HomeMy WebLinkAbout2016-06-01 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 May 4, 2016
IV. AGENDA REVIEW AND REVISIONS
V. REPORTS FROM COMMISSIONER MEETINGS/EVENTS
VI. DIRECTOR OF UTILITIES REPORT
VII. COMMISSIONER COMMENTS
VIII. UNFINISHED BUSINESS
None.
IX. NEW BUSINESS
1. Election of Officers Action
2. Utilities Advisory Commission Discussion on Alternatives to the Existing Voluntary Opt-In Action
PaloAltoGreen Gas Program Including an Opt-Out Mechanism and a Carbon-Neutral
Natural Gas Portfolio
3. Staff Recommendation that the Utilities Advisory Commission Recommend the City Action
Council Approve the Proposed Low Carbon Fuel Standard Credit Program, Including the Use
Of Revenues from the Sale of Low Carbon Fuel Standard Credits
4. Staff Recommendation that the Utilities Advisory Commission Recommend that the Action
City Council Amend the Net Surplus Electricity Compensation Rate (E-NSE-1)
5. Cross-Bore Program Update: Phase 2 (Presentation) Discussion
6. Update and Discussion on Impacts of Statewide Drought on Water and Discussion
Hydroelectric Supplies
7. Selection of Potential Topic(s) for Discussion at Future UAC Meeting Action
X. NEXT SCHEDULED MEETING: August 3, 2016
XI. INFORMATION 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
Public Letters to UAC
UTILITIES ADVISORY COMMISSION
WEDNESDAY, JUNE 1, 2016 – 7:00 P.M.
COUNCIL CHAMBERS
Palo Alto City Hall – 250 Hamilton Avenue
REVISED
Chairman: Vacant Vice Chair: James F. Cook: Commissioners: Arne Ballantine, Michael Danaher, Lisa Forssell, A. C. Johnston, Judith Schwartz and Terry Trumbull Council Liaison: Gregory Scharff
Utilities Advisory Commission Minutes Approved on: Page 1 of 7
UTILITIES ADVISORY COMMISSION MEETING - SPECIAL MEETING
MINUTES OF MAY 4, 2016
CALL TO ORDER
Vice Chair Cook called to order at 12:10 p.m. the meeting of the Utilities Advisory Commission
(UAC).
Present: Vice Chair Cook, Commissioners Ballantine, Danaher, Eglash and Schwartz
Absent: Chair Foster, Commissioner Hall, and Council Liaison Scharff
ORAL COMMUNICATIONS
Commissioner Schwartz attended the annual 51st Smart Electric Energy Power Alliance (SEPA)
State Summit in Denver.
APPROVAL OF THE MINUTES
Commissioner Schwartz indicated that she had some revisions to propose to modify some
language in the draft minutes to more accurately portray her comments represented in the last
paragraph on page 7 under the Electric Financial Plan and rates item. The sense of the UAC was
that Commissioner Schwartz would consult with staff with her proposed changes.*
Commissioner Ballantine moved to approve the minutes—as modified with Commissioner
Schwartz’s suggestion—from the April 12, 2016 UAC special meeting and Vice Chair Cook
seconded the motion. The motion carried unanimously (5-0) with Vice Chair Cook,
Commissioners Ballantine, Danaher, Eglash and Schwartz voting yes and Chair Foster and
Commissioner Hall absent.
* After the meeting was over, Commissioner Schwartz discussed with staff and
proposed the change the second sentence on the bottom of Page 7 of the draft
minutes from: “Commissioner Schwartz noted that the investor-owned utilities
(IOUs) have gone from five tiers to four and then three and will soon go to two tiers,
then to time-of-use (TOU) rates with no tiers.” to: “Commissioner Schwartz noted
that the investor-owned utilities (IOUs) have gone from five tiers to four and then
three and will soon go to two tiers with an extra charge for high usage customers,
then to default time-of-use (TOU) rates.”
AGENDA REVIEW AND REVISIONS
None.
REPORTS FROM COMMISSION MEETINGS/EVENTS
None.
DRAFT
Utilities Advisory Commission Minutes Approved on: Page 2 of 7
UTILITIES DIRECTOR REPORT
1. Finance Committee action: On April 19, the Finance Committee reviewed the proposed
Water and Wastewater Collection Financial Plans and rate adjustments. After discussion
focused on wastewater treatment costs, the Finance Committee agreed with the UAC and
unanimously supported the proposal. Notification of proposed rate changes was sent to
ratepayers and property owners as required by Proposition 218. The proposed Electric and
Gas Financial Plans and rate adjustments are scheduled to be considered by the Finance
Committee on May 17. Council will make a final decision on all rate adjustments at the
budget hearing on June 13.
2. Frontier Solar Project Ribbon Cutting: The 20 megawatt (MW) Frontier Solar project,
located just off I-5 near the town of Newman, is expected to officially begin commercial
operations in early June. To mark this major milestone, the project developer is hosting a
ribbon-cutting ceremony at the site on Wednesday, May 18th. All Utilities Advisory
Commissioners and Council members are invited to attend this special event. Frontier Solar
will be the City’s third utility-scale solar project to begin operating, and it’s the closest to the
Bay Area of the six large solar projects that the City has under contract.
3. PV Partners Program: On April 21, 2016, the last remaining PV Partners program rebate
funds were fully reserved. The PV rebate program started in 1999 and was expanded in
2007 with the passage of the Million Solar Roofs Bill (SB1). Staff expects the PV Partners SB1
funded systems to total 7.3 MW by 2018. Rebates allocated to residential customers were
fully reserved in August 2014 and large commercial customer rebate funds were reserved in
September 2015. The remaining rebate allocation —for small and medium commercial
customers—has now been fully reserved. Due to lower PV installation costs, customers
continue to install solar without rebates.
4. The Great Race for Saving Water: The City teamed up with local community, youth groups,
non-profits and environmental organizations to host a 5K fun run/walk and Earth D ay
festival this past Saturday at the Baylands. Approximately 200 race attendees enjoyed a fun-
filled day with raffle prizes, music, goodies, and a chance to catch the “running toilet!”
Photos are available at the City’s SmugMug account and on Facebook.
5. The Annual Mobile and Walking Gas Leak Detection Survey began on April 25 and should
be finished by September.
6. Upcoming Events: May 21 – From Graywater to Green Garden Workshop.
COMMISSIONER COMMENTS
None.
UNFINISHED BUSINESS
None.
Utilities Advisory Commission Minutes Approved on: Page 3 of 7
NEW BUSINESS
ITEM 1: ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend
that the City Council Adopt the Proposed Operating and Capital Budgets for the Utilities
Department for Fiscal Year 2017
Dave Yuan, Strategic Business Manager, presented a summary of the budget request. He
stated that the budget preparation begins in November with internal review between February
and April. In May, the UAC reviews the budget, followed by the Finance Committee and Council
adoption in June.
Yuan mentioned Utilities accomplishments for FY 2016 include drought response to State's
mandates, participation in the Bay Area wide solar PV group buy program, the Peninsula
SunShares program, increased Renewable Renewable Standard, launching of new programs --
including a heat pump water heater pilot, PaloAltoGreen Gas, and Home Efficiency Genie --and
completion of infrastructure improvements. Initiatives for FY 2017 include continuing capital
and maintenance program, resource efficiency programs, technology and smart gr id,
electrification work plan tasks, workforce development and succession planning, and an update
to the 2011 Utilities Strategic Plan.
Yuan separated the FY 2017 budget request into those expenses which are discretionary versus
non-discretionary. Except for the Fiber Fund, more than 60% of the costs are non-discretionary
including commodity purchases, debt service, rent and allocated charges . Even under
discretionary expenses, the department has no control over certain aspects such as labor
contracts, benefit increases and safety and reliability-related CIP projects. Yuan discussed
Utilities efforts to control costs, which include reviewing infrastructure replacement projects,
commodity cost--as evidenced by the latest very low price electric renewable Power Purchase
Agreement, maintaining flat headcount, reviewing whether tasks should be completed by City
staff or contract services, examining internal allocation charges, and review of joint action
agency charges.
Yuan summarized the Electric Fund, noting that Electric rates have not increased since July
2009, but costs for capital improvements and operations have increased. Overall, Electric Fund
revenues are expected to increase by $26 million, of which $15 million is due to the proposed
electric rate increase planned for July 2016. The expenses are expected to increase by $17
million, of which $10 million is for commodity costs (especially new renewable projects coming
on line). Electric Fund Reserves are expected to be drawn down by $17.3 million. Electric
capital improvement program (CIP) projects for FY 2017 total $21.6 million for undergrounding,
system improvements and customer connections. In FY 2017, a couple large customer
reimbursed projects are budgeted including electric pole replacement for fiber-to-the-premise
(contingent on agreement with 3rd party) and VA Hospital expansion.
Yuan said that the Fiber Fund initiatives for FY 2017 are rebuilding and upgrading the dark fiber
network and reaching agreement with Google Fiber or another party to build a citywide fiber
network. Fiber Fund revenues are expected to increase $0.4 million due to a CPI increase in the
EDF-1 rates. Expenses will increase by $0.2 million due to the hiring of a temporary fiber and
wireless project manager to assist the City with fiber and wireless initiatives. Fiber Reserves are
Utilities Advisory Commission Minutes Approved on: Page 4 of 7
expected to increase by $1.2 million. Proposed FY 2017 Fiber CIP expenses are $1.7 million, of
which $1.5 million is for network and capacity enhancements. The Fiber Fund budgeted $1.25
million for the Fiber Optic Network Rebuild CIP.
Yuan said that the Gas Fund will continue promoting the PaloAltoGreen Gas program, gas main
replacement projects, the cross bore safety inspection program, and gas safety awareness
outreach. A gas rate increase proposed for FY 2017 will assist in covering increasing costs due
to increased CIP and operations costs. Overall, revenues and expenses are expected to fall by
$1 million and $2 million respectively due to lower gas usage and lower gas commodity costs.
Gas Fund Reserves are expected to fall by $4 million by the end of FY 2017. Gas CIP expenses
for FY 2017 are expected at $6.3 million, with the majority coming from $4.2 million for the gas
main replacement project in downtown.
Commissioner Schwartz asked if the Gas Fund will be impacted by electrification plans. Yuan
responded that the potential for electrification has not been factored in at this time and that
gas safety is the primary consideration at this time.
