Nov 05, 2026 Utilities Commission - Finance Committee

EVERYBODY'S WELCOME TO

[00:00:01]

NO, I'M GOOD.

[CALL TO ORDER]

[ROLL CALL]

YES.

CHAIR PARKIN? HERE.

AND MEMBER SCOTT? PRESENT.

THANK YOU.

WE HAVE A QUORUM.

THANK YOU.

OKAY.

ITEM ONE IS WE'RE GONNA APPROVE

[1. 26-56630 Recommendation to approve March 19, 2026 Finance Committee meeting minutes.       Suggested Action: Approve recommendation. ]

DO I HAVE A MOTION? MOTION.

AND I WILL SECOND THAT.

ARE THERE ANY PUBLIC COMMENTS ON THE MINUTES? ANY COMMISSIONER COMMENTS? SEEING NONE.

ALL THOSE IN FAVOR SAY AYE.

AYE.

AYE.

ANY OPPOSED? MOTION CARRIES.

ITEM NUMBER TWO,

[2. 26-56628 Recommendation to receive and file the Fiscal Year 2026 Preliminary Year-End Financial Update presentation for the Water, Gas, and Sewer Funds.       Suggested Action: Approve recommendation. ]

DO I HAVE A MOTION TO RECEIVE AND FILE? MOTION TO RECEIVE AND FILE.

AND I WILL SECOND THAT, AND AT THIS POINT WE'LL CALL ON DANIEL TO GIVE THE PRESENTATION.

GOOD MORNING, DANIEL.

UH, GOOD MORNING, MEMBERS OF THE BOARD.

UH, TODAY I'LL BE PRESENTING THE PRELIMINARY YEAR-END FINANCIAL UPDATE FOR FY26.

BEFORE GETTING STARTED, I WANTED TO EMPHASIZE THAT THESE ARE PRELIMINARY PROJECTIONS.

UH, WE ARE STILL COMPLETING THE YEAR-END CLOSE PROCESS, AND THE FIGURES ARE SUBJECT TO FINAL RECONCILIATION.

UH, WE WILL PROVIDE THE UPDATE, UH, NUMBERS ONCE THE CLOSEOUT PROCESS IS COMPLETE.

UH, STARTING WITH THE WATER AND SEWER FUND, SALES FORECAST REMAIN CONSISTENT WITH BUDGETED AMOUNTS AND OUR PREVIOUS ESTIMATES.

UH, O&M EXPENDITURES ARE PROJECTED TO FINISH SLIGHTLY HIGHER, PRIMARILY DRIVEN BY VEHICLES THAT WERE DELIVERED EARLIER THAN ANTICIPATED.

UH, WE ARE ALSO SEEING REDUCTIONS IN CIP EXPENDITURES ASSOCIATED WITH DEFERRED PROJECTS.

HOWEVER, THOSE REDUCTIONS ARE ACCOMPANIED BY LOWER REIMBURSABLE CIP.

TURNING TO THE GAS FUND, UH, THE PROJECTED FUND BALANCE HAS IMPROVED, DRIVEN IN PART BY DEFERRED CIP PROJECTS AND LOWER O&M EXPENDITURES.

UH, ONE IMPORTANT DISTINCTION IN THE RELATIONSHIP BETWEEN CIP EXPENDITURES, UH, AND REIMBURSABLE CIP REVENUES IS, UH, WHEN CAPITAL PROJECTS ARE DEFERRED, WE GENERALLY SEE REDUCTIONS IN BOTH EXPENDITURES AND THE ASSOCIATED REIMBURSABLE REVENUES.

HOWEVER, THESE REDUCTIONS DO NOT ALWAYS OCCUR PROPORTIONATELY.

UH, WHEN EXPENDITURE REDUCTIONS EXCEED THE CORRESPONDING REVENUE REDUCTIONS, THE NET RESULT IS AN IMPROVEMENT TO THE PROJECTED FUND BALANCE.

I'LL EXPLAIN THIS IN MORE DETAIL WHEN WE GET TO THE GAS FUND.

STARTING WITH THE WATER FUND, UH, WE ORIGINALLY BUDGETED A SIX MILLION DOLLAR, UH, FUND FUND BALANCE GAIN, UH, BUT BASED ON OUR LATEST PROJECTIONS, WE'RE NOW ANTICIPATING TO ADD APPROXIMATELY 20 MILLION.

UH, THIS IS DRIVEN BY EXPENDITURES COMING IN APPROXIMATELY FIVE MILLION BELOW OUR PREVIOUS ESTIMATES, ALONG WITH OTHER REVENUE AND EXPENDITURE ADJUSTMENTS.

STARTING WITH THE WATER FUND REVENUES, UH, SALES ARE PROJECTED TO FINISH IN LINE WITH BUDGET AND REMAIN CONSISTENT WITH OUR PREVIOUS ESTIMATES.

MISCELLANEOUS REVENUE HAS BEEN REVISED DOWNWARD, UH, PRIMARILY DUE TO REDUCED NEED FOR THE LB7A OFFSUIT OR OFFSET.

UH, DEBT PROCEEDS ARE IN LINE WITH PREVIOUS ESTIMATES.

AND LASTLY, WE'RE SEEING A REDUCTION IN THE REIMBURSABLE CIP OF APPROXIMATELY 1.7 MILLION COMPARED WITH OUR PREVIOUS ESTIMATES REFLECTING THE TIMING AND DEFERRED CAPITAL PROJECTS.

MOVING TO EXPENDITURES, UH, SALARIES ARE PROJECTED TO FINISH BELOW BUDGET, ALTHOUGH SLIGHTLY ABOVE OUR PREVIOUS ESTIMATE.

FOR CIP, WE'RE SEEING SIGNIFICANT SAVINGS FROM DEFERRED CIP PROJECTS.

UH, CIP EXPENDITURES HAVE DECREASED BY APPROXIMATELY 12 MILLION COMPARED WITH OUR PREVIOUS ESTIMATES, WITH THE HAINES PLANT BEING THE MAIN DEFERRAL.

O&M EXPENDITURES ARE PROJECTED TO FINISH HIGHER, PRIMARILY DUE TO VEHICLES BEING DELIVERED EARLIER THAN ANTICIPATED.

PUMPED IN PURCHASE ARE IN LINE WITH OUR PREVIOUS ESTIMATES.

AND LASTLY, UH, DEBT SERVICE AND GENERAL FUND TRANSFER, WHICH IS THE NEXUS STUDY, ARE ALL IN LINE WITH THE BUDGETED AMOUNTS.

WHAT THIS MEANS IN TERMS OF FUND BALANCE, SO BACK IN, UH, JUNE, UH, WE HAD SHOWED THE BOARD THE Q2 UPDATE WHERE WE HAD A $39.2 MILLION ESTIMATED YEAR-END FUND BALANCE, UH, BUT WITH EXPENDITURES COMING IN FOUR AND A HALF MILLION LESS AND REVENUES INCREASING BY 175,000, WE'RE NOW PROJECTED TO FINISH THE YEAR AT 43.9 MILLION.

BEFORE SWITCHING OVER TO THE GAS FUND, WAS THERE ANY QUESTIONS ON THE WATER FUND? NO.

OKAY.

MOVING TO THE GAS FUND, WE'RE PROJECTING APPROXIMATELY 600,000 IN ADDITIONAL FUND BALANCE COMPARED WITH OUR PREVIOUS ESTIMATE.

[00:05:02]

AND WHILE WE'RE SEEING SOME REDUCTIONS IN REVENUE, THE EXPENDITURE SAVINGS HAVE MORE THAN OFFSET THOSE REDUCTIONS.

STARTING WITH REVENUES, TRANSMISSION REVENUE HAS BEEN REVISED DOWNWARD DUE TO ADDITIONAL REDUC- REDUCTIONS IN CONSUMPTION.

LOWER CONSUMPTION TRANSLATES DIRECTLY INTO LOWER TRANSMISSION REVENUE.

FOR GAS COMMODITIES, SERVICE FEES AND PREPAY, WE ARE PROJECTING TO FINISH IN LINE WITH BUDGET.

WE'RE ALSO SEEING A REDUCTION IN REIMBURSABLE CIP OF APPROXIMATELY FOUR MILLION COMPARED WITH OUR PREVIOUS ESTIMATE.

HOWEVER, THE CIP REDUCTION IN THE CIP EXPENDITURES MORE THAN OFFSET THIS AMOUNT.

MOUS ARE COMING IN AS EXPECTED.

UH, FOR DEBT PROCEEDS, WE ARE DEFERRING APPROXIMATELY TWO MILLION FOR FUTURE USE, REFLECTING THE REVISED TIMING OF THE CIP.

