HomeMy WebLinkAboutStaff Report 13970
City of Palo Alto (ID # 13970)
Finance Committee Staff Report
Meeting Date: 4/19/2022
City of Palo Alto Page 1
Title: The Utilities Advisory Commission and Staff Recommend the City
Council Adopt a Resolution Approving the Fiscal Year 2023 Electric Financial
Plan and Proposed Reserve Transfers, Amending the Electric Utility Reserve
Management Practices, and Amending Rate Schedules E-1 (Residential
Electric Service), E-2 (Residential Master-Metered and Small Non -Residential
Electric Service), E-2-G (Residential Master-Metered and Small Non -
Residential Green Power Electric Service), E -4 (Medium Non -Residential
Electric Service), E-4-G (Medium Non -Residential Green Power Electric
Service), E-4 TOU (Medium Non -Residential Time of Use Electric Service), E 7
(Large Non -Residential Electric Service), E -7-G (Large Non -Residential Green
Power Electric Service), E-7 TOU (Large Non-Residential Time of Use Electric
Service), E-14 (Street Lights), E-NSE (Net Metering Net Surplus Electricity
Compensation), and E-EEC (Export Electricity Compensation)
From: City Manager
Lead Department: Utilities
Recommendation
The Utilities Advisory Commission (UAC) and Staff recommend that the Finance Committee
recommend that City Council adopt a Resolution (Attachment A):
1. Approving the Fiscal Year (FY) 2023 Electric Financial Plan (Linked Document);
2. Amending the Electric Fund Reserve Management Practices, specifically amending
Section 6: Electric Special Projects Reserve, as follows:
a. Amend part e) setting the goal to commit ESP funds by the end of FY 2025; and
b. Amend part f) setting the date to revert uncommitted funds to the Electric
Supply Operations Reserve to five years after the commitment date (FY 20 230)
3. Approving the following transfers at the end of FY 2022:
a. Up to $15 million from the Hydro Stabilization Reserve to the Supply Operations
Reserve;
b. Up to $5 million from the Electric Special Projects (ESP) reserve to the Supply
Operations Reserve; and
c. As discussed in Staff Report #11556i, approve an allocation of Cap and Trade
funds up to 1/3 of REC revenue to the Cap and Trade Program Reserve to be
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spent on local decarbonization programs;
4. Approving the following rate actions for FY 2023:
a. An increase to retail electric rates E-1 (Residential Electric Service), E-2 (Small
Non-Residential Electric Service), E-4 (Medium Non-Residential Electric Service),
E-4 TOU (Medium Non-Residential Time of Use Electric Service), E-7 (Large Non-
Residential Electric Service), E-7 TOU (Large Non-Residential Time of Use Electric
Service) and E-14 (Street Lights) of 5% effective July 1, 2022;
b. An update to the Export Electricity Compensation (E-EEC-1) rate to reflect
current projections of avoided cost, effective July 1, 2022;
c. An update to the Net Surplus Electricity Compensation (E-NSE-1) rate to reflect
current projections of avoided cost, effective July 1, 2022; and
d. An update to the Palo Alto Green program pass-through premium charge on the
Residential Master-Metered and Small Non-Residential Green Power Electric
Service (E-2-G), the Medium Non-Residential Green Power Electric Service (E-4-
G), and the Large Non-Residential Green Power Electric Service (E-7-G) rate
schedules (Linked Document) to reflect current costs, effective July 1, 2022.
Executive Summary
The FY 2023 Electric Utility Financial Plan includes projections of the utility’s costs and revenues
through FY 2027. Staff projects costs for the Electric Utility to increase steadily through the
forecast period. Revenue increases of 5% to 6% over the forecast horizon, along with a
significant use of Hydro Stabilization and Electric Special Project Reserves, are projected to be
necessary to keep operating reserves within guideline levels. Short-term impacts to electric
costs arising from dry hydro conditions are a main driver of the need for revenue increases, as
well as rising operations costs for contract line-crews and capital costs for infrastructure
improvement. Long run increases to rates are driven by increasing transmission costs, and the
City anticipates the need for significant infrastructure upgrades over the next ten to fifteen
years to meet S/CAP and electrification goals.
As projected in the FY 2021 Financial Plan, the lack of precipitation and resulting poor reservoir
levels have increased purchase costs and necessitate the utilization of funds from the
Hydroelectric Rate Stabilization Reserve. An additional loan may be requir ed from the Electric
Special Projects reserve to help keep the Operations Reserve above minimum guideline levels.
Operations costs are expected to increase by about 2% per year through the forecast period.
Projected capital expenses are higher due to the rebuilding of existing underground districts,
substation upgrades, the Foothills rebuild, utility pole replacements and line voltage upgrades.
While specific grid-modernization and electrification projects have not been included in the
capital plan as yet, staff has included an assumption that Council approved upgrades will start
around FY 2024 or 2025 and require bond funding to complete. Staff has assumed around $150
million in projects to be done over the course of 10 years, starting in 2025, with an initial bond
measure of $50 million and similar sized bonds every three years. Based upon estimates from
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the City’s financial advisors, Staff has estimated annual payments of $3.2 million related to
these bonds. This means bond repayments are assumed to be $3.2 million starting in 2025,
rising to $9.6 million in 2031 once all three bond issuances have been completed. This is a
simplified set of assumptions intended as a placeholder, and actual costs are likely to vary. Staff
will have better information for next year’s Electric Financial Plan (FY 2024) once progress has
been made on the grid modernization study.
The UAC report of March 2, 2022 (CMR 139611) assumed 5% rate increases through the
forecast horizon. While the inclusion of these new grid-modernization and electrification costs
does not impact the rate proposal for FY 2023, staff has changed anticipated future rates from
5% to 6% going forward. The City is also evaluating the cost and scope of other system
resiliency projects which may increase costs and rates in the future.
Electric loads have been gradually decreasing and are expected to continue to decrease in the
long-term, mainly due to declining consumption in the commercial sector, putting gradual
upward pressure on rates. Electrification will likely reverse some of this trend, although the
pace of that impact is uncertain at this time. This decline has been exacerbated by the
continuing COVID pandemic. Consumption is currently around 10% below long -term
consumption trends. Current models suggest that pandemic economic recovery will take place
through 2022 and 2023, with electric consumption stabilizing on the long run average by 2025.
Based on the relative health of the various Electric reserve funds, staff is recommending at least
a 5% rate increase for FY 2023, however this will likely result in reserves being close to the
minimum guideline levels over the next several years.
