HomeMy WebLinkAbout2020-09-01 Utilities Advisory Commission Agenda PacketMATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE COMMISSION AFTER DISTRIBUTION OF THE AGENDA PACKET ARE
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Pursuant to the provisions of California Governor’s Executive Order N-29-20, issued on March 17, 2020, to prevent
the spread of COVID-19, this meeting will be held by virtual teleconference only, with no physical location. The
meeting will be broadcast on Cable TV Channel 26, live on Midpen Media Center at https://midpenmedia.org.
Members of the public who wish to participate by computer or phone can find the instructions at the end of this
agenda.
I. ROLL CALL
II. AGENDA REVIEW AND REVISIONS
III. 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.
IV. APPROVAL OF THE MINUTES
Approval of the Minutes of the Utilities Advisory Commission Meeting held on July 7, 2021
V. UNFINISHED BUSINESS - None
VI. UTILITIES DIRECTOR REPORT
VII. NEW BUSINESS
1. Discussion of Permit Processes for Various Energy Technologies Discussion
2. Discussion of Legal Framework for Construction Work Hours and Street Closures Discussion
3. Staff Recommendation That the Utilities Advisory Commission Recommend the City Action
Council Approve Design Guidelines for the 2022 Electric Cost of Service and Rates Analysis
VIII. COMMISSIONER COMMENTS and REPORTS from MEETINGS/EVENTS
IX. FUTURE TOPICS FOR UPCOMING MEETINGS: October 06, 2021
UTILITIES ADVISORY COMMISSION – SPECIAL MEETING
WEDNESDAY, September 1, 2020 – 5:00 P.M.
ZOOM Webinar
Chairman: Lisa Forssell Vice Chair: Lauren Segal Commissioners: John Bowie, A.C. Johnston, Phil Metz, Greg Scharff, and Loren Smith Council Liaison: Eric Filseth
MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE COMMISSION AFTER DISTRIBUTION OF THE AGENDA PACKET ARE
AVAILABLE FOR PUBLIC INSPECTION IN THE UTILITIES DEPARTMENT AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS
HOURS.
AMERICANS WITH DISABILITY ACT (ADA)
Persons with disabilities who require auxiliary aids or services in using City facilities, services or programs or who would like information on the City’s
compliance with the Americans with Disabilities Act (ADA) of 1990, may contact (650) 329-2550 (Voice) 24 hours in advance.
SUPPLEMENTAL INFORMATION - The materials below are provided for informational purposes, not for action or
discussion during UAC Meetings (Govt. Code Section 54954.2(a)(3)).
Informational Reports 12-Month Rolling Calendar Public Letter(s) to the UAC
• Utilities Q2 2021 Quarterly Programs Update
• Utilities Advisory Commission Approved 2021 Work Plan
MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE COMMISSION AFTER DISTRIBUTION OF THE AGENDA PACKET ARE
AVAILABLE FOR PUBLIC INSPECTION IN THE UTILITIES DEPARTMENT AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS
HOURS.
AMERICANS WITH DISABILITY ACT (ADA)
Persons with disabilities who require auxiliary aids or services in using City facilities, services or programs or who would like information on the City’s
compliance with the Americans with Disabilities Act (ADA) of 1990, may contact (650) 329-2550 (Voice) 24 hours in advance.
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Meeting ID: 966-9129-7246
City of Palo Alto (ID # 13530)
Utilities Advisory Commission Staff Report
Report Type: New Business Meeting Date: 9/1/2021
City of Palo Alto Page 1
Summary Title: Permit Processes
Title: Discussion of Permit Processes for Various Energy Technologies
From: City Manager
Lead Department: Utilities
Recommendation
This item is for Utilities Advisory Commission (UAC) information and discussion; no action is
requested.
Executive Summary
Palo Alto Utilities (PAU) and the Planning and Development Services department (PDS)
provided an update to the UAC on April 7, 2021 on the City’s permitting and inspection process
related to electrification permits. The UAC requested this update in part due to complaints it
was receiving about the program and concerns about the City’s efforts to advance
electrification interests and support broader sustainability goals.
This report provides an update on action that has been taken since that April meeting and
additional measures that are in progress or anticipated to be addressed in the near future.
Following this meeting, staff will return to the UAC in four months with another update to
document progress being made to streamline electrification permitting in Palo Alto.
Background/Discussion
The prior UAC staff report1 provides information documenting many of the challenges solar
installers and homeowners have been experiencing with the City’s electrification 2 permit and
inspection processes. The earlier report also includes findings from an independent consultant
analysis of specific issues that resulted in excessive delays and costs that have discouraged
some contractors and homeowners from pursuing electrification project s in Palo Alto.
The City has long held a commitment toward advancing local sustainability initiatives. Delays in
electrification permit application processing, unnecessary cost burdens and unpredictable
1 UAC Staff Report, dated April 7, 2021: https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-
reports/agendas-minutes/utilities-advisory-commission/archived-agenda-and-minutes/agendas-and-minutes-
2021/04-07-2021-special/id-12032.pdf
2 Electrification permits is used generally in this report to include solar panel installations, energy storage systems,
heat pump water heater and furnaces, and electric vehicle charging stations.
CITY OF
PALO
ALTO
Staff: Jonathan Lait
City of Palo Alto Page 2
inspection procedures are antithetical to that effor t and have been the focus of PDS, PAU and
the Fire Department over the past several months to better align the City’s sustainability
interests and electrification permitting and inspection procedures.
The following actions have been implemented to improve electrification permit application
processing:
Plan Review Timelines for Electrification Permits Shortened
Electrification permits were taking too long to process, a condition that was exacerbated when
PDS made the shift to its online permitting system during the pandemic. A number of changes
were made to the online permit system that reduced processing delays identified in the
consultant’s analysis and shared by contractors as problematic. Staff has also reviewed and
reduced the application review processing timelines for each electrification permit. These two
improvements have resulted in shorter application processing times as summarized below:
Pre-Application3
(Calendar Days to
Accept
Application
Between May
2020 and August
2020)
Pre-Application
(Calendar Days to
Accept
Application
Between May
2021 and August
2021)
Building Permit
(Calendar Days
to Receive 1st
Round
Comments
May 2020 –
April 2021)
Building Permit
(Calendar Days
to Receive 1st
Round
Comments
May 2021 –
Present)
All Electrification
Permits
14
Pre-Applications
Converted to
Building Permit
w/in 7 Days: 51%
12
Pre-Applications
Converted to
Building Permit
w/in 7 Days: 60%
23 11
(9.5 Days Since
June)
Solar PV 11
Pre-Applications
Converted to
Building Permit
w/in 7 Days: 61%
9
Pre-Applications
Converted to
Building Permit
w/in 7 Days: 70%
19 11
(8.6 Days Since
June)
PDS has prioritized its building permit review of electrification permits to align with the City’s
sustainability goals. This effort requires coordination from different revie wing departments
including PDS, Fire, and PAU. Most electrifications building permits are targeted for reviewed
within 1 to 5 calendar days (PV/ESS 10kW or less; service panel upgrades to 200 amps; and
EVSC 50 amps or less). Some larger systems may take up to 14 days to review (PV/ESS >10kW,
3 Pre-Application is a screening process staff uses to determine if an applicant has submitted all the necessary
documents and paid appropriate fees before plan examiners can review the plans (building permit). This approach
enables an applicant to apply anytime, online, without the need for an appointment. In person and virtual
appointments are available to anyone seeking to apply, which may shorten or eliminate the pre -application
processing time. Appointments can be scheduled at the Development Center or online:
https://www.cityofpaloalto.org/Departments/Planning-Development-Services/Development-Services
City of Palo Alto Page 3
including indoor ESS; service panel upgrades >200 amps; and EVCS > 50 amps). More complex
combination permits and commercial installations may take up to 30 days to receive a first
round of corrections.
Automated Daily Electrification Report & Oversight
Reduced application processing times help prioritize plan reviewer assignments, but limited
resources and competing projects may result in some missed targets. Previously these projects
were processed in the order received. A new daily report transmitted to the development
center manager, project coordinators and staff from other departments provides a tool to keep
track of pending or late applications. The development center manager ensures any late
projects are quickly reviewed to limit further delays. The processing times shown in the table
above, combined with the commitment to prioritize this work, shows the progress that has
been made to reduce application processing times since these improvements were
implemented.
Weekly Inter-Departmental Meetings
Managers and technical staff from PDS, Fire, and PAU meet weekly for one hour to review the
daily electrification report and collaborate on initiatives that minimize the regulatory burden
and costs associated with electrification permits, establish customer service expectations,
improve internal communication and promote consistency in the City’s review of these permits.
The meeting is facilitated by the PDS director.
Enhanced Problem Solving
The applicant for any electrification permit that requires a third review (beyond the original
application submittal plus one resubmittal) will be contacted by the City to set up a meeting
with appropriate staff and the applicant team to ensure there is understanding on what is
required to obtain a building permit and address any confusion on the plans or City
requirements. Often in these meetings, outstanding issues can be resolved mitigating the need
for another resubmittal, which serves to further expedite permit issuance.
When the department receives a complaint about an electrification permit, all the appropriate
staff from various departments are brought in to quickly address the issue. Any lessons learned
from the complaint are presented at the weekly inter-departmental coordination meeting for
discussion to minimize the chance for reoccurrence and training.
Moreover, as previously reported, the PDS director has set up an email address to receive any
complaints regarding the application entitlement, permitting or inspectio n operations.
Messages are typically returned the same day or within 24 hours. The email address is:
pdsdirector@cityofpaloalto.org.
Inspector Cross Training
To improve consistency among the City’s inspection services and to support cross training
efforts, inspectors – for a limited time – are shadowing each other on many electrification
City of Palo Alto Page 4
installations. The inspectors meet regularly with the inspection manager to discuss projects and
share their experiences and interactions from a jobsite with the intent to impart any learning
experiences that may improve the program’s customer service and problem-solving focus.
Creating consistency in this program to enhance the likelihood that corrections from two
different inspectors would be the same has been a goal of this effort.
Building inspectors are also coordinating with inspectors from Fire and PAU to eliminate the
need for the contractor to schedule inspections from three different departments.
Review of City Requirements Compared to Other Jurisdictions
PAU has conducted a survey of other utility providers in California to better understand how its
local regulations requiring a lockable AC blade disconnect differed from other providers. One of
the complaints frequently received from contractors is that Palo Alto has unique requirements
that differ from nearby jurisdictions. For this specific issue, many nearby jurisdictions are served
by PG&E and this utility provider does not require a lockable blade AC di sconnect for many
comparable systems installed in Palo Alto. This provision, however, is not unique to Palo Alto
and other utility providers throughout California have a similar requirement.
City inspectors and plan reviewers have also reviewed requirements related to fire and building
requirements. This work ties into another effort noted below to align the City’s checklists and
inspection procedures to match state law where applicable, but, as also discussed below, the
City will continue to require at least one lockable blade AC disconnect.
The following actions are currently underway and expected to be completed within the next
four months to improve electrification permit application processing:
Revisions to Application, Plan Review and Inspection Checklists (all electrification permits)
The City is in the process of updating and consolidating PDS, Fire and PAU requirements into
application-specific checklists for submittal, plan review compliance and inspection services.
These checklists will address all electrification permits, including combination permits, for
residential and commercial installations.
The purpose of the checklist is to clearly identify what information is needed to accept an
application for review, what aspects of the project t he plan reviewers will examine on the plans
for compliance to local and state law in order to issue a permit, and lastly, the critical
compliance requirements that will be inspected in the field. With proper implementation, this
effort should improve the City’s overall consistency for electrification permits.
An initial draft of the residential requirements for PV, ESS and EVCS has prepared and will be
reviewed by some contractors who are expected to provide initial feedback to staff. The
checklists will be revised as necessary and published online when complete. This process will be
repeated for other electrification permits until all have been updated.
City of Palo Alto Page 5
Conversations with Trade Professionals
Staff has engaged some contractors regarding specific projects and is using this information to
implement changes to the City’s application review procedures. Initial conversations have also
begun with Telsa representatives to better understand their proprietary gateway backup and
battery storage system to facilitate project review. Based on these conversations, City staff is
preparing line drawings to illustrate the preferred placement of these integrated photovoltaic
and battery storage systems relative to the City’s electrical feed, meter and local requirement
for a lockable AC blade disconnect. It is anticipated these diagrams would be referenced by
contractors to improve application processing time and reduce the need for additional
disconnects.
Automated Solar Permitting (Solar APP +)
City staff has been talking with representatives of the National Renewable Energy Laboratory to
explore the possibility of using their Solar APP + to facilitate permit issuance of solar rooftop
and eventually battery storage systems. Over the next several months, staff will continu e to
explore its feasibility and integration with the City’s permitting operation; staff will report to
the UAC next quarter on a possible timeline for implementation.
Customer Feedback
Staff is preparing a brief survey to receive feedback on our customer’s experience working at
various touchpoints in the permitting and inspection process. Aggregated survey results are
expected to be posted online, and a respondent will have the option to request a closer
examination of their particular (and personally id entifiable) issue or concern. Survey’s will be
web-based and transmitted via email or text and available from the City’s website.
Before returning to the UAC in Spring 2022, staff anticipates implementing the following
additional refinements:
Website Improvements
Staff plans on leveraging features of the City’s new website to make it easier for homeowners
and contractors to access information to support electrification on residential and commercial
properties. Information from various departments will b e consolidated in one place, regularly
updated and provide access to forms, checklists, sample line drawings, surveys, information on
local or state rebates and what to expect when deciding to install electrification infrastructure
at one’s home, and other relevant material (see below).
Contractor Database
One of the criticism’s staff has heard repeatedly is the challenge of homeowners trying to find
contractors that will work in Palo Alto. Concerns about the length of time to process
applications, the rigorous review process and inconsistent inspector experience – combined
with a lower return to the solar contractor due to the City’s lower utility rates, makes it less
desirable for some installers to work in the City. The efforts taken to date and detailed in this
report are intended to mitigate most of those issues (utility rates are not being considered for
City of Palo Alto Page 6
this discrete issue of permitting and inspection). Staff intends to reach out to contractors that
are known to do work in other jurisdictions to re-introduce them to our updated policies and
procedures – and commitment to facilitate electrification projects in Palo Alto.
While the City is not able to provide a list of recommended electrification contractors, it
anticipates providing a list of those contractors that have pulled permits from the City over a
defined period of time, how many permits were pulled, identify the type of installation
constructed, and contact information. Information may also be provided on how long it takes to
obtain a permit from each contractor and number of inspections that were required to obtain
final approval.
During this timeframe, staff will also provide an update on its ability to use integrated third
party apps and possible zoning code amendments to facilitate electri fication permit installation
and application processing.
Lockable AC Disconnect
A notable compliant the City has received is the requirement for a lockable AC blade disconnect
for PV and ESS. This provision is set forth in the local Palo Alto Utility regu lations, Rule 27.4
Depending on the design of a PV or ESS equipment, more than one lockable disconnect may be
required. Other Santa Clara County jurisdictions supported by PG&E do not have this
requirement. The PG&E threshold for a lockable AC blade discon nect is a higher than Palo Alto
and often not applied to residential installations.
City staff from PDS, Fire and PAU have reviewed their respective AC disconnect requirements.
For PDS and Fire, the standard meter disconnect is sufficient to satisfy stat e requirements. PAU
has reviewed Rule 27 and finds that the safety and other benefits affordable by a lockable blade
disconnect warrant its retention. Accordingly, based on local standards, PV and ESS facilities will
be required to install at least one AC blade disconnect to satisfy this requirement. While a
system, if properly designed, could be limited to one blade disconnect, some applicants may
prefer to install two smaller disconnects due to space constraints or other design limitations.
Plan reviewers from each department are now looking closely at this issue. If a design includes
more than one blade disconnect, staff is coordinating on that plan review to understand if there
is another design option that would reduce the number of disconnects. As pr eviously noted,
staff is also working on line drawings to illustrate conformance with these requirements.
Timeline
This report details a number of implementation measures that have already been initiated,
others that are pending and anticipated. PDS plans on returning to the UAC at least twice more
following this meeting to provide updates on its efforts to improve the electrification
permitting and inspection process.
4 PAU Rules and Regulations, Rule 27: https://www.cityofpaloalto.org/files/assets/public/utilities/rules-and-
regulations/rule-27-generating-facility-interconnections-effective-2016-12-12.pdf
City of Palo Alto Page 7
Resource Impact
The recommendation in this report does not have any significant fisca l or budgetary impacts.
Policy Implications
This report details specific action taking place to align the City’s permitting and inspection
programs with the City Council’s expressed goals to advance carbon reduction strategies. PDS
and other departments involved in the review process have dedicated staff resources aimed at
reducing the amount of time it takes to process applications and improve consistency in its
requirements and clarify expectations for inspecting installations in the field.
Stakeholder Engagement
Staff has scheduled regularly meetings with UAC to provide a status update on efforts that
improve the City’s electrification permitting and inspection processes. From time to time, either
on specific projects, or as partners to help review dra ft City documents, staff is engaging
contractors and other individuals interested in our electrification efforts. Internal coordination
among City departments, supported by the department heads from PDS, Fire and PAU are a key
component of this engagement strategy.
Environmental Review
The recommendation in this report is not a project in accordance with the California
Environmental Quality Act.
