HomeMy WebLinkAbout2002-05-14 City Council (3)TO:
City of Palo Alto
City Manager’s Report
HONORABLE CITY COUNCIL
BUDGET
02-03
FROM:CITY MANAGER DEPARTMENT: UTILITIES
ATTENTION:FINANCE COMMITTEE
DATE:MAY 14, 2002 CMR:242:02
SUBJECT:ADOPPTION OF A RESOLUTION AMENDING VARIOUS
WASTEWATER RATE. SCHEDULES TO EFFECTA
WASTEWATER COLLECTION RATE INCREASE
RECOMMENDATION
Staff and the Utilities Advisory Commission (UAC) recommend that the City Council
approve a 25 percent Wastewater Collection rate increase effective July 1, 2002.
DISCUSSION
Costs related to the treatment, operations, and maintenance of the Wastewater Treatment
plant, as well as CIP projects, have risen steadily since 1999. Staff had initially projected an
increase to the Wastewater Collection rates i.n July 2001. However, due to the dramatic rise
in the cost of electricity and gas to the City’s customers, the wastewater rate increase was
deferred until FY 2002-03 to minimize the rate impact on customers. To cover the rising
costs, funds from the Rate Stabilization Reserve (RSR) were used. The current proposed rate
increase is necessary to recoverthe rising costs related to the Wastewater Treatment Plant
plant, as well as to replenish the RSR. In spite of the rate increase, the RSR level will
continue to be below, the minimum level approved by the Council. Therefore, staff plans to
propose another increase during the FY 2003-04 budget process, thereby bringing the RSR to
its target level. This rate increase has been spread among customer classes based on the
system average of 25 percent.
ALTERNATIVES:
Staff evaluated other rate increase alternatives. One alternative is to increase rates by 10
percent. The reserve balance Would be about $2.4 million below the minimum guideline, and
a 56 percent rate increase would have to be implemented in FY 2003-04 to achieve the
minimum level reserve balance set by Council. If no rate increase is approved in FY 2002-03,
the Rate Stabilization Reserve would end with a negative balance and the following year a
projected rate increase of 82 percent would be necessary to achieve the minimum level
reserve balance set by Council.
CMR:242:02 Page 1 of 2
UTILITIES ADVISORY COMMISSION REVIEW
On May 1, 2002, the UAC unanimously approved staff’s proposal to increase wastewater
collection rates by 25 percent effective July 1, 2002.
RESOURCE IMPACT
This proposed 25 percent increase would result in an increase in Wastewater Collection Fund
sales revenue of approximately $2.275 million on an annual basis. Despite this revenue
increase, funds will be withdrawn from the Rate Stabilization Reserve resulting in a 2002-03
ending balance of .approximately $4.1 million, which is within the Council approved
guidelines.
POLICY IMPLICATIONS
Thisrate proposal funds or meets the following Utilities Strategic Plan objectives: to invest
in utility infrastructure to deliver reliable service and to provide superior financial service to
the City and competitive rates to customerS. Approval of the proposed wastewater rate
increase does not represent a change to existing policies.
ENVIRONMENTAL REVIEW
Adoption of the resolution to increase wastewater rates does not constitute a project under the
California Environmental Quality Act.
ATTACHMENTS
A.Resolution
B.Utility Rate Schedules S-1, S-2, S-3, and S-4
C.UAC Report dated May 1, 2002
D.Minutes from UAC May 1, 2002
Hirmina, Pricing Manager .,..~/PREPARED BY:Lucie
DEPARTMENT HEAD:
CITY MANAGER APPROVAL:
JOI N ULmC
of Utilities
EMILY HARRISON
Assistant City Manager
CMR:242:02 Page 2 of 2
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OFPALO
ALTO AMENDING UTILITY RATE SCHEDULES S-l,S-2,
S-3, AND S-4 OF THE CITY OF PALO ALTO UTILITIES
RATES AND CHARGES PERTAINING TO WASTEWATER RATES
The Council of the City of Palo Alto does hereby RESOLVE
as follows:
SECTION i. Pursuant to Section 12.20.010 of the Palo
Alto Municipal Code, Schedules S-I (Domestic Wastewater
Collection and Disposal), SL2 (Commercial Wastewater Collection
and Disposal), S-3 (Industrial Waste Laboratory and Analysis
Charges), and S-4 (Hauled Liquid Waste Charges) of the Palo Alto
Utilities Rates and Charges are hereby amended to read in
accordance with Sheets S-l-l, S-2-I, S-2-2, S-3-I, and S-4-I,
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 wastewater
service rates shall be used only for the purposes set forth in
Article VII, Section 2, of the Charter of the City of Palo Alto.
