The URL can be used to link to this page

Home My WebLink About2020-12-02 Utilities Advisory Commission Agenda PacketMATERIALS 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. NOTICE IS POSTED IN ACCORDANCE WITH GOVERNMENT CODE SECTION 54954.2(a) OR 54956 ****BY VIRTUAL TELECONFERENCE ONLY*** Join Zoom Webinar Here Meeting ID: 966 9129 7246 Phone: 1 (669) 900-6833 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 in itially presented during oral communication. IV. APPROVAL OF THE MINUTES Approval of the Minutes of the Utilities Advisory Commission Meeting held on November 4, 2020 V. UNFINISHED BUSINESS - None VI. UTILITIES DIRECTOR REPORT VII. NEW BUSINESS 1. Discussion on Comparison of Water Rates and Average Bills Among Cities Supplied by Discussion San Francisco Public Utilities Commission 2. Staff Recommendation That the Utilities Advisory Commission Recommend the City Action Council Decline to Adopt Energy Storage System Targets and Receive the 2020 Energy Storage Report 3. Discussion and Update on the FY 2022 Preliminary Utilities Financial Forecast and Rate Discussion Projections 4. Selection of Budget Subcommittee Action VIII. COMMISSIONER COMMENTS and REPORTS from MEETINGS/EVENTS IX. FUTURE TOPICS FOR UPCOMING MEETINGS: January 06, 2021 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)). UTILITIES ADVISORY COMMISSION – SPECIAL MEETING WEDNESDAY, December 2, 2020 – 4:00 P.M. ZOOM Webinar Chairman: Lisa Forssell Lauren Segal Michael Danaher, Alison Cormack 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. Informational Reports 12-Month Rolling Calendar Public Letter(s) to the UAC PUBLIC COMMENT INSTRUCTIONS Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone. 1. Written public comments may be submitted by email to UACPublicMeetings@CityofPaloAlto.org. 2. Spoken public comments using a computer will be accepted through the teleconference meeting. To address the Commission, click on the link below for the appropriate meeting to access a Zoom- based meeting. Please read the following instructions carefully. A. You may download the Zoom client or connect to the meeting in-browser. If using your browser, make sure you are using a current, up-to-date browser: Chrome 30+, Firefox 27+, Microsoft Edge 12+, Safari 7+. Certain functionality may be disabled in older browsers including Internet Explorer. B. You will be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak. C. When you wish to speak on an agenda item, click on “raise hand.” The Attendant will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak. D. When called, please limit your remarks to the time limit allotted. E. A timer will be shown on the computer to help keep track of your comments. 3. Spoken public comments using a smart phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Council. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted. Join Zoom Webinar Here Meeting ID: 966-9129-7246 Utilities Advisory Commission Minutes Approved on: Page 1 of 9 UTILITIES ADVISORY COMMISSION MEETING MINUTES OF November 4, 2020 SPECIAL MEETING CALL TO ORDER Chair Forssell called the meeting of the Utilities Advisory Commission (UAC) to order at 4:01 p.m. Present: Chair Forssell, Vice Chair Segal, Commissioners Danaher, Jackson, Johnston, Scharff and Smith Absent: AGENDA REVIEW AND REVISIONS None. ORAL COMMUNICATIONS Gary Lindgren asked what is a typical project for Carbon Offsets? He suggested that instead of sending money outside of the city and the state, that the money be used to replace gas fire equipment with heat pumps as well as start an incentive program that helps residents convert their appliances to more sustainable models. He concluded that the city’s electricity is not carbon neutral and that the city should not promote that it is. APPROVAL OF THE MINUTES Chair Forssell indicated that Commissioner Smith had made a request instead of Commissioner Jackson. Commissioner Danaher moved to approve the minutes of the October 7, 2020 meeting as presented with the change as noted on Item 3 where Commissioner Smith not Jackson requested an update on Bucket 1 REC sales. Vice Chair Segal seconded the motion. The motion carried 7-0 with Chair Forssell, Vice Chair Segal, and Commissioners Danaher, Jackson, Johnston, Scharff, and Smith voting yes. UNFINISHED BUSINESS None. UTILITIES DIRECTOR REPORT Dean Batchelor, Utilities Director, delivered the Director's Report. Update on COVID-19 – In late August, Governor Newsom released a “Blueprint for a Safer Economy,” which created a tiered system of COVID-19 restrictions that all counties in California must follow. Santa Clara County is currently in the Orange Risk (Tier Three) and will stay there until the state moves the county forward into a lesser or more restrictive tier depending on the number of COVID-19 cases. The current tier three restrictions are different from what was previously in place in the following ways: • Certain indoor businesses and activities may resume with a limited capacity of 25%, including gyms, fitness centers, pools, movie theaters, worship services, restaurants, DRAFT Utilities Advisory Commission Minutes Approved on: Page 2 of 9 and family entertainment centers that allow for naturally distanced activities such as bowling alleys and climbing walls. Retail businesses and libraries no longer have a capacity limitation. Indoor shopping malls no longer have a capacity limitation, but common areas must remain closed. Museums and zoos may increase their capacity limit to 50% of normal. Bars, brewpubs, and breweries may now operate outdoors. • All businesses must ensure that everyone visiting their facility is able to maintain at least a six foot distance from everyone outside of their household. • Palo Alto’s emergency proclamation remains in place, which means that the city continues its moratorium on tenant evictions and utilities service disconnections for bill non-payment. CPAU still offers expanded access to utilities rate assistance and payment relief programs. • A number of programs and services which previously involved in-person consultations or in-home visits have been converted to a virtual format. The Home Efficiency Genie is one example of this format change; we now offer virtual rather than in-home consultations, including a home electrification readiness assessment. Key Account and business utility representatives have been sharing recovery resources with the community to assist with a smooth transition. • The city is providing webinars and information online in place of in-person workshops to help customers understand how to maximize home energy and water efficiency, as well as comfort and safety, while learning about sustainability and climate action goals. The Switch is On Campaign – CPAU has been collaborating with the Building Decarbonization Coalition and other utilities on a consumer outreach campaign to promote home electrification. The campaign is aptly named “The Switch is On”. CPAU is planning to run a digital blitz of this campaign in November and early December, and will include running digital ads on popular online platforms as well as leveraging the city’s social media channels and e-newsletters. The digital ads will direct traffic to the website “switchison.org,” which provides information on how to make the switch from natural gas to electric appliances. Clean Fuel Rewards Program – Electric vehicle rebates will be coming soon to all CPAU customers. We will be participating in the Clean Fuel Rewards Program which is a statewide point-of-sale EV rebate. The program will launch by the end of the year. We expect the rebate to be about $1,000 for the purchase of EVs at participating dealerships. CPAU is contributing up to $1 million dollars in Low Carbon Fuel Standard funds towards this program. SunShares Solar Group-Buy Workshop – On October 27, CPAU hosted a webinar to inform residents about the Bay Area SunShares solar group-buy program. The event was well attended with 44 participants, as well as representatives from all three solar installation companies, for Q & A at the end of the presentation. Clean and Efficient Heating and Cooling with the Home Efficiency Genie – CPAU will be hosting its third educational webinar with the Home Efficiency Genie on November 10 at 6:30 PM. In this session, residents will learn about advances in heating and cooling technologies with an emphasis on efficient, all-electric heat pump systems. Find details and link to register at cityofpaloalto.org/workshops UNFINISHED BUSINESS None. Utilities Advisory Commission Minutes Approved on: Page 3 of 9 NEW BUSINESS ITEM 1: ACTION: Staff Recommendation That the Utilities Advisory Commission Accept a Presentation on 2020 and 2021 State Legislation, and Recommend the City Council Affirm the Continuation of the Current Utilities Legislative Guidelines Through 2021 Heather Dauler, Senior Resources Planner, noted that the 2020 Legislative session was very brief due to the Coronaviruses Pandemic (COVID-19). There was a fifth failed attempt at passing a bill regarding energy and long-duration storage. Several bills did past which included new subsurface installation mandates for construction which will start in 2023 as well as requirements for the state to stockpile Personal Protective Equipment (PPE) for essential workers. In terms of the 2021 Legislative session, it is predicted that there may be another attempt at mandating storage in terms of energy as well as a bill regarding Resource Adequacy due to recent blackouts, and regionalization. For water, predicted bills that may come forward are affordability in terms of COVID-19 and existing programs, and wildfire impacts on water supply. Due to the shorten 2020 Legislative session, staff believes that many of the bills that were dropped will reappear in 2021. In conclusion, Senator Hill is terming out with Josh Becker taking his place. Commissioner Danaher shared that Josh Becker supports clean energy. In response to Commissioner Jackson’s inquiries regarding electric vehicle usage and mandates, Dauler answered that an Executive Order regarding new sales of cars has been issued but she predicted that the Executive Order would not move to new legislation. Dauler continued to the Utilities Legislative Guidelines and she noted that the guidelines provide direction to staff so that staff does not have to come back to the Commission or Council when staff wants to move forward on a piece of legislation or regulations. She reported that the guidelines have worked well and staff is not suggesting any changes. Commissioner Danaher supported the staff recommendation. In response to Commissioner Smith’s queries regarding how COVID-19 may impact the 2021 Legislation and bill prioritization, Dauler explained that bills were passed in 2020 even under the current pandemic and she predicted that the Assembly will continue to meet in 2021. Regarding prioritization, the Speaker of the Assembly and the President of the Assembly have their own priorities as well as each Chairperson of each Committee and each Member. In response to Chair Forssell’s question regarding how often staff brings forward legislative items to the Commission or Council for guidance, Dauler indicated that with the fast pace of legislation, it is difficult for staff to meet the 5-week deadline that is required by the city. Staff does come forward to Council when there is a bill that does not fit into the guidelines or is very controversial. Cormack commented that it has been suggested several times that the city’s sustainability goals would be achieved more quickly if there is some standardization across the state. She advised the Commission to think about that for the future. Commissioner Scharff and Commissioner Danaher agreed. ACTION: Commissioner Danaher moved that the Utilities Advisory Commission accept the staff presentation regarding 2020 and 2021 state legislation, and recommend the City Council continue the 2020 Utilities Legislative Policy Guidelines into 2021. Commissioner Jackson seconded the motion. The motion carried 7-0 with Chair Forssell, Vice Chair Segal, and Commissioners Danaher, Jackson, Johnston, Scharff, and Smith voting yes. Utilities Advisory Commission Minutes Approved on: Page 4 of 9 ITEM 2: ACTION: Staff Recommendation That the Utilities Advisory Commission Recommend the City Council Approve the 2025 Base Resource Power Supply Contract for the Central Valley Project With Western Area Power Administration, to Preserve the City's Options to Maintain, Terminate or Reduce its Allocation Until June 30, 2024 Jonathan Abendschein, Assistant Director of Utilities Resource Management, indicated that the Western Base Resource Electric Supply Contract makes up the vast majority of the electric supply portfolio. Lena Perkins, Senior Resource Planner, reported that staff’s recommendation is to execute the full share of the 2025 Western Contract. The Western Electric Supply Contract is a large federal hydroelectric contract, it is currently 40 percent of the city’s electric supply, it has somewhat predictable costs but highly variable output, and holds significant risks and uncertainty in future costs as well as the future generation. It has the potential to be a competitively priced carbon-free electric resource. The city has the option to reduce or terminate the contract until June 30, 2024, and so staff will continue to evaluate alternatives until then. A new key provision is that the city has the option to reduce or terminate the new contract every 5-years and there is a new overall rate formula set every 5-years. The contract must be executed by March 16, 2021, and staff will make a final recommendation to maintain, reduce, or terminate the city’s share of the 2025 Western Base Resource Electric Supply contract by the June 2024 deadline. Abendschein added that the contract requires significant levels of coordination among the other publicly owned utilities when it comes to negotiating with the federal government. Northern Power Agency coordinates those negations on behalf of the publicly owned utilities and in the last couple of years there have been opportunities to improve the contract. The city continues to be involved in those negotiations in addition to considering all other options. Commissioner Scharff agreed that the contract has vastly improved and he supported approval of the contract. In response to Chair Forssell’s question of if the city negotiates with the bureau directly as a city or through the Northern California Power Agency (NCPA), Commissioner Scharff answered that it is through the NCPA, but the city is extremely involved in the negotiations. In reply to Commissioner Johnston’s inquiries regarding if the price of the contract is in alignment with the city’s other sources and what are the downsides to signing the contract, Perkins answered yes, historically it has been a cost base resource that is only available to public utilities and staff continues to monitor it. She reported that she could not see any downsides to signing the contract. Commissioner Johnston supported a recommendation to approve the contract. In answer to Commissioner Smith’s query regarding other risks, Perkins predicted that the two biggest risks are new costs regarding the implementation of the new federal biological opinions and the allocation of those costs. The other major risk is the amount and timing of the generation the city receives from this and the unimpaired water flow. In answer to Commissioner Smith’s question regarding viable alternatives, Perkins reported that New Mexico Wind could be an alternative because it has a high capacity factor and Northwest Wind because the city does own transmission up to Washington State. In reply to Commissioner Smith’s interest in how a customer’s water bill will be affected if it’s $35 per megawatt-hour versus $70 per megawatt-hour and what scenarios would make the contract be deemed uneconomical, Perkins reported that an additional 1/3 of a cent would be added to a customers bill if the rate is $35 per megawatt-hour. Regarding the contract being deemed uneconomical, she stated that in general the resource can be shaped to capture the highest value hours of the day but it cannot be shaped seasonally. In a low hydraulically year, electricity prices will be higher, but there is tremendous value in the flexible dispatchable capability. Utilities Advisory Commission Minutes Approved on: Page 5 of 9 Commissioner Smith advised staff to include in their evaluations a hedge in terms of Bucket exchange. He concluded that he supported the approval of the contract. In regard to Commissioner Danaher’s inquire, Perkins stated that between 2023 and 2024 staff could execute short-term contracts with existing projects and that the evaluation will include competitive bids. Abendschein added that the evaluation will be completed before 2023. In reply to Vice Chair Segal’s question regarding dispatchability and if there is a risk in terms of changing views about environmental impacts, Perkins announced that in general the projects can be operated with inter- daily flexibility and ramping, and the ability to dispatch within a day is fairly protected from environmental concerns. Abendschein confirmed that the factors affect seasonal