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HomeMy WebLinkAbout1996-04-18 City CouncilBV GET 1996-98 City of Palo Alto C ty Manager’s Report TO: FROM: AGENDA DATE: SUBJECT: HONORABLE CITY COUNCIL CITY MANAGER April 18, 1996 DEPARTMENT: UTILITIES CMR:209:96 BUDGET ISSUE: New Demand Side Management Program REQUEST: This report requests that Council approve a change in policy to fund Demand Side Management (DSM) and other environmentally friendly programs. At their October meeting, the Utilities Advisory Commission (UAC) reviewed the new policy and approved the motion: "... that we support the recommended policy for allocation of (between .75% and 1.25% of revenues) to the environmentally friendly and DSM programs, with proposed program details to be provided to the UAC for review and comment." This policy would justify DSM programs based on the community’s support for environmental policies and the Utilities goal of retaining and enhancing the satisfaction of customers, rather than DSM’s ability to compete with supply-side resources or to lower rates. This policy change is in line with the direction towards which the utility industry is moving. Staff expects the expenditures for DSM programs to range between 0.75% and 1.25% of Utilities sales revenues during the two FYs 1996-98. RECOMMENDATIONS: Staff recommends that Council adopt the new DSM policy as outlined in this report. POLICY IMPLICATIONS: The recommended policy shifts the goal for DSM programs from reducing rates or displacing supply resources, to a goal of achieving customer satisfaction and retention while fostering the community’s environmental values. CMR:209:96 Page 1 of 3 In the 1970’s, a national call for conserving energy began. In response, Palo Alto Utilities formed an Energy Conservation Unit. During the 80’s, with price forecasts showing continual increases, and with government tax incentives, CPA Utilities implemented a solar heating program. In 1985, Utilities initiated industrial and commercial DSM programs to lower peak demand and reduce the Utilities purchase of expensive capacity. However, in recent years, due to the continuing decline of electric supply costs, DSM programs have begun to force rates up. In the 90’s, it became necessary to justify DSM based on its impact on the community, rather than just the utility. This was done through Integrated Resource Planning (IRP). That process incorporated a cost for environmental impacts. Even so, most recently, DSM programs were rejected by the UAC due to their low cost-effectiveness. Over the years, Palo Alto citizens have expressed interest in preserving and maintaining a healthy environment. Recently, the City’s Comprehensive Plan Update, although not adopted at this time, identified preservation of the natural environment as a goal. Several goals in the transportation section suggest the use of cleaner transportation modes, such as electricity and natural gas fueled vehicles. Related to the Utilities, recommendations include balancing environmental and cost issues, encouraging efficient use of resources, and appropriate use and implementation of alternative technologies. In 1994, Utilities conducted an energy and water use survey. Palo Alto citizens overwhelmingly reported (99.9%) that efficient use of utilities is important, and about 55% of residential customers are willing to pay something to achieve this end. Also, 90% of Palo Alto’s businesses indicated that electricity efficiency was important. With regard to commercial customers, 46% indicated that they would be willing to pay to achieve this end. As the utility business becomes more competitive, customer satisfaction and retention become important goals. It follows that any DSM programs must be consistent with those objectives. That is, DSM programs should be customer driven. In this new program, expenditures for DSM programs are intended to be divided into three general categories: programs which will result in reduced sales; programs which will not affect sales; and programs which will increase sales. Only those programs that meet the community’s environmental values and promote customer retention and satisfaction will be considered. In that vein, the following factors will be used to evaluate potential DSM programs: environmental benefit, program cost, marketability, customer demand, customer satisfaction, and competitive issues. FISCAL IMPACT: Total expenditure for this program will range from 0.75% to 1.25% of sales revenue for fiscal years 1996-1998. This is in line with past years’ expenditures on similar activities, CMR:209:96 Page 2 of 3 and is in line with expenditures by other utilities in California. ENVIRONMENTAL ASSESSMENT: This action does not constitute a project under the California Environmental Quality Act; therefore, an Environmental Assessment is not required. ATTACHMENTS ¯ Demand Side Management Program report to UAC dated October 4, 1995. ¯ UAC Minutes on DSM item dated October 4, 1995. ¯ Report to UAC: FY 1996-97 DSM Program Recommendation dated April 3, 1996. PREPARED BY:W. BLAKE HEITZMAN, Manager, Competitive Assessment DEPARTMENT HEAD APPROVAL: CITY MANAGER APPROVAL: CMR:209:96 Page 3 of 3 MEMORANDUM TO: FROM: AGENDA DATE: SUBJECT: Utilities Advisory Commission Utilities Department October 4, 1995 Demand Side Management Program RECOMMENDATION This report recommends UAC approval of a change in an internal policy to fund Demand Side Management (DSM) and other environmentally friendly programs. This policy would justify these programs based on the community’s support for environmental policies and the Utilities goal of retaining and enhancing the satisfaction of the customer rather than their potential to compete with supply-side resources or to lower rates. This policy change is in line with the direction towards which the utility industry is moving. Staff expects that spending for these programs to range between 0.75% and 1.25% of Utilities sales revenues during FYs 1996-98. BACKGROUND With the 1973 oil embargo and the 1979 gas price shock providing the impetus, a national call for conserving energy began. In response, Palo Alto Utilities formed an Energy Conservation unit. The unit initially targeted residential customers by initiating a program to assist them weatherizing their homes. Additional programs were developed primarily in response to the customer demand for information to help control their utility costs. As price forecasts for natural gas showed continual price increases, and with state and ~ federal governments providing tax incentives for the installation of solar systems, from 1981 to 1987 CPA Utilities implemented a program to assist residential customers installing solar systems. In 1985, Utilities implemented the "Partners" and the load management programs to lower peak demand and reduce the Utilities purchase of expensive capacity. Rebate levels were established by assessing the rebate level required to elicit customer action while remaining below supply marginal cost. At that time, the marginal costs of electricity, especially capacity, were greater than our retail rates, thus offering Utilities an opportunity to reduce rates by implementing these programs. Due to the continuous decline of the cost of electric supplies, in 1990 it became difficult to find oppommities to use DSM to lower rates. When marginal supply cost fell below.. average retail rates, DSM programs resulted in an upward impact on rates. At this time, DSM programs began to be justified from a different perspective -- that of "society" in general. The cost-effectiveness criterion thus changed to the Total Resource Cost (TRC) test. At about the same time, the resource planning process changed to Integrated Resource Planning (IRP), a side-by-side analysis of supply- and demand-side alternatives. That process incorporated the quantification of "environmental externalities" which, in addition to using the TRC test, provided additional boosting to the economical value of DSM and renewable resources. The TRC criterion with environmental externalities was used in the 1992 Electric IRP, the 1993 Water IRP and the 1994 Gas IRP. DSM programs justified under these analyses were thus recommended for pilot scale implementation. The most recent DSM program proposal, the Residential Refrigerator Program, proposed for implementation in 1994-1995, was rejected by the UAC due to poor cost-effectiveness. The following chart shows Resource Conservation expenditures over the years. Note that water utility expenditures do not begin until FY 91-92 so the totals for FYs 88-91 include electric, and gas only. The attachment to this report includes the breakdown by utility of these expenditures. ELECTRIC, GAS, and WATER 88-89 89-90 90-91 91-92 92-93 93-94 94- 95 Actual Resource Conservation Expenditures ($1000) Salaries and Benefits $ 175 $ 591 $$$$$ DSM Incentives 51 656 519 579 671 827 829 All Other 119 189 117 154 124 214 ¯ 37 TOTAL EXPENSES $ 345 $1,437 378 332 292 199 273 $1,014 $1,065 $1,087 $1,240 $1,13 9 Fraction of Utilities Sales Revenues Salaries and Benefits.0,24%0.77%0.65%0.63%0.70%0.87%0.86% DSM Incentives 0.07%0.85%0.15%0.17%0.13%0.22%0.04% All Other 0,16%0.25%0.48%0.36%0.31%0.21%0,28% TOTAL EXPENSES 0,47%1.87%1.28%1.17%1.!4%1.30%1.1,8% POLICY IMPLICATIONS The recommended policy shifts the goal for implementing DSM programs from reducing rates or displacing supply resources to a goal of achieving customer satisfaction and 2 retention while meeting the community’s environmental values. DISCUSSION Community Interest in Environmental Values Palo Alto citizens have long expressed an interest in preserving and maintaining a healthy environment. This interest currently is being expressed by the Comprehensive Plan Advisory Committee in their deliberations about the update to the City’s Comprehensive Plan and by customer responses to utility surveys. In addition, Palo Alto proclaimed its commitment to the President’s Climate Challenge for greenhouse gas stabilization and to the collaborative effort to enco.urage urban water conservation in California. Comprehensive Plan Although not yet formally adopted by the City Council, the latest draft of the Comprehensive Plan Update identified visions for the City’s future. The natural environment and transportation elements directly relate to Utilities activities. Several goals in the transportation element suggest the use of cleaner transportation modes, such as electricity and natural gas fueled vehicles, and list programs to address issues such as clean air and infrastructure investments, The natural environment element discusses the value ~of the environment in the mix of things which need to be balanced to meet the need of the Palo Alto community. Recommendations include ensuring long-term supplies, balancing environmental and cost issues and encouraging efficient use of resources and appropriate use and implementation of alternative technologies. Utilities Customer Survey In 1994, Utilities conducted an energy and water use survey of all customer classes. The customers were asked several questions about their conservation attitudes and willingness to pay for "greener" (more environmentally friendly) resources. A strong support for efficiency exists among Palo Alto citizens as 99.5% reported that efficient use of utilities is important and 97% replied that Utilities should promote resource efficiency. About 55% of residential customers are willing to pay something (the smallest choice was a 5% increase on bills) for ’.