HomeMy WebLinkAboutStaff Report 426-10
TO: HONORABLE CITY COUNCIL
FROM: CITY MANAGER DEPARTMENT: UTILITIES
ATTENTION: FINANCE COMMITTEE
DATE: DECEMBER 7, 2010 CMR: 426:10
SUBJECT: Utilities Advisory Commission Recommendation to Approve the
Proposed Long-term Electric Acquisition Plan (LEAP) Objectives,
Strategies and Implementation Plan
EXECUTIVE SUMMARY
The Long-term Electric Acquisition Plan (LEAP) addresses the functions related to the pursuit
and management of electric resources. The Plan includes implementation of related Council
policies and plans for energy efficiency, renewable energy, greenhouse gas (GHG) emissions
reduction, and the management of uncertain and variable costs. LEAP provides direction for the
management of these costs and the uncertainties inherent in the business of providing electric
service to the City’s electric customers over the next five to ten years.
The proposed LEAP Objectives and Strategies have a focus on balancing environmental and
economic sustainability. The proposal includes the maximization of cost-effective energy
efficiency, examination of alternative ways to pursue renewable energy, and exploration of the
feasibility of setting GHG emission reduction targets for the electric supply portfolio. The LEAP
Implementation Plan provides a road map for how staff will assess resource needs including
energy efficiency and local renewable and clean resources, integrate such resources in
acquisition plans and evaluate the economic and environmental merits of competing resources.
REQUEST
The UAC and staff recommend that the Finance Committee recommend that the City Council
approve the proposed Long-term Electric Acquisition Plan (LEAP) Objectives, Strategies and
Implementation Plan.
BACKGROUND
History of LEAP Objectives and Guidelines
The Long-term Electric Acquisition Plan (LEAP) is intended to address several functions related
to long-term electric resource acquisition and management including implementation of related
Council policies and plans for energy efficiency, renewable energy, greenhouse gas (GHG)
emissions reduction, management of hydroelectric and market price uncertainty, and resource
adequacy. LEAP provides direction for the management of these costs and the uncertainties
inherent in the business of providing electric service to the City of Palo Alto Utilities’ (CPAU)
customers over the next five to ten years or longer.
CMR: 426:10 Page 1 of 23
Council provided policy direction to guide staff in the acquisition and management of electric
supply resources through adoption of the first LEAP in November 2001 (CMR: 425:01). LEAP
was later updated in October 2002 (CMR: 398:02) and in March 2007 (CMR: 158:07) to reflect
regulatory and legislative changes in the industry and to align with community values for
environmental solutions related to energy efficiency, renewable supplies and climate protection.
Within the LEAP Objectives and Guidelines framework, Council also adopted the first LEAP
Implementation Plan in August 2003 (CMR: 354:03) and an updated plan in April 2006.
The current LEAP was approved by Council in March 2007. A key element of the 2007 LEAP
was that the Renewable Portfolio Standard (RPS) goal was accelerated from 20% by 2015 to
33% by 2015. This goal is to be achieved within a half-cent per kilowatt hour (kWh) rate impact
limit. The existing LEAP Objectives, Guidelines and Implementation Plan are provided as
Attachment B.
The global recession, which continues to affect federal, local and state governments, consumers,
and businesses, has been the single biggest change since LEAP was last approved. As a result of
lower global demand for energy resources, the cost of natural gas and electricity has fallen;
however, the cost of renewable resources continues to climb as more California utilities pursue
renewable portfolio goals, thus increasing the gap in the price between conventional and
renewable resources. Further, the fate of a federal cap-and-trade program to reduce GHG
emissions is uncertain and this uncertainty extends to California’s plans for GHG emissions
regulations and a cap-and-trade market.
In August 2009 and in May 2010, when it considered recommendations to execute long-term
renewable contracts, the City Council expressed concern about the high cost of renewable
resources and wished to ensure that CPAU was maximizing the pursuit of cost-effective energy
efficiency, which would both reduce GHG emissions and reduce the amount of renewable energy
that would be required to meet the City’s renewable portfolio standard (RPS) goals. Council has
also expressed concerns about the City’s strategy of locking in long-term renewable energy
supplies through power purchase agreements (PPA) to meet the City’s RPS as opposed to
alternative contracting mechanisms including the use of a feed-in-tariff (FIT) to promote locally
distributed renewable resources. Consequently, Council directed staff to evaluate policies and
efforts related to the acquisition of energy efficiency, renewable energy, and local generation and
to explore the feasibility of setting GHG emission reduction targets for the electric supply
portfolio.
In addition to meeting environmental goals and climate challenges, the electric industry is
experiencing many technological advances in how electricity is produced, stored, utilized,
managed, and regulated. Electric utility customers are also demanding more transparency and
information related to their energy use in an effort to better manage their utility bills. To address
these and other issues, CPAU has embarked on a process to update its Strategic Plan to establish
the appropriate vision and road map for CPAU in the next five years. Ultimately, LEAP will
need to align with the Strategic Plan to ensure that the objectives carried out are consistent with
the vision and objectives of the Utilities Department and the community; thus, further revisions
to LEAP may be necessary in the near future.
The UAC discussed the development of the updated LEAP at meetings in June, July, and August,
2010. The UAC recommended Council approval of the proposed LEAP Objectives and
CMR: 426:10 Page 2 of 23
CMR: 426:10 Page 3 of 23
Strategies at its September 1, 2010 meeting and recommended Council approval of the proposed
LEAP Implementation Plan at its November 3, 2010 meeting.
Long-term Demand and Resource Forecasts
CPAU forecasts citywide electric usage to remain almost flat at 1,000 gigawatt-hours (GWh) per
year between 2010 and 2020. The projections incorporate the goals for energy efficiency set in
the 2010 Ten-Year Electric Energy Efficiency (EE) Plan of a cumulative load reduction of 7.2%
or approximately 70 GWh by 2020. The load forecast includes the impacts of Roche leaving
Palo Alto; the Stanford Medical Center expansion; and the global economic recession. The load
projections do not include demand and energy impacts associated with electric vehicles.1
Figure 1: 20-Year Load and Resource Balance Projections
0
200
400
600
800
1,000
1,200
FY 201
0
FY
2
0
1
1
FY
2
0
1
2
FY
2
0
13
FY 201
4
FY
2
0
1
5
FY
2
0
16
FY
2
017
FY 201
8
FY
2
0
1
9
FY
2
0
20
FY
202
1
FY 202
2
FY
2
0
2
3
FY
2
0
24
FY 202
5
FY
2
0
2
6
FY
2
0
2
7
FY
2
0
28
FY 202
9
FY
2
0
3
0
GW
h
p
e
r
y
e
a
r
Expected Load
Load without EE
Western
Calaveras
Renewables
On average over the next ten years, hydroelectric supplies are expected to account for about 50%
of load needs (13% from the Calaveras hydroelectric project and 37% from the Western
contract). Commitments for long-term renewable resources are expected to meet 19% of the
load in 2010 and grow to 26.5% by 2013. Beginning in 2021, some of the existing long-term
renewable energy contracts will begin to expire, leaving a growing gap between load and
committed supply resources. Figure 1 illustrates long-term demand and resource projections.
1 Staff estimates that the introduction of new electric vehicles may increase total load by 2-4% by 2020, but is not expected to
increase peak demand. EPRI study suggests peak impacts could occur depending on charging location and behavior.
The renewable energy quantity shown is the amount that is currently committed to and includes
three projects that are under construction and not currently operational.
DISCUSSION
The external and local changes discussed previously along with increasing commodity costs and
cost uncertainty related to the wholesale energy prices, renewable energy, transmission of
electricity and resource adequacy, necessitate a thorough review of existing Council adopted
policies and guidelines related to the City’s RPS goals, energy efficiency, GHG reduction
initiatives and local generation.
The following discussion proposes new LEAP Objectives and Strategies and identifies key
initiatives, plans and reports needed to effectively implement LEAP.
Proposed Changes to LEAP Objectives
LEAP Objectives are intended to provide high-level direction in resource acquisition and
management some of which endure for over 20 years. Because of the long-term nature of
electric resource program planning and implementation, LEAP Objectives should generally
neither change dramatically nor often. However, it is appropriate to review and update them
when external factors and/or Council priorities change. Modifications to the current LEAP
Objectives are proposed with a focus on how to evaluate and procure supply and demand-side
electric resources and manage existing electric supply assets to meet customer needs over the
next ten years. The proposed changes to LEAP Objectives are shown below.
Objectives Existing LEAP Objective Proposed LEAP Objective
1. Demand and
Supply Resource
Acquisition
Provide competitive and predictable
supply cost while balancing
environmental, local reliability, rate
and cost impacts.
Meet customer electricity needs
through the acquisition of least total
cost energy and demand resources
including an assessment of the
environmental costs and benefits.
2. Supply Cost
Management
Maintain a supply portfolio cost
advantage compared to wholesale
electricity market cost
Manage supply portfolio cost
uncertainty to meet rate and reserve
objectives.
3. Local
Distributed
Generation
& Transmission
Enhance supply reliability to meet
City and customer needs by pursuing
opportunities including transmission
system upgrades and local generation.
No Change
4. Local Control Act to maintain the City Council’s
ability to exercise local control of
decision making related to all aspects
of serving customer energy needs
Move to Strategic Plan
Proposed Change to LEAP Guidelines and Implementation Plan
The proposed modifications to the current LEAP Guidelines are described in detail in this
section. The changes are intended to better reflect the revised Objectives, account for initiatives
that have been completed and new ones that are underway, eliminate portions of some
Guidelines that are no longer applicable or are better situated in the Strategic Plan, and bring the
Guidelines more into line with City Council priorities. Further, in an attempt to be consistent
CMR: 426:10 Page 4 of 23
CMR: 426:10 Page 5 of 23
with the Strategic Plan, the term “guidelines” was replaced with “strategies”. LEAP Strategies
are proposed for the following eight electric resource management activities:
1. Resource Acquisition
2. Electric Energy Efficiency and Demand Reductions
3. Renewable Portfolio Standard (RPS)
4. Local Generation
5. Climate Protection
6. Hydro Resource Management
7. Market Price Exposure Management
8. Transmission and Reliability
Current efforts undertaken by staff to meet electric load requirements (e.g. implementing energy
efficiency programs, and managing supply resources), while important to meeting LEAP
Objectives, are considered operational and not a part of the Implementation Plan. The focus of
the LEAP Implementation Plan is to identify new policies, initiatives, rates, plans, and reports
needed to carryout the proposed LEAP Objectives and Strategies.
Resource Acquisition
Setting a hierarchy of preference for types of resources, or “loading order,” is required by state
legislation. Loading order was first codified with legislation in SB 1037 (2005), then modified
slightly in AB 2021 (2006)2 . Proposed Strategy #1 is intended to clarify how the evaluation of
competing resources will be carried out by explicitly stating that staff will pursue resources with
the least total cost to the City. Cost-effectiveness for each resource is defined under the
respective strategy. To the extent that energy efficiency and demand reduction resources are
cost-effective, they will be deployed first.
Staff utilizes a mix of energy load forecasting, supply portfolio and energy efficiency models to
assess and forecast energy demand, resource availability, portfolio costs and uncertainties.
Resource acquisition decisions, whether demand-side reduction through energy efficiency
programs or the purchase of renewable and/or conventional power supplies, should be made
using the same set of planning assumptions. Better integration of the planning models is needed
to properly implement Strategy 1 including ensuring proper accounting for environmental costs
and benefits of each potential resource.
2 From AB 2021:
9615. (a) 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.
CMR: 426:10 Page 6 of 23
Existing Guideline #1 Proposed Strategy #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
Resource Acquisition
Pursue the least total cost resources including an assessment
of environmental costs and benefits to meet the City’s needs
in the long term by:
A. Evaluating each potential resource on an equal basis
by establishing costs and values for location, time of
day and year, carbon, value of renewable supplies and
any secondary benefits attributed to the resource; and
B. Including all resources – conventional energy, local
and remote renewable energy supplies, energy
efficiency, cogeneration, and demand reduction – in
the evaluation.
Proposed Implementation Plan When
1. Adjust planning and portfolio models to include an integrated and least cost
planning perspective which evaluates demand and supply side resources in an
integrated manner and includes time of delivery, locational and environmental
costs and benefits.
Dec.
2010
2. Evaluate the impacts of energy efficiency, demand reductions and electric vehicle
penetration in Palo Alto in the annual development of the electric load forecast.
Dec.
2010
Electric Energy Efficiency and Demand Reduction
Palo Alto has long been a leader in energy efficiency programs, and views efficiency as a critical
long-term resource that plays a key role in long-term planning and as such recognizes energy
efficiency and demand reduction resources as the highest priority resource as demonstrated by
declining load forecasts which show a cumulative decrease in load of 2.29% since Fiscal Year
(FY) 2006. The City also recognizes that energy efficiency is critical in achieving GHG
emission reduction goals and reduces the need to acquire renewable and/or conventional energy
supplies.
In developing the 2010 Ten-Year Electric Energy Efficiency (EE) Plan, the long-term cost of
renewable energy was used as the avoided cost of energy to determine the cost effectiveness of
energy efficiency. This methodology of adopting the Market Price Referent 3 (MPR) as the
avoided cost was based on discussions with the UAC in November 2009. As a result of utilizing
a higher avoided energy cost and updated energy efficiency measures in the efficiency
assessment model, the 2010 Ten-Year Electric EE Plan’s goal is a reduction in energy use of
7.2% by 2020, which is more than double the 3.5% 10-year goal set in the 2007 Electric EE Plan.
