HomeMy WebLinkAbout2015-07-01 Utilities Advisory Commission Agenda Packet
NOTICE IS POSTED IN ACCORDANCE WITH GOVERNMENT CODE SECTION 54954.2(a) OR 54956
I. ROLL CALL
II. ORAL COMMUNICATIONS
Members of the public are invited to address the Commission on any subject not on the agenda. A reasonable
time restriction may be imposed at the discretion of the Chair. State law generally precludes the UAC from
discussing or acting upon any topic initially presented during oral communication.
III. APPROVAL OF THE MINUTES
Approval of the Minutes of the Utilities Advisory Commission Special Meeting held on June 3, 2015
IV. AGENDA REVIEW AND REVISIONS
V. REPORTS FROM COMMISSIONER MEETINGS/EVENTS
VI. DIRECTOR OF UTILITIES REPORT
VII. UNFINISHED BUSINESS
None.
VIII. NEW BUSINESS
1. Discussion of Results of Cost-Effectiveness Evaluation of Electrification Options for Discussion
Appliances and Passenger Vehicles in Single Family Residential Homes
2. Staff Recommendation that the Utilities Advisory Commission Recommend that Council Action
Review and Approve the Proposed Work Plan to Evaluate and Implement Greenhouse
Gas Reduction Strategies by Reducing Natural Gas and Gasoline Use Through Electrification
3. Update on Spring 2015 Request for Proposal for Renewable Energy Projects Presentation
4. Selection of Potential Topic(s) for Discussion at Future UAC Meeting Action
5. Update and Discussion on Impacts of Statewide Drought on Water and Discussion
Hydroelectric Supplies
IX. COMMISSIONER COMMENTS
X. NEXT SCHEDULED MEETING: August 5, 2015
INFORMATIONAL REPORTS - A complete list of informational reports provided to the UAC can be viewed at
http://www.cityofpaloalto.org/gov/boards/uac/reports.asp?code=CAPALO_8 and at City Hall, 3rd Floor, Utilities
Administration office. Information reports cannot be discussed during UAC meetings, in compliance with Govt. Code
Section 54954.2(a)(2
UTILITIES ADVISORY COMMISSION
WEDNESDAY, JULY 1, 2015 – 7:00 P.M.
COUNCIL CHAMBERS
Palo Alto City Hall – 250 Hamilton Avenue
Chairman: Jonathan Foster Vice Chair: James F. Cook: Commissioners: Michael Danaher, Steve Eglash, Garth Hall, and Judith Schwartz Council Liaison: Gregory Scharff
Utilities Advisory Commission Minutes Approved on: Page 1 of 11
UTILITIES ADVISORY COMMISSION MEETING
MINUTES OF JUNE 3, 2015
CALL TO ORDER
Chair Foster called to order at 7:07 p.m. the meeting of the Utilities Advisory Commission
(UAC).
Present: Commissioners Cook, Danaher, Chair Foster, Hall, Schwartz and Council Liaison Scharff
Absent: Commissioners Eglash and Van Dusen
ORAL COMMUNICATIONS
Jesse Cruz, Utility System Operator who has worked for the City’s Utilities Department for 21
years, said that Utilities has lost journeymen workers due to insufficient compensation.
Raymond Herrera, Journeyman System Operator, noted that a power outage occurred on April
9 at 6:55 a.m. and Utilities personnel safely dealt with the situation that involved the need to
deal with de-energizing a live wire. He said that it was lucky that this outage occurred when
crews were available, but if it happened at night, the live wire would not have been dealt with
until much later since there is no 24/7 operations and a phone operator would have taken the
call, but is not qualified to respond. He said that there needs to be a serious discussion with the
City since the cost of living is not doable. He said he has been with the City for 1 year and 4
months and came from PG&E, where he worked for 12 years.
Lynn Krug, Chapter Chair of SEIU, urged the UAC to pay attention to the ability of the City to
hire adequately trained employees. She said she wanted to have a dialog with commissioners
with respect to compensation, training, and work force issues.
Herb Borock noted that there is a new City job posting paying $50/hour solely for recruiting for
Utilities positions.
APPROVAL OF THE MINUTES
Commissioner Cook moved to approve the minutes from the May 6, 2015 UAC special meeting
as presented and Commissioner Foster seconded the motion. The motion carried unanimously
(4-0 with Commissioners Cook, Danaher, Foster and Schwartz voting yes, Commissioner Hall
abstaining and Commissioners Eglash and Van Dusen absent).
AGENDA REVIEW AND REVISIONS
None.
DRAFT
Utilities Advisory Commission Minutes Approved on: Page 2 of 11
REPORTS FROM COMMISSION MEETING/EVENTS
Commissioner Schwartz said she attended a very interesting town meeting in Washington, DC
on smart grid and distributed energy resources. She also attended on June 1 an executive
roundtable sponsored by Seimens with utility folks, regulators, economists. She noted that
there is an opportunity to share meter data management systems with other utilities and can
have such systems across all utilities--gas, water, and electricity.
UTILITIES DIRECTOR REPORT
1. Community Solar Program. Staff terminated negotiations with vendor, Clean Energy
Collective, for a turnkey community solar program. This decision comes after a thorough
risk assessment of program requirements and unsuccessful negotiations with the vendor for
contract provisions to ensure transparency, protect consumers and mitigate risks. As a
result, staff cannot recommend moving forward with this type of community solar program
for Palo Alto. In general, staff felt the program was too complex and the turnkey nature
presented unique challenges for transparency and risk mitigation.
Staff will evaluate other community solar program structures with the objective to offer
solutions for residents unable to install solar at their homes. Staff may recommend changes
to the Local Solar Plan as a result of these negotiations, as well as decline in funds available
for the PV Partners program, and the need for a successor program to Net Energy Metering
when it reaches its cap. Staff will provide an informational report with more details on
community solar at the July UAC meeting. We anticipate returning to the UAC with a full
update on the Local Solar Plan by the end of 2015.
2. Peninsula SunShares Solar Group-Buy Program. Palo Alto is participating with twelve other
Bay Area communities to offer residents a solar group-buy program. Peninsula SunShares
pools the buying power of participants, allowing the solar industry to offer more
competitive pricing for solar installations. The enrollment deadline was extended to the end
of July. So far, Palo Alto is leading the region in number of enrollments with more than 46%
of the total participation. Through this program, we are making it easier and more
affordable than ever for our residents to go solar.
3. Renewable Energy RFP
Staff recently issued a request for proposal for renewable energy projects to begin
delivering energy to the City in 2021, when one of our older wind energy contracts will
expire. The response to the RFP was very good. More than 40 proposals were submitted.
Market prices for renewable energy still appear to be quite low. Staff is reviewing the
proposals and anticipates returning to the UAC with a negotiated contract for review in the
fall.
4. Community Outreach Events and Workshops. This past month:
Staff tabled at an Emergency Planning Fair sponsored by the Palo Alto Medical
Foundation, Red Cross, Abilities United and Office of Emergency Services.
CPAU held its first Ambassador Training for the linkAges Timebank program.
Utilities Advisory Commission Minutes Approved on: Page 3 of 11
CPAU partnered with BAWSCA and Canopy on a free “Tree Care in Drought” class .
Utilities participated in the Our Palo Alto 2030 Comprehensive Plan Summit to answer
questions about the Urban Water Management Plan, drought and conservation
resources.
In June, we will be at the following events:
A “Design It Yourself Native Garden” workshop tonight, June 3 at 7 pm.
Speaking to the Department of Water Resources’ Independent Technical Panel on Palo
Alto’s adoption of the Water Efficient Landscape Ordinance on Monday, June 8.
Offering an “Install It Yourself Native Garden” workshop on Sa turday, June 13.
Tabling at the Palo Alto Family YMCA on Saturday, June 20, to provide members with
resources for water conservation.
Hosting a “Net Zero Home Energy Efficiency” workshop on Saturday, June 27.
All event details and registration are available at cityofpaloalto.org/workshops
Chair Foster highlighted the high participation rate in the SunShares group-buy program. He
suggested that the mayor include the program in her monthly newsletter to remind folks that
there is a limited time to sign up for the program.
Commissioner Hall asked if the renewable RFP found only solar projects, or other types of
renewable energy projects. Director Fong said that there were renewable projects other than
solar and that staff would provide a summary to the UAC on the response to the RFP.
UNFINISHED BUSINESS
None.
NEW BUSINESS
ITEM 1: PRESENTATION: Presentation on City’s Receipt of three Line USA Award – Courtney
Schumm, Project Manager, Public Works, Urban Forestry Section, to Present Award
Courtney Schumm, Public Works Project Manager for the Urban Forestry Section, said she is a
certified arborist and is in charge of the power line clearing contract noting that trees need to
be managed to ensure reliability of the electric distribution system. She exp lained the types of
work that was being done by the contractor to prune the trees noting that the work is
performed by certified arborists. She explained the criteria for the Tree Line USA Award. She
said a City program ensures that the proper trees are planted in the right locations.
Commissioner Danaher asked if there were any impacts from undergrounding electric lines.
Schumm explained that the City has a technical manual to ensure that the trees are protected
by proper management of tree roots when undergounding utilities.
Commissioner Schwartz asked Schumm if residents were invested in the sustainability benefits
of trees in the City. Schumm explained that they use a software program and coordinate with
Canopy to educate the community and provide information using a website showing the
benefits of different trees.
Utilities Advisory Commission Minutes Approved on: Page 4 of 11
ITEM 2: ACTION: Election of Officers
ACTION:
Chair Foster nominated Commissioner Cook to act as Vice Chair for the remainder of the
current term and for the new term starting July 1. Commissioner Hall seconded the motion.
The motion passed unanimously (5-0 with Commissioners Cook, Danaher, Foster, Hall and
Schwartz voting yes and Commissioners Eglash and Van Dusen absent).
Commissioner Hall nominated Chair Foster to be Chair for the term starting July 1. Vice Chair
Cook seconded the motion. The motion passed unanimously (5-0 with Commissioners Cook,
Danaher, Foster, Hall and Schwartz voting yes and Commissioners Eglash and Van Dusen
absent).
ITEM 3. DISCUSSION: Discussion on Approach to the Following Items for Commissioner
Consideration as Suggested by Council: Fiber-to-the-Premise: Electric Underground; Fuel
Switching/Electrification; Water Recycling; Second Transmission Interconnection with the City’s
Electric Grid
Chair Foster stated that he would like to appoint committees to work on the five topics
identified by the Council at the joint UAC/Council meeting in May. He is appointing
commissioners to committees to cover the following issues:
1. Fiber-to-the-premise: Commissioners Schwartz and Danaher
2. Electric undergrounding: Commissioner Hall and Vice Chair Cook
3. Water recycling: Commissioners Van Dusen and Schwartz
4. Second transmission line: Commissioner Hall and Vice Chair Cook
Chair Foster noted that he expects that each of the subcommittees will push the ball forward
and each committee should develop a summary report to present back to the UAC. He noted
that he has yet to name a subcommittee for the fifth topic: fuel switching/electrification.
Commissioner Schwartz asked Director Fong how the committees should work with staff.
Director Fong suggested that the committees should tie into the current status of the items and
then provide insights and determine where gaps exist and how to move forward.
Council Member Scharff stated that any of the commissioners should feel free to liaise with him
to find out some of the history on any of the issues. For example, for undergrounding electric
utilities, the only way is to get something on the ballot to fund a large expansion of the current
program. There are many meaty issues to be addressed. Director Fong added that determining
the threshold question for these issues is very important.
Commissioner Hall asked if there is a timeframe for the work done by the committees. Chair
Foster said that the committees should target the end of 2015 to complete the report.
Utilities Advisory Commission Minutes Approved on: Page 5 of 11
ITEM 4: ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend
that the City Council Adopt a Resolution Approving Design Guidelines for the 2015 Electric Cost
of Service Analysis
Chair Foster explained to the newer commissioners that the past practice was when utility rates
were proposed to the UAC or Council, there was little discretion once the cost of service model
was developed, since the rates were based on the results of the cost of service analysis (COSA).
But, staff now holds a policy discussion with the UAC and Council prior to conducting a COSA so
that there can be input to the policies used to develop the rates.
Senior Resource Planner Jon Abendschein thanked Chair Foster for the explanation of why staff
is bringing forward this item. He noted that the last Electric COSA was completed in 2007 and
that the last Electric rate change was effective July 2009. He explained that the Electric COSA
will be done in two phases to deal with the short- and long-term issues. Abendschein said that
the short-term issues will be dealt with in Phase One of the COSA, which needs to be completed
in time to get new rates in place by July 2016. The Phase Two work will take longer to complete
and deal with longer-term issues such as those that can only be implemented with a new billing
system or advanced meters. For Phase One, no large departures from existing rate structures
are contemplated. The COSA was an important way of demonstrating that the City’s rates
reflected the cost to serve customers, which was necessary to avoid having them be considered
a tax under sections of the California Constitution added by Proposition 26 (2010). The goal was
to complete the COSA by the end of the year so the rates would be ready for adoption with the
FY 2017 budget in the spring. He discussed the design guidelines.
Cook asked how often a COSA should be completed. Abendschein said that they should be
redone every 3 to 5 years.
Commissioner Schwartz asked if efficiencies could be achieved with the use of technology, such
as helping customers understand when they were approaching a higher usage tier.
Abendschein said that there was a smart meter pilot program underway experimenting with
these types of approaches, and that the longer-term impacts and implications of technology
and innovation will be addressed in Phase Two.
Commissioner Hall asked if a hydro adjuster mechanism would allow rates to be adjusted on a
monthly or quarterly basis without returning to Council.
Abendschein said that it could be done that way, or the rates could be changed annually. The
goal would be to keep the adjuster simple and base it on a clear formula.
Commissioner Danaher said that he supported the proposed guidelines, including the minimum
charge. He said he was interested in looking at other rate designs that might not be in line with
a cost of service study but that could go to the voters for approval. He thought this might not
be appropriate for Phase One, but could be looked at later.
Utilities Advisory Commission Minutes Approved on: Page 6 of 11
Vice Chair Cook agreed that the rate design could be approved by voters, for example in the
case where restrictions based on Constitution might lead to flat rates, but the community could
decide that conservation efforts would be much improved with tiered rates.
Commissioner Hall stated that Phase Two would take several years, and some parts should be
worked on earlier. It was important to begin realizing carbon benefits from electrification
sooner than later. Staff should look at ways of including environmental benefits in rate design
and use that to provide subsidies in rates for greenhouse gas reducing activities, such as EV
charging. He was in favor of changing the design guidelines to ask staff to consider climate
benefits in the rates and structuring rates to provide incentives for activities that benefit the
climate.
Abendschein asked that if the UAC considered such an amendment, that it only direct staff to
evaluate the use of externalities rather than direct staff to use externalities. Rates are typically
based on direct costs to serve customers, and it could be a challenge to include externalities.
Commissioner Hall said he thought staff could evaluate whether a policy framework adopted by
the Council might enable the use of externalities, and that if it did not, that the question could
be put to the voters.
Senior Assistant City Attorney Grant Kolling agreed that the question can go to the voters for
decision.
Director Fong noted that there was a constrained timeline and that it was important to
complete a COSA.
Commissioner Hall said that he was only suggesting a guideline that stated that staff would
evaluate the approach, not directing staff to use such an approach.
Commissioner Schwartz said that the true cost imposed by customers with solar systems and
electric vehicles (EVs) did need to be dealt with. She asked if the value of solar via net metering
will be determined as part of this study.
Abendschein responded that the City will be reaching its cap for net energy metering in the
next several years so that the City needs to be prepared for solar after NEM cap reached. He
said that this is part of the Phase One work plan.
Commissioner Schwartz asked who advocates for ratepayers, especially low income customers.
Director Fong stated that the Council performs the function of advocating for the ratepayers.
She noted that the City's utility is not for profit, unlike the investor-owned utilities that are
regulated by the California Public Utilities Commission.
Vice Chair Cook noted that the UAC can perform the role of ratepayer advocate as well.
Utilities Advisory Commission Minutes Approved on: Page 7 of 11
Council Member Scharff said that the City needed to think about energy efficiency versus
conservation. The three-tiered rate structure may not achieve the goals of the Council
regarding electrification. If using electricity efficiently, people should be able to use more
without being penalized. Since the electric supplies were carbon neutral, Council was moving
toward encouraging electrification. He noted that the three-tiered rate structure does not
encourage fuel switching. The UAC should consider that in their policy discussions.
Commissioner Danaher said that the rate structures should be driven by a low carbon policy.
This might ultimately require voter approval.
Commissioner Schwartz said that the issue is more complex. Electricity Palo Altans consumed at
night did not come from the City’s solar energy projects. The electricity Palo Alto uses costs
different amounts depending on the time of day. Achieving cost of service was not as simple as
changing from tiered rates to flat rates.
Council Member Scharff said that he agreed with the need for time of use rates, but not tiered
rates. He said energy efficiency was what was important, not conservation.
Chair Foster asked if the Council has adopted a policy on electrification.
Director Fong stated that the Council had considered electrification, but had not yet taken a
policy position on the issue.
Council Member Scharff agreed, but noted that there was broad support on the Council to
support electrification, even if the details of the policy had not been worked out yet.
Commissioner Schwartz said that there could be value in the efficient use of natural gas.
Director Fong said that the UAC would discuss this issue at its next meeting.
ACTION:
Commissioner Hall made a motion to adopt the proposed guidelines with the addition of a new
guideline to the Phase One COSA as follows: The COSA should evaluate the opportunities for
rate designs that reduce the global climate footprint and those that increase all-fuel energy
efficiency.
Commissioner Danaher asked Commissioner Hall to clarify whether the evaluation should take
place within the COSA framework or outside the COSA framework.
Commissioner Hall said it should take place within the COSA framework. Phase One was the
right time to do this evaluation rather than waiting until Phase Two.
Abendschein said this would be a difficult goal to achieve within the timeline for Phase One.
Utilities Advisory Commission Minutes Approved on: Page 8 of 11
Director Fong stated that the proposed guideline was very broad. It would be difficult for staff
to know whether proposed rates met the guideline.
Commissioner Hall said that the consultant could do an evaluation of what was necessary for
such a rate to be adopted. He believed a Council policy could be sufficient to allow these types
of rate designs. If legal analysis revealed this was not the case, the rate design could be put to
the voters.
Director Fong discussed the feed-in tariff, which had been a specific example of a time that the
Council had put some value on externalities. There had been specific direction for a specific
purpose. The proposed guideline was too broad to implement.
Abendschein said that this issue could be dealt with early in Phase Two rather than Phase One.
Not everything in Phase Two had to be evaluated at the same time.
Commissioner Hall said the “all-fuel” section of the guideline might be difficult, but the “global
footprint” section could be handled in Phase One. Two elements of the evaluation could be
incentives for electric vehicles and increased pricing for solar energy. If the only thing
preventing these rate structures was a Council policy, one could be adopted quickly.
Abendschein said that the risk of including this in Phase One was that there would not be
enough time to do a thorough evaluation of the legal approach, and staff would simply return
saying it was not possible.
Commissioner Hall said that was fine, and the analysis could then continue in Phase Two.
The motion died for the lack of a second.
ACTION:
Commissioner Hall moved, seconded by Chair Foster, to approve the Staff recommendation
with the addition of a new guideline to the Phase One COSA as follows: The COSA should
evaluate the opportunities for rate designs that reduce the global climate footprint.
ACTION
Commissioner Schwartz made a substitute motion, seconded by Commissioner Cook, to
approve the Staff recommendation and to recommend that Staff consider rate designs that
reduce the global climate footprint in Phase Two.
Commissioner Hall said he would vote against the motion, but he agreed with the overall
approach. He only thought that it should be evaluated in Phase One.
Commissioner Danaher asked Staff whether this approach would be unduly burdensome.
Director Fong said Staff had considered including this in Phase Two, and that it could be
considered early in Phase Two.
Utilities Advisory Commission Minutes Approved on: Page 9 of 11
The motion carried (3-1-1 with Commissioners Cook, Danaher, and Schwartz voting yes, Chair
Foster abstaining, Commissioner Hall opposed, and Commissioners Eglash and Van Dusen
absent).
ITEM 5: ACTION: Selection of Potential Topic(s) for Discussion at Future UAC Meeting
ACTION:
None.
Commissioner Hall left the meeting at 9:10 pm due to a conflict of interest on water issues due
to his job at the Santa Clara Valley Water District.
ITEM 6: ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend
that the City Council Adopt two Resolutions Effective September 1, 2015: 1) Amending Rate
Schedules W-1 (General Residential Water Servicer), W-2 (Water Service from Fire Hydrants),
W-3 (Fire Service Connections), W-4 (Residential Master-Metered and General Non-Residential
Water Service), and W-7 (Non-Residential Irrigation Water Service) to Increase Rates 4% and
Add Drought Surcharges; and 2) Activating Drought Surcharges at the 20% Level in Response to
Mandatory Potable Water Use Restrictions Imposed by the State Water Resources Control
Board
Senior Resource Planner Jon Abendschein provided a brief summary of the written report. The
UAC and Finance Committee had previously recommended a 12% rate increase effective July 1,
2015. Staff sent out notices to customers of these 12% increases. Subsequently, a court
decision was published providing additional guidance on rate design. Staff asked its rate
consultant to review the City’s rate design methodology. The consultant recommended minor
adjustments. To incorporate these adjustments and comply with the noticing requirements of
the California Constitution, the 12% rate increase had to be broken into two parts: 8% effective
July 1, 2015, and 4% effective September 1, 2015. Staff had also been developing drought
surcharges based on design guidelines adopted by Council the previous fall. Staff recommended
including these drought surcharges in the rate action effective September 1, 2015.
Public Comment
Herb Borock asked the UAC not to approve the rate increase proposed. He also said that he will
also recommend that the Council reject the 8% rate increase in front of them on June 8. He
said that proposed rates should be heard by the Council before notice was sent to customers.
This had been done in the past. Only recently did staff begin taking proposed rates to the UAC
and Finance Committee, but not the Council, before they send out the Proposition 218 notice
to customers.
Chair Foster asked Mr. Borock to clarify whether his concern was solely with the process, or
whether he also had concerns regarding the rate increase itself.
Mr. Borock stated he also had concerns about whether recycled water had been considered in
the cost of service analysis.
Utilities Advisory Commission Minutes Approved on: Page 10 of 11
Chair Foster asked whether the UAC could recommend that the Council approve the rates, and
whether the City Attorney would later inform the Council if there were any problem with the
process.
Senior Assistant City Attorney Grant Kolling said that he would, but that the City Attorney
would not have allowed this to proceed if there were a problem with the process.
