HomeMy WebLinkAboutStaff Report 2303-11414.Recommendation to the City Council to 1) Adopt a Resolution Approving the Fiscal Year
2024 Electric Financial Plan and Proposed Reserve Transfers, and Amending Rate
Schedules E-HRA (Hydro Rate Adjuster), 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-NSE (Net Metering Net
Surplus Electricity Compensation), and E-EEC (Export Electricity Compensation) and 2)
Discuss and Potential Direction for an Electric Rebate in 2023 Supplemental Memo,
Presentation
Item No. {{item.Number}}.Page 1 of 8 1
8
8
8
Finance Committee
Staff Report
From: Kiely Nose, Assistant City Manager
Lead Department: Utilities
Meeting Date: March 21, 2023
Staff Report: 2303-1141
TITLE
Recommendation to the City Council to 1) Adopt a Resolution Approving the Fiscal Year 2024
Electric Financial Plan and Proposed Reserve Transfers, and Amending Rate Schedules E-HRA
(Hydro Rate Adjuster), 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-
NSE (Net Metering Net Surplus Electricity Compensation), and E-EEC (Export Electricity
Compensation) and 2) Discussion and Potential Direction for a Residential Electric Rebate in 2023
RECOMMENDATION
Staff recommends that the Finance Committee recommend the City Council adopt a Resolution:
1. Approving the Fiscal Year (FY) 2024 Electric Financial Plan modified to reflect the transfers
and rate actions listed below in sections 2, 3, and 4;
2. Approving the following transfers at the end of FY 2023:
a. Up to $12 million from the Supply Operations Reserve to the Distribution
Operations Reserve; and
b. Up to $4.5 million from the Supply Operations Reserve to the Cap and Trade
Program Reserve; and
3. Approving the following transfers in FY 2024:
a. Up to $10 million to the Electric Special Projects (ESP) reserve from the Supply
Operations Reserve; and
b. Up to $8 million to the Hydroelectric Stabilization Reserve from the Supply
Operations Reserve; and
c. Up to $3 million from the Supply Operations Reserve to the Cap and Trade
Program Reserve; and
4. Approving the following rate actions for FY 2024:
a. Deactivation of the hydroelectric rate adjuster from customer bills effective July
Item No. {{item.Number}}.Page 2 of 8 1
8
8
8
1, 2023;
b. 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), and E-7 TOU (Large Non-Residential Time of Use
Electric Service) of 21% effective July 1, 2023;
c. An increase to the Export Electricity Compensation (E-EEC-1) rate to reflect 2022
avoided cost, effective July 1, 2023;
d. An increase to the Net Surplus Electricity Compensation (E-NSE-1) rate to reflect
current projections of FY 2023 avoided cost, effective July 1, 2023; and
e. An update to 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 to reflect modified distribution and commodity components,
effective July 1, 2023.
On March 1, 2023 the Utilities Advisory Commission (UAC) recommended the Finance Committee
recommend to Council the staff recommendation in Staff Report 2301-0844.1 The staff
recommendation above would modify the resolution, Financial Plan, and rate sheets from that
staff report to reflect the new staff rate recommendation described in this report.
EXECUTIVE SUMMARY
Since presenting the rate proposal and financial plan to the UAC on March 1, 2023, new
information has arisen that materially improves the electric utility’s financial position. Staff
expects to receive approximately $24 million as part of Northern California Power Agency
litigation in the coming months. Based on the information, staff revised the rate proposal
provided to the UAC and proposes a net reduction of 5% to electric customers (net average
electric rate costs). the $24M payment can be used to replenish reserves with some of the
payment left over for rate stabilization, providing adequate reserves to manage hydroelectric risk
and enabling rates to be phased over a slightly longer period. More importantly, the replenished
reserves enable the HRA to be removed.
1 Titled “Staff Recommends the Utilities Advisory Commission Recommend that the Finance Committee
Recommend that the City Council Adopt a Resolution Approving the Fiscal Year 2024 Electric
Financial Plan and Proposed Reserve Transfers, and Amending Rate Schedules E-HRA (Hydro Rate
Adjuster), 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-NSE (Net
Metering Net Surplus Electricity Compensation), and E-EEC (Export Electricity Compensation)”
https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/utilities-advisory-
commission/archived-agenda-and-minutes/agendas-and-minutes-2023/03-mar-2023/03-01-2023-item-4.pdf
Item No. {{item.Number}}.Page 3 of 8 1
8
8
8
In addition to the rate proposal outlined in this report, Attachment A provides options for
consideration for providing rebates to electric customers to offset high winter energy bills.
