2026-11-04 - Utilities Advisory Commission Regular Meeting

02:02Mhm.

04:05>> Mhm.

04:15>> I don't know if you can hear us, but no,

04:17she's not down here.

04:18>> Okay, I'm doing a sound check, but I can

04:19hear you. Okay, perfect.

08:10>> Mhm.

10:12>> Mhm.

12:15>> Mhm.

14:18>> Mhm.

15:45>> Thank you all for coming.

15:47>> Recording in progress.

15:50>> Um could you please call the roll?

15:54Chair Moder?

15:55>> Present.

15:57>> Commissioner Tucker?

15:59Is absent. Commissioner Gupta?

16:03Is absent. Commissioner Sharf?

16:06Commissioner Crofts?

16:08>> Present.

16:09>> Vice Chair Phillips?

16:11>> Present.

16:13>> Commissioner Metz?

16:15>> Here. Um I'm speaking remotely. I have

16:18just cause to attend this meeting

16:20remotely under the Brown Act. I've not

16:22attended a UAC meeting remotely this

16:25calendar year.

16:26Uh, I must attend this meeting remotely

16:28because I must provide caregiving to my

16:30spouse in this room. I am not

16:33accompanied by no one.

16:36That's it.

16:37>> Thank you. For the record, five present.

16:42Great. Um, are there any agenda changes,

16:44deletions, or additions?

16:47>> No changes.

16:48>> Excellent. Um, we'll move to in-person

16:51public comment. Um, are there any items

16:54for um,

16:56where is there any public comment uh,

16:58for items that are not on the agenda

16:59this evening?

17:00>> We have no requests to speak.

17:03>> Okay, then we will close public comment.

17:07We will start uh, with approval of the

17:10minutes. Um, do I have uh,

17:13any um,

17:15motions to approve the minutes as

17:18published in the packet?

17:20>> So moved.

17:21>> Second.

17:24>> Vice are keeping us on time today.

17:26Um, okay. Will you call the vote?

17:29>> Vice Chair Phillips?

17:31>> Yes.

17:32>> Commissioner Scharf?

17:34Chair Matter?

17:36>> Yes.

17:38>> Commissioner Croft?

17:39>> Yes.

17:40>> Commissioner Metz?

17:41>> Yes.

17:43>> Motion passes 5-0.

17:46Right. Um, now we'll turn to the

17:48director's report.

17:49>> Uh, yes. Good evening, Commission. Alan

17:51Curtoria, Director of Utilities. I did

17:52want to introduce Amy Bartell. She is

17:55the Assistant City Attorney.

17:56Um, she joins us from the East Coast and

17:59is here this week. Um, so I wanted to

18:01invite her and that's why she's sitting

18:02next to us for this evening.

18:04Um, can you bring up the slides, please?

18:11Next slide.

18:16I wanted to provide you an update of the

18:19action of the Finance Committee on this

18:20question of

18:21grid mod financing. Uh, As you are

18:24aware, this went in action to the UAC.

18:27The recommendation from the UAC was

18:30incorporated into staff discussion and

18:32provided to the finance committee. Which

18:34is shown here. So, just as a report out

18:37um

18:38that staff brought forward the

18:40information to UAC. The finance

18:41committee looked at it and felt it was a

18:43good opportunity to incorporate that.

18:45So, that has been put forward in that

18:46regard. Next slide.

18:50Just in terms of El Nino storm

18:51preparation. So, the as you are probably

18:54aware, the governor declared a state of

18:55emergency for El Nino. The city has

19:01a very proactive response for El Nino.

19:03We brought that forward to city council.

19:05Just wanted to provide what the

19:07utilities do in terms of staffing. So,

19:09we have a 24/7 control center operations

19:13that's monitored by staff. We have

19:15on-site field crews. And during events,

19:17we actually pre-stage staff in certain

19:19areas, whether that's for wildfire

19:21mitigation or during storm events. And

19:24we can pre-schedule staff in different

19:26locations so we can expedite that storm

19:28response.

19:30We also have um

19:32moved forward with our active line

19:34clearing or tree trimming. So, we work

19:36with our public works department and

19:38they do that in concert with the city

19:40tree trimming. And they're 6 months

19:42ahead of schedule. So, we've been

19:43looking at at this for a period of time.

19:46And also looking into fleet and

19:48emergency preparation.

19:50We also partner with the public works

19:52department and city department. So, the

19:54city held a storm preparedness workshop

19:56on October 29th at fire station 3.

19:59Believe we had over 100

20:01residents joining that and we have staff

20:04tables for that as well. I will mention

20:06on a handout that you have at your

20:09places is our utility winter storm tips.

20:12This was provided to any of those

20:14attendees at that workshop. It's also in

20:16the utility bill insert. So, it just

20:18provides

20:19guidance on what to do in in case of a

20:21storm.

20:23In addition, um as you may recall a few

20:25years ago, there was a a flooding of San

20:28Francisquito San Francisquito Creek. As

20:31part of that emergency response, not

20:33only did public works, of course,

20:34respond, but also was supplemented by

20:37utility teams. So, we have uh utility

20:39construction teams on our water, gas,

20:41wastewater side as well, and we were

20:43deployed um in response to that storm.

20:45And we do active um

20:48um

20:49kind of training in regards to in the in

20:51terms of that preparation. Just want to

20:53provide that to the public as well.

20:56Next slide.

20:58So, this is a quick update to some of

21:00our business efficiency and

21:01electrification programs. Um in a

21:03nutshell, uh you know, we have increased

21:05rebates for our businesses as well. This

21:07is kind of uh

21:08in tandem with what we're already doing

21:10for our residential programs. We have a

21:12new commercial induction cooktop rebate

21:15and additional indoor incentives for

21:17water use efficiency. And then on just

21:19our business energy advisory programs,

21:22we've consolidated that program. We had

21:24a few vendors working on that, so we

21:25have a single point now, and then we can

21:27go from one direction instead of

21:28branching out. So, that helps us kind of

21:31have a nice entry point for our

21:33commercial customers as they look for uh

21:35assistance in energy and water

21:37conservation and electrification.

21:40Next slide.

21:42Uh wanted to provide an uh

21:44part of our our look at our assets. So,

21:47uh we are in the process of a 3-year

21:49look at our utility poles. So, we This

21:52is primarily in the residential area

21:54because that's where we have the the

21:55power poles in the backyards.

21:57So, we are required as a utility best

21:59best practice to routinely test those

22:01poles. Sometimes they are intrusive, and

22:03this is a a shot of the intrusive pole

22:06testing that we need to do.

22:07So, we've put this up on our website,

22:09you know, so the community is aware. Um

22:12and what our outside contractor does is

22:15typically goes out to the resident, does

22:17a door knock,

22:19and if they cannot access the property

22:21to look at the wood pole and do an

22:22investigation, they will leave a door

22:24hanger, and we would come back and visit

22:27uh the the customer at that time. We do

22:29typically do not need to go into the

22:31home in the residence.

22:33So we want to make sure that the the

22:34community is aware of that as well.

22:37Next slide.

22:39Also on our gas safety awareness on

22:41annual basis, we provide reminders on

22:44what to do on gas leak and detection

22:47especially we do not want to have

22:49contractors hitting our gas lines.

22:51Annual safety awareness brochure, this

22:53is what the cover page of the brochure

22:55looks like. We really want to prevent

22:57diggings and impacts to our customers

23:00and to the public.

23:01Um, this survey goes out and then excuse

23:04me, this

23:05this

23:06plan goes out to our customers and then

23:08we do a survey to our customers on

23:10education outreach to get feedback and

23:12information. So that will be going out

23:13this month.

23:15And then finally the slide is the UC

23:18follow-up item UAC follow-up item. So

23:20this is kind of the running tally of the

23:22new items or upcoming items. So you'll

23:24see

23:25the second one in the capacity

23:27reservation fee on large loads, that is

23:29coming tonight. This is from your

23:30October meeting. We wanted to have a

23:32discussion on it so that will be a an

23:34item I think third item tonight. And

23:36then also is recycle water. So I wanted

23:38to mention that on the applicability

23:40applicability permit production,

23:43potential costs

23:45to the customers and financials. So we

23:47worked with the public works department

23:49and we're calendaring that for April of

23:52next year.

23:53So that concludes my report.

23:58>> Great. Are there any questions or or

24:00comments?

24:01Please.

24:03>> Thank you for the report. I have two

24:05quick questions. One of them is on the

24:07gas

24:09public safety awareness slide.

24:11I

24:12was curious

24:14um

24:15is there any penalty for contractors

24:17hitting the gas lines at this point or

24:20is that

24:21it just seemed interesting that um we're

24:24educating and then going back and

24:25surveying people. So

24:28Of course we don't want to surprise

24:28anyone, but

24:30>> Do we?

24:30>> That is a great question. So, as part of

24:33uh the 811 dig service, so what

24:36contractors typically do is uh they

24:39would request what they call USA

24:41markings. That is free at no cost to

24:43them. You'll see those pavement

24:45markings. It's typically in a white

24:47border. And then you'll have utilities

24:48show up and they all start painting in

24:50different color codes of the utilities

24:53out there. And we would paint a

24:54different color for water, which is

24:56blue, and sewer, which is green, and

24:58then gas, which I believe is yellow off

25:00the top of my head. And and then the

25:02contractors know where they're are going

25:04to be working. Um so, that provides that

25:08uh information to the contractor. If a

25:10contractor goes out and digs without

25:13requesting those markings,

25:15then yes, that they would be

25:17responsible. And I'll be looking to the

25:19attorney if I am correct on that one.

25:21Okay. Um I always like to be corrected

25:24if especially if I'm wrong legally, but

25:25yes, so then they would be responsible

25:27for those those hits.

25:29And then we retract those costs, no

25:31different from um

25:34um I mean, a vehicle hitting a a

25:36hydrant.

25:37Um you know, uh that that would be the

25:39the process.

25:40>> So, it's they basically get charged the

25:42cost of repairing whatever the damage

25:45was.

25:45>> Our response cost, our repairs, that

25:48that would be a cost that they would

25:49have to bear.

25:50>> Great. Thank you.

25:51Um the second question was on the

25:53informational report, which I really

25:55appreciate the communication report. Um

25:58since I was one who asked for it. I did

25:59notice that in the report it says that

26:03we will have be developing a dashboard.

26:06Um and I didn't see any

26:11new items on the agenda where the

26:13dashboard will be shown to us. So, my

26:14question is when will be we be able to

26:16see the first draft of the dashboard?

26:19>> Uh

26:20Sorry, I turned off my mic. Um what I

26:22can do is I can bring that back. I know

26:24this is an informational item, but I can

26:26bring that back in terms of when that

26:27will come back in terms of you seeing

26:28the dashboard either as an informational

26:30item or if the commission wants to see

26:33it more of a discussion.

26:34>> fine with it as an informational item. I

26:36just, you know, the request was to see

26:38the data and

26:40the report says we're going to create a

26:41dashboard to show it, but just um being

26:44able to see it when once it gets

26:45developed. And I understand that we're

26:47working on all the sources for the data.

26:49We don't have them all, but

26:51it shouldn't stop us from taking a look

26:53at what we do have.

26:54>> Absolutely. We'll get back.

26:55>> Thank you.

26:56>> Thank you.

27:01>> Anyone else?

27:03Okay. Let's move on to new business.

27:06Um

27:07first item on the uh in new business, so

27:10item number two,

27:12uh is staff recommends utilities

27:14advisory commission recommend that the

27:17city council approve the proposed

27:19updates to the utilities reserve

27:21management practices for one, the

27:23capital improvement program reserve for

27:26the wastewater collection utility, and

27:28two, the rate stabilization reserves for

27:30the electric, gas, water, and wastewater

27:33collection utilities.

27:35Um we will have a staff presentation on

27:38this. Uh and then we will open for uh

27:41public comment, and then we'll um digest

27:44this as a commission.

27:48>> Great. I'm going to have uh

27:50assistant director um

27:52Lisa Blair give this presentation. I

27:54just wanted to tee it up and frame it a

27:55little bit. This is kind of a

27:57continuation in September. We brought

27:59back We brought to you the the

28:01commission the electric, gas, and water

28:03um projections or and and reserve

28:05policies, and now we're coming back on

28:08further discussion on on the rate

28:10stabiliz- rate stabilization reserves,

28:12kind of the pros and cons, and also the

28:14wastewater collection system, which

28:15includes wastewater treatment.

28:18Um and I'm going to ask Lisa also to

28:19introduce any of the staff or

28:21consultants online. So, thank you.

28:24>> Thank you so much. Yes, um

28:26good evening, uh council members,

28:28commissioners.

28:29And my name is Lisa Blair, and I want

28:32also want to mention that we have Kate

28:33Murdoch and Ross Hagen from Baker Tilly

28:36available online

28:37if there are questions on the work that

28:39they did.

28:41This as as Alan just mentioned, we are

28:43following up on the conversation that we

28:45had in September on the utility

28:47reserves.

28:48At that time, the UAC recommended that

28:50the CIP reserves remain at a level of or

28:54be set with a target at a level of

28:56annual average CIP budget for the

28:58electric, water, and gas utilities.

29:01And the

29:02UAC requested more information on the

29:04pros and cons of a rate stabilization

29:06reserve.

29:07After that, the Finance Committee we

29:09went to the Finance Committee and they

29:10agreed with the direction of the UAC.

29:14Uh we also plan to discuss the

29:16wastewater utilities reserves tonight

29:18because the Regional Water Quality

29:20Control Plant discussed its own reserve

29:23recommendations with the Finance

29:24Committee on October the 20th and will

29:26provide some updates on that here

29:28tonight.

29:30We're going to focus first on the

29:31proposed updates to the wastewater

29:33reserves management practices and then

29:35provide those pros and cons of the rate

29:37stabilization reserve.

29:41If you go to the

29:42the next slide after this one, please.

29:45So two two slides on the wastewater

29:47collection reserve proposals.

29:49It

29:50you know, first of all, I just want to

29:51say we've been listening to the

29:52feedback. We think it's very important

29:54to think about affordability and

29:56mitigating affordability of utility

29:57rates and that is why we're proposing a

29:5910-year implementation timeline for both

30:02the CIP reserve target and the rate

30:04stabilization target for the wastewater

30:06utility.

30:07The proposed target for the CIP reserve

30:10is the average annual CIP budget which

30:12would make it the same as the target

30:15that the UAC recommended for the

30:16electric, gas, and water utilities.

30:19Staff is also recommending a target of

30:2110% of operating expenses for the

30:24wastewater utilities rate stabilization

30:26reserve and we'll get to the more

30:28specific recommendations on the rate

30:31stabilization reserves and once we

30:34finish talking about wastewater.

30:37uh that the combined rate impact of

30:38these recommendations is 0.3%

30:42per year. And you can see the bottom

30:44there how that splits up between CIP and

30:46rate stabilization reserve.

30:48Next slide, please.

30:52This slide shows the full rate impact of

30:55this recommendation, including both the

30:59rate stabilization and CIP reserve

31:01targets as well as the overall utility

31:03rate preliminary rate proposals that

31:05we'll talk about in the second item

31:07tonight.

31:08As well as the rate uh

31:11targets set by the Finance Committee for

31:14the Regional Water Quality Control

31:16Plant. And the Just to give you a little

31:18bit more background on that, the Finance

31:20Committee recommended that the City

31:22Council establish three reserve

31:24categories for the treatment plant,

31:26operations and maintenance, capital

31:28reserve, and debt reserve.

31:30And the Finance Committee tentatively

31:33recommended to use a 5-year range to

31:35achieve these goals, but they did ask

31:36for some additional scenarios.

31:40If you can go to the next two slides

31:42ahead, we're going to move now to

31:44talking about the pros and cons of the

31:46rate stabilization reserve. So, first

31:48I'm going to go through the pros.

31:51The rate stabilization reserve really

31:53protects rate payers from sudden spikes

31:56in rates. Really allows the utility to

31:58keep the rate trajectory that it has

32:00been planned.

32:01It can absorb limited short-term

32:03financial volatility so that temporary

32:05events do not immediately require large

32:08customer rate increases.

32:10It produ- It improves predictability and

32:12stability.

32:14A planned res- uh reserve provides a

32:16tool to manage the rate trajectory

32:18across multiple years.

32:20It also mitigates revenue risk.

32:23Utility revenues can vary because of

32:26weather extremes, customer conservation,

32:28economic downturns, and the differences

32:31between projected and actual growth.

32:33Rate stabilization reserves also

32:35mitigate expense risk. Reserves can help

32:38address unanticipated, non-recurring

32:40costs such as emergency repairs, supply

32:43chain price pressures, or other

32:45operational disruptions.

32:47So, used appropriately, a rate

32:49stabilization reserve can allow the city

32:50to respond to volatility without

32:52compromising essential utility

32:54operations or service reliability.

32:58Now, I want to talk about some of the

32:59cons and some of the guidelines that

33:01we're proposing in order to mitigate

33:03those considerations.

33:07We thought about the feedback from the

33:08session in September, and the rate

33:11stabilization reserve should not be a

33:13substitute for necessary rate increases.

33:16Deferring rate increases indefinitely

33:18could could lead to

33:20um a larger financial challenge in the

33:22future years.

33:24So, to address this,

33:25the use of funds from the rate

33:27stabilization reserve should be limited

33:29to non-recurring events or one-time

33:32revenue or expense fluctuations.

33:35So, we proposed guidelines that would

33:37restrict the reserve use to temporary,

33:40non-recurring revenue or expense

33:41fluctuations, rather than recurring

33:43operating costs.

33:46The

33:48additionally,

33:49the reserve should require a

33:51replenishment plan. So, if reserves fall

33:53below the target level, the proposed

33:55guidelines would require a clear plan

33:57and timeline to restore the balance.

34:00Additionally, these

34:02guidelines align with the general funds

34:05budget stabilization policy, ensuring

34:07that ongoing cost increases or revenue

34:09declines are addressed through timely

34:11rate adjustments, rather than by using

34:13limited reserves.

34:16I do want to recognize there is

34:18additional administrative complexity

34:20from having a separate rate

34:21stabilization reserve,

34:23and tying up funds in the rate

34:25stabilization reserve means that they're

34:27not available for other uses.

34:31But, the question here is the policy

34:33question to bring to you is

34:36how to establish guidelines for a rate

34:38stabilization reserve that balance

34:40customer rate stability with long-term

34:42financial sustainability.

34:44And we are proposing those clear

34:47targets, replenishment requirements, and

34:48limits to the use of the funds

34:51to non-recurring revenue and expense

34:53fluctuations. And we're also going to be

34:55reporting on these reserve balances

34:58frequently to the UAC Finance Committee

35:00and Council and to customers.

35:04Next slide, please.

35:05We do have an alternative that we

35:07outlined in our staff report.

35:10If you

35:11want to consider it, we could combine

35:13the rate stabilization reserve and the

35:15operations reserve.

35:17And we took in the table, you can see

35:19that we took the current targets based

35:21on the GFOA recommendations, and we

35:25added an amount based on the 10%

35:28operating expenses for the distribution

35:30expenses. And we calculated an

35:31equivalent number of days for each of

35:33the utilities.

35:35And so we could increase the operations

35:36reserve balance to the number that's at

35:38the bottom of the table, the 105 days

35:41for electric

35:43uh

35:44and that row, the very

35:45very bottom row.

35:47This

35:48uh the benefits of this is is it could

35:51be that the funds in this reserve that's

35:53combined could be used for any purposes.

35:55It could be used for eligible

35:57operational needs, including rate

35:59stabilization reserve.

36:02Um

36:03including rate stabilization, excuse me.

36:05So,

36:07this approach could provide additional

36:08flexibility in spending the funds

36:11because there wouldn't be separate

36:12reserves with the defined purposes and

36:14restrictions.

36:15And this but uh however, I wanted to

36:17mention that this type of structure is

36:19less consistent with the peer group that

36:21was reviewed by Baker Tilly.

36:25Um

36:26let's go to the recommendation slide.

36:28This is the last slide. So, overall,

36:31regarding the wastewater utility, we're

36:33recommending that uh we could replace

36:36the

36:37minimum and maximum guidelines with the

36:39average annual CAP budget as a target

36:42and implement this through a 10-year

36:44timeline for achieving that target. And

36:46then for the rate stabilization reserve

36:48for all the utilities, electric, gas,

36:50water, and wastewater collection,

36:52we're recommending to establish a rate

36:54stabilization reserve target based on

36:5610% of operating expenses, and define

36:59rules for the use of those reserves as I

37:01mentioned.

37:04Um again, we're recommending a 5-year

37:06timeline for achieving the rate

37:08stabilization target for the electric,

37:10gas, and water utilities, and

37:12recommending a 10-year timeline for the

37:13wastewater collection utility. And with

37:15that, I'd be happy to try to answer any

37:17questions you have. Thank you.

37:21>> Thank you. Um we'll now turn to public

37:24comment. Um

37:26are there any members of the public

37:28wishing to speak on agenda item number

37:31two?

37:33>> If any member of the public would like

37:34to speak on item two, please raise your

37:36hand or press star nine now.

37:41We have no requests to speak.

37:43>> Okay, then we'll close public comment

37:45and open for um any clarifying questions

37:48from commissioners.

37:52If there are no um

37:55Commissioner DeCicco?

37:56>> First, apologies for being late today.

37:58Um

37:59just a clarifying question on uh

38:02table four. What is

38:04table four? It appears to be

38:07utility forecast.

38:21It's on page 34

38:25of the packet.

38:28>> Sorry, thank you. I was struggling to

38:30find table four. Table four is the

38:31overall preliminary rate projection for

38:35um

38:35the waste for the wastewater utility.

38:38Um so, it shows in the first line, it

38:41shows the preliminary forecast, and then

38:42it is split into

38:43>> It's rates.

38:44>> Yes, but it also just the clarifying

38:46point is that it also includes these

38:48recommendations that I just talked about

38:50for the reserves.

38:51>> Okay. Um

38:55I would ask that the report say what it

38:57is. It's rate increases. I took a mice

39:01took me a bit to figure that out. Um

39:04It's striking that uh a 16% rate

39:08increase, which is what wastewater did

39:09this fiscal year, is not included in

39:13that uh box. It would be kind of nice to

39:15know because what we're really looking

39:17for is what's going on with wastewater

39:19rates. And what is going on is a 43%

39:22compound growth over those four years.

39:2543% over four years. Not including the

39:2816% right now. So

39:32wastewater rates are growing gangbusters

39:35and I wish this chart had been more

39:37transparent.

39:39>> Are there any other clarifying questions

39:41or would you like to turn to

39:41commissioner decision?

39:43Mr. Sharp.

39:46>> It's probably my bad, but I'm a little

39:48confused of what you're asking us to

39:49approve under this. You're asking us to

39:51approve

39:53the wastewater collection practices,

39:55right? And the wastewater rate

39:58um

39:59but you're also asking us to do

40:00stabilization rates for all of the

40:02utilities at the same

40:03>> Yes, uh in the September meeting we came

40:06with a proposal for increasing or

40:08establishing the rate stabilization

40:09reserve at 10% of the operation expense

40:12from the distribution side for the

40:14electric, gas, and water utilities. And

40:17the commission said that they weren't

40:19going to take an action on that at that

40:20time. And instead, they wanted to see

40:22pros and cons of the rate stabilization

40:24reserve before taking an action. So now

40:27we're ready to bring back all four

40:28utilities, including

40:30wastewater collection. So that's That's

40:32the ask.

40:32>> So what you want us to do is to discuss

40:34the pros and cons of rate stabilization

40:37reserves, right? And then vote to either

40:40do rate stabilization reserves or not.

40:44Is that

40:44>> Yes, and then also address the uh CIP

40:47reserve for the wastewater collection

40:49utility if you would like to uh,

40:52set the target there at the annual

40:54average CIP.

40:56>> Can you

40:58Can you tell me why

41:00wastewater

41:03I think this falls into the clarifying.

41:04Can you Can you tell me why wastewater

41:07would need a stabilization reserve? I

41:09mean, with gas I get it. Gas commodity

41:11prices can go up.

41:13With wastewater I I don't get it. I

41:15mean, what am I missing there?

41:16Wastewater would need the smoke would

41:18strike wastewater as something that

41:20needs a stabilization reserve on the

41:22same level as

41:23you know, gas for instance.

41:25>> That's a great question. And you know,

41:26on the residential side not so much, but

41:29for uh, commercial customers uh, they do

41:32base their bills based on their average

41:35um, winter water usage. And so the water

41:38usage can fluctuate uh, and so for

41:40example,

41:42during the pandemic we did have a

41:44significant downward fluctuation in the

41:47wastewater revenue. And that did

41:49generate some of the rate increases that

41:51Not not all of the rate increases, but

41:53it it put upward pressure on the rates

41:55for the wastewater utility. And uh,

41:58that is the type of purpose that this

42:01rate stabilization reserve would serve

42:03is that when you see a downward

42:04fluctuation due to

42:06uh, pandemic and then it comes back

42:08again, that one time type of revenue

42:11fluctuation would be addressed by a rate

42:12stabilization reserve.

42:14>> So,

42:15putting aside a pandemic, I I totally

42:17get that.

42:19Can you think of anything else that

42:21would cause

42:23a one-time fluctuation

42:26down that would spike it down?

42:29And I understand that, you know, on

42:30residential it probably doesn't change

42:32at all. That's what I'm thinking.

42:34>> All right. It It's not only covering

42:37revenue fluctuations, but also expense

42:39fluctuations. So if we have a one-time

42:41expense either from the treatment plant

42:43or from an emergency repair or, you

42:46know, in the past we had a a vehicle

42:48payment that was really large uh, for

42:51the wastewater utility. So, there can be

42:52one-time one-time costs that are going

42:54to come back down again, and that's the

42:56type of fluctuation that this rate

42:58stabilization reserve can also address.

43:00>> your operations reserve for that.

43:06>> Your operations reserve would be focused

43:07more on

43:09um

43:11a typical operating expenses, not these

43:12one-time type of fluctuations in um

43:16and specific like emergency type of

43:18repairs. But, you know, you're right.

43:20>> to be argumentative, but

43:22isn't an operations reserve

43:25for those kind of things?

43:27Whereas a a regular operation should

43:29cover

43:31everything that's not a one-time

43:32expense.

43:34Right? I mean, you when you do your

43:35budget for the year, you should know

43:37what your expenses are. And yes,

43:39some you know, machine could break and

43:41you have to replace it, but that's what

43:43your reserve is for. No, your operations

43:45reserve. I mean, I

43:47I I don't see it. I don't see the the

43:49connection. And maybe it's just me, but

43:52I don't get it.

43:54>> Um I am wondering if um

43:57Kate or

43:58Ross, if you want to

44:01articulate a little bit more clearly

44:02what the difference is between the rate

44:04stabilization and the operations reserve

44:06in your research across the state.

44:09>> Sure.

44:10>> Well, if you could focus specifically on

44:12the wastewater utility.

44:14>> Sure, absolutely. Um so, as Lisa

44:18mentioned, um a rate stabilization

44:20reserve can be used on kind of either

44:22side, you know, revenue, expenses,

44:26um when you have those unusual irregular

44:29type of costs. And understand that

44:32operations reserve can serve a similar

44:34purpose as well in many cases.

44:37Um I think Lisa highlighted well um the

44:40you know, the difference with you know,

44:42operation reserve covering

44:45those fluctuations in day-to-day type of

44:47costs. I think when we're looking at a

44:49rate stabilization reserve, um often

44:52times it can be a question of magnitude.

44:55Um, so if you have a larger, you know,

44:59emergency break or something that needs

45:01fixed that's very costly,

45:03um, that may be a good time to use rate

45:06stabilization reserve funds versus your

45:08operations reserve, um, where you do

45:10want to maintain, you know, certain

45:12levels of liquidity, protect your cash

45:14balances within the operations reserve.

45:17So, I think there's some benefit there.

45:19Um, I think there's also benefit, um,

45:22with having kind of those clearly

45:25defined purposes for that rate

45:26stabilization reserve.

45:28Um, so that and that goes along with the

45:30recommendation that Lisa kind of

45:32outlined,

45:33um, so that you know, those dollars are

45:36set aside and exclusively used for that

45:38purpose, uh, versus the more kind of

45:41broadly used operations reserves if you

45:43have those fluctuations in those

45:45operating costs. Um, we did research,

45:48um, in 2025 various examples of, you

45:52know, uses of operations reserves in

45:55California utilities, generally

45:57speaking. Um, and we saw, you know,

46:00varying uses that we've kind of

46:02discussed today. We've seen,

46:05um,

46:05volatile purchased resource costs that's

46:07not as applicable with the wastewater

46:09utility as we discussed. Um, but we did

46:12see a couple of examples. So, one was,

46:15um, with a wastewater utility there was

46:17some utility-related legal litigation

46:20expenses that came up for wastewater

46:22utility. Um, rate stabilization reserve

46:25funds were used in that case to help

46:27mitigate those costs, um, and prevent

46:30rate increases, um, to pay for those

46:32costs. Um, so that's kind of an example

46:34that we haven't, uh, touched on, but

46:36you'd be looking at that as kind of an

46:38unexpected cost, um, that's outside of

46:40your typical use of that operations

46:42reserve. Um, and then we saw multiple

46:45examples of, you know, those larger

46:48breaks, capital type of items, um,

46:52you know, to your capital infrastructure

46:54rather,

46:56um, that were kind of smoothed out

46:57through use of those rate stabilization

46:59reserves versus the operations reserve.

47:02I I do see the point with the

47:03>> Can I just ask a quick question? Would

47:04that

47:05not come from your CIP reserve then?

47:10>> So, it's a good question.

47:12I think it depends on how you're

47:15classifying your projects and how you're

47:17funding your CIP reserve. So, CIP

47:20reserve typically would be used for

47:23those kind of planned capital projects.

47:26When you have a a break, if we're not

47:28doing like a full replacement of, you

47:31know, infrastructure, maybe of a line,

47:34you could use rate stabilization reserve

47:37or operation reserve dollars depending

47:39on the magnitude versus those capital

47:43the CIP reserves that you'd use

47:44typically for more scheduled projects.

47:47But, I think a lot of that comes down to

47:49policy, you know, for the utility

47:51itself. I have seen CIP reserves used

47:54for instances like that as well. So, I

47:57think it would be dependent on

47:59policy for the individual utility.

48:03>> Mr. Chairman, is your question fully

48:05answered?

48:06>> No, not really.

48:09>> I do understand the struggle with the

48:11the differentiation and I think that

48:13goes to the point of the possibility of

48:15combining the two. We do see that

48:18frequently. We did not see that in the

48:19peer group that we looked at

48:22for the purposes of our study, but we do

48:23see it elsewhere throughout throughout

48:25the country combined operations rate

48:27stabilization reserves.

48:29>> Thank you, Russ. Um,

48:31Commissioner Phillips, do you have

48:31another clarifying question?

48:33>> I very much have a clarifying question.

48:36Um, so I understand that the

48:39finance committee

48:41just recommended to is going to

48:43recommend to the council

48:45um

48:46reserves for the RW's

48:49for the wastewater treatment plant

48:50itself for

48:52operating and maintenance capital

48:53reserve and debt reserve. I'm going to

48:55make sure I understand those are

48:58um those stop those have to do with what

49:00happens at the wastewater treatment

49:02plant.

49:03But

49:04then those are going to be passed

49:06through or added presumably to Palo Alto

49:09uh, based on our usage. This is in

49:11addition to that

49:13and applies specifically to the

49:16operations and maintenance part within

49:19the utility. Is that correct?

