HomeMy WebLinkAboutStaff Report 3404
City of Palo Alto (ID # 3404)
Finance Committee Staff Report
Report Type: Meeting Date: 2/5/2013
City of Palo Alto Page 1
Council Priority: Environmental Sustainability
Summary Title: Electric Supply Portfolio Carbon Neutral Plan
Title: Utilities Advisory Commission Recommendation that the City Council
Adopt a Resolution Approving a Carbon Neutral Plan for the Electric Supply
Portfolio to Achieve Carbon Neutrality by 2013
From: City Manager
Lead Department: Utilities
Recommendation
Staff requests that the Finance Committee recommend that the City Council:
Approve the attached resolution adopting the Carbon Neutral Plan, which would
enable the City to achieve a carbon neutral electric supply portfolio starting in
calendar year 2013 within an annual rate impact not to exceed 0.15 cents per
kilowatt-hour (₵/kWh).
This carbon neutral rate impact is in addition to the 0.5₵/kWh rat e impact limit for acquiring
resources for the City’s Renewable Portfolio Standard (RPS).
Originally, staff recommended a rate impact limit of 0.25₵/kWh for achieving carbon neutrality
for the electric supply portfolio. However, staff is comfortable with a rate impact limit of
0.15₵/kWh with the understanding that, if staff anticipates that the cost to achieve carbon
neutrality will exceed 0.15₵/kWh, staff will return to Council for direction. This staff position is
in response to the Utilities Advisory Commission (UAC) recommendation of 0.15₵/kWh.
At its January 2013 meeting, the Utilities Advisory Commission (UAC) recommended that the
City Council approve the attached resolution with a 0.15₵/kWh rate impact limit.
City of Palo Alto Page 2
Summary
The proposed Carbon Neutral Plan relies on long-term renewable contracts. However, since
those contracts take time to negotiate and the renewable projects take time to build, sufficient
renewable energy for the City’s needs will not be in place until 2017. In the interim, the plan
uses RPS-eligible Renewable Energy Certificates (RECs) from 2013 through 2016. Although the
Council directed staff to develop a plan to achieve carbon neutrality by 2015, the proposed
Carbon Neutral Plan allows the City to deliver zero carbon electricity starting in 2013 since the
cost is expected to be very reasonable ($500,000 to $900,000 per year for 2013 to 2016 ),
causing a rate impact of only 0.05 to 0.09₵/kWh. Options other than the use of RPS-eligible
RECs to achieve carbon neutrality can cost slightly less (if non-RPS-eligible RECs are used) or
significantly more (if short-term renewable energy is purchased) than the recommended plan.
Annual costs may increase due to higher costs for RECs or poor hydroelectric generation, but
the plan includes a rate impact limit of 0.15₵/kWh. If costs were to exceed that limit in any
year, staff would return to the Council for direction as to whether to continue efforts to achieve
carbon neutrality for that year.
Recognizing the significance of climate change resulting from greenhouse gas (GHG) emissions
and their potential devastating impacts to both the local and global environment and economy,
the City has a record of taking initiatives towards environmental sustainability. As such, the City
recognized environmental sustainability as one of its top priorities and in 2007 approved an
aggressive Climate Protection Plan which identified community-wide GHG emission reduction
goals.
Further, for its electric supply portfolio, the City has taken aggressive steps tow ards reducing
GHG emissions through its energy efficiency efforts, encouragement of the installation of solar
photovoltaic panels on rooftops, participation in the PaloAltoGreen program, and adoption of
an accelerated Renewable Portfolio Standard (RPS). Combined, these efforts are expected to
account for an over 40% drop in GHG emissions related to the local use of electricity in 2012
compared to 2005 levels (assuming average hydrological conditions).
The proposed Carbon Neutral Plan leaps the City forwar d in its efforts to combat climate
change by implementing a policy to effectively eliminate all GHG emissions from the electric
portfolio. Additionally, with the intent of placing the City at the forefront of environmental
sustainability, the Carbon Neutral Plan is designed to be transparent, credible, sustainable,
inspirational and repeatable by other communities. The proposed Carbon Neutral Plan
achieves carbon neutrality for the electric supply portfolio by 2013 with 100% renewable
resources. The cost of this plan is expected to be less than 0.1₵/kWh in addition to the
expected cost of about 0.4₵/kWh to meet the City’s RPS goal.
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The proposed plan has two phases. In the near term (2013 through 2016), staff recommends
purchasing short-term renewable resources and/or RECs to supplement existing and committed
long-term renewable and hydroelectric resources. Existing and committed long-term
renewable and hydroelectric resources account for 65% to 83% of the portfolio. In the long
term (beyond 2016), long-term renewable resources will provide about a 50% RPS level within
the existing 0.5₵/kWh annual RPS rate limit. Since about 50% of the electric supply portfolio is
carbon-free hydroelectric resources, the additional cost of achieving carbon neutrality between
2017 and 2020 is very small. Table 1 is a summary of the expected cost of achieving carbon
neutrality in average hydroelectric conditions.
Table 1: Total Cost to Achieve Carbon Neutrality – cents per kWh
2013 2014 2015 2016 2017 2018 2019 2020
RPS Plan: committed and additional
long-term renewables to meet RPS goal
0.10 0.24 0.38 0.38 0.40 0.40 0.40 0.40
Carbon Neutral Plan: additional costs to
achieve a carbon neutral portfolio
0.06 0.06 0.05 0.09 0.00 0.00 0.00 0.01
Total Cost 0.16 0.30 0.42 0.46 0.40 0.40 0.40 0.41
In dry years, the amount of hydroelectric generation is significantly lower than in an average
hydro year. Thus, in dry years, there are expected to be additional costs to replace the reduced
hydroelectric generation with carbon-free resources to maintain a carbon neutral portfolio.
Therefore, although staff expects that the cost of achieving carbon neutrality will be within the
0.5₵/kWh limit to meet the City’s RPS goals, staff is requesting an additional 0.15₵/kWh to
achieve carbon neutrality, if needed in the event of a dry year scenario or other unanticipated
cost increases for renewable energy.
Table 2 shows the annual cost to implement the proposed Carbon Neutral Plan. The maximum
cost, in the event that the full 0.15₵/kWh was needed to achieve carbon neutrality, is about
$1.5 million per year, or about 1.2% of total Electric Fund retail revenues. Over the period from
2013 to 2016, the expected cost of the plan is $2.6 million, but if the full 0.15₵/kWh is needed,
the total cost would be $6 million.
Table 2: Annual Cost to Implement Carbon Neutral Plan ($millions)
2013 2014 2015 2016 2017 2018 2019 2020 Total
Expected Cost 0.6 0.6 0.5 0.9 0.0 0.0 0.0 0.1 2.7
Maximum Cost (@0.15₵/kWh) 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 12
City of Palo Alto Page 4
At its December 2012 meeting, the UAC unanimously recommended Council approve the
proposed Carbon Neutral Plan. At its January 2013 meeting, the UAC reviewed the expected
and maximum costs of the proposed Carbon Neutral Plan again and recommended a rate
impact cap of 0.15₵/kWh.
Background
Policy Direction
Council approved the City’s Climate Protection Plan (CPP) in December 2007 (CMR 435:07). The
CPP set a goal to reduce GHG emissions by 15% from 2005 levels by the year 2020. In March
2011 Council approved the Long-term Electric Acquisition Plan (LEAP) (Staff Report 1317)
establishing general direction for efforts to reduce the electric portfolio’s carbon intensity. In
July 2011 Council approved the Utilities Strategic Plan (Staff Report 1880), including a
performance measure to reduce the carbon intensity of the electric portfolio. When Council
last updated LEAP in April 2012 (Staff Report 2710), it clarified that the City’s RPS is to pursue
renewable purchases of at least 33% of retail sales by 2015 within a retail rate impact of
0.5¢/kWh.
The LEAP implementation plan included a task to evaluate the costs, benefits and impacts of
implementing a carbon neutral electric supply portfolio policy and/or setting quantitative GHG
emission goals for the electric supply portfolio. On May 21, 2012, Council unanimously directed
staff to develop a plan by December 2012 to achieve carbon neutrality for the electric supply
portfolio by January 2015 (Staff Report 2 525). On November 5, 2012, Council approved the
following definition of carbon neutrality for the City’s electric supply portfolio (Staff Report
3194):
Carbon Neutrality: A carbon neutral electric supply portfolio will demonstrate
annual net zero greenhouse gas (GHG) emissions, measured at the Citygate1, in
accordance with The Climate Registry’s Electric Power Sector protocol for GHG
emissions measurement and reporting.
On December 10, 2012, the Council approved a policy for the use of cap-and-trade revenues
(Staff Report 33342) which is intended to be consistent with the goals set forth in the State of
California’s Global Warming Act, also known as Assembly Bill 32 (AB 32). Recognizing a
potential cap-and-trade program revenue benefit of approximately $4.5 million per year for the
City’s electricity customers, the policy establishes the proper use of the potential revenues,
1 Citygate is the industry term for the location of the City’s main meter where the City interconnects to the Pacific
Gas and Electric transmission system.
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including funding investments in activities to reduce GHG emissions and/or achieve a carbon
neutral electric supply portfolio.
Electric Portfolio Mix
Energy Efficiency: As required by state law (AB 2021, 2006), publicly owned electric utilities
must identify all potentially achievable cost-effective electric energy efficiency (EE) savings and
establish annual targets for energy efficiency over 10 years. The ten-year energy savings and
demand reduction targets are required to be updated every four years to reflect changes in
technologies, building codes, equipment standards, energy cost, etc. These targets were last
updated in December 2012, when the Council adopted the latest 10-year cumulative electric
savings target of 4.8% for 2014 to 2023, which included an explicit accounting of savings
attributed to appliance codes and building standards upgrades (Staff Report 3358).
Renewable Energy: Staff expects to reach an RPS of 33% of retail sales by 2015 and an RPS of
about 50% of retail sales by 2017 within the 0.5₵/kWh RPS rate impact limit. These committed
and expected RPS resources are all from long-term Power Purchase Agreements (PPAs). The
cost of each resource is compared to the cost of an equivalent amount of brown power and the
increased (or decreased) cost, or “green premium” of the renewable energy is calculated. Table
3 is a summary of the City’s committed renewable resources and the green premium for each
resource type. As shown, the green premium for all committed resources totals $3.86 million,
or a rate impact of 0.38¢/kWh.
Table 3 – Summary of Currently Committed Renewable Energy Supplies in 2015
Annual Generation
(GWh)
Total Annual Green
Premium ($1000)
Small Hydro 10.0 0
Wind 120.3 (339)
Landfill Gas to Energy 126.0 2,229
Geothermal 33.1 1,107
Solar 50.7 857
Total Committed Renewable Supplies 340.0 3,855
*Annual green premium associated with a rate impact of 0.5¢/kWh is equal to $5.1 million
Community Support for Carbon Neutrality
Sensitive to adding even modest costs to the electric supply portfolio in a time when costs are
projected to increase substantially due to external factors including transmission and delivery
costs and increased regulatory requirements, staff sought input from the community to assess
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support for carbon neutral efforts and their willingness to pay for a carbon neutral electric
supply. In general, support by residents for efforts to achieve carbon neutral are high , with 73%
of those residents surveyed indicating a willingness to pay at least $2 more per month to
achieve carbon neutrality and 63% willing to pay $5 or more.
By contrast, 63% of a relatively small sampling of commercial customers responded to the same
anonymous survey and indicated that they would not be willing to pay more in support of
carbon neutrality. A summary of the survey responses is provided as Attachment C. In
addition, staff individually contacted many of the largest commercial customers and found that
all those contacted supported the City’s pursuit of a carbon neutral electric portfolio at a
moderate cost and stated that such an endeavor would assist them in meeting their own
corporate GHG emissions reduction goals.
Discussion
The definition of carbon neutrality establishes the measuring point, scope, and balancing period
for the achievement of zero net GHG emissions for the electric supply portfolio. While the
Carbon Neutral Plan provides for how and when carbon neutrality will be achieved, it is
intended to work in concert with the City’s EE goals, local resource generation efforts and RPS
to achieve the overall goal of cost effectively eliminating GHG emissions from the electric
supply portfolio.
