HomeMy WebLinkAbout2002-05-14 City Council (6)TO:
FROM:
City of Palo Alto
City Manaoer’s Re_n_art
02-03 /HONORABLE CITY COUNCIL
CITY MANAGER DEPARTMENT: UTILITIES.
ATTENTION:
DATE:
S B CTi
FINANCE COMMITTEE
MAY 14, 2002 CMR:245:02
ADOPTION OF A RESOLUTION AMENDING VARIOUS.
WATER RATE SCHEDULES TO EFFECT A WATER.RATE
INCREASE . ¯
RECOMMENDATION ¯
Staff and the Utilities Advisory Commission (UAC) recommend that the City Council
adopt the attached resolution to. amend various water rate schedules in order to increase
water retail rates by approximately 20 percent system wide, effective July 1, 2002.
DISCUSSION "
Staff reviews the Water Fund revenues, reserves, and expenditures on a quarterly basis to
ensure that the Fund is financially sound. In addition, staff reviews financial projections
for the next ten-year period. A review of the financial projections indicates a major rise in
the Water Fund Capital Improvement Program(CIP) in FY 2003-04. To fund this rising
CIP, staff recommended and Council approved a two-prong financial strategy during the
FY 2001-02 budget process. The strategy consists of a combination of one-time bond
financing and two retail rate increases. Earlier this year, water revenue bonds ($11.7
million) were issued to partially finance the CIP. The proposed 20 percent retail rate
increase would help fund the remaining portion of the CIP. Depending on actual and
projected ending reserve balances for FY 2002-03 and FY 2003-04, a subsequent retail
rate increase may be necessary in FY 2003’04.
The proposed retail rate increase has been spread to all rate schedules based on a system
average of 20 percent. In addition, staff recommends the creation of Rate Schedule W-7
for better tracldng of the water used specifically for landscape irrigation purposes.
CMR:245:02 Page 1 of 3
Irrigation Water S~rvice Rate Schedule W-7 will apply to non-residential customers that
are separately metered for irrigation.
Finally, Utilities Rule and Regulation 13 currently addresses the Utilities’ actions in case
of a shortage or interruption of energy supplies. Staff is proposing to amend Rule 13 to
add a section addressing the City’s Water Shortage Emergency Response Plan.
UTILITIES ADVISORY COMMISSION REVIEW AND RECOMMENDATIONS
On May 1, 2002, the Utilities Advisory Commission (UAC) approved staff’s proposal to
increase water rates by 20 percent effective July 1, 2002. ’
ALTERNATIVES
Staff evaluated other rate alternatives, such as deferral of the rate increase until FY 2003-
04 or an increase, of rates by only I0 percent. However, a rate increase of less than 20
percent could result in a much.larger increase in FY 2003-04 to addressthe rapid rise in
the CIP and to accommodate a projected increase in wholesale water costs.
RESOURCE IMPACT
Approval of this proposed rate increase will increase the Water Fund sales revenues by
approximately $3.1 million for FY 2002-03.
POLICY IMPLICATIONS
This proposed rate increase would satisfy the Strategic Plan objective of providing the
funds necessary to invest in utility infrastructure to deliver reliable service. These
recommendations do not represent a change in current City.
ENVIRONMENTAL REVIEW
The adoption of the resolution does not constitute a project under the California
Environmental Quality Act, therefore, no environmental assessment is required.
CMR:245:02 Page 2 of 3 ¯
ATTACHMENTS
A.Resolution
B.Water Rate Schedules W-l, W-l-B, W-l-C, W-4, and W-7
C.Rule 13
D.UAC Report dated May 1, 2002
E.D: Minutes of the UAC meeting of May 1, 2002
PREPARED BY: Lucie Hirmina, Utilities Pricing ManagerJ/~
DEPARTMENT HEAD:
CITY MANAGER APPROVAL:
nA aUSON
Assistant City Manager
CMR:245:02 Page 3 of 3
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OF PALO
ALTO AMENDING UTILITY RATE SCHEDULES W-l, W-l-B,
W-l-C, W-4, AND W-7 OF THE CITY OF PALO ALTO
UTILITIES RATES AND CHARGES PERTAINING TO WATER
RATES AND APPROVING AND ADOPTING RULE AND
REGULATION 13 GOVERNING SHORTAGE OF SUPPLY AND
INTERRUPTION OF DELIVERY OF ENERGY,GAS,AND
WATER
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 W-I (General Residential Water
Service), W-I-B (Reclaimed Water Service & Hauling), W-I-C
(Reclaimed Water Service & Hauling), W-4 (General Non-
Residential Water Service), and W-7 -(Irrigation Water Service)
of the Palo Alto Utilities Rates and Charges are hereby amended
to read in accordance with Sheets W-l-l, W-l-B-l, W-l-C-l, W-4-
i, and W-7-1 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 several water service rates
shall be used only for the purposes set forth in Article VII,
Section 2, of the Charter of the City of PaloAlto.
