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HomeMy WebLinkAbout2017-08-02 Utilities Advisory Commission Agenda Packet NOTICE IS POSTED IN ACCORDANCE WITH GOVERNMENT CODE SECTION 54954.2(a) OR 54956 I. ROLL CALL II. ORAL COMMUNICATIONS Members of the public are invited to address the Commission on any subject not on the agenda. A reasonable time restriction may be imposed at the discretion of the Chair. State law generally precludes the UAC from discussing or acting upon any topic initially presented during oral communication. III. APPROVAL OF THE MINUTES Approval of the Minutes of the Utilities Advisory Commission Meetings held on June 7, 2017 and July 12, 2017 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. Study Session Between the Council and UAC Action 2. Discussion of Developing a Flexible Distributed Energy Resource Plan and Forecasting Discussion Long Term Customer Electrical Loads in Palo Alto 3. Staff Recommendation that the Utilities Advisory Commission Recommend that the City Action Council Approve Policy Objectives for the 2017 Wastewater Collection Utility Cost of Service Analysis 4. Discussion of Electric Integrated Resource Plan – California Wholesale Energy Market Discussion Overview and Electric Portfolio Cost Drivers 5. Selection of Potential Topic(s) for Discussion at Future UAC Meeting Action NEXT SCHEDULED MEETING: September 6, 2017 ADDITIONAL INFORMATION The materials below are provided for informational purposes, not for action or discussion during UAC Meetings (Govt. Code Section 54954.2(a)(2)). 12-Month Rolling Calendar UTILITIES ADVISORY COMMISSION WEDNESDAY, AUGUST 2, 2017 – 7:00 P.M. COUNCIL CHAMBERS Palo Alto City Hall – 250 Hamilton Avenue Chairman: Michael Danaher  Vice Chair: Arne Ballantine  Commissioners: Lisa Forssell, A. C. Johnston, Judith Schwartz, Lauren Segal and Terry Trumbull  Council Liaison: Eric Filseth Utilities Advisory Commission Minutes Approved on: Page 1 of 9 UTILITIES ADVISORY COMMISSION MEETING MINUTES OF JULY 12, 2017 SPECIAL MEETING CALL TO ORDER Chair Danaher called the meeting to order at 7:05 p.m. Meeting of the Utilities Advisory Commission (UAC). Present: Chair Danaher, Vice Chair Ballantine, Commissioners Forssell, Johnston, Schwartz, Segal, Trumbull, and Councilmember Filseth Absent: None ORAL COMMUNICATIONS David Carnahan, Deputy City Clerk said the City was recruiting for the Storm Water Management Oversight Committee. The Committee was forming to provide oversight for the recently passed Storm Drain Management Fee. The group would meet a couple of times per year to keep an eye on the spending. Several for two years, others for four years. Encouraged UAC to reach out to at least one community member. APPROVAL OF THE MINUTES None. AGENDA REVIEW AND REVISIONS None. REPORTS FROM COMMISSION MEETINGS/EVENTS Commissioner Schwartz said she had not been at the last UAC meeting because sh e had been in Baltimore at the Low-Income Energy Issues Forum. She gave a presentation on Community Solar. Many of the issues the UAC was wrestling with were discussed in her pre sentation, which she had been shared with the UAC prior to the last meeting. She thought there was no reason to do community solar as a cheaper form of solar electricity. Large-scale solar was less expensive. The advantage to community solar could be in research and understand on how islanding can work, using it to explore the possibilities of resiliency and to make it more visible to people in the community, or to use it to generate funds by supporting charging stations that could then be used for purposes like energy assistance to lower bills. There were reasons to do it, but not because it was cheaper. BGE (Baltimore Gas and Electric) had the most advance program of any utilities that was there. Some of the most innovative utilities were located in Colorado. She had also heard a discussion of Energy Savings Accounts. While there was not a large low-income community in Palo Alto, there were people struggling to get by who could find this helpful. DRAFT Utilities Advisory Commission Minutes Approved on: Page 2 of 9 Chair Danaher spent time in Lisbon with a number of European utilities. The utilities there were focused on making money rather than efficiency. Most had already adopted smart meters and were looking at how to make the most of them. Many were grappling with what to do with the electric vehicle (EV) market. The utilities wanted to leverage EVs for demand response and frequency regulations. Meeting was focused on the group getting to know each other, introducing startups to utility staff. UTILITIES GENERAL MANAGER REPORT Demand Response Program: There was a heat wave the week of June 19. On Thursday, June 22 Palo Alto experienced its peak demand of 171.1 megawatts (MW). During that week the utility activated its demand response program, which includes four customers, one of which is Palo Alto City Hall. Those customers were able to achieve a 14% reduction in load by managing building energy usage during the hot afternoons. In total, they reduced electric demand by 724 kilowatts (kW), with the City achieving more than 50 kW, or about 11%, in peak demand reduction. Carbon Neutral Gas: Carbon neutrality for the gas utility went into effect on July 1. Staff will purchase carbon offsets for the carbon emissions corresponding to any natural gas usage after July 1. Until September 1, this will be funded using revenue from sale of Cap and Trade Program allowances. Starting in September, customers will see a line item charge on their bill to fund the purchase of carbon offsets. While this charge was previously adopted by Council through approval of the Carbon Neutral Gas Plan, it was not reflected on a rate schedule. After consultation with the Attorney’s office, staff decided it was prudent to delay the rollout of this line item charge to allow time to get approval of a revised gas utility rate schedule an d expand educational outreach to customers about carbon neutrality. Rate Changes Adopted: On June 27, the City Council adopted its budgets, including all rate changes recommended by the Utilities Advisory Commission. These included a 3% decrease in water rates and a 12% to 14% increase in electric rates to pay for new renewable energy projects coming online, increased transmission rates, and increased infrastructure investment. There are no changes to gas or sewer rates, aside from the previously discuss ed carbon offsets charge for the carbon neutral natural gas program. Despite the rate increase, Palo Alto's electric rates are more than 35% lower than PG&E, and the overall utility bill for the median Palo Alto resident continues to be lower than what most residents pay in neighboring communities. An overview of rate adjustments is available at cityofpaloalto.org/ratesoverview Water Quality: Each year Utilities publishes an annual Consumer Confidence Report which informs customers about the City's water quality. The report on water quality conditions for 2016 is now available online in English, Spanish and Mandarin at cityofpaloalto.org/waterquality. Customers may also contact us to request a printed copy. Gas Safety Awareness: As a gas utility, the City is required to maintain a public awareness outreach plan about gas safety, which includes distributing an annual gas safety awareness brochure. These brochures are being included with July utility bills and will also be mailed to non - customers living around a gas pipeline, as well as public officials, emergency responders, locators, excavators, contractors and plumbers working in and around Palo Alto. The brochure is available online in English, Spanish and Mandarin at cityofpaloalto.org/safeutility. Utilities Advisory Commission Minutes Approved on: Page 3 of 9 City Open House at the Municipal Services Center: On Monday, July 3, Utilities and other City departments hosted an open house at our Municipal Services Center. It was an opportunity for staff to showcase some of the “behind the scenes” work that we do for the Palo Alto community. City employees, their families and members of the public were able to enjoy food, music, fun activities and special project demonstrations about key City services. The majority of attendees who provided feedback on the event rated it as excellent and requested that we host it annually. Many expressed appreciation for the variety of displays and information presented, complimenting staff on their knowledge, pride and enthusiasm for the work they do. We look forward to bringing this event back next year and further expanding upon its size and success. Thanks to the entire team who helped pull it off! COMMISSIONER COMMENTS Commissioner Trumbull noted a story in the Palo Alto Weekly regarding flaws in the City’s pipeline inspection program. He thought it would be helpful for the UAC to review this. The story had sounded bad for Palo Alto, but he had heard there were reasonable explanations of the situation and it was important to get those explanations aired publicly with the community. Utilities General Manager Shikada clarified this was a report on the audit of the crossbore program. He had requested the audit. The next step in that audit would be to report to Council. A debrief with the Commission would be arranged. UNFINISHED BUSINESS None. NEW BUSINESS ITEM 1: DISCUSSION: Utilities Department Strategic Planning Workshop with City Consultants General Manager/Assistant City Manager Shikada introduced the strategic plan consultants. NewGen (“NewGen”) Strategies and Solutions would be leading the development process for the Strategic Plan, while BluePoint Planning (“BluePoint”) would be managing employee engagement in the process. Tony Georgis, NewGen, gave an overview of the strategic planning process and the role of the UAC. The purpose of a strategic plan was to align the utility’s vision and strategic destination with tactical decisions with a clear connection between staff activities and strategic direction. Tony believes the current strategic plan had a very long list of initiatives and benchmarks and it is important to filter that list through this strategic planning process. He expects this process would involve a fairly comprehensive refresh of the plan, and would ensure that the plan was filtered down to all levels of the organization. The consultants would lead the plan development and w ork with stakeholders, both internal and from the community. He gave an overview of the process for developing the plan, including workshops, market research, an evaluation of strengths, weaknesses, opportunities, and threats (SWOT), and evaluations of goals, objectives, tactical plans, and performance metrics (KPIs). Shikada said the connection between the strategic plan and the day to day activities of the utility needed to be strengthened. To do that the plan would need to be simplified and more focuse d. Focusing on the role of people in the plan would make a difference, as would limiting the number of priorities and activities. The role of the strategic plan was to coordinate activities at a higher Utilities Advisory Commission Minutes Approved on: Page 4 of 9 level, while there were more specific planning efforts that would address detailed topic areas (for example, smart grid planning or electric portfolio planning). Georgis gave an overview of the different layers of detail in a strategic plan, from long -term elements down to short-term objectives and tactics. The Tactical Action Plan would identify specific projects, plans to achieve them, budgets, and roles and responsibilities to ensure achievement of strategic objectives. He discussed the UAC’s role, saying the UAC would be involved at three points in the development of the plan, providing feedback as the plan evolved. Georgis provided an overview of some of the national trends and key issues currently faced by Palo Alto and other utility including:  Technology-related issues (such as cyber security and the availability of smart grid and advanced metering technologies).  Changes in customer preferences (such as the availability of distributed energy and changes in customer energy use). Utilities were not seeing as much load growth anymore.  Liquified natural gas export terminals were under construction that could affect gas prices.  In the water industry, it was difficult to quantify what a normal planning year was due to variability in water supplies. There were limitations on rate flexibility, as well as challenges in messaging the need for conservation when it does not necessarily reduce customer bills.  Workforce challenges, with many employees retiring and fewer entering the utility industry.  Changes in the way younger employees engaged with their professional careers. Vice Chair Ballantine said he had visited an island in the Pacific that was trying to eliminate carbon in its energy use and had experienced 7% per year load growth due to EV adoption. Commissioner Schwartz said that Palo Alto has a high penetration of EVs, more so than other parts of the country which could offset some load decreases. Vice Chair Ballantine said with more electrification there would be a need for more of a focus on reliability due to the fact that all customer energy uses were coming from one source. Commissioner Schwartz said there was not unanimous enthusiasm for building electrification on the UAC, as compared to vehicle electrification. She said it was also not likely that everyone on the UAC understood all of the evolving regulatory mandates. Commissioner Schwartz said one notable feature of Palo Alto is that older residents were more technologically savvy than in many places, which affected their attitudes toward technology. She noted that one challenge in attracting employees to Palo Alto was the lack of nearby affordable housing leading to extended commutes. Georgis acknowledged that concern and noted that many utilities struggled with particular positions, such as linemen. Chair Danaher asked what percentage of the workforce was eligible to retire in the coming years. Shikada said it was 35% to 50%. Utilities Advisory Commission Minutes Approved on: Page 5 of 9 Georgis said this was not uncommon. He proceeded to discuss the changes in the industry from 2007 to 2016, including the increased availability of electric vehicles, the substantial increase in renewable energy, and the availability of smart meters. Commissioner Schwartz noted that Palo Alto was one of the only communities in California without smart meters. Chair Danaher thought this would be a good discussion, but also asked that staff provide a deep dive on market trends that staff saw coming. Commissioner Schwartz asked if there would be opportunities for interactive workshops for UAC members outside of the regular UAC meetings. Shikada said there was a need for some reasonable pacing to allow staff to develop its thinking on various topics to provide proposals for the UAC to respond to. Commissioner Schwartz said the UAC meeting format was not effective for engagement. Georgis noted there would be community focus groups with a workshop format. Commissioner Schwartz asked whether the UAC would be able to attend those meetings or whether there would be Brown Act obstacles. Deputy City Attorney Jessica Mullan said there were ways to make workshops consi stent with the Brown Act. Commissioner Trumbull noted that one big public input meeting would be useful as focus group meetings are not always open. Shikada said that the UAC’s role in the process was not 100% defined and that there were ways to have other formats for the meetings. He discussed the workshop format that had been used in development of the Sustainability and Climate Action Plan (S/CAP). Georgis gave an overview of the natural gas market. Commissioner Segal asked how priorities would be set in the plan, including priorities that could be at cross purposes, such as low cost and sustainable. She emphasized the community should have some input on the plan. Chair Danaher mentioned that Stanford University can be a great resource, specifica lly the Precourt Energy Center. He also added that would be helpful if, when staff presented its recommendations, it talked about the priorities it had let go of in order to set its recommended priorities. He supported incorporating the employee and organizational needs in the plan. Commissioner Schwartz said it was important to get staff buy -in by ensuring that leadership had a clear sense of what the direction was. It was possible for employees to sabotage the process due to an aversion to change. The current vision was uninspiring. Palo Alto was the kind of place where Utilities Advisory Commission Minutes Approved on: Page 6 of 9 it was possible to develop an exciting vision for the future of the utility, and having staff aligned with that vision was important. Georgis asked the UAC to speak to what the key market trends CPAU must address in the next five to ten years. The various commissioners offered the following insight and/or feedback: Commissioner Forssell:  Impacts on load associated with EV adoption in Palo Alto.  