HomeMy WebLinkAboutStaff Report 2515 City of Palo Alto (ID # 2515)
Finance Committee Staff Report
Report Type: Meeting Date: 3/20/2012
March 20, 2012 Page 1 of 7
(ID # 2515)
Summary Title: Modification of Renewable Portfolio Standard
Title: Utilities Advisory Commission Recommendation to Adopt a Resolution
Modifying the City of Palo Alto Utilities’ Long-term Electric Acquisition Plan’s
Renewable Portfolio Standard Strategy
From: City Manager
Lead Department: Utilities
Recommendation
Staff and the Utilities Advisory Commission (UAC) recommend that the Finance Committee
recommend that Council adopt a resolution approving the proposed modifications to the Long-
term Electric Acquisition Plan (LEAP) related to the Renewable Portfolio Standard (RPS), to read
as follows:
Reduce the carbon intensity of the electric portfolio by acquiring renewable energy supplies by:
a. Pursuing a minimum level of renewable purchases of at least 33%, with a target of 40%,
of retail sales 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)
Executive Summary
The City’s Renewable Portfolio Standard (RPS) is to supply 33% of the City’s electric needs with
renewable energy by 2015. However, the City’s RPS policy needs to be slightly modified to be
consistent with State law and to clarify whether the 33% target is a minimum, or whether th e
City should pursue the maximum amount of RPS resources that can be procured within the 0.5
cents per kilowatt-hour (¢/kWh) rate impact limit. The recommended changes are shown in
bold italics in Table 1.
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Table 1: Comparison of Existing and Proposed LEA P Strategy Related to RPS
Existing LEAP Strategy #3 Proposed LEAP Strategy #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)
Renewable Portfolio Standard (RPS)
Reduce the carbon intensity of the electric
portfolio by acquiring renewable energy
supplies by:
a) Pursuing a minimum level of renewable
purchases of at least 33%, with a target of
40%, of retail sales 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; and
c) Evaluating a Feed-In Tariff (FIT)
In this report, staff discusses several possible alternative RPS policy options. Even if the options
are not recommended at this time, they may be considered further if the Cit y develops a plan
to achieve carbon neutrality for the electric portfolio.
Background
In April 2011, Senate Bill X1-2 (SB X1-2) extended the state’s RPS mandate to 33% by 2020 for
all utilities including the City. All California utilities are now required to meet the new RPS goals
of supplying 20% of their retails sales volume with renewable energy for the 2011 through 2013
period, supplying at least 25% by the end of 2016, and at least 33% by the end of 2020 (and
continuing every year thereafter).
SB X1-2 further establishes three different categories or “buckets” of renewable energy
products and sets limits on the degree to which a utility can rely on some categories to fulfill
their RPS requirements. (The City’s current RPS policy does not make such a distinction.) The
first category (“Bucket 1”), the state’s preferred one, consists of resources located in California
that deliver energy and environmental attributes to the purchaser as they are generated. All of
the City’s currently operating or contracted RPS resources fall into the Bucket 1 category.
“Bucket 2” resources are located out of state and deliver energy and an equal volume of
renewable attributes to the purchaser on different timing schedules to ease scheduling
burdens. “Bucket 3” resources deliver only the environmental attributes, or Renewable Energy
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Certificates (RECs),1 and not the associated energy to the purchaser. Bucket 3 resources are the
state’s least preferred variety, but they are also the least expensive.
The new law—through Public Utilities Code section 399.30(a)—specifically applies to publicly-
owned utilities (POUs) like the City. Although the City’s current RPS target is more aggressive
than the state’s requirements, the state RPS law requires the City to formally adopt
enforcement language that recognizes certain elements of the new RPS law. In December
2011, Council approved an RPS enforcement program describing how the City will enforce its
RPS program in compliance with state law (Staff Report 2225). The approved enforcement
program mirrored the minimum requirements of SB X1 -2 in order to minimize the chances of
incurring state-imposed penalties. However, the enforcement program is intended only for
compliance with state law, and does not preclude the City’s adop tion of more stringent RPS
goals, such as it currently has.
Palo Alto’s Progress toward Meeting RPS Goals
The City uses California’s definition of qualifying renewable resources, which excludes large
hydroelectric plants exceeding 30 megawatts. Projects located outside of California are
considered qualifying resources, provided that they are located in the Western Electricity
Coordinating Council region (i.e., in the western U.S.) and began operating no earlier than
January 1, 2005.
