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HomeMy WebLinkAbout2006-06-07 Utilities Advisory Commission Summary Minutes Utilities Advisory Commission Minutes from 6/7/06: Approved on 8/2/06 Page 1 of 18 UTILITIES ADVISORY COMMISSION MINUTES OF JUNE 07, 2006 CALL TO ORDER The June 7, 2006 Utilities Advisory Commission meeting was called to order by Chairman George Bechtel. Let us start with roll call and to my left Marilyn Present, Bechtel Present, Melton present, Beecham Present and just thought I will mention that there are three commissioners and also our liaison Beecham present and the two commissioners Dexter Dawes and Dick Rosenbaum will not be here tonight. ORAL COMMUNICATIONS None APPROVAL OF THE MINUTES Motion: Commissioner Melton motioned the minutes from May 3, 2006. Commissioner Keller seconded the motion. Unanimous approval. AGENDA REVIEW Bechtel mentioned that he sees only one item on the Agenda and assumes there will be nothing there. REPORT FROM COMMISSION MEETINGS/EVENTS Any reports from Commissioners? Meetings, Events? If none lets move on to the Director of Utilities Report from Girish. UTILITIES DIRECTOR REPORT Utilities Advisory Commission Minutes from 6/7/06: Approved on 8/2/06 Page 2 of 18 Girish announced that he was sitting for Carl Yeats, Director and he has just a short information report. Just a couple of items. 1. CMUA Board of Governor’s adopts Greenhouse Gas Reduction Principles. Press release that is attached to this report. (Marilyn I will send the attachment when the UAC packet goes out) 2. Palo Alto started receiving wind power from the Shiloh wind project in Solano County on June 1. 3. Council will be considering adopting the FY 06-07 budget next Monday, June 12. AB 1234 Ethics Training for the UAC has been scheduled for Tuesday, June 27, 2006 from 6:00pm – 9:00pm in the council chambers and that is the reason why Carl Yeats couldn’t make it today because he is at the Ethics Training with the council members. Bechtel said that he assumes everyone responded or at least knows what happens if they don’t show up? Beecham: That is why there are two scheduled. I would add that if you can’t make it there are probably other classes you can take and you could do it on line. Bechtel said that he saw that. I guess we all got a note from the City Attorney’s Office. But $50 spirit is being prepared is taking a nice vacation on that night. Okay. Girish anything more to add? Girish replied: That’s it. UNFINISHED BUSINESS None. NEW BUSINESS ITEM 1: ACTION ITEM: Utilities Advisory Commission Minutes from 6/7/06: Approved on 8/2/06 Page 3 of 18 Recommendation that we approve an action on the NCPA Green Power Project. So I will turn the floor on to you Girish. Girish said he will have Karl Knapp make a presentation of this. Shiva and Karl have worked on this quite a bit. Just to give you a little bit of background on this. The Council back in 2001 approved a Long Term Electric Acquisition Plan and Objectives for the portfolio. We have a renewal portfolio standard. We participated in the previous RFP with NCPA on Green Power Projects. We have done our own RFP over the last three years and this is getting to the next phase of acquiring renewable resources. So there are some issues that come up that we explain in this staff report and we will talk about it in more detail in this presentation. We have our Energy Risk Manager also here to answer any questions that may come up. Karl Knapp – The NCPA Green Power Pool is an opportunity for Palo Alto to possibly buy beyond the LEAP 20% renewable energy target. It is basically 11 NCPA members would rather pool their resources together to buy the renewal energy if they want to buy. There is a total of 80 megawatts worth of interest. Trying to do it all in one big short rather than piece meal looks like a good opportunity? Staff thinks that this is a good opportunity to diversify our green power pool and to make progress in achieving a “low-carb” energy portfolio. It looks like we could achieve 33% or more and still remain below the LEAP ½ cent per kWh rate impact Guideline to achieve the 20% target, the cost effectiveness of having a large pool is a big driver and there is also some risk sharing enhanced through joint action. Staff is recommending a 15MW average participation out of the 80. This level will add about 12 ½ to 13% of the City’s electric supply, which will take us up to somewhere between 30-33% of total load instead of 20%. It maintains some option for landfill expansion, as some of our contracts include the option to buy additional output at Santa Cruz, or at Half Moon Bay or at Keller Canyon, and also leaves some room to try to keep our load down through more aggressive Utilities Advisory Commission Minutes from 6/7/06: Approved on 8/2/06 Page 4 of 18 efficiency and some small cogeneration opportunities. It does allow for some direct procurement by CPAU in parallel rather than going all the way to 15% (18 MW). One of the issues we would like to point out is, it may result in some seasonal energy surpluses. It is hard to fill any of these seasonal needs by just getting renewable energy in September – October-November. For short term the only problem is that if some of the resources start before August 