City of Palo Alto (ID # 13487)
Utilities Advisory Commission Staff Report
Report Type: New Business Meeting Date: 9/1/2021
City of Palo Alto Page 1
Summary Title: Legal Opine on Construction Work Hours and Street Closures
Title: Discussion of Legal Framework for Construction Work Hours and Street
Closures
From: City Manager
Lead Department: Utilities
Discussion
This is a brief discussion from the Utilities legal team to review and explain the
construction hours and street closure process set by the City of Palo Alto Municipal
Code.
CITY OF
PALO
ALTO
Staff: Aylin Bilir
City of Palo Alto (ID # 13426)
Utilities Advisory Commission Staff Report
Report Type: New Business Meeting Date: 9/1/2021
City of Palo Alto Page 1
Summary Title: Electric Rates Policy Discussion
Title: Staff Recommendation that the Utilities Advisory Commission
Recommend the City Council Approve Design Guidelines for the 2022 Electric
Cost of Service and Rates Analysis
From: City Manager
Lead Department: Utilities
Recommendation
Staff requests that the Utilities Advisory Commission (UAC) recommend the Council approve
the Design Guidelines for the 2022 Electric Utility Cost of Service and Rates Analysis
(Attachment A).
Executive Summary
Electric rates were last adjusted when an 8% rate increase went into effect on July 1, 2019.
Staff intends to complete an electric rate cost of service analysis (COSA) in advance of future
rates and necessary adjustments. The primary goal of any COSA is to review the allocation of
costs to customer classes, and the electric rate design, to ensure customers are charged
according to the cost to serve them. This COSA will include a review of the rate design issues
created by increasing building electrification, electric vehicle (EV) penetration, EV charging
needs and microgrids, and time of use (TOU) rate designs in preparation for the deployment of
automated metering infrastructure (AMI). This report discusses the existing rate design,
provides an overview of the issues to be addressed in the COSA analysis and sets forth work
plans for addressing various types of rate design issues .
Background
COSAs allocate costs among customer classes and are the foundation for equitable and
constitutionally compliant rates. COSAs gained a more important role for California publicly-
owned gas and electric utilities after the passage of Proposition 26 (2010). Proposition 26
added provisions to the State Constitution essentially defining every local government fee or
charge as a tax, requiring voter approval, unless one of seven exceptions apply. Municipal
electric rates that do not exceed the reasonable costs to the local government of providing
electric service are one exception from the constitutional definition of a tax, and its voter
approval requirements.
CITY OF
PALO
ALTO
Staff: Eric Keniston
City of Palo Alto Page 2
The current rates, which were last changed on July 1, 2019, are based on a COSA performed in
2015/2016 (“City of Palo Alto Electric Cost of Service and Rate Study” drafted by EES Consulting,
Inc.1). The fundamental structure of the City’s current rates has remained the same since the
early 1980s, though the commodity, distribution, and public benefits portions of the rates were
“unbundled,” or separated out, as a result of California’s deregulation of the electric market in
the late 1990s. Like many utilities, Palo Alto had declining block rates (rates that decreased with
increasing consumption) for all customers until the late 1970s, at which point the City switched
to the current system. For residents, the current system includes inclining block rates (rates
that increase with consumption, more commonly called tiered rates), and for the more diverse
non-residential customer classes, flat seasonal rates with demand charges for larger customers.
As Palo Alto transitioned to its current rate design, fixed charges for both types of customers
were switched to minimum charges and eventually eliminated. The main driver for these
changes was to encourage conservation, within the context of a cost-based rate structure.
Palo Alto now has flat to declining electric loads, as larger, industrial usage is replaced with
smaller commercial and residential uses, and the influx of more electric appliances is offset by
improvements in efficiency. The direction many utilities are taking in Califor nia is towards
implementing TOU rates, to better reflect the cost of power being faced by utilities as well as
stresses on the California power grid. Palo Alto will seek to implement these kinds of rates as
well in the future, as the City’s Advanced Metering Infrastructure (AMI) program progresses
over the next five years, and meters capable of providing time-based (interval) data are
deployed. Many utilities are also implementing fixed charges, instead of minimum charges, to
better fund operations, maintenance and capital costs which do not decrease as less power is
used. These trends and pricing methods will be evaluated as part of this COSA.
Discussion
The following sections provide a review of the current rate structure and a discussion of rate
design issues affecting the utility in the short term and in the long term. They also include a
work plan and a proposed set of COSA and rate design policy objectives to guide the COSA.
Summary of Existing Rate Structure
Table 1, below, summarizes the number of customers on each electric rate schedule and the
percentage of the City’s sales volume they represent. Currently the electric rate for separately
metered residential customers (Rate Schedule E-1) has two tiers, with rates that increase when
customer use exceeds roughly 330 kilowatt-hours (kWh) per month. Non-residential customers’
rates are flat (not tiered) and are higher during the summer. Larger non -residential customers
are billed based on their peak demand (the highest fifteen minutes of consumption in the
month, measured in kilowatts, or kW) in addition to their monthly energy use. These demand
charges are higher in the summer than in the winter, just like the energy charges.
1 Staff Report 6857 http://www.cityofpaloalto.org/civicax/filebank/documents/52274
City of Palo Alto Page 3
Table 1: Existing Electric Rate Schedules
Rate Applicability Description
Number of
customers(1)
Share of
sales(1)
E-1 Separately metered
residential customers
Two-tiered rate
25,300 20%
E-2 Small non-residential
customers and master
metered multi-family
customers
Flat energy charge that varies
seasonally
3,060 5%
E-4 Demand-metered non-
residential customers, peak
demand <1000 kW
Flat energy and demand charges
that vary seasonally
860 30%
E-7 Demand-metered non-
residential customers, peak
demand >1000 kW
Flat energy and demand charges
that vary seasonally
70 45%
(1) FY 2021
The City also has several optional and special use rate schedules. Both the E-4 and E-7 customer
classes have optional time-of-use (TOU) rate schedules, as well as charges for standby service
(maintenance of utility distribution system capacity to serve energy when on-site generation is
offline). The E-14 rate establishes charges for street and highway lighting, and the E-16 rate
covers unmetered electrical equipment such as billboards, wireless antennas, and traffic
cameras. There are also generation-related rates, such as the E-3, E-NSE and E-EEC rates. The
E-3 rate establishes wholesale energy purchase prices for certain types of customer-owned
generating facilities. The City designed this schedule to comply with the Public Utility
Regulatory Policies Act of 1978 (PURPA), which Congress enacted to encourage domestic
energy resources and promote competition for electric generation , but no customers are on
this rate at this time. The E-NSE and E-EEC rates establishes the City’s purchase price for surplus
generation from customer-owned net-metered solar systems under NEM-1 and NEM-2
(successor) programs. As part of the last COSA update, the City implemented a Hydro Adjuster
rate (E-HYD) to be activated during times of very low, or very high, hydroelectric generation
conditions. Lastly, the voluntary PaloAltoGreen rate is still available for certain commercial
customers who want it for sustainability reporting purposes.
COSA and Rate Design Policy Objectives
In the past, the UAC and Council have expressed concern about having limited ability to make
changes to proposed rate structures once a COSA is completed. Staff agrees and has committed
to having policy discussions with the UAC and Council prior to embarking on a COSA. Staff is
proposing a set of Design Guidelines (Attachment A) to guide its work over the next year. The
proposed guidelines are:
Guideline 1. Rates must be based on the cost of providing service.
Guideline 2. The effect of proposed rate design changes on low income customers should be
considered, to the extent permissible within a cost-based rate structure.
City of Palo Alto Page 4
Guideline 3. Rates should not create unnecessary barriers to building and vehicle
electrification, including public EV charging, while remaining cost-based.
Guideline 4. Rates should not create unnecessary barriers to on-site generation and storage
while simultaneously avoiding subsidies between customer classes.
Guideline 5. The COSA and rate design should support a transition to more time variant rates
(such as TOU, seasonal, etc.) as AMI infrastructure is deployed .
Guideline 1: Rates to be based on the cost of service
The goal of a COSA is to identify the costs associated with serving each customer class and
the rates required to recover those costs. In compliance with Prop. 26, rates cannot be
structured solely to achieve policy objectives unless they are also cost-based, absent voter
approval. The COSA has become an important tool for demonstrating that utility rates are
based on the cost of service. As a result, this guideline must be the overriding one for the
COSA.
Guideline 2: Impact on low income customers
Changes in rate design can have different impacts on customers who use different amounts
of electricity. Staff intends to evaluate the impact of any recommended rate design changes
on low-income consumers and may recommend mitigation of those impacts to the extent
feasible under current law.
Guideline 3: Rates should not create unnecessary barriers to building and vehicle electrification ,
including public EV charging, while remaining cost-based
Certain rate structures may disincentivize customers from taking up electrification
measures, such as fixed or minimum monthly charges, tiered rates for residential
customers, or demand charges for commercial customers. Staff will evaluate existing rates
designs for consistency with City electrification goals.
The City also has DC Fast charging stations for electric vehicles. These types of customers
typically have very high 15-minute energy demand peaks, but serve a limited amount of
energy, especially while electric vehicle penetration is still relatively low. This leads to
significantly higher costs that charging station owners pass to customers, which makes
customers even less likely to use the charging station, exacerbating the issue. Staff will have
the consultant evaluate which options best address charging station owner needs, avoid
suppressing charging station demand, and are still consistent with Palo Alto’s cost structure.
Guideline 4: Rates should not create unnecessary barriers to on-site generation and storage
The City has been approached by customers looking to create or install technologies which are
not effectively accommodated by the City’s existing rate schedules, such as large-scale solar
and storage installations. Current rates include standby charges which are designed to apply to
engine generators rather than solar and storage installations, and thus need updating. Also,
because of the dynamics of energy usage and battery storage capability, rates need to be
City of Palo Alto Page 5
designed to prevent these systems from offsetting or bypassing charges collected currently via
demand or consumption charges, which has the potential to shift costs to other customers.
Guideline 5: COSA and rate design should support a transition to time variant rates (such as
TOU, seasonal, etc.) as AMI infrastructure is deployed
The City’s Utilities department is planning on installing advanced, or interval, metering
within the next five years, and the trend in rates both in California as well as nationwide is a
move towards Time of Use (TOU) pricing. TOU pricing seeks to better align customer rates
with the real cost of electricity, but also generally does not involved tiered or block rate
pricing mechanisms. Tiered rate pricing can potentially place a higher cost burden on
customers moving away from natural gas and installing electric space heating, water
heating, induction cooking, etc., as well as for customers opting to own electric vehicles and
charging at home.
Staff feels it is the appropriate time to evaluate existing residential tiered rates, to see if
tiered rates should be continued or modified to reflect changing load patterns. Analysis will
also be done to see if rates should include a seasonal component or designed on a uniform
basis prior to introducing TOU rates. Other local and regional utilities who have transitioned
to TOU pricing from tiered rate mechanisms have done so through a combination of
minimizing the number of tiers, increasing tier allocation levels to make prices more
uniform, or moving to uniform rates entirely, prior to launching TOU pricing.
As part of this COSA and rates update, the consultant will address the following work plan
items:
Work Item 1: Evaluate TOU rates for all customer classes
While TOU rate options exist for the E4 and E7 rate categories currently, these should be
evaluated for the E1 and E2 categories as well. An evaluation should be made of the time
periods used, as well as the applicability of seasonal variation.
Work Item 2: Evaluate minimum charges and fixed charges
For this COSA, staff recommends evaluating the minimum charge and fixed charge as a way
of ensuring that all customer groups contribute their share of the utility’s operating costs.
This is consistent with the approach currently being implemented by PG&E and other
investor-owned utilities, as well as a number of publicly owned utilities throughout
California. Many of these utilities are considering eventually implementing fixed charges
rather than minimum charges. Staff recommends considering whether the City should
implement a minimum charge or proposed a fixed charge instead.
Work Item 3: Evaluate the division of distribution costs between demand and energy charges
For customers with demand metering (E4 and E7), an evaluation will be made as to the
allocation of charges between energy (kWh) and demand (kW).
City of Palo Alto Page 6
Work Item 4: Update rates for large scale energy storage and intermittent generation, such as
solar photovoltaic (PV) and microgrids
As mentioned in Guideline 4 above, new and existing rates for microgrids, battery storage,
as well as standby rates, need to be evaluated and implemented.
Work Item 5: Update rates to accommodate public vehicle charging
As mentioned in Guideline 3 above, new or modified cost of service-based rates should be
implemented to help facilitate and foster the growth of DC fast charging stations.
Work Item 6: Evaluate rates for electrified homes and vehicles
While this may be covered under the evaluation of TOU options, until such time that AMI
can be implemented, an evaluation should be made to see if other rate options are
applicable for these types of customers (such as different rate tiers, uniform rates and/or
seasonal pricing).
Next Steps
After receiving the UAC’s recommendation, staff will take the COSA design guidelines to the
Finance Committee, followed by consideration by the City Council. The COSA is expected to be
completed within FY 2022 so that updated rates can be adopted as part of the FY 2023 budget
process or soon thereafter.
Resource Impact
The work associated with this project will be absorbed using exist ing staff and contract budgets.
Any new rates adopted as a result will be designed to generate adequate sales revenue to fund
the electric utility’s operations in FY 2023 and beyond. As discussed in the FY 2022 Electric
Utility Financial Plan (Staff Report 118872), for FY 2023, the utility is currently projected to need
roughly 5% more sales revenue than is generated by current rates. Expenses are projected to
exceed revenues, with reserves being used to moderate customer impacts as rates are brought
to parity over several years.
Policy Implications
The process of adopting these design guidelines provides the UAC and Council an opportunity
to provide policy guidance to staff before work begins on the COSA.
Environmental Review
Adoption of these Design Guidelines for the 2022 Electric Utility Cost of Service and Rate
Analysis does not meet the definition of a project , under Public Resources Code Section 21065
and CEQA Guidelines Section 15378(b)(5), because it is an administrative governmental activity
which will not cause a direct or indirect physical change in the environment, thus no
environmental review is required.
2 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/reports/city-manager-reports-
cmrs/2021/id-11887.pdf
City of Palo Alto Page 7
Attachments:
• Attachment A: Proposed Design Guidelines
Attachment A
Design Guidelines for the 2022 Electric Utility Cost of Service and Rates Analysis
1. Rates must be based on the cost of providing service. This is the overriding principle for the
cost of service analysis (COSA); all other rate design considerations are subsidiary to this
basic premise.
2. The effect of proposed rate design changes on low income customers should be considered,
to the extent permissible within a cost-based rate structure.
3. Rates should not create unnecessary barriers to building and vehicle electrification,
including public electric vehicle charging, while remaining cost-based.
4. Rates should not create unnecessary barriers to on-site generation and storage while
simultaneously avoiding subsidies between customer classes.
5. The COSA and rate design should support a transition to more time variant rates (such as
TOU, seasonal, etc.) as AMI infrastructure is deployed.
Approved by the Palo Alto City Council on _______________
City of Palo Alto (ID # 13437)
Utilities Advisory Commission Staff Report
Report Type: Supplemental Information Meeting Date: 9/1/2021
City of Palo Alto Page 1
Summary Title: Utilities Q2 Quarterly Update
Title: Utilities Q2 2021 Quarterly Programs Update
From: City Manager
Lead Department: Utilities
Recommendation
This report is for information only. No action is required.
Executive Summary
Attached is an update on water, gas, electric, wastewater collection and fiber utilities, efficiency
programs, legislative/regulatory issues, utility-related capital improvement programs,
operations reliability impact measures and a utility financial summary, and is for the Utilities
Advisory Commission’s information. This update Attachment A (Linked Report) has been
prepared to keep the Council and Utilities Advisory Commission apprised of the major issues
that are facing the water, gas, electric, wastewater collection and fiber utilities.
This is a revised version of the Utilities quarterly report. It differs from previous versions in that
it does not include detailed information on the financial position of each utility. It is intended to
go out more regularly than the previous report, which was frequently delayed because the
sections related to the City’s financial position depended on when the City was able to close its
books for the quarter. A separate quarterly report on the financial position of each utility will be
delivered going forward whenever the City closes its books.
Items of special interest in this report are summarized below:
COVID-19 Impacts: The COVID-19 shelter in place order significantly affected utility loads in FY
2021:
•Electric utility demand for CY 2021 to-date (January through June) were 10% below the
average of CY 2018 and CY 2019 loads, primarily due to lower commercial electric use.
Lower electric loads were accounted for in FY 2021 and FY 2022 financial forecasts. (Section
1.6.2)
•Gas utility demand for CY 2020 were 13% below the average of CY 2018 and CY 2019 sales,
but for CY 2021 to-date (January through June) they have only been 9% below the average
Staff: Jonathan Abendschein
City of Palo Alto Page 2
of those years. Gas use has been lower in the commercial sector, though not as low as in
2020. (Section 2.5.2)
• Water utility demand for CY 2021 to-date (January through June) has been 9% above the
average of CY 2018 and CY 2019 loads, primarily due to dry conditions. Commercial water
use has not decreased the same way electric and gas use decreased. Staff expects this to
change as the City and other agencies promote water conservation in the face of the
current drought. (Section 4.5.2)
• Wastewater revenues were not significantly affected by the pandemic in FY 2021, as
discussed below.
