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HomeMy WebLinkAbout2010-10-06 Utilities Advisory Commission Summary MinutesFINAL UTILITIES ADVISORY COMMISSION - MEETING MINUTES OF OCTOBER 6, 2010 CALL TO ORDER Chair Waldfogel called to order at 7:05 p.m. the meeting of the Utilities Advisory Commission (UAC). Present: Commissioners Berry, Cook, Eglash, Foster, Keller, Melton and Chair Waldfogel and Council Members Scharff and Yeh (arriving at 7:45 p.m.). ORAL COMMUNICATIONS None. APPROVAL OF THE MINUTES The Minutes from the September 1, 2010 UAC meeting was approved as presented. AGENDA REVIEW No changes to the agenda were requested. REPORTS FROM COMMISSION MEETINGS/EVENTS Chair Waldfogel reported on his attendance at the NCPA Annual Meeting. UTILITIES DIRECTOR REPORT Utilities Director Valerie Fong delivered an oral report on the following items: 1. Interim Water Supply Allocation: The San Francisco Public Utilities Commission (SFPUC) must establish an Interim Supply Allocation (ISA) for each BAWSCA agency by December 31, 2010. At its July 20 meeting, the UAC recommended urging the SFPUC to incorporate using the perpetual Individual Supply Guarantee as the basis for establishing the ISA. Council agreed with the UAC’s recommendation. On August 20, the SFPUC released a draft ISA that did not include any consideration of the Individual Supply Guarantee. Staff met with the SFPUC staff to explain Palo Alto’s opposition to the draft ISA. The mayor sent a letter to the SFPUC opposing the draft ISA and urging that the next iteration include greater emphasis on the Individual Supply Guarantee. The City of Mountain View also sent a letter opposing the draft ISA for the same reasons Palo Alto does. On October 1, the SFPUC released a second draft ISA, which does include greater emphasis on the Individual Supply Guarantee. Staff is closely monitoring this issue and will report to the UAC as appropriate. 2. CALGreen Updates: Since the last UAC meeting, there are have been a few updates to the CALGreen Building Code and meeting dates for the review and adoption of this code. The new dates for review are as follows: o 9/27 Council Study Session o 10/13 Planning (PTC) Approval Utilities Advisory Commission Minutes Approved on: November 3, 2010 Page 1 of 9 o 11/1 Council Approval o Some changes to the local CALGreen may be made due to Council questions about ongoing requirements to audit the energy and water operational performances. 3. Home Energy Reports: Home Energy Reports are still scheduled to be sent out in November. The UAC should be aware that some customers will not be receiving reports. One thousand customers will be considered a “control group,” and they will not receive reports. This will allow us to analyze differences in energy usage between those receiving reports and those who do not get this information. In addition, customers without at least one year of history at a meter, customers with multiple electric meters at one location, and “net metered” customers with solar PV systems will not receive reports. The data extract process automatically screens out net metering rate code customers, because their usage data is artificially low (often zero). The software used by OPOWER is unable to parse out how much energy the net metering customer used and then produced to arrive at the net usage number. This means that three UAC members will not receive reports – two because you are net-metered customers and one because you recently moved and there is no usage history at your new location. 4. Esource Award: E Source, an independent energy research and analysis company, announced the winners of its 2010 Utility Print Ad Awards Contest at the 23rd Annual E Source Forum last week in Denver, Colorado. The City of Palo Alto Utilities received the award “Honorable Mention” for a PaloAltoGreen advertisement promoting the program and focusing on customers’ carbon footprints. 5. PG&E Gas Transmission and Storage Settlement: Both PG&E and non-PG&E parties filed comments supporting the settlement agreement. In the wake of the San Bruno explosion, the administrative law judge on this case asked the non-PG&E parties to pass judgment on the adequacy of PG&E’s pipeline safety budget in rates. The non-PG&E parties (including Palo Alto) filed comments stating that the scope and priority of PG&E’s pipeline safety-related activities is and should be PG&E’s responsibility. 6. Ballot Initiatives: At its September 27th meeting the City Council adopted resolutions opposing 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) and Proposition 26 (an initiative that increases the legislative vote requirement to two-thirds for state levies and charges and imposes an additional requirement for voters to approve local levies and charges). 