ACTION:
Chair Foster made a motion to approve the staff proposal. Commissioner Schwartz seconded
the motion. The motion passed unanimously (4-0 with Commissioners Cook, Danaher, Foster,
and Schwartz voting yes and Commissioners Eglash, Hall and Van Dusen absent).
ITEM 7: DISCUSSION: Update and Discussion on Impacts of Statewide Drought on Water and
Hydroelectric Supplies
Karla Dailey, Senior Resource Planner, presented an information update on the water supply
conditions and the cost impact of drought on the electric utility. Dailey reviewed the timeline
of actions taken by the state, the San Francisco Public Utilities Commission (SFPUC), the Santa
Clara Valley Water District (SCVWD), and the Palo Alto City Council and shared a comprehensive
list of all water restrictions in effect. Precipitation levels at Hetch Hetchy Reservoir as well as
conservation achievements by all water users in the regional system as well as Palo Alto were
shown. Dailey confirmed that, while the electric utility will be impacted by higher supply costs
in FY 2015, the cost to keep the portfolio carbon-neutral will be significantly lower than the
Council-approved cap.
COMMISSIONER COMMENTS
Chair Foster asked if commissioners can get City email addresses.
Chair Foster encouraged commissioners to review the quarterly report, noting that there are
items including fiber-to-the-premise and PaloAltoGreen Gas program, an opt-in program. He
has heard from some members of the community that that program should be converted to an
opt-out program. He added that the energy savings challenge related to the Georgetown
University Prize will begin soon. The Program for Emerging Technologies update is provided as
well in the quarterly report.
Chair Foster noted that the report showed a high penetration of electric vehicl es in the City.
Commissioner Schwartz said that the City should not be providing rebates to Tesla owners.
Director Fong pointed out that the rebates were provided by the State government, not the
City.
Utilities Advisory Commission Minutes Approved on: Page 11 of 11
Chair Foster noted that the quarterly report also provided information that gas sales are lower
than in over a decade.
Meeting adjourned at 9:36 p.m.
Respectfully submitted,
Marites Ward
City of Palo Alto Utilities
Page 1 of 13
1
MEMORANDUM
TO: UTILITIES ADVISORY COMMISSION
FROM: UTILTIES DEPARTMENT
DATE: July 1, 2015
SUBJECT: Discussion of Results of Cost-Effectiveness Evaluation of Electrification Options
for Appliances and Passenger Vehicles in Single Family Residential Homes
______________________________________________________________________________
The attached report on the cost effectiveness of electrification of single-family residential
building appliances and passenger vehicles is provided for the Utilities Advisory Commission’s
(UAC’s) information and discussion. No action is requested at this time.
EXECUTIVE SUMMARY
After achieving carbon-neutral electric supplies, over 90% of Palo Alto’s remaining greenhouse
gas (GHG) emissions are from the community’s use of natural gas and transportation fuels. One
way to reduce GHG emissions further is to replace natural gas appliances (water heaters, space
heaters, clothes dryers, and stoves) with electric appliances, or to replace gasoline-powered
vehicles with electric vehicles (EVs), which is a type of fuel-switching called “electrification”. The
electric appliances considered in this analysis are predominantly heat pump techno logies,
which can use electricity much more efficiently compared to simple electric resistance
technologies. The attached report summarizes staff’s analysis of the cost effectiveness of these
electrification options for residents. The results described in this report are intended to help
inform policy discussions with City leadership and to aid in decision -making at the household
level for interested community members.
The analysis concludes that from a customer perspective, using base case assumptions1, it is
cost effective for residents in single family homes to switch from natural gas to electric heat
pump technologies for water heating. Space heating is close to being cost-effective. Lifetime
costs of electric technologies for stoves and clothes dryers remain more expensive, however,
compared to their natural gas counterparts. Buying a compact-size EV is a cost-effective
alternative to buying an equivalently sized gasoline vehicle, after including state rebates and
federal tax credits. Although the up-front cost of EVs are higher than their gasoline
counterparts, this initial price difference is overcome through lower electricity and operating
costs over the vehicle lifetime. For a newly constructed house that implements all
1 The base case assumptions used for the cost-effectiveness calculations utilize average levels of household
electricity consumption, a discount rate of 4%, a rate of inflation of 2.5%, and a continuation of current trends in
fuel and carbon market prices, among other assumptions. All base case assumptions are described in detail in
Section 2.2 of the full report.
Page 2 of 13
electrification measures including switching from a gasoline to a compact EV , the net savings is
$9 per month. However, changed assumptions can result in a swing between monthly savings
of $60 to an additional cost of $60 per month. These results do not include electrical systems
upgrade costs that may be required in existing homes to electrify these applications. Such a
large upfront cost could pose a substantive hurdle to electrifying existing homes, but is likely to
be less of a burden for new construction.
Changes in retail electric rate structure, carbon market prices, and cost of roof-top solar
photovoltaic (PV) systems in addition to other factors such as electrical upgrade cost and space
limitation to accommodate heat-pump technology will have considerable impact on the
economics and feasibility of electrification options in single family homes. This report discusses
various programmatic initiatives the City could undertake to reduce hurdles and encourage the
adoption of these technologies. The accompanying UAC report, a follow-up to the City Council’s
Colleagues Memo on fuel-switching, draws from this analysis and recommends a multi-
pronged, multi-departmental approach to facilitate the adoption of cost-effective electrification
technologies.
BACKGROUND
To help reach California’s statewide target of reducing GHG emissions to 80% below 1990 levels
by 2050, the City of Palo Alto has adopted a suite of policies including adopting a 100% carbon-
neutral electric supply portfolio as of 2013; setting the goal of meeting 4% of electricity needs
from local solar generation by 2023; establishing building codes with energy efficiency
requirements above state standards, including requiring new construction to be “electric
vehicle ready”; and setting a goal of achieving zero waste by 2021. In addition to efforts to
reduce energy consumption, statewide studies indicate that substantial electrification of both
the transportation and buildings sectors is necessary to achieve California’s emissions
reductions targets. Now that the City’s electric supplies are carbon-neutral, Palo Alto’s natural
gas usage and transportation sectors account for over 90% of the city’s remaining carbon
footprint and present the biggest opportunity for GHG emissions reductions. Furthermore,
switching fuel sources from fossil fuels to electricity allows immediate elimination of those
associated emissions. This analysis builds on an initial assessment of residential fuel-switching
options in Palo Alto completed in 2013, which concluded that compact vehicle electrification is
cost-effective, and that heat pump water heaters (HPWHs) are the most cost-effective point of
entry for building electrification.
DISCUSSION
The attached report contains a detailed explanation of the evaluation of the lifetime net cost of
ownership for natural gas and electric residential appliances. The report also compares the
lifetime net cost of ownership for a variety of classes of gasoline-powered passenger vehicles
compared to that of comparably sized EVs, including both battery electric vehicles (BEVs) and
plug-in hybrid electric vehicles (PHEVs). The analysis and discussion focuses on single family
detached homes only. Appliances deployed in multi-family buildings and commercial
applications are excluded from the study, because they are unique and varied, complicating the
analysis. Staff evaluated the cost effectiveness of electrification from both societal and
Page 3 of 13
customer perspectives. Staff also examined the sensitivity of the results to changes in a variety
of input assumptions. The range of potential outcomes is shown in the results in the form of
error bars. This memo summarizes the benefits of the attached detailed report.
Societal Perspective
From a societal perspective2electrification of building appliances and passenger vehicles is cost
effective if the lifetime net cost of ownership of the electric technology is lower than that of the
fossil fuel technology.
The lifetime costs from the societal perspective include the following:
The up-front equipment, tax, and installation costs
Program administration costs for any utility rebate offering
Ongoing operations and maintenance costs
Fuel costs: based on the marginal supply costs of renewable electricity and natural gas
and the retail cost of gasoline
The lifetime benefits from the societal perspective include the following:
Any federal and state incentives
Low Carbon Fuel Standard3 (LCFS) credits
Any revenue from grid-interactive water heaters, which is included in the sensitivity
analysis
Figure 1 shows the incremental cost of GHG emissions abatement (abbreviated “abatement”)4
of various electrification options. As shown in Figure 1, from a societal perspective, switching
from a compact gasoline vehicle to a similarly sized EV is the only cost-effective end use for
electrification. Although the up-front cost of EVs is higher than their gasoline counterparts, this
initial price difference is overcome through lower fuel and operating costs over the vehicle
lifetime. Of all building appliances, HPWHs are the most cost-effective option for electrification,
with a societal incremental abatement cost of $59 per metric ton of carbon dioxide equivalent
(MT CO2e).
2 The societal perspective takes into consideration all costs and benefits accrued by the Palo Alto community,
which includes those borne by households (e.g. equipment, tax, and installation costs) and those borne by CPAU
(e.g. rebate program administration costs). The cost-effectiveness from the societal perspective is typically used by
utilities in the evaluation of whether to promote a specific energy efficiency measure.
3 The California Air Resources Board’s Low Carbon Fuel Standard (LCFS) program is designed to reduce GHG
emissions associated with the lifecycle of transportation fuels used in California. The LCFS requires producers of
petroleum-based fuels to reduce the carbon intensity of their products. Participants can either develop their own
low carbon fuel products, or buy LCFS Credits from other companies that develop and sell low carbon alternative
fuels, such as biofuels, electricity, natural gas or hydrogen.
4 The incremental cost of abatement is the additional cost of GHG emissions above the cost of carbon already
embedded in the price of gasoline, natural gas, and electricity, since the cost of those products includes the cost of
cap-and-trade allowances.
Page 4 of 13
Customer Perspective
The lifetime net cost of ownership from the customer perspective is slightly different from the
societal perspective and can be used to inform decision-making at the household-level on
potential GHG emissions abatement opportunities.
The lifetime costs from the customer perspective include the following:
The up-front equipment, tax, and installation costs
Ongoing operations and maintenance costs
Fuel costs: this is based on the retail rate for electricity and natural gas and the retail
cost of gasoline
The lifetime benefits from the customer perspective include:
Any federal, state, and utility incentives
Any revenue from grid-interactive water heaters, which is included in the sensitivity
analysis
As in the societal perspective, estimates for the resultant abatement cost of electrification are
referred to as “incremental” because they are the cost of carbon reduction in excess of the cost
of carbon already included in the cost of gasoline, natural gas and electricity.
From a customer perspective, electrification of building appliances and passenger vehicles is
cost effective if the lifetime net cost of ownership of the electric technology is lower than that
of the fossil fuel technology. As shown in Figure 2, water heating and compact vehicles are both
cost-effective electrification options using base case assumptions. The primary reason that cost
effectiveness to the customer is lower than that to society for some end uses (stovetop
cooking, clothes drying, compact vehicles, sports utility vehicles (SUV)) is because of the
assumption that all additional electricity consumption from electrification is charged at the
highest tier of the residential retail rate ($0.174/kilowatt-hour). Using the lower tier price or the
average retail rate would result in more favorable cost-effectiveness outcomes from the
customer perspective.
Page 5 of 13
Although the incremental abatement cost of electrification for stovetop cooking and clothes
drying remain comparatively high, the monthly cost over the lifetime of the appliance is
relatively modest. The monthly net costs of electrification to a household are shown in Figure 3.
The sum of all measures is a net savings of $9 per month. However, the uncertainty of this cost,
based on extensive sensitivity analysis, ranges from a savings of approximately $60 to
additional costs of $60 per month.
-$31
$11
$181
$558
-$86
$174
$416
-$400
-$200
$0
$200
$400
$600
$800
$/
M
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Figure 2: Incremental Customer Abatement Cost
Water
Heating
Space
Heating
Stovetop
Cooking
Clothes
Drying
Compact
Vehicle
Mid-Size
Vehicle
Sports Utility
Vehicle
Page 6 of 13
Importance of Electric Retail Rate Design
For the customer perspective, the base case scenario uses the highest tier of the current
residential retail rate for the cost of electricity. However, within the overall constitutional
requirement that electric rates must be set at a level no higher than the utility’s cost of
providing service, the electric retail rate structure can change over time, and can have a
significant impact on the cost effectiveness of electrification.5 To demonstrate the impact of the
current rate structure on the cost effectiveness of electrification, the following figure shows the
annualized net cost of ownership for the baseline natural gas appliances and the electric
alternatives for each building appliance end use. In addition to the costs calculated using base
case assumptions, the annual cost of the electric alternative is also calculated using the average
retail electricity rate, without assuming any specific rate structure. As shown in Figure 4, using
the average electric retail rate in the analysis results in substantially lower costs. Space heating
even changes from not cost effective to cost effective. The results emphasize the importance of
considering the impact that the rate structure may have on electrification during rate design
analyses and decision making.
5 Proposition 26, adopted by California voters in 2009, amended the state constitution to essentially require
electric rates imposed or increased after Proposition 26’s effective date to be set at a level no higher than the cost
to the utility of providing electric service, absent voter approval.
-$4
$2
$4
$8
-$19
-$9
-$100 -$50 $0 $50 $100
Water Heating
Space Heating
Stovetop Cooking
Clothes Drying
Compact Vehicle
Net Total
Figure 3: Monthly Net Cost of Electrification to
Household
Page 7 of 13
New Construction versus Retrofit Costs
All of the calculations for building appliance electrification measures incorporate the
installation cost estimates for new construction. However, the up-front costs can be $1,000-
$2,000 more for each appliance for retrofitting an existing home from natural gas to electric
appliances. These costs include the cost associated with wiring and running conduit from the
electrical panel to the appliance location. Many existing homes may need upgraded electrical
panels prior to adopting one or more electrification measure, which can cost an additional
$2,500 to $5,000. In this analysis, the additional costs of retrofitting a household and upgrading
the electrical panel are not included in the analysis. It is important to emphasize that
implementing electrification measures at the time of building construction can save tho usands
of dollars compared to retrofitting the house at a later point in time. These additional costs will
likely be a significant barrier to those seeking to modify their existing homes to all -electric.
Combining Electrification with On-Site Solar PV Adoption
Residents whose rooftops are suitable for solar could take advantage of the continued declining
costs of solar PV systems and the current availability of net energy metering and federal tax
incentives by installing a solar PV system on-site to meet all or a portion of their load. Figure 5
shows the annualized net cost of ownership of the baseline natural gas technology for each
building appliance, alongside the electric replacement technology using three different sources
for the customer cost of electricity: 1) base case assumptions (Tier 3), 2) the average electricity
retail rate, and 3) the levelized cost of electricity (LCOE) of on -site solar PV. As shown in the
figure, electrification is substantially more expensive when using the Tier 3 retail rate compared
to the average electricity rate. However, when all additional load from electrification is met
from on-site solar PV generation at the LCOE, the cost of electrification drops substantially
$411
$729
$141 $108
$368
$749
$187 $206
$288
$659
$150 $161
$0
$100
$200
$300
$400
$500
$600
$700
$800
An
n
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Figure 4: Impact of Retail Rate Design
Baseline Gas Appliance
Electric Alternative, Base Case (Tier 3)
Electric Alternative, Average Rates
Water Heating Space Heating Stovetop Cooking Clothes Drying
Page 8 of 13
compared to the Tier 3 results, but remains more expensive than the costs using average retail
rates. Therefore, in the near term, given the current electric rate structure and available
incentives, customers can combine electrification with on-site solar PV adoption to make
electrification more cost-effective. However, even if a customer were able to take advantage of
all currently available incentives, if the electric rate structure changes such that the additional
load is charged closer to the average retail rates, then installing on-site solar PV would be more
expensive than meeting the additional load from the grid.
Moreover, the economic and market landscape for on -site solar PV is especially dynamic in the
coming two to three years. Net energy metering incentives are available on a first-come, first-
served basis, and are expected to be fully subscribed in Palo Alto by 2017. Staff will soon
propose a net energy metering successor policy for on -site solar PV installed after the net
energy metering cap has been reached. Federal tax incentives that amount to 30% of the total
system costs for household-owned systems are scheduled to expire at the end of 2016, which
would lead to a substantially higher LCOE for an on-site solar PV system. Changing state and
federal policies will have a substantial impact on the economics of electrification combined
with on-site solar PV adoption, necessitating ongoing reevaluation.
Solar Water Heating: Wet versus Dry
A solar PV system combined with a HPWH (“dry solar water heating”) is more cost-effective
than installing a solar thermal water heating system (“wet solar water heating”). Using the base
case assumptions above, the 20-year cost of ownership for a solar thermal water heating
system with electric back-up is estimated to be $9,000. By contrast, the 20-year net cost of
$411
$729
$141 $108
$368
$749
$187 $206
$288
$659
$150 $161
$316
$683
$162 $175
$0
$100
$200
$300
$400
$500
$600
$700
$800
An
n
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a
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N
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C
o
s
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f
O
w
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r
s
h
i
p
Figure 5: On-site Solar PV Adoption
Baseline Gas Appliance
Electric Alternative, Base Case (Tier 3)
Electric Alternative, Average Rates
Electric Alternative, On-site Solar PV
Water Heating Space Heating Stovetop Cooking Clothes Drying
Page 9 of 13
ownership for retrofitting a home to install a HPWH plus installing one kilowatt of solar PV at
$4.50 per Watt—the amount of capacity needed to provide electricity for all HPWH usage—is
approximately $7,000. Therefore, dry solar water heating is currently more cost-effective in
Palo Alto given available net energy metering and federal incentives.
Citywide Costs of Electrification
Figure 6 shows the annual incremental citywide GHG emission abatement cost, which is the
incremental societal abatement cost plotted against the annual citywide abatement potential
for each end use assuming citywide deployment6. The annual citywide abatement potential
from all single family homes is approximately 57,500 MT of CO2 equivalent (width of horizontal
axis in the figure), accounting for 36% of city-wide GHG emissions from natural gas. The annual
incremental citywide abatement cost, which is the area under each bar, is shown for each end
use. The two end uses with the lowest incremental abatement cost coincidentally have the
greatest abatement potential: water heating and space heating. For the remaining two end
uses, stovetop cooking and clothes drying, the incremental abatement cost is comparatively
high and the annual citywide abatement potential comparatively miniscule. This graph provides
additional support for focusing near-term efforts on water heating and space heating.
6 For example, the $1.1Million/year cost for water heating is derived by multiplying the societal cost of $59/MT
CO2e by the estimated 18,500 MT CO2e of emissions associated with water heating in all approximately 15,000
single family homes each year in Palo Alto.
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
0 10,000 20,000 30,000 40,000 50,000
In
c
r
e
m
e
n
t
a
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$
/
M
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e
Annual Citywide Abatement Potential (MT CO2e)
Figure 6: Annual Incremental Citywide Abatement Cost
Water Heating
$1.1M/year
Space Heating
$3.5M/year
Stovetop Cooking
$0.4M/year
Clothes Drying
$0.4M/year
Page 10 of 13
2013 FUEL-SWITCHING ANALYSIS AND REPORT
This analysis builds on a 2013 analysis evaluating residential fuel-switching options in Palo Alto
(Staff Report 44227). A summary of the primary changes between this analysis and the 2013
version include the following:
All fuel forecasts, operation and maintenance costs, and equipment and installations
costs were updated to reflect current and projected market conditions;
The scope of the analysis was narrowed to include electrification opportunities only;
Air source heat pump clothes dryers were added as a clothes drying technology;
Palo Alto is now participating in the LCFS program and receiving revenue that is
incorporated into the societal perspective;
The natural gas utility is now a covered entity through the California Air Resources
Board cap-and-trade program, so the allowance price is incorporated into the fuel costs ;
and,
A comprehensive scenario analysis was completed and the outcomes illustrated using
“error bars” in the charts to show the range of results (e.g., see Figures 2 and 3).
The results from the 2013 analysis are largely consistent with the updated analysis. Specifically,
compact vehicle electrification is the most cost-effective electrification opportunity from both
the societal and customer perspectives. Of the building appliances, HPWHs are the most cost-
effective electrification option, followed by heat pump space heaters.
The 2013 analysis also incorporated a list of recommendations that were under consideration
for implementation. Four out of the six recommendations have either already been completed
or are in the implementation stage. All six recommendations and their current status are listed
below.
1. Promote the PaloAltoGreen Gas Program
The PaloAltoGreen Gas program launched in January 2015, and as of June 18, 2015, 886
customers have signed up for the program, almost 4% of natural gas customers. The
goal is to achieve program subscription of 20% of natural gas customers by 2020,
representing around 10% of gas load and 16,000 metric tons of GHG emissions
reduction.
2. Participate in the LCFS Program
The City has been participating in the LCFS market since 2014. The revenues received
from this program must be used to benefit EV owners.
3. Secure a Bulk Buy Residential PV Contract
The City is participating in the Peninsula SunShares solar group-buy program. The
registration period began April 1, 2015. During the limited registration period, residents
from all of the nine Bay Area counties can receive a complimentary consultation with the
program’s solar installers and install a discounted solar system that is approximately
15% below the market price.
4. Evaluate Cost-Effectiveness of Leasing an EV/PHEV City Fleet
7 https://www.cityofpaloalto.org/civicax/filebank/documents/38922
Page 11 of 13
In 2015, the City adopted a policy preference for an EV City Fleet, except where not
feasible.
5. Evaluate Rate Tiers for Electric-Only Buildings
The electric utility is currently undertaking a new cost of service analysis. This
recommendation is incorporated into the work plan for the analysis.
6. Consider Fuel-Switching Programs/Incentives for Residential New Construction Projects
This recommendation is still in the process of evaluation.
RECOMMENDATIONS AND NEXT STEPS
The following recommendations are under consideration for implementation by staff. These
recommendations are coordinated with the work plan presented in the accompanying UAC
report, “Review and Approval of the Proposed Work Plan to Evaluate and Implement
Greenhouse Gas Reduction Strategies to Reduce Natural Gas and Gasoline Use through
Electrification”.
1. Educate the Community About Electrification
Electrification’s role in enabling deep GHG emissions reductions is a relati vely recent concept
that lacks broad awareness in the general public. Staff plans to explore and carry out a series of
efforts to educate the community about electrification opportunities. The primary effort
focuses on developing and publicizing a customer-facing web-based resource. The website may
include, for instance, general background information about electrification, educational and
marketing pieces highlighting Palo Alto residents with all -electric homes, and decision-making
tools to aid households in evaluating the suitability and cost-effectiveness of various
electrification options. Additionally, information about electrification can be incorporated into
ongoing energy efficiency workshops, such as the net zero home energy efficiency workshop in
June and the Net Zero Summit that CPAU is hosting in November 2015.
2. Promote HPWHs for Single Family Residences
Because switching to a HPWH was demonstrated to be cost-effective for single family
households, staff plans to identify and pursue opportunities to promote HPWH adoption.