Electric Utility:
• Output from the City’s hydroelectric resources is low. Precipitation was approximately 50%
in the watersheds feeding these resources. Generation was 70% of long-term average in FY
2021 and is projected to be 60% of long-term average in FY 2022. (Section 1.1.2)
• REC sales revenue net of Bucket 3 REC purchases from the REC Exchange program for
calendar year 2021 is $2.58 million to-date. Additional REC purchases and sales may be
made before the end of the calendar year depending on supply conditions. (Section 1.1.3)
• The California Independent System Operator has taken several steps to improve electricity
supply in California in 2021, but supplies are still tight. The City is working on an Emergency
Load Shedding Program to partner with commercial customers who have backup
generators. (Section 1.1.5)
• Capital projects currently in construction include a new underground district and an
underground rebuild. Several other projects are either recently completed or in the design
phase with construction due to begin later in 2021 or in 2022. (Section 1.2)
• Vacancies remain high for the electric utility, particularly for electric linespeople. Due to a
shortage of linespeople across the industry and challenges in hiring journey level
linespeople, CPAU is expanding the linespeople apprenticeship program to develop in -
house talent. The apprenticeship program takes approximately four years for an employee
to become a journey level linesperson. During this period, CPAU will supplement existing
crews with contractors for overhead and underground maintenance, emergency response,
capital improvement projects, and customer connections. (Section 1.4)
• Reliability metrics for FY 2021 show the City meeting its goals, which include being in the
first quartile of utilities nationally for System Average Interruption Duration Index (SAIDI)
and System Average Interruption Frequency Index (SAIFI), which indicate the frequency and
total duration of outages experienced by all customers, and in the second quartile for
Customer Average Interruption Duration Index (CAIDI), which indicates the average
restoration time, the amount of time customers actually affected by an outage in a given
year are out of power. (Section 1.5)
• Electric sales during the pandemic have been roughly 10% below pre-pandemic levels, but
above FY 2021 Financial Plan forecasted levels. Electric sales revenue has been roughly 4%
above Financial Plan projections. While costs are higher due to low hydroelectric output due
to the drought, hydroelectric reserves are adequate to absorb the impacts for FY 2021.
Reserves are expected to be within guideline levels for FY 2021, even allowing for funding of
City of Palo Alto Page 3
the Capital Reserve and partial repayment of a loan from the Electric Special Projects
Reserve. (Section 1.6)
Gas Utility:
• Gas sales were approximately 9% lower than pre-pandemic levels in FY 2021, which was
lower than the 2% to 6% estimated in the FY 2021 Financial Plan. However, operational
costs were also lower than projected, meaning the year-end financial position for the utility
is tentatively expected to be roughly what was projected in the FY 2021 Financial Plan.
(Section 2.5)
• The total gas supply cost passed through to customers, including the commodity charge,
transmission charge, and environmental charges (Cap and Trade Program costs and Carbon
Neutral Gas Program cost) have increased 27% since January of 2021. This equates to
roughly a 10% increase in the system average gas rate. (Section 2.1.1)
• A gas main replacement project is currently in progress (GS -13001) and the City is in the
midst of a two year inspection project to find “cross bores.” (Section 2.2)
Wastewater Utility:
• An overview of the status of the Regional Water Quality Control Plant (RWQCP)
rehabilitation projects is provided, including an overview of the financing plan for the
projects. The first project to begin construction will be the primary sedimentation tank
rehabilitation. (Section 3.1)
• A sewer system rehabilitation project (SSR 30) is currently in the design phase and expected
to begin construction in November of 2021. (Section 3.2)
• Wastewater Utility revenue for FY 2021 has only been slightly below FY 2021 Financial Plan
projections. This is because wastewater charges for most customers are not variable, and
for commercial customers with variable charges FY 2021 bills were based on water use
during January through March of 2020, which was not highly affected by the pandemic. FY
2022 charges, which are based on January through March of 2021 water use, may be
affected by COVID-related closures during that period, but this may be offset by higher
irrigation water use due to the dry winter. (Section 3.5)
Water Utility:
• Precipitation has been low in California in the 2020 -2021 water year. This water year was
one of the hottest and driest in the last 60 years. Precipitation was roughly 50% of average,
though snowpack was more favorable. However, dry conditions led to most of the
snowpack melting into the ground rather than running down to reservoirs. (Section 4.1)
• Total storage in the Hetch Hetchy system (Hetch Hetchy Reservoir, “Water Bank” at Don
Pedro Dam, and other reservoirs) was 76% full as of June 1, 2021. The SFPUC operates its
storage to handle a multi-year drought. (Section 4.1)
• In line with Governor Newsom’s Executive Order N-10-21, the SFPUC is asking wholesale
customers like Palo Alto to voluntarily reduce water consumption by 15% compared to
2020. Other agencies have less water in storage. Valley Water has imposed a mandatory
15% reduction for agencies it serves. The City is working to coordinate messaging, given
City of Palo Alto Page 4
that Palo Alto is in Valley Water’s service territory, though Palo Alto does not buy water
from Valley Water (aside from a few privately-owned wells). (Section 4.1)
• Water sales are higher than forecasted due to the drought, but this is expected to change as
more calls for voluntary water conservation are made. Still, for FY 2021 the Water Utility
financial position is strong, with reserves expected to remain above their maximum
guideline level at the end of FY 2021. Drought, capital projects, and other cost increases are
expected to reduce reserves to target level by FY 2023. (Section 4.5)
• A rebuild of the City’s Corte Madera Reservoir is in progress to improve seismic safety.
Construction started in July and is expected to continue through April 2022. A water main
replacement project is currently being designed and construction is expected to start in
January 2022. (Section 4.2)
Fiber Utility (Section 5):
• On June 21, 2021, Council approved contract amendment #2 with Magellan Advisors to
conduct a detailed engineering design of the new fiber backbone expansion and fiber-to-
the-home (FTTH). The amendment seeks to gain seeks to gain efficiency and cost savings by
integrating Phase 2 (a detailed engineering design and cost estimate for fiber expansion to
support AMI, SCADA, and wireless communication for City fi eld staff and other City services)
and Phase 4 (detailed engineering design and cost estimate for FTTH). By combining phases
2 and 4, the detailed engineering can be completed for the two phases concurrently rather
than independently of one another. This will lead to a shortened design timeframe,
synergies in engineering design for both networks and reduced costs for the City.
• Fiber revenues for FY 2021 are projected to be $4.0 million, which is 15% below the budget
forecast of $4.7M. Compared to FY 2020, fiber sales are anticipated to be 12.5% below FY
2020 fiber sales of $4.5 million. The decrease in FY 2021 fiber sales is due to a higher
number of disconnections than projected as a result of the pandemic. In addition, one of
the City’s few remaining EDF-1 promotional rate customers have converted to the EDF-3
rate
• Due to the temporary suspension of the Fiber Network Rebuild CIP, FY 2021 expenses are
projected to be 22% or $1.0 million below forecast. The projected ending FY 2021 Fiber
Optic Utility Rate Stabilization Reserve is $34.7 million.
Customer Programs (Section 6):
• Many energy efficiency programs were suspended due to shelter in place orders. Programs
that could be executed outdoors or on commercial properties in compliance with County
health orders were operating throughout most of the pandemic, but programs that require
entering residences were suspended. Those programs were reopened in July 2021. (Section
6.1.1)
• The City launched its Business Advantage Program in March 2021 to help local businesses
tune their HVAC units for efficiency. Businesses also got an HVAC inspection, a new MERV
13 filter, and advice on tuning the HVAC to increase indoor air flow in line with ASHRAE
recommendations for reducing airborne infectious aerosol exposure . 12 systems have been
installed and 55 additional businesses have been approved for installation. (Section 6.1.1)
City of Palo Alto Page 5
• The City continues to promote its multi-family and workplace EV charger programs. See
Section 6.1.2 for more detail.
• Funding for EV charger programs is provided by the Low Carbon Fuel Standard (LCFS)
program. Revenues for this program fell significantly during the pandemic, as summarized in
Section 6.2.1.
Communications: A digest of major outreach efforts is provided in Section 7, including outreach
related to drought, the public safety power shutoff program in the Foothills, and utility scams.
Legislative and Regulatory: Major legislative and regulatory items are summarized in Section 8.
Attachments:
• Attachment A: Utilities Quarterly Update: Q2 CY 2021
• Attachment B: Water Infrastructure Status Report
Utilities Quarterly Update
Second Quarter of Calendar Year 2021
Attachment A
1 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
Contents
1 ELECTRIC UTILITY ............................................................................................................................. 4
1.1 ELECTRICITY SUPPLY AND TRANSMISSION ................................................................................................ 4
1.1.1 Forecasted Supply costs ............................................................................................................ 4
1.1.2 Hydroelectric Conditions ........................................................................................................... 5
1.1.3 REC Exchange Program ............................................................................................................. 5
1.1.4 Transmission Cost Forecast and Trends .................................................................................... 6
1.1.5 CAISO Summer Readiness ......................................................................................................... 6
1.2 CAPITAL IMPROVEMENT PLAN STATUS ................................................................................................... 7
1.3 RATE AND BILL COMPARISONS .............................................................................................................. 7
1.4 STAFFING AND VACANCIES ................................................................................................................... 8
1.5 RELIABILITY ....................................................................................................................................... 8
1.6 FINANCIAL HEALTH ............................................................................................................................. 9
1.6.1 Sales forecasts vs. actual sales ................................................................................................. 9
1.6.2 COVID Pandemic Impact on Load ........................................................................................... 10
1.6.3 Financial position .................................................................................................................... 11
2 GAS UTILITY ................................................................................................................................... 12
2.1 GAS SUPPLY AND TRANSMISSION ........................................................................................................ 12
2.1.1 Actual and Forecasted Supply Costs and Bill Impacts ............................................................. 12
2.1.2 Carbon Neutral Gas Program ................................................................................................. 13
2.1.3 Cap and Trade Program .......................................................................................................... 15
2.1.4 Gas Transmission Line Capacity Valuation ............................................................................. 16
2.1.5 Gas Prepay Valuation ............................................................................................................. 16
2.2 CAPITAL IMPROVEMENT PLAN STATUS ................................................................................................. 16
2.3 RATE AND BILL COMPARISONS ............................................................................................................ 16
2.4 RELIABILITY ..................................................................................................................................... 17
2.5 FINANCIAL HEALTH ........................................................................................................................... 17
2.5.1 Sales forecasts vs. actual sales ............................................................................................... 17
2.5.2 COVID Pandemic Impact on Sales ........................................................................................... 18
2.5.3 Financial position .................................................................................................................... 19
3 WASTEWATER UTILITY ................................................................................................................... 20
3.1 WASTEWATER TREATMENT UPDATES AND CAPITAL PLANNING STATUS ...................................................... 20
3.1.1 Treatment Cost Trends ........................................................................................................... 20
3.1.2 Regional Water Quality Control Plant Capital Planning Status .............................................. 21
3.2 COLLECTION SYSTEM CAPITAL IMPROVEMENT PLAN STATUS .................................................................... 22
3.3 RATE AND BILL COMPARISONS ............................................................................................................ 22
3.4 RELIABILITY ..................................................................................................................................... 22
3.5 FINANCIAL HEALTH ........................................................................................................................... 22
3.5.1 Sales forecasts vs. actual sales ............................................................................................... 22
3.5.2 Financial position .................................................................................................................... 23
4 WATER UTILITY .............................................................................................................................. 24
4.1 WATER SUPPLY AND TRANSMISSION .................................................................................................... 24
2 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
4.2 CAPITAL IMPROVEMENT PLAN STATUS ................................................................................................. 26
4.3 RATE AND BILL COMPARISONS ............................................................................................................ 26
4.4 RELIABILITY ..................................................................................................................................... 27
4.5 FINANCIAL HEALTH ........................................................................................................................... 27
4.5.1 Sales forecasts vs. actual sales ............................................................................................... 27
4.5.2 COVID Pandemic Impact on Sales ........................................................................................... 28
4.5.3 Financial position .................................................................................................................... 29
5 FIBER UTILITY ................................................................................................................................. 30
5.1 FIBER UTILITY STRATEGIC PLANNING .................................................................................................... 30
5.2 CAPITAL IMPROVEMENT PLAN STATUS ................................................................................................. 31
5.3 RELIABILITY ..................................................................................................................................... 31
5.4 FINANCIAL HEALTH ........................................................................................................................... 31
5.4.1 Fiber Sales ............................................................................................................................... 31
5.4.2 Financial position .................................................................................................................... 31
6 CUSTOMER PROGRAMS (EFFICIENCY AND SUSTAINABILITY) ......................................................... 32
6.1 CUSTOMER PROGRAMS UPDATES........................................................................................................ 32
6.1.1 Energy and Water Efficiency ................................................................................................... 32
6.1.2 Electric Vehicles ...................................................................................................................... 34
6.1.3 Building Electrification ............................................................................................................ 35
6.2 FUNDING SOURCES FOR EMISSIONS REDUCTIONS ................................................................................... 36
6.2.1 Low Carbon Fuel Standard (LCFS) Program ............................................................................ 36
6.2.2 Cap and Trade Program, Revenue from Allocated Allowances .............................................. 36
6.3 INNOVATION AND PILOT PROGRAMS.................................................................................................... 37
6.3.1 Academic Collaborations ........................................................................................................ 37
6.3.2 Completed Projects ................................................................................................................. 37
7 COMMUNICATIONS ....................................................................................................................... 39
8 LEGISLATIVE AND REGULATORY ACTIVITY ..................................................................................... 41
8.1 STATE LEGISLATION .......................................................................................................................... 41
8.2 STATE REGULATORY PROCEEDINGS ....................................................................................................... 42
8.2.1 Energy Commission ................................................................................................................. 42
8.2.2 Public Utilities Commission ..................................................................................................... 42
8.2.3 State Water Resources Control Board .................................................................................... 42
8.2.4 Air Resources Board ................................................................................................................ 42
8.3 STATE BUDGET ................................................................................................................................ 42
9 APPENDIX A: ENERGY RISK MANAGEMENT PROGRAM .................................................................. 44
9.1 OVERVIEW OF HEDGING PROGRAMS ................................................................................................... 44
9.2 OVERVIEW OF ENERGY RISK MANAGEMENT PROGRAM ........................................................................... 44
9.3 FORWARD CONTRACT PURCHASES....................................................................................................... 44
9.4 MARKET EXPOSURE .......................................................................................................................... 45
9.5 COUNTERPARTY CREDIT RATINGS ........................................................................................................ 45
9.6 TRANSACTION COMPLIANCE ............................................................................................................... 46
10 APPENDIX B: ADDITIONAL CHARTS AND GRAPHS .......................................................................... 47
3 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
11 APPENDIX C: WATER UTILITY ANNUAL INFRASTRUCTURE MAINTENANCE AND REPLACEMENT
REPORT .................................................................................................................................................. 48
Figures
FIGURE 1: FY 2021 FINANCIAL PLAN SUPPLY COST FORECAST VS. ACTUALS ................................................................... 4
FIGURE 2: FY 2021 AND FY 2022 HYDROPOWER FORECAST ...................................................................................... 5
FIGURE 3: PG&E’S PROPOSED 2022 TRR, HV TAC, AND LV TAC .............................................................................. 6
FIGURE 4: RESIDENTIAL MONTHLY ELECTRIC BILL COMPARISON (EFFECTIVE 1/1/2021, $/MO.) ....................................... 8
FIGURE 5: ELECTRIC UTILITY RELIABILITY METRICS ..................................................................................................... 9
FIGURE 6: ELECTRIC SALES VOLUME (KWH), PROJECTED FY 2021 ............................................................................... 9
FIGURE 7: ELECTRIC SALES REVENUE ($), PROJECTED FY 2021 .................................................................................. 10
FIGURE 8: ELECTRIC SUPPLY (MWH), CY 2019-21 ................................................................................................. 10
FIGURE 9: ELECTRIC SALES BY CUSTOMER SECTORS (MWH), CY 2019-21 .................................................................. 11
FIGURE 10: GAS SUPPLY COMMODITY RATES ($/THERM), ACTUAL VS FORECAST .......................................................... 12
FIGURE 11: GAS SUPPLY COSTS ($), ACTUAL VS BUDGET, FY 2021 ............................................................................ 13
FIGURE 12: GAS SUPPLY COMMODITY RATES ($/THERM), ACTUAL VS FORECAST .......................................................... 13
FIGURE 13: OFFSET PORTFOLIO COMPOSITION ....................................................................................................... 14
FIGURE 14: OFFSET PROJECT DESCRIPTIONS ........................................................................................................... 14
FIGURE 15: ESTIMATED CAP AND TRADE COSTS ...................................................................................................... 15
FIGURE 16: RESIDENTIAL NATURAL GAS BILL COMPARISON ($/MONTH)...................................................................... 17
FIGURE 17: GAS SALES VOLUME (THERMS), PROJECTED FY 2021.............................................................................. 18
FIGURE 18: GAS SALES REVENUE ($), PROJECTED FY 2021 ...................................................................................... 18
FIGURE 19: GAS SUPPLY (THERMS), CY 2019-21 ................................................................................................... 19
FIGURE 20: GAS SALES BY CUSTOMER SECTORS (THERMS), CY 2019-21 .................................................................... 19
FIGURE 21: PALO ALTO’S SHARE OF ESTIMATED WASTEWATER TREATMENT EXPENSES (PROJECTION AND PLANNED CIP) ..... 21
FIGURE 22: CURRENT RWQCP CAPITAL WORK IN-PROGRESS (INFORMATION FROM STAFF REPORT #12170) ................... 21
FIGURE 23: RESIDENTIAL WASTEWATER BILL COMPARISON ($/MONTH)...................................................................... 22
FIGURE 24: UPCOUNTRY TEMPERATURE AND PRECIPITATION TRENDS ......................................................................... 24
FIGURE 25: REGIONAL WATER SYSTEM STORAGE .................................................................................................... 25
FIGURE 26: SFPUC WATER DELIVERIES ................................................................................................................ 26
FIGURE 27: RESIDENTIAL WATER BILL COMPARISON ($/MONTH) ............................................................................... 27
FIGURE 28: WATER SALES VOLUME (CCF), PROJECTED FY 2021 .............................................................................. 28
FIGURE 29: WATER SALES REVENUE ($), PROJECTED FY 2021 .................................................................................. 28
FIGURE 30: WATER SUPPLY (CCF), CY 2019-21 ................................................................................................... 29
FIGURE 31: WATER SALES BY CUSTOMER SECTORS (CCF), CY 2019-21 ..................................................................... 29
FIGURE 32: EV TECHNICAL ASSISTANCE PROGRAM (EVTAP), CUMULATIVE PROGRESS REPORT OCT 2019 – MAY 2021 .... 35
FIGURE 33: STATUS TO DATE OF ALL APPLICATIONS TO THE PROGRAM FOR EMERGING TECHNOLOGIES .............................. 38
FIGURE 34: ELECTRIC ENERGY CONTRACTS ............................................................................................................. 45
FIGURE 35: ELECTRIC LOAD RESOURCE BALANCE, FY 2021-23 ................................................................................. 45
4 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
1 Electric Utility
The City’s electric utility serves all residential and non-residential gas demands in Palo Alto at a
lower cost than PG&E in surrounding communities. Its electric supply portfolio is 100% carbon
neutral. The City maintains and operates an electric distribution system and one small natural gas
generator but does not operate any transmission lines or any significant generating capacity on
its own. Instead, the City belongs to Northern California Power Agency (NCPA) which operates its
Calaveras hydroelectric generating plant and provides power scheduling services for its other
generating resources. This carbon free power is supplied through power purchase agreements
with various generation operators.