Yuan said that the Wastewater Collection Fund will continue the multi-year large sanitary sewer
rehabilitation (SSR) project focusing on reducing Sanitary Sewer Overflows (SSOs) and will begin
a new SSR project. Yuan said that revenues for this fund are expected to increase by $1 mil lion
as a result of the proposed rate increase. E xpenses are increasing by $0.7 million due to
increasing treatment costs as the Regional Water Quality Control Plant upgrades its facilities .
The sum of the Wastewater Collection Reserves is expected to decline by $2.3 million in FY
2017. Wastewater Collection CIP costs are expected to cost $4.8 million in FY 2017, which is
primarily for the new SSR project.
Yuan said that the Water Fund plans to complete an evaluation of the re cycled water project,
construction of Boronda Reservoir, and the design for a new Water Main Replacement (WMR)
project. Water Revenues are expected to be flat while expenses are expected to decrease by
$0.5 million. Water Reserves are expected to decline by $6 million in FY 2017. Water CIP costs
are $9.6 million in FY 2017, due primarily to the WMR and system improvements.
Yuan said that there are several staffing requests in the FY 2017 budget request, but there are
no increases in head count proposed. The reasons for job reclassifications are to realign job
titles to existing and new duties; improve operational efficiency; provide staffing flexibility; or
create job development opportunity.
Commissioner Eglash asked if the reclassifications were due to the changes in the nature of the
job or associated with employee retention and whether the City has an appropriate system to
adequately compensate employees. Yuan said that the changes requested are driven by
business needs. Interim Director Shikada said that the recent labor agreements reached by
Council may be imperfect but are an attempt to reflect fair market compensation packages.
Public Comment
Jeff Hoel said that in FY 2016, the Fiber Fund budgeted $1.15 million for CIP FO-16000 Fiber
Optic System Rebuild. If the City spent only $140,000 thus far, will the remaining $1 million
Utilities Advisory Commission Minutes Approved on: Page 5 of 7
balance be returned to reserves? Is the Fiber Fund requesting for $1.25 million in FY 2017 to
continue the fiber rebuild project? Yuan confirmed the remaining $1 millio n CIP balance in FY
2016 will be returned to reserves at the end of the year and the Fiber Fund will be requesting
for $1.25 million for continuation of the fiber rebuild project in FY 2017. Hoel noted that the
staff presentation is not provided to the pu blic online so that the Council does not have a
chance to see it.
Vice Chair Cook asked if the presentations were provided on line. Shikada said that they
haven't been in the past, but could be provided in the future.
Herb Borock noted that the Water Fu nd shows a plan to complete a recycled water project, but
this is produced by the Regional Water Quality Control Plant, which is operated by the City for
its partner agencies. He said that recycled water is planned to be provided at a fraction of the
water price, but asked whether water customers should pay for this project, especially if they
would not be provided the water. He said that the UAC should get involved early—especially
since two different City departments are involved —since the UAC's role is to give policy advice
to the Council.
Commissioner Schwartz said that water and recycled water should be viewed holistically and
that water and recycled water rates should be developed together with the entire picture
understood.
Vice Chair Cook asked the UAC budget subcommittee—Commissioners Ballantine and
Danaher—to report on its work. Commissioner Ballantine said that the subcommittee met with
staff and received a discussion in more detail than presented here. He noted that the staffing
requests are designed for more efficiency and do not involve new head count. He sees this as a
harbinger of things to come with new technology and complexity to operate the systems. He
said that many items that are not controllable by the City are increasing in cos t. In addition,
labor rates are increasing. He noted that CIP projects have been deferred in the past, but
continue in the proposed budget. He did note that increased undergrounding of electric
services is not proposed and encouraged that new services b e undergrounded in a way with
new technologies to reduce ongoing maintenance costs. He said that the cost to be carbon
neutral is not significant and is not a driver for increasing costs.
Commissioner Eglash asked if we are doing things not just because they are innovative, but
because there are long-term benefits, or return on investment (ROI), for the proposals.
Commissioner Ballantine said that one example of this is undergrounding which actually costs
more to maintain when undergrounded. He also mentioned that smart grid projects may have
many benefits such as improving reliability and response to outages. So ROI is part of the
equation, but customer value is another part to think about, especially as the Internet of things
escalates.
Commissioner Schwartz said that there is lots of literature on the benefits of smart grid,
including not just cost savings, but customer satisfaction. She mentioned that all the benefits
and costs for proposed new initiatives should be discussed in their totality.
Utilities Advisory Commission Minutes Approved on: Page 6 of 7
Commissioner Ballantine said that new technology does need a thorough review including any
increasing ongoing O&M costs.
Commissioner Danaher said that he participated on the subcommittee and noted that even the
items listed as discretionary are not actually truly discretionary including CIP upgrades that
must be done. He said that labor costs are not controlled by the department. He noted that
CIP cost is the biggest swing factor. CIP costs increase in a growing economy and decrease when
there is a slump. The department has some ability to control costs, however there is little
ability to accelerate projects when there is a downturn.
Vice Chair Cook thanked the subcommittee for taking a deeper dive and that it added a level of
comfort for the commission. He said that he'd participated in this subcommittee in the past
and received a valuable education about the development of the budget. He noted that the
budget request has found a good balance between increasing cost and continuing valued
service.
Vice Chair Cook asked about the rate change communication piece that was provided to the
Commission. Interim Director Shikada said that the document is useful as a "walking around
paper" that can explain the key rate increase drivers for each fund.
ACTION:
Commissioner Eglash moved to recommend that the UAC recommend that the City Council
adopt the proposed Operating and Capital budgets for the Utilities Department for FY 2017.
Commissioner Danaher seconded the motion. The motion carried unanimously (5-0) with Vice
Chair Cook, Commissioners Ballantine, Danaher, Eglash and Schwartz voting yes and Chair
Foster and Commissioner Hall absent.
ITEM 2. DISCUSSION: Update and Discussion on Impacts of Statewide Drought on Water and
Hydroelectric Supplies
Senior Resource planner, Karla Dailey, made a short presentation updating the UAC about the
current drought. She showed a graph of precipitation at Hetch Hetchy reservoir by water year
since 1995 and that water year 2016 to date is much better than the past several years. Dailey
showed the City’s water use reduction has been 31% compared to the State-mandated 24%
water use reduction. She explained that the State Water Resources Control Board will make a
determination later this month regarding whether to continue, lift, or modify the emergency
regulations currently in place.
Commissioner Eglash pointed out that many reservoirs in California are at average levels for
this time of year in some locations, but that groundwater levels are likely very low in other
areas and that these factors are difficult to understand all together . Dailey responded that the
State is indeed diverse and complex with respect to water supplies and that the State Water
Resources Control Board has a difficult task when implementing water-related regulations.
Commissioner Schwartz suggested that this could perhaps be illustrated best with the use of an
info-graphic showing water supply across the state. Dailey said that the State has developed
such communication pieces and said she would include one in next month’s update.
Utilities Advisory Commission Minutes Approved on: Page 7 of 7
Dailey explained that the drought caused a cost increase of over $8.3 million for the electric
portfolio in FY 2016.
ITEM 3. ACTION: Selection of Potential Topic(s) for Discussion at Future UAC Meeting
Commissioner Danaher asked if the five priorities discussed at the last joint UAC/Council
meeting could be updated at the June meeting. Shikada said that the Council is reviewing its
priorities.
Commissioner Schwartz noted the microgrids/energy storage items on the tentative June UAC
meeting agenda and noted that her husband works in this area and would like to have a
conversation with the City Attorney's Office about any potential conflict of interest. Deputy
Senior Assistant City Attorney responded that she will meet with Commissioner Schwartz to
discuss the matter.
Vice Chair Cook, recognizing that it was Commissioner Eglash’s last meeting, said that he
appreciated the service of Commissioner Eglash, learned a lot from him, and considered him a
voice of reason and balance on the commission.
ACTION:
None.
Meeting adjourned at 1:35 p.m.
Respectfully submitted,
Marites Ward
City of Palo Alto Utilities
Page 1 of 10
2
MEMORANDUM
TO: UTILITIES ADVISORY COMMISSION
FROM: UTILITIES DEPARTMENT
DATE: June 1, 2016
SUBJECT: Utilities Advisory Commission Discussion on Alternatives to the Existing
Voluntary Opt-In PaloAltoGreen Gas Program Including an Opt-Out Mechanism
and a Carbon-Neutral Natural Gas Portfolio
______________________________________________________________________________
RECOMMENDATION
Staff has reviewed various options for modifying the PaloAltoGreen Gas Program (PAG Gas) and
requests that the Utilities Advisory Commission (UAC) provide feedback to the Finance
Committee and Council. Alternatives include: (1) maintaining the existing voluntary opt-in
program, (2) modifying the voluntary program to an opt-out structure, and (3) making carbon-
neutral, all or a portion of, the natural gas portfolio using environmental offsets and/or physical
biogas.
EXECUTIVE SUMMARY
The PAG Gas program uses high quality environmental offsets purchased by the City on behalf
of participants in order to reduce or eliminate the impact of greenhouse gas (GHG) emissions
associated with their natural gas usage. The goal is to have 20% of customers, corresponding to
10% of the City’s gas usage, participate in PAG Gas by 2020. Achieving this goal would reduce
Palo Alto’s GHG emissions by about 15,000 tons per year, representing a 10% reduction in
natural gas usage.
Since the program launch in December 2014, roughly 4% of the City’s residential natural gas
customers have participated in PAG Gas accounting for approximately 3,200 tons of GHG
emissions per year. City facilities began participating in PAG Gas in July 2015 and account for
GHG emissions reductions of approximately 6,000 tons per year. That number is expected to
drop to 3,000 tons per year when the incinerator at the Regional Water Quality Control Plant is
retired. With increased marketing and outreach efforts, the City is expected to achieve the 20%
participation goal by 2020. For a typical residential customer participating in PAG Gas, the cost
to participate in the program is approximately $5 per month. As participation increases, the
rate impact will fall since the administrative costs could be spread over more gas usage.
Page 2 of 10
Converting the program to an opt-out program would achieve greater GHG emission reductions
at a lower cost. However, such an approach could be negatively received by some customers
and could risk damaging the relationship between the City and its customers. Alternately, the
program could be stopped altogether and offsets could be purchased for the gas portfolio
serving all customers.
The four options are summarized in the table below.
Pros Cons
Opt-in
Program
Consistent with CPAU’s past
practices of providing program
and service options for those who
want them.