Background
Every year staff presents the Finance Committee with Financial Plans for its Electric, Gas, Water,
and Wastewater Collection Utilities and recommends any rate adjustments required to
maintain their financial health. These Financial Plans include a comprehensive overview of the
utility’s operations, both retrospective and prospective, and are intended to be a reference for
UAC and Council members as they review the budget and staff’s rate recommendations. Each
Financial Plan also contains a set of Reserves Management Practices describing the reserves for
each utility and the management practices for those reserves.
Discussion
Staff’s annual assessment of the financial position of the City’s electric utility is completed in
compliance with cost of service requirements set forth in the California Constitution and
applicable statutory law. The assessment includes making long-term projections of market
conditions, of costs associated with the physical condition of infrastructure, and of other factors
that could affect utility costs. Rates are then proposed that will move towards adequate cost
1 https://www.cityofpaloalto.org/files/assets/public/agendas -minutes-reports/agendas-minutes/utilities-advisory-
commission/archived-agenda-and-minutes/agendas-and-minutes-2022/03-02-2022/03-02-2022-packet.pdf
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recovery, based on the models developed in the 2016 Electric Cost of Service and Rates Study2,
updated with current and proposed operating costs.
Proposed Actions for FY 2022 and FY 2023:
The FY 2023 Electric Utility Financial Plan (Linked Document) includes the following proposed
actions:
1. Approving the Fiscal Year (FY) 2023 Electric Financial Plan (Linked Document);
2. Amending the Electric Fund Reserve Management Practices, specifically amending
Section 6: Electric Special Projects Reserve, as follows:
a. Amend part e) setting the goal to commit ESP funds by the end of FY 2025; and
b. Amend part f) setting the date to revert uncommitted funds to the Electric
Supply Operations Reserve to five years after the commitment date (FY 2030);
3. Approving the following transfers at the end of FY 2022:
a. Up to $15 million from the Hydro Stabilization Reserve to the Supply Operations
Reserve;
b. Up to $5 million from the Electric Special Projects (ESP) reserve to the Supply
Operations Reserve; and
c. As discussed in CMR 11556, approve an allocation of up to $1 million from the
Cap and Trade Program Reserve to be spent on local decarbonization programs;
4. Approving the following rate actions for FY 2023:
a. An increase to retail electric rates E-1 (Residential Electric Service), E-2 (Small
Non-Residential Electric Service), E-4 (Medium Non-Residential Electric Service),
E-4 TOU (Medium Non-Residential Time of Use Electric Service), E-7 (Large Non-
Residential Electric Service), E-7 TOU (Large Non-Residential Time of Use Electric
Service) and E-14 (Street Lights) of 5% effective July 1, 2022;
b. An update to the Export Electricity Compensation (E-EEC-1) rate to reflect
current projections of avoided cost, effective July 1, 2022;
c. An update to the Net Surplus Electricity Compensation (E-NSE-1) rate to reflect
current projections of avoided cost, effective July 1, 2022; and
d. An update to the Palo Alto Green program pass-through premium charge on the
Residential Master-Metered and Small Non-Residential Green Power Electric
Service (E-2-G), the Medium Non-Residential Green Power Electric Service (E-4-
G), and the Large Non-Residential Green Power Electric Service (E-7-G) rate
schedules (Linked Document) to reflect current costs, effective July 1, 2022.
The transfer from the Hydro Stabilization Reserve will help mitigate rising purchase costs
resulting from poor hydro conditions and keep the Supply Operations reserve above minimum
guideline levels.
2 https://www.cityofpaloalto.org/files/assets/public/agendas -minutes-reports/reports/city-manager-reports-
cmrs/year-archive/2016/final-staff-report-id-6857_electric-utility-financial-plan-and-rate-changes.pdf
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The transfer from the ESP reserve will also help mitigate rising costs resulting from electric
purchases, as well as the cost of contract labor required to complete Capital Improvement
Projects (CIP) and ongoing operations and maintenance. Staff anticipates repaying the balance
of outstanding loans to this reserve starting in FY 2025, or earlier should economic situations
permit.
The City of Palo Alto (City or Palo Alto) maintains a Cap and Trade Program Reserve within the
Electric fund to hold revenues from the sale of carbon allowances freely allocated by the
California Air Resources Board to the City’s electric utility. Cap and Trade Program revenues
are provided to the electric utility to support a wide variety of carbon reducing activities,
including local decarbonization.
In accordance with Council’s August 2020 direction, (Staff Report #11556)3 the City has also
exchanged certain types of renewable energy to take advantage of market conditions to reduce
supply costs, fund electric utility programs and capital investment, and raise funds fo r local
decarbonization. The revenues received from these REC exchanges are kept in the Electric
Supply Reserve. With this Financial Plan, and as described in Staff Report #11556, staff is
allocating Cap and Trade funds equivalent to 1/3 of the FY 2022 REC Exchange program
revenues, or up to an estimated $1 million, for future local decarbonization projects.
