HomeMy WebLinkAbout2001-09-25 Utilities Advisory Commission Summary MinutesCITY OF PALO ALTO UTILITIES ADVISORY COMMISSION
SPECIAL MEETING MEETING MINUTES SEPTEMBER 25, 2001
ROLL CALL ___________________________________________________________ 2
APPROVE 5 PRIMARY OBJECTIVES FOR ELECTRIC PORTFOLIO
DEVELOPMENT ______________________________________________________ 2
APPROVE 3 MONTH 25 MW ELECTRICITY PURCHASE CONTRACT FOR 2005-2007_________________________________________________________________ 15
DISCUSSION OF SEPTEMBER 5TH UAC POWER SUPPLY PRESENTATION _ 20
ROLL CALL
Called to order at 6:30 by Chairman George Bechtel. Also present: Dexter Dawes, Dick Rosenbaum, Richard Carlson and Rick Ferguson (arriving 6:40).
Bechtel: For the purposes of minutes, Mr. Ferguson is absent and I believe our Council
Liaison Mr. Beecham probably will not be present tonight, but possibly Mr. Ferguson will be. Tonight there are 3 items on the agenda. The first is approval is requested for 5 primary objectives for electric portfolio development and that is an action item. It requires Commission action. The second agenda item is a request to approve a 3 month
25 megawatt electricity contract for 2005, 2007 and action is asked of us tonight on that
item. The 3rd is discussion, perhaps further discussion, following up on our September 5th meeting on power supply presentation and that’s a discussion item. That among one of the items there was that we did not cover and I asked to be deferred on the presentation by Karl Knapp on a presentation on alternatives for renewables.
I’d also like to mention that Commissioner Ferguson is now present also.
APPROVE 5 PRIMARY OBJECTIVES FOR ELECTRIC
PORTFOLIO DEVELOPMENT
Bechtel: Moving to the first item on our agenda. Approval of 5 Primary objectives for
electric portfolio development. John, you have a presentation on that for us. Ulrich: Yes I do. I have a brief one and put this in perspective and then sorry I was not here for the last meeting, but I want to commend the staff for putting together a great
presentation last time on this issue and the benefit of having tonight as a special meeting
so we can follow up and be able to take advantage of what we believe is the appropriate time for going ahead and purchasing a power contract, so we will spend the time and put together this new order which will have us talk about the 5 primary objectives and then to move on to discussion and request for approval on the purchase contract and then to have
a discussion on the future power supply needs. And along with that, have the
presentation of the alternatives for the future and the benefit of saying what I’m saying now is the reason why I was gone last time was I was able to go to our daughter’s wedding in Colorado, so if you’ll forgive me for not being here, I’ve had a higher, more important event to attend to.
Bechtel: We offer congratulations to you on the marriage of your daughter. Ulrich: Thank you.
Ulrich: I do need to point out that we have a transcriptionist that most of you had a
chance to meet, Debbie Rosario, and for benefit of the transcription and work, if people
that come up and talk at least the first time, mention who they are so that it can be recorded on tape. Thanks.
Bechtel: John, Commissioner Dawes reminded me. Although this is a special meeting, I know what protocol is, but should we ask for public comments at the beginning of the meeting or not sure if it was noticed on the agenda.
Ulrich: Well, to be very clear, that would probably be appropriate for you to do that now
if you’d like or have us report on any other activities that you think is appropriate. Bechtel: The purpose of this meeting is addressed in the agenda, so I’d like to just stick to that as far as commissioners, but I would be interested if anyone from the public would
like to speak at this point. None. Go ahead. Sorry John.
Ulrich: That’s quite all right. In some ways, this is probably a more informal meeting than we normally have because we’re on one topic so if there’s any area you’d like me to stop and talk about, I will. I’m back over here because the portable mike isn’t working
and I want to make sure it gets on the record. I’ll go over and try to take this other mike
and get started. Trying to see if this works. The meeting objectives will be to further discuss presentations, if you find them appropriate, that were discussed on Sept. 5th and in your package is a reminder of what
was discussed on this topic back in February 14th and subsequent comments by
commissioners. Also included in your package is a draft of the minutes of the last minutes that you had if you’d like to refer to that. Also, we’ll have discussion and approval of the primary objectives in developing the electric portfolio plan. Discussion and approval of the 25 megawatt 3 month purchase for the years 2005-2007 and
presentation and discussion of the renewable portfolio standards and then discussion of
the next steps. And feel free if there’s some area that you believe should be covered, let me know. Bechtel: John, Dick Rosenbaum just pointed out that in his packet, he did not get a copy
of the last minutes of the last meeting. So let me ask the other commissioners, did you
receive a copy? Ulrich: Let me be a little more clear. I’m sorry. When it was first sent out, it did not have the minutes, because we had not had them ready, but based on the questions that we
got, when I sent out a subsequent new agenda which was posted at the same time I sent a
copy of the minutes. So the only way that you’d have them is from the email that was sent to you yesterday. Bechtel: Okay. Thanks. I have a copy of those minutes, so if anyone cares to refer to
them, they’ll be here.
Ulrich: The next area will be in next steps. After UAC approval of objectives and the 25-megawatt purchase, we will then ask, the staff will seek the finance committee and
council approval. First at the finance committee, with is scheduled for Oct. 16th and then City Council which will be on Nov. 13th. Staff will execute the 25-megawatt purchase
immediately after the council’s approval and staff plans public meetings and several more
UAC council special meetings in the next 3 to 6 months to discuss the electric portfolio plan and implementation process. Staff expects to have the final electric portfolio plan approved by the council by March 2002. All of these steps are listed not to prejudge whether you’re going to approve the objectives and the purchase. We believe there is a
strong reason to do that and that’s why we’re here, but I want to lay out the next steps so
you can see there will be a thorough investigation and time set aside to make sure we look at our portfolio needs in considerable depth. Today it’s important though that we go through all the primary objectives and make sure
we’re clear on that and we’ll spend time doing that. This for purposes of making sure
everybody sees what those primary objectives are. They’re listed not particular order and as you can see some of them have the potential for not being coincident with each other and there be a need to prioritize these actions. But we believe, in reference back to the strategic plan, that maintaining Palo Alto supply portfolio cost advantage as compared to
market cost is an important objective. Ensuring stable electric supply rates for customers,
maintaining Palo Alto’s retail supply rate advantage compared to PG&E, develop a renewable resource portfolio and implement energy efficiency and conservation programs to improve the quality of the environment in accordance with the utilities strategic plan and enhance the supply reliability by developing local generation to meet
customer needs. In a moment we’ll come back to this and ask for participation in
definition and understanding of each of these objectives so that we have clear guidance on how to go ahead and procure the long-term energy supply portfolio. _____: (Inaudible comment)
Ulrich: The action item #2. The recommended purchase we’re talking about this evening is consistent with all the different strategies developed by staff in the preliminary electric portfolio development and implement stages plan. In other words, the actions that we’re going to be asking for on the 25 megawatt contract this evening would be
consistent with virtually everything that we’ve looked at for the future so we can make
the decision this evening without jeopardizing our long term plan options. #2 the 25 megawatts that we’re asking for this evening is only for the months of October, November and December and the term of 3 years with the delivery starting in September/October of 2005 and ending in November/December of 2007. And we’ll get
to the points of why these are important dates and periods of the year. Energy is to be
delivered at NP15 around the clock. The energy is expected to satisfy about 10% of the projected annual energy shortfall during an average hydro-year. And the purchase may be made in 1 or 2 blocks and will be with counter-parties that are approved by the Utilities Department’s Risk Oversight Committee. Now all the details of our request for
this are covered in the memo to the UAC that is in your package so this is just some of
the highlights. I’ll have this available but this is a copy of the strategic plan that notes that reasons for having the objectives for development of our electric supply. We’re trying to be very consistent with already approved strategic plan and our recommendation
for this evening fits very well within the strategic plan, but you may want to reference that as we discuss these actions and our recommendations and you should all have a copy
of it. So that is the brief summary of what we’d like to do this evening and at your
discretion, we can start with Item #1 and go through the questions or comments that you have about each of those objectives and see if we’re on target with your thinking. Bechtel: Thank you John. I’m of the notion that we first look at the larger the picture
which is to look at the 5 primary objectives. And then to move to the specifics and of
course the first specific we have before is a specific contract. Do my commissioners have other feelings about how to address it and then maybe one by one, we can go over the primary objectives and see whether they are consistent with the strategic plan or however you wish to consider them? Mr. Dawes.
Dawes: I would propose that we first offer up a motion to adopt these and then during the discussion we can offer amendments to any of the 5 that are appropriate. Is that the way you’d like to handle it?
Bechtel: I believe that that is a good way to handle it. It puts a specific action on the
table and then we can be fairly efficient in disposing of it or so. So do I hear a motion? Ferguson: So moved.
Bechtel: We have a motion by Mr. Dawes (?) to approve the primary objectives in
developing the electric supply portfolio plan and do I hear a second? Dawes: I’ll second. The motion was Rick’s though.
Bechtel: And we have a motion, a second. So shall we start discussion, Mr. Ferguson?
Ferguson: The staff has done an excellent job here, lining up objectives that interleave with the strategic plan. I’m happy to take it as it is.
Bechtel: Mr. Dawes.
