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Staff Report 188-10
TO: ATTN: FROM: DATE: SUBJECT: HONORABLE CITY COUNCIL FINANCE COMMITTEE CITY MANAGER APRIL 6, 2010 DEPARTMENT: UTILITIES CMR: 188:10 Utilities Advisory Commission Recommendation that the City Council Approve the 2010 Ten -Year Electric Energy Efficiency Plan RECOMMENDATION Staff recommends that the Finance Committee recommend that the City Council Approve the 2010 Ten -Year Electric Energy Efficiency (EE) Plan for the period 2011 to 2020. EXECUTIVE SUMMARY This report presents the updated energy efficiency goals for the next ten years and the plan to achieve those goals. Energy efficiency is the most cost-effective way to provide electric services to customers as a kilowatt-hour not used is a kilowatt-hour that didn't need to be generated, transmitted and delivered. Energy efficiency reduces greenhouse gas emissions, a key goal in the City's Climate Protection Plan. Energy efficiency is also an important way for citizens and businesses in Palo Alto to control their utility costs. The proposed 2010 10 -year Energy Efficiency (EE) Plan has a goal to save 7.2% of the electric needs of the City by 2020. This is a doubling of the goal in the 10 -year EE plan approved by Council three years ago, in 2007. To achieve these more aggressive targets, additional funding will be required. However, even with increased funding, these efficiency resources are less costly than purchasing electric supplies, especially renewable supplies. Some of the additional funding is planned to increase staff resources by one or two program managers to implement the expanded programs that will be required to meet the goals. The new programs will include programs administered and implemented in-house as well as those administered by third party contractors. The Utilities Advisory Commission (UAC) reviewed the proposed 2010 Ten -Year EE Plan at its meetings on February 9 and March 9, 2010 and voted unanimously to recommend that the City Council approve the Plan. BACKGROUND City Policies and Applicable Legislation Council approved the Long Term Energy Acquisition Plan (LEAP) objectives and guidelines (CMR: 158:07), which contain direction to treat energy efficiency as the first resource to be procured before renewable energy or traditional "brown" energy. The City's 2007 Climate CMR: 188:10 Page 1 of 10 Protection Plan (CPP) also relies on electric efficiency and load reduction goals to meet greenhouse gas (GHG) reduction targets by 2020. The City is also subject to state legislative and regulatory mandates. State law AB 1890 (1996) requires that all electric utilities collect funds for "Public Benefit" purposes. These purposes are defined as cost-effective efficiency, new renewable energy, research and development of energy technologies, and/or low income rate discounts and efficiency programs. SB 1037 (2005) requires public utilities to first acquire all cost-effective, reliable and feasible energy efficiency resources before investing in commodity supply. AB 2021 (2006) requires municipal electric utilities to develop ten-year electric EE plans and submit them to the California Energy Commission (CEC) every three years. This updated 2010 Plan meets the AB 2021 regulatory requirement and must be filed by June 1, 2010 with the CEC. Loading Order for Efficiency and Renewable Energy State law requires that utilities follow a "loading order" for energy resources (SB 1037). The loading order means that utilities first procure cost-effective energy -efficiency, then renewable energy, and finally fossil -fueled electricity. If the LEAP goals are achieved, by 2015 the City of Palo Alto Utilities' (CPAU's) long-term electric supply portfolio is expected to be composed of hydro supplies (50%) and renewable energy supplies (33%), with the balance (17%) purchased from fossil -fuel based generation. The EE achievements will help in reducing the need to rely on this fossil -fuel based electric supply. The efficiency savings also reduce the need to purchase the higher cost renewable energy supply needed to meet the City's 33% renewable portfolio standard (RPS). While CPAU expects renewable supplies to be 20% of its electric portfolio in 2010, achieving the Council -set RPS goal of 33% renewable energy supplies by 2015 is expensive. Long-term fossil fuel -based electricity supplies cost approximately 7 to 8 cents per kilowatt-hour (¢/kWh); however, long-term renewable energy supplies cost 10 to 11 ¢IkWh, a premium of 3 to 4¢/kWh. This premium is mainly driven by the demand for renewable resources to meet California's state - mandated RPS goals —currently 20% by 2020 and likely to be 33% by 2020. This high cost premium for renewable energy is another reason to ensure that EE receives higher priority, as every 100 kWh of energy saved reduces the need to purchase 67 kWh or fossil -fuel energy and 33 kWh of high cost renewable energy. In addition to lowering energy purchase cost, every unit of electricity not consumed reduces costs related to transmission delivery, transmission congestion, and losses in the delivery system. EE is the most cost efficient way for a utility to reduce greenhouse gas emissions while simultaneously reducing the energy bill for customers who implement efficiency measures. The 2007 Ten -Year Electric Energy Efficiency Plan Consistent with state law, the City Council approved the 2007 Ten -Year Electric EE Plan on April 2007 (CMR:216:07). This plan developed a number of goals to meet the City's Climate Protection Plan, as well as support the Long Term Energy Acquisition Plan (LEAP) objectives and guidelines (CMR: 158:07). The 2007 Plan's goal was to meet 3.5% of the electric energy needs of the City by energy efficiency by the end of the 10 -year planning period. In addition to the 10 -year goal to achieve a cumulative 3.5% energy use reduction by 2016, there are incremental goals for each year of the plan. CMR: 188:10 Page 2 of 10 The Table below (Table 1 in the 2010 EE Plan) provides the summary EE goals, achievements, and expenditures over the past two years. In FY 2008, an annual net savings of 4,399 megawatt - hours (MWh) (or 0.44% of annual load) was achieved at a cost of $1.48 million. On a life cycle basis, the average cost of the saved energy was 3.1 cents per kilowatt-hour (¢/kWh). The annual savings increased to 0.47% of load in FY 2009, which was achieved at a cost of $1.79 million. The City anticipates it will achieve incremental EE savings of 0.5% of annual load for FY 2010. Table 1: Electricity Efficiency Achievements for FY 2008-09 FY 2008 (Actuals) FY 2009 (Actuals) FY 2010 (Projections) Efficiency — Goals Annual energy savings (MWh) 2,500 2,800 3,500 Percent of Annual Load 0.25% 0.28% 0.35% Energy —Achievements Lifecycle energy savings (MWh) 48,220 51,426 TBD Annual energy savings (MWh' 4,399 4,668 TBD Percent of Annual Load 0.44% 0.47% 0.5% Budgets & Expenditures ($M) Customer Rebate 0.48 0.6 TBD Program Administration/Contractor 1.00 1.17 TBD Total Cost 1.48 1.79 TBD Average life -cycle savings cost (¢/kWh) 3.1¢ 3.5¢ TBD The table shows that the actual achievements were significantly higher than the goals set in the 2007 EE Plan. Current Programs Since the approval of the 2007 Ten -Year EE Plan, considerable progress has been made in expanding programs, retaining contractors to implement third party programs, and enhancing educational outreach. Numerous new programs were developed and/or expanded to increase efficiency savings from hard -to -reach customers. Some of these programs are managed by in- house staff, such as the low-income weatherization, lighting and appliance direct install program (Residential Energy Assistance Program or REAP). Others are administered by third party companies under a contract, managed by Utility Marketing Services staff. For example, the Ecology Action -administered program to install measures at traditionally hard -to -reach small commercial sites (Right Lights+) was increased from a contract of $200,000 to $500,000 per year. The expanded contract increased both the types of measures that could be rebated and the authorized budget for energy savings to be reimbursed to the vendor. The expansion in both in- house and third party administered programs enabled the City to exceed targets established in the 2007 EE Plan. The technologies that provided EE savings in the past three years were primarily from lighting — non -residential (Right Lights+) retrofits of fluorescent tube and other fixtures, as well as from residential compact fluorescent bulbs in the "five for $1.00" promotions, low-income installations and holiday light exchanges. Non-residential Heating, Ventilating, and Air CMR: 188:10 Page 3 of 1.0 Conditioning (HVAC) systems and residential refrigerator recycling also provided significant energy reductions. Staff continuously monitors technologies and other utility programs to understand the suitability of various measures for promotion within the City. Efficiency programs are also evaluated annually by an outside contractor (as required by state law) and are updated whenever deemed necessary. Finance Committee Review of Renewable Energy Contract When the Finance Committee considered a proposed contract for renewable power in July 2009 (CMR: 305:09), it asked whether staff was appropriately valuing energy efficiency given the high prices of renewable power. The Finance Committee recommended that Council direct staff to work with the UAC and report back to the Finance Committee with a re-examination of the policies and goals that are being used in the alternate energy program, including the energy efficiency plans and the electric acquisition policies and plans. In August 2009, Council approved the Finance Committee's recommendation (CMR: 342:09). To implement this Council direction, at the November 2009 UAC meeting, staff discussed how it planned to conduct the study to determine the potential for energy efficiency in the City. Staff presented different ways to value the avoided energy supply cost when developing the analysis tool to develop EE potential. Based on that discussion, staff utilized the Market Price Referent (MPR) as the avoided energy component of the cost when reviewing the EE measure cost- effectiveness. The California Public Utilities Commission (CPUC) annually establishes the MPR, which is the pre -authorized price for renewable energy for investor -owned utilities (IOUs), and becomes the lowest price that CPAU can expect to pay for long-term renewable energy supplies. The levelized MPR for a 20 -year renewable resource is currently about 10.5 ¢/kWh, and ranges from 7 to 15¢/kWh for per year (in nominal terms) over the 20 year period. DISCUSSION Analysis Model In order to efficiently assess and meet AB 2021 requirements in establishing the potential for energy efficiency, CPAU, in collaboration with other Northern California Power Agency (NCPA) members, engaged a consultant to develop an analytical model for all California publicly owned utilities (POUs) to use. The California POU Energy Efficiency Resource Assessment Model (Ca1EERAM) is based on the integration of energy efficiency measure impacts and costs, utility customer characteristics, utility load forecasts, and utility avoided costs and rate schedules. The model estimates technical, economic and market potential for EE measures for residential and commercial customers. • Technical energy efficiency potential represents the amount of energy efficiency savings that could be achieved if economic and market barriers are not considered. It is the product of the energy efficiency measures' savings per unit, the quantity of applicable equipment in each facility, the number of facilities in a utility's service area, and the measure's current market saturation. Technical potential estimates include measures that may not be cost- effective. These estimates, while not realistically obtainable, are used to establish the outer boundary of what might be achieved. • Economic energy efficiency potential represents the portion of the technical energy efficiency potential that is "cost-effective," from a societal perspective, as defined by the Total Resource Cost (TRC) test. Economic potential does not consider market barriers CMR: 188:10 Page 4 of 10 that limit a voluntary utility efficiency program's success in encouraging customers to install energy efficiency measures. • Achievable energy efficiency (market) potential is an estimate of the part of economic EE potential that could be attributed to utility energy efficiency programs, recognizing the effect of a few market barriers. It is modeled to vary with parameters, such as the magnitude of incentives and customer awareness and willingness to adopt measures. The model calculates the technical potential including both economic and uneconomic EE measures. The economic potential includes only EE measures that are cost-effective when compared to avoided cost of energy. Technologies which are not yet commercially viable, such as Light Emitting Diode (LED) products, are not considered to be economic. Other measures (such as windows) are costly to implement and result in such low electricity savings that they are not cost-effective. Finally, the market potential in FY 2011 is calibrated based on the two full years of actual program