BACKGROUND
On March 8, the City of Palo Alto learned about the timing of a financial payment in the City’s
favor related to the litigation of the Central Valley Project Improvement Act (CVPIA) operated by
the U.S. Bureau of Reclamation and anticipates receiving approximately $24 million in the coming
months. The payment comes after years of litigation by Northern California Powers Agency
members that the United States government did not follow the CVPIA legislation and
overcharged Palo Alto Utilities $24M when collecting CVPIA on an annual basis from 1992-2020.
The timing, amount, and form of repayment were unknown until March 8 and therefore,
was not included in the financial plan presented to the Utilities Advisory Commission (UAC) on
March 1, 2023.
DISCUSSION
Since presenting the rate proposal and financial plan to the UAC on March 1, 2023, new
information has arisen that materially improves the electric utility’s financial position. Based on
the new information, the expected $24 million payment as part of NCPA litigation, staff revised
the FY 2024 rate proposal and financial projections reviewed by the UAC and proposes a new FY
2024 5% reduction in net average rate in the electric utility. This revised recommendation reflects
the impacts of the expected payment . This report covers the following two topics for Committee
consideration:
1. Staff recommends a net 5% rate reduction that customers will benefit from beginning July
2023; this is the combination of 1) deactivating the hydroelectric rate adjuster (HRA) and
2) increasing the electric utility rate by 21%. The previous plan presented to UAC
recommended a continuation of the current overall electric utility cost to the customer.
This net reduction can be achieved with the allocation of the $24 million payment to repay
loans in the amount of $10M, transfer $8M to stabilize reserves, and allocate $6M for
future electric rate relief. The HRA is able to be removed in full with the recommended
replenished reserves mitigating the risk associated with dependency on electricity
generated by water.
2. Staff has provided options for consideration of rebates to electric customers to offset high
winter energy bills at the direction of the City Council on February 13, 2023, as part of the
FY 2023 Mid-Year Budget reivew. (Attachment A)
Recommended FY 2024 Electric Utility Cost – net 5% reduction to customer costs
Staff is recommending rate changes resulting in a 5% decrease in the electric utility system
average rate effective July 1, 2023. This involves two key actions, 1) deactivating the hydroelectric
rate adjuster completely and 2) increasing the electric utility base rate by 21%. This updated rate
Item No. {{item.Number}}.Page 4 of 8 1
8
8
8
proposal generates $208.4 million, or roughly $11 million less than the financial plan presented
to the UAC on March 1st that generated $219.8 million in revenue. The changes recommended
to the electric utility financial plan that enable the net 5% decrease in customer costs, including
the recommended use of the $24M in revenues from the payment, are summarized below:
Repay $10 million in internal loans & repeal recommended additional internal loans:
The Council has approved previous internal loans of $10 million from the electric utility’s
Electric Special Projects Reserve to its Operation Reserves. The Financial Plan proposed
included an additional $8 million internal loan, for a total liability of $18 million paid back
over three years. These loans have been used to mitigate electric utility customer rate
increases and allow a phased approach to cost escalation and pauses in rate adjustments
during the pandemic. Staff is proposing to forego the additional $8 million internal loan
and use $10 million of the $24 million payment to repay the remaining outstanding $10
million internal loan. This reduces electric utility revenue needs in future years since
internal loan repayment is no longer needed.
Transfer $8 million to the Hydroelectric Stabilization Reserve & Eliminate the
Hydroelectric Rate Adjuster (HRA): The hydroelectric rate adjuster (HRA) is activated
during periods of lower hydroelectric output (typically drought conditions) only when
there are insufficient funds in the Hydroelectric Stabilization Reserve to fund the purchase
of additional electricity needed to meet customer demand with that lower output of
electricity generation by water. Currently there is only $400,000 in the Hydroelectric
Stabilization Reserve. The target level for the reserve is $19 million and the HRA is typically
activated when reserves are below $11 million. To mitigate a potential reactivation of the
HRA due to dry weather as early as next year, a $8.4 million Hydroelectric Stabilization
reserve ($8.0 million increase) is recommended. Although not at targeted minimum
levels, staff recommends this lower value managing the risk of future weather conditions
and expecting to increase reserve levels if FY 2024 hydroelectric generation exceeds
projections.