Dawes: A couple of comments and suggested revisions. According to my recollection, was according to our customer surveys that reliability was the #1 objective of our customer base and actually cost was secondary. The only reference to reliability was we
are going to enhance it by developing local generation to meet customer needs. My
proposition will be to ensure customer, strike enhance and insert “ensure”, supply reliability by specific actions included but not limited to developing local generation to meet customer needs. There are other ways to enhance or to ensure supply reliability but my beliefs is that’s the most pressing. The second comment that I would make is that we
actually, on the face of it, are along with ensuring supply reliability is to have a stable
electric supply as well as a stable electric supply rate. So I would insert in the second bullet point after electric supply, “and supply rates for customers”. So in other words, the
primary thrust is to ensure reliability and to ensure a stable electric supply. Then we also have the rate issues that are so well addressed. So those are my 2 suggestions.
Bechtel: Comments by staff on Mr. Dawes’ suggestions for changing the wording? Girish? Balachandran: Commissioner Dawes, when you talk about stable electric supply and
stable electric rates, could you clarify what stable electric supply means?
Dawes: Ensuring that we have contracts lined up for supply. In other words we will be discussing supply contracts tonight and our one of the utilities’ primary responsibilities is to have a portfolio that is complete and ensures our supply. As an example, 6 months
ago, we added an insurance policy to our supply portfolio. We had a 100% under
contract, but we had a very good reason to believe that one of those contracts might be breached so we bought an additional supply in order to ensure a stable supply so that is what I mean by that statement. Have a full portfolio. The charge is to have a full portfolio at all times.
Balachandran: What you’re saying is we should have contracts for all the supply at all times? Dawes: I don’t really mean that because we should be in the spot market from time to
time. We don’t want to overbook our supply, but...
Balachandran: I guess that is what I’m trying to get at. Where you’re headed, if I understand right, is actually implied by the objectives especially 1, 2 and 3. And so we’re trying to get each of those bullets, look at a specific constraint and I so...
Dawes: It may be unnecessary to say have a separate bullet point, which says ensure a stable electric supply portfolio. I mean that’s what this discussion is all about and the further underlying assumption is that a spot market will exist and will always exist both to sell our excess contracted supply and to buy what we need that we don’t have due to
extraordinary demands or what have you, weather conditions. So it may redundant so I
guess would back off and then simply suggest a modification of the last bullet point to have it read “ensure supply reliability”. Carlson: This is a point that I support Dexter, that we should be fairly at risk adverse in
contract forward for the great majority of our needs. None of us mind some reliance on
the spot market but the great majority of our needs should be contracted forward for a significant number of years. Balachandran: To respond to that. You can achieve that by directing us on different
contracts by telling us to go long on different contracts and I see that as part of the
implementation as we go through this process if what we get from you and the city council is sign up lots of long term contracts, we will essentially, it does meet this objective. And you end up prioritizing these objectives so if you’d say stable electric
rates is more important to me than another priority, it will lead to a certain portfolio mix so I see it as an opportunity in the implementation phase.
Bechtel: Follow up, Mr. Carlson? Carlson: I’m waiting for Mr. Rosenbaum who had some suggestions in this area and I would like to hear what his suggestions are at this point in more detail.
Bechtel: Mr. Rosenbaum. Rosenbaum: Thank you. Worrying about the wording of strategic plans and list of objectives is not my forte and it’s not something I was going to do until I noticed that,
and I don’t know whether everybody did, in the September 5th presentation, the what is
objective #2 here said “ensure low and stable electric supply rates for customers” and I assume staff for some reason decided to leave out “low” and one reason for doing that is they’re worried about consistency since some of the recommendations are obviously, if implemented, will increase our costs. It occurred to me, and I hope you’ll forgive me for
going off on somewhat of a monologue here, that maybe we can clarify exactly what it is
we intend to do here. Low and stable rates has always been the objective of this utility. The fact that our rates are less than PG&E is surely important but that’s never been the criterion by which we evaluate how we acquired our supply.
Let me make clear that my assumption has been that the objectives that we’re talking
about relate to the portfolio that we’re going to acquire to fill our deficit. That is, we have 50% of our needs are coming from Western and Calaveras, we already have that. It seems to me logical that the objectives are to apply to the new stuff. And when you take that into account, then I believe that 2 of the primary objectives #1 and #3 really don’t
provide any guidance. By that I mean that given PG&E’s problems, they’re going to be
stuck with the state contracts for 20 years and we have Western. It’s inconceivable that any strategy that we would adopt to fill our deficit would cause us to have rates greater than PG&E. Now if that’s the case, then you have an objective which provides no useful information to you and just doesn’t seem to me that that’s an objective to have with
respect to filling our deficit. And the same statement is true with Item #1- maintain Palo
Alto’s supply portfolio cost advantage compared to market cost. Given that we have Western at such a favorable rate, there’s no way that our market cost is going to, that our cost is going to exceed market cost. There’s no portfolio strategies that is reasonable that is going to cause that to happen. So I don’t see that 1 or 3 really give us any direction
with respect to filling the deficit so there are 2 ideas that I suggested.
Objective #2 we want to put in “stable and low”- we want to add low and then because of my views that 1 and 3 really don’t provide any direction with respect to acquiring the portfolio, I would leave those out.
The other theme here is I don’t believe we’re prepared to set as an objective the acquisition of renewable resources or siting local generation and what I’m suggesting is that those might well be good ideas but we ought to have a caveat on the side, that we
haven’t discussed either one of them. There are good reasons to question that, there are many questions about the cost effectiveness of renewable resources and while we
certainly want to have utility policies that coincide with the general environmental
awareness of the community, we’ve got to do this in a reasonable manner and I don’t feel we’ve established that. With respect to local generation, I would just point to a couple of items. One in the
February memo, this is the one that Jane Ratchye wrote. Her first recommendation for
further analysis is value of locating generation in Palo Alto. Any additional value in increased local reliability if a generation plant is located physically in or near Palo Alto should be determined. I don’t know if we’ve made that determination yet. Then, in the view foils that we got in September, view foil #24, there are 5 bullets and they certainly
suggest that there are some issues with local generation. One of them is the suggestion
that if we did have significant local generation, it would have to be peak or intermediate. I don’t know why that is. And the final bullet makes the point that the cost of energy generated by such a peak and intermediate local generation plant is expected to be high and does not provide a match for the city’s commodity need for base load type generation
resource. So once again, it’s certainly something we want to look at, but I wouldn’t feel
comfortable making that a firm objective right now, perhaps a preliminary objective. So for that reason, I suggested what some might think of as caveats or weasel words and I know we don’t like those. We like to be firm, but I personally don’t feel that we’re ready to do that. So my suggestions there were to fill a portion of our requirements with
renewable resources if economically feasible and consider local generation to meet
customer needs and increase reliability as alternatives to what the staff has recommended. I told you the staff has 3 items in one of the objectives and it’s always good to be concise, but I separated them out. My final point, it’s a minor one, the way in which I would
account for our ongoing conservation and energy efficiency program is to say that we’re
going to size the portfolio that we purchase to take that into account. We’re not just willy-nilly going out and buying energy. We’re going to take into account that which we planned to purchase. I don’t know if any of this appeals to my colleagues. But if there is some interest, I’m prepared to make a motion but I’m not prepared to support the
objectives that are here unless there are some modifications made to them.
Bechtel: Thank you Dick. What I’d like to do is to hear from all of us and then come back to those issues. Personally I agree, I have some concern over the wording. Myself, I don’t want to spend a lot of time but you’ve stated exactly some of the points that had
me concerned. So maybe perhaps, Mr. Ferguson, would you like to make comments on
the objectives at this point? Ferguson: Sure. Again, I thought the staff did a good job on their first crack at it here. I agree with the comments made by other commissioners. Any one proposal to fill a piece
of the portfolio could very well have no impact on one or more of these objectives -- it’s
completely possible. But we’re talking about a portfolio development here. We’re trying to get a universe, a superset of objectives that will cover all the reasonably foreseeable portfolio options going forward. So sure, there’s going to be a case where there’s no
market cost consideration. Sure, there’s going to be a case where there’s no cost advantage relative to PG&E. But there might well be cases where there are those things,
and then they deserve their 5% or 10% weight in the consideration. If the staff believes
there’s a reasonable chance that a portfolio option coming before us is going to strike more than a glancing blow on one of these dimensions, then let’s use these as the bullets. I’m happy to re-architect the words to some extent, but these all make sense.