Utilities Marketing Services and Development Center staff interact with residents on a daily
basis and are in a unique position to educate and promote HPWH technology. One way to
achieve this objective, for instance, would be to leverage existing residential efficiency
programs to highlight HPWH benefits and rebate availability when the installation site is
suitable. Development Center staff could evaluate modifications to the building code for wiring
a residential new construction home for HPWHs. Another potential opportunity may be to host
a workshop for water heater installers to share recent developments with the technologies and
all City processes related to permitting, inspection, and rebate application. Furthermore, to
continue to ensure all City staff are up-to-date on the technology, benefits, and programs
opportunities, staff plans to organize periodic joint staff training for Utilities and Development
Center staff on the subject of HPWH technologies for residential applications.
Page 12 of 13
3. Incorporate Electrification Considerations into the Utility Electric Rate Design Analysis
As part of the upcoming electric cost of service analysis, staff plans to review the rate schedules
applicable to customers pursuing electrification and determine if they should be adjusted to
reflect the different characteristics of this customer group , within the context that all rates
must be cost-based.
4. Identify and Eliminate Internal System and Institutional Barriers for Switching to HPWHs
There are a variety of internal system and institutional barriers that impede switching to
HPWHs and increase the “costs” of the process. For instance, currently individual households
must complete an energy efficiency and cost-effectiveness model run to demonstrate cost
effectiveness prior to switching from a natural gas water heater to a HPWH in order to comply
with state building codes. Utilities and Development Center staff have been communicating
with the California Energy Commission (CEC) and other interested stakeholder groups to get an
exemption from this requirement for Palo Alto homes that retrofit to a HPWH with an energy
factor greater than or equal to 2.8. Staff will continue that effort and plans to broaden its
approach to identifying and eliminating barriers by conducting a stakeholder survey to catalog
additional barriers for HPWH deployment and to gather feedback on ways that the City can
eliminate those barriers.
5. Explore Innovative Approaches to Support Electrification
There are a variety of efforts that could help promote electrification in general. For example,
one opportunity may be establishing a net zero home certification program to recognize
households that have eliminated the carbon footprint associated with their home energy use.
Another is developing and distributing a “Home Carbon Report”, analogous to the “Home
Energy Report” and “Home Water Report” currently offered to residential customers. The
“Home Carbon Report” could incorporate information about existing energy efficiency
programs and incentives, as well as marketing focused on Palo Alto homes that have achieved
net zero. Additionally, the up-front costs of electrification are substantial and may be the
primary barrier for many households, especially when taking into account the costs associated
with upgrading the electrical panel. Staff plans to explore potential opportunities to overcome
high up-front costs, including potentially organizing a group-buy program for electrical panel
upgrades and offering on-bill financing.
6. Consider electrification programs/incentives for residential new construction projects
Installing 100% electric appliances in a new home or major remodel has the potential to be
more cost effective than the retrofit scenarios evaluated in this study. With the California state
goal of net zero energy for newly constructed residential buildings by 2020, the City may
consider developing electrification incentives for residential new construction projects.
RESOURCE IMPACT
All resource impacts for the recommendations and next steps described in the prior section are
discussed in detail in the accompanying UAC report, the Phase I work plan in response to the
Colleague’s Memo on fuel-switching.
ATTACHMENT
A. Res idential Electrification Opportunities in Palo Alto: A Cost-Effectiveness Study of
Building Appliances and Passenger Vehicles
PREPARED BY:
REVIEWED BY:
DEPARTMENT HEAD:
AIMEE BAILEY, Resource Planner ~IVA SWAMINATHAN, Senior Resource Planner
'\)JANE RATCHYE, Assistant Director, Resource Management
VA~
Director of Utilities
Page 13of13
RESIDENTIAL ELECTRIFICATION
OPPORTUNITIES IN PALO ALTO
May
2015
A Cost-Effectiveness Study of Building Appliances
and Passenger Vehicles
Resource Management Division, City of Palo Alto Utilities
ATTACHMENT A
Residential Electrification Opportunities in Palo Alto
EXECUTIVE SUMMARY
Over 90% of Palo Alto’s remaining greenhouse gas (GHG) emissions are from the community’s use of
natural gas and transportation fuels. Since Palo Alto’s electric supply is 100% carbon neutral, one way to
reduce GHG emissions further is to replace natural gas appliances (water heaters, space heaters, clothes
dryers, and stoves) with electric appliances or to replace gasoline-powered vehicles with electric vehicles,
which is a type of fuel-switching called “electrification”. This report summarizes an analysis of the cost
effectiveness of electrification opportunities for Palo Alto households by calculating and comparing the
lifetime net cost of ownership for residential natural gas versus electric building appliances and gasoline-
powered versus electric vehicles. The analysis and discussion focuses on single family detached residential
buildings only. Appliances deployed in multifamily and commercial applications are excluded from the
study, because they are unique and varied and do not lend themselves to the relatively straightforward
analysis presented below.
Staff evaluated the cost-effectiveness of electrification from both societal and customer perspectives.
From either perspective, electrification of building appliances and passenger vehicles is considered to be
cost-effective if the lifetime net cost of ownership (including up-front, fuel, operations and maintenance
costs) of the electric technology is lower than that of the fossil fuel technology. The key differences in the
cost-effectiveness calculation for the customer perspective, as opposed to the societal perspective, are the
inclusion of utility incentives for advanced appliances, the use of projected electric and gas retail rates
versus the marginal supply costs, and the exclusion of Low Carbon Fuel Standard revenue and utility
rebate program administration costs. Both societal and customer perspectives assume the same upfront
technology cost which includes equipment cost, tax, installation cost, less any federal and state incentives.
All calculations incorporate a 4% annual discount rate. Staff examined the sensitivity of the results to
changes in a variety of input assumptions, which are shown in the results in the form of error bars.
$59 $97 $142
$388
-$183
$308 $312
($400)
($200)
$0
$200
$400
$600
$800
$/
M
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Figure ES1: Incremental Societal Abatement Cost
Water
Heating
Space
Heating
Stovetop
Cooking
Clothes
Drying
Compact
Vehicle
Mid-Size
Vehicle
Sports Utility
Vehicle
2
Residential Electrification Opportunities in Palo Alto
Figure ES1 shows the incremental cost of GHG emissions abatement in addition to the market price of
carbon embedded in the natural gas and electric cost projections. As shown in Figure ES1, from a societal
perspective, switching from a gasoline to electric vehicle in the compact vehicle class is the only cost-
effective end use for electrification. Although the up-front cost of EVs—both battery electric vehicles
(BEVs) and plug-in hybrid electric vehicles (PHEVs)—is higher than their gasoline counterparts, this initial
price difference is overcome through lower electricity and operating costs over the vehicle lifetime.
Water heaters are the most cost-effective option for electrification of home appliances.
Figure ES2 shows the incremental customer abatement cost. As in the societal perspective, this cost is
referred to as “incremental” because it is above the market price of carbon embedded in the fuel cost
projections. As shown in Figure ES2, compact vehicles, water heating, and space heating all have
negative costs of carbon. The primary reason that the incremental customer abatement cost is higher than
that seen from the societal perspective for some end uses (stovetop cooking, clothes drying, compact
vehicles, sports utility vehicle (SUV)) is because of the assumptions that all additional electricity
consumption from electrification is charged at the highest tier of the residential retail rate
($0.174/kilowatt-hour). Using the lower tier price or the average retail rate would result in more
favorable cost-effectiveness outcomes from the customer perspective.
-$31
$11
$181
$558
-$86
$174
$416
-$400
-$200
$0
$200
$400
$600
$800
$/
M
T
C
O
2
e
Figure ES2: Incremental Customer Abatement Cost
Water
Heating
Space
Heating
Stovetop
Cooking
Clothes
Drying
Compact
Vehicle
Mid-Size
Vehicle
Sports Utility
Vehicle
3
Residential Electrification Opportunities in Palo Alto
Although the incremental societal and customer abatement costs for stovetop cooking and clothes drying
remain comparatively high, the monthly cost over the lifetime of the appliance is relatively modest. The
monthly net costs to a household for all electrification measures are shown in Figure ES3. The sum of all
measures is a net savings of $9. However, there is uncertainty associated with this result, and the net cost
can range from a savings of approximately $60 per month to a net cost of over $60 per month.
The results for building appliance electrification measures use installation cost estimates for a new
construction scenario. However, the additional up-front costs of retrofitting existing buildings are
substantial. For instance, retrofitting a natural gas appliance to an electric one can be approximately
$1,000-$2,000 for each appliance. Many existing buildings may need to upgrade their electrical panels
prior to adopting one or more electrification measure, which can cost an additional $2,500 to $5,000.
Electrical panel upgrades may also be dependent upon, or complicated by, the decision to pursue on-site
storage, solar PV, and/or grid-interactive loads. The additional up-front costs of any pathway for
retrofitting an existing building to an all-electric home are significant and will present a major barrier to
many households. Therefore, taking a systems approach to transitioning a home will present the best
opportunity for cost-effective outcomes.
Results from this analysis support a variety of efforts to encourage electrification that staff is evaluating
now. For example, Utilities and Development Center staff are in a unique position to provide information
and resources to help households as they make decisions about their energy usage and home. A
customer-facing web tool with customizable inputs based on the spreadsheet model underlying this
analysis, for instance, could aid households in their decision-making processes. At the electric utility, staff
is in the planning stages of an electric cost of service analysis. Through that process, staff plans to
evaluate electric rate designs that recognize the unique load profiles of all-electric homes. Staff is also
working to eliminate the internal and institutional barriers that increase the complexity and costs
associated with electrification.
-$4
$2
$4
$8
-$19
-$9
-$100 -$50 $0 $50 $100
Water Heating
Space Heating
Stovetop Cooking
Clothes Drying
Compact Vehicle
Net Total
Figure ES3: Monthly Net Cost of Electrification to
Household
4
Residential Electrification Opportunities in Palo Alto
ABOUT THIS REPORT
Environmental sustainability is identified in the 2011 Utilities Strategic Plan as a primary objective of the
City of Palo Alto Utilities (CPAU), which is an objective driven by our community’s values and
perspectives. As such, this analysis was carried out by the CPAU Resource Management Division to
evaluate the cost-effectiveness of opportunities to lower household GHG emissions. The results described
in this report are intended to help inform policy discussions with City leadership and to aid in decision-
making at the household level for interested community members.
ABOUT THE CITY OF PALO ALTO UTILITIES
CPAU’s history began over one hundred years ago, in 1896, when the water supply system was first
installed. Two years later, the wastewater or sewer collection system came on line in 1898. In 1900, the
municipal electric power system began operation, followed in 1917 by a natural gas distribution
system. Palo Alto is the only city in California to own and operate six essential utility services, including
refuse and storm drain (operated out of Public Works). In 1996, Palo Alto ventured into a new endeavor
with the construction of its dark fiber loop.
CONTACT INFORMATION
Please direct any questions, comments, corrections, or requests to the author of this study, Aimee Bailey,
Resource Planner at the City of Palo Alto Utilities (Aimee.Bailey@cityofpaloalto.org; 650-329-2659).
ACKNOWLEDGEMENTS
City of Palo Alto Utilities would like to recognize and thank Andrea Romano, who was a CPAU summer
intern in 2013 and conducted an initial analysis of residential electrification in Palo Alto. CPAU would
also like to thank the following people for their contributions to this study, in alphabetical order.
Gil Friend, Chief Sustainability Officer at the City of Palo Alto
Indradeep Ghosh, Carbon Free Palo Alto
Bruce Hodge, Carbon Free Palo Alto
Karl van Orsdol, DNV GL
Betty Seto, DNV GL
Bud Starmer, Manager in Development Services at the City of Palo Alto
5
Residential Electrification Opportunities in Palo Alto
TABLE OF CONTENTS
EXECUTIVE SUMMARY ........................................................................................................ 2
ABOUT THIS REPORT ........................................................................................................... 5
ABOUT THE CITY OF PALO ALTO UTILITIES ........................................................................ 5
CONTACT INFORMATION ................................................................................................... 5
ACKNOWLEDGEMENTS ....................................................................................................... 5
TABLE OF CONTENTS .......................................................................................................... 6
CHAPTER 1: INTRODUCTION .............................................................................................. 8
CHAPTER 2: METHODOLOGY .............................................................................................. 9
Section 2.1: Cost-Effectiveness: Societal and Customer Perspectives ............................................ 9
Section 2.2: Base Case Assumptions .................................................................................................. 10
Section 2.3: Sensitivity Analysis .......................................................................................................... 15
CHAPTER 3: RESULTS ......................................................................................................... 18
Section 3.1: Societal Perspective........................................................................................................ 18
Section 3.2: Customer Perspective ..................................................................................................... 24
Section 3.3: Importance of Electric Retail Rate Design .................................................................. 30
Section 3.4: New Construction versus Retrofit Costs ....................................................................... 31
Section 3.5: Combining Electrification with On-Site Solar PV Adoption ..................................... 31
Section 3.6: Solar Water Heating: Wet versus Dry ....................................................................... 33
Section 3.7: Citywide Costs of Electrification ................................................................................... 33
CHAPTER 4: DISCUSSION .................................................................................................. 34
Section 4.1: Study Limitations .............................................................................................................. 34
Section 4.2: Public Health Impacts ..................................................................................................... 35
Section 4.3: Scope 3 GHG Emissions ................................................................................................. 35
CHAPTER 5: CONCLUSIONS .............................................................................................. 36
APPENDIX A: CATALOG OF ALL ASSUMPTIONS .............................................................. 38
Section A.1: General ............................................................................................................................ 38
Section A.2: Fuel Forecasts .................................................................................................................. 39
Section A.3: Building Appliances ........................................................................................................ 43
Section A.4: Passenger Vehicles ......................................................................................................... 45
6
Residential Electrification Opportunities in Palo Alto
Residential Electrification
Opportunities in Palo Alto
A COST-E FFECTIVENESS STUDY OF BUILDING APPLIANCES AND
PASSENGER VEHICLES
7
Residential Electrification Opportunities in Palo Alto
CHAPTER 1: INTRODUCTION
To contribute toward reaching California’s statewide target of reducing greenhouse gas (GHG) emissions
to 80% below 1990 levels by 2050 1, the City of Palo Alto has adopted a suite of aggressive policies.
Some examples of Palo Alto’s policies include:
Adopting a 100% carbon-neutral electric supply portfolio as of 2013 2;
Setting the goal of meeting 4% of electricity needs from local solar generation by 20233;
Establishing building codes with energy efficiency requirements above state standards, including
requiring new construction to be “electric vehicle ready”4; and
Setting the goal of achieving zero waste by 2021 5.
The aforementioned strategies—among many others—have enabled Palo Alto to achieve GHG emissions
reductions of 37% below 1990 levels as of 2014, which outpaces the current statewide trajectory of
achieving 1990 GHG emissions levels by 2020 6. However, achieving even deeper GHG emissions
reductions in Palo Alto and across the state requires additional policies and strategies to be put in place.
In addition to efforts to reduce energy consumption, statewide studies 7 indicate that substantial fuel-
switching to low-carbon electricity in both the transportation and buildings sectors will be necessary to
achieve California’s GHG emissions reductions targets. Now that electric supplies are carbon-neutral,
Palo Alto’s natural gas usage and transportation sectors account for over 90% of the city’s remaining
carbon footprint and present the biggest opportunity for reductions. Furthermore, switching fuel sources
from fossil fuels to electricity, referred to as electrification, allows for immediate elimination of those
associated GHG emissions. Examples of electrification of the transportation sector include, for instance,
changing from gasoline powered to electric vehicles (EVs). In the buildings sector, electrification is
achieved by switching out natural gas appliances for their electric counterparts.
This report focuses exclusively on single family household GHG emissions due to residential appliances
and passenger vehicles. In a single family home, natural gas usage and associated GHG emissions are
due primarily to space heating and water heating, and to a lesser extent stovetop cooking and clothes
drying. GHG emissions due to vehicle transport are attributed to any miles traveled in a household’s
passenger vehicle. This report analyzes the cost-effectiveness—from both the societal and customer
perspectives—of electrification options for households. In single family homes, electric replacement
technologies are considered for household appliances in each of the primary end use applications: space
heating, water heating, stovetop cooking, and clothes drying. The passenger vehicles analysis includes
switching from gasoline powered vehicles to battery electric vehicles (BEVs) and plug-in hybrid electric
vehicles (PHEVs) in the compact, mid-size and sports utility vehicle (SUV) classes. If the lifetime net cost of
ownership of the electric replacement technology is less than the fossil fuel baseline, switching is cost-
effective. The societal perspective results are summarized in an incremental societal abatement cost chart
that compares the incremental cost per metric ton of carbon dioxide equivalent (CO2e) for all of the
1 Assembly Bill 32, http://www.arb.ca.gov/cc/ab32/ab32.htm; Executive order S-3-05, June 2005,
http://gov.ca.gov/news.php?id=1861.
2 Carbon Neutral Plan, http://www.cityofpaloalto.org/civicax/filebank/documents/33220
3 Local Solar Plan, https://www.cityofpaloalto.org/civicax/filebank/documents/39981
4 http://www.cityofpaloalto.org/civicax/filebank/documents/37850
5 http://www.cityofpaloalto.org/civicax/filebank/documents/7100
6 http://www.cityofpaloalto.org/civicax/filebank/documents/46821
7 http://ccst.us/publications/2011/2011energy.php; http://www.ccst.us/news/2012/0921ghg.php
8
Residential Electrification Opportunities in Palo Alto
electrification options. The customer perspective results are summarized in a graph showing the
incremental customer GHG emissions abatement cost for different electrification measures, and a graph
displaying the direct household monthly costs. The results are extrapolated to estimate the societal cost of
citywide deployment. A thorough sensitivity analysis was conducted by modifying input assumptions, the
outcomes from which form the error bars displayed in the results. The results sections shows the impact on
the results of electric retail rate design, retrofitting existing building stock, on-site solar adoption, and two
types of solar water heating. The results are then extrapolated to consider the societal cost of citywide
deployment. The final chapters of the report discuss limitations of the study and conclusions.
CHAPTER 2: METHODOLOGY
Staff computed the lifetime net cost of ownership for each technology by summing the net present value of
all cost and revenue streams. Given that some water heater technologies have different lifetimes (e.g.
tank versus tankless water heaters), for the water heater results, the lifetime net cost was divided by the
expected lifetime of the technology to arrive at the annualized net cost of ownership. If the net cost of
ownership of the electric alternative is lower than that of the baseline fossil-fuel technology, then the
electric alternative is deemed cost-effective for that end use.
Section 2.1: Cost-E ffectiveness: Societal and Customer Perspectives
The lifetime net cost of ownership and resultant cost-effectiveness in this analysis is evaluated from two
different perspectives: the societal perspective and the customer perspective.
The net cost of ownership calculation from the societal perspective evaluates the costs and incentives to
Palo Alto community as a whole, and is typically used in the evaluation of whether the utility should
promote a specific efficiency measure 8. The societal perspective incorporates the up-front purchase and
installation, all ongoing fuel, operation and maintenance costs, and also state and federal rebates and
financial incentives. Rebates and financial incentives from the utility or city government, however, are
excluded, since they are simply shifting costs/benefits within the Palo Alto community. The societal
perspective incorporates the marginal commodity and distribution costs of the underlying fuel sources for
electricity and natural gas. The retail cost of gasoline was used for both the societal and customer
perspectives. For the vehicles analysis, the utility also receives a revenue stream based on the number of
electric vehicles registered in the service territory, pursuant to the California Air Resources Board’s
(CARB’s) Low Carbon Fuel Standards (LCFS) program 9, which is included in the societal calculation 10.
The customer perspective, on the other hand, incorporates all costs and revenues borne by the customer,
which in this case is a Palo Alto household. This includes the up-front purchase and installation and all
ongoing fuel, operation and maintenance costs of the appliance or vehicle. Additionally, it also takes into
account any available rebates and financial incentives offered by the utility, state, and federal
governments. The customer perspective assumes the projected retail cost for the underlying fuel sources,
electricity, natural gas, and gasoline.
8 See the following reference for more information on cost-effectiveness calculation methodologies:
http://www.epa.gov/cleanenergy/documents/suca/cost-effectiveness.pdf.
9 http://www.arb.ca.gov/fuels/lcfs/lcfs.htm
10 Under the state’s LCFS regulations, emission credits are allocated to Palo Alto free of charge based on the
number of EVs registered in Palo Alto. The City plans to monetize these credits and utilize the funds to further
encourage the adoption of EVs in town.
9
Residential Electrification Opportunities in Palo Alto
Table 1 shows a summary of the societal versus customer perspectives.
TABLE 1: SOCIETAL VERSUS CUSTOMER PERSPECTIVES
Category Societal Perspective Customer Perspective
Up-front - Equipment, tax, & installation costs
- Federal incentives
- State incentives
- Utility incentive program administration costs
- Equipment, tax, & installation costs
- Federal incentives
- State incentives
- Utility incentives
Fuel - Marginal supply costs of electricity and
natural gas
- Retail gasoline costs
- LCFS revenue
- Retail electricity, natural gas, gasoline costs
O&M - Equipment O&M costs
- Revenue from grid-interactivity 11
- Equipment O&M costs
- Revenue from grid-interactivity 12
Section 2.2: Base Case Assumptions
Below are summaries of the base case assumptions incorporated in the analysis. An inclusive catalog of
all costs and incentives incorporated in the analysis is included in Appendix A.
Section 2.2.1: General Assumptions
Table 2 summarizes the base case assumptions used for both the building appliances and passenger
vehicles analysis. A 4% discount rate is used for all cost-effectiveness calculations, for both the customer
and societal perspectives 13. The annual inflation rate as measured by the Consumer Price Index (CPI) is
estimated to be 2.5% and is used to escalate specified costs. All fuel-related retail and marginal supply
costs are described, along with how the cost of carbon is calculated for the purposes of calculating the
retail and marginal supply costs of electricity and natural gas.
Environmental costs of GHG emissions of electricity, natural gas and gasoline usage are embedded in the
retail rates and marginal supply costs of fuel based on the cost of carbon allowances traded in the cap-
and-trade program established by CARB 14. The retail rate and marginal supply cost projections
incorporate both revenue to the utility from the allowances that the utility receives and must sell, and also
the allowances that the utility must purchase to cover emissions generated from its own usage. The
allowance price is estimated as the price floor of allowances from the CARB cap-and-trade auction since
the clearing price has been at or near the auction floor price since the auction started. The allowance
price floor is $12.10 per metric tons of CO2e in 2015 and is escalated at 5% plus CPI annually through
2020, and then at CPI thereafter. The resultant abatement costs of shown in the results section are
incremental costs, above the costs the household and society are already paying through the compulsory
participation in the carbon market through the cap-and-trade program. The author chose not to
disentangle the carbon price from the retail rates and marginal supply cost projections in the belief that
the analysis methodology will be more easily adapted by other municipalities and jurisdictions.