The City Council has approved long-term contracts for nine in-state renewable resources. Five
of these resources are currently delivering renewable energy to the City and four are in the
permitting process. The nine contracts are expected to provide energy equal to about 28% of
the City’s retail sales volume by 2014. The retail rate impact for the nine committed contracts
is about 0.22 ¢/kWh, or a bit less than half of the allowed rate impact. If new renewable energy
contracts are executed at current costs for renewable en ergy, staff estimates that an RPS level
of about 35% can be achieved without exceeding the 0.5 ¢/kWh rate impact limit.
Discussion
The adoption of a statewide 33% RPS mandate presents the City with the opportunity to bring
its RPS policy more in line with the structure and details of the state policy, as well as to
consider a number of other potential changes. Some of these policy questions are addressed
below.
An RPS Target Based on Retail Sales Volume or Purchase Volume?
The state law’s RPS target levels are expressed as a percentage of a Load Serving Entity’s (LSE)
retail sales volume (as opposed to its purchase volume), whereas Palo Alto’s current RPS policy
language is unclear as to whether the target is 33% of retail sales or 33% of total purchases.
1 Renewable Energy Certificates (RECs), also known as renewable energy credits, green certificates, green tags, or
tradable renewable certificates, represent the environmental attributes of the power produced from renewable
energy projects and can be sold separately from the electricity commodity. One REC is associated with each MWh
of renewable energy generated by registered generation facilities.
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Because of distribution system losses and other factors, the volume of an LSE’s retail sales is
slightly less than the volume of its total purchases. Therefore, a slightly smaller volume of
renewable energy is required to meet a target expressed as 33% o f retail sales than is required
to meet a target expressed as 33% of energy purchases.
For consistency with the state requirement and regular and customer reporting requirements,
staff recommends clarifying the City’s RPS goal to be 33% of retail sales.
Set Compliance Period Targets?
Given that SB X1-2 includes three compliance periods with unique RPS procurement levels, the
question naturally arises whether the City should adopt interim compliance period targets to
align its RPS policy more closely with the state law. However, the City’s RPS supply already
exceeds the statewide RPS requirement for the 2011-2013 compliance period, and assuming
the City achieves its 33% by 2015 RPS target, it will have exceeded the statewide requirements
for the second and third compliance periods. Thus, staff feels there is no reason to make the
City’s RPS policy more complicated by adding interim RPS targets.
RPS Procurement Limited by Reaching the Rate Impact Limit or the RPS Target?
The current language in the City’s RPS policy—pursuing “a target level of renewable purchases
of 33% by 2015” while “*e+nsuring that the retail rate impact for renewable purchases does not
exceed 0.5 ¢/kWh on average”—is unclear as to what should happen when the 33% RPS target
is reached if the total average rate impact is less than 0.5 ¢/kWh. Should the City cease
procurement efforts once the 33% RPS target is achieved, or should it continue to procure
additional renewable energy until the rate impact limit is reached? Although the langu age
could be interpreted either way, staff suggests that the 33% RPS level is a target, not a limit,
while the 0.5 ¢/kWh rate impact value is clearly a limit and, thus, should be the governing
restraint.
Staff recommends modifying the RPS policy language to clarify that the goal is to procure at
least 33% of its retail sales volume from renewable energy sources, with the 0.5 ¢/kWh rate
impact limit serving as the overall restraint on the City’s RPS procurement efforts. Council
Members have made a similar point over the past year.
Change the Rate Impact Limit?
Staff recommends retaining the rate impact limit in its current form, with the 0.5 ¢/kWh rate
impact level serving as the restraint on renewable energy purchases. The RPS enforcement
policy adopted by Council in December 2011, uses the existing rate impact limit as the cost
containment provision for SB X1-2. The cost containment provision is useful to avoid being
penalized by state regulators in the event that high renewable premiums would interfere with
reaching the state RPS targets by the state deadlines.
Establish Guidelines on Use of Renewable Energy Certificates?
With the creation of the three renewable energy “bucket” categories under SB X1 -2, the City
has the opportunity to establish its own guidelines on the use of these various types of RPS
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products for meeting its own RPS target. SB X1-2 allows, but significantly limits, the amount of
Bucket 2 and 3 resources a utility may count towards its procurement requirements. The City
could take a “gold standard” approach and require that all of its RPS supply be from Bucket 1.