results and projected achievements in FY 2010. The assumptions used in the analysis include: • Palo Alto's avoided cost over the 10 -year period ranges from 8 to 12¢/kWh. This includes the cost of energy, capacity, transmission, the City's carbon adder1 of 1 to 2¢/kWh, and system losses. This calculation (avoided cost plus the carbon adder) is approximately the same as the current MPR plus avoided transmission and loss charges. • Utility rebates will be set at 50% of the incremental cost above new standard equipment. • Penetration of energy efficient technologies is assumed to be similar to that of PG&E customers in the same climate zone. This benchmarking data is based on statewide surveys completed for both residential and commercial customers. It should be noted here that the EE savings counted toward the goal can only include the incremental EE savings above state or local standards for new equipment. The efficiency goal is based on 'net savings,' excluding any naturally occurring savings that would have resulted from appliance replacements over time in the absence of utility EE programs. The savings are calculated in this way so that utilities encourage installation of the most efficient equipment and in recognition of that fact that eventually older appliances will need to be replaced with new models that will, due to updated standards, save energy "naturally." Analysis Results The proposed 2010 EE Plan contains an annual electric EE goal of 0.6% of forecast electric load in FY 2011, with incremental achievements increasing by 0.05% each year until the annual incremental goal reaches 0.8% in 2015 through 2020. By 2020, the proposed 2010 EE Plan will cumulatively achieve a 7.2% load reduction. This goal is more than twice the goal of 3.5% that was set in 2007 and 25% more than what has been achieved even with significantly higher levels of in-house and third party administered efficiency 1 The City's Climate Protection Plan established a "carbon adder" of $20 per ton of carbon dioxide (CO2) in 2008, increasing at a rate of 5% per year to use when making investment decisions. When translated to the cost of electric energy, this carbon adder is about 1 0/kWh, increasing by 5% per year. CMR: 188:10 Page 5 of 10 programs. The recommended EE goal in FY 2011 is about a 25% increase from actual EE savings achieved in FY 2009. Staff also conducted a number of sensitivity analyses with the following results: • Increasing efficiency goals by an additional 0.1% per year increases implementation costs by an additional $0.5 million per year. • Increasing the avoided cost by 1 to 3¢/kWh did not increase the EE economic potential by much. Lighting, the bulk of residential and commercial economic EE potential, costs around $0.06 to $0.08/kWh. Very few measures created significant cost-effective savings in comparison with a higher avoided cost. • Elimination of the rebates for compact fluorescent lamps (CFL's) reduced residential market potential by 25%. Since residential savings are about 20% of the entire potential as an average over the entire period, the net impact to the goals when eliminating CFL rebates was about 5%. • Increasing customer incentive level from 50% of incremental costs to 75% resulted in the model predicting a market potential projection of almost 14,000 MWh, which is triple the EE savings achieved in 2009; however, these estimates are highly uncertain, as there is little empirical research on the impact to customer adoption levels when utility programs offer aggressive incentives. CMR: 188:10 Page 6 of 10 The projected annual and incremental EE savings are shown in Figures 1 and 2 below. Figure 1: Annual Incremental Efficiency Savings - Actual and 2010 EE Plan Goals Figure 2: Proposed 10 -year cumulative EE savings Percentages represent cumulative EE savings relative to load Page 7 of 10 CMR: 188:10 The estimated potential comes primarily from lighting technologies. These technologies, including office lighting upgrades to T8 lamps, residential hard -wire and compact fluorescent lamps, and other measures, are by far the most cost-effective to implement. The model predicts that the EE market potential will increase over time due to the increased willingness and awareness about efficiency measures among customers. The implementation cost to CPAU will increase with this expanded EE goal. Currently, the $1.8 million electric efficiency. budget comes from the state mandated Electric Public Benefit 2.85% surcharge collected through customer retail rates. Additional funding above this level will be cost-effective compared to purchasing renewable power and will result in long-term reductions in the amount of energy that must be purchased on the market. Figure 3 below contains the actual budget for EE and the projected EE budgets in the future to achieve the higher EE savings goals in the proposed 2010 EE Plan. Figure 3: Actual and Projected Efficiency Budget To achieve the higher level of EE savings, the budget is projected to increase by over 50% above current levels to $3 million by FY 2013. This additional EE program expenditure will have a retail rate impact of around 1% by 2013. Energy efficiency is an investment that returns savings over a 10- to 15 -year period, as most equipment installed lasts that long and provides energy savings over the equipment's useful life. The energy savings will result in lower electricity bills for customers, as they consume fewer kilowatt-hours. Over the lifetime of the equipment, the cost savings from reduced energy usage exceed the initial investment. Towards the end of the proposed 2010 EE plan, retail rates will be 5 to 7% higher compared to a scenario without any EE programs at all, including those funded from Public Benefits funds. The retail rate impact from the incremental increases in EE programs that are funded from additional supply funds will CMR: 188:10 Page8of10 result in a retail rate impact of between 3% and 4% by 2020. The average bill will drop by about 1% as a result of the 2010 EE Plan. Summary of Proposed 10 -year EE Plan Recommendations The proposed 2010 10 -year EE Plan contains the following recommendations: • Establish an incremental electric EE savings goal for 2011 of 0.6% of projected annual energy use and increase this goal by 0.05% per year to reach a 0.8% annual EE savings by 2015. Maintain this annual incremental savings goal of 0.8% of annual energy use until 2020. • Establish a 10 -year cumulative electric EE goal of 7.2% of projected annual energy use to be achieved by 2020. This effect is shown in Figure 3 below. • In addition to the $1.8 million Public Benefits funds used for EE measures and programs, utilize up to $1.2 million per year of additional funding to implement electric EE programs for three years starting in FY 2011. Part of the enhanced budget could fund the increased UMS program manager staffing. The supply funding requests will be determined annually in the budget process. If these goals can be achieved, the City will exceed the 4.3% cumulative electricity consumption reduction (2020 target) set under the 2007 Climate Protection Plan (CPP). With an estimated cumulative savings of 1.4% from programs implemented between 2008 and 2010, plus the projected 7.2% savings over the next ten years, the cumulative energy savings through 2020 would be 8.6%, or double the 4.3% EE reduction goal in the CPP. The corresponding CO2 emissions reduction is estimated to be 32,000 tons, or approximately 20% of the 145,000 tons of CO2 emissions associated with the electric portfolio in the base year of 2005. COMMISSION REVIEW AND RECOMMENDATION Staff provided a discussion of the proposed methodology to evaluate EE potential at the November 2009 meeting of the UAC. The UAC supported staff's plan to evaluate the cost- effectiveness of EE using the cost of renewables as the marginal cost. During its February 3, 2010 meeting, a draft of the 2010 Ten -Year Electric Energy Efficiency Plan was provided to the UAC for discussion. At that meeting, the UAC reviewed the preliminary results of the potential study and supported the proposed Plan. At its March 9, 2010 meeting, the UAC discussed the types of efficiency programs for which the greatest potential exists (lighting) and requested greater detail on the work performed by staff in developing, administering, and contract management of programs to support the justification for increased staffing to complete these activities. After discussion, the UAC voted unanimously to support the recommendation that City Council approve the 2010 Ten -Year Electric Energy Efficiency Plan. Draft minutes from that meeting are provided as Attachment B. RESOURCE IMPACT If approved, electricity supply funds will be utilized for up to $1.2 million per year to implement programs for three years starting in FY 2011. Part of the total enhanced budget for EE programs will need to be used to increase UMS staffing by one to two full-time program managers in order to expand current and develop new programs to meet the goal of doubling electric energy CMR: 188:10 Page 9 of 10 savings. The supply funding requests will be determined annually into the budget process. For FY 2011, temporary staff will be hired to assist in this expanded EE program effort. Permanent staffing increases may be requested in the FY 2012 budget. POLICY IMPLICATIONS Approval of this recommendation conforms to the Council approved Long -Term Electric Acquisition Plan (LEAP) Guideline which recognizes cost-effective energy efficiency measures as the principal supply resource and requires that they take priority over the purchase of renewable and conventional supply sources. Energy efficiency also enables the community to reduce its carbon footprint and will help achieve the Council approved greenhouse gas reduction targets by 2020. ENVIRONMENTAL• REVIEW Approval of this recommendation does not meet the definition of a project, pursuant to section 21065 of the California Environmental Quality Act (CEQA), thus no environmental review is required. ATTACHMENTS A. City of Palo Alto Utilities 2010 Ten -Year Electric Energy Efficiency Plan B. Excerpted Draft Minutes of the March 9, 2010 Utilities Advisory Commission Meeting REPARED BY: REVIEWED BY: APPROVED BY: 'J CHRISTINE TAM, Resource Planner `.'JOYCE KINNEAR, Manager, Utility Marketing Services SHIVA SWAMINATHAN, Senior Resource Planner CITY MANAGER APPROVAL: ANE RATCHYE Assistant Director, Resource Management TOM AUZENNE Assistant Director, Customer Support Services AA VALERIE O `ONG Director, Utilities Department JAME ENE City e ager x CMR: 188:10 Page 10 of 10 ATTACHMENT A CITY OF PALO ALTO UTILITIES TEN-YEAR ELECTRIC EFFICIENCY PLAN 2010 TABLE OF CONTENTS 1. EXECUTIVE SUMMARY 2 2. INTRODUCTION AND POLICY OBJECTIVES 2 3. 2007 ELECTRIC EE PLAN GOALS AND ACHIEVEMENTS SINCE 2007 4 4. EXISTING PROGRAMS AND IMPLEMENTATION STRATEGIES 6 5. LONG TERM EFFICIENCY PROGRAM GOAL SETTING 6 6. EFFICIENCY PROGRAM PLANS FOR FY 2011 TO FY 2013 6 7. STAFFING IMPACT 6 8. PROGRAM IMPACTS: RETAIL RATES, BILLS AND CARBON FOOTPRINT 6 9. CONCLUSIONS AND NEXT STEPS 6 APPENDIX A: SUMMIT BLUE ANALYTICAL FRAMEWORK, ASSUMPTIONS, AND SCENARIO RESULTS 6 APPENDIX B: SUMMARY OF MODEL OUTPUT OF CPAU ENERGY POTENTIALS 6 APPENDIX C: PROGRAM SCREENING TESTS & DESIGN CONSIDERATIONS 6 APPENDIX D: HISTORICAL PERSPECTIVE OF CITY AND STATE DRIVERS OF ENERGY EFFICIENCY 6 APPENDIX E: GLOSSARY OF ABBREVIATIONS AND TERMS 6 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 CITY OF PALO ALTO UTILITIES TEN YEAR ELECTRIC EFFICIENCY PLAN 2010 1. EXECUTIVE SUMMARY This report outlines the City of Palo Alto Utilities (CPAU) Department's 2010 Ten -Year Electric Energy Efficiency (EE) Plan (2010 Plan or Plan). The 2010 Plan updates the 2007 EE Plan approved by the City Council in April 2007. The Plan updates technology and market parameters, and incorporates lessons learned in implementing programs in the past three years. During Fiscal Years (FYs) 2008 and 2009, the actual electric efficiency savings achieved exceeded goals set in the 2007 Plan, with FY 2010 achievements also expected to exceed goals. Based on this experience and the updated modeling results, the 2010 Plan recommends a 10 -year cumulative EE saving goal of 7.2%, which is double the 3.5% cumulative savings goal set in the 2007 Plan. The main elements of the updated 2010 Plan are as follows: 1. Establishes an annual incremental electric EE savings goal for FY 2011 equal to 0.6% of projected annual energy use and increases this goal by 0.05% per year to reach a 0.8% annual incremental EE savings goal by FY 2015. Maintain the 0.8% annual incremental savings target until FY 2020. 2. Establishes a 10 -year cumulative electric EE goal of 7.2% of projected annual energy use to be achieved by FY 2020. This is a doubling of the 2007 Plan's 10 -year cumulative goal of 3.5%. 3. In addition to the $1.8 million per year Public Benefits funds used for EE measures and programs, utilize up to $1.2 million per year from supply funds to implement electric EE programs for three years starting in FY 2011. Part of the additional supply funds could be used to increase staffing for program delivery. The supply funding requests will be determined annually in the budget process. Upon approval of this 2010 Plan by Council, it will be submitted to the California Energy Commission (CEC) to meet AB 2021 regulatory reporting requirements. 