need to transition to that through a combination of the bond
proceeds, using the reserves and two rate increases. Now I think what this means in terms
of the impact on the customer from San Francisco not increasing their wholesale rate is it
should reduce the size of our retail rate increase if we have to have a rate increase next,
year. Our projections are that we’re going to have another rate increase in ’03-’04 of 25%,
but I don’t think that’s going to materialize given the fact that SFPUC is not going to have
a wholesale rate increase this year, which tells me that we’re going to have at least $400
UAC Minutes 5-1-02 DRAFT Page 28 of 40
thousand, perhaps $800 thousand more in the reserves as a result of that action. So that
should have some favorable impact on our rate proposal for next year. Even taking out the
San Francisco issue, you still are left with this very large C~ and we need to do the C]]:’.
Rosenbaum: I recognize that the CIP impact is there, but it seems to me and I guess I
made the same comment last year, if we were the California PUC and you gentlemen were
PG&E and you came to us and said we’ve got this rate increase based on certain estimated
increases and costs and, oh by the way, one of these increases ain’t going to occur, but
what the hell, we won’t take that into account. The members of the CPUC would kind of
look askance at that and suggest that you adjust the rate increase to reflect your true
increase in costs.
Baldschun: Well the rate proposal is not baSed on the requirements for this fiscal year.
That’s obvious. If you look at the budget document for ’02-’03, youdon’t even see the
CIP going up much compared, but if you look at ’03-’04, that’s where you see it. So I
don’t lmow how PG&E plans or how the PUC wants them to plan to have levelized rate
adjustments, but that’s wtiat this is all about.. We’re trying to levelize the impact of this
huge project that’s coming up, not in this fiscal year, not in the proposed budget, but in the
following year and Council’s approved the CIP. We’ve issued bonds for it. Everybody is
on board to do it and this is simply the plan to fund it without having more of an adverse
impact on the ratepayers.
Rosenbaum: Sure, but it would seem that your CIP would be in exactly the same shape if.
the rate increase were reduced by $400 thousand. I don’t want to belabor it. At some
point, I’ll offer an amendment to reduce the rate increase by that amount.
Baldschun: Okay.
Ulrich: Your analogy, Mr. Rosenbaum, with CPUC and PG&E, the one difference is in
maybe the CPUC would not approve the rate increase because they know that additional
amount of money on rate of return would then go to the s_hareholders of PG&E in the form
of additional dividends or higher profits, whereas, the kind of money we’re talking about
here whether it is a lower rate or it goes intoreserves or we spend it on CIP is all the
money of the customers in Palo Alt0. It goes nowhere else. So I think your point about
whether there should be $400 thousand more in the reserve is a good point, but it is one
that is not going to go somewhere else and it won’t be diluted by dividends to somebody in
Kalamazoo, Michigan.
Bechtel: Other? Mr. Ferguson.
Ferguson: I’d like to connect this up to the legislative effort. I don’t have the answer right
now, but let me just pose the question. How does our, what’s the message that we convey
vis-it-vis the other suburbs in the San Francisco in the way we increase our rates this year
or next year or levelize them? Is there a wiser way, a more judicious way of incurring this
increase inside Palo Alto for purposes of making our case stronger in the legislature? Is it
better for us to take a big painful hit next year all at once? Do we look like we’ve had a
kind of cushy time of it if we levelize it over two years where the other suburbs are
incurring a painful increase forced by San Francisco next year? I’m just wondering how
the message works outside the city.
UAC Minutes 5-1-02 DRAFT Page 29 of 40
Beecham: I’d say there may be some small political benefit if we say that we have or we
are now in the process of recommending a rate increase to fund our own CIP that does take
into account reliability for our own distribution system. Whether we say we have the rates
this year or that we have approved the CIP for ’03-’04 is probably a small difference
actually.