11 Included in Scenario 5 only, discussed in Section 2.3: Sensitivity Analysis.
12 Ibid.
13 This is the standard discount rate used by the City of Palo Alto Utilities and is based on the City’s average return
on its portfolio.
14 http://www.arb.ca.gov/cc/capandtrade/capandtrade.htm
10
Residential Electrification Opportunities in Palo Alto
Palo Alto currently 15 has a tiered residential rate structure, where each month, the first 300 kWh of
electricity consumed is charged at $0.095/kWh (Tier 1), the next 300 kWh are charged at $0.13/kWh
(Tier 2), and anything above 600 kWh is charged at $0.174/kWh (Tier 3)16. Given the average monthly
household consumption is over 600 kWh, it is reasonable to assume that any additional load due to
electrification will be in Tier 3 and charged at $0.174/kWh, nearly 50% higher than the average retail
rate. Therefore, the Tier 3 rate is used in the base case scenario. Alternative retail rate assumptions are
explored in the scenario analysis (Section 2.3).
TABLE 2: BASE CASE ASSUMPTIONS, GENERAL
Base Case Assumptions, General
Description Value
Discount rate 4%
Inflation/Consumer Price Index 2.5%
Electricity, retail cost Tier 3 electricity rate, escalated at same rate as average
electric utility rate forecasts
Electricity, marginal supply cost Based on electric marginal supply costs
Natural gas, retail cost Based on average natural gas utility rate forecasts and
market forward price curve of commodity costs
Natural gas, marginal supply cost Based on local transmission costs, distribution system losses,
and market forward price curve of commodity costs
Gasoline cost $3.00/gallon, escalated at 3% annually; used for both
retail/supply cost
Carbon price Price floor of allowances in CARB cap-and-trade carbon
market
Section 2.2.2: Appliance Assumptions
Four end uses are considered for the appliance analysis: water heating, space heating, stovetop cooking,
and clothes drying. For each of the four end uses, a variety of technologies are included in the analysis,
as outlined in Table 3, representing most of the available appliance technologies on the market.
TABLE 3: APPLIANCE TECHNOLOGIES INCLUDED IN THE ANALYSIS
Building Appliances Analysis
Water Heating
Standard Efficiency Natural Gas (EF 0.58)
High Efficiency Natural Gas (EF 0.67)
Condensing High Efficiency Natural Gas (EF 0.82)
Natural Gas Tankless (EF 0.94)
Standard Efficiency Electric Resistance (EF 0.90)
High Efficiency Electric Resistance (EF 0.94)
Electric Tankless (EF 0.99)
Heat Pump Electric (COP 2.45)
15 Current rates have been in effect since July 1, 2009.
16 http://www.cityofpaloalto.org/civicax/filebank/documents/8089
11
Residential Electrification Opportunities in Palo Alto
Building Appliances Analysis
Solar Thermal with Electric Backup
Space Heating
Standard Efficiency Natural Gas (AFUE 80)
High Efficiency Natural Gas (AFUE 95.5)
Standard Efficiency Electric Resistance
Air Source Duct Heat Pump (SEER 16)
Air Source Mini-Split Heat Pump (SEER 16)
Stovetop Cooking
Natural Gas
Electric Resistance
Induction
Clothes Drying
Natural Gas
Electric Resistance
Heat Pump Electric
Calculations for the incremental societal and customer abatement costs use the standard efficiency natural
gas appliance as the baseline and the least cost electric replacement appliance technologies as the
electrification alternatives for each end use, as shown in Table 4. Complete results for the lifetime net cost
of ownership calculations are calculated for each of the technologies listed in Table 3 and displayed in
the results.
TABLE 4: NATURAL GAS APPLIANCES AND ELECTRIFICATION ALTERNATIVES
Building Appliances Analysis
End Use Baseline Appliance Electric Replacement Appliance
Water Heating Standard Efficiency Natural Gas Heat Pump Electric
Space Heating Standard Efficiency Natural Gas Air Source Duct Heat Pump Electric
Stovetop Cooking Standard Efficiency Natural Gas Electric Resistance
Clothes Drying Standard Efficiency Natural Gas Electric Resistance 17
Table 5 lists all base case assumptions for the appliance analysis. Equipment costs are based on local
Home Depot prices collected in April 2014 for all technologies except the solar thermal water heater,
which draws on data from the CPAU rebate program. The installation costs are estimates from speaking
with multiple local installers. The installation costs included are representative of a new construction
scenario. For existing building stock, retrofitting a natural gas appliance to an electric one can incur an
additional $1,000-$2,000 in costs for the electrical work, such as running conduit to the appliance
location. That additional cost is not included in the base case assumptions. Section 3.4 includes further
discussion regarding retrofit installations.
17 From the customer perspective, electric resistance and heat pump electric approximately tied as the least cost
electric replacement technology for clothes drying.
12
Residential Electrification Opportunities in Palo Alto
A detailed table of end use and appliance-specific assumptions – including equipment costs, installation
costs, estimated annual fuel usage, and available incentives – can be found in Appendix A.
TABLE 5: BASE CASE ASSUMPTIONS FOR BUILDING APPLIANCES ANALYSIS
Base Case Assumptions, Building Appliances Analysis
Description Value
Equipment and installation
costs
- Solar thermal water heater costs from CPAU appliance rebate
program
- All other equipment costs from Home Depot quotes, April 2014
- 8.5% sales tax
- $50 - $3,000 installation costs
- Electrical panel upgrade not included
Appliance lifetimes - Water heater, with tank (natural gas and electric): 13 years
- Water heater, no tank (natural gas and electric): 20 years
- Solar thermal water heater with electric backup: 20 years
- Space heater, all technologies: 20 years
- Stove, all technologies: 15 years
- Clothes dryer, all technologies: 16 years
Operations and
maintenance
- $50 annual O&M for solar thermal and tankless water heaters,
escalated annually by CPI
Appliance fuel consumption - Water heater: Federal trade commission energy guide label
- Space heater: EnergyStar furnace calculator 18
- Stove: Four hours of usage weekly for each the small and large
burner sizes
- Clothes dryer: Four hours of usage weekly
Water heater tank capacity - 50 gallons
Space heating capacity - 80,000 BTU or equivalent
Section 2.2.3: Vehicle Assumptions
Four vehicle size classifications were considered for the vehicle electrification analysis: city, compact, mid-
size, and sports utility vehicle (SUV). For three of the four vehicle classes—compact, mid-size, and SUV—
gasoline vehicles are also included in the analysis as gasoline baseline choices. The baselines were chosen
based on a combination of vehicle affordability and popularity and are included to help facilitate
comparison to the battery electric vehicle (BEV) and plug-in hybrid electric vehicles (PHEV) alternatives.
Table 6 outlines the gasoline baseline vehicles and electrification alternatives used for the incremental
societal and customer abatement cost, which were chosen based on the least cost electric alternative
passenger vehicle given base case assumptions.
18 http://www.energystar.gov/buildings/sites/default/uploads/files/Furnace_Calculator.xls?8178-e52c
13
Residential Electrification Opportunities in Palo Alto
TABLE 6: GASOLINE BASELINE VEHICLES AND ELECTRICALTERNATIVE
Vehicle Analysis
Vehicle Class Gasoline Baseline Electric Alternative
Compact Honda Civic Nissan Leaf
Mid-size Toyota Prius Hybrid Ford C-MAX Energi
SUV Toyota RAV4 LE Toyota RAV4 EV
Other vehicles were also analyzed, and results on the net lifetime costs are shown in some results graphs.
Table 7 is a complete list of all vehicles included in the analysis.
TABLE 7: ALL VEHICLES INCLUDED IN THE ANALYSIS
Vehicle Analysis
Make/Model
BMW i3
Chevy Spark
Chevy Volt
Fiat 500e
Ford C-MAX Energi
Ford Focus EV
Honda Civic
Nissan Leaf
Toyota Camry
Toyota Prius Hybrid
Toyota Prius Plug-in
Toyota RAV4 EV
Toyota RAV4 LE
Table 8 shows the base case assumptions for vehicles that are incorporated into the cost of ownership
calculation reported in the results. The base case assumption uses the fair purchase price from Kelley Blue
Book for the Palo Alto zip code “94301” for the vehicle cost. Unlike the manufacturer’s recommended
selling price (MRSP), the fair purchase price takes into account regional sales trends and availability. The
operations and maintenance costs for a gasoline vehicle or PHEV is estimated to be $0.0538 per mile 19,
compared to $0.0410 per mile for a BEV 20. The base case scenario uses an annual mileage of 10,000
and a total vehicle lifetime of 100,000 miles. Assumptions for the electric retail and marginal supply costs
are the same as that used for the appliance analysis. For the vehicle analysis, the LCFS revenues from
electrical vehicles are forecast and incorporated into the societal perspective for all electric vehicle
options.
19 American Automobile Association (AAA) publication, "Your Driving Costs," 2010 Edition
20 AAA maintenance reduced by 28%: DeLuchi, Mark and Lipman, Timothy, An Analysis of the Retail and Life Cycle
Cost of Battery-Powered Electric Vehicles; UC-Davis Institute of Transportation Studies.
http://escholarship.org/uc/item/50q9060k
14
Residential Electrification Opportunities in Palo Alto
The average daily vehicle miles traveled (VMT) is estimated as the annual mileage divided by 365 days
per year, which models usage patterns similar to a commuter vehicle. For all BEVs considered, the electric
range exceeds the daily VMT and charging is assumed to take place at night in Palo Alto. PHEVs were
assumed to operate on a combination of electricity and gasoline, depending on the rated electric range
of the vehicle and average daily vehicle miles travelled21.
A detailed table of vehicle-specific assumptions—including fair purchase price, rated fuel economy,
electric and gasoline ranges, and available incentives—can be found in Appendix A.
TABLE 8: BASE CASE ASSUMPTIONS FOR VEHICLES ANALYSIS
Base Case Assumptions, Vehicles Analysis
Description Value
Equipment costs - Fair purchase price, Kelley Blue Book, Fall 2014
- 8.5% sales tax
- $1,500 for Level 2 charger 22 (BEV and PHEV only)
Operations & Maintenance - $0.0410/mile, escalated annually by CPI (BEV)
- $0.0538/mile, escalated annually by CPI (Gasoline/PHEV)
- Registration and insurance not included
Vehicle lifetime - 100,000 miles
Annual mileage - 10,000 miles
Daily mileage - Annual mileage divided by 365 days
LCFS credit price - 2014 price ($26/credit), escalated at same rate as carbon price
Section 2.3: Sensitivity Analysis
The results of the cost-effectiveness analysis are strongly dependent upon the assumptions used to
calculate the net cost of ownership. In order to evaluate the dependence of the results on the input
assumptions, a sensitivity analysis was carried out for a range of scenarios. All scenarios use the base
case assumptions for each input value except where explicitly noted.
Scenario 1. Base Case: The cost-effectiveness calculations use the base case assumptions
described in the prior section, Section 2.2.
Scenario 2. Average Electricity Rate: Instead of using the Tier 3 electricity rate to calculate the
electricity costs from the customer’s perspective, all usage is the average electric retail rate
escalated over the twenty-year period considered in the analysis, without assuming a specific rate
structure.
Scenario 3. Low Fossil Fuel Prices: Natural gas and gasoline fuel prices are assumed to be
lower than in the base case scenario. Natural gas retail rates and marginal supply costs are
escalated at half of the annual rate of the base case scenario. The price of gasoline is assumed to
be $2 per gallon and escalated at the same annual rate as the base case scenario (3%
annually).
21 For the Chevy Volt, because the electric range exceeds the daily vehicle miles traveled under base case
assumptions, the analysis assumes that an arbitrary 80% of all mileage traveled is in electric mode and the
remainder is in gasoline mode.
22 http://driveclean.ca.gov/pev/Costs/Charging_Equipment.php
15
Residential Electrification Opportunities in Palo Alto
Scenario 4. High Fossil Fuel Prices: Natural gas and gasoline fuel prices are assumed to be high
compared to the base case scenario. Natural gas retail rates and marginal supply costs are
escalated at twice the annual rate of the base case scenario. The price of gasoline is assumed to
be $4 per gallon and escalated at the same annual rate as the base case scenario (3%
annually).
Scenario 5. Grid-Interactivity: This scenario incorporates an additional revenue stream for all
electric water heaters with storage tanks. The additional revenue stream stems from the water
heaters being grid-interactive in order to provide ancillary services via participation in a
California Independent System Operator (CAISO) established market. The annual revenue stream
is estimated at $60 escalated annually by CPI and is added to the net operations and
maintenance costs 23. This revenue stream is added to both the societal and customer perspectives,
assuming a 100% pass-through from CAISO to the customer and zero program administration
costs incurred by the utility. This scenario also assumes that there are no additional capital costs
for the equipment or supporting infrastructure to enable grid-interactivity.
Scenario 6. Everything Favors Electrification: For this scenario, multiple assumptions are
deviated from the base case scenario to all favor electrification. The average electric retail rates
are used. Electric marginal supply costs are held at a constant nominal supply cost for the entire
twenty-year study period. The retail rates and marginal supply costs of natural gas and the price
of gasoline are assumed to be the same as that described in Scenario 4, “High Fossil Fuel Prices”.
The revenue stream for grid-interactive water heaters described in Scenario 5, “Grid-
Interactivity”, is also included.
Scenario 7. Everything Disfavors Electrification: For this scenario, multiple assumptions are
deviated from the base case scenario to all disfavor electrification. Electric retail rates are
escalated at twice the annual rate for the base case scenario. Electric marginal supply costs are
escalated at twice the annual rate for the base case scenario. The retail rates and marginal
supply costs of natural gas and the price of gasoline are assumed to be the same as that
described in Scenario 3, “Low Fossil Fuel Prices”. No revenue stream for grid-interactive water
heaters is incorporated into the calculation.
Scenario 8. On-Site Solar PV: Instead of using the Tier 3 retail electricity rate to calculate the
electricity costs from the customer’s perspective, all usage is assumed to be met with an on-site
solar PV system at a cost equivalent to the levelized cost of electricity from a typical residential
installation, or $0.156 24.
A summary of all scenarios is shown in Table 9. Results from the sensitivity analysis are incorporated
throughout the results, where the highest and lowest values resulting from each scenario comprise the
error bars shown in the figures.
23 http://www.eeh.ee.ethz.ch/uploads/tx_ethpublications/ACEEE2012_Mathieu_fin.pdf
24 LCOE calculation assumes an up-front system cost of $4.00/Watt-DC (pre-incentives), no rebate availability, a
4% discount rate, 30% federal investment tax credit, 1,480 kWh/kW production, 0.5% annual system
degradation, a 25 year useful lifetime, inverter replacement after the 12th year, $0.30/Watt-DC inverter
replacement cost, and 1% annual maintenance costs.
16
TABLE 9: SCENARIOS CONSIDERED IN SENSITIVITY ANALYSIS
Scenario Description Electricity Electricity Natural Gas Natural Gas Gasoline Grid-Interactivity
Retail Supply Retail Supply
1. Base Case: Tier 3 Retail Rates
Marginal
Renewable
Supply Cost
Average Retail
Rates
Marginal
Supply Cost
$3/gallon,
Escalates 3%
Annually
No
2. Average Rate
Average retail rate,
assuming no specific
rate structure
Base Case Base Case Base Case Base Case No
3. Low Fossil Fuel
Prices Base Case Base Case
Low, escalates at
half Base Case
rate
Low, escalates
at half Base
Case rate
Low, $2/gallon
escalates at
Base Case rate
No
4. High Fossil Fuel
Prices Base Case Base Case
High, escalates
at 2X Base Case
rate
High, escalates
at 2X Base
Case rate
High, $4/gallon
escalates at
Base Case rate
No
5. Grid-Interactivity 25 Base Case Base Case Base Case Base Case Base Case
Yes, $60 annually
for electric tank
water heater
6. Everything Favors
Electrification Average retail rate
Low, Constant
nominal price
for 20 years
High, escalates
at 2X Base Case
rate
High, escalates
at 2X Base
Case rate
High, $4/gallon
escalating at
Base Case rate
Yes, $60 annually
for electric tank
water heater
7. Everything
Disfavors
Electrification
High, Tier 3 retail
rate escalates at 2X
Base Case rate
High, escalates
at 2X Base
Case rate
Low, escalates at
half Base Case
rate
Low, escalates
at half Base
Case rate
Low, $2/gallon
escalates at
Base Case rate
No
8. On-Site Solar PV
On-Site Solar PV
LCOE Meets
Additional Load
Base Case Base Case Base Case Base Case No
25 Assumes 100% pass through of revenue from California Independent System Operator to customer
Residential Electrification Opportunities in Palo Alto
CHAPTER 3: RESULTS
This chapter documents the major results from the analysis. Section 3.1 presents the overall results from
the societal perspective in the form of an incremental societal abatement cost curve for each end use. The
results showing the lifetime net cost of ownership comparing all technologies are included by end use.
Section 3.2 presents the overall results from the customer perspective in the form of a graph showing the
incremental customer abatement cost for each electrification measure, and a summary of net monthly
household costs. Figures showing lifetime net cost of ownership are also included for all end uses, for all
technologies. Section 3.3 addresses the importance of electric retail rate design on the cost-effectiveness
outcomes. Section 3.4 discusses new construction versus retrofit installation costs. Section 3.5 investigates
the impact of combining electrification measures with on-site solar PV adoption. Section 3.6 evaluates the
costs and benefits of solar water heating from traditional solar thermal systems versus installing a solar
PV system and retrofitting to a heat pump water heater (HPWH). Finally, Section 3.7 estimates the
societal cost of citywide residential building electrification.
Section 3.1: Societal Perspective
The incremental societal abatement cost curve shown in Figure 1 compares the difference in net costs of
ownership to society of each electrification measure relative to the baseline technology, divided by the
total amount of abated GHG emissions in metric tons of CO2 equivalent. The highest and lowest
incremental abatement cost values resulting from each scenario described in Section 2.3 comprise the
error bars in the figure for each end use.
As shown in Figure 1, water heaters are the best opportunity for appliance electrification followed by
space heating. Although all of the results using the base case assumptions yielded a positive value for the
incremental societal abatement cost, the error bars for water heating extend below zero, meaning under
some conditions there are negative incremental abatement costs. Stovetop cooking and clothes drying are
the two appliance measures that, at current costs, have comparatively high societal abatement costs.
Continued manufacturing and deployment of induction stoves and heat pump clothes dryers may help
lower the up-front costs for those emerging technologies such that they are viable electrification options in
the future.
Figure 1 also shows the results from three passenger vehicle options representative of the compact, mid-
size, and SUV vehicle classes, respectively: (a) switching from a Honda Civic to a Nissan Leaf BEV; (b)
switching from a Toyota Prius Hybrid to a Force C-MAX Energi PHEV; and (c) switching from a Toyota
RAV4 LE to a Toyota RAV4 BEV. Of the three vehicle options described, the compact switching option
results in a negative incremental societal abatement cost. The mid-size and SUV class option resulted in a
significantly larger incremental societal abatement cost. If a household is able to consider a smaller
vehicle class (e.g. moving from an SUV to a mid-size, or from a mid-size to a compact), then significant
cost and GHG emissions savings are likely achievable. Lifetime costs of each individual vehicle options
are included below.
18
Residential Electrification Opportunities in Palo Alto
FIGURE 1: INCREMENTAL SOCIETAL ABATEMENT COST
Besides electrification, there are a variety of other options to mitigate GHG emissions. In 2014, CPAU
launched the PaloAltoGreen Gas program, which is a voluntary offset program for our natural gas utility
customers 26. The current cost of the program is $23/MT CO2e, which is an economic option for reducing
GHG emissions, either as an interim measure for a household waiting to reach the natural end-of-life of
an appliance, or as a primary emission reduction measure for renters who have little control over
appliance choice. CPAU also has ongoing electric and natural gas efficiency programs, which have
resulted in an average cost of $0.048 per every kWh saved from electricity efficiency and a cost of
$0.37 per therm saved from natural gas efficiency. These efficiency programs are cost-effective at the
currently forecasted market price of electricity and natural gas, prices that include the current market
price of carbon as reflected by carbon allowance price under California’s cap and trade program.
Finally, a residential solar PV installation installed within California results in an incremental societal
abatement cost of approximately $344/MT CO2e 27, which is significantly higher than many of the
electrification options. However, installing PV can be cost-effective for households because of net
metering incentives and rebates. It is important to note that because CPAU’s electric supply portfolio is
carbon-neutral, installing rooftop solar PV only displaces utility-scale renewable energy; therefore, the
incremental societal abatement cost is undefined. This number is therefore included as a regional
reference point only.
26 http://www.cityofpaloalto.org/gov/depts/utl/residents/sustainablehome/paloaltogreen/default.asp
27 The value is calculated using the levelized cost of electricity (LCOE) of residential solar divided by the eGRID
CAMX non-baseload emissions rate. See footnote 23 for the LCOE calculation.
$59 $97 $142
$388
-$183
$308 $312
($400)
($200)
$0
$200
$400
$600
$800
$/
M
T
C
O
2
e
Water
Heating
Space
Heating
Stovetop
Cooking
Clothes
Drying
Compact
Vehicle
Mid-Size
Vehicle
Sports Utility
Vehicle
19
Residential Electrification Opportunities in Palo Alto
Figure 2 shows the resultant incremental societal abatement cost curve for each of the scenarios described
in Section 2.3 that are relevant for the societal perspective (Scenarios 2 and 8 only affect the customer
perspective). The maximum and minimum outcomes from the scenario analysis are used for the range of
outcomes depicted as the error bars on the results charts. The difference in outcomes for each
electrification measure is substantial, in some cases spanning hundreds of dollars per MT CO2e. The
spread of the results reflects the sensitivity of the outcome to the many input assumptions incorporated
into the model. Electrification of passenger vehicles are much more sensitive to fossil fuel prices,
compared to building appliances, since fuel costs make up a larger proportion of the overall lifetime
costs.
FIGURE 2: INCREMENTAL SOCIETAL ABATEMENT COST FOR ALL SCENARIOS RELEVANT FOR THE SOCIETAL
PERSPECTIVE
Section 3.1.1: Lifetime Net Cost of Ownership
The lifetime net cost of ownership for all technologies for both building appliances and passenger
vehicles from the societal perspective are shown in the following figures. Because water heater
technologies can have two different expected lifetimes depending on the technology type, the annualized
net cost of ownership is also included for that end use to facilitate comparison.