2. INTRODUCTION AND POLICY OBJECTIVES The Palo Alto City Council adopted a "resource loading order" for electric resources in March 2007 when it approved the Long-term Electric Acquisition Plan (LEAP) Objectives and Guidelines. The loading order identifies energy efficiency as the top priority and the most preferable electric resource in the portfolio. The other resources in order of preference are renewable supply, local ultra -clean distributed generation, and, finally, conventional supply. The loading order is consistent with SB 1037 (2005) which specified a hierarchy of resources: efficiency first, then renewable supply, then conventional supply. 2 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 The City has a very long history of implementing energy efficiency programs, starting in the 1970's. Renewable supplies have also long been a cornerstone of the City's electric resource portfolio in the form of contracts for hydroelectric power. Starting in 2004, new renewable supplies began to be delivered to the City in an attempt to meet a Renewable Portfolio Standard (RPS) goal. By 2015, the City's long-term electric supply portfolio is expected to be composed of hydroelectric supplies (50%) and renewable energy supplies (33%), with the balance (17%) purchased principally from fossil fuel based generation in the short-teim electricity markets. The EE achievements are a key part of the electric resource portfolio and have helped lower costs, reduce reliance on fossil -fuel based generation, and reduce greenhouse gas emissions. The 2010 Plan further increases EE goals so that these benefits will continue long into the future. The cost to achieve the Council -adopted RPS goal of 33% renewable energy supplies by 2015 is expected to come at a steep cost premium. Long-term fossil fuel based electricity supplies currently costs approximately 7 to 8 cents per kilowatt-hour (¢/kWh); however, long-term renewable energy supplies cost 10 to 11 ¢/kWh. This high cost premium of renewable energy is another motivation to ensure that EE is considered higher priority, since each unit of long-term electricity saved obviates the need to purchase 0.33 units of high -cost renewable supply. In addition to lowering energy purchase cost, every unit of electricity not consumed reduces costs related to transmission delivery, transmission congestion, and losses in the delivery system. Efficiency and targeted peak -demand reduction programs also help to improve transmission grid reliability on hot summer days — periods when the grid is under stress and the delivery system is least reliable. In November 2009, staff, with input from the Utilities Advisory Commission (UAC), discussed alternative ways to value the avoided energy supply cost when evaluating EE potential. Based on those discussions, this analysis used the current costs of renewable power as the value of the avoided energy cost for EE potential. The California Public Utilities Commission (CPUC) annually establishes the Market Price Referent (MPR), which is a proxy for cost of renewable energy supplies. The MPR is the pre -authorized price for renewable energy for Investor -Owned Utilities (IOUs), and becomes the de -facto floor price CPAU pays for long-tenu renewable energy supplies. The levelized MPR for a 20 -year renewable resource is currently about 10.5¢/kWh, and ranges from 7 to 15 0/kWh for each year (nominal) over the 20 year period. Use of the MPR as the avoided cost for evaluating EE conforms to CPAU's loading order which recognizes cost-effective efficiency measures as the principle electric resource and requires their priority over renewable and conventional supply sources. The City's 2007 Climate Protection Plan (CPP) also relies on electric efficiency and associated load reduction goals to meet greenhouse gas (GHG) emissions reduction targets by 2020. In addition, the CPP established a "carbon adder" of $20 per ton of Carbon Dioxide equivalent (CO2e), increasing at a rate of 5% per year beginning in 2008, to use when making resource decisions. When translated to the cost of electric energy, this carbon adder is about 10/kWh, increasing by 5% per year. Although Palo Alto has long had aggressive EE programs in place, the emphasis of GHG emission reductions has renewed the focus on energy efficiency since 2007. The City's 2007 Climate Protection Plan (CPP) found that electricity usage accounted for 145,000 tons of CO2e 3 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 emissions, equivalent to 20% of the community's GHG emissions in 2005. The CPP relied on electric EE and established a cumulative load reduction goal of approximately 4.3% (43,000 MWh) to deliver 16,000 tons of CO2e reduction by 2020. The updated 2020 electric. EE goals recommended in this plan exceeds the 2007 CPP GHG emissions reduction goals. In addition to Council -set goals for GHG emissions reductions and efficiency programs, the City is also subject to state legislative and regulatory mandates. AB 2021 (2006) requires municipal electric utilities to develop Ten -Year Electric EE plans and submit them to the California Energy Commission (CEC) every three years. The first such plan, the 2007 Ten -Year EE Plan, was approved by Council in April 2007, and it was later submitted to the CEC as required by the law. This updated 2010 Ten -Year Electric EE Plan also meets the AB 2021 regulatory requirement. A more detailed history of City Council actions and state legislative actions is provided in Appendix D. 3. 2007 ELECTRIC EE PLAN GOALS AND ACHIEVEMENTS SINCE 2007 The 2007 Plan's goals were to achieve 0.25% and 0.28% annual incremental efficiency savings in FYs 2008 and 2009, respectively, and to achieve a 10 -year cumulative EE saving of 3.5% by 2016. Since the approval of this 2007 Ten -Year EE Plan, considerable progress has been made in terms of expanding program management, in retaining contractors to implement programs, and in increasing educational outreach. The actual efficiency gains in the past two years (0.44% in FY 2008 and 0.47% in FY 2009) were well above the targets and were close to double the level of savings compared to the prior two years. The City has been successful in exceeding the 2007 Plan's goals primarily because aggressive new programs administered by third parties were added. These new programs allowed greater marketing to customers without increasing City staff. In addition, a wider variety of efficiency measures are now provided to customers in an easy -to -access format. The electric EE achievements in the past three years came mostly from lighting projects: from both residential customers (the compact fluorescent lighting "five for $1.00" promotion and holiday light exchanges) and non-residential (Right Lights+) upgrades to lighting. Also important to achieving these totals were programs for non-residential Heating, Ventilating, and Air Conditioning (HVAC) systems and residential refrigerator recycling programs. Tablel below provides the summary EE goals, achievements, and expenditures over the past two years. In FY 2008, an annual net savings of 4,399 megawatt -hours (MWh) (or 0.44% of annual load) was achieved at a cost of $1.48 million. On a life cycle basis, the average cost of the saved energy was 3.1 cents per kilowatt-hour (¢/kWh). The annual savings increased to 0.47% of load in FY 2009, which was achieved at a cost of $1.79 million. The City anticipates it will achieve incremental EE savings of 0.5% of annual load for FY 2010, which is significantly higher than the goal established in the 2007 Plan of 0.35% of annual load. 4of36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 Table 1: Electricity Efficiency Achievements for FY 2008-09 FY 2008 (Actuals) FY 2009 (Actuals) FY 2010 (Projections) Efficiency — Goals Annual energy savings (MWh) 2,500 2,800 3,500 Percent of Annual Load 0.25% 0.28% 0.35% Energy —Achievements Lifecycle energy savings (MWh) 48,220 51,426 TBD Annual energy savings (MWh'I 4,399 4,668 TBD Percent of Annual Load 0.44% 0.47% 0.5% Budgets & Expenditures ($M) Customer Rebate 0.48 0.6 TBD Program Administration/Contractor 1.00 1.17 TBD Total Cost 1.48 1.79 TBD Average life -cycle savings cost (¢/kWh) 3.10 3.5¢ TBD Tables 2 and 3 below provide a more detailed report of the EE measures implemented, corresponding savings, and cost during the past two years. The detailed programmatic results are provided annually to the UAC, Council and the state to meet SB 1037's regulatory reporting requirement. 5 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 Table 2: CPAU EE Program Measures, Savings and Cost Summary for FY 2008 ,.' . . .. . . Palo Alto - - : ': . .. � .. �.Resource Savings ;Summary _. ,.'. , _. _ '_ Cost Summary .. Net Gross Net Net Lifecycle Utility Utility Mktg, Program Sector Demand Net Peak Annual Net Annual Lifecycle GHG Utility Direct EM&V, and (Used in CEC Units Savings kW kWh kWh kWh Reductions Incentives Install Admin Cost Total Utility Report) Category installed (kW) Savings Savings Savings savings {Tons) Cost {$) Cost ($) ($) Cost ($) Appliances Res Clothes Washers HVAC Res Cooling 36 23 15 20,691 16,553 297,950 182 $ 9,700 $ 6,882 $ 16,582 Appliances Res Dishwashers 389 3 4 11,808 9,446 122,803 88 $ 18,450 $ 2,068 $ 20,518 Consumer Electronic: Res Electronics HVAC Res Heating Lighting Res Lighting • 22,340 1,338 117 982,482 785,986 6,919,832 3,694 $ 95,364 5 206,909 $ 305,272 Pool Pump Res Pool Pump 3 2 1 4,200 3,360 33,600 19 $ 750 5 560 $ 1,310 Refrigeration Res Refrigeration 801 74 74 596,206 476,965 8,585,366 4,657 $ 69,815 $ 151,016 $ 220,831 HVAC Res Shell 78 4 4 4,058 3,270 65,407 37 $ 22,225 $ 3,496 $ 25,722 Water Heating Res Water Heating Comprehensive Res Comprehensive Process Non -Res Cooking HVAC Non -Res Cooling 270 5 3 1,162,999 930,399 10,072,724 5,358 $ 60,441 $ 153,690 $ 214,131 HVAC Non -Res Heating Lighting Non -Res Lighting 9,747 367 318 2,152,720 1,722,176 19,266,557 10,666 $ 174,419 $ 405,754 $ 580,173 Process Non -Res Motors 11 17 13 111,878 89,502 1,342,538 714 $ 2,880 $ 20,850 $ 23,730 Process Non -Res Pumps Refrigeration Non -Res Refrigeration 5 5 5 79,885 63,908 620,173 327 $ 15,980 $ 17,806 $ 33,786 HVAC Non -Res Shell Process Non Res Process Comprehensive Non Res Comprehensive 3 110 110 333 266 2,664 1 $ 525 $ 40 $ 555 Other Other 933 763,575 297,067 891,202 493 $ 2,775 5 39,232 $ 42,008 SubTotal 34,597 1,950 656 5,890,865 4,398,899 48,220,815 26,215 $ 476,324 $ 1,008,304 $ 1,484,628 T&D T&D 1 156 156 763,575 38,178,750 20,128 Total 34595 2,106 822 5,890,865 5,162,474 86,399,565 EE Program Portfolio TRC Test 2.43 46,343 $ 476,324 $ 1,006,304 Table 3: CPAU EE Program Measures, Savings and Cost Summary for FY 2009 $ 1,484,628 Palo Alto ::,.. Resource Savings Summary :",- ,: - Cost :Summary f. Program Sector (Used in CEC Report) Category Units Installed Net Demand Savings (kW) Net Peak kW Savings Gross Annual kWh Savings Net Annual kWh Savings Net Lifecycle kWh savings Net Lifecycle GHG Reductions (Tons) Utility Incentives Cost ($) Utility Utility Mktg, Direct EM&V, and Install Admin Cost Cost ($) ($) Total Utility Cost ($) Appliances Res Clothes Washers 290 _ 2 2 48,006 38,405 384,048 212 $ 20,390 $ 6,797 $ 27,187 HVAC Res Cooling 22 2 1 8,550 6,840 123,120 79 $ 5,800 $ 3,204 5 9,004 Appliances Res Dishwashers 343 3 3 15,092 12,074 156,957 87 $ 17,150 $ 2,829 5 19,979 Consumer Electronic Res Electronics HVAC Res Heating Lighting Res Lighting 6,953 427 89 1,023,296 818,637 9,222,662 4,927 $ 195,903 $ 158,784 $ 354,687 Pool Pump Res Pool Pump 7 5 3 9,800 7,840 78,400 43 $ 1,750 $ 1,388 $ 3,138 Refrigeration Res Refrigeration 658 71 71 559,874 447,899 8,062,185 4,373 $ 48,185 $ 143,845 $ 192,030 HVAC Res Shell 81 5 5 19,180 15,344 306,881 173 $ 20,718 $ 6,123 $ 26,841 Water Heating Res Water Heating Comprehensive Res Comprehensive Process Non -Res Cooking 1 2,262 1,810 21,715 12 $ 350 $ 382 $ 732 HVAC Non -Res Cooling 203 7 7 1,157,899 926,319 9,889,412 5,265 $ 76,041 $ 168,548 $ 244,590 HVAC Non -Res Heating Lighting Non -Res Lighting 3,412 354 321 2,199,922 1,759,938 19,379,044 10,732 $ 156,032 $ 554,446 $ 710,478 Process Non -Res Motors - Process Non -Res Pumps Refrigeration Non -Res Refrigeration 21 65 65 787,197 629,758 3,770,540 1,988 5 70,192 $ 121,342 $ 191,534 HVAC Non -Res Shell Process Non Res Process 7 896 717 9,318 5 $ 140 $ 152 $ 292 Comprehensive Non Res Comprehensive 24 883 883 2,664 2,131 21,312 11 $ 4,200 $ 341 $ 4,541 Other Other 10 $ 750 $ 760 SubTotal 14,032 1,825 1,452 5,834,639 4,667,711 51,425,595 27,908 $ 517,601 $ 1,168,182 , $ 1,788,783 T&D T&D Total 14,032 1,825 1,452 5,834,639 4,667,711 51,425,595 27,908 EE Program Portfolio TRC Test 2.46 $ 617,601 $ 1,168,182 $ 1,785,783 6 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 4. EXISTING PROGRAMS AND IMPLEMENTATION STRATEGIES A summary tabulation of existing utility funded electric efficiency programs is shown in Table 4 below. Table 4: CPAU's Existing EE Programs 9i ' s i !8 4 g UMS Staff 1i Rebate customers for purchasing and installing energy efficient appliances, insulation, furnaces, pool pumps, water heaters, and other items. All Residential Smart Energy program All Residential Refrigerator Recycling JACO Rebate customers $35 for removing an old working refrigerator. Unit