Allows participants to feel proud
that they are doing more to help
the environment
Requires significant and continuing
outreach effort to maximize
participation—and minimize
administrative costs—by capturing all
customers who would participate in
the program if they knew about and
understood it
Opt-out
Program
Much greater reductions in GHG
emissions associated with natural
gas usage could be achieved
sooner and at a lower cost
After start up, easy and low cost
to administer
Risk of harming CPAU’s reputation as
the program can be viewed by
customers as “slamming” or even
taking advantage of customers who
are not paying attention even after
being notified of right to opt-out
Requires ongoing outreach to notify
customers of their ability to opt-out at
any time
Requires development of detailed
program rules and processes to allow
for opting out/in, securing refunds and
identifying potential sources of funds
for such refunds.
Gas
Portfolio
Backed by
Offsets
Maximum reductions in GHG
emissions associated with natural
gas usage
Minimal administrative costs
No need for complicated program
terms and conditions
Could be perceived as an overreaching
mandate
Small rate increase for all customers
Cost varies with the cost of
environmental offsets
Gas
Portfolio
Backed by
Green
Gas
Maximum reductions in GHG
emissions associated with natural
gas usage if for 100% of the gas
portfolio
Minimal administrative costs
No need for complicated program
terms and conditions
Could be perceived as overreaching
Large rate increase for all customers,
especially if for 100% of the gas
portfolio
Cost varies with the cost of green gas
Page 3 of 10
BACKGROUND
Early Evaluation of Alternative Gas Supplies
The City of Palo Alto Utilities (CPAU) has evaluated ways to reduce the carbon content of the
natural gas portfolio for many years. The Gas Utility Long-term Plan (GULP) includes a strategy
to evaluate a voluntary green gas program and evaluate purchasing non -fossil fuel gas
(biomethane or biogas) for the gas portfolio. The City Council last approved updates to GULP in
April 2012 (Staff Report 2522, Resolution 9244), including GULP Strategy 4:
Reduce the carbon intensity of the gas portfolio in accordance with the Climate
Protection Plan by:
a. Designing and implementing a voluntary retail program using reasonably
priced non‐fossil fuel gas resources; and
b. Purchasing non‐fossil fuel gas for the portfolio as long as it can b e done with
no rate impact.
In November 2009, the UAC reviewed an analysis of physical biogas as a resource for the gas
supply portfolio.1 At that time, staff determined that biomethane cost about 50 cents per
therm (₵/therm) more than natural gas, or a cost of about $100 per ton of carbon dioxide
equivalent (CO2e)2 and would increase a residential customer’s gas bill by 35%. Again, in April
2013, staff presented alternatives for a PAG Gas program to the UAC3 including the use of
physical biogas for the program, but found that it would cost about $1 per therm more than
natural gas based on responses to a request for proposal issued by the Northern California
Power Agency. In addition, the long-term contracts required for biogas project developers to
secure financing were, and are still, not conducive to the potentially volatile demand associated
with a voluntary green gas program.
City’s GHG Emissions From Natural Gas
The table below, based on data from the 2016 Earth Day report (Staff Report 6754), shows the
estimate for City and community GHG emissions for 1990, 2005, 2012 , and 2015.
Palo Alto Community and City Greenhouse Gas Emissions (in 000’s of Metric Tons of CO2e)
Emissions Category 1990 2005 2012 2015
Natural Gas Use 194 166 160 135
Electricity Use 186 160 75 0
Mobile Combustion * 332 372 320 330
Other ** 68 54 36 36
Total 780 752 591 501
* Consultant estimate based on population, employment, v ehicle miles travelled and
vehicular emission profiles
** Includes landfill, refuse and Regional Water Quality Control Plant emissions
1 http://www.cityofpaloalto.org/civicax/filebank/documents/17514
2 1 ton/2204.16 lbs * 116 lbs CO2e/1 MMBtu CH4 *1 MMBtu/10 therms = .0053 tons/therm
3 https://www.cityofpaloalto.org/civicax/filebank/documents/33744
Page 4 of 10
Note that emissions from natural gas use in 2015 were reduced by 4,406 tons due to the PAG
Gas program. The larger part of the reduction in emissions associated with natural gas use is
associated with reduced natural gas use (from 37.2 million therms in 1990 to 30.1 million
therms in 2012 to 25.5 million therms in 2015).
PaloAltoGreen Gas Program Development
The PAG Gas program was modeled after the highly successful, voluntary P aloAltoGreen (PAG)
program which allowed participants to receive 100% renewable energy and eliminate the GHG
emissions associated with their electricity use. Participation rates in PAG were the highest
among similar programs throughout the nation earning recognition for the CPAU and creating a
sense of community pride around sustainability efforts. In 2012, approximately 20% of CPAU’s
customers participated in PAG, representing 8% of the City’s total electric usage. The UAC
reviewed alternatives to PAG in December 2012 and the City Council reviewed those
alternatives at a study session in February 2013 (Staff Report 3386).
By 2013, the City’s aggressive Renewable Portfolio Standard (RPS) goal combined with its
carbon-free hydroelectric resources rendered the electric supply portfolio largely carbon-
neutral. In March 2013, City Council approved the Carbon Neutral Plan committing CPAU to
pursue only carbon neutral electric resources beginning in calendar year 2013 (Staff Report
3550, Resolution 9322). In September 2013, City Council suspended PAG and directed staff to
develop a new voluntary PAG Gas program to afford participants the opportunity to eliminate
the GHG emissions associated with their natural gas use (Staff Report 4041, Resolution 9372).4
In April 2014, City Council approved the establishment of a voluntary PAG Gas program (Staff
Report 4596, Resolution 9405) using high quality offsets to back the program. The PAG Gas
program goal is a 20% participation rate by 2020 with a corresponding GHG reduction of 16,000
tons of CO2e per year. The 2020 goal represents a 10% reduction in the City’s total GHG
emissions associated with natural gas consumption. The reductions are achieved by purchasing
high quality environmental offsets, with a preference for California projects, on behalf of
participants in order to reduce or eliminate the impact of GHG emissions associated with each
participating customer’s gas usage. All customers can sign up for PAG Gas for their entire gas
usage; commercial customers also have the option of participating in the program for part of
their natural gas usage.
4 In June 2014, since the PAG (electric) program is redundant with the Carbon Neutral Plan, Council eliminated the
PAG program for residential customers (Staff Report 4718, Resolution 9422). At the same time, Council also
reactivated the program for commercial customers since some customers (including City facilities) desire to
participate in a voluntary green electric program to achieve environmental recognition and certifications in line
with their own corporate sustainability goals including participation in the U.S. Green Building Council Leadership
in Energy and Environmental Design (USGBC LEED) Program and the U.S. EPA Green Power Partnership Program .
Page 5 of 10
DISCUSSION
Existing PAG Gas Program
The PAG Gas program was soft launched to customers who had participated in PAG in
December 2014 and officially launched to all customers in January 2015. The chart below shows
the trajectory of PAG Gas participation for January 2015 through April 2016.
The two charts below show the number of participants by customer type (on the left) and the
percentage of total gas usage by customer type (on the right). As shown, the vast majority of
participants are residential customers—as was the case with the PAG (electric) program. The
bulk of the participation in terms of gas usage is for City facilities. Very few commercial
customers have participated in the program to date.
Page 6 of 10
Approximately 4.1% of the City’s residential natural gas customers have signed up for PAG Gas
as of the end of April 2016. In July 2015 all City facilities began participating in the program for
100% of their gas usage. With increased marketing and outreach effort, the City expects to
achieve the 20% customer participation goal by 2020 and expects those participants to
represent more than the 10% of total gas usage goal.
The PAG (electric) program reached 20% customer participation levels—with the bulk being
residential customers—but the program achieved participation representing only about 4% of
the total electric usage (since the majority of participants were residential customers who use
less than 20% of the electricity used in the City).
All offsets purchased to date have been from a livestock methane capture project. The PAG Gas
rate is 12₵/therm—5₵/therm for the environmental offset and 7₵/therm to cover
administrative costs. The offset cost will change with the market. Administrative costs per them
will decline once the program has achieved greater penetration. The 12₵/therm rate equates
to an avoided GHG emissions cost of approximately $22 per ton of CO2e. A typical residential
participant pays approximately $5 per month to offset their GHG emissions.
Alternative Opt-Out Program
PAG Gas could be changed from its current opt-in design to an opt-out program. An opt-out
program would mean that all customers would be automatically enrolled in the program, but
could voluntarily leave the program at any time. Alternatively, customers could be provided an
initial window of time to express their opposition to enroll before being automatically enrolled.
Regardless of how any opt-out program is structured and launched, the City would need to
provide a means for customers to exit (and enter) the program at any time.
Opt-out programs are known to have much higher participation rates than opt-in programs.
According to the Department of Energy, for Community Choice Aggregation programs: “The
lowest participation rate for opt-out programs that offer a renewable energy component is
around 75% compared to the highest participation rates in the low twenties for the most
Page 7 of 10
successful opt-in utility green power programs.”5 Staff estimates that 15%-20% of customers
will opt-out of the program although this rate is highly uncertain, especially for the small
commercial class. At its October 7, 2015 meeting the UAC heard public comment on , and
discussed the merits and drawbacks of, an opt-in versus an opt-out structure for the voluntary
program. The minutes from that meeting are provided as Attachment A.
Program Cost Comparison
Costs associated with an opt-out program, however, are not negligible. Extensive public
education and outreach would be needed to inform CPAU natu ral gas ratepayers of the new
program parameters and the new affirmative steps that such customers would need to take to
avoid participating in the program. Communication activities would include direct mail, a
detachable card and an ad in the newspaper, and modification to the program tool on the City’s
web site for a total cost of $100,000. Changes to the billing system are estimated to cost
$400,000 for the initial design, testing, and launch. Ongoing program management costs are
estimated to be $40,000 per year, an insignificant impact on the PAG Gas rate. Customer
Service will certainly experience a large increase in calls from the public. Those costs are not
included in the analysis.
The following is an estimated cost comparison between the two approaches.
