October 03, 2003

Chairperson Commissioner Gonzalez called the meeting to order at 10:14 a.m.

Members Present: Chairperson Commissioner Gonzalez, Vice-Chairperson Commissioner McGoldrick, Commissioners Ammiano and Fellman.

Members Absent: Commissioners Hall and Schmeltzer.

Gloria L. Young, Executive Officer and Nancy Miller, Esquire, present.

Commissioner Ammiano moved to approve the August 15, 2003 public hearing minutes; Commissioner Fellman seconded. No public comment. The minutes were approved with no objection. Absent: Commissioners Hall and Schmeltzer.

Gloria L. Young, Executive Officer reported that Mr. Mike Bell, from R. W. Beck would be presenting the recommendations and findings from the Draft Report on the Electric Financial Feasibility Study. The report was released last week and posted on the LAFCo website. She recommended that the LAFCo Commission set a future public hearing date for public feedback on the report and set a deadline date for public comment. A date would then be set for the Commission to approve the Final Electric Financial Feasibility Study.

Chairperson Commissioner Gonzalez asked if November 14 would be the scheduled hearing date, December 5 as the deadline for written public comment, and December 19 as a date to approve the final plan.

Ms. Young stated that the Commission could cancel the scheduled LAFCo meeting of December 5 if there are no items. November 14 would be the public hearing date for this report and December 5 may be the deadline for public comment.

Nancy L. Miller, Esquire confirmed that would be the public hearing process that should occur in order to allow sufficient public comment.

Mr. Mike Bell, R. W. Beck discussed the original Energy Services Study prepared in July of 2002 along with Henwood Energy Resources and Flynn Resources that looked at the various energy options for the City and County of San Francisco, evaluated those options, identified risks, benefits, and associated issues. That study laid the groundwork for the second study, the AB117 Assessment Report that was completed in August and on the calendar for adoption today.

ELECTRIC FINANCIAL FEASIBILITY STUDY OVERVIEW

The Draft Electric Financial Feasibility Study being discussed today is focused on the financial feasibility of acquiring the transmission and distribution system within the City and County of San Francisco. This study looks at the technical assessment of the system facilities itself and economic analysis of what the economics would be to acquire those facilities, a section on risk management issues that would need to be considered should the City and County move forward, and conclusions and recommendations.

TECHNICAL ASSESSMENT

On the technical assessment, R. W. Beck looked at the transmission facilities in the City which consists of five 115 kV circuits and two 230 kV circuits. Six substations were also looked at within the City as identified here that vary anywhere from 230 kV down to 12 kV stations.

Distribution facilities within the City: It is important to note that a complete evaluation of the system was not done. It was looked at to come up with a high-level planning assessment of what those costs would be. That included looking at the 4 kV distribution system and evaluating that throughout the City. About 75 percent of the system in the City is about 4 kV, twelve kV distribution system as well as the network system that serves the downtown urban part of the City.

Question: Chairperson Commissioner Gonzalez confirmed with Mr. Bell that a detailed appraisal was not done as part of this report.

Answer: Mr. Bell stated that an appraisal at this stage would not be a cost effective thing to do. You would want to find out the range of value here and determine whether it made sense to incur the cost of doing an appraisal which is a time-consuming and costly effort.

Statement: Chairperson Commissioner Gonzalez stated that there are cost analysis in the report and potential ranges that are accurate in that they provide some measure.

Answer: Mr. Bell stated it is an actual physical on-site review of the system and facilities, the transmission distribution substations, etc. They have high confidence that the value of the system identified is in the range identified in this report. There was considerable work done in setting the bookends from the low end of the value to the high end of the value.

Generation: R. W. Beck also looked at Hunter’s Point Units 1 and 4. There was some consideration of those costs later in this analysis.

Estimate of System Value: In order to come up with the system value, a couple of different methodologies were used. They looked at the original cost less depreciation or what the book value of the system would be less depreciation. They also looked at reproduction costs new less depreciation. Historically as acquisitions have moved forward, those have provided boundaries or the guidelines by which ultimate value is assessed. Typically, the original cost is the low end. The calculation and reproduction costs are the high end of the calculation. They also looked at a couple of different depreciation methods--one being straight line depreciation and the other present worth or sinking fund depreciation. That ultimately makes a difference in the value.

Question: Chairperson Commissioner Gonzalez asked if the straight line depreciation present worth are subsets of the other two.