Ulrich: As you also recall when we had this discussion about the 10-year financial
forecast, it showed in here, correct me if I’m wrong Randy or Lucie, but it showed 20%
this year, 25% next year and then several years of zero and then an actual reduction and
one of the ideas is to be able to smooth out these rates so that the increases are not jumping
all over the.place. So I think this would fit in with the smoothing part rather than have the
25% next year, it maybe less than that. So this is our judgment area on what the
appropriate way to handle this lack of an increase from the City of San Francisco.
Bechtel: Thank you John. I think you raised a good issue.-If you look at long-term, and.
actually’, we’re looking at another increase next year. Mr. Dawes.
Dawes;. Yes, I wanted to raise similar questions on water as we did for an earlier fund. I
noticed in the quarterly update that the water ftmd, water RSR is projected at 10.5 at the
end of this year and then if I fast forward to the water fund in the draft budget, it shows a
14.586 balance at the end of this year and wondered if looks like there’s been substantial
slippage in that area. Same as we have so that this would be another reason for adhering to
the rate increase, which absorbs the San Francisco adjustment.
Baldschun: Well, let me just say to clarify, the 14 million is now right around 10 million
based on Amy’s comments which is consistent with the 10-year financial forecast and
that’s below the maximum guideline of 11 or some million. I don’t want to focus too
much on this SFPUC. We talk a lot about this huge project and the based on the
projections we’ve, gotten from San Francisco, they have proposedrate increases from now
through the next 15 years, but they’re really not significant until 2008-2013 according to
their schedule. So I think if we can just get the SFPUC wholesale rate increase out of our
consciousness for a while and focus on what’s really driving this and that’s our capital
program.
Dawes: I only mentioned it because Commissioner Rosenbaum indicated he was going to
tryto get it back a little bit later. One last question about the bond proceeds and again on
the water fund.summary, it shows that at the end of next fiscal year, which is at the time
we will be starting to spend at our peak CIP rate for the big hole in the park and all that
stuff. We only have $584 thousand left of our bond proceeds, Basically we’ve spent $13
million. I realized that soft cost got reimbursed out of it right at the outset, but to blow
through $13 million in two years when before any of the big bucks start hitting seemed a
bit of a problem.
Baldschun: Well the timing and use of those funds is not so much trying to use those in
the very specific year in which that project’s going to hit. ¯ You really have to look at it in
terms of where did we start from and where are. we going to end up at? We started with no
water rate increase. This was last year. With a CI~ escalatingover a 3-year period up to’
¯ $22 million, and we’ve got bond proceeds Of $11 million. Now we can use those in the
last year and all that’s going to do is make our reserve balances quite a bit lower in these
early years. I mean at the end the 3-year period, we’re going to be exactly where we would
UAC Minutes 5-1-02 DRAFT Page 30 of 40
be whether we used the money early on, over a 3-year period or we use it at the end. The
reason we’re using it early on is because wewant to keep the reserves healthy. We also
from our financial advisor’s standpoint, we,want to have healthy reserves for our ratings,
so there’s no reason for us to hold back on using those funds. If we did, we’d Probably
have to have a !arger rate increase. I mean, essentially,-those bonds are buffering the size
of these rate increases that we’re proposing.
Dawes: Thank you.
Bechtel: Any other questlons of staff on this? Mr. Carlson.
Carlson: I think this applies to all these reserve issues. It must be in the budget here
somewhere, but our reserves are so large, the interest we’re earning on them has to be
pretty significant item.
Baldscham: We do get interest income from allof our utility reserves. The yield varies. I
think the yield these days, the weighted average let’s say of the portfolio for the City, what
is it Amy?
’ Javelosa-Rio: The interest income is actually reflected in the summary. We are showing
an interest income here and how it’s computed is based actually on the average balance on
the cash and not on the reserves. So while we may be showing a reserve balance here, the
accounting is using the daily cash balance or the monthly cash balance to compute the
interest income.
Bechtel: Out of curiosity, what is the difference between our daily balance and our
reserves? Are we talldng about $50 million or $10 million?
