February 20, 2004

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

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

Members Absent: None.

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

No public comment.

Commissioner Schmeltzer moved to approve the meeting minutes. Unanimously approved with no objection.

Nancy Miller, Esquire stated that the Resolution before the Commission accepts and makes a number of findings consistent with the R. W. Beck Electric Financial Pre-Feasibility Study. The Resolution goes through the history of where we have been and where we are now. This Pre-Feasibility study is about acquisition of the entire PG&E system. In other words the municipalization of the electric supply, distribution, and transmission system. There are a number of critical questions to be answered. In the Pre-Feasibility study, the consultant found that certain next steps should be taken. The Resolution addresses recommendations as follows.

One of the first steps is the governance issue. What agency either within the City or a new entity should go forward with next steps? Those next steps start with the implementation of AB117. Who should determine the most likely agency? The R. W. Beck report suggested LAFCo. LAFCo is an entity that makes determinations about governance structures. However, LAFCo would not, without some sort of petition or resolution be able to implement. Alternative language was placed in the Resolution for the Commission to consider that would state that the Board of Supervisors in conjunction with the Mayor’s Office would determine the most likely agency instead of LAFCo.

Chairperson Commissioner Gonzalez stated that he was not in favor of the alternative language because it goes into the question of implementation. Just as easily, you could say that the voters should decide. The LAFCo may be determining what they believe on the issue, but that does not mean what is decided may be adopted as San Francisco’s policy because the Mayor and the Board of Supervisors plays a role in that.

Ms. Miller stated that she agreed with R. W. Beck’s recommendation that the LAFCo determines the agency.

Chairperson Commissioner Gonzalez stated that the Resolution is not binding on any other entity that has a right to decide what the governing structure would be. Including the alternate language would not be consistent with the actions that LAFCo has taken in the past, which is not to pass a Resolution determining everybody that is going to participate in a decision.

Ms. Miller stated that the LAFCo is at the point at making some decisions. The next steps are about governance and logistics in putting implementation steps together rather than more studies. There are more studies, but they are in conjunction with implementation of some of the consultant’s ideas. The consultant and Ms. Miller agreed that the LAFCo make the recommendations.

Chairperson Commissioner Gonzalez stated that the LAFCo does not have to declare that they would make a determination. It may come to the LAFCo because the Mayor, the Board of Supervisors or the voters approve something in which case the LAFCo may be called upon to make recommendations about whether it is an appropriate governing structure. Rather than the alternative language, a recommendation was made that the language be changed to say that the LAFCo will determine this as they will be the originators of the discussion. He recommended that the language be softened.

Ms. Miller stated that the LAFCo can make recommendations as to the most likely agency. The remaining recommendations are consistent with what R. W. Beck has recommended. Costs were added that were in the report, but not necessarily in the formal recommendation so everyone knows the potential costs associated with the next steps.

The language agreed upon for Resolution recommendation 2a was as follows: "In accordance with state law, the Commission will consider and recommend the most likely agency and the form of governance for moving forward with more extensive facility valuation and planning." The alternative language for 2A was deleted.

No public comment.

Supervisor Ammiano moved to approve the Resolution as amended. The Resolution was approved unanimously with no objection.

Ms. Miller discussed the April 15, 2003 memorandum regarding the ability to suspend San Francisco LAFCo’s activities. A discussion was held that many LAFCo’s suspend activities because they do not have any applications or petitions before them. If the Commission decided they didn’t have future agenda items, there are minimum requirements that a LAFCo would have. The only necessary activity is a website and to hold two public hearings a year until the Commission decided they had more activities. Required staffing is not really a cost item, but a designation that you designate on your website who the required staff is.

Chairperson Commission Gonzalez discussed the recommendations made in the Resolution. One of the purposes of the LAFCo is to provide the public, policy stakeholders, the Mayor’s office and the Board of Supervisors, etc. with a certain amount of information. That is sometimes going to be responding to a particular issue that is being proposed for consideration by the voters however it might be implemented.

