Gloria L. Young, Executive Officer stated that Mr. Mike Bell from R. W. Beck would be presenting the draft report on Community Aggregation (AB 117). The purpose of the Implementation Plan was to consider and assess whether or not the City and County should proceed with the submittal of a community aggregation implementation plan to the California Public Utilities Commission (CPUC). An initial meeting with R. W. Beck and the San Francisco Public Utilities Commission (SFPUC) staff was held for the purpose of outlining the processes that were involved and at least one scoping meeting with legal counsel, Nancy Miller was held. Ms. Young and Ms. Miller also participated in several conference calls with Mr. Bell and with Mr. Ed Smeloff and Ms. Anne Selting from the SFPUC regarding outlining the process. An additional meeting was held this week regarding additional concerns and comments that would be brought forth at this hearing.
Mr. Mike Bell, R. W. Beck, described the contents of the Final Draft Report on Community Aggregation, conclusions, implementation plan requirements, and recommendations. Copies are available for review and purchase ($25.00 per copy) at the Clerk of the Board’s Office, Room 244, City Hall, and on the website at www.sfgov.org/lafco.
Commissioner Schmeltzer asked Mr. Bell to detail Section 3 of the report that indicates because of the load shape in San Francisco, there would be little economic benefit to San Francisco, and what factors led to the statement that there is an economic benefit. There was also a chart that showed the estimated benefit for each year starting in 2005 to 2017 that showed those economic benefits getting progressively smaller and then reversing and becoming negatives.
Mr. Bell stated that with the climate in San Francisco and it being as much a winter-peaking utility as a summer-peaking utility, he expected to see a greater difference in terms of the load shape between San Francisco and PG&E and expected to find that those prices would be quite a bit different. The peak load in San Francisco is relatively short and not of very long duration, which is what is expected. In contrasting that to the PG&E load where you will see that the peak is higher and of longer duration, it was expected that the pricing would show a distinct advantage for the San Francisco load over the PG&E load. This data was run against data from the State Power Exchange and the ISO. Those prices during times were so out of whack that they might be just as high during intermediate or base periods as during peak load periods. Using that information really didn’t give consistent results. The analysis was looked at four different ways and the same answer was reached each time. There was little difference based on the load factors for San Francisco versus PG&E. Not having the actual PG&E data or customer mix for San Francisco made it difficult to reach conclusions. Based on the analysis that was done, the worst case was a wash. This information should be reviewed further once it is available from PG&E.
Commissioner Schmeltzer asked to explain how we get from that point of saying that the difference in pricing because of the different load shapes really doesn’t result in much of a savings to the point of what else is different that would result in price savings.
Mr. Bell stated that when they encountered that problem, they looked at the existing loads and sales and based it upon what the City of San Francisco could achieve if it were to go out in the market and acquire resources to meet their load and what kind of credit the City and County would receive from PG&E if it were a direct access customer. The reason they asked that question was because the data that was available from the Public Utilities Commission with regard to a direct access customer receiving a credit from PG&E should be pretty close in logic to what they would determine for community aggregation. So they took the existing tariff that PG&E has for direct access, looked at that credit and compared it to what the City and County could acquire resources for on their own. That resulted in those savings. As prices change over time, the amount of those savings decline.
The chart shows that in the very late years there is a negative number. That is due to the pricing changes over time. There is no impact in that analysis for either one of two things (1) the resources that the City itself would have available for its own use such as a portion of the Hetchy Hetchy power which would be lower than those prices or (2) the Williams’ generators which are contractually obligated for a period of time to the state but would revert to the City’s use over time. He is confident that based upon the CPUC’s rulings to date as well as the City’s ability to utilize their own resources, that those savings would exist over a longer period of time. The other unknown was what happens with the PG&E resources and their efforts to get those out of the regulated environment. His opinion is that should the PG&E hydro and nuclear resources go into a deregulated environment, those prices would be higher and the savings greater. For those reasons, the analysis is pretty conservative assuming the City purchases all of its power in the short-term market when in reality it is likely the City will have other options available to it for use of its own resources.
Nancy Miller, Esquire stated the following: She wanted to go through the rationale for the determination that the SFPUC would be the best governance structure selected to go forward with an implementation plan. There are six options reviewed in the report that are stated in Section 2 that ranged from SFPUC to using another internal City department to the actual creation of a separate Municipal Utility District. Ms. Miller and Ms. Young concurred with R. W. Beck’s recommendation that what the CPUC will be looking at in an implementation plan is a governance structure that provides stability, has experience, a track record, and experienced staff.