Allocate $6 million for future rate relief: The remaining $6 million is recommended to be
added to the Supply and Distribution Operations Reserve which are projected to be at
$19.5 million at the end of FY 2023, which is $11.3 million (36%) below the minimum
guidelines of $31 million. These funds will be used to phase in future rate increases
needed to stabilize the financial health of the electric utility gradually over the forecast
period.
The recommended changes above are modeled in the tables and charts outlined below.
The proposed rate trajectory (including the HRA) can be seen in Figure 1 below. The revenue
from the receipt of the CVPIA $24 million payment is not shown, but it is included in the reserves
charts that follow. The rates proposed for July 1, 2024 are 5% lower than the January 1, 2023
Item No. {{item.Number}}.Page 5 of 8 1
8
8
8
rates, but would generate more revenue because they would be in effect the entire fiscal year
(July 1, 2023 to June 30, 2024) whereas the January 1, 2023 rates will only be in place for six (6)
months.
Figure 1: Electric Utility Revenues, Expenses, Rate Changes
Figure 2 below reflects the system average rate with and without the HRA included. This chart
shows the changes to customers net bill impact over the previous 4 years and the projected
new rate proposal impacts moving forward.
Item No. {{item.Number}}.Page 6 of 8 1
8
8
8
Figure 2: Electric Utility With and Without the HRA
The Operations reserve remains below minimum guidelines through FY 2024, as shown in Figures
3 and 4 below, however, staff believes this is an acceptable proposal because the Electric Special
Projects reserve will be fully funded and could be used in an emergency. The Hydroelectric
Stabilization Reserve would also have some funds to protect against a dry winter in FY 2024.
Figure 3: Electric Utility Supply Operations Reserve
Item No. {{item.Number}}.Page 7 of 8 1
8
8
8
Figure 4: Electric Utility Distribution Operations Reserve
Consideration of rebates to electric customers to offset high winter energy bills
Council asked staff to return to the Finance Committee with potential residential electric rebate
options. These options are described in more detail in Attachent A. Also of note, on March 27th,
the Council is scheduled to consider a gas rebate program for 2023 as well at a cost of up to $1.8
million.
Potential electric rebate program options for a cost of up to $720,433:
• Option 1: 20% rebate of $720,433 to all residential electric customers based on their
electric consumption in January 2023;
• Option 2: Flat rebate of $27.05 to every residential electric customer in January 2023
totaling $720,369, based on an average January residential electric bill of $135.26.
TIMELINE
The City Council will consider adopting the Financial Plan and rate adjustments as part of the
FY2024 budget review and adoption process. If Council approves the proposed rate changes, the
rates will become effective July 1, 2023.
FISCAL/RESOURCE IMPACT
FY 2024 revenues are projected to increase by $12 million2 (6%) compared to FY 2023 levels if
Council adopts this report’s recommendations, despite the fact that rates would decrease 5%.
This is because the current rates were effective January 1, 2023, and were only in place for 50%
of the fiscal year, while the proposed rates would be in place a full fiscal year.
2 This revenue calculation excludes expected monies to be received from the CVPIA payment.
Item No. {{item.Number}}.Page 8 of 8 1
8
8
8
The City is a utility customer, so the rate change will also result in estimated City expenses of
about $5,800,000, approximately $2,030,000 of that being in the General Fund. Resource impacts
to City departments and funds of the recommended rate adjustments will be programmed in the
FY 2024 Proposed Operating Budget. If the final rates adopted by Council in June differ from
those proposed in this report, further adjustments may be brought forward as part of the annual
budget process.
STAKEHOLDER ENGAGEMENT
Stakeholder engagement for the rate adoption process includes review by the UAC, Finance
Committee, and City Council, as well as outreach to residents via the website and social media.
At the Utilities Advisory Commission (UAC) March 1, 2023 meeting, staff presented the attached
Financial Plan and the recommendation was approved unanimously.
ENVIRONMENTAL REVIEW
The Finance Committee’s review and recommendation on the FY 2024 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: Residential Electric Rebate Options
APPROVED:
Dean Batchelor, Director of Utilities
Staff: Jonathan Abendschein, Assistant Director Utilities 2302-0945
2302-1141
1
0
2
2
RESIDENTIAL ELECTRIC REBATE OPTIONS
Council asked staff to return to the Finance Committee with some proposed residential electric
rebate options.
