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HomeMy WebLinkAbout2015-12-02 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 Meeting held on November 4, 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 Director of Utilities Recruitment Discussion 2. Staff Recommendation that the Utilities Advisory Commission Recommend that the Action City Council Adopt a Resolution to Continue the Palo Alto Clean Local Energy Accessible Now (CLEAN) Program at the Current Contract Price of $0.165 per kilowatt-hour for Local Solar Resources and at the Avoided Cost Level ($0.081 to $0.082 per kilowatt-hour) for Local Non-solar Eligible Renewable Resources 3. Status Update on the Five Items of Interest Discussed in Joint Utilities Advisory Discussion Commission and Council Meeting, Including (1) Fiber-to-the Premises; (2) Undergrounding of Electric Lines; (3) Second Electric Connection; (4) Electrification; and (5) Recycled Water 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: January 13, 2016 (Special Meeting) 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, DECEMBER 2, 2015 – 7:00 P.M. COUNCIL CHAMBERS - Palo Alto City Hall – 250 Hamilton Avenue Chairman: Jonathan Foster  Vice Chair: James F. Cook:  Commissioners: Arne Ballantine, Michael Danaher, Steve Eglash, Garth Hall, and Judith Schwartz  Council Liaison: Gregory Scharff Utilities Advisory Commission Minutes Approved on: Page 1 of 13 UTILITIES ADVISORY COMMISSION MEETING MINUTES OF NOVEMBER 4, 2015 CALL TO ORDER Chair Foster called to order at 7:04 p.m. the meeting of the Utilities Advisory Commission (UAC). Present: Chair Foster, Vice Chair Cook, and Commissioners Ballantine, Danaher, Eglash, and Schwartz Absent: Commissioner Hall and Council Liaison Scharff ORAL COMMUNICATIONS None. APPROVAL OF THE MINUTES Commissioner Schwartz recommended that the following changes be made to the draft minutes from the October 7, 2015 UAC meeting: 1. Under Item 2: “Commissioner Schwartz said that customer satisfaction depends on transparency whether you are transparent or not.” 2. Under Item 2: “She added that safeguards to allow folks to opt out will be consistent with transparency the transparent message.” 3. Under Item 3: Delete this paragraph: “Commissioner Schwartz state that, if this would give her a structure for discussion items not on the rolling calendar that she would like to address, she would support it.” 4. Under Commissioner Comments: “She said that everyone no one in our City has cannot get access to the internet.” Vice Chair Cook moved to approve the minutes from the October 7, 2015 UAC meeting as amended with Commissioner Schwartz’s recommended changes and Commissioner Eglash seconded the motion. The motion carried unanimously (6-0) with Commissioners Ballantine, Vice Chair Cook, Danaher, Eglash, Chair Foster, and Schwartz voting yes, and Commissioner Hall absent. AGENDA REVIEW AND REVISIONS None. DRAFT Utilities Advisory Commission Minutes Approved on: Page 2 of 13 REPORTS FROM COMMISSION MEETING/EVENTS Commissioner Schwartz attended a forum on low income issues. One item of potential interest to Palo Alto was an interesting analysis of people's attitude toward payment rather than income. Commissioner Danaher arrived at 7:09 p.m. Commissioner Eglash reported that he testified to a State Assembly select committee on emerging technology and the internet of things. He discussed big data and analytics and their public policy implications. Commissioner Schwartz said that DEFG is collaborating with a company called SUS which does customer engagement and has a very interesting and exciting application. She said that it is difficult to explain and is better to be seen and experienced to comprehend its value. She suggested that it would be interesting for all the UAC commissioners to see. Commissioner Schwartz said that she worked with EWEB, a Municipal utility in Eugene, Oregon . They had tried to restructure rates and a local newspaper misrepresented the rate change, which set off a social media storm. She said that this happened because the outreach did not get ahead of the issue and that rate restructuring requires public outreach. She said that at a board meeting, the staff provided a good presentation and that there were no lawyers at the board meeting. UTILITIES DIRECTOR REPORT 1. Gas Usage Update and Potential Need for a Rate Increase As Commissioner Hall pointed out last month, the quarterly update showed significantly lower sales revenues than expected in Fiscal Year (FY) 2015. The primary reason for the reduced sales was an unusually warm 2014 through 2015 winter season, which meant less gas was used for home heating. Staff does not expect this reduced sales revenue to have much of a long -term rate impact. Ongoing drought condition s also affected gas utility sales revenue. As people conserved water, the overall use of gas to heat water was also reduced. Staff believes that the drought had a much smaller impact on sales volumes than the warm winter weather. The FY 2016 Gas Financial Plan projected the need for a 7% rate increase for gas in FY 2017. Staff will update all assumptions and projections in the FY 2017 Gas Financial Plan and, based on information to date, the 7% rate increase is expected to be adequate to maintain financial health in the Gas Fund. 2. Communications: Trees have been stressed due to persistent drought conditions and the City has launched an enhanced outreach campaign in partnership with Canopy to inform customers about proper tree care and irrigation. Save Our Water AND Our Trees focuses on trees as a valuable investment in the community’s green infrastructure. Utilities Advisory Commission Minutes Approved on: Page 3 of 13 3. Events, Workshops and Speaking Engagements Several noteworthy events in October include:  October 10: Fundamentals of Waterwise Gardening workshop  October 17: Hands-On Water-efficient Landscaping Project at City Hall  October 18: Emergency Preparedness and Safety Fair at Addison Elementary  October 25: Colorado Avenue Block Party  October 16: Resource Planner Aimee Bailey participated on a panel discussion about the future direction of emerging technologies at the 2015 E Source Forum in Denver, Colorado. The annual E Source Forum is attended by over 400 representatives from utilities, energy service providers, government representatives, and others involved in improving and redefining how energy is delivered, purchased, and used.  October 23: Communications Manager Catherine Elvert spoke at the California Municipal Utilities Association and California Urban Water Agencies Water Forum about the work of water utilities with land use planning agencies to further water efficiency standards in new development. On November 13, please join us for the Building Carbon Zero California conference, which brings together experts to discuss passive and sustainable housing design. International climate change expert, Dr. Diana Ürge-Vorsatz, will be the keynote speaker. Break-out sessions will follow one of two tracks: Carbon, Efficiency + Photovoltaic, or Retrofits and Large Passive House. On Saturday, November 14, attendees are invited to join former Mayor Peter Drekmeier on a PedalHaus tour of passive housing projects in Palo Alto. UNFINISHED BUSINESS Commissioner Eglash met with the Utilities Director, Assistant Director, and the Senior Deputy Assistant City Attorney, to discuss the UAC work plan that was discussed at the October UAC meeting. He said that he now recommends that the UAC work plan not be pursued after all. He said that there were issues with the Brown Act, there was a need to assign responsibili ty to someone to do the updates, and he wanted to consider the impact on City staff resources. In addition, he saw that there were other ways to address the issues including the rolling calendar, the quarterly reports. He said that commissioners can alwa ys ask the Director for updates on any issues. Also, there is an opportunity to discuss the ideas at the annual joint meeting with Council and the UAC could provide the status of the items prior to that meeting. In the end, he concluded that it was not a workable idea and that it should be dropped. Commissioner Danaher said that perhaps an update on the five items could be discussed at the UAC on a quarterly basis. Vice Chair Cook thanked Commissioner Eglash for coming up with the idea and for thinking through the implementation of the idea. Utilities Advisory Commission Minutes Approved on: Page 4 of 13 NEW BUSINESS ITEM 1: ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend that the City Council Approve Design Guidelines for the Net Energy Metering Successor Program Resource Planner Aimee Bailey provided a summary of the written report on the Net Energy Metering (NEM) successor program. She stated that Palo Alto's NEM cap established by Council is 9.5 megawatts (MW) and that a program for after that cap is reached is needed. Bailey not ed that the report stated that staff expects that the NEM cap to be reached by mid-2017, but this is an error and staff actually expects to reach the NEM cap by mid-2016. Bailey noted that a NEM successor program falls under the overarching City of Palo Alto Utilities (CPAU) Electric Cost of Service Analysis (COSA) and that Council has adopted design guidelines for the Electric COSA. Bailey discussed each of the six proposed NEM Successor Program design guidelines. Public Comment Herb Borock said that there was nothing explicit regarding Proposition 26 which doesn't allow taxes, which he said includes some aspects of solar PV incentives. He added that if solar expands too much, we will need storage to manage it and it should be taken into account. Chair Foster asked if the Electric COSA design guideline #1 directly addresses the Proposition 26 question. Bailey confirmed that this is the case Commissioner Eglash noted that NEM has been very effective in encouraging rooftop solar and that it is beginning to outlive its life as solar costs decline so that solar can survive on its own. NEM is effectively a subsidy that must be borne by all the ratepayers