The proposed strategy incorporates this methodology of evaluating the cost-effectiveness of EE
using the cost of renewable energy as the value of the saved energy.
The proposed implementation plan also includes development of a pilot demand reduction
program. This program could include development of time-of-use pricing to incent peak demand
reductions or shifting load from peak to off-peak periods.
3 The Market Price Referent (MPR) is established annually by the California Public Utilities Commission (CPUC), which sets
the pre-authorized price for renewable power for Investor-Owned Utilities (IOUs). The MPR is calculated as the cost of owning
and operating a combined cycle gas-fired power plant in California plus the cost of CO2 offsets for its emissions.
Existing Guideline #7 Proposed Strategy #2
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.
Electric Energy Efficiency and Demand Reduction
Fund programs that maximize the deployment of cost-
effective, reliable and feasible energy efficiency and
demand reduction opportunities as the highest priority
resources by:
A. Every three years, preparing a ten-year energy
efficiency plan that identifies all cost-effective
energy efficiency opportunities;
B. Using the cost of long-term renewable energy
resources adjusted for time of day factors and
location as the avoided cost when evaluating cost
effectiveness of energy efficiency measures;
C. Designing and making energy efficiency programs
available to all customers; and
D. Considering the impacts (costs, benefits and GHG
emissions) of substituting electricity-using
appliances for natural gas-using appliances and vice
versa in the ten-year energy efficiency plan.
Proposed Implementation Plan When
3. Provide quarterly updates on electric efficiency program achievements including
tracking against 10-Year Energy Efficiency goals to the UAC and annual
updates to the City Council.
quarterly
4. Develop Energy Efficiency Implementation Plan for the 2010 10-Year Electric
EE Plan addressing certain items identified in the May 2010 Council Colleagues
Memo and identification of resources and funding needed to achieve EE goals.
Apr.
2011
5. Evaluate fuel switching energy efficiency measures and include them, if cost-
effective, in the Electric and Gas EE Implementation Plans.
Feb.
2011
6. Develop a pilot Demand Response Program for large commercial industrial
customers for implementation in summer 2011.
Apr.
2011
7. Assess the feasibility and cost-effectiveness of using current and potential
thermal energy storage (TES) systems to shift load from on-peak periods to off-
peak periods, for use in a demand response program, or for meeting any energy
storage needs.
Sep.
2011
Renewable Portfolio Standard (RPS)
Current and Proposed Renewable Energy Mandates
Aggressive renewable portfolio standards statewide have been evolving through legislation and
state energy policy. The original goals for investor-owned utilities, established by SB 1078
(2002), were to achieve 20% of electric supply from eligible renewable resources by 2017.
Eligible renewable resources are defined by the state and do not include large hydroelectric
projects such as the Calaveras hydroelectric project and the resources delivered under the City’s
contract with Western. Under SB 1078, publicly-owned utilities are “responsible for
implementing and enforcing a renewables portfolio standard that recognizes the intent of the
Legislature to encourage renewable resources, while taking into consideration the effect of the
standard on rates, reliability, and financial resources and the goal of environmental
improvement,” and to report certain information relative to renewable energy resources to their
customers. Palo Alto’s existing RPS and reporting complies with SB 1078.
CMR: 426:10 Page 7 of 23
Although the California legislature failed to pass RPS legislation which would have established
an RPS goal of 33% by 2020 in the 2010 legislative session, legislation is expected to be re-
introduced in 2011 to establish a state mandated RPS for all load serving entities, including
publicly-owned utilities such as CPAU.
California’s Global Warming Solutions Act of 2006, AB 32, directs the California Air Resources
Board (CARB) to develop a renewable electricity standard (RES) to achieve GHG emissions
reduction goals. In an effort to meet the goals set by AB 32, on September 15, 2009, California
Governor Arnold Schwarzenegger issued an executive order (S-21-09) mandating an RES of
33% by 2020 for publicly- and investor-owned utilities. In September 2010, CARB adopted
three-year compliance periods leading up to a 33% by 2020 RES including 20% for the 2012 to
2014 period; 24% for 2015 to 2017; and 28% for 2018 to 2019.
CPAU’s Renewable Energy and Energy Efficiency Commitments
CPAU’s quest to meet the current RPS goal has been through the use of the City’s competitive
procurement process; participation in the Northern California Power Agency (NCPA) Green
Power Pool; and through collaboration with NCPA’s power generation division to explore
investments in ownership opportunities. Since 2004, the City has executed eight long-term
Power Purchase Agreements (PPA) for renewable energy. These renewable energy resources are
expected to account for about 26.5% of the City’s load by 2013. Figure 2 shows the City’s RPS
resources compared to the RPS goal in the existing LEAP Guideline.
The RPS goals shown in Figure 2 are based on the planned achievement of the additional energy
efficiency goal (7.2% of the Citywide load by 2020) as outlined in the 2010 Ten-Year Electric EE
Plan. To fully meet the existing RPS gap with even more energy efficiency would mean
increasing the EE goal to 18% by 2020. Staff’s preliminary estimates suggest a 10-year
efficiency goal of 18% could increase expenditures six-fold and have a retail rate impact of up to
30% without a commensurate bill reduction during the ten years. Even if sufficient resources
were devoted to achieve this higher goal, staff is uncertain if such goals are achievable through
voluntary programs. As noted in Strategy #2 above, a new Ten-Year Electric EE Plan will be
prepared every three years when measures to achieve energy efficiency savings are reassessed.
CMR: 426:10 Page 8 of 23
Figure 2: Renewable Energy Resources, 2003-2033
0
50
100
150
200
250
300
350
200
3
200
5
200
7
200
9
201
1
201
3
201
5
201
7
201
9
2021
202
3
202
5
2027
202
9
2031
203
3
Calendar Year
GW
h
/
y
r
Crazy Horse
LFG
San Joaquin
LFG
Short-term
Renewables
Johnson
Canyon LFG
Keller Canyon
LFG
Half Moon Bay
LFG
Santa Cruz
LFG
Shiloh Wind
High Winds
RPS Goal:
33% (2015)
RPS Goal:
20% (2008)
RPS Goal:
30% (2012)
RPS Alternatives
Alternatives to the current RPS targets were evaluated including 1) eliminating interim targets; 2)
aligning with the state resource eligibility and vintage requirements; 3) aligning with the
anticipated state standard by delaying the City’s RPS to 33% by 2020 (instead of 2015 in the
City’s existing RPS target); 4) including carve-outs for specific technologies and/or contracting
mechanisms; and 5) not including a rate impact limitation for the acquisition of RPS resources.
Staff did not consider abandoning an RPS all together as staff felt that this option was not
consistent with Council directives and may expose the City to potential regulatory risks and/or
penalties.
1. Eliminating Interim RPS Targets
The City’s current RPS includes interim targets of 20% by 2008 and 30% by 2012. The existing
renewable portfolio fell short of the 2008 interim target and is expected to fall short of meeting
the 2012 target by approximately 10%. Given the lack of long-term renewable projects that
could be on-line by 2012, acquisition of renewables to meet the shortfall would need to be
through the use of short-term bundled energy with renewable energy certificates (REC), resulting
in an annual cost of approximately $6.2 million for 2012, $2.0 million for 2013, and $1.9 million
for 2014 – for a three-year cumulative cost of $10.1 million. Staff is exploring the use of RECs
for short-term compliance requirements and will include those findings in future assessments to
meet RPS; however, staff recommends eliminating the interim RPS targets and focusing efforts
towards acquiring longer-term renewable resources.
CMR: 426:10 Page 9 of 23
CMR: 426:10 Page 10 of 23
2. Aligning RPS Eligibility Standards with State Standards
The City’s current standards for resources to qualify towards its RPS targets include that the
project be “new” and that it meets the state’s eligibility criteria as laid out in the Public Resource
Code 4 . Although the state Public Resource Code eligibility standards include no newness
requirement for in-state resources, Palo Alto’s current standard is that resources must have begun
commercial operations no earlier than the date of adoption of the first LEAP guidelines, in
October 2002. The idea behind the newness requirement in the current LEAP guideline is that
Palo Alto wanted to influence the development of new renewable energy projects and not rely on
existing renewable energy projects, such as older geothermal projects, to meet the RPS goals.
If the City were to eliminate its newness requirement and adopt the same standard that applies to
the state’s investor-owned utilities, a small portion of the generation from its two hydroelectric
resources would be able to be counted towards RPS targets.5 The amount of this generation
varies slightly from year to year based on hydrologic conditions, but on average equates to about
1% of the City’s annual load. This addition to the City’s RPS supply would reduce the existing
gap between committed resources and RPS targets, yielding an annual savings of about $500,000
per year. It is also conceivable that when the City seeks additional RPS resources in the future,
there may be existing “old” eligible renewable resources available at lower prices than resources
that meet the City’s current newness requirement. Staff recommends adopting the standard for
the investor-owned utilities and eliminating the newness requirement.
3. Delaying 33% RPS Goal until 2020
Palo Alto’s RPS achievement is expected to be 26.5% in 2013 if the three projects that are under
construction are completed as scheduled. If the City were to align its RPS goals with the current
state mandated RES, then it would not have to meet a 33% RPS goal until 2020, instead of 2015.
By delaying the purchase of the additional renewable resources required to meet a 33% goal until
2020 from 2015, the City could save about $16.5 million related to the premium for purchasing
renewable energy. However, assuming a cap-and-trade market materializes in 2012, delaying the
RPS goal by 5 years increases the City’s cumulative exposure to the cost of GHG emissions
allowances by $4.2 million (from $16.0 million to $20.2 million), yielding a net savings of $12.3
million over the five-year period from 2015 to 2020. The net savings to retail rates achieved by
the delay are 0.3 to 0.35 cents per kWh for the five-year period. If the non “new” eligible small
hydro resources of about 1% were added (as recommended in the proposed LEAP Strategy), the
City would have about 27.5% eligible renewable resources by 2013 and the net cost of delaying
the 33% RPS from 2015 to 2020 would be proportionately less.
Disadvantages associated with delaying the 33% RPS goal include:
The City may lose its stature as a green leader and as an exemplary case for how local control
can achieve the best results.
The delay would increase the community’s carbon footprint and increase GHG emissions by
about 20,000 tons per year or 100,000 tons over the 5-year period of delay (an increase of the
City’s annual GHG emissions by about 30% during the 5 years).
4 Qualifying resources are those deemed eligible by the state Public Resources Code definition of eligible renewable energy
supplies, which excludes large hydroelectric facilities. Further, the City’s current RPS requires the renewable resource to be
“new,” which refers to facilities built or repowered after adoption of Palo Alto’s first LEAP guidelines in October 2002.
5 According to Section 25741 of the state Public Resource Code, “small” hydroelectric resources – i.e., those less
than 30 MW nameplate capacity – are deemed RPS eligible. The City’s two major hydroelectric resources, Western
and Calaveras, each comprise a system of generation powerhouses; a small number of these powerhouses fall into
the “small hydro” category.
Due to a lack of viable renewable resources and the lead time necessary to develop new
renewables, maintaining the City’s current RPS of 33% by 2015 may provide a safeguard or
cushion in implementing the state’s likely mandate of 33% by 2020.
4. Carve-outs for Technologies and/or Contracting Mechanisms
The City’s current RPS guideline does not include any carve-outs for technologies or contracting
mechanisms. This provides staff the most flexibility and makes the decision between competing
technologies based primarily on the best value to the electric portfolio and load requirements.
Alternatives to the current RPS guideline include adding requirements that favor one technology
over another (e.g. at least X% of the RPS resources must be from solar energy resources, or no
more than X% can be from landfill gas to energy projects), or a location (e.g. at least Y% must
be located in California, or Palo Alto), or a contracting mechanism (e.g. at least Z% must be
procured through a Feed-in-Tariff (FIT). Staff and the UAC do not recommend including such
carve-outs in the proposed LEAP strategy.
The current mix of RPS resources in the City’s portfolio is the result of several requests for
proposals (RFPs) conducted by the City. The RFP process allows staff to evaluate several
alternative technologies and proposals in a competitive manner by applying pre-identified
evaluation and selection criteria. In an effort to meet the City’s RPS targets and to be responsive
to concerns raised by Council in the Council Colleagues Memo dated May 3, 2010, staff intends
to expand the scope of the next renewable RFP to include an assessment of the feasibility of
meeting the remaining RPS needs through a FIT or other alternative contract structures to power
purchase agreements (PPAs). After Council acts on the proposed updated LEAP Strategies, staff
intends to bring a range of proposals for different technologies, products and contract structures
to the UAC and Council for consideration.
In addition, staff does not plan to solicit for new renewable energy supplies until key tasks in the
LEAP Implementation Plan are complete. These tasks include evaluation of a FIT, development
of the Energy Efficiency Implementation Plan, evaluation of using renewable energy credits
(RECs) to meet RPS goals, and analysis of the potential for local generation.
