HomeMy WebLinkAbout2019-08-07 Utilities Advisory Commission Agenda PacketAMERICANS WITH DISABILITY ACT (ADA)
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NOTICE IS POSTED IN ACCORDANCE WITH GOVERNMENT CODE SECTION 54954.2(a) OR 54956
I.ROLL CALL
II.ORAL COMMUNICATIONS
Members of the public are invited to address the Commission on any subject not on the agenda. A reasonable time
restriction may be imposed at the discretion of the Chair. State law generally precludes the UAC from discussing or
acting upon any topic initially presented during oral communication.
III.APPROVAL OF THE MINUTES
Approval of the Minutes of the Utilities Advisory Commission Meeting held on June 5, 2019
IV.AGENDA REVIEW AND REVISIONS
V.REPORTS FROM COMMISSIONER MEETINGS/EVENTS
VI.GENERAL MANAGER OF UTILITIES REPORT
VII.COMMISSIONER COMMENTS
VIII.UNFINISHED BUSINESS - None
IX.NEW BUSINESS
1.Discussion of Renewable Portfolio Standard Compliance Strategy Options for the City’s Discussion
Electric Supply Portfolio
2.Discussion of Palo Alto’s Water Supply Reliability Presentation and
Discussion
3.Discussion of Outreach and Response Required for Wildfire Safety, PG&E Public Safety Discussion
Power Shutoff Program, and Local Outages
4.Selection of Potential Topic(s) for Discussion at Future UAC Meeting Action
NEXT SCHEDULED MEETING: September 4, 2019
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)).
Informational Reports 12-Month Rolling Calendar Public Letter(s) to the UAC
1)Utilities Quarterly Update – 3rd Quarter of Fiscal Year 2019
2)Termination of City of Palo Alto Utilities Demand Response Pilot Program
3)Conclusion of the CustomerConnect Pilot Program and Residential Time-of-Use Rate
UTILITIES ADVISORY COMMISSION – REGULAR MEETING
WEDNESDAY, AUGUST 7, 2019 – 7:00 P.M.
COUNCIL CHAMBERS
Palo Alto City Hall – 250 Hamilton Avenue
Chairman: Michael Danaher Vice Chair: Lisa Forssell Commissioners: Donald Jackson, A.C. Johnston, Greg Scharff, Lauren Segal, and Loren Smith Council Liaison: Tom DuBois
Presentation
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UTILITIES ADVISORY COMMISSION MEETING
MINUTES OF JUNE 5, 2019 REGULAR MEETING
CALL TO ORDER
Chair Danaher called the meeting of the Utilities Advisory Commission (UAC) to order at 7:00 p.m.
Present: Chair Danaher, Commissioners Forssell, Jackson, Johnston, Scharff, Segal, and Smith
Absent:
ORAL COMMUNICATIONS
None.
APPROVAL OF THE MINUTES
Commissioner Johnston moved to approve the minutes of the May 1, 2019 meeting as presented.
Commissioner Segal seconded the motion. The motion carried 4-0 with Chair Danaher, and Commissioners
Forssell, Johnston, and Segal voting yes, Commissioners Jackson, Scharff and Smith abstaining.
AGENDA REVIEW AND REVISIONS
None.
REPORTS FROM COMMISSIONER MEETINGS/EVENTS
None.
GENERAL MANAGER OF UTILITIES REPORT
Dean Batchelor, Utilities Director, delivered the General Manager’s Report.
PG&E Public Safety Power Shutoff Program – Pacific Gas and Electric (PG&E) is distributing letters to utility
customers throughout the Bay Area about the company’s Public Safety Power Shutoff Program. Considering
the growing threat of extreme weather and intensity of wildfires over the past few years, the company plans
to shut off major power lines in the event of extreme fire conditions. While PG&E does not serve electricity
to Palo Alto customers, we are coordinating with the company to understand the potential impacts to our
local distribution system, as we intake electricity to the City from PG&E’s transmission system. There is the
potential that a PG&E power shutoff could result in a local outage in parts of Palo Alto. The City is convening
an internal working group to ensure that we are coordinated in our actions and have a clear communication
plan for our outreach to the community. We will keep the UAC apprised of PG&E and City plans as more
information becomes available.
Residential workshops since last UAC meeting:
• “Is an Electric Vehicle Right for You?” City of Palo Alto Utilities (CPAU) sponsored this EV workshop
in partnership with Stanford Health Improvement Program (HIP) on May 28 at Mitchell Park. Topics
covered included the difference between all-electric and plug-in hybrid EVs, EV charging (home, work
and public space), range anxiety misconceptions, battery longevity, buying versus leasing, and the
DRAFT
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environmental, economic, and personal benefits of EV adoption. There we approximately 100
attendees, and a number of EVs were available for viewing before and after the presentations.
• “Irrigation Equipment Upgrades and Landscape Water Use Efficiency” was held on May 11. Attendees
learned about irrigation equipment upgrades that can help improve the water efficiency of their
landscape irrigation system.
• “Maintaining Native Gardens and Leak Detection” was held on June 1. Attendees learned how to
create a beautiful, low water use and low maintenance landscape with native plants. The presenter
discussed design concepts, best practices, and how to set goals and a budget in this informative
lecture class. Attendees were also taught about how to find out if you a leak in your system. This class
was also videotaped with the intent of putting in on our website.
The next Facilities Managers Meeting will be held on Thursday June 6 at VMWare. This meeting with our
largest utility customers will include presentations on the VMWare Microgrid Project, Decarbonization,
Distributed Energy Resources, EV chargers installation options, and utility rate changes. Facility Managers
Meeting are typically held twice a year.
As a note from last month’s General Manager’s report, the Mayor’s Green Business Leader Awards were to
be presented at the May 20 City Council Meeting but was moved to a yet to be determined date.
New Program Update – The EV Solutions and Technical Assistance program will be using Low Carbon Fuel
Standard (LCFS) funds to offer full end to end consulting and project management services to various
commercial customers to install EV Chargers – with emphasis on low income MF, regular Multi-Unit Dwellings
and non-profits. With the assistance of our contractor ClearResult, we expect this program will accelerate
the installation of EV charging infrastructure at these harder to reach customer groups. The goal is for this
program to help us towards the City’s sustainability goals and to streamline processes for all departments
involved.
COMMISSIONER COMMENTS
None.
UNFINISHED BUSINESS
None.
NEW BUSINESS
ITEM 1: ACTION: Election of Officers.
ACTION: Commissioner Johnston moved to approve Commissioner Danaher as Chair and Commissioner
Forssell as Vice Chair. Commissioner Segal seconded the motion. The motion carried 7-0 with Commissioners
Danaher, Forssell, Jackson, Johnston, Scharff, Segal, and Smith voting yes
ITEM 2: DISCUSSION: Discussion of Electric Vehicle and Building Decarbonization Sustainability/Climate
Action Plan Implementation Plans.
Jonathan Abendschein, Assistant Director of Resource Management, reported over the next year the UAC
will discuss the Sustainability and Climate Action Plan (S/CAP) update. The presentation will focus on
Citywide efforts concerning building decarbonization and electric vehicles. Later in the summer, staff will
present information about customer programs.
David Coale remarked that the cost of an electric vehicle (EV) can be less than the cost of a cell phone if a
purchaser selects the right lease option. The Ride and Drive program has been key to increasing EV adoption.
However, the City's minimum parking requirements prevent EV charging infrastructure from being installed.
The UAC should address parking requirements and charging infrastructure with the City Manager and the
Council. The REACH Code has to require all new buildings and small businesses be all electric. Installing
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natural gas in residential construction will result in stranded assets. The City needs to begin paying the price
to decommission the natural gas system.
Bret Andersen commented that investment in EV infrastructure supports single-occupancy vehicles (SOV) as
a mode of travel. The mobility strategy is designed to reduce SOV as a mode. The City can reduce its
investment in EV charging if it promotes mobility and the reduction of SOV travel. In order to reach the
reduction goal for natural gas usage, every resident will have to adopt electric appliances. The City has to
make adoption of electric appliances easy. Carbon Free Palo Alto has a proposal, Be Smart, which self-
finances electric appliances on the bill. Billing systems appear to be the major issue, but there are work-
arounds.
Tom Kabat suggested the City move quickly to require all-electric new construction in order to avoid the high
cost of retrofits.
Hillary Rupert, consultant, advised that the City of Palo Alto developed the first Climate Protection Plan in
2007 and adopted the S/CAP in 2016. As of 2017, the City of Palo Alto has reduced its greenhouse gas (GHG)
emissions by an estimated 43% from the 1990 baseline. The Sustainability Implementation Plan (SIP) consists
of four action areas: energy, water, mobility, and electric vehicles.
Christine Tam, Senior Resource Planner, indicated the S/CAP contains many assumptions about actions
needed to reach the goal of an 80% reduction in GHG emissions by 2030. EV adoption and building
electrification account for more than 98% of the assumed GHG reduction needed to meet the 80 by '30 goal.
To meet the goals, 90% of residents' vehicles and 50% of commuters' vehicles will need to be electric. With
respect to building electrification, the primary sources of GHG emissions are water heaters, space heaters,
and stoves/ovens.
Rupert continued the presentation, stating staff across the organization is making a tremendous effort to
implement the EV SIP. The first action is to publicize streamlined permitting and CPAU-funded transformer
upgrades. These are policy reviews and procedure streamlining. The second action is to consider EV
readiness and charger installation in existing buildings. Because of the challenges with retrofitting buildings,
staff is providing education and reviewing incentives. The third action is to evaluate programs to expand EV
charger deployment on private property. Twenty-eight applications have been submitted for LCFS funding
to install EV chargers in low-income multiunit dwellings and nonprofits. At the end of the first quarter of
2019, seven sites have received rebates.
In response to Chair Danaher's question regarding the length of time required to process an application,
Rupert reported the application process can take 6-12 months to complete.
In answer to Vice Chair Forssell's request for an explanation of parking requirements and minimum parking,
Rupert referred Commissioners to the City website because parking requirements are complex and involve
State mandates.
In reply to Commissioner Segal's inquiry regarding a City requirement for new construction to allocate
sufficient space for EV parking, Tam indicated currently Palo Alto has probably the most rigorous
requirements for EV-ready parking spaces for multifamily and commercial buildings.
In answer to Commissioner Scharff's query regarding the loss of parking spaces due to installation of an EV
charging space, Dean Batchelor, Utilities Director, explained the loss of a parking space occurs because a full-
time parking space is converted to an EV charging space with a 3-4 hour time limit. As a charging space, the
parking space is not available to non-EVs. Commissioner Scharff requested clarification of the regulations for
conversion of a parking space to an EV charging space when a building is over-parked. Abendschein disclosed
that a single EV charging space has to be striped as an ADA space so that regular and accessible vehicles can
utilize the space. Converting a normal-sized parking space to an ADA space when a building is minimally
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parked causes the loss of one parking space, which results in the building not being in compliance with
parking regulations. An over-parked property can install an EV charging space because the building can lose
a parking space and still be in compliance with parking requirements. Some multifamily buildings have
installed chargers. The Planning and Building Departments are addressing this issue. Rupert added that the
issue has been presented to the Planning and Transportation Commission, who is also reviewing the issue.
In response to Councilmember DuBois' question regarding an EV parking in an ADA space, Abendschein
clarified that there are dedicated ADA spaces and EV spaces. The EV space has to be ADA accessible, which
means a larger than usual space and the loss of a parking space.
In reply to Commissioner Smith's queries regarding a breakdown of the type of buildings that have applied
for an EV charging space and a way to fast track applications for existing buildings, Rupert advised that she
did not have a breakdown of applications by building type. Developing a fast track for applications will require
interdepartmental collaboration.
Rupert further reported the fourth action is building public and private infrastructure. By 2020, Palo Alto
residents are anticipated to own 4,000-6,000 EVs. Building public infrastructure is important to support the
goals for EV adoption. Staff has some infrastructure projects in the pipeline, such as additional Level 2
chargers and installation of 26 ports or an additional 13 chargers in City garages. Staff is also talking with
Tesla about super chargers and with Electrify America regarding DC fast chargers. With respect to a conflict
between the EV policy and the mobility policy, the goal is to reduce the number of cars. If driving is the only
option for people, staff prefers they drive an EV. The fifth action is to expand EV deployment in the City fleet.
Staff has reviewed a five-year replacement strategy and identified 17 vehicles that could be replaced with
EVs. The sixth action is to support regional EV group-buy programs, which have been moderately successful.
This action does not have a high priority. The seventh action is engaging community members and building
public awareness of EV options. The City partners with Acterra to sponsor ride-and-drive events. The FAQ
pages on the CPAU website have been updated to provide EV information. The eighth action is to seek ways
to collaborate with other electrification efforts. The goal of the EV infographic is to tell the EV story in an
easy and fun way so that folks can engage with it. There was an estimated 4,000 EVs in Palo Alto at the end
of 2018, and 29% of new car sales in Palo Alto are EVs.
In answer to Chair Danaher's query regarding the 4,000 EVs including hybrid vehicles, Rupert believed the
4,000 EVs do not include hybrids.
Rupert further stated Palo Alto has 2.5 times more EVs in 2018 than in 2014. Challenges for staff are
determining the right metrics for GHG reductions, technology outpacing City policies and regulations, and
competing priorities.
Tam continued the presentation, stating within the Energy SIP framework, staff looks at energy efficiency
and building electrification as the key areas. The City has adopted ten-year energy efficiency targets, and
staff will continue to pursue cost-effective energy efficiency programs and mandates. A variety of tools is
available to facilitate the electrification process in residences. Staff is reviewing whether to exceed State
requirements in the next Building Code cycle in order to obtain additional energy efficiency savings and
building electrification beyond 2020. . Staff is developing voluntary programs and technical assistance
programs that can result in additional energy savings and electrification beyond 2020. Construction of a
replacement facility for the sludge incinerator is complete. As a transitional measure, the City has purchased
carbon offsets to match natural gas emissions from the City's consumption of natural gas. The City has a
variety of tools, from education and outreach to customers to pilot programs, to facilitate the adoption of
electrification. The current Building Code encourages all-electric new construction. Staff will explore
mandating clean technologies and the needs of the low-income community and hard-to-reach customers.
Staff is aware of the barriers customers face. Staff needs to work with neighbors in the Bay Area to drive
market and supply chain transformation. Staff launched a heat pump water heater rebate pilot program
three years ago but has not seen a lot of uptake. Consequently, staff is attempting to collaborate with
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communities in the Bay Area to discount the cost of heat pump water heaters. Staff is working closely with
Development Services to push for mandates and incentives in the Code to encourage efficiency and
electrification. On Earth Day, staff launched an induction cooktop loaner program. The multifamily gas
furnace to heat pump retrofit pilot program is funded by grants from the Bay Area Air Quality Management
District. Staff is currently searching for multifamily buildings, primarily low-income housing, to convert gas
furnaces to heat pumps. A survey of residents found about 25% are familiar with a heat pump water heater.
Customers view natural gas as a cheap and clean energy source. Currently, there is little State and Federal
funding to support building electrification. Heat pump technology for small commercial buildings and
residential homes is very good. For commercial buildings over 100,000 square feet, the technology is not
mature.