so that those withou t solar must pay the way for customers with rooftop solar . He said that the staff proposal is exactly the right way to proceed. He said that we all benefit from solar, but NEM is effectively a tax on the poor since it is the richer folks that put solar on their roofs and the poorer people are, thus, subject to the "tax". Vice Chair Cook said that Commissioner Eglash covered the issue regarding the subsidy NEM provides. Vice Chair Cook asked why net metering was put in place. Bailey said that the high cost of solar was a factor in the state adopting net metering. Assistant Director Jane Ratchye made a distinction between NEM and surplus net energy, that is the over-generation over 12-months that is sold back to the utility. Bailey pointed to a back-up slide showing Residential Tiers versus Avoided Cost. Vice Chair Cook said he put solar panels on the roof of his house 9 years ago and tried to size it to cover his electric costs. Commissioner Ballantine asked about the value of electricity for different times of day. Ratchye clarified that the energy does have different value throughout the day but that Palo Alto does not have time-of-use (TOU) rates. Utilities Advisory Commission Minutes Approved on: Page 5 of 13 Vice Chair Cook said that if his system is sized just right, then he would not be paying the full cost of his service. He suggested that cost of service be included in the guidelines. The goals may be contradictory. Bailey said that avoided cost is used to calculate the value of solar. Bailey confirmed that the basis for the Palo Alto CLEAN program price is based on the value of solar, or the “avoided cost” of local solar, or the cost of remote renewable energy delivered to Palo Alto. Vice Chair Cook asked if there is a guideline addressing fairness. Bailey said that the electric COSA design guideline #1 addressing Proposition 26 addresses fairness and equity. Vice Chair Cook asked which guideline addresses the issue raised that the lower energy using customers are compensated at a lower rate compared to high er energy users. Bailey said that this is addressed by guideline #1. Vice Chair Cook asked if the potential adoption of smart meters and co-adoption of TOU rates should be considered. He noted that the high value time of day may change over time. Bailey said there is a strong relationship between rates and the NEM successor program. TOU rates will be addressed in the second phase of the Electric COSA, not the first phase that we are under now. Bailey stated that the NEM program would revised upon implementation of AMI and time varying rates. Vice Chair Cook said that his comments are not anti-renewable energy and that this is a fascinating topic. He advised that we shouldn't be negative with respect to renewable energy resources and need to somehow encourage clean energy at the same time as determine how to properly support it. Commissioner Schwartz said that she especially supports the guideline for the value of solar. She said that the reason Palo Alto can't do anything with respect to TOU is that CPAU hasn’t yet fully deployed smart meters. She said people with rooftop PV should possibly be compensated at the wholesale price. Bailey said CPAU can consider that in the development of a program. Commissioner Schwartz asked if interval meters can be used as a step less than full smart meter deployment. Bailey said that it was a possibility and that interval meters will be considered. Commissioner Schwartz noted that the purposes of the plan now may change over time and since CPAU claims to be carbon neutral, she questioned the value of rooftop solar PV. Chair Foster responded that energy consumed at night is either renewable or covered by a Renewable Energy Certificate (REC). Ratchye said that CPAU’s electric supplies are carbon neutral according to The Climate Registry’s protocol adopted by Council. Commissioner Schwartz said it’s hard to justify subsidies for rooftop PV if Palo Alto is carbon neutral. She added that customers should pay something for using the grid. Commissioner Eglash said that CPAU’s electric rates do not have a large fixed component or connection charge, but that could be changed. He asked if CPAU should consider a large fixed Utilities Advisory Commission Minutes Approved on: Page 6 of 13 charge for the rates. Schwartz suggested that the fixed charge be “fair” instead of “large”. Ratchye reminded that Council has adopted the Phase One Electric COSA guidelines and that one included that we would consider having a minimum charge, rather than a fixed charge. She noted that minimum charges impact solar customers and very low energy users. Commissioner Ballantine showed that the trend is to higher solar penetration that could lead to an issue. Bailey said that the NEM successor program design guidelines were aligned with the first phase of the Electric COSA (0-5 years). Commissioner Ballantine asked if guideline 2 (consider compensating solar participants at a rate equivalent to the value of solar to Palo Alto via “value of solar tariff”) should be more specific. Commissioner Danaher suggested that the guideline refer to value of solar as the “avoided cost” of renewable energy delivered locally since that's really what that means. Commissioner Ballantine said the “Duck Curve” may not matter today but may become more important later. Ratchye said CPAU is impacted by wholesale prices since the value of our resources and loads depend on those prices. She said in the future metering equipment can be installed that can allow retail pricing based on TOU rates or even real-time pricing. Commissioner Ballantine said a guideline should address this idea . Ratchye replied that guideline #6 does just that. Commissioner Ballantine said is fine with #6, but worries that the guideline by itself may not have enough explanation . Ratchye pointed to more detail on each guideline provided in the staff report. Commissioner Ballantine asked if storage is covered in guideline #3. Bailey confirmed that this was the case and clarified that storage would be behind the customer meter. Commissioner Danaher wondered if there is a social benefit to local solar, but said he would prefer saving money by accessing much less costly large utility-scale solar projects instead of higher cost local solar and, instead of subsidizing local solar, use the money for efficiency and electrification. Commissioner Danaher said that he supports the guidelines and, especially the concept of compensating solar customers by the avoided cost. He asked how customers who have already installed solar would be treated. Bailey said those customers under the NEM cap are grandfathered into the current NEM program (compensation based on retail rate), but they are still subject to changes in Palo Alto’s electric rates. Chair Foster suggested that the value of local solar could be added to a future agenda. Ratchye said the rolling calendar includes a Palo Alto CLEAN program update in December and there will be discussion about avoided cost and additional local value. She said that Council has opined on this in the past when adopting prices for the Palo Alto CLEAN program. Danaher said he would like to understand the Council’s perspective and to hear the theories about the additional local values to local solar. Chair Foster (noting Council Member Filseth in the audience) said that Council was divided on the issue of the value of local renewable generation. Utilities Advisory Commission Minutes Approved on: Page 7 of 13 ACTION: Commissioner Danaher made a motion that the UAC recommend Council approve the guidelines as presented with a change to guideline #2 to add “avoided cost, including time of day” to the value of solar. Commissioner Schwartz said that “avoided cost” is a difficult concept to explain and communicate. Commissioner Eglash said that what we pay for green energy that is brought to the Citygate is the definition of value of solar so that the guideline captures that. The motion died for the lack of a second. Vice Chair Cook made a motion that the UAC recommend that Council approve the guidelines as presented. Commissioner Eglash seconded the motion. The motion carried (6-0) with Chair Foster, Vice Chair Cook, and Commissioners Ballantine, Danaher, Eglash, and Schwartz voting yes and Commissioner Hall absent. ITEM 2. ACTION: Selection of Potential Topic(s) for Discussion at Future UAC Meeting Commissioner Danaher requested that the Commission hear the status of the five topics of interest from the last joint UAC/Council meeting. Chair Foster asked for a n update on these items for the December meeting so that the Commission can get back to Council on what has been done, status and timeline. He said it could be an oral update in the Director of Utilities report. Ratchye said any update requires staff work; staff could give a brief status update but not go into detail. Chair Foster asked for a timeline for each item. Ratchye said the amount of staff work to develop a timeline depends on the topic. Commissioner Ballantine asked that the solar hot water heating program be agendized. Chair Foster, pointing to the 12-month rolling calendar, noted that this item is already planned for the December meeting. Commissioner Schwartz asked for an update on Fiber to the Premise, but noted that she will not be at the December meeting. Chair Foster said that January meeting could be appro priate for that discussion. Mullan said that there is ongoing work by City staff on that issue. Chair Foster said that the City’s Chief Information Officer Jonathan Reichental should be requested to attend the meeting. Mullan said that she heard the commission's concerns and will attempt to determine an appropriate title for the item. Chair Foster said that the UAC, and not the Director of Utilities, should control the UAC agenda and suggested that preparation of the agenda should be discussed at a future meeting. Mullan said that there is some guidance in the UAC’s bylaws. ACTION: None. ITEM 5. DISCUSSION: Update and Discussion on Impacts of Statewide Drought on Water