Let’s take them one by one. Enhancing or ensuring supply reliability is a great objective
all by itself -- but we have that elsewhere in the policy. Staff’s point here is that in particular, we want to make sure that local generation doesn’t fall off the list. Local generation proved enormously helpful to us in the last year. It was nice to have it there in our Batman utility belt. So I’m glad to see it specifically brought in here. We might as
well bring it in while we’re defining objectives for the portfolio. Developing a renewable
resource portfolio -- even though we took a little public relations hit a couple of months ago -- (I think we’re getting sound piped in. This is great. Not only have we interleaved strategic objectives, but we’ve interleaved 2 different commission meetings tonight on the same soundtrack) --
Disembodied Voice over Loudspeaker: “…even think we’re on a trail maintenance plan …” Ferguson: … And speaking of renewable resources, what might we find as we maintain
the trails and dispose of the debris? Renewable resources are going to become more
important. If it turns out that’s not economically feasible, it will fall out of the portfolio considerations. But the point is, the staff has proposed that we put it specifically in,as one of the considerations to make every time we look at a portfolio option. I support that. Again, we can re-architect the way it’s phrased, but I’d like to see it there. The supply
rate advantage to PG&E? It’s a wonderful story to tell. We’re consistently looking to
stay competitive with the nearby competitor. We should be proud of that -- even if it means that from one portfolio option to the next, it happens to have no particular relevance. Stable supply? That’s the whole point of the portfolio, so I’m happy to put the words in there. It kind of bordered on redundant. Supply portfolio cost advantage
compared to market cost? Well, notice that 1 and 3 are talking about particular analytical
dimensions, one saying: let’s focus on the world of cost, the cost side of the portfolio. Item 3 is talking about rates, the price to the customers. Each of those leads us into a different analytical frame, so as an analytical tool to guide staff, this seems to be a perfectly good starting place. I’m interested in commissioner Carlson’s suggestion that
we also state a particular bias about relying on forward purchases. That’s a new
dimension, that’s a new wrinkle. I’d be happy to add a bullet 6 to get us there. I’ve said my peace, thanks. Bechtel: Thanks Rick. Dick Carlson.
Carlson: Let me suggest some words here. I’m trying to just integrate what’s been said. This cost advantage issue is important enough that I want to keep it in there, but I would propose that we just simplify it by saying “maintain Palo Alto’s supply portfolio cost
advantage compared to market cost and PG&E”. Maintaining our cost advantage to market cost is going to be more difficult in the out years than we concurrently conceive
them. There are some new technologies coming out that we really better keep our eye on.
We will have to be careful on. It’s not next year and it’s not the year after but in 5, 6, 7 years, there’s some real potential out there. So I would like to keep that in. It would simplify it saying we want to be below both the market and PG&E in our planning.
On #2, if we say “ensure stable and low electric supply rates” that implies stable rates,
implies stable supply situations so that handles that. I would just drop #3. We don’t need it separate any more. #5, we could just simply say to “ensure supply reliability”. I’m pretty sure that local generation will be an important part of that, but I don’t see any reason to call it out at this point.
The really troubling one is the renewable resource and energy efficiency programs as objectives, because at a minimum, we can say use them to the degree they help meet other objectives. There’s no question that energy efficiency and energy conservation is especially targeted towards peak use. If probably more efficient than generation in the
long run and it’s an important part of any supply portfolio. That’s a sure thing. The
policy issue is, as an objective, do we want to go farther than that. Do we want to just have more renewable resources and energy efficiency just for its own sake? I’m a lot less certain about how much we want to invest in that, which is what was implied by Dick Rosenbaum’s statement. So can we just simply say “develop a renewable resource
portfolio and implement energy efficiency and conservation programs to the degree they
meet other objectives?” That one is the only real policy issue that’s implied that we ought to think about. Ulrich: Can I just interject with a little staff communication for a minute?
Bechtel: Feel free. Go ahead. Ulrich: Well just to explain a little more of what we were trying to do is, I said earlier that there is a natural push between some of these objectives. That they won’t all fit
together and that when we, we may want to prioritize them, but there’s not been any
thought that bullet #4 which has renewable resource portfolio and implement energy efficiency conservation programs would stand on their own. The idea there is that we believe there are lots of people, good percentage of them in Palo Alto, that would like us to not just look at the lowest cost way of providing energy but to look at the environment.
And look at ways of implementing energy efficiency which would preclude us from
having to buy more supply or as much supply as we currently do now. Meet that supply from conservation. It’s quite possible, if we meet other criteria, that they’re willing to pay a higher than what would be the lowest possible cost energy if we only looked at the lowest cost. So that’s one reason we left “low” out - we may find that the best mix is not
the lowest cost but we side more with reliability, which may be in the form of fuel cells
that are located in various parts of Palo Alto. Besides getting supply reliability, we would get distribution reliability and also be able to implement, for example, additional
photovoltaics which in the long run is going to be a very good supply for us, but will cost us more in the short run to implement it.
Where is that balance point going to be? Our reluctance to put in “low” and “cost effective” words like that, implies too much that we’re going to focus too much on the lowest cost or the most cost effective. That may not be what we want to do. So those are the reasons we left some of those out. Philosophically and pragmatically, we would like
to have the lowest rate. There couldn’t be any better way of competing than having low
cost and most cost effective that may not be the entire objective that we want to have. We purposely have these push-and-pull relationships between each of these objectives, so that we can balance all of that and come up with the best portfolio mix. I wanted to interject that, so we didn’t just focus on one and say well that doesn’t fit with the other
ones. They all kind of mesh together.
Bechtel: Thank you John. Rick? Ferguson: Just a quick clarification. I would have quickly accepted commissioner
Carlson’s proposal to fold 1 and 3 together, but (staff correct me if I’m wrong) you are
talking about different ends of the spectrum. #1 is talking about cost, the cost to get supply, and on #3, you’re talking about our retail rates. Ulrich: Yes and it’s advantageous. We debated this because you can argue as Mr.
Carlson said that 1 and 3 maybe should drop out or be together. There’s always an
advantage in looking at your competitor that’s around you. That doesn’t mean that’s your only criteria, but it’s valuable to know what your competition is charging and to have an objective that you’re going to maintain a rate advantage compared to that competitor. We may decide that that’s not the most important one, but I like the idea of
having it there so it keeps us focused on the competitor also.
Bechtel: Mr. Rosenbaum. Rosenbaum: Let me respond and perhaps, suggest a way. I recognize that staff has this
conflict if you put in “low and stable” then you go and propose renewable resources,
you’ve got a conflict. It seems to me what we really want to say and I don’t know why we can’t come right out and say it and perhaps not call it a set of objectives, but just a plan. Most of the portfolio we plan to acquire is going to be from conventional generation sources. Clearly, we want that portion to be acquired so as to provide low and
stable supply costs and the reason you put in low is because obviously you can go out
today and purchase a 20 year contract. That would be stable but that might not provide the lowest cost. You seek a balance in your implementation plan that’s exactly what you’ll do, you purchase different contracts, different lengths of time. Then I would think you ought to say is, the cost element notwithstanding, we want to consider several items
that may well increase the cost, one of them being renewable resources, the other being
consideration of local generation. Then you’d have something that’s consistent, and everybody understands what you’re talking about. And that’s really what we’re about. Now if that isn’t of interest to my colleagues, I’m not prepared to craft a motion to that
tonight. But the staff, if that’s of interest, can certainly work out something that simply states that. Once again, there ought to be a caveat with respect to whether to call that a
preliminary recommendation, but with respect to renewable resources and local
generation, I don’t see how we can tonight based on what we know, set those as firm objectives. Ulrich: I would agree that there’s not a, we don’t want to get in a position or make a
recommendation for you to believe that we’re looking at local generation or renewable as
our salvation where that is going to be a primary supply. But we’re in agreement here that these are aspects of our supply mix that we need to look at. We are looking at the entire portfolio. We have the Western contract hydro after 2005. It’s going to be a significant part of our portfolio. So we’re talking about the additions to that, to make it a
robust, as low cost, as environmentally friendly and as reliable as we possibly can have.
So we’re pretty much all in agreement with all those. We’re just trying to be sure that we’re capturing the kind of things that we’re discussing tonight and we’re not forgetting something.
And if it’s your wish to not finalize this tonight, that would be fine. Or to come up with
more general objectives that don’t hinge on one word or adjective over another that might be another way to reach a conclusion this evening. This is one of those subjects where I’m very confident that we’re not very far apart on where it is we’re trying to do. But it’s going to be what we’re going to go out and work on a portfolio plan, that we have studies
going on now. We’re participating with NCPA that will be looking at local generation
here in Palo Alto and elsewhere. So we’re going to look at that and we’re going to look very strongly at renewables and we’ll discuss some of that in a few minutes. So it’s probably at the same point that commissioner Rosenbaum is, that in the sense that we’re talking about a relatively small amount of our portfolio in either local or renewables, but
it’s important to emphasize that they may not be the lowest cost or/and their reliabilities
are as important or higher than the cost. Bechtel: Thank you John. I have not had a chance to comment on the 5 points and I’m in agreement with all the comments that have been made. Let me just see if I can capture
at least some of the thoughts in terms of where we are. I see some of the major
differences are that we have 5 bullets. John mentioned earlier about prioritization and perhaps the last 2 bullets really go to, really alternatives. One of the things we had talked about was that conventional and Mr. Rosenbaum talked about and Mr. Carlson both about conventional sources. The first 3 items really perhaps relate to conventional
sources. It seems to me though what’s not been said, and we said it in other ways, is
we’d certainly like to buy low and sell as low as possible. I would like to see the word “low” back in there as we had before and #2 at least to tell people in the city that we are trying to maintain our electric supply rates as low as possible. Low doesn’t mean the lowest. It just says “low”. I’m not sure we need a comparison to PG&E, but certainly
that benchmark is needed. So let’s come back to maybe somewhat of the issue is that
how do we tell people with these objectives that we’re using that we’re going to do the best job we can to fill our needs with providing the lowest cost and buying as cheaply as possible? That’s what we’re trying to say in the first 3. Maybe they can all be said in 1
bullet. So first of all, is it possible we can move ahead and have at least an objective that talks about our use of conventional sources and say that that’s going to make up the bulk
of our portfolio? And so we’re at least stating that, at least that’s what the objective and
with that being the bulk of our portfolio, what is it we’re trying to accomplish in giving you guidance with respect to contracts, a long, short term and so on? So that’s really my concern with what I see here is what I share with others is that we’re not, this maybe does not give us a clear way to view any of the alternatives we have. I would at this point
entertain a specific proposal or motion to amend any of these points as long as we at least
address some how, the issue of conventional sources vs. renewables in some way. Mr. Rosenbaum. Rosenbaum: Let me first make it clear. I’m happy to go along with this 25 megawatt,
the 2nd item that you have because and I’m happy to do that without having firmed up the
objectives. What Chairman Bechtel has suggested makes sense. We ought to state clearly that most of the portfolio we plan to acquire is going to be conventional sources and do we expect that strategy to be implemented the way to produce low and stable costs and then what I’m not sure of and I’d really like to leave it to staff is to introduce that cost
notwithstanding we want to explore a number of alternatives. And that will be done
depending on the results of the study of those alternatives; we are prepared to add additional costs to include those in our portfolio. Bechtel: Comments? Mr. Carlson.
