Loading...
HomeMy WebLinkAboutStaff Report 7284 City of Palo Alto (ID # 7284) Finance Committee Staff Report Report Type: Action Items Meeting Date: 10/18/2016 City of Palo Alto Page 1 Summary Title: Carbon Neutral Natural Gas Portfolio Plan Title: Utilities Advisory Commission Recommendation that Council Adopt a Resolution Approving a Carbon Neutral Natural Gas Portfolio Plan to Achieve Maximum Carbon Neutrality Using a Combination of Offsets and Biogas in the Gas Supply Portfolio by Fiscal Year 2018 with No Greater than 10¢/Therm Rate Impact; and Related Termination of the Palo Alto Green Gas Program From: City Manager Lead Department: Utilities Recommendation Staff and the Utilities Advisory Commission (UAC) recommend that the Finance Committee recommend Council: 1. Adopt a resolution (Attachment A) that: a. Approves the Carbon Neutral Gas Plan, enabling the City to achieve a carbon-neutral gas supply portfolio starting in fiscal year (FY) 2018 with a rate impact not to exceed ten cents per therm (10 ₵/therm); and b. Terminates the PaloAltoGreen Gas program established by Resolution 9405; and 2. Direct staff to develop an implementation plan for the Carbon Neutral Gas Plan. Executive Summary The proposed Carbon Neutral Gas Plan will achieve carbon neutrality for the gas supply portfolio by FY 2018 with a combination of high-quality environmental offsets and physical “biogas” or “biomethane”. The proposed cost cap to implement the plan is 10 ₵/therm. Based on current rates, this equates to about a 10% gas rate increase. For the median residential customer usage, the additional cost of a 10 ₵/therm gas rate increase is about $43 per year. The PaloAltoGreen Gas (PAG Gas) program was launched in December 2014. PAG Gas is a voluntary program providing customers with the option to negate the impact of greenhouse gas (GHG) emissions associated with their natural gas usage by purchasing environmental offsets. Implementation of a carbon-neutral gas portfolio renders the voluntary program redundant, therefore, termination of PAG Gas is recommended when implementing the Carbon Neutral Gas Plan. City of Palo Alto Page 2 The UAC reviewed the proposed Carbon Neutral Gas Plan on August 31, 2016 and voted to recommend that Council approve the proposed plan. Background City’s GHG Emissions from Natural Gas Table 1 below, based on data from the 2016 Earth Day report (Staff Report 6754), shows the estimate for City and community GHG emissions for 1990, 2005, 2012, and 2015. Table 1 Palo Alto Community and City Greenhouse Gas Emissions (in 000’s of Metric Tons of CO2e) Emissions Category 1990 2005 2012 2015 Natural Gas Use 194 166 160 135 Electricity Use 186 160 75 0 Mobile Combustion * 332 372 320 330 Other ** 68 54 36 36 Total 780 752 591 501 * Consultant estimate based on population, employment, vehicle miles travelled and vehicular emission profiles ** Includes landfill, refuse and Regional Water Quality Control Plant emissions As shown in Table 1, GHG emissions from natural gas use in 2015 were reduced by 4,406 tons due to the PAG Gas program. The bulk of the reduction in emissions associated with natural gas use is associated with reduced natural gas use (from 37.2 million therms in 1990 to 30.1 million therms in 2012 to 25.5 million therms in 2015). Gas Utility Long-term Plan (GULP) and Early Evaluations of Alternative Gas Supplies In November 2009, the UAC reviewed an analysis of physical biogas as a resource for the gas supply portfolio.1 At that time, staff determined that physical biogas cost about 50 ₵/therm more than natural gas, or about $100 per ton of carbon dioxide equivalent (CO2e)2 and would increase a residential customer’s gas bill by 35%. GULP includes a strategy to evaluate a voluntary green gas program and evaluate purchasing non-fossil fuel gas for the gas portfolio. The City Council last approved updates to GULP in April 2012 (Staff Report 2522, Resolution 9244), including GULP Strategy 4: Reduce the carbon intensity of the gas portfolio in accordance with the Climate Protection Plan by: a. Designing and implementing a voluntary retail program using reasonably priced non‐fossil fuel gas resources; and b. Purchasing non‐fossil fuel gas for the portfolio as long as it can be done with no rate impact. 1 http://www.cityofpaloalto.org/civicax/filebank/documents/17514 2 1 ton/2204.16 lbs * 116 lbs CO2e/1 MMBtu CH4 *1 MMBtu/10 therms = .0053 tons/therm City of Palo Alto Page 3 In response to the GULP strategies, in April 2013, staff presented alternatives for a PAG Gas program to the UAC3 including the use of physical biogas for the program, but found that it would cost about $1 per therm more than natural gas based on responses to a request for proposal issued by the Northern California Power Agency. In addition, the long-term contracts required for biogas project developers to secure financing were, and are still, not conducive to the potentially volatile demand associated with a voluntary green gas program. PAG Gas The PAG Gas program was modeled after the highly successful, voluntary PaloAltoGreen (PAG) program, which allowed participants to receive 100% renewable energy and eliminate the GHG emissions associated with their electricity use. Participation rates in PAG were the highest among similar programs throughout the nation earning recognition for the City and creating a sense of community pride around sustainability efforts. In 2012, approximately 20% of CPAU’s customers participated in PAG, representing 8% of the City’s total electric usage. By 2013, the City’s aggressive Renewable Portfolio Standard (RPS) goal combined with its carbon-free hydroelectric resources rendered the electric supply portfolio largely carbon neutral. In March 2013, City Council approved the Carbon Neutral Plan committing CPAU to pursue only carbon neutral electric resources beginning in calendar year 2013 (Staff Report 3550, Resolution 9322). In September 2013, City Council suspended PAG and directed staff to develop a new voluntary PAG Gas program to afford participants the opportunity to eliminate the GHG emissions associated with their natural gas use (Staff Report 4041, Resolution 9372).4 In April 2014, City Council approved the establishment of a voluntary PAG Gas program (Staff Report 4596, Resolution 9405) using high quality offsets to back the program. All offsets purchased to date have been from a livestock methane capture project. The PAG Gas rate is 12₵/therm, which equates to an avoided GHG emissions cost of approximately $22 per ton of CO2e. The PAG Gas program goal is a 20% participation rate by 2020 with a corresponding GHG reduction of 16,000 tons of CO2e per year. The 2020 goal represents a 10% reduction in the City’s total GHG emissions associated with natural gas consumption. The reductions are achieved by purchasing high quality environmental offsets, with a preference for California projects, on behalf of participants in order to reduce or eliminate the impact of GHG emissions associated with each participating customer’s gas usage. All customers can sign up for PAG Gas 3 https://www.cityofpaloalto.org/civicax/filebank/documents/33744 4 In June 2014, since the PAG (electric) program is redundant with the Carbon Neutral Plan, Council eliminated the PAG program for residential customers (Staff Report 4718, Resolution 9422). At the same time, Council also reactivated the program for commercial customers since some customers (including City facilities) desire to participate in a voluntary green electric program to achieve environmental recognition and certifications in line with their own corporate sustainability goals including participation in the U.S. Green Building Council Leadership in Energy and Environmental Design (USGBC LEED) Program and the U.S. EPA Green Power Partnership Program. City of Palo Alto Page 4 for their entire gas usage; commercial customers also have the option of participating in the program for part of their natural gas usage. Since the program launch in December 2014, roughly 4% of the City’s residential natural gas customers have participated in PAG Gas accounting for approximately 3,200 tons of GHG emissions per year. City facilities began participating in PAG Gas in July 2015 and account for GHG emissions reductions of approximately 6,000 tons per year. For a typical residential customer participating in PAG Gas, the cost is approximately $5 per month for an average use of 42 therms per