~greener" resources and about 17-19% would pay more than 10% additional on their bills. Palo Alto’s businesses also showed a significant commitment to resource efficiency with 90% indicating that electricity efficiency is important (80% and 82%, respectively, indicated that gas and water efficiency is important). Fewer commercial than residential customers indicated that they would be willing to pay for "greener" resources with 46% willing to pay something, but only 17-20% willing to pay 5% or more of their bill and about 10% willing to pay more than 10% additiona! on their bills. Climate Challenge Palo Alto voluntarily committed to the President’s Climate Change National Action Plan. This plan requires Palo Alto to stabilize the electric utility’s greenhouse gas emissions at 1990 levels by the year 2000. Memorandum of Understanding, Reaardin~ Urban Water Conservation in California In December 1991, Palo Alto signed the MOU and thus committed to the pursuit of cost- effective, reliable water savings via the implementation of certain Best Management Practices. Utilities Interest in Customer Satisfaction and Retention As the utilities business becomes more competitive, the goals of customer satisfaction and retention become more and more important. Just as in any other business, it costs less to keep an existing customer happy than it does to recruit a new one. Additionally, the loss of even one key Palo Alto utility customer could have major ramifications on the remaining customer base. The Resource Management Division has already begun to address these issues in its strategic plan and Key Customer Management Program. It follows that any DSM programs contemplated must be consistent with these objectives. To continue along this path, .DSM programs also should be customer driven. In short, the Utilities needs to provide what the customer wants and DSM programs are a means to accomplish this. General Areas to be Funded Utilities expenditures for DSM programs are intended to be divided into three general categories: programs which will result in reduced sales; programs wtiich will not affect sales; and programs which will increase sales. Only those programs that meet the community’s environmental values and promote customer retention and satisfaction will be considered for implementation. Activities Resulting, in Decreased Sales Example DSM programs that promote efficiency include commercial lighting programs, ultra-low flush toilet programs, and air conditioning efficiency programs. Activities with no Impact on Sales Undertakings which do not impact sales include the development of renewable energy resources such as photovoltaic and wind resources. For example, a program could pay the difference between the price of energy produced from renewable energy andthe price of fossil-fuel fired generation. Activities Resultin.~ in Increased Sales Most of these opportunities involve converting the use of some energy source not sold by Utilities to the use of an energy source provided by Utilities. Examples include the conversion of gasoline-fired vehicles or equipment to natural gas or electricity. 4 Experience of Other Utilities Utility Plans Staff recently polled representatives from many utilities to discover their plans for funding DSM programs. Southern California Gas Company is moving toward shareholder- and participant-funded DSM rather than a ratepayer-funded DSM. PG&E and Southern California Edison are also shifting their efforts to programs with minimal ratepayer impact. However, San Diego Gas & Electric will continue ratepayer-funded DSM programs until the CPUC and!or legislature decide how to fund DSM under restructuring. Many utilities are planning to offer loans or lease-purchase financing and are trying to find ways that they can add value to customers. For example,, the utility could buy devices and/or products in bulk to bring the cost below what customers could do on their own without the help of the utility. If DSM costs are still to be levied on ratepayers at large, many utilities are arguing for a straight adder on utility bills that would be dedicated to DSM activities. California Legislative Initiatives Many utilities are awaiting how the electric industry restructuring plays out before making commitments to ongoing DSM funding. Several proposals are being discussed in the state legislature. Proposals seek to collect funds for DSM and renewable resources through some central mechanism that cannot be bypassed by customers who choose to have their commodities supplied by other entities besides regulated utilities. One such initiative by State Assemblyman. Byron Sher, Assembly Bill 1123, proposes that investor-owned utilities collect 3.6% of their revenues as a non- bypassable, distribution charge to fund DSM, renewables, and research, demonstration and development. This was settled on after the Natural Resources Defense Council study showed that PG&E’s 1994 expenditures for DSM, renewables, and research, demonstration and development were 2.4%, 0.65%, and 0.6%, respectively. DSM Program Funding A recent report1 summarized the expenditures by 991 U.S. electric utilities on their DSM programs. Expenditures grew from 0.5% of revenues in 1989 to 1.3% in 1992 and 1.5% in 1993. The utilities projected expenditures of 1.5% of revenues in 1998. Most of the expenditures (70%) went toward energy efficiency programs while a smaller fraction (25%) went toward load control and interruptible load programs. The top 25 utilities in terms of 1993 DSM expenditures spent an average of 2.4% of revenues on DSM programs. Of this PG&E spent 1.8%, Southern California Edison spent 1.7%, San Diego Gas & Electric spent 2.8%, and SMUD spent 5.9%. ~Utility DSM Programs from 1989 Through 1998: Coniinuation or Cross Roads?, Stan Hadley and Eric Hirst, ORNL/CON-405, Oak Ridge National Laboratory, Oak Ridge, TN, February 1995. 5 Criteria for Program Selection The allocation of the money among the three program categories will likely change over time and in response to Utilities priorities. Selection criteria for each program category will be developed So that the greatest benefit wilt accrue at the minimum cost. Staff will use several factors in evaluating the value of each program proposal. These factors will include environmental benefit, program cost, marketability, customer demand, customer satisfaction, and competitive issues. ALTERNATIVES Alternatives to the recommended funding mechanism include no change to current practice., participant-funded DSM, and a "green pricing" program. If no change from current practice is made, then DSM funding likely will end. This is true since DSM programs could no longer be justified as a means of reducing rates and could not compete against the market priced resource. The recommended mechanism recognizes the value the community places on environmentally sound activities and the value thaf Utilities places on activities that would improve customer satisfaction. If only participants paid for DSM, then the types of programs that could be implemented would be significantly limited. Programs such as the development of renewable energy could not be funded this way since there are no "participants" per se. However, a "green pricing" program could be implemented whereby expenditures for efficiency and/or -. "greener" resources could be funded by those .who volunteer to pay extra for this purpose. The drawback to this mechanism is that everyone benefits by the expenditures for "greener" resources, but only a subset of beneficiaries pay. In addition, a large portion of the money generated by green pricing, is likely to be wasted on administrative activities. FISCAL IMPACT Total expenditure for this program will range from 0.75% to 1.25% of sales revenue for fiscal years 1996-1998. This is in line with past years’ expenditure on similar activities. ENVIRONMENTAL ASSESSMENT Since a major rationale for these programs is to meet the community’s environmental goals, these programs are expected to have a positive impact on the environment. STEPS FOLLOWING APPROVAL Staff will identify and design programs for implementation in FYs 96-98 budget. An assessment of program ideas will return to the UAC for final approval before 6 implementation. ATTACHMENTS/EXHIBITS The attachment contains the breakdown of Resource Conservation expenditures by electric, gas, and water funds. Prepared By.:Tom Habashi, Assistant Director of Utilitie Resource Management Approved By: Jo of Utilities ATTACHMENT TO DSM PROGRAM FUNDING POLICY REPORT Actual Resource Conservation Expenditures ($1000) Salaries and Benefits $108 DSM Incentives 51 All Other 92 TOTAL EXPENSES $ 250 89-90 I IIIIIgOZI91 iiiiilll 91--92 $ 391 656 137 $1,183 $ 334 $ 366 $ 435 117-102 121 333 185 204 $ 783 $ 654 $ 760 Fraction of Electric Sales Revenues Salaries and Benefits 0.18%0.66%0.53%0.56%0.68% DSM Incentives 0.09%1.11%0.19%0.16%0.19% All Other 0.16%0.23%0.53%0.28%0.32% TOTAL EXPENSES 0.43%1.99%1.25%1.01%1.19% 193794194-95 $ 427 $ 386 209 37 151 161 $ 787 $584 0.68%0.60% 0.33%0.06% 0.24%0.25% 1.25%0.91% GAS , .......[ 88-89 } 89-9o 1,9o-91 19 ’92 1 2-93 93,,794 Actual Resource Conservation Expenditures ($ 1000) Salaries and Benefits $ 67 $ 201 $185 $ 213 $171.