49:21>> Yes, this is in addition. I did want to

49:23add, um,

49:25that the the wastewater treatment plant

49:27did historically have a rate

49:28stabilization reserve, but because they

49:30don't really have rates, they bill their

49:32partners quarterly, they are no longer

49:35going to have that rate stabilization

49:37reserve. So, stabilizing customer rates

49:40falls with the wastewater collection

49:42utility. And so, that's that that is

49:45what we're talking about here is

49:46stabilizing the rates for our customers

49:48of the of the waste wastewater

49:50collection utility. And any instability

49:53in how much we owe the treatment plant

49:55due to fluctuations there,

49:57um,

49:58we will need to we will need to absorb

50:00those in our in our utility.

50:02>> But they will have an operating reserve,

50:04a debt reserve, and a capital reserve

50:07that they have not had in the past. Is

50:08that correct?

50:08>> For those

50:09>> So, they will actually have more

50:10reserves

50:11which, you know, hopefully should smooth

50:13out. I understand

50:15they're not going to have rate

50:15stabilization

50:17per se, but some of the impacts I was

50:19hearing while there's a spike in

50:20operations,

50:21there those should be

50:23mitigated by their own reserves. Is that

50:25correct?

50:28Or

50:28>> I guess the what

50:29>> Yeah, that that is correct. I mean, they

50:31they are they're adding on the treatment

50:33plant a 10% associated for the capital

50:35reserve, and they wanted to increase

50:37that. Finance Committee said they wanted

50:38to look at increasing that to a 20%

50:41level over time.

50:42You know, when we look at our rate

50:43stabilization reserve and the

50:45recommendation from Baker Tilly, we were

50:47looking at extending that over a longer

50:48period of time. So, a 10% over 10 years.

50:51So, growing that rate stabilization

50:53reserve over a longer period of time

50:55just because there could be a concern of

50:57that we're creating a lot of reserves

50:59right now and creating more impact on

51:01rates. So, we're very mindful of that

51:03and and very mindful of that with some

51:05of the recommendations that came from

51:06UAC and finance. So, we've we've kind of

51:08embedded that in our our recommendation

51:10here. So, not building a reserve on top

51:13of reserve.

51:14>> Okay, but just again, clarifying what

51:17you've just said and

51:19what I

51:20am

51:21extrapolating from a combination of

51:24Commissioner Phillips and and your

51:25comments is that there's a 20%

51:29reserve already at the plant. And now

51:32we're adding on this 10% reserve for

51:36Palo Alto's additional liability, which

51:40is primarily in the collection system,

51:42if it isn't at the plant itself, right?

51:45I mean, yes, it

51:47if the plant is already reserved

51:49collectively,

51:51then the reserves we're looking at are

51:54really collection system reserves.

51:56And therefore, the 10% basis should

51:59reflect the correct basis, which is

52:02simply your annual collection system

52:04maintenance costs.

52:06Does that make sense?

52:08Or am I misunderstanding?

52:13>> Yeah, I think that that sounds right.

52:15Okay, but what we're currently basing

52:17our

52:19uh

52:19reserve estimate, the number that we're

52:22currently basing our reserve estimates

52:23on,

52:24is the entire wastewater utility, not

52:27just the collection system part of that

52:29wastewater utility. Is that also

52:31correct?

52:37>> This is a good question. I'm

52:38double-checking with the team if we

52:40calculated it based on the uh

52:42operations, the distribution, the

52:44collection portion, or the treatment

52:46portion. Okay, so if it is based on the

52:51whole portion, then it is probably an

52:55order of magnitude larger than it should

52:57be,

52:58right?

52:59If it is only on the collection system,

53:01then

53:03great. Um

53:06That seems appropriate. So, we

53:07calculated it based on the treatment

53:09portion as well, but we could

53:11recalculate based on the collection

53:13system. And you're right, that would

53:14make it uh smaller.

53:17We can easily do that. Okay.

53:19>> I do I do want to note that just

53:21historically um

53:23we are just paying off the loan that

53:25that the wastewater utility took from

53:28the fiber utility because it that did

53:29not have a reserve. So, that's kind of

53:31one of the nexus of the reserve

53:32policies, but this is exactly the kind

53:34of the conversation we want to have is

53:36are we actually looking at these

53:38stabilization reserves right there?

53:39>> we're just looking for clear math,

53:41right? And and we want to know what we

53:44are reserving for, and we don't want to

53:47double reserve. And it does seem like

53:49the current math is incorrect.

53:52So, let's recalculate based on

53:56collection system reserve, and let's

53:57talk about what are the risks that we

53:59see

54:01to the collection system that these

54:03different reserves would cover, because

54:05that's not operational.

54:09I mean, you said things like, you know,

54:10rates and other things. Like,

54:13the risk in the collection system is a

54:15major line break, right? The risk the

54:17one-time risk in the collection system

54:20is just very different than the risks

54:21that you face when managing a plant. So,

54:24it may be helpful to very specifically

54:26focus on collection system risks for the

54:29wastewater utility.

54:33Could we dig in Would that be helpful? I

54:36mean, we don't have to, but

54:37>> No, that's helpful for me. I mean, I

54:40Look, I

54:41I think you're very confusing with the

54:43concept of a rate stabilization reserve.

54:46An operations reserve, I get. You know,

54:48we have may have a big,

54:49you know, line break. If you came to me

54:51and said, "Hey, we've calculated that we

54:52could have this kind of a magnitude of a

54:54line break. We need to have an X amount

54:56of reserves because that's the risk

54:59we're facing."

55:01By calling it a rate stabilization

55:02reserve,

55:03it's

55:04sloppy thinking.

55:06Because unless you can point to how

55:09we're going to stabilize rates

55:11like in terms of a major like the

55:13pandemic I get, but this is wastewater.

55:15People going to flush their toilets

55:17virtually no matter what. So yes, maybe

55:19it's a commercial issue. And if so, what

55:22you pointed out was like a pandemic

55:23where people stopped using

55:26the service and since you have fixed

55:28costs, therefore everyone's rate goes

55:29up.

55:31But if they stop using the service

55:34I don't quite see a spike in rates

55:36on that as much. Maybe, but maybe it is,

55:38but maybe you could lay it, but that's a

55:39once in I've had one pandemic in my

55:42life.

55:44Right? I mean I'm not I don't think we

55:45should be reserving for the next

55:47pandemic.

55:48So I'm having a real hard time here like

55:51understanding what you guys want and why

55:53we should do that and then maybe I'm the

55:56only one that's struck by the irony of

55:58this.

55:59You talk about a rate stabilization

56:00reserve and yet you show rates of 12%,

56:0312%, 9% 5%, and then 4%

56:06>> 16% which you don't show.

56:08>> And 16% what they don't show.

56:10That's not a stable rate

56:13increase.

56:14That's not 4 and 5% every year. That's

56:17ranging from 16 to 4.

56:20So if you're telling me that you think

56:22that's the problem

56:24then sure.

56:26Um if that's the problem, how is this

56:28going to solve that problem and you'll

56:29never come back to us again with 16, 12,

56:32whatever. You expect rates to be no

56:34increase no more than 4 or 5% every

56:36year. But that's not So I don't

56:38understand what the problem is you're

56:39trying to solve by calling it a rate

56:41stabilization reserve.

56:43If you just called it an operations

56:45reserve and said, "Hey, we've looked at

56:46this. We need to be able to stop a line

56:48break or whatever and therefore we need

56:51X amount of operations reserve." I would

56:52have said, "Yep, sure." Pulling out my

56:54rubber stamp and stamp it.

56:56You know? But this I have a real hard

56:58time with.

57:03>> Okay, I think we're through our

57:04clarifying questions.

57:06>> That was more than clarifying.

57:07>> Have we moved on?

57:09So

57:09>> I I do um need to keep us on time today

57:13uh somewhat rigidly. Um so I let's open

57:18it up for uh discussion. Um Commissioner

57:21Goff, you have not had a chance to speak

57:22yet, so we'll let you go first.

57:25>> I was going to say that my clarifying

57:26question was going to

57:29piggyback on yours, but um I did also

57:32want to

57:34express um I I also am confused

57:39by the difference and and one of the

57:41things that makes me think that an

57:43operations reserve that's just increased

57:46by an amount to get us the equivalent

57:49amount that we want in the rate

57:50stabilization reserve.

57:52Is that two places in the packet we talk

57:55about smoothing rates with our reserves

57:58that we already have reserve accounts.

58:00So one's on page 45, which is item

58:03three, one's on page 40

58:06seven that's in item three. Um

58:09just to read it. Says because the ending

58:12uh let's see which this is wastewater.

58:15Because the ending

58:1726 operations reserve balance is higher

58:19than the max guideline, staff proposes

58:22utilizing excess funds to reduce the

58:23rate increase in 2028. Um

58:27et cetera. And it's basically using the

58:30reserve to smooth rates already.

58:33So to me it does feel like it gives us

58:36more flexibility to use um

58:39the

58:41the reserves for any situation that

58:45comes up uh whether it's

58:47it

58:48how do you decide, oh this is a one-time

58:49thing versus um you know, it's a

58:52one-time demand

58:54shift um versus a one-time uh

58:58operational issue that comes up. It

59:00feels like they could get mixed together

59:02and I would I would like to understand I

59:04had a question here on what process is

59:07for pulling the trigger on using the

59:09rate or reserve. Do you have the freedom

59:13to just put it in there? Does it have to

59:15go to council? Does it just come through

59:17the whole process here and we discuss,

59:19oh, we're pulling down the rate

59:20stabilization reserve in order to

59:22smooth out these rates. So, to me it

59:24does feel like the operating combining

59:27it all in an operating reserve would

59:28just

59:29be more

59:31flexible, but I would if you if you

59:33could please talk about

59:36how

59:37the decisions are made to actually use

59:40the reserves and what's the kind of

59:42process of approval or or is CPAU just

59:46free to do it?

59:48>> That's a great question. So, after this

59:51meeting, we are planning to go

59:54back to the finance committee and then

59:55to the council and when we bring those

59:57reports forward, we are planning to

59:59write write these changes down in our

1:00:03guidelines for how we

1:00:05how we manage our reserves.

1:00:07And we haven't had time to do that yet,

1:00:09but that's where we'll articulate, you

1:00:12know, exactly what the process is for

1:00:14being able to use these reserves.

1:00:16Currently, it needs to go to council to

1:00:19get approval to use funds or move funds

1:00:21in and out of the rate stabilization

1:00:23reserve.

1:00:24However, I think there could be a role

1:00:27here for having more flexibility to be

1:00:31able to use the funds. Staff could

1:00:33propose that and we would bring it in

1:00:35our annual updates and financial

1:00:37forecast that we would that would bring

1:00:39to the UAC finance committee and

1:00:41council, but that's something that we

1:00:42would welcome your feedback and thoughts

1:00:45about. I'm imagining that we would you

1:00:47know, propose a

1:00:50or make reserve withdrawal or deposit

1:00:53into the rate stabilization reserve and

1:00:55then explain the reasons behind that and

1:00:57then make a [clears throat] change if it

1:00:59if it was determined to be

1:01:00inappropriate.

1:01:02>> And is that the same process for using

1:01:03the operating reserve right now? Like

1:01:05that goes to council as well?

1:01:09>> Right now for the operations reserve, we

1:01:12use the operations reserve as the place

1:01:15that

1:01:16um um

1:01:18expense or revenue fluctuations would be

1:01:20captured unless we bring it forward to

1:01:22the council to make uh the funds come

1:01:25from a different place, a different

1:01:27reserve.

1:01:28But, I mean like in the example that I

1:01:29gave uh for wastewater and using the

1:01:32reserve to smooth rates, is that

1:01:35something that needs to go to council?

1:01:37Is that just part of the rate-setting

1:01:39process that we all see every year?

1:01:42Yes. We're trying to uh uh explain what

1:01:45our proposal is, how we're thinking

1:01:46about how to use the different reserves

1:01:48to uh

1:01:50based on the feedback that we've gotten

1:01:52from the UAC and finance committee and

1:01:53council in prior years. We're thinking

1:01:55about that, trying to make the rates uh

1:01:57as stable and affordable as possible

1:02:00given the pressures that we're seeing

1:02:02and affordability and uh the costs, and

1:02:06we're we're bringing that forward to

1:02:08you. So, yes, you could uh

1:02:10make recommendations on that when we get

1:02:12to that that next item.

1:02:20Great. Uh Commissioner Tucker?

1:02:22>> Hi. Uh um

1:02:25I'm

1:02:26I'm not going to be in favor of a of

1:02:28additional RSRs. Um I think it was

1:02:30pointed out here that one of the

1:02:32utilities, in fact two of the utilities,

1:02:35already have uh

1:02:37a

1:02:38good reserve a rate stabilization rate.

1:02:40Uh I personally believe that there are

1:02:42only two types of reserve appropriate

1:02:44for any uh of these utilities. There's

1:02:47ops and there's uh capex, and every

1:02:51there there are all kinds of things. We

1:02:52call them hydro stabilization, rate

1:02:54stabilization, special projects for

1:02:56electrical, but really we just have so

1:02:59many accounts that just confuses

1:03:01ourselves. No one really can give a

1:03:03cohesive summary of what our reserve

1:03:05status is for utility because we make it

1:03:08so difficult. Uh so, not only are there

1:03:10too many accounts, but it's

1:03:12inconceivable to me why we think, and I

1:03:15said this last time we talked about

1:03:16reserves, why are all four utilities

1:03:18treated equal? Why does everyone get a

1:03:21proposed 10%? Never mind that two

1:03:24already have good reserves. Never mind

1:03:25that electrical

1:03:27electric is reserved up the to the hilt.

1:03:30I mean, and we thought we would have $40

1:03:32million of CIP reserve for electrical at

1:03:35the start of

1:03:36this past fiscal year. We raised it to

1:03:3850 million

1:03:40I think in March. It ended up at 61

1:03:42million. So, we're doing we're very

1:03:45nicely reserved. We have too many

1:03:47accounts. We have too much money in the

1:03:49accounts

1:03:50for my mind. There are exceptions like I

1:03:53think it's gas

1:03:54CIP that need to be rebuilt, but

1:03:58that's going to be

1:04:00that's going to be my recommendation.

1:04:01Again, you can't take all four utilities

1:04:04each with such a different profile.

1:04:06Like Greg said,

1:04:08I don't really see how you need rate

1:04:10stabilization in wastewater, but you do

1:04:12in gas and arguably in water.

1:04:15Everyone's going to be different and

1:04:16everyone has a different set of reserves

1:04:19right now. So,

1:04:21I'd like to see

1:04:23what are the risks profiles that each

1:04:26utility faces weather related or you

1:04:30know, a spike in in cogs or whatever it

1:04:32is.

1:04:33This is what we have to protect against.

1:04:35This is our protecting it. Keep it

1:04:36simple. Make it clear. Um

1:04:39and I'm afraid this is not that. We've

1:04:42really over delivered in a lot of our

1:04:44businesses with high profits greater

1:04:46than you know, greater than high net

1:04:47income or contribution compared to

1:04:50budget driving up reserves higher than

1:04:52we expected. And so, it's strange to be

1:04:56talking about more

1:04:58reserves.

1:05:03>> Mr. Phillips.

1:05:05>> Yeah, I think I mean, I don't want to go

1:05:07too far in the

1:05:08direction of piling on, but

1:05:11um couple things. I thought the pros and

1:05:14cons were a bit biased. The

1:05:17the

1:05:19pros and I'm talking about the pros and

1:05:20cons for the rate stabilization.

1:05:23Uh the first pro is the only one that's

1:05:24a real argument. The rest are just what

1:05:26we would do with it.

1:05:28Um

1:05:29regarding the cons,

1:05:31one question I would have is how big is

1:05:32the added administrative complexity? It

1:05:34doesn't seem to me it would be that big,

1:05:36but that's

1:05:37another that's just a side question.

1:05:39I would say the opportunity cost that's

1:05:41here is not borne by the utility, it's

1:05:43borne by customers. Customers pay the

1:05:45money. If we increase the reserve

1:05:47amount, it comes from customers and they

1:05:50the opportunity cost is them not being

1:05:53able to purchase as much, not the

1:05:54utility

1:05:55being able not to do something.

1:05:58You know, the rate stabilization

1:05:59reserves in particular have the quality

1:06:02that those who pay are not necessarily

1:06:03those who benefit.

1:06:05And arguably trying to shield customers

1:06:07from market realities is not necessarily

1:06:09the right thing to do.

1:06:11Reciting a little bit of what I think

1:06:12Commissioner Tucker was

1:06:14was saying, I'm a little disappointed

1:06:16that there does not exist

1:06:18a

1:06:20scientific It's a magic numbers. I mean,

1:06:22it's 10% because we have 10 fingers. I

1:06:24got it. But I mean, you know, why is the

1:06:27same for every utility?

1:06:29You know, why is it

1:06:32Hasn't somebody looked at the natural

1:06:34volatility of gas and electricity,

1:06:36which are very different? I mean, the

1:06:37studies must have been done somewhere.

1:06:40And water

1:06:42versus waste water, where I still have

1:06:44not heard what I would believe

1:06:46my

1:06:47my tendency would be to say, no RSR for

1:06:50waste water. I don't see anything in the

1:06:54both anecdotes or scenarios about when

1:06:56it would be used are not very

1:06:57convincing, to be quite honest. Um you

1:07:00know, the one, well, we could combine it

1:07:01and we could have one bigger reserve and

1:07:03we could use it for more things is not

1:07:05really a very good argument

1:07:07in my case. Uh going on to the

1:07:11the um

1:07:13the alternatives for electricity,

1:07:15I would prefer to have a combined rate

1:07:18stabilization reserve and an operations

1:07:19reserve, but I would have it at a lower

1:07:21total level. I'd have it I wouldn't have

1:07:23it as a sum of the two. I think we're

1:07:25wildly over reserved. I think in an area

1:07:28where we're expecting our customers to

1:07:29swallow double-digit increases, it's not

1:07:33fair.

1:07:34It's not contributing to what I think we

1:07:37should be contributing, which was

1:07:38mentioned by a few people, helping with

1:07:41the cost of living. And I think we

1:07:42should be taking,

1:07:43you know, a much closer and hard-eyed

1:07:45look at what do we really need.

1:07:48Um

1:07:49I have other questions about but I'll

1:07:51leave them to the last item about what

1:07:52happens when we have end up being over

1:07:54reserved as we have been. There's a

1:07:56number of recommendations about when

1:07:58this case we want to use it to lower

1:08:00rates, in this case we want to move it

1:08:01from one reserve category to another,

1:08:03but I'll leave that for the for the I

1:08:05think it's item number four.

1:08:06Thank you.

1:08:11>> Anyone else? Commissioner Scharff.

1:08:13>> You know, I I think one of the thing we

1:08:15should think about when we ask for rate

1:08:17stabilization reserves is what we're

1:08:19really doing is we're taking money from

1:08:21one set of customers customers and

1:08:24subsidizing a future set of customers.

1:08:27And those customers are not the same.

1:08:29People move in and out of Palo Alto and

1:08:31and all of that. And so there's

1:08:33sometimes there's good reasons to do

1:08:35that.

1:08:36Um it's less of an issue if you're

1:08:38thinking about a CIP reserve is

1:08:40different for instance because what you

1:08:42should be doing is advertising the

1:08:44you know, the stuff over and so instead

1:08:46of having one customer pay for a break

1:08:48all the time,

1:08:49you know, you're you're spreading that

1:08:51out over a longer period and that makes

1:08:54total sense. But when it comes to

1:08:55actually stabilizing rates, that's what

1:08:58you're doing.

1:09:00So I I just wanted to to raise that. So

1:09:02I think

1:09:04I think rate stabilization reserves are

1:09:06suspect to start with in lots of ways.

1:09:08And I think with waste water they make

1:09:09absolutely no sense. But I mean, there

1:09:11seems to be a good argument for gas with

1:09:14the exception that we actually seem to

1:09:16want people to use less gas. And so

1:09:19therefore you'd think you'd want the

1:09:20market signals

1:09:22to hit people and tell them what's going

1:09:24on. And so therefore use less gas when

1:09:27rates go up.

1:09:28Um

1:09:30you know, cuz basically what a rate

1:09:31stabilization reserve does is it stops

1:09:33market signals from getting to the

1:09:35customer.

1:09:37And you know, there that may be

1:09:38appropriate. I'm not saying it's not,

1:09:40but that's that's the effect of that.

1:09:42So, I'm still a little unclear.

1:09:45I know how I'm going to vote on waste

1:09:46water.

1:09:47But you're asking for what are you

1:09:49asking for on the other ones? Are you

1:09:50asking to us just to

1:09:52>> 10% for each.

1:09:53>> to approve 10% for everything across the

1:09:55board.

1:09:58>> Yes, I just want to say that, you know,

1:10:00a couple of years ago, just really

1:10:02briefly, a couple of years ago there

1:10:04were questions that came from the

1:10:06finance committee, the council about

1:10:07whether the utility had um

1:10:11too high reserves, too low reserves. And

1:10:14so there was a request to be curtailed

1:10:16to do this report. And the report, one

1:10:18of the recommendations was to that the

1:10:20peer group that was reviewed

1:10:23uh

1:10:24had rate stabilization reserves that

1:10:26range from 10 to 65% of operating

1:10:29expense or operating revenue.

1:10:32So, knowing the importance of

1:10:33affordability and

1:10:36um you know, rate stabilization, staff

1:10:39selected the lowest end of all of those

1:10:42recommendations, which is the 10% for

1:10:44each of the utilities. And that's the

1:10:46origin of where that came from. So, yes,

1:10:48we're requesting the 10%

1:10:50level for the rate stabilization reserve

1:10:52uh for the electric, gas, water, and

1:10:55waste water utilities. I hope that

1:10:57answers the question.

1:10:58>> Those are separate from the operations

1:11:00reserve.

1:11:00>> Those are separate from the operations

1:11:01reserve, but as I explained, that an

1:11:04alternative that the UAC could consider

1:11:06is combining the rate stabilization and

1:11:09the operations reserve.

1:11:10>> Or just not having a rate stabilization.

1:11:13>> Sure.

1:11:13>> Cuz we have the operations reserve.

1:11:17And we could ask you to go back and say,

1:11:19"How big an operations reserve do you

1:11:20need?

1:11:21Do you need to just combine the two? Or

1:11:23do you need a slightly larger one? Or

1:11:26you know, what is that? Right? I mean,

1:11:27that's

1:11:29>> Exactly. What are the risks?

1:11:30>> Can I ask a clarifying question on what

1:11:32you said? Because I My understanding is

1:11:34this does not include fluctuations in

1:11:36supply cost at this point. So,

1:11:40I believe that the rate stabilization

1:11:43reserves do not include an analysis of

1:11:46like gas rates or electric Tell me Tell

1:11:49me if I'm off on this, but I think the

1:11:50supply is

1:11:52uh an analysis is coming in the future

1:11:53that could cause this to go up even

1:11:55more.

1:11:55>> That's correct. So, we would be looking

1:11:58at our supply

1:12:00stabilization reserves once we get some

1:12:03feedback and uh analysis from a rate

1:12:06consultant. So, that's correct. That's

1:12:08excluded here.

1:12:09>> And would that be a supply rate

1:12:11stabilization reserve?

1:12:12>> Yes, of course.

1:12:13>> Yes.

1:12:15>> It sounds a little crazy to me. Um for

1:12:18electric, right? The big issue is hydro.

1:12:21And what kind of a hydro year we have in

1:12:22Palo Alto?

1:12:24I think looking at other utilities

1:12:27may not always make sense. I mean, Palo

1:12:29Alto gets 50% plus hydro. In a great

1:12:32hydro year, we obviously have lower

1:12:34rates. In a weak hydro year,

1:12:37rates may need to go up. So, having a

1:12:39rate But we have a hydro stabilization

1:12:42reserve, I believe.

1:12:43>> $19 million in it.

1:12:44>> Which is supposed to deal with that

1:12:45particular problem. So, why would we

1:12:48need to stabilize electric beyond having

1:12:51a hydro rate? For gas, look, I get it.

1:12:54Gas can shoot up. And it can go down.

1:12:57I personally don't believe you should

1:12:59stabilize that. But if you decide you

1:13:00want to stabilize rates, I get it. That

1:13:03makes intellectual sense to me.

1:13:05Wastewater makes no sense.

1:13:07You know, having an extra electric

1:13:09rate stabilization reserve makes no

1:13:11sense to me.

1:13:13Um which other utility do we have here?

1:13:15Did I miss any?

1:13:16>> We have

1:13:17water

1:13:18>> Water, yeah.

1:13:20>> I mean, water has a rate stabilization

1:13:21of $4 million in it right now. And we

1:13:23want to add to it. And And that $4

1:13:25million for water is already greater

1:13:27than the maximum guideline. It It

1:13:30is there's there's so much

1:13:33brain-breaking analysis in here. I don't

1:13:35I don't

1:13:37>> May may I interject a little bit here?

1:13:38So, I totally appreciate the

1:13:40conversation on the differences, and

1:13:41that's exactly why we wanted to bring

1:13:43this back.

1:13:44Because we want to have that robust kind

1:13:46of discussion on whether you felt that

1:13:47the rate stabilization reserves are

1:13:49warranted. Again, the the Baker Tilly

1:13:51report recommended a

1:13:54a different levels, and staff took that

1:13:56back and recommended the lowest level

1:13:58now. There was also a discussion whether

1:14:00those are right for each utility,

1:14:01because each utility is different,

1:14:03right? On the wastewater side, you could

1:14:05have a sanitary sewer overflow that

1:14:07causes impacts to the environment. That

1:14:09could be a one-time thing where you have

1:14:11that issue, and that could be an impact.

1:14:14Could you cover it in rate stabilization

1:14:16versus an operating? If you have the

1:14:17sufficient reserves, then you have

1:14:19sufficient reserves. The other thing I

1:14:21did want to mention, as we did get our

1:14:23AAA rating for our water

1:14:26refunding bonds, is one of the issues

1:14:27was maintaining the liquidity of of the

1:14:31utility. And that's typically days of

1:14:33cash on hand, and you can call that what

1:14:36you want to call it, but it's typically

1:14:37in your reserves. And we were not at the

1:14:40levels of our peer agencies that had

1:14:43that rating. And when they looked at

1:14:46that, they said they could potentially

1:14:47look at downgrading us if we did not

1:14:49keep our liquidity as the water utility.

1:14:52So, I do want to mention that, the

1:14:53importance of these reserves. Not only

1:14:55do we do go for bonding, when we go for

1:14:57bonding on the electric utility, is to

1:14:59make sure that we have good good

1:15:01liquidity, and we compare well with our

1:15:03comparable agencies. So, when we go out

1:15:05for those bonding costs, which we want

1:15:07to try to keep those at as low as

1:15:09possible, that we are representing the

1:15:11utility well. So,

1:15:13um, absolutely great conversation on

1:15:15that. The utilities are different. I did

1:15:17want to mention you could have sanitary

1:15:18sewer overflows on the collection

1:15:20system. You could be fined significantly

1:15:22for those

1:15:23in harming the environment. So, those

1:15:26are some things that that do happen to

1:15:27utilities. We have a pretty robust

1:15:30robust program of TVing our lines. We're

1:15:33reinstating our capital projects, which

1:15:36are the needs for the capital reserves,

1:15:38but this is a

1:15:40good discussion like on on how utilities

1:15:43can

1:15:44have reserve in different areas. And so

1:15:47just just wanted to just convey the

1:15:49appreciation of having this discussion

1:15:52that the utilities are different.

1:15:53>> Okay.

1:15:54Commissioner Metz.

1:15:57>> [clears throat]

1:15:57>> Yes.

1:15:58I had two questions beyond the need for

1:16:02whether we need rate stabilization for

1:16:04wastewater collection.

1:16:06One I think Director Coratory partly

1:16:08answered, which is you know, what if any

1:16:11impact do these changes from a range of

1:16:15a range that we have now to a target

1:16:18kind of model have what impacts are

1:16:21there on our borrowing costs and

1:16:22compliance? You know, like coverage

1:16:24requirements for debt. It sounds like as

1:16:28long as we have a certain amount of days

1:16:30cash or something equivalent we're okay.

1:16:33Is that is that correct?

1:16:36>> I could read directly from it. So

1:16:38downside scenario, we could lower the

1:16:40rating over the next two years if the

1:16:42utility debt service coverage or

1:16:44liquidity materially declines to levels

1:16:46observed in the past few years either

1:16:49due to insufficient rate adjustments or

1:16:51unexpected capital needs that require

1:16:53additional debt or significant cash

1:16:55draws.

1:16:57So that was on

1:16:59the

1:17:00we're looking at our our water refunding

1:17:02bonds. So

1:17:03you know, that's that's we're mindful of

1:17:05of having these reserves

1:17:08in capital and operating. So I just

1:17:10wanted to make that sure I was clear.

1:17:12Thank you.

1:17:12>> kind of a a murky requirement. Like in

1:17:15other words, usually you see you know,

1:17:171.4 X

1:17:19you know, coverage of the annual

1:17:23you know, cost of the loan something

1:17:24something like that on cash on hand.

1:17:27There's nothing like that.

1:17:31>> There's a range of cash on hand for

1:17:33>> Okay, that's that's what I was asking.

1:17:34Okay.

1:17:35>> Thank you.

1:17:35>> Then the other question is more like

1:17:37what uh Commissioner Proff was talking

1:17:39about. Just trying to understand how

1:17:41this all works. We build up these

1:17:43reserves over 10 years, and then what

1:17:46happens? Do we just stop adding money,

1:17:48or do they keep growing, and then we

1:17:51give money back to customers? Once once

1:17:54these piggy banks are filled, what what

1:17:57happens?

1:18:00>> Thank you for that question. That's a

1:18:02great question. What we would do is we

1:18:04would revisit the reserve balance every

1:18:06year in our financial forecast, and we

1:18:08would report out on that. If the balance

1:18:11was below the uh below the target level,

1:18:14we would implement a plan to bring the

1:18:17the

1:18:18level back up to the target. If the

1:18:22level was above the target, we would

1:18:23return those funds uh or also make a

1:18:26plan to bring those back to the correct

1:18:28level. So, it's something that would

1:18:29need constant monitoring and reporting

1:18:32to the UAC and finance and and council

1:18:37to make sure that, you know, cuz there

1:18:39could be also within that 10-year time

1:18:41frame,

1:18:42there could be fluctuations in expenses

1:18:45or revenues where we need to use some of

1:18:47the funds that we've already recovered.

1:18:48So, it could potentially take longer

1:18:50than 10 years um or shorter than 10

1:18:53years depending on the use the you know,

1:18:56what happens in the operations of the

1:18:57utility.

1:18:59>> Okay, great. Thank you. That's That's my

1:19:00questions.

1:19:04>> Um we've gone I have not gone, but it uh

1:19:07Commissioner Proff, did you have

1:19:08something short?

1:19:09>> I just wanted to follow up on the debt

1:19:12question. I think we all talked about

1:19:13this a lot at the last time we talked

1:19:16about this topic is I think we're all

1:19:18sensitive to

1:19:20building reserves so that we can

1:19:21maintain our debt rating,

1:19:23but I don't see an analysis of

1:19:26does the 10% get us what we think we

1:19:29need to be able to hit those ratings? Do

1:19:33you guys have an analysis of

1:19:36where we need to be amongst the

1:19:37comparables to feel

1:19:40that these are the right numbers. Do we

1:19:42need this much? Do we need more?

1:19:45Um where are we on that analysis?

