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1999-06-29 Special CC MinutesMINUTES OF THE SPECIAL CITY COUNCIL MEETING TUESDAY- -JUNE 29, 1999- -7:15 P.M. Mayor Appezzato convened the Special Meeting at 7:15 p.m. Roll Call - Present: Absent: Councilmembers Daysog, DeWitt, Johnson, Kerr and Mayor Appezzato - 5. None. The Special Meeting was adjourned to Closed Session to consider: (99-319) Conference with Legal Counsel - Existing Litigation; Name of Case: City of Alameda and Citizens League for Airport Safety and Serenity (CLASS) v. Port of Oakland. Following the Closed Session, the Special Meeting was reconvened and Mayor Appezzato announced the City Council gave instructions to the City Attorney. Adjournment There being no further business, Mayor Appezzato adjourned the Special Meeting at 7:30 p.m. 12spectfully submitted, DI ne 13. Fe sch, CMC City Clerk The agenda for this meeting was posted in accordance with the Brown Act. Special Meeting Alameda City Council June 29, 1999 0 4 MINUTES OF THE SPECIAL CITY COUNCIL MEETING TUESDAY- -JUNE 29, 1999- -7:30 P.M. Mayor Appezzato convened the Special Meeting at 7:33 p.m. Councilmember Johnson led the Pledge of Allegiance. Roll Call - Present: Absent: Agenda Items Councilmembers Daysog, DeWitt, Johnson, Kerr and Mayor Appezzato - 5. None. (99-320) Recommendation to award Alameda/Oakland Ferry Service Contract to Blue and Gold Fleet and authorize fare increase. The Public Works Director reviewed the open market negotiation process; stated staff used non-numerical ranking of proposals; based on the criteria, staff determined B&G's Proposal is superior. Mayor Appezzato inquired why Hornblower Marine Services (HMS) did not submit a Proposal, to which the Public Works responded staff did not know the reason. Vice Mayor Daysog stated there will be a $0.25 increase beginning in September, 1999; inquired whether the fare increase will hold until 2003. The Public Works Director responded if there are unusual circumstances, fares can be adjusted; stated B&G requested a fare increase because the price of fuel jumped several years ago; B&G can request the Council to adjust fares in response to any unusual circumstances. Mayor Appezzato inquired whether fare increases for unusual circumstances require a sixty day notice, to which the Deputy Public Works Director responded there is a clause in the Contract which allows for fare modification; said clause has been in the contract for over 10 years; there is a sixty day process; the matter must be decided by Council; an extenuating circumstance must be approved by Council; if there are changes to the schedule or subsidy, a fare increase would be reviewed at that time. Mayor Appezzato inquired whether service can be terminated if a fare increase is not granted, to which the Deputy Public Works Director responded in the affirmative; stated B&G would have to prove the City unreasonably withheld the fare increase. Vice Mayor Daysog stated the fare is frozen during the next three Special Meeting Alameda City Council June 29, 1999 years and can only be increased in extenuating circumstances. Councilmember Kerr inquired whether the fare flexibility applies to all bidders, to which the Deputy Public Works Director responded the flexibility applies unless the clause is removed from the Contract. In response to Councilmember's Kerr inquiry regarding B &G's backup vessels being used for other services, the Deputy Public Works Director stated if the Encinal breaks down, B&G has agreed to give the City first rights to the Zelinski; said vessel can only be used for a limited number of days and is available weekends and mid - days; B &G has eight backup vessels available which range from 17 to 12 knots. Marina Secchitano, Inlandboatmen's Union, submitted a letter; stated there were improvements when Red & White was sold to B &G, e.g. employees were brought up to standards; under B &G management, wages and conditions have raised significantly; B &G is employee friendly and ranks amongst the top employers; employees do not want to be impacted by a change in carriers. [Tom Cummins yielded his time] Ms. Secchitano thanked Council for taking the time to listen to complaints. C. Billington, B &G Safety Representative, stated that he is proud to work for B &G; the company is worth keeping. Patrick Murphy requested to defer his time to Roger Murphy. Robert F. Claire, Alameda, stated there is not much difference between the two Proposals; urged more careful consideration; inquired whether there are fare increases in RMG's proposal. Ed Printz, Alameda, stated there are ways to bid a municipal contract which include competitive pricing and a proven track record; B &G provided dirty backup boats; today, the Encinal was removed from service without backup; B &G brought employees and unions to the Council Chambers causing Council to throw out the previous bidding process; requested Council take a serious look at the RMG Proposal; stated Roger Murphy has the best track record for service on the Bay, not B &G. W. Graham Claytor, RMG, stated Rail America, a $150 Million dollar corporation, is committed to taking 51% position in RMG; Nichols Brothers, Philips, and Catalina Cruises are also behind RMG; the RMG will spend $3 Million to buy two backup vessels which can also be used by Harbor Bay; said vessels are 22 to 25 knot vessels; RMG and B &G were judged equal for backup vessels; B &G's budget was considered superior due to aggressive concessions; however, B &G concessions have been closed; B &G was credited with superior experience even though Roger Murphy was running B &G for a number of Special Meeting Alameda City Council June 29, 1999 186: years; City staff needs to carefully review the Proposals; RMG would be an Alameda based company solely committed to providing the Alameda/Oakland Ferry