and Hydroelectric Supplies Senior Resource Planner Karla Dailey noted that there is little new information to report on the drought. She said that the City is doing well towards meeting its water reduction goals for Utilities Advisory Commission Minutes Approved on: Page 8 of 13 calendar year 2015 to date and for the period starting June 2015 for which the City's mandated reduction goal from the State is 24%. The drought also has resulted in additional cost of about $11.4 million for FY 2016, but is still within the rate impact cap for carbon neutral electricity. COMMISSIONER COMMENTS Commissioner Schwartz said that she has been working on a colleagues memo on fiber to the premise (FTTP) that she would like to be available for the January meeting when members of the UAC have asked that the item be discussed. She then read her draft of the memo, a written copy of which was subsequently provided to staff as follows (there was no discussion of the comments by the rest of the UAC): 1. Background Palo Alto installed a dark fiber ring that is presently accessed primarily by large corporate customers. While expansion has been revisited periodically by the UAC the fiber ring was not extended to all residential locations for a variety of reasons. In the intervening time, third party broadband service providers entered the market and are now well-established and continue to add new services. At the request of City Council, the UAC is again revisiting whether to invest $77 million (the estimate of the consultants engaged by the City) to extend the fiber network to every single residence in the City and explore if there are other ways to leverage the accumulated $20 million fiber fund that would deliver value to the community. 2. Executive Summary As the narrative below describes in more detail, the City of Palo Alto has a tremendous opportunity to leverage (and continue to reinvest in) this core foundati onal piece of communication infrastructure for innovative applications that support critical services and better resource management. Where fiber is used effectively in other cities, it is integrated with Smart Grid and IoT deployments. My independent research and analysis suggests that Palo Alto and its citizens would be better served if we selectively build on our foundation rather than extend fiber to every business and residence as either a public benefit or as a business competing with the private sector. 3. What problems are we trying to solve with FTTP? Virtually all involved in Palo Alto’s FTTP discussion agree that a state -of-the-art communications network is critical for a healthy and robust economy and innovative business environment. Palo Alto, the birthplace of Silicon Valley, is highly prized as a business location for start ups and established companies. In addition to infrastructure, our city and region possess many talented people, specialized business services, a great climate, and access to capital—all of which make us the envy of communities across the globe. Our housing prices are so high because so many people want to live and work here. Utilities Advisory Commission Minutes Approved on: Page 9 of 13 FTTP will not fill a gap in our desirability as a destination While we shouldn’t rest on our laurels, Palo Alto is already a symbol of economic vitality to which other communities aspire. How much more desirable do we need (or want) to be? Our citizens already have universal access Every neighborhood in Palo Alto currently has access to broadband Internet, cellular wireless service, and many businesses provide free WiFi. This means all residents can choose to send email, access important informational websites and electronic medical records, use Facetime/ Skype/VOIP and watch videos, TV, and movies, and use online games and applications with the services that are available today. The disruptive trend currently facing the personal computer and telco companies is the shift from fixed point to mobile devices and apps that can be used anywhere by using the cellular and wifi networks. These networks may use fiber as a backbone/backhaul, but do not require fixed residential connections. What do people use broadband connections for in their residences? Many of the emails, discussions and comments from the community on this issue quote technical specs at length. As someone who has worked for decades in high tech marketing, I recognize the tendency to focus on “speeds and feeds” is not new. However, when asked about which applications are being compr omised, the responses become less precise. Downloaded and streaming entertainment (HD movies, TV, games) are the primary applications that require broadband. Upload speeds are slower than download speeds because most commercial services, and customers, consume more bits than they produce. A faster fiber connection would reduce upload time of large video, music, and photo files, improve participation in immersive virtual reality games, HD video conferencing and back up enterprise -scale file systems onto the cloud. For a quick reference on application requirements, take a look at these two charts on the Federal Communications Commission fcc.gov site. Broadband Service for the Home: A Consumer's Guide - FCC Broadband Speed Guide - Household Broadband Guide Businesses and people who use applications that require faster upload speeds can purchase a fiber connection today from either the city or AT&T (and possibly Google or Comcast in the near future). If this is for a business purpose, then I believe that can reasonably be considered a business expense and question whether providing this level of service to everyone who doesn’t need it makes financial sense. Utilities Advisory Commission Minutes Approved on: Page 10 of 13 How cheap do services need to be to be acceptable? Businesses and residents can choose from an array of Internet products offered by AT&T or Comcast for between $14.99 and ~$150 per month depending on the combination of services desired. Both businesses and residents with a pressing need for the speed of fiber connection for large, frequent and fast uploads of large amounts of data can purchase that level of service from either the City or from AT&T today. (Prices vary depending on location, which suggests expansion of the City ring as needed to key business districts would be a good investment.) With the likely entrance into the market of Google Fiber, it is reasonable to assume that there will be competitive and downward pressure on prices to install fiber connections where desired. For residents who want faster web access and downloads without fiber, Bob Evans of the Fiber Internet Center suggests they sign up for both ATT U-verse and Comcast Internet service. That way they have redundancy if one service is running slow for their Internet connection and it would still cost less than $100 dollars per month. That would be cheaper than a fiber connection to the home and wouldn't cost the city anything. If we are concerned that middle and low-income residents cannot afford access to basic services, it would be far cheaper to subsidize their service contracts than to build out FTTP to everyone's home and create a city-run service entity to provide IP addresses, support personnel, marketing, and program development to compete with AT&T, Comcast, Google, and other ISPs. Overcoming complaints about existing services: FTTP will not eliminate slow downs and bottlenecks associated with applications that require broadband Just because a device or network can transmit data faster, doesn’t mean that the faster processing power or larger “pipe” automatically translates into a superior or even different user experience. Something as simple as leaving too many browser windows open on sites that are concurrently running scripts can have a noticeable impact. Multiple users in the home using different devices or neighbors sharing the same infrastructure can cause a slow down. As documented more fully on fcc.gov and explained by Bob Evans, Co-Owner of the Fiber Internet Center, “The Internet network is a complex collection of routers, switch es, hubs, Internet connections, transit providers, DNS servers (that translate URLs like google.com to IP addresses) and server resources. “Anywhere along the line, a delay or overload can occur that could make a user feel like their service is slow. The truth of the matter is that the average consumer computer can only go so fast due to limitations on its internal chips, hard drive speeds, memory, and software. Utilities Advisory Commission Minutes Approved on: Page 11 of 13 “No consumer PC can physically go 1Gbps, probably not even 100Mbps due to these same product and software limitations. Even with a fast connection to the home, if a user goes to a particular website, say Apple.com, it could feel slow if lots of users are downloading a new release of iOS for example because the servers at Apple are over loaded from all the users trying to download the same release at the same time. Google and other large companies also experience blockages or slow downs due to overloading of resources by lots of users on the Internet. Google, Amazon, Yahoo, Microsoft and many others have all gone down at one time or another. It is a fact of life on the Internet.” If Palo Alto enters this market as a fiber service provider, our customers can reasonably expect to experience the same sort of blockages, slow downs, and occasional outages whether due to limitations on their machines, congestion on our fiber lines, regional routers, or overloaded destination sites. Personal experience: My husband and I don’t have cable and use a traditional rooftop antenna for watching broadcast TV (free and better quality image). We also watch TV/movies on a first generation iPad via hulu or Netflix via our AT&T U -verse Wifi connection. With the iPad, we will sometimes experience delays during peak periods with high demand. A fiber connection to our home would have no impact on this type of delay. However, watching on the AppleTV does solve the problem today because that device and software uses buffering