In reply to Commissioner Johnston's questions regarding encouraging more office buildings to install EV
chargers in their parking lots and barriers to additional EV adoption, Rupert explained that the City has not
promoted destination charging in the private sector or workplaces. Outreach to the private sector is an action
item, but it has low priority because of the focus on multiunit dwellings and nonprofits. Tam reported
responses to the residential survey indicate renters do not purchase EVs because they do not have a
convenient charger. Abendschein added that large commercial customers are installing chargers based on
employee demand. Staff has a meeting with facility managers regarding EV chargers.
Commissioner Scharff questioned the effect of PG&E's public safety power outages on fleet EVs. Rural
communities are concerned about electrification because of the potential for electrical outages.
Commissioner Scharff indicated he had heard someone from the State speak at a conference about hydrogen
fuel cells being equal to EVs.
Chair Danaher remarked that 20,000 EVs will represent a huge part of the electricity load in the City. The EVs
should be networked so that the charging rates can be controlled. Staff needs to ensure that EV chargers are
future-proofed.
Councilmember DuBois suggested branding Palo Alto as the EV capital, challenging other cities to beat Palo
Alto's adoption rate, thinking about eliminating gas stations because of the high rate of EV adoption in Palo
Alto.
ACTION: None
ITEM 3: ACTION: Discussion of Electric Supply Carbon Accounting Methodology and RPS Compliance Strategy.
Bret Andersen believed staff needs to get the numbers right and needs to be honest about offsets and carbon
neutrality. The assumed natural gas leakage rate is 5%, which means the carbon footprint for buildings is
two to three times greater than it is believed to be. The City needs to start accounting for the cost of carbon
and using that cost in promotional and incentive programs for electrification.
Tom Kabat related that staff could incorporate the fugitive emissions CO2 equivalent into promotions for heat
pumps. Using a 20-year timeline rather than a 100-year timeline is vital.
Jim Stack, Senior Resource Planner, reported many financial implications are associated with changing the
City’s RPS compliance strategy. Month by month, CPAU has excess supply in the spring and summer from
hydroelectric and solar power and deficit supply in the winter months. On an hourly basis, CPAU has large
surpluses in July, especially in the evening hours when hydroelectric power is dispatched, and deficits in all
hours in the winter. Over the past six to seven years, the grid has changed dramatically. Oftentimes, the
carbon intensity of the grid is very low during the middle of the day due to solar generation and very dirty in
the evening hours due to natural gas generation. The current approach to carbon accounting is a simple
annual accounting method. Staff determines the load over the course of a year and the total carbon neutral
supply. If they match, staff considers the utility carbon neutral. The more accurate approach is an hour-by-
hour basis, which looks at the net surplus or deficit of resources compared to load and weights those amounts
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by the carbon intensity of the grid at that point in time. Another dimension is whether unbundled Renewable
Energy Certificates (RECs) are considered carbon neutral. Beginning in 2020, CPAU has to report in its Power
Content Label (PCL) the average emissions associated with the supply portfolio. The state will not consider
unbundled RECs to be carbon neutral. Currently, CPAU tends to have surplus resources during the spring and
summer evening hours when the grid electricity is the dirtiest. By dispatching those resources to maximize
their value, CPAU displaces a lot of carbon from the grid. For 2018, the total carbon emissions for the portfolio
was about 16,000 metric tonnes (mT).
In answer to Commissioner Segal's question about negative carbon emissions, Stack explained when CPAU
has a surplus of supplies compared to load, CPAU is putting more resources onto the grid than taking out of
the grid. Staff weights those resources by the carbon intensity of the grid at that period in time. If CPAU has
100 megawatt hours (MWh) of extra supply resources and the carbon intensity of the grid is 10 pounds per
MWh, CPAU is displacing 1,000 pounds of carbon. Lena Perkins, Acting Senior Resource Planner, added that
CPAU's resources are showing up in the dirtiest times of the grid and CPAU's load is distributed in relatively
clean times of the grid. This methodology was recently re-validated by a Stanford University study using the
same methodology and declaring the same result. Jonathan Abendschein, Assistant Director of Resources
Management, clarified that the physics of electricity require the amount consumed to equal the amount
generated. If CPAU generates extra solar power, electricity from a gas-fired plant has to be reduced. If CPAU
generates 10% more renewables over the course of a year than load, there's a chance CPAU will end up
negative. Perkins indicated it only works in the context of a broader grid.
Stack continued his presentation, stating without unbundled RECs, CPAU's portfolio would be responsible for
about 1,600 mT of CO2 using the annual approach. With an hourly approach, it's about 17,000 mT.
In reply to Commissioner Scharff's inquiry regarding marginal emissions and average emissions, Stack
suggested Commissioners think of marginal emissions as the last unit of generation that is brought online to
meet an additional unit of demand. The last unit tends to be the dirtiest unit on the grid. On an average
basis, all the renewables, which tend not to be the last unit, are lumped in. On an average basis, the average
emission factors are lower while the marginal emission factors are higher. CPAU's portfolio looks better
under the marginal emissions factors because a lot of its hydroelectric generation is dispatched in the periods
when marginal emissions factors are extremely high. In response to Commissioner Scharff's query regarding
marginal emissions factors not being the right methodology, Stack advised that CPAU is a small part of the
overall grid. If every utility in the state applied the marginal emissions factors to their entire loads, the end
result would not equal the total emissions statewide. It has to be an average basis. Abendschein added that
staff would continue to talk about marginal emissions in the context of coaching individuals to use electricity.
The average emissions methodology gradually pushes staff to do the right thing with CPAU's portfolio. With
marginal emissions, the portfolio can change quickly from good to bad such that staff does not have enough
lead time to make good portfolio decisions.
Stack further reported CPAU is currently using unbundled RECs from out-of-state generation to abate
emissions. Other methods to abate emissions are carbon offsets, carbon allowances, and bundled RECs from
instate renewable energy. Given the disparity of prices, it is reasonable to ask are unbundled RECs legitimate
if they cost so little. There is an ongoing philosophical and academic discussion on that topic. Staff thinks
unbundled RECs are legitimate instruments and have some concrete carbon-reduction value. The question,
though, is whether additionality is associated with the purchases. In other words, do they incentivize new
levels of generation to be built in out-of-state regions? On the margins, they do create some incentive. Also,
they make it cheaper for states to increase their RPS policies.
Chair Danaher noted the additionality argument also applies to bundled RECs, but that argument is faulty.
Stack indicated the state has imposed limits on the number of unbundled RECs that can be used for
compliance purposes. Abendschein added that staff is struggling with public perception. Some people do
not believe the arguments. Staff wants to get a sense of the environmental community's thoughts about a
position like this. The instinct is to look at the renewable portfolio and want to point to specific sources of
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supply coming to Palo Alto, but the arguments say look only at carbon and get the best carbon impact possible
no matter where the energy comes from. It is a logical approach but difficult to explain. If environmental
stakeholders say CPAU is greenwashing, the purchase of unbundled RECs could be problematic for public
perception. Staff needs to look into that before making any firm decision on RPS compliance.
Vice Chair Forssell wanted to understand the bill impact for customers.
Commissioner Scharff commented that he always thought CPAU should move away from RECs, but now he
is hearing that unbundled RECs may be superior. Stack reiterated that there is a lot of debate, but staff thinks
unbundled RECs are viable. Commissioner Scharff stated buying brown power and unbundled RECs to offset
the brown power would make CPAU carbon neutral. Yet, staff seemed to be saying it is not okay to use
natural gas and carbon offsets. Those seem to conflict. Chair Danaher agreed the two do conflict. Staff is
responding to the S/CAP. In fact, the UAC should be looking at the lowest cost method to reach carbon
neutral. Maybe the S/CAP targets need to be reformulated.
In answer to Commissioner Scharff's inquiry regarding the effect of selling renewables and moving toward
carbon offsets or RECs on the S/CAP, Abendschein explained that CPAU has added a lot of renewable energy
to the grid. Now, CPAU is trading between resources. For building energy use, if staff buys offsets and
considers it complete, long-term hard work will be needed to reduce natural gas use. Staff has not done that
work yet. Saving money on the electric side and using those savings to fund other sustainability efforts is
moving CPAU forward. Relying solely on carbon offsets does not affect the actions needed to reach the 80
by '30 goal. Perkins added that the RECs are only on the western interconnect. There is an imbalance market
looking to be rolled into a day-ahead energy market. The greenness of unbundled RECs versus bundled RECs
is not the right question. If they're close, Staff has to consider whether bundled RECs have 15 times the
carbon impact.
Stack continued the presentation, stating using an hourly accounting, the portfolio in 2018 had about 17,000
mT of emissions to abate. Using unbundled RECs, it would cost about $62,000. Using offsets, it would cost
about $250,000.
In reply to Commissioner Johnston's inquiry about translating that to a percentage of rates or dollars per
month, Abendschein indicated an ongoing $1.5-$1.7 million cost equals a 1% increase in rates.
Stack further reported CPAU first adopted an RPS target in 2002. SB 100 gives utilities with large amounts of
old, large hydroelectric in their portfolios an exemption to come in below the RPS requirement level. CPAU
has to achieve an RPS level that is the lesser of the regular limit and the amount of load not supplied by old,
large hydroelectric.
Commissioner Scharff noted the City lobbied strongly for that provision and achieved its inclusion in SB 100
because Palo Alto was viewed as doing the right thing for the environment.
Stack continued, stating in 2019 CPAU's RPS requirement is 31%, but the portfolio is roughly double that,
resulting in a large surplus. The current approach to comply with the RPS requirement is to exceed the RPS
requirement with all instate resources. Staff could choose lower-cost options. Staff could sell some resources
that exceed load. Because CPAU's load has been declining, CPAU has more resources overall in an average
hydroelectric year than load. Staff could sell everything that exceeds the RPS requirement.
In response to Chair Danaher's question about staff already selling excess, Stack advised that Staff could sell
the portion that exceeds load. Right now, roughly 110% of CPAU's load is in total hydroelectric plus
renewables, so staff could sell 10% or everything above the RPS requirement, which would be 30%. Under
RPS law, CPAU is allowed to satisfy 10% of the RPS requirement using unbundled out-of-state RECs. Staff
could sell some of CPAU's instate bundled resources and swap them for cheaper out-of-state unbundled
RECs. CPAU has been exceeding its RPS requirement for almost ten years. Every year that CPAU has exceeded
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the RPS requirement, staff has been saving the excess for a total of about 1.2 million RECs. Staff could sell all
of CPAU's RPS resources for the next four years and rely on the saved RECs. On the increasing cost side, staff
could sell some resources like solar that produces a lot in the summer and replace it with geothermal that
produces in a baseload pattern. Staff could try to be carbon neutral every hour of the year, but that would
involve selling a lot of solar, buying a lot of baseload renewables, and dispatching hydroelectric resources to
match load rather than to obtain the most value. Staff does not recommend that approach. Going to a
carbon neutral every hour approach would cost $6-$10 million per year. Bucket swapping would be a
$500,000 per year opportunity. Using saved RECs between now and 2030 would result in an approximate $2
million savings. Selling all supply exceeding the RPS requirement is a minimal compliance strategy. A minimal
compliance strategy would result in a $5-$7 million per year savings.
In answer to Commissioner Johnston's query about using the banked RECs instead of buying new RECs, Stack
disclosed that staff would sell Bucket 1 resources and buy market power.
In response to Commissioner Scharff's inquiry about the price of banked RECs, Stack reported the banked
RECs are worth essentially the same as a Bucket 1 REC. CPAU does not lose any value by banking RECs.
Stack continued his presentation, stating in 2020 under a minimal compliance strategy, CPAU could save
about $7 million in supply costs with an RPS level of about 21%. In terms of carbon, the current portfolio
under an hourly accounting method would result in negative 45,000 mT of CO2 emissions. If CPAU changed
to a minimal compliance approach, it would have a portfolio responsible for positive 114,000 mT of CO2
emissions. Mitigating the 114,000 mT of emissions would require purchasing Bucket 3 RECs or another
strategy. If staff purchased Bucket 3 RECs, there would be a cost of about $400,000 to mitigate those
emissions, compared to a $7.4 million savings from selling Bucket 1 RECs.
In answer to Commissioner Scharff's question of whether the strategy would be to sell Bucket 1 RECs and
purchase Bucket 3 RECs, Stack responded correct. That is the minimal compliance or the least cost approach.
Stack further reported if staff sold all resources greater than the RPS requirement, customers would see some
unspecified market power purchases on the PCL. If staff used the minimal compliance approach, almost a
quarter of supply would be from market purchases.
In reply to Vice Chair Forssell's question about bucket swapping introducing a market power slide to the PCL,
Stack answered yes.
Stack continued the presentation, stating a $7 million net savings would result in a 4-5% rate reduction. Staff
could retain the $7 million and defer rate increases for a number of years. Staff could use the funds for
sustainability initiatives. Another factor to consider is customer perception of these options.
In reply to Commissioner Smith's inquiry of whether the graph included banked RECs in each year and
whether the graph should show zero banked RECs in 2030, Stack advised that the graph includes RECs banked
each year. The final banked RECs would be sold in 2030; therefore, 2031 would show zero banked records.
Stack further reported as existing contracts expire, CPAU has less surplus to sell. As the RPS level increases,
there is less headroom.
In response to Commissioner Smith's query about reducing electric demand to the point that banked RECs
would not be needed, Stack related that reducing demand would provide additional RECs that could be sold.
Chair Danaher noted past analyses indicated the increase in EV adoption would offset the decreases in other
consumption. The UAC did not expect a reduction in the overall load. In answer to Commissioner Smith's
question about spending the $7 million savings to increase EV infrastructure, Stack indicated that is one
possibility. Staff is forecasting a decrease in overall load because of efficiency and behind-the-meter solar
exceeding the gains from EV load.
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Commissioner Scharff commented that the decreasing load will increase rates for consumers. Perkins added
that industrial customers are leaving the service area as well. Commissioner Scharff stated industrial
customers are moving because Santa Clara's electric rates are substantially less than CPAU's electric rates.
Stack further reported staff will return with another discussion and a recommendation. Staff will seek Council
approval of a change in the carbon accounting methodology because it is part of the Carbon Neutral Plan.
The RPS compliance strategy is a significant shift, so staff wanted the Council's feedback on it as well. Staff
could begin selling some resources in 2019, but 2020 is more likely. In the next nine months, staff will also
provide the UAC with reports regarding the new 30-year Western Base Resource contract.
In reply to Commissioner Segal's inquiry regarding the impact of renewing the contract on the exemption for
the RPS level requirement, Stack indicated a new hydroelectric contact would not be exempt. Renewing an
existing contract would be exempt. In response to Commissioner Segal's question of whether the $7 million
savings could purchase sufficient storage to offset the need to purchase some RECs, Stack advised that the
savings would fund a significant storage installation that staff could use to shift generation around to reduce
carbon. Perkins added that in terms of City impacts, the savings would have the greatest impact on
transportation, whether mobility or EVs. In answer to Commissioner Segal's query about wind power in the
first slide, Stack disclosed that CPAU has one contract expiring at the end of 2021 and another in 2028. If the
Western contract is reduced or eliminated, staff might replace it with wind power.