$ 328 DSM Incentives 0 0 0 0 0 0 All Other 27 53 45 44 18 17 TOTAL EXPENSES $ 94 $ 254 $ 230 $ 25~$189 $ 345 Fraction of Gas Sales Revenues Salaries and Benefits 0.44%1.15%1.09%1.33%0.97%1.84% DSM Incentives 0.00%0.00%0.00%0.00%0.00%0.00% All Other 0.18%0.30%0.27%0.27%0.10%0.09% TOTAL EXPENSES 0.62%1.46%1.36%1.60%1.07%1.93% 94-95 $ 287 0 40 $327 1.43% 0.00% 0.20% 0.91% WATER ’ 19 .9= 19=-i I 93-94 [ 94-95 Actual Resource Conservation Expenditures ($1000) Salaries and Benefits $ 0 $ 65 $ 73 $156 DSM Incentives 52 3 5 0 AIt Other 103 70 31 72 TOTAL EXPENSES $155 $138 $109 $228 Fraction of Water Sales Revenues Salaries and Benefits 0.00%0.46%0.50%1.30% DSM Incentives 0.50%0.02%0.03%0.00% All Other 0.99%0.50%0.21%0.60% TOTAL EXPENSES 1.49%0.98%0.75%1.90% Chandler: In my neighborhood, there are a lot of 3,500- or 0-square-foot houses being built now. izek: We can handle that. the built in Chandler: And 6,000 square feet is the ’est we allow in a single-family neighborhood. There one of those being neighborhood right now.- Mr. Mrizek: putting in not going to ~f you include-air conditioning .a!ized equipment requiring oft the large transformer. a home, and you start ¯ then the pole is Commissioner neighborhood where If you get four oi five of those things in the and I live now -- Commissioner It is Mr. Mrizek: If they are attered,transformer on the pole is still going to provide service,t if are bunched together and we have a heavy load concentration to have to ask for a location for either an underground tr a pad, The utility is saying "pad" because of reliability, cost ire of the equipment. Commissioner Sahaqian: I am b~and forth on this issue because I have mixed feelings, but Lking, the houses that would be in the category you are to, those would be bumping up the load in an area, they are be sited ~retty large lots. They could probably find some spot the corner to one of these aesthetically reconstituted, above-gra transformers. Commissioner Chandler:I accept Jim’s and will take out the portion of my amem that deals with the !acement in existing neighborhoods, but advice to be very careful. Chairman Johnston: 2an we have a restatement of the m~tion? MOTION: Commiss~Chandler~ My understanding of the motion, approved by Commissioner and seconded by s Grimsrud, is that we approve the mandatory policy,, with the exception that no new residential, neighborhood-wide undergrounding projects be done on a padmounted basis until we have had an opportunity to assess the current experience. MOTION PASSED 5-0. i iiiii, 7.c. Informational Report: Demand-Side Management Program. Chairman Johnston: This is your topic, Tom. Mr. Habashi: Thank you. Last month, we brought to you a strategic plan. In the second section of that plan, we highlighted four things we felt we must do in order to respond to the changes that are taking place in the industry. One was that we thought we needed~ to be more active on the Legislative side. We need to engage our Legislators so that things that are happening in Sacramento and Washington, D.C. will include our views. Minutes UAC:I0/4/~5 FINAL Page 28 The second issue was on the supply side, and we said we wanted to be a little more nimble and we want to custom-tailor our supply resource acquisition to our needs and to our customers’ needs. The third was highlighting the need to create a key account management program. We felt that our largest customers deserve more attention to meet d the their needs. In doing so, we felt we would have to dedicate some time and some individuals to do that. Last month, we brought to you a staff report highlighting what that program is going to look like, and the UAC approved it. The fourth issue deals with efficiency programs. We felt that we can no !onger support efficiency programs as means of substituting supply-side resources for a means to respond to emergencies such as water shortages and oil shortages. But we felt that the community needs to tell us what they expect from us. We need to create a policy to deal with efficiency programs and programs that are environmentally benign. That is what we are bringing you tonight. It is a report that says, we would like to change our objective as we look at demand-side management programs. We would like to change from an objective that was DSM as a substitute for~supply resources to as objective that reflects community support for environmental policies and also achieve the customer satisfaction that the Utilities desire. I have one small question to respond to before you go ahead and ask me anything you want to ask. That is the question of why we are changing from what we have done in the past. In the past, at least in the past year, we have done an integrated resource plan (IRP). Why can’t we continue with that process? It seemed to work all right. First, I will define IRPs, because IRP mean different things to different people and organizations. As far as Palo Alto is concerned, IRP could mean two things, in general. One is that an integrated resource plan is the simultaneous evaluation of supply resources and demand-side programs when the objective is to meet the needs of the utility or the community’s goals. The second definition is a look at all of the alternatives, with the stated objectives in mind, and also anticipation of all the uncertainties in the process. The first definition, if you look at IRPs in the first definition, we are having a hard time continuing that process. First, because it is a very lengthy process, and given the way the industry is going these days, by the time we are done, which sometimes takes a year to a year-and-a-half, whatever conclusions we have reached are obsolete and fully useless, given the state of the industry. It changes from day to day today. It also tends to meld objectives together, and that makes it very difficult to reach reasonable conclusions, especially on the supply side. given that our competitors do not adhere to-the same type of a process. It is also difficult because other utilities that did IRPs did not do it that way. So we cannot benchmark against anything that anybody else did. Most of the other utilities that did an IRP have made a policy decision going in’to meet a certain load, using demand-side management, and be served by the remaining supply resources. Minutes UAC:10/4/95 FI2qAL Page 29 However, if you look at the second definition of an IRP, which is looking at alternatives in light of certain objectives and consideration of certainties, that we can do for supply-side resources and demand-side programs. We will always use that process. I think by brief response to the question that was brought up by s Grimsrud a couple of times when he asked, what is the ideal planning process. So that is where it is at. I will let the staff report stand on its own and now I can answer your questions. Commissioner Sahaqian: One observation I have is that I found it interesting that our sister utilities such as SMUD’s expenditures were 5.9 percent on DSM versus probably an average of about 2 percent for the !OUs in the state. One question I have is that under your General Areas to be Funded, you articulated three categories. The first one, Activities Resulting in Decreased Sales, was pretty clear in terms of the energy efficiency, reduced water consumption, etc. Also, the third category, Activities Resulting in Increased Sales, was pretty clear. But I wondered if you would take a minute to articulate specifically what types of programs you would see in terms of how the programs should be organized and how you would get participation in the Activities with No Impact on Sales and the Activities Resulting in Increased Sales. I suppose you are looking for something like an allocation of about 1 percent of the gross revenues to support these programs. I wondered if you could take a minute and give us a little more detail on how you see these programs being structured. Mr. Habashi: The type of programs we are talking about; for example, are ~activities that do not impact revenues, we are talking about photovoltaic and.we are talking about microgeneration. Those are the type of program that do not affect sales. Customers are still using equipment the way they have been using it we’re just changing the type of generation from purchases that they are making from Western or whomever to generating equipment. . Commissioner Sahaqian: Right, but how would these programs be structured? Let’s say you would had approval to go ahead with the CNG program. How would you see the actual programs? Mr. Mrizek: We ~do not have a~ specific programs funded except for the City’s C&G program. Right now, we are developing our city fleet, and we are converting a third of the City’s vehicles to C&G. We have a high pressure refueling station at our service center on Bayshore. Long Beach has a program today where they have a high pressure fueling station located in their downtown area and at one other location, and their gas utility has funded conversion of some of the busses, the post office vehicles, such as that. They have helped convert those vehicles. Now they have higher gas sales, selling gas to those customers. A program such as that is a possibility here in Palo alto. Chairman Johnston: A comment that may answer one of Jim’s questions. My understanding is that what you are asking tonight is approval of an approach for addressing these programs, but you would, in fact, come back to us with a range of programs and at that time, we would look at and review your recommendations about which programs should be incorporated. Minutes UAC:10/4/95 FENAL Page 30 Mr. Mrizek: That is correct. We will come to you with a budget, and as programs are developed, we will bring those to you for approval. Chairman Johnston: When you say, as programs are developed, obviously, you cannot bring them before they are deve!oped, but my interest and concern would be that you bring them instead of just a run-off basis but in fact, you bring some package of programs to us. Mr. Mrizek: That is what we will do. Chairman Johnston: I am not sure whether that answers Jim’s question. Conunissioner Sahaqian: Yes, that is exactly what I was trying to grope for, that there will be an overall plan to cover al! these different areas to be brought to the public, along with the costs. Commissioner Grimsrud: I have a lot to say about this. There was area that I really liked, and that Was the Utility Customer Survey. I thought that was very interesting information. It is interesting that 97 percent of the public said they wanted to promote resource efficiency, and 55 percent said they would be willing to pay something on the order of at least a 5 percent increase in their bill, which is more than ten times what we talked about in the last RFP in terms of the bill impact on DSM. This is a huge impact, so I find that interesting. This discussion