to smooth out the experience. Can a city-run entity provide better customer service than the incumbents? We also hear complaints about Comcast and AT&T customer service with the expressed hope that our FTTP network would improve the situation by offering a faster/better/cheaper alternative. Management (either independently as another city service or in partnership with an ISP) would require our small, lean utility that presently delivers only monopoly, commodity services compete with well-financed corporations with huge marketing operations, promotional budgets, and tech, customer service and installation support. To imagine a brand-new department can outperform on every technical performance and customer satisfaction metric, provide acceptable 24x7 support, and hit sufficiently high penetration levels needed to fund the operation seems overly optimistic to me. The staff’s reticence to take this on seems quite prudent. Will Palo Alto be left behind if we do not deploy FTTP? Another argument made for building out FTTP is that we need to be prepared to support future applications that do not yet exist (or are not yet commercialized). As previously noted, it’s likely that future disruptive applications will be built upon mobile rather than fixed platforms. If there are a number of experimental applications or services the City wishes to encourage, it would again be more cost effective to manage Utilities Advisory Commission Minutes Approved on: Page 12 of 13 by exception and offer “innovation scholarships” or create a ‘fiber garage” for fledgling entrepreneurs who have not yet secured capital. Should Palo Alto provide FTTP as a public benefit? Chair Foster has suggested that we consider FTTP as a public benefit in the same spirit as parks, public schools, libraries, recreational, and cultural facilities. The discussion then becomes a question of how we as a community choose to spend our money. The more that I’ve studied this issue, the more I’ve come to believe that bringing fiber to private homes is difficult to justify as a public benefit. Even if we all don’t personally take advantage of all of them, the other examples are public spaces, not improvements to private residences. Their fundamental physical infrastructure remains useful even if the content within changes and maintenance and periodic upgrades are required. 4. In what ways is EPB/Chattanooga a model for Palo Alto? In light of Jeff Hoel’s recent emails citing EBP, I thought it would be helpful to include a brief discussion of their initiative. As part of my consulting practice, I’ve done case studies on EPB, referenced their best practices in many presentations and papers, invited their folks to speak on multiple panels at conferences, listened to many of their presentations and read industry studies and articles about them over the years. EPB is a great example of an innovative utility and the lessons from their story go far beyond FTTP though not everything is directly relevant to our situation. I understand members of the City Council have visited EPB and PAU staffer Jim Fleming is very familiar with their efforts. What is significant if you look at their dedicated website http://chattanoogagig.com/ is that these fiber offerings are part of a larger integrated Smart Grid program that was initially funded in part with $111 million in ARRA stimulus money. Note that they talk about their network being 200 times faster than the national average, which would also suggest that they are far ahead of mainstream consumer applications that might take advantage of the extra speed. Most significantly, their development and investment goals are completely different than Palo Alto’s and we should look at their FTTP deployment in a broader context. The original reason for their investment was that the City of Chattanooga had fallen on hard times with the loss of its industrial base and they were looking for a way to make the city attractive to tech companies (i.e. be more like Palo Alto). It was an economic and business revitalization project and the fact that they could offer Internet and TV services to residential customers was a by-product not the core reason behind the initiative. EPB built out their electricity distribution automation system first which is why they’ve had such great reliability in storms and they used the entertainment Utilities Advisory Commission Minutes Approved on: Page 13 of 13 services they offered as a way to engage residents while the later AMI phase of the project was being deployed. There was also not a lot of broadband investment in their community at the time they first offered the service (unlike Palo Alto today). In 2008 when Comcast brought the suit against EPB over their $219,830,000 bond issue to enter the Cable TV business, it w as the smart grid deployment that was a critical element in deciding the case in EPB’s favor. http://www.chattanoogan.com/2008/7/11/131292/Chancellor-Brown-Dismisses- Comcast-Suit.aspx What can we learn from EPB in order to take advantage of our far -sighted fiber investment? I remain very enthusiastic and supportive of the City continuing to invest in its fiber ring and think we have an exciting and unique opportunity. Our City leaders have a strong commitment to green energy and reducing our carbon foot print. However, Palo Alto lags behind many other U.S. cities and utilities in leveraging technology to manage resources most effectively. By more proactively incorporating what are now widely deployed and proven strategies, we could leverage our fiber ring, increase our community and neighborhood wireless hotspots, improve city services and transportation, and leapfrog other communities by deploying integrated management of our utility services for water, gas, and electricity, waste and storm water. Innovation in this area would not only demonstrate our thought leadership in measurable ways, it would provide a model to be replicated in other communities. I would request that we add a discussion of this topic as an agenda item for the January meeting. Thank you. Meeting adjourned at 9:13 p.m. Respectfully submitted, Marites Ward City of Palo Alto Utilities Page 1 of 9 2 MEMORANDUM TO: UTILITIES ADVISORY COMMISSION FROM: UTILTIES DEPARTMENT DATE: December 2, 2015 SUBJECT: Staff Recommendation that the Utilities Advisory Commission Recommend that the City Council Adopt a Resolution to Continue the Palo Alto Clean Local Energy Accessible Now (CLEAN) Program at the Current Contract Price of $0.165 per kilowatt-hour for Local Solar Resources and at the Avoided Cost Level ($0.081 to $0.082 per kilowatt-hour) for Local Non-solar Eligible Renewable Resources REQUEST Staff recommends that the Utilities Advisory Commission (UAC) recommend that the City Council adopt a resolution (Attachment A): 1. To maintain the Palo Alto CLEAN program price for local solar energy resources at the current price of 0.165 dollars per kilowatt-hour ($/kWh) for a 20-year or 25-year contract term, and continue with a program limit of 3 megawatts (MW); and 2. To reduce the Palo Alto CLEAN program price for local non-solar eligible renewable energy resources to the updated avoided cost of such energy ($0.081/kWh for a 20-year contract term, or $0.082/kWh for a 25-year contract term), from the prior avoided cost projection ($0.093/kWh for a 20-year contract term, or $0.094/kWh for a 25-year contract term), and to continue with a separate program limit of 3 MW specifically for local non-solar eligible renewable resources. EXECUTIVE SUMMARY In March 2012 the Council adopted the Palo Alto CLEAN program (also commonly referred to as a feed-in tariff, or FIT, program). The program was designed to address the Long-term Electric Acquisition Plan (LEAP) objective to enhance supply reliability through the pursuit of local generation opportunities, and to complement the City of Palo Alto Utilities’ (CPAU’s) existing PV Partners solar rebate program. Palo Alto CLEAN created an additional alternative for property owners by enabling them to build a new solar system on their property and sell the energy to CPAU under a long-term, fixed-rate, standardized contract rather than use the energy on site. Though solar developers expressed interest in Palo Alto CLEAN in 2012, the initial contract price ($0.14 per kilowatt-hour (kWh) for a 20-year term) proved insufficient to facilitate the most Page 2 of 9 common business model used by project developers, which involves a third-party investor leasing roof space from a property owner. Council increased the Palo Alto CLEAN price to $0.165/kWh in December 2012. In May 2015, Council added a 25-year contract term option, and expanded the program to include non-solar eligible renewable energy resources, setting their contract prices at the avoided cost level ($0.093/kWh for a 20-year contract or $0.094/kWh for a 25-year contract). Although the avoided cost of local solar resources has declined since Council’s May 2015 decision, staff recommends continuing the contract of $0.165/kWh for local solar projects. Staff recommends continuing to offer non-solar eligible renewable energy resources a CLEAN price equal to the avoided cost of the energy produced by those resources —which is currently estimated at $0.081/kWh for a 20-year term, and $0.082/kWh for a 25-year term. BACKGROUND CPAU has a long history of supporting solar power. It initiated the PV Partners program in 1999 to provide rebates to residential and commercial customers who install solar for their own use , and in 2007 the program was expanded to meet the requirements of the State’s Million Solar Roofs Bill (Senate Bill 1 (SB1), 2006). CPAU is mandated by SB1 to offer rebates through the PV Partners until the total SB1 program budget of $13 million has been exhausted, which is expected to occur within a year. Currently, $585,000 in funds remain unreserved for commercial solar PV systems. All residential rebate funds were reserved as of August 2014. In March 2012, the City expanded its support for local distributed generation by launching Palo Alto CLEAN (Clean Local Energy Accessible Now) with