2008 because we have not bought that far out really very much. Long-term seasonal energy surpluses that may result occur in May-July, and represent 4% to 8% of our total annual load even though we have 17% shortfall overall. Credit and Market Price Risk are addressed well with NCPA’s Third-Phase Agreement, and NCPA also has their own Risk Management procedures set up. Participating may result in exceeding the LEAP long term fixed price purchasing limit of 75% for fixed price purchases loner than three years out, achieving potentially up to 83%. Staff recommends approval for 15 MW participation in the NCPA Green Power Project. Bechtel – Karl are you going to –if you plan to cover later what strategies do you have in line for that 4% - 8% surplus annually. Karl Knapp replied that there are 3-4 different ways to do it. One is to arrange exchanges within the pool with other participants, and another might be to sell surplus energy that may result into short term markets because we would still want to have the energy in a dry year. Karl Knapp described the NGPP Third-Phase Agreement. The proposed total subscription is 81 MW, with 11 participants anticipated. There is an average price limit in the contracts. NCPA would be able to buy up to 81 MW as long as the average cost for the whole pool does not exceed $70 per megawatt hour in 2005 dollars. If deliveries start five years from now and it would be a few percent higher than that in actual dollars. No individual contract should exceed $250/MWh (also in 2005 $). Keller asked if the pool cost includes transmission. Karl answered that the pool cost includes the commodity cost and transmission into California at NP-15, but not from there to Palo Alto or other Utilities Advisory Commission Minutes from 6/7/06: Approved on 8/2/06 Page 5 of 18 participants. NP-15 is the same place where all the energy deliveries are for the rest of the NCPA Pool. As far as time and term, the 3rd Phase Agreement remains in place until CPAU withdraws. The initial procurement window for NCPA is limited to 3 years. More time to fill the need may be approved by a vote of participants. Participants are represented by a board of members from all participating utilities. No individual contract should be over 25 years. The goal here is to seek Power Purchase Agreements with suppliers, but owned projects may also be considered. There is a 75% fixed price limit in the LEAP guidelines for purchases longer than 3 years. Knapp described the percentage numbers in the table on the presentation slide “NGPP Participation Alternatives”. The first number on the left (15% in the first row) represents the projected fraction of the non-Palo Alto Green load. The second number (18%) is what we expect to have, and the third number (20%) is what Palo Alto has contracted for to be built if the contracts are built to their maximum size and actually operate at 100% availability. So far, we have found that these facilities are operating closer to 90-92%. (Marilyn, once again the attachment will go in the packet) The total cost is roughly about 310 million dollars over 25 years. Council so far has already approved 252 million dollars for contracts ranging from 15 to 25 years. Bechtel asked what is the rate impact on this? Are we getting a premium of 10% for Palo Alto Green? Palo Alto Green Program doesn’t have any rate impact for non-participating customers. Palo Alto Green is one hundred percent wind and solar and not just “green only”. Even though the wind and solar combination is competitive with the market price, it is not competitive with our average cost which is half low-cost large hydro from Western and Calaveras. People buying Palo Alto Green are not receiving the low-cost hydro, and that’s where the 1 1/2cent premium comes from. The estimated maximum rate impact of 0.3 cents results from a maximum price that is about $9.00 per MWh above the projected “low” market price for electricity, times 33%, which is $3/MWh or 0.3 Utilities Advisory Commission Minutes from 6/7/06: Approved on 8/2/06 Page 6 of 18 cents/kWh. Karl Knapp showed the slide illustrating the long-term volume variability that could be a result from the project, showing one example monthly profile that this could end up looking like in the long run, for which staff assumed that the 15 megawatts could have the same shape what we have now, which is a little over half wind a little less than half landfill gas. You could think this slide as a kind of worst case because the wind resources that we have, although they fill in nicely back in August and September, they also fill in nicely in May and June we already have plenty of power. So this is the scenario that exacerbates the occasional monthly surplus position, which turns out not be that big of a problem. The example this is just for a normal hydro year. Finally, staff requests that UAC recommend to Council to approve participating in the NCPA Green Power Pool for the purchase of up to 15 averages MW of renewable energy. John Melton said it implies that only participation but it is a change in Council Policy to permit participation is that right? Karl Knapp replied this is just a request to exceed the existing limit specifically for purchasing additional renewable energy. We are not necessarily asking them to raise the limit from 75% to 83% for just any resources. We are saying just allow us to participate in it even though it may be above 75%. Bechtel asked if there were any questions for staff? Marilyn asked are these costs for the actual energy or for the expected? My concern about it is payments that depend on high performance – procurement costs for facilities and they do not generate what you want. Is it prorated? The intent is to meet these needs with Power Purchase Agreements, in which we pay per MWh actually delivered. If a project is proposed, NCPA would impose penalties for underperformance through its contracting process. On page three you have a layout on consumer costs underneath. 