HomeMy WebLinkAbout2001-05-21 City Council (8)City of Palo Alto
City Manager’s Report
TO:
FROM:
HONORABLE CITY COUNCIL
CITY MANAGER DEPARTMENT: UTILITIES
ATTENTION: FINANCE COMMITTEE
DATE:
SUBJECT:
MAY 21, 2001 CMR: 251:01
PROPOSED BOND FINANCING OF SELECTED UTILITY
CAPITAL IMPROVEMENT PROJECTS
RECOMMENDATION
Staff and the Utilities Advisory Commission recommend that the City Council give
conceptual approval of bond financing for selected Capital Improvement Projects (CIP)
in the Water and Gas Funds for the period fiscal year 2001-02 to fiscal year 2003-04 and
authorize staff to prepare the necessary documentation for Council approval.
DISCUSSION
Since the mid-1960’s, the City of Palo Alto has traditionally funded utility capital projects
on a pay-as-you-go basis. This conservative, fiscally prudent approach has kept these
enterprise funds debt free. The current utility environment is placing significant pressure
on rates. Sharp commodity price increases coupled with paying for capital programs
through current rates adds an unnecessary burden to Palo Alto residents and businesses.
By issuing debt, a utility spreads costs to ratepayers over a longer period of time, thereby
alleviating one source of upward pressure on rates.
Water, gas, and electric rates have risen or are scheduled to rise dramatically over the
next several years. With approval of the current rate proposal, residential customer gas
bills Will have increased 200 percent within one year. The attached staff report to the
CMR:251:01 Page 1 of 3
Utilities Advisory Committee (UAC) gives further information on the potential customer
rate impact without debt financing. With the goal of providing rate relief to Palo Alto
ratepayers during this energy crisis, staff recommends Water and Gas CIP bond financing
of approximately $23.9 million for the next three years, with the associated annual debt
service cost impacts.
UTILITIES ADVISORY COMMISSION REVIEW AND RECOMMENDATIONS
On May 2, 2001, the Utilities Advisory Commission unanimously recommended that the
City Council approve bond financing of selected capital projects in the Water and Gas
Funds. The initial staff proposal included bond financing of a portion of the CIP in the
Electric Fund; however, the UAC was unanimously opposed to that recommendation
because the contribution to rate relief resulting from the proposed bond financing of a
portion of the Electric Fund CIP is considerably less compared to the rate relief related to
the Water and Gas CIP financing. In addition,the Northern California Power Agency has
recently updated the fund balances of its respective members and Palo Alto is expected to
receive an infusion of cash at the conclusion of this fiscal year. With this transfer of
funds, recent projections of the Electric Fund Supply Rate Stabilization Reserve (RSR)
indicate that this reserve can adequately absorb and provide a funding source for the
Electric Fund capital costs that previously were targeted for bond financing. Staff has
updated the reserve projections for both known and expected events and estimates that
the Supply RSR will end fiscal year 2001-02 above the target and below the maximum
guideline. These projections include the recent acquisition cost of the diesel/gas fired
generators, anticipated legal fees related to the PG&E bankruptcy and Federal Energy
Regulatory Filings, and funding the CIP from rates and reserves.
RESOURCE IMPACT
The table below
Water
Gas
Total
illustrates the cost
Total $
Amount
Financed
$10,770,000
13,137,000
$23,907,000
impact of the
% of
Total CIP
49%
100
annual debt service.
Annual Debt Service
Annual
Debt Service
$ 860,000
1,050,000
$1,910,000
As a One-time
Percent Rate
Increase
5%
3%
CMR:251:01 Page 2 of 3
POLICY IMPLICATIONS
This recommendation represents a 3-year departure from the long-standing practice of
funding the CIP through current rates. Prudent financial practice requires a balanced
program of current, rates, reserve funds, and long-term debt to provide the best value to
the citizens of Palo Alto. This recommendation achieves that balance. The Utilities can
utilize bond proceeds to offset a portion of the Water and Gas CIP over a three-year
period and provide rate relief to the citizens of Palo Alto.
TIMELINE
The proposed bond financing is expected to occur this summer. Interest rates are
favorably low now but other developments such as the California energy crisis, the States
bond rating, or the pending outcome of the PG&E/Western contract situation could lead
to lower bond ratings for Palo Alto.
ENVIRONMENTAL REVIEW
The adoption of the resolution does not Constitute a project under the California
Environmental Quality Act; therefore, no environmental assessment is required.
ATTACHMENTS
A. Utilities Advisory’s Report dated May 2, 2001
B. Minutes of UAC meeting on May 2, 2001
PREPARED BY:Randy Baldschun, Assistant Director of Utilities, Adm. Svcs
DEPARTMENT HEAD:
of Utilities
CITY MANAGER:
HARRISON
Assistant City Manager
CMR:251:01 Page 3 of 3
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
UTILITIES ADVISORY COMMISSION
UTILITIES DEPARTMENT
MAY 2, 2001
3
PROPOSED BOND FINANCING OF SELECTED CAPITAL
PROJECTS
RECOMMENDATION
This report requests the Utilities Advisory Commission (UAC) recommend that the City
Council approve bond financing of selected Capital Improvement Projects (CIP) in the
Water, Gas, and Electric Funds for the period FY01-02 to FY03-04.
BACKGROUND
Since the mid-1960’s, the City of Palo Alto has traditionally funded Utility capital projects
on a pay-as-you-go basis. This conservative, fiscally prudent approach has kept these
Enterprise Funds debt free. The pay-as-you-go approach served the City well as long as
commodity costs remained fairly constant over time. Rates would spike or be increased
primarily when expensive capital improvements were expected, but between reserves and
fairly stable commodity prices, the increase in rates was manageable from a funding and
ratepayer perspective.
’The current utility environment is placing significant pressure on rates. The advent of volatile
and steeply rising commodity prices and the need for more immediate, intensive capital
improvements requires a different strategy. Steep commodity price increases necessitate
passing higher costs on to consumers. While reserves can usually be used to buffer rate
increases, they are rapidly depleting (e.g. the gas supply reserve) as commodity prices rise
steeply. Paying sharp commodity price increases while paying for capital programs through
current rates adds an unnecessary burden to Palo Alto residents and businesses.
While the Palo Alto community has understood and accepted the rationale for higher rates,
it appears prudent to take steps to moderate future, potential increases. By issuing debt, the
City would be spreading costs to ratepayers over a longer period of time, thereby alleviating
one source of upward pressure on rates. To moderate rate increases, staff is proposing to
spread capital costs over 20-30 years through a debt financing plan. For municipal utilities,
this is the preferred financing method to fund capital improvements. According to the
Page 1 of 5
American Public Power Association, a common debt to asset ratio for municipal utilities hes
within a range of 25 percent to 60 percent. Also, the average debt service coverage ratio for
municipal utilities of similar size to Palo Alto is 4.2. This is a ratio of net revenues available
for debt service to total long-term debt service for the year. In 1999, Palo Alto Utilities
(Water, Gas, Electric, Wastewater Collection, Refuse, and Storm Drain) had a combined debt
service coverage ratio of 29.6. The bond covenant will likely require a minimum debt service
coverage ratio of 1.25 and staff anticipates that this requirement will easily be met and
exceeded with issuance of the proposed bonds.
DISCUSSION
A traditional argument for debt financing is that financing capital improvements over 20-30
year life is more equitable. By spreading costs over time, current and future ratepayers, who
benefit from capital improvements, are paying their fair share. However, in the long-term,
debt financing requires that the annual interest cost become an additional revenue
requirement that rates must recover. Therefore, as a financial strategy, it is prudent financial
policy that bond financing does not become an on-going funding mechanism but used
sparingly as a balancing mechanism with rates and reserves to meet revenue requirements.
Water, gas, and electric rates have risen or are scheduled to rise dramatically over the next
several years. Residential customer gas bills, pending approval of the current rate proposal,
will have increased 200 percent within one year. With the goal of providing rate relief to
Palo Alto ratepayers during this energy crisis, staff conducted meetings with the City’s
financial advisor, Stone and Youngberg LLC, and discussed bond-financing programs.
Based on these discussions, the following conclusions were drawn:
1.Bond proceeds can be secured to cover the CIP over a three-year period with the
expectation that 85 percent of the proceeds will be expended within the three years.
2. Bonds can be used for reimbursement of CIP engineering costs (soft costs) incurred
within 5 years prior to the project commencing, provided that such costs do not
exceed 20 percent of the bond proceeds.
3. There is flexibility in the rate of reimbursement within the three-year period and there
is much flexibility as to what specific projects within the overall CIP will be
reimbursed.
4. To provide rate relief, selected Water, Gas, and Electric CIP programs should be
bond-financed.
5. All six utilities reserves plus Water, Gas, and Electric sales revenues are pledged to
assure that debt service is paid over the life of the bonds.
6. Interest rates are favorably low now but other developments such as the California
energy crisis or the pending outcome of the PG&E/Western contract situation could
lead to lower bond ratings for Palo Alto.
The Utilities have a number of pending and planned rate increases for FY01-02 and FY02-
03. The proposed rate increases, which take into account bond financing, are based on
Page 2 of 5
meeting total revenue requirements. The revenue requirement includes wholesale commodity
costs, capital programs, operation and maintenance expenses, a transfer to the General Fund,
and funding reserves in some cases. The need for maintaining adequate reserves in this
unprecedented era of uncertainty in the Electric Fund is important. Recent examples include
the-unanticipated reserve withdrawals to fund a $5 million Accelerated Energy Efficiency
Program and a $3 million back-up generator program, in combination with probable future
needs to pay legal fees to defend the City at FERC and in the PG&E bankruptcy. Distributed
distribution looms in the future. The Gas Fund reserves are depleted and must be returned
to sound financial levels without hesitancy. With or without bond financing of the CIP, the
above revenue requirements need to be met.
The following tables indicate the impact of the rate relief provided from debt financing
systemwide and the impact on a typical resident in Palo Alto. The rate projections without
debt financing are based on meeting these same revenue requirements plus funding capital
programs through rates. The only difference is whether the requirements are met solely by
rates or by a combination of rates and debt financing.
FY2001-02 FY2002-03
Rate Rate Increase Difference Rate Increase Rate Difference
Increase With Debt No Debt Increase
No Debt With Debt
Water 11%0%11%26%20%6%
Gas 77 67 10 0 0 0
Electric 47 43 4 0 0 0
Monthly Residential Bill Impact Without Debt Financing
Residential FY01-02 FY02-03
Additional Cost/Month Additional Cost!Month
Water $4.00 $6.50.
Gas 5.00 0
Electric 1.00 0
Total $10.00 $6.50
Page 3 of 5
RESOURCE IMPACT
In order to provide the maximum gas rate relief, staff proposes to bond-finance 100 percent
of the Gas Fund System Improvement CIP for the next three years and recover soft costs for
prior years. In the Electric Fund, staff proposes to bond-finance the accelerated portion of
the overall System Improvement CIP. In the Water Fund, reimbursement for prior years
engineering soft costs, FY2000-01 CIP carryovers, plus funding for some specific projects
of a one-time nature are planned for bond financing for the period FY01-02 to FY03-04. The
table below indicates a breakdown of the bond proceeds, the estimated annual debt service,
and the percentage increase over current rates (5-1-01) that will offset the debt.
Water
Gas
Electric
Total
Total $
Amount Financed
10,770,000
13,137,000
9,000,000 "
$31,628,000.
% of
Total CIP
49%
100
40
Annual
Debt Service
$ 860,000
1,050,000
720,000
$2,63O,OOO
Annual Debt Service
as a One-time
Percent Rate
Increase
5%
3%
1%
POLICY IMPLICATIONS
Prudent financial practice requires a balanced program of current rates, reserve funds, and
long-term debt to provide the best value to the citizens of Palo Alto. Staff recommends a
temporary departure from the pay-as-you-go policy for funding the CIP for the next three
years. After three years, staff recommends resumption of the pay-as-you-go financial strategy
for capital improvements. In the interim, debt financing capital improvements is a viable
approach to provide rate relief during this energy crisis.
TIMELINE
The proposed bond financing is planned for the summer of 2001.
ENVIRONMENTAL REVIEW
The adoption of the resolution does not constitute a project under the California
Environmental Quality Act; therefore, no environmental assessment is required..
Page 4 of 5
ATTACHMENTS
1) Memo from Roger Cwiak on Water and Gas Bond Financing Recommendations
2) Bonding requirements Electric Utility
PREPARED BY:
REVIEWED BY:
Randy Baldschun, Assistant Director of Utilities
Joe Saccio, Deputy Director of Administrative Services
DEPARTMENT HEAD:
JOHN ULRICH
Director of Utilities
Page 5 of 5
cITY OF PALO ALTO
UTILITIES
WATER GAS and WASTEWATER
ENGINEERING
MEMORANDUM
From:
Subject:
Roger Cwiak, Manager, W/G/W Engineering
Water and Gas CIP Bond Financing Recommendations
The Recommendation for Water CIP Bond Financin~
The total amount for the water CIP bond Financing (reimbursement of soft costs + future
CIP projects in FY2001-02, FY2002-03, and FY2003-04) =$10,770,000 ($2,882,000 +
$7,888,000). See attached spreadsheet for breakdown of $7.88 million future CIP projects
that are shown highlighted. The table below indicates the proposed soft costs incurred since
FY95-96 for engineering design that qualify for reimbursement
Recommendation for WATER CIP Reimbursement of Soft Costs
WMR MPN FY95-96 FY96-97 FY97-98 FY98-99 FY99-00 FY2000-01
8016 438,000
8016 452,000
9704 Study 275,000
8016 466,000
9912 480,000
0004 380,000
0106 391,000
TOTAL $2,882,000
The total reimbursement recommendation for "soft costs" design and study expenses from water is
$2,882,000.
