HomeMy WebLinkAboutStaff Report 14908
City of Palo Alto (ID # 14908)
Utilities Advisory Commission Staff Report
Meeting Date: 12/7/2022 Report Type:
City of Palo Alto Page 1
Title: Informational Update on Electric Supply Portfolio Optimization and
Rebalancing Initiatives
From: Director of Utilities
Lead Department: Utilities
REQUEST
This is an informational report to the Utility Advisory Commission (UAC); no action is required.
EXECUTIVE SUMMARY
While the City’s total electric supply matches closely with the City’s electrical demand on an
annual basis, considerable load-resource imbalances exist within the portfolio on a seasonal and
daily basis. This seasonal/daily imbalance has existed since 2005, when the current 20-year
Western Base Resource (WBR) hydro contract became effective. Over the past 18 years the City
has balanced its loads and generation supplies by: a) entering into long-term renewable
resource contracts, b) making monthly market purchases and sales to address seasonal
imbalances, and c) making daily/hourly market purchases and sales to address intraday
imbalances. (See Attachments A and B for graphs depicting the seasonal and daily load-resource
balances.)
While this strategy has worked to date, staff has been seeking ways to better balance loads and
resources to minimize cost uncertainty associated with managing the portfolio, while
minimizing the overall cost of electric supply. The decline in market electricity prices during
periods of high solar production (when Palo Alto’s electric supply portfolio is in surplus) and the
projected increase in night-time electricity prices (when Palo Alto’s portfolio is in deficit), and
projection for these trends to continue in the future, is expected to reduce the value of the
City’s supply portfolio and increase its exposure to market price volatility. In response, staff is
actively exploring ways to rebalance the portfolio to minimize its market price exposure and
increase its value.
DISCUSSION
The City’s 2018 Integrated Resource Plan (IRP) included a Work Plan (Attachment C) with several
new initiatives, including one on portfolio rebalancing: to “evaluate the merits of rebalancing
the electric supply portfolio to lower seasonal and daily market price exposure by more closely
matching the City’s hourly and monthly electric loads.” Along those lines, in recent months staff
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has explored procuring firm, baseload geothermal energy and simultaneously selling surplus
solar generation in the spring and summer months. The City currently has an opportunity to
enter into a 12-year agreement to procure 10-20 MW of output from the Calpine Geothermal
project, as part of a larger purchase with other Northern California Power Agency (NCPA)
members. Staff is also exploring a sale of 40-80 MW of solar output during Q2 and Q3 from one
or more of the City’s long-term contracts. These combined transactions will more closely
balance the City’s loads and resources on a daily/monthly basis to better hedge market energy
price shifts in the long-term while maintaining the portfolio’s annual energy position close to
current levels.
In addition to the above rebalancing strategies, staff is also exploring agreements to add energy
storage systems at existing solar project sites. Such resources would help the City meet its long-
term resource adequacy capacity obligations while also shifting a portion of the City’s solar
generation from lower-priced to higher-priced hours. Staff has also recently evaluated procuring
output from another hydroelectric project, but ultimately chose not to participate in that
project, finding the contract price to be not very competitive and in view of the fact that the
resource would add to the City’s already heavy reliance on hydroelectric resources.
Another important initiative included in the City’s 2018 IRP Work Plan was evaluating the merits
of committing to a new 30-year WBR contract starting in 2025. (Although the City has officially
executed the new WBR contract, it retains the ability to reduce its share of the contract or even
opt out entirely until the end of June 2024.) Staff’s preliminary analysis suggests that it may be
best to retain the City’s share of the WBR contract in 2025, while continuing to evaluate the
option to reduce City’s share or exit the contract in 2030 if the resource becomes
uncompetitive.1
The third major initiative in the City’s 2018 IRP Work Plan was to evaluate how to best utilize the
City’s share of the California-Oregon Transmission Project (COTP) when the long-term layoff of
this asset ends in 2024. On this front, staff’s preliminary analysis suggests that utilities outside
of the California Independent System Operator (CAISO) balancing area may be better able to
maximize the value of the resource than the City. As such, staff is exploring options to further
lay-off the asset to such utilities until 2039; at that point the COTP layoffs of several other NCPA
members will also be coming to an end, and the City will be able to consider the long-term use
of this resource with these other members in a more coordinated fashion.
