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HomeMy WebLinkAbout2010-09-01 Utilities Advisory Commission Summary MinutesFINAL UTILITIES ADVISORY COMMISSION - MEETING MINUTES OF SEPTEMBER 1, 2010 CALL TO ORDER Chair Waldfogel called to order at 7:02 p.m. the meeting of the Utilities Advisory Commission (UAC). Present: Commissioners Berry (arrived at 8:30 p.m.), Cook, Eglash, Foster, Keller, Melton and Chair Waldfogel and Council Members Scharff and Yeh (arriving at 7:35 p.m.). ORAL COMMUNICATIONS None. APPROVAL OF THE MINUTES Commissioner Keller noted a correction to the July 20 Minutes, Chair Melton should be noted as present. The Minutes from the July 20, 2010 and July 28, 2010 Special UAC meetings were approved as amended. AGENDA REVIEW No changes to the agenda were requested. REPORTS FROM COMMISSION MEETINGS/EVENTS None. UTILITIES DIRECTOR REPORT Utilities Director Valerie Fong delivered an oral report on the following items: 1. APGA Safety Award: Staff issued a press release last week to inform the public that Palo Alto’s natural gas system employees were recognized by the American Public Gas Association (APGA) who presented the City with its 2009 National Safety Award. This award acknowledged the superior efforts by CPAU employees to ensure the safety of the community and the integrity of the gas system. APGA is the not-for-profit nationwide association for publicly- and community-owned gas utilities and represents over 700 members in 36 states. The APGA Safety Award recognizes public gas utilities that have the lowest number of accident and injury hours compared to the number of hours employees worked. CPAU’s ongoing safety program has multiple components, including: * Proactive leak surveys conducted to detect and repair damage before problems develop. During 2009, CPAU completed its annual walking survey to check for leaks of all 19,311 gas service lines in the City. In addition, an annual mobile survey of all 205 miles of City gas main pipes was conducted. Of the City’s 23,502 installed gas meters, fewer than 2.5% needed to be leak-tested and repaired. * Customer Call Response System through which CPAU field representatives were dispatched to handle over 7,000 utilities service requests in 2009. About 45% of these Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 1 of 14 requests were regarding natural gas issues most of which concerned pilot light re-lights and new gas meter installations. Customer Service Representatives, who handle over 36,380 calls per year, are trained to answer natural gas safety questions, and dispatchers are available 24/7 to respond to customers’ safety concerns when they smell gas. * Promoting gas safety in the community. CPAU sends out multiple gas safety outreach pieces each year and conducts an annual telephone survey to test customer awareness. The results from these annual surveys guide the development of natural gas safety education. * Uniform improvements for CPAU field crews. Adopted earlier this year, the new khaki/tan color uniforms are made of flame-resistant material for those crews who face potential electric arc flash hazards, and they keep workers cooler while performing difficult physical work. Workers also wear mandated yellow vests, so they remain highly visible and identifiable to the public. 2. Ballot Initiatives: In addition to Proposition 23, which is on the agenda tonight, we have also become aware of Proposition 26, which has qualified for the November 2010 ballot. Prop 26 would require certain local fees be approved by two-thirds of voters. This would broaden the definition of a local tax, classifying as taxes some fees and charges that currently may be imposed by a majority vote of the governing body. The potential impact to the City’s Utilities Department is that this would likely require new electric and gas rates to be set at the cost of service or be subject to voter approval. And it could eliminate or restrict the ability to make transfers to the general fund (similar to the impact of 218 on the water utility). This could also impact low-income programs and may even prompt challenges to programs such as the solar roofs program (SB1). This proposition has wider impacts to the city than the potential impacts to the utilities department, and council action is anticipated. 3. Legislative Update: August 31st was the last day of the 2009-2010 California Legislative Session. Legislative activity on this year’s Renewable Portfolio Standard (RPS) bill (SB 722) continued all through yesterday, however the Senate ran out of time and did not manage to vote on the bill before midnight. With SB 722 failing to pass out of the Senate it is unlikely that we will have an RPS bill this year. The remaining chance is if the Governor calls a special session on RPS, however our NCPA legislative experts say this is very unlikely. RPS regulation could be taken up again by the California Air Resources Board this year, and we anticipate a new legislative bill being introduced by January. Another bill that we have been following is AB 2669 from Assembly member Perez. AB 2669 would have required that water agencies send out drinking water quality violation notices to non-English speakers in a prescriptive manner that was impractical and could have subjected agencies to lawsuits. Instead of pursuing the bill this session, the Assemblyman asked legislative representatives from both the opposition and sponsors side to work in good faith with his office to come up with a consensus measure. He intends to introduce a new measure in January. CMUA has a staff member committed to work with the Assemblyman’s office on the measure. The State legislative session ended without a budget, so the Governor will call a special session to address that. 4. NCPA Annual Meeting: The annual meeting of the Northern California Power Agency is being held on September 23-24. Council Members Scharff and Yeh are planning to attend as is Chair Waldfogel. Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 2 of 14 Commissioner Melton congratulated staff on the receipt of the gas safety award and noted that the City’s Fire Marshall advised people to call Utilities if they smell gas, which was a nice advertisement of one of the services provided by the Utilities Department. Director Fong stated that indeed people should call Utilities if they do smell gas, but that any problems on the customer’s side of the meter are the responsibility of the customer and would need to be fixed by the customer or the customer’s contractor. UNFINISHED BUSINESS None. NEW BUSINESS ITEM 1: ACTION: Recommendation to Integrate Water Efficient Landscape, Recycled Water and Energy Efficiency Ordinances into the California Green Building Utilities Marketing Services Manager Joyce Kinnear gave a brief presentation summarizing the effects of the mandatory Green Building Code (CALGreen) when it comes into effect on January 1, 2011. Many aspects of current Water Efficient Landscape, Recycled Water, and Energy Efficiency codes, as well as the City’s current Green Building Program, will be included with this revision to the Building Code. Commissioner Eglash asked what would be the impacts of CALGreen. Kinnear responded that there would be required green improvements in new construction and rebuilding, which would come from the code and influence programs at the City. Most of these areas are already included in the City’s Green Building Program; however, the impact will be an overall improvement in process, by bringing multiple ordinances under one section of the City. Some provisions, such as weather controlled irrigation systems, would now be required, as opposed to elective points, under CALGreen. Commissioner Keller wanted to know if there was an opportunity for Palo Alto to achieve even greater efficiency through adoption of CALGreen, such as by increasing use of rainwater through harvesting techniques. Kinnear responded that in addition to meeting the minimum mandatory requirements in CALGreen, the City is also adopting requirements for tiers 1 and 2 for various projects. For example, CALGreen requires submetering for nonresidential indoor and outdoor water use. Keller further asked how residents and businesses would meet the 20% water use reduction, and if the Water Efficient Landscape Ordinance will be enforced. Kinnear said that certain fixtures, such as highly efficient toilets, would be required and that residents and businesses seeking building permits under this program would have to go through a water and energy modeling approach. The energy modeling will be required statewide, but the water modeling is specific to Palo Alto. CALGreen has a provision to allow the City to review water and energy use at nonresidential facilities as part of a performance evaluation. Commissioner Melton commented that if the ordinances will now fall under the Building Code that implies that certain processes will not be required if applicants are not required to seek a permit. Kinnear responded that the requirements will be the same as the existing Green Building Program permitting process, based upon project scope. If a permit is required, the applicant will need to meet the process requirements. Keller further asked if CALGreen can be enforced on the school district. Kinnear added that school districts do not fall under the City’s permitting guidelines, but do have to follow restrictions set by the Department of the State Architect. However, through the Sustainable Schools Committee, the City has worked extensively with the schools for efficiency. Keller wanted to know if the City could place schools under the City’s permitting requirements, and Kinnear said that she did not believe this was possible. Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 3 of 14 Commissioner Cook suggested that he is in favor of streamlining the processes, as it seems CALGreen will do. Cook then asked what the cost impact would be for implementation for the CALGreen requirements. Kinnear responded that most of the costs are already affecting customers under the Green Building Program, where those completing construction processes currently have to go through the Leadership in Energy and Environmental Design (LEED) process for nonresidential projects or the Build it Green (BIG) Green Point Rating system for residential projects. One cost that will be less under CALGreen is that nonresidential projects can now meet CALGreen requirements and avoid the burdensome and expensive paperwork and filings required to get a LEED certification. Director Fong commented that the State Department of Water Resources Water Efficient Landscape Ordinance has been in effect since January, so any additional fees associated with these requirements are already a part of the process. Cook further asked why watering restrictions by time of day are not included in CALGreen. Kinnear responded that the City’s Municipal Code (Title 12) currently authorizes restricting watering if the Council declares a water emergency. The City also provides education of best management practices for effective time of day irrigation. Commissioner Waldfogel remarked that his understanding