SECTION 3. Pursuant-to Section 12.20.010 of- the Palo
Alto Municipal Code, Rule and Regulation 13 (Shortage of Supply
and Interruption of Delivery of Energy, Gas, and Water) of the
Utility Rules and Regulations is hereby amended to read in
accordance with the sheets captioned "Shortage of Supply and
Interruption of Delivery of Energy, Gas, and’ Water" and "Rule
and Regulation 13," Sheet Nos. i through 5, inclusive, attached
hereto and incorporated herein by this reference. The foregoing
Rule and Regulation shall become effectiye on July i, 2002.
//
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020507 lh 0072157
SECTION 4. The Council finds that- the adoption of this
resolution does not constitute a project under the California
Environmental Quality Act, California Public Resources Code
section 21080, subdivision (b) (8).
INTRODUCED AND PASSED:
AYES:
.NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk
APPROVED AS TO FORM:
Mayor
APPROVED:
Senior Asst. City Attorney City Manager
Director of Utilities
Director Of Administrative
Services
020507 lh 0072157 2
Bo
Co
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W- 1
APPLICABILITY:
This schedule applies to all residential single family water service.
TERRITORY:
Inside and outside the incorporated limits of the City of Palo Alto and land owned or leased by the
City.
RATE S:
Service Charge:
Per Meter
Per Month
For 5/8-inch meter
For 3/4 inch meter
For I inch meter
For 1 1/2 inch meter
For 2-inch meter
For 3-inch meter
For 4-inch meter
For 6-inch meter
For 8-inch meter
For 10-inch meter
................................................................................................. ; .... ......$5.00
............................................................................................................5.63
.................................................... ~ ......................................’. ................6.50
.............................................................................................................16.95
............................................................................................................ 24.30
............................................................................................................ 60.00
............................................................................................................ 93.50
............................................................................................................ 99.99
Commodity Rate: (To be added Service Charge and applicable to all pressure zones.)
Per Meter Per Hundred Cubic Feet
Per Month All Pressure Zones
First 7 Ccf
Over 7 Ccf
.................. . ................................................’. ....................................................$2.35
...................................................................... , .................................................3.00
Temporary unmetered.service to residential
subdivision developers, per connection ......; .................................................................$6.00
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No. W-1-1 dated 7-1-00 CITY OF PALO ALTO
UTILITIES
Effective 7-1-2002
Sheet No. W-l-1
RECLAIMED WATER SERVICE & HAULING
UTILITY RATE SCHEDULE W-1-B
A. APPLICABILITY:
This schedule applies to all reclaimed water service including reclaimed water available for hauling for
uses specified by Order No. 93-160 issued by the Califomia State Regional Water Quality Control Board
on December 15, 1993.
B. TERRITORY:
The Reel .akned Water Service Charge applies inside the incorporated limits of the City of Palo Alto and
land owned or leased by the City. Hauled water is available to any entity obtaining a reclaimed water
permit and paying the indicated fee.
C. RATES:
Reclaimed Water Service
Annual Permit Fee ............................................................................................................ $50.00
{Enal
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No.W-I-B-1 dated 7-1-90
Effective 7-1-2002
Sheet No. W-l-B-1
RECLAIMED WATER SERVICE & HAULING
UTILITY RATE SCHEDULE W-1-C
A. APPLICABILITY:
This schedule applies to reclaimed water available for hauling for uses specified by Order No. 93-160
issued by the California State Regional Water Quality Control Board on December 15, 1993.
B.TERRITORY:
Available to water haulers operating within the Regional Water Quality Control Plant service area.
C.RATES:
Per 1,000 gallons ........................................................................................................
D. SPECIAL PROVISIONS:
1.Minimum monthly billing for water will be $25.00. Bills will not be rendered for months of
inactivity.
$1.00
All haulers of reclaimed water will be instructed on the allowable uses of reclaimed water and
required special operating procedures. Haulers must be licensed by the City of Pato Alto before
water will be provided.
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No. W-l-C-1 dated 7-1-88
Effective 7-1-2002
Sheet No. W’I-C-1
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
APPLICABILITY:
This schedule applies to non-residential water service in the City ofPalo Alto and its distribution
area. This schedule is also applicable to multi-family residential customers served through a master
meter.
TERRITORY:
Inside the incorporated lirnits of the City of Palo Alto, on land owned or l~ased by the City, and any
other land serviced by the Palo Alto Water Utility.
