Loading...
HomeMy WebLinkAbout2007-12-05 Utilities Advisory Commission Summary Minutes FINAL UTILITIES ADVISORY COMMISSION MINUTES OF DECEMBER 5, 2007 CALL TO ORDER Chairman Rosenbaum called to order at 7:00 P.M. the scheduled meeting of the Utilities Advisory Commission. Present: Commissioners George Bechtel, Dexter Dawes, Marilyn Keller, John Melton, Dick Rosenbaum, and Council Liaison, Beecham ORAL COMMUNICATIONS NONE APPROVAL OF THE MINUTES The minutes from the November 7, 2007, were unanimously approved. AGENDA REVIEW Chairman Rosenbaum requested that item 1 – Climate Protection Plan be moved to after the other four agenda items to accommodate Commissioner Bechtel who had to leave early and wanted to be there for item 4, an action item. REPORT FROM COMMISSION MEETINGS/EVENTS There were no reports. UTILITIES DIRECTOR REPORT Jane Ratchye, Assistant Director for Resource Management, conveyed the regrets of Valerie Fong, Director of Utilities, who couldn’t be here tonight. Ratchye provided the UD report summarized below: Council adopted the Climate Protection Plan at its December 3 meeting, which will be presented as Item 1. Palo Alto received notification on December 3 that the City successfully completed the California Climate Action Registry’s greenhouse gas inventory certification process for 2006, earning the registry’s “Climate Action Leader” status for the second year in a row. The emissions inventory is for all municipal government operations, and is available to the general public on the Registry’s website. At a December 4 ceremony yesterday, the Alma substation was electrically disconnected. The equipment will be decommissioned in the coming weeks and the property will be vacated before the end of the year. The City is in the process of negotiating two contracts to meet City’s share of the Local Capacity for calendar year 2008. The market for renewables has moved to prices that exceed the $70/MWh price cap in the original NCPA Green Power Pool (NGPP) agreement. To improve chances of success and customized participation, the NCPA Commission on November 29 approved a resolution to amend the NGPP agreement with four changes: 1) Removal of the $70/MWh price cap; 2) Project by project opt out provisions so members can opt out of projects in which they are not interested; 3) Clean up of accounting language to make opt out provisions clear; Utilities Advisory Commission Minutes Approved on: January 9, 2008 Page 1 of 5 and 4) Clarification of language related to development activities where NCPA may develop the renewables. For the amendment to be effective, all NGPP participants must have it approved by their Councils by January 31, 2008. Palo Alto’s Council will consider a resolution approving execution of the amended NGPP agreement on December 18. The Palo Alto resolution has an average new renewable price cap provision of $118/MWh set to keep the retail price impact of meeting the additional 13% of our portfolio needs within the one half cent/kWh Council-approved rate impact cap for attaining 33% renewables by 2015. NCPA’s Annual Strategic Planning Meeting will be held in Sacramento on January 23-25. CMUA’s Capitol Day will be held on Monday, January 14 in Sacramento. This meeting starts with a legislative briefing in the morning followed by visits to legislators and their staff in the afternoon. Utilities encourages one or two UAC Commissioners to attend these meetings. Staff changes in the Resource Management Division include: 1) Ipek Connolly is the new Senior Resource Planner responsible for rate making – taking over these duties after Lucie Hirmina’s retirement; 2) Nicolas Procos is a new Senior Resource Planner joining Palo Alto last week. Nico will be focusing on water issues and also will be involved in other gas and electric resource planning activities; and 3) Debbie Lloyd was promoted to a Senior Resource Planner in October and will continue in her role as the point person on legislative and regulatory issues for the department. UNFINISHED BUSINESS NONE NEW BUSINESS Jane Ratchye explained that items 2, 3, and 4 would be taken together and discussed in a combined presentation. ITEM 2: INFORMATION ITEM: Update of Utility Reserves: Refer to Item 4. ITEM 3: INFORMATION ITEM: Strategies to Manage the Calaveras Reserve: Refer to Item 4. ITEM 4: ACTION ITEM: Recommendation to Utilize Funds from the Electric Supply Rate Stabilization to Reserve, Instead of a Mid-Year Rate Increase, to Offset Electric Supply Cost Increases in FY 2007-08 Shiva Swaminathan, Senior Resource Planner, made a combined presentation to cover agenda Items 2, 3 and 4. He presented the balances for the Utilities reserves funds as of June 30, 2007. Anticipated changes to the reserves in FY 07-08 include budgeted draw downs and mid-year changes which will leave reserves within Council-approved reserve guidelines by June 30, 2008. The Calaveras Reserve was established by Council in 1996 to prepare the City for competitive retail electric markets by pre-collecting