The Recommendation for Gas CIP Bond Financin~
The total amount for the gas C]P bond Financing (reimbursement of soft costs + future
projects in FY2001-02, FY2002-03, and FY2003-04) =$13,137,000. See spreadsheet below for
breakdown of $10.254 million future CIP projects. The table below indicates the proposed soft
costs incurred since FY95-96 for engineering design that qualify for reimbursement
GMRMPN
8018
8018
8018
9912
0002
0104
TOTAL
Recommendation for GAS CIP Reimbursement of Soft Costs
FY95-96 FY96-97 FY97-98 FY98-99
456,000
470,000
485,000
500,000
FY99-00
479,000
FY2000-01
493,000
$2,883,000
The total reimbursement recommendation for "soft costs" design expenses from GAS is. $2,883,000.
Utilities Advisory Commission
Minutes
May 2, 2001
May 2nd UAC Minutespertain to the fol-
Lowing staffreports: Approval of Resoluti0n
Adopting Electric Rate Increase; AND
Proposed Bond Financing of Selected CIP
The Utilities Advisory Commission meeting was held on May 2, 2001 at 7:3.0 p.m. in the
Palo Alto City Council Chambers. Those in attendance were as follows:Rick
Fer.quson:, George Bechtel, Dick Carlson, Bern Beecham.
Approval of Minutes
Bechtel: Moved for approval of the meetings of the last meeting, April 4th
Fer.quson: We actually have 4 sets
Bechtel And also add the approval of April 4th, April 10th and the meetings of the special
joint meeting of the UAC’SOC meeting of April .26t".
Fer.quson: Motion by Bechtel; seconded by Dawes. Any more conversation. All in favor.
Minutes passed 4 - 0. Thank you very much.
Agenda review and revisions: Commissioners, since we have a guest tonight I would
like to propose a minor change in the order of appearance after the Director of Utilities
report. If we could move up our BAWUA report and then proceed directly to our guest,
the PUC Strategic Plan
Ulrich? One more request for a change. We have a little bit of technology issues and I
would like to delay Mr. Barry and the BAWUA report for a few minutes so we have some
hand-outs produced. Why don’t we move on to items 2 and after 2, then revisit Mr.
Barry and BAWUA.
Fer,quson: The Strategic Implementation Plan?
Ulrich: Correct
Fer,quson: Do you want to give your recap first?
Ulrich: I will be quite brief. First off, I would like to thank you all very much for attending
the joint meeting with SOC on April 26. This was probably one of the toughest decisions
looking out in the future for energy purchases that I am sure the UAC and the SOC has
had to tackle and we appreciate the time and effort that you put in and the excellent
questions for us and finally approving moving ahead with the purchase of two short-term
contracts and then going back to the Council to get approval to add an additional longer
term contract. Regarding my report. There are a couple of items. One - yesterday or
the day before we received delivery of the diesel COBUGS generatorsout at the MSC.
It will take another couple of weeks - about the middle of May before there are running
and tested and be able to put on line but a lot of effort was. put. into going into the
contract process and the approval process and the commitmentof the City to do that for
having an emergency source of power should we need it during Stage 3. So that is
under way. Also, we have had considerable amount of internal discussions regarding
the bankruptcy and the FERC filing regarding PG&E. As you know, we do have
membership on the unsecured creditors committee and are working both internally and
externally on developing strategy and our plans. We plan to have an update with the
City Council on Monday in a close session and keep everyone informed on what we are
doing. And that is the high point of activities that we have. We have quite a busy
agenda this evening and I would like to be able to move to those e areas but if you have
any questions or other things you would like to discuss feel free to ask.
Dawes: Are the activities of the creditors committee totally confidential and will not be
able to discussed with the UAC in a public session.
Ulrich: That is correct. There is probably going to be some public information that is
distributed but there is also an inability beyond, a very small group that signs
confidentiality agreements to be able to discuss the details of what is going on.
Fer.quson: Great. If that is all the comments, let’s proceed to our modified agenda. The
first item is the Utilities strategic Implementation Plan.
Item 2: Strateqic Implementation Plan
Ulrich: Thank you it is item No. 2 and our project. Blake’s not here right now. I can
probably walk through this presentation. Can you hear me? Good. We passed out
copies of the presentation in addition to the CMR. There will be packets for the public.
The request this evening is action for approval for the implementation plan. Two of you,
Mr. Bechtel and Mr. Beecham have been on the committee and we’ve had others
working on this also so there is a good group of people who have been involved.
The goals of the Strategic plan are to prepare for the (~ompetitive forces unleashed, by
deregulation, develop strategies that are responsive and flexible, involve, key
stakeholders across the organization to create broad ownership, create a plan that can
be broadlyunderstood by both professional and the public, and create a plan that can be
meaningfully referenced. It doesn’t do much good to have a program that is not
understood and bought into by everyone. The objectives are to enhance customer
satisfaction by delivering valued products and services, invest in utility infrastructure to
deliver reliable service, provide superior financial performance to the City and
competitive rates to customers, and to identify and maintain the unique advantages of
municipal ownership.
Our strategies are to operate distribution systems in a cost effective manner, to preserve
a supply cost advantage compared to the market price, and streamline and manage
business processes to allow CPAU to work efficiently and cost-effectively. Deliver
products and services for competitive markets, attract and retain employees with critical
skills and knowledge, maximize the General Fund transfers and maintain financial
strength and implement programs that improve the quality of the environment. As you
all know we’re doing many of these activities now.. The idea is to have it clearly
understood that is our responsibility now. Everything we do should fit into those
strategies. So we’re not diverting our attention into other things. On November 13, 2000;
Council members approved the Utilities Strategic Plan, and asked staff to return in the
spring with an Implementation Plan. Today we’re .presenting an outline of that and what
we plan to do. The advisory team. consists of one Council member, two U.A.C.
members, the Director of Utilities, two Assistant Directors, and the Assistant City
Manager.
The functions of the Advisory Team are to review design team submittals, direct
additional effort where necessary, prioritize strategic initiatives, prepare the plan report,
and advocate the application of the strategic plan to the governance process
I’m moving rather quickly on this as many of you have already seen this but I want to ¯
make sure to cover all the highlights. The design team will identify strategic activity
which is or should be performed in their functional area, develop detailed information
about the strategic activities (including costs and benefits, schedule, strategies and
objectives supported.
On-going activities will include distribution system improvements, financial planning,
energy efficiency programs, dark fiber leasing, customer product planning, and
commodity supply planning. Key new initiatives of local distributed generation,
expanded customer service, load management, fiber to the home, and financial risk
management will be concluded in a couple of years. We will be putting this together
over the next few months and testing it.
The highlights of our efforts so far has been Council’s approval of the Strategic Plan,
strategic objectives being integrated into the governance process (budget), and eleven
strategic initiatives identified for immediate efforts.
Implementation activity has begun for identified key initiatives, including: design activity
for approved programs, construction activity for approved .programs, research activity,
including pilot projects to develop business cases for potential programs. And, two
issues need further work, continue to finalize performance measures and to look
prospectively on governance.
Conclusion: Top one is almost a no-brainer, nothing is certain in the California utility
industry. As we have learned, a new crisis can occur at any time. My page[ just went
off as I was talking. [Looks at phone message] The California ISO is extending the
system warning through 5/3 for 24 hours. This is the latest update on the energy
situation in California. With a well crafted plan CPAU can react to change in a flexible
and responsive manner to take appropriate actions to meet new challenges.
In conclusion the staff requests the UAC to recommend that Council approve the CPAU
Strategic Implementation Plan, affirm inclusion of identified strategic objectives in the
proposed 2001-02 budget and direct the CitY Manager and the Utility Director to make
annual progress reports.
While it’s a little difficult to see, this is an example of, these are our key plan strategies
listed on the left and I’ve mentioned most of them. On-going would be the distribution
system, the financial planning, energy efficiency programs and so forth. And then going
to the right, would be where it fits into our individual strategies. So we’ve got real clarity
on everything that we plan to do. And the last page adds the additional information.
Now that was very quick and Blake Heitzman and I will be pleased to answer.your
questions.
Fer.quson: Great, thank you John. Commissioners again, we have a long agenda
tonight. Let’s see if we can do our Q&A here in ten minutes or so. Mr. Dawes, you had
a question along the way?
Dawes: First I want to congratulate the staff and the committee on an outstanding
implementation plan. I think it really adds hugely to the whole planning effort, he
questions I have going through this were, I didn’t notice any prioritization of the initiatives
to implement the strategic plan. And I didn’t know whether there was a need to do this, a
request that the U.A.C. and the Council get involved setting these priorities for
optimization? Is there interest in polling these bodies for items to add or delete to this
implementation plan? And I’ll just go through these items quickly.
Thirdly, I had talked about benchmarking some time ago and while there is a little in here
about comparisons and trying to get set standards, benchmarking with other Munis’ or
IOUs, I think would be and exceedingly useful aspect to the implementation of.the
strategic plan. And lastly, not quite last, it was mentioned in many of these of additional
staff requirements and I didn’t set down add them all up but it seemed like quite a bunch
of folks required and I would be interested in seeing what sort of additional folks we
would need to implement this all. And lastly, I was very curious about the fact that we’re
starting distributed generation experiments and as far as I know, we hadn’t put any
money into that. I think that is a wonderful business area to be in. but it can be
exceedingly capital extensive, depending on how we embark upon that. I would be very
interested in what we’re trying .and what the approaches are and whetheryou intend to
come in with a big capital Come in with a big capital request for funding generators for
our customers, leasing them to them or something.
Heitzman: I’ll try follow the order you presented questions. The prioritization process,
the initiatives that you see in the report as being key initiatives are actually the ones we
picked as being high priority. I think if you look down below them you’ll see several
lower priority ones that were put as back burner ones, so to speak. So the initiatives are
distributed as such that different work areas are .working on each one so I don’t think
there’s much need for further prioritization as far as that goes. Certainly your comments
would be useful and helpful. The key one for each work area is the one that is
presented as a new initiative and report.
Benchmarking was something that was talked about in our last meeting and it’s a very
complex issue and is something that is part of the performance measure process that we
are still trying to define. There’s two levels of concern, one is to be able to come up with
a limited number of performance measures that the general public and people that are
not well versed or extremely knowledgeable about the.process can use as a measure.
What we’re talking about in the report, are four samples that could be used as a
aggregate measure that measure general conditions such as what is customer
satisfaction, aggregated across the whole organization. What is financial performance
aggregated across the whole organization. We hadn’t settled on those. And then
there’s an issue of having performance measures that are very detailed and people who
are very knowledgeable can understand it and see and understand. As you know, there
are hundreds of possible benchmarks. So the problem is sorting out which of those
100’s we want to work with. Even an knowledgeable person has to limit the set of
measures that they are going to work with. That’s an issue that has to be done over the
next year before we come back with an annual report and so on. So that is still being
worked on.
The staffing issues that you brought up, many of those are already in the budget. I
guess I should start out saying we don’t know that all the strategic initiatives that we
want to initiate this year are already identified. Things can change, and certainly they
have changed over the last few months. So it’s obvious things are always changing so
we don’t actually know what resources we wil! need over the year as something else
happens. The staffing you see in that report, many of those are already approved and
some of those are to be approved. For instance there is the issue of the dark fiber
business. Some of those positions are mentioned in the report and have already been
approved. And then certainly for the 24/7 staffing which is upcoming there will have to
be additional positions in order to be able to do that kind of service. So I think what
you’re seeing is some of those numbers reflect things that have already happened and a
fairly labor intensive issue of having a 24/7 service. I think that’s a major step. There is
also staffing in there that you see that is just people being redirected by the Strategic
Plan to do something that they hadn’t been doing before, leaving other things undone.
So that some of that is redirection to work on some of these projects.
Last thing you mentioned was the distributed generation, and the projects they are
looking at now are fairly small capital projects, they are very small and a lot of that
money has been identified to come from existing sources, some can possibly be done
through the public benefit money. So whether or not we will come forward with a
request for large expenditure in the future will depend on how the experiments come out.
The pilot projects and the business planning coming out of those pilot projects would
determine whether or not we would come forward and ask for more.
I think that’s true with some of the other projects, such as the Fiber To The Home
project. If it works well it looks like it can be done, and financially feasible to get done.in
a way that benefits the citizens and also doesn’t cause us to loose, money, then there
may be a request in the future to expand that project across the City. That’s kind of what
we are looking forward to seeing but it will .also depend on what the experiment says and
the results of that.