recycled. All Residential Residential New Construction Rebate UMS Staff Rebate customers who exceed City's Green Building Ordinance up to $900. Low Income Residential Low Income Residential Energy Assistance Program (REAP) Synergy An energy specialist visits residents' homes and performs a free energy audit. Recommendations are given for energy saving measures. Replacements and repairs are made to insulation, weather stripping, lighting, refrigerators, and furnaces (if needed). All Residential Residential Home Energy Audit Aclara On -Line energy audit of household energy and water use. All Residential Green@Home Acterra Acterra provides free in -home energy audits and electric meter information (blue line monitors). All Residential Training and workshops Various Contractors and Staff Workshops on energy and water conservation issues for the public. Small Business Right Lights+ Ecology Action Contractor performs energy audit on facility, recommends changes, assists customer in making upgrades, and completes paperwork for rebate. All Business Commercial Advantage Program (CAP) UMS Staff Rebates on installation of the following energy efficient equipment types: lighting, HVAC, chillers, boilers, food service, refrigeration, office equipment, appliance, & custom saving programs. All Business Business New Construction Rebates UMS Staff Rebates for new construction exceeding City and state energy requirements. Al[ Business Data Center Efficiency Program UMS Staff Rebates for server virtualization and other data center efficiency measures. Large Business Commercial & Industrial Energy Efficiency Program Enovity Commissioning and installation assistance for large businesses installing efficiency measures. Business Kitchens Efficiency Programs for Commercial Kitchens National Resource Mgmt Direct installation assistance for efficiency measures in commercial kitchens. All Business Training Various training and workshops for business customers, including Life Cycle Costing, Building Operator Certification, and others. Large Business Large Customer Facility Manager Meetings UMS Staff & Others Training on a variety of efficiency measures, from chillers to LEED certification on buildings. . Large Business MeterLinks Automated Energy On -Line access to metered utility usage for large customers. 7 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 Staff utilized the following guidelines in implementing EE programs: • Programs shall be cost-effective on a CPAU combined utility basis. Some residential items, such as washing machines, dishwashers, and insulation are not cost-effective on electricity alone, but are when considering all utility commodities. Other items, such as window replacements, remain not cost-effective even when all utility savings are calculated and are not, therefore, rebated. Limited -time promotion may be offered for emerging technologies such as LED spring light campaign. • Programs shall be similar in nature to those available in surrounding communities, for ease of customers and of contractors. • Programs for hard -to -reach customers (low income or small commercial) are designed to gain as much customer involvement as possible, including providing direct install options at no cost to the customer. Other customer groups will need to participate in the costs of efficiency implementation. • Programs will not incent customers to install new high -electric using equipment for example; customers will not be rebated for the installation of new residential air conditioners where none has existed previously. • Funding for programs should be reasonably balanced across residential and non- residential customer classes, in similar proportion to their payments of utility Public Benefit charges. • Existing programs are screened every year and programs budgets adjusted annually to achieve goals optimally. Staff continuously monitors EE technologies and other market parameters to understand the suitability of promoting various efficiency measures within the City. Efficiency programs are evaluated annually and updated whenever deemed necessary. In addition, the long tetin efficiency potential is assessed every three years. An illustration of the program planning, implementation, and reporting cycle is shown in Figure 1. 8 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 Figure 1: Illustration of Efficiency Program Assessment, Implementation, and Reporting Process Every 3 Years Set Long -tern Goals Efficiency Potential conomic & Market Analysis of Efficiency Measures Avoided Cost Assessment Annual ( Existing Programs 8 Performance ) Regulatory Reporting / Adjust Short- Incorporate •.term Targets . into Load & Budgets - Forecast . • Program Implementation CNew Technologies, Programs, Concepts) Measurement & Verification Annual Regulatory Reporting Over the past five or more years, efficiency programs have focused on the following program areas: • Getting businesses to upgrade to T8 fluorescent lighting with electronic ballasts as replacements for older technology T12 lamps with magnetic ballasts. As technology has developed, newer T8's have also continued to improve savings, allowing customers to upgrade to the newer lights and continue to improve efficiency. • Supporting residents in the replacement of incandescent lighting with compact fluorescent lights (CFL's). • Incenting the replacement of older and inefficient HVAC equipment and appliances with items achieving greater energy savings than the minimum efficiency standards at the time of replacement. For example, residents are encouraged to replace refrigerators with ENERGY STAR® certified models, while businesses are encouraged to exceed the State of California's Title 24 energy budget requirements when upgrading HVAC systems. • Making it easier for hard -to -reach customers (low income and small commercial) to make EE upgrades through direct install programs. 9 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 • Reaching deeper into building performance and into higher levels of savings through the more extensive new construction rebates and the Commercial and Industrial Energy Efficiency Program (CIEEP). • Working with community groups, such as Acterra, the Community Environmental Action Partnership (CEAP) and Wave One, to increase the community's knowledge of and participation in programs. • Expanding upon educational opportunities for all customers, from students to facility managers at the largest customer sites in Palo Alto. 5. LONG TERM EFFICIENCY PROGRAM GOAL SETTING In order to assess the market and technology landscape and bring analytical rigor in setting the new Ten -Year Electric EE goals to meet AB 2021 requirements, CPAU, in collaboration with other Northern California Power Agency (NCPA) members, engaged a consultant to develop a new energy efficiency potential assessment model. The model estimates technical, economic and market potential for residential and commercial customers. Technical potential is the energy savings that would result from installation of the most energy efficient measures that are readily available in the market. Economic potential is the energy savings that would result from installation of only the cost-effective measures. Energy savings from non -cost effective measures such as ground source heat pumps for residential homes are excluded in the economic potential. Market potential is a subset of the economic potential that reflects the reality of customers' awareness and willingness to adopt certain measures customer's willingness is in turn influenced by messaging, incentive level: and retail rates. One of the key criteria used in determining the EE goals is the cost-effectiveness of EE programs. AB 2021 requires that "each local publicly owned electric utility, in procuring energy to serve the load of its retail end -use customers, shall first acquire all available energy efficiency and demand reduction resources that are cost effective, reliable, and feasible."1 For the purpose of EE program planning and evaluation, staff uses both the Total Resource Cost (TRC) test and the Utility Cost Test (UCT) to deteu nine the cost-effectiveness of the programs (see Appendix B for the definition of the cost-effectiveness tests). The TRC accounts for the benefits and cost to both the utility and its customers, while the UCT test provides a cost comparison of supply-side resource and energy efficiency from a utility procurement standpoint. A TRC ratio that is greater than one indicates that the EE program is beneficial to the community (i.e. it costs the 1 Public Utilities Code, Section 9615 (a) 10 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 community less than the cost of not doing it), while a UCT ratio greater than one indicates that each kWh of avoided energy costs the utility less than each kWh of energy purchased. The EE potential model is used to determine the available and feasible energy efficiency potential over the 2011 to 2020 period. The following input assumptions are used in the analysis: • Palo Alto's avoided supply cost over the 10 -year assessment period ranges from 8 to 120/kWh. These costs include cost of energy, capacity, transmission, the City's carbon adder of 1 to 2¢/kWh, and system losses. This calculation (avoided cost plus the carbon adder) is approximately the same as the current MPR plus avoided transmission and loss charges. • Utility rebates are set at 50% of the incremental cost (above new standard equipment) for the EE measures. • Penetration of energy efficient technologies is assumed to be similar to that for PG&E customers in the same climate zone. The model calculates the full technical EE potential comprising both economic and uneconomic EE measures. The economic potential includes only cost-effective EE measures. The market potential in 2011 is calibrated based on the last two full years of actual program results and projected efficiency achievements for FY 2010. Market potential generally increases over time as customers' attitude toward EE measures change. It should be noted here that the EE savings that are counted toward the goal can only include the incremental EE savings beyond state or local standards for new equipment. For example, if an old refrigerator is replaced, allowed EE savings are calculated by subtracting the energy used by the new refrigerator less the energy used by a standard new refrigerator. If only a standard new refrigerator replaces the old refrigerator, no EE savings are counted. EXAMPLE: Using numbers to illustrate this example, assume: • The old refrigerator uses 1,500 kilowatt-hours per year (kWh/yr), • A new standard refrigerator uses 600 kWh/yr, and • A new super efficient refrigerator uses 400 kWh/yr. The energy savings that can be counted is the difference between the energy used by the new super efficient refrigerator and the standard model, or 200 kWh/yr (600 kWh/yr — 400 kWh/yr) even though the actual savings will be 1,100 kWh/yr (1,500 kWh/yr— 400 kWh/yr). The efficiency goal is based on 'net savings' that excludes any naturally occurring savings that would have resulted from appliance replacements over time in the absence of utility EE programs. The savings are calculated in this way so that utilities encourage installation of the most efficient equipment and in recognition that eventually older appliances will need to be replaced with new models that will, due to updated standards, save energy "naturally." This method also ensures that the savings last as long as the appliance and not just until the old appliance would have been replaced. 