Javelosa-Rio: I think, Sir, the difference is when we have the cash balance, when we
compute on the balance sheet, there might be, this is not a question of the cash basis and
accrual basis of accounting. So for example the rate stabilization reserve is computed on a
full accrual basis, which has some accounts payable, while we compute the interest base on
the cash balances of a certain month. There may be some accounts payable sitting there so
if we compare the cash and the reserve on two different reporting basis, they don’t match.
And I think that is the difference.
Bechtel: I understand. Any other discussion On this? If not, I entertain a motion to
increase our water rates on an average of 20% effective July 1. DoI heara motion?
Dawes: So moved.
Bechtel: Moved by Mr. Dawes. Do I hear a second?
Carlson: I’ll second.
Becht_el.’. Seconded by Mr. Carlson. Any other discussion? Mr. Rosenbaum.
Rosenbaum: I would propose an amendment to reducethe rate increase by the size of the
reduction of the proposed increase of the San Francisco wholesale rate.
UAC Minutes 5-1-02 DRAFT Page 31 of 40
Bechtel: I have a motion, an amendment to reduce by approximately $400 thousand; I
believe it was approximately that to be applied in some way across that. Do I hear a
second?
¯Carlson: What percent is that?
Bechtel: There is 3.1 million is the rate increase according to the report.
Baldschun: It’s 2.6%.
Bechtel: 2.6?
Baldschun: $400 thousand and you’re talcing it from 20 down to 17.4.
Bechtel: Not hearing a second on the motion to amend, we’ll move on to call to question.
All in favor of the proposed water, that we recommend to the City Council to approve the
rate schedule, all in favor please say "aye".
Carlson, Ferguson, Bechtel, Dawes..’. Aye.
Bechtel: Opposed?
Rosenbaum: Nay.
Bechtel: One, we have passes on a count of 4 to 1. Mrl Rosenbaum voting in the negative.
I guess that completes the agenda. NoI’m sorry. One more. We have wastewater
collection 2E. This is a request for us to recommend to the City Council that we approve a
25% wastewater collection rate increase to be effective July 1, 2002. Questions of staff on
this one? I entertain a motion to approve that we recommend to the City Council approve
the 25% rate increase.
Rosenbaum: So moved.
.
Bechtel: Mr. Rosenbaum moved. Second by?
Dawes: Dawes.
Bechtel: Mr. Dawes. All in favor please say "aye".
All Commissioners: Aye.
Bechtel: Any opposed? Being none, motion passes unanimously. And I’ve reached the
end of my report, end of my agenda, so that completes our new business item for tonight.
Next regularly scheduled meeting is June 5th and which we will talk about the electric
long-term resource plan. Randy, you have a question?
Baldschun: I believe you need to take action on the operating budget and the CIP. You’ve
approved the rate proposals, but unless I missed something, I don’t think you’ve taken any
action on the operating budget and the CIP.
UAC Minutes 5-1-02 DRAF-Y Page 32 of 40
Bechtel: I guess you’re right. I guess we need to.
Ferguson?: Where’s the agendized item?
Ulrich: It’s listed under 2. It says Fiscal Year 2002-2003 Operating/CIP Budget and Rate
Proposals and it’s shown as an action item.
Bechtel: Okay. I.guess.
Ferguson: That was my question at the top of the discussion whether. I’m happy to take
action. I just want to make sure we’re not going through a useless motion here.
Bechtel: So basically we’re looking at the draft budget.
Ulrich: As you recall...[interrupted]
Bechtel: Beginning with item #, yes, it’s listed as agenda item #2 and all the way through
up to we reach the point of the rate increases.
Ulrich: As you recall, this has been an ongoing process. This is not an attempt to show.
you this at the last minute of course. In years past, we’.ve had Very limited discussion
because the way the city budget moves by the time you get around to discussing these
items, it’s being printed and put into the manual. So we started a number of months ago,
as you recall, talking the individual CIP areas and focusing on the ones that are a change
from previous years. If you have any questions on it or issues, we are glad to answer them.
