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HomeMy WebLinkAboutStaff Report 4508 City of Palo Alto (ID # 4508) Finance Committee Staff Report Report Type: Action Items Meeting Date: 3/18/2014 City of Palo Alto Page 1 Council Priority: Environmental Sustainability Summary Title: Refunding of PaloAltoGreen Accumulated Revenues Title: Utilities Advisory Commission Recommendation that the City Council Adopt a Resolution Refunding the Accumulated Net Revenues from the Suspended Full Needs Portion of the PaloAltoGreen Program to Program Participants From: City Manager Lead Department: Utilities Recommendation Staff and the Utilities Advisory Commission (UAC) recommend that the Finance Committee recommend that the City Council adopt a resolution refunding accumulated net revenues from the suspended Full Needs portion of the City’s PaloAltoGreen program to Full Needs program participants Executive Summary The PaloAltoGreen (PAG) program was launched on Earth Day in 2003 and h as won many awards for having the most participants in a voluntary green program in the country. The program allowed customers to eliminate greenhouse gas (GHG) emissions associated with their use of electricity by paying a small per unit “adder” that was used to purchase Renewable Energy Certificates (RECs) so that their electric use would be supplied with 100% renewable energy. In 2013, ten years after the program launched, the City’s regular electric supply portfolio became 100% renewable and 100% carbon neutral, so Council suspended the Full Needs portion of the program in September 2013; however, the Commercial Customer Block portion of the program continues. When the program was launched, and until participation increased, the total costs of the program exceeded revenues. Over time, program expenses decreased as the cost for RECs fell, and the program began accumulating revenues in 2011. In 2013, when the residential and City of Palo Alto Page 2 small commercial (Full Needs) portion of the PAG program was suspended, the accumulated net revenues amounted to $425,000. Staff proposes that these funds be returned to Full Needs program participants in the form of a utility bill credit. Background City electric customers could participate in the PaloAltoGreen Program in two ways. The “Full Needs” option allowed residential and small commercial customers to receive renewable energy equivalent to 100 percent of their needs in exchange for paying an additional 1.5 cents per kilowatt hour (“kWh”) assessed on their full electric us age. The “Commercial Customer Block” option allowed commercial customers to receive renewable energy in blocks of 1,000 kWh in exchange for an additional $15 cents per 1,000 kWh. The PaloAlto Green Program procured local renewable energy and renewable energy certificates (“RECs”) in proportion to the participating customers’ choices In September 2013, Council suspended the Full Needs portion of the voluntary PAG program (Staff Report #4041, Resolution #9372), because the electric supply portfolio became 100% carbon neutral in 2013. At the same time, Council directed staff to develop a PaloAlto Green Gas (PAG Gas) Program to provide an opportunity for participants to reduce or eliminate GHG emissions related to their natural gas usage. Staff has proposed a PAG Gas program, which was unanimously supported by the Finance Committee at its March 4, 2014 meeting. The proposed PAG Gas program also received unanimous support from the UAC. Whether a new PAG electric program will also be developed is still under consideration. For the first eight years of the PAG program, the costs of RECs and PAG program marketing were nearly equal to the revenues received from PAG participants. Due to lower than projected REC costs, cumulative revenues for both the Full Needs and the Commercial Customer Block portions of PAG have exceeded overall program costs through 2013 by about $692,000. The cumulative net revenue associated with the Full Needs portion of PAG is $425,000. Table 1 below depicts the history of revenues and expenses (including staff costs) for the PAG program. City of Palo Alto Page 3 Table 1: PaloAltoGreen Revenue and Expense History (for Both Full Needs and Commercial Block Portions of the Program) Calendar Year Revenue Collected Total Expenses Net Revenue Cumulative Net Revenue 2003 $61,006 $299,995 -$238,989 -$238,989 2004 $310,959 $489,747 -$178,788 -$417,778 2005 $458,445 $478,776 -$20,331 -$438,108 2006 $567,534 $510,418 $57,116 -$380,993 2007 $679,438 $685,947 -$6,509 -$387,502 2008 $836,263 $709,573 $126,690 -$260,812 2009 $1,003,707 $922,828 $80,879 -$179,933 2010 $1,066,259 $1,036,130 $30,129 -$149,804 2011 $1,132,337 $903,925 $228,412 $78,608 2012 $1,064,595 $513,719 $550,876 $629,484 2013 $697,300 $635,033 $62,267 $691,751 As part of the PAG program redesign effort, Council directed staff to return with a recommendation on what to do with any excess PAG program funds (Staff Report #3333) by March 2014. This report addresses that recommendation. Discussion Staff reviewed several alternatives for the disposition of the $425,000 of accumulated revenue associated with the Full Needs part of the PAG program, including:  Return funds to participants via a rebate or bill credit;  