In response to Chair Danaher's question regarding distinguishing the environmental value of Bucket 1 RECs
from Bucket 3 RECs, Perkins explained that the maximum Bucket 3 RECs staff could procure for RPS
compliance is 10%. Staff is already dealing with an artificially constrained market. Bucket 1 RECs are
increasing in price. The price for Bucket 3 RECs is flat or decreasing. Study papers indicate by optimizing over
a larger area, there is no net leakage of carbon on the WECC (Western Electricity Coordinating Council) and
the prices are lower for everyone. Abendschein added that one of the countervailing arguments concerns
additionality. The fact that there is not much of a liquid market for Bucket 1 RECs means generally the
requirement forces utilities to enter into a long-term Power Purchase Agreement, which most people agree
is instrumental in adding renewable energy to the grid. The countervailing argument applies when utilities
buy Bucket 3 RECs that may come from established projects. There's an argument to be made that Palo Alto
has done its work on additionality. If environmental groups look carefully at those arguments and are
concerned about CPAU's portfolio, staff would be in a position to make that argument.
Commissioner Scharff viewed this as a huge change in Palo Alto's direction. Saving $7 million a year over ten
years is a large number, but it does not feel right to tell people CPAU is carbon free. If big hydroelectric was
considered renewable, CPAU would tell everyone it was 100% renewable. Chair Danaher related that under
the hourly accounting methodology, CPAU is not carbon neutral during large periods of time. Commissioner
Scharff remarked that staff could buy more renewables to cover that. Vice Chair Forssell understood under
carbon-neutral hourly, CPAU would be an island and not part of the grid, which is different than using hourly
average accounting, which is still in the context of the grid. Commissioner Scharff asked if CPAU would be
carbon free under the hourly accounting method and as part of the grid.
In response to Vice Chair Forssell's request for the meaning of minimally RPS compliant, Stack explained that
under the current Council-approved definition, CPAU could be considered carbon neutral by buying Bucket 3
RECs. To the extent CPAU has market purchases that show up in the PCL, CPAU could buy additional Bucket
3 RECs and still be considered carbon neutral under the minimally compliant approach. Vice Chair Forssell
inquired whether anyone is suggesting a change in Palo Alto's established definition of carbon neutral, to
which Stack replied no. Commissioner Scharff asked if the definition would be revised to be more granular.
Chair Danaher viewed it as two problems: the amount of emissions determined by the accounting
methodology and requiring the purchase of offsets or credits, and the source of the offsets or credits.
Commissioner Scharff viewed it as CPAU striving to have 50% renewables and 50% hydroelectric. Because of
Utilities Advisory Commission Minutes Approved on: Page 10 of 12
the vagaries of the market, sometimes CPAU has to offset emissions with RECs. Commissioner Johnston
interpreted the discussion as whether to move away from the traditional strategy.
In reply to Commissioner Scharff's statement that he did not have sufficient information, Abendschein
advised that staff needs to have an internal discussion to frame recommendations for the UAC. Staff also
needs to follow up on some studies that have some promising positive support for the concepts discussed
and that staff might use to frame the arguments. In addition, Abendschein wanted to talk with environmental
stakeholders about these concepts and get their initial reactions. It might make sense to provide customers
with a carbon-neutral hourly portfolio if it is important and intuitive to the customers and if customers are
willing to pay extra.
Commissioner Smith suggested staff provide the UAC with past Council direction to frame the discussion in
the perspective of a goal. Stack reported in 2013 the objective was to rely on RECs until CPAU built some
hard resources and then in 2016 or so rely on half of supply from instate hard resources through long-term
contracts for renewables and half from hydroelectric. In reply to Commissioner Smith's inquiry regarding
additional hydroelectric supplies coming online, Stack indicated there are no new hydroelectric resources
coming online. Staff recently learned about some hydroelectric resources that are coming off contracts with
other utilities and that CPAU might pick up. In response to Commissioner Smith's concern about maintaining
50% hydroelectric if demand increases, Stack disclosed that current renewables contracts are just as low as
the hydroelectric contract.
Commissioner Jackson suggested creating a rate plan for homeowners who convert to all electric if CPAU
realized the $7 million savings. Perkins reported lowering rates by 5% is incentivizing electrification and EVs.
In response to Vice Chair Forssell's query regarding the City's internal RPS target, Stack clarified that the City's
target is currently the same as the State's target. CPAU initially had a target higher than the State's target,
but the State has caught up. Vice Chair Forssell asked if a minimal RPS requirement would be 29% renewable,
as much hydroelectric as possible, and buying either offsets or allowances or using banked RECs, to which
Stack replied that is correct for 2018 when the RPS requirement was 29%. Perkins clarified that the RPS level
is the percentage of the portfolio comprised of eligible renewables in one year. That is different from the
RPS minimum set by the State. Stack noted the RPS requirement is different from the amount achieved each
year. Vice Chair Forssell remarked that minimally compliant would be selling the excess instead of generating
60% renewable power from projects.
Chair Danaher indicated combining that with the RPS compliance complicates the issue quite a bit.
Disassociating the two issues would be helpful. Bucket 3 RECs may be a cheaper way to abate the additional
17,000 mT calculated under the more exacting standard in order to maintain carbon neutrality. He requested
staff provide for the next meeting information regarding what CPAU does with RECs now and how CPAU
accounts for the shortfall when purchasing RECs.
In answer to Commissioner Segal's inquiry regarding limitations on the contents of the PCL, Stack reported
staff cannot change anything on the PCL. Staff inserts the values, and the PCL shows the portfolio equals so
many pounds per MWh of carbon emissions over the course of the year.
Dean Batchelor, Utilities Director, advised that staff will return in August with a continued discussion but no
action for the topic.
ACTION: None
ITEM 4: DISCUSSION: Discussion of Natural Gas Leakage from the City of Palo Alto's Gas Distribution System.
David Coale commented that leakage can double the impact of GHG effects from natural gas, which would
make it about the same as burning coal. The global warming potential of methane should be 86 times CO2
Utilities Advisory Commission Minutes Approved on: Page 11 of 12
because it should be taken in the 20-year timeframe rather than the 100-year timeframe. The City accounts
for transmission losses across the entire electricity grid but only within the City for natural gas transmission.
Tom Kabat explained that a REC is a rigorously tracked attribute from a project that is hard metered and
tracked by an accounting system into accounts. An offset is a counter-factual calculation of what someone
would have done if had had not been paid not to do what he would have done. CPAU should use the 20-year
timeframe because it gives the larger effect of fugitive emissions. About 25% of current global emissions
needs to be removed from the atmosphere at a cost of more than $100 per ton. Avoiding emissions now is
worth a cost of $100 per ton.
Bret Andersen expressed concern about where the huge emission number will be reported. The City's carbon
footprint does not show fugitive emissions. Staff should call out the emission number in planning and in the
City's footprint for natural gas use.
Jonathan Abendschein, Assistant Director of Resource Management, reported the item was prompted by a
question from Vice Chair Forssell about the amount of leakage from Palo Alto's gas distribution system. Staff
does not know for sure. A 2012 study to determine whether CPAU needed to report estimated gas leakage
to the Environmental Protection Agency (EPA) calculated about 4,700 mT of carbon was being emitted due
to leakage and oxidization on CPAU's system. The calculation used many nationwide assumptions; therefore,
it is not necessarily specific to Palo Alto. The amount is a small number relative to total emissions, which are
in the range of 150,000 to 160,000 mT. A second method for calculating gas leakage is the difference between
meter readings from the four stations where CPAU takes gas from PG&E's system and the total sales CPAU
meters over the same period of time. The difference between the two is 1.5% to 3%. Metering is an imprecise
science. A 2% measuring error is the standard for a meter in the field. Not all of the 1.5% to 3% is released
into the atmosphere, but the amount released into the atmosphere is an open question and would require
further study. The City does more than the Department of Transportation (DOT) requires to repair and search
for leaks. Therefore, Abendschein assumed the actual emissions to the atmosphere are lower than many
other utilities.
Commissioner Segal supported estimating methane emissions at the 20-year level rather than the 100-year
level. Understanding the impact of upgrading the most vulnerable pipes on reducing emissions and on the
cost to reduce emissions would be interesting. Dean Batchelor, Utilities Director, advised that the oldest gas
pipes are replaced after leak surveys are conducted. Approximately 45 miles of PVC pipe remain in the City,
and they will be replaced over the next five to seven years with high-density gas pipe.
In response to Chair Danaher's question about PG&E tracking or estimating leakage from its system,
Abendschein indicated he could obtain the information as PG&E is mandated to report it to the California Air
Resources Board (CARB).
Vice Chair Forssell concurred with using a 20-year time horizon. She had raised the issue with the thought to
expand the Green Gas program to offset fugitive emissions as well. However, the electric portfolio should be
prioritized over gas emissions.
Batchelor indicated he will place gas emissions on the list of items for a future agenda and return before the
end of the year for a discussion.
In reply to Commissioner Smith's query about staff anticipating another 1% decrease over the five to seven
years it will take to replace PVC pipes, Batchelor answered yes. When the ground moves, the joints of the
PVC pipes leak gas. CPAU does not have the normal leakage rate because the pressure on the PVC pipe is
lower than other utilities use.
ACTION: None
Utilities Advisory Commission Minutes Approved on: Page 12 of 12
ITEM 5: DISCUSSION: Discussion and Update on Fiber and AMI Planning.
Dean Batchelor, Utilities Director, reported staff will present a fiber update to the Council on June 24. The
update will include reissuing a Request for Proposals (RFP) and perhaps a new scope of work. In November,
the Council approved Automated Metering Infrastructure (AMI). Staff wants to build fiber to the collectors
for AMI so that the response to outages is faster. Hopefully, staff will return to the Council in October with
a contract award and start work at the first of 2020.
In reply to Commissioner Smith's query about a dig once policy, Batchelor explained that all projects for
electrical upgrades include installation of fiber conduit.
In response to Commissioner Jackson's inquiry about the UAC reviewing the RFP before it is released,
Batchelor indicated he will forward it to the UAC.
ACTION: None
ITEM 6: DISCUSSION: Discussion and Status of Water Leak Bill Credits.
Dean Batchelor, Utilities Director, reported staff added $25,000 to the budget for a total of $75,000.
Currently, credits total approximately $59,000 for 131 customers. The average rebate is about $373 for water
credits and irrigation repairs. The maximum credit allowed is $2,500, but requests for credits have not been
that high.
ACTION: None
ITEM 7: ACTION: Selection of Potential Topic(s) for Discussion at Future UAC Meeting.
Chair Danaher noted an additional discussion of RPS strategy will be scheduled for the August meeting.
In response to Commissioner Johnston's question regarding the ordinance for neighborhoods that want to
underground all utility equipment, Dean Batchelor, Utilities Director, advised that the item will be presented
to Council in June or August. He will provide an update to the UAC after the Council meeting.
ACTION: None
NEXT SCHEDULED MEETING: August 7, 2019
Meeting adjourned at 10:08 p.m.
Respectfully Submitted
Tabatha Boatwright
City of Palo Alto Utilities
Utilities Advisory Commission Minutes Approved on: September 04, 2019 Page 1 of 10
UTILITIES ADVISORY COMMISSION MEETING
MINUTES OF AUGUST 7, 2019 REGULAR MEETING
CALL TO ORDER
Chair Danaher called the meeting of the Utilities Advisory Commission (UAC) to order at 7:00 p.m.
Present: Chair Danaher, Vice Chair Forssell, Commissioners Jackson, Johnston, Scharff (arrived at 7:30
p.m.), Segal, and Smith
Absent: None
ORAL COMMUNICATIONS
None.
APPROVAL OF THE MINUTES
Commissioner Johnston moved to approve the minutes of the June 5, 2019 meeting as amended.
Commissioner Segal seconded the motion. The motion carried 6-0 with Chair Danaher, Vice Chair Forssell,
and Commissioners Jackson, Johnston, Segal, and Smith voting yes and Commissioner Scharff absent.
AGENDA REVIEW AND REVISIONS
None.
REPORTS FROM COMMISSIONER MEETINGS/EVENTS
None.
GENERAL MANAGER OF UTILITIES REPORT
Dean Batchelor, Utilities Director, delivered the General Manager’s Report.
The Home Efficiency Genie is Now an Award Winning Program – CPAU is proud to announce that we have
received a National Energy Innovator Award for our Home Efficiency Genie program. I was honored to accept
the award in June at the American Public Power Association (APPA) conference. The Genie program, which
began in July 2015, has been recognized for its application of creative, energy-efficient techniques,
technologies and successful simplicity. The program optimizes home efficiency by providing individually
tailored energy and water efficiency recommendations to residents. By providing free advice over the phone,
the Genie has become a trusted and reliable resource for our customers. The House Call assessment costs a
resident $149, but that cost will be reimbursed when the homeowner completes one of the efficiency
projects recommended by the Genie. Learn more at efficiencygenie.com.
SunShares Solar and EV Group Buy Program Now Available - For the fifth year in a row, Palo Alto is
participating in Bay Area SunShares, a solar group-buy program that allows residents in the Bay Area to pool
their buying power and benefit from discounts on rooftop solar and electric vehicles. Learn more and register
for the program at BayAreaSunShares.org from August 1 through November 15.
FINAL
Utilities Advisory Commission Minutes Approved on: September 04, 2019 Page 2 of 10
Rebates for 2019 Nissan Leaf - Through September 30, CPAU customers and employees can receive rebates
on the Nissan Leaf. The APPA has partnered with Nissan to offer rebates to public power utilities for
purchasing a 2019 Nissan Leaf. The rebate cannot be combined with the SunShares program.
Utility Meter Audits Beginning this Month - CPAU has contracted with Professional Meters, Inc. (PMI) to
perform a field audit of all utility meters in the City. This audit is intended to help us prepare for the
implementation of new business information systems and modernized metering infrastructure to improve
the level of service we deliver to our utility customers. Contractors will be in residential and business areas
beginning in early August. Customers will receive a notification in the mail prior to the audit with a date of
when contractors will be in their area. CPAU contractors will be carrying ID badges, wearing shirts with their
company logo, and driving vehicles identifiable as CPAU contractors. If there are any questions or concerns,
people may contact Utilities Customer Service at (650) 329-2161.
Preparing for Seismic Hazards & Other Emergencies – Communications staff worked with the City’s Office
of Emergency Services on public outreach about earthquake safety and emergency preparedness following
recent earthquakes in Southern California. Unfortunate incidents like these natural disasters remind us of
the importance to be prepared for emergencies at any time. The City offers many resources at
cityofpaloalto.org/preparedness to help people stay informed and ready.
Municipal Service Center Open House – On July 5, the City hosted an Open House at the Municipal Services
Center to showcase some of the “behind the scenes” work that we do for the Palo Alto community. The event
included special project demonstrations from Utilities and other City departments along with games, prizes,
music, food, and a dunk tank for City management. More than 400 attendees were able to visit with staff and
learn about City services in a fun environment.
Utilities Rate Changes - On June 17, City Council approved rate changes for the electric, gas, wastewater and
water utilities, which became effective on July 1. CPAU provided public outreach during the rate proposal
phase and after rates were adopted, including a Utility Bill Insert delivered to customers in July. We thank
the UAC for their advisement on the financial plans and rate proposals this year.
Walking and Mobile Gas Leak Surveys in Progress - This routine inspection of our gas distribution system is
conducted every year to ensure the safety of all who live and work in Palo Alto. You can view a map of this
year’s survey areas on the Utilities website at cityofpaloalto.org/utilities
Utility Work at Churchill – In conjunction with the Caltrain electrification project, electric lines will need to
be raised along the rail line. At Churchill, new holes for power poles were bored, and streets and sidewalks
are being restored. Construction is scheduled for completion on Friday.