San Francisco would want local control, accountability, and to provide community aggregation in the most efficient manner. It would be most beneficial to have existing resources that can be used that does not cause additional expense or time. This report deals with community aggregation only. From a legal standpoint it makes sense to use an existing department within the City and County. That is why from a legal analysis, it has been determined that SFPUC would be the most appropriate agency. There might be changes based upon the CPUC recommendations because their regulations have not promulgated yet. There might be advantages to pooling, which may lead to joint power arrangements or larger contracts than with the City of San Francisco alone. The next step, which is the preparation of the Implementation Plan should be done as soon as possible and with an existing department, the SFPUC.
Commissioner Fellman stated that there was a recommendation in the report that the LAFCo make the decisions regarding the recommended structure.
Ms. Miller stated that a discussion was held about the proper role of the LAFCo. The LAFCo can prepare studies and make recommendations, but is not the actual entity that makes this decision. The determination of whether or not an implementation plan goes forward would be one of the Board of Supervisors through studies and their resolution process. LAFCo can make a recommendation to the Board, but would not be selecting the governance entity.
Commissioner Schmeltzer stated that in the recommended next steps in the conclusion of the report, there are a lot of things that the LAFCo would do and asked if this section should be revised.
Ms. Miller stated that it should be clarified.
Commissioner Ammiano stated the PUC can take the lead, but it really is not an agency process. It is a counsel project and there are three other departments that are involved in advising the PUC such as the Department of the Environment, etc.
Ms. Miller stated that is correct and there is actually a Commission that governs the PUC that would have to approve the implementation plan as well.
Chairperson Commissioner Gonzalez asked Ms. Miller to elaborate about her reference to the bond covenants as one of the disadvantages to relying on the SFPUC.
Ms. Miller stated it is one of the disadvantages, but is not a large disadvantage because we don’t know the financing, and this project would not typically be initiated with bonds. Typically, an aggregation project would be initiated in small increments. You might do a neighborhood at a time or perhaps a pilot program. But down the road should you decide that you want significant funding for large purchases or certain improvements, then there are bond covenants and restrictions that are in your Charter that may make it necessary to amend the Charter.
Chairperson Commissioner Gonzalez stated that Ms. Miller’s remarks that amending the Charter would require voter approval should not be part of the analysis because it may not be that easy to get around.
Ms. Miller asked if that is because it looks as if it is a disadvantage when it isn’t initially?
Chairperson Commissioner Gonzalez stated that If it is a disadvantage for that reason, he would be interested in knowing how the SFPUC under the current Charter would circumvent this bond limitation to do some of the things that we might want in aggregation like expending larger amounts of money for greater savings, etc. Ms. Miller stated that she did not think it was very much of a disadvantage. Is that because Ms. Miller thinks we could just go to the Charter and change it or because there are ways to circumvent the limitations.
Ms. Miller stated that initially you wouldn’t be issuing any bonds in terms of your implementation of this project because you would start small. You would not start with a large bond issue and then build up your public acceptance of the program of community aggregation so that bonding would be down the road. To the extent that you may need bonding, then you would get to that question. You don’t need to make that decision initially because you won’t be going out for bonds.
Commissioner Schmeltzer asked if there would be a City Charter change required just to start this program.
Ms. Miller stated that she does not believe a significant Charter change would be needed. The SFPUC currently has the ability to operate, maintain, use and as cited in the report, the authority. There may need to be a Charter change if you are purchasing power. That is in the report as a possibility. That would also be true for some of your other City departments. A lot of time has not been spent with that particular issue because the next governance in terms of a Joint Power Agreement (JPA) and Municipal Utility District (MUD) would require larger legal analysis and involvement.
Chairperson Commissioner Gonzalez stated that he was concerned with Ms. Miller’s use of "not a significant Charter change." You either have a Charter change or you don’t. Either the City needs a Charter amendment in order to engage in purchasing power or it doesn’t. That is something that we definitely need a clear answer on.
Ms. Miller stated that she thought a Charter change was required and stated that in the report in Section 2, page 2.2 under the heading "Utilize SFPUC Hetch Hetchy."
Commissioner Ammiano stated again, t is the casting of the PUC as the agency as if this is an agency process and taking the lead. They are not going to offer any contracts. The contracts would be let out by the advisory departments, not the PUC. That would not require a Charter amendment. The assumption of incremental—that has never happened and that is not what the plan is going to be.