FOR MISCELLANEOUS REVENUE, WE SAW A DECREASE IN LEASE REVENUE, INTEREST PULLED CASH, AND A VARIETY OF OTHER MISCELLANEOUS ITEMS. FOR GAS EXPENDITURES, UH, SALARIES, GAS COMMODITY, AND GAS TRANSMISSION EXPENDITURES REMAIN CONSISTENT WITH THE PRIOR, UH, Q2 ESTIMATES WITH MINIMAL CHANGE.

O&M EXPENDITURES DECREASED BY APPROXIMATELY TWO MILLION FROM THE PRIOR ESTIMATE, PRIMARILY DUE TO REDUCTIONS IN SUBSCRIPTION SERVICES, EQUIPMENT RENTALS, AND VARIOUS CAPITAL EQUIPMENT AND SUPPLY COSTS.

CIP EXPENDITURES DECREASED BY APPROXIMATELY EIGHT MILLION FROM THE PRIOR ESTIMATE, RETURNING TO THE ORIGINAL BUDGETED AMOUNT AND CONTRIBUTING TO THE INCREASE IN THE PROJECTED FUND BALANCE.

THAT SERVICE INCLUDES APPROXIMATELY 152,000 IN INITIAL SET OF FEES ESTABLISHING, UH, THE NEW LINE OF CREDIT.

AND LASTLY, THE GENERAL FUND TRANSFER REMAINS UNCHANGED.

NOW WHAT THIS MEANS IN TERMS OF FUND BALANCE, SO BACK IN JUNE, WE PRESENTED AN ESTIMATED FUND BALANCE OF 400,000, UH, BUT BECAUSE EXPENDITURES CAME IN 10 MILLION LESS AND REVENUES CAME IN 9.4 MILLION LESS, THAT RESULTED IN AN ADDITIONAL FUND BALANCE OF 600,000, WHICH GETS US TO THE ONE MILLION, UH, ESTIMATED FUND BALANCE FOR FY26.

DANIEL, SHANON.

YEAH, DANIEL.

YEP.

GAS, DO YOU MIND? UM, THANK YOU.

UH, GAS REVENUE, THE GAS TRANSMISSION REVENUE DOWN, I DON'T KNOW, 14% OR SO.

UM, IT SEEMS LIKE WE'VE BEEN TRYING TO DO A GOOD JOB ON, ON FORECASTING THE DOWNWARD TREND IN, IN NATURAL GAS USAGE.

UM, 14% OFF OF THAT, WHAT I THOUGH WAS, WAS GOING TO BE A GOOD ESTIMATE SEEMS LIKE QUITE A BIT.

DO WE HAVE A, ANY LOGIC OR REASONING BEHIND SUCH A SIGNIFICANT DECREASE? WE HAVE BEEN TRACKING THE ANNUAL DEMAND, UM, AND THE ANNUAL DEMAND, UH, HAS IDENTIFIED IN THE RESIDENTIAL SECTOR, UH, A HISTORIC LOW DEMAND, UM, FAR EXCEEDING THE PREVIOUS 10 YEARS OF HIGHS AND LOWS AND MEDIANS.

SO IT'S, UH, NOT JUST BELOW THE MEDIAN, IT'S BELOW THE LOWEST EVER EXPERIENCED IN THE PAST 10 YEARS ON RECORD.

UM, IT WAS AN UNSEASONABLY WARM YEAR, UH, ALSO RECORD IN THAT SENSE.

IT REMAINS TO BE SEEN AS WE MOVE INTO THIS YEAR, WHETHER DEMANDS WILL KIND OF BOUNCE BACK OR WHETHER WE'RE SEEING SOMETHING STRUCTURALLY DIFFERENT.

UM, IN THE COMMENTS THAT THE BOARD HAS MADE AT THE BOARD MEETING, UH, WE'VE TAKEN UPON OURSELVES AS STAFF, UH, TONY FOSTER IS LEADING A TEAM.

DEAN FROM RESOURCES IS JOINING IN NOW AS ONE OF THE CRITICAL COMPONENTS IN ESTABLISHING A DEMAND FORECAST THAT IS VERY CONSISTENT WITH THE WAY WE'RE DOING WATER DEMAND FORECASTING, TRYING TO CREATE A MODEL, TRYING TO LOOK AT THE VARIOUS FACTORS THAT AFFECT DEMAND, AND THEN WITH THAT, TRYING TO IMPART A MORE LONGER RANGE PERSPECTIVE THAT WOULD GIVE US SOME REINFORCEMENT, PARTICULARLY WITH HOW SENSITIVE THE GAS BUDGET IS TO SETTING DEMAND BECAUSE TRANSMISSION REVENUE IS ONE OF THE ONLY SOURCES OF REVENUE TO DEAL.

UM, I'LL LOOK TO TONY AND DEAN, HAVE, HAVE I CAPTURED THAT CORRECTLY IN TERMS OF THE EFFORT THERE? SO IT IS INDEED A, A 10-YEAR HISTORIC LOW DEMAND THAT WE HAD NOT FORECASTED.

UM, I THINK MR. SCOTT, IN REGARDS TO WHAT YOU WERE DESCRIBING, I THINK WE HAVE REPRESENTED TO YOU BEFORE THAT ALL THINGS BEING EQUAL, THE LONGER TERM TREND WAS A 2% DECLINE IN DEMAND AND WE WERE BUDGETING ACCORDINGLY.

THAT IS TRUE, UM, BUT WHAT WE EXPERIENCED WAS BELOW THAT EVEN, AND YOU'RE SEEING THE RESULTS OF THAT IN, IN THE GAS BUDGET.

THANK

[00:10:01]

OH, ONE, ONE ADDITIONAL THING.

UM, IN MY OUTREACH TO SOCALGAS, UH, I'VE BEEN TRYING TO STRUCTURE A DIFFERENT RELATIONSHIP WITH THEM, AND AS I HAD A, AN OPPORTUNITY TO SPEAK WITH OUR COUNTERPARTS AT SOCALGAS THAT DO LONG RANGE PLANNING, THEY INDEED CONFIRM THAT WE'RE NOT EXPERIENCING SOMETHING ISOLATED.

THEY ALSO EXPERIENCE HISTORIC RECORD LOW DEMAND.

CONSEQUENTLY, AS FAR AS THE PUC IS CONCERNED, THEY ARE NOW ADVOCATING FOR A FAIRLY SUBSTANTIAL RATE INCREASE WITH THE PUC.

AS I'VE STATED TO YOU BEFORE, THAT REPRESENTS RATE CAPACITY FOR US TO DECIDE WHAT WE DO IN RESPONSE, UH, SO WE'RE MONITORING THAT SITUATION CAREFULLY AS WELL.

SORRY.

THANK YOU.

NO, I APPRECIATE THE ADDITIONAL INFORMATION THERE WITH REGARDS TO, UH, UH, SOCALGAS.

UH, LOOKING FORWARD TO THE, THE ROBUST ANALYSIS OF, UH, THE GAS, UH, UH, WHAT ARE WE LOOKING FOR? DEMAND, YEAH.

UH, IN THE FUTURE, JUST, UH, AS WE DO WITH THE, WITH THE WATER DEMAND.

SO THAT, LOOKING FORWARD TO THAT, THAT'S GONNA BE GREAT.

AND HOPEFULLY WE'RE WORKING WITH OUR, OUR, UH, BIG BROTHER, UH, BIG SISTER, UH, SOCALGAS AND, AND KINDA USING THEM AS A RESOURCE AS WELL TO, TO TAP WHAT KNOWLEDGE THEY MIGHT HAVE LOOKING INTO THE FUTURE, WHAT CRYSTAL BALLS THEY MIGHT BE ABLE TO USE.

IT'S A DIFFERENT RELATIONSHIP.

WE'VE HISTORICALLY JUST SIMPLY VIEWED SOCALGAS AS A PARTY THAT WE VIEW AT PUC HEARINGS AND TO SIMPLY REACTIVELY, UH, JUDGE WHAT THEY'RE DOING.

UH, WHAT I'M TRYING TO ACTIVELY DO IS BUILD A PARTNERSHIP RELATIONSHIP WHERE INDEED WE MAY INDEED BE AT PUC LOOKING AT EACH OTHER IN VARIOUS WAYS, BUT AT THE SAME TIME, WE'RE DOING EXACTLY THE SAME THING.

AND SO CONSEQUENTLY, BUILDING A BRIDGE BETWEEN EACH OTHER AND TRYING TO FIGURE OUT HOW DO WE DO THINGS TOGETHER IN CONCERT, IT, IT MAKES US ALL WISER FOR, FOR THAT RESULT.

THANK YOU.

I AGREE.

THANK YOU.