5. Use of a Rate Impact Limitation or Allowance for a Green Premium
Part of the current LEAP Guideline related to RPS is that the additional cost of the renewable
power over the cost of brown power cannot cause an upward rate impact of more than 0.5 cents
per kWh. To date, there has been virtually no rate impact due to the renewable projects since the
projects that are currently delivering renewable energy were priced near the price for brown
power. When all the projects with which the City has executed PPAs are operational, the total
upward rate impact is expected to be about 0.24 cents per kWh for a RPS of 26.5% in 2013. The
projected cost of meeting the balance of the RPS goals has increased as the demand and price for
renewable resources has increased while brown power prices have fallen significantly in the past
two years. However, staff anticipates that it will be possible to meet the 33% RPS goal by 2015
within the 0.5 cents per kWh rate impact limit assuming adequate lead time for the development
of any new facilities successfully responding to the RFP(s).
If the state mandates an RPS/RES and the City’s RPS goal is in alignment with the state’s, then
the need for a green premium constraint may be obsolete. If, however, the City’s RPS goal
exceeds the State’s mandate then a green premium constraint may be necessary to ensure that the
CMR: 426:10 Page 11 of 23
rate impacts associated with pursuing an RPS beyond the requirements of the law are within an
acceptable limit.
Summary of Proposed Changes to the LEAP Strategy Regarding RPS
The proposed LEAP Strategy #3 continues the existing 33% by 2015 RPS target and the 0.5
¢/kWh rate impact limit from the existing guideline, but removes the interim targets. The
eligibility requirement for renewable resources is proposed to be aligned with the current State
requirement so that the newness requirement in the current guideline is removed. The
requirement to evaluate a FIT is added to the proposed strategy, but no technology or contract
mechanism carve-outs are recommended.
PaloAltoGreen Voluntary Program
Current RPS guidelines include language related to the PaloAltoGreen (PAG) program, which is
a voluntary renewable program providing customers a 100% renewable option at a premium rate.
At present, 21% of CPAU customers subscribe to PAG, representing over 6% of the City’s load
and making it one of the most successful voluntary green energy programs in the country.
Renewable energy credits for the PAG program are procured to meet 100% of PAG load and are
typically sourced through wind located in the Pacific Northwest and through solar photovoltaic
(PV) projects installed throughout California (including facilities owned by the City). These
resources do not qualify for the City’s RPS and, therefore, are not counted towards meeting the
RPS. As a result, customers participating in PAG pay extra to “green-up” their energy needs, but
the underlying portfolio already contains some green energy from the RPS resources. This will
become more of an issue as the RPS grows to 33%. PAG is proposed to be addressed as part of
the Climate Protection strategy (LEAP Strategy #5) as the program’s focus is to reduce GHG
emissions; the program does not meet RPS goals and, thus, has been removed from the proposed
RPS strategy.
Existing Guideline #6 Proposed Strategy #3
Renewable Energy Supply
Reduce electric portfolio dependence on fossil
fuels by meeting at least 80% of City’s long
term energy needs from non-fossil and non-
nuclear supply.
A. Renewable Portfolio Standard: In addition
to the voluntary program, the City shall
invest in new renewable resources to meet
the City’s sustainability goals while
ensuring that the retail rate impact does not
exceed 0.5 ¢/kWh on average.
B. Pursue a target level of new renewable
purchases of 20% of the expected portfolio
load by 2008 and move to a 30% target by
2012 and 33% by 2015. The contracts for
investment in renewable resources shall not
exceed 30 years in term.
C. Palo Alto Green: In addition to the
renewable portfolio standard, the City shall
continue to offer a renewable resource-
Renewable Portfolio Standard (RPS)
Reduce the carbon intensity of the electric
portfolio by acquiring renewable energy
supplies by:
A. Pursuing a target level of renewable
purchases of 33% by 2015 with the
following attributes:
The contracts for investment in
renewable resources shall not exceed
30 years in term.
Pursue only renewable resources
deemed to be eligible by the
California Energy Commission
(CEC).
Evaluate use of Renewable Energy
Certificates (RECs) to meet RPS.
B. Ensuring that the retail rate impact for
renewable purchases does not exceed
0.5 ¢/kWh on average; and
C. Evaluating a Feed-In Tariff (FIT)
CMR: 426:10 Page 12 of 23
based retail rate for all customers who want
to voluntarily select an increased content of
non-hydro renewable energy.
contracting mechanism that considers
the full value of locally sited renewable
resources.
Proposed Implementation Plan When
8. Fully integrate the effects on energy efficiency in the long-term electric load
forecast.
Nov.
2010
9. Evaluate the merits of implementing a feed-in-tariff (FIT) and the potential to
meet RPS goals through local renewable resources.
Jan.
2011
10. Seek UAC recommendation and Council approval of the policy elements of a FIT
to encourage local renewable resource projects.
May
2011
11. Continue working with NCPA to identify opportunities, including joint-
ownership, for developing qualifying renewable resources.
On-
going
12. Evaluate the use of renewable energy credits (REC) to meet a portion of the
City’s RPS goal and/or greenhouse gas emission reduction goals and monitor the
regulations and requirements regarding the use of RECs to meet RPS goals.
On-
going
13. Evaluate a proposed geothermal project being considered by NCPA, including a
pre-pay option and the benefit, costs, and risks of a pre-pay structure.
June
2011
14. Conduct a Request for Proposal for eligible renewable resources including RECs
and evaluate alternative renewable resource technologies and contracting
mechanisms.
RFP in
June
2011
Local Generation
Between 2003 and 2005 CPAU conducted local generation feasibility studies to identify
potential sites for both large- and small-scale distributed cogeneration. A technical potential of
30 to 40 MW was identified for small-scale local cogeneration and several sites were identified
for possible development of a 25 to 50 megawatt (MW) gas-fired generator. Additionally, staff
estimates the potential for a local renewable distributed generation (e.g. solar PV) of about 10
MW.
The existing local generation guideline reflects Council’s decision (CMR:169:06) to emphasize
small-scale, local, ultra-clean distributed generation, including solar and other renewable energy
resources as well as low-emission technologies such as cogeneration or fuel cells, instead of
larger local natural gas-fired power plant alternatives. In 2006, CPAU staff recommended, as
part of the LEAP update, to abandon efforts to pursue developing a 25 to 50 MW gas-fired
generator within Palo Alto. This recommendation was approved by Council in March 2007
when it modified the LEAP Guidelines. At the time, the support for the recommendation was
that there was a lack of viable sites within Palo Alto, developing such a plant in Palo Alto would
be cost prohibitive, and development of such a plant was not consistent with potential long-term
electric portfolio carbon neutrality goals.
Currently, CPAU offers two programs to promote local generation including the Power from
Local Ultra-clean Generation Incentive Program (“PLUG-In”) and Solar Photovoltaics (“PV
Partners”). To date a total of 2.62 MW has been installed through the PV Partners program. No
projects have been completed through the PLUG-In program to date.
Local Renewable Generation
Staff recognizes that CPAU has a central and unique role in promoting renewable or ultra clean
local generation in Palo Alto which would otherwise not happen (e.g. buying Solar RECs from
CMR: 426:10 Page 13 of 23
Roche’s 780 kW PV project enabled the project to proceed) and that making such projects
happen will have a direct impact in reducing global GHG emissions. However, the cost of
acquiring small local renewable generation is higher than the cost of conventional renewable
supplies (even when the value is adjusted for the location) under expected market conditions.
Under certain scenarios, such as high transmission and local resource adequacy costs, local
generation may prove to be less expensive than conventional supply.
Value of Local Generation
The value of local generation depends on the value of the avoided energy, transmission, and
local resource adequacy costs. In addition, avoided emissions costs could accrue if a cap-and-
trade system was implemented. Table 1 below shows the value of local generation for the
expected case and high and low value cases.
The values in Table 1 are based on using the MPR for the avoided cost for a solar PV project
with a lifetime of 20 years starting in 2012. The base and high value cases assume that a
functioning cap-and-trade market for GHG emissions allowances will be in place in 2012. For
the low value case, it is assumed that a functioning cap-and-trade market is not in existence for
the next 20 years, or that the City gets no value from the sale of emissions allowances.
Table 1: Value of Local Generation and Sensitivity to Value Components
Case
Avoided
Energy Cost
(¢/kWh)
Transmission
Access Charges
(¢/kWh)
Local Resource
Adequacy
($/kW-yr)
Emissions
Credit Benefit
($/tonne)
Total Value
(¢/kWh)
Base 10.5 1.8 75 37 14.7
High 18.0 2.2 120 74 24.6
Low 8.0 1.4 30 0 9.7
This analysis shows that the value for local solar PV generation is expected to be about $147 per
MWh (about 15 ¢/kWh). This means that the City should be willing to pay up to this amount for
local solar PV projects. Paying more than 15 ¢/kWh may result in a rate impact to cover the
subsidization of PV. The analysis also shows that the value can vary greatly depending on the
avoided costs for energy generated, transmission, local capacity, and GHG emissions.
Additionally, staff recognizes that there are many benefits of local renewable generation that are
difficult to quantify, including:
Having a generation resource close to load has sustainability and environmental justice
values
Long term optionality value (land permit, emission permits, etc)
Small local generation at a customer site improves the customer’s supply reliability
(however, it does not improve not overall system reliability)
May improve Bay Area system reliability through reduced reliance on the transmission
grid and may lower costs through reduced need to expand the transmission grid
Reduces exposure to higher than expected transmission and loss charges
Small vs. Large Local Generation
Small distributed PV systems within the City do not protect the city against blackouts and cannot
provide emergency supplies to customer premises. PV systems, in conjunction with storage
systems and load isolation circuitry (for lineperson safety), could provide this option, but such an
CMR: 426:10 Page 14 of 23
integrated system will increase costs further. Though a larger (25 to 50 MW) generator could
enhance local reliability, the possibility of siting such a local generation resource within Palo
Alto is problematic due the lack of suitable sites and because such a fossil-fired resource does
not comport with City’s long-term objective of reducing GHG emissions. Staff will continue to
explore siting and/or contracting for a large-scale gas-fired generator in or near Palo Alto, to
achieve load, resource adequacy and certain reliability needs.
Proposed modifications to the local generation strategy are intended to recognize the value of
local renewable generation, including those which are less tangible, and promote the use of feed-
in-tariffs as a mechanism to incent the development of local renewable generation.
Existing Guideline #5 Proposed Strategy #4
Local Generation
A. Promote and facilitate
deployment of renewable
resource supplies by providing
expertise, education,
incentives and rates to support
customer-owned solar power
systems, and demonstrating
renewable generation
technologies.
B. Promote ultra-clean
distributed generation
incentive program.
Promote and facilitate the deployment of cost-effective local
resources by:
A. Using the renewable market price referent (MPR)
adjusted for time of day factors and location as the
avoided cost when evaluating cost effectiveness of
local resources;
B. Considering energy delivery cost uncertainty and
strategic value options when evaluating opportunities;
C. Evaluating a Feed-in-Tariff to promote locally sited
renewable resources;
D. Evaluating cost-effective energy storage resources; and
E. Evaluating the feasibility of developing a 25 to 50 MW
generating facility connect to the City’s distribution
system.
Proposed Implementation Plan When
15. Provide an update of past local generation feasibility studies and actions to
UAC and Council
Dec. 2010
16. Assess the potential for and feasibility of small local distributed and non-
distributed, renewable and cogeneration projects, including using a FIT to
encourage these projects.
Jan. 2011
17. Assess the potential, benefits and costs of developing and/or joint ownership of
a 25 to 50 MW gas-fired power plant located in or near Palo Alto to meet load,
reliability and local capacity needs.
Jun. 2011
18. Evaluate the City’s PLUG-In Program to encourage cogeneration including
rules, regulations, and buy back rates and recommend modifications as needed.
Dec. 2011
19. Following receiving Council direction from Implementation Plan Initiative #10,
develop a FIT proposal including rate, rules, regulations, standard contract
form and limits.
To be
determined
20. Assess the economics and potential of the anaerobic digester as a local
generation resource for CPAU
Sep. 2011
21. Assess the need for and value of energy storage to support local renewable
distributed generation resources.
Jun. 2012
Climate Protection
Climate change continues to be a key global environmental challenge that impacts not only
Utilities, but all City operations. In December 2007, the Council approved the City’s Climate
CMR: 426:10 Page 15 of 23
CMR: 426:10 Page 16 of 23
Protection Plan (CPP), which set certain goals for the electric utility and allowed for the use of a
GHG adder, or carbon price premium, to be used when evaluating electric resource acquisitions.
The adder was set at $20/metric ton of carbon dioxide equivalent (CO2e) escalating at 5%
annually. The carbon adder in the CPP is similar to the one used by the California Public
Utilities Commission (CPUC) – about $20/metric ton for a 10-year investment and $37/metric
ton for a 20-year investment. The CPP recommendation was principally designed to hedge
against financial exposure that CPAU could face under GHG reduction regulations including
AB32 and/or federal cap-and-trade regulation.
The electric supply portfolio’s GHG emissions are projected to be 120,000 metric tons of CO2e
in 2010 and are expected to decline to less than 50,000 tons/year by 2020 as the City achieves its
energy efficiency and RPS goals. Under current plans for California, a GHG emissions cap-and-
trade market is expected to be implemented by 2012; depending on the method of allowance
allocation adopted, CPAU may be allocated between 50% to 100% of its allowance needs free of
charge and will be able to buy, sell and/or bank allowances to minimize cost exposure and
maximize value. The value of the electric portfolio’s GHG emissions allocations is highly
uncertain and is expected to range between $1.5 and $3 million per year depending on the actual
cost of GHG emissions allowances.