-$15
$44 $58
$243
-$303
$101
$159
$250
$583
($61)
-$350
-$250
-$150
-$50
$50
$150
$250
$350
$450
$550
$650
$/
M
T
C
O
2
e
Base Case Assumptions
Low Fossil Fuel Prices
High Fossil Fuel Prices
Grid-Interactive Water Heaters
Everything Favors Electrification
Everything Disfavors Electrification
Space Heating
Stovetop Cooking
Clothes Drying
Compact Vehicle Water Heating
20
Residential Electrification Opportunities in Palo Alto
FIGURE 3: LIFETIME NET COST OF OWNERSHIP FOR WATER HEATER TECHNOLOGIES, SOCIETAL
PERSPECTIVE
FIGURE 4: ANNUALIZED NET COST OF OWNERSHIP OF WATER HEATER TECHNOLOGIES, SOCIETAL
PERSPECTIVE
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
Standard
Efficiency
Gas
High
Efficiency
Gas
Cond.
High
Efficiency
Gas
Gas
Tankless
Standard
Efficiency
Electric
High
Efficiency
Electric
Electric
Tankless
Electric
Heat
Pump
Solar
Thermal
Li
f
e
t
i
m
e
N
e
t
C
o
s
t
o
f
O
w
n
e
r
s
h
i
p
Net O&M
Net Fuel
Net Up-front
Tankless water heaters and solar water heaters have an estimated lifetime of 20 years, as opposed to 13.
$207 $210 $250
$212
$487 $518 $481
$288
$601
$0
$100
$200
$300
$400
$500
$600
$700
Standard
Efficiency
Gas
High
Efficiency
Gas
Cond. High
Efficiency
Gas
Gas
Tankless
Standard
Efficiency
Electric
High
Efficiency
Electric
Electric
Tankless
Electric
Heat Pump
Solar
Thermal
An
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N
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C
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s
t
o
f
O
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n
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r
s
h
i
p
21
Residential Electrification Opportunities in Palo Alto
FIGURE 5: LIFETIME NET COST OF OWNERSHIP OF SPACE HEATING TECHNOLOGIES, SOCIETAL PERSPECTIVE
FIGURE 6: LIFETIME NET COST OF OWNERSHIP OF STOVETOP COOKING TECHNOLOGIES, SOCIETAL
PERSPECTIVE
$0
$5,000
$10,000
$15,000
$20,000
$25,000
Gas Standard
Efficiency Furnace
Gas High
Efficiency Furnace
Standard
Efficiency Electric
Air Source Duct
Heat Pump
Air Source Mini-
split Heat Pump
Li
f
e
t
i
m
e
N
e
t
C
o
s
t
o
f
O
w
n
e
r
s
h
i
p
Net O&M
Net Fuel
Net Up-front
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
Gas Stove Electric Stove Induction Stove
Li
f
e
t
i
m
e
N
e
t
C
o
s
t
o
f
O
w
n
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r
s
h
i
p
Net Fuel
Net Up-front
22
Residential Electrification Opportunities in Palo Alto
FIGURE 7: LIFETIME NET COST OF OWNERSHIP FOR CLOTHES DRYING TECHNOLOGIES, SOCIETAL
PERSPECTIVE
FIGURE 8: LIFETIME NET COST OF OWNERSHIP OF PASSENGER VEHICLES, SOCIETAL PERSPECTIVE
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
Gas Clothes Dryer Electric Clothes Dryer Electric HP Clothes Dryer
Li
f
e
t
i
m
e
N
e
t
C
o
s
t
o
f
O
w
n
e
r
s
h
i
p
Net Fuel
Net Up-front
$0.00
$10,000.00
$20,000.00
$30,000.00
$40,000.00
$50,000.00
$60,000.00
Chevy
Spark
EV
Fiat
500e
BMW
i3
Honda
Civic
Chevy
Volt
Ford
Focus
EV
Nissan
Leaf
Toyota
Camry
Toyota
Prius
Hybrid
Ford C-
MAX
Energi
Toyota
Prius
PHEV
Toyota
RAV4
LE
Toyota
RAV4
EV
Li
f
e
t
i
m
e
N
e
t
C
o
s
t
o
f
O
w
n
e
r
s
h
i
p
Net O&M
Net Fuel
Net Up-front
Compact Mid-Size SUV City
23
Residential Electrification Opportunities in Palo Alto
Section 3.2: Customer Perspective
FIGURE 9: INCREMENTAL CUSTOMER ABATEMENT COST
This section discusses the results from a customer perspective. As discussed in Chapter 2, the key
differences between calculating the customer perspective compared to the societal perspective are
including the utility incentives for advanced technologies, excluding rebate program administration costs,
using projected retail rates for electricity and natural gas instead of the marginal supply costs, and
excluding the LCFS credit. Both the societal and customer perspectives include the up-front purchase costs
(equipment, tax, and installation) and any federal and state incentives.
The incremental customer abatement cost shown in Figure 9 compares the difference in net costs of
ownership to the customer of each electrification measure relative to the baseline technology, divided by
the total amount of abated GHG emissions in metric tons of CO2 equivalent. The highest and lowest
abatement cost values resulting from each scenario described in Section 2.3 comprise the error bars in
the figure for each electrification measure.
Of the building appliance options, electrification of water heating has a negative cost of carbon using
base case assumptions. Therefore, households can save both carbon and money by electrification for this
end use. Space heating is not far behind. The incremental customer abatement cost for the electrification
of stovetop cooking and clothes drying, similar to the societal perspective, are significantly higher at
current costs. Of the vehicle classes considered, switching from a compact gasoline vehicle to a similarly-
sized BEV also results in a negative abatement cost to the customer, while switching from a gasoline to a
PHEV or BEV within the mid-size and SUV vehicle classes remain positive. As mentioned in the previous
-$31
$11
$181
$558
-$86
$174
$416
-$400
-$200
$0
$200
$400
$600
$800
$/
M
T
C
O
2
e
Water
Heating
Space
Heating
Stovetop
Cooking
Clothes
Drying
Compact
Vehicle
Mid-Size
Vehicle
Sports Utility
Vehicle
24
Residential Electrification Opportunities in Palo Alto
section, if households are able to switch to smaller vehicle class, the cost-effectiveness and resultant
incremental customer abatement cost can be lower than indicated in Figure 9.
FIGURE 10: INCREMENTAL CUSTOMER ABATEMENT COST FOR ALL SCENARIOS
Figure 10 shows the resultant incremental customer abatement cost curve for all scenarios described in
Section 2.3. The maximum and minimum outcomes from the scenario analysis for each end use are used
for the range of outcomes depicted as the error bars throughout the report. Only the compact vehicle
results are included for clarity. As was the case in the societal perspective, the difference in outcomes for
each electrification measure are substantial, in some cases spanning hundreds of dollars per MT CO2e.
The spread of the results reflects the sensitivity of the outcome to the many input assumptions
incorporated into the model.
Similar to the societal perspective, electrification of passenger vehicles are much more sensitive to fossil
fuel prices, compared to building appliances, since fuel costs make up a larger proportion of the overall
lifetime costs. The additional revenue provided for grid-interactive water heaters make the cost-effective
outcome more favorable for that end use. The most notable trend is that changing the rate structure so
that the additional electricity consumption is met at a cost equal to the average electricity rates (Scenario
2: Average Electricity Rates) can result in substantially lower GHG emission abatement costs and is the
dominating factor driving the results in the Scenario 6: Everything Favors Electrification.
Under the current rate structure, installing solar on-site combined with net metering (Scenario 8: On-Site
Solar) is another opportunity to reduce the costs of electrification to the household. However, if the rate
-$400
-$200
$0
$200
$400
$600
$800
$/
M
T
C
O
2
e
Base Case Assumptions
Average Electricity Rates
Low Fossil Fuel Prices
High Fossil Fuel Prices
Grid-Interactive Water Heaters
Everything Favors Electrification
Everything Disfavors Electrification
On-Site Solar
Water Heater Space Heater Oven/Stove Clothes Dryer Compact Vehicle
25
Residential Electrification Opportunities in Palo Alto
structure changes in the future, on-site solar may turn out to be more expensive than meeting the
additional electricity needs from the grid.
Figure 11 shows the monthly net cost to a household for each electrification measure, plus the net total. As
shown in the figure, the monthly net cost to a household is -$9 (a savings of $9 per month) using the base
case assumptions, although the scenario analysis results in error bars with a range of over $100.
FIGURE 11: MONTHLY NET COST OF ELECTRIFICATION TO HOUSEHOLD
Section 3.2.1: Lifetime Net Cost of Ownership
The lifetime net cost of ownership for all technologies considered for both building appliances and
passenger vehicles from the customer perspective are shown in the following figures. As in the Section
3.1.1, because water heater technologies can have two different expected lifetimes depending on the
technology type, the annualized net cost of ownership is included for that end use to facilitate
comparison.
-$4
$2
$4
$8
-$19
-$9
-$100 -$50 $0 $50 $100
Water Heating
Space Heating
Stovetop Cooking
Clothes Drying
Compact Vehicle
Net Total
26
Residential Electrification Opportunities in Palo Alto
FIGURE 12: LIFETIME NET COST OF OWNERSHIP OF WATER HEATING TECHNOLOGIES, CUSTOMER
PERSPECTIVE
FIGURE 13: ANNUALIZED NET COST OF OWNERSHIP OF WATER HEATING TECHNOLOGIES, CUSTOMER
PERSPECTIVE
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
Standard
Efficiency
Gas
High
Efficiency
Gas
Cond.
High
Efficiency
Gas
Gas
Tankless
Standard
Efficiency
Electric
High
Efficiency
Electric
Electric
Tankless
Electric
Heat
Pump
Solar
Thermal
Li
f
e
t
i
m
e
N
e
t
C
o
s
t
o
f
O
w
n
e
r
s
h
i
p
Net O&M
Net Fuel
Net Up-front
Tankless water heaters and solar water heaters have an estimated lifetime of 20 years, as opposed to 13. Tankless water heaters and solar water heaters have an estimated lifetime of 20 years, as opposed to 13.
$411 $378 $380
$331
$775 $794
$688
$368
$498
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
Standard
Efficiency
Gas
High
Efficiency
Gas
Cond. High
Efficiency
Gas
Gas
Tankless
Standard
Efficiency
Electric
High
Efficiency
Electric
Electric
Tankless
Electric
Heat Pump
Solar
Thermal
An
n
u
a
l
i
z
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d
N
e
t
C
o
s
t
o
f
O
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n
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r
s
h
i
p
27
Residential Electrification Opportunities in Palo Alto
FIGURE 14: LIFETIME NET COST OF OWNERSHIP OF SPACE HEATING TECHNOLOGIES, CUSTOMER
PERSPECTIVE
FIGURE 15: LIFETIME NET COST OF OWNERSHIP OF STOVETOP COOKING TECHNOLOGIES, CUSTOMER
PERSPECTIVE
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
Gas Standard
Efficiency Furnace
Gas High
Efficiency Furnace
Standard
Efficiency Electric
Air Source Duct
Heat Pump
Air Source Mini-
split Heat Pump
Li
f
e
t
i
m
e
N
e
t
C
o
s
t
o
f
O
w
n
e
r
s
h
i
p
Net O&M
Net Fuel
Net Up-front
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
Gas Stove Electric Stove Induction Stove
Li
f
e
t
i
m
e
N
e
t
C
o
s
t
o
f
O
w
n
e
r
s
h
i
p
Net Fuel
Net Up-front
28
Residential Electrification Opportunities in Palo Alto
FIGURE 16: LIFETIME NET COST OF OWNERSHIP OF CLOTHES DRYING TECHNOLOGIES, CUSTOMER
PERSPECTIVE
FIGURE 17: LIFETIME NET COST OF OWNERSHIP OF PASSENGER VEHICLES, CUSTOMER PERSPECTIVE
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
Gas Clothes Dryer Electric Clothes Dryer Electric HP Clothes Dryer
Li
f
e
t
i
m
e
N
e
t
C
o
s
t
o
f
O
w
n
e
r
s
h
i
p
Net Fuel
Net Up-front
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
Chevy
Spark
EV
Fiat
500e
BMW
i3
Honda
Civic
Chevy
Volt
Ford
Focus
EV
Nissan
Leaf
Toyota
Camry
Toyota
Prius
Hybrid
Ford C-
MAX
Energi
Toyota
Prius
PHEV
Toyota
RAV4
LE
Toyota
RAV4
EV
Li
f
e
t
i
m
e
N
e
t
C
o
s
t
o
f
O
w
n
e
r
s
h
i
p
Net O&M
Net Fuel
Net Up-front
Compact Mid-Size SUV City
29
Residential Electrification Opportunities in Palo Alto
Section 3.3 : Importance of Electric Retail Rate Design
The results shown in Section 3.2 utilize the Tier 3 retail rate as the base case assumption for the 20-year
time period of the analysis. Nevertheless, the electric retail rate structure can change over time, and may
have a drastic impact on the cost-effectiveness of electrification. Palo Alto currently has a tiered
residential rate structure with no fixed or minimum charge, where each month, the first 300 kWh of
electricity consumed is charged at $0.095/kWh (Tier 1), the next 300 kWh are charged at $0.13/kWh
(Tier 2), and anything above 600 kWh is charged at $0.174/kWh (Tier 3)28. Given that the average
monthly household consumption is over 600 kWh, it is reasonable to assume that any additional load due
to electrification will be in Tier 3 and charged at $0.174/kWh, which is nearly 50% higher than the
average retail rate. This is why the Tier 3 rate was used as the base case assumption.
FIGURE 18: ANNUALIZED NET COST OF OWNERSHIP FOR EACH APPLIANCE END USE COMPARING THE
BASELINE APPLIANCE AND ELECTRIC ALTERNATIVE USING BASE CASE ASSUMPTIONS (TIER 3 RATES) TO
THE ELECTRIC ALTERNATIVE USING AVERAGE ELECTRIC RATES, CUSTOMER PERSPECTIVE
To demonstrate the impact of electric rate structure on the cost-effectiveness of electrification, Figure 18
shows the annualized net cost of ownership for the baseline natural gas appliances and the electric
alternatives for each building end use. In addition to the base case assumptions, the annualized net cost
of ownership of the electric alternative is also calculated using the average retail electricity rate to meet
the additional electric load (Scenario 2). As shown in the figure, using the average electric retail rate
results in substantially lower costs, widening the gap between the electric alternative and the baseline
appliance for water heating and space heating. Results are qualitatively similar for passenger vehicle
electrification. The results emphasize the importance of considering the impact that the rate structure may
have on electrification during rate design analyses and decision-making.
28 http://www.cityofpaloalto.org/civicax/filebank/documents/8089
$411
$729
$141 $108
$368
$749
$187 $206
$288
$659
$150 $161
($50)
$50
$150
$250
$350
$450
$550
$650
$750
$850
An
n
u
a
l
i
z
e
d
N
e
t
C
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f
O
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n
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r
s
h
i
p
Baseline Gas Appliance
Electric Alternative, Base Case (Tier 3)
Electric Alternative, Average Rates
Water Heating Space Heating Stovetop Cooking Clothes Drying
30
Residential Electrification Opportunities in Palo Alto
Other aspects of rate structures may also have an impact on electrification decisions. These include
whether a fixed or minimum charge is added to the rate structure. Any revenue collected from fixed or
minimum charges would reduce the revenue that must be collected by the commodity-based charges. A
relatively high electric fixed charge, for example, could reduce the commodity charge and make
electrification more attractive. The structure of natural gas rates could impact the cost-effectiveness from
the customer perspective as well. Currently, residential gas rates have a fixed charge and a two-tiered
commodity charge. If there were no fixed charges, the average commodity charges would increase, a
change that would encourage electrification. Of course, any changes to rates and rate structures must
adhere to strict cost of service methodologies. These alternative rate structures were not included in this
analysis.
Section 3.4 : New Construction versus Retrofit Costs
Results displayed for building appliance electrification measures incorporate the installation cost
estimates for a new construction. However, the up-front costs of retrofitting an existing building from a
natural gas appliance to an electric one can be substantially higher. The lifetime net cost of ownership is
estimated to be $1,000-$2,000 more expensive for retrofitting each appliance, which is the cost
associated with wiring and running conduit from the electrical panel to the appliance location. If the extra
cost for retrofitting the household for electrification is monetized over a single lifetime of the new electric
appliance, the resultant incremental societal abatement cost can be over twice as expensive for some
measures. However, the wiring and conduit will presumably be used for decades, over the course of
multiple appliance lifetimes. Therefore, in this analysis, the additional costs of retrofitting a household are
assumed to be treated as a general household investment and excluded from the lifetime net cost of
ownership calculations. Notwithstanding, it is important to emphasize that implementing electrification
measures at the time of building construction can save thousands of dollars compared to retrofitting the
household at a later point in time.
Additionally, many existing homes may need to upgrade their electrical panels prior to retrofitting for
one or more electrification measures. Costs of upgrading from a 60 Amp to a 200 Amp service can
range from $2,500 to $5,000 29, depending on the configuration of the household and permitting fees,
among other factors. The costs associated with upgrading an electrical panel were also not incorporated
into overall results, but are considerable and could present a significant hurdle for many households
considering electrification.
Section 3.5 : Combining Electrification with On-Site Solar PV Adoption
As demonstrated in Section 3.3, the cost-effectiveness of electrification from the customer perspective can
depend drastically on the specific rate structure in place for retail electricity customers. The outcome of
the cost-effectiveness calculation could even switch from cost-effective to not cost-effective, when the rate
structure is tiered and all additional load is met at a higher tiered rate. Another option for customers with
adequate solar access would be to take advantage of the continued declining costs of solar PV systems,
net energy metering, and federal tax incentives30 by installing a solar PV system on-site to meet all or a
portion of their load.
29 Estimates are from quotes from multiple electricians serving the Palo Alto area.
30 Net energy metering allows electric retail customers to subtract total generation from on-site solar PV system
from their total consumption each month, and carry over any surplus generation through a 12-month period of time.
31
Residential Electrification Opportunities in Palo Alto
Figure 19 shows the annualized net cost of ownership between the baseline technology and the electric
replacement technology for each building appliance using three different sources for the customer cost of
electricity: 1) base case assumptions (Tier 3 rate), 2) average electricity retail rate, and 3) the levelized
cost of electricity (LCOE) of on-site solar PV. As shown in the figure, electrification is substantially more
expensive when using Tier 3 retail rates compared to the average electricity rate, as already discussed
in Section 3.3. However, when all additional load from electrification is met from on-site solar PV
generation at the LCOE, the cost of electrification drops substantially, although remains higher than the
base case assumptions. Therefore, in the near term, given the current electric rate structure and available
incentives, customers can combine electrification with on-site solar PV adoption to make electrification
more cost-effective. However, even if a customer were able to take advantage of all currently available
incentives, if the electric rate structure changes such that the additional load is charged closer to the
average retail rates, then installing on-site solar PV could be more expensive than meeting the additional
load from the grid. Moreover, the economic and market landscape for on-site solar PV is especially
dynamic in the coming two to three years. Net energy metering incentives are available on a first-come,
first-served basis, and are expected to be fully subscribed in Palo Alto by 2017. Staff will soon propose
a net energy metering successor policy for on-site solar PV installed after the net energy metering cap
has been reached. Federal tax incentives that amount to 30% of the total system costs for household-
owned systems are scheduled to expire at the end of 2016, which would lead to a substantially higher
LCOE for an on-site solar PV system. Changing state and federal policies will have a substantial impact
on the economics of electrification combined with on-site solar PV adoption, necessitating ongoing
reevaluation.
FIGURE 19: ANNUALIZED NET COST OF OWNERSHIP COMPARING THREE DIFFERENT CUSTOMER
ELECTRICITY COST ASSUMPTIONS: THE TIER 3 RATE (BASE CASE ASSUMPTION), AN AVERAGE ELECTRICITY
RATE, AND ON-SITE SOLAR PV ADOPTION
$411
$729
$141 $108
$368
$749
$187 $206
$288
$659
$150 $161
$316
$683
$162 $175
$0
$100
$200
$300
$400
$500
$600
$700
$800
An
n
u
a
l
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d
N
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C
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s
t
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f
O
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r
s
h
i
p
On-site Solar PV Adoption
Baseline Gas Appliance
Electric Alternative, Base Case (Tier 3)
Electric Alternative, Average Rates
Electric Alternative, On-site Solar PV
Water Heating Space Heating Stovetop Cooking Clothes Drying
32
Residential Electrification Opportunities in Palo Alto
Section 3.6 : Solar Water Heating: Wet versus Dry
Because of the City’s urban density and tree canopy, many residents in Palo Alto may only have enough
roof space with adequate solar resources to either install a solar thermal system or a solar PV system.
Furthermore, the price of solar PV systems has dropped so dramatically in recent years compared to the
relatively stagnant price for solar thermal water heating systems, many studies have claimed that a solar
PV system combined with an electric HPWH (aka “dry solar water heating”) is more cost-effective than
installing a solar thermal water heating system (aka “wet solar water heating”).
Using the base case assumptions, staff compared the 20-year cost of wet versus dry solar water heating
in Palo Alto. The 20-year cost for a solar thermal water heating system with electric back-up is estimated
to be approximately $9,000. By contrast, the 20-year cost for retrofitting a home to install a HPWH plus
installing one kilowatt of solar PV at $4.00 per Watt-DC and taking advantage of net metering
incentives – the amount of capacity needed to provide electricity for all HPWH usage – is approximately
$7,000. Both estimates include all current incentives offered by the utility, state, and federal government.
Using these assumptions, dry solar water heating is more cost-effective for Palo Alto households.
Section 3.7 : Citywide Costs of Electrification
FIGURE 20: ANNUAL INCREMENTAL CITYWIDE ABATEMENT COST
Figure 20 shows the incremental societal abatement cost plotted against the annual citywide abatement
potential for each end use 31. The annual citywide abatement potential from all single family homes is
approximately 57,500 MT of CO2 equivalent (width of horizontal axis in the figure), accounting for 36%
31 Citywide residential GHG emissions by end use are estimated to be as follows: water heating, 18,500 MT;
space heating, 35,500 MT; stovetop cooking, 2,500 MT; and clothes drying, 1,000 MT. The estimates were based
on state-wide estimates through the California Residential Appliance Saturation Survey, which was then adjusted
for Palo Alto. http://www.energy.ca.gov/2010publications/CEC-200-2010-004/CEC-200-2010-004-ES.PDF
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
0 10,000 20,000 30,000 40,000 50,000
In
c
r
e
m
e
n
t
a
l
$
/
M
T
C
O
2
e
Annual Citywide Abatement Potential (MT CO2e)
Water Heating
$1.1M/year
Space Heating
$3.5M/year
Stovetop Cooking
$0.4M/year
Clothes Drying
$0.4M/year
33
Residential Electrification Opportunities in Palo Alto
of city-wide GHG emissions from natural gas. The annual incremental citywide abatement cost, which is
the area under each bar, is shown in the white text box by each end use. The two end uses with the
lowest incremental abatement cost coincidentally have the greatest annual citywide abatement potential
are water heating and space heating. For the remaining two end uses, stovetop cooking and clothes
drying, the incremental abatement cost is comparatively high and the annual citywide abatement
potential comparatively miniscule. This graph provides additional support for focusing near-term efforts
on water heating and space heating.