1:19:51What I have available in front of me

1:19:52right now is I mean I just want to say

1:19:54that in the wastewater utility we've had

1:19:56very low reserves for several years and

1:19:59that is playing into the need for rate

1:20:01increases. But the projected days of

1:20:04cash on hand or the current days of cash

1:20:06on hand for wastewater utility is 88

1:20:09days, which is

1:20:11um

1:20:12not

1:20:13not in that strong range for the rating

1:20:16level. Um so we're slowly recommending a

1:20:20plan to bring it up to a higher level. I

1:20:23need to ask for support from the team on

1:20:26calculating what that level would be at

1:20:27the end of the 5-year period in terms of

1:20:29days of cash on hand, but it would be

1:20:31bringing it up to a a a a substantially

1:20:34higher level.

1:20:38Um

1:20:40>> We've all consumed our 3 minutes except

1:20:42me. Uh

1:20:43are there any other people that have

1:20:45buzzing new questions before we move

1:20:47this to a motion?

1:20:50>> I have one new question and one response

1:20:52to Director Curatori. Um

1:20:55could I ask that when we talk about the

1:20:57Baker Tilly comps in other California

1:21:00towns, the 65%

1:21:02reserve rate, uh please let's make sure

1:21:05that we're identifying like all of the

1:21:08reserve picture. In other words, if they

1:21:11have a 65 reserve rate, sorry, if they

1:21:13have a big RSR,

1:21:16do they also have hydro stabilization?

1:21:18Do they also have a big ops reserve to

1:21:20match ours? Give an apples-to-apples

1:21:22comparison because I just suspect that

1:21:24we are not. Secondly, um

1:21:27when you mentioned the electric bond

1:21:29rating, the double A, um

1:21:32I don't want to

1:21:33I mean I'm I can't help wondering

1:21:34whether that's a bit of scare tactics. I

1:21:36mean I know what they said and yet um if

1:21:38we're going to talk about that then it

1:21:40should be in the staff report, what our

1:21:41cash on hand days on hand it is. So, um

1:21:45that kind of came uh

1:21:47out of the report. But, the last thing

1:21:49I'd like to suggest is um on the CIP

1:21:51reserve side, um

1:21:53again, I made the point that not all

1:21:56should be the utility should be treated

1:21:58equally. Um and we do

1:22:01with our CIP with our CIP methodology

1:22:03treat them equally. Specifically, you

1:22:05can use either average depreciation,

1:22:08average annual depreciation, or average

1:22:10annual forward-looking budget.

1:22:12And we have decided to use

1:22:13forward-looking budget in all cases.

1:22:15Now, with Grid Mod Electric, we're

1:22:17spending a ton. We got big plans. That

1:22:19might make sense. Why are we using that

1:22:21more aggressive, or conservative I

1:22:23should say,

1:22:24methodology? Why are we using average

1:22:27CIP instead of average depreciation

1:22:29method

1:22:30for wastewater, for gas, for

1:22:33uh

1:22:34So, that's something you might consider

1:22:36um as we treat each utility as it

1:22:38specifically should be.

1:22:42>> Do you have something else to do?

1:22:43>> Do you have something else to do? Do you

1:22:44have something else?

1:22:45>> Really quickly.

1:22:46Um

1:22:47I do agree that what you put in the

1:22:50staff report

1:22:52should be reflected in what we discuss.

1:22:55And you just threw out something like

1:22:58we need to have meet our bonding

1:23:00capacity, which you talked about.

1:23:02It's not discussed in the staff report.

1:23:04And my my point is is that my point is

1:23:06is that's probably the best argument

1:23:08I've heard tonight. Okay? And if the

1:23:11staff report said,

1:23:13you know, we need to meet these

1:23:14proposals for this reason, and therefore

1:23:16it's important to have a rate increase

1:23:18to get us there,

1:23:20I'd be like, yes.

1:23:22But, it's unfair to the UAC

1:23:25to throw out an argument that's not in

1:23:27the staff report, that's not vetted,

1:23:29that you don't have information for.

1:23:32You don't know how much money we need.

1:23:35It's not the reason you state you're

1:23:37doing something.

1:23:38And I think that's just unfair to the

1:23:40UAC.

1:23:43>> Okay. So,

1:23:45um

1:23:46I have just

1:23:48one question and two closing thoughts.

1:23:51Um

1:23:54Lisa, could you clarify the relative

1:23:56expense on an annual basis, just

1:23:59percentage basis, of facility costs

1:24:02versus collection system costs for

1:24:03wastewater?

1:24:08Is it 50/50? Is it 75/25?

1:24:11>> I would rather look it up than say

1:24:15because it has changed over the years.

1:24:17>> As she looks that up real quick, I do

1:24:18want to

1:24:20Commissioner Scharf

1:24:21completely recognize that, but but part

1:24:23of the conversation did turn

1:24:25from the discussion with the UAC is like

1:24:27our reserves were too high.

1:24:28So, I did want to address that because

1:24:30that was one of the like the reserves

1:24:31were too high, why are they so high? And

1:24:33I wanted to bring that up and remind the

1:24:35commission. And we did bring that

1:24:36forward in terms of looking at our days

1:24:38of cash on hand and and how we actually

1:24:41got a triple A rating on our water

1:24:43utility. So, don't want to bring this

1:24:44down a notch.

1:24:46Um we also did in the UAC report did

1:24:49talk briefly just a little bit on some

1:24:51of the credit rating considerations for

1:24:52the wastewater collection. So,

1:24:56absolutely I think that is something

1:24:57that we can take back is like what is

1:24:59the kind of the best practice when you

1:25:00take into all these reserves? What is

1:25:02what should we be shooting for today's

1:25:04our cash on hand? In terms of a rating

1:25:06agencies as we go forward because

1:25:07utilities are different. So, I just

1:25:10wanted to acknowledge that and and

1:25:11appreciate the comment.

1:25:13>> Okay.

1:25:14Do Does anyone know what the

1:25:18Could I respond to your earlier

1:25:19question? It's about half. Okay. So, um

1:25:23essentially our mean that means that our

1:25:26reserves here are and associated rate

1:25:29increases are double what they need to

1:25:30be.

1:25:31Yes.

1:25:32>> Which or the wastewater?

1:25:35>> Understood.

1:25:36Um for the rate stabilization.

1:25:38>> For rate stabilization.

1:25:40>> Great.

1:25:41Um

1:25:42hopefully that is

1:25:44helpful in understanding and and just to

1:25:48clarify that would typically translate

1:25:51to

1:25:52given that this is collection only,

1:25:55something like a main break that or a

1:26:00very, very large environmental discharge

1:26:03with associated penalty that

1:26:06is almost only imposed when there's like

1:26:08absolute negligence in operation.

1:26:11Um

1:26:12so I think like what what we're seeing

1:26:15here is a fairly low risk um

1:26:18and and associated uh

1:26:21you know

1:26:23diminished need for

1:26:26many days of cash on hand.

1:26:29Is that

1:26:37>> We're just trying to calculate the

1:26:38number in terms of the reduction from

1:26:40the

1:26:40>> Okay, but I mean if if it's 50% then

1:26:42it's half.

1:26:43>> Okay. Um

1:26:45so I think uh

1:26:48I

1:26:49I'm going to recommend that we do not

1:26:50approve the levels that you've set

1:26:54because they're not correct. Um if you

1:26:57want to modify those numbers right now

1:27:00um and bring it before us again or you

1:27:03know, in in real time, um we can do that

1:27:06uh but I think the motion as it

1:27:08currently stands is unlikely to pass

1:27:10given that those numbers are twice as

1:27:12high as they need to be for wastewater.

1:27:14>> So it would be 10% of the collection

1:27:17utility uh distribution or the

1:27:20collection utility expenses excluding

1:27:22treatment, which would be half. So I

1:27:24think we could

1:27:26It's 1.4 million instead of the 2.8

1:27:28million.

1:27:29>> Okay.

1:27:30Um resoundingly

1:27:32you have heard this

1:27:35desire for us to talk about

1:27:39the need for reserves in terms of cash

1:27:43on hand

1:27:44as it is used as an input to our bonding

1:27:49our bond rating calculations.

1:27:52Everybody on this commission

1:27:54wants to see Palo Alto maintain

1:27:58very, very high bond ratings so that we

1:28:00can have lower borrowing costs.

1:28:02We will always endeavor

1:28:06to

1:28:07achieve those levels, and I think we

1:28:09will vote for anything

1:28:11that helps us

1:28:13maintain that. Especially as we are

1:28:15looking at a need for significant

1:28:18bonding activity in the coming decade.

1:28:22We are very sensitive to that as a

1:28:23commission.

1:28:25But if you are not bringing us that,

1:28:27it's making it

1:28:29it's making your work harder because

1:28:33you know, we're not

1:28:35as Commissioner Scharff said, you're not

1:28:37bringing us the data that matters.

1:28:39Think that this the other sentiment that

1:28:42I'm hearing from my fellow commissioners

1:28:45is that having many pots of reserves

1:28:50makes

1:28:51it complicated

1:28:54to understand exactly how many days of

1:28:56cash on hand we have.

1:28:59It also requires you to come before

1:29:01commission to ask us to switch something

1:29:04from one reserve to the other reserve

1:29:05fund. Like and we do this I don't know,

1:29:07we've done this at least twice a year

1:29:09since I've been on the UAC.

1:29:11This is a waste of everybody's time. So

1:29:14staff time, our time. I mean,

1:29:16you know, I think there's a real desire

1:29:17to consolidate you know, an operations

1:29:20reserve and a CIP reserve.

1:29:22I think that there is possibly an

1:29:24exception for

1:29:26electric power utility. We've expressed

1:29:28that hydro, you know, has been a hydro

1:29:31reserve for a very good reason um

1:29:33because you have large-scale

1:29:36uh

1:29:38you know,

1:29:39cyclical droughts that

1:29:42need to be amortized and

1:29:45you know, you can get lucky and live in

1:29:47Palo Alto in only wet years, but on

1:29:49average we should probably smooth those.

1:29:52If there isn't something that's

1:29:53demonstrably cyclical in the same way, I

1:29:56think there's deep skepticism of the

1:29:58need for a separate reserve.

1:30:02There is one other cyclical thing that I

1:30:06think could impact wastewater. Um and

1:30:09that is the emerging likelihood of a

1:30:14nutrient market. And if we choose to

1:30:16participate in the nutrient market,

1:30:18there may be volatility in that. But

1:30:20that is something that we could always

1:30:21come back to

1:30:23later if and when such a market

1:30:26establishes itself.

1:30:28So, I will put that in there in the

1:30:30public record to say that I think that

1:30:32there is an opportunity to revisit that

1:30:35depending on how that market ends up

1:30:37getting structured. But in the absence

1:30:39of one today, I don't understand why on

1:30:41earth we would need that and we would

1:30:43only need it at the wastewater

1:30:45collection side if we were actually

1:30:48participating as an individual Palo Alto

1:30:51participant in that because we were

1:30:53metered for our

1:30:55total nitrogen in that collection system

1:30:58entering into the plant. Right? I think

1:31:00you could argue that maybe that is

1:31:02actually in the plant

1:31:05expense, but

1:31:07anyway. Okay, so I'm going to I'm going

1:31:09to conclude, but just say I think those

1:31:10are key points. Have rate stabilization

1:31:16reserves folded into operations

1:31:19reserves. And the only time you have a

1:31:21reserve that isn't operations or in CIP

1:31:24is when there's something distinctly

1:31:27cyclical

1:31:29that needs

1:31:30and frankly predictable. Right?

1:31:34>> Reserve for the predictable.

1:31:36>> Cyclical.

1:31:37>> Predictable.

1:31:38>> Predictively cyclical.

1:31:40>> Predictively unpredictable.

1:31:42>> Well, I mean I would argue that hydro is

1:31:44predictably cyclical. You are going to

1:31:47have droughts. You are going to have

1:31:49very wet years. And you are going to

1:31:51have average years.

1:31:53And

1:31:55the rate stable or a hydro stabilization

1:31:57reserve

1:31:58balances those.

1:32:01But that would not We're not debating

1:32:02the hydro stabilization reserve

1:32:04>> But I would say as a general principle

1:32:06otherwise

1:32:09I think we're we are I mean I'm I'm not

1:32:11going to say there's consensus, but I

1:32:13would say one what I am hearing is a

1:32:15desire for much greater simplicity.

1:32:20Capital expenses operational expenses

1:32:23meeting this requirement of cash on

1:32:25hand.

1:32:27Okay. Now, can we

1:32:31Look at Can we get a motion?

1:32:33>> Cuz we got to get

1:32:33>> I can work on this motion here

1:32:35based on what's on the screen.

1:32:37>> Perfect. Um

1:32:38I think for me the first

1:32:42uh item for the wastewater collection

1:32:44utility revise the CIP reserve as

1:32:47follows.

1:32:48Uh I think it's fine as it is with the

1:32:5010-year timeline and

1:32:52um

1:32:53the reserve target based on the average

1:32:55annual CIP budget.

1:32:57I think that is fine to me. For the

1:33:01second one

1:33:03um

1:33:05I would say

1:33:07number two modify the operating reserve

1:33:11to serve

1:33:12uh to add an additional purpose

1:33:15as a rate stabilization reserve. That

1:33:18text is not exactly right.

1:33:20Are you able to edit number two?

1:33:24Real time?

1:33:25>> Could I suggest maybe splitting this

1:33:26into two motions? Might be easier. We

1:33:29can discuss them separately.

1:33:30>> I have the same thought. Okay. Um let's

1:33:33You want to discuss

1:33:35uh motion one then?

1:33:36>> Yes.

1:33:36>> Yes.

1:33:40>> Well, shouldn't shouldn't we be saying

1:33:42what the target is?

1:33:44>> Can Can we get a second first so that

1:33:46then we can move to discussion?

1:33:48>> I'll second it.

1:33:52>> Okay. We will now open discussion on

1:33:55this first motion.

1:33:58And

1:33:59I'm sorry, [clears throat] Commissioner

1:34:01Phillips.

1:34:03>> Mets, I had a question.

1:34:04>> I was about to say something. I can't

1:34:05remember who.

1:34:06>> Phil.

1:34:07>> Oh.

1:34:07Hi. Commissioner Mets, I apologize.

1:34:10>> Yeah, the question is if we're going to

1:34:12say something like this, shouldn't we be

1:34:14saying what that target is?

1:34:18I mean, is

1:34:18>> the average annual CIP budget.

1:34:21Oh, it's based on the average annual CIP

1:34:23budget.

1:34:24Yeah.

1:34:26>> Well, based on that doesn't doesn't mean

1:34:27anything.

1:34:29What is What is the number?

1:34:33>> No,

1:34:33it does say something. It says the

1:34:35average annual whatever the approved

1:34:385-year CIP budget is. That goes to my

1:34:40earlier point. That is higher reserves

1:34:43than you would typically do for failing

1:34:45assets in a wastewater business.

1:34:48You'd reserve them based on average

1:34:49depreciation.

1:34:51And and and so

1:34:53that would be my proposed change to the

1:34:56wastewater

1:34:57motion.

1:34:58>> Well, does does the sentence A mean that

1:35:01the reserve target is equal to the

1:35:04annual

1:35:05average annual CIP budget?

1:35:08>> Yeah.

1:35:09>> Well, what does it say?

1:35:10>> For the other utilities, it was what?

1:35:1420% of the 5-year budget, which is the

1:35:16equivalent of 1 year budget, right?

1:35:18Isn't that how we decided all the

1:35:20others?

1:35:21>> So, why don't we say that? It doesn't It

1:35:23based on doesn't mean anything.

1:35:25>> Okay, fine. 20% of 5-year budget.

1:35:30>> I mean, if you want to say it's 20% of

1:35:32the 5-year budget or 100% of the 1-year

1:35:34budget,

1:35:36that's fine. But those are

1:35:37>> 20% of 5-year budget.

1:35:38>> Those are numbers

1:35:40that

1:35:41>> Did I get that right that it was 20% of

1:35:43the 5-year budget

1:35:44for the others?

1:35:46Yes.

1:35:47>> And then

1:35:47>> And that's what you're requesting here.

1:35:50>> Okay.

1:35:51>> Well, we said your request Our proposed

1:35:53motion was what was there originally,

1:35:54which is the average annual CIP budget.

1:35:57And we may, working with our editing

1:36:00team turn that into 20 year 20% of the

1:36:025-year budget. That will depend on you

1:36:04know, the reviews that we go through.

1:36:06But if you want to specify that here,

1:36:08that's perfectly fine.

1:36:09>> Okay. Um and it may be useful here to

1:36:12specify that it's 20%

1:36:14of the 5-year budget of the

1:36:17collection fraction of the wastewater

1:36:21collection utility.

1:36:23>> Right. That was the other question going

1:36:25there. But based on in the sentence

1:36:28means equal to. Is that correct?

1:36:32>> Yes, that's the intent.

1:36:34>> Okay. Then can we cross out based on

1:36:36replace it with equals to?

1:36:41>> Equal to.

1:36:45>> I think Commissioner Crofts and I both

1:36:47have to approve

1:36:49these amendments.

1:36:51>> Oh, now I understand it. Thank you.

1:36:55>> Commissioner Crofts, do you accept this

1:36:57amendment?

1:36:58>> Can you please put

1:37:00um just in put the annual average CIP

1:37:05budget in friends. So that's basically

1:37:0720% of the 5-year budget.

1:37:11Um you'll have to figure out, I guess,

1:37:14staff, how you want to state that. I I

1:37:16don't know how it

1:37:18was proposed to be calculated. Is it

1:37:22taking 5 years of CIP and just averaging

1:37:25it and then that's what the resource is?

1:37:27Like 5-year forecast?

1:37:31>> Yes, a rolling

1:37:335-year average.

1:37:35Um I just want to say that

1:37:37it says 5-year budget there. Maybe that

1:37:40should say CIP budget. Yes.

1:37:45>> Yes, that sounds good.

1:37:47And then it would be

1:37:50I guess I don't know if we need to

1:37:51clarify that it's a forward-looking 5

1:37:53years. Is everybody fine with how it is

1:37:55now?

1:37:56>> Yes.

1:37:58>> Okay. I'm okay with it as is. It Is it

1:38:01forward-looking? Because I do we have

1:38:03forward-looking 5-year budgets?

1:38:06>> So, I need to double-check how we

1:38:09calculated this. However, the specifics

1:38:12of how this is going to get calculated

1:38:14is going to be articulated in our

1:38:16reserve guidelines that we're going to

1:38:17bring forward. So, I think that

1:38:21if if you want to articulate it here,

1:38:22that's fine, but I think we haven't come

1:38:24up with that language yet from what

1:38:26we're proposing.

1:38:27>> Okay, but if you're having, you know,

1:38:29very large cumulative rate increases,

1:38:31then it makes an enormous difference how

1:38:33much cash on hand you end up with.

1:38:37I mean, we have 45% rate increases in

1:38:41waste water utility, right? If you're

1:38:43taking the past 5 years, here you're

1:38:45going to get nothing.

1:38:46>> Right. So, the way that we currently

1:38:48calculate it is how we're proposing to

1:38:50calculate it, which is based on a

1:38:51forward-looking 5-year period budget.

1:38:54>> And [clears throat] the reason why we're

1:38:55doing the forward-looking is

1:38:57we were very mindful of the the

1:38:59increases in the treatment costs. So, we

1:39:02actually deferred some of our collection

1:39:04system capital projects. As you may

1:39:06recall, right? So, we have to look

1:39:07forward-looking and we can't look back

1:39:09and because of the the rate spike

1:39:11potential, and we can talk more about

1:39:13that in the future, but coming with the

1:39:14reserve this reserve policy and then we

1:39:16can bring back in the future what that

1:39:18capital project was like. That's what we

1:39:19want to do.

1:39:20>> Great. Okay. I need to make sure that

1:39:22Commissioner Croft and Commissioner

1:39:23Phillips uh

1:39:26approve these friendly amendments.

1:39:30>> I approve them.

1:39:32>> I approve.

1:39:33>> Okay. Let's move to a vote.

1:39:37>> Commissioner Metz.

1:39:40>> Yes.

1:39:41>> Commissioner Croft.

1:39:43>> Yes.

1:39:44>> Commissioner Sharf.

1:39:46>> Yes.

1:39:47>> Vice Chair Phillips.

1:39:49>> Yes.

1:39:50>> Commissioner Tucker.

1:39:52>> Yes.

1:39:53>> Chair Moder.

1:39:54>> Yes.

1:39:54>> Motion passes 5-0.

1:39:56>> Great. Let's go to the second motion.

1:40:09>> Have anyone willing to move this one?

1:40:12Or a version of it?

1:40:14>> I'll move it back to that guy.

1:40:15>> Yeah, could we see it, please?

1:40:19>> I'll move a version.

1:40:21>> Great.

1:40:23>> I have a version.

1:40:26I just wanted a quick clarification. Do

1:40:28we

1:40:30We're talking about water.

1:40:33I hear you, man. We're going to buy it.

1:40:34So, wastewater we already did. So,

1:40:36wastewater shouldn't

1:40:37>> No, you did the CIP. You didn't do

1:40:40You didn't do rate stabilization.

1:40:41>> Got it.

1:40:43Do we have RSRs for any of the existing

1:40:46ones of these already?

1:40:47>> That's two, four.

1:40:48>> We have rate stabilization reserves for

1:40:50each of them, but many of those rate

1:40:52stabilization reserves have no money in

1:40:54them.

1:40:56>> So, we don't have a target right now. We

1:40:58don't We don't fill the rate state

1:41:00>> We don't have a target right now.

1:41:02>> Okay.

1:41:03Am Am I mistaken that we have 4 million

1:41:07in an RSR for water and 2.4 million in

1:41:10an RSR for gas today?

1:41:13>> Okay, let me try to give a little bit

1:41:14more of a complete answer. I think I was

1:41:16trying to go too quickly. So, we have

1:41:18rate stabilization reserves for each of

1:41:20these four utilities.

1:41:22We also have supply rate stabilization

1:41:25reserves, one for the electric utility

1:41:27that was discussed earlier, hydro rate

1:41:29stabilization reserve, and then the

1:41:31council established a price mitigation

1:41:33adder stabilization reserve for the gas

1:41:36utility, which mitigates those types of

1:41:38price spikes on the commodity side for

1:41:40gas.

1:41:41In addition, we have the rate

1:41:43stabilization reserve for each utility,

1:41:45and you're correct that in the water

1:41:46utility, there's $4 million

1:41:48in that rate stabilization reserve.

1:41:51In that price spike mitigation reserve.

1:41:54That's where those funds are from.

1:41:57>> That's an RSR. That's an RSR.

1:41:59>> But it is supply-related.

1:42:01>> Yeah, it's supply-related.

1:42:02>> We're not talking about supply.

1:42:04>> Yeah, you're right.

1:42:06>> Yes, it's a commodity price spike

1:42:08reserve on the gas side. That's where

1:42:10those funds came from.

1:42:12>> And the hydro is reserve is similar,

1:42:15right?

1:42:16>> It's

1:42:18Do you have it?

1:42:19It the hydro stabilization reserve is

1:42:23uh

1:42:23stabilizing

1:42:25commodity on the electric side.

1:42:27>> On the electric side.

1:42:29So, we have the price spike on the gas

1:42:31and we have the hydro on the electric.

1:42:33>> And what is it on water?

1:42:35What's it supposed to be stabilizing on

1:42:36water?

1:42:37The water

1:42:39rate stabilization reserve is more

1:42:41broad. I don't have the definition in

1:42:42front of me, but it just

1:42:44uh is for stabilizing the water rates

1:42:46and that there's been funds in there

1:42:47over time that we used for

1:42:50um

1:42:51uh

1:42:51not having to implement drought

1:42:53surcharges during the drought. So, in

1:42:55that way we were able to keep the rates

1:42:57lower

1:42:58by using the funds from that rate

1:43:00stabilization reserve and there's 4

1:43:01million remaining at the moment.

1:43:03>> Okay.

1:43:04>> And when we have a target in the in the

1:43:08in any of these?

1:43:10Cuz you said that So, the other electric

1:43:11one is empty, the other gas one is

1:43:13empty.

1:43:14>> No, no, the hydro the hydro is not.

1:43:16>> No, no, I know it they

1:43:18>> Oh, you're right. I'm sorry.

1:43:19>> Cuz you're saying that the other there's

1:43:21a there these things Sorry, these

1:43:23already exist, these RSRs for each of

1:43:24these utilities.

1:43:26But what I just heard you say is that

1:43:27the current electric one is empty.

1:43:30And the current um gas one is empty.

1:43:34And the current um

1:43:36water one has 2.4 million in it.

1:43:38>> Gas has 2 and 1/2.

1:43:39>> Water has 4 million.

1:43:41>> Water has 4.

1:43:42And

1:43:44waste water has zero, too.

1:43:46>> Yeah, that's what I think. I do need to

1:43:47double check that to confirm it for

1:43:49sure, but that's what I believe, yeah.

1:43:50>> Gas has zero.

1:43:51>> Well, they they call it a spike

1:43:53>> No, but but but but we're not changing

1:43:56>> There sounds like there's there's a

1:43:58shell RSR for every utility and um in

1:44:01gas we have a thing called spike price,

1:44:04but that's an RSR and that has zero,

1:44:06too.

1:44:07>> Well, uh Commissioner Ducker,

1:44:09at one for one year we actually bought

1:44:11insurance and then we decided that

1:44:14insurance was ridiculously expensive and

1:44:16we were losing the money and so

1:44:17effectively this is a self insurance

1:44:19policy and and council really wanted us

1:44:22to have that

1:44:24because there was this one year of gas

1:44:27prices that were just crazy.

1:44:29>> What happens if we don't pass this? I

1:44:33mean apparently there's money going in

1:44:35and out of some of these exist. There's

1:44:37money going in and out.

1:44:38What happens if we don't pass something?

1:44:42Been putting money in them, maybe

1:44:44presumably taking money out. What what

1:44:46are we adding here?

1:44:48>> Is that a question?

1:44:49>> Yes, it is a qualifying question.

1:44:52>> The way that it works right now, if we

1:44:54don't make any change, is that we would

1:44:57not have a plan for recovering funds and

1:45:00in fact if we

1:45:02um have any funds in the rate

1:45:04stabilization reserve, we need to plan

1:45:07to use those funds by the end of the

1:45:09five-year period. So that $4 million

1:45:11we're counting on that, using it within

1:45:13the five-year period to meet our rate

1:45:16trajectory that we're proposing. So

1:45:19one of the things that we're proposing

1:45:20is to um

1:45:23be able to retain those funds in the

1:45:25rate stabilization reserve rather than

1:45:28planning their use and that is the way

1:45:30that those funds would be able to

1:45:32stabilize rates as as they would be

1:45:34available in addition to the rate

1:45:36increases that are planned.

1:45:38>> Okay, so I'm sorry. In the water, you're

1:45:40planning to spend down that $4 million

1:45:42over the next five years already.

1:45:44>> Yes, because we have no target in that

1:45:46fund in that in the rate stabilization

1:45:48fund.

1:45:49>> that would allow you to hold that $4

1:45:51million. Yes.

1:45:53>> Or up to the amount of the target. If

1:45:55it's above the target, which I think it

1:45:57is a little bit above the target, we

1:45:58would need to use that.

1:46:00>> Can I ask one more question before you

1:46:02move?

1:46:03Um

1:46:04it sounds like the water rate

1:46:06stabilization reserve is more broad in

1:46:08terms of the function and I understand

1:46:10that there is an analysis coming for

1:46:13supply related rate stabilization

1:46:15reserves.

1:46:16Is it

1:46:18um

1:46:19is it okay to use a rate stabilizer

1:46:22rate stabilization reserve for both

1:46:24purposes

1:46:25uh including both commodity as well as

1:46:29other reasons why you need it and would

1:46:31would that be potentially a reason to

1:46:34wait till we have that analysis

1:46:36and then have established the rate

1:46:38stabilization reserves at that point

1:46:40which includes you know all reasons why

1:46:43you would want to stabilize the rate.

1:46:46>> I think you could do that. Yeah, you

1:46:47could combine the supply rate

1:46:49stabilization and distribution rate

1:46:51stabilization and you could wait to have

1:46:52a complete analysis to look at it.

1:46:55Um you would lose time

1:46:57in terms of recovering the funds sooner

1:47:00and that's that's it.

1:47:01>> What is the timing for us to do those

1:47:04analyses?

1:47:08>> We

1:47:09are going to be needing to work with a

1:47:11consultant and so we're going to have to

1:47:13probably begin that process early next

1:47:15year. So I don't expect that

1:47:17that that will be ready by July when we

1:47:20implement these rates. I would expect it

1:47:22to be ready for the subsequent cycle.

1:47:27>> Okay.

1:47:27>> Can I before you make your motion, can I

1:47:30say one thing?

1:47:31We have

1:47:33and and this has been said in the past

1:47:35but I if we had any numbers on this it

1:47:37would be super helpful.

1:47:39Um our hydro variance is what drives our

1:47:42power prices or electric power

1:47:45rates.

1:47:47Gas prices are what we're hedging

1:47:49against in our

1:47:51>> spikes.

1:47:51>> Spike. Right.

1:47:53Drought is what we're hedging against in

1:47:56our water.

1:47:58I mean

1:47:59really you want consumers to feel the

1:48:03water

1:48:04rate increase in a drought.

1:48:06The drought surcharge makes sense

1:48:08because you want to spur conservation.

1:48:11The issue is that this next year you can

1:48:14get into this doom cycle where because

1:48:17there are lower costs of water, then

1:48:21people

1:48:23there's no revenue on a largely fixed

1:48:27I mean, exclusively like a fixed

1:48:31infrastructure system that has to be

1:48:33maintained, right?

1:48:35Can you remind me the fraction of water

1:48:38rates that is supply cost versus

1:48:42distribution system costs in Palo Alto?

1:48:46Is it also about 50/50?

1:48:48I just can't remember off the top of my

1:48:50head.

1:48:53I need to know how much is SFPUC supply

1:48:57versus

1:48:59distribution It's about 50/50. Okay. So,

1:49:03similar to collection system and

1:49:05wastewater, it's about 50% getting the

1:49:08resource, 50% distributing the resource,

1:49:11right?

1:49:12If you have

1:49:15drought surcharges, you want that

1:49:17consumption to go down. And that means

1:49:20that you can end up with growing fixed

1:49:23fee charges that you have to cover on a

1:49:25smaller volume of water consumption, and

1:49:28therefore it can make sense to have a

1:49:30rate stabilization reserve so that you

1:49:32don't end up having to dramatically

1:49:33increase rates when you also have a lot

1:49:36of new water. It can be very confusing

1:49:39to consumers when it starts pouring rain

1:49:42and then there's still a big uh water

1:49:46system rate increase. So, it is I think

1:49:51uh you know, there's value in a rate

1:49:55stabilization fund that is drought

1:49:58focused. Um and then and wastewater as

1:50:02I've just said, in the future there may

1:50:03be a nutrient market that may have

1:50:05volatility, but that is for a separate

1:50:07day.

1:50:08But that brings justification to three

1:50:11without a clear sense of how much

1:50:12volatility we actually have.

1:50:14So, when there is a the difference

1:50:17between a wet year and a dry year and

1:50:20hydro.

1:50:21Um

1:50:22like you know, how much

1:50:24we're reserved at

1:50:27a very large amount so that it uh

1:50:32you know, we can we can ride those

1:50:35cycles, right? And presumably, I mean, I

1:50:38don't mean to call out our electric

1:50:40power utility and put them on the spot,

1:50:42but like you know, presumably we've done

1:50:44a calculation to set a size for that

1:50:46hydro reserve based on historic

1:50:49fluctuations. Right?