Base Case (Make no extra attempt to achieve carbon neutrality)
The current (“Base Case”) electric supply portfolio consists of hydroelectric resources, which
provide about 51% of the City’s electric needs in an average year. In addition, committed RPS-
eligible renewable resources account for 23% and 27% of the City’s needs in 2013 and 2014,
respectively and 33% of the City’s needs in 2015 and beyond. In addition, the City’s ten-year EE
goals and the long-term PV Partners program goals are assumed to be met.
Since the committed renewable resources consume about 0.38₵/kWh of the RPS green
premium, the Base Case assumes that additional renewables will be pursued to meet the City’s
additional long-term electric needs. Based on the responses to a solicitation released in the Fall
of 2012 for additional renewable energy PPAs, staff expects to be able to purchase long-term
renewable energy resources for the balance of the City’s electric needs within the 0.5₵/kWh
rate impact limit starting in 2017.
Therefore, due to the RPS goal, and even without a carbon neutral goal, carbon-free large
hydroelectric resources would provide about half of the electric supplies required and long-
term RPS-eligible resources would provide the other half starting in 2017 (when the additional
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long-term resources are expected to be on-line and delivering energy). Staff expects that this
can be achieved with a rate impact of only 0.4₵/kWh. Table 4 is a summary of the Base Case
resource mix, including the current and additional resources to meet the RPS goal. Figure 1
shows the committed and expected resources to meet the City’s RPS in the Base Case portfolio.
Table 4: Committed and Expected (Base Case) Resource Supply Mix
2013 2014 2015 2016 2017 2018 2019 2020
Load (GWh) 1,040 1,053 1,056 1,054 1,052 1,054 1,057 1,059
Large hydroelectric (% of Load) 43% 44% 51% 51% 51% 51% 51% 51%
Committed renewable RPS-compliant resources
Committed renewable resources (GWh) 234 281 340 340 339 339 339 339
% of Retail Sales (RPS) 23% 28% 33% 33% 33% 33% 33% 33%
% of Load 23% 27% 32% 32% 32% 32% 32% 32%
RPS Green Premium consumed (¢/kWh) 0.10 0.24 0.38 0.38 0.38 0.38 0.38 0.38
Total committed plus hydro resources
(% of Load)
65% 71% 83% 83% 83% 83% 83% 83%
Committed plus additional long-term RPS-compliant renewables – BASE CASE
Additional long-term resources (GWh) 0 0 0 0 180 176 176 175
% of Retail Sales (RPS) 23% 28% 33% 33% 51% 51% 50% 50%
% of Load 23% 27% 32% 32% 49% 49% 49% 48%
RPS Green Premium consumed (¢/kWh) 0.10 0.24 0.38 0.38 0.40 0.40 0.40 0.40
Total committed and additional
renewables plus hydro resources
(% of Load)
65% 71% 83% 83% 100% 100% 100% 100%
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Figure 1: Electric Portfolio Load and Expected Resource Supply Mix (Base Case)
Due to the electric supply portfolio’s heavy reliance on hydroelectric sources, the volume of
system energy purchases can vary substantially from year to year given variations in the
hydrologic cycle. These hydroelectric generation variations are an important driver of the costs
associated with zeroing out GHG emissions in dry years.
Electric Portfolio’s GHG Emissions
Under the adopted carbon neutrality definition, which uses The Climate Registry’s Electric
Power Sector (TCR EPS) protocol, GHG emissions from all supply resources must be counted
(See Attachment D for a summary of the TCR EPS protocol). According to the protocol, the only
resources in the Base Case with GHG emissions are associated with renewable energy
generated from the geothermal project, the small amount of emissions associated with the
City-owned back-up generator (COBUG), and the market purchases.
The TCR EPS protocol allows the use of a default emissions factor for landfill-gas-to-energy
projects of 38 lb CO2e/MWh if there is no information about the emissions associated with the
specific projects in the portfolio. The emissions for these projects are derived from the use of
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fossil-fuel based natural gas used to supplement the renewable landfill gas used in the
generators. However, for Palo Alto’s PPAs for landfill-gas-to-energy projects, only landfill gas is
used, so those resources are carbon-free and an emissions factor of 0 lb CO2e/MWh is applied.
Table 5 shows the GHG emissions for the Base Case for the years 2013 thorugh 2020. As
shown, the bulk of the GHG emissions for the near term are due to the market purchases. After
2017, due to the large amount of renewable resources, the GHG emissions are projected to be
very small.
Table 5: Base Case Electric Supply Resources and GHG Emissions by Year
2013 2014 2015 2016 2017 2018 2019 2020
Load and Resources (GWh)
Load 1,040 1,053 1,056 1,054 1,052 1,054 1,057 1,059
Committed Carbon-
Free Resources (1)
681 744 840 844 843 846 848 848
Geothermal 0 5 33 33 33 33 33 33
Additional
renewables
0 0 0 0 180 176 176 175
Market Purchases
(“System Energy”) (2)
359 304 182 177 -4 -1 1 3
GHG emissions (Metric Tons CO2e)
Geothermal 0 589 3,523 3,533 3,523 3,523 3,523 3,533
COBUG 278 278 278 279 278 278 278 279
Market Purchases (2) 107,634 91,120 54,720 52,998 0 0 242 934
Total GHG emissions 107,912 91,987 58,521 56,810 3,801 3,801 4,043 4,746
(1) Includes hydroelectric, wind, landfill gas-to-energy, and solar resources
(2) A Market Purchase, also called System Energy, is “brown” power whose source is
unspecified, or not tied to a specific generator
Resources that Can Be Used to Achieve Carbon Neutrality
Emissions from the sources listed in Table 5 can be zeroed out through three primary methods:
purchasing RECs, purchasing renewable energy, and purchasing carbon offsets. RECs can be
purchased separately from the associated energy (“unbundled”) or together with the energy
from the renewable energy project (“bundled”).
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Renewable Energy Certificates (RECs) – A Primer
The U.S. Environmental Protection Agency (EPA) has provided a definition and descriptions of
the various types of RECs2. According to EPA:
“A REC represents the property rights to the environmental, social, and other non-
power qualities of renewable electricity generation. A REC, and its associated attributes
and benefits, can be sold separately from the underlying physical electricity associated
with a renewable-based generation source. RECs provide buyers flexibility in procuring
green power across a diverse geographical area, and in applying the renewable
attributes to the electricity use at a facility of choice. This flexibility allows organizations
to support renewable energy development and protect the environment when green
power products are not locally available.
“All grid-tied renewable-based electricity generators produce two distinct products:
physical electricity and RECs. At the point of generation, both product components can
be sold together or separately, as a bundled or unbundled product. In either case, the
renewable generator feeds the physical electricity onto the electricity grid, where it
mixes with electricity from other generation sources. Since electrons from all generation
sources are indistinguishable, it is impossible to track the physical electrons from a
specific point of generation to a specific point of use.
“As renewable generators produce electricity, they create one REC for every 1000
kilowatt-hours (or 1 megawatt-hour) of electricity placed on the grid. If the physical
electricity and the associated RECs are sold to separate buyers, the electricity is no
longer considered “renewable” or “green.” The REC product is what conveys the
attributes and benefits of the renewable electricity, not the electricity itself.
“RECs serve the role of laying claim to and accounting for the associated attributes of
renewable-based generation. The REC and the associated underlying physical electricity
take separate pathways to the point of end use. As renewable generators produce
electricity, they have a positive impact, reducing the need for fossil fuel -based
generation sources to meet consumer demand. RECs embody these positive
environmental impacts and convey these benefits to the REC owner.”
2 See EPA’s white paper on RECs at: http://www.epa.gov/greenpower/documents/gpp_basics-recs.pdf
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Unbundled RECs
System energy emissions can be eliminated on a carbon accounting basis through purchasing an
equal amount of RECs, which are denominated in MWhs. In essence, this “converts” system
energy into non-emitting renewable energy. This is similar in concept to how green pricing
programs such as PaloAltoGreen are administered. These unbundled RECs are also referred to
as “Bucket 3” RECs3 and qualifying Bucket 3 RECs can meet a portion of the RPS goals.
TCR protocols allow entities that procure unbundled RECs to adjust their emissions inventories
to account for these products. Even though the physical energy is not delivered, TCR allows the
use of unbundled RECs—whether RPS eligible or not—to displace an equivalent amount of
power from the actual power mix. This adjustment is allowed because the RECs include all
renewable and environmental attributes associated with the production of electricity from the
renewable energy resource.
RECs are also denominated in pounds of CO2e emissions reductions. Each REC can be used for
its MWh denomination, or its carbon intensity, but not both. RECs are assigned carbon
emissions factors based on the location of the renewable energy project associated with the
REC. The TCR protocol allows such uses of RECs to zero out emissions associated with emitting
renewable or brown resources.
As described by the EPA above, RECs mitigate the environmental ha rm associated with brown
power purchases by creating and maintaining the market for renewable energy and providing
renewable generators a source of income from buyers wishing to purchase the renewable
attribute, even if physical delivery of the energy is too expensive or complicated to complete.
In addition, the cost of this mitigation is reasonable, particularly now when the cost of
unbundled RECs is quite low. For example, when last purchased for the PaloAltoGreen
program, unbundled REC prices were less than 1₵/kWh so a REC buyer could “green up” brown
power purchases for a modest cost.
Renewable Energy – Bundled Energy and RECs
To eliminate GHG emissions, carbon-free resources can be purchased instead of system energy.
In other words, instead of purchasing system energy in the spot market or on a forward basis to
meet loads, CPAU would purchase energy from carbon-free resources. These carbon-free
resources can be purchased in the spot markets, on a forward basis in the short -term (less than
three years out), or in the long-term markets (similar to the City’s long-term renewable PPAs).
3 California’s RPS rules classify RPS eligible products into three Procurement Categories or “Buckets.” Bucket 1 is
for bundled energy and RECs that are generated in-state. Bucket 2 is for “firmed and shaped” bundled energy and
RECs – which generally means energy from a resource located out-of-state that is delivered to California after it is
generated. Bucket 3 is for REC only products (RECs separated, or “unbundled”, from the underlying energy).
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These carbon-free resources may or may not be RPS-eligible resources. RPS-eligible bundled
energy and RECs are also referred to as “Bucket 1” (in-state) and “Bucket 2” (out-of-state)
resources.
Environmental Offsets
GHG emissions can be zeroed out, or “neutralized”, by purchasing GHG offsets in amounts
equal to the emissions. This is a relatively straightforward calculation of computing the total
annual tonnage of emissions and purchasing an equivalent tonnage of third party certified
carbon offsets.
GHG offsets4 are tradable credits issued for emissions reductions resulting from qualifying GHG
mitigation projects. They can be purchased in the voluntary market (for example to achieve
carbon neutral objectives) or in the compliance markets (for example, to meet cap-and-trade
requirements). The California Air Resources Board (CARB) currently recognizes offsets issued by
the Climate Action Reserve for several types of GHG mitigation projects—including forestry,
urban forestry, livestock methane, and ozone depleting substances —for use in meeting AB32
GHG reduction goals.
With the uncertainty associated with the use and eligibility of various types of offset products
coupled with the lack of compliance-driven buyers, the market for offsets is currently very
illiquid and there is a great deal of uncertainty around the long-term market price of these
products.
Alternative Carbon Neutral Portfolios
Alternative electric supply portfolios can be constructed to achieve carbon neutrality. Given
the timing of the committed and planned additional renewable resources, it is helpful to
evaluate the near term (2013 through 2016) separately from the longer term (2017 and
beyond). In the longer term, since the Base Case portfolio consists of hydro resources and long-
term renewable PPAs, resources will only be needed to neutralize the small amount of carbon
emissions from the portfolio and to balance actual energy production and usage on an annual
basis.
The types of resources available to achieve carbon neutrality are limited in the near term to
short-term bundled renewable resources, unbundled RECs from existing facilities, or
environmental offsets. While the carbon neutral definition allows for the use of environmental
4 The World Resource Institute defines a carbon offset as “a unit of carbon dioxide-equivalent (CO2e) that is
reduced, avoided, or sequestered to compensate for emissions occurring elsewhere.”