Answer: Mr. Bell stated yes. The low value is original cost at a straight line depreciation. The high end of the value is the reproduction cost with present worth depreciation. They tried to establish what those bookends are from what the low cost value is to what is the highest using accepted evaluation and depreciation methodologies. If there is a contested acquisition, these are issues that take a lot of time in terms of establishing what the overall value of the system is.

System Value: Using those boundaries, the system value that was established was from the low amount of $600,000,000 up to the high amount of $1,400,000,000. The lower value was used at original cost with straight-line depreciation. The high value, the $1,400,000,000 would be reproduction costs new at the present worth depreciation. That’s quite a difference there. That’s not unusual. When these studies were performed and different methodologies used, it’s not unusual to see a three to one difference between the low valuation and the high valuations.

Vice-Chairperson Commissioner McGoldrick asked Mr. Bell if he would be discussing the possible severance costs.

Severance Cost: Mr. Bell stated the next issue looked at in the technical assessment was the calculation of severance cost. They actually looked at three different cases with regard to severance. The least cost method would be establishing fringe agreements with PG&E to service customers that are right on the fringe of the San Francisco/San Mateo line. There are a number of customers where power lines do not necessarily follow City boundaries. They move back and forth, in and out of the City and County between San Francisco and San Mateo. Fringe Agreement analysis or costs would assume that the City and County would work in agreement with PG&E whereby there would be no or little change in the physical construction of those facilities that the billing of customers in that area would be handled mostly through paper transaction. That is not unusual in terms of electric service areas that abut up against one another. However, in the case of an acquisition, particularly if the seller is unwilling, those fringe agreements are generally difficult to obtain.

They also looked at another evaluation of severance which was primary metering which was rather than severing and cutting those lines every where the City and County border exists, they would put meters in place at the 4 kV and 12 kV levels to measure the electricity flow and ultimately the billing through those facilities. As you can see from this analysis, that is roughly 3.8 million dollars in order to accomplish that severance at a primary metering level.

The cost of complete separation is 42.7 or 42.8 million dollars. That would be total and complete severance. Essentially, the City and County of San Francisco serving every facility within the City and County and then PG&E serving every facility south of San Mateo. There is a big difference in those figures depending upon which option is ultimately employed.

Question: Vice-Chairperson Commissioner McGoldrick asked Mr. Bell if he was talking about the possible severance and metering beginning north of the Martin substation and within the City.

Mr. Bell stated that was correct.

Question: Vice-Chairperson Commissioner McGoldrick asked if the cost would be seven or eight million.

Answer: Mr. Bell stated that the full severance is 42; the 4-kV metering would be 3.8.

ECONOMIC ANALYSIS

Major Assumptions: The major assumptions that went into the economic analysis within the report were identified. For the power supply component, the California Energy Commission forecast done in May of this year was used. For the distribution system costs, the PG&E general rate case for 2003 filed in August was used. They essentially used the PG&E distribution rates. Transmission component—the California Independent System Operator Tariffs were used in order to calculate those charges. They also looked at a range of customer responsibility surcharges or more commonly known as non bypassable charges. Those include the California Department of Water Resources contract costs, bond repayment costs for power supply procurement, and a number of other items including:

• Nuclear decommissioning costs;
• Trail competitive transition charge, which is essentially the qualifying charges for PG&E;
• FTA charges, which is the bond repayment on the 10 percent cost reduction of PG&E’s rates some time ago;
• Public purpose programs--the public purpose charges, the 2.85 percent that are ongoing in the PG&E rates.

Those were the major assumptions used in calculating the economic analysis.

Base Case Results: The results of the economic analysis the low cost case where you had the $600,000,000 acquisition price and the 1.9 million fringe area severance cost worked out to be 1.6 billion dollars in twenty-year net present value costs. The mid-cost range where you are assuming a $1,000,000,000 acquisition cost and the 3.8 million severance resulted in 1.3 billion present value savings. The high cost valuation at $1.4 billion with the high-cost severance of 42.8 million resulted in $823 million in present value savings. They thought there was quite a range on these numbers.

Question: Vice-Chairperson Commissioner McGoldrick asked what the period of time was.

Answer: Mr. Bell stated over twenty years.

Sensitivity Analysis: The next thing they thought that would be helpful to do would be to run some sensitivity to see if some of those assumptions were changed, what would happen to the bottom-line results. They ran two sensitivity cases. The first scenario they ran they assumed that the Energy Commission’s forecast decreased by 20 percent in terms of power-supply costs. They assumed a fairly high growth level of two percent for San Francisco load, and they used the low cost valuation or the 600 million acquisition. This is extreme low-end sensitivity.