Opt-in Program Opt-out Program
Units Current Post-
2020
First Year Subsequent
Years
Participation % of gas
usage
6% 10% 90% 80%
GHG emissions reduced tons1 9,000 15,000 135,000 120,000
Offset Cost $/ton2 9.25 9.25 9.25 9.25
₵/therm 4.4 4.4 4.4 4.4
Administrative cost $/year
$/ton
$120,000
13.16
$85,000
5.66
$400,000
2.96
$40,000
0.33
₵/therm 7.0 3.0 1.6 0.5
Total Cost
Retail Rate
$/ton 22.46 14.91 12.21 9.58
₵/therm 12 8 6 5
Residential Bill Impact3 $/month 4.32 2.88 2.16 1.80
Notes: 1 GHG emissions based on projected gas usage of 28.5 million therms per year (150K tons CO2e)
2 Offset costs will adjust with market conditions
3 Median residential customer gas use: 54 therms/winter month and 18 therms/summer month
Customer Engagement and Relationship
CPAU places a high value on customer satisfaction, and an opt-out program is likely to damage
CPAU’s relationships with at least some of its customers. Certain aspects of an opt-out program
structure are reminiscent of the telecommunications industry “slamming” debacle of the 1980s.
5 See http://apps3.eere.energy.gov/greenpower/markets/community_choice.shtml accessed May 2, 2016.
Page 8 of 10
Pacific Gas and Electric Company’s SMART meter roll-out is another example of a program
thrust upon customers that resulted in a negative backlash. CPAU works diligently to be
responsive to customer demands by providing programs and services that meet customer
needs. Customers can be grouped into program supporters or opponents as follows:
Customer Opt-In Program Opt-Out Program
Active
Supporter
Participates in PAG Gas Supports, would not opt out
Passive
Supporter
Intend to opt in, but have
not prioritized signing up
Supports, would not opt out
Unaware
Supporter
Would opt-in, but have
not heard about it
Would not opt out
Ambivalent Don’t pay attention, or
care either way
Unlikely to opt out
Unaware
Opponent
Would not opt in Prefers to opt out, but not paying attention to the City’s
messaging or the resulting changes to their utility bills
Passive
Opponent
Would not opt in Doesn’t support the program, but unlikely to prioritize
opting out
Aware
Opponent
Would not opt in Really don’t want to participate but feel guilty or
embarrassed about opting out, especially if the program
is characterized as being environmentally friendly
Active
Opponent
Would not opt in Would opt-out of the program
Customers in the first three groups support the program and would be expected to ultimately
become participants in an opt-in program if they were aware of it and it was convenient to sign
up. An opt-out program would immediately increase participation by capturing those who
would support the program, but have not opted in for a variety of reasons. Higher participation
in an opt-out program relies on those who are ambivalent, or opposed to the program, but
won’t opt-out for a variety of reasons. Placing customers in a program without their prior
consent is a practice at odds with the customer care standards CPAU strives for on a daily basis.
Customers who are not engaged can easily turn into angry customers when the change is finally
noticed. Some customers may be unlikely to vocally oppose the program, but may have
lingering negative feelings about CPAU. An opt-out program has the potential to cause
irreparable damage to CPAU’s customer relations and reputation.
Legal Considerations
If PAG Gas is expanded to make opt-out the default setting for all customers, new program
rules clearly defining program terms and conditions will need to be carefully crafted and
adopted by City Council. Expansion of the PAG Gas program to include all customers is
effectively a rate increase and must be adopted by the Council. The City’s gas rates are cost-
based, in compliance with Proposition 26, so any changes to the PAG Gas program must be
Page 9 of 10
cost-based as well. In addition, it is important that the public be fully informed concerning the
PAG Gas program’s terms and conditions, particularly the process customers must follow to opt
out of the program and any refund process and potential refund funding source, for customers
wishing to opt out.
All of the options discussed in this staff report, including an opt -out program structure,
procurement of offsets to cover the entire portfolio of GHG emissions associated with the City’s
natural gas usage and any biogas/green gas resource procurement may require the City to
modify its existing contractual relationship or to secure new agreements.
Other Voluntary Offset Programs
Staff is aware of several voluntary green natural gas programs in the U.S. and Canada. Staff is
not aware of any opt-out programs.
Renewable Portfolio Standard (RPS) for Natural Gas
In 2015 a California Senate bill was introduced that would have compelled natural gas sellers to
provide a specific percentage of renewable gas supplies during certain compliance periods. In
essence, this bill would have established an RPS for gas similar to that for electricity. This bill
died in the legislative process. Unlike electricity, renewable physical supply options for natural
gas are limited and expensive. Biogas as a component of Palo Alto’s supply portfolio will be
reconsidered in 2020 when PAG Gas is re-evaluated.
Carbon Neutral Gas Portfolio Alternative
Using offsets to neutralize the GHG emissions of the entire gas portfolio is a cost -effective
alternative with merits and drawbacks. Maximum reductions in GHG emissions would be
achieved at the lowest possible cost, essentially the cost of the offset with minimal
administrative overhead. All customers would be subject to a rate increase of approximately 5%
(at current costs for environmental offsets). Residential customers would experience a bill
increase of less than $2 per month, similar to the long-term cost for the opt-out voluntary
program. Such a change would need to be fully vetted and approved by Council.
Instead of using offsets, the gas portfolio could be backed by physical green gas (“biogas” or
“biomethane”). As stated above, staff evaluated this option in the past—most recently in April
2013—and could conduct a new analysis of this option by updating the market prices and
availability for green gas. To reduce the cost impact of buying green gas for the gas port folio—
and the GHG emissions reductions—the portfolio could include green gas for a portion (e.g.
25%) of the portfolio. Alternately, a green gas portfolio standard could increase over time (e.g.
start at 10% in 2018 increasing to 100% by 2030).
RESOURCE IMPACT
As the PAG Gas program is a revenue neutral, voluntary program, there is no net impact on
CPAU’s financial resources. If the PAG Gas program was replaced with a carbon neutral gas
portfolio for all customers, a rate increase would be necessary to cover the cost of the offsets.
If the program was terminated and the gas portfolio for all customers included a green gas
standard, program costs would increase depending upon the fraction of green gas in the
portfolio.
POLICY IMPLICATIONS
The Council -approved Utilities Strategic Plan includes an objective to offer programs to meet
the needs of customers and the community.
Strategy 4 in the Council -approved GULP states:
Reduce the carbon intensity of the gas portfolio in accordance with the Climate
Protection Plan by:
c. Designing and implementing a voluntary retail program using reasonably
priced non -fossil fuel gas resources; and
d. Purchasing non -fossil fuel gas for the portfolio as long as it can be done with
no rate impact.
ENVIRONMENTAL REVIEW
Continued implementation of the PAG Gas program does not meet the definition of a project,
pursuant to section 21065 of the California Environmental Quality Act (CEQA). Under the
existing PAG Gas program, where the City will receive CO2e output from offset projects that will
constitute a project for the purposes of CEQA, or for projects located outside of California,
NEPA or other applicable state environmental statutes. Offset project developers will be
responsible for acquiring necessary environmental reviews and permits as offset projects are
developed.
The discussion of potential modification to the PAG Gas program discussed in this staff report
with no proposed action being taken at this stage also does not meet the definition of a project
under CEQA. Any modifications to the program proposed subsequently will undergo
independent analysis for applicability of CEQA.
ATTACHMENT
A. Excerpted final Minutes from the October 7, 2015 Utilities Advisory Commission Meeting
PREPARED BY:
REVIEWED BY:
DEPARTMENT HEAD:
la Dailey, Senior Resource Planner --)
ne Ratchye, Assistant Director, Resource Management
Ed Shikada, Interim Director of Utilities
Page 10 of 10
EXCERPTED FINAL MINUTES OF THE OCTOBER 7, 2015
UTILITIES ADVISORY COMMISSION MEETING
ITEM 2. DISCUSSION: Conversion of the PaloAltoGreen Gas Program From an Opt-In to an
Opt-Out Program
Chair Foster noted that this item is on the agenda due to support for the idea expressed from
members of the community.
Public Comment
Sandra Slater commended the commission for keeping sustainability on the agenda. She said
that it's time to move the needle now. She noted that research shows that participation will be
much higher if the program was converted to an opt-out program. She said that the program
could be changed to make the program supportable by all income levels. Converting the
program to an opt-out program is something the City could do that would have an immediate,
positive impact.
Lisa Van Dusen said that the program is not perfect since it is backed by offsets, but we
shouldn't let the perfect be the enemy of the good. We could pay even more by purchasing
more aggressive offsets. There could be mechanisms to get out of the program during an
"amnesty period" and low income customers on the Rate Assistance Program could be retained
as opt-in customers. She said that there was so much staff effort for the PaloAltoGreen
(electric) program just to achieve 24% participation and that there would be savings from lower
marketing and administration costs in an opt-out program.
Chair Foster said that the money paid by PaloAltoGreen Gas (PAGG) program participants fund
offsets that pay to convert waste into methane that is burned to produce renewable electricity
at a dairy farm in Wisconsin and that this wouldn't be done without the revenue from the
offsets. Assistant Director Jane Ratchye indicated that this is correct. She said that the offsets
that back this program are very high quality as they are selected only from those protocols that
have been certified for use in the state’s cap -and-trade auction by the California Air Resources
Board. One of the requirements of those protocols is that the off set be “additive”, or from a
project that would not have been done without the monetary support from the sale of the
offsets. Chair Foster said that he supports an opt-out program and that the additional cost is
only $5 to $6 per month for the average resident.
Commissioner Ballantine noted that there are ongoing costs to maintain an anaerobic digester.
He said that people who opt-in are causing something real to happen. The greenhouse gas
ATTACHMENT A
emissions reductions from those sources would not otherwise happen without programs like
PAGG.
Vice Chair Cook noted that the PaloAltoGreen (PAG) Electric program was effectively converted
to cover everyone via the carbon neutral program and was a great way to transfer the new
goal. He asked why PAGG was not made an opt-out program originally. Vice Chair Cook added
that Community Choice Aggregation (CCA) programs were successful because they were opt -
out programs. Ratchye replied that the carbon neutral electric supply is not the same as PAG
and that it was not developed as a transition from PAG. She noted that PAG purchased
Renewable Energy Certificates (RECs) for 100% of a residential customer’s load at a cost of 1.5
cents/kWh, or about 12% more than the normal electric rate. On the other hand, the carbon
neutral electric supplies consist of about half carbon-free hydroelectric supplies, renewable
supplies that are eligible under the state’s Renewable Portfolio Standard (RPS) and that RECs
are purchased for the balance of the needs. It is expected that by the end of 2016, the City’s
RPS will be 57% and with hydro supplies (given a normal hydro year), no RECs will be needed
for carbon neutral electric supplies. She said that the state’s new goal for an RPS of 50% would
result in carbon neutrality anyway at no additional cost in a normal hydro year. However, the
increased cost of PAGG for participants is 12 cents per therm, or about 12% more than the
normal gas rate of about $1 per therm. She said that the additional cost for PAGG was a
consideration for making the program an opt-in program like PAG when the program was
originally conceived. In addition, the program was just launched in January 2015 (and has yet
to roll out a comprehensive marketing campaign for the program) and staff was hoping to
determine the community’s appetite for the program. Ratchye agreed that CCAs are successful
opt-out programs, but that they are generally no more costly than the alternative from the local
utility so participants are not paying any extra to be “slammed” into a CCA.