a price of $0.14/kWh for a 20-year contract (Staff Report 2548, Resolution 9236). The program, which was set to expire in December 2012, expanded the options available to property owners by enabling them to sell energy directly to CPAU under a standardized long-term contract instead of using the energy on site. After receiving no response to the program, in December 2012, Council extended the CLEAN program and increased the rate to $0.165/kWh for a 20-year contract (Staff Report 3316, Resolution 9308). In February 2014, Council extended the CLEAN program again at the rate to $0.165/kWh for a 20-year contract, and increased the program capacity limit to 3 MW (Staff Report 4378, Resolution 9393). On April 22, 2014, the City Council adopted the Local Solar Plan (Staff Report 4608, Resolution 9402), which set the overarching goal of meeting 4% of the City’s total energy needs from local solar by 2023 and unified the City’s approach toward local solar and de scribed a set of diverse strategies for meeting the 4% target in a cost-effective manner that does not create a burden on non-solar customers. Prior programs, incentives, and policies involving solar installed in the City—including specifically PV Partners, net energy metering, and Palo Alto CLEAN—are integrated into the Local Solar Plan strategies. The CLEAN program plays an integral role in achieving the Local Solar Plan goal contributing about 0.5% of the City’s total energy needs once the program’s 3 MW cap on local solar projects is reached. Page 3 of 9 In December 2014, staff presented a recommendation to the UAC to continue the CLEAN program for solar resources at the $0.165/kWh for a 20-year contract, while also adding a 25- year contract term option and expanding the program to non-solar renewable energy resources, setting the price for those resources at the avoided cost level ($0.093 /kWh for a 20- year contract, $0.094/kWh for a 20-year contract) (UAC report). The staff recommendation also included maintaining the 3 MW cap on solar resources, and not adopting a cap on the participation of eligible non-solar resources since they would be compensated at the avoided cost and did not cause any impact on rates. The UAC unanimously supported the recommendations concerning solar resources, but did not support the recommendation to expand the program to non-solar renewable energy resources, siting insufficient justification in the staff report for the addition of these resources. In March 2015, staff presented the same recommendation described above to the Finance Committee, with the addition of a 3 MW participation cap on eligible non-solar resources and an expanded discussion of the extension of the program to non-solar resources in the report (Staff Report 5428). The Finance Committee considered staff’s and the UAC’s recommendations, and committee members expressed no concerns with the proposals to add a 25-year contract term option or to expand the program to non-solar eligible renewable energy resources. However, Committee members expressed serious concern about the proposal to continue offering the contract price of $0.165/kWh for solar resources, rather than a lower rate closer to the current avoided cost of that solar energy. Ultimately the Finance Committee voted unanimously to recommend that Council expand the CLEAN program to non - solar resources, but to set the contract prices for both solar and non-solar resources equal to those resources’ avoided costs (for solar resources, $0.103/kWh for a 20 -year contract and $0.104/kWh for a 25-year contract; for non-solar resources, $0.093 /kWh for a 20-year contract, $0.094/kWh for a 20-year contract). In May 2015, Council considered the UAC and Finance Committee recommendations (Staff Report 5849) and were advised that reducing the CLEAN Program price for solar resources (from 16.5¢/kWh to 10.3¢/kWh or 10.4 ¢/kWh, depending on contract term length) also has implications for a City project (solar installations on City-owned parking garages) and a City program (the Community Solar Program) under design at the time. The Council voted to: extend the CLEAN program again at the rate of $0.165/kWh for a 20-year contract for solar resources; add a 25-year contract term option; and expand the program to include non-solar eligible renewable energy resources—setting contract prices for such resources at the level of their avoided cost, which at the time was $0.093/kWh for a 20-year contract or $0.094/kWh for a 25-year contract, and setting a separate 3 MW program capacity limit on such resources. One important consideration in Council’s decision to maintain the contract rate of $0.165/kWh for solar resources, rather than reducing it to the avoided cost level as the Finance Committe e advocated, was the expectation that the Public Works Department would soon be executing a lease of rooftop space at several downtown parking garages with a company that would use that space to develop a group of solar facilities (totaling about 1.5 MW of capacity) that would participate in the CLEAN program. Although negotiations with that vendor later fell through, at the time staff anticipated that the City would receive about $15 5,000 per year in revenue from Page 4 of 9 that lease, and Council specified that those revenues should be directed to the Electric Fund in order to mitigate the impact on electric ratepayers of maintaining a CLEAN program rate for solar resources that was greater than their avoided cost. At that time (as shown in Table 1 below), the excess cost of a CLEAN price for local solar of $0.165/kWh (amount above the avoided cost) was estimated to be $310,000 per year for 3 MW of capacity and the lease payment for the garage project of $156,000 per year for 1.5 MW of capacity would cover the excess cost almost exactly, reducing the impact on electric rates. Staff regularly receives new inquiries about the Palo Alto CLEAN program from solar developers and property owners; however, no applications have been received as of the end of October 2015. The property owners who have investigated the program to date either chose not to participate or chose to evaluate projects under the PV Partners program instead. Despite the lack of participation, there have been positive outcomes from the program offering. The program prompted developers to take a serious look at the cost of developing solar projects in Palo Alto, and some of them shared that information with CPAU staff. At the same time, the solar project permitting processes at the development center have been improved based on input gathered from solar developers. In addition, in response to frequent requests from developers for detailed information about the City’s electrical distribution system, staff is in the process of developing a map showing the locations of likely low-cost interconnection points. In addition, several public utilities across the country have called CPAU to discuss how to follow Palo Alto’s lead and develop a CLEAN program in their own service areas. Finally, under current legislation, developers of solar projects are eligible to receive the federal Investment Tax Credit (ITC), worth 30% of the total installed cost of the solar facility; however, unless Congress passes an extension, the ITC benefit is scheduled to fall to 10% at the end of 2016. Given the looming drop-down in this valuable benefit, if any solar developers are to successfully complete a project under the CLEAN program they will likely need to do so by the end of next year – or else wait for solar costs to fall enough to make a project cost-effective. DISCUSSION Value of Local Solar Resources When establishing the CLEAN price of $0.165/kWh in December 2012, Council reviewed the market value of local solar energy and determined that, beyond the value of the energy itself, there were additional financial and environmental benefits to increasing local solar generation. In May 2015, when Council re-affirmed the $0.165/kWh price, staff estimated the cost of buying remote solar energy outside of Palo Alto and transmitting it to Palo Alto was $0.103/kWh (including renewable energy value, transmission and capacity) for a 20-year contract. Therefore, purchasing the energy generated from 3 MW of local solar projects at $0.165/kWh was expected to cost about $310,000 per year more than buying the same energy outside of Palo Alto (and having it transported to Palo Alto). This extra cost is equivalent to a 0.26% increase in the electric utility’s costs. Page 5 of 9 However, at the time Council re-affirmed the $0.165/kWh price, Public Works staff was nearing the end of negotiations on a lease agreement of parking garage rooftop space to a solar developer—who intended to install solar systems on these rooftops totaling about 1.5 MW, and have those resources participate in the CLEAN program—that was expected to provide approximately $150,000 per year in lease payments to the City. In May 2015, when it re- affirmed the $0.165/kWh price for solar resources, Council also directed that the roughly $150,000 per year in lease payments under this arrangement be allocated to the Electric Fund to offset the additional cost to ratepayers of providing a contract price exceeding the avoided cost of the energy generated through the program. Council determined that this additional cost (after being offset by the $150,000 per year in lease payments) was acceptable as a means to encourage local solar installations and in light of additional benefits of encouraging local solar generation. Unfortunately, lease negotiations between the City and the solar developer foundered and the City ceased negotiations with the developer1. The City then decided to begin lease negotiations with another respondent to the RFP, and Public Works staff anticipates bringing this agreement to Council for consideration in the near future2. This second developer is also expected to use the rooftop space to install solar systems that will then participate in the Palo Alto CLEAN program. The proposed lease agreement with this developer is also expected to yield lease payments