RATES:
Per Meter
Service Charge Per Month
For 5/8-inch meter
For 3/4-inch meter
For 1-inch meter
For 1 1/2 inch meter
For 2-inch meter
For 3-inch meter
For 4-inch meter
For 6-inch meter
For 8-inch meter
For 10-inch meter
................................................................................................ $5.00
.......................................................... . ......................................5.00
................................................................................................5.63
................................................................................................16.95
................................................................................................24.30
...................................................... ~ .........................................60.00
................................................................................................93.50
................................................................................................99.99
Commodity Rates: (to be added to Service Charge)
Per Meter
Per Month
Per Ccf
Per Hundred Cubic Feet
All Pressure Zones
......................................................................................................................... $3.09
CITY OF PALO ALTO.UTILITIES
Issued by the City Council
Supersedes Sheet No. W-4-1 dated 7-1-00 CITY OF PALO ALTO
UTILITIES
Effective 7-1-2002
Sheet No. W-4-1
Co
IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
APPLICABILITY:
This schedule applies to .non-residential water service supplying dedicated irrigation meters in the
City of Palo Alto and its distribution area.
TERRITORY:
Inside the incorporated limits of the City of Palo Alto, on land owned or leased by the City, and any
other land serviced by the Palo Alto Water Utility.
RATES:
Service Charge
For 5/8-inch meter
For 3/4-inch meter
For 1-inch meter
For ¯ 1 1/2 inch meter
For 2-inch meter
For 3-inch meter
For 4-inch meter
For 6-inch meter
For 8-inch meter
For 10-inch meter
Per Meter
Per Month
................................................................................................ $5.00
................................................................................................5.00
...... ..... ............................ ............ ....... .................................. ....5.63
................... ..........................................~ ..................................6.50
.................................................................................. ~ .............16.95
................................................................................................24.30
................................................................................................60.00
................................................................... ~ ............................93.50
................................................................................................99.99
Commodity Rates: (to be added to Service Charge)
Per Meter
Per Month
Per Hundred Cubic Feet
All Pressure Zones
Per Ccf ........................................................................................................................ $3.09
{End]
CITY OF PALO ALTO UTILITIES
Issued by the City Council
CITY OF PALO ALTO
UTILITIES
Effective 7-1-2002
Original Sheet No. W-7-1
SHORTAGE OF SUPPLY AND INTERRUPTION OF DELIVERY
OF ENERGY, GAS, AND WATER
RULE AND REGULATION 13
GENERAL:
CPAU will make reasonable efforts to deliver continuous and sufficient utility service to its
Customers, but CPAU does not guarantee the continuity or sufficiency of supply. CPAU will not be
liable for service interruption, shortage or insufficiency of utility supply, or any loss or damage
occasioned thereby.
INTERRUPTION OF DELIVERY:
When interruptions occur, CPAU will endeavor to reestablish service with the shortest
possible delay consistent with the safety of its Customers and the general public.
CPAU will have the right to suspend service temporarily for the purpose of malting repairs
of improvements to the system. When CPAU finds it necessary to schedule an interruption
to its service, it will, where feasible, notify all Customers to be affected of the approximate
time and the anticipated duration of the interruption. CPAU will endeavor to schedule
interruptions at hours that will be least inconvenient to the Customers and consistent with
economical utility operations.
SHORTAGE OF ENERGY SUPPLY:
During times of threatened or actual shortage of supply, CPAU will apportion the available supply
among its Customers in accordance with the Emergency Load Shedding Plans, incorporated herein
by reference, on file with CPAU. With due regard for public health and safety, these plans will
provide for shortages caused by insufficient supply or natural or manmade events which reduce the
capacity of CPAU’s suppliers and CPAU is requested to limit the level of delivery to its Customers
for some specified period of time of"until further notice". The Director of Utilities is authorized
to adjust the Emergency Load Shedding plans to reflect changes in personnel, distribution systems,
utility services, or other factors; when, in the opinion of the Director of Utilities such adjustments
will lead to better protection of the public health and general welfare.
OVERSUPPLY OR POWER SURGES ON THE DISTRIBUTION SYSTEM
Power surges may occur due to conditions beyond the control of CPAU or its Customers. CPAU
will make reasonable efforts to minimize power surges occumng on the CPAU distribution system,
CITY OF PALO ALTO UTILITIES
Issued by the City Council
CITY OF PALO ALTO
UTILITIES
Effective 7-1-2002
Sheet No. 1
Eo
SHORTAGE OF SUPPLY AND INTERRUPTION OF DELIVERY
OF ENERGY, GAS, AND WATER
RULE AND REGULATION 13
(Continued)
but CPAU does not guarantee that power surges will not occur. CPAU recommends that Customers
protect their connected loads and equipment fxom power surges. CPAU shall not be liable for any
loss or damage occasioned by power surges.
CAPACITY ALLOCATION; CONSTRAINT OR CURTAILMENT OF NATURAL GAS
SERVICE
CPAU may reduce, interrupt, or allocate natural Gas supply services for operational reasons in the
event of projected or actual supply or capacity shortages.