OKAY, DANIEL, I'M GONNA CHANGE GEARS JUST A LITTLE BIT FROM THAT CONVERSATION, BUT ON THE PROPOSED GAS FUND FORECAST, IT WASN'T THERE, AND MAYBE I'M COMPLETELY OFF ON THIS, THE BUDGET WAS LIKE THERE WOULD BE A THREE OR FOUR MILLION DOLLAR RESERVE BECAUSE THEY TOOK A PROJECT, I THINK THE ABANDONMENT OF A PIPELINE AND IT WAS GONNA GO TO RESERVE AND NOW, UH, I DON'T KNOW - SO THAT'S THE THREE MILLION DOLLARS FOR THE HUNTINGTON BEACH, UH, PIPELINE OF PROJECT? YES.

UH, THAT IS BEING RESERVED FOR FY27.

RIGHT NOW WE'RE, WE'RE FOCUSING ON FY26 YEAR END.

OH, OKAY.

I SEE.

AND THEN, THANK YOU.

BUT IF WE WENT BACK TO YOUR SLIDE ON 22 AND YOU HAD A QE ESTIMATE TO CLOSE ON THE CIP OF 24.6, IF, IF THAT WAS ACCURATE, WHAT WOULD THAT HAVE DONE TO THE RESERVES? HOW WOULD YOU HAVE FINANCED THE ADDITIONAL 10 OR $8 MILLION, WHATEVER THAT NUMBER IS? UM, WELL, THERE WERE THE P - A COUPLE OF OPTIONS THAT WE WERE EXPLORING.

ONE OF THEM WOULD HAVE BEEN TO PULL THE THREE MILLION FROM THE HUNTINGTON BEACH PIPELINE, UH, PROJECT.

THAT WAS ONE OF THE OPTIONS.

BUT AS OF NOW, UM, WE DON'T PLAN ON DOING THAT, SO, UM, YEAH.

OKAY.

SO WE'LL END THE YEAR WITH 100,000 AND FIVE, 27 WE HAVE THREE, OR A MILLION, AND THEN WE'LL HAVE FOUR MILLION STARTING IN 27.

IS THAT FAIR TO SAY? UM, I WOULD HAVE TO LOOK AT THE FY27, UH, STRUCTURED AMOUNTS THAT WE HAVE IN PLACE.

UH, AND THEN WE ALREADY HAVE PRELIMINARY, UH, Q1 UPDATES AS WELL.

SO THOSE NUMBERS HAVE CHANGED SLIGHTLY.

WHERE THE BUDGET IS.

OKAY.

THANK YOU.

COMMISSIONER PARKIN, FOR, FOR TRANSPARENCY AND AWARENESS, UM, IT, IT IS ALSO A, A FINANCIAL FACTOR THAT THE ELM STREET IMPROVEMENTS, WE ARE NO LONGER PART OF THAT PROJECT.

SO WE ARE, I'M IN ACTIVE DISCUSSIONS WITH THE HEAD OF ENERGY AND ENVIRONMENTAL SERVICES, BOB DOW.

I'M WORKING WITH HIS DEPARTMENT AND WITH FINANCIAL MANAGEMENT SO THAT WHAT WAS ORIGINALLY THE GAS FUNDS INVESTMENT IN ELM STREET ACTUALLY BE RETURNED TO THE GAS FUND.

THAT'S ANOTHER SIX MILLION DOLLARS.

IT'S A TRANSACTION THAT I'M JUST COMMUNICATING TO YOU FOR TRANSPARENCY AWARENESS, BUT IT DOES NOT FACTOR INTO THIS AS DANIEL POINTED OUT.

THIS IS STRICTLY LOOKING AT FISCAL YEAR 26.

I'M CONVEYING AN ACTION THAT IS LOGICALLY GOING TO HAPPEN IN FISCAL YEAR 27.

THAT WAS MY CONFUSION.

I APOLOGIZE.

I, YOU'RE ABSOLUTELY RIGHT.

I JUST DIDN'T, I THOUGH IT WAS IN THAT FISCAL YEAR, BUT PLEASE CONTINUE.

OKAY.

UH, SWITCHING OVER TO THE SEWER FUND.

OUR PREVIOUS ESTIMATE, UH, PROJECTED A FUND BALANCE LOSS OF APPROXIMATELY TWO MILLION.

UH, WE ARE NOW ANTICIPATING A LOSS OF APPROXIMATELY ONE MILLION.

SO THAT'S FROM RIGHT HERE TO RIGHT HERE.

STARTING WITH REVENUES, UH, SALES ARE PROJECTED TO FINISH IN LINE WITH BUDGET AND CONSISTENT WITH OUR PREVIOUS ESTIMATES.

THE SEWER CAPACITY CHARGES ARE APPROXIMATELY ONE MILLION ABOVE THE ORIGINAL BUDGET, UH, DRIVEN BY INCREASED DEVELOPMENT AND THE ACTIVITY THROUGHOUT THE CITY.

AND THIS IS INCLUDING A SIGNIFICANT 1.4 MILLION IN COLLECTIONS DURING AUGUST ALONE.

[00:15:02]

THIS IS BASED ON AVAILABLE PROJECTS.

UH, FOR MISCELLANEOUS REVENUE AND REIMBURSABLE CIP, UH, THEY ARE CONSISTENT WITH OUR Q2 ESTIMATES AND SAW VERY LITTLE CHANGE.

ON THE EXPENDITURE SIDE, SALARIES ARE PROJECTED TO FINISH IN LINE WITH BOTH BUDGET AND OUR PREVIOUS ESTIMATE.

O&M EXPENDITURES ARE PROJECTED TO FINISH ABOVE BUDGET, PRIMARILY DRIVEN DUE TO VEHICLES BEING DELIVERED EARLIER THAN ANTICIPATED, SIMILAR TO WHAT WE SAW ON THE WATER SIDE.

UH, CIP EXPENDITURES REMAIN CONSISTENT WITH OUR PREVIOUS ESTIMATES AND THE OVERALL CAPITAL PROGRAM CONTINUES, UH, TO PROGRESS AS ANTICIPATED WITH THE HAINES PLANT PROJECT DEFERRAL BEING THE LARGEST DEVIATION FROM THE BUDGETED AMOUNT.

UH, DEBT SERVICE COSTS HAVE INCREASED SLIGHTLY DUE TO FEES ASSOCIATED WITH THE NEW LINE OF CREDIT.

AND LASTLY, WE ARE PROJECTING AN INCREASE IN THE GENERAL FUND TRANSFER OR THE NEXUS STUDY, BRINGING THAT AMOUNT TO APPROXIMATELY 2.8 MILLION.

UH, THIS INCREASE REFLECTS, UH, ACTUAL ACTIVITY AND WE HAVE INCORPORATED THIS ADJUSTMENT INTO OUR FY27 PROJECTIONS AND WE'LL BE BUDGETING AT A HIGHER LEVEL GOING FORWARD.

WHAT THIS MEANS IN TERMS OF FUND BALANCE, SO IN JUNE, WE WERE PROJECTING A FUND BALANCE OF SIX AND A HALF MILLION, AND NOW WITH EXPENDITURES COMING IN 1.2 MILLION ABOVE AND REVENUES COMING IN AT 2.8, UH, ABOVE THE Q2 ESTIMATE, WE'RE ON, WE ARE NOW LOOKING AT A FUND BALANCE OF 8.1 MILLION.

SO IN CLOSING, AS WE CONTINUE THROUGH OUR YEAR-END PROCESS, WE'LL BE MONITORING REVENUES AND EXPENDITURES, EVALUATING THE TIMING OF CAPITAL PROJECTS AND ASSESSING ANY MATERIAL VARIANCES FROM OUR CURRENT PROJECTIONS.

I ALSO WANNA REITERATE THAT THESE FIGURES PRESENTED TODAY ARE PRELIMINARY AND REMAIN SUBJECT TO COMPLETION OF THE YEAR-END CLOSEOUT AND FINAL RECONCILIATION.

UH, LASTLY, OUR FINANCIAL UPDATE IS ANTICIPATED IN FEBRUARY 2027.

SO WITH THE RECOMMENDATION TO RECEIVE AND FILE THE FISCAL YEAR 2026 PRELIMINARY YEAR-END FINANCIAL UPDATE PRESENTATION FOR THE WATER, GAS, AND SEWER FUNDS.

ARE THERE ANY QUESTIONS? NO.

I HAVE NO QUESTIONS.

THANK YOU, DANIEL.

I APPRECIATE ALL OF YOUR EFFORT ON THIS.

I KNOW THIS IS A LOT OF WORK, AND SO WE CERTAINLY APPRECIATE YOU PRESENTING THIS TO US AND HELPING US UNDERSTAND IT.

SO THANK YOU.

YEP.

IS THERE ANY PUBLIC COMMENTS? WE'VE DONE COMMISSIONER COMMENTS.

ALL THOSE IN FAVOR TO RECEIVE AND FILE? OH, I'M SORRY.

YES, ABSOLUTELY.

PETE, PLEASE.