7. Legislative Update: We have heard rumors that there could be legislative action on an RPS bill this year, as part of the budget votes later this week or in a special session, but believe it is unlikely. Last month the California Air Resources Board adopted a 33% renewable electricity standard by 2020 goal, which includes larger publically owned electric utilities such as the City in the regulation. Utilities Advisory Commission Minutes Approved on: November 3, 2010 Page 2 of 9 The Governor signed a number of energy and environmental laws last week. Among the bills signed were two pieces of legislation that were a significant focus of NCPA’s advocacy efforts this past year: AB 2514, regarding energy storage technology and policy, and SB 1476, which dealt with customer privacy for smart meter programs. Further details of these bills will be provided in next month’s quarterly report. UNFINISHED BUSINESS None. NEW BUSINESS ITEM 1: ACTION: Update of 2009 FACT Act 2003 Procedures Assistant Director Tom Auzenne summarized the report, which requested that the UAC recommend that Council approve the proposed 2010 changes to the CPAU 2009 “Procedures for Customer Credit Security” (Procedures) to comply with Federal Trade Commission regulations for the “Fair and Accurate Credit Transactions (FACT) Act of 2003.” All covered business and organizational entities, including utilities, must comply with this federal legislation by 12/31/2010. Originally adopted by Council in 2008, the Procedures identify the actions taken by CPAU to identify, detect, respond to, and mitigate specific activities that could indicate an instance of identity or credit theft. Each year, instances where customer identity or credit security could have been compromised are identified, CPAU responses and mitigation measures are described, and future enhancements to the Procedures are proposed. Commissioner Eglash asked about procedures for protecting sensitive data and credit card numbers. Staff responded that “Red Flag Data” is only stored on secured servers (not on laptops), with restricted access, encryption and fire walls. Further, the City does retain credit card numbers, but these are only available to three city personnel and the credit card security numbers are not retained. ACTION: Commissioner Foster moved, and Commissioner Cook seconded, that the UAC recommend that the City Council adopt a resolution to approve the proposed 2010 changes to the City of Palo Alto Utilities (CPAU) 2009 “Procedures for Customer Credit Security” (Procedures) to comply with regulations issued by the Federal Trade Commission in the Fair and Accurate Credit Transactions Act (FACT) of 2003. The motion passed unanimously (7-0). ITEM 2: ACTION: Net Surplus Energy Compensation Rate Recommendation Senior Resource Planner Ipek Connolly summarized the report. She explained that State law passed in late 2009 requires Palo Alto’s City Council to establish a Net Surplus Electricity Compensation Rate Schedule to be effective January 1, 2011 to compensate eligible Net Metering customers for electricity produced by their PV system in excess of their annual consumption at the end of each twelve-month period for the customers who choose monetary compensation. Due to its simplicity, and its ability to represent local conditions and costs impacting all electric utility ratepayers, staff recommended that the average cost of electricity in the renewable portfolio be used as the best valuation for the Net Surplus Electricity Compensation Rate. This value represents both the value of the electricity, excluding transmission, and the value of the renewable attributes associated with net surplus electricity provided by PV Partners Utilities Advisory Commission Minutes Approved on: November 3, 2010 Page 3 of 9 participants. It also does not shift costs between PV Partners participants and other bundled service customers, and therefore, meets the latest requirements of state law. Commissioner Keller expressed concern that the new rate was significantly less than that currently used to calculate credits for Net Metering customers. Staff clarified that the Net Surplus Electricity Compensation rate would only apply to the excess (or net surplus) electricity at the end of each twelve-month period and would not change the retail electric rate used to calculate credits within each customer’s twelve-month settlement period. Therefore existing incentives for PV systems would not be reduced by the new rate schedule. Commissioner Keller also asked if the rate should include transmission cost savings. Staff explained that certain transmission cost savings would be hard to identify because it would be difficult to match the time of the net surplus generation to the time that costs are incurred. Also, this is an additional (new) credit now required under state law for the net surplus electricity at the end of a 12-month period and the compensation rate must not result in cost shifts to other customers, therefore staff is recommending a rate that meets the state requirements. Commissioners Foster and Cook also discussed the cost implications of implementing the compensation rate, voicing concern that they would be recommending something that came at high cost for the utility. Staff replied that at this time they were not recommending an automation of the billing system to implement the Net Surplus Electricity Compensation rate. If staff evaluation results in favoring the billing system automation, then a recommendation will be presented to the Council at that time. Staff is currently evaluating the cost of manual computation and tracking of the billing system related requirements as an alternative to an automation of the billing system changes. ACTION: Commissioner Foster moved, and Commissioner Cook seconded, that the UAC accept the staff’s recommendation but require that they first return to the UAC with the CIP recommendations. Commissioner Eglash moved, and Commissioner Keller seconded, a substitute motion that the UAC recommend that the City Council Adopt Net Surplus Electricity Compensation Rate Schedule (E-NSE) as proposed. The substitute motion passed (5-2) with Commissioners Foster and Cook opposing. ITEM 3: ACTION: Gas Utility Long-term Plan (GULP) Implementation Plan Senior Resource Planner Karla Dailey presented the proposed GULP implementation plan, which consists of eight initiatives to be taken by staff in order to achieve the proposed GULP objectives and strategies that the UAC recommended Council approve at its September 2011 meeting. Commissioner Keller asked if GULP addresses long-term maintenance and new pipeline development. Dailey clarified that GULP only addresses gas supply and not infrastructure. Commissioner Cook noted his support for Implementation Plan Initiatives #2 (Pursue cost-effective gas storage services) and #3 (Pursue below-market assets available through the Gas Transportation and Storage Settlement) as they are proactive attempts to save costs. Regarding Initiative #4 (Pursue opportunities for natural gas prepay transactions), Council Member Yeh asked for clarification on the use of financial instruments. Dailey emphasized that the use of financial instruments needs to be part of the prepay discussion up front because implementing a hedging strategy with physical gas priced at a discount to a market varying index price requires the use of financial instruments. Council Member Yeh expressed his concern about structuring the deal to protect the City. Utilities Advisory Commission Minutes Approved on: November 3, 2010 Page 4 of 9 Commissioner Eglash noted that using a consultant can be expensive, and the City may not end up pursuing prepay. Dailey explained that the potential benefits of several million dollars out of an annual supply budget of $20 million outweigh the costs of using a consultant, and a prepay arrangement is the only way to achieve gas supply cost below PG&E’s. Commissioner Eglash asked about the cost range for a consultant. Dailey responded that if Palo Alto decides to pursue prepay alone, that could result in higher transaction costs. A consultant would help Palo Alto identify how best to pursue prepay. Commissioner Eglash asked if the Energy Risk Manager is aware of the prepay initiative. Karl Van Orsdol, Energy Risk Manager, responded that he himself, along with Lalo Perez, Director of Administrative Services, and City Manager Jim Keene are aware of this, and that a consultant was hired around two years ago to provide training to staff on this issue. Commissioner Melton asked if any of the cities that participated in a prepay transaction was financially was harmed during the financial crisis. Dailey responded that the worst case did occur when Lehman Brothers collapsed and a prepay deal involving Lehman fell apart. However, the unwinding of the transaction happened exactly as contractually planned under such conditions and the bond holders lost their investment. The municipal utility involved lost only the discount to index for future deliveries, but was otherwise unharmed. Director Fong reassured that given the complexity of a prepay transaction, staff will present more details on the structuring of a prepay transaction to the UAC. Chair Waldfogel supports a reasonable cost for the consultant study for prepay. No comments were made on Initiatives 5, 6 and 7. On Initiative #8, Commissioner Eglash asked about the Return on Investment of reviewing the cost of non-fossil gas. Dailey responded that Palo Alto’s share of the NCPA due diligence study is $5,000, which is a relatively low investment. Chair Waldfogel asked if we have ruled out offsets. Dailey explained that customers can currently purchase offsets from many sources for personal travel and energy usage. Palo Alto does not provide unique value by offering offsets to customers and that offsets would be difficult to market. ACTION: Commissioner Eglash moved, and Commissioner Foster seconded, that the UAC recommend that the City Council approve the proposed Gas Utility Long-term Plan (GULP) Implementation Plan. The motion passed unanimously (7-0). ITEM 4: DISCUSSION: Water Benchmarking Study Senior Resource Planner Shiva Swaminathan presented the Water Benchmarking Study results to the UAC. Commissioner Keller asked about the City’s water losses and the relation to inaccurate master meter data. Staff explained that Palo Alto has both internal and external master meters and has requested that SFPUC calibrate its meter. Staff also explained that while the City’s losses were at an industry standard level, further study will be done to see if we can learn from Santa Clara which has low lost and unaccounted for levels. The Commissioners and staff discussed the anticipated water increases over the next few years (7-8% per year) and how these anticipated increases are communicated to the Council annually. Commissioner Melton also stated that every opportunity be taken to educate the Council about increasing water rates. Utilities Advisory Commission Minutes Approved on: November 3, 2010 Page 5 of 9 Commissioner Cook asked if staff had looked at groundwater as an alternative source. Staff replied that this had been evaluated and ruled out because the sustainable yield from the groundwater, according to a consultant report, is only 500 acre-feet per year, or less than 5% of the City’s total usage. It can, however, use groundwater for emergencies and during a drought. ITEM 5: DISCUSSION: Water/Wastewater Rate Structure Senior Resource Planner Ipek Connolly presented the overall cost of service analysis (COSA) study results for all four utilities including Electric, Gas, Water and Wastewater Collection. The COSA studies present the share of total costs that are associated with serving each customer