Table 1 below shows the effects of the proposed transfers on reserve funds, as well as changes
to the CIP min/max guidelines. The attached Electric Financial Plan (Linked Document) discusses
these reserve changes in greater detail:
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Table 1: Reserves Starting and Ending Balances, Revenues, Expenses, Transfers To/(From)
Reserves, Operations and Capital (CIP) Reserve Guideline Levels for FY 2022 to FY 2027
($000)
FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Starting Reserve Balances
1 Supply Operations 28,709 29,429 19,875 33,046 34,973 29,382 24,726 24,431
2 Distribution Operations 16,536 9,109 10,028 11,450 12,135 13,937 12,817 15,390
3 CIP 880 5,880 880 880 2,880 2,880 880 880
4 Electric Special Projects 41,665 46,665 46,665 29,649 14,649 11,649 17,649 23,649
5 Hydro Stabilization 11,400 15,400 15,400 400 400 400 400 400
6 Low Carbon Fuel Standard - 6,340 6,944 6,050 5,028 3,956 3,388 2,935
7 Cap and Trade Program - - 1,189 1,760 6,183 9,148 11,878 14,337
Revenues
8 Supply 115,131 112,134 113,983 126,595 123,423 123,033 125,944 130,810
9 Distribution 57,476 52,172 55,845 60,564 69,352 77,848 82,495 84,197
Transfers
10 Supply Operations (15,340) (1,189) 19,429 3,577 (2,965) (8,730) (8,459) (8,212)
11 Distribution Operations (5,000) 5,000 - (2,000) - 2,000 - -
12 CIP 5,000 (5,000) - 2,000 - (2,000) - -
13 Electric Special Projects 5,000 - (5,000) (8,000) - 6,000 6,000 6,000
14 Hydro Stabilization 4,000 - (15,000) - - - - -
15 Low Carbon Fuel Standard 6,340 - - - - - - -
16 Cap and Trade Program 1,189 571 4,423 2,965 2,730 2,459 2,212
Capital Program Contribution
17 Distribution Operations - - - - - - - -
18 CIP Reserve
Expenses
19 Supply Expenses (99,070) (120,499) (120,242) (128,244) (126,050) (118,958) (117,780) (119,107)
20 Distribution Non-CIP Expenses(44,363) (34,766) (35,758) (35,760) (44,956) (55,247) (60,689) (62,213)
21 Planned CIP (15,540) (21,487) (18,664) (22,120) (22,594) (25,721) (19,233) (22,620)
22 ESP funded - - (12,016) (7,000) (3,000) - - -
23 Hydro funded - - - - - - - -
24 LCFS funded - 604 (893) (1,022) (1,072) (568) (453) (453)
Ending Reserve Balance
1+8+10+19 Supply Operations 29,429 19,875 33,046 34,973 29,382 24,726 24,431 27,922
2+9+11+17+20+21 Distribution Operations 9,109 10,028 11,450 12,135 13,937 12,817 15,390 14,754
3+12+18 CIP 5,880 880 880 2,880 2,880 880 880 880
4+13+22 Electric Special Projects 46,665 46,665 29,649 14,649 11,649 17,649 23,649 29,649
5+14+23 Hydro Stabilization 15,400 15,400 400 400 400 400 400 400
6+15+24 Low Carbon Fuel Standard 6,340 6,944 6,050 5,028 3,956 3,388 2,935 2,482
7+16 Cap and Trade Program - 1,189 1,760 6,183 9,148 11,878 14,337 16,549
Operations Reserve Guidelines (Supply)
25 Minimum 16,957 18,346 19,170 18,843 19,470 19,293 19,430 19,651
26 Maximum 33,914 36,691 38,340 37,686 38,941 38,586 38,860 39,301
Operations Reserve Guidelines (Distribution)
27 Minimum 8,622 8,052 8,574 9,451 9,337 9,512 10,121 10,436
28 Maximum 13,522 13,746 14,739 16,444 16,135 16,433 17,600 18,176
CIP Reserve Guidelines
29 Minimum 2,554 4,143 4,455 4,483 4,508 4,510 3,162 3,718
30 Maximum 5,109 20,716 22,275 22,417 22,542 22,551 21,942 23,125
While the continuing COVID-19 pandemic and economic hardships created by it continue to put
pressure on City of Palo Alto Utility (CPAU) customers, given the rising costs and weakening
reserve health of the Electric fund, staff is proposing a 5% rate increase for FY 2023 and
anticipating 6% rate increases for the rest of the forecast period. Under this scenario, utility
reserves are projected to drop to near their minimum guideline levels. Possible program and
service cuts may be needed to make up the difference if the utility’s financial position is worse
than forecasted.
Table 2 below compares current rate projections to those projected in last year’s Financial Plan.
Table 1: Projected Electric Rates, FY 2023 to FY 2027
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Projection FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Current 5% 6% 6% 6% 6%
Last Year 5% 5% 2% 1% N/A
FY 2023 Financial Plan Projected Rate Adjustments for the Next Five Fiscal Years
Table 3 shows the projected rate adjustments over the next five years and their impact on
annual median residential electric bill (453 kwh per month in winter, 365 kwh per month in
summer).
Table 3: Projected Rate Adjustments, FY 2022 to FY 2026
FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Electric Utility 5% 6% 6% 6% 6%
Estimated Bill Impact
($/mo) * $3.04 $3.82 $4.05 $4.30 $4.55
* Estimated impact on median residential electric bill, which is currently $60.70 for
CY 2021
The rate increases are related to several factors: low hydro supply increasing FY 2022 and FY
2023 purchase costs, increasing transmission costs over the longer term, the need for
substantial additional capital investment in the electric distribution system, and increasing
operations costs due to larger contracting needs to complete electric distribution system
maintenance and capital improvement work. Revenues have also declined as customer usage
has decreased, requiring larger rate increases to cover fixed expenses and offset the shortfalls.
Historically, total electric utility costs (excluding short-term drought impacts) were roughly
$120 million per year, allowing the electric utility to go without a rate increase from July 1, 2009
to July 1, 2016. From FY 2016 to FY 2018, annual costs (net of energy supply related revenue,
like surplus energy sales) increased to roughly $140 million per year (costs were unusually low
in FY 2019 due to some one-time savings from surplus energy sales). Costs are projected to
increase to roughly $175 million by FY 2027 (net of surplus energy sa les).
Figure 1 shows the overall electric utility’s costs (net of surplus sales revenues) in FY 2018, FY
2023, and FY 2027. Costs for the electric supply portfolio decreased slightly between FY 2018
and FY 2023, but much of this is due to surplus electric supply revenues that are not expected
to continue while hydro supplies are low. Additionally, customer sales declined by 1.5% to 2%
annually over the past several years. Assuming normal hydro conditions going forward, the
continuing trend of load loss, and continually increasing transmission charges, total costs are
projected to increase by about 3% annually during the forecast period.
The cost of managing the distribution system (e.g. maintenance, capital investment, customer
service, billing, etc.) has increased by about 6% per year and is projected to be about 2% to 3%
per year in the next five years once some larger capital projects are completed. FY 2023 capital
costs are higher due in part to the Smart Grid Technologies project, but these costs have been
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approved by Council to come from the ESP Reserve and will not impact rates. FY 2018 capital
costs were low relative to FY 2023, but similar to outer years of the financial plan.
Overall, costs are projected to increase by about 2% to 3% per year over the forecast horizon,
but declining loads will necessitate rate increases greater than this to maintain the financial
health and enhance system reliability of the utility.
Figure 1: Electric Utility Costs, FY 2018 Actual vs. FY 2023 and FY 2027 Projec tions
Figure 2 shows distribution costs. Capital costs have increased by about 6% per year on average
over the last five years but are skewed in this graph due to a large ($7 million) Smart Grid
Technology project budgeted for FY 2023 as well as relatively low spending during FY 2018.
Larger investments related to underground district rebuilds, substation upgrades, and the
rebuilding of the Foothills system are budgeted to occur in the next three years. In the last few
years, the City has experienced a higher number of outages in underground districts due to
aging equipment and infrastructure. To address this problem, distribution system -related
operational spending is projected to increase by about 2% annually. Some of this is due to
projected increases in costs of labor and materials. If there are higher than anticipated staff
vacancies, more expensive external contracts will be needed to complete necessary electric
system maintenance. As mentioned above, staff has also included anticipated bond paymen ts
starting in 2025 to finance grid modernization and electrification measures.