A Point of Receipt service restriction is a reduction of the nominations at the Point of Receipt to
match the capacity available in the Distribution system. Gas Direct Access Customers and their Gas
Service Providers are solely responsible for providing the necessary services upstream of the Point
of Receipt. A Point of Delivery service restriction is a reduction of the daily quantity delivered to
the Customer or temporary interruption of the Customer’s service.
CPAU will exercise good faith efforts to furnish and deliver continuous service and a sufficient
quantity of Gas to Customers, but CPAU does not guarantee continuity of service or sufficiency of
quantity. CPAU shall not be liable for any interruption, shortage, or insufficient supply, or any loss
or damage of any kind or character caused by such, if caused by an Uncontrollable Force or any other
cause that is beyond CPAU’s reasonable control except that arising fxom its failure to exercise
reasonable diligence. CPAU shall be the sole judge of whether it is operationally able to receive
and/or deliver Gas on its Distribution System. CPAU shall not be liable to the Customer for
damages, or otherwise, as the result of any interruption, reduction, or allocation of Gas transportation
capacity or delivery service.
CPAU may, in the exercise of reasonable judgment, reduce receipts or deliveries of natural Gas in
order to test, alter, modify, enlarge, or repair any part of the Distribution System 0r any facility or
property related to the operation of the Distribution Systeml In all such cases, CPAU shall give the
Customers reasonable notice as circumstances will permit, and CPAU shall complete such repairs
or improvements as soon as practicable and with minimal inconvenience to Customers.
CPAU shall not be responsible for any Curtailment, confiscation, or inability to deliver natural Gas
into the PG&E, or any other upstream pipeline, system. CPAU shall not be responsible for any
Curtailmentor confiscation by PG&E causing an inability to deliver natural Gas into CPAU’s Pool.
CITY OF PALO ALTO UTILITIES
Issued by the City Council
CITY OF PALO ALTO
UTILITIES
Effective 7-1-2002
Sheet No. 2
SHORTAGE OF SUPPLY AND INTERRUPTION OF DELIVERY
OF ENERGY, GAS, AND WATER
RULE AND REGULATION 13
.(Continued)
Any shortfall in deliveries into the City’s Pool must be made up by obtaining third-party Gas
supplies, reducing customer usage, or receiving supplies subject to the balancing provisions
described in Utility Rule and Regulation 12, if available.
1.RECENT POINT CAPACITY ALLOCATION
(A)Allocation Because of Non-conformance of Gas to CPAU’s Specifications
03)
CPAU has the right and responsibility to maintain the quality standards of the gas in
its system. CPAU may refuse to accept gas or to accept limited amounts of gas if the
gas is not of the quality reqttired for service to CPAU Customers.. CPAU shall be the
sole judge of the ability of its system to accept any such gas not conforming to its
specifi6ationL (See Utility Rule and Regulation 12.)
Allocation Due to Local Constraints
CPAU may reduce the amount of gas CPAU receives on the Customer’s behalf due
to operating conditions or regulatory requirements affecting all or a portion of
CPAU’s system. CPAU will take whatever steps it determines are operationally
appropriate in the event a constraint on CPAU’s Distribution System threatens
service to Customers.
(c)In the event CPAU reduces the receipt of Customer-owned gas for any reason cited
above, the Customer must obtain third party gas, stop receiving service, or receive
supplies subject to the imbalance provisions in Utility Rule and Regulation 12 if this
service is available.
2.POINT OF DELIVERY SERVICE RESTRICTIONS
Reasons for service restrictions
(1)Operating Constraints
CPAU may interrupt or reduce delivery of natural Gas in the event of
projected or actual capacity constraints or projected or actual supply
CITY OF PALO ALTO UTILITIES
Issued by the City Council
CITY OF PALO ALTO
UTILITIES.
Effective 7-1-2002
Sheet No. 3
SHORTAGE OF SUPPLY AND INTERRUPTION OF DELIVERY
OF ENERGY, GAS, AND WATER
RULE AND REGULATION 13
(Continued)
shortages on the Distribution System, subject to the priorities set forth in
Section 3.
’(2) Local Constraints
In the event of localized constraints, Customers in unconstrained areas may
continue to receive service; provided,, however that CPAU may take whatever
steps it determines are operationally necessary in.the event a constraint on the
Distribution System threatens service to Customers. This may include
Curtailment of Noncore Customers.
CURTAILMENT PRIORITIES
In the event of a projected or actual supply Curtailment, Customers will be curtailed in the
following order of precedence:
1.Noncore Accounts
2.Core Commercial Accounts
3.Residential Accounts
Should the amounts to be curtailed be less than an entire category, CPAU will curtail
accounts on a pro rata or rotating block basis.