misrepresents our current policy, theway I understand it, in the last round on the IRP. Unfortunately, there may be only two of us here who were present that last time we went through the IRP. It is almost like Fred and I need to instruct some of the others as to what the process was and what we did. In that process, we didn’t just look at total resource cost, as I recall. We looked at rate impacts, as well. We assessed various options on the basis of both of those. I think you have indicated here in a couple of places, as in one of the alternatives, where you. said that DSM funding would likely end under the current policy. I don’t think that is necessarily true, if the current policy is what we talked about in the last IRP. Chairman Johnston: My understanding of that is that in looking at the DSM, if you go back to some of the beginning of DSM programs, they were in a situation of rising resource costs, and in fact, by engaging in some DSM measures, you could have a positive effect on rates, in other words, rates could come down. Obviously a DSM program that reduces rates for. the general customer is clearly one of the most desirable situations. As it becomes more difficult to have that overall effect of reducing rates, then you start saying, maybe we could reduce rates for everybody and we could reduce total cost for some customers. So the next best thing you could do in a DSM program is to look at the TRC measure, total resource cost measure. My under~standing of what we are saying in the currentcombination of competitive environment and low energy costs, you are unlikely to be able to be able to justify programs either on the basis of total-grade impact or on TRC. You are going to need something else to justify it. Commissioner Grimsrud: I think what you are saying is right, but I guess what I am addressing is that in the past IRP, we recognized that most~SM programs that are conservation-oriented have an adverse rate impact.~ Bht Minut~UAC:10/4/95 FINAL Pag~ 31 those rate impacts, at least for the programs that we looked at, were very, very minor and that the TRC tests were quite good. So from a societal point of view, it looked very good even though the rate impact was very smal!. So you have to make those kinds of tradeoffs. That is what the IRP process al!owed us to do. One of the things I am concerned about here is that we are getting away from those kinds of tradeoffs. We are being asked to accept some percent which is almost arbitrary. It is very low, based on all of the other percentages that are thrown on. There is no process like we had before. I know we don’t want to study the problem to death, but maybe there are many IRP methods or some way of quickly assessing how various levels of DSM might affect rates in terms of a percent rate increase or in terms of mils per kilowatt hour or whatever, so that we can get at least a rough feel for how a level of expenditure affects rates. I think it has to be somewhat rigorous, too. It cannot just be a rule of thumb, X percent into DSM as a wide percent on rates. We have to look at the various types of load impacts, resource costs, etc., to do it. Mr. Habashi: I hope I did not leave you with the impression that there would be no analysis as we go about trying to design some programs. Commissioner Grimsrud: But what we are being asked to do is to accept a percent range as a policy. I am questioning why. Commissioner Chandler: I do not hear it that way. It sounds to me like the level of expenditures, percentagewise, would be roughly the same as where we have been in the past. Basically, the fiscal impacts of the __ program quarter of a percent sales revenue in 1998, and one is past year’s expenditure similar . So I do not see that kind of impact. In some of the comments.I am hearing from you is that we are aiming a bazooka at a mouse. What I see here is the perspective that says, we want to continue doing these programs, but we cannot approach them from the same type of justification because of a changed economic environment relative to these factors you point out - energy costs and competition -- but we want to keep doing these things because our customer base and our shareholders, essentially the people of Palo Alto, want to have programs like this. So from that standpoint, I do not see this as some kind of change in what we are doing. Commissioner Grimsrud: Well, it is certainly not a change in-expenditure level, but to me, it is a change in procedure and review. In the past-in the last IRP, we said, well, every two or three years we are going to have an IRP and look at the resource mix and see if this resource mix makes sense. Now, because we are in this competitive world, they are going out on the supply side and looking at negotiating things on a daily and weekly basis. It sort of puts us out of a job, almost. There is no long-term perspective. ! guess there is a long-term perspective here. We are being asked to set policy on DSM, but my question is, is this an appropriate enough scrutiny that we should just continue on with a one percent budget level? The public is really interested in this, so should we raise it? Other people are asking, should we raise it, or because of competitive reasons, should we lessen it?I do not have enough information to assess those things.~=:~ Minutes UAC:10/4/9~ FINAL Page 32 Conunissioner Sahaqian: I think what is being requested is keeping the funding level basically the same and shifting the focus of the program. I would like to suggest a shift in the focus of the program. I would suggest that the funding level is probably reasonable, as a starting point. If the program is successful, some of the things that are suggested are participatory, and it is going to take public participation to make them successful. If t~e programs are successful, the allocation can be increased as time goes on. I don’t know that we are necessarily going to know how successful these programs are going to be. From the survey you did, it looks like many of them are going to be favorably received by our shareholders. The only way to know is to get into the pool and start to swim. Make the shift, and with successful participation, the allocation could be increased, as necessary. That is one way to approach it, as opposed to trying to figure out where you are going to end up before you start. Commissioner Eyer!7: I have listened to the Director of the Truckee Donner Public Utility District, who was one of our last speakers at Lake Tahoe. He said, like your report said, that the IOUs are spending a lot more on DSM for education for their rate payers than the municipalities are spending. He said something that sticks in my mind. The rate payer is interested in energy saving, because that saves on the total bill. We need programs like that, I believe, that are maybe not like refrigerator rebates or trying to buy them into something, but some educational program that some of the money that maybe you are suggesting be used for, that there is constant education as to how our uses of electricity can save total cost on their utility bill. That is good Public Relations. As we get into a more competitive basis, you might think about that. What Paul is talking about and what we went through before goes back to five years ago, when there was no resource plan for the electric utility. That scared me, because I did not see how a utility could not have a resource plan. -Some of ours were built in, but they were not listed, at least for us to see, what the demand was forecast to be when you get out five years, ten years, fifteen years, etc. and where that energy is going to come from. What you are saying now is that the spot market is the best buy, but you do not know how long the spot market will be the best buy. You must have a resource plan that takes care of Western, takes care of Washington Power, Northwest Supply, etc., with maybe some DSM in it~ There has to be some type of a mix for me, anyway, so that I will feel comfort- able that we are looking at the long range as well as the shorter range. Those are some general observations.I am not sure from your report how it all works. I am little confused. Mr. Habashi: There are two points you brought up. One is that the need to have programs, there will be an indication of programs so that the customers will be enlightened as to the value of efficiency. We will have the proper PR. Those programs are already in place and have been in place for the past ten years. They will continue. As for the second issue that we need a resource plan, you are right. We need to tell you what we see as the demand forecast for the next ten years and how we intend to meet those needs. Later, however, we have been a little bitbusy.~ As soon as we have a little bit of time, I promise~you we will develop a resource plan. We may not be able to simultaneously Minutes UAC:10/4/95 FINAL Page’33 evaluate supply resource and DSM programs but it is very likely to be a separate evaluation of DSM programs supply resources, over the next ten years, at least. Commissioner Chandler:I appreciate what you are saying, Fred, about the spot market being I looked at this little chart that was in the storm drain brochure,showing the cost and change that is expected in electric, gas and other utilities for the next seven or eight years with an approximate 50 percent increase. I couldn’t figure’out if that was a pure inflationary adjustment of 4 percent or some other projection of energy costs that was behind that. Obviously, we do not know what is going to happen, and for that reason, I think it is very good to keep these programs as part of our repertoire. I think the rationale for them does need to change in the current environment. In terms of my own thinking, I think you may have misinterpreted what was going on with the refrigerator program. This shows that if it is not cost-effective, the commission is going to kill it. My feeling was that it was a poorly thought out and not very efficacious; in fact, uniquely inefficacious program. Not that other demand-side management programs could not pass the test. I came away with the feeling that it was going to hardly save any energy at all. We were spending money, but it was not going to affect anyone’s purchase decision, or a trivial number of people’s purchase decision. That is different from saying that it might really impact the amount of energy that is used, but it might cost us a little bit more than buying additional electricity this year would, cost. Those are very different kinds of