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Figure 2: Electric Distribution Costs, FY 2018 vs. FY 2023 and FY 2027 Projections
Figure 3 shows commodity costs. While net electric supply portfolio costs stayed relati vely
stable and even decreased slightly from FY 2018 to FY 2023, this was mainly due to surplus
energy revenues and decreasing loads. Transmission costs increased by 8% annually in the
same timeframe and are projected to increase by about 9% annually in future years. These
increases are due to rehabilitation and replacement of the statewide electric transmission
system as well as expansion of that system to accommodate new generation, mostly
renewable.
Staff works to contain transmission costs through partner agencies, including the Transmission
Agency of Northern California (TANC) and Northern California Power Agency (NCPA), and
through direct partnerships with other local utilities (the Bay Area Municipal Transmission
group, BAMx). These groups intervene in transmission proceedings at the Federal Energy
Regulatory Commission (FERC) and the California Independent System Operator (CAISO), and
have achieved some reductions in long-term transmission costs. Staff is developing strategies to
achieve cost savings in electric supply and will discuss these strategies in greater detail at future
meetings.
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Figure 3: Electric Supply Costs, FY 2018 Actual vs. FY 2023 and FY 2027 Projections
Staff also recognizes the importance of managing operating costs and maximizing efficiency in
order to minimize rate increases. As discussed above, staff is working on cost containment
measures related to transmission and renewable energy costs. Utility consumers also see some
long-term cost savings from City-wide efforts to manage personnel costs. As reflected in the
Utilities Strategic Plan, staff is exploring additional ways to effectively use available resources,
particularly across Divisions.
Electric Bill Comparison with Surrounding Cities
For the median consumption level, the annual CPAU residential electric bill for calendar year
2021 was $728, which was 41% lower than the annual bill for a PG&E customer with the same
consumption ($1,237) and approximately 16% higher than the annual bill for a City of Santa
Clara customer ($629). The bill calculations for PG&E customers are based on PG&E Climate
Zone X, which includes most surrounding comparison communities.
Table 4 presents sample median residential bills for Palo Alto, PG&E, and the City of Santa Clara
(Silicon Valley Power) for several usage levels. Rates used to calculate the monthly bills shown
below were in effect as of January 1, 2022.
Over the next several years low usage customers in PG&E territory are expected to continue to
see higher percentage rate increases than high usage customers as PG&E compresses its tiers
from the highly exaggerated levels that have been in place since the energy crisis. This is likely
to make the bill for the median Palo Alto consumer look even more favorable compared to
most PG&E customers. Even with the compressed tiers, bills for high usage Palo Alto consumers
are likely to remain substantially lower than the bills for high usage PG&E customers.
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Table 4: Residential Monthly Electric Bill Comparison (Effective 1/1/2022, $/mo.)
Season Usage (kwh) Palo Alto PG&E Santa Clara
Winter
300 41.27 84.72 39.22
453 (Median) 69.22 127.93 59.95
650 107.37 197.16 86.65
1200 213.89 392.28 161.17
Summer
300 41.27 87.11 39.22
(Median) 365 52.18 110.17 48.03
650 107.37 211.27 86.65
1200 213.89 406.39 161.17
Table 5 shows the average monthly electric bill for commercial customers for various usage
levels.
Table 5: Commercial Monthly Electric Bill Comparison (1/1/2022, $/mo.)
Usage (kwh/mo) Palo Alto PG&E Santa Clara
1,000 177 303 196
160,000 24,795 34,211 21,472
500,000 77,477 86,456 66,937
2,000,000 273,431 333,240 267,523
Proposed Rate Changes
The City adopted the current rates effective July 1, 2019, when CPAU increased electric rates by
8%. With the onset of the COVID-19 pandemic, usage amongst all customer classes has
decreased. Many businesses have been operating at minimum staffing conditions or fully
remote. City of Palo Alto staff have reduced expenses where possible, but costs related to
ongoing distribution system work have increased, as staffing shortages have required contract
crews to complete required maintenance and CIP work.
In order to move towards full cost recovery while minimizing rate impacts in light of pandemic -
related economic challenges, staff recommends a rate increase to all customer classes of 5%. If,
after the pandemic, usage and/or spending looks to be moving in a different direction, staff will
suggest a re-balancing of rates for the next fiscal year.
Staff is also engaging the services of consultants to review and revise the Electric Utility’s Cost
of Service study and rates. This study will examine how costs are allocated among the
residential and commercial classes and realign them if needed and will develop cost-based
rates for several emerging groups, such as: all-electric customers, DC-fast charging facilities, and
micro-grid customers. When staff brought the COSA guidelines to the UAC, Finance and
Council, there was a directive for staff to propose residential rates to support el ectrification,
prior to a COSA. Staff’s response to that request is provided as Attachment C.
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The current rates and proposed rates for FY 2023, and are reflected in Table 6 below:
Table 6: Current and Proposed Electric Rates
Current Rates
Proposed Rates
(7/1/2022)
Change
$ %
E-1 (Residential)
Tier 1 Energy ($/kWh) 0.13757 0.14445 0.00688 5%
Tier 2 Energy ($/kWh) 0.19367 0.20335 0.00968 5%
Minimum Bill ($/day) 0.3283 0.3447 0.0164 5%
E-2 & E-2-G (Small Non-Residential)
Summer Energy ($/kWh) 0.20853 0.21896 0.01043 5%
Winter Energy ($/kWh) 0.14624 0.15355 0.00731 5%
Minimum Bill ($/day) 0.8359 0.8777 0.0418 5%
E-4 & E-4-G (Medium Non-Residential)
Summer Energy ($/kWh) 0.12848 0.13490 0.00642 5%
Winter Energy ($/kWh) 0.09946 0.10443 0.00497 5%
Summer Demand ($/kW) 28.91 30.36 1.45 5%
Winter Demand ($/kW) 18.97 19.92 0.95 5%
Minimum Bill ($/day) 17.2742 18.1379 0.8637 5%
E-7 & E-7-G (Large Non-Residential)
Summer Energy ($/kWh) 0.11432 0.12004 0.00572 5%
Winter Energy ($/kWh) 0.07738 0.08125 0.00387 5%
Summer Demand ($/kW) 30.69 32.22 1.53 5%
Winter Demand ($/kW) 17.05 17.90 0.85 5%
Minimum Bill ($/day) 49.1139 51.5696 2.4557 5%
Table 7 shows the impact of the proposed July 1, 2022 rate changes on the residenti al and non-
residential bills for various consumption levels.