1.1 Electricity Supply and Transmission
Below is an update on electricity supply and transmission services.
1.1.1 Forecasted Supply costs
The City’s electric supply cost for FY 2021 – based on actuals for July-December and projections
for January-June – is forecasted to be $78.2 M, which is $2.4 M (3.0%) below the forecast used
for the FY 2021 Financial Plan. Higher than expected REC Sales revenue and lower than expected
Western Restoration Fund costs were the primary drivers of lower electric supply costs. For a
discussion of the impact of these supply cost changes on reserves, please see Section 1.6 below.
Figure 1: FY 2021 Financial Plan Supply Cost Forecast vs. Actuals
5 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
1.1.2 Hydroelectric Conditions
The City takes power from two hydroelectric projects, the Calaveras project and the Western
contract for Federal hydropower from the Central Valley Project.1 The watershed for Western
hydropower is primarily in the northern end of California, while the watershed for the Calaveras
project is in the Central Sierras.
For water year 2020 to 2021 (October 2020 to September 2021), precipitation is just below 50%
of average for the year to date in both watersheds. Total forecasted hydropower for FY 2021 is
329 GWh, which is 151 GWh (31%) below the long-term average. Total forecasted hydropower
for FY 2022 is 286 GWh, which is 195 GWh (41%) below the long-term average.2
Figure 2: FY 2021 and FY 2022 Hydropower Forecast
FY 2021 FY 2022
Calaveras Forecast (GWh) 62 81
Western Forecast (GWh) 268 205
Total Hydro Forecast (GWh) 329 286
% of Long-term Average 69% 59%
1.1.3 REC Exchange Program
Under the REC Exchange Program, which was approved by Council in August 2020 (Staff Report
11556), staff has sold a total of 236 GWh worth of in-state renewable energy (for $3.32M), and
purchased 166 GWh worth of out-of-state renewable energy credits (RECs) (costing $0.73M) for
CY 2021. Of the resulting $2.58M in net revenue, at least one-third will be directed towards the
funding of local decarbonization efforts, with the remainder to be used to lower the City’s supply
costs (and therefore electric rates). Additional REC sales and purchases will likely be authorized
toward the end of the calendar year in order to maximize net revenue while remaining compliant
with the state renewable portfolio standard (RPS) requirements.
1 The Calaveras project is a hydropower project located in Calaveras County that is maintained
and operated by the Northern California Power Agency on behalf of the City and other project
participants. The City is also one of several public entities with contracts with the Western Area
Power Administration for “Base Resource” electricity, which is the hydroelectric power available
from the Federal Government’s Central Valley Project (operated by the Bureau of Reclamation)
after accounting for power used for Central Valley Project operations and power delivered to
certain “preference” customers.
2 The long-term average forecast levels for both Western and Calaveras have been revised
downward (about 10% each) in recent years to reflect the impact of climate change. These values
may need to be revisited again in the coming years.
6 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
1.1.4 Transmission Cost Forecast and Trends
The City of Palo Alto’s distribution system connects to the greater CAISO grid via a 220-kV
interconnection from the Colorado Substation to PG&E’s transmission system. In order to receive
electrical service via this interconnection, the City must pay PG&E a High Voltage and Low Voltage
Transmission Access Charge (HV and LV TAC) for every MWh it receives. These TAC charges have
been rising rapidly in recent years, becoming one of the largest components of the City’s overall
electric supply costs.
These TAC charges get revised every year when PG&E submits its Transmission Revenue
Requirement (TRR) to the Federal Energy Regulatory Commission (FERC). In June, PG&E submitted
its proposed 2022 TRR and HV and LV TAC charges to FERC – all of which are about 30% higher
than they are in 2021 (as shown in Figure 3 below). These rates are not final, however, and may
still be challenged by transmission customers of PG&E, like Palo Alto.
Figure 3: PG&E’s Proposed 2022 TRR, HV TAC, and LV TAC
PG&E Rate 2021 Value Proposed 2022 Value % Change
Transmission Revenue
Requirement ($B)
$2.0B $2.6B +30%
HV TAC ($/MWh) $9.77 $12.80 +31%
LV TAC ($/MWh) $13.34 $17.76 +33%
1.1.5 CAISO Summer Readiness
Since the rolling blackouts of August 2020, a number of energy agencies across the state have
been working aggressively to implement system updates to reduce the probability of a similar
occurrence in 2021. For example, the California Independent System Operator (CAISO) has made
a number of market design improvements, provided a greater deal of flexibility to demand
response resources, and made investments into more effectively communicating flex alerts and
grid warnings to the public. In addition, a large amount of new battery storage (~1 GW) has come
online since last summer, which will help boost the state’s reserves. Unfortunately, as discussed
above, this year has been abnormally dry and there will be significantly less hydroelectric capacity
available this summer compared to last year.
During a few early-summer heat events, CAISO has already experienced tight grid conditions and
has issued a number of Flex Alerts, as well as one Stage 2 Warning. In the event that conditions
reach the Stage 3 Warning level, at which point CAISO would begin calling on load-serving entities
like the City to initiate rolling blackouts (“load shedding”), staff has begun the development of an
Emergency Load Shedding Program. The intent of this program is for the City to call on a small
number of commercial customers who have large back-up generators available that can be quickly
brought online (in exchange for some compensation) and thereby allow the City to avoid having
to drop any customer loads.
7 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
1.2 Capital Improvement Plan Status
The following capital projects are currently in progress or have been recently completed:
• EL-11010 (Underground District 47): The project is complete. All overhead connections
have been converted to the new underground system.
• EL-12001 (Underground District 46): This is a multi-phase project to underground the
electrical facilities in the district. The project is in the last phase and will be completed
September 2021.
• EL-17001 (East Meadow Circles 4/12kV Conversion): This project is scheduled to be
completed in several phases. Phase 1 (of 6) substructure and electrical design is in
progress.
• EL-11003 (Rebuild Underground 15): This project is in the preliminary stages of
engineering design. Projected completion is expected in 2022.
• EL-10006 (Rebuild Underground 24): This project is in construction and scheduled to be
completed in 2022.
• EL-16000 (Rebuild Underground 26): This project is in the design phase and to be
completed in multiple phases. First phase is scheduled to be completed in 2022.
• EL-19004 (Wood Pole Replacement): This project is in the design phase with expected
completion in September 2021 and construction starting early 2022.
• EL-16003 (Substation Physical Security): This project is scheduled to be completed in
several phases. Hanover substation upgrades are projected to be completed summer
2021 and Hanson Way is expected to be complete by end of 2021.
• EL-17002 (Substation 60kV Breaker Replacement): Replaced four 60kV breakers.
• EL-21001 (Foothills Rebuild): This project will rebuild the approximately 11 miles of
overhead line in Foothills Park, as necessary to mitigate the possibility of wildfire due to
overhead electric lines. Staff completed 2300 feet of substructure work which will
eliminate 11 poles as a pilot project. Next phase is currently being designed and estimated
to start in August 1, 2021.
• EL-14005 (Reconfigure Quarry Feeders): Staff completed the design phase this year.
Construction is expected to start in Winter 2021.
• EL-02011 (Electric Utility Geographic Information System (GIS)): The project scope
includes maintenance/technical support of the existing GIS system and implementation
of the new GIS platform (ESRI). Staff has completed the ESRI ArcGIS Portal, which is a web
service for staff to view data and are currently working on other features and
enhancements.
• EL-16002 (Capacitor Bank Installation): This project is a multi-year effort for the
procurement, design and installation of capacitor banks at several substation. Hanson
Way substation work is complete, Park Blvd and Hanover substations will be completed
in 2021.
1.3 Rate and Bill Comparisons
For the median consumption level the annual residential electric bill for calendar year
2020 was $728 under current CPAU rates, about 37% lower than the annual bill for a PG&E
customer with the same consumption and approximately 19% higher than the annual bill
8 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
for a City of Santa Clara customer. The bill calculations for PG&E customers are based on
PG&E Climate Zone X, which includes most surrounding comparison communities.
Figure 4 presents sample median residential bills for Palo Alto, PG&E, and the City of Santa
Clara (Silicon Valley Power) for several usage levels. Rates used to calculate the monthly
bills shown below were in effect as of January 1, 2021.
Over the next several years low usage customers in PG&E territory are expected to
continue to see higher percentage rate increases than high usage customers as PG&E
compresses its tiers from the highly exaggerated levels that have been in place since the
energy crisis. This is likely to make the bill for the median Palo Alto consumer look even
more favorable compared to most PG&E customers. Even with the compressed tiers, bills
for high usage Palo Alto consumers are likely to remain substantially lower than the bills
for high usage PG&E customers.
Figure 4: Residential Monthly Electric Bill Comparison (Effective 1/1/2021, $/mo.)
Season Usage (kwh) Palo Alto PG&E Santa Clara
Winter
300 41.27 74.96 36.96
453 (Median) 69.22 113.19 56.50
650 107.37 174.55 81.66
1200 213.89 347.48 151.91
Summer
300 41.27 77.09 36.96
(Median) 365 52.18 97.53 45.27
650 107.37 187.14 81.66
1200 213.89 360.08 151.91
1.4 Staffing and Vacancies
The Electric Fund continues to have the hardest positions to fill. Over the past year, 11 positions
were filled with 15 remaining vacant with the Lineperson classification being the highest with six
vacant. This represents 58% of the total number of vacant positions for the department.
1.5 Reliability
Sixteen outages have occurred since the beginning of fiscal year 2020/21 resulting in 17,534
customers interrupted and 1,6813,383 customer-minutes of outage time. The goal is to be in the
first quartile of utilities nationally for System Average Interruption Duration Index (SAIDI) and
System Average Interruption Frequency Index (SAIFI) and in the second quartile for Customer
Average Interruption Duration Index (CAIDI). The table below provides the current status in the
third quarter versus the annual goals. Year-end numbers are expected to be near or slightly above
the annual goals.
9 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
Figure 5: Electric Utility Reliability Metrics
SAIDI
(Min/Cust)
SAIFI
(Int/Cust)
CAIDI
(Min/Cust)
3rd Quarter 58 0.6 96
Annual Goal 66 0.73 111
1.6 Financial Health
Below is a summary of the financial position for the electric utility.
1.6.1 Sales forecasts vs. actual sales
Sales estimates under COVID were estimated to be around 10% lower than normal in FY 2021.
Actual sales have performed slightly better, with sales being about 6% higher than staff
projections, and revenues being about 4% above projections. To date, the commercial sector has
continued to have lower sales under COVID, and it is uncertain how sales will recover after COVID
restrictions are lifted.
Figure 6: Electric Sales Volume (kWh), Projected FY 2021
10 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
Figure 7: Electric Sales Revenue ($), Projected FY 2021
1.6.2 COVID Pandemic Impact on Load
As shown below in Figure 8, CY 2021 electric loads were cumulatively 10% below pre-pandemic
levels for the first six months of the year. This is similar to the load declines seen in April through
June of 2020, the first few months shelter in place regulations were in place. July through
December of 2020 saw 6% to 8% declines in load rather than 10%, possibly reflecting the impact
of relaxation of regulations in the latter part of 2020 and warmer weather. Staff will continue to
track COVID impact on loads as restrictions relax in 2021.
As shown in Figure 9, most of the decline in electric loads was in the small and medium
commercial sectors. Large commercial sector also showed declines, but not as consistently, while
residential use remained comparable to pre-pandemic levels. Note that sales data and load data
do not correspond perfectly because sales data is based on monthly meter reads that take place
over the course of a month, while load data is based on real-time electronic meter reads at the
City’s interconnection point with PG&E.
Figure 8: Electric Supply (MWh), CY 2019-21
11 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
Figure 9: Electric Sales by Customer Sectors (MWh), CY 2019-21
1.6.3 Financial position
The Electric Supply and Distribution Reserves were within guideline ranges at the beginning of FY
2021 and are projected to be within guideline ranges at year end FY 2021. The additional revenue
seen to date was factored into the FY 2022 Financial Plan. In addition, due to surplus energy
revenues seen in FY 2019 and FY 2020, staff continued repayment of a short term $10 million loan
from the Electric Special Projects (ESP) reserve done in FY 2018, and provided additional funds to
the Hydroelectric Stabilization Reserve for future dry-year conditions and the Capital Reserve for
future capital improvement needs.
12 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
2 Gas Utility
The City’s gas utility serves all residential and non-residential gas demands in Palo Alto. The City
maintains and operates a system of low-pressure gas lines for delivering gas but does not operate
any transmission lines. Costs for the gas utility are split approximately two thirds for the
operation, maintenance and periodic replacement of Palo Alto’s sewer collection system and one
third for the costs of the gas itself along with PG&E gas transmission charges and environmental
charges (for compliance with the State’s Cap and Trade Program and the City’s Carbon Neutral
Gas Program).
2.1 Gas Supply and Transmission
Commodity prices this summer are expected to be slightly higher than what was assumed in the
FY 2022 budget, however, because usage is so low during these months, customer bills will not
be significantly impacted.
Figure 10: Gas Supply Commodity Rates ($/Therm), Actual vs Forecast
2.1.1 Actual and Forecasted Supply Costs and Bill Impacts
The current estimated supply cost is $355k (3.1%) below budget for FY 2021. The market
commodity rates rose during the winter of 2020/21, which is common in the winter months, but
rates remained high into spring. PG&E transportation rates also increased during the same period.
Both factors led to higher pass-through volumetric rates for customers.
Gas demand remained low compared to budget and pre-covid levels. Estimated demand for
FY 2021 is 2.7 million therms or 9.2% below budget.
13 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
Figure 11: Gas Supply Costs ($), Actual vs Budget, FY 2021
The total gas supply cost passed through to customers, including the commodity charge,
transportation charge, and environmental charges (Cap and Trade Program costs and Carbon
Neutral Gas Program cost) have increased 27% since January of 2021, primarily due to increasing
prices in gas markets, but also due to increased transmission and Cap and Trade costs. This
increase of roughly $0.14 per therm equates to roughly a 10% increase in the system average gas
rate (about $4.60 per month on average for the median residential customer).
Figure 12: Gas Supply Commodity Rates ($/Therm), Actual vs Forecast
2.1.2 Carbon Neutral Gas Program
In December 2020, Council adopted Resolution 9930 maintaining the Carbon Neutral Natural Gas
Plan to achieve carbon neutrality for the gas supply portfolio using high-quality carbon offsets
with a cost cap of no greater than a $19 per ton CO2e.
Offsets have been purchased to neutralize emissions equal to those caused by natural gas usage
in Palo Alto through calendar year 2020. The average purchase price of offsets is $6.20 per ton
CO2e. The figure below shows the composition of offset purchases.
14 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
Figure 13: Offset Portfolio Composition
The following table provides a description of the projects.
Figure 14: Offset Project Descriptions
Project
Name
Project
Type Description
Grotegut
Dairy Livestock
Grotegut Dairy is a 3,900 milk-cow operation in Newton, Wisconsin with a methane
capture system.
