ROLL CALL by liaoguiguo

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									           City of Palo Alto


                   Utilities Advisory Commission



                             MINUTES
                              OCTOBER 2, 2002
                               APPROVED 11/06/02




ROLL CALL _______________________________________________________________________ 2
ORAL COMMUNICATIONS _________________________________________________________ 2
APPROVAL OF MINUTES ___________________________________________________________ 2
AGENDA REVIEW AND REVISIONS _________________________________________________ 2
REPORTS FROM COMMISSIONER MEETINGS/EVENTS ________________________________ 3
DIRECTOR OF UTILITIES REPORT ___________________________________________________ 3
NEW BUSINESS ___________________________________________________________________ 9
  STRATEGIC PLAN _______________________________________________________________ 9
  FIBER TO THE HOME BUSINESS CASE ____________________________________________ 10
  UTILITIES STRATEGIC PLAN - Continued __________________________________________ 51
ADJOURNMENT __________________________________________________________________ 56




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ROLL CALL

Carlson: So we’re going to start by calling roll here. Start on my right here.

[Commissioners Rick Ferguson, George Bechtel, Council Liaison Bern Beecham, Dexter
Dawes (by telephone) and Chairman Carlson are present. Dick Rosenbaum arrived later.]

Dick Rosenbaum, we understand, is going to be a bit late tonight, which is why we’re
moving the agenda around very slightly.


ORAL COMMUNICATIONS

Carlson: There are no oral communications on anything except Fiber to the Home so
we’ll have the Fiber to the Home discussion later.


APPROVAL OF MINUTES

Carlson: The next item is the approval of the minutes. Anyone need to make any
changes in the minutes? If not, do I have a motion for approval of the minutes?

Bechtel: I move approval of the minutes of the meeting held September 4, 2002.

Carlson: Is there a second?

Ferguson: Second.

Carlson: All in favor?

Bechtel and Ferguson: Aye.

Carlson: Dexter?

Dawes: Dawes abstains. I wasn’t there.

Carlson: The minutes are approved.


AGENDA REVIEW AND REVISIONS

Carlson: In terms of the agenda, the new business items, we’re just going to go through
the agenda, but we’re going to do the Utilities Strategic Plan first and then we’re going to
do Fiber to the Home. So that’s the only real change.




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REPORTS FROM COMMISSIONER MEETINGS/EVENTS

Carlson: We do have an item, which is interesting this time and that is reports from
meetings and I know there have been several. Rick, do you want to comment on the
NCPA meeting?

Ferguson: We went to the NCPA Annual Meeting last week. In terms of activities of
major import, there was no fundamental powerful policy decision at that meeting. It was
an informative meeting. We talked about bond alternatives. We talked about Trinity.
We talked about the risk of the slide above the reservoir, and so forth. The most
significant thing that occurred at the meeting was a decision by the “leg-reg” group to
change the structure of its participation with APPA and our annual lobbying trip. We’re
going to continue to support APPA, but there was a sense in the group that California
needed a more focused presentation, rather than having our efforts diluted by the rest of
the group.

Carlson: The additional thing there is that we met with 3 utilities that are actually doing
some kind of telecommunications. We met with Truckee-Donner, which is looking at
Fiber to the Home, but they’re probably farther along than we are. We met with
Alameda, which has a hybrid system actually in operation. They’re about half built out.
They have started the video part of it and they’re just starting the internet part of it. We
also met with a very small utility in the northeast part of the state. I’m trying to
remember the town. Portola is where the thing is located, that is using utilities supported
satellite systems as their telecommunications. Anything else? Bern?

Beecham: Also at the NCPA Annual Meeting, we had the FERC Commissioner Nora
Brownell speak to us. Her basic message was that FERC does intend to take action, does
intend to move ahead and anybody who wishes to participate is urged to sit down at the
table with them. NCPA clearly heard that message and will continue to participate, as
they have been in the past with FERC.

Carlson: Okay. Any other meetings to mention?


DIRECTOR OF UTILITIES REPORT

Carlson: Okay. John, do you want to give your Director’s report?

Ulrich: Yes, I will. I have a number of things. Utilities have never a dull moment in this
business. We’re going to suggest that we spend a few minutes at the end of the meeting
talking about the agenda for the special joint meeting between the UAC and the City
Council, which is scheduled for Tuesday evening October 15 at 6pm. A number of you
have confirmed coming and it’s important we discuss what the joint agenda should look
like.




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I’d like to mention the Risk Management Program. It continues to evolve. We had an
excellent meeting with the Finance Committee last evening and they adopted the new
policies that were recommended by the UAC and the staff. The Council date – we’re
going on consent because the Finance Committee approved it unanimously – is scheduled
for October 21. We’re going to work closely together between Utilities and ASD and the
Risk Oversight Committee to establish and fill this Independent Risk Manager function.
We would be going to the City Council to modify the organization of the City. It’s
required anytime we have a person. We would also expect to find a position within the
city organization that, in terms of a City, would be called “a drop” meaning we would not
add additional numbers of people to the City payroll. We’re also exploring whether it
would be better to have this function done by, call it a contractor, a company that could
fulfill the position by having a person onsite. But it could be a different person with the
entire company behind it. That would allow us to have this Risk Oversight but not have
an individual in this position. That way you would have somebody available any time of
the day or night, but no vacations. It would be like calling Bob, the temp, who would do
it. Since it’s a very serious and important position, it’s one we’re considering.

Gas suppliers. We expect to issue an RFP, in fact it was issued today, for increasing the
number of creditworthy counterparties. As you recall, we currently only have 2. With
the demise of another once very stalwart company that went bankrupt, it’s down to 2.
We expect to have the first 2 master agreements to present to the UAC and Council in
January.

Gas operations contractor update – staff is currently negotiating with Interstate Gas
Services, better known as IGS, for a gas operations service contract. As you recall, that
was an integrated part of the contract that we had with Enron and when it was terminated.
IGS filled in on a temporary basis. This would allow us to then come back to the City
Council on November 18. We reserved for this item to go for approval before the
Council.

You approved the Long Range Energy Supply Portfolio Guidelines last month. The
Council Finance Committee approved it also last night. They made a couple of changes
in their motion. The Guidelines now state that the new renewable goal is 10% of
expected load by 2008 with an average impact not to exceed ½ cent (the Guidelines were
¼ cent) and to attempt to reach a goal of 20% renewables by 2015 if economically viable.
That would make it closer to the expectations that the State has, even though this is a
local decision. Staff continues to explore long-term energy procurement options with
other municipalities, NCPA, the California Power Authority and Merchant Plant
Developers and plans to issue an RFP to solicit proposals early next year. A renewable
resource RFP to procure part of the 10% target by 2008 is contemplated sooner.

Transmission market design proposal by FERC, called Standard Market Design, and the
ISO implementation plan, better known as MD02, Market Design 2002. This is a very
serious, very concerned area. The concept of “locational marginal pricing (LMP)”,
which is part of this, is central to the market redesign proposal and has a potential to
unfairly increase the cost to the City of Palo Alto and its customers due to our location,



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which is in a congested zone. Transmission is congested in the Bay Area. Palo Alto is
following these issues and is attempting to influence the process with the help of people
we work with – NCPA and the Bay Area Municipal Joint Actions, which would include
Santa Clara and Alameda. We also had an opportunity to give an update to
Assemblyman Simitian when he was here meeting with the City Council a couple weeks
ago. More to come.

Very briefly, on the Trinity River flow decision update, staff transmitted the September
4th UAC meeting minutes and a brief staff report to Council on September 23rd as part of
the consent calendar. Council, after discussion, agreed to schedule the item for
discussion and action on October 21st. Staff will contact Environmental Defense and
attempt to contact others that we believe will be interested in giving their views primarily
opposing NCPA’s participation in the litigation to reopen the Record of Decision. Staff
will invite NCPA and other technical experts to the meeting as well. I believe it will be
similar to the earlier meeting that we had with the UAC, but there’ll be much more far
reaching discussion on this matter. You probably have read recently, Commissioner
Carlson sent out a note to everyone about the large numbers of returning salmon in the
Klamath River below the confluence of the Trinity River, have led to crowded
conditions, disease and dying of thousands of fish. Trinity River releases are at 450 cfs
currently just as they would be at this time of year under the disputed ROD. So as you
recall, the judge ordered and requested that increased flow, because there was not the
threat of the energy crisis as last year pending the outcome of these hearings. So the flow
is up. The Trinity flow is about 650 cfs at the Hoopa Indian Reservation and it’s at
approximately 60 degrees Fahrenheit. Below the confluence, the Klamath River flow is
1680 cfs at an undisclosed temperature. The Bureau is being criticized by fish groups for
managing the river to protect only one species of fish at the expense of others. Perhaps
an incremental, science-based approach as advocated by NCPA would helpful. That’s a
little editorial comment from staff.

Water update, just very briefly. Governor Davis signed all 3 water bills. We should be
extremely happy about that. Thanks to Council member Beecham and others who spent a
lot of time there. This was extremely fast track, for the State of California to agree to
something of this magnitude. That’s my report, Mr. Chairman.

Carlson: Are there any questions on those issues? Go ahead Bern.

Beecham: This past Saturday, the Foundation for Global Community initiated their solar
voltaic system with the substantial financial support of the City of Palo Alto Utilities. At
the initiation, they had Senator Sher, Assembly member Simitian and others I would like
to express my thanks both to the Utilities as well as to the Foundation for what is
probably now either the largest or second largest photovoltaic system in Palo Alto.

Ulrich: Thank you for reminding us. This is being communicated in Frank’s memo this
week so people will be able to read it. I believe it’s about $74,000 and this is using
public benefit dollars. This is money from all the ratepayers in Palo Alto, reinvested in
renewable energy in Palo Alto. We’ve got a significant number of photovoltaic



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installations. Because of the cost involved, the subsidy from the public benefits dollars
makes these economically viable to install. So it’s a great time. Thank you.

Carlson: Any other questions? I’ve got a couple here John. One of them on the Trinity.
I want to be sure I understand what happened, what’s going on there. As I understand it,
the problem is primarily the Klamath River and this part of the salmon problem is really
not addressed by the Department of Interior’s recommendations. In fact, it’s a potential
problem with their recommendation because a problem they weren’t thinking about is the
one that actually happened.

Ulrich: I think you’re right. All I know is what’s in the article. Hydro generation and
water flow through rivers is more than just the issue we’ve talked about on the Trinity, in
returning additional water flows, as this litigation is attempting to do. It just expands.
There will be a question about whether the dam itself should be there. Waters that come
out of these dams are much colder because they come from the bottom of the dams, and
that has issues. Also the movement of the sediment and the impact on the fish. All
we’ve been talking about is a very small part of this. Obviously it affects Palo Alto and
that’s why the focus is here at the Council and the UAC, but Environmental Defense and
others are going to look at all of the rivers and look at all of the ramifications, including
the fish kills on the Klamath and elsewhere, and try to piece that together – is this the
appropriate use of water from these rivers for hydro generation and for others? And
what’s the environmental impact?

Carlson: The second issue is that those transmission issues, as I recall, are really serious
dollars. If they go ahead with the marginal pricing and we lose the contract we have with
PG&E guaranteeing us transmission, the combination of those 2 can cause what, tens of
millions, or what kind of dollars are we talking about?

Ulrich: It’s over a period of time. I’ll ask Girish if he’d like to comment about the dollar
amounts. As you recall when we made the presentation on the long range energy supply
plan, you could see that the price differential between Pacific Gas and Electric and the
City of Palo Alto as these increased costs get added, those prices between the two of us
become narrower and narrower or smaller and smaller. This is another example: when
the ISO and FERC attempt to change, they’re going to put more costs onto smaller
utilities because we have fewer customers to distribute the cost to. We’re in a congested
area. The expectation is we’re going to pay for those congestion costs because we are in
a congested area. Without looking at historically the amount of money in contracts
we’ve had in the past, we feel strongly that we paid for our fair share of getting the
energy here – with the expectation that Pacific Gas and Electric and the owners of the
transmission line will use the money that we all paid to upgrade the transmission, to make
the flow of energy that we have under contract get to us in Palo Alto. These are other
areas where the State of California and the Federal Government are attempting to look at
things in a different way. We’re going to have to protect that if we can, but it all just
keeps adding up to more and more money that we’re going to have to pay to get our
energy to Palo Alto.




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Carlson: Girish, do you have any idea of what we’re talking about on this one?

Balachandran: It’s pretty uncertain. We’ve actually looked at it – it could run into the
tens of millions of dollars. Right now our total transmission costs are about $7-9 million
somewhere in that range and we incorporated pretty conservative estimates for locational
marginal pricing. The $7-9 million is per-year, annual cost. When we presented that
budget to you in our forecasted rates, we talked about a conservative estimate of
locational marginal pricing. Depending on what kind of FERC market design was
implemented and what the results of how the market (inaudible) were, we’d come back to
you if there was an increase needed. We estimate it could go up. Doubling is a
possibility for us. Then when you look at it over a 10-year to 20-year horizon, we’re
talking $50-60 million or so, at least. This is a very serious issue for us and we’re trying
to address it at a number of fronts.

Carlson: Commissioner Ferguson.

Ferguson: Let me just explore the counterbalancing idea in the SMD, the FERC
proposal. For some people who are going to suffer this locational marginal pricing
surprise, isn’t there something called “congestion revenue rights (CRRs)”, which is
supposed to act in the other direction, depending on how you release power that you own
elsewhere in the grid? Do we benefit on that side at all?

Balachandran: It wouldn’t benefit us. It may mitigate the harm. Then the question
becomes how are those congestion revenue rights allocated and the details haven’t been
worked out as yet. There have been some previous proposals where those rights go to the
transmission owner, which would be PG&E – they’ll actually collect those revenues and
we’ll get hurt twice. We’ll pay these congestion rents and maybe even have to build new
transmission. Those are the details we’ll have to work out. The forums we’re using to
work those out are these working groups that the ISO has created; we have consultants
representing us. We have NCPA representing us to get to those details. If you can get
that allocated to us, not just for our current load, but also for our projected load growth,
then theoretically those impacts will be mitigated. Now this whole model is theoretical,
so we don’t know how it’s actually going to work out. But you know there are two
approaches. One is “the train has left the station” and we’ve got to board it and just try
and figure out the best kind of destination we can get to. The other is try and “stop it at
all costs.”

Carlson: Any other questions for John?

Dawes: Yes, Girish, is there a common position between Alameda, Santa Clara and
ourselves vis-à-vis this issue?

Balachandran: Yes. We are on exactly the same page. As a matter of fact, we have the
same consultant working for us and San Francisco is also on the same page. We’ve been
talking very frequently and have exactly the same interests.




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Dawes: Thank you.

Carlson: Okay. John, you mentioned the agenda item, we may as well do that right away
because that’s coming up on the 15th of October. Is that the date?

Ulrich: That’s correct. We checked the calendar of the City Council and all of your
calendars. There are a couple of you that are not available, but this was the date that was
best for the largest number of Commissioners.

Carlson: So the question is – what do we want to cover? What do we want to propose?
Have we heard anything from the Council and what they would like to cover?

Ulrich: In my review looking at it, the Council would like to hear what are the issues that
you would like the Council to know about. It would give you an opportunity to have an
interchange with them. I would suggest it be something on a high level, on a strategic
basis as opposed to tactical sort of items. This would allow the Council to see the items
that you think are coming along that are of importance that they will be asked to be
involved in sooner or later down the road. Things they may not be aware of and that you
would like to have feedback from them since they’re asking you to become their advisors
on these areas. This would give you an opportunity to bring them up to speed on some
things that you think are important that they should be aware of and in turn ask you to
give them advice on. We only have an hour. It’s over dinner. It’s a public meeting and
so I wouldn’t suggest you have too many items. I don’t think you’d be able to cover
them, because the meeting will be over a little before 7 so that they can adjourn into the
normal Council meeting. It’s on Tuesday night that particular week because the prior day
is a holiday.

Carlson: Bern?

Beecham: In these meetings, normally the discussions are more procedural in nature;
about how to work with the Council - Are you doing what the Council wants? Are you
providing the Council with the kind of information they need? - as opposed to issue
oriented.

Carlson: That was going to exactly be my suggestion that we concentrate on procedures.
What aren’t we doing? How can we be more useful? What broader issues are we
missing?

Dawes: And may I add, how can we summarize our pros and cons in a way that makes it
easier and quicker for the Council to deal with it?