1:50:52>> Yes, the reserve was set up with

1:50:54specific guidelines and uh

1:50:57>> Well, I mean, the question is does it

1:50:59match

1:51:01historic and projected future

1:51:05volatility in rainfall that sources so

1:51:10it hydro

1:51:10>> It did match past. We need to do we need

1:51:13to refresh that for the future because

1:51:15we are seeing higher volatility

1:51:17>> Yeah.

1:51:18>> in in the environment and we we do need

1:51:19to update that. So, that's absolutely

1:51:21something that doesn't remain static.

1:51:22So, appreciate that.

1:51:23>> Right. Um so, we're working on that, but

1:51:26it is set specifically to manage that

1:51:29precipitation volatility, which is

1:51:31increasing in the future. And gas

1:51:33prices, I don't remember how we set that

1:51:35gas price reserve. I probably should cuz

1:51:38it was like not that long ago.

1:51:39>> We we talked about it for a while.

1:51:40>> Yeah, we talked about it for a while. We

1:51:42looked at historic volatility. I don't

1:51:44need to revisit it, but we were

1:51:45thoughtful about it and like done,

1:51:47right? Um

1:51:49the drought, the current

1:51:51it does seem like the water

1:51:54um one

1:51:56is a little bit decoupled from the same

1:51:58drought cycles that

1:52:01are driving hydro variability um as well

1:52:05as the magnitude of drought surcharge

1:52:07and what effect that has on demand.

1:52:09So, I think as we go about a water rate

1:52:12study

1:52:14I know we talked about this last month

1:52:17and I don't want to um

1:52:19re-agendaize anything. So, I want to be

1:52:21careful not to do that, but I'm sure you

1:52:23can connect the dots in saying that if

1:52:26we don't have a good understanding of

1:52:27what our effect of a volatility is on

1:52:31demand, then we won't know how much we

1:52:32need to stabilize the

1:52:35uh distribution portion

1:52:37by.

1:52:38Right? So, hopefully that is included in

1:52:42the specifications for our future

1:52:45um

1:52:47study.

1:52:48Those three utilities have a fundamental

1:52:50reason why there's a rate stabilization

1:52:53fund, whether it stays or a distinct

1:52:56fund.

1:52:59I'm just going to end there.

1:53:00>> Okay, can I know

1:53:00>> Yes, please.

1:53:01>> So, I'm going to say what I think the

1:53:04motion should be, then I'm going to

1:53:04explain it cuz it may not be clear at

1:53:06first. So, I would say

1:53:10for the rate stabilization reserve

1:53:12electric, gas, water, and wastewater

1:53:13collections, A,

1:53:15eliminate the rate stabilization reserve

1:53:18for the electric, gas, and wastewater.

1:53:22Just to be clear, that doesn't affect

1:53:23the spike, it doesn't affect the hydro.

1:53:26It's this empty shell that we're not

1:53:28using.

1:53:29Cuz that's how your staff described it

1:53:31to me.

1:53:32That we have a but we have a rate

1:53:34stabilization reserve, but there's

1:53:36nothing in it.

1:53:37So, therefore, we should eliminate those

1:53:38three, and they won't exist any more.

1:53:42For the water,

1:53:43we should go ahead and establish a

1:53:45reserve target based on 10% of operating

1:53:48expenses, excluding supply costs

1:53:52for the water, which you have here. And

1:53:53the reason I would say that is I don't

1:53:55think your numbers are right on this

1:53:56necessarily,

1:53:58but there's no way we're going to figure

1:53:59that out tonight. And then the third

1:54:01point is I would say,

1:54:03come back on the water

1:54:05and explain to us what the right reserve

1:54:08should be

1:54:10given what you just went through, that

1:54:12whole thing. Let's agendize that item,

1:54:15and let's come back, and we don't set

1:54:16that up for this year. We decide for the

1:54:19following year, but it'll be 10% for

1:54:21now. And I'm assuming since you want to

1:54:23keep the $4 million

1:54:25that staff

1:54:26shows 10% at least with the idea that

1:54:28you don't then have to spend the $4

1:54:30million

1:54:31cuz that's what you said you wanted to

1:54:32do, not want to do over the next 5

1:54:35years. So, what

1:54:37if you want to keep that, you should

1:54:38analyze like how much money do you want

1:54:40in there?

1:54:41And how is that tied to the droughts as

1:54:43you said and all that?

1:54:45But we don't have that information yet.

1:54:47So, that's why I said set it at 10% for

1:54:49just this moment cuz I don't have any

1:54:51other information, but come back to us.

1:54:55Um

1:54:57So, whenever you apply

1:54:58>> 10% for each utilities that

1:55:00>> No, just for water.

1:55:02>> okay.

1:55:02>> No, I said eliminate the rates data for

1:55:04electric, gas, and waste water.

1:55:05Establish a reserve

1:55:07types of operating expenses and find

1:55:09rules for the use of the RSR and then

1:55:12implement Oh, then

1:55:14Yes, just for water.

1:55:15>> B cuz so can we get just water, huh? You

1:55:17want to save for water?

1:55:18>> Yes, I do.

1:55:19>> Just for water.

1:55:20>> Just for water.

1:55:21>> And then I'd suggest you point out that

1:55:22water is already

1:55:2450-60% above that 10% number. So, we

1:55:27it's already like mega funded with the

1:55:29$4 million in water. That's way over our

1:55:3110% of our supply curve.

1:55:33>> Where does it fit, Lisa?

1:55:37>> It's at $4 million which is well above

1:55:39the 10% level. What would 10% be in

1:55:42terms of dollar numbers?

1:55:44>> You want to say 2.8 million, but I mean

1:55:46I need to check that number. Okay. Um

1:55:51>> And then see what

1:55:53C would become D.

1:55:56Um but it would have to change it to

1:55:58resi- to to the revised RSR target for

1:56:01the water. Just you'd have to get rid of

1:56:02electric and gas.

1:56:05And you'd have to and remove a 10-year

1:56:07timeline for the waste water collection

1:56:09utility.

1:56:11>> I didn't need any of that.

1:56:12>> You All you need is the responding to

1:56:14the water, right? This is 5-year

1:56:15timeline, but you don't need it because

1:56:17you already have the money.

1:56:18>> Yeah, just say silent.

1:56:19>> I would just parenthetically point out

1:56:21that

1:56:23the the money's already there, but now

1:56:25we have a guideline.

1:56:26>> Um and

1:56:28>> How would staff like to handle that

1:56:29issue?

1:56:30>> And is it 5-year timeline like

1:56:32statutorily required for

1:56:35spend down, or is this a policy

1:56:36decision? Because I could argue that

1:56:39your drought cycles, for instance, are

1:56:41you know, longer than 5 years. You might

1:56:44meaningfully want to accumulate, you

1:56:47know, it should be driven by the physics

1:56:49of the system of the watershed, not by

1:56:53an arbitrary

1:56:55five fingers.

1:56:58>> I think your Commissioner Tucker point

1:56:59is that there are $4 million now, but we

1:57:02have the funding, so why put a target to

1:57:04replenish it in 5 years if I'm hearing

1:57:06that correctly. But, um we could put

1:57:09something in there if it it is it is

1:57:12utilized how quickly we'd have to

1:57:14replenish it back again. I mean, that

1:57:16would probably be a a good informational

1:57:18piece for us.

1:57:20>> Greg, isn't one of the requests in your

1:57:22measure also that um staff come back

1:57:25with

1:57:25>> Yes, so we can look at look at that

1:57:27then.

1:57:29So, I sort of agree that we should get

1:57:31rid of D, and then just say recommend

1:57:33that staff return

1:57:35to the UAC to discuss the right amount

1:57:38of the target,

1:57:39the replenishment, and and all the risk

1:57:42type of risk, all of that.

1:57:45Or to establish

1:57:48uh to establish

1:57:49>> I would I would say and and make sure

1:57:50it's across I mean, across all the

1:57:53relevant uh reserves. So, we actually

1:57:55have, you know, hydro stabilization

1:57:57reserve, we have the supply reserves.

1:57:59I would like to look at them as a whole

1:58:01and say, "Okay, you know, what have we

1:58:03got here, and what are we Each one of

1:58:06these, why do we need them? Do we need

1:58:07them all? Should they be combined?"

1:58:09>> Yeah, but

1:58:09>> Um

1:58:11you know, so I would like to see the

1:58:14the the the risks on the one side, the

1:58:17hydro on the other side, and what

1:58:18>> I was just thinking about asking to come

1:58:20back on water, so we understand

1:58:21>> Oh, I see on the water. That was

1:58:22>> Right.

1:58:23>> Yeah, okay. That was

1:58:24>> done gas recently.

1:58:26>> need to

1:58:27>> We're going to do hydro when we

1:58:29uh

1:58:31You're going to do hydro separately.

1:58:33Because

1:58:34change because of volatility. We've got

1:58:38water is the open question, but I would

1:58:41propose that this is already we already

1:58:43have a rate study going on in water

1:58:47that

1:58:48will include things like demand

1:58:50responsiveness to price increases. So, I

1:58:54would suggest that that just go that

1:58:56bullet be that we recommend that staff

1:59:00include that in the rate study for

1:59:04water.

1:59:06>> That would be perfectly acceptable and

1:59:07that would tie nicely to that so we can

1:59:09that would be that would be appreciated.

1:59:11>> And then bring that back as part of the

1:59:14water rate study because I think looking

1:59:16at it in isolation from the water rate

1:59:17study is going to make it is going to be

1:59:18very difficult.

1:59:20We won't have anything to comment

1:59:22Sure. Recommend that staff incorporate

1:59:27um

1:59:29drought I'm sorry. Um

1:59:34me writing on the spot out loud uh

1:59:37When I was a student if this is students

1:59:39I'd grab their laptop and um

1:59:41write myself.

1:59:43Uh okay, recommend that staff

1:59:44incorporate um

1:59:47drought demand drought associated demand

1:59:50reduction

1:59:59impacts

2:00:01into

2:00:03the

2:00:05um

2:00:08cost of service analysis

2:00:12>> of the pending cost of service I don't

2:00:13know the proposed or cost of service

2:00:15study.

2:00:15>> The cost of service study.

2:00:17Um

2:00:20and

2:00:22share

2:00:25results

2:00:28on or implications for

2:00:31the appropriate

2:00:43level of

2:00:47um rate stabilization

2:00:52reserve

2:00:57with the USC.

2:01:02And then we should specify that this is

2:01:04for water.

2:01:09>> [clears throat]

2:01:09>> So the appropriate level of rate

2:01:10stabilization reserve

2:01:12in the water utility.

2:01:20And we might even rename this reserve

2:01:24to be

2:01:25um Sorry, that we don't have to write

2:01:27this, but I I'd like feedback on whether

2:01:29we would instead of calling this a rate

2:01:33stabilization reserve or whether we

2:01:34would like to call this a

2:01:36um

2:01:39demand reduction reserve or a

2:01:42What What we can play with what it is,

2:01:43but um

2:01:45I think there's a specificity in hydro

2:01:47and a specificity in gas price.

2:01:50So

2:01:51>> I like renaming it. So I would put that

2:01:53in there staff that we rename it. You

2:01:55know

2:01:57something appropriate. I don't know if

2:01:58you

2:01:58>> Thanks. I'm happy that staff choose the

2:01:59name. I just left that part out.

2:02:01>> That's fair.

2:02:03But I mean there's like like doom loop

2:02:06uh there's

2:02:07There's all sorts of like informal

2:02:09names. I don't actually know what the

2:02:11formal name is that we should call this,

2:02:13but

2:02:13>> That's what we doom rate.

2:02:15>> [laughter]

2:02:16>> That's far more realistic than what I

2:02:17thought.

2:02:18>> Okay, well

2:02:19I'm not sure we want a water

2:02:22reserve that has the word death in it.

2:02:24Um

2:02:24>> Yeah, let's not go

2:02:25>> Let's not go there. Bad Bad PR. Uh but

2:02:29uh

2:02:31I would like you to propose a more

2:02:32appropriate name.

2:02:34>> Is it a rate stabilization reserve? I

2:02:35mean, is that what it is?

2:02:36>> We we can bring back some alternatives

2:02:39after we do the rate study in terms of

2:02:40what the appropriate terminology would

2:02:42be.

2:02:42>> I was just

2:02:42>> Okay, but we'll leave it as rate

2:02:44stabilization reserve right now. And

2:02:45then we will delete D.

2:02:48>> Right.

2:02:48>> Are we

2:02:50So

2:02:50>> And and you're going to return with

2:02:51guidelines as well, presumably.

2:02:56Is it guideline suggested guidelines for

2:02:58its use?

2:02:59>> Just water for every

2:03:01>> There's the water, which is the one

2:03:03we're we're talking about. I mean

2:03:06Will that be part of the record? That

2:03:08because that's I think kind of

2:03:10important.

2:03:10>> We're going to have guidelines, so we'll

2:03:12need two sets of guidelines. One will be

2:03:14to implement B on the 10% for now, and

2:03:17then when we come back with the

2:03:19recommendations for

2:03:21as part of the cost of service study for

2:03:23C, we will need to recommend different

2:03:25guidelines, too, that

2:03:27be associated with that.

2:03:28>> Thank you.

2:03:29>> Can I just ask a question

2:03:32Commissioner Sharf about A. So

2:03:36we are going to be issuing a lot of debt

2:03:39for electric. Um

2:03:42and we still have the open question

2:03:45about

2:03:46debt ratings or credit ratings. Um

2:03:50is it premature to get rid of these rate

2:03:52stabilization reserves, and would we

2:03:54want to instead ask staff to come back

2:03:56to us on

2:03:59recom you know,

2:04:01um minimum rate stabilization reserves

2:04:06recommended to maintain

2:04:08debt levels. I mean, at this point not

2:04:10putting a target in place, but asking

2:04:12them to get

2:04:12>> Cash on hand on that.

2:04:14>> Cash on hand targets.

2:04:15>> I'd like to eliminate them, but I'm

2:04:17happy to have staff come back to us and

2:04:19when they come back on something and

2:04:21talk about if staff feels that there's

2:04:23not enough money in these other funds,

2:04:25we will

2:04:26These funds have zero money on real

2:04:28estate.

2:04:29Um and it it may make sense to put more

2:04:32money somewhere else, or if they wanted

2:04:34to create a new

2:04:35fund just to meet targets. But

2:04:39I think I'm happy to have staff if staff

2:04:40doesn't feel they have the money, if

2:04:42this is a real issue.

2:04:45Staff can come back to us. I don't think

2:04:46they need us to tell them to come back

2:04:47to us.

2:04:48>> Well, it and it goes in the operations

2:04:49reserves.

2:04:50>> Right.

2:04:51>> Exactly. Sorry.

2:04:53>> It just goes in operations reserves.

2:04:54>> Is Baker Tilly still on the phone on the

2:04:56call?

2:04:57>> Could I ask please since this issue came

2:04:59up earlier and for several of us it was

2:05:01a really hot issue. Um my memory of the

2:05:04Baker Tilly report in March and the

2:05:06discussion we had in September was that

2:05:08there was nothing in your Baker Tilly

2:05:11your review

2:05:13of CPAU that hinted that raised

2:05:16significant uh question about

2:05:19our position around liquidity and

2:05:22uh

2:05:23covenant ratios.

2:05:25I remember your report calling for maybe

2:05:28consolidating some reserve accounts,

2:05:30clarifying policies, but uh you talked

2:05:33about

2:05:35this question of our double A rating

2:05:38and never to my memory raised any

2:05:41concern. Can you

2:05:43refresh memory?

2:05:46>> Yes, we can. We and we did you're

2:05:49correct [clears throat] that we did

2:05:50mention the um the credit rating

2:05:53um and we made mention of kind of best

2:05:56practices around credit rating.

2:05:58Um so

2:06:00just taking a step back at what we were

2:06:02asked to look at. So we were looking at

2:06:05the current policies in place, what are

2:06:07best practices for policies. One of the

2:06:09things that we analyzed in that was what

2:06:11are the recommendations from credit

2:06:14rating agencies or

2:06:16miss it in another way, not

2:06:16recommendations, but rather how do they

2:06:18score, what's their criteria, what does

2:06:21that cash balance look like.

2:06:23Um

2:06:23so within that we didn't look at the

2:06:26specific cash balances in Palo Alto

2:06:29Utilities currently, but rather

2:06:32comparing how does the reserve policy

2:06:35itself

2:06:36um define what the cash balance should

2:06:38be. You know, the example of that would

2:06:41be we're talking about, you know, for

2:06:42rate stabilization reserves, like a 10%

2:06:45of operating expenses. So, if we were to

2:06:48um be comparing to a um

2:06:52for a rating agency

2:06:54X million dollars is a strong cash

2:06:56balance.

2:06:58Palo Alto's policy says 10% of operating

2:07:00expenses. You know, how would those two

2:07:03compare? Would you be in that kind of

2:07:05threshold that you be in to maintain

2:07:07your credit rating?

2:07:08Um, so we're looking at it from a policy

2:07:10perspective rather than what's your

2:07:11actual cash itself. We didn't look at

2:07:14the actual cash balances.

2:07:16>> I was going to ask, did you identify any

2:07:19ratios that fell short of the standards

2:07:21of AA and it sounds like the answer is

2:07:24no, you didn't, but you didn't really

2:07:26look at that.

2:07:29>> I think I would I'll need to take a

2:07:31look. Let me Let me take a look. I can

2:07:33look now and provide an answer to that.

2:07:35I want to make sure I get the correct

2:07:36answer.

2:07:39>> Okay.

2:07:40>> So, wait. You Sorry, Commissioner

2:07:42Scharf. Are you saying that if there is

2:07:45a need for rate stabilization reserve,

2:07:48if we determine with additional

2:07:50consultation that we need some money for

2:07:52that, that it's going in operating that

2:07:54we recommend Okay, so would would you

2:07:57as item A, I was confused.

2:08:00>> Okay.

2:08:01>> I was wondering if you want to say if we

2:08:03determine the rate stabilization reserve

2:08:06funds are that they be served out of the

2:08:08operating budget. Operating reserves.

2:08:11>> I don't think we need to.

2:08:13Um

2:08:14I mean, look.

2:08:15My view of the staff has not come

2:08:17forward with a with a staff report that

2:08:19says that we are short of cash reserves

2:08:23for our bonding for for our for our

2:08:25ratings.

2:08:27Staff has said not They don't even

2:08:29written this up. They haven't shown us

2:08:30anything.

2:08:31If this is a problem, I mean, I just go

2:08:33on the record. I think we all could. And

2:08:35we can write something in if you really

2:08:36want that says if somewhere like a D, if

2:08:39staff feels that the reserves are not

2:08:41great enough to meet AAA bonding, please

2:08:44come back to us

2:08:46and show a staff report that says what

2:08:48you need, and then we can have a real

2:08:49discussion about it. And okay,

2:08:52you know, then I think we should

2:08:54probably put in the operations reserve.

2:08:56>> I would be happy to second this motion

2:08:58as is. I don't believe we need to add

2:09:01the verbage. I think I'm assuming the

2:09:03ins-

2:09:04the guidance is very clear, which I

2:09:05support. You know, if there's a point at

2:09:07which you feel I gosh, our cash reserves

2:09:11are falling

2:09:12down to the point where we may lose our

2:09:14bond rating and presumably well before

2:09:16the inflection point, you'd come to us

2:09:18with some recommendations on what to do.

2:09:21And I don't think it requires a rate

2:09:23stabilization reserve in order to

2:09:26to meet the requirements.

2:09:29>> I'll I'll just

2:09:31push on this a little bit harder. Um

2:09:34the

2:09:36City Council

2:09:37accepted our recommendations around um

2:09:42the

2:09:43uh

2:09:44the last discussion we had where we were

2:09:46very explicit about why we wanted to

2:09:50cap the total interest cost six we know,

2:09:53we we wanted to keep it so that rates

2:09:55didn't get above certain amount and we

2:09:57actually were very explicit

2:09:59in our motions and so

2:10:01exactly what we're thinking went to them

2:10:03rather than saying, "Okay, we're going

2:10:04to assume that all of these back office

2:10:09things are going to somehow get into you

2:10:11know, in front of City Council. So,

2:10:14I like to be explicit on why we're doing

2:10:16what we're doing if it's not 100% clear

2:10:19and to me, my understanding was we think

2:10:22we're being presented this because Baker

2:10:24Tilly told us we should have somewhere

2:10:26between 10 and 65% to be similar to our

2:10:31comparable utilities um

2:10:34in a rate stabilization reserve or an

2:10:37alternative would be to use the

2:10:39operating budget for those purposes. And

2:10:41we're saying we just want to eliminate

2:10:43these reserves. I I think it's a could

2:10:46be um

2:10:50it just is is

2:10:52sounds like we're just going against

2:10:53staff and

2:10:55um

2:10:56not considering it and what we're really

2:10:58asking for is more information on why we

2:10:59need it.

2:11:03So, I'd be happy to to draft something,

2:11:05but I do think those um types of

2:11:08explanations are helpful to get our

2:11:10motions um understood better by City

2:11:12Council.

2:11:16>> You're on the Finance Committee, right,

2:11:17Ed?

2:11:19Do you feel that we need to

2:11:22cuz this goes to the Finance Committee

2:11:23next.

2:11:24Do you think that we need to put more of

2:11:26an explanation of that why we're

2:11:28eliminating fund state

2:11:30a stabilization funds that have no

2:11:32money?

2:11:33>> Uh no, I don't. Um

2:11:35sort of globally, I think there's

2:11:37concern on the Finance Committee that um

2:11:41we're very sensitive to rates. And

2:11:43there's concern on the Finance Committee

2:11:44that we have too many reserves. Um

2:11:48that said, we're trying to

2:11:50respond to the Baker Tilly direction as

2:11:53our auditors that we should probably do

2:11:55a little bit more. So, I think I'm

2:11:57speaking for the Finance Committee, but

2:12:00more so for my own view of the Finance

2:12:02Committee cuz we haven't had, you know,

2:12:03detailed discussion about this

2:12:05that

2:12:07you know, we want to be compliant. We

2:12:08certainly are very sensitive to the bond

2:12:11uh situation. But

2:12:14>> [clears throat]

2:12:15>> we we're we're hoping that over time we

2:12:17can actually get the total reserves um

2:12:19down and maybe not in so many funds so

2:12:22that they're easier to manage and the

2:12:24basis of that is is is sort of the

2:12:26phrase that I've used before, we're not

2:12:28going to have a crisis in every utility

2:12:30every year.

2:12:31So, um if we're a little bit short in

2:12:34one, then, you know, it'd be nice to

2:12:35just say, well, we need some money from

2:12:37somewhere else. Now, we have lots of

2:12:38pots. So, why don't we just move it over

2:12:40there?

2:12:41Uh and saying that might get us in

2:12:44trouble with the auditors, so

2:12:46we'll see what Kate has to say about

2:12:47that.

2:12:48But that's the concern of the That's the

2:12:50concern is that we're just reserving too

2:12:52much, which basically forces us to raise

2:12:55rates. And we're being forced because of

2:12:57other factors to raise rates all the

2:12:59time, which none of us like as both

2:13:01consumers as well as officials.

2:13:06>> Well, that's very helpful. And I think

2:13:08we share that concern. I think that's

2:13:09what we're trying to get to.

2:13:10>> Yeah, well, clearly you do.

2:13:11>> But but I want to

2:13:13ask Rachel's question again.

2:13:16It sounds like

2:13:17To what degree is this measure and

2:13:19motion the motion in the way that we

2:13:20write it?

2:13:22Is that our advisory to council? I mean,

2:13:25does DWP see this?

2:13:27>> Oh, yeah. Well, comes to

2:13:28>> Well, maybe you should say some of the

2:13:29things Rachel Commissioner Crofts is

2:13:31talking about like on point A would say

2:13:34we we want to eliminate these

2:13:36as we have a lot of other reserves that

2:13:37are already doing the job and they're

2:13:39empty. Or with

2:13:42>> But we also have the transcript of this

2:13:44meeting. And so not everything has to go

2:13:46in the motion. The motion should be just

2:13:48what we advise cuz that's the the final

2:13:51record. They also look at the minutes of

2:13:53this meeting.

2:13:54>> I I would also suggest that we have a

2:13:56representative at the finance committee

2:13:57when this is discussed. So if the

2:13:59question arises, you know, why did you

2:14:02guys want to eliminate this?

2:14:04>> Yeah, I I already made that note in this

2:14:06meeting.

2:14:07>> Would Would

2:14:07>> For this item that we need to have a

2:14:09representative for whoever the chair

2:14:10decides.

2:14:12>> Um would

2:14:13>> I think

2:14:14we have someone else.

2:14:17So

2:14:18why don't we get to the motion?

2:14:20>> If we were clearer on the motion, would

2:14:22we need somebody to go?

2:14:24>> It's always helpful to have somebody

2:14:26there on something that's sort of is

2:14:27I'll say complex as well as somewhat

2:14:29controversial like this.

2:14:33>> I look forward to the mature pre-drought

2:14:35associated demand reduction impacts into

2:14:36the cost of service. That'll be a good

2:14:38one.

2:14:39But they'll have a chat

2:14:40>> it's very literal.

2:14:42>> There's a thing I like.

2:14:43>> Um as we are very scheduled and I will

2:14:45be leaving in 1 hour. So um

2:14:49let's vote.

2:14:50Could you please call

2:14:52the vote?

2:14:53>> Commissioner Tucker?

2:14:55>> Yes.

2:14:56>> Commissioner Metz?

2:14:58>> Yes.

2:14:59>> Chair Motor?

2:15:00>> Yes.

2:15:01>> Commissioner Croft?

2:15:04>> Yes.

2:15:05>> Vice Chair Phillips?

2:15:06>> Yes.

2:15:08>> Commissioner Sharff?

2:15:09>> Yes.

2:15:10>> Motion passes 6-0.

2:15:14>> Okay.

2:15:15Um Windham.

2:15:19Um

2:15:20we will now move on to

2:15:22uh packet item number three. A

2:15:25discussion and update on the fiscal year

2:15:272028 preliminary utilities financial

2:15:31forecast and rate projections.

2:15:38>> Uh just to be clear, it was uh

2:15:39Commissioner Phillips, Vice Chair

2:15:41Phillips, who's going to be at the

2:15:42Finance Committee.

2:15:43>> Correct. Uh

2:15:46>> Could you define a rep? I'm sorry. I

2:15:48didn't know. Maybe I misheard.

2:15:49>> When When does this come before Finance?

2:15:54>> December the

2:15:5614th or 15th?

2:15:58The 15th.

2:16:00>> Put me down tentatively.

2:16:02Put me down tentatively and let me check

2:16:03my calendar when

2:16:04>> Do we have a Maybe define a backup.

2:16:06>> Would I just

2:16:07>> Would anyone be willing to appear as a

2:16:09backup?

2:16:13Okay, we'll put Commissioner Tucker as

2:16:14the backup.

2:16:17>> Okay, understood.

2:16:19Uh December 15th

2:16:22between 2:00 and 5:30 p.m.

2:16:26And uh utility staff will be there and

2:16:27we we will recognize the active

2:16:29discussion on maintaining uh cash

2:16:31reserves and and liquidity and reserve

2:16:33to to uh bonds.

2:16:35>> But we have the updated time? Cuz it got

2:16:37updated.

2:16:39>> I believe that is the updated time. It

2:16:41starts at 2:00.

2:16:42>> Okay, right.

2:16:42>> And uh

2:16:43and I don't think it's going to go past

2:16:455:30.

2:16:46>> And I've been earlier to You end up with

2:16:48another evening event, so that had have

2:16:50>> Okay.

2:16:50>> Yes.

2:16:51>> And you will be joining us all on the

2:16:53next day for the joint study session on

2:16:57water.

2:16:58>> I can Thank you.

2:16:59>> Double hat.

2:16:59>> I can make that timing then.

2:17:00>> You can. Okay, great. Thank you. Thank

2:17:02you.

2:17:04Okay. Um packet item number three as I

2:17:07just

2:17:09read out. I'm not going to read again.

2:17:11Um

2:17:14Hi.

2:17:15Welcome.

2:17:16>> Do we need to add another chair or just

2:17:18leave this one?

2:17:19>> to stand. I think she wants to stand.

2:17:23Okay, I'm going to tee this up really,

2:17:24really briefly. Um

2:17:26if you look at this, this is our

2:17:27preliminary rate forecast. So we do this

2:17:30preliminary rates to let you know where

2:17:32we see the the projections coming. We

2:17:35look at our last year financials. Um in

2:17:38short, um

2:17:39we try to smooth these rate increases

2:17:41over time taking, you know,

2:17:43um hearing from the finance committee

2:17:45and also UAC and trying to make sure we

2:17:47have stable rates as low as possible in

2:17:49terms of affordability. So we'll do a

2:17:51little bit update on that.

2:17:53Um

2:17:54I think the good news here is it still

2:17:55shows that we are making those kind of

2:17:58those generational reinvestments in our

2:17:59utilities, especially on of course in

2:18:01our grid modernization and our

2:18:03aforementioned waste water treatment

2:18:04plant. But with that, I will let staff

2:18:06do the presentation.

2:18:11>> Thank you, Ellen.

2:18:12>> Sorry, as we segue into this, is it true

2:18:15that everything we just discussed like

2:18:16the 10% RSRs, they're all baked into the

2:18:19numbers we're about to look at?

2:18:21>> Yes.

2:18:22>> true?

2:18:23Okay.

2:18:25Which we have now I think

2:18:27>> And what we can do is not put that in We

2:18:29can put that in context as we go through

2:18:30this and that's why we want to talk

2:18:32about the reserve policy first and how

2:18:33it rolls in versus the other way around.

2:18:35So it's six of one, half a dozen of the

2:18:36other. Thank you.

2:18:40>> Thank you. I'll move over there in just

2:18:41a moment. I just wanted to make some

2:18:42really brief comments to begin. Um

2:18:45and uh we are

2:18:48to uh

2:18:49We want to talk a little bit about the

2:18:50value that utilities provide to the

2:18:52residents and businesses in Palo Alto

2:18:54and some brief overview remarks. And

2:18:56then I'm going to turn it over to Steve

2:18:58Bogliardo who's our new senior resource

2:19:00planner who will talk about the electric

2:19:02and gas utilities. Then Adriana Artola,

2:19:05senior resource planner, will discuss

2:19:06the water and waste water utilities. And

2:19:08I also want to mention we have Karen

2:19:10North, assistant director of public

2:19:11works, who's representing the Regional

2:19:13Water Quality Control Plant available

2:19:15over Zoom if there are questions on

2:19:17waste water treatment.

2:19:18Um

2:19:19so

2:19:22I'm going to move quickly through some

2:19:24of these slides. A lot of the

2:19:25information is

2:19:27available for you if you have any

2:19:28questions about it, available for the

2:19:30community to have

2:19:32have this information available, but I

2:19:34just wanted to say that we are we we've

2:19:36updated the rate forecasts from our June

2:19:392026 package that went to the City

2:19:42Council and was approved. We updated

2:19:44with the unaudited reserve balances for

2:19:47fiscal year 26. We updated our load

2:19:49forecasts and supply expenses for the

2:19:52financial planning period. We updated

2:19:55other expenses where we had updated

2:19:57information available. And we

2:19:59incorporated, as you just mentioned, the

2:20:01reserve discussions that we the reserve

2:20:03recommendations from the department. So

2:20:05we will now remove some of those

2:20:08recommendations and modify them as we go

2:20:09forward and bring you the next round of

2:20:11these

2:20:12uh rate forecasts.