Service [AOFS]; City staff indicated RMG's bid was fine; RMG was prepared to drop the $0.25 fare increase. James Motlow, B&G, stated B&G constantly strives to improve service; the majority of B&G's current personnel enjoy working for the company; B&G's unified goal is to provide the very best service possible; employees do not want to lose jobs which pay well and have good benefits; RMG is an unproven company; urged Council to support the staff recommendation. Roger Murphy, RMG, stated B&G changed its backup boat from the Jet Cat Express to the Zelinski which is an immaterial change; the Ohlone Spirit, which was solely used for backup, was sold; the Zelinski is dedicated to Tiburon service; B&G's backup boats are not there; RMG is putting together three boats including the Encinal; RMG is a team of major high-speed ferry operators; ten B&G employees were going to speak, but were intimidated; B&G has nine people on disability; during the time he operated the service, there was only one [employee on disability]; RMG is not a fly by night company. In response to Councilmember Kerr's inquiry regarding Catalina Island Service's role, Mr. Murphy responded the larger company, Catalina Express, will be a partner. Councilmember Kerr inquired the location of RMG's two backup boats, to which Mr. Murphy responded one is in Alaska and one is in Seattle. In response to Councilmember Kerr's further inquiry regarding the backup boats operational history, Mr. Murphy stated both are excellent; one is a sister boat of the Ohlone, only it is in much better condition. Kelly Kearney, Alameda, stated B&G's concession stand will be open under new ownership in a couple of weeks; inquired why the RMG's Proposal includes two backup boats, unless RMG wants to use AOFS as a foothold for ferry business in the Bay; stated that she does not want to have a start-up company running the service; RMG would be a formidable competitor after operating a ferry service for a couple of years; urged Council to select B&G. Judy Murphy, RMG, stated Roger Murphy started B&G; that he is one of the safest operators in the businesses and has been requested to work with the National Safety Transportation Board; Mr. Murphy has already proven himself. David Singelstad, Oakland, stated RMG's Proposal has not been adequately assessed; RMG is not a start-up company; backup boats Special Meeting Alameda City Council June 29, 1999 are a problem in the ferry service; RMG is offering backup service equal to the main operating vessel; B&G is offering eight slow vessels, all of which are not available; RMG was rated lower due to marketing and concession service; B&G has chosen to use outside contractors for concession services; on a B&G morning ferry to Angel Island, the captain announced that there was no concession service because the concessionaire had slept in; on the 4:45 p.m. return ferry, there was still no concession service. Jackie Fielding, Alameda, stated the 10:50 a.m. ferry did not show up today; there was no backup for the Encinal which was being cleaned; riders did not get into San Francisco until 11:55 a.m.; Roger Murphy sends runners to inform riders why boats are late; Roger Murphy is customer service oriented; Graham Claytor has transportation in his blood; if Council does not award the Contract to RMG, an incredible opportunity will be missed; urged Council to rethink the staff recommendation. Grant Ute, Alameda, stated four years ago a monthly rider book was $90; if the fare increase is approved, the monthly book will be $125 which represents a 40% increase in fares over the last four years; earlier in the process, the fare increase was a possibility; now a fare increase is a certainty; the process did not result in a product which is useful to the City and riders; requested Council to seek elimination of fare increases for the life of the Contract. Andrine Smith, Alameda, stated four years ago she requested Council overturn the staff recommendation and award the ferry service Contract to B&G; again, she is requesting Council overturn the staff recommendation; stated B&G's backup boats are monohulls and cannot maintain service levels; RMG obtained an agreement to use all of Red & White's boats in the event of an emergency; B&G representatives do not ride the ferry unless it is Contract renewal time; Graham Claytor is a regular rider and will have to face other riders on the back deck everyday; Mr. Claytor would not be an absentee landlord. Mayor Appezzato announced there were no further speakers and closed the public discussion. Vice Mayor Daysog thanked B&G and RMG for participating; stated the bottom line is residents of Alameda will win, e.g. both Proposals can meet the fifteen weekday trips and do not require additional subsidy; a ridership survey indicated the Majority can handle a $0.25 fare increase; submitted an analysis of the fare increase; further stated the fare increase is less than inflation, assuming a 3.5% inflation rate per year; the increase is reasonable; extenuating circumstances which can increase the fare should be firmed up; during the electricity blow-out in San Francisco, B&G shuttled people back and forth; that he continues to support B&G. Special Meeting Alameda City Council June 29, 1999 Councilmember Kerr stated backup boats are of concern; B &G was not able to maintain the increased schedule with slow backup boats; riding the Ohlone Spirit was a toxic experience due to exhaust; during a prolonged absence of the main boat [Encinal], B &G was not able to maintain on -time departures; the Catalina service has a good reputation; backup vessels are important for commuter ferry service; there are two good bidders; that she is pleased B &G no longer requested a $250,000 subsidy increase; negotiations have improved the Proposals; either provider will be good for the