of $20,000 per year to the City, which is significantly lower than the $150,000 per year that was being discussed with the first developer. Although the lease terms that are being discussed include significantly lower rent, the lease is expected to require installation of 18 new Level 2 electric vehicle chargers and electrical infrastructure to support an additional 80 future new Level 2 chargers. The electrical vehicle chargers and infrastructure have a significant value that is in addition to the rent. Additionally, the Council Policy and Services Committee is expected in the near future to discuss options for changing the City’s current policy of free use of electric vehicle chargers. Changes to the policy may result in the generation of revenue from the new electric vehicle chargers that could be used to offset the additional cost to ratepayers of the $0.165/kWh CLEAN program price, in addition to the $20,000 per year in rent payments. Updated Value of Renewable Energy In April 2015, the City released an RFP for renewable energy projects that could deliver energy to the City starting in 2021. Although the City has not yet approved a Power Purchase Agreement (PPA) resulting from this RFP, the responses that the City received to this solicitation can be used to estimate the current value of renewable energy in California. Of the 41 project proposals received in this RFP, staff placed the 10 highest -ranking proposals on a “shortlist”; the average proposed price of these shortlisted proposals was $0.055/kWh. On a levelized basis over a 20-year term, the cost to deliver that energy to Palo Alto, combined with 1 See this staff report for an explanation of staff’s June 29, 2015 recommendation to reject the developer’s proposal: http://www.cityofpaloalto.org/civicax/filebank/documents/48009. 2 Note that the proposal from the second respondent involves developing solar installations on only four of the five parking garage rooftops offered up in the RFP. As a result, the aggregate solar capacity of these installations is expected to be about 1.38 MW. Page 6 of 9 the capacity related benefits that local solar would provide, is projected to be an additional $0.034/kWh for a total value of local solar energy of $0.089/kWh. Over a 25-year term, the levelized delivery- and capacity-related cost is $0.035/kWh for a total value of local solar energy of $0.09/kWh. When Council re-affirmed the $0.165/kWh price in May 2015, the avoided cost for solar energy was estimated to be $0.103/kWh for a 20-year term, and $0.104/kWh for a 25-year term. The $0.014/kWh reduction in the estimated avoided cost of local solar energy from then to now is entirely due to a reduction in the estimated value of the renewable energ y itself. Previously, the energy value was based on the last long-term renewable PPA that the City executed; this agreement, signed in June 2014, was to buy energy from a 25 MW solar energy project in central California at a cost of about $0.069/kWh (Staff Report 4791, Resolution 9416). The energy generated by 3 MW of local solar projects would supply about 0.5% of the City’s total electricity needs. Table 1 below shows the history of the Palo Alto CLEAN price since the program started as well as the proposed CLEAN price for solar resources for a 20-year contract term. Table 1 – Palo Alto CLEAN Program Prices for Local Solar Council Approval Avoided Cost of Local Solar Generation * ($/kWh) CLEAN Price ($/kWh) Annual Excess Cost (Rate Impact) Total Excess Cost over 20- year Term March 2012 0.136 0.140 $15,000 (0.01%) for 2 MW cap $300,000 December 2012 0.116 0.165 $160,000 (0.10%) for 2 MW cap $3.2 million February 2014 0.099 0.165 $332,500 (0.27%) for 3 MW cap $6.45 million May 2015 0.103 0.165 $310,000 (0.26%) for 3 MW cap $6.2 million Current Proposal 0.089 0.165 $380,000 (0.32%) for 3 MW cap $7.6 million * The cost of buying remote solar energy outside of Palo Alto and transmitting it to Palo Alto. As shown in Table 1, based on the current total avoided cost estimates, the cost of continuing the $0.165/kWh CLEAN price for 3 MW of solar PV projects is about $380,000 per year more than buying the same energy outside of Palo Alto (and transporting it to Palo Alto). This is equivalent to a 0.32% increase in the electric utility’s costs. For non-solar local eligible renewable energy resources, the estimated avoided cost experienced a similar reduction based on the results of the City’s recent renewable energy RFP. The energy generated by 3 MW of local non-solar renewable energy projects would supply about 2.2% of the City’s total electricity needs (assuming that the projects are “baseload” resources that operate at a high capacity around-the-clock). For these resources, the current Page 7 of 9 estimated avoided costs are $0.081/kWh for a 20-year term, and $0.082/kWh for a 25-year term – which are down from $0.093/kWh and $0.094/kWh, respectively, in May 2015. Table 2 compares the current proposal to the price offered since May 2015 when non-solar resources were first eligible for the Palo Alto CLEAN program. Note that the excess cost is zero since the price is set equal to the avoided cost. Table 2 – Palo Alto CLEAN Program Prices for Local Non-Solar Eligible Renewables Council Approval Avoided Cost of Local Non- Solar Renewable Generation * ($/kWh) CLEAN Price ($/kWh) Annual Excess Cost (Rate Impact) Total Excess Cost over 20- year Term May 2015 0.093 0.093 $0 (0%) for 3 MW cap $0 Current Proposal 0.081 0.081 $0 (0%) for 3 MW cap $0 * The cost of buying remote baseload renewable energy and transmitting it to Palo Alto. Implications of CLEAN Price on City Programs and Projects The CLEAN Program price for solar resources has implications for a City project (Solar Installations on City-Owned Parking Garages), a City program (the Community Solar Program), and the Palo Alto CLEAN Program in general. Reducing the contract price under the CLEAN Program for solar resources may negatively impact these initiatives. Solar Installations on City-Owned Parking Garages Project In March 2014, the City released a Request for Proposals (RFP) for the installation and operation of a solar PV system at one or more of the five City-owned parking structures (Staff Report 4540). The RFP was structured to solicit projects that could be eligible to participate in the Palo Alto CLEAN Program providing an estimated 1.5 MW of local solar capacity. After negotiations ceased with one contractor, Public Works staff is completing negotiations for a site lease for the project with another contractor. The contactor is expecting that the rooftop solar installations will receive a CLEAN contract at a price of 16.5 ¢/kWh for a 25-year contract term. The project may not be viable or significant changes to the lease may be required if the CLEAN Program price is reduced. CLEAN Program Participation The Palo Alto CLEAN Program has yet to receive an application from a solar PV project, even after three years of offering a contract price of 16.5 ¢/kWh. The lack of participation may be attributed to the comparatively high rates that property owners in Palo Alto charge for leasing their rooftop space, as well as the lack of space available to install ground-mounted or parking structure-based projects. Another factor for lack of interest in the CLEAN program has been the availability of Net Energy Metering (NEM) and rebates from the PV Partners program. S taff anticipates that the CLEAN Program will eventually attract participants especially after the PV Partners rebates are used up, the Net Energy Mete ring (NEM) cap is reached, and as the cost of solar panels and other balance of system costs continue to decline. Page 8 of 9 Community Solar Program As part of the Local Solar Plan, staff is developing a voluntary community solar share program, which would be available to all electric ratepayers and would primarily benefit community members who do not have good solar access but want to participate in a local solar project. This program anticipates finding a host site (possibly a City facility) that would have a Power Purchase Agreement (PPA) with the City similar to the CLEAN PPA and at the CLEAN price. If the CLEAN contract price is reduced and a community solar PPA price is reduced to the same level, it may impact the feasibility of the community solar program. The City could decide to set a different contract price for the output from the community solar project, but may have difficulty explaining how it could offer a different contract price to the community solar project than to other local solar projects through the CLEAN Program. Recommendation Staff recommends that the current CLEAN price of $0.165/kWh for solar projects continue. As solar system costs have continued to decrease , and as the deadline for the steep reduction in the federal ITC approaches, it is anticipated that at the current contract price the CLEAN program may attract its first participants in 2016. In addition, staff recommends continuing to offer non-solar eligible renewable energy resources a CLEAN price equal to the avoided cost of the energy produced by those resources, which is currently estimated at $0.081/kWh for a 20- year term, and $0.082/kWh for a 25-year term. Additionally, staff recommends continuing with program caps of 3 MW each for the local solar and the non -solar local renewable resources. RESOURCE IMPACT Staff estimates that the current cost of buying energy from solar resources outside of Palo Alto is $0.089/kWh (including transmission and capacity) for a 20-year contract, or $0.09/kWh for a 25-year contract. Purchasing the energy generated from 3 MW of local solar projects at $0.165/kWh is expected to cost about $380,000 per year more than buying the same energy outside of Palo Alto (and transporting it to the City). This is equivalent to a 0.32% increase in the electric utility’s costs. If the program increased costs by $380,000 per year, staff has determined that the system average electric rate would have to increase by $0.0004/kWh. This is equivalent to a bill impact of $1.95 per year for the median residential