2:20:15Tonight we would like to ask for your

2:20:16input on the rate trajectory and key

2:20:19topics to address during this year's

2:20:21rate setting process. We have listened

2:20:24to feedback from previous years from the

2:20:27UAC, from the Finance Committee and

2:20:28Council on smoothing the rate increase,

2:20:31on um

2:20:32looking for ways to make rates

2:20:34affordable. We can

2:20:37If you have feedback on the rate

2:20:38trajectory, what we can do is look

2:20:40closely at the tradeoffs between the

2:20:41programs that we provide, reserves, and

2:20:44rates. And this will help this this

2:20:47discussion will help inform our

2:20:49development of the rate proposals that

2:20:51we'll bring to you in March and April of

2:20:532027.

2:20:56I'm going to move swiftly through this,

2:20:57but some of the key uh factors in

2:21:00uh increasing our rates are our grid

2:21:02modernization. We have on the gas side

2:21:05our um

2:21:06reserves are our uh sales forecast is

2:21:10declining a little bit more quickly than

2:21:13we thought, and we have needed work

2:21:16going on on the wastewater utility,

2:21:18including uh increases in the wastewater

2:21:21treatment plant. They're rebuilding

2:21:23their facility

2:21:24the

2:21:25uh using approximately a capital budget

2:21:27of about $450 million,

2:21:30and

2:21:31uh

2:21:32Palo Alto pays our share, which is

2:21:33around 38% of the capital budgets, and

2:21:36our revenues are $40 million per year.

2:21:39So,

2:21:40additionally, the wastewater collection

2:21:42utility has deferred the City Council

2:21:44approved replacement cycle of 2.5 miles

2:21:47per year of main replacement, and this

2:21:50plan resumes that important sewer main

2:21:52replacement in fiscal year '28. And um

2:21:56we're also facing impacts from

2:21:59uh the rate environment that we're in

2:22:01with rate pressures from CPI, California

2:22:04Construction Cost Index, and Producer

2:22:06Price Index.

2:22:08And all of these things together

2:22:09contribute to our rate increases.

2:22:11I do have a

2:22:12brief timeline here to show you where we

2:22:15are in the process. If you could please

2:22:17go to the next slide.

2:22:18We're here in November, and you can see

2:22:20that we are planning to, as we just

2:22:22talked about, come to the Finance

2:22:23Committee on December, bring to the

2:22:26council our proposed reserve policy

2:22:28recommendations, and then in the next

2:22:30set of information that you see, that

2:22:32will all be incorporated in this in

2:22:34March and April.

2:22:36Next slide, please.

2:22:38Really, really briefly, Palo Alto

2:22:40provides essential utility services that

2:22:43residents and businesses rely on every

2:22:45day, including electricity, gas, and

2:22:47clean drinking water.

2:22:48And our focus is on keeping those

2:22:50services safe, reliable, and

2:22:51cost-effective.

2:22:53A big part of our work is maintaining

2:22:55and upgrading the infrastructure that

2:22:57supports the community, and we are

2:22:59replacing aging pipes, increasing system

2:23:02capacity to prepare for electrification,

2:23:04and undergrounding equipment in high

2:23:06fire threat areas.

2:23:09We are planning ahead. We use 100%

2:23:12carbon neutral electricity,

2:23:14and we have many programs that support

2:23:16residents and businesses who want to

2:23:18electrify their homes. And we oversee a

2:23:21budget of more than $500 million each

2:23:23year, and we have careful financial

2:23:26management. Next slide, please.

2:23:29The city does provide a suite of

2:23:30resources to help customers save on

2:23:32utility bills. The bill impacts we show

2:23:35on this presentation assume customers

2:23:38keep using the same amount of energy and

2:23:40water, but customers can take advantage

2:23:42of these programs to reduce their energy

2:23:44and water usage, and this is the best

2:23:46way for customers to control their

2:23:47utility bills. And now I'll turn it over

2:23:49to Steve.

2:23:51>> Good evening, Council Member Lauing,

2:23:53Chair, Vice Chair, Commissioners. My

2:23:55name is Steve Gualderado, Senior

2:23:56Resource Planner with the Utilities

2:23:58Department.

2:23:59I'll be presenting our preliminary rates

2:24:01alongside my colleague Adriana.

2:24:03Uh if you can go to the next slide.

2:24:07Here you can see our preliminary

2:24:08residential median bill projections.

2:24:10This is consistent generally with what

2:24:12we presented in June 2026 as our

2:24:14forecast, but you can see that we were

2:24:16able to lower the percentage ever so

2:24:18slightly from 8% as the increase from FY

2:24:2027 to 7%.

2:24:23This will generate savings on the median

2:24:25bill versus prior projections of about

2:24:27$6.90 per month. Overall good news. Um

2:24:31the increase from 27 to 28 was projected

2:24:33to be 3850 in June, and we've been able

2:24:35to reduce that to 3150 per month.

2:24:38As Commissioner Duiker pointed out, this

2:24:40is inclusive of the 10% distribution

2:24:42RSRs. Um with those coming out, you

2:24:45would expect to see these percentages

2:24:46decrease across each of the utilities as

2:24:48we go forward.

2:24:50This presentation tonight will go

2:24:51through each utility. We'll discuss

2:24:53briefly what changed from the June 14th,

2:24:552026 projections to arrive at our

2:24:57current preliminary rates.

2:24:59With that, we can go to the next slide.

2:25:02And we'll start with electric. We're

2:25:03going to see a similar format for each

2:25:05of the four utilities we're discussing

2:25:06tonight. So, I want to spend just a

2:25:07quick second orienting folks. It'll take

2:25:09a little bit longer on electric, and

2:25:10then hopefully we'll get through the

2:25:12remaining a little bit faster.

2:25:15For electric, we're carrying a

2:25:16preliminary overall rate increase of 7%

2:25:18for FY28. This incorporates 10% increase

2:25:21on the supply side and a 3% increase on

2:25:23the distribution side. As you'd expect,

2:25:25the increase in commodity costs and load

2:25:27is what's driving that increase on the

2:25:29supply side.

2:25:30This would generate an increase of about

2:25:32$6.50

2:25:34for the median residential bill per

2:25:35month.

2:25:37This next section on the slide is going

2:25:38to appear in each of the utilities that

2:25:40we'll discuss tonight, as well.

2:25:43This is showing what we had forecasted

2:25:45for FY26 and what changed from that

2:25:47forecast to FY26 actuals. So, there's

2:25:50arrows here representing things that had

2:25:52a positive impact on fund balance, and

2:25:55red arrows representing things that had

2:25:56a negative impact on fund balance.

2:25:59Green is a good thing for the bottom

2:26:00line. Red is a bad thing for the bottom

2:26:02line, overall.

2:26:04The point of showing this table for each

2:26:05utility is provide a snapshot of the

2:26:07financial results of FY26 compared to

2:26:09what we included in the forecast that we

2:26:11discussed in June.

2:26:13So, for the electric fund, we had a

2:26:15higher revenue through FY26 than

2:26:16previously forecasted by about $1.4

2:26:18million.

2:26:20As a reminder, overall revenue for the

2:26:22electric utility was about $257 million.

2:26:26This increase in revenues was offset um

2:26:29or was bolstered by fewer expenses on

2:26:33supply purchases, lower operations

2:26:35expenses, and then those were partially

2:26:36offset by higher CIP expenses.

2:26:39Those higher CIP expenses represent that

2:26:40we made progress faster than we

2:26:42initially thought we were as of time of

2:26:44the last forecast on various projects

2:26:45through the end of FY26. So, even that

2:26:47is generally a good story.

2:26:49The net impact of all of that is an

2:26:51increase of reserves of about $9.5

2:26:53million compared to what we presented in

2:26:55June '26 to this preliminary forecast.

2:27:01As a result of of increase of $9.5

2:27:03million in reserves, the impacts are

2:27:05tempered somewhat as you go through the

2:27:075-year rate trajectory and we look at

2:27:09the drivers for each of them.

2:27:11So, the electric fund includes funding

2:27:12grid mod, both the paygo elements as

2:27:14well as the debt financing pieces of it.

2:27:16As a reminder, grid mod includes not

2:27:18only the replacement costs, which are

2:27:20about 30% of the overall project costs,

2:27:21but also that scaling, that reliability,

2:27:24and the modernization upgrades that

2:27:25we're talking about. But, 30% of those

2:27:26costs are just replacing the aging

2:27:28infrastructure that needs to be replaced

2:27:30anyway.

2:27:31We're replacing emergency generators,

2:27:33and we also have included costs for

2:27:35increased equity transfers through the

2:27:37term of the forecast.

2:27:39So, altogether, you can see we've been

2:27:40able to keep the overall rate trajectory

2:27:42through the term of the forecast

2:27:43consistent with prior forecasts even as

2:27:45we maintain the transmission grid and

2:27:47meet our clean energy goals.

2:27:49You can see the forecasts are consistent

2:27:51with what we previously presented, and

2:27:53then in 2032, we're currently carrying a

2:27:544% increase.

2:27:56Again, just given the nature of the

2:27:58discussion we just had on reserves, you

2:27:59would expect to see these rates come

2:28:00down ever so slightly as we back out

2:28:03that RSR percentage.

2:28:06On the next slide, you'll see another

2:28:08slide that will appear for each of the

2:28:09reserves.

2:28:10Or, excuse me, for each of the

2:28:11utilities, which shows the combined

2:28:13reserve target for each of the utilities

2:28:15as the line, and then the column stack

2:28:17column chart is showing the respective

2:28:19reserves as we go forward.

2:28:21So, for the electric utility, you can

2:28:23see that through 2032, we maintain or

2:28:24improve the operations reserve, the CIP

2:28:26reserve. This includes the rate

2:28:28stabilization reserve on distribution

2:28:30that will be backed out per discussion

2:28:31and further discussion with finance and

2:28:33council.

2:28:34And as a result, you can see that we

2:28:36don't quite reach the target line by

2:28:382032 for electric, but that's because

2:28:40for electric, we have that 10-year

2:28:41target for the CIP given the nature of

2:28:44its much larger CIP expenses

2:28:46and the corresponding increase in the

2:28:47reserve.

2:28:50With that, we'll move into gas. Again,

2:28:52same format here that we saw

2:28:54for electric. We're projecting a 7%

2:28:57overall increase in FY28.

2:28:59The impacts on fund balance are again

2:29:01shown. There were lower sales revenues

2:29:03of about 7.7 million dollars driven

2:29:06mainly due to lower consumption.

2:29:08And then we saw savings from lower

2:29:10supply purchases that correspond to

2:29:12that, lower operations expenses, and

2:29:14lower CIP expenses.

2:29:16The net change for gas was an increase

2:29:17in reserves of $5 million from what we

2:29:19thought we were going to see at the end

2:29:20of 26 to what we actually saw.

2:29:24The drivers of the 5-year rate

2:29:25trajectory for gas include tapering

2:29:27sales revenue from lower load

2:29:28projections, CIP main replacement costs,

2:29:31and incorporation of the various reserve

2:29:33policies.

2:29:34Again, as discussed, this does once

2:29:36again include a 10% distribution rate

2:29:38stabilization reserve, which would be

2:29:39backed out per the discussion we just

2:29:41had.

2:29:42Here you can once again see the rates

2:29:43are consistent. I'll note that the

2:29:45differences occur in 2029 where we're

2:29:48now carrying 7% where we were carrying

2:29:506%, and in 2031 where we're now carrying

2:29:526% where we were formerly carrying 8%.

2:29:57On the next slide, we see the same

2:29:59treatment of reserves discussion. Um

2:30:01this chart does include the discussion

2:30:04we just had about the gas price spike

2:30:06mitigation reserve and what we

2:30:08ultimately end up deciding to call that.

2:30:10As we go forward, um

2:30:13and through the forecast, these reserves

2:30:14are each improved to reach their targets

2:30:16by the end of the forecast term.

2:30:18With that, I'll turn it over to my

2:30:19colleague Adriana to talk about water

2:30:21and then wastewater collection.

2:30:23>> Good evening. I'm Adriana Arcola, senior

2:30:24resource planner.

2:30:26For water, the overall preliminary

2:30:28fiscal 28 rate increase is 6%, and this

2:30:31reflects a 5% distribution rate increase

2:30:34and a 7.5% SFPUC wholesale rate

2:30:37increase.

2:30:39Um looking at the actual to forecast

2:30:42table as for reference, um total

2:30:45revenues for the water utility for

2:30:47fiscal 26 were $62 million. And as you

2:30:49can see on the slide, sales revenues

2:30:51were higher than previously forecasted,

2:30:53operating and CIP expenses were lower,

2:30:56and this resulted in a net change in

2:30:58reserves that were $7.6 million higher

2:31:00than previously forecasted. And these

2:31:03year-end results contribute to uh the

2:31:06overall lower rate trajectory compared

2:31:08to the prior forecast. As you can see um

2:31:11in the table at the bottom of the slide

2:31:13there comparing those those forecasts.

2:31:16Also note here that the preliminary

2:31:18forecast reflects the fiscal 27 adopted

2:31:21CIP budget which assumed full

2:31:23replacement of the Dolan Park

2:31:25reservoirs.

2:31:26As you may have seen in the

2:31:27informational report on this topic

2:31:30on in tonight's agenda staff's

2:31:33recommendation is a minimum

2:31:35rehabilitation which brings down the CIP

2:31:37the estimated CIP cost.

2:31:39If we incorporate that update into the

2:31:41preliminary rate forecast this lowers

2:31:43the rate trajectory in later years to no

2:31:45more than 6% per year.

2:31:48Next slide.

2:31:53These are the projected rate

2:31:55I'm sorry reserve balances for the water

2:31:57utility as we can see in fiscal 27

2:32:00projected to have a reserve balance and

2:32:02that is above target and this is due to

2:32:05the higher than forecasted balance in

2:32:07fiscal 26

2:32:09and staff's proposal in this preliminary

2:32:12rate forecast is to

2:32:15draw down on these reserves

2:32:18by spending them on primarily CIP

2:32:20projects to lower the rate trajectory to

2:32:22lower and smooth the rate trajectory.

2:32:26Next slide.

2:32:31For the wastewater collection system the

2:32:33preliminary fiscal 28 rate increase is

2:32:3512%

2:32:36this is primarily driven by

2:32:39increased treatment costs

2:32:41as well as the start of those sewer main

2:32:44replacement projects beginning in fiscal

2:32:462028.

2:32:48Looking at the forecast to actual

2:32:50figures for reference total operating

2:32:52revenues for the wastewater collection

2:32:54utility were 37.5 million for fiscal 26.

2:32:59And so for this utility sales revenues

2:33:01were higher than projected operating

2:33:04expenses and CIP expenses were lower

2:33:06than projected and this resulted in a

2:33:08net change in reserves that was 4.4

2:33:11million

2:33:12higher than 4 million higher than uh

2:33:15previously forecasted.

2:33:18Um

2:33:20These This positive year-end results

2:33:22contributed to the wastewater collection

2:33:24fund being able to fully repay the $3

2:33:26million loan from the fiber fund

2:33:30along with interest as you that year.

2:33:33Um it also allowed to

2:33:35for the

2:33:37for lowering um the fiscal '28 rate

2:33:40increase uh to 12% from the previously

2:33:42forecasted 14%.

2:33:44Um

2:33:46Despite the higher than forecasted fund

2:33:48balance at fiscal '26 year-end, the

2:33:50overall rate trajectory is higher than

2:33:52previously

2:33:53forecasted um beyond fiscal '28. And

2:33:56this is primarily due to uh

2:33:58the regional water quality control plan

2:34:00reserve contributions.

2:34:02Um

2:34:03These were previously uh unknown in the

2:34:05prior forecast and they're included here

2:34:06now.

2:34:08Also, the main rate drivers for the

2:34:09fiber trajectory um remain being the

2:34:12uh

2:34:132.5 million per year sewer main

2:34:15replacement projects that began in

2:34:17fiscal '28 as well as uh the treatment

2:34:19costs associated with the regional

2:34:21treatment plant rebuild.

2:34:23Next slide.

2:34:28The reserve balance projections for the

2:34:29wastewater collection system um reflects

2:34:32significant recovery from prior years.

2:34:34Um they remain below the target level

2:34:37because it assumed a 10-year uh

2:34:39implementation period for the reserve

2:34:40targets um as recommended by Raft, but

2:34:43um as you know, this these targets will

2:34:44be lowered.

2:34:47Next slide.

2:34:50That concludes the preliminary rate

2:34:51presentation. Um and just to reiterate,

2:34:53we are here to ask for your input on the

2:34:55rate trajectory um and key topics to

2:34:58address during this year's rate setting

2:35:00process.

2:35:01We can look closely at the tradeoffs

2:35:02between programs, reserves, and rates.

2:35:05Um and this discussion will help inform

2:35:07our development of uh

2:35:09the final rate proposals um that we will

2:35:11bring to you in March and April of

2:35:13next

2:35:20All right. Um

2:35:22we will move on to public comment on

2:35:27agenda item number three.

2:35:29Are there any members of the public

2:35:31interested in speaking on

2:35:33this item?

2:35:35>> If any member of the public would like

2:35:37to speak on item three, please raise

2:35:38your hand or press star nine now.

2:35:42We have no request to speak.

2:35:44>> Okay.

2:35:46Um

2:35:48brief clarifying questions. Brief.

2:35:52>> I'll repeat the question I had earlier

2:35:55about several situations here in which

2:35:57happily various reserves are higher,

2:35:59significantly higher than anticipated.

2:36:03What or higher than in this case the

2:36:05maximum?

2:36:07Do we have a specific policy about what

2:36:09to do in that case? It sounds like we

2:36:11There's kind of ad hoc. In some cases we

2:36:13move it to fill other reserves. Some

2:36:16cases we use it to lower rates. How How

2:36:18are those decisions made and

2:36:20when do they require

2:36:22uh

2:36:24council input?

2:36:32>> The

2:36:34We're trying to smooth the

2:36:35re-trajectories and make those changes

2:36:37in the most

2:36:39proposal that

2:36:40seems to us to be the most palatable,

2:36:43but we also can um

2:36:46and then that will go to the finance

2:36:47committee and council for consideration.

2:36:50So, all of this requires council

2:36:52consideration and approval.

2:36:56>> The transfer's required and then of

2:36:57course the rest of it is in the rates.

2:36:59Is that

2:37:00But But in some cases it seemed that you

2:37:04explicitly said we'll use it to lower

2:37:05rates. In this case you said, "Well,

2:37:06we're going to move it from this fund to

2:37:08help

2:37:09help improve this other fund." I'm just

2:37:11curious.

2:37:12>> policy guidelines in terms of what those

2:37:14reserve policies are at and and that's

2:37:16why you see the goals here. And what we

2:37:18try to do with the summary is provide

2:37:20that. So, that you're absolutely right.

2:37:21There are some goals that we have for

2:37:22each. But, then as as we meet those

2:37:25reach those, I wouldn't say maximum, but

2:37:27I would say kind of a target, um then

2:37:29you can start looking at the potential

2:37:32in terms of what that does for rates,

2:37:33right? So, if you met the target on all

2:37:36your reserves, then obviously that puts

2:37:38downward pressures on your rate

2:37:39increases.

2:37:40>> So, you're saying the kind of the

2:37:42internal algorithm you use is

2:37:45if one of the reserves is higher, we

2:37:47look at the other reserves, and if

2:37:49they're not at their target, I'll assume

2:37:51targets, so we'll forget about maximum

2:37:52and minimum because those are going

2:37:54away, then we put it there, but if

2:37:56they're all full or more than full, then

2:37:59we use it to to dampen rate increases.

2:38:02>> That is kind of a in summary. However, I

2:38:05would state that, you know, there are

2:38:06some lumpy expenditures. Yeah, for

2:38:08example, as the Dolan Park Reservoir

2:38:11projects are are kind of lumpy, so we we

2:38:13build up reserves over time. Uh if we go

2:38:16for the pay-go model.

2:38:19>> Thank you.

2:38:20>> I have a clarifying.

2:38:22>> Go for it.

2:38:24>> I'd like to ask how the staff report

2:38:27uh what how it's put together, what it's

2:38:30actually trying to do. Um

2:38:32this is ostensibly to tell us changes to

2:38:36the FY28 rate increases.

2:38:39>> a question or is this a comment?

2:38:41>> It's It's Well, everything I have is a

2:38:43comment.

2:38:44>> Well, okay, but we I'm we are on

2:38:46clarifying questions.

2:38:48Do you have a clarifying question?

2:38:50>> Uh why does the report

2:38:53tell us what happened in FY26, not tell

2:38:56us anything about FY27 financials, like

2:38:59no cost, revenue, uh financial

2:39:02projections in a chart, and then ask us

2:39:04to recommend or comment on rate

2:39:07increases? I don't even understand this

2:39:09the structure in which we're discussing

2:39:11this. So, I think that's a clarifying

2:39:13question, but it's not a brief one.

2:39:19>> Am I missing

2:39:23>> It's unclear what what the question is.

2:39:27What do you want staff to say?

2:39:28>> How are you supposed to comment on FY28

2:39:31rates?

2:39:32>> Seems like a rhetorical question.

2:39:33>> No.

2:39:34>> I'm trying to help us move through the

2:39:36agenda in efficient ways, which is to

2:39:38have a series of quick clarifying

2:39:40questions for the benefit of everybody,

2:39:42and then we get our 3 minutes, right?

2:39:45This is what we adopted as a commission.

2:39:47If you don't like that, we can revisit

2:39:49the way in which we run these meetings

2:39:52collectively, but I would Okay.

2:39:54Great.

2:39:56Any other clarifying questions?

2:40:00Now we can move to discussion.

2:40:05Please proceed, Commissioner Tucker.

2:40:09>> I

2:40:10really it's the

2:40:11the question is what kind of advice you

2:40:14or comment discussion you'd like from

2:40:16us.

2:40:17And then

2:40:19>> Can you please start the 3 minutes?

2:40:21>> Oh, don't worry. I won't get close to

2:40:23it.

2:40:24Famous last words. Um

2:40:26What advice do you want and how can we

2:40:29advise or even reflect on the FY28 rate

2:40:33changes

2:40:35when we don't know any financials behind

2:40:37them?

2:40:39>> Thank you for the question. We are What

2:40:41we're trying to do is present the latest

2:40:44most recent information that we have,

2:40:46which is the year-end 2026 information,

2:40:49and trying to update and refresh our

2:40:51forecast, our preliminary forecast, as

2:40:53best we can to inform what the

2:40:57the inform the commission on what our

2:40:59forecast

2:41:00>> [clears throat]

2:41:00>> is most likely to be.

2:41:01>> forecast for what?

2:41:03>> Of for the rates, for the utilities.

2:41:05>> But why not forecast for the financials,

2:41:07like how much revenue, how much usage,

2:41:09what will our costs do? Will we have

2:41:11another $4 million windfall, in other

2:41:14words, better than projected on electric

2:41:16next year like we did last year? Uh

2:41:19forecast of

2:41:20I can't I can't even think about rating

2:41:23freezes when I don't know what

2:41:25assumptions lie behind them on usage

2:41:28revenue and cost.

2:41:29>> It sounds like you'd like more detail

2:41:31than what is listed here. This is a

2:41:33forecast of the costs and revenues and

2:41:35the reserve impacts based on the most

2:41:37recent information, but we haven't

2:41:39provided as much detail as we do when we

2:41:41bring it to finance.

2:41:42>> sorry to sound argumentative. I'm not

2:41:43looking for detail. There is no revenue

2:41:46for Correct me if I'm wrong, please. Is

2:41:48there a Is there a a number here that

2:41:50says

2:41:51our revenue forecast for electric or gas

2:41:54in FY27, let alone FY28,

2:41:57is X Y

2:41:59It's not in here. Is it?

2:42:03>> It's underlying the reserve changes. The

2:42:06difference between revenues and expenses

2:42:08is the reserve change. So, you're

2:42:09correct. It is not laid out in a table

2:42:11here. And we will do that in our final

2:42:13proposal.

2:42:13>> I don't Yeah, maybe guess my I can just

2:42:16say one thing and then be done for the

2:42:17whole agenda item. I strongly urge a

2:42:19better staff report when you take this

2:42:21to the next step, which I guess is

2:42:23finance. I don't consider next year's

2:42:25revenue or 28 revenue or the cost or the

2:42:29supply COGS cost like the cost of water.

2:42:31I heard the 7.5%

2:42:33that was buried in narrative and text.

2:42:36It wasn't in a chart.

2:42:37Make that clear. That's not detail.

2:42:42>> So, just to make sure that

2:42:45Commissioner Tucker,

2:42:47staff know what to bring in the final

2:42:50rate proposal, you would like to see a

2:42:53breakdown in the drivers of projected

2:42:57cost increases

2:43:00laid out in either a table or a chart.

2:43:04And you'd like to see drivers or or

2:43:08projected changes in revenues

2:43:11similarly laid out.

2:43:12>> Yeah, I mean, unless I'm the only one

2:43:14who read the staff report and could not

2:43:16figure out why you took a 14% down to a

2:43:1912 or seven to a six other than I'm

2:43:22sorry, hand-waving. Just narrative in

2:43:24text. There were There was no financials

2:43:26with revenue and cost.

2:43:28>> He's He's asking for an income

2:43:29statement.

2:43:31>> Or even just a cartoon version with the

2:43:34not the detail, just the top line. I

2:43:36don't even need to know personnel cost,

2:43:38just operation costs and supply costs,

2:43:41two lines under revenue. And then,

2:43:43you know, um

2:43:45how else are we supposed to have

2:43:46anything intelligent to say about

2:43:48whether it's 8% or 7%?

2:43:52>> Is that achievable for staff?

2:43:55>> Yes. Thank you.

2:43:56>> Excellent.

2:43:57>> Okay. Um helpful feedback. Thank you.

2:44:00Any other comments? Commissioner

2:44:01Sheriff?

2:44:06>> I think what would be helpful for me is

2:44:08to understand the rate what's driving

2:44:10the rates more than anything else.

2:44:13And I appreciate the little, but it

2:44:14would be great to know like

2:44:16this part is driving the rate, this

2:44:18percentage, this part is driving the

2:44:20rate that percentage. I think that'd be

2:44:22really helpful. I mean, obviously

2:44:23there's nothing we can do about the

2:44:24wholesale rate increases.

2:44:26Um I'm also a little

2:44:29curious as to what are the what the

2:44:31other BOSCA members

2:44:33what their rates are going up.

2:44:35If they're going up roughly ours, if

2:44:37same or are we outliers, you know,

2:44:40that kind of stuff. I think that would

2:44:41be helpful information for me.

2:44:43>> Yeah, absolutely. We bring that back as

2:44:45part of our our our final in terms of

2:44:47what we see as those projections. We do

2:44:48the comparables with the other agencies

2:44:50that that that have 100% hedge strategy

2:44:52supply. And And, you know, leaning into

2:44:55that why and we did that a little bit

2:44:56here as part of that and some of our

2:44:58rate drivers, but we can certainly bring

2:45:00that back as we provide more information

2:45:02to the UAC on our capital needs and and

2:45:04the rest. So,

2:45:05>> And this thing of inflationary increases

2:45:07to operating expenses for the

2:45:09preliminary water rate, I don't know

2:45:10quite what that means. Are we talking

2:45:13staff salaries? Are we talking

2:45:15materials? Are we talking construction

2:45:17costs cuz we're doing,

2:45:19you know,

2:45:21CIP probably. I just really would like

2:45:23to know what what those mean. So, I'd

2:45:25like a more robust understanding of that

2:45:28because

2:45:29obviously we and I heard from Ed that we

2:45:31also like to have lower rates over

2:45:34council and the finance committee. And

2:45:36the only way we can delve into this a

2:45:38little bit is to understand what's

2:45:40driving those rates.

2:45:41And so the more information you can give

2:45:43on that more helpful it would be.

2:45:46Um

2:45:48I did want to briefly note that when I

2:45:50look at the drivers of electricity rates

2:45:53I notice that one of them is the

2:45:54increased equity transfer amounts.

2:45:57So it's really tax from the utilities

2:46:00giving the money to general fund. I

2:46:01think we all realize that.

2:46:03I would love this broken out. Like

2:46:05you know, is that really driving rates?

2:46:07Is that driving rates like 1%? Is that

2:46:09driving rates half a percent? Is it

2:46:11driving at 507?

2:46:14You know, I just don't know how any of

2:46:16this breaks out. Um there's lots of

2:46:18stuff here.

2:46:19Um

2:46:21you know, so the more you information

2:46:24give me that I will notice and I know

2:46:26it's not apples to apples and it's

2:46:28unfair, but I will notice that um Santa

2:46:31Clara's rate increases are 3% basically.

2:46:34I think it's 4% one year and then 3% is

2:46:37then

2:46:38forecast for the rest of it.

2:46:41You know, I think they could serve me.

2:46:47>> That's a rhetorical question.

2:46:49You don't have to answer.

2:46:50>> It's probably rhetorical.

2:46:51>> Okay, Commissioner Phillips.

2:46:53>> I think I'm I'm just going to

2:46:56add it to what Commissioner Shar said.

2:46:58What I think would be

2:47:00very useful as you've done in the past

2:47:01is have these bar charts that say okay,

2:47:04that's where asking for an X percent

2:47:06increase. Like on water, what percent of

2:47:08that is due to forecast of declining

2:47:10demand for example?

2:47:12What part is due to anticipated uh

2:47:16SFPUC?

2:47:18What part is, you know, due to expect

2:47:20this and that? Again with my I I like

2:47:23these things visually. It's nice to have

2:47:24them in tables, but I think that's

2:47:27more or less what, you know, I want.

2:47:29What what is the the big the big

2:47:31drivers? So, we can look at it and say

2:47:33is there anything we can do about

2:47:34things? I mean, most of them

2:47:36>> So, it would be helpful. Maybe we can

2:47:37just frame on what this preliminary

2:47:40information is supposed to do is really

2:47:41looking back at our projections and what

2:47:43what was the differences between us? Do

2:47:45Do we see some major issues coming up?

2:47:48And I think what staff is trying to

2:47:49portray is that we're not seeing a major

2:47:52change in some of those projections. Um

2:47:54this is not going to be You're going to

2:47:56see a more robust analysis as like we've

2:47:59done in in the past on the final. But,

2:48:01this is really trying to tell you, is

2:48:02there something that is dramatically

2:48:04different or in in that are going to

2:48:06have some huge rate drivers or impacts?

2:48:08And we're not seeing that right now.

2:48:09>> We're not seeing huge difference. I

2:48:11mean, you are seeing a wastewater. We're

2:48:13seeing some huge increases and it's very

2:48:15fairly substantial variance, part of

2:48:18which is due to,

2:48:19you know, the new reserve policy. What

2:48:21part is due to that? I don't know.

2:48:23>> And we wanted to bring back some of this

2:48:25as it relates to the reserve policy cuz

2:48:27it was just established. But, there it

2:48:29goes back to some of the other questions

2:48:30I think the commissioner is looking at

2:48:31is like, what is the value of this

2:48:33preliminary rates? You know, maybe we

2:48:35need to see just some of the changes,

2:48:37the big arm swings, the big movements.

2:48:38And And we'll we'll call out the

2:48:40wastewater utility in terms of the

2:48:42reinvestment of the treatment plant and

2:48:44those reserve policy. So, this is very

2:48:46helpful. Just be But,

2:48:48as these comments are still helpful if

2:48:50you want to see some additional depth of

2:48:52detail as you do the final rates, that

2:48:54is absolutely what we'd like to collect.

2:48:56>> Okay. Um

2:48:58Commissioner Craft, here.

2:48:59>> Yeah.

2:49:02>> Is this

2:49:03>> We're on the substantive stuff. Yes,

2:49:04sir.