City, however, backup boats are of concern. Councilmember DeWitt stated that he did not want a fare increase; the City had a carrier which provided a legitimate proposal without a fare increase; that he is disappointed that the company [HMS] dropped out; Roger Murphy's company would be an Alameda company; that he favors Alameda -based companies. Councilmember Johnson stated there are two excellent bids, which makes the decision difficult; the issue of backup vessels is important; the fare increase is not too significant; that she agrees with Councilmember DeWitt and likes that RMG would be an Alameda company; either company would serve residents and commuters well. Mayor Appezzato stated both operators appear highly qualified and would be successful; B &G no longer requests additional subsidy; that he did not approve of the process; a qualified operator [HMS] was not selected and chose not to submit another Proposal; that he is concerned about backups, future subsidies, and fare increases; there was not a fare increase when proposals were submitted before; the previous company [HMS] put up a $1 Million bond; however, either company would be successful. Councilmember Kerr stated AOFS's subsidy per passenger is very close to AC Transit's, which is one of the lowest subsidies in the Bay Area; that she supports increased subsidies for the ferry service. Mayor Appezzato stated there is an effort to increase ferry service throughout the Bay; all agencies involved, e.g. Metropolitan Transportation Commission and Congestion Management Agency, have indicated support for the ferry service; additional support for ferry service may be forthcoming; the Governor might be making an announcement for his support of ferry service as early as Thursday. Vice Mayor Daysog moved acceptance of the staff recommendation. Councilmember Johnson inquired the options available to Council, to which the City Attorney responded Council's action is limited by the title on the agenda; Council is limited to specific action and cannot award the Contract to another party tonight; the options Special Meeting Alameda City Council June 29, 1999 are: 1) to take the action on the agenda; or 2) if Council would prefer to award the Contract to a different party or take another action, the matter must be placed on a different agenda. Councilmember Kerr suggested staff leave Council more options in the future. Mayor Appezzato stated there were three votes to follow this process [open market negotiations]. Pip Ellis, B&G, inquired whether B&G could have an opportunity to address the Council. Mayor Appezzato inquired why Ms. Ellis did not submit a speaker slip; stated that he would permit Ms. Ellis to speak as long as there were no Council objections. Pip Ellis, B&G, stated B&G agreed to substitute the Zelinski, which is the sister ship to the Encinal, as the backup boat; the Zelinski will be removed from the Tiburon service; B&G entered a Charter Agreement with the City of Vallejo to use the Jet Cat Express to backup the Tiburon service; B&G has other boats, which are not as fast, available; said vessels have been sufficient in the past; B&G crews are trained to put backup boats in service in the event of an emergency; B&G has eight years of experience; that she has questions regarding RMG's maintenance abilities; B&G has experienced lapses in concession service due to transition into a vendor contract which will be in place next week; B&G's service improvement plan includes the City, Port of Oakland and B&G establishing a Comprehensive Ferry Plan for the East Bay; Roger Murphy headed B&G for eighteen years, however, 90% of employees with Mr. Murphy from 1979 on, are still with B&G; B&G does not like to increase fares; the Golden Gate District and the City of Vallejo have long term financial plans which have fare increases every year; B&G has presented a sustainable budget with reasonable growth and lean expenses; RMG will have greater expenses due to maintenance of two fast, high-tech backup vessels; B&G will continue to improve service; B&G's on-time performance is 90- to 95%; a remote announcement system at the ferry terminal is being repaired and improved by Earnest Sanchez and City staff; urged Council to consider the staff recommendation. Mayor Appezzato stated that he can live with either service. Vice Mayor Daysog inquired whether the matter should be postponed for two weeks. Mayor Appezzato stated if there is not a vote, the matter would have to return to Council. Special Meeting Alameda City Council June 29, 1999 *** Mayor Appezzato called a recess at 8:54 p.m. and reconvened at 9:08 p.m. * * * Mayor Appezzato inquired whether there was a second to Vice Mayor Daysog's motion [to approve the staff recommendation]. Councilmember Johnson inquired whether Vice Mayor Daysog would consider an amendment to his motion: to accept the staff recommendation with a delay in the fare increase for a period of one year. Vice Mayor Daysog agreed to amend the motion. Councilmember Kerr stated the amendment to the motion raises a side issue; the main issue is which operator is better; the City is fortunate to have two good bidders. Mayor Appezzato agreed; stated both providers want a fare increase and do not require additional subsidy. Vice Mayor Daysog inquired when Councilmember Johnson would like the fare increase to take place, e.g. July, 2000 or September, 2000. Mayor Appezzato stated there will have to be a fare increase sometime; AC Transit is discussing a fare increase; inquired whether the Council would like to consider other options; stated there is a motion without a second. Vice Mayor Daysog stated that he would accept the amendment to the motion to get a second. Mayor Appezzato suggested RMG and B&G address postponement of the fare increase for one year. Roger Murphy, RMG, stated that he submitted a