UH, DIDN'T EXPECT A COMMENT, BUT I, UH, I NOTED THE DISCUSSION AROUND THE 10-YEAR LOW IN GAS, UH, DEMAND AND REVENUE.

AND, UH, I, I WORK ALONGSIDE MANY OF THE ORGANIZATIONS THAT ARE, UH, THOUGHT LEADERS IN GAS TRANSITION PLANNING NATIONWIDE AND STATEWIDE.

SO BE HAPPY TO CONNECT YOU ALL.

I, I KNOW, UH, MR. FALLAGAN, YOU ARE GONNA BE TALKING WITH, UH, SOCAL, UH, SOCALGAS, UH, BUT HAPPY TO CONNECT IF, UH, IT WOULD BE BENEFICIAL TO GET INPUT FROM SOME OF THESE ORGANIZATIONS THAT ARE THINKING ABOUT HOW DO WE SAFELY AND AFFORDABLY AND EQUITABLY PHASE OUT TWO MILLION MILES OF GAS DISTRIBUTION PIPELINE NATIONWIDE.

SO, UH, THERE, THERE IS LIKELY TO BE STRUCTURAL CHANGE.

WE'RE AT THE VERY BEGINNING OF THAT, I THINK, BUT, UH, HAPPY TO MAKE THOSE CONNECTIONS.

THANK YOU.

ANY OTHER PUBLIC COMMENT? IF NOT, UH, ALL THOSE IN FAVOR TO RECEIVE AND FILE.

AYE.

AYE.

ANY OPPOSED? NO.

MOTION PASSES.

THANK YOU.

AND WE'LL MOVE ON TO ITEM NUMBER THREE, RECEIVE

[3. 26-56629 Recommendation to receive and file the results of the Cost of Services Study for Long Beach Gas Services.       Suggested Action: Approve recommendation. ]

DO I HAVE MOTION TO RECEIVE AND FILE? MOTION.

SECOND.

AND AT THIS TIME, GERALDINE, THANK YOU.

GOOD MORNING, COMMITTEE MEMBERS.

TODAY, WE ARE PRESENTING THE RESULTS OF THE UPDATED COST OF SERVICE STUDY FOR GAS FEES.

I'LL FIRST BEGIN WITH AN OVERVIEW OF USER FEES AND THE PRINCIPLES THAT GUIDE HOW THEY'RE ESTABLISHED.

THEN I WILL EXPLAIN THE METHODOLOGY THAT OUR CONSULTANT APPLIED AND THEN WALK THROUGH THE KEY COMPONENTS OF THE REPORT.

AND THEN FINALLY, I'LL HIGHLIGHT THE STUDY FINDINGS, POTENTIAL FINANCIAL IMPACTS, AND DISCUSS OUR NEXT STEPS.

SO THE TWO TYPES OF FEES THAT ARE COVERED IN OUR STUDY ARE USER FEES, WHICH ARE GENERALLY ASSESSED WHEN AN INDIVIDUAL OR BUSINESS REQUESTS OR RECEIVES A PARTICULAR SERVICE.

AND THEN WE HAVE REGULATOR- REGULATORY FEES WHICH ARE INTENDED TO RECOVER THE COSTS ASSOCIATED WITH OVERSIGHT OR REGULATION OF CERTAIN ACTIVITIES.

[00:20:01]

SO FOR THE FEE SETTING APPROACH, UH, FEES ARE SUBJECT TO LIMITATIONS BASED ON THE REASONABLE COST OF SERVICE.

DETERMINING THE FULL COST DOES NOT NECESSARILY MEAN THAT A FEE WILL BE SET AT THAT LEVEL.

THERE MAY BE OTHER POLICY CONSIDERATIONS THAT SUPPORT SETTING CERTAIN FEES BELOW FULL COST RECOVERY, SUCH AS CUSTOMER AFFORDABILITY.

WHEN THAT OCCURS, THE DIFFERENCE BETWEEN THE FEE COLLECTED AND THE COST OF PROVIDING THE SERVICE MUST BE SUBSIDIZED BY ANOTHER SOURCE, AND IN THIS CASE, THAT IS THE GAS FUND.

TO PROVIDE SOME HISTORICAL CONTEXT, THE CITY PRE- PREVIOUSLY CONDUCTED A COMPREHENSIVE FEE STUDY IN 2021 WHEN GAS WAS PART OF THE ENERGY RESOURCES DEPARTMENT.

THE STUDY WAS COMPLETED BY REVENUE AND COST SPECIALISTS, ALSO CALLED RCS, AND DETERMINED THAT OUR EXISTING FEES AT THAT TIME, UH, RECOVERED AN AVERAGE OF 85% OF SERVICE COST.

FOLLOWING THE STUDIES, THE CITY COUNCIL APPROVED FEE ADJUSTMENTS IN 2022.

MOST WERE AT 100% FULL COST RECOVERY.

THERE WERE CERTAIN FEES THAT WERE REMAIN - THAT REMAINED BELOW FULL COST RECOVERY TO HELP MITIGATE CUSTOMER FINANCIAL HARDSHIPS FOLLOWING THE PANDEMIC.

THESE INCLUDED OUR MISSED APPOINTMENT FEES, RECONNECTION FEES, AND DUPLICATE BILL FEES.

SINCE THEN, UH, GAS FEES REMAIN UNCHANGED.

SO WE RETAINED RCS TO CONDUCT AN UPDATED STUDY USING THE FISCAL YEAR 26 BUDGET, AS WELL AS NEW STAFFING AND TIME INCREMENT DATA.

THE UPDATED STUDY WAS COMPLETED IN APRIL 2026 AND REVIEWED 76 FEES ACROSS FOUR SERVICE AREAS USING THE METHODOLOGY CONSISTENT WITH THE PRIOR 2021 STUDY.

FOR A METHODOLOGY OVERVIEW, OUR CONSULTANT USED A FULLY ALLOCATED COST METHODOLOGY TO DETERMINE THE COST OF PROVIDING EACH SERVICE.

THE FIRST STEP INVOLVED IDENTIFYING THE DIRECT AND INDIRECT COST, AND OUR DIRECT COSTS ARE SALARIES, EMPLOYEE BENEFITS, AND OPERATING EXPENSES.

INDIRECT COSTS INCLUDE GENERAL CITY OVERHEAD.

THESE COSTS ARE THEN USED TO CALCULATE A FULLY BURDEN HOURLY RATE PER BUDGETED POSITION, AND THEN THE CONSULTANT WORK WITH OPERATIONAL STAFF TO IDENTIFY WHICH SPECIFIC POSITIONS WERE INVOLVED WITH PERFORMING EACH, UH, SERVICE, AND THEN THE AMOUNT OF TIME THAT IT TOOK TO, UH, PROVIDE THE SERVICE.

THEN THEY MULTIPLIED THE FULLY BURDEN HOURLY RATE TO THE ESTIMATED, UH, TIME INCREMENT, AND THAT IS HOW THE CONSULTANT CALCULATED THE FULL COST, FULL COST OF EACH SERVICE.

SO AFTER THE FULL COST WAS DETERMINED, IT WAS COMPARED TO CURRENT FEE REVENUE AND THEN, UH, EVALUATED FOR THE APPROPRIATE FEE LEVELS.

THE STUDY IS QUITE LENGTHY, SO IN THE NEXT FEW SLIDES, I'LL QUICKLY HIGHLIGHT FOUR KEY COMPONENTS THAT DOCUMENT THE CONSULTANT'S FINDINGS AND RECOMMENDATIONS.

THE FIRST, THE FIRST SCHEDULE IS A SUMMARY OF REVENUES, COSTS, AND SUBSIDIES.

THIS PROVIDES AN OVERVIEW OF EACH FEE, UM, WHICH INCLUDES THE CURRENT FEE REVENUE, ESTIMATED TOTAL COST, AND THE RESULTING SURPLUS OR SUBSIDY AMOUNT.

IT ALSO SHOWS THE CURRENT COST RECOVERY PERCENTAGE, AS WELL AS THE POTENTIAL REVENUE ASSOCIATED WITH THE STUDY'S RATE RECOMMENDATIONS.

THIS SCHEDULE IS PARTICULARLY USEFUL BECAUSE IT ALLOWS US TO QUICKLY IDENTIFY WHICH SERVICES HAVE LARGE GAPS BETWEEN REVENUE AND COST.

THE NEXT SECTION PROVIDES A COMPARISON BETWEEN OUR EXISTING FEES AND THE CONSULTANT'S RECOMMENDED FEE AMOUNTS.

AND THEN IN THE REVENUE AND COST SUMMARY, THIS PRO - GOES DEEPER IN THE DETAILED FINANCIAL ANALYSIS FOR EACH FEE.

IT DESCRIBES THE ACTIVITY BEING PERFORMED, OUR EXISTING FEE STRUCTURE, AND WHERE ACTIVITY INFORMATION IS AVAILABLE.