Staff evaluated three key policy questions related to meeting the City’s CPP goals and LEAP
climate protection objectives, including:
1. Should the City adopt a policy minimizing the purchase of greenhouse gas-emitting
power supplies?
2. Should the City establish a GHG emissions goal instead of an RPS goal?
3. Should CPAU strive for carbon neutrality in the long-term for the electric supply
portfolio?
1. Should the City adopt a policy minimizing the purchase of GHG-emitting supplies?
Since about 50% of the City’s electric supplies are from hydroelectric resources in average
hydrologic years, when the City meets a 33% RPS goal, approximately 83% of electric supplies
will come from carbon-free resources. Therefore, CPAU’s future portfolio will have very low
carbon content. The balance of the supplies is short-term market purchases from unspecified
resources. These short-term market purchases are assigned the emission content of the
“California Mix”6 , which has varied from 724 to 879 lbs of CO2e per MWh in the past few
years.
the
arket as the hydroelectric supplies and the RPS resources are greater than the City’s needs.
rm non-carbon-emitting resources is illiquid and
ese products may carry high cost premiums.
Table 2 below assumes that the City has achieved a 33% RPS and has a demand of 1,000
GWh/year. It shows the approximate amount of market purchases that are required in an
average, a wet, and a dry hydrologic year. Note that in a wet year, energy would be sold into
m
Procuring non-carbon emitting resources to cover short-term balance needs will prove to be
cumbersome as the quantity needed will be dependent on highly variable hydroelectric supply
resources. Additionally, the market for short-te
th
6 As a result of the state’s emission performance standard of 1,100 lbs/MWh of CO2e set by SB 1368 (2006) for base
load generation, one can assume this to be the upper emission limit for the “California Mix.”
CMR: 426:10 Page 17 of 23
Table 2: Market Purchases/(Sales) in Aver r ic Y
Average Year Wet Year Dry Year
age, Wet, and D y Hydrolog ears
RPS resources (GWh/year) 330 330 330
Hydroelectric supplies (GWh/year) 500 800 300
Unspecified market-based supplies (GWh/year) (130) 170 370
Emissions (metric tones per year of CO2e)
(based on carbon intensity of 879 lbs/MWh for
unspecified market-based supplies)
68,000 0 147,000
Given the current uncertainty surrounding state and federal cap-and-trade regulations and the
potential high cost and complexity of procuring short-term carbon neutral resources, staff does
not recommend adopting a policy to minimize the purchase of GHG-emitting power supplies for
short-term market based purchases. Further, the primary objective of the proposed LEAP
Objectives and Strategies is to pursue all cost-effective energy efficiency measures that minimize
e need to buy both brown and renewable energy supplies, thus minimizing GHG emissions.
A GHG
an
ith an
electric portfolio carbon content of less than 40,000 metric tons of CO2e per year.
tion goal at this
me. The proposed implementation plan includes a reassessment of this policy.
uld CPAU strive for carbon neutrality in the long-term for the electric supply
ds that a decision to set such a goal be deferred for two to three years for the following
the City
th
2. Should the City establish a GHG emissions goal instead of an RPS goal?
An alternative to a standard “bottom up” RPS goal (specified as a percentage of total load) could
be a “top down” goal to reduce the purchase of GHG-emitting power supplies, with an upper
limit on the number of tons of GHG emissions allowed in the supply portfolio.
emissions goal, normalized for an average hydro year, could be structured as follows:
Reduce the dependence of fossil fuel based generation to less than 17% by 2015 with
electric portfolio carbon content of less than 68,000 7 metric tons of CO2e per year; or
Reduce the dependence of fossil fuel based generation to less than 10% by 2020 w
Adopting a maximum GHG emission goal would need to be in addition to an RPS goal as staff
believes that an RPS goal will soon become a state mandate. Given the uncertainty of cap-and-
trade legislation and regulation and the potential complexity of simultaneously pursuing two
separate portfolio goals, staff recommends not adopting a GHG emission reduc
ti
3. Sho
portfolio?
Carbon neutrality for the electric supply portfolio could be a long-term goal. However, staff
recommen
reasons:
There is much uncertainty regarding the cost impacts of implementing AB32 and a
potential future federal climate bill. Setting local mandates may result in
receiving fewer emission allowances than otherwise may have been available;
In the next two to three years as the City pursues energy efficiency and acquires
additional renewable resources (including local PV), the City will be closer to carbon
7Meeting load with 17% of supplies (approximately 170,000 MWh/year) from GHG-emitting power supplies at 879 lbs/MWh
would result in an annual emission of 67,769 metric tons of CO2.
CMR: 426:10 Page 18 of 23
neutrality. The cost of achieving incremental carbon neutrality through the purchase of
short-term carbon free resources and/or carbon off-sets may prove to be very high; and
Given current economic conditions, businesses and residents may not be willing or able
porting such emissions. Staff will continue to work to implement climate protection goals and
to evaluate th on neutral electric portfo ideration.
to absorb additional utility costs related to implementing a carbon neutral portfolio.
The proposed LEAP strategy regarding climate protection is to support the City’s goals as
outlined in the City’s CPP. The CPP’s goals for emission reductions related to the electric utility
will be met through implementation of LEAP, specifically through the strategies related to the
RPS goals, implementation of energy efficiency, and development of renewable local generation
and cogeneration. Additionally, the PaloAltoGreen program supports CPP initiatives. Other
efforts include assisting the City in developing an inventory of GHG emissions and tracking and
re
e development of a carb lio policy for future cons
Existing Guideline #8 Proposed Strategy #5
Climate Action Plan
As part of the City’s commitment to dev
an implement an action plan to reduce
greenhouse gas em
elop
issions, develop and
ask
io
imate
y:
s;
.g.
e-
want to voluntarily select an increased
content of non-hydro renewable
Cl
implement a Climate Action Plan relating to
utility activities.
A. Consider all Mayor’s Green Ribbon T
Force utility-related recommendations.
B. The plan shall be consistent with the
California Municipal Utilities Associat
Greenhouse Gas Reduction Principles.
n
t
C. Take actions to meet ICLEI Cities for
Climate Protection Campaign milestones.
D. Coordinate with and support Cl
Action Plan efforts of other departments.
imate Protection
Support the City’s climate protection goals b
A. Supporting the City municipal
government’s climate protection goal
B. Promoting the use of technologies (e
incentives for cogeneration systems,
promotion of EVs, in-home energy
displays) and programs that will reduce
he community’s carbon footprint at a cost
of up to the City’s value of carbon; and
C. Continuing to offer a renewable resourc
based retail rate for all customers who
energy.
Proposed Implementation Plan When
22. Promote the City’s Plug-in program to encourage development of cogenerati
systems.
on On-going
23. Analyze electric vehicle (EV) charging patterns and evaluate rates to in
nighttime EV charging.
cent Jun. 2011
24. Meet AB32 mandated annual reporting requirements to California Air
1
Resources Board on annual volumes of electricity purchases by resource.
Annually,
next in
Jun. 201
25. Track and report annually on 6 major greenhouse gas emissions (CO2, CH4,
N2O, SF6, HFCs, PFCs) for all of the City’s municipal operations and calculate
next in
electric portfolio’s overall emissions coefficients (lbs of CO2, CH4, and N2O
per MWh of purchases).
Annually,
Sep. 2011
26. Evaluate the costs, benefits and impacts of the implementation of an electric
on
l GHG emissions).
Jan. 2012
portfolio carbon neutral policy and the setting of quantitative goals (e.g. carb
intensity, tota
27. Evaluate PaloAltoGreen program design and recommend modifications, as
appropriate.
Jun. 2012
Hydro Resource Management
The variability in hydroelectric generation is the largest recurring cost uncertainty to the electric
supply portfolio, representing an estimated $17 million variation in cost annually. To manage
this uncertainty, cash is held in reserve to cover two years of adverse hydrologic conditions. The
reserve is drawn down in dry years and funded in wet years. This strategy has allowed for rate
certainty within a fiscal year, however it shields ratepayers from a proper price signal that could
encourage conservation during dry years. The proposed LEAP includes evaluation of alternative
strategies including the use of a rate adjustment mechanism and continuing to seek opportunities
to maximize value from existing hydroelectric resources.
Existing Guideline #2 Proposed Strategy #6
Hydro Resource Management
Manage hydroelectric supply resources by:
A. Planning for an average hydro year on a
long-term basis;
B. Maintaining the flexibility to adopt hydro
resource management products;
C. Maximizing value of the Western and
Calaveras resource; and
D. Maintaining adequate supply rate
stabilization reserves to manage hydro
production volume uncertainty.
Hydro Resource Management
Actively monitor and manage cost uncertainty
related to variations in hydroelectric supply and
maximize value of hydro resources by:
A. Planning for an average hydro year on a
long-term basis;
B. Utilizing cost-effective hydro resource
management products; and
C. Implementing opportunities to maximize
benefits and reduce costs of the Western
Base Resource and Calaveras hydroelectric
resources.
Proposed Implementation Plan When
28. Evaluate potential rate adjustment mechanisms that would adjust electric rates
based on hydrologic year type and develop a recommendation for a rate.
Apr.
2011
29. Assess the value related to Palo Alto’s participation in the CAISO’s Metered
Subsystem Agreement and the use of the Calaveras hydroelectric project for
load following.
On-going
30. Identify long-term opportunities to maximize the value of the Calaveras
hydroelectric project as an energy storage resource.
On-going
31. Work with NCPA to seek opportunities to increase the efficiency of the
Calaveras hydroelectric project and implement operational value maximizing
strategies.
On-going
Market Price Exposure Management
Wholesale power prices are volatile and electric supply costs can increase by $6 million annually
if prices move to high levels. To partially manage this risk, staff implements a three-year
“laddering” strategy whereby a portion of energy and capacity needs is purchased at a fixed price
up to thirty-six months ahead of delivery. Additionally, to provide for rate certainty, funds are
held in reserve to cover adverse market price movements within the fiscal year.
The proposed LEAP strategy in this area is not changed significantly from the existing guideline.
However, the proposed implementation plan includes the examination of purchasing a five-year
block of energy to lock in the costs of a portion of the City’s energy needs as market prices are
currently relatively low. Any purchase for delivery beyond three years out requires Council
approval, and the UAC’s recommendation would also be sought for such a purchase.
CMR: 426:10 Page 19 of 23
Existing Guideline #3 Proposed Strategy #7
Energy Risk Management
Manage supply cost uncertainty and risk by:
A. Implementing the City’s Energy Risk
Management Policies and Guidelines;
B. Maintaining an adequate pool of credit-worthy
suppliers;
C. Diversifying supply purchases across commitment
date, start date, duration, suppliers, pricing terms
and fuel sources;
D. Maintaining a prudent exposure to changing
market prices; and
E. Maintaining adequate supply rate stabilization
reserves to manage market, credit, and other
uncertainties.
Market Price Exposure Management
Actively monitor and manage
operational, counterparty and
wholesale energy price risk in the
short-term (up to three to five years)
by:
A. Maintaining an adequate pool of
creditworthy suppliers; and
B. Diversifying supply purchases
across commitment date, start date,
duration, suppliers and pricing
terms in alignment with rate
stability objectives and reserve
guidelines.
Proposed Implementation Plan When
32. Evaluate a block purchase of up to 25 MW to meet base load needs for Jan-
Mar and Nov-Dec for a term of up to 5 years.
Feb. 2011
33. Conduct an RFP for new electric master agreement counterparties. Dec. 2011
34. Explore opportunities with NCPA, other municipal utilities and/or third party
suppliers to reduce scheduling and/or operating costs.
On-going
35. Continue to implement a 3-year laddering strategy to manage market price
uncertainty.
On-going
Transmission and Reliability
Since LEAP was last approved in 2007, there have been several changes related to the functions
of transmission and reliability. First, the California Independent System Operator (CAISO)
implemented its much awaited market redesign in April 2009. Through collaborative efforts
with NCPA, CPAU effectively transitioned to this new market structure with minimal cost
impact to Palo Alto ratepayers.
Further, staff has effectively implemented the City’s Resource Adequacy Program in an effort to
minimize cost while meeting the CAISO’s requirements and has effectively managed congestion
cost through the use of Council-approved congestion revenue right (CRR) products. Lastly, in
January 2009, in an effort to reduce cost, the City effected a 15-year assignment of its full share
of the California-Oregon Transmission Project (COTP), thus reducing staff’s efforts in
monitoring and intervening in FERC regulations related to transmission.
At present, Palo Alto does not have any goals or plans to expand its interest in the transmission
business (i.e., as a transmission provider or investor). Current interest in transmission assets are
driven primarily by the City’s goals to improve reliability and create redundant path(s) of
interconnection to the electric transmission grid; for acquiring renewable energy; reducing the
cost of delivery of the City’s share of Western Base Resource (WBR); and advocating for fair
and reasonable transmissions rates within the CAISO.
Besides the evaluation of local generation (under Strategy #4 above), Palo Alto’s reliability
needs will focus on evaluating upgrades to a 230KV connection and/or second (or redundant)
points of interconnection with PG&E through continued participation in the Bay Area Municipal
CMR: 426:10 Page 20 of 23
Transmission Group (BAMx) to advocate on behalf of Palo Alto and promote cost effective grid
planning activities for the Bay Area.