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offsets to neutralize carbon, staff is not recommending using them at this time, however will
continue to evaluate for future consideration. The cost of acquiring renewable resources is
dependent on the area from which the renewable energy is derived, whether or not it qualifies
as an RPS-eligible renewable resource and the RPS compliance category it falls within. Table 6
is a summary of the estimated green cost premium (cost of green resource above the cost of
brown power) of each product.
Table 6: Short-term Products to Achieve Carbon Neutrality
Product RPS Eligible
Cost Premium
($/MWh)
Bundled renewable energy with RECs from California Yes – Bucket 1 $10-$30
Bundled renewable energy RECs imported into California Yes – Bucket 2 $5-$25
Unbundled RECs Yes – Bucket 3 $1-$10
Non-RPS Unbundled RECs No $1-$5
To assess how the different products can alter the costs of achieving carbon neutrality for the
electric supply portfolio, staff developed three alternatives to the Base Case portfolio to
evaluate how changes in the resource mix result in different costs. In each case, the Base Case
portfolio is the starting point so that the long-term portfolio (beyond 2016) is essentially the
same for each alternative (about 50% hydro and 50% long-term RPS-eligible PPAs). The
alternative portfolios are:
1. Proposed Carbon Neutral Plan: In this plan, carbon neutrality is achieved in the near
term (2013 to 2016) by acquiring RPS-eligible unbundled RECs to green up brown
market purchases on an annual basis. In dry years, the plan also calls for the purchase
of RPS-eligible unbundled RECs to meet needs.
2. Non-RPS Unbunbled RECs Plan: This plan involves procuring non-RPS eligible,
unbundled RECs to achieve carbon neutrality in the near term and in dry years.
3. Hard Resources Plan: This alternative limits the purchase of unbundled RECs and,
instead, displays a strong preference for actual renewable energy deliveries. In this
plan, carbon neutrality is achieved in the near term through commitments to short-term
renewable resources (bundled energy and RECs). In dry years, to the extent they are
available, short-term renewable resources would be purchased as well. If unavailable,
unbundled RECs would be purchased in dry years to mee t needs.
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In all years and for all of the alternatives, non-RPS eligible unbundled RECs will be used to
neutralize actual GHG emissions (e.g. from geothermal resources and the COBUG units) and to
cover variations in needs associated with deviations in load, renewable energy and
hydroelectric generation output. These purchases will likely be made after the calendar year is
over when actual load and resources are known. Staff could pursue acquiring additional hard
resources and/or RPS-eligible resources to cover the deviations, however given the timing of
when the purchases will be made, it is less likely that such resources will be available and
therefore unbundled non-RPS compliant RECs may be the only viable alternative. Table 7
summarizes the Base Case and the alternatives evaluated.
Table 7: Summary of Base Case (Do Nothing) and Carbon Neutral Alternatives
Base Case Recommended
Plan
Non-RPS
Unbundled RECs Hard Resources
Resources for balance of
needs in near term (2013-
2016)
Market
purchases
Market
purchases plus
RPS-eligible
unbundled RECs
Market
purchases plus
non-RPS eligible
unbundled RECs
Short-term bundled
renewable
resources
Additional resources
required in dry years
Market
purchases
Market purchases plus non-RPS
eligible unbundled RECs
Short-term bundled
renewables (if
available) or market
purchases plus
unbundled RECs
Balancing for actual needs
and actual generation
Market
purchases/
sales
Market purchases/sales, banking plus unbundled RECs
Resources to neutralize GHG
emissions associated with
renewables and COBUG
None Non-RPS eligible unbundled RECs
Resources for long-term
needs (beyond 2016)
Long-term RPS-eligible PPAs and hydro resources to meet
approximately 100% of needs
Table 8 illustrates the cumulative cost, financial impacts, and RPS for the various alternatives
relative to the Base Case, in which carbon neutrality is not pursued.
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Table 8: 2013-2020 Cumulative Costs and RPS of Various Alternatives 2013-2020
Base Case Recommended
Plan
Non-RPS
Unbundled
RECs
Hard
Resources
Cost and Rate Impacts
Incremental Cost to Base Case ($M) N/A $2.93 $1.86 $16.5
Rate Impact (¢/kWh) N/A 0.035 0.022 0.20
Rate Impact (%) * N/A 0.3% 0.2% 1.7%
Average Residential Bill Impact ($/year) • N/A $1.70 $1.08 $9.60
RPS
2013 23% 58% 23% 58%
2014 28% 57% 28% 57%
2015 and 2016 33% 51% 33% 51%
Beyond 2016 51% 51% 51% 51%
* Rate impact calculations assume that the system average retail rate for the Base Case is 12.1¢/kWh in
2015
Assuming median residential class usage of 407 kWh/month (actual from FY 2011)
The analysis shows that the cumulative cost (from 2013 through 2020) of achieving carbon
neutrality under the recommended plan is expected to be $2.93 million more than the Base
Case and would result in an average increase in rates of 0.035₵/kWh over the Base Case. The
analysis also shows that carbon neutrality can be achieved at lower costs by purchasing non-
RPS compliant RECs as in the Non-RPS Unbundled RECs case. The cost of pursuing the
Recommended Carbon Neutral Plan is $1.07 million more than the Non-RPS Unbundled RECs
alternative, with the majority of the cost occurring in the near term. While the Non-RPS
Unbundled RECs alternative is less expensive than the Recommended Carbon Neutral Plan, it
does not increase the City’s RPS in the near term, which may be of value to the community.
Conversely, pursuing the Hard Resources alternative would result in a significantly higher cost —
$16.5 million over the Base Case and $13.6 million more than the Recommended Carbon
Neutral Plan—while having the same RPS as the Recommended Carbon Neutral Plan.
Sensitivity Analysis
The alternatives were evaluated under different scenarios including variations in the green
premium price of resources and generation from hydroelectric resources. The estimated rate
impact of each alternative plan was assessed under the expected case, which assumes average
hydroelectric generation and expected green premiums, and four scenarios, including:
City of Palo Alto Page 16
1. High Renewable Premium Price – assumes average hydroelectric generation and that
the price of acquiring renewables is 50% higher than expected;
2. Dry Hydroelectric Year – assumes the expected renewable premium price for purchasing
carbon neutral resources for quantities up to the amount needed under average
hydroelectric conditions. The increased amount needed between the dry hydro and
average hydroelectric conditions is made up with non-RPS eligible unbundled RECs,
since these RECs would likely be the most readily available;
3. Dry Hydroelectric Year and High Renewable Premium Price – same as the second
scenario, but the premiums for acquiring all resources is 50% higher than expected; and
4. Wet Hydroelectric Year – assumes favorable hydroelectric conditions and the expected
price for acquiring and/or selling surplus renewables.
City of Palo Alto Page 17
Table 9: Cost of Carbon Neutrality of Alternative Plans versus Base Case Plan (cents per kWh)
Strategy/Scenario 2013 2014 2015 2016 2017 2018 2019 2020
Expected - Average Hydro Year, Base Green Premium Prices
1. Recommended Plan 0.06 0.06 0.05 0.09 0.00 0.00 0.00 0.01
2. Non-RPS Unbundled RECs 0.03 0.04 0.04 0.04 0.00 0.00 0.00 0.01
3. Hard Resources 0.35 0.43 0.35 0.42 0.00 0.00 0.01 0.01
Average Hydro Year, High Green Premium Prices
1. Recommended Plan 0.09 0.09 0.08 0.13 0.00 0.00 0.01 0.01
2. Non-RPS Unbundled RECs 0.05 0.07 0.05 0.07 0.00 0.00 0.00 0.01
3. Hard Resources 0.52 0.65 0.52 0.63 0.00 0.00 0.01 0.02
Dry Hydro Year, Base Green Premium Prices
1. Recommended Plan 0.07 0.08 0.10 0.15 0.07 0.09 0.10 0.11
2. Non-RPS Unbundled RECs 0.05 0.07 0.08 0.10 0.08 0.09 0.10 0.11
3. Hard Resources 0.35 0.45 0.39 0.47 0.07 0.09 0.11 0.11
Dry Hydro Year, High Green Premium Prices
1. Recommended Plan 0.10 0.11 0.13 0.19 0.07 0.09 0.11 0.11
2. Non-RPS Unbundled RECs 0.06 0.09 0.10 0.13 0.07 0.09 0.10 0.11
3. Hard Resources 0.53 0.67 0.56 0.68 0.06 0.09 0.11 0.11
Wet Hydro Year, Base Green Premium Prices
1. Recommended Plan 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2. Non-RPS Unbundled RECs 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
3. Hard Resources 0.04 0.00 0.00 0.00 0.00 0.00 0.00 0.00
As shown in Table 9, the cost to achieve carbon neutrality is minimal after 2016 due to the high
level of long-term renewable PPAs in the portfolio. In those years, the cost increases somewhat
in dry years, but no more than 0.11₵/kWh.
In the near term, under the average hydroelectric conditions and expected green premium
prices, the cost of achieving carbon neutrality can range from zero to 0.43 ₵/kWh, depending on
the plan. When subjected to high green premi ums and a dry hydro year, the cost to achieve
carbon neutrality increases and can be as high as 0.68 ₵/kWh, depending on the plan. Under
the Recommended and Non-RPS Unbundled RECs plans, however, the incremental cost under
City of Palo Alto Page 18
all scenarios is expected to remain under the proposed 0.15₵/kWh carbon neutral rate impact
limit except in the scenario with dry hydro conditions and high green premium prices . In fact,
given that the expected RPS cost is 0.41₵/kWh, the cost of both RPS and carbon neutrality is
under 0.50₵/kWh in all but the worst cases.
The analysis shows that the cost in any given year can vary significantly. For example, in 2016
the cost for the Hard Resources plan is expected to be 0.42₵/kWh, but can be as high as
0.68₵/kWh under adverse hydroelectric and market conditions. In such a case, the incremental
cost of achieving carbon neutrality is significantly higher than the recommended carbon neutral
rate impact limit of 0.15₵/kWh. Should the estimated incremental cost in any year exceed the
rate impact limit, staff will seek Council direction about whether or not to pursue carbon
neutrality for that year.
Conversely, in favorable hydroelectric conditions, the portfolio can have more carbon neutral
resources than needed to meet load. Should this condition materialize, staff will carry over, or
“bank”, the renewable attributes from one year to the next to the extent allowed under the
TCR EPS protocol. The protocol does not allow for the banking of renewable attributes
associated with the City’s existing hydroelectric resources, therefore only attributes from the
City’s other renewable resources will be banked. Should the portfolio contain surplus carbon
neutral resources in consecutive years, then the City could sell excess renewable attributes to
offset the cost of achieving carbon neutrality.
Summary of the Carbon Neutral Plan
The attached Carbon Neutral Plan (Attachment B) provides a summary of the resource
acquisition strategies, management of existing hydroelectric resources, communication and
reporting to stakeholders, funding carbon neutrality and describes the implementation plan.
In summary, the proposed Carbon Neutral Plan comprises the following policy decisions:
1. What to do in the near term: The options are to buy short-term renewables, unbundled
RPS-eligible RECs, or unbundled non-RPS RECs. The proposed plan is to allow staff
discretion to buy unbundled RECs with a preference for RPS-eligible RECs, but,
depending on the price difference between RPS-eligible and non-RPS RECs, allow the
purchase of non-RPS RECs. The expected cost difference is shown in the Table 10.
City of Palo Alto Page 19
Table 10: Expected Cost to Achieve Carbon Neutrality in the Near Term
2013 2014 2015 2016
Expected cost for Recommended Plan
(use RPS-eligible RECs) $630,000 $610,000 $570,000 $910,000
Expected cost to use non-RPS eligible RECs $360,000 $460,000 $390,000 $470,000
Expected cost to use short-term renewables $3,600,000 $4,600,000 $3,700,000 $4,400,000
Table 10 also shows the cost to achieve carbon neutrality as early as 2013. If carbon
neutrality is not pursued until 2015, for example, the costs shown for 2013 and 2014
would be avoided. Based on the relatively low costs, the Recommended Carbon Neutral
Plan is to achieve carbon neutrality starting in 2013.
