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2000-01-18 Joint CC APIC MinutesMINUTES OF THE SPECIAL JOINT CITY COUNCIL AND ALAMEDA PUBLIC IMPROVEMENT CORPORATION (APIC) MEETING TUESDAY- - JANUARY 18, 2000- -8:00 P.M. Mayor /Chair Appezzato convened the Special Joint Meeting at 11:35 p.m. ROLL CALL - Present: Councilmembers /Board Members Daysog, DeWitt, Johnson, Kerr and Mayor /Chair Appezzato - 5. Absent: None. APIC AGENDA ITEM (00 -01) Resolution No. 2000 -9, "Approving, Authorizing and Directing the Execution and Delivery of Certain Installment Sale Financing Documents with Alameda Power & Telecom (As the Bureau of Electricity Acting By and For the City of Alameda) with Respect to the Acquisition, Construction, Equipping and Startup of a Telecom System, the Financing of Certain Electric Distribution System Assets in Connection with a Partial Defeasance of Certain Obligations with Respect to the Northern California Power Agency and the Financing and Refinancing of Electric Distribution System Improvements and Certain Outstanding Installment Sale Obligations, and Authorizing and Directing Certain Actions with Respect Thereto." Adopted. Tom Evans, Alameda Power and Telecom (AP &T) /Bureau of Electricity (BOE), stated Bond Series 2000AT and 2000A will refinance current debt: power plants and the BOE Building; $6 Million of Series 2000AT and 2000A is new debt and will provide the BOE's share of electric infrastructure costs, which will help with the economic development at Alameda Point and increase electric system capacity on Bay Farm Island; Series 2000AT and 2000A are supported exclusively by electric revenues; the refinancing of current debt changes the timeframe over which said debt will be paid; customers will be paying for the benefit of the System as they receive it, as opposed to the current plan of collecting extra from customers in order to retire the stranded costs in mid -2002; restructuring provides for more competitive prices sooner; in 1984 and 1985, the City Council issued approximately $188 Million in debt, part of which is being refinanced today; the new debt being considered this evening, relates to Series 2000B Bonds for $20.5 Million, specifically to build out the telecommunications infrastructure necessary to provide cable, internet, and broadband services throughout the City; said debt is specifically supported by telecommunications revenue, the $10 Million investment in terms of Special Joint Meeting Alameda City Council and 1 Alameda Public Improvement Corporation January 18, 2000 reserves that will be established, and $16 Million Put Agreement established with SIGCORP; the $16 Million is an insured instrument by an A+ insurance company; the revenue support for Series 2000B is telecom revenue, $10 Million in equity, and the $16 Million Put Agreement with SIGCORP; no electric revenue will be affected by that business activity, assuming the BOE exits the business; the Put Agreement is insured with an A+ insurance company; BOE has until October 31, 2003 to exercise said Agreement, which provides ample time to build the System and establish customers; BOE will know for sure whether it is in a position to exercise the Put Agreement or elect to continue with the business; the Ernst & Young Report indicates the proposal represents an ordinary business risk and the Put Agreement is a strength to the overall Plan; the Report also states execution is the key; municipalities which compete with local cable providers are generally successful, more successful than a private business; municipalities are successful because they are well known and customers respect them; BOE has 1000 of the customers today selling electricity to them; BOE has regular contact with customers from a marketing standpoint; AP &T and City employees have high customer satisfaction ratings; the responsible Senior Team has over 100 years of experience in implementing, selling and serving customers on a day -to -day basis with a commodity; core financial factors have been addressed and the Team is in place to implement and execute the Plan. Vice Mayor Daysog requested General Manager Evans to explain stranded costs for the benefit of the public. General Manager Evans stated with deregulation of the electricity market in California, electricity can be bought on a somewhat State -wide basis; in AP &T's case, the cost of generation and current debt structure is in excess of market price; the amount which is above market is defined as stranded cost; all utilities in California are faced with it; utilities have taken similar approaches of finding ways to refinance said debt and spread costs out over future years to enable electricity price(s) to be competitive. Vice Mayor Daysog discussed the connection between stranded costs, fiber optics and the generation of revenues to maintain AP &T as a prudent business. Councilmember