analyses, so I would not read a broad message into the refrigerator debacle. Mr. Habashi: We did not really mean to say that we were going to change our policy because of that program. What you read is, we need to be a little more careful in the design of programs and how we market them. Commissioner Chandler: I was just reading what it said in here where you refer to the refrigerator program as a sign that a cost effectiveness model to DSM was not~ going to be appropriate anymore. You are the one that raised the refrigerator issue. I didn’t. Commissioner Grimsrud: I was going to make the same comment. I don’t think this statement is right. It says, "This program was rejected by the UAC due to poor cost-effectiveness~" Frankly, if we had been able to come through with a little compromise between Kathy and fan and myself, we would probably have accepted it. But I think his point is well taken. It may have been due to other factors that they were not willing to go with. So it was rejected because of lack of cost-effectiveness. Commissioner Chandler: I do not see the problem with what is being proposed here, as long as we continue to bring new programs forward and be able to assess them. Having a broader rationale for DSM is appropriate, broader than simply looking at cost-effectiveness and total resource cost, so I am pretty comfortable with the proposal. I cannot understand why you are reacting so strongly to it. Commissioner Grimsrud: ! agree with that statement, and I think that-is what we tried to do in the IRT process - look at DSM from a broader Minutes UAC:10/4/95 FINAL Page 34 perspective point of view from the societal point of view, from the participant’s point of view, and from the non-participant’s point of view. That is what those various tests did. They were not perfect, but at least, it gave us some perspective as to whether it was worthwhile or not. I tend to agree that you have to start somewhere. Maybe we should start here and evolve by seeing how successful they are. I guess what I do not like is the fact that there is a lot less in-depth analysis and a lot less interaction between us and staff as to what leve! of programs, what leve! of expenditure we should do, and what factors such as, how much of a rate impact are we willing to accept, things like that. That is what I thought we were eventually getting to with the IRP process. Then it sort of evaporated. I can understand why. I can understand that we cannot study these things to death all the time until it is too late and things have changed and it doesn’t matter. But right now, I am not totally satisfied with just going back to continuing the expenditure as is, just leaving it at that. Chairman Johnston: Let me ask a question. How does staff feel about coming back to us with a DSM program which has the same level of analysis from the standpoint not of an integrated resource plan but as a demand-side management resource plan? Maybe this is what staff is planning on doing. My expectation would be (and I certainly would support Paul) to see for all of the programs that are being proposed what effect it has on rates. would like to see what effect it has on total resource cost. I would like to see what effect it has on customer satisfaction and to what extent customers are looking for it. So I have that question.Is that the way you were planning on bringing it back? (answer unclear) I have a couple of other comments. I would hope very much that the dollars that we spend under this program will be pretty closely tied to our new key customer account program. Part of the objective of that key customer representative is not just to be a single point of contact for all of the issues for those key customers, but also is instrumental in looking between the utilities department and the customer in devising what kind of demand-side management programs might make sense in that particular customer’s envirornnent so that we can really leverage that relationship. A second comment I would make is that I am concerned about the relatively low percentage that we are talking about, the 0.75 to 1.25 percent, particularly in light of the comparisons that are made to other utilities, and also in light of the way-most residents in Palo Alt0 feel about environmentally friendly programs. However, I am inclined to think that with our measurement of what types of expenditures we are putting into that category, 0.75 to 1.25 percent, may be quite different than some other utility that is making those same measurements. For example, the kinds of educational programs that are being suggested by Fred, for example, I am not sure they are included in that, yet they certainly could be included in that. Also, we are not talking just about demand-side management but other environmentally friendly programs. We spend an enormous amount of money every year, and every time we have some extra money, we seem to stash it away in the Calaveras Reserve. That certainly could be considered an environmentally friendly program, so if we are moving in this direction, I think we are doing ourselves an injustice in the way in which we a£4 Minutes UAC:10/4/95 FINAL Page 35 measuring ourselves, because I think we are doing much better than that percentage would indicate. The answer to the first question I will read straight from the staff report on Page 6. It says here under Criteria for Progra~n Selection, "Selection criteria for each program category will be developed so that the greatest benefit will accrue at the minimum cost. Staff wil! use similar factors in evaluating the value of each program proposal. These factors will include environmental benefit, program cost, marketability, customer demand, customer satisfaction, and competitive issues." So that is a list of criteria that we will use. Some are quantitative; some are qualitative. Our intent would be to come to you with a list of programs and say, this is how they measure up under each one of those criteria. We think this-one is probably a little better because it has all of these high marks. Based on your input, we can change as we go. So I hope that is a sufficient answer to your first question, which is, how many criteria are you going to use? The second one -- would we get enough PR from the DSM funding policy. That is a matter of how you handle PR activities. It is not really a matter of whether we should approve this policy or not. I don’t think this policy is the one that will decide what kind of a PR we are going to have to tell folks what we spend on environmentally friendly activities. So the second issue should be addressed by the PR program that we have in place, not by this policy, per se. Chairman Johnston: I do not see that as an issue of PR. I just simply think that one of the things we do across the whole range of activities in the utilities department is that we benchmark ourselves and see how we are doing compared to other utilities and compared, in some cases, to customer expectations, etc. I just think that as we do that, we might adjust a measure of the way we have very narrowly constrained the kinds of dollars that are being considered as a part of this program. Mr. Habashi: Your remarks are opening~the door for a lot of good ideas. It is possible in the future to bring programs with cost that exceed the approved funding provided that we get the money back, for example, over a number of years, and get us back down to the level that we are asking for. So hopefully we will not be so constrained to the point that we will not allow some creative ideas, as far as implementing some of those programs. Commissioner Grimsrud: I guess you purposely did not break this out for electric,.gas and water. It sort of goes across the three. Does that mean that the budget goes across the three in some prescribed way? It says one percent. Are you going to take one percent out of each utility? Mr. Habashi: It will be dedicated for the activities associated with each utility. We do not try to mix funds. For example, there would be some activities that we will have to fund from electric and water, such as shower heads replacement program. We may have to be a little creative as we fund some of these programs. Commissioner Grimsrud: Another question is on your comments about green pricing. The two arguments against green pricing were that it would be inequitable if the people who contributed would be allowed other beneficia- Minutes UAC:10/4/95 FINAL Page 36 ties. The other was that there would be a lot of waste in administrative activities. I just wondered if you could quantify that. Is it very expensive to do billing? I cannot quantify it, but my assumption is that it would be expensive to (I) survey the customers and (2) once we get the responses, then start to bill .certain customers different from others. Then we would have to administer the program. Some of them probably wil! drop out and some may be added in, so that all has to be administered, which takes time and effort. In fact, Mr. Schaefer, who proposed the program.initially after he sent us the letter on planning the program, six months later, he sent us another letter.saying, forget it. It is too involved a process. It needs a simpler approach. I think that what we should do is to spend as little money as possible on the administration part and spend as much money as possible on the activities themselves, to meet the community’s environmental values as well as to maximize the benefits we are going to get from customer satisfaction Commissioner Grimsrud: So you are not closing the door to green pricing. If it looked like it was less costly to administer, .you might do it? Or is this your answer to green pricing, and it is not going to be done? Mr. Habashi: For the time being, this is our answer to green pricing. If in the future it looks to be a better way and the administrative cost comes down and then we can actually do it, .then .I do not see why not~ Commissioner Grimsrud: So you have estimated the administrative costs? Mr. Habashi: SO. At that time, if we decide to look into it, then we will do Commissioner Grimsrud: So you have not done so yet. feeling that it is costly. It is just your Commissioner Eyerly: Tom, on the resource plan that you developed for us, the DSM was to take care of a larger part of the load than this 0.75 .to 1.25 percent you have quoted now. Were you figuring on 5 percent of the !oad to be taken care of by DSM after a few years? Mr. Habashi: The 1992 IRPstated that, over the next 20 years, 30 megawatts of our load will be met by DSM. Commissioner Eyerly: That is a relatively high figure, a fair amount of electricity and energy. We didn’t buy on the spot market, and some of that has been replaced by BPA power, etc., but as far as the replacements for what DSM would be doing. How has that been working, percentagewise? ~I-am trying to compare it to what we anticipate DSM doing for us as compared to what your spot market will do. Mr. Habashi: I think we are somewhat jumping the gun, because we are not at the point out putting together a resourcenew plan to determine how much the supply side will be purchased from the spot market. If we ran the numbers today, we probably could save 100 percent,, but that is not practical because it does not take into account all of the uncertainties. In fact,, there are a lot of customers who would stay with us for the l~g 5~inutes UAC: 10/4/95 FINAL Page 37 term, so we need to buy long-term resources for them. give you an answer. I am hesitant to Commissioner Eyerly: I feel that the percent you have picked out here is kind of an arbitrary figure. My reaction is that I am trying to figure out how you got that and whether it compares to DSM or what.