Return funds to all electric ratepayers (i.e. use the funds to offset electric costs to benefit all ratepayers, not just PAG program participants);  Allow funds to be used to offset costs associated with the Commercial Customer Block portion of PAG program; and  Use funds as seed money to further local solar and/or other environmental initiatives. In April 2003 when Council first established PAG (CMR: 230:03), the program was described as a program that “will apply to customers who voluntarily choose to participate in buying their electricity with 100% renewable energy content.” This focus on offering a 100% renewable green energy option for participating customers’ own electricity use remained consistent throughout the program’s life, with the renewable energy purchased on behalf of program participants in the form of RECs. In order to honor the terms of the City’s original program offering, the City Attorney’s Office has advised that accumulated program revenues should be refunded to program participants in accordance with the program’s stated purpose and goals. While many participants may vigorously support using the funds for other e nvironmentally City of Palo Alto Page 4 beneficial projects, such as seed money for installing solar systems on schools, that decision is outside the scope of the program’s stated purpose. Staff estimates that the average bill credit for PAG participants will be about $65. Sta ff has worked out the details of how the funds can be returned to program participants with the least amount of administrative cost possible. Staff recommends returning the funds in the form of a Utilities bill credit to program participants according to the following guidelines: 1. Return the funds to current and former PAG participants who are still City of Palo Alto Utilities’ customers at the time the bill credit is effected; and 2. Return the funds pro rata according to the amount funds paid into the program, to current and former PAG participants during the period of January 2011, when the program first had positive accumulated net revenue, to September 2013, when Council suspended the Full Needs portion of the program. Committee Review and Recommendation The UAC reviewed the staff recommendation at its February 12, 2014 meeting. At the meeting, staff stated that it investigated how it could provide participants the choice of whether they wanted to receive a bill refund, or for they wanted their share to be used for another purpose such as for local solar installations. However, providing that option would require an inordinate amount of staff resources to log in the preference of each of the over 6,000 participants. Two UAC commissioners expressed support for the idea of offering participants the choice, but understood that the cost would be too high. One commissioner argued that he did not want staff time to be used for the purpose of finding individual participant’s preferences. The UAC supported staff’s recommendation unanimously (5-0 with Commissioners Chang and Waldfogel absent). The draft notes from the UAC’s February 12, 2014 meeting are provided as Attachment B. Next Steps If Council approves the recommendation to refund the accumulated PAG net revenues in April, the bill credit will appear on eligible customer bills by July 2014 . Resource Impacts The $425,000 that is proposed to be returned to the PAG Full Needs program participants will be funded from the Electric Supply Rate Stabilization Reserve, where the accumulated net City of Palo Alto Page 5 revenues for the program reside. Approval of the proposed disposition of the accumulated PAG net revenues will require existing staff time to implement, but will not require new staff resources. The staff time required to implement the bill credits is estimated to be less than 0.1 FTE. Policy Impacts Approval of the proposed disposition of the accumulated PAG net revenues does not create new City policy and conforms to the obligations and commitments made by the City to participating PAG customers. Environmental Impacts Approval of the proposed disposition of the accumulated PAG net revenues does not meet the California Environmental Quality Act’s (CEQA) definition of “project” under California Public Resources Code Sec. 21065, thus no environmental review is required. Attachments:  Attachment A: Resolution Approving Disposition of Accumulated PaloAltoGreen Revenues (PDF)  Attachment B: Excerpted Draft Minutes of February 12, 2014 UAC meeting (PDF) Attachment A * NOT YET APPROVED * 140210 dm 6052088 1 Resolution No. _________ Resolution of the Council of the City of Palo Alto Approving a Refund of Accumulated Net Revenues from the Suspended Full Needs Portion of the PaloAltoGreen Program to Program Participants R E C I T A L S A. In an effort to provide City of Palo Alto Utilities (“City”) electric customers the option to voluntarily reduce greenhouse gas emissions associated with their electricity use, the City launched the PaloAltoGreen Program in 2003. B. City electric customers could choose to participate in the PaloAltoGreen Program in two ways. The “Full Needs” option allowed residential and small commercial customers to receive renewable energy equivalent to 100 percent of their needs in exchange for paying