The second scenario they went to the opposite extreme. Let’s assume that the Energy Commission forecast is low and increase those prices by 20 percent. Let’s assume over the twenty-year period that there is no load growth in San Francisco—that the existing load stays the same as today and let’s use the high-cost valuation and high-cost severance cost. Both of those scenarios were run.

Sensitivity Analysis Results: Under that analysis, the Scenario 1 which was the low cost, the savings actually increased to $2.575 billion. Under the assumption that the energy cost increased and the load growth stayed stagnant, there is actually a net present value loss of $104 million in that case. Essentially, the high to low was taken and they expanded those extremes out even further to see what would happen with the analysis.

RISK MANAGEMENT

There is a section in the report dedicated to risk management. As part of other work that R. W. Beck is performing for the San Francisco Public Utilities Commission, they are doing risk management analysis for the PUC and want to identify some of the work that is taking place on that front and how it applies to risk issues associated with this study. They are about to start Phase 2 of the study with the PUC where they are doing an enterprise-wide risk assessment. That second phase is the risk management strategy for existing resources with the PUC. The part of that work will also establish the risk matrices and quantitative tools to be used to manage risk within the PUC, the development of a policy and procedure manual and ultimately implementation support. That’s important in that the PUC already recognized, absent this whole process, that they need to be able to manage their risk particularly associated with Hetch Hetchy and existing resources, existing contracts, and manage those effectively. This whole scenario adds a lot of complexity and a whole new dynamic to that.

High-Level Risk Inventory: Issues were identified from a risk management standpoint that the wires acquisition would need to be introduced into the equation. Those would include:

• Volumetric risks such as power generation and energy sales;
• Market Price risks such as the price of gas to fuel power plants and the price of power in the market
• Operational risk in terms of running a transmission and distribution system;
• Regulatory risk in terms of orders and legislation that may get passed from time to time that has an impact on the system;
• Institutional risk such as working with contracts with other entities and making certain adequate credit provisions are there so it doesn’t create a danger to the City and County in terms of working with others;
• Delivery risk—transmission and distribution services within the City;
• Political risk in terms of those issues that impact particularly public organizations.

Question: Commissioner Fellman stated that Mr. Bell had identified the risks and asked him to identify what the underlying assumptions were with the type of control that the City and County would impose on the transmission system. Was it being assumed that there would be community aggregation, or municipal utility, or the City and County would buy the lines and let PG&E service its customers?

Mr. Bell stated for purposes of the work that they are doing now for the PUC, that deals with the system as it is today without any of these issues moving forward. It is essentially how would they manage their risk in today’s environment to successfully establish the policies and procedures necessary to run that business day to day. Today, he is identifying the fact that if the City and County moves forward with acquisition, there are additional issues from a risk standpoint that would need to be addressed, assessed, and planned for. These are an example of what those would be.

Commissioner Fellman asked if an underlying assumption is that the City and County of San Francisco would be serving the customer’s load.

Mr. Bell stated in this case, yes. The transmission piece is through the CALISO; the distribution piece would be the City itself. That’s how that analysis was used within this report.

Commissioner Fellman asked who would be the load-serving entity for the City and County residents should the City and County choose to take over the system.

Mr. Bell stated in this report, the assumption is that the City and County is serving the load of all of the accounts within the City and County.

Commissioner Fellman asked if that step would have to be taken as a precursor to initiating acquisition and triggering the analysis that was done.

Mr. Bell stated that if he is understanding the question correctly, the answer is yes.

Commissioner Fellman stated that that the City and County would have to take a step of establishing itself as a load-serving entity in order to serve the customer. Once it did that, it would take another step—then it would be a two-step process before we could look at the acquisition.

Mr. Bell stated that was correct.

CONCLUSIONS AND RECOMMENDATIONS

The economic analysis indicates that there are substantial savings almost under every alternative that was looked at. The only one that didn’t show net present value savings was the one where we increase the CEC forecast by 20 percent and held the load growth constant under the most costly scenario. City-owned resources could potentially provide savings in addition to that amount. They did not factor in at this point the Williams turbines or the Hetch Hetchy power that may be available to the City. What they tried to do in this analysis is basically be as conservative as possible in coming up with the forecast. Purchase of the system increases the City’s control over investments and reliability. That is something that provides the City with the greater opportunity to manage its future, not so much as the power-supply is concerned, but also the transmission distribution side of the system. The age and condition of the system presents risk. This point would need to be considered and thought through particularly as it relates to acquisition price.