above market costs of the Calaveras hydroelectric project, the California Oregon Transmission Project (COTP), and the Seattle City Light (SCL) contract. Forward market costs at the time were between 2¢ and 4¢/kWh over 30 years and the Calaveras reserve was fully funded in 1999 at $71 million. At that time, Council approved a drawdown schedule allowing the reserve to be fully depleted in 2032 when the Calaveras debt is due to be paid-off. Over the next 15 years, the transfers from the Calaveras Reserve are $5-6 million/year, which effectively reduces retail rates by 0.5¢/kWh, or by 5%. Staff conducted a preliminary assessment of stranded costs with updated electric forward prices over the next 25 years of between 7¢ and 13¢/kWh. The estimated stranded cost at these prices is about $24 million, of which $3 million is for the Calaveras project, $20 million is for COTP, and $1 million is for the SCL contract. The stranded cost estimate is highly sensitive to market prices. For example, if market prices fall by 25%, then stranded cost would double – to $48 million. If market prices fall by 25% and long-term hydroelectric Utilities Advisory Commission Minutes Approved on: January 9, 2008 Page 2 of 5 production falls by 10% (perhaps due to effects of climate change), then the stranded cost estimate is about $57 million. Options to manage the Calaveras Reserve include: 1) do nothing – maintain the 1999 Council approved schedule to deplete reserves by 2032; 2) deplete Reserves More Quickly than Scheduled – either through a one-time transfer to electric SRSR (e.g. $20M) or withdrawal over a period of time (e.g. $5M/year over 4 years); and 3) borrow from (and repay to) Calaveras Reserve to cover extreme events (e.g. multi-year drought, natural disaster) so that the reserve acts as a secondary buffer to the E-SRSR. Drawing down ahead of the schedule from the Calaveras Reserve has pros and cons. The pros include that it: provides the ability to have more gradual rate increases, returns money to customers earlier - customers who contributed towards the fund in 1996-99, and so that customers enjoy a lower retail rate in the short-term. The cons of early drawdown include that it: reduces competitiveness of electric rate in the long run, eliminates a secondary reserves buffer to cover higher cost in the event of a prolonged drought, reduces financial flexibility in the future (e.g. potential to fund major capital expenditure, natural disaster), and has the potential to adversely affect the City’s credit rating. Based on the information provided, staff recommends that the E-SRSR be used to cover increased supply costs in FY 07-08 due to the drought instead of a mid-year rate increase. Staff will return to the UAC to discuss the 5-year financial forecast in February and to request approval of the FY 08-09 retail rates in March. Those discussions will include recommendations for the use of the Calaveras Reserve. Following the presentation, Commissioner Dawes suggested an evaluation of utilizing the surplus Calaveras reserves towards other Utilities capital projects such as local generation. He characterized the Calaveras Reserve as a capital reserve tied to bond repayment as opposed to an operating reserve. Staff also mentioned that the City’s financial advisors had recommended that the City look at the feasibility of paying down Calaveras debt with the surplus funds. Commissioner Melton, supported Commissioner Dawes’ ideas and expressed reluctance to utilize the Calaveras reserve to pay operating expenses under the present circumstances. Council Member Beecham asked how reserves are really managed – for example, if a reserve is established for drought and the drought occurs, does the money get used, or does the reserve just get replenished immediately. If the latter is the case, then what’s the use of the reserve? Beecham also commented that he generally would like to see reserves returned to ratepayers and, more specifically, to those ratepayers who paid into the reserve. Rosenbaum suggested that staff evaluate the stranded cost reserve at an appropriate price level and mentioned 5¢/kWh as an example, midway between prices in 1999 and today. He also suggested that staff explore the possibility of using the surplus reserves to set up a new reserve dedicated to cover hydro production risks. Rosenbaum also suggested that a separate reserve could be established specifically for drought. Staff noted that the E-SRSR is maintained for uncertainties including drought. Bechtel requested staff look at two additional options when developing a recommendation for alternate uses of the Calaveras Reserve: 1) investment in other capital projects; and 2) pay off some of the Calaveras or COTP debt. Dawes does not support subsidizing the current operating expenses with the Calaveras Reserve. He noted that price increases projected are moderate and we should “tough it out” and re-evaluate its use next year Utilities Advisory Commission Minutes Approved on: January 9, 2008 Page 3 of 5 when money is still in the E-SRSR. Melton agreed that it is too early to move Calaveras Reserve funds in to the E-SRSR. Dawes moved and Bechtel seconded the motion to “Recommend to Council to utilize funds from the Electric Supply Rate Stabilization to Reserve, instead of a mid-year rate Increase, to offset electric supply cost increases in FY 2007-08.