Carlson: Well I’m just wondering if we should just ask the staff, having heard everything they’ve heard, to go back and revise these so we don’t spend the whole night on it. Because we should get on to the specifics of the supply portfolio and I agree with Dick Rosenbaum. I definitely want them to go ahead and buy the first 25 megawatts now.
This looks like a buyers market and let’s start buying some of our clearest needs right
now and come back to this. I’m not sure, either we cut it off now or I’m afraid it may be another hour on the objectives. Bechtel: Mr. Ferguson.
Ferguson: I agree with Mr. Carlson that we have one major item tonight. This has taken too long. Mostly we’re wordsmithing. And there may be some policy differences emerging here. Rather than beat up on that, let’s do the thing that’s doable tonight, and be better time-managers. So I’m happy to withdraw my motion if the staff agrees to take
a second crack at this, perhaps in time for our October 5th meeting. And then we can take
care of the big item tonight. Bechtel: With the consent of the seconder, Mr. Carlson, we will withdraw the motion. There’s no motion on the table. Do I hear another motion to taking another action? Mr.
Rosenbaum.
Rosenbaum: I would move that the subject of objectives be referred back to the staff and that we request a revision attempting to take into account the comments that have been
made at the meeting tonight.
Ferguson: I second. Bechtel: Motion by Mr. Rosenbaum. Second by Mr. Ferguson. Comments? Mr.
Dawes? Comments from staff? Girish.
Balachandran: Commissioner Rosenbaum and commissioner Bechtel, if you could clarify what you mean by conventional resources? When I heard what you said, okay, we’re saying the majority of the resource deficit will be filled at market prices essentially.
So we can go out and buy gas tolling agreement or coal fired plant or whatever. But all
those get sold at market prices. So is what you’re saying, buy that at market prices and distinguishing the other aspects of cost notwithstanding, there are other resources which come up at higher than market.
Bechtel: Mr. Rosenbaum.
Rosenbaum: I mean my thought when referring to conventional is thermal resources. We know what we mean by conventional generation sources. I’m not sure what you were getting at by speaking of the market, that is what we may build, we may contract for or
tolling contracts.
Balachandran: Right. When I say we may buy contracts that don’t have any relationship to the fuel source, the fuel supply and we don’t really care about it. We care about the price. That’s what I was trying to clarify. What we’re thinking about is okay we’re
going to buy at market price and we can talk about the term, etc. and distinguishing that
from other resources, which are greater than market price. Bechtel: You know how to frame it in such a way that we can understand it. I guess when we said conventional, I meant thermal also, but you phrased it, you’ve added
another option in there, which is totally independent of the fuel. What we’re asking is you
understand what we are saying so come back with some sort of a proposal that says that and then I believe we’ll all understand that. Any other discussion on the motion? All in favor of the motion to refer the objectives to staff? Another go around, say “aye”.
All commissioners: Aye.
Bechtel: All are supporting that. We probably should’ve done this, had this same discussion earlier in the month. You might have had a chance to come back perhaps that we had been doing our homework during the month, we might have said to you maybe a
little bit better. I apologize personally for not giving you the feedback a little bit earlier.
On the other hand, we’re in complex times here. So given the fact is we’re talking about a dialogue not only with us but a dialogue with the community over the next several
months. This won’t be too onerous of a burden to come back again. So with that, we’ll move to the next item if that’s agreeable with staff, which is, take up the contract.
Ulrich: Sure. Our objective tonight was to go through this and I appreciate your feedback and we will come back. We’ll look at the entire portfolio including what we currently have and foresee with Western and add our other needs to it. Thank you for the feedback. Our objective is to make this as simple and as gives us enough number of
options so we can look at whether it’s tolling or whether we care less about where the
energy is generated, it’s what’s the term and condition of the contract we’d be signing. So we will do that.
APPROVE 3-MONTH 25-MW ELECTRICITY PURCHASE
CONTRACT FOR 2005-2007
Ulrich: If you’re ready to move to item #2 -- call it crystal clear -- it’s what we’re asking to do. Ask if you have any questions that may not be as clear to you as we think the benefits are of going ahead with this contract. We’d appreciate your support on this.
Bechtel: Questions from commissioners on the characteristics (I’m referring to the overhead printout in front of me) characteristics recommended for the purchase contract? Mr. Ferguson’s light is on. Ferguson: I just have one question, and it’s a repeat of the question I posed in our last
meeting. I didn’t see the answer in the write-up here. If we think there’s a market price opportunity now, why limit ourselves to 25 megawatts? What’s the shape of the probability curve here? Balachandran: Maybe commissioner Carlson can help us with that, but I’ll just take a
stab at an answer here. It’s consistent with the approach of laddering. We have to start somewhere, and we are going to be buying blocks of power over the next 2 to 3 years. Prices could go down even more, so we’re going to have an opportunity to buy a spot in the market. If you change your recommendation after your discussion, say buy 25 megawatts for 6 months, I’m not sure if I’d come back to you and say we really think we
shouldn’t be doing that. You’ll know it’s within the range of the laddering, the first step of the laddering. Ulrich: The easy answer is that what we’re recommending tonight, we’re very comfortable with. Particularly if you look at this trough or window of opportunity or part
of the laddering -- this is very clear to do. Going beyond that makes the decision less
than optimal at this particular point. Ferguson: This is a perfect instance of governance. We have an expert staff. The staff is giving us their best, objective, analytic product, and telling us that that, plus their gut
feeling, says this is the right buy to make today -- and they’d be uncomfortable moving
off any of these criteria. So the question for us commissioners is: does any one of us have a substantially different gut feel, or a different number to throw into the mix?
Bechtel: Anyone on the commission wish to address that? And Mr. Dawes’ phone just happened to ring. Dawes: Actually, my question is much more fundamental -- a policy issue. The City
Manager currently has authority to buy 3 year contracts. According to my approach, we
don’t really need to discuss this and probably shouldn’t. This is “a drop in the bucket” in the supply reservoir for the out years. We’re talking about probably a couple of percent of the supply needs of this particular 3-year period. We’re entering hazardous waters here to debate the market timing of this investment. My personal background has been in
investments, and one of the worst errors you can make is trying to be a market timer. If
we entertained this degree of deliberation for all of the forward purchases, we’d probably be meeting once a week and spending many hours in so doing. The second aspect is that this is a fast moving market. The chart that shows out-year
prices by month is phenomenal to say the very least. Prices are collapsing in the period
of 3 months. Prices have dropped by a factor of 60 or 70%. So if we’re saying that we’re going to go to the finance committee in 2 weeks and the city council in a month, then we are frustrating the whole notion of a nimble, well-oiled supply process, procurement process. In recent years, we’ve discussed the issue of how the utility should be managed.
This is an absolute example #1 to me of how not to manage this utility -- to bring up an
element of the supply contract that is going to take 6 weeks to put it in place. You know the economics may have changed dramatically by then, possibly for the better, but equally possibly for the worse. So I sort of question the whole notion of reviewing this.
Ulrich: Just a point of clarification. Really the reason for coming here is the timing
issue, both as an opportunity we see available -- because we don’t have direction from the UAC or the city council to go ahead and fill this hole. This is strictly the staff seeing an opportunity and it’s even pictorially obvious that there’s a benefit of going out to do it.
Dawes: So just do it.
Ulrich: Normally you would not hear us say anything more. We’d pick up and head out of here. But a couple of points. It’s quite possible the city manager has authority to do it and if so we’ll pursue that part of it. But this fits into a portfolio that is longer term than
just going out and buying something that we need the next few days. One, it’s a forward
purchase and it’s for a 3 year period of time. We want to have full disclosure of that, regardless whether the city manager can sign it. That’s maybe a short cut. We also think the opportunity is going to be here for a while so there is not a need to come and ask for this to be done overnight as we’ve done on other things we think were very critical to be
done. So this is not a bureaucracy attempting to have more bureaucracy. We can shortcut
that if it’s an appropriate thing to do. We will investigate this regardless. It’s important that you see this. Once the long-term portfolio plan is approved, after we get agreement on the objectives and we get agreement on where our long-term portfolio plan is, we
won’t be back. We’ll go out and implement it as strategic plan calls for. So we will not be back here for each and every purchase. That would be our objective.