OPERATIONAL FLOW ORDERS, EMERGENCY FLOW ORDERS, AND DIVERSIONS
If at anytime PG&E imposes an OFO, EFO, or diversion requirements upon CPAU, the Pool
Manager, or the Balancing Agent, the Gas Service Provider and all Customers will comply
with those restrictions in accordance with PG&E’s Rule 14. If the Gas Service Provider does
not comply with the requirements established by PG&E during an OFO, EFO or Diversion,
the Gas Service Provider or Customer.. will pay a noncompliance Charge. The
noncompliance charge will be calculated in accordance with PG&E’s Rule 14 or replacement
Rule. This applies to Gas Direct Access Customers and Noncore Full-Service Customers.
CITY OF PALO ALTO UTILITIES
Issued by the City Council
C;ITY OF PALO ALTO
UTILITIES
Effective 7-1-2002
Sheet No. 4
SHORTAGE OF SUPPLY AND INTERRUPTION OF DELIVERY
OF ENERGY, GAS, AND WATER
WATER SHORTAGE EMERGENCY RESPONSE
RULE AND REGULATION 13
(Continued)
During times of threatened or actual shortage of supply, CPAU will activate the Water Shortage
Contingency Plan, incorporated into the City ofPalo Alto’s Emergency Response Plan. These plans
are consistent with .both county and state emergency planning procedures.
During a short-term water shortage emergency, the City water shortage response team is activated.
Members include water, fire, planning, health, emergency services, public affairs, parks and
recreations, and the Mayor’s Office. This team has identified specific water-critical, customers such
as hospitals, nursing facilities, and schools. An organizational structure is in place to deliver potable
water to distribution sites, active water purification equipment, employ standby generators and
auxiliary pumps and use emergency water conveyance and supply storage facilities.
During long-term water shortages due to drought, the Utilities Department will implement a four-
stage reduction strategy. Reduction targets will be set for all customer classes depending on the
severity and duration of the shortage. These targets have been established to provide a minimum of
50% of normal supply during a severe or extended water shortage.
(END)
CITY OF PALO ALTO UTILITIES
Issued by the City Council
CITY OF PALO ALTO
UTILITIES
Effective 7-1-2002
Sheet No. 5
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
UTILITIES ADVISORY COMMISSION
UTILITIES DEPARTMENT
MAY 1, 2002
PROPOSED WATER RATE INCREASE
RE(~OMMENDATION
This repor~ requests that the Utilities Advisory Commission (UAC) recommend that the
City Council approve a 20 percent water rate increase effective July 1, 2002.
BACKGROUND
The Water Utility’s revenue requirement consists of a number of components including
the cost to purchase water, operate and maintain a reliable system, pay for the capital
improvement program (C~), fund prudent reserve levels and provide a transfer to the
General Fund. Any. change in one or more of these components as well as a change in
sales level can trigger a need for a rate adjustment. Staff reviews the Water Fund
revenues, reserves, and expenditures on a quarterly basis to insure that the Utility is
financially sound. A review of the CIP indicates a major rise in FY 03-04. To fund a
rapidly rising CIP as well as increased wholesale water costs, staff recommended aiad
Council approved a two prong financial strategy during the budget process last spring.
The balanced strategy consists of a combination of one-time bond fmancing and retail
rate increases. Earlier this year, water revenue bonds ($10.8 .million) were issued to
partially finance the CIP. This proposed 20 percent retail rate increase wouldhelp fund
the remaining portion of the CIr.
DISCUSSION
A review of the CIP for FY01-02 through FY03-04 indicates a total expenditure of $22.8
,million. During this period, the C[P is expected to jump from $4.9 million to $11.5
million. The CIP includes $3.9 million for the E1 Camino Park Reservoir and Pump
Station as well as rehabilitation of well sites and water main r.eplacements. To help fund
the CIP, retail rates need to be ramped up over a two-year period beginning in FY02-03.
Staff proposes a 20 percent rate increase in FY02-03 and possibly a 25 percent rate
increase in FY03-04.
The projected FY03-04 retail rate increase will also help offset a projected wholesale
water rate increase from the San Francisco Public Utilities Commission (SFPUC). It can
be noted that the SFPUC has provided a long-term forecast of wholesale rates that
indicates annual rate increases in the 10 percent to 17 percent range between 2008 and
2013. These rate adjustments will allow the .SFPUC.to recover the debt service associated
with their pending CIP to rehabilitate the Hetch Hetchy system. ¯
The proposed retail rate increase has been spread to all rate schedules based on a system
average of 20 percent. Table 1 shows the impact of the proposed rates on customer bills
based on different consumption levels for the residential and non-residential classes.