Ms. Miller stated that she assumed that on the Implementation Plan you wouldn’t suddenly go to all neighborhoods and would gradually phase it in. Certainly, there are other options.
Chairperson Commissioner Gonzalez asked Ms. Miller to cite the Charter Section that purchasing energy violates. Sections 3.100 and 4.112 were cited.
Ms. Miller stated 3.100. It says that the SFPUC has exclusive responsibility for overseeing the construction, management, supervision, maintenance, extension, operation, use and control of all water and energy supplies and utilities for the City and County.
Chairperson Commissioner Gonzalez asked if Ms. Miller was interpreting that to be a prohibition from purchasing energy.
Ms. Miller stated she is not interpreting that to be a prohibition, but as not current providing the SFPUC with the authority to purchase power.
Chairperson Commissioner Gonzalez asked if Ms. Miller was interpreting it as prohibition because there is not express language to that effect.
Ms. Miller stated that perhaps you already have determined internally that you have that implied power, but could find nothing that showed that. Hetch Hetchy as one of its departments does have the authority to purchase power for municipal purposes.
Chairperson Commissioner Gonzalez asked why this wouldn’t fit under that category.
Ms. Miller stated because now we are talking about residential and commercial purposes.
Chairperson Commissioner Gonzalez asked about Section 4.112.
Ms. Miller stated that Section 4.112 refers to the Charter section as well that refers to the Hetchy Hetchy Water and Engineering Bureau—how the Department is comprised.
Mr. Bell stated that Ms. Miller and R. W. Beck’s review consisted of looking at the overall documents. The City and County has existing legal bond counsel. There are certain provisions such as those that should be looked at. His personal belief is that they don’t present hurdles that can’t be overcome, but there are still questions that ought to be asked of those professionals that work daily with City codes, Charter and bond resolution.
Chairperson Commissioner Gonzalez stated that to essentially reach that conclusion and to cite the Charter sections without really flushing it out, particularly when you are making the recommendation that the SFPUC should do this, poses problems and needs to be flushed out.
Mr. Bell stated there are things that should be looked at further as the process moves along.
Ms. Miller stated that she sent this analysis to the City Attorney’s Office and would correct the Draft Report within the next couple of weeks if there is an error.
Commissioner Ammiano stated it is not an agency process. PUC can take the lead, but it is a counsel process and the other three departments in terms of what they advise and the contracts they let out takes care of the issue. I don’t mind the emphasis but I am not sure you are making an error necessarily. I also think the focus on what might be potentially a problem is overstated.
Ms. Miller stated it might be overstated. If in fact that is the case and there is a way to avoid that through contract, then the portions of the report should be changed to state that.
Commissioner Fellman stated that the LAFCo has to keep it under the umbrella of the community aggregation provisions in AB 117 in order to accomplish the community aggregation objectives and comply with the CPUC requirements.
Ed Smeloff, Public Utilities Commission commented as follows: They have not had a full opportunity to review the document and would like to reserve the right to provide the Commission with written comments and observations. The SFPUC through the Hetch Hetchy Department does purchase power in the wholesale market on a routine basis. It does that on a short-term basis to meet the obligations it has to serve municipal customers in San Francisco, and serves private customers in San Francisco under an agreement with PG&E. For example, it serves United Airlines, the Dry Dock, other tenants at the Airport Unport properties. We do buy power long term. We bought a five-year purchase power contract with Calpine. There may be an issue as to whether or not as part of community aggregation, the PUC, Hetch Hetchy, or Weber becomes the implementing agency that can enter into a multiple year contract without the annual appropriations of the budget process. We had to get a waiver so that we could enter into the contract with Calpine.
In addition to doing community aggregation, you need to procure the commodity. There is some logic to the SFPUC doing that since we do that already on behalf of municipal customers. Beyond that, you also have to schedule electricity on a daily basis through the ISO to make sure the precise amounts that are required in San Francisco are actually put onto the grid at the proper times. Currently for the municipal customers, we get that service through PG&E. It would be possible for the City to self provide that but would require additional staffing. We do work closely with the ISO. Alternatively, you could contract it out to a third party to do your daily scheduling.