11 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 There are a number of market realities that needs to be considered when setting EE goals. There are many barriers to achieving all of the economic potential. Long equipment turnover cycles is one such barrier - many items will continue operating, albeit inefficiently, beyond the end of their useful life. With limited financial resources, customers may choose to keep an older piece of equipment instead of purchasing a new efficient model with lower energy costs as replacement, especially if the payback period is more than 1 to 2 years. In other situations, the customer may be resistant to adopting a new efficient technology due to perceived risk or differences in operational characteristics. As an example, many residential customers continue to dislike compact fluorescent light bulbs due their limited dimming ability and mercury content. New EE goals should be set realistically from both the perspectives of program and budget ramp -up. New programs take time to establish and expand. Recent program achievements and expenditures should be taken into consideration in the goal -setting process. Staff also analyzed the impact on customer rates, customer bills and staff resources. These results are presented in section 8. Proposed Ten -Year Electric Energy Efficiency Goals (2011 — 2020) Based on the model assumptions stated earlier, staff recommends setting an incremental electric EE savings goal for FY 2011 equal to 0.6% of projected annual energy use, and increasing by 0.05% per year to reach 0.8% annual incremental EE savings by FY 2015. This results in a 10 - year cumulative electric EE goal of 7.2% of the projected annual energy use to be achieved by 2020. These proposed goals are based on the market potential as projected by the EE potential study during the 10 -year period. Figure 2 shows the cumulative EE savings expressed in MWh and as a percentage of the projected load between 2011 and 2020. Figure 2: Proposed 10 -year cumulative EE savings Percentages represent cumulative EE savings relative to load 12 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 Proposed Electric Energy Efficiency Program Budget To develop the goals, staff took into consideration past actual program achievements and expenditures. The recommended EE goal for FY 2011 is over 25% higher than the actual EE savings achieved in FY 2009. The projected EE budget is based on the proposed goals. Based on the model results, the projected EE budget for 2011 is $2.2 million, which is also about 25% higher than the actual EE expenditure in FY 2009. By 2014, the projected EE budget is approximately double that in FY 2009 (see Figures 3 and 4 below). Figure 3: Actual and Projected Annual EE savings 13 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 Figure 4: Actual and Projected Annual EE Budget Projected Electric Energy Savings by End Use In teriiis of the expected distribution of EE savings, residential EE program savings represent around 28% of the total EE savings in FY 2011; this ratio drops to 17% in 2012. By comparison, residential load represents makes up around 16% of the City's total load. As shown in Figures 5 and 6, lighting measures represent the bulk of the residential and commercial potential EE savings. However, federal legislation requires that all general-purpose light bulbs be 30% more energy efficient than current incandescent bulbs beginning in January 2012. This reduces the potential for residential EE savings, but has a lesser impact on commercial EE savings. 14 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 Figure 5: Projected Residential EE savings by end use Figure 6: Projected Commercial EE savings by end use HVAC/Shell El Appliances Water Heat D Lighting lY ✓Jr Jam f Fx i p,Ty r6i�`f f� .t"�'b' -x A 2 f 6P 1% F. ,y„s pN �d.,.a�%, y,q,t S" �tj� �, �} ,: t �< Other ® HVAC/Shelf © Refrigeration b Lighting f? , f Q , fgd: ?�F . r� r f4fA Yl AV, 15 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 6. EFFICIENCY PROGRAM PLANS FOR FY 2011 to FY 2013 While CPAU has been successful in ramping up the efficiency gains from utility programs in the past three years, the level of effort and cost for implementation continues to rise. The likelihood of achieving the 0.6% to 0.8% goals set is highly dependent on customer response. The slow economy and harder economic times have adversely impacted efficiency programs of sister utilities and have been felt by CPAU, too. Hopefully the considerable amount of grants and tax credits being provided for energy efficiency in the coming years will continue to increase interest in energy efficiency investments by residential and commercial customers. In the next three years, Light Emitting Diode (LED) technology is projected to become more available to customers. Several lighting styles are near to reaching commercialization, both in cost and in capabilities. In the next two years, some are projected to achieve ENERGY STAR quality rating. A few competitive and effective technologies are now available, such as LED case lighting for commercial refrigeration units and holiday lights. These technologies are expected to continue to come down in price and, thus, become more accessible to customers. CPAU will continue to implement the recently developed new construction rebates for residents and businesses. The commercial lighting (Right Lights) program is recently enhanced with new efficiency measures for commercial kitchens and other businesses. A new Commercial and Industrial Energy Efficiency Program (CIEEP) that offers technical assistance and cash incentives to large businesses is being implemented. New programs will need to be continually developed as existing programs reach maturity and market saturation. The Commercial Advantage offerings will continue to be re -optimized to better reflect current technology, customer needs, and costs. All residential programs will be reviewed to ensure cost-effective delivery and to integrate the rebate programs from electricity, natural gas, and water utilities. Staff is implementing a Home Energy Report, which will provide residents with a monthly comparison of their electric and natural gas usage with those of similar homes in the area. Staff plans to expand the program to include water comparisons in the next year. The program is being partially funded by the Federal Government's stimulus funding through the Energy Efficiency Community Block Grant Program (EECBG). Hopefully this comparative report along with the ongoing emphasis on climate change will increase the focus of residential customers on improved efficiency. On the other hand, continued tightening of both federal and state (Title 24 and Title 20) efficiency requirements for equipment and appliances, as well a potentially stagnant economy, will make it more difficult for CPAU to achieve its efficiency goals since only savings above standard requirements can be counted toward goal achievement. A second efficiency measure being partially funded through the EECBG is the installation of LED street lights, as a replacement to the City's current High Pressure Sodium (HPS) lamps. This is a continuation of CPAU's pilot study, conducted in 2009, on a few LED and induction lamps. Community feedback showed that LEDs are generally preferred over HPS and induction streetlights and achieved a 30 to 40% energy savings. The biggest drawback of the LED fixtures is the color of the light output. Compared to the yellowish glow of the HPS streetlights, the light 16 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 output from LEDs appears starkly bluish white. It is anticipated that approximately 10% of existing HPS fixtures could be replaced with LED fixtures within three years. Replacing all 6,400 HPS fixtures within the City has the potential to achieve up to 0.15% of energy savings (currently streetlights account for 0.4% of the City's annual electricity consumption). Also in development are two financing programs: the Electric Efficiency Financing Program (EEFP) for businesses and the CalifomiaFIRST property tax based financing for residential efficiency and renewable energy installations. The EEFP will provide zero interest, non -secured loans to businesses who install efficient equipment, and it is targeted at businesses that rent their office space. The CaliforniaFIRST program is a joint action program with 14 counties and about 100 other cities. It will allow residents to finance efficient equipment installations and make payments through their property tax assessments. CPAU is also working on public -private partnerships with the local non-profit groups. Efforts with Wave One, and a small business providing refrigeration efficiency measures, Humitech, where both of these coalitions applied to the CEC for grants under the State Energy Program unfortunately did not yield desired results. Neither project received grant monies. CPAU continues to look for ways to coordinate efforts through these partnerships. Staff is also reviewing several new programs that may require more time to evaluate and implement. In order to maximize participation and optimize program savings, staff anticipates sequencing new programs in targeted "blitzes" and may also need to roll out thematic programs by customer type or business type, such as data centers, industrial motors, commercial refrigeration or restaurants, for example. Demand Reduction Programs Demand reduction relieves stress on the electric grid during peak usage times. Peak load reduction can be accomplished through more efficient equipment, which reduces peak loads by lowering the power needed to perform a particular function, or through demand response, which is the ability to reduce electricity use on short notice for a short period of time. Demand reduction is not a high priority resource for Palo Alto due to both the temperate climate and types of loads within the City. The City has a relatively flat load shape (also called a high load factor), which results in less need to purchase very expensive peak -time electricity. This can be compared with utilities in California's Central Valley, such as the Sacramento Municipal Utility District, Lodi Electric, Redding Electric, and others, who have a sharp "Needle Peak." This extremely high demand in Central Valley locations is caused primarily from residential air conditioning loads and requires the utilities to purchase significant amounts of high-priced, and generally less environmentally preferable, electricity. In these utilities, Demand Response programs to lower needs during the needle peak are very cost-effective. In Palo Alto, by contrast, Demand Response programs are relatively less cost-effective. The 2006 report prepared by the consultant RMI for the 2007 Plan came to this conclusion, and the cost situation has not changed significantly in the past three years. There have been some 17 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 regulatory and legislative actions at both the federal and state level that have resulted in CPAU re-evaluating demand reduction programs. CPAU is in the process of exploring the implementation of a volunteer pilot program for large customers. This opportunity may be enhanced by installing advanced meters, and it is being investigated as part of the preparation of the smart grid strategic plan. Programs that Complement Energy Efficiency Programs Some programs are complementary to efficiency and/or demand response, including advanced metering at customer locations and deploying sensing and switching devices along the distribution system. A smart grid road map for CPAU is being undertaken to map out options and to determine the costs and benefits of different systems. Other programs that offer promise include supply efficiency (improvements to generation, transmission & distribution), demand reduction and demand response beyond the proposed voluntary programs, energy storage, and additional joint programs with NCPA members. Building -focused alternatives include building code enhancements (such as through the City's Green Building Program), building permit process, training for inspectors/planners, and special incentives for ENERGY STAR -rated buildings or similar building energy rating systems. 7. STAFFING IMPACT CPAU's EE programs must either be implemented by internal staff or by third -party agents under contract to the City. Whether or not internal staff directly implements a program, any new initiative requires significant staffing commitments by CPAU. For instance, when a new third - party program is desired, staff must develop a request for proposals (RFP) and related scope of work, work with internal City departments to issue the RFP and review responses to it, complete final contracts and Council approval documents, work with the contractor on the development and implementation of the program, market the program to customers, inspect work upon completion of each job, administer contract payments and timing, and ensure the impact and process of the program are appropriately evaluated by another third -party Measurement and Verification consultant (as required by state law). In addition to the process outlined above, working in a public -partnership arrangement, as opposed to contracting with a more traditional vendor, requires extensive education on the part of staff to ensure that the private agencies understand the complex and specific state and federal reporting requirements for all programs. Thus, regardless of the delivery mechanism selected, the addition of any new efficiency initiatives requires considerable staffing resources. CPAU's Utility Marketing Services (UMS) group delivers programs to all customer types for electric, gas and water utilities, in addition to key account management and fiber optic front-end services. These nine full-time equivalent (FTE) positions with support from two to three interns and temporary part-time clerical assistants currently spend one-third to one-half of their time working in electric EE program management. The level of staffing allocated to program delivery has not increased over the past several years, except for the approval of a part-time temporary clerical assistant to input program achievements into the database and to answer residential 18 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 customer requests for information. At the same time, electric EE results have doubled and reporting requirements to the CEC and others have increased dramatically. EE results can not continue to increase without providing additional resources todeliver the programs. While funding is projected to increase through both supply resources and the transfer of two million dollars from the Calaveras reserve to run the EEFP program for four years, this funding is all allocated to increased incentives and contractor payments. In order to reach the goals established in this plan, one to two new,full-time program managers will need to be added to the UMS staff Upon the approval of this Plan, staff will need to begin requesting additional staffing through the mid -year process in FY 2011 and/or in the budgeting for FY 2012. 