Table 7: Impact of Proposed Electric Rate Changes on Customer Bills
Rate Schedule Usage (kWh/mo)
Bill under
Current
Rates ($/mo)
Bill Under Rates
Proposed 7/1/22
($/mo)
Change
$/mo %
E-1 (Residential) 300 $41.27 $43.34 $2.07 5%
(Summer Median)
365
52.18 54.79 2.61 5%
(Winter Median)
453
69.22 72.68 3.46 5%
650 107.37 112.74 5.37 5%
1200 213.89 224.58 10.69 5%
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E-2 (Small Non-
Residential) 1,000 177 186 9 5%
E-4 (Medium
Non-Residential)
160,000 24,795 26,035 1,240 5%
500,000 77,477 81,352 3,873 5%
E-7 (Large Non-
Residential 2,000,000 273,431 287,095 13,664 5%
Net Energy Metering Buyback Rates
The City operates two Net Energy Metering (NEM) programs. Solar customers served by the
CPAU’s original NEM program, also called NEM 1, are compensated at retail rates for net
electricity they export to the grid, and solar customers served by the NEM successor program,
or NEM 2 (effective after the City reached its NEM 1 cap at the end of 2017), are compensated
at the Export Electricity Compensation (E-EEC-1) rate for exported electricity.
Customers on the NEM 1 program who have chosen to have the value of any annual net
generation they produced over the past 12 months credited back to their account do so under
the Net Metering Net Surplus Electricity Compensation (E-NSE-1) rate, which is calculated using
the utility’s avoided costs from the prior year. The Net Surplus Electricity Comp ensation rate
represents the value of the City’s avoided costs or value of customer-generated electricity in
Palo Alto during the prior calendar year, including compensation for the energy, avoided
capacity charges, avoided transmission and ancillary service charges, avoided transmission and
distribution (T&D) losses, and renewable energy credits (RECs), or environmental attributes.
Staff proposes increasing the E-NSE-1 rate to $.1026/kWh based on updated avoided cost
calculations for 2021.
Under the City’s NEM 2 successor program, participating solar customers are billed at the
current retail rate for electricity drawn from the grid, and receive a credit for electricity they
export to the grid at the Export Electricity Compensation (E -EEC-1) buyback rate. This buyback
rate also reflects the avoided cost or value of customer-generated electricity in Palo Alto,
calculated on a forward-looking basis for the upcoming fiscal year. As shown in the table below,
the current avoided cost for solar generation in Palo Alto is 10.45 cents/kWh, which is slightly
lower than the avoided cost on the current NEM buyback rate (10.78 cents/kWh). This slight
decrease in the overall avoided cost is driven by a small decrease in the value of the RECs
generated by these solar systems.
Table 6: NEM Compensation Rates – Current vs. Proposed
Rate
Current
$/kWh
Proposed
$/kWh
Net Surplus Electricity (E-NSE-1) $0.0992 $0.1026
Export Electricity (E-EEC-1) $0.1078 $0.1045
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Palo Alto Green (PAGreen) Program
The PaloAltoGreen (PAG) program provides CPAU’s commercial customers an opportunity to
voluntarily pay a premium to receive renewable electricity credits to match their energy usage.
Under this program, CPAU staff purchase and retire Green-e certified RECs in the wholesale
market on behalf of PAG customers. This enables participating commercial customers to claim
credit for the REC purchases in order to satisfy their corporate sustainability goals and meet
federal “green certification” requirements.
The PAG charge is a pass-through charge; the revenue collected through the PAG rate premium
is intended to fully recover the costs of administering the program. The PAG program has very
low overhead costs (e.g., the cost of hiring an auditor to carry out an annual Green -e
verification process for the program), so the vast majority of the program cost is the purchase
cost of the RECs. In the past year the wholesale cost of Green-e certified RECs in the Western
US market has continued to increase (from approximately $6/REC to $7.5/REC). As such, the
PAG rate premium needs to be raised from $6 per 1,000 kWh block (.6 cents/kWh) to $7.5 per
1,000 kWh block (.75 cents/kWh). This change will be reflected on the Residential Master -
Metered and Small Non-Residential Green Power Electric Service (E-2-G), the Medium Non-
Residential Green Power Electric Service (E-4-G), and the Large Non-Residential Green Power
Electric Service (E-7-G) rate schedules (Linked Document).
Reserve Management Practice Changes: Electric Special Projects (ESP) Reserve
In November 2011, Council changed the name of the Calaveras Reserve to the Electric S pecial
Project (ESP) Reserve and adopted ESP Reserve Guidelines to ensure the reserve funds were
spent to benefit electric ratepayers. The guidelines were established to provide a framework
for evaluating projects and set deadlines for committing the funds, to ensure progress was
made in expending the funds and returning benefits to the electric ratepayers. Consistent with
the guidelines, funds have been used for several initiatives including funding studies and pilot
programs in support of bigger initiatives. In addition, Council has approved loans of
uncommitted ESP reserve funds to help stabilized Operations Reserves. Per Council approval,
$10 million was transferred from the Electric Special Projects (ESP) Reserve to the Operations
Reserve in FY 2018 to mitigate higher supply costs due to the drought occurring then, with $5
million having been repaid to date. Staff is requesting an additional $5 million loan to help with
the current drought as well as high Operations and CIP expenses.
In 2015, Staff recommended to the Utilities Advisory Commission (UAC) and Council two
projects to be funded by the ESP: the implementation of smart grid systems, and transmission
system upgrades. At the time, given the uncertain timeline and cost of both projects, both the
UAC and Council recommended that timelines for evaluation and use of ESP funds be extended.
Today, the Smart Grid project is underway with Council-approved ESP funding, anticipated to
be $22 million over the next five years. Approximately half of the $22M funding will be repaid
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to the ESP reserve by the gas and water utilities over five years post AMI deployment.
Transmission system upgrades and negotiations have been slower to develop, and in the
interim staff is developing a list of other projects which may be applicable for ESP funding. Staff
will discuss proposals for using ESP funds with the UAC budget sub-committee in 2022.
Given this, staff is requesting that the timelines for evaluation be extended, with a goal to
commit funds by the end of FY 2025, and to have any uncommitted funds revert to the Electric
Supply Operations Reserve five years after that (FY 2030).
If Council does not approve this change, the remaining ESP Reserve funds will revert to the
Operations Reserve at the end of FY 2022.
Timeline
The Finance Committee is scheduled to review the FY 2023 Electric Financial Plan (Linked
Document) in April 2022. The City Council will consider adopting the Financial Plan and rate
amendments as part of the FY 2023 budget review and adoption process.
Stakeholder Engagement
The UAC reviewed preliminary financial forecasts at its December 1, 2021 meeting, and the
Finance Committee reviewed the preliminary forecasts at its February 1, 2022 meeting.