TABLE 1
Impact of Rate Increase on Customer Bills
Small Residential
Average Residential
Residential
Large Residential
Small Retail Commercial
5/8" Meter
Medium Commercial
3" Meter
Large Cormnercial or Industrial
6" Meter
7
14
20
35
9
100
1200
$21.45
42.45
60.45
105.45
32.81
325.95
3768.00
$3.08
6.93
10.23
18.48
4.86
54.00
648.00
17%
20%
20%
21%
17%
20%
21%
Comparison of Palo Alto Water Rates and Su.rrounding Cities:
In recent years, Palo Alto’s water rates have generally been higher than surrounding
areas, primarily due to an aggressive infrastructure program. A recent bill comparison
was performed between Palo Alto’s rates and the current water bills in Menlo Park,
Redwood City, Mountain View, and Los Altos. Currently, a Palo Alto residential
customer who uses approximately 14 units per montti on an annual basis is paying 8.6
percent more than customers of surrounding cities. Comparing the current rates of
surrounding cities with the proposed rates for Palo Alto, the residential rate differential
would rise to approximately 30 percent. However, California Water Service Company
Currently has rate increases pending before the Public Utilities Commission for the Los
Altos district and other nearby cities’ staff indicated that water rates may be increased .in
July. Therefore, the projected 30 percent rate differential between Palo Alto and nearby
cities is not expected to materialize and the differential should be much less.
Rate for Metered Wa~er Irrigation
In order to allow for better tracking and separation of water used specifically for
landscape irrigation purposes, staff recommends the creation of Rate Schedule W-7
designated as irrigation Water Service. Rate Schedule W-7 will apply to non-residential
customers that are separately metered for irrigation. This will help. both for reporting
purposes as well as for forecasting future water usage patterns. This separation of outdoor
and indoor usage will also .become particularly useful in designing water rationing
programs during future droughts. The rate used for this schedule is the same as the rate
cm-rently used for non-residential water usage. This recommendation recognizes that
conservation and sustainability issues have become increasingly important issues.
Water Shortage Emergency Response
In times of threatened.or actual shortage of the City of Palo Alto’s water supply, the City
is set to activate a Water Shortage Contingency Plan. This plan is part of the City’s
Emergency Response Plan, and outlines the Cit),. ’s response to both long-term and short-
tema crisis.
The City of Palo Alto Utilities Rule and Regulatign 13 currently addresses the Utilities
actions in case of a shortage or interruption of our energy supplies. The proposed
amendment to Rule 13 adds a section to address the City’s Water Shortage Emergency
Response Plan.
Reclaimed Water Service & Hauling
The charges for reclaimed water, permits have not changed in Palo Alto since 1990, and
the price per gallon for hauling reclaimed water has not deviated since 1988. After
consultation with staff at the Water Quality Control Plant, it has been found that these
fees should be modified to meet current costs as well as Current Orders effected by the
California State Regional Water Quality. Control Board. As such, permit fees are
proposed to increase 43 percent, and the hauling charge per thousand, gallons of
reclaimed water will increase from $0.30 to $1.00, a difference of 233 percent.
RESOURCE IMPACT
Approval of this rate proposal will increase the Water Fund metered retail sales revenues
by approximately $3.1 million on a fiscal year basis/ The Rate Stabilization Reserve in
the Water Utility is projected to be above the target level but below the maximum level
according to the reserve guidelines approved by Council. The revenue from the
reclaimed water fee increase is expected to be insignificant, less than $500 on an annual
basis.
ALTERNATIVES
Staff evaluated other alternative rate increases such as to defer the rate increase until FY
03-04 or increase rates only by 10 percent instead of 20 percent. If the rate increase is
deferred until FY 03-04, then the RSR will be drawn down an additional $3 million.
However, to meet the increased CIP the following year, the RSR would be depleted
unless a rate increase of 72 percent in FY 03-04 was enacted to bring the RSR balance
close to the minimum reserve level. Under the 10 percent rate increase scenario, a 46
percent increase in FY 03-04 will be necessary to bring the reserve balance to the same
level produced by the proposed ~ate increase. Therefore, staff recommends, that the
council approve the proposed 20 percent rate increase.
POLICY IMPLICATIONS / "
..~-~s r~e ~’~-’~s ~ meets flae following Utilities Strategic Plan objectives: to
invest in utility infrastructure to de~iver reliable service and to provide superior financial
service to the City and competitive rates to customers. Approval of the proposed water
rate increase does not represent a change to existing policies.
TIMELINE
The effective dates of the proposed ~:water rates are 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:
Ao Rule 13 " W-l, W-1-B~
Water Rate Schedules W-l-C, W-4, and .W-7
PREPARED BY:
Lucie Hirmina., Pricing Manager
REVIEWED BY:Randy Baldschun, Assistant Director of Utilities
Adm. Services
DEPARTMENT HEAD:
EXCERPTOF UAC MEETING 5/!/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, thelFY 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 hav.e notes from looking it over. It looks like for example there is a summary
report on the enterprise funds thatlists all of the 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. :
Fer~son: Just a que.stion at the top here. As I read item 2, what we have here is 4-5
requests for the UAC to approve, pToposed 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 ittogether 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 yearbudget. This is not startingall 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 al! gets approved. But it’s not intended that we
wo.uld go through each of the items unless you had questions and wanted to getintomore
detail. Because we had at.tempted todo those kind of items early on.