The other way would be to initiate an effort to generate that information that is then available to the policymakers as to whether they want to pursue a certain course of action. Much of what has transpired is the question of what is the kind of information that San Francisco would need to pursue public power. Part of that comes out in the Report’s recommendations in Part V of the study which is on the question of a detailed appraisal and what that would cost. How beneficial would a detailed appraisal be to some of the decisions that an entity like San Francisco would have to consider before moving forward? In the event that LAFCo would pursue a detailed appraisal, what would the life span of the appraisal be? How costly would it be to upgrade a detailed appraisal in the event that in a year or two its value would expire?

Mike Bell, R. W. Beck stated that the Pre-Feasibility study identifies a fairly broad range of potential savings based upon what the ultimate acquisition price value of the system, severance costs, etc. are. It is a fairly wide set of numbers. What the appraisal would do would be a more detailed inventory of facilities and assets to determine better what that acquisition cost might be. There still would be uncertainties. If the City were to move forward given what we heard from PG&E that they are not interested in selling their distribution system, they would contest what that price would be. It would likely be a big difference between one number and the other.

The initial decision that the City faces given what’s in this report and analysis, is it in the interest of the City to pursue further along these lines of evaluation of these options? If so, then it is worthwhile to proceed with the valuation and other steps in the analysis. With regard to the question of the shelf life of the appraisal, that should be good for some period of time. Obviously, there are changes in the system that are taking place, but a full and complete inventory particularly of assets that have long lives is not unusual and we have seen a good part of this system in place for decades. The shelf life of that type of activity would be fairly long. As you go further out in time, it would be necessary to update that, but the bulk of the work would be in that initial analysis.

Chairperson Commissioner Gonzalez stated that whatever entity was going to pursue this could essentially guide itself through this more detailed appraisal. The problem is that when this is ever proposed the primary argument that we hear is that you can’t even go down this path because there hasn’t been an appraisal done, and the cost benefit analysis isn’t thorough enough to make a decision. Ironically, that argument comes from the privately owned utilities and those members of the public that have legitimate concerns or want to proceed in a more cautious fashion. That being the case, it seems that taking what might be a more traditional approach by letting the entity decide for itself how they want to proceed doesn’t work because the entity never gets created. Here we are as a LAFCo having at least done the preliminary work bringing us to a certain point. Whereas community aggregation has some very clear benefits, many of those benefits are short-term because eventually you are going to have some stabilization of the market. Some of the problems that led to the crises that we have been through are going to be eliminated. If we are going to get the benefits of better prices, part of that is going to come in by some sort of investment by the City.

Mr. Bell stated that their analysis was conservative and changes were made as a result of public comment. The savings identified based on that analysis range from five to twenty percent. Over an extended period of time, that is a substantial amount of money. However, there is considerable investment in terms of executing this type of activity. That is in light of all of the other things that are transpiring in the City and all the other demands particularly in these difficult budget times. The numbers are here on a conservative basis that shows those savings. The tough decision is do you want to start down this path because it is timely, cost consuming and there will be a severe fight from the provider.

Commissioner Hall stated that some of the assumptions or numbers that were used were bothering him. In reviewing the comments in the study and then reviewing PG&E’s and other private parties’ comments, there is quite a disparity in the numbers from the purchasing of raw electricity to what PG&E has made in the way of profits. For example their gross income is stated to be up around $800,000,000 and PG&E is saying is closer to $600,000,000. The Guardian came up with a report showing them closer to $500,000,000. When you look at those numbers, it casts a shadow upon what is being said as being conservative numbers. He is not convinced that the whole package has to be looked at. Wouldn’t we be better looking at aggregation as a first step? We have a study that says we can move in terms of aggregation.