Update of Utilities Strategic Plan – An update for the period January-June 2019 is available. At an all-hands
meeting, CPAU employees received power packs and encouragement to join an internal working group.
Fiber to the Node - On June 24, 2019, the City Council authorized staff to change the scope of work for the
Fiber Request for Proposals (RFP) and to sunset the Community Advisory Committee. Hopefully, the RFP will
be issued by the end of August.
COMMISSIONER COMMENTS
None.
UNFINISHED BUSINESS
None.
Utilities Advisory Commission Minutes Approved on: September 04, 2019 Page 3 of 10
NEW BUSINESS
ITEM 1: DISCUSSION: Discussion of Renewable Portfolio Standard Compliance Strategy Options for the City's
Electric Supply Portfolio.
Jim Stack, Senior Resource Planner, reported in May and June staff presented a comparison of annual and
hourly carbon accounting. The UAC seemed to agree that the hourly approach to carbon accounting is
appropriate for CPAU because it is more granular and accurate. With UAC approval, staff will present an
amendment to the Carbon Neutral Plan that the UAC may recommend the Council approve.
Chair Danaher confirmed the UAC's consensus for an hourly carbon accounting methodology.
Stack continued the presentation, stating in June staff presented a list of options for complying with
Renewable Portfolio Standard (RPS) requirements. Because load has been dropping in recent years, CPAU
has a surplus of overall resources. Staff has suggested CPAU sell excess resources, which would result in an
average savings of $1.2 million annually over the next 12 years.
In reply to Commissioner Johnston's inquiry regarding the actions necessary to sell excess resources, Stack
advised that staff would sell the output of the contracts to other utilities on a short-term basis. Once staff is
aware of hydroelectric conditions and certain that excess resources will be available, staff will sell excess
resources on a monthly or quarterly basis. Under existing policy, staff can implement the strategy upon
approval.
Commissioner Smith remarked that timing of the sale of resources is important.
Chair Danaher confirmed the UAC's consensus for selling excess resources.
Stack further stated the strategy of "carbon neutral every hour" would involve selling probably all solar
resources, replacing them with baseload renewable resources, and changing the dispatching of hydroelectric
resources. This strategy will be cost in the range of $7 million annually \. This strategy would likely not have
a net impact on carbon emissions and could increase emissions. Staff recommends the UAC not consider this
approach further.
Chair Danaher confirmed the UAC's consensus for eliminating the "carbon neutral every hour" approach from
consideration.
Stack further recalled that staff presented a strategy of minimal compliance, which would result in significant
cost savings. The strategy involves maximizing the replacement of in-state renewable resources with out-of-
state resources and using banked Renewable Energy Certificates (REC). Given the potential public perception
that CPAU's portfolio is dirtier than allowed under State requirements, staff recommends no further
discussion of utilizing banked RECs.
Commissioner Johnston noted his skepticism of using banked RECs and his agreement with selling resources
in excess of load. In answer to Commissioner Johnston's question about the use of banked RECs, Stack
explained that if staff sells only the resources in excess of load, CPAU would remain well above the
compliance requirement, and the number of banked RECs would continue to increase. Commissioner
Johnston suggested the UAC discuss selling some of the RECs.
In reply to Chair Danaher's request for the number and market value of banked RECs, Stack indicated the
number of banked RECs is 1.2 million. Their market value is roughly $25 million. To monetize banked RECs,
staff would apply older banked RECs to requirements in 2020, for example, and sell RECs generated in 2020
to other utilities. CPAU would comply with its RPS requirement, but its Power Content Label (PCL) would
reflect zero renewables for 2020 because RECs are not reflected in the PCL. Jonathan Abendschein, Assistant
Director of Utilities Resource Management, explained that CPAU cannot sell banked RECs directly. CPAU
Utilities Advisory Commission Minutes Approved on: September 04, 2019 Page 4 of 10
could sell more of its in-state renewables or trade them for out-of-state renewables. Stack added that the
State does not recognize the value of out-of-state RECs in the PCL.
In answer to Commissioner Smith's query regarding the use of banked RECs in a programmed manner, Stack
noted in June staff suggested using the RECs over 12 years. Each year, CPAU would appear to fall short of the
compliance requirement, but in actuality CPAU would be in compliance through use of the previous year's
RECs.
Abendschein suggested the UAC hear the next component of staff's proposal and return to a discussion of
banked RECs with that information in mind. Chair Danaher concurred.
Stack continued the presentation, stating in 2003 CPAU began adding renewable energy supplies to its
portfolio. For 2019, more than 60 percent of the portfolio is composed of renewables. Renewable energy
supplies exceed the State's requirement by about a 2:1 margin. Because of the large amount of hydroelectric
supply in its portfolio, CPAU qualifies for a State exemption such that the portfolio may contain less
renewable supply than other utilities' portfolios.
Vice Chair Forssell noted the amount of wind power and landfill gas power shown in the graph is diminishing
and requested the reason for that. Stack advised that the decreasing amounts reflect the expiration of CPAU's
contracts for those resources.
Stack further reported staff does not recommend continuing the current compliance strategy, which
generates on average a 10 percent surplus each year. One option is to sell a portion of excess supply to serve
load or to comply with the Carbon Neutral Plan. Under this option, CPAU would retain 4.5 percent of the total
surplus in order to maintain its carbon neutral status under the hourly accounting approach. Another option
is to sell all renewables and exceed the RPS requirement levels and purchase bucket 3 resources or out-of-
state renewables. Under this option, renewable resources or hydroelectric resources would equal 100
percent of load, but 25 percent of resources would be out-of-state renewables. The PCL would depict the
out-of-state renewables as unspecified resources. If business as usual continues, supply costs would not
change, and the RPS level would average about 60 percent over the next 12 years. The current portfolio
would have negative emissions under the annual and hourly carbon accounting methodologies. Under the
option to sell a portion of excess supply, CPAU would realize about $1.2 million in cost savings annually; the
surplus would decrease from 10 percent to 4.5 percent; the rate impact would be approximately 0.7 percent;
and the RPS level would decrease to 51 percent. An hourly carbon accounting methodology would result in
no emissions, and the PCL would reflect negative emissions. The option to sell all renewables above the RPS
requirement would generate an additional $1.9 million in savings for a total savings of $3.1 million. This
option would have an approximate 2 percent rate impact, but the RPS level would decrease to 40 percent.
Hourly accounting would result in an emissions intensity of approximately 137 pounds per MWh, but that
could be offset with the purchase of additional bucket 3 RECs. The PCL would reflect 97 pounds per MWh.
In reply to Commissioner Segal's inquiry regarding the use of cost savings, Stack related that the savings could
be returned to customers through a rate reduction or applied to other types of decarbonization efforts.
Stack continued the presentation, stating an emissions intensity of 97 pounds per MWh is much cleaner than
the grid average, which is around 400 or 500 pounds per MWh.
In response to Chair Danaher's query regarding adding information to the PCL, Stack indicated CPAU cannot
add text to the PCL but can provide supplemental material to customers through bill inserts.
Stack continued the presentation, stating a hybrid approach would allow customers to choose one of two or
more rates, similar to the PaloAltoGreen program. Customers could select a premium rate based on the
current portfolio or a more expensive "carbon neutral every hour" portfolio or a lower-cost rate based on
the option to sell supplies that exceed the RPS requirement. Challenges to a hybrid approach are selection of
Utilities Advisory Commission Minutes Approved on: September 04, 2019 Page 5 of 10
a default rate, public messaging, confusion and frustration for customers, uncertainty around supply needs;
and implementation costs.
Chair Danaher requested staff omit further presentation of the hybrid option as the UAC is not interested in
it.
Stack advised that staff will return to the UAC with a formal request for a recommendation to Council
regarding an amendment of the Carbon Neutral Plan to allow an hourly carbon accounting methodology.
Staff may return to the UAC with additional RPS strategies. If there is interest in pursuing an approach to sell
more bucket 1 resources and purchase bucket 3 resources, staff will seek feedback from the environmental
community. Staff will begin selling resources that exceed load and are not required for carbon neutrality. In
2020, staff will present longer-term decisions for the portfolio.
Lena Perkins, Acting Senior Resource Planner, explained that current research indicates up to about 25
percent of trading of RECs within the western interconnect (WIC) has no net effect on total carbon emissions
but does lower the costs of electricity across the interconnect. For the same impact on carbon, utilities can
save $3 million a year by trading RECs. On a dollars per carbon basis, trading RECs is the most efficient option.
If costs are kept low, more states and entities could potentially adopt RPS. Anecdotal and emerging research
supports the theory that investors may retire nonrenewable power sources such as coal-fired plants sooner.
Chair Danaher commented that if the choice is between buying in-state and out-of-state renewable energy
resources, out-of-state would be cheaper. The disadvantage is the reflection of it on the PCL.
Vice Chair Forssell understood the models are recommending a limit of 25 percent on bucket 3 RECs because
the WIC would have flexibility to harvest financial benefits without affecting carbon emissions. Perkins
clarified that California allows 15 percent of the RPS to be bucket 2 RECs, which are out-of-state RECs and
RECs not scheduled in the Independent System Operator (ISO). Between buckets 2 and 3, California allows
25 percent of the RPS to be out-of-state resources. In reply to Vice Chair Forssell's question regarding 25
percent of out-of-state resources, Stack believed the 25 percent number comes from the State limit on out-
of-state resources rather than the research.
In response to Commissioner Segal's query regarding bucket 2 and bucket 3 RECs in the pie chart, Stack
indicated the pie chart assumes no bucket 2 RECs but maximizing the amount of bucket 3 RECs. Staff could
present an option to sell even more bucket 1 RECs and purchase bucket 2 RECs. In reply to Commissioner
Segal's request for the rationale, Perkins explained that the UAC has expressed concern that the public could
view it as backtracking. Abendschein added that the full range of options presented in June are theoretically
on the table.
Commissioner Scharff remarked that selling a portion of excess supply is preferable to continuing the current
portfolio. He suggested selling all renewables is better for the environment, but the public perception is
worse. Stack clarified that selling all renewables is a better option if the cost savings are used to implement
local decarbonization efforts. In answer to Commissioner Scharff's question of which option is superior from
an environmental point of view if the cost savings are not used for local decarbonization, Stack reported
selling a portion of excess supply and selling all renewables are probably equivalent. In response to
Commissioner Scharff's question of the issue being the public's perception of Palo Alto's electricity being
carbon neutral, Dean Batchelor, Utilities Director, concurred.
In answer to Commissioner Smith's inquiry of why selling a portion of excess supply is not as good as selling
all renewables if cost savings are allocated to electrification infrastructure, Perkins reported the decision
comes down to the amount of cost-effective carbon savings locally and the dollars per ton avoided locally. In
reply to Commissioner Smith's query regarding the sale of a portion of excess supply leading to cost savings
and the elimination of coal-fired plants and dirty power, Perkins agreed that it could lead to those results,
but the sale of a portion of excess supply is more expensive than the sale of all renewables if local investments
Utilities Advisory Commission Minutes Approved on: September 04, 2019 Page 6 of 10
are ignored. Commissioner Smith asked if it would be more expensive for the CPAU's retail customers. Perkins
responded yes, $1.9 million more expensive for CPAU's retail customers and more expensive for other ISO
and WIC customers overall.
Commissioner Jackson advised that his perception in June was that Commissioners were more comfortable
with the strategy of selling a portion of excess supply. He was apprehensive about the strategy to sell all
renewables because of concerns about CPAU power not appearing carbon neutral. He wanted to review the
research materials before reaching a conclusion.
Commissioner Scharff suggested CPAU move immediately to a strategy of selling a portion of excess supply
while staff explores the sale of all renewables. Staff could develop messaging that is not too complicated and
that CPAU would continue to be green.
Commissioner Johnston commented that Palo Alto residents are proud of CPAU being carbon neutral. CPAU
needs a simple and persuasive explanation for the public. He expressed interest in learning the reaction of
the environmental community to the strategies. He supported the sale of excess supply while staff explores
a strategy to sell all renewables and messaging to explain the strategy.
Commissioner Smith understood that buying RECs from other states spreads the knowledge that buying
renewables is good for the planet, but the pounds of carbon by MWh is troublesome. CPAU can offset that
with RECs, but offsetting does not represent CPAU's actions. Until the State changes the PCL to reflect out-
of-state renewables, advocating for their purchase is difficult.
Chair Danaher did not understand the significance of the state boundary in that solar power from San Diego
is no more local to Palo Alto than wind power from Wyoming, and one does not provide greater savings for
the atmosphere than the other. The UAC's responsibility should be carbon neutrality at the lowest possible
cost. A monthly bill insert could state Palo Alto is carbon neutral and the percentages of renewable energy,
and explain that CPAU is obtaining renewables from out of state. The bill insert could also explain the PCL by
saying it is an accounting methodology that ignores clean energy purchased out of state and does not reflect
the actual situation. He recommended staff not allow presentational issues to prevent a savings of $2 million
for ratepayers if the options are equally green. He requested staff inquire about environmental groups'
opinions regarding state boundaries and obtaining renewable energy.
Commissioner Segal noted CPAU could save money by selling all renewables and could have a bigger net
effect in whether greenhouse gases come from Palo Alto, Wyoming, or Missouri. If CPAU can cumulatively
reduce emissions by retiring coal plants earlier, the messaging can state not only is CPAU keeping Palo Alto
clean but it is contributing beyond Palo Alto's borders.
Vice Chair Forssell was less concerned with the community's perception because she was unsure of the
number of residents who read the PCL. She was more concerned about the public perception of Palo Alto as
a role model. She expressed interest in taking another look at resources procured directly and being
thoughtful about the mix of things CPAU is controlling more directly.
Stack advised that staff will present some options around new contracts for wind or other resources next
year when discussing renewal of the Western contract. Last year, staff reviewed options such as wind power
from New Mexico, which appears to be low cost and a good complement to hydroelectric resources.
Chair Danaher noted the 2017 PCL states the power mix as 100 percent hydroelectric and renewable. The
column labeled California power mix states 34 percent natural gas and 4 percent coal. Clearly, the UAC
supports selling a portion of excess supply and exploring the sale of all renewables.
Commissioner Scharff felt the ability to state CPAU power is carbon neutral and to explain how it is carbon
neutral is important. Support from environmental groups will be helpful.
Utilities Advisory Commission Minutes Approved on: September 04, 2019 Page 7 of 10
Abendschein indicated staff will consider the use of banked RECs in the context of a strategy to sell all
renewables.
ACTION: None
ITEM 2: DISCUSSION: Discussion of Palo Alto's Water Supply Reliability.
Jonathan Abendschein, Assistant Director of Resource Management, reported CPAU has some opportunities
in the coming year or two to review options for improving water supply reliability through Bay Area Water
Supply and Conservation Authority (BAWSCA). Staff wishes to obtain some sense of the value of water supply
reliability to the community.
Lisa Bilir, Resource Planner, requested feedback regarding the sufficiency of Palo Alto's water supply
reliability during a drought and the amount customers are willing to pay for greater water supply reliability
during drought. She requested the UAC's input regarding the community's interest in supplementing the
current water supply reliability during drought. CPAU receives 100 percent of its potable water supply from
the San Francisco Public Utilities Commission (SFPUC). The City uses some recycled water at City facilities.
CPAU has eight emergency water wells and seven storage reservoirs. During the last drought, the State
mandatory cutback level was 24 percent, and water customers conserved 31.4 percent during the cutback
period. Some temporary restrictions implemented during the drought became permanent restrictions after
the drought. Since the last drought, water consumption has not increased to pre-drought levels. In 2019,
BAWSCA customers' consumption has been approximately 8 percent lower than in 2013.