Mr. Smeloff made general comments about the report as follows. We concur with the conclusions. It is a policy question of whether or not it be the SFPUC or another agency. The SFPUC brings certain resources such as its experience with managing the Hetchy Hetchy water and power system, its experience working with the ISO and scheduling power, and its knowledge of the wholesale market. On the other hand, there are important considerations that you need to take into account if you want to move forward with community aggregation. Hetch Hetchy power is currently reserved first for municipal load. As municipal load grows, as we add new City buildings or expand things at the Airport, that would get a first priority on Hetch Hetchy power. We do have a transmission agreement with PG&E through 2015 that provides a way of getting that power for municipal purposes and assigning customers into San Francisco. We would need to work out a separate Wheeling arrangement or transmission arrangement with PG&E as part of community aggregation.
The critical issue and one that the CPUC will make a decision on would be what the so called generation credit or direct access credit is. Another way to think of what that is is that is the price to beat--it is the discount. If the credit that we get is five cents a kilowatt hour, we would have to procure the commodity at below that price to obtain a price reduction for San Francisco customers. If you were choosing to do community aggregation solely on getting a price break, the decision as to what the generation credit still needs to be would be made by the CPUC. In this report, they took the existing direct access credit which was used when we had direct access to be able to calculate what the potential benefits of community aggregation would be. We need to do additional research. We have sent a letter to the five commissioners of the CPUC making recommendations that they open up a docket on community aggregation as soon as possible so that we can set the rules that to the extent possible it all be consolidated into one docket. There will be some things that will be reviewed by the CPUC in other proceedings. To make it easier for other cities, having one point where these issues are determined makes sense. Thirdly, we recommended to the CPUC that they immediately provide direction to PG&E on what data they should make available to cities like San Francisco. We think they have made some progress because of sympathetic responses from the Commissioners and expect to meet with key staff to determine what that is.
We would like to know how many customers there are in each customer rate class in San Francisco and the amount of revenues from those customers. One of the important things that you will need to know before moving forward on community aggregation is a good estimate of how many customers and what load requirements would opt out. You don’t want to buy too much and end up having customers say we don’t want to be served by community aggregation. You would then be left with stranded costs. You need to do market research and really understand what customers would be most likely to opt out. We need to get that information from PG&E and from our own research.
We think that R. W. Beck has recommended an aggressive implementation schedule. If things start now, we are talking about 2005 as a possibility. If you do choose to ask the SFPUC to do this, we are going to have to look at what resources would be required in terms of staffing and any professional service contracts or advice that we would need in order to move forward with the implementation plan. We’ve been working and building a coalition of other cities that is important to be able to get the CPUC to act. There is now an active coalition of cities both in Northern and Southern California that are interested in this issue and are meeting on a regular basis and working together with the CPUC.
Ms. Young stated that we did try to change every area in the report having SFLAFCo as being the deciding factor and changing it to the City and County. The Executive Summary was redone right before changes were made so it still reflects the SFLAFCo. In addition, any Commissioner or Public comments made today will be forwarded to R. W. Beck for review. Written comments will also be accepted and will be forwarded to R. W. Beck for analysis and inclusion in the report.
Commissioner Fellman asked Ms. Young for a sense of process for obtaining hard copies or reading the document on the web. Today’s public comments do not have to be the definitive public comments on the report. We will be accepting public comment both in written and oral form and taking action on adopting a final report in the future.
Ms. Young stated that is correct. We have three public copies of the report that are available for the public to review at today’s public hearing. Members of the public may also access the Draft Report on the web site or may review a copy at the Clerk of the Board’s Office, Room 244. Copies are available for purchase for $25.00.
Commissioner Fellman stated that the report is labeled the AB 117 Implementation Plan, but in fact it is really an analysis and not the statutory implementation plan that is contemplated under AB 117.
Mr. Bell stated that the title was taken from an earlier draft of the scope. The final Report’s title would be adjusted so that it doesn’t appear that it is the actual implementation plan itself.