2:49:06>> Go for it. Sorry, I I got stuck on a

2:49:08side project based on something you

2:49:11said, um Adriana, and I just delved in.

2:49:14So, I kind of I apologize for not

2:49:17focusing. So, the thing I got caught on

2:49:19was um I do think I want to say first of

2:49:22all that um

2:49:24whatever we did to cause these variances

2:49:26to go in the right direction, I think we

2:49:27probably over over estimated some of the

2:49:30expenses uh going in, and then we we

2:49:33beat them.

2:49:34And that's awesome, and I love seeing

2:49:37the rates you know, we had a

2:49:39subcommittee on electric rates and water

2:49:41rates and because we were so alarmed by

2:49:44the high rates um going off into the

2:49:46future, and they look a lot better. So,

2:49:49I'm very happy about that. Now,

2:49:51wastewater is shocking. It's It's

2:49:54shocking. And the thing that caused me

2:49:56to go off on the tangent was um the

2:49:59comment about uh the budget being 37

2:50:02million. Is that right?

2:50:03Um for wastewater, and okay, so I'll

2:50:06just tell you where where it made my

2:50:08brain break was

2:50:11the bill, the average bill for

2:50:13wastewater is approximately equal to the

2:50:16average bill for electricity for the

2:50:19median, you know, example person that

2:50:22you put in here. But the budget for the

2:50:25electric system is

2:50:2710 times greater. So, can you Can

2:50:30someone just

2:50:31tell me why that is?

2:50:33Why is the distribution of costs um so

2:50:37different? Is the variation in

2:50:39consumption on electricity so different

2:50:41What makes it so that the median bill is

2:50:43about the same, but the budget is 10

2:50:45times greater on electricity? And sorry,

2:50:47that is just something that

2:50:50is a basic lack of understanding on my

2:50:53part.

2:50:53>> Um I'll take a stab at it, and then

2:50:55other people can uh chime in. But on the

2:50:57wastewater utility, what we're looking

2:50:58at here is the resident what in the

2:51:01table in general, it's a residential

2:51:02median bill. And for the wastewater

2:51:04utility, the residential bill is a

2:51:08uh

2:51:09uh fixed amount each month that a

2:51:11customer pays. On the electric utility,

2:51:14there's uh

2:51:15different rates for different customer

2:51:17classes. The residential customer class

2:51:19is about 20% of the on the revenue side,

2:51:22and so this is the median of that group.

2:51:25So, you have high users, low users, um

2:51:27and then then you have the median level,

2:51:29and this is associated and this is the

2:51:31bill associated with that level. So,

2:51:32that's that's uh you have to know, you

2:51:35know, how much revenue is in each group

2:51:37and how where where is it coming from in

2:51:40order to be able to back out like how

2:51:42could these utilities be different sizes

2:51:44and have different medians? Those are

2:51:46some of the variables that you need to

2:51:48look at there. That's hopefully

2:51:50hopefully that helps inform it.

2:51:52>> Yeah, I'm not sure if the variability

2:51:56>> Sorry, can you um

2:51:58do you have like an example in your mind

2:52:00that desc

2:52:02describes

2:52:04Is it variability? Do we just have some

2:52:06giant users on I I I I guess I just

2:52:10don't understand and I think there was

2:52:12this

2:52:14There was a wastewater closeout 2021.

2:52:16There's electric closeout 2024. So, I

2:52:19assume this has been analyzed

2:52:22>> Yeah.

2:52:22>> recently.

2:52:23>> I'll take a crack

2:52:23>> relatively recently.

2:52:24>> I'll take a crack at it as well. So,

2:52:26again, Steve Bogliari here. So, as you

2:52:27look at this again, as Lisa mentioned,

2:52:30this is the residential median bill

2:52:31projections.

2:52:33For the electric utility, residential is

2:52:35about 20% overall versus about 80% for

2:52:38commercial. So, when you look at

2:52:41residential median bill, you're only

2:52:42getting a very small slice of the

2:52:44overall electric picture. And so, when

2:52:46you look at the electric budget, you're

2:52:47looking at the overall electric picture,

2:52:49which includes all those commercial

2:52:50customers as well. And so, it it doesn't

2:52:52really get into an apples-to-apples

2:52:53comparison when you're just looking at

2:52:55the bill amount and then you scale that

2:52:56to the total budget amount.

2:52:58>> Do you have the same Do you have that

2:53:0080/20 breakdown for wastewater in your

2:53:02mind?

2:53:09>> Um

2:53:11It's approximately 50/50 for wastewater

2:53:14revenue.

2:53:16>> Okay.

2:53:18All right. I I guess next time I look at

2:53:20the finances, I'll have to look into

2:53:21that a little bit more closely to

2:53:23understand why.

2:53:28>> Okay. Um

2:53:30I'm going to take a quick pass. Um

2:53:34SFPUC has historically provided us rate

2:53:37increases that then they blow right

2:53:40through.

2:53:41Um how do we account for that right now?

2:53:47>> We have adjusted our approach to

2:53:49incorporating SFPUC's rate forecasts

2:53:53um rather than

2:53:55taking exactly [clears throat] what they

2:53:56they give us, we've kind of set a floor.

2:53:59So we're assuming um at least 4% rate

2:54:02increases um where they they may have

2:54:05given us something lower than that. So

2:54:07that's our our current approach, but I

2:54:09think um

2:54:10that's something where we

2:54:12hear feedback from the UAC on.

2:54:14>> I'm sorry, I thought it said on the

2:54:16slide a 7.5% from SFPUC.

2:54:19That was 7.5% for water overall.

2:54:24>> Yeah, so so that's what that's the

2:54:25>> What do you mean a 4% floor?

2:54:28>> I was explaining um

2:54:30our approach to the long-term forecast,

2:54:32right? So right now

2:54:34um the SFPUC's

2:54:37most recent forecast will reflect a 7.5%

2:54:40wholesale rate increase. They also

2:54:42provide a 5-year rate increase um which

2:54:45can change is highly variable. Um to

2:54:47mitigate against uh some of the the

2:54:50changes and fluctuations that we've

2:54:52seen, um we've decided to um

2:54:56implement that that floor, that minimum

2:54:58assumption of what the wholesale rate

2:55:00increase could be. So it doesn't apply

2:55:02to fiscal 28 cuz it's already assumed as

2:55:047.5%.

2:55:06Um rate increase.

2:55:08>> Okay, but my point is that SFPUC has

2:55:10never come in below. They almost always

2:55:12come in above. I mean, this past year we

2:55:15estimated that they were going to do

2:55:16like 3%. We budgeted for 3% and then

2:55:19they like

2:55:20did way more, right? Um so I just think

2:55:23we need to be sensitive to that in water

2:55:25forecasts and what impact it has on

2:55:27overall bill.

2:55:28Okay, the second thing I want to talk

2:55:30about is wastewater again. I am

2:55:34um

2:55:35not happy about the 2029.

2:55:38Um and I

2:55:41want to uh

2:55:43um much better understand why we're

2:55:46seeing in 2029 and 2030 like such

2:55:50significantly

2:55:51larger projected costs.

2:55:54It's not as though we didn't know that

2:55:55we were building a new plant.

2:55:58Right?

2:55:59We've known that for

2:56:01a decade.

2:56:02So, are these big changes in operational

2:56:05costs

2:56:06that are accruing to all of our utility

2:56:10partners at the regional water quality

2:56:13control plant or are these just

2:56:15collection system increases?

2:56:18>> The difference in the rate trajectory is

2:56:20primarily

2:56:22or almost entirely due to the

2:56:25water quality control plant reserve

2:56:27contributions.

2:56:30>> I don't know if Karen is on but maybe

2:56:32she could opine and respond.

2:56:39>> Good evening. This is Karen Nerf. I'm

2:56:41not sure why my video is not showing up.

2:56:44Um

2:56:45Uh so

2:56:46Oh, there you go.

2:56:47You see me? Oh.

2:56:49There you go.

2:56:50Uh Karen Nerf, assistant director of

2:56:52public works.

2:56:53Uh so, we um have been as you are

2:56:57very well aware that we're currently

2:56:58rebuilding the wastewater treatment

2:56:59plant.

2:57:01Um

2:57:02Our 50-year-old facility, uh we're

2:57:04slowly based on a 2012 master plan

2:57:07uh rebuilding it and we're actually

2:57:09currently doing a updating the master

2:57:11plan as well and we're anticipating to

2:57:13bring this to our um

2:57:15partners um including the UAC sometime

2:57:18late next year. But um in terms of the

2:57:22bit while we were building looking at

2:57:24the longer facility plan, we also looked

2:57:25at our reserve policy which is why we're

2:57:27bringing this to the UAC

2:57:30uh

2:57:31with utilities bringing it this a little

2:57:32bit later cuz we were late October for

2:57:35our reserve policy and so to give our

2:57:38partners enough time to build up their

2:57:40reserves, we're looking at a fiscal year

2:57:4229 target. And so that's where um this

2:57:46is something that our partners

2:57:48we've been telling them about it, but we

2:57:50didn't have our targets until just

2:57:51recently. And so that's where utilities

2:57:54is building it into their fiscal year

2:57:5529. That's why you're still seeing the

2:57:57increases.

2:57:59>> Okay. Um

2:58:01and I

2:58:06these reserve policies, you know, we

2:58:09just had a long discussion about how

2:58:12we have had

2:58:14wastewater reserves in the past. Um

2:58:18those

2:58:19on

2:58:20the utility side or the UAC side should

2:58:23really be collection reserve. And you're

2:58:25saying that these are treatment reserve.

2:58:28>> Correct. So we're a regional facility

2:58:30and we actually don't have regional

2:58:33reserves. And especially as we're

2:58:35rebuilding the facility, that's why

2:58:36we're updating the reserve policy.

2:58:39>> Okay.

2:58:40Um in addition, I know that there have

2:58:42been, you know, both

2:58:44uh required upgrades as well as a series

2:58:47of, I would say, more voluntary changes

2:58:49made at the plant.

2:58:51Um

2:58:52I'm wondering whether you are currently

2:58:54and actively exploring cost-saving

2:58:56measures at the plant. Like, did we need

2:58:59to move offsite with the lab? Did we

2:59:01need to do, you know, some of these

2:59:03other things that are really, you know,

2:59:07I I don't know if those are having a big

2:59:09impact on rates or not, but I think it's

2:59:11really important to do everything we

2:59:13possibly can to limit these wastewater

2:59:16rate increases.

2:59:17Um and I I know that that's not

2:59:19necessarily within the purview of the

2:59:20UAC, that sits within public works. Um

2:59:23but I I think it's important that public

2:59:26works hears the message that the UAC is

2:59:28not supportive of these rate increases

2:59:31and that we desperately need you to go

2:59:33after cost-saving measures wherever

2:59:35those exist.

2:59:37>> We hear you. Um I just want to assure

2:59:39you that we have actually been fiscally

2:59:40conservative for years, actually

2:59:42decades. It's actually costing us more

2:59:44money because we have not we delayed um

2:59:47many of our upgrades.

2:59:49So, just for example, the headworks

2:59:51project that we've now delayed multiple

2:59:53years, it was in our 2012 master plan,

2:59:55is costing us over $500,000 a month due

2:59:58to the delays.

2:59:59The lab upgrade was also in the 2012

3:00:02master plan.

3:00:03Um the they currently don't have current

3:00:05HVAC system, which is why we needed to

3:00:07move off site. So, everything we've done

3:00:09is um very methodical.

3:00:12We are extremely conservative and

3:00:14mindful of all of our rate impacts to

3:00:16our partners. Um

3:00:18we have very low operating costs

3:00:21relative to all the other treatment

3:00:22plants in the area.

3:00:24Um we run very lean. Our staff is is

3:00:27extremely um

3:00:29constantly fixing things because the

3:00:3050-year-old facility is literally

3:00:32falling apart at the seams.

3:00:34Um we're in the massive of rebuild. And

3:00:38uh yes, we hear you loud and clear, but

3:00:40we also are critical infrastructure.

3:00:42And uh we are currently planning for the

3:00:45potential storms that's coming up in the

3:00:47middle of a rebuild.

3:00:49So, we do hear you, but I just want you

3:00:50to know that every decision we make, we

3:00:53thoroughly vet and we discuss and we do

3:00:56not think of them lightly. And we've

3:00:58delayed projects.

3:01:00>> Thank you. I mean, I I care very much

3:01:02about that plant operating uh

3:01:05soundly and and in a responsible way,

3:01:07and

3:01:08don't want to undermine that, but I

3:01:10think the fact that we currently have a

3:01:12structure in which the plant operations

3:01:15that's in public works and the UAC

3:01:17um oversees rates is one that inherently

3:01:20sets up this tension. Um and so, you

3:01:23know, the opportunity to hear from um

3:01:26the plant directly, thank you so much

3:01:28for coming, Karen, uh is important on an

3:01:31annual basis, and I hope um when we go

3:01:34into the full rate study that there is

3:01:37the same level of transparency that

3:01:39you're sharing with you know, the those

3:01:40partners that we have an opportunity to

3:01:42look at that really carefully, so that

3:01:44we have, you know, an assurance and can

3:01:47proudly stand behind those rate

3:01:49increases.

3:01:50>> Absolutely. Sounds good.

3:01:56>> Are there any other

3:01:57uh

3:01:58questions or

3:02:00comments that commissioners would like

3:02:01to make?

3:02:04If not, I think we are done with this

3:02:06agenda item.

3:02:08Is that correct?

3:02:09Welcome

3:02:11Oh, Commissioner Sharp, do you have

3:02:12something?

3:02:13>> Oh, I do. I'm sorry.

3:02:14>> Um I just want to to acknowledge uh

3:02:17Steve. Uh thank you so much for coming.

3:02:19Um we are uh an opinionated group, but

3:02:23it is in the uh

3:02:25aim to support staff in their important

3:02:27mission, and we're really glad to have

3:02:28you. So, thank you for your

3:02:30presentation, and welcome to Pal Alto

3:02:32Tech.

3:02:32>> Welcome, Steve.

3:02:33>> Welcome, and I also wanted to I

3:02:35appreciate the green and red arrows and

3:02:37bullets. It's just so much easier than

3:02:40reading paragraphs, so I appreciate

3:02:42that. I would love to see that in

3:02:43reports as well.

3:02:46>> [laughter]

3:02:47>> 7.5% lower. It's very

3:02:49>> Okay. Um we will now take a break. Uh

3:02:54>> Could I just make one quick comment but

3:02:56uh as this goes in that I I

3:02:58I was critical of what last month we

3:03:00called the work product. Um and I am

3:03:03volunteer, and I think maybe what we

3:03:05need to just talk about again here later

3:03:08is what ways we can help

3:03:11in advance to

3:03:14improve or help you think about staff

3:03:17reports to make them better. I don't

3:03:19want to just um

3:03:21toss out complaints.

3:03:23>> Okay. Um we are going to take a break.

3:03:26Um when we resume

3:03:29um Commissioner Phillips is going to

3:03:32assume the role of chair. Uh it is

3:03:35debut up here?

3:03:37Okay. Phew.

3:03:40Okay.

3:03:41Um [laughter]

3:03:42uh

3:03:42No, okay. Uh but um we will still have

3:03:46quorum uh and I

3:03:49I will see you all next month.

3:07:59>> Mhm.

3:10:01>> Mhm.

3:12:04>> Mhm.

3:14:07>> Mhm.

3:16:09>> Mhm.

3:16:46>> started where where overtime

3:16:50fairly significantly. We

3:16:52Commissioner Sheriff, we need you.

3:17:05Need to wait for uh Commissioner Sheriff

3:17:06to return in order to have a quorum.

3:17:37Let's tie everybody down to their seat

3:17:39until we're done because we need all

3:17:41four of us here for a quorum.

3:17:45I'm I'm in the right seat.

3:17:47Um

3:17:49We're moving on to item four. Recommend

3:17:51the city council conceptually approve

3:17:54the use of a new proposed capacity

3:17:56reservation agreement structure and

3:17:58reservation charge within staff's

3:17:59existing framework for managing electric

3:18:02system capacity requests.

3:18:04Uh is there a staff presentation?

3:18:06>> Uh yes, there is. Just uh we brought

3:18:07this item back. It was an informational

3:18:09item from the October meeting. It's

3:18:11actually been revised somewhat. It's

3:18:13really just want to reinforce this is a

3:18:15voluntary capacity reservation

3:18:17agreement. Um

3:18:19it's it's not for data centers alone,

3:18:21but any type of loads and customers that

3:18:23would potentially come to Palo Alto.

3:18:26Um it's really focused on economic

3:18:28development uh and we anticipate the

3:18:31duration and one of the changes in the

3:18:32the memo and I know that uh

3:18:35chief operating officer probably will go

3:18:37Terry probably will go through it, but

3:18:38we're looking at that this agreement

3:18:39could be from 1 to 3 years. So when you

3:18:41look at the table from the last time

3:18:43you'll see some number changes, but I

3:18:44know that Terry will go through that.

3:18:46And uh I'll let him go through the brief

3:18:47presentation.

3:18:50>> So good evening. Um Terry Crowley, chief

3:18:53operating officer. Um

3:18:55So next slide, please.

3:19:00So just to start off with the

3:19:01recommended action. Um staff is

3:19:03recommending that the

3:19:06UAC advise the city council to

3:19:08conceptually approve uh a new capacity

3:19:11reservation agreement structure and

3:19:12reservation charge within staff's

3:19:14existing framework for managing electric

3:19:16system capacity requests. And so a

3:19:18little bit of background. So um two

3:19:20things that we're asking here is one to

3:19:22in concept um approve or recommend the

3:19:26uh

3:19:28reservation agreement structure. So how

3:19:29we walk through um an interconnection

3:19:32process with large loads uh for the city

3:19:34of Palo Alto and that's relative to city

3:19:36of Palo Alto and get into that a little

3:19:37bit more, but also to establish a fee.

3:19:40Um staff likely could handle the

3:19:43agreements by themselves without further

3:19:46um

3:19:46approval from governing bodies, but the

3:19:48establishment of fee does require uh

3:19:51council's approval.

3:19:53Next slide, please. Um so just to

3:19:54provide a little bit of background. So

3:19:56staff is seeing more um

3:19:58applications for large loads um

3:20:00especially in the industrial commercial

3:20:02areas. Uh typically loads that are 2.5

3:20:04MW and higher. Um that's typically the

3:20:07cut off point for the city um where we

3:20:09transition from providing that secondary

3:20:11service to a larger primary service for

3:20:14those customers. Um so they're just a

3:20:16little bit different type. Now, these

3:20:17customers are mostly research and

3:20:19development um type of customers. So,

3:20:22they have some office space and they

3:20:23have some product development areas.

3:20:25They are not typically data centers.

3:20:27We're not seeing that type of load. Um

3:20:30your typical data center is 20, 50, or

3:20:32or larger megawatts, and that is not um

3:20:35the request that we're seeing here. So,

3:20:36these are really just research and

3:20:38development, product development type of

3:20:41work.

3:20:42Um

3:20:43And the current process um that we're

3:20:45working through, it doesn't allow us to

3:20:48reserve capacity for those customers to

3:20:50provide them certainty through their

3:20:52development process that once they

3:20:54finish development, that system capacity

3:20:56will be available. And the challenge

3:20:57that we're having is we're having

3:20:59multiple customers come in and competing

3:21:01for in some cases the same capacity. And

3:21:04so, we're trying to find what's a fair

3:21:06and equitable way of reserving that

3:21:08capacity for those customers so they can

3:21:10move forward with their development and

3:21:12certainty.

3:21:14Um next, I thank you. Um so, the

3:21:16framework is basically a five-step

3:21:18process. So, we start off with a uh

3:21:20service application. So, this is

3:21:22basically customer filing an application

3:21:24stating this is where they'd like to

3:21:25locate their new business or expand

3:21:27their business. Um generally, they

3:21:29provide the size of that business and

3:21:31what the increased load would be. Um we

3:21:33vet that with the customer and kind of

3:21:35refine it a little bit, and then we will

3:21:37provide a will serve letter, which is

3:21:39basically a statement that the city is

3:21:41provider of the area and that we have

3:21:43capacity to serve them.

3:21:45Um that's a starting point of when we

3:21:47try to give them some indication of what

3:21:50capacity the city can serve them.

3:21:52Those letters are subject to additional

3:21:55studies and other things that can come

3:21:58up through the development process. Um

3:22:00what's being proposed as a new step in

3:22:02there is to create a capacity

3:22:04reservation agreement that would set the

3:22:06amount of capacity that the developer

3:22:09wants to reserve for their project. Um

3:22:12and it would reserve basically

3:22:13substation capacity and transmission

3:22:15capacity or sub transmission capacity

3:22:17within the system.

3:22:18Um and then the distribution work would

3:22:21be subject to further study and further

3:22:24development by that development when

3:22:25they're ready for it. But the challenge

3:22:27we're having right now again is that

3:22:29that substation capacity is limited. Um

3:22:32as we move closer into knowing what the

3:22:34scope of the work is for that

3:22:36development, we would uh initiate a work

3:22:38performance agreement. This is basically

3:22:39a cost recovery agreement, standard

3:22:41practice. Um again, these customers are

3:22:43paying for all the cost. There's not a

3:22:45cost share typically with these

3:22:47projects.

3:22:49Um so the existing customers are

3:22:51protected from any type of um

3:22:54existing or new assets that would be

3:22:56built um and being paying for something

3:22:58that's not um generating revenue.

3:23:01Um and then finally when the customer is

3:23:03interconnected, the meter's set, and

3:23:05they're taking service, um we would

3:23:07potentially put a utility service

3:23:09agreement together. Um that would cover

3:23:12any ramping or increasing of capacity

3:23:15use over time, any reservation after

3:23:19that a group that interconnection has

3:23:20been finalized, um any special facility

3:23:23charges. So that basically establishes

3:23:25the the period of time when they're

3:23:27actually connected and taking uh service

3:23:29from the city.

3:23:31Next slide, please. So to speak a little

3:23:33bit more about the capacity reserve

3:23:34basic reservation agreement and

3:23:36reservation charge,

3:23:38um it's a voluntary process, so it's not

3:23:40an obligation through this process. So

3:23:42if the developer wishes to seek that

3:23:45certainty and reserve that capacity and

3:23:47hold it on to it for the period of

3:23:49development, typically 1 to 3 years,

3:23:51they would have that ability. We're

3:23:52looking to offer this to new loads or

3:23:55expanded loads that are 2.5 MW and

3:23:57larger. This is not a typical process

3:23:59for most developments. This is just for

3:24:01really the larger

3:24:03um developments. Um staff is

3:24:06recommending that the charge be

3:24:08non-refundable

3:24:10subject to further discussion with the

3:24:11UAC on that and what those options would

3:24:13be. Um and again, we're

3:24:17as described further in the staff

3:24:18report, we're looking to set the fee

3:24:20based upon the depreciated asset value

3:24:23for sub-transmission and substation

3:24:25capacity. We're estimating that at

3:24:28roughly

3:24:2938,000, just under 38,000 per megawatt

3:24:32per year. So, each year they would pay

3:24:34that fee that they want to hold that

3:24:35reservation up to a 3-year period.

3:24:39So, again, here's here's the

3:24:41recommendation that we would like to

3:24:43take forward to the city council. Um and

3:24:46with that, I'll open it up to discussion

3:24:49or questions from the UAC commissioners.

3:24:52>> Actually, before we do that, um do we

3:24:54have public comment on this idea?

3:24:56On this item?

3:24:58>> If any member of the public would like

3:25:00to speak on item four, please raise your

3:25:02hand or press star nine now.

3:25:05We have no requests to speak.

3:25:08>> Great. So,

3:25:10could we um

3:25:11any clarifying questions?

3:25:13Ideally, short clarifying questions.

3:25:17Yes, Commissioner Sharf.

3:25:18>> Could you just explain again how the

3:25:20fee's being set? I guess I wasn't quite

3:25:22following it. It's It's depreciated What

3:25:24do you mean? What's the thought behind

3:25:25this?

3:25:26>> So,

3:25:27the thought process of trying and set an

3:25:29approximate value to

3:25:32the capacity that's being reserved. The

3:25:34capacity that's truly being reserved is

3:25:36really substation capacity and

3:25:38sub-transmission capacity within the

3:25:40city. The city maintains an asset record

3:25:43and depreciates those assets over time

3:25:45based upon the estimated life of the

3:25:46asset. Say it's 50 years, and so it

3:25:48depreciates a little bit every year. Um

3:25:51so, that remaining value would be like

3:25:54the book value of the asset. Um and

3:25:57that's what we're trying to

3:25:58proportionalize out and say, "Okay, what

3:26:00would that value be per megawatt to

3:26:02charge it out?" What helps staff is that

3:26:05that process is not arbitrary. It's not

3:26:07just setting a fee out there and saying,

3:26:09"Well, well, I think this is high enough

3:26:10to be to set values so that the fee

3:26:15represents something of value and that

3:26:17the developers aren't over-subscribing

3:26:20to capacity, but also not being burdened

3:26:23to step in and do economic development

3:26:25within the city. So, uh we could assign

3:26:27the the capacity for free,

3:26:29but there's no value in that, right? And

3:26:31so, we would get developers that are

3:26:33saying, "Well, I'm I want 30 MW of

3:26:34reservation, um which would prevent the

3:26:37next customer from coming in and using

3:26:39that when the reality is is they're not

3:26:41going to use 30 MW, they're going to use

3:26:43five."

3:26:44So, so trying to establish the fee helps

3:26:47in that prioritization and basically the

3:26:50taking of that fee um and not preventing

3:26:53somebody else from coming in and

3:26:54actually developing alongside that that

3:26:56first developer.

3:26:57>> But why not use

3:26:58>> Wait, so the fee will the fee will be

3:27:00different if it's 5 MW versus

3:27:03>> Yes, it would be that that 38,000 per

3:27:06MW. So, if you had 5 MW, it's five times

3:27:09that.

3:27:10It'll be large. Yes. Yes.

3:27:12>> But why just use the depreciation

3:27:14looking backwards? I think you get a

3:27:15number like 180 million instead of

3:27:18looking at the investment going forward.

3:27:21I mean, we're building grid mod,

3:27:23and

3:27:24um

3:27:26I I I mean, anything's better than

3:27:27nothing. I'm I'm not really hung up on

3:27:29this, but um I'm interested that you

3:27:31chose the more modest depreciation as

3:27:34opposed to the more aggressive

3:27:36um

3:27:37number that would

3:27:39I mean, if you took a five-year average

3:27:41of our future spend,

3:27:44>> Yes, so so we could look at future cost

3:27:46or future value or replacement costs. Um

3:27:51and we could set that as there, but

3:27:52obviously that would be much much higher

3:27:54fee.

3:27:55Um one of the things where we're trying

3:27:56to find a sweet spot is one again,

3:27:59setting something that's, you know,

3:28:00objective, something that's repeatable.

3:28:03Um as we reinvest the system and put new

3:28:05assets in that that number's going to

3:28:06grow.

3:28:07>> Right.

3:28:07>> Um and that's the the intent is that

3:28:09each year we would look at that fee and

3:28:11go it would go upwards, but um I think

3:28:13if we looked at replacement costs, a new

3:28:16construction cost, it would be a much

3:28:17much higher fee and it could be

3:28:19perceived as a barrier to um

3:28:21development.

3:28:22>> Fine.

3:28:23>> Commissioner Metz.

3:28:25>> Yeah, I have a clarifying question,

3:28:28which is how many of these are we

3:28:30talking about? You know, is this three?

3:28:32Is it a hundred?

3:28:34You know, what is the number of larger

3:28:36loads that are wishing to connect? You

3:28:38know, and what do we see as kind of the

3:28:40total queue in megawatts of these loads?

3:28:45>> So,

3:28:46total queue, if we looked at the total

3:28:48amount of, you know, say the half dozen

3:28:50that we're working with, actively

3:28:52working with right now, not speculative

3:28:54loads that are looking at maybe three or

3:28:56five years coming in and connecting, but

3:28:57actively working with and trying to

3:28:59connect it, we're probably looking at um

3:29:02probably 20 megawatts, maybe.

3:29:04Um cumulatively, right? Not at one site,

3:29:07but throughout the entire city. Um we're

3:29:09also looking at active loads right now

3:29:11that are

3:29:12um out there that are looking to expand,

3:29:14um and they want certainty that when

3:29:16they come in and expand, say at the end

3:29:18of 2027, that that system capacity is

3:29:21available to them. Um and that's where

3:29:24we get into this competition is that

3:29:25another development or developer could

3:29:28come into that area, develop quicker,

3:29:30take that capacity away from somebody

3:29:32that was planning to to go online, say

3:29:34at the end of '27 or early 2028. Um

3:29:38that's the challenge that we have. So,

3:29:39it's not it's not a huge number of

3:29:41people, but it's a concern for those

3:29:43developers that they don't have

3:29:45certainty to continue to invest in the

3:29:48development within Palo Alto.

3:29:50>> Right. So, there's something like 20

3:29:52megawatts that we think is are sincere

3:29:56newbies, and then there might be some

3:29:58number, you know, kind of similar order

3:30:00of magnitude of existing customers who

3:30:03might want to expand. Is Is that about

3:30:05right?

3:30:06>> Y- Y- Yeah, there's existing customers

3:30:08in town that may uh discuss or want to

3:30:11expand um or grow their business within

3:30:14Palo Alto.

3:30:15Um it it is Palo Alto is desirable

3:30:18because of the workforce. That's what

3:30:19we're seeing or finding is that the

3:30:21workforce, the proximity to Stanford, um

3:30:23provides a certain level of knowledge

3:30:26and experience that isn't found

3:30:27elsewhere in the country, and um,

3:30:30companies are starting to relocate in

3:30:32Palo Alto for that.

3:30:33>> Right. Okay, thank you. That's That's

3:30:35what I wanted to understand.

3:30:38>> I I have a question. Um, just the the

3:30:41flowchart of how these things happen is

3:30:44helpful, but

3:30:46could you take us through a

3:30:47hypothetical, like without disclosing

3:30:49any Like, why does it take uh

3:30:52Why do we need 3 years?

3:30:54Um,

3:30:56up to 3 years and possibly even longer.

3:30:59Can you just walk through like what's

3:31:00What are the stages? Are these all new

3:31:03uh new tenants coming into Palo Alto,

3:31:07and we're building capacity for all of

3:31:09them, or is there existing capacity for

3:31:12some of them? Can you just kind of walk

3:31:13walk us through the process? They're

3:31:14considering coming here, and then what

3:31:16happens?

3:31:17>> So So, hypothetically, let's walk

3:31:19through developer one and developer two.

3:31:21And so, developer one is moving into an

3:31:23existing building. They're going to do

3:31:24some tenant improvements. Uh, they

3:31:26should still need to go through the

3:31:27planning uh and permitting stage, design

3:31:30stage, um, getting their building

3:31:32permit. There's a couple iterations in

3:31:33that, and so maybe that only takes them

3:31:35about a year to get through that process

3:31:37and to grow that load. There may be uh

3:31:40distribution improvements, so trenching,

3:31:44um, reconstruction in the street, the

3:31:46city coming out there and pulling new

3:31:47cable, setting new switches and new new

3:31:49equipment to connect to that increased

3:31:52load. Um, and maybe that's a fast track

3:31:54within a year, year and a half. But,

3:31:57when they meet with us on day one,

3:31:59they're asking, "Well, how much

3:32:00substation capacity?" because they

3:32:02understand that the market right now is

3:32:04that everybody's trying to grab as much

3:32:06substation capacity, existing capacity,

3:32:08as they can because they know that if

3:32:10that capacity isn't there, it's a 3-year

3:32:12waiting time to develop it. So, that's

3:32:15developer one. So, developer two could

3:32:17be, um, say a property owner. So, a

3:32:20property owner, I own a suite of

3:32:22buildings, and I'm trying to market it

3:32:24to various clients to to entice them to

3:32:26come in and move into these buildings

3:32:28and sign a long-term lease. Well, one of

3:32:31the marketing tools for them would be to

3:32:33say, "Oh, I have a reservation for X

3:32:35amount of megawatts in capacity."