Johnson requested General Manager Evans to review services. General Manager Evans stated approximately one half of the total revenue projection relates to cable or entertainment services; there is a franchise which explicitly provides for open access for Special Joint Meeting Alameda City Council and 2 Alameda Public Improvement Corporation January 18, 2000 internet service providers; broadband is a generic term under which a variety of activities take place, including businesses that may need more capacity than a typical internet connection; AP &T has been contacted by at least one company that provides local telephone service; AP &T will install the infrastructure, be the direct provider of cable service, and market broadband internet. Vice Mayor Daysog stated high- capacity band is the ability to transmit large volumes of data rapidly and it is the infrastructure for the economic development engine being sought for Alameda. General Manager Evans stated a good example is Pilot Networks, which chose to remain in Alameda specifically because AP &T could provide said service. Following the presentation by General Manager Evans, Mayor Appezzato announced the names of individuals who did not wish to address the City Council /APIC, however, did indicate they were not in favor of recommendation: Lester Clark, Alameda; Gordon Dupree, Alameda; Celia Cruz, Alameda; Michael Anderson, Alameda; Kenny Fong, Alameda; Joanna Anderson, Alameda; Shell Raginar, Alameda; John Padbury, Alameda; Andrea Anderson, Alameda. Len Grzanka, Alameda, stated when Measure A [November 3, 1998 Election] was placed before the voters, the City stated the Cable TV plan would cost only $7.9 Million; that he [ Grzanka] informed the voters in the Sample Ballot the plan would cost $15 -$20 Million; the current Certificates of Participation are for $20.5 Million for the Cable TV plan, not including interest expense; Ernst & Young examined the BOE's revenue projections in its business plan and found the risk "within the level of ordinary business risk;" public funds are being dealt with, not ordinary business; the BOE is owned by taxpayers and ratepayers, not stockholders who lose when an ordinary business fails; Alameda's taxpayers and ratepayers are liable for any shortfalls if the Bureau's plan goes South; Ernst & Young's analysis states if the plan fails early on, the taxpayers and ratepayers will be on the hook for $4 Million, plus operating losses; said losses would equate to $125.00 per household, which would either be a parcel tax or come out of the electric rates; Ernst & Young blessed the plan's $32.80 per customer monthly revenue from Cable TV; AT &T told him the average bill for Alameda customers comes to $31.79; when AT &T encountered competition recently, they cut their rates in half; Ernst & Young did not examine BOE's expense plan; questioned whether BOE would be able to cut marketing and advertising expenses as subscribers rise form 5,000 in 2001 to more than 12,000 in 2010; the marketing expenses do not jibe; urged the City Council to assume its fiduciary responsibility for public funds and reject approval of the bonds for the Cable TV plan. Special Joint Meeting Alameda City Council and 3 Alameda Public Improvement Corporation January 18, 2000 Don Landers, Alameda resident and business owner of Integrity by Design, stated that he is in the graphics communications business, and therefore, very interested in wideband width transmission of large data files; that he has been eagerly waiting to purchase internet and cable services from local utility; important for Alameda to have infrastructure in place to compete in a digital world for business; that he knows and trusts AP &T. Sebastian Baldassarre, Vice President, Public Utilities Board (PUB) , stated AP &T has provided reliable, low cost and trusted utility service to the community; PUB and staff are committed to providing state of the art telecommunications services to Alameda; the Resolutions before the City Council have been fully reviewed, debated and confirmed based upon substantial valuable community and Council input; AP &T is in an excellent position to meet projections; Council has reviewed the $16,000 Million guarantee backed by insurance, which provides for an exit strategy; Council has seen market- and product surveys; Council knows AP &T's direction from the City Council to generate new revenues for Alameda; a significant number of Alameda citizens want the opportunity to buy telecommunications services from AP &T; the Contract with SIGCORP means design and construction of a superior state of the art broadband fiber optic system in a joint marketing and sales campaign that will be professionally effective and customer targeted to local Alameda marketplace; Alameda will have a successful City -owned telecommunications business with revenues above