“ Melton opposed the motion arguing that a mid-year rate increase would send the proper signal to ratepayers that there are costs associated with dry hydro conditions. Dawes countered that a mid-year increase is not warranted given the reserve level forecasts for June 2008. The Commission voted 4-1 to approve the motion, with Melton in opposition and reiterating that a delay will result in a larger rate increase in July 2008. ITEM 1: INFORMATION ITEM: Climate Protection Plan Karl Van Orsdol, Energy Risk Manager and Karl Knapp, Senior Resource Planner, presented a summary of Palo Alto’s Climate Protection Plan, which had been approved by Council on Monday, December 3, 2007. The presentation by Van Orsdol was essentially the same information presented at the Council study Session on November 26, and Knapp added several slides to highlight the utilities’ chapter in particular. Van Orsdol described the community-wide greenhouse gas emissions inventory that was conducted for 2005, and the rationale for the emissions reduction goals, with the key long-term goal to achieve 15% reductions from 2005 levels community-wide by mid-2019. Cost-effectiveness of a number of proposed actions were reviewed, grouped into short-term, medium-term, and longer-term potential. Van Orsdol summarized with a list of exactly what it was that Council approved. Knapp highlighted the utilities chapter of the plan, which consists largely of existing programs, but tied together with the common theme of climate protection. The proposed actions, primarily energy efficiency, renewable energy, and cogeneration have the potential to reduce carbon dioxide emissions associated with electricity and natural gas use by approximately 50% from 2005 levels by 2020. Knapp summarized the emissions reduction potential of each major category and their associated costs per ton of emissions reduced, with an expanded slide illustrating the cost-effectiveness evaluation of photovoltaics (which was corrected the next day to show that the Utility Rate Perspective should be a $165/ton cost instead of a $35/ton savings). Knapp concluded with a list of items yet to be evaluated, which may have additional potential for utilities and its customers to address climate protection. Keller asked staff to clarify how the implementation of the plan actually happens, including who one calls at City hall to find out about trees or solar panels. Van Orsdol explained that a key part of the overall plan is to engage the community, and in particular the school district. Knapp described the importance of having champions for different initiatives throughout the City, and that some of the tasks will take a while to get going. Van Orsdol followed up by explaining that the city’s sustainability website will be including a lot of the information in the plan, and that the longer-term plan is also to replace the four half-time team members with one full-time dedicated individual to champion the plan, but pointed out that it will still be everyone’s responsibility to make good on the plan, not just the Environmental Coordinator. Dawes commented that the municipal hydro energy recovery project sounded promising, and asked for an explanation of how the $20/ton greenhouse gas adder worked. Knapp responded that the adder is intended for long-term energy purchases that are not being purchased at a premium for some other reason, such as for PaloAltoGreen or the renewable portfolio standard. The adder is a placeholder that reflects the financial risk Utilities Advisory Commission Minutes Approved on: January 9, 2008 Page 4 of 5 Utilities Advisory Commission Minutes Approved on: January 9, 2008 Page 5 of 5 associated with taking on a long-term potential emissions liability, and will be replaced with the actual costs of allowance or credits once the state settles on a cap and trade system design. For now, the adder is used to compare energy purchases from two different sources; if one emits 1000 lbs of CO2 per MWh and another emits zero, the low or zero carbon resource would be selected as long as its price is no more than $10/MWh higher. Beecham added that some of the least expensive opportunities are right now, and that perhaps taking a longer-term view of reducing total carbon over a long time horizon might work out to be far more cost-effective to invest in offsets right now rather than waiting for a decade or two when they could be very expensive. Staff agreed that such an approach is worth evaluating when looking at potential reduction projects and offsets. Meeting adjourned at 9:20 P.M. Respectfully submitted, Marites Ward City of Palo Alto Utilities