Bechtel: Other comments? Mr. Carlson. Carlson: You’re being a little gun-shy. You should buy more for a longer time period. I would recommend this is just an ideal hole-filling contract, this 3-month concept, and
you should do it for at least 5 years. You can’t completely time this kind of market, but
these prices are very advantageous. At these prices, we clearly can maintain current retail rates. We are probably a little bit better if we can buy a whole portfolio at this price, it would be great. So you should seriously consider buying more in terms of the longer-term contract. The only thing that’s holding me back from saying why don’t you buy 50
megawatts is the issue that would fit in with buying base load generation, which also fills
the hole at all times. Boy, I would say the more the better right now. Swaminathan: Part of the reason is those conflicting objectives. Part of the objective is to be competitive with the market. This is a contract we’re going to start in 4 years and
it’s going to run for another 3 years beyond. I agree these are good prices. I’m not sure
as we had just talked about, new technology is coming online 5-10 years down the road. These are commitments we are making for an extended period of time. So again, 5 years we are comfortable, too, but it’s the conflicting objectives that are holding us back. We don’t know what the price is, where the market price will be in 10 years time.
Carlson: None of us do, but this one looks like a good bet and it looks like such a good bet that you ought to consider doing more, quickly. Ulrich: I always like coming here, because we’re able to get good recommendations.
We have no problem in giving more options to ourselves by going and requesting
authority to purchase more and as we get closer to the time of doing it, then being able to make a more informed decision. And you’re right, what we’re doing is limiting the purchase, the other side of it. This is in a sense a “no-brainer” request, and it’s one we’re comfortable in moving along. It doesn’t say we’re not comfortable with doing something
more aggressive, but this option is easier to move along and not get bogged down in
analysis that is going to be harder to justify to some people. So we’d be pleased if you’d like to make a recommendation that gives us that kind of latitude. We’d be pleased to move it along.
Bechtel: Thank you John. Mr. Dawes.
Dawes: Just to follow up, having said what I said, I would support Mr. Carlson’s observations about the additional authorization, I would instead of the 3-month hole, to me the 6-month hole is equally obvious, starting September 1st and ending February 28th
and taking up to 5 years. Now that is an authorization that would be out of the current (as
I read it) City Manager’s ability. When we get around to making a motion on this particular situation I’d propose to the finance committee and the council that the City Manager be given authorization to go out to the 5 years and 6 months per. I’d also like to
observe that this is very contrary to the position I took when we started talking about 50 megawatts over 10 years. In my huge caution eventually we backed off very
considerably on that as my feeling at that time that these prices could collapse very
rapidly and they appear to be doing that. I also think that the timing here is propitious and that you should have the flexibility to in fact buy more. Bechtel: Mr. Dawes, would you like to be so kind as to make a motion and then we can
have further discussion. Since you raised the issue some months ago, you might be so
magnanimous and to move ahead with this one? Dawes: Certainly. I would like to propose that the staff’s proposal for purchase contract authority be expanded to enable them to buy up to a 6-month period of power over a 5
year period between the first of September and the end of February, assuming
continuation of the favorable price situation that currently exists. Bechtel: Before we have a second on it, could I ask you to maybe rephrase the motion? Say you recommend approval of this specific proposal but in addition, you recommend
consideration for additional contracts along the lines so that at least we can cover this
specific one? Dawes: I would be happy to do so. I will propose to approve the staff’s recommendation and also provide additional authority to expand it up to the 6 months and 5 years.
Bechtel: Do I hear a second? Carlson: Second.
Bechtel: Second by Mr. Carlson. Discussion on this motion? Mr. Ferguson.
Ferguson: Thanks, just one technical clarification from the staff, if you would. Is the supply hole September-February or is it more like July-December? I know we had seen it before in high, low, and medium-flow charts. Now we only have one chart in this
package tonight.
Ulrich: The chart seems to show it more toward the winter. Ferguson: So if we’re going to go 6 months, those are the optimals.
Ulrich: You might -- Mr. Dawes’ motion didn’t say anything about quantity, it was length of time. Is that your intent? Dawes: The motion was to approve staff’s recommendation and then supplement it in so
the staff’s recommendation stands in terms of this quantity. Seemed about right to me.
Bechtel: John were you asking did the additional, any additional purchases be more specific? Is that what you’re asking?
Ulrich: No, I was listening to Mr. Carlson and I thought his point was additional amount
beyond 25 megawatt. I was asking Mr. Dawes if his motion included additional quantity
besides length of time. As I understand it, he said 25 megawatts but, instead of the 3 months that is in our recommendation, would be to go out 6 months. Bechtel: Yeah, I guess specifically that’s what he said, but I’ve given that, we can
certainly consider perhaps some quantity of limit at this point let’s go for a discussion
and we can always amend the motion. Dawes: The reason I maintain that was looking at relying on the loaded resource balance chart and seeing that 25 megawatts would then to balance out our deficit so that a single
base load, not a single but base load additions would be fairly equal throughout the year
so the 25 seemed very appropriate for a hole-filling contract. Bechtel: Mr. Ferguson.
Ferguson: I just want to get closure on this. Does Mr. Dawes motion pin it down to a
specific 6 months period or does the staff have discretion to slide the 6-month period? Bechtel: I believe he said through February or March.
Dawes: September through February. But I would be agreeable if staff suggests to have
it 6, 2 quarters of purchases at the staff’s discretion. That would be a better idea. Bechtel: I just feel, I didn’t write down, did someone second this motion?
Carlson: Yes, I seconded. And I agree with Dexter, for the time being, we should keep it
at 25 because I want to come back to the issue of a base-load contract. I don’t want to preclude a base-load contract by buying so much of this. Bechtel: Other comments on this specific motion by Mr. Dawes. Mr. Rosenbaum.
Rosenbaum: Staff had good reason for limiting this to the 4th quarter and I’m waiting for staff here. Ulrich: I’m sorry my graphics are _______ I was, we were trying to fill in the space
there to see what the difference would be on a 25 3-months or a 25 6-months or a 50.
Just so I can understand Mr. Carlson’s point, so excuse me Mr. Rosenbaum, would you mind asking me again? Rosenbaum: Well I was just starting. If you look at the chart that’s on the wall, it’s clear
that there’s a bigger hole in the 4th quarter than there is in the 1st quarter, looking at the
yellow line which is the, that’s the average year, and that’s why staff came to us with the proposal for the 4th quarter. I have nothing against them considering 6 months. As long as that’s the spirit of what we’re doing, I don’t think we’re in a position to direct you to
buy for 6 months rather than 3 months, but we’re just saying that in your best judgment, you think that ought to be done, then that’s good.
Ulrich: The additional flexibility of 6 months out to 5 years is very good. It gives us a lot more flexibility and we will, if you pass that motion, we will look at it and proceed if it’s the best way to go.
Dawes: Yes, keep in mind that the motion was additional authorization to purchase at
staff discretion, so this is not a mandate; it is a acceptance for staff to be able to do something if conditions are it. Ulrich: I understand.
Bechtel: Yes, basically, the message that the UAC would like the finance committee and the council to take away is that we certainly believe that this is the right, this specific contract is the right thing and that it appears that at this time that additional purchases should be considered and that we endorse that presuming that we pass this motion. So
there being no further discussion, shall we vote on this motion by Mr. Dawes? All in
favor, please say “I”. All commissioners: I
Bechtel: None opposed. Motion passes. These are the 2 items that are the most
important on the agenda.
DISCUSSION OF SEPTEMBER 5TH UAC POWER SUPPLY
PRESENTATION
Bechtel: The 3rd one there’s some suggestion Mr. Carlson talked about base load and so on. I would like for us to in an attempt to get some more information, particularly I would like to hear a little about the renewables, which we did not hear about last time. It’s one of the objectives we did not. We all felt that we didn’t quite have enough information on that so my recommendation, my plan as chairman had been to have that
item specifically from last month’s meeting and then at thus point, we can look at the time, when that is completed and decide how best we proceed. Does that seem like a reasonable way to go? Mr. Dawes. Dawes: In the presentation of September 5th, which is the 3rd item here preceding the
renewable discussion there was various pieces of the presentation that talked about the go alone strategy from Western, term commitments, prepaid contracts, tolling contracts versus investment in power plants. I don’t want to lose that and hope that either we should do it before discussing renewables or after what is the pleasure of the chair? In other words, it’ll be starting on page 19 of the presentation.
Bechtel: Is the staff prepared to revisit? We’re looking at overheads 19 through 20 something. We did cover those as I recall. I have notes on there.
Ulrich: Chairman Bechtel? Bechtel: Yes
Ulrich: Just as a point, yes, we are prepared to discuss any of the foils 19 through 30
something, but I would suggest that so we’ll have time, that we do the renewables first. That way it can be open-ended and you can have as long as you want to discuss the other options on all the different pages. That way if we don’t get through that, we can continue the discussion at a later date.
Bechtel: That will be my preference. There are a number of items like local generation and all of that. All seem like they can almost take up a full meeting just to discuss each of these alternatives. We are talking about the next several months going over that, so let’s proceed with discussion by, presentation by Karl on the renewables and then at that
point, we can look and see what the time says.