Ferguson: Good, I just wanted ~o 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 offin 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-:i-02 DRAFT Page i9 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.
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’rejust 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 of uncertainty. I wouldn;traise it. I
think we did exactly.the right thing and we’ve had significant.discussion he.re 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 thatwe thinkwe.did something inappropriate and
we’re vcaiting 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 ~side any funds for that.
Rosenbaumi 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 10ok 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 expla’ming 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 if I 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 6r is this still an outstanding issue?
Ulrich: I think what you’re referring to is what happens in a pool. A pool has a certainset
of agreements and it occasionally.and sometimes quite frequently goes through discussion
about whether the pool agreements.a~e 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 signific.ant 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 bridget 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: Youbet.
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?
Fer~,uson: 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?
Dawesl This looked 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 publi~ benefit ~
charge and the unmetered electric service rate schedule, which would be effective July.l,
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 yog. 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 yearor 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 u.s 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
r.eserve and so now tliere’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?
F~rguson: Move approval.
Bechteli 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 questi.ons? Discussion? Mr. Dawes.
UAC Minutes 5-1-02 DRAFT Page 22 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 C]P, which installed them.
Baldschun: Right.
Dawes." We don’t pay; we don’t get all the cost-of~he electrical service back.
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 co;st 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 thiat 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 fi-om Commission? Mr. Ferguson.
Fer,~uson: 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 increasesand 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, wedid 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, !’m happy to be corrected, but it looks like we’re keeping an extra $3 millionin the
supply reserve above the maximum guideline.
Baldschun: On which document are you looking at? Is it in the budget orin the ra~e .
proposal?
Ferguson: In the gas fund, page 4 or in the text at the bottom of page2 6n 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
recen( 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.
.FerRuson: Yes.
apologies.
I’m reading the extra $3 million in the distribution reserves so my
Baldschun: So that one’s within the range. Yet the statement you pointed out says it’s
above the maximum guideline and that’~ 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 actua! 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 oldguideline. If you’d like, I’ll talk abrut 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.
Fer~uson: 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 prefe~ to send back to the ratepayers, bu~. maybe there’s more to the story.
Am¥Javelosa-Rio: Good evening. I’m Amy. I’m with the budget accounting arid 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, Fll 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 C~ bond costs
going into that reserve which is incorrect. The other change is in the water fund that is a
change in the budget draftl 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
b~ilance, 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, whywouldn’t we want to giveback 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 i~ 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.risirig from an adopted budget
figure of $ t.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 reflectedin the draft budget and some of
which are not. In terms of the rate proposal we baseit on the most updated information. I
think it would be imprudent notto 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 lo-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 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 ~urrent.level of gas costs, .
Bechtel: Mr. Ferguson, follow up tothat since you’ve kicked this oneoff.
Fer~uson: Yes, I’m trying to do the fight 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 goixig 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.experi.ence 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 rain’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~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 ofthinldng as Rick. Obviously these new figures are new
data, but sort of going backwards, a year and half or so, Iwas 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 fi-om 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 arid 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, andthe 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-a-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 fmancials 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 virtuallym 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 coharnend 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, 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?
JavelosarRio: 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 byMr. Dawes that werecommer~d to the
City Council to approve a rate decrease effective July 1, 2002. All in favor please indicate
"aye".
All Commissioners: Aye.
Bechtel: Opp9sed? 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 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 ifyoulook 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~. 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 ofthat action. So ~hat
should have some favorable impact on our rate proposal for next year. Even taking out the
San Francisco issue, you still are leftwith this very large CIP 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. Themembers of the CPUC would kind of "
look askance at that and suggest that you adjust the rate increase to reflect yourtrue
increasein 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 inthe proposed budget, but in the
following year and Council’s approved the CtP. 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 wouldseem 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, !’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 ot~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 ! think your point about
whether there should be $400 thousand more in the reserve is a good point, but it is one
thatis 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-i~-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 wisgr 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 increaseto fundour 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
a.ctually.
Ulrich: As you also recall when we had this discussion about the 10-year finanoial
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 robe able to smooth out these rates so thatthe 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 fi:om the City of San Francisco.
Bechtel: Thank you John. I think you raised a good issue, tf 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.fund, 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 ybar 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 millionl I don’t wantto focus too
much on this SFPUC. Wetalk 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 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.
Baldsohun:. Well the timing and use 0fthose funds isnot so much trying to use thosein
the very specific year in which th.a.t project’s going to hit. You really haveto look at it in
terms of where did we start fi’om and where are we going to end up at? We started with no
water ~-ate increase. This was last year. With a CIP e.scalating 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 ~arly on is because we want 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 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 ofstaffon this? Mr. Carlson.