IT ALSO INCLUDES ESTIMATED SERVICE VOLUMES USED TO CALCULATE TOTAL COSTS AND POTENTIAL REVENUES.

UH, THE EXAMPLE IS A LITTLE BIT SMALL, BUT THIS IS FOR SLAM SHUT REGULATOR INSTALLATION.

SO HERE, UH, IN ADDITION TO CALCULATING THE FULL SERVICE COSTS, THE CONSULTANT ALSO RECOMMENDS TO REVISE THE FEE

[00:25:01]

UM, I DID WANNA HIGHLIGHT THIS PARTICULAR EXAMPLE SINCE IT ILLUSTRATES THAT THE STUDY NOT ONLY INCLUDES INCREASES AND DECREASES TO THE FEE LEVELS, BUT ALSO RECOMMENDS, UH, RESTRUCTURING OF FEES.

AND THEN FINALLY, UH, THERE IS THE, UM, UH, COST DETAIL WORKSHEET.

THIS ACCOMPANIES EACH REVENUE AND COST SUMMARY, AND IT PROVIDES ADDITIONAL COST CALCULATIONS.

SO, UH, IN THIS CASE, IT, IT PROVIDES THE EXACT POSITIONS THAT ARE INVOLVED WITH PROVIDING THE SERVICE, THE TIME INCREMENT, AND THE FULLY BURDENED HOURLY RATE.

MOVING ON TO THE STUDY RESULTS.

THE UPDATED ANALYSIS FOUND THAT OUR CURRENT FEES RECOVER AN AVERAGE OF 61% ACROSS ALL OF OUR SERVICES, WITH THE REMAINING 39% CURRENTLY SUBSIDIZED BY THE GAS FUND.

THIS IS A CHANGE FROM OUR PRIOR STUDY, WHICH FOUND THAT EXISTING FEES RECOVERED APPROXIMATELY AN AVERAGE OF 85%.

AND THEN, UH, TO CLARIFY, IN THE FOURTH COLUMN TITLED TOTAL SURPLUS AND SUBSIDY, THE TOTAL OF 5.2 MILLION IS A CALCULATED SUBSIDY AMOUNT, MEANING THIS IS THE AMOUNT THAT THE, UH, THE ANNUAL AMOUNT THAT THE GAS FUND IS ABSORBING EACH YEAR.

THE CONSULTANT ESTIMATES THAT IMPLEMENTING ALL RECOMMENDED FEE ADJUSTMENTS AND STRUCTURES COULD POTENTIALLY GENERATE TWO MILLION IN ADDITIONAL ANNUAL REVENUE.

PLEASE NOTE THAT THIS AMOUNT IS SUBJECT TO SERVICE VOLUMES THAT WERE AVAILABLE AT THE TIME OF STUDY, AND IN SOME AREAS MAY BE CONSERVATIVE WHERE DATA WAS LIMITED.

YES.

WITH YOUR PERMISSION.

SO, UH, UH, I'M JUST NOT QUITE FOLLOWING THE - UH-HUH.

SO THE TOTAL SURPLUS, WHICH IS THE AMOUNT THAT THE GAS DIVISION WAS BASICALLY EATING - YES.

SERVICES, RIGHT? 5.2, WHY DOES THAT ONLY LEAD TO A $2 MILLION POTENTIAL NEW REVENUE? SO THE, UM, ESTIMATED OR POTENTIAL REVENUE PER FEE IS ALSO SUBJECT TO THE USAGE OR THE VOLUME INFORMATION THAT WAS AVAILABLE AT THE TIME OF STUDY.

AND SO IN SEVERAL CASES IN THE STUDY, YOU WILL SEE QUANTITIES THAT ARE JUST ASSUMED AT ONE OCCURRENCE PER YEAR, ESPECIALLY IN REGARDS TO DEVELOPMENT RELATED, IT TOOK A CONSERVATIVE APPROACH.

ALSO, UH, THERE'S ALSO CERTAIN FEES WHERE IT'S FOOTNOTED THAT THE DATA JUST WASN'T AVAILABLE OR WE HADN'T HAD THAT OCCURRENCE, UM, IN RECENT, ALTHOUGH WE DID HAVE THE FEE AND COST IT.

SO OVERALL, I WOULD REGARD THE ESTIMATED REVENUES AS A CONSERVATIVE FIGURE AND, UH, UPON IMPLEMENTATION OF FEE ADJUSTMENTS, ACTUAL REVENUES WILL NEED TO BE MONITORED AS WE ALSO GET A BETTER UNDERSTANDING OF WHAT STRUCTURAL LEVELS CAN BE ANTICIPATED ON A MOVE FORWARD BASIS FOR ANY BUDGETARY, UH, CHANGES.

THAT HELPS.

THANK YOU.

UH, COULD I, UH, FOLLOW UP ON THAT? IS THE TOTAL S - THE AMOUNT, THE 5.2 THAT WE EAT FROM THE GAS DEPARTMENT, THE 1.9 ESTIMATE NOW WOULD ASSUME THAT THE GAS DEPARTMENT DOESN'T, UH, ABSORB ANY COSTS, AND THAT 1.9 IS ON, UH, WE, WE MAKE THE FIVE MILLION BACK TO THE GAS FUND AND WE GET 1.9 IN ADDITIONAL REVENUE.

IS THAT FAIR? NO.

SO YOU, UH, IT IS ACCURATE THAT IT ASSUMES THAT EVERYTHING IS, UM, OR WE ARE MOVING TOWARDS FULL COST RECOVERY, UM, AND WE ACCEPT THE CONSULTANT'S RECOMMENDATIONS.

HOWEVER, UM, THE ONE POINT, THE ADDITIONAL TWO MILLION IS THE CONSERVATIVE ESTIMATE OF HOW MUCH ADDITIONAL ANNUAL REVENUE WE WOULD, UM, GO, UH, WE WOULD BE RECOGNIZING, WHICH WOULD THEN ADDRESS THE S - UH, THE SUBSIDIZED AMOUNT OF 5.3.

UM - SO THE...

YEAH, GERALDINE, TO, TO JOIN IN, I'M SORRY FOR INTERRUPTING.

IF, IF I HEARD YOU CORRECTLY, THE, THE ESTIMATED POTENTIAL REVENUE IS A TOTAL AMOUNT BASED ON AN ACTIVITY LEVEL.

CORRECT.

SO THERE HAS TO BE A BUDGETED ACTIVITY LEVEL GOING FORWARD THAT MAY OR MAY NOT BE LIBERAL OR CONSERVATIVE COMPARED TO WHAT ACTUALS HAVE BEEN TAKING PLACE IN WHAT THE CURRENT TOTAL FEE REVENUE STRUCTURE, THAT'S FOR THIS FISCAL YEAR THAT JUST CLOSED, OR WHICH, WHICH FISCAL YEAR WAS THAT A- ATTRIBUTED TO? THE, UH, FINANCIAL INFORMATION IS US OF OUR FY26 ADOPTED BUDGET, AND OUR FEES ARE OUR CURRENT EFFECTIVE FEE LEVELS.

SO THE CURRENT TOTAL FEE REVENUE WAS THE FISCAL YEAR 26 BUDGETED REVENUE? CORRECT.

SO IT WAS AN ESTIMATED REVENUE? CORRECT.

SO BASED ON THE ESTIMATED REVENUE, THE ESTIMATED

[00:30:01]

CORRECT.

SO A BUDGET ESTIMATE CALCULATION WAS IN FISCAL YEAR 26, BUDGET-WISE, WE ESTIMATE THAT THERE WAS THAT AMOUNT OF SUBSIDY.

IN TERMS OF WHAT WE WOULD HAVE TO CALCULATE WITH THE FEES GOING FORWARD, IF YOU ADJUSTED THE FEES, WE WOULD HAVE TO DO ANOTHER ESTIMATE.

AND IN THAT CASE, WE ESTABLISHED AN ACTIVITY LEVEL THAT WAS CONSERVATIVE.

IF IT TURNS OUT TO BE BETTER THAN THAT, THEN THERE WOULD ACTUALLY BE GREATER REVENUE POTENTIAL.

UM, BUT WE TRIED TO BE CONSERVATIVE IN THE AMOUNT OF ACTIVITY BECAUSE AS GERALDINE POINTED OUT, SOME OF THOSE ACTIVITIES ARE DEVELOPMENT RELATED.

AND SO WE IN ESSENCE WOULD BE TRYING TO SAY IN ANTICIPATION OF A CERTAIN DEVELOPMENT LEVEL, WE'RE GOING TO GET THIS REVENUE.

JUST TO FOLLOW UP TO THAT QUESTION THEN, ARE WE USING THE SAME ESTIMATES THAT WE USED FOR THE CURRENT TOTAL FEE REVENUE? THAT'S A BUDGETED NUMBER, NINE, 11, NINE, 26.