Aging infrastructure and increasing cost of replacing and maintaining and the impacts on safety and reliability  Water supply availability given climate change. She thought it was important to consider possible futures in which there were many more frequent dry years, and in which precipitation fell more in the form of rain rather than snow.  Impacts of LNG on natural gas prices and natural gas demand and load trends.  Market trends in energy efficiency. Is Palo Alto a leader or follower in terms of building code standards for energy efficiency and what are the implications.  Price point at which storage, which is not currently cost effective, becomes a viable resource. Vice Chair Ballantine:  Resiliency is important and should be a core strategy. Customers are more and more dependent of electricity for many end uses. Reliability and resiliency are not the same.  Environmental goals and reliability goals could be at odds. Solar was being installed in Palo Alto, which could reduce carbon emissions, but it was not set up to operate in is landed modes, meaning it did not increase reliability.  Value of resiliency when evaluating storage. Commissioner Johnston:  Focus on cyber security to ensure reliability. Commissioner Schwartz:  Implications of sea level rise. There were parts of Palo Alt o that would be more exposed to flooding due to sea level rise.  Need to consider the interconnection and trade-offs. For example, there was a tradeoff between trees and solar exposure. It might be more worthwhile to leave the shade up and insulate a home rather than cut down the trees and put solar on the roof. Another example of interconnected thinking was leveraging the fiber ring for smart metering for all three metered utilities.  Workload and priorities. Need to take some work off the plate.  Leverage other utilities efforts. Chair Danaher:  Long run water recycling was going to become very important, and that could have implications for how buildings were designed.  Vehicle to grid and smart charging could be important in the long run, and it could be important to get standards in place to allow the utility to take advantage of these resources in the long run. Utilities Advisory Commission Minutes Approved on: Page 7 of 9 Councilmember Filseth:  Value of energy storage in resiliency versus the need for a second transmission line.  Focus of the this strategic plan would likely need to be on the low tech issues and the nuts and bolts activities such as staffing and operations.  The current focuses of the strategic plan captured the basic requirements of operating a utility pretty well.  New strategic plan needs to focus on long-term strategy of staffing and infrastructure cost. Commissioner Segal:  Use of technology to meet workforce issues. Chair Danaher thanked the UAC for its discussion. NO ACTION ITEM 2: DISCUSSION: Preparation for Council and Utilities Advisory Commission Joint Study Session Utilities General Manager Ed Shikada said the discussion of the strategic plan earlier in the meeting would help inform the topics for the joint study session. He asked the UAC for feedback on what was important to include on the agenda for the joint study session. Chair Danaher said wants to include Council priorities and policy issues. Commissioner Schwartz said a critical discussion was a focus on resilience. She said it would be valuable to look at microgrids and islanding and where in Palo Alto it would make sense to have these features. She thought household electrification and under grounding could come off the work plan to allow the utility to focus on resiliency. She said staffing was an important part of resiliency. Temporary shift housing might be a way to approach the issues with commute problems. Chair Danaher noted that the UAC had previously recommended a discussion of the value of rooftop solar. Shikada noted that the typical protocol was to have joint meeting of the UAC Chair and Vice Chair along with the Mayor and Vice Mayor to meet prior to the joint meeting to discuss p otential topics. ACTION: No action. ITEM 3. DISCUSSION: Discussion Regarding Utilities Leak Adjustment Rules Utilities General Manager Ed Shikada said this issue had been discussed in one of the neighborhood e-mail groups and had led to some misconceptions. As a result he felt it was important to bring this to the UAC. Assistant Director of Customer Support Services Tom Auzenne gave an overview of water metering and billing. He said customers occasionally experienced leaks on their water systems and experienced a high bill. If the utility observed a leak or had it reported to them, staff would contact Utilities Advisory Commission Minutes Approved on: Page 8 of 9 the customer. Sometimes a customer or neighbor would contact the utility, and described how staff helped diagnose whether there was a leak, and how difficult it can be to find a leak in the house or irrigation systems. He explained that people often do not inspect or test their irrigation systems for leaks. In the future, with advanced meters, customers may be able to receive a notification when unusual flow was observed, but right now customers often do not discover the leak until they receive their bill. It was not their fault, but neither was it the water utility’s fault. Chair Danaher noted there had only been twelve leaks in the past eight years. Mark Harris, a Palo Alto resident of Crescent Park addressed the Commission. He said the utility had previously had a policy to provide a bill credit when a customer experienced a water leak. He recommended returning to the water leak adjustment policy that was in place prior to 2006. He said a policy should include three elements: first, the number of adjustments for any individual customer should be limited. Second, the burden of proof to demonstrate the consequence of the leak and the fact that it had been fixed should be the customer’s responsibility. Third, the customer should pay at least the wholesale price of the water. He said the leak policy would not result in any Proposition 218 issues, and the current policy in fact resulted in a windfall from customers who experience a leak. He said that he had previously been an Assistant Director of the City of Palo Alto Utilities and had handled several water leak credit requests when he was there. Later, as Director of Utilities for Mountain View he used the City of Palo Alto policy as a model. He said the concerns in the staff report could be addressed and offered his assistance if it was desired. Jonathan Foster, a Palo Alto resident and former UAC member said this was an easy problem to fix. The leaks were infrequent and would not result in a significant cost to other customers. He recommended instituting a leak adjustment policy. He was comfortable paying an additional minor amount on his water bill to help other residents deal with the problem. Vice Chair Ballantine agreed that the cost impact among all customers would be negligible. He said it would make sense in the future to address the design issues around water appliances so that appliances and systems shut off when they are experiencing a leak. Commissioner Schwartz agreed that the problem was small and that if customers fix the problem, there should be a leak forgiveness policy. Customers who had experienced these leaks would likely be excited to participate in advanced metering or leak detection pilots. Councilmember Filseth asked whether it would make sense to go to a separated distribution and wholesale water rate. Auzenne said there was currently a fixed and variable component to the rate. Councilmember Filseth said customers experiencing leaks should pay the wholesale water cost but not necessarily the distribution component. Also, part of the marketing pitch for smart meters should be leak detection. Auzenne said the City’s pilot smart meter project had detected some leaks and those customers were contacted in advance of their scheduled meter read date . Utilities Advisory Commission Minutes Approved on: Page 9 of 9 Commissioner Johnston noted there were a high number of check reads. He asked whether there had been a significant change in customer calls about leaks after the City moved away from the 2006 policy. Auzenne said that there had not been a significant change in the number of customer calls after the policy change. Auzenne also said the number of check reads was driven by automated quality control algorithms in the billing system. He said the recent rise in check reads and water leak complaints was the result of customers beginning to use their irrigation systems more frequently since the California drought had officially ended. Commissioner Schwartz said it sounded like the City was doing the right things from a Customer Service standpoint. Chair Danaher supported instituting a well-designed leak adjustment policy. Commissioner Segal discussed staff remarks related to homeowner insurance and whether that was applicable in the case of a water leak. There was a comment from the audience that homeowner’s insurance typically would not cover the cost of water associated with the leak. ACTION: No action. ITEM 4. ACTION: Selection of Potential Topics(s) for Discussion at Future UAC Meeting Chair Danaher suggested a discussion of low-income programs available in Palo Alto. Commissioner Schwartz recommended a discussion of the segmentation of customers to understand their attitudes and preferences. This would help guide the UAC’s policy discussions. ACTION: No action. Meeting adjourned at 9:20 p.m. Respectfully Submitted, Marites Ward City of Palo Alto Utilities Utilities Advisory Commission Minutes Approved on: Page 1 of 9 UTILITIES ADVISORY COMMISSION MEETING MINUTES OF JUNE 7, 2017 MEETING CALL TO ORDER Vice Chair Danaher called the meeting to order at 7:05 p.m. Meeting of the Utilities Advisory Commission (UAC). Present: Vice Chair Danaher, Commissioners Johnston, Ballantine, Segal, Forssell, and Trumbull, and Council Member Filseth Absent: Commissioner Schwartz ORAL COMMUNICATIONS None. APPROVAL OF THE MINUTES Commissioner Trumbull moved to approve the minutes from the May 3, 2017 UAC special meeting and Commissioner Forssell seconded the motion. The motion carried unanimously (6-0) with Vice Chair Danaher and Commissioners Johnston, Ballantine, Segal, Forssell, and Trumbull voting yes and Commissioner Schwartz absent. AGENDA REVIEW AND REVISIONS None. REPORTS FROM COMMISSION MEETINGS/EVENTS None. UTILITIES GENERAL MANAGER REPORT Utilities General Manager Ed Shikada delivered the General Manager’s Report. Update on Infrastructure and Street Improvement Projects in Downtown Area I would like to take this opportunity to provide the Commission with an update on the City's coordination of some upcoming, large scale infrastructure projects. Last month, the City Council approved a water main replacement contract that represents the first phase of a larger multi - departmental infrastructure and street improvement project in the downtown area. Ultimately, this project will include water and gas pipe replacements, street repaving, traffic signal and curb ramp upgrades, parking wayfinding signs and a new downtown parking garage. Staff will also be soliciting input about the possibility of adding bike lanes on University Avenue. We’re calling the DRAFT Utilities Advisory Commission Minutes Approved on: Page 2 of 9 project Upgrade Downtown and staff have developed specific outreach materials including project fliers and maps for our communication efforts with the public. We’ll start next week on Hamilton with the water main replacement project. The majority of construction along University Avenue, including water and gas pipe replacements is planned for 2018, although work on University circle will occur in 2017. We anticipate the work will be complete by early to mid-2020. The City is hosting a series of open houses where staff from each department will be available to answer questions about these projects. We invite you to join us if available. The schedule includes Friday, June 9 from 4 to 6 p.m. at Johnson Park; Tuesday, June 13 from 8 to 9:30 a.m. in the Community Meeting Room at City Hall; and Thursday, June 15 from 11:30 a.m. to 1 p.m. at Lytton Plaza. A new website at cityofpaloalto.org/UpgradeDowntown provides details on the open houses, project maps, descriptions and timelines, and allows people to subscribe to receive updates as the project progresses. Also a special email inbox, UpgradeDowntown@cityofpaloalto.org and phone number, (650) 329-2DIG – are set up for people to contact us with questions or concerns. Municipal Services Center Open House on July 3 The City is hosting a Municipal Services Center (MSC) Open House on July 3. The MSC will be open to the public from 10 am to 2 pm, with project demonstrations and displays of our mostly "behind the scenes" work. Employees from Utilities, Public Works, and Administrative Services will be participating. This event is an opportunity for us to showcase the important and interesting work we do every day with our coworkers and the community at large. We invite the UAC and other members of the public to join us! Carbon Neutral Gas Portfolio Launching July 1 The Council-approved Carbon Neutral Gas Plan launches next month in July. Gas utility customers will see a new line item on their utility bill reflecting the purchase of carbon offsets to balance the carbon emissions associated with their natural gas consumption. CPAU is preparing outreach to customers and has briefed the Customer Service Center with talking points to answer questions about the program. Heat Pump Water Heater Workshop held May 24 On May 24, CPAU and Passive House California jointly held a workshop to raise awareness regarding heat pump water heaters (HPWH). Over 70 people attended, most of whom were residents or contractors working in Palo Alto. HPWH manufacturers, utilities staff, and Development Services staff were available to answer questions. Staff will post the workshop materials online at cityofpaloalto.org/HPWHpilot. The July 5 UAC meeting has been cancelled. The next UAC meeting will be Wednesday, July 12. Commissioner Ballantine noted he had recently had the opportunity to see a condensing cycle combined clothes washer and dryer that used heat pumps. Used at the right time of day, the technology could be useful in reducing greenhouse gases and energy use. Utilities Advisory Commission Minutes Approved on: Page 3 of 9 COMMISSIONER COMMENTS Commissioner Trumbull noted Commissioner Forssell had been recently reappointed and Commissioner Segal was joining the UAC. Vice Chair Danaher welcomed Commissioner Segal to the UAC and congratulated Commissioner Forssell on her reappointment. Utilities General Manager Ed Shikada echoed the welcome and congratulations and said staff was looking forward to