Option 1: 20% rebate of $720,433 to all residential electric customers based on their
electric consumption in January 2023;
Option 2: Flat rebate of $27.05 to every residential electric customer in January 2023
totaling $720,369, based on an average January residential electric bill of $135.26.
ANALYSIS
In late 2022 electricity market prices increased at unprecedented levels, leading to the need to
increase the hydroelectric rate adjuster on January 1, 2023 of an additional 20% to match the
cost of replacing hydroelectric power with market power. Since April 2022, electric rates have
increased by approximately 35%.
Staff analyzed January 2023 residential electric bills when the electric hydro rate adjuster (E-HRA)
was increased an additional 20%. There were a total of 26,631 residential electric customers in
January 2023. The total January 2023 residential electric charge was $3.6M compared to $2.9M
in December 2022 when E-HRA was not increased. Electric residential bills for the service period
of January 2023 were as follows:
Under the 20% rebate scenario based on January customer consumption, the average rebates
will range from $2.08 for customers with less than a $20 electric bill to $774.37 for customers
with bills greater than $2,000 totaling $720,433.
The average residential electric consumption for January was 609.20 therms with an average bill
of $135.26. A flat 20% rebate across all residential electric users would be equivalent to $27.05
per customer totaling $720,369.
Bill Ran g e % of Total # of Cust o mers
Greater than $1,000 0.2%63
$500 to $1,000 1.6%435
$150 to $500 29.9%7,962
Les s than $150 68.2%18,171
1
0
2
2
RESOURCE IMPACT
The City’s General Fund would provide full funding of the electric residential rebate program
through a transfer to the Electric Fund. The General Fund receives a five percent utility users tax
(UUT) on monthly electric, gas, and water bills. For January 2023 electric billing, the City received
$174,825 in electric UUT for residential bills compared to $161,438 in electric UUT for December
2022. The unplanned increase in UUT revenue will be recorded in the General Fund Budget
Stabilization Reserve, which would be used to fund the transfer to the Electric Fund for the rebate
program.
Electric Billing Range
Number of
Residential
Accounts
% of Total
Accounts
Jan Electric Bill
Charge
Average Jan
Electric Bill
20% Rebate
Amount
Avg. 20%
Rebate per
Customer
Flat Rebate of
$27.05 Based
on Average Bill
of $135.26
< $20 2,243 8.4%23,384$ 10.43$ 4,677$ 2.08$ 60,673$
$20 - $49.99 4,522 17.0%160,527$ 35.50$ 32,105$ 7.10$ 122,320$
$50 - $99.99 6,655 25.0%489,647$ 73.58$ 97,930$ 14.72$ 180,018$
$100 - $149.99 4,751 17.8%584,921$ 123.12$ 116,984$ 24.62$ 128,515$
$150 - $199.99 3,071 11.5%531,536$ 173.08$ 106,307$ 34.62$ 83,071$
$200 - $299.99 3,180 11.9%769,615$ 242.02$ 153,923$ 48.40$ 86,019$
$300 - $399.99 1,190 4.5%407,777$ 342.67$ 81,555$ 68.53$ 32,190$
$400 - $499.99 521 2.0%231,091$ 443.55$ 46,218$ 88.71$ 14,093$
$500 - $599.99 206 0.8%111,495$ 541.24$ 22,299$ 108.25$ 5,572$
$600 - $699.99 102 0.4%66,361$ 650.60$ 13,272$ 130.12$ 2,759$
$700 - $799.99 68 0.3%50,836$ 747.59$ 10,167$ 149.52$ 1,839$
$800 - $899.99 40 0.2%33,678$ 841.95$ 6,736$ 168.39$ 1,082$
$900 - $999.99 19 0.1%17,714$ 932.29$ 3,543$ 186.46$ 514$
$1,000 - $1,499.99 38 0.1%45,879$ 1,207.34$ 9,176$ 241.47$ 1,028$
$1,500 - $1,999.99 9 0.0%15,750$ 1,750.02$ 3,150$ 350.00$ 243$
> $2,000 16 0.1%61,950$ 3,871.86$ 12,390$ 774.37$ 433$
Grand Total 26,631 3,602,161$ 720,433$ 720,369$
March 21, 2023 www.cityofpaloalto.org
ELECTRIC UTILITY FINANCIAL PLAN ANDPROPOSED RATECHANGES FOR FY 2024
Staff: Jonathan Abendschein •
CITY OF
PALO ALTO
UTILIT
2
FY 2024 proposal:
•Total system average rate reduction of 5%, which consists of a 21% base rate increase and
deactivating the Hydroelectric rate adjuster (HRA)
•Payment from winning Central Valley Project Improvement Act Litigation will provide rate
relief, increase hydro stabilization reserve, and repay loan to Electric Special Projects Reserve
•Operations Reserves will remain below minimum guidelines through FY 2025
•21% base rate increase incorporates long-term hydroelectric and cost trends, and allows full
removal of the HRA
Future years:
•FY 2025 –FY 2028 assumes 5% per year for grid modernization and electrification costs
Electric Rate Proposal
~CITY OF
~PALO ALTO
3
•This chart shows recent rate changes in
both the base electric rates and the
hydroelectric rate adjuster (HRA).