Vice Chair Cook said that our rates are allowed to go up with the carbon neutral electric
supplies and asked what the threshold is for an opt-out versus an opt-in program.
Chair Foster replied that the comparison of PAGG to the carbon neutral plan is diffe rent—like
apples and oranges—since the carbon neutral electric supplies is not an opt-out, or opt-in,
program, but is the electric supply for all customers. The percentage increase in cost to electric
rate payers by going carbon neutral is small compared to the percentage increase to a customer
by paying for participation in PAGG. He said that PAGG should be compared to the PAG electric
program.
Chair Foster asked if there is any legal reason that City Council could not adopt an opt -out
program. Senior Deputy Assistant City Attorney Jessica Mullan said that a legal analysis would
have to be completed and the answer may depend on the program design.
Commissioner Schwartz asked if the point of the program was to reduce gas use or raise
revenue. Chair Foster responded that neither of those options is the point, but that the
objective is to reduce greenhouse gas (GHG) emissions associated with customers’ gas use.
Commissioner Schwartz said that she agreed that more people will do an opt -out program, but
that we need to make sure that participants truly want to participate. We need to provide a
very easy way for people to opt-out and not be penalized for any of the months they were
enrolled if they don’t want to be. A good outreach campaign could be a good way to increase
awareness of the issue and it could have an impact of increasing customers’ awareness. She
said that the program could be a bridge for people to become more conscious of using energy
and would not just be a way to buy ourselves out of the problem.
Commissioner Hall suggested that we not act too hastily, but develop a program like this over
time, similar to the carbon neutral portfolio adoption. He said that he suspects that there
would be a percentage of consumers that would find out later that they were enrolled in a
“voluntary” program and feel cheated. A way forward could be to develop a carbon negative
plan and start with a surcharge that would fund a solution to global warming. He said it could
be a program that would be broadly advertised to ensure that everyone would be aware of the
program.
Commissioner Schwartz noted that she had seen an effective “cow power” video, which is an
example of how the communication can be done in a playful way that would let people
understand that we are in this together, which is a compelling message for many people. She
added that it would be a good messaging experiment.
Commissioner Eglash thanked the public commenters. He also complimented the UAC for
placing the item on the agenda and allowing this discussion to take place. Commissioner Eglash
said that when he weighs the advantages and disadvantages of opt -in versus opt-out, he would
like to avoid disgruntled customers and any worry about customer satisfaction. The greatest
danger of an opt-out plan is potential customer dissatisfaction. We devote a lot of time to
customer satisfaction with the utility. He said it is more risky in this respect and as the price
becomes significant, the danger becomes worse. He said that, with a full marketin g campaign,
is it still plausible that people would not be in the program that wouldn't want to be. He added
that perhaps a very successful campaign would result in the same participation of an opt -out
and an opt-in program. Commissioner Eglash indicated that he is leaning towards maintaining
PAGG as an opt-in program. He added that there should be no action on the item at this time
since there is no staff analysis, no fiscal analysis or legal analysis completed at this time. The
discussion is conceptual at this point; there is no proposed design for an opt-out program.
Chair Foster indicated that he disagrees that the participation rates for opt -in versus opt-out
will converge with a great marketing campaign. He added that this is a discussion item on the
agenda tonight so no action can be done.
Commissioner Schwartz said that customer satisfaction depends on transparency. The fact that
CPAU cares about being green will show that an opt-out program is consistent with the brand.
She added that safeguards to allow folks to opt-out will be consistent with transparency.
Commissioner Eglash said that many people in Palo Alto take pride in the City’s environmental
efforts. He stated that safety, reliability, and low cost are primary considerations and to impose
a greener solution that costs extra money is hazardous and must be done carefully.
Commissioner Ballantine noted that offset resources are finite and that pressures from supply
and demand will eventually bite us as the price for offsets will in crease as demand increases.
He added that an opt-out program would require sufficient offsets to be supplied.
Commissioner Danaher said that the PAGG program has an environmental benefit, a
psychological benefit, and a moral benefit. He said that the best idea is to make the program
neither opt-in or opt-out, but our gas supply for everyone. He added that an opt-out program
still allows people to opt-out easily since it could be very easy to go to the website and opt out.
Commissioner Hall said that we could conduct a poll to see what the customers’ response
would be to an opt-out program. He said that we should want to have this information before
making a decision.
Commissioner Schwartz advised against a poll as it would defeat the purpose of communicating
the benefits of an opt-out program. Commissioner Danaher added that the poll would only be
answered by the small number of people who read and respond to email.
Commissioner Foster said that the program could be designed so that anyone who failed to
opt-out early enough could still get their money back. He asked if the UAC could make a
motion to recommend that the Council direct staff to develop an opt -out program. Director
Fong stated that it can be added to the rolling calendar. Mullan added that the item is
agendized as a discussion item and that the Commission can add it as a future item to be
agendized under Item 4 on this meeting’s agenda.
Vice Chair Cook thanked the public commenters. Commissioner Hall added his appreciation of
the input from the public commenters, even if some commissioners disagree.
Page 1 of 6
3
MEMORANDUM
TO: UTILITIES ADVISORY COMMISSION
FROM: UTILITIES DEPARTMENT
DATE: JUNE 1, 2016
TITLE: Staff Recommendation that the Utilities Advisory Commission Recommend the
City Council Approve the Proposed Low Carbon Fuel Standard Credit Program,
Including the Use of Revenues from the Sale of Low Carbon Fuel Standard
Credits
REQUEST
Staff requests that the Utilities Advisory Commission (UAC) recommend that the City Council
approve the proposed Low Carbon Fuel Standard Credit program, including the use of revenues
from the sale of Low Carbon Fuel Standard Credits.
EXECUTIVE SUMMARY
The California Air Resources Board (CARB) developed the Low Carbon Fuel Standard (LCFS)
program in compliance with AB 32 (the Global Warming Solutions Act of 2006) to reduce the
carbon intensity of transportation fuels used in California by 10% by 2020. Electric utilities that
provide electricity to charge electric vehicles (EVs) are eligible to receive LCFS credits. The City
began participating in the program in April 2014 and CARB has been allocating LCFS credits to
the City since then. The credits accumulated the past two years are currently valued at
$600,000. The value of future credits is expected to be $500,000 to $1 million per year through
2020 as the number of EVs increase in Palo Alto.
These credits are intended to be sold to providers of transportation fuel in the state. The
regulations require the City to use all proceeds from the sale of LCFS credits received for EVs to
benefit current or future EV customers, educate the public on the benefits of EV transportation ,
and provide rates that encourage off-peak charging to minimize grid impacts. The City must
also provide CARB an annual compliance report.
The CARB regulations also allow dispensers of compressed natural gas (CNG) to earn LCFS
credits. Since the City dispenses CNG at the Municipal Service Center, it is eligible to receive
LCFS credits worth about $30,000 per year.
Page 2 of 6
The City’s proposed LCFS program complies with CARB’s regulatory requirements and is
designed to direct revenues from the sale of the LCFS credits for the benefit of EV and CNG
vehicle owners. The program includes rebates for EV chargers, discounts to utility connection
fees, the exploration of discounts for off-peak charging, encouragement of flexible charging,
education and outreach. The program meets the State’s objective of reducing the carbon
intensity of transportation fuels and the City’s Sustainability and Climate Action Plan goal of
reducing the City’s carbon footprint by 80% by 2030.
BACKGROUND
CARB’s LCFS program aims to reduce the carbon intensity of transportation fuels used in
California by 10% by 2020. The primary method for reducing the carbon content of
transportation fuels is by blending standard fuels with fuels such as cellulosic ethanol or
biodiesel which have lower carbon intensities than traditional fuels. Electricity and CNG are also
recognized as low carbon intensive transportation fuels.
CARB adopted the most recent version of LCFS regulations in September 2015, effective
January 1, 2016. Electric utilities that provide electricity to charge EVs are eligible to receive
LCFS credits based on the number of EVs registered in their service territory and the amount of
electricity dispensed.1 CARB approved the City of Palo Alto Utilities’ (CPAU’s) application to
participate in the LCFS program in April 2014, and has been allocating LCFS credits to the CPAU
since then. Under CARB’s formula, Palo Alto received 1,855 credits in 2014, 3,311 credits in
2015, and anticipates receiving 4,500 credits in 2016. As of March 2016, Palo Alto had
approximately 1,300 EVs.
CNG related credits are based on the amount of CNG actually dispense d at the City’s CNG
fueling station. In 2016 the City anticipates dispensing approximately 12 million cubic feet of
CNG and receiving about 270 credits.
At the prevailing market price of $116 per credit, the sale of credits allocated in 2014 and 2015
is expected to yield $600,000. Revenues from the sale of 2016 credits are expected to be
$500,000. With projections of 3,000 to 5,000 EVs in Palo Alto by 2020, the revenue from LCFS
sales credit could range from $800,000 to $1.2 million per year by 2020. The value of credits
related to CNG is projected to be $30,000 per year and projected to stay relatively flat through
2020.
In March 2016 Council approved a master agreement template to enable the City to sell LCFS
credits to transportation fossil fuel providers in California (Staff Report #6489). Staff anticipates
using this template to make the first credit sale in late spring 2016 in order to fund the
programs described in this report. These projected revenues and costs are included in the fiscal
year (FY) 2017 budget request.
1 CARB’s LCFS program overview is provided here: http://www.arb.ca.gov/fuels/lcfs/lcfs.htm
Page 3 of 6
DISCUSSION
Use of EV Related LCFS Funds
Electric distribution utilities like CPAU that receive LCFS credits must comply with the regulatory
requirements outlined in California Code of Regulations Sec. 95483(e)(1) in order to receive
credits, including:
(A) Use all credit proceeds to benefit current or future EV customers;
(B) Educate the public on the benefits of EV transportation (including
environmental benefits and costs of EV charging, or total cost of ownership, as
compared to gasoline);
(C) Provide rate options that encourage off-peak charging and minimize
adverse impacts to the electrical grid; and
(D) Include in annual compliance reporting the following supplemental
information: an itemized summary of efforts to meet requirements (A) through
(C) above and costs associated with meeting the requirements.