dispatchability. In response to Vice Chair Segal’s query regarding an agreement with the other partners on when the resource is dispatched, Perkins answered that the schedulers from Western Area Power Administration provide maximums and minimums to staff and staff dispatches within those levels. In answer to Chair Forssell’s request for more clarity regarding favorable cost allocation in dry years and what kind of shape the infrastructure is in for the Central Valley Project, Perkins explained that the Court of Appeals ruled that the statute requires the proportional collection of environmental costs. The total environmental cost needs to have a fixed percentage for water and power. The Bureau of Reclamation has put forth proposals for proportionality. In terms of the Central Valley Project, Perkins answered that the generation and transmission of power and the dams are in good shape. The canals, pumps, and other water conveyance structures require a lot of maintenance and pose threats. Staff continues to follow the project. ACTION: Commissioner Scharff moved that the Utilities Advisory Commission (UAC) recommend the Council approve the execution of the extension of our current electricity supply contract, which is the 2025 base resource contract for the Central Valley Project (CVP) with the Western Area Power Administration (WAPA) titled “Contract 20-SNR- 02365 United States Department of Energy Western Area Power Administration Sierra Nevada region contract for electric service base resource with City of Palo Alto” for the full amount of generation available (12.06299% share), to preserve the city’s options to maintain, terminate, or reduce its allocation until June 30, 2024. Commissioner Danaher seconded the motion. The motion carried 7-0 with Chair Forssell, Vice Chair Segal, and Commissioners Danaher, Jackson, Johnston, Scharff, and Smith voting yes. ITEM 3: DISCUSSION: Discussion of Electrification Cost and Staffing Impacts on the City of Palo Alto's Electric and Gas Distribution Systems Bret Anderson saw the report as a starting point. He reported that the report focuses on single-family homes and advise staff to evaluate other components such as commercial and multi-family. He foresaw a potential for all-electric homes and devices that are on an interactive grid to address peeks, average needs, and startup costs after an outage. New or upcoming technologies are not addressed in the report, but the report does indicate that it is feasible and affordable for the City to move away from neutral gas. Tom Kabat agreed that the report is innovative and strongly agreed that the report explains to residents that is it feasible to move to all-electric. He mentioned that the report may be using outdated efficiencies regarding heat pumps. Jonathan Abendschein, Assistant Director of Utilities Resource Management, reported that the Utilities Department is engaging with the city’s Sustainability Department and running analyses for the Sustainability and Climate Action Plan (S/CAP) update for 2020. The Utilities Department is also working on parallel analyses that relate to the utility impacts of the S/CAP. Elizabeth Oliphant, Stanford Fellow, reported that the analysis focused on the total utility costs for electrifying all single-family residences located within the city. The main goal of electrifying single-family Utilities Advisory Commission Minutes Approved on: Page 6 of 9 homes is to reduce Green House Gas (GHG) emissions. Such a conversion would cause an increase in the peak electricity demand by almost three times. With a higher peak demand, around 95 percent of the city’s transformers will need to be upgraded. If the city chose to do all like for like replacements, the minimum cost is roughly $12.5 million to $33.9 million. For optimized upgrades, converting a pole-mounted transformer to a pad-mounted transformer, the cost is roughly $8.3 million to a maximum of $25.3 million. Also, other electrical upgrades such as replacing 20 percent of the secondary transmission lines as well as replacing 25 percent of the feeder lines will need to take place. The city can expect to pay between $21.4 million to $41.7 million for those other electrical upgrades. There is a cost associated with disconnecting the gas distribution system to a single-family residence and that system includes main lines, services lines, and meters and risers. All customers have to agree to disconnect before a gas main can be sealed and if the main is sealed, it automatically disconnects all service lines that are attached to it. It would cost roughly $11.4 million to a maximum of $53.7 million to disconnect the gas lines. If the mains are sealed, the city would save $26 million to $34 million by not having to pay for the Gas Main Replacement Program. In total it would cost between $41.1 million to $128.3 million if all single-family homes went electric. Additional staff time is needed to implement the upgrades and disconnections and that is estimated to range between 204,306 hours to 801, 116 hours. Abendschein summarized the high-level questions that the Commission has raised which is what are going to be the utility impacts, what is going to be the cost to deal with those utility impacts, what are the staffing impacts going to be, and what rates would customers pay if all the single-family homes were disconnected? Staff is in the process of answering those specific questions and plans to bring back the results to the Commission in January of 2021. He acknowledged that is it highly likely that there will be more electrification and eventually disconnection in terms of the multi-family and commercial sectors. He explained that it is very complicated to electrify multi-family and commercial facilities. He reminded the Commission that it is important to have a transitional strategy for the multi-family and commercial sectors so that staff can work with them to make substantial reductions in their natural gas use before they disconnect. Commissioner Smith agreed that having a transition plan for the multi-family and commercial sector is prudent and wise. He believed that repurposing the decommissioned gas piping for the fiber network would reduce the total cost. Dean Batchelor, Utilities Director, reported that the city’s vendor Magellan is currently exploring that option but he believed that the fiber network will be well established by the time the city is ready to turn off the gas utility. If there is a possibility to use decommissioned lines though then staff will consider doing that. In reply to Commissioner Danaher’s query regarding other offset cost savings, Oliphant reported that she did not look at what a transformer’s life span is but in terms of electric vehicles (EV), there will have to be some upgrades associated with EVs. When more flexible load technology comes online, the upgrades done for EVs will assist in the broader project of electrifying single-family homes. Abendschein added that other replacements will happen within the system that will overlap with the upgrades that need to be done for building electrification. Christine Tam, Senior Resource Planner, noted that if the city does not pursue electrification of single-family homes, to meet some of the S/CAP goals the city will have to upgrade the electric grid system anyways for EVs. In response to Commissioner Danaher’s questions regarding the large gap between the minimum cost and the maximum cost and how much carbon the city will save, Oliphant explained that the cost indicates that the transformers will need to be upgraded as well as more will need to be installed. The cost also reflects the cost difference between different types of transformers. Tam answered that if all single-family homes are electrified, the city will save 49,000 metric tons of carbon. Abendschein added that the goal is to receive an 80 percent reduction of carbon in all of the above approaches instead of comparing cost per ton between the different strategies. Commissioner Jackson predicted that many homes will require 200-amp service and if many single-family homes are already at 100-amp service, converting to 200-amp service would be a large impact. Tam expressed that less than 30 percent of homes still have a 100-amp panel. In response to Commissioner Jackson’s question regarding the expected lifetime of a transformer and feeder lines, Batchelor answered Utilities Advisory Commission Minutes Approved on: Page 7 of 9 that the lifespan for a transformers is between 50 and 60-years and it is roughly the same for feeder lines. Commissioner Jackson emphasized that regardless if single-family homes are electrified or not, a lot of the work will need to be done. He concluded that motivating residents to shift their loads more dramatically is within the city’s best interest even though financing that infrastructure upgrades will be costly. Commissioner Scharff expressed that the limiting factors are that many residents are not aware that the city is considering shutting off the gas distribution system, it is unclear how much it will cost a resident to electrify their home, and how well does the technology work. He urged staff to analyze how much it will cost a resident to electrify their homes, will the city pay for it, and to be granular in the analysis. He foresaw the process of electrification being long term and that staff needed to explore the best approach for implementation. Abendschein commented that staff is working on such an analysis and staff will be bringing that forward to Council soon. Vice Chair Segal disclosed that staffing requirements need to be evaluated and also fairness issues among residents. Abendschein agreed and added that the wide range comes from the desire to accommodate people’s desire to electrify at whatever point in the 10-year process. She wanted to see the city move quicker on upgrading transformers. Abendschein agreed that there are a lot of logistical issues that need to be ironed out. Commissioner Johnston agreed that the city needs to start upgrading now to reach its 10-year goal of electrification as well as start-up a robust, comprehensive public engagement and education program. Batchelor admitted that there has not been a lot of public outreach but staff plans to start campaigning heavily in the coming months. Chair Forssell concurred with Commissioner Scharff that the public is not aware of the city’s plans and that the communication and education challenge is more complicated than the usual. She suggested that any communication with the public needs to emphasize all benefits of an electrified city including safety, pollution, along with reducing the city’s carbon footprint. She suggested doing a pilot program consisting of one block within the city that is all-electric and promoting that block to the rest of the city. Commissioner Jackson agreed with the comments regarding public education but he predicted that it will be challenging. Batchelor commented that staff has been discussing innovative ways for public engagement as well as innovative incentives. In reply to Cormack’s question regarding the differences between like for like upgrades and optimized upgrades, Oliphant explained that the difference is the capacity of the different transformers. Cormack emphasized that this program is a campaign and she concurred that many residents are not aware of this. The UAC recessed at 6:24 p.m. and returned at 6:35 p.m. ACTION: None ITEM 4: DISCUSSION: Discussion of Electric Vehicle Charger Needs Assessment to Reach 80% Electric Vehicle Penetration by 2030 Shiva Swaminathan, Senior Resource Planner, announced that the idea behind this assessment was to form a framework that looked at the EV charger needs if 80 percent of penetration for EVs is achieved. Mo Sodwatana, Stanford Fellow, reported that the project’s objective is to understand how many chargers the city will need to support the S/CAP goal of 80 percent penetration as well as determine what types of chargers are needed. There are three types of EV chargers; AC Level One; AC Level Two; and DC Fast Charge. The framework that the analysis was conducted under included the current EV trends in Palo Alto, charging patterns, existing infrastructure, the forecast for EVs in the city by 2023, and estimation of the number and Utilities Advisory Commission Minutes Approved on: Page 8 of 9 types of charging ports needed. An in-depth analysis was also conducted for multi-family properties and both analyses estimated the cost for the utility as well as customers. For currently registered residential vehicles, 9 percent are EVs, for non-residential vehicles 6 to 10 percent are EVs and there are approximately 4,000 charging stations within the city currently. It is projected that there will be 42,000 residential EVs with 80 penetration by the year 2030 and to support that there would need to be between 18,000 to 26,000 charging ports. The report estimates more L2 chargers in the future due to more longer-range EVs. In terms of non- residential, it is estimated that there will be 54,700 EVs by the year 2023 which results in 6,200 to 12,300 charging ports. In summary, it would cost a single-family resident $-$300 per port for an L1 charger, for a single-family resident L2 charger it would cost $3,000-$10,000 per port, for a multi-family L2 charger it is roughly $12,400-49,999 per port, for a non-residential L2 charger it is roughly $5,400- $20,500 per port and for a DC Fast Charger it costs $62,000-$230,000 per port. The difference between the cost estimate for multi- family L2 chargers and single-family residential L2 chargers is that there are fewer ports per site for multi- family. In conclusion, the number of EVs will increase tenfold, and charging needs are expected to increase 6 to 8-fold. Energy consumption will increase by 1.5 percent of the total load to 15 percent of the total load while on the residential side it will increase by 6 percent to roughly 69 percent, and the number of EVs per household is projected to increase from .18 to 1.7. The cost per port is highly variable and is dependent upon many factors and due to economics of scale, greater ports per site are more cost-effective. In response to Vice Chair Segal’s inquiry on why there are more ports than there are single-family homes, Swaminathan commented that it is assumed that a single-family home has 2 EVs which resulted in there being more ports than homes. In reply to Commissioner Smith’s question of does the report assume that two EVs will be charged at one L2 charger, Sodwatana mentioned that there are uncertainties. Commissioner Danaher disclosed that the main cost driver is the cost of permits and he suggested that staff explore ways to decrease the cost for upgrading an electrical panel. He emphasized that he wanted a presentation about permits and fees. He wanted to see a cost breakdown of how much of the cost is caused by the city when commercial and single-family homes wish to upgrade their existing infrastructure to accommodate an EV and EV charger. Chair Forssell disclosed that she is concerned when it comes to the make-ready costs for multi-family and for non-residential. She did not see what the benefits are for multi-family facilities to accommodate EV chargers but she saw an opportunity for new multi-family developments to have more EV capacity. Also, there is a trend among commercial facilities to provide an employee perk to charge their car at work. In response to Chair Forssell’s query about how did staff arrive at the number of existing DC Fast Chargers, Sodwatana restated that the estimates came from CalETC’s White Paper which notes that more longer-range EVs are expected to hit the market as well as ride-sharing vehicles that need to quickly charge. In answer to Cormack’s question regarding the estimated 300 charging ports currently existing, Sodwatana commented that the estimates came from the city’s registered L2 permits. Swaminathan clarified that the city has issued 600 to 800 permits, but half of those are commercial permits. Hiromi Kelty, Sustainability Program Manager, adds that the majority of residents are not pulling permits to install L2 chargers in their homes. In response to Chair Forssell’s inquiry regarding unpermitted L2 chargers, Swaminathan reported there is a risk because there is no inspection to make sure the installation of the charge and the electrical panel is done correctly. Dean Batchelor, Director of Utilities, added that a transformer could become overloaded if the capacity to a home is maxed out. In reply to Chair Forssell’s question about how the load is measured for a transformer, Batchelor shared that it is estimated based on the homes on the block when that block was established. Shiva added that it is also based on the monthly energy consumption for that block. ACTION: None. Utilities Advisory Commission Minutes Approved on: Page 9 of 9 COMMISSIONER COMMENTS and REPORTS from MEETING/EVENTS Commissioner Scharff announced that the NCPA has decided to decrease the State of Emergency Power from the General Manager to help decrease the amount of money that can be spent without guidance from the Commission. Another topic is the Unfunded Pension Liability and there is strong support to copy Palo Alto’s model. The American Public