cost providing support for seniors, public safety, recreation and other great City programs; urged Council to support Resolution. Vice Mayor Daysog made a motion to continue the meeting past 12:00 midnight. Councilmember Johnson seconded the motion, which carried by unanimous voice vote - 5. Ron Basarich, Alameda, stated that he was opposed to Council voting to proceed with the third phase of the bonding issue for the $20.5 Million for various reasons; the matter is understudied, misunderstood, or understood in a way that is not compatible with reality; the Deloitte & Touche Report counteracts the Ernst & Young Report; there are countervailing opinions and views; the issue is whether BOE has the viability to stay in business; BOE is trying to find some other source of revenue that is uncertain, unproven and not well analyzed. Special Joint Meeting Alameda City Council and 4 Alameda Public Improvement Corporation January 18, 2000 Shaun Daniels, Alameda, local business owner and video producer, stated Council should support AP &T's bond issue because it is not a risk; given the choice, Alamedans will support having a choice of what kind of information comes to them. Christopher Hanson, Alameda, stated that he was opposed to the proposition in the first place, when it was budgeted at $8 Million; he is still opposed when it is budgeted at $20 Million; government should not be in business; government is to provide services citizens need that businesses do not provide; the risk here is too great for a governmental agency to take on; if the risk were reasonable for a business venture, there would be another venture here taking that risk; if one thinks that cable television is a public utility, then he would ask Council to consider spending the $20 Million and condemn the existing system; it is probably cheaper to do that, than to build a second system and put taxpayers' money at risk; taxpayers do not have the same recourse to governmental officials that shareholders have against directors; shareholders elect to take said risk in the company; a taxpayer, if the bond is approved, does not; taxpayers will pay the bill if the proposition goes wrong without the opportunity to make the decision to participate or not. Mayor Appezzato stated, for the record, Stanley and Diane Lichtenstein (public speakers unavailable to address the City Council) were in favor of the Resolutions. Louise Lum, Alameda, resident and employee of AP &T, stated that she was very excited about the startup of a telecom system for businesses and homes in Alameda; it is a big step forward in keeping abreast with modern technology and providing Alamedans with state of the art outsourcing for internet access and cable tv; it will provide additional revenue for AP &T and, in turn, for the City; urged Council to consider adoption of Resolution. Albert Fong, Alameda, was not available to address the City Council. Mr. Fong was not in favor of the Resolution. John Redding, Rancho Cordova, stated the purpose for this evening [attending the meeting] is to memorialize, for the record, a letter sent to Council having to do with financial affairs of the BOE. Mr. Redding distributed copies to the City Council. Mayor Appezzato noted that he had a copy of the letter in front of him and that he was going to request the City Manager to prepare a response. Mr. Redding read the letter into the record: "January 12, 2000, Special Joint Meeting Alameda City Council and rj Alameda Public Improvement Corporation January 18, 2000 Mayor Ralph Appezzato, City of Alameda; Dear Mayor Appezzato: American States Water Company [630 East Foothill Blvd., San Dimas, CA 91733; (909) 394 -3600] is pleased to make the following proposal to the City of Alameda to lease and operate the City's electric transmission and distribution system. This proposal is intended to serve as the foundation for discussing, with City representatives, the numerous details involved in such a transaction with the goal of developing a comprehensive agreement that will benefit both parties. For a total payment of $58,500,000, consisting of an up front payment of $21,000,000 cash and annual lease payments of $2,500,000, American States Water Company proposes to lease the electric transmission and distribution system including all associated fixed and mobile plant, equipment and property, for a period of 15 years. AWR will assume all operating, maintenance, customer service and administrative responsibilities of the system including receipt of revenues generated by the provision of electric service to residences and businesses in Alameda. This offer is subject to the acceptance of a mutually agreeable contract between American States Water Company and the City of Alameda including the approval of the City Council and American States Water Company's Board of Directors. AWR is available at the City's