Or it could make it official policy to use Bucket 3 RECs only for contingency situations (e.g., if
there is a long-term outage at one of its contracted renewable resources, or a delay in the start-
up of a contracted resource).
Staff recommends preserving operational flexibility by not adopting any guidelines that further
restrict the use of Bucket 2 or Bucket 3 resources for compliance beyond the constraints
established by SB X1-2.
Establish Local Requirements for Renewable Resource Buckets?
The City could choose a policy establishing requirements to meet its RPS policy by designating
minimum and/or maximum amounts of Bucket 1, Bucket 2, or Bucket 3 renewable resources.
While the City must comply with SB X1-2, the City could adopt additional requirements. The
City’s committed renewable resources compared to SB X1-2’s procurement requirements are
illustrated in the figure below. Since all of the City’s currently contracted R PS supply consists of
Bucket 1 renewable resources, the City expects to easily comply with SB X1 -2’s minimum
procurement requirements.
SB X1-2 Compliance Requirements vs. CPAU Portfolio
0
50
100
150
200
250
300
350
400
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
GW
h
p
e
r
Y
e
a
r
CPAU Committed Resources
SB X1-2 Bucket 1 Minimum
SB X1-2 Bucket 3 Maximum
CPAU RPS Goal
SB X1-2 Requirements
Because of the limits imposed on the use of Bucket 3 renewables for RPS compliance, the
incremental price (above the price of “brown” energy) for Bucket 1 resources (in-state bundled
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energy and RECs) is significantly greater than the price of Bucket 3 resources (RECs with no
associated energy). Currently prices are approximately $40/MWh for Bucket 1 RECs (premium
over brown power) versus $5/MWh for Bucket 3 RECs.
Rather than establish a new policy on the use of the different categories of renewable
resources to achieve the RPS goal, staff recommends addressing this issue in the upcoming
discussion of the pursuit of a carbon-neutral electric portfolio. A plan to achieve carbon
neutrality will explore the question of which resources should be used for that goal and will
provide clarity on the distinction between RPS, carbon reduction, and electric portfolio carbon
neutrality goals.
Commission Review and Recommendation
Staff presented its recommendation to the UAC at its November 2, 2011, meeting. The UAC
supported staff’s recommendations, with modifications, and moved to recommend Council
approval of the following:
LEAP Strategy #3 – Renewable Portfolio Standard (RPS)
Reduce the carbon intensity of the electric portfolio by acquiring renewable energy supplies by:
a. Pursuing a minimum target level of renewable purchases of at least 33%, with a target
of 40%, of retail sales by 2015 with the following attributes:
(1) The contracts for investment in renewable resources shall not exceed 30 years in
term.
(2) Pursue only renewable resources deemed to be eligible by the California Energy
Commission (CEC).
(3) 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)
The motion carried by a vote of 4-2 with Vice Chair Berry and Commissioner Waldfogel
opposed. Commissioner Waldfogel stated that he opposed the motion since he believes that
the entire 0.5 ¢/kWh rate impact limit does not need to be spent on renewables and it could be
put to better use for efficiency, other ways to reduce GHG emissions, or simply reduced rate
impact. Vice Chair Berry said that he agreed with Commissioner Waldfogel. Attachment B
contains the minutes from the November 2, 2011, UAC meeting.
Resource Impact
Adoption of the proposed modifications to LEAP is not expected to result in costs in excess of the
previously adopted 0.5 ¢/kWh rate impact limit.
Policy Implications
The proposed policy is compliant with state law and goes beyond the minimum RPS
requirements of SB X1-2. The proposed RPS policy would modify the LEAP Strategy related to
RPS by adding clarity, but would not change the general policy direction.
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Environmental Review
Support of staff’s recommendation to approve the proposed modifications to the LEAP Strategy
related to RPS does not constitute a project for the purposes of the California Environmental
Quality Act.