an additional 1.5 cents per kilowatt hour (“kWh”) assessed on their full electric usage. The “Commercial Customer Block” option allowed non-residential customers to receive renewable energy in blocks of 1,000 kWh in exchange for an additional $15 cents per 1,000 kWh. Staff procured local renewable energy and/or renewable energy certificates (“RECs”) in proportion to the participating customers’ choices. C. In March 2013, the City unanimously approved the Carbon Neutral Plan (Resolution 9322) directing staff to achieve carbon neutrality for the electric portfolio by 2013. As a result of adoption of the Carbon Neutral Plan , PaloAltoGreen participants no longer need to participate in the program to eliminate the greenhouse gas emissions associated with their electric usage. D. For the first eight years of the PaloAltoGreen program, the costs of RECs and PaloAltoGreen program marketing were nearly equal to the revenues received from PaloAltoGreen participants. Due to lower than projected REC costs, cumulative revenues for both the Full Needs and the Commercial Customer Block portions of PaloAltoGreen have exceeded overall program costs through 2013 by about $692,000. Of that, $425,000 is attributed to the Full Needs portion of PaloAltoGreen. These accumulated net revenues reside in the Electric Supply Rate Stabilization Reserve. E. In September 2013, Council, by Resolution #9372, suspended the Full Needs portion of the PaloAltoGreen program and directed staff to return with a recommendation for how to disperse the accumulated net revenues associated with the Full Needs portion of the PaloAltoGreen program. F. On February 12, 2014, the Utilities Advisory Commission unanimously approved (five in favor and two absent) staff’s recommendation to refund the accumulated net revenues associated with the Full Needs portion of the PaloAlto Green program to program participants via a credit to their utilities bill. Attachment A * NOT YET APPROVED * 140210 dm 6052088 2 G. On March 18, the Finance Committee voted _________________________. The Council of the City of Palo Alto does hereby RESOLVE as follows: SECTION 1. The Council hereby adopts the resolution approving a refund of the accumulated net revenues from the suspended Full Needs portion of the PaloAlto Green program to program participants. SECTION 2. The Council finds that the sufficient funds are available in the Electric Supply Rate Stabilization Reserve to fund the refunds and that after withdrawal of those funds to effect the refunds, the Electric Rate Stabilization Reserve balance will be above the minimum guideline level for that reserve. SECTION 3. The Council finds that the adoption of this resolution does not constitute a project under Section 21065 of the California Environmental Quality Act (CEQA) and the CEQA Guidelines, and therefore, no environmental assessment is required. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ___________________________ ___________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ___________________________ ___________________________ Senior Deputy City Attorney City Manager ___________________________ Director of Utilities ___________________________ Director of Administrative Services EXCERPTED DRAFT MINUTES OF THE FEBRUARY 12, 2014 UTILITIES ADVISORY COMMISSION SPECIAL MEETING ITEM 2: ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend that the City Council Approve Refunding the Accumulated Net Revenues from the Suspended full Needs Portion of the PaloAltoGreen Program to Program Participants Assistant Director Jane Ratchye stated that th is is a relatively straight forward item. Upon advice from the City Attorney’s Office, the accumulated net revenues need to be returned to program participants and staff has identified a fair and reasonable way to do that. Ratchye noted that staff looked into the idea of allowing the participants to indicate whether they wanted the funds returned, or if they would like them put towards another purpose. This plan may sound like a good idea and it seems like it should be simple to do. Unfortunately, it is very much more administratively burdensome and would use up some of the accumulated revenues. One idea is to time the refunds with the launch of a new program to encourage participation in the new program. Vice Chair Foster noted that the option to offer a choice for participants as recommended by Walt Hays would be preferred, but that the cost to do that is too high. Chair Cook said that he felt that it is a tantalizing opportunity to use those funds as seed money for a local solar program, but understood that it would be too time consuming and expensive to offer that choice. Commissioner Melton said that he did not want staff to spend any time trying to discern the desires of the PAG participants. Commissioner Eglash noted that the refunds are not a huge amount of money at $65/customer. ACTION: Commissioner Melton made a motion to recommend that the City Council approve refunding the accumulated net revenues associated with the Full Needs portion of the City’s suspended PaloAltoGreen program to program participants. Commissioner Eglash seconded the motion. The motion passed unanimously (5-0) with Commissioners Chang and Waldfogel absent.