8. PROGRAM IMPACTS: RETAIL RATES, BILLS AND CARBON FOOTPRINT Electric Energy Efficiency Program Expenditures Funding for EE programs in the past has principally come from the mandated 2.85% Electric Public Benefit (PB) surcharge collected through customer retail rates. The total PB surcharge is expected to remain flat at around $1.8 million between FY 2011 and FY 2020, Any incremental EE program funding above this level will come from electric supply funds rather than increases in the PB surcharge. To meet the recommended EE goals for FYs 2011, 2012 and 2013, the corresponding EE program budgets are estimated at $2.2 million, $2.6 million, and $3.0 million, respectively. Figure 7: Projected EE Program Expenditures Millions $6 $5 $4 _ $3 $— .... .. . . . . .. . .._ $1.8M benefit wtia�. from surchage — EE __ supplyfunds,... public program 0.4 smm.. 0.8 ;;,, tl Y»i:',{ $ from 1.1 :;i�Y 1.5 . tg Y « Y% n.m. 2.2 , '" F 1 na . .yt t . ? rk 2.7 ea , i ;.iy 2 8 3 2.9 `, w3 3.1 I I I l I I I I I I I 1 I N CO 10) O r (NI CO LC) CD f--• 0 C) O O O 0 r - - r - r r - .- r N 00 O O 0 0 0 0 0 0 0 0 0 0 N N N N N N N N N N N CV N N 19 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 Supply Funding of Electric EE Programs and Retail Rate Impacts Staff recommends that in addition to the PB• funds used for EE programs, an amount of up to $1.2 million per year of supply funds be utilized to implement electric EE programs for three years starting in FY 2011. For the next three years, the total supply funds to be expended for EE programs is around $2.4 million (see Figure 7 above). This additional EE program expenditure will have a retail rate impact of about 1% in FY 2013. Energy efficiency is an investment with return over a 10- to 15 -year period, as most equipment installed lasts longer than 1 year and provides energy savings over the equipment's useful life. The energy savings will result in lower electricity bills. Over the lifetime of the equipment, the cost savings from reduced energy usage exceed the initial investment. Towards the end of the proposed 10 -year EE plan, retail rates could increase by 5% to 7% due both to the increased expenditure and reduced energy use. However, the average bill is estimated to drop by 1 to 2%; the average bill for EE program participants would drop even more. The actual rate and cost impact is highly sensitive to the measures implemented and the lifetime of the measures. Since customers implementing the measure will see bill reductions, while the non -participant bills will increase, EE programs are designed to reach all segments of the customers to increase the percentage of customers who achieve savings. Carbon Footprint Reductions CPAU is on track and projected to exceed the 4.3% cumulative electricity consumption reduction (2020 target) set in the 2007 Climate Protection Plan. With an estimated savings of 1.4% between 2008 and 2010, plus the projected 7.2% savings over the next ten years, the comparable cumulative energy savings through 2020 could be 8.6%, which is double the 4.3% projected in 2007. If this reduction is achieved, the corresponding carbon dioxide (CO2) emissions reduction is estimated to be 32,000 tons, which is double the reduction estimated three years ago. The 32,000 tons of CO2 emissions reduction represent approximately 20% of the 145,000 tons of CO2 emissions associated with the electric portfolio in the 2005, the base year. 9. CONCLUSIONS AND NEXT STEPS Upon approval of the 2010 Ten Year Electric Efficiency Plan by the Council, CPAU will submit the plan to the CEC before June 2010, as required by state law. In summary, the 2010 EE Plan is as follows: 1. Establishes an annual incremental electric EE savings goal for FY 2011 equal to 0.6% of projected annual energy use and increases this goal by 0.05% per year to reach a 0.8% annual incremental EE savings goal by FY 2015. Maintain the 0.8% annual incremental savings target until FY 2020. 2. Establishes a 10 -year cumulative electric EE goal of 7.2% of projected annual energy use to be achieved by FY 2020. This is a doubling of the 2007 Plan's 10 -year cumulative goal of 3.5%. 20 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 3. In addition to the $1.8 million per year Public Benefits funds used for EE measures and programs, utilize up to $1.2 million per year from supply funds to implement electric EE programs for three years starting in FY 2011. Part of the additional supply funds could be used to increase staffing for program delivery. The supply funding requests will be deteinnined in the budget process. Staff will continue to review the existing programs based on customer feedback, market data and technology information. Existing programs will be updated and new programs will be added in accordance to the existing program implementation guidelines to ensure that CPAU will meet the aggressive 2010 EE Plan goals in a cost-effective manner. 21of36 APPENDIX A: SUMMIT BLUE ANALYTICAL FRAMEWORK, ASSUMPTIONS, AND SCENARIO RESULTS Model Overview The Energy Efficiency Potential model is developed by Navigant Consulting (formerly Summit Blue) and contracted through the Northern California Power Agency. The Excel -based model projects technical, economic and market potential over a 10 -year period for electric efficiency programs based on the integration of DSM measure impacts and costs, utility customer characteristics, utility load forecasts, utility avoided costs and rate schedules. Inputs to the model include: • base year energy and demand usage as well as energy and demand forecast for the 10 - year planning period, beginning in FY 2011; • utility avoided costs; • utility rates by customer class (residential and commercial); • estimated number of residential homes (by single family and multi -family) and commercial floor space by building type; • energy efficiency measure (technology) characteristics, measure impact and costs; • initial penetration of base technology and efficient technology by building type; • estimates of decision maker awareness and willingness by measure; • customer incentive levels; • administrative costs; and • first year calibration estimates (i.e. 2010 residential and commercial EE program savings as percentage of load). Model outputs include: • technical potential for the residential and comrn.ercial customer segments, based on installation of the most energy efficient measures that are readily available; • economic potential, based on installation of only cost-effective EE measures; • market potential by year, based on installations of only cost-effective measures, subjected to decision maker's awareness and willingness to implement the measure; • naturally occurring efficiency by year, based on energy savings that would have occurred in the absence of any utility programs; • estimated administrative and incentive costs by year for utility; • levelized cost and market potential in year 2020 for all energy efficiency measures; City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 • electric bill reduction by year; and • cost-effectiveness ratios, based on Total Resource Cost test, Utility Cost Test, Participant Cost test, and Ratepayer Impact test. The model covers 28 residential measures and 38 commercial measures. Emerging technologies that have not yet been widely commercialized, e.g. LED par lamps, are not included. The measure -level energy savings and costs assumptions reflect the most recent deemed energy savings and measure costs in the 2010 E3 model used for annual EE program reporting to the CEC. Base Scenario Assumptions and Results As the base scenario, staff used the following assumptions: • utility avoided costs, which is approximately the same as the current MPR plus avoided transmission and loss charges; • penetration of energy efficient technologies similar to PG&E customers in the same climate zone as Palo Alto; and • customer rebates (incentives) set at 50% of the incremental cost. The EE potential model projects that the market potential in 2020 is around 7% of the load forecast. Figure Al compares the technical, economic and market potential in 2020 for CPAU. Figure Al.: Energy Efficiency Potential Summary 23of36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 The incremental market potential generally increases over time, as customers become more aware of and willing to adopt new EE measures. There is, however, a drop in the incremental EE potential in the residential sector in 2012. This is due to the new federal regulation that requires general-purpose light bulbs be 30% more energy efficient beginning in January 2012. This regulation has a lesser impact on commercial buildings. Figure A2 illustrates the incremental market potential for the residential and commercial sectors. The combined cumulative market. potentials add up to 7.2% of projected load in 2020. Figure A2: Incremental Market Potential for the Residential and Commercial sectors 9,000 , MWh 8,000 7,000 6,000 5,000 - 4,000 - 3,000 .. 2,000 1,000 0_ Commercial Residential 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Tables Al and A2 list the top 15 residential and commercial efficiency measures with the highest market potential in 2020 and their respective levelized costs. 24 of 36 Residential sector City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 Table Al: Top 15 Measures for Residential Customers Measure SF Exist CFL Screw In (>=25W) direct install . .. . (. .. 2 .),..,. stall Multi-Family:CFL Screw In > 25W direct in SF - Exist: Energy Star Refrigerator SF Exist: LED Holiday Lights (100 bulb string) - Exist: Refrigerator Recycling removal of secondary -refrigerator - unconditioned spacer Multi -Family: Energy Star Refrigerator Mufti Family LED Holiday.. Lights (1p0.,_bulb string) SF - Exist; Photocells SF Exist: CFL Screw -I/1116 -24W), direct install. SF Exist: Shade Trees .. .. .... . . . .. . .. . . . . . ........ ..... SF Exist GEL: Torchiere,_Average Wattage._. Multi Family CFL:Torchiere, Average Wattage , .. .__. 5F Exist: VSD Pool Pumps_ SF - Exist: Freezer Recycling removal of secondary freezer unconditioned space „tiµµ SF Exist CFL Screw In(<=15W), direct .install Top 15 Total Energy - Demand - Levelized (MWh) (kW) Cost/kWh 3,253 518 $0.058 1,411 224 $0.059 771 134 $0.122 699 0 $0.125 689 145 $0.054 514 89 $0.122 437 .,. ...,.-, $0.125 403...,....,.., 38........ $0.107. 321 .. .... ........... . .. 53 ...... ...,,. . .$0 085. 291 . ............ . .. ... 85 .$0.032 272 ........... .. 27 $045x.....,...,. 270................ 27 . . . .. ..,!, .. $0,.060....,.... 223,......,..,. 55 $0.130.....,..,.. 194 41 _$ ,•075__.._ 185 32 $0._104 _... 9,932 1,469 Table A2: Top 15 Measures for Commercial Customers Office: Metal Halide Office Metal Halide Office: Metal Halide Health: Metal Halide Misc:Metal Halide Misc: Metal Halide Misc: Metal Halide Measure Office High Bay Lighting T5 High Output Misc: High Bay Lighting T5 High Output., Office: Dimmable Electronic Ballasts Office Plug LoadOccupancySensor 201 350W (pulse start ,orceramic),retrofit of std MH fixture 100W or less.,.(pulse start or ceramic) retrofit of std MH fixture 101 -200W, (pulse start or ceramic) retrofit of std MH fixture Misc: Dimmable Electronic Ballasts 201 ; 350W, (pulse start or ceramic) retrofit of std MH fixture NAICS334 Lighting......... 201 - 350W,,(pulse start or ceramic) retrofit of std MH fixture 100W or less,_(pulse start or ceramic) retrofit of std MH fixtureµ 101 - 200W, (pulse start or ceramic) retrofit of std MH fixture NAICS334: CompressedAir, Misc. Refrigerant Charge Top 15 Total 42,768 i 11,178 Energy - Demand - (MWh) (kW) 7,633 ?,r958 4,517 943. 4,143..... 1.,108..... 3,010..... I 1,062...... 2,789 750, 2,788,.-., „• 756 2,611 704 2,353 523 2,247... 381 _..._ 2495 . 251 2400 437 1,683 35.0 0 054 110., 1,632,..,.. o. 18. . .......Q.......... *r Levelized Cost/kWh $0,059___ $0 053 $0.060 $0.025 $0.065 $0.061 .., $0.078 $0.056 _$0.042 $0.014 $0.058 The model calculates the cost-effectiveness ratios using different cost tests. Results are summarized in Table A3. Note that residential EE measures are generally less cost effective than commercial EE measures. Table A3. Results of EE Cost Effectiveness Test Ratios for the Base Scenario Participant Cost Test 1.54 Ratepayer Impact Cost Test . Measure' 1.21 0.98 0.85 Commercial sector 1.64 4.76 2.85 1.89 Total Portfolio 1.52 3.80 2.31 1.64 The model projects the TRC ratio for the residential sector to be less than 1 due to the fact that dishwashers and clothes washers are included in the residential programs. Residential dishwashers and clothes washer are not cost-effective when only accounting for the electric savings. However, when the gas and water savings are taken into consideration, these measures are cost-effective. 