He is unclear of the points and the analysis that is used to arrive at the conclusions as to how it relates to distribution. In the interest of what serves the City best in these times, if we were to move at all, it should be in the direction of aggregating and assure that is on a sound basis before a lot of money is expended to prove a point of distribution based upon disputed numbers.

Mr. Bell stated the aggregation, as Chairman Gonzalez identifies, does provide near term savings and that process is moving forward as Mr. Smeloff described at the last meeting. In terms of the conclusions in this report, it is suggested that what has transpired in the debate over the past three or four months are exactly the environment that would exist should the City move forward with any further review. Obviously, PG&E would be in their own interest protecting and submitting the highest numbers possible should it ever get to a court valuation of those facilities, and that is to be expected. You’re not going to have a clear cut answer at any point unless you go down that path and determine what the value is. There is going to be arguments over these figures depending upon what side is being taken.

Commissioner Hall stated that a case could be made right now according to the study and what we have heard, that if the possibility is there that we can provide San Franciscans with cleaner cheaper power, that case can be substantiated. What he can’t substantiate is going a step further and spending money on distribution when we are too far apart. He is not objecting to a first step.

Mr. Bell stated that the various parties have agreed and even PG&E hasn’t objected to the first step. In that sense, if there is agreement among all the parties, that makes sense.

Commissioner Hall stated that if it were different budget times, a different approach might be taken.

Commissioner Fellman stated that we have to consider whether we want to do the valuation and whether LAFCo in these budget times should be doing anything other than what is minimally required under the statute. With respect to the role of LAFCo, it seems that LAFCo can provide a forum for developing information. LAFCo is not charged with doing implementation of certain energy policies. In fact, the SFPUC has taken the lead for doing the community choice aggregation policies. They have also taken the lead in developing an actual supply plan that would be implemented for the City.

With respect to the valuation of the system, we are not saying that this would be the first step in a takeover; we are saying this is an essential element of analysis that would provide information. A decision could be made as to what would be the next step. Obviously, we don’t have the budget to do the whole study in one year. It would have to be over a couple of years, and we would have to look at that. She recommended that the LAFCo go forward and do the study to get those numbers that have been talked about and have a process where PG&E, the community, and public power supporters could comment on it. It could be done on a parallel track with what the CPUC is doing with community choice aggregation. It doesn’t foreclose that. If you didn’t do the study now, at a certain point in the future we may be foreclosed over the option of more local control over power which was the finding in the initial study that LAFCo did a couple of years ago.

Commissioner Ammiano stated that in some ways LAFCo is lucky to work with the Board to pick up some of the slack. An independent energy ordinance would be introduced on Tuesday on the community choice portion. LAFCo can be on parallel tracks. It is inevitable that there will be a ballot measure in the future. He concurs that budget times are tough, but looking at the study is important. There will be coordination necessary with the CPUC particularly around community choice aggregation. Even though the budget is tight, it is still a good precaution to take towards a study. Everybody has been talking about it for decades, and it is time.

Commissioner Schmeltzer asked if the whole Resolution or only Section A was adopted. The Resolution sets out what part of the future work plan is and talks about how the LAFCo is going to consider and recommend a likely agency to move forward, and that agency would proceed with the appraisal. Is that something that should be reconsidered?

Commissioner Hall asked if Commissioner Schmeltzer was asking what agency would move forward with the study?

Commissioner Schmeltzer stated that we are talking about whether the LAFCo would consider moving forward with the study, and that is the discussion being held. But, the Resolution says that the LAFCo would make recommendations about what agency should do that.

Chairperson Commissioner Gonzalez stated that the discussion on the recommendations made it clear that wasn’t necessarily the intent, but it is certainly another option. During a period of time that this potential study is taking place and this is going to take a long time—there will also be a discussion about alternatives of what the governing agency would like. You are going to have supervisors coming forward with ballot measures. You may have LAFCo making a recommendation to the Mayor or the Board. We could go back and amend the language Subsection b to be more general.