Staff has issued (or plans to issue in the near future) several Requests for Proposals to
competitively purchase, sell, or lay-off various resources as described above. Palo Alto has also
retained Ascend Analytics to more rigorously model and analyze the economics and portfolio fit
of the options staff is exploring. Staff expects to return to the UAC in the coming months to
1 Staff’s preliminary analysis of Western’s value relative to other resource accounts for the fact that Western’s
output has trended downward in recent years due to the effects of drought and climate change, as well as the
impact that weather-related volatility has on the City’s overall supply cost uncertainty and the need for a Hydro
Rate Adjuster mechanism.
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present the results of this analysis and share staff’s recommendations, all in conjunction with
the development of the City’s 2023 IRP.
STAKEHOLDER ENGAGEMENT
Staff discussed the process of developing the Integrated Resource Plan with the UAC in June
2022 (Staff Report 14279). The current report further informs the community on the progress
made on this front in the past six months. In the next 12 months, staff will continue engaging
community stakeholders on these initiatives via several upcoming meetings with the UAC. Input
would be sought on ways to optimally procure and rebalance the City’s electric supply portfolio
to cost-effectively and sustainably meet the City’s growing electricity demand.
POLICY IMPLICATIONS
This update on staff’s efforts to optimize and rebalance the electric supply portfolio is in line
with the Utilities Strategic Plan, the City’s Energy Risk Management Policy, its 2018 Electric IRP,
and its Sustainability and Climate Action Plan (S/CAP) goals.
ENVIRONMENTAL REVIEW
The Utilities Advisory Commission’s review of this update on electric supply portfolio
optimization and rebalancing does not meet the definition of a project under Public Resources
Code 21065 and therefore California Environmental Quality Act (CEQA) review is not required.
Attachments:
• Attachment A: Monthly Load-Resource Balances for 2021
• Attachment B: Daily Load-Resource Balances for 2021
• Attachment C: 2018 Electric IRP Work Plan
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Attachment A
Monthly On-Peak and Off-Peak Load-Resource Balances for CY 2021
Figure A-1: Monthly On-Peak Load-Resource Balance for CY 2021, with Potential Calpine Geothermal
Output Included
Figure A-2: Monthly Off-Peak Load-Resource Balance for CY 2021, with Potential Calpine Geothermal
Output Included
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Attachment B
Daily Load-Resource Balances for CY 2021 (January, April, July, and October)
Figure B-1: Average Hourly Load-Resource Balance for January 2021, with Potential Calpine
Geothermal Output Included
Figure B-2: Average Hourly Load-Resource Balance for April 2021, with Potential Calpine Geothermal
Output Included
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Attachment B
Figure B-3: Average Hourly Load-Resource Balance for July 2021, with Potential Calpine Geothermal
Output Included
Figure B-4: Average Hourly Load-Resource Balance for October 2021, with Potential Calpine
Geothermal Output Included
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Attachment C
2018 Electric IRP Strategies & Related New Initiatives
There are a number of new initiatives and numerous on-going tasks related to implementing the
EIRP Strategies. These activities are supported by about six to eight CPAU staff, both from the
supply side and demand-side (or customer) programs. In addition, CPAU relies on joint action
agencies and external service providers to implement programs and initiatives. Supply and
customer program staff also coordinates with retail rate development, distribution system
engineering, and operations staff to implement programs and investments in an integrated
manner.
Described below are the nine strategies and eight new initiatives that are expected to be
undertaken in the next three to six years. Work tasks related to on-going activities have not been
called out separately.
EIRP Strategies & Related New Initiatives
1. Pursue an Optimal Mix of Supply-side and Demand-side Resources: When procuring to
meet demand, pursue an optimal mix of resources that meets the EIRP Objective, with
cost-effective energy efficiency, distributed generation, and demand-side resources as
preferred resources. Consider portfolio fit and resource uncertainties when evaluating
cost-effectiveness.
a. Initiative #1: Evaluate the merits of committing to a new 30-year contract with
Western starting in 2025. [Recommendation on initial commitment to the UAC in
early 2020; recommendation on final commitment in early 2024.]
b. Initiative #2: Evaluate the merits of rebalancing the electric supply portfolio to
lower its seasonal and daily market price exposure, by more closely balancing the
City’s long-term supplies with its hourly and monthly electric loads. [Initial scoping
assessment report to the UAC by December 2019.]
c. Initiative #3: Evaluate how to best utilize the City’s share of the California-Oregon
Transmission Project (COTP), when the long-term layoff of this asset ends in 2024.