In reply to Chair Danaher's question about high rainfall amounts contributing to reduced consumption, Bilir
suggested the temporary restrictions that became permanent may have contributed to reduced
consumption.
Bilir further reported in the first half of fiscal year 2019 Palo Alto customers reduced their consumption by
almost 11 percent from 2013 consumption. CPAU implemented a drought surcharge during the drought, but
it has been removed. One of SFPUC's level of service goals is not to have more than a 20-percent cutback
during a drought. SFPUC plans for an 8.5-year dry period based on actual conditions from the 1987-92 and
1976-77 droughts combined. During a drought, SFPUC allocates water approximately one-third to SFPUC
retail customers and two-thirds to wholesale customers through the Tier 1 Plan. Water is allocated among
wholesale customers through the Tier 2 Plan. Tier 1 and 2 Plans become effective when the SFPUC declares
a 20-percent shortage. SFPUC did not declare a shortage in the recent drought because the State mandated
reductions.
In reply to Commissioner Scharff's request for additional details regarding SFPUC not declaring a shortage in
the recent drought, Bilir explained that in an unprecedented move, the State set reductions for each urban
retail water supplier in the state. Under the State reductions, Palo Alto was required to reduce usage by 24
percent. Staff does not believe the State will mandate reductions in the future. Karla Dailey, Senior Resource
Planner, added that the State has indicated it prefers not to mandate reductions in the future. The State has
moved toward a regulatory framework of conservation as a way of life.
Bilir continued the presentation, stating CPAU usage levels have decreased slightly in 2019. A 23-percent
reduction from the levels of 2018 or 2019 may be harder to achieve in the future because it would require
reducing usage to a historically low level. The historical record indicates more serious droughts have occurred
in the past and have lasted for ten or more years. With climate change as a factor, future water shortages
may be more frequent and more severe.
In answer to Chair Danaher's question about future reductions taken from the 2013 or 2018 usage levels,
Bilir advised that the reduction would be based on water usage in the most recent non-drought year. The
usage from the most recent non-drought year assumes many conservation measures.
Utilities Advisory Commission Minutes Approved on: September 04, 2019 Page 8 of 10
In reply to Commissioner Scharff's inquiry regarding the ability to comply with future reductions because of
ongoing conservation measures, Dailey concurred in part that ongoing conservation does make future
reductions difficult. If all users decrease consumption in a drought, the limited amount of water available will
serve more users. CPAU will be subject to State regulations and will have to comply with some conservation
targets. In answer to Commissioner Scharff's query regarding additional measures residents could
implement, Dailey advised that the State will provide new targets that CPAU will have to meet over a long
time period. CPAU will have to continue aggressive conservation measures.
Vice Chair Forssell remarked that if all communities are reducing usage, the likelihood that a cutback is
triggered decreases. Abendschein added that climate change and regulatory changes could offset the impacts
of decreased consumption and lead to similar or worse drought cutbacks.
Chair Danaher reiterated that a 23-percent cutback will be more difficult to achieve now than in 2013.
Bilir continued the presentation by requesting the UAC consider the following questions: (1) is a 23-percent
water use reduction during a drought enough supply reliability; (2) can the community sustain a 23-percent
reduction; and (3) if Palo Alto could participate in a project that limited water use reductions to 20 percent
or less, would the community be interested in such a program and at what cost to the community. BAWSCA
has determined there will be additional water needs in dry years and identified strategies of water transfers
and storage to meet the additional needs. In Palo Alto, water conservation and efficiency programs continue.
Staff is investigating water reuse and use of groundwater. Preliminary studies estimate about 20 percent of
the potable groundwater supply could be pumped; however, the use of groundwater may be restricted
during multiyear droughts.
Commissioner Smith questioned whether a decrease of 23 percent to 20 percent would be a significant
reduction. Dailey advised that discussions have focused on a 5 percent change, such as 23 percent to 18
percent. The Water Shortage Contingency Plan implements different measures at different levels.
In response to Commissioner Johnston's inquiry regarding the source of the additional water for which CPAU
pays, Dailey indicated the source may be water transfers or water storage. CPAU could contribute funds to a
water storage project and receive rights to use the water. BAWSCA has been focusing on projects for dry
years versus projects such as a desalinization plant.
Commissioner Scharff commented that providing feedback is difficult in the absence of a project. The water
purification project at the Regional Water Quality Treatment Plant is a long-term and interesting project.
Having more water security would be worth an additional cost. In his experience, the out years of water
protection are the most expensive, and the marginal return on that often begins to deteriorate. Perhaps
CPAU could build its own water storage facility.
Commissioner Segal expressed interest in a breakdown of water usage between commercial and residential
and between indoor and outdoor and whether an individual ratepayer has any control over how his
conservation efforts are applied. Bilir related that 72 percent of water is consumed for indoor uses.
Commissioner Smith commented that the discussion concerns making the community resilient against
something that might happen. In answer to his query regarding the use of graywater for irrigation, Dailey
indicated CPAU offers programs to assist customers with installing graywater systems and with lawn
replacement. In response to his inquiry regarding encouraging programs that create a resilient community or
that store water, Dailey reported CPAU will continue to pursue conservation programs. Water consumption
for outdoor uses in Palo Alto likely exceeds the amount the State will mandate. The question for the UAC
concerns whether SFPUC's level of service goal is sufficient for Palo Alto or does the community want
additional water supply so that it does not have to reduce as much as required. Abendschein explained that
the 23-percent cutback is relative to the usage level. The 23-percent cutback applies to the amount of water
Utilities Advisory Commission Minutes Approved on: September 04, 2019 Page 9 of 10
imported; therefore, alternative water resources can reduce the amount of water imported and lead to
compliance with the cutback. Commissioner Smith encouraged staff to explore creating or identifying
alternative water sources.
In reply to Vice Chair Forssell's inquiry about mandated cutbacks being gradual, Bilir explained that SFPUC's
Tier 1 and 2 Plans are in place for droughts that result in a 20-percent water shortage. SFPUC level of service
goal is not to require cutbacks greater than 20 percent. A cutback could be 5 percent or 10 percent. The Tier
2 plan for allocating water to wholesale customers does not apply to shortages greater than 20 percent. If a
shortage is declared greater than 20 percent, the allocation of water will have to be determined. Vice Chair
Forssell requested time to discuss the issues with neighbors before providing input to staff's questions.
Commissioner Scharff believed Palo Alto's landscaping infrastructure, particularly the canopy, should be
protected. The amount of water consumption correlates directly to the size of residents' lots. Dailey
explained that communities with more outdoor irrigation reduce consumption more. The extra 5 percent
could be used for irrigation. She questioned whether the community would value being able to irrigate
landscape an additional day per week during a drought. Commissioner Scharff felt most customers would
support a 2 percent rate increase if they knew they would have water to protect the canopy.
Chair Danaher expressed interest in having a ranking of projects based on cost effectiveness. Another cutback
is going to be difficult to achieve. Perhaps staff could encourage the State to utilize a base year of 2013 for
future cutbacks so that communities are not punished for ongoing conservation efforts.
ACTION: None
ITEM 3: DISCUSSION: Discussion of Outreach and Response Required for Wildfire Safety, PG&E Public Safety
Power Shutoff Program, and Local Outages.
Catherine Elvert, Communications Manager, reported staff has been communicating with PG&E and other
stakeholders to understand the potential impacts of PG&E's Public Safety Power Shutoff Program. PG&E has
been communicating its plans to de-energize powerlines when conditions pose a high risk for wildfire related
to utility infrastructure. CPAU takes electricity from PG&E's major transmission lines. If PG&E shuts down a
major transmission line that serves Palo Alto, there could be impacts to CPAU's power supply. In the event of
a statewide incident, Palo Alto could be impacted by rolling blackouts. CPAU is working with partners and
other utilities to understand the program's effects; to establish clear communication with PG&E and
protocols for PG&E's notifications; and to develop local communication plans to inform customers. PG&E
hopes to provide a notice 24-48 hours in advance of a shutoff, but PG&E cannot guarantee this. The Foothills
area is probably most at risk for wildfire conditions. CPAU will make decisions regarding the Foothills area
based on the best interests and safety of customers and on staff's knowledge of infrastructure in the area.
CPAU is taking measures to mitigate the potential for wildfire. Staff is developing a Wildfire Mitigation Plan,
which may be complete by the end of the year.
Chair Danaher advised that backup power sources for hospitals, public safety, and the like are in place.
Perhaps PG&E could provide a map of the service area for each transmission line so that staff could make its
own decisions. PG&E shutting down a transmission line 100 miles away from Palo Alto may impact the
amount of power that is provided to Palo Alto's grid.
In response to Commissioner Scharff's question about Palo Alto receiving all or no power, Dean Batchelor,
Utilities Director, advised that PG&E may move reduced capacity among transmission lines such that cities
along the transmission lines have rolling blackouts.
In answer to Commissioner Segal's question about the Foothills area, Batchelor related that the line in the
Foothills area is not a transmission line. It serves the 70 customers in the Foothills area. Staff will install a
switch at the base of the line so that power can be shut off and will explore relocating the line.
Utilities Advisory Commission Minutes Approved on: September 04, 2019 Page 10 of 10
In reply to Commissioner Johnston's inquiry about the amount of CPAU's electric generation and whether it
is dedicated to specific uses, Batchelor indicated CPAU has four units that can provide 5 MW of service. On a
typical day, customers utilize 180 MW. The generators require some power in order to start. He has asked
staff to develop a cost for bringing 50-60 MW of power into the City.
In response to Vice Chair Forssell's inquiry regarding the percentage of load that is commercial versus
residential, Elvert responded 85 percent commercial and 15 percent residential. Commercial customers will
likely provide the 25-30 percent curtailment. Dedicated key account representatives communicate directly
with the responsible people at large business customers; therefore, CPAU should be able to shed load quickly
by communicating with the large customers.
ACTION: None
ITEM 4: ACTION: Selection of Potential Topic(s) at Future UAC Meetings.
Commissioner Johnston suggested a discussion of recycled water include recycled water as an alternative
water resource during a drought.
Commissioner Segal requested information regarding the impact of recycled water on water quality and a
tutorial regarding the rights to use utility poles and placement of wireless facilities on utility poles.
In reply to Vice Chair Forssell's question, Dean Batchelor, Utilities Director, reported plans for a resiliency
workshop are tentative.
Chair Danaher requested an update regarding networking or futureproofing electric vehicle (EV) charging and
an update regarding staffing. Batchelor advised that the number of vacant positions has dropped from 44-45
to 32. Critical positions have not been filled. The majority of vacant positions are in the Electric Utility.
ACTION: None
NEXT SCHEDULED MEETING: September 4, 2019
Meeting adjourned at 9:10 p.m.
Respectfully Submitted
Tabatha Boatwright
City of Palo Alto Utilities
Page 1 of 19
1
MEMORANDUM
TO: UTILITIES ADVISORY COMMISSION
FROM: UTILITIES DEPARTMENT
DATE: August 7, 2019
SUBJECT: Renewable Portfolio Standard Compliance Strategy Options for the City’s
Electric Supply Portfolio
______________________________________________________________________________
REQUEST
Staff is requesting that the UAC affirm that the following portfolio management strategies and
actions are in line with UAC policy positions:
(1) Sell renewable energy supplies that exceed the City’s total load on an annual basis to
reduce costs to consumers;
(2) Pursue Council adoption of an amendment to the Carbon Neutral Plan to adopt an
hourly carbon emissions accounting methodology, with average hourly grid emissions
factors;
(3) Do not consider a portfolio management strategy in which the City attempts to buy
renewable energy to match its load in every hour of the year (the “Carbon Neutral every
hour” approach); and
(4) Do not consider an RPS compliance strategy that involves relying on the City’s stock of
“banked” RECs from previous years.
Staff intends to pursue item 1 under its existing Council authorities and is seeking confirmation
that the UAC agrees. Staff will return to the UAC with a proposed amendment to the Carbon
Neutral Plan at a subsequent meeting to implement item 2. Staff intends to cease consideration
of the “Carbon Neutral every hour” approach and the use of banked RECs and is seeking
confirmation that the UAC is comfortable with that.
Additionally, staff seeks additional UAC feedback on a staff proposal to pursue a portfolio
management strategy of selling CPAU’s California-based renewable energy (i.e., Bucket 1 RECs)
which is not needed for RPS compliance, and purchasing lower-cost renewable energy
generated outside of California (Bucket 3 RECs)1. Staff estimates that this policy could free up
1 State law has established three different categories or “buckets” of renewable energy products—and sets limits
on the degree to which a utility can rely on the less preferred categories to fulfill their RPS requirements. The first
category (Bucket 1), the most preferred one, encompasses all renewable energy that is delivered into the
California grid as it is generated. The second type of renewable energy (Bucket 2) consists of renewable energy
generated out-of-state that is used by the out-of-state grid as it is generated, and then later an equal amount of
energy from a different resource is delivered into the California grid. This type of arrangement is referred to as
“firming and shaping” the resource’s output. The third category of renewable energy (Bucket 3) is the state’s least
preferred one, and also the least expensive to procure. Bucket 3 encompasses all sales of RECs without any
associated energy. In these “unbundled REC” transactions, the energy is generated and consumed (usually out-of-
Page 2 of 19
about $3M per year for sustainability efforts that benefit electric ratepayers, without raising
rates or increasing carbon emissions of the electric portfolio. Based on UAC feedback staff may
continue analysis of this option and return to the UAC at a later date with a more formal
proposal. Note that staff also considered the possibility of using this projected revenue for rate
reduction, but heard feedback from the UAC at a previous meeting that reducing rates 1-2% in
exchange for creating a portfolio that might be perceived as less green was not preferred.
Lastly, staff seeks UAC feedback on the possibility of reintroducing a “green rate” option for
consumers.
EXECUTIVE SUMMARY
This report is a follow-up to a report presented in June 2019 on the same topics—and that
report was actually an extension of a similar report presented in May 2019. Together, these
reports satisfy Initiatives #4 and #5 of the City’s 2018 Electric Integrated Resource Plan (EIRP)2,
which Council approved in December 2018.
This report goes into some detail on the background behind the adoption of the City’s current
policies related to carbon accounting and RPS procurement. It then describes several different
procurement strategies that the City might pursue in order to comply with its state RPS
requirements—though a narrower set of options than staff presented in the June 2019 report—
along with the financial impact to the utility of changing from its current RPS compliance
strategy. Also presented are the implications for the City’s carbon emissions associated with
these RPS compliance strategy options. Staff sees one RPS compliance strategy, selling
renewable energy that exceeds load (and which are not needed for maintaining carbon
neutrality under an hourly accounting framework), as clearly worth pursuing. This strategy
results in an average annual savings of $1.2 million per year over the next twelve years (or
about 0.13 cents/kWh, equivalent to a 0.7% rate change). A second strategy, selling renewable
energy in excess of state RPS requirements, merits more discussion and analysis, but could free
up an additional $1.9 million per year to devote to carbon reduction programs that benefit
electric ratepayers over the next twelve years without increasing portfolio carbon emissions.
Finally, staff seeks UAC validation of the four strategies and actions listed above that appeared
to garner consensus at the May and June 2019 UAC meetings.
state) but the RECs are sold separately to a California utility. Technically Bucket 3 RECs can be located in California,
but virtually all Bucket 3 RECs are generated outside the state.