Power Association (APPA), which the city is a partner in, lost the lawsuit regarding small cell towers. Going forward the city has to follow the Federal Communication Commission (FCC) rule which is there is a shorter period to review the applications as well as decreased grounds to deny them. FUTURE TOPICS FOR UPCOMING MEETINGS: December 02, 2020 Chair Forssell requested when future topics are raised, that there be an indication if the item should be received as a discussion at the full Commission, or if it can come as an informational document. Commissioner Danaher wanted an informational report regarding measures that promote the installation of EV chargers. He wanted to have a presentation from Public Works to discuss the permitting process for the installation of solar panels and electrification. Commissioner Johnston requested a discussion regarding the second transmission line. He acknowledged that the informational reports in the Packet were very helpful and informative. Commissioner Smith and Chair Forssell agreed. In response to Chair Forssell’s query regarding the death of a lineman in November 2019, Dean Batchelor, Director of Utilities, reported that the investigation is still ongoing but changes have been made including updating the Safety Manual and a new process for onboarding new employees. Vice Chair Segal asked for an informational report or an update in the Director’s Report on staffing challenges that have been impacted by COVID-19. NEXT SCHEDULED MEETING: December 2, 2020 Vice Chair Segal moved to adjourn. Commissioner Jackson seconded the motion. The motion carried 7-0 with Chair Forssell, Vice Chair Segal, and Commissioners Danaher, Jackson, Johnston, Scharff, and Smith voting yes. Meeting adjourned at 7:24 p.m. Respectfully Submitted Tabatha Boatwright City of Palo Alto Utilities Utilities Advisory Commission Minutes Approved on: January 06, 2021 Page 1 of 8 UTILITIES ADVISORY COMMISSION MEETING MINUTES OF DECEMBER 2, 2020 MEETING CALL TO ORDER Chair Forssell called the meeting of the Utilities Advisory Commission (UAC) to order at 4:02 p.m. Present: Chair Forssell, Vice Chair Segal, Commissioners Danaher, Jackson, Johnston, Scharff and Smith Absent: AGENDA REVIEW AND REVISIONS None. ORAL COMMUNICATIONS None. APPROVAL OF THE MINUTES Commissioner Scharff moved to approve the minutes of the November 04, 2020 meeting as presented. Vice Chair Segal seconded the motion. The motion carried 7-0 with Chair Forssell, Vice Chair Segal, and Commissioners Danaher, Jackson, Johnston, Scharff, and Smith voting yes. UNFINISHED BUSINESS None. UTILITIES DIRECTOR REPORT Dean Batchelor, Utilities Director, delivered the Director's Report. • Staffing Trends Difficulty in Maintaining Staff Recruitment Process: Since Jan, we’ve had 43 regular vacancies. We have hired 12 new employees and promoted 10 employees to fill these vacancies. As of today, we have 37 regular vacancies and 30 of them are actively being recruited. The non-active recruitment vacancies are either because they’re frozen, pending business decision (i.e. Fiber Telecom Manager, Sr. Business Analyst), or under rotation/WOC (i.e. Mgr. Electric Operations, AD Engineering). Utilities Advisory Commission Minutes Approved on: January 06, 2021 Page 2 of 8 • Clean Fuel Reward Program - Effective November 17, all Palo Alto residents purchasing electric vehicles are eligible for a Clean Fuel Reward point-of-sale rebate of up to $1,500 at participating car dealerships. CPAU has contributed Low Carbon Fuel Standard (LCFS) funds towards this new statewide initiative, which was approved by City Council in May 2020. CPAU expects to contribute $300-400,000 annually for the next 10 years. All auto dealerships in Palo Alto will be notified of this opportunity to lower the cost of new electric vehicles. • CALeVIP - The California Energy Commission’s California Electric Vehicle Infrastructure Project (CALeVIP), which aims to develop and implement regional incentives to support statewide adoption of EVs, has partnered with five local energy agencies to launch a $55.2 million dollar rebate project for the installation of public access electric vehicle (EV) charging stations throughout Santa Clara and San Mateo counties. CPAU has committed $1 million dollars of LCFS funds to receive $1 million in grant funding for the Peninsula-Silicon Valley Project. These funds will become available to all eligible Palo Alto commercial customers to install Level 2 or Level 3 fast chargers over the next 2 years and will help install approximately 200 new chargers in Palo Alto. After a prelaunch webinar on December 2nd, applications for incentives can be submitted beginning on Wednesday, December 16, 2020. • Genie Virtual Assessment - The Home Efficiency Genie is now offering a new virtual assessment platform which provides residents with a remote evaluation of their home for energy and water efficiency. Due to the COVID-19 safety protocols, the Genie program has been unable to offer the comprehensive in-home assessments that it had been providing since 2015. For a $49 subsidized fee, this new virtual, phone and video-based platform allows residents to walk through their home with guidance from the Genie technician to review and uncover inefficiencies, comfort concerns, and even health and safety issues. For no additional charge, the virtual program also offers participants an electrification readiness evaluation as well as energy saving products like LED bulbs and a smart power strip. • Fiber Expansion Project - Staff working on the citywide fiber expansion project has completed all but one of its internal fiber needs assessment interviews. Departments assessed include: Field Operations, Libraries, Office of Emergency Services, Commercial Fiber, Information Technology, Utilities Engineering, SCADA and others. A gap analysis has been created for the City fiber network in anticipation of a full system field audit. The audit will show system maintenance and capacity needs. Fiber Management Systems, which is a network tracking, planning, maintenance and production data hub, are being compared and reviewed for City use. • Upcoming Events o Tuesday, December 8, 6:30-8:00 PM - The Importance of the Natural Environment in Meeting Our Sustainability Goals Webinar. Register here or online at cityofpaloalto.org/climateaction Utilities Advisory Commission Minutes Approved on: January 06, 2021 Page 3 of 8 In response to Commissioner Danaher’s inquiry about how many vacant positions are office positions and how many are field operation positions, Batchelor confirmed that the majority are field operation positions. In reply to Commissioner Scharff’s question regarding Level 2 chargers for residents, Batchelor explained that commercial and multi-dwelling facilities will be subsidized for installing Level 2 and Level 3 fast chargers. Vice Chair Segal confirmed that the next Sustainability and Climate Action Plan (S/CAP) community webinar is Tuesday, December 8, 2020. NEW BUSINESS ITEM 1: DISCUSSION: Discussion on Comparison of Water Rates and Average Bills Among Cities Supplied by San Francisco Public Utilities Commission. Dean Batchelor, Director of Utilities introduced Lisa Bilir who presented to the Commission. Lisa Bilir, Acting Senior Resource Planner, reported that the analysis was conducted to answer the question posed by the Finance Committee of why the City’s rates are higher than surrounding Cities who use the same supplier. Including the City of Palo Alto, there were 16 other Cities and entities that receive 100 percent of their water from the San Francisco Public Utilities Commission (SFPUC) and who are members of the Bay Area Water Supply and Conservation Agency (BAWSCA). Nine of these are cities, including Palo Alto. Residential water bills within Palo Alto are approximately 9 percent higher than the typical group of comparison utilities and commercial customers water bills are on average 4 to 7 percent higher than the typical comparison group of utilities. Among the nine cities that obtain 100% of their water from SFPUC, Palo Alto’s rates are on the low end. Six of the Cities that receive 100 percent of their water from SFPUC have less than half as many customers as Palo Alto and those Cities have higher rates than Palo Alto. Redwood City has a similar number of customers, the City of Hayward has double the number of customers compared to Palo Alto, and those two Cities are the only two Cities that have lower rates than Palo Alto. Two significant factors for the increased rates was consistently higher water infrastructure investments made by the City of Palo Alto and Palo Alto’s residential customer class has higher usage and accounts for a higher portion of the potable water usage than the residential customer class in the City of Hayward. Also, Hayward’s non-residential customer class usage has increased over the last ten years while Palo Alto’s non-residential customer class usage has decreased which puts more upward pressure on Palo Alto’s rates. In response to Commissioner Johnston’s query regarding rate tiers, Bilir explained that the City has a two-tier water rate system that is based on a measure of average use and more tiers would result in a different service rate cost structure. Palo Alto’s rate structure is based on the results of the cost of service and the same is true for the other cities where they have a different number of tiers. Commissioner Johnston suggested that the Utilities Advisory Commission (UAC) review the City’s tier system next time water rates are discussed. In answer to Commissioner Scharff’s questions regarding infrastructure and if the City is making the right investment, Bilir confirmed that other Cities across the county are underinvesting in their infrastructure. Jonathan Abendschein, Assistant Director of Utilities, believed that the City does not over or under-invest in infrastructure projects. The reservoirs and the wells provide an appropriate level of emergency response investment. He added that the amount of storage in the reservoirs is the right amount for the existing infrastructure, but the location of them in the Foothills adds to the cost. Commissioner Scharff predicted that main replacements done in the City of Hayward would cost a similar amount that the City was paying for its replacements. In response to his inquiry of do all the reservoirs need to be updated, Abendschein commented that staff continues to explore ways to make the reservoirs more cost-efficient. In reply to Commissioner Smith’s query of why the City’s commercial average is not higher than the City of Hayward, Bilir answered that the City of Hayward does have a tiered rate for their commercial customers and Palo Alto charges a flat volumetric rate. In response to his additional questions, Bilir confirmed that commercial customers pay a flat service charge depending on meter size. She clarified that some water Utilities Advisory Commission Minutes Approved on: January 06, 2021 Page 4 of 8 meters are upsized for residential uses for fire prevention and the shape of the customer’s service and as part of the cost of service study, the meter sizes were consolidated for 1” meter and smaller. There is no rate consolidation for commercial customers as there is for residential customers because commercial customers have to have a separate fire meter. The cost of service study closely studied costs and usage to set rates appropriately for each customer class in Palo Alto. Commissioner Smith believed that more investigation is needed to understand the flat volumetric rate that the City charges commercial customers. In reply to Chair Forssell’s question regarding why the comparison did not include other BAWSCA partners that are not Cities, Bilir shared that the Finance Committee had specifically requested that surrounding Cities be included in the comparison. Chair Forssell requested that a future study highlight inflection points showing the usage level above which one city’s bills become more than another city’s. In answer to Vice Chair Segal’s inquiry of why the study used the average of 9 centum cubic feet (CCF) when the City’s average is 11 CCF, Bilir mentioned that historically the average bill comparison study used 9 CCFs and that was used for consistency and predicted that the report would not change much if 11 CCF was used. Vice Chair Segal wanted to understand what the report would be if the true average volume metric was used. In response to Councilmember Cormack’s inquiry of when the report will come back to the Finance Committee, Bilir believed it would come with the Financial Plan for the Water Utility to the new Finance Committee. ACTION: None. ITEM 2: ACTION: Staff Recommendation That the Utilities Advisory Commission Recommend the City Council Decline to Adopt Energy Storage System Target and Received the 2020 Energy Storage Report. Jonathan Abendschein, Assistant Director of Utilities, introduced Lena Perkins who presented the item to the UAC. Lena Perkins, Senior Resource Planner shared that the Energy Storage Report will be submitted to the California Energy Commission (CEC) and it shows that the City has investigated the cost-effectiveness of energy storage and examined setting targets for energy storage within the City. CPAU is required to investigate energy storage every 3-years and in 2011, 2014, or 2017, CPAU did not choose to set energy storage targets. The 2020 CPAU and Smart Energy Power Alliance (SEPA) analysis showed that energy storage is not yet cost-effective for the City. For this reason, CPAU will not be setting energy storage targets for 2020 but will continue to look at opportunities and align incentives. Batteries can be used to lower carbon emissions as well as leverage distributed batteries for society and improve resiliency in catastrophic events. The overbuilding of renewables at the utility-scale was still less costly than batteries and there is no carbon price in the State of California that is enough to make batteries more cost-effective. Batteries that are installed at a residence that has solar panels are not saving the owner money. A commercial customer could use a battery to provide demand charge mitigation and they could save money, but there is no benefit to the utility because peak demand for a commercial is not in alignment with grid peak demand. Staff suggests starting a pilot project that uses electric heat-pumps as distributed thermal storage as a less expensive alternative. In answer to Commissioner Jackson’s query regarding using smart devices to leverage flexible demand response programs, Perkins explained that differing smart electrical vehicle (EV) charging stations to be used past 10:00 pm could be valuable to the utility, wholesale market, and the grid at large. Commissioner Jackson disclosed that incentive-based communications should be sent to residential customers about what should and should not be happening as a way to encourage behavioral changes. In reply to Commissioner Danaher’s questions, Perkins confirmed that Staff continues to explore any storage that is competitively priced. In the next Energy Integrate Resource Plan for the Electric Utility, there is a comparison between solar storage and other renewables in storage compared to the full share of the Utilities Advisory Commission Minutes Approved on: January 06, 2021 Page 5 of 8 Western Base Resource Contract. In regards to Assembly Bill (AB) 2514, the bill addresses both utility and customer energy storage. In answer to Vice Chair Segal’s question regarding time of use, Perkins confirmed that is it hard to communicate with customers in a way that benefits the utility on how storage is used without time of use. It is easier to make sure there are no misalignment incentives once the time of use is implemented. In reply to Chair Forssell’s queries, Perkins disclosed that she explored water pumped hydro storage and found out that there are a lot of operational and operator constraints in how the system is managed currently. Abendschein added that the amount of water storage within the Foothills is very small, but there is an opportunity to replace the pressure reducing values with a turbine to capture power. In regards to the Self Generation Incentive Program (SGIP) Fund, Perkins noted that the fund is only available to investor- owned utilities. In response to Chair Forssell’s question regarding is there a carbon price at which point storage would become effective, Perkins confirmed that $200 a ton is the price carbon would have to be for it to be cost-effective for residential, but it could be already cost-effective in terms of EV chargers. ACTION: Commissioner Johnston moved, seconded by Commissioner Jackson that the Utilities Advisory Commission (UAC) recommend that Council accept staff recommendation to adopt no energy storage targets in 2020 under AB2514. The motion carried 7-0 with Chair Forssell, Vice Chair Segal, and Commissioners Danaher, Jackson, Johnston, Scharff, and Smith voting yes. The UAC took a 5-minute break at 5:34 pm. ITEM 3: DISCUSSION: Discussion and Update on the FY 2022 Preliminary Utilities Financial Forecast and Rate Projections. Eric Keniston, Senior Resource Planner reported that it would be beneficial if the Gas Utility and Waste Water Collection