month. After the June 1, 2016 UAC meeting, staff began to evaluate carbon neutral gas supply options and suspended active marketing of the program, resulting in decreased participation in the program. Figure 1 below shows the trajectory of PAG Gas participation for January 2015 through July 2016. Figure 1: PAG Gas Program Participation Figure 2 below shows the number of PAG Gas participants by customer type. Figure 3 shows the percentage of total gas usage by customer type. As shown, the vast majority of participants are residential customers—as was the case with the PAG (electric) program. The bulk of the City of Palo Alto Page 5 participation in terms of gas usage is for City facilities. Very few commercial customers have participated in the program to date. Approximately 4.1% of the City’s residential natural gas customers have signed up for PAG Gas as of the end of June 2016. In July 2015 all City facilities began participating in the program for 100% of their gas usage. Figure 2: Number of Customers Participating in PAG Gas City of Palo Alto Page 6 Figure 3: Percentage of the City’s Total Gas Load Participating in PAG Gas Utilities Advisory Commission Discussions At its October 7, 2015 meeting the UAC heard public comment on, and discussed the merits and drawbacks of, an opt-in versus an opt-out structure for the voluntary PAG Gas program. The minutes from that meeting are provided as Attachment B. At its June 1, 2016, meeting the UAC was presented with an overview and high-level analysis of several options for reducing the carbon impact of natural gas use in the City including converting the voluntary program to an opt-out model (meaning all customers would be automatically enrolled in the program, but could voluntarily leave the program at any time) and adopting a carbon neutral portfolio for all customers using either environmental offsets or physical biogas. The four main options discussed by the UAC at its June 1, 2016 meeting are summarized in Table 2 below. Table 2: Alternatives for Gas Portfolio GHG Reduction Pros Cons Opt-in Program  Consistent with CPAU’s past practices of providing program and service options for those who want them.  Allows participants to feel proud that they are doing more to help the environment  Requires significant and continuing outreach effort to maximize participation—and minimize administrative costs—by capturing all customers who would participate in the program if they knew about and understood it City of Palo Alto Page 7 Pros Cons Opt-out Program  Much greater reductions in GHG emissions associated with natural gas usage could be achieved sooner and at a lower cost  After start up, easy and low cost to administer  Risk of harming CPAU’s reputation as the program can be viewed by customers as “slamming” or even taking advantage of customers who are not paying attention even after being notified of right to opt- out  Requires ongoing outreach to notify customers of their ability to opt-out at any time  Requires development of detailed program rules and processes to allow for opting out/in, securing refunds and identifying potential sources of funds for such refunds. Gas Portfolio Backed by Offsets  Maximum reductions in GHG emissions associated with natural gas usage  Minimal administrative costs  No need for complicated program terms and conditions  Could be perceived as an overreaching mandate  Small rate increase for all customers  Cost varies with the cost of environmental offsets Gas Portfolio Backed by Green Gas  Maximum reductions in GHG emissions associated with natural gas usage if for 100% of the gas portfolio  Minimal administrative costs  No need for complicated program terms and conditions  Could be perceived as overreaching  Large rate increase for all customers, especially if for 100% of the gas portfolio  Cost varies with the cost of green gas Opt-In versus Opt-Out Alternative Staff provided further analysis for the June 1, 2016 UAC discussion comparing opt-in and opt- out designs including the cost comparison between the two approaches as shown in Table 3. City of Palo Alto Page 8 Table 3: Opt-in versus Opt-out Program Cost Estimates Opt-in Program Opt-out Program Units Current Post- 2020 First Year Subsequent Years Participation % of gas usage 6% 10% 90% 80% GHG emissions reduced tons1 9,000 15,000 135,000 120,000 Offset Cost $/ton2 9.25 9.25 9.25 9.25 ₵/therm 4.4 4.4 4.4 4.4 Administrative cost $/year $/ton $120,000 13.16 $85,000 5.66 $400,0003 2.96 $40,000 0.33 ₵/therm 7.0 3.0 1.6 0.5 Total Cost Retail Rate $/ton 22.46 14.91 12.21 9.58 ₵/therm 12 8 6 5 Residential Bill Impact4 $/month 4.32 2.88 2.16 1.80 Notes: 1. GHG emissions based on projected gas usage of 28.5 million therms per year (150K tons CO2e) 2. Offset costs will adjust with market conditions 3. Communication activities and billing system changes 4. Median residential customer gas use: 54 therms in winter month and 18 therms in summer A comparison of anticipated customer reactions to the two approaches was also presented and is shown in Table 4. Table 4: Anticipated Customer Reactions to Opt-in and Opt-out Programs Customer Opt-In Program Opt-Out Program Active Supporter Participates in PAG Gas Supports, would not opt out Passive Supporter Intend to opt in, but have not prioritized signing up Supports, would not opt out Unaware Supporter Would opt-in, but have not heard about it Would not opt out Ambivalent Don’t pay attention, or care either way Unlikely to opt out Unaware Opponent Would not opt in Prefers to opt out, but not paying attention to the City’s messaging or the resulting changes to their utility bills Passive Opponent Would not opt in Doesn’t support the program, but unlikely to prioritize opting out Aware Opponent Would not opt in Really don’t want to participate but feel guilty or embarrassed about opting out, especially if the program is characterized as being environmentally friendly Active Opponent Would not opt in Would opt-out of the program City of Palo Alto Page 9 UAC Action on June 1, 2016 On June 1, 2016, the UAC discussed the alternatives to continuing PAG Gas as a voluntary opt-in program and generally agreed that the current opt-in model was the least desired option. The UAC discussed the incremental cost of biogas and the availability of environmental offsets and said that, if the long-term goal was to have a carbon neutral gas portfolio, it would not be advisable to first convert the program to an opt-out program and then move to a carbon neutral portfolio since it would look like there was an opt-out option, but then that option would be taken away. One suggestion was to start with a portfolio that is not 100% carbon neutral and transition to 100% carbon neutral over time. Another suggestion was to start with offsets first and move to add more biogas over time. However, at the June 1, 2016 meeting, the UAC was not presented detailed costs for the different alternatives. One commissioner expressed support for converting to an opt-out program and advised against introducing a new program that costs more when gas rates are increasing as shown in the long- term Gas Financial Plan. At its June 1, 2016 meeting, the UAC voted 6-1 (with Chair Cook, Vice Chair Danaher, and Commissioners Ballantine, Forssell, Johnston and Trumbull voting yes and Commissioner Schwartz opposed) to recommend that Council adopt a carbon neutral gas portfolio and direct staff to develop an implementation plan. The minutes from the UAC’s June 2016 meeting are provided as Attachment C. Discussion To design and implement a carbon-neutral gas portfolio plan, several inter-related variables must be considered, including: 1. Rate impact. 2. Supply source (environmental offsets or biogas). 3. Timeframe over which carbon neutrality is achieved 4. Percentage of the portfolio to be made carbon-neutral. With respect to each of the variables above, staff makes the following recommendations: 1. Rate impact: No greater than 10¢/therm annually 2. Supply source: Combination of environmental offsets and biogas, with exact mix designed to maximize carbon neutrality within established rate impact limit. Staff estimates approximate ratio of offsets (95%) to biogas (5%) at the outset of the program. 