Commissioner Hall stated that if the case for aggregating is made solid, wouldn’t the voters be in a better position to look at the total package. If that is the ultimate goal of public power advocates, you are a lot stronger going in if you can say, here’s a study and it’s been proven that aggregating works. Cleaner, cheaper power can be provided to the citizens of the City. Now the next step is what can be gained through distribution. When we have fallacies in the study, and it is not to criticize the work as the work is great work, he thinks it is better to take the first step first, proving that, and then going on to the next step. There are a lot of questions about how this study was concluded. They are questions that come not only from the opposition raised by PG&E but by other people.

If our job is to recommend, he has no problem with first building a case for aggregating and then look at distribution after enough evidence has been acquired and it can be proved to the public. He doesn’t know whether it is our step to take that study on or recommend it to another group. We’re looking at $500,000 to $600,000 for a next step that is based upon some hazy conclusions. He would be reluctant to do that.

Chairperson Commissioner Gonzalez stated to Ms. Miller that on Subsection b, it would not be appropriate for the LAFCo to decide what that agency would be doing.

Ms. Miller stated that she had drafted "LAFCo or the agency above may proceed with the acquisition" getting back to the comments Commissioner Schmeltzer brought up. On the numbers and methodology, she is working with Sacramento LAFCo with SMUD who is looking into moving into the city of Davis and another county. They have prepared certain figures. PG&E has objected to those figures. During these proceedings, you never reach consensus on these figures, valuation methodologies, and rates because you are going out into the future so many years. There is a lot of room for controversy and reasonable differences of opinions on that. The consultant is right. You just have to get into the process in order to wade through some of those things.

Chairperson Commissioner Gonzalez stated that Commissioner Hall made a good point. The LAFCo did prioritize the community aggregation, put money aside, made that a priority because we saw that the benefits were clear and that was something that was extremely timely, and we needed to move on it. That’s why Commissioner Ammiano is prepared to introduce his ordinance at the Board.

Commissioner Schmeltzer stated that she would not expect that there would ever be complete agreement about all of these figures. There is too much room for different methods of looking at them. Anytime you have entities that are going to use different methods; they are going to come up with different results. At the same time, she thinks that Commissioner Hall makes a good point that the more evidence that can be shown or looked to about how systems are being implemented by the City, the more we can show about the savings, the better position we are in to make a decision.

She doesn’t think community aggregation is the only thing to look at. There are other public power initiatives, public power production projects that the City has been moving forward with. She is saying this partly because community aggregation is being held up at the state level, so there is going to be some time before we are going to be able to implement community aggregation and much farther before we are going to see any results. In some ways, community aggregation is a very different kind of program than hardwired infrastructure. We also do have the solar initiative and we have some other hard infrastructure generation projects that the City has been moving forward with that are points to consider as well.

Commissioner Hall stated that he is in total agreement with that. He is defining the line between that and distribution. He would rather look at those alternatives first and if we are going to spend money, go down that path because we are looking at solar and other renewables that can help LAFCo make that decision. But to jump in the distribution end when there is such a divergence of opinion as to what you can buy power for, what you can sell power for, there are other alternatives to look at first. He wold be careful about approving any more money to go down that path, $500,000 or $600,000 to look at distribution when there’s other ends to look at. Accept the study for what it is and then maybe take another path that we are not talking about.

The Commission went back to Item 3 and rescinded the vote to approve the Resolution without objection.

Chairperson Commissioner Gonzalez recommended that the LAFCo work with the Executive Officer on breaking down what an actual appraisal would look like, what it would cover, how we would pay for it and come up with proposals.

Ms. Young stated that the question would be whether or not we continue to work with R. W. Beck on the next step proposal or whether or not at this point in time if the LAFCO is still interested in pursuing this that there should be a bid process. On the last two studies, we did in fact make amendments to the contract. As we pursue this further, we would need to look at whether LAFCo would be interested in a bid process. This doesn’t preclude us discussing the current process, but we have depleted the funds associated with the contract for the Pre-Feasibility study.