AND THEN THE ESTIMATED NEW POTENTIAL REVENUE, ARE WE USING THE SAME, UH, ASSUMPTIONS THAT WE USED IN THE BUDGET? NO.

SO WHEN WE, UH, DEVELOP THE FISCAL...

THIS IS OUR FISCAL YEAR 26 BUDGET, WHICH I WOULD, UH, HIGHLY LIKELY GUESS IS BASED ON, UH, TRACKING ACTUAL PERFORMANCE.

UM, SO, UH, BUT THE ESTIMATED POTENTIAL NEW REVENUE, UM, THAT IS THE ESTIMATED AMOUNT THAT WE COULD POTENTIALLY GENERATE.

AND IT INCLUDES THE ASSUMPTIONS FOR BASED ON 26 BUDGET WHEN IN REGARDS TO STAFF TIME AND OPERATIONAL COSTS.

BUT IT ALSO, UM, IS IN MANY INSTANCES THAT FOR SOME FEES, THERE ARE VERY LI - THERE WAS LIMITED INFORMATION FOR DATA.

AND SO THE POTENTIAL REVENUE IS REPORTED EITHER AS ZERO OR ONLY BASED ON ONE UNIT OF OCCURRENCE DURING A FISCAL YEAR.

SO, UM, IF WE WERE TO ADOPT ALL OF THE RECOMMENDATIONS AS PROPOSED BY THE CONSULTANT, UH, WE WOULD REVIEW, UH, OR CLOSELY MONITOR ACTUALS AND THEN, UH, BASED ON ACTUAL PERFORMANCE IN A GIVEN YEAR, THEN GO AHEAD AND MAKE THE STRUCTURAL ADJUSTMENTS TO OUR BUDGETED REVENUE ACCORDINGLY.

AND DID I READ IT RIGHT WHERE SOME OF THE, THEY SAID THERE WAS NOT ENOUGH DATA - CORRECT.

TO SUGGEST A CHANGE TO THE FEE OR TO UPDATE THE FEE, OR IS, IS IT ONLY, THERE WASN'T ENOUGH DATA TO DETERMINE HOW MANY UNITS A YEAR WOULD HAPPEN? THAT'S CORRECT.

THERE WASN'T ENOUGH DATA TO DETERMINE, UH, ACTUAL VOLUME FOR THAT YEAR.

AND SO IN MANY INSTANCE, IT'S ASSUMED AT ONLY ONE OCCURRENCE.

AND SO THIS STUDY, EVEN THOUGH MAYBE THEY DON'T HAVE THE NUMBER OF UNITS THAT ARE GOING TO OCCUR, THEY WERE ABLE TO LOOK AT 21 - ' 22 STUDY AND SAY YOUR ACTUAL COST NOW IN 26, 27 IS X VERSUS WHAT IT WAS PREVIOUSLY.

ABSOLUTELY.

SINCE THE, UH, GOAL OF THE STUDY, WHILE IT DOES INCLUDE A COMPONENT OF ESTIMATING POTENTIAL NEW REVENUE, THE MEAT AND POTATOES OF THE STUDY IS TO DEVELOP A, UH, PER UNIT COST OF SERVICE.

SO IN THAT CASE, IT WAS A VERY CLEAR APPLES TO APPLES WHERE THEY CAN LOOK AT THEIR DATA USED IN 21 AS A REGARD, IN REGARDS TO COST, AND THEN COMPARE IT DIRECTLY TO THE SAME DATA SET UPDATED FOR FISCAL YEAR 26.

SORRY.

AND THAT'S HOW YOU'RE ABLE TO TELL US LIKE IN 21, 22, WE WERE COLLECTING MAYBE 85% OF THE COSTS AND NOW IT'S IN THE 60S OR WHEREVER IT'S AT.

CORRECT.

AND A BIG PART OF THAT IS BECAUSE, UH, SINCE WE MADE THOSE ADJUSTMENTS BY, BASED ON THE 21 STUDY, THE FEE ADJUSTMENTS WERE MADE IN FISCAL YEAR 22, FEES HAVE REMAINED ABSOLUTELY UNCHANGED IN THE LAST FIVE YEARS.

SO - CAN I, AND YOU DON'T, MAY NOT KNOW THE ANSWER, BUT IN 2021 WHEN THEY DID THE STUDY AND THE COUNCIL MADE THEIR CHA - W - DO YOU KNOW WHY WE DIDN'T, WE, THE GAS DEPARTMENT DIDN'T COME BACK IN SUBSEQUENT YEARS, AT LEAST FOR INFLATION OR WAS THERE ANY KIND OF...

I SEE IN THIS STUDY, THEY MAKE A RECOMMENDATION THAT YOU DO MAYBE AN ADJUSTMENT ANNUALLY - UH-HUH.

SO THAT YOU DON'T FALL SO FAR BEHIND.

WAS THAT NOT THE CASE IN 21, 22? SO THAT COMPONENT ABOUT THE ANNUAL ADJUSTMENT AND FOR THE BOARD TO ADOPT A POLICY IS ACTUALLY NEW IN THIS STUDY.

IT WAS NOT RECOMMENDED AS PART OF THE 21 STUDY.

AND IT'S, UH, LIKELY BECAUSE WHEN GAS WAS PART OF THE ENERGY RESOURCES DEPARTMENT, ON THE CITYWIDE SIDE, THEY HAVE A CITY COST INDEX, UH, WHICH IS THE ANNUAL INFLATER FOR CITY MANAGER DEPARTMENTS.

SO AS PART OF THE CITYWIDE PIECE, THERE'S ALREADY A PROCESS IN PLACE, WHICH IS WHY IN OUR STUDY TODAY, UM, IN THE UPDATED STUDY, RCS SPECIFICALLY RECOMMENDED THAT THE BOARD, UH, APPLY A POLICY FOR AN ANNUAL INFLATER.

[00:35:01]

SORRY FOR INTERRUPTING.

GO.

OH, NO, NO.

AND A LOT OF THE THINGS WE DISCUSS ARE IN THE NEXT FEW SLIDES, SO.

CHAIR, IF I MAY REAL QUICK.

YES.

UH, THIS DISCUSSION ILLUSTRATES TO ME PERFECTLY WHY I LOVE THE COMMITTEE STRUCTURE.

UM, IT'S THE DEEP DIVE THAT, THAT I'VE BEEN LOOKING FOR AND, AND I THINK IT'S REALLY BENEFICIAL.

I'M ASSUMING THIS WILL GO IN FRONT OF THE, UH, THE, THE WHOLE COMMISSION AT SOME POINT? CORRECT.

DISCUSSION.

YEAH.

IF I MAY JUST SUGGEST, UM, BECAUSE, UH, CHAIR AND I WERE BOTH, UM, STUCK ON THE ESTIMATED POTENTIAL NEW REVENUE, PERHAPS MODIFYING THAT SLIDE TO GIVE, UH, UH, AN IDEA OF WHAT THE TOTAL SURPLUS 5.2 MILLION, UH, AND THE, THE, THE, UH, POTENTIAL, UM, WHAT, UH, I DON'T KNOW, THE - NEW, ANNUAL NEW REVENUE.

RANGE, THE POTENTIAL RANGE.

HYPOTHETICAL TEST.

EXACTLY.

RATHER THAN CALLING IT ESTIMATED POTENTIAL NEW REVENUE, JUST THE, THE RANGE OF SAVINGS OR POTENTIAL NEW REVENUE OR WHATEVER.

SIMPLIFY THINGS A LITTLE BIT.

AND, AND, UM, IF I RELATE TO MY EXPERIENCE WITH THE, THE WATER RATE COST OF SERVICE STUDY, THERE'S AN ANALYSIS OF AN ACTUAL BUDGET YEAR AND IT'S ANALYZED FOR WHAT IT IS.

AND THEN THERE'S A PROPOSAL OF A TEST YEAR AND THE TEST YEAR IS STRUCTURED.

AND THEN IN THAT STRUCTURE, THE TEST YEAR, THE HYPOTHETICAL RATE STRUCTURE NOW IS EVALUATED IN THE TEST YEAR.

SO THE, THE LOGIC AND METHODOLOGY OF CONSTRUCTING THAT NARRATIVE IS PERHAPS WHAT THIS CONVERSATION HAS GONE TO.

AND WE'LL DO OUR BEST TO TRY TO INCORPORATE THAT WHEN WE GO TO BOARD.

AND I JUST WANTED TO ADD, SO THE RETURN TO THE BOARD WILL ALSO INCLUDE, UH, DEPARTMENT RECOMMENDATIONS, WHICH MAY ALIGN WITH THE STUDY OR MAY BE DIFFERENT.

AND SO AT THAT TIME, THAT IS WHERE THE, UH, ANTICIPATED REVENUE OR THE LIKELY REVENUE AS OPPOSED TO THE CONSULTANT REPORTED REVENUE WILL BE DISCLOSED.