3. Timeframe over which carbon neutrality is achieved: By FY 2018 4. Percentage of portfolio made carbon neutral: 100% City of Palo Alto Page 10 Rate Impact Staff recommends that Council make a clear determination of acceptable rate impact for a carbon-neutral gas portfolio. Council took such a step with respect to Carbon Neutral Plan for electricity where rate impacts, for a variety of reasons, were expected to be less significant than those potential impacts from a carbon free gas portfolio. The rate impact of achieving carbon neutrality for the electric portfolio is quite small (on the order of 1-2%) because the incremental cost to get to carbon-neutrality is diminished by the significant RPS requirement and the fact that carbon-free hydroelectric supplies provide about half of the City’s energy requirements in a normal year. The rate cap for the carbon neutral electric portfolio established by Council is 0.15 cents per kWh (Staff Report 3550, Resolution 9322). By contrast, the costs associated with a carbon neutral gas supply and associated rate impacts are not likely to be as low. The gas portfolio is currently supplied 100% by a fossil fuel source, whereas the electric supply portfolio includes a large fraction of carbon-free hydroelectric supplies and is subject to the State requirement for renewable supplies to meet a minimum of 33% (now 50% by 2030) of the City’s needs. A rate impact of 10 ₵/therm is equal to approximately a 10% rate increase based on current gas rates and assuming a commodity rate, which fluctuates monthly with market prices, of 30 ₵/therm. Supply Source Offsets as Supply Source Using environmental offsets to neutralize the GHG emissions of the gas portfolio is significantly less expensive than buying biogas. If environmental offsets were purchased today for 100% of the City’s gas usage, all customers would experience a rate increase of approximately 4%. A residential customer’s winter bill would increase by about $2 per month (about $0.75 in the summer). A range of potential offset costs were analyzed and are presented in Figure 4 below. The current cost of offsets is about $8 per ton of CO2e, which is equivalent to 4 ₵/therm. City of Palo Alto Page 11 Figure 4: Rate and Bill Impact of Using 100% Offsets to Achieve Carbon-Neutrality Biogas as a Supply Source Alternatively, the City’s gas needs could be met with renewable physical biogas, a much more expensive option. Biogas is a product of organic conversion (from cow manure at a dairy farm or from a landfill, for example). Most biogas produced in the United States is used as either a transportation fuel or to generate electricity. Biogas is most valuable as a transportation fuel due to the Federal Renewable Fuel Standard program and the state regulations like California’s Low Carbon Fuel Standard (LCFS) and Renewable Portfolio Standard (RPS). Biogas converted to electricity may be used to meet California’s RPS compliance obligations for electric utilities. State regulation and pipeline interconnection costs have largely kept biomethane projects out of California, but out- of-state supply sources are available. The short-term price for biogas is in the $2-$3 per therm range due to the transportation fuel- driven demand mentioned above. For a longer-term fixed-price commitment (5-7 years), prices are discounted to around $1.50 per therm. Two things eliminated the consideration of biogas for the City’s voluntary PAG Gas program: (1) the cost and the incompatibility between a voluntary program with uncertain demand; and (2) the biogas project developers’ need long- term commitments. While cost is still an issue, if it decided to pursue a carbon-neutral portfolio for the long term, the City would be in a position to make a long-term commitment for biogas. At a biogas price of $1.50/therm (or $1.20/therm over the projected $0.30/therm cost for natural gas), supplying 100% of the portfolio with biogas results in about a 120% rate increase City of Palo Alto Page 12 or about $65 more per month on an average residential customer’s monthly winter bill (or about $22 per month more in the summer when average residential use is 18 therms/month). Figure 5 shows both the rate and bill impacts at various biogas prices. Figure 5: Rate and Bill Impact of Using 100% Biogas to Achieve Carbon-Neutrality The two supply sources, environmental offsets and biogas, could be combined to achieve carbon-neutrality. However, even a ratio of 5% biogas and 95% environmental offsets results in a rate impact greater than 10%. Figure 6 shows the rate and bill impacts for different percentages of the two supply resources using biogas costing $1.50/therm and environmental offsets costing $8 per ton. City of Palo Alto Page 13 Figure 6: Rate and Bill Impact of Using a Combination of Biogas and Offsets to Achieve Carbon-Neutrality (Assumes $1.5/therm Biogas & $8/ton Offsets) Carbon Neutrality: Portfolio Percentage & Timeframe Two other variables may be adjusted when designing a carbon neutral plan. To reduce the cost impact of buying green gas for the gas portfolio and the GHG emissions reductions only a portion of the portfolio could be made carbon neutral. Alternately, or in addition, a green gas portfolio standard could increase over time (e.g. start at 10% in FY 2018 increasing to 100% by FY 2021). Figure 7 shows the rate and bill impacts of various biogas to offset ratios if less than 100% of the portfolio is carbon-neutral. Again, a $1.50/therm biogas price and an $8 per ton environmental offset price are assumed. City of Palo Alto Page 14 Figure 7: Rate and Bill Impact of Using a Combination of Biogas and Offsets to Achieve Partial Carbon-Neutrality (Assumes $1.5/therm Biogas & $8/ton Offsets) Summary of Proposal The proposed plan will use a combination of physical biogas and high-quality environmental offsets to achieve a carbon-neutral gas portfolio by FY 2018. The amount of biogas included in the portfolio will be maximized while causing rates to increase by no more than 10 ₵/therm. Given the 10 ₵/therm rate impact cap and current market prices, approximately 5% of the City’s portfolio can be met with biogas with the remaining 95% neutralized with environmental offsets. If the price of offsets increases, the portfolio may need to comprise up to 100% offsets, or the portfolio may be less than 100% carbon neutral. On the other hand, if the price of offsets decreases, the proportion of biogas will increase. Purchasing biogas for less than 5% of the total portfolio demand may be too small for a transaction. In that case, the portfolio will be comprised of 100% offsets, and the rate impact with be significantly less than 10 ₵/therm. Cost-effectiveness of a Carbon-neutral Gas Portfolio Compared to Electrification In May 2015, the UAC reviewed a cost effectiveness study for abating GHG emissions by electrifying building appliances and passenger vehicles. The report was provided to Council in August 2015 (Staff Report 5971). Figure 8 shows the societal costs of carbon from that study compared to the carbon cost of environmental offsets and biogas. The estimated cost of $1.50/therm for biogas, or an incremental cost of $1.20/therm relative to brown gas, results in an incremental cost of carbon of $226 per ton of CO2e. Environmental offsets are assumed to cost $8/ton of CO2e. City of Palo Alto Page 15 Figure 8: Incremental Societal Abatement Cost As shown in Figure 8, environmental offsets are a much less expensive way to achieve carbon reductions compared to most electrification options5. Biogas, however, results in higher abatement costs than converting from natural gas-fired water and space heaters to electric heat pump water and space heaters and converting from a gas stovetop to an electric stovetop. Proposed Biogas and Offset Criteria for Carbon-neutral Gas Supply Offset Criteria – Same as Approved for PAG Gas For the PAG Gas program, Council approved the use of high-quality environmental offsets from protocols approved by the California Air Resources Board. The approved protocols currently include forestry, livestock, landfill, coal mine methane, urban forestry, ozone depleting substance and rice cultivation projects. Offsets used for PAG Gas do not need to be certified by CARB as it is an extra expense and only necessary if offsets are to be used for a regulatory compliance obligation. Staff proposes to apply the same standards to offsets used for the Carbon Neutral Gas Plan including a preference for California and local projects (Staff Report 4596, Resolution 9405). Biogas Criteria – “Displacement” Concept Allowed Biogas is generated from an organic source such a waste from a dairy farm, other