Ulrich: I’d like to add a couple of points. That is precisely why this implement plan and
having the strategic plan completed because our efforts will be as we bring ideas
forward will fit them in and show how they apply to the SP I think it will make these ides
much easier to see what we are trying to accomplish~ And that we’re not moving off into
some unknown territory that are not related to thestrategies of the Utility. That’s the
whole point of this, you’ll be able to see where we’re going and why we’re doing it. I
think the first question you asked was about changes, how you could impact changes if
you wanted to change strategies or others. I would see that we would do that
frequently. The objectives, I don’t see changing at all. We should agree on why we’re
here. Strategies and how we achieve those objectives, those can change beyond the
seven that we have. I don’t want to go and move off into new areas without-it being
grounded on what our focus should be in the utility of PA. I think everything is going to
fit together and we can agendize this as frequently as you’d like to revisit it.
Some of the measurement systems you point out in the benchmarking are available now
and we do use them. We just finished one and will incorporate it. Some of the other
areas, there hasn’t been much benchmarking within the industry, we’re kind of breaking
new ground in some things. In other areas related to these positions and focus, we can
get to some of this during the budget discussion.
Fer.quson: Any comments, Mr. Bechtel
Bechtel: John and Blake, I think also ought to say, let me just mention that being part of
the advisory team, I saw a lot more proposals on the table that we considered and so in
essence the team and I think with our guidance only, the actual participants, Dexter,
went through a cullingprocess of their own. There were an awful lot of proposals for
action and so what you see is already a distillation of a lot of good ideas that surfaced
through the various work teams already. The other is I was very pleased to see
incorporated in the budget document lots of references to the materials in the Strategic
Plan, so almost by default we have approved the implementation plan because you’ve
already incorporated it into your thinking. My only question on a new topic is the one on
governance. I know we’ve not really addressed that. Can you give us a feel for when
the governance issue might be addressed during the coming months or perhaps
certainly in this next fiscal year.
Ulrich: As you know, that was one of the key areas we wanted to look at and as we
move through the implementation area thought this would slow us down and was quite
a large topic. When we went out and looked there were not a lot of other utilities that
have taken the initiative from the part of the utility to look at the governance. Those
directions came from City councils or from the governing body. And we thought we
needed to look at how that would work and how it could apply here but we didn’t want to
slow down what we got started on the implementation plan so thought it would be better
to role out what we have and then continue to look at the governance. It became clear
to me that many things as you see in the implementation plan can be done without going
through a lengthily process on governance.
Fer.quson: Any other comments? Mr. Carlson?
Carlson: Yes, I just want to comment on that distributed generation area which I think is
a very important thing for us to get into. But I think you need to add the perspective of
looking, at distributed generation is one of the bigger longer run risks we face if it
becomes as cost effective as some forecasters believe in the three or four year time
frame that means 7cents a kilo watt hour so, then if we’re stuck at much higher rates not,
because of current problems it’s a long run competitive issue and it’s a great way of
getting into see how much a problem it might be is to get into it ourselves and start
supplying it.
Ulrich: I think that is important as it can have a significant impact as to on where our
future power comes from and this is an area that we need to take the initiative on. Mater
of fact, coincidently I had a call from one of our major trade allies about using PA and
several of it’s customers in a beta test on a test of that system so there’s a lot of interest
in doing it and the cost effectiveness would be important and as a gas utilities this would
be important opportunity for us if it’s a good business. The other part is if it’s really key,
not necessarily the cost, it is the reliability that can be added to our customers for adding
to distributed generation. We think in the short run that is a critical area being able to
manage your business and having reliability of service than a current commercial
distribution system can provide.
Fer.quson: Mr. Dawes?
Dawes: I was intrigued by Mr. Bechtel’s remarks. Is the commit going to be on-going
and continue in a prioritization mode on implementation on strategizing in the future or is
this a one shot deal, and if it is one shot deal, how do we get that prioritization in the
future?
Ulrich: You could do it a number of ways, I don’t think that having the committee
constituted as it is now is necessarily the best use of time later on. What you could do, I
guess my vision would be more is to revisit this frequently and as a group or have some
instructions to the staff as to review the priorities and review our strategy in what we are
to do and have that continued dialogue and as new things come up whether it is
distributed generation or a new type of product come back and talk about how it fits
within our Strategic Plan. We expect this to be a living document, not well we have now
done it now let’s move to something else.
As one of the participants on the committee, I appreciated a chance to go through the
p.rocess, to go through this first rehearsal of applying these strategic objectives and
strategies to the actual product line items and one of the things I want to stress to the
Commissioners here are the dimensions on this chart. That’s our handy work. That’s
our stuff. And the staff has played it back to us and organized itin projects left onthis
chart and one of the things they did well on this round is to identify to good strategically
correct things that they have been doing all along as well as the half dozen high visibility
things, some are big dollars, some are not big dollar items that indicate a change in
direction. This seemed to be a nice short summary and because it is short and because
it is easy to refer to I hope that when we craft a motion here in the next minute or so that
we schedule this at least twice a year, maybe the September-October time frame and
March-April. One month ahead of our year December mid-term budget and our annual
budget exercise so that when we focus on the budget and we are doing it tonight for the
first time in a rough way we are focusing on the budget with a kind of a strategic stance,
a firm platform a sense ofdirection so with that said. I am pleased with the result and
glad to have had a chance to participate.
Beecham: I have just a few comments to make. The proof of a good strategic plan is
that you get to where you think you want to go. And that you manage the process of
getting there, The other element of it is that when the world changes.you can change
immediately for it and we certainly have the opportunity in this year or next year to find
out if, in fact we have the right plan for that. I certainly think what we see so far in the
organization that in fact that with this plan and with management they are very light on
their feet in terms bf being able to change direction as missions change and that, if you
do a plan that creases where you are going, you can’t get there, basically and I think this
is a very flexible plan and staff knows they have to able to dance.
Dawes: I would like to propose a motion that the UAC recommend approval to the City
Co9uncil of the Utilities Strategic Implementation Plan and associated changes to the
ol-02 proposed budget and add to that that we would urge staff to return twice a year to
the UAC and the Council with updated list of projects within the Strategic Implementation
Plan to facilitate planning and mid-year budget planning.
Bechtel: Second
Fer.quson: Any other comments.
: The only comment that I have is that Dexter’s motion asked for progress
reports twice a year; the staff recommendation was annual progress reports. I am
wondering whether staff has any - but he did mention budget updates. What is the
feeling on updating, annual, twice a year any feeling?
~1 think if you want to make any major changes that are not affected by some crisis that
we are not aware of, I think you would want to. do that once a year so that we can budget
and move towards completion of those areas. If, on the other hand, you want to
measure results and fine tune it or tweak it then I think twice a year would be great for
that. Depends on what your expectations are at each of those review points.
Bechtel: Perhaps then I might move an amendment to say twice a year with the UAC
and an annual progress review with the Council.
Dawes: Accept.
Fer.quson: The motion is amended to twice annual review with the UAC and once annual
review with Council. With the amendment motion in front of us. Any other discussion?
All those in favor say Aye. [All say aye] Anyone opposes? [None] Motion passes 4-0.
Ulrich: Just a couple of a closing comments, I just wanted to thank staff and all of you
who have participate.d !n this. It is a much better document and is really going to stand
the test of time for all the work you have put into it. In particularly, Blake for managing
the project and keeping us all on track to get it done.
Also, the City Council there will be a public hearing -it is on the agenda 14th of May so if
you would like to join us and participate in that, I would appreciate that also.
Thank you.
BAWUA
Fer.quson:: Let’s drop back to the original modified plan and do BAWUA
Ulrich: Have Girish and Jane Ratchye introduce Bill Barry and we will move ahead with
that and also do the BAWUA report.
Fe~uson: Great, thank you.
Ratchye: I think it might make sense for the BAWUA report to be done first. It is almost
a lead-in to the report from our guests from San Francisco.
Fer.quson: That was my original proposal. If that works with you, let’s go that way.
Ratchye: O.K. So, item # 10 sort of advises you that this blends into a lot of what SF
PUC is doing now and they are trying to get their own commission to adopt a long term
CIP and financial plan and a strategic plan and you will hear everything about that from
our guests but in support of that and an active participant in the workshops that SF is
conducting with their commission, BAWUA is activating what it calls it calls its water
action network and if you recall getting the binder from BAWUA in the symposium that
we call the briefing binder, so attached to this monthly report, you will see the latest
version or the summary version of that briefing document that sort of makes the case of
let’s get going, the system is broken, we are at risk here, we have all seen the reports
that were out of water in times of drought and we could be out of water in times of a
nasty seismic event for 65 to90 days here in Palo Alto. There is a lot of focus recently
on energy, electricity, and being without electricity and black-outs and the reliability there
If they didn’t have any electricity to use their hair dryers so I think water appears to be an
even more important commodity and hopefully we can get ahead of the curve there
rather than where we are in electricity now chasing the reliability. Also as a guest that
just stepped down we have the general manager of the BAWUA Art Jensen and he is
available to.ask questions because BAWUA has been participating in the workshop SF
is holding with its commission in consideration with its long term plans and he can give
you more precisely BAWUA’s position and BAWUA’s input into that process. So, I am
not sure where you want to go from here. I don’t know if you want to go to the
presentation from SF or did you have questions on the BAWUA item right now.
Fer.quson: Let see if there are any questions on BAWUA right now then we will go to SF
and it would begreat if Art could be on hand after the SF talk to answer questions. Any
general BAWUA comments. O.K.
Ratchye: Then if we move on to the item #1 I believe, I would like to introduce our guest
tonight, he is Bill Barry. He is the Assistant General Manager of the SFPUC, the
Assistant General Manager of Finance and Administration and he has also brought
Michael Carling, his Planning Director and he is going to talk with you about SF’s
Strategic Plan that is currently being considered by their Commission. They are having
a series of work shops. They had one April 24 and they had one yesterday. They are
having one next Tuesday and they will probably have one on the following Tuesday,
May 15th. We may be asking you or some of you to come up and support, probably the
BAWUA position there, probably about trying to move this forward and I am not exactly
sure and maybe that is a question you can ask Bill - when this plan would be considered
or are they going to be asking their commission to act on it and how the workshops have
been going so far so right now I would just like to turn it over to Bill Barry and Michael
Carling.
Fer.quson: Thank you Jane. Welcome Mr. Barry.
Barry_~.. Thank you. It is my pleasure to be here. I appreciate the opportunity to talk to
you about what we are trying to do at the PUC. This presentation - what I. would like to
talk to you about is the program that we instituted last year. We began working with our
commission, we began a direction to produce a long term ClP, a ten year ClP with a
long-range financial plan and at some point during the year we also began working on a
Strategic Plan. So what I would like to talk to you tonight is just what the process and
schedule is we are following, just a brief overview of the staff reports including.a look at
the costs and then I would be happy to respond to any questions that you might have.
At the end of February we produced, the staff produce 2 staff reports. One is a long term
strategic plan and the other is the ClP along with the Financial Plan. The Strategic Plan
is designed to provide, first of all an analysis of the current situation at the PUC and we
have developed a series of strategic objectives for the Commission to consider. Those
objectives kind of fall into the 4 business unit areas of the PUC. We have a wastewater
utility, regional water system, local waste distribution in San Francisco and also public
power component with Hetch-Hetchy. Wealso focused in the objectives we focused on
the CIP and also management and governance issues with regard to the PUC. The idea
is obviously is to come up with a long-term vision, one that is shared on what staff and
our commission as well as our stake holders. One of the things that we will need to do
in completion of the process is to develop an implementation actions or initiatives
designed to reach those objectives and also specific time lines. The CIP along with the
Financial Plan report - a year ago we produced a white paper called CIP 2000 that was
designed to completely redesign how the PUC does on CIP planning. So we developed
a framework and that is the framework that we use during the course of the year in
developing the CIP. We developed high level priorities based on high levelPUC
objectives and used them as a way of prioritizing projects of the way of calling certain
projects out of the list, etc. It was a collaborative process that involved all of the senior
management of the PUC so it really represents for the first time a consensus view of
what the CIP needs to be going forward., We invited and. had the participation of the
BAWUA in many of our meetings and one of the last things that took place, as you
recall, the San Francisco water alliance was hired in September as program
management consultants for the PUC, We had begun our planning process before they
came on board so we had them review each and every project in terms of the scopes,
the cost estimates, etc. trying to get all those projects on the same basis. This was a
continuing process since we published the reports at the end of February. There is
additional, work that has taken place and will continue before we have something that
the Commission can approve. Jane has already talked about the schedule and we had
our first workshop. The idea was to have a series of workshops that the Commission
would have with our stake holders, with BAWUA and with stakeholder organizations
within SF. We had our first meeting, our first workshop yesterday. In my perspective
was that it was very good. it was a very good substantive discussion. We focused so
far on the Strategic Plan so we have not gotten to talk about the CIP and the financial
issues yet but that will come in the course of future meetings. So we are having another
staff briefing, we had a staff briefing on May 1st. There was a detailed presentation to
the Commission last week kind of as an overview. We will continue to staff briefings
next week and probably the following week. The idea here is to (move to the next slide)
identify and talked to the Commission about certain actions that we would like to see
them undertake. The first is to adopt a long term Strategic Plan, the second is to adopt a
10 year CIP and a Financing Plan and finally to establish the timing and sizing of water
and sewer bond initiatives. In order to undertake the CIP financing is a major issue.