2. Balancing to true up loads and resources each year: Truing up loads and resources each
year to ensure carbon neutrality will occur each year after the fact. This means that
loads and resources will not be trued up on a daily, weekly, or monthly basis, but on an
annual basis for purposes of achieving a carbon neutral portfolio. The recommended
resources for these small amounts are unbundled RECs. Staff expects to purchase these
RECs to ensure that the end of the year GHG emissions counting will result in a c arbon
neutral portfolio. If RECs are needed, staff will purchase them and, if resources are
greater than loads, RECs will be banked as allowed by the TCR EPS protocol.
3. What to do in dry years: Additional resources will be required in dry years. Staff
requests discretion in what resources to purchase in these years within the allowable
rate impact limit. At least some of the purchases will likely take place after the fact as
the loads and resources are balanced and unbundled RECs will likely be the best product
for this balancing.
4. What to do in wet years: In wet years, banking of RECs will be pursued as allowed by
the TCR EPS protocol. However, not all RECs may be able to be banked, or there may be
consecutive wet years so staff expects to sell surplus renewable and/or hydro resources
and/or RECs to cost-effectively balance resources and needs.
5. Neutralizing GHG emissions: The plan to neutralize the portfolio’s GHG emissions from
renewable resources (i.e. geothermal PPA) and the COBUG units is to buy unbundled
RECs for their CO2e emissions reductions. Staff plans to buy the lowest cost RECs (in
$/pound of CO2e emissions) for these requirements. The geothermal project and the
COBUG are estimated to have 3,811 metric tons per year of GHG emissions. Th e cost
City of Palo Alto Page 20
for the RECs (denominated in pounds of CO2e emissions) to neutralize these emissions
is expected to cost about $10,000 per year.
Figure 2 shows the resources planned for the Proposed Carbon Neutral Plan. As shown, large
hydroelectric supplies provide about 50% of the City’s needs while committed renewable
resources provide an additional 35% of the City’s needs starting in 2017. The plan is for future
long-term contracts for renewable energy to provide the balance of the City’s needs in the long -
term. Short-term renewable energy purchases or RECs are proposed to be used to achieve
carbon neutrality until 2017.
Figure 2: Electric Portfolio Expected Resource Supply Mix for Proposed Carbon Neutral Plan
GHG Emission Reductions Beyond the Electric Supply Portfolio
Once the electric supply portfolio is carbon neutral, the primary sources of GHG emissions for
the City and community are related to the use of natural gas and transportation fuels.
Strategies to reduce GHG emissions for those sources will be addressed in the Climate
City of Palo Alto Page 21
Protection Plan and could include some of the following strategies that may impact the electric
utility:
1. Support the expanded use of electric vehicles.
2. Support customers who wish to switch from natural gas to electric for appliances.
3. Support customers who wish to switch from natural gas or propane to electric for water
or space heating.
4. Modify the PaloAltoGreen program to compliment a carbon neutral electric portfolio
consistent with existing participants’ sustainability goals.
The proposed Carbon Neutral Plan for the electric supply portfolio does not address these
strategies, but their implementation will affect the electric utility’s load and, therefore, the
Carbon Neutral Plan.
Commission Review and Recommendation
At its December 5, 2012 meeting, the UAC discussed the proposed Carbon Neutral Plan for the
electric supply portfolio. Staff provided a brief presentation of the proposed Carbon Neutral
Plan, which at that time included a rate impact limit of 0.25₵/kWh.
The presentation was followed by oral comments from community members in favor of the
proposed Carbon Neutral Plan. The discussion by the UAC commissioners centered on the cost
of achieving carbon neutrality in the near term versus long-term and the bill impact for
residential and commercial customers. The UAC requested that it be noted that savings could
be achieved by not pursuing carbon neutrality as soon as 2013 and requested that staff clearly
provide Council with the annual cost to achieve carbon neutrality.
The UAC voted unanimously to recommend that Council approve the proposed Carbon Neutral
Plan with a rate impact limit of 0.25₵/kWh. The minutes of the UAC’s December 5, 2012
meeting are provided as Attachment E.
Subsequent to the UAC’s December meeting, members of the UAC provided a Commissioners’
Memorandum (Attachment F) requesting further discussion about the expected cost of
achieving carbon neutrality and the proposed spending limit of 0.25₵/kWh. A discussion about
the Commissioners’ Memorandum, which advised a cap on total spending between 2013 and
2016 and a cap on the price per REC purchased, was held at the UAC’s January 9, 2013 meeting.
The Commission discussed the impacts of the 0.25₵/kWh limit in the case of adverse
conditions, noting that costs could range from $2.5 million to $5 million to achieve carbon
neutrality in 2013 instead of 2015, which is the date by which the Council requested staff
City of Palo Alto Page 22
develop the plan to achieve carbon neutrality. The Commission made clear that it supported
the Carbon Neutral Plan, but was concerned about expenditures that might be required to do
so.
Commissioner Eglash made a motion to revise the rate impact cap to 0.15₵/kWh, instead of
0.25₵/kWh. The motion to recommend that Council achieve carbon neutra lity for the electric
supply portfolio within a cost cap of 0.15₵/kWh passed (4-2) with Foster and Melton opposed
and Waldfogel absent. Draft minutes of the UAC’s January 9, 2013 meeting are provided as
Attachment G.
Following the UAC’s January 2013 meeting, staff decided to revise its recommendation for the
spending cap to a rate impact limit of 0.15₵/kWh with the idea that, if additional funds are
needed to achieve carbon neutrality, it will return to the UAC for recommendation and to the
Council for direction.
Resource Impact
Adoption of the Carbon Neutral Plan will not result in a need to adjust the adopted electric
commodity budget for FY 2013. Any purchases of RECs and/or renewable resources for CY
2013 will most likely occur after the fiscal year has ended and will be included as part of the
proposed FY 2014 Electric Fund budget. The cost of reporting and verifying GHG emissions to
The Climate Registry will also be identified and included in the annual budget process. Existing
staff resources are sufficient to implement the Carbon Neutral Plan.
Table 11 shows the expected cost per calendar year for the next five years, assuming average
hydroelectric generation and the expected cost of acquiring renewable resources based on the
proposed Carbon Neutral Plan. Table 11 also shows the impact of these additional costs on the
median residential annual electric bill (based on the median residential monthly consumption
level of 407 kWh). The actual cost is subject to actual load, availability of hydroelectric
generation , renewable energy costs, renewable attributes banked from one calendar year to
the next, and emissions emitted by existing renewable resources and the City’s back -up
generator. The timing for a rate increase to implement the plan depends upon other aspects of
the electric budget and the level of reserves. However, if Council approves the proposed
Carbon Neutral Plan, the cost would increase as shown in Table 1 1 as early as 2013. Deferring
implementation of the Carbon Neutral Plan to 2015 or 2017 would result in not spending $1.24
million or $2.72 million, respectively.
City of Palo Alto Page 23
Table 11: 5-Year Expected Cost and Bill Impact to Achieve Carbon Neutrality
2013 2014 2015 2016 2017
Total Cost $630,000 $610,000 $570,000 $910,000 $ 40,000
Median Residential Bill Impact ($/year) $3.07 $2.93 $2.73 $4.36 $0.19
As part of the City’s annual budget process, staff will estimate the incremental cost associated
with implementing the Carbon Neutral Plan based on the latest forecast for electric load
projections, supply resource conditions and the price of acquiring renewable resources.
Further, through the annual budget process, staff will assess the financial situation of the
Electric Fund and recommend how to cover any cost increases associated with implementing
the Carbon Neutral Plan including the use of Electric Fund reserves, revenues from the sale of
allowances in the cap-and-trade auctions and/or electric rate increases.
Table 12 shows the expected and maximum costs (given rate impact limits of 0.15₵/kWh and
0.25₵/kWh) from 2013 to 2020. As shown, the expected cost for the recommended Carbon
Neutral Plan is $2.7 million from 2013 to 2020. The maximum cost over that time with a rate
impact limit of 0.15₵/kWh is $12 million and the maximum cost with a rate impact limit of
0.25₵/kWh is $20 million.
Table 12: Annual Cost to Implement Carbon Neutral Plan ($millions)
2013 2014 2015 2016 2017 2018 2019 2020 Total
Expected Cost 0.6 0.6 0.5 0.9 0.0 0.0 0.0 0.1 2.7
Maximum Cost (with a rate
impact limit of 0.15 ₵/kWh)
1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 12
Maximum Cost (with a rate
impact limit of 0.25 ₵/kWh)
2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 20
Table 13 illustrates potential bill impacts under different usages and for the median residential
customer, should Council adjust rates to reflect the cost of achieving carbon neutrality in 2013
and how the City’s bill would compare to neighboring communities including those served by
Pacific Gas and Electric (PG&E).
City of Palo Alto Page 24
Table 13: Monthly Electric Bill Comparison for 2013
Usage
(kWh/month)
Palo Alto’s
Current Bill
($/month)
Palo Alto’s Bill with Carbon Neutral
Plan ($/month) Santa Clara
($/month)
PG&E
($/month) Expected Cost With 0.15₵/kWh
Residential Customer Monthly Bill
300 $28.57 $28.75 $29.02 $30.37 $38.54
(Median) 407 $42.50 $42.77 $43.18 $41.66 $53.21
650 $76.33 $76.72 $77.31 $67.11 $117.72
1,200 $172.03 $172.75 $173.83 $124.84 $300.23
Commercial Customer Monthly Bill
1,000 $127 $128 $129 $156 $163
160,000 $17,245 $17,341 $17,485 $18,002 $18,801
500,000 $50,430 $50,730 $51,180 $54,352 $54,285
2,000,000 $178,800 $180,000 $181,800 $210,129 $222,168
Policy Impacts
Approval of the recommended Carbon Neutral Plan is consistent with the Council -approved
LEAP Objectives; Strategies and Implementation Plan; supports the Council-approved 2011
Utilities Strategic Plan’s environmental sustainability objective; is consistent with the City’s
Climate Protection Plan; and supports environmental sustainability, one of the City Council’s
top priorities.
Environmental Impacts
Implementation of the Carbon Neutral Plan is expected to reduce 3 30,000 metric tons of GHG
emissions in 2013 through 2016 (based on the EPA’s eGRID emissions factor for California for
2012 of 661.2 pounds of CO2e per MWh). Beyond 2016, reductions of GHG emissions are
mostly attributed to other Utilities efforts – principally achieving an RPS of about 50%.
Adopting a carbon neutral plan does not meet the California Environmental Quality Act‘s
(CEQA) definition of a “project” under California Public Resources Code Sec. 21065, thus no
environmental review is required.
Attachments:
Attachment A: Draft Resolution Approving Carbon Neutral Plan (PDF)
City of Palo Alto Page 25
Attachment B: Carbon Neutral Plan (PDF)
Attachment C: Carbon Neutral Survey Results (PDF)
Attachment D: Summary of TCR EPS protocol (PDF)
Attachment E: Excerpted Final UAC Minutes of December 5, 2012 (PDF)
Attachment F: UAC Colleagues Memo, December 16, 2012 (PDF)
Attachment G: Excerpted Draft UAC Minutes of January 9, 2013 Special Meeting (PDF)
* NOT YET APPROVED *
250113 sdl 6051879
Resolution No. _________
Resolution of the Council of the City of Palo Alto Approving a
Carbon Neutral Plan for the Electric Supply Portfolio to Achieve
Carbon Neutrality by 2013
A. In an effort to combat climate change in December 2007 the City of Palo Alto
(“City”) adopted the Climate Protection Plan, which set aggressive greenhouse gas (GHG)
emission reduction goals to be achieved by the year 2020.
B. In March 2011, the City unanimously approved the Long -term Electric
Acquisition Plan (LEAP) a strategic planning document focused on how the City’s Utilities
Department (CPAU) can successfully balance environmental and economic sustainability as it
provides electric service to CPAU customers. LEAP was updated in April 2012 through
Resolution 9241.