Carlson: Very good Dexter. Commissioner Ferguson?

Ferguson: Just to tempt you with a segue into the next topic, maybe we can use the
Strategic Plan outline as a way of organizing those topics. I agree completely with the
procedural discussion. But one of the reasons that we put together the Strategic Plan –



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and that we’ll be reviewing it with them a couple months from now – is to give us an
easier way to communicate at a high level across a large number of issues. Not that we
want to get into the Strategic Plan with them then – let’s discuss it specifically as a
procedural tool on the 15th. And since we’re going to be talking about Trinity on the 21st,
let’s reserve one sentence on that for the 15th.

Carlson: Let’s go ahead then, with that wondrous segue into the Strategic Plan. Do you
have a presentation on that, John?

Ulrich: We do have a presentation and I guess I will just push back and challenge a little
more, if you can be a little more specific. Would you like to work with me on specifics
on that agenda, pushing these two items in particular into it?

Carlson: Yes, I’ll work with you on that.

Ulrich: All right.

Carlson: And consult with members if there are any more specifics.


NEW BUSINESS

STRATEGIC PLAN
Ulrich: We were just talking here, we have an overview presentation but it is about 14
slides. What we’re going to cover is the significant events in the Strategic Plan update
involving Strategic Plan, accomplishments and activity highlights, performance measures
and recommendations and next steps. If you’ve had an opportunity to look through this,
you’re welcome to ask some questions. Or encourage me to go through the rest of the
slides, whatever you had think valuable. I’m suggesting rather a short cut because you’ve
had plenty opportunity in the past to look at it. We’ve taken those recommendations and
the changes in the tactics in particular and modified the plan accordingly. In particular,
since Commissioner Dawes is not here to look at it, I don’t think Commissioner Dawes
has a copy of this in front of him. What he has is the over all staff report.

Dawes: I just have [packet] Item 2, John.

Ulrich: Yes, that’s correct. So Mr. Chairman, what would your pleasure be?

Carlson: I would like to do this one as quickly as possible. We’ve started it, but we have
an audience waiting for the next item.

Ulrich: It’s hard to believe that everybody isn’t enthralled with this particular one, but I...

Carlson: There’s much bigger dollars involved here. I guarantee that.

Ulrich: Let me just jump to ...


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Carlson: Go ahead.

Bechtel: Mr. Chairman and John, I have comments on some of the specific tactics here.
I have looked it over and have some questions about those. That in general is the extent
of my need for more discussion of this. Some of these are some of the things we had
requested last time. It did not quite get captured in the words and the tactics. I wanted to
ask questions about those, otherwise, I’m quite willing to move through this item quickly.

Carlson: The alternative, now that Commissioner Rosenbaum is here, is just to go ahead
with the other item.

Ferguson: Hear hear.

Carlson: Dick?

Bechtel: I would suggest we follow the agenda as published.

Carlson: Well, that’s enough votes. Sorry, John.

Ulrich: We measure success incrementally.


FIBER TO THE HOME BUSINESS CASE

Carlson: I want to introduce this subject before we get the public comment because I’m
not quite certain what stage we are in this process. My understanding is that the action
item you want tonight is for us to approve spending $100,000 doing a detailed business
plan for a specific Fiber to the Home option. What I’m concerned is whether there is an
implication in this, that this means (1) we’re definitely going ahead with Fiber to the
Home and (2) we’re definitely going ahead with one specific management plan. I don’t
know about what everybody else thinks, but that’s an awfully big issue. I’m not sure, in
fact, I know that I’m not prepared to say tonight “yes, we’re going ahead for sure and,
yes, we’re using this specific option, so price it out and we’ll go ahead.” Where are we in
this process?

Ulrich: Process-wise our request for this evening is, I think, rather clear even though
what I’ve read recently in the newspaper and elsewhere has not been as clear. Let me try
to be as clear as I can on that. It’s requested in your memo on this subject that the UAC
recommend to the Council that staff be instructed to develop a business plan for the Fiber
to the Home. The plan may be awarded as a single source contract with Uptown
Services. They’re the ones who did the business case. If staff views the deliverables and
pricing to be appropriate, there are sufficient dollars already allocated to the Fiber budget
to cover the contract fees of approximately $100,000. The rest of it goes on to
summarize that and we’re prepared to answer questions.




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This is the methodical approach that we’re talking about, where earlier you asked that we
take the entire business case –which turned out to be 29 megabytes of information – and
publicize it, or put it on the web, which we have done. While it may not have been there
for a long period of time, it’s quite thorough and it has everything from the anecdotal
comments of the survey to the hard numbers of how the analysis was completed. If you
believe the numbers – after the dollars that we’ve spent for the business case and the
work we’ve done with the advisory committee in collecting all of this and with getting
good feedback from the customers – we’re recommending that you give us the go ahead
to build the business plan so that we can articulate what it will cost, what the benefits and
what the negatives are. So that there’s a large level of comfort with you and the residents
of Palo Alto. Then we or you can make a decision to either proceed or to fold up the tent
and go home.

That’s why we’re here this evening. You made it clear to us early on that you did not
want to rush this. You wanted to thoroughly understand the information. It’s been
delivered to all of you. We’ve had it since about last Friday. Although that’s not a long
period of time, we’ve made available time with our consultant to ask questions and get
more information. So tonight would be a great night for you and the public to ask any
kind of question you want, develop a level of comfort or if you’re not comfortable
enough with this, send us back with whatever else you want us to do. We’ll give you a
budget on how much all that is going to cost, and then we’ll keep on going. It’s wide
open. I’m not trying to trivialize this, this is very important.

I do want to say right from the beginning that we’re not asking you, we’re not asking the
residents and we’re not asking the City Council to approve a $50 million or any amount
of money in that magnitude to build Fiber to the Home.

What I would like to hear from you though is that you’re impressed and pleased that we
have spent a significant amount of money, staff time, communication with the public,
have done a great job with this Fiber to the Home trial and that we’re on course to get to
where we want to be at some point to decide whether to go ahead with this or not.

Carlson: I want to point one thing out here [holds up a broken CD case]. There’s so
much data that it basically exploded the disk that was sent to me here.

Ulrich: You being a member of the Utility Advisory Commission, we gave you a free
copy.

Ferguson: [Holding up the broken pieces of CD] This is the pro side of the argument.
And this is the con side.

Ulrich: The other copy, the replacement copy, will cost you $10.

Carlson: Charge it to Federal Express.




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Bechtel: Mr. Chairman, may I point out, without really adequate broadband services, it
would take you forever to download this off our website.

Carlson: Go ahead, Dick.

Rosenbaum: I have a more practical problem. I guess staff had indicated they would try
to get the material to us 2 weeks ahead of this meeting and clearly they weren’t able to
meet that deadline. I gather it came sometime last week, but I was in Monterey attending
the NCPA meeting, so I have simply not had time to go through the material. I don’t
want to tell you to go packing, but at the same time, I’m not prepared tonight to approve
the spending of more money on this, so that would be my view at this time.

Carlson: There is a procedural issue here. The way you expressed it is somewhat
different from the way it reads. Part of the issue here is not whether we should go ahead.
This is really, really exciting and this is really, really scary. If you’re not scared about
spending $50 million of taxpayers’ money, you’re not really thinking about the city as a
whole. This is a really important issue, which is why I said let’s not rush this one. But
one of the questions is – forget all of the details – is this the proper point to price out in
detail just one option? Which is purely a procedural issue. I wanted to set that context
and then I want to go ahead, and let’s hear from the public right now.

Dawes: Chairman Carlson, one comment here. Out of this discussion may come the idea
that there should be more scope to this business plan, to look at more than just one
option. It’s very appropriate to do what has been done in the Peninsula very frequently,
which is to write business plans to present them to funding sources with the view towards
getting them funded or not. Once the business plan is complete – probably the majority
don’t get funded – but it’s certainly a very logical next step. I view it as an opportunity to
get our work statement correct, to ensure that while they do this analysis that the
appropriate approaches are undertaken.

Carlson: Thank you very much Dexter. That was exactly going to be one of my
recommendations later on. It is a way to handle this issue, because I fear we’re a very
long way from coming down on a basic managerial outline – we will provide these
services in “this” way – because you have to have all that before you can put a price on it.
Pricing a couple of alternatives is not a crazy concept at this point.

Dawes: Absolutely not.

Carlson: Rick, go ahead.

Ferguson: It’s time to hear from the public.

Carlson: Amen. And I have a...




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Bechtel: Mr. Chairman, may I ask a question of you? Would you poll the audience as to
how many of them has studied any or some part of the material presented by the City to
us?

Carlson: Good question. How many of you have actually read more than ½ this thing?
That’s pretty good. I’m pretty impressed, because I didn’t see it until this weekend
myself. It’s really worth it. As far as I’ve gone, this is a good job, but there are some
awfully interesting issues here. So let’s go ahead.

Audience member: Can I ask a question of one of the Commissioners?

Carlson: Why don’t you just ask questions as part of your statements? The same
question, excuse me. Go ahead.

[Audience member requests staff summarize the binder contents.]

Carlson: You know that’s a really good idea. We’ve got such a large audience here.
Can we do the 10-minute version? Does that work?

Heitzman: I’d be happy to do that. What I’ve done, in an effort to put this together, just
to give you a little background, the binder has, as you’ll notice, 320 pages in it. Some of
that is very basic, fundamental research data. Other parts of it are summary, so as you
start at the top, I have my UAC Advisory Commission Report, which is basically a 10-
page summary of the whole thing for those who want a 10,000-foot level view. Then
they can work themselves down through the document. The next part will be Neil
Shaw’s, the consultant’s report, and then under each tab, there’s a management summary
of the data in that tab. For those who wish to go back after this meeting to kind of get a
quick survey of what’s there, I would say proceed in that fashion.

Just to start off with, I’ll go through the summary that I wrote for the UAC and that
would give you the 10,000-foot view level of what’s going on. Basically, we’ve
completed an extensive study. That’s obvious by the volume that we have here and that
the conclusions by Uptown Services is that the project – let me say that this is a business
case study – it looks at a certain array of businesses that are very well founded and well
known – video, phone and internet. There are many other services that could be offered,
but they’re not considered. This is just a basic survey that we want to be very solid with
the numbers that we come out with. We don’t have a lot of speculation in it. Uptown
says based on those 3 services that we’re looking at in detail here, that the project would
have roughly a 13-year payback. In a nominal case, there’d be a revenue stream of about
a little over $7 million a year once it’s built out and we would recover the bonding after
13 years essentially.

When you look at that long of a payback, you’re looking at something that the typical
corporate structure would not invest in simply because the payback is way too long for
them. But an agency such as the City or some Federal agencies that’s interested more in
the public good, and not interested so much in making a profit, might be willing to invest



                                                                                            13
in. This is the kind of a payback you’d get from a sewage system, an electric system or
something like that. So it’s within the realm of public funding for the public good. In
our opinion, it’s worth pursuing the next step because of the fairly reasonable payback
and also that we have already identified there’s additional cost reduction measures that
could be taken that we’d like to study in the next phase.

The next phase would include some engineering study to look at some cost reduction and
some alternative architectures – to address your question “is this only way to go?” The
business plan study would include some engineering analysis. We’d look at some
alternatives at that level.

Also this particular study doesn’t include innovative new products. We know they will
exist during the lifetime of the system. That is additional cash revenue streams that we
did not want to speculate on, and which are not in this study. So we know that things
should be better than what this study says, as far as revenue streams go.

Lastly, this does not include a very important part of the puzzle and that is public benefit,
which is intangible. There are intangible things that could result from having this system
that we can’t quantify, public-service type things. Certainly one of those would be
potentially the utility doing automatic meter reading, and stuff like that. There’s a list, in
fact the last tab here lists some of those items, the last tab of the document. So basically
that gives you an idea of how the study was put together.

The next thing we talk about in this overview is what will be in the scope of the next step.
The things we would look at in the next step would be partnering arrangements. Today
we did talk to a party about partnering, an initial discussion. In the business plan, we
want to solidify partnering arrangements such that we would know exactly what kind of
arrangements we could have, what the parameters would be, so we can have a very solid
understanding of what our costs will be, what our partner will be paying and doing and so
forth. That would be, again, alternatives that are not discussed in this plan. We’ll be
branching towards wholesaling, retailing, and different kinds of combinations of
wholesaling and retailing, but we’d go back to these partners who have looked hopeful in
past discussions and see how we can formalize if we were to go forward, how would you
work with us and get that in very good detail.

We would look at our target markets and build targeted products and so forth so that
would be much more detailed. We would look at the staffing, get real job descriptions,
real analysis of what salaries would cost.

And we would work with our finance department and other financiers and so forth to
come up with some alternative financing plans. There are several that have been put on
the table. We probably want to – there are 3 major alternatives we’d want to flesh out
there. And, as I said, the alternative engineering study. So basically those are the items.

And legal analysis. We just met with our attorney 2 days ago, recognized certain legal
hurdles that need to be addressed and strategies for dealing with those. There’s legal



                                                                                            14
issues related to funding, which need to be addressed. So all those issues will be further
developed to the level that we can have a basic real understanding of exactly how this
business will work and be able to be done. And if all those numbers come together, then
that’s the time we’ll start talking about - do we want to look at it or do we really want to
do it? So that’s the next section of this overview.

The rest of the overview. We talked about the fact that we did a residential survey in
Palo Alto. That has been in the hands of the public and the Commission for quite a
while. It was done by a reputable firm, Data Cycles. It shows very strong public support
in Palo Alto for this service and that’s under Tab 2 in this book. We also did some
surveying of customers of Alameda Power and Telecom. These are subscribers both to
their video and internet service. That survey asked them why they changed to the
municipal service, what they liked about it and so forth. That supports somewhat our
survey. Some of their penetration is very similar to what was projected in the survey.
Plus, with Neil’s adjustment of those numbers, it gives us some ideas of what marketing
strategies will be used. That would be used again in the planning phase to develop those
marketing strategies.

We note here that Peregrine Communications did the engineering study for this project.
They have worked on several other Fiber to the Home and also hybrid fiber coax projects.
And they’re experienced in this particular design work. That’s where we got our
numbers for the costing. The rough cost, which you’ve seen, that’s around $49.5 million.
That will require $3 million in loans from the Utility to kick it off, because you can’t use
bonding to pay off the initial operating cost. Bond payoff could be done in 13 years and I
just rough, I through in year 11 income because it stabilizes around this number. It gets a
little bigger as your prices increase through time, but the full build out, you’ll expect to
be making about 7.5 million net annual income from the project once it gets going.

There are 5 key factors that are risk factors. Maybe Neil can tell us what those 5 are. I
don’t remember exactly, but 3 of those are related to market forces. Those are relatively
difficult to control. You’ll have to build strategies in the business plan of how you’ll
operate around those market forces and how you’ll have alternative strategies to deal with
them.

Two of those were factors that you can nail down before you actually start, before you
actually launch the project. One of those would be the cost to build it out. The RFP
process would give you numbers of what those costs will be so you can decide once you
get to that point in time, after you’ve let the RFP get bids for construction and
engineering and so forth, you can decide – well, were the numbers right? Do we really
want to do it? So that’s a factor you’ll be able to nail down before you actually say let’s
go ahead and finish this thing. The other one will be the bond rate and that also can be
nailed down before you actually decide we’re going to go through with this. So those 2
factors are controllable.




                                                                                           15
The other 3, I recall, are market forces, which are a little more difficult to work around
because they are unknowns – your influx by your competitors and so forth. Penetration
and pricing would the other key factors that are the determining factors of the total cost.

After that, the rest of the report to the UAC – that was the executive summary I basically
gave you just now – the rest of the report talks about what we did on the Fiber to the
Home trial. We had a budget of $680,000. We spent within $20,000 a little below that
amount. We talked about the arrangements we had with Marconi on the trial. We had
the trial go to 70 homes. We tested Internet. There was a phone service testing. We
didn’t offer video, but we did test it on the system to make sure it could be delivered and
that it did work. Trial participants paid a nominal fee. Basically, the last few tabs of this
document talk about the input from the trial participants - their satisfaction, their
comments about the trial and so forth. They very largely support what they experienced.

The next section talks about our funding for the business plan. Originally $400,000 was
put into the budget for fiscal year ’01-’02. That was put in the budget to do the business
plan. It’s already money there. Staff decided to go through it step-wise. Do a business
case first and then come back and see if we have support for going forward – rather than
to just do a contract for the whole thing to start with. In honoring the process that we
started, we’re coming back and asking whether we should go forward to the next step.