9.2 million in 2006 dollars and 12.4 for 25 years. Does that mean that we pay less in early years and more lately? (Attachment will go out) Utilities Advisory Commission Minutes from 6/7/06: Approved on 8/2/06 Page 7 of 18 The “2006 dollar” costs are in terms like the $70 per kilowatt hr – “real” dollars. In actual dollars, the contract price would be starting at $70 from now increasing 2.41%, which is the long-term CPI (Consumer Price Index) for the last fifteen years. If it started at $70 and went up at 2.41% per year for 25 years, that would be at the highest level that still meets the criteria of $70/MWh limit. Alternatively, if it starts of $80 instead of $70 dollar limit with 1½% per year, it could also match the $70/MWh limit in 2005 dollars, but the average actual cost is actually lower. Different escalation rates need to be put into current dollar terms. Some contracts may actually not start deliveries right away. Keller questioned if the risk is on NCPA for the facilities that don’t produce the power that is expected and who is going to pay the penalties? Generally these will be power purchase agreements so if you don’t buy their power you don’t have to pay anything. Beecham asked are we not talking about buying a plant or buying any hard assets---when you say power purchase agreements? ‘No’ It is the intent, but it is left open if in the NCPA RFP that if projects are proposed, then there is an alternative to actually have NCPA build the project in which case whoever is building the project would have to address the performance risk. We do not anticipate doing this. Keller asked if there is a risk? If you build a geothermal and it lasts 10years instead of 25 and you get half the energy? Girish replied that we expect that with the power purchase agreement that we only got to buy the output of the plant. So if the plant does not produce then we don’t pay. So unlike take or pay contracts where you are going to pay regardless of what the output of the contract is – it is not anticipated that these power purchase agreements are going to be like that. Just like all the agreements that we already have in place -- if they don’t produce we don’t pay. That manages Utilities Advisory Commission Minutes from 6/7/06: Approved on 8/2/06 Page 8 of 18 some of the risk, essentially credit risk in that sense. There is also market price risk – if the market power is less than the price that we contract for, we will be the ones who eat that, but that risk is like any other contract we take on. Keller replied okay that answers the question. Thank you. Melton asked what is the NCPA general operating system? What are they expecting to happen out of this? Is this going to be primarily wind? They have done some geothermal and are they thinking more geothermal? I am just trying to figure out what is going through NCPA process. We are not sure what to expect other than there has been no stated preference either, but based on our RFP and few others like PG&E, there were biomass, geothermal and even solar projects and a few wind projects. The other similar wind projects that are closer to the California border also have very different monthly patters. They are more flat and storm driven while in California they are driven more by the temperature difference in the summer between central valley and the ocean more in the summer where it is kind of flat. No one really knows but there is a lot of potential to that has been identified a number of studies of renewable energy potential throughout California. My guess is that there will be a mix of stuff which will be lot easier to deal with at 80 megawatts than in little pieces. Girish added that NCPA has given themselves – the agreement gives NCPA 3 years to actually go out and procure these resources and so the expectation is we go out in a sequential manner to test the market, get some responses and if we are able to contract for 81 megawatts in the first go we may do that. There is going to be a subset of members who will be part of our committee that works with NCPA. It depends what the market offers up. It could be geothermal from Southern California, it could be wind from here, solar. We just have to see. It is having a bigger pool that opens up the potential variety. No one seems to want to build biomass or geothermal facilities to supply 25-30 megawatts -- it needs to be 50-80 megawatts to work. Utilities Advisory Commission Minutes from 6/7/06: Approved on 8/2/06 Page 9 of 18 Bechtel asked if there is going to be