and interpretation of CALGreen is that it is not significantly different from the City’s current Green Building Program. Planner Kristin Parineh confirmed that CALGreen has no new requirements, but some requirements that had been voluntary or elective are now mandatory. Chair Waldfogel asked if CALGreen meets the Water Efficient Landscape Ordinance (WELO) requirements. Kinnear responded that the City Attorney’s office has provided findings that CALGreen does meet those requirements. Parineh added that most Green Building projects are inspected after completion for compliance with regulations. Additionally, through Palo Alto’s version of the CALGreen, the City reserves the authority to review both water and energy systems for operational performance review, which would enable the City to meet ongoing water use requirements under the WELO. Commissioner Foster asked if the Green Building Code or CALGreen is mandatory. Kinnear stated that it is a mandatory building code, but that Palo Alto has added some streamlining aspects to the local ordinance to assist new construction projects in meeting all of the requirements in one department and under one reporting scheme in the City. ACTION: Commissioner Melton moved, and Commissioner Cook seconded, that the UAC recommend to the City Council that the CALGreen code be adopted. The motion passed unanimously (7-0). ITEM 2: ACTION: Proposed Long-Term Electric Acquisition Plan (LEAP) Objectives and Strategies Senior Resource Planner Monica Padilla provided a presentation to the UAC on the proposed Strategies to meet the three proposed LEAP Objectives: 1. Meet customer electricity needs through the acquisition of least total cost energy and demand resources. 2. Manage supply portfolio cost uncertainty to meet rate and reserve objectives. 3. Enhance supply reliability to meet City and customer needs by pursuing opportunities including transmission system upgrades and local generation. The eight proposed Strategies related to electric resource management presented include: 1. Resource Acquisition 2. Energy Efficiency and Demand Reduction Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 4 of 14 3. Renewable Portfolio Standard (RPS) 4. Local Generation 5. Climate Protection 6. Market Price Exposure Management 7. Hydro Resource Management 8. Transmission and Reliability Padilla focused the presentation on several issues raised by UAC members and the City Council with regard to:  Amount of energy efficiency to pursue;  Costs and benefits of advancing the RPS goal of 33% by 2020 (expected state mandate) to 33% by 2015 (City’s current RPS);  Benefits and value of local distributed generation; and  Setting of Climate Protection goals and policies. Energy Efficiency Padilla described the process used to develop the recently approved Ten-Year Energy Efficiency Plan and how cost effectiveness was determined by using the long-term cost of renewable energy, adjusted for time of delivery and location, as the avoided cost. Padilla also explained that while a potential 18% load reduction by 2020 due to energy efficiency was identified, the amount staff believes it could actually achieve given existing resources is closer to 7.2% as currently approved in the Ten-Year Energy Efficiency Plan. Padilla also noted that the cost of pursuing a higher energy efficiency target would be much higher than in the current plan and highly uncertain. Renewable Portfolio Standard Padilla summarized analysis performed on the advantages and disadvantages as a result of delaying achieving a 33% RPS by five years (from 2015 to 2020). The City could save approximately $11 million over five years by avoiding purchases of renewable energy supplies, however would face a potential exposure to green house gas emission taxes of approximately $3 million under a cap and trade regime. The net savings of $8 million over five years, which equates to about ¼ cent per kWh, could be used to fund other measures to reduce greenhouse gas emissions. Padilla noted that by delaying the 33% RPS goal, the City may lose its “cushion” for meeting the expected state standard and may not be in line with the community’s values related to sustainability. Local Generation An overview of the both tangible and intangible benefits of local distributed generation was presented by Padilla along with analysis of the value of local generation to meet the City’s RPS. Padilla noted that under an expected case scenario, local distributed generation is valued at 14.7 cents per kWh, however is highly dependent on several market conditions and that the actual value may range from 9.7 to 24.6 cents per kWh. Commissioner Melton noted that staff has chosen not to examine local generation of sufficient capacity to support local demands. He stated that it’s time to look at that option again even though the idea was not pursued when studied in the past. Padilla acknowledged that this was indeed the case and that staff did Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 5 of 14 not intent to pursue large scale generation. Commissioner Melton stated that he disagreed with this stance. Climate Protection Padilla proceeded to address several issues related to Climate Protection including:  Whether to use a greenhouse gas adder in making short-term resource acquisition decisions;  Whether to minimize purchases of greenhouse gas emitting resources;  Whether to adopt a carbon intensity goal; and  Whether to pursue carbon neutrality for the electric supply portfolio. Padilla explained that assuming an RPS of 33% is achieved by 2015 the City’s