~ It seems low to me. Mr. Habashi: It is a percentage of revenue. forecasted constunption. It is not a percentageof Commissioner Eyerly: need for PR and DSM, etc., _at we think we can start with, and what the industry is spending today, in general. Commissioner Eyerly: Do you think that the conunents Paul Johnston made about whether you include all of our expenses and what you might put in with this for PR, etc., are those added in now in miscellaneous informa- tion? Mr. Habashi: These activities are very specific. A lot of activities have to do with PR are budgeted for separately, and is not going to be a part of this. Commissioner Eyerly: I think we almost have to go along with staff and have them bring this back to us. Commissioner Grimsrud: Yes, I am certainly supportive of continuing DSM, and I am glad we are not getting out of it completely. My concern is-the level of scrutiny that is being offered to us in terms of assessing what is the appropriate level. But this is a first step, and it might be fine. What I would like to encourage you to do is to have reviews, particularly when you do your resource plan, where we can again look at it. I would like to see some sort of assessment of rate impacts as a function of various levels of commitment to DSM so that we can get a feel for what we are talking about, both in terms of the impact on the environment, on total resource policy, and what are the requirements, and also rates. To me, that would be useful, but for now, I am glad that we are continuing on the track that we have been. MOTION: Commissioner Sahaqian: I move that we support the recommended policy for allocation of 1 percent to the environmentally friendly and DSM programs, with proposed program details to be provided to the UAC for review and comment. Chairman Johnston: Did you want. to state specifically one percent instead of the range they have here to give more flexibility? When the programs come along, we can decide which ones we want to bite off. Commissioner Grimsrud: staff? How about the percent range, as recommended by Commissioner Sahaqian: I will accept that. SECOND:By Commissioner Grimsrud. Minutes UAC:10/4/95 FINAL Page 38 PASSED 5-0. 8. City Council Referrals., None. 9.Re_~ftS of Officials/Lialsons. a. Noz~hern California Power Association (..NC~A), Chairman JohnstOn:Councilman Rosenbaum, do you have ~thfng for us? Councilman have in front of our AA+ rating, on the problems thal In spite of this, it bonds, there are provide insurahce. insurance market. The only thing I would add report that you is that the Standard & Poor, i~to observing the rating outlook on NCPA primarily based see Alameda having wil the Navy Base clo~ure. ears that should we do refunding of geothermal ’encies that provide asurance is thought to be a lection of the very slow That all I have to Commissioner E~erly: Befo: we leave those of us who went up to quaw Rosenbaum are becoming quite report tonight" that he is the Vice Chairman of the Finance have representation. Ed, what involvement? in case anyone is listening, found out that staff and Dick with NCPA. I see in the .rman of the Commission, and also So that is a good place for us to tell me about Tom’s and staff’s Mr. Mrizek: We are on just Tom is the Chair of the Technical Committee, but we we took that off, but we are Tom is on the Executive capacity¯ a .t te’e of committee they have. Right now, ¯ We were asked to serve on the .e bit of over-commitment there, so the Technical Committee. Also, He was asked to serve in that Commissioner Eyerly: how pleased they are the City staff, etc. and heavily .ard comments .ome of the NCPA staff about Palo Alto and the they are getting from makes me feel good you.people are in there It is pretty important involved. Now i want t0 ta3 about something that needs a l~tle mo£~ discussion. Dick has ment!on~ the Standard & Poor rating for Pa~Alto wzth Ala~neda’s problems. It ]_~s have an impact on Palo Alto. When~read this in what was handed oul , if Alamed~ is not able to find some w~ ~f disposing oftheir share some of thelr commitments, we are in a pos~ion where we are going to to pick up some of that energy. I do n~know what the di been, but I did not get a feeling, from tal~ing about it a bit, tha’commiss!gn had had any real discussion about the ramifica- tions whether Alameda is talking about what they are going to be able to do~ Mr. Mrizek: Last night, ! attended a dinner meeting with members of Western and other directors, with Alameda being represented, j..M. Schaefer, the administrator of Western based in Golden, Colorado, was Minutes UAC:10/4/95 FINAL P~g© ~9 6. d TO:Utilities Advisory Commission FROM:Utilities Department AGENDA DATE:April 3, 1996 SUBJECT:Demand Sid.e Management Program REQUEST This report requests UAC approval of the fiscal years 1996-1997 and 1997-1998 Demand Side Management (DSM) programs, including energy and water efficiency programs, renewable and alternative resources, and potential future DSM activities. RECOMMENDATION This report recommends the implementation of the following DSM programs in fiscal years 1996-98: 2. 3. 4. 5. 6. 7. 8. 9. Industrial Comprehensive Efficiency Commercial Lighting Bulk Buy Commercial Landscape Audit New Construction Design Review Residential Coupon City Facilities Shared. Savings Premium Power Quality NCPA/SMUD "Team-up" Photovoltaics EPRI research for renewables This report also recommends further investigation of the following programs: 2. 3. 4. Efficiency financing DSM to defer transmission and distribution upgrades Distributed generation Alternative fuel vehicles These programs and studies are described in detail in Appendices A and B. BACKGROUND During its October 1995 meeting, the UAC approved a new policy to fund DSM programs at 0.75% to 1.25% of Utilities sales revenue. In addition, the UAC approved a change of the objective to implement DSM programs. The new objective is "to achieve customer satisfaction and retention while advancing the community’s environmental values". This policy follows the lead of the "Public Purpose" mandate which the California Public Utilities Commission (CPUC) has established for the utilities which it regulates. In the October 1995 report to the UAC, three categories of DSM programs were defined. They 1.Programs to improve water and energy efficiency, thereby decrease Utilities sales. 2.Programs to support renewable and alternative resources, thereby are revenue neutral. Programs to increase Utilkies’ sales through the employment of alternative, less polluting technologies. The October report also stated that DSM programs will be selected based on their marketability, customer demand, environmental benefits, ability to improve customer satisfaction, overall costs, and competitive value. These six criteria were used to develop the recommendations presented in this report. POLICY IMPLICATIONS Implementation of the staff recommendation supports the DSM Policy which the UAC approved at the October, 1995 meeting. DISCUSSION PROGRAM SELECTION PROCESS An initial list of more than 50 potential programs was developed. Staffused the selection criteria to establish a two step process for screening potential DSM programs. The first step was to apply two filters, marketability and customer demand to the list of potential programs. This step divided the programs into three groups: 1.Implementable programs that appeared to be worth doing; 2.Feasible programs that appeared to be worth further investigation; and Programs that did not seem worth further consideration. (For a listing of programs, see Appendix C.) The second step was to assess the programs in the first group (implementable and worth doing) based on the remaining criteria: cost, environmental benefits, improved customer satisfaction, and competitive value. Step One: Applying the Program Filters Marketability Filter: Programs were deemed unmarketable if they relied on an unproven technology or ira suitable plan for program delivery did not exist, and it did not seem probable that one could be developed, in a timely and cost effective manner prior to July 1, 1996. 2 Customer Demand Filter: Program demand was assessed using information collected through the 1994 Energy and Water End-Use survey, industry studies, and staffs understanding of customer receptivity to program delivery and content. Further information regarding customer attitudes was obtained through recent telephone surveys ofPalo Alto’s top nine commercial customers and 60 randomly selected customers. Step Two: Assessing Value for Implementable Programs Programs which were deemed marketable and for which there seemed to be reasonable customer demand were then assessed and assigned values for: environmental benefit, customer satisfaction, competitive benefit, and program cost. The basis for these values was as follows: Environmental Benefit: Benefits for electric efficiency programs were based on reductions in power plant emissions of Carbon Dioxide and Nitrous Oxides (CO2 and NOx). A gas-fired combustion turbine was assumed to be the marginal resource whose emissions would be cut. Also, chlorofluorocarbons (CFC) savings were credited to programs where the air conditioning system was replaced. Externality values applied by the California Public Utilities Commission, were used to convert reductions in NOx to an equivalent CO2 value. For example, CO2 and NOx were valued at $0.00042 and $4.56 per pound respectively, therefore one pound of NOx is equivalent to 1086 pounds of CO2. Environmental benefits from gas efficiency savings were measured in pounds of pollutants reduced based on natural gas combustion. Natural gas is assumed to only produce CO2. o Environmental benefits for water efficiency programs were stated in terms of water use reduction. Customer Satisfaction: Customer satisfaction value was derived from: 1.How customers valued the various benefits of DSM programs (see CHART 1). 