Revenue bonds would have to be approved by SF voters so obviously we are trying to
push the process so that we can make that happen, hopefully, this November. That is
the sort of schedule that we are on and that the Commission is committed to.
On this page (slide) there is a summary of the cost of the CIP. We started with a very
large number of projects due to our prioritization process we have hulled that down to
some extent so what we are looking at is a total CIP for SF of about 4.4 billion dollars
over the next 10 years if the entire program were adopted and enacted. As I mentioned
earlier, the PUC has 3 different utilities - power, water and wastewater - and we have
looked at water on a regional basis because obviously a large part of the system
benefits all customers in SF and our suburban customers as well as the distribution
division within SF. I’ll just focus again on the total that we are looking at and this is
important just to understand just how the politics, etc., how the policy considerations will
go in SF. We are looking at a need of about 9 hundred million dollars over the next 10
years for revenue, financed capital improvements and maintenance. That is about a
doubling of what we have been doing over the last several years and we have deferred
maintenance issues and it is our opinion that we really need to increase the amount of
revenue funded capital for recurring capital costs. Most of that is within the borders of
SF, a.lot with the local distribution unit and also with our sewer system. On the debt
side, we are looking at 2.4 billion and it is actually 2.2 billion that would be done over a
10 year period, assuming that the entire program was enacted. Focusing specifically on
the regional water system, we are looking at about 2 hundred million dollars or about 20
million dollars a year in terms of revenue funded capital and a billion and a half dollars
for debt funded projects. In addition to those projects there is another billion dollars or
so projects that we identified as projects that would require separate financing. They
are projects that we wo.uld be looking for Federal funding or State funding or that might
be funded by the City’s general fund in the case of some projects that really benefit the
City generally, like street lights, etc. All of this again is’a staff proposal and something
that the commission and the Board of Supervisors and Mayor would have to adopt
before it goes forward. It is our view, that although we are talking about billion of dollars,
that the cost of doing this- first of all it is - you know we believe that we absolutely must
rebuild the system, that it is a high priority, just has to be done and of all the reports,
whether it is the reliability study or the water supply master plan of the Commission is
adopted etc., those indicate that we really have to move forward with the ClP that we
really have to do what we need to do to rebuild the system so the next issue is cost and
the cost we are talking about, you know 4 billion dollars, or 2.4 billion dollars in terms of
debt funding capital, and obviously that is going to have a rate impact both within SF and
outside of SF. But our evaluation, kind of in simplistic terms is if you look at this program
and you were in the Commission were to undertake this entire program as we have
identified and assuming that our estimates, in terms of inflation, etc., bore out over the
10 year period the average SF family today pays $37.14 for water and sewer and at that
-end of that 10 year period they would be paying $67. So it is about .a dollar a day and no
one is going to want to obviously diminish the fact that the costs are going to need to
increase but given the economic base and vitality of SF and the bay area we believe that
the cost is clearly affordable so the real focus should be on obviously on looking at the
program itself and identifying, looking at the projects that we are undertaking are the
ones that we really need to undertake and on the right schedule, etc. This chart just
quickly shows the cost that would be borne by the typical family in SF over the next 10
years without the ClP. On the large gray area on the bottom and then the increase if the
entire program were funded. We produced a similar chart that focuses strictly on the
suburban customers. This is the unit charge or the cost per ccf of water that would be
borne if we undertook .the entire program. The gray area at the bottom indicates that we
would have about 140% increase from now to the end of 2011 without conducting a ClP
at all, that is just the ClP that has already been approved and authorized and that might
go to as high as $2.39 a ccf or it is about 200% higher than it is today in terms of
additional cost to be borne by suburban customers.
Beecham: If I could just ask a question between those two charts, the second seems to
be continue to head on up and I wonder the difference between that and the one for the
SF users.
Barry: The two charts are not really directly comparable in the sense that the first chart,
the SF chart combines water and sewer and so the scale is totally different. The SF
costs would be for water, just for purchasing the water from the Regional system would
be similar to the slide. It is not exactly the same because under the Master Water Sales
contract the way we bill the suburban customers is somewhat different than the way it is
done in SF but on balance the cost kind of reach about the same levels.
Dawes: Another question Bill -the percentage increases certainly are much more
disproportionate to the suburban customers and again it is this sewer and water in the
SF customers and just water in the suburban ones. Could you give us a few words as to
why there is a difference in terms of the total cost increase to the different sets of folks.
Barry: Sure. Again, looking - it is hard to directly compare because using this chart, SF
bills its customers for water and it combines the cost of what we are calling the Regional
Water System and the local water system so the typical customer in SF pays $12.22
today for water and that is going to grow by 152% or 252% of where it is now to $30.83
at the end of that period. The cost of water supply by SF from the Regional system to
the suburban customers in SF is the same cost but the mechanism for charging it is
different. For example, the suburban customers pay for water on the basis of capital
projects being put into rate base and we are charging depreciation on the rate of return
so it ends up with the suburban customers paying somewhat higher rates early when a
project is put into useful life and that diminishes over time as depreciation is taken out
whereas SF customers just pay whatever they are required to pay from the beginning so
there are a number of issues that we would get into in terms with directly comparing the
costs. We haven’t attempted to do that. One of the things that we are doing in terms of
presenting the cost in trying to make folks in SF understand the reasonableness of the
cost is to look at the entire cost that-is paid by the customer so it is water and sewer.
That is what they focus on.
Dawes: There is no change in methodology now verses the future in terms of allocating
to the suburban verses the domestic.
Barry.~." All these numbers assume the current method, assume the current contract and
assume the same basis for allocating cost.
Fer,quson: First, I just want to say that over the past year, year and a half, we have
appreciated the well thought and more business like and more collaborative approach
between SF and the BAWUA membership and it is reflected, in the plan here so I want to
thank you for that. It happens to coincide with your term in the finance slot. When you
were looking at the cost curves there earlier out to year 11, how much physical work is
actually done in year 11. Is the San Joaquin pipeline rebuilt by then or the Bay division
pipelines renovated by then, Irvington Tunnel rebuilt. How far along are we in the
projects for the money.
Barry.~." I would like to ask for a little help here.
Carlinq: I’m Michael Carling in the Planning Director. By 2011 dates, the Irvington
Tunnel alternative would have been constructed ; we would have done Bay division as
were determined alternatives would have been constructed, there would have been
repairs to existing San Joaquin pipelines 1, 2, and 3 and we are hoping that we would
have finished the planning and designing for the environmental work for the San Joaquin
pipeline No. 4.
Fer.quson: Any other questions?
Dawes: This is not exactly on point but it is on the whole general area, there is a
fascinating article in the NY Times about 2 days ago about the water and power situation
in the State of Washington and it talked about 2 counties there ~hat owned some dams
and how well they have done. They made 60 or 70 million dollars each and they talked
about, and this is the interesting part in terms of SF, they talked about how they dealt
with their farming constituency that initially the dams were built for agricultural purposes
and essentially they are going to the farmers and buying out their water allotment - it is
my recollection about 3 or 4 hundreds per acre they would be paid by taking out that
land from cultivation in a year. I think it is akin to basically changing the farming
business from farming to playing golf in Palm Springs for a year. One of SF’s charges
is to increase the basic supply componentparticularly in drought years. I have always
thought that given the relationship SFPUC has with the Modesto.and Turlock Irrigation
district that this was a very promising route to go down and I am sure you are pursuing it
but this is the first major analyses I have seen in what districts have done in dealing with
farming versus in that case it is power, not drinking water, but I would certainly commend
SFPUC going down that path and lining up long term vacations for farmers during
drought years.
Bechtel: Bill, what is your sense at this point to your workshop and your surfacing of this
plan in February, the sentiment of both the Government in SF itself and the citizens of
SF. Obviously this is going to be a big expensive bi.II to have to pay and-I think people
will recognize that people are very sensitive to earthquakes. On the other hand, when it
comes to pocketbooks there are some choices, among them "if it ain’t broke, don’t fix it".
I was very interested in the white paper that was put in our packet about some of the
problems that you have with the current system. I am not sure everyone understands
fixing leaks, etc. so really I am quite curious as to what your current sense is of getting
your plan that you. have put a lot of hours into, to get it implemented.
Barry_~." It is a good question and it is a complicated answer, We are very hopeful that we
have the attention of the Commission so that we have a plan in place that is reasonable
and that the Mayor, the Board of Supervisors will look at and say it is reasonable and it
makes sense and we are going to stand behind that. So that is the first task and we
talked about the schedule and I am hopeful that that is what will occur. These reports
that we put together are not intended to be etched in stone or final, they are merely kind
of the starting points of conversation with the Governing officials in SF. We are saying
this is What we need to do and this is how much it is going to cost. We can focus then
on kind of rearranging it so that it makes sense from a financial standpoint, from a
political standpoint as well as from an operational standpoint in the system and reliability
of supply and the other factors that we are looking at. It is hard to say where the voters
of SF will be. I have been told that have never lost a bond election in SF with the water
system or the sewer system. On the other hand in 1998, the voters passed Prop H
which effectively froze rates in SF for water and sewer services except for voter
approved bonds. So, I think from my prospective, the real test is going to be getting on
the ballot, getting a plan put in place so that everyone says "this is the plan", getting
funding for the first 4 to 5 years on the ballot and then testing, that with the voters. I think
if we tell the story of the system and how valuable it is and how important it is to rebuild
it, and particularly the fact that the costs are high but they are reasonable particularly if
you compare it to the cost of a latte’, or the cost of other things, you know the cost of
power is increasing, the cost of gasoline is increasing, you are not going to want to add
to that obviously but if you tell that story I think that the voters will come along. But that
is the test and if they don’t come along, the system is still has to be built so we are going
to have to find some way of kind of dealing with it.
Bechtel: Do you have a backup plan?
Barry_~." I have back up ideas - nothing that I would call a plan. We have talked .about
other financing arrangements, we have obviously talked with BAWUA about the notion of
a JPA or an alternate financing mechanisms, etc. and I think that is fertile territory but I
think it is fertile territory once it is clear that you are going to have a road block that you
are going to have to Come up with something else in order to get around it so from my
perspective again, the important thing is to put together a plan that says these are the
projects we need, this is why we need to, it is very important and to push that out there
and kind of find out what the resistance point is.
Dawes: Bill, could you elaborate on the thought process as you went through these
financing alternatives, have the voters approve it basically finance it within the City and
County of SF verses the JPA or whatever other alternatives you might have thought
about.
Barry: Sure. First of all there is a mechanism in place today. We have a contract with
the suburban customers, we have a legal authority to issue’bonds, etc. so in terms of
what is available to us today, it makes sense to push out a plan to finance it using the
traditional means but we are talking about a lot more debt than has been issued in the
past by the Water Department so we are expecting there to be a issue or we are
expecting it to be difficult. It is not supposed to be easy going forward. But, as a first
step, you know we need to put out a plan that says this is what we are going to do, this
is how much it is going to cost over the first 4 or 5 years and to try to get bonds.
approved in order to do that. We have looked at the JPA mechanism, we have looked at
the financial and economic impact so that how does this City fare with the JPA
compared to how it fares under the current mechanism, etc. In our evaluation, we didn’t
recommend it in our report. We talk about it a little bit with the Commission, but our view
was that we need to have this conversation, some kind of an educational conversation to
say this is - you know we need to get to the point where we are looking at a b I on and a
half dollars of debt for the regional water system and recognizing that SF pays 1/3 of that
cost. The suburban customers would be obligated to pay the other 2/3 of the cost to
reach the point where it is clear that that is not possible for us to get that level of funding
approved by the voters.
Dawes: Have you talked to the rating agencies about whether or not credit
enhancement will be required from the suburban contingency for that 2/3 p ece?
Barry: No, we have not, not at this time.
Dawes: I know you have lengthy history in investment banking which you - I don’t know
if you would care to make an opinion on it but this is some pretty big numbers and rating
agencies have a pretty major impact on what municipalities can and cannot practically
do and -
Barry_~. I would not hazard a guess at this point. I have not done an analysis of the credit
of BAWUA for example, if you look for at the credits of all of the members, etc., we have
not done that sort of an analysis at this point. On the other hand, my sense is we are
talking about the Bay area.- It is one of the richest areas in the country, it is clearly from
an economic standpoint this is a commodity that is absolutely essential. It is just the
back of an envelope analyses says this is something we can finance. Now, exactly how
to do that, whether we use bond insurance or whatever for part of it or you know, I am
not sure at this point, but I think, I am confident that we could fashion a plan and be able
to finance it and finance it in an economic manner.
Ferquson: Again, we have a long budget agenda but we also have Art Jensen here.
Commissioners, are there any questions for Mr. Jensen on BAWUA’s side of this
process? Any comments you want to make Art?