3:32:38And so, I can I can guarantee you that

3:32:40that substation capacity is there. You

3:32:42would just have to build out the feeder

3:32:44capacity, which is something that's a

3:32:45shorter 6-month to a 12-month period of

3:32:48time to build versus the 3 months or 3

3:32:50years that it would take to build

3:32:51substation capacity. So, that's Those

3:32:54are the two types of customers that

3:32:56we're dealing with. One that's moving

3:32:57into an existing building, doing tenant

3:32:59improvements, can generally move through

3:33:01that process pretty quickly, but does

3:33:02want some certainty there. And then, we

3:33:05have somebody that's more They're still

3:33:07seeking those tenants, but they want to

3:33:10be able to market that capacity that's

3:33:12there.

3:33:13And they don't want to say a developer

3:33:14three to come in and take that capacity

3:33:17away from that negotiated deal with the

3:33:19future tenant.

3:33:21>> Got it. And then,

3:33:23>> Go ahead.

3:33:23>> Sorry. And then, in terms of our

3:33:25investment, when we're actually pulling

3:33:28the wire, upgrading the sub you know,

3:33:30the system, when in that 1-year process

3:33:34or 3-year process does that happen?

3:33:36>> That typically happens after we've

3:33:38formed that work performance agreement,

3:33:40the cost recovery agreement. That's

3:33:42where we said, "Hey, we've designed the

3:33:43scope. We've finalized that scope."

3:33:45There's typically some iterations going

3:33:47back and forth on that. But after

3:33:49they've paid their money and their

3:33:50deposit for that work, then we go to

3:33:52work and do our stuff.

3:33:54>> Got it. So, it's mostly So, we have some

3:33:57work to do in the process of planning

3:33:59and making the commitment, but we're not

3:34:02doing any building or

3:34:06it

3:34:07until you get to the end date,

3:34:09basically.

3:34:10>> The phrase that we use is no bucks, no

3:34:12trucks. Okay? So, if they don't pay for

3:34:15that work ahead of time,

3:34:17we don't show up and do the work. So,

3:34:19there's In that process of work

3:34:20performance agreement, typically there's

3:34:22a deposit for engineering work to cover

3:34:24that piece. There's a deposit for

3:34:25advance of material purchases, and

3:34:27there's a final deposit for before the

3:34:29construction crews actually show up and

3:34:31install all the equipment. So,

3:34:33everything is is paid for in a deposit

3:34:36up front and then there's a settling out

3:34:38of what the actual costs were at the end

3:34:40of the project.

3:34:42>> Yeah, we we don't take on on the

3:34:44projects without having the developer

3:34:46have skin in the game, right? And and

3:34:48this capacity agreement has that ability

3:34:50for have them have skin in the game and

3:34:52extract a value from that so they can

3:34:54market or or have some certainty as they

3:34:56develop within the city.

3:35:00>> Mr. Tucker's still call

3:35:02still a clarifying question?

3:35:04>> Oh, no, this is more of a unclarifying.

3:35:08>> So, I have I have a several

3:35:11clarifying questions.

3:35:13Um are most of these

3:35:15flat loads? What kind of loads are we

3:35:17talking about? Are they

3:35:19are they It's You said they're not data

3:35:20centers.

3:35:23>> Oh.

3:35:24>> Um it can vary, right? It can vary, but

3:35:27they're

3:35:28>> They're large peak demands. Typically,

3:35:30that falls with a higher load factor.

3:35:31So, they have a lot of energy usage that

3:35:33falls out. It's not a a peaky load that,

3:35:36you know, you just see those peaks

3:35:37during the summer months. It's It's

3:35:38typically that you'll see a consistent

3:35:40load throughout the year uh from these

3:35:42types of facilities.

3:35:45>> And what what other certainties does

3:35:47does this add on top of just having the

3:35:49will serve letter? I mean,

3:35:51will serve sounds to me like

3:35:53we will serve them. Um what do they get

3:35:56extra for paying this some

3:35:58and getting the

3:36:00the um

3:36:02getting this paying this money? And have

3:36:04we ever not served somebody we've had a

3:36:06will serve letter with?

3:36:09>> Um I I

3:36:10The last question, I don't know if I can

3:36:12answer that. I don't know if I have the

3:36:13history on that, but but um generally

3:36:15when you provide a will serve letter,

3:36:17there's conditions that go along with

3:36:18it. And one of the conditions are that

3:36:20subject to the capacity being available

3:36:21at the time and subject to further

3:36:24studies um to finalize the scope of

3:36:27work, right? Um so, the will serve

3:36:29letter level is yes, we are the service

3:36:31provider in there, but we don't

3:36:33necessarily know what the obligation for

3:36:35a new infrastructure will be to serve

3:36:38that customer.

3:36:39Um

3:36:40so we can say that we have system

3:36:42capacity at our receiving station, but

3:36:44the actual location may not have

3:36:46adequate infrastructure to serve it. And

3:36:48so that's where those additional studies

3:36:50come from. And so what what the customer

3:36:52gets out of it is that they get some

3:36:55certainty that we've done a little bit

3:36:56more studies and a little bit more

3:36:58analysis on the substation piece of it.

3:37:01And we can say that this long lead time

3:37:03part of the project, the 3 years to

3:37:05rebuild substation capacity, is

3:37:07available to you.

3:37:09Um for staff's perspective, we get more

3:37:13um certainty that we could have those

3:37:15additional conversations with the

3:37:16customer that if they're paying for

3:37:18this, they they're not going to pay for

3:37:19more than what they actually need. And

3:37:21we're not over subscribing

3:37:24um substation capacity at the loss or,

3:37:28you know, that at the detriment to the

3:37:29next developer that wants to come in.

3:37:32>> Does this oblige us to anything or or

3:37:35put any

3:37:37particular

3:37:38potential liability if we can't meet the

3:37:42the terms of the agreement or there is

3:37:43there zero risk of that?

3:37:46>> I wouldn't say there's zero risk in

3:37:47that, but I would suggest that this is a

3:37:50better question for our city attorney.

3:37:54>> Thank you. I mean,

3:37:55I wanted to make sure there's at least

3:37:57one question for you there.

3:37:58>> Yeah, thanks. Otherwise, what am I here

3:38:00for? Well, I really the

3:38:02we have that basic structure of the

3:38:04agreement kind of outlined in the staff

3:38:05report, but the precise term terms and

3:38:08conditions haven't been fully drafted

3:38:10yet. But basically, there'd be

3:38:11termination language in there. Um and

3:38:14then probably the we already discussed

3:38:16that this would be a non-refundable fee.

3:38:19And we'd have appropriate, you know,

3:38:20hold harmless language um to protect the

3:38:22city.

3:38:23>> Right. I mean, so we would have the

3:38:26right to terminate and keep their brief

3:38:29>> No, they would have the right to

3:38:30terminate and they would forfeit.

3:38:32>> But what if we can't somehow fulfill our

3:38:34obligation? And maybe that's just so we

3:38:37come and say that 2 years we're going to

3:38:38give you this

3:38:40excess capacity and we come there and oh

3:38:41my gosh, the substation is

3:38:43you know, undergoing maintenance or

3:38:45something we didn't think about we can't

3:38:46do it.

3:38:47>> Well, this is just the reservation piece

3:38:49too. So, it's basically just saying

3:38:50we're going to hold this for a period of

3:38:52time and then we have to figure out what

3:38:54exactly is the you know, dollar figure

3:38:57and the amount of new facilities that

3:38:58have to get built.

3:39:00That is a separate agreement that comes

3:39:02afterwards.

3:39:03So, it's not like they're going to

3:39:05you'd be terminating it before you'd

3:39:07have steel in the ground and the

3:39:09capacity reservation agreement. And also

3:39:10since it's voluntary

3:39:13they could

3:39:14>> I I guess I'm maybe I'm not maybe either

3:39:17I'm not being clear. It's a question of

3:39:18what if we can't satisfy them. They've

3:39:20signed this agreement, they've paid us

3:39:21money

3:39:22but it's like the airline if you show up

3:39:24and you've paid for your ticket but oh,

3:39:27we overbooked and we don't have your

3:39:28seat. Is that something that could

3:39:30potentially happen? This is not them

3:39:32terminating.

3:39:33It's us not having the capacity when

3:39:35they say, "Okay, we reserved it."

3:39:38>> Yeah, so I I can I can see an example is

3:39:40that hey, we we've done our due

3:39:41diligence, we've looked at the

3:39:42substation and we've said, "Hey, we have

3:39:44X amount of capacity." and then when

3:39:45they get close to connecting them and

3:39:47there's a failure at that substation for

3:39:49whatever reason or maintenance something

3:39:51that's beyond the control or or

3:39:53prediction of of the city staff, right?

3:39:56Um and so, what would we do there to try

3:39:59and remedy that?

3:40:01It I think it's hard to go through that

3:40:03hypothetical and and work through that.

3:40:05Um

3:40:06it's not that we just have one

3:40:07substation, we have multiple

3:40:08substations. So, is there something that

3:40:10we could use emergency capacity cuz

3:40:13that's typically what we design the

3:40:14system for is that if we lose a

3:40:15substation that we still have capacity

3:40:18to serve. And then in these reservation

3:40:20agreements we're not assigning that

3:40:22emergency capacity, that redundancy

3:40:24allows us to restore customers. And so,

3:40:27there could be that potential that we

3:40:28could find a way to recover.

3:40:30Um

3:40:31>> Okay, so

3:40:32>> So,

3:40:32>> we don't know but we're not worried

3:40:34about it.

3:40:34>> Is that what I'm hearing?

3:40:35>> Yes.

3:40:37>> Um

3:40:38do other period utilities have similar

3:40:41charges and if so, what do they charge?

3:40:45>> So, other utilities do have these

3:40:47charges. Um I I couldn't tell you right

3:40:49off the top of my head of what those

3:40:51level of charges are, but they generally

3:40:53are not

3:40:54um

3:40:55they do not equate to what the monthly

3:40:57demand fees are for those utilities. So,

3:41:00again, as these customers would connect,

3:41:02once they started to connect and pay

3:41:04that bill, that monthly demand fee is

3:41:06actually a lot more than what this

3:41:08charge is

3:41:10uh per megawatt or what the proposed

3:41:11charge is per megawatt. So,

3:41:13um

3:41:15I think we're in a in a realm that's

3:41:16reasonable. The other thing, too, I

3:41:18would say is that, you know, potentially

3:41:20Palo Alto's costs for infrastructure may

3:41:22be different than in other entity and

3:41:24so, it may be hard to make those

3:41:26comparisons.

3:41:28>> Yeah, a little bit I could add on that.

3:41:30I did a quick survey when I worked with

3:41:32some outside attorneys who do this kind

3:41:35of

3:41:36specifically, and the range they saw was

3:41:38from like the 30 to 50 megawatt range

3:41:40and this the range that you're seeing in

3:41:42Palo Alto is 37.9, so.

3:41:45>> Yeah, but but what were they charging

3:41:48or cost or

3:41:50>> That I'm not sure.

3:41:51>> Okay.

3:41:51>> That's going to be

3:41:52case

3:41:53>> I mean, to my mind and and maybe I'll

3:41:55wait for the discussion on this because

3:41:57I have

3:41:58and my last question is

3:42:00what is it you want us to we're

3:42:01approving here or conceptually

3:42:04approving something? I don't know what

3:42:06that even means. Um are you want us to

3:42:08approve

3:42:11Yes, the idea or do you want us to

3:42:13approve the numbers or

3:42:15or recommend the numbers to the

3:42:18>> What staff is asking for is to

3:42:21have the USC's provide a recommendation

3:42:23on the possible approval of the

3:42:26conceptual idea of the capacity

3:42:27reservation agreement and establishment

3:42:31of a fee

3:42:32uh per megawatt uh for that reservation.

3:42:35>> So, you want the fee to be part of our

3:42:38recommendation or not? the

3:42:39>> cuz likely staff could handle putting

3:42:42together an agreement with the customers

3:42:44on our own without further governing

3:42:47body authority, but the establishment of

3:42:50the fee really requires that.

3:42:53>> But you want us also recommend the

3:42:56magnitude of the fee or do you

3:42:57>> We think that'd be really helpful to put

3:42:59the magnitude of the fee so we can see

3:43:01it and and provide some guidance in

3:43:03terms of that does that that feel right?

3:43:05And that's why Andy was mentioning kind

3:43:07of the range that we're seeing in other

3:43:08agencies. We do see other frankly our

3:43:11partner utilities and NCPA looking to do

3:43:15doing something similar and that frankly

3:43:16following Palo Alto.

3:43:18So this is something that is actually

3:43:20becoming more commonplace, but I think

3:43:21we're actually leading a little bit in

3:43:23that regard at least locally.

3:43:25>> It is a remarkable process that I mean

3:43:28we're

3:43:29we started this agenda item by

3:43:31explaining to

3:43:33these neophytes

3:43:35what a capacity reservation even is and

3:43:37we're asked to

3:43:38at the end of the discussion approve it

3:43:41in concept even specifically $37,000

3:43:45whatever it is.

3:43:46But I've had that feeling before on UAC.

3:43:50Um

3:43:51Can I

3:43:51>> Can we do that? But let's start the

3:43:53discussion now. So can we do the timer?

3:43:59Um

3:44:01Well, there's someone else that I want

3:44:03to talk to.

3:44:04Hm?

3:44:04>> I actually have like another clarifying

3:44:06question. Sorry.

3:44:07>> No, you're you're out of you're out of

3:44:09clarifying questions.

3:44:11>> It's non-refundable,

3:44:13but is it

3:44:15applicable to their later fees or is it

3:44:18just gone?

3:44:19>> That's part of the discussion that we

3:44:21have the recommendation or advisory that

3:44:23we would like to see from the city

3:44:24advisor committee. So there's there's

3:44:26two things that could periodically take

3:44:28non-refundable. You pay these money,

3:44:29you're never going to see it again,

3:44:30right? And that's that's the cost to

3:44:32reserve this substation capacity. There

3:44:34could be, right, the perception that

3:44:35that is a barrier to economic

3:44:37development that makes it more costly to

3:44:39develop in Palo Alto.

3:44:41We may choose, right, the UAC may choose

3:44:44to advise that that's not a good policy

3:44:46and say that well,

3:44:47what if we allow for that um those

3:44:50payments to be applied to future

3:44:51infrastructure that would be owned and

3:44:53operated by the electric utility. So,

3:44:55they could provide it as a credit

3:44:56towards that only,

3:44:58but if they didn't move forward with the

3:45:00project, there wouldn't be a refund of

3:45:02that um reservation fee. And so, that

3:45:05could be one of those things where that

3:45:07is more palatable to the developer um in

3:45:11looking at their cost to develop. But

3:45:13that's that's the discussion piece that

3:45:15we would like to hear from the the

3:45:17commissioners.

3:45:18>> Greg, so that raised a clarifying

3:45:20question in my head. They wouldn't have

3:45:23to do this, right?

3:45:24>> It's voluntary.

3:45:25>> It's voluntary, so

3:45:26>> Completely voluntary.

3:45:27>> By approving this conceptually, we're

3:45:30just providing more options for people.

3:45:32That we're not forcing them to spend any

3:45:34money.

3:45:35>> That is correct.

3:45:37>> Okay.

3:45:42>> Is there any merit to um

3:45:44applying [clears throat]

3:45:45my favorite topic when it comes to the

3:45:47grid and that is a heat map? Um where

3:45:50which substations are maxed out and

3:45:52which ones are not? Uh if you're going

3:45:55to do a cost analysis and say, I think

3:45:57it was 37,000, um you know, it it's it

3:46:01looks very different if you're talking

3:46:02about one of our substations or

3:46:04where where there's no capacity,

3:46:07um a high load factor and so forth

3:46:08versus another. So, one question is, can

3:46:11you give us sense, where on the grid um

3:46:14which substations um tend to be seeing

3:46:19this demand? Where where are the

3:46:20customers clustered?

3:46:22>> Um largely these customers we see them

3:46:24clustered in the Stanford Research Park

3:46:26um or towards the

3:46:29um

3:46:30southeast portion of the

3:46:31>> I I I think if you look at at and we're

3:46:33talking these larger loads, they're

3:46:34commercial industrial areas.

3:46:36>> Sure.

3:46:36>> look at our land use uh for the city,

3:46:38those are the big areas where you would

3:46:40see the

3:46:40>> Also, Hanover, presumably.

3:46:43Um Maybell.

3:46:45>> Yes, Hanover, Hanson, Maybelle, Adobe

3:46:48Creek, those are the ones that we really

3:46:49see a lot of lot of development going to

3:46:51and that's where we see the limited

3:46:52capacity.

3:46:54>> I know I've always wanted to know more

3:46:55about this, but I'll just make it up.

3:46:58Um, I assume there's plenty of capacity

3:47:00like at Hanover and we're maxed out at

3:47:03Maybelle. So, does it kind of depend and

3:47:05should that have any bearing on what

3:47:08whether and what you charge for a reser-

3:47:11for a capacity reservation?

3:47:13>> So, it it does. You could

3:47:17potentially look at it and look at it as

3:47:18a scarcity model. So, if it's scarce,

3:47:21more scarce than the areas around

3:47:22Maybelle, so the price is higher. That

3:47:25adds a layer of complexity that I'm not

3:47:27sure is beneficial to the process of of

3:47:30developing um, or filling these vacant

3:47:33uh, buildings.

3:47:35So,

3:47:36it's possible that we could come up with

3:47:38something like that, but I'm just not

3:47:39sure if it's beneficial.

3:47:41>> Not worth it. Yeah, I can see that.

3:47:42Yeah. And sometimes that the juice is

3:47:44not worth the squeeze in in terms of

3:47:45trying to get to that finite number and

3:47:48trying to make it smaller, but uh, you

3:47:49know, point well taken.

3:47:52Have Have you

3:47:54thought about um, how you

3:47:56traffic navigate or traffic manage

3:47:58between competing claims? Like, what

3:48:01about a guy who claim who pays for a 5

3:48:04MW uh, reservation and sits on it and

3:48:07doesn't use it and blocks someone else?

3:48:09Um,

3:48:10I I don't

3:48:12>> That's the concern and that's why we

3:48:14feel it's really important to establish

3:48:16a fee so that they would be less likely

3:48:19to just claim 5 MW or 10 MW, sit on that

3:48:23and prevent other um, development from

3:48:25coming into that area. That's why we

3:48:27think the fee is really important.

3:48:28That's also why we have a term limit

3:48:30that we don't uh, want to go past 3

3:48:32years cuz that we think that's a

3:48:33reasonable amount of time. Right? And

3:48:36that helps to incentivize moving through

3:48:38that project quickly because

3:48:40the intent is that at the 3-year

3:48:41termination, they would have to go back

3:48:43to the the back of the line.

3:48:45>> Yeah.

3:48:45>> Um, and everybody else would jump

3:48:46forward in that space.

3:48:48>> Yeah, really I

3:48:49I'm just wondering is it detrimental to

3:48:51CPAU to say, "Pay me a little bit of

3:48:54money, five, six figures, and you can

3:48:56reserve this." Then the guy sits on it

3:48:58for three years, never uses it. In the

3:48:59meantime, someone who would uh get right

3:49:03to work and pull wire and and start

3:49:05running uh power

3:49:07is

3:49:08kept out.

3:49:08>> And Commissioner Chucker, if it is one

3:49:10of the

3:49:11items we put in the agreement structure

3:49:13was that the initial term would be for 1

3:49:14year. So, they're not going to be able

3:49:16to sit on it for 3 years. Yeah. So, we

3:49:18wanted we wanted to anticipate some of

3:49:20those questions and and try to put that

3:49:21in the structure itself without getting

3:49:23into details of all that, but it's a

3:49:25definitely a good point. In will-serve

3:49:27letters you see from other agencies,

3:49:29they it doesn't have a unlimited time.

3:49:31>> And does it ever come into the

3:49:33negotiations probably from the other

3:49:35side of the table where the guy says,

3:49:36"I'll pay you a I'll pay you this

3:49:38reservation fee, but I want to make sure

3:49:39that this money or some portion of my

3:49:42monthly rate goes into upgrading that

3:49:45that particular substation or feeder."

3:49:48Is that Does that ever get into

3:49:50>> That's part of the discussion that we're

3:49:52asking and maybe the the guidance from

3:49:55the commission is that, you know, is it

3:49:57a strictly non-refundable fee that can't

3:50:00be applied toward any future

3:50:01infrastructure improvements?

3:50:03>> question. That's what Commissioner

3:50:04Praught asked.

3:50:05>> No, that's the work performance

3:50:06agreement. So, when you define their

3:50:08actual development as Tara was going

3:50:10through, I think it was slide number

3:50:11four is their their cost obligation for

3:50:13the needed system upgrades. So, they're

3:50:15really paying paying their share to

3:50:17connect to their our facilities. So, if

3:50:19we had to do an extension to to serve

3:50:21that development, they're paying their

3:50:23full share and not at the at the um at

3:50:26the cost or or or marginal

3:50:28>> a different question to be

3:50:30I, the customer, will pay a reservation

3:50:32fee and I'd like it credited to my

3:50:36future use, you know, if I you know,

3:50:38when I do finally hook up. That That's

3:50:39what I thought the earlier question was.

3:50:41A separate question is I will pay you a

3:50:43fee and I want that money not to go to

3:50:45pay employees and Christmas parties. I

3:50:47want it to upgrade my transformer. I'm

3:50:50wondering if that um

3:50:52it comes up or so that

3:50:54>> clarifying question of whether you could

3:50:57use the reservation fee for your future

3:51:00utility bill, your future usage on

3:51:02utility bill. Um that wasn't discussed

3:51:06in the staff report and that wasn't

3:51:07conceived of of staff. Our thought was

3:51:09to really only apply that capacity

3:51:11reservation fee to new infrastructure or

3:51:15expanded infrastructure. New plant

3:51:17that's going to go on the ground that

3:51:18will be owned and operated by the

3:51:19electric utility.

3:51:21>> Right.

3:51:21>> So so it wouldn't

3:51:22>> customer, I only care if that goes into

3:51:23Maybelle, if that's where I live.

3:51:25>> Well, it would only go towards work to

3:51:27actually connect that. It wouldn't be

3:51:28just something randomly. It would be

3:51:30tied to and that's typical of these

3:51:32projects that there's some type of

3:51:33feeder upgrades, distribution work that

3:51:37has to happen

3:51:38um to actually extend um to the site.

3:51:41Now, could there be a mismatch where

3:51:43they paid for some capacity and the cost

3:51:46of the infrastructure that needs to be

3:51:47upgraded to serve

3:51:49>> Mhm.

3:51:50>> um is less than what they paid, there

3:51:52could be. And in that case, there would

3:51:54be not uh a refund

3:51:56>> Mhm.

3:51:57>> of that. It would just be you you held

3:51:59this and you got some use out of that

3:52:00money, but um you had the certainty

3:52:02during that period of time.

3:52:04>> My last question would be uh to what

3:52:06degree is this a pressing problem right

3:52:08now where um as opposed to something

3:52:11you're trying to get ahead of. I don't

3:52:13quite I think Phil Metz asked the

3:52:14question before. We have

3:52:16>> We have several customers right now that

3:52:18are looking for the same capacity in the

3:52:20same area and we're having trouble

3:52:21managing um how do we find a way to

3:52:24reserve that for

3:52:26um each of those customers and what's

3:52:28the fair process for that? That's That's

3:52:30why internally we're

3:52:31we've been discussing this and that's

3:52:33why we're bringing it forward. We do

3:52:34have the problem today.

3:52:36>> Hand over.

3:52:37>> Commissioner Metz.

3:52:41>> Unmute. Thank you. Yes, uh

3:52:44my comment is uh I think we need to

3:52:47rethink this. Uh building on uh

3:52:51Commissioner Tucker's comment earlier,

3:52:54I think depreciated asset value is

3:52:57mostly irrelevant and it really has no

3:53:00relationship to our future. It's an

3:53:02accounting number. It has no

3:53:04relationship to our future incremental

3:53:06cost to serve these customers.

3:53:09Um in fact, I what I would propose is

3:53:12that charges be based on the principle

3:53:15that existing customers don't incur

3:53:18additional cost or risk as a result of

3:53:21these new loads. Hence, you know, the

3:53:25fees and incremental cost which I would

3:53:27say could be applied to future uh

3:53:31charges and in fact, there are other

3:53:32utilities doing that where you're sort

3:53:34of buying buying into the charges in

3:53:37advance. Um but I think the incremental

3:53:40cost to serve is something like the

3:53:43total future cost with these loads minus

3:53:46the total future cost without them. And

3:53:49if these loads are, you know, it sounds

3:53:50like these loads are some number like 20

3:53:53to 50 MW based based on what you said.

3:53:57Just add the folks you're talking with

3:53:58today.

3:54:00Uh for Palo Alto with, you know, an

3:54:02average

3:54:03uh load of about 100 MW, that's a big

3:54:07number. It's a big change in our load

3:54:10and looking at what we just talked about

3:54:12item number three,

3:54:14uh we said the staff report said the

3:54:16cost of

3:54:18uh clean energy

3:54:20to meet our clean energy goals is

3:54:22increasing. Uh we have our revenue that

3:54:25we get from selling resource adequacy

3:54:27and selling Rex. That revenue would go

3:54:30away or possibly reverse into a cost.

3:54:33So, in addition to the obvious capital

3:54:36distribution assets that you folks have

3:54:38talked about, which I agree we need to

3:54:39address, we need to include the other

3:54:41cost that CPA would would incur as

3:54:45result of such a major uh increase in

3:54:48our total load. And the reason for that

3:54:50is that once these customers are online,

3:54:54they're going to pay the same rates, the

3:54:56same uh energy charge, same transmission

3:54:58charge, same distribution charge, same

3:55:01demand charges as any other customer in

3:55:04the rate class, uh which means that

3:55:07since the rates, the incremental costs

3:55:09will be higher, the other customers in

3:55:12that rate class will be subsidizing

3:55:14these new customers. So, I think you

3:55:17know, I don't disagree that it's a

3:55:19significant amount of work, but I think

3:55:21we really need to do the work to

3:55:23calculate the actual incremental costs

3:55:25under plausible scenarios like some

3:55:28number like 20 or 50 or 60 uh megawatts

3:55:31additional say over the next 5 to 10

3:55:33years. Um

3:55:35you know, small we the the document

3:55:38states the presentation states that 5

3:55:40megawatts is a small data center, and it

3:55:42certainly is, but our grid is small,

3:55:46too. And so, I think

3:55:48uh we we need to recognize that we're

3:55:50talking about major increment in our

3:55:51grid, which is going to have a major uh

3:55:54impact on it, and we need to uh

3:55:56carefully think through how we're going

3:55:58to address that.

3:56:00Happy happy to discuss.

3:56:09>> Commissioner Crofts, for you?

3:56:12>> Yeah, I didn't know if you guys wanted

3:56:13to follow on, but

3:56:15my comments are similar, and I have a

3:56:16question. So, one of my comments was um

3:56:20you know, we are

3:56:22making these

3:56:24um we're committing to building the

3:56:25capacity, uh but then we're going to

3:56:27have to serve them. So, that means we're

3:56:29going to have to go get power purchase

3:56:30agreements, which we already know are

3:56:32hard to get. We haven't talked about the

3:56:34integrated resource plan in a while. Um

3:56:37but I would like to understand like

3:56:40what's happening in the pricing going

3:56:42forward. So, if we're committing to

3:56:44these guys, we're going to have to build

3:56:45our load forecast out in the future, and

3:56:47we're going to have to

3:56:49plan on buying this electricity somehow.

3:56:51So, um

3:56:53my I guess my question is I I do think

3:56:56we should know what the load

3:56:58uh you know, it'd be helpful to know

3:56:59what the load profile is in terms of how

3:57:02we're going to serve that load and make

3:57:03sure it's carbon neutral for the city.

3:57:06Is it going to be middle of the day? Is

3:57:07it a 24/7, etc.

3:57:10Um

3:57:12And then we also talked about the fact

3:57:14that we don't have a separate rate

3:57:15structure for these large clients and it

3:57:17was going to come up on I think it's

3:57:19right on number seven on our work plan,

3:57:21but I didn't see it on the calendar. So

3:57:24it does seem like that should, you know,

3:57:26per Commissioner Mette's comment,

3:57:29we should figure out where we think our

3:57:31current rate structures are fair and

3:57:33what we do in terms of a rate structure

3:57:35for

3:57:36do these clients fall within, you know,

3:57:39the utility usage of some of the other

3:57:41clients that are in that rate structure?

3:57:43And then the question is um

3:57:46why wouldn't we want this as a city for

3:57:49everyone who wants to reserve capacity?

3:57:51So to me it seems like you know, we're

3:57:53proposing it as voluntary for clients

3:57:56can elect to have this, but why wouldn't

3:57:59we want to do it? Just given those

3:58:00commitments that we're making

3:58:02to you know, finding the energy,

3:58:04delivering the energy

3:58:06um

3:58:08why wouldn't we want it?

3:58:10And why is it optional?

3:58:12>> Um

3:58:14>> [clears throat]

3:58:15>> so

3:58:16I'll just start with the last question.

3:58:17So why would we want it or why would we

3:58:19want it to be voluntary?

3:58:21Um

3:58:22there's

3:58:24for us we're we're seeing this as a tool

3:58:27to really kind of like right size or you

3:58:29know, have a more honest conversation

3:58:32about what the actual needs are. So

3:58:34we're thinking that the fee is going to

3:58:36drive that that reality check of like

3:58:38what's your actual peak demand and so

3:58:39they're not over subscribing, right?

3:58:41Without that process

3:58:44somebody could say and hey I want 30

3:58:46megawatts of this and I'm going to hold

3:58:47that 30 megawatts of capacity and then

3:58:49when we get the next customer that comes

3:58:51in to be fair to the person that was in

3:58:53front of us, you know, the day before

3:58:55and said they wanted 30 megawatts, we're

3:58:56going to say well, next person

3:58:59we have a customer that's asking for 30

3:59:01megawatts and they've got a reservation.

3:59:02We're working with them. We can't have

3:59:03the conversation with you until we

3:59:05actually go through this, right? And so

3:59:07we think that we can get through this

3:59:08process a little bit quicker

3:59:11and not block the second, third, or

3:59:13fourth developer that wants to come into

3:59:15the city where there's that constraint.

3:59:18Again, that's

3:59:20that's where we're trying to find a

3:59:22process or a policy that would allow us

3:59:24to create that right size and we think

3:59:27that if there's a some

3:59:29financial commitment, some obligation

3:59:32that they have to some gate that they

3:59:34have to come through

3:59:36before they can reserve that in front of

3:59:38somebody else that that is going to

3:59:40provide a better conversation and and a

3:59:42truer

3:59:43perspective of what their actual needs

3:59:44are.

3:59:45>> Yeah, I guess my question is why

3:59:47wouldn't we require it? Like letting

3:59:49someone reserve 30 megawatts

3:59:52and having to go out and find, you know,

3:59:56signing power purchase agreements for 30

3:59:58megawatts and it's not trivial.

4:00:00>> No, no.

4:00:01Yes.