2.Staffs assessment of each program’s ability to deliver the benefits desired by customers. 3.Customer’s views about the various program delivery mechanisms. 4.Customer’s willingness to participate in the programs. (see CHART 2) Results of customer satisfaction valuation is shown in TABLE 1. 3 CHART 1: CUSTOMER WEIGHING OF DSM BENEFITS DSM Benefit Using energy and water cost Reductions in maintenance cost Benefits to the environment Increases in productivity resulting Key Customers 33% 27% 26% 14% Other Customers 27% 25% 30% 18% CHART 2: CUSTOMER WILLINGNESS TO PARTICIPATE Program Delivery Method efficiency financing equipment bt~lk buys equipment leasing on-site studies co-funded on-site studies Total Program Cost: The pro_m-am cost is a sum of." 1. 2. 3. Would 14% 32% 15% 41% Might 66% 55% 52% 48% 39%35% Staffing costs, measured in terms of full time equivalent personnel. Any incentives or gant money. All other pro~am administrative expenses. Would Not 21% 14% 37% 13% 26% Program costs are detailed in TABLE 2, which also includes an estimate of potential lost revenue and avoided supply costs. 5 Compea6ve Value: To a large extent, programs competkive value was determined as a function of customer satisfaction and impact on rate. Highest value was given to key customer programs with high customer satisfaction value, meanwhile, lowest value was given to residential customer programs with low customer satisfaction. All other programs were ranked between these values based on the target customers class and the satisfaction level of the program. ALTERNATIVES The proposed budget to implement all the strategies listed below is less than the budget set aside for the programs. However, the staff available to implement DSM programs is limited. Proposed programs can be dropped from further consideration due to lack ofpersormel, or due to reallocation of personnel from less to more cost effective programs. Staff evaluated more than 50 programs to be included in this proposal. Programs which were deemed unmarketable or had insufficient customer demand were eliminated from the proposal. The list of alternative programs is in Appendix C. FISCAL IMPACT The proposed strategies constitute a budget of $1,833,000 for fiscal years 1996-97 and 1997-98. This represents approximately.84% of Utilities sales revenue. Pending completion of the proposed studies, the remaining funds will be allocated to new programs for fiscal year 1997/98. Electric Water Total FISCAL IMPACT (FY’S 1996/97 & 1997/98 Projected Sales Revenue $152,280,000 $39,549,000 $28,155,000 $219,984,000 Allowable DSM Budget " $1,195,000 $397,000 $248,000 $1,840,000 Proposed DSM Budget $1,195,000 $390,000 $248,000 $1,833,000 %of Sales Revenue 0.79% 1.0% 0.88% 0.84% ENVIRONMENTAL ASSESSMENT Total reduction in emissions resulting from all programs is estimated to be 151,036 tons of equivalent CO2 and 7,500 pounds of CFCI Additionally, all strateNes combined will result in energy savings of 79,000 megawatt hours and 2,180,000 therms, and water savings of 875,500 ccfs. See TABLE 3 for environmental benefits. STEPS FOLLOWING APPROVAL 1.To Council for approval 2.Implementation of programs and studies to start July 1, 1996. 3.Evaluation of programs ATTACHMENTS/EXHIBITS Appendix A:Description of Programs Appendix B:Description of Studies Appendix C:Alternative DSM Programs PREPARED BY: Blake Heitzman, Manager of Competitive Assessment Group REVIEWED BY: DEPAKIqVfENT HEAD REVIEW: Tom Habashi, Manager of Resource Managemem Division APPENDIX A Description of Programs Recommended for Implementation in FY’s 1996-97 and 1997-98 Sales Decreasing: 1)Industrial Comprehensive Efficiency Budget: $707,000 Environmental Benefits: 103,000 tons of equivalent CO2 and 6,750 pounds of CFC’s reduced Customer Satisfaction: high Competitive Vaiue: high The Utilities would co-fund comprehensive audits of Key Customer facilities to identify opportunities to improve the value of service provided by the Utilities. The audits will look for areas to cost effectively improve efficiency, however opportunities for fuel switching or improved services through increasing load will also be explored, when appropriate. Customers will select their own consultant according to Utilities-specified qualifications and the Utilities will reimburse the customer for specified deliverables. Initially the program will target our top nine customers. Staff estimates that twenty site studies will be conducted over the first two years of the program. Savings resulting from the program will most likely result from equipment replacement in lighting, HVAC, process, motors, modification of controllers or maintenance practices. In the second phase (FY 97-98), the Utilities may offer financing options to facilitate implementation of cost effective measures. Such options may include: financing, equipment leasing, shared savings, or cash incentives. These financing options will be analyzed in 1996/97 as part of the proposed financing study. A limited fund of $100,000 to $200,000 will be available during FY 96-97, to provide demonstration grants for exceptional projects. The grants will be awarded only to projects that: 1) are cost effective from the Utilities’ perspective; 2) have industry wide potential, and 3) apply a relatively innovative approach. Commercial Lighting Bulk Buy Program Budget: $119, 400 Environmental Benefits: 22,208 tons of equivalent C02 reduced Customer Satisfaction. high Competitive Value." low A-1 The Utilities would coordinate with a local lighting distributor to acquire bulk quantities of selected efficient lighting equipment and make it available, at cost, to small commercial customers. The distributor will be responsible for ordering, stocking, and distributing the equipment. The Utilities will be responsible for all program marketing. The program will concentrate on measures which have mass appeal, are expensive when bought individually, and result in cost effective energy savings. Commercial Landscape Audit Service Budget: $100, 800 Environmental Benefits: 559, 423 ccf of water reduced Customer Satisfaction: moderate Competitive Value: moderate Commercial landscape audits at sites greater than three acres are being performed to identify oppommities for efficiency, mainly through irrigation and controllers. The program would be extended to commercial sites with less than three acres of landscaping. The Utility would perform the audits and provide the customer with recommendations. 4)New Construction Design Review Service Budget: $201,500 Environmental Benefit: 12, 894 tons of equivalent C02 reduced Customer Satisfaction: high Competitive Value: low The Utilities would offer new construction design review services for optimizing building energy efficiency. Studies would be co-funded using the customer’s design team with a Utilities- approved consultant. The service would be available to all major new or major renovated commercial projects. The design review would include the following systems: building envelope, windows, air conditioning systems (conventional and industrial), lighting and control systems. A financial evaluation of lifetime costs and benefits of the alternatives designs would be performed and presented to the customer’s management. An incentive fund of up to $100,000 will be available for projects deemed cost effective by the Utilities. As in Program 1, a second phase to provide financial assistance may be developed based on the financing options study. A-2 Residential Coupon Program Budget: $156,169 Environmental Benefit: 9, 945 tons of equivalent C02 and 316, 000 ccf of water reduced Customer Satisfaction." moderate Competitive Value: none The Utilities would provide dollar off coupons redeemable at local merchants for efficiency products. To keep participation within the budget, a select number of measures will be promoted and the program will run for a limited period of time. Measures to be included in the program will be selected based on their common appeal, cost, and water and!or energy savings potential " and must pass the same criteria as the programs. City Facilities Shared Savings Program Budget: $70,150 Environmental Benefit: 2, 881 tons of equivalent C02 and 750 lbs. of CFC reduced Customer Satisfaction: moderate Competitive Value: low The Utilities will help implement higher efficiency by providing capital to make efficiency improvements at City facilities. The capital provided will cover 100% of the incremental cost of purchasing higher efficiency equipment. Over the next seven years, the City will repay the Utilities 50% of its annual energy savings due to the efficiency improvement. The objectives of this program are to assist the City in reducing operating expenses and for staff to gain understanding of shared savings approach to program implementation. The following two projects have been identified as candidates for the program: Civic Center Chiller Replacement: The current chiller is approaching the end of its useful life and the cost of CFC refrigerants has become prohibitive. Consequently, the City plans to acquire a new chiller in 1997. The Utilities will fund the incremental cost of a unit which exceeds current efficiency standards and uses a non-CFC refrigerant. Main City Library Retrofit: Current lighting conditions at the main library are unsatisfactory. The City has plans to conduct a complete retrofit of the lighting at the library to bring it up to a satisfactory level. The Utilities will fund the incremental cost of efficient versus standard upgrades. A-3 Research and develop a power quality program Budget: $I02,000 Environmental Benefit: reduced production spoilage Customer Satisfaction: moderate Competitive Value: moderate Power quality problems are related to voltage wave-form disturbances. Power sags, surges, and interruptions can cause serious damage to sensitive equipment and have negative impacts on productivity. The objective of this study is to develop a premium power service program that will target Key