[Initial assessment report to UAC by December 2019, in tandem with Initiative #2
initial scoping assessment report.]
d. Continue ongoing evaluation of all cost-effective distributed energy resources
(DERs), such as energy efficiency, distributed generation, energy storage, and
demand response. Update forecasts of DER impacts on retail sales and load shapes
for use in strategic planning, rate-making, and budget forecasting. [Initial
assessment to be completed in Distributed Energy Resource (DER) and Customer
Program Plan for Council approval by June 2019.]
2. Maintain a Carbon Neutral Supply: Maintain a carbon neutral electric supply portfolio to
meet the community’s greenhouse gas (GHG) emission reduction goals.
a. Initiative #4: In addition to ensuring 100% of City’s annual electricity energy
needs are met with carbon neutral supplies (on a kWh basis), evaluate the
carbon content of the electric portfolio on an hourly basis, and recommend the
merits of buying carbon offsets to ensure the carbon content of the cumulative
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Attachment C
hourly portfolio is zero on an annual basis. Also evaluate the manner in which the
City communicates with customers about the carbon content of the electric
portfolio. [Initial staff recommendation to the UAC by December 2019.]
3. Actively Manage Portfolio Supply Cost Uncertainties: Structure the portfolio or add
mitigations to manage short-term risks (e.g. market price risk and hydroelectric variability)
and build flexibility into the portfolio to address long-term risks (e.g. resource availability,
customer load profile changes, and regulatory uncertainty) through diversification of
suppliers, contract terms, and resource types.
a. This is an on-going active management strategy; no new initiatives are planned.
4. Manage Electric Portfolio to Ensure Lowest Possible Ratepayer Bills: Pursue resources
in a least-cost, best-fit approach in an effort to ensure ratepayer bills remain as low as
possible, while achieving other Council-adopted sustainability, rate, and financial
objectives.
a. Initiative #5: Investigate the merits and economics of monetizing excess
renewable energy certificates to minimize the cost of maintaining an RPS
compliant and carbon neutral electricity supply portfolio. [Initial staff
recommendation to the UAC by December 2019.]
5. Partner with External Agencies to Implement Optimization Opportunities: Actively
engage and partner with external agencies to maximize resource value and optimize
operations.
a. Initiative #6: Explore greater synergistic opportunities with NCPA and other
agencies – such as newly formed community choice aggregators – to lower Palo
Alto’s operating costs and rebalance the supply portfolio. [Initial assessment to
UAC by December 2019.]
6. Manage Supplies to Meet Changing Customer Loads and Load Profiles: Maintain electric
supply resource flexibility in anticipation of potential changes in customer loads due to
distributed energy resources, efficiency, electrification, or for other reasons. At the same
time, use retail rates and other available tools to influence customer load changes in a
manner that minimizes overall costs and achieves other Council objectives.
a. Initiative #7: Implement 2018 Utilities Strategic Plan Priority 4, Strategy 4, Action
2 by undertaking a competitive assessment for the electric utility within the
context of the large proliferation of customer-sited DER technologies,
electrification initiatives, changing customer expectations, and potential
regulatory changes. Develop contingencies to address the potential for large
changes in the City’s load level or load profile. [Initial assessment to UAC in
December 2020.]
7. Ensure Reliable and Low-cost Transmission Services: Work with the transmission system
operator to receive reliable service in a least-cost manner.
a. This is an on-going activity; no new initiatives are planned.
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Attachment C
8. Support Local Electric Supply Resiliency: Coordinate supply portfolio planning with utility-
wide efforts to support local measures and programs that enhance community electric
supply resiliency.
a. On-going supporting role in utility-wide efforts.
9. Comply with State and Federal Laws and Regulations: Ensure compliance with all
statutory and regulatory requirements for energy, capacity, reserves, GHG emissions,
distributed energy resources, efficiency goals, resource planning, and related initiatives.
a. Ongoing activities in collaboration with NCPA, CMUA and other joint action
agencies.
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