.Jensen: Thank you. I can’t resist the opportunity to make comments: First of all, I
would like to say that the process that the City has gone through is unlike anything that I
observed when I worked there or since in working with them and the workshop
yesterday was - the format of the workshop was unlike anything I had seen the
Commission undertake before so results are results. But I can say that the process has
certainly been extraordinary from the standpoint of our opportunity to provide input and
be a part of it. And during portions of it, we have been directly involved, we have the
report in a draft form without reviewing it along the way but we have been able to make
comments and at the meeting yesterday we made specific recommendations as to
things they can add, change or modify in their Strategic Objectives and a good portion of
our input was designed to make them tighter and more specific with respect to service to
our members, to your customers, to you and many of them applied to all the customers
of the system, including ones in SF, of course. Being more specific about timelines,
being specific about how the system would be operated following a major earthquake
when supplies were limited. There had been some bazaar and threatening comments
made members within SF and it just seems that it is appropriate to make sure that
before a disaster we make sure everyone knows how the system will be managed during
a disaster. More to the point, the Strategic Planning effort as applied to the ClP making
sure that there are time lines and that it is clear how that 20, 30. and 60 outage will be
reduced as a result of these projects going forward. There are a number of questions
regarding financing just as a point of perspective when the rate agreement was
negotiated, the provision which SF fought for and won was that they would finance the
projects initially, they would take care of financing and we would pay back over time with
appreciation rate of return. Looking at that; thinking in time, - ....... this is where history
can be so much fun. At that time there was very little bond funding, mostly everything
was revenue funded. There were major projects when they came on were bond funded,
but at the time and up to that point where that settlement was reached was revenue
financing and so thus the phrase, "SF upfronts" the financing, and we pay back later.
When you look at what Bill has presented and you see that the vast majority of work is
going to be debt funded there is no in fact up front rate burden to the customers in SF
whatsoever, That the bonds are paying service during construction, that after
construction is completed as he pointed out our share might be actually a little bit higher
than the 2/3 proportion and so there is no disadvantage but there is a disadvantage to
perhaps the customers in SF and to you in that while they may not have an up-front cash
burden there is the burden of 2 things as Bill pointed out: getting the bonds on the ballot
and then getting them approved. Both of those are significant hurdles. They don’t just
go on the ballot because Bill thinks it would be a good idea. There are many hurdles as
you folks well know and so in that sense, even in the best of circumstances, with a well
laid out plan there are two things that need to be overcome. 1) the myth that there is a
burden currently in SF. One way to approach that is to assume that the myth lives.
People believe that, it is part of the belief structure, let it be. Let’s create something else
that makes that myth not part of the current story. So, in other words, some change in
the financing hopefully would have some beneficial impacts to all. but it certainly needs to
change the conversation about it. 2) the other is, ultimately I think relieving SF
customers of the burden of approving those bonds and relieve your customers of the
burden of their livelihood being contingent upon the SF customers getting the bonds to
vote and then to approve them. I think that is still something that needs to be overcome
{hrough some arrangement with SF in the suburban customers so we will be pursuing
that with them and I think that is going to be the more difficult challenge at this point.
Fer.quson: Great. Thank you Mr. Jensen. And thank you Mr. Barry and Mr. Carling for
joining us tonight. We definitely want to get ahead of the water shortage and water
distribution failure curve so that we do not reenact the electricity story in water a couple
years hence. Let our staff know how we can help you in getting a good plan adopted
and a good financing scheme up in front of the voters so that we have a fighting chance
of keeping this early on the calendar rather than late. Thank you very much.
Proposed Bond Financinq
Fer.quson: That brings us to our next item which is Item 7-3 Proposed Bond Financing of
Selected Capital Projects - I should mention in passing that the agenda showed an
unfinished business item - Proposed Revisions to the Reserve Guidelines. We did act
on that at the April 10th meeting. You can turn to pages 25 -27 to see the by play on
that. So let’s proceed to Item 3. We have a request from a member of the public to
speak on this item. Do you wish to speak before the staff presentation or after.
Preferred to do it now. John is there a presenter here on item 3 - proposed bond
financing?
Ulrich: We do not have an additional presentation beyond the material you received
listed as item 3. Both Randy Baldschun and Joe Saccio, Deputy Director of Ad Min
Services are here to answer questions. As you recall, we have had some discussion
earlier and it was moved to this time because of the impact that it has on the budget and
of course, the next item is the electric rate increase so I think it is an appropriate time to
do this and I think we will move in whatever direction you would like to answer your
questions.
Fer.quson: Great. And again, commissioners since it is a busy agenda, let us not retrace
old comments but let’s introduce new arguments and comments on it and in that regard,
we have comments from our former Commissioner Paul Johnston. Delighted to see you
here Paul on this and a couple of other items tonight. Just again the staff request is that
the UAC recommend that the City Council approve bond financing of selected ClP for
water, gas, and electric funds over the period 01 thru 04. Mr. Johnston, welcome back.
Johnston: Thank you. Mr. Chairman. Just wanted to register my sort of displeasure
generally at this kind of bond financing in the City of Palo Alto because I don’t believe it
is justified based on our rates in comparison to neighboring rates. But in particular,
what I object to is the bond financing of what really are on-going projects~ It is one thing
when you come in with an unusual entity an unusual program, for example up-grading
the water system to accommodate the requirements with regard to emergency supply.
That sort of a one time thing that you can look at and justify that it shouldn’t maybe hit at
a certain period of time and I think there is some justification for that. What I don’t see
any justification for is taking a long term program, such as our pipeline replacement
programs, that is I understand the report, at least a significant portion of those programs
are to be included in the bond financing, this is a long term program where we expect to
spend in the gas and the water and in the wastewater something in the 2 to 3 million
dollars a year in each fund, year in year out forever, as far as we can see because it is a
replacement program. When we get to the end of it some of the new pipes we put in will
come again. This is a very long term program. We are going to be doing this for a very
long period of time and so we have taken the position up to now that because that is a
long term program and every year you have to do some of this you ought not to stack up
the financing so that people later pay not only for their years replacement but also a
whole bunch of prior year replacements. And so, in that sense, the pipeline replacement
program is a little different than other CIP programs and indeed, could almost be argued
as being kind of a maintenance - it is kind of what you have to do each year just to stay
where you are. So, from that standpoint, I would argue that pipeline replacement
programs, by their nature, it is a very fundamental change to move to this debt financing
and I think maybe you wouldn’t be doing it if wasn’t for the fact that you are going to do
debt financing and it is sort of. convenient to throw some other stuff in there. But, I think
fundamentally it is wrong because what you are basically saying is you have along term
program and we are going to do something every year but now I am going to skip a few
years paying it and I don’t think that is justified. Thank you.
Fer,quson: Thank you Mr. Johnston. O.K., let’s open the bidding with Mr. Dawes.
Dawes: Paul, thank you very much for that intro. I would like to read the E-mail which I
sent to my colleagues and Mr. Ulrich a few days ago which basically says the same.
"Gentlemen as I have stated in the past, I am hesitant to bond all of our CPIs for the next
three years, absent a major spike in CIPs, it amounts to subsidizing ratepayers by
deferring amounts they must pay. Only it adds interest to the amounts they must pay in
the future. In the cases under discussion, I believe water has the best case for bonding
our CIPs as they are going into a period of significant expenditures for emergency
supply. With respect to the gas fund, we were slow on implementing rate increases and
as a result, our reserves are close to zero, a dangerous situation. I would reluctantly go
along with bonding here so we re-establish our reserves more quickly. Electric is a
different story. CIP’s are not’ escalating, in fact they have declined from the 99-00
timeframe. They are not spiking markedly in the future. I further believe that we are well
reserved in the fund and do not believe that we need to increase the maximum
guidelines from 60 to 80 percent of annual supply costs. We have much more diligent in
increasing electric rates to stay "ahead of the curve" so we should not get in the position
we are in the gas fund. I have prepared a schedule to compare the reserve situation as
presented in our 10 year projection. As you know, that .schedule was prepared
assuming the sale bonds and upgrading the maximum supply RSR for the electric
balance to 80% of supply costs,, then compare these reserve balances with a reserve
balance I computed without sale bonds and using the existing reserve guidelines
remaining at 60% of supply cost and the last two lines on the schedule tell the tale with
no bonds and keeping current guide lines, the reserves are in better shape than under
the proposed scenario. The argument then turns on whether the existing guidelines are
prudent.. I believe they are. I will. end by pointing out that basing the reserve guidelines
on dollar purchases we automatically get higher reserve balances to protect us as our
electric supply costs double, so do our reserve balance targets.So, I echo Mr.
Johnston’s apprehension particularly in the electric area.
Fer,quson: Commissioners any other comments on the issue.
Carlson: I want to chime in with Dexter. I do think the electric area we are talking about
a relatively small savings in rate increases of about 4%. I would rather have another 4%
rate increase and leave the bonding capacity for a real emergency or a real one time
type of capital expenditure and while I agree in principle with Mr. Johnston I think the
justification is stronger in the water and gas area.
Fer.quson: Just to recap in our earlier conversations, I think there were probably 3
commissioners who willing, grudgingly to vote for the 3 year bonding proposal for water
and gaswith the understanding that that was not a change in policy. It was a one time
event reflecting the volatility of the market right now so perhaps we could have a motion
just applying only to water and gas for now. If there is agreement on that, th~n get that
out of the way and then finish off electric.
Dawes: I propose to endorse staff’s study on proposed bond financing for the gas and
water funds as proposed in item 3.
Fer.quson: And that is with the understanding that this is not a policy change a one
time...
Dawes: With the understanding that this accommodates the spike in funding required to
implement our emergency water supply plan and also reflecting in the gas fund our
significantly depleted reserves due to the rapid escalation of supply costs.
Fer.quson: .Thank you Mr. Dawes. Is there a second.
Bechtel: Second
Fer.quson: Any more discussion? All.those in favor of the motion say aye.
Motion passes: 4 - 0. Thank you. Now let’s craft the appropriate approach for electric.
Does someone want to venture a motion? Is there more discussion on electric. Mr.
Carls0n’s comment that it might be better to ask for a couple more percent in rates.
Be~:htel: Mr. Chairman, I think I would like to - in looking this over tonight it seemed to
me that the rate saving we have is not significant enough to say that our ratepayers
could not pay a little bit more to avoid bonds. We are going this way. As a matter of
fact, I guess I feel at this particular point, looking at the way we reserves built, much as
we discussed in the past, it just does not seem that that is sound financing. We have
used "pay as you go’, as a principle and I would like to see us continue to do that and so
I cannot support the use of bonds in the electric fund.
Fer.quson: Okay, and just to get a final statement of fact from staff on this, one of the
questions at an earlier meeting was whether there is something magic about the total
number of dollars across water, gas and electric, that made it easier to do the financing
- is it really going to make a difference if we do not add the electric financing component
in this bond. Is it too small an offering.
Saccio: I don’t believe that your taking out the electric would have an impact on issuing
the bonds in the. other 2 areas. You get some economy of Costs in terms of financing
over the larger issue but I don’t think that would detract, for instance, the rating on the
bonds. I may have mentioned as part of the covenant for the issue of the 1999 bonds,
we did use the reserves as a back-up so to speak. That would continue to rely on the
strength of the electric reserve for the issuance of the bonds on water and gas.
Fer.quson: And again, just to get the final fact - maybe Randy - if there is no bonding for
the electric fund CIP’s do we pull them out of reserves or do we bump the rates up a
couple of percent. What is the practical result?
Baldschun: I think we would probably pull them out of reserves because it is not really
worth revising the rate proposal at this point for 4% more and I think the Commission’s
comments are reasonable comments. I think that you have probably picked the weakest
part ofthe proposal which is the electric and I think the reason it is there is only to
provide some rate relief although it is not a significant amount so I think we could pull the
electric out and go forward with the 43% electric rate increase.
Ferquson: O.K. if that is the case, I don’t think it requires that we take any more formal
action on this particular proposal. We have approved water and gas and we will talk
about the electric accommodation as part of the electric budget discussion later. Does
that make sense? O.K. Thank you. We can now move to the proposed electric rate
increase. Having warmed up to that topic now, is there a presentation on the electric
rate increase - Randy or John or Q and A again?
Ulrich: I’m sorry, I am still on the same subject because I need to consider if you will
think through what you are not doing. If you would bear with me for just a second.
Beecham: And I might suggest, in fact rather than taking no action, if your intent is to
recommend - the staff will go to the Council and ask for the ClP to be still postponed, I
expect on electric and if that were to be the case I think the UAC would want to be on
record as not recommending that.
Ferquson:: You think an affirmative "No" rather than -
Beecham: An affirmative "no" is one way to put it.
Fer.quson:: O.K. With that advice from our Council liaison, is there a motion.
Dawes: So moved.
Motion: by Mr. Carlson - second
Second by Mr. Bechtel. All those in favor say aye.
Fer.quson: 4 - 0 with the UAC recommends that we not bond finance Electric ClP and
we will discuss the alternative in the budget discussion later. Shall we take our 5 minute
break here?
Ulrich: I would appreciate it. It is a significant issue and as you recall one of our
reasons for doing this was the impact on the rates and the short term with our
customers. Give us a few minutes and we will give you some feedback.
Fer,quson: We’ll do our 7 minute stretch here, reconvene at 9:15. Thank you.
Proposed Electric Rate Increase
Fer,quson:: We are going to have a short presentation with some brand new facts here
on the proposed electric rate increase and then we will turn to our public speaker. We
are back in session. John?
Ulrich: Just wanted to add a couple of points to give you more information about why we
are recommending the bond financing for the electric ClP.