Ulrich: I would like to invite Dr. Knapp and please note the uniform that he has tonight. Bechtel: I’m just wondering where his Stanford tie is.
[another meeting soundtrack interferes with this transcription] Knapp: Okay. I’m on. The red light’s on. Hello Debbie. Some of the customer surveys in the past show a lot of support for renewables and DSM or Demand Side Management
in general. And also the utility’s strategic plan calls for programs that improve the
environment. As we know, renewable resources appear to be more expensive than conventional resources. Most of the fossil fuel based generation...?? They also require a longer-term commitment. Now the City of Palo Alto Utilities is formulating a several different scenarios for UAC and Council consideration for developing this portfolio
approach for renewable resource. They include considering filling 5-10% energy with of
the total renewable resources by the year 2010. With an expenditure somewhere around $30-100 million over that 10-15 year period...Several different technologies in slides I’m going to show you in the preliminary analysis including wind, solar photovoltaics, central solar power plants from photovoltaics, also solar thermal, electric geothermal and small
hydro as supply resources. There’s also some energy efficiency on there for
comparison. Now after final UAC and Council input, that’s not tonight, we will of course have a recommendation for portfolio standards and streamlined implementation process. So the reason this spits in to the whole post-2004 discussion at all, is that there is an opportunity to meet some of the deficit with clean energy resources. And as you know
as I said a minute ago, clean power usually comes at a higher price and requires a longer
term of commitment. We have these conflicting strategic directives that we’re talking about which are maintain low and stable costs but improve the environment. So this is where this discussion is leading off from. And what we have is essentially, shown in this
diagram, a conceptual 2-step question or decision that needs to be made. First of which is one way to view is it, how much of a headroom below this market price premium we’re
trying to maintain, are we ready to give up to go to more environmental sustainable
technologies and energy resources. There are a lot of diff. Ways to look at that. What much of a percentage of the energy into the traditional renewable portfolio “??” approach? Or how much of a premium per kilowatt hour- the green pricing approach? Or what’s the impact on average rates- which is what a lot of us think the customers don’t
care about? Or how much are we ready to spend as a premium, kind of like the whole,
how many million dollars per year are we talking about- how does it fit into the budget approach? And also how long are we willing to commit because as we said earlier, the City Manager can commit to a 3 year contracts, but for some of these types of technologies, you have to have a 10 or longer year commitment to get someone to
actually have affordable financing to actually build some of these plants, so given that
you have this kind of budget or target you decided in Step 1 is how should we invest in this money that we’re setting aside here? There’s 2 pieces to it. There’s kind of the megawatts on the green supply side and the megawatts on the efficiency side. A lot of people don’t think of efficiency investments as a supply resource, but it really is. It’s not
as obvious. It’s not as visible or glitzy and it’s really tough to measure exactly how many
kilowatt-hours you’re buying. Up until now, most of our efficiency investments except last spring have all been through public benefits types of funding. Now we’re talking about looking at it as a resource and investing in it as part of the resource portfolio, which is a different perspective, at least in this discussion. Now green power supplier ranges in
cost and value to the city. Some technologies have a pretty small premium now. Others
show a lot of promise for improved economics and performance in the near, or not so distant, future. I want to look at what these trade offs are between different types of technologies on the next slide here. Now let’s see if I can get the right slide there. There’s a lot of information on this slide. What this chart illustrates is the percentage
increase in average electrical rate, which is on the vertical axis as a function of the
percentage of the total energy supplied in Palo Alto for a number of different types of technologies ranging from geothermal to solar photovoltaics on the top end. It includes a couple of examples of both customer owned energy efficiency investments and utility owned energy efficiencies. The utility owned energy efficiencies is kind of the best you
can do because it assumes that there’s no revenue in that. For example if 2% of our
energy needs was supplied by a central solar photovoltaics power the average electric rate would increase by about 8% for the life of the plan for about 25 years, so that’s how you read this chart.
Dawes: I’m sorry. I didn’t follow that. Could you point it out in pencil on the?
Knapp: Okay. I’ll try. So if you read over from the horizontal axis to 2% of the total energy supply in 2010 and you go straight up to either the 2nd or the top line, which is two different types of photovoltaic plants. You see that that’s about 8% rate impact, so the
average electric rate or the revenue requirement goes up by 8% having 2% of energy
from photovoltaics.
Dawes: And what do the 67 megawatts and the 332 and the 301, how do they relate to this, because you have different megawatt numbers down on the 10% of energy I didn’t
quite get that.
Knapp: What a perfect straight Council member you are. That’s my next little bullet. So let’s see the “??” plant capacity required to meet the 10% of our projected energy consumption so the reason why the capacities are different has to do with the different
capacity factors of the different types of power plants. So a Solar PV plant has the
capacity of about 20-25% whereas say a small hydro geothermal is closer to 80%-85%. Dawes: Are you talking about efficiencies?
Knapp: No. Because solar panels only generate electricity when the sun’s out, you need
more capacity to generate the same. Dawes: So you’re talking about load versus capacity rating?
Knapp: Most technologies along these lines are talking about in $ per megawatt so it’s
peak capacity rating required to generate the same amount of energy for all the diff technologies. Dawes: So geothermal, for instance, operates 24/7 so it has fairly low capacity but
supplies the same percentage as something that has a 67 megawatt capacity but supply it
on a part time basis. Knapp: To the side of that is the actual energy cost in $ per megawatt hour for each of the diff technologies. I should point out that Action item #2, energy cost is between $38-
42/megawatt hour, plus it is down here near the bottom, thus the premium.
Dawes: And this assumes the depreciation of the capital assets over its useful life, which varies amongst these different technologies?
Knapp: Right.
Dawes: The PV might be 20 years and the solar dish may be 10. Knapp: Right, and further more, these lines show very narrow, straight lines. In reality
it’s very site specific. Some are more certain than others. Actually energy efficiency
lines tend to curve up because you get the, as you try to, it’s tough to get say 50 megawatts worth of energy efficiency so it gets very expensive so it curves up. Some of the more expensive supply resources actually curve down because you get economies of scale and it’s not quite as expensive to buy 50 megawatts of PV as 5 on a per megawatt
basis. What we really need to solicit from this group and from the city as a whole really
is “Where on this chart are you willing to be?” We all want to be down at 0 or lower on the vertical axis and as far to the right as we can on the horizontal axis. And all the lines go in the wrong direction for that, so maybe you want to stay to right of 8% of the energy
but stay below 10% rate impact. Stay in that quadrant and you’re happy. This is a citywide policy decision that has to be made and not something that can just fall out of
pure analysis. So we’re not expecting actions and answers on that particular question.
We’re really trying to start the discussion on how to get to there. Dawes: Another query. It seems to me just looking at these alternatives that some are very feasible, known technologies applicable to Palo Alto. Some are frankly not.
Looking at this, I’d say lets build a geothermal plant and you’d say it’s wonderfully cost
effective and so forth and so on, but the fact is we can’t do it because we have to put up with the geysers and we’d have to have access to the underlying magma and so forth so it to me its kind of a strong “??” to put geothermal here because it’s great but you can’t have it.
Knapp: Well these plants don’t have to be in the Palo Alto city limits. You see we could fulfill our energy supply as renewable from a remote source such as small hydro or geothermal. There are not that many promising geothermal plants as I’ve been learning. The point remains, you may not be able to 16 megawatts.
Dawes: You can build a wind farm in Mojave and it will have to get some benefit here in Palo Alto. Ulrich: If I might interject, when you look at the energy mix for the city of Santa Clara
for example, 21% of their energy comes from geothermal so it’s possible to develop it.
Dawes: Palo Alto used to own geothermal resources and then sold it because of the situation that prevailed at the time so we’re no strangers to it here either.
Ulrich: It’s important to know. These kind of alternatives, we can look at regardless
whether they’re in Palo Alto or not. Knapp: And it may well be owning a fraction of somebody’s bigger plant or buying the output from the plant and not necessarily building our own geothermal plant. We’ll take
a look at this next slide, because.
Bechtel: Karl, will you be taking questions. Mr. Ferguson has a question. Knapp: yes.
Ferguson: I just scanned quickly ahead here. Maybe you’ll be answering this in the next couple of slides. This slide here, it’s a nice array. Thanks for explaining it. I’d almost like to see one more column on it which is explains energy in numbers we’re familiar with and cost in numbers we’re familiar with, but one of the benefits of these renewables
is they have better environmental performance. I think of it as entropy. We’re going to
pay an entropy penalty somewhere in the system by generating high temperature energy in a short period of time. One way we pay the entropy penalty is environmentally. Is there some kind of figure of merit you can develop for each of these alternative
renewable resources that indicates what is an inherently more reliable supply and is this substantially more environmentally beneficial than others, so that when we pay $300
instead of $48 we see the environmental benefit along some dimension?
Knapp: Yes, in fact there is kind of an array of report card for each technology. For example, wind is not as firm as geothermal or small hydro. Photovoltaic is actually has a very high availability and is easy to predict when the sun is going to be up but there are
no allowances for either diversification in our portfolio in this chart. This is just pure
commodity cost that has some “??” there’s no add or credit, no carbon emissions offset, nor is there a deficit for the fact that some of these are non-dispatchable. They’re take or pay, or take and pay actually, but that will be part of the follow up. Kind of figure out how much more analysis to do after we find out if we’re going to be on this chart at all.