GHG emissions abatement from the electrification of vehicles driving into and out of Palo Alto was
excluded from Figure 20. Even though vehicles emissions are substantial 32 and electrification to compact
vehicles was demonstrated to be cost-effective, there are many other factors that influence a household’s
vehicle purchase, including occupational needs, lifestyle choices, and aesthetics. In light of these additional
factors that complicate decision-making related to purchasing a vehicle, transportation was excluded
from Figure 20. It is also worth noting that novel business models are emerging offering “mobility as a
service”, which may eventually render individual household vehicle ownership obsolete.
As discussed in multiple sections throughout this report, the descriptor “incremental” refers to the fact that
the carbon costs associated with California’s compulsory cap-and-trade market are already embedded
into the electric and natural gas costs, which contribute to the total lifetime operation costs. Therefore, the
costs shown in Figure 20 are additional to the existing costs to society through participation in that
market.
Also it is important to note that the retail rate projections for the electric and natural gas utilities are
based on load forecasts that continue historical consumption trends; however, citywide electrification of
multiple end uses would change load forecasts significantly, impacting utility rates. For illustrative
purposes, if natural gas consumption decreases substantially, the fixed costs associated with operating
the natural gas utility will need to be recovered through a lower volume of sales, causing average
natural gas rates to increase. The impact of alternative load forecasts on retail rate projections is not
accounted for in the data underlying Figure 20. The extent to which large-scale electrification could
impact retail rate projections and overall societal costs of GHG emission abatement is the subject of
ongoing analysis.
CHAPTER 4: DISCUSSION
Section 4.1: Study Limitations
Although the author aspired to be as comprehensive as possible, there remain a variety of limitations to
this study. For instance, many viable technologies were excluded from the analysis. Ground source heat
pumps were not examined. Combined air source heat pump systems for both space and water
heating/cooling – as opposed to separate stand-alone units for each end-use – were also not included.
Distributed storage and non-solar distributed generation were also not considered.
Another limitation of the study is that the installation cost estimates for new construction and retrofit
scenarios depend significantly on the configuration of the household. Installation costs could easily be
twice as much than the estimates used in this analysis, for example if the location of the electrical panel is
32 Estimated at 335,000 MT CO2e annually, http://www.cityofpaloalto.org/civicax/filebank/documents/46821
34
Residential Electrification Opportunities in Palo Alto
very far away from the appliance or if household ducts need to be modified. However, it is also possible
for installation costs to be cheaper on a per-appliance basis for a household that retrofits multiple
appliances at the same time, since a better price could be negotiated and a single permit may cover all
the installation work. Ultimately, installation costs that are considered typical by local installers are used
in the analysis, and variation in the installation costs are not accounted for in the scenario analysis.
Although it is not a limitation per se, the author wishes to emphasize that the cost-effectiveness
calculations are heavily affected by the twenty-year forecasts for the price of electricity, natural gas,
and gasoline, which are historically challenging to forecast. The wide range of outcomes depicted by
error bars on the results charts are more significant than the values resulting from the base case
assumptions alone.
Section 4.2 : Public Health Impacts
Costs for negative externalities associated with climate change are embedded in the analysis through the
cost of carbon via the carbon allowance price from the cap-and-trade program established by CARB.
However, there are also other notable air-pollution impacts that are not addressed in the analysis.
Significant reductions in negative public health impacts from air pollution can be achieved through
lowering fossil fuel usage, which is a co-benefit beyond mitigating climate change by limiting the amount
of GHG emissions entering the atmosphere. For instance, natural gas stoves used for cooking emit air
pollutants including nitrogen dioxide (NO2), carbon monoxide (CO), and formaldehyde (HCHO), which
can increase health risks. Recent research from Lawrence Berkeley National Laboratory shows that
households often use natural gas stoves for cooking without concurrently using a range hood for
ventilation, exposing an estimated 12 million Californians to concentrations of pollutants that exceed
health-based standards 33,34. Switching from a natural gas stove to an electric replacement technology
would eliminate any possible negative public health impact associated with higher indoor air pollution
levels due to vent hood usage behavior.
Vehicles powered by gasoline and diesel also have substantial negative public health impacts due to air
pollution. According to the California EPA’s “Fuels and Your Health” fact sheet35, 90% of Californians
breathe unhealthy air, attributed primarily to motor vehicles. CARB estimates that about 70% of the
cancer risk that the average Californian faces from breathing toxic air pollutants stems from diesel
exhaust particles. Electrification of the transportation sector—motor vehicles specifically—will not only
enable California to reach deep GHG emissions reductions targets necessary to mitigate climate change,
but a co-benefit will be reducing the negative health impacts of air pollution attributed to motor vehicle
usage.
Section 4.3 : Scope 3 GHG Emissions
This analysis is concerned exclusively with direct GHG emissions from sources that are owned or
controlled by Palo Alto and indirect GHG emissions resulting from the generation of electricity off-site but
purchased by Palo Alto, which are referred to as Scope 1 and Scope 2 GHG emissions, respectively 36.
However, these GHG emissions likely account for less than half of the total GHG emissions of a typical
household in Palo Alto when including Scope 3 GHG emissions, which are indirect GHG emissions
33 http://ehp.niehs.nih.gov/1306673/
34 Mullen NA, Li J, Singer BC. 2012. Impact of Natural Gas Appliances on Pollutant Levels in California homes.
LBNL-5970e. Berkeley, CA: Lawrence Berkeley National Laboratory.
35 http://oehha.ca.gov/public_info/facts/pdf/fuels4-02.pdf
36 http://www.epa.gov/greeningepa/glossary.htm
35
Residential Electrification Opportunities in Palo Alto
associated with Palo Alto community’s activities and consumption patterns. Examples of Scope 3 GHG
emissions include, for instance, those associated with flying, diet, and recycling and waste.
Although emissions can vary greatly from household to household depending on a variety of lifestyle
choices, Figure 21 is an estimated breakdown of annual greenhouse gas emissions for a single family
household in Palo Alto for three additional categories of Scope 3 GHG emissions (flying, diet, and
recycling and waste). For the example household, the total greenhouse gas emissions are 22.2 metric tons
(MT) of CO2 equivalent per year. Contributions are estimates compiled from an on-line carbon calculator
tool 37 and scaled using Palo Alto’s average household size of 2.41 people 38. As shown in the figure,
emissions resulting from an omnivorous diet and modest flying already account for over 50%. This pie
chart does not even attempt to quantify many types of Scope 3 GHG emissions associated with non-diet
consumption, such as the GHG emissions imbedded in personal electronics. Motivated households may
also consider changes in their lifestyle to reduce Scope 3 emissions, which could also have a substantial
GHG emissions reduction impact, commensurate to the choices discussed in this report.
FIGURE 21: ESTIMATED ANNUAL HOUSEHOLD GREENHOUSE GAS EMISSIONS IN CO2 EQUIVALENT (MT)
CHAPTER 5: CONCLUSIONS
Currently, the vast majority of households include large natural gas appliances. Results from this analysis
support a variety of efforts to encourage electrification that staff is in the process of evaluating now. For
37 http://www.nature.org/greenliving/carboncalculator/index.htm; Lifestyle assumptions related to travel included
that the household travels 10,000 miles and takes 2 long flights and 5 short flights annually. The household is also
assumed to be omnivorous.
38 Average household size from 2010 census data, http://www.bayareacensus.ca.gov/cities/PaloAlto.htm
Vehicle Transport
5.1 (23%)
Flying
4.7 (21%)
Diet
7.6 (34%)
Recycling & Waste
1.8 (8%)
Space Heating
1.7 (8%)
Water Heating
1.0 (5%)
Clothes Drying
0.2 (1%)
Stovetop Cooking
0.2 (1%)
Natural Gas
3.06 (14%)
36
Residential Electrification Opportunities in Palo Alto
example, Utilities and Development Center staff are in a unique position to provide information and
resources to help households as they make decisions about their energy usage and home. A customer-
facing web tool with customizable inputs based on the spreadsheet model underlying this analysis, for
instance, could aid households in their decision-making processes. At the electric utility, staff is in the
planning stages of an electric cost of service analysis to evaluate alternative rate structures and to
increase rates in 2016 (electric rates were last increased in 2009). Through that process, staff plans to
evaluate electric rate designs that recognize the unique load profiles of all-electric homes. A third
example is working to eliminate the internal and institutional barriers that increase the complexity and
costs associated with electrification, such as clarity on related permitting and electric service processes.
Using the average lifetimes of building appliances shown in Section 2.2.2, on average, all single family
residential building appliances will turnover within a 20-year timeframe. Palo Alto could consider setting
an annual goal of electrifying 5% of natural gas water heaters to HPWHs, which would facilitate
converting most homes to electric water heating by 2030.
To reiterate, this analysis used installation cost estimates for a new construction scenario when calculating
the lifetime costs for building appliances. However, the additional up-front costs of retrofitting existing
buildings are substantial. For instance, retrofitting a natural gas appliance to an electric one can be
approximately $1,000-$2,000 for each appliance. Many existing buildings may need to upgrade their
electrical panels prior to adopting one or more electrification measure, which can cost an additional
$2,500 to $5,000. Electrical panel upgrades may also be dependent upon or complicated by the
decision to pursue on-site storage, solar PV, and/or grid-interactive loads. The additional up-front costs
of any pathway for retrofitting an existing building to an all-electric home are significant and will
present a major barrier to many households. Therefore, taking a systems approach to transitioning a
home will present the best opportunity for cost-effective outcomes.
37
Residential Electrification Opportunities in Palo Alto
APPENDIX A: CATALOG OF ALL ASSUMPTIONS
Section A .1: General
Description Value
Number of members in household39 2.41
Sales tax (%) 8.5%
Discount rate 4.0%
CO2 emissions from natural gas usage (MT/therm)40 0.005302
CPI 2.5%
Annual O&M cost escalation (%) CPI
Vehicle O&M – BEV $0.0410/mile
Vehicle O&M - Gasoline/PHEV $0.0538/mile
Vehicle lifetime (miles) 100,000
Annual distance traveled (miles) 10,000
Annual LCFS credits per BEV in Palo Alto 2.3
Carbon intensity of gasoline (MT/gallon)41 0.008887
39 Average household size from 2010 census data, http://www.bayareacensus.ca.gov/cities/PaloAlto.htm
40 http://www.epa.gov/cleanenergy/energy-resources/refs.html
41 http://www.epa.gov/cleanenergy/energy-resources/refs.html
38
Residential Electrification Opportunities in Palo Alto
Section A .2 : Fuel Forecasts
A .2.1: Electricity Marginal Supply Cost per Kilowatt-Hour
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Low $0.093 $0.093 $0.093 $0.093 $0.093 $0.093 $0.093 $0.093 $0.093 $0.093
Base Case $0.093 $0.097 $0.101 $0.105 $0.109 $0.113 $0.118 $0.122 $0.127 $0.132
High $0.093 $0.100 $0.108 $0.117 $0.127 $0.137 $0.148 $0.159 $0.172 $0.186
2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
$0.093 $0.093 $0.093 $0.093 $0.093 $0.093 $0.093 $0.093 $0.093 $0.093
$0.138 $0.143 $0.149 $0.155 $0.161 $0.167 $0.174 $0.181 $0.188 $0.196
$0.201 $0.217 $0.234 $0.253 $0.273 $0.295 $0.319 $0.344 $0.372 $0.401
A.2.2: Electricity Retail Cost per Kilowatt-Hour
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Base Case $0.1740 $0.1769 $0.1849 $0.1929 $0.1958 $0.1958 $0.1967 $0.1982 $0.1996 $0.2012
High $0.1740 $0.1798 $0.1961 $0.2131 $0.2195 $0.2195 $0.2214 $0.2249 $0.2281 $0.2316
Average Rates $0.1215 $0.1235 $0.1291 $0.1347 $0.1367 $0.1367 $0.1373 $0.1384 $0.1394 $0.1404
On-Site Solar $0.1556 $0.1556 $0.1556 $0.1556 $0.1556 $0.1556 $0.1556 $0.1556 $0.1556 $0.1556
2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
$0.2022 $0.2042 $0.2078 $0.2116 $0.2155 $0.2195 $0.2224 $0.2242 $0.2260 $0.2269
$0.2339 $0.2386 $0.2471 $0.2561 $0.2655 $0.2753 $0.2825 $0.2871 $0.2918 $0.2942
$0.1411 $0.1426 $0.1451 $0.1477 $0.1504 $0.1532 $0.1552 $0.1565 $0.1578 $0.1584
$0.1556 $0.1556 $0.1556 $0.1556 $0.1556 $0.1556 $0.1556 $0.1556 $0.1556 $0.1556
39
Residential Electrification Opportunities in Palo Alto
A.2.3: Natural Gas Marginal Supply Cost per Therm
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Low $0.500 $0.507 $0.515 $0.522 $0.530 $0.538 $0.546 $0.555 $0.563 $0.571
Base Case $0.500 $0.505 $0.554 $0.594 $0.620 $0.635 $0.639 $0.646 $0.660 $0.677
High $0.500 $0.530 $0.561 $0.595 $0.631 $0.669 $0.709 $0.751 $0.796 $0.844
2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
$0.580 $0.589 $0.597 $0.606 $0.615 $0.625 $0.634 $0.644 $0.653 $0.663
$0.700 $0.720 $0.739 $0.763 $0.780 $0.796 $0.820 $0.839 $0.851 $0.856
$0.895 $0.948 $1.005 $1.066 $1.130 $1.197 $1.269 $1.345 $1.426 $1.512
A.2.4: Natural Gas Retail Cost per Therm
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Low $1.29 $1.31 $1.33 $1.35 $1.37 $1.39 $1.41 $1.43 $1.45 $1.48
Base Case $1.29 $1.33 $1.41 $1.50 $1.57 $1.65 $1.72 $1.78 $1.83 $1.88
High $1.29 $1.37 $1.45 $1.54 $1.63 $1.73 $1.83 $1.94 $2.06 $2.18
2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
$1.50 $1.52 $1.54 $1.57 $1.59 $1.61 $1.64 $1.66 $1.69 $1.71
$1.93 $1.97 $2.00 $2.04 $2.07 $2.09 $2.13 $2.16 $2.18 $2.19
$2.31 $2.45 $2.60 $2.75 $2.92 $3.10 $3.28 $3.48 $3.69 $3.91
40
Residential Electrification Opportunities in Palo Alto
A.2.5: Gasoline Cost per Gallon
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Low $2.00 $2.06 $2.12 $2.19 $2.25 $2.32 $2.39 $2.46 $2.53 $2.61
Base Case $3.00 $3.09 $3.18 $3.28 $3.38 $3.48 $3.58 $3.69 $3.80 $3.91
High $4.00 $4.12 $4.24 $4.37 $4.50 $4.64 $4.78 $4.92 $5.07 $5.22
2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
$2.69 $2.77 $2.85 $2.94 $3.03 $3.12 $3.21 $3.31 $3.40 $3.51
$4.03 $4.15 $4.28 $4.41 $4.54 $4.67 $4.81 $4.96 $5.11 $5.26
$5.38 $5.54 $5.70 $5.87 $6.05 $6.23 $6.42 $6.61 $6.81 $7.01
A.2.6: CARB Allowance Price
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Base Case $12.10 $13.01 $13.98 $15.03 $16.16 $17.37 $17.81 $18.25 $18.71 $19.17
2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
$19.65 $20.15 $20.65 $21.17 $21.69 $22.24 $22.79 $23.36 $23.95 $24.54
A.2.7: LCFS Credit Price
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Base Case $26 $28 $30 $32 $35 $37 $40 $43 $46 $50
2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
$54 $58 $62 $67 $72 $77 $83 $89 $96 $103
41
Residential Electrification Opportunities in Palo Alto
A.2.8: Grid-Interactivity Revenue per Water Heater per Year
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Base Case $60 $62 $63 $65 $66 $68 $70 $71 $73 $75
2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
$77 $79 $81 $83 $85 $87 $89 $91 $94 $96
42
Residential Electrification Opportunities in Palo Alto
Section A .3 : Building Appliances
Description
Annual gas
usage
(therm)
Annual
electricity
usage
(kWh)
Lifetime
(yr) Price 42
Installation
Cost 43
Retrofit
Installation
Cost Adder
Utility
Rebates 44 Annual O&M
Water Heater
Standard Efficiency
Gas (EF 0.58) 258 0 13 $498 $329 $0 $0 $0
High Efficiency Gas (EF
0.67) 224 0 13 $679 $329 $0 $80 $0
Cond. High Efficiency
Gas (EF 0.82) 183 0 13 $1,469 $329 $0 $150 $0
Gas Tankless (EF 0.94) 159 0 20 $1,160 $329 $2,000 $0 $0
Standard Efficiency
Electric Resistance (EF
0.9) 0 4879 13 $338 $329 $1,000 $0 $0
High Efficiency Electric
Resistance (EF 0.94) 0 4671 13 $899 $329 $1,000 $0 $0
Electric Tankless (EF
0.99) 0 4423 20 $490 $329 $1,000 $0 $0
Electric Heat Pump
(COP 2.45) 0 1792 13 $1,199 $329 $1,000 $300 $0
Solar Thermal 0 1300 20 $8,534 $0 $0 $1,605 $50
Space Heater
Standard Efficiency
Gas 355 0 20 $899 $2,750 $0 $0 $100
High Efficiency Gas 315 0 20 $1,299 $2,750 $0 $0 $100
42 Estimated from Home Depot and Lowe’s inventory
43 “Installation Cost” and “Retrofit Installation Cost Adder” were estimated from conversations with local installers and electricians
44 http://www.cityofpaloalto.org/gov/depts/utl/residents/resrebate/default.asp
43
Residential Electrification Opportunities in Palo Alto
Description
Annual gas
usage
(therm)
Annual
electricity
usage
(kWh)
Lifetime
(yr) Price 42
Installation
Cost 43
Retrofit
Installation
Cost Adder
Utility
Rebates 44 Annual O&M
Standard Efficiency
Electric Resistance 0 8324 20 $1,138 $2,750 $1,500 $0 $100
Air Source Duct Heat
Pump 0 2190 20 $4,000 $3,000 $1,500 $0 $100
Air Source Mini-split
Heat Pump 0 2190 20 $4,212 $3,000 $1,500 $0 $100
Stove
Natural Gas 48 0 15 $799 $300 $0 $0 $0
Electric Resistance 0 853 15 $599 $300 $1,000 $0 $0
Induction 0 1040 15 $1,754 $300 $1,000 $0 $0
Clothes Dryers
Natural Gas 33 0 16 $899 $50 $0 $0 $0
Electric Resistance 0 1040 16 $799 $50 $1,000 $0 $0
Electric HP 0 624 16 $1,599 $50 $1,000 $0 $0
In addition to the costs and incentives above, the following were also incorporated into the net present value calculation:
Federal investment tax credit for solar thermal water heaters equivalent to 30%, after subtracting utility incentives45, and
Program administration costs of $30 per rebate application for all non-solar thermal water heaters and $1600 for solar thermal
rebates incorporated in the societal perspective.
45 http://www.energystar.gov/about/federal_tax_credits
44
Residential Electrification Opportunities in Palo Alto
Section A .4 : Passenger Vehicles
Name Type Class Price 46 kWh/mile 47 MPG
Electric
Range
(miles)
Gasoline
Range
(miles)
% VMT
in
Electric 48
Federal
Incentives49
State
Incentives 50
BMW i3 BEV City $40155 0.27 0 81 0 1.00 $7500 $2500
Chevy Spark EV BEV City $25713 0.28 0 82 0 1.00 $7500 $2500
Chevy Volt PHEV Compact $31971 0.35 37 38 342 0.80 $7500 $1500
Fiat 500e BEV City $31179 0.29 0 87 0 1.00 $7500 $2500
Ford C-MAX
Energi PHEV Mid-size $31210 0.37 38 19 531 0.69 $4007 $1500
Ford Focus EV BEV Compact $29170 0.27 0 76 0 1.00 $7500 $2500
Honda Civic Gas Compact $16991 0.00 33 0 436 0.00 $0 $0
Nissan Leaf BEV Compact $27196 0.30 0 84 0 1.00 $7500 $2500
Tesla Model S BEV Full-size $71070 0.38 0 208 0 1.00 $7500 $2500
Toyota Camry Gas Mid-size $20367 0.00 28 0 476 0.00 $0 $0
Toyota Prius
Hybrid Hybrid Mid-size $22965 0.00 50 0 595 0.00 $0 $0
Toyota Prius
PHEV PHEV Mid-size $28947 0.29 50 6 534 0.22 $2500 $1500
Toyota RAV4 LE Gas SUV $22690 0.00 26 0 413 0.00 $0 $0
Toyota RAV4 EV BEV SUV $48211 0.44 0 103 0 1.00 $7500 $2500
In addition to the costs and incentives above, the following were also incorporated into the net present value calculation:
Level 2 charger equipment and installation costs of $1500 installed at the time of purchase for all BEV and PHEV vehicles
O&M costs of $0.0410 for all BEVs and $0.0538 for all other vehicle types
46 Kelly Blue Book Fair Purchase Price
47 http://www.fueleconomy.gov/feg/findacar.shtml, used for all “kWh/mile”, “MPG”, “Electric Range”, “Gasoline Range” input data
48 For PHEVs, calculated based on daily VMT and the electric range.
49 https://www.fueleconomy.gov/feg/taxevb.shtml; http://www.irs.gov/Businesses/Plug-In-Electric-Vehicle-Credit-IRC-30-and-IRC-30D
50 https://energycenter.org/clean-vehicle-rebate-project
45
1
2
MEMORANDUM
TO: UTILITIES ADVISORY COMMISSION
FROM: OFFICE OF SUSTAINABILITY IN THE CITY MANAGER’S OFFICE
DATE: JULY 1, 2015
SUBJECT: Staff Recommendation that the Utilities Advisory Commission Recommend
that Council Review and Approve the Proposed Work Plan to Evaluate and
Implement Greenhouse Gas Reduction Strategies by Reducing Natural Gas and
Gasoline Use through Electrification
Staff requests that Utilities Advisory Commission recommend that Council approve this
proposed work plan to facilitate electrification in Palo Alto.