Green
Trees U.S. Forest
GreenTrees Advanced Carbon Restored Ecosystem is reforestation of agricultural
lands into native hardwood forest in Mississippi, Louisiana, Arkansas, and Illinois
San Juan
Lachao
Mexican
Forest
Protection of forests located in High Biological Value Zones which contain flora and
fauna listed in the Mexican Endangered Species List and the International Union for
Conservation of Nature’s Red List of Threatened Species. Project in San Juan Lachao
near Palo Alto's Sister City of Oaxaca.
Blandin
Forest U.S. Forest
Blandin Native American Hardwoods Conservation and Carbon Sequestration project
in Minnesota.
Pocosin+ U.S. Forest
These projects are all forested land that will not be disturbed by human
development. Without this protection, the forests would be converted to grow
wheat or corn. Forest conservation plays a vital role in protecting freshwater
systems like lakes. The forests around the lakes act as natural water filters and purify
the water for all who use it. The projects also support healthy populations of red
wolf, bald eagle, black bear, and various bird species.
Refex ODS
Ozone
Depleting
Substance
The RemTec facility in Bowling Green, Ohio uses an argon arc plasma destruction
device to achieve 99.99 percent removal. The majority of refrigerants originated in
California, and all were sourced within the United States. The RemTec facility uses
an argon arc plasma destruction device to achieve the required destruction and
removal efficiency of 99.99 percent. The majority of ODS refrigerants originated in
California, and all were sourced within the United States.
Methane
Capture
Mine
Methane
Capture
This project is the first of its kind. Peabody Natural Gas, LLC removed methane from
the North Antelope Rochelle Coal Mine before mining. The methane was
compressed and transported to a natural gas pipeline and distributed to a national
gas grid for use as fuel. Before implementation of the project, all the methane was
vented to the atmosphere.
15 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
At its July meeting, the UAC recommended to Council another Oaxacan forestry purchase, this
time for 24,000 tons CO2e at $9.50 per ton CO2e, for a total price of $228,000. The proposed
quantity is about 15% of the City’s annual carbon offset needs. The price of $9.50 per ton is
premium to historical average offset costs of $6.25 per ton; the net bill increase for an average
residential customer is estimated to be about $1/year.
Staff recently purchased 80,000 metric tons of carbon offsets at an average price of $7.97/MT
CO2e to fulfill FY 2021 carbon offset needs. Staff will pursue additional purchases for FY 2022 in
September and December 2021.
2.1.3 Cap and Trade Program
The gas utility has been regulated under California’s greenhouse house (GHG) regulations since
January 2015 with a GHG emissions cap that declines over time. The gas utility receives carbon
allowances equal to the emissions allowed under the cap and is required to auction off a portion
of the allowances (50% in 2021, increasing by 5% annually) through the state Cap and Trade
Program. To meet its annual GHG compliance obligation, the gas utility must purchase allowances
based on actual gas load.
The auction price to either purchase or sell allowances increases annually by 5% plus inflation.
Given the rate of increased allowance purchases and the increasing market prices, these costs are
anticipated to increase from $1.5 million in FY 2022 to $5.6 million in FY 2030, about an 18%
increase per year on average, as shown in the following table:
Figure 15: Estimated Cap and Trade costs
Revenues from the auction sale of gas utility allowances (which are currently on the order of about
$1.2 million per year) must be used exclusively for the benefit of the ratepayers in that utility.
California Code of Regulations (CCR Title 17, section 95893) details how entities must use those
funds, but in general, these can be for 1) the funding of certain energy efficiency rebates, retrofits,
16 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
and demand reduction programs, 2) funding for programs with demonstrated GHG reductions, 3)
non-volumetric return to ratepayers, either on or off bill, and 4) certain administrative, outreach
and educational costs related to items 1-3 above. The City Council has also adopted a policy on
the use of allowance proceeds (Resolution 9487), generally mirroring the regulations and
requiring additional Council approval for rebates. Per the current regulations, the utility must
either spend or rebate the funds received in any given year within 10 years (for example, funds
received in 2020 must be spent by 2030, etc.).
As of the end of FY 2021, unspent funds related to Cap and Trade revenues will be placed in a Cap
and Trade reserve, until such time as they can be utilized per the dictates of applicable regulations.
There will be $5.936 million in this reserve available for use.
2.1.4 Gas Transmission Line Capacity Valuation
Palo Alto contracts for capacity on the Redwood pipeline, the path from the California-Oregon
border to PG&E’s mid-pressure transmission system, at a cost lower than the market value. During
the summer months, Palo Alto does not need all of the capacity to serve demand. The excess
capacity is monetized by purchasing gas at the California-Oregon border and selling an equal
amount of gas at the terminus of the pipeline. The variable cost of transporting the gas is much
less than the gas price difference between the two points. The summer 2021 transaction resulted
in a net benefit to the Gas Utility of $295K.
2.1.5 Gas Prepay Valuation
On September 15, 2014, Council adopted Resolution #9451 authorizing the City’s participation in
a natural gas purchase from Municipal Gas Acquisition and Supply Corporation (MuniGas) for the
City’s entire retail gas load for a period of at least 10 years. The MuniGas transaction includes a
mechanism for municipal utilities to utilize their tax-exempt status to achieve a discount on the
market price of gas. The program has cumulatively reduced FY 2021 gas commodity costs by about
$642K through Q3.
2.2 Capital Improvement Plan Status
The following capital projects are currently in progress or have been recently completed:
• GS-13001 - GMR 23 (Gas Main Replacement 23): This project is currently under construction
to replace approximately 22,300 linear feet of gas main and 142 gas services. The anticipated
completion date is March 2022.
• Phase 3 Cross Bore Inspection: This is a two-year project to verify approximately 1,480 sewer
laterals by video inspection, to ensure that natural gas pipelines or other utilities were not
unintentionally installed within the sewer lateral at the time of installation (aka Cross Bore).
Cross bore inspection under this project started in March 2021 and the anticipated
completion date is March 2023.
2.3 Rate and Bill Comparisons
The figure below presents winter residential bills for Palo Alto and PG&E at several usage levels
for commodity rates in effect as of a December 2020 (a representative winter period) and July
2020 (a representative summer period). The bill calculations for PG&E customers are based on
PG&E Climate Zone X, an area which includes the surrounding communities of Menlo Park,
17 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
Redwood City, Mountain View, Los Altos and Santa Clara. The annual gas bill for the median
residential customer for fiscal year 2021 was $534.47, about 26% lower than the annual bill for a
PG&E customer with the same consumption. PG&E’s distribution rates for gas have increased
substantially to collect for needed system improvements for pipeline safety and maintenance.
Figure 16: Residential Natural Gas Bill Comparison ($/month)
Season
Usage
(therms) Palo Alto PG&E Zone X
% Difference
Winter
(December 2020)
30 $ 40.97 49.66 -17.5%
(Median) 54 65.45 92.48 -29.2%
80 106.09 149.00 -28.8%
150 232.40 301.19 -22.8%
Summer
(July 2020)
10 $ 19.31 14.07 37.3%
(Median) 18 26.46 26.77 -1.2%
30 44.51 49.86 -10.7%
45 69.69 78.72 -11.5%
2.4 Reliability
There were no gas system outages or events to report in Q2 of calendar year 2021.
2.5 Financial Health
Below is a summary of the financial position for the gas utility.
2.5.1 Sales forecasts vs. actual sales
The sales forecast in the FY 2021 Financial Plan estimated that COVID-19 would have a small
relative impact to customer sales (between 2 to 6%). However, actual experience showed an
impact similar to what has been seen in the electric fund (between 8 to 10%). Most of the
decrease was seen in the commercial sector, and it remains to be seen whether post-COVID
consumption will return to historically normal levels.
Sales forecasts for FY 2021 were revised in the FY 2022 Financial Plan to 25.451 million therms,
and actual performance to date is close to this revised estimate. Whiles sales estimates have come
down, the revenues seen have increased. This is due to relative increases in the market price of
gas commodity, as well as increases in gas transportation costs from PG&E. Much of this revenue
is pass-through in nature and goes to offset commensurately higher commodity and
transportation costs.
18 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
Figure 17: Gas Sales Volume (Therms), Projected FY 2021
Figure 18: Gas Sales Revenue ($), Projected FY 2021
2.5.2 COVID Pandemic Impact on Sales
As shown below in Figure 19, CY 2021 gas demands were cumulatively 9% below pre-pandemic
levels for the first six months of the year. This is an improvement over the load declines seen in
April through June of 2020, the first few months shelter in place regulations were in place, during
which time gas demands were 18% below pre-pandemic levels.
As shown in Figure 20, most of the decline in gas sales was in the small and medium commercial
sectors. Large commercial sector also showed declines, but not as consistently, while residential
use remained comparable to pre-pandemic levels. Note that sales data and load data do not
correspond perfectly because sales data is based on monthly meter reads that take place over the
course of a month, while load data is based on real-time electronic meter reads at the City’s gas
receiving stations.
19 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
Figure 19: Gas Supply (Therms), CY 2019-21
Figure 20: Gas Sales by Customer Sectors (Therms), CY 2019-21
2.5.3 Financial position
While sales have decreased from the original FY 2021 forecast, as mentioned above, operations
costs were revised downward in the FY 2022 forecast, based upon actuals from FY 2020. The net
effect is that Gas Operations Reserves are tentatively expected to be near to FY 2021 estimates,
which are within the reserve guideline levels.
20 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
3 Wastewater Utility
The Wastewater Utility includes the system of sewer pipes that collect and transport wastewater
to the Regional Water Quality Control Plant (RWQCP) operated by the City of Palo Alto under a
partnership agreement with several surrounding communities, as well as Palo Alto’s share of the
cost of operating the RWQCP. The RWQCP provides treatment and disposal of wastewater for
Palo Alto. Costs for the Wastewater Utility are split approximately half for the operation,
maintenance and periodic replacement of Palo Alto’s sewer collection system and half for the
costs of wastewater treatment at the RWQCP.
3.1 Wastewater Treatment Updates and Capital Planning Status
The Regional Water Quality Control Plant is operated by Palo Alto’s Public Works Department and
provides wastewater treatment to Palo Alto, Mountain View, Stanford, Los Altos, East Palo Alto
and Los Altos Hills. The Palo Alto Wastewater Collection Utility pays its share (approximately 35%
in FY 2022) of the costs for wastewater treatment and disposal. Capital costs for wastewater
treatment are a major driver for cost increases for the Wastewater Treatment Utility and by
extension for the Wastewater Collection Utility. These costs are projected to increase at
approximately 15% per year through FY 2031. The RWQCP is facing the need for major upgrades
in coming years, due to aging equipment and changing environmental regulations. Rehabilitation
and replacement of plant equipment that has been in use for over 40 years is necessary to ensure
the city can continue to provide wastewater treatment operations safely and in compliance with
regulatory requirements for the discharge of treated wastewater 24 hours a day.
3.1.1 Treatment Cost Trends
RWQCP staff project treatment costs will increase by approximately 6% annually from FY 2022
through FY 2031. A key driver of the increases are capital projects, parts, materials and debt.
These costs are increasing at an average of about 15% per year through FY 2031 to keep up with
ongoing replacement of aging equipment. Larger increases to capital expenses are expected to
begin in FY 2024 in the form of new debt service for major projects to implement the Plant’s
capital program. Figure 21 shows Palo Alto’s share of each component of estimated treatment
costs. Major upcoming capital projects and estimated years for debt service to begin are reflected
in the “Planned Debt Svc” bar of Figure 21 below and include:
• Outfall Line Construction (FY 2024)
• Operation Center and Laboratory (FY 2024)
• Primary Sedimentation Tank Rehabilitation (FY 2025)
• Secondary Treatment Upgrades (FY 2027)
21 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
Figure 21: Palo Alto’s Share of Estimated Wastewater Treatment Expenses (Projection and Planned CIP)
Figure 21 also shows the ongoing annual CIP reinvestment (“Minor CIP” and “Existing Debt Svc”)
as well as treatment operations costs, which make up the majority of the treatment costs but are
not growing as quickly as the planned debt service. Factors that are contributing to cost increases
for treatment operations are rising salary and benefits costs, allocated charges for centralized city
services needed to support wastewater treatment fund operations, increased water and air
permitting fees from the Regional Water Quality Control Board and Bay Area Air Quality
Management District, commodity rates to operate the facility, and chemical expenses.
3.1.2 Regional Water Quality Control Plant Capital Planning Status
The Long Range Facilities Plan, completed in 2012, guides the capital plans for the RWQCP. The
RWQCP’s current capital work in-progress includes an estimated $310 million in projects. The
following table summarizes these ongoing projects and provides their status and costs.
Figure 22: Current RWQCP Capital Work In-Progress (information from Staff Report #12170)
Project Status Expense (million
$)
Primary Sedimentation Tanks Rehabilitation
and Equipment Room Electrical Upgrade
Awarding Construction $19.4
Outfall Line Construction 100% Design / Re-evaluation for
Future Levee Height
$11.1
Secondary Treatment Upgrades 60% Design Complete $146.0
Advanced Water Purification System Design Started $20.0
New Laboratory and Environmental Services
Building
Advanced Planning $57.0
Headworks Facility Replacement Budgeted $48.0
Projects in Progress Varies $8.3
Subtotal $310.0
22 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
The largest projects listed above include the Headworks Facility Replacement which involves
replacement or rehabilitation of the parts of the facility that pump raw sewage to the main
treatment works (the headworks), and rehabilitation of primary sedimentation tanks that
separate out primary sludge. Additionally, the RWQCP anticipates regulations to limit nutrient
discharges (on total nitrogen) into the San Francisco Bay. The current secondary treatment design
cannot remove nitrogen and the Secondary Treatment Upgrades will address this regulatory
change as well as address aging mechanical and electrical equipment that must be replaced.
The RWQCP plans to fund these capital projects through a combination of mechanisms including
State Revolving Fund loans, USEPA loans, revenue bonds and additionally Valley Water will be
providing $16 million of funding for the Advanced Water Purification System.
3.2 Collection System Capital Improvement Plan Status
The following capital projects are currently in progress or have been recently completed:
• WC-17001 - SSR 30 (Sanitary Sewer Replacement 30): This project is currently under design
to replace approximately 9,000 linear feet of wastewater main and 230 sewer laterals. The
anticipated start date for construction is November 2021.
3.3 Rate and Bill Comparisons
Figure 23 shows the wastewater monthly bill for residential customers in Palo Alto compared to
what they would be under surrounding communities’ rate schedules as of January, 2021. Palo
Alto’s monthly sewer bill is lower than four of the six neighboring communities. Menlo Park in this
table refers to the West Bay Sanitary District. This summer, Hayward is proposing a rate increase
for residential sewer customers. Staff will report on this and any other rate increases once they
are adopted by the wastewater utilities.
Figure 23: Residential Wastewater Bill Comparison ($/month)
As of January 2021
Palo Alto Menlo Park Redwood City Mountain View Los Altos Santa Clara Hayward
$41.37 $102.00 $85.44 $42.90 $39.63 $44.53 $35.81
3.4 Reliability
There were no outages or events to report in Q2 of calendar year 2021.
3.5 Financial Health
Below is a summary of the financial position for the electric utility.
3.5.1 Sales forecasts vs. actual sales
Wastewater sales revenues for FY 2021 are projected to be $20.2 million, which is 3% below
forecasted levels from the FY 2021 Financial Plan of $20.9 million. This forecast was based upon
modeling work conducted as part of the cost of service analysis. However, in the first 11 months
23 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
of FY 2021, actual wastewater sales revenues have declined only 0.6% from the same months in
FY 2020, above forecasted levels. Staff expect changes in revenue to have minimal impact on
reserves.
3.5.2 Financial position
The Wastewater Collection Operations Reserve was within the guideline range at the beginning
of FY 2021 and staff projects it will remain within the guideline range through year end FY
2021. The Wastewater Collection Utility CIP Reappropriation and Commitment Reserves totaled
$4.8 million at the end of FY 2020. In addition to these previously budgeted funds, the FY 2021
Financial Plan estimated the additional CIP funding needed for FY 2021 to be $4.6 million while
the current projection is for only $1.2 million.
Additionally, as part of the FY 2022 Financial Plan, staff is requesting to implement an annual
capital program contribution from the Operations Reserve to the CIP Reserve beginning in FY 2022
as well as a one-time transfer of $2.2 million in FY 2021. Staff expects these changes to minimize
Operations Reserve fluctuations due to the timing of Wastewater Collection CIP.
24 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
4 Water Utility
The Water Utility serves water to virtually all Palo Alto residential and non-residential customers.
Nearly all of the water delivered comes from the San Francisco Public Utilities Commission
(SFPUC) Hetch Hetchy Water System. This system delivers high quality water from the Sierra
Nevada and uses no pumping to deliver water to Palo Alto. Palo Alto uses a small amount of
recycled water for irrigation of the Municipal Golf Course and a few other sites near the Regional
Water Quality Control Plant. The City also maintains a system of reservoirs and wells that enable
Palo Alto to serve water during an interruption of the Hetch Hetchy system. Costs for the Water
Utility are split approximately half for the operation, maintenance and periodic replacement of
Palo Alto’s water system and half for the costs of the water purchased.
4.1 Water Supply and Transmission
California is experiencing dry weather conditions with precipitation and snow pack well below
long-term median levels. The figure below shows the trend toward dryer and hotter conditions at
an upcountry weather station.