working with them on the Commission. UNFINISHED BUSINESS None. NEW BUSINESS ITEM 1: ACTION: Election of Officers Vice Chair Danaher said he would be interested and willing to serve as Chair and noted Commissioner Ballantine was open to serving as Vice Chair, but he did not want to preclude others from expressing interest. ACTION: Commissioner Trumbull moved to nominate Vice Chair Danaher to become Chair and Commissioner Ballantine to become Vice Chair. Commissioner Johnston seconded the motion. The motion carried unanimously (6-0) with Vice Chair Danaher and Commissioners Johnston, Ballantine, Segal, Forssell, and Trumbull voting yes and Commissioner Schwartz absent. ITEM 2: DISCUSSION: Staff Recommendation that the UAC Provide Feedback on the Development of the City of Palo Alto Utilities Electric Integrated Resource Plan Senior Resource Planner Monica Padilla introduced the Electric Integrated Resource Plan (IRP) project and provided a presentation which included:  A high level overview of the electric supply portfolio and planning needs over the 2019 to 2030 planning horizon;  Brief history of long-term planning initiatives and key policies;  Identification of key issues and drivers facing the electric supply utility, including the impending expiration of the current Western Base Resource (WBR) contract in 2024 and the need to determine how much, if any of the contract would be renewed post 2024;  Identification of several major uncertainties including State level policies and/or legislation which will drive the Renewable Portfolio Standard (RPS) and Cap and Trade; and  An 18 month proposed work plan to develop the IRP and submit it to the California Energy Commission (CEC) as required by law. The objective of the presentation was to facilitate a discussion with the UAC about the key issues that need to be addressed in the IRP and solicit feedback on a prop osed IRP development work plan. Throughout the presentation, several UAC commissioners raised questions related to the electric supply portfolio. Utilities Advisory Commission Minutes Approved on: Page 4 of 9 Vice Chair Danaher asked how electric vehicles factored into the energy efficiency and load calculations and how would the City handle a large increase in electric vehicle uptake . Padilla responded that the current load forecast assumes a certain penetration of electric vehicles and corresponding increase in load; however that the load forecast will be updated to reflect the findings of the Distributed Energy Resource Plan (DER Plan). The DER Plan will evaluate various electric vehicle deployment scenarios. Padilla also added that any increases in load resulting from electric vehicles and/or electrification may result in the need to procure additional resources. Commissioner Johnston asked if three and one-half percent (3.5%) losses between electric supply purchases and retail sales was within the range of industry standards. Padilla confirmed that they were. She added that the DER Plan will look for opportunities to minimize losses through efficiency measures. Commissioner Forssell asked whether the portfolio was assessed based on an average precipitation and hydroelectric generation year and whether there would be any assessment of potential droughts in the planning process. Padilla confirmed the portfolio was assessed based on average precipitation and added that management of the two hydroelectric resources would be the focus of one of the topics for the IRP update. Padilla continued the presentation, describing the City’s contract with the Western Area Power Administration for power from Central Valley Project hydroelectric resources. This resource provides roughly 40% of Palo Alto’s needs. These projects were built primarily for flood control. This contract was coming up for renewal and making a decision on this resource would be part of the IRP process. Commissioner Trumbull asked when the WBR contract was up for renewal and when the decision would need to be made. Padilla said the contract would expire at the end of 2024, but the decision to sign a new contract and would have to be made in the next few years. She added that the renewal of the WBR contract followed a formal process under Western’s 2025 Power Marketing Plan and staff has been actively engaged in provided comments both on its own and through the Northern California Power Agency. Commissioner Forssell confirmed that because the projects were built for flood control, the City had very little control over how they were dispatched. Padilla confirmed that was the case. Commissioner Danaher asked for clarification on why emissions were shown in the chart when the City’s power came entirely from hydroelectric resources and renewable energy. Padilla noted that emissions had gradually reduced as more of the City’s renewable energy projects came online, and that emissions were higher when hydroelectric generation was low. Utilities Advisory Commission Minutes Approved on: Page 5 of 9 Commissioner Ballantine talked about his experience on a nuclear naval vessel. The vessel included power from a reactor, but also a backup diesel generator and a battery. He said the developing complexity in the electric grid would en d up requiring more work to maintain grid stability. Solar projects did not provide reliability as currently configured because they turned off during a grid outage. He thought reliability might be a valuable addition to the IRP plan. Padilla supported his concerns and added that the IRP will look at reliability at a grid level and also as part of the overall transmission planning. System reliability at the distribution level will be looked at as part of the Utilities Strategic Plan. ACTION: No Action ITEM 3: ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend that the City Council Approve Community Solar Preliminary Program Design Elements and Feedback on Application of Design Elements for a Solar Phot ovoltaic Project at the Municipal Golf Course Parking Lot Resource Planner Sonika Choudhary presented on staff’s proposed design elements for development of a Community Solar Program. Staff would be discussing both the design elements and their application to a potential community solar project at the City’s Golf Course Parking Lot. She described how community solar would fit in to the City’s Local Solar Plan goal to meet 4% of the City’s total electricity needs by 2023. If proven successful, the community solar program could provide up to 3 megawatts (MW) of the total 23 MW needed to achieve that goal. She showed a video from the Smart Electric Power Alliance (SEPA) describing the basic structure of a community solar program. The program would provide access to solar for customers without a rooftop to install solar panels, such as renters, or who had poor solar access. She described a previous attempt to establish a community solar program that would be entirely run by a third party. The attempt failed because the City was not comfortable with the level of transparency of the vendor. Chair Danaher asked if the vendor had gotten to the point of soliciting customers. Choudhary said they had not. Choudhary continued the presentation and discussed the proposed design elements: 1. CPAU’s Role in the Program Development 2. Selection Criteria for the Community Solar Site 3. Cost and Value Proposition to Participants 4. Funding of the Capital Cost of Project 5. Minimizing Risk to Non-participating customers Throughout the presentation, several UAC commissioners raised questions related to the proposed community solar program design elements and explored the value of such a program for Palo Alto. Chair Danaher asked whether this product would cost more than the City’s current retail rates. Choudhary said that was likely. They would not know the exact price until staff had gotten proposals and knew the cost to build the project. Utilities Advisory Commission Minutes Approved on: Page 6 of 9 Commissioner Forssell noted that there was a possibility that the product would involve a premium for customers at first, but that customers might see a credit in outer years. This could lead to customers waiting to sign only in later years. She asked Staff about their sense of community acceptance this program from the start or if there would be any program rules to only provide credits to long-term participating customers. Choudhary said that the proposed program rules require demonstrated interest or pre - commitment before construction of the community solar projects (up to 50% of the project capacity). Once a project is constructed there could be these perverse incentives. Staff is relying on community engagement and early adopters to bring community solar projects online. Chair Danaher asked why participating customers would see benefit in outer years. Choudhary said that it could happen if the Power Purchase Agreement (PPA) price stays fixed but the commodity portion of the retail rates or utility avoided cost increased over time. Assistant Director of Resource Management Jonathan Abendschein added that participating customers would be locking in their supply costs for 20-25 years and that if City’s retail rates continued to rise over time there might be savings in later years. Chair Danaher commented that retail rates may go down eventually as solar and other renewables become cheaper. Abendschein confirmed the possibility of supply cost going down over time but noted transmission costs would likely increase. Overall the City’s retail rates have increased over time. Choudhary continued the presentation, going over the proposed design elements related to funding of capital cost, risk mitigation to non-participating customers, project timeline and discussed the application of the proposed program design elements to the first project site. Commissioner Johnston asked whether the participating customer would pay the same PPA price as CPAU would pay to the solar developer. Choudhary said that the participating customers would be charged the PPA price instead of the commodity portion of the retail rates. Staff was also considering a pricing option with a premium adder (similar to the Palo Alto Green program) where customers would pay the difference between the PPA price and the commodity portion of retail rates or the utility’s avoided cost. Commissioner Johnston asked for further clarification and if there would be a situation where the City would be paying more to the solar developer than was received from participants. Choudhary said CPAU will aim to remain revenue neutral for energy costs for this program. Commissioner Johnston asked to clarify who would be paying for incremental costs as listed in the report ($15,000 to $35,000 per year). Utilities Advisory Commission Minutes Approved on: Page 7 of 9 Choudhary said that CPAU would like to recover this incremental cost from participating customers. Abendschein added that if a local solar project PPA costs 11 ¢/kWh and utility scale solar with transmission charges costs 9 ¢/kWh, then 2 ¢/kWh would be the premium paid by partic ipants. In addition, participants may have to pay some administrative costs for the program. Commissioner Johnston asked staff to confirm that the concept is to recover all these costs from participants. Choudhary confirmed and added that this has to b e done in a cost-competitive way. Commissioner Johnston agreed with need to be cost competitive and commented that otherwise program is not going to be attractive. Shikada added that underlying assumption is that unless the program cost pencil outs, staff would not proceed with the program. Commissioner Ballantine said that the value of having solar locally versus solar in the Central Valley was reliability. It might be a challenge to communicate, but that would be a good reason for a customer to participate. It might be worthwhile to include some optional line items in the solicitation to add energy storage to the project as a benefit to participants. He suggested other potential secondary reliability benefits, such as providing individual Electric Vehicle charging spots or keeping the Regional Water Quality Control Plant running. Chair Danaher said it would be good to discuss the value of local solar in Palo Alto at the joint Council and UAC meeting in August. He was skeptical that this program would provide en ough value to justify the cost. The Local Solar Plan, including its community solar goals, were adopted before Palo Alto entered into long term utility scale solar PPAs. The larger goal for the utility should be to get clean power supply at the lowest possible cost. Palo Alto may pursu e one demonstration project but making it a larger program would not be good policy. He recommended that staff perform market research and understand customers’ willingness to pay before investing time in issuing the RFP for solar developers. Commissioner Forssell said that she agrees with other commissioners’ comments related to examining the value of the program to justify premium. She added that shaded parking could be one other potential benefit but it is difficult to quantify. Councilmember Filseth shared his observation that community solar programs are becoming popular in communities where local solar projects are displacing fossil resources and in a more cost-effective way than doing one rooftop solar project at a time. Palo Alto already has a b aseline of clean power and the conversation here was different in that we were comparing a local solar project with a large scale utility solar project. Local solar projects may be financially viable by considering transmission costs and relatively low land lease costs by using a municipal site. Chair Danaher recommended performing additional financial analysis and confirming participation interest at various subsidy amounts before going ahead with the actual project development at the golf course parking lot. Utilities Advisory Commission Minutes Approved on: Page 8 of 9 Choudhary said that the proposed plan was to bring a solar developer onboard, seek participants’ interest, and only then move ahead with actual construction. Abendschein noted that the financial analysis was not complex, and there was not much t o be gained by doing more analysis before getting a picture of what prices developers would propose to develop an actual project. Chair Danaher asked to include not just the premium payment to solar developer but all other costs City could be bearing in the financial analysis. Commissioner Ballantine said that local solar may worsen the system reliability and “duck curve” problem in California. Solar paired with storage can shift the dialogue and may justify premium payment. Chair Danaher said that he recognizes that staff is working under current policy directive of the Local Solar Plan. He thought the UAC-Council joint study session in August would help in review of this policy directive. They could discuss if prioritizing other measures such as efficiency would be more effective. Abendschein said that proposed plan is to be ready for the construction at the golf course parking lot in next winter season. He asked UAC to clarify if the unanimous agreement is to review the policy directive rather than implement it. If yes, staff would push out the project schedule for at least a year. Councilmember Filseth said that performing program financial analysis early would make sense rather than proceeding ahead with the project development . He also shared his personal experience of being early adopters of Palo Alto Green program and customers could potentially see value in local solar if it prevents any adverse impact on desert life. Abendschein said that this is one of the benefits of using local an already developed site for solar. ACTION: Chair Danaher made a motion to recommend that staff delay consideration of this project until after the Council-UAC joint study session in August. Commissioner Trumbull seconded the Motion. The motion carried unanimously (6-0) with Vice Chair Danaher and Commissioners Johnston, Ballantine, Segal, Forssell, and Trumbull voting yes and Commissioner Schwartz absent. ITEM 4. DISCUSSION: 2017 Utilities Strategic Plan Progress Report Utilities General Manager Ed Shikada said there was not much to report. The procurement process was taking longer than originally anticipated. He hoped to release an update to the Council within the next few days describing the policy drivers for the planning proces s. He hoped to have the consultants on board for the July 12, 2017 UAC meeting and use that meeting for a kickoff meeting with the UAC. ACTION: No action. Utilities Advisory Commission Minutes Approved on: Page 9 of 9 ITEM 5. ACTION: Selection of Potential Topics(s) for Discussion at Future UAC Meeting Commissioner Forssell noted there were some differences between the rolling calendar and the schedule of meetings for the Electric Integrated Resource Plan (EIRP). Assistant Director of Resource Management Jonathan Abendschein said that would be fixed for the next meeting. Utilities General Manager Ed Shikada noted the UAC’s future meetings were filling up with topics. Upcoming meetings would include a discussion of the strategic plan and a joint UAC-Council meeting. Shikada noted there was some neighborhood conversation around concerns around high water bills and the fact that the utility does not provide relief to customers. He said this was commonly due to leaks in irrigation lines. Staff would likely bring this for discussion at a future UAC meeting. ACTION: No action Meeting adjourned at 9:10 p.m. Respectfully Submitted, Marites Ward City of Palo Alto Utilities Page 1 of 4 1 MEMORANDUM TO: UTILITIES ADVISORY COMMISSION FROM: UTILITIES DEPARTMENT DATE: August 2, 2017 SUBJECT: Study Session Between the Council and UAC RECOMMENDATION Staff recommends that the Utilities Advisory Commission (“UAC”) approve this report as the basis for the joint study session with the City Council. DISCUSSION The City Council and the UAC periodically meet in a joint study session to discuss matters that fall within or are otherwise related to the role, purposes and duties of the UAC. Below is the list of potential topics for discussion during the joint Council UAC study session scheduled on August 21, 2017:  Fiscal Year 2017 Accomplishments  Utilities Strategic Planning  Electric Integrated Resource Plan Priorities  Council direction on UAC Priorities (including Community Solar) The joint Council-UAC study session discussion is likely to focus on the topics identified above and may also touch on other matters concerning to the role, duties and purpose of the UAC (See Palo Alto Municipal Code § 2.23.050). FISCAL YEAR 2017 ACCOMPLISHMENTS 2016-17 was a typically active year for the UAC. With leadership from Chair James F. Cook and Vice Chair Michael Danaher, the UAC discussed and made recommendations on the following issues that were then advanced for approval by the City Council:  Carbon Neutral Gas Plan  Rooftop Solar Net Energy Metering Transition Policy  Utilities Legislative Policy Guidelines  2017 Water Integrated Resource Plan  Ten-Year Electric and Gas Energy Efficiency Goals (2018 to 2027)  FY 2018 Electric, Gas, Wastewater Collection, and Water Utility Financial Plans Page 2 of 4  Drought Water Savings  EIR Approval for Recycled Water Pipeline Project  Future Plans for Fiber and Broadband Expansion/Expand Wi-Fi to Unserved City Facilities and Discontinue Consideration of City-Provided Wi-Fi in Commercial Areas  Draft Sustainability and Climate Action Plan (S/CAP) Implementation Plan (SIP)  Review of Development Services Analysis of Cost-Effectiveness of Mandates for Building Electrification  Utilities Operating and Capital Budgets for FY 2018  Declining to Set an Energy Storage System Target Due to Lack of Cost -effective Options  Community Solar Preliminary Program Design Elements In addition to the items above, the UAC also discussed and provided feedback to staff on a variety of discussion items. Staff greatly appreciates the thoughtful and constructive input provided by the UAC on a wide range of utility-related topics. WORKPLAN FOR FY 2018: UTILITIES STRATEGIC PLANNING With ongoing UAC engagement, the Utilities Department has begun the process of updating its five-year Strategic Plan. The goal of the Strategic Plan is to ensure maximum alignment between CPAU’s resources and activities with the City Council’s policy direction, citywide organizational culture, employee and stakeholder interests, and customer service expectations. The Strategic Plan also is intended to guide CPAU in successfully advancing the City ’s vision and priorities over the next five to ten years through the development of CPAU goals, objectives and initiatives; revisit the vision and/or mission statements; and result in the identification of tactical action items and a refined system for tra cking performance. The strategic planning process anticipates an extensive stakeholder engagement process with the UAC providing a key advisory role in the development of the Strategic Plan. At the July 12, 2017 UAC meeting, staff in conjunction with its consultant Tony Georgis, NewGen Strategies and Solutions, presented and overview of the Strategic Plan development process, desired outcomes and key trends. Discussion Topic: Strategic Planning Stakeholder Engagement Process Stakeholder engagement will play an important role in the strategic planning process. As a key stakeholder and venue for broader public input, the UAC will have multiple strategic planning discussions throughout the process. The September 2017 UAC meeting will include a discus sion on the long-term vision and direction of the Utilities. Initial strategies and tactics will be available for UAC feedback at the October and/or November 2017 meeting with a goal to propose an updated Strategic Plan to the UAC at its December 2017 meeting, and recommend City Council adoption. The UAC has expressed a desire to have a forum for the community -at-large to allow for an open discussion about the community’s priorities and concerns as they relate to the Utilities Department. The UAC has also requested a high level overview of the strategic planning Page 3 of 4 process and the UAC’s role in the development of the Strategic Plan. A schematic of the planning process is summarized in Attachment A. A strategic planning community meeting is now scheduled for Thursday, September 14, 2017. The meeting will be structured to allow for active participation of the UAC with the community at large. While the agenda has not been finalized, the anticipated focus will be to present preliminary observations regarding the issues and opportunities facing the Utilities Department and potential strategic priorities, and solicit public feedback on these topics. Discussion Topic: Strategic Planning Key Issues and Market Trends At its July 12th meeting, UAC commissioners discussed and provided input to staff and the City’s consultants on the key trends and issues the UAC would like to see addressed through the strategic planning process. The discussion is summarized in the attached memorandum from NewGen Strategies and Solutions (Attachment B). The Council/UAC joint study session will provide an opportunity for Council feedback on these key drivers, issues and priorities to be addressed as part of the strategic planning process. Discussion Topic: UAC Work Plan for 2018 Finally, the UAC’s engagement encompasses both broad strategic direction and detailed tactical actions in support of the Utilities mission and operations. Attachment C provides an overview of the anticipated topics to be discussed by the UAC over the upcoming year, with most items presented as a precursor to City Council consideration related to the development of the Electric Integrated Resource Plan and Utilities Strategic Plan. As can be seen, the UAC has a full docket of substantive issues planned for the year. Given this workload, the Council/UAC joint session provides an opportunity to discuss relative priorities. Specifically, the UAC has suggested discussion of two speci fic topics. The first relates to community solar which was discussed at the June 7, 2017 UAC meeting. Staff recommended that the UAC recommend Council approval of a set of community solar program design elements and also sought feedback on a potential community solar project at the Palo Alto Municipal Golf Course parking lot. The UAC unanimously (6 -0, Commissioner Schwartz absent) voted to delay consideration of this project until after the Council -UAC joint study session in August. The second, more general, topic is whether there are issues assigned that may detract from organizational focus and progress in other areas. UAC members may wish to raise specific issues they believe fall into this category and suggest modification or clarification of Council direction. RESOURCE IMPACT There is no direct resource impact associated with this informational report. POLICY IMPLICATIONS There is no direct policy impact associated with this information report. ENVIRONMENTAL REVIEW The Utilities Advisory Commission's discussion of topics to be discussed at the joint session with Council does not meet the definition of a project under Public Resources Code 21065 and therefore California Environmental Quality Act (CEQA) review is not required. ATTACHMENTS A. Schematic of the Strategic Planning Process B. Memorandum from NewGen Strategies and Solutions Summarizing the July 12, 2017 UAC Meeting on Strategic Planning C. UAC 12-month calendar look-ahead PREPARED BY: DAVE YUAN, Utilities Strategic Business Manager REVIEWED BY: DEAN BATCHELOR, Utilities Chief Operating Officer C7~. APPROVED BY: EDSHIKADA General Manager of Utilities Page 4of4 Trends & Data Collection Vision & Issue Definition Strategies & Tactics Implementation & Plan City of Palo Alto Utilities | Strategic Planning Process July 20, 2017BluePoint Planning Em p l o y e e & S t a k e h o l d e r E n g a g e m e n t Pl a n D e v e l o p m e n t UA C July August September October November December 2018 Jan-Mar Initial Trends Draft Vision & Issues Vision & Issues Defined Initial Strategies & Tactics Draft Strategic Plan Final Strategic Plan Review & Revised Strategic Plan Core Planning Team (CPT) Meeting #1 Utility Stakeholders #1 UAC/Council Joint Session 8/21 CPT Meeting #2 UAC Meeting #2 9/6 CPT Meeting #3 Community Workshop CPT Meeting #4 Council Presentation Kick Off Meeting UAC Meeting #3 12/6 UAC Update 10/4 UAC Update 11/1 Ongoing Employee Input Ongoing Coordination Employee Small Group Meetings All Hands Meeting City Mgmt Meeting Employee Workshop #2 Employee Workshop #1 Utility Advisory Commission Meeting #1 7/12 ATTACHMENT A Utility Stakeholders #2 CPT = Core Planning Team of 25 Cross-Divisional CPAU Employees Stakeholders = Customer and Community Stakeholders Invited to Focus Meetings 60 (+/-) Memorandum Economics | Strategy | Stakeholders | Sustainability www.newgenstrategies.net 225 Union Boulevard Suite 305 Lakewood, CO 80228 Phone: (720) 633-9514 To: Monica Padilla  From: Tony Georgis, Fred Wellington  Date: July 17, 2017  Re: UAC Strategic Planning Meeting #1 Notes  UAC Strategic Planning Project Introduction The City of Palo Alto Utilities (CPAU) is beginning the update of their Strategic Plan (Plan) to ensure the  guiding principles, strategy, and tactics remain applicable to a changing business environment, an evolving  organization, as well as account for the progress made on the Plan.  The Plan should act as a filter and  context for utility resource, workforce, technology, market, and sustainability related decision making.  By  updating and refreshing the current Plan it will also provide a “line of sight” from the organization’s  broader strategy to more day‐to‐day activities by staff, thus aligning the organization with the Plan.    The Plan update has a two‐step approach including:   1)The comprehensive update of the Plan elements; and 2)The development of a practical implementation plan to engage and align the workforce. Extensive internal and external stakeholder engagement is included in the Plan development to ensure  community and stakeholder insights are properly integrated.  In addition to the internal CPAU Core  Planning  Team  (CPT)  being  responsible  for  driving  the  development  of  the  Plan,  the  stakeholder  engagement process includes three external stakeholder groups:  the Utilities Advisory Commission (UAC),  a Utility Stakeholder Panel, and City Management stakeholders.    The goal and proposed role of the UAC meetings is to provide targeted, strategic insight to the update of  the Plan.  Testing ideas and draft strategic elements of the Plan with the UAC allows us to proactively  identify any issues, gaps, or leverage opportunities in the community.  The first meeting with the UAC was  focused on a general overview of the planning process and gathering initial insight into what key issues or  market trends CPAU must address in the next five to 10 years.  The issues and feedback from the UAC are  summarized below.  UAC Market Trend Insights and Feedback Climate Change Understand and integrate climate change issues, adaptation, sea level rise, etc. Focus on resiliency. Value or attempt to quantify resiliency benefits to CPAU for initiatives. ATTACHMENT B Memorandum Monica Padilla  July 17, 2017  Page 2  UAC Strategic Planning Meeting #1 Notes_071717  Sustainability efforts and unintended consequences Identify systemic or mutually beneficial outcomes rather than increased sustainability at the expense of other areas (e.g., cost competitiveness, sacrificing habitat for solar panels, etc.). Evaluate distributed solar energy support that may be at the expense of broader benefits. Organization, operational, and workforce issues Prioritization of efforts, limited human/financial resources.  What should CPAU “stop doing” to allow for more focus on higher priority initiatives and ensure success? Long‐term staffing strategy with workforce.  Considering 35%‐50% of staff eligible for retirement. Affordable housing. Technology’s role in workforce, potential to address “brain drain.” Growing cybersecurity concerns, impacts. Electric vehicles Vehicle to grid and smart charging opportunities to integrate potential electric system benefits (e.g., demand response). Focus on electric vehicle (EV) trends and penetration within Palo Alto, not national trends and penetration as Palo Alto experiences much higher penetration rates. Electric utility emerging technology and issues What/where are the opportunities for energy storage?  What are the inflection points where it becomes economical to implement; what are the conditions necessary, including valuing/quantifying possible resiliency benefits? Opportunities for microgrids or “islanding” areas within Palo Alto strategically. Energy efficiency impacts in Palo Alto may be greater than national averages, further dampening electric load growth. Cost competitiveness and financial impacts Remain reliable, cost competitive service to customers. Liquefied natural gas (LNG) exports and potential impacts to United States gas prices. Aging infrastructure and costs may be escalating as Utility postpones reinvestments. Leverage fiber backbone resources Learn from others in technology adoptions Water recycling opportunities in the future.  