•Base rate recovers costs for all routine
utility expenses
•HRA recovers costs for additional
expenses associated with low
hydroelectric generation
•Recent rate increases driven by:
•No rate increases during pandemic
•Depleted reserves
•Extended drought
•High electricity market prices
Electric Rate Changes
Current Proposal:
Overall FY 2024 rate reduction of 5%
HRA deactivated, base rate to increase 21%
Actual Proposed / Forecasted
~CITY OF
~PALO ALTO
0.3000
r 0.2500
0.2000 8% 0% 0%
0.1500
0.1000 8 0 0% 0% 0% 5%
0.0500
Jul 2019 Jul2020 Jul2021 Jul2022
-system Average Base Rate
% Change (Sys Avg Base Rate)
19% -5% 5% 5%
5% 5%
0% l
Jul2023 Jul 2024 Jul 2025
-system Average Base Rate with HRA
% Change (Sys Average with HRA)
4
•Through the pandemic, the utility held its electric
rates flat to help customers impacted by the
pandemic.
•Costs continued to rise due to:
•Rising electricity supply costs
•Increasing operational costs
•Construction inflation
•Rising capital investment
•Costs are now well above revenues, requiring
increases to base rates
•Reserves are much lower than was forecasted in last
year ’s (FY 2023) Financial Plan due in part to
extended drought and high electricity market prices
•The 5% rate reduction will be keep operations
reserves below minimum guidelines through FY 2025
•CVPIA payment funds hydro stabilization reserve
above minimum guideline, allowing low operations
reserves
Trends Driving Rate Changes –Depleted Reserves
Pandemic –no rate changes
$__ FY 22 Deficit $__ FY 23 Deficit
FY 2023 Reserves Projection
Current Reserves Projection
V) $300
C
0
~ $250
$200
$150
$100
$50
$-
V) $50
C
0
~ $40
$30
$20
$10
$-
-Total Costs -Base+ HRA Revenues -Base Revenues
FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026
-. -. -. -. -. -. -. --
FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026
-FY23 Total Operations Reserves -FY24 Total Operations Reserves
-Minimum Operations Reserve - • Risk Assessment
5
•Alongside pandemic, California experienced
extreme drought
•Heavy rains in Dec 2022 -Mar 2023 helped.
Drought significantly decreased, conditions vary
by location in California.
•Years of drought mean significant runoff will
likely be absorbed by the parched ground rather
than going to hydroelectric generation.
•Activating the hydroelectric rate adjuster is
intended to be a rare event, but staff believes
declining average hydroelectric generation levels
are making it more likely.
•Current forecasting methodology assumes
higher average hydroelectric, increasing chance
of activation
•Staff intends to use a lower hydroelectric forecast
in this Financial Plan to reduce the likelihood of
activating HRA in the future.