EXECUTIVE SUMMARY
In December 2014, Council approved a Colleagues Memo directing staff to develop an initial
report on the resources and timeframe required to evaluate prospective fuel -switching1
programs and incentives for the community to reduce the use of natural gas and gasoline and
to electrify buildings and vehicles.
This report recommends a work plan with ten tasks to facilitate electrification in Palo Alto over
the next five years. An estimate of resource needs and time lines for each of the tasks is also
provided. Given the current state of technology, upcoming state regulations, and resource
constraints, the report also recommends tasks that can be deferred until a more opportune
time.
Staff will communicate progress on the work plan to the Council as each task yields results or
when further Council direction is required. Staff will also provide a summary report on the
progress of each of the work plan tasks as part of the annual Eart h Day Report. This work plan
does not cover energy efficiency, renewable natural gas, or local solar development, as these
activities already have robust programs and plans approved by Council2 and are not directly
related to the topic of electrification.
1 The term fuel-switching is a general term that refers to changing the fuel for a given application or end use from
one source to another. This report focuses exclusively on electrification, which is a type of fuel -switching referring
to switching from any other fuel (here, fossil fuels) to electricity, which in Palo Alto is carbon-neutral.
2 Energy efficiency goals and performance (12/17/2012, Staff Report 3358); energy efficiency performance
(5/18/2015 staff report 5708); Local solar plan and goals (4/21/2014, Staff Report 4608 and Resolution 9402); and
Palo Alto Green gas programs approval and alternatives analyzed (3/4/2014, Staff Report 4343)
2
BACKGROUND
On December 15, 2014, Council approved a City Council Colleagues Memo (Colleagues Memo)
that directed staff to develop an initial report on the resources and timeframes required to
evaluate four “fuel-switching”, or electrification, topics:
1) prospective programs and incentives that would result in the use of electrical devices
to replace those using natural gas;
2) possible building code changes to require, where feasible, the use of electrical
appliances in the construction and renovation of residential and commercial
buildings;
3) possible changes to utility rate structures that would not penalize fuel -switching; and
4) evaluation of additional strategies to support the addition of electric vehicles.
On February 2, 2015, Council approved a two -phase work plan to prepare a report responsive
to the Colleagues Memo (Staff Report 5463). The first phase of the work plan is t o determine
the scope of the analysis and identify any staff and/or consulting resources required to
complete it. The second phase involves detailed analysis of the measures identified in the first
phase and the development of an implementation plan. This staff report is the deliverable for
the first phase of the work plan; the second phase would be subject to Council approval of this
work plan.
The report draws from staff analysis on the current cost -effectiveness of various electrification
options for Palo Alto Utilities customers. The report also outlines the State’s analysis of
potential greenhouse gas (GHG) emissions reduction measures through 2030 in order to
provide context to Palo Alto’s own focus and work plan in the next five years. The report
includes a list of recommended projects for the next five years for Council consideration as well
as deferred projects, and the rationale for such prioritization.
DISCUSSION
Existing Natural Gas and Gasoline Use Profile and Related GHG Emissions in Palo Alto
Vehicle fuel and natural gas usage account for more than 80% of Palo Alto’s direct fossil fuel
use and associated GHG emissions. Surface transportation related GHG emissions for Palo Alto
are estimated to be 335,000 metric tons of CO2e per year (MT/year), while natural gas use
accounts for 160,000 metric tons of GHG emissions per year.
3
Figure 1: Natural Gas End-Use in the Residential(R) & Commercial (C) Sectors3
Figure 1 illustrates the estimated distribution of natural gas end -use in Palo Alto. Programs to
reduce natural gas use will need to target each of these end -uses. Space heating and water
heating are the two dominant natural gas end-uses, followed by cooking in the commercial
sector.
Analysis of GHG emissions reduction paths and targets by 2030 for California
With the state of California on track to meet the GHG emissions goal of reducing to 1990 levels 4
by 2020, the Governor set a 2030 GHG emission reduction goal of 40% below 1990 levels 5. The
intent of the 2030 goal is to help guide policy and program development efforts that will enable
the achievement of the state’s 2050 GHG emissions reduction target of 80% below 1990 levels.
The California State Agencies’ PATHWAYS Project6 explored the feasibility and cost of a range of
3 Based on state-wide estimates, adjusted to account for Palo Alto’s space heating profile.
4 This is equivalent to approximately 15% reduction from the peak statewide GHG emissions seen in year 2005.
5 It is worth noting that Palo Alto’s 2014 GHG emissions have already been reduced by approximately 37% below
1990 levels. These reductions only account for natural gas/electricity use, fossil fuel used for surface
transportation, and City operation; it does not account for other consumption related em issions.
6 The PATHWAYS Project: Long-term Greenhouse Gas Reduction Scenarios is a study conducted by Energy +
Environmental Economics (E3), sponsored by the California Air Resources Board (CARB), California Public Utilities
4
GHG emission reduction scenarios and potential technology options in the future. The study
findings confirm that deep GHG emissions reductions will require significant progress in
multiple areas, such as achieving higher building efficiency, facilitating the rapid adoptio n of
zero emissions vehicles, increasing renewable electric supply, and encouraging fuel-switching of
water heating and space heating applications to low carbon fuels such as renewable electricity.
These findings are in line with the intent of the Colleagu es Memo to explore ways to promote
electrification in Palo Alto, leveraging the City’s carbon-neutral electric supply.
Palo Alto’s Progress To-date to Facilitate Electrification
In addition to establishing a carbon-neutral electric supply portfolio, the City has undertaken
several measures and analyses in recent years in support of electrification, including:
Implemented a time-of-use (TOU) electric rate pilot program to provide discounted
electric rates for night time charging of electric vehicles (EVs) at homes (2012, in
progress, plan to expand in 2016)
Installed EV chargers in parking garages and libraries; encouraging new development to
install public chargers7 (since 2010, on-going)
Adopted a policy preference for an EV City Fleet, except where not feasible (2015)
Modified the building code requiring new construction to be pre-wired for EV charging
equipment (EVSE) installation and to accommodate installation of PV systems (2014)
Served as an information source for residents interested in purchasing EVs (since 2009)8
Streamlined the approval of permits for EV chargers9 (2012)
Completed analysis that found compact electric vehicles and heat pump water heaters
(HPWH) are currently the most cost-effective electrification measures in Palo Alto
homes10 (2013, updated in 2015)
Most recently, staff updated the analysis to estimate the cost and benefit of electrification of a
new single family home in Palo Alto. Figure 2 summarizes the monthly net costs incurred by a
home for each electrification measure.
Commission (CPUC), the California Energy Commission (CEC), and the California Independent Systems Operator
(CAISO). Study results from April 2015 can be found at this web link:
https://ethree.com/public_projects/energy_principals_study.php.
7 For example, the new development at 101 Lytton Avenue
8 For example the Cost Estimation Calculator for EV charging
http://www.cityofpaloalto.org/gov/depts/utl/residents/sustainablehome/electric_vehicles/ev_calculator.asp
9 Requests for EV chargers that have a charging capacity of less than 10kW are granted permits over the counter
10 See July 1, 2015 UAC staff report: Results of the Cost-effectiveness Evaluation of Electrification Options for
Appliances and Passenger Vehicles in Single Family Residential Homes.
5
Figure 2: Monthly Net Cost of Electrification to Household
The analysis suggests that compact EVs are cost -effective compared to their gasoline
counterparts11. Switching from a standard gas water heater to an air-sourced water heater
(heat pump water heater, or HPWH) a household is estimated to save $4/month; switching to
heat pump space heating (HPSH) would incur a net incremental cost of about $2/month.
However, staff’s research suggests that there is some uncertainty in these results, based on the
wide variety of assumptions present in each of the scenarios examined. The accompanying line
for each measure illustrates the range of possible cost or benefit for different scen arios
examined; for example, switching to a HPWH could save as much as $10 per month or could
cost an extra $10 per month, depending on assumptions such as the future cost of gas versus
electricity. If all five measures are implemented, the potential mont hly cost impact could range
from a cost of over $60 to a saving of about $60. HPWH and HPSH technologies12 are the
primary ways to energy efficiently electrify water heating and space heating end -uses, and
these applications account for approximately 75% of natural gas related GHGs in Palo Alto13.
For electrifying existing single-family homes, the study found the largest barrier is the upgrade
of electric panel capacity to accommodate the increased electrical load; this upgrade alone
could cost $2,500 to $5,00014. In addition to this panel upgrade cost, costs associated with
running conduit and wiring to the appliance location could cost an additional $1,000 to $2,000
per appliance. These estimates emphasize that 1) new construction is a more cost -effective
11 On a Net Present Value (NPV) basis, net of federal and state rebates for electric vehicles.
12 An appliance made with air-sourced heat-pump technology use electricity to operate a heat exchanger to absorb
thermal energy from the atmosphere to heat water or building space.
13 Residential applications are estimated to account for 42% and commer cial application 33% of natural gas-related
GHGs in Palo Alto.
14 The results in Figure 2 exclude any costs associated with the electrical panel, such as upgrading to a 200A or
400A service.
-$4
$2
$4
$8
-$19
-$9
-$80 -$60 -$40 -$20 $0 $20 $40 $60 $80
Water Heating
Space Heating
Stovetop Cooking
Clothes Drying
Compact Vehicle
Net Total
6
intervention point; and 2) creative programs and initiatives will be required to help existing
homes to overcome the substantial additional up-front costs associated with electrification.
Staff expects to undertake a similar high level assessment of th e cost effectiveness of for
commercial building applications. An initial survey suggests that heat pump technologies for
water and space heating applications are feasible in small and medium sized commercial
buildings; in many of these smaller buildings, which account for about 40% of the square
footage of all commercial buildings in Palo Alto, HPSH applications are not uncommon, and
retrofitting smaller buildings with HPSH is relatively less burdensome. However, retrofitting
existing large commercial buildings for space heating applications is likely to be cost prohibitive.
Outline of Staff’s Recommended Work Plan and Tasks
Based on the insights gained from these initial analyses and projects, staff recommends
studying, and when feasible implementing, the ten tasks outlined below to promote
electrification. Tasks #1 and #2 are related to encouraging the use of HPWH and HPSH
applications in homes, which are largely cost effective in new residential construction, but face
barriers to entry in existing homes as discussed earlier. Many of the tasks include both
evaluation and implementation elements, but these three tasks are solely related to evaluation
of the feasibility of implementing projects and programs in the future:
Task #4 (explore possible building code changes)
Task #9 (explore new financing sources)
Task #10 (explore feasibility of district heating options)
Estimates of timelines and resource requirements for each task are also provided in the list
below. Upon Council consideration and approval of an electrification work plan staff will seek
the additional resources needed as part of the annual or mid-year budgeting process.
The work plan does not cover energy efficiency, renewable natural gas, or local solar
development, as these areas have either already been analyzed and communicated to Council
or are not directly related to the topic of fuel switching. For example, sourcing natural gas from
renewable sources was found to be expensive when evaluating the green -gas program options
in 201415. The City also has robust programs related to local solar and energy efficiency already
in place. This work plan also includes a list of projects that staff does not recommend analyzing
or promoting in the near term. This is either because these measures are clearly not cost-
effective at this time or because they are not prudent to promote now given limited staff
resources and upcoming changes in the State’s building standards and regulations.
For this work plan, each element will be considered in the cont ext of all applicable legal,
statutory and regulatory requirements. Such requirements include, for instance, constitutional
limitations on the use of ratepayer funds imposed by Californians when they adopted
15 PaloAltoGreen Gas Program alternatives analyzed (3/4/2014, Staff Report 4343) concluded that biogas at a cost
premium of 50 cents/therm is equivalent to approximately $94/ton of carbon dioxide equivalent (CO2e) compared
to offsets costing less than 10 cents/therm.
7
Proposition 26, obligations set forth in the cap-and-trade regulations adopted by the California
Air Resources Board, and other miscellaneous requirements embedded in the California Public
Utilities Code and Federal Energy Regulatory Commission rules.
Description of Work Plan Elements and Estimates of Timeline/Resource Requirements
1. Promote HPWH and HPSH in existing homes
a. Provide customers information on options and cost-effectiveness of HPWH and HPSH
solutions, including web-based calculator tools.
b. Explore funding source for HPWH and HPSH rebates for customers.
c. Inform and educate water heater installers about HPWH.
d. Explore mechanics and funding sources to incentivize installers to offer HPWH as a
default option in Palo Alto.
e. Explore the feasibility of implementing a HPWH bulk-buy program (possibly in
collaboration with surrounding cities).
f. Explore the feasibility and economics of retrofitting multi-family buildings that presently
have electric baseboard heating with HPSH appliances.
g. Explore the development of an analytic process that would enable sta ff to predict the
life expectancy of older water heaters, based on past building permit data, and use
those predictions to target promotion and installation of HPWH before natural gas
water heaters reach end of life or fail.
h. Time and Resource: This initiative is estimated to take 0.25 FTE and $10k over a 9 to 15
month period to explore various program options discussed above and to implement
items 1.a and 1.c. Existing resources could be channeled to undertake this task; no
additional budget approvals required by Council. Estimated completion date: December
2016.
2. Provide resources to homeowners to convert existing homes to all-electric homes.
a. Compile list of qualified architects, develop case studies, set up communication
channels for homeowners to share id eas and host workshops on electrifying existing
homes.
b. Explore the feasibility of new funding sources to provide incentives to electrify existing
homes on a pilot scale.
c. Time and Resources: This initiative is estimated to take 0.25 FTE staff time with an
additional expense of $15k for public outreach. Existing resources could be channeled to
undertake this task; no additional budget approvals required by Council. Staff will
evaluate customer incentives if new funding sources can be identified in Task #9.
Estimated completion date for Task 2.a is December 2016.
3. Explore the development of retail electric rate schedule for homes that electrify
a. Evaluate an all-electric rate schedule for residential customers as part of the upcoming
electric cost of service analysis; if feasible, recommend such retail rates for Council
consideration and approval.
8
b. Time and Resources: 0.1 FTE and $25k consultant cost to evaluate cost of service and
retail rate options. Funds already allocated to this task; no additional budgets required.
Estimated completion date: July 2016.
4. Explore additional residential and commercial building code changes for new construction
and remodeling projects to expedite electrification
a. Study the feasibility of including HPWH installations as part of CalGreen Tier 1 and Tier 2
elective or pre-requisite criteria16.
b. Study feasibility of including heat pump space heating installations as par t of CalGreen
Tier 1 and Tier 2 elective or pre-requisite criteria.
c. Study the feasibility of requiring sufficient electrical panel capacity and outlets to
accommodate the electrification of the house in the future.
d. Study and seek permission from the California Energy Commission (CEC) to remove
certain requirements that impede electrification (such as case -by-case cost-
effectiveness analysis) to permit installation of heat-pump based heating appliances.
e. Work with other interested parties to lobby CEC to consider carbon content (in addition
to energy efficiency) of building energy systems when updating building energy codes
for the 2018-19 code update cycle.
f. Research and analyze the necessary components for a permitting process and field
inspection protocol to support electrification.
g. Explore potential scenarios for an expedited permitting program for projects pursuing
electrification.
h. Time and Resources: This effort is anticipated to take about 0.02 FTE of staff time and
$145k of consulting assistance, and would take approximately 12 months to complete.
This project has not been incorporated into staff’s existing work plan and will require
mid-year budget increase through the Budget Amendment Ordinance (BAO) process.
Estimated Completion Date: June 2016.
5. Evaluate utility connection fees and permitting fees associated with electrification projects
a. Analyze the cost of providing electricity connection upgrade services to homes. The
analysis will be based on estimates of number of future electrification projects.
b. Time and Resources: This effort is anticipated to take about 0.1 FTE of staff time and
$30k of consulting assistance for cost of service work. The effort related to this project
has already been included in staff’s work plan; no additional budget approva ls required.
Analysis (and if feasible implementation) could take 6-18 months with an estimated
completion date of Summer 2016.
16 Calgreen Tier 1 and Tier 2 is the building code structure used for permitted building projects in Palo Alto under
Green Building Ordinance 5324. This structure enables Development Ser vices to streamline the enforcement of
local amendments to the Green Building Code.
9
6. Promote the installation of Electric Vehicle Supply Equipment (EVSEs) for public use and at
multi-family homes17
a. Explore ways to overcome the dearth of public charging facilities and hurdles to
installing chargers at multi-family dwellings in Palo Alto.
b. Explore if low carbon fuel standard (LCFS) credit revenue could be used to finance EV
charger installation projects.
c. Time and Resources: Resources required to set-up the program is estimated at 0.1 FTE
at the start and 0.05 FTE for on-going effort. This effort is already included in the staff
work plan; no additional budget approvals needed. Funds available through the LCFS
program are estimated at $70k per year, but could range between $50k to $200k per
year over the next five years depending on the volume of credits and the market price
of the credits. Subject to Council approval to spend available LCFS funds to promote
such EVSE installations, the design of such incentive based promotion is expected to be
in place by Spring of 2016.
7. Explore offering Time-of-Use (TOU) electric rate options for residential EV charging
a. A pilot TOU rates program is currently underway, to reduce EV charging cost at homes.
Early results show that the pilot TOU rates reduce costs by about $1/month and enable
the utility to claim LCFS credits. Staff is contemplating the 150 customer TOU rate pilot
program to an additional 200 customers by July 2016.
b. Explore offering TOU rates to all residential customers, including EV customers..
However, billing systems limitations and staff resource limitations may hinder this effort
in the short-term.
c. Time and Resources: This task may require manual processes in the absence of
upgrading the customer billing and smart grid systems. Staff resources of 0.5 FTE
allocated at present; no additional consulting help anticipated. TOU-capable electric
meters would cost $150 for each customer enrolled, or $30,000 if 200 add itional
customers are enrolled in to current pilot program. No additional budget approvals
anticipated. Expected completion date is Summer 2016.
8. Explore opportunities to electrify existing and new City buildings
a. Explore opportunities to utilize HPWH and HPSH at existing City buildings
b. Explore opportunities to electrify space and water heating systems for new City
buildings
c. Time and Resources: Staff will develop an inventory of existing water heater locations
suitable for replacement with HPWH by September 2015 and would replace gas water
heaters with HPWH at suitable locations over a period of time based on the age of the
existing water heaters. Replacement cost is estimated at $2,000 per water heater. This
will be an ongoing effort; additional staffing resources needed are estimated to be
minimal at this time, so no additional mid-year budget requests anticipated. Projects
related to HPSH will be evaluated after the initial survey results.
17 Note: Palo Alto building codes require new construction to install EV charging equipment (EVSE). The above
mentioned initiative is to encourage EVSEs installation at existing buildings.
10
9. Explore new financing sources to expedite electrification
a. Identify and evaluate the use of the City’s General Fund resources, voter approved
carbon fees/taxes, revenue-neutral fee-bates (such as fees on natural gas used to
incentivize reduction in natural gas through electrification projects) and other financing
options for electrification projects and other de-carbonization strategies.
b. Timeline and Resources: Resources needed for an initial framing of this effort is already
included in the Sustainability and Climate Action Plan development process, estimated
at $5k. Additional detailed analysis, legal review, and other efforts will require
additional resources and is not recommended until after Council review and adoption of
the Sustainability and Climate Action Plan (S/CAP) and associated strategies in late 2015.
Initial framing of this effort will be presented to Council in Fall 2015.
10. Analyze, in a high level pre-feasibility study, options for district heating18 for buildings
a. Explore the feasibility of district heating options in the downtown area and the Stanford
Research Park area, with geothermal heat pumps or other heat-exchanger type
technologies, to reduce natural gas use in commercial buildings.
b. In the long term, this type of technology/project could assist in reducing natural gas use,
but initial analysis suggests it is not cost effective for a mild climate zone like Palo Alto.
c. Time and Resources: The effort is anticipated to be undertaken with intern assistance
and input from Stanford Energy System Innovation (SESI) program staff. Resources may
also be needed including building energy monitoring equipment, staff effort of 0.25 FTE
over 2 years and funding of $50k. This tas k is not in the current work plan and budget,
but if approved, resources will be allocated and sought as part of the annual budgeting
process in FY 2017. The task is projected to commence in 2017 and be completed by
2019.
All tasks outlined above will facilitate electrification in Palo Alto in the long -run, but will have
minimal reduction in GHG emissions in the short-term. However, if the community desires to
accelerate the adoption of electrification technologies well ahead of state regulations,
additional financial resources for customer cash incentives would likely be needed to
accomplish such goals. Currently, for example, staff anticipates Task #1 could result in the
replacement of approximately 1,000 HPWH in single family homes in Palo Alto by 2020.
Similarly, several homes undergoing major remodels are opting to go all -electric, but at the
current rate the penetration of such homes are estimated to be well below 1,000 by 2020. If,
for example, 1,000 homes in Palo Alto go all-electric, the community’s GHG emissions
associated with natural gas use would reduce by approximately 2%.
Tasks Recommended Deferred Until a Later Time
Staff recommends the following tasks be deferred until a later time:
A. Evaluate and implement bulk-buying program of EVs for Palo Alto residents: This
activity requires a relatively high level of effort and the value to customers is
18 District heating refers to systems that heat and/or cool a group of adjoining buildings using a central
heating/cooling plant.
11
uncertain. Staff recommends that we defer and consider the necessity and value
of such a program after 2017 when 200+ mile range automobiles become
prevalent in the mass consumer market.
B. Facilitate electrification of space heating in existing large commercial buildings:
While space heating with heat pumps is common in small/medium commercial
buildings (<50,000 square feet), it is burdensome to electrify space heating
application for existing larger buildings > 50,000 square feet).
C. RECO/CECO Program: Should the community elect to study Residential and
Commercial Energy Efficiency Ordinance (RECO/CECO) as an energy efficiency
implementation tool at the time of real estate sale, electrification shall be
studied as a potential element in such a program.
NEXT STEPS
Upon UAC review and recommendation for Council approval, staff expects to seek Council
approval and begin undertaking tasks approved by Council. UAC
RESOURCE IMPACT
Staff estimates that accomplishing these ten tasks will require approximately 1.6 FTE of staff
resources and $380,000 of consulting/equipment resources over the next two -to-three years.