Be proactive and forward thinking to identify and prepare for more opportunities. FORECAST 12-MONTH ROLLING CALENDAR Utilities Advisory Commission City Council September 2017 2017 Utilities Strategic Plan Update/Potential UAC/Council study session Electric Integrated Resource Plan – Hydroelectric Resources Electric Integrated Resource Plan – Portfolio Alternatives Overview Hydroelectric Variability Management Strategy Update on Smartgrid Pilot Program & Lessons Learned Water Leak Policy Wastewater COSA Design Guidelines (Finance) Electric Integrated Resource Plan Overview and Work Plan (Council) October 2017 2017 Utilities Strategic Plan Progress Report Distribution Energy Resource Plan: 2018 through 2030 Recycled Water Project Alternatives Evaluation and Business Plan Water Benchmarking (Finance) Audit Status Report – Util Meters, Procurement, Inventory & Retirement (P&S) Audit Status Report – Inventory Management (P&S) Gas Leak Survey Contract (Council) November 2017 2017 Utilities Strategic Plan Progress Report Progress on Smart Grid Assessment and Developing Utility Technology Roadmap Gas Utility Cost of Service Study Electric Integrated Resource Plan – Renewable Portfolio Standard required and possible modifications 2017 Utilities Strategic Plan: Approval (Finance) Hydroelectric Variability Management Strategy (Finance) December 2017 2017 Utilities Strategic Plan: Recommend Approval Gas Utility Cost of Service Study (Finance) Electric Integrated Resource Plan – Renewable Portfolio Standard requirements and possible modifications (Finance) Hydroelectric Variability Management Strategy (Council) January 2018 Approval of Distributed Energy Resource Plans: 2018 to 2030 Preliminary Results of Distribution Systems Assessment to Facilitate Distributed Energy Resources: 2020 and 2030 2017 Utilities Strategic Plan: Recommend Approval (Finance) Electric Integrated Resource Plan – Renewable Portfolio Standard requirements and possible modifications (Council) February 2018 Preliminary Findings and Recommendation on Smart Grid Assessment and Implementing Utility Technology Roadmap Electric Integrated Resource Plan – Carbon Neutral Portfolio 2017 Utilities Strategic Plan: Approval (Council) March 2018 Financial Forecasts / Rate Changes Phase 1b Electric COSA results - Heat pumps / EVs – rate/fee changes Electric Integrated Resource Plan – Portfolio Management and Transmission Electric Integrated Resource Plan – Carbon Neutral Portfolio (Finance) Approval of Distributed Energy Resource Plans: 2018 to 2030 (Council) April 2018 Financial Forecasts / Rate Changes Community Solar Program Elements Financial Forecasts / Rate Changes (Finance) Phase 1b Electric COSA results - Heat pumps / EVs – rate/fee changes (Finance) Electric Integrated Resource Plan – Carbon Neutral Portfolio (Council) May 2018 Financial Forecasts / Rate Changes (Finance) June 2018 Electric Integrated Resource Plan – Proposed Objectives, Key Strategies and Implementation Plan Financial Forecasts / Rate Changes (Council) July 2018 Electric Integrated Resource Plan – Proposed Objectives, Key Strategies and Implementation Plan (Finance) August 2018 To be Scheduled Water Benchmarking Study Update UAC Bylaws Update on City ERP and Utilities Billing System Long-Term Direction for Utilities Crossbore Updates, Next Steps: Phase 2 Implementation Utl Engineering Services contract with Utilimap Electric Rate Design Review Related to EV and Heat Pumps ATTACHMENT C Page 1 of 10 2 MEMORANDUM TO: UTILITIES ADVISORY COMMISSION FROM: UTILTIES DEPARTMENT DATE: August 2, 2017 SUBJECT: Discussion of Developing a Flexible Distributed Energy Resource Plan and Forecasting Long Term Customer Electrical Loads in Palo Alto ______________________________________________________________________________ REQUEST This report provides the Utilities Advisory Commission (UAC) an overview of Distributed Energy Resources (DERs) in Palo Alto and a proposed approach to integrating these resources into the electric utility distribution system, including a set of proposed strategic principles to guide operational decision making. Staff is seeking feedback on the proposed approach, and will bring a fully developed DER Work Plan for UAC review and recommendation in late 2017 / early 2018. These strategic principles will also help inform aspects of the Utilities Strategic Planning process. While these strategic principles are primarily focused on the impacts and opportunities for DERs in utility operations, staff intends to integrate them into other Citywide efforts (such as the Sustainability and Climate Action Plan, the S/CAP) to promote or enable DERs for other reasons, such as carbon reduction. This report also discusses the approach staff takes in forecasting customer electrical loads and how forecasts of DER adoption will be incorporated into these load forecasts to comply with the integrated resource planning requirements of SB 350. No UAC action is requested at this time. EXECUTIVE SUMMARY DERs in Palo Alto are electrical energy resources connected to the CPAU electric distribution grid that can significantly change the character, timing, and magnitude of electric loads and that can potentially be used to replace or complement services traditionally provided by utility-scale generating resources. DERs tend to be smaller than typical utility-scale resources (less than 1MW in Palo Alto). DERs include resources such as solar photovoltaics (PV), electric vehicles (EV), energy efficiency (EE) measures, customer demand response (DR), energy storage (ES) systems, smart thermostats, and high-efficiency electric heat-pumps (HP) for water and space heating of building loads.1 DERs could be deployed by customers at their premises, behind the utility electricity meter, or by CPAU within the distribution system network. Except for a handful, 1 PUC §769 defines “distributed resources” as distributed renewable generation resources, energy efficiency, energy storage, electric vehicles, and demand response. Palo Alto definition of DER is slightly boarder, including smart thermostats and heat pump technologies. Page 2 of 10 all current DERs in Palo Alto are customer-sited behind-the-meter resources. Well managed and integrated DERs with built-in sensing, controlling, and communicating controls could be leveraged to provide distribution and transmission systems services, potentially lowering costs to the DER owner and all CPAU customers. Currently customer decisions to adopt DERs are based on a variety of factors, including customer preferences, incentives available to customers, and availability of programs to facilitate adoption. However, unmanaged DER adoption could increase costs for CPAU by increasing uncertainty in balancing loads and resources, as well as causing adverse impacts on the distribution system. The third section of this report proposes broad strategic principles to ensure pragmatic and cost-effective integration of DERs in Palo Alto. A DER Plan based on the strategic principles discussed here will guide operational decision making and can help CPAU mitigate risks and facilitate customer adoption of these technologies to the benefit of the entire Palo Alto community. This report discusses these preliminary strategic principles and a roadmap to develop the DER Plan. Staff will bring a fully developed DER Plan for UAC review and action in late 2017 / early 2018. The adoption of these strategic principles and the increased penetration of DERs will also have implications for the staffing, resources, and priorities for the entire utility, and this will be discussed as part of the Utilities Strategic Planning process. DISCUSSION CPAU’s current annual electrical energy load (950 GWh) and annual peak demand (180 MW) are approximately 15% lower than in the year 2000. The exit of electricity-intensive commercial customers from Palo Alto, increases in energy-efficient appliances and building codes, changes in customer behavior, and the installation of solar PV on rooftops are some of the reasons for the decreased electricity load. The City’s per capita average annual residential customer electrical energy use has declined by 16% over the past decade.2 The discussion below is organized in three sections: Section A gives an overview of the impact of DERs on Palo Alto’s electric load to-date, while Section B discusses the load forecasting approach and uncertainties in CPAU’s 2030 load due to DERs. Section C discusses how staff will develop a DER Plan to facilitate DER integration in Palo Alto. A. Overview of Past DER Adoption A variety of DERs have been installed in Palo Alto to-date. An overview of various technologies and their adoption in Palo Alto is provided below. CPAU’s practice to-date has been to support and facilitate customer adoption of DER in accordance with Council-approved plans or State mandates.3 However, when such systems are cost-effective from a societal perspective,4 CPAU 2 The corresponding per capita residential natural gas and water consumption has declined by 25% and 45% respectively over the past 10-years. 3 Existing CPAU goals/ programs related to DERs include: 2014 Local Solar Plan, 2015 Electrification Work Plan, 2016 Use of Low Carbon Fuel Standard Revenue to benefit EV customers, and the 2017 Updated Ten-Year Electric Energy Efficiency Goals. DERs are also addressed in the Sustainability and Climate Action Plan (S/CAP) and goals related to DERs were included in the first proposed Sustainability Implementation Plan (SIP). Other City mandates address DERs as well, such as Building Code regulations mandating EV charger installation in new buildings. Page 3 of 10 actively promotes technologies using electric rate-payer funds such as Public Benefits funding.5 CPAU also funds DERs as required by state law. • Solar PV Systems: Since 1998, over 1,000 PV systems with a total capacity of 10 MW have been installed in the community at an estimated nominal investment of $55 million.6 These systems received $13 million in rebates funded by electric rate-payers as required by state law SB-1 and additional support through the City’s Net Energy Metering (NEM) rate, which was also mandated.7 These systems currently meet approximately 1% the community’s overall energy needs and lower the City’s system peak capacity by 5%. Palo Alto has a Local Solar Plan goal to provide 4% of its electricity from local solar resources by 2023. • Energy Efficiency: Since 2007 CPAU has supported and provided incentives for $23 million in EE projects.8 The EE investments over the past ten years have lowered the community’s electrical loads by 6.5% (a cumulative savings of 62,800 MWh). In addition to CPAU programs, stricter State and Federal standards for high-efficiency appliance and building energy use have also lowered community electrical loads substantially. CPAU’s recently- approved ten-year electric energy efficiency goals set a cumulative savings goal of 5.7% for 2018 through 2027.9 Between 2018 and 2027, State building codes and standards are projected to save another 2.8% of CPAU’s total projected 2027 electricity load. • Electric Vehicles: Since 2010, there has been rapid growth in EVs in Palo Alto, for both resident-owned and commuter vehicles. With an estimated 2,500 EVs expected to be registered in Palo Alto by the end of Calendar Year (CY) 2017 and 1,000 commuter EVs, CPAU estimates the total EV charging load in Palo Alto in CY 2017 to be 6,400 MWh or 0.7% of expected load. In accordance with Council directives as well as state law, CPAU is facilitating greater adoption of EVs by providing information on EV charging costs, simplifying the process for installing EV chargers at home, and by providing $0.4 million per year in rebates for installing new EV chargers at multi-user sites.10 • Demand Response: CPAU has had a pilot Demand Response program available since 2012. The current pilot program provides about 0.5 MW reduction in peak capacity (or 0.3% reduction in CPAU’s coincident peak). 4 “Societal cost-effectiveness” is based on a Societal Cost Test (SCT) used in the utility industry. SCT is a broader measure of societal net benefit, as oppose to Participants Cost Test (PCT), which looks at only a single customer’s cost and benefits. 5 PUC § 385: The public benefits charge (for electric utilities in California) is a state mandated requirement to collect a separate surcharge to be used for “public benefits” programs such as cost-effective energy efficiency and low income programs. 6 These solar systems are made up of 975 residential and 78 commercial systems. Nominal investment is estimated using declining cost of the solar PV system over time (1998 to 2017; $24/Watt to $3.5/Watt). 7 NEM is a billing mechanism to compensate onsite renewables at the retail rates. CPAU’s NEM cap is 10.8 MW. Once CPAU reaches the NEM cap, customers with newly approved solar PV systems will be served by the NEM Successor rate. 8 CPAU has been promoting EE investments since the 1970s, but highly regulated efficiency savings accounting has only been in place for the past 10 years. CPAU provides an annual update on EE/demand side management programs each fiscal year. 9 March 2017 Updated Ten-year Electric Energy Efficiency Goals 10 CPAU provides EV charger rebates by leveraging funds from CA state Low Carbon Fuel Standard (LCFS) program - EV charger rebates for multi-user sites Page 4 of 10 • Energy Storage, Heat Pump Water Heaters, and Smart Thermostats: These technologies are still in early stages of deployment and their impact on the CPAU electrical system is yet to be determined. CPAU assessed the cost-effectiveness of energy storage systems earlier this year and found they are not yet cost-effective from a societal perspective 11. CPAU is facilitating customers’ adoption of energy storage systems by clearly communicating interconnection and building permitting requirements. High-efficiency heat pumps for water and space heating currently both have very low penetration rates in Palo Alto. For heat-pump water heaters, CPAU is facilitating customer adoption by providing education to customers and installers, communicating the City’s permitting requirements, and by providing a pilot program rebate of $1,500 per unit. B. Load Forecasting Approach, Use of Forecasts and Uncertainty in 2030 Loads CPAU currently plans for the impact of DERs by incorporating projections of DER adoption rates into the load forecasting process. CPAU, in collaboration with NCPA, uses an econometric load forecasting model for the long-term forecast.12 The output for the long-term econometric model is then exogenously adjusted for factors that are not adequately captured in the model – such as the addition or exit of large loads, or accelerated adoption of DER technologies. These monthly and annual forecasts are generated for up to 10 years, and are submitted to the California Independent System Operator (CAISO), the California Energy Commission (CEC), and Pacific Gas and Electric Company (PG&E) for transmission and supply resource planning purposes at the state level. Internally, CPAU utilizes the same forecast for energy and capacity procurement decisions, monthly load-resource balancing, distribution system planning, developing and promoting customer programs and for financial planning of rates and reserves. Long-term forecasts for the period of 2019 – 2030, along with DER forecasts and the supply portfolio will be developed for the purpose of long-term supply planning and will be submitted to the CEC to meet regulatory requirements under SB 350. • Uncertainty in 2030 Loads due to DERs DER technology adoption forecasts remain uncertain as past customer adoption rates provide limited foresight into future adoption trends. Dynamic factors such as decreasing technology cost trends, policy directives, and rebate availability play a large role in DER adoption rates. Staff has made some preliminary and highly uncertain estimates. Under a high-adoption scenario, staff estimates that solar PV and EE investments might lower CPAU’s electric load by 20% in 2030. A high-adoption scenario for EV adoption and building electrification, on the other hand, could increase the electric load by 10% in 2030. These individually-owned DERs will impact CPAU’s load profile (both seasonal and hourly), and if integrated optimally they could have the potential to lower CPAU costs to serve the entire Palo Alto community. CPAU is currently assessing the locational impacts of DER adoption. 