Carlson: Let me stop here and try to summarize at a higher level, and then let the other
people start talking. The high level summary, let me try my version of it. What we’re
proposing is that we borrow somewhere around $50 million, we spend it to put Fiber.
Okay 40, 50, I don’t know the number...

Ulrich: I’m sorry. I’m only nodding my head, because we’re not asking for anything like
that. I don’t think it’s appropriate. Bear with me, this is very important to do. We’re
here tonight to talk about whether to move this forward to the business plan. I’m not
convinced yet – you shouldn’t be, my opinion to you – that this is a viable business to go
ahead. We’re trying to methodically go through an analysis to figure out whether this is a
good business, just like the people in 1900 when they decided whether the City of Palo
Alto should go into the electric business. This is big time stuff. I apologize if I’m
pushing back here. But to even talk about going out and borrowing $50 million, I think,
is not appropriate at this point. That’s all I’m trying to ...

Carlson: Just a minute. In the long run, that’s what this is about. We are not approving
that tonight, but in the long run, this is about that kind of investment.

Beecham: Chairman Carlson, can I break in for a moment?

Carlson: Go ahead.

Beecham: The normal procedure in most commissions is for staff to present their report
and their recommendations. I mean, this is a staff report. The Commission is, certainly,
it’s your obligation to advise them on it. But normally the staff goes through the



                                                                                              16
presentation and the report, both for your benefit as well as for the public’s. It behooves
us all to have that happen.

Carlson: Okay. I’m trying to get to the public to make their ...

Beecham: In getting to the public, one element of that is for the staff to go through the
report.

Carlson: But what I’m not getting – lease somebody give me a few-minute version of
what this investment would be and what it would buy. That’s all I’m asking for, before
we get down to the details of what the business plan would cover.

Dawes: If I could interject here Mr. Chairman. I agree with Bern. We’re not talking
about making a $50 million decision. We’re talking about a logical next step to this
decision process. The decision you’re talking about will come 3 to 6 months from now,
maybe. I agree we should ask staff to finish their summary and then we can get the
public going.

Carlson: Okay. Let’s go ahead.

Heitzman: Well, I believe I’ve hit the high points, but let me quickly summarize what
we’re asking for tonight. Tonight, we’re asking for you to recommend to the Council
that we go ahead and do the next step of the business planning phase, which will cost, the
business planning contract will cost roughly $100,000. There will be some more money
for the additional engineering. This process will develop more information that will
allow us to understand the aspects of doing this business fairly thoroughly so that we can
decide at that point whether we want to move on to another step. And we have an
extensive business case report that is built on conservative services, does not consider
public intangibles, does not consider advanced services that are unknown at this time and
it shows a fairly reasonable 13 year payback. So we believe, staff’s recommending we
go ahead with the next step of the business plan study and do a business plan itself.

Carlson: What I’m asking for is, the business plan for “what”?

Bechtel: Let me ask the question. I don’t mean to put words in our Chairman’s mouth,
but I was noticing this afternoon that we use the term “business case” and then “business
plan” and “business case study” and “business plan.” Maybe it would help to explain
what you mean the difference is. We’ve already spent money for a lot of information, a
binder full. So now we go to a “business plan.” It seems to me that there’s a fine
distinction here that you’re drawing in this. Perhaps you can just elaborate on that, for
my benefit anyway.

Heitzman: Let me go ahead and address that. Maybe I can let Neil do a little more
discussion of it. The business “case” basically is a study to see whether or not there
seems to be any economical viability to doing the Fiber to the Home build out. It looks




                                                                                            17
strictly at the economics of a few basic services and the economics of a varied overview
engineering study.

It basically shows you one way that it can be done. We believe a lot of it is intuition,
some of it is reiteration of various scenarios. But it shows one way that it does pay for
itself economically, with some reasonable assumptions and so forth. Now when I say
that, I’d like to mention that we’ve probably done a lot more analysis than was necessary
to do that business case study, But in the process, we collected a lot of data that we can
use in the business plan.

What the business “plan” does is, it actually lays out item by item how you would
conduct the business, how you would partner with people, what kind of arrangements
should you have, what kind of products you would offer, what kind of pricing you would
offer, what kind of staffing you would have, what kind of financing you use. Instead of
going from “can it be done?” you go to “this is exactly how we propose to do it.” And in
that plan, there’ll probably be, in many cases, 2 or 3 alternatives – on various items like
the financing, the build out methodology and so forth. There’ll be more than one option,
but it will give you exact details about how you would actually – it’s a bible for
launching the business. All we show now is, it can be done. The next step is to show
how we would do it.

Carlson: The implication of a business plan is that you’ve decided on one option – we’re
going to provide this set of services, we’re going to organize in this way. But you’re
saying you’re really going to be looking at in more detail, you’re still going to be looking
at a range of services, a range of how to provide them, a range of how to price them,
because a business plan implies something narrower than that often times. That’s what
I’ve been trying to get at.

Ulrich: Mr. Chairman, if you look through the business case, you’re going to see
assumptions that are made, worst case to best case. What we would have expected here
is that there be a lot of challenges in those areas from the public and from yourself on
whether we have really done the kinds of data gathering that we should. So that when we
go and finish up the business plan, you can that we’re all on the same page and that we’re
looking at things the same way. You can tell from the audience that are here that a
number of people have gone through this and probably have some questions. We tried to
get that going last time, because Mr. Shaw was here, and our expectations is that you’d
work him over. That’s what he’s paid to do in the sense that he’s got broad knowledge of
other areas – why did he come up with this, why do we have this? One of the reasons we
built the trial was to figure out if – one, if we could do it – and we’ve learned a lot from
construction and engineering, so we’ve learned a lot there. We’ve been trying to do this
in a way to understand if this is the kind of business that we should.

So I would like to see you challenge us on the business case. Ask us more questions or
have us come back or whatever it is you want to do. But rather than finish up the
business plan, we thought we all ought to agree on where we’re at to this point, so that
when we complete the business plan, there won’t be some discussions of fundamentals



                                                                                           18
that go all the way back to something we learned 3 or 4 months ago. And so that when
we finally finish it, it’ll be the kind of dream or the vision that we all have of what this
business plan would look like.

Carlson: Commissioner Ferguson.

Ferguson: Yes, I’m actually perfectly happy to deliberate with the Commissioners here
on a better way to recraft the staff’s recommendation to us. There’s a proper time to
make that motion and debate it. We do have a lot of people here, and just to stick with
procedural correctness, the staff has made its proposal. It’s our usual practice to invite
public comment first. Rather than trying to recraft the staff proposal before we’ve heard
from the public, I’d like to hear from the public now, while they’re here. So let’s stick to
procedure. I’ll be happy to make a procedural motion, if that will do the trick.

Carlson: Well I would be glad to hear from the public, but I want to organize it. We are
particularly interested in not whether we should do this or not, but particularly how
should it be organized, what services are highest priority, what are you willing to pay.
We need much more than general “this is a great idea – City, make the investment.” So
we’d love to hear more specifics.

I have just randomly put together these cards. Unless there are any more questions, the
first one randomly in front of here is Andy Poggio from Gaspar Court in Palo Alto. The
next one if you’ll just get in line here is Michael Eagar. 3 minutes please.

Mr. Andy Poggio, 2708 Gaspar Court, Palo Alto: I’m Andy Poggio ....

Dawes: Please for my benefit, speak directly into the microphone.

Poggio: How’s this?

Dawes: Better. Thank you.

Poggio: My name is Andy Poggio. My handwriting is very difficult so I can easily
understand any possible mispronunciation. I actually put my card in last and I’m going
first, which I also found pretty interesting. I really do want us to go ahead with Fiber to
the Home in Palo Alto. I’ve been clear about this on a number of occasions, so I won’t
go into that, but I’ll try to address some of the things that you were asking and that is
what are the services I’m interested in and what are my priorities? My top priority is
high-speed data service to the Internet. That’s my number 1 priority and I actually think
that ultimately that will deliver the other services, but I realize that the way the business
plan is set out now, they’re distinguished. So that’s my number 1 service. Second would
be cable television. Third would be telephone. Fourth would be sort of audio services
over the same media. So that’s my priority order and for that package, I’d be willing to
pay on the order of say $100 to $130 a month.

Carlson: Thank you very much.



                                                                                               19
Poggio: You’re very welcome.

Carlson: A wonderfully crisp presentation, thank you.

Ulrich: Mr. Chairman, I just want to point out that we’re trying to synthesize what
people are saying up here. So if you have a particular item that you want to make sure
you emphasize, we’ll get that written down. You can come up later to make sure we’ve
covered it and that we’ve covered everything. Also a suggestion, as the last speaker, that
this be done rather crisply and short so that we can make sure we capture it.

Carlson: Okay. This is Michael Eagar and then Ken Poulton is next.

Dawes: Good line up.

Mr. Michael Eagar, 1960 Park Blvd, Palo Alto: Hi, I’m the President of Palo Alto
Fibernet. As you know, we have long advocated pursuing Fiber to the Home. The
report, the business case that the staff has prepared, I’m very glad to see it being released
in its entirety. It’s quite a comprehensive report. It’s far more information than I would
have ever expected to see or an analysis. I’m somewhat disappointed. I’ll share some of
the frustration that Mr. Ulrich has. I’m somewhat disappointed to see that you’re not
looking at the business case, that you’re looking at, that you’re asking questions that
would be answered by the business plan, that you’re not probing the questions, the
procedures done in the business case, but you’re looking for the results of a complete
detailed analysis. I’ve heard this from other people in the community also wanting to
know what’s the end result – what do we get when we get a business plan? Well, the way
you find out what you get when you get a business plan is do the business plan. That’s
what’s being asked here. If you focus on how are we going to finance $50 million?
That’s something that you should get out of the business plan. It’s not a question to be
answered today. As for alternative possible ways to wire houses, that would also be
answered in the business plan. I have some questions about the business case. I’ve
spoken with Mr. Shaw in the past. The estimate of $50 million is somewhat higher than
what we have done in our own independent cost model. I’d like to sit down with Mr.
Shaw and discuss them and find out why there are these differences. We did a little bit of
that, but it was very brief. That’s information that would come out of a business plan.
The story here is what you’re being asked by the staff, and I think the staff has done an
excellent job of presenting this, is to approve a business plan, not to approve a bond
issue, not to approve wiring houses, not to approve any number of different things, but
let’s move forward on a business plan. Thank you.

Carlson: Thank you very much. Next one is Ken Poulton, followed by Janice Hough.

Mr. Ken Poulton, 884 Los Robles Avenue, Palo Alto: Hi, my name is Ken Poulton and I
live at 884 Los Robles Avenue. One of the questions that keeps coming up either
explicitly or not is we saw a number in the last meeting that Neil Shaw put up of a Hybrid
Fiber Coax system that might be approximately half the cost of a Fiber to the Home



                                                                                          20
system. If you can do it for that way and you can get all 3 services that way, well why
wouldn’t you do it that way? Well, there are a lot of answers. The first answer that the
cost difference, I think, is exaggerated. My understanding is that Mr. Shaw added those
HFC numbers at the very last moment and I don’t believe they went through the same
assumptions that the Fiber to the Home numbers did. The usual difference between such
systems in other estimates is more like 30 or 40% difference or even less. Whatever the
cost difference is, it almost doesn’t matter. We already have a cable system in Palo Alto
and AT&T is going to, one of these years, turn it into a Hybrid Fiber system. A city-
owned Hybrid Fiber system would be just “me-too”. It wouldn’t provide us with anything
new. It would have the same poor reliability. And that’s one of the really big things, the
good reliability that a Fiber system can provide. For data service, it would give you the
same stingy flows that you can get already with cable modems and, in fact, would be
worse a little bit than DSL. A city-owned HFC system would still get a lot of subscribers
simply because everybody hates AT&T and there’s a lot of dislike for PacBell, as well,
but simply building a “me-too” system to compete on equal terms is really a silly way to
spend our money.

If we’re going to build a system, we ought to have something that is distinguishable, that
really has a real advantage, The Fiber to the Home system is a big advantage both in the
kinds of services you can provide, particularly data service, a totally different kind of
things you can provide and an expandability in the long term. So what we’re really
asking for you to do tonight is to encourage the staff to go ahead and finish the business
case that they’ve made, and turn it into a full-fledged business plan. This is, as I
understand it, funding that’s already been approved, They’re really here, not because
they have to be, but because they want to make sure they checked in with Commission
and got your guidance to make sure that when this business plan is done, that all of your
questions will be answered and they won’t have to be going back for more study. So
please guide them with your questions, but please encourage them to move ahead with
this business plan study. Thank you.

Carlson: Okay, Janice Hough is next, followed by Arthur Keller.

Ms. Janice Hough, Bryant Street, Palo Alto: Hi, I’m Janice Hough. I live on Bryant
Street. I think I’m in the minority tonight, but I just heard someone say something about
hating AT&T. I wonder how much we all hated Cable Co-op too. My issue is, and I
know we’re not 100% approving it, but in these economic times, to approve $50 million
in bonds that will probably be paid back with subscriber usage is I think a little
irresponsible. As I understand it, there is no provision if the subscriber usage does not
come up to plan for the people who put it together to pay for it. I think the City is on the
hook for that and, with the libraries and the storm drain, I think we have more urgent use
of money, particularly to approve money like this without a public vote. One thing I do
know is Fiber Optics is the new new thing and it’s the fastest, but 10 years ago, who was
using the Internet? 10 years from now, we might put in this system [that is] very
expensive and there may be something better and faster. Thanks.

Carlson: Thank you very much. Arthur Keller followed by Dennis Ochoca.



                                                                                           21
Arthur Keller, Corina Way: 10 years ago, I was using the Internet and I think a lot of us
here were also. In fact, I’ve been using the Internet and its predecessor the Arpanet since
1977. One of the things to consider is when one goes through a plan, one needs to check
what the assumptions are. My understanding is that some time ago, the UAC and the
City Council appropriated an amount of money for the Utilities Department to prepare a
business plan for Fiber to the Home, but they did this in 2 steps. The first plan is to
provide a business case, which part of the money has been spent for and to do a test for
which the money has been spent for. Now is an opportunity for a mid-course correction
and this mid-course correction is that the excellent staff from the Utilities and their
consultants have determined this is where we are now, what questions do you want
answered in the business plan so that when we come back in several months, you won’t
say, “well I don’t know about this and I don’t know about that”. Now is the time to ask
those questions and to think about what are the issues that would make us be able to
make the decision, both the UAC, the City Council and to have the public behind such a
decision.

Now one of the considerations is, I suppose that 102 years ago when the City decided to
create the electric utility, they were also worried about - how many people would sign up
and how much we use? Well probably most people would sign up for electric power and
not so many would sign up for the Internet, but nonetheless they’re worried about what
the financial picture would be and we are thankful for low these years that the profits of
our electric utility have subsidized all the services that we provide for the City. Now I
heard a little bit about things being changed in a couple of years when our Western Area
Power Association contract ends. Perhaps the gravy train will end and we won’t be able
to have a surplus from the City Utilities to the extent that they are now paying for our
services. Well, here’s an opportunity to invest in the future and to make sure that there
will be surpluses as has been identified in Year 11 by Mr. Ulrich and wonder what will be
the surpluses in Year 13 or 14 when the bonds have been paid off and presumably they’d
be even higher. My consideration here is that we have an opportunity to invest in the
future of the City of Palo Alto to provide the surpluses for the 21st century just as our
forefathers a century ago provided for the surpluses that we so enjoy today. Thank you.

Carlson: Thank you. Dennis Ochoca followed by Marvin Lee.

Mr. Dennis Ochoca, 1095 Channing Street: My name is Dennis Ochoca. I’m a computer
teacher at Saint Elizabeth Seton School at 1095 Channing Street. I’m a teacher there. I
teach computers. Actually I use the Fiber Optics in my lab. The first thing I’ve seen is
it’s very reliable. The small we use it for like downloads for our students and the speed
for the homework for the work and activity. So I really recommend this for the people,
the residents of Palo Alto, because it’s a good thing. It will improve our living standard,
the area around and I really recommend this. Thank you.

Carlson: Thank you. Marvin Lee followed by Hilda Weisberg.