Commissioner Ammiano stated that we should have a discussion and if there is a price tag, we need to know what the price tag is going to be.

Chairperson Commissioner Gonzalez stated that he thinks that the point Ms. Young made is a good one. This is a study that should probably be available to others to bid on. There are a couple of decisions. One is, does LAFCo want to pursue this now? The question is what the RFP would look like in terms of what should be included. That is what Supervisor Daly’s letter addresses. Mr. Bell, insofar as R. W. Beck has been involved with the Pre-Feasibility study, should participate in what he believes the scope should be and has given some indication of what he could provide service for. Some of those options should be presented to the LAFCo at the next meeting.

Commissioner Hall asked about the type of funding available.

Ms. Young stated the next item on the agenda is the discussion on the budget. We do have to make a 5.5% cut and 15% cut contingency set aside. Currently, our budget is $404,250. Last year, we did encumber funds that were unexpended in order to support our activities in this fiscal year. We will most likely have funds left at the end of this budget process as well. So we need to think about that as we move forward.

There could be as much as $100,000 unexpended because legal counsel has not been used to the extent that we have in previous years. R. W. Beck did reduce their cost on the previous two studies. Given our balance at this point and given what is anticipated for the next several months, we would probably have at least $100,000 to carry over. Given the 5.5% cut that we are required to take, that would take us down to $384,000. The 15% cut needs to be identified, but is not necessarily one that will actually take place unless we are in that kind of situation as a City and County. We were able to bring over $100,000; we would have $484,000 and that would have our professional and services contracts at about $390,000. We have set asides obviously for legal counsel. You are looking at the remainder that could be used for consultant services.

Commissioner Hall stated that about five or six months ago we had estimates to do a real comprehensive good study of up to $1,000,000. He does not want to shortchange the study. He appreciates Supervisor Daly’s letter and the enthusiasm of going down that path and is not throwing water at that. What he is saying is to look at pursuing this if funds are available in the future. It is futile now to start going down the path of a study and only have $100,000 or $200,000 or $300,000 when we all know it is going to cost a million.

Ms. Young stated that the other alternative would be to look at whether or not if LAFCo wishes to continue and wishes to pursue the feasibility study, whether you partner with another agency or agencies to secure funding for it so it is not all out of LAFCo’s pocket.

Commissioner Schmeltzer asked if the $384,000 was for next budget year.

Ms. Young stated the $384,000 was for Fiscal Year 2004-05, which is after the 5.5% reduction of our 2003-04 budget.

Commissioner Schmeltzer asked what we have left for this budget year.

Ms. Young stated right now we are currently at a balance of $258,000. That amount is not expected to be spent by the end of this fiscal year.

Commissioner Schmeltzer asked about the Sound Management Plan that is an item in the Resolution and how that fits into the overall picture.

Ms. Young stated that based upon what Mr. Bell indicated and based on the study both the appraisal and the $100,000/$150,000 Sound Management Plan would be necessary.

Commissioner Schmeltzer asked if that is the type of study that could only be done once we have a better estimate of the facilities.

Mr. Bell suggested that in terms of the timing and the funding, it would make sense to sequence the work such that the appraisal work is done first because you could very well find once you get into the appraisal that the costs are on the higher end. Then the condition of the system is such that it presents problems in which case you wouldn’t want to expend the funds and get deep into a management plan. In terms of the discussion you are now having, it would make sense to sequence it so the appraisal work is started first. Then only if you are convinced that the numbers are there and worth proceeding forward, then a management plan would be developed.

Commissioner Hall asked whether it would be better to assure whoever undertakes that study, that they are going to be able to run the full distance. That they are going to be able to be funded in order to give the Commission the full information that is needed to make a recommendation or conclusion. He does not want to start anyone down a path with only a third of what is needed.