The age of the system in San Francisco appears to be considerably older than the PG&E system average. The PG&E system average if you take a look at their Federal Energy Regulatory Commission filings would indicate that it is about 1987 or thereabouts in terms of the system average. Much of the system in San Francisco was built in the 50’s and 60’s and a lot of it is old 4 kV distribution facilities. One of the concerns that need to be considered is the cost of repair, replacement, and renewal of those facilities. It is going to be more costly to do that work given the age and condition of the system than buying something that is relatively a new resource. The overall consideration that needs to be highlighted and given some thought particularly as it relates to acquisition price.

Changes in load, market prices, retail rates, and other cost impact the savings. As you vary those assumptions, that also has an impact over what those savings amounts are. As you can tell from the analysis that was done, they stretched those pretty far in terms of the scenario analysis.

It is unlikely there will be a willing seller in this case, which adds all kinds of other additional risks in terms of acquisition. The process would likely be lengthy and costly and should the City and County desire to move forward, they would need to be pretty certain that there is full commitment to take on that kind of opposition.

Recommendations: Given the outcome of the economic analysis and the projected savings, it would be worthwhile to proceed with a more detailed appraisal of the existing system to narrow those boundaries in terms of acquisition price and severance cost to what might be a more likely actual cost of acquisition. There are two reasons—1) the economic benefit; and 2) an appraisal would be beneficial in terms of determining which facilities should be acquired at what price in the process. The age and condition of certain parts of the system are pretty old and as part of the appraisal process you might want to look at actually overbuilding or creating some new services as part of that process should it move forward.

Question: Chairperson Commissioner Gonzalez asked what the life span is of a detailed appraisal?

Answer: Mr. Bell asked if that means how long the appraisal would be accurate?

Statement: Chairperson Commissioner Gonzalez stated that was correct.

Answer: Mr. Bell stated a system of this size and when most of the facilities were put in, the appraisal would probably be good for about five years or longer. It wouldn’t be that difficult to update. Once you have that information in that database it would be easier in five or seven to eight years and go back and update it. It wouldn’t be nearly what the initial cost would be.

Question: Chairperson Commissioner Gonzalez asked if a cost could be assigned to that recommendation or who would do an appraisal.

Answer: Mr. Bell stated he would go to their appraisal division and come back with a cost and time estimate and report back at the next meeting.

The final recommendation is that he does not believe this study has an impact on the AB 117 aggregation. These issues are above and beyond that. They recommended that that process work forward at its own pace. This should not limit that or have an impact on that particular schedule.

Question: Commissioner Fellman asked a question regarding the relationship of the AB117 work to an acquisition. Under AB 117, would the City have the right to do the acquisition and continue as a community choice aggregator?

Answer: Mr. Bell stated that his interpretation would be that the City doesn’t under AB117 have the right for the wires acquisition. That is a separate process. But the City under AB117 could become the power supply component of the billing. The process regarding transmission distribution customer services and care is outside of that process.

Question: Commissioner Fellman asked if AB117 precludes the government entity from acquiring the distribution and transmission.

Answer: Ms. Miller stated that it does not preclude it. She agreed with Mr. Bell in terms of parallel processes--you could be going forward with both.

Question: Vice-Chairperson Commissioner McGoldrick stated that he understands that there is a 96% chance that we would break even or actually save money if there is a 2.6 billion figure at the top end and a 100 million figure at the bottom end. That spread of numbers equals a 96 percent chance of coming out in the black.

Answer: Mr. Bell stated that he had not calculated the percent but given the results that we see, it is definitely up that high.

Statement: Vice-Chairperson Commissioner McGoldrick stated that is a positive indication in terms of savings.

Statement: Mr. Bell stated particularly given the assumptions are as conservative as they are.

Statement: Vice-Chairperson Commissioner McGoldrick stated even looking at the most conservative figures, we have a 96 percent chance of being ahead by a dollar or ahead up to 2.6 billion.

Chairperson Commissioner Gonzalez thanked R. W. Beck for their outstanding work.