Existing Guideline #4 Proposed Strategy #8
Market Design, Transmission and Resource Adequacy
Ensure the reliability of supply at fair and reasonable
transmission and capacity costs by:
A. Actively participating, as an individual entity and also
through collaborative efforts with other entities, in
local, regional, statewide and federal regulatory and
legislative forums. Supporting, through legislative,
regulatory and technical advocacy and/or direct
investment, the upgrading of Northern California
transmission to improve reliability and to relieve both
congestion and local capacity costs;
B. Participating in transmission and reliability market
design forums to ensure that adopted market designs
result in adequate reliability, workably competitive
markets and equitable cost allocation;
C. Implementing the City of Palo Alto Electric Utility
Resource Adequacy Program;
D. Participating in Joint Action Agencies to optimize
value of City-owned transmission assets and ensure
compliance with FERC regulations;
E. Supporting, through legislative, regulatory and
technical advocacy, the development and availability
of long-term transmission rights to serve load; and
F. Evaluating interconnection options to the City to
increase service reliability and lower delivery costs.
Transmission and Reliability
Pursue the reliability of supply at fair
and reasonable transmission and
delivery costs by:
A. Actively participating through
collaborative efforts with other
entities, in local, regional,
statewide and federal regulatory
and legislative forums;
B. Participating in transmission and
reliability market design forums to
ensure that adopted market
designs result in adequate
reliability, workably competitive
markets and equitable cost
allocation;
C. Evaluating interconnection
options to the City to increase
service reliability and lower
delivery costs; and
D. Exploring transmission
opportunities and strategies to
meet long-term renewable
portfolio objectives beyond 2020
Proposed Implementation Plan When
36. Investigate transmission connection voltage upgrade from 115 to 230 kV, and
the potential for a transmission reliability connection to west side.
On-going
37. Explore transmission opportunities and strategies to meet long-term renewable
portfolio objectives beyond 2020.
On-going
38. Evaluate joint efforts for power plant ownership opportunities or long-term
agreements to meet the City’s Resource Adequacy Program requirements.
On-going
COMMISSION REVIEW AND RECOMMENDATIONS
The UAC began discussing LEAP and the need for updates at its June 2010 meeting. A review
of current LEAP Objectives and Guidelines, current practices and alternatives were presented to
elicit feedback from the UAC on broad policy areas of resource acquisition, hydro and market
price uncertainty management and furthering of climate protection goals.
Staff returned to the UAC twice in July 2010 to continue discussion on updating LEAP. At the
July 20 UAC meeting, a proposal to align the City’s RPS with the state’s mandate for investor
owned utilities of 33% by 2020 was presented. The UAC indicated a preference for maintaining
the expedited RPS goal of 33% by 2015 and for including information about the economic and
CMR: 426:10 Page 21 of 23
environmental impacts of alternative policies. The minutes of the July 20, 2010 UAC meeting
are provided as Attachment C.
At the July 28, 2010 UAC meeting, staff presented an analysis of the impact on costs and GHG
emissions associated with several alternative strategies including increased energy efficiency;
promotion of local generation; and an aggressive RPS. The UAC provided general feedback that
it desired to see more analysis about the impacts on rates and GHG emission reductions from
alternatives going forward and in general was in support of the LEAP Objectives and Strategies
as proposed by staff. The July 28, 2010 UAC meeting minutes are provided as Attachment D.
At the UAC’s September 1, 2010 meeting, staff presented the final draft of the LEAP Objectives
and Strategies. The UAC voted to modify LEAP Objective #1 by adding an assessment of the
environmental costs and benefits when evaluating the total cost of resources. After the
modification, the UAC voted unanimously (7-0) to support the three proposed LEAP Objectives.
The UAC proposed a similar modification to Strategy #1 and minor modifications were proposed
to Strategies #3 and #5. No changes were proposed by the UAC to Strategies #2, #6, #7, and #8.
After the modifications, proposed LEAP Strategies #1, #2, #3, #5, #6, #7, and #8 were
unanimously (7-0) approved by the UAC. An addition was proposed for Strategy #4 (Local
Generation) to include an evaluation of the feasibility of developing a 25 to 50 MW generating
facility in or near the City. This addition was approved by the UAC by a 4 to 3 vote. The
minutes of the September 1, 2010 UAC meeting are provided as Attachment E.
After receiving the UAC’s recommendation and modifying the LEAP Objectives and Strategies
accordingly, staff presented the LEAP Implementation Plan at the UAC’s November 3, 2010
meeting. The UAC unanimously (7-0) voted to approve the proposed LEAP Implementation
Plan. The draft minutes of the November 3, 2010 UAC meeting are provided as Attachment F.
RESOURCE IMPACT
There is no direct resource impact as a result of the proposed changes to the LEAP Objectives,
Strategies for fiscal years 2011. The initiatives, plans and/or tasks identified in the proposed
LEAP Implementation Plan to meet the Objective and Strategies will require further review and
approvals and the resource impact will be identified at that time.
POLICY IMPLICATIONS
The proposed LEAP Objectives, Strategies and Implementation Plan support the Council-
approved Utilities Strategic Plan, Energy Risk Management Policies, and Comprehensive Plan
Goal N-9 (a clean, efficient, competitively-priced energy supply that makes use of cost-effective
renewable resources).
ENVIRONMENTAL REVIEW
Adoption of the LEAP Objectives, Strategies and Implementation Plan does not constitute a
project for the purposes of the California Environmental Quality Act.
CMR: 426:10 Page 22 of 23
ATTACHMENTS
A. Proposed LEAP Objectives, Strategies and Implementation Plan
B. Existing LEAP Objectives, Guidelines and Implementation Plan
C. Excerpted Minutes oftbe July 20, 2010 UAC Meeting
D. Excerpted Minutes of the July 28, 2010 UAC Meeting
E. Excerpted Minutes oftbe September 1,2010 UAC Meeting
F. Excerpted Draft Minutes oftbe November 3, 2010 UAC Meeting
PREPARED BY: JAMES STACK, Resource Planner
MONICA PADILLA, Senior Resource Planner 8/
REVIEWED BY: JANE RATCHYE\xnL
Assistant Director, ~ource Management
DEPARTMENT HEAD: (vt~&.~fH=J/lJr
. \ ~or of Utilities
CITYMAJ"lAGERAPPROVAL: ~W~-f-Af\ ~ JAMES KEENE . ~.~ J e>: City Manager
----------------................ ~ .... .
CMR:426:10 Page 23 of23
ATTACHMENT A
Proposed 2010 Long-term Electric Acquisition Plan (LEAP)
Objectives, Strategies and Implementation Plan
LEAP Objectives:
1. Meet customer electricity needs through the acquisition of least total cost energy and
demand resources including an assessment of the environmental costs and benefits
2. Manage supply portfolio cost uncertainty to meet rate and reserve objectives.
3. Enhance supply reliability to meet City and customer needs by pursuing opportunities
including transmission system upgrades and local generation.
LEAP Strategies and Implementation Plan Steps:
1. Resource Acquisition – Pursue the least total cost resources including an assessment of
environmental costs and benefits to meet the City’s needs in the long term by:
a. Evaluating each potential resource on an equal basis by establishing costs and values
for location, time of day and year, carbon, value of renewable supplies and any
secondary benefits attributed to the resource; and
b. Including all resources – conventional energy, local and remote renewable energy
supplies, energy efficiency, cogeneration, and demand reduction – in the evaluation.
Implementation Plan Items for Strategy #1 – Resource Acquisition Estimated
Completion
1. Adjust planning and portfolio models to include an integrated and least cost
planning perspective which evaluates demand and supply side resources in an
integrated manner and includes time of delivery, locational and environmental
costs and benefits.
Dec. 2010
2. Evaluate the impacts of energy efficiency, demand reductions and electric
vehicle penetration in Palo Alto in the annual development of the electric load
forecast.
Dec. 2010
2. Electric Energy Efficiency and Demand Reduction – Fund programs that maximize
the deployment of cost-effective, reliable and feasible energy efficiency and demand
reduction opportunities as the highest priority resources by:
a. Every three years, preparing a ten-year energy efficiency plan that identifies all cost-
effective energy efficiency opportunities;
b. Using the cost of long-term renewable energy resources adjusted for time of day
factors and location as the avoided cost when evaluating cost effectiveness of energy
efficiency measures;
c. Designing and making energy efficiency programs available to all customers; and
d. Considering the impacts (costs, benefits and GHG emissions) of substituting
electricity-using appliances for natural gas-using appliances and vice versa in the ten-
year energy efficiency plan.
ATTACHMENT A
Implementation Plan Items for Strategy #2 – Electric Energy Efficiency and
Demand Reduction
Estimated
Completion
3. Provide quarterly updates on electric efficiency program achievements
including tracking against 10-Year Energy Efficiency goals to the UAC and
annual updates to the City Council.
quarterly
4. Develop Energy Efficiency Implementation Plan for the 2010 10-Year
Electric EE Plan addressing certain items identified in the May 2010 Council
Colleagues Memo and identification of resources and funding needed to
achieve EE goals.
Apr. 2011
5. Evaluate fuel switching energy efficiency measures and include them, if cost-
effective, in the Electric and Gas EE Implementation Plans.
Feb. 2011
6. Develop a pilot Demand Response Program for large commercial industrial
customers for implementation in summer 2011.
Apr. 2011
7. Assess the feasibility and cost-effectiveness of using current and potential
thermal energy storage (TES) systems to shift load from on-peak periods to
off-peak periods, for use in a demand response program, or for meeting any
energy storage needs.
Sep. 2011
3. Renewable Portfolio Standard (RPS) – Reduce the carbon intensity of the electric
portfolio by acquiring renewable energy supplies by:
a. Pursuing a target level of renewable purchases of 33% by 2015 with the following
attributes:
i. The contracts for investment in renewable resources shall not exceed 30 years in
term.
ii. Pursue only renewable resources deemed to be eligible by the California Energy
Commission (CEC).
iii. Evaluate use of Renewable Energy Certificates (RECs) to meet RPS.
b. Ensuring that the retail rate impact for renewable purchases does not exceed 0.5
¢/kWh on average; and
c. Evaluating a Feed-In Tariff (FIT) contracting mechanism that considers the full value
of locally sited renewable resources.
Proposed Implementation Plan Items for Strategy #3 – Renewable Portfolio
Standard (RPS)
Estimated
Completion
8. Fully integrate the effects on energy efficiency in the long-term electric load
forecast.
Nov. 2010
9. Evaluate the merits of implementing a feed-in-tariff (FIT) and the potential to
meet RPS goals through local renewable resources.
Jan. 2011
10. Seek UAC recommendation and Council approval of the policy elements of a
FIT to encourage local renewable resource projects.
May 2011
11. Continue working with NCPA to identify opportunities, including joint-
ownership, for developing qualifying renewable resources.
On-going
ATTACHMENT A
Proposed Implementation Plan Items for Strategy #3 – Renewable Portfolio
Standard (RPS)
Estimated
Completion
12. Evaluate the use of renewable energy credits (REC) to meet a portion of the
City’s RPS goal and/or greenhouse gas emission reduction goals and monitor
the regulations and requirements regarding the use of RECs to meet RPS
goals.
On-going
13. Evaluate a proposed geothermal project being considered by NCPA, including
a pre-pay option and the benefit, costs, and risks of a pre-pay structure.
June 2011
14. Conduct a Request for Proposal for eligible renewable resources including
RECs and evaluate alternative renewable resource technologies and
contracting mechanisms.
RFP in June
2011
4. Local Generation – Promote and facilitate the deployment of cost-effective local
resources by:
a. Using the renewable market price referent (MPR) adjusted for time of day factors and
location as the avoided cost when evaluating cost effectiveness of local resources;
b. Considering energy delivery cost uncertainty and strategic value options when
evaluating opportunities;
c. Evaluating a Feed-in-Tariff to promote locally sited renewable resources;
d. Evaluating cost-effective energy storage resources; and
e. Evaluating the feasibility of developing a 25 to 50 MW generating facility connect to
the City’s distribution system.
Proposed Implementation Plan Items for Strategy #4 – Local Generation Estimated
Completion
15. Provide an update of past local generation feasibility studies and actions to
UAC and Council
Dec. 2010
16. Assess the potential for and feasibility of small local distributed and non-
distributed, renewable and cogeneration projects, including using a FIT to
encourage these projects.
Jan. 2011
17. Assess the potential, benefits and costs of developing and/or joint ownership
of a 25 to 50 MW gas-fired power plant located in or near Palo Alto to meet
load, reliability and local capacity needs.
Jun. 2011
18. Evaluate the City’s PLUG-In Program to encourage cogeneration including
rules, regulations, and buy back rates and recommend modifications as
needed.
Dec. 2011
19. Following receiving Council direction from Implementation Plan Initiative
#10, develop a FIT proposal including rate, rules, regulations, standard
contract form and limits.
To be
determined
20. Assess the economics and potential of the anaerobic digester as a local
generation resource for CPAU
Sep. 2011
21. Assess the need for and value of energy storage to support local renewable
distributed generation resources.