Mr. Bell stated that when you look at what the cities of West Sacramento, Davis, Woodland and SMUD are doing now, it is exactly that. They decided they didn’t want a Pre-Feasibility study, although some entities like Davis studied the daylights out of it. They decided to do a full appraisal and basically determine whether or not this makes sense moving forward. In addition to that, they have written their proposal such that you look at each of those cities individually. So you look at it collectively, or you look at it on a piece by piece basis. However, they have had four entities among which to split those costs. That study, which SMUD and the cities are about to make a determination on probably will happen within a week or two, and those costs are going to be split four ways. You do not have that luxury here.

Commissioner Schmeltzer stated that when you look at this proposal for an acquisition study, are the facilities evaluated type by type? Do you look at things geographically or do you say we are looking at this type of station or this type of facility first?

Mr. Bell stated you look at all of the facilities because what you want at the end of the appraisal is a very detailed inventory of the age, condition, and value of the system so that if and when you wind up in a court, you have adequate data and background. You start out with facilities like transmission substations and work your way down a distribution subsystem. So essentially what you do is start with those large facilities and work your way into the lower voltage distribution system.

Commissioner Schmeltzer asked if there is an opportunity to say stop after the first tier of review, and say we looked at the substations and we are finding exactly what we thought we would find or nothing like what we thought we would find.

Mr. Bell stated usually when you get into that detailed work, you need to get into all of those facilities to evaluate that.

Chairperson Commissioner Gonzalez asked if it were a six-month process and if it would be over in a year.

Mr. Bell stated that was right. It would take six months if you were to start it and work your way through it on a continuous path. You could schedule it such that it could take a longer period of time.

Chairperson Commissioner Gonzalez stated that the question of how we would pay over time is different.

Commissioner Schmeltzer asked if there was a way to dip the toe in without diving all the way in and find out anything useful.

Mr. Bell stated you are going to learn as you go through. If you start with the most costly facilities such as the substations and such, you are going to capture most of that through that process. He does not want to discount the fact that there are a lot of miles of distribution facilities. There are underground facilities that are difficult to get to and look at. There is a lot of work involved in that process.

Commissioner Schmeltzer asked how much cooperation you would need from PG&E to do the study.

Mr. Bell stated usually in these situations, you get very little cooperation. It makes it more difficult particularly if substantial portions of the system are underground or otherwise difficult to access. But, there are ways by looking at equipment and such to evaluate the system. It is common that you have to work through those problems when you do this kind of analysis.

Vice-Chairperson Commissioner McGoldrick stated that the letter from Supervisor Daly is relevant in as much as he is Chair of the Budget Committee. He is committed and many of us are committed because in terms of finding money, we have to go to the Board of Supervisors. That’s where we have gotten our money in the past. He thinks that the Supervisors when they are not Commissioners here would be giving serious consideration, as given in the past, funding LAFCo to the extent that LAFCo needs funding. We’re foolish not to do so. It is obvious from the preliminary information here that there is a savings and the direction is an important boom to the economy. Long Island had a boom to their economy.

Mr. Bell stated it is important to note that in Long Island’s case, that was not a contested arrangement. Nevertheless, a substantial reduction in rates was achieved.

Vice-Chairperson Commissioner McGoldrick stated that he recognizes the risks involved and the resistance that can be anticipated from PG&E. The issue around budget considerations is relevant given the fact that the current Chair is Supervisor Daly. We have seen a willingness on the part of this Board to study this issue carefully, and he would support going forward with a full analysis and the appraisal picture to know what we are talking about.

Alternate Commissioner Fellman stated that we need further information before we could decide on the next step. We have a number of decisions to make. If we did this on a bid process, how would Ms. Young go about designing the RFP? What would the elements of the RFP be?