After engaging with industry and community stakehol ders, staff explored a number of
programs for using the LCFS funds, and screened the options based on the following criteria:
Cost and simplicity of program administration;
Breadth of EV customer segments to which program would be applicable;
Impact on the rate of EV adoption; and
Potential funds that could be utilized in the program option.
Outlined below is a list of the program options identified and their relative merits based on the
criteria. A presentation of the relative merits of the options is provided in Attachment C.
The following options may be considered in the future, but were determined to be not ready
for implementation in the initial phase of the program:
1. Discount Development Center permit fees related to EV charger installations. Such a
program would waive or discount the permit fee related to EV chargers which currently
range from $160 for residential chargers to $560 for commercial Level 3 chargers. This
option was initially found to be administratively burdensome.
2. Provide cash rebates to EVs registered in Palo Alto . This would likely require EV owners to
apply online with their vehicle registration information. The rebate could be one-time or
annual. The large investor-owned utilities in California and the Sacramento Municipal Utility
District are contemplating this type of a program. Since this option was administratively
burdensome and could consume the bulk of the funds available, it is not recommended at
this time. Staff feels that the funds could be better utilized in other LCFS program options
and that such a rebate would not be a significant influence for those contemplating an EV
purchase.
3. Discount or provide free charging at public EV charging stations. This option wa s found to
be suboptimal for Palo Alto because free charging may attract EV owners that casually take
Page 4 of 6
the opportunity since charging is free, an impact that crowds out EVs that need to charge
and are willing to pay for the service.
The following options were determined to be the best ones for CPAU’s initial LCFS program:
1. Rebates for the installation of Electric Vehicle Supply Equipment (EVSE, or chargers). Staff
determined that providing rebates for EVSE installations at underserved segments of the
market would be valuable. Those market segments include public and non-profit buildings
as well as at at private buildings with multiple tenants, such as multi-family or mixed use
buildings or on corporate campuses. The landlord, property owner, or tenant would own
the EVSE, not the City of Palo Alto.
2. Discount electric utility fees associated with upgrading electric services due to the
installation of EV chargers. The utility connection fees are periodically required if the
installation of chargers at homes requires a utility service upgrade2. Such upgrades have
been triggered a dozen times the past year. The related fees ranged from $400 to $9,000,
with an average fee of $1,300. This use of the LCFS funds was identified as a preferred
option. Utility Rate E-15 and related Utility Rules and Regulations may have to be modified
to reflect this discount.
3. Discount off-peak electric rates for residential customers to encourage off-peak EV
charging. Though this option has many implementation hurdles, the option was identified
as an option that merits further investigation for possible implementation in the future.
4. Provide a payment to customers who provide CPAU access to their EV charging patterns via
the telematics in their EV or their charging equipment. This i nformation will assist CPAU
better assess impacts of such charging systems on the distribution grid and seek EV
customer interest in various EV-related Utilities programs. This was identified as a preferred
option, though all elements related to harnessing the information provided are not yet fully
defined.
5. Fund education and outreach efforts. This is a key element to enable EV adoption at a rapid
clip and was identified as a preferred program to fund. This may include the cost of
temporary staff resources or a third-party program manager or administrator.
Initial EV Related LCFS Program Details
Based on staff’s analysis of program options, the following rebate/discount amounts are
proposed for inclusion in CPAU’s initial LCFS program. The City Manager will determine the final
details and make any modifications, as necessary, to respond to changes in technology, funds
available and costs for various program components. Detailed eligibility and guidelines for each
of the programs will be provided on the City’s website. The initial program and designation of
funds by program area is summarized below and more detail is provided in Attachment B.
2 When a customer wishes to install EVSE at home, an upgrade to their home’s electric service may be required.
Per CPAU Utilities Rule and Regulation 18: “The Customer is responsible for all costs associated with relocation or
modification of Utility Service.” The costs are determined based on Utility Rate Schedule E -15 and periodically
EVSE projects require the preparation of a cost estimate. Customers are invoiced for the labor and material costs,
excluding the cost of the transformer itself.
Page 5 of 6
LCFS Program Area Funds
Expended
Annually
Rebate of up to $3,000 for the installation of EVSE at non -single family
residential buildings and parking areas.
To ensure that funds are dispersed over many locations, a limit of 3 EVSEs per
location is recommended for non-public locations.
Similarly, allocation to all Palo Alto Unified School District (PAUSD) locations is
recommended to be limited to $30,000 per fiscal year for EVSE installations.
$225,000 to
$375,000
Discount the Utilities Connection fee related to the installation of EVSE in single
family and multi-family residential applications for up to $3,0003.
$30,000 to
$60,000
Discount off-peak electricity rate of residential customers with registered EVs
who elect to be on the time-of-use electricity rate.
$40,000 to
$150,000
Rebate of $300 for EV owners who provide CPAU access to information related
to their EV charging patterns.
<$30,000
Fund educational and outreach activities to facilitate early adoption of EVs at
$20,000/year and an additional $20,000/year to fund related staffing needs
$40,000
Use of CNG Related LCFS Funds
While EV related LCFS credits account for more than 90% of the funds, LCFS credits related to
dispensing CNG will generate approximately $30,000 annually. CARB’s regulations do not
impose specific requirements for how regulated parties must use revenues earned from the
sale of CNG-related LCFS credits, but staff’s proposal is to use the funds to expand the use of
CNG vehicles. Staff’s primary recommended use of these funds in FY 2017 is for the installation
of a credit card reader at the pump to expand the number of CNG vehicle owners that could
use the station. In subsequent years, the funds could be used for annual service and
maintenance costs for the public CNG station, and if funds remain, they could be used to
explore purchasing carbon neutral CNG (e.g. using certified environmental off-sets or
renewable natural gas supplies) or reduce the CNG retail rate charged.
Reporting Requirements
The current LCFS regulation extends through 2020, but it is expected to be extended. Hence,
staff recommends revisiting the LCFS Program in 2020. As required by the regulations, s taff will
file various quarterly reports to CARB to claim credits, and annually report on the use of funds.
Staff will report to Council annually on the progress and impact of the LCFS and may request
changes to the LCFS Program if additional or alternative uses of funds are identified. A
balancing account will be maintained to smooth out short -term fluctuations in annual revenue
and expenses.
3 Staff may seek modifications to the Utility connection fee schedule E-15 to incorporate this program.
City Manager to Manage Program
The City Manager may change the rebate amounts annually or suspend them based on funds
available. Under the program, the City Manager may make changes to the programs and
implementation details to optimally utilize the revenues to benefit EV and CNG vehicle owners.
RESOURCE IMPACT
The revenue generated by participating in the State's LCFS program is estimated to be $500,000
to $1 million per year. Staff time of approximately 0.25 FTE will be required to administer this
program; existing staffing resources will be utilized for this effort. Funds from the program
revenues may be allocated to hire temporary staff to manage tasks related to encouraging EV
adoption.
POLICY IMPLICATIONS
The recommendation is consistent with City's 2011 Electric Vehicle Infrastructure Policy and the
draft 2016 Sustainability and Climate Action Plan.
ENVIRONMENTAL REVIEW
Approving a program to utilize LCFS revenues does not meet the California Environmental
Quality Act's definition of a "project" under Public Resources Code Section 21065, thus,
environmental review is not required.
ATTACHMENTS
A. Program for the use of Revenues from the sale of LCFS Credits
B. Outline of Palo Alto LCFS Program Implementation Details
C. Relative Merits of LCFS Program Options
PREPARED BY:
REVIEWED BY:
APPROVED BY:
ANNE-LAURE CUVILLIEZ, Management Specialist
~HIVA SWAMI NATHAN, Senior Resource Planner (J' C2~t .Director, Resource Management
ED SHIKADA
Assistant City Manager/Interim Director of Utilities
Page 6 of 6
Attachment A
1
CITY OF PALO ALTO PROGRAM FOR USE OF REVENUES FROM THE SALE OF LOW CARBON
FUEL STANDARD CREDITS
Low Carbon Fuel Standard (LCFS) credits are allocated to the City of Palo Alto by the California
Air Resources Board (CARB) based on the estimated amount of electricity used by electric
vehicles (EVs) served by City of Palo Alto Utilities (CPAU) and Compressed Natural Gas (CNG)
dispensed at the Municipal Service Center for CNG-fueled vehicles. The City’s Program for the
use of revenues from the sale of LCFS credits outlines the types of programs the City intends to
promote to meet state’s objective of reducing the carbon intensity of transportation fuels , in
compliance with the state’s LCFS regulations1.
A. Use of Revenues from the Sale of LCFS Credits for Electric Vehicles
The City may use revenues from the sale of LCFS credits to provide customer rebates,
discounts or funding for the following purposes:
1. Provide rebates for the installation of Electric Vehicle Supply Equipment (EVSE) at non-
single family residential buildings and parking areas.
2. Discount the Utilities Connection fee related to the installation of EVSE in single-family
and multi-family residential buildings.
3. Discount off-peak time electricity rate of residential customers, with registered EVs, who
elect to be on the time-of-use electricity rate.
4. Pay EV owners who provide CPAU access to information related to their EV charging
patterns and are willing to be part of CPAU’s voluntary demand response program
5. Fund CPAU programs designed to lower the cost of electric utility services for EV
charging or to enable EVs owner to modulate charging patterns to lower charging cost.
6. Educational and outreach activities to accelerate adoption of EVs
B. Use of Revenues from the Sale of LCFS Credits for CNGVs
The City may use the LCFS credit sales revenues to facilitate CNG vehicle adoption in the
following order of preference:
1. Fund capital and maintenance costs associated with the CNG station at the Municipal
Service Center to facilitate expanding the CNG vehicle customer base.
2. Fund activity to dispense carbon neutral CNG (e.g. use of certified environmental off-
sets or renewable natural gas supplies).
3. Reduce the CNG retail rate charged for vehicles.
C. City Manager Authority
1. The actual rebate and discount amounts and individual program budgets shall be based
on funds available and shall be determined by the City Manager. The CNG retail rate,
1 Currently set forth in Title 17 of CA Code of Regulations, Section 94580, et. seq.
Attachment A
2
including the discount offered based on available LCFS sales revenue available, shall be
determined by the City Manager.
2. The City Manager is authorized to:
a. Annually make changes to the programs and implementation details to optimally
utilize the revenues to benefit of EV and CNG vehicle owners.
b. Suspend the rebates if funds are depleted or if a program is found to be ineffective
at meeting stated program goals or regulatory requirements.