SO TO ADDRESS THE SHORTFALL, UM, OF THE 76 FEES REVIEWED, 57 WERE RECOMMENDED FOR INCREASES.

THERE WERE FIVE THAT WERE RECOMMENDED FOR A RESTRUCTURE AND A RESTRUCTURE MEANS A CHANGE TO HOW THE FEE IS CALCULATED OR ASSESSED TO BETTER REFLECT THE UNDERLYING SERVICE.

SO IT IS SIMILAR TO THE SLAM SHUT FEE EXAMPLE HIGHLIGHTED IN THE PRIOR SLIDE.

THERE WERE THREE FEES RECOMMENDED FOR DELETION.

THESE WERE, UH, CLEANUP ITEMS. SO TWO ARE BEING MERGED INTO EXISTING FEES AND ONE IS BEING REMOVED AS A FEE IS NO LONGER NEEDED.

AND THEN ONE NEW FEE IS RECOMMENDED THROUGH THE STUDY AND IT'S FOR A SERVICE THAT CURRENTLY DOES NOT HAVE A SPECIFIC FEE ESTABLISHED.

THIS IS FOR EXPEDITED ENGINEERING REVIEW.

FINALLY, 10 FEES WERE RECOMMENDED TO REMAIN UNCHANGED SINCE THEY WERE ALREADY FOUND TO BE AT COST RECOVERY LEVELS.

SPECIFIC TO THE RECOMMENDED FEE INCREASE, THE TABLE ABOVE PROVIDES A HIGH LEVEL SUMMARY JUST TO ILLUSTRATE THE SCOPE OF CHANGES.

PLEASE NOTE THAT THIS ALSO INCLUDES FEES THAT WERE ALSO RECOMMENDED FOR RESTRUCTURE, UH, WHERE A BASE FEE MAY HAVE SIGNIFICANTLY INCREASED.

HOWEVER, THE SCOPE OF SERVICE WAS ALSO ADJUSTED.

UH, ONE NOTABLE INCREASE IN CONSTRUCTION AND PIPELINES IS FOR A MAIN PIPELINE CONSTRUCTION FEE, AND HERE THE BASE FEE INCREASE FROM 9,715 TO 28,075.

HOWEVER, IN ADDITION TO THE BASE RATE INCREASE, THE RECOMMENDATION ALSO EXPANDED THE SCOPE OF SERVICE TO INCREASE FROM 60 FEET OF PIPELINE TO NOW 100 FEET OF PIPELINE.

SO IN MANY CASES, IT'S NOT AS CLEAR AS JUST A INCREASE AND DECREASE TO A FEE.

THE RESTRUCTURES, UM, DO MAKE THE ASSESSMENT A LITTLE BIT MORE COMPLEX.

OVERALL, THE CALCULATED RE - RATE INCREASES ARE PRIMARILY DUE TO OUR EXISTING FEES REMAINING UNCHANGED SINCE 22, AND THOSE ADJUSTMENTS WERE BASED ON 21 DATA.

OUR CURRENT RATES SIMPLY DO NOT REFLECT THE HIGHER LABOR AND OPERATIONAL COSTS THAT HAVE BEEN EXPERIENCED OVER THE LAST FIVE YEARS.

AND REGARDING NEXT STEPS, STAFF IS CURRENTLY REVIEWING THE CONSU- CONSULTANT'S FINDINGS AND DEVELOPING PROPOSED FEE RECOMMENDATIONS.

WE ANTICIPATE RETURNING TO THE BOARD IN DECEMBER WITH PROPOSED RECOMMENDATIONS FOR REVIEW AND APPROVAL.

AT THAT TIME, WE WILL IDENTIFY WHICH FEES ARE RECOMMENDED TO MOVE TOWARDS FULL COST RECOVERY AND WHICH, IF ANY, UM, ARE PROPOSED TO REMAIN BELOW FULL COST RECOVERY DUE TO CONSIDERATIONS LIKE AFFORDABILITY.

WHILE THE FEE STRUCTURES MAY BE DIFFERENT, UH, WE

[00:40:01]

AND WITH THAT, THIS CONCLUDES THE PRESENTATION AND THE RECOMMENDATION TO THE FINANCE COMMITTEE IS TO RECEIVE AND FILE THE RESULTS OF THE COST OF SERVICE STUDY FOR LONG BEACH GAS SERVICES.

THANK YOU, AND I AM AVAILABLE FOR ANY QUESTIONS.

THANK YOU, GERALDINE, FOR SYNTHESIZING THIS DOWN TO A MANAGEABLE AMOUNT.

IS THERE ANY PUBLIC COMMENT? COMMISSIONER COMMENT? YES.

UM, I'M NOT QUITE SURE HOW TO, HOW TO WORD THIS, BUT SO I'LL JUST COME OUT AND SAY IT.

UM, WITHIN THE GAS DIVISION, UM, IS THERE A CULTURE OF, UM, UH, WANTING TO MINIMIZE FEES, WANTING TO STAY BELOW A CERTAIN LEVEL, WANTING TO STAY, FOR EXAMPLE, BELOW, UH, SOCALGAS FEES OR, OR IS THERE A CULTURE OF WANTING TO CAPTURE AS BEST WE CAN 100% OF, OF THESE FEES? DOES THAT EXIST OR IS THAT A FAIR QUESTION? NO, IT'S A FAIR QUESTION AND I CAN, UM, THE, AS OPPOSED TO CULTURE, I THINK IT'S MORE OF A CONSIDERATION DEPENDING ON THE CUSTOMER BASE.

SO, UH, IN TW - FISCAL YEAR 22, THERE WAS A HEAVY FOCUS ON, UH, KEEPING FEES FLAT AND NOT INCREASING FOR CERTAIN CUSTOMER FEES FOLLOWING THE PANDEMIC.

AND, YOU KNOW, THAT WAS, UH, ALIGNED TO WHAT WAS GOING ON AT THAT TIME.

I WILL SAY THAT THOUGH OVERALL IN BOTH CASES IN 22, AS WELL AS TODAY, THERE IS A EMPHASIS ON COST RECOVERY.

AS DANIEL HIGHLIGHTED, THE STATUS OF THE GAS FUND, UH, SORELY NEEDS THE ADDITIONAL REVENUE AND COST RECOVERY.

HOWEVER, THE CONSIDERATION FOR CUSTOMER AFFORDABILITY AND OTHER IMPLICATIONS INCLUSIVE OF, UH, CER - ANY IMPACTS THAT INCREASING RATES MAY HAVE, UM, IT WILL CONTINUE TO BE REFLECTED AS PART OF THE, UM, UH, RECOMMENDED FEE CHANGES.

AND THANK YOU FOR THAT.

UH, CAN YOU GIVE ME AN EXAMPLE, THIS MIGHT NOT BE FAIR EITHER, OF, UH, A COST RECOVERY THAT WOULD NOT BE AFFORDABLE FOR A CUSTOMER, A FULL COST RECOVERY THAT WOULD NOT BE NECESSARILY AFFORDABLE OR EQUITABLE? SO I WOULD, I WOULD JUMP IN AND SAY THAT IN MANY CASES, THE ISSUE OF, OF AFFORDABILITY IS NOT THE AMOUNT OF MONEY THAT A FEE IS PROPOSED, BUT RATHER THE DIFFERENCE BETWEEN THE PROPOSED FEE AND THE EXISTING FEE.

THAT JUMP IN FEE IS, IN SOME CASES, BY THE CUSTOMER THAT'S AFFECTED BY IT.

THEY VIEW IT AS NOT COST SERVICE.

THEY DON'T LOOK AT IT FROM THAT LENS.

THEY LOOK AT IT THAT THE AMOUNT IS JUST SIMPLY ONEROUS.

UM, I CAN'T BELIEVE YOU'RE DOUBLING THE FEE.

I CAN'T BELIEVE YOU INCREASED IT BY 50%.

I CAN'T BELIEVE, I CAN'T BELIEVE, I CAN'T BELIEVE.

THE COST OF SERVICE LENS IS LOST IN THAT DISCUSSION.

UM, OTHER PARTIES ARE BROUGHT TO BEAR BECAUSE IN MANY CASES, THESE ARE DEVELOPMENT RELATED.

SO IT COMES IN THROUGH COMMUNITY DEVELOPMENT, THROUGH THE DEVELOPMENT DESK.

UM, IT REACHES THIRD PARTIES AND THE DISCUSSION IS, THIS IS JUST SIMPLY AN ONEROUS, UH, FEE FOR DEVELOPMENT.

UM, THERE'S NO BASIS FOR IT.

YOU SHOULD JUST SIMPLY KEEP IT THE WAY IT IS.