2 Initiative #4 of the Work Plan called for staff to evaluate the carbon content of the electric supply portfolio using
hourly grid emissions intensity data, to consider the merits of buying carbon offsets to ensure the carbon content
of the cumulative hourly portfolio is zero on an annual basis, and to reevaluate the manner in which the City
communicates with customers about the carbon content of the electric portfolio. Initiative #5 of the Work Plan
called for staff to investigate the merits of monetizing the City’s excess renewable energy supplies in order to
minimize the cost of maintaining an RPS compliant and carbon neutral electricity supply portfolio.
Page 3 of 19
BACKGROUND
Over the past two years, staff has shared numerous presentations with the UAC related to the
electric supply portfolio in the course of developing and implementing the 2018 Electric
Integrated Resource Plan (EIRP). In the course of these discussions, UAC commissioners have
clearly articulated two points. First, the UAC would like staff to pursue a supply portfolio that
minimizes total cost to customers, while also minimizing carbon emissions. While in the past
the City’s goal was to increase the amount of renewable energy in its portfolio (its RPS level),
the fact that City has reached carbon neutrality has led the UAC to recommend pursuing a
policy of maintaining carbon neutrality going forward while calculating the portfolio’s carbon
impact based on hourly and seasonal grid emissions. This point was made most clearly in
December 2017, when staff delivered a report to the UAC on potential changes the City could
make to its strategy for complying with its Renewable Portfolio Standard (RPS) and Carbon
Neutral Plan objectives.
And second, the UAC wants staff to communicate with the public about the supply portfolio in a
manner that is both accurate and accessible. Initial discussion on this topic occurred in June and
September 2018 during discussions of the EIRP. A more in-depth discussion of this topic also
occurred in May 2019 during discussion of carbon accounting methodologies for the City’s
electric portfolio.
The May 2019 report also described a new accounting methodology being proposed by
California Energy Commission (CEC) staff for quantifying emissions on Power Content Labels
(PCLs) starting next year. Staff described the communications challenges that could result if the
City adopts an accounting methodology that is at odds with the methodology used on the PCLs
that are sent to customers every year. However, the UAC expressed a clear preference for
employing an accounting methodology that most accurately represents the carbon emissions of
the electric portfolio, even if it results in the reporting of two different portfolio emissions
totals in some years.
When the Carbon Neutral Plan was approved by Council in March 2013, carbon neutrality was
defined as a portfolio that “will demonstrate annual net zero greenhouse gas (GHG) emissions,
measured at the Citygate, in accordance with The Climate Registry’s Electric Power Sector
protocol for GHG emissions measurement and reporting.” In effect, this means that the City’s
carbon neutral supplies (in megawatt-hours (MWh)) would be compared with the City’s total
load on an annual basis, and if they equal or exceed the load then the City’s electric supply
would be deemed to be carbon neutral. At the time, this accounting methodology was
considered to be the most accurate accounting methodology that could be achieved—or
needed. This was in part because in 2013 there was very little solar generation connected to
the California Independent System Operator (CAISO) grid, and therefore the grid’s average
emissions factors did not vary in the extreme manner that they do today—for example, as in
the emissions rate chart shown in Figure 1 below, for CAISO emissions on March 16, 2019. But,
more practically, CAISO did not begin to publish grid emissions factor data with sub-annual
granularity until 2018, and therefore a more granular accounting methodology was not feasible
at that time.
Page 4 of 19
Figure 1: CAISO Average CO2 Emissions Rates for March 16, 2019
The City also has a state-mandated RPS procurement policy (from Senate Bill 100) separate from
the Carbon Neutral Plan. The last time the Council formally considered a significant change to
these policies was in April 2012—at a time when the City’s RPS level was approximately 20%,
and it had no large-scale solar generation in its portfolio. The modification that Council made to
the City’s RPS policy in April 2012 was to clarify that the City’s then RPS target of 33% was a
floor, not a ceiling, and that staff should continue to pursue additional renewable energy
supplies until it reached the 0.5 cent/kWh rate impact limit on such purchases. In pursuing this
policy staff achieved the current RPS levels. Due to long-term permanent load reductions in
recent years, RPS-eligible energy supplies (all supply sources other than hydro) are currently
more than 60% of retail energy sales, and combined with the City’s hydroelectric generation,
total renewable and carbon free energy is approximately 111% of load in an average hydro year.
When the UAC considered RPS procurement policies in December 2011, some commissioners
discussed alternative possibilities for the funds that would be required to make these
purchases. One commissioner even brought up the idea of “bucket swapping” (i.e., selling the
City’s Bucket 1 renewables and replacing them with less expensive Bucket 3 resources) and
applying the resulting savings to other carbon mitigation measures, which is an idea that staff
and the UAC have again considered recently. However, ultimately the UAC recommended
pursuing additional renewable energy purchases as the most direct route to ensuring a
reduction in the City’s electric supply-related carbon emissions. It should be noted, however,
that this policy discussion did not consider the possibility of making renewable energy
purchases in excess of the City’s load; Section B(1) of the City’s 2018 Energy Risk Management
Policy prohibits buying energy not needed for meeting forecasted load. The current scenario,
Page 5 of 19
where long-term permanent load reductions result in the City having regular supply surpluses,
was not discussed.
DISCUSSION
At the May and June 2019 UAC meetings, staff and the UAC discussed a wide range of potential
changes to the City’s carbon accounting methodology and renewable energy procurement
strategy. At the May meeting, Commissioners expressed a strong desire to see estimates of the
financial impact of any changes to the City’s current approaches on these matters. The June
report presented estimates of the financial effects of a broad range of potential changes to the
City’s carbon accounting and RPS procurement policies—as well as their impact on the City’s
RPS level and Power Content Label. The primary objective of this report is to enable a more
thorough discussion of a narrower set of RPS compliance strategy options.
Carbon Accounting Methodology Change
In the May and June 2019 UAC reports on carbon accounting, staff presented six potential
accounting methodologies:
A. The City’s Current Method (Method A) – Procure carbon neutral resources equal to total
load on an annual basis. In addition, unbundled RECs can be purchased in order to make
generic market energy purchases effectively carbon neutral.
B. The Proposed Power Content Label (PCL) Method (Method B) – The CEC has proposed
an accounting methodology, in order to implement Assembly Bill (AB) 1110,3 that is
similar to the City’s current method (annual summation of resource supplies and load),
except unbundled REC purchases would not be allowed to neutralize the carbon content
of generic market energy purchases.
C. Hourly Accounting Method #1 (Method C) –An hourly comparison of the City’s supplies
and load, with each hourly net energy value assigned the average hourly carbon
emissions intensity of the CAISO grid to convert it to an hourly emissions total. These
hourly emissions totals would then be summed across the hours in a year. In addition,
unbundled REC purchases would be allowed to neutralize the carbon content of generic
market energy purchases.
D. Hourly Accounting Method #2 (Method D) – This approach is the same as Hourly
Accounting Method #1, except that unbundled REC purchases would not be allowed to
neutralize the carbon content of generic market energy purchases.
E. Hourly Accounting Method #1a (Method E) – Identical to Method C, except that it uses
the grid’s marginal hourly emissions factors, instead of average.
F. Hourly Accounting Method #2a (Method F) – Identical to Method D, except that it uses
the grid’s marginal hourly emissions factors, instead of average.
3 AB 1110 (2016) requires that every load-serving entity (LSE) include an annual average carbon emissions intensity
factor associated with its electricity supplies on its Power Content Label, starting with the 2019 PCL (which will be
published in 2020). For details on the CEC’s proposed accounting methodology, see the latest draft regulations and
rulemaking documents here: https://www.energy.ca.gov/power_source_disclosure/16-OIR-05/.
Page 6 of 19
After much discussion at the May and June UAC meetings, it appeared that there was consensus
among commissioners that the most accurate accounting method—the gold standard for
measuring the environmental impact of our electric supply portfolio—was Method C, the hourly
accounting methodology using average emissions intensity values, and that this is the approach
the City should use going forward. And while this methodology would hold the City’s supply
portfolio up to the strictest standard of emissions reporting, assuming that the City continues to
use unbundled RECs to mitigate any residual emissions that are calculated using this approach,
the cost impact would be relatively small. Based on previous UAC feedback, staff intends bring
an amendment to the Carbon Neutral Plan to the UAC at a subsequent meeting for
recommendation to Council for adoption.
RPS Compliance Strategy Options
Since the adoption of its first RPS target in 2002, the City has consistently maintained an RPS
procurement goal that exceeds the statewide RPS mandate level, all while remaining under the
City’s 0.5 cent/kWh rate impact limit for renewables purchases. Figure 2 illustrates the growth
in the City’s RPS supplies over the past 15 years and how these supplies compare to the
statewide RPS requirements. Note that the state’s RPS procurement legislation, Senate Bill 100,
includes a provision that exempts municipal utilities from meeting the RPS requirement level in
years when the utility has received greater than 40% of its retail sales from large hydro
generation contracts that were effective as of January 1, 2018. Thus Figure 2 includes a “hydro-
adjusted RPS requirement” line, showing the volume of renewable supplies that the City would
need to comply with SB 100 if it retains its existing hydro supplies, including renewing the
Western contract in 2025.
Page 7 of 19
Figure 2: Palo Alto's RPS Supplies and Procurement Requirements
For calendar year (CY) 2018, as Table 1 shows, the City’s actual RPS level was 63.9%—more than
twice the state’s RPS requirement for that year of 29%.
Table 1: 2018 RPS Procurement and RPS Level
Retail Sales 888,033 Small Hydro 13,266
Landfill Gas 110,139
Wind 101,801
Solar 342,650
Renewables Total 567,856 RPS Level 63.9%
In addition to exceeding statewide RPS procurement requirements, the City’s renewable supply
portfolio is also composed entirely of higher-value in-state resources—where the environmental
attribute (a Renewable Energy Certificate or “REC”) is “bundled” with the energy produced by
the resource. In contrast, the state’s RPS regulations allow utilities to satisfy a portion of their
procurement requirement (up to 10% of it) with lower value out-of-state resources.
The June 2019 UAC report presented a fairly broad range of potential RPS strategies that the
City could pursue—some of which would significantly increase the City’s electric supply costs,
Page 8 of 19
and others that would significantly decrease it. After a thorough discussion of these options at
the June UAC meeting, the four RPS procurement strategies that staff believes deserve further
consideration are:
a) Status Quo: Maintain the current set of resources in the City’s portfolio, and continue to
have a net surplus of resources on an annual basis (assuming average hydro conditions)
until some of the existing contracts expire or the City’s load increases.
b) Sell Supplies Exceeding Load: This approach is similar to the Status Quo approach, except
staff would sell off the renewable resources that exceed the City’s annual load—
provided that those resources would not be needed to maintain a carbon neutral supply
portfolio as determined using an hourly accounting methodology.4 Staff considers this a
low-risk approach that will generate cost savings while maintaining carbon neutrality
(based on hourly carbon accounting), and it intends to pursue this option under its
existing authorities, unless the UAC and Council express a preference for the status quo
approach of having renewable and carbon-free energy in excess of load.
c) Sell Supplies Exceeding RPS Requirement: Under this approach, the City would sell off all
of its currently contracted renewable resources that exceed the state’s RPS requirement
level (not just those that exceed its load).5 The City would also “bucket swap,”
essentially trading its California-based renewable energy (associated with Bucket 1 RECs)
for out of state renewable energy (associated with Bucket 3 RECs), to the extent
allowable under the state’s RPS regulations. This approach is similar to the “Minimally
Compliant” approach discussed at the June UAC meeting, except the City would not
apply its stock of excess RPS supplies that it has built up since 2010 6 toward its RPS
requirements in future years.
d) Premium Rate Option: This approach would involve allowing customers a choice of
which rate they would like to be on—with a slight price discount for those customers
choosing the “Sell Supplies Exceeding RPS Requirement” option. There are also other
premium rate options that the City could consider offering customers, in addition to or
instead of the two listed above. For example, customers could be given a rate option
where they would be assured that their electricity supply is carbon neutral every hour of
the year.
At the June UAC meeting, staff also discussed a “Carbon Neutral Every Hour” approach, which
would entail the most dramatic changes to the portfolio and be the most expensive to pursue.
This approach would require the City to sell large volumes of its solar and wind resources,
replacing them with baseload renewables, and also alter the scheduling of its hydroelectric
4 Staff’s carbon accounting analysis of calendar year 2018 indicates that the City will likely need to maintain an
overall surplus of about 40,000 Bucket 1 RECs (4.5% of the City’s total load) in order to maintain a Carbon Neutral
portfolio under an hourly carbon accounting approach, without resorting to purchasing additional Bucket 3 RECs.
5 The City would not, however, be purchasing any additional in-state renewable resources with the intent to sell
them in exchange for out-of-state renewable resources. In addition to likely being a money-losing strategy, this
approach would also violate the City’s anti-speculation policy.
6 This refers to the “Excess Procurement” and “Historic Carryover” provisions of the City’s Renewable Portfolio
Standard Procurement Plan, which was last updated and approved by Council in December 2018 as part of the
EIRP approval process: https://www.cityofpaloalto.org/civicax/filebank/documents/67789.
Page 9 of 19
resources. However, staff did not recommend pursuing this approach, and there did not appear
to be any support among the commissioners for continuing to discuss it. Therefore, staff seeks
confirmation from the UAC that this approach can be dropped from consideration. Similarly,
staff feels that the “Minimally Compliant” strategy—which would see the City rely on its large
cache of banked RECs over the next 10 years—should no longer be considered. This approach
would result in the City’s annual RPS level dropping significantly below the state’s RPS
requirement level over the next 10 years. RPS compliance would instead be achieved by
applying all of the City’s banked RECs toward RPS compliance, rather than reserving these as a
form of compliance insurance. This practice, using “excess procurement” and “historic
carryover” RECs, is permitted by state RPS regulations and the City’s RPS Procurement Plan, but
its use in this manner could create public perception issues.
Figure 3 below displays the annual supply cost savings (through 2030) of the “Sell Supplies
Exceeding Load” and “Sell Supplies Exceeding RPS Requirement” procurement strategies. Note
that the “Sell Supplies Exceeding RPS Requirement” procurement strategy line in this graph only
represents the incremental supply cost savings associated with this approach, after the City has
already sold the RPS supplies that exceed its load. Attachment A shows these cost projections
(and staff’s estimates of REC costs) in more detail.
Figure 3: Supply Cost Savings under Various RPS Compliance Strategies (2019-2030)
Note that the downward trend in supply cost savings over time, as well as the dip in supply cost
savings for 2022, is due to the timing of existing wind and landfill gas contracts expiring during
Page 10 of 19
that period (combined with a new solar contract coming online in 2023), along with the
increases in the state’s RPS requirement (which ultimately reaches 60% in 2030). As these
existing contracts expire over time and the RPS requirement rises, the City would have fewer
excess renewable supplies to sell.
This analysis indicates that simply selling the City’s RPS supplies that exceed its annual load
(while maintaining carbon neutrality under an hourly accounting standard) would reduce supply
costs by an average of $1.2 million per year, while utilizing the “Sell Supplies Exceeding RPS
Requirement” approach would reduce supply costs by an additional $1.9 million per year (on
average) over this 12-year period.