D. Program Term and Reporting Requirements
1. This Program shall be in place until December 31, 2020, unless revised by Council.
2. The Council shall be provided annual reports on the sale revenues and expenditures
associated with the LCFS program and this policy.
3. The rebate amounts and related detailed guidelines shall be published on the City’s
website.
Attachment B
1
Outline of Palo Alto’s Initial (FY 2017) LCFS Program Implementation
(To be updated annually by the City Manager as appropriate)
1. Rebate for the installation of EVSE
A. Multi-family residential, mixed use, and commercial building garages and parking
areas
(1) EVSE must be installed in a shared parking location not assigned or dedicated to
particular tenants or owners, but available to any tenant, owner, employee or
guest. In a rental apartment building, assigning a space to an EV owner is
allowed.
(2) Information about EVSEs receiving a rebate shall be posted on public EV station
locaters on the internet, and to the extent possible, made available to the public.
(3) Rebates may cover up to 75% of the total cost of the installation including the
cost of the EVSE, electrical wiring, and all capital costs related to the installation.
(4) Rebate limited to $3,000 per EVSE installed up to a maximum of 3 chargers per
service address.
B. Public Buildings and not-for-profit organizations
(1) Information about EVSEs receiving a rebate shall be posted on public EV station
locaters on the internet and made available to the public.
(2) Rebates may cover up to 100% of the total cost of the installation including the
cost of the EVSE, electrical wiring, and all related capital cost.
(3) A rebate shall be $3,000 per EVSE installed, with a maximum rebate of $9,000
per service address with the installation of 3 chargers.
C. Palo Alto Unified School District (PAUSD) Facilities
(1) Allocate up to $30,000 per fiscal year towards EVSE installations in PAUSD
facilities.
(2) Rebates may cover cost of electrical wiring, cost of EVSEs and all related cost for
up to 100% of the total cost.
(3) The anticipated reimbursement per EVSE is $3,000, but in no event shall it
exceed $5,000 per EVSE installed.
(4) If networked EVSEs are installed, PAUSD shall provide access to the EVSE
charging information to CPAU.
D. Additional requirements for EVSE receiving rebates:
(1) All EVSE rebates above are based on Level 2 EVSEs with 30A circuits or larger. In
the event Level 2 EVSE is suboptimal for a location, to claim a $3,000 EVSE
rebate, the City requires the installation of two units of Level 1 EVSE with 20 A
circuits. All EVSEs for which rebates are requested are encouraged to be
equipped with a J1772 plug.
(2) Physical signage for easy identification of EVSE location.
(3) The three EVSEs per service address limit may be increased for a publicly
accessible parking location if applicant can demonstrate need.
Attachment B
2
(4) The rebates for EVSEs may not be provided to install EVSEs already required by
the City’s Building Code.1
2. Rebate for Utilities Connection Fee
A. Provide a rebate on the utility connection fee to residential single- and multi-family
customers, when the installation of an EVSE triggers the need for a utility service
upgrade.
B. The rebate could cover the full cost of the fee2 for up to $3,000 per utility service
address.
3. Discount night-time electricity rates
A. Investigate the merits of providing a night-time electricity use rate discount of
about 5 cents per kWh for EV customers, with the objective of lowering the adverse
impact of EV charging on the distribution grid and lowering the charging cost to the
EV owners.
B. If found feasible and desirable, bring a time-of-use electricity rate proposal to
Council for consideration and approval.
4. Rebate for EV owners who provide CPAU access to their EV’s charging system
A. Provide a rebate to EV owners who are willing and able to provide CPAU access to
their networked charging systems and are qualified to participate in CPAU’s
Voluntary Demand Response (DR) programs3.
B. The rebate this activity shall be a one-time payment of $3004.
5. Fund educational and outreach activities to facilitate early adoption of EVs
A. Support community and stakeholder generated initiatives to advance goals of the
LCFS program.
B. Utilize up to $20,000 per year to fund educational and outreach activities related to
facilitating early adoption of EVs. An additional $20,000 may be used to fund staffing
needs related to the programs.
1 Palo Alto Municipal Code Section 16.14.420, Ordinance 5324
2 Utility Service Connection Fee is in accordance with Council approved Utility Rate Schedule E -15. Historically, such
fees, when triggered, average $1300, but the actual fee could vary widely.
3 Conditions to be qualified to participate in the Voluntary D R program: a) the EV must primarily charge within City
of Palo Alto; b) ability for EV owner to communicate and control vehicle charging system remotely; c) EV owners
must agree to provide connectivity to the charging system via the EV owner’s charging sys tem service provider;
and d) CPAU must have agreements with charging system’s service provide. Access to the connected and
communicating charging system may be provided either through vehicle onboard telematics or through the
customer EVSE system. Note: CPAU’s voluntary DR programs are and will be designed to reduce the adverse
impacts of EV charging on the electrical grid and assist California better integrate intermittent renewable
resources.
4 In return for the $300 payment, the expectation is that the EV owner will participate in CPAU’s DR program on a
voluntary basis over a 3 to 5 year period. The participation is limited to no more than 15 days per year. Notification
will be provided to the EV owner to voluntarily reduce or stop EV charging during sp ecified time periods between
noon and 6pm on hot summer days. For details see: Staff Report 3454 of February 2013
Attachment C
1
Relative Merits of Program Options to Return LCFS Credit Value to Current & Future EV Owners in Palo Alto
Annual LCFS credit value of $500,000 in 2016 and increasing to $1 million by 2020 (CY 2014 & 2015 credits worth $600,000)
Objective of Programs: To encourage EV adoption by residents and commuters, and minimize adverse impacts on the electrical grid
Criteria for Evaluating →
Customer Program Options
↓
[A]
Simple
and Easy
to
Admin?
[B]
Serve large
segments
of EV
customers?
[C]
Spur
new EV
Buyers?
[D]
# of EV or
EVSE owners
served/year
[E]
Cost per
Customer
Served/
year
[F]
Anticipated
Cost/
year
[G]
Merit of
Program
through
2020
[H]
Segment
of current
and future
EV owners
served
Notes
1. Discount EVSE Permit Fee
for homes, schools &
businesses
100-300 $400 $40 to $120k
Residents,
businesses
Difficult to implement;
long term option
2. Annual or one-time rebate
for EVs registered in Palo
Alto
1,200
existing, 500
new EVs per
year
$200 to
$500
$100k to
$300k
High Admin
residents
Preferred option for CA
utilities; not supported
by most PA community
EV advocates, high
admin
3. Discounted or free EV
charging at public chargers
in Palo Alto
20-40 EV
chargers
$1,500
/charger if
made free
$30-60k
Would not
make big
difference
Mainly
commuters
Do not recommend
making EV charging free
long term, perhaps
discounted by 50%.
4. Rebate installation of EVSE
at public & non-profit
buildings
25 -50 EVSE
per year $3000/EVSE $75 to $150k Mainly
commuters
Underserved segment of
the EVSE market
5. Rebate installation of EVSE
at private buildings with
multiple tenants
(multifamily, mixed use)
50 -75 EVSE
per year $3000/EVSE $150k to
$225k
Multi-
family
residents,
commuters
Underserved segment
of the EVSE market
Attachment C
2
Criteria for Evaluating →
Customer Program Options
↓
[A]
Simple
and Easy
to
Admin?
[B]
Serve large
segments
of EV
customers?
[C]
Spur
new EV
Buyers?
[D]
# of EV or
EVSE owners
served/year
[E]
Cost per
Customer
Served/
year
[F]
Anticipated
Cost/
year
[G]
Merit of
Program
through
2020
[H]
Segment
of current
and future
EV owners
served
Notes
6. Discount CPAU fees for
upgrading customer’s
electrical service
connection, triggered by
EVSE installation
10-20 $3k $30-$60k
Easy to
administer;
valued by
customer
Single- and
Multi-
family
residential
Small number of
customers; but reduce
uncertainty
7. Use LCFS funds to
lower/rebate off-peak
electric rates for EV-TOU
customers
250 to 1000
@5¢/kWh
discount,
$150/yr
$40k to
$150k
Long lead
time to set-
up
Mainly
Single-
family
residential
Attractive long term
solutions, requires
smart meters to
implement
8. EV owners provide CPAU
access to their charging
system
50-100 $300, one
time < $30k
Residential
and
commuters
Assist CPAU manage
electrical loads through
Demand Response
9. Education/ Outreach and
staffing N/A N/A $40k
All
As EV penetration
increases, value of
outreach declines
Level of merit denoted by
Recommended programs highlighted in green
Page 1 of 5
4
MEMORANDUM
TO: UTILITIES ADVISORY COMMISSION
FROM: UTILITIES DEPARTMENT
DATE: June 1, 2016
SUBJECT: Staff Recommendation that the Utilities Advisory Commission Recommend that
the City Council Amend the Net Surplus Electricity Compensation Rate (E-NSE-1)
REQUEST
Staff requests that the Utilities Advisory Commission (UAC) recommend that the City Council
amend the Net Surplus Electricity Compensation Rate Schedule (E-NSE) as attached.
EXECUTIVE SUMMARY
Electric utilities must offer Net Energy Metering (NEM) to eligible customers under specific
conditions set by state law. One such requirement is that electric utilities establish a Net
Surplus Electricity Compensation Rate Schedule to compensate eligible customer-generators for
electricity produced in excess of on-site load at the end of each twelve-month period. In
December 2010, the City adopted the Net Surplus Electricity Compensation Rate Schedule (E-
NSE) rate effective January 1, 2011, to compensate eligible customers for their net surplus
electricity at a value of 5.841 cents per kilowatt-hour (kWh), and the rate has remained
unchanged since. Staff proposes to update the valuation methodology supporting the E-NSE
rate to reflect the City’s avoided cost of local solar from the prior calendar year, updated
annually. Using this methodology and 2015 data, the proposed E-NSE rate is 7.21 cents per
kilowatt-hour effective July 1, 2016.
Staff expects the total cost of energy purchases under the proposed 7.21 cents/kWh rate will be
$15,000 to $20,000 a year at full NEM program capacity of 9.5 MW, or $5,000 more per year
compared to the current E-NSE rate. The proposed E-NSE rate is a cost-justified rate that meets
statutory requirements set out in State law and applies only to NEM customers.