Public Comment
Mr. Dennis Mosgofian, delegate to the San Francisco Labor Council, representative of Local 4, the Newspaper Pressman’s Local commented as follows. He is speaking as part of a group of public power advocates for aggregation. He hasn’t read the report. He stated that it struck him as particularly odd that in the list of the grounds that established the interest in aggregation, what was left out was the overall community outrage at PG&E that occurred two years ago. It should be included that cumulatively the public was outraged and probably at a less vocal level still is given especially the latest move by the PG&E and the CPUC. The next thing that was noticed that was probably incorrect and because the R. W. Beck study had a narrower view than the public was the notion that Ms. Miller put forward that the City would in establishing aggregation start small with one neighborhood at a time. He has not heard that concept before from anybody who has either been advocating aggregation or any other aspect of efficiency renewables in public power or local control. It doesn’t make any sense. The remark that we would have to gradually earn public acceptance--AB 117 has already been adopted by the legislature. That reflects public acceptance and Proposition H which established the ability of the City to enter into the renewables established public acceptance of moving forward on local control and changing the form of energy. The City should move forward in a global way, not one neighborhood at a time.
Mr. Robin David stated he is pleased with the report. It is clear from the summary that the door is open. It invites us to move forward and that the main problems or things that need to happen are acts of political will. All of the questions that have been raised should be answered by moving in a decisive way. I think the report invites LAFCo and the Board of Supervisors to do that. The question that Supervisor Ammiano dealt with at least in a general way was the question of Charter amendments. Supervisor Gonzalez said either it is or it isn’t. The fact that the Board of Supervisors can move and that is the whole framework of AB117 takes up the question of whether you need Charter amendments and whether you can purchase. Mr. Ed Smeloff discussed that as well. Now we just have to begin to take those steps to make it happen. He is also active with the group that Mr. Mosgofian spoke of and would be happy and anxious to support whatever moves are made in that direction.
The one clarification that is needed is that on one hand the R. W. Beck report says that there are ten to thirty million dollars to be saved and the only reference in the summary is that it is not in the shape of the load. Where is it going to be? Where the savings are should be clear in the report. In terms of broad acceptance, that is the decisive question. Will this save a customer money over what PG&E does? Gas prices, market prices. All of that is really a wash. PG&E buys gas. PG&E buys power. We would have to buy power. We have to establish that in eliminating the return to shareholders and the efficiencies that we could make here in the City that PG&E has no interest in making, would bring about a savings. It is important that that be emphasized in the presentation to the public.
Mr. Joe Boss stated that getting this report done is such a great step forward. We could sit and talk about how bad things have been and how evil people and evil forces come upon us. All we can do is move forward and really help San Francisco gain independence and environmental justice and everything else that goes along with it.
Mr. John Quinley from Novato stated that he has learned that with regard to posting a bond because there is a possibility of reentry charges, that the smaller cities that he has talked to would "freak out" at the thought of doing this. Isn’t it possible that if the CPUC structures the rates correctly so that PG&E still collects all of the charges that it now collects from the Department of Water Resources (DWR) and other areas that there will be no reentry costs?
Mr. Bell stated that bonding is a decision of the California Public Utilities Commission. It is possible that given the structure and whatever arrangements may be made with PG&E that there wouldn’t be bonding requirements. In most cases, in other similar areas particularly with regard to the Power Exchange or the ISO, there have been bonding requirements required of cities. Typically, that hasn’t been too difficult to work around. That came up when the Power Exchange was first formed. Those issues can be resolved. With respect to the exit or reentry fees at a minimum, there probably would be some administrative or other type of costs that would be associated with customers moving back and forth. I would be surprised if the CPUC did not have an allowance for exit or reentry fees. The question would become how large those would be. To the extent Mr. Quigley identified that the consumer is covered one way or the other with paying those, those fees may not be more than an administrative fee. Those are questions that would be worked out as the CPUC works its way through the process of reviewing these programs.
Public Comment Closed
Ms. Young stated the meeting on July 25th is set up from 2:00 – 4:00 to discuss energy conservation and wind power. We would have to select another date to allow the public to submit written comments and allow R. W. Beck to finalize the report. If we allow members of the public to submit written comments by July 1st, then we could have the hearing on Friday, August 8th or 15th. We would also be hearing a draft of the Feasibility Study that R. W. Beck is working on regarding the assets of PG&E at that time.
Commissioner Fellman requested that we allow a thirty-day public comment period for written comments.
Ms. Young stated that the public comment period would be through Friday, July 25th which would allow R. W. Beck if we had the hearing on August 15th, three weeks to turn around the final report. The public would have until Friday, July 25th to comment on the report in writing to our office either through e-mail and or mail to the Executive Officer of LAFCo. The notices for the August 15th hearing would be posted on the web.
Commissioner Schmeltzer asked if anybody who wanted to could bring written comments to the meeting of July 25th?
Ms. Young stated they could submit comments during the general public comment period at the end of the hearing.