agricultural waste or from a landfill. Very little biogas is produced in California, but the Environmental Protection Agency’s (EPA) Renewable Fuel Standard Program is driving the development of projects in other states. The EPA recognizes two things: (1) molecules of biogas go into the pipeline and rarely end up being burned by the purchaser of that gas and (2) gas transportation 5 The study concluded that (after federal and state incentives) it is cheaper to own and operate a compact electric car (Nissan Leaf) than a similarly sized gasoline vehicle (Honda Civic) resulting in a negative incremental abatement cost. City of Palo Alto Page 16 can add significant costs if a biogas purchaser is forced to move gas long distances. The EPA, therefore, allows for “displacement” whereby biogas is purchased at a point near the project site and the environmental attributes of that gas are attached to brown gas delivered at a different location. California’s RPS program, on the other hand, requires entities to contract for gas transportation from the biogas source to the end use, adding significant cost to the gas. Because the City is seeking ways to reduce its GHG emissions and is not using offsets or biogas to meet a compliance obligation, the City has latitude to establish its own criteria for biogas use and eligibility under the City’s carbon-neutral gas supply program. Staff recommends utilization of the EPA’s approach, which allows for displacement of biogas in one location for brown gas in another location under the City’s carbon-neutral gas program. Alternatives There are many alternatives to the proposed program, which can be described by varying the key determinants. The following examples are ways in which the plan can be modified. 1. Rate impact: A rate impact higher than 10 ₵/therm would result in more biogas versus offsets being part of the portfolio. If the rate impact limit was reduced, the portfolio may not be able to be 100% carbon neutral. As another alternative, the rate impact could increase over time—for example, starting out at 5 ₵/therm and increasing to 10 ₵/therm in five years. 2. Supply: The proposed plan includes a combination of biogas and offsets such that the amount of biogas is maximized while limiting the rate impact to a set amount (10 ₵/therm). Instead of a rate impact measure, the program could be developed with a prescribed ratio of biogas to offsets. In this case, the rate impact would depend on the cost of the offsets and the biogas and could change year to year. 3. Carbon-neutral coverage of the portfolio: The proposed plan uses the full 10 ₵/therm to get up to 100% carbon neutrality with the expectation that most (95%) of the supply will be environmental offsets with the balance being biogas. However, the goal could be less than 100% carbon neutral supplies—for example, the goal could be to achieve 50% carbon neutral supplies while under the 10 ₵/therm rate impact, which would allow for purchases of biogas for about 8% of the gas needs and offsets for about 43% of the gas needs given current prices for offsets and biogas supplies. 4. Timing: The most aggressive implementation schedule, by FY 2018, is recommended. Carbon-neutrality could be staged over any number of years with changing rate impact or changing proportion of offsets to biogas. These program attributes could be combined in any number of ways to develop a program as shown in Table 5 below. City of Palo Alto Page 17 Table 5: Proposed Carbon Neutral Gas Plan and Alternatives Rate Impact Limit (₵/therm) Expected Supply 1,2 Carbon Neutral Portfolio Offsets Biogas Proposed Program 10 95% 5% 100% Lower Rate Impact 5 100% 0% 100% Higher Rate Impact 15 90% 10% 100% No Offsets 5 0% 4% 4% 10 0% 8% 8% 15 0% 13% 13% 25% Carbon Neutral Portfolio 5 21.5% 3.5% 25% 10 17.5% 7.5% 15 13% 12% 50% Carbon Neutral Portfolio 5 47.5% 2.5% 50% 10 43.25% 6.75% 15 39% 11% 75% Carbon Neutral Portfolio 5 73.5% 1.5% 75% 10 69% 6% 15 65% 10% Notes: 1 Assumes current prices for environmental offsets and biogas 2 Biogas volumes of less than 5% of the portfolio are likely too small to transact Commission Review and Recommendation Staff presented the proposed Carbon Neutral Gas Plan to the UAC at its August 31, 2016 meeting. Commissioners asked if the gas that would be neutralized by buying offsets or replaced with biogas accounts for all the gas the City uses in addition to whatever is leaked from source to transportation to the distribution system. Staff explained that the gas needs were determined by what the City buys at the Citygate and it includes any gas leaked in the City’s gas distribution system, but not any leaks in the gas transportation system or at the gas source. The greenhouse gas emission calculation is based on accounting for the gas at the Citygate as if it was 100% burned and not leaked as methane. Commissioners generally indicated they liked the flexibility of the proposed program since it provides for a higher amount of biogas as the cost comes down and it supports the development of a biogas marketplace. Commissioners also discussed whether carbon neutral gas would dampen the enthusiasm for electrification and asked if carbon neutral electricity has dampened the penetration of rooftop solar. After discussion and hearing public comment, the UAC voted to recommend Council approve the plan (6-1 with Chair Cook, Vice Chair Danaher, and Commissioners Ballantine, Forssell, Johnston, and voting yes and Commissioner Schwartz voting no). The minutes from the UAC’s August 31, 2016 meeting are provided as Attachment D. City of Palo Alto Page 18 Resource Impact Implementation of a carbon-neutral gas portfolio will increase retail rates (and revenues) and the gas commodity budget. The recommendation is to cap the rate impact at 10 ₵/therm. At that level, commodity costs will increase by about $3 million, from $9 million to $12 million, per year. The retail rate revenue will likewise increase by $3 million. If the program is approved, the increased cost and revenues will be reflected in the FY 2018 budget request. A rate increase of 10 ₵/therm will increase rates by approximately 10%. For the median residential customer using 18 therms per month in the summer and 54 therms per month in the winter, the bill impact will be $1.80/month in the summer and $5.40/month in the winter, or about $43 per year. Policy Implications The Council-approved Utilities Strategic Plan includes an objective to offer programs to meet the needs of customers and the community. Strategy 4 in the Council-approved GULP states: Reduce the carbon intensity of the gas portfolio in accordance with the Climate Protection Plan by: a. Designing and implementing a voluntary retail program using reasonably priced non‐fossil fuel gas resources; and b. Purchasing non‐fossil fuel gas for the portfolio as long as it can be done with no rate impact. Implementation of a carbon-neutral gas portfolio represents a departure from GULP Strategy 4 because the voluntary program will be eliminated and there will be a rate impact resulting from non-fossil fuel gas resources being purchased for the portfolio. GULP will need to be revised accordingly should Council approve a carbon-neutral gas portfolio. A carbon-neutral gas portfolio would, however, be an important part of meeting Council’s aggressive goal to reduce the City’s GHG emissions by 80% by 2030. Next Steps Several tasks must be completed before implementing the proposed Carbon Neutral Gas Plan. For example, existing gas purchasing agreements may be used to procure biogas with details about the biogas added to the transaction confirmations. Environmental offsets for the current PAG Gas program are included in the City’s agreement with the program administrator, so new contracts may need to be developed to purchase offsets for the carbon-neutral portfolio. If the Carbon Neutral Gas Plan is approved by Council, staff will execute enabling agreements with qualified counterparties for purchasing environmental offsets. City of Palo Alto Page 19 In addition, new rate schedules will be developed and brought to the UAC and Finance Committee for recommendations and to the Council for approval. Staff anticipates that this can be achieved such that the gas portfolio can be implemented in FY 2018. Because implementation of a carbon-neutral gas portfolio represents a departure from the Council-approved GULP strategies, GULP will need to be revised before the program