the impact on our cost, our NCPA related cost for this program? Is additional staff required by NCPA or whatever? Girish replied there is no real incremental cost. At this point there is no additional staff required. It is going to be contracts that will be managed. Their existing staff will both manage these contracts and they have risk management procedures to handle them. Bechtel said to Girish that he mentioned three years. At three years the agreement is terminated? Or what happens? Why did you mention three years? Girish answered that the procurement phase of this project ends in three years unless all the participants decide that they need more time. Basically then we would extend the time. We do not want to have an agreement in place and get to the 81 megawatts over in 10 year period. We want them relatively soon-- so we say lets get this procurement done within the three year period. Beecham: Girish you mean that we have all contracts in place and all turned on within 3 years? The goal is to have contracts signed within the 3 years. Girish said that it is just like what we have gone through. We signed contracts with renewable power developers and Council approved them, and some have come on-line some six/eight months later like Santa Cruz Landfill Project etc. And it depends, it could be existing projects that are being built right now that would satisfy what you jus said. Bechtel said he assumes that if we get a response to our RFP and it says we can’t deliver for 10 years that is probably going to go away we want something sooner. If is four years or some reasonable time after that then it is up to the committee at NCPA to decide on if this is reasonably delivery date and we go with that? Girish replied that one of the evaluation criteria is the start date and there will be another criteria that may be utilized to filter the proposals when they come in. Utilities Advisory Commission Minutes from 6/7/06: Approved on 8/2/06 Page 10 of 18 Bechtel asked if each of the individual Contracts have to be approved by the Council? Girish replied ‘No’. There are limits provided in the Agreement -- the maximum price for any one contract not exceed an average price for the entire pool cannot exceed the pre-authorized price of $70. Girish said we do it this way as renewable comes to us in very small chunks and the lead time and admin time we have to go through this versus other s-called conventional generation projects- that might have say 250 megawatts, which may be one unit and then you are done with it. Here you may be dealing with several different counterparties and the sizes are different, the start time may be different so we bound ourselves with price and term, average price not to exceed 70 mils and the unit price of any one contract not to exceed 250 mils in a contract length won’t exceed 25 years. Bechtel asked if there is any actual limit on an individual contract? Price, volume, and term are each limited, which bounds the total. Bechtel said so as long as we are not contracting for more than our share. Okay. Other questions? Melton asked: How does $70 per megawatt hour purchase for this goal. How does that compare to natural-gas generated energy today? Karl Knapp explained a chart on the slide show and explained several different long-term electric market price scenarios and resulting possible rate impacts if NGP was filled to its maximum volume at its maximum allowable price limit. Under the low price scenario, there could be a 0.3 cents per kWh added cost, and if the prices follow the high scenario, they rates would be 0.6 cents per kWh lower. Utilities Advisory Commission Minutes from 6/7/06: Approved on 8/2/06 Page 11 of 18 Bechtel said this energy, this 15 megawatts -- if we didn’t do this since hydro is what it is it is trading off for fossil fuel generated electricity. So if we look at this, one has to make a judgment about what is the forward likelihood of prices of fossil fuels. Well, we will never see a $25 per barrel oil in our lifetime it seems to me quite---almost no brainier at $70 per megawatt hr. because it is just hard to believe that you are going to be able to buy fossil generated electricity at below that price. Keep in mind that the $70 in 2005 dollars could be as high at $93 dollars actual average – so it may depend on what type of dollars you are asking. I agree with you. My concern is that the limit we set the limit may be too low. But we should try anyway. Keller asked if there are options. How are they going to be produced? Girish replied there isn’t anyone on the other side of this contract at this point of time. We can take this in to any level we want to, but we looked at it just on the third slide. We thought with this approach we get to fill safely between 75-85% of portfolio renewable and in the next three years we will know how much of that 81 megawatts actually materialized. And if we can get a lot more responses at a price say below $70 the participants come together and change limits or create a new Green Power Pool but at this point this is a pretty decent step we are taking. We are going to do 83% to get to connect to what commissioner Melton was saying. It is not a slam dunk that this price is going to be less than market. Gasoline, or