Figure 24: Upcountry Temperature and Precipitation Trends
Nevertheless, storage in the San Francisco Regional Water System is close to normal. As of June
1, 2021, the Regional Water System total storage operated by the San Francisco Public Utilities
Commission (SFPUC) was 76% full. The SFPUC expected Hetch Hetchy to fill but hot dry conditions
25 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
have resulted in more water soaked up by the ground; as a result, the reservoir will not fill to
capacity. The figure below shows storage in the Regional Water System for the past 12 months
and for the previous 12 months.
Figure 25: Regional Water System Storage
Because Regional Water system storage is relatively good, San Francisco Public Utilities
Commission, Palo Alto’s water supplier, has asked Palo Alto and other wholesale customers to
voluntarily reduce water consumption by 15%, in line with Governor Newsom’s Executive Order
N-10-21 requesting Californians to conserve water. The figure below shows water usage on the
Peninsula compared to several benchmarks including 2019. May of 2019 was a particularly wet
month, so the comparison between 2021 and 2019 is relevant starting in June.
26 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
Figure 26: SFPUC Water Deliveries
Valley Water, the groundwater manager in Santa Clara county, declared a water shortage
emergency and adopted a 15% mandatory water use reduction for water retailers its agency
serves. Valley Water also has limited water storage capabilities due to surface water reservoir
constraints. Palo Alto is working with Valley Water on messaging to customers in the county to
avoid confusion as much as possible. As such, the wise use of water rather than specific targets
will be emphasized.
4.2 Capital Improvement Plan Status
The following capital projects are currently in progress or have been recently completed:
• WS-09000 (Corte Madera Reservoir Seismic Upgrade): This is a design-build project. The
design of the new concreate tank was completed, the old steel tank was demolished, and the
foundation of the new tank was built. The construction of the new tank will start in July 2021
and the anticipated completion date is April 2022.
• WS-14001 - WMR 28 (Water Main Replacement 28): This project is currently under design
to replace approximately 18,600 linear feet of water main and 260 water services. The
anticipated start date for construction is January 2022.
4.3 Rate and Bill Comparisons
Figure 27 shows the water bills for single-family residential customers compared to what they
would be under surrounding communities’ rate schedules as of January, 2021. CPAU is among the
highest monthly bills of the group. Palo Alto’s water bills at 9 CCF per month are 16% higher than
the comparison group average. This summer, Santa Clara and Hayward are considering water rate
increases for water customers and staff will report on these and any other rate increases once
they are adopted by each water utility.
27 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
Figure 27: Residential Water Bill Comparison ($/month)
As of January 2021
Usage CCF/month Palo Alto Menlo Park
Redwood
City
Mountain
View Santa Clara Hayward
4 $46.89 $52.42 $54.04 $38.34 $25.72 $39.20
(Winter median) 7 70.28 77.50 76.09 59.37 45.01 60.62
(Annual median) 9 90.42 94.23 90.79 73.39 57.87 74.90
(Summer median) 14 140.77 136.31 138.94 108.44 90.02 112.51
25 251.54 229.06 267.39 227.65 160.75 205.02
4.4 Reliability
There were no outages or events to report in Q2 of calendar year 2021.
4.5 Financial Health
Below is a summary of the financial position for the water utility.
4.5.1 Sales forecasts vs. actual sales
Figure 28 below compares FY 2021 actual water sales volume with the forecasted water sales
from the FY 2021 Financial Plan (budget). Water sales volumes have been consistently higher than
forecasted in the FY 2021 Financial Plan and are projected to be 9.2% higher cumulatively for FY
2021. Correspondingly, Table 14 below compares FY 2021 actual water sales revenue compared
to the FY 2021 Financial Plan forecast. Actual water sales revenues have also been consistently
higher than forecasted in the FY 2021 Financial Plan and cumulatively are projected to be 9.6%
higher than the forecast. Although water purchase costs are expected to increase approximately
5% for FY 2021 overall compared to projections, staff projects that the increase in sales revenue
more than offsets the water purchase cost increases for FY 2021 and anticipates a positive impact
on reserves. Staff projects water purchase volume to be 5.5% higher than forecasted in the FY
2021 Financial Plan. Meter calibration differences between the SFPUC turnout meters and Palo
Alto’s water sales meters may have contributed to the higher sales volume difference relative to
the water purchase volume. SFPUC tested and calibrated some of its turnout meters in October
2020 and this resolved the difference.
FY 2021 has been hot and dry and also was influenced by COVID-related health mandates and
behavior changes. Businesses impacted by COVID restrictions used less water for most of FY 2021
until May when usage began to increase. However, Residential water sales volumes have been
generally higher during FY 2021 and this has more than offset decreases from commercial
customers.
28 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
Figure 28: Water Sales Volume (CCF), Projected FY 2021
Figure 29: Water Sales Revenue ($), Projected FY 2021
4.5.2 COVID Pandemic Impact on Sales
As shown below in Figure 30, CY 2021 water demands were cumulatively 9% above pre-pandemic
levels for the first six months of the year. This is higher than April through June of 2020, the first
few months shelter in place regulations were in place, during which time water demands
comparable to pre-pandemic levels. The difference in 2021 is the deepening of drought conditions
and the increase in irrigation that accompanied it. Demands are expected to decline as calls for
voluntary water conservation increase.
As shown in Figure 31, unlike other commodities, there was not much decline in water sales in
the small and medium commercial sectors, while large commercial and residential sectors water
sales have been higher than pre-pandemic levels. Note that sales data and load data do not
correspond perfectly because sales data is based on monthly meter reads that take place over the
course of a month, while load data is based on real-time electronic meter reads at the City’s gas
receiving stations.
29 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
Figure 30: Water Supply (CCF), CY 2019-21
Figure 31: Water Sales by Customer Sectors (CCF), CY 2019-21
4.5.3 Financial position
The Water Operations Reserve was above the reserve guideline levels at the beginning of FY 2021
and staff projects it will remain above the maximum at year end FY 2021. However, Council
approved up to an $8 million transfer from the Operations Reserve to the CIP Reserve in FY 2021
to fund ongoing CIP work and staff is requesting authorization for up to an additional $13.24
million in transfers from the Operations Reserve to the CIP Reserve in FY 2022 to fund ongoing
main replacements (WMR 28 is planned in FY 2022) as well as one-time seismic reservoir upgrades
(one upgrade is ongoing and a second is planned for FY 2023). These transfers together with
expected revenues and expenses are projected to bring the Operations Reserve to approximately
target levels by the end of FY 2023. The need for the transfers will be re-evaluated at the end of
FY 2021 when the reserve balances are known. Additionally, approximately $11 million in projects
budgeted in FY 2020 or earlier will be re-appropriated to FY 2021. The largest being seismic water
system upgrades, estimated at $5 million.
30 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
5 Fiber Utility
The City offers a "Dark" fiber service providing a fiber connection from Palo Alto businesses to the
downtown Internet Exchange. At the exchange businesses select an internet service provider (ISP)
for bandwidth and connection speed.
5.1 Fiber Utility Strategic Planning
On June 21, 2021, Council approved contract amendment #2 with Magellan Advisors to conduct
a detailed engineering design of the new fiber backbone expansion and fiber-to-the-home (FTTH).
The amendment seek to gain seeks to gain efficiency and cost savings by integrating Phase 2 (a
detailed engineering design and cost estimate for fiber expansion to support AMI, SCADA, and
wireless communication for City field staff and other City services) and Phase 4 (detailed
engineering design and cost estimate for FTTH). By combining phases 2 and 4, the detailed
engineering can be completed for the two phases concurrently rather than independently of one
another. This will lead to a shortened design timeframe, synergies in engineering design for both
networks and reduced costs for the City.
The benefits of combining these two phases include a more streamlined constructability analysis,
reduced costs for onsite fielding and a more integrated design for both networks. Field teams will
concurrently walk out each route within the City for fiber backbone and fiber to the home
networks. This enables fielders to be more efficient with their time and reduce duplication of walk
outs. By engineering both the City network and the FTTH network simultaneously, Staff
anticipates a more City of Palo Alto Page 3 substantial opportunity for value engineering as well,
which will lower engineering costs and has the potential to materially reduce construction costs.
In addition to the engineering design, Magellan will partner with the City to conduct
comprehensive community education and outreach to raise awareness of the FTTH initiative. This
will include development of educational materials, content, outreach with residential
neighborhoods and business groups, Q&A, utilization of the City’s engagement platforms and
related functions to build awareness of the FTTH program among residents and businesses in Palo
Alto. The education and outreach program will be conducted in advance of any survey work to
ensure that the City is able to accurately assess community interest in the program. The purpose
of the surveys is to measure demand for broadband services and to better understand what value
residents and businesses place on different aspects of their broadband services. The community
education and outreach will begin in August 2021. The survey is anticipated to be completed by
January 2022.
31 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
5.2 Capital Improvement Plan Status
The following capital projects are currently in progress or have been recently completed:
Fiber Optic Network System Rebuild - This project is for the System Capacity Improvement that
rebuilds portions of the "dark" fiber optic network around Palo Alto. Staff installed 2300 feet of
substructure work for fiber as part of the Foothill Rebuild Project.
The Fiber Network Rebuild CIP project is temporarily on hold pending the results of the fiber
expansion project. The new proposed fiber backbone will provide high capacity fiber to City
departments (Utilities, Public Works, Office of Emergency Services, Transportation, Information
Technology, and Community Services). The backbone will be routed through neighborhoods and
business districts and reduce some of the costs for FTTH network.
5.3 Reliability
No outages or events to report in Q2 FY 2021.
5.4 Financial Health
Below is a summary of the financial position for the fiber utility.
5.4.1 Fiber Sales
Fiber revenues for FY 2021 are projected to be $4.0 million, which is 15% below the budget
forecast of $4.7M. Compared to FY 2020, fiber sales are anticipated to be 12.5% below FY 2020
fiber sales of $4.5 million. The decrease in FY 2021 fiber sales is due to a higher number of
disconnections than projected as a result of the pandemic. In addition, one of the City’s few
remaining EDF-1 promotional rate customers have converted to the EDF-3 rate which results in a
decrease of $280,000 of annual fiber leasing revenue. Due to the temporary suspension of the
Fiber Network Rebuild CIP, FY 2021 expenses are projected to be 22% or $1.0 million below
forecast.
5.4.2 Financial position
The projected ending FY 2021 Fiber Optic Utility Rate Stabilization Reserve is $34.7 million.
32 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
6 Customer Programs (Efficiency and Sustainability)
The City’s Utilities Department maintains a number of programs to help customers save money,
use energy and water efficiently, and reduce carbon emissions. These programs are funded
through a variety of funding sources, some of which are summarized below.
6.1 Customer Programs Updates
Below is a summary of the City’s energy and water efficiency programs, as well as programs to
encourage building electrification and adoption of electric vehicles.
6.1.1 Energy and Water Efficiency
Saving Energy and Water While Sheltering in Place – Staff is committed to finding additional ways
to innovate and expand energy and water related programs in the shelter in place environment.
Recognizing that unprecedented numbers of people are working and studying from home and will
likely experience increased costs on their utility bills, the City has been sending e-mails and
running a social media campaign to share tips and tricks for saving energy and water and making
the home environment more comfortable. View these tips online at:
https://www.cityofpaloalto.org/Departments/Utilities/Residential/Home-Efficiency-
Genie/Efficiency-Tips
and follow the City in social media with the hashtags #WePowerOn #PaloAltoProud and
#PublicPower.
Business Advantage Program
In March 2021, CPAU launched a new Business Advantage Program to help small and medium
business customers save energy, money, and improve indoor air quality. The program provides
businesses with a free Energy Management System, a cloud-based energy management portal,
and free MERV-13 air filters to improve indoor air quality. Customer interest in the program has
been high – as of July 19, 2021, 12 systems have been installed and 55 additional businesses have
been approved for installation.
Energy & Water Efficiency Workshops
Many public events and workshops were canceled this spring in response to the COVID-19
pandemic. The City’s partners at the Bay Area Water Supply and Conservation Agency (BAWSCA)
are offering virtual landscape workshops so residents can learn how to save water and improve
the sustainability of your landscape from the comfort of home. Palo Alto residents and businesses
33 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
can take advantage of landscaping programs through the City’s cost-sharing partnership with
Valley Water at https://www.valleywater.org/saving-water/rebates-surveys
The Home Efficiency Genie program will be continuing with a webinar series, started in the
summer of 2020, with an informative evening on May 4 2021 covering the many aspects of
preparing a home for spring and summer conditions by focusing on efficiency, comfort and health.
Highlights include maintaining a comfortable and healthy home by improving the building
envelope with insulation and air sealing. With impending fire seasons, the webinar will emphasize
best practices for air sealing and adequate filtration to reduce the health risks associated with
smoky outdoor conditions. With warmer temperatures approaching and more residents
interested in adding air conditioning, an emphasis will be on the benefit of converting a gas fueled
furnace to an efficient all electric heat pump that will add cooling to their home. With a year of
lower annual rainfall, the City will provide guidance on water saving measures, especially with
promoting the lawn replacement rebates offered through its partner Valley Water.
Modifications to Utilities Programs
In accordance with the County order lifting restrictions on construction activities, some energy
efficiency projects are resuming. Examples of allowed activities include commercial energy
efficiency projects, solar installations, EV charger installations, and other work that does not
require staff or consultant visits inside occupied residential dwellings. The County’s construction
protocols must be followed.
• Large projects in spaces over 20,000 feet of floor space require one set of protocols be
followed: https://www.sccgov.org/sites/covid19/Documents/appendix-b-2-lg-project-
04-29-2020.pdf
• Small project in spaces less than 20,000 square feet require a different set of protocols:
https://www.sccgov.org/sites/covid19/Documents/appendix-b-1-sm-project-04-29-
2020.pdf
Although all visits inside occupied residential dwellings were on hold during the pandemic, CPAU
is currently resuming those visits. During the pandemic many Utilities programs have been
modified to continue to provide value to the community. The Residential Energy Assistance
Program (REAP) program was unable to provide the usual in-home visits to offer direct install
efficiency measures to REAP program participants since March of 2020 due to health and safety
concerns associated with COVID19. In order to provide no contact service to REAP customers, the
City arranged with its Home Efficiency Genie program provider CLEAResult to offer free over the
phone efficiency advice, free self-install measures and free Genie virtual in-home visits. The Genie
virtual assessment offers participants an innovative, smart-phone-based engagement platform
with the Genie technician to virtually walk participants through their home offering live,
interactive efficiency advice. Following the assessment, they are offered free efficiency measures
like LED light bulbs, smart power strips and water saving devices delivered to their home. These
virtual Genie services were initially offered to approximately 100 REAP participants who have
been unable to take advantage of the REAP in-home services since March 2020.
Events and Workshops
34 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
For updates on future events and workshops, please visit http://cityofpaloalto.org/workshops.
6.1.2 Electric Vehicles
Palo Alto continues to facilitate the installation of EV charging infrastructure throughout the City.
Staff is focused on facilitating the build out of charging infrastructure at workplaces, public
parking lots and retail areas, as well as focused attention on low-income, multifamily and non-
profit customers. Correspondingly, cross-departmental work is progressing on proposals for
curbside charging, fleet electrification and permit streamlining.
Overview:
• EV programs currently use Low Carbon Fuel Standard funds, budgeting $8.93 million over
a 3-year period from CY 2019-2021.
• Dollars spent to date: $1.94 million. Of this amount, $893k was transferred to the state-
run point-of-sale Clean Fuel Reward EV rebate program and $343k was transferred to
Public Works to cover CNG stations and public EV charger related costs.
• Total LCFS revenues received to date is $8.53 million. After expenditures/transfers to
date, $6.6 million in funds are available for EV programs as of early March 2021.
Updates:
• A total of $1.4M of funds were reserved by 6 sites through CALeVIP (California Electric
Vehicle Infrastructure Project), a commercial EV charging matching grant program
sponsored by the California Energy Commission (CEC) with a total of $2 million in funding
over two years. The 6 sites are comprised of 2 hotels, 3 office sites and 1 Midtown retail
parking lot. These funds were reserved with the intent of installing 100 Level 2 ports and
12 to 14 DC Fast Chargers.
• Staff is developing a robust online and post-pandemic in-person calendar of EV education
and outreach events for 2021 and 2022 beginning with a regional Earth Day EV event
which CPAU co-sponsored with Drive Clean Bay Area (DCBA) and other local agencies.
The April 24th event was attended individuals from across the Bay Area, of which Palo Alto
residents made up the largest percentage of participants. DCBA has also been offering
free weekly EV 101 classes which we have been promoting to our residents.
• The City continues to promote its technical assistance and incentive program to
encourage EV charging in multi-family residential buildings and non-profits. This program
provides personalized technical assistance, free of charge, to support owners and
managers of schools, non-profits, multifamily properties and small to medium businesses,
navigate the process of installing EV charging infrastructure. Qualifying organizations can
also receive up to $80,000 for installing shared use EV chargers. Over 40 sites have signed
up for the program and City staff and the City’s 3rd party program provider are steadily
helping participants through the complex process of preparing their sites for submitting
building permits. Two site owners have already submitted permits, and more are
expected in the coming months.