                                                                                         22
Mr. Marvin Lee, 441 Harker: My name is Marvin Lee. I live at 441 Harker. I’m here
not to speak for myself, but to read you something from Bob Harrington who couldn’t
make it this evening. Bob Harrington addresses you as follows:

       Honorable Commissioners, I am the trial participant member of the City’s Fiber
       to the Home Advisory Team. Unfortunately I am unable to attend tonight’s UAC
       meeting due to family commitments. Here are my personal observations based
       upon a year’s active, analytical involvement with the team. One, the detailed
       report now before you demonstrates what I have personally witnessed: extremely
       high competence, thoroughness, candor and fairness of the City and the City of
       Palo Alto Utilities staff and the many consultant contributors. Two, the Palo Alto
       citywide survey strongly indicates that the community favors the City of Palo
       Alto Utilities making Fiber to the Home available to all homes and businesses and
       offering fiber-enabled intranet television, FM radio and telephone services. The
       survey, which includes many direct quotes from citizens, makes clear that the
       community regards the City of Palo Alto Utilities as one of Palo Alto’s most
       trusted resources. Uniquely positioned to deliver the desired benefits, namely
       telecom services, offering lower prices, rock solid reliability, high speed, local
       customer support and responsive quality management. Three, consultant Neil
       Shaw of Uptown Services provides a thoughtful and thorough executive summary
       with which I concur. I have personally tested his findings and agree with the
       likelihood that the proposed Fiber to the Home system will pay for itself entirely
       from user fees within 15 years, plus or minus 2. There are material Fiber to the
       Home questions yet to be answered and details to be fleshed out. This will occur
       over the next several months once you recommend that the City of Palo Alto
       Utilities staff proceed with the preparation of a Fiber to the Home business plan. I
       urge that you make that recommendation tonight. Sincerely, Bob Harrington.

Carlson: Thank you very much. Next is Hilda Weisberg followed by....

Beecham: Mr. Chairman, just for clarification, could I ask, Marvin, do you know the
background of Bob Harrington?

Lee: Bob Harrington is a very well known, now retired investment consultant. He lives
on Christmas Tree Lane. When we first started the effort to bring Fiber to the Home to
Palo Alto, he single-handedly organized Christmas Tree Lane and has the support of
everybody on that side of Embarcadero in that neighborhood. He’s one of the most
dedicated local participants in the Fiber to the Home effort and, as he says, he spent an
entire year on the committee appointed to review the Fiber to the Home business case and
is responsible for that 600 pages that Dick Rosenbaum has yet to read.

Carlson: Thank you. Hilda Weisberg followed by “Wyman Gossfru” at 3687 Bryant.

Ms. Hilda Weisberg, 1051 Channing Avenue: Commissioners, my name is Hilda
Weisberg. I live at 1051 Channing Avenue. I’m a Fiber to the Home trial participant and
from what you’ve said so far Mr. Carlson, I should put aside the comments that I’m



                                                                                        23
prepared to make and simply tell you that the quality-of-life changes that have resulted to
me personally have been immeasurable in many ways. If you’d like to read my stories
and others’ who are members of the trial, you can look at the website “pa-fiber.net”. I’m
very happy with paying the $85 a month and primarily use the data services as well as
audio, radio type services on our Fiber to the Home trial. Thank you.

Carlson: Thank you very much. How close did I come on that name?

Mr. Wayne Martin, 3687 Bryant: “Wyman Gossfru” aka Wayne Martin at 3687 Bryant.
I’ll let you be the judge. I did get checked down on handwriting in a couple classes,
however. A year or two ago, we were here talking about buying some big power blocks
from Enron. We knew the future. We had to buy all this power and we did and several
months later, we wondered what to do with it. And then there was the gas, well we had
to buy some gas that was much higher than we needed. Well we sort of ate that and now
we’re back down to lower gas prices. If you dig through the 1997 packets for the UAC
and you look at all the comments about how the great deregulation was going to change
our lives, there weren’t any suggestions about power outages and bankrupt power
companies, but that’s what we got. That’s what the visionaries brought us.

I’m not really very supportive of this, because we have a working cable company; we
have a working phone company. The number of people in this town that actually use and
need high-speed digital is much smaller than I think is being presented by the number of
dedicated activists that keep coming to these meetings. I need to identify myself as
working in the datacom industry and have for many years. I started with 10 cps tty’s and
have moved through 110 and on up to 310 baud modems through the years. You know,
sooner or later, we’ll see this stuff coming in through other sources. It’s just not clear to
me that what is being proposed now as a business model – in other words, the people
promoting high-speed data – will in fact pay the bill. It’s pretty clear from reading the
survey that this is really about resurrecting Cable Co-Op underneath a small number of
people promoting high-speed data. If you look at the year 2k census, about 20% of the
population is over 65 or under 5. There are not going to be all that many customers. If
you go through the number of people who are in the buying public, most of them work
and having this at home is not something that necessarily they’re going to use when they
get home at 9-10 o’clock at night. I don’t doubt that everyone here believes what they
say. The question is what about everybody else in town who’s not here.

I also want to point out that with bonding, you have to pay back $2 for every $1. When
you start talking about $50 million, you’re really talking about $100 [million]. We
understand that because we know what debt retirement schedules are. The other problem
that I see is that no one is bringing up the fact that POTS [plain old telephone service] -
over-Fiber is going to be limited to 72 hours of grid outage for the power grid, or 80 or
something like that, whatever it turns out to be. After that, the home phones go dead. I
brought that up at a couple of meetings and I admit that the grid’s up most of the time,
but during the Loma Prieta quake, my home was down for at least 3, maybe 5, days and
so my home phone would have been dead had it been POTS-over-Fiber somewhere
towards the end of that outage.



                                                                                           24
The last point that I want to make is that 30 years is a long time for anybody to predict
customer loyalty, product availability or any kind of penetration numbers – or even 13
years for that matter, depending on how this matrix turns out. It’s not at all clear to me
that the business case is going to be sustainable over time, or whatever matrix you use for
determining the profitability of such an enterprise, will be actually sustainable over a very
long period of time. Most companies wouldn’t even look out more than 5 years, and
that’s why that keeps coming up in discussion. I guess that’s about it. So at any rate,
Mike to answer your question, I would not use cable TV. I would have no use for it. I
would keep the phone company’s current SBC line, which is just fine with me. And who
knows, I might one of these days want a data link. But by that time, it probably will be
provided by SBC.

Carlson: Thank you very much. Next one is Craig Working and I should mention that I
certainly would like to hear more about people’s interest in cable TV, because of the
majority of dollars here better come from cable TV or this thing doesn’t work, so go
ahead please.

Craig Working, 191 Heather Lane: Thank you. My name is Craig Working. I am a Palo
Alto homeowner at 191 Heather Lane and for 26 years, I have been in the
telecommunications industries. I’m presently with SBC Pacific Bell. What I would like
to share with you today is some of my experiences and hopefully this will help you in
considering the business case for Fiber to the Home. I would like to quote the Chairman,
Mr. Carlson, when he said that “Fiber to the Home is really, really exciting and very
scary”. Broadband as a service is the holy grail of the telecommunications industry. The
City business case focuses on 3 services: cable service (which is the primary revenue
component), high speed Internet (which has captured all of our imagination) and
telephone service (which is a basic necessity). The viability of the Fiber to the Home
business plan hinges on market penetration and the revenue per household. As for
market penetration, Fiber to the Home expects to become the dominant provider in 3
years, capturing 80% of the cable market, 47% of the Internet market and 21% of the
phone market. I would like to ask the Commission if you think this is a reasonable
expectation – to become of the dominant carrier in just 3 years. Based on the offerings
that are being presented, we have 3 wonderful offerings: cable TV, which would be at
$20, Internet at $40 and phone at $15 - approximately $75 for your service.

When I took a look at actually going through the business case and trying to come up
with these dollars, end of year 3, we have 24,000 potential homes on the network. That
generates about $1.8 million per month. The business case says it should be generating
about $9.5 million per month. That’s $396,000 per month per household. I’m not sure if
my figures are correct.

But I just have a question for the Commission, which is – do you really think that the
household, that we know what the cost per household is going to be based upon the
business case? Last but not least, Fiber to the Home is not a charity. It is expected to
cover operating expenses, retire a bond and create revenues, a reserve, which will have



                                                                                           25
enough funding for unexpected outages and future improvements. I think the services
that are being offered are wonderful. Everyone here is very excited about them. My
concern is about financial viability. Thank you.

Carlson: Thank you very much. The next is Michael Silverton followed by Harry
Stangel.

Mr. Michael Silverton, 114 Green Meadow Way: Hi. I’m Michael Silverton at 114
Greenmeadow Way. I probably need to supply the Commission with some written
comments. There’s just way too much going on here that can be covered in 3 minutes, so
I’ll forward those later and try to just summarize some of the key points. I, too, am
concerned about an under-represented voice here in Palo Alto. And I’ll tell you, I’m no
fan of incumbent telcos and I’m certainly no fan of slow data. I was co-founder of
Fiberhood Networks, which was actually the first company to install fiber to any house in
Palo Alto. It failed miserably for a number of reasons - not because we didn’t model
services properly, not because we didn’t innovate architectural models that are even
today being improved upon, but because of a number of other reasons that seemed to be
avoided in most of these business cases and scenarios. I’ll cover those in detail in
writing.

But I want to get to some thoughts of other people that I hear in the community. That’s
the most important thing, because a lot of people can’t be here. These are thoughts I get
on discussion groups through the Internet and also in informal discussions with my
neighbors and so forth. One thought is that this is a special interest group loudly
demanding the resources of the City to increase a quality of life. It’s a largely emotional
plea, but given a whole lot of spreadsheet support. The increased embedded obligation to
all City bonds is considered in the future when other important purposes come about. I’m
sure President Bush would like to have back that decision to give back $200 million,
billion whatever it is he did, now facing the costs that he has, so I’d caution there. Also
another comment: if it is such a great revenue generator, somebody will offer it
commercially. In Sacramento, a Federal Court threw out the Sacramento’s exclusive
franchise on First Amendment grounds. The government getting into
telecommunications is not like roads, it’s not like sewers, and it’s not like electricity; it’s
like TV and it’s like telephone. Those are the ways you get the Internet today. There are
some real mixed metaphors here that are confusing the issues.

The Cable Telecommunication Association did an independent study. No city has ever
successfully operated its own system for more than 5 years without increased taxes or
financial contribution of public funds, so we’re looking 11 years out. Barry Orton at the
University of Wisconsin, a very respected voice in this discussion, [says] most cities find
that it’s just truly too much work and too much money for a municipal government to
operate. Now that doesn’t mean there isn’t a great role for Palo Alto to play in enabling
this market. There were discussions that somehow fell by the wayside, such as providing
a conduit for telecommunication. No matter what the wire is in the future, the only truly
future-proof solution is an empty pipe, a piece of conduit, because if newer, better fiber
comes along, if a new better cable comes along, you can pull out the old one and put in



                                                                                            26
the new. It’s also like real estate. It is more like the things that government manages.
Then you can lease it or rent it to whoever wants to put some kind of fiber or anything in
it, put a laser beam in it, whatever.

So last questions I hope that the Commission will ask - is it really okay for the City to
undercut the private sector at the expense of the electrical utility and the cross subsidies
there? I’m grateful for the surplus, but again, as even some of the proponents have
mentioned, it’s not a certain thing. Also, is it okay for the City to act as both the market
regulator and a market participant? These are just matters of role and public/private
partnership. And another thing that a neighbor brought up – what’s the City’s liability for
content that goes across these networks if it offends constituents? Pornography is still a
vast amount of Internet traffic. Nobody in this room would know that, but maybe people
you know. So those are some of the comments I’m hearing about town and I’ll provide
further detail written later.

Carlson: Questions from Dick Rosenbaum.

Rosenbaum: Mr. Silverton, thank you for your comment. You mentioned that no city
that’s been in the business for 5 years is making money out of that. I wonder, when you
present us with your written material, if you can give the reference.

Silverton: I certainly would. It’s the Cable Telecommunications Association, but I will
reiterate that.

Rosenbaum: Thank you.

Beecham: I’ve got a question too. Some of your quotes I recognize from a legal piece
that had been passed out by SBC. I wonder if, in fact, that was the source of some of
your data.

Silverton: Yes. A lot of my data is similar to what SBC, the same sources as SBC,
because, believe me I’m no fan of SBC, although I do believe it’s a question of roles. So
we happen to cross the similar material. We definitely do.

Beecham: And how do you coordinate with SBC or how do you know that your material
is the same as theirs?

Silverton: I don’t coordinate. I have friends. I’ve known Randy Okamura, who was
here earlier, and I’ve had friends at SBC for years. I’ve been around here, so it’s not that
I coordinate. There’s no conspiracy here, if that’s the implication.

Dawes: A question from Commissioner Dawes. You mentioned your earlier company,
but you didn’t mention what you are doing currently.

Silverton: Oh, great. I’m looking for a job.




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Carlson: You mention a specific report from the University of Wisconsin, Barry Orton?

Silverton: Orton. O-r-t-o-n.

Carlson: O-r-t-o-n. Thank you very much. Next we have Harry Stangel followed
Richard Brand.

Mr. Harry Stangel, Grove Ave.: Commissioners and Councilman. Well, 10 years ago, I
had never sent an email, but now I know my life depends on it, my livelihood anyways.
10 years from now, I don’t know what services we’re going to be enjoying that we feel
we can’t do without, but I do know that they’re going to be flowing into our homes and
businesses over a high-speed multi-purpose pipe just like Fiber. And I can respond to
Mr. Martin – my plain old telephone service goes dead at least a day every year when the
first rains arrive. Just as the swallows come to Capistrano, we’ve got trucks from PacBell
to repair our lines. It’s always patch, patch, patch, but never enough money to put in a
new line. The comment was made about 5 year olds and 65 year olds not being interested
in this service. Well, imagine the day that a 65 year old can dial up and teleconference
with their family in another city and see their 5 year olds. That’s what I’m looking
forward to.

Now why do I want the City to put in Fiber to my home? Well, I tried a few years ago to
get Pacific Bell to put in High Speed DSL, symmetric 1.5 megabits each way to my small
business in Mountain View. They came out and they couldn’t do it. The lines wouldn’t
support it. I asked them when they were going to put in lines that would support it. They
have no plans, now or ever. So my fallback plan was to install High Speed DSL to my
home in Palo Alto. I live on Grove Ave. I ordered the service at $180 a month from
Pacific Bell. That’s 1.5 megabits both ways. They took the order, they sent me the first
month’s bill and when they came out to install it, they found that the lines would not
support it. Their lines, not my lines. I asked them when they would upgrade and they
said they had no plans to do that, now or anytime in the future. So I have to settle for the
$80 package, which is 1.5 megabits in, 500k out. That’s not fast enough for my needs.
What I’d like to do is have my small business host its own servers on my own premises,
either at work or at home. But Pacific Bell is the only one who provides any service and
they’ve, we’ve hit the wall with PacBell. They do not plan on upgrading the
infrastructure so that they could support that.

I was willing to pay $180 a month for 1.5 megabits both ways. Now City of Palo Alto is
proposing to give me 3 times that speed for $40 or $50 a month? That sounds pretty
good. PacBell, the best thing they could do for me is put in a T1 line, 1.5 megabits both
ways at $2,000 a month. No thanks. I’ve got 4 kids to put through college. So City of
Palo Alto’s Utilities Department in the 22 years that I’ve lived here has never let me
down once. Pacific Bell has let me down many times.

So would I switch if it were equal or even higher cost? Would I switch to City of Palo
Alto Utilities? You bet I would! In a minute! Now, I’m confident that a decision on
your part to do a city wide rollout is going to be seen inside and outside this community



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years from now as being a farsighted, watershed decision that’s going to make a
difference for everybody in this community. Now the people in the City of Palo Alto,
like me, are going to benefit from this. The people have said that they are willing to pay
for this, so won’t you please find a way to give the people what they want?

Carlson: Thank you very much. Richard Brand followed by Ralph Hardy. Mr. Brand?