C. In accordance with the LEAP Climate Protection Strategy #5 to reduce the
electric portfolio’s carbon intensity, staff evaluated the costs, benefits and impacts of the
implementation of an electric portfolio carbon neutral policy and the setting of quantitati ve
goals. Staff’s preliminary findings were presented to the Utilities Advisory Commission (“UAC”),
Finance Committee and Council and in May 2012, the City Council directed staff to develop a
plan to achieve carbon neutrality for the electric supply portfolio by January 2015 (Staff report
2525).
D. On November 5, 2012, Council approved (Staff Report 3194) the following definition
of carbon neutrality for the City’s electric supply portfolio: A carbon neutral electric supply
portfolio will demonstrate annual net zero greenhouse gas (GHG) emissions, measured at the
Citygate, in accordance with The Climate Registry’s Electric Power Sector protocol for GHG
emissions measurement and reporting.
E. Staff presented the Carbon Neutral Plan to the UAC on December 5, 2012 and the
UAC voted unanimously (six in favor and one absent) to recommend that the City adopt the
Carbon Neutral Plan.
F. On December 16, 2012, UAC Commissioners James Cook (Chair), Steve Eglash and
John Melton provided a Commission Memorandum to request the Carbon Neutral Plan be
revisited. The Commission Memorandum was discussed at the January 9, 2013 UAC meeting
and the UAC voted (four in favor, two opposed and one absent) to recommend to Council that
the Carbon Neutral Plan’s rate cap be reduced from 0.25 cents/kWh to 0.15 cents/kWh.
G. Subsequent to the January 2013 UAC meeting, staff revised its spending cap
recommendation to limit any future electric rate impact to 0.15 cents/kWh.
H. On February 5, 2013, the Finance Committee voted _________________________.
* NOT YET APPROVED *
250113 sdl 6051879
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. The Council hereby adopts the resolution approving the Carbon Neutral
Plan as provided for in Exhibit A.
SECTION 2. The Council directs staff to return to the UAC and the Council in the event
that the cost of City’s achievement of carbon neutrality for the electric supply portfolio would
exceed an electric retail rate impact of 0.15 cents/kWh.
SECTION 3. The Council finds that any eventual changes to the City’s electric rates
impacted by Council’s adoption of the Carbon Neutral Plan shall not create special taxes
because such rates shall be charges imposed for a specific government service or product
provided directly to the payor that are not provided to those not charged, and which shall not
exceed the reasonable costs to the City of providing the service or product.
SECTION 4. 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
ATTACHMENT B
1
Exhibit A to Resolution No XXXX
Adopted by City Council on ________________________________
City of Palo Alto Utilities
Electric Supply Portfolio Carbon Neutral Plan
1. Carbon Neutral Definition
A carbon neutral electric supply portfolio will demonstrate annual net zero greenhouse gas
(GHG) emissions, measured at the Citygate1, in accordance with The Climate Registry’s Electric
Power Sector protocol for GHG emissions measurement and reporting.
2. Carbon Neutral Plan Objective
Reduce the City of Palo Alto’s overall community GHG emissions by achieving carbon neutrality
for the Electric Supply Portfolio starting in calendar year 2013 within an annual rate impact not
to exceed 0.15 cents per kilowatt-hour (₵/kWh) primarily through the: 1) engagement of
customers to increase energy efficiency; 2) expansion of long-term renewable resource
commitments; 3) promotion of local renewable resources; 4) continued reliance on existing
hydroelectric resources; and 5) meeting short-term balancing requirements and/or neutralizing
residual carbon through the use of short-term purchases of renewable resources and/or
renewable energy certificates (RECs).
3. Resource Strategies
a. Energy Efficiency
i. Continue to pursue energy efficiency strategies as identified in the Council-
approved ten-year Energy Efficiency Plan.
b. Long-term Renewable Resources
i. Continue to pursue the City’s Renewable Portfolio Standard (RPS) goal to
purchase renewable energy to supply at least 33% of retail sales by 2015 while
ensuring that the retail rate impact of these purchases does not exceed 0.5
₵/kWh.
ii. Continue to pursue local renewable resources through the Palo Alto CLEAN and
PV Partners programs.
iii. Pursue additional RPS-eligible, long-term renewable resources (beyond the RPS
goals) to achieve a target of 100% carbon-free resources based on average year
hydroelectric generation.
1 Citygate is the location of the City’s main meter where the City interconnects to the Pacific Gas and Electric
transmission system. Emissions associated with of the output of the locally sited fossil gas fired combustions units
(COBUG), while not measured at Citygate, will be neutralized.
ATTACHMENT B
2
c. Short-term Renewable Resources and Renewable Energy Certificates
i. For calendar years 2013 through 2016, procure short-term renewables, if the
price is comparable to that of an un-bundled REC;
ii. For calendar years 2013 through 2016, procure RPS-eligible, un-bundled RECs as
needed to achieve carbon neutrality based on actual load and resources;
iii. Neutralize anthropogenic GHG emissions associated with renewable resources
with unbundled-RECs, which may or may not be RPS-eligible.
d. Banking and Truing Up
i. In the event that there are surplus renewables beyond the load in a particular
year, bank as many RECs as allowable under the TCR EPS protocol from
qualifying renewables from that year to minimize the need for purchasing RECs
in subsequent years.
ii. Neutralize emissions associated with market purchases resulting from deviations
between expected and actual load and renewable and hydroelectric generation
resources with unbundled-RECs, which may or may not be RPS-eligible.
4. Hydroelectric Resources
a. Continue to preserve and advocate for existing carbon-neutral hydroelectric generation
resources that provide approximately 50% of average year resource needs.
b. Plan for and acquire carbon neutral resources assuming average hydroelectric
conditions going forward.
c. Under adverse hydroelectric conditions, procure unbundled-RECs, which may or may
not be RPS-eligible, to achieve carbon neutrality up to the 0.15 ₵/kWh rate impact limit
and seek Council direction if carbon neutrality cannot be achieved within the rate
impact limit.
d. Under favorable hydroelectric conditions, where carbon neutral resources are expected
to be surplus to needs, even after allowable banking, then pursue selling short-term
renewable energy, or the renewable attributes, associated with one or more carbon-
neutral resources in the portfolio.
5. Financial and Rate Payer Impacts
a. In addition to the RPS annual rate impact limit of 0.5 ₵/kWh, the cost of achieving
carbon neutrality shall not exceed 0.15 ₵/kWh based on an average hydro year.
b. Revenues collected from surplus energy sales related to hydroelectric resources under
favorable conditions (e.g. wet years), will be maintained within reserves to adjust for the
cost of achieving carbon neutrality under adverse hydroelectric years.
c. To the extent available and allowable, revenues from the auction of cap-and-trade
allowances may be used to fund resources acquired to meet the carbon neutrality goals.
6. Reporting and Communication
a. Develop a communication plan for stakeholders to inform them of the City’s efforts
towards achieving a carbon neutral electric supply.
ATTACHMENT B
3
b. Submit an annual, verified report of the carbon content of the electric supply portfolio
to The Climate Registry.
c. Provide customers a report of the electric supply portfolio’s carbon content to
supplement the mandated Power Content Label.
d. Inform large commercial and/or corporate customers of the City’s carbon neutral
portfolio and its relevance to their individual corporate sustainability goals.
7. Implementation Plan
The tasks that need to be completed in the next two years pending Council approval of the
Carbon Neutral Plan in February 2013 are listed in the table below.
Item Timeframe
1. Modify electric supply portfolio models and Energy Risk
Management Policies, Guidelines and Procedures to account for
Carbon Neutral objectives, balancing, banking of renewable
attributes, reporting and financial impacts.
By April 2013
2. Modify the Long-term Electric Acquisition Plan (LEAP) to include
the carbon neutral objective
By June 2013
3. Develop communication plan to inform customers and
stakeholders of Carbon Neutral Plan and efforts.
February to April
2013
4. Based on response to the Fall 2012 request for proposals, seek
approval of new renewable power purchase agreements to meet
the City’s RPS up to approximately 100% of the long-term resource
needs in average hydro years.
December 2012 to
June 2013
5. Determine resource needs for CY 2013 through CY 2016 and
develop plan to acquire short-term renewable resources.
By June 2013
6. Determine long-term renewable purchase volumes for beyond CY
2016 and develop plan to acquire long-term renewable resources.
By September 2013
7. Procure RECs as needed to neutralize carbon emissions based on
actual load and resources for CY 2013.
By May 2014
8. Along with annual Power Content Label, produce and report to
customers the carbon intensity of the electric supply portfolio.
May/June 2014 and
annually thereafter
9. Produce and submit Electric Power Sector (EPS) and Local
Governments Operation Protocol (LGOP) reports to The Climate
Registry (TCR) for CY 2013.
July and October
2014 and annually
thereafter
10. Get independent verification of TCR reports and submit audited
reports to TCR.
By December 2014
and annually
thereafter
11. Redesign the PaloAltoGreen program according to Council
direction.
By December 2013
Attachment C
City of Palo Alto Utilities – Electric Supply Portfolio
Carbon Neutral Survey
Residential Customers
1. How much more would you be willing to pay on your electric bill for 100%
renewable energy supplies?
Answer Options Response
Percent
Response
Count
No more 27.3% 259
$2 more per month 9.0% 85
Up to $5 more per month 22.2% 210
Up to $10 more per month 23.3% 221
More than $10 more per month 18.2% 173
answered question 948
skipped question 11
2. Are you currently a PaloAltoGreen customer?
Answer Options Response
Percent
Response
Count
Yes 58.1% 554
No 41.9% 399
answered question 953
skipped question 6
3. If your electricity supply is 100% carbon-free, and your electric rate has
increased about 4% as a result, would you be more or less motivated to
invest in energy efficiency improvements?
Answer Options Response
Percent
Response
Count
More motivated 27.5% 261
Less motivated 12.1% 115
No change in motivation 60.3% 572
answered question 948
skipped question 11
4. Do you have any further comments for us on the idea only purchasing
“green” carbon-free power?
answered question 514
skipped question 444
# Response Text Count
Negative - Bills too high 93
Negative - Other Issues 88
Other Issues – Neutral 125
Positive – Qualified 85
Positive – Unqualified 123
Grand Count 514
Commercial Customers
1. How much more would you be willing
to pay on your electric bill for 100%
renewable energy supplies?
Answer Options Response Percent
Response
Count
No more 63.0% 17
2% more per month 14.8% 4
Up to 5% more per month 7.4% 2
Up to 10% more per month 7.4% 2
More than 10% per month 7.4% 2
answered question
27
skipped question
1
2. Are you currently a PaloAltoGreen customer?
Answer Options
Response
Percent
Response
Count
Yes 25.0% 7
No 75.0% 21
answered question 28
skipped question 0
3. If your electricity supply is 100%
carbon-free, and your electric rate has
increased about 4% as a result, would
you be more or less motivated to
invest in energy efficiency
improvements?
Answer Options
Response
Percent
Response
Count
More motivated 14.8% 4
Less motivated 14.8% 4
No change in motivation 70.4% 19
answered question 27
skipped question 1
Q4. Do you have any further comments for us
on the idea only purchasing “green” carbon-
free power?
Response Count
10
answered question 10
skipped question 18
Page 1 of 10
ATTACHMENT D
Summary of Implementation of The Climate Registry’s Electric Power Sector Protocol in
Pursuit of Carbon Neutrality for the City of Palo Alto’s Electric Portfolio
The key policy elements discussed in the TCR EPS protocol include:
1. Measurement, Accounting, Reporting and Verification Protocol
2. Inventory Scope of GHG Emissions Covered by Definition
3. GHG Emission Factor by Resource
4. Balancing Periods and Banking
5. Role of PaloAltoGreen Program
6. Portfolio Alternatives to Achieve Carbon Neutrality
1. Measurement, Accounting, Reporting and Verification Protocol
There are several GHG accounting standards in the industry, although all are based on the
accounting architecture developed by The World Resources Institute (WRI). WRI is regarded as
a global leader on the topic of GHG measurement and accounting standards through its
development of accounting tools for governments and businesses that enable them to
understand, quantify, and manage GHG emissions. WRI’s methodology divides GHG emissions
into three types: Scope 1, Scope 2, and Scope 3. For a GHG reporting entity such as the City,
Scope 1 includes the direct emissions the entity has control over, such as factory emissions,
building emissions, emissions from utility owned generation and emissions from vehicles it
owns or controls. Scope 2 includes primarily emissions associated with electricity the reporting
entity consumes for its own operations but did not produce. Scope 3 emissions are all other
emissions over which the reporting entity does not have control. Scope 3 emissions include
sources such as electricity purchased by electric utilities for the use of its customers, commute s
by employees and emissions associated with concrete purchased for construction.