letter which stands; that he put $50,000 above the required amount into marketing; if said budgeted amount can be removed, RMG would not seek a fare increase until 2003; it is in writing and stands. Mayor Appezzato inquired what would happen in the event RMG cannot provide the service, to which Mr. Murphy responded that he guarantees the service will be provided; stated that he has companies which stand behind him, e.g. Rail America; letters in his Proposal guarantee performance. Vice Mayor Daysog expressed concern that RMG relies on Mr. Murphy as an individual, to which Mr. Murphy responded that he is in good health. Special Meeting Alameda City Council June 29, 1999 Pip Ellis, B&G, stated B&G is not interested in accepting the Contract without a fare increase; the fare increase makes the Contract work for B&G; there is a huge risk with providing fifteen runs five days a week and six to twelve on weekends; the risk cannot be assumed without the fare increase; the budget changes between the current bid and the former bid are: 1) the fare increase adds an additional $120,000; 2) 3% growth was included in the budget; and 3) removal of administrative costs, which will remain with B&G even if company is not providing the service, e.g. administrative salaries; 20% of her time is spent on AOFS, however, said administrative overhead was removed from the budget; budget changes made B&G's budget sustainable without subsidy; that she does not believe another company could provide service for any less; that she questions RMG's maintenance costs, dispatch location, and cohesiveness; Mr. Murphy ran AOFS when there were only twelve runs--there has been a large service leap requiring additional boats; it is a challenge to run the service; B&G can continue to improve service, but not without the fare increase; B&G is the most efficient ferry operator on the Bay; listed other providers per passenger subsidies. In response to Vice Mayor Daysog's inquiry regarding B&G agreeing to postpone the $0.25 fare increase, Ms. Ellis stated when she rode the ferry this evening, riders informed her the fare increase was expected and is affordable; the fare increase is not a huge issue to the ridership. Vice Mayor Daysog inquired whether Ms. Ellis would work with the City, to which Ms. Ellis responded that she would like to work with each Councilmember to make the financing and sustainability of the service understood; that she wonders whether Councilmembers have seen the five-year performa, the $379,000 maintenance costs, and know every-other-year the Encinal needs to be overhauled at a cost of $120,000 for both engines; inquired whether RMG's Proposal has said cost in its budget; further stated B&G has submitted a Proposal to make service sustainable; making the service thrive and getting riders off the Bay Bridge cannot be accomplished with the current equipment and schedules; a five-year plan with 400 person capacity and a second boat is needed; there were capacity problems with the Ohlone which had 212 person capacity; a strong plan is needed to carry AOFS into the future. Vice Mayor Daysog stated that he likes Councilmember Johnson's amendment because it brings a second to the floor; postponing the first bump of $0.25 can be negotiated. Mayor Appezzato stated the fare increase is not a big issue; five months ago there were two Proposals, one of which did not have a fare increase; now, both Proposals have a fare increase; AC Transit is discussing a fare increase; that he was opposed to the process, and would have voted against the staff recommendation as a matter Special Meeting Alameda City Council June 29, 1999 41, of principle; there is a motion and no second; if there are not enough votes to support B&G, the matter will return to Council; that he does not know whether anything will be gained by postponing a decision; inquired whether Council could close the public hearing, continue the matter, and only listen to the two proposers. The City Attorney stated the title of the hearing is awarding the Contract to B&G; a new hearing should be held; however, Council could: 1) limit the public speakers to those who have not spoken before, 2) limit time to one minute, or 3) request that each party designate a speaker; there are a number of procedural steps which can be followed. Mayor Appezzato stated that he would probably request said procedural steps be followed; the Council is going in different directions at this point, however, that he would ask that procedural steps occur because it is obvious there are two well qualified operators. Vice Mayor Daysog inquired whether B&G is precluding Councilmember Johnson's request to postpone the fare increase. Ron Duckhorn, B&G, stated B&G was told to submit its last, best and final offer; B&G assumed staff meant what was said; the choice is between the background of one person, Mr. Murphy, vs. an entire organization [B&G]; Council should review the staff recommendation; if there is clarification needed regarding the staff recommendation, B&G can respond; there has been no discussion of deficiencies in the staff recommendation. Mayor Appezzato stated that he was not going to support the staff recommendation as a matter of principle because of the process, however, he can live with either Proposer; the matter needs to move forward. Mayor Appezzato seconded the motion to approve the staff recommendation. Mayor Appezzato further stated that he does not usually second motions; that he supports staff most of the time; that he supported staff when awarding the Contract to HMS was recommended; if there is not a third vote, that he would request Council to provide suggestions regarding the next steps in the process. Vice Mayor Daysog stated fare increases are inevitable; postponing the increase is a good idea; urged Council to move forward and allow