Baldschun: It really gets to what your c0mfort zone is for the Reserves.and right now in
this era of uncertainty, the comfort zone is not real high. We started out the year in the
gas fund with 11 million in the .supply reserve and ending up with zero. That was
planned. We know why we did it but nonetheless.things happen. We are trying to do a
kind performa impact of not doing the bond financing for electric and when we get to the
Finance Committee we will have the numbers but it looks like theClP for 0102 in the
Electric Fund that we were proposing to bond finance is about 3 million and the debt
service for that first year was about 700 thousand so that is a difference of about 2.3
million net that would need to be drawn down from the Reserves for the first year. The
second and third years, there would be some calculations but - by the second and third
year the reserves will be able to be building themselves. I would not anticipate that we
would have to have. any rate increase. So the question is what is the impact on the
reserves and our guess is about 2.3 million. Let me point out some things you are not
aware of. In your budget document tonight, you will see a Supply Restabilization
Reserve balance of about 15 million. In the 10 year financial forecast last week, the
projected balance was $29,708,000. The primary difference between the 2 numbers is
we are forecasting some wholesale sales revenue - about 10 million plus that is not
going to be showing in your budget document because it has not been fully audited and
recorded so when we do a 10 year financial forecast, we take into account things that
are not in your budget, For example, the legal.fees in PG&E litigation, FERC litigation.
We anticipate hitting the reserve for a.million dollars. We also anticipate taking 3 ½
million out for the COBUG so that is 4 ½ million that is not shown in any of the balances
that you have seen, either in the 10 year forecast or in the budget document that is going
to be drawn down. So we have 4 ½ million plus the 2 ½ million from not financing so you
can see how it starts to decline as we take these amounts out of reserves. At some
point, we are going to be getting closer to the minimum so that is a concern - I just
wanted you to be aware of that and. that is all I have to say on that.
Dawes: To further, sort of try to amplify that, the schedule which I circulated and which
maybe which you printed up John showed the sum of the - I basically focused on the
distribution and the supply RSR’s as all the others basically state the same and the 10
year forecast showed a total of 34million 688 at the start of 01-02. Then the next day
when I got the big budget book and was looking at it, those reserves had declined to 24
million 877 basically a 10 million dollar reduction for the same date. I thought we have
done the accelerated energy efficiency program which you say is 3 ½ million of that.
There is the COBUB which we are leasing, maybe you put in buying it out later on - I
couldn’t figure that out but anyway it was a huge, huge difference of assumption in a
period of about a month we lost about 10 million dollars in the reserve which was a little
eye-catching I have to admit but I still come back to my point that I don’t think we need to
increase our Reserve Guidelines by 20% that had been advocated that because our
energy costs are surging so much, it automatically changes the guidelines because it is
a percentage of supply costs and it is double dipping to increase the percent and the
cost as well.
Fer.quson:. O.K. we have a slip from a member of the public on this topic and since there
is no more formal presentation, let us hear again from Paul Johnston.
Johnston: Thank you Mr. Chairman. I would like to go on record with regard to the
proposed electric rate increase. My comments do not relate to the overall magnitude
and the need to have a significant rate increase. But rather to the way to the manner in
which it is being done as it relates to relates to residential users. We have historically
had a structured rate system for residential rate users whereby there was the equivalent
of a life-line rate - a lower rate for the first small increment of electricity for people on
fixed income on whoever would like to - who don’t use very much but really have the
ability to get a lower rate. That has been there historically and a similar way to programs
that exist like that for telephone service and the like. However, what we are doing this
time is making a very big swing in the rate structure for the residential users between the
small to medium to .larger users in a manner that is not consistent to what we have done
before and in a manner in which I would argue is fundamentally flawed on two accounts.
One is that it is fundamentally family unfriendly. It basically rewards people who are sort
of in the classic double income no kids, people who are not at home during the day,
don’t use much electricity at home because they are off at. work and the family that has
kids at home during the day and that possibly has a stay-at-home parent typically end up
using more electric usage and so not only do they pay for the extra electric usage, which
of course is fair, but they pay it at a higher rate without any particular justification
because there is no argument on that basis to why they are being more or less
conserving than somebody else. My argumentis that if you want to ha~,e a rate
structure that arguably promotes conservation by having an escalating rate, then you
need to do something to normalize that by usage. It does not matter if it is water or
electricity. You need to do it based on head count based on, in the case of water you do
it based on land area and head count. I recognize those are difficult things to do and I
think it is perfectly appropriate to decide they are two difficult to do and therefore we
should not have the structured rate scale but if you are not willing to look at the effects
on families, verses people who go to work every day and don’t have anybody at home,
then you ought not to create this structured rate thing. To add insult to injury, what is
happening now that if you look at the comparisons between the small commercial and
the residential user, historically they have been either equal or the residential user has
paid less on the argument that small commercials don’t get a capacity charge like large
commercials get capacity charge since structures are different, understandably so but
the small .commercial user now has a top rate that is lower than the top rate of the
residential user so basically, what you are saying is if you have a strong residential user,
you better go and set up a business and take your family and operate out of a.small
business. You will be able to run your air conditioners or whatever else you want to run
at a cheaper rate and I don’t understand - this is a City owned utility to be operated at
least in the interest of the residents - why you would do that and why you would create
an extremely family unfriendly rate policy.
Fer.quson: Thank you Mr. Johnston. I think we have heard it before, but is there a staff
response onthe family unfriendly issue. We have had this discussion in water.
Baldschun: I think the ideal rate structure is one that takes into the factors that Paul
Johnston is referring to, maybe the number of people in the household, perhaps the
square footage and even going further to even having some kind of reward for energy
efficiency in the home.. From practical standpoint, it is not done. It is not done
anywhere. But from a theoretical standpoint, it is ideal. In terms of the rate structure, as
you know, in order to reward conservation we applied a smaller increase on the first
block - 35% for small user and about 48% for large residential users. This is very
consistent. I disagree with Paul - this is consistent with the way we have been doing
rate changes since the mid-70’s. If anything, we can probably be criticized for not giving
enough a break for the small user as we will hear that typically we are punishing the
people who are conserving by raising the first block. So there is a balance that we have
to try to achieve and I think we have done that here. I think if you compare our electric
rate structure with PG&E you will see the rate differentials are consistent with the
industry and very consistent with Byron Sher’s baseline legislation that was passed
many years ago.
Fer,quson: Mr. Johnston
Johnston: I appreciate that because I know this is not the normal protocol in one of
these meetings but they are usually willing to be a little bit less formal in that sense.
Randy has gone back to the mid 70’s to talk about a rate policy. As you know there was
an energy crisis time at that time, there were certainly a lot of different policies at that
time. In the recent history, this is a divergence and in fact the new tiered structure that
PG&E has put on, which our program is similar to I would agree and that is sort of the
reference to Byron Sher’s comments, etc. Again, that is a new thing for PG&E to do and
they are facing quite a lot of questions and resistance to that. I don’t believe that just
because PG&E does it, we ought to therefore follow. I don’t think there is a basis to do
that. I would like to think that when other utilities do something that is fundamentally
sound and makes good sense, that we might look at those ideas and follow them. But
this is not a long standing thing with PG&E, this is a relatively new thing and there are
quite a lot of articles in the newspapers about it and about objections to it. I .completely
agree with regard to electric that kind of measures you would need to make it fair and
practical. I completely agree with that which is why I think you don’t run the program.
However, it is not true to say that those kinds of measures in general are not applied
because many districts do apply such measures in the granting of water, even though
the City of Palo Alto has not and indeed in the storm drainage system that was proposed
by the City of Palo Alto on the recent-bond measure that was rejected, again a grading
on lot size was part of that thing. So I think where you can actually make the
relationship fine, go ahead and do it. If you cant, then don’t follow other people and just
go forward with something that is not consistent with recent history.,
Fer.quson: Great. Thank you Mr. Johnston. I understand there is a trade off here and I .
understand that the difficulty of policing what those rules do about what goes on inside
someone’s residence, that is something we don’t want the Utilities to have to be doing
over regulation. What happens if we do eliminate the residential tier or change it to a
simple lifeline and everything else. Is it doable?
Baldschun: We have baseline - I will try to clarify this. In the 70’s, the lifeline.act was
passed and so Palo Alto developed an inverted rate structure - 3 tiers - and then-Byron
Sher in the 80’s passed the baseline legislation which replaced lifeline and it is because
of baseline legislation that you see similar rate structures that Palo Alto and PG&E have,
not because we want to copy PG&E, that is not the case at all. If you go to LAWP or
SMUD you are going to see for residential customers inverted rate structures. It is the
rate structures of choice. It is the one that is enviroqmentally supported and if we were
to eliminate the lifeline, or eliminate the baseline and go to let’s say a flat rate structure,
the problem with that is that we are in a very marginal increasing cost industry right now
and you really don’t want to take away any price signals because the marginal kwh is
consumed at the third tier and so if you keep that price down or flatten it out then you are
not giving a price signal. That is why we are going to go to time and use pricing with our
large industrial customers - to give them those price signals so I would not want us to
eliminate the inverted rate structure in terms of a flat rate. It is something that has been -
it is very sound in principle and very well tested and very well adopted by the Utilities
investor own and Municipal owned in California and throughout the US.
Fer.quson: One final factual question and open it up to comments. You mentioned
earlier that we are coming close to hitting the minimum in our reserves in light of the .3 ½
million with the COBUG, etc. What’s the believable risk that we would drop below the
minimum in the coming year?
Baldschun: Since I talked to you, Girish whispered in my ear that there is apparently a 3
million dollar potential default by PG&E on some money that is owed indirectly to us
through NCPA so there is another 3 million to add. I hesitate to give you a number; it is
difficult to sit here and put all this together in my head and come up with a number. I
think it would be better to wait for the Finance Committee and then give some kind of
realistic assessment where we thing the Reserves will be. I think we will be above the
minimum, I think we will probably get between the minimum and the target, but it is just a
guess.
Fer.quson: One of the compelling things in the Reserve Guideline vote that we had at
the last meeting is that there was a creditable scenario which Girish had prepared
showing how we might actually need an extra 20 million so I do think the numbers are
helpful here and the Finance Committee is the right place to come to terms on that.
Commissioners, are there any other comments on the proposed rate increase:
Carlson: Yes, two Of them. First of all, in terms of the structure of the rates, I think it is
very important that we moved time of use pricing as quickly as possible for the large
commercial customers where it is feasible which is the most efficient rate structure and
what we have in the residential area is something reasonably close to marginal close to
marginal cost pricing because the marginal cost of our power is 10 cents per kWh, - 10
to 12 cents we think and this seems to have marginal costs to the customer of about that
which sounds pretty good to me so I think this is a pretty good structure. It does have
that price signal out there for the larger customers and even the average customers. You
know if they want to cut back, they are making something around 10 cents a kwh if they
cut back. Secondly, in terms of the overall magnitude in.the structure, I hope that we are
thinking that this is an interim rate increase. If 6 months from now, we know what the
WAPA contract is and we have a real number there and we can put some solid prices on
what we bought our contracts at and how those contracts are doing against the market -
if-there is a gap there, I sure hope you guys are coming back in 6 months to fill in the
gap so these projected year long, 2 year reserves - Dick Rosenbaum said why are we
increasing at all, we don’t know anything - well that is why we are increasing because
we really don’t know that much in terms of hard numbers. This is a reasonable interim
rate increase. I think we have to think about it that way and sometime in the next year of
so, maybe in the next6 months, we will probably have to increase a little bit more and
none of us know how much.
Bechtel: Randy, I was quite taken by what Paul said earlier about punishing, the dinks,
etc. but you had some interesting numbers that you - and I don’t have them with me -
about what percent in each category, what percent of our residents who would fall in that
category and I think it might be instructive, at least I would love to see the people of the
hikerate category, you know who are consuming a fair amount - -would you remind us
again what that breakdown was?
Baldschun: As I recall we have the three rate blocks - zero to 300 - there area about
1/3 of our customers in that rate block, 300 to 600 and there are about 1/3 of our rate
payers in that rate block and then over 600 there is about 1/3 of our residential
customers in that rate block. In terms of average, average residential customer over 12
months uses about 650 kwh a year. Multifamily uses about 350 kwh a year. We serve a
diverse load of residential customers from multifamily to single family but that is the
breakdown.
Ulrich: I would like to just add a couple of points. We have had this kind of a discussion
several times earlier and one of the reasons that we have expanded the accelerated
energy efficiency program - a certain amount of that money is ear-marked for residential
customers and we have mentioned that it will get most of the "bang for the buck" and all
that with our larger ones but what we are attempting to do is, because these marginal
costs are so high, and that the average retail price is quite a bit lower than that, it is
appropriate and prudent to be driving the amount of energy use by the larger customers,
or any group of customers, down as much as possible. And, or course, there is elasticity
in usage as the price goes up and we had a number of people.here, as you recall, at the
last meeting talking about that the rates were not anywhere near high enough. We had
the charts and a number of things and the basis of their argument is that if you are trying
to get conservation, you need to really pass along the true cost of the marginal
electricity. So, while these rate increases are not intended to be that draconian they are
intended to offer incentive in the way of conservation program and price signals to
encourage people to use less and so that has been the basis of how we have put this
together. I do recall responding to a questions last time where I have personal
experience back in the 70’s of the number of residential customers because of their.
financial situation of having homes that ended up having to use a lot of electricity and
very little opportunity to conserve it because they did not have the one to purchase the
conservation devices and opportunities. Well, that is not the case here in Palo Alto. I
think we have an appropriate blend of price and conservation signal.and that is what our
objective is. This can all be changed but I just wanted to emphasize that that is what our
focus has been on and how we proceeded inputting these rate structures together.