customer using 410 kWh/month, or $3.10 per year for a residential customer using 650 kWh/month. Purchasing the energy generated from 3 MW of local, non-solar renewable energy projects is not expected to impact the cost to the Utility, since the recommended price for those projects is equal to the value of acquiring such energy outside the City (and transporting it to the City). Aside from the energy costs described above, staff time is associated with marketing the CLEAN program and project review. The project review can be absorbed with existing staff over the life of the program, and costs will be recovered through project review fees. The marketing effort requires less than 0.1 FTE of staff time. POLICY IMPLICATIONS The recommendation to continue the Palo Alto CLEAN program supports the City's carbon neutral electric supply portfolio policy, the Local Solar Plan, and t he LEAP Objective to enhance supply reliability through the pursuit of local generation opportunities. ENVIRONMENTAL REVIEW Adoption of the attached resolution is not subject to Califo rni a Environmental Quality Act (CEQA) review under California Public Resources Code section 21080(b)(8), because the price adopted reflects the reasonable cost of the CLEAN Program's op er ating expenses, including the cost of purchasing renewable energy from local renewable energy generating systems and the value of local benefits to CPAU and its ratepayers. Approval of the amended CLEAN Program Eligibility Rules and Requirements attached to. the Resolution as Exhibit 1 is not a project under CEQA, and therefore, no environmental review is required. ATTACHMENTS Attachment A: Resolution Continuing the Palo Alto CLEAN Progra m Exhibit 1 to Attachment A: Updated Palo Alto CLEAN Program Elig i bility Rules and Requirements PREPARED BY: REVIEWED BY: APPROVED BY: Page 9of9 Attachment A *NOT YET APPROVED* 151026 jjs 01-0024 1 Resolution No. _________ Resolution of the Council of the City of Palo Alto Continuing the Palo Alto Clean Local Accessible Now Program at the Same Contract Rate of 16.5¢/kWh for Solar Resources and Decreasing the Contract Rate for Non-Solar Renewable Energy Resources to 8.1¢/kWh to 8.2¢/kWh Based on the Reduced Avoided Cost of Local Renewable Energy R E C I T A L S A. On March 5, 2012, the City approved the Palo Alto Clean Local Energy Accessible Now (CLEAN) Program (or feed-in tariff). Under the Palo Alto CLEAN Program, participants who build a new solar generating system in Palo Alto may obtain a long-term, fixed-price contract with the City to sell the energy from the system to the City’s electric utility. B. Council extended the program beyond its original termination date of December 31, 2012 and has periodically reviewed the contract price and program cap. C. On May 27, 2015, Council approved Resolution 9512, which continued Palo Alto CLEAN at the contract price of $0.165 per kilowatt-hour (kWh) for local solar resources, added a 25-year contract term option, and expanded the program’s eligibility to local non-solar eligible renewable energy resources, establishing contract prices of $0.093 per kWh for a 20-year term or $0.094 per kWh for a 25-year term for such resources. These contract rates were set to be equal to the then current estimated avoided cost of the energy generated by these resources. The resolution further established separate program caps of 3 megawatts (MW) of generating capacity for both the solar and non-solar resources. D. As solar system costs have continued to decrease, and as the deadline for the steep reduction in the federal ITC approaches, it is anticipated that at the current contract price the CLEAN program may attract its first participants in 2016. E. In April 2015, the City released a Request for Proposals for projects that could deliver renewable energy to the City, and results indicate that the avoided cost of energy generated by renewable resources has dropped since Council adopted a CLEAN Program price for local non-solar resources in May 2015. F. The City therefore wants to continue the CLEAN program for solar resources at the same contract price and program parameters (including the separate 3 megawatt (MW) caps applicable to the solar and non-solar portions of the program), while reducing the contract prices available to local non-solar eligible renewable resources to $0.081 per kWh for a 20-year term or $0.082 per kWh for a 25-year term for such resources, which is equal to the current estimated avoided cost of energy generated by these resources. Attachment A *NOT YET APPROVED* 151026 jjs 01-0024 2 The Council of the City of Palo Alto (“City”) RESOLVES: SECTION 1. The Council adopts revised Palo Alto CLEAN Program Eligibility Rules Requirements, set forth in Exhibit 1 attached to this Resolution. SECTION 2. The Council authorizes the City Manager or his designee to sign contracts for the output of one or more solar, or other non-solar eligible renewable energy resource meeting the CLEAN Program Eligibility Rules and Requirements described in Section 1. The total CLEAN Program cost commitment made by the City during the life of the program shall not exceed $25,000,000, which is sufficient for a program cap of 3 MW of local solar generating capacity and 3 MW of local, non-solar generating capacity over a 25-year contract term. SECTION 3. The Council finds that the City of Palo Alto Utilities’ (CPAU’s) purchase of energy from local renewable sources provides additional local benefits to CPAU when compared to energy purchased outside Palo Alto, which in turn become benefits to CPAU ratepayers and the local community. These benefits include a reduction in CPAU’s costs and energy losses associated with energy transmission and distribution, and a reduction in CPAU’s capacity requirements. When the City purchases energy from local sources, a portion of the City’s electric expenditures remain within the community, which provides revenue for local economic development. Locating generation near load centers can also reduce the need for new transmission lines, thus reducing the environmental impacts of the electric system and improving reliability in transmission-constrained regions like the Greater Bay Area. When solar systems are installed on rooftops and parking facilities, the shade created reduces the energy required for cooling and creates value for vehicle owners. In addition, as new technology and energy storage systems are developed, the local renewable energy generation, in combination with storage systems, has the potential to provide resiliency to the City’s electric distribution system. Further, local renewable energy generation that participates in the CLEAN Program provides long-term certainty and value to the entire community—benefits that are not provided when such energy is sold to the City on a short-term basis or used on-site. The Council therefore finds that offering the Palo Alto CLEAN Program to participants is a reasonable cost of providing electric service to CPAU’s electric customers. SECTION 4. The Council finds that the adoption of this resolution is not subject to California Environmental Quality Act review under California Public Resources Code section 21080(b)(8), because the rate adopted reflects the reasonable cost of the CLEAN Program’s operating expenses, including the cost of purchasing renewable energy from local solar generating systems, and the value of local benefits to CPAU and its ratepayers as described in SECTION 3 of this resolution. Approval of the amended CLEAN Program Eligibility Rules and // // Attachment A *NOT YET APPROVED* 151026 jjs 01-0024 3 Requirements attached to the Resolution as Exhibit 1 is not a project under CEQA, and therefore, no environmental review is required. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ___________________________ _______________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ___________________________ _______________________ Senior Deputy City Attorney City Manager ___________________________ Director of Utilities ___________________________ Director of Administrative Services PALO ALTO CLEAN (CLEAN LOCAL ENERGY ACCESSIBLE NOW) PROGRAM ELIGIBILITY RULES AND REQUIREMENTS Effective __________ A. PARTICIPATION ELIGIBILITY: The Palo Alto Clean Local Energy Accessible Now Program (the “CLEAN Program”) is open to participation by any Eligible Renewable Energy Resource, as defined in Section D.4, that satisfies these Program Eligibility Rules and Requirements. B. TERRITORIALITY REQUIREMENT: In order to be eligible to participate in the CLEAN Program, an Eligible Renewable Energy Resource must be located in and generating electricity from within the utility service area of the City of Palo Alto. C. PRICES AND TERM FOR ELIGIBLE RENEWABLE RESOURCES: The following purchase price shall apply to the electricity produced by an Eligible Renewable Energy Resource participating in the Program, except as provided in Section D.5. Solar Energy Resources: Contract Term Contract Price 20 years $0.165 / kWh 25 years $0.165 / kWh Other, Non-Solar Eligible Renewable Energy Resources: Contract Term Contract Price 20 years $0.081 / kWh 25 years $0.082 / kWh D. ADDITIONAL RULES AND REQUIREMENTS: 1.The owner of the Eligible Renewable Energy Resource shall enter into an Eligible Renewable Energy Resource Power Purchase Agreement (“PPA”) with the City of Palo Alto prior to delivering energy to the City. 2.The maximum, aggregate generation capacity from all solar facilities participating in the CLEAN Program is three (3) Megawatts (“MW”) (the “Program Capacity”, based on the generating facility’s California Energy Commission rating, CEC-AC). Generating capacity from non-solar, eligible renewable energy resources will not be counted towards this 3 MW cap for the solar program. Instead non-solar, local eligible renewable energy resources will be subject to a 3 MW cap of their own. 3.An application for participation in the CLEAN Program to sell output to the City (the “Application”) may be submitted at any time. Applications will be considered in the EXHIBIT 1 to ATTACHMENT A PALO ALTO CLEAN (CLEAN LOCAL ENERGY ACCESSIBLE NOW) PROGRAM ELIGIBILITY RULES AND REQUIREMENTS Effective __________ order received. 