the $0.25 fare increase in September, 1999. Councilmember Johnson stated there are two excellent proposals; Council needs to move forward with the process; riders were notified of the fare increase and there has not been feedback from Special Meeting Alameda City Council June 29, 1999 the ridership; that she will support the staff recommendation. Mayor Appezzato stated a decision needs to be made; if there were three votes, he would have supported the RMG; the democratic process is alive and well. Councilmember DeWitt stated that he lost all faith in B &G because of the tactics used; first, B &G brought union people to persuade and push Council; B &G will probably demand additional monies; a company [HMS] which was going to provide the service, was not given a chance; RMG would be an Alameda company; Alamedans support local companies; RMG would be able to provide the best service; Council is not taking an opportunity to provide the best service and is being manipulated by the process. Councilmember Kerr stated a decision should not be made tonight because staff only put one option on the agenda; that she does not feel discomfort about rejecting all bids; rejecting all bids is a perfectly acceptable practice; that she did not like any of the previous bids and was not supporting one company, over another; that she will not support the staff recommendation; distressed that staff decided there was only one way to take action. Councilmember Johnson stated that staff has done a good job handling the difficult issue. Mayor Appezzato called for a Roll Call Vote, which carried by the following voice vote: Vice Mayor Daysog: Aye; Councilmember DeWitt: No; Councilmember Johnson: Aye; Councilmember Kerr: No; Mayor Appezzato: Aye. * ** Mayor Appezzato called a recess at 9:35 p.m. and reconvened at 9:48 p.m. * * * (99 -321) Review and discussion of Bureau of Electricity's Communications Facilities Financing (No Action); and (99 -321A) Review and discussion of the Bureau of Electricity's Cable TV Franchise Application (No Action). [1000 -40, 1000 -10] Sebastian Baldassarre, Vice President, Public Utilities Board (PUB) , stated the Board is strongly in support of the [Cable TV Franchise] Application; thanked the voters and Council for supporting Measure A [Nov. 1998 Ballot]; and introduced the General Manager of the Bureau of Electricity (BOE), Tom Evans. Mayor Appezzato complimented the PUB for its initiative to look forward; stated the majority of the Council supported the Charter Amendment to provide flexibility on what should be done in the Special Meeting Alameda City Council June 29, 1999 future; the Charter Amendment does not guarantee the City will enter into any new businesses; and that the Charter Amendment provides the Council with the ability to discuss the matter. General Manager Evans stated the Special Council Meeting was called due to the importance of reaching a decision regarding the Franchise; the Franchise should be a part of the justification for issuing bonds to finance the business; market research indicates Alameda customers are looking for competition and an alternative Cable T.V. supplier; in February, over 49% of the respondents stated they had confidence in the Bureau of Electricity to provide service; 20% of the market research customers stated they are ready to switch [service] now; in April and May, 1999, 1,600 BOE customers reported they are interested in buying not only Cable T.V. services, but Internet services and other data transfer services from the BOE; a day does not go by without a customer inquiring when the services will be offered; the opportunity is there; the City of San Bruno [California] has been in the Cable T.V. business for over twenty-five years on a non-competitive basis; across the Country, there are at least ten (10) other communities that are in the Cable T.V. business on a competitive basis with a local supplier, including TCI; the City of Tacoma, Washington went into the business a year ago and has over 6,000 customers already; Tacoma cannot build the system fast enough to meet customers' demands; the BOE is not venturing into an area that is untested and untried from the standpoint of a municipal enterprise being able to compete effectively with another entity to provide high-quality service at competitive prices to customers. Mr. Evans further stated the Plan originally provided for an investment which included borrowing approximately $7 Million to begin building the system initially; then over an eight- to ten- year period, the construction would be completed at a cost of another $9 Million on a pay-as-you-go basis; the BOE was criticized for that approach because universal service would not be offered throughout the community fast enough; the BOE redirected the approach: $16 Million would be borrowed now to build the system out over approximately four (4) years, at which time the BOE would be able to provide universal service; building the system faster would allow the Bureau to better attract the customers needed to make the system positive, in terms of its net revenue; in order to mitigate the risks and deal with the contingencies associated with this business enterprise, the Bureau has entered into a contract with SIGCORP Communications, Inc., which is on the New York Stock Exchange and has experience designing, constructing, and operating cable systems in other parts of the United States, the Contract is a fixed-price contract for the engineering and construction; cost mitigation is built into the Contract; SIGCORP has agreed to bear 100% of advertising and promotion costs during the most critical phase of this effort, the first five (5) years, estimated at $2 Million; SIGCORP would be paid based on revenue achievements; there are incentives built into the arrangements; it is believed the Special Meeting