As noted in the June UAC report, the City also currently has about 1.2 million banked RECs from
previous years, which it is able to carry over for RPS compliance in any future period. If the City
were to utilize these banked RECs for compliance over the next 12 years (and therefore sell even
more of its current portfolio of resources), it would result in approximately $2 million per year
in additional cost savings. However, when this option was discussed at the June UAC meeting
there did not appear to be any interest among commissioners in pursuing it, largely because it
would result in the City having a real-time RPS level significantly below the state’s required level
during this period. Staff seeks UAC validation that this option should no longer be considered.
Figure 4 below depicts the trajectory that the City’s annual RPS level is expected to take
between now and 2030 under the first three different RPS compliance strategies listed above.
Figure 4: RPS Level under Various RPS Compliance Strategies (2019-2030)
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Emissions Implications & Bucket 3 RECs
The City’s current portfolio, because of its significant surplus of carbon neutral resources
relative to load, is expected to be responsible for net negative carbon emissions over the next
12 years (under average hydro conditions), under either the annual carbon accounting or an
hourly carbon accounting methodology.7 However, if the City sells most of its RPS supplies that
exceed its load (retaining an overall surplus of supplies in order to ensure the portfolio remains
carbon neutral under an hourly carbon accounting standard), the portfolio would be considered
to be responsible for negative emissions under an annual accounting framework (-43 lb
CO2/MWh on average over the 2019-2030 period), or exactly zero emissions under an hourly
carbon accounting methodology. Similarly, if the City sold all of its RPS supplies that exceed the
RPS requirement level, its portfolio would be considered to have an emissions intensity of 97 lb
CO2/MWh on average over the 2019-2030 period under an annual accounting framework, or
137 lb CO2/MWh on average over the 2019-2030 period under an hourly carbon accounting
methodology. Abating these emissions would require the purchase of about 129,000 RECs8 at a
cost of about $193,000.
Although the state’s Power Content Label regulations related to emissions reporting are not
expected to recognize any emissions value associated with the purchase of out-of-state (Bucket
3) RECs, staff feels Bucket 3 RECs have significant environmental value and merit when used as a
carbon mitigation tool in the City’s Carbon Neutral Plan. This is based in part on the fact that,
aside from the state’s PCL regulations, all other industry accounting protocols recognize
unbundled RECs as embodying the emissions profile of the underlying renewable generator. It is
also based on a review of a large amount of academic research into the value of unbundled
RECs—which indicates that trading RECs across state lines can reduce overall electricity costs
without having a negative impact on overall carbon emissions in the region. Attachment B has
much more detail on the relative environmental value of out-of-state and in-state RECs.
Although staff is confident that the carbon emissions associated with the “Sell Supplies
Exceeding RPS Requirement” approach should be considered zero (with the purchase of some
Bucket 3 RECs), the state’s Power Content Label regulations are expected to require the City to
report emissions associated with that portfolio. Beginning in 2020, the City is required to report
the emissions associated with its electric supply on a Power Content Label every year (per AB
1110). Figure 5 below depicts the average supply portfolio carbon emissions intensities that the
City would be required to report on its annual PCL between now and 2030 under the three
different RPS compliance strategies listed above (assuming the state’s draft PCL regulations are
adopted). Note that the carbon accounting methodology that is expected to be required for
7 Based on the analysis of the City’s portfolio that staff presented in the May 2019 UAC report, a carbon accounting
methodology using average hourly emissions factors yields an annual carbon emissions total about 16,100 mT CO2
greater than an annual accounting approach—which is the approach the City currently uses and which the state is
expected to require utilities to use on their PCLs.
8 The exact number of RECs that would need to be purchased would depend on where the RECs were generated,
as the emissions value of a REC is generally assigned the average emissions profile of the power mix in the region it
is generated. Regional emissions profile data can be found in the U.S. EPA’s eGRID database:
https://www.epa.gov/sites/production/files/2018-02/documents/egrid2016_summarytables.pdf.
Page 12 of 19
calculating the City’s emissions intensity on its PCL is an annual accounting approach, similar to
what the City currently uses.
Under the “Sell Supplies Exceeding RPS Requirement” approach the emissions intensity of the
City’s electric portfolio as reported on the PCL would be between 70 and 180 lb CO2/MWh (with
an average value of 97 lb CO2/MWh), far lower than the California-wide average emissions
intensity of 528 lb CO2/MWh.9 For context, however, some other energy providers, such as
neighboring Community Choice Aggregators (CCAs) like Silicon Valley Clean Energy and publicly
owned utilities (POUs) like Alameda Municipal Power will likely be reporting zero emissions
intensity on their PCLs. If this option were pursued, staff would need a focused public relations
and engagement effort to help the public and the City’s most active stakeholders understand
the environmentally beneficial intent of the strategy and how CPAU ’s portfolio remains carbon
neutral.
Figure 5: PCL Emissions Intensities under Various RPS Compliance Strategies (2019-2030)
And finally, Figure 6 below illustrates how customers would see the portfolio supply mix
depicted on their annual Power Content Label for the year 2020, for the three primary RPS
compliance strategy options listed above.
9 U.S. Environmental Protection Agency’s eGRID 2016 data for the “CAMX” region:
https://www.epa.gov/sites/production/files/2018-02/documents/egrid2016_summarytables.pdf
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Figure 6: Power Content Label Supply Charts for Various RPS Compliance Strategies in 2020
The information in the figures above, comparing the three major RPS compliance strategy
options discussed in this report, is summarized in Table 2 below.
Table 2: Summary Comparison of Various RPS Compliance Strategy Options
(Average Impacts over 2019-2030 Timeframe)
Status Quo
Sell Supplies > Load
(While Remaining
Carbon Neutral)
Sell Supplies
Exceeding RPS
Requirement
Supply Cost Savings
($M/year) --- $1.2M +$1.9M
($3.1M total)
Retail Rate Savings (%) --- 0.7% +1.2%
(1.9% total)
RPS Level (%)* 60% 51% 40%
Hourly Carbon Accounting
Emissions Intensity
(lb CO2/MWh)
(79) 0 137 (w/o RECs)
0 (with RECs)
PCL Emissions Intensity
(lb CO2/MWh)** (119) (43) 97
*The average annual RPS level required under state RPS regulations during this period is 45.4%. The average RPS
level for the “Sell Supplies Exceeding RPS Requirement” approach is less than this due to the SB 100 exemption for
municipal utilities with high concentrations of large hydro resources, as described above.
**The average emissions intensity for market power in California is assumed to be 944 lb CO2/MWh, while the
average emissions intensity of the state’s overall fuel mix is 528 lb CO2/MWh.
Premium Rate Options
As discussed above, another possibility that the City could consider for its RPS compliance
strategy is to provide customers with a choice of different rate options—similar to how
commercial customers in Palo Alto today have the option of signing up for the PaloAltoGreen
rate in order to purchase additional RECs. For example, customers could be given the choice of
continuing to receive the current electric supply mix (the Status Quo approach) or a lower cost
Page 14 of 19
option (the Sell Supplies Exceeding RPS Requirement approach). They could even be given the
option of receiving a supply mix that is guaranteed to provide them with a carbon neutral
power supply every hour of the year.
It should be noted, however, that the customer rate option approach would involve some
significant logistical hurdles and staff effort, particularly in terms of customer communication.
(Staff estimates that implementing this option would involve an initial cost of around $400,000,
followed by ongoing costs of about $200,000 per year. The level of staff effort required to
implement this approach is estimated at about 0.5 FTE.) The City would have to choose, for
example, which rate option to make the “default” option and which to make the “opt-in” one,
all of which would likely lead to some level of customer confusion and frustration. And from a
logistical standpoint, allowing customers to choose from different supply mix options would
create a significant amount of uncertainty in total customer demand for the different types of
resources, which would likely cause some challenges for staff as they procure resources.
Whether all of these challenges are worth it to provide customers a choice of rates that would
likely only differ by about 2% (or 0.34 cents/kWh) is an open question for the UAC to consider.
CONCLUSION
In previous meetings, the UAC expressed a preference for adopting a lower-cost RPS
procurement strategy (December 2017) and for employing a carbon accounting methodology
that uses hourly average emissions factors (May 2019). The analysis in this report indicates that
opting for those two approaches would yield significant supply cost savings, particularly if the
City also chooses to continue the use of unbundled RECs to abate the residual emissions
associated with the portfolio’s reliance on wholesale market power purchases in dry years. And
staff concurs with the UAC’s preference for adopting a more accurate/granular carbon
accounting methodology that uses hourly average emissions factors.
As for what balance to strike between maintaining the City’s existing portfolio of in-state
resources versus reducing supply costs and relying on out-of-state resources, staff feels that
increasing the City’s reliance on out-of-state Bucket 3 RECs is justifiable on an environmental
value basis. However, before recommending a more aggressive RPS sales approach in order to
reduce supply costs, staff is interested in receiving feedback from both the UAC and other
members of the community (particularly the environmental community) on that issue. At this
time, staff has begun selling some of the City’s renewable resources that exceed its load for
2019 (a position that the UAC appeared to agree with at the June meeting) while awaiting a
final decision on whether to take a more aggressive approach to selling resources.
As discussed above, one possible option is to have multiple rate options for customers who
have different cost and/or portfolio content preferences (e.g., a low-cost option, an option like
the current portfolio, or even a more expensive, carbon-neutral-every-hour option) instead of
imposing a single portfolio approach on everyone in Palo Alto. However, it should be noted that
implementing this approach would require a significant amount of time and staff resources.
Page 15 of 19
NEXT STEPS
Staff intends to return to the UAC in the coming months to request a formal recommendation
on the changes discussed in this report. However, prior to returning to the UAC with a
recommendation on these changes, staff plans to engage with members of the environmental
community to request input on staff’s position with respect to the environmental benefits of
Bucket 3 RECs. After that, staff will take the UAC recommendation to the Finance Committee
and the City Council. The City’s carbon accounting methodology is codified in the Council-
approved Carbon Neutral Plan (Staff Report 3550, Resolution 9322) and therefore requires
Council approval to modify. And although the City’s RPS procurement strategy is not currently
codified, staff will still discuss the current approach with Council and seek validation of any
significant changes, given the level of financial implications associated with this decision. If the
Council supports selling some of the City’s excess renewable supplies, staff would then begin
soliciting interest from CCAs and others in short- or long-term acquisition of these resources.
In addition, in the first half of next year staff plans to return to the UAC with a broader and
longer-term look at potential options for rebalancing the City’s electric supply portfolio. This
analysis will be presented in the context of making a decision on whether to renew the City’s
Western Base Resource hydro contract after the current one expires at the end of 2024. It will
also take into account options for utilizing the City’s share of the California-Oregon Transmission
Project, after that resource reverts to the City’s control at the end of 2023.
Staff will also continue to closely follow (and comment upon) the CEC’s AB 1110 rulemaking
process. Depending on the accounting methodology the CEC finally adopts, staff will work to
understand how the City’s methodology can be aligned with the CEC approach, and, to the
degree that it cannot, determine how to explain this difference to customers.
RESOURCE IMPACT
Staff estimates that switching to a more aggressive sales approach to RPS compliance could
result in a decrease in supply costs on the order of $3 million per year through 2030 (equivalent
to a rate reduction of 0.34 cents/kWh). (This estimate incorporates the effects of switching to
an hourly carbon accounting methodology, using average hourly emissions intensity factors,
which could result in an increase in supply costs of approximately $60,000 in an average
hydrological year.) However, if the City instead chooses to sell only its renewable energy
supplies that exceed its annual load (and which are not needed to maintain an overall carbon
neutral supply portfolio), the average supply cost savings are estimated to be about $1.2 million
per year through 2030 (equivalent to a rate reduction of 0.13 cents/kWh).
POLICY IMPLICATIONS
This report satisfies Initiatives #4 and #5 of the EIRP Work Plan. This report is also in line with
the Sustainability and Climate Action Plan goals of continuing to lower the carbon footprint of
the community.
ENVIRONMENTAL REVIEW
The Utilities Advisory Commission’s discussion of the City’s RPS procurement strategy and
carbon accounting methodology 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. RPS Portfolio Detail and Financial Opportunities Associated with Various Alternative
Strategies
B. Environmental Value of Bucket 3 and Bucket 1 RECs
PREPARED BY:
REVIEWED BY:
APPROVED BY:
JIM STACK, Senior Resource Planner
LENA PERKINS, Acting Senior Resource Planner
JONATHAN ABENDSCHEIN, Assistant Director, Resource Managemen1~
~~~-
DEAN BATCHELOR
Director of Utilities
Page 16 of 19
Page 17 of 19
ATTACHMENT A: RPS Portfolio Detail and Financial Opportunities Associated with Various Alternative Strategies
CY: 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Projected Load MWh 918,878 912,332 905,627 899,248 893,197 887,490 882,089 877,067 872,403 868,132 864,123 860,444
Projected Retail Sales MWh 886,717 880,401 873,930 867,774 861,935 856,428 851,216 846,370 841,869 837,747 833,879 830,328
Total RPS Requirement %31%33%35.75%38.50%41.25%44%47%50%52%54.67%57.33%60%
Bucket 1 Min %75%75%75%75%75%75%75%75%75%75%75%75%
Bucket 3 Max %10%10%10%10%10%10%10%10%10%10%10%10%
Total RPS Requirement MWh 274,882 290,532 312,430 334,093 355,548 376,828 400,072 423,185 437,772 457,969 478,091 498,197
Bucket 1 Min MWh 206,162 217,899 234,323 250,570 266,661 282,621 300,054 317,389 328,329 343,476 358,568 373,648
Bucket 3 Max MWh 27,488 29,053 31,243 33,409 35,555 37,683 40,007 42,319 43,777 45,797 47,809 49,820
Current Portfolio by Type
Large Hydro MWh 544,217 477,993 491,618 485,957 485,957 485,957 478,671 478,671 478,671 478,671 478,671 478,671
Small Hydro MWh 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000
Solar MWh 320,668 320,149 318,574 317,006 390,072 388,045 386,029 384,024 382,030 380,046 378,073 376,111
Wind MWh 99,958 100,178 100,087 42,708 42,672 42,672 42,672 42,672 42,672 21,336 - -
Landfill Gas MWh 103,489 103,773 103,489 103,489 103,489 103,489 103,489 95,275 94,528 94,528 56,922 38,242
Total Renewables MWh 534,114 534,100 532,150 473,203 546,232 544,206 542,190 531,971 529,230 505,910 444,996 424,353
Bucket 0 MWh 213,447 213,951 213,576 156,197 156,161 156,161 156,161 147,946 147,200 125,864 66,922 48,242
Bucket 1 MWh 320,668 320,149 318,574 317,006 390,072 388,045 386,029 384,024 382,030 380,046 378,073 376,111
RPS Level %60.2%60.7%60.9%54.5%63.4%63.5%63.7%62.9%62.9%60.4%53.4%51.1%
Large Hydro Level %61.4%54.3%56.3%56.0%56.4%56.7%56.2%56.6%56.9%57.1%57.4%57.6%
Hydro-Adjusted RPS Requirement %31.0%33.0%35.8%38.5%41.3%43.3%43.8%43.4%43.1%42.9%42.6%42.4%
Hydro-Adjusted RPS Requirement MWh 274,882 290,532 312,430 334,093 355,548 370,471 372,545 367,699 363,198 359,076 355,207 351,657
Total RECs Available MWh 534,114 534,100 532,150 473,203 546,232 544,206 542,190 531,971 529,230 505,910 444,996 424,353
Total RECs to Sell (Bucket 1)MWh 286,720 272,621 250,963 172,520 226,239 210,782 206,900 201,042 202,352 182,742 125,309 107,862
Total Bucket 3 to Buy MWh 27,488 29,053 31,243 33,409 35,555 37,047 37,254 36,770 36,320 35,908 35,521 35,166
Bucket 1 Premium $/MWh 18.00$ 18.00$ 17.50$ 17.00$ 16.50$ 16.50$ 16.00$ 16.00$ 15.50$ 15.50$ 15.00$ 15.00$
Bucket 3 Premium $/MWh 1.25$ 1.50$ 1.60$ 1.70$ 1.80$ 1.90$ 2.00$ 2.10$ 2.20$ 2.30$ 2.40$ 2.50$
Total Financial Opportunities CY: 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Sell RPS Supplies > Load (Stay CN)$M (2.2)$ (1.1)$ (1.4)$ (0.3)$ (1.6)$ (1.7)$ (1.6)$ (1.5)$ (1.5)$ (1.2)$ (0.3)$ (0.0)$
Sell RPS Supplies > RPS Req. Total $M (5.0)$ (4.6)$ (4.1)$ (2.7)$ (3.5)$ (3.3)$ (3.1)$ (3.0)$ (2.9)$ (2.6)$ (1.6)$ (1.4)$
Bucket Swapping $M (0.5)$ (0.5)$ (0.5)$ (0.5)$ (0.5)$ (0.5)$ (0.5)$ (0.5)$ (0.5)$ (0.5)$ (0.4)$ (0.4)$
Residual Emissions Cleanup $M 0.2$ 0.3$ 0.2$ 0.2$ 0.2$ 0.1$ 0.1$ 0.1$ 0.1$ 0.2$ 0.2$ 0.2$
Sell RPS Supplies > RPS Req.$M (4.7)$ (4.4)$ (3.8)$ (2.4)$ (3.1)$ (2.9)$ (2.7)$ (2.6)$ (2.6)$ (2.3)$ (1.3)$ (1.1)$
Page 18 of 19
ATTACHMENT B: Environmental Value of Bucket 3 and Bucket 1 RECs
Both of the changes discussed in this report—to the City’s carbon accounting methodology and its
RPS procurement strategy—have the potential to increase the City’s reliance on unbundled, out-of-
state RECs (also known as “Bucket 3 RECs”). Particularly if the City chooses the “Sell Supplies
Exceeding RPS Requirement” approach to RPS compliance, as this would involve selling a large
volume of its in-state (Bucket 1) RECs and replacing them with much less expensive Bucket 3 RECs.