is put into place. Cancelling PAG Gas will require communication with the customers, repeal of the rate schedule via resolution, and removal of the charge on participating customers’ bills by the carbon-neutral implementation date. Environmental Review The Council’s adoption of a resolution implementing a carbon-neutral gas portfolio and terminating the PaloAltoGreen Gas Program does not meet the definition of a project, pursuant to section 21065 of the California Environmental Quality Act (CEQA). Offset and biogas project developers will be responsible for performing necessary environmental reviews and acquiring permits as offset and biogas projects are developed. Attachments:  Attachment A: Resolution Approving Carbon Neutral Gas Portfolio (PDF)  Attachment B: Excerpted Final Minutes of October 7, 2015 UAC Meeting (PDF)  Attachment C: Excerpted Final Minutes of June 1, 2016 UAC Meeting (PDF)  Attachment D: Excerpted Draft Minutes of August 31, 2016 UAC Special Meeting (PDF) NOT YET APPROVED 160921 jb JM/Staff Reports Resolution No. Resolution of the Council of the City of Palo Alto Approving a Carbon Neutral Natural Gas Portfolio Plan to Achieve Maximum Carbon Neutrality Using a Combination of Offsets and Biogas in the Gas Supply Portfolio by Fiscal Year 2018 with No Greater than 10¢/Therm Rate Impact; and Related Termination of the Palo Alto Green Gas Program R E C I T A L S A. In December 2007, Council adopted the City’s Climate Protection Plan which set aggressive greenhouse gas (GHG) emission reduction goals to be achieved by the year 2020. B. In March 2013, this Council approved Resolution 9322 directing staff to achieve carbon neutrality for the electric supply portfolio by 2013 through the use of a combination of hydroelectric resources, long-term renewable resources and short-term renewable energy resources and/or renewable energy certificates (“RECs”). C. On September 9, 2013, this Council approved Resolution 9372 modifying and suspending portions of the PaloAltoGreen Program, and directing staff to develop a PaloAltoGreen Gas (PAG Gas Program) Program. D. On April 21, 2014, this Council approved Resolution 9405 establishing the voluntary PAG Gas Program to provide the opportunity for residential and commercial customers to economically reduce or eliminate the impact of GHG emissions associated with their gas usage through the purchase of certified environmental offsets. E. In April 2016, this Council adopted a GHG reduction goal of 80% by the year 2030. GHG emissions associated with natural gas use were 135,000 metric tons of carbon dioxide equivalent, or 27% of the City’s GHG emissions, in 2015. F. The Carbon Neutral Gas Plan uses a combination of physical biogas and high-quality environmental offsets to achieve a carbon-neutral gas portfolio by fiscal year 2018 by maximizing the amount of biogas in the portfolio while holding the rate impact to ten cents per therm (10 ₵/therm). G. On August 31, 2016, the Utilities Advisory Commission voted 6-1 to recommend Council approve the proposed Carbon Neutral Gas Plan and terminate the PAG Gas Program. The Council of the City of Palo Alto RESOLVES as follows: SECTION 1. The Council hereby adopts the resolution: Attachment A NOT YET APPROVED 160921 jb JM/Staff Reports 1.Approving a Carbon Neutral Gas Plan, enabling the City to achieve a carbon- neutral gas supply portfolio starting in fiscal year 2018 with a rate impact not to exceed ten cents per therm (10 ₵/therm); and 2.Terminating the PaloAltoGreen Gas program established by Resolution 9405. SECTION 2. The Council’s adoption of this Resolution, which implements a carbon neutral gas portfolio and terminates the Palo Alto Green Gas program does not meet the definition of a project, pursuant to section 21065 of the California Environmental Quality Act (CEQA). Offset and biogas project developers will be responsible for acquiring necessary environmental reviews and permits as those projects are developed. 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 EXCERPTED FINAL MINUTES OF THE OCTOBER 7, 2015 UTILITIES ADVISORY COMMISSION MEETING ITEM 2. DISCUSSION: Conversion of the PaloAltoGreen Gas Program From an Opt-In to an Opt-Out Program Chair Foster noted that this item is on the agenda due to support for the idea expressed from members of the community. Public Comment Sandra Slater commended the commission for keeping sustainability on the agenda. She said that it's time to move the needle now. She noted that research shows that participation will be much higher if the program was converted to an opt-out program. She said that the program could be changed to make the program supportable by all income levels. Converting the program to an opt-out program is something the City could do that would have an immediate, positive impact. Lisa Van Dusen said that the program is not perfect since it is backed by offsets, but we shouldn't let the perfect be the enemy of the good. We could pay even more by purchasing more aggressive offsets. There could be mechanisms to get out of the program during an "amnesty period" and low income customers on the Rate Assistance Program could be retained as opt-in customers. She said that there was so much staff effort for the PaloAltoGreen (electric) program just to achieve 24% participation and that there would be savings from lower marketing and administration costs in an opt-out program. Chair Foster said that the money paid by PaloAltoGreen Gas (PAGG) program participants fund offsets that pay to convert waste into methane that is burned to produce renewable electricity at a dairy farm in Wisconsin and that this wouldn't be done without the revenue from the offsets. Assistant Director Jane Ratchye indicated that this is correct. She said that the offsets that back this program are very high quality as they are selected only from those protocols that have been certified for use in the state’s cap-and-trade auction by the California Air Resources Board. One of the requirements of those protocols is that the offset be “additive”, or from a project that would not have been done without the monetary support from the sale of the offsets. Chair Foster said that he supports an opt-out program and that the additional cost is only $5 to $6 per month for the average resident. Commissioner Ballantine noted that there are ongoing costs to maintain an anaerobic digester. He said that people who opt-in are causing something real to happen. The greenhouse gas emissions reductions from those sources would not otherwise happen without programs like PAGG. Vice Chair Cook noted that the PaloAltoGreen (PAG) Electric program was effectively converted to cover everyone via the carbon neutral program and was a great way to transfer the new goal. He asked why PAGG was not made an opt-out program originally. Vice Chair Cook added that Community Choice Aggregation (CCA) programs were successful because they were opt- out programs. Ratchye replied that the carbon neutral electric supply is not the same as PAG and that it was not developed as a transition from PAG. She noted that PAG purchased Renewable Energy Certificates (RECs) for 100% of a residential customer’s load at a cost of 1.5 cents/kWh, or about 12% more than the normal electric rate. On the other hand, the carbon neutral electric supplies consist of about half carbon-free hydroelectric supplies, renewable supplies that are eligible under the state’s Renewable Portfolio Standard (RPS) and that RECs are purchased for the balance of the needs. It is expected that by the end of 2016, the City’s RPS will be 57% and with hydro supplies (given a normal hydro year), no RECs will be needed for carbon neutral electric supplies. She said that the state’s new goal for an RPS of 50% would result in carbon neutrality anyway at no additional cost in a normal hydro year. However, the increased cost of PAGG for participants is 12 cents per therm, or about 12% more than the normal gas rate of about $1 per therm. She said that the additional cost for PAGG was a consideration for making the program an opt-in program like PAG when the program was originally conceived. In addition, the program was just launched in January 2015 (and has yet to roll out a comprehensive marketing campaign for the program) and staff was hoping to determine the community’s appetite for the program. Ratchye agreed that CCAs are successful opt-out programs, but that they are generally no more costly