Much of the staffing resources would come from current staffing and approved budgets, except
for Task #4 and #10, which will require additional budget approvals. In addition, if the
exploration in various tasks (e.g. Task #4, #9, #10) results in a recommendation t o actually
implement programs, additional resources may be needed and staff would return to Council
with a request for additional resources. If Council approves a subset of the recommended ten
tasks or varies the scope of tasks, the resources required woul d change accordingly. Staff will
bring Council requests for any additional resources needed to undertake a Council approved
work plan part of the annual budgeting process, or when staff seek s mid-year budget
amendments.
12
*Staff anticipates needing Council approval of additional resources for tasks #4 and #10
POLICY IMPACT
This work was coordinated with the S/CAP process and meets the City’s goal of reducing GHG
emissions related to City and community activities.
ENVIRONMENTAL IMACT
Researching and developing a community solar program does not meet the California
Environmental Quality Act’s (CEQA) definition of “project” under California Public Resources
Code Sec. 21065, thus no environmental review is required.
ATTACHMENTS
A. City Council Colleagues Memo – 12/15/2014
Time and Resources by Task July-
Dec' 15
Jan-
June '16
July-
Dec ' 16
Jan-
June '17
July-
Dec'17
Jan-
June'18
J
u
l
y
Staff time
(Annual FTE)
Consulting +
Equip
$000s
1. Promote HPWH and HPSH in Existing Homes 0.2 0.2 0.1 0.25 $15
2. Resources to Convert Existing Homes to become All-Electric 0.2 0.2 0.1 0.25 $10
3. Explore Electric Retail Rate Options for Electrifying Homes 0.05 0.05 0.05 0.1 $25
4. Explore Residential and Commercial Building Code Changes *0.01 0.01 0.02 $145
5. Explore ways to minimize electrical utility connection fees 0.1 0.05 0.05 0.1 $30
6. Facilitating EVSE installation in public parking & MF homes 0.1 0.05 0.05 0.1 $70
7. Time-of-use rate to promote lower cost EV charging at night 0.3 0.3 0.3 0.5 $30
8. Explore electrification of City buildings - existing and new 0.05 0.05 0.05 N/A
9. Explore new financing sources to promote electrification 0.3 0.3 0.05 $5
10. High level pre-feasibility study on district heating options *0.1 0.1 0.1 0.1 0.2 $50
Total Resources (Annualized FTE over 6 month intervals) 0.56 0.76 0.58 0.10 0.05 0.05 1.6 N/A
N/A $380
\
B. Council approva l of a two-phase work plan to prepare a report responsive to the
Colleagues Memo {Staff Report ?463)-02/02/2015
PREPARED BY:
REVIEWED BY:
APPROVED BY:
'-{~IVA SWAMINATHAN, Senior Resource Planner ·
MELANIE JACOBSON, Development Services
JANE RATCHYE, Assistant Director, Reso urce Management
VALERIE FONG, Director of Utilities
PfTER PIRNEJAD, Director of Deve l opment Services
~~~~~
Chief Sustainability Officer
13
CITY OF PALO ALTO OFFICE OF THE CITY CLERK
December 15, 2014
The Honorable City Council
Palo Alto, California
Colleagues Memo From Council Members Berman, Burt, and Klein
Regarding Climate Action Plan Implementation Strategy to Reduce Use
of Natural Gas and Gasoline Through “Fuel Switching” to Carbon-free
Electricity
Requested Action by Council:
Direct the City Manager to prepare a report to the Council, outlining (1)
prospective programs and incentives that would result in the use of electrical
devices to replace those using natural gas, (2) possible building code changes to
require, where feasible, the use of electrical appliances rather than natural gas
appliances in the construction and renovation of residential and commercial
buildings, (3) possible changes to utility rate structures that would not penalize
fuel switching, (4) evaluation of additional strategies to support adoption of
electric vehicles. The report should consider and take into account applicable
legal requirements, and identify potential legal, code or regulatory barriers that
would need to be changed to facilitate fuel-switching. The City Manager will
return to the Council by the first meeting in February with an initial report to
Council on the timeframe required to research and develop this report, and the
staff and related resources that will be necessary, as this initiative would be an
important component in the 2015 Work Plan.
Discussion:
Starting in 2013 Palo Alto is one of the first cities globally to provide 100 percent
carbon-neutral electricity to all of our utility customers and at rates 20% below
PG&E. This is an important accomplishment, but only addresses approximately
1/5 of the greenhouse gas (GHG) emissions previously generated in the city.
However, our clean electricity resource provides an exceptional opportunity to be
ATTACHMENT A
Page 2
used as a clean energy foundation to reduce our other major GHG sources, in
support of the city’s Climate Action Plan.
The United Nations Intergovernmental Panel on Climate Change (IPCC), in its
latest report, again emphasized the dire straits we’ll all be in if government at all
levels doesn’t take far more significant steps to achieve large reductions in the
generation of greenhouse gases.
Building on our carbon-free electricity resource, key next steps for Palo Alto are to
promote switching from appliances and other devices that presently use natural
gas to devices that are powered by our clean electricity, and to support the
adoption of electric vehicles and other fossil fuel-free transportation alternatives.
Natural gas enjoys good press, but is in fact only marginally better than coal, in
part due to the high amounts of “fugitive” emissions which are unintentional
releases of harmful non-combusted methane gas that are emitted into the
atmosphere during natural gas extraction and delivery processes. Our carbon-
neutral electricity is far better for the environment and we therefore believe that
Palo Alto should take a series of steps to promote change from gas use to use of
electricity. Additionally, we should pursue more steps to support adoption of
electric vehicles powered by clean electricity, replacing use of petroleum, our
largest source of greenhouse gases.
This is a bold and significant initiative and given its “game-changer” potential,
warrants a thoughtful assessment of the opportunities and constraints this
presents and a clear identification of the resources and time commitment to
develop the report. Council recognizes that staff must first return with that initial
report on timeline and resource requirements by early February, as a prerequisite
to the Council’s direction to proceed with the actual research and report being
requested.
This report has been reviewed by the City Manager and City Attorney and has
incorporated their comments.
Page 3
Department Head: Beth Minor, Acting City Clerk
City of Palo Alto (ID # 5463)
City Council Staff Report
Report Type: Consent Calendar Meeting Date: 2/2/2015
City of Palo Alto Page 1
Summary Title: Approval of Staff Work Plan in Response to Colleagues Memo
on Fuel Switching
Title: Approval of Staff Work Plan Developed in Response to the December
15, 2014 City Council Colleagues Memo on Climate Action Plan
Implementation Strategies to R educe Use of Natural Gas and Gasoline
through Fuel Switching to Carbon Free Electricity
From: City Manager
Lead Department: City Manager
Recommendation
Staff requests Council approval of its proposed work plan to prepare a report responsive to the
December 15, 2014 City Council Colleagues Memo (the “Colleagues Memo”) on measures to
encourage utility customers to switch from natural gas and gasoline to electricity where
appropriate and to reduce the obstacles to such fuel switching.
Executive Summary
On December 15, 2014 the City Council directed staff to return by the first meeting in February
2015 with an initial report on the resources and timeframe required to evaluate the four fuel
switching related topics outlined in a Colleagues Memo. Staff has already completed or
currently plans to undertake significant analysis of the potential for, and the economics of fuel
switching in various areas, as described more fully in Attachment B to this Staff Report.
Because the City’s major remaining greenhouse gas (GHG) emissions are related to mobile
transportation and the use of natural gas, fuel switching to the City’s carbon neutral electricity
supplies will also be a major element of the Sustainability and Climate Action Plan (S/CAP).
Staff is in the process of developing a detailed work plan with two phases to respond to
Council’s Colleague’s Memo. The first phase (Phase I) will determine the scope of the analysis
and identify any staff and/or consulting resources required to complete it. This phase is already
underway. Phase I will contain additional information to inform Council’s decisions about
whether to pursue or not pursue those actions related to fuel switching either identified initially
in the Colleagues Memo or in the Phase I analysis. Should Council elect to proceed, the second
phase (Phase II) will involve detailed analysis of proposed actions and measures identified in the
Phase I and the development of an implementation plan. Phase I will be undertaken in
ATTACHMENT B
City of Palo Alto Page 2
coordination with the S/CAP, and staff is currently planning to deliver it to Council around the
same time as the S/CAP in the Spring of 2015.
All measures and actions proposed as part of Phase I and Phase II must be specifically analyzed
and considered in the context of all applicable l egal, statutory and regulatory requirements,
including, for instance, constitutional limitations on utility rates and use of ratepayer funds
imposed by Californians when they adopted Proposition 26, obligations set forth in the Cap-
and-Trade regulations adopted by the California Air Resources Board, and other miscellaneous
requirements embedded in the California Public Utilities Code.
Background
The December 15, 2014 Colleagues Memo (Attachment A) directed staff to prepare a report,
outlining:
1) prospective programs and incentives that would result in the use of electrical devices to
replace those using natural gas;
2) possible building code changes to require, where feasible, the use of electrical
appliances in the construction and renovation of residential and commercial buildings;
3) possible changes to utility rate structures that would not penalize fuel switching; and
4) an evaluation of additional strategies to support the addition of electric vehicles.
Staff has already completed or commenced several activities related to fuel switching. These
are summarized below, and are described in more detail in Attachment B:
On February 10, 2014, staff presented an analysis of the cost -effectiveness of replacing
residential natural gas fired appliances with electric appliances, given existing
technologies and rate structures.1 The analysis also addressed the cost-effectiveness of
converting from gasoline-fueled vehicles to electric vehicles (EVs). An update to this
analysis is already underway and is currently scheduled to be presented to the Utilities
Advisory Commission (UAC) in Spring 2015.
Staff is currently doing the preliminary research to begin a cost of service analysis
(COSA) for the electric utility, which will evaluate if there are any rate design obstacles
to fuel switching. Prior to the conduct of the Electric COSA, the UAC and Council will
have an opportunity to discuss the possible rate designs and the issues to be considered
when choosing between them. The timeline for this policy discussion is in the s pring of
2015.
After Council adopted the City’s EV policy2 in December 2011, staff undertook a variety
of programs to encourage wider adoption of EVs in Palo Alto, one of which was the
adoption of and EV ordinance that requires all new residential an d non-residential
1 Staff Report # 4422, dated 2/10/2014: www.cityofpaloalto.org/civicax/filebank/documents/38922
2 Staff Report 2360, dated December 19, 2011: http://www.cityofpaloalto.org/civicax/filebank/documents/41528
City of Palo Alto Page 3
construction to install new EV chargers and/or needed infrastructure to accommodate
future chargers as seen in Municipal Code Section 16.14.370.
Discussion
The Colleagues Memo suggests consideration of a more comprehensive evaluation of fuel
switching in the context of the long-term S/CAP goals to dramatically reduce GHG emissions.
Staff’s proposed work plan for this effort is divided into two phases:
Phase I, already in progress, is to develop a detailed scope to address each area of focus
identified in the Colleagues Memo, including identification of potential measures or strategies
that would address requests 1 (outlining prospective programs and incentives), 2 (outlining
possible building code changes) and 4 (evaluation of additional strategies to support adoption
of electric vehicles) in the Colleagues Memo. In Phase I:
Staff intends to use the ideas, work products, and community input from the S/CAP
process to help inform its work in Phase I. In turn, the Phase I scoping work will
contribute to the analysis of fuel switching for the development of the S/CAP.
The deliverable for Phase I will be a report setting forth a project scope and timeline for
completion of Phase II (should Council elect to pursue it), including a list of potential
programs and incentives, building code changes, gas and electric rate options that may
be available, and potential additional strategies to encourage EVs. The Phase I report
will identify the tasks and timeline needed to analyze the cost implication to applicants
being affected by any mandates, to identify and assess any constraints that may exist
(including any imposed by legal, statutory or regulatory requirements) and other items
to be determined in the course of Phase I.
Staff may provide alternative approaches to Phase II requiring differing levels of effort
and expenditure of resources, since the Phase II report could require considerable staff
effort.
Staff currently anticipates that Phase I will be completed and will roughly coincide with
the completion date of the S/CAP in spring 2015.
Phase II, should Council elect to proceed with it after considering Phase I, will involve a more
detailed cost/benefit analysis along with more comprehensive policy and legal evaluations of
the options outlined in Phase I, particularly for request 3 (possible changes to utility rate
structures that would not penalize fuel switching) of the Colleagues Memo. In Phase II:
Staff will coordinate this effort with the Electric COSA, including analysis of the impact of
various rate designs on fuel switching and any legal, regulatory, cost-effectiveness or
City of Palo Alto Page 4
other barriers that may impose constraints on using rates as a tool to implement or
otherwise incentive fuel switching.
The deliverable for Phase II will be a report that can be used as a basis for accepting or
rejecting each option.
Because there is substantial work needed to develop a timeline and assess required resources
to look at the issues raised in the Colleagues’ Memo, staff plans to return to Council in Spring
2015 with the Phase I report (the more detailed scope and timeline) to inform Council’s
determination on whether staff should proceed with the Phase II effort. Council should be
aware that work activities related to fuel switching will be an integral part of the S/CAP.
Resource Impact
Completion of the Phase I report will require a total approximately 0.2 FTE per month of staff
time over three to four months from the following City departments: Sustainability, Utilities,
Development Services, Public Works, Planning and Community Environment and City Attorney.
The proposed Phase I scoping report can largely be completed with existing resources.
The level of effort, inclulding staffing and calendar time, needed to complete the Phase II work
will be identified in the Phase I report. Any additional resources needed, or existing or planned
work products that must be delayed to complete Phase II will be identified in the Phase I report
as well.
Policy Implications
This project will be coordinated with the S/CAP process and will provide data to support
decision making about possible programs to implement any carbon-reduction goals the Council
adopts as part of that process.
Environmental Review
Approval of staff’s proposed work plan for addressing the Colleague’s Memo on fuel switching
does not meet the definition of a project pursuant to section 21065 of the California
Environmental Quality Act (CEQA).
Attachments:
Attachment A: Colleagues Memo Dec 15 2014 (PDF)
Attachment B: Fuel Switching Work Plan - Colleagues Memo (DOC)
CITY OF PALO ALTO OFFICE OF THE CITY CLERK
December 15, 2014
The Honorable City Council
Palo Alto, California
Colleagues Memo From Council Members Berman, Burt, and Klein
Regarding Climate Action Plan Implementation Strategy to Reduce Use
of Natural Gas and Gasoline Through “Fuel Switching” to Carbon-free
Electricity
Requested Action by Council:
Direct the City Manager to prepare a report to the Council, outlining (1)
prospective programs and incentives that would result in the use of electrical
devices to replace those using natural gas, (2) possible building code changes to
require, where feasible, the use of electrical appliances rather than natural gas
appliances in the construction and renovation of residential and commercial
buildings, (3) possible changes to utility rate structures that would not penalize
fuel switching, (4) evaluation of additional strategies to support adoption of
electric vehicles. The report should consider and take into account applicable
legal requirements, and identify potential legal, code or regulatory barriers that
would need to be changed to facilitate fuel-switching. The City Manager will
return to the Council by the first meeting in February with an initial report to
Council on the timeframe required to research and develop this report, and the
staff and related resources that will be necessary, as this initiative would be an
important component in the 2015 Work Plan.
Discussion:
Starting in 2013 Palo Alto is one of the first cities globally to provide 100 percent
carbon-neutral electricity to all of our utility customers and at rates 20% below
PG&E. This is an important accomplishment, but only addresses approximately
1/5 of the greenhouse gas (GHG) emissions previously generated in the city.
However, our clean electricity resource provides an exceptional opportunity to be
Page 2
used as a clean energy foundation to reduce our other major GHG sources, in
support of the city’s Climate Action Plan.
The United Nations Intergovernmental Panel on Climate Change (IPCC), in its
latest report, again emphasized the dire straits we’ll all be in if government at all
levels doesn’t take far more significant steps to achieve large reductions in the
generation of greenhouse gases.
Building on our carbon-free electricity resource, key next steps for Palo Alto are to
promote switching from appliances and other devices that presently use natural
gas to devices that are powered by our clean electricity, and to support the
adoption of electric vehicles and other fossil fuel-free transportation alternatives.
Natural gas enjoys good press, but is in fact only marginally better than coal, in
part due to the high amounts of “fugitive” emissions which are unintentional
releases of harmful non-combusted methane gas that are emitted into the
atmosphere during natural gas extraction and delivery processes. Our carbon-
neutral electricity is far better for the environment and we therefore believe that
Palo Alto should take a series of steps to promote change from gas use to use of
electricity. Additionally, we should pursue more steps to support adoption of
electric vehicles powered by clean electricity, replacing use of petroleum, our
largest source of greenhouse gases.
This is a bold and significant initiative and given its “game-changer” potential,
warrants a thoughtful assessment of the opportunities and constraints this
presents and a clear identification of the resources and time commitment to
develop the report. Council recognizes that staff must first return with that initial
report on timeline and resource requirements by early February, as a prerequisite
to the Council’s direction to proceed with the actual research and report being
requested.
This report has been reviewed by the City Manager and City Attorney and has
incorporated their comments.
Page 3
Department Head: Beth Minor, Acting City Clerk
1
Attachment B:
5463 - Fuel Switching Work Plan
Colleagues Memo
Outline of Initiatives Currently Underway to Facilitate Fuel Switching
1) Residential Natural Gas to Electric Fuel Switching Analysis: In February 2014, staff provided
Council an evaluation of the cost effectiveness of residential natural gas-to-electric fuel
switching options for appliances and vehicles.1 The analysis concluded that residential
natural gas-to-electric fuel switching is not cost-effective at prevailing energy prices and the
prevailing cost of carbon, but could become cost effective at carbon costs of $130/ton for
water heating and $270/ton for space heating applications. The report also concluded that
fuel switching for water heating applications for new construction or during major remodels
may also prove to be cost effective. The analysis found that purchasing carbon-offsets was
the least cost option to neutralize greenhouse gas (GHG) emissions related to natural gas
use. This analysis is being updated at present and is expected to be presented to the
Utilities Advisory Commission by Spring 2015.
With respect to fuel switching from gasoline-fueled automobiles to electric vehicles (EVs),
the analysis found that purchasing EVs can be more cost-effective than buying new gasoline
vehicles. Leasing EVs may provide additional cost advantages. The analysis did not review
natural gas to electricity fuel switching options for commercial buildings nor look at possible
changes to building codes to encourage fuel switching.
2) Utilities Cost of Service Studies: Staff is undertaking an electric utility cost-of-service
analysis (COSA) in 2015 to evaluate different electric rate making options and has begun the
initial preparations for that study. The primary focus of the Electric COSA will be on
ensuring that electric rates are equitable and represent the cost of service to customers, but
the report will also identify the impact of current and proposed rate structure options on
fuel switching, including the impact of tiered rates. Other issues to be considered as part of
the Electric COSA include:
the impact of current and proposed rate designs on t he economics of rooftop solar,
the impact of rate designs on low-income customers,
the impact on energy efficiency (“conservation pricing”), and
the possibility of introducing time-of-use rates.
Any proposed rate designs must be specifically analyzed and considered in the context of all
applicable legal, statutory and regulatory requirements and guidance, including, for
instance, constitutional limitations on utility rates imposed by Californians when they
adopted Proposition 26, obligations set forth in the Cap-and-Trade regulations adopted by
the California Air Resources Board, and other miscellaneous requirements embedded in the
California Public Utilities Code
1 Staff Report 4422 dated 2/10/2014. https://www.cityofpaloalto.org/civicax/filebank/documents/38922
2
A Gas COSA was completed two years ago and no changes to gas rate structures are
planned at this time. Starting in 2015, the City’s gas utility must participate in the State’s
GHG cap-and-trade program. On January 20, 2015, the Council adopted changes to the
City’s gas rates to include the cost of GHG allowances the City must purchase for the gas
utility in the State’s cap-and-trade auction (Staff Report 5397). Therefore, gas customers
will be paying for GHG emissions associated with their gas usage through their gas rates.
3) Encouraging Electric Vehicle Adoption: In December 2011 Council adopted an EV policy2,
which identified goals and projects. Since then, staff has undertaken a variety of programs
to encourage wider adoption of electric vehicles in Palo Alto, and is working on additional
programs. EV charging stations have been installed in three City-owned garages as well as
other City buildings. Utilities implemented the CustomerConnect program, an advanced
meter pilot program that was open to EV owners to test time-of-use electric rates to
encourage owners to charge their EVs in the less costly “off -peak” hours. Utilities also
applied to the California Air Resources Control Board (CARB) to receive credits through
CARB’s Low Carbon Fuel Standard (LCFS) program. The LCFS program is expected to provide
credits to Palo Alto worth $50,000 in 2015 to $100,000 in 2020. Staff is developing a
recommendation on how to spend the LCFS credits, which must be spent in a way to benefit
EV owners. Ideas include reducing the cost of electrical service upgrade fees (if the upgrade
is triggered by the need to install an EV charger at a home), subsidized permit fees for EV
charges, streamlining the EV permitting process from paper to web -based, etc.
Development Services has coordinated an EV Task Force which has worked to advance EV
readiness in the City, develop ordinances, streamline the EV permitting process, and will be
modifying code requirements to reduce barriers to entry. In addition, Council adopted an
“EV readiness” requirement in July 2014 for all new residential and non-residential
construction that requires the installation of EV chargers and/or infrastructure to
accommodate future chargers, as seen in Municipal Code Section 16.14.380.
Staff is also developing protocols for systematically shifting the City fleet to EVs where
appropriate, and is exploring third-party providers of EV charging infrastructure, as a
potential way to expand that infrastructure at minimal cost to the City.
4) Fuel Switching for New Residential Homes: As part of the S/CAP, staff will work with
consultants to identify a roadmap with steps that would need to be taken to accommodate
fuel switching for new residential development. Once it has been determined when, and to
what extent, if any, the City wants to undertake fuel switching, then staff would be required
to take the necessary steps to ensure that the proposed direction complies with the
requirements of Title 24, Part 6 of the California Code of Regulations. Such steps may
include, among other steps, (a) development of cost effectiveness studies and analysis, (b)
filing with the California Energy Commission, (c) adoption of findings (if possible) that
2 Staff Report 2360: www.cityofpaloalto.org/civicax/filebank/documents/41528
3
demonstrate that fuel switching will not contradict the Energy Code prior to adoption of
local amendments, and (d) ultimately adoption of local amendments and modifications to
the Building Code that could legally accommodate the pace and direction the City would
prefer to pursue.
5) Electrification of the wCity’s Fleet: Staff is developing a system to assess the suitability
of EVs, for each vehicle or vehicle type in the City fleet, and is exploring other fuel switching
strategies and options as part of the S/CAP, ranging from incentives and/or mandates for
specified technologies and building types to internal carbon trading for City operations and
other financial innovations to minimize climate impacts of heating spaces and water in Palo
Alto.