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020502 Ih 0072158
SECTION 3. The Council finds that the adoption of this
resolution does not constitute a project under the California
Environmental Quality Act, California Public Resources Code
section 21080, subdivision (b) (8).
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk
APPROVED AS TO FORM:
Mayor
APPROVED:
Senior Asst. City Attorney City Manager
Director ofUtilities
Director of Administrative
Services
020502 lh 0072158 2
DOMESTIC WASTEWATER COLLECTION AND DISPOSAL ¯
UTILITY RATE SCHEDULE S-1
A. APPLICABILITY:
This schedule applies to each occupied domestic dwelling unit.
.TERRITORY:
Within the incorporated limits of the City of Palo Alto and on land owned or leased by theCity.
RATES:
Per Month
Each domestic dwelling unit ..................................................................................................$17.50
SPECIAL NOTES:
An occupied domestic dwelling is designated as any house, cottage, flat, duplex unit, or
apartment unit having kitchen, bath, and sleeping facilities and to which utilities services are
being rendered.
°
o
Any dwelling unit being individually served by a water, gas, Or electric meter will be
considered as-continuously occupied.
For two or more occupieddwelling units served by one water meter, the monthly wastewater
charge will be calculated by multiplying the current wastewater rate by the number of
dwelling units.
Each developed separate lot shall have a separate service lateral to a sanitary main or
manhole.
[End]
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No.S-l-1 dated 7-1-99 CITY OF PALO ALTO
UTILITIES
Effective 7-1-2002
Sheet No.S-l-1
Co
COMMERCIAL WASTEWATER COLLECTION AND DISPOSAL
UTILITY RATE SCHEDULE S-2
APPLICABILITY:
This schedule applies to all establishments other than domestic dwelling units.
TERRITORY:
Within the incorporated limits of the City of Palo Alto and on land owned or leased by the City.
RATES:
1.Restaurants
(A)
(B)
Minimum charge per connection per month ..................................................$17.50
Quantity Rates:
Based on metered water, per 100 cubic feet ..................................................$6.44
Any establishment discharging sewage in excess of 25,000 gallons or quality equivalent of
sewage per da~, as determined by metered water usage and sampling.
(A) Collection System Operation, Maintenance, and Infiltration Inflow:
$2,100 per million gallons ($1.57 per 100 cubic feet of metered water).
(B)Advanced Waste Treatment Operations and Maintenance Charge:
..$1,150.00 per million gallons ($0.86 per 100 cubic feet of metered water).
(C)$ 190.00 per 1000 pounds of COD
(D)$ 420.00 per 1000 pounds of SS
(E)$ 3,200.00 per 1000pounds of NH3
(F)$13,750.00 per 1000 pounds oftoxics*
*Toxics include sum of chromium, copper, cyanide, lead, nickel, silver, and zinc.
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No.S-2-1 dated 7-1-99 CITY OF PALO ALTO
UTILITIES
Effective 7-1-2002
Sheet No. S-2-1
COMMERCIAL WASTEWATER COLLECTION AND DISPOSAL
All Other Establishments
UTILITY RATE SCHEDULE S-2
(Continued)
(A)Minimum Charge per connection per month .................................................$17.50
Quantity Rates:
De
Based on metered water per 100 cubic feet ...................................................$ 3.42
SPECIAL NOTES:
Upon. application from establishments maintaining extensive irrigated landscaping, the
monthly charge will be based upon .the average water usage for the months of January,
February and March. If a water meter is identified as exclusively serving irrigation
landscaping, such meter will be exempted from sewer charge calculations..
Sewage metering facilities may be required, in which case service will be governed by terms
of a special agreement.