than the alternative from the local utility so participants are not paying any extra to be “slammed” into a CCA. Vice Chair Cook said that our rates are allowed to go up with the carbon neutral electric supplies and asked what the threshold is for an opt-out versus an opt-in program. Chair Foster replied that the comparison of PAGG to the carbon neutral plan is different—like apples and oranges—since the carbon neutral electric supplies is not an opt-out, or opt-in, program, but is the electric supply for all customers. The percentage increase in cost to electric rate payers by going carbon neutral is small compared to the percentage increase to a customer by paying for participation in PAGG. He said that PAGG should be compared to the PAG electric program. Chair Foster asked if there is any legal reason that City Council could not adopt an opt-out program. Senior Deputy Assistant City Attorney Jessica Mullan said that a legal analysis would have to be completed and the answer may depend on the program design. Commissioner Schwartz asked if the point of the program was to reduce gas use or raise revenue. Chair Foster responded that neither of those options is the point, but that the objective is to reduce greenhouse gas (GHG) emissions associated with customers’ gas use. Commissioner Schwartz said that she agreed that more people will do an opt-out program, but that we need to make sure that participants truly want to participate. We need to provide a very easy way for people to opt-out and not be penalized for any of the months they were enrolled if they don’t want to be. A good outreach campaign could be a good way to increase awareness of the issue and it could have an impact of increasing customers’ awareness. She said that the program could be a bridge for people to become more conscious of using energy and would not just be a way to buy ourselves out of the problem. Commissioner Hall suggested that we not act too hastily, but develop a program like this over time, similar to the carbon neutral portfolio adoption. He said that he suspects that there would be a percentage of consumers that would find out later that they were enrolled in a “voluntary” program and feel cheated. A way forward could be to develop a carbon negative plan and start with a surcharge that would fund a solution to global warming. He said it could be a program that would be broadly advertised to ensure that everyone would be aware of the program. Commissioner Schwartz noted that she had seen an effective “cow power” video, which is an example of how the communication can be done in a playful way that would let people understand that we are in this together, which is a compelling message for many people. She added that it would be a good messaging experiment. Commissioner Eglash thanked the public commenters. He also complimented the UAC for placing the item on the agenda and allowing this discussion to take place. Commissioner Eglash said that when he weighs the advantages and disadvantages of opt-in versus opt-out, he would like to avoid disgruntled customers and any worry about customer satisfaction. The greatest danger of an opt-out plan is potential customer dissatisfaction. We devote a lot of time to customer satisfaction with the utility. He said it is more risky in this respect and as the price becomes significant, the danger becomes worse. He said that, with a full marketing campaign, is it still plausible that people would not be in the program that wouldn't want to be. He added that perhaps a very successful campaign would result in the same participation of an opt-out and an opt-in program. Commissioner Eglash indicated that he is leaning towards maintaining PAGG as an opt-in program. He added that there should be no action on the item at this time since there is no staff analysis, no fiscal analysis or legal analysis completed at this time. The discussion is conceptual at this point; there is no proposed design for an opt-out program. Chair Foster indicated that he disagrees that the participation rates for opt-in versus opt-out will converge with a great marketing campaign. He added that this is a discussion item on the agenda tonight so no action can be done. Commissioner Schwartz said that customer satisfaction depends on transparency. The fact that CPAU cares about being green will show that an opt-out program is consistent with the brand. She added that safeguards to allow folks to opt-out will be consistent with transparency. Commissioner Eglash said that many people in Palo Alto take pride in the City’s environmental efforts. He stated that safety, reliability, and low cost are primary considerations and to impose a greener solution that costs extra money is hazardous and must be done carefully. Commissioner Ballantine noted that offset resources are finite and that pressures from supply and demand will eventually bite us as the price for offsets will increase as demand increases. He added that an opt-out program would require sufficient offsets to be supplied. Commissioner Danaher said that the PAGG program has an environmental benefit, a psychological benefit, and a moral benefit. He said that the best idea is to make the program neither opt-in or opt-out, but our gas supply for everyone. He added that an opt-out program still allows people to opt-out easily since it could be very easy to go to the website and opt out. Commissioner Hall said that we could conduct a poll to see what the customers’ response would be to an opt-out program. He said that we should want to have this information before making a decision. Commissioner Schwartz advised against a poll as it would defeat the purpose of communicating the benefits of an opt-out program. Commissioner Danaher added that the poll would only be answered by the small number of people who read and respond to email. Commissioner Foster said that the program could be designed so that anyone who failed to opt-out early enough could still get their money back. He asked if the UAC could make a motion to recommend that the Council direct staff to develop an opt-out program. Director Fong stated that it can be added to the rolling calendar. Mullan added that the item is agendized as a discussion item and that the Commission can add it as a future item to be agendized under Item 4 on this meeting’s agenda. Vice Chair Cook thanked the public commenters. Commissioner Hall added his appreciation of the input from the public commenters, even if some commissioners disagree. ATTACHMENT C EXCERPTED FINAL MINUTES OF THE JUNE 1, 2016 UTILITIES ADVISORY COMMISSION MEETING ITEM 2. ACTION: Utilities Advisory Commission Discussion on Alternatives to the Existing Voluntary Opt-In PaloAltoGreen Gas Program Including an Opt-Out Mechanism and a Carbon- Neutral Natural Gas Portfolio Senior Resource Planner Karla Dailey summarized the written report. Commissioner Schwartz asked why is was so expensive just to convert from opt-in to opt-out since the rate is not being changed. Dailey explained that changes to the billing system made up the bulk of costs. Dailey pointed out that, after the initial investment, administrative costs drop significantly for the opt-out program. Commissioner Schwartz stated that the cost estimate seemed very high and questioned the advisability of making changes to the billing system, which is planned for replacement. Interim Director Shikada said the timing of an opt-out program should take into account the legacy billing system. Commissioner Trumbull asked about the bill impact. Dailey confirmed the bill impact is only for those customers in the voluntary program. Commissioner Ballantine asked about the customer breakdown. Dailey said 50% is residential, 30% is small commercial and 20% is large commercial. Commissioner Forssell asked about the variability for a typical residential customer. Dailey said some residential customers probably have much higher bills. Dailey described the types of customers with respect to an opt-out program structure: active supporters, passive supporters, unaware supporters, ambivalent customers, unaware opponents, passive opponents, aware opponents and active opponents. Dailey said staff is concerned about the customers who would be opposed to an opt-out structure, but do not opt- out right away for whatever reason leading to resentment and poor customer relations at a later date as well as issues around refunding the PAG Gas fee should a customer