R. W. Beck’s presentation is available at the Clerk of the Board’s Office, Room 244, City Hall.

Public Comment

Mr. Matt Lonner, PG&E Government Affairs, stated that when he last testified before LAFCo, he recommended against funding of the study on the basis that municipalization of the system would not benefit the City as such pursuits are not among the priorities for San Franciscans. The people of San Francisco would be better served by the work that we all could do together. The Draft Report by R. W. Beck does nothing to alter those recommendations. This study is grossly misleading. While we have had only a few days to review it, we have found a number of errors that seriously undermine the conclusions and value of this study. For the purposes of this meeting, he will discuss three of them:

1. The revenues are significantly overstated. R. W. Beck’s estimate of usage in San Francisco is about 15 percent higher than the power actually consumed by residents and businesses in San Francisco. In addition, Beck’s estimate of rates charged by PG&E are higher than those of PG&E today, which are expected to drop in 2004. The result of this correction alone will drive all but the most optimistic case into the loss column by reducing the net present values on the order of 1.4 billion dollars.
2. On the cost side, the forecasted market prices for power Beck used in the study period are strikingly low. Beck starts with an estimated market price for power of 0.3 cents per kilowatt hour in 2003 while today prices are about 50 percent higher. Any Dow Jones Index shows that current price is about five cents. He would be curious to find where you could find other than Hetch Hetchy power, power at 0.3 cents. A more realistic forecast for the price of power reduces net present values further by another 350 million dollars. Also, on the cost side the capital additions assumed for San Francisco such as capacity, reliability enhancement, under grounding, all those kinds of things are less than half of the amounts that PG&E currently spends in San Francisco. This study also states that it is likely that this City’s electric rates would need to be at or higher than PG&E’s in early years after takeover in order to pay off the debt necessary for acquisition. It acknowledges a positive net present value in all cases are largely a result of higher net incomes in years later after the non-bypassable charges have been discontinued. To quote from the report, in early years of the purchase, the City would have a difficult time maintaining both a positive net income and rates that are competitive with PG&E. It also fails to recognize that PG&E’s rates will go down to reflect the fact that PG&E will no longer incur these non-bypassable charges either.
3. The third point focuses on the acquisition costs. Beck develops three estimates for the value of the PG&E system. The low value is derived by estimating the original cost of the system less depreciation. However, since the PG&E system is not for sale, if the City moved forward with condemnation it would have to pay a current fair market value as California law requires. Book value or historic cost is not among the permitted methods for estimating the value of property allowed in legal proceedings. Common sense tells you that you wouldn’t be willing to sell your house for what you paid twenty years ago. In a spirit of a balanced analysis, I will point out that Beck made incorrect assumptions that actually hurt the cause for a takeover. Beck shows the fixed transition amount running for eleven years longer than the charge expected to exist. Correcting this does not change the overall conclusions.

Mr. Lonner handed out and discussed a chart that is available at the Clerk of the Board’s Office, Room 244, City Hall and described the chart as follows:

Question: Vice-Chairperson Commissioner McGoldrick asked Mr. Lonner to walk through the chart.

Answer: Mr. Lonner elaborated on the chart as follows:

Question: Vice-Chairperson Commissioner McGoldrick asked Mr. Lonner to submit more detailed information in writing.

Statement: Chairperson Commissioner Gonzalez advised Mr. Lonner that the expected LAFCo meeting date is November 14.

Mr. Bell stated that he would disagree with Mr. Lonner’s comments. The report clearly states where the information was retrieved. In the case of the sales and revenues, it was actually from data that PG&E supplied to the City Public Utilities Commission. If the PG&E representatives or anyone else feels that there is something inaccurate or not correct, it would be helpful to specifically know what those items are. Same is true for the energy forecast. We used Commission forecasts which are referenced in the report. For each of those items, it would be helpful to know what the data is so they can address that as it goes further into the process.

Statement: Chairperson Commissioner Gonzalez advised Mr. Lonner to indicate sources when the written report is prepared.

Answer: Mr. Lonner stated that they would need about two to three weeks to drill deep into R. W. Beck’s analysis and they would be happy to point Mr. Bell and R. W. Beck in the right direction.

Statement: Commissioner Fellman stated that when the commenting schedule was discussed she anticipated there would be controversy over the R. W. Beck report. She would like to reserve the right to talk about how it can be best handled so full information is received before the next public hearing.