Given this potential shift in approach, it is worth considering the relative environmental value of
Bucket 1 and Bucket 3 RECs. After all, given that Bucket 1 RECs currently cost about 12 times as much
as Bucket 3 RECs, there is sometimes a perception that Bucket 1 RECs have much greater
environmental value as well.
First off, it should be noted that according to all industry accounting protocols (other than the CEC’s
PCL accounting standard), “a REC is a multi-attribute commodity that embodies all of the non-energy
benefits associated with the generation of renewable energy. A REC can be separated from the
underlying electricity and applied to other electricity use to substantiate renewable electricity use
and ownership.”10 So although it would be very difficult to determine what generating resource
reduced its output as a result of that renewable energy generator being on the grid, all RECs by
definition embody the avoided emissions associated with renewable energy (i.e., the carbon
attribute).
The intent with all of the environmental products that staff has considered (including RECs, carbon
offsets, carbon allowances, etc.) is to have a direct impact on mitigating carbon emissions—to
provide some “additionality,” in the parlance of environmental product markets. To determine
whether Bucket 3 RECs pass the additionality test, one would have to know whether the expectation
of this additional (small) source of revenue directly contributed to the deployment of an individual
renewable energy project. In most cases, of course, this would be difficult, if not impossible, to know.
But regardless of one’s view on whether Bucket 3 REC purchases result in additional renewable
energy being built on the grid, the City has already contributed to the construction of additional
California-based renewable energy through its past efforts. The ““Sell Supplies Exceeding RPS
Requirement”” approach is only intended to trade one form of renewable energy for another, freeing
up money for additional decarbonization efforts.
Fortunately, there is a fairly large body of academic research on the environmental value of
unbundled RECs. Based on staff’s review of this literature, it appears that allowing the trading of a
significant volume of unbundled RECs (up to 25% of all RECs generated) throughout the Western US
electrical grid (known as the Western Electricity Coordinating Council, or WECC) can result in a
lowering of the overall cost of electricity without having any net effect on carbon emissions within
the WECC.11 (Note that Palo Alto is only contemplating using Bucket 3 RECs for up to 10% of its
10 “Renewable Energy Certificates, Carbon Offsets, and Carbon Claims: Best Practices and Frequently Asked Questions,”
Center for Resource Solutions, April 2012. Accessed May 12, 2019. https://resource-solutions.org/wp-
content/uploads/2015/08/RECsOffsetsQA.pdf.
11 Perez, A., Sauma, E., Munoz, F., and Hobbs, B. (2016). “The Economic Effects of Interregional Trading of Renewable
Energy Certificates in the U.S. WECC,” The Energy Journal, Volume 37(4). http://dx.doi.org/10.5547/01956574.37.4.aper.
Page 19 of 19
overall RPS requirement—or about 5% of its total load—as that is the limit set by the state’s RPS
legislation.)
Furthermore, it should be noted that buying unbundled RECs that are produced by generators
operating in the dirtiest parts of the grid—for example, from a wind farm located in a state with a
heavy reliance on coal—could actually yield even greater carbon savings than buying in-state RECs,
given how relatively low-carbon California’s electricity mix is. Purchasing out-of-state RECs from
more carbon-intensive regions incentivizes additional development of renewable energy generation
in those areas, and thus makes coal-fired power plants less and less economic to maintain and
operate.12 (By depressing wholesale market prices, wind and solar generators eat into coal plants’
revenues and also force them to run less frequently.)
Based on the two points above, staff believes that the City could conceivably maximize its use of
Bucket 3 RECs, save a significant amount of money, and have about the same impact on the grid’s
carbon emissions as the current portfolio does, at least in the near- to mid-term. If some of the
money saved were to be devoted to other deep decarbonization efforts (for example, electrification
of transportation and building energy use) it could result in a greater carbon impact per dollar spent.
At a minimum, the academic research supports the current City position that Bucket 3 RECs are a
valid tool to use in dry hydro years to ensure that the electricity portfolio is carbon neutral.
It is also worth noting that the primary justification for the high requirement for Bucket 1 RECs in
California’s RPS legislation is to improve in-state air quality and create in-state jobs. If Palo Alto were
to use some of the money saved from maximizing its use of Bucket 3 RECs towards local electric
ratepayer benefits, perhaps including building decarbonization and increasing the use of electric
vehicles, these efforts would similarly improve local air quality and create local jobs.
Given the amount of money involved in such a change in the City’s RPS policies, and the impact it
would have on the portfolio, staff is still investigating the merits of these claims about the value of
Bucket 3 RECs. In addition, based on the concerns expressed by some commissioners at the June UAC
meeting about the public perception of such a policy shift, staff also plans to meet with various
environmental community stakeholders to get their input on such a change. Staff will return to the
UAC to share this feedback before making a recommendation on which RPS procurement strategy to
follow.
12 Bistline, J., Santen, N., and Young, D. (2019). “The Economic Geography of Variable Renewable Energy and Impacts of
Trade Formulations for Renewable Mandates,” Renewable and Sustainable Energy Reviews, Volume 106, Pages 79-96.
https://doi.org/10.1016/j.rser.2019.02.026.
2
MEMORANDUM
TO:
FROM:
UTILITIES ADVISORY COMMISSION
UTILITIES DEPARTMENT
DATE: AUGUST 7, 2019
SUBJECT: Discussion of Palo Alto's Water Supply Reliability
The attached presentation addresses water supply reliability for the City of Palo Alto. The City of Palo
Alto purchases 100% of its water supply from the San Francisco Public Utilities Commission (SFPUC).
Under SFPUC's water supply reliability level of service goal, in droughts, Palo Alto will be required to
reduce water use by no more than 23% under most circumstances. Climate change and other changes
to the California water system will likely result in more frequent water supply shortages. The question
addressed in the attached presentation is whether this level of water supply reliability during a drought
is adequate for Palo Alto, and if not, how much the community would be willing to pay for additional
water supply reliability.
Specifically, the questions for discussion are:
• Is a 23% water use reduction during drought enough supply reliability for the Palo Alto
community?
• Can the Palo Alto community sustain a 23% reduction? (Think about the 5th or 10th consecutive
year of drought.)
• If Palo Alto could participate in a project that would mitigate the impact of drought on people
and businesses whereby water use reductions would be kept to less than 20% in most drought
conditions, is that something the community would want? How much would the community be
willing to pay for that project?
• $225,000/year (0.5% rate increase)?
• $450,000/year (1% rate increase)?
• $900,000/year (2% rate increase)?
Attachment:
Attachment A: Palo Alto Water Supply Reliability Presentation
REVIEWED BY: JONATHAN ABENDSCHEIN, Asst. Director, Utility Resource Mgmt.
APPROVED BY: ~~tL-
DEAN BA
Utilities General Manager
PALO ALTO WATER SUPPLY
RELIABILITY
Utilities Advisory Commission
August 7, 2019
2
Outline
•Water supply overview
•Experience in 2014-2017 drought
•SFPUC level of service goal
•Drought allocations
•Drought risk
•Discussion questions
•Potential projects
•BAWSCA Projects (drought
insurance)
•Local Projects (recycled
water/groundwater)
3
Water Supply Overview
•100% potable water supplies from San
Francisco Public Utilities Commission (SFPUC)
Regional Water System
o 85% Tuolumne River, 15% local reservoirs
•Recycled water used at some City facilities
including Greer Park and Municipal Golf
Course
•8 emergency water wells (can be used during
droughts; system currently configured for
short-term use)
•7 storage reservoirs for fire protection (not for
drought mitigation)
•SFPUC did not declare water supply
shortage due to state emergency actions
•Palo Alto’s mandatory “conservation
standard” was 24% (relative to 2013 usage)
•Palo Alto’s cumulative savings was 31.4%
(June 2015 –May 2016)
•Actions taken:
–Stepped up outreach and education
–Stepped up enforcement including app for citizen
reporting
–Updated muni code to clarify violation protocol
and fines of $100 per violation for certain
outdoor water use restrictions
–Increased conservation and efficiency efforts
including communication about lawn
replacement
–Various temporary measures, some of which
became permanent (next slide)
4
Experience in Last Drought
•Restrictions in Muni Code before drought
–No flooding or run-off
–Fix leaks promptly
–Shut –off valve required for washing cars, boats,
hard surfaces
–Use recycled water for construction when available
•Permanent Restrictions added after drought
–No automatic irrigating between 10 am and 6 pm
–No potable water in fountains
–No potable water for street sweepers
–Commercial carwashes recirculate
•Additional Restrictions during drought
–Irrigation only 2 days per week
–Water at restaurants upon request
–Hotels offer not to launder daily
5
Water Use Restrictions
•Water consumption for BAWSCA Customers
in 2019 so far is 7.9% lower than in 2013
•Palo Alto’s water consumption in the first six
months of FY 2019 (July –December) is
10.9%lower than in CY 2013; some amount
of permanent conservation resulting from
the drought
•Impact on rates –fixed costs still need to be
recovered so drought surcharges occur
when usage is depressed
–bills may not decrease with reduced water usage
–No drought surcharges are currently in effect
6
Experience in Last Drought and Long-term Impact
7
SFPUC Level of Service Goal
SFPUC Regional Water System
•SFPUC Level of Service Goal: No more
than 20 percent system-wide
rationing during drought
•SFPUC plans for an 8.5-year dry
period based upon actual conditions
from the 1987-92 and 1976-77
droughts combined
8
Water Shortage Allocation Plans
Water Shortage Allocation Plan (Tier 1 Plan)
•Allocates water between SFPUC (retail) and
Wholesale Customers
•Contractual agreement between Wholesale
Customers and SFPUC
•Applicable only when SFPUC determines there
is a system-wide water shortage due to drought
up to 20%
Tier 2 Drought Implementation Plan
•Allocates water among Wholesale Customers
for system-wide shortages up to 20%
•Agreement among Wholesale Customers
•Formula considers Individual Supply Guarantee,
Base vs. Seasonal use
Tier 1 allocation
•20% system-wide shortage
•26.98% cutback for Wholesale Customers
(assuming cutback from FY 2012-2013
actual demands)
Tier 2 allocation
•23.19% cutback for Palo Alto
Tier 2 formula is in the process of being revised but
is still expected to impact suburban agencies with
irrigation loads more
9
SFPUC 20% Shortage Declaration
10
Palo Alto Annual Water Purchases Since 1988
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
19
8
8
19
8
9
19
9
0
19
9
1
19
9
2
19
9
3
19
9
4
19
9
5
19
9
6
19
9
7
19
9
8
19
9
9
20
0
0
20
0
1
20
0
2
20
0
3
20
0
4
20
0
5
20
0
6
20
0
7
20
0
8
20
0
9
20
1
0
20
1
1
20
1
2
20
1
3
20
1
4
20
1
5
20
1
6
20
1
7
20
1
8
20
1
9
20
2
0
20
2
5
20
3
0
20
3
5
20
4
0
An
n
a
u
l
P
u
r
c
h
a
s
e
s
f
r
o
m
S
F
P
U
C
(
A
F
/
Y
r
)
Fiscal Year
Actual Forecast
23% cutback from 2018 level
Historical droughts were worse than we’ve seen recently:
•Recorded hydrology of about 100 years does not fully
represent range of climate system’s natural variability
•More serious droughts in the past based on tree-ring
chronologies
•23 of the past 100 years have been drought years
Future water shortages may be severe and more frequent:
•Climate change is expected to reduce snowpack and cause
longer, deeper, and more frequent California droughts
(California’s Fourth Climate Change Assessment, 2018)
•Changes to the State water system may also reduce water
availability in dry years
11
“Water management is risk
management and our risks are
changing” Wade Crowfoot, CA
Secretary for Natural Resources.
•Is a 23% water use reduction during drought
enough supply reliability for the Palo Alto
community?
•Can the Palo Alto community sustain a 23%
reduction? (Think about the 5th or 10th
consecutive year of drought.)
•If Palo Alto could participate in a project that
would mitigate the impact of drought on people
and businesses whereby water use reductions
would be kept to less than 20% in most drought
conditions, is that something the community
would want? How much would the community
be willing to pay for that project?
–$225,000/year (0.5% rate increase)?
–$450,000/year (1% rate increase)?
–$900,000/year (2% rate increase)?
12
Discussion Questions
13
Potential Projects -BAWSCA
•BAWSCA identified need for dry-year
supplies
•Water Transfers
•Water Storage
•Water Conservation
–Water Conservation programs being actively pursued; Advanced Metering Infrastructure
will bring opportunities for conservation
•Water Reuse
–Recycled Water Options –Northwest County Recycled Water Strategic Plan
14
Local Projects to Reduce Imported Water/Increase Resiliency
•Groundwater
–Palo Alto could pump
about 24% of potable
demand (preliminary
estimates)
–Groundwater may be
restricted in multi-year
droughts