The UAC reviewed staff’s recommendation on the FY 2023 Electric Financial Plan (Linked
Document), proposed transfers and rate increases at its March 2, 2022 meeting. At that
meeting, staff informed the UAC that grid modernization measure were not included as part of
the analysis presented, but that including it would not change staff’s recommendation for a 5%
rate increase in FY 2023. Future estimated rate increases would change , however, and be
included in the Finance and Council documents. The UAC expressed approval that staff would
be factoring those early estimates into the rate proposal.
The UAC voted to approve staff’s proposal 4-0, with Commissioners Bowie, Scharff and Smith
absent.(Attachment C).
Staff and the UAC’s recommendation on the FY 2023 Electric rate increases will go to the
Finance Committee in April and be presented to City Council in June during the budget
adoption process.
Resource Impact
The estimated FY 2023 revenue impact of the recommendations in this report would be an
increase of $7.9 million in the Electric Fund. The City is a utility customer, so rate increases will
also result in estimated City expense increases of about $28 7,000, approximately $100,000 of
that being in the General Fund. Resource impacts to City departments and funds of the
recommended rate adjustments are programmed in the FY 2023 Proposed Operating Budget. If
the final rates adopted by Council in June differ from those proposed in this report , further
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adjustments may be brought forward as part of the annual budget process.
Environmental Review
The UAC’s review and recommendation to Council on the FY 2023 Electric Financial Plans and
rate adjustments does not meet the California Environmental Quality Act’s definition of a
project, pursuant to Public Resources Code Section 21065, thus no environmental review is
required.
Attachments:
• Attachment A: Resolution
• Attachment B: Early Electric Rate Change Memo
• Attachment C: Draft Excerpt UAC Minutes
i https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/reports/city-manager-reports-
cmrs/year-archive/2020-2/id-11566.pdf
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Attachment A
6055603
Utility Electric Rate Schedules
FY23 Electric Financial Plan
*Yet to be Passed*
Resolution No. ____
Resolution of the Council of the City of Palo Alto Approving the Fiscal
Year 2023 Electric Utility Financial Plan and Reserve Transfers, Amending the
Electric Utility Reserves Management Practices and Amending Utility Rate
Schedules E-1 (Residential Electric Service), E-2 (Residential Master-Metered
and Small Non-Residential Electric Service), E-2-G (Residential Master-
Metered and Small Non-Residential Green Power Electric Service), E-4
(Medium Non-Residential Electric Service), E-4-G (Medium Non-Residential
Green Power Electric Service), E-4 TOU (Medium Non-Residential Time of Use
Electric Service), E 7 (Large Non-Residential Electric Service), E-7-G (Large Non-
Residential Green Power Electric Service), E-7 TOU (Large Non-Residential
Time of Use Electric Service), E-14 (Street Lights), E-NSE (Net Surplus
Electricity Compensation Rate), and E-EEC (Export Electricity Compensation)
R E C I T A L S
A. Each year the City of Palo Alto (“City”) regularly assesses the financial position of
its utilities with the goal of ensuring adequate revenue to fund operations. This includes making
long-term projections of market conditions, the physical condition of the system, and other
factors that could affect utility costs, and setting rates adequate to recover these costs. It does
this with the goal of providing safe, reliable, and sustainable utility services at competitive rates.
The City adopts Financial Plans to summarize these projections.
B. The City uses reserves to protect against contingencies and to manage other
aspects of its operations, and regularly assesses the adequacy of these reserves and the
management practices governing their operation. The status of utility reserves and their
management practices are included in Reserves Management Practices attached to and made
part of the Financial Plans.
C. Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council of the
City of Palo Alto may by resolution adopt rules and regulations governing utility services, fees and
charges.
D. On June __, 2022, the City Council heard and approved the proposed rate
increase at a noticed public hearing.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. The Council hereby approves the FY 2023 Electric Utility Financial Plan.
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Attachment A
6055603
Utility Electric Rate Schedules
FY23 Electric Financial Plan
SECTION 2. The Council hereby approves amendments to Section 6 (Electric Special
Projects Reserve) of the Electric Utility Reserves Management Practices to read as attached and
incorporated.
SECTION 3. The Council hereby approves the following transfers to be made by the
end of FY 2022, as described in the FY 2023 Electric Utility Financial Plan:
a. Approve a transfer of up to $15 million from the Hydro Stabilization Reserve to the
Supply Operations Reserve;
b. Approve a transfer of up to $5 million from the Electric Special Projects (ESP) reserve
to the Supply Operations Reserve; and
c. Approve an allocation of up to $1 million from the Cap and Trade Program Reserve to
be allocated to local decarbonization programs); and
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-1 (Residential Electric Service) is hereby amended to read as attached and
incorporated. Utility Rate Schedule E-1, as amended, shall become effective July 1, 2022.
SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-2 (Residential Master-Metered and Small Non-Residential Electric Service) is
hereby amended to read as attached and incorporated. Utility Rate Schedule E-2, as amended,
shall become effective July 1, 2022.
SECTION 6. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-2-G (Residential Master-Metered and Small Non-Residential Green Power
Electric Service) is hereby amended to read as attached and incorporated. Utility Rate Schedule
E-2-G, as amended, shall become effective July 1, 2022.
SECTION 7. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-4 (Medium Non-Residential Electric Service) is hereby amended to read as
attached and incorporated. Utility Rate Schedule E-4, as amended, shall become effective July
1, 2022.
SECTION 8. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-4-G (Medium Non-Residential Green Power Electric Service) is hereby
amended to read as attached and incorporated. Utility Rate Schedule E-4-G, as amended, shall
become effective July 1, 2022.
SECTION 9. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-4 TOU (Medium Non-Residential Time of Use Electric Service) is hereby
amended to read as attached and incorporated. Utility Rate Schedule E-4 TOU, as amended,
shall become effective July 1, 2022.
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Attachment A
6055603
Utility Electric Rate Schedules
FY23 Electric Financial Plan
SECTION 10. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-7 (Large Non-Residential Electric Service) is hereby amended to read as
attached and incorporated. Utility Rate Schedule E-7, as amended, shall become effective
July 1, 2022.
SECTION 11. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-7-G (Large Non-Residential Green Power Electric Service) is hereby amended to
read as attached and incorporated. Utility Rate Schedule E-7-G, as amended, shall become
effective July 1, 2022.
SECTION 12. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-7 TOU (Large Non-Residential Time of Use Electric Service) is hereby amended
to read as attached and incorporated. Utility Rate Schedule E-7 TOU, as amended, shall become
effective July 1, 2022.