That’s kind of the next step.
Bechtel: Other questions? Mr. Carlson. Carlson: Yeah, I’ve got a couple comments here because there’s the cost issue as Rick
just recommended, but there’s also how it fits into our portfolio, for example, small hydro
does not supply power just when we need the power, so it’s just doesn’t fit in that expansive hole we have. Other things and this is what we’ve looked at for years, some of the environmental problems with some of these technologies are certainly non-zero especially those wind power plants on the ridges which is, I mean, the number of eagles
and raptors they kill are serious and we have to stop that. The birds just love exactly the
best spot where you want to put a wind machine up. So and also these costs are changing all the time. We have some older ones like geo wind has come down nicely. We always hope photovoltaic will but geothermal’s there already and I’m not sure I’d call it a renewable resource but it’s a fairly long term resource and it certainly doesn’t emit CO2
or much of anything else and expansion of those buying in there or financing part of the
proposed expansion is a doable thing as I understand it. So there’s some real possibilities in there but it’s not an easy choice. Of course, landfill gas just looks wonderful because we sure have a landfill gas resource in town.
Bechtel: Go ahead Karl.
Knapp: Okay. Well actually to illustrate the range and magnitude of requirements of our clean energy portfolio as opposed to any of individual technologies, we’ve selected 3 significantly different combinations of some of the technologies just to kind of illustrate.
The first is just an equal mix of the lowest cost resources. It has energy cost of about $60
per megawatt hour. We’d have 2% increase in rates if we supply 10% of energy with that mix. We’d require about $80 million of capital if we were to actually build the plants. The fraction of the load we can meet if you spend $100 million is another figure of merit is about 12%. So these are just the...go ahead.
Bechtel: I was just going to ask Karl. What was the rate the commodity cost did you use for the base rate non-renewable? $40 or so per megawatt hour?
Knapp: Well the $45 per megawatt hour in 2010.
Bechtel: $45 per megawatt hour in 2010. Thank you.
Knapp: So the 3rd on the far right, is the all sun and wind portfolio at $100 per megawatt hour and then we picked something in between just to be to fall somewhere in the middle. The point of this is not to give detail cost estimates of the different kinds of portfolios but
to point out some points which is the amount of money to build this or to commit to
power purchase contracts over a 10 year period is on the order of $50 to $100 million. It is possible to meet a reasonable amount of power load depending on what mix you have. And you can actually have some of the most expensive technologies in a portfolio that still meets our goal, for example, in our 3rd portfolio, that 10% of solar PV accounts for
50% of the money so even though it’s the most expensive you can still come up with
something that works with all the technologies. Dawes: Do your assumptions under the solar PV distributed parallel what we’re paying now for PAU customers to put in PV panels?
Knapp: Yes. Now there doesn’t have to be any single technologies. There are of course endless number of possible portfolio options once you start mixing things together and I do want to move on to some of the main points. Which is what we really have to figure out as a group is what is Palo Alto’s basic willingness to pay for environmentally friendly
energy and how much renewable energy should fit in to the whole portfolio? We need to
address this cost versus sustainability conflict and some of the language which were discussed earlier on the strategies may actually make this a little bit easier. It’s really a matter of city preferences and it’s important to question whether we want to have an expensive contributor to our power supply. And the second big question is the
motivation here. Why do we need a renewable portfolio policy? There’s been lot of
expression of interest from the public at a lot of City Council meetings. I haven’t seen it here at any UAC meeting yet. I periodically receive personal emails asking why we don’t do all of our power with photovoltaic on people’s roofs. There’s a lot of interest. I don’t know how much interest yet from the commercial sector but there’s actually a lot of
dollar values that haven’t been included in this analysis yet which would help make a
better case and fill up the report card because there are no environmentally benign technologies. There are only pros and cons of each one. So the underlying motivation kind of sets the foundation is how we read in this report card. Is the goal to meet the Kyoto protocol? He had a 7% reduction in carbon emissions from Palo Alto energy use
by 2010. That would actually change how you would do your portfolio. Or is it
reducing air emissions related? That’s a whole different motivation also. Do we want to be the leading municipality in renewable energy or do we just want to be better than the state average of 12%? These are just throwing out possible motivations. The steps, I believe are, for one, getting discussion going here, but also finding out what does the
public, both commercial and residential, have to say about what we ought to be doing
with this and how does it fit into the #4 strategy bullet that was on action item #1? So it really kind of leads into the discussion that I hope it would stimulate from doing this.
Bechtel: Thank you very much, Karl. You did cover the next slide, I noticed, which at least I’m looking at the presentation from the 5th basically which says staff will
incorporate UAC input and seek UAC approval on September 25th. Well we dealt with
that item on the first issue. Knapp: That’s because I was, this part was supposed the last part then lead back into the next steps for the overall portfolio and so now it’s been extracted so I can either hand it
back to Shiva but it would actually be better to have this renewables discussion if you all
would like to. Bechtel: Well I’m getting looks from my other commissioners because I have a slide that they don’t have and I apologize. Okay. I would entertain questions from the commission
on Karl’s presentation on renewables. But perhaps they’re looking for feedback and
personally I’m also looking for feedback and I’m interested also in how we wrestle with this issue as we’ve seen our rates will go up for whatever % we have. It’s part of our “??” to advise the Council but I believe at the same time, it’s part of our responsibility to gather input from the public and the staff on this issue so I’m personally very interested
in the renewables issue so I’ll open it up. Mr. Rosenbaum.
Rosenbaum: Yeah. Just a question. We introduced green pricing probably a year ago and because we’d heard a lot of people are interested in it. What’s been the participation?
Ulrich: If you’re looking at a percentage? It’s quite low. It’s in...do you have the #? Dawes: It’s quite low? What do you think that means? That’s sort of a volunteer green effort. Does it mean people aren’t interested? We haven’t sold it enough? It’s not
dramatic enough? Nobody knows what the sources are?
Knapp: The actual number is 171 residents have signed up with is about .7% and I don’t think enough analysis has been done to actually say exactly why people have signed up or haven’t signed up. It actually continues to grow. I have a little chart of sign ups
versus time.
Rosenbaum: What’s the premium for signing onto green energy? Knapp: It’s about $14/month for future 100. This is estimated right off our website.
$8.00/month for future fifty and about $4.00/month on average residential bill.
Rosenbaum: I mean for kilowatt hour. Knapp: I don’t.
Rosenbaum: To make it consistent with this, what percentage increase in rates is it 10% increase in rates, is it 5% increase or what?
Balachandran: Kabat just told us it’s 1, 2, 3 cents higher than normal bundle rates depending on the kind of product that you pick.
Dawes: And our bundled rates are about 7.5? Balachandran: Today yes.
Bechtel: So it’s 1, 2, 3 cents on a 7.5 cent base rate. Is that?
Balachandran: This is based on a 6-cent rate. and all the rates increased even for the future green customers.
Rosenbaum: Does staff have any concern over this? That is we have a voluntary
program. This is in a community where a lot of people would express interest in the environment and the turn out has been very low. What we’re suggesting here is a compulsory program. Is there concern about this?
Baldschun: We haven’t market it since our big push.
Bechtel: Mr. Baldschun is telling us. Baldschun: Okay, I’ll try this. We are going to push it again. Obviously during the last
6 months, we’ve had other things on our plate but we are going to push green power
again and I expect to see the participation levels increase. They are low relative to our projections. We did see some jumps when we did market it heavily in April and July but we really haven’t pushed it much because we’ve been pushing this and the AEEP program and a lot of things so this has been on the back burner.
Balachandran: And we are also going to look at the product itself. All the products we offer are 100% green as opposed to some of the others offered in the general market in California which has a bunch of brown mixed in and those had a very good response from the customers so we’re going to look at the product to in addition to what...
Ulrich: I’ll give a view that we’re comparing apples with oranges so that if we move ahead with this, there’s a strong benefit. We should look at mixing it so that it’s included in everybody’s bill. It’s part of our portfolio strategy rather than the way we’ve done it is we will buy it for you if you want it and we’ll charge a premium above what everybody
else pays. That is a far different kind of product than one where we get either consensus
or going through and asking the public and businesses how much they want to participate overall in their utility in green power and that becomes part of our entire mix. Then it will be a far different product than the kind that we’d go out and buy. The premium right now is quite significant. And some of the things Karl talked about raising the rate 2%
might not be felt in the same way, so I’d rather not compare the success rate of what
we’ve already done because we’re going to learn how to market it better and provide a product that we think people will want to have or we won’t do it.
Rosenbaum: Thank you.
Bechtel: Other comments or questions of Karl on renewables? Mr. Dawes.
Dawes: I just wanted to emphasize my concurrence with Mr. Rosenbaum’s question. This issue of compulsory versus voluntary is major issue in my mind and I would much prefer to see something that continues to be voluntary where we can market a green
program in effect pay for itself. When I see what I’ll generally term theology, written
down on the paper as the reason for doing something, it makes me a little nervous. The Kyoto convention is a highly, I’m not sure if it’s inflammatory but it certainly is an area that excites a great deal of heat and light and very little policy unanimity that I can discern while the current administration has disowned it, the prior administration never
submitted it to the Senate for ratification because they knew it would fail and fail
miserably. So for Palo Alto to shoulder the Kyoto convention is far reaching and way over-reaching for our situation and I reject the idea that we should justify a program of this nature on something as controversial as that. I’d much prefer to see it as a hard headed analysis of reason for expanding our resource supply mix at rate increments that
are tolerable, reasonable and justified.