Mr. Richard Brand, 281 Addison, Palo Alto: Yes, good evening. Richard Brand, 281
Addison, Palo Alto. Commissioner Carlson, you asked about a name for the project that
they’re talking about? I was just was sent a draft of a document from my work, it’s
called Municipal Deployment of Ultra Broadband Services. I think that’s probably what
you want to do, something along those lines. Why the name “Ultra Broadband?” That’s
to delineate that this is not DSL; this is not cable modem, which are called “high band.”
This is a very high-speed connectivity service. It’s not HFC; it’s not wireless. And this
paper is copyrighted. I was hoping to be able to bring copies, but it actually is a draft
study. It’s saying the municipalities are the ones who should be doing just this type of
service for the industry. This is going to be presented at a conference next week down in
San Jose and as soon as I find out how to reference it, I’ll give copies to you. I did want
to say – I’m not wearing a sticker tonight, and it’s not to say that I’m not for Fiber – but
you want to be careful you don’t make the mistake that the City made 8 or 10 years ago
just to go with Fiber and not consider the services. I’m really for Fiber-enabled services
to my home and to businesses as well. By the way, you need to take into the business
case, connectivity for fractional T1 (those kind of services) to businesses, because that
will provide a lot of revenue and there’s quite a few small businesses in this city so I
recommend that.

So you really want to look at services, not the infrastructure issue. Obviously we have to
pay for it. The services example I look at is, let’s take the curbside refuge pick-up.
There’s probably a business model looked at and that was picked up and we now have
that today. Nobody had considered the implication of recycling and what that would do
to the business model. These are services that weren’t conceived and thought of at the
time when the program was put into place. You’re going to see the same thing coming
about in this kind of application, so to ask them consider all the services and the revenue
coming out of that, surely they have to do some of that, but they’re not going to get them
all. A lot of people talk about this as faster Internet. We’re not building an extension of
the Internet in this project. Internet will just be one of the many services that come out of
that and so you did ask the question about video and I’ll give you my experience I related
at the meeting last month. I’m very much an advocate of HDTV. I want to see the
Winter Olympics in HDTV. The satellite companies today, I’m sorry, the cable
companies today segment their wavelengths in such fashion that they don’t have enough
capacity for an HDTV signal, so I can’t get it from AT&T. So then I go to satellite and in
order to do that, I have to get 2 satellites because again, the satellite providers don’t have
enough wavelengths, sorry, enough bandwidth capacity to provide for HDTV. When I
installed the antennae in the house, the guy could not get the second satellite and he said,
“Either you move your house or you cut down the redwood tree”. Neither one of which
is going to happen. These are the services that 4 years from now, we’ll want to have on a



                                                                                           29
network like this, so this is why, again, this is an upcoming service application. Think
about TV, by the way, which is one-way. We really want to consider, somebody else
mentioned this is going to be a 2-way system, so you need to have balanced bandwidth.
Again, that’s a problem with satellite. You get a downlink, but you don’t get the uplink
capacity just like DSL. So I would just like to offer that this project is worth pushing
forward to looking at a business plan and I encourage you to do so. Definitely
understanding that this is not a start-up business with a 2 or 3 year scenario. This is a
service, so you can’t really identify a specific focus. The services have to be looked at,
but as a utility communication service, that’s how it has to be. This is not a business
entity. Thank you.

Carlson: Thank you very much. Ralph Hardy followed by Bob Moss.

Mr. Ralph Hardy, 3062 Emerson Street, Palo Alto: Good evening Commissioners. My
name is Ralph Hardy and I’m a resident here in Palo Alto, 3062 Emerson Street.
Tonight, this has been more interesting than TV. I learn so much when I come to these
meetings and my opinion is I’m in favor of a continued, exhaustive study of the business
case. I don’t think we’re quite ready yet to move forward to the business plan and
spending money on that quite yet. I’m looking forward to seeing more talk about open-
ended architecture, not just one aspect of Fiber to the Home. But can we really see the
future? Fiber? It’s just one way. I believe there are going to be numerous other ways
that we can’t foresee yet, so let’s really take a close look at that. Thank you.

Carlson: Thank you. Bob Moss, then Mike Levringo. Go ahead Bob.

Mr. Bob Moss, 1040 Dame, Palo Alto: Thank you Commissioners. I would like to try to
address the questions of what you should be looking at in the business plan and I would
like to give you a little background. Some of the things you should be asking, some of
the questions that you should be studying, for example, are what would be the impact of
bundling? Cable companies and telco’s have made a big, big study of the impact and the
benefits of offering multiple services. In fact, I read an article today in the current issue
of Cable World that says that being able to offer phone service and IP telephony could be
the sort of thing that keeps people sticking with the cable company instead of abandoning
them and going to satellite, so there are some synergies that should be investigated.

One of the things that has not been discussed, and really must be at the top of the list, is
the synergy with government facilities and services. You really ought to look at the
benefits for services provided to the community and from the community to the
government by having broadband capabilities. Emergency services, remote reading of
utility meters, remote monitoring – all of these things are real benefits and they ought to
be looked at in depth. Another point you should be looking at is, and this has not been
done as far as I know about anybody, if you talk about bundling services and you’re
talking about cable, you’re talking video, data, phone – what about bundling also
electricity, gas, water? The benefits of having all of these things delivered by the same
entity, you’ll find some real advantages there and some real benefits of scale. So those
things should also be looked at.



                                                                                             30
Another thing you should be asking is the question of what will people pay for the
various services individually and bundled? You’ve heard a lot of talk tonight about how
people won’t pay for this. Let me tell you what our experience at Cable Co-op was. We
had almost 2,000 people who were willing to pay $100 a month for data service alone.
Those were real customers. When people say, as Wayne Martin does, that it’s a small
cohort of very, very dedicated people, bunk! We had real customers who paid real
money to get real services. This is not theory. It is actuality. We had almost 3200 data
customers at the time we sold the system to AT&T. Try to find out how many of those
customers stayed with AT&T. I heard some comments tonight about how people hated
Cable Co-op. I can’t tell you how many people have come up to me and said we didn’t
appreciate Cable Co-op until we got AT&T.

So the other thing you should be looking at are the benefits of high speed upstream.
You’ve heard a lot of talk about how this will be offered; the service will be offered by
commercial companies; the cable company’s going to do it; the phone company’s going
to do it. They’ll never do it. No phone company in the world, no cable company in the
world is offering high speed both ways. They are wedded to ATM. You’ve probably
seen some articles lately that say the phone companies and the cable companies are going
to start offering tiered service. Welcome to 1996. That’s what Cable Co-op did. We had
3 tiers of service and what are they doing? They’re charging you an additional $20 or
$40 a month for upstream speeds of 384k. Cable modems are capable of between half a
meg and a meg upstream. Ask people what it would be worth to them to have 4 or 5 meg
both ways. You’ll find they’ll pay a lot. We took a lot of customers in the T1 lines from
PacBell because we were offering better service for a tenth the price.

I’d like to finish by giving you some perspective on the comments about the Cable
Television Association’s finding that no municipal company can make money. They are
hardly an unbiased observer. As far as PacBell and SBC, let me give you some history.
PacBell spent $17 million putting in a fiber system in San Jose. SBC bought them. City
of San Jose said, “Are you going to continue that service?” and they said, “Yeah, man,
we’re going to continue it!” Two weeks later, they shut it down. Two weeks! At that
time, SBC/PacBell had taken 20% of the customers from TCI. A few years later,
Ameritech was offering cable service in the mid-west. SBC bought them. They were
asked again, “Are you going to continue offering this service?” They said, “Yeah, man,
we’re going to do it!” Six months later, they sold it off. Can we trust them? You answer
that question yourself.

Carlson: Thank you. Let’s go ahead. We’ve got 5 more. This is Mike Levringo
followed by Herb Borock.

Mr. Mike Levright, 2060 Byron: Mike Levright. I can’t write either. 260 Byron. Fiber
just runs by my house. I heard last month the responses of the people who were using the
system – and drooled. What we’re being asked to do now, you are, is not to approve a
system, but just to narrow down to business plan proposal, which is one proposal. In 6
months we’re going to be able to really see how they justify it, how they want to roll it



                                                                                       31
out and then there will approval. So we’re not approving lots of money. We’re just
letting them spend the $100k that’s part of the plan. Now, what I want and why I want it.
I want control. I don’t want AT&T to continue to say, “Gee whiz, we can’t get Channel
2 without herringbones.” I don’t want PacBell to say, “Gee whiz, our DSL service
doesn’t work” or “we don’t want to support criticism” or whatever. So I want to be in
control because it’s a City facility, the pipes to my system, to my home. By the way, I’m
65 and I am interested. I apologize. My primary interest is Internet. I will be moving off
probably AT&T and losing your telephone signal and going to satellite because I can’t
get decent service, so that’s secondary. Finally, phone service is okay, so I’m not terribly
excited with that, but I really want you, the utility, to provide the pathway to my home so
that I could get multiple people asking me to subscribe to either Earthlink or AOL, or
AT&T or Cable or DSL, so that I can get competition with one pathway which is
provided by the City. Thank you.

Carlson: Thank you very much. Herb? I have to compliment Herb. He’s one of the few
people in the community that, when we’re talking other issues, actually shows up. So
welcome Herb.

Mr. Herb Borock, P.O Box 632, Palo Alto: Thank you Chairman Carlson and good
evening Commissioners and Council Member Beecham. I was actually paying attention
to the procedural discussion earlier this evening, because I recall that the former Vice
Mayor Frances Brenner used to say, “Detail in procedure is everything.” I mean, it’s
gotten to the point on the Council now where procedures are invented for particular
votes. I know, from watching the process for a long time, that what procedure you use
will determine sometimes what the results are, so those kinds of discussions are
important. One procedure I’d like to bring to your attention is the Brown Act, because of
Mr. Dawes participation by teleconferencing. The Brown Act requires such participation
to be noticed on the agenda with the address so that other people can show up. I mean I
can see whether someone from SBC or AT&T is handing Dick Rosenbaum a note
because it’s right in front of me, but I don’t know who’s in the room with Commissioner
Dawes.

Dawes: It’s almost midnight here. I can guarantee you there’s nobody here.

Borock: The business case and the details from the consultants referred to some
revolutionary new cost-reducing method of getting Fiber out from the last of the active
node. I don’t know whether this new revolutionary method is a 20-year-old air-blown
optical fiber, but if it is, you should tell us. In fact, whatever it is, you should tell us so
that we can comment on it. The opponents who have spoken tonight are saying, “Delay”
and the proponents are essentially saying, “Go ahead and approve it.” I believe the
proponents are making a mistake, because this is how you frame the discussion as to what
is going to be in the business plan. It’s going have a lot to do with how the Council is
going to make its decision. I believe it’s a mistake to wait until the business plan to come
out to go back to the PAFibernet’s position from April 24th. I mean, they should be
asking you to do the things that are in that.




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RCN has been mentioned. Its business strategy is selling bundled services. I have a
concern that just as Cable Co-op cannot get an exclusive franchise, you can’t have an
exclusive partner as a city, which is the way it would probably be. So if RCN can be a
partner, why can’t AT&T? That way they can get an all-fiber system. There’s a reason
for the City to have its own head-end for TV, because then it’s the City’s and it’s not
partnering with anybody, and it doesn’t have to give it to AT&T Comcast. The kinds of
results you get are going to be different depending upon what you’re trying to optimize.
If you’re optimizing a 30% penetration, what’s going to cost you to get a 100%
penetration is different than if you design a system for 100%. The City should have a
vision as to what it wants. If it wants 100%, then that’s what the business plan should be
going forward. The question of whether it should be a passive optical system that’s
looked at, or an active system. One point of an active system to multi-point homes or
point-to-point Ethernet and that should be a criteria. Another one is the bandwidth.
There are some people talking about gigabit or 100 megabits per second to every home.
Those are choices that should be in the plan so that you and the Council can balance
those. Those are just some of the things. I would’ve preferred to have 2 weeks to look at
the report rather than a few days. I certainly haven’t read the whole thing and I do
understand the urgency by the proponents of getting you to move on with a business plan.
But it should be done right, so they don’t have to come to the Council later on and realize
that the things that they really wanted had been bypassed by the way the plan had been
framed. Thank you.

Carlson: Thank you Herb. Paul Havlik and then we have the last 2 after him, then Terry
Andre is next.

Mr. Paul Havlik, 892 North Hampton Drive: How are you? Paul Havlik. 892 North
Hampton Drive. I’ve lived in Palo Alto for 3 years and when I came here, I knew about
the Fiber, tried to sign up for it, but lived in the wrong neighborhood, so I went to DSL
and I’ve been sputtering on DSL. Just a little history of mine, I was a main member to
design the IP network for the County of San Mateo 7 years ago and implemented it.
Then I worked in 2 more start-ups in Silicon Valley, the last one being Covad, so I’m
quite familiar with DSL, its limitations and where it’s going and where it’s actually not
going. Over the years, we’ve discussed what technologies are viable in the future of
telecommunications, and came to the conclusion that fiber is the only viable method of
high-speed communication. It’s not wireless. It’s not satellite. It’s not cable. And it’s
not DSL. And it’s definitely not SBC.

We talked about investment and that’s very expensive. The highway system in the
United States was very expensive too. I’m not sure they envisioned the amount of traffic
that was going to be on it 100 years later, 50 years later, and it paid off, as will a Fiber
system in Palo Alto. In the County when we implemented the IP network versus an SNA
mainframe network, everyone said, “Why? Who cares? What do you mean? Who needs
email?” I don’t know if you use email today. We had to fight for it 7 years ago.

Bandwidth limitations – fiber really has no bandwidth limitation. It’s only limited by the
gear at the end of it. Some one spoke of a pipe, a pole pipe, and somebody else puts fiber



                                                                                          33
into it. Well, fiber is a pipe, by the way. The gear on the end limits the speed of the data
inside the pipe. So whether you go Ethernet at 10 megabits or you go 2.4 gigabits or you
put something called DWDM where you put multiple wavelengths of light on the same
piece of fiber, it just depends on the gear on the end, not the fiber itself. There are several
types of fiber, but these guys will probably come up with the right alternative.

Speaking of SBC and our cable companies being able to deliver this service in the future,
I remember the day when I worked for Mervyn’s data center a long time ago and they
said, “Ah, DSL is coming.” Well it didn’t come. Do you know when it came? When the
Telecom Act of ’96 was passed and companies like Covad forced these clowns to do
something. I equate this line of thinking to the current events in the Middle East. Yes,
Saddam Hussein will comply with resolutions when you put a gun to his head. SBC will
do something when there’s a gun to their head. They will not do anything otherwise.

Also we talked about what applications you can put on fiber versus current. We talked
about movies on demand. We’ll pretty much never get those over cable; we’ll never get
them over satellite. Satellites don’t have enough bandwidth. Cable doesn’t have enough
bandwidth. Fiber has the bandwidth. We talked about the future of having doctor visits
without visiting a doctor, actually sitting behind a $195 camera at your house and a
microphone that costs 5 bucks and talking to a doctor and having a doctor’s visit. I mean,
how can we do that today? Well you really can’t. You don’t do it over the phone. You
can pretty much do a much better job over the Internet. There are many things we don’t
even know about today. We’ll find out as time goes on, but the time to do the study and
put the pipe in is now. Thank you.

Carlson: Thank you very much. We’ve just got a couple more here. Please no more
applications. We’re just running out of time. Go ahead.

Ms. Terry Andre, 5981 Vista Ave, Palo Alto: Terry Andre. Vista Avenue. The main
reason why I’ve been interested in Fiber to the Home is because I don’t want to have to
drive all over the County to get to work. I want to be able to work from home. And
considering that transportation issues is a major concern in terms of our region, I think
that’s a very important issue. As I’ve listened to more and more of the discussion, I’ve
found a second item that is very important to me, and it flies in the face of what the
commercial speakers tonight have said, those who have been providers of communication
systems. With the current situation, for example, AT&T – they own the cable and they
own the service. With PacBell – they own the wire and they own the service. What
we’re looking at with Fiber is that the wire will be a municipal utility; the service will be
competitive, so there’s no lack of competition. I will be able to select from various cable
providers, various telephone providers, various ISPs – and I want that. I want them to be
feeling a little bit nervous rather than having a monopoly. At this point, we’re stuck with
those categories of providers.

The next area that I believe is very important is having access to more media. At this
point in time, I’ve gotten very discouraged with the amount of consolidation in the media
industry, particularly as it pertains to news sources. I have been trying to understand the



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global situation. The main way that I can get news from a variety of sources is through
the Internet. Most citizens rely upon the television and it worries me quite a bit. I would
like to see us be able to have a broader variety of both television channels as well as data
access in order to be able to provide better education for better citizen decisions. Lastly, I
want to remind again that tonight’s decision is only to get more information, which is
what I believe you’ve been wanting and asking for. I would suspect knowing John and
how Blake works, that you’ll have plenty of opportunity to be able to make sure that the
questions get in to the plan they are currently offering to compose for you.