The WRI protocol is the accounting foundation for The Climate Registry (TCR) GHG reporting
protocol. TCR is a U.S. Environmental Protection Agency (US EPA) recognized national GHG
reporting public platform, and the City has been reporting to this agency (and its predecessor
agency, the California Climate Action Registry) since 2005.
Figure 1 is an illustration of the various emissions types and how they are accounted for under
WRI’s Scope 1, Scope 2, and Scope 3 definitions.
Page 2 of 10
Figure 1: Overview of Scope 1, 2, and 3 GHG Emissions
Source: World Resources Institute
TCR protocol directs an electric utility to report its own Scope 1 and Scope 2 emissions under
the General Reporting Protocol (GRP), and allows for the utility to compute the emissions (in
metric tons of CO2e) using standardized emission factors (in pounds of CO2e per unit of
electricity delivered to different customers) under the Electric Power Sector (EPS) protocol1.
The portfolio or program level emission factors generated by electricity providers, calculated
using the EPS protocol, may then be used by end-use customers to report the Scope 2
emissions associated with their own electricity usage.
To help ensure transparency and credibility of the City’s efforts towards carbon neutrality, staff
recommends that TCR’s EPS protocol be adopted as the standard for accounting, reporting, and
verification.
2. Inventory Scope of GHG Emissions Covered by Definition
Electric Supply
Staff recommends limiting the scope of the emissions to be counted to those associated with
the electric supply portfolio as measured at the City’s main meter (Citygate) plus output from
City-owned generation facilities (the city-owned back-up generator, or COBUG) within City
boundaries. The electric supply portfolio consists of all resources purchased and/or owned,
including deliveries from its two hydroelectric resources, Western and Calaveras, all renewable
resources acquired under power purchase agreements, and net market purchases (total
1 www.theclimateregistry.org/resources/protocols/electric-power-sector-protocol
Page 3 of 10
purchases minus total sales in the wholesale markets) made to meet load requirements on an
annual, calendar year basis.
Electric Grid Reliability & Transmission Losses
Given the highly variable nature of the City’s long-term electric supply resources—on a minute-
to-minute, month-to-month and year-to-year level—it is inevitable that the City will rely to
some extent on generation reserves connected to the California Independent System Operator
(CAISO) grid. Specifically, some generation capacity is always reserved to follow loads in the
event that actual load and generation resources deviate widely from forecasted levels.
Consistent with the EPS protocol, the emissions associated with these load -following resources
are reported by the generation owners as Scope 1 emissions. To the extent that CPAU requires
these resources to meet unplanned electric load, this energy will be delivered to Citygate and
thus the emissions associated with the energy will be counted as Scope 2 or 3 emissions on the
City’s emissions inventory, just like all of its purchased power.
In 2008 the City effected a 15-year assignment of its share in the California-Oregon
Transmission Project (COTP). Since the City currently does not own or operate transmission,
according to the TCR EPS protocol it does not need to include transmission line losses in its
emissions calculation. Emissions associated with transmission losses may need to be
considered in future inventories depending o n TCR protocols, or if the City reacquires
transmission ownership rights.
Distribution System
In addition to the GHG emissions associated with electric supply, electric distribution
operations also generate GHG emissions. The City reports to TCR on electric utility operational
activities producing GHG emissions2 including fuel consumption by the CPAU vehicle fleet
(Scope 1), potential SF6 emissions from substation breakers (Scope 1), and electricity used in
CPAU buildings (Scope 2). However, since carbon neutrality is being defined as emissions
related to electricity supply only, emissions associated with operations will not be included in
the emission inventory. Electricity losses in distribution system wires, which are estimated at
five percent of electric purchases, will be accounted for since the electric supply is measured at
Citygate and not at customer meters. Table 1 below is a summary of the emissions to be
included in the City’s electric supply portfolio inventory.
2 GHG emissions from electric operations represent less than 0.5 percent of all emissions produced by the electric
utility.
Page 4 of 10
Table 1: Electric Portfolio Carbon Neutral Emission Inventory
Scope Categories Description
1 Stationary combustion Emissions from owned/controlled facilities. For
CPAU this includes COBUG
2 Distribution system losses CPAU owned distribution line losses only
Purchased power for own
consumption
Electricity used by all City facilities is included in
the measure at the City’s meter (Citygate)
3 Purchased power for customers Electricity purchased for resale to the City’s
customers measured at Citygate
3. GHG Emission Factor by Resource
TCR protocols allow for project-specific emissions factors, in pounds of CO2e per megawatt-
hour (MWh), to be used as the basis for calculating portfolio emissions. These emissions would
be based on actual metered fossil fuel consumption or measureme nt of GHG releases. If
project-specific emissions factors are not known, TCR allows the use of generic technology-
based emission factors based on US EPA numbers as shown in Table 2.
Table 2: Default Emissions Factors for Power Purchases from Specific Re sources
Resource Emissions Factor
(pounds CO2/MWh) CPAU Resources
Natural Gas
Combined Cycle – Two Turbines 909 N/A
Combined Cycle – Single Shaft 860 N/A
Combustion Turbine 1,329 N/A
Steam Turbine 1,532 N/A
Internal Combustion 1,226 COBUG
Biogenic Fuels
Anthropogenic Biogenic
Landfill Gas3 38 2,677 6 Ameresco PPAs
Municipal Solid Waste 1,353 2,513 N/A
Geothermal
(Non-binary)
200 lbs CO2/MWh
1.66 lbs CH4/MWh n/a Western GeoPower
PPA
Source: The Climate Registry Electric Power Sector Protocol for Voluntary Reporting Program
(Annex 1 to the General Protocol) v1.0, June 2009.
California Non-specific Emissions Factor
The wholesale brown market power purchases that the City executes to balance its resource
supply with its load are not from a specific generator, and are called “unspecified” resources.
TCR protocols dictate that the emissions associated with power purchases from unspecified
resources be calculated by applying a default emissions factor based on the geographic region
3 Bio-gas and anaerobic digester plants are assumed to have roughly the same amount of anthropoge nic emissions
as landfill gas generation.
Page 5 of 10
from which the power likely originated. These geography-based non-specific emissions factors
are found in the US EPA’s Emissions & Generation Resource Integrated Database (eGRID). It is
assumed that all of the City’s wholesale market power purchases originate in the “WECC
California” eGRID subregion, for which the current emissions factor is 661.2 pounds of CO2e per
MWh.
Biogenic and Anthropogenic Emissions
TCR protocols require that both biogenic and anthropogenic emissions be counted – and
reported separately – in an entity’s emissions inventory. Biogenic emissions of GHGs are those
that would occur naturally from living organisms’ respiration and digestion. Anthropogenic
GHG emissions are due to human activity, mostly from burning of fossil fuels. In the electric
generation sector, examples of biogenic emissions include CO2 emissions resulting from the
combustion of plant biomass, sludge digester gas or landfill gas. Since biogenic emissions are
not a GHG consequence of City projects and activities, the emissions will not be included in the
calculation of emissions for the city’s electric supply portfolio.
Anthropogenic emissions factors are shown in Table 2 for various types of generation resources
that will be counted in the City’s emission inventory along with the eGRID listed emission
factors for unspecified resources. For illustrative purposes, Table 3 shows the expected 2015
GHG emissions intensity of the City’s electric supply portfolio assuming a 4.2% reduction in
usage from energy efficiency; a 33% RPS; average hydroelectric conditions; and the remaining
load met through unspecified market purchases.
Table 3: GHG Emissions Associated with the City’s 2015 Electric Supply Resources
Resource Type Generation
(GWh)
Emissions Coefficient
(lb CO2e/MWh)
Total Emissions
(Metric Tons CO2e)
Hydro 533 0 0
Wind 120 0 0
Landfill Gas 126 04 0
Geothermal 33 235 3,523
Other Renewables
(for a total RPS 33% of sales) 51 0 0
COBUG 0.5 1,226 278
Market Purchases 193 661 57,869
Total 1,056 61,670
4. Balancing Periods and Banking
The City’s electric load requirements and supply resources vary significantly on an hourly, daily,
monthly and annual basis. Under the current plan in 2015, the City’s electric portfolio is
expected to require market purchases of about 19% of the annual load; however, even in an
4 The TCR EPS protocol allows the use of a default emissions factor of 38 lb CO2e/MWh for landfill -gas-to-energy
plants, but the facilities that Palo Alto has contracted the energy from do not use any fossil -fuel natural gas to
supplement the landfill gas so the anthropogenic emissions factor for Palo Alto’s projects is zero.
Page 6 of 10
average hydroelectric year the portfolio’s electric resources will exceed loads in months when
hydroelectric generation and wind output are highest. Figure 2 is an illustration of monthly
variability in load and supply resources in 2015.
The City’s hydroelectric resources cause large variations in supply resources on an annual basis.
Hydroelectric supplies provide from 30% to 80% of the City’s annual electric needs depending
on hydrologic conditions. Currently, under wet hydrologic conditions the City may have
resources surplus to load by as much as 55% during the spring months. Adding additional
carbon neutral resources to the portfolio would extend these surplus es even further,
particularly if the new resources had an annual load shape like hydroelectric, California wind or
solar resources.
Figure 2: Expected Monthly Load and Resource Balance in 2015
0
20
40
60
80
100
120
140
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15
Mo
n
t
h
l
y
L
o
a
d
a
n
d
R
e
s
o
u
r
c
e
S
u
p
p
l
y
(
G
W
h
)
LOAD
Geothermal
Hydro Generation
Wind Generation
Landfill Generation
Solar
Operationally the City’s electric load must be balanced with a supply resource every 10 minutes.
As the City’s scheduling coordinator, the Northern California Power Agency (NCPA) actively
buys and sells electricity through the CAISO on a daily, hourly, and real-time basis. The level of
granularity the City seeks to pursue through its carbon neutral effort will influence the cost of
achieving carbon neutrality and, to some extent, will dictate the types of resources available.
Ensuring that the City’s portfolio is carbon neutral on a month ly (or even daily) basis may prove
to be costly insofar as it leads to more transaction costs incurred. For example, in the spring
Page 7 of 10
and some summer months, the City’s availability of carbon-free resources from wind and
hydroelectric resources is highest. Since it is not possible to schedule resources in excess of
load, NCPA sells excess supply as a “system sale” (i.e., non-resource specific) and the renewable
attributes associated with the resource are retained by the City. Conversely, in months where
the City is deficient, NCPA makes system purchases to meet load. Assuring carbon neutrality in
time increments less than on an annual basis would require that the City sell excess renewable
resources in surplus months and purchase additional renewable resources in deficit months.
The TCR EPS reporting protocol requires an annual report showing net emissions for the
calendar year, thus allowing for the carryover of surplus renewable attributes (i.e., RECs) from
some months to be used to cover deficits in other months. Further, the protocol allows for the
carryover of surplus renewable attributes beyond the calendar year in which they were
produced. This practice is referred to as “banking” and is commonly used to minimize
transaction costs. TCR protocols allow for banking only for new renewable resources (less than
15 years old), with restrictions on how long the RECs can be banked. As such, because the
City’s two hydroelectric resources are older than 15 years, RECs from these two resources may
only be counted towards offsetting emissions in the calendar year in which they are produced.
Figure 3 shows the City’s electric supply portfolio emissions following the recommended
reporting protocol given 33% RPS and unspecified market purchases. These emissions would
need to be “zeroed out” through the purchase of RECs and/or offset s to achieve carbon
neutrality for the electric supply portfolio. The wide annual variation in emissions for the
period from 2005 through 2011 is primarily due to variations in generation from hydro
resources. The declining amount of emissions projected after 2012 is due to additional
renewable resources expected to become available.