Bechtel: Mr. Ferguson.
Ferguson: Mr. Chairman, I really don’t want to belabor the details of the budget or the CIP
project list so I appreciate that, but I did ask the question at the beginning of our agenda
because I did have a couple of questions and they are things we visited a couple of times
before and maybe there’s a new wrinkle in the story. But it crops up, I think, in most of
the fund budgets, so let me ask the question generically. There’s a one-time facility rent
charge that crops up, I think, for all the funds, for example on the electric fund on page 6,
the ongoingfacility rent is $255. There’s a one-time charge of $561k. Why is the one-
time charge so much larger than the ongoing charge and is this part of the process where
the City charges us market rate, top dollar rates for the use of the City office buildings?
What does that number mean?
Ulrich: I believe it’s what you just described. It’s the rent that we pay to the City for the
use of City’s facilities. Utility in most cases does not own facilities. We pay rent to the
owner, which is the City and there is a market evaluation done. There was also an attempt
to mitigate those costs because of the economic situation in the market and the fact that
rents didn’t change much. So we did not have the same amount of rate increase in the
rents in past years. It’s now catching up and it will be an increase in the budget in July that
will reflect that change up to market.
Ferguson: Can you explain why there’s an ongoing charge and then there is a one-time
charge that’s so much bigger?
UAC Minutes 5-1-02 DRAFT Page 33 of 40
Ulrich: As you recall, this is a two-year budget so they deferred last year and we’re now
going to pay it this year.
Fer~uson: Okay: My second question that again applies to almost all the funds is the
allocated charges. There’s a note 11 indicating that there is something perhaps related to
software and computer systems that’s allocated, I assume, at some City central staff
computer charge. And there my question is, is that being applied "rateably"? Is it applied
across City Departments based on their base budgets or how is it allocated?
Ulrich: That’s correct. It is allocated, actually, in the case of the new program that we’re
working on that wil!.have a significant cost to the City is the ERP which is the replacement
for the current accounting system and it will also include a job management system. So
we’re paying in Utilities, we are paying a fair share of that based on the expected use of the
system. So in the case of like the job management system, we would be paying a fairly
percentage proportion of that because of the amount of CIP work we do and how it will be
used.
Baldschun: Let me just elaborate on this because it’s a very important application, t know
Bern is well aware of it. I don’t know that this has come to the attention of the UAC, but
the City’s financial accounting system is .called IFAS. That was installed a number of
years ago and it’s going to be replaced. T~hey went out to bid. There are still two vendors
that they’re looking at to replace it, or what they call ERP, or Enterprise Resource Plan, I
think it is. But as John said, it’s the general ledger, it’s all the flnancials, it’s the payroll,
it’s fixed assets, inventory, purchasing and it’s a huge application and it’s expensive, but
it’s one that will benefit the Utilities immensely as well as other City departments so that’s
what you’re seeing with these increased allocated charges.
Bechtel: Question in general On the budget preparation process. Have you taken a look at
this_.with regard?. You certainly, the Utilities have their own revenue, but with respect to
overall, just looking at this from the top down or bottom’s up view, that we’re doing the
best we can in managing the expenses and overhead and that these are tough times for most
companies. The City, of course, benefits~ The Utilities benefits fi:om what we see having
gone through the revenues, but I can see a lot of other things where the City can benefit
from just reduced expenditures here and there. What sort of guidelines did you use for
yourself in looking at all the discretionary spending?
Ulrich: Well we attempt to follow the same guidelines as the general fund in looking at
ways of deferring some work.. Most of the savings you’ll see in there are from not filling
positions. We are by far the largest organization or the largest number of vacant positions
so we’re looking at each one. Our goal this year, was not to add positions unless we were
able to find a way to either pay entirely for that additional position or additional revenue to
offset those costs. As you can see, it went very well in that area. At the same time, we’re
increasing the amount of work we’re actually accomplishing. So we’re looking at
everything. We’re also candidly looking at ways we can help the. general fund and the rest
of the City get work done. We’re all part of the City and we are finding the synergies
around how to do things for the general fund that will also help our utility customers.