Carlson: Thank you. Gerald Fisher followed by Bud Mission.

Mr. Gerald Fisher, Greenwood Avenue: Good evening. I’m speaking to you as a
participant in the Fiber to the Home experiment. I wanted to simply give you a little bit
of history. I primarily was interested because my wife has an eye disease which
precluded her from being able to drive. This occurred in her later life, and I was hoping
that her inability to get to the library and to get around town would be somewhat
ameliorated by access to Fiber. Well, it’s been amazing, just absolutely unbelievable.
She spends almost 3 hours a day. Anything and everything that she is interested in, she
immediately, the first thing she does is get on the Net and she gets answers to everything
she has a question. Better than it ever was with respect to the library. It changes your
life, not just hers, but mine. The ability to get an immediate answer on any kind of
question plus, you know, I’ve had all kinds of medical things and I’ve become an expert
on teaching my doctors about the latest technologies. It’s amazing and it changes your
life in ways that you just can never go back. Once you’ve done it, there is no going back.

I couldn’t imagine a life without access to the high speed Internet. You know I had
access in the jobs to high-speed intercompany communications and this went on to the
other thing, but it never dawned on me while I was doing all that what the implication
would be in the home and how it would change our lives. I guess it’s sort of like – would
we go back to taking horses in our house to get around town? It’s that ridiculous a
comparison. So it’s something, now you know, I have, I’m one of the few in Palo Alto
that has a big Dish for TV and the big Dish offerings are getting smaller and smaller and
the price has been going up and up because they’re getting more competition and things
are going now into the small Dish, so pretty soon there won’t be anything on the big
Dish. We had the opportunity to look at the TV as it came through the Fiber net and it
was better than what I get off my big Dish, so I would certainly go to that as well. So
phone, it would be interesting, because I pretty much shifted to using Sprint PCM or PCS
or whatever that’s called, the walk-around thing, so we don’t even use long distance
through the regular phone line. Now it’s all because it’s cheaper to go a certain number
of calls. So it would all depend on the price in terms of if we went to the phone. Thank
you.

Carlson: Thank you very much. And, Bud Mission, our last presenter.

Mr. Bud Mission, 3401 Hillview Avenue, Palo Alto: Thank you. I’m Bud Mission,
Director of Facilities Planning at Roche Bioscience located at 3401 Hillview Avenue in



                                                                                           35
the Stanford Research Park. Chairman Carlson, Councilmen Beecham and members of
Commission, thank you for this opportunity to speak and I’ll be brief. I’d like to offer a
slightly different perspective than some of the previous speakers and that is the
perspective of a major business that makes its home here in Palo Alto. Roche has a
workforce of about 1200 employees and we’ve been established here for over 40 years.
Not only do we work here, but a number of our employees live here as well including our
President, Dr. James Woody. First of all, let me say that Roche feels fortunate to be a
member of this community.

We don’t, however, appreciate the disproportionate tax burden that is shouldered by
businesses. According to Palo Alto’s Budget Director, nearly 60% of the City’s general
fund comes directly from businesses and this 58.2% revenue comprise sales taxes, hotel
occupancy taxes, it includes fees, permits and other taxes paid by businesses. With
respect to the City’s utility fund, which brought in $160 million in the last fiscal year,
63% comes from small and large businesses and half of that $160 million came from
large businesses such as ourselves, Roche, Hewlett-Packard, Agilent and Varian. The
bottom line here is that for Palo Alto, more than half of the City’s general fund and nearly
two thirds of the utility fund comes from businesses, yet the overwhelming majority of
the City’s expenditures are for resident services and many in the residential community
forget that businesses currently take up the burden for a major part of these services that
they enjoy and come to expect.

Fiber to the Home is another example of a City service going to benefit residential
customers. Frankly, we believe that most of Palo Alto’s larger businesses have the stable
advanced telecommunication services they need and won’t be willing to switch to the
City services. We’re not opposed to the studying of this business case, but what we
would hope that in so doing, you conduct a truly thorough business analysis of this
project. Not just to examine the upside and the revenue streams, but also take a look at
the downside as well, particularly if the subscribership targets fall short. Or if in 5 to 10
years, the technology is overcome or overtaken and the system loses appeal. We think
it’s important to make sure that this analysis is balanced. Businesses here can ill afford to
be saddled with another utility premium if the business plan assumptions fall through.
Thank you.

Carlson: Thank you very much. Commissioners?.

Beecham: Chairman Carlson, if I could, before you close the public discussion, I’d like
to acknowledge that SBC is here. They had made efforts in the community to talk to
probably many if not most of the Council members as well as UAC members. And I
know in those discussions, you [addressing SBC] were concerned about having enough
time to talk tonight and I want to make sure that you do have the opportunity now to
come up and talk to the Commission and to the public on your concerns, if you wish to.

Stacey Wagner, Director of External Affairs for SBC: Thank you, Council Member
Beecham, for recognizing that SBC/Pacific Bell is in the audience. At this point, we are
actively listening to what will be unveiled. As you commented, we have met with several



                                                                                          36
Council members to, perhaps, present a little more objective opinion as far as information
you might want to consider in making a decision this large. I would like to kind of echo
the last speaker’s comments as a concern is that the numbers may be inflated and that
who may be left having to pay for something this large, if it should not be successful, will
likely be the business community. Until additional information is presented and
additional details are unveiled, we will hold off on further comment at this time, but
thank you very much.

Carlson: Just for the record, could you identify yourself?

Wagner: I apologize. My name is Stacey Wagner. I’m the Director of External Affairs
for SBC/Pacific Bell.

Carlson: Thank you very much.

Wagner: You’re welcome.

Carlson: Time for a break. We’ll take about a 5-minute break.

[break]

Carlson: Let’s go ahead. We’re going to go ahead here. If everybody will take their
places, it is 9:30. Dexter, are you still awake out there?

Dawes: Absolutely, I’m hanging on every word.

Ferguson: The voice from the sky.

Dawes: I was fascinated by our public comments. Very excellent.

Carlson: Well, they were very interesting. We’re going to go ahead, if everyone would
take their places. If you want conversation with each other, you’re welcome to do that
outside, but we’re going to go ahead and have a discussion for a while. Given the time, I
certainly will not guarantee that we’ll be able to finish tonight, but let’s go ahead. Who
wants to start?

Ulrich: May I ask, if you don’t think you’ll be getting to the Utilities Strategic Plan, we
still have people waiting. If you would like to make a decision on that soon or whether
you want to do it or not, that would be helpful.

Carlson: Let me hear from the other Commissioners. Any suggestions on that? My
suggestion is to continue this for a maximum of half an hour and then just cut it off and
continue it, and then try and finish off in 20 minutes or so the Strategic Plan. Would that
be useful to you John?




                                                                                          37
Ulrich: Well, we’re at your service. Whatever you’d like to do. Obviously, this is an
important subject and we would like to reach conclusion on this if you’re eager to do so.

Carlson: Any procedural? Commissioner Ferguson?

Ferguson: Let me tip my hand here. I’d like to hear comments from all the
Commissioners, both as to the quality and depth of the staff work, to the extent they’ve
read it, and also to any first impressions from the public comments. And then a
Commissioner-by-Commissioner summary of where we stand in the procedure. Then
after that set of 5 persons’ comments, I’m probably going to move to continue this to the
next meeting. We need to have a set of comments and some feedback for the audience,
but we’re just really running out of time and energy here to do something useful and
proper.

Carlson: Any other procedural comments? Does this work for Dexter and all of the
above?

Dawes: Yes.

Carlson: Okay. Fine. Let’s go ahead. Let’s start asking questions of our consultants,
now that we have them and we’ve read some of this very substantial piece of work.
Commissioner Bechtel hit his button first, so go ahead.

Bechtel: Thank you Mr. Chairman. I just wanted to thank Commissioner Ferguson for
putting together a list of questions that he passed out to us. These are questions that each
of us had asked in previous meetings in the August and September timeframe. I was
going through the list that he put together, the questions I had then. I look at the same
questions that I generated after reading the report, and I’ll have to tell you that I went
through this report; I didn’t go through all the text comments, but I went through all of
those participants and some of the others. And I actually tonight will be prepared to
move ahead on this, but there are some questions. From a procedural point of view, I’m
prepared to move ahead on endorsing the next step, which is a business plan, but with a
list of things we need, some information that I personally need. I won’t go through an
exhaustive list and perhaps maybe I’ll go through some of the questions I had before.

Various speakers talked about, it is possible for us legally to do what we want to do in the
telecom area? They’ve talked about competition. We’ve not heard from our City
Attorney, perhaps that’s not part of the mandate. I know, in going through this, that was
excised from your scope of work by the Council or by the City Attorney. I’m not quite
sure exactly what happened, but we need to have our City Attorney have inputs on this
business plan. That’s very important. We need to develop a way to quantify community
benefits. In our Strategic Plan, we’ve done a great deal of work in trying to quantify a
number of customer satisfaction issues and others. We can make an attempt to quantify
community benefit so that we don’t have the last chapter – which is basically a
compilation of ideas, a really, really nice list of things that could be done in the last tab in
the report – but some of those could be actually quantified. We’ve heard things about



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medical care or surveillance and other issues, which probably can be quantified from a
service point of view. But there are other issues on the educational side that may not be.

More than anything else, I would like to have, on the technical side, a future proof
system. What I mean by that is one that addresses the issue of what happens if the
technology changes in the next 5 years. I know personally that the glass will improve
and that if we put into our system today fiber or glass, that’s not going to carry the kind
of services in 10 years anyways, we can look out 5 years and make a good assessment,
but if we can’t do it in 10 years, then we’re making a mistake. Other ideas along those
ways are the passive optical networks, or so-called PON system, with and without active
elements in the network. There are a lot of issues like that. And that comes back to the
issue of what a business “plan” is. We’re still really back to the business “case,” perhaps.
Maybe more of a technical feasibility study is really the right way to look at our next
step, not necessarily a business plan. So those are the kind of things that I would like us
to address in the next phase of this study. But unless we can come to grips with a good
list to give you tonight, we ought to continue this item.

Carlson: Commissioner Rosenbaum?

Rosenbaum: Let me first mention several conversations a few of us had at the NCPA
meeting with 2 of the fellow NCPA members. Truckee-Donner is considering putting in
telecommunications. They have the traditional reasons – service from the cable company
is not very good and I don’t believe they have DSL available at all. They told us that
they have come to the conclusion that they ought to do Fiber rather than a Hybrid system,
because they think it won’t cost anymore. Now that was an interesting conclusion for us,
because our consultant, perhaps hurriedly, told us at the last meeting that one was going
to cost $50 million and the other was going to cost $25 million. I don’t necessarily want
any answers tonight, but this is an issue we ought to iron out. At some point, we ought to
make a definite decision that we don’t want to do a Hybrid fiber system and we don’t
want to do it for the following reasons. I say that, knowing that almost all of the systems
built to date have been the Hybrid systems. So perhaps the cost of the equipment is
coming down and maybe as these companies tend to go out of business, they’re willing to
give it away. I don’t know the answer to that, but our consultant ought to be able to help
us there. We also spoke to the General Manager from Alameda. Alameda is installing a
Hybrid system and I asked her if she had to do it over again, what would she do and she
indicated that she would do Fiber, but I’m not sure she recognizes any of the possible
financial implications of that decision. Once again for our consultant, their cost, they
have about 30,000 households and they’re planning to spend $30 million and they’re
already well advanced. $1000 a household, whereas the estimate we had for Fiber is
$2000 and for the Hybrid, the quick calculation that Neil made was that it was closer to
$1000, so we ought to try to iron that one out.

The question of Internet speeds, I bring this up because this is something I just don’t
understand. There are, as far as I can tell, there are 2 systems in the country that have
done Fiber or are in the process of doing it. One is Grant County, so I went to the Grant
County website, this is the county up in Washington, and under Frequently Asked



                                                                                          39
Questions, they say, “What is the speed of your Internet?” and they say, “We’ve
measured it at at least 500 kilobits per second.” Now clearly, there’s something going on,
either even if you have Fiber, bandwidth is still a finite resource and there are other
things that has to be taken into account, or something must be going on. The other one
that’s up in operation and has prices is Cookstown, Pennsylvania, a town of 6,000 and I
went to their website and under Internet services, they list all their speeds and the prices.
They start at $15 a month for 64 kilobits and it goes up to $30 for 256 kilobits, but then if
you want megabit service, I mean, $750 a month for 1 megabit and on up. So clearly
there’s something going on there that I don’t understand and I’m sure our consultant
either knows or can certain find out just by calling Cookstown. So much for some of the
research that I’ve been able to do, either or in person or on the Internet.

With respect to the survey, we did a random survey, we picked out 5000 names and we
got back 950 responses. Now I did look hurriedly through the survey sector, but it would
strike me that you then had a self-selected survey. The way to get a random survey is to,
if you want 5000 people, you really have got to bug those 5000 people to respond. So
maybe there’s a good answer from the standpoint of surveyors as to why this is still a
random sample. The reason I bring this up is I was really astounded by the estimate or
the number of people who responded who said they had DSL. They don’t run in my
circles. I know the representative from PacBell is here and I would really encourage her
to look at that data and if it’s not true – and I know PacBell, like all commercial
companies, is reluctant to give out data – but if they have information other than what is
shown in this survey as to the percentage of subscribers that they have, that might be very
helpful to us.

The legal opinion from the Attorney – if I was on the City Council, I wouldn’t spend any
more money, unless I got the Attorney to tell us whether we can go ahead with this.
Now, John, you may not have much pull with the Attorney and honestly Grant Kolling
has been quite busy with the PG&E bankruptcy and he may not have wanted to get into
this. But as I understood the issue, the Attorney felt that since we were the franchise
giver, we couldn’t very well give one to ourselves, and we ought to get an answer to that
issue. I remember Dexter Dawes brought it up probably 6 months ago as something that
had to be done as part of the trial, or we were perhaps missing out on something.

Let’s see, do I have anything else? Yes, one broad philosophical issue. Somebody
mentioned the Interstate highway and that’s an interesting analogy. But if Palo Alto and
a few other towns were the only ones who had installed Interstate highway, it really
wouldn’t be much good. Similarly, if Palo Alto and a few other municipal utilities
provides this ultra broadband, which is a very good system, and the rest of the country,
which is served by commercial enterprises, never do get fiber or fiber is really in the
future for them, it would seem clear that the applications that will make use of the ultra
broadband will simply not be developed to any degree and then you get down to the
questions of well – what are we going to do with it here in Palo Alto, except to provide
service to those people who are running businesses from their homes that are very data
intensive and who require the ultra broadband? So that’s more a philosophical issue. As I
say, I don’t want to give the impression that I’m negative, but it seems to me that as time



                                                                                          40
goes by, the clarity of the issue increases. We may well come to thank the Fibernet
people who have brought this issue to us admittedly from their own perspective. When I
have time to read the report, perhaps I’ll be ready to go along. Thank you.

Carlson: I’d like to hear from the consultant, because there were several specific
questions, which Dick Rosenbaum just asked, so if you can go ahead and respond.

Heitzman: Neil, let me interject with a couple of things before you talk. First of all, one
of the questions that Commissioner Rosenbaum addressed was 2 systems, one in
Pennsylvania and Grant County, and the speeds that were tested there being fairly low.
We have actually tested our Fiber to the Home system and we have tested 4.5 megabits in
each direction and actually, in some cases, stronger than that. So we have experienced
better speeds than what they’ve talked about here.

I’d like to, at least a little bit, talk about the self-selection process on the surveys.
Originally when we looked at doing the survey, we were looking at 350. You have to
send out more invitations to take the survey than you’re going to get responses, so when
we got 960 responses back, that’s roughly 3 times what we really needed to get. The
self-selection process in that people choose or not to take surveys happens in every kind
of survey. In this case, we had 15 to 20% of the folks responding, which is larger than
what you normally get in a commercial survey. Most of those are like 5-8%, so we got a
better response rate than you typically would get in other communities. This is a
response rate that is typical of this community. When our Statistician looked at the under
representations and over representations, certain age groups and homeowners versus non-
homeowners, he found that for homeowners were over represented, but the non-
homeowners response patterns were similar with similar statistical curves to the
homeowners, so that the fact that they were under represented should not have affected
the results. You have to assume in a survey system that those are adamantly for it will
answer and those adamantly against the proposal will answer and those who are neutral,
they’ll probably throw it in the garbage. So as long as you’ve gotten all the segments of
society in there, you’ll feel like you’ve gotten the representation of both sides of the
equation in those segments of society.