Utility receive a 3 percent rate increase for FY 2022. Lisa Bilir, Acting Senior Resource Planner disclosed that a 3 percent increase would result in a $1.24 per month increase for residential customers and a $0.24 per CCF of winter average usage increase for commercial customers. The drivers for the rate increase was due to large infrastructure projects on the 5-year horizon for the Waste Water Treatment Plant as well as the ongoing Capital Improvement Projects (CIP) for the collection system. The rate trajectory will likely not require any cost cuts during the 5-year forecast period, however, there is uncertainty in the timing of treatment cost increases and cost cuts may be needed even with the 3 percent increase in FY 2022. The Alternate proposal is zero percent increase for FY 2022 and 5 percent increase in each subsequent year. Under this scenario, $3 to $4.5 million cost cuts would be needed between now and FY 2026 in order to keep reserves above minimum levels. In response to Commissioner Scharff’s question regarding residential customers averages, Bilir explained that the wastewater rate for a residential dwelling unit is a flat monthly charge and the 9 ccf average is the median. Staff continued with their presentation. A Cost of Service Study is underway for the Waste Water Collection Utility with an outside consultant and the results will be presented to the UAC in early 2021. The Regional Water Quality Control Plant (RWQCP) treats sewage from six communities and is managed by the City’s Public Works Department. The City pays roughly 36 percent of the Waste Water Treatment Fund expenses with the other five partners paying the remainder. Treatment costs were predicted to increase steeply due to rehabilitation work being done to the RWQCP and collection costs were increasing at an inflationary level. The Long-Range Facility Plan that was completed in 2012 identified key maintenance projects that needed to take place at the RWQCP. Those projects include the replacement of the sedimentation tank which costs $17 million, outfall pipeline costing $11 million, laboratory/operation center costing $59 million, and secondary treatment upgrades costing roughly $88 million. Key drivers involved in the rate increase for wastewater collection included salary and benefits costs for existing staff as well as large CIPs every other year. Utilities Advisory Commission Minutes Approved on: January 06, 2021 Page 6 of 8 In answer to Commissioner Smith’s question about if staff’s model included the projection for the sale of effluent to the Santa Clara Valley Water District, Karin North, Assistant Director of Public Works clarified that no revenue would be received from Santa Clara Valley Water District for the sale of effluent until after the Regional Purification Center is built. The City continues to make investments at the RWQCP to meet current National Pollutant Discharge Elimination System (NPDES) permit requirements. In reply to his inquiry regarding if the Regional Purification Center project is reflected in the year on/year off replacement plan, North confirmed that it is included in the long-range projections for the Wastewater Utility, but the City will pay only a small portion of the costs. Abendschein clarified that the orange bars on the chart showing the on/off year replacement plan are costs for the collection system, not for the treatment plant. Staff continued with their presentation and moved to the Wastewater Operation Reserve. The Wastewater Operation Reserve will be brought close to a minimum balance in FY 2026 due to capital costs needed on the collection side as well as increased costs on the treatment side. Staff moved to the Water Utility where Staff proposed a zero percent increase in FY 2022. The FY 2020-year end Operation Reserve was above guideline levels and projected to be at target levels by year-end of FY 2022. In the most recent Financial Plan, Council approved a plan to make more active use of the Water Utilities CIP Reserve. Staff projected there to be a 5 percent annual increase in the Water Utility beginning in FY 2023 to FY 2026 due to a series of wholesale cost increases anticipated to begin in FY 2023. The City receives its water from the Hetch Hetchy system and included in the water supply cost is the upkeep of that system. The City has its own distribution system within the City that is operated and maintained by the City. The supply cost for the Water Utility is roughly 40 percent of the total cost with distribution making up the remaining 60 percent. The long-term cost trends show that the distribution system cost will increase 3 percent annually and the supply costs are predicted to increase by 6 percent annually. The largest cost driver for increased supply costs is the Water System Improvement Program (WSIP) but the program benefits the City by making sure the water supply system is seismically sound. Keniston continued the presentation by presenting the Electric Utility. He reported that a $10 million loan was taken from the Electric Special Project Reserve to help the Operations Reserve maintain its target level. One $5 million payment has already been made but Staff suggested to not make another payment until FY 2022 or FY 2023 due to COVID-19 impacts. In response to Chair Forssell’s questions regarding what the Electric Special Project Reserve is used for and if there are upcoming projects, Keniston answered that the reserve pays for large projects that would otherwise need to be bond-financed. One project in the pipeline is the Smart Grid Project. In reply to Vice Chair Segal’s inquiry of if undergrounding utilities can use the Electric Special Projects Reserve, Keniston answered no. Abendschein mentioned that the UAC and Council have a policy role in setting the use of the Electric Special Project Fund and undergrounding could be included in the list of approved uses. Keniston continued the presentation and declared that reserve margins are at the minimal level. Some combination of reserve withdrawals, cost reductions, or rate increases may become necessary if sales continue to decline. Overhead costs have decreased, transmission costs continue to increase, and as renewable projects come online, the long-term generation costs should remain stable. Distribution costs drivers include medical and retirement benefits, increased CIPs due to an aging system, underground construction continues to be more expensive than above-ground utilities, and additional line crew expenses. Customer electric bills continue to be below Pacific Gas and Electric (PG&E)’s bills by 34 percent. If a 5 percent rate increase is not adopted for subsequent years, the Electric Supply Operating Reserve will fall below the minimum mark. Moving to the Gas Utility, it was mentioned that the cost of maintaining the distribution system is the main driver in the rate increase. Staff recommended a 3 percent rate increase for the Gas Utility for FY 2022. If a zero percent increase were adopted, $5.4 million would be needed for as one-time cost reduction in FY 2023 and FY 2024 to keep reserves above the minimum. Staff has been seeing lower sales in the Gas Utility than was predicted. Utilities Advisory Commission Minutes Approved on: January 06, 2021 Page 7 of 8 In answer to Commissioner Johnston’s query about where the additional $5.4 million reductions would come from, Keniston predicted that there would be delays in CIPs most likely. Continuing with the presentation, Keniston noted that the Gas Utility served roughly 20,000 customers through 18,000 service lines and 205 gas mains which were all fixed costs. Roughly 60 percent of the Gas Utility cost structure is fixed cost and the other 40 is related to supply costs. Long -term predictions indicated that the utility will increase due to inflation and market-driven costs. Distribution costs were trending at an increase of 2- to 3-percent over the next 5-years. Customer’s gas bills were still falling below PG&E at 8 percent on average. In reply to Vice Chair Segal’s query about defaults on bills, Keniston concurred that delinquent payments continue to rise. Dave Yuan, Strategic Business Manager added that there have been more bankruptcy filings, but in terms of residential installment plans, staff has requested that customers call back when the local emergency has been called off so that staff knows the true outstanding balance. Keniston reiterated that gas sales have been drastically lowering than what was predicted and with a 3 percent increase, staff believed that the gas sale estimates will return to recovery mode in FY 2023. Staff continues to monitor the utility. Councilmember Cormack reported that Council had a wide-range business recovery discussion and it was discovered that it could take up to 4-years to recover economically from the COVID-19 pandemic. There was also a discussion regarding a hybrid option of employees working half a week in the office and the other half at home. Keniston continued that with a 3 percent increase for FY 2022 following by a 5 percent increase in subsequent years, the Gas Operating Reserve is projected to drop down to the minimum mark in FY 2023 and will not recover until FY 2025 and FY 2026. With a zero percent increase in FY 2022, that would result in a $5.4 million cost cut to keep the reserve above minimums. In answer to Chair Forssell’s question regarding rapid escalating construction costs, Yuan confirmed that construction costs continue to go up steadily but not as fast as it was. Batchelor concurred that construction cost increases are still taking place over all the utilities. In reply to Commissioner Danaher's questions, Keniston disclosed that staff always projects an average water year and there is a Hydroelectric Stabilization Reserve within the Electric Utility that is used during drought years. There was roughly $12 million in the Hydroelectric Stabilization Reserve. In response to Commissioner Smith’s queries, Keniston confirmed that the increase that was adopted for the Renewable Energy Certificates (REC) was included in the projections. In answer to Chair Forssell’s inquiries, Keniston restated that with a zero percent rate increase in the Electric Utility, the cost cuts would most likely come from CIPs. Bachelor confirmed that the main replacement project was already reduced in size to keep reserves at a healthy level. Another possible project to find cost cuts is to postpone the cross-bore project for another year. Chair Forssell supported a 3 percent increase for FY 2022 for the Gas and Wastewater Utilities. Commissioner Danaher also supported a 3 percent increase for the Gas and Wastewater Utilities. Commissioner Johnston announced his support of staff’s recommended increases to the Gas and Wastewater Utilities. Vice Chair Segal concurred with her colleague’s support of the increase and believed that a no rate increase would result in a delay of critical CIPs and most likely make them more expensive in later years. Utilities Advisory Commission Minutes Approved on: January 06, 2021 Page 8 of 8 Commissioner Scharff affirmed his support for staff’s recommended 3 percent increase for both utilities. ACTION: None ITEM 4: ACTION: Selection of Budget Subcommittee Commissioner Jackson, Commissioner Smith, and Vice Chair Segal volunteered to be on the Budget Subcommittee. ACTION: None REPORTS FROM COMMISSIONER MEETINGS/EVENTS None. FUTURE TOPICS FOR UPCOMING MEETINGS: January 02, 2021 Chair Forssell requested that Commissioners disclosed if the item they wish to see come before the Commission is a discussion item or an informational item. Commissioner Danaher appreciated the upcoming update on EV charging developments. In response to his question about what the Development Center presentation is, Batchelor confirmed that it will be a presentation regarding home electrification and the permit process. Commission Danaher requested an informational item each month regarding billing trends and user trends. Chair Forssell agreed with that suggestion. Commissioner Smith wanted to see a financial forecast and cost presentation on the dark fiber network. Batchelor reported that an update on underground utilities will be brought forward to the Commission in possibly February or March of 2021. Commissioner Scharff wanted staff to include in that report the total cost, possible rate increases, and timeframe to underground all utilities in the whole City. Batchelor disclosed that a previous study was done and the study predicted it would cost roughly $300 million to underground all utilities within 3 years. Another factor for underground utilities was if the City had strong wills to move to full electrification and if so, that may be an opportunity to move utilities underground. NEXT SCHEDULED MEETING: January 02, 2021 Vice Chair Segal moved to adjourn. Commissioner Jackson seconded the motion. The motion carried 7-0 with Chair Forssell, Vice Chair Segal, and Commissioners Danaher, Jackson, Johnston, Scharff, and Smith voting yes. Meeting adjourned at 6:52 p.m. Respectfully Submitted Tabatha Boatwright City of Palo Alto Utilities City of Palo Alto (ID # 10591) Utilities Advisory Commission Staff Report Report Type: Agenda Items Meeting Date: 12/2/2020 City of Palo Alto Page 1 Summary Title: Water Benchmarking Title: Discussion on Comparison of Water Rates and Average Bills Among Cities Supplied by San Francisco Public Utilities Commission From: City Manager Lead Department: Utilities Recommendation The purpose of this report is to provide information for the UAC’s consideration and discussion about how Palo Alto’s water rates and average bills compare to other cities that have the same supplier as Palo Alto. Where Palo Alto’s rates are higher, this report provides details about why. Executive Summary Palo Alto purchases all its potable water from the San Francisco Public Utilities Commission (SFPUC). Typically, Palo Alto compares its average water bills to neighboring communities, some of which utilize other water sources such as groundwater that do not have the same cost as water from the SFPUC. In spring 2020 the Finance Committee expressed interest in understanding how Palo Alto’s water rates compare to other cities that have the same water supply as Palo Alto as well as gaining a detailed understanding of reasons why Palo Alto’s rates are higher than others in this group. There are eight Bay Area cities that obtain 100% of their potable water supply from the SFPUC. Palo Alto’s single-family residential and commercial rates are second to lowest among this group. Hayward has lower single-family residential rates while Redwood City has lower commercial rates relative to Palo Alto. Within this group, the utilities with the largest number of customers have the lowest rates. Redwood City has the most similar number of customers to Palo Alto in the group. The gap between Palo Alto, Redwood City and Hayward’s water bills has narrowed over the years. This gap is partially explained by differences in rate design and operating costs. Hayward’s costs are lower than Palo Alto’s and so are its single-family residential water bills. However, the cost differences are small relative to the bill differences. A key cost difference between Hayward and Palo Alto is water infrastructure investmen t costs. Staff: Lisa Bilir City of Palo Alto Page 2 Palo Alto’s consistently high water infrastructure investments over the last four decades have led to a reliable water system that is resilient to seismic risks. However, the costs to fund that water infrastructure contribute to Palo Alto’s higher costs compared to Hayward. Water usage differences are also significant contributors to bill and rate differences between Palo Alto, Redwood City and Hayward. Palo Alto has a higher percentage of residential use compared with Hayward. Additionally, Hayward’s non-residential usage is increasing while Palo Alto’s is decreasing. These consumption differences put more upward pressure on Palo Alto’s residential rates relative to Hayward’s. Background Staff regularly compares Palo Alto’s water rates and average bills to those of Redwood City, Mountain View, Menlo Park (Bear Gulch District of California Water Service Company), Hayward, and Santa Clara. This comparison group was selected to show how Palo Alto’s total utility bills (including water, electric, gas, and wastewater rates) compare to neighboring communities that Palo Alto residents might instinctively compare themselves to. Palo Alto’s single-family residential water bills are 9% higher than the rates in this comparison group and 4- 7% higher than commercial water rates among this comparison group. On April 21, 2020, the Finance Committee passed a motion to “direct Staff to provide details as to why Palo Alto’s rates are higher than cities with the same supplier at next year’s Finance Committee.” Wit hin the comparison group listed above, only Redwood City and Hayward receive 100% of their potable supply from SFPUC like Palo Alto. Discussion Staff completed an analysis of this question that relied primarily on data from Comprehensive Annual Financial Reports and Bay Area Water Supply and Conservation Agency (BAWSCA) Annual Reports1 to outline the main factors that contribute to Palo Alto’s rates being higher than neighboring cities with the same supplier. The key insights are as follows: Palo Alto Has Some of the Lowest Rates Among Cities Supplied 100% by SFPUC There are 16 total BAWSCA utilities that receive 100% of their potable supply from the San Francisco Regional Water System (SFPUC).2 Of those, seven have a different organizational structure than Palo Alto; six are water districts and one is an investor-owned utility. Among Palo Alto and the eight other remaining cities, Palo Alto has the second to lowest single -family 1 Other sources include budgets (operating and capital), Urban Water Management Plans, and Financial Plans/Rate Studies where available. 