Mr. Marvin Feldman, energy economist, stated he is not under contract to any parties at the moment. He is a citizen of San Francisco. He inquired about the basis for the appraisal as follows: How would an appraisal reduce the uncertainty regarding the judicial basis on which the cost of acquisition would be made? Would an appraisal narrow the range of uncertainty of the basis, not the underlying physical value of the equipment, but the judicial uncertainty regarding acquisition? Does this analysis conducted on a business as usual versus a City takeover basis with such issues as the San Francisco reliability requirement be different if the City owned the system versus if in the present case the system costs are averaged out over broad territory and the San Francisco operating criteria is factored in, but we don’t directly pay it? How renewable energy supplies would factor into this risk analysis with and without City takeover?

Ms. Angela Alioto stated that this is a historic day for San Francisco because finally after many years we are working to understand what public power would cost. This is the first document she has seen in her career that gives us real numbers. She is excited that this item will be continued to November 14 so there is an ability to analyze this document. As a person who has worked on eminent domain cases in the courtrooms, that reasonable compensation for fair market value with large corporations like a corporation the size of PG&E depends on the filings they make of their lines. There are documents filed with the IRS and the Franchise Tax Board that state exactly what they PG&E believe is the value of their utilities both infrastructure, both underground, and above structure. They give the lowest amount because they want to be taxed the least. In analyzing them in a domain analysis, you have to look at what they believe the fair market value is. A lot of their infrastructure is corrupted to the degree that it would have to be replaced which means that theirs is useless. This is an argument that many public power advocates have been hearing for years through the press that a lot of their utilities are useless. They have to raise the ratepayers. That was their argument in Sacramento. It has been that so much of their facilities are in fact corrupted to the degree that they are not usable, in which case there is no market value. We just take back our franchise fee which we gave in the late 1920’s which she tried to take back ten years ago and were not successful. If they took that back, it would not cost San Franciscans anything. She thanked SFLAFCo for having this hearing and requesting this feasibility study by Mr. Bell, which she considers to be a serious expert in this field and she looks forward to being back next month after analyzing the report.

Mr. Doug Comstock stated that we heard it here first, PG&E is going to lower its rates. He is going to hold his breath until that happens. That is very exciting for ratepayers in San Francisco. He wanted to thank this Commission for having this study. It’s a bright spot in San Francisco’s future and is excited about it as a public power advocate for many years. There is a lot of new information here that we need to look at and recommends that we have one more or two public hearings on this item. He requested that as written comments are submitted that they be available for the public at the Clerk’s Office and that responses to this report can be received from both PG&E and public power advocates.

Mr. Bruce Brugmann, Bay Guardian stated that he is conflicted on this since he looks out his office window and sees the Mirant power plant and the possibility of four peakers and all kinds of problems resulting from the shenanigans of PG&E all of these years. He was also going to say that this is such a boring report by Mike Bell, R. W. Beck that he wondered why he has been pushing for it all of these years. But he is establishing a new principle here in San Francisco that the more boring the report, the more charge, the more drone, this R. W. Beck magic, the more explosive are the comments. We even brought out PG&E this time. Finally PG&E appeared and they have charts, lower rates, and state that all of the public power people have been wrong all of these years. All of the public power people that want to bring public power back to San Francisco and get the benefits that all of us have been talking about. It is good to see them here. But, why not ask them a couple of questions. How much annual profit is PG&E making each year from what a lot of us are considering an illegal monopoly in the City and County of San Francisco? How much will their rates go up? Obviously there is lots of money here. That’s why they are down here fighting for this and that is why they spent hundreds of millions of dollars all these years to squelch the slightest move for public power.

That’s why this is a historic moment here in San Francisco history. We have the LAFCo Commission moving with the study and R. W. Beck here laying out the figures. We have three candidates for Mayor that publicly and visibly are on the record to move forward on public power. This is a historic moment. But, this is only part of the issue. R. W. Beck has done a good study, left to analyze the figures and so forth. But, obviously we need to conclude the study and R. W. Beck needs to be kept in the bullpen because PG&E is going to send in everything they have got that would happen if we have public power in San Francisco as federal law and the supreme court mandates. We have to continue with the study, finish it, and have R. W. Beck there. We would like to hear from PG&E again and again because they don’t have any arguments that amount to anything. Ask them how much they make each year and to provide the figures. If they don’t give them to you, subpoena them. We deserve that after all of these years of higher prices and worst service and putting San Francisco into the position of being the most black-out prone City in the state, if not the country. It is time to end that, congratulations.