Carlson: I think this applies to all these reserve issues. It must b~ 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. T.he 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 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 stabilizationreserve 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. Theremay 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 !. Do I hear a motion?
Dawes: So moved.
Bechtel: Moved by Mr. Dawes. Do I hear a second?
Carlson:
Bechtel:
I’ll second.
Seconded by Mr. Carlson. Any Other discussion? Mr. Rosenbaum.
Rosenbaumi 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 DRAET Page 31 of 40
Bechtel: I have a motion, an amendment to reduce by approximately $z~00 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 thereport.
¯Baldschun: It’s 2.6%.
Bechtel: 2.6?
Baldschun: $400 thousand and you’re taking it fi;om 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".
Carl~on, Ferguson, Bechtel, Dawes: Aye.
Bechtel: Opposed?
Ros~nbaum: 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 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 DRAFT Pag~ 32 of 40
Bechtel: I guess you’re right. I guess we need to.
Ferguson?: Where’s the agendized item?
Ul.rich: .It’s listed under 2. It says Fiscal Yea~ 2002-2003 Operating/CIP Budget and Rate
Proposals and it’s shown as an action iteml
Bechtel: Okay. I guess.
Ferguson: That was my question at the top of the discussion whetherl I’m happy to take
action. I just wantto make sure we’re not going through a useless motion here.
Bechtel: So basically we’re looking at the draft budget.
Ulrich: As 3)ou recall...[interrupted]
Bechtel: Beginningwith item #~ yes, it’slisted 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 intothe manual. So we started a number of months ago,
as you-recall, talking the individual CIPareas and focusing on the ones that ~re a ch.ange
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
project list so ! appreciate that, but,I did ask the question at the beginning of our agenda
because I did have a couple of questions and they aye 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 meask the question generically. There’s a one’time facility rent
charge that crops up, I think, for all the funds, for example on tile 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 i’ate, 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 mitigatethose 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 ]7effect that change up to. market. "
Fer.~uson: Can you explain why there’s an ongoing charge and then there is a one-time
charge that’s so much biggel~?
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
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 will have a si.grBfieant 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 Jrwill be
used.
Baldschun: Let me just elaborate on this because it’s a very irnportant 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 .
thinkit is. But as John said; it’s the general ledger, it’s all the financials, it’s the payroll,
it’s fixed asse~s, 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 seeingwith 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 expendituies here and there. What sort of guidelines did you uge 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 0fthe. 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 additionai 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
everythin.g. We’~e also candidly looking.at ways we can help the. general fund and the rest
of the City get work done. We’reall 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
looking 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 commi’tment 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 areterribly 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
workwe did last year and that this is the second part of it so this long-term plan you did
see last year and portionfi of it the year before and on specific major areas, for example, the
water area, we went through a 10t of study sessions and discussions on it. So I thought we
had spent tiine on this and we devoted the last meeting as I recall, no the meeting before
that, tO the highlights tothe changes. The other reason I think we spent time on it was we
put a lot oftimeand 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 doifig.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 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 Minutes5-1-02 DRAFT Page 35 of 40
Rosenbaum: .I think you make a good point, John, andindeed 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 find anything out of place so I would
think George when you speak to the Finance Committee, that y6u 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.
Bechteli 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 yearstine item by line item and that is certainly a process
by whichI’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 ti.me, so perhaps someofit is a cursory, look. ! 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 C~, 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 ~oodjob 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 if you went over
this. I’m very uncomfortable with approving this kind of budget with this level of
discussion because there’s Some resource management operations gQes.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 [o 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 littlebit more, but here we are at 9:35 so I don’t knowwhat to
do.
Bechtel: Mr. Ferguson.
Fer.~uson: The process unfoldedpretty 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 thinkMr. Carlson
did miss the Strategic Planning discussion where we did talk about some signifi(ant
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 p~ocess 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 theagenda given the major
improved changes that wemade 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, Fve 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 plentyof 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 Staffhas 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?
Ulri_’ch: 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’i,e 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.
up significantly and the previous budget, that was not as high.
UAC’Minutes 5-1-02 DRAFT
NCPA cost has also gone
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, froma resource
management perspective, legal expenses are a large chunk 0fnew 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 favo’r of
recommending tothe City Council they approve the utilities operating C]:P budget for next
year, please say "aye".
All Commissioners: aye.
Bechtel: Opposed? No? Motionpasses 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 ofthe 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 ihat, 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 fi’om the Council date and that’s June 17 this
year. Then you’ve gotthe Finande 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 withthe 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 fi:om 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 yourve 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 thishas 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 tb bridge.frrm 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 offthe 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 wouldput 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 Jun~ 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 t~ext stage of the discussion that we had 3
" months ago on various alternatives for the 10ng-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. Second by Mr. Carlson. All in favor please say
"aye:’.
All Commissioners: Aye.
Bechtel: Opposed? None.
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