11 May 2017 Energy Storage Report to the UAC 12 The forecasts provide long-term trends and are sensitive to the adoption of DERs in the long term. NCPA utilizes a separate short-term neutral network based day-ahead model to forecast hourly loads on a day-ahead basis. Page 5 of 10 C. Framework to Develop a Long Term DER Plan • Guiding Principles to Develop a DER Plan Staff expects that the adoption of DER technologies will remain uncertain as cost-effectiveness and customer preferences evolve in the coming decade. To effectively plan for the impacts of DERs, staff proposes the following set of strategic principles for discussion by the UAC in August 2017. CPAU proposes to integrate DERs in a cost-effective and reliable manner by the adhering to the following principles: 1) Ensure that both the electric distribution system and electric utility financial and pricing structures can accommodate DER growth, 2) Facilitate the operation of DERs in ways that enhance the value to the DER owner as well as to the rest of the Palo Alto community, and 3) Staff will act as a facilitator of DERs. This means that: i. Where DERs are cost-effective as an alternative to traditional generating sources or distribution system upgrades, CPAU will create incentives for adoption of DERs; ii. Where DER technologies are not yet cost-effective alternatives to traditional generating sources or distribution system upgrades, CPAU will facilitate voluntary customer adoption. These principles are discussed in greater detail below: 1) Ensure that both the electric distribution system and electric utility financial and pricing structures can accommodate DER growth As discussed above, long-term DER adoption rates remain uncertain. Establishing scenarios and stress test cases could help CPAU to plan for these load uncertainties. Staff plans to undertake DERs scenario assessments as part of developing the DER Plan and EIRP. CPAU currently has a relatively robust distribution system network in place and does not anticipate having to make significant investments on the distribution system side to integrate DERs in next few years.13 However, this could change if there are specific neighborhoods of concentrated EV and electrification adoption. Staff is undertaking a closer review of the distribution system, and is assessing if there are any locational hot spots which could prove challenging for integrating DERs in longer term. Staff plans to share these findings with the UAC in early 2018. Staff will also evaluate the current electrical rate structure and DER connection fee structures to ensure that they can accommodate customer driven DER adoption, within overall rate 13 CPAU has 9 substations with availability of back-up substation transformers, 62 feeder lines and about 3,000 distribution transformers. Page 6 of 10 making principles. The Utility Strategic Planning process is an appropriate venue to discuss the relative priorities of these initiatives. 2) Facilitate operation of DERs in a way that enhances value to the DER owner as well as for the overall Palo Alto community Time-varying retail price signals could create incentives for customers to operate DERs in a manner that is optimal for both the customer and the overall Palo Alto community. For example, unmanaged EV charging in residential areas could stress the local distribution transformer in evening time periods and may require unplanned upgrades. This impact could be mitigated if there are price signals to encourage EV charging in less impactful hours in the day. CPAU currently does not have Advanced Meter Infrastructure (AMI) to implement time varying pricing.14 CPAU’s planned investments in Customer Information System (CIS) and AMI systems by 2021 will prepare the utility to send appropriate price signals and to ensure DER electricity consumption (or self-generation) patterns are in sync with the distribution system and CAISO market needs. As part of its series of AMI pilot programs, staff is considering a pilot program to test capabilities of new sensing, controlling, and communications systems which could enable DER systems to respond to transmission and distribution system needs on a day-ahead or real-time basis.15 Smart inverters integrated with solar PV and battery storage, automated DR capability for Building Management Systems, sensing and communication for EVs, and controllable heat- pump water heaters, are some of the technologies that could be included for this assessment. 3) Staff will act as a facilitator of DERs. This means that: iii. Where DERs are cost-effective as an alternative to traditional generating sources or distribution system upgrades, CPAU will create incentives for adoption of DERs iv. Where DER technologies are not yet cost-effective alternatives to traditional generating sources or distribution system upgrades, CPAU will facilitate voluntary customer adoption. Staff proposes that CPAU’s role be to facilitate customer DER adoption rather than to take a ‘do-nothing’ approach,16 or to actively encourage adoption regardless of the cost,17 or to try to be involved in the business of installing and owning DER technologies.18 A facilitative approach 14 CPAU has successfully tested the AMI technology with 300 customers CustomerConnect Advance Meter Pilot 15 The pilot scale project could include leveraging the PV and energy storage systems’ smart inverters capabilities to provide capacitive energy for enhancing the distribution system power factor and to provide ancillary services to the transmission system 16 This approach would not include streamlining of DER adoption requirements, devoting staff to other priorities, and addressing distribution system issues in a reactive manner, as they arise. 17 This would involve actively attempting to reshape the way the distribution system operates using advanced control technologies and incentives to encourage sophisticated DER integration. This approach could involve significant costs and risks by moving more quickly than most small utilities. 18 For example, installing EV chargers, getting into the business of installing rooftop solar, or other competitive business Page 7 of 10 would involve acknowledging the DERs can sometimes serve a role in providing services traditionally provided by generators (for example, reducing EV charging load during peak hours as an alternative to turning on a gas-fired peaking plant). The cost-effectiveness of DERs as an alternative to central station generation depends on the cost of the DER technology and the value of the service provided. For example, storage could be used to provide a variety of services, including providing operating reserves for the transmission system, providing reactive power, reducing impacts on the distribution system, and other services. However, currently the cost of storage systems exceeds the benefits the storage system can realize, meaning it is not cost-effective for the utility to encourage storage as an alternative to services provided by central station generation or to defer distribution system investments. This may change as storage costs decrease. Still, there are cost-effective DER technologies right now, such as energy efficiency measures. Installing efficient appliances is a well-established cost-effective alternative to building new generation. Where DER technologies (such as storage) are not yet cost-competitive, staff is proposing that CPAU’s focus be on working to ensure that permitting and interconnection processes are made as minimally burdensome as can be reasonably achieved while preserving system safety. In addition, CPAU could implement pilot programs to gain experience with these DERs. This helps those customers who are willing to pay a premium to voluntarily adopt DER technologies that are not yet cost-effective from a societal perspective. One example of how such an approach would work is the City’s program to use Low Carbon Fuel Standard (LCFS) funds to provide rebates for installation of EV chargers in underserved multi-use sites (non-profits, schools, multi-family housing) while simultaneously working to safely ease permitting requirements for EV charger installation. This facilitates greater EV adoption by customers who are willing to pay a premium to reduce carbon by purchasing an electric vehicle, but does not significantly impact other electric ratepayers to do so. This approach would require the utility to devote staff time and resources to work on evaluating cost-effective technologies, launching and managing pilot programs, and working to safely streamline permit and interconnection requirements. The DER Work Plan discussed below would establish a proposed level of staffing for these functions and whether additional staff would be required, and the Utilities Strategic Plan would help establish the priority for these activities relative to other necessary utility functions. Any change in staffing or other funding levels would require discussions as part of the budget and rate setting process. Lastly, any efforts undertaken under the DER Work Plan would need to be coordinated and aligned with other City initiatives involving DERs, particularly the S/CAP. • Roadmap to Develop a DER Work Plan for next 5-10 years Figure 1, below, outlines at a high level how a DER integration plan could progress over the next decade. There are multiple levels of involvement that CPAU can have in DER integration and partnership, and each requires a higher level of sophistication and resource commitment. The DER Plan will provide a more detailed plan for the potential timing of these stages, the decision criteria for whether to proceed to the next stage, and the variety of different options available ventures. Page 8 of 10 at each stage. The discussion of the DER Plan strategic principles (as listed above) and the Utility Strategic Planning exercise will also provide insights to develop a more robust DER work plan. CPAU has already taken some steps supportive of DER integration. Per Council direction (see footnote three), CPAU is already assisting early adopters of some types DERs such as PVs and EVs, and is working to facilitate customer adoption of DERs.19 CPAU is establishing teams working across Departments and Divisions to achieve these goals. Staff is also working on a DER valuation and distribution system assessment and plans to share these findings with the UAC in coming months. Lastly, CPAU has successfully tested the application of AMI technology and response to the time-varying prices with a 300-customer pilot program, piloting technologies and rate designs that will be important for DER integration. In the absence of widely deployed AMI systems, CPAU is considering performing small scale DER pilots to learn how to integrate a number of DER systems for dispatch into the CAISO day-ahead markets. These activities are outlined as Stage 1 in Figure 1, and are expected to run through 2021 along with CPAU’s CIS and AMI system implementation. By 2021-22, the AMI system is expected to be fully operational. If the UAC and Council direct staff to pursue further DER activities, CPAU would then take on Stage 2a activities related to the deeper integration of DERs, such as DER-specific pricing strategies (including time of use rates) and implementation of other automation at the distribution system level. In Stage 2b, CPAU would be fully prepared to leverage the DER system for the benefit of the California energy markets, transmission and distribution system, and to optimally serve the Palo Alto community. Stage 2 activities could be undertaken over the 2022-2027 time periods. The City can pursue earlier phase activities without proceeding all the way to Phase 2b. 19 For example, providing unbiased customer information through PV Watt and EV cost calculators and streamlining interconnection and building permit approval processes for heat pump water heaters. Page 9 of 10 Fig 1: Evolutionary Stages of Customer Adoption of DER & Leveraging DER for Overall Community Benefit20 NEXT STEPS Staff is seeking UAC input on staff’s proposed approach to facilitate DER adoption, particularly the three strategic principles intended to guide the development of the DER Plan for UAC review in late 2017 / early 2018. RESOURCE IMPACT No additional resources are being sought to develop this plan. Work will be performed with existing staff and with input and support from NCPA. POLICY IMPLICATIONS The policies to be adopted in this DER Plan have implications for business practices throughout the Utilities Department and implications for the services provided to customers with respect to DERs. They will be coordinated closely with the Utilities Strategic Plan. The City’s DER policies will also need to be consistent with the S/CAP and the Electric Integrated Resource Plan (EIRP) currently under development. Additional staffing or other resources needed, if any, will be discussed as part of the DER Work Plan and formally proposed as part of the annual budget process. 20 This graphic is adapted from the CAISO’s presentation to the NCPA Smart Grid working group , “More than Smart” DER planning paper and SCE whitepaper on grid modernization ENVIRONMENTAL REVIEW The Utilities Advisory Commission's discussion of the DER work plan does not meet the definition of a project under Public Resources Code 21065 and is therefore California Environmental Quality Act (CEQA) review is not required . PREPARED BY : SC-SONI KA CHOUDHARY, Resource Planner Qt-SHIVA SWAMI NATHAN, Senior Resource Planner REVIEWED BY: Jk-C/N ABENDSCHEIN, Assistant Director, Resource Management ~-APPROVED BY : EDSHIKADA General Manager of Utilities Page 10of10 Page 1 of 5 3 MEMORANDUM TO: UTILITIES ADVISORY COMMISSION FROM: UTILITIES DEPARTMENT DATE: August 2, 2017 SUBJECT: Staff Recommendation that the Utilities Advisory Commission Recommend that the City Council Approve Policy Objectives for the 2017 Wastewater Collection Utility Cost of Service Analysis REQUEST Staff requests that the Utilities Advisory Commission (UAC) recommend that the Council approve the Policy Objectives for the 2017 Wastewater Collection Utility Cost of Service Analysis (Attachment A). EXECUTIVE SUMMARY Wastewater Collection rates were last adjusted when a 9% rate increase went into effect on July 1, 2016.1 The last cost of service analysis (COSA) was completed in 2011. Staff intends to complete a Wastewater Collection COSA in FY 2018 in advance of a projected rate adjustment on July 1, 2018. The primary goal of the COSA will be to review the allocation of costs to customer classes and the Wastewater Collection rate design to ensure customers are charged according to the cost to serve them. This report discusses the existing rate design, gives an overview of the issues to be addressed in the COSA, and presents the proposed COSA policy objectives to guide staff and the consultant in completing the Wastewater Collection COSA. BACKGROUND A COSA is used to equitably and reasonably allocate a utility’s costs across the customer groups served. A COSA includes a Rate Study, which sets the retail rates for specific customer classes. COSAs support the development of fair and reasonable rates and serve as a complement to the process of annual financial planning and budgeting. Through the financial planning and budgeting process the City determines its objectives for a utility (e.g. maintenance objectives, customer service objectives, infrastructure replacement plans), estimates what it will cost to achieve those objectives, implements cost control measures or process efficiency measures where feasible, and proposes adjustments to its annual budget. The COSA takes this annual operating budget and determines how much of the cost should be allocated to each customer 1 Staff Report 6690 http://www.cityofpaloalto.org/civicax/filebank/documents/51813 Page 2 of 5 class, establishing pricing structures to ensure the cost of serving each customer matches the price they pay for the service. The FY 2018 Wastewater Collection Utility Financial Plan2 projects the need for a 7% rate increase on July 1, 2018. The current rates are based on a COSA performed by Utility Financial Solutions (UFS) in 2011.3 COSAs are typically updated every three to seven years, or when there are significant changes in the utility’s costs, customer base, or other factors. As California is exiting a multi-year drought, and customer water usage is starting to stabilize at lower levels than before the drought, it is a good time to evaluate whether customer sewer outflows have changed as well. In addition, Wastewater Collection Utility expenses have changed in recent years. Whether or not these changes have resulted in the need to adjust allocations of costs between customers is unknown, but will be evaluated as a part of the COSA analysis. DISCUSSION The following sections provide a review of the current rate structure, a discussion of rate design issues affecting the utility, and the proposed set of policy objectives to guide the COSA. Summary of Existing Rate Structure CPAU has three sewer rate schedules: one for residents (S-1), one for commercial customers (S-2), and a special schedule for restaurants (S-6), which discharge higher than average amounts of grease and oil and, therefore, have a greater impact on the sewer system. Residential customers (S-1) are billed a monthly service charge, while most commercial customers (S-2) are billed based on their winter month water usage (January through March). This closely approximates non-irrigation water consumption, which is a good proxy for actual sewer use, since nearly all non-irrigation water is discharged to the sewer. Restaurant customers (S-6) are billed based on monthly water usage.4 CPAU also maintains a rate schedule for those industrial dischargers (S-7) whose discharge requires monitoring for specific pollutants, but there are currently no customers required to be on this rate schedule. Table 1, below, summarizes the current rates for all customer classes. 