convenience to begin discussions regarding the many details involved in such an agreement. Yours Truly, Joel Dickson, Vice President, Business Development; cc: City Council, City Manager." Mr. Redding stated that AWR is ready to commit any and all resources necessary to provide a signed contract and a check for $21 Million within 90 days. Mayor Appezzato stated the City Manager would get back to Mr. Redding. L. Kay Guffy, Alameda, was not in attendance to address the City Council; Guffy was not in favor of Resolution. George Edwards, Alameda, telecommunications consultant, stated that he was in favor of the Resolution; people involved are technically competent; cannot speak to the financial part [of the proposition]; many people will be more than happy to have the opportunity to go into competition with AT &T; there is no doubt about the project technically; Alameda voters passed Measure A, which he thought indicated residents want their own television system; and urged Council to adopt the Resolution. Iry Hamilton, Alameda resident, Aviso Marking Communications, stated the availability of an up -to -date telecommunications infrastructure is an important site selection criterion; companies are looking for [telecommunications] capability when considering locations; there are a number of benefits: choice of providers, Special Joint Meeting Alameda City Council and 6 Alameda Public Improvement Corporation January 18, 2000 oversight by the City Council and PUB of direction and long -term goals, AP &T's ability, and attraction of new businesses; encouraged support of Resolution. Vice Mayor Daysog stated deregulation created competition; stranded costs must be dealt with; [the success of] Measure A [1998 General Municipal Election] indicated people had benefitted by the BOE for over a century and wanted to give BOE a chance to bring forward a proposal: a proposal stating there are means by which goals of the BOE can be continued; the challenge is what can be done to ensure BOE's viability into the 21st Century; cable is important; fiber optics should be considered as a network that allows rapid transmission of high volumes of data and economic development; if perceived that way, one begins to see the interconnections between economic development, required revenue generation, and new services; also seen are interconnections between these items and other issues, e.g. how to develop the base and /or Harbor Bay Isle; they are all integrated; to the extent pursued in that regard, we can begin to make sure that BOE is viable; at a generic level, there is an economic development potential in regard to the fiber optics lines and revenues generated to ensure the electric side remains viable; ultimately, it is about execution in terms of ensuring that when SIGCORP or the City lays down the lines, it is being done on a cost effective basis; execution in terms of getting markets needed; execution in terms of providing types of quality services that BOE has always provided; fundamentally, when talking about execution, credibility must be talked about: is the BOE an organization which has demonstrated the level of managerial capacity to deliver ?; BOE /AP &T can do it; in terms of finances, much of the dollars are to retire existing debt and stranded costs; retiring the debt, creating new business opportunities, and generating more revenue potential are all related; on a broad financial macro -scale evaluation, it seems the smart thing to do, e.g. replace old debt with higher rates with new debt, at lower rates, and financing for telecommunications infrastructure; for said reasons, he continues to be supportive of AP &T. Councilmember Johnson stated that she supported the process through its phases; with each phase, the plan got better and stronger; that she supports the proposal and the residents of Alameda support it; in regard to the issue of government and business competing, BOE has been a business ever since it existed 113 years ago; the Golf Course is operated as a business; operating a business is not new to Alameda; the issue has been whether AP &T should be allowed to operate as a business; that she believes it must be operated as a business if the City is going to continue in the future with AP &T; she would not support the plan if it was just for cable; it would not be worth incurring that kind of debt and putting together a Special Joint Meeting Alameda City Council and Alameda Public Improvement Corporation January 18, 2000 huge plan just for cable service; the proposal is not just about cable, it is about a lot of other services; such services will help with business development; the plan is sound; there is a good exit strategy; the firewall has been maintained between electric and telecommunications; and she will support the proposal. Councilmember DeWitt stated Alameda likes its own businesses, School