Trends Driving Rate Changes –Multiple Years of Drought
600 GWh
500 GWh
400 GWh
300 GWh
200 GWh
100 GWh
OGWh
---➔---~---------------• • • • •
Jul 2019 Jul 2020 Jul 2021 Jul 2022 Jul 2023 Jul 2024 Jul 2025
500000
500000
400000
300000
200()00
100000
0
• Hydroelectric Generation - -Long-term Average Hydro Generation
:'5;-iliiiiiill ---
•
Jul2019 Ju l 2020 Ju l 202 1 Ju l 2022 Ju l 2023 Jul2024 Jul2025
• Hydro 1ectrk Gene ration
New FY24 Financia l Plan Forecast
-1 ,!1-• Long-term Average Hydro Generation (Histori cal)
6
Trends Driving Rate Changes –Multiple Years of Drought
Northern Sierra Precipitation : a-Station Index , March 13 , 2023
100
.-----:::::::M oun t Shasta City
95 ,.~Shasta Dam
~Mineral
90 ~ ~Qui n cy
,. ~B rush creek
85
• ,. ..---s1 erra vllle RS
.:...--B lue Canyon
Percent of Average for this Date: 129%
2016-2017 Daily Precip (wettest)
BO .. --Pac ific House
---"' 75 QI
.l: u
C: 70 2018 -2019 Daily Precip _,
C:
0 65 .; ,u C:
0 ..,
60 ·c. .OJ
,u ·;:; ·'= QI 55 ... ..
Cl.
>-
Average (1991-2020) ~ C.
u
QI ...
:E 50 c
0 45 ~ --: 40 ·;;
0
~I Current : 51 .0 I
202 1 -2022 Da il y Prec i p
Cl. ...
Ill
QI >-...
QI ;
3::
QI 35 > .;
~ 30 ;;s
2019 -2020 Daily Precip iu ..
{:.
E ;;s 25 u 2020-2021 Dai l y Precip (3rd driest)
20 1923-1924 (driest)
1 5
1976-1977 (2nd dr i est)
10
5
0
Oct 1 Nov 1 Dec 1 Jan 1 Feb 1 Mar 1 Apr 1 May 1 Jun 1 Ju l 1 Aug 1 Se p 1 Oct 1
Wate r Year (October 1 -Septembe r 30 )
7
•Long-term electricity prices have
been rising
•FY 2023 and FY 2024 forward
power prices increased
~$0.025/kWh-$0.035/kWh
compared to last year’s projections
•Increases due to:
•Drought decreasing hydroelectric
generation across the West
•High Natural Gas Prices
•Generating capacity limitations
leading to market price spikes
•High prices forecasted to continue,
though not at FY 2023 levels.
Trends Driving Rate Changes –High Electricity Prices
0.100 Wh
0.090kWh
O,OSOkWh
O.070kWh
0.060kWh
0.050 Wh
0.040kWh
O.030kWh
0.020kWh
O.010kWh
O.OOOl<Wh
2020
YoY Changes in Forward Market Prices
202
Actual
20 2
Forecasted
2023 2024 20 5
FY24 Forward Prices -Around the Clock -FY23 Forward Prices -Around the Clock
_,Ac tual l)ay Ahead Pr ice • Around the Clock
2026
8
Current financial plan assumes grid
modernization and electric utility fiber
backbone investment will start in FY
2024 and run through the course of
the financial plan.
Trends Driving Rate Changes –Grid Modernization (Long-term)
Expenses ($000) IFY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Gr id Mode rni zat ion Pr o j ects 25 000 I 25 000 .I 50000 .I 50000 I 50000 .I
Electric Utility IF ber
13,000 0 0 0 0 !Backbo n e
TOTA ll 38,000 25 000 .I 50000 .I 50000 I 50000 .I
Expenses ($000) IFY 2024 FY 2025 FY 2026 IFY 2027 FY 2028
IBond Proceeds 63,000 50 000 .I 0 50000 I 50000 .I
Debt Service Costs 0 -2 032 .I -3 632 I -6,432 -9 632 .I
9
Proposed: Electric Cost and Revenue Projections with HRA
Co
s
t
/
R
e
v
e
n
u
e
"' C
.!:!
~
~CITY OF
~PA ILO ALTO
$300
$250
$200
$150
$100
$50
$0
RATE CHANGES : imm!Electric Commodity
14% 6% 8%
0% 0%
00 O'\ 0 ..-1 N ("() s::t
..-1 ..-1 N N N N N
0 0 0 0 0 0 0
N N N N N N N
>->->->->- >->-u.. u.. u.. u.. u.. u.. u..
Actuals
5% 5%
U'l I.O r--
N N N
0 0 0
N N N
>->- >-u.. u.. u..
Projections
5%
00
N
0
N
>-u..
□Capital Investment
CJJT ransfers
□Operations
□Grid Modernization
Debt
•Debt Service
-Revenue
Notes :
1) The 37 % increa se includes
April 2022 actviation of the
Hydroelectric Rate Adju ster
(HRA), a S% ba se rate increase,
and the January 1, 2023
increase of th e HRA from
$0.013/kWh to $0.048/kWh .