2 Staff Report 7855 http://www.cityofpaloalto.org/civicax/filebank/documents/56659 3 Staff Report 1399 http://www.cityofpaloalto.org/civicax/filebank/documents/26410 4 Note that unlike other commercial customers, restaurant water use is not based on winter water consumption. This is because water use in restaurants is primarily process related (cooking, restrooms), meaning that month to month variation typically represents variations in business water needs, which impacts the sewer, rather than irrigation, which does not. Page 3 of 5 Table 1: Current Wastewater Collection Rates Current (as of 7/1/2016) Monthly Service and Minimum Charges ($/month) S-1 (Residential) Service charge $34.83 S-2 (Commercial), S-6 (Restaurant) Minimum $34.83 Quantity Rates: based on water usage S-2 (Commercial) $/CCF 6.71 S-6 (Restaurant) $/CCF 10.38 S-7 (Industrial) $/CCF 3.08 COSA Policy Objectives In the past, the UAC and Council have expressed concern about having limited ability to make changes to proposed rate structures once a COSA is completed. Therefore, staff has committed to having policy discussions with the UAC and Council prior to embarking on a COSA. For this COSA, staff has a limited set of policy objectives (Attachment A) to guide the development of the next Wastewater Collection COSA. The proposed objectives are: Objective 1. Rates must be based on the cost to serve customers. This is the overriding principle for the cost of service analysis (COSA); all other rate design considerations are subsidiary to this basic premise. Objective 2. Examine the feasibility of a separate flat rate for multi-family dwelling units. Objective 3. Evaluate the impact of proposed rate designs on low income customers and mitigate if feasible. Objective 1: Rates must be based on the cost of service The goal of a COSA is to identify the costs associated with serving each customer class and the rates required to recover those costs. The California Constitution requires property-related fees such as municipal wastewater collection rates to be based on the utility’s cost to serve its customers, or else they are considered a tax subject to 2/3 voter approval. Thus, the COSA is an important tool to design and support utility rates that are based on the cost of service. As a result, this guideline must be the primary and overriding one for the COSA. Objective 2: Consider potential updates to existing rate schedules Staff recommends evaluating the possibility of differentiating rates by dwelling type (single family homes vs multi-family dwellings, such as apartments) for the residential customer class. Customers in apartments, townhomes, etc. have occasionally inquired as to whether a lower rate could be created for smaller dwellings, as they theoretically have less discharge to the sewer than a larger home. Page 4 of 5 The COSA will also examine separate multi-family dwelling wastewater collection rates. While some neighboring agencies offer this type of rate structure, it can present challenges since most multi-family dwellings are master-metered, complicating assessment of individual water use (and therefore sewer discharge). Recent surveys of the number of units served by master- meters may allow for meaningful analysis to take place. Any potential for differentiating the rate must be weighed against increased billing system complexity, as well as additional monitoring and tracking considerations. Objective 3: Evaluate the impacts of proposed rate designs on low income customers and mitigate, if feasible Tied with the review of residential customer rates, staff intends to evaluate the impact of any recommended rate design changes on low-income consumers and may recommend mitigation of those impacts if necessary. Low-income customers may have lower water usage than other customers, on average, and are more likely to live in apartments, so rate structure changes that take these characteristics into account may reduce the sewer rate impact on the City’s low- income population. NEXT STEPS After receiving the UAC’s recommendation, staff will take the COSA policy objectives to the Finance Committee, followed by consideration by the City Council. The COSA is expected to be completed by the spring of 2018 so that updated rates can be adopted as part of the FY 2019 budget process to be effective on July 1, 2018. RESOURCE IMPACT The work associated with this project will be absorbed using existing staff and contract budgets. The new rates adopted as a result will be designed to generate adequate sales revenue to fund the Wastewater Collection utility’s operations in FY 2019. As discussed in the FY 2018 Wastewater Collection Utility Financial Plan (Staff Report 7855), preliminary projections show that the utility may need roughly 7% more sales revenue in FY 2019 than is generated by current rates. Expenses are projected to exceed revenues, with reserves being used to moderate customer impacts as rates are brought to parity over several years. Costs in general are projected to increase due to inflation. For more detail on these projections see the adopted FY 2018 Wastewater Collection Utility Financial Plan. POLICY IMPLICATIONS The process of adopting these policy objectives provides the UAC and Council an opportunity to provide policy guidance to staff before work begins on the COSA. ENVIRONMENTAL REVIEW Adoption of the Policy Objectives for the 2018 Wastewater Collection Cost of Service Analysis does not meet the definition of a project, under Public Resources Code Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an administrative governmental activity which will not cause a direct or indirect physical change in the environment, thus no environmental review is required. ATTACHMENT A. Proposed Policy Objectives for the 2018 Wastewater Collection Cost of Service Analysis PREPARED BY: REVIEWED BY: APPROVED BY: ERIC KENISTON, Senior Resource Planner ( C,. PJ~ JONATHAN ABENDSCHEIN, Assistant Director, Resource Manageme_n ~ ~~ v''( EDSHIKADA Director of Utilities Pa ge 5 of 5 ATTACHMENT A Policy Objectives for the Wastewater Collection Utility Cost of Service Analysis Objective 1. Rates must be based on the cost to serve customers. This is the overriding principle for the cost of service analysis (COSA); all other rate design considerations are subsidiary to this basic premise. Objective 2. Examine the feasibility of a separate flat rate for multi-family dwelling units. Objective 3. Evaluate the impact of proposed rate designs on low income customers and mitigate if feasible. Page 1 of 4 4 MEMORANDUM TO: UTILITIES ADVISORY COMMISSION FROM: UTILITIES DEPARTMENT DATE: August 2, 2017 SUBJECT: Discussion of Electric Integrated Resource Plan – California Wholesale Energy Market Overview and Electric Portfolio Cost Drivers ______________________________________________________________________________ REQUEST In furtherance of the development an Electric Integrated Resource Plan (EIRP) for the 2019 to 2030 planning horizon, this report along with the attached presentation is intended to provide the Utilities Advisory Commission (UAC) an overview of California’s wholesale energy market, the City of Palo Alto Utilities’ (CPAU) role and interaction with the wholesale market, and its projected electric supply cost including key cost drivers and uncertainties. No UAC action is requested at this time. EXECUTIVE SUMMARY The EIRP provides the necessary planning and policy framework to meet CPAU’s planning needs. The EIRP – which is to be developed over the next eighteen months – will address several important electric portfolio decisions and strategic actions needed over the next two to three years for the 2019 to 2030 planning horizon. Through the EIRP process, staff will explore key policy issues related to: Commitment to large hydroelectric resources, including the upcoming renewal of the We stern Base Resource contract post-2024; Modifications to the Renewable Portfolio Standard to meet or exceed California’s legislative and regulatory requirements; Management of supply variability and market risk including operational risks associated with intermittent resources; Management and planning for increased transmission costs; Maximizing the value of the City’s share in the California Oregon Transmission Project; Maximizing the City’s value in the Calaveras Hydroelectric Project; How to minimize the risk of stranding assets; How to plan for increased Distributed Energy Resources and their impacts on load; How to integrate the impacts of the City’s Sustainability and Climate Action Plan (S/CAP) goals, including building electrification and electric vehicles; and How to best define Carbon Neutrality for the Palo Alto community. Page 2 of 4 Included within staff’s proposed work plan to develop the EIRP (Attachment A) are a series of discussion topics relevant to the electric supply portfolio. The purpose of the discussion items is to establish a common understanding of some of the internal and external drivers and uncertainties which will influence electric supply portfolio decisions in the future. An overview of the California energy market and the City’s role in the market along with projected portfolio costs, cost drivers and uncertainties is provided in this report to help build a common understanding of these issues. BACKGROUND At the June 7, 2017 UAC meeting, staff provided a report and presentation outlining the need for CPAU to develop a new EIRP along with a proposed work plan to develop this EIRP. The intent of the proposed approach is to both meet CPAU’s planning needs and to comply with IRP requirements as provided for in California’s Senate Bill 350 and the Public Utility Code. Additionally, at the June UAC meeting, staff provided a high level overview of the electric portfolio load and resource make-up, the City’s history of long-term planning and sustainability efforts, and the strategic drivers and uncertainties facing the utility. Overall the UAC was supportive of the staff’s proposed process, including the tentative work plan, and had several questions and comments related to potential load impacts due to electrification and concerns regarding reliability at the distribution system level (draft excerpted UAC minutes attached). The CPAU Strategic Plan update, which is currently underway, will address the UAC commissioners’ concerns related to distribution system resiliency and reliability. DISCUSSION The following is a summary of the attached presentation on the California wholesale energy market and CPAU’s electric supply portfolio cost drivers. California Energy Market and CPAU’s Role The California wholesale electricity market is a complex system made up of multiple players, multiple jurisdictions, and a wide array of legislative and regulatory requirements. CPAU is a publicly-owned utility (POU) subject to Council-approved policies, rates, rules and regulations in addition to legislative and regulatory requirements set forth in the California Public Utility Code. CPAU operates as a load serving entity within the California Independent System Operator (CAISO) balancing authority and as such CPAU must adhere to CAISO’s scheduling, reliability and tariff requirements. The CAISO forecasts electric demand every five minutes and uses its full- network model to dispatch the lowest-cost generators to meet this demand while ensuring there is enough transmission capacity to reliably deliver this power to all member utilities. On a national level, CPAU must also adhere to Western Energy Coordinating Council requirements, North American Reliability Corporation standards, and the Federal Energy Regulatory Commission’s rules and orders. CPAU interacts with the CAISO through the Northern California Power Agency (NCPA). NCPA is the City’s scheduling coordinator for all of its electrical load needs and almost all of its supply Page 3 of 4 resources. Additionally, the City along with other member cities and agencies1 operate as a sub-control area within the CAISO under a special arrangement referred to as the Metered Subsystem Agreement (MSSA). The MSSA allows NCPA to aggregate participating members’ loads and some of their resources. The MSSA also obligates the participants to follow their fluctuating load requirements in real-time using their own generating resources, such as hydroelectricity from the Calaveras Project. In an effort to maximize the value of supply resources, CPAU staff works closely with NCPA staff and the other members to develop operating and bidding strategies for these resources. Portfolio Cost, Drivers, and Uncertainties The Council-approved fiscal year 2018 Financial Plan for electric includes total projected costs of $158.4 million, of which $88 million is attributable to electric supply costs. By the year 2027, electric supply related costs are expected to increase to $96.5 million – a cumulative increase of nine percent. Current and future cost drivers include:  Western Base Resource (WBR) costs, including Restoration Fund obligations under the Central Valley Power Improvement Act (CVPIA);  Renewable Portfolio Standard (RPS) and Carbon Neutral Plan costs;  Low Voltage and High Voltage Transmission Access Charges (TAC);  NCPA power management, generation and legislative and regulatory services costs;  CAISO and other market costs; and  Calaveras Hydroelectric Project and NCPA Debt. Meeting the City’s RPS, rising TAC charges, and Western Base Resource costs make up a significant portion of current and future supply costs. Additionally, the costs are highly uncertain and dependent on several factors including hydrological conditions, market prices, and state and federal legislative and regulatory requirements. The EIRP will focus on these significant components of the electric portfolio including seeking policy direction and strategies to plan for and manage costs going forward. NEXT STEPS Following this overview of the California Energy Market and Portfolio Cost Drivers (item #2 of work plan), staff will provide an overview of Load Forecasting and the elements to be addressed in the Distribution Energy Resource (DER) Plan (items #3 and #4). The attached EIRP work plan reflects the most current schedule of topical discussions and future actions related to the EIRP. RESOURCE IMPACT There is no direct resource impact associated with this informational report. 