Bechtel: On a procedural issue, should we, we have before us an operating budget for next
year. We also have a long-range CIP. As part of our process, our recommendation tonight
UAC Minutes 5-1-02 DRAFT Page 34 of 40
to the City Council, do we include the long-range CIP as a recommendation or are we just
looldng at next year’s operating budget?
Ulrich: Well the budget approval is just for this year, but in order to give you an idea of
why we’re spending the money, you have to look at the Capital Improvement Program for
much longer periods. For example, the water, you have a good understanding of how
much it’s costing for the water CIP and it’s not just a commitment to fund it for next year.
Next year fits in with the entire plan, but technically you’re only approving the actual
expenditures for the forthcoming year.
Bechtel: I’ll entertain a motion then that UAC recommends to the City Council they
approve the Utilities Operating and CIP Budget for fiscal year ;02-’03. Do I hear a
motion?
Ferguson: So moved.
Bechtel: Mr. Ferguson moved that we recommend to the City Council. Do I hear a
second?
Rosenbaum: I’ll second and make a comment.
Bechtel: Second by Mr. Rosenbaum. Further comments?
Rosenbaum: I guess UAC has been looking at this information and making
recommendations to the Council since the UAC started. This is perhaps a cursory a look
as we’ve given. George, are you going to.the Finance Committee to represent the UAC?
Bechtel: Yes.
Rosenbaum: Yes, the Finance Committee doesn’t know that we looked at that as cursory
as did and I don’t know that you want to tell them. I’m not quite sure how to proceed. Is it
any different this year than it has been in past years? Clearly it was hard to get a second,
because I suspect none of us are terribly comfortable with making that recommendation.
Ulrich: Let me make a comment. I guess I would say I’m very disappointed in that
perspective is that I thought exactly what we did is we actually spent more time on it,
because we went back and started much earlier in the process and brought forward all the
work we did last year and that this is the second part Of it so this long-term plan you did
see last year and portions of it the year before and on specific major areas, for example, the
water area, we went through a lot of study sessions and discussions on it. So I thought we
had spent time on this and we devoted the last meeting as I recall, no the meeting before
that, to the highlights to the changes. The other reason I think we spent time on it was we
put a lot of time and effort into the Strategic Plan, which called for in this matrix, the
things that were important to do and we tried to relate all the work that we’re doing to
those Strategic Plan initiatives so that we’re not offtrying to sell you, doing something that
doesn’t fit in with reducing, keeping rates low or improving service reliability. So if we’re
not doing a good job in communicating either on specific projects or where we’re spending
the money, then we ought to get back together and discuss how to do a better job of that.
Because we do not want you to go into the Finance Committee if you’re not comfortable
with what we’re doing.
UAC Minutes 5-1-02 DRAFT Page 35 of 40
Rosenbaum: I think you make a good point, John, and indeed two months ago, we
discussed significant changes I guess from year to year in the budget and I think that was
helpful. I think what you’re saying from a macro level, we’ve looked at the budget and.
compared it to the Strategic Plan and surely didn’t fmd anything out of place so I would
think George when you speak to the Finance Committee, that you emphasize that from the
macro level, we’ve looked at it and it seems fine without suggesting that we’ve gone
through the details of the line items in the budget.
Bechtel: Dick, I agree with you. I certainly can give you the floor. The process, by which
we went through this is perhaps Rick and I were talking.earlier in the meeting about having
gone through this in the previous years line item by line item and that is certainly a process
by which I’d be prepared to do so: That’s why I encouraged everyone to do their ~
homework prior to this meeting and I felt that everyone had done their homework and had
looked at this thing. There seemed.to be very little motivation for going through the details
at this time, so perhaps some of it is a cursory look. I certainly did not spend a small
amount of time at looking at this prior tothe meeting. Mr. Dawes.