25 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 Scenario Assumptions and Results In addition to the base case, staff analyzed other scenarios with different input assumptions to compare the projected market potential and EE program budget with the base case results. The scenario definitions and results are given below. Scenario I:Increase EE goals by an additional 0.1% per year Projected EE budget will increase an additional $0.5M per year. Scenario 2: Increase carbon adder by an additional 1 to 3 cents/kWh No noticeable change in the economic potential due to lack of EE savings in the $0.11 to $0.13/kWh range. Lighting, which represents the bulk of residential and commercial economic EE potential, has levelized cost of around $0.06 to $0.08/kWh. There are a few non -cost effective measures including residential duct sealing and ground source heat pumps — these measures have significantly higher levelized costs, at $0.60 and $3/kWh (gas savings from these two measures are ignored in the electric potential model). Scenario 3: Eliminate rebates for CFLs Residential market potential drops by over 25%. Scenario 4: Increase customer incentive level from 50% of incremental cost to 75% of incremental cost. The model predicts that the increased rebate will increase customer's willingness to adopt EE measures, with the resulting market potential of almost 14,000 MWh, which is tripled the EE savings achieved in 2009. The corresponding EE program budget is projected to more than quadruple the EE expenditure in 2009. Such a dramatic increase in EE savings goals and budget is not realistic from a goal -setting perspective. Moreover, there is a high level of uncertainty associated with the projected market potential due to lack of empirical data to determine customer adoption level when utility programs offer aggressive incentives. 26 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 APPENDIX B: SUMMARY OF MODEL OUTPUT OF CPAU ENERGY POTENTIALS Shown below is the model output of CPAU technical, economic and market potential for each of the 10 year planning horizon for the residential and commercial sectors. The recommended EE targets for CPAU are based on the market potential results for the first 5 years. The EE savings target as percentage of load is held constant at 0.8% after 2015 due to uncertainty in the model's projection of consumer behavior (i.e. willingness to adopt energy efficiency) in the outer years. There could be increasing level of naturally occurring EE savings as efficiency standards increase and as customer's willingness to adopt efficiency measures without rebate increase. These savings are not counted towards the EE goals. City of Palo Alto Electric Utilities Energy Efficiency Program Targets MWh 9,000 • 8,000 .i........ 7,000 1, 6,000 .i........ 5,000 4,000 •^ 3,000 2,000 1,000 0 2011 2012 2013 2014 2015 2916 2017 2018 2019 2020 MWH 5,799 % of Load Forecast 0.60% Technical Potential Energy Potential (MWh) Residential Non -Residential Total All Buildings Percent of Utility Forecast Demand Potential (kW) Residential Non -Res ide ntial Total All Buildings Percent of Utility Forecast 6,290 6,782 7,276 0.65% 0.70% 0.75% 46,014 235,333 281,347 28.95% 38,229 38,210 38,190 233,297 233,317 233,337 271,526 271,526 271,527 28.09% 28.06% 28.02% 17,456 16,237 16,228 61,009 60,592 60,594 78,465 76,829 76,822 40.66% 40.02% 39.80% 16,219 60,597 76,816 39.80% 7,906 7,927 7,950 7,973 7,999 8,026 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% poranor Itormaltra LAM MOO 38,168 38,145 38,122 38,100 38,078 38,055 233,696 233,746 233,957 234,742 235,580 236,477 271,864 271,890 272,080 272,842 273,658 274,532 28.02% 27.51% 27.46% 27.46% 27.46% 27.46% 3 16,209 60,638 76,846 39.82% a i ;11- 0111:111071§5 t ? `'•r i1 +i 16,198 60,643 76,842 39.61% 16,188 16,178 60,692 60,896 76,881 77,074 37.87% 37.78% 16,168 61,113 77,281 37.70% 16,158 61,346 77,504 37.81% 27 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 Economic Potential Ene rgy Potential WW1/ Residential Non -Residential Total All Buildings Percent ofUtility Forecast Demand Potential (kW) EMI &EMMA Residential Non -Res ide ntial Total All Buildings Percent of Utility Forecast 34.80% 41,878 34,095 34,077 226,473 224,437 224,457 268,351 258,532 258,534 27.62% 26.75% 26.72% 34,060 34,039 34,018 33,998 33,978 33,957 33,937 224,477 224,837 224,886 225,091 225,846 226,653 227,516 258,536 258,876 258,904 259,089 259,824 260,610 261,453 26.68% 26.69% 26.20% 26.15% 26.15% 26.15% 26.15% 10,152 57,015 67,167 Market Potential Energy Potential (NM) lintreatil Residential Non -Residential Total All Buildings Percent of Utility Forecast Demand Potential (kW) Residential Non -Residential Total All Buildings Percent of Utility Forecast 8,937 56,598 65,535 34.13% 8,931 56,601 65,531 33.95% 8,924 56,603 65,527 33.95% ;ems 1,596 1,070 1,220 1,378 4,079 5,105 5,655 6,542 5,675 6,175 6,875 7,920 0.58% 0.64% 0.71% 0.82% Vair 377 1,000 1,377 0.71% 8,918 56,644 65,562 33.97% 8,91I 56,650 65,561 33.79% Oat ;10,1 1,553 1,625 7,286 7,654 8,839 9,279 0.91% 0.94% Vititatt: rg MOM OW 316 343 377 428 467 1,261 1,398 1,611 1,778 1,863 1,578 1,741 1,988 2,206 • 2,330 0.82% 0.90% 1.03% 1,14% 1.20% 8,905 56,696 65,601 32.32% DINO 1,552 7,586 9,138 0.92% 459 1,858 2,318 1.14% 8,898 56,886 65,784 32.25% 8,892 8,885 57,089 57,306 65,981 66,192 32.19% 32.29% 0100011:0107: 1,463 1,368 7,445 7282 8,908 8,650 0.90% 0.87% 418 1,839 2,257 1.11% At 1,269 7,098 8,368 0.84% Fh„ „wall 376 1,812 2,188 1.07% 337 1,777 2,114 1.03% 28 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 APPENDIX C: PROGRAM SCREENING TESTS & DESIGN CONSIDERATIONS Cost -Effectiveness Testing and Perspectives The primary aim of cost-effective energy efficiency programs is to reduce utility cost and hence customer bills while improving the environment. It is worth noting, that though customer bills for those who participate in programs will be reduced, the retail rate will tend to increase as distribution system related fixed cost are spread over a smaller volume of energy sales. Thus, non -participants can expect to have higher utility bills. What is cost-effective depends on perspective. The five perspectives most commonly used in efficiency program cost-effectiveness testing are: 1. Participant: An energy efficiency measure that provides net savings to a customer is cost-effective for them as a "participant". 2. Utility: A measure that lowers overall cost for the utility is cost-effective for the utility . (also referred to as "Program Administrator"). For CPAU, this could also be considered the "all ratepayers test" or "average utility bill test", as it reflects the change in the utility bill to the average customer. Supply -funded incentives should pass this test to be considered cost- effective. 3. Total Resource: If the combination of the utility and all customers together save money, it is cost-effective from a "Total Resource Cost (TRC)" viewpoint. This is the cost-effectiveness criteria that is required by the CEC and is used in CPAU reporting. 4. Societal: If the community as a whole is better off, including cost savings plus a value assigned to environmental improvement or other public benefit, then it is cost-effective from a societal viewpoint. GHG adder was included in the TRC in this assessment. 5. Non -Participant: Even if the bill for the average customer shrinks significantly, retail rates could increase slightly, so that customers who do not reduce consumption could see a slight increase in rates and therefore bills. This effect is due to the portion of retail rates that must be collected to pay for fixed costs. For this reason it is important to design diverse programs to be widely available in order to facilitate efficiency implementation in as broad a manner as possible. The cash flows and relevant costs and benefits that go into calculating benefit -cost ratios from these different perspectives are illustrated below: 29 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 Table Cl: Cost -Effectiveness Perspectives and Associated Costs and Benefits Cost Effectiveness Test; -. Costs Benefits Participant Cost Test (PCT) Does the participant save money? Measure Cost Incentive to Customer Bill Savings Tax Savings Utility Cost Test (UCT) — Average Bill Are utility revenue requirements lowered? Incentive to Customer Program Delivery Cost Avoided Supply Costs Total Resource Cost Test (TRC) Sum of Participant + Nonparticipant Are total community expenditures lowered? Measure Cost Program Delivery Cost Avoided Supply Costs Tax Savings Societal Cost Test (SCT) Do total societal benefits exceed the costs? Measure Cost Program Delivery Cost Avoided Supply Costs Tax Savings Societal Benefits Rate Impact Measure (RIM) Also known as non -participant test Are utility rates lowered? Incentives to Customer Lost Revenues (=BiI1 Savings) Program Delivery Cost Avoided Supply Costs Figure C1: Energy Investment Cost and Benefit Flows Electric Grid Program vendors 1 and in-house Avoided Cost Savings Other Cost Savings T Energy Service Company Program Cost Measure Cost --------- CPAU Utility Cost T Incentives, Bill Savings Lost Net Revenue= Participant Hill Saving Utility Net Cost Savings Total Resource Cost Environmental Benefits Societal Cost Participant Non -participants Total Resource Cost reflects the financial perspective of the Palo Alto community as a whole. The Utility Cost, Participant, and Rate Impact perspectives should be balanced to ensure lower average bills and sufficient incentives to achieve participation, but not set so high as to encourage free riders, to prevent any undue burden on non -participating customers, and to promote equity. 30 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 Efficiency Program Design and Screening Criteria Staff will continue to use the following standards when evaluating specific efficiency programs: • The Total Resource Cost (TRC) perspective for ranking energy efficiency measures and contrasting energy efficiency investments with supply alternatives from a community standpoint. This is the required perspective to use when reporting to the CEC and comparing with other utilities. • On the supply side, avoided costs include energy, transmission and distribution costs, line losses, reserve capacity, and externality cost. • Program portfolio design and incentive levels that produce a group of programs under a TRC limit and consider customer equity. • The Utility Cost, Participant, and Rate Impact perspectives are reviewed to maintain lower average bills with sufficient incentives to achieve participation, but not so much as to encourage free riders, to prevent any undue burden on customers, and to promote equity. • Since there will be participants and non -participants for any one program, CPAU will develop a portfolio of programs to allow as many people as possible to participate in some, but not all, programs. • CPAU needs to explore the threshold for permissible rate impacts. Palo Alto City Council has already established an acceptable rate impact that defines how much may be spent for renewable supplies; the same may be able to be done for efficiency, in which case, CPAU could roll this issue into a LEAP update. • CPAU's Rate Assistance Program (25% discount on electric and natural gas utility bills for low-income participants) serves customers for whom efficiency could be most profitable for CPAU, because the lost revenues and potential rate impact would be diminished, while promoting equity. All recipients of this program are required to participate in the efficiency direct install energy efficiency program for low-income customers, the Residential Energy Assistance Program (REAP). These customers receive free lighting upgrades, weatherization, and other energy saving measures. In addition, refrigerators and furnaces can be repaired or replaced, if needed. This reduced the total utility bill cost to these customers, as well as the cost to other ratepayers for subsidizing this discount. • Include a greenhouse gas adder when computing avoided cost. • Staff will continue to educate and engage the public and City Council about these impacts. Council guidance is needed for cost-effective efficiency program design, based on criteria that are simple, clear and measurable, based on total budget, rate impact, and other factors. 31 of36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 APPENDIX D: HISTORICAL PERSPECTIVE OF CITY AND STATE DRIVERS OF ENERGY EFFICIENCY CPAU's electric energy efficiency programs were first modified in 1996 with the passage of AB 1890, the electricity restructuring bill, which established a minimum percentage of electric revenue (2.85%) to be collected and spent in four categories identified as Public Benefits: 1. Cost-effective energy efficiency; 2. Research, development and demonstration in efficiency technologies; 3. New investments in renewable energy; and 4. Low-income programs. The key California state legislation driving the CPAU's energy efficiency program design and implementation are SB 1037 (2005) and AB 2021 (2006). • SB 1037 established a "Loading Order" for electric power resources, specifying a preference hierarchy of: 1. Energy Efficiency and Demand Reduction; 2. Renewable Energy Supply; and then 3.. Conventional Power Supply. This hierarchy is reflected in the Council -approved Long-term Electricity Acquisition Plan (LEAP) Objectives and Guidelines, most recently updated in March 2007. The City has been complying with this bill by annually reporting to the CEC and public on the energy efficiency programs and achievements. The reports summarizing the actual achievement in the past two years have been included in the body of the 2010 plan. • AB 2021 added new and very specific long-term planning, reporting, review requirements with specific deadlines, and a requirement to "treat efficiency as procurement investments...without regard to previous minimum investments," highlighted in the graphic below. 