class. These costs are compared to the share of the revenues from each customer class and shifts are suggested if the revenues and costs to serve are not in alignment. Overall, the COSAs show that revenues from residential water and wastewater customers should be increased, while revenues from other customer classes should be lower. For the electric COSA, no COSA alignment is needed for residential customers. For gas, revenues from residential customers are higher than required to match the costs to serve. Overall, the COSA changes for an average residential customer would result in an increased cost of about $4.32 per month, or about 1.3% of the total monthly bill. Connolly explained that the City of Palo Alto Utilities (CPAU) has three rate design objectives:  Reflect updated cost of service  Provide effective price signals to promote conservation of resources  Avoid rate shock and undue financial hardship In addition, the key questions for water design are:  What is the most appropriate level for the monthly fixed charges?  Should CPAU residential rates have more tiers?  How should the tiers be established – what should be the size of each tier and pricing level for each?  Should tiered rates be introduced for non-residential customers?  How should the implementation of COSA and rate design changes be phased in over time? Regarding the fixed monthly charges, CPAU currently has much lower fixed monthly charges than the neighboring utilities. Besides alignment between customer classes, the COSAs suggest that the fixed charge component of the rate should be increased. Currently, about 94% of the total revenue is collected from volumetric charges, but the COSA recommends that the fixed charges should increase so that the volumetric charges would represent 88% of the total revenue. To encourage conservation and comply with the best management practices, the California Urban Water Conservation Council (CUWCC) recommends that revenue from the volumetric charges should constitute a minimum of 70% of the total revenue. Currently, the water rates for all customer classes include fixed and variable charges. Tiered rates are in place for residential customers only currently. All other customer classes have a volumetric charge that does not vary by usage level. Palo Alto currently has two tiers for residential customers. Most neighboring utilities have two, three, or four tiers for residential customers. The historic justification for not having tiered rates for non-residential rates is that residential customers are a more homogenous class than the non- residential customers. Alternatives to current rates are to add one or more tiers to the residential rates and to create tiers for the non-residential rates. One way to get around the non-homogeneity nature of commercial customers is to group them by meter size. Many of the neighboring utilities have tiered rates for commercial customers. Utilities Advisory Commission Minutes Approved on: November 3, 2010 Page 6 of 9 Commissioner Berry noted that, even if the wholesale rate from the SFPUC is volumetric, the costs are all fixed and, lowering usage will not lower cost for the regional water system. Those costs will ultimately be passed on to the wholesale water users. Commissioner Melton stated that he supports moving towards COS for the fixed costs, more tiers for residential customers and creating tiers for commercial customers. Commissioner Foster agreed with Melton’s recommendations. Chair Waldfogel cited price elasticity studies that showed that raising rates for large water users will not necessarily result in saving water, but lowering water rates for users who use little water may encourage additional water use. Council Member Scharff disagreed that residential customers are a homogenous group since some live in condominiums and some on half acre lots. The latter, who presumably are higher income residents, will always use more water and high rates for higher use tiers is tantamount to charging people with higher income more. Commissioner Eglash supported getting as much revenue as possible from the volumetric rate component to maximize the incentive to conserve water. Commissioner Keller agreed that the rate signal is important and will result in giving customers choices. Higher volumetric rates will encourage customers to consider making choices to save money such as whether to take out lawns. CPAU should show the public the rate increase trajectory and prices of rate tiers so they can plan investments. Chair Waldfogel asked staff to provide more data on fixed costs and show how much of the total costs for the water utility are fixed, not just the amount of fixed costs that are included in the fixed charge recommended by the COSA. He also asked for data showing how tiers would impact higher water users so that it doesn’t just seem like a tax on higher water users. The commissioners summarized their positions on the key questions:  Commissioner Keller said that the COSA alignment should be phased in over three years. She also supported adding another tier for residential customers and creating a tier for commercial customers.  Commissioner Melton leaned towards moving to the full COSA class alignment in two years. He supported moving to add an additional rate tier for residential and commercial next year.  Commissioner Cook supported moving to the COSA alignment over two years. He indicated that he would like more rate tiers, but is concerned with the impact on commercial customers.  