Ms. Young stated that she would go about this the same way as any other process associated with RFP’s. She would elicit the services of people who are knowledgeable about this kind of feasibility study to help assist in preparing this RFP the same way we did for the Energy Services Study. We could either do an RFI to request information, or we could do an RFP which is the actual process. We could also work with staff on the PUC to support that effort in designing the RFP for the next steps. It would be difficult to use R. W. Beck if in fact they chose to bid for the process in terms of determining what the RFP might look like.

Alternate Commissioner Fellman recommended that for the next meeting we get a presentation from the Executive Officer as to what the elements of the RFP would be. We are not ready to launch this. It seems that there needs to be further discussion on what the elements would be, exactly what steps would need to be taken. How those could be phased or costed out. If you’re in for a dime, you’re in for a dollar. Or if you’re in for $100,000, you’re in for a $1,000,000.

Ms. Young stated that she could work with the Attorney’s Office with our legal counsel, and a good deal of information is in our Pre-Feasibility Study as well.

Vice-Chairperson Commissioner McGoldrick stated that given the fact that R. W. Beck has gotten us this far and a lot of the information they have developed has been done by their staff, how about continuing their contract rather than do an RFP?

Ms. Young stated that is an option. We are not a public agency. We are not the first municipality to pursue this. We can get copies of RFP’s that have been issued for similar things and derive from information that might be valuable to LAFCo.

Alternate Commissioner Fellman asked if we could get some people who have had experience from the public agency side with this exercise and have that information available when we are making that decision. Have them come to our next meeting and make a presentation.

Ms. Young suggested that if we are not anxious about this, that you give us the following meeting to pull together a better presentation. March 19^th is our next meeting. If we have a meeting after that date, it would allow us time to pull together a better presentation.

Vice-Chairperson Commissioner McGoldrick stated that if we scope out what we want, that we leave open the option that we don’t necessarily do an RFP. We have already dealt rather successfully with R. W. Beck. There may be cost savings associated with the fact that they have developed a body of knowledge. He is not uncomfortable with just staying with R. W. Beck and moving forward. There would be time savings involved as well and the time savings are crucial.

Ms. Young stated that R. W. Beck has been a good organization to work with. However, you may want to consider a bid process because we have continued to do amendments to the agreement.

Chairperson Commissioner Gonzalez stated that we do want these different options to consider in the future.

Public Comment

Mr. Francisco DaCosta inquired about the object of today’s debate, whether it is to save money or to prove that the City could do distribution. Or are quality of life issues being addressed that activists have fought for for the last two years and hasn’t been debated in the dialogue. The City started with a deficit of $150,000,000. It may go up to $400,000,000. As far as PG&E is concerned, they were bailed out $8,000,000,000. There is no way that the LAFCo can take on PG&E at this time with the fiscal constraints. The activists have met with SFPUC, CPUC, and CALISO. Up to today, they can’t get any emperical data and without this data, there can be no headway. In order to get emperical data, they need the full cooperation from PG&E and CALISO. They’ve been studying the transmission lines and they feel that if they have the true picture of the transmission lines, they can shut down both the power plants and save the number of debts that are happening in the Southeast sector. Nothing of which has been mentioned here.

Mr. Matt Lonner, PG&E Government Affairs stated that if you recall last year when LAFCo was taking up the issue of the Pre-Feasibility Study, he raised the issue of the cost of valuation. Commissioner Gonzalez asked the question of the consultant who in fact conceded that the cost of a valuation study consistent with previous studies would be around $800,000 to $1,000,000. It is not $500,000 to $600,000. That doesn’t get you there. The other point that he disagrees with Commissioner Fellman with the characterization that valuation is not necessarily the first step in municipalization. In fact the consultant said last week that you wouldn’t pursue the valuation unless you were moving in the direction of municipalization. It is not an effort of providing information. It is an effort to promote the effort of municipalization which your consultant has not laid the foundation for.