demand that. Commissioner Schwartz said that bill impact was so small that it shouldn’t cause harm to most customers and, if it was easy to opt-out, an opt-out program shouldn’t be a problem for anyone. If there were customers that found out later and were mad, the program could be designed to allow for refunding those customers. Dailey said that this is problematic. Commissioner Schwartz said that the risk to consumer attitude seems not to be a large issue. Continuing with the presentation, Dailey said that another option is to convert all, or a portion of, the natural gas portfolio to carbon neutral supplies. Commissioner Johnston asked if there would be any mechanical issues with running biogas through the pipeline. Dailey said that there would be no problem since biogas must meet the pipeline quality standards. Commissioner Ballantine added that the quality requirements depend on whether the gas is used for generation directly, or put in the pipeline—and the biogas can be mixed with natural gas to meet the pipeline quality standards. Chair Cook asked how the $1/therm incremental cost of biogas compared to the cost of natural gas. Dailey said that the current commodity cost of natural gas is about 20 cents per therm. Commissioner Johnston asked if there were limits to the number of offsets available. Dailey said that there would be sufficient offsets for our portfolio. Chair Cook asked staff to describe the offsets. Dailey said that the protocols for the offsets are all California Air Resources Board approved although the offsets themselves are not CARB certified. She explained the extra CARB certification would be needed for offsets used for compliance purposes rather than a voluntary program. Public Comments Sandra Slater stated that she and Lisa Van Dusen have prepared a letter with comments on the issue. She said that she supports the opt-out program, but her favorite is to have the gas portfolio carbon neutral. She said that climate change is a huge problem and time is getting short. She said that offset purchases can be a bridge in a plan to purchase biogas. She said that the success of the PaloAltoGreen program proves that there is large support for such a program. She also referenced the 80% GHG reduction goal by 2030 Council directive. She advised that we need to wean ourselves off of fossil fuels and move to electrification. She said there will be a few people, maybe as many as a hundred, who will be opposed, but a small number of people should not dictate the direction of the utility. She said that it would be nice to have local offsets, but supporting methane capture projects outside of Palo Alto is valuable since we have a global problem. Lisa Van Dusen said that the main point is that there is fundamental responsibility to take control of the impact caused. She advised that the City should take a bold action, noting that nothing is perfect. The goal is to maximize carbon reductions, minimize the potential for grumbling customers, minimize the impact to ratepayers, and allowing customers to have a choice. She said that higher gas prices also acts to encourage additional gas use efficiency. Commissioner Johnston said that the City should move away from the opt-in program design and advised that it should be easy for customers to opt out of the program. Commissioner Ballantine supported the option of moving to a carbon neutral gas portfolio, rather than transitioning to an opt-out program. He said that during the rate adjustment process, the larger users had a smaller percentage impact than the lower using customers, which is due to the fixed costs to operate the system. He said that it is not free to have a carbon neutral electric portfolio. He said that the move to electrification may be problematic if the electric portfolio is carbon free, but the gas portfolio isn’t. Commissioner Forssell asked if he program would only apply to residential customers only. She asked if we first go to an opt-out program and allow customers to opt out, then transition to a portfolio could be a problem since you first allow them out, then force them in. She said that we could start with carbon neutral portfolio that is not 100%, but could transition there over time. Commissioner Schwartz said that all points of view are represented in Palo Alto. She said that she is in favor of an opt-out program since this is an opportunity to practice how to do that. If there is no way to opt out, this could be a problem for some customers who will create a large issue in the community as it has been elsewhere with respect to having smart meters. Commissioner Trumbull said he did not opt-in to the current program. He was also concerned about opt-out as a transition to carbon-neutrality. Vice Chair Danaher said he stated at the prior UAC meeting on the subject that he was supportive of a carbon neutral gas portfolio and, after seeing the analysis, he is even more supportive of that option. Danaher asked if there was any negative feedback for the carbon neutral electric portfolio. Assistant Director Jane Ratchye said that there was no negative feedback that she knew of regarding the carbon neutral electric portfolio. Vice Chair Danaher said that there could be a cost for morality and that he supports moving to a carbon neutral portfolio rather than moving to an opt-out program. Chair Cook asked Chief Sustainability Officer Gil Friend whether the choices would support the City’s carbon goals. Friend noted that natural gas represents 25% of the City’s GHG emissions. Interim Utilities Director Ed Shikada noted that there was no staff recommendation for this item and views this discussion as one of values. He said that a survey of the community could be done to determine the community’s view on the issue. Chair Cook noted that staff did not provide a recommendation as it usually does and said he thought that this was appropriate in this case. He stated that we are talking about this at a time when gas rates are very low and also at a time when rates across the board are rising significantly this year. He said that he had not heard any protest regarding carbon neutrality for electric supplies, but says that a transition to carbon neutral gas can start and increase over time. It would be perhaps most advisable to start with offsets first and move to renewable biogas over time. He would recommend #3 and move to #4 by 2030. He would like to see the costs for these options. Commissioner Schwartz said that the issue with smart meter rollout happened when there were many missteps caused by a rate increase, very hot weather and the new meters were blamed. She said that rising rates are not a good time to introduce a new program that costs more. The downside is that the program could fail spectacularly if it becomes the rallying point for complaints. Commissioner Schwartz advised that a survey could be taken to determine the level of support. Chair Cook said he appreciated the additional options presented by staff. He pointed out that gas prices are currently very low and rates in the five utilities are increasing. Chair Cook said he was not prepared to adopt a carbon-neutral program supplied with only biogas. He said the rate impact would be less than the opt-in or opt-out options for a carbon-neutral portfolio. Dailey confirmed that administrative costs for the portfolio are near zero. He said he prefers starting with offsets and slowing adding biogas to the carbon-neutral portfolio. Chair Cook recognized that there will be some complaints but said the rate impact is low and the impact of a carbon-neutral portfolio is high. Commissioner Trumbull stated that he was supportive of having more detail available for a program before going to Council with a final recommendation. ACTION: Vice Chair Danaher made a motion that the UAC recommend that Council adopt a carbon neutral gas portfolio and direct staff to develop an implementation plan. Commissioner Trumbull seconded the motion. The motion passed (6-1) with Chair Cook, Vice Chair Danaher, and Commissioners Ballantine, Forssell, Johnston and Trumbull voting yes and Commissioner Schwartz opposed. Vice Chair Danaher left the meeting at the conclusion of the discussion of item #2. ATTACHMENT D EXCERPTED DRAFT MINUTES OF THE AUGUST 31, 2016 – SPECIAL MEETING UTILITIES ADVISORY COMMISSION MEETING ITEM 2. ACTION: Recommendation that Council Approve a Carbon Neutral Natural Gas Portfolio Plan to Achieve Maximum