Beecham: Well, as I look at the differences between the small and average residential
verses large, I find that I have assumed part of what the difference is or what causes it
and I think I really should verify that. The difference between average to large is nearly
a factor of 5 and I suspect that is correlated rather than with number of children and stay
at home. I expect it is correlated much more with whether or not there is air conditioning
in the house and I would like to find out if that is accurate.
Baldschun: My understanding of the largest electric users in Palo Alto, we actually have
one that is on a commercial demand meter. It is a large house and 2 or 3 people live in
it. Certainly there are some very big home in Palo Alto and by and large,’ it is not air
conditioning. It is not a residential area where there is a lot of air conditioning. We also
have, up in the foothills, we have electric space heating loads because there is no
natural gas service up there and these are the people I am probably more sympathetic
to because they don’t have an alternative. When we have increased the tail blocks like
we do, that tends to hit those people up in the foothills the most. But on balance, you
really cannot have a rate schedule tailored for every kind of situation because it
becomes administratively a nightmare. You can see how thick this packet is. There is 19
rate schedules in electric in here and five years ago, we had El, E2, E7. Three. And
now we have got - and more will be coming with TOU and I can’t tell you how
challenging this is to keep track of, to keep track of, to project revenues, to determine
how many customers are with the usage characteristic. The more you add, the more
characteristics you try to get a handle on, you almost defeat your. purpose.
Administratively the costs become more than the value of trying to come up with a
equitable rate schedule for everybody. My feeling is that during the drought that is when
we have to really buckle down and come up with some very intense rate schedules
based on per cap. But we are not in a drought now. I think what we need to do is
encourage and reward conservation.
Dawes: I move that the proposed electric-rate increase be recommended to the City
Council as suggested by staff.
Ferquson: Motion by Dawes -is there a second?
Fer.quson: .Seconded it.
Fer,quson: Getting to be 9:45. Any more discussion. All those in favor.
Motion carried 4 - 0. Thank you Commissioners. Let’s see if we can clip right through
here and I will ask hard questions about relevance.
ClP 2006
We are now on item 5, 2006 ClP program. It has a few colorful maps, one inch bound
volume which in past years we have picked our way through over the course of a couple
of hours. For those Commissioners who have read this in detail, is there anything in
here that is screamingly inconsistent with strategy or policy?
Dawes: I was just going to say that it is totally consistent with the Strategic Plan and one
of the beauties of going through that exercise is that it does make the whole budget
situation much more streamlined and I have no other comments.
Bechtel: I have just a question because I guess I am looking at 2 things, the ClP and
then the budget document in the binder and I like the binder because it has a lot of the
detail in there too, but I am assuming there are equal- right? I mean the numbers are
the same in both of them.
Ulrich: Well, I hope so. Your documents were prepared at different times. One is more
preliminary than the other. The timing of the discussion here, the binders were delivered
to you a couple of days after you received the first document. So, the ink was still drying
as it was delivered to you so there may be some differences.
Bechtel: O.K. But the intent was that they were the same.
Ulrich: Yes, unless,
Bechtel: Number of programs, the totals, I didn’t compare them - I did compare them
with the 10 year projection and there are differences between the ClP. and the 10 year
projection that you presented a month or so ago. And I understand that because those
were obviously Performa or projections at the time. But the differences are relatively
minor. Well, I thought they were well done. My comment was that I was just going to
make it that both write-ups were very well done, very - I understood them. They
compared very well to the Strategic Plan and etc. but there is an awful lot of detail to go
over and I am prepared to go through them one by one tonight if our chairman asks us to
do so but in general I think I am in residence with what you are proposing.
Fer,quson: I would be happy to entertain a motion to approve the ClP proposal.
Carlson: So moved
Bechtel: Seconded
Fer.quson: Moved by Carlson, seconded by Bechtel - anymore discussion. All those in
favor say aye. Passed 4 - 0. Thank you very much.
Proposed Utilities Operating Budget
Fer,quson: We will move to Item 6, the Proposed Utilities Operating Budget which is the
loose leaf binder and the toner was not quite dry when it arrived at my house.
Bechtel: I have a question and one comment on page 329, Utility Department Funds.
Apparently actually the transfers - capping of the equity transfers from the Electric and
Gas funds combine for an annual reduction of $600,000 in transfers to the General
Fund. So, we were in effect reducing transfers this year to the General Fund? Is it
being made up somewhere else or what’s happening?
Ulrich: I read the same item you have unless someone has a better explanation, the
objective is clearly to cap it and my expectation was the same amount of money was
going to be transferred as in prior years with an escalation not to exceed 3%. But I can’t
tell you why the annual reduction is going down unless the revenues are less so what
you have is a cap and this is now below - it has fallen below the cap.
Bechtel: What caught my attention was I was surprised the City Manager is willing to
give up $600,000 for some reason so that is the source of my question.
Dawes: I would like to comment on the rent section. Appropriate that Mr. Johnston is
here. This was one of his most furious assaults on the budget and I don’t know if you
have seen this paragraph Paul, but it alleges that they have gone to a new system
where their basically are going to charge a 6 ½ % rent increase rather than the 34%
based on the appraisal (I assume this is having a .com sitting on to of the Mayfield site
for the water reservoir would be the normal way they would approach this)but I would go
a step further and say that now that you have basically changed that policy, the next
step would be to get realistic on the usage that these sites are being assessed at and
again, many of these areas there is no way that office buildings could be put in - it is not
done in accordance with the zoning and I think it is inappropriate that the Utility have
rented space or rent assessment which is based on totally fictitious basis and certainly
as you look at the total budget spread -and I have it kind of in my head - but the equity
payments were 12 or 13 million dollars and the rentals were like 9 or 10 - I mean it is a
huge number and it just seemed to me that was a huge number in knowing that some of
these are distorted, shall we say, I would commend to you in future budget exercises to
bore down on what is realistic in terms of this.
Bechtel: The other noticeable difference which I remembered Mr. Dawes which was
head count. I noticed in the Electric Utility that the head count is going up considerably
higher than in the .other ones was Telecommunications and the Dark Fiber, etc. Is any
of that related also to the crisis that we are dealing with. Maybe you could speak about it
to the headcount increase in that department.
Ulrich: I am not sure what crisis - we have crisis all the time but we don’t add headcount
for that. Do you want to refer to a particular page in the document?
Bechtel: Page 346. I believe the increase is going from 104.73 full time positions to 117
- 13 people. In the gas they were very minute. I was just interested because it just
seemed to be higher than the other departments.
Ulrich: Excuse me some of this is prorated because some positions go between funds
so you have to bear with us - is there any particular positions as you went through this
that you had questions about or is it just the magnitude -
Bechtel: Just the total number.
Ulrich: I am sorry, our budget analysts is off ill and we are very familiar what each
position is and why we did it. The numbers are a little more loosely for it and we know
why we did what we did but adding those number up - you mentioned
Telecommunication - that is in there in the Electric fund. If you would like -
Fer.quson: The Service Center is another 3 or 4 so between that and the Telecom is like
7 of the total amount.
Ulrich: But those Customer Service positions are between Enterprise Funds also and
the primary service function is in the gas area so I want to - we are all set to tell you why
we are doing these things and we are bogged down with the numbers. Apologies.
Bechtel: Well, in my view these are probably justified - at least the programs we talked
about - the 24 x 7, Telecommunications and certainly I can see that as we are going
through a lot more administrative issues with the buying and selling that those are
justified and I am willing to accept the fact that that is where those positions are and am
not really push a complete analysis at this point.
Ulrich: There is one Senior Resource Planner where for the supply side. The Customer
Service positions are for improving service and safety in the community and our
expectations is as prices and rates go up our customers expectations of service also
increases. As we go through, some have gone down and some have gone up and they
are all done in hundredths of an individual. I think I have given you roughly what those
positions are and we will keep looking a little bit if you would like to proceed with some
other questions.
Fer.quson: Any other questions commissioners.
Fer.quson: O.K. I just have a couple other comments on it and then we will call for a
motion. One, is I found that the 0ver-view pages for the Utility in general 5 times better
than the last 2 cycles - more clearly written. It just captured what was going on. I don’t
know who the new staffer was, the newer technique, it was true of the basic City budget.
Secondly, for all commissioners, in light, of our discussion on the Strategic Plan
implementation, you notice every third page or so here this is filled with proposed
measures of performance - 95% response times, etc. in enormous detail and you see by
looking at that the difficulty in bubbling up higher measures of performance for the staff.
My final comment on this is that this is a friendlier document than before and somehow
you managed to do it at the same time you cranked out first strategic implementation "
plan exercise and you bought 270 million dollars worth of energy and coped with any
other number of activities with the same number of FTE’s as usual and I just need to say
that was an excellent job, excellent performance starting out the new fiscal year. So
thank you for a job well done. Commissioners is there a motion to approve the Utilities
Operating budget?
Bechtel: I recommend that we recommend that the City Council approve the Utilities
Operating Budget for the next fiscal year.
Fer.quson:: Is there a second?
Seconded by Mr. Dawes. Any more conversation. All those is favor say aye. Non-
opposed. Passes 4 - 0. Thank you very much.
Revisions to the Direct Access Program
We are now at item 7. There was no document here. This. is the Revisions to the Direct
Access Program. Is there a presentation?
Balachandran: Yes. Jane is going to make a presentation on some changes to the
direct access program. We have talked about it. We have heard some suggestions
from you in the past and we are going ahead with some of our power purchase
recommendations with SOC. We need to do something with our direct access program.
She will make the presentation.
Ratchye: This, as we said there were no written materials for this. It is going to be an
oral presentation. We are going to ask you to approve, generally, the concept that we
are talking about here and then we will proceed with a CMR to the Council. First, I am
going remind everyone what the original proposals were for these direct access plans for
gas and electric and then talk about the risks that we currently face in the current market
with a direct access plan and how they can be mitigated for each of the gas and electric
d a programs in our plans to mitigate those risks and then what the next steps are for
what we are planning to do. So, the first program, the Electric Direct Access program,
there are phases of that which have been implemented. We have opened to direct
access for a customer group of a size at least half a megawatt but the planned
expansion of that program as of last July and this coming July to explain it to you first,
include all commercial customers and then including all customers, we have not
implemented and we are going to recommend tonight not to expand. In the Gas Direct
Access program as originally conceived, we were planning also a roll-out of ultimately
opening the gas commodity service to all customers. Right now it is only open to our
large commercial customers, those that are served currently by the G7 or G3 rates and
we never did take the steps we originally contemplated to extend that program to all the
commercial customers and then even to the residential customers. And the reasons we
did not do that - there are risks to having customers have the choice to leave you at any
time and those are risks that need to be mitigated. We want to tighten up those rules
and also we are making long-term purchases, as you know, in electricity, and we are
making longer term purchases in gas than we have before. As we have presented to
you, .I think we are implementing a three year laddered approach to purchase gas to get
some cost stability longer term than we have seen in response to the volatility we have
experienced this past year. So, in light of these long-term commitments, we feel that we
really need to tighten up all the rules and rates around Direct Access and re-examine
that. So, let me go through what we are proposing to do for.gas and I think you have
heard part of this already. We would like to stop any further expansion of the program at
this time. We have seen to date very little customer interest in this program anyway and
we are also now going to offer as of July 1st our customers essentially four, depending
upon how you count it, 5 choices and the first choice - they can retain their direct access
eligibility but get on to our G3 rate which is a market based rate that changes every
month and that is very similar to PG&E’s rates right now. So they could get on that rate
but they would not have any cost certainty. If they wanted to retain their DA eligibility
and have some cost certainty, they could sign some contract with us, either one of the
fixed term rates, a 12 or a 24 month fixed term rate or a custom contract for some period
of time. Therefore, they would be committed to us for our commodity service for the
length of the term they signed on and so we would hedge that right as they made that
commitment so we would not hold any .risk in that situation.. The other alternative we are
allowing them to do is, if they want to be on the PA managed portfolio, be part of this
laddered approach that we are going to do for our G1 and kG2 customers the residential
and small commercial customers, then they can opt into the rate that actually these guys
are currently on right now, which is G7 and that would be, you can call it fixed rates -
you know_they are fixed right now unless the Council changes them, and so in order to
jump onto that rate or opt into that rate as of July 1st, they would have to give up their
rights to direct access because then they would be part of these long-term purchases,
part of the portfolio. The final alternative they have is to seek commodity service from a
third party from some other supplier, in other words, act on.their right to direct access.