natural gas prices could come down and we could have this little more expensive, in which case having some portion of our portfolio exposed to market is a pretty decent diversified portfolio strategy. But to be specific about answer to your question, we could raise it even more that 15 megawatts, this is essentially a request to have NCPA go out and contract . We will see in the next three years what the responses are -- whether we can actually get to that level. Bechtel asked? When does the current Western contract end? Utilities Advisory Commission Minutes from 6/7/06: Approved on 8/2/06 Page 12 of 18 Girish replied: I believe it is 2018. Shiva replied: It is 2023. Bechtel said we have another possibility of reduced hydro line in the 2023 period if Western changes. Shiva said: ‘Yes’ Karl Knapp said that in 2011, there is also a change in the spring with the Seattle City might exchange ending. Girish said right now it is not favorable to us. There have been years when it has been favorable to us. Beecham inquired about the bottom line that is 2005 dollars the monthly rate increase? I am talking about rate impact. Karl Knapp said that basically is the difference in average market price in 2005 dollars times 33%. Beecham asked what is the impact to actual average residential impact? 650 * .3 cents, or about two dollars. Beecham asked how the forward price curve was obtained for 10 years? Shiva replied we actually got it from the curve that we use in our model, and update on the weekly basis for market price quotes. Beecham said the actual dots and the following curves those are the changes out now in the actual forward market? Utilities Advisory Commission Minutes from 6/7/06: Approved on 8/2/06 Page 13 of 18 Shiva answered: The gas side we get ten years up to ten years out, for electric side until about 2010 and then from that point we use escalation factors in our models. Beecham said we talked about the risk about the role of market. Can you tell us how you access the risk? and how UAC and the Council should sum up with this risk relatively to how much we are getting beyond 75 percent 5 years from now? Girish replied that on one hand and KVO can also add to this. I think the rate impact numbers $3.00 megatt an hour and $6. that is the rate that could be because it is based on high and low market prices. Beecham said the risk is that we buy high power and it drops. Girish replied ‘Yes’ Beecham said and that is not represented on this chart. Karl Knapp mentioned that if the price drops in its lowest curve that is how much we would pay above market price. We are expecting rate impact is zero we are trying to represent what happens to the rate if things go bad -- about $3.00. Girish said just to add to this. It goes back to Council setting guideline saying that don’t exceed a 0.5 cent per kilowatt hour rate impact. So here we did a range what rate impact could be and based on these assumptions $3.00 is the highest rate impact of .3 cents. versus .5 cent being the limit. I would answer that is how we would advice Council and UAC saying is that within that limit that there was a potential rate impact. Bechtel said as I recall we had a discussion on that I think in 2002 we talked about this. We were looking at it from the point that it is a good thing to have green power and how much is it worth to have green power? We did not have anything to do with length contract. Utilities Advisory Commission Minutes from 6/7/06: Approved on 8/2/06 Page 14 of 18 Knapp pointed out that there is a contract term limit of 30 years in the Guideline. Bechtel stated that the rate impact had to do more with how much are we willing to spend to have a high content of green power in our portfolio. Okay any other questions? Beecham: So as we are potentially long, in certain period of time as we go out, in the early summer months, and we are selling out in the market because we have access -- any sense of how much of a bath we might take – is this is still kind of representative the situation? Knapp said that it is included in the rate impact estimate. It would result in the added cost of .3cents. We would seek to share any realized surplus with other members of the pool. Shiva mentioned to add to that the average price per year is composed of two prices. In the spring market actual price in the market is low than in the summer. So if your question is do we pay $70 for this contract fixed? We compare that with comparable market with our portfolio. Beecham asked which contract out here is typically expected to get have a lower price in the spring? and would the power we are buying are having a similar curve? . Shiva replied that the market is summer it is 80 in the spring it is 60 and so the average cost is 7 Karl Knapp said it has a variable value but it has a constant price. It could be below market in some months and above market in others. Melton said that if it is a constant price contract that means we are paying the same for energy year around but we know we got this May through July surplus that is historically low price in the Utilities Advisory Commission Minutes from 6/7/06: Approved on 8/2/06 Page 15 of 18 market. It might be we that we are having to sell surplus power. At the same time