Charges for large discharges (25,000 gallons per day or greater) will be determined on the
basis of sampling as outlined in Utilities Rule and Regulation 23C. However, for purposes
of arriving at an accurate flow estimate, discharge meters, if installed, can be utilized to
measure outflow for billing purposes. Annual charges will be determined and allocated
monthly for billing purposes.
Dischargers of Unmetered Contaminated Groundwater
o
Quantity rates for collection and treatment of the contaminated groundwater will be based
on the same rates applicable to metered usage for customers discharging less than 25,000
gallons of sewage per day. Discharge permits are issued by the Environmental Compliance
Manager at the Water Quality Control Plant, 2501Embarcadero Way, Palo Alto.
Industrial Waste Discharge Fee
A fee of $750 will be required for the issuance of an Industrial Discharge Permit, including
any Exceptional Waste Permits. This fee may be reduced to $250 for a one-time batch
discharge permit, lend}
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No.S-2-2 dated 7-1-99 CITY OF PALO ALTO
UTILITIES
Effective 7-1-2002
Sheet No. S-2-2
INDUSTRIAL WASTE LABORATORY AND ANALYSIS CHARGES
UTILITY RATE SCHEDULE S-3
A. APPLICABILITY:
This schedule applies to all industrial waste.
B. TERRITORY:
Within the service area of the City of Palo Alto and on land owned or leased by the City.
C. RATES:
1. Wastewater Analysis:
Analyses made to determine compliance with Palo Alto Municipal Code shall be charged at rates
equivalent to those charged to Palo Alto by its contract laboratory. A $100 administrative fee shall
be added per sample for those samples analyzed by Palo Alto’s contract laboratory.
{End}
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No.S-3-1 dated 7-’1-90
Effective 7-1-2002
Sheet No. S-3-1
HAULED LIQUID WASTE CHARGES
UTILITY RATE SCHEDULE S-4
Bo
APPLICABILITY:
This schedule applies to wastes as defined in Rule and Regulation 23.
TERRITORY:
Co
Wastes originating fi’om within and outside the Regional Water Quality Control Plant Service Area.
RATES:
Hauled Septic Tank Wastes
Per load of 1,000 gallons or less ..................................................................
Each additional 500 gallons or portion thereof ............................................
$60.00
30.00
°Portable Toilet Pumping
Per load of 1,000 gallons or less ..................................................................$60.00Each additional 500 gallons or portion thereof .................................¯ ...........30.00
3. Grease Trap Waste
Per load of 1,000 gallons or less ..................................................................$100.00Each additional 500 gallons or portion thereof ............................................50.00
Permit to discharge hauled liquid wastes .......................................................................$100.00/yr.
A bond or cash deposit for $2,000 shall be posted with the appropriate City Department for all liquid
waste-haulers discharging at the Palo Alto Regional Water Quality Control Plant.
tEn ]
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No. S-4-1 dated 7-1-92
Effective 7-1-2002
Sheet No. S-4-1
TO:
MEMORANDUM
UTILITIES ADVISORY COMMISSION
FROM:UTILITIES DEPARTMENT
DATE:MAY 1, 2002
SUBJECT:PROPOSED WASTEWATER COLLECTION RATE INCREASE,
RECOMMENDATION
This report requests that the Utilities Advisory Commission (UAC) recommend the City Council
approve a 25 percent Wastewater Collection rate increase to be effective July 1, 2002.
BACKGROUND
The Wastewater Collection Utility’s revenue requirement consists of a number of components
including the cost to operate and maintain a reliable system, finance an appropriate level of the
capital improvement program (CIP) from current operating revenues, pay Palo Alto’s share of
treatment costs, and fund a prudent reserve level. Any change in one or more of these components
may trigger the need for a rate change. In addition, because commercial sewer charges are tied to
water usage, a decline in water usage among commercial users has a corresponding adverse impact
on wastewater collection revenue. This can add pressure to raise rates. A review of the Wastewater
Collection Fund proposed budget for FY 2002-03 indicates that current revenues are insufficient to
meet the Ut,ility’s financial obligations and the Rate Stabilization Reserve is projected to fall below
the minimum guideline level. This report discusses the Wast6water Utility finances and summarizes
the reasons for stafPs proposed rate increase.