Board, Golf Courses, and Bureau of Electricity; there is something about the town that says we would rather do it ourselves; the voters made it easy for Council and said they were willing to take the risk; the proposal has been discussed for two years; and that he is in favor of the proposal. Councilmember Kerr stated one of the things continually heard is complete separation of finances between the BOE operation and the telecom operation; however, the financing plan includes putting up $10 Million of current reserves: money that came from the electric payers; the firewall has a $10 Million hole in it; during a presentation on October 13, 1999, a statement was made the $10 Million would be used to pay operating losses of telecom if they were greater than projected; or, as noted in the Exit Strategy, the $10 Million of the ratepayers' money would be used to help pay off the debt if the facility was sold; in regard to saturation, the City would be going up against a competitor with much deeper pockets than the City; the projections are overly optimistic; in one report, AP &T expects to have over 2,500 subscribers by June, 2000; there are other reasons, however due to the late hour, she will not expand any further. Vice Mayor Daysog stated$22 Million is currently set aside as reserves to pay for the problems of stranded costs; part of the BOE payments go toward the reserves; if the BOE never went into business and said portion of BOE payments continued to accumulate, the Reserve would grow to $32 Million in 2003/2004; the stranded costs at that time would be $36 Million; as now, there would be a deficit in 2003/2004; refinancing allows generating savings, which allows a portion of the $22 Million to be given to telecom as an $10 Million operating reserve; technically, funding does come from the stranded cost reserve; however, it only comes from stranded cost reserves because the money has been freed up as a result of refinancing; the point is to refinance old debt, which has higher rates, with new debt at lower rates, which is where the $10 Million comes from. Mayor Appezzato stated that he opposed the matter last time and will continue to oppose for the same reasons: the financial risk and the technical risk; the technical risk may be more critical; that he hopes the City the wherewithal, talent and ability to Special Joint Meeting Alameda City Council and 8 Alameda Public Improvement Corporation January 18, 2000 compete with all the expertise out there; limited salaries might not be able to compete; the City will review the proposal from AWR, however, it will have to sit on the back burner for a while. Vice Mayor Daysog moved adoption of the Resolution. Councilmember DeWitt seconded the motion, which carried by the following voice vote: Ayes: Board Members Daysog, DeWitt and Johnson - 3. Noes: Board Member Kerr and Chair Appezzato - 2. CITY COUNCIL AGENDA ITEM (00 -44) Resolution No. 13175, "Approving Public Utilities Board Action and Authorizing Execution, Sale and Delivery of Certificates of Participation in Certain Installment Sale Financing Documents with the Alameda Public Improvement Corporation in Three Series As Follows: I. Not to Exceed $13,000,000 Aggregate Principal Amount of Electric Revenue Certificates of Participation, Series 2000A, for the Expansion and Improvement of the Electric System and the Refinancing of Outstanding Installment Sale Obligations of Alameda Power & Telecom (Being the City of Alameda Acting By and Through Its Bureau of Electricity) II. Not to Exceed $40,000,000 Aggregate Principal Amount of Distribution System Revenue Taxable Certificates of Participation, Series 2000AT, for the Partial Defeasance of Certain Obligations of Alameda Power & Telecom (Being the City of Alameda Acting By and Through Its Bureau of Electricity) with Respect to the Northern California Power Agency III. Not to Exceed $20,500,000 Aggregate Principal Amount of Telecom System Taxable Revenue Certificates of Participation, Series 2000B, for the Acquisition, Construction, Equipping and Startup of a Citywide Hybrid Fiber - Optic /Coaxial Telecom System." Adopted. Councilmember Daysog moved adoption of the Resolution. Councilmember DeWitt seconded the motion, which carried by the following voice vote: Ayes: Councilmember Daysog, DeWitt and Johnson - 3. Noes: Councilmember Kerr and Mayor Appezzato - 2. ADJOURNMENT There being no further business, Mayor /Chair Appezzato adjourned the Special Joint Meeting at 12:40 p.m. Special Joint Meeting Alameda City Council and 9 Alameda Public Improvement Corporation January 18, 2000 Respectfully submitted, Diane B. Felsch, CMC City Clerk and Secretary, Alameda Public Improvement Corporation The agenda for this meeting was posted in accordance with the Brown Act. Special Joint Meeting City Council and Alameda 10 Public Improvement Corporation January 18, 2000