BACKGROUND
Assembly Bill (AB) 920 (2009) modified the California Public Utilities Code’s terms and
conditions for Net Energy Metering (PUC Section 2827, et. seq.). AB 920 required the City
Council to establish a Net Surplus Electricity Compensation Rate Schedule effective January 1,
2011, to compensate eligible customer-generators for electricity produced in excess of on-site
Page 2 of 5
load at the end of each twelve-month period. The Net Metering Net Surplus Electricity
Compensation rate (Utility Rate Schedule E-NSE-1) was adopted by Council in December 2010
(Resolution 9124).
Eligible customer-generators may choose to receive their Net Surplus Energy compensation as a
monetary bill credit or as cash. Settlement periods are twelve months and are deemed to start
when the utility receives the customer’s completed and signed election form. If the customer
fails to make an election, electric utilities are not obligated to offer compensation or carry
forward the net-surplus electricity: PUC Section 2827(h)(3) requires the City to claim the surplus
as its own. State law (PUC Section 2827(h)(6) also requires that the net surplus electricity
purchased by the electric utility counts toward the electric utility’s renewables portfolio
standard (RPS) annual procurement targets.
In December 2010, the City adopted the E-NSE rate to compensate eligible customers for their
net surplus electricity at a value of 5.841 cents/kWh, which is based on the average cost of the
City’s renewable portfolio standard (RPS) eligible supply contracts in FY2010.This value includes
the value of the electricity and renewable attributes, and excludes the value of avoided costs
for transmission and losses. The valuation methodology was chosen because of its simplicity
and because it does not shift costs between eligible customer-generators and other bundled
service customers, in compliance with PUC 2827(h)(5).
As of April 30, 2016, the City has 885 eligible NEM customers with a total generating capacity of
7.6 MW. Total net surplus generation over the past four calendar years is shown in Table 1. The
aggregate amount of net surplus generation is minimal compared to the City’s total energy
purchases1, and predominantly from the residential customer class . The number of net surplus
generators is small compared to the overall number of solar customers. Customers may end up
producing electricity beyond their on-site needs because of a variety of reasons, including: 1)
the customer sized the solar system larger than the current load in anticipation of adopting an
electric vehicle, but has not done so yet, 2) the customer decreased load significantly after
adopting a solar installation, due to energy efficiency measures or reduced family size, or 3) the
solar system was mistakenly sized to be larger than the customer’s on-site needs.
Table 1: Historical annual net surplus generation by customer class
Customer Class Annual Net Surplus Generation (kWh)
2012 2013 2014 2015
Residential 211,445 238,192 349,857 391,025
Small Commercial 168 212 1,946 4,680
Medium Commercial 0 3 3 0
Total 211,613 238,407 351,806 395,705
1 Net Surplus compensation paid to customers in 2015 totaled $10,605.09, or less than 0.02% of total electricity
purchases.
Page 3 of 5
DISCUSSION
Public Utilities Code Section 2827 describes the terms and conditions of net energy metering,
including the requirements for the net surplus electricity compensation rate. Pertinent sections
of the PUC Section 2827 are copied below.
PUC section 2827 (h) (5) (A):
The net surplus electricity compensation valuation shall be established so as to provide
the net surplus customer-generator just and reasonable compensation for the value of
net surplus electricity, while leaving other ratepayers unaffected. The ratemaking
authority shall determine whether the compensation will include, where appropriate
justification exists, either or both of the following components:
(i) The value of the electricity itself.
(ii) The value of the renewable attributes of the electricity.
PUC section 2827 (h) (5) (B):
In establishing the rate pursuant to subparagraph (A), the ratemaking authority shall
ensure that the rate does not result in a shifting of costs between solar customer-
generators and other bundled service customers.
Staff proposal
Staff proposes increasing the net surplus electricity compensation rate to 7.21 cents per kWh,
shown in Figure 1, which is calculated based on a historical short-term avoided cost of local
solar for calendar year 2015. The value would take effect July 1, 2016, and would be updated
annually. The value of 7.21 cents per kWh was determined utilizing historical data and takes
into account the value of the energy and congestion, avoided capacity charges, avoided
transmission and ancillary service (AS) charges, avoided transmission and distribution (T&D)
system losses, and renewable energy credits (RECs), or environmental attributes. The energy
component to the overall credit rate is calculated by taking historical wholesale monthly round -
the-clock market price data for northern California, and weighting them based on the typical
generation profile of rooftop solar PV systems in Palo Alto and the hourly profile of market
prices in northern California. In this way, the valuation methodology accounts for the fact that
solar energy is often generated at times of peak system demand. Avoided transmission and AS
charges are calculated based on the actual charges that the City pays to the California
Independent System Operator (CAISO) for these services. The value of the environmental
benefits is based on historical market price indicatives for the value of a “Bucket 1” REC. The
valuation methodology is consistent with the 2016 electric cost of service analysis (COSA).
Page 4 of 5
Figure 1: Value of net metering net surplus electricity rate (E-NSE)
The proposal uses an updated valuation methodology for two primary reasons. First, the
proposal is consistent with the valuation model used to calculate the proposed NEM successor
credit rate for energy exports (proposed Utility Rate Schedule E-EEC), which is also a short-term
avoided supply cost of local solar. The only difference in the application of the valuation
methodology is that the NEM successor credit rate is a forward -looking value that uses input
data for the upcoming fiscal year (FY 2017) and the NEM net surplus electricity compensation
rate is a backward-looking value that uses input data from the prior calendar year (CY 2015)2.
Second, the prior valuation methodology adopted in 2010 utilized RPS-eligible renewable
energy costs, which are all long-term energy contracts, many of which span multiple decades.
The proposed valuation methodology is a short-term avoided cost based on market purchases,
which is more consistent with how CPAU balances small amounts of energy (such as that from
net surplus electricity generators) when managing the electric supply portfolio.
ALTERNATIVES
There are alternative valuation methodologies that could be used to calculate the net surplus
electricity compensation rate that fulfill statutory requirement s. Using the same valuation
2 Net surplus compensation is for generation in excess over the past 12-month period so it uses data from the past
year. The NEM successor credit rate (E-EEC) is for energy that will be generated in the future, which is why it uses
forecasts for the input data for the next fiscal year.
3.33
1.18
0.53
1.75
0.42
0
1
2
3
4
5
6
7
8
Ce
n
t
s
p
e
r
k
W
h
(
¢
/
k
W
h
)
T&D Losses
Transmission/AS
Capacity
REC
Energy + Congestion
methodology as that adopted in 2010 (average cost of RPS-eligible renewable energy supply
excluding transmission), the value of the rate would be 6.835 per kWh for FY 2017 (based on FY
2016 costs). Staff does not recommend this alternative because it does not take into account a
variety of avoided costs of local generation and it is inconsistent with the proposed valuation
methodology to calculate the NEM successor rate for electricity exports. A second alternative
would be to adopt the same value as the proposed NEM successor credit rate for energy
exports (proposed Utility Rate Schedule E -EEC), which is 7.485 cents per kWh. Staff also does
not recommend this methodology since, although the underlying valuation model is the same,
the E -EEC rate is forward -looking and based on input data for FY 2017, whereas net surplus
compensation is by definition backward -looking and based on input data from CY 2015.
RESOURCE IMPACT
Staff anticipates the resource impact due to updating the proposed cost -based net surplus
electricity compensation rate schedule for eligible customers will be negligible. Based on the
historical levels of net surplus electricity and trends in customer elections discussed above, staff
expects the total cost to be approximately $15,000 to $20,000 a year at full NEM program
capacity of 9.5 MW. This is an additional $5,000 per year compared to the current E-NSE
compensation rate of 5.841 cents/kWh.
POLICY IMPACT
This recommendation does not represent a change to current City policies. The proposed
revisions do not have any policy implications.
ENVIRONMENTAL IMPACT
The UAC's recommendation to Council on the proposed net surplus electricity compensation
rate does not meet the California Environmental Quality Act's definition of a project pursuant
to California Public Resources Code Section 21065, therefore no environmental assessment is
required.
ATTACHMENT
A. Net Surplus Electricity Compensation Rate Schedule
PREPARED BY:
REVIEWED BY:
APPROVED BY:
AMEE BAILEY, Resource Planner
HYELA,ssistant Director, Resource Management
ED SHIKADA
Assistant City Manager/'lnterim Director of Utilities
Page 5of5
NET METERING NET SURPLUS ELECTRICITY COMPENSATION
UTILITY RATE SCHEDULE E-NSE-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-1-1-20112016
Sheet No.E-NSE-1
A. APPLICABILITY:
This schedule applies to eligible residential and small commercial net meteringNet Energy Metering
Customers who, at the end of an annual settlement period, as defined bydescribed in Rule 29, are net
surplus customer-generatorsNet Surplus Customer-Generators of electricity and who elect to receive
monetary compensation as such preference is indicated on the net surplus electricity election form.
This schedule only applies to Customers who participate in Net Energy Metering, and does not apply
to Customers that take service under the City’s Net Energy Metering Successor Rate, as each of
these terms are defined in Rule and Regulation 2.
B. TERRITORY:
Applies to locations within the service area ofThis rate schedule applies anywhere the City of Palo
Alto provides electric service.
C. RATES:
Per kWh
Net energy compensationSurplus Electricity Compensation rate $0.058410721
D. SPECIAL CONDITIONS
1.Net surplus compensation eligibility will be determined as specified in Rule 29. The
determination of a Customer’s net surplus electricity measured in kWh will be based on a
twelve-month settlement period. The twelve-month settlement period starts on the date of
Interconnection of the facility, or for Customers with dates of Interconnection of their facilities
prior to February 1, 2010, on the day after CPAU’s receipt of the Customer’s net surplus
electricity election form.Net Surplus Electricity Compensation Rate eligibility shall be
determined as specified in Rule 29. Net surplus electricity, as specified in Rule 29, if applicable,
will be multiplied by the above compensation rate to determine the Customer’s annual net
surplus electricity compensation stated in dollars. This compensation will be provided to the
Customer as a credit applied to the Customer’s Utility account.
2.If the Customer does not provide CPAU with an election form selecting a compensation option,
the Customer will be deemed to not make an election as required by law, and no compensation
will be provided to the Customer for net surplus electricity.
3.In the event a Customer terminates Service prior to the natural expiration of the twelve-month
period, the net surplus electricity status will be evaluated at that time. Compensation, if
applicable, will be provided in accordance with D.2 above.
4.2.For all otherAdditional terms, conditions and definitions please refer to Rule 29,govern Net
Energy Metering Service and Interconnection, as described in Rule 29.
{End}
ATTACHMENT A