Question: Chairperson Commissioner Gonzalez stated that there was concern that a different date would have to be selected for the public hearing because Vice-Chairperson Commissioner McGoldrick stated that he would not be available on November 14. He stated that Mr. Bell is prepared to respond to whatever Mr. Lonner presents in terms of his factual numbers and the assumptions that Mr. Brugmann thinks he is making a mistake about. Mr. Lonner thinks he is rightfully going to defend himself and R. W. Beck on the point that these are public documents that he is relying on. To what extent does Mr. Lonner think that challenging the assumptions of Mr. Bell is going to open the door for our being interested in some of the documents that have been suggested through public comment? There are obvious things in the possession of PG&E related to annual profits, IRS filings, etc. etc. To what extent does Mr. Lonner think that is fair?

Answer: Mr. Lonner stated that they have no interest in responding to the exotic visions of one public power advocate. Their interest is to continue doing what they think they do very well, that is to provide safe and reliable electric and gas delivery to San Francisco. To the extent that the City is considering takeover and doing a study, they will provide an analysis that is detailed, complete, referenced, and challenges the assumptions that are incorrect.

Question: Chairperson Commissioner Gonzalez stated to the extent that Mr. Lonner is going to make an argument that it is not profitable, don’t you open the door to an analysis on how profitable it is for the private entity?

Answer: Mr. Lonner stated that the only thing that he is aware of that is not a matter of public record or filings with the CPUC that is something that PG&E could theoretically provide if it chose to do so that would aid your conclusion is an evaluation of PG&E’s distribution system. Something that they have no interest in doing because their distribution system is not for sale. But, the Beck study provides three assumptions of valuation that for the purposes of this study are fair to go off. Not because we think those valuations are accurate, but because we think even with their valuations, the numbers do not add up for the City.

Question: Chairperson Commissioner Gonzalez asked Mr. Bell to imagine the best case scenario that he could have any information from PG&E that he wanted, and assume they were cooperative and put it in letter form before the next public hearing. Break it down as to things R. W. Beck would like PG&E to provide them so that they can in a most accurate manner make the report as thorough and complete as possible. If Mr. Bell would put that letter together and give it to PG&E and give them an opportunity to provide them with the information that is needed. He thinks that PG&E has an absolute right to challenge the assumptions that were made and move away from numbers that may be in public documents. But once they do that, they are opening the door to participating and gathering that information particularly if you are making your assumptions based on public documents that they have participated in producing.

Answer: Mr. Bell stated that he would be happy to do so.

Question: Vice-Chairperson Commissioner McGoldrick asked Mr. Bell if he was aware of what the answer to Mr. Brugmann’s question might be regarding the annual PG&E profits? Is that public knowledge?

Answer: Mr. Bell stated that it was certainly not allocable to the City and County of San Francisco. It may be known to PG&E, but is not available anywhere in public information.

Question: Vice-Chairperson Commissioner McGoldrick stated so Tax Franchise Board records, CPUC filings and analysis of book value issues with the PUC are not broken down sufficiently.

Answer: Mr. Bell stated he thinks there is no better source than PG&E for that information.

Question: Vice-Chairperson Commissioner McGoldrick asked Mr. Bell if they were to engage and embark upon making an assessment and PG&E would not be forthcoming with information, would they be capable of extrapolating information from the filings of the CPUC and the knowledge about book value and fair market value that the CPUC could provide?

Answer: Mr. Bell stated that oftentimes in such situations that is what they wind up having to do is take publicly available information and base it upon what they know of the system or operations. For example, the valuation they did was largely based on the PG&E system as a whole which they know is a lot younger in age than what exists in San Francisco. In answer to your question yes, but when you start to do that, you start to make some assumptions how you reach what you are trying to measure. In any case, if PG&E were to provide that information themselves as well as the support and backup clearly everyone would be working off the same set of numbers and information.

Question: Vice-Chairperson Commissioner McGoldrick stated that PG&E’s response today indicated that R. W. Beck’s assumptions were way off. Have you ever done reports where the assumptions have turned out to be off as far as they are claiming today?

Answer: Mr. Bell stated no.

Question: Vice-Chairperson Commissioner McGoldrick asked if R. W. Beck would still be in business if assumptions in their reports were off as far as PG&E is claiming are off today?

Answer: Mr. Bell stated no.

Question: Chairperson Commissioner Gonzalez asked Commissioner Fellman to share her concern regarding future procedure.

Question: Commissioner Fellman stated that given the nature of the public comment and the seriousness of this project, she wants to make sure that there is full opportunity for everyone’s comments to come in and those to be considered as well by R. W. Beck for a response. Do we need to have our decision done by the end of this calendar year? Do we have to have this report adopted by the end of this calendar year?