Dawes: I’d like to put in a plug for the process. In years past, when we have gone through
a book much thicker than this it seemed, CIP by CIP, frankly the input that. the
Commissioners can make on that kind of a thing is I think minimal. I think to characterize
our process as cursory is wrong. I rely not only on what we have seen tonight, but what we
have seen and been through in previous meetings. Frankly, I think, and I’ve said this
before, and I’ll say it again, the 10’year forecast, which Randy had at hand, and which the
staff has done an incredibly good job in putting together, I think it’s the most valuable
piece we have and we started with this 6 months ago. I’ll note that the rate increases,
which are really .ong of the bottom, bottom lines of what we do is fly-specking those, are
totally consistent with the. 10-year forecast that we went through. I think it’s been an
excellent way of going through policy issues, which face the Utility and have gotten
deliberately away from the detail, so I would commend this process myself.
Bechtel: Mr. Carlson.
Carlson: I missed the last meeting because of a funeral, so I don’t know if you went over
this. I’m very uncomfortable with approving this kind ofbudge1 with this level of
discussion because there’s some resource management operations goes up by 150% in 2
years. I mean that’s a pretty big item. I don’t remember ever discussing anything like that
and there’s some similar increases in the operations side and then there’s the rent item,
which Rick properly called out, which rents are not’going up, they’re going down. They’re
collapsing right now. This is obviously a general fund bail out. Maybe that’s not a bad
thing, but that’s where it is. I just feel very nervous. In my.understanding of the agenda
was that we were just starting to look at the budget and what was being approved, the way
I read the agenda, was the rate increases, which is why We jumped to that and boy I sure
would like to discuss this a little bit more, but here we are at 9:35 so I don’t know what to
do.
Bechtel: Mr. Ferguson.
Ferguson: .The process unfolded pretty much as I expected it would unfold. I think there
were a couple of procedural missed cues here. I don’t think tonight’s missed cue was fatal
UAC Minutes 5-1.02 DRAFT Page 36 of 40
although it’s a little bit of a stretch to say the budget was an action item proposed tonight.
I guess wecan float a Supreme Court opinion on that somewhere, but I think Mr. Carlson
did miss the .Strategic Planning discussion where we did talk about some significant
changes and items in the categories you indicated. It wasn’t in the context of the budget
dollar layout in this chart of accounts, but we hit the high points in those earlier
discussions. So I agree the process is an improved process. The other missed cue here is
that it wasn’t clear when any of the Commissioners who wanted to talk about a couple of
specific projects, it wasn’t clear when the invitation was extended. I would have come up
with the a few more comments and I think Mr. Rosenbaum wanted to make a few more
comments and so maybe there’s a better way to lay out the agenda given the major
improved changes that we made in the process. Maybe there’s a better way to define these
things in locked steps so that there are no missed Cues the next time around. I’m happy
with where we are, all things considered.
Bechtel: Thank you Mr. Ferguson. Other comments? Well I think that in proceeding with
this, we’ could have tried a systematic going through pagerby-page, which I think might
have been instructed. We did have. in front of us, in proper order anyway, the details of the
budget and then the back up being the rate proposals that we’re too basically fund next
year’s budget. I think every year, we Seem to learn a little. At least, I’ve learned from my
mistakes having gone through 3 of these sessions. This year, perhaps, I think looking at
the long-term plan as we did several months ago and then strategic plan certainly gave me
plenty of background. Certainly the material aspresented here, there was plenty of detail
and so we have our email system. I encourage all of us to use that system to bring up
points you didn’tunderstand so I guess I’m perhaps a little unhappy that some of the
Commissioners felt that there needed to be more discussion on specific items. You’re
certainly welcome to come forth with those. At this point, I sense at least some level of
comfort with the budget the staff has put together. There may be some specific questions
on some of those items. We certainly have time to talk about them. Then certainly next
year, we can come back and address them again. Any other comments before we vote on
this recommendation for next year’s operating budget?