Attachments:
Attachment A: Resolution Approving RPS Policy Modifications (PDF)
Attachment B: FINAL UAC Minutes of November 2, 2011 (PDF)
Prepared By: James Stack, Resource Planner
Department Head: Valerie Fong, Director
City Manager Approval: ____________________________________
James Keene, City Manager
Not Yet Approved
1
120224 dm 6051679
Resolution No. ______
Resolution of the Council of the City of Palo Alto Approving
Modifications to the City of Palo Alto Utilities’ Long-term
Electric Acquisition Plan’s Renewable Portfolio Standard
Strategy
WHEREAS, the Long-term Electric Acquisition Plan (LEAP) is a strategic
planning document focused on how the City of Palo Alto’s Utilities Department (CPAU)
can successfully balance environmental and economic sustainability as it provides
electric service to CPAU customers; and
WHEREAS, staff presented the Long-term Electric Acquisition Plan to the
Utilities Advisory Commission at its November 2, 2011 meeting, and the UAC voted 5 to
2 (with Commissioners Waldfogel and Barry opposed) to recommend that the City
Council approve the proposed modification to Long-term Electric Acquisition Plan’s
(LEAP) Renewable Portfolio Standard (RPS) strategy; and
WHEREAS, staff presented the Long-term Electric Acquisition Plan to the
Finance Committee at its March 6, 2012 meeting, and the Finance Committee voted x to
y to recommend that the City Council approve proposed modifications to the LEAP’s
RPS strategy.
NOW, THEREFORE, the Council of the City of Palo Alto does hereby
RESOLVE as follows:
SECTION 1. The Council hereby adopts the resolution approving
modifications to the Long-term Electric Acquisition Plan’s (LEAP) Renewable Portfolio
Standard strategy to read as follows:
Reduce the carbon intensity of the electric portfolio by acquiring renewable energy
supplies by:
a.Pursuing a minimum target level of renewable purchases of at least 33%,
with a target of 40%, of retail sales 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).
ATTACHMENT A
Not Yet Approved
2
120224 dm 6051679
SECTION 2. The Council finds that any revenue derived from the
authorized adoption enumerated herein shall be used only for the purpose set forth in
Article VII, Section 2, of the Charter of the City of Palo Alto.
SECTION 3. The Council finds that the adoption of this resolution does not
constitute a project under Section 21065 of the California Environmental Quality Act
(CEQA) and the CEQA Guidelines, and therefore, no environmental assessment is
required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
___________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Senior Deputy City Attorney City Manager
___________________________
Director of Utilities
___________________________
Director of Administrative Services
FINAL
UTILITIES ADVISORY COIVIIVIISSIOI~ MEETING
MINUTES OF I~OVEIVIBER 2, 2011
CALL TO ORDER
Chair Foster called to order at 7:05 pm the meeting of the Utilities Advisory Commission (UAC).
Present: Commissioners Berry, Cook, Foster, Keller, Melton and Waldfogel
Absent: Council Member Liaison Scharff and Commissioner Eglash
ORAL COMMUNICATIONS
None.
APPROVAL OF THE MINUTES
The minutes from the October 5, 2011 UAC meeting were approved as presented.
AGENDA REVIEW
No changes.
REPORTS FROM COMMISSION MEETING/EVENTS
Commissioner Melton reported that he attended the ground breaking ceremony for the new emergency
storage reservoir at EI Camino Park and was thankful that work was finally beginning on that project.
UTILITIES DIRECTOR REPORT
In the absence of Director Valerie Fong, Assistant Director Jane Ratchye delivered an oral report on the
following items:
1. Marketing and Efficiency Program Update -Staff proposed amending contracts with Ecology Action
to add funding for the Right Lights+ program and with OPOWER to continue the program for one year
beyond its original end date of May 2012. Both programs have had good energy efficiency results, and
the Right Lights+ program had reserved nearly all of its annual funding in the first two years of the
program with more businesses lined up to participate in lighting and sensor retrofits. On November 1,
the Finance Committee unanimously recommended approval of the amendments.
2. Residential Programs -The LED holiday light exchange will continue again this year in December.
Residents will be encouraged to exchange a working strand of incandescent holiday lights for a strand
of colored or white LED holiday lights. The new residential LED lighting rebate will begin in January
with a contest to find the "ugliesf' lighting in Palo Alto. The winning participant will get up to $400 in
free LED lights.
Utilities Advisory Commission Minutes Approved on: December 7, 2011 Page 1 016
3. PG&E Pipeline Testing Update -We have verified with PG&E that the "first segmenf' of the T-30
transmission pipeline (along Page Mill Road up to Foothill Expressway) passed its test last Sunday
without incident. The second and final segment of the T -30 pipeline is scheduled for testing tomorrow
(Nov 3) and assuming it completes without incident, the PG&E testing in Palo Alto will then be finished.