35 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
Figure 32: EV Technical Assistance Program (EVTAP), Cumulative Progress Report Oct 2019 – May 2021
Next Steps:
Defining Low-Income - Starting 2022, Low Carbon Fuel Standard (LCFS) regulation by the
California Air Resources Board (CARB) will require all electric utilities, including the CPAU to
spend up to 50 percent of revenue from the sale of LCFS credits to support transportation
electrification projects that benefit disadvantaged, low-income customers. CPAU will develop
programs to serve low to moderate income customers to help them transition from fossil fuel-
based transportation to zero-emission modes of transportation. Beyond 2024, staff
anticipates that CPAU will need to spend $1M+ per year on programs for lower income
customers. In the next quarter staff anticipates completing the following:
• Defining Low Income
• Program proposals for this customer segment, especially those who reside in multifamily
residences
6.1.3 Building Electrification
With sustainability continuing to be a City Council priority, staff recognizes the need to promote
the importance and benefits of building electrification while removing barriers to voluntary
electrification efforts in existing buildings. Current work covers three areas of activities: public
outreach, customer program development & implementation, and strategy and policy
development.
For public outreach, staff has partnered with the Building Decarbonization Coalition (BDC) to
develop and launch the Switch is On campaign. Switch is On is a consumer-facing inspiring
campaign focusing on residential electrification; the campaign website was launched in late 2020
(switchison.org), and KQED radio ads ran between January and April 2021. CPAU also partnered
with the Empowerment Institute to conduct focus groups with prior Cool Block participants to
identify adoption barriers and development effective electrification messaging options. The Cool
Block program curriculum has been updated to align with the City’s overall electrification goals.
36 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
For customer programs, CPAU continues to promote the ongoing HPWH rebate program. In
November 2020, CPAU issued an RFP for nonresidential energy efficiency and electrification
programs. Staff is currently finalizing the contract negotiation with vendors with program launch
date planned in the fall. CPAU will also launch new commercial electrification incentives in
summer 2021. In June 2021, a comprehensive RFP was issued for residential building
electrification, energy and water efficiency programs which includes single family and multifamily
homes as well as our income and medically qualified residents. Staff plans to launch this suite of
residential programs in early 2022.
For strategy and policy development, CPAU is currently collaborating with Planning &
Development Services to propose the adoption of all-electric reach code for accessory dwelling
units (ADUs) and nonresidential new construction projects. This will expand on the current all-
electric reach code for low-rise residential new construction projects adopted by City Council in
December 2019.
6.2 Funding Sources for Emissions Reductions
Energy efficiency and water efficiency programs have traditionally been funded by electric, gas,
and water rate revenues, but the City has developed multiple alternative funding sources to fund
emissions reduction programs.
6.2.1 Low Carbon Fuel Standard (LCFS) Program
LCFS base credits are allocated by CARB to CPAU, based on the number EVs registered in Palo
Alto, the estimated miles travelled and the difference in carbon intensity of transportation fuels
and electricity. Additional credits were also allocated for fork-lifts but have now been
discontinued. Credits are also allocated based on CNG dispensed and electricity dispensed at city
owned EV chargers. Due to the pandemic and the resulting decline in EV miles travelled, the
credits earned declined by 44% in CY Q2 2020, but partially recovered by the end of CY 2020.
There was a 20% year-on-year decrease of credits from CY 2019 to CY 2020. The value of the
credits earned in CY 2019 was $2.3 million compared to the estimated $1.8 million earned in CY
2020. This dollar amount is significantly lower than the $2.6 million value/revenue which was
projected for CY 2020 before the pandemic hit.
6.2.2 Cap and Trade Program, Revenue from Allocated Allowances
The Global Warming Solutions Act of 2006, also known as Assembly Bill (AB) 32, authorized the
California Air Resources Board (CARB) to develop regulations to lower the state’s greenhouse gas
(GHG) emissions to 1990 levels by 2020. CARB developed a cap-and-trade program as one of the
strategies to achieve the 2020 goal. Under the cap-and-trade program, an overall limit on GHG
emissions from capped sectors is established and facilities subject to the cap are able to trade
permits (allowances) to emit GHGs.
In 2012, CARB’s cap-and-trade program commenced and certain covered entities, such as
electricity generators and other stationary sources of GHGs, have a compliance obligation under
the new program. The City of Palo Alto Utilities’ (CPAU’s) electric utility does not own or operate
fossil fuel-based electricity generation covered by the cap-and-trade regulations. CPAU also
received free allowances from CARB to mitigate the costs of reducing its GHG emissions. Since
37 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
CPAU’s electric utility typically has no need to use the allowances for compliance, it must sell them
into the cap-and-trade auction.
Allowance revenues, estimated to be at around $3 million per year in 2022 and onward, can be
used for several approved purposes, including: a) Purchases or investment in renewable resources
(outside Palo Alto or locally) for the electric portfolio; b) Investment in energy efficiency programs
for the electric portfolio and retail customers; c) Investment in other carbon reduction activities,
including those required to achieve a carbon-neutral electric portfolio; and d) Rebates to electric
retail ratepayers.
As of 2020, all allowances have been utilized for purchases of renewable resources. Moving
forward, the City is investigating using some of these funds for investments in emissions reduction
programs as well.
6.3 Innovation and Pilot Programs
CPAU’s Program for Emerging Technologies, or PET, (www.cityofpaloalto.org/UTLInnovation)
provides the opportunity for local businesses and organizations to submit proposals for innovative
and impactful products to CPAU for review as a prospective partner. The goal is to find and nurture
creative products and services that will improve customer value, save natural resources, or reduce
carbon emissions. From the program’s inception in June 2012 through the third quarter of FY
2021, the program has received a total of 94 applications. Figure 33 below summarizes the status
of all applications through the third quarter of FY 2021.
So far this year, none of the applicants have reached the threshold of value, quality, and relevance
to be considered good fits for a pilot project. CPAU is currently in discussions with some applicants
about revising their projects and is also evaluating potential regional collaborations with
promising early stage companies. In order to provide more clarity for applicants and better focus
the applications on CPAU’s priorities, staff is also revising the program’s guidelines to highlight
what makes a compelling project pitch for CPAU. These updated program priorities and guidelines
were released this year and presented to the UAC. Pending other priorities and sufficient
resources, staff will work with local universities and accelerators to solicit high-quality
applications closely aligned with CPAU’s highest priorities in calendar year 2021.
6.3.1 Academic Collaborations
This past six months, staff completed two academic collaborations which were started in FY 2020.
One collaboration was with a Stanford researcher modeling hourly all-electric load shapes for
single family homes and the implications for the distribution systems, transmission system and
electricity generation in California. The other collaboration was with a San Jose State researcher
modeling the impacts of utility scale battery systems on the emissions of the California electricity
wholesale market.
6.3.2 Completed Projects
In FY 2020 we submitted three letters of support for exceptionally promising very early-stage
technologies for research grants and accelerators, and completed the previously mentioned
academic collaborations.
38 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
Figure 33: Status to date of all applications to the Program for Emerging Technologies
Deadline Total Received Under Review Declined/Closed Active Completed
FY 2013 13 0 11 0 2
FY 2014 15 0 11 0 4
FY 2015 15 0 11 0 3
FY 2016 14 0 9 0 5
FY 2017 10 0 7 0 3
FY 2018 10 0 9 0 1
FY 2019 9 0 5 0 4
FY 2020 8 0 3 0 5
FY 2021 0 0 0 0 0
TOTAL 94 0 66 0 27
39 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
7 Communications
This section summarizes communications highlights, updates on major campaigns and
noteworthy events. Copies of ads and bill inserts are available online at
http://cityofpaloalto.org/UTLbillinsert.
Scam Alert: The City has received recent reports of scam callers pretending to be from Palo Alto
Utilities. If you suspect you are being contacted by scammers, please hang up and call the Palo
Alto Police Department non-emergency 24-hour dispatch center at (650) 329-2413. Remember,
you can always check your account info online at cityofpaloalto.org/mycpau or call Utilities
Customer Service at (650) 329-2161 to verify payment and account status.
Call Before You Dig: Summer is here and many people will be working on landscape or home
improvement projects. Remember to always call Underground Service Alert (USA) at 811 at least
48 hours prior to digging in an area. Underground utility pipelines can be located anywhere,
sometimes just inches below the surface. Hitting a pipeline while digging, planting or excavating
can cause serious injury, property damage and loss of utility service. USA 811 is a free service. If a
utility service is disturbed or damaged, call Utilities 24/7 Dispatch at (650) 329-2579, or 911 if
there is an immediate threat to life or safety. The City will dispatch crews to fix the damaged
services and make the area safe.
Public Safety Power Shutoffs: Wildfires have intensified in California, and power utilities are
taking action to reduce fire risks related to utility infrastructure. During extreme weather a utility
may shut off power to electric lines in high threat areas to prevent wildfire. This is called a public
safety power shutoff, or PSPS. The City has identified the Palo Alto Foothills as a geographic area
at an elevated risk for weather-related wildfire during Red Flag Warning conditions. CPAU is
reaching out to customers in the Foothills to ensure contact information is up to date in the event
we need to notify them of a potential or imminent PSPS. Additional outreach will be going out to
the broader community for their awareness about PSPS and what to expect from CPAU’s local
operations.
Business Advantage Program: Earlier this year, CPAU launched a new Business Advantage
Program to help small and medium business customers save energy, money, and improve indoor
air quality. The program provides business customers with a free Energy Management System,
cloud-based energy management portal, and free MERV-13 air filters to improve indoor air
quality. As of mid May, close to 30 customers have signed contracts to move forward with
participation.
40 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
Water Supply Update: The San Francisco Public Utilities Commission (SFPUC) is asking its
wholesale customers to try to keep summer water use to 2019 levels. The water supplier for the
rest of Santa Clara County, Valley Water, is asking for a 25% reduction in water use compared to
2013 levels. Both of these calls for conservation are voluntary at this point. Palo Alto is
coordinating messaging with the Bay Area Water Supply and Conservation Agency (BAWSCA) and
Valley Water about Making Water Conservation a California Way of Life. Our agencies are
promoting the many free services, education, rebates, and other programs for water use
efficiency. A primary area of focus is outdoor irrigation and landscaping. Rebates are available for
landscape and irrigation conversion projects, laundry to landscape graywater, rainwater
catchment, and permeable paving. Visit water and watersavings.org for details on these
programs.
Landscape Workshops: CPAU recently hosted three free virtual landscape workshops in
collaboration with BAWSCA and the City’s Public Works Department. Landscape professionals
presented tips and practical applications for landscape design, landscape conversion and pervious
pavement. Staff from CPAU and Public Works shared information with attendees about available
water conservation and stormwater rebates. At all three webinars combined, there were more
than 230 people in attendance.
41 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
8 Legislative and Regulatory Activity
Below is an overview of State legislative and regulatory activity that impacts City utilities that City
staff is currently tracking.
8.1 State legislation
CPAU is currently tracking 20 state bills, far fewer than the 45 or so we were tracking last quarter.
The reduction is due to (1) some bills stalling for the year, and (2) a mandate from the Senate
President and Assembly Speaker that significantly limits the number of bills each legislator may
continue to carry in 2021. Many of the bills not moving forward this year will appear again in 2022.
Key bills to note are:
AB 525 (Chiu) Energy: offshore wind generation. Requires the CEC to develop a strategic plan by
December 31, 2022, for offshore wind development off the California Coast. The bill further
requires, in part, the CEC to develop a plan to improve waterfront facilities that could support a
range of floating offshore wind energy development activities and asses the transmission
investments and upgrades necessary to support offshore wind planning goals.
AB 758 (Nazarian D) Marks-Roos Local Bond Pooling Act of 1985: electric utilities: rate reduction
bonds. A CMUA-sponsored bill, AB 758 authorizes electric POUs to issue rate reduction bonds,
an authorization already granted to water POUs. CPAU has issued two letters of support.
AB 970 (McCarty) Planning and zoning: electric vehicle charging stations: permit application:
approval. Establishes specific time frames in which local agencies must approve permits for
electric vehicle (EV) charging stations.
AB 1500 (Garcia, Eduardo) Safe Drinking Water, Wildfire Prevention, Drought Preparation, Flood
Protection, Extreme Heat Mitigation, and Workforce Development Bond Act of 2022. If approved
by voters, would provide bond funding to finance projects for safe drinking water, wildfire
prevention, drought preparation, flood protection, extreme heat mitigation, and workforce
development programs.
SB 45 (Portantino) Wildfire Prevention, Safe Drinking Water, Drought Preparation, and Flood
Protection Bond Act of 2022. If approved by the voters, would authorize bonds for $5.6 billion to
finance projects for a wildfire prevention, safe drinking water, drought preparation, and flood
protection program.
42 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
SB 323 (Caballero) Local government: water or sewer service: legal actions. Creates a 120 day
statute of limitations for legal challenges to water and sewer service charges that are adopted
after January 1, 2022.
SB 378 (Gonzalez) Local government: broadband infrastructure development project permit
processing: microtrenching permit processing ordinance. Authorizes a fiber provider to determine
the method of installing fiber in a city, including microtrenching.
SB 423 (Stern): Energy: renewable and zero-carbon resources. Proposes to accelerate
procurement and planning of specified emerging renewable energy and zero-carbon resources
into existing energy procurement and planning processes. NCPA opposes the bill due to concerns
about new authority that may be granted to the CEC related to POU procurement practices.
SB 427 (Eggman) Water theft: enhanced penalties. Authorizes a local government to make any
violation of a local ordinance regarding water theft subject to an administrative fine in excess of
current legal limits.
SCR 49 (Hueso) Public Power Week. A resolution designating the first full week of October of each
year as “Public Power Week." CPAU submitted a letter of support.
CPAU staff continues to work closely with CMUA and NCPA on legislative issues. This work
includes participating on legislative committees, standing work groups, and ad hoc work groups.
8.2 State regulatory proceedings
Below, we note the issues that CPAU has tracked or engaged in with various agencies during the
last quarter, primarily through our work with CMUA and NCPA.
8.2.1 Energy Commission
The CEC held joint workshops with CAISO and the CPUC to discuss (1) electric system reliability
for summer 2021 and (2) SB 100 goals
8.2.2 Public Utilities Commission
Proceedings related to PSPS and physical security, transition of the Wildfire Safety Advisory Board
to the Office of Energy Infrastructure Safety under the California Natural Resources Agency, and
Wildfire Mitigation Plan updates
8.2.3 State Water Resources Control Board
Indoor and outdoor water use, drought and water shortage, and water loss control standards.
8.2.4 Air Resources Board
AB 32 (GHG emissions) Scoping Plan Update workshops
8.3 State budget
NCPA and CMUA are actively supporting a Senate budget bill that includes $993.5 million to fund
an electric and gas utility arrearage program. Assisting residents in paying their utility debt was
part of Governor Newsom’s budget proposal.
43 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
Appendices
44 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
9 Appendix A: Energy Risk Management Program
This appendix provides a quarterly update on the City’s Energy Risk Management Program.
9.1 Overview of Hedging Programs
The City’s Utilities Department maintains a hedging program for its Electric and Gas Utilities. In
the Gas Utility the program protects against short-term (intra-month) price spikes caused by
weather or major incidents on the Western gas system. However, the City does not hedge its gas
supply more than one month in advance, choosing instead to protect the Gas Utility’s financial
position by passing gas supply costs through to customers via a charge that varies monthly based
on gas market prices. As a result, the Gas Utility’s only market exposure is the amount by which
gas demand deviates from forecasts within the month. This exposure is relatively small and can
be managed using Gas Utility Operating Reserves. A risk assessment is performed each year as
part of the Gas Utility financial planning process to ensure adequate reserves to cover all risks.
The most recent Gas Utility Financial Plan was adopted June 21, 2021 (Staff Report #12240).
The City has entered into long-term contracts for its Electric Utility to ensure that the City has
carbon free electricity supplies equal to 100% of Palo Alto’s annual electric demand. However,
the output from these generating sources does not match Palo Alto’s electric load. In the summer
the City has a surplus of carbon free energy and in the winter it has a deficit. This exposes the City
to market risk, and staff maintains a hedging program to protect against this risk. In addition
hydroelectric generators make up approximately half the City’s energy supply. During dry years
these resources do not generate as much energy, creating an additional market exposure that
must be hedged. Unlike the gas hedging program, which is operated by City staff, the electric
hedging program is operated by the Northern California Power Agency (NCPA), a joint powers
agency the City formed in partnership with several other California publicly owned electric
utilities, with oversight by City staff.
9.2 Overview of Energy Risk Management Program
The hedging programs described above are conducted in accordance with the City’s Energy Risk
Management Program, which includes a set of Program Policies adopted by the City Council,
Guidelines adopted by the City’s Utilities Risk Oversight Coordinating Committee (UROCC), and
Procedures approved by the Utilities Director. In addition, for the electric hedging program, NCPA
maintains its own Risk Management Program. The City is able to provide policy level oversight of
this program through its seat on the NCPA Risk Oversight Committee, which is held by the City’s
Risk Manager.
Per the Energy Risk Management Policies, the City Council must receive quarterly reports on the
City’s forward contract purchases, market exposure, credit exposure, counterparty credit ratings,
transaction compliance, and other relevant data.
9.3 Forward Contract Purchases
Below is a list of future forward purchases and sales made in Q2 of calendar year 2021.