electric portfolio will be 85% carbon neutral assuming average hydroelectric supplies and that 15% of the portfolio would consist of unspecified market purchases which are assumed to have a carbon intensity of 879 pounds per MWh. Padilla also noted that the cost of “greening-up” the carbon intense portion of the portfolio is highly dependent on the cost of renewable energy credits and hydroelectric supply conditions and can range from $5 to $11 million per year. Padilla concluded that given the cost and complexity of “greening-up” the electric portfolio and the uncertainty regarding cap and trade allowances, a strategy to pursue a carbon neutral portfolio at this time would not be prudent. PUBLIC COMMENT Craig Lewis, Executive Director of the FIT Coalition gave a presentation. He stated that the Fit Coalition is assisting other municipal utilities to implement Feed-in-Tariffs and would like to do the same with Palo Alto. They have done some research to look at requirements for a feed-in-tariff for Palo Alto to achieve and maintain its 33% RPS. They have come up with an estimate of avoided costs in Palo Alto of 14c/kWh. Lewis also showed an example of how much roof top space opportunity is in Los Angeles, which he believes is an indication of the opportunity in Palo Alto. Sahm White, also of the FIT Coalition, gave a presentation. FIT modeled roof-stop solar in Palo Alto and looked at different sizes and rates that would be required. White claimed that the best of the options at 14.85 cents in current dollars over the life of the contract is close to the current avoided cost for power produced locally. Council Member Scharff stated that the idea of a Feed-in-Tariff (FIT) needs more work and that it can’t be accepted without further analysis. Director Fong indicated that staff fully intends to study this and come back to the UAC prior to implementing such a rate. Commissioner Eglash noted that progress had been made in the LEAP, but that he has serious concerns. He noted that the objectives and strategies are inconsistent across sections and that it doesn’t go far enough to achieve green goals. Commissioner Eglash stated that he likes the proposed RPS goal, it is consistent with community values, and he is pleased that the economic impact is small. However, it seems inconsistent with proposed Strategy #1 (pursue the least total cost resources to meet the City’s needs in the long term) since that appears to not allow for more renewable resources. In addition, Commissioner Eglash stated that carbon strategy is not reflective of community values and appears weak and watered down. He acknowledged that a strong RPS does impact carbon footprint, but the strategy seems to send the wrong message and misses an opportunity to do the right thing. Regarding local generation, implementing FITs, and cost-effective storage resources, he would be more comfortable if we investigated Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 6 of 14 them, rather than implemented them as proposed in the strategies. Commissioner Foster said that he agreed with Commissioner Eglash’s comments and that regarding FITs, we could change the language in the proposed strategy. He added that he is generally supportive of the plan and is 100% in favor of the RPS goal of 33% by 2015 with a cost limitation. Commissioner Cook said he feels similarly to Commissioner Eglash as well. Commissioner Cook asked why proposed LEAP Objective #1 was changed from the prior Objective #1. Padilla responded that when evaluating resources, all costs and benefits including environmental, would be monetized and that those with the least total cost would be pursued. Regarding proposed Strategy #2 (Electric Energy Efficiency and Demand Response), Commissioner Cook asked why staff would want to identify all the cost-effective energy efficiency opportunities, instead of just the measures with the highest value. Padilla responded that all need to be identified, but that not all may make sense to pursue. Commissioner Cook noted that the proposed Strategy #5 (Climate Protection) as written in the report was redundant. Padilla replied that proposed Strategy #5 was rewritten as provided in the presentation. Commissioner Keller agreed that the RPS goal should be aggressive as proposed. She asked if the rate impact measure should be changed to a percentage of the rate rather than a set amount of 0.5 cents per kWh. Ratchye replied that having the measure be a percentage of the rate is more difficult for staff to calculate the green premium since that would require long-term rate projections to be done, which is problematic. Commissioner Melton stated his support for all elements of the plan except for the absence of a strategy to re-evaluate large local generation. He said that it’s been a number of years since this was last examined and that Santa Clara has such a facility and that it’s important for emergency preparedness. He would like to add to Strategy #4 (Local Generation) to ensure that this is evaluated. Senior Resource Planner Shiva Swaminathan provided the reasons staff did not include this in the proposed Strategy. First, the size of a plant that could add local reliability would have to be at least 25 MW to 50 MW in size and even at that size, the City would have to institute rolling blackouts to have parts of the City served at any one time since the City’s peak load is nearly 200 MW. The last time this was evaluated, no acceptable site was found. Second, the siting of a gas-fired power plant is not aligned with the City’s GHG emissions reduction goals. Third, cogeneration