Page 8 of 10
Figure 3: Actual/Projected GHG Emissions for the City’s Electric Supply Portfolio
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
To
t
a
l
E
l
e
c
t
r
i
c
i
t
y
S
u
p
p
l
y
E
m
i
s
s
i
o
n
s
(
T
o
n
n
e
s
C
O
2
e
)
Calendar Year
Total Emissions (Actual / Projected)
Total Emissions (Average Hydro)
Total Emissions with New Renewables PPAs
Actual ProjectedActualProjected
5. Role of PaloAltoGreen Program
PaloAltoGreen, which started in 2003, is a voluntary program where customers elect to pay a
premium in order to ensure that their supply is comprised of 100% renewable resources.5 With
roughly 25% of the City’s customers (8% of retail load) on PaloAlto Green, the City’s program is
recognized as the top-ranked voluntary renewable program in the country by participation rate.
In 2011, PaloAltoGreen accounted for approximately 28,000 metric tons of CO2e of GHG
reductions for the community.
At the time the PaloAltoGreen program started, the City did not have a renewable resource
portfolio standard and participants received 100% renewable resources for their needs.
However, as the City approaches its RPS goal, PaloAltoGreen participants may have less
incentive to remain part of the program and pay extra for renew able resources.
In the event that the City continues to offer PaloAltoGreen as an alternative to the City’s
regular supply portfolio, the TCR EPS protocol allows for the reporting of multiple electric
5 In 2011 PaloAltoGreen was sourced through RECs purchased from wind projects in Washington and Wyoming
(97.5% of supply) and solar projects in California (2.5% of supply).
Page 9 of 10
supply emission tables to be used by customers in their voluntary reporting of their own Scope
2 emissions. However, the TCR EPS protocol does not allow emission reductions from
PaloAltoGreen to be counted towards carbon neutrality efforts of the non -voluntary portfolio.
A task to redesign the PaloAltoGreen program is part of the LEAP Implementation Plan. That
redesign will be done in the context of the pursuit of carbon neutrality for the electric supply
portfolio. As PaloAltoGreen has tapped into an important community resource involving a
willingness to support environmental stewardship, PaloAlto Green redesign efforts will explore
alternatives for continuing to provide GHG emission reduction efforts throughout the
community.
6. Product Alternatives to Achieve Carbon Neutrality
There are several types of resources and/or environmental products that the City could use
under TCR protocols to achieve carbon neutrality for the electric portfolio. A general
description of these products is provided below. The plan to achieve carbon neutrality will
provide further detail regarding costs and availability of each resource along with a
recommendation of whether or not to use them as part of the City’s carbon neutral efforts.
RPS Eligible Resources:
RPS eligible resources are those certified by the California Energy Commission (CEC) and are
included in the CEC’s RPS Eligibility Guidebook. The City’s RPS requires that resources meet the
CEC RPS eligibility requirements as well. The list of renewable resource technologies that meet
the CEC’s RPS eligibility standards includes energy from landfill gas-to-energy, solar
photovoltaic, solar thermal electric, wind, small hydroelectric, and geothermal projects. Under
California’s RPS law (SB X1-2), unbundled RECs (i.e., RECs without any physical energy
associated with them, or Bucket 3) and renewable resources that are located out-of-state (i.e.,
Bucket 2) can be used for RPS compliance, with some restrictions on the degree to which these
resources can be relied upon to meet the state RPS requirement. For the pur pose of reporting
emissions, the TCR protocol does not distinguish between RPS eligible resources and non -RPS
eligible resources.
REC-Only Products
TCR protocols allow entities that procure unbundled RECs to adjust their emissions inventories
to account for these products. Even though the physical energy is not delivered to the entity,
TCR allows the use of unbundled RECs—whether RPS eligible or not—to displace an equivalent
amount of power from the actual power mix. This adjustment is allowed because the RECs
include all renewable and environmental attributes associated with the production of electricity
from the renewable energy resource.
Carbon-free, Non-RPS Eligible Renewable Resources
Non-RPS eligible resources that can be reported as being carbon-free under the TCR protocols
include large hydroelectric (such as from Western and Calaveras resources), nuclear and out-of-
state renewable resources built before 2005.
Page 10 of 10
Environmental Offsets
GHG offsets6 are tradable credits issued for emissions reductions resulting from qualifying GHG
mitigation projects. They can be purchased on the voluntary market (for example to achieve
carbon neutral objectives) or in the compliance markets (for example to meet cap -and-trade
requirements). Qualified offsets for California’s cap-and-trade system are certified and issued
by the Climate Action Reserve and are typically transacted on a bilateral basis. The California
Air Resources Board (CARB) currently recognizes offsets issued by the Climate Action Reserve
for several types of GHG mitigation projects—including forestry, urban forestry, livestock
methane, and ozone depleting substances—for use in meeting AB32 GHG reduction goals for
2020. There are other international offset markets, such as the Clean Development Me chanism
which facilitates offsets from developing countries to be sold into the European Union’s
Emission Trading Scheme.
With the uncertainty associated with the use and eligibility of various types of offset products
coupled with the lack of compliance-driven buyers, the market for offsets is currently very
illiquid and there is a great deal of uncertainty around the long-term market price of these
products.
Table 4 is a summary of the various products including RPS specifications and how they are
currently reported under California’s Power Content Label requirements.
Table 4: Summary of Various Renewable Energy and Environmental Products
RPS Eligible
Energy
RPS Eligible
RECs
Non-RPS
RECs
Non-RPS Carbon-
free Energy
Environmental
Offsets
Description
Bucket 1: In-
state projects,
and Bucket 2:
firmed and
shaped products
from out-of-
state resources
Bucket 3: REC-
only deals or
other
transactions,
subject to
compliance
limits
Unbundled
RECs from
projects not
RPS certified
by the CEC
These could
include large
hydro, nuclear, or
older out-of-state
renewable energy
projects
Emissions
reduction credits
from qualifying
GHG mitigation
projects
RPS Eligible? Yes Yes No No No
Power Content
Label
Eligible
Renewable
Eligible
Renewable
Eligible
Renewable Specific Resource Unspecified
Market
The Climate
Registry
Emissions
reported *
Emissions
reported *
Emissions
reported * Zero emissions
Emission
reductions
counted
* Anthropogenic emissions, if applicable, reported.
6 WRI defines a carbon offset as “a unit of carbon dioxide-equivalent (CO2e) that is reduced, avoided, or
sequestered to compensate for emissions occurring elsewhere.”
Utilities Advisory Commission Minutes Approved on: January 9, 2013 Page 1 of 4
EXCERPTED FINAL MINUTES OF THE DECEMBER 5, 2012
UTILITIES ADVISORY COMMISSION MEETING
ITEM 4: ACTION: Utilities Advisory Commission Recommendation that Council Approve a
Carbon Neutral Plan for the Electric Supply Portfolio
Senior Resource Planner Monica Padilla presented a summary of the carbon neutral plan
report. She stated that after 2016, the portfolio will have very low carbon content due to RPS
resources as well as hydroelectric contracts. The key policy decisions in clude what types of
resources to pursue in the near term (until 2016) and long term, what types of resources to use
for annual true-ups of load and resources and for covering anthropogenic greenhouse gas
(GHG) emissions.
Padilla described the proposed Carbon Neutral Plan as pursuing short-term renewables and/or
unbundled renewable energy certificates (RECs) in the near term and using RECs for balancing
and for neutralizing the geothermal and back-up generator GHG emissions.
Vice Chair Foster asked if there were any other communities that have pursued carbon neutral
plans. Padilla responded that through a study conducted by Navigant Consulting, staff has
learned that other communities including Seattle City Light and the Marin Energy Authority are
pursuing 100% renewable portfolios through the use of hydroelectric supplies, bundled
renewables and RECs.
Public Comment
Walt Hayes indicated his support for the proposed plan and described the moderate cost as
well as the strong leadership shown by Palo Alto.
Commissioner Eglash asked Mr. Hayes if he supported this because of the symbolism, or the
GHG emissions reductions. Mr. Hayes responded that the City has taken the initiative and
stated that after Palo Alto's Green Ribbon task force, other cities nearby began to develop their
own sustainability plans.
Bruce Hodge, from Carbon Free Palo Alto, stated his strong support of the plan, especially the
move to get to carbon neutral as soon as 2013. He urged the UAC to recommend approval of
the plan.
Dirk Morbitzer, stated that he follows market developments of renewable energy across the
globe. He stated that other cities across the U.S. and the world will follow Palo Alto's lead. He
Utilities Advisory Commission Minutes Approved on: January 9, 2013 Page 2 of 4
recommended that the solar resource be local since that strategy keeps financial resources
local and assists with electricity availability in case of emergencies. He noted that solar costs
have fallen in Europe and can further fall in the U.S.
Gary Hedden, Los Altos Environmental Commission, noted that the plan is inspirational , but
may not be repeatable since they buy their energy from PG&E.
Craig Lewis, CLEAN Coalition, supported the proposed plan and acknowledged the work of staff
and community members to complete the plan. He stated that in Germany, local solar projects
cost as low as 7 cents/kWh now, which is less than remote renewable energy projects
transported to Palo Alto two years from now. Mr. Lewis added that Palo Alto's actions are seen
widely around the country and its actions are followed by others since other areas want to
emulate what’s done in Palo Alto.
Bret Anderson, local resident, supported the proposed plan. He stated that it was important to
him that the energy source is green, which makes using an electric car for transportation truly
green.
Commissioner Chang asked if the plan for the near term included purchasing short -term
renewables and/or RECs to cover the brown energy. Padilla stated that staff plans to shop for
both products—short-term renewables and unbundled RECs—and choose the least costly
resource. She noted that this is clearly spelled out in the plan, which is Attachment A to the
report, under Section 3.b.i.
Vice Chair Foster thanked the speakers for expressing their opinions at the meeting. He noted
that the falling price of renewable energy has made the decision an easy one to support the
proposed plan.
Commissioner Eglash stated that reducing GHG emissions to be a very important goal. He
noted that GHG emissions accrue from many of our actions and the use of electricity is but a
small source. He is concerned that the plan is primarily an accounting exercise and that it is
symbolic at most since the electric portfolio is almost carbon neutral already. He stated that
the cost is low since the impact is low.
Vice Chair Foster responded to Commissioner Eglash's concerns by saying that this is a
significant step and that we can then turn to other sources of GHG emissions reductions.
Commissioner Waldfogel said that we should get to carbon neutrality since we're almost there
and it's better to be there, than almost there. He asked if the City considered stopping RPS at
33% and then using the additional money under the 0.5 cent/kWh rate impact for carbon
neutrality. Assistant Director Jane Ratchye stated that the Council adopted an R PS goal of
reaching at least 33% RPS, but to go as far as possible within the rate impact limit.
Commissioner Waldfogel asked if the PaloAltoGreen program was ended, would other
customers see a rate increase as a result of the loss in PaloAlto Green revenues. Padilla said
Utilities Advisory Commission Minutes Approved on: January 9, 2013 Page 3 of 4
that the revenues for the voluntary PaloAltoGreen program are separate and used only to
offset the cost of procuring RECs for PaloAlto Green so there would be no impact.
Commissioner Eglash asked about the cost of achieving carbon neutrality by 2017 instead of
2013. He noted that the cost of carbon neutrality in the near term is $2.7 million for 2013 to
2016 and that this cost will be paid primarily by non -residential customers.
Vice Chair Foster asked how the increased cost (0.05 to 0.09 cents/kWh) would impact the
rates and how it would compare to surrounding communities. Director Fong stated that the
increase would be minor and that our rates are low compared to PG&E. Vice Chair Foster
noted that this is a very small expense to pay for this important program and that we should go
ahead now since time is of the essence.