SECTION 13. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility
Rate Schedule E-14 (Street Lights) is hereby amended to read as attached and incorporated.
Utility Rate Schedule E-14, as amended, shall become effective July 1, 2022.
SECTION 14. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule E-NSE (Net Surplus Electricity Compensation Rate) is hereby amended to read as
attached and incorporated. Utility Rate Schedule E-NSE-1, as amended, shall become effective
July 1, 2022.
SECTION 15. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule E-EEC-1 (Export Electricity Compensation) is hereby amended to read as attached and
incorporated. Utility Rate Schedule E-EEC-1, as amended, shall become effective July 1, 2022.
SECTION 16. The Council makes the following findings:
a. The revenue derived from the adoption of this resolution shall be used only for the
purpose set forth in Article VII, Section 2, of the Charter of the City of Palo Alto.
b. The fees and charges adopted by this resolution are charges imposed for a specific
government service or product provided directly to the payor that are not provided
to those not charged, and do not exceed the reasonable costs to the City of providing
the service or product.
//
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Attachment A
6055603
Utility Electric Rate Schedules
FY23 Electric Financial Plan
SECTION 17. The Council finds that approving the Financial Plan and Reserve transfers
does not meet the California Environmental Quality Act’s (CEQA) definition of a project under
Public Resources Code Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an
administrative governmental activity which will not cause a direct or indirect physical change in
the environment, and therefore, no environmental assessment is required. The Council finds that
changing electric rates to meet operating expenses, purchase supplies and materials, meet
financial reserve needs and obtain funds for capital improvements necessary to maintain service
is not subject to the California Environmental Quality Act (CEQA), pursuant to California Public
Resources Code Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec. 15273(a).
After reviewing the staff report and all attachments presented to Council, the Council
incorporates these documents herein and finds that sufficient evidence has been presented
setting forth with specificity the basis for this claim of CEQA exemption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
___________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Assistant City Attorney City Manager
___________________________
Director of Utilities
___________________________
Director of Administrative Services
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MEMORANDUM
DATE: March 2, 2022
SUBJECT: Evaluation of Implementing an All-Electric rate prior to COSA
Executive Summary
During the Finance Committee (CMR 13544 1) and City Council (CMR 135462) meetings to review and
recommend guidelines for an Electric Cost of Service Analysis (COSA), set to commence in FY 2022 and
anticipated for completion in FY 2023, the Finance Committee passed the following motion:
Direct staff to study options for an interim modification to (residential electric) tiers that would
support electrification, and return to the Utilities Advisory Commission, the Finance Committee and
City Council at a future date.
Setting rates without a COSA in place can be responsibly accomplished through implementation of a pilot
rate; staff recommends against using that mechanism. This conclusion was drawn after reviewing the
City’s adopted and published COSA (CMR 6857 3) and evaluating the resource impacts and technical and
operational challenges of developing a pilot rate.
Discussion
Palo Alto’s Rate-setting Process
Palo Alto’s rates are designed to collect revenues sufficient to cover the cost to serve each customer or
customer group. It is industry practice to periodically perform a COSA to ensure that a utility’s rates meet
this requirement. Proposition 26 (2010) amended the California Constitution, which defines all
government-imposed charges, including electric rates, as taxes requiring voter approval, unless certain
exceptions are met. Cost-based electric rates may be adopted by the City Council. The COSA helps the
utility ensure that rates represent the cost to serve customers.
Council-adopted COSA Guidelines
1 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/finance-
committee/2021/20211005/20211005pfcs.pdf
2 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/city-council-agendas-minutes/2021/11-
november/20211101pccs-amended.pdf
3 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/reports/city-manager-reports-cmrs/year-archive/2016/final-
staff-report-id-6857_electric-utility-financial-plan-and-rate-changes.pdf
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The Electric Utilities’ last published COSA and was approved by City Council on June 13, 2016 (CMR 6932 4).
In preparation for that study, Council adopted a set of guidelines (CMR 60615) including:
“For this cost of service study, and to the extent feasible, energy charges should be based on existing
rate structures. This includes: a tiered rate design structure for residents.”
Prior to the study, Palo Alto’s residential rates had three tiers. The results of the study indicated a
reduction in the number of tiers from three to the current two was necessary to adequately reflect the
cost to provide service. Based upon an analysis of median residential baseload energy use, the daily
allowance of energy per household allocated for the first tier was increased from 10 kwh/day to
11kwh/day.
Alternative rate structures, such as a uniform/single-tier rate structure, were not addressed in the report,
nor was the creation of different classes of residential customer (such as all-electric or Electric Vehicle
(EV) specific rates).
The Utilities Department is planning to update the COSA model, commencing in FY 2022 and completing
the work in FY 2023. Several options for residential rates will be evaluated including: (1) whether better
or alternative cost allocation methods could be utilized, (2) whether tiered rates should be changed
(increased, lowered, or condensed to a single tier), and (3) whether multiple rate options could be
available to customers within a rate class (residential, etc.) while still maintaining adequate and equitable
revenue collection for the rate class as a whole.
Pilot Rate Option
It is possible to create a separate rate for customers pursuing electrification under a ‘pilot’ or test-case
program. Pilot rates are designed to study the impact of the rate design on customer behavior.
Resource Constraints
Implementing rate changes will require staff time and resources. Staff estimates three to four months
needed to analyze and determine new rates, configuration, design and testing of the billing system,
customer service training, and outreach.
This resource need will be in direct competition for the need to complete an updated COSA. It is
anticipated this effort will take two to three months followed by three months to analyze, design configure
and test new rates. These changes will also require staff resources for billing system changes, customer
outreach, etc. Dividing work on these two tasks will lengthen the time to complete the COSA.
Technical and Operational Constraints
. Typically an all-electric rate or electric vehicle rate would encourage customers to consume more
electricity in off-peak vs. on-peak hours. Since Palo Alto does yet have time of use or interval metering,
that kind of study is infeasible at this time.
4 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/reports/city-manager-reports-cmrs/year-archive/2016/6932-
merged.pdf
5 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/reports/city-manager-reports-cmrs/year-archive/2015/final-
staff-report-id-6061_adoption-of-design-guidelines-for-electric-cost-of-service-analysis.pdf
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Many administrative challenges exist for a pilot rate study. Determining customer eligibility for a pilot rate
(such as not having a gas meter, EV ownership, etc.) will be difficult. Additional administrative challenges
such as managing caps on participation (pilot rates are limited in size), monitoring pilot vs. non-participant
behaviors, and making sure there are no unanticipated revenue changes arising from rate switching are
require a significant investment of staff time.