32 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 Figure Di: California ener AB 1890 (1996) Public Benefits = 2.85% • Cost-effective energy efficiency • Renewable energy • Low -Income Assistance • Research & Development Invest in Public Good efficiene le islation has continued to evolve over the past decade SB 1037 (2005) AB 2021 (2006) First acquire all available —' energy efficiency and demand reduction • Cost-effective • Reliable • Feasible Report annually to and CEC • Programs • Expenditures • Expected and actual energy savings results customers invest and Report v Sam e 10 -year plan every 3 years • First due to CEC September 1, 2007 • Identify all energy efficiency potential • Establish annual targets • Without regard to previous minimum investments • Treat as procurement investments Report targets to CEC within 60 days of Council adoption of plan Report annually to its customers and CEC • Programs • Expenditures • Cost-effectiveness • Expected and actual energy savings results • Funding Sources • Methodologies and assumptions • Independent M&V evaluation CEC to include in IEPR and provide recommendations invest and Report in a Specific Way California legislation is only one of many reasons to enhance CPAU's energy efficiency programs with renewed vigor. Numerous policies and regulations, ranging from the Federal Energy Policy to CPAU's electric utility long-term resource implementation plans provide additional impetus. The main motivating polices and regulations that are relevant to energy efficiency are outlined below. 1. Long-term Electric Acquisition Plan (LEAP) a. Guideline 1: Resource Loading Order Manage a supply portfolio comprising locally selected and joint action cooperative purchases, with the following preference hierarchy for resource acquisition: A. Efficiency B. Renewable supply C. Local ultra -clean distributed generation D. Conventional supply b. Guideline 7: Electric Energy Efficiency and Demand Reduction A. Fund innovative programs that promote and facilitate deployment of all cost- effective, reliable and feasible energy efficiency and demand reduction opportunities as high priority resources. B. Use a community -wide perspective in program evaluation criteria. C. Use a bill reduction (utility cost) perspective in program funding criteria. D. Promote equity by designing and making programs available to all customers c. Guideline 8: Climate Action Plan As part of the City's commitment to develop and implement an action plan to reduce greenhouse gas emissions, develop and implement a Climate Action Plan relating to utility activities. 33 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 A. Consider all of the Mayor's Green Ribbon Task Force utility -related recommendations. B. The plan shall be consistent with the California Municipal Utilities Association Greenhouse Gas Reduction Principles. C. Take actions to meet ICLEI Cities for Climate Protection Campaign milestones. D. Coordinate with and support Climate Action Plan efforts of other departments. 2. City Policies a. Comprehensive Plan i. Policy N-44: Maintain Palo Alto's long-term supply of electricity and natural gas while addressing environmental and economic concerns. ii. Policy N-47: Optimize energy conservation and efficiency in new and existing residences, businesses, and industries in Palo Alto. b. Sustainability Policy and determination that `Environmental Protection' is one of Council's top priorities. c. Climate Protection Plan (December 2007) goals to reduce greenhouse gas emissions. d. CMUA GHG Principles: Greenhouse Gas reduction principles for publicly -owned electric utilities endorsed by Council in August 2006 (CMR:315:06). e. NAPEE MOU: National Action Plan for Energy Efficiency Memorandum of Understanding endorsed by Council in August 2006 (CMR:316:06) 3. Legislative and Regulatory a. SB 1037 (2005) — Loading Order [efficiency first, then renewables, then conventional supply] b. AB 2021 (2006) - Energy Efficiency [specific planning, funding and reporting requirements] c. SB 1 (2006) - Million Solar Roofs [includes energy audit requirements for solar rebates] d. AB 32 (2006) — Global Warming Solutions Act [sets State targets for GHG reduction to 1990 levels by 2020 and establishes mandatory reporting requirements for utilities] e. SB 1368 (2006) — Greenhouse Gas Limits On Long -Term Baseload Electricity Contracts [baseload electric contracts 5 years or longer or baseload facilities to have greenhouse gas emission no greater than a reference combined cycle natural gas generator] f. SB 107 (2006) — Accelerated Renewable Portfolio Standard [moves 20% target to 2010, new reporting requirements for publicly -owned utilities, procurement plans to achieve efficient use of fossil fuels] 4. Federal Energy Policy Act of 2005 (new requirements for energy efficiency, tax incentives (Title 13) and time -differentiated retail rates. 34 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 APPENDIX E: GLOSSARY OF ABBREVIATIONS AND TERMS AB1890: California Electric Restructuring Bill/Deregulation (1996) AB2021: California Energy Efficiency Bill (2006) AB32: California Global Waiiuing Solutions Act (2006) APPA: American Public Power Association BIG: Build -It Green (green building rating system) CEC: California Energy Commission CFL: Compact Fluorescent Light CIEEP: Commercial & Industrial Energy Efficiency Program CMUA: California Municipal Utilities Association CPAU: City of Palo Alto Utilities CPUC: California Public Utilities Commission CO2e: Carbon Dioxide Equivalent CPP: Climate Protection Plan CW: Clothes Washer CY: Calendar Year DEER: California Database for Energy Efficient Resources DSM: Demand Side Management E3: Energy & Environmental Economics Inc. (energy efficiency program design software contractor) EE: Energy Efficiency EECBG: DOE -sponsored Energy Efficiency & Conservation Block Grant EEFP: Energy Efficiency Financing Program EPAct: U.S. Energy Policy Act FY: Fiscal year GHG: Greenhouse Gas (main six are carbon dioxide, methane, nitrous oxide, chlorinated fluorocarbons, and sulfur hexafluoride) GRTF: Palo Alto Mayor's Green Ribbon Task Force GULP: Gas Utility Long-tetuu Plan GWh: Gigawatt-hour, equivalent to one million kWh HPS:. High Pressure Sodium streetlights HVAC: Heating, Ventilation and Air Conditioning IOU: Investor -Owned Utility IRR: Internal Rate of Return kWh: Kilowatt-hour LEAP: Long-teitn Electric Acquisition Plan LEED: Leadership in Energy & Environmental Design (green building rating system) 35 of 36 City of Palo Alto Utilities Ten Year Electric Efficiency Plan - 2010 LED: Light -Emitting Diode Light MMBtu: One million BTUs, equivalent to 10 therms MPR Market Price Referent MWh: Megawatt -hour, equivalent to one thousand kWh NCPA: Northern California Power Agency NTGR: Net -to -gross Ratio PAC: Program Administrator Cost test PCT: Participant Cost Test PV: Photovoltaics PLUG -In: CPAU's local ultra -clean distributed generation incentive program POU: Publicly -owned Utility RECO: Residential Energy Conservation Ordinance RIM: Rate Impact Measure test REAP: Residential Energy Assistance program RMI: Rocky Mountain Institute SB1: California Solar Roofs Bill (2006) SB1037: California Loading Order and Energy Efficiency Bill (2005) SB 107: California Accelerated Renewable Portfolio Standard 13i11 (2006) SB1368: California Greenhouse Gas Limits on Baseload Electric Contracts and Facilities Bill (2006) SCT: Societal Cost Test Tonne: One metric tonne, equivalent to 1000 kilograms or 2,205 pounds TPY: Tonnes per year TRC: Total Resource Cost UAC: Utilities Advisory Commission UCT: Utility Cost Test UMS: Utility Marketing Services within CPAU 36 of 36 ATTACHMENT B EXCERPT DRAFT MINUTES OF MARCH 9, 2010 UTILITIES ADVISORY COMMISSION MEETING ITEM 1: ACTION ITEM: Ten -Year Electric Energy Efficiency Plan Assistant Director Jane Ratchye reminded the Commission that this Plan had been brought to the UAC in February and that, based on comments from the UAC at that time, no changes have been made to the goals or recommendations in the final report. Commissioner Berry asked why additional UMS staffing was not being requested now during the budget process. Utilities Director Valerie Fong said that staffing increases, probably through temporary or hourly staff, could be requested in the mid -year budget process. Ratchye added that there would be more funds in the budget for supply -funded Demand Side Management (DSM) activities, and some of the funds could be used to implement programs or develop contracts with third party vendors. Commissioner Keller asked for a fuller explanation on how the increased funded for DSM projects would impact rates. Ratchye responded that the amount for Energy Efficiency (EE) would be going up over a 10 - year period, which would be a greater cost than would have been expended otherwise. This would increase retail rates by five to seven percent more than would have otherwise been the case. On the other hand, participants in the program would reduce their usage, resulting in a lower utility bill for these customers. The average effect between the increasing rates and the reduced usage would cause an average impact of an increase of one to two percent overall. Commissioner Keller wondered if bills could go down for all customers. Ratchye responded that nonparticipants would have increasing utility bills, as the rates would be going up. She added that the programs are evaluated for cost effectiveness from a system wide (or Total Resource Cost perspective), not from an individual utility customer perspective. Fong added that if rates are higher and a customer's consumption does not decrease, that customer's utility bill will go up. Chair Melton wondered at the graphs showing that the potential for electric efficiency is primarily in lighting. Utility Marketing Services Manager Joyce Kinnear responded that lighting is by far the most cost effective EE opportunity for most customers. Commissioner Waldfogel expressed a concern in taking allocated supply resource dollars to pay for more staffing. Kinnear pointed out that in the current budget, supply resources have been paying for rebates in the solar photovoltaic (PV Partners) program, while Public Benefit Funds have paid for staffing and the increased contracting requirements necessary for increasing reporting and verification requirements imposed by the state. Fong noted that the way these programs can ramp up is with more staffing to execute the programs and manage contracts. She added that these programs are labor-intensive to run. Commissioner Keller expressed a concern that the report did not mention water rebates. She further asked how rebates for such appliances as hot water heaters are dealt with in the programs. Kinnear responded that this report is on energy efficiency programs, so water rebates are not included. She added that water heaters are considered to be natural gas efficiency measures, since natural gas heats the water. Therefore, these rebates are paid through the natural gas program. Commissioner Waldfogel again expressed his concerned that, while he is fine with supply funds paying for capital or commodities, he is concerned about these funds paying for headcount. Chair Melton pointed out that he felt the report was unclear on where the funds would come from to pay for this staffing. Fong said that the supply budget pays for staff to schedule and purchase commodities. She further pointed out that all transactions in the Utilities Department require human effort to implement and complete programs. Waldfogel said that staffing is a small percentage of total cost in supply budgets, but a greater percentage in the marketing budgets. Fong said that the Northern California Power Agency's (NCPA's) power management cost and bond refinancing costs should also be counted as staffing costs in supply. NCPA's activities in managing resources make the City's staffing costs for supply activities look small. Chair Melton pointed out his concern that an increase in budget of $1.2 million from supply would go to fund marketing staff. Fong said that the marketing staff members are procurement staff —they procure energy efficiency. Just as the resources staff procures commodities, the EE staff procures efficiency resources. Waldfogel said that the percentage of staffing costs is higher in marketing than is the case in the supply areas. Kinnear explained that while the average commodities contract may have six counter - parties, DSM programs have 25,000 counter -parties. In addition, a DSM contract of $100,000 requires nearly the same effort to complete the purchase process as does a several million dollar contract for supplies. There are many more moving parts in the efficiency area, and it is more costly to staff these areas. Commissioner Eglash summed up the conversation by stating that the EE programs are cost effective, but require more staffing to implement. Kinnear agreed. ACTION: Commissioner Keller made a motion to recommend that the City Council approve the proposed 2010 10 -Year Electric Energy Efficiency Plan. Commissioner Ameri seconded the motion. The motion passed unanimously (6-0).