45 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
Figure 34: Electric Energy Contracts
Delivery Month NCPA Deal # Deal Type Avg Capacity
(MW/mo)
Total Energy
(MWh)
Avg Price
($/MWh)
Amount ($)
Feb 21 2004244 Purchase 20 5,760 34.20 196,992
May - Jul 21 2004293 Sale (26) (49,200) 38.66 (1,901,920)
Dec 21 - Feb 22 2004259 Purchase 10 12,000 49.25 591,008
Dec 21 - Feb 22 2004260 Purchase 20 19,200 40.26 772,944
Jun - Aug 22 2004293 Sale (30) (37,440) 46.56 (1,743,360)
9.4 Market Exposure
The chart below shows the City’s market exposure and committed and planned purchases and
sales to cover exposed positions.
Figure 35: Electric Load Resource Balance, FY 2021-23
9.5 Counterparty Credit Ratings
Information on credit risk and counterparty credit ratings are provided semi-annually in the
Energy Risk Management Report provided by the City’s Administrative Services Department. The
most recent report was April 19, 2021 (Staff Report #11898).
Planned
46 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
9.6 Transaction Compliance
There are no noted Risk Management policy exceptions.
47 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
10 Appendix B: Additional Charts and Graphs
Additional charts and graphs
48 Utilities Quarterly Update: Second Quarter of Calendar Year 2021
September 1, 2021
11 Appendix C: Water Utility Annual Infrastructure Maintenance and
Replacement Report
In each Quarterly Update the Utilities Department will provide a detailed overview of a single
utility’s investment and maintenance activity. This quarterly update focuses on the water utility.
Page 1 of 5
Water Utility Asset Management Overview - 2020
Executive Summary
•The City continues to meet water quality standards and regulatory requirements
•Water Main Replacement program continues as planned
•Corte Madera Reservoir Replacement Project is in construction
•Advanced Metering Infrastructure (AMI) bidding completed, program to start in 2022
Infrastructure Overview
See attached for an overview of all assets. Key infrastructure replacement
efforts in the next five years include:
●Regular main replacement
●Replacement of Corte Madera Reservoir
●Overhaul of California Ave Turnout
●Repair and seismic retrofit of Dahl and Park Reservoirs
System Operations and Maintenance
There are 17.2 Total FTE’s working on Water System O&M.
●Water Quality (2.3 FTE):
o *Monitoring: Weekly, monthly, quarterly, annual water quality
sampling
o *System Flushing: Flushing dead ends in the system to prevent
bacterial accumulation
o Backflow Prevention (BFP) Program: Ensuring water from easily
contaminated end-uses does not enter water system
●*System Monitoring (1 FTE): 24-hour monitoring and management of
the system to ensure it is operating safely, moving water in and out of
reservoirs to preserve water quality
●System Inspections (1.3 FTE): Periodic field inspections of pump stations
and other key system components
Asset Management Goals
What are our goals?
-Prevent system failures that can cause
property damage and threaten the health and
safety of our employees and community
-Maintain our ability to reliably deliver
service to our community
-Maintain our community’s ability to fight
fires and preserve health and safety in a
major emergency
-Keep costs down by maximizing asset life
and controlling unplanned maintenance
costs
-Exhibit a culture of compliance, ensuring
we comply with our regulatory requirements
How do we achieve those goals?
-Inspect our system to make sure it is
running properly and the water is in good
condition
-Make repairs in a timely manner
-Replace assets as they reach end of life or
their condition deteriorates
-Identify capacity constraints and risks to
our assets and mitigate these issues
promptly through appropriate capital
investment
-Look for ways to increase our productivity
and control costs by completing our work
more efficiently
Attachment B
Figu re 1: FTE Breakdown by Maintenance Catego ry
New Con struction
22.1%
Unpl4nned Moinl enanoe
14. ~
System Monitoring
S stem Ins ctions
7.6%
WoierQuali
13.4%
l;)la nned Mainlenance
37.2%
Page 2 of 5
● Planned Maintenance (6.4 FTE): Test and maintain distribution system equipment required for
operations such as station mechanical equipment, valves, and meters, and non-emergency repair
and replacement of degraded or damaged assets (e.g. hydrants, valves, mains, and services).
● *Unplanned Maintenance (2.5 FTE): Emergency response and infrastructure repairs and
replacements requiring immediate attention.
● New Construction (3.8 FTE): Installation of new water services, valves, and meters for construction
projects.
*First priority programs critical to daily operation
Maintenance Status:
● Critical maintenance programs running smoothly
● BFP inspection program meets state requirements but has room for improvement in enforcement
● Valve exercise program needs to be digitized for better record keeping
● Large meter testing and replacement program behind schedule due to staffing issues
Table 1: Status of Drinking Water System Operation and Maintenance Programs
System
Operation or
Maintenance
Program
Status
Green = good
Yellow = room
for improvement
Comments
Water quality
monitoring City has a regular testing program to meet all regulatory requirements. This
includes tests of disinfection effectiveness, water quality, and water physical
characteristics.
System flushing Flushing is performed to prevent stagnation of water in rarely used outlets
like hydrants and blowoff valves. This flushing is done on a regular schedule
throughout the year. City is keeping up with its flushing schedule.
Backflow
prevention Backflow preventers (BFP’s) protect water quality by preventing water in a
customer’s system from flowing back into the City system. City owns about
400 BFP’s which are tested annually. Private BFP owners are required to test
annually and submit results to the City. Between 92 and 95% of owners
typically comply with the requirement. The City continues to investigate ways
to improve compliance. The State Water Resources Control Board has not
found the City out of compliance with State regulations, but continues to
note the compliance rate as an area to focus on in the future.
System
monitoring The City maintains 24-hour system monitoring. Several staff are adequately
trained to handle this function in the event of a staffing emergency to ensure
redundancy.
Valve Exercise Valves are being operated on a five-year cycle and broken valves are repaired
as they are discovered. Valve inspection and exercise program uses paper
•
0
•
0
Page 3 of 5
records that are inputted every 4-5 months. Efficiency could be improved by
digitizing this process to enable more timely management oversight of
monthly production goals. In 2020, only 69% of target was met for number of
valves exercised for months with available data.
Meter
Maintenance Multiple one-time sampling projects have shown that most meters are in
good shape, however there are also many meters due for replacement. City is
evaluating mass replacement of older small water meters as part of City’s
AMI rollout in 2022. In 2020, City joined with other regional agencies in a
third-party meter testing program, starting with testing 250 small meters per
year. Meter shop is hiring and training new employees to focus on annual
testing of large water meters as well as emergency repairs of small meters.
No testing or replacement of large meters took place in 2020.
Unplanned
Maintenance There are no backlogs of leaks or assets in need of repair. The City maintains
an emergency on-call program to respond to and control water leaks or other
system emergencies at any hour of the day or night.
Table 2: Condition of Drinking Water System Assets
Asset Class Quantity Maintenance Asset Condition
Water Receiving
Stations (Turnouts)
5 Meter testing (every 2-5 years)
Annual Maintenance (calibrate
pressure transducer and analog
gauges, exercise isolation
valves and PRV’s, clean out
cover)
Most receiving stations currently require only
minor and routine maintenance and are in good
condition overall. Some minor improvement
projects may be required in the next few years.
California Ave turnout is scheduled for overhaul in
FY2022. Page Mill turnout is scheduled to have
valves restrained after Corte Madera tank
construction is complete.
Booster Stations /
Pressure Reducing
Stations
7 / 6 Annual maintenance (calibrate
upstream / downstream
pressure transducer, analog
gauges, check pressure
switches, exercise isolation
valves and PRV’s, cleaning).
Mayfield and El Camino PS have
VFD’s which are maintained by
Tesco.
Weekly monitoring
Most booster stations and pressure reduction
stations require only minor and routine
maintenance and are in good condition overall.
Minor improvement projects may be required in
the next few years.
Reservoirs 7 Annual maintenance (climb
tank, take physical reading of
water level, check altitude
valve, check screens, calibrate
Several reservoirs have had recent seismic
upgrades and general rehabilitation. Corte Madera
Reservoir is in the early stages of its replacement.
Dahl and Park Reservoirs are having mixers added
0
Page 4 of 5
tank pressure transducer,
analog gauges)
Water quality monitoring
in 2021 and are scheduled for repair and seismic
retrofit in FY 2023. Mayfield Reservoir is the only
other tank without a mixer, but it has passive
mixing and fewer water quality problems since it is
a partially buried tank.
Emergency Wells 8 Annual maintenance (check
pressure switches, calibrate
pressure transducer, analog
gauges). Wells have VFD’s
maintained by Tesco.
Water quality monitoring
City wells were rehabilitated in 2013, but some
maintenance is needed. Pressure transducers for
all wells are in need of repair. Rinconada Well’s
pump needs to be downsized so it can be powered
by a reasonably-priced generator during a power
outage. Water main connected to Peers Park Well
needs replacement. City has begun evaluating
adding generators for wells.
Water Valves ~6,000
valves
Operate every valve at least
once every five years (1200
valves per year), repair /
replace as needed
Operate 120 critical valves in
foothills annually
Valves are replaced on failure, or proactively when
water mains in the area are replaced.
Water Mains and
Services
~230
miles of
main,
~20,000
services
Repair leaks as identified
Monitor water quality
Water Main Replacement program continues as
planned, prioritizing leaky pipes and seismically
vulnerable pipes. Asbestos-Cement Pipe testing
program is underway to help update replacement
program as needed.
Water Meters ~20,000
small
meters,
380 large
meters
Sample test small meters, test /
repair large meters annually
Replacement of oldest small water meters
continues, informed by small meter testing. Large
meter testing will ramp up in 2022, which will help
identify large meters in need of replacement. AMI
meter upgrade project planned for 2022 will
replace many older small water meters.
Fire Hydrants ~2000
public
hydrants
Painting / inspection Hydrants are replaced upon failure. No ongoing
inspection program at this time.
Page 5 of 5
Figure 2: Water Maintenance and Inspection Charts
CITY OF PALO ALTO UTILITIES-ANNUAL REPORT FOR WATER MAINTENANCE AND INSPECTION YEAR: 2020
Water Valve Testing and Replacement
5
0
Regular Valve Operation
Jan Mar May Ju l Sep Nov
Backlog
(End)
-Work Completed
(Planned)
-Goa l
Valve Replacement
I I I I I l I I I
Jan Mar May Ju l Sep Nov
Cumu lative
Completed
■ Work Completed
Hydrants
10
5
0
Unplanned Hydrant Replacement
Jan Mar May Jul Se p Nov
Cumu l ative
Compl eted
■ Work Comp l eted
Wat er Tra ns An n u al Sys t em M ai ntenance
Eme r ge ncy Well
M ai nt ena nee
Reservoir Mai ntenance
Booster St ati on
Maintenance
Pressure-Reducing V alve
(PRV) Stations
Receiv ing St ations
-
0
'
I I I
I I I
I I
I I
2 4 6
I
I
Goa l Work Compl eted (Planned)
Customer Backflow Preventers (BFPs)
92%
BFP In spection Compliance Percentage
(Goa l 2: 90%}
..... compliance -GOAL
93% 93% 93% 94%
8 10
92%
Jan -F eb Ma r-Apr May-Ju n Jul-Aug Sep -Oct Nov-Dec
W a t e r M et er T es tin~ and Re lacement
400
200
0
400
200
0
Small Water Meter Testing
I I I I I i I i I I
Jan Mar M ay Ju l Sep Nov
Cumulative
Completed
■ Work Comple ted
Small Water Meter Replacement
Jan Mar May Jul Sep Nov
■ Cumul ative
Completed
■ Work Completed
Water Leaks
40
20
0
Water Leaks Repaired
---
Jan Mar May Ju l Sep Nov
Cumul ative
Compl eted
■ Work Completed
City of Palo Alto (ID # 13529)
Utilities Advisory Commission Staff Report
Report Type: New Business Meeting Date: 9/1/2021
City of Palo Alto Page 1
Summary Title: Work Plan
Title: Utilities Advisory Commission Approved 2021 Work Plan
From: City Manager
Lead Department: Utilities
Discussion
The Utilities Advisory Commission draft work plan was reviewed and approved by the City
Council on June 21st, Item 17. Council informed the City Clerk staff there was no need for a
special staff report to be submitted as long as the UAC approved the finalized work plan.
The final approved UAC work plan can be found on the Utilities webpage (Linked Document).
Attachments:
• Attachment A: Work Plan
CITY OF
PALO
ALTO
Board or Commission Name: Utilities Advisory Commission (UAC)
Staff Liaison Name and Contact Information: Dean Batchelor – 650.496.6981
Lead Department: Utilities
General Purpose and/or Purview of Board/Commission:
The Utilities Advisory Commission (UAC) is charged with providing advice on acquisition, development
and financial review of electric, gas and water resources; joint action projects with other public or private
entities which involve electric, gas or water resources; environmental implications of proposed electric,
gas or water utility projects; and conservation and demand management. Additionally, the UAC is charged
with providing advice on the acquisition, development and financial review of the dark fiber network and
wastewater collection utilities. As a highly regulated industry, there may be matters not listed below that
will be presented to the UAC in accordance with current or future (local, state or federal) legislative
requirements.
Anticipated
Item/Topic
Description and/or Info Quarter (July 2021 – June
2022)
Meet the S/CAP
Goals
Including the goal to reduce natural gas
consumption by 2030. This includes possible
code modifications, potential full or partial
retirement of the gas distribution system,
replacement of space and water heating
systems, cooking and cleaning appliances. It
also includes permitting and inspection
processes for customers wishing to install
solar PV, energy storage, and/or EV charging
systems.
These projects are ongoing
and will be discussed by the
Commission periodically
Utilities CIPs Rebuild/repair reservoirs; Foothills water
piping; ongoing maintenance of electric,
gas, water and wastewater infrastructure.
These projects are ongoing
and will be discussed by the
Commission periodically.
City-wide Resiliency
Efforts
Consider means to improve resiliency of all
utilities, in the event of accidents, climate
change, emergencies, sea level rise, etc.
Routine review of Staff
reports and recommendations
Dark Fiber Network
Expansion & Fiber to
the Home Internet
Service Provider (ISP)
Initiative
1) Expansion of City’s existing dark fiber
network and infrastructure.
2) Assist City Council and City Staff in the
development, service offering, business
planning and impact studies associated with
the building, maintenance and operation of
a City-owned ISP (Broadband) service
offering built upon a fiber-to-the-home
initiative to bring high-speed (=>
synchronous 1GB Services) internet services
to Palo Alto residences.
These projects are ongoing
and will be discussed by the
Commission periodically.
Advanced Metering
Infrastructure Project
Upgrade the antiquated meter system by
replacing the citywide meters
(gas/electric/water) with digital meters that
can be read through a software program,
These projects are ongoing
and will be discussed by the
Commission periodically.
enable time of use billing, and provide more
detailed usage data to customers.
Budget Rate Increases to Water, Gas, Electric, and
Wastewater collection services.
These projects are ongoing
and will be discussed by the
Commission annually
CA Renewable Energy
Credits (RECs) -
Bucket 1s and Bucket
3s
Review progress with the sale of Bucket 1
and 3 RECs.
Provide recommendations for
discontinuance (or continuance) of revenue
program.
Meeting Agenda Item to UAC -
proposed not less than once /
quarter.
Special notifications / sessions
as necessary.
Greenhouse Gas
Emission Reduction
Meet the S/CAP goals to reduce GHG
emissions 80% below 1990 levels by 2030.
This includes modifying the energy supply
portfolio, purchasing RECs and/or other
carbon offset instruments, as well as EV
charging infrastructure, allocation of LCFS
funds, solar PV adoption, and distributed
energy resources.
These projects are ongoing
and will be discussed by the
Commission periodically
Water Supply Consider potential future sources of water
supply.
Demand management programs, grey water
supply, black water, treatment efforts, use
of effluent.
These projects are ongoing
and will be discussed by the
Commission periodically.
Workforce Attract and retain workers for key Utility
positions that are chronically unfilled,
including line workers, engineers, and
system operators.
These issues are ongoing and
will be discussed by the
Commission periodically.
Other legislative or
customer-driven
initiatives
The Utility tracks many state and federal bills
that touch on utilities. Should any bills
become law during the year, the UAC may
need to address the matter. Likewise, should
a customer-driven initiative impact Utilities
(such as reach codes or ADUs/JDUs) the
commission may want to address the matter.
These issues are ongoing and
may be discussed by the
Commission periodically.
Undergrounding Staff continuing to review and work with
AT&T to identify recommendations for
undergrounding electrical utilities
Staff report forthcoming to
the UAC and Council by March
2022 updating them on the
status of cost, the number of
districts remaining to undergo
the process, and an estimated
timeline.
Reliability • During the budget process Council
approved funds to hire an outside 3rd
party firm to review the electric system
The consideration is by the
end of FY22
and recommend improvements to
eliminate outages
• Staff working on an RFP to secure an
Outage Management System (OMS)
Cyber Security Security of utility services (Software,
Hardware, Use of wireless devices, e.g, AMI)
The consideration is by the
end of FY22
Data Handling,
Storage, Use
of all data captured out of utility services
and services to the community
By end of Q1 FY22
Inspection &
Permitting
Working hours, Permitting, Building Quarterly updates provided to
the UAC
Emergency
Preparedness &
Response
• Staff will look into the implementation
and use of island to meet local
neighborhood essential needs in an
emergency (beyond critical infrastructure
such as hospitals and first responders)
• The purpose of the island would be to
build energy resiliency
• Environmental sustainability – refer to the
Greenhouse Gas Emission Reduction goal
These projects are ongoing
and will be discussed by the
Commission periodically