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Utilities Advisory Commission Minutes Approved on: Page 1 of 2
UTILITIES ADVISORY COMMISSION MEETING
MINUTES OF MARCH 2, 2022 MEETING
CALL TO ORDER
Chair Forssell called the meeting of the Utilities Advisory Commission (UAC) to order at 6:03 p.m.
Present: Chair Forssell, Vice Chair Segal, Commissioners Johnston, Metz, and Smith
Absent: Commissioner Bowie and Scharff
NEW BUSINESS
ITEM 9: ACTION: Staff Recommendation That the Utilities Advisory Commission Recommend the City
Council Adopt a Resolution Approving the Fiscal Year 2023 Electric Financial Plan and Reserve Transfers,
Amending the Electric Utility Reserve Management Practices, and Amending Rate Schedules E-1
(Residential Electric Service), E-2 (Residential Master-Metered and Small Non-Residential Electric Service),
E-2-G (Residential Master-Metered and Small Non-Residential Green Power Electric Service), E-4 (Medium
Non- Residential Electric Service), E-4-G (Medium Non-Residential Green Power Electric Service), E-4 TOU
(Medium Non-Residential Time of Use Electric Service), E 7 (Large Non-Residential Electric Service), E-7-G
(Large Non- Residential Green Power Electric Service), E-7 TOU (Large Non-Residential Time of Use Electric
Service), E-14 (Street Lights), E-NSE (Net Metering Net Surplus Electricity Compensation), and E-EEC (Export
Electricity Compensation).
Eric Keniston, Senior Resource Planner, reported that the proposal is a 5 percent rate increase with
projected 5 percent rate increases in the subsequent years. To accommodate a 5 percent rate increase, the
Hydro Stabilization Reserve will be depleted. The Hydro Rate Adjuster will be activated and will add $0.013
per kilowatt-hour in revenue. Staff predicted that hydro conditions will not improve in FY 2023. Starting in
FY 2024 and FY 2025, there may be a rate increase of 6 percent due to electrification and S/CAP
implementation. The Operating Reserve will increase due to the influx of funds from the Hydro Stabilization
Reserve and then will decrease rapidly. Staff requested that the Electric Special Project Reserve remain
active through FY 2027 and not sunset at the end of FY 2022.
Commissioner Johnston appreciated that Staff did the work to spread the cost increases out and supported
the proposal. In response to his understanding that CIP projects are not to modernize the electrical grid,
Keniston confirmed that is correct. Commissioner Johnston emphasized that it is important to begin
exploring what the costs will be to modernize the grid to meet the S/CAP goals.
In reply to Chair Forssell’s inquiry regarding changes to the Hydro Rate Adjuster, Keniston explained that
the changes would allow Staff to active the Hydro Rate Adjuster quickly. In answer to Chair Forssell’s
question regarding local solar and if it is factored into the financial forecast, Keniston answered that local
solar does not affect the general load. More efficient technologies have accelerated the path of general
load decline. Chair Forssell requested that Staff provide a list of what districts have been undergrounded,
which are planned for undergrounding, and which substations are being upgraded. Batchelor confirmed
that Staff will provide that information in an email to the UAC.
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Utilities Advisory Commission Minutes Approved on: Page 2 of 2
In answer to Council Member Cormack’s question regarding who decides how to spend Cap and Trade
Program funds, Keniston shared historically the City used the funds for renewable resources. If the funds
are not spent, the City has 10-years to spend the funds on appropriate programs. Jonathan Abendschein,
Assistant Director of Utilities, added that how funds are spent is under the purview of the City Manager. In
response to Council Member Cormack’s request to explain Item 8 and 9 of Staff’s recommended motion,
Keniston explained that the changes reflected the avoided cost of electricity and is the same methodology
the City has used historically. The discussions in the news regarding NEM 3.0 do not affect the City. For folks
under the NEM1 Program, they are grandfathered in under a provision that the energy they generate. The
City compensates those folks at the full retail rate. Under the NEM2 Program, there is no subsidy.
In answer to Chair Forssell’s query regarding what the price for kilowatt-hour is for the electricity
compensation rate, Keniston predicted $0.10. In reply to Chair Forssell’s query regarding the difference
between the export electricity compensation and the net surplus electricity compensation rate, Keniston
answered that one is used for NEM1 customers and one is used for NEM2 customers.
ACTION: Commissioner Johnston moved Staff requests that the Utilities Advisory Commission (UAC)
recommend that the Council adopt a Resolution (Attachment A):
1. Approving the Fiscal Year (FY) 2023 Electric Financial Plan (Linked Document);
2. Amending the Electric Fund Reserve Management Practices, specifically amending Section 6: Electric
Special Projects Reserve, as follows:
a. Amend part e) setting the goal to commit ESP funds by the end of FY 2023; and
b. Amend part f) setting the date to revert uncommitted funds to the Electric Supply Operations Reserve to
five years after the commitment date (FY 2028)
3. Approving the following transfers at the end of FY 2022:
a. Up to $15 million from the Hydro Stabilization Reserve to the Supply Operations Reserve;
b. Up to $5 million from the Electric Special Projects (ESP) reserve to the Supply Operations Reserve; and
c. As discussed in Staff Report #11556i, approve an allocation of Cap and Trade funds up to 1/3 of REC
revenue to the Cap and Trade Program Reserve to be spent on local decarbonization programs;
4. Approving the following rate actions for FY 2023:
a. An increase to retail electric rates E-1 (Residential Electric Service), E-2 (Small Non-Residential Electric
Service), E-4 (Medium Non-Residential Electric Service), E-4 TOU (Medium Non-Residential Time of Use
Electric Service), E-7 (Large Non-Residential Electric Service), E-7 TOU (Large Non-Residential Time of Use
Electric Service) and E-14 (Street Lights) of 5% effective July 1, 2022;
b. An update to the Export Electricity Compensation (E-EEC-1) rate to reflect current projections of avoided
cost, effective July 1, 2022;
c. An update to the Net Surplus Electricity Compensation (E-NSE-1) rate to reflect current projections of
avoided cost, effective July 1, 2022; and
d. An update to the Palo Alto Green program pass-through premium charge on the Residential Master-
Metered and Small Non-Residential Green Power Electric Service (E-2-G), the Medium Non-Residential
Green Power Electric Service (E-4-G), and the Large Non-Residential Green Power Electric Service (E-7-G)
rate schedules (Attachment B) to reflect current costs, effective July 1, 2022
Seconded by Commissioner Metz
Motion carries 4-0 with Chair Forssell and Vice Chair Segal, Commissioners Johnston, Metz voting yes.
Commissioners Bowie, Scharff, and Smith absent
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