All thaI will remain is for PG&E to "tie-in" the lines back into the transmission system and restore the
various test sites to their previous condition (fill holes, repave, etc.)--scheduled to be done by
November 111h.
4. Visitors from Hunan Province, China (Oct 19) -Utilities staff hosted 25 top managers from various
government agencies within the Hunan Province who wanted to learn about how to operate successful
sustainability programs, particularly in the area of providing utilities services. Staff made presentations
and answered questions about our Climate Protection Plan, our renewable resources portfolio and
purchase strategies and our energy and water efficiency programs for all customer classes. Special
kudos to Dixon Yee from our UMS group wiho is fluent in Mandarin and translated beautifully.
5. Feed-in Tariff Program Documents Made Public -The preliminary program documents for the feed
in tariff program have been made public on the City's website at www,cityofpaloalto,orgIRenewableFIT.
The City has received questions and comments from several solar vendors and other organizations.
Staff has also been raising awareness about the program with potential host customers,
6. RPS Enforcement Program -California's new RPS law (Senate Bill XI-2) applies, for the first time, to
municipal utilities like Palo Alto in addition to investor owned utilities. With respect to the enforcement
of the law, S8 XI-2 requires that "[t]he governing board of the local publicly owned electric utility shall
adopt a program for the enforcement of this article on or before January 1, 2012," In order to meet this
deadline, staff plans to request Council approval in December 2011 of an enforcement program that
contains pro forma language on how the City will enforce its RPS regulations. The enforcement
provisions will comply with the state law, but will not necessarily be the same as the RPS strategy
adopted in the Long-term Electric Acquisition Plan (LEAP).
7. Update on Utilities Emerging Technology Demonstration Program -The City Manager requested
that the program reviewed by the UAC in October be reviewed by the Policy and Services Committee
on November 29. Council will review in December or January and staff plans to move forward with
implementation by February.
8. Halloween, Utilities Style -Utilities staff participated in the City Hall Halloween Contest with a group
costume featuring electric transmission lines and renewable resources (solar, wind and hydroelectric),
The project, which was completed on a budget of $25 (not from ratepayers!) using reused and recycled
materials, demonstrated how Utilities always works as a team to identify the lowest cost options!
9. Large Customer Load Growth -We recently learned of HP's plans to move several of its operations
from other areas of California to re-occupy several of its buildings on its Palo Alto campus and to build
a data center here in an existing building on its campus, The re-occupation may amount to 3 MW of
Utilities AdvisolY Commission Minutes Approved on: December 7, 2011 Page 2 of 6
returning load (about 1.5% of our energy load). The data center may build up to 8 MW of new load in
an existing building and add 7-12% to our energy load over the next 3 years.
UNFINISHED BUSINESS
None.
NEW BUSINESS
ITEM 1: ACTION: Update of Palo Alto Renewable Portfolio Standard (RPS) Policy
Resource Planner Dr. Jim Stack presented a summary of the written report, focusing on the policy options
for making adjustments to the Long-term Electric Acquisition (LEAP) strategy that concerns the Renewable
Portfolio Standard (RPS) in light of the new state RPS law.
Commissioner Keller asked if the City will have difficulties meeting the 33% RPS goal in the future-when
some existing contracts expire-under the rate impact limit, and whether there is an opportunity to save
money now and use it later. Stack noted that the rate impact limit is an annual limit and that "banking" is
not allowed with the rate impact limit budget.
Commissioner Cook asked for clarification on what is meant by "short-term" REC purchases? Stack
responded that any REC purchases would be intended to fill a short-term gap-up to about three years-in
the event that some resources would not come on line as planned or experience long-term outages.
Commissioner Cook noted that the state law allows utilities to establish reasonable cost containment
mechanisms and asked whether the 0.5 ¢/kWh rate impact limit would serve as Palo Alto's cost
containment measure? Stack answered that it would. Commissioner Cook stated that his preference
would be to pick a more aggressive RPS target than 33%, especially if it could be achieved within the
existing rate impact limit, and that perhaps a 40% target would be appropriate.