Commissioner Foster supports adding one tier to residential and commercial customer rates, maximizing the volumetric charge (minimizing the fixed charge), and keeping prices low for small water users.  Chair Waldfogel indicated that he supports moving to the COSA alignment over two years. He supports adding additional rate tiers if analysis shows that it would result in increased efficiency since it is tantamount to a charge for large properties.  Commissioner Eglash said he supports moving to the COSA alignment in two years. Resource Planner Eric Keniston presented current rate structures, and possible changes to consider in the Wastewater Collection Utility. Keniston noted that current residential wastewater rates are flat and not based on water use. Current non-residential wastewater rates have a monthly minimum charge and a Utilities Advisory Commission Minutes Approved on: November 3, 2010 Page 7 of 9 volumetric rate based on water usage. Large industrial users are currently charged a fee for certain high strength discharges. The Wastewater Treatment Plant is recommending to eliminate the surcharges for permitted industries. Due to changes in customer profiles, they have observed no significant strength differences between customers in the industrial rate class. Elimination of surcharges will result in the full cost recovery on a volume of discharge basis rather than using both volume and strength of discharge. Staff recommends eliminating these charges. Keniston identified the wastewater rate design options:  Implement COSA adjustment over one, two, or three years  Eliminate industrial surcharges and collect revenues based on volume of discharge  For the commercial customers, the current minimum charge could be changed to a fixed charge, thus lowering the volumetric charge component. Commissioner Eglash stated that he didn’t see any imperative to change anything in wastewater rates, except to implement the COSA alignments. Commissioners Melton, Cook, and Foster agreed that no big changes are needed to the wastewater rate structures. Commissioners Eglash and Keller expressed concern over the elimination of the industrial surcharges. Commissioner Melton suggested that the industrial surcharge should be kept as an alternative if needed in the future. ITEM 6: DISCUSSION: Ameresco Butte County Landfill Gas to Energy Contract Senior Resource Originator, Tom Kabat stated that Ameresco terminated the Ameresco Butte County LLC (Ameresco) Power Purchase Agreement (PPA) on September 15, 2010 on the basis of not having an interconnection agreement with PG&E at satisfactory terms under contract section 4.3(j). That section of the PPA survives the termination of the PPA by 5 years giving Palo Alto a right of first refusal (ROFR) to any PPA terms and conditions negotiated with additional parties, such as Alameda Municipal Power (Alameda). On October 5 (the day before this UAC meeting), Palo Alto received written notice from Ameresco of the terms and conditions for a PPA it negotiated with Alameda, which started a 60-day ROFR period during which Palo Alto can accept the terms and conditions for a new PPA. The essential terms and conditions of the new PPA are:  Initial Plant Capacity is reduced in half to be between 1.75 MW and 2.75 MW.  The term is 15 years (instead of the original PPA’s term of 20 years) with an option for Palo Alto to extend the term for an additional 5 years. Ameresco would have a second option to extend the term for an additional 5 years for a total term of 25 years if Ameresco has a satisfactory gas contract with Butte County.  Price is $87/MWh escalating at 1.5% per year (same as the original PPA).  A one time payment of $537,500 is required shortly after the pant begins commercial operation (expected in late 2011). Council Member Scharff asked if the 60-day ROFR period begins with the delivery of energy (around commercial operation date of late 2011) or with the delivery of the written notice on October 5, 2010. Staff interprets the 60-day ROFR period to start October 5, 2010. Council Member Scharff requested staff confer with the City Attorney’s office again to determine the extent of Palo Alto’s rights under the terminated PPA. Commissioner Eglash acknowledged that the project size has decreased to where it would be Palo Alto’s smallest PPA and asked the reasoning behind staff’s willingness to let it go. Kabat indicated that it is under Utilities Advisory Commission Minutes Approved on: November 3, 2010 Page 8 of 9 Utilities Advisory Commission Minutes Approved on: November 3, 2010 Page 9 of 9 Council direction to not bring any new PPAs for renewable energy for approval until certain other extensive planning efforts are completed in the coming months. He also explained that the cost of the new proposed PPA is not especially attractive with a levelized cost between the levelized costs of the last two Ameresco PPAs (Crazy Horse and San Joaquin). Director Fong reiterated that the original PPA had been terminated and this was a new PPA that we would have to take to the Council. Commissioner Melton indicated he supports staff’s recommendation and stated that the deal is not so compelling as to get Council to consider a new PPA for the project. Commissioners Foster and Cook agreed that the opportunity for a new PPA should be let go. ITEM 7: ACTION: Potential Topics for Discussion at Future UAC Meetings None. COMMISSIONER COMMENTS None. Meeting adjourned at 10:55 p.m. Respectfully submitted, Jennie Castelino City of Palo Alto Utilities