Alameda City Council June 29, 1999 risks are appropriately mitigated and there is an opportunity for success; the system would be state of the art, as of today; in that sense, BOE leads the current supplier [TCI]; with SIGCORP's support, BOE has the ability to continue to evolve the system forward, while having a knowledge- and technology transfer to BOE personnel; realistic customer goals have been established; 20% of BOE customers have stated they want to switch [services] today; 1,600 customers state they are ready to buy; it is believed the system will break-even with 5,000 customers; there will be a very positive cash basis with 8,000 customers; expectations are realistic; there are approximately 35,000 customers service can be provided to; there is a possible market penetration of 25% or so, which is the market penetration other entities are finding successful these days. Private companies across the country are buying into cable systems at a price of about $4,000 per subscriber, if the Bureau had to exit the business; the Bureau's system would have a market value; if there were no customers for some reason, BOE has the wherewithal and structure to pay no interest or principal on the proposed bonds for the first three (3) years; there would be time to determine how to best dispose of the system; the Bureau's reserves could pay the bond payments and liquidate the business without adversely affecting the City's General Fund or the BOE's financial status; however, such a circumstance could affect the BOE's ability to reduce prices as much as it desires under electric deregulation; there is that safety net in the most extreme set of circumstances, which no one believes the BOE would ever require. The General Manager further stated the BOE needs $16 Million; Council wisely directed the BOE to seek external financing, as opposed to internal financing; the PUB elected to take the most conservative approach and to use taxable financing, as opposed to tax-exempt financing; tax financing allows the BOE to enter into a revenue- and risk- sharing relationship with SIGCORP; under IRS private use restrictions, the BOE could not have done that and stayed in a position to offer tax exempt financing; PUB and staff believe that it is more conservative, and the value of SIGCORP is such, and worthwhile to issue taxable bonds for this particular enterprise; for the future, BOE would have great flexibility, in terms of what to do with the infrastructure; there would be no private use restrictions and activity would be taxable, BOE would be able to provide other entities with the ability to take full advantage of the infrastructure, and the BOE would get paid which would benefit its customers; the approach is to be inclusive in terms of the operation of the infrastructure, as opposed to exclusive as is the current approach being taken by AT&T and TCI; a significant business opportunity is recognized; market research indicates over 60% of BOE customers have computers; there are over one hundred advanced technology companies in Alameda; there are hundreds of medium to small commercial businesses, all of whom use computers and are looking for opportunities to take full advantage of Internet high-speed data movement; businesses are looking to the Special Meeting Alameda City Council June 29, 1999 1 96 Bureau as a viable supplier; businesses are looking to the PUB and BOE activities as a means of differentiating this community--this marketplace; on a financial basis, over the first four years of operation, the Bureau will transfer about $1.3 Million to the General Fund through payment-in-lieu of taxes, as well as franchise fees; BOE will also generate about $4 ½ Million in Reserves based upon financial projections and customer growth projections; the most important part of the Plan is that the customer always benefits from competition; BOE has an excellent reputation for competitive prices, high quality and excellent service; it is expected that competition will provide improvements in those areas, which is the point of competition and why the customer benefits; also, the difference is the group managing [the system]: the PUB is an extension of the City Council, including the City Manager; the PUB's only focus is Alameda and the City's and citizens' benefits; all benefits will come to Alameda, as opposed to the competition who would be looking to supporting other activity; finally, there would be local control, local focus and all benefits coming back to Alameda and staying in Alameda. Mayor Appezzato opened the public portion of the meeting. The following persons addressed the City Council: James Hauer, Alameda, spoke in support of a Bureau of Electricity Cable TV Franchise. Mary Lynch, Pacific Bell representative, stated the Bureau of Electricity is intending to go into telecom; Pacific Bell recommends that the City vote no on the financing plan that would allow BOE to enter into a business where they have no experience as of today; it is not prudent to assume the entire City will leave their current provider of both data and voice to subscribe to the City's services; Pacific Bell projects that 10% to 20% of the residents will change providers, not 26%; questioned whether it is feasible to spend $16 Million to get perhaps 6,000 to 7,000 customers onto a network; questioned whether the City was willing to risk the cost of funding bonds going to 35%, 40% or more, particularly only looking at attracting 10%, 20%, or maybe even 25% of the City's customers; questioned what the Bureau's contingency plan is if the Plan does not work; stated the telecom business is complex and ever changing; and Pacific Bell has been a very good corporate citizen and will continue to be a very good corporate citizen in working with Alameda. Gerhard Degemann, Alameda, inquired whether there was