For Electric, we are proposing a similar program. Again, no expansio.n of the current
program but we are only going to offer one less choice than we are in gas. The first one
is just like the gas one, it is a monthly varying rate, change every month, depending on
the cost. They could, as with the G7 go to E7 and give up their DA eligibility, they could
seek an alternate supplier. For the Electric program though, we do not want to offer at
this time, fixed term or contract rates for electricity. The reason for that is, that in the gas
area it is very easy for us to back to back hedge when they make a commitment, we buy
that on the wholesale side, it is a pretty easy to match that pretty precisely. However,
there is no such security, we feel that we cannot hedge the such a rate offer in electricity.
in. any term. As you know, we cannot predict what Western rates might be so it is very
difficult for us, or close to impossible to hedge that. The only potential for offering a fixed
term rate and we would consider it if there is customer interest would be to have it
essentially be a market rate. We don’t think there would be any interest in at the
moment. But, if times change and rates come down, or whatever, there could be a time
when that would be a reasonable rate offering we could make to customers, but at this
time if we constructed it that way, it would be clearly unpopular so no one would ever
take it so that there would be no reason to create it so the only choice they have if they
want to retain their DA eligibility for electric then will be this monthly varying E8 rate and
that would be a rate that consists of our Western, our Calaveras, our Seattle City Light
contracts and everything about our portfolio except these new .long-term contracts
commitments. So that is what we are proposing there to mitigate those risks. So we are
asking the UAC recommend that Council approve the suspension of the existing gas and
electric direct access programs and to change the rules and the tariff eligibility as
described in the oral presentation. We are going to prepare a CMR with those
recommendations depending on the feedback we get from the UAC tonight and then we
would need to inform the electric Direct Access eligible customers of the rate options
that we are proposing to make available to them as of July 1st. We have already done a
letter like that to the DA eligible customers in the gas program and they have already
seen those choices and they understand that they. need to make some choice by July
1st. So, lam ready to take your questions about that.
Carlson: lam glad we are doing this. This is certainly thought through than the State
policy which ends it entirely. This gives people some reasonable options. The only
concern I have is in the Electric program. I am not quite sure what the portfolio is that
you are offering. If it is a combination of our existing long-term contracts, plus the spot
market, which is what I think it is, is that what it is?
Ratchye: That is what it is. It is everything except these new purchases that we would
make..
Carlson: O.K. My concern is that right now that rate would be very high. Two years
from now, that rate could look real interesting. Are we at risk - I mean it sounds
impossible but I think it really isn’t - of a lot of people jumping on that band-wagon in that
time period?
Ratchye: You are reminding me of a very key item I did not mention. When people
make these choices, let’s go to the gas example for now, they have until July 1st to make
the choice. If they choose to go on G7 they have given up their DA rights. So, from then
on, they have no choices. They are just like the G1 customers. They get GI. That is the
only rate they are eligible for. G2 customers are eligible for G2 and G2 only. If they opt
into the PA Manager Portfolio G7 will be there rate. That is not to say that in the future
we may offer some alternative rate to PA Portfolio customers but we are not proposing it
at this time. They can either retain their DA eligibility and choose G3, one of the fixed
term rates or even DA but once they choose G7 they are in the portfolio and they no
longer have DA. They are no longer eligible for G3, the fixed term rates or G4.
Carlson: In electric it would be E8 and they would be crazy to pick that right now and we
don’t give them the option of being on G7 for awhile and then. shifting on E7 for awhile
and then shifting to E8 for awhile.
Ratchye: That is correct.
Carlson: Great. Fine. You’re covered.
Dawes: Just to reassure me, I assume that all of the either E8 or G7 which are a cost
based that we include full costs, in other works, all of the Utilities Department’s
overheads, etc. not just the straight commodity
Ratchye:. Yes,
Dawes: Again
this time.
that is right. That would be required under the commodity pricing policy.
to reiterate, no customers have selected DA in either gas or electric at
Ratchye: Not to date.
Bechtel: You have said that there are no longer eligible for DA once they opt into one of
these. Under what conditions can they change their position? Does it take an act of City
Council?
Ratchye: I suppose it could take an act of City Council. The way we have thought about
it, sort of conceptually for gas for example, since we are doing these three year
purchases we thought of a couple of things. One of them is do you need to give us 3
years notice? The other one is you have to buy out of the Portfolio because the only time
someone is going to do this obviously is if prices decline essentially or our Portfolio
purchases are under water, looks better in the market and people will choose and if they
want to go there they are going to have to buy their way out of the portfolio. That is what
we are thinking conceptually is they can potentially get out but there will be some costs
that they will have to pay. ..
Bechtel: Oh, but that would all be handled by you folks and it does not sound like it
would be a legal-
Ratchye: No, it would be fairly easy to track what these have cost us, we have bought
them on your behalf, you are now opting out of the Portfolio,, Here essentially, the cost
and windings to liquidate the positions we took on your behalf.
Fer.quson: If there are no other comments a motion.
Bechtel: I move staff recommendation with regard to the Direct Access Program
changes.
Carlson: Second.
Fer.quson: Any more discussion. All those in favor say aye. Non opposed. Thank you.
That passes - we are at Item 8 - the MOU
MOU Between Santa Clara, Palo Alto and San Francisco
Fer.quson: MOU among Santa Clara, Palo Alto and San
interesting development.
Francisco. This is an
Dawes: Would it be possible for staff to intro this by a little history as to how it came
about, who initiated it, etc. This is very interesting.
Balachandran: Well, this is something that has been in the works for about 4 years or so
but it has never really gotten off the ground. There has been some renewed interested
right now with the very real problems as opposed to the potential problems we were
seeing several years ago. So the parties got together with a number of opportunities
that we can take advantage of if we work together so we are talking to the San Francisco
staff and the Silicon Valley Power staff. They each have their own set of enthusiasm
and what they want to do and what they do not want to do and I think this is a good
compromise. Santa Clara has some concerns about this right now so we are still
working with them and we would like to have all parties sign this at approximately the
same time so we areplanning to take this to the City Council on May 21st. That is where
it is.
Dawes: How big is the power plant under discussion?
Balachandran: Actually, it is not just power plants; it is political advocacy, just consultant
help, pool our resources to do some transmission studies. We can look at other cities
joining us down the road but it seemed like the three organizations represented here are
unique on the peninsula and they ought to be sort of charter members.
Ferquson: This is perfect. This pursues the unique advantage of Municipal Ownership.
Dawes: What does NCPA have to say about this. I mean it seems to me it sort of steps
on their tuff; Munis acting in concert for their own benefit -
Balachandran: Well, we have not heard from them yet because we have not - I don’t
know if they know about it. But over here, the idea is that NCPA can represent us on
certain issues but there are other issues that they don’t have the same interests - they
are just pulled in too many other different directions. I have had some informal
discussions with some of the staff there and I haven’t heard anything negative.
Ulrich: This should not sound like it is anything we are "skulking" around doing. It is in
the best interests of the peninsula and I am sure NCPA would see it the same way. We
do a number of things separately but it all has the same overall object.ive.
Beecham: And I suggest tOO for NCPA no one else there except us have as much at
risk, at stake, for the Trans-bay line and then in addition, if one considers any City
building a power plant, Alameda or Lodi or anybody else, NCPA or other Munis never
complain, they say good for you basicallyso I don’t see this at all at being at any kind of
cross purpose for NCPA. I do have a question or two
One is why Santa Clara might be having a little bit of second thoughts if that is what you.
are implying. ~
Ulrich: Well, I have had discussions and so has Girish. It has more to do with making
sure that the document is not construed by other parties differently than what the
particular city has in mind since this would obviously be a public document of what does
it mean to others and their working through that. The objectives are real clear but how is
the document going to be used and they want to make sure they get a consensus
understanding within their own community for it.
Beecham: Would you care to clarify what is the real thrust of this document?
Ulrich: Well, I think the real thrust is that you have Municipal Utilities in communities that
have their own particular needs and that we all believe (3 anyway) that by working
together there are common facilities whether they are transmission lines or power plants
or conservation that can be done together and we are better for it by having all 3 of us
work on it. At the same time we can work that are of individual nature.
Beecham: While this is not a philosophical document, there is something we want to
achieve with it. And what is that?
Balachandran: I would say increased reliability and we are each making our own
individual efforts and it just did not seem to make sense for each of us to be doing that,
spending not just monies, but not leveraging our efforts. So we don’t actually have a
specific project in mind. We have talked about a number of things but it could be as
simple as joining political forces and having maybe the 3 mayors to up to Sacramento. It
could be as simple as that. Coordinating something as simple as that which today we
don’t because we really don’t have a formal ~,ommunication in place.
Beecham: That kind of implies to me that there is no particular objective to this and I am
kind of going back and forth between is this kind of a start where we can talk and join
hands as we go talk to the people or we want to do something and this is the start of
really doing something particular.
Ulrich: Well, during the meetings, the words actually doing something came up many
times so there is an objective of actually doing something. What we did not want to do
in this was t6o focus in any particular project without more investigation. It is possible
that the group of 3 agrees on this .objective but when it comes down to an individual
project, the actual group may decide that only 2 or 1 may want to participate and then
they would go ahead and doa joint power agreement or some more formal or actual
money commitment and you call that none of us have the authority to go ahead and
make commitments of funds to do any type s of projects so this is one of getting all of
focused in the same overall objective of reliability without committing to a project but
using this as a basis of then saying, "look, we all know where we want to go, how we get
there is really the individual question" but we have this memo of understanding where
we know the overall objective and that is improving service reliability. Seems pretty
clear to me that any time you can get Municipal agencies working together on the same
path it is pretty good, even though I can’t articulate to you what specific projects.
Fer.quson:: It has a sunset date I be!ieve, hasn’t it?
Balachandran: I don’t think there is a sunset date. It may just die of its own accord if it
is not used.
Ulrich: Our objective in this is to have a very positive idea that we want to improve
service reliability and that is what we want to get across here to everybody.
Fer.quson: I agree completely. I have always been fascinated with the potential for our
initiative to collaborate with San Francisco on the water plan and the water capital plan
and its connection to all the other dimensions of energy and hydro and this sets up the
platform on which we can engage in that separate kind of collaboration with them and
whether there is political by-play or simple engineering economic efficiencies - does not
matter. It is worth a try. It’s innovative. I support it.
Carlson: I vote we approve. I think it is a great idea.
Fer.quson: Motion by Carlson. A second.
Dawes: Second
Fer.quson: All those in favor, say aye. 4 to 0 Motion carries. Thank you very much.
We have two items left. The NCPA Report.
NCPA Report
Beecham: Let me just make a brief comment that for the FERC filing by PG&E where
PG&E is trying to change the terms of their contract that NCPA has, I think, made a very
good response to PG&E filing and as I read NCPA’ s response, I think that any
reasonable person would completely agree with Napa’s position for us. So, I was quite
happy with their response.
Fer,quson:: Any NCPA questions? TANC?
TANC
Balachandran: The Path 15 project is kind of back on track. The PUC asked PG&E to
file a CPCN and PG&E filed it, under protest, and actually suggested that WAPA and
TANC are probably, in a better position to carry through doing Path 15 and so we are
going to bring to the City Council, very shortly, the. Participation Agreement no. 4 which
will allow Palo Alto to participate in that project. Environmental studies - it is going to
cost us between 5 and 10 thousand dollars and the money is already available at TANC.
That is what is happening there.
Fer.quson: Great. Any questions on that?
Carlson: Path 15 is obviously pretty important but how long is this going to take? It
sounds like another California endless project where the paper work takes years and the
construction would take months if they would ever let them start building so not a single
spade of dirt has been turned - right?
Balachandran: That’s right.
Carlson: What are the prospects for something actually starting to be build in year?
Balachandran: I think the prospects of something being built are very high. In a year, I
am not sure, maybe in a little longer than that we would have - I think PG&E’s response
said it would be about 3 to 4 years before they start but TANC and Western are further
along and they would take somewhere between a year or two to start.
Beecham: I think there are indeed quite a bit of papers that need to be filed but TANC
and NCPA have papersfrom previous episodes that they hope some can be dusted off
and updated and go from there. Also, there are certain federal ...... that if we can in fact
include some Western abilities that may move us along as well. A question I have for
staff is from the Governor’s point of view, does the Governor have any agency or organ
that he is looking at to do this?
Ulrich: The answer is - we don’t believe so. There was a formal process and an
individual on his staff who was assigned to do it. The individual has subsequently left
and the assumption we believe of the Governor and the PUC was that the ruling that
was made by the PUC would put it right back on the responsibility of PG&E to do it.
Since then, we have learned that it is not quite that way. That is why we are bringing it
back because we now think we have an opportunity to accelerate the movement by
using the environmental work that was done the number of years ago. We are also told
that PG&E is actually gone out and done some additional work so it is moving along and
by us trying to go back in and take some initiative we will fill up this vacuum or void that
seems to exist. Part of this will be sending another letter and that is being crafted right
now. Probably will be signed by local agencies such as us, trying to put the
responsibility to do this work back on TANC so that we can get the studies done, get the
designs done and then the State would fund the construction.
Beecham: And also for the rest of the Commission the DC trip by NCPA, Path 15 was
one of the primary objectives and we talked to virtually anybody who would listen to
finding ways to enable Western/NCPAFI’ANC to move forward with Path 15.
Fer,quson:: Good news. Good progress. If there are no other items of business, our
next meeting is Wednesday, June 6th.
Adiournment
Any other items. Commissioners - it is 10:30 - we are adjourned.