would be considered and the City already has the PLUG-In program that encourages cogeneration, but has been unsuccessful in finding customer sites where cogeneration is feasible. Fong added that investigating this again takes time, money and staff resources and may require the hiring of a consultant. Council Member Yeh suggested that staff could distribute the studies that were done previously to the UAC. He stated that emergency preparedness is a Council priority and asked what elements of a study with emergency preparedness alternatives can be done. Commissioner Melton indicated that he wanted to know what the costs would be if we can find a site. Council Member Scharff stated that he was generally supportive of the RPS strategy, but stated that he wondered what the best way to reduce carbon footprint was if the additional cost is $11 million. There could be other approaches, such as energy efficiency. Staff should look at the best possible way to achieve environmental goals and encouraged the UAC to not rigidly consider only RPS. The discussion should be framed as the best way to move toward carbon neutrality. Council Member Scharff added that CPAU should tout the City’s current low carbon footprint as PG&E does. Commissioner Foster agreed that we should look more at efficiency, but should also have more renewable resources – we should do both. Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 7 of 14 Chair Waldfogel stated that the proposed LEAP Objectives and Strategies was a great staff work and that he was very supportive of proposed Strategy #1 (Pursue the least total cost resources to meet the City’s needs in the long-term), which is a good operating principle. Regarding the RPS, he is not comfortable with 30-year terms and asked if that could be reduced. Chair Waldfogel also expressed concern about the lack of diversity in the renewable portfolio and said that we are at risk with so much in landfill-gas-to-energy projects. He suggested that a limit to a particular technology could be included in the RPS strategy. Commissioner Keller disagreed and stated that it would be best to keep options open and not be too restrictive. She added that the climate protection strategy could include other options such as planting trees. Commissioner Eglash agreed with Commissioner Keller that it is best not to restrict the staff’s ability to comply with the RPS goal by adding requirements by technology. Chair Waldfogel indicated that the Commission would consider the LEAP Objectives and Strategies individually, as needed, to take action rather than taking action as a whole. LEAP Objectives ACTION: Commissioner Eglash made a motion that the UAC recommend that the Council approve LEAP Objectives #2 and #3 as proposed and LEAP Objective #1 with the addition of the phrase “including an assessment of environmental costs and benefits” so that LEAP Objective #1 reads: “1. Meet customer electricity needs through the acquisition of least total cost energy and demand resources including an assessment of the environmental costs and benefits.” Commissioner Foster seconded the motion. The motion passed unanimously (7-0). LEAP Strategy #1 (Resource Acquisition) Regarding proposed Strategy #1, Commissioner Eglash proposed a change so the first clause in the strategy would read: “Pursue the least total cost resources including an assessment of environmental costs and benefits to meet the City’s needs in the long term by:”. Chair Waldfogel asked why environmental cost should be privileged as opposed to any other part of the total cost. Commissioner Eglash responded that the addition was not intended to privilege them, but to ensure that not only tangible costs are included in the analysis. Council Member Scharff asked how this was to be done. Commissioner Eglash responded that the point is to make sure that environmental impacts are included as they could easily be ignored since they are not always easy to quantify. Council Member Scharff asked what staff will do when power is purchased according to this strategy. Commissioner Eglash replied that he wouldn’t want staff to value GHG emissions at a very high level or at zero. He is trying to give some flexibility to incorporate intangibles into the analysis. Commissioner Keller stated that she agreed with this sentiment. ACTION: Commissioner Foster made a motion that the UAC recommend that the Council approve the change proposed by Commissioner Eglash to LEAP Strategy #1 so that the first phrase reads: “Pursue the least total cost resources including an assessment of environmental costs and benefits to meet the City’s needs in the long term by:”. Commissioner Keller seconded the motion. The motion passed unanimously (7-0). Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 8 of 14 LEAP Strategy #3 (Renewable Portfolio Standard) Commissioner Eglash indicated that he would like to change the subsection c. “evaluating” instead of “developing” a Feed-in-Tariff. Chair Waldfogel asked if a new section under subsection a.i. (regarding contracts not exceeding 30-year terms) be added to read: “with reasonable cancellation terms”. He wanted to protect the City in case regulations or legislation was changed in the future that changed what is considered an eligible renewable resource. Director Fong stated that this insurance would likely be very expensive and that historically, existing long-term contracts are grandfathered in if regulations change. Regarding the 30-year term limitation and whether it should be reduced, Commissioner Eglash opined that the maximum term