It’s easy to characterize PG&E as providing information that is in the extreme to protect our own business interests. Certainly, we are going to protect our business interests. Taken the revenue issue, which we have discussed, there is no methodology to what PG&E provided. They provided actual revenue numbers. It is not a methodology. The methodology is to take that information and turn it into a $200,000,000 difference by the consultant. He takes exception that we are somehow characterizing information in a certain light or another light. The cost of electricity is not characterized or using a methodology—it’s the going rate that you could find by looking at the Dow Jones 15-day ahead at 4.5 cents a kilowatt hour, not three cents a kilowatt hour. That is not methodology. That is not PG&E characterizing information. He understands the direction that this Commission is heading. Given the outcome so far, it doesn’t justify additional expenditures on more studies.

Mr. Andrew Bozeman, Bayview Hunter’s Point stated that in listening and reading the report, he is outraged and amused. As Mr. DaCosta said earlier, they have been fighting for a long time to get attention to what PG&E is doing to their community. This shows that PG&E is doing it to everyone. We’re all in the same boat. The condition of their system, the concealment, the misdirection that they are giving shows that they have been getting away with a lot for a long time now. There is something we need to do perhaps with the help of the CPUC, although they may be involved in it. It is sad to see that things are in such bad shape, and that they can’t find out the truth. The dream of changing it for the better will have a lot of resistance and a lot of obstacles to overcome.

Chairperson Commissioner Gonzalez asked Ms. Young to put the discussion into context within the framework of LAFCo’s budgetary powers not being constrained by the City and County. His understanding is that LAFCo is agreeing to reduce the budget in this manner which is not something we have to do. It is important to keep in mind that all of the actions taken with the AB117 study was essentially alleviating funding by another City department, the SFPUC, which otherwise would have had to come up with the funds to do the study. This isn’t just a state agency that doesn’t have regard for what is happening in the City.

Ms. Young stated the Chair has stated it correctly. The Cortese-Knox-Hertzberg Act requires that the LAFCo adopt a budget and when it was revised, it set the fact that your adopted budget could continue to be your budget unless LAFCo chose itself to reduce its budget. What you have done over the last two years, is adjust your budget based on the Mayor’s instructions with respect to reductions that were being taken throughout the City and County of San Francisco. That is not a requirement of LAFCo—that is something you have done over the last two years.

You did state that some of our studies have offset the need for other agencies to do similar types of studies like AB117. What you have before you is a budget that is in line with the Mayor’s instructions for 2004-05 which is a 5.5% cut for that fiscal year as well as a 15% contingency. This is a policy decision for the LAFCo. As stated for the previous item, your current budget for 2004-05 is 404,250 with a 5.5% cut that is a required cut if LAFCo chose to do so, that would reduce the budget to $384,037 and then there would be a 15% contingency. We have reduced for the 5.5% reduction $2713.00 from professional services. We have also reduced the City Planning amount that was allocated at $17,500. That was in case we needed any minimum services from Planning. We haven’t needed any assistance from Planning over the last several years so we reduced that amount to come to the $20,213.00.

For the 15% we are taking the $57,606 from the professional and special services. The LAFCo budget is a line item and it does affect the Board of Supervisors’ overall budget. That has been the case for the last several years even though it is a state agency and could set aside funds. We have complied with the Mayor’s budget instructions and the Board of Supervisors has accepted our recommendations and appreciated that. She went before the Budget Committee last week and they were appreciative of the fact that this was going to be recommended to LAFCo to adjust its budget by the 5.5% and the 15% contingency. Supervisor Daly at the last Budget Committee indicated the LAFCo may look at other revenue sources if in fact LAFCo pursues other feasibility studies. She recognizes that they are two separate agencies and is doing her best to keep those separate.

Commissioner Ammiano moved to approve the budget reductions for Fiscal Years 2003-04 and 2004-05. Unanimously approved with no objection.

Ms. Young stated that adoption of the budget would be at the March 19, 2004 LAFCo meeting as two public hearings are required to adopt the budget.

The meeting adjourned at 11:45 a.m.