any consideration to work with the Alameda Unified School District and the youth. General Manager Evans responded that the Superintendent of Schools gave him a Letter of Support for the Proposal signed by both the Superintendent and the President of the School Board; the BOE is Special Meeting Alameda City Council June 29, 1999 J7 actively engaged in a project to connect all, the schools via fiber optics system, to provide advantage of technology opportunities; the Governor challenged businesses in Santa Clara County to do more to support schools; Mayor Appezzato sent a letter to the Governor informing him that Alameda is: 1) in advance of Santa Clara County, 2) in support of the Governor's concept, 3) extending the Governor an invitation to come to Alameda to observe the partnership between the City [BOE] and School District. Mayor Appezzato complimented BOE for being progressive; stated the issue is complex; federal and State governments have not yet determined what the final result of deregulation will be; mayors at the recent U.S. Conference of Mayors are taking a position that State and local jurisdictions should decide their own future - -not the federal government; another concern is the impact on ability to maintain tax free municipal financing; with deregulation and opening borders, many cities believe there should be protection from encroachment because of the investment in public utilities and stranded costs; cities should protect the communities; sooner or later borders will be opened; questioned what the ultimate impact would be on ability to float tax -free financing in an open market; questioned what it means when new businesses are entered in competition; questioned whether the City could enter different profit- making enterprises in competition with industry on an even playing field; stated Alameda must first be sure it is protected, and not invaded by people who can provide lower electrical service, etc.; the City must know its legal status as it pertains to tax - free financing; questioned where the Bureau plans to go with new businesses and whether there are plans to sell outside the City's borders; questioned whether the Bureau can compete if it enters a new market; stated the market changes rapidly, and questioned whether the Bureau could keep up; questioned what would happen to the proposed Budget and Plan if only 20% of the households join the BOE; stated AT &T will definitely start a campaign; inquired about the BOE's market plan to draw customers away from the current provider; questioned how difficult it would be to staff a studio; and inquired about the exit strategy if the BOE fails and about the extent of financial risk. Councilmember Kerr stated General Manager Evans' answers to Council's questions should be in writing before the matter is brought back for a vote; that there are some big differences between the original Business Plan and the Business Plan before Council; requested an explanation for the big jump in the estimate of capital needed to build the system; and questioned depreciation estimated at 20 years. General Manager Evans stated the depreciation schedule was reduced in order to be more conservative, put higher stress on the financial pro forma, and avoid understating the time that would depreciate the system. Special Meeting Alameda City Council June 29, 1999 Councilmember Kerr stated the world of high -tech changes rapidly; requested comments back on the expected lifetime of the equipment and the change in subscription rate; stated supplying free cable to the School District should be a part of negotiations, including negotiations for land; and requested comments on the recent Court decision allowing outside companies to use transmission lines built. General Manager Evans reported that the Bureau would own the high- speed fiber optic system, which people would want to use; there would be an opportunity [for the Bureau] to make money; and that AT &T is trying to approach said matter from an exclusive basis and keep everyone out. Councilmember Kerr remarked that there would be another company with a transmission system in the City; requested the General Manager to report back with comments on the possibility of a bidding war; stated Council needs to be informed on what would happen if a system was built and people did not come; Bureau is a very important asset to the lives of the people of Alameda, both in monetary terms and good electric service; that there should be more discussion on what would happen if there is no ability to pay off bonds, and, in addition, a harder look at [consequences of] customer projections not coming up to anticipated projection. Councilmember Johnson commended the Bureau for bringing the matter forward and the PUB and employees for their hard work; stated there are questions which still need to be answered; that comments should be provided to the City Council on the following: 1) keeping the system current over the years and causes for upgrading, 2) how future competition might affect the City and its ability to compete, 3) whether more employees would be needed to handle service calls; 4) exit strategy and break -even point; and 5) customers and cost of service. Councilmember DeWitt stated the original idea put to the voters, [Nov. 1998] Charter Amendment, was whether the City should enter that type of business [Communications]; that he believes it [type of business] was the only reason voters supported amending the City Charter; the Plan is an opportunity Lor the City to go into the communications business; the City of San Bruno's operation is not as hard as running a Bureau of Electricity; there are stranded costs and uncertain markets facing the electrical business, therefore there should be answers to the uncertainties; comments should be brought back to the City Council on