Commissioner Waldfogel noted that the UAC is about to review the City's greenhouse gas (GHG)
emissions policy, and that we should consider capping the RPS level at 33% and using the balance of the
money to taking a leadership position in reducing GHG emissions, going beyond what the state requires us
to do.
Commissioner Melton noted that all of our renewable energy is currenlly in Bucket 1, but inquired about
PaloAltoGreen RECs and whether they can be counted towards the RPS requirements. Stack and Ratchye
responded that the RECs purchased for PaloAltoGreen are not CEC-certified RECs, so they would not be
eligible for RPS compliance. Also, those RECs would not be eligible for RPS compliance even if they were
CEC-certified because they're part of a voluntary program.
Commissioner Melton noted that the $20 million staff identified as potential revenue from selling or
swapping excess bucket 1 resources is a lot of money and that if staff was planning to recommend against
pursuing this strategy, it should beef up its case for passing up this opportunity when going before Finance
Committee.
Chair Foster asked what could be done with the revenue from selling excess bucket 1 resources. Ratchye
responded that the money would stay in the electric fund, but could be used for any purpose in the electric
fund.
Utilities Advisory Commission Minutes Approved on: December 7, 2011 Page 3 of 6
Commissioner Waldfogel commented that striving for a higher RPS goal made sense when the 33% goal
was set, but now we've achieved our goal so perhaps we can use the remaining money for other goals
such as GHG emission reductions or energy efficiency and stake out a leadership position there.
Commissioner Melton commented that the idea of increasing the RPS goal to 40% has been floated at the
state level and asked whether there was any support in Sacramento for that idea. Stack responded that the
40% goal was mentioned in the governor's signing statement for SB XI-2, but the idea doesn't seem to
have taken off yet. Commissioner Melton noted that in an average year the supply portfolio is roughly 50%
hydro and if we had a 40% RPS he wonders whether that is too much of the portfolio to have locked in.
Stack responded that there will be less and less room for market purchases as we buy more long-term
resources, particularly in wet years. He also noted that this will mean we will be net sellers in more months
and buy less energy in the spot markets. But he noted that this just means we'll have a greater level of
market price risk.
Chair Foster asked about how we should balance spending more on efficiency vs. RPS vs. any other
program. Ratchye responded that the information to compare the costs or benefits of those alternatives
has yet to be provided to the UAC and that staff will be back next month with more information on the other
alternatives in the context of a discussion on whether to pursue a carbon-neutral electric portfolio.
Commissioner Waldfogel suggested approving staff recommendations numbers 1 (retail sales), 3 (interim
targets), and 4 (bucket sale/swap). (Referring to recommendation numbers in the presentation, not the
report.)
Chair Foster indicated that the proposed language needs to clarify which limit takes precedence: the rate
impact limit OR the 33% RPS level. Chair Foster noted that the language will be interpreted to mean that
33% is a minimum RPS level and staff will continue pursuing new renewables until the 0.5 cent limit has
been reached. Ratchye confirmed that this was the intent of staffs proposed language, but would prefer
that the language be as clear as possible.
Vice Chair Berry stated his belief that the current policy language sets the 0.5 cent rate impact limit, but
does not direct staff to use all of that money. He indicated that H is the customers' money, and there is not
a clear reason why all of the money needs to be spent.
Commissioner Melton said that the right policy decision is to recommend a 33% floor and a 0.5 cent limit,
retaining the ambiguity about what to do once the 33% level is reached if there is still additional money to
be spent under the rate impact IimH.
Commissioner Keller asked what would happen if the 33% target cannot be met without exceeding the rate
impact limit. Ratchye responded that at that point the Council could choose to stop pursuing additional
renewables-because the 0.5 cent rate impact limit is the City's cost containment measure-or approve
additional funds to be spent to achieve the 33% level.
Commissioner Waldfogel asked what the impact is of not mentioning policy update #5 (selling or swapping
bucket 1 resources) -can staff do this type of transaction, or are they prohibited? Ratchye responded that
staff can not currently do this type of transaction without receiving approval to do so from the Council.
Commissioner Melton said he does not think we need to address something staff can't currently do.
Ratchye also indicated that while staff does not currently intend to pursue this type of transaction, there is
Commission Minutes Approved on: December 7, 2011 Page 4 016
nothing precluding it from considering such transactions. Vice Chair Berry indicated that these potential
transactions may make sense to do, so we should not limit staff from acting on these opportunities.