Carbon Neutrality Using a Combination Of Offsets and Biogas in the Gas Supply Portfolio by Fiscal Year 2018 with No Greater than 10¢/Therm Rate Impact; and Related Termination of the Palo Alto Green Gas Program Senior Resource Planner Karla Dailey provided a presentation summarizing the written report. Chief Sustainability Officer Gil Friend said that the Sustainability/Climate Action Plan (S/CAP) includes a plan to get to a carbon neutral utility and an aspirational goal of a carbon neutral city. He said that moving to an electrified city will be a long and complex process. He said the proposed program is a bridge to using less natural gas and that a comprehensive approach including offsets, biogas, efficiency and electrification will be necessary to achieve the city’s long-term goals. He pointed out that buying offsets provides capital for more projects in the U.S. and potentially locally. Public Comment Sandra Slater said that proposal is an interim strategy to get to carbon neutrality as soon as possible and offsets are a good tool to use for the time being. The price signal that the program cost provides will encourage gas efficiency and electrification of gas appliances. She suggested the money currently used to market the voluntary program could be redirected to efficiency and fuel switching programs. Offsets are not a “pass” for consumers as evidenced by the fact that Palo Altans continue to conserve electricity despite the carbon neutral electric supplies. Lisa van Dusen said that we must do everything and the beauty of this is that it can be done now and shows an intention to reduce carbon emissions in the long term. We have policies in place such as the 2009 proclamation to include environmental externalities and the S/CAP goal to reduce greenhouse gas (GHG) emissions by 80% by 2030. It may be faulted as not enough or too much, but it’s a good move in the right direction. Vice Chair Danaher said that the UAC received a comment from a member of the public who pointed out the proposed offset purchases do not cover fugitive methane losses from natural gas production and transportation. Vice Chair Danaher added that methane is as bad as coal due to the fugitive emissions. Commissioner Ballantine said that that position is not reflected in any DOE report that he searched for. Commissioner Schwartz agreed that the coal and natural gas are not considered to be equally bad by industry experts. Vice Chair Danaher said the proposed program is a good starting point and asked about the value of purchasing biogas. Dailey confirmed biogas is more expensive than offsets and it is Council’s prerogative to decide whether biogas is worth including. Commissioner Danaher asked where the methane comes from. Dailey explained the gas comes from landfills and agriculture, mainly dairy farms. Commissioner Ballantine said that if the source is dairy farms, then avoided methane emissions need to be considered. Dailey explained that offsets are generated by preventing methane from entering the atmosphere and the resulting biogas is a renewable fuel. A specific project can produce both offsets and renewable biogas. Commissioner Trumbull said that the request is fine, but he would like to get off gas as soon as possible. He suggested that rather than buying biogas, extra funds be used for electrification. Commissioner Johnston asked about the monthly bill impact of the 10 cent per therm rate increase. Dailey answered that an average residential customer’s winter bill would increase by a little more than $5 per month and pointed to a chart in the written report with the detail. Commissioner Forssell clarified the proposed amount of carbon to be covered by offsets is only that combusted in town and does not include methane leakage from the production fields or leaks in the transportation system. Assistant Director Jane Ratchye said leakage in the distribution system is covered. Commissioner Forssell asked about leakage data, and Ratchye said we know the difference between purchases and sales, but that some of the difference is due to mechanical meters operating slowly and not measuring all the gas flow so that the difference cannot all be attributed to leaks. Commissioner Schwartz pointed out that the strategic plan says customers should be offered choices for managing their environmental footprint, but this proposed program does not offer consumers choices and asked if the strategic objective needs to be changed. Ratchye said that the supply source is a Council decision similar to the decisions made regarding the composition of the electric supply portfolio. Commissioner Schwartz disagreed. She said where the electricity comes from is irrelevant, but if she is being told she can’t have an electric stove, that is a problem. Ratchye explained again that the proposal is about the gas supply portfolio and not about electrification. Commissioner Forssell observed there may be confusion between electrification efforts versus the proposed carbon neutral gas portfolio. Commissioner Schwartz asked if we need to change the strategic plan. Interim Director Ed Shikada said that the strategic plan will be updated. Commissioner Schwartz said biomethane is not very hard to come by. She said Apple can’t find biogas to serve its facilities. Dailey replied there is biogas available but very little in California. She explained that the plan is to get gas elsewhere and displace it in accordance with the federal renewable fuels rules. She said she has talked to all of the City’s regular gas suppliers and there is biogas available. She explained the some biogas producers are interested selling a portion of their production for at a longer term at a fixed price discounted to the spot price in order to diversifying their sales portfolios. Commissioner Schwartz said if we are pushing everyone to electrify, we should talk about that in the future. Commissioner Ballantine said he likes the flexibility of the proposal that allows more biogas to be included as it becomes available. Natural gas infrastructure is more resilient than electric infrastructure. He said that, if and electric outage occurs, it would be a dark day in Palo Alto if all is electric. He said the proposal is good because it includes biogas at a modest rate increase while we start to work on initiatives to improve the resilience of the electric grid. He added that this action helps to support a biogas marketplace and level the playing field for other ways to get heat, including solar thermal heating. He also noted that energy efficiency and the incentive to reduce local leaked gas is valued more. Vice Chair Danaher said he likes the flexibility of the proposal to maximize biogas. Chair Cook said he likes the staff proposal and appreciates the public comment. He pointed out Carbon Free Palo Alto’s caution that it will be a distraction from the real goal of electrification to reduce GHG emissions and might discourage fuel switching. He noted the differences between the carbon neutral electric portfolio and the proposed carbon neutral gas portfolio but suggested we test the hypothesis by determining whether the carbon free electricity dampened the penetration of rooftop solar. He said helping to build a biogas market may lead to lower prices as has happened with renewable electricity, and this program signals a move away from the GHG emissions associated with natural gas usage. Commissioner Schwartz asked if staff has done an analysis of where the electricity comes from with electric used for heating, positing that additional electric load may cause the use of more gas to power electric generation. Dailey answered that this proposal has nothing to do with electric generation or increased electric usage. Commissioner Ballantine asked if we electrify, would we increase our GHG footprint without realizing it. Ratchye said that a discussion about electrification will happen at a later date. ACTION: Vice Chair Danaher made a motion that the UAC recommend that Council approve a Carbon Neutral Gas Plan to achieve a carbon-neutral gas supply portfolio starting in Fiscal Year 2018 with a rate impact not to exceed ten cents per them; and terminate the PaloAltoGreen Gas Program established by Resolution 9405. Commissioner Forssell seconded the motion. The motion passed (6-1) with Chair Cook, Vice Chair Danaher and Commissioners Danaher, Forssell, Johnston, and Trumbull voting yes and Commissioner Schwartz voting no.