Carlson: Can I just ask the one question?
Bechtel: Yes.
Carlson:. Why does resource management operations go up by 150% in 2 years?
Ulrich: Some of that maybe Girish wants to answer that, but I think y0u’ll notice that the
legal fees are some of the significant... [interrupted]
Carlson: So that’s legal fees? I mean I just want to know what’s going on. It goes from "
$2 million back in 2000-2001 to $5 million.
Ulrich: I can go through the details, but that as you recall we’ve had discussions about the
additional legal charges.
Carlson: So that’s where it is?
Balachandran: That’s one major part. The other is NCPA cost. NCPA cost has also gone
up significantly and th( previous budget, that was not as high.
UAC Minutes 5-1-02 DRAFT Page 37 of 40
Carlson: Our payments for membership as opposed to power purchases?
Balachandran: Oh yes, power purchases are just pass through. It’s the services like power
pooling and legal expenses and everything else. So those were,, from a resource
management perspective, legal expenses are a large chunk of new cost and NCPA cost if
you. look at just the NCPA staff cost that gets passed on to us, notthe power cost. That .has
taken a pretty large increase too.
Carlson: Well, after we getthrough this crazinesfi, I would assume that item ought to go
back down?
Balachandran: Yes, I was just reviewing. I’m not sure when that craziness is going to get
over like Commissioner Bechtel talked about a little While ago. Nothing’s been fixed.
Ulrich: ’Maybe I’ll wait until after you have your vote, then I would like to comment a
little more discussion on this budget area.
Bechtel: Okay. Any other specific items or questions? Then all in favor of
recommending to the City Council they approve the utilities operating CIP budget for next
year, please say "aye".
All Commissioners: aye.
Bechtel: Opposed? No? Motion passes unanimously. I guess we’re close to wrap up,
John?
Ulrich: Sure, just a couple things on the budget. One, my sense is and I think i articulated
it a few minutes ago is that we followed the budget process and in fact made significant
improvements over prior years. Even though this is an interim budget year where we’re
not basically zero-based budgeting. It’s an attempt to have a 2-year budget cycle in the
City, so there should not be any major surprises. Last meeting, we did not discuss the
budget. That was the strategic plan meeting. It was the meeting before that where we
brought all of the items that were significant changes including the legal and others and
that’s where we had, I thought, a pretty detailed discussion. I guess what I’d like to have
some discussion or future meeting is the process for next year. The last thing I want to do
and I am, I guess, conveying some disappointment in not meeting the needs that I thought
you all wanted to have and the confidence that you have in. the budget process that we
followed. So if we can have some more discussion on that, because we have protracted
this out over a much longer period of time rather than hitting it all at one meeting and
going through it item by item. We took the high level and moved it through that way. So I
appreciate your support on that, but on how we did it, but I’d also want to meet the needs
in.the sense that some of you were disappointed in something that we didn’t do in this
process.
Bechtel: Well I think we can certainly do some homework and let you know perhaps what
we can do for next Year’s process to do this sort of thing. I think that’s my guess is that
this is a process that can change as we can change rates in midstream, we can certainly
change the process. Randy?
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Baldschun: Having gone through this a number of times; every year, it is a crunch. And
the truth is is that you have this Palo Alto process where we go to the UAC, Finance and
the Council. So you really have to back up from the Council date and that’s June 17 this
year. Then you’ve got the Finance meeting. Finance needs to have enough time tohave a
meeting between them and the Council so the Council can digest the minutes. And every
year, we end up with this problem with the UAC meeting and perhaps more so this year.
What is different this year I think is that, and by the way, I think it’s better this year, is
don’t have the detail. You don’t have the functional detail and we don’t have the
functional detail.. Some printer has it right now and he’s printing up hundreds of copies.