One of the things we noticed in our curves was those who were lukewarm also
responded. The curves show that not only were those who were adamant here and
adamant there responded, but even those in the middle who were lukewarm responded.
So we feel like, based on the statistics that he projected, that we have 95% certainty that
we’re representing the population. I’m not a statistician. We can have him come to the
next meeting if you want him to talk about it more, but his analysis shows that the
process had been an adequate representation of the full spectrum of our customers and of
the viewpoints. You can always argue that you didn’t get 100%, but you’d have to go out
and grab people by the arm and force them if you want to get 100%. It just doesn’t
happen.

The legal opinion. We did finally get some information back yesterday, actually I got it
this morning in a confidential memo. We talked to the attorneys yesterday and they are



                                                                                         41
saying they will work with us through this process. Part of what we need to do is give
them specific models to work with. That’s why we need to move into the business plan,
because we have to talk about the arrangements we would make – is that legal and what
are the legal implications of that and if that’s not going to work very well, what other
arrangements can we make to make it a more viable legal issue? He did point out the
things that Commissioner Rosenbaum talked about – the idea of franchising ourselves.
That is an issue, but there are ways to work around that. We need to actually decide to
how we’re going to do the business in order to come up with the answers on some of
those questions. Now, again, we can have alternative proposals on how we do the
business, but we’ve got to be specific, Other than that, all we’ll get are these generalized
responses; you need to look at this issue and you need to look at various regulation issues
and so forth. But until you really talk about “here’s the way we want to do it, here’s the
way we can do it with partners,” it’s hard to really get the specifics on the legal. That’s
going to come hand in hand with getting more specifics. That’s all I needed to address.
Neil needs to talk about the Hybrid Fiber Coax, at least.

Shaw: Just to backtrack a little bit on the Cookstown pricing. Cookstown, Pennsylvania,
a town of about 6,000 households. Fairly small. I think they’re relatively rural. One of
the things that go into pricing for an Internet access services is the cost of your access to
the backbone network. Palo Alto is very fortunate in that it sits on the backbone. Palo
Alto Internet Exchange is basically the Internet, and your availability over direct
connection to the number of backbone providers in the path. Palo Alto Internet Exchange
allows you to get Internet backbone pricing at $250 a megabit and Cookstown,
Pennsylvania, I can guarantee you is paying at least $1000 a megabit, so their costs right
there are 4 times what it would be for a similar service here just for the baseline access to
the Internet. The second piece that factors into the nature of your Internet access pricing
is the rate of over-subscription; that you’re putting the number of customers that you sell
1 megabit service to the number of 1 megabit connections you have to the backbone. In
some cases, I mean AOL might over-subscribe their service 20 to 1, 40 to 1, whatever.
But in the case of a $750 per month high grade commercial service, that probably has
very low over-subscription rate such that that customer can pretty much be guaranteed
that they’re getting the best service possible. Whereas if you’re selling a much higher
over-subscription or more commercial or consumer-grade service, you’re not going to be
guaranteeing that amount of backbone access. So I’d say that a $15 to $750 range earlier
reflects their willingness to develop basically micro products to address very specific
elements in the community. And that’s good, but the majority of their services are going
to be sold in the DSL range, the cable modem range, in the $40-80 price range, even with
their backbone cost being quadruple what they would be here. Grant County has some of
the same issues even though they’re sitting on a pretty decent fiber connection.

There are some fine delineations you need to make when you talk about the difference
between a Hybrid Fiber Coax system and a Fiber to the Home system. There are 2 basic
elements when you look at the business case, when you talk about the price of a system.
When we look at the $49.5 million bond and the $3 million utility loan, the $49.5 million
bond is a combination of the cost to build the head end and other fixed elements of the
system, the cost to construct the Fiber to the Home system past every home. That’s over



                                                                                          42
the first 3 years that you’re building out that system and in the 5 year ramp to add
customers on to that system one by one. Now you may be able to build a Fiber to the
Home system in a head end cost the same. You may be able to build a Fiber to the Home
system at the same cost as the Hybrid Fiber Coax system initially. The new construction
techniques that we’re looking at that do deal along fiber technology that’s been adapted
for hardened outside plant applications may get that price down, and in some cases,
below the $750 and maybe below $500 depending on the densities of the neighborhoods
you’re looking at, which is in the range of the Hybrid Fiber Coax system.

But I would be hard pressed to sit nose-to-nose with somebody who will tell me that a
Hybrid Fiber Coax system overall is going to cost you the same as a Fiber to the Home
system, because your incremental cost to put in a coax drop for a service pull to a home
and hook it up to your TV in a house is $150 max. It’s maybe $50 for coax cable and
maybe $75 in labor to hook it up to the house, and everything else if it’s a new system.
The incremental cost for a Fiber to the Home system is a minimum $800 charge, $800
capital equipment charge for the network interface device that converts the optical to
electrical signals on the side of the house – that’s the NIU. The cost of the fiber drop, the
cost of the splicing, the cost of the pigtails, the cost of everything that goes into
establishing that connection with the customers, so that’s where we come up with, it’s
like, $1100 incremental cost per subscriber. That’s the variable equipment charge and
you’ve got the construction and you’ve got the fixed equipment.

Now the other thing – and where this $3 million comes in – is you can’t bond, you can’t
use bond proceeds to fund operating losses okay. That’s where the utility, before the
project goes cash positive, which it goes cash positive in about the 4th year, utility has to
fund those negative cash flows and that adds up to around $3 million. When someone
says I can build a network for X, that means they could build a network to pass the homes
and so on, but it doesn’t mean that they can build the network, install all the customers
they need to install with that incremental capital, and fund operating losses. You have to
be very careful, and people are not careful in this industry. That’s part of the problem
especially when you’ve got everyone doing all the business cases. You’ve got to be very
careful when to qualify – what do mean by that? Do you mean you can build the system
for the same cost? Does that mean you can put all the NIUs in for the same cost overall?
Does that include operating losses? That’s a very long-winded explanation of how some
of these numbers might get jumbled. That’s my explanation.

Heitzman: Neil, I’d like to add a point that I’ve even noticed in your analysis of the 2 –
Hybrid Fiber Coax and Fiber to the Home – I think this is what they were hitting at.
While the initial cost of the Hybrid Fiber Coax is cheaper, the end results of your
paybacks are about the same because the operating costs are much more expensive, so
there’s an operating cost. When you look at life-cycle costing, they look fairly similar in
the models that we’ve seen.

Shaw: And the other thing, when people compare Hybrid Fiber Coax to Fiber to the
Home, is that the Hybrid Fiber Coax system and Network Interface Unit to provide
telephone service is around $400. You have to purchase that Network Interface Device



                                                                                           43
for telephone only. You don’t need that for cable and Internet, whereas for the Fiber to
the Home system, for the $800 NIU charge, you get 4 ports of 100 megabit data, you get
full cable service and you also get 2 to 4 ports of plain old telephone service. So the
incremental cost for providing telephone service in an HFC scenario is much higher. The
other thing that Blake’s talking about – in an HFC scenario, you have to have more
technicians, because it’s going to cost more to maintain the system. So there are some
subtle differences and that’s my ... I just ran out of gas.

Carlson: Before you completely run out of gas, which is an uncommon characteristic up
here, you still think it’s a 50% differential or do you think that differential is declining?

Shaw: I think the differential is declining. One of the things is that Fiber to the Home is
not for everyone. Let’s be clear. It’s a very expensive proposition and you have to be
tough to stick it out and want to do it, because you’ve seen all of the things that are going
to come up and, say, “here’s why you shouldn’t do it.: And yet it’s a risk to take. It’s a
calculated risk. But in terms of the differential, there’s a differential in the beginning and
then there’s a differential down the road.

Eventually, 10 to 15 years, the HFC life is going to be exhausted, and then you’re going
to have to be putting in Fiber at that point. So the incremental cost to overbuild an HFC
system with Fiber to the Home is going to be doing it all over again – and then it’s a
whole payback to start. To answer your question directly, which I’m not doing, I would
say that probably its initial cost is going to be 30-40% more for Fiber to the Home
possibly, but it’s really the Network Interface device on the side of the house that’s going
to be the primary difference in the next couple years, as the cost comes down and we
implement these new unique construction methods. I’d say that within a year or so, the
costs are going to come down to be even for the initial construction, and the difference is
going to be how much you’re going to have to pay for the Network Interface Units.
Those will eventually come down to about $500 a piece.

Carlson: Thank you.

Dawes: Mr. Chairman, I could make some comments if you have some time.

Carlson: Yes, I was going to cut it off at 10 o’clock, but I’ll let you go ahead given your
incredible ability to stay up so late.

Dawes: Firstly, authorizing the business plan is, in my way of thinking, simply the first
step in additional analysis of data and a close look at this operation. Again putting this in
sort of a business start-up context, I’m not aware of any business plan that is presented
and is accepted at the first pop out of the box. Clearly this iteration of the business case
into a business plan is not going to be the last cut we have at this. There will continue to
be doubts and fears about it and questions and more analysis to make before it really
settles down and commitments are made to build out the system.




                                                                                            44
Secondly, I am concerned about the, let’s say, wholesale/retail issues. Much was said
about the image of Palo Alto and the branding of PAU, and so forth, versus having
competitive offerings, particularly in the ISP area. One woman who got up talked about
having competition across the board with competitive cable TV providers, competitive
phone companies, etc, etc. The book that we have appears to imply that within the ISP
area, it’s mutually exclusive – either Palo Alto is the sole provider and brands it, or it’s
wholesaled out to different competitors who want to buy their way into the system and
try to sell our customers their product. I don’t understand why these should be mutually
exclusive other than it’s nice to be a monopoly. But it would seem to me that Palo Alto
could put out their own ISP plan and then we can invite RCN and we can invite the
infamous SBC and whoever wants to come in there to be a provider. If there are reasons
why this can’t be done, it should be spelled out in the business plan.

I’m also concerned about bias in the questionnaire. The document admits that the phone
question was loaded. Basically they said, “Would you like to take phone service if it’s
the same or less cost?” If Palo Alto coffers get a piece of the action. I mean, that’s a no-
brainer in terms of answering yes to that. Lo and behold, they got an astounding 85%, or
something, positive response. To me, it’s a biased question and I think our consultant
had noted that he had cut that way back and has put in something like 60% as a
probability of getting phone sign-ups.

Which leads me to segue into the phone business itself. There are comments within the
plan, I think particularly in the engineering section, that we were unable to get anybody
to express interest in providing phone service. That apparently the best shot seemed to be
that Palo Alto would have to qualify itself as a CLEC, which the document appeared to
say was difficult, impossible or at least distasteful. It didn’t say why. It also specified
that SBC said, well “why should I pay you to get access over your Fiber system when I
have everybody on twisted pair as it stands,” which seemed to be a pretty good comment
I thought. Evidently none of the CLECs would express interest in dealing with this. I
believe that telephone revenues, though not substantial, are a fairly critical part of this
whole equation. I think that the business plan either needs to show that we have a bona
fide proposal from a solid substantial and well capitalized provider of POTS that could be
our partner in it – or we should delete t he POTS revenues from our forecast. It’s very
soft, it seems to me.

There are other inconsistencies between the survey and the primary summary, I guess.
The engineering one was of discussion in the engineering that individual drops were
going to be $3,800 per. I assume that that’s probably an old figure. Nevertheless, it was
not a confidence-builder in making sure that all of the sections – particularly the
engineering, which is the large capital cost component – was pulled forward into the
summary in a way that was appropriate. The next item is contingencies for upgrades of
electronics. I’m persuaded that the glass is probably pretty substantial and a long-term,
long-lived asset, but as somebody said, the electronics on each end were an issue. It
seems to me that we need to have a significant contingency at, say, 7 years or 10 years or
some appropriate number out there, so that – when we talk happily about going cash
positive or at least having as much money on deposit as covers all our future bonding – it



                                                                                           45
has deducted from that amount – I don’t know what substantial is, but – a significant
upgrading of the electronics to reflect the obsolescence, which undoubtedly will come
here. So that that will push out from years 11 and 13 for the base case and the pessimistic
case, push it out to some later date for – I forget the term that you use – having the cash
available to pay off the bonds.

Lastly, I want to re-emphasize the point that I’ve made consistently in the public
meetings over these last several months. I felt was very eloquently stated by the Roche
gentleman who got up as the last speaker. And that is the risk to rate payers if these
projections are invalid. I’ve always the taken the position that my absolutely overriding
principle here is that the risk that bonds will be repaid, the risk that they won’t be repaid
out of revenues from the project, has to be what I termed “de minimus.” Whether that’s
less than 5% or what, I haven’t quite figured that one out, but the Roches of the world
pay roughly 60% of our utility costs. If the purchasers of the services from this project
are insufficient, it’s going to depend on rate increases for our electric. Probably primarily
electric, but could be gas and water as well. I formerly characterized it as sort of tapping
the gray hairs of the community – who probably won’t use the services to pay for the
bonds via their rate hikes. I probably should have more properly discussed it in the way
of having our industrial base – that has invested already very heavily in their fiber and
telecommunications capabilities – as paying for the consumer side. So risk is, to me, the
overriding, overarching issue, and the one that the final business plan and all its iterations
will have to satisfy me about.

All that being said, I am a strong proponent of pressing on and having the additional
analysis be done, so that we can basically work this issue out. I feel that it is very
appropriate to continue on with the study. Thank you.

Carlson: Thank you Dexter. Commissioner Ferguson.

Ferguson: I thought the staff work was terrific. As the person on the Advisory
Committee who pushed the staff a lot faster than the staff wanted to go on this, I guess
they say only Nixon could go to China, so maybe only Ferguson here can move that we
continue this to the soonest possible UAC meeting. So moved.

Carlson: Is there any discussion of the motion? It just means that we’ll continue the
discussion and make a final decision at the next meeting unless that? John?

Ulrich: Council member Beecham has a comment and I guess I do have a comment.

Carlson: Council member Beecham?

Beecham: It’s a suggestion on the next step. If indeed it would be useful to the
Commission to just get into the details of this 3-inch binder and spend an hour talking
about the details of the survey and an hour talking about the details of the spreadsheet.
You may want to consider a study session, which is less formal. You can sit around a
table and more easily talk to each other and talk to staff with the public present and that



                                                                                              46
may be an effective way to deepen your understanding of what’s in here without
necessarily being forced at that point to make a decision.

Ferguson: Can we get a vote on continuing and then talk about schedule?

Carlson: Any further discussion on the continuation? Go ahead, John.

Ulrich: I would only suggest if you, in your motion on continuation, state what your
expectations will be during this continuation period. We’ve provided, of course, a lot of
data and information. In that period of time between now and next time we get together,
what are your expectations that you want from staff? So that we fill this time with some
valuable materials, so that when we do get together, whether it’s in a study session or
whatever – what I just have to keep pushing back is that the clock is running and Mr.
Shaw gets paid and this bill keeps going. I would very much like to push you, in the
sense of getting the questions and concerns out. I do recognize that some of you had not
had this material for a long period of time. So if you’d factor in the length of time that
you think it will take to fully appreciate this material and then suggest to us a timing
when we can get back together and flesh out all of these things, that would feel like we’re
making some progress. That’s kind of my push along. If you want to do it differently,
I’d be glad to listen to that.

Carlson: Rick?

Ferguson: Thanks. I actually would anticipate little or no additional staff work. I would
hope that we could put together this study session sooner than the next regular meeting,
but we’ll find out about that in a minute. There’s one specific item I would like to press
for. and that is we talked about partnering, or you talked about partnering. I don’t know
if partnering is the right word, but establishing long-term relationships with other players
in this business including SBC and others. It would helpful – both from the standpoint of
politics and process and fact collection – that we step up the engagement of those
conversations so that we have a little more to talk about – what’s possible and what’s not.
Not that we need to get to a conclusion, but if there’s one thing that I would ask staff to
do before the next meeting, it’s make sure that we’ve touched that base. Wherever it
goes.

Ulrich: May I make a comment on that? We alluded to this partnering. We have been
working. In fact some of the people from SBC, while I’ve not met the lady that came up
and talked, I met her boss on 2 occasions and have talked in some detail about our
interests. There is – should be – a particular synergy here because the poles and some of
the infrastructure we own jointly with the Pacific Bell component of SBC. We have had
those discussions and we’ve had commitments from them, that they would review that
and get back to us. I have not had that future engagement. I do want to point out that the
staff has not been thinking this is “wholly-owned” here. We are looking for, in a sense,
partners that would feel the same way as we do. So I would encourage anyone that is
interested in that to discuss it with us . Or suggestions on whom we might deal with on a
partnership basis.