DISCUSSION
It has been three years since the last wastewater collection rate increase (8 percent). Since July 1999,
the cost of treatment and operating and maintenance costs have risen. For example, the cost of
treatment in FY99-00 was approximately $4.4 million. With increased overhead, chemical, and
energy expenditures, the cost of treatment for FY02-03 is projected to be $5.68 million. To
accommodate these higher costs and partially fund the CIP, funds have been withdrawn from the
Rate Stabilization Reserve each year. A review of FY 2002-03 indicates that the Rate Stabilization
Reserve will become depleted unless retail rates are raised. Besides higher operating costs, sales
revenues are down. Commercial customers’ wastewater charges are based on their water
consumption. Water consumption has declined approximately 5 percent this fiscal year.
Staff initially planned to propose this wastewater collection rate increase effective 7-1-01. However,
customer gas andelectric bills rose substantially last year. To avoid compounding the customer bill
impact, staff decided to defer the rate proposal until FY02-03. In the interim, funds from the Rate
Stabilization Reserve (RSR) were used to help cover the costs of treatment and CIP expenses.
Despite the proposed rate increase, the RSR level in FY 02-03 will be below the minimum level
approved by Council. During the FY 2003-04 budget process, staff plans to propose another rate
increase to bring the RSR level to its target level.
The proposed 25 percent increase or approximately $2.275 million has been spread between
customer classes on an equal percentage. Table (1) shows the impact of the proposed rates on
customer wastewater bills
Table (1)
Impact of the Proposed Wastewater Rate Increase on Customer Monthly Bill
Current Proposed Dollar Percentage
Rate Rate Difference Increase
Residential $14.00 $17.50 $3.5 25%
Commercial/CCF 2.74 3.43 .69 25 %
Restaurants/CCF 5.15 . . 6.44 1.29 25%
In recent years, Palo Alto’s wastewater rates have generally been higher than surrounding areas,
primarily due to an aggressive infrastructure program. A recent survey of 4 neighboring cities;
Menlo Park, RedwoOd City, Mountain View and Los Altos, indicates that the proposed Palo Alto
wastewater rates for the residential customers are 9% above the composite average of the surveyed
cities.
ALTERNATIVES:
Staff evaluated other rate increase alternatives. One alternative is to increase rates by 10 percent.
The reserve balance would be about 2.4 million dollars below the minimum guideline and a 56
percent rate increase would have to be implemented in FY 03-04, to achieve the same reserve
balance under the proposed rate increase. If no rate increase is approved in FY 02-03, the Rate
Stabilization Reserve would end with a negative balance and the following year a rate increase of 82
percent would be necessary to achieve the same reserve balance under the proposed rate increase.
RESOURCE IMPACT
This proposed 25 percent increase would result in an increase in Wastewater Fund sales revenue of
approximately $2.275 million on an annual basis.
POLICY IMPLICATIONS
This rate proposal funds or meets the following Utilities Strategic Plan objectives: to invest in utility
infrastructure to deliver reliable service and to provide superior financial service to the City and
competitive rates to customers. Approval of the proposed wastewater rate increase does not
represent a change to existing policies.
ENVIRONMENTAL REVIEW
Adoption of the resolution to increase wastewater rates does not constitute a project under the
California Environmental Quality Act.
California Environmental Quality Act.
ATTACHMENTS
Rate S~hedules
PREPARED BY:~Manager
REVIEWED BY:Randy Baldschun, Assistant Director of Utilities,
Adm. Services
DEPARTMENT HEAD APPROVAL:
EXCERPT OF UAC MEETING 5/1/02
FY 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 listed as 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~he funds including some of those 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 here. 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: IfI 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 and we 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 my preference 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 of our Enron contract.
Roscnbaum: 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 Enron 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 a level ofuncertainty. 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 ~onfident 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, either last meeting
or 2 meetings ago, I did ask the question and I think the answer was. we had not put aside
anything and we 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 fund rate 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 in the context of explaining why we
are not going to reduce the electric rates. I think there have been some perceptions that we
were automaticallygoing to reduce our electric rates 43% in this year, which would not be
a wise thing to do.