Answer: Ms. Young stated, no.

Statement: Commissioner Fellman suggested that we have PG&E present its rebuttal and make that available on our website to the public and then have other public comment follow that by two weeks. So we would have a PG&E rebuttal so that when people commented they would also be able to see PG&E’s position.

Statement: Chairperson Commissioner Gonzalez stated that he is open to making any public comment available. He wouldn’t be inclined to only make PG&E’s response available. He thinks that there are going to be a number of interested parties that may want to be heard. That’s relatively easy to do if they provide it to us in a format that Ms. Young can work with.

Statement: Commissioner Fellman stated that she is suggesting that PG&E present their comments first that would be followed by the rest of the public comment rather than have a single due date. PG&E has indicated that it is going to provide a rebuttal, and that we ask them as a courtesy to the LAFCo to provide their rebuttal within thirty days and then within two weeks we can follow that with other public comment.

Statement: Commissioner Gonzalez stated as he heard Mr. Lonner, he indicated three weeks. That puts us at the end of October, and we were talking about a November 14th date. That works on schedule with what Commissioner Fellman is talking about. It could be formalized.

Statement: Mr. Lonner stated that he said two to three weeks, but he doesn’t have to do any of the legwork to put this together.

Statement: Commissioner Gonzalez asked Mr. Lonner to provide LAFCo with documentation by the end of October. Commissioner McGoldrick has indicated that he would like to be at the next meeting. He’s not available on the 14th and is proposing the 21st

Statement: Ms. Young stated that the LAFCo could meet on the 21st. We will ask the Commissioners if they are available.

Statement: Chairperson Commissioner Gonzalez stated to Mr. Lonner that it would not be sooner than the 14th. If Mr. Lonner can put something together by the end of October, that would give Mr. Bell a good ten working days to respond.

Statement: Commissioner Fellman stated that a month from today is November 3rd, which is a Monday. That would be thirty days. If we shift the meeting to the 21st, we could then have the rest of public comment come in by the 14th.

Statement: Chairperson Commissioner Gonzalez stated that we would hear public comment on that date as well.

Statement: Commissioner Fellman stated and then we would have our meeting on the 21st, so we would have all written comments, R. W. Beck would have a week to review them, and have oral public comment on the 21st.

Statement: Chairperson Commissioner Gonzalez stated that Ms. Young indicated that she is not certain that the 21st would work.

Statement: Ms. Young asked the four Commissioners if they were available.

Statement: Chairperson Commissioner Gonzalez stated that he did not have his schedule readily available. Right now, we can assume that the date we are working on is the scheduled date of the 14th. That’s the next meeting of the LAFCo. We are going to try to accommodate everyone. Supervisor McGoldrick would like to be here and he would like him to be here. If Mr. Lonner’s folks can do something by the end of October, let’s keep the 14th for now. Let’s see if the 21st works for everyone. Commissioner Schmeltzer should be contacted.

Statement: Ms. Young stated that we would contact all of the Commissioners.

Statement: Chairperson Commissioner Gonzalez stated that he would do everything in his schedule to accommodate Commissioner McGoldrick.

Statement: Commissioner Fellman stated that if PG&E’s comments come in at the end of October, we should set a date for the public written comment to come in.

Statement: Chairperson Commissioner Gonzalez stated that he did not think we could prohibit public comment being submitted.

Statement: Commissioner Fellman stated that she is not prohibiting public comment. She is suggesting that the deadline be set for the other public comment to come in so R. W. Beck has the opportunity to review it and at the public hearing when we get oral public comment also respond to all the written public comment.

Statement: Ms. Young stated that the first public hearing, whether it is set for the 14th or the 21st, it would be set as the public hearing to allow the public to comment. After that public hearing, we would set a deadline for public comment. Before the final report comes out, there is ample enough time for the public to respond and for R. W. Beck to take those comments and bring them back in a final plan.

Statement: Mr. Lonner stated that they would be flexible and accommodate LAFCo’s schedule.

Statement: Chairperson Commissioner Gonzalez asked Ms. Young to track down the dates for the public hearing.

Commissioner Ammiano moved to adopt the Resolution adopting the R. W. Beck Report on Community Aggregation (AB117); Commissioner Fellman seconded. No public comment. Unanimously approved.

The meeting adjourned at 11:33 A.M.