                                                                                          47
Ferguson: We heard a lot from the public today. That was a very useful expenditure of
time here. We also got some very well-crafted email messages and analyses from the
public. I hope we get some more email messages. I would like to discourage a long
public presentation at the study session or UAC meeting. What I’m looking forward to
here is a conversation with my fellow Commissioners on the topics here. I’d really enjoy
that protected chunk of time – whether it’s a special meeting or not. So with that
minimization of the staff work required, with that spin on what might happen next – Mr.
Chairman?

Carlson: Let’s go ahead and vote on the continuation idea. Then we’ll talk about next
steps in some more detail. Is that okay? All in favor of putting this continuance to
whichever the next session is? All in favor, say “aye”.

All Commissioners: Aye.

Carlson: Any opposed? So we will continue this. Now let’s talk about a study session,
which I think is an outstanding idea. When can we do it?

??: (inaudible comments off the microphone about two weeks from now)

Carlson: That’s just exactly what we’re talking about. I was thinking, one week from
now is difficult for me, but 2 weeks works. Does that work for everybody else?

Rosenbaum: Are you talking about the study session or a UAC meeting in which we will
take action?

Carlson: I’m talking about a study session.

??: I was talking about the UAC meeting.

Carlson: The UAC meeting is always the first Wednesday of every month and that will
continue, but the question is can we do a study session, I’m proposing, 2 weeks from
now?

Ferguson: Yes, I think the day after our joint meeting with the Council would be terrific.

Carlson: That’s right. It is.

Ulrich: It would be helpful for you to articulate what you would like to accomplish there.
That would depend on whether we have Mr. Shaw come back or what kind of staff
support and also the venue. Unfortunately, the spaces and all that would have to be
looked at, whether they’ve already been scheduled. So if you’d like to give us some of
that information, we can then come back with some suggested times and locations.




                                                                                        48
Carlson: I’m prepared to email you questions, which I did not have time to. I have a
legally binding commitment to play carpenter this weekend, so I don’t….

Ulrich: We understand that and unfortunately the staff works day and night, 7 days a
week. So you feed us the information. We’re here.

Carlson: I definitely will send questions. If others have questions, that will be useful.
We do need a discussion and I think it would be useful to have the consultant there,
because we have many more questions.

Ferguson: Are we talking the 16th?

Carlson: Yes.

Dawes: That works for me.

Carlson: Does that work for everybody else? Bern? Dick? George?

Dawes: Starting at 6 or 7?

Ferguson: Which city will you be in Dexter?

Dawes: I’ll be right there.

Carlson: Let’s do it at 7 again? Okay, we’re all available on the 16th, except you [Neil].

Ulrich: You know, I push it back here. It’s great to set the dates if you articulate what
you want to accomplish there. Then we’re going to have to decide on whether Mr. Shaw
should be there or how we can work it out. He does say that he’s in Boston so, you
know, maybe he can work from midnight to 3 in the morning to correspond.

Dawes: He could attend by phone. It’s possible, from the East Coast….

Ulrich: How does it feel from back there?

Carlson: Well, I’m going to email questions. So we can have some written notes and
responses from the consultant, if you can handle it. We really need a discussion amongst
ourselves. One of the key things I want to do is that I think we need to be more specific
about what we really need, coming in the next go around, which is referred to as the
business “plan.” But really, more a 2nd phase of the study, I think is what it is.

Ulrich: We’re sure able to do that. I find out that on the 16th, looking at the calendar, is
the City has various participation by Utilities on a Chamber of Commerce Energy
Showcase and an Energy Forum from 4:30 to 7:30 that evening. Some of you may wish
to attend that. Are you talking about having it in the early evening and do you want it in
a location where the public can have easy access to it or?



                                                                                            49
Carlson: There’s a suggestion here to push it to the following week. I’m here this
month.

Bechtel: John, is the BAWUA suburban tour still on for the 23rd of October?

Ulrich: I believe it is.

Bechtel: It would only be during the day. There’s no overnight stay on the tour. I think
that’s 2 separate items, right?

Ulrich: That’s correct. As I believe, it starts rather early and it’s over probably in the late
afternoon.

Bechtel: So I think I will be available on the 23rd.

Carlson: Rick?

Ferguson: Yes, that’s fine.

Carlson: Okay. Everybody? Consultant?

Dawes: 23rd is okay.

Shaw: I’m supposed to be in Paducah that week, but I might be able to rearrange that
trip.

Ulrich: Where would you rather be?

Shaw: Wherever I’m getting paid – that’s just a bias on my part.

Carlson: I’m the only person here that’s done a project in Paducah, so I even know
where it is.

Shaw: Really. You know what a pleasure it is to travel there, in two days, each way.

Carlson: Yes, it’s even harder to get out.

Shaw: Yes. So the 30th is the only day I know I’m good for, but I’ll try to rearrange the
23rd, otherwise I can attend via phone, if that ...

Carlson: Okay. Let’s do it on the 23rd, 7 o’clock.

Ferguson: And the Council Conference Room here is …?

Ulrich: Well, we’ll have to check the schedule.



                                                                                            50
Carlson: Let’s try and do the Strategic Plan. Let’s do the Strategic Plan and finish it off.
Try to get something done.

Ulrich: Well I’ll need a minute to get the rest of the staff down here if they’re not here.
Could I just make, for the record, any members of the public that would like the entire
binder, it’s approximately $41 because of the cost per page in the Municipal Code. Or
they can purchase the CD for $10. Or they can get the material at no cost from the City
by taking it off the website (it’ll be just the cost of whatever paper they would like to
have). There’s a signup sheet in the front if they’d like to sign up for it. And we do have
some of the copies if they want to purchase them.

Carlson: Before he runs, can I have an unbroken copy of the CD? Thank you.


UTILITIES STRATEGIC PLAN - Continued

Ulrich: At your pleasure, we’ll move right ahead.

Carlson: Yes, let’s go right ahead and as quickly as we can on the Utilities Strategic
Plan.

Ulrich: Would you like me to just go from where we left off, or for Mr. Rosenbaum’s
benefit start over again?

Rosenbaum: No. By all means, don’t do that.

Ulrich: While this is being set up, you could direct your attention to the handout that you
have on this particular item.

Carlson: As I understand it, the action you’re asking us to do is to approve the revised
summary of the Strategic Plan. Correct?

Ulrich: Yes. The memo to you Item #2, the request is to review and recommend that the
City Council approve the revised Utilities Strategic Plan as described in Attachment A
and Attachment C. I’ll go through it quickly if I can find it. I went through the overview.
The major industry events that challenged us and were not fully contained in the Strategic
Plan but obviously had some impact on it - the bankruptcy of both PG&E and Enron and
the Hetch-Hetchy infrastructure. So while the Strategic Plan evolves, what we’re
attempting to do is take into account the change in environment that requires us to adjust
and adapt. The plan is designed as a dynamic guideline and so frequently, or
occasionally, changes in the Strategic Plan are needed. It’s important that you participate
in that, which you have, and that the City Council understands what those changes are
and agree to them. So there’s an ongoing review and refinement that’s part of the plan’s
evolution.




                                                                                           51
I’ll give you some accomplishment highlights, which we plan to do frequently, at least
twice a year –
* The Utility revenue bonds were issued
* Maintained reliable gas supply with a laddering strategy
* The long-term electric portfolio plan includes renewables that you reviewed and
    subsequently the Finance Committee modified slightly last night
* We’ve been extremely successful, I think, in this water advocacy effort
* As I mentioned earlier, budget savings of $500,000. These are primarily areas that
    we’ve been able to find in our budget that reflect in savings in the General Fund. That
    is not an easy accomplishment, but we’re all one city and we’re attempting to help the
    General Fund
* Also, we’ve had some significant streamlining efforts and the Fiber to the Home trial
    has been completed.
* The Sand Hill Road design completed
* Gas and water projects on time, within budget
* We’re quite pleased with the 24 by 7 customer service for reliability and convenience
    and, yes, you can schedule with us to have your pilots lit at 2am in the morning, if
    you’d like that.
* It says upgrade to CIS complete, but there are still continuations that we’re working
    on.
* Excellent safety record. Scott and his organization just received an award from the
    American Public Gas Association. I don’t think we’ve done that in Palo Alto before.
* Water and energy management plan for City facilities have been complete.
* Residential Smart Energy Program launched.
* Also, I can announce that we have a special program for people who own Eichler
    homes that’s going to be rolled out shortly – that is a unique ability for Palo Alto to do
    that.
* High ratings on customer satisfactions in the value of municipal ownership. It’s been
    extremely high in Palo Alto and Palo Alto has come up very high as compared to our
    peer group. Here’s the customer satisfaction level a bit more detail and the gap is the
    area between what we’re doing and what the customers’ perception is that where we
    should be and you can see that those are very high and, in many cases, the gap is quite
    small. It indicates that we have overall customer expectations are being met. Very
    high ratings on courtesy, public benefits and energy programs, timeliness of service.
    And where it says slight decline in water, gas, wastewater operations, I think some of
    that is due to the continued leaks and damage being caused by contractors that
    continually dig into our lines and, regardless of who does it, it’s the customers that
    suffers those outages.

Independent in-depth telephone survey of 100 residential customers gave us this, kind of,
what we believe is very reliable data. Here’s total Palo Alto, out of a scale of 0 to 10, a
7.4. Total California municipalities, that would include not only us, but City of Los
Angeles, SMUD and all of the other smaller utilities, and then making that comparison
with the California investor-owned utilities and then there’s a number there looking at the
total United States, which includes munis and IOUs.




                                                                                            52
* Infrastructure reliability, we have more work to do in this area. We’re still having
  continued outages than are greater than our goal. Some of that is related to storms and
  trees knocking over lines.
* Natural gas restoration has been quite good, as has the water.
* Residential rate history, you can see that and it went up and it is still up in the gas area,
  but I was told by Randy yesterday that the differential now between Palo Alto gas and
  PG&E gas is in the order of 10%. We’re 10% higher, so that’s significantly better
  than we were a few months ago, so we’re able to start to buy gas a lower price and it’s
  starting to reflect, not only in our rates, but PG&E costs are going up because they
  adjust their bill monthly.

* The other part of the strategy is the benefits of municipal ownership.
* The residential rate assistance program extended to low-income housing. That’s been,
  I believe, one of a kind. If you live in a complex that’s been designated for low-
  income and you don’t have an individual meter on your apartment or your room, we’re
  still calculating that and giving the discount to the building itself, which could be
  passed on in the form of lower rent or however from the owner of the building.
* Assisted with City sustainability. Arastradero Creek restoration for hikers and
  wildlife. This is the special road construction, trail restoration up there, which will
  allow us to get our vehicles up and maintain the facilities.

(Boy, it’s getting late.)

* High participation in Energy Efficiency programs. Compared to the industry
  benchmarks, very high community involvement and municipal preference scores
  among residents.
* Safety statistics are really good here and this translates in number of ways: People
  going home safely, being able to spend time with their family, reduction in Workers
  Comp claims, more time spent with customers and less time being injured. A lot of it
  has to do with just focus, focus, focus on this and it sure pays off.
* Next steps: request that these modifications that are in Attachment A and B be
  incorporated and then moved on to the City Council. And, as needed, we’ll continue
  to review the Strategic Plan tactics and make adjustments. I think the process that we
  followed where we come up with changes, bring them to you, we debate them and
  then make the changes, I think has worked well. And then, quarterly, track the
  progress and then, semi-annually, not only report it to you, but to take it to the City
  Council. That’s it.

Carlson: Thank you, John. I guess the action you want is going ahead to the Council
with Attachment A, which has the amendments that we made last time, plus amendments
made last night, or just our amendments?

Ulrich: It would just be yours. It’s fairly easy to see those changes. The strategic edits
are shown with a line through it as stricken or additions as underlined. For clarity, only
additions are shown for tactics with strikeouts described in Attachment C. I think, I’m




                                                                                             53
not aware of ones that we had any controversy over with your recommendation changes
when we brought it to you before.

Carlson: Any question about the changes? Rick, go ahead.

Ferguson: I’m happy with this. I’d like to change one word, which we’ve talked about.
We almost got it right last time. Let’s look at Attachment A, the second page, Strategy 3-
E. Can we change that to protect customer “privacy” rather than “confidentiality?” You
came to us with a concern about the confidentiality of business agreements negotiated,
and that’s the right use of the word confidentiality. I think we came back saying the
larger concept of customer privacy is what we want to recognize in the strategy.

Carlson: Any problems with that, John?

Ulrich: That’s fine.

Bechtel: I noted the same thing. I suggest that also we move it to Strategy #4, because it
is a product or service valued by the customer – to protect their privacy – although I don’t
have a strong feeling. I just thought it fit better as a customer-oriented thing as opposed
to a business process. However the way you had worded it, customer confidentiality, was
a business process. I believe the sense of what we had here is more privacy-related as
opposed to preserving some confidentiality of internal data.

Carlson: You have a problem with that John?

Ulrich: Nope. I guess I would just like to, the comments, I think they’re good, but I
would like to hear all of you agree to those, so we’re truly reflecting. I don’t see much
difference in this one, but I think the benefit here is we’re all in this together.

Carlson: Privacy is – I think it’s a technical point, but an important one. The other, I
don’t care about. Does anybody have anything else that’s important?

Bechtel: I have only one other quibble on wording. It’s Strategy 6-C- maintain bond-
financing ratings and consider it to fund major projects. What is it?

Ulrich: It is intended that we consider “bond financing to fund major projects.”

Bechtel: Could I suggest some Grammarian in your office replace it with a noun?

Ulrich: We’ll look for a Grammarian. Yes.

Ferguson: We’re going to end up with “Grammarians to fund major projects.”

Carlson: I think such financing works fine. Any other proposals?

Bechtel: Rick, did you make your motion to approve?



                                                                                            54
Ferguson: It wasn’t a motion. It was a comment. I was hoping we’d make a string of
comments here and then just wrap them up in a summary motion.

Carlson: Does somebody want to make said motion?

Ferguson: Move to approve the Staff recommendation with the changes we just
discussed.

Bechtel: Second.

Carlson: Any discussion of the motion? All in favor?

All Commissioners: Aye.

Carlson: He’s still going. Barely. The Energizer Bunny of the UAC Commission.

Dawes: (inaudible)

Carlson: Any other items?

Ulrich: Just a reminder to Mr. Dawes not to forget to send us the telephone bill so that
we can pay for it.

Bechtel: We didn’t say anything, but I would like to compliment the Utility organization
for the accomplishments you listed and noted. I thought that was a great piece of work,
especially the safety item. I know how important that is, having run organizations
myself. So job well done this past quarter.

Dawes: I support that.

Ulrich: I’m sure Scott will say it was worth sticking around to hear that.

Dawes: Agreed.

Carlson: Amen. Excellent job.

Bradshaw: It was very worth it. Thank you very much.

Ferguson: Drive safely.

Ulrich: Just as one added part, while you’re giving accolades, is a reminder that we have
a recognition event next week, which you’ve all had an invitation to. So if you’ll add a
reminder to attend.

Ferguson: It’s the 17th I think.



                                                                                           55
Carlson: The 17th.

Ulrich: I guess I’m moving too fast. The 17th.

Bechtel: It’s already on our calendar, John.

Ulrich: I like it when you guys are like that.

Carlson: Commissioner Rosenbaum?

Rosenbaum: The APPA is having their community broadband conference this weekend
in Jacksonville. Is somebody going?

Ferguson: It’s Monday, Tuesday, Wednesday. I was hoping we could convince
Commissioner Rosenbaum to travel to Florida to cover that base.

Ulrich: I don’t think so.

Rosenbaum: Is there some way to get some of the papers that are presented?

Ulrich: I think we can do that. We can always buy the CD at the cost, since it’s a
municipal organization, we don’t have to pay a profit.

Rosenbaum: All right. It’s just a fast-moving field. I find it useful to see what all these
other people are doing. If you could find some way to get us some of the information
presented there, that might be helpful.


ADJOURNMENT

Carlson: Okay. If that’s it?

Bechtel: Move adjournment.

Ferguson: Second.

Dawes: Good night gentlemen.

Carlson: All in favor?

All Commissioners: Aye.

Carlson: Thank you so much.




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