Bechtel: Other comments? Mr. Ferguson. Ferguson: I’d like to see the score card address measures of reliability, diversification,
efficiency, nominal improvements in avoiding conventional pollution, so we could pick a
portfolio that doesn’t externalize either costs or benefits on any of these dimensions. [end of tape 1 and begin tape 2...missed a couple of sentences] Dawes: Again, thinking from an investment perspective, I would also introduce
alternatives, for example, fiber-to-the-home expansion entire city-wide is probably about
a $40-45 million investment with some significant revenue implications for us. I would certainly say if we’re contemplating really big numbers such as $50 or $100 million tripped off the tongue on these presentations that it is very reasonable to stack up, unrelated to green power, but related to PAU investment alternatives, these kinds of
things.
Bechtel: Mr. Carlson. Carlson: This is an excellent presentation. I love this table. You just put a lot of
information that was complex into a pretty easy-to-understand table. The questions I
have are, the conservation area there’s so many little things you can do that are probably more cost effective than this. And so you’re underestimating the cost of the range of cost effective conservation especially in the lighting area. You’ve got this utility owned demand side management at $67 per megawatt hour. That may true for large industrial
applications, but a lot more can be done cheaply on a residential side. And so you’re
underestimating the conservation potential. It’s hard to estimate but there are a lot of megawatts out there, more than this, more and more cheaply than this implies. Maybe I’m wrong but the last time I checked the numbers, they were better than this. But I share
with Mr. Rosenbaum and Mr. Dawes, the skepticism of putting many tens of millions of dollars in this wind-something is dramatic for the whole community. Fiber-to-the-home
for every home in the community would A) everybody would love and B) would
probably if not break even, possible make a little at it. Some kind of capital investment and effort is pretty interesting. The final area that we should put up here and it brings me back to Kyoto, the efficiency improvements that you can get from a really good new power plant compared to the old power plants that we used to buy probably are
environmentally one of the better things we can do. I know the new power plants are just
quite significantly more efficient in terms of meeting the Kyoto protocol and reducing air emissions and doing good things for the environment. That’s a set of, that’s an alternative in the utility area that needs to be thrown into this mix. And it’s probably very cost effective, I mean these technologies are fun and they’re exciting, but for what you
get, you sure spend a lot of money.
Bechtel: Mr. Ferguson, you’re light’s on? No. Mr. Rosenbaum. Rosenbaum: I just can’t let the comments relative to fiber-to-the-home pass. I don’t
think we want to, instead of wasting $50 million on alternate energy, why don’t we do it
on something that people would like? Fiber to the home has got to stand on its own as an investment and I’m sure staff shares that view. What I wanted to indicate was an alternate view here on the commission.
Ulrich: We were just waiting to see how long.
Bechtel: Mr. Knapp. Knapp: On the DSM numbers, I should have a point of clarification in there; a big
component is the loss of revenue associated with DSM investments because that has a
rate impact. It’s not just dollars of megawatt hour avoided. It’s plus the revenue you didn’t get for not selling those megawatt hours, so somebody else has to pay for that distribution charge in part anyways.
Carlson: Ok. So that’s interesting. I’d like to see some detail on that because you get
into a whole fixed versus average cost, cut set there that’s worth looking at more carefully. Knapp: It’s in that rate impact measure, is all it is. With the 10%, say if it was all done
with DSM, a 10% reduction and total megawatt hours sold still has to recoup the same
total and revenue requirement for all the distribution and transmission and the investment and energy efficiency itself, that’s why it’s probably higher than you’re used to. Bechtel: No other comments? Thank you very much Karl for a very enlightening, and I
agree with Dick Carlson, that one curve sort of tells us the picture that we have to set up
curves as we look at it. We’ve covered the agenda tonight that I wanted to cover it. On the first item under primary objectives, we sent that back to staff for rework and it would occur to me that that was probably the right thing to do judging by the fact on this last
presentation on renewables, we had certainly a discussion about the pros and cons of that. We approved the contract. We’ve covered renewables. Short of any other urgent
business or news, I would propose we adjourn this meeting to another time. I guess the
primary objectives, we’ll look at again sometime in the next some months and we can talk about that as we look at that again. John, any thoughts about coming back to that one?
Ulrich: Well we’d have to come back to it rather soon, not too many months. We may
have to decide whether you’d like to have another special meeting to continue in this dialogue: One, for the objectives and two, to have more understanding and communication about the future portfolio options. Similar to the foils we didn’t cover in as much detail as you might want to have or would you like to have that as part of a
regular meeting in addition to the other agenda items?
Bechtel: I did not bring the projected agenda for us and you have it there, maybe we can spend a few minutes there and give us a heads up on the next couple of meetings.
Ulrich: Well actually at the next meeting, one of the agenda items is talking about the
long-term Utility Advisory Commission agenda. The feedback that we got from the small subcommittee headed by Mr. Ferguson came back future meeting agenda items. It would be valuable to go through some of those items and interpretation and definition of what is expected on each of those items so that 1) we can prepare for them and you’ll be
aware of what kind of information reports you’ll get at those particular times so you may
want to at that time go through this topic and find out where you want to have this fit? Bechtel: That’s going to be October 3rd, is that right?
Ulrich: Next meeting is scheduled to start at the normal time at 7:30 on October 3rd. So
that’s only, that’s next Wednesday and you’re packet will be sent to you on Friday. Briefly, the items are the NCPA Interconnection Agreement Update, Voluntary Commercial Time of Use Electric Rates. The first one is information and the second one Time of Use rates is an action item. The 2001-2003 Demand Side Management and
Public Benefits Plan and so when you ask for what we’re doing with the money. That’s
an action item. We’re also going to be bringing the Strategic Plan Performance Report; the one that we promised for some time is how to measure our strategic plan. That’s in the form of information so that you have a chance to modify and ask questions and we can bring back in final form. Alternative Emergency Water Supply Options Study will
be here and then we have our NCPA and TANC report and then the Long-Term UAC
Agenda, so it’s quite a bit of material. Bechtel: Yes, it does look like a very full agenda. Do you anticipate, and it doesn’t sound like it, bringing any further contracts specific contract proposals to us? It does not
sound like that’s going to be there. So really the issues we need to grapple is really
coming back to a set of objectives whether they are 5, 4, 3,or 2, or 1 on the portfolio.
Ulrich: That’s the benefit of the discussion we had tonight. We have a clear view of your ideas and concerns about renewables and whether there’s a price premium we
should be considering or not, so that’s a valuable area. We would want to come back and
push back on some of the items that you brought up so that when we have a good understanding and dialogue of the kind of portfolio that you would like us to look at and we would like all of you of course to be together on that and give us guidance so that when we put together the portfolio, it will not be a surprise to you and we’ll be able to
move ahead and get it approved early so you may want to have one more of these
meetings on a special basis to finish up on these objectives and have whatever debates you’d like to have on pushing forward on cost versus reliability and reliability and cost versus a sustainability and how to mix that portfolio together.
Bechtel: I was wondering if we were to meet one month from today, October the 20
something. Commissioners? How do you feel about meeting in October? Mr. Dawes. Dawes: We’re leaving on the 22nd of October for a month, so I won’t be at the November meeting and late October wouldn’t be very good for us.
Bechtel: You won’t be returning really until late... Dawes: Thanksgiving.
Bechtel: Thanksgiving. So there’s one input on schedule. Any other inputs on schedule
in October? Ulrich: Just to point out another carrot we have to consider. All of this portfolio planning has to go to the City Council in relationship to our strategic plan and I don’t
think this is going to be a subject that we’re going to be able to come at one time and
present to them and get their concurrence that this is the final portfolio plan, so I’d like to have the education and the communication both of the community and with yourselves and with the City Council and there is not a lot of time when you build all of that in, for us to delay having more meetings and getting agreement on these options. If I can push
back to October or early November would that or we can have if you’d like to consider it,
a more extended meeting and have it as part of ... Bechtel: On next week’s meeting?
Ulrich: It’s probably a bit early for that, but maybe the subsequent meeting. Start it
earlier. Just offering suggestions. Whatever is quicker. Bechtel: Mr. Rosenbaum.
Rosenbaum: Why don’t we think about this and make a decision on the October 3rd
meeting as to whether we want to have a second meeting in October? Bechtel: Let’s do that. Let’s we’ll bring calendars available at the October 3rd.
Ulrich: We’ll bring the calendars and some recommendations and if it’s agreeable, we’ll
have that discussion under the Long-Term UAC Agenda item. Are you okay with that?
Ferguson: Just a scheduling precaution: the proposal that you called a no-brainer tonight still took us 30 minutes to deal with, so...
Ulrich: Well, it turned out to be even more than that. The UAC gave us far more brains
than that tonight, thank you very much. Bechtel: We gave you three more months, I believe.
Ulrich: More months, that’s it. We’ll put it in years. Months and years.
Bechtel: Thanks very much. I’ll entertain a motion to adjourn. Carlson: So moved.
Ferguson: Second. Bechtel: Second. All in favor?
All Commissioners: Aye.
Bechtel: Approved. Adjourned.