customers and large commercial customers who have concerns regarding Power Quality (PQ) issues. Currently the Utilities monitors and collects PQ data using a metering system that is connected to the customer’s main meter. Further investigation of customer facilities however, requires specialized expertise which can diagnose exact causes, effects, and recommend solutions. Several other utilities and power companies provide PQ services ranging from information seminars to comprehensive site audits. This program will be carried out in two phases. Phase one would consist of training for customers and staff, including a general overview of options and solutions available for PQ remediation. It would involve technical training, as well as, training in areas of PQ market analysis, utilities responsibilities, and program development. Phase two would focus on the identification of PQ issues at customer sites. This would be done by site audits, monitoring, evaluating remediation options, and developing a plan for implementation. Sales Neutral: Participate in NCPA -SMUD "Team-Up" Photovoltaic (PIO Program Budget: $14,000 Environmental Benefit: 107 tons of equivalent C02 reduced Customer Satisfaction: Not quantified Competitive Value: Not quantified Through an NCPA sub-agreement, the Utilities will participate with the Sacramento Municipal Utility District (SMUD) under their agreement with Utility Photovoltaic Group (UPVG). This program, "Team-Up", is designed to assist in the commercialization of PV systems. The program will use federal funding, along with the contributions from participating utilities, for the development of small scale P¥ rooftop demonstration projects (10kW total) in the Alameda and Roseville service territories. Although no PV installations will occur in Palo Alto, the Utilities will nonetheless benefit from the experience of developing and maintaining a P¥ system. The Palo Alto contribution is $11,000. A-4 Continue support of Research and Development through EPRI Budget: $9,900 Environmental Benefit." Not quantified Customer Satisfaction: Not quantified Competitive Value." Not quantified The Utilities currently allocates $8,700 per year for research and development of hydro, wind and solar renewable resources. It is proposed that this be recognized as a renewable resource expenditure under our DSM program. A-5 APPENDIX B Description of Studies Recommended for FY’s 1996-97 and 1997-98 Sales Decreasing: Efficiency Financing Options Study Budget: $48,200 Environmental Benefit: Not quantified Customer Satisfaction: Not quantified Competitive Value: Not quantified The Utilities intends to provide efficiency services that are self-sustaining and are not subsidized by all ratepayers. One method of doing this is to provide financing for efficiency improvements. In the past, the Utilities has operated a loan program through the billing system. This system is limited to a basic loan without options for early payment, shared savings, etc. Administration of this loan system has been tedious and cumbersome. Because of these difficulties, staff wants to complete a comprehensive study of fmancing options before attempting to provide these services to customers. The objective of the study would be to evaluate the benefits and costs of all reasonable financing options. In particular, the study will focus on the following: ¯Full evaluation of financing options available both internally or through an outside provider °Market potential of efficiency loans for commercial and residential customers °Recommendations for the implementation of a financing program. Study opportunities to defer investments in capital improvements on the transmission and distribution system Budget: $6,000 Environmental Benefit: Not quantified Customer Satisfaction: Not quantified Competitive Value: Not quantified In the 1995 Resource Management International (RMI) report, "Competitive Issues Facing the City of Palo Alto Electric Utility", transmission and distribution capital investment deferments were identified as opportunities for Utilities savings. Since much of Palo Alto’s network is underground, upgrades are costly. Hence, there may be potential for targeting DSM technologies towards controlling specific local area peak loads. Some examples of these DSM options include B-1 load control technologies, energy storage, off peak rate programs, and efficiency technologies. Consideration as to whether system upgrades are deferable or inevitable (i.e. due to equipment design life) is important for evaluating these options. Discussions with Engineering staff indicate that presently there are no oppommities to utilize DSM to defer capital improvements. However, an oppommity may arise when the Utilities will need to increase its import capability from the main grid. This would result in a large capital investment and deferring that cost through DSM may prove to be cost effective. Sales Neutral: Study feasibility of municipal owned distributed generation Budget: $58,200 Environmental Benefit: Not quantified Customer Satisfaction: Not quantified Competitive Value: Not quantified The proposed study will assess the value of Distributed Generation (DG) investments for customer site applications and distribution system support. The study focus will include the following aspects: Re-evaluation of previous study results (Rumla ’92) based on changes in customer needs, technology developments, and changes in market resource supply rates. This analysis should incorporate the effects of deregulation, as well as, a revision of forecasts, methodology, and criteria used to identify high value customers. An evaluation of the cost effectiveness of investments will include effects of environmental impacts and distributed benefits. Assessment of the impacts of distribution generation on the following: upgrades, deferment potential, reliability implications, area specific load growth, and system characteristics. Evaluation of smaller modular power generation resources (5kW up) including Photovoltaics. Identify potential for use of fuel cell technology in direct current process applications~ B-2 Sales Increasing: Study feasibility of alternative fuel vehicles Budget: $238,600 Environmental Benefit: Not quantified Customer Satisfaction: Not quantified Competitive Value: Not quantified The study is composed of two phases and will specifically address natural gas and electric vehicles. Initially, there is a need to evaluate current or existing oppommities for supporting AFV’s in Palo Alto. This would involve developing an implementation plan to meet immediate needs and possibly providing financial incentives for demonstration projects. An incentive fund of up to $150,000 will be available for projects deemed cost effective by the Utilities. For the second phase, a comprehensive study of potential applications and impacts of AFV’s in Palo Alto over the next ten years is proposed. The study focus will be on developing scenarios for AFV penetration rates in the Palo Alto market and associated impacts on the environment, Utilities’ load, and infrastructure requirements over the 10 year period. The following aspects are to be evaluated: Technology assessment including: current developments, production status, and future expectations. Market potential and suitability, including the infrastructure that might be required for re- fueling or charging, and the effects of mandates and regulations. Funding incentives needed to promote the commercialization of AFV’s B-3 APPENDIX C: ALTERNATIVE PROGK S Program Proposal ESCO and Customer Bidding for DSM Dollars Adopt water and energy efficiency mandates Plant trees in Palo Alto to reduce cooling load Rebates for market transformation (new tech.) Restaurant dishwasher retrofit rebates HVAC Retrofit HVAC maintenance Purchase second refrigerators from residents Install ceiling fans in homes furnace replacement IID Rebates for solar water heaters Provide a water leak detection program Rebates for efficient home office equipment Promote residential evaporative coolers ¯ Rebates for Electric to Gas appliance fuel switching.. Promote compact florescent lighting in residential homes Attract environmentally friendly c0.mpanies to P.A. Promote flash bake ovens at restaurants Cust. Segmt All All Com. Com. Res. Res. Res. EGW EGW E EGW GW E E E E G G W Load Impact Decrease (D) D D D D D D D D D D D Reason rejected Not marketable Multi-year commitment to M&E. Low market acceptance. Low customer demand. Low impact. High market barriers. Unknown market acceptance. LOw market acceptance. Included under KC program Public information campaign more cost effective Public information campaign more cost effective. LOw customer demand. Possibly include under cupon program. Not marketable. Low customer demand. ** High cost. Service provided through other group. ** Low customer demand. Study yes yes Res.E D Res.W D Low customer demand. Possible under cupon program. Res.G D ** (Need assess rate impacts of yes fuel switching) Res.E D Not marketable, low demand. Possible under cupon program. All W Increase Done in another department. (I) Com.E I Public information campaign more cost effective. C-1 Program Proposal Retrofit wood burning stoves to gas Install outdoor gas hook-ups at residential sites Rebates for electric water softeners Rebates for electric mowers Rebates for electric blowers Rebates for electric weed whackers Rebates for electric barbequers Provide rechargeable batteries Sports facilities outdoor lighting (golf/tennis) Promote residential outdoor lighting Remove old cars to reduce local pollution Provide community bicycles to reduce local pollution Support environmental groups Develop green pricing program to fund renewable Replace home copper piping Provide on-site water treatment Segmt Res. Res. Res. Res. All All All Fund G G E E E E E E E E E E EGW EGW W W Load Impact I I I I I I I Neutral (N) N N N N Reason rejected High cost to retrofit High expense. ** Low demand, not marketable. **Low demand, not marketable. **Low demand,not marketable. **Low demand, no DSM effect. ** Low demand, not marketable Not marketable. Not marketable Not marketable Not marketable. Not marketable. Not marketable. No control. Not marketable. High admin. High expense, low cost effectiveness. systems Flue gas analysis Key: * Res. G N Low cost effectiveness. Res yes Study E = Electric; G = Gas; W = Water Rebates rejected based on Utilities objective to reduce cross-subsidies and minimize costs. N Not marketable. Study finance option for Com. audits. yes yes C-2