4. Eligible Renewable Energy Resource means an electric generating facility that: (a) is defined and qualifies as an “eligible renewable energy resource” under California Public Utilities Code Section 399.12(e) and California Public Resources Code Section 25471, respectively, as amended; and (b) meets the territoriality requirement set forth in Section B. 5. The California Energy Commission’s (“CEC”) certification of the Eligible Renewable Energy Resource shall be required within six (6) months of the commercial operation date of the generating facility; the facility’s owner shall provide written notice of the CEC’s certification to the City within ten (10) business days of receipt of said certification. If the City agrees, in its sole discretion, to take delivery of the generating facility’s electricity prior to the CEC’s certification, then, as the facility’s electricity cannot be considered in fulfillment of the City’s RPS requirements, the price that the City will pay for the generating facility’s electricity (the “Pre-Certification Price”) will be set to $0.076 per kWh (for a 20-year contract term) or $0.08 per kWh (for a 25-year contract term), based on the estimated levelized cost of brown power over a 20-year or 25-year period, respectively. Upon the CEC’s certification of the generating facility and the provision of notice of such certification to the City in accordance with this section , the City will pay the Price set forth in Section C of these CLEAN Program Rules and Requirements and the PPA (collectively referred to as the “Contract Price”) for the generating facility’s electricity delivered on and after the date of the CEC’s certification. The City will, in its sole discretion, “true-up”, as appropriate, the difference between the Contract Price and the Pre-Certification Price for any electricity received and paid for by the City, effective as of the date of certification of the Eligible Renewable Energy Resource. 6. If an Eligible Renewable Energy Resource is authorized to participate in the CLEAN Program, then that Resource shall not be entitled to receive any rebate or other incentive from the City’s Photovoltaic (PV) Partners Program or any other similar incentive program funded by the City’s ratepayers. To the extent any rebate or incentive is paid to the owner of the Resource, that rebate or incentive shall be disgorged and refunded to the City upon 30 days’ notice, if the Eligible Renewable Energy Resource continues to participate in the CLEAN Program. If a rebate or an incentive has been paid to the Eligible Renewable Energy Resource, then that Resource shall be ineligible to participate in the CLEAN Program. 7. All electricity generated by the Eligible Renewable Energy Resource shall be delivered only to the City. No portion of the electricity may be used to offset any load of the generating facility (other than incidental loads associated with operating the generating facility). 8. A metering and administration fee will be charged to each Eligible Renewable Energy PALO ALTO CLEAN (CLEAN LOCAL ENERGY ACCESSIBLE NOW) PROGRAM ELIGIBILITY RULES AND REQUIREMENTS Effective __________ Resource that participates in the CLEAN Program. See Utilities Rate Schedule E-15 (Electric Service Connection Fees). Page 1 of 3 3 MEMORANDUM TO: UTILITIES ADVISORY COMMISSION FROM: UTILTIES DEPARTMENT DATE: December 2, 2015 SUBJECT: Status Update on the Five Items of Interest Discussed in Joint Utilities Advisory Commission and Council Meeting, Including: (1) Fiber-to-the Premises; (2) Undergrounding of Electric Lines; (3) Second Electric Connection; (4) Electrification; and (5) Recycled Water This report is provided to the Utilities Advisory Commission (UAC) for its discussion, but requires no action by the UAC. DISCUSSION At its November 2015 meeting, the Chair of the UAC requested an update on the five items highlighted at the joint UAC/Council meeting that was held on April 20, 2015: 1) fiber to the premises (FTTP); 2) undergrounding of electric lines; 3) a second electric connection; 4) “fuel switching”, or electrification; and 5) recycled water. FTTP On September 28, 2015, Council discussed this item (Staff Report 6104). Staff is preparing an update that will be provided to the Council on November 30, 2015. The update includes a work plan of Council’s multi-part motion on September 28, 2015 and status of Google Fiber. Undergrounding of electric lines The UAC has discussed this item in June 2007 (UAC Report), January 2010 (UAC Report), September 2011 (UAC Report) and September 2012 (UAC Report). The September 2012 UAC report requested that the UAC “make a recommendation on the appointment of an advisory body to solicit broad community input on potential changes to the City of Palo Alto Utilities electric overhead to underground conversion policy.” In a slight change to the recommendation, the UAC voted to: “recommend that the Council appoint an advisory body to solicit broad community input on potential changes to the City of Palo Alto Utilities electric overhead to underground conversion policy.” This recommendation was brought forward to the Finance Committee on December 18, 2012 (Staff Report 3247). The Finance Committee voted to approve the recommendation (2-1 with Chair Shepherd and Vice Mayor Scharff voting yes, Council Member Burt voting no, and Council Member Price absent). Page 2 of 3 On March 18, 2013, the Finance Committee and UAC recommendation was discussed by the City Council (Staff Report 3529). The item was placed on the Council’s consent agenda, but was moved to the action agenda after a motion by Mayor Scharff, Vice Mayor Shepherd, and Council Member Schmid. At the meeting, staff presented recommendations for the structure of an advisory body to evaluate the undergrounding program. The advisory body would learn about the program in Palo Alto and actions taken by other cities , identify possible modifications to the program and funding mechanisms to facilitate changes, work with the community to gather input, and make recommendations to the UAC and Council. Topics for the advisory body to address included whether to continue the program, funding for the program, and the amount customers were willing to pay. Staff identified two alternatives for structure of the advisory body: 1) a citizen advisory committee appointed by the City Council; or 2) a citizen advisory committee appointed by the City Manager or Utilities Director. The UAC, Finance Committee, and staff recommended the former. The minutes from the March 18, 2015 Council meeting include this excerpt: “James Keene, City Manager, remarked that part of the impetus for an advisory body was an acknowledged gap between the potential scale of needed undergrounding and the City's ability to fund undergrounding. That raised many questions and implications in the purview of the Council. Staff would provide support and technical work. “Council Member Schmid preferred the body return to the Council with a range of alternatives after public engagement. “Council Member Klein stated an advisory body was not in the same category as recommendations from the Infrastructure Blue Ribbon Commission (IBRC). The Council already knew the issue was lack of funding for undergrounding utilities. Increasingly homeowners opposed undergrounding when they learned their cost for extending utilities to the home. An advisory body would learn that undergrounding utilities was not financially feasible, and the Council already knew that. The UAC should consider this topic, if needed. “Council Member Burt concurred with Council Member Klein's comments. He did not believe undergrounding utilities was a critical issue for the community. An advisory body would distract from infrastructure initiatives and dilute resources. “Council Member Holman agreed with Council Members Klein and Burt's comments. Perhaps a few paragraphs could be added to the Utilities page of the City's website to update the public. “Council Member Price concurred with Council Members Klein, Burt, and Holman. Page 3 of 3 “Mayor Scharff believed undergrounding utilities was a lingering issue. The community needed to know the costs and alternatives for funding. A citizens committee would be helpful in providing community input and information regarding costs. The Council should support the UAC's recommendation to have an advisory body.” The motion to support the recommendation from staff, the UAC and Finance Committee failed (4-5 with Council Member Berman, Vice Mayor Shepherd, Mayor Scharff, and Council Member Kniss voting yes and Council Members Burt, Holman, Klein, Price and Schmid voting no). Second Electric Connection The most recent comprehensive update on this project was provided to the Council on January 27, 2014 (Staff Report 4255). Staff is preparing an update that will be provided to the Council in January 2016. Electrification Council adopted an electrification work plan (Staff Report 5961) on August 17, 2015. Staff is implementing the work plan items, as appropriate. Recycled water City Council certified the Final Environmental Impact Report for expanding the recycled water pipeline system to reach the Stanford Research Park on September 28 (Staff Report 5962). Staff is preparing a business plan for the project as well as examining alternatives such as installing equipment to purify treated wastewater to potable water standards. No timelines have been established for this work. RESOURCE IMPACT Production of this memorandum is not part of CPAU’s work plan, but is being provided as requested by the UAC, and required 12 hours of staff time. ENVIRONMENTAL REVIEW This status update does not meet the California Environmental Quality Act’s (CEQA) definition of a “project” set forth in California Public Resources Code sec. 21065, thus no environmental review is required. PREPARED BY: JANE RATCHYE, Assistant Director, Resource Management APPROVED BY: __________________________ VALERIE O. FONG Director of Utilities