Chair Cook read a statement provided by Commissioner Hall, who was unable to attend the
meeting: “I wholeheartedly support Staff’s proposed efforts to achieve carbo n neutrality ahead
of the January 2015 target date set by the Council. I note that the percentage of surveyed
residents who are willing to pay more than $2 per month was 66% - a good majority. Happily, it
appears possible for residents to support carbon neutrality by the end of 2013 for an average of
not much more than $2 per year using the recommended strategy. And, given that the
anticipated Cap-and-Trade revenues will far exceed the cost of this program, it’s preferable to
utilize a sufficient portion of Cap and Trade revenues to offset the cost of this program – so that
residents will see no rate increase at all.”
Chair Cook asked about risks of the plan, especially the risks of costs rising to implement the
plan, for example, if the cost of renewable energy rises significantly leading to a rapid rise in
rates. Director Fong stated that the renewable energy contracts have locked in prices so there
is protection of rising costs there. In addition, the plan proposed a rate impact limit of 0.25
cents/kWh to protect ratepayers.
Chair Cook thanked the public speakers and noted that the involvement of the community by
attending the meeting, providing comments, and sending emails is the most he has experienced
in his time on the UAC. He stated that he also supported the plan and stated that the low price
to achieve the plan is acceptable. Chair Cook noted that this is a great policy, but there is still
more to do.
Commissioner Eglash noted that the cost of getting to carbon neutrality in the near term (2013
to 2016) at $2.7 million accounts for the majority of the costs and that most of the cost will be
borne by commercial customers. Commissioner Eglash further asked if the City delayed getting
to carbon neutrality from 2013 to 2017 whether the funds co uld be used for other carbon
reduction efforts such as energy efficiency. Director Fong noted that Council directed staff to
develop a plan to get to carbon neutrality by January 2015 so staff would not have proposed
achieving carbon neutrality by 2017. In addition, the Council has already adopted a very
aggressive energy efficiency program. Director Fong stated that if the City decided not to
achieve carbon neutrality before 2017, then the funds would simply not be spent so if the City
Utilities Advisory Commission Minutes Approved on: January 9, 2013 Page 4 of 4
was not going to seek to achieve carbon neutrality, then the costs would simply not be
incurred.
Commissioner Melton asked that in order to aid Council in their decision it be noted in
upcoming staff reports the cost of getting to carbon neutrality based on alternative start years
(i.e., 2013 versus 2017) and to explicitly state that it is expected to cost an additional $2.7
million to achieve carbon neutrality in 2013 instead of 2017. Then Council will have the
information of the price tag to be paid by ratepayers from that policy direction. Director Fong
agreed to provide this information in the report and note the discussion in the upcoming staff
reports to Council. Chair Cook added that a representative from the UAC can attend Finance
Committee and Council meetings to underscore the UAC’s discussions.
ACTION:
Vice Chair Foster moved to support the staff's recommendation. Commissioner Melton
seconded the motion. The motion carried unanimously (6-0) with Commissioner Hall absent.
5
CITY OF PALO ALTO UTILITIES ADVISORY COMMISSION
COMMISSIONER MEMO
TO: Valerie Fong, Director, Utilities
Audrey Chang, Jonathan Foster, Garth Hall, and Asher Waldfogel, Utilities
Advisory Commission
FROM: James Cook (Chair), Steve Eglash, and John Melton, Utilities Advisory
Commission
DATE: Initially submitted December 16, 2012; final version December 28, 2012
SUBJECT: Request to agendize and revisit the cost limitations of the carbon neutral plan for
the electric portfolio at the January 9, 2013, UAC meeting
Background. At the December 5, 2012, UAC Meeting the commissioners voted unanimously
(six in favor and one absent) to recommend that the City Council adopt staff’s carbon neutral
plan for the electric portfolio. This plan directs staff to achieve carbon neutrality for the City’s
electric portfolio beginning in 2013 by purchasing RECs to make up for any brown power
consumed by the City. The proposed plan includes Council authorization for CoPA Utilities to
spend up to $0.0025/kWh to achieve carbon neutrality. The expected cost is between zero and
$2.7 million total for the period 2013 – 2016 and very low thereafter.
The issue. The discussion at the December 5, 2012, UAC Meeting focused primarily on the
expected cost and relatively little time was devoted to the spending cap. The authorization
permits CoPA Utilities to spend up to $0.0025/kWh, equivalent to approximately $2.5 million
per year or $10 million total for the period 2013 – 2016. There is no limit on the price per REC.
The purpose of this memo is to request that the carbon neutrality topic be discussed at the
January 9, 2013, UAC Meeting with a particular focus on spending limits. Two types of
spending caps are recommended: a cap on total spending during 2013 – 2016 and a cap on the
price per REC regardless of the number of RECs to be purchased.
Two examples serve to illustrate the possible need for a lower total cap during 2013 – 2016 and
the possible need for a cap on the price to be paid for a REC at all times.
Example 1. In the event of a dry hydro year, the City might use more brown power than
assumed in the likely scenario. In this case the carbon neutrality plan directs staff to purchase
RECs up to a rate impact of $0.0025/kWh, or roughly $2.5 million per year. In the unlikely
event that poor hydro conditions required the Utility to do this for all four years 2013 – 2016,
then the carbon neutrality plan would cost the rate payers $10 million, not $2.7 million as in the
likely scenario discussed in the memo and at the UAC meeting. The authors of this
Commissioner Memo would like the UAC to discuss whether a more restrictive cap on total
spending is appropriate during 2013 – 2016. One possibility is a cap of $1 million per year,
which would have the effect of limiting total spending during the four-year period to $4 million.
Commissioner Memo
December 28, 2012
Page 2
Example 2. There is no limit in the proposed plan on the price per REC. In order to protect
ratepayers from paying a relatively large amount for a small reduction in carbon emissions, the
authors of this Commissioner Memo would like the UAC to consider setting a maximum price
per REC that the Utility is authorized to spend, regardless of how few RECs are to be purchased.
One possibility is a cap of $20/MWh. (Staff has indicated that the expected price of RPS-
eligible unbundled RECs is $1-10/MWh.) Such a limit would be in addition to the limit on total
annual spending described in Example 1.
To be clear, it is not the authors’ intention to backtrack from our support for the carbon neutrality
plan, but rather to put appropriate limits on what the City should spend (more accurately, what
the City’s ratepayers should be asked to spend) in achieving carbon neutrality. In consideration
of the UAC’s oversight role, of the UAC’s advisory role to the City Council, and of being good
stewards of our residential and business ratepayers’ money, we believe that the issues raised in
this memo should be discussed by the UAC.
EXCERPTED DRAFT MINUTES OF THE JANUARY 9, 2013
UTILITIES ADVISORY COMMISSION MEETING
ITEM 5: ACTION: Commissioners’ Memo Recommendation that the Utilities Advisory
Commission Discuss and Potentially Act Upon the Cost Limitation Provision of the Carbon
Neutral Plan for the Electric Portfolio
Commissioner Eglash provided a brief synopsis of the memo signed by Chair Cook, and
Commissioners Eglash and Melton and stated that the discussion at the UAC's December
meeting focused on the expected cost to achieve carbon neutrality and not on the poten tial
maximum cost. Particularly before the long-term renewable resources are on-line, for 2013
through 2016, the cost could be significant to get to carbon neutrality. He summarized the
recommendations in the memo as limiting total spending during 2013 t o 2016 and a cap on the
price of Renewable Energy Certificates (RECs).
Public Comment:
Bruce Hodge stated that the additional limitations recommended by the Commissioners' Memo
are unnecessary and supported the cost cap in the proposed plan. He shared his analysis of the
bill impact for customers using different amounts of electricity per month and showed that the
impact was small and reasonable.
Walt Hays agreed with Bruce Hodge since Bruce Hodge had done the analysis. Walt Hays
reminded the Commission of the risks of climate change and said that the City should not
quibble with the small costs being proposed in the plan. He added that the plan is more than
symbolic and, even if only symbolic, may have greater impact as the bold plan it is.
Commissioner Melton asked for staff’s opinion of the recommendations in the Commissioners’
Memo. Director Fong stated that staff has put its proposal forward and the Commissioners’
Memo provides another option.
Vice Chair Foster stated that he feels like the message the plan sends is valid and that the plan
has only a small rate impact anyway and he doesn't support a lower cost limitation. However,
he stated that he could support the proposed REC cost limitation.
Commissioner Melton stated that the spending limit proposed in the memo is a "black swan"
protection device. He stated that we need some maximum spending limitation in case
something changes dramatically.
Responding to Commissioner Melton’s recommendation, Vice Chair Foster stated that he
agreed that there needed to be a spending limit and that the proposed plan does have a
limitation of $2.5 million/year.
Commissioner Eglash agreed that the proposed plan does have a spending limit of about $2.5
million per year. He stated that the question at hand is whether we are comfortable with the
proposed rate cap for our residential and commercial customers. This is especially an issue in
the years from 2013 to 2016 before the long-term renewable contracts come on line.
Commissioner Chang asked how the cap in the proposed plan of 0.25 cents/kWh was derived.
Director Fong said it was proposed by staff to cover the uncertainties in hydroelectric
production and the future cost of RECs. She stated that another idea is to have a dollar amount
that is a trigger point when staff needs to return to the Council for further direction.
Commissioner Hall stated that he supports a 0.15 cents/kWh which appears to be an adequate
cap rather than a total dollar cap. In addition, he doesn't support a price cap on RECs as th at
limits staff and removes flexibility.
Commissioner Eglash said that the concern raised in the memo is that we could look foolish by
some ratepayers, particularly those who are cost sensitive. He doesn't want to spend any
amount of money to get the last little bit of carbon neutrality when that additional cost could
be extreme.
Vice Chair Foster stated that he supports a trigger point to ensure that costs are not exceeded,
but not necessarily a lower cost cap.
Commissioner Melton stated that he supports a trigger point.
Chair Cook said that the point of the memo was to ensure that the UAC has done its job and
clearly thought through the costs to make sure that the costs are reasonable.
Vice Chair Foster was concerned that any action will show that th e UAC supports carbon
neutrality, but doesn't want to pay much at all for it. He would rather not take a new formal
action, but rely on staff to less formally provide an early heads up to the UAC and Council if
costs are higher than anticipated.
Commissioner Melton asked if staff could come back to the UAC with an update of the cost to
get to carbon neutral based on better information about hydroelectric conditions. He asked a
cost trigger could be put in place which if met would prompt staff to come back to the UAC to
discuss whether or not it made sense to pursue carbon neutrality for that year. The cost trigger
would be less than the cap approved by Council, so that staff would not have to return to
Council if the decision was to move forward with carb on neutrality.
Director Fong asked Senior Resource Planner Monica Padilla to discuss how a cost trigger would
be used by staff. Padilla stated that RECs will be purchased after the fact when hydro
conditions are known and we'll have a better idea of REC costs and that staff could return to
the UAC with updated costs before purchasing RECs.
ACTION:
Commissioner Eglash made a motion to recommend that Council direct staff that, if cost is
higher than 0.15 cents/kWh, staff should come back to the UAC for additional discussion. He
explained that it could be left to staff's discretion to inform the UAC regarding a significant
increase in the cost of RECs.
Commissioner Hall made a substitute motion to revise the cap to 0.15 cents/kWh, instead of
0.25 cents/kWh. Commissioner Eglash seconded the substitute motion. Commissioner Hall
explained that it's more straightforward to have a cap, rather than a trigger point to return for
discussions. If it looks like the cap will be exceeded, staff could return and req uest additional
spending authority.
Vice Chair Foster stated that he supports a request for discussion, rather than a lowering of the
cap. But, if a lower cap is proposed, then he would support a cap of 0.2 cents/kWh, not 0.15
cents/kWh.
Commissioner Eglash stated that Council supported carbon neutral by 2015, but the additional
costs to move it up to 2013 were high and a cap will reduce the cost of moving up the date of
implementation.
Vice Chair Foster proposed an amendment to the substitute motion to revise the cap to 0.2
cents/kWh. The amendment died for lack of second.
The substitute motion to recommend that Council achieve carbon neutrality for the electric
supply portfolio within a cost cap of 0.15 cents/kWh passed (4-2) with Foster and Melton
opposed and Waldfogel absent.