Ratchye offered that staff return with further discussion of this topic in the ccntext of the scheduled report
for the UAC's December meeting on whether or not to pursue a carbon-neutral electric portfolio. Chair
Foster said he is not in favor of selling or swapping bucket 1 resources, but thinks there is interest from
members of the UAC to have more discussion on that topic. Vice Chair Berry said that this option may not
work for a variety of reasons, but that it cculd be beneficial and we should examine that in more detail since
there is significant money on the table for this. He would like to see the possibilities laid out in detail, with
numbers presented. Commissioner Melton agreed with Vice Chair Berry, saying that while staff has
indicated it does not think it should pursue these opportunities he wants to understand the options in more
depth. Chair Foster said he thinks there is consensus on the desire to have this issue brought back to the
UAC for further discussion in the future.
ACTION:
Commissioner Melton moved the staff recommendation. Chair Foster seccnded the molion. Chair Foster
offered an amendment to add "with a target of 40%" to provide clarity that the direction is to get as much
renewable energy as possible under the 0.5 cent/kWh rate impact limit Commissioner Melton accepted
the amendment. The motion is that the UAC recommend that Council approve the proposed modifications
to the Long-term Electric Acquisition Plan (LEAP) related to Strategy number three, Renewable Portfolio
Standard (RPS), to read as follows:
Renewable Portfolio Standard (RPS)
Reduce the carbon intensity of the electric portfolio by acquiring renewable energy supplies by:
a. Pursuing a minimum target level of renewable purchases of at least 33%, with a target of 40%, of
retail sales by 2015 with the following attributes:
(1) The ccntracts for investrnentin renewable resources shall not exceed 30 years in term.
(2) Pursue only renewable resources deemed to be eligible by the Califomia Energy Commission
(CEC).
(3) 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)
The motion carried by a vote of 4-2 with Vice Chair Berry and Commissioner Waldfogel opposed.
Commissioner Waldfogel stated that he opposed the motion since he believes that the entire 0.5 cent rate
impact limit does not need to be spent on renewables and it cculd be put to better use for efficiency, other
ways to reduce GHG emissions, or simply reduced rate impact. Vice Chair Berry said that he agreed with
Commissioner Waldfogel.
ITEM 2: PRESENTATION: Preliminary Results From Fall 2011 Renewable Energy Project Request
Proposals
Resource Planner Dr. Jim Stack presented a high-level summary of the responses received to the City's
Request for Proposals (RFP) for renewable energy supplies.
Chair Foster indicated that he does not reccmmend pursuing additional landfill gas (LFG) projects due to
difficulties getting the last ones approved by Council. He also asked how the different technologies
Utilities Advisory CommiSsion Minutes Approved on: December 7, 2011 Page 5 016
compared with each other on cost. Stack responded that solar prices have fallen significantly since staff's
last renewable energy RFP two years ago -previously solar had been the most expensive technology, but
in this RFP the solar and wind proposals were the least expensive ones,
Commissioner Melton inquired about the size of the solar projects that were proposed, Stack responded
that most solar projects that were proposed were around 20 MW size, but some were proposals of small
pieces of larger projects,
Vice Chair Berry asked whether any proposals were for local solar projects, Stack responded that there
were no proposals for projects located in Palo Alto, but there were a couple of projects located in the Bay
Area.
Commissioner Waldfogel commented that this is amazing feedback from the market. He also asked
whether this information would be used in evaluating a carbon emissions policy. Ratchye responded that
one way of getting to a carbon neutral portfolio is through additional purchases of renewables, so this
information will be used to estimate the cost of carbon reduction measures that are based on increased use
of renewable energy,
Ratchye noted that staff's proposed Feed-in-Tariff rate is value-based and one component of the value
assessment is the cost of renewable energy, so these results will cause staff's Feed-in-Tariff rate proposal
to be lower than the one initially presented to the UAC.
Chair Foster asked when staff plans to come back to the UAC with the next step in this process, Stack
responded that, depending how contract negotiations go, staff could return to the UAC as early as April or
May with contracts ready for approval.
ITEM 3: ACTION: Potential Topic's) for Discussion at Future UAC
ACTION:
None.
COMMISSIONER COMMENTS
None.
Meeting adjourned at9:12 p.m.
Respectfully submitted,
Marites Ward
City of Palo Alto
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