the health of the Bureau, e.g. whether the BOE will be able to provide funds to the General Fund, keep customer rates low, how 5,000 new customers will pay for $16 Million of equipment, and how customer subscribers will be increased; and if BOE can meet the requirements and has a good Business Plan, the idea of entering into the Communications Business is very outstanding, worthy enterprise. Special Meeting Alameda City Council June 29, 1999 Vice Mayor Daysog stated that he is interested in looking at fiber optics as a tool for economic development; projections, in terms of revenues, should be provided, including when the dollars would start coming in; questioned what Silicon Island-type companies think about the proposed infrastructure and whether it would marginally or significantly expand their capacities. Mayor Appezzato stated many Mayors across the country with utilities in their cities are concerned because of deregulation; only 50% of the community have cable now; questioned whether there is a danger of the City losing its tax exempt status if the City enters businesses in competition with private industry; what if the City loses its tax exempt status, its borders must be opened, and the City can no longer float tax exempt bonds; if the City stays within its borders and stays within what it does now, it is almost certain that the City will be protected; what is not known is how much the City can enter into new markets inside or outside of its borders, or know what the federal or State final resolution will be on the electric restructuring; questioned whether General Manager Evans could possibly discuss a partnership with TCI, if the City does not enter. General Manager Evans responded that TCI has rebuffed the idea of a partnership so far. Mayor Appezzato stated General Manager Evans should approach TCI again; requested comments back to the City Council on what the City's role is as a public utility in the era of deregulation; stated tax exempt status should not be jeopardized; it may be found that the Bureau can only enter into businesses within the City's borders to remain tax exempt, and businesses entered outside the borders would require open competition; questioned whether the Bureau has the capability to maintain technology against the giants, especially in an ever changing industry with new technology. Chip Eady, Foley & Lardner, Bond Counsel, outlined his firm's background; stated the firm has never seen a City jeopardize its tax-exempt status with any of the activities the City of Alameda is considering; if cities lost tax-exempt status, it would cause a general alarm and confusion in the Bond market; the City of Alameda can undertake A communications venture under the Amended City Charter and Article XI Section 9 of California Constitution which states: "a municipal corporation may establish, purchase and operate public works to furnish its inhabitants with light, water, power, heat, transportation or means of communication"; when the Alameda City Charter was amended, it was brought into line with the California Constitution; legal opinion ensure investment community that the City has the legal authority to do what it is doing and the City's tax-exempt status will not be effected by doing so. Special Meeting Alameda City Council June 29, 1999 Following Bond Counsel's presentation, Mayor Appezzato stated the risk has to be calculated, not adventurous; there has to be assurance the Plan will be successful and not bankrupt the City. General Manager Evans discussed various aspects of the Plan, e.g. 25% market penetration, customer needs. Vice President and General Manager of SIGCORP discussed the ability to maintain competitiveness in terms of technology, as well as the likelihood of being able to achieve customer expectations. Following the presentation, Mayor Appezzato stated that prior to deregulation, the City had 100% of the market in electric utility distribution; City still has 100% of the market; concern is what will happen tomorrow, e.g. requirement to open to everyone; questioned whether the City would be able to protect what it has, or be at risk when entering new markets against private industry. General Manager Evans explained the reasons for moving forward on the matter. Mayor Appezzato stated the project should not be rushed into because of refinancing bonds next week. General Manager Evans noted that the electric market is separate from the issue before the City Council; that there is no plan to offer services outside of Alameda with respect to cable -, Internet - or other technology services; the PUB has not decided to open the markets locally. Mayor Appezzato responded the question is whether the City can be competitive staying within its borders. General Manager Evans stated the PUB has the ability to make the decision as to when to open the borders for electric business. Mayor Appezzato questioned what effect entering cable television would have on the matter. General Manager Evans responded the two issues are totally separate. Councilmember Kerr stated the two issues cannot be separated, because one of the few controls under the Charter is bond financing. Councilmember DeWitt stated the Council should move forward on the Plan. Councilmember Johnson stated that she supports the concept being considered, however, Council should have all the necessary Special Meeting Alameda City Council June 29, 1999 P." information before making a decision; Council is being asked to make a big decision with many financial implications. Adjournment There being no further business before the City Council, Mayor Appezzato adjourned the Special Meeting at 11:20 p.m. Respectfully submitted, Di e B. Felsch C C City Clerk The agenda for this meeting was posted in accordance with the Brown Act. Special Meeting Alameda City Council June 29, 1999