2) Becau se the full 37 % rate
increase wa s only in effect for
part of the year, FY 2024
revenue will still increa se
despite the 5% rate decrease.
Note that the FY 2024 revenue
shown does not include the
CVPIA settlement.
10
Proposed: Electric Cost and Revenue Projections (Base Rate only)
Co
s
t
/
R
e
v
e
n
u
e
Ill
C
.2
~
~CITY OF
~PA ILO ALTO
$300
$250
$200
$150
$100
$SO
$0
RATE CHANGES :
14% 6% 8% 0% 0% 8% 21% 5% 5%
-------------------------------------------------------------
m::: . . '"'"' '"'"' .,.,.
I I I ...... •:!:::i:::i;_;~•::::!:::•:::i;;;•:::::::•::::_ ...... •:_:: ···· :~_~:::::::,i::i;;•::I:,i::i;,.:: .. 1 ...... -1-.... 1 ..... . . .
m} mi mi
~~t~f ~~:.?-:•
00 CJ) 0 .--t N ("() s::t"
.--t .--t N N N N N
0 0 0 0 0 0 0
N N N N N N N
>- >- >->->->->-LL LL LL LL LL LL LL
Actuals
I
...... 1 ·-···
L/)
N
0
N
>-LL
I..O
N
0
N
>-LL
Projections
5%
r--
N
0
N
>-LL
5%
I
I
fiaill!Electric Commodity
~Capital Investment
EIJ Transfers
······ 1 ···□Operations
00
N
0
N
>-LL
□Grid Modernization
Debt
-Debt Service
11
Electric Supply Operating Reserve Projections
~CITY OF
~PA ILO ALTO
Ill $50
C:
.2
i $45
$40
$35
$30
$25
$20
$15
$10
$5
$0
---~ --- ------...
FY 2022 FY 2023 FY 2024
---
-Reserve Ma xim um
- -Reserve Target
-Reserve Minimum
-Reserve (Y e ar-En d)
FY 2025 FY 2026 FY 2027 FY 2028
12
Electric Distribution Operating Reserve Projections
Ill $20
C:
.!2
~ $18
$16
$14
$12
$10
$8
$6
$4
$2
$0
~CITY OF
~PA ILO ALTO
_,------------------------------------------------------------------------------------------------------,,,,. ---------------------------------------------;;,-----------------
,,,, ,,,, /
-Reserve Max imum
---------------------------------------------------------------------------------------------_ -Reserve Target _________________ _
-Reserve Min i mum
-Reserve (Year-End)
Risk Assessment
FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
13
Staff recommends that the Finance Committee recommend the City Council adopt a Resolution:
1.Approving the Fiscal Year (FY)2024 Electric Financial Plan modified to reflect the transfers and rate actions
listed below in sections 2, 3, and 4;
2.Approving the following transfers at the end of FY 2023:
a.Up to $12 million from the Supply Operations Reserve to the Distribution Operations Reserve; and
b.Up to $4.5 million from the Supply Operations Reserve to the Cap and Trade Program Reserve; and
3.Approving the following transfers in FY 2024:
a.Up to $10 million to the Electric Special Projects (ESP)reserve from the Supply Operations Reserve; and
b.Up to $8 million to the Hydroelectric Stabilization Reserve from the Supply Operations Reserve; and
c.Up to $3 million from the Supply Operations Reserve to the Cap and Trade Program Reserve; and
Staff Recommendation
~CITY OF
~PALO ALTO
14
Staff recommends that the Finance Committee recommend the City Council adopt a Resolution:
4.Approving the following rate actions for FY 2024:
a.Deactivation of the hydroelectric rate adjuster from customer bills effective July 1, 2023;
b.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),and E-7 TOU (Large Non-Residential Time of Use
Electric Service)of 21%effective July 1, 2023;
c.An increase to the Export Electricity Compensation (E-EEC-1)rate to reflect 2022 avoided cost,effective July 1,
2023;
d.An increase to the Net Surplus Electricity Compensation (E-NSE-1)rate to reflect current projections of FY
2023 avoided cost,effective July 1, 2023;and
e.An update to 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 to reflect modified distribution and commodity components,
effective July 1, 2023.
Staff Recommendation (continued)
~CITY OF
~PALO ALTO