2 BAWSCA Annual Report Table 2A, Brisbane, Burlingame, California Water Service, East Palo Alto, Estero MID, Guadalupe Valley MID, Hillsborough, Menlo Park, Mid-Peninsula WD, Millbrae, North Coast CWD, Palo Alto, Redwood City, Westborough WD, Purissima Hills, Hayward. City of Palo Alto Page 3 residential average bills.3 Coincidentally, the only other city in this group with lower single- family residential average bills is Hayward, one of the Palo Alto’s comparison cities. The only other city in this group with lower commercial average bills is Redwood City, also one of the Palo Alto’s comparison cities. Redwood City’s single-family bills at a usage level of 9 CCF (hundred cubic feet) per month are similar to Palo Alto’s while its commercial bills are lower than Palo Alto’s at a usage level of 300 CCF per month. Figure 1 and 2 below summarize the average bills in this comparison group. Figure 1: Single-Family Residential Monthly Average Bills at 9 CCF Among Cities With The Same Supplier (current rates October 2020) 3 Comparison calculated at 9 CCF per month per customer. City of Palo Alto Page 4 Figure 2: Commercial Monthly Average Bills at 300 CCF Among Cities With The Same Supplier (current rates October 2020) Palo Alto has lower single-family residential average bills at 9 CCF than Redwood City and lower commercial bills than Hayward (at usage levels above approximately 250 CCF/month).4 The Largest Cities Supplied 100% by SFPUC Have th e Lowest Rates For cities supplied by the SFPUC for 100% of their potable water supply, the larger cities have lower rates and bills. Figure 3: Single-Family Residential Bill at 9 CCF Compared to Number of Customers for Cities Supplied 100% by SFPUC 4 Redwood City provided a 3% credit to all customers billed in the months of July, August, September and October due to the ongoing pandemic. The credit is not reflected in these charts. City of Palo Alto Page 5 Palo Alto, Redwood City, and Hayward benefit from economies of scale (relative to the other cities supplied 100% by SFPUC). Palo Alto has more than twice as many customers as most of the comparison cities in this group. Hayward has almost twice as many cus tomers as Palo Alto. Redwood City is the most similar in size to Palo Alto among the cities supplied 100% by SFPUC. This report focuses on Hayward and Redwood City to detail some of the other key differences that contribute to making their water bills at average usage levels lower than Palo Alto’s for single-family residential and commercial customers, respectively. Rate Design Contributes to the Differences in Rates and Bills Palo Alto’s monthly water service charges for single-family residential and commercial customer groups are in between those of Redwood City and Hayward (Table 1). Table 1: Service Charges (Monthly Equivalent for 5/8” Meter) Single-Family Residential Commercial Palo Alto $20.25 $17.71 Redwood City $29.52 $29.52 Hayward $14.00 $14.00 City of Palo Alto Page 6 Figures 4 and 5 summarize the single-family residential and commercial quantity rates. Hayward has three tiers, Redwood City has four tiers and Palo Alto has two tiers for single - family residential customers. Hayward and Redwood City each have a small first tier that provides for 4 CCF of usage per month at the lowest rate per CCF. Palo Alto’s first tier provides for 6 CCF of usage but at a higher rate. Hayward and Redwood City’s lowest first tier together with Hayward’s low monthly service charge contribute to Hayward and Redwood City’s lower bills for low-use customers. Figure 4: Single-Family Residential Volumetric Rates Redwood City and Palo Alto have uniform volumetric rates for commercial customers. Hayward has a tiered rate with a lower tier for usage up to 100 CCF per month. There is no true average commercial usage because the customer class is heterogenous. However, this report uses 300 CCF as the quantity for bill comparisons; a large restaurant could use this much water. City of Palo Alto Page 7 Figure 5: Commercial Volumetric Rates Palo Alto, Redwood City and Hayward each have different rate designs including the number of tiers, width of each tier and amounts charged for monthly service. Each city’s pricing structure is specific to their customers and cost factors. These differences in rate design contribute to Palo Alto’s higher bills. The Gap Between Palo Alto, Redwood City and Hayward’s Residential Water Bills Has Narrowed Over the Years Figures 6 through 8 show how monthly single-family residential bills compare at low, medium and high usage levels across Palo Alto, Hayward and Redwood City annually since 2005.5 Hayward and Redwood City’s single-family residential bills have grown faster than Palo Alto’s bills which has narrowed the gap over the years. Because several factors go into calculating a water bill, the difference between cities varies by customer class, by quantity of water used and over time. At low usage (4 CCF/month), Hayward’s single-family residential water bills are lower than Palo Alto’s and have been lower than Palo Alto’s bills for approximately 15 years. 5 Redwood City and Hayward bill single-family residential customers bimonthly while Palo Alto bills customers monthly; these charts show a monthly bill equivalent for Hayward and Redwood City. City of Palo Alto Page 8 Figure 6: Single-Family Monthly Residential Bill Comparison at 4 CCF of Water Usage Figure 7: Single-Family Monthly Residential Bill Comparison at 9 CCF of Water Usage At 9 CCF, Palo Alto’s bills used to be higher than Redwood City’s but since 2017 have reached parity with Redwood City. Hayward’s water bills have consistently been lower than Palo Alto’s. The dollar difference between Palo Alto and Hayward’s single -family monthly bill at 9 CCF has remained approximately the same throughout this time period. However, the percentage difference between Palo Alto and Hayward’s bills has declined substantially; Palo Alto’s bills in this category are now approximately 24% higher than Hayward’s while Palo Alto’s bills used to be approximately 60% higher than Hayward’s. City of Palo Alto Page 9 At higher usage of 25 CCF/month, Hayward’s single-family residential bills are lower than Palo Alto’s; Redwood City’s single-family residential bills were lower than Palo Alto’s until around 2017 when Redwood City began charging more for higher single-family residential use (including lowering breakpoints between volumetric tiers for single-family residential customers). Figure 8 shows these differences. Figure 8: Single-Family Monthly Residential Bill Comparison at 25 CCF of Water Usage Bill comparisons can be dynamic across years and usage levels. For simplicity, this report uses 9 CCF per month for comparisons of single-family residential bills across cities. For more reference information about each of the cities see Attachments A and B. Attachment A shows a map of the service areas and Attachment B shows a table comparing water utility characteristics. Hayward and Redwood City’s rates have been growing at a rate faster than Palo Alto’s over the years, so the gap between Palo Alto, Hayward and Redwood City’s rates have narrowed. Differences in Operating Costs Explain Some of the Gap Focusing on operating costs can provide key insights but does not explain the majority of the differences in average bills among Palo Alto and neighboring cities with the same water supply. Average operating cost as well as growth in operating costs over the past decade only explains some of the gap between Palo Alto, Hayward and Redwood City. Dividing operating revenue for the water utility by the volume of water purchased from SFPUC, derives a proxy for average cost per CCF as shown in Table 2. City of Palo Alto Page 10 Table 2: Average Cost (FY 2019) and Average Bills (FY 2020) Palo Alto Redwood City Redwood City Difference to Palo Alto Hayward Hayward Difference to Palo Alto $ % $ % Average Operating Cost of Water per CCF* $9.90 $11.41 $1.51 15.3% $9.33 -$0.57 -5.8% Average Single-Family Residential bill at 9 CCF/month $90.42 $90.79 $0.37 0.4% $72.90 -$17.52 -19.4% Average Commercial bill at 300 CCF/month $2,330.71 $2,234.52 -$17.52 -4.1% $2,367 $36.29 1.6% * Operating Revenue ($) / Water Purchases from SFPUC (CCF) Hayward’s average cost of water per CCF is 5.8% lower than Palo Alto’s. Hayward’s average single-family residential bills are also lower. However, the cost differences are small relative to the single-family residential bill differences. Redwood City’s average cost of water per CCF is 15.3% higher than Palo Alto’s and Redwood City’s single-family residential bills are also higher. The cost differences are greater than the bill differences between Redwood City and Palo Alto. From 2009-2018, Palo Alto’s single-family residential bills have increased on average by 7.8% annually. Hayward and Redwood City have experienced even more upward pressure with average bills rising by 10-10.9% annually during the same time period. Purchased water costs across these cities grew at 13% annually during this same time period and is a key reas on why rates have increased.6 However, this factor is similar across the three cities and does not explain the differences in the average bills or the different growth in rates. Table 3 illustrates average annual cost trends. 6 A key cost driver for purchased water costs is the Water Supply Improvement Program, an approximately $4.8 billion dollar capital improvement program designed to improve reliability and improve seismic safety of the SFPUC Regional Water System. City of Palo Alto Page 11 Table 3: Average Annual Changes FY 2009-2018 Palo Alto Redwood City Hayward Single-Family Residential Bill (9 CCF) 7.8% 10.0% 10.9% Operating Cost* / CCF Water Purchased 6.3% 6.6% 8.4% Purchased Water Cost / CCF Water Purchased** 13.1% 13.6% 12.5% * Other than Purchased Water and Depreciation Expense ** Average annual changes include minor variations due to different timing across datasets leading to slight percentage differences Operating cost (other than purchased water costs) grew on average in each city over the same time period but not as much as bills. Because operating expense is not increasing as quickly as average bills, operating expense is not a key driver of growth in Palo Alto’s rates and bills relative to the other cities. Understanding operating cost differences explains only part of the reason for the bill differences across cities. Purchased water cost is an important cost driver increasing rates in Palo Alto, Redwood City and Hayward. However, it is not driving the differences in bills across the cities. Other operating costs are not a key driver of growth in bills in Palo Alto, Hayward, and Redwood City. Palo Alto’s Water Infrastructure Investments Increase Water Rates Relative To Hayward Palo Alto began consistently investing in water infrastructure in the 19 90s when leak rates rose significantly. This investment has helped greatly and Palo Alto has low leak rates. Palo Alto’s consistent investments in water infrastructure, including emergency wells and reservoir have made the water distribution system resilient to water emergencies and seismic events. Palo Alto and Redwood City have more capital assets serving water customers relative to Hayward per CCF of water purchased. Palo Alto and Redwood City each have nearly $40 in water-related capital assets for each CCF of water that enters the system. Hayward has approximately $23 in water-related capital assets for each CCF of water that enter Hayward’s system. Palo Alto and Redwood City’s water rates reflect these higher infrastructure investments. Figure 9 shows this difference by combining acquisition and construction costs with interest and principal on long term debt. City of Palo Alto Page 12 Figure 9: Three Year Moving Average of Acquisition and Construction of Capital Assets and Interest and Principal on Long Term Debt per CCF Purchased Palo Alto and Redwood City’s customers fund more water system capital investment annually than Hayward. Palo Alto and Redwood City’s water costs are between approximately $2.00 and $2.50 per CCF while Hayward’s water capital costs are approachin g $1.00 per CCF. On a 9 CCF monthly bill, this difference is approximately $9.00 to $13.50. This is a primary factor contributing to Palo Alto and Redwood City’s higher bills relative to Hayward’s. Usage Differences Contribute to Bill Differences Table 4 summarizes the usage for residential customers in 2010 and 2019. Palo Alto and Redwood City both have a higher portion of residential water use than Hayward and the portion of residential water use is increasing over time for Redwood City and Palo Alto. Table 4: Residential Potable Water Usage 2010 2019 Change (2010 to 2019) Palo Alto 58% 63% 5% Redwood City 68% 70% 2% Hayward 61% 55% -6% Source: BAWSCA Annual Surveys Because Palo Alto’s residential customer class collectively uses a larger percent age of the city’s water, this customer class is responsible for paying for a larger portion of the costs. Hayward’s single-family residential customers on average use 6.4 CCF per month while Palo Alto’s average is 10.9, or 70% more than Hayward. This high consumption contributes to Palo Alto’s higher residential bills. City of Palo Alto Page 13 Similarly, Redwood City’s lower portion of usage among non-residential customers relieves upward pressure on Redwood City’s non-residential rates and average bills relative to Palo Alto. Additionally, Hayward’s non-residential customer class increased its water consumption by 10% since 2010 while Palo Alto’s non-residential customer class decreased its water consumption by 8% over the same time period. Hayward’s growth in the non -residential sector means that the sector collectively is responsible for paying a larger portion of the costs which relieves some of the upward pressure on residential rates relative to Palo Alto. Palo Alto’s residents use more water on average and this contributes to their higher bills. Hayward’s higher portion of usage and increasing usage among non-residential customers relieves upward pressure on Hayward’s single-family residential rates and bills relative to Palo Alto. Next Steps Staff will review this analysis with the new Finance Committee in 2021. After hearing Finance Committee feedback, staff will determine what additional steps to take based on this analysis. Resource Impacts This analysis does not involve resource impacts beyond those already expended . Should Palo Alto pursue further analysis or changes to utilities operating practices, it could require additional staff time or consultant expenditure that would be absorbed within existing budgets. Policy Implications This report implements Finance Committee policy direction to evaluate differences between Palo Alto customer water bills and those of neighboring agencies, and is consistent with Utilities Strategic Plan Priority 4 (Finance and Resource Optimization) specifically the Key Performance Indicator (KPI) that states “Maintain average (e.g. median) or below residential and commercial utility bills as compared to surrounding utilities and communities.” While this KPI refers to the total utility bill (which is lower in Palo Alto than in surrounding communities), examining how Palo Alto’s water bills compare to those of neighboring agencies helps provide information that can be used to maintain compliance with this KPI and improve on it. And, of course, Palo Alto’s utilities staff strives to maintain a low cost of utility services compared to surrounding communities in all services, not just for the utility bill overall, and this analysis provides information that can be used to help make progress toward that goal for the water utility. Environmental Review This benchmarking analysis is not a Project requiring California Environmental Quality Act review, as an administrative activity that will not result in direct or indirect physical changes in the environment (14 CCR Section 15378(b)(5)). Attachments: City of Palo Alto Page 14 • Attachment A: Map of Service Areas • Attachment B: Water Utility Characteristics • Attachment C: Presentation Attachment A Map of Service Areas San Francisco Bay Pacific Ocean San Mateo County Legend 1 Al a meda County Water Di st ri ct 2 City of Bri sba n e 3 City of Burlinga me 4a CW S - Bea r G ul c h 4b CWS -Mi d-Pe nin sul a 4c CW S - So uth San Franc isco 5 Coastside Coun ty Water Di strict 6 City of D aly City 7 City of East Pa lo Alto 8 Est ero Municipa l Improvement District 9 Gu ad alu pe Va ll ey M ID 10 City of Haywa rd 11 Town of Hill sborough 12 City of Men lo Pa rk Sources: BAWSCA, San Mateo Coun ty General Pla n ----. ' ........ - Alameda County ~n Antonio C(<~:servoir ,,.------~----·-· _., ..... Cal.Jveras Reservoir Santa Cla ra County 13 Mid-Pen ins ul a Water Di strict 14 City of Mill brae 15 City of Milpitas 16 City of Mou nta in View 17 North Coast County Water District 18 City of Pa lo Al to 19 Puri ssi ma Hi lls Water D istrict 20 City of Red wood C ity 21 City of San Bruno 22 San Jose M unicipa l Water System 23 City of Santa Cla ra 24 Stanford Unive rsity 25 City of Sun nyva le 26 Westborough Water D istrict Attachment B Water Utility Characteristics Utility Customers SFPUC Water Purchased (MGD), % Potable Supply Miles of Main Single-Family Residential Average Monthly Use (CCF) Single-Family Residential % of Demand Palo Alto 20,126 9.43, (100%) 236 10.9 41% Redwood City 23,623 8.08, (100%) 262 7.8 45% Hayward 38,648 13.98, (100%) 340 6.4 36% Mountain View 17,489 7.21, (86%) 176 6.8 26% Cal Water – Bear Gulch 18,559 9.48, (92%) 318 19.7 84% Santa Clara 25,293 3.03, (19%) 335 9.1 21% Comparison of Water Rates in Cities Supplied by SFPUC December 2, 2020 www.cityofpaloalto.org Attachment C • CITY OF PALO ALTO 2 BACKGROUND Spring 2020 –Finance Committee Adopted a Motion to “Direct Staff to provide details as to why Palo Alto’s rates are higher than cities with the same supplier at next year’s Finance Committee.” •Analysis completed Summer of 2020 •Also implements Utilities Strategic Plan Priority 4, Action Strategy 2 (Utility Benchmarking) •Previous benchmarking efforts: •2010 consultant water benchmarking study •2013 water benchmarking study •2014 and 2013 AWWA benchmarking and Organizational Assessments A c1Tv OF .PALO ALTO 3 BAWSCA MEMBER AGENCIES PA RC Hayward MP MVMP PA CWS -BG RC: Redwood City MP: Menlo Park Municipal PA: Palo Alto CWS –BG: California Water Service, Bear Gulch District MV: Mountain View SC: Santa Clara SC A c1Tv OF ~PALO ALTO 4 COMPARISON UTILITIES –WATER BILL COMPARISON Single-Family Residential Palo Alto is 9% above comparison city average- 200 180 160 ~140 V') = 120 - a.) > 100 £ 80 C 0 60 ~ ~~ _I Palo Alto Redwood Menlo Park Mountain City (Cal Water) View -Low (4 CCF) -Med {8 CCF) -High (18 CCF) Bold indicates 100% of Water Supply from SFPUC A c1Tv OF ~PALO ALTO Hayward Santa Clara -Average at 8 CCF 5 COMPARISON UTILITIES –WATER BILL COMPARISON Commercial Palo Alto is 4 to 7% above comparison city average --<I). 3000 2500 ~2000 co >-1500 ..c ..... 6 1000 ~ 500 0 -Palo Alto ---Redwood City -12 CCF -Menlo Park (Cal Water) Mountain View -300 CCF Bold indicates 100% of Water Supply from SFPUC A c1Tv OF ~PALO ALTO -Hayward -■ Santa Clara -Average at 64 CCF 6 NEIGHBORING CITIES WITH SAME SUPPLIER Single-Family Residential 160 _ 140 -<.I}- LL 120 u u 0) 100 +-' ro V) 80 CCl > 60 ...c +-' 40 C 0 ~ 20 0 Ac1Tv OF ~PALO ALTO Hayward Palo Alto Redwood East Palo Brisbane Menlo Park Hillsborough Millbrae Burlingame City Alto Municipal 7 NEIGHBORING CITIES WITH SAME SUPPLIER Commercial 4000 ~3500 ~ 3000 g 2500 M .µ ro 2000 V) in 1500 > ~ 1000 0 ~ 500 0 Redwood Palo Alto Hayward East Palo Hillsborough Burlingame Menlo Park Brisbane A c1Tv OF ~PALO ALTO City Alto Municipal Millbrae 8 BILL DIFFERENCES DECREASING Palo Alto % higher than Hayward Palo Alto % higher than Redwood City Bill differences shown above for single-family residential customers using 9 CCF/month 70% 60% 50% 40% 30% 20% 10% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 -10% A c1Tv OF ~PALO ALTO 9 KEY TAKEAWAYS •Most of the other Bay Area cities that receive 100% of their potable water supply from SFPUC are smaller than Palo Alto and have higher rates. Hayward and Redwood City are the only two that have lower rates •The difference between Palo Alto and neighboring cities bills have decreased over the last 10 years; Redwood City’s average residential bills are similar to Palo Alto’s while Palo Alto’s average residential bills are consistently higher than Hayward’s •Operating costs and rate design differences partially explain the gap •A significant factor increasing Palo Alto and Redwood City’s rates relative to Hayward is consistently higher water infrastructure investment •Hayward’s higher portion of usage and increasing usage among non-residential customers relieves upward pressure on Hayward’s single-family residential rates & bills relative to Palo Alto A c1Tv OF .PALO ALTO City of Palo Alto (ID # 11357) Utilities Advisory Commission Staff Report Report Type: Meeting Date: 12/2/2020 City of Palo Alto Page 1 Summary Title: Energy Storage AB 2514 Report Title: Staff Recommendation That the Utilities Advisory Commission Recommend the City Council Decline to Adopt Energy Storage System Targets and Receive the 2020 Energy Storage Report From: City Manager Lead De partment: Utilities RECOMMENDATION Staff recommends that the Utilities Advisory Commission (UAC) recommend that Council decline to adopt energy storage system targets under California Assembly Bill (AB) 2514 at this time, and that Council receive the 2020 City of Palo Alto Utilities Energy Storage Report. The Draft 2020 CPAU Energy Storage Report is linked here.1 The final report will also be submitted to the California Energy Commission (CEC). Staff also seeks UAC input on future plans regarding energy storage solutions for Palo Alto. EXECUTIVE SUMMARY California law AB 2514 (2010, as amended) requires all California publicly owned utilities to investigate whether energy storage systems are cost effective every three years Public Utilities Code § 2836(b)). Most recently in 2017 City of Palo Alto Utilities (CPAU) staff examined energy storage systems,2 determined that they were not cost effective for CPAU, and therefore declined to set energy storage targets. CPAU will submit the “2020 City of Palo Alto Utilities Energy Storage” to the CEC by the end of December 2020. The draft version of the report is linked here3 and includes: 1)An overview of customer adoption of Energy Storage Systems (ESS) in Palo Alto; 2)Analysis of the cost-effectiveness of customer-sited ESS within Palo Alto; and 3)Next steps for ESS both within Palo Alto and sited at utility-scale renewable generation. To investigate if energy storage located in the City of Palo Alto was financially beneficial to all customers, CPAU built an economic battery dispatch model and also worked on a joint analysis with the Smart Energy Power Association (SEPA) and other publicly owned utilities through the Northern California Power Agency (NCPA) and Sacramento Municipal Utility District (SMUD). 1 Draft 2020 CPAU Energy Storage Report 2 https://www.cityofpaloalto.org/civicax/filebank/documents/57435 3 Draft 2020 CPAU Energy Storage Report Staff: Lena Perkins City of Palo Alto Page 2 The CPAU and SEPA analyses both suggest that for Palo Alto customer-sited energy storage is still not cost-effective from a societal perspective (for the utility and customers in aggregate). Since neither energy storage within the City nor on transmission system was found to be cost effective for the utility or society as a whole, CPAU recommends declining to set energy storage system targets at this time.4 Instead CPAU will continue to monitor this rapidly maturing space and continue looking for specific projects which by virtue of their location could provide extraordinary resiliency, lower carbon emissions, and/or lower distribution system costs. Staff is also currently evaluating multiple proposals for utility- scale storage colocated with renewable generation and will move forward with competitive projects that complement CPAU’s existing supply portfolio. BACKGROUND The deployment of ESS in the California electricity sector has grown rapidly in recent years due to declining cost, regulatory mandates for investor owned utilities (IOUs) to procure and/or provide rebates for customer sited ESSs, availability of reliable system manufacturers/installers, federal tax credits, and increased customer awareness of the benefits ESS5. IOUs have been authorized to collect over $1B from their customers to be spent on the state-mandated storage program for IOU territory, which is called the Self Generation Incentive Program (SGIP). On a very basic level, energy storage systems can be used to allow energy generated at one time to be utilized at a later time. This opens up a number of possible value streams as shown in the Draft 2020 CPAU Energy Storage Report linked here. This list of value streams is consistent with other analyses of value streams, such as those shown in the 2017 Rocky Mountain Institute Storage Report.6 Despite energy storage systems being able to provide multiple values, the actual installation of batteries in California has not always been economically or environmentally beneficial. A recent evaluation7 of the Self Generation Incentive Program found that on average commercial storage projects without performance-based incentives increased carbon emissions. This was primarily8 due to commercial customers using their batteries during the times of cleanest electricity and charging their batteries during the times of dirtier electricity (which is typical for maximizing savings from commercial demand charges). DISCUSSION 4 Under state law (PUC 2836(b)), local publicly owned electric utilities like CPAU must analyze the merits of ESS investments periodically and set goals if such investments are cost effective. 5 It is estimated battery costs have declined by 50% over the past 3 years, with the corresponding battery ESS cost declining by 30%. Under California Public Utilities Commission (CPUC) mandates, the IOU/CCAs were required to contract for 2,485 MW of ESS by 2020. In addition, CPUC requires IOUs to provide cash rebates to customers installing ESS under the Self-Generation Incentive Program (SGIP). The increased wildfire risks and associated public-safety-power-shutoff measures have increased the customer’s need for back-up power sources, which ESS are well suited to provide. 6 https://rmi.org/wp-content/uploads/2017/03/RMI-TheEconomicsOfBatteryEnergyStorage-FullReport-FINAL.pdf 7https://www.cpuc.ca.gov/uploadedFiles/CPUC_Public_Website/Content/Utilities_and_Industries/Energy/Energy_ Programs/Demand_Side_Management/Customer_Gen_and_Storage/2017_SGIP_AES_Impact_Evaluation.pdf 8 10% of the emissions increase was due to parasitic losses within the battery, but 90% of the emissions increase was due to the commercial customers operating the batteries to lower their utility demand charges rather than lower carbon or wholesale energy costs. City of Palo Alto Page 3 The CPAU and SEPA analyses both suggest that for Palo Alto, customer-sited energy storage is still not cost-effective from a societal perspective (for the utility and customers in aggregate). Details on the analysis and results are in the Draft CPAU 2020 Energy Storage Report linked here.9 Since neither energy storage within the City nor on transmission system were found to be cost effective for the utility or society as a whole, CPAU will not be setting storage goals at this time.10 Instead CPAU will continue to facilitate customer-funded installations through education and group buy programs, and monitor this rapidly maturing space and continue looking for specific projects which by their location could provide extraordinary resiliency, lower carbon emissions, and/or lower distribution system costs. Staff is also currently evaluating multiple proposals for utility-scale storage located with renewable generation and will move forward with competitive projects that complement our existing supply portfolio. Areas of Unique Value of Energy Storage to CPAU Although the current analyses suggest energy storage within CPAU territory is not financially beneficial to all customers, there are a number of factors which could change this in the future. These factors do not currently outweigh the costs of storage, but there is the potential for this to change in the future based on: higher future resiliency value to community, statewide energy supply shortages or interruptions, different structure proposed for transmission charges, and rapid electrification of particular residential neighborhoods. Factors which would Improve Future Energy Storage Value to CPAU & Customers 1. Increased community value of local resiliency: The recent electricity supply shortages at the state level and potential future disruptions from large-scale regional wildfires could lead the community to elect to pay a premium for local electricity storage. 2. Insufficient distribution system capacity in residential areas: Energy storage could help distribution system costs, in particular for neighborhoods rapidly switching to all electric homes which also have a high penetration of electric vehicles. Where there is not currently enough distribution system capacity batteries may have the potential to be leveraged as “non-wires solutions” if exercised appropriately. 3. Increased wholesale value of flexible resources: The recent supply shortages at the state level could indicate that flexible electricity generation is currently underpriced and undervalued. Flexible resources such as batteries could be worth more in the future if this trend holds, especially as more natural gas generation is retired in California. 4. Reconfiguration of transmission charges: The primary transmission operator of California is considering redistributing transmission charges in a way which would make flattening electricity demand more valuable. This would increase the value of storage as one way to flatten electricity demands, at a City level. 5. CPAU’s Hourly Carbon Neutral Standard: In August 2020 CPAU adopted an hourly carbon neutral accounting standard. This will ensure that the technologies such as energy storage which can store 9 Draft 2020 Energy Storage Report 10 Under state-law AB2514, electric utilities like CPAU must analyze the merits of ESS investments periodically and set goals if such investments are cost effective. City of Palo Alto Page 4 the lowest carbon hours and then help the grid during the highest carbon hours are properly valued when making investment decisions. 6. Solar Net Energy Metering Rate: Since Palo Alto compensates new solar customers at the value to the utility for the solar exported to the grid, if the value of electricity continues to decline during the day, the value of local solar exported to the grid may decline as well. If the difference between the retail rate of electricity and the value of local solar electricity exported to the grid increases in the future, this will increase the value of local energy storage to customers. Key Differences in Energy Storage Value between CPAU and PG&E Since two separate analyses suggest that energy storage is not currently financially beneficial to CPAU and its customers, it is important to understand why it is considered beneficial for the investor-owned utilities which are required to invest in and subsidize energy storage for their customers. Some of the key differences between CPAU and the IOUs such as PG&E which are required to invest in storage systems via the SGIP are shown below. 1. Distribution System Deferral: Lower value for CPAU than PG&E. a. The City’s electric distribution system is not currently constrained since electricity sales are 30% below historical peak due to aggressive efficiency, high customer adoption of solar, departure of industrial loads, lack of other load growth, and lower summertime temperatures. b. Staff will continue to investigate specific locations on the residential side of the distribution system for opportunities for distribution deferral, especially in neighborhoods switching to all electric homes and with high penetration of electric vehicles. 2. Back-up Power for Outages & Power Safety Power Shutoff Events: Lower value for CPAU than PG&E. a. CPAU’s territory is mostly urban, non-mountainous terrain, low-fire risk and fewer distribution miles per customer, therefore limited customers are affected by PSPS. CPAU also has relatively few outages. 