UM, WHAT IS CHANGED IN ONE YEAR TO THE NEXT, UH, THERE'S NO BASIS FOR IT.

THAT'S THE GENERAL FLAVOR OF SOME OF THESE FEES THAT ARE NOT NECESSARILY CUSTOMER BASED, WHICH IS WHERE WE SEE THE RATE DISCUSSION, BUT RATHER AN ENTIRELY SEPARATE, UH, ELEMENT OF CUSTOMERS RELATED TO DEVELOPMENT.

SO THAT, THAT, THAT'S KIND OF WHERE IT GOES.

IN MANY CASES, GOVERNING BOARDS REACT AND THEY SAY, "OKAY, SO LISTEN, UH, MAYBE WE CAN PHASE IT IN.

MAYBE WE DON'T DO THIS.

MAYBE WE POSTPONE IT." UM, AND THE ISSUE IS THAT IT COMPOUNDS ITSELF, UH, OVER TIME, AS GERALDINE WAS POINTING OUT, WHAT IS AN INITIAL DECISION, BUT THEN A FAILURE TO THEN REINVEST AND REENGAGE IN THE ISSUE YEAR AFTER YEAR, UH, POSTPONES IT AND NOW THE SUBJECT OF THE INCREASE BECOMES EVEN STRONGER.

IT, IT NO LONGER CARRIES THE ELEMENT, WHICH I THINK WAS PART OF YOUR COMMENT, WHICH IS IF THIS IS COST TO SERVICE BASED, WHY IS IT AN AFFORDABILITY QUESTION? IT'S SIMPLY COST TO SERVICE BASED, RIGHT? I, I APPRECIATE WHERE, WHAT, HOW YOU WERE DESCRIBING THE PERSON THAT'S GOING TO BE RESPONSIBLE FOR, FOR PAYING THESE INCREASED FEES IF THEY'RE FULL COST RECOVERY.

UH, HOWEVER, DOING THINGS THE WAY WE'VE BEEN DOING THEM IS HOW WE GOT INTO THE POSITION WE'RE IN RIGHT NOW, PARTLY WITH THE RESERVES.

AND I THINK THE GENERAL FEELING ON THE BOARD, UH, IS

[00:45:01]

I, I UNDERSTAND COMPLETELY.

UH, I WOULD ALSO ADD THAT WHAT IS LOST IN THIS LENS OF DISCUSSION IS THAT THE COSTS ARE REPUTABLY ANALYZED AND ASSESSED AND CALCULATED.

SO CONSEQUENTLY, THE FAILURE TO RECOVER IT MEANS THAT THE CUSTOMER BASE THAT IS UNAFFECTED BY THIS DECISION IS IN ESSENCE SUBSIDIZING IT.

SO THERE IS A LARGER PORTION OF THE POPULATION THAT IS SILENT AND YET SUBSIDIZING THE ACTION THAT SOMEONE IS BRINGING UP THE ISSUE OF AFFORDABILITY AS APPLYING TO THEM INDIVIDUALLY.

SO IT, TH- THESE ARE DIFFICULT CONVERSATIONS.

I, I DON'T MEAN TO TRIVIALIZE IT.

IT, IT'S NOT.

UM, BUT IT BRINGS FORWARD THE MAGNITUDE OF THE DECISION THAT YOU WILL HAVE AS A BOARD WEIGHING SOME OF THESE FEE INCREASES WHEN THEY COME AND THE RECOMMENDATIONS THAT WE OFFER YOU AS A PATHWAY TO GET THEM IMPLEMENTED.

UH, THANK YOU.

UM, I, I'D BE CURIOUS TO KNOW HOW WE'RE GOING TO, WHEN IT COMES BACK TO THE FULL BOARD, I, I, I'M JUST SITTING HERE LISTENING, I WOULD THINKING WHAT MS. COMMISSIONER AUSTIN MIGHT SAY, LIKE, "HEY, WHAT HAPPENS IF WE DON'T DO ANYTHING? HOW DOES THAT IMPACT US GOING FORWARD ON A ZERO INCREASE CHANGE?" AND THEN HOW ARE YOU GOING TO DETERMINE WHICH FEES WE SHOULD CONTINUE TO SUBSIDIZE? I MEAN, I THINK THE MA - VAST MAJORITY OF OUR CUSTOMERS ARE SINGLE FAMILY USES, AND IS THAT THE LENS WE LOOK AT IT FROM? AND THEN THE, THE OTHER FEES THAT ARE SUBSTANTIAL FOR THE CONTRACTORS, ET CETERA, ARE INCREASED? UH, IT, IT'S GOING TO BE, YOU KNOW, A VERY DIFFICULT JOB.

AND I'M JUST TRYING TO EMPHASIZE THAT WHEN IT COMES BACK TO US, IT'S UNFORTUNATE IT'S BEEN FIVE YEARS, BUT WE ARE HERE WHERE WE ARE.

AND I THINK AN ADJUSTMENT NOW THAT WE'RE ON NOTICE OF THESE FEES AND WE HAVE THIS STUDY IN FRONT OF US, AND IF YOU HAVE CONFIDENCE IN THE STUDY ITSELF THAT IT, THAT IT ACCURATELY REFLECTS THE COST OF THE SERVICE, UM, I THINK YOU'LL DO THOSE TESTS AND YOU'LL COME BACK AND SAY, "HEY, THIS, THIS, WE THINK THIS COMPANY DID A GREAT JOB AND THEY'RE RIGHT ON POINT, OR THEY MAY HAVE MISSED THE MARK, OR LIKE YOU SAID, WE DON'T HAVE ENOUGH DATA FOR SOME OF THE POINTS THAT WE NEED TO MAYBE ADJUST ON." AND THEN IT COMES TO US AND I THINK YOU'RE GONNA GET INPUT FROM THE BOARD ON WHAT EACH ONE OF THE COMMISSIONERS THINKS IS IMPORTANT THAT WE SUBSIDIZE OR ALLOW TO CONTINUE AT A LESS THAN 100% RECOVERY.

I'M KINDA LEANING MORE TOWARDS THE RECOVERY AND THEN A LESS BURDEN ON ALL OF THE OTHER RATE PAYERS, BUT UNTIL YOU SEE HOW YOU WANNA DICE THAT UP AND IT, IT, IT, I, I DON'T KNOW HOW COUNCIL DECIDED IT.

I KNOW DURING THE PANDEMIC, THEY HAD THAT ONE PARTICULAR EMPHASIS ON AFFORDABILITY AND THE HOOKUPS, BUT IF THEY'RE, IF WE'RE LEANING NOW TOWARDS COST RECOVERY AND WE HAVE THIS INFORMATION IN FRONT OF US, YOU KNOW, WE'RE GONNA HAVE TO MAKE SOME TOUGH DECISIONS HERE TO THE, TO THE CUSTOMERS.

SO ANYWAY, THANK YOU VERY MUCH.

GREAT REPORT.

ANYTHING ELSE? ONE LAST THING.

JUST, UH, UH, I APPRECIATE EVERYTHING YOU'RE SAYING.

I AGREE 100%.

UM, WE OBVIOUSLY DON'T WANT TO PAY FOR A, UH, RECURRING STUDY YEAR AFTER YEAR TO MAKE SURE OUR RATES ARE, ARE IN LINE, BUT WE DO NEED TO DO IT EVERY, SAY, FIVE YEARS, THREE YEARS, SEVEN YEARS, SOMETHING.

THERE, THERE'S A, WE DO NEED TO DO THESE COST OF SERVICE STUDIES.

I, THEY'RE SUPER VALUABLE.

BUT IN THE INTERIM, I DON'T THINK WE CAN ALLOW OURSELVES TO CONTINUE FALLING BEHIND.

SO I THINK A COST OF, UH, A COLA ADJUSTMENT, AN AUTOMATIC COLA ADJUSTMENT TO, TO GET US THROUGH THOSE INTERIM YEARS TO A FINAL POINT WHERE, UH, THE NEXT STUDY IS DONE, THEN WHO KNOWS, MAYBE WE WOULD BE ALLOWED TO REDUCE SOME FEES AT THAT POINT AND BRING THOSE BACK IN LINE AND SOME WILL COME DOWN, MAYBE SOME WILL GO UP, BUT, UH, AT LEAST WE WON'T BE FALLING BEHIND FOR A HALF A DECADE OR HOWEVER LONG THOSE, THAT INTERIM IS.

AND ONE OTHER, I MEAN, IF I COULD, ON THE, IS THERE COMPARABLE FEES THAT SOCALGAS CHARGES THAT WE COULD COMPARE OUR EXISTING FEES AND WHAT OUR PROPOSED FEES ARE SIMILAR TO THE WAY THEY DO THE TRANSMISSION? I MEAN, DENNIS GOES IN THE BACK ROOM THERE AND FIGURES IT ALL OUT AND COMES OUT AND TELLS US.