in the summer we will be higher than below the cost. Shiva said that our current expectation is that we will need to sell some of our electricity portfolio, during these high-hydro months, at a price that may be below the monthly market price. Karl Van Orsdol. There are also a lot of other special issues. One of them is liquefied natural gas that may be coming into California system, development of any new power plants, long-term suggestions of the weather being drier, and therefore us having a greater hydro risks, and this really trades off much higher volumetric hydro risks against credit risks. It diversifies us. Bechtel asked Karl Van Orsdol if he was comfortable with this? He replied yes, and would like to see who is going to respond. Sure, I am comfortable with the recommendation, and would like to see what kinds of technologies come in, what seasonal with our surplus of power in the spring, or seasonal to that. Sure, I think we should go ahead and see what we can get from this. Bechtel said. Since we have no power point at this point we cannot ask for specific. When we have a chance…I am assuming that we have enough flexibility that we don’t like what we see in terms of Contract or as participants, that I would hope that we would have good participation, so that this comes about. We talked earlier about that this is significant reduction in fossil fuel possibility for us in our portfolio. Keller asked what is the risk of power not actually being there. Does this take more than three years and four years? I just want to be on the other side of this trying to get this stuff going when I was in PG&E that was harder than it was? Girish asked to clarify if the question is what the risk is is NCPA not getting to that 81 megawatts average? Keller especially in the short term? Utilities Advisory Commission Minutes from 6/7/06: Approved on 8/2/06 Page 16 of 18 Girish replied that my gutt feeling is that renewables are the wave of the future. I mean investment dollars also flowing in over here. So it is just a matter of time. Karl Knapp added we are going to try. Melton: The opportunity to try is the important thing. The opportunity to get away from fossil fuel is the thing. Get the portfolio more toward independence form fossil fuel. Shiva: That includes energy efficiency and demand response, as part of that mix, too. Beecham since Karl brought up hydro changing in the future, and that there are some that believe that global warming or climate change could mean that that hydro will be substantially lower in future -- do we have any estimates we were kind of putting our faith in at this point on long term plans for hydro? Girish said about the impact on global warming on the snow pack? I do not have on the tip of my fingers. I have looked at some studies from UC Berkeley where they did some scenario planning of different climate change scenarios and how each of those will impact the Sierra snow pack so we could bring it back at some point – we are working on developing a climate change plan, so perhaps we could bring it back in the future. Karl Van Orsdol said that some of the results do suggest that there may not necessarily be a reduction in precipitation in inches but will be more variable and earlier runoff because of the warmer temperatures. More likelihood of floods, less steady of supply of water to hydroelectric facilities during the summer months. Beecham said part of the reason for the question, …protocol…we were told by one of our Senator’s Offices, that our hydro may be worthless, because of the potential far less snow fall /rainfall because of the climate change. I am not sure that it is more likely scenario either but I am Utilities Advisory Commission Minutes from 6/7/06: Approved on 8/2/06 Page 17 of 18 sure that there are papers out there or analysis of it that may be available to help us make make those plans. Bechtel any questions? None thank you very much. Then should we entertain a motion that we recommend to the City Council that we approved the participation by the City of Palo Alto in the Northern California Power Agency Green Power Project to purchase up to 15 average megawatts. Open to motion. Melton –Moved. Keller: second. All in favor: aye: then approved unanimously by three members present. Thank you very much. Girish said to Commissioner Bechtel. I have one announcement. Bechtel- sure. Girish. I would like to introduce Jennie Castelino to the UAC. In her new role of being the administrative assistant to the Utilities Department. She is going to do this through October. This is a temporary move where Dee Zichowic used to this as Dee is now temporarily working on projects with Human Resource Department. This is an opportunity for Jennie who has been for a long time valuable employee in the Utilities Department to take on some added responsibilities. Bechtel responded. I know you have been doing a great job behind the scenes. That is great Jennie. Our next meeting will be on July 5, 2006 in the Council Chambers at 7:00pm Meeting adjourned at 8:10pm. Utilities Advisory Commission Minutes from 6/7/06: Approved on 8/2/06 Page 18 of 18 There was some further discussion about upcoming topics. Respectfully submitted, Jennie Castelino City of Palo Alto Utilities