4:00:02>> Why wouldn't we want this for every

4:00:04single load that's big enough

4:00:07to cause this kind of conflict for us?

4:00:11>> So

4:00:12taking into two steps and kind of

4:00:14bifurcating this a little bit. Tonight

4:00:16what we're really talking about is

4:00:17getting the infrastructure to get it

4:00:18somebody connected, right? So that's one

4:00:20step. There's other utilities certainly

4:00:22that have for their large load

4:00:23customers, they have special agreements

4:00:26that they'll have for their large

4:00:28customers and say, "Okay, well, if

4:00:30you're this large customer, you're going

4:00:31to have provide

4:00:33a large financial obligation to us over

4:00:35the next 5 years to purchase power. We

4:00:37want some commitments that you're going

4:00:39to stay here for 5 years and pay that.

4:00:41If you leave early, you don't meet the

4:00:43load criteria, you're going to owe the

4:00:45city money cuz we went out to the market

4:00:47and procured that power at a cost,

4:00:49right?" That's that may be step two of

4:00:52this process or maybe a follow-up and if

4:00:55that's a recommendation from the UAC

4:00:57that you would like to see something

4:00:58more on the rate structure for large

4:01:01customers, we can take that into this

4:01:04process, but um

4:01:06we've bifurcated that and really tonight

4:01:09just talked about the infrastructure and

4:01:11how do we manage the infrastructure

4:01:13getting to the point of connection with

4:01:14the the customers.

4:01:16Um I would caution that if we start to

4:01:19look at rates for large customers that

4:01:21we're starting to open up the cost of

4:01:23service analysis for electric and it's

4:01:25there's a timeline for when that staff's

4:01:27capacity is to do that and I'm not sure

4:01:29how that lines up.

4:01:32>> Yeah, I understand that. I I want to

4:01:34I I support the concept of having a

4:01:39reservation program. I absolutely do. I

4:01:42don't know what the price should be. Um

4:01:44I thought uh Commissioner Metz's

4:01:46comments were thoughtful. I do think

4:01:49depreciated price doesn't seem like it

4:01:52would be as high as the what it's going

4:01:54to cost us

4:01:55actually going into the future. So it

4:01:57does seem like

4:01:59it could be underestimating.

4:02:01Um but I do wonder if anyone's getting

4:02:05to signi- significant amount of capacity

4:02:08that they want to reserve, it seems like

4:02:10there should be

4:02:12a cost to place a hold on that capacity.

4:02:17And so I'm not sure that it should be

4:02:19voluntary. I

4:02:21and I I'd be interested in

4:02:24discussing that

4:02:25concept. Like how uh

4:02:29how would we deal with these at will?

4:02:31People are hoarding power right now and

4:02:34we don't want people to hoard power

4:02:36um because it messes up our planning.

4:02:47>> So

4:02:47>> So

4:02:48>> Yeah.

4:02:48>> I guess

4:02:50maybe

4:02:51I'll I'll take my discussion here. First

4:02:54of all

4:02:55I think this is a great idea

4:02:58and we should do it.

4:03:00I think we can't expect it to

4:03:03bear too much weight. We're adding

4:03:06something here. We can't use it as a

4:03:08gateway to try to say we want these

4:03:10customers and we don't want these

4:03:12customers. Remember, all these customers

4:03:14can get well served now.

4:03:17So, you know, if we want a separate

4:03:18process where we say, "Well, there are

4:03:20certain types of loads we don't want."

4:03:22This is not the mechanism, in my

4:03:24opinion,

4:03:25to try to

4:03:27to try to enforce that. This is not like

4:03:30our gatekeeping to

4:03:31get the loads we want. The pricing that

4:03:34I do agree with Commissioner Crofts, I

4:03:36think there's a good idea to make it

4:03:38mandatory.

4:03:40The reason is what you're trying to get

4:03:42out of this, what I hear from you,

4:03:44is you're trying to get truthful

4:03:45revelation, as we call it, in economic

4:03:48jargon to

4:03:49to confuse layman. You want

4:03:51a process by which you get an honest

4:03:54view of what people think their load is,

4:03:56but they're in a situation now where

4:03:57they can just come in and say, "Yeah,

4:03:59I'm going to need 15." And you don't

4:04:01really know.

4:04:02And the other side,

4:04:04you don't want something that is so high

4:04:07that is keeping people out. And

4:04:10unfortunately, we don't know what

4:04:12the competing figures are.

4:04:15So, in this kind of situation, the right

4:04:17way to price things,

4:04:19and I don't care about the depreciation.

4:04:20I don't care about any of this. We're

4:04:21just picking a number that's a

4:04:23reasonable-sounding number. It doesn't

4:04:25matter where it came from, in my

4:04:27opinion. The question is, is it going to

4:04:29work? Are we going to get better

4:04:32um estimates from

4:04:35the people who are applying, and are we

4:04:37not going to be driving everybody away

4:04:38who, you know, we potentially might want

4:04:41to sign up? And the only way I can think

4:04:43of figuring that out, although we're

4:04:45very intelligent people in the room and

4:04:47we could talk about it for hours, I'm

4:04:48sure, is to try it. I mean, just try it.

4:04:52And, you know, if you're getting much

4:04:54better, if it's working,

4:04:56and you're getting better estimates, and

4:04:58it's helping you

4:04:59um that's helping you plan, great.

4:05:02That's what we want out of it.

4:05:04I don't think it's something we can't

4:05:05say, "Well, we're we can figure out what

4:05:07the future of these guys is going to be

4:05:10and we'll load it in. I

4:05:13I I mean I I I would love to, but I just

4:05:15don't think it's the right mechanism to

4:05:17do that. It's an additional reservation

4:05:19charge. We don't have it now. I think

4:05:21it's

4:05:22it's step-wise improving, so trying to

4:05:24make the perfect um and you know,

4:05:27talking for another hour about whether

4:05:29it should be 50,000 or 20,000.

4:05:32I don't think it's, you know, hugely

4:05:35it would be hugely advantageous. So, the

4:05:38only question I would have or

4:05:41would would be Commissioner Cross' idea,

4:05:43why not just make it mandatory? What's

4:05:45the idea? Why would some people

4:05:47Why have a mix of people who have paid

4:05:49this and we have a pretty good idea and

4:05:51somebody's let just you know, put out

4:05:54numbers.

4:05:55So, I would ask that question to staff.

4:06:00>> Yeah, I I would think that some people

4:06:01some developers may choose to take the

4:06:04risk and not pay and that that would be

4:06:06something that would be desirable to

4:06:07them as far as managing their cost to

4:06:09interconnect. Um

4:06:13I can imagine that there's some larger

4:06:15projects that could be um housing

4:06:18developments that could hit this

4:06:19threshold. Some large housing

4:06:21developments, multi-family

4:06:23that could hit this threshold for

4:06:26reservations and they may choose from an

4:06:28economic perspective not to pay that

4:06:31extra fees. Um that could be alleviated

4:06:34if the fee is at some portion of it

4:06:36that's refundable or applicable to

4:06:38future work.

4:06:40Um I think that's a discussion point

4:06:42there as well.

4:06:43Um

4:06:45but certainly if that's the

4:06:47direction of

4:06:49the

4:06:51commission to take that forward is that

4:06:53they prefer to develop a process that

4:06:55non and voluntary. I think that's the

4:06:57way we could do that.

4:06:59>> I guess the part I'm asking

4:07:00I'm asking staff [clears throat]

4:07:02what I mean, I think we could come up

4:07:04with an exemption for housing, you know,

4:07:06if it's contains more than a certain

4:07:08number of housing units.

4:07:09If that's the exemption, would it be

4:07:11useful to you?

4:07:13>> I I I don't think we can be

4:07:14discriminatory on type of like users. We

4:07:18have to We're We're obligated to serve,

4:07:20right? So, there there could be some

4:07:21discussion say on the will serve letters

4:07:22on that criteria, whether those will

4:07:25serve letters have a timeline on it as

4:07:27well. But But as a as a as a utility,

4:07:30the the land use decisions, the type of

4:07:32developments, that that's not not the

4:07:35department. I will let the department

4:07:38>> So, I I just say, you know, I support

4:07:41it.

4:07:42Um I would take the conceptually out

4:07:44because I don't know what that adds. And

4:07:46And Mr. Sharf, do you

4:07:49Your light's on.

4:07:50>> I would.

4:07:51Um I also support it. I I appreciate you

4:07:53bringing this forward and and think it's

4:07:55a great idea.

4:07:56Um

4:08:00So, the way I guess it would work

4:08:01conceptually is that if someone doesn't

4:08:03do do the reservation,

4:08:06they then don't have a a right to it.

4:08:08They move forward in their proper

4:08:10project. And then someone comes in, you

4:08:13know, an hour an hour before they finish

4:08:16their project and says, "I want to

4:08:19reserve that." And they have a right to

4:08:21do that.

4:08:22Um right, cuz they haven't reserved it.

4:08:25So, they would take that risk. So, my

4:08:27guess is most people would reserve it.

4:08:30It'd be actually be really interesting.

4:08:32So, you're you're doing a housing

4:08:33project. You're stupid enough not to

4:08:35reserve it.

4:08:36My NIMBY friends over there.

4:08:38I'm not pointing at any of you. But, you

4:08:40know, say Not you guys. But, you know,

4:08:43say, "I don't want this housing

4:08:44project." So, they come in and reserve

4:08:46all the capacity and pay the fee

4:08:49to stop the housing project. I could see

4:08:51stuff like that happening. So, but I

4:08:53mean, that's on the developer.

4:08:56And I don't think we need to

4:08:58you know, protect the developer from

4:09:00themselves.

4:09:01So, I don't think it needs to be

4:09:02mandatory at that point. That's what I'm

4:09:05saying. I

4:09:07I'm open to it if staff, you know,

4:09:08thinks it's important to be mandatory.

4:09:11But I

4:09:12I don't I think most people will reserve

4:09:13it because they want the certainty. As

4:09:15long as you don't price it too extreme.

4:09:18I think that's I think that's how most

4:09:20people will act.

4:09:21Um

4:09:23you know, I heard um

4:09:24Commissioner Metz I I think you made

4:09:27some good points.

4:09:29But I think this is different. I think

4:09:31that goes to more of the really large.

4:09:33You're talking about two and a half megs

4:09:35sort of thing.

4:09:36I mean, yes, someone comes in and wants

4:09:3920 megs. I assume that completely takes

4:09:41out the capacitor. We don't have that.

4:09:43We'd have to put a new

4:09:45new capacitor, right?

4:09:46>> That's correct.

4:09:47>> And so therefore we should this should

4:09:49be the first step. The second step

4:09:50should be if someone wants to you know,

4:09:53build something bigger than we have

4:09:55capacity for then they should be paying

4:09:58you know, the upfront fee I think you

4:09:59talked about you were saying like Santa

4:10:01Clara has a bunch of these big fees.

4:10:04That kind of stuff. And so but that's a

4:10:06separate discussion than this.

4:10:08And so on this discussion I see

4:10:10absolutely no downside to going ahead. I

4:10:12think

4:10:14um

4:10:16you're right that we just need to simply

4:10:17say

4:10:19you know, what the fee is. And I don't

4:10:21know what the right fee is. I don't I

4:10:23can't figure that out up here.

4:10:24>> None of us do.

4:10:25>> I mean, it's you know

4:10:27>> [clears throat]

4:10:27>> but you guys can figure that out. You

4:10:29can you know, I don't think it's that

4:10:30hard.

4:10:32>> No, I don't I don't think so either. I

4:10:34think we can find a a level that that is

4:10:36appropriate, right? That creates the

4:10:38appropriate gate but doesn't provide too

4:10:40much of a burden that would stall or

4:10:42delay

4:10:43um development.

4:10:45>> I mean, theoretically I'd like a higher

4:10:47number

4:10:48in very constrained where there's very

4:10:50constrained capacity in that particular

4:10:52area

4:10:53and a lower number where there's lots of

4:10:56capacity. I mean, just theoretically. I

4:10:59mean, I don't know if that works for

4:11:00staff but I mean, that makes sense to

4:11:02me.

4:11:02>> You know, it's um we don't want to go to

4:11:04the details of all each of the

4:11:06substations but there are ways to that

4:11:08you can um have feeders from different

4:11:11areas and and modify the footprints and

4:11:13how you're serving and and serve them

4:11:15from other substations. So there are

4:11:17always

4:11:18you know, abilities to do that and we're

4:11:20looking in looking into that now.

4:11:21>> Before I end, I think the

4:11:23the thing is you have to explain what

4:11:24you mean by conceptually. Cuz I think we

4:11:27are conceptually approving it, but does

4:11:29that mean you're going to come back with

4:11:30the details to us? Is that what you mean

4:11:33by that? Or you're just going to or cuz

4:11:35otherwise we're just approving it.

4:11:36>> Yeah, I I I would

4:11:38>> If you're planning on coming back, it's

4:11:39a conceptual approval. If you're

4:11:41planning on running with it, it's just

4:11:43approving.

4:11:43>> The conceptual approval is the the

4:11:46pathway and the the process to get

4:11:48through there and the terms and

4:11:49conditions that are kind of in the staff

4:11:50report. So, it would be like a a 3-year

4:11:52term, you know, 1-year renewals, there's

4:11:54an annual fee for it. So, those

4:11:56conceptual terms of the agreement is

4:11:58there. The second piece is do do you

4:12:01recommend the establishment of a fee,

4:12:03right? Um those are really what we're

4:12:05kind of saying, are we on the right path

4:12:07to move forward? Our next steps would be

4:12:09to take this to the economic development

4:12:11committee, have their

4:12:13um thoughts and and um

4:12:17their discussion on this item and then

4:12:19it formalize things and then bring it

4:12:21forward to the city council for

4:12:23approval.

4:12:24Um that's kind of the process that we're

4:12:26we're contemplating of moving it

4:12:27through, but again, wanted to stop here

4:12:30first and check are we on the right

4:12:32path, you know, is is this type of

4:12:34agreement, you know, a a positive or a

4:12:37beneficial thing? Is having the fee

4:12:39necessary? Um

4:12:41staff feels that having the fee is

4:12:43necessary that you need to have some

4:12:44kind of financial gain. Um if there's

4:12:46things that you want to express that

4:12:49there should be a little bit more work

4:12:51on the fee,

4:12:52um how the fee is applied, if it's

4:12:55purely non-refundable,

4:12:57um

4:12:58or whatever, you know, that this would

4:13:00be the time to provide that input.

4:13:02>> I don't think you've given us enough

4:13:04information

4:13:05to be honest. I'm conceptually

4:13:07completely in favor of it. Mhm. I don't

4:13:10think it should be refundable, but I

4:13:11could be wrong. I mean, you could easily

4:13:13write me a staff report that says

4:13:15in thinking about this, if we don't make

4:13:17it refundable, we're going to make a big

4:13:18barrier to entry for people and it's not

4:13:21Whereas the other hand,

4:13:23make it non-refundable and then it goes

4:13:25towards building the next capacitor

4:13:27when

4:13:28we've run out of capacity here and that

4:13:31So, we

4:13:32>> You know, I guess I'm ready to I'm I'm

4:13:34sorry, Bridget. Go ahead.

4:13:35>> I I actually had a thought on not

4:13:37knowing what the number right now Well,

4:13:39on the refundability. Um I think

4:13:44like you want this to be goodwill. You

4:13:46want this to help people. You don't want

4:13:47this to make everything harder to work

4:13:48with Palo Alto. So,

4:13:51I don't have a problem with making it a

4:13:52high number

4:13:54and then you give it back when they

4:13:56follow through, right? You take some

4:13:59amount off for the work of the city. So,

4:14:01there's some I don't know if you get

4:14:03back half of it or you get back 3/4 of

4:14:05it or what. You get back most of it,

4:14:07right? Except if it, you know, we have

4:14:10huge amounts of expense on consultants

4:14:12or whatever to figure out. You figure

4:14:14out some fair amount to take off of that

4:14:17and then you give it back to them as

4:14:20they build out their project.

4:14:22But, if they cancel, they fail to make

4:14:24it there, then they forfeit that money

4:14:28and that way you prevent people from

4:14:30hoarding

4:14:31capacity. Um you have kind of a goodwill

4:14:35effort. Uh it's a goodwill thing. So,

4:14:38you could you could make it 38 You could

4:14:40make it 50

4:14:41thousand per megawatt, but you're going

4:14:44to get it back. It's just um So, then it

4:14:46kind of takes some

4:14:48pressure off what the right price is,

4:14:51right? It might It might keep smaller

4:14:53guys out. I mean, that's that's the only

4:14:55thing I would be concerned about with

4:14:56making it high. It's

4:14:58how high is too high for like a smaller

4:15:00company that still might be someone we'd

4:15:02like to have here in Palo Alto.

4:15:04>> Commissioner Burt,

4:15:05and we've now everybody's taking second

4:15:07bites of the apple. I'm going to

4:15:09close the

4:15:10conversation after this.

4:15:12>> Okay. Yeah, I understand the risk of

4:15:14false reservations and I think

4:15:17uh uh the comment we just heard makes

4:15:20sense. In fact, a number utilities are

4:15:23doing something like that. They're not I

4:15:24wouldn't call it giving back. What they

4:15:26do is take a big fee up front and then

4:15:30give it back it as just refunded as part

4:15:33of the bills go just take it as part of

4:15:35the bills going forward.

4:15:37Also, I support commerce, but I think a

4:15:40commitment is a commitment. You know, if

4:15:42we say we're going to deliver a certain

4:15:44amount of electricity, we obviously have

4:15:46an ethical

4:15:48you know, need to do that a legal

4:15:50requirements as well. I'd be I'd be

4:15:52shocked if

4:15:54big companies with good corporate

4:15:56attorneys can't make those kinds of

4:15:58things stick. So, therefore, it's really

4:16:01important that we get the dollars right

4:16:04and as this is written, you know, if we

4:16:06add 20 to 40 megawatts, which is sound

4:16:08sounds like what we're talking about

4:16:10already,

4:16:11our average costs are going to go up

4:16:13significantly and if we go forward as

4:16:16this is proposed, our existing customers

4:16:20are going to be subsidizing these new

4:16:22customers. So, I think we really need to

4:16:24go back to basic principles and do the

4:16:26math so that doesn't happen. Thanks.

4:16:30>> I just wanted to you

4:16:32remind you I see we did actually do as

4:16:34part of we're looking at the data

4:16:36centers, we did run some analysis in

4:16:38terms of that new load and made those

4:16:40projections and also knowing that those

4:16:43customers would pay

4:16:45for for those connections and we did not

4:16:48see that that increase here now. It can

4:16:50be different for different areas across

4:16:52the country. We're not but we we did

4:16:54that analysis looking at just just

4:16:56within Pella belt. So, we did that now.

4:16:57>> Just just bear in mind bear in mind

4:16:59though the cost you're talking about are

4:17:00distribution cost and you know, I can

4:17:03understand where distribution cost would

4:17:05on a per unit basis would not be changed

4:17:07much or even in some cases reduced, but

4:17:10there are other cost the the RA revenue

4:17:12that we lose clean additional clean

4:17:15energy cost which be higher than our

4:17:17current clean energy cost wrecks that

4:17:19we're selling that we no longer be able

4:17:21to sell. So, there are a lot of other

4:17:23cost which as far as I know we have not

4:17:26calculated and I think we need to to

4:17:28actually get the math right on this.

4:17:32>> Okay. I'm ready to make a motion. Um

4:17:35So, that's kind of preliminary to my

4:17:37motion. I suggest we think of this as a

4:17:41trial. So, part of my motion is going to

4:17:43be say

4:17:44come back in a year and

4:17:49you know, let us know how it's going, if

4:17:52it's meeting the goals.

4:17:53Um

4:17:55so

4:17:56you know, with that added saying

4:18:00staff to return with 1 year and say, you

4:18:03know, what are you seeing at this

4:18:05particular rate? Are people pushing

4:18:06back? Are we Is it Are we getting honest

4:18:10in your opinion, honest ideas about the

4:18:13loads? Is it Is it Is it working?

4:18:17So

4:18:18with um with that I'm ready to

4:18:21to move it. I I would take the word

4:18:23conceptually out. I mean, you know,

4:18:26yeah, I get that you may change some of

4:18:27the details.

4:18:29Um but I'm not sure it adds anything and

4:18:32um Ernest Hemingway said if you want to

4:18:35improve your writing, take it out every

4:18:36adverb you can.

4:18:38>> I'll second.

4:18:42>> I I should just mention I'll take

4:18:44responsibility for the conceptually. As

4:18:46the lawyer, I felt it necessary to add

4:18:48some additional words cuz we just can't

4:18:51help ourselves.

4:18:51>> still pay the lawyers by the word?

4:18:53>> You know, we're we turned over a new

4:18:55leaf, but it's hard chief. So, but

4:18:57anyway, the reason I was thinking of

4:18:59conceptually is because we are just

4:19:00talking about framework, right? Like

4:19:02this is still a conceptual thing. I

4:19:04don't have, you know, section 42B

4:19:06written out yet. We're kind of going to

4:19:08get feedback and then we'll figure it

4:19:09out as we go. But you can certainly

4:19:11remove it and because we're what we did

4:19:13put in there was it's proposed capacity

4:19:15reservation agreement structure. That

4:19:17gets the job done. So, I think you could

4:19:19delete conceptually and I can still live

4:19:21with that.

4:19:22>> Okay.

4:19:24>> Do we want to leave all the details that

4:19:27we discussed about refundability

4:19:30pricing, etc. Just leave those open.

4:19:35>> I'm recommending

4:19:37I don't know. I don't have a like

4:19:38pricing. What are we going to do? We're

4:19:40going to say it should be 50,000 or

4:19:4220,000? I'm not going to have that

4:19:43discussion. Yeah, so I'm going to I

4:19:45would let staff they propose a price. I

4:19:47don't see anything. If they get new

4:19:49information and think that price is

4:19:51wrong, sure they should change it. Um

4:19:55refundability, I'm happy with it being

4:19:56non-refundable as part of the start of

4:19:59it

4:20:00comes back and they decide they want to

4:20:01change it, let us know.

4:20:06>> [clears throat]

4:20:08>> So, the motion has been moved and

4:20:09seconded. Any discussion?

4:20:11Um we're you're discussing it, I guess.

4:20:13>> I guess I'm I'm kind of where I was with

4:20:15the last motion, which I'm I'm not sure

4:20:18if this is helpful enough to City

4:20:20Council.

4:20:21Do do we want to I mean, again, like of

4:20:25course they can read our minutes. Um

4:20:28I thought the last round of minutes were

4:20:30super helpful when the dissenters

4:20:33Commissioner Tucker, explained after the

4:20:35dissent why they dissented. In this

4:20:38case, uh and because that's helpful, it

4:20:40goes into the actual minutes rather

4:20:42than, you know, a transcript you have to

4:20:44listen to or a video.

4:20:45Um

4:20:48So, I

4:20:51I guess I have a recommendation that I

4:20:53think I I think it should be refundable.

4:20:56Without, you know, with the exception of

4:20:59I think it should be, sorry,

4:21:01applicable against future costs minus

4:21:05certain reasonable

4:21:07staff costs

4:21:09and forfeited in the event that the uh

4:21:14the contractee

4:21:17cancels.

4:21:20Would Would you be open to amending?

4:21:25>> It is. Yeah. Is that a friendly

4:21:27amendment? What What call that?

4:21:29>> Well, you're trying to make it a

4:21:29friendly amendment, but I'm not going to

4:21:31accept it. So

4:21:31>> Okay.

4:21:32>> Um

4:21:34because again

4:21:37Why?

4:21:40We could also lower the price and that

4:21:42would do it. But I mean, I think we just

4:21:43need to start somewhere and and keep it

4:21:46simple and this is in a situation we

4:21:48have no idea about competing but we have

4:21:49no real basis to set this price except

4:21:53reasonability. Let's just try it and if

4:21:55people come back

4:21:56and they're saying, "Hey, I I would do

4:21:58this but if you only if you refund it,

4:22:00come back." And then we we can change

4:22:02it.

4:22:02>> If if it's a consensus of the

4:22:04commission, we could just take that as

4:22:06an item as if if they if the if this

4:22:10goes to the economic development

4:22:11committee and moves over to the board

4:22:12with the city council after it's

4:22:13implemented, we understand that you'd

4:22:15like to see it coming back and then

4:22:16understand the success and you know,

4:22:18where where it's been um how it's been

4:22:21applied and if it's it has traction. So

4:22:24we can take that as a

4:22:25>> Or if everybody's saying

4:22:27no I mean, you should come back sooner

4:22:29>> Yep.

4:22:29>> or somehow it's not working out, come

4:22:31back sooner.

4:22:32>> And and what how are we revising it?

4:22:35>> Yeah, I was just going to say that I

4:22:36mean, this isn't really a staff report

4:22:37around the proposal yet, but there were

4:22:40such good questions here with good

4:22:42answers that when you actually write the

4:22:43staff report, maybe even for the

4:22:45economic development

4:22:46committee, certainly for council just

4:22:49put in some of these answers that uh

4:22:52were were surfaced here today and that

4:22:54that just makes it easier to understand.

4:22:56In addition to you're going to be making

4:22:58some changes uh as you think through

4:23:00this

4:23:01on items that are also discussed here,

4:23:03you know, price and refundable or not.

4:23:05So

4:23:05um those those will have to be added

4:23:07anyway.

4:23:09>> Could I just

4:23:10>> Further discussion, sure.

4:23:11>> Just in terms of UAC process, uh someone

4:23:14made the comment "Yeah, let's uh hear

4:23:16back in 1 year."

4:23:18Uh that's great. I would suggest that

4:23:21whenever we talk about something in so

4:23:23much detail

4:23:25it it'd be great if this is the kind of

4:23:27thing that finds its way into the

4:23:29director report uh months down the road

4:23:31where you say, "Remember that that

4:23:33initiative and we're finding this and

4:23:35finding that and we changed this and we

4:23:37did, you know, just keep us posted it

4:23:40through the director's report on topics

4:23:42uh like this or the outage reports a

4:23:45couple of months ago or, you know,

4:23:48just so it doesn't go quiet for an

4:23:51entire year.

4:23:52Um

4:23:53we're very keen as you can tell on some

4:23:55of the details. We don't know the

4:23:56answers, but it would be great to hear

4:24:00um

4:24:01every couple of months as you learn.

4:24:07>> Um

4:24:08any other comments?

4:24:10All right. Call the question.

4:24:16>> Commissioner Metz?

4:24:18>> No.

4:24:21>> Commissioner Tucker?

4:24:23>> Yes.

4:24:24>> Commissioner Croft?

4:24:27>> Yes.

4:24:29>> Commissioner Scharf?

4:24:30>> Yes.

4:24:31>> Vice Chair Phillips?

4:24:32>> Yes.

4:24:34>> Motion passes 4-1.

4:24:38>> Commissioner Metz,

4:24:39do you care to explain the no? You don't

4:24:41have to, but

4:24:43>> Sure. I I think this is very misguided.

4:24:46I think it will raise rates for existing

4:24:50customers behind what we've already

4:24:52predicted.

4:24:53And what we need to do is actually do

4:24:56the math to calculate the incremental

4:24:58cost of such loads and uh subtract that

4:25:01from the incremental of the cost that

4:25:04will future cost that will face without

4:25:06these loads and charge that. And it's

4:25:09practice in quite a few utilities to do

4:25:11something like that to, you know, figure

4:25:14out what uh the the cost will be in the

4:25:17future as as uh Commissioner Croft

4:25:20suggested, you know, getting them to pay

4:25:22that up front and then uh gradually

4:25:25giving it back to them in uh as a refund

4:25:27on their bills over time. Um but I I

4:25:30think this is very misguided because

4:25:32it's going to increase rates for

4:25:34everybody else. It it it for for loads

4:25:37below say 1 or 2 MW, this would be fine.

4:25:41But once you get up to loads that are

4:25:43very significant fraction of our total

4:25:46uh load, uh it's going to be disruptive

4:25:49and cost all the existing rate payers.

4:25:55>> Thank you.

4:25:56Uh

4:25:57any commissioner comments or reports

4:26:00from meetings or events?

4:26:03Commissioner Brown.

4:26:03>> I just had an update that um

4:26:06I participated in the time of use study,

4:26:08as you guys all know, the pilot. And um

4:26:11it was great to see the results

4:26:13presented

4:26:14um

4:26:15recently on how it went. And I just

4:26:18wanted to let people know that I did uh

4:26:20see my own data. I didn't originally

4:26:22know if I

4:26:24saved money or spent more money on the

4:26:26time of use, but I did make an effort to

4:26:28shift my usage. And so what we

4:26:30discovered or what I was told um by Dave

4:26:35and team was that I did save money even

4:26:37though I was projected to lose money.

4:26:40Um using the CPAU kind of calculation,

4:26:44they look at your load uh and your your

4:26:47patterns of usage and estimate how much

4:26:49it'll cost you on time of use, whether

4:26:50you can save money or not. It said,

4:26:52"You're going to actually spend more

4:26:53money on time of use." But shifting my

4:26:55load, I was able to save money. And so I

4:26:58worked with

4:26:59um the team in customer service on their

4:27:02talk track that basically says, you

4:27:04know, they do the little estimate and

4:27:06say that this could cost you more under

4:27:08time of use.

4:27:09But we were able to add, "But if you're

4:27:11able to shift your load, you can

4:27:12actually save money with this." So um

4:27:15I do I am happy that that's how it

4:27:17turned out, and um glad to hear that

4:27:19that's part of the messaging, because I

4:27:21do think

4:27:23if people do shift, that's the whole

4:27:24point, right? We want people to shift

4:27:26their load, and if they do, they can

4:27:27save money. So

4:27:28>> Can you tell us what you shifted?

4:27:30>> I mostly Well, pretty much anything if I

4:27:34I was working in the house, so if I

4:27:37I would to remember. I have a little

4:27:40um notice on my calendar that, you know,

4:27:43the low rate starts at 9:00 a.m. So, I

4:27:45get a ping and it reminds me to plug in

4:27:47the car or, you know, run the dryer or

4:27:50whatever. So, it's just stuff like that,

4:27:52simple stuff. I programmed both both of

4:27:54our cars

4:27:55to time during

4:27:57uh off-peak times. Those were the major

4:28:00things.

4:28:00>> Does anyone know roughly how many people

4:28:02are

4:28:03in this pilot project?

4:28:07>> How

4:28:08120.

4:28:09>> Just so just so it's on the mic, 120.

4:28:12>> Um Is there any progress for the

4:28:14homeowners who have solar?

4:28:18Because I believe they can't they're

4:28:19they're not qualified. They can't

4:28:20because of billing issues.

4:28:23Or maybe we need to agendaize that.

4:28:25>> Yeah, I think we can bring that back,

4:28:27but one of the the issues with solar is

4:28:29that they uh if you're on if you're on a

4:28:31net energy metering, you really don't

4:28:33see that because you get the full price

4:28:34of going back. So, it really is not a

4:28:38a larger value. And we we mentioned that

4:28:40in one of the reports, but we can bring

4:28:41that back if we if you would like to see

4:28:43more information on that.

4:28:46>> At some point we I think we would like

4:28:47to have that but we probably shouldn't

4:28:48discuss it too much.

4:28:50>> Correct the reports.

4:28:53>> Um any other comments?

4:28:55Uh

4:28:57We can now open for virtual public

4:28:59comment for items not on the agenda.

4:29:04>> If anyone would like to make general

4:29:06public comment virtually, please raise

4:29:07your hand on Zoom.

4:29:10We have no requests to speak.

4:29:12>> We are therefore adjourned.

4:29:43>> Mhm.

```*