Finance will have it next week. It will have the same information you have plus some
functional detail. What you have is the big picture and in my opinion, I think that’s
appropriate for you. Now the detail usually you don’t really get into that much frankly.
But what we’ve tried to do from the very beginning here and we’ve really bent over
backwards, particularly John pushing us, is to get you the information early. We had to do
our rate proposals back in March, all 5 of them. We’re normally doing them in April and
so the idea was to give you an early heads-up on what’s coming. You had a chance to
digest the rate proposals. You had a chance to look at the 10-year. You had a chance to
look at the operating budget, which was reflected in the 10~year.for ’.02-’03. I don’t know
how we could have done it otherwise given the fact that you’ve got a May 1st meeting,
they’ve got a Finance meeting and you’ve got a schedule that’s got to flow all the way to
the Council.
Bechtel: Mr. Dawes.
Dawes: One area that would be exceedingly helpful and this has come up in the past is
much more standardization in the format of the financial reports. One of the things that we
have spun wheels on both email and here in session is not being able to bridge from one
report to the other and drawing misconclusionsabout it. If there was one format, it would
be vastly easier for the staffto deal with too because if you’re dealing with one format for
quarterly reports~ for budgeting, for all purposes, it would be you’re operating off the same
database. You make one forecast based on actuals, year to date, forecast of balanced year
and that serves for every purpose. I think that confusing for instance.sales revenues are
different in one report versus the other and so I would put in a very big plug for
standardization of financial formatting both as a way to save staff time, but to increase
depth of understanding on the part of Commissioners, Finance Committee and Council.
Bechtel: Mr. Rosenbaum.
Rosenbaum: Let me try to amplify a little on my concern. I actually agree with Dexter. I
think these 10-year reports or 10-year forecasts are by far the most interesting thing we go
through and we ask a lot of questions. I personally had difficulty understanding certain
aspects of it when I’m going to be trying to meet with staff to better my understanding. I
found that all helpful and that’s high level. But the Council Members and the Finance
Committee, they’re going to have this printed budget and that’s a hell of a lot of work to go
through and it’s very tempting for a Finance Committee member to say well the UAC has
already gone through this and that in a sense relieves me of some of the burden just as the
full Council might well feel that way after the Finance Committee has reviewed it. There’s
only a certain amount of time in a day and my discomfort is that we clearly haven’t done
that. The things we’ve done are perhaps more important than attempting to go through
line-by-line so my point is that if you can somehow convey to the Finance Committee that
UAC Minutes 5-1-02 DRAFT Page 39 of 40
we’ve done very useful things but we have not done a line-by-line review and whether we
should or shouldn’t is hard to determine, but I don’t want to suggest that staffhasn’t been
very helpful in presenting us with the important issues and we’ve had a chance to debate
those.
Ulrich: Would you like me to just mention next meeting for the record?
Bechtel: For the record.
Ulrich: The next meeting for June is Wednesday, June 5 at 7 o’clock in this room and the
item that’s on the agenda now, subject to additions that you’d like to make is the electric
long-term resource plan. And this would be the next stage of the discussion that we had 3
months ago on various alternatives for the long-term resource plan so we’re getting closer
to our recommendation and it’s time to have that discussion with you all.
Bechtel’. All right. Any suggestion? Any other items for next June’s meeting?
Ulrich: I guess just probably a reminder, Mr. Bechtel, that the Finance Committee meeting
for the Enterp.rise Funds, which will include us will be May 14 here at City Hall.
ADJOURNMENT
Bechtel: Yes, I think you alerted me sometime ago. No other items: I entertain a motion
to adjourn.
Rosenbaum: So moved.
Bechtel: Moved by Mr. Rosenbaum. Second by Mr. Carlson. All in favor please say,
"aye".
All Commissioners: Aye.
B_echtel: Opposed? None.
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