1The NCPA Joint Powers Agreement (JPA) was first established in 1968 to finance and construct electric generation projects including geothermal, natural gas and hydroelectric power. The City of Palo Alto is a founding member of NCPA. Other members include the cities and/or agencies of Alameda, Biggs, Gridley, Healdsburg, Lodi, Lompoc, Plumas-Sierra, Redding, Roseville, Santa Clara, Shasta Lake, Ukiah, Bay Area Rapid Transit, the Port of Oakland, and Truckee-Donner Public Utility District. POLICY IMPLICATIONS There is no direct policy impact associated with this information report. ENVIRONMENTAL REVIEW The Utilities Advisory Commission's discussion of the EIRP work plan does not meet the definition of a project under Public Resources Code 21065 and therefore California Environmental Quality Act (CEQA} review is not required. ATTACHMENTS A. Electric Integrated Resource Plan -Proposed Work Plan B. Presentation on the California Wholesale Energy Market and Portfolio Cost Drivers C. Draft Excerpted Minutes from the June 7, 2017 UAC meeting PREPARED BY: REVIEWED BY: APPROVED BY: ~ ~ONICA PADILLA, Senior Resource Planner \:JIM STACK, Senior Resource Planner JONATH%DSCHEIN, Assistant rnrector, Resource Manag).nt L? v ' EDSHIKADA General Manager of Utilities Page 4of 4 ATTACHMENT A Table 1: Proposed EIRP Work Plan Discussion Item Meeting Objectives/Goals UAC Council 1.EIRP Overview and Work Plan Provide a high level framework for what will be discussed, time line; guiding principles; and key drivers. June 2017 (discussion) - DONE August 2017 – INFO ONLY 2.Market Overview and Portfolio Cost Drivers Overview of the California energy market, the City’s participation, Northern California Power Agency; Portfolio cost drivers and uncertainties. August 2017 (discussion) 3.Load Forecast - Needs Assessment Overview of electric load forecast and energy/demand impacts from EE, EV and PV August 2017 (discussion) 4.Distributed Energy Resources Strategy and Planning for Growth Distributed Energy Resources Plan - energy efficiency, Local Solar Plan, distributed generation, electrification, electric vehicles, storage and distribution system planning August 2017 (discussion) October 2017 (discussion), January 2018 (action) March 2018 (action) 5.Hydroelectric Resources Overview of Palo Alto’s hydroelectric resources; hydro risk management; Western Area Power Administration’s 2025 Power Marketing Plan; Calaveras Project; key decisions; and direction. September 2017 (discussion) October 2017 INFO ONLY 6.Renewable Portfolio Standard Overview of RPS; update to meet SB 350 requirements; renewable over-generation and curtailments; and other RPS modifications. November 2017 (action) January/February 2018 Finance Committee/ Council (action) 7.Carbon Neutral Plan Overview and updates – dependent on RPS, large hydro and non-RPS eligible renewable direction; assessment of alternative portfolios and scenarios February 2018 (discussion) March/April 2018 Finance Committee/ Council (discussion) 8.Transmission Transmission planning in California; California Oregon Transmission Project; Second Transmission line update February/ March 2018 (discussion) 9.Proposed EIRP Objectives, Key Strategies and Implementation Plan Draft EIRP objectives, key strategies and implementation plan June 2018 (possible action) August/September 2018 Finance Committee/Council (possible action) 10.Final EIRP Approval of EIRP objectives; strategies and implementation plan; and SB 350 IRP submittal to CEC October 2018 (action) November/December 2018 Finance Committee/Council (action) Electric Integrated Resource Plan – Market Overview & Supply Cost Drivers August 2, 2017 ATTACHMENT B EIRP Proposed Work Plan Electric IRP Overview, Key Drivers & Work Plan UAC Discussions June 2017 through June 2018 Electric IRP Objectives, Strategies & Implementation Plan Draft to UAC – June/July 2018 Final UAC: October 2018 Council: December 2018 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2018 2017 2 Distributed Energy Resources Plan Hydroelectric Resources & The 2025 Western Power Marketing Plan Analysis Council Action Feb 2018 Transmission Renewable Portfolio Standard Carbon Neutral Plan Council Action Jan 2018 Market & Supply Costs Per SB 350 - Council approval of EIRP by January 2019. Submit to CEC by April 2019 EIRP - Key Policy Questions Should we renew our full share of the Western contract post- 2024 Should we increase our Renewable Portfolio Standard How to define and meet Carbon Neutrality for Palo Alto How to best manage supply variability and market risk How to manage or plan for increased transmission costs How to maximize value of California Oregon Transmission Project 3 4 Presentation Focus Overview of California’s Wholesale Energy Market and Northern California Power Agency Electric Supply Cost Projections Electric Portfolio Cost, Drivers and Uncertainties Electric Portfolio Directives Next Steps Part One 5 THE CALIFORNIA WHOLESALE ENERGY MARKET 6 Wholesale Market Participants Load Serving Entities: –Investor Owned Utilities –Publicly Owned Utilities – Palo Alto –Community Choice Aggregators –Direct Access Participants Generators and Developers Marketers Scheduling Coordinators – Northern California Power Agency Balancing Areas – California Independent System Operator Transmission Owners & Operators 7 Roseville Redding Western Alameda Biggs Gridley Healdsburg Lodi Lompoc Palo Alto Port of Oakland Plumas Sierra Santa Clara Ukiah Truckee Donner BART CT1 CT2 Hydro Geo LEC Balancing Areas in California & NCPA NCPA 8 Source: CAISO Company Facts Brochure NCPA is one of 140 Scheduling Coordinators interacting with the CAISO on a daily basis NCPA schedules and manages (during each operating day) •11 member loads •5 NCPA-owned generators •13 member generators •More than 20 power supply contracts (Palo Alto has 12 contracts) California Independent System Operator Pre - Scheduling Schedule Coordination Dispatch 9 California Independent System Operator & NCPA Dispatch Services: 24 hour operations Real time coordination with CAISO Real time coordination with members Active day purchasing and selling and real time balancing Schedule Coordination Services: 24 hour operations Submittal and retrieval of load, energy and capacity bids into the CAISO Day Ahead and Fifteen Minute Markets Outage Coordination N C P A S e r v i c e s 10 0 5,000 10,000 15,000 20,000 25,000 30,000 HE07 HE08 HE09 HE10 HE11 HE12 HE13 HE14 HE15 HE16 HE17 HE18 HE19 HE20 HE21 HE22 Other Renew+Nuke Natural Gas Imports Wind Solar Scheduled Load Example of Day-ahead Curtailment 11 Example of Real-time Curtailment •Thirty eight Balancing Authorities operate autonomously in the Western Interconnection •Independent Balancing Areas are merging •Theory is that transmission and generation resources can be used more efficiently when shared across a larger geographic area and managed by a single operator Diagram Source: Western Electricity Coordinating Council West-wide Grid Operation Trends Active Participants •PacifiCorp – November 1, 2014 •NV Energy – December 1, 2015 •Puget Sound Energy – October 2016 •Arizona Public Service – October 2016 Planned Entrants •Portland General Electric – 2017 •Idaho Power – 2018 •Seattle City Light – 2019 •CENACE/LADWP/BANC/SMUD - TBD Issues •Governance •Transmission Rates •Resource Value •Resource Adequacy Rules •CA Environmental Rules Diagram Source: CAISO California Energy Imbalance Market Activity Part Two 14 ELECTRIC SUPPLY COST DRIVERS Electric Portfolio Cost, Drivers and Uncertainties 15 Supply Cost - Fiscal Year 2018 and Long-term Projection Key Cost Drivers Uncertainties 16 Electric Supply Cost – 10 Year Forecast line graph 17 Electric Supply Budget – Fiscal Year 2018 18 Electric Supply Cost – through 2030 Portfolio Cost Uncertainties 19 Recurring –Hydroelectric Supply Variability –Market Prices –Intermittent Resources Large Uncertainties –CAISO and Transmission Access Charges –Resource Adequacy –Western Base Resource –Renewable Portfolio Standard –Regionalization Net Revenue – Load variability 20 Supply Variability 21 Electric Rate Components 22 Portfolio Cost Uncertainty Portfolio Cost and Risk Management 23 Energy Risk Management Program –Polices, Guidelines and Procedures Hedging Strategy Scheduling Optimization Legislative and Regulatory Advocacy –NCPA, CMUA, APPA and TANC Bay Area Municipal Transmission Group (BAMx) Congestion Revenue Rights Reserves and Rates 24 Item Purpose & Objectives UAC Council EIRP Overview and Work Plan Provide a high level framework for what will be discussed, time line; guiding principles; and key drivers. June 2017 (discussion) DONE August 2017 INFO ONLY Market Overview and Portfolio Cost Drivers Overview of the California energy market, the City’s participation, Northern California Power Agency; Portfolio cost drivers and uncertainties. August 2017 (discussion) Load Forecast - Needs Assessment Overview of electric load forecast and– energy, demand and impacts from EE, EV and PV August 2017 (discussion) Distributive Energy Resources Strategy and Planning for Growth Distributive Energy Resources Plan - energy efficiency, Local Solar Plan, distributed generation, electrification, electric vehicles, storage and distribution system planning August 2017 October 2017, January 2018 (action) March 2018 (action) Hydroelectric Resources Overview of Palo Alto’s hydroelectric resources; hydro risk management; Western Area Power Administration’s 2025 Power Marketing Plan; Calaveras Project; key decisions; and direction. September 2017 (discussion) Portfolio Alternatives Overview of alternative resource portfolios to be evaluated and metrics. September 2017 (discussion) Renewable Portfolio Standard Overview of RPS; update to meet SB 350 requirements; renewable over-generation and curtailments; and other RPS modifications. November 2017 (action) January/ February 2018 Finance Committee/ Council(action) Carbon Neutral Plan Overview and updates – dependent on RPS and large hydro direction; assessment of alternative portfolios and scenarios February 2018 (discussion) March/April Finance Committee/ Council (discussion) Transmission Transmission planning in California; California Oregon Transmission Project; Second Transmission line update February/March 2018 (discussion) Proposed EIRP Objectives, Key Strategies and Implementation Plan Draft EIRP objectives, key strategies and implementation plan; June 2018 (possible action) August/September 2018 Finance Committee/Council (possible action) Final EIRP Approval of EIRP objectives; strategies and implementation plan; and SB 350 IRP submittal to CEC October 2018 (action) November/December 2018 Finance Committee/Council (action) Feedback ATTACHMENT C EXCERPTED DRAFT MINUTES OF THE JUNE 7, 2017 UTILITIES ADVISORY COMMISSION ITEM 2: DISCUSSION: Staff Recommendation that the UAC Provide Feedback on the Development of the City of Palo Alto Utilities Electric Integrated Resource Plan Senior Resource Planner Monica Padilla introduced the Electric Integrated Resource Plan (IRP) project and provided a presentation which included: A high level overview of the electric supply portfolio and planning needs over the 2019 to 2030 planning horizon; Brief history of long-term planning initiatives and key policies; Identification of key issues and drivers facing the electric supply utility, including the impending expiration of the current Western Base Resource (WBR) contract in 2024 and the need to determine how much, if any of the contract would be renewed post 2024; Identification of several major uncertainties including State level policies and/or legislation which will drive the Renewable Portfolio Standard (RPS) and Cap and Trade; and An 18 month proposed work plan to develop the IRP and submit it to the California Energy Commission (CEC) as required by law. The objective of the presentation was to facilitate a discussion with the UAC about the key issues that need to be addressed in the IRP and solicit feedback on a proposed IRP development work plan. Throughout the presentation, several UAC commissioners raised questions related to the electric supply portfolio. Vice Chair Danaher asked how electric vehicles factored into the energy efficiency and load calculations and how would the City handle a large increase in electric vehicle uptake. Padilla responded that the current load forecast assumes a certain penetration of electric vehicles and corresponding increase in load; however that the load forecast will be updated to reflect the findings of the Distributed Energy Resource Plan (DER Plan). The DER Plan will evaluate various electric vehicle deployment scenarios. Padilla also added that any increases in load resulting from electric vehicles and/or electrification may result in the need to procure additional resources. Commissioner Johnston asked if three and one-half percent (3.5%) losses between electric supply purchases and retail sales was within the range of industry standards. Padilla confirmed that they were. She added that the DER Plan will look for opportunities to minimiz e losses through efficiency measures. Commissioner Forssell asked whether the portfolio was assessed based on an average precipitation and hydroelectric generation year and whether there would be any assessment of potential droughts in the planning process. Padilla confirmed the portfolio was assessed based on average precipitation and added that management of the two hydroelectric resources would be the focus of one of the topics for the IRP update. Padilla continued the presentation, describing the City’s contract with the Western Area Power Administration for power from Central Valley Project hydroelectric resources. This resource provides roughly 40% of Palo Alto’s needs. These projects were built primarily for flood control. This contract was coming up for renewal and making a decision on this resource would be part of the IRP process. Commissioner Trumbull asked when the WBR contract was up for renewal and when the decision would need to be made. Padilla said the contract would expire at the end of 2024, but the decision to sign a new contract and would have to be made in the next few years. She added that the renewal of the WBR contract followed a formal process under Western’s 2025 Power Marketing Plan and staff has been actively engaged in provided comments both on its own and through the Northern California Power Agency. Commissioner Forssell confirmed that because the projects were built for flood control, the City had very little control over how they were dispatched. Padilla confirmed that was the case. Commissioner Danaher asked for clarification on why emissions were shown in the chart when the City’s power came entirely from hydroelectric resources and renewable energy. Padilla noted that emissions had gradually reduced as more of the City’s renewable energy projects came online, and that emissions were higher when hydroelectric generation was low. Commissioner Ballantine talked about his experience on a nuclear naval vessel. The vessel included power from a reactor, but also a backup diesel generator and a battery. He said the developing complexity in the electric grid would end up requiring more work to maintain grid stability. Solar projects did not provide reliability as currently configured because they turned off during a grid outage. He thought reliability might be a valuable addition to the IRP plan. Padilla supported his concerns and added that the IRP will look at reliability at a grid level and also as part of the overall transmission planning. System reliability at the distribution level will be looked at as part of the Utilities Strategic Plan. ACTION: No Action