proposed should stay so that staff was not boxed in too tightly. Commissioner Foster agreed that the proposed maximum term should stay as proposed. He also suggested that these long-term contracts should be brought to the UAC for review and recommendation. Council Member Yeh asked whether proposed contracts have to have the 1.5% per year price escalators that the last several renewable contracts contained and whether there was a way to get flat pricing from project proposers. Ratchye indicated that generally proposers can price a project many different ways and usually can provide a flat price, but in the last couple of renewable resource Requests for Proposals (RFPs), staff had required proposers to provide at least one pricing option that included a start price and a 1.5% per year escalation since staff believes that this is a good pricing structure for the City for long-term contracts. ACTION: Commissioner Eglash moved to recommend that the Council approved the proposed LEAP Strategy #3 with a change to subsection c. so that it reads: “evaluating” instead of “developing” a Feed-in-Tariff. Commissioner Foster seconded the motion. The motion passed unanimously (7-0). LEAP Strategy #4 (Local Generation) Commissioner Melton said that he would like to change subsection c. from “implementing” to “evaluating” a Feed-in-Tariff. Commissioner Foster suggested changing subsection c. from “local solar photovoltaic (PV) systems” to “locally sited renewable resources” to be more generic. Commissioner Melton suggested adding a new subsection e. to read: “evaluating the feasibility of developing a 25 to 50 MW generating facility connect to the City’s distribution system.” Commissioner Eglash indicated that he would support Melton’s proposal and would also support removing the word “distributed” in the first phrase of proposed Strategy #4. Commissioner Eglash also proposed changing subsection d. from “promoting” to “evaluating” cost-effective energy storage resources. Commissioner Keller asked how much capacity from cogeneration systems in the City is possible. Swaminathan replied that the City would get from 20 to 40 MW of cogeneration and mentioned that the PLUG-In program exists to encourage the installation of these systems at customer sites. Commissioner Berry asked if the reliability of the City’s system would improve with resources outside of Palo Alto. Director Fong said that they could improve reliability if they were outside of the City, but in close proximity, and, especially, if there were a transmission line directly to the resource outside the City. Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 9 of 14 ACTION: Commissioner Eglash moved, seconded by Commissioner Foster, to recommend that the Council approved the proposed LEAP Strategy #4 with the recommended changes so that it reads as follows: Local Generation – Promote and facilitate the deployment of cost-effective local resources by: a. Using the renewable market price referent (MPR) adjusted for time of day factors and location as the avoided cost when evaluating cost effectiveness of local resources; b. Considering energy delivery cost uncertainty and strategic value options when evaluating opportunities; c. Evaluating a Feed-in-Tariff to promote locally sited renewable resources; and d. Evaluating cost-effective energy storage resources. The motion passed unanimously (7-0). Commissioner Eglash moved to recommend that the Council approve adding subsection e. to LEAP Strategy #4 to read: “Evaluating the feasibility of developing a 25 to 50 MW generating facility connect to the City’s distribution system.” Commissioner Melton seconded the motion. The motion passed (4-3) with Commissioners Cook, Foster, and Keller opposed. LEAP Strategy #5 (Climate Protection) Commissioner Eglash stated that this strategy was weak, especially in comparison to the aggressive environmental goal in the RPS strategy. Council Member Scharff suggested that a target could be added for a carbon neutral content of the electric portfolio. Director Fong cautioned that, since the hydroelectric generation content of the electric portfolio changes with hydrologic year type, this could be a tricky goal to keep track of, or may need to be averaged over several years. Commissioner Eglash suggested adding a new subsection that would read: “Evaluating quantitative goals for possible future implementation.” Chair Waldfogel asked if the UAC has jurisdiction under the item in subsection a. – support the City municipal government’s climate protection goals. Ratchye advised that the City’s 2007 Climate Protection Plan contains GHG emissions reduction goals that rely on increased renewable resources in the electric portfolio as well as efficiency savings in the gas and electric portfolio so that Utilities is a major part of the plan to meet the City’s climate goals. ACTION: Commissioner Cook moved to recommend that the Council approved the proposed LEAP Strategy #5 with the addition of subsection d. to read “Evaluating quantitative goals for possible future implementation.” and with a correction to the first phrase to read: “Reduce the electric portfolio’s carbon intensity by:”. Commissioner Eglash seconded the motion. The motion passed unanimously (7-0). LEAP Strategies #2, 6, 7, 8 Commissioners indicated that they were comfortable with LEAP Strategy #2 (Electric Energy Efficiency and Demand Reduction), Strategy #6 (Hydro Resource Management), Strategy #7 (Market Price Exposure Management), and Strategy #8 (Transmission and Reliability) as proposed. Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 10 of 14 ACTION: Commissioner Foster made a motion that the UAC recommend that the Council approve LEAP Strategies #2, #6, #7, and #8 as proposed. Commissioner Eglash seconded the motion. The motion passed unanimously (6-0) with Commissioner Berry absent. ITEM 3: ACTION: Proposed Gas Utility Long-Term Plan (GULP) Objectives and Strategies Senior Resource Planner Karla Dailey focused the discussion on the proposed GULP objectives and strategies, as given in Attachment A of the Memo on Proposed Gas Utility Long-term Plan Objectives and Strategies in the UAC package. Chair Waldfogel stated that proposed Objective #1 (Balance supply cost stability with market exposure) is too vague and doesn’t offer enough guidance as to where the “balance” gets resolved. Dailey offered that the strategic plan will provide a rates objective such as that rates do not change by more than 10% every 12 months, for example. The gas supply portfolio would then be managed to meet the rates objective. Assistant Director Ratchye added that during the annual long-term financial forecast and budget process, the level of the reserves and the forecast costs would be evaluated along with the rates stability objective so that the Council could determine the proper balance. There is a danger of adding too much specificity into the objective and strategy that could box staff in to a corner in managing the supply portfolio. Commissioner Eglash stated that there was no opposition from the UAC to contracts longer than one year and wondered what problem proposed Strategy #1 was addressing. Chair Waldfogel replied that the strategy provides no policy direction. Council Member Yeh asked if we could have a policy to change how the portfolio is managed if our costs exceed PG&E’s for a period of time – say, three years, for example. Commissioner Eglash stated that in the long term, energy prices have risen and, given our laddering strategy, we should overall (in the long term) be lower priced than PG&E. Commissioner Keller stated that the City should strive to have rate stability and weather the storm when our costs are higher than PG&E’s. Council Member Scharff asked where our rates have been with respect to PG&E’s over the past 10 years. He advised that the topic of rates and rate stability was very relevant as it is being discussed by the Council Finance Committee with respect to the Refuse Fund. Dailey stated that CPAU started the laddering strategy during the energy crisis. In contrast, PG&E historically buys nearly 100% spot purchases, which is expected given the CPUC gas procurement incentive mechanism for the IOUs Council Member Scharff stated that he had read that natural gas reserves were huge and that some experts expect prices to remain low for the foreseeable future. Dailey responded that staff monitors gas prices on a daily basis and understands the volatility of gas prices; however staff doesn’t have a “market view” and can’t predict where prices might go in the future. At the current price levels however, there is more room for gas prices to go higher rather than lower. There aren’t many analysts predicting sudden price spikes in the short term. Commissioner Cook asked if CPAU’s objective was to have less variability in gas prices than PG&E. Commissioner Eglash responded that rate stability is an objective, but noted that stable rates shield customers from price signals. Stability however is better than volatility. Commissioner Eglash then asked if the UAC should accept the proposed GULP strategy and wait until the other issues are resolved and the strategic plan is complete and return to the question in the future. Commissioner Berry agreed with this approach to act now and return to these issues later. Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 11 of 14 Yeh asked if the UAC had an opinion on Strategy 4.b. (Reduce the carbon intensity of the gas portfolio by purchasing non-fossil fuel gas for the portfolio as long as it can be done with no rate impact.). He noted that LEAP did contain a rate impact limit for RPS and wondered if a rate impact limit should be allowed under this GULP strategy. Commissioner Eglash commented that there is no competitive alternative to fossil-based gas supply. Commissioner Melton offered that the reality is that the premium for green gas is very high and that staff’s proposal was acceptable and responsive to this fact. Commissioner Eglash asked how proposed Strategy #2 (Lower delivered gas cost over the long term by: a) acquiring pipeline and/or storage assets that yield supply costs below market and meet operational needs; b) taking advantage of the City’s low cost of capital to acquire gas supply and assets; and c) optimizing existing assets would work. Dailey replied that, for subsection a, the City’s pipeline capacity rights that were granted in settlements with PG&E have some value that the City receives and that, for subsection c, there is a small amount of money that can be realized by optimizing that asset. However, the largest potential value could come from subsection b, which is a gas “pre-pay” arrangement whereby the City would prepay for gas for the long term and realize a discount off of the spot market index for the gas. The GULP implementation plan would contain all the steps that would be required to implement such an arrangement, which is a complex set of agreements that would minimize the City’s risk and provide a long- term benefit. ACTION: Commissioner Melton made a motion that the UAC recommend that the Council approve proposed GULP Objective and Strategy #1 – Balancing Stability and Competitiveness as proposed. Commissioner Eglash seconded the motion. Commissioner Eglash offered a substitute motion that the UAC recommend that the Council approve the proposed GULP Objectives and Strategies as proposed. Commissioner Cook seconded the motion. The motion passed (6-1) with Chair Waldfogel opposing. Chair Waldfogel stated his opposition was due to his opinion that Strategy #1 did not provide sufficient policy direction. ITEM 4: DISCUSSION: Recommendation to Oppose Proposition 23, an Initiative to Suspend AB 32, the Global Warming Solutions Act of 2006, Until Unemployment Drops to 5.5% or Less for a Full Year There was no discussion on this item. ACTION: Commissioner Melton made a motion to move the staff recommendation. Commissioner Eglash seconded the motion. The motion passed (6-0) with Chair Waldfogel abstaining. Chair Waldfogel stated his reason for abstaining is that he did not believe the City had a specific interest to protect in the debate. ITEM 5: DISCUSSION: Utilities Strategies Plan Status Update Director Fong stated that this item was prepared to provide the UAC an update on the process to prepare a strategic plan. Assistant Director Ratchye added that the report was provided to allow the UAC to discuss the draft goals and process being used to prepare the strategic plan. Commissioner Berry stated that staff was on course to meet the schedule to deliver an updated strategic plan to the Council in February. He drew the commission’s attention to the decision to include resolution of Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 12 of 14 the issues raised in the May 3, 2010 Council Colleagues’ Memo and would identify when any issues were not addressed. Commissioner Eglash stated that this is consistent his understanding that the strategic plan would address the issues in the Colleagues’ Memo. Commissioner Berry said that the purpose of the memo was to make sure that the UAC was all on the same page with respect to what the strategic plan would entail since he has noted that everyone has an idea of what the strategic plan should be, but those ideas are all different. Commissioner Melton said he was interested to see “governance of Utilities” on the list of items that would not be included in the strategic plan. Ratchye stated that this means that the notion that the Council would give more responsibility to the UAC (e.g. giving more authority to the UAC for rate setting) was not on the table. Commissioner Melton asked if this means that the UAC would not take on new areas such as wastewater and fiber as contemplated by the Council’s Ad Hoc Subcommittee on the Roles of the UAC. Ratchye indicated that this decision by the Council would not be addressed in the strategic plan. Commissioner Keller asked if the strategic plan would address emergency response and safety. Commissioner Cook added that emergency preparedness should be included and asked if it would include such issues as whether to add a new transmission line into the City. Ratchye responded that reliability of service was one factor that was included as a draft strategic objective. Commissioner Keller asked about the third goal: “pursue cost-effective environmental results”. Commissioner Berry noted that the goals are draft and that in staff’s meeting yesterday, the wording of this goal was changed. He added that the process is iterative and will require many more discussions at the staff level as well as at the UAC and Council level. ITEM 6: ACTION: Potential Topics for Joint UAC/Council Meeting 1. Local distributed generation – What is it and how it can be best encouraged? (Introduced by Commissioner Foster as a discussion on feed-in-tariffs, and amended by Commissioner Eglash to be a broader discussion on local DG). 2. UAC and City Council interactions. What are the communications goals and what is the best way to achieve them? (Introduced by Commissioner Eglash and supported by Commissioner Keller). 3. How should the environmental goals be balanced against any associated added costs? What information is needed to be able to make a decision? (Introduced by Director Fong and supported by Commissioners Berry, Eglash, and Melton as an important issue. Commissioner Foster expressed concerns about the value of an unstructured discussion on a complex issue such as this). 4. Regarding environmental action: What is the right “mix” between taking a leadership position or simply following what others (e.g., PG&E) might be doing? (Introduced by Chair Waldfogel). 5. Efficiency – general discussion regarding greater levels of efficiency. (Introduced by Commissioner Foster). Commissioner Melton made a motion that Chair Waldfogel propose the discussed list and work with the mayor to come up with an agenda for the joint meeting. Commissioner Keller seconded the motion. The motion passed (7-0). Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 13 of 14 Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 14 of 14 ITEM 7: ACTION: Potential Topics for Discussion at Joint UAC/Council Meeting Commissioner Foster made a motion to ask the FIT Coalition to appear at a future meeting sometime before the end of the calendar year. Commissioner Cook seconded the motion. Motion failed (2-5), with Chair Waldfogel and Commissioners Keller, Eglash, Melton and Berry opposed. COMMISSIONER COMMENTS Council Members Yeh and Scharff voiced the Council’s appreciation to the UAC for their time and thoughtful discussions. Meeting adjourned at 11:44 p.m. Respectfully submitted, Jennie Castelino City of Palo Alto Utilities