Rosenbaum: All right, but ift 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 plann!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 rates at this time. So that’s-the
background on the first rate schedule we’re looking at 2A. So Mr. Ferguson?
Fergus0n: 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 by Mr. Rosenbaum. Any discussion on the proposed increase to the
Utility Service call and connection fees?
Dawes: This looked pretty straightforward to me. Basically cost of service, updated hours
and pay rates has my support.
Bechtel: Any other questions ofstaffon 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 July 1,
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. Daw~s.
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 think, 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 al~er 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 the
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 ~_2 of 40
Dawes: Traffic lights. 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..
Dawes: We don’t pay; we don’t get all the cost of the electrical service backi
Baldschun: The energy costs are really insignificant in terms of the overall traffic signal
operation. It’s really 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 requests that 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 decreaseand 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 look 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 an ending
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 not resulting 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 jusi correct myself first. There is an extra $3 million in the distribution
reserve, not the supply reserve, so there really is $3 million there above the guideline and
that’s what I’d prefer to send back to the ratepayers, but maybe there’s more 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 is 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 Minutes 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. The other 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 there
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 $4.382? That’s
what we interrupt. 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 rejected ending
balance, I assume that the first column which is ’01-r02 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 they settle 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 10-year financial forecast. The 10-year financial forecast is a document we
UAC Minutes 5-1-02 DRAFT Page 25 of 40
use todevelop 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 Council approves 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 information 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 verygood 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 go back 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 control; 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 con-ectly 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 ifit 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-i~-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 we should 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? Lucie, 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, thi~ 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-Rio: 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.
Rosenbaum: 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
CityCouncil 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 to item 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 0fthe 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 CIP. 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 CIP and we need to do the CIP.
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, you don’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 know how PG&E plans or how the PUC wants them to plan to have levelized rate
adjustments, but that’s what 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 shareholders 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 into reserves or we spend it on CIP is all the
money of the customers in Palo Alto. 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 liketo 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-a-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 C]~ 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 may be less than that. So this is our judgrnent 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 yearl 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.fund, water RSR is projected at 10.5 at the
end of this year and then ifI 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 proposed rate.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
try to 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 proceedsl 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 10ok 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 C~ escalating over 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 we want to keep the reserves healthy. We also
from our fmancial 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 larger 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 questions 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.
Baldschun: We do get interest income from all of 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? Arewe talking 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. Do I hear a motion?
Dawes: So moved.
Bechtel: Moved by Mr. Dawes. Do I hear a second?
Carlson: I’ll second.
Bechtel: Seconded by Mr. Carlson. Any other discussion? Mr. Rosenbaum.
Rosenbaum: I would propose an amendment to reduce the 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 taking 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. Mr. Rosenbaum voting in the negative.
I guess that completes the agenda. No I’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 recommet~d 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 theCIP. 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 DRAFT 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 C~
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 ongoing facility 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.
Ferguson: 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
soft-ware 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 will 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 becauseit’s a very important application. I 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. They 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 financials, 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 from 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 C!P. 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
looking at next year’s operating budget?
Ulrich: Well the budget approval isjust 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 te!l 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 matrixl 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 off trying 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 howto 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 significarit 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 find 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 to the 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 sayit 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 one 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 ifyouwent over
this. I’m very uncomfortable with approving this kind of budget 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 we can 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 signifibant
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 animproved 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 page-by-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 as presented 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’t understand 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 you’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 the 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, fxom a resource
management perspective, legal expenses are a large chunk of new cost and NCPA cost if
you look at just the NCPA staffcost that gets passed on to us, not the power cost. That has
taken a pretty large increase too.
Carlson: Well, after we get through this craziness, 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 longe~ 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 thatl 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?
UAC Minutes 5-1-02 DRAFT Page 38 of 40
Baldsehun: 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 to have 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 1 st 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 misconclusions about it. If there was one format, it would
be vastly easier for the staff to 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 Enterprise 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.
"aye".
All Commissioners: Aye.
Bechtel: Opposed? None.
Second by Mr. Carlson. All in favor please say
UAC Minutes 5-1-02 DRAFT Page 40 of 40