3. Time-of-Use (TOU) Rate Bill Management: Lower value for CPAU than PG&E. a. There is no Residential TOU rate as CPAU does not yet have smart meters installed and therefore cannot distinguish when during the day electricity is being used. Price differentials for TOU pilot rates in Palo Alto have historically been small, though this may have changed marginally in recent years. i. CPAU expects to have smart meters deployed by 2024. ii. Staff is exploring ways to control smart electric vehicle charging, smart building management systems, and smart thermostats to leverage flexible demand response programs. Connected batteries would be eligible in any pilot. iii. TOU rate design will be an important topic in a future electric cost of service study. b. The price differential in the current CPAU commercial TOU rate is small. i. Staff will be evaluating this in the next electric cost of service study as well. 4. Utility-scale Transmission-Connected Energy Storage: Lower value for CPAU than PG&E. a. CPAU owns highly flexible load-following hydroelectricity, which provides ~15% of its electric supply. City of Palo Alto Page 5 b. CPAU has already entered into long-term contracts for carbon-free resources that will supply ~110% of its electricity needs through 2024. If CPAU were currently contracting for new renewable resources, the economics of bundling in utility scale storage during construction would be more advantageous. Comparison of Planned Storage Expenditures between CPAU and PG&E Territory A comparison between CPAU and the surrounding IOU PG&E on the basis of authorized budget and on key aspects are below. Customer-sited storage: • 87% of the total PG&E SGIP funding dedicated to customer-sited energy storage is reserved for high fire risk customers, those who have had multiple PSPS events in the last two to three years, and or low-income customers. CPAU has very few customers with high fire risk and has relatively few customers who are both low income and have high fire risk. • A comparison of the remainder of the dedicated SGIP funding11 shows that: o An equivalent pro rata amount of funding dedicated to customer-sited energy storage would be $500k in total for CPAU, which would roughly translate to 220 kW / 590 kWh of customer-sited batteries installed in CPAU territory. o As of 2020, Palo Alto already has 210 kW / 567 kWh in residential batteries installed and 1,000 kW / 2,020 kWh commercial customer-sited batteries. • For customer-sited energy storage, CPAU customers appear to be investments on their own, which could call into question whether utility intervention to further stimulate demand is required in this market. Large-scale or transmission grid-tied: • An equivalent amount of funding allocated for transmission/wholesale interconnected storage would be about $1.3M and would roughly translate into 1.1 MW / 4.4 MWh of transmission grid-tied batteries installed. • Palo Alto is evaluating competitive transmission grid-tied projects in the 5 MW / 20 MWh range. PUBLIC ENGAGEMENT Resiliency, lowering costs, and lower carbon emissions are core values of CPAU. CPAU will engage the public as needed on the topic of energy storage in the S/CAP process and as part of any other local discussions on resiliency as they relate to energy storage. NEXT STEPS CPAU will not be setting any energy storage system targets at this time. Staff is evaluating transmission grid-tied storage located at utility-scale renewables. CPAU will also consider utility scale and behind-the- meter storage as supply portfolio options in the 2024 Electric Integrated Resource Plan. Staff will also continue evaluating specific local projects which due to their location could provide extraordinary resiliency, lower carbon emissions, or distribution system value. There are six key areas that staff will continue to explore as these will have the highest value to CPAU and its customers: 11 This includes funds not already made available, but earmarked for SGIP through authorized collections. City of Palo Alto Page 6 1. Examine using flexible loads to avoid or minimize future rotating outages: Flexible loads have many of the benefits of energy storage but are much less expensive than purchasing standalone batteries or other energy storage. The recent electricity supply shortages at the state level indicate that flexible electricity loads such as storage, flexible EV charging, flexible building management systems, smart thermostats and smart heat-pump water heaters may currently be undervalued. Staff will be examining ways to use flexible electricity loads to minimize the risk and severity of rotating outages in the future. This could be configured as an Automatic Demand Response program or a Virtual Power Plant. It is important to note that flexible loads like these programs reduce the likelihood and magnitude of future rotating outages, but if Palo Alto is called upon to shed load for the reliability of the statewide grid, CPAU will have to initiate the outages mandated. 2. Examine investing in flexible electrification to create distributed thermal energy storage: Electrification of space and water heating has the potential to decrease carbon emissions even more if these systems use electricity during the cleanest hours of the day and coast through the highest emission hours of the day, since heat-pump water heaters and buildings can pre-heat when residents are not home and then maintain their temperatures with excellent insulation. CPAU is already incentivizing electrification of space and water heating and could add extra incentives to those systems which can be dispatched to follow the cleanest hours on the grid. 3. Evaluate local energy storage at existing local solar for resiliency: Explore partnering with emergency services to add storage to existing local solar sites at City facilities. Storage could be used to mitigate the risk and severity of potential supply shortages in addition to catastrophic emergencies. The combination of solar plus storage may also be able to contribute to resiliency needs in a highly electrified environment, such as would result if the City’s Sustainability and Climate Action Plan (S/CAP) goals were achieved. 4. Continue to evaluate competitive proposals for energy storage at utility-scale renewable generation: CPAU is currently evaluating multiple proposals for energy storage sited at utility -scale renewable generation and will move forward with any proposals that are found to be economic and a good fit for the electric supply portfolio. 5. Continue to evaluate financial and physical integration of storage and flexible loads: CPAU is evaluating both the physical impacts of energy storage and flexible loads on utility distribution system operations as well as the costs and benefits to the utility’s financial position and other ratepayers. In particular, as the industry evolves, staff will evaluate the impact of storage and flexible loads on cost of service rate design and make adjustments if needed. 6. Evaluate the potential resiliency needs of an electrified community (one in which the Sustainability and Climate Action Plan goals are fully implemented) and the role energy storage may need to play: CPAU continues to evaluate current and future resiliency needs, including the potential role of energy storage. RESOURCE IMPACTS The pace of the projects outlined above will be dictated by staffing availability. The staff resources needed for an Automatic Demand Response program would be anticipated to be 0.5 FTE. City of Palo Alto Page 7 POLICY IMPLICATIONS Energy storage is a key technology to enable increased penetration of renewable energy in California and, when installed in customer premises, reduce their utility use. These two aspects conform to Utilities Strategic Plan objectives and Council policy on environmentally sustainable ENVIRONMENTAL REVIEW The UAC’s recommendation that Council decline to adopt energy storage system targets under California Assembly Bill (AB) 2514 at this time, and that Council receive the 2020 City of Palo Alto Utilities Energy Storage report is not a project requiring environmental review for the purpose of the California Environmental Quality Act, because these are administrative activities of government that will not result in direct or indirect physical changes in the environment (Cal. Code Regs. Tit. 14 Sec. 15378(b)(5)). Attachments: • Attachment A: Presentation December 2, 2020: Utilities Advisory Commission cityofpaloalto.org/utilities Energy Storage Report Lena Perkins, PhD Senior Resource Planner, Utilities Attachment A ~ .... ~~' ~~ ~ f',. /fl/. , !/; ~ ~, ,'l, --::!t:li, !/- ~ •~~ ril ~----ti ~ ~ .. ~1; ---◄ ~ ~~ ·1u1 ~t ~· • ~~..;~ s '_ ::--;;_ ~ Outline: 2020 Energy Storage Report 1.Why storage? 2.Key takeaways •Interpreting results 3.What next? 4.Recommended UAC motion 2 F.. ~~i,j I ~ ~,, ~1,,, Ii;, -~~ :-~ -.~ > ~. ,. ·~ ,;~,-~ ~iii ~ ►~ ◄ ► s Ii! ~ . ~ ',, ~ ~ r• , ~~◄ Ul••~ ~~~ ~ .:.~ ~~~ ~ ~ ~, .I. ~, ~ , " ... '~ ,. ~ ., , .:::::-: //14 ~ "'s::::::.'''' -~ g ... ,::: I . ~\U\ -t -~\► -~ ~;(( ~ - \ -~ ~ ~~~ ~1 CITY OF ~' ~tL~~Ef L TO Batteries surging & can lower CO2 emissions 1.Battery installations surging & costs decreasing 2.CPAU required to investigate energy storage 3.CPAU did not set energy storage targets in 2011, 2014, or 2017 4.2020 CPAU & SEPA analyses showed energy storage not yet cost effective, therefore: •CPAU will not set energy storage targets in 2020, but will continue to look for opportunities & align incentives 3WHY STORAGE? • CITY OF PALO ALTO UTILITIES Want to lower CO2 & empower consumers 4WHY STORAGE? • CITY OF PALO ALTO UTILITIES Store renewable electricity Improve resiliency in catastrophic events Leverage distributed batteries for society But… batteries still costly & uses cases compete 5 •Must align incentives •Use cases currently compete •Curtailment is less costly •Carbon price is too low Could work with critical location KEY TAKEAWAYS • CITY OF PALO ALTO UTILITIES Store renewable electricity Improve resiliency in catastrophic events Leverage distributed batteries for society Interpreting modeling results for Residential battery 6 •Batteries don’t save money for homeowner with solar (excluding resiliency benefits) •Batteries are still an expensive way to save small amount of carbon INTERPRETING RESULTS ala ~ , , , et oad I I , I I I ... -... ,, t e atterv Charge • CITY OF PALO ALTO UTILITIES T10 1t:a I Load I t Battery Discharge ,,-... * V) en C 500 0 ·;; -500 ro {/) ro ::J C C <:( -1000 -1500 ■ Customer Energy Bi ll Savings ■ Customer Demand Charge Sav ings Customer Surplus PV Cred it ■ Beittery Sys em Cost ■ Tax Cred it Uitlity Wholesa le Cost Sav ings ■ Utility RA Cost Sav i ngs D Ma rgi na I CO2 Cost Savings 7 •Commercial customers peak earlier than the City load or the CA grid •Could consider revised TOU or use other tool to align incentives Interpreting modeling results for Commercial battery INTERPRETING RESULTSCITY OF PALO AL UTILITIES TO ......... -ti)-.._.. V) Cl C '> ro Cf) ro ::, C C <( 40k 30k Customer Utility Storage Only Customer Uti l'i ty Sola r + Sto r age, Customer S II . Uti llity oa r + Storage Restricte,d Ho urs ■ Custom 1 er Ene·rgy s·11 . ■ Custom I Sav ings . er Demand Ch ■ Cust,omer Siu ·1 . i arge Savi ngs rp us PV ... Batt,ery Syst . Cred it ■ 1 em Cost Tax Credit Uitlity Wholes I. . ■ Utility RAC . a e Cost Sav i ngs □ ost Savin Margi na l! CO2 C . i ,gs ost Sav ings Next Steps 1.Recommendation from UAC 2.Submit findings of investigation to CEC & Council 3.Investigate more specific cases for resiliency 4.Work to align incentives as prices continue to decrease 5.Consider to pilot electric heat-pumps as distributed thermal storage as less expensive alternative 8WHAT NEXT? F.. ~~i,j I ~ ~,, ~1,,, Ii;, -~~ :-~ -.~ > ~. ,. ·~ ,;~,-~ ~iii ~ ►~ ◄ ► s Ii! ~ . ~ ',, ~ ~ r• , ~~◄ Ul••~ ~~~ ~ .:.~ ~~~ ~ ~ ~, .I. ~, ~ , " ... '~ ,. ~ ., , .:::::-: //14 ~ "'s::::::.'''' -~ g ... ,::: I . ~\U\ -t -~\► -~ ~;(( ~ - \ -~ ~ ~~~ ~1 CITY OF ~' ~tL~~Ef L TO Recommended Motion Staff recommends that the Utilities Advisory Commission (UAC) recommend that the Council accept staff recommendation to adopt no energy storage targets in 2020 under AB2514. 9 F.. ~~i,j I ~ ~,, ~1,,, Ii;, -~~ :-~ -.~ > ~. ,. ·~ ,;~,-~ ~iii ~ ►~ ◄ ► s Ii! ~ . ~ ',, ~ ~ r• , ~~◄ Ul••~ ~~~ ~ .:.~ ~~~ ~ ~ ~, .I. ~, ~ , " ... '~ ,. ~ ., , .:::::-: //14 ~ "'s::::::.'''' -~ g ... ,::: I . ~\U\ -t -~\► -~ ~;(( ~ - \ -~ ~ ~~~ ~1 CITY OF ~' ~tL~~Ef L TO End of Presentation Questions: Lena.Perkins@CityOfPaloAlto.org December 2, 2020: Utilities Advisory Commission cityofpaloalto.org/utilities CITY OF PALO ALTO UTILITIES City of Palo Alto (ID # 11649) Utilities Advisory Commission Staff Report Report Type: New Business Meeting Date: 12/2/2020 City of Palo Alto Page 1 Summary Title: FY 2022 Preliminary Financial Forecasts Title: Discussion and Update on the Fiscal Year 2022 Preliminary Utilities Financial Forecast and Rate Projections From: City Manager Lead Department: Utilities This item is for discussion and no action is requested. Staff seeks input from the Utilities Advisory Commission (UAC) on its preliminary rate projections for the Electric, Gas, Water and Wastewater Collection utilities to guide and update its recommended FY 2022 Financial Plans and proposed rate changes. The attached presentation describes staff’s preliminary rate projections for the various utilities ; staff will continue to update and refine these estimates in light of changing economic conditions and supply trends, in order to ensure contin ued cost-based rate offerings. Staff will return to the UAC with proposed Financial Plans and rates between February and April 202 1. Attachments: •Attachment A: Presentation Staff: Eric Keniston December 02, 2020 www.cityofpaloalto.org PRELIMINARY FY 2022 RATE CHANGES Attachment A • CITY OF PALO ALTO UTILIT 2 PRELIMINARY SYSTEM AVERAGE RATE PROJECTIONS *Gas rate changes are shown with commodity rates held constant. Actual gas commodity rates will vary monthly with wholesale market fluctuations ** Storm Drain fees increase by CPI index annually per approved 2017 ballot measure FY 2021 (Took Effect July 1, 2020) FY 2022 (Proposed for July 1, 2021) FY 2023 FY 2024 FY 2025 Electric Utility 0%0%5%5%5% Gas Utility *2%3%5%5%5% Wastewater 0%3%5%5%5% Water Utility 0%0%5%5%5% Refuse 0%0%3%3%3% Storm Drain**2.5%2%-3%2%-3%2%-3%2%-3% • . CI TY OF PALO ALTO WASTEWATER COLLECTION www.cityofpaloalto.org 4 WASTEWATER PROJECTIONS •FY 2022 proposal: •3% overall rate increase •Alternate Proposal: 0% overall rate increase •To do a 0% rate increase in FY 2022, $3M in reductions needed from FY 2022-2026 •Wastewater Cost of Service to be completed in FY 2021; customer class % rate changes may differ from overall •Future projections •5% annually starting in FY 2023 A c1Tv OF .PALO ALTO 5 WASTEWATER UTILITY BASICS •Five partners: Stanford, East Palo Alto, Los Altos Hills, Los Altos, and Mountain View •Wastewater drains from partner systems through the City of Palo Alto Collection System, and into the City of Palo Alto Regional Water Quality Control Plant (RWQCP) for treatment •City of Palo Alto Utilities Department manages collection system, Public Works manages the RWQCP ood Coty )la V lley 1ndyH1I/ n Spnce tserve North Fair Oaks W.st Menlo Pork t os r,anco, Wood s CI TY OF PALO ALTO Ci'!) fast Palo Alto Loyola Rancho San Aritonio Open '1;1 Space Preserve Cupe~ Permanente Stevens Creek ~ County Park 6 WASTEWATER UTILITY COST STRUCTURE Palo Alto’s share of the cost to treat sewage at Palo Alto’s Regional Water Quality Control PlantCost to collect sewage within Palo Alto, including: maintaining and replacing sewer infrastructure, customer service, billing, administration, etc. • . CI TY OF PALO ALTO Collection $13.7 million 55% ~ Treatment ■ Collection Treatment $11.2 million 45% 7 LONG TERM COST TRENDS Annualized Increase FY 16-22: Treatment: 4.1%/yr Collection: 4.6%/yr Annualized Increase FY 22-26: Treatment: 8.6%/yr Collection: 2.1%/yr • . CI TY OF PALO ALTO -u, C 0 ·-·-~ -1,1). 35 30 25 20 15 ..... .... ..... .... ..... .... ..... .... ..... ... .. 10 5 FY 2016 FY 2022 FY 2026 Col lecti on ISi Treatment 8 TREATMENT COST DRIVERS •Regional Water Quality Control Plant needs rehabilitation •Long Range Facilities Plan completed in 2012 •Near Term Major Projects: •Sedimentation Tank ($17M) •Outfall Pipeline ($11M) •Laboratory/Operations Center ($59M) •Secondary Treatment Upgrades ($88M) A c1Tv OF .PALO ALTO 9 WASTEWATER COLLECTION COSTS • . CI TY OF PALO ALTO Capital & Debt Service $7.4 million 54% □ Operations Operations $6.3 million 46% Capital & Debt Service 10 OPERATIONS/CAPITAL COST DRIVERS •Salary and benefit costs for existing staff •Capital Spending: •Large Capital Improvement Project every other year A c1Tv OF .PALO ALTO 11 WASTEWATER PROJECTIONS • . CI TY OF PALO ALTO $35 $30 $25 ~$20 QJ :::J C ~ $15 QJ c::: ~ V) 0 u $10 $5 $0 2016 2017 2018 Actual 11.0% 2019 3.0% 5.0% 5.0% 7.0% 0.0% 2020 2021 2022 2023 2024 Projected Fi sca l Year 5.0% 2025 5.0% -Revenue 2026 □ Collecti on Capita l □ Collecti on Oper ations ■ Collection Debt Service ■ Treatment Capita l & Debt □Treatment Operations 12 WASTEWATER COLLECTION COST TRENDS Annualized Increase, FY16- 22: Annualized Increase, FY22- 26: Collection System Capital: 6.3%/yr Operations: 3.0%/yr Collection System Capital: 1.8%/yr Operations: 2.5%/yr • . CI TY OF PALO ALTO 16 14 12 "'iii 10 ~ 8 ·---6 ·-:E ........ 4 1/1,, 2 FY 2016 FY 2022 FY 2026 □ Operations [:] Capital & Debt Service 13 WASTEWATER OPERATIONS RESERVE PROJECTIONS • . CI TY OF PALO ALTO $10 $9 $8 $7 $6 -$5 II) C .2 ·-$4 ~ -$3 $2 $1 $0 --------------------------- --.. --... ---·-·· -.,,,,,,,· -··-·· --... -·· 2020 Actual 2021 2022 2023 2024 2025 Projection -Reserve (Year-End) -Reserve Maximum --Reserve Target -Reserve Minimum --Risk Assessment 2026 WATER UTILITY www.cityofpaloalto.org 15 WATER PROJECTIONS •FY 2022 proposal: •0% overall rate increase •FY 2021 year-end Operations Reserves above guideline levels and projected to be at target levels by year end FY 2022 •Utilize capital reserve to ensure reserve health and sufficient funds for critical capital investments •Future projections •5% annually FY 2023-2026 • . CI TY OF PALO ALTO 16 WATER UTILITY BASICS CI TY OF PALO ALTO CAST IRON Concentrated in NW Quadrant -(152( ACP (3148 ] -CCP (97) -CIP(688] -CU(36J -DIPl279] PE (487] -PVC(2190J -St ee1(4] - . _j :r\, ~. ' v'.' '. ~- Harry Trac W.tff Treatment Plant San Andreas ReseNolr Crystal Springs RHervolr HALF MOON BAY SAN FRANCISCO BAY Bay OMston PlpeU~ No"• 3 & ,4 LaU! lloyd RffeNolr ICtlerry lalle) New Don Pl!dro Reservoir Lalle EIN11or ......... YOSEMITE NATIONAL PARK 17 WATER UTILITY COST STRUCTURE Cost to bring the water to Palo Alto Cost to distribute water within Palo Alto, including: maintaining and replacing water infrastructure, customer service, billing, administration, etc. • . . CI TY OF PALO ALTO Distribution $28.9 million 57% ■ Supply ■ Distribution Supply $21.6 million 43% 18 LONG TERM COST TRENDS Annualized Increase, FY16-FY22: Annualized Increase, FY22-FY26: Supply: 3.4%/yr Distribution: 2.7%/yr Supply: 6.0%/yr Distribution: 2.9%/yr CI TY OF PALO ALTO -u, C 0 . ·-2 --v,,. 