Jun. 2012
ATTACHMENT A
5. Climate Protection – Reduce the electric portfolio’s carbon intensity by:
a. Supporting the City municipal government’s climate protection goals;
b. Promoting the use of technologies (e.g. incentives for cogeneration systems,
promotion of EVs, in-home energy displays) and programs that will reduce the
community’s carbon footprint at a cost of up to the City’s value of carbon;
c. Continuing to offer a renewable resource-based retail rate for all customers who want
to voluntarily select an increased content of non-hydro renewable energy; and.
d. Evaluating quantitative goals for possible future implementation.
Proposed Implementation Plan Items for Strategy #5 – Climate Protection Estimated
Completion
22. Promote the City’s Plug-in program to encourage development of
cogeneration systems.
On-going
23. Analyze electric vehicle (EV) charging patterns and evaluate rates to incent
nighttime EV charging.
Jun. 2011
24. Meet AB32 mandated annual reporting requirements to California Air
Resources Board on annual volumes of electricity purchases by resource.
Annually,
next in Jun.
2011
25. Track and report annually on 6 major greenhouse gas emissions (CO2, CH4,
N2O, SF6, HFCs, PFCs) for all of the City’s municipal operations and
calculate electric portfolio’s overall emissions coefficients (lbs of CO2, CH4,
and N2O per MWh of purchases).
Annually,
next in Sep.
2011
26. Evaluate the costs, benefits and impacts of the implementation of an electric
portfolio carbon neutral policy and the setting of quantitative goals (e.g.
carbon intensity, total GHG emissions).
Jan. 2012
27. Evaluate PaloAltoGreen program design and recommend modifications, as
appropriate.
Jun. 2012
6. Hydro Resource Management – Actively monitor and manage cost uncertainty related
to variations in hydroelectric supply and maximize value of hydro resources by:
a. Planning for an average hydro year on a long-term basis;
b. Utilizing cost effective hydro resource management products; and
c. Implementing opportunities to maximize benefits and reduce costs of the Western
Base Resource and Calaveras hydroelectric resources.
Proposed Implementation Plan Items for Strategy #6 – Hydro Resource
Management
Estimated
Completion
28. Evaluate potential rate adjustment mechanisms that would adjust electric rates
based on hydrologic year type and develop a recommendation for a rate.
Apr. 2011
29. Assess the value related to Palo Alto’s participation in the CAISO’s Metered
Subsystem Agreement and the use of the Calaveras hydroelectric project for
load following.
On-going
30. Identify long-term opportunities to maximize the value of the Calaveras
hydroelectric project as an energy storage resource.
On-going
ATTACHMENT A
Proposed Implementation Plan Items for Strategy #6 – Hydro Resource
Management
Estimated
Completion
31. Work with NCPA to seek opportunities to increase the efficiency of the
Calaveras hydroelectric project and implement operational value maximizing
strategies.
On-going
7. Market Price Exposure Management – Actively monitor and manage operational,
counterparty and wholesale energy price risk in the short-term (up to three to five years)
by:
a. Maintaining an adequate pool of creditworthy suppliers; and
b. Diversifying supply purchases across commitment date, start date, duration, suppliers
and pricing terms in alignment with rate stability objectives and reserve guideline.
Proposed Implementation Plan Items for Strategy #7 – Market Price
Exposure Management
Estimated
Completion
32. Evaluate a block purchase of up to 25 MW to meet base load needs for Jan-
Mar and Nov-Dec for a term of up to 5 years.
Feb. 2011
33. Conduct an RFP for new electric master agreement counterparties. Dec. 2011
34. Explore opportunities with NCPA, other municipal utilities and/or third party
suppliers to reduce scheduling and/or operating costs.
On-going
35. Continue to implement a 3-year laddering strategy to manage market price
uncertainty.
On-going
8. Transmission and Reliability – Pursue the reliability of supply at fair and reasonable
transmission and delivery costs by:
a. Actively participating through collaborative efforts with other entities, in local,
regional, statewide and federal regulatory and legislative forums;
b. Participating in transmission and reliability market design forums to ensure that
adopted market designs result in adequate reliability, workably competitive markets
and equitable cost allocation;
c. Evaluating interconnection options to the City to increase service reliability and lower
delivery costs; and
d. Exploring transmission opportunities and strategies to meet long-term renewable
portfolio objectives beyond 2020.
Proposed Implementation Plan Items for Strategy #8 – Transmission and
Reliability
Estimated
Completion
36. Investigate transmission connection voltage upgrade from 115 to 230 kV, and
the potential for a transmission reliability connection to west side.
On-going
37. Explore transmission opportunities and strategies to meet long-term renewable
portfolio objectives beyond 2020.
On-going
38. Evaluate joint efforts for power plant ownership opportunities or long-term
agreements to meet the City’s Resource Adequacy Program requirements.
On-going
ATTACHMENT B
Existing Long-term Electric Acquisition Plan (LEAP)
Objectives and Guidelines and Implementation Plan
LEAP Primary Portfolio Planning Objectives
Originally approved by Council on November 13, 2001 (CMR 425:01).
Objectives modified by Council on March 5, 2007 (CMR 158:07).
Objective 1: Provide competitive and predictable supply cost while balancing environmental,
local reliability, rate and cost impacts.
Objective 2: Maintain a supply portfolio cost advantage compared to wholesale electricity
market cost.
Objective 3: Enhance supply reliability to meet City and customer needs by pursuing
opportunities including transmission system upgrades and local generation.
Objective 4: Act to maintain the City Council’s ability to exercise local control of decision
making related to all aspects of serving customer energy needs.
LEAP Guidelines
Originally approved by Council on October 21, 2002 (CMR 398:02).
Guidelines modified by Council on March 5, 2007 (CMR 158:07).
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
Guideline 2: Hydro Resource Management
Manage hydroelectric supply resources by:
A. Planning for an average hydro year on a long-term basis;
B. Maintaining the flexibility to adopt hydro resource management products;
C. Maximizing value of the Western and Calaveras resource; and
D. Maintaining adequate supply rate stabilization reserve to manage hydro production
volume uncertainty.
Guideline 3: Energy Risk Management
Manage supply cost uncertainty and risk by:
A. Implementing the City’s Energy Risk Management Policies and Guidelines;
B. Maintaining an adequate pool of credit-worthy suppliers;
C. Diversifying supply purchases across commitment date, start date, duration, suppliers,
pricing terms and fuel sources;
D. Maintaining a prudent exposure to changing market prices; and
E. Maintaining adequate supply rate stabilization reserves to manage market, credit, and
other uncertainties.
Page 1 of 4
ATTACHMENT B
Guideline 4: Market Design, Transmission and Resource Adequacy
Ensure the reliability of supply at fair and reasonable transmission and capacity costs by:
A. Actively participating, as an individual entity and also through collaborative efforts with
other entities, in local, regional, statewide and federal regulatory and legislative forums.
Supporting, through legislative, regulatory and technical advocacy and/or direct
investment, the upgrading of Northern California transmission to improve reliability and
to relieve both congestion and local capacity costs;
B. Participating in transmission and reliability market design forums to ensure that adopted
market designs result in adequate reliability, workably competitive markets and equitable
cost allocation;
C. Implementing the City of Palo Alto Electric Utility Resource Adequacy Program;
D. Participating in Joint Action Agencies to optimize value of City-owned transmission
assets and ensure compliance with FERC regulations;
E. Supporting, through legislative, regulatory and technical advocacy, the development and
availability of long-term transmission rights to serve load; and
F. Evaluating interconnection options to the City to increase service reliability and lower
delivery costs.
Guideline 5: Local Generation
A. Promote and facilitate deployment of renewable resource supplies by providing expertise,
education, incentives and rates to support customer-owned solar power systems, and
demonstrating renewable generation technologies.
B. Promote an ultra-clean distributed generation incentive program.
Guideline 6: Renewable Energy Supply
Reduce electric portfolio dependence on fossil fuels by meeting at least 80% of City’s long term
energy needs from non-fossil and non-nuclear supply.
A. Renewable Portfolio Standard: In addition to the voluntary program, the City shall invest
in new renewable resources to meet the City’s sustainability goals while ensuring that the
retail rate impact does not exceed 0.5 ¢/kWh on average.
B. Pursue a target level of new renewable purchases of 20% of the expected portfolio load
by 2008 and move to a 30% target by 2012 and 33% by 2015. The contracts for
investment in renewable resources shall not exceed 30 years in term.
C. Palo Alto Green: In addition to the renewable portfolio standard, the City shall continue
to offer a renewable resource-based retail rate for all customers who want to voluntarily
select an increased content of non-hydro renewable energy.
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
Page 2 of 4
ATTACHMENT B
Guideline 8: Climate Action Plan
As part of the City’s commitment to develop an implement an action plan to reduce greenhouse
gas emissions, develop and implement a Climate Action Plan relating to utility activities.
A. Consider all 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.
LEAP Implementation Plan
Originally approved by Council on August 4, 2003 (CMR:354:03).
Changes approved by Council on April 17, 2006 (CMR 169:06).
1. Climate Action: Promote environmental stewardship by completing the California Climate
Action Registry process for reporting and certifying greenhouse gas emissions, developing a
Climate Action Plan for utilities, and supporting City efforts to address climate change and
other environmental issues.
2. Public Benefits: Continue implementation of electric public benefits programs, which is
funded by collecting a fee equal to 2.85% of the electric retail rate. These funds are partially
used to demonstrate renewable resources or alternative technologies and to assist customers
in pursuing efficiency improvements. Coordinate Public Benefits program enhancements
with efficiency portfolio plan development (Task #3)
3. Efficiency Portfolio: Enhance the existing efficiency programs by developing a long-term
integrated resource efficiency portfolio plan that recognizes cost-effective energy efficiency
and load management as priority resources in the “loading order” for energy resources.
Design efficiency programs to account for the combined benefits of electric, gas, and water
efficiency savings (e.g. a horizontal clothes washer saves electricity, water and gas).
Leverage joint efforts with other public power providers via NCPA’s efficiency initiatives
and Public Benefits Committee. Enhance system efficiency through generation efficiency
improvements and electric distribution system enhancements to lower system losses. As
appropriate, additional funding for cost-effective efficiency programs will be recommended
to complement and enhance the existing Public Benefits programs. Develop retail rate
options that provide price signals to customers that encourage efficiency.
4. Renewable Portfolio: Acquire renewable energy resources to meet LEAP Guideline 6.
Strive to meet 2015 goals by 2010. Work closely with suppliers to meet their contract
obligations and to ensure that projects under construction are completed in a timely manner.
Participate in NCPA “Green Pool” joint procurement initiative to meet remaining needs.
5. PaloAltoGreen: Continue implementation of the Palo Alto Green program, a green pricing
product available on a volunteer basis to customers who wish to purchase a greater fraction
of green resources. Where feasible, secure eligible renewable energy supplies to meet both
the renewable portfolio investments and the needs of the Palo Alto Green program. Evaluate
potential strategies to meet the solar portion of PaloAltoGreen with local solar resources.
Page 3 of 4
ATTACHMENT B
Page 4 of 4
6. Clean Distributed Generation: Develop a long-term cogeneration implementation plan to
capitalize on environmentally friendly and cost-effective high-efficiency combined heat,
power and cooling (CHPC) opportunities at large customer sites that are compatible with the
Comprehensive Plan. Assist motivated large customers in evaluating technical and
economic feasibility of CHPC combined with energy efficiency, and in implementing cost-
effective and environmentally sound prospects. Establish standardized distributed generation
interconnection standards and procedures that leverage the groundwork of California Public
Utilities Commission Rule 21, and update retail and wholesale electric and gas rates for
small-scale clean distributed generation. Continue to monitor technology costs and
opportunities for smaller renewable technologies, cogeneration and other low-impact
generation that can be located within Palo Alto.
7. Natural Gas-Fired Generation: Redirect the local generation feasibility study CIP to focus
on clean small-scale distributed generation (Task #6) and power plant opportunities outside
of Palo Alto. Given regulatory uncertainty related to local capacity rules and uncertainty of
control area constraints, evaluate joint efforts toward power plant ownership opportunities
within and near the Greater Bay Area (consistent with levels listed in LEAP Guideline #3B
(25-50 MW).
8. Greater Bay Area Contracts: In parallel with Task #7, pursue firm energy and capacity
supply contracts within the Greater Bay Area on either medium or long-term basis. Conduct
a Request for Proposals to solicit firm energy and capacity offers from all sources within the
Greater Bay Area, including renewables, cogeneration and conventional generation.
9. Portfolio Management: Continue to diversify energy purchases to meet load. Continue to
develop and maintain expertise and analytic tools, models and other efforts to evaluate
scenarios, new resource opportunities, and impact of uncertainties on portfolio position and
performance.
10. Risk Management: Develop improved transparent and streamlined Back Office process
(contract administration and settlements). Clarify surplus power wholesale sales procedures
to ensure transparency and the appropriateness of surplus energy commodity sales
transactions that are necessary to meet varying loads with varying and dispatchable electric
supplies. Maintain adequate reserves by recognizing the degree of uncertainty the City faces
in the future and periodically review and recommend appropriate level of financial reserves.
11. Local Interconnection: Evaluate transmission system upgrades to reduce cost and enhance
reliability. Investigate transmission connection voltage increase from 115 to 230 kV, and the
potential for a redundant transmission connection to west side.