70 60 50 40 30 20 10 FY2016 FY 2022 Distribution FY 2026 (Projected) Supplly 19 WATER SUPPLY COST DRIVERS •Water System Improvement Program (WSIP) •2002: advocacy by wholesale customers results in AB 1823 requiring SFPUC to adopt and implement the WSIP •In 2010 construction began -$4.8B, one of the largest water projects in the nation •Level of service goal: return to service in 24 hours after an earthquake A c1Tv OF .PALO ALTO 20 WATER SUPPLY COST DRIVERS •WSIP spending 96% complete as of Jan 2019 •“Upcountry” system in the Sierras still needs work. •Wholesale customers (via BAWSCA) advocating for improvements in long-term capital planning •Necessary and improves reliability, but supply costs will increase in the future as a result A c1Tv OF .PALO ALTO 21 WATER SUPPLY RATES FORECAST SFPUC rates are artificially low due to a refund of wholesale revenue over-collected in previous years. Refund will effectively be delivered until FY 2023. CI TY OF PALO ALTO $8.00 -$7.00 L&.. u u ' ~ $6.00 a, ... ra ~ $5.00 a, ... ~ $4.00 .!!! ra V, .!!! $3.00 0 .c s u $2.00 ::::, 0. L&.. VI $1.00 $- <;j" LI) .-I .-I 0 0 N N >->-LL LL I..D r--.. .-I .-I 0 0 N N >->-LL LL 00 .-I 0 N >-LL 0) 0 .-I N 0 0 N N >->-LL LL .-I N 0 N >-LL -Actual/Projected Rates N M N N 0 0 N N >- >-LL LL Rates w/o Balancing Account Refund <;j" LI) N N 0 0 N N >->-LL LL I..D r--.. N N 0 0 N N >->-LL LL 00 N 0 N >-LL 0) N 0 N >-LL 22 WATER DISTRIBUTION COSTS • . . CI TY OF PALO ALTO Capital Investment $8.2 million 29% ~=========~ Debt Service $3.2 million 11% Operations $17.5 million 60% 23 WATER DISTRIBUTION COST TRENDS Annualized Increase, FY16-FY22: Capital: -2.1%/yr Operations: 5.2%/yr Debt Service: 0.0%/yr Annualized Increase, FY22-FY26: Capital: 3.0%/yr Operations: 2.9%/yr Debt Service: 3.5%/yr • . CI TY OF PALO ALTO 35 30 25 -VI C ,Q 20 10 5 FY2016 FY 2022 FY 2026 (Projected) ■ Debt Service □ Operations Capital Investment 24 WATER OPERATIONS COST DRIVERS •Health, retirement, and associated overhead costs continue to increase •Planned increase in costs for rental of generator backup at pumping stations A c1Tv OF .PALO ALTO 25 WATER CAPITAL COST DRIVERS •Construction costs have not declined •Large one-time costs for emergency water supply and reservoir rehabilitation A c1Tv OF .PALO ALTO 26 WATER COST AND REVENUE PROJECTIONS Cost/Revenue Fiscal Year• . CI TY OF PALO ALTO $70 "' $60 C: ~ ~ $50 $40 $30 $20 $10 $0 Lil lD r--co O"I rl rl rl rl rl 0 0 0 0 0 N N N N N >->->- >->-u.. u.. u.. u.. u.. Actuals Rate Changes 5% c:::::J Capital Investment c:::::J Operations ~ Water Supply -Debt Service --Revenue 0 rl N m tj-Lil lD N N N N N N N 0 0 0 0 0 0 0 N N N N N N N >->- >->->- >->-u.. u.. u.. u.. u.. u.. u.. Projections 27 WATER OPERATIONS RESERVE PROJECTIONS • . CI TY OF PALO ALTO $18 $16 $14 $12 Cll C: $10 .!:! i $8 $6 $4 $2 $0 Actual Projected +---------------------------------------------------- --------+--------· -------------------------------------------------------------------___ __. __________________________ , --------------Reserve Maximum --- -Reserve Target -Reserve Minimum --Reserve (Year-End) -Risk Assessment --.. ......... ··-··-··-··-··-··-··- FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 28 WATER CIP RESERVE PROJECTIONS • . CI TY OF PALO ALTO $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $- FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 1ZZ21 Capita l Reserve Ending Balance -M i n/Max Gu i deline ELECTRIC UTILITY www.cityofpaloalto.org 30 FY 2022 proposal: •0% overall increase Future years: •5% rate increases in FY 2023 and 2024 •Remaining Electric Special Project Reserve loan repayment rescheduled to FY 2023. •Reserve margins are minimal in this scenario. Some combination of reserve withdrawals, cost reductions, or rate increases may become necessary if sales forecasts worsen or energy costs rise. Electric Rate Proposal A c1Tv OF ~PALO ALTO 31 Electric Utility Cost Structure Electric Distribution costs (in green): $51 million 39% Electric Supply: The cost to buy electricity and transport it to Palo Alto, including operational overhead (e.g. energy scheduling) Electric Supply costs (in blue): $82 million 61% Electric Distribution: The cost to distribute electricity within Palo Alto, including: maintaining and replacing electric infrastructure, customer service, billing, administration, etc. A c1Tv OF ~PALO ALTO 31% ml Generation ■ Operations 8% 41% 15% iii Tr ansmission □ Supply Overhead □ Cap ital Investment 32 LONG TERM COST TRENDS Annualized Increase, FY16-FY22: Annualized Increase, FY22-FY26: Supply: 0.1%/yr Distribution: 5.3%/yr Supply: 0.8%/yr Distribution: 2.2%/yr CI TY OF PALO ALTO ..-.. ~ C: 0 ·-·-~ .__ -v,.. 180 160 140 120 100 80 60 40 20 FY 2016 IFY 2022 Fy 2026 (Projected) (Projected) Electric D i stri bu t i o n El ectric Supp ly 33 LONG TERM COST TRENDS: SUPPLY Annualized Increase, FY16-FY22: Annualized Increase, FY22-FY26: Transmission: 8.2%/yr Generation: -3.1%/yr Transmission: 6.0%/yr Generation: -1.9%/yr Overhead: 7.8%/yr Overhead: 2.4%/yr • . CI TY OF PALO ALTO -Vl C: 0 - 100 80 60 40 20 FY 2016 ~ Generation FY 2022 (Projected) Transmission ................. ■ .. ■---■ ........ . ................. ................ ................. ■ .......... .,. ... ■ ................. ......... . ,. .... ................. .... .,. .... .,. .... ................. .......... ,. .... ................. .... .,. .... .,. .... ................. ■--■-i.■-. ■,.■-■■ I ................. ■ ................ ■ ................. ........... ~ .... ................. ■ ... .,. .... .,. ••• ■ ................. .................. IFy 2026 (Projected) ~ Overhead 34 LONG TERM COST TRENDS: DISTRIBUTION Annualized Increase, FY16-FY22: Annualized Increase, FY22-FY26: Capital: 18.3%/yr Operations: 3.0%/yr Capital: 2.2%/yr Operations: 2.1%/yr • . CI TY OF PALO ALTO -V) C: 0 ~ --ti). 80 70 60 so 40 30 20 10 FY 2016 FY 2022 (Projected) Fy 2026 (Projected) Debt Service □ Operations ~ Capital Investment 35 Supply Cost Drivers •Overhead costs have decreased as NCPA has sought revenue by providing services to more agencies. •Transmission costs have increased dramatically –system replacement, new lines to integrate new generators. CPA partners with others to advocate for cost control. •Renewable projects have come online. In the longer term, generation costs should stay fairly stable due to CPA’s long- term fixed price contracts A c1Tv OF ~PALO ALTO 36 Distribution Cost Drivers •Medical/retirement benefit costs and associated overhead costs continue to increase •Increased capital investment in the electric distribution system needed due to system age •Underground construction costs have increased substantially •Additional contract expense for line crew until internally staffed A c1Tv OF ~PALO ALTO 37 Monthly Residential Electric Bill Comparison Palo Alto is 34% below PG&E average $250 $,200 $1 50 $100 $50 $- PG&E Palo Alto Su mmer Summe r -Lo w (190 kWh) -M e d i an (36S. k W h) -High (755 kWh) -Average (460 k W h) A c1Tv OF ~PALO ALTO PG&E Pa lo A lto W i n ter Wint er -Low (230 kWh ) -Media n (453 kWh) -High (880 l<Vilh} -Average (540 kWh ) 38 FY 2021 Adopted: Electric Cost and Revenue Projections Co s t / R e v e n u e Ill C: .2 $200 $180 $160 $140 $120 ~ $100 A c1Tv OF ~PALO ALTO $80 $60 $40 $20 $0 --o% -0 %--------11% --1:4% --6% ----1Wo------0 %-----O%------s% ----s%-----3°7o--· RA TE CHANGES: LI) \.D r---00 O'l 0 .-t .-t .-t .-t .-t .-t N N 0 0 0 0 0 0 0 N N N N N N N >->- >->->->->-LL. LL. LL. LL. LL. LL. LL. Actuals N (Y) ,q- N N N 0 0 0 N N N >- >- >-LL. LL. LL. Projections __ j : _J ,t-t,·l Electric LI) N 0 N >-LL. Commodity --CJ Capital estment --, I :::::=ITra nsf ers □Operations __ j -Debt Service __ j -Revenue 39 FY 2021 Updated: Electric Cost and Revenue Projections Co s t / R e v e n u e Ill C 0 $200 $180 $160 $140 $120 ~ $100 A c1Tv OF ~PALO ALTO $80 $60 $40 $20 $0 a--,,,-:-,----------------------------------------11 % 14% RATE CHANGES: I.D ...--i 0 N >-LL r-,.. ...--i 0 N >-LL 00 ...--i 0 N >-LL Actuals 6% O"I ...--i 0 N >-LL 8% 0% 0% 0 ...--i N N N N 0 0 0 N N N >->->-LL LL LL 5% 5% 0% 1% M q-LI) I.D N N N N 0 0 0 0 N N N N >- >->->-LL LL LL LL Projections _J:,$,t,1 Electric Commodity --□Capital Investment I ,,,,,· ,,,Transfers c::::JOperations • Debt Service -Revenue 40 Electric Supply Operating Reserve Projections "'$40 C: ,g ~ $35 ------------------------------------------------- $30 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ --------------------------------- $25 $15 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ --Rese rv e Maximum $10 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ - -Re s e rv e Ta rget $5 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------~!.c~!:!:'.'.!.c_~_(l]!_l!!_l!_I!! _________________ _ --Re serv e (Yea r-End ) $0 +-------~------~-----~------~------~------~------~ FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 20 2 6 • CITY OF PALO ALTO 41 Electric Supply Reserve Adequacy Ill $60 C: .2 i $50 $40 $30 $20 $10 $0 ._Supply Rate Stabilization Reserve ~Hydro Stabilization Reserve (Year- End) f,~,1-11 >perations Reserve (Year-End) -Risk Assessment FY 2020 FY 2021 FY 2022 A c1Tv OF ~PALO ALTO FY 2023 FY 2024 FY 2025 FY 2026 42 Electric Distribution Operating Reserve Projections .,, $18 C: ~ .:E $16 ---------------------------------------------------------------------------------=---------------=---------------=----------------==---------------==----------------===---------------~-------------------------------::--------------------------- ~----------------------------------------------------------------------------------------------------------------· $14 --------------------------------------------- ---------------- $12 $10 $8 $6 -··-------··-··-··-··-·· .. --.. --.. -- -----------------· -·---·_. --_·_. _-_·_. _-__ · _· __ -_. _·_ ---·_. ------------------------------------------------------------------------------------------------------------------------------------------- --Reserve Max imum $4 - -Reserve Target --Rese rve Min imum $2 ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Reserve {Yea r-E nd) ------------ -Risk Assess ment $0 FY 2020 FY 202 1 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 A c1Tv OF ~PALO ALTO GAS UTILITY www.cityofpaloalto.org 44 •Rate Design: •About one-third of the rate is “supply-related:” gas supply, transmission, and environmental charges. These rates vary monthly according to market-driven costs that are passed directly to customers •About two-thirds of the rate is set based on the City’s costs for maintaining its gas distribution system (gas mains, services, related equipment). These rates are being discussed here tonight. Gas Rate Design A c1Tv OF ~PALO ALTO 45 •FY 2022 Proposal: •3% increase for FY 2022 with no cost reductions. •Alternative proposal: 0% increase for FY 2022 with $5.4 million in one-time cost reductions. •Assumes sales decline 6% to 8% in FY 2022, but it is too early to tell whether this assumption will hold. •If sales decline by 8% to 10%, additional $1 million expense reduction may be needed. •Future Years: •5% increases each year for FY 2023 through FY 2025 •Note: •Gas CIP (Gas Main Replacement (GMR) Project 24) has already been reduced by $2 million in FY 2023 in order to hold rate increases to 2% in FY 2021. •The cost reductions listed above required to hold rates flat for FY 2022 would be above and beyond cuts already implemented to GMR 24. Gas Rate Options A c1Tv OF ~PALO ALTO 46 Gas Utility Basics City of Palo Alto gas distribution system: •20,000 meters •205 miles of mains •18,000 service lines A c1Tv OF ~PALO ALTO anorMtO-.TO 'fl RA C:'8 Df~l<ffl\JlO' O:UJ Y , ... .-.{, , .... .,r. ,._ v,,),!,.".~-·-?(-· •. ;,.;.. , : ; ·.:<J ,.. ~ ~.....,. } -· ~.tr--; f;,~:.:\i l t -:. .... J ~ rJ i,..•I U,.) i I ,: -~ ', ... , ,., 1 , 1''.. ~ ~.::.,~ ;, .. ,q_~ -.~ -" .. I -t:f"• -v,.,- -' ,., Interstate Intrastate Map of Western natural gas transmission lines 47 Gas Utility Cost Structure Gas Distribution (in green): The cost to distribute gas within Palo Alto, including: maintaining and replacing gas infrastructure, customer service, billing, administration, etc. * Market -based pass-through costs. * * * Ac1Tv OF ~PALO ALTO r Capital l Investment $5.6 mill i on -- L 13% _J- Distribution $19.1 million L 46% _I ~ Gas Supply Di stribution Gas Supply $12.3 million Gas Environmental $2.4 million 6% Gas Transmission $3.5 million 8% ~ Gas Env i ronmental ■ Gas Transmiss i on E;I Capital Investment 48 Long Term Cost Trends Annualized Increase, FY16-FY22: Annualized Increase, FY22-FY26: Supply, Transmission, Environmental: 15%/yr Supply, Transmission, Environmental: 5%/yr* Distribution: 5%/yr Distribution: 2%/yr Capital: 0.2%/yr Capital ** 3%/yr * Forecast is uncertain and will vary with the markets ** FY 2025 CIP is an average of two years due to staggered main replacement schedule. 60 so 40 -V) C .Q 30 ~ V} 20 10 Ac1rv OF ~PALO ALTO FY 2016 FY 2022 (Projected)* Fy 2026 (Projected)* ■ Gas Supply, Environmental, and Transmission Costs □ Capital Investment** ■ Gas Operations 49 Gas Distribution Cost Trends Annualized Increase, FY16-FY22: Gas Capital: -6%/yr* Gas Operations: 4.5%/yr Annualized Increase, FY22- FY26: Gas Capital: -1.4%/yr* Gas Operations: 1.7%/yr -(/} 35 30 25 6 20 ~ 15 -(/"). 10 5 FY 2016 ■ Debt Servi ce A c1Tv OF ~PALO ALTO FY 2022 (Projected)* Fy 2026 (Projected)* □ Operati ons ~ Ca pita I Investment • No main replacem ent project budget in FY 2020, 2022 & 2024 so CIP spending unusually low. Larger main replacement projects planned in FY's 2021, 2023 and 2025. 50 Gas Supply Cost Drivers •Gas supply –some volatility in gas market prices. Gas prices have risen in recent years as supplies have become tighter, demand has increased •PG&E gas transmission rates continue to rise to fund safety investments •Cap and trade costs continue to rise (as intended by design) •Carbon Neutral Gas Plan A c1Tv OF ~PALO ALTO 51 Gas Distribution Cost Drivers •Health, retirement, and associated overhead costs continue to increase •Underground construction costs have increased substantially as well •Temporary funding ($1M/yr) for three years for crossbore investigations (starting FY 21) •Increases in overhead transfers A c1Tv OF ~PALO ALTO 52 Monthly Residential Bill Comparison Palo Alto is 8% below PG&E average (CY 2019 data) $,1 80 $,160 $,140 $,1 20 $,1 00 $80 $60 $4 0 $20 $- PG&E Palo Alto -Low (8 T h m) -M e d i an (18 T h m ) -Hig h (28 T h m) -Average(22 Thm) A c1Tv OF ~PALO ALTO PG&E P a lo Alto W i n ter Wint er -Lo w(25 Thm) -Media n (54 Thm) -Hi g h (93 Thm) -Average (68 Th m) 53 Gas Sales Estimates 36,000,000 34,000,000 32,000,000 30,000,000 28,000,000 26,000,000 24,000,000 22,000,000 20,000,000 2006 2007 2008 2009 2010 A c1Tv OF ~PALO ALTO 2011 2012 2013 2014 2015 2016 2017 2018 -FY 2021 Projection -Actua l Purchases - - -Fast Recovery -Medium Recovery -Deep Recovery 201 9 2020 20 21 2022 2023 2024 2025 20 26 2027 2028 2029 2030 54 FY 2022 Preliminary Gas Cost and Revenue Projections Co s t / R e v e n u e 0% 8% 0% 4% 5% 2% 3% 5% 5% 5% $50 +------------------------------1 $40 +------i ,,...._ (J) C 0 := $30 ~ ......... ~ $20 $10 $0 A c1Tv OF ~PALO ALTO (!) r--ro ..-..-..- 0 0 0 N N N Actuals 0) 0 ..-N ('I') '<::I' l{) ..-N N N N N N 0 0 0 0 0 0 0 N N N N N N N Projections 3% (!) N 0 N -Revenue □Capital Investment □Gas Supply □ Operations ■Transfers ■ Debt Serv ice 55 Projected Gas Operating Reserve Projections $16 $14 $12 $10 - $4 $2 ........ ______ _ ......... ---··-··-··_,..,. -· -------- ---··-··-··_,_. ------------- --.. ----.. ---.. --- $0 -+----~-------,-------r----~-------,-------r-------, FY 2020 FY 2021 A c1Tv OF ~PALO ALTO FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 -Reserve (Year-End) -Reserve Maximum - -Reserve Target -Reserve Minimum -Risk Assessment 56 Alternate: FY 2022 Prelim Gas Cost and Rev Projections Co s t / R e v e n u e 0% 8% 0% 4% 5% 2% 0% 5% 5% 5% $50 -+---------------------1 $40 -+------------1 ----(/) C 0 := $30 - 2: ......... ~ A c1Tv OF ~PALO ALTO $20 - $10 - $0 co r--a:, ..... ..... ..... 0 0 0 N N N Actuals O') 0 ..... N CV') ,q-I.{) ..... N N N N N N 0 0 0 0 0 0 0 N N N N N N N Projections 5% co N 0 N -Revenue □Capita l Investment □Gas Supply □ Operations ■Transfers ■ Debt Service 57 Alternate: Projected Gas Operating Reserve Projections Includes $5.4M cost cuts FY 2023-2024$16 $14 $12 $10 ------ $4 $2 $0 .---. . ----. . ..-. . . --. . --. . ---- FY 2020 A c1Tv OF ~PALO ALTO FY 2021 FY 2022 ----··-··-··----· FY 2023 FY 2024 -Reserve (Year-End) -------- -Reserve Maximum _ _,,,,,,... .. ___ __ ...- - -Reserve Target -Reserve Minimum -Risk Assessment FY 2025 FY 2026