12. Legislation and Regulation: Monitor and participate in regulatory and legislative initiatives
related to transmission market design and pursue alternatives to increase reliability at a
reasonable cost. Continue to advocate transmission upgrades in to the Bay Area to increase
reliability. Establish a policy to address mandatory resource adequacy requirements.
ATTACHMENT C
UTILITIES ADVISORY COMMISSION - SPECIAL MEETING
MINUTES OF JULY 20, 2010
ITEM 5: DISCUSSION: Long-Term Electric Acquisition Plan (LEAP) Draft Objectives and Strategies
Senior Resource Planner Monica Padilla presented draft LEAP Objectives and Strategies as a “strawman”
proposal in an effort to get feedback from the UAC. The draft proposed LEAP strategies included:
1. Resource Acquisition – Pursue the least total cost resources to meet the City’s needs in the
long-term.
2. Energy Efficiency and Demand Reduction – Fund programs that maximize the deployment of
cost-effective, reliable and feasible energy efficiency and demand reduction opportunities as
the highest priority resources.
3. Renewable Supplies – Acquire renewable energy supplies to meet the state RPS standard.
4. Climate Protection – Support the City’s climate protection goals
5. Distributed Local Resources – Promote and facilitate the deployment of cost-effective local
distributed resources.
6. Transmission and Reliability – Pursue the reliability of supply at fair and reasonable
transmission and delivery costs
7. Hydro Resource Management – Actively monitor and manage cost uncertainty related to
variations in hydroelectric supply and maximize value of hydro resources.
8. Energy Risk Management – Actively monitor and manage operational, counterparty and
wholesale energy price risk.
Regarding the proposed Strategy #3 (Renewable Supplies), the proposal is to meet the expected state
Renewable Portfolio Standard (RPS) that is under consideration by the legislature today (33% RPS by
2020) and to pursue all projects that are deemed eligible by the California Energy Commission. The new
law (SB 722) is also expected to allow Renewable Energy Certificates (RECs) to count towards the RPS.
The proposed Strategy #3 also includes the development of a Feed-in Tariff (FiT) to encourage locally sited
renewable resources. Padilla explained that alternatives to this proposed strategy include exceeding the
expected state standard (33% RPS by 2015, no use of RECs, acquire only new renewables), which would
have a rate impact, or including carve-outs for technologies, locally sited PV resources, contracting
mechanisms, such as FiTs and owned resources. Padilla added that the proposed strategy is a step back
from the existing LEAP guideline for renewable resources, which exceeds the expected state standards.
Chair Waldfogel indicated that he liked the direction staff is proposing with the least total cost resource
(Strategy #1), but that some of the later strategies may undermine that one. He also asked if the RPS goal
should be what the law currently requires (20% by 2010), rather than what we think the law will become
based on what’s under consideration at the state legislature today.
Commissioner Eglash said that using least total cost sounds fine, but it doesn’t show the impact on rates. If
this methodology results in little or no rate impact, then it will have support, but if it would result in a 30%
upward rate impact, it would not be supported. Eglash asked if the City was exposed to peak prices and
what the impact of time-differentiation of cost means for Palo Alto. Padilla indicated that the City is indeed
exposed to hourly prices and when those prices spike in certain hours of hot days, the City must pay those
prices for its entire load. At the same time, the City has supplies that receive those high prices for the
energy generated during those hours so that the overall effect is mitigated.
Utilities Advisory Commission Minutes Approved on: September 1, 2010 Page 1 of 2
ATTACHMENT C
Utilities Advisory Commission Minutes Approved on: September 1, 2010 Page 2 of 2
Commissioner Melton suggested raising the strategy of local distributed resource to a LEAP objective. He
indicated that local generation offers local capacity value, avoided transmission costs, possibly a renewable
attribute and other intangibles that are difficult to assign a value to. Commissioner Eglash indicated that
there are a wide range of technologies for local generation. Commissioner Foster asked if local generation
would add much to the City’s distribution system reliability.
Commissioner Foster indicated his strong opposition to reducing the current RPS goals. He stated that
Palo Alto should not just barely meet the goal, but continue to be a leader in this area. He also indicated
that he does not support technology carve-outs in the RPS, but said that we should look at a FiT, but
wouldn’t want to mandate a certain percentage of the RPS to be met with FiTs.
Council Member Yeh agreed that he was in favor of a 33% by 2015 standard. He said he liked the idea of
using FiTs saying they provided predictability and a declining price structure. He contrasted these with the
escalating price structure in the renewable Power Purchase Agreements that the City has recently
committed to.
Due to time limitations, further discussion on LEAP was postponed to the July 28, 2010 UAC meeting.
ATTACHMENT D
UTILITIES ADVISORY COMMISSION - SPECIAL MEETING
MINUTES OF JULY 28, 2010
ITEM 3: DISCUSSION: Long-Term Electric Acquisition Plan (LEAP) Draft Objectives and Strategies
As a follow-up to the UAC meeting on July 20, 2010, Senior Resource Planner Monica Padilla provided a
brief presentation of the impacts on supply cost over ten years associated with alternative CPAU profiles.
The alternatives presented included:
Profile #1: Status quo (energy efficiency = 7.2% by 2020; RPS = 33% by 2015; no local generation)
Profile #2: Cost minimization – delay implementation of a 33% RPS to 2020 (energy efficiency = 7.2% by
2020; RPS = 33% by 2020; no local generation); and
Profile #3: Green maximization – aggressive energy efficiency plan and procurement of 100% carbon free
resources (energy efficiency = 18% by 2020; RPS = 33% by 2015; local renewable generation,
carbon-free market resources).
Padilla presented the results of the high level analysis, noting that the analysis did not take into account
uncertainties. Profile #3 was the most expensive alternative, but was 100% carbon-neutral. Profile #2 was
the lowest cost with Profile #1 in between. Padilla stressed that the analysis was for illustrative purposes
only and that it should not be used to make hard conclusions. More time and a thorough review of
sensitivity to various variables and scenarios would improve the analysis.
Commissioner Eglash commended staff’s effort in providing analysis to aid in making policy level decisions
and recognized that delaying RPS goals to 2020 did not have a significant cost savings over the current
RPS goal of 33% by 2015. Eglash said he would like to see more of this type of analysis and offered to
meet with staff to help frame the policy decisions.
Commissioner Melton noted that Profile #3, green maximizer, significantly increased costs and rates;
however, he would like to see impacts on rates and customer bills from various strategies. Chair Waldfogel
noted that in comparing the status quo to the cost minimization alternatives the impacts on carbon
reductions compared to the cost of achieving the reduction in dollars per ton would be an interesting metric.
Commissioner Keller expressed her support for additional analysis and recommended this level of analysis
be presented to the City Council to provide context in making policy decisions. Council Member Yeh
observed that some Council Members do like data, but qualitative conclusions are also beneficial.
Assistant Director Ratchye requested feedback from the UAC as to whether or not staff should recommend
delaying the RPS to 33% by 2020 in an effort to line up with the anticipated state mandate. Commissioner
Eglash opined that he is not supportive of going back on our RPS goals and supports retaining the goal to
achieve 33% renewable supplies by 2015. He noted that a quick scan of the graph comparing the different
profiles indicates that the current course is a good compromise between the extremes of the profiles.
Commissioner Berry would like to see a projection of CPAU’s electric rates compared to PG&E, Silicon
Valley Power and other competitors to see whether or not an aggressive RPS erodes the City’s competitive
price advantage.
Utilities Advisory Commission Minutes Approved on: September 1, 2010 Page 1 of 1
ATTACHMENT E
UTILITIES ADVISORY COMMISSION - MEETING
MINUTES OF SEPTEMBER 1, 2010
ITEM 2: ACTION: Proposed Long-Term Electric Acquisition Plan (LEAP) Objectives and Strategies
Senior Resource Planner Monica Padilla provided a presentation to the UAC on the proposed Strategies to
meet the three proposed LEAP Objectives:
1. Meet customer electricity needs through the acquisition of least total cost energy and demand
resources.
2. Manage supply portfolio cost uncertainty to meet rate and reserve objectives.
3. Enhance supply reliability to meet City and customer needs by pursuing opportunities including
transmission system upgrades and local generation.
The eight proposed Strategies related to electric resource management presented include:
1. Resource Acquisition
2. Energy Efficiency and Demand Reduction
3. Renewable Portfolio Standard (RPS)
4. Local Generation
5. Climate Protection
6. Market Price Exposure Management
7. Hydro Resource Management
8. Transmission and Reliability
Padilla focused the presentation on several issues raised by UAC members and the City Council with
regard to:
Amount of energy efficiency to pursue;
Costs and benefits of advancing the RPS goal of 33% by 2020 (expected state mandate) to 33%
by 2015 (City’s current RPS);
Benefits and value of local distributed generation; and
Setting of Climate Protection goals and policies.
Energy Efficiency
Padilla described the process used to develop the recently approved Ten-Year Energy Efficiency Plan and
how cost effectiveness was determined by using the long-term cost of renewable energy, adjusted for time
of delivery and location, as the avoided cost. Padilla also explained that while a potential 18% load
reduction by 2020 due to energy efficiency was identified, the amount staff believes it could actually
achieve given existing resources is closer to 7.2% as currently approved in the Ten-Year Energy Efficiency
Plan. Padilla also noted that the cost of pursuing a higher energy efficiency target would be much higher
than in the current plan and highly uncertain.
Renewable Portfolio Standard
Padilla summarized analysis performed on the advantages and disadvantages as a result of delaying
achieving a 33% RPS by five years (from 2015 to 2020). The City could save approximately $11 million
over five years by avoiding purchases of renewable energy supplies, however would face a potential
exposure to green house gas emission taxes of approximately $3 million under a cap and trade regime.
Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 1 of 7
ATTACHMENT E
The net savings of $8 million over five years, which equates to about ¼ cent per kWh, could be used to
fund other measures to reduce greenhouse gas emissions. Padilla noted that by delaying the 33% RPS
goal, the City may lose its “cushion” for meeting the expected state standard and may not be in line with the
community’s values related to sustainability.
Local Generation
An overview of the both tangible and intangible benefits of local distributed generation was presented by
Padilla along with analysis of the value of local generation to meet the City’s RPS. Padilla noted that under
an expected case scenario, local distributed generation is valued at 14.7 cents per kWh, however is highly
dependent on several market conditions and that the actual value may range from 9.7 to 24.6 cents per
kWh.
Commissioner Melton noted that staff has chosen not to examine local generation of sufficient capacity to
support local demands. He stated that it’s time to look at that option again even though the idea was not
pursued when studied in the past. Padilla acknowledged that this was indeed the case and that staff did
not intent to pursue large scale generation. Commissioner Melton stated that he disagreed with this
stance.
Climate Protection
Padilla proceeded to address several issues related to Climate Protection including:
Whether to use a greenhouse gas adder in making short-term resource acquisition decisions;
Whether to minimize purchases of greenhouse gas emitting resources;
Whether to adopt a carbon intensity goal; and
Whether to pursue carbon neutrality for the electric supply portfolio.
Padilla explained that assuming an RPS of 33% is achieved by 2015 the City’s electric portfolio will be 85%
carbon neutral assuming average hydroelectric supplies and that 15% of the portfolio would consist of
unspecified market purchases which are assumed to have a carbon intensity of 879 pounds per MWh.
Padilla also noted that the cost of “greening-up” the carbon intense portion of the portfolio is highly
dependent on the cost of renewable energy credits and hydroelectric supply conditions and can range from
$5 to $11 million per year. Padilla concluded that given the cost and complexity of “greening-up” the
electric portfolio and the uncertainty regarding cap and trade allowances, a strategy to pursue a carbon
neutral portfolio at this time would not be prudent.
PUBLIC COMMENT
Craig Lewis, Executive Director of the FIT Coalition gave a presentation. He stated that the Fit Coalition is
assisting other municipal utilities to implement Feed-in-Tariffs and would like to do the same with Palo Alto.
They have done some research to look at requirements for a feed-in-tariff for Palo Alto to achieve and
maintain its 33% RPS. They have come up with an estimate of avoided costs in Palo Alto of 14c/kWh.
Lewis also showed an example of how much roof top space opportunity is in Los Angeles, which he
believes is an indication of the opportunity in Palo Alto.
Sahm White, also of the FIT Coalition, gave a presentation. FIT modeled roof-stop solar in Palo Alto and
looked at different sizes and rates that would be required. White claimed that the best of the options at
14.85 cents in current dollars over the life of the contract is close to the current avoided cost for power
produced locally.
Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 2 of 7
ATTACHMENT E
Council Member Scharff stated that the idea of a Feed-in-Tariff (FIT) needs more work and that it can’t be
accepted without further analysis. Director Fong indicated that staff fully intends to study this and come
back to the UAC prior to implementing such a rate.
Commissioner Eglash noted that progress had been made in the LEAP, but that he has serious concerns.
He noted that the objectives and strategies are inconsistent across sections and that it doesn’t go far
enough to achieve green goals. Commissioner Eglash stated that he likes the proposed RPS goal, it is
consistent with community values, and he is pleased that the economic impact is small. However, it seems
inconsistent with proposed Strategy #1 (pursue the least total cost resources to meet the City’s needs in
the long term) since that appears to not allow for more renewable resources. In addition, Commissioner
Eglash stated that carbon strategy is not reflective of community values and appears weak and watered
down. He acknowledged that a strong RPS does impact carbon footprint, but the strategy seems to send
the wrong message and misses an opportunity to do the right thing. Regarding local generation,
implementing FITs, and cost-effective storage resources, he would be more comfortable if we investigated
them, rather than implemented them as proposed in the strategies. Commissioner Foster said that he
agreed with Commissioner Eglash’s comments and that regarding FITs, we could change the language in
the proposed strategy. He added that he is generally supportive of the plan and is 100% in favor of the
RPS goal of 33% by 2015 with a cost limitation.
Commissioner Cook said he feels similarly to Commissioner Eglash as well. Commissioner Cook asked
why proposed LEAP Objective #1 was changed from the prior Objective #1. Padilla responded that when
evaluating resources, all costs and benefits including environmental, would be monetized and that those
with the least total cost would be pursued. Regarding proposed Strategy #2 (Electric Energy Efficiency and
Demand Response), Commissioner Cook asked why staff would want to identify all the cost-effective
energy efficiency opportunities, instead of just the measures with the highest value. Padilla responded that
all need to be identified, but that not all may make sense to pursue. Commissioner Cook noted that the
proposed Strategy #5 (Climate Protection) as written in the report was redundant. Padilla replied that
proposed Strategy #5 was rewritten as provided in the presentation.
Commissioner Keller agreed that the RPS goal should be aggressive as proposed. She asked if the rate
impact measure should be changed to a percentage of the rate rather than a set amount of 0.5 cents per
kWh. Ratchye replied that having the measure be a percentage of the rate is more difficult for staff to
calculate the green premium since that would require long-term rate projections to be done, which is
problematic.
Commissioner Melton stated his support for all elements of the plan except for the absence of a strategy to
re-evaluate large local generation. He said that it’s been a number of years since this was last examined
and that Santa Clara has such a facility and that it’s important for emergency preparedness. He would like
to add to Strategy #4 (Local Generation) to ensure that this is evaluated. Senior Resource Planner Shiva
Swaminathan provided the reasons staff did not include this in the proposed Strategy. First, the size of a
plant that could add local reliability would have to be at least 25 MW to 50 MW in size and even at that size,
the City would have to institute rolling blackouts to have parts of the City served at any one time since the
City’s peak load is nearly 200 MW. The last time this was evaluated, no acceptable site was found.
Second, the siting of a gas-fired power plant is not aligned with the City’s GHG emissions reduction goals.
Third, cogeneration would be considered and the City already has the PLUG-In program that encourages
cogeneration, but has been unsuccessful in finding customer sites where cogeneration is feasible. Fong
Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 3 of 7
ATTACHMENT E
added that investigating this again takes time, money and staff resources and may require the hiring of a
consultant. Council Member Yeh suggested that staff could distribute the studies that were done previously
to the UAC. He stated that emergency preparedness is a Council priority and asked what elements of a
study with emergency preparedness alternatives can be done. Commissioner Melton indicated that he
wanted to know what the costs would be if we can find a site.
Council Member Scharff stated that he was generally supportive of the RPS strategy, but stated that he
wondered what the best way to reduce carbon footprint was if the additional cost is $11 million. There
could be other approaches, such as energy efficiency. Staff should look at the best possible way to
achieve environmental goals and encouraged the UAC to not rigidly consider only RPS. The discussion
should be framed as the best way to move toward carbon neutrality. Council Member Scharff added that
CPAU should tout the City’s current low carbon footprint as PG&E does.
Commissioner Foster agreed that we should look more at efficiency, but should also have more renewable
resources – we should do both.
Chair Waldfogel stated that the proposed LEAP Objectives and Strategies was a great staff work and that
he was very supportive of proposed Strategy #1 (Pursue the least total cost resources to meet the City’s
needs in the long-term), which is a good operating principle. Regarding the RPS, he is not comfortable with
30-year terms and asked if that could be reduced. Chair Waldfogel also expressed concern about the lack
of diversity in the renewable portfolio and said that we are at risk with so much in landfill-gas-to-energy
projects. He suggested that a limit to a particular technology could be included in the RPS strategy.
Commissioner Keller disagreed and stated that it would be best to keep options open and not be too
restrictive. She added that the climate protection strategy could include other options such as planting
trees. Commissioner Eglash agreed with Commissioner Keller that it is best not to restrict the staff’s ability
to comply with the RPS goal by adding requirements by technology.
Chair Waldfogel indicated that the Commission would consider the LEAP Objectives and Strategies
individually, as needed, to take action rather than taking action as a whole.
LEAP Objectives
ACTION:
Commissioner Eglash made a motion that the UAC recommend that the Council approve LEAP Objectives
#2 and #3 as proposed and LEAP Objective #1 with the addition of the phrase “including an assessment of
environmental costs and benefits” so that LEAP Objective #1 reads: “1. Meet customer electricity needs
through the acquisition of least total cost energy and demand resources including an assessment of the
environmental costs and benefits.” Commissioner Foster seconded the motion. The motion passed
unanimously (7-0).
LEAP Strategy #1 (Resource Acquisition)
Regarding proposed Strategy #1, Commissioner Eglash proposed a change so the first clause in the
strategy would read: “Pursue the least total cost resources including an assessment of environmental costs
and benefits to meet the City’s needs in the long term by:”.
Chair Waldfogel asked why environmental cost should be privileged as opposed to any other part of the
total cost. Commissioner Eglash responded that the addition was not intended to privilege them, but to
Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 4 of 7
ATTACHMENT E
ensure that not only tangible costs are included in the analysis. Council Member Scharff asked how this
was to be done. Commissioner Eglash responded that the point is to make sure that environmental
impacts are included as they could easily be ignored since they are not always easy to quantify. Council
Member Scharff asked what staff will do when power is purchased according to this strategy.
Commissioner Eglash replied that he wouldn’t want staff to value GHG emissions at a very high level or at
zero. He is trying to give some flexibility to incorporate intangibles into the analysis. Commissioner Keller
stated that she agreed with this sentiment.
ACTION:
Commissioner Foster made a motion that the UAC recommend that the Council approve the change
proposed by Commissioner Eglash to LEAP Strategy #1 so that the first phrase reads: “Pursue the least
total cost resources including an assessment of environmental costs and benefits to meet the City’s needs
in the long term by:”. Commissioner Keller seconded the motion. The motion passed unanimously (7-0).
LEAP Strategy #3 (Renewable Portfolio Standard)
Commissioner Eglash indicated that he would like to change the subsection c. “evaluating” instead of
“developing” a Feed-in-Tariff.
Chair Waldfogel asked if a new section under subsection a.i. (regarding contracts not exceeding 30-year
terms) be added to read: “with reasonable cancellation terms”. He wanted to protect the City in case
regulations or legislation was changed in the future that changed what is considered an eligible renewable
resource. Director Fong stated that this insurance would likely be very expensive and that historically,
existing long-term contracts are grandfathered in if regulations change. Regarding the 30-year term
limitation and whether it should be reduced, Commissioner Eglash opined that the maximum term proposed
should stay so that staff was not boxed in too tightly. Commissioner Foster agreed that the proposed
maximum term should stay as proposed. He also suggested that these long-term contracts should be
brought to the UAC for review and recommendation.
Council Member Yeh asked whether proposed contracts have to have the 1.5% per year price escalators
that the last several renewable contracts contained and whether there was a way to get flat pricing from
project proposers. Ratchye indicated that generally proposers can price a project many different ways and
usually can provide a flat price, but in the last couple of renewable resource Requests for Proposals
(RFPs), staff had required proposers to provide at least one pricing option that included a start price and a
1.5% per year escalation since staff believes that this is a good pricing structure for the City for long-term
contracts.
ACTION:
Commissioner Eglash moved to recommend that the Council approved the proposed LEAP Strategy #3
with a change to subsection c. so that it reads: “evaluating” instead of “developing” a Feed-in-Tariff.
Commissioner Foster seconded the motion. The motion passed unanimously (7-0).
LEAP Strategy #4 (Local Generation)
Commissioner Melton said that he would like to change subsection c. from “implementing” to “evaluating” a
Feed-in-Tariff. Commissioner Foster suggested changing subsection c. from “local solar photovoltaic (PV)
systems” to “locally sited renewable resources” to be more generic.
Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 5 of 7
ATTACHMENT E
Commissioner Melton suggested adding a new subsection e. to read: “evaluating the feasibility of
developing a 25 to 50 MW generating facility connect to the City’s distribution system.”
Commissioner Eglash indicated that he would support Melton’s proposal and would also support removing
the word “distributed” in the first phrase of proposed Strategy #4. Commissioner Eglash also proposed
changing subsection d. from “promoting” to “evaluating” cost-effective energy storage resources.
Commissioner Keller asked how much capacity from cogeneration systems in the City is possible.
Swaminathan replied that the City would get from 20 to 40 MW of cogeneration and mentioned that the
PLUG-In program exists to encourage the installation of these systems at customer sites.
Commissioner Berry asked if the reliability of the City’s system would improve with resources outside of
Palo Alto. Director Fong said that they could improve reliability if they were outside of the City, but in close
proximity, and, especially, if there were a transmission line directly to the resource outside the City.
ACTION:
Commissioner Eglash moved, seconded by Commissioner Foster, to recommend that the Council
approved the proposed LEAP Strategy #4 with the recommended changes so that it reads as follows:
Local Generation – Promote and facilitate the deployment of cost-effective local
resources by:
a. Using the renewable market price referent (MPR) adjusted for time of day factors and
location as the avoided cost when evaluating cost effectiveness of local resources;
b. Considering energy delivery cost uncertainty and strategic value options when
evaluating opportunities;
c. Evaluating a Feed-in-Tariff to promote locally sited renewable resources; and
d. Evaluating cost-effective energy storage resources.
The motion passed unanimously (7-0).
Commissioner Eglash moved to recommend that the Council approve adding subsection e. to LEAP
Strategy #4 to read: “Evaluating the feasibility of developing a 25 to 50 MW generating facility connect to
the City’s distribution system.” Commissioner Melton seconded the motion. The motion passed (4-3) with
Commissioners Cook, Foster, and Keller opposed.
LEAP Strategy #5 (Climate Protection)
Commissioner Eglash stated that this strategy was weak, especially in comparison to the aggressive
environmental goal in the RPS strategy.
Council Member Scharff suggested that a target could be added for a carbon neutral content of the electric
portfolio. Director Fong cautioned that, since the hydroelectric generation content of the electric portfolio
changes with hydrologic year type, this could be a tricky goal to keep track of, or may need to be averaged
over several years. Commissioner Eglash suggested adding a new subsection that would read: “Evaluating
quantitative goals for possible future implementation.”
Chair Waldfogel asked if the UAC has jurisdiction under the item in subsection a. – support the City
municipal government’s climate protection goals. Ratchye advised that the City’s 2007 Climate Protection
Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 6 of 7
ATTACHMENT E
Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 7 of 7
Plan contains GHG emissions reduction goals that rely on increased renewable resources in the electric
portfolio as well as efficiency savings in the gas and electric portfolio so that Utilities is a major part of the
plan to meet the City’s climate goals.
ACTION:
Commissioner Cook moved to recommend that the Council approved the proposed LEAP Strategy #5 with
the addition of subsection d. to read “Evaluating quantitative goals for possible future implementation.” and
with a correction to the first phrase to read: “Reduce the electric portfolio’s carbon intensity by:”.
Commissioner Eglash seconded the motion. The motion passed unanimously (7-0).
LEAP Strategies #2, 6, 7, 8
Commissioners indicated that they were comfortable with LEAP Strategy #2 (Electric Energy Efficiency and
Demand Reduction), Strategy #6 (Hydro Resource Management), Strategy #7 (Market Price Exposure
Management), and Strategy #8 (Transmission and Reliability) as proposed.
ACTION:
Commissioner Foster made a motion that the UAC recommend that the Council approve LEAP Strategies
#2, #6, #7, and #8 as proposed. Commissioner Eglash seconded the motion. The motion passed
unanimously (6-0) with Commissioner Berry absent.
ATTACHMENT F
UTILITIES ADVISORY COMMISSION - MEETING
EXCERPTED DRAFT MINUTES OF NOVEMBER 3, 2010
ITEM 4: ACTION: Proposed Long-term Electric Acquisition Plan (LEAP) Implementation Plan
Senior Resource Planner Monica Padilla provided a brief presentation on the LEAP, noting that the UAC
recommended approval of the LEAP Objectives and Strategies at its September 2010 meeting. She noted
that the proposed Implementation Plan consists of 38 steps that were identified to implement the policy
objectives in the LEAP Objectives and Strategies.
Chair Waldfogel agreed that the UAC’s consideration of the LEAP Implementation Plan was perfunctory as
they had already provided the policy direction in the development of the Objectives and Strategies.
Commissioner Eglash indicated that he supported the plan, but expressed concern about the workload that
the 38 implementation items represented. He added that he hoped that the resource requirements to
complete the tasks in the plan would not increase costs or the need for additional personnel. Ratchye
explained that the tasks differ in level of effort and that some required much less work than others.
ACTION